and certainly I think the history of the turmoil in the countries around Switzerland and the stability of Switzerland has made it important for certain aliens to deposit in Swiss banks and rather important that there be some secrecy surrounding their deposits.

And I think probably they passed that law with a good reason. Isn't it true that international business has been increasing rather substantially in the last 10 years?

Mr. WILSON. I am sure it has.

Mr. HANNA. Wouldn't it naturally follow that the utilization of banks in foreign countries by legitimate American interests would also increase?

Mr. WILSON. I am sure it would.

Chairman PATMAN. We will have to adjourn soon, and any questions you want to ask, submit in writing, if you please. Would you yield and let each one of these gentlemen comment, if they would like to?

Mr. GRIFFIN. Yes. I would like to ask one question of Mr. Morgenthau. On page 2 you say―

For every case which we have prosecuted, there are roughly six where we have specific information that a crime has been committed, but we are unable to prosecute because we lack the resources.

What do you mean by that?

Mr. MORGENTHAU. Manpower.

Mr. GRIFFIN. Manpower. Wouldn't that be a good investment, Mr. Wilson, for the taxpayer, to give him more manpower so he can get into these cases to recover taxes not paid? Can't you come up and ask us for more money?

Mr. WILSON. Well, that is the central problem in all law enforcement, the use of your energy and manpower. And we have asked for substantial increases in almost all aspects of law enforcement in the Justice Department and our requests are now pending before Congress. Mr. GRIFFIN. Thank you.

Chairman PATMAN. Mr. Chappell, would you like to comment?

Mr. CHAPPELL. Mr. Chairman, I want to join with those who have expressed their appreciation for the forthrightness with which these gentlemen have testified and the evident information which is at their immediate disposal. I think it has been one of the finest presentations I have heard.

I wanted to pose this question, if I might, to Mr. Wilson, primarily. I am always concerned when we lodge in the executive branch or an administrative agency the triple powers of regulation, enforcement or prosecution and judgeship or the right or the power to impose penalties, and I believe that this bill does that. It seems to me-particularly section 124 deals, of course, with civil penalties-it lodges with the Secretary these triple powers, and I am wondering if there isn't some better way to do it. It seems to me that it is not proper to give an administrative agency the power to make regulations, the power to enforce them, and then the power to judge upon the enforcement of its own regulations.

Chairman PATMAN. Why don't you answer that in the record?

Mr. CHAPPELL. I would like to have the response of both the gentlemen if you are going to ask them to do it in writing, Mr. Chairman.

Chairman PATMAN. You have asked the question. When you examine your transcripts-we have just got to go. We have a rollcall, at least a quorum call.

Mr. CHAPPELL. May I pose one quick question?

In addition, Mr. Chairman, I was interested specifically in those sections which make it a continuing violation, where the continuation of the offense is from day to day although it may be the same situation. It seems to me that is a little bit harsh, particularly for the bank director. I am talking about the bank director who may have played some infinitesimally small part in the failure of the reporting or the keeping of records so that the proper identification of persons could be kept. It seems to me that to make this a separate offense for each continuing date over an operation which he himself might not have direct control over is a pretty harsh penalty.

Chairman PATMAN. We don't have time to answer it now. Answer it for the record, if you please. Now, then, for the information of the members, we are going to have other Government witnesses here including the Internal Revenue Service, Securities and Exchange Commission, the Treasury Department, Defense Department, AIĎ, and others. You will have plenty of opportunity to go into any of these questions that you have not had an opportunity to go into this morning. Thank you, gentlemen, very much. You have done a good job and we appreciate your appearance and your ability to answer all the questions that the members of the committee wanted to ask you and we will reserve the right to ask you back some time at a time mutually convenient for you. We will arrange that in advance after consulting with you. But thank you very much for your testimony.

(Whereupon, at 12:10 p.m. the committee adjourned, to reconvene at 10 a.m., Wednesday, December 10, 1969.)

FOREIGN BANK SECRECY AND BANK RECORDS

WEDNESDAY, DECEMBER 10, 1969

HOUSE OF REPRESENTATIVES,

COMMITTEE ON BANKING AND CURRENCY,

Washington, D.C.

The committee met, pursuant to recess, at 10:10 a.m., in room 2128, Rayburn House Office Building, Hon. Wright Patman (chairman) presiding.

Present: Representatives Patman, Barrett, Sullivan, Reuss, Ashley, Stephens, St Germain, Gonzalez, Hanna, Galifianakis, Griffin, Brasco, Chappell, Harrington, Widnall, Halpern, Brock, Clawson, Stanton, Mize, Blackburn, Brown, Williams, and Wylie.

Chairman PATMAN. The committee will please come to order.

This morning the committee will continue its hearings on H.R. 15073, a bill which seeks to limit the use of secret foreign financial institutions for illegal purposes. Today we will hear witnesses from the U.S. Department of the Treasury and the Internal Revenue Service.

We were most gratified for the able presentations made by Assistant Attorney General Will Wilson and U.S. Attorney Robert Morgenthau. Of particular significance was Mr. Wilson's response to the question of the ranking minority member, Mr. Widnall, as to whether or not the Department of Justice supported the legislation. Mr. Wilson replied in the affirmative.

It is also our understanding that the bill has received a great deal of sympathy in other Federal agencies, as was pointed out at the last hearings and during our innumerable discussions between the committee and the staffs of various Government departments in trying to work out a feasible bill.

As I said, our main difficulty was in meeting the possible objection that we were interfering with the domestic law of foreign nations or casting an undue burden on the legitimate channels of foreign commerce. In my opinion, these two objections have been met by directing the bill solely at Americans and those doing business within our jurisdiction. The bill gives the Secretary of the Treasury the necessary powers to exempt legitimate international business.

There have been a number of comments in the press evidencing some concern that we are interfering with the internal laws of the great nation of Switzerland. In this regard, we have adopted a position of absolute neutrality. On every occasion when I have made a public comment on this legislation I have repeated that neither I nor the members of this committee have any desire to bring into question any aspect of our very fine relationships with that nation. It is a fact of

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history that Switzerland, because of its banking and financial expertise and because of its longstanding secrecy laws, dominates the particular area we are talking about. I repeat, we are dealing only with the question of enforcing compliance with American laws by Americans and those doing business in the United States.

I was cognizant of this problem before these hearings started. On November 17, 1969, I wrote to Secretary of State Rogers asking for his views. On November 24, 1969, the letter was acknowledged. To date, we have not had a single comment from the Department of State on the substantivé merits of the bill or how its effects could possibly affect the international relations of the United States. would again urge the Secretary to send us his views for the record. I might point out and emphasize at this point that if the ongoing treaty negotiations result in a meaningful agreement, the Secretary of the Treasury is fully empowered under the bill to grant exemption to Americans who do business with foreign financial agencies located in Switzerland.

Moreover, as I said before, a meaningful treaty with Switzerland does not necessarily preclude the need for this legislation. As the gentleman from Pennsylvania, Mr. Moorhead, suggested at our last hearings, perhaps negotiations are in order with the nation of Liechtenstein and other countries with bank secrecy laws. Assistant Attorney General Wilson agrees with this view.

I consider the problem raised in these hearings so important and the need for this legislation so pressing that we simply cannot wait for the wheels of diplomatic negotiations to turn. Meaningful treaties with all countries having bank secrecy laws may well take decades to accomplish. In the meantime, our tax collecting agencies and our lawenforcement agencies will suffer greatly.

On behalf of the committee, I would like to extend our gratitude to the various Government agencies for the excellent cooperation we have received thus far in our work on the bill. It is our fervent hope that this cooperative attitude will continue. The problem of law enforcement in my judgment is not a partisan political matter but a matter which touches all of us.

Turning to our witnesses this morning, I would like to welcome them to the committee and to say that many of the people we have talked to in connection with this legislation feel that the tax evasion problem is the most serious aspect of these hearings, even more than the use of these secret foreign accounts by the organized underworld. Our first witness will be Mr. Eugene T. Rossides, Assistant Secretary, Department of the Treasury, and he will be followed by Mr. Randolph Thrower, Commissioner, Internal Revenue Service. These men are accompanied by their very able staff. I would like to invite Mr. Rossides and Mr. Thrower to sit at the witness table for the entire session so that they may have an opportunity to comment on the various questions which I am sure the members will ask.

Before beginning your testimony, gentlemen, I would like to point out to the committee that many of the cases you will discuss are still in your active investigation file. For this reason, you have indicated that you would like to speak about these cases only in the most general terms.

This is certainly understandable. If you feel that answers to any of the questions asked by the committee would prejudice your investigation or prosecution of these cases, please so indicate. I am sure that all of the members will be sympathetic to the problem.

Mr. BLACKBURN. Mr. Chairman.

Chairman PATMAN. Mr. Blackburn.

Mr. BLACKBURN. Mr. Chairman, I want to seek recognition in order to give a personal welcome to the Commissioner of Internal Revenue, Mr. Thrower. He is from my State and my city. I just want him to know that he is welcome here. And I also notice his very charming wife is in the audience. I want to say we are happy to have you with us this morning.

Chairman PATMAN. Thank you. We are glad to have you with us this morning. You two gentlemen may present your testimony, you may identify the staff members accompanying you, if you please. Mr. Rossides.

STATEMENT OF HON. EUGENE T. ROSSIDES, ASSISTANT SECRETARY OF THE TREASURY FOR ENFORCEMENT AND OPERATIONS; ACCOMPANIED BY ROY T. ENGLERT, DEPUTY GENERAL COUNSEL; ROBERT T. COLE, SPECIAL ASSISTANT FOR INTERNATIONAL TAX AFFAIRS; MICHAEL BRADFIELD, ASSISTANT GENERAL COUNSEL; AND IRA TANNENBAUM, ATTORNEY, OFFICE OF TAX LEGISLATIVE COUNSEL

Mr. ROSSIDES. Thank you very much, Mr. Chairman.

I would like first to introduce the staff members who are with me here today from the Treasury.

On my far right is Roy Englert, Deputy General Counsel of the Treasury and formerly Chief Counsel of the Office of the Comptroller of the Currency; and on my immediate right is Robert T. Cole, Special Assistant for International Tax Affairs.

Also with us today but not at the table but available for questions is Michael Bradfield, Assistant General Counsel for International Affairs, as well as Ira Tannenbaum, from the Office of Tax Legislative Counsel.

Mr. Chairman, it is a great pleasure to be here today. I would make one brief comment before setting forth my formal testimony. We have discussed the point you raised regarding Assistant Attorney General Wilson, and he has pointed out that he endorses the objectives of the bill but not necessarily in its present form. I realize that the question was put to him, whether, in effect, he endorsed this bill, and he said, yes. What he meant, as his formal testimony pointed out, was that he endorsed the objectives of the bill, but that there may be certain problems of going too far.

Mr. Chairman and members of the committee, the Treasury Department appreciates the opportunity to comment on H.R. 15073, which is designed to prevent the use of foreign bank accounts for illegal purposes by U.S. citizens and residents. The bill would accomplish this by requiring U.S. banks to copy checks and certain other