With respect to indices, banks that have voluminous records usually also have batch registers or similar indices. Their early disposal practices with respect to these indices make it difficult to locate desired information.

Mr. WIDNALL. Thank you very much.

Chairman PATMAN. Mr. Barrett.

Mr. BARRETT. Thank you, Mr. Chairman, I have one or two questions.

Mr. Thrower, because of what Mr. Rossides has pointed out, I would like to ask about how you make the collections from a taxpayer. Now, I understand that if there is an oversight either on the part of IRS or the taxpayer, and IRS picks that oversight up, there is a statute of limitations of 6 years, unless there is an intent to defraud. If that is so, then there is no statute of limitations and the IRS can go back to the origin of this man's making enough money on which to pay taxes. Is that correct?

Mr. THROWER. I should modify that a bit. The normal statute of limitations for the assertion of a civil liability deficiency assessment is 3 years from the date of the filing of the return. In the event of fraud, no statute runs against the civil assessment. The 6-year limitation is on criminal prosecution which is within 6 years from the date of the offense, the filing of the return normally.

Mr. BARRETT. Well, there is discretionary power for the regional director as to whether they would take a 25 percent fraudulent penalty or 50 percent or take any criminal fraudulent penalty.

Mr. THROWER. Yes. The civil fraud penalty is 50 percent of the amount of the deficiency. Of course, there may-both penalties may be pursued against a taxpayer, both the criminal and the civil.

Mr. BARRETT. Now, I want to turn to Mr. Rossides. He says that he thought that the records of the bank should not be kept for an unduly long length of time.

Isn't it true that since microfilm came into existence, the space necessary to keep the filing of all these records has lessened tremendously? And isn't it so, then, if we have the microfilm records it gives the IRS opportunity to go back and get the taxes, as far back as that individual began this fraud on the Federal Government?

Now, under your method and statement-that we should not go back too far-what is our objective here? To correct the situation as quickly as possible, by getting agreements with the foreign banks and let these people cut off what moneys they should have paid over a certain number of years? That you would say from this year on, we should keep records and all other years are vitiated?

What is your actual intent-to improve the conditions that we are hoping to?

Mr. ROSSIDES. Mr. Barrett, I would say that our intent is certainly to improve the conditions. We don't know now how far back records should be kept. Our main point is that we certainly feel that under a broad-barreled approach you would have a mountain of paper that might not be that useful, sir; or if it was useful, the manpower necessary on the part of the Government and the time necessary to find specific information would make such an approach counterproductive. Our aim is, as we talk with the banks, to find a procedure under which

maybe we can effectively segregate those kinds of accounts and customers who would be in this area, and therefore have those records for the period of time that would be most helpful.

There are two aspects of banking practice that are very relevant here. One is that the use of microfilm apparently is going out in many banks. It takes time. It is not a lack of space, as you point out correctly that has caused this. Microfilming takes time and that time delay delays transactions, and to put in a microfilming requirement may delay them.

Second, there has just been an incredible increase in the use of banks and banking in the economy. It is a rough situation. What we want to do, as we did when there was evasion of the interest equalization tax, is to take a hard look at it, and hopefully in 2 to 3 months I feel quite sure, because we want to put a deadline on ourselves, we will be back to the committee able to answer this particular question with many more facts, sir.

Mr. BARRETT. Mr. Thrower, my time has expired. I was just going to ask you to supplement that.

Mr. THROWER. I might supplement what Mr. Rossides has said here by pointing again to the fact, as I described a few minutes ago, some of these records are not now being microfilmed. Deposit slips and checks are frequently not now microfilmed because of the tremendous volume. So it is not merely a retention problem.

Mr. BARRETT. Well, this would be an agreement between you two as to how far you should go back for the benefit of collecting as much taxes as possible, if there has been fraudulent intent or actually fraud. You would agree on the time?

Mr. ROSSIDES. Yes, sir. In accordance with the statute and the time; yes, sir.

Chairman PATMAN. Mr. Clawson.

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

The approach you men seem to be making toward the recordkeeping and the rifle versus the shotgun approach seems to be reasonable as far as I can see. Certainly a lot of these records would not be of benefit to you in your investigations nor to the banks. And I believe Mr. Rossides hit upon the nub of the thing by saying that the very volume of this kind of information would be tedious for your investigators to have to wade through even though recorded on microfilm. So could you come up with the specifics-and this is the plan, to be specific in the actual records that are to be retained and to be made available to you?

Mr. ROSSIDES. Yes, Congressman. It is to talk with the community, the private sector, talk with our people in the field, find out how foreign secret bank accounts are being used for illegal purposes, and how can we stop it. We are serious. We have great hopes that we are going to be able to come up with procedures that we can submit to the committee for our legislative proposals. There may be a number of things that we can do administratively

Mr. CLAWSON. Without additional legislation?

Mr. ROSSIDES (continuing). Without additional legislation. This we would also inform the committee about. This is a most serious problem. This committee has brought it to the fore with the hearings of last December and the discussions that we have had with the committee since the late spring and summer.

Mr. CLAWSON. To what extent are banks cooperating with you in this effort?

Mr. ROSSIDES. Fully, Congressman.

Mr. CLAWSON. You are getting no resistance on the part of any of our banking institutions to help you?

Mr. ROSSIDES. No, sir; no resistance.

Mr. CLAWSON. Mr. Thrower, on page 4 of our statement, you indicated that false statements are being made by some of the foreign banks or suppliers. Is there any evidence that this is done in cooperation with U.S. financial institutions?

Mr. THROWER. Well, certainly in general I would say no. And I do not now have in mind any specific instance where a bank, U.S. bank, has knowingly conspired in this respect. My reference there related primarily to the U.S. tax evader and foreign conspirators.

Mr. CLAWSON. Would these false statements be in violation of local laws in the country where this bank operates?

Mr. THROWER. Well, there would certainly be a violation of our laws, false statements to the Internal Revenue Service with respect. to the matter under its jurisdiction. I would have serious question as to whether, unless there were other implications of the statement, it would be a violation of the laws of any foreign government.

Mr. CLAWSON. I realize our laws would cover it, but I am concerned if any countries in the world are permitting the banks to make this kind of false statement.

Mr. ROSSIDES. If I might supplement what Mr. Thrower has said. Based upon our discussions with Swiss authorities and Swiss tax lawyers, my belief is that the use of false documents to evade Swiss taxes would be definitely a violation of Swiss law.

Mr. CLAWSON. Yes; because there would be income received by these institutions locally.

Mr. ROSSIDES. It is that false document that we believe would be a violation.

Mr. CLAWSON. Is there any knowledge of how widespread this practice might be in connection with U.S. citizens who are involved in the use of false documents in evasion of income taxes?

Mr. THROWER. My statement on page 4 reads:

False and misleading statements to tax investigators regarding the existence or true ownership of the accounts are the rule in these cases.

Now, I did not mean to suggest that that information came from the bank, because having bank secrecy we are not able to get the correct information from the bank. It normally comes from the taxpayer or those related to or in conspiracy with him.

Mr. CLAWSON. So it is the taxpayer more than the banking institution that is responsible.

Mr. THROWER. Yes. This was not intended to refer to false statements initiated from a bank.

Mr. CLAWSON. I am glad to have that cleared up, because I was getting the wrong impression here that the bank was in collusion with the taxpayer.

Thank you very much. My time is up.

Chairman PATMAN. Mrs. Sullivan.

Mrs. SULLIVAN. Thank you, Mr. Chairman.

Mr. Thrower, a Mr. S. J. Runt, an expert in foreign investment, wrote in Barrons on January 20 of this year, and I quote:

During those hectic days the largest, oldest and universally most respected Swiss banks and many smaller ones received by check and in cash, by cable and in ordinary envelopes such huge quantities of dollars from American depositors, many of them pensioners or small savers, that even upon employment of hundreds of extra clerks they could not open the mail fast enough, book the new entries and return receipts within less than 6 to 8 weeks.

Do you have any knowledge or comment on this?

Mr. ROSSIDES. My only comment that I would make, Mrs. Sullivan, before the Commissioner answers is that anyone who invested in gold at that time is probably sorry at the moment.

Mr. THROWER. We have no specific information on that particular comment except that we do know that the use of foreign secret bank accounts has apparently increased appreciably.

Mrs. SULLIVAN. Could you give us an example, or a few examples, of the various schemes in which these secret accounts are used to avoid income taxes? You did mention a few in your statement, and would you have anything more specific or to the point than that?

Mr. THROWER. At the moment, I have nothing more specific. We could afford an extension of examples already given, but those listed seemed to be typical and to illustrate the schemes that we described. The cases that we enumerated, beginning on page 5, were selected as illustrating the type of tax avoidance schemes that we had described from page 3 to page 5.

Mrs. SULLIVAN. Yes. We will let that just stay in the record. There has been some testimony here that it is not only organized crime that uses these accounts but simple American citizens who want to avoid the payment of income taxes. Which group predominates?

Mr. THROWER. I don't think we are in a position to say, either numerically or with respect to the tax dollars involved, or with respect to the overall seriousness and threat arising from it, but certainly we would have a very keen concern about the utilization of foreign bank accounts by organized crime. And there does seem to be evidence of what is called a sanitizing process of the sending of the tainted money abroad and the bringing of it back by the criminal element under the guise of loans or purchases, or whatever it may be, or investments.

Mrs. SULLIVAN. The gentleman who wrote this about the ordinary public doing this in such huge volumes, would this gentleman who wrote the item have more easy access to this information than you would?

Mr. THROWER. I would think not. I have not undertaken to appraise, evaluate that particular statement. As I say, we are fully aware of the fact that there has been an acceleration, a great growth in the utilization of foreign accounts, secret accounts.

Mrs. SULLIVAN. To your knowledge, this comment has never been looked into by Internal Revenue?

Mr. THROWER. To my knowledge, that specific comment has not been explored. We have certainly given extensive attention to this

area.

Mrs. SULLIVAN. Your testimony indicates that the use of secret bank accounts for tax evasion purposes is a late development. Does that mean that there has been a significant increase, then, in their use over the last few years?

Mr. THROWER. Oh, yes.

Mrs. SULLIVAN. And I just have one other question I want to ask. Title I was included in the bill at the request of various law enforcement officials. Do you feel that American banks are getting away from traditional recordkeeping procedures and, if so, how?

Mr. THROWER. Well, I undertook to describe a few minutes ago by reading into the record some changes that were being made by banks in keeping of records. I think all businesses are changing as we move into the area of data processing.

This is not confined to banks. It is not confined to business institutions. It is not confined to large business. Small businesses are getting into it. Certainly, we in the Internal Revenue Service are undertaking to utilize wherever it is efficient the modern techniques of data processing. But there are some things that are changed and in consequence of that some things may be lost.

I undertook to describe some of the records that we might have utilized in past years that in many banks are no longer available.

Mrs. SULLIVAN. Well, my main thrust of that was that in making these changes-I realize that we all modernize our types of recordkeeping, but in making these changes is it possible to point out a little more what is happening to some of these deposits?

When you look over your transcript, if you can think of anything that would give us a better idea of whether something like this is in mind, I would appreciate your putting it in.

Mr. THROWER. Yes. Well, I suppose all banks used to keep records of their checks. Some banks don't microfilm their checks any more. Mrs. SULLIVAN. Well, only that there is such an increased trend of checks with foreign banks for their own depositors, I was thinking there may be some way that they have kept a separate record file of those particular transactions.

Mr. THROWER. Well, I think this is the sort of thing we would want. to explore fully through the task force that Mr. Rossides was describing as to what transactions reasonably and helpfully could be preserved better for the Internal Revenue Service and other administrative agencies having jurisdiction.

Mrs. SULLIVAN. Well, thank you. Both of you have stressed that you are going to do these things-and it was just a year ago yesterday that the first hearing was held on this subject by this committee. And even though you gentlemen may have been new appointees, have come very recently to the agency, it has been a hot subject and a live subject for a whole year, and now you need more time to make this judgment or study.

Mr. ROSSIDES. Well, I would only say, Mrs. Sullivan, I think actually both the Commissioner and I were sworn in and confirmed by the Senate on the very same day. It happened to be April 1. We moved right into the problem with the treaty. We have been working diligently. It is a complex problem. We are determined to succeed with the help of the committee.

Mrs. SULLIVAN. Yes. Thank you.

Chairman PATMAN. Mr. Stanton.

Mr. STANTON. Thank you, Mr. Chairman.

Gentlemen, I wish to compliment you on your testimony here this morning. I think it is a fair statement to say that you are the first

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