The CHAIRMAN. I respect the sincerity of the gentleman, and I hope that he is correct. But if that is true, I wonder why the executive branch, knowing that we have a case going that is so important against organized crime and others who use secret bank accounts illegally, did not at least confer with the chairman of this committee, or some member thereof, and let us know that they have no intention Mr. WILLIAMS. Well, if the chairman will further yield The CHAIRMAN (continuing). Of deterring our action in the matter. Mr. WILLIAMS. If the chairman will further yield, I think a study of our records will show that when Assistant Secretary Eugene Rossides appeared before this committee that he made the statement that his Department was preparing an extensive report on this with recommendations, and they hoped to have that work completed early this year and have it in your hands to be helpful to this committee in accomplishing the objective which we have. The CHAIRMAN. Well, I happened to write Mr. Rossides a few days ago and asked him about that. I didn't get a reply until yesterday afternoon, and he asked me to keep it confidential until midnight last night. I assumed that he wanted to do it in his own interest, to let the release come out this morning about his negotiations, which is all right. I didn't object to it. And I certainly didn't raise it Mr. WILLIAMS. What did he say about the report that the Treasury Department is preparing on the control of these secret foreign bank accounts? The CHAIRMAN (continuing). But I am impressed that there is more delay than cooperation. This correspondence will show something about it. This is February 9, yesterday morning. I received it about noon yesterday: "DEAR MR. CHAIRMAN." From the Department of the Treasury, February 9, 1970, Washington, D.C. This is in response to your letter of February 2, 1970, regarding the resumption of hearings on foreign bank secrecy. The Treasury Task Force on Secret Foreign Bank Accounts has been actively at work developing detailed proposals for dealing with this problem. While all of these details would not be reflected in legislation which we would recommend, it is necessary to develop these details so that we can make a firm recommendation on legislation. The request in your letter that we have an interim report on the work of the task force for insertion in the record on February 10 creates a problem. While we appreciate the usefulness which an interim report would have, we feel that the time of the task force could be better spent in developing the final recommendations which we would hope to be in a position to present to the committee in the near future. It now appears that Swiss representatives will be in the United States during the period March 6 to March 14 to resume discussions concerning a proposed mutual assistance treaty in criminal matters. In view of this and the necessity to prepare for these discussions, I would propose that the Treasury make its recommendations to the committee after the discussions with the Swiss representatives. While we would prefer to be in a position to report to the committee earlier, we feel that the additional time to develop our recommendations is needed in order to devise an effective program for dealing with this very serious problem. Sincerely yours, EUGENE T. ROSSIDES. Mr. WILLIAMS. Mr. Chairman, that letter bears out exactly what I have been saying, precisely what I have been saying. The CHAIRMAN. Now, my reply is as follows: This is February 10. That is this morning. DEAR MR. ROSSIDES: This is in reply to your letter of February 9, 1970, in which you indicate that the Treasury Task Force on Secret Foreign Bank Accounts will be unable to give us an interim report for the committee hearings on February 10. You also indicate that Swiss representatives will be in the United States from March 6 to March 14 to resume discussions concerning a proposed treaty in criminal matters. You propose that the task force recommendations be delayed until after the discussion with the Swiss representatives. Mr. Rossides, your letter is quite disturbing. The leadership of both Houses of Congress has indicated a strong desire to adjourn the 91st Congress by Labor Day. Such an adjournment date is very possible since it is an election year. If our hearings on foreign bank secrecy are delayed along the lines you have suggested, it becomes increasingly doubtful that we will have time to secure the passage of bank secrecy bills in both houses of Congress. As you may be aware, legislation pending at the time of adjournment of a Congress dies. In this event, the whole matter must be taken up from the start in the next Congress. In the meantime, the taxpayers and citizens of this country will suffer from the flagrant abuse of our laws which results from the criminal use of these secret bank accounts. The treaty negotiations with the Swiss Government have absolutely nothing whatever to do with H.R. 15073 or any variation thereof you may propose. To accomplish the effective closing of secret foreign banks to American criminals will ultimately necessitate a treaty with every nation in the world. A job which will take generations. Mr. WILLIAMS. If the chairman will yield? The CHAIRMAN. No, wait. I am reading a letter. You will have to wait just a minute. Mr. WILLIAMS. I thought you were finished. The CHAIRMAN (continues reading): As a result of the discussions with your staff on this legislation, a plenary exemptive power was provided in section 206 of the bill. It woud appear that if this section were left in the bill, then Switzerland or any other bank secrecy jurisdiction could gain an exemption after the conclusion of a realistic treaty. As I have in the past, I emphasize that no member of this committee has any desire to reflect adversely on the fine relationships that the United States has enjoyed with Switzerland or any other nation. The sole design of H.R. 15073 is to prevent criminal activity by Americans. Because of time limitations and our desire to enact a meaningful law, you are herewith notified of my intention to conclude these hearings no later than March 13, go into markup and report it out to the House floor as early as possible. It is passing strange that the only people you have been meeting with so far are banks with heavy interests in secrecy jurisdictions and other relationships with Swiss banks and with representatives of the Swiss Government. It appears that you are asking the fox to write the rules regarding the safety of the chicken coop. Sincerely, Mr. REUSS. Mr. Chairman. The CHAIRMAN. Yes. WRIGHT PATMAN, Chairman. Mr. REUSS. I think these cables and letters will speak for themselves. The CHAIRMAN. Yes, sir. Mr. REUSS. Couldn't we hear the witness. The CHAIRMAN. That is what we are going to do right now. The CHAIRMAN. Yes, sir, Mr. Williams. Go right ahead. Mr. WILLIAMS. In regard to the correspondence you have been reading. What is the date of the meetings between the Treasury representatives and the representatives from the Swiss Government. The CHAIRMAN. March 6 to the 14th. Mr. WILLIAMS. Thank you. The CHAIRMAN. All right, Mr. Morgenthau. We are delighted to have you, sir, and you may proceed in your own way. I believe you have a prepared statement. Pull the microphone up close where we can all hear you, please. STATEMENT OF ROBERT M. MORGENTHAU, FORMER U.S. ATTORNEY FOR THE SOUTHERN DISTRICT OF NEW YORK Mr. MORGENTHAU. Thank you very much, Mr. Chairman, members of the committee. I appreciate very much your invitation to appear again before this committee. During my two previous appearances before this committee I attempted to spell out in considerable detail my concern over the illegal use by American citizens of foreign bank accounts. I pointed out that the abuse of these accounts is no longer limited to members of organized criminal syndicates and hooldlums. Although the use by the underworld of these accounts is rapidly expanding, to an everincreasing extent they are now being used by persons holding positions of responsibility and power in the business and financial world to cheat on taxes, to trade in securities in violation of our securities laws, to trade illegally in gold, to perpetrate corporate and other frauds, and to hide the fruits of other white collar crimes. When I appeared here before I had been limited by the Department of Justice to testify on the frauds being committed through secret foreign bank accounts. The CHAIRMAN. Now, read that over again, Mr. Morgenthau. Mr. MORGENTHAU. I said when I appeared before this committee before I had been limited by the Department of Justice to testify only as to frauds committed through the use of secret foreign bank accounts. And I was not permitted to give my views on the merits of the bill, and I want to say right now that I wholeheartedly support this bill, that I think its passage is essential if we are going to take effective steps to close what I consider the largest single loophole in the enforcement of the criminal laws relating to white collar crime and specifically the largest single loophole in the enforcement of the tax laws. And I think this bill is essential if we are going to take an effective step forward in closing this loophole in the enforcement of the tax laws. For decades these abuses were virtually left untouched by Federal and State law enforcement agencies, largely because investigation in this area requires far more time and expense than in any other type of prosecution. Similarly, there was no attempt by legislative bodies to remedy any of the evils flowing from foreign bank secrecy. As a result of this inactivity, the abuses flourished. The unscrupulous businessman equaled the hoodlum in his determination to violate our laws through ingenious use of secret foreign bank accounts. Foreign banks began openly to solicit in this country secret accounts, in many cases using as selling point the advantages, illicit and otherwise that flowed from the secrecy laws of their countries. Many foreign banks organized systematic courier services to transport large amounts of cash from the United States to Switzerland and Nassau and other tax havens and set up branches and representatives in the United States to solicit and service customers. At the same time. many American banks opened branches in these foreign tax havens so that their customers could avail themselves of the advantages of secret bank accounts. These American banks sought out, exploited and asserted the protections of local secrecy laws as vigorously as did the foreign banker. Their operations became multinational in scope to the point where the banks doing the largest volume of business in some major Swiss cities are now not the large local Swiss bank but the foreign branches of a large American bank. In the Bahamas alone 21 branches of American banks have been opened or authorized. Now, that is far beyond the apparent needs of the tourist trade or the local economy. The opening of foreign branches by banks whose main offices are located outside of the financial centers of New York, Chicago, Los Angeles, and San Francisco is not commonplace. In addition to opening foreign branches, domestic banks increasingly played a critical role in the operations of foreign banks doing business with U.S. citizens. Transfer of funds, illicit and otherwise, through domestic banks on the way to secret foreign bank accounts becomes commonplace; and the domestic clearing and correspondent facilities of U.S. banks has become essential in many instances to the carrying out of illegal schemes involving foreign banks. For example, the facilities of a California bank and a midwestern bank were used, under the circumstances that should have aroused suspicion, to transfer funds from an American company to a Swiss bank that were being used to pay kickbacks to employees of noncommissioned officers and enlisted mens' clubs overseas. The illegal use of secret accounts became so prevalent that when I was here last December I could conservatively estimate before this committee that deposits in foreign secret bank accounts held for illegal purposes had a value in the hundreds of millions of dollars. In the face of this mounting illegal activity two events have generated concern among those who would violate our laws through these secret accounts. The first of these was the intensive investigation conducted in the southern district of New York. During the course of that investigation thousands of transactions were analyzed, more than 75 persons were indicted, and dozens of cases were referred to the Internal Revenue Service for criminal investigation. For each case we prosecuted, however, there were roughly six cases where we had specific information that a crime had been committed but we were unable to prosecute either because we lacked the resources to complete the investigation or because the evidence we had was inadmissible in court. For each potential case we uncovered, there were literally thousands of other cases of criminal conduct cloaked by secret foreign accounts which were not even touched by our investigations. It soon became apparent that the law as it now stands could not permit us to attack these law violators as systematically and successfully as those whose unlawful schemes take place exclusively in the United States. The second development that has caused concern among the law violators is the publicly announced determination by this committee to propose legislation that will strengthen the hand of law enforcement agencies in their fight to uncover illegal uses of secret foreign bank accounts. For the first time it appeared that the legislative and executive branches of this Government had joined forces in a concerted effort to stamp out this type of crime; and that the prosecutor would now have the legislative tools with which to launch a systematic attack on this problem. In the past when I testified before this committee I was not authorized to state my position on the proposed legislation. But as a private citizen I can now say that I wholeheartedly support this committee's bill. And as a private citizen and a former U.S. attorney, I am deeply disturbed that the administration-after having supported this legislation on December 4-1 week later saw fit to return before this committee and retract its support on the purported ground that its earlier position of support had been misunderstood. We can only hope that the administration's action in this and other respects does not mean that its concept of law enforcement exclude the rich and the influential, and that crime will be ignored when the criminal wears a white collar and a business suit. The provisions of title I, of this bill which requires banks to maintain copies of depositors' checks and other documents reflecting transfer of funds, is necessary in view of the trend among some of our largest banks to discontinue their practice of photocopying these documents. When I was a U.S. attorney I found that numerous investigations in the foreign bank field, as well as in other areas, were frustrated by the premature destruction of bank documents or the failure to make copies of them. Title II of your bill sets forth broad categories of persons who must file reports as to certain types of financial transactions and delegates to the Secretary of the Treasury rulemaking powers to carry out the purpose of these provisions. It should be emphasized that title II in no way attempts to regulate or control the use of foreign bank accounts; nor does it prohibit any kind of activity. It merely requires that certain types of transactions be reported to the Government. As such, it is similar to the "reporting" statutes that have been so useful to law enforcement agencies in the securities fraud and labor racketeering fields. Because of the failure to report under certain of these reporting statutes, the U.S. attorney's office in the southern district of New York was able to obtain significant prosecutions against prominent financiers and businessmen such as Louis Wolfson, Max Orovitz, Victor Muscat and such labor racketeers as Jack McCarthy, as well as many other persons. The usefulness to prosecutors of title II in the foreign bank field is obvious. Frequently it is possible to connect an individual with foreign bank transactions. Because of bank secrecy laws, however, it is impossible in many of these situations to prove a criminal offense, although it is strongly suspected that the transactions may well be illegal. Under title II, the participant would be required to report the transaction, and for his failure to do so, he could be prosecuted without proof of any other illegality. The potential effectiveness of title II can best be illustrated by a situation which was recently uncovered during the foreign bank investigation conducted by my former office. We were able to establish that in the early 1960's a bookmaker in Boston named Francis A. Vitello opened a secret account at the Union Bank of Switzerland under the code name Unitechnic Finance Corporation Subaccount BOSTON. Although Mr. Vitello appeared to be a man of little financial |