completing and turning in the report form which would be available at points of embarkation and disembarkation and at our land borders.

In order to permit flexibility, we propose that the Secretary of the Treasury or his delegate be given the authority to issue regulations within the general framework of the statute.

Where currency or the equivalent is exported or imported through the use of the mails or by carrier, similar requirements would be applicable. A sender would be required to file the information return prior to delivery of the package to the post office or the carrier. With respect to incoming shipments, the recipient would be required to file an information return within 30 days after receipt.

When the person filing the return is not the owner of the currency or its equivalent, he would be required to state the name, address, and social security number of either the owner or of an agent for the owner.

In addition to other penalties which would be provided and which are outlined in the technical explanation, currency or its equivalent as to which a complete return was not filed would be subject to forfeiture if seized during the exportation or importation.

III. IMPROVED TREASURY CURRENCY REPORTS

Financial institutions currently are required to file Treasury currency reports in cases where persons who use their facilities engage in unusual currency transactions. It should be noted that these reports deal with all currency transactions-domestic as well as foreign. The present system has not been adequate because the concept of an "unusual" transaction has been subject to differing interpretations. Also, financial institutions may not have always sufficiently verified whether the person engaging in the transaction has furnished his correct name and address.

We support in general the concept of sections 221 through 223 of H.R. 15073 which provide a new statutory basis for Treasury currency reports. However, we would confine the reporting requirement in most cases to the financial institutions, and not also require a report by the person dealing with the institution. On the other hand, we believe that the bill is too narrow in being limited solely to U.S. currency. Foreign currency, travelers checks, and other items which can pass freely by delivery should be subject to being included to the extent provided in regulations issued by the Secretary of the Treasury or his delegate. We also recommend that the Secretary or his delegate be authorized to add or subtract from the list of types of institutions required to file Treasury currency reports.

The regulations to be issued by the Treasury would specify the obligation of the financial institution to examine an acceptable identity document and record its presentation.

In a case where an agent, including the messenger, is involved in a currency transaction, the financial institution would complete the Treasury currency report with respect to either an agent or the principal on whose behalf the agent is acting. If the institution completed the report with respect to the agent, then the agent also would be required to file a Treasury currency report with respect to the principal or another agent for the principal.

Financial institutions should be required to retain copies of the Treasury currency reports filed by them and accompanying transmittal documents for a period of time to be specified in the regulations.

IV. REPORTS OF FOREIGN ACCOUNTS BY U.S. CITIZENS AND RESIDENTS

The Treasury also recommends that the Secretary of the Treasury or his delegate require U.S. citizens, residents, domestic corporations, and other taxpayers with an equivalent status to identify on or with their income tax returns, their direct or indirect interests in foreign bank accounts, foreign brokerage accounts, or other accounts with a foreign financial institution, or signature authority with respect to any such account.

The Treasury feels that this requirement should be confined to a statement as to the existence of the foreign account and information concerning individual transactions should not be required. Reporting individual transactions, as is required by H.R. 15073, would result in unnecessary paperwork except in those cases where the Internal Revenue Service is interested in obtaining further information. Under our proposal, where the Internal Revenue Service would want to obtain additional information from the taxpayer about transactions involving a foreign account a request would be made to the taxpayer in accordance with existing practice.

It is our present feeling that, even though such a requirement could be imposed under existing law, the Internal Revenue Code should be amended to specifically authorize the Secretary of the Treasury or his delegate to impose this type of requirement and the scope thereof by regulation.

Mr. Chairman, we believe, that this is an improvement over H.R. 15073, which would require reports of transactions with foreign financial agencies which do not make their records available to U.S. authorities.

The pattern of reciprocal disclosure between governments varies with countries, with treaty arrangements, with the nature of the transaction involved, and with the type of investigation. More certain knowledge is obtained sooner under this proposal, and intergovernmental contacts can be used to supplement enforcement.

V. REBUTTABLE PRESUMPTIONS THAT U.S. CITIZENS AND RESIDENTS ENGAGING IN CERTAIN FOREIGN TRANSACTIONS ARE DEALING WITH THEIR OWN UNTAXED INCOME

By means of the required records, reports of exports or imports of currency, Treasury currency reports, and reports of foreign accounts, the Internal Revenue Service will be in a much better position to identify instances of tax evasion by U.S. taxpayers than now. While such information would certainly be of use in reducing tax evasion, there are limits to the benefits of the proposals so far made. Therefore, we believe our effectiveness in law enforcement would be considerably enhanced if the Internal Revenue Code were amended to provide rebuttable presumptions that persons who engage in certain international transactions and who do not furnish satisfactory information with respect thereto are dealing with their own untaxed income.

A possible presumption might be developed along the following lines. Where (i) a U.S. taxpayer borrows money from a foreign financial institution and the taxpayer claims that he has not furnished collateral, (ii) a reasonable lending institution in the lender's country would not make such a loan without collateral, and (iii) on request the taxpayer fails to furnish information as to the loan to the satisfaction of the Secretary of the Treasury or his delegate, it would be presumed that the loan was collateralized by the borrower's untaxed

income.

This presumption would negate the tax evasion practice of some U.S. taxpayers, who deposit funds abroad, then borrow the funds back and take a deduction for interest paid. In these transactions the foreign bank retains a small service charge and the balance of the "interest" is added to the taxpayer's account.

With respect to the presumptions which would be provided, it would be necessary to establish by statute or regulation exceptions for normal and recurring commercial transactions.

The presumptions would be in the nature of evidentiary presumptions which could form the basis for a determination of civil tax liability-including interest and penalties-whether or not the taxpayer introduces evidence to the contrary. However, if the taxpayer establishes by the clear preponderance of the evidence that his untaxed income is not involved, the presumption would be rebutted.

It is our understanding that most persons who use foreign financial institutions, even in countries where bank secrecy is strictly observed, can themselves obtain full information about their accounts and transactions. Therefore, it is assumed that U.S. taxpayers will be able, without difficulty, to satisfy the Secretary of the Treasury or his delegate as to his foreign transactions if he desires to do so.

Mr. Chairman, the Treasury recommends that the legislation along the foregoing lines, which in our judgement strengthens significantly all the provisions of H.R. 15073, be enacted as soon as possible. We believe that such legislation would contribute to our efforts to curb tax evasion and other crimes by U.S. citizens and residents where international financial transactions are involved.

We believe that we have strengthened H.R. 15073 by focusing on the target, by filling a number of omissions in H.R. 15073, by eliminating requirements which seem to us to be burdensome and of limited value, if not counterproductive. If our recommendations are accepted and the bill becomes law, then we will be better able to combat organized crime and white collar crime in their use of foreign banks to achieve criminal objectives.

In addition, we would plan to recommend amendments to the Internal Revenue Code establishing presumptions in connection. with certain international transactions, which we believe will make the Internal Revenue Service more effective in utilizing the information which it contains. Our recommendations with respect to reports of foreign accounts could be carried out under current law, or, if specific legislative authority were desired, authorized by amendment to the Internal Revenue Code.

We would plan to present Internal Revenue Code amendments to the Ways and Means Committee at an early date.

While legislation along the lines we propose would furnish the Internal Revenue Service and other law enforcement agencies with additional tools to deal with tax evasion and other crimes, what must be added to the legislative authority is the mobilization of Internal Revenue Service and other law enforcement manpower to use these tools, and this, Mr. Chairman will require substantial funds.

To summarize, the Treasury recommends legislation which, in our judgment, strengthens all provisions of H.R. 15073. Specifically: 1. We propose recordkeeping requirements for banks and other financial institutions with respect to foreign transactions and for certain types of checks and other documents used in certain domestic transactions. This strengthens the bill greatly by concentrating on problem areas and eliminating wasteful, counterproductive, and duplicative requirements for maintaining records on the over 20 billion individual items that annually pass through the banking system. The original bill would require each of these items to be recorded twiceonce when deposited and again when paid-making over 40 billion records each year.

2. We propose reports of exports and imports of U.S. currency or the equivalent. The authority to extend these reports to items equivalent to U.S. currency strengthens this provision in the bill by removing a potential loophole.

3. We propose improved and expanded requirements for Treasury currency reports. Again, Mr. Chairman, we strengthen the bill.

4. We propose the identification by U.S. citizens, residents, and domestic corporations of their foreign accounts. This focuses upon the problem to its full extent, removes unnecessary reporting of foreign transactions, and again, in our judgment, adds strength to the bill.

5. We propose rebuttable presumptions that the U.S. citizens, residents, and domestic corporations engaging in certain foreign transactions, and not furnishing adequate information, are dealing with their own untaxed income. This is a new item and one which we believe will assist enforcement.

Mr. Chairman, you have indicated your intent to conclude these hearings no later than March 13, and I urge that this be done and that you proceed as soon as possible through your markup, committee and floor action in order that the matter can be taken up in the Senate at the earliest possible time.

This, Mr. Chairman, concludes my testimony. Let me assure you that I am available to the committee to speed the proposed legislation along and am available on March 9, earlier or later, Mr Chairman, and that the Treasury staff will be available to staff of the committee and the House to help draft legislation which would meet our common aim of deterring tax evasion and other crimes.

Thank you, Mr. Chairman.

Chairman PATMAN. Thank you, sir. Personally, I am very much impressed that the Treasury through your efforts is making a sincere effort to be of help in passing a good bill. It is the most encouraging sign that I have heard in this whole campaign to do something about secret foreign bank accounts.

I insert in the record an editorial appearing in The New York Times on last Thursday. The editorial persuasively urges the passage of this legislation and points out that the problem is far more serious than the public imagines.

I would like to read two brief paragraphs.

Anyone who thinks this is a business limited to the gnomes of Zurich does not know the facts. American banks have migrated abroad and are major competitors of Swiss, German, British and other foreign banks in their own territories. Six United States banks now have branches in Switzerland and insist that they have the right to secrecy, like Swiss banks, under Swiss law. In Nassau, eighteen branches of American banks have already been opened.

This is a dangerous and uncontrolled situation that should be curbed through passage of the Patman bill before it get worse. Instantaneous worldwide communications and the rapid internationalization of business and finance are threatening to lead to a growth of crime and decay of public and business morality of huge proportions.

(The editorial referred to follows:)

[From the New York Times, Feb. 26, 1970]

ERRORS AND OMISSIONS

The Department of Commerce reports that the United States sustained a $7billion deficit in its balance of payments in 1969-the biggest liquidity deficit on record. There is one huge and innocent looking item in those figures-“errors and omissions." During the first three-quarters of last year these errors and omissions totaled $3.2 billion of funds leaving the United States.

There is no record of where this money went or what it was used for. Much of it doubtless went into purchases of Eurodollars. But Robert M. Morgenthau, the former United States Attorney for the Southern District of New York and newly appointed Deputy Mayor, charges that much of this unrecorded outflow of money is going into secret Swiss numbered bank accounts and into other bank accounts abroad, where it is used to evade United States taxation and security regulations.

The American underworld increasingly uses secret accounts abroad to hide from the tax authorities and the police. However, as Mr. Morgenthau stated before the House Banking Committee, foreign bank accounts are being used "to an ever-increasing extent . . . by persons holding positions of responsibility and power in the business and financial worlds 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." To control crime via foreign bank accounts, Chairman Wright Patman of the House Banking Committee with the help of the United States Treasury, the Internal Revenue Service, and the Justice Department-has produced a bill designed to circumvent foreign secrecy barriers. The bill would require American banks to maintain records on foreign transactions by their depositors and to make photocopies of checks or other transfer instruments.

The bill would also require persons involved in certain types of international financial transactions to file reports on their activities. This reporting requirement is essential if law violators using foreign accounts are to be caught-and others scared away from such practices. Failures to report have been extremely important in getting convictions against crooked financiers, businessmen, and labor racketeers here at home.

Curiously enough, however, the Treasury has at the last minute withdrawn its support of the Patman bill. Treasury spokesmen explain that the Administration line has changed and the White House confirms that this is so. The Treasury says that it now has a task force working on the problem.

The switch in the Administration's position on the Patman bill came after a meeting between Treasury officials and representatives of the biggest American banks. The banks took the position that the required record-keeping would impose a great hardship on them and would interfere with United States commerce. High financial stakes are involved for United States banks. The flows of money abroad and back to this country are enormous. In 1968 purchases of American stocks and bonds by Swiss banks and brokers totaled $6.3 billion, and sales of United States securities amounted to $5 billion.

Anyone who thinks this is a business limited to the gnomes of Zurich does not know the facts. American banks have migrated abroad and are major competitors of Swiss, German, British and other foreign banks in their own territories. Six United States banks now have branches in Switzerland and insist that they have the right to secrecy, like Swiss banks, under Swiss law. In Nassau, eighteen branches of American banks have already been opened.