26 1 regulation provide that the amendment made by title IV 2 shall be effective on any date not earlier than the publication 3 of the regulation in the Federal Register and not later than 4 the first day of the thirteenth calendar month which begins 5 after the date of enactment. Hon. JOHN SPARKMAN, Chairman, Committee on Banking and Currency, Washington, D.C. BOARD OF GOVERNORS, DEAR MR. CHAIRMAN: You have requested a report from the Board on S. 3678, which is designed to deter the improper use of secret foreign bank accounts, tax evasion, and other illegal activities through new requirements, to be administered by the Secretary of the Treasury, for improved recordkeeping and reporting by banks and other financial institutions. The bill would also strengthen the Federal securities law to reduce evasion thereof through the use of foreign financial agencies. When he introduced the bill on April 6, for himself, Senator Brooke, and Senator Williams of New Jersey, Senator Proxmire said, among other things, that "Our law-enforcement authorities need additional tools to trace the international flow of funds into and out of the United States without impairing the international mobiltiy of capital or infringing upon the sovereign rights of foreign countries." The Board favors the objective of S. 3678 and, therefore, would urge favorable consideration by your Committee and by the Congress of legislation along the lines of Senator Proxmire's bill, keeping in mind the limitations relative to capital mobility and sovereignty expressed by him when he introduced the bill, as just indicated. Broad discretionary authority in the Secretary of the Treasury to issue regulations, including authority to classify and exempt persons and transactions, is, of course, essential to the appropriate and efficient implementation of Titles I and II of the bill containing its recordkeeping and reporting requirements. The Board has noted particularly the clarifying changes that would be made by Title III of the bill in Section 7 of the Securities Exchange Act of 1934, pursuant to which the Board issues its "margin" regulations covering security credit. These changes would help reduce circumvention of existing law (a) by extending the Board's regulatory authority specifically to borrowers, as well as lenders, and (b) by specifying that the Board's authority covers security credit to American borrowers regardless of who or where the lender may be. It clearly is inequitable for borrowers in this country to be able to obtain security credit through foreign facilities on terms not lawful here. The first change made by the bill in this respect would be helpful in treating this problem. The second would clarify the Board's authority to regulate other devices for evading its margin requirements, such as foreign companies controlled by American lenders. The Board, however, wishes to emphasize again the importance, as indicated by Senator Proxmire, of not infringing upon the sovereign rights of foreign countries, and it is assumed that Title III does not envisage any efforts by the Board to attempt to regulate transactions that, under the customary principles of law, are outside the jurisdiction of the United States. We also wish to emphasize the importance of avoiding any discouragement of foreign investments in United States securities. Indeed, our balance of payments position is such that we should encourage the inflow of foreign capital. As Senator Proxmire also remarked, S. 3678 is similar to H.R. 15073 as passed by the House May 25, 1970. H.R. 15073, however, would add to Section 7 of the Securities Exchange Act of 1934 a provision not contained in S. 3678. Under that provision, a borrower of security credit obtained in the basis of a material misrepresentation made or participated in by him as to the purpose of the credit would be subject to criminal liability, whether or not he acted with actual knowledge that the credit was in violation of the Board's regulations. Such a provision would be helpful in the enforcement of the regulations, since there can be situations in which a borrower furnishes false information about the purpose of the loan where it would not be possible to prove that he willfully or knowingly violated the provisions of the regulations. The Board, therefore, suggests that favorable consideration be given by your Committee to the provisions in this respect in H.R. 15703. Title IV of Senator Proxmire's bill would make certain changes in provisions of the Securities Exchange Act of 1934 which, apparently, would be implemented by the Securities and Exchange Commission rather than this Board. These provisions were described by Senator Proxmire when he introduced S. 3678 as designed to remove the veil of secrecy surrounding foreign securities trans actions and to enable foreign banks or brokers to disclose the identity of United States citizens without violating their country's secrecy laws. One of the changes in this connection is designed to prevent United States broker-dealers from effecting transactions in United States securities on behalf of foreign banks or brokers unless the foreign bank or broker discloses the identity of the person for whom it is acting, or certifies that it is not acting for a United States citizen or resident. It would be undesirable if enactment of this provision gave rise to fears on the part of potential foreign investors in United States securities that their transactions might be disclosed. This could result in an adverse effect on our balance of payments positions. In addition, the Board's experience under its margin regulations suggests that this feature of the bill might not be workable or effective. Our staff will be glad to work with your staff on these aspects of the matter. Finally, it seems clear that Titles I and II of the bill are directed to activities of private persons and commercial financial institutions. As a technical matter, however, there is language in Sections 123, 212–222, 231, and 241 of the bill that could be construed as applicable to the Federal Reserve Banks. While it is assumed that such a result is not intended, your Committee may wish to consider appropriate clarification, either in the bill or in the legislative history. Sincerely, J. L. ROBERTSON. 91ST CONGRESS 2D SESSION H. R. 15073 IN THE SENATE OF THE UNITED STATES JUNE 1, 1970 Read twice and referred to the Committee on Banking and Currency AN ACT To amend the Federal Deposit Insurance Act to require insured banks to maintain certain records, to require that certain transactions in United States currency be reported to the Department of the Treasury, and for other purposes. 1 2 3 4 Be it enacted by the Senate and House of Representa tives of the United States of America in Congress assembled, TITLE I-FINANCIAL RECORDKEEPING 2 1 Section 101. Retention of records by insured banks 2 The Federal Deposit Insurance Act is amended 3 (1) by redesignating sections 21 and 22 as 22 and 23, 4 respectively, and (2) by inserting the following new section 5 immediately after section 20: 6 "SEC. 21. (a) (1) The Congress finds that adequate 7 records maintained by insured banks have a high degree of 8 usefulness in criminal, tax, and regulatory investigations and 9 10 proceedings. The Congress further finds that photocopies made by banks of checks, as well as records kept by banks of the identity of persons maintaining or authorized to act with respect to accounts therein, have been of particular value in 13 this respect. 12 14 "(2) It is the purpose of this section to require the 15 maintenance of appropriate types of records by insured banks 16 where such records may have a high degree of usefulness in 17 criminal, tax, or regulatory investigations or proceedings. 18 (b) The Secretary of the Treasury (referred to in this 19 section as the 'Secretary') shall prescribe regulations to carry 20 out the purposes of this section. 21 222 "(c) Each insured bank shall maintain such records and 22 other evidence as the Secretary shall require of the identity. 23 of each person having an account with the bank and of each 24 individual authorized to sign checks, make withdrawals, or 25 otherwise act with respect to any such account. |