possession of the addressee or intended recipient or any agent of the addressee or intended recipient for purposes other than further transportation within, or across any border of, the United States. Sec. 233. Civil liability The Secretary may assess a civil penalty upon any person who fails to file any report required under section 231, or who files such a report containing any material omission or misstatement. The amount of the penalty shall not exceed the amount of the coin and currency with respect to whose transporation the report was required to be filed. The liabilities imposed by this chapter are in addition to any other liabilities, civil or criminal, except that the liability under this section shall be reduced by any amount actually forfeited under section 232. Sec. 234. Remission by the Secretary The Secretary may in his discretion remit any forfeiture or penalty under this chapter in whole or in part upon such terms and conditions as he deems reasonable and just. CHAPTER 4-DISCLOSURE OF CERTAIN FOREIGN TRANSACTIONS Sec. 241. Reports required. 242. Classification and requirements. Sec. 241. Reports required Any resident or citizen of the United States or person doing business in the United States, who engages in any transaction, directly or indirectly, on behalf of himself or another, with a foreign financial agency which does not make its records available to duly constituted authorities of the United States as to transactions with United States residents or citizens or persons doing business in the United States, shall file reports setting forth such of the following information, in such form and in such detail, as the Secretary may require: (1) The identities and addresses of the parties to the transaction. (2) The legal capacities in which the parties to the transaction are acting, and the identities of the real parties in interest if one or more of the parties to the transaction are not acting solely as principals. (3) A description of the transaction including the amounts of money, credit, or other property involved. Sec. 242. Classification and requirements The Secretary shall prescribe: (1) The classification of foreign financial agencies which in his judgment do not make their records available as set forth in section 241, and transactions with which must therefore be reported by citizens and residents of the United States and persons doing business in the United States under section 241. (2) The foreign country or countries as to which the requirements of section 241 apply. (3) The form, frequency, and manner of filing of the reports required by section 241. (4) The magnitude of transactions subject to the requirements of section 241. (5) Types of transactions exempt from the requirements of section 241. (6) Such other matters as he may deem necessary to the application of this chapter. The legislation has been carefully drafted so that it is aimed at the prevention of the use of secret foreign financial facilities for illegal purposes by those subject to U.S. laws. In drafting it we were confronted with two serious problems. We did not want to create a burdensome red tape procedure which would seriously hamper the free flow of international commerce nor did we want to infringe on the law of any other nation. The bill, as introduced, meets these problems by directing application of the legislation toward Americans and those doing business in the United States so as to avoid the slightest inference of interfering with the laws of any foreign country. We have also provided a broad exemptive power to the Secretary of the Treasury so that he may, in carrying out his functions, see that international commerce is not burdened. At the outset of these hearings I want it made clear that those of us who sponsored this bill have no desire to influence in any way the relations this country has had with any other nation. However, when one mentions the problem of secret foreign bank accounts, the immediate reaction is the secret Swiss account. But Switzerland is not the only country which has these bank secrecy laws. Panama, Liechtenstein, the Bahamas, Luxembourg, West Germany and other countries have enacted laws which in one degree or another are somewhat from a secrecy standpoint more strict than American laws. Switzerland, however, is most dominant in this field. Their bank secrecy tradition dates back almost to the middle ages. Their current secrecy laws are a direct outgrowth of some horrible German gestapo activities in that country shortly before the outbreak of World War II. Moreover, the banking expertise of the Swiss is world renowned. Neither I nor the members of this committee have any desire to cast the slightest aspersion on the very fine relationships that this Nation has enjoyed with Switzerland over the years. We do not hold the Swiss Government responsible where Americans or those subject to our laws participate in illegal schemes through the use of financial facilities in that country. It has been reported in the press that the United States is now negotiating with the Swiss Government seeking to achieve better cooperation with American law enforcement authorities through a meaningful treaty. I am sure that this committee wholeheartedly endorses these negotiations and it is our fervent hope that such a treaty can be brought about. If this happens, the legislation before us would permit the Secretary to exempt those persons or corporations dealing with Swiss financial institutions from its provisions. But, such a treaty does not mean that our legislation is less needful. We want to be sure that the resolution of any problems with Swiss bank accounts does not merely divert illegal money from Switzerland to some other country with similar secrecy laws. The negotiations of treaties with nations with secrecy laws or even an international convention which would cover all nations with secrecy laws would at the very least be most time consuming, taking years, if not decades. Therefore, while we encourage such treaties, Congress must exercise its responsibility and act now. This legislation and these hearings are a direct result of a 1-day investigative hearing held by this committee on December 9, 1968 On that day, the committee heard from witnesses from the Justice Department and the Securities and Exchange Commission. Our general inquiry was limited to the legal and economic impact of foreign banking procedures on the United States. At the conclusion of those hearings it became clear that the use of these secret foreign bank accounts and foreign financial institutions as part of illegal schemes by American citizens and others created a tremendous and grave problem of law enforcement in the United States. Secret foreign bank accounts are the underpinning of organized crime in this country. They are a haven for the unreported income of Americans. They can be used to buy gold in violation of American law. They can be used to buy stock in our market or in the acquisition of substantial interests in American corporations by unidentified persons under sinister circumstances. Mr. Morgenthau, who appeared before us last year and who is with us today, has estimated the loss of tax revenues to this Government in hundreds of millions. On this very day the Senate of the United States is debating a tax reform measure. The hue and cry for tax reform by the American public has led the Congress to act. The American people in my judgment are fed up with the inequities that exist in our present tax structure. They feel that many persons and big corporations in the country are not paying their fair share. By the same token, I feel there is a deep-seated resentment by the ordinary citizen who must pay his taxes and has neither the resources, ingenuity nor criminal intent to use these secret accounts to avoid paying his legitimate taxes. Today we will hear from the primary law enforcement agency of the U.S. Government-the Justice Department. Mr. Will Wilson, the Assistant Attorney General in charge of the Criminal Division, and Mr. Robert Morgenthau, U.S. Attorney for the Southern District of New York, will appear today. Later we will hear witnesses from other agencies of Government who have had difficulties with foreign bank secrecy. These include the Treasury Department, the Internal Revenue Service, the Agency for International Development, the Defense Department and the Securities and Exchange Commission. Before hearing from our witnesses from the Justice Department, we will now hear from Mr. Pierre Leval. Mr. Leval, a New York attorney, is a former chief attorney in the Appellate Division in the Southern District of New York and has had extensive experience with foreign bank secrecy. Initially, Mr. Leval was employed in a Swiss bank for a year. He has volunteered his services to the committee as a nonpaid consultant. Mr. Leval will outline the variety of ways in which foreign bank facilities are used to avoid responsibilities under American law. He will also give us a brief review of the general ideas which may be developed in these hearings. With that understanding, Mr. Leval, you are recognized first. Mr. WIDNALL. Mr. Chairman. Chairman PATMAN. Yes. Mr. WIDNALL. Before you start off, Mr. Leval, may I ask this question: You have read a list of those who will be heard from or you hope to hear from during the course of these hearings. The bill encompasses more than just Swiss bank accounts. Is it contemplated that any banks will be invited to act as witnesses? Chairman PATMAN. Yes. If they would like to appear, we will be glad to have them. Would you submit the names of any you want to testify? Mr. WIDNALL. Nobody has asked me, but the question arose in my mind because there is in the bill some things that would involve banks. Chairman PATMAN. Certainly we would hear from anyone who will be affected by the bill, Mr. Widnall. Mr. WIDNALL. All right. Chairman PATMAN. And if you have any names to submit, we will certainly consider calling them. Mr. WIDNALL. Thank you. Mr. BARRETT. Mr. Chairman. Chairman PATMAN. Mr. Barrett. Mr. BARRETT. Do we have Mr. Leval's statement? Chairman PATMAN. He is speaking from notes, as I understand it. Is that right, Mr. Leval? Mr. LEVAL. I am sorry; I did not hear the question. Chairman PATMAN. You do not have a prepared statement? CHAIRMAN PATMAN. You are speaking from notes? Mr. LEVAL. Yes, Mr. Chairman. Chairman PATMAN. You may proceed. STATEMENT OF PIERRE LEVAL, FORMER CHIEF ATTORNEY, APPELLATE DIVISION, SOUTHERN DISTRICT OF NEW YORK Mr. LEVAL. Members of the committee, it has been a great pleasure to be asked to assist your staff in the preparation of these hearings. There was a time when the foreign secret bank account was thought of by all of us as something distant, mysterious, perhaps even romantic, and certainly not our problem; part of my purpose is to emphasize to you today that however true that view may once have been, it most certainly today is not an accurate view; they are not distant. Foreign banks where accounts may be maintained in secrecy are not distant in that we can open such accounts from our own doorsteps. I could go today to a number of financial institutions in the financial districts of any of our major cities and be provided with the names or the forms necessary to open an account in a foreign country by correspondence. Emissaries come regularly from such foreign banks to this country to seek business to open such accounts. I could fly to Nassau, a few minutes from Florida, and open a Swiss account there. I could cable transfer money to foreign banks through the facilities of most of our major banks. In short, it is very easy to open foreign bank accounts and to deal with them without even having to go abroad. And of course, as you know, going abroad is not much of a problem today, either. They are not mysterious. We can do anything through a foreign bank account that we could do through our own bank accounts or brokerage accounts with the added convenience that no one can ever know what we have done. And they most certainly are our problem, as they are commonly used to deprive our Treasury of its revenue and our regulation of their effectiveness. Now, I have been asked to describe to you today some of the various mechanisms or schemes which are prevalent through which Americans can use and do use foreign banks for illegal purposes. I will not dwell very long on the cash business, where cash receipts are hidden, handed to a courier and sent over to Switzerland, for example; because that is a very simple mechanism and it is well known. Everyone has read about gambling casino skimoffs, and about merchants, doctors, dentists, lawyers, all of whose cash receipts don't find their way into the till or onto the books, but which go to Switzerland. I have been asked to concentrate on somewhat more complicated, and widely used but less widely familiar, methods of using these foreign bank accounts to do illegal business. Now, let me start with an example of a business which either buys or sells in a foreign country. First, we will have a Swiss bank account, and then we will use a time-honored business device of double invoices. If my business sells a product in Europe, it is very easy for me to invoice on two bases; one will be a lower invoice, which will be shown to the internal revenue inspector; one will be a higher invoice which is the true invoice which tells my customer abroad how much he must pay. My understanding with him is such that he pays the lower invoice directly to me and the difference he takes and deposits to my account in Switzerland, where the Internal Revenue will never see it. If I am buying products abroad, it works in the opposite way. Instead of understating my revenue, I can overstate my costs and deductions. My seller will oblige me by sending me an exaggerated invoice. I will pay this overstated invoice with the understanding that the seller will take the difference and deposit it to an account for my benefit. Now, you have all heard of the Liechtenstein business trust If I form for such an establishment or company in Liechtenstein-the form is not really significant and that company in Liechtenstein opens a bank account in Switzerland, all manners of benefits can flow from this arrangement. If I sell abroad or if I purchase abroad, I don't have to get involved in the complication of double sets of invoices to cheat the Revenue. I can very simply attribute to this Liechtenstein Co., a service performed in the sale or purchase, either an introduction or a sales letter or something which entitles it to receive a deductible commission; a commission will be paid to this Liechtenstein trust whose ownership can never be disclosed, and its manager in Liechtenstein will deposit the commission to the bank account in Switzerland where the money will remain for my personal use. If I am in a service business abroad, such as commission selling, some performance, some partial performance of that service can be attributed to the Liechtenstein Co., so that a portion of my fee can then be paid over to the Liechtenstein Co., which on a nontax-paying basis shares in my receipts-the trust of course, being me in my alter form. But that's talking about business which is conducted in large part abroad, and I would like to concentrate a little more on activities that are purely domestic, that are right here at home and among the most familiar of them is simple trading on the stock exchange, trading in securities for profit. Now, many traders have made great profits in the years in which the market has gone constantly upward. It is very easy to be a brilliant trader in rising markets, but traders have often found when they have to pay both commissions to the broker on the buy and on the sell and taxes to the Government on the profits that it is too hard to trade |