profitably. And so some brokers and some foreign bankers have devised a method which, by adding a little bit to the commissions, can eliminate the taxes altogether.

Now, this is not a difficult thing to do. Most Swiss banks have very large, very active accounts with brokers in New York. Those accounts are maintained in the name of the Swiss bank. The securities of all the bank's customers may be lumped in together and there is no record at the New York broker of the identities of the bank's customers, the true owners of the securities. My broker can simply introduce me to a Swiss bank that does business with him. I will open an account with them. Thereafter, my broker will call me as he always did, or I him, to suggest that I should buy such and such a stock. But instead of the order being entered on his books in my name, he will simply in the course of his daily telephone or Telex communications with the Swiss bank advise them that this transaction is to be performed for me. For form's sake the bank will Telex an order to the broker. The Swiss bank will enter the transaction on it's books as my transaction. The New York broker will enter it on his books as the Swiss bank's transactions, and the Government will know nothing about it.

The New York broker will make a commission. The Swiss bank will make a commission. I hopefully will make a profit. And the only one to be left out all together is the Treasury.

Now, the area of trading in securities is an area that is covered with regulation, and most of these regulations, or many of them, can be circumvented by the use of foreign banks. I suppose the most basic provision of this regulatory scheme is that which prevents persons who control a corporation from selling its securities to the public without first registering with the SEC and without filing and distributing a prospectus which fully describes the affairs of the company to the public.

Such a prospectus can be both expensive and very embarrassing, especially if the reason that the controlling person wants to sell his stock is that the information which a prospectus would contain would make the stock go down. So a simple way to avoid this embarrassment is to sell the stock through a Swiss bank without a prospectus so that no one can know who is selling it.

Now, trading by insiders in the stock of their corporations is an area that is fraught with difficulty because when insiders trade they characteristically possess important information about the corporation that is not available to the public. By "insiders" I mean officers or directors or persons close to the corporation. Courts have repeatedly found, particularly in the last few years, that trades by insiders in the shares of their own company were taking advantage of inside information fraudulent or at least unfair to the public and stockholders and therefore subject to rescission. Now if I were an officer of a company and I knew that tomorrow my company was going to announce a huge oil discovery, or a disastrous and unexpected loss, I could avoid all the difficulties of dealing with courts by simply buying the stock or selling it short through a Swiss bank account. In one day, I could make a big profit, and no one would know. If it were even more unscrupulous and alert to the possibilities of profit through this device, I could even manipulate the news about my corporation so as to make the market in the stock fluctuate and thereby create my own occasions to make secret profits.

Now, you are familiar with section 16(b) of the Securities and Exchange Act of 1934. For reasons similar to those I have just discussed section 16(b) requires corporate insider to turn over to the corporation every cent of profit that he realizes in short-term trading within a period of less than 6 months in the stock of his own corporation; he is automatically deemed to have earned such a quick-trading profit by using some of inside information which he should not be entitled to profit by. If such an officer uses a Swiss bank, section 16(b) might as well not exist, because he does not have to report the transactions and no one can ever know that they took place.

Margin requirements are, of course, an extremely complicated area. I will not go into them at any length, because I surmise from the very interesting recent prosecutions in Mr. Morgenthau's office that he will probably have quite a bit to say about those.

I will talk briefly about market manipulation. A market rig is, of course, illegal. A marketing, or manipulation, seeks artificially to move the price of a stock up or down to permit the manipulator to make profits in his trading or unloading. This occurs characteristically when a boilerroom, which is a high-pressure over-the-telephone stock-selling outfit, has a large block of stock to sell. They do not sell it over the market. They sell it over the telephone, and therefore the shares they sell do not immediately depress the market price. Little by little, however, the market will be depressed by the fallout from the large quantities of stock which the boilerroom floats. Now, it is very easy to counteract that little bit of downward pressure on the market price of the stock if one has just a tiny bit of buying on the stock market. While the boilerroom sells thousands of shares a day over the telephone, it can keep the market price high by putting in orders to buy only a few hundred shares. If this is done through a Swiss bank and no one can ever see that the buyer of a few hundred shares is the same person as the telephone seller of thousands. No one will know the market has been manipulated.

Of course, you are familiar with the fact that persons who are forbidden to buy gold may do so with the greatest of ease through a foreign secret bank account. And corruption is something which thrives and benefits from the existence of such bank accounts. A secret bank account in Switzerland is the answer to a prayer for a corrupt inspector or a corrupt Government contracting officer who takes bribes for the illegal services that he renders. Those brides can simply be shipped straight to his account in a foreign country and never be detected. Similarly, a corrupt employee who takes kickbacks on the sales of his employers' products, or who embezzles his employers' money, can put it straight in the foreign bank account where it is very difficult to detect. And ironically, I understand that even a large amount of Federal poverty funds, embezzled Federal poverty funds, have found their way into Swiss bank accounts.

Now, bank secrecy in Switzerland technically can be lifted by the Government of Switzerland when a bank is being used to harbor stolen funds. But that is easier to say than to do; if a prosecutor needs the proof that the stolen funds are in the account there in order to get the bank secrecy lifted-and if he can get that proof only by seeing the account records-then he has succeeded only in chasing his tail; the secrecy will not be lifted and he will not have the proof of the crime.

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Furthermore, the Swiss banking secrecy will never be lifted where the crime involved is under regulatory or fiscal crime or fiscal laws. Almost all of the criminal activity I have discussed can be accomplished virtually without danger of discovery through a foreign secret bank account if one is sufficiently careful and not too greedy. To the extent that there has been any success in their discovery or prosecution, it is because of tireless investigation sometimes aided by a lucky break. I know that Mr. Morgenthau's office spends literally thousands of manhours in ferreting out such violations. They are exceedingly difficult to discover. It is my belief that disclosure legislation such as that before this committee would be of great assistance to law enforcement in detecting such illegal financial operations.

Chairman PATMAN. Thank you very much, sir.

We have the Department of Justice represented here this morningthe Honorable Will Wilson; and I personally want to welcome him as a distinguished Texan and a former attorney general of our great State.

We are glad to have you, Mr. Wilson; and you may proceed in your own way, sir.

STATEMENT OF HON. WILL WILSON, ASSISTANT U.S. ATTORNEY GENERAL

Mr. WILSON. Thank you, Mr. Chairman, ladies and gentlemen. I appreciate the opportunity to be here and speak in behalf of the Justice Department favoring this inquiry and the legislative efforts that you are considering,

I am especially grateful to you, Mr. Chairman, for your insistence that these hearings be held in an atmosphere of fairness and impartiality. As you said just 1 year ago, "No country, institution, or person is being accused of any wrongdoing nor is there any idea of generating undue publicity of the sensationalist type." It is my concern, as I know it is the concern of this committee, that these hearings not be misconstrued as an attack on friendly foreign governments or their internal laws.

For example, Swiss banking secrecy was not created to permit 20th century Americans engaged in organized criminal activity to escape detection. Swiss bankers since the 18th century have maintained a confidential relationship with their depositors much like the relationship between lawyer and client, priest and penitent. This relationship, based on custom and practice, was hardened into law by the Swiss in 1934 primarily to prevent the Nazi government of Adolph Hitler from locating and seizing private assets owned by German Jews and deposited in Swiss banks.

But as is known these laws have been distorted by the leadership of organized crime and by others seeking to avoid U.S. security regulations and tax requirements. The activities of these Americans, and the cooperation given them by some Swiss citizens, is a matter of deep concern to the Swiss Government. During the past year officials of that Government have met with representatives of the United States in discussions seeking amelioration of the problem. With your permission, I would briefly discuss the progress of these discussions and then briefly give my views on the legislation under consideration today.

In April of this year officers of the Swiss Political Department and the Swiss Ministry of Justice and Police met in Washington with representatives from the U.S. Departments of State, Treasury, and Justice, and the Securities and Exchange Commission. Initial discussions were general in nature, centering principally on organized crime, the narcotics traffic, and Securities and Exchange Commission violations. It was our joint purpose to define the means by which private Swiss facilities were used by Americans to further or to conceal illegal activities. During these meetings it became clear that a treaty would be needed to insure uniformity of treatment by all American States and by all Swiss Cantons.

In June we met in Berne to consider the first draft of a treaty. After detailed analysis this draft was rewritten and that document is now under review by both Governments. It is the present plan to meet again early next year for substantive discussions.

The treaty would be reciprocal in nature. From the standpoint of the United States, it would enable our State and Federal prosecutors to get information and evidence from Switzerland for investigations and for prosecutions. There are difficulties, of course. The Swiss have no equivalents to our securities regulations or criminal tax laws and have suggested, therefore, that any evidence obtained by use of compulsory measures under a treaty could not be introduced in evidence in any prosecution for "fiscal offenses." We are seeking ways to overcome these difficulties.

I might enlarge on that briefly, Mr. Chairman.

The Swiss do not have the equivalent of our criminal offenses for income tax or for securities and exchange violations, and their general position in this negotiation is that the facilities of their courts should be used in discovery processes only for crimes committed in this country which would be crimes if committed in Switzerland. Therefore, since they do not have a tax fraud crime or a securities type crime, they would not recognize, under these treaties, discovery processes which emanated from causes in this country that were based either on tax fraud or securities criminal matters. That has been their consistent position and on that they have not yielded in these negotiations.

We are most hopeful that our negotiations will lead to a meaningful agreement. For the present I reiterate that the Swiss Government is as concerned as we are by organized criminal activities. The impact of organized crime has become a worldwide problem.

Mr. Chairman, we are aware that a viable treaty with the Swiss Government is not a complete answer to the problem of foreign bank secrecy. Many other countries have adopted secrecy laws. We must make certain that we do not merely substitute the commercial secrecy system of one country for that of another.

It is with this thought in mind that I turn to the bill before us today. This legislation is aimed at U.S. law violators and not at foreign governments. It requires Americans to make records available within our jurisdiction by calling for reports on their foreign currency transactions. It requires stronger recordkeeping procedures by domestic American banks. In brief, Mr. Chairman, this bill is drafted fully in accord with the purposes you stated last year-there is not the slightest interference of criticism of any foreign nation.

Title I of the proposed statute requires domestic banks to maintain records showing (1) the identity of depositors; (2) the identity of each person authorized to act with respect to each account; (3) each check drawn on the bank or received by it for deposit; and (4) the identity of any individual engaged in any transaction with the bank which is required to be reported under title II.

Title II would require a report to be filed with the Treasury Department by various categories of people: (1) anyone who knowingly transports currency of the United States from our jurisdiction to a foreign jurisdiction in an amount exceeding $5,000 on any one occasion or in any aggregate amount exceeding $10,000 in any year; (2) any resident or citizen of the United States or person doing business in the United States who engages in any transaction with a foreign financial agency which does not make its records available to authorities of the United States. Unreported transactions of the type covered by the bill are prohibited and can result in criminal or civil penalties or forfeiture of the money involved in the unreported transaction.

By requiring reports and by penalizing unreported transactions, this legislation would create a deterrent to the use of foreign banks for illegal purposes yet would not interfere with the legitimate use of those banks. Obviously, a depositor of Las Vegas "skim" would not notify the Secretary of the Treasury. He would then not only be in violation of the income tax laws, he would also be violating the statute. It would, in most cases, be easier to establish the illegal, unreported transaction of money to a foreign country than to establish income tax evasion. Similarly, it would be simpler to prosecute for violations of the proposed legislation than for violations of margin requirements.

As I read the bill it would encompass the depositor, the real party in interest, and any courier employed to transport money from the United States. This is most significant and I urge the committee to make the purpose clear in the legislative history of the bill.

One final point-under the proposed legislation, authority is given to the Secretary of the Treasury to exempt any person or business entity from the reporting requirements of title II. I consider this grant of discretion to be important for several reasons:

First, there is no reason to burden legitimate business with unnecessary redtape. Our purpose should be to detect and prosecute crime and not to build a mountain of paper.

Second, if a foreign government, on a reciprocal basis, cooperated with the United States by making available records needed for criminal prosecutions, the Secretary could eliminate or modify the reporting of transactions by Americans with financial institutions within the jurisdiction of that government. Thus the legislation could prove to be a catalyst to mutual agreements between other nations and our own. Mr. Chairman, that completes the prepared statement prepared by the Department. It is the Department's position in this matter. I would like to add personally this further thought for your inquiry here. All of these very complex transactions which are showing up in the criminal processes of the United States involve rather intricate and complicated and often very complex commercial and other types of transactions. Ultimately, the purpose in taking this money to Switzerland is to get it back into the United States. It is a method of, as the first witness said, covering the footsteps in such a way that they cannot