Patman (Transcript, p. 58), is that the growth in the number of Nassau branches is directly related to the growth in the Eurodollar market, since an American bank can accept Eurodollar deposits only at a branch outside the United States. The Federal Reserve Board has recently granted approvals for new Nassau branches subject to the understanding that such branches will devote themselves to attracting new international business, and we know of no evidence that the spirit of these approvals has been violated by such branches' seeking the deposits of American residents.

It also appears to us that Mr. Morgenthau's testimony on interest rates payable by foreign branches of American banks demonstrates a lack of understanding of the relevant legal provisions and of the economics of the Eruodollar market. Although he stated that the Federal Reserve Board has "closed" a "loophole" under which "foreign branches issue certificates of deposit to lenders at uncontrolled rates" (Transcript, p. 32), the fact of the matter is that the Federal Reserve Board does not regulate the rates payable on deposits by foreign branches of American banks.

We are also concerned about the fact that Mr. Morgenthau's testimony concerning margin accounts may have given rise to an inference that it is illegal for an American to borrow on stocks abroad without putting up the same equity which would be required in the United States. Such foreign borrowings are not illegal, since the margin regulations operate only against lenders and not against borrowers. See Metro-Goldwyn-Mayer, Inc. v. Transamerica Corp., 303 F. Supp. 1354 (S.D.N. Y. 1969). It may well be that Americans should be prohibited from borrowing on margin abroad on terms more favorable than those which apply here, but this would require a change in the law and one which is not included in H.R. 15073.

The direct connection between the provisions of the bill and much of Mr. Morgenthau's testimony is far from clear. The bill relates to recordkeeping procedures by American banks in the United States, and yet some of the illegal schemes he discussed (such as the Gulf Coast Leaseholds case, Transcript pp. 35-36) do not appear to have involved any use of the American banking system. In other cases, even though the America banking system was utilized, he did not make it clear how the provisions of the bill would assist the law enforcement authorities.

In addition, Mr. Morgenthau referred to two incidents involving The Chase Manhattan Bank which in our view have no relevance to the bill. The alleged attempt to steal $12,000,000 from the Chase by means of a false authorization to a correspondent bank (Transcript, p. 51) had nothing to do with the fact that the bank in question was Swiss, and the same sort of situation might have arisen with respect to a correspondent anywhere in the world. Moreover, none of the provisions of the bill would have been of the slightest help in the detection or prosecution of the crime involved. He also discussed an incident assertedly involving the Hamburg branch of the Chase (Transcript, p. 204). The Chase is only now in the process of opening a Hamburg branch.

In answering a question from Representative Gettys as to the possibility of fishing expeditions, Mr. Morgenthau seemed to imply that the bill would require law enforcement authorities to obtain a subpoena before gaining access to the records which the bill would require to be kept (Transcript, pp. 222-23). The fact of the matter is that, so far as uninsured banks are concerned, section 122(3) of the bill explicitly permits the Secretary of the Treasury "to have access to and to obtain copies of any material" which the banks are required to retain.

We were surprised at Mr. Morgenthau's testimony (Transcript, p. 196) to the effect that passage of the Bill would be beneficial from the standpoint of the collection of economic statistics. We consider it most unlikely that the Bill would have any beneficial effect so far as statistics are concerned.

We doubt that there is any basis for Mr. Morgenthau's statement that the Swiss branches of some American banks have grown to the point where they are larger than the Swiss banks in the cities concerned (Transcript, p. 190). Mr. Morgenthau also testified that Switzerland has no federal tax laws (Transcript, p. 246), whereas in fact the Swiss federal government levies several taxes.

Finally, we are baffled at Mr. Morganthau's statement that it is "shocking that an American bank, by opening a branch abroad can * * * successfully deny its obligation to make account records available to the Department of Justice by claiming that the laws of a foreign country would be violated" (Transcript, pp. 3233). We simply cannot fathom how it can be "shocking" under any sensible system of international law that an enterprise doing business in a particular

country is obliged to comply with the laws of that country. The Swiss banking secrecy laws do not apply solely to Swiss-chartered banks; they apply to any bank doing business in Switzerland. Surely it would be a perversion of international law for a branch of a Swiss bank in New York to assert that it did not have to comply with a lawful American subpoena because it was a Swiss corporation and in Switzerland similar bank records could not be disclosed! The fact that the American courts will not compel production of foreign records where such production will violate the law of the country concerned is founded on fundamental principles of comity between nations.

The foreign offices of American banks contribute importantly to our overseas trade and their profits help our balance of payments position. Because of the effective competition generated by such offices, many foreign bankers and probably some foreign governments would be delighted to see our banks confined within the borders of the United States. We can think of no more effective method for bringing about such a disaster than to compel the foreign branches of American banks to violate the laws of the countries in which they are doing business.

Mr. BROWN. Madam Chairman, I think terribly important to this whole problem are the comments of the gentleman on Mr. Rossides' proposals, since these gentlemen are most familiar with the mechanics of recordkeeping. Inasmuch as the gentlemen prefer to comment on these proposals on the record, I have no further questions.

Mrs. SULLIVAN. Thank you, gentlemen. The chairman, as you know, excused himself before you started your testimony. He has been having some very bad tooth trouble and he had to keep an appointment with the doctor. Thank you very much for your time and your testimony.

Mr. SOMMER. Thank you, Madam Chairman and members of the committee.

Mrs. SULLIVAN. The committee is adjourned until the call of the Chair.

(Whereupon, at 3:15 p.m., the committee adjourned, subject to the call of the Chair.)

FOREIGN BANK SECRECY AND BANK RECORDS

MONDAY, MARCH 9, 1970

HOUSE OF REPRESENTATIVES,

COMMITTEE On Banking aND CURRENCY,

Washington, D.C.

The committee met, pursuant to notice, at 10:05 a.m., in room 2128, Rayburn House Office Building, Hon. Wright Patman (chairman) presiding.

Present: Representatives Patman, Gettys, Annunzio, Rees, Griffin, Johnson, Mize, and MacGregor.

Chairman PATMAN. The committee will please come to order. This morning we conclude our hearings on foreign bank secrecy and bank recordkeeping. Our final witnesses are from the National Microfilm Association. This association represents all of the major manufacturers of microfilming and record-copying equipment.

The witnesses today are Frederick L. Williford, executive vice president, National Microfilm Association; Arthur R. Spaulding, staff assistant to vice president, engineering, Business Equipment Group, Bell & Howell; Mr. Jerry P. Smith, marketing coordinator, financial markets, Business Systems Markets Division, Eastman Kodak Co.

The testimony this morning will concern the claims by the Treasury Department and the bankers organizations that title I will entail tremendous expense for the banks.

Title I of the proposed bill requires that banks keep records of domestic transactions as outlined in regulations of the Secretary. The bankers and the Treasury Department have misread title I in that they claim it requires that a photocopy of every check be made by every bank that handles the check. I wish to state emphatically that this is not true. It is the intent of this legislation to require the photocopying of checks only when the check reaches the drawee bank or as the statute has it, when the instrument is drawn on the bank and presented to it for payment. There need be only a single photocopy of each check.

Furthermore, we have put sufficient flexibility in title I so that the Secretary may require other records than the photocopying of checks. He may determine that the photocopying of certain checks is of no value for law enforcement purposes. He may then decide that the existing manner or recording the transaction is sufficient.

The foregoing has not been clear to the banks or the Treasury Department. Appropriate legislative history will be made to clarify these points.

We have also received testimony that it costs as much as 5 cents to photocopy a single check and hence the cost of title I is exorbitant. Our witnesses this morning will place the cost of photocopying a check where it rightfully belongs in the correct amount.

The important point, however, is that many banks are already photocopying all of their checks and almost all banks photocopy some

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of their checks. Thus, the cost of title I cannot be based on the present volume of checks, but rather on the additional photocopying it will require.

The law enforcement authorities simply want to stop a trend over the last few years where the big banks expecially are getting away from photocopying. This has constituted a serious detriment in investigations and prosecution of criminal activities.

With the tremendous growth in volume and complexity of financial transactions, it is essential that sufficient records be maintained not only for the protection of depositors but for the purposes of law enforcement. As Mr. Morgenthau has stated, and I agree, if title I involves some additional expense, surely the banks like every other taxpayer should bear their share of the cost of law enforcement.

Our hearing this morning will be quite brief. We have asked these gentlemen from the microfilm industry to be available to answer any questions the committee may have on the cost and procedures of recordkeeping practices.

Mr. Frederick L. Williford, executive vice president of the National Microfilm Association will make a brief statement and introduce the representatives of the industry, whom I have already named. They will answer any questions the members may have.

Mr. Williford, you may proceed in your own way, sir.

STATEMENT OF FREDERICK L. WILLIFORD, EXECUTIVE VICE PRESIDENT, NATIONAL MICROFILM ASSOCIATION; ACCOMPANIED BY JERRY P. SMITH, MARKETING COORDINATOR, FINANCIAL MARKETS, BUSINESS SYSTEMS, MARKETS DIVISION, EASTMAN KODAK CO., ROCHESTER, N.Y.; AND ART SPAULDING, STAFF ASSISTANT TO THE VICE PRESIDENT, ENGINEERING, BUSINESS EQUIPMENT GROUP, BELL AND HOWELL CO., CHICAGO, ILL.

Mr. WILLIFORD. Thank you, sir.

Mr. Chairman and members of the committee, it is a pleasure to reply to your request for cost information on microfilming and retrieving check-size documents in financial institutions. The National Microfilm Association is an organization representing information storage and retrieval specialists, and suppliers to the micrographics industry. One of our objectives is to act as a source of information for Government, business, industry and the general public on subjects involving micrographics. It is in this capacity that we appear before you today.

The information presented to you today was gathered through a mail survey of the manufacturing members of the association. The number of respondents, while few in number, represent virtually 100 percent of those companies engaged in supplying financial institutions with microfilm supplies, service and equipment.

The survey categorized banks according to size as follows: (in millions) Under $25; $25 to $100; $100 to $500; $500 and over. The cost figures are based on items processed daily of 2,500; 40,000; 120,000; and 400,000 respectively, based on the four bank size categories. Cost breakdowns are presented by range of costs and average costs. Cost tabulations are presented in the following table: