FYI. We understand Congress preparing another round hearings concerning inter alia organized crime which in all likelihood will raise again question of "misuse of Swiss bank accounts". Therefore highly desirable from both U.S. and Swiss view points that some movement on subject in near future be assured.

ROGERS.

The CHAIRMAN. Now, I am really shocked over this situation, that the State Department, a part of the executive branch of the Government, would be doing something that is calculated to deter a congressional committee in the legislative branch from doing its full duty, or setting up a situation that will make it impossible for them to do their duty properly.

Now, this has many implications. I hope the Secretary of State will be able to acquaint us with his wishes and what he has in mind in connection with this.

Now, I know that for many years our people have been negotiating with the Swiss for some sort of treaty that would prohibit the use of secret bank accounts for illegal purposes. However, this treaty doesn't relate to taxation. Not at all. It doesn't touch taxation, side, edge or bottom. The treaty would not have anything to do with that. So it is limited in its scope, and our hearings are much more extensive. I am sorry that the State Department, without conferring with the chairman of this committee or any member of the committee so far as I know, takes it upon itself to get into our fight against organized crime and the use of these secret bank accounts in a way that billions of dollars are escaping taxation. The money that goes out of here is from hoodlums and other people who acquire it illegally. It goes through Panama or the Bahamas to the Swiss banks where it is purified. It then comes back into the United States under conditions much better than a citizen has in connection with investments.

Mr. WILLIAMS. Will the chairman yield?

The CHAIRMAN. Yes, sir, I would be glad to yield.

Mr. WILLIAMS. I think you are misinterpreting this telegram, Mr. Chairman. I think the Mutual Judicial Assistance Treaty is designed to facilitate the prosecution in this country of people who are making money illegally and depositing it in numbered Swiss bank accounts. And what we are interested in doing is prosecuting these people. And as long as we have the information made available to us from Swiss banks to aid in that prosecution, and we know the amount of money they deposited in a numbered bank account, then we can successfully prosecute, whereas today we cannot, except under some very extenuating circumstances.

So that I don't think that you should read anything into this telegram other than an effort to get the Swiss Government to make available to this Government the kind of information we need for prosecution, not only criminal prosecution but tax evasion.

The CHAIRMAN. Well, the treaty wouldn't involve tax evasions. Mr. WILLIAMS. The Mutual Judicial Assistance Treaty would involve just that.

The CHAIRMAN. And what about all the other countries that have secret accounts and who are doing the same thing?

Mr. WILLIAMS. Well, I would certainly hope we could enter into a Mutual Judicial Assistance Treaty with those countries so that all necessary information would be available to the proper officials in this country to prosecute those people who are using foreign bank accounts as a depository for money that has been earned illegally.

The CHAIRMAN. I respect the sincerity of the gentleman, and I hope that he is correct. But if that is true, I wonder why the executive branch, knowing that we have a case going that is so important against organized crime and others who use secret bank accounts illegally, did not at least confer with the chairman of this committee, or some member thereof, and let us know that they have no intention

Mr. WILLIAMS. Well, if the chairman will further yield

The CHAIRMAN (continuing). Of deterring our action in the matter. Mr. WILLIAMS. If the chairman will further yield, I think a study of our records will show that when Assistant Secretary Eugene Rossides appeared before this committee that he made the statement that his Department was preparing an extensive report on this with recommendations, and they hoped to have that work completed early this year and have it in your hands to be helpful to this committee in accomplishing the objective which we have.

The CHAIRMAN. Well, I happened to write Mr. Rossides a few days ago and asked him about that. I didn't get a reply until yesterday afternoon, and he asked me to keep it confidential until midnight last night. I assumed that he wanted to do it in his own interest, to let the release come out this morning about his negotiations, which is all right. I didn't object to it. And I certainly didn't raise it

Mr. WILLIAMS. What did he say about the report that the Treasury Department is preparing on the control of these secret foreign bank accounts?

The CHAIRMAN (continuing). But I am impressed that there is more delay than cooperation. This correspondence will show something about it. This is February 9, yesterday morning. I received it about noon yesterday:

"DEAR MR. CHAIRMAN." From the Department of the Treasury, February 9, 1970, Washington, D.C.

This is in response to your letter of February 2, 1970, regarding the resumption of hearings on foreign bank secrecy. The Treasury Task Force on Secret Foreign Bank Accounts has been actively at work developing detailed proposals for dealing with this problem. While all of these details would not be reflected in legislation which we would recommend, it is necessary to develop these details so that we can make a firm recommendation on legislation.

The request in your letter that we have an interim report on the work of the task force for insertion in the record on February 10 creates a problem. While we appreciate the usefulness which an interim report would have, we feel that the time of the task force could be better spent in developing the final recommendations which we would hope to be in a position to present to the committee in the near future. It now appears that Swiss representatives will be in the United States during the period March 6 to March 14 to resume discussions concerning a proposed mutual assistance treaty in criminal matters. In view of this and the necessity to prepare for these discussions, I would propose that the Treasury make its recommendations to the committee after the discussions with the Swiss representatives. While we would prefer to be in a position to report to the committee earlier, we feel that the additional time to develop our recommendations is needed in order to devise an effective program for dealing with this very serious problem.

Sincerely yours,

EUGENE T. ROSSIDES.

Mr. WILLIAMS. Mr. Chairman, that letter bears out exactly what I have been saying, precisely what I have been saying.

The CHAIRMAN. Now, my reply is as follows: This is February 10. That is this morning.

DEAR MR. ROSSIDES: This is in reply to your letter of February 9, 1970, in which you indicate that the Treasury Task Force on Secret Foreign Bank Accounts will be unable to give us an interim report for the committee hearings on February 10.

You also indicate that Swiss representatives will be in the United States from March 6 to March 14 to resume discussions concerning a proposed treaty in criminal matters. You propose that the task force recommendations be delayed until after the discussion with the Swiss representatives.

Mr. Rossides, your letter is quite disturbing. The leadership of both Houses of Congress has indicated a strong desire to adjourn the 91st Congress by Labor Day. Such an adjournment date is very possible since it is an election year. If our hearings on foreign bank secrecy are delayed along the lines you have suggested, it becomes increasingly doubtful that we will have time to secure the passage of bank secrecy bills in both houses of Congress. As you may be aware, legislation pending at the time of adjournment of a Congress dies. In this event, the whole matter must be taken up from the start in the next Congress.

In the meantime, the taxpayers and citizens of this country will suffer from the flagrant abuse of our laws which results from the criminal use of these secret bank accounts.

The treaty negotiations with the Swiss Government have absolutely nothing whatever to do with H.R. 15073 or any variation thereof you may propose. To accomplish the effective closing of secret foreign banks to American criminals will ultimately necessitate a treaty with every nation in the world. A job which will take generations.

Mr. WILLIAMS. If the chairman will yield?

The CHAIRMAN. No, wait. I am reading a letter. You will have to wait just a minute.

Mr. WILLIAMS. I thought you were finished.

The CHAIRMAN (continues reading):

As a result of the discussions with your staff on this legislation, a plenary exemptive power was provided in section 206 of the bill. It woud appear that if this section were left in the bill, then Switzerland or any other bank secrecy jurisdiction could gain an exemption after the conclusion of a realistic treaty. As I have in the past, I emphasize that no member of this committee has any desire to reflect adversely on the fine relationships that the United States has enjoyed with Switzerland or any other nation. The sole design of H.R. 15073 is to prevent criminal activity by Americans.

Because of time limitations and our desire to enact a meaningful law, you are herewith notified of my intention to conclude these hearings no later than March 13, go into markup and report it out to the House floor as early as possible.

It is passing strange that the only people you have been meeting with so far are banks with heavy interests in secrecy jurisdictions and other relationships with Swiss banks and with representatives of the Swiss Government. It appears that you are asking the fox to write the rules regarding the safety of the chicken

coop.

Sincerely,

Mr. REUSS. Mr. Chairman.

The CHAIRMAN. Yes.

WRIGHT PATMAN, Chairman.

Mr. REUSS. I think these cables and letters will speak for themselves.

The CHAIRMAN. Yes, sir.

Mr. REUSS. Couldn't we hear the witness.

The CHAIRMAN. That is what we are going to do right now.

Mr. WILLIAMS. I would just like to ask one question.

The CHAIRMAN. Yes, sir, Mr. Williams. Go right ahead.

Mr. WILLIAMS. In regard to the correspondence you have been reading. What is the date of the meetings between the Treasury representatives and the representatives from the Swiss Government. The CHAIRMAN. March 6 to the 14th.

Mr. WILLIAMS. Thank you.

The CHAIRMAN. All right, Mr. Morgenthau. We are delighted to have you, sir, and you may proceed in your own way. I believe you have a prepared statement. Pull the microphone up close where we can all hear you, please.

STATEMENT OF ROBERT M. MORGENTHAU, FORMER U.S. ATTORNEY FOR THE SOUTHERN DISTRICT OF NEW YORK

Mr. MORGENTHAU. Thank you very much, Mr. Chairman, members of the committee. I appreciate very much your invitation to appear again before this committee.

During my two previous appearances before this committee I attempted to spell out in considerable detail my concern over the illegal use by American citizens of foreign bank accounts. I pointed out that the abuse of these accounts is no longer limited to members of organized criminal syndicates and hooldlums. Although the use by the underworld of these accounts is rapidly expanding, to an everincreasing extent they are now being used by persons holding positions of responsibility and power in the business and financial world 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.

When I appeared here before I had been limited by the Department of Justice to testify on the frauds being committed through secret foreign bank accounts.

The CHAIRMAN. Now, read that over again, Mr. Morgenthau.

Mr. MORGENTHAU. I said when I appeared before this committee before I had been limited by the Department of Justice to testify only as to frauds committed through the use of secret foreign bank accounts. And I was not permitted to give my views on the merits of the bill, and I want to say right now that I wholeheartedly support this bill, that I think its passage is essential if we are going to take effective steps to close what I consider the largest single loophole in the enforcement of the criminal laws relating to white collar crime and specifically the largest single loophole in the enforcement of the tax laws. And I think this bill is essential if we are going to take an effective step forward in closing this loophole in the enforcement of the tax laws.

For decades these abuses were virtually left untouched by Federal and State law enforcement agencies, largely because investigation in this area requires far more time and expense than in any other type of prosecution. Similarly, there was no attempt by legislative bodies to remedy any of the evils flowing from foreign bank secrecy.

As a result of this inactivity, the abuses flourished. The unscrupulous businessman equaled the hoodlum in his determination to violate our laws through ingenious use of secret foreign bank accounts. Foreign banks began openly to solicit in this country secret accounts, in many cases using as selling point the advantages, illicit and otherwise that flowed from the secrecy laws of their countries. Many foreign banks organized systematic courier services to transport large amounts of cash from the United States to Switzerland and Nassau and other tax havens and set up branches and representatives in the United States to solicit and service customers. At the same time.

many American banks opened branches in these foreign tax havens so that their customers could avail themselves of the advantages of secret bank accounts. These American banks sought out, exploited and asserted the protections of local secrecy laws as vigorously as did the foreign banker. Their operations became multinational in scope to the point where the banks doing the largest volume of business in some major Swiss cities are now not the large local Swiss bank but the foreign branches of a large American bank. In the Bahamas alone 21 branches of American banks have been opened or authorized.

Now, that is far beyond the apparent needs of the tourist trade or the local economy. The opening of foreign branches by banks whose main offices are located outside of the financial centers of New York, Chicago, Los Angeles, and San Francisco is not commonplace. In addition to opening foreign branches, domestic banks increasingly played a critical role in the operations of foreign banks doing business with U.S. citizens. Transfer of funds, illicit and otherwise, through domestic banks on the way to secret foreign bank accounts becomes commonplace; and the domestic clearing and correspondent facilities of U.S. banks has become essential in many instances to the carrying out of illegal schemes involving foreign banks. For example, the facilities of a California bank and a midwestern bank were used, under the circumstances that should have aroused suspicion, to transfer funds from an American company to a Swiss bank that were being used to pay kickbacks to employees of noncommissioned officers and enlisted mens' clubs overseas.

The illegal use of secret accounts became so prevalent that when I was here last December I could conservatively estimate before this committee that deposits in foreign secret bank accounts held for illegal purposes had a value in the hundreds of millions of dollars.

In the face of this mounting illegal activity two events have generated concern among those who would violate our laws through these secret accounts. The first of these was the intensive investigation conducted in the southern district of New York. During the course of that investigation thousands of transactions were analyzed, more than 75 persons were indicted, and dozens of cases were referred to the Internal Revenue Service for criminal investigation. For each case we prosecuted, however, there were roughly six cases where we had specific information that a crime had been committed but we were unable to prosecute either because we lacked the resources to complete the investigation or because the evidence we had was inadmissible in court. For each potential case we uncovered, there were literally thousands of other cases of criminal conduct cloaked by secret foreign accounts which were not even touched by our investigations. It soon became apparent that the law as it now stands could not permit us to attack these law violators as systematically and successfully as those whose unlawful schemes take place exclusively in the United States.

The second development that has caused concern among the law violators is the publicly announced determination by this committee to propose legislation that will strengthen the hand of law enforcement agencies in their fight to uncover illegal uses of secret foreign bank accounts. For the first time it appeared that the legislative and executive branches of this Government had joined forces in a concerted