AS the law now stands, a U.S. citizen who has a substantial amount of cash that he wants to hide from the Internal Revenue Service has no real problem. He can take it out of the country, entirely legally, deposit it in a secret Swiss bank account, then arrange to have the bank return it as a foreign "loan"—and defy the IRS to say it is not. That is only one of the milder variants of a sophisticated array of illegal ploys that have been made increasingly easier in recent years by the proliferation of Swiss banks in the U.S. and U.S. banks in Switzerland and the Bahamas. U.S. officials most intimately concerned with the problem conservatively estimate that the misuse of secret bank accounts may be draining the nation of hundreds of millions of dollars a year.
Last week Assistant Treasury Secretary Eugene T. Rossides gave the Nixon Administration's belated blessing to the means of crackdown proposed by Representative Wright Patman, in a bill designed to tighten the rules on foreign financial transactions. The measure, in its probable final form, will require U.S. banks to keep records of foreign transactions by their customers and to report unusually large withdrawals. Individuals will have to report all transfers of money exceeding $5,000 in or out of the country and open their own records of foreign bank accounts to Government inspection upon request.
The Treasury first promised its cooperation last July, then suddenly reversed itself after a delegation of bankers privately protested that a Patman proposal to allow the Treasury Secretary to require records of all domestic checks and deposits as well—some 40 billion a year in all—might impose an impossible paperwork burden. Now that the Administration has reversed itself again, Congress seems likely to adopt the Patman bill soon.
The bill will aid Government investigators in tracing the often devious routes by which money goes abroad and returns anonymously to the U.S. Robert M. Morgenthau, former U.S. Attorney for the New York area, asserts that some Swiss bank accounts are used to deposit the profits of heroin trafficking. Less often recognized is the dubious or downright illegal use of Swiss bank accounts by seemingly respectable businessmen.
Margins and Taxes. An increasing number of Swiss banks have established offices in New York and sent representatives to Las Vegas. They have standing accounts with Wall Street brokers, and do far more trading in bonds and securities than their domestic customers could possibly require. In fact, Americans dealing through the banks have been able to buy and sell on the stock exchanges, ignoring SEC requirements on margins, evading taxes on profits and indulging in forbidden insider trading.
At the same time, major U.S. banks —the Bank of America, Chase Manhattan and First National City—have set up shop in Switzerland, a move that entitles their Swiss branches to all the protection and secrecy of Swiss banking law. In several Swiss cities, the largest volume of business is done by the local branches of American banks. Americans now own or control several banks in Switzerland and in the Bahamas, which offers an equally attractive haven of secrecy and now has 52 banks for a population of 180,000.