Mr. ALEXANDER. There is a case presently in the district court in Minnesota involving a major U.S. corporation and, I think, two of its officers.

Mr. WOLFE. Right.

Mr. WHALEN. And this is of recent origin?

Mr. ALEXANDER. It certainly is.

Mr. WHALEN. Now, the revelations in recent months that have occurred have resulted exclusively from the detective work of Federal agencies?

Mr. ALEXANDER. I think there has also been some detective work by the press. The press is rather adept at this these days.

Mr. WHALEN. I say God bless them. Well, let me rephrase the question then. These revelations did not occur as a result of the efforts or activities of authorities in the host country where the alleged bribery or illegal political contribution may have occurred.

Mr. ALEXANDER. Not to my knowledge. I think Commissioner Loomis would have more information about this than I or my friends on this side of the table have but we think the revelations have occurred not because the host countries have come forward, but because of some very fine work, largely of the Securities and Exchange Commission.

Mr. WHALEN. You mentioned you work very closely with the Securities and Exchange Commission. Do you work at all with the State Department? Now, let me delineate the reason why I ask this question.

Supposing that the Securities and Exchange Commission or the Internal Revenue Service uncovers evidence of graft and you have determined that the person bribed was the President or the Prime Minister of a particular country.

Do you go to the State Department to discuss this? Could this be potentially embarrassing to the United States and its relations with country X?

Mr. ALEXANDER. I will ask Mr. Wolfe and Mr. Tobin.

Mr. WOLFE. It could be potentially embarrassing to the United States, but again we have a problem even with the State Department in what we can disclose by law under 6103 to the State Department, but in most countries, in the larger countries, we have representation. The Internal Revenue Service has an office in most of your developed countries in the world that are with the Ambassador's office there.

So, consequently, I think that they are pretty well aware of the things that are going on, but to the extent that we are permitted by section 6103, yes, we do advise their people, and they in turn advise the State Department.

Mr. WHALEN. Could you perhaps elaborate a little bit on the limitations imposed by section 6103?

Mr. WOLFE. By 6103, with executive-without approval of the President of the United States, there are basically the committees of Congress to which we can disclose information: Ways and Means Committee, the Senate Finance Committee, and the Joint Committee on Internal Revenue Taxation.

Beyond that, we must have Executive orders. The Department of Justice, of course, handles our criminal cases.

Mr. ALEXANDER. The President has issued a number of regulations. This provision calls-and it is unique in this respect-for Presidential

regulations, and one of those regulations provides that the head of an agency such as the Chairman of the Securities and Exchange Commission or the Secretary of State may obtain tax information on request.

One of the problems involved is obviously Catch-22. How do you make a request when you don't know what to request or about whom to request it? This is one of the many problems under section 6103 as presently written. We hope it will be corrected by Congress.

Subject to these limitations and this awkward Catch-22 situation,. surely we have a responsibility to enforce the tax laws, and we have a responsibility not to disrupt the international relations of the United States, and we have a responsibility to understand the connection between the two.

Mr. WHALEN. Let me go back to the uncovering of cases of alleged bribery and illegal political contributions. At any time, have you been contacted by enforcement officials of other countries inquiring as to whether you might be of assistance to them in uncovering cases?

Mr. ALEXANDER. Yes.

Mr. WHALEN. I won't-it would be inappropriate to ask you specifically what countries. You may respond if you feel it is appropriate. Mr. ALEXANDER. Thank you for considering that question inappropriate.

[Laughter.]

Mr. WHALEN. Were these contacts made after the information was unearthed in our country?

Mr. ALEXANDER. Not necessarily, and we have had contacts with other countries. The counterparts of the Internal Revenue Service in other countries have the same difficult job that we have of administering and enforcing their tax laws. Within our treaty framework with other countries-we have 34 treaties, most of them containing a provision calling for the exchange of information and cooperation between the two treaty countries. We cooperate with them and they with us.

Mr. WHALEN. Let me attack it from another position. Has your investigative staff undertaken a review based upon cases arising in other countries?

Mr. ALEXANDER. I would say yes. We are interested in cases arising in other countries having U.S. tax consequences.

Mr. WHALEN. That is, of course, what I meant, these cases being allegations of violation of the host country's laws?

Mr. ALEXANDER. Allegations of violation of the host country's laws or perhaps also violations of U.S. law.

Mr. WHALEN. Thank you.

Mr. Nix. We have 15 minutes to vote on the Morse amendment. Shall we suspend and go down and vote and get right back here? Will you please excuse us?

[A short recess was taken.]

Mr. Nix. While we are awaiting the return of Mr. Whalen and Mr. Biester, let me utilize the time by asking that in the information that you kindly have consented to supply you make a part of it a position on the Exxon Co., this Italian situation that has arisen, and the other corporations and the disclosures concerning them that arose at the same time.

I notice a statement was made after evidence was presented on the matter that I just mentioned, and that statement in substance says that a cancer is eating away at the vitality of Western society. The cancer is corruption.

Well, I want you to know that this cancer is not as destructive as many other diseases that might be eating away at Western civilization, and, if it is a cancer and it is eating away by this time--I make this observation because I know it has been with us for a long time-our society should have long since been eaten away.

I don't think this is the thing that is going to destroy us, particularly in view of the active effort being made by the agencies of the American Government charged with the responsibility in this area. I think and I am confident that the American Government, the American system, will survive, even this cancer, if it is a cancer. Now, would you like to proceed until Mr. Biester———

Mr. WHALEN. I just have one other question which occurred to me, Commissioner, and it is this. We are all concerned about wrongdoing, bribery, illegal political contributions. As we know, through your efforts, the efforts of the Securities and Exchange Commission, and the efforts of the media in our country, we have uncovered a number of cases where this has occurred abroad. The thing that concerns us, of course, is: How can we call upon host countries to undertake a similar effort? It seems to me that it is their principal responsibility because, really, it is their laws which are being violated.

I think it is quite obvious that one of the problems in this connection is where you have a one-party and perhaps one-man rule, no free press, no equivalent of your Internal Revenue Service, and no Justice Department which can uncover these things. Consequently, we are pretty much left to your efforts here in the United States. I think the question concerning all of us is: Just how do we get help in uncovering this?

Mr. ALEXANDER. Your question involves two problems, one of which may be solved, at least in part, by leadership and by example. The other problem is very difficult to solve. International boundaries are just that, particularly in the tax area.

It has long been a rule of law that one country will not enforce the tax laws of another country. We need help not so much in enforcing our laws as in permitting us to enforce them, help in unearthing evidence in securing books and records abroad, in obtaining testimony of witnesses abroad. We hope that through our efforts and the example that the United States-that the Securities and Exchange Commission, that we believe the Internal Revenue Service-is providing, that foreign governments and their counterpart agencies will be encouraged to undertake the same activities, assume the same attitude, and exhibit the same daring that agencies in this country have exhibited in an effort to make sure that the laws are enforced, as the chairman said, firmly and fairly, irrespective of political strength or connections.

Mr. WHALEN. Let me ask you, Commissioner: Have you in the past had resistance from authorities in other countries where you have attempted to uncover these facts?

Mr. ALEXANDER. I can state that we haven't had the cooperation in all situations that we would like to have had.

Mr. WHALEN. "In all" is a pretty broad thing. That might be only one instance.

Mr. ALEXANDER. I will substitute "many" for "all."

Mr. WHALEN. Let us get this statement again. You have not hadMr. ALEXANDER. I wish we had better cooperation. We are now receiving better cooperation than we have received in the past, but we are not receiving cooperation from all countries at all times.

I talked about this problem in a meeting in Ottawa of the tax administrators of the Western Hemisphere countries, and these countries exhibited great interest in cooperating and working together to enforce our tax laws, although there are, of course, incentives of the kind that you outlined in the example that you described against such enforcement and although there are some cases of fugitives from American justice residing in the Western Hemisphere.

Mr. WHALEN. I would imagine that your meeting in Ottawa, you will find that your counterparts in what I would call the developed countries have situations similar to ours. However, isn't it different in less developed nations? Maybe one-party governments where it is difficult to enforce investigations of this type without the consent of the leader of the country?

Mr. ALEXANDER. Surely. If the leader of the country is on the take, can you really expect a tax commissioner of the country to enforce the laws against the leaders? It is a difficult problem.

Mr. Nix. Mr. Biester.

Mr. BIESTER. Thank you, Mr. Chairman.

Mr. Commissioner-I never practiced much tax law. Those of my peers who have I am in their envy this afternoon. [Laughter.]

I have a feeling that there may be some American tax loss that occurs as a result of foreign income tax against which the company may get credit here on domestic income tax, resulting from illegal contributions made abroad, as to which it may be very difficult for you to have much in the way of control.

In fact, I think this is a question that I have begun to ask you— It seems almost unfair to ask. Is there any way you can quantify what the potential loss may be?

Mr. ALEXANDER. We can't quantify it, but we are concerned about it. The foreign tax credit can be improperly adjusted, and thereby U.S. taxes improperly decreased, by an event abroad in the exclusion or, perhaps, the claiming of an impermissible deduction under the U.S. law, but the claiming of the foreign tax credit does give us some, although not a completely adequate, way to inquire about the situation. Now, normally, of course, the claiming of a deduction for foreign tax purposes reduces the foreign tax at first glance, apparently reducing the credit, but the workings of the credit and the overall limitation and carryovers are mysterious and there can be both present and delayed consequences such as on the ultimate liquidation of the foreign company with improperly reduced earnings and profits resulting from the improper claim of a deduction for foreign purposes.

Mr. BIESTER. Doesn't it depend on whether what they bought was actually delivered?

Mr. ALEXANDER. Yes, and by "improper deduction" I was using shorthand, and I think inadequate shorthand, for a variety of schemes, some of which involve unreported income.

Mr. BIESTER. Would 162 (c) (1) apply to political contributions abroad in a country in which corporate contributions were not illegal? Mr. ALEXANDER. Yes, because it applies U.S. standards of legality,

by incorporating the proviso that I mentioned. If the payment is to an official or employee of a foreign government, would the payment be unlawful under the laws of the United States if such laws were applicable to such payments to such official or employee.

We use U.S. law standards to test legality. Now, the burden of proof is placed on the Internal Revenue Service in this particular respect, in that we have to demonstrate this illegality by clear and convincing evidence. We think we are generally in a position to meet this obligation.

Mr. BIESTER. What percentage of developed countries have proscription on corporate contributions? Are we the norm or are we unique?

Mr. ALEXANDER. I am not in a position to answer that, Mr. Biester. I will do my best to supply the answer for the record. I don't know whether any others on our side of the table or the SEC side of the table are in a position to answer this.

Mr. BIESTER. I am just asking that question in terms of competitive position of American companies, or what our circumstances are in terms of our law compared to other countries.

Mr. ALEXANDER. I am uncertain as to whether other countries have anything such as section 610 of title 18.

Mr. BIESTER. In terms of scale of the problem, I guess here we would be separating the multinational situation, bribery and illegal and corrupt practices abroad, from your investigation of the domestic situation.

Let us take the Fortune 500 companies. Are we dealing with a large percent of sinners among them or are we dealing with a relatively small percent of sinners among them?

Mr. ALEXANDER. I hope and believe that we are dealing with a relatively small percent of sinners. As I said earlier, by describing some of the techniques that a few multinationals have used, I did not mean to indict the entire group of multinationals, and surely not all of the Fortune 500.

Mr. BIESTER. Can you give us some notion of the volume of the problem, of the sinners?

Mr. ALEXANDER. Mr. Wolfe.

Mr. WOLFE. Well, we know right now that there are 50 rather large ones and there are 61 others, so I would say approximately 100, that made such payments. We do not know yet whether all of them have claimed them improperly for U.S. income tax purposes.

Mr. ALEXANDER. It is my understanding that some of those 100 or 111 would include companies that made domestic payments as well

as

Mr. WOLFE. Some of them are not foreign. That is right.

Mr. BIESTER. In terms of the domestic situation, are there any foreign transnational companies that have engaged in this practice in the United States? I mean illegal contributions?

Mr. ALEXANDER. Within the United States? I don't know. Surely not beyond the realm of reason. Multinationals work both ways, and the extent of foreign investment in this country is great, and, of course, our interest in making sure that U.S. subsidiaries of foreign corporations meet their tax obligation is as great proportionately as our interest in the other direction.

Mr. BIESTER. So that is a matter that you do look into?