[Senate Hearing 107-85]
[From the U.S. Government Publishing Office]
S. Hrg. 107-85
CROSS-BORDER FRAUD
=======================================================================
HEARINGS
before the
PERMANENT SUBCOMMITTEE ON
INVESTIGATIONS
of the
COMMITTEE ON
GOVERNMENTAL AFFAIRS
UNITED STATES SENATE
ONE HUNDRED SEVENTH CONGRESS
FIRST SESSION
__________
JUNE 14 AND 15, 2001
__________
Printed for the use of the Committee on Governmental Affairs
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74-107 WASHINGTON : 2001
_______________________________________________________________________
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COMMITTEE ON GOVERNMENTAL AFFAIRS
JOSEPH I. LIEBERMAN, Connecticut, Chairman
CARL LEVIN, Michigan FRED THOMPSON, Tennessee
DANIEL K. AKAKA, Hawaii TED STEVENS, Alaska
RICHARD J. DURBIN, Illinois SUSAN M. COLLINS, Maine
ROBERT G. TORRICELLI, New Jersey GEORGE V. VOINOVICH, Ohio
MAX CLELAND, Georgia PETE V. DOMENICI, New Mexico
THOMAS R. CARPER, Delaware THAD COCHRAN, Mississippi
JEAN CARNAHAN, Missouri ROBERT F. BENNETT, Utah
MARK DAYTON, Minnesota JIM BUNNING, Kentucky
Joyce A. Rechtschaffen, Staff Director and Counsel
Hannah S. Sistare, Minority Staff Director and Counsel
Darla D. Cassell, Chief Clerk
------
PERMANENT SUBCOMMITTEE ON INVESTIGATIONS
CARL LEVIN, Michigan, Chairman
DANIEL K. AKAKA, Hawaii SUSAN M. COLLINS, Maine
RICHARD J. DURBIN, Illinois TED STEVENS, Alaska
ROBERT G. TORRICELLI, New Jersey GEORGE V. VOINOVICH, Ohio
MAX CLELAND, Georgia PETE V. DOMENICI, New Mexico
THOMAS R. CARPER, Delaware THAD COCHRAN, Mississippi
JEAN CARNAHAN, Missouri ROBERT F. BENNETT, Utah
MARK DAYTON, Minnesota JIM BUNNING, Kentucky
Linda J. Gustitus, Chief Counsel and Staff Director
Christopher A. Ford, Minority Chief Counsel and Staff Director
Mary D. Robertson, Chief Clerk
C O N T E N T S
------
Opening statements:
Page
Senator Collins.............................................. 1, 43
Senator Levin................................................ 4, 44
WITNESSES
Thursday, June 14, 2001
Julia Erb, Kimball, Michigan..................................... 9
Bruce Hathaway, Columbus, Ohio................................... 12
Ann Hersom, Acton, Maine......................................... 14
Detective Staff Sergeant Barry F. Elliot, Ontario Provincial
Police, Anti-Rackets Section, North Bay, Ontario, Canada....... 21
Jackie DeGenova, Chief, Consumer Protection Section, Ohio
Attorney General's Office, Columbus, Ohio...................... 24
Lawrence E. Maxwell, Postal Inspector In Charge, Fraud, Child
Exploitation, and Asset Forfeiture Division, U.S. Postal
Inspection Service, Washington, DC............................. 27
Friday, June 15, 2001
Hon. William H. Sorrell, Attorney General, State of Vermont,
Montpelier, Vermont............................................ 46
Mary Ellen Warlow, Acting Deputy Assistant Attorney General,
Criminal Division, U.S. Department of Justice, Washington, DC.. 49
Hugh Stevenson, Associate Director, Planning and Information,
Bureau of Consumer Protection, Federal Trade Commission,
Washington, DC................................................. 52
Alphabetical List of Witnesses
DeGenova, Jackie:
Testimony.................................................... 24
Prepared statement........................................... 123
Elliot, Barry F.:
Testimony.................................................... 21
Powerpoint presentation...................................... 77
Erb, Julia:
Testimony.................................................... 9
Prepared statement........................................... 65
Hathaway, Bruce:
Testimony.................................................... 12
Prepared statement........................................... 68
Hersom, Ann:
Testimony.................................................... 14
Prepared statement........................................... 74
Maxwell, Lawrence E.:
Testimony.................................................... 27
Prepared statement with attachments.......................... 129
Sorrell, Hon. William H.:
Testimony.................................................... 46
Prepared statement........................................... 152
Stevenson, Hugh:
Testimony.................................................... 52
Prepared statement with attachments.......................... 191
Warlow, Mary Ellen:
Testimony.................................................... 49
Prepared statement with attachments.......................... 158
Exhibit List
1. GMap of United States highlighting ``Locations of
Telemarketing Fraud Victims For Just One Scam''................ 237
2. G``Platinum Industries'' scam letter......................... 238
3. G``Cash Disbursement Division'' scam letter.................. 239
4. G``Trans-American Equities (TAE)'' scam letter............... 240
5. GDescription by convicted felon of a ``Down The Road Pitch''. 241
6. GExcerpts of audio tapes in which cross-border criminals
solicited Bruce and Anne Hathaway.............................. 242
7. G``Center for International Disbursements'' mailing.......... 251
8. GReport of the United States-Canada Working Group on Cross-
Border Telemarketing Fraud..................................... 253
9. GPostmaster General mailing, ``Know Fraud,'' regarding
telemarketing fraud............................................ 281
10. GBrochure prepared by The Senior Action Coalition and
distributed by the U.S. Postal Inspection Service regarding
fraudulent telemarketing abuse against senior citizens......... 283
11. GBrochure prepared by the Federal Trade Commission on
consumer protection efforts.................................... 295
12. GStatement for the Record of Michigan Attorney General
Jennifer M. Granholm........................................... 297
13. GStatement for the Record of Monty D. Mohr, Deputy Director
of Investigations, Georgia Governor's Office of Consumer
Affairs........................................................ 302
14. GStatement for the Record of ``Son of Victim'' of cross-
border fraud................................................... 326
15. GStatement for the Record of Stephen M. Hills, son of parents
who were victims of cross-border fraud......................... 329
16. GMaterial regarding cross-border fraud submitted for the
record of Canadian Ambassador Michael Kergin................... 332
17. GPermanent Subcommittee on Investigations, Republican Staff
Background Memorandum on June 14-15, 2001, Cross-Border Fraud
hearings....................................................... 361
CROSS-BORDER FRAUD: SCAMS KNOW NO BOUNDARIES
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THURSDAY, JUNE 14, 2001
U.S. Senate,
Permanent Subcommittee on Investigations,
of the Committee on Governmental Affairs,
Washington, DC.
The Subcommittee met, pursuant to notice, at 9:30 a.m., in
room SD-342, Dirksen Senate Office Building, Hon. Carl Levin,
Chairman of the Subcommittee, presiding.
Present: Senators Levin and Collins.
Staff Present: Linda Gustitus, Chief Counsel and Staff
Director; Mary D. Robertson, Chief Clerk; Laura Stuber,
Counsel; Christopher A. Ford, Minority Chief Counsel and Staff
Director; Frank Fountain, Senior Counsel to the Minority;
Marianne Kenny, Detailee/Secret Service; Susan M. Leonard,
Congressional Fellow; Bos Smith, Intern; Alan Stubbs, Detailee/
Social Security Administration; Bob Westbrooks (Senator Akaka);
and Ian Morrill (Senator Collins).
Senator Levin. The Subcommittee will come to order. Today
and tomorrow, this Subcommittee will be looking at cross-border
fraud. These hearings have been initiated and led by Senator
Collins. I thank her for her hard work in this area and so many
other areas involving the protection of America's seniors and
America's consumers and I call upon her now to give her opening
statement. I will follow that up with my opening statement.
Senator Collins.
OPENING STATEMENT OF SENATOR COLLINS
Senator Collins. Thank you very much, Mr. Chairman. I would
like to begin today by thanking the distinguished Subcommittee
Chairman for convening this hearing. As he indicated, these
hearings are the result of a 5-month investigation by my staff
and they had been scheduled before the change in control of the
Senate. Nevertheless, Senator Levin was under absolutely no
obligation to proceed and I am very grateful for his
willingness to convene these hearings.
In this age of ubiquitous international communications,
cross-border fraud has emerged as a serious problem. Foreign
countries, and particularly Canada, have unfortunately become a
major point of origin for lottery, sweepstakes, and advance-
fee-for-loan scams that prey upon Americans through direct mail
and telemarketing. Last year, the Canadian Phonebusters fraud
hotline alone received information about frauds involving $16
million in losses affecting nearly 5,000 American citizens. The
National Association of Attorneys General in the United States,
moreover, estimates that cross-border fraud costs Americans
tens or perhaps even hundreds of millions of dollars each and
every year.
Worse yet, such schemes often specifically target the
elderly, who are often especially vulnerable and least able to
afford being defrauded. A 1997 U.S.-Canadian working group on
cross-border telemarketing fraud concluded that senior citizens
are over-represented among victims and defenders have admitted
to targeting them specifically. Similarly, a survey by AARP
found that older Americans are disproportionately victims of
telemarketing scams.
Almost all of the elderly victims interviewed by the
Subcommittee had suffered a traumatic experience prior to
falling victim to a scam. For example, one of our witnesses was
distressed over his wife's stroke and was worried about the
high cost of her nursing home care. The enticements of a con
artist came at a time when he was particularly vulnerable to
such a pitch.
Our investigation indicates that the cross-border fraud
industry is a fairly sophisticated one. Cross-border fraud very
often involves ``boiler rooms,'' in which hundreds of people
may be involved, operating out of warehouses in Canada, with
dozens of telephone lines, making high-pressure calls perhaps
16 hours out of each day, 7 days a week. Nor do such boiler
rooms necessarily operate in isolation. Rather, Canadian
telemarketing fraud appears to involve a closely-connected
network in which criminals actually share information on
successful pitches and purchase and trade victim lists among
themselves. Through the use of multiple company names, con
artists who pretend to represent different internal offices of
the same company, and systems for handing off defrauded victims
to other ``boiler rooms,'' fraud rings may be able to swindle
the same person time and again.
Cross-border fraud is a growing phenomenon. According to
the Federal Trade Commission, U.S. consumers' complaints
against Canadian companies rose from nearly 5,000 in 1999 to
more than 8,000 last year and are projected to reach more than
10,000 this year. Similarly, the dollar value of losses
reported by consumer complaints against Canadian companies rose
from $5.3 million in 1999 to $19.5 million in 2000 and is
projected to reach $36.5 million this year. As our witnesses
today will illustrate, the impact of such fraud upon the lives
of ordinary Americans can be devastating, not only to their
finances but also to their pride.
One of the most common forms of cross-border fraud is the
lottery scam. The smooth-talking cross-border criminals
involved in lottery scams convince their victim that he or she
has won millions of dollars in a drawing and that the only
thing that the victim has to do in order to claim these
winnings is, first, to pay legal fees or back taxes or excise
fees supposedly due to the Canadian Government. Since there is
no lottery and there are no winnings, this ruse far too often
defrauds the victim of many thousands of dollars. Our witness
today from Acton, Maine, Mrs. Ann Hersom, saw her own family
defrauded of several thousand dollars in this fashion, and her
family is not alone. There are many more victims in communities
all across America.
Another victim was an elderly woman in North Carolina who
was tragically defrauded of more than $100,000. A telemarketing
fraud operation based in Montreal convinced her that she had
won a lottery and could collect a huge prize if only she paid
certain taxes on her winnings. To convince her of their bona
fides, they sent her some relatively small items, such as a
VCR, which helped persuade her to send them more than $100,000.
The fraud ring that destroyed her financial security was a
major one which combined elements of the lottery scam with
various other promotional offers, all of which, of course, were
no more than cruel illusions. According to documents provided
to us by the FBI, this one fraud ring defrauded literally
thousands of victims in 18 States and Canada of between $4 and
$6 million in the last 4 years.
But this scam was not the only one out there. More seem to
spring up every day.\1\ Joyce Noble from my hometown of
Caribou, Maine, recently sent me a mailing from Toronto that
illustrates what may be yet another such fraud. This mailing
announced that Ms. Noble was eligible to receive a cash payment
of $7,500 and entitled to further awards of up to $500,000.
Before this prize could be released, however, the mailing
advised that she needed to send an entitlement fee.
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\1\ Exhibit No. 1 appears in the Appendix on page 237.
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Now, this mailing fits a very familiar pattern. It promises
considerable payoffs, but not unless the victim pays money up
front, which must be returned to an official-sounding location
in Canada, denoted by a suite address, which may only mean that
it is a simple post office box. The entitlement fee that is
listed is $26, in return for which this woman is supposedly
eligible for $7,500. I have little doubt that if Ms. Noble had
sent in this $26, that she soon would have been told that her
chances had greatly improved for a half-million-dollar grand
prize, or that she had won it, but that she could collect only
in return for yet another even larger entitlement fee. In other
words, my constituent would have embarked on a long road of
repeated contacts in which she would have been promised ever-
greater rewards in return for ever-greater payments.
One convicted cross-border felon had a term for this kind
of scam. He called it the ``down the road'' pitch.\2\ It is a
method for stringing victims along for long periods of time,
getting more and more money out of them at every turn. A
handwritten document prepared by this criminal and given to the
Subcommittee staff sets out the ``down the road'' pitch used in
his fraud ring. According to this document, a salesman called a
``loader'' would contact persons who had already sent in money,
announcing that they had been selected to participate in an
upcoming awards presentation. This loader would send them small
gifts of low value to help convince them of his legitimacy and
asking for more up-front payments. Subsequently, the loader
would call back, happily announcing that the victim had moved
up in the standings and now was set to receive an even bigger
gift.
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\2\ Exhibit No. 5 appears in the Appendix on page 241.
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The gifts sent to the victim kept getting more valuable,
but they never, ever came close, anywhere near the value of the
money that the victim kept sending in the hopes of receiving
the promised ever-larger grand prize. As this criminal stated,
this was totally a scam because there was never an award
presentation, never a million or more in cash and prizes, and
we never sent a client any kind of gift that he did not already
pre-pay for. These are the kinds of people who set out to
victimize innocent Americans such as the three witnesses on our
first panel today.
Now, how do we fight such fraud? The first line of defense
against cross-border fraud is to promote public awareness of
the types of schemes in which criminals like this engage, and
we should also help educate consumers on what they can do to
report fraudulent overtures and to help law enforcement
officials catch up with these con artists.
The second line of defense is to ensure a prompt,
aggressive, and efficient response by law enforcement
officials. Naturally, this is a particular challenge in cross-
border crime fighting for which law enforcement coordination is
required among Federal, State or provincial, and local and
municipal authorities on both sides of the border. I hope that
these hearings will serve as a catalyst for better public
awareness, greater consumer wariness, and improved law
enforcement cooperation across the U.S.-Canadian border.
Finally, let me note that the relationship between the
United States and Canada is an extremely, perhaps even
uniquely, good one. As symbolized by the fact that we share the
world's largest unguarded border, our two countries have long
enjoyed a special relationship of close economic, cultural, and
political ties. In fact, in Northern Maine, where I am from,
those ties frequently involve family members, as well. My
sister-in-law is a Canadian citizen, for example. With the many
benefits of these U.S.-Canadian economic and social bonds,
however, has come the problem that it is very easy for
criminals in one country to defraud victims in the other.
However strong our ties, the United States and Canada
remain two separate, sovereign nations, each with its own legal
system and each with a law enforcement jurisdiction in some
respects off-limits for officials from the other side of the
border. Consequently, the challenge of fighting fraud across
international boundaries is a formidable one. The physical
border is no barrier for scam artists, however, and that is why
I am very pleased that Senator Levin is holding these hearings
today. Thank you, Mr. Chairman.
OPENING STATEMENT OF SENATOR LEVIN
Senator Levin. Senator Collins, thank you. Senator Collins
has just outlined that cross-border fraud is a real problem.
This is true despite significant law enforcement efforts in the
last few years and it is also on the rise, as Senator Collins
has indicated. We know that there is more money that was lost
to these scam artists last year than the year before, and that
was true relative to the year before that. These scams
frequently involve advance fees for loans, they involve foreign
sweepstakes, foreign lotteries that are initiated by people in
one country against residents of the United States, usually
through phone solicitations, but often in the mail.
The perpetrator of the frauds uses the border as an
obstacle to being caught and being prosecuted, and one major
border for such activity is the U.S.-Canadian border. This is
not now a matter of either us or the Canadians not caring
enough. Both our governments care a great deal. But because of
the complications of any border, even between two friends like
the United States and Canada, that border is being used by the
scam artists as a way of complicating their arrests and their
prosecutions. The reason that is true is that law enforcement
personnel are faced with multiple extra steps and procedures to
bring the perpetrators to justice.
A common practice in a Canadian-U.S. cross-border fraud
scheme is for a con artist to operate out of British Columbia
or some other province in Canada and make calls to persons in
the United States, frequently elderly persons and people who
are vulnerable. Using a warm and a friendly style, they offer
the U.S. resident some exciting and large financial winnings or
an opportunity which requires an up-front payment, which the
con artist then claims is necessary for taxes or customs fees
or some similar purpose.
We have had many examples of how these con artists work.
Senator Collins has just reviewed a number of those examples.
The one that I am going to focus on here is a tape which was
obtained by Senator Collins' staff, and this tape was made by
the daughter of one of our witnesses. The first excerpt which
we are going to hear is a tape that was made by Ann Hathaway,
the daughter of witness Bruce Hathaway. Now, Ms. Hathaway
recorded this conversation on October 15, 1998, with the help
of the Ohio Attorney General's Office, and that office will be
testifying here later on today.
In this phone conversation, someone who identifies herself
as Mary Thompson claims to be from the U.S. Customs Service and
she lays out an elaborate and chillingly believable scam to Ms.
Hathaway. The woman who calls herself Mary Thompson says that
because Ms. Hathaway's father had entered scam sweepstakes and
lotteries, that these scam sweepstakes and lottery people had
been caught and had agreed to a court settlement of $110,000,
to be paid to 1,200 people who lost their money. Now, the catch
was that the people who she said were entitled to the
settlement money must first send money to Mary Thompson at the
U.S. Customs Service to cover the taxes on the settlement
amount that they would be receiving, and, of course, nobody
ever gets the settlement money. We will play the first excerpt
now.
[An audio tape was played.]
Mary Thompson: It's very simple, Ann, I'm going to explain
to you from the beginning.
Ann Hathaway: Oh, well, thank you.
Mary Thompson: Your father, your father has got a bad habit
to enter sweepstakes and lottery companies. You know those
sweepstakes that you get by the mail?
Ann Hathaway: Right.
Mary Thompson: You send $10 dollars, $20 dollars, they
promise you money now.
Ann Hathaway: Right.
Mary Thompson: He lost . . . he, he sent quite a bit of
money to those sweepstakes and lotteries within maybe 3 years,
yes?
Ann Hathaway: Oh, ok.
Mary Thompson: What happened is that those companies are
illegal. They promise him money, they never send him anything,
so those companies were seized. I've got some lists here that
I, I did send your father----
Ann Hathaway: Yes.
Ms. Thompson [continuing]. Of the companies that were
seized, and those companies were brought to court. It was a
class-action suit done against them, and finally they decided
to, with the money they made with that, to send it back to (uh)
some people in a lot of countries.
Ann Hathaway: Yes.
Mary Thompson: People from Australia, United States, and
Canada who were playing those sweepstakes and lotteries. It is
very hard for them to send like $10, $20, or $40 back to 30
million people. I would have to call everybody and say, ``OK,
how much did you lose? We're gonna send it back to you.'' So
what they decided to do instead is offer a court settlement of
$110,000, ah, to about, let me see, it's about 1,200 people
that are going to be getting that money, OK? What they did is
they called your father up, there's an attorney by the name of
Robert Duran, which I didn't know. They called him up, and they
told him about that story. And he said, ``Listen, you have to
pay taxes on that.''
Ann Hathaway: Yes.
Mary Thompson: Because it's coming from another country.
I'm at the United States Customs Office. So what we did is we
confirm everything with Mr. Duran, and your father sends in
$2,000 for his taxes because he's a senior citizen and he's
able to pay the balance only after he receives the court
settlement.
[End of recorded tape.]
Senator Levin. Now, in the second excerpt, which Ms.
Hathaway recorded on November 25, 1998, Ms. Hathaway is now
speaking with a person who identifies himself as Mark Davis. He
says he is the associate of Mary Thompson, who we just heard in
this first excerpt. Mark Davis says that he is the owner of a
law firm which is handling the settlement. On the phone is also
someone called Mr. Taylor, who Mark Davis says is an attorney
at the law firm.
Both Mary Thompson and Mark Davis have explained to Ms.
Hathaway that there are additional settlements for her father
to claim. Ms. Hathaway has been told that her father is now
entitled to $170,000 from a settlement, but Ms. Hathaway or her
father must pay first $78,000 before they receive any money.
Neither Ms. Hathaway or her father paid at the time of the
following conversation, when Mark turns up the pressure and
tells Ms. Hathaway that he is losing money as a result and is
upset that she has not paid. So now we are going to hear that
piece of the conversation, first hearing from someone who is
identifying himself as Mark Davis.
[An audio tape was played.]
Mark Davis: Now, I know that (uh) you spoke with Mrs. (uh)
Thompson, and she was expecting those payments, and all the
time something happened. Now, you have to know that we're
running late, and every day that passes by I'm paying interest
for that money that is (uh, uh) held at U.S. Customs.
Mr. Taylor, an associate fo Mark Davis, in the background:
That's right.
Mark Davis: And here, at the law firm, we're not too crazy
about this. So this is why I'm trying to find answers and I'm
trying to find some solutions to get through this so you can
have the money already.
[End of recorded tape.]
Senator Levin. Fortunately, Ms. Hathaway did not send the
money, but her dad had already sent $47,000 to these people and
never received one cent in return. These crooks are still at
large. They are probably making calls similar to the ones that
we have just heard.
In addition to hearing from Mr. Hathaway, we are going to
be hearing from two other victims of similar scams, including a
witness from Michigan, Mrs. Julia Erb, who I met yesterday with
her daughter. She is going to describe how she lost $2,971 from
similar calls informing her that she had won a lottery but
needed to send money to cover the taxes that she would first
have to send in, because those taxes would have to be paid on
the money.
[The prepared statement of Senator Levin follows:]
PREPARED OPENING STATEMENT OF SENATOR LEVIN
Today and tomorrow this Subcommittee will be looking at cross-
border fraud. These hearings have been initiated and led by Senator
Collins, and I thank her for her hard work in this area and so many
other areas involving protection of America's consumers and seniors.
Cross-border fraud is a serious problem that, despite significant
law enforcement efforts in the last few years, is still on the rise.
When I say ``cross-border fraud'' I am describing scams involving
advance fees-for-loans, foreign sweepstakes, and foreign lotteries that
are initiated by persons in another country against resident sof the
United States often through phone solicitations, sometimes through the
mail. The perpetrator of the fraud uses an international border as an
obstacle to being caught and prosecuted. One major border for such
activity is the U.S.-Canadian border. Victims in our country often
think it isn't worth the trouble to seek a remedy, and law enforcement
personnel are faced with multiple extra steps and procedures to bring
the perpetrators to justice. Perpetrators rely on this reality to
escape prosecution.
A common practice in a Canadian-U.S. cross-border fraud scheme is
for a con artist to operate out of British Columbia or some other
province in Canada and make calls to persons in the United States who
are most often elderly. Using a warm and friendly style, they offer the
U.S. resident some exciting and large financial winnings or opportunity
which requires an up-front payment of a significant amount which the
con artist claims is necessary for taxes or customs fees or similar
purpose.
The FTC estimates that the dollar loss reported by U.S. consumers
with respect to Canadian companies for FY 2000 was $19.5 million, and
for FY 2001, the FTC estimates that number will rise to $36.5 million.
And these are just the reported losses. Many people don't even report
their losses, because of the embarrassment of having been duped.
We have a first-hand example of how these con-artists work their
persuasive talents over the phone. It comes from a tape made by the
duaghter of one of our witnesses. The first excerpt we will hear was
taped by Ann Hathaway, the daughter of witness Bruce Hathaway. Until
recently, Miss Hathaway was a Michigander. She moved from Michigan to
Ohio in 1998 to take care of her parents. Miss Hathaway recorded this
conversation on October 15, 1998, with the help of the Ohio Attorney
General's Office.
In this conversation a ``Mary Thompson,'' who claims to be from the
U.S. Customs Service lays out an elaborate and chillingly believable
scam to Ms. Hathaway. Mary Thompson says that because Miss Hathaway's
father entered illegal sweepstakes and lotteries (foreign sweepstakes
and lotteries are illegal for U.S. citizens to play) in the past, these
lottery and sweepstakes companies have agreed to a court settlement
which will pay $110,000 to 1,200 people who have all lost money in the
past due to participating in foreign lotteries and sweepstakes. The
catch is that the people who are entitled to the settlement money must
send money to Mary Thompson at the U.S. Customs Service to cover the
taxes on the settlement amount that they will be receiving. Of course,
no one ever gets the settlement money.
Conversation No. 1
Mary Thompson: It's very simple, Ann, I'm going to explain to you
from the beginning.
Ann Hathaway: Oh, well, thank you.
Mary Thompson: Your father, your father has got a bad habit to
enter sweepstakes and lottery companies. You know those sweepstakes
that you get by the mail?
Ann Hathaway: Right.
Mary Thompson: You send $10 dollars, $20 dollars, they promise you
money now.
Ann Hathaway: Right.
Mary Thompson: He lost . . . he, he sent quite a bit of money to
those sweepstakes and lotteries within maybe 3 years, yes?
Ann Hathaway: Oh, ok.
Mary Thompson: What happened is that those companies are illegal.
They promise him money, they never send him anything, so those
companies were seized. I've got some lists here that I, I did send your
father----
Ann Hathaway: Yes.
Ms. Thompson [continuing]. Of the companies that were seized, and
those companies were brought to court. It was a class-action suit done
against them, and finally they decided to, with the money they made
with that, to send it back to (uh) some people in a lot of countries.
Ann Hathaway: Yes.
Mary Thompson: People from Australia, United States, and Canada who
were playing those sweepstakes and lotteries. It is very hard for them
to send like $10, $20, or $40 back to 30 million people. I would have
to call everybody and say, ``OK, how much did you lose? We're gonna
send it back to you.'' So what they decided to do instead is offer a
court settlement of $110,000, ah, to about, let me see, it's about
1,200 people that are going to be getting that money, OK? What they did
is they called your father up, there's an attorney by the name of
Robert Duran, which I didn't know. They called him up, and they told
him about that story. And he said, ``Listen, you have to pay taxes on
that.''
Ann Hathaway: Yes.
Mary Thompson: Because it's coming from another country. I'm at the
United States Customs Office. So what we did is we confirm everything
with Mr. Duran, and your father sends in $2,000 for his taxes because
he's a senior citizen and he's able to pay the balance only after he
receives the court settlement.
[End of tape]
In the second excerpt, which Ms. Hathaway recorded on November 25,
1998, Ms. Hathaway is now speaking with a ``Mark Davis'' who says he is
an associate of Mary Thompson, whom we heard in the previous call. Mark
says that he is the owner of a law firm which is handling the
settlement. On the phone is also a ``Mr. Taylor'' who Mark Davis says
is an attorney at the law firm. Both Mary Thompson and Mark Davis have
explained to Miss Hathaway that there are additional settlements for
her father to claim. Miss Hathaway has been told that her father is now
entitled to $170,000 from a settlement, but Miss Hathaway or her father
must pay $78,000 before they receive any money. Neither Miss Hathaway
or her father have paid as of the time of this call, and in the
following conversation, Mark turns up the pressure and tells Miss
Hathaway that he is losing money as a result and is upset that she has
not paid.
Conversation No. 2
Mark Davis: Now, I know that (uh) you spoke with Mrs. (uh)
Thompson, and she was expecting those payments, and all the time
something happened. Now, you have to know that we're running late, and
every day that passes by I'm paying interest for that money that is
(uh, uh) held at U.S. Customs.
Mr. Taylor, an associate fo Mark Davis, in the background: That's
right.
Mark Davis: And here, at the law firm, we're not too crazy about
this. So this is why I'm trying to find answers and I'm trying to find
some solutions to get through this so you can have the money already.
[End of tape]
Fortunately, Ms. Hathaway did not send any money, but her father
had already sent $47,600 to these people, and he never received one
cent in return. Although the Ohio Attorney General's office tried to go
after these crooks, they were not able to prosecute them because they
were located in Canada. So these crooks are still at large and are
probably making calls similar to the ones we just heard.
Today we will also be haring from two other victims of similar
scams, including a witness from Michigan, Mrs. Julia Erb, who will
describe how she loast $2,971 from similar calls informing her that she
had won a lottery but needed to send money to cover the taxes she would
have to pay on the money.
I thank these witnesses for having the courage to come forward and
tell their stories. In doing so they will help others to avoid being
victimized by these criminals. And, again, I thank Senator Collins for
identifying this issue for the Subcommittee and for the work she and
her staff have done to make these hearings possible.
Senator Levin. I want to thank our witnesses today for
having the courage to come forward to tell your stories. It is
not easy to do what you are doing today, but in doing this, you
are going to be helping to prevent other people from being
victimized the way you were by these criminals.
Again, before I swear our witnesses in, which is
traditional for this Subcommittee, I want to thank Senator
Collins. It is her energy, her effort, and her staff work, in
addition to her own, which have made these hearings possible
and which hopefully will reduce the number of people who are
taken advantage of by these scam artists and these crooks.
So if our witnesses would now all stand and raise your
right hands. Do you swear that the testimony you will give
before this Subcommittee will be the truth, the whole truth,
and nothing but the truth, so help you, God?
Mrs. Erb. I do.
Mr. Hathaway. I do.
Mrs. Hersom. I do.
Senator Levin. Why don't we call on you, Mrs. Erb, first. I
am trying to figure out some rhyme or reason to the order in
which we will call our witnesses, so we will do it
alphabetically.
TESTIMONY OF JULIA ERB,\1\ KIMBALL, MICHIGAN
Mrs. Erb. Senator Collins and Senator Levin, my name is
Julia Erb and I'm a resident of Kimball, Michigan, which is
about 60 miles from Detroit. I have lived in Kimball for the
past 12 years with my husband, Ed. I have six grown children. I
might say four were born in Canada, and it says 14
grandchildren, but I also have three more as of last Monday--my
son adopted them--and five great-grandchildren. I've been a
small business owner and am now retired.
---------------------------------------------------------------------------
\1\ The prepared statement of Mrs. Erb appears in the Appendix on
page 65.
---------------------------------------------------------------------------
Starting on November 17, 2000, I began receiving phone
calls from persons telling me I had won various prizes. I don't
know why I started to get these calls. The people on the phone
sounded sincere and very excited. They asked me to send money
to cover various expenses in the delivery of cash prizes, and I
did, using my Visa credit card, which I am usually very careful
of because I like to pay it off every month. Then I also
started sending cashier's checks. I never received any of the
promised prizes. I can't believe I did this, but in order to
stop other people from my situation, from doing what I did and
losing money--I lost a total of almost $3,000, which is a lot
for me because I had a stroke a few years back, which cost a
lot--I would like to describe several of my experiences for the
Subcommittee.
My first encounter was November 17, 2000. I was called by a
Roy Taylor, who said he was calling from the First Liberty
Exchange Bank of Carson City, Nevada, phone number 1-800-223-
6971. He said I had won $60 million prize money. He said there
were ten contestants drawn down to three who would win, but I
came in first. I asked him if he was kidding and how many
zeroes that was, and he laughed and said, ``Six.'' I said,
``You're kidding, right? What do I have to do?'' He said,
``Just be there.'' Then he asked me for my Visa credit card
number and I gave it to him. He said I would be receiving 99
British Sterling bonds which were worth $60 million, that I
would receive $1,800,000 to start and that I would get $10,000
every month after January 1, 2001.
He then switched me to a Jeff Lee, who said I had entered a
sweepstakes several weeks ago, which I didn't remember. Mr. Lee
asked me if I had just spoken with Roy Taylor. I said, ``yes,''
and he said he would explain what happened next. He said I
would receive a package in 3 or 4 weeks verifying who I am and
that I am Julia Erb of good address and I had won $60 million.
He said it would be 99 units of British Sterling premium
savings bonds and that I would have a one-time legal fee of
$1,498 which would go to the lawyers who would put the money in
my name on the bonds for me. He asked me if I could manage that
or did I need more time.
He told me it was important that I not tell anyone about
this. I was beside myself. He also said it was imperative for
security
reasons to speak to a Mr. Jordan Richards, who would record our
conversation. He said I was to answer only ``yes'' or ``no.''
Mr. Richards repeated the terms of payment, asked if I
understood what I was saying, and I answered, ``Yes.''
Then Mr. Lee, who is a real gentleman, came back on the
line and said my package would arrive in 3 or 4 weeks. I was to
sign the papers they identified and phone him when I got the
package. I was surprised I could read my notes as I scribbled
any which way while holding the phone. I could hardly write, I
was shaking so.
I called Mr. Lee again on November 30, 2000, because I was
concerned that my Visa showed that the $1,498 was going to a
Hyperion Bank in Kansas City, yet he was calling me from a
First Liberty Exchange Bank in Carson City. He laughed and
said, ``Yes, dear.'' I only answered, ``Yes, dear,'' too. He
got a laugh out of that, and I said I was so hyper I'd say just
about anything. He said not to worry, that he had many banks
and that the one--that was the one he used. He reminded me
again to call him as soon as I received my package and told me
not to worry and to take it easy. He was very gracious.
I did get worried, however, and called First Liberty
Exchange Bank on December 19, 2000, after I didn't receive any
package. I got a Mr. Redfield, who said he was the president of
the bank. Mr. Redfield told me that Mr. Lee was no longer
there. I told Mr. Redfield about our conversation and that the
$1,498 was charged to my Visa but I hadn't received a package.
He said he'd take care of it.
I received a package about 1\1/2\ weeks later which
congratulated me and told me I now had a ``personal, exclusive
two-year Premium Bond Membership package.'' I immediately
called Mr. Redfield and said I had the bond package. He told me
to sign the two papers in the package and mail them right back
to him, which I did. The papers I sent confirmed that on
November 17, 2000, Hyperion Bank had drawn $1,498 from my Visa
account, which would enroll me in the premium bond program,
which would entitle me to win $60 million. The letterhead on
the package showed the address from Nicaragua, but Mr. Redfield
told me to return the signed papers to him in Carson City. I
never received any money. I phoned the bank in Carson City, but
the number was disconnected.
My second experience occurred in March of this year. I
thought I was just lucky to get another call. On March 1, 2001,
at 5:45 p.m., I was called from Australia by a John Turner who
said I was in a drawing that was held every 10 years, 1971,
1981, 1991, and 2001. He said this was an Australian
international lotto. The drawing was to be held on Saturday,
March 3, 2001, at 8 p.m. A Michael Wilson came on the phone and
gave me a number which he said to tell no one. Number 25185 was
the number and the payoff would be $50 million. I was to send
$445 (plus $20 I paid to Fed Ex) in a cashier's check for a
chance to win to World Marketing Service in Vancouver, Canada.
I never did receive anything.
The next encounter occurred on Wednesday, March 7, 2001,
when an Andrew Dalton called me from Australia and said I had
just won the top prize of $10 million now and $10 million in
the future. Alan Wilson then called me and said he was working
with Andrew Dalton. Alan asked me if I was a U.S. citizen or if
I had ever been to Australia. When I told him I had never been
to Australia, he told me I should come to visit and he would
take me around.
Alan called me every night for about 2 weeks and asked
whether I had sent the money and to talk. According to Alan, I
needed to send him $498 for legal fees to pay the Australian
income taxes on my winnings. Alan would call around 9 p.m.
every night. When the phone rang around 9 p,m,, I would look at
my husband and say, ``That must be Alan.'' One night, my
husband and I went to church and when we got home, the phone
was ringing. It was Alan. He said, ``Where were you? I tried to
reach you several times tonight.'' I told him I had been to
church. Alan said, ``You are a lovely lady.'' I believe he was
a criminal with a conscience. I think he felt bad about what he
was doing. I really did, from his voice and all, but then
again, that's their selling point.
On March 7, 2001, I sent a cashier's check for $498 to
R.M.G., in Vancouver, British Columbia, Canada. I received
nothing in return. A few days later, Alan stopped calling.
The fourth encounter involved a Mario Lopez from Madrid,
Spain, at 8:30 p.m. on March 8, 2001. Mario told me he knew
Alan. Now, Mario said that King Carlos and Queen Sophia had a
two-person drawing and I was one of the two winners, the other
person being in California. He said the amount of the winnings
was $200,000--we're getting cheaper--and he would send it to me
within 1 month by Federal Express.
He said I was chosen completely at random because of the
way the Americans helped Spain and they wanted to give back to
the United States and he needed $1,900 from me. When I told him
I couldn't afford that, he said I could win $2,000 [sic] and
ten free tickets to El Gordo, the Spanish lottery. He then
said, ``Well, send $500,'' which would cover the amount it
would take to exchange $200,000 to American dollars from
Spanish money at Banco Expano. I sent a cashier's check for
$500 to R.M.G., Suite 277, 3351 Kingsway, Vancouver, British
Columbia, Canada, V5R5K6. He gave me his phone number, which I
never called, since he said it was $9 a minute.
I have not received any money that I was promised. I lost
only a total of almost $3,000, and I feel terrible, but that
was a lot of money to me at this time. I can't believe I was so
stupid to have done this. I just wanted to provide for my
children and grandchildren. My husband and I don't need
anything at this age, but I thought I could do something for
them.
They did it very cleverly, as my bonds had to be in for a
complete month, which wouldn't be until February 2001, and then
March would be the drawing. It was very stupid of me and I felt
I was just lucky. I had prayed always for a way to help my
family, and I believed I could after paying the income tax on
all this money, and here I am, broke. Thank you.
Senator Levin. Thank you. Your extraordinary good nature
was taken advantage of, and somehow or other, you've been able
to retain it.
Mrs. Erb. Well, lots of kids around.
Senator Levin. I was just chatting here with Senator
Collins, that you could believe somehow or other that he felt
badly about scamming you is the scam.
Mrs. Erb. I don't any longer.
Senator Levin. Believe me, he didn't feel the slightest bit
badly about scamming you.
Mrs. Erb. They're probably actors, very polished.
Senator Levin. Yes, and that is the problem that they are
credible and they make people believe who are trustful people
like you.
Mrs. Erb. Well, I had hoped I could help my family. I
really did. Well, I'm not much help this way.
Senator Levin. Well, I am sure you are helping them in a
lot of other ways, indeed.
Mr. Hathaway, let me call upon you next. You are from
Columbus and we appreciate you and our other witnesses
traveling here to discuss this issue, and again, I know it is
not easy to talk about these things, but you will be saving a
lot of other people from being scammed the way you were. We
also appreciate, as Mrs. Erb did, trying to do your statement
in no more than 10 minutes because of our time constraints, and
we may be interrupted at any time, as a matter of fact, to have
to run over for a vote or two votes. Mr. Hathaway, would you
proceed?
TESTIMONY OF BRUCE HATHAWAY,\1\ COLUMBUS, OHIO
Mr. Hathaway. I would like to thank the distinguished
Members of the U.S. Senate Subcommittee for providing me the
opportunity to speak with you today. My name is Bruce Hathaway.
I am 83 years old, a certified public accountant and Lieutenant
Colonel in the U.S. Air Force, retired. I have come before you
today to share with you my experiences as they relate to cross-
border telemarketing fraud.
---------------------------------------------------------------------------
\1\ The prepared statement of Mr. Hathaway appears in the Appendix
on page 68.
---------------------------------------------------------------------------
My wife, Helen Hathaway, has been confined to a nursing
home since March 1997. Unfortunately, my health insurance did
not cover long-term aftercare, and I was forced into a costly
self-pay situation regarding her care. Shortly after her
admittance, I began entering direct mail sweepstakes, hoping
that winnings could be used to offset the burden of these
additional expenses. As my participation in these sweepstakes
increased, so did the frequency in which these solicitations
were received.
Over the next year-and-a-half, I spent nearly $10,000
entering sweepstakes. On several occasions, I believed I had
won a substantial amount of money, later to find out I had been
deceived. I have since learned that it was my participation in
these sweepstakes that made me vulnerable to future
telemarketing scams.
In August 1998, I received a phone call from an individual
identifying himself as Robert Duran, an attorney with the
Canadian law firm of Rudel, Wiseman and Associates, informing
me of a $90 million settlement resulting from a class action
lawsuit against a group of United States sweepstakes companies
who were defrauding Canadian citizens. By utilizing information
they obtained from the United States sweepstakes companies, I
had been identified as one of many American citizens who had
been victimized by these companies. Further, having reimbursed
all of the Canadian parties involved, I was entitled to
$110,000 as my share of the remaining monies awarded their firm
for disbursement.
I received a call from a woman identifying herself as Mary
Thompson with the Canadian Tax Bureau. She called regarding 7
percent tax required before these monies could be released to
me. I asked if this amount of $7,700 could be taken out prior
to sending me the settlement, but she said that would not be
possible. I then requested that upon receipt of the settlement,
I could forward a check to cover the taxes, but again, she
refused. Since we could not reach an agreement, she said she
would talk to her superiors about releasing these monies.
Her return call concluded I could pay $2,000 up front with
the remaining $5,700 to be due 15 days after receiving the
settlement check. I acquired a cashier's check in the amount of
$2,000, payable to Tony Wiseman, and mailed it to a couple in
Montreal as instructed.
Several days later, I received another call from the
Canadian Tax Bureau, this time from a man identifying himself
as James Jann. He informed me that my settlement check was
being withheld pending the addition of another $170,000 claim.
He also informed me that these monies were subject to the same
7 percent tax rate. I asked if I could wait until I received
the first $110,000 check before paying the 7 percent tax on the
second $170,000. He said this was not an option, as there had
already been one check issued in the amount of $280,000, the
sum of both settlement checks. However, I could pay $3,000 now
and the remainder upon receipt of my settlement check.
This time, I sent a cashier's check in the amount of $3,000
made out to Julie M. Wilson and mailed to Gloria Sax, her
assistant in Montreal. I was told that I would receive my
$280,000 check delivered by armored car between October 5 and
October 9, 1998, and that the driver would accompany me to the
bank to deposit the check directly into my checking account or
savings account. He reminded me that upon receipt of these
monies, I would be asked to pay the amount of $14,600, which
was 7 percent owed in taxes less the $5,000 that had been paid.
I mailed the check and waited for the beginning of October and
the receipt of the settlement check, as promised.
On September 29, 1998, I received a call from John Taylor,
who purported to be with the U.S. Customs Department. He
indicated that he had my $280,000 settlement check. He said
before these monies could enter the United States, I had to pay
a 10 percent Customs fee, the taxes of 7 percent and Customs
fees of 10 percent. Mr. Taylor said the total was $42,600 owed,
which was $14,600 for taxes and $28,000 for Customs fees.
Adding the $5,000 in taxes that I had already paid, the grand
total was $47,600.
I have asked my daughter to accompany me here today
because, as my caregiver, she is a victim of these
circumstances, as well. Had it not been for her intervention,
the involvement of the Ohio Attorney General's Office, and the
combined efforts of Robert E. Morgan and Edward J. Earley, the
scam artists would have continued trying to exploit more taxes
and fees from me.
That ends my brief. This has been an honor and a privilege
for me to be here today. I am confident your thoughts will be
with all of the senior citizens across our country that have or
will have fallen victim to similar scams. If it is true that
these criminals are seeking refuge in Canada, using the United
States-Canadian border to avoid detection, apprehension, and
prosecution from the United States law enforcement, please
continue your efforts to better the communications and
assistance needed from the Canadian authorities. Thank you.
Senator Levin. Thank you very much, Mr. Hathaway, for
coming forward with this story, which I know is painful to you
and your family, and we thank you and your daughter both.
Senator Collins.
Senator Collins. Thank you, Mr. Chairman. It is a great
pleasure for me to introduce the final witness on this panel,
Mrs. Ann Hersom, who is from Acton, Maine. That is a small
community in Southern Maine, in York County, and it is a great
pleasure to have Mrs. Hersom here today. We had a chance to
visit yesterday and I want to echo the thanks of our Chairman
to all three witnesses for having the courage to come forward.
Mrs. Hersom, we look forward to your testimony, if you would
like to proceed.
TESTIMONY OF ANN HERSOM,\1\ ACTON, MAINE
Mrs. Hersom. My name is Ann Hersom. I appreciate this
opportunity to address the distinguished Members of the U.S.
Senate Permanent Subcommittee on Investigations regarding how
my family was victimized by cross-border telemarketing fraud.
---------------------------------------------------------------------------
\1\ The prepared statement of Mrs. Hersom appears in the Appendix
on page 74.
---------------------------------------------------------------------------
I am a 62-year-old business woman and my 80-year-old
husband is retired. I have owned a small gift shop in downtown
Sanford since 1994. My husband, Mr. Leon Hersom, was initially
contacted sometime in 1997 through mail solicitations offering
chances in foreign lotteries. I really did not pay much
attention to what my husband was doing until 1998. I suffered
an injury to my back in January 1998 and had surgery in August
1998. Since 1999, I have remained at home, caring for my
husband and 20-month-old grandson. My son took over the day-to-
day operations of my business.
Since remaining at home, I became aware that my husband was
receiving numerous telephone calls during the day from
telemarketers. I could not help but notice the calls. They
would start at 7 a.m. and continue until 9 p.m. at night. It
was only then that I discovered that my husband had been
sending money to Canadian telemarketers and sweepstakes
drawings in the United States in the belief that he had won a
lottery and needed to pay the taxes on the winnings.
While I have no exact way of knowing how much my husband
actually sent these people, I believe our financial loss is
between $15,000 and $20,000. For the records I could piece
together, I know that my husband wired via Western Union $2,700
to specifically pay for the taxes on his winnings. In one
instance, he wired $1,500, which was all of our income for that
month.
I am sure you can understand how hard it is to manage when
all your money has been thrown away. After I became aware of
this situation, I reviewed our checkbook and credit cards and
found numerous checks and credit card charges made out to these
people for $300 to $500 at a time. It was so bad that I took
the checkbook and the credit cards away from him.
I then discovered that my husband was obtaining cash and
mailing that directly to Canada. When he was unable to obtain
cash, he would take his medical insurance reimbursement checks
from the mail, sign them, cash them, and send the money to
people in Canada and the United States. My husband would
receive approximately 20 sweepstakes mailings on Monday and
five to ten sweepstakes mailings the other days of the week.
These sweepstakes mailings would be from all over the world
telling my husband that he had won the lottery and just had to
pay for processing fees.
Many of the mailings had catchy slogans: ``You are a winner
of $1 million and all you have to do is pay $19.95.'' Many of
the tactics from the mailings and telemarketers are also,--
``This is a one-time only offer, you can only do this today,''
``you mean you don't want to win all this money?'' and ``you
could really use this money, couldn't you?'' These tactics prey
on people's minds. Senior citizens need to be made aware that
they don't have to pay to win something.
We have started to receive telephone calls at our home from
people with foreign accents. The telephone operator will say,
``You have an international collect call, will you accept,''
and before I can say no, someone with a foreign accent will
say, ``Pick up the phone, Mr. Hersom.'', say ``yes, Mr.
Hersom.'' This has been very, very frustrating--I try to always
be the one to answer the phone.
My husband still insists that he will win ``the lottery''
and even opened a postal box, unbeknownst to me, in order to
continue to receive ``lottery'' information. I don't think I
can fully explain how surprising and frustrating this
experience has been.
My husband was a businessman for many years who owned his
own lumber business. My husband was always very intelligent and
was good at making smart decisions. He is not the type of man I
would have imagined could fall for a con artist. However, my
husband is not in good health. He suffers from congestive heart
failure and is on oxygen 24 hours a day. With the onset of his
illness, it also appeared as though he became exceedingly
concerned about having enough money to pay for his ongoing
medical treatment, as well as to meet normal living expenses.
I believe that as people get older and they can no longer
work to support themselves, they become fearful of how much
money they will have and how they will be able to manage.
Senior citizens are afraid that their money will not last as
long as they will. This is a deep-seated fear that younger
people--who are able to work, to make more money if they need
to--do not fully understand. I think these telemarketers prey
on this fear to the point that people respond to an enticement
that under normal circumstances would not make sense. Even now,
I still monitor the mail and telephone calls to ensure that
telemarketers are not getting to him.
This entire experience has been extremely hard on our
marriage. At one point, in desperation, I told him I would
leave him if he didn't stop. Even today, after everything we
have been through--he still believes he can win the lottery. Or
that he has already won and merely has to pay a processing fee.
I hope my remarks today may alert potential victims to this
type of fraud. More importantly, I hope that spouses, brothers
and sisters, and children of the elderly pay attention to their
loved ones and become involved in their life in order to
prevent some telemarketer from defrauding them. Many senior
citizens are alone and fearful. They are easy targets for
telemarketers, whose scripted calls appear to offer friendship
but only play on senior citizens' fears in order to steal their
life savings.
I want to say today to everyone that ``if it sounds too
good to be true, it is.'' I also want to say that senior
citizens should not be embarrassed to talk about this with
their families. Their families can help them to understand that
this is not their fault. They are being preyed upon by these
telemarketers and what is needed is more people to know about
this so that it can be prevented in the future.
Senator Levin. Mrs. Hersom, thank you for coming forward.
Thank you for your wise advice at the end of your statement. I
just wish everybody who receives a phone call could hear that
advice.
The purpose of these hearings, as Senator Collins has
mentioned, is in part, at least, to spread the word about these
crooks and to try to prevent people from being taken in. There
are other purposes, as well, in terms of oversight of how our
laws work and possible legislation, but this is one of the
primary purposes of this hearing and these hearings which
Senator Collins has scheduled.
We will now go and vote. We will be back, hopefully--are
there one or two votes, do we know? It is two votes, which
means we could be gone possibly 20 minutes. We will resume with
questions when we come back, so the three of you feel free to
get up and move about, but we will proceed with questions of
the three of you briefly, and then we will move to our second
panel, upon our return. Thank you.
[Recess.]
Senator Collins [presiding]. The Subcommittee will come to
order. As we are waiting for Senator Levin to return, he has
agreed that I can proceed with some questions.
I first want to thank all three of our witnesses for their
very compelling testimony. As we have mentioned several times,
we hope that people who hear your tragic stories will be far
more careful when they receive telemarketing calls or direct
mail solicitations about sending money, particularly when they
do not really know who is on the other end.
I would like to ask all three of you the same question to
start off with--Mrs. Hersom, I will start with you. Did your
husband recover any of the money that he sent?
Mrs. Hersom. No, he didn't.
Senator Collins. Mr. Hathaway, did you get back any of the
money that you sent in response to the solicitations?
Mr. Hathaway. I am sorry, I didn't hear all that.
Senator Collins. I am sorry. Did you recover any of the
money that you sent to these telemarketers?
Mr. Hathaway. No.
Senator Collins. Mrs. Erb, did you ever recover any of the
money that you sent?
Mrs. Erb. No, I haven't.
Mr. Hathaway. Not one dollar.
Senator Collins. So all three of you, to this very day,
have sustained these losses and not recovered a cent, is that
correct?
Mrs. Erb. That's true.
Senator Collins. And I think that highlights one of the
problems that we have here, because unfortunately, the
prosecution of cross-border fraud is very complicated because
of the different countries' law enforcement systems that are
involved, which make criminals very difficult to pursue and
makes it very difficult to recover money for those who have
been defrauded. I think that is an important lesson, as well.
Mrs. Hersom, how difficult is it for the loved ones of a
victim to deal with this issue? You talked a little bit about
that in your testimony. Could you talk a little bit more about
what it was like for you when you discovered that your 80-year-
old husband had apparently been sending money without your
knowledge?
Mrs. Hersom. Well, when I first realized he was doing this,
I was in a state of shock because I couldn't believe that he
would do something like this, because he has always been the
type of person that if he heard that this was happening to
someone else--when he was probably 10 years younger--he would
have been shocked, because he's just not the type of person to
do this. And it's so frustrating to know that someone is doing
this and that there's nothing you can do about it.
Senator Collins. And if you hadn't happened to have been
injured and been home when these calls and other solicitations
were coming, you might never have discovered this.
Mrs. Hersom. I might never have discovered it.
Senator Collins. And to this day, you testified that your
husband believes that he is likely to win one of these Canadian
lotteries, is that correct?
Mrs. Hersom. I think he really does believe it.
Senator Collins. Still believes. And what do you think made
him vulnerable? As you pointed out, he was a businessman. Was
it his illness? Was it concern about finances? What seems to
have been a factor in the other cases we have heard, is either
wanting to do something nice for your family, as in the case of
Mrs. Erb--or in Mr. Hathaway's case--concern about the very
large nursing home bills that his wife was incurring. In your
case, what do you think made your husband particularly
susceptible to these kinds of fraudulent pitches?
Mrs. Hersom. I think, for one thing, he may have been
lonely, because he was home alone all the time and these people
offered him friendship. And I think he was concerned that he
had a lot of medical expenses. I think as senior citizens get
older, they start worrying about how long they're going to live
and is their money going to hold out, and, of course, he knew
that I'm about 18 years younger than he is, that I would need
some financial support after he goes.
Senator Collins. One of the parts of this whole problem
that is most troubling to me is that these con artists are
preying on very good intentions of people and people's trusting
nature. They are taking advantage of people who want to make
sure that their families are provided for and that their bills
are paid when they are incurring high medical expenses. That is
what makes this even more deplorable, because these con artists
really are hitting people when they are vulnerable.
Now, Mrs. Hersom, most Americans do not realize this, and I
think this is part of the problem, but it actually is illegal
for someone to sell you a foreign lottery ticket in the United
States. So any offer that comes from a Canadian source offering
a lottery ticket is illegal. Were you aware of that?
Mrs. Hersom. I was aware of it, but my husband wasn't, and
when I found out this was going on, I told him that this is
illegal.
Senator Collins. Finally, I would like to ask all three of
you, what do you think we should do--perhaps in conjunction
with law enforcement officials or groups like AARP--to try to
alert senior citizens about the dangers of these scam artists?
Do you think, for example, that public service announcements on
television should tell people that lottery tickets from other
countries are illegal or that they should be careful in sending
money when they do not know who is asking you for it? What do
you think would be helpful and might have helped in your
personal case? Mrs. Hersom.
Mrs. Hersom. I think anything that can be done would help.
But in my case, I don't know if anything would have helped,
really, because there had been programs on TV about fraudulent
people like this and I would sit him down and have him watch it
and explain it to him, and even explain how people can take
your identity from your credit card number, your birthdate, and
all of this, and he still kept doing this. So I really don't
know, but I think maybe in other people's cases, the more
information that is out there, the better.
Senator Collins. I think you are right that in some cases,
the only answer is for law enforcement to try to shut down
these fraud rings altogether, but it is hard to do this given
that they proliferate so easily. I think consumer education is
an important part of the solution, as well.
Mr. Hathaway, would it have helped you if you had seen
television ads or some kind of public service campaign to alert
you that Canadian lottery tickets being sold in the United
States were illegal, or some other information campaign? Would
that have been of assistance in your case, do you think?
Mr. Hathaway. If I had known what I know today--I learned a
lot from that experience--I would have been much more
skeptical. But they snowed me and I respected the fact that
they were attorneys, or they claimed to be attorneys. I can't
say if they are or were.
Senator Collins. They almost certainly were not, I would
guess.
Mr. Hathaway. I would think that if we could convince the
Canadian Government that this scam business is going to
boomerang on the country of Canada in many respects. The scam
artists are making some money off of that and the people that
aren't involved but have financial problems will be inclined to
ignore the law, their laws, with respect to making money. I
think the scam artists are going to encourage a lot of people
that are in Canada to get involved for making easy money.
Senator Collins. So you would like to see a crackdown by
Canadian law enforcement and more cooperation with law
enforcement.
Mrs. Erb, is there something that could have been done to
have made you more aware that this was a scam?
Mrs. Erb. I didn't know it was illegal, for one thing, and
I think advertisements would help, that say to be careful of
it, and put the ads in papers and magazines. I didn't know it.
And another thing on their side, tell no one. They said,
``You're going to have friends you never knew you had,'' and I
didn't even tell my family. Only my husband knew about it, of
course. My son only found out about it because he's a
chiropractor and he adjusts me all the time. He kept saying,
``Mom, what's wrong? There's something bothering you. You're
all tense.'' And finally, I did tell him.
Senator Collins. So part of the scam was to try to make
sure you did not tell anybody.
Mrs. Erb. And he said he wouldn't, and he did say something
to his wife and she called Jennifer Granholm. I believe that's
how I got in here.
Senator Levin. The Attorney General.
Senator Collins. Thank you very much. Thank you, Mr.
Chairman.
Senator Levin [presiding]. Thank you, Senator Collins. The
reference to Jennifer Granholm is to the Attorney General of
Michigan.
Mrs. Erb. Right.
Senator Levin. So it was your daughter who called her?
Mrs. Erb. Daughter-in-law
Senator Levin. Daughter-in-law, and then she, in turn, as I
understand it, put you in touch with Phonebusters.
Mrs. Erb. Right. I called and I know I talked to them, and
I've had letters from another gentleman there and I sent him
copies of my so-called bonds package here.
Senator Levin. And Phonebusters is an organization, a
Canadian organization----
Mrs. Erb. A Canadian one.
Senator Levin [continuing]. Which fights fraud across the
borders.
Mrs. Erb. Right. I'm willing to work with them.
Senator Levin. And they are well known in Canada and known
to some extent here as a real great resource to fight fraud,
and we will welcome them in a moment.
Are you still getting phone calls?
Mrs. Erb. No, but I'm getting lots of letters.
Senator Levin. The scam artists are still working on you?
Mrs. Erb. Oh, yes, France, Spain, Australia, dozens there,
and I keep giving them to Laura.
Senator Levin. OK. Laura on my staff.
Mrs. Erb. Right.
Senator Levin. Are you getting any phone calls or mail
these days from these scam artists, Mr. Hathaway?
Mr. Hathaway. I haven't been in the last year or two.
Senator Levin. Since you went to the Ohio Attorney General.
Mrs. Hersom, do you know if the phone calls have stopped?
Mrs. Hersom. No, they haven't stopped. We still get
numerous phone calls every day. But I've been doing a new
thing. When they call and ask for my husband, I ask them to
wait a minute, please, and I just put the phone down on the
counter and leave it there. [Laughter.]
Mrs. Hersom. Let them pay for the call.
Senator Levin. Let them pay the extra money. If a law
enforcement organization gave you a tape recorder and asked you
to punch a button the next time you got a call from one of
these people, would you be willing to do that?
Mrs. Hersom. I sure would.
Senator Levin. This is what Mr. Hathaway's daughter did in
Ohio. Mrs. Erb, would you be willing to do that, if law
enforcement gave you a tape recorder?
Mrs. Erb. I did get one call from, I believe it was
Australia, too, and he congratulated me and said, ``Mrs. Erb?''
And I said yes. And he says, ``You just won another bond of
British Sterling silver, one of the bonds.'' And I said, ``Oh,
that's so nice,'' and I led him on a little bit. And then he
said I was going to make so much money from it, and I said,
``Gee, I've got 99 more. Would you like to help me make
something of that?'' Bang, the phone went down.
Senator Levin. I think the next panel can help us
understand what law enforcement is doing, what the response is,
where people should go when they get these calls in terms of
seeking help to try to stamp this out.
Do any of you have the service on your phone where you get
the phone number that is calling you, that you can tell what
number is calling you on your telephone?
Mrs. Hersom. Yes, but a lot of them are unknown name,
unknown numbers.
Mrs. Erb. Yes. On the foreign----
Senator Levin. Numbers that are not known to you, but they
are there. Do you have that service on your phone, Mr.
Hathaway, do you know, the caller ID? Do you have that on your
telephone?
Mr. Hathaway. Yes.
Senator Levin. You do. Mrs. Erb?
Mrs. Erb. I don't have it----
Mr. Hathaway. We changed phone numbers and that stopped a
lot of them, because we'd had the phone for over 25 years.
Senator Levin. I see. You changed your phone number. That
is why you are not getting phone calls. That explains it.
Mrs. Erb, you do not have the caller ID on your phone?
Mrs. Erb. No, I don't, but I know a friend of mine said
that it wouldn't identify anyway because it's out of State or
something like that and it's unknown.
Senator Levin. I do not know the answer to that question,
whether caller ID works across the border or not, actually.
Mrs. Erb. I don't know.
Senator Levin. All right. Senator Collins, do you have any
additional questions?
Senator Collins. No. Thank you.
Senator Levin. We thank you all again for coming forward,
for not just your cooperation, but for your willingness, your
interest in having your stories known, as painful as they are,
so that others can be saved the kind of pain which you have
suffered and hopefully put these crooks out of business as soon
as we can, or at least put as much pressure on them as we
possibly can from every direction that we can. Your
contribution to that is very much appreciated. Thank you.
Senator Levin. We will now call our next panel. We have
three witnesses, Barry Elliot, who is Staff Sergeant in the
Ontario Provincial Police; Jackie DeGenova, who is the Chief of
the Consumer Protection Section of the Ohio Attorney General's
Office; and Lawrence Maxwell, Inspector in Charge, U.S. Postal
Inspection Service. You can all just stay standing for a moment
while we swear you in under our rules, as we are required to
do.
Do you swear that the testimony that you will give before
this Subcommittee today will be the truth, the whole truth,
nothing but the truth, so help you, God?
Mr. Elliot. I do.
Ms. DeGenova. I do.
Mr. Maxwell. I do.
Senator Levin. Thank you very much. We welcome you. You are
experts in the area of cross-border fraud prosecution and we
very much welcome your testimony. Let's start with Mr. Elliot,
who is a Staff Sergeant with the Ontario Provincial Police. We
welcome you to our country and thank you for coming forward.
Detective Elliot.
TESTIMONY OF DETECTIVE STAFF SERGEANT BARRY F. ELLIOT,\1\
ONTARIO PROVINCIAL POLICE, NORTH BAY, ONTARIO, CANADA
Mr. Elliot. Thank you, Senator. First of all, I am
Detective Staff Sergeant Barry Elliot, OPP Anti-Rackets
Section, creator and coordinator of Phonebusters and
Seniorbusters, which is the national call center located in
North Bay, Ontario, Canada.
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\1\ Mr. Elliot's Powerpoint presentation appears in the Appendix on
page 77.
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I am disappointed that I am the only Canadian here for the
next 2 days, and I know that there were others who would have
liked to have come. I would like to thank the many agencies and
individuals on both sides of the border for their support of
Phonebusters, too many to mention. I would also like to
personally thank Premier Mike Harris from the Ontario
Government and his Minister David Tabuchi for their personal
support of Phonebusters, which without, we would not exist.
I have supplied the Committee with a copy of the latest
Powerpoint presentation, which shows some obvious trends. We
have seen since 1995, an X pattern created on the number of
Canadian victims of telemarketing fraud and the number of
American victims of telemarketing fraud that are being hit by
Canadian-operated fraud companies, and the X represents a huge
drop since 1995 in the number of reported Canadian victims. At
the same time, we see a huge increase in the number of reported
American victims.
The large result of the reduction in Canadian victims is
due mainly through education. Today, more than 80 percent of
the calls that we get at Phonebusters are American victims.
They are being targeted with the three major pitches--I mean,
there is a number of them--the sweepstakes lottery pitch, which
you have heard here today, loan scams, and a number of credit
card pitches. They are targeting mainly the American elderly,
as well as the American poor.
When we identified the trend or the beginning of a trend in
1995, we initiated the first-ever cross-border fraud meeting
involving telemarketing fraud in Toronto. One of the members of
that meeting is Jonathan Rusch from the U.S. Department of
Justice, who I know is here today and will be testifying
tomorrow, and I am sure he will corroborate some of the things
that I'm going to say today.
We had a series of meetings trying to inform the Canadian
Government of this very serious problem, or what we thought was
growing to be a very serious problem. Due to the complete lack
of action by the Canadian Federal Government to take this
problem seriously over the series of meetings that we had to
develop a national strategy, I know that President Clinton
asked Prime Minister Chretien to do something about it around
1996 or 1997. As a result of that, there was a number of
meetings again and a cross-border fraud report was presented to
both heads of both countries.
A number of things happened as a result of this cross-
border fraud report. Industry Canada Competition Bureau started
to beef up its telemarketing task force in Ottawa. There was
new legislation that was being developed under the Competition
Act to try and make it easier to convict fraudulent
telemarketers, something similar to the telephone rules that
were created here. Project Colt in Montreal, where 99 percent
of all Canadian victims are being hit from and also where,
starting in 1995 big time Americans were targeted. So there was
a task force created in Montreal to do something about it, and
there was also a small task force created in Vancouver, and, of
course, this was all as a result of the recommendations or part
of the recommendations brought forward by the cross-border
fraud report.
Three years later, and I'd like to repeat that, 3 years
later, we now have a task force that's been created in February
2000 in Toronto and it was largely created by people who were
interested in trying to do something about cross-border fraud
and the members at the time were the Toronto Police, Industry
Canada Competition Bureau, Ministry of Consumer Business
Services, Ontario, and the Federal Trade Commission. This year,
the Ontario Provincial Police and the U.S. Postal have also
joined. In March of this year, 4 years later, the RCMP and the
OPP have finally signed an MOU agreeing that Phonebusters is
the national call center for the country.
The three task forces are small, under-funded, and
overtaken by the sheer mass of organized criminal telemarketing
that is operating daily in these areas. On any given day in
Canada, we have 300 to 500 criminal operations that are mainly
targeting American victims.
I was just in Raleigh, North Carolina, at a conference
sponsored by NAAG and the National White Collar Fraud Program
and all I heard were complaints asking what is Canada doing
about these companies that are attacking Americans? The problem
is continuing to get worse all the time.
The Canadian Government has reviewed the 1997 report and
gone over the recommendations that were provided and have given
themselves ``A''s on all the things that they have done. My
personal thoughts on what the Federal Government of Canada has
done can be compared to moving a truckload of sand from Toronto
to Washington by using a coffee cup.
The reasons are clear for this epidemic of crime in Canada.
We have collected approximately 126,000 complaints at
Phonebusters from 123 countries, mainly from the United States.
Accomplishments of the task force in Toronto, which has only
been operating for about 18 months, include shutting down 36
boiler rooms, charging 61 individuals and arresting many more
who were not charged. If you average that yearly, they are
taking down about 18 rooms a year, where we have anywhere from
100 to 200 rooms operating daily. It is very minute.
Senator Levin. I am sorry, just to interrupt just for a
second, I thought you said 300 to 500 before.
Mr. Elliot. That was for Canada. This is just Toronto. We
have three hot spots, Montreal, Toronto, and Vancouver.
Senator Levin. Thank you.
Mr. Elliot. The reasons are clear as to what we should be
doing about it and why the problem is so big. We have a lack of
real Canadian Federal Government leadership and ownership of
this problem. We have a lack of new Federal resources, which
are desperately needed by the task forces who now have to use
very expensive techniques, such as wiretap, to get these guys.
The Toronto task force, for example, is operating on a
shoestring budget. They are doing a great job and they're
working very hard, a small group of guys, about eight of them.
These guys are working and taking down one room after a time,
but there's hundreds of rooms around them.
When they take them down and successfully charge them and
take them before the courts, we encounter an additional
problem. We have extremely light sentencing within the Canadian
courts, it does not deter the crime but only encourages the
convicted to continue operating even while they're in jail,
which is usually for a very short period of time, if they do in
fact get jail time. It also encourages all the sales people who
are working in these rooms to go out and create their own
businesses and make more money because nothing is happening to
their bosses.
Canada has a great deal of success in fighting fraud
domestically because of education and awareness. We're very
proud of that. We've destroyed the criminal market in Canada
through education. I can assure you that the success was not
because the criminals are afraid of spending any length of time
in jail. Internationally, Canada is known and is proud to be a
safe place to do business. Unfortunately, it has become a safe
place for criminals to do business.
In conclusion, the Canadian Federal Government must stop
sending two tablets of Tylenol to try and cure what appears to
be an epidemic and take this cross-border crime seriously and
commit the necessary resources to successfully combat it. Thank
you.
Senator Levin. Thank you, Detective Elliot, very much for
your very helpful testimony.
Senator Levin. Ms. DeGenova.
TESTIMONY OF JACKIE DeGENOVA,\1\ CHIEF, CONSUMER PROTECTION
SECTION, OHIO ATTORNEY GENERAL'S OFFICE, COLUMBUS, OHIO
Ms. DeGenova. Good morning, Chairman Levin and Senator
Collins. My name is Jackie DeGenova and I am Chief of the
Consumer Protection Section at the Ohio Attorney General's
Office. Thank you for the opportunity to speak with you today
on behalf of Ohio Attorney General Betty D. Montgomery
regarding cross-border fraud.
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\1\ The prepared statement of Ms. DeGenova appears in the Appendix
on page 123.
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I also would especially like to thank our victims who
traveled here today. They made a tremendous effort and a
commitment, and as you both pointed out, the courage to speak
today about the frauds perpetrated against them really are a
reminder of why we are all here today.
Their stories told this morning--Mr. Hathaway, Mrs. Hersom,
and Mrs. Erb--are simply remarkable, but unfortunately, they
are not unique to the tens of thousands of Americans victimized
each year. We know that violent crime has been on the decline
in recent years, but that international economic crimes are
dramatically increasing. Like our panel of witnesses this
morning, the majority of victims that we interview at the Ohio
Attorney General's Office are not uneducated, reckless, or
feeble-minded folks who carelessly throw away their hard-earned
money. Their statements speak for themselves. Instead, the
cross-border con artists are capitalizing on the globalization
of communication, technological advances, and the limitations
of law enforcement to combat the crimes without geographical
constraints.
You have asked me to comment on the stumbling blocks in
investigating and prosecuting these crimes. It will come as no
surprise to you that the obstacles are many, including the fact
that many States do not have the resources to prosecute the
crimes. Ohio is one of the few States that has specific
legislation requiring telemarketers to register with the Ohio
Attorney General's Office, and it also requires certain conduct
by the telemarketers when they are on the phone. But even so,
our cases are often stymied.
Certainly, as well, there is a need for more resources and
a stronger commitment by the Canadian Government to combat the
telemarketing fraud. Understanding, however, that we can do
little, if anything, to change the flow of resources for
Canadian law enforcement, my comments today will focus on
solutions we can implement within our own borders.
Five years ago, as has been mentioned, there was a need for
such white-collar crimes to be recognized as the predatory and
life-altering crimes we know them to be today. Awareness of the
crimes by law enforcement and the public is at a higher level
than ever, yet adequate training and funding for our law
enforcement continues to be a problem.
We believe that improvements made in three key areas will
also facilitate investigations and prosecutions of the
criminals behind these cross-border crimes. First, the United
States must follow through on its commitment to the Canadian
authorities. Second, a reevaluation is necessary of the methods
that we use to obtain information which is essential in a
criminal case. And third, sufficient funds must be allocated
for law enforcement to prosecute within our own borders and to
assist in Canadian prosecutions. I will address each of these
separately.
First, the United States must pledge and follow through on
its membership commitments made to Canadian authorities on the
various task forces and in its commitment to assist Canadian
prosecutions. In recent years, there have been initiatives
designed to specifically combat cross-border fraud between the
United States and Canada, which Mr. Elliot had also mentioned.
These are such projects as Project Colt, Project Emptor, the
Toronto Strategic Partnership Against Telemarketing Fraud,
which I will refer to as the Toronto Task Force.
Project Colt consists of six members of the Royal Canadian
Mounted Police, or RCMP, a provincial attorney general, and a
member each from the FBI, Customs, and U.S. Postal Service. Its
goal is to reduce and prevent fraudulent telemarketing
operations in Montreal by largely intercepting the money sent
by the victims before it's received by the telemarketers.
Unfortunately, there's not nearly enough investigators to
combat the 400 boiler rooms that have been identified in
Montreal alone.
Project Emptor is a similar operation in the Vancouver area
of British Columbia. It has five members, Canadian authorities,
and one FBI member. It has had positive results by
concentrating on the theory that the forfeiture of the
criminal's assets has the most significant deterrent effect on
them.
The Toronto Task Force has United States designated members
from the Federal Trade Commission and the Postal Service, and
at the Ohio Attorney General's Office we have forged excellent
relationships with members of the Toronto Task Force and hope
this fall to become a named member of that task force.
While these initiatives have been excellent resources, the
United States must be more diligent in its commitment of
assistance by the various U.S. agencies. On Project Colt and
Project Emptor, the presence of Federal agencies has been
sporadic. Prosecutors from our office in Ohio have spent a
great deal of time with the law enforcement authorities in
Canada, Vancouver, Montreal, and Toronto. It's apparent that
the Canadians have a very limited understanding of the
complexity of our Federal and State laws and the legal system
and the seemingly incongruous laws of the different entities.
Full-time membership by the United States designees on these
projects could be an effective tool to sharpen our skills
necessary to investigate and prosecute these types of crimes.
In addition, they can help law enforcement on both sides better
understand the intricacies of the laws on both sides.
In Ohio, our most successful cross-border cases have been
those in which we have acted in a support capacity for the
Canadian authorities. We have been available as a resource for
legal questions. We assist in identifying and locating Ohio
victims. We follow up with witness statements and even draft
victim impact statements for trial. We have even funded travel
and expenses for victims willing to travel to Canada for the
prosecutions.
Our second recommendation is to reexamine the required
Federal process for States to obtain information which is
essential to criminal investigations and prosecution. In cross-
border cases, States are completely dependent upon the Federal
Government to assist in obtaining that information. The current
system to obtain information from the Canadian authorities that
may be used as evidence is through what is called an MLAT, or a
Mutual Legal Assistance Treaty. These are available only
through the U.S. Department of Justice, Office of International
Affairs. An MLAT or other formal request, such as extradition,
requires extensive paperwork--which, incidentally, will only be
accepted in Word Perfect format--before beginning the process
of review by two government branches before final approval. We
have also encountered differing opinions as to when a MLAT is
needed for evidence to be admissible in court.
Overall, the MLAT process takes a considerable amount of
time and is quite intimidating. Meanwhile, the telemarketers
are adapting their scams based on the availability of new
technology. They are using prepaid digital phones, laptops, and
personal digital assistants. We have seen the rapid increase of
boiler rooms that are transient and fly-by-night operations. In
the time it may take for us to obtain information for a search
warrant or summons through MLAT, there is a substantial
likelihood that today's telemarketing operations will have
moved on to their next victim.
The relationship of the Ohio Attorney General's Office with
the Canadian authorities has allowed us to obtain information
on an informal basis without resorting to the MLAT process. The
information can be used to develop cases but is of no
evidentiary value to us in court because of the manner in which
it was obtained. Thus, we still must obtain admissible evidence
and prepare appropriate State charges against Canadian targets.
For these reasons, we suggest examination of workable,
cooperative means to shorten the time for the MLAT process, or
examining ways for States to obtain evidence that would be
admissible in a court of law.
Finally, perhaps our best resource comes through funding.
Suspects, witnesses, and victims are often separated by
literally thousands of miles. Direct funding for States, for
witnesses to travel to Canada for pretrial and trial matters,
would go a long way in support of foreign enforcement efforts.
Funding to aid in case preparation, such as perhaps purchasing
video conferencing facilities to preserve the testimony of our
elderly victims, would also be helpful.
In addition, some flexibility in the rules at DOJ's Bureau
of Criminal Assistance would assist us and enable the National
Association of Attorneys General to earmark grant funds for
witness travel. I know that General Sorrell will be talking
also about funding tomorrow, so I will defer to his comments
for you tomorrow.
In sum, I believe that the three recommendations outlined,
if implemented, will go a long way in assisting the United
States and Canadian prosecutions.
Again, please consider the stories told by the victims, and
for a moment, I urge you to step into the shoes of an Ohio
Attorney General investigator or prosecutor. Every week, they
have the unenviable task of sitting next to our victims, like
Mr. Hathaway from Ohio, faced with his loss of money and what
he has explained is his loss of dignity, and attempt to explain
to him why we are unable to get back his money or that the
prosecution of criminals is highly unlikely. Our task today is
to find a better approach to fighting cross-border fraud, and I
know it is a difficult one, but I submit to you it is not
nearly as difficult or regrettable as facing our victims
without any answers. Thank you very much for allowing me to
testify.
Senator Levin. Thank you so much for your testimony.
Mr. Maxwell.
TESTIMONY OF LAWRENCE E. MAXWELL,\1\ POSTAL INSPECTOR IN
CHARGE, FRAUD, CHILD EXPLOITATION, AND ASSET FORFEITURE
DIVISION, U.S. POSTAL INSPECTION SERVICE, WASHINGTON, DC
Mr. Maxwell. Thank you, Senator Levin and Senator Collins.
I really appreciate being here today. The last time I was here,
you may not remember me, as I was behind a very broad-
shouldered chief inspector during the deceptive mails hearing,
so I am here today up front and it's a great pleasure.
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\1\ The prepared statement of Mr. Maxwell appears in the Appendix
on page 129.
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I'd like to draw your attention here to something that I
think gets right to the heart of why we are here. One of our
local offices in Pittsburgh, the Allegheny region, worked with
the Senior Action Coalition and also a private advertising
agency, Boswell and Kamastra Creative Communications, and they
did this pro bono. They did this on their own as a public
service. If you read the caption here, and I think it's very
compelling, ``He lived through two World Wars and fought in
one. He helped raise six children and three dogs. He saved a
long time for his retirement. Don't let one phone call take it
all away.'' \2\
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\2\ Exhibit No. 10 appears in the Appendix on page 283.
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This message and the information in this booklet, I think
was done extremely well and it emphasizes what I'd like to say
to you today, and again, I say this as somewhat contradictory.
I come from a long line of law enforcement. Like Senator
Collins, I have roots in Canada. My great-grandfather was a
Royal Canadian Mountie. My father was a New York State Trooper.
Yet, I think the enforcement part of law enforcement, the
arrest, the conviction, is very important. However, in the area
of fraud, awareness and education are critical. If we can get
the word out, I think it will do a lot more than some of these
other issues that we have faced.
One of the things we announced at your hearing on deceptive
mailings, the chief announced for the first time an ambitious
consumer protection event called ``Know Fraud,'' \1\ and
probably at the time, and I still think, is the most ambitious
attempt ever attempted by a conglomeration of agencies. We had
a number of partners, including the FTC, Department of Justice,
FBI, NAAG, there was a number of them. This card, you may see
is familiar. It went to every home in the United States. That's
120 million addresses. It was expensive. It was ambitious. It
was multi-media. We had a Website. We had a toll-free number.
We still get letters today, and this went out in the fall of
1999, and we are planning a second one.
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\1\ Exhibit No. 9 appears in the Appendix on page 281.
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My point is that the funding for this, because funding was
mentioned, and again, as I'm going through my remarks here, I
certainly don't want to repeat too much for the group, the
funding came from a very innovative thinking prosecutor in Iowa
U.S. Attorney's Office. We had an advance fee scheme. We seized
about $4 million and we could not identify most of the victims,
or they would get a small amount of what they lost.
So the U.S. Attorney asked us if we could put it in a
special fund, if we could forfeit it, put it in a special fund,
and use it for fraud prevention initiatives, and we said
absolutely. So we got the approvals up the line. We established
the fund. We still have monies today in that fund. We used that
to fund the printing and the design of the card and some of the
other aspects of it. I think it's an effective use and just
shows that there's a lot of things that we can do if you get
creative, and also if you do them together.
The Deceptive Mail Prevention Enforcement Act had an
excellent effect for us. Besides giving us powers like
administrative subpoenas, it spreads the word. In showcasing
things like we're doing here, it emphasizes the problem and it
educates people that there is a problem. We've seen a decline
by 26 percent in our complaints in deceptive mails right now.
We're not exactly where we want to be, but a lot of that is
because the legitimate portions of the industry knew this was
coming. They policed themselves. They worked with us. They
worked with your staffs, and I think that helped tremendously.
Probably an unanticipated result of this, it opened up possibly
some areas for the cross-border fraud, as well, because, again,
some of ours closed down.
Interesting, too, if you look at a correlation with the
history of the Inspection Service and the evolution of fraud,
and I'll just cover this briefly, we've been around since the
ark. As you know, we started out with the Postmaster General,
Mr. Franklin, and we worked our way through 200 years or more
of the Postal Service. In 1872, in response to the advances
made in communications through the mail on train routes,
promoters, operators, fraudulent operators capitalized on the
absence of Federal law and they would jump from State to State
to reach--with different types of schemes, land frauds, medical
quackery, whatever.
As we clamped down, in 1872, Congress enacted the Mail
Fraud Statute. It is the grand-daddy. It is the oldest consumer
protection law. In my mind, it's the best. I think many
prosecutors will still tell you that. It's been tampered with
very little through the years. In 1994, Congress modified it to
include private couriers, and that helps us here because we're
addressing a lot of private overnight shipments. So the Mail
Fraud Statute has held up well. We have several other weapons,
as you may remember from our hearings, in the deceptive mails
area, most notably the false representation statutes, and we
can utilize those.
However, as we talked about, in this climate, where we saw
in our history how the perpetrators would jump from State to
State in the absence of law, as we clamped down on boiler
rooms, which we did in the 1980's and 1990's in this country,
now they're moving up into Canada. So we are seeing a
proliferation of them.
This next chart I have here of our statistics we ran
through our mail fraud complaint system.\1\ And initially, if
you see, in 1996 through 1999, it stayed fairly steady, and
then all of a sudden the big jump in 2000, and, of course, the
question is, what happened here? A 105 percent increase. These
are complaints against Canadian operations by U.S. citizens,
and my response to that would be two or three things happening.
---------------------------------------------------------------------------
\1\ The chart attached to Maxwell's statement appears in the
Appendix on page 149.
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In 1997, of course, we started focusing on the problem of
cross-border fraud. In 1999, we had ``Know Fraud.'' We also had
the Deceptive Mailings Enforcement and Prevention Act, or
Prevention Enforcement Act. I think those things, the ``Know
Fraud'' campaign and some other initiatives, brought to light
some of this. People know where to go, to some extent.
One thing we learned in the ``Know Fraud'' campaign, which
I think is very relevant to what you're focusing on, is that we
did about 40 focus groups of mixed ages. Oftentimes we talk
here about senior citizens, and it is very true they are
disproportionately represented here. I mean, they're retired,
they're home, they're available to answer phone calls, and
they're worried about their financial futures. But there is a
random selection. There are others that aren't senior citizens
that are also victimized.
But in one case we had in Vancouver, in which there were
thousands of victims, we forfeited over $12 million that we
returned to victims. The average age was 74, so that will tell
you where these people focus. They're predatory, they're
opportunistic, and they're relentless.
Personally speaking, I've had a member of my family
targeted and I can tell you, there are remedies you can do and
we're advocated those in prevention campaigns. But the younger
people that know this, it's even better because they can relay
this to the older people in their family.
On this chart here, we show the top types of complaints,
and it's similar to what Mr. Elliot and the others will
probably share with you--advance fee loans, failure to provide,
and foreign lotteries.
If we look at the theaters of operation in this, we talked
about there's three areas, Montreal, Toronto, and Vancouver.
Mr. Elliot mentioned those three areas earlier. We have a
member in Montreal. The focus on that is on the advanced--on
the telemarketing promotions, and it's mostly organized in
nature. We have a lot of criminal focus on that with the Royal
Canadian Mounties. In Toronto, they're focusing on advance fee
schemes. And in Vancouver, what appears to be predominant is
lottery schemes.
My concern is this. We've focused in the Inspection Service
primarily in the Montreal area and Toronto, a little lesser
extent in Vancouver. I haven't seen numbers of instances of
lottery mail coming across the border from Canada in Vancouver.
I suspect there is a lot, and what I suspect is they're coming
across the border and mailing it in the United States. So I
think that's an area where we in the Inspection Service
certainly can be of value.
There's a couple of other areas I indicated in my
testimony, my written testimony, where we can focus. One would
be in the area of what I call alternative remedies. The Postal
Service has a unique position in the Universal Postal Union.
There is a group called the Postal Security Action Group. The
chief inspector a few years ago used that chair, if you will,
to force through an understanding of a problem that the world
was experiencing with what we call the ``419 fraud letter.''
Many of you may have received that letter at home. Essentially,
it's a solicitation for money from Nigeria. You give some
money, we have some money for you. It predominantly comes from
Nigeria, and other West African nations.
What we did, as a union, we looked at the postage, we
looked at the means of mailing, and it was determined that they
were using counterfeit postage and we were able to set up
memorandums of understanding with these countries, seize the
mails, and destroy them, and today, we've destroyed about five
million pieces, and that was done without any type of legal
intervention. It was done through the Universal Postal Union.
Right now, the Postal Inspection Service has been meeting
very closely with the Canada Post, our counterpart in Canada.
We're looking at ways we can possibly complement one another's
civil remedies. So possibly when we get a representation order
here in the United States, they'll be able to use their
prohibitory order in Canada. We have a draft memorandum of
understanding (MOU) we are working on in that regard.
I could go on about a number of other initiatives, but I
think the point is that there is definitely alternatives we
need to be focusing on. There are other alternatives in terms
of some of the funding issues, too, such as the fund I
mentioned earlier.
I would like to summarize by highlighting some of the
recommendations I made in the written report that I furnished
the Subcommittee. First and foremost, Barry Elliot mentioned
Jonathan Rusch. I think the Department of Justice deserves a
great deal of credit for their spearheading of the United
States representation on that. Mr. Rusch has kept us focused on
the importance of the cross-border initiatives so we know
exactly where we've going with it. I cannot commend his
leadership of the U.S. representative team to the cross-border
telemarketing Task Force.
I would encourage the existing cross-border forum. What we
have going on now is very unique. It foreshadows what possibly
we will see in the future as online solicitations grow. We're
starting to see more complaints from Europe and other
countries. So what we do here with Canada, what we can do with,
as you said so eloquently in your opening remarks, if we can
prepare initiatives and strategies with the Canadians,
together, we can possibly use them in the future as we face
other problems elsewhere.
The funding solution for the witness and the video
conferencing, what I proposed to the staffers was that possibly
the Subcommittee could consider recommending monies that are
taken in fines. Perhaps we could even double the fines for
cross-border fraud. But monies taken in fines, also monies,
proceeds from forfeiture that we can't return to victims, we
could put in a fund and use that for the video conferencing and
for the witness travel whenever possible. I think that would be
very beneficial. You would hate to see, although I don't know
of any yet, you would hate to see a case not go forward because
of a situation caused by the lack of funding. I mean, that
would seem unreasonable.
We talked about the MLATs. That was mentioned earlier, too.
Again, most agents tell me that the streamlining of that
process would be very helpful and I would encourage that.
Enhancing oral communications between the cross-border
council and the agents, making it less formal should be
encouraged. That's been a little bit formal, from what I
understand, in some instances. But the local contacts have been
excellent and these task forces, that's certainly a great first
step. The way we're working there, I think is excellent.
What I suggest, also, are joint training initiatives
between Canadians and American law enforcement and consumer
groups. If we brought ourselves together, that was mentioned
earlier, about how we do not sometimes understand the
complexities of our different laws in our sovereign nations,
the mixing of the agents, the training, the strategizing, I
think would be of great benefit. It would also establish great
relationships.
And then finally, I would say in the area that troubled a
lot of us is how do you stop this plague on the phone, the
constant repetitive calls and so forth, particularly when law
enforcement is slow to get some action into place. Most agents
say the obvious. If we could shut off the phone service, we'd
be way ahead of the game. In the United States, we can move
under an 18 U.S.C. 1345, which is an injunction against fraud,
and we can shut down that phone service to a known boiler room.
Obviously, that wouldn't apply in Canada.
What the Department of Justice was pursuing, and perhaps
Jonathan Rusch could expand on this tomorrow, is in last year's
crime bill, there was a provision, which was not passed, which
did address that issue. I understand they did some research
with the telephone companies and it is possible, that they can
shut off known telephone numbers coming into the States. That
would be of great immediate relief.
So apart from that, again, I do applaud the Subcommittee's
efforts in this area. Again, I think it is visionary in
addressing a problem that's coming down the pike. I offer
whatever assistance we can provide, and thank you very much.
Senator Levin. Thank you very much, Mr. Maxwell.
Just a question not directly related to this morning's
subject, but you said that there's 26 percent fewer complaints
of deceptive mail relative to sweepstakes.
Mr. Maxwell. That's correct.
Senator Levin. Do you have a figure for how much less
sweepstakes mail there is altogether?
Mr. Maxwell. I can give you that. I don't have it with me.
Senator Levin. Has there been a reduction since our
hearings, do you know?
Mr. Maxwell. Yes. In fact, during the hearings, we saw some
reduction, and then probably within 2 months after the
hearings, some of the postal delivery folks came to us and
said, ``What happened here?'' So it was a definite reduction,
yes.
Senator Levin. It is good to hear the reduction in the
number of complaints, that these hearings did have an effect.
That is always good to hear, and that is really what the
purpose of these hearings are. I think that Senator Collins has
expressed it well, that one of the purposes here is to help to
educate our public as to what these scam artists do to us and
to our most vulnerable people, how they take advantage of
people who are trustful. So these hearings serve a purpose in
many ways, hopefully, but that surely is one of the ways.
Just a couple quick questions before I have to leave. First
of all, relative to Ohio, you said that the telemarketers, Ms.
DeGenova, how many of the telemarketers do you think actually
register of the ones who are required to register? Do you have
any idea what percentage of them do, in fact, comply with your
law?
Ms. DeGenova. I think the most unscrupulous telemarketers
are not going to register, even if it is a requirement. They're
obviously breaking the law to begin with. I think you make a
good point that that registration would be difficult. We have--
I think it's preventative. Our law is preventative, also, in
the fact that it sends the word out there to unscrupulous or
legitimate telemarketers that you're going to have to register
in Ohio, and we've gotten several of our convictions on that
failure to register part.
Senator Levin. Now, Canada has the Phonebusters central
number. Do we have anything like that in the United States,
where everybody can call one number, so we don't have six
different law enforcement agencies and people aren't sure whom
to call? Do we have anything similar to Phonebusters?
Mr. Elliot. The Federal Trade Commission has Consumer
Sentinel with an 800 number, it is built on the concept of
Phonebusters and they've done a great job.
Senator Levin. All right. I guess we'll find out how that
works later on. Do we know whether, from your perspectives,
whether or not that is working well, that 800 number that FTC
has?
Mr. Maxwell. Yes. I could say, Senator, that with ``Know
Fraud,'' we used the Consumer Sentinel for the collection of
complaints and we explored possibly merging with the, to some
extent, with our fraud complaint. We get about 60,000 to
100,000 mail fraud complaints a year. We have signed a
memorandum of understanding with FTC to partner with them in
the future, and about a year ago, I received a letter--our
office received, the Chief Inspector, a letter from Senator
Durbin addressing that same fact, that consumers don't know
where to go. It's very confusing. We need one-stop shopping in
this country where the agencies can go and be advised.
Senator Levin. You say we do need one?
Mr. Maxwell. We definitely need--if we can build on FTC's
concept and what they're doing, I think it's a great place to
begin.
Senator Levin. All right. Well, that can be explored, also,
further tomorrow.
When a person is caught in Canada, when you get one of
these shops, is that what you call them----
Mr. Elliot. Boiler rooms.
Senator Levin [continuing]. Boiler rooms--when you get one
of these boiler rooms and you actually arrest people, what is
the penalty, typically?
Mr. Elliot. Well, depending whether they've got a previous
record or not----
Senator Levin. Assume none.
Mr. Elliot. Assume not, the chances of going to jail are
next to nil.
Senator Levin. What about fines?
Mr. Elliot. Fines, we've had some recovery of restitution,
a small amount. Toronto has recovered about $500,000 over the
last 18 months, which is really peanuts.
Senator Levin. What is the maximum fine, and what is the
typical fine?
Mr. Elliot. Well, one of the guys in Montreal got fined $1
million for restitution, but the problem is, it looks good, but
they didn't collect one dime. So fines and recovery, it's not
really a--it doesn't really work.
Senator Levin. It does not work well. It is not much of a
deterrent.
Mr. Elliot. No. The only thing you can do is when you're
arranging the plea, I've found in the past is you have the
restitution made while the plea's being made so that the
payment can be made to the court upon sentencing.
Senator Levin. Ohio used the phone to capture some of that
telephone conversation we played before. How often do we use,
and do you use in Canada, recordings? In other words, when you
get complaints, do we often tell the victim or their family,
hey, here is a tape recorder. We will attach it to your phone
if you are willing. All you have to do, if you are receiving a
lot of these phone calls, is to just punch this button when you
get one.
Let me first ask Detective Elliot about Canada. Do you use
that a lot? Is it helpful?
Mr. Elliot. In my early years, I actually prosecuted cases,
successfully prosecuted them. We used tape recordings as
evidence and we did not have a problem introducing them in
court. The problem was finding an informant from the room that
could identify the voice on the tape. And once we did that, we
were able to get it in as evidence and it was very useful
because it really showed what the pitch was all about, the lies
and deception. So yes, it is true that we can do that.
The problem we have now with the telemarketers is they're
not stupid. I mean, they look at every case that we do, they
sit down with their lawyers and they analyze how they can beat
the system. And what they do now is they make sure that the
individual telemarketers can't hear each other's pitch. In some
cases, the telemarketers don't even know the real name of the
criminal next to them. They are attempting to evade how they
can be caught and prosecuted in court.
Senator Levin. Any other comments about taping telephone
conversations?
Ms. DeGenova. I think it is very useful. Also, it's
educational if you can play those things for the public, as we
have done here today.
I did just want to take a quick moment and mention the
freezing of assets. We can do that through the FTC in the
United States, but I think those mechanisms are more difficult
when the assets are in Canada.
Senator Levin. What is the penalty in the United States, by
the way, for this kind of fraud?
Ms. DeGenova. I think it would vary whether you're in the
State or Federal system.
Senator Levin. What about the Federal penalty?
Mr. Maxwell. The Federal system, you could get sentenced
for up to 5 years for each count or more, and fines and
penalties. But normally, they'll serve a couple of months for a
telemarketing violation. One of the serious crimes I mentioned
earlier in Vancouver, that gentleman received several months
and he was able to serve the time in Canada as part of his plea
agreement.
Senator Levin. I did have one additional question. As to
getting witnesses to Canada, is there a problem? Are people
willing to go there to help prosecute cases? Are there any
problems with travel expenses?
Mr. Elliot. Well, yes. One of the problems has been with
these jurisdictional issues. Who's going to prosecute,
especially when you've got witnesses from other countries, and,
of course, an additional problem is the cost involved with
these witnesses coming in.
The agreement we have in Toronto, for example, we have a
great relationship with the Federal Trade Commission. They
provide us with a letter of intent that we may produce to the
defense counsel stating that if you're going to go ahead to
trial, we're prepared to fly these witnesses in at their cost,
and that's worked out very well. So far, they haven't
challenged that.
Regarding video conferencing, there was just a recent case
in Winnipeg where they used video conferencing with U.S.
victims. The problem with video conferencing is that it's very
expensive. It would have been cheaper to fly the victims in
than actually do the video conferencing.
Senator Levin. Is the conference for the purposes of
discovery? You can't use it at trial, can you?
Mr. Elliot. We don't have the same kind of setup. Yes, we
did. We used it for trial.
Senator Levin. You mean the tape of a testimony----
Mr. Elliot. Yes.
Senator Levin [continuing]. Or the actual testimony at
trial?
Mr. Elliot. No, it was the actual, live video feed, and
that was one of the things that came out of the 1997 report,
was to try to come up with ways to make it easier to prosecute
as far as the witnesses are concerned. But I would suggest that
it's extremely expensive. The defense counsel doesn't like it.
But, as things drop, costs drop in the future, it may be the
way to go.
Senator Levin. Thank you. Senator Collins.
Senator Collins [presiding]. Thank you, Mr. Chairman.
Mr. Elliot, first, I want to commend----
Senator Levin. I'm sorry. Forgive the interruption. We have
some letters that Mrs. Erb got that we'd like to turn over to
you, Canadian scam letters that you could look into and
investigate for us----
Mr. Maxwell. We'd be happy to take them.
Senator Levin [continuing]. And also, we have the testimony
of the Attorney General of Michigan,\1\ Jennifer M. Granholm,
that we'll make part of the record. Thank you.
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\1\ The prepared statement of Jennifer M. Granholm, Attorney
General of Michigan appears in the Appendix on page 297.
---------------------------------------------------------------------------
Senator Collins. Mr. Elliot, I first want to thank you very
much for all the assistance that you've given the Subcommittee
in this investigation and also to commend you on the
Phonebusters project. I think it's an excellent one and has
been extremely useful.
One of the most important points that you made in your
statement, or one of the ones that struck me was the fact that
the incidence of Canadian victims has gone sharply down and the
incidence of American victims has gone sharply up. Do you
attribute that to the education efforts that the Canadian
Government has undertaken, or could you talk a little bit more
about why you see those trends.
Mr. Elliot. Well, there's a few things that have caused the
trend. No. 1 is education. We killed the criminal market
through education. I mean, we really educate the heck out of
Canadians. We drove home some simple facts, for example if you
win a prize, it doesn't cost you ten cents to get it. We made
people aware of the fact that if you get a phone call, which we
don't get very often that you've won $100,000 or $1 million,
that there's no cost associated in an honest contest, you don't
have to buy any product. And we drove that home over and over
again. We've done a lot of media interviews.
And creating that call center with the toll-free number has
been very successful, as well as the Seniorbusters program,
where we call back to victims. These are a bunch of volunteers
that offer peer support, and also kill the fresh victim market.
Now, the other big reason that criminals are targeting
Americans is your dollar is worth twice as much money. You've
got ten times the market. And it causes--they know about the
jurisdictional issues. They know all the problems that we have.
They've got more information about us than we have about them.
I mean, these guys are--this is organized crime. You know, it's
associated to other traditional organized crime. It's an
organized crime itself.
Consumer fraud, people are just beginning to realize how
big consumer fraud is. When you think that consumers drive the
markets of all of our markets around the world, if you're a
criminal and you tap into that, just think how much money you
can make. And everybody looks at these credit card pitches,
like $100 or $200 for a card that you don't get or a low-
interest-rate card, it doesn't look like a very serious
problem. But you get a million people to send you $200, you've
just made a lot of money. And you think a million people is a
lot. You've got 200 million people here in the U.S. market that
can be attacked either by phone or by mail or by Internet.
So there's a number of reasons, jurisdictional, light
sentencing, the risk that if they're going to get caught, it's
pretty slim, and the risk that if they do get caught, that
they're not going to jail are all contributing factors.
Senator Collins. Thank you. Ms. DeGenova, is that right?
Tell me a little more about what happened in Mr. Hathaway's
case. You obviously did a lot of investigative work. You taped
the phone calls that he was receiving. And yet when I asked him
today whether he had received any restitution, the answer was
no. Tell us what happened and why there was no restitution in
this case.
Ms. DeGenova. I think it comes down to resources. I think
we did have a trap and trace line. We were able to locate the
boiler room. We had it on tape, the actual scam. All of those
things are really unusual and do take a lot of legwork and it's
really a tribute to the hard work that our investigators have
done in this case.
I think we worked through Project Colt in that case and
they were just not able to free up the resources to go after
that particular boiler room, and I think what the others have
said about even if you can locate those folks, the restitution
itself, there's no assets or they're hidden or they're frozen
or we can't get to them and the laws are complex. So those are
some of the other difficulties.
Senator Collins. Is there also a problem--and I would ask
all three of you this question--with the individual case being
of a relatively small dollar value, compared with the costs of
prosecution, particularly when you are dealing with multiple
jurisdictions? It seems to me there is a little bit of a catch-
22 here, because it seems that they are too expensive to
prosecute the small dollars, and yet if you added them all
together, as Mr. Elliot has suggested, you are talking about an
enormous amount of money. But is the amount of the individual
fraud a deterrent to enforcement and prosecution?
Ms. DeGenova. It can be. I think that we need the
education, again, for folks, no matter if it is $29 or $2,900
or whatever the case may be. I also believe that, depending on
the different civil and criminal laws in each individual State,
if you're prosecuting here, you need to aggregate that amount.
Those things can be done, but I think even as law enforcement,
we view some of those cases, and even the general public has
the sense that, well, $29 here or $59 per person. But as Mr.
Elliot pointed out very aptly, it adds up to quite a lot of
money.
Senator Collins. And a lot of times, when there is
investigation, and perhaps if we could put the first exhibit up
as an example,\1\ once an individual case is investigated, it
turns out that there are literally hundreds or thousands of
other victims and that would be an example in this one scam
that I mentioned in my opening statement, where a woman from
North Carolina lost $100,000, which is a great deal of money.
But when this case was investigated and ultimately successfully
prosecuted, it turned out that there were thousands of victims
in 18 States. So oftentimes, if these cases that appear to
involve only small dollar amounts were investigated, it would
turn out to be a significant fraud ring involved.
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\1\ Exhibit No. 1 appears in the Appendix on page 237.
---------------------------------------------------------------------------
Mr. Maxwell.
Mr. Maxwell. If I may, Senator, I think that speaks to why
it's so important to have a centralized complaint collection
similar to Phonebusters and FTC. If the agencies know, they
might not be so quick to walk away from that, because with all
the priorities, with all the cases coming at groups like
Project Colt or groups we have set up in the States, they're
going to prioritize by what looks like the worst, the most
egregious. So, like you say, we could be missing a lot, and if
we have a centralized collection somewhere where we can check
complaints quickly and move swiftly, I think that would be of
great benefit.
Senator Collins. Mr. Elliot, based on your experience, even
when there appear to be small dollar cases, if you add up the
number of victims, is it usually a considerable amount of
money?
Mr. Elliot. Yes, and we have the adequate law in Canada,
it's called Defraud the Public, when we can show three or more
victims have lost something on a similar scheme, it's no longer
a $100 scam, it adds up to whatever the number of--the amount
of the loss is, and that's what you're convicted on. So it's
not necessary for us to change the law to adapt to this type of
crime. What is necessary for us to do is to actually prosecute
and enforce it and get the necessary--a reasonable sentence.
But just to add a little bit to that, it's certainly our
experience, the smaller the amount of money, the less chance
the victim's going to report it. In some cases when they're
targeting the elderly, on the credit card protection, for
example, in some of these sophisticated scams, the elderly
don't even know that they've been scammed and they're having
amounts taken out of their credit card, not realizing that the
credit card protection doesn't exist. The higher the loss, the
greater chance that the person's going to report it, but you
still have a huge amount of people that have lost a lot of
money who are not telling anybody about it. They're not telling
their family. They're too embarrassed.
So, when you talk about education and you talk about having
one number, it's not just to educate the public about what's
going on so they can better protect themselves. You've also got
to educate the public to come forward, that it's a good thing
to let everybody know what's happened because you can help
fight the fraud, just like these three victims did today.
Senator Collins. One of the striking aspects of the
testimony of every single victim that we interviewed, and
including the three that we heard from today, was that once
they were taken in by a solicitation, whether on the phone or
in the mail, they were inundated with other telemarketing calls
and other solicitations from the mail. This suggests to us that
these fraud rings are sharing information and that there are
victim lists, or as one con artist described it, sucker lists.
Could you all comment on what you have seen, based on your
investigation? Is that the case? We will start with you, Mr.
Elliot.
Mr. Elliot. You have got a huge industry, not only in
telemarketing fraud, but you've got a huge industry in creating
these fake sweepstakes mail-outs and these fake lotteries that
are worldwide. In a lot of cases, you have companies, criminal
companies, that's their only thing, is to create these sucker
lists to sell the information to the fraudulent rooms, the
telemarketing rooms, so that they can call these victims.
So in Canada, I know Industry Canada, under the Competition
Bureau, are doing a complete analysis of these fake mail-outs
coming out of Canada that are hitting countries around the
world, and they are pinpointing certain individuals that are
responsible for all of this. We have now found out that they
are collaborating with other criminals in other countries,
because what used to be just a North American problem is now
spreading worldwide.
We just had a delegation that came in from the Philippines
which I just found out, that the major language in the
Philippines is English. We've got rooms that are opening up and
they're starting to use the same tactics that they used 5 years
ago in the Philippines. We also have telemarketing rooms that
are contacting the Philippines and using the same marketing
concepts to create the sucker lists.
Senator Collins. Ms. DeGenova, in your experience, do you
see sharing of sucker lists?
Ms. DeGenova. We do. I would concur with Mr. Elliot's
statements. It's an industry all to itself, hundreds of
thousands of dollars to buy what could be called a mooch list
or a sucker list. We've confiscated them in search warrants and
things like that and have done what's called a reverse boiler
room, where we'll call the folks on that list and say, you're
on this list and we're calling from the Ohio Attorney General's
Office. That's another good way to educate.
But I agree, and I think the problem will only proliferate
with public information and Internet and other ways to share
that information. I think folks really need to be cognizant
about who they give their personal information to.
Mr. Elliot. Senator, may I----
Senator Collins. Yes.
Mr. Elliot. There's also a problem with the sale of honest
information, and just to give you an example of that, the
credit bureaus, for example. On the credit card pitch where
they're using--we can get you a credit card for $300 or $400--
they're buying freshly turned-down lists from the credit
bureaus. So these people are really hot to get a credit card
and they'll do just about anything to get a credit card and
that information is being supplied by an honest company.
Senator Collins. That is a very good point, and one issue
we have not discussed today, but is another area of cross-
border fraud are these advance-fee-for-loan schemes, and that
kind of information would be very useful for that.
I participated in a reverse boiler room operation with the
AARP in Maine and with our Attorney General's Office and we did
do exactly what you said. We had access to a likely victim list
and called and alerted the seniors on it that they are being
targeted by telemarketing scam artists.
Mr. Maxwell, I was very pleased to hear your comments about
the law that Senator Levin and I authored to crack down on
deceptive mailings. Do you think, ironically, that because of
that law, the fraud is moving more toward telephone fraud or
cross-border fraud which would not be covered as easily?
Mr. Maxwell. I think what we are seeing, it's still a
combination. As you were talking about the sharing of lists, we
have one operator that we refer to as one-stop shopping--the
one out in Vancouver I mentioned earlier. He would use
saturation mailings in locations, get the information back
where people would actually put their personal information and
their phone number. Then he would conduct his telemarketing
operation from that. There are some companies that just do
mailings and then provide those phone numbers to the
telemarketers.
So I don't know if there's a growth spurt in the absence of
the other. I think both remain. But in the cross-border
instance and what I alluded to earlier was, I think, when we're
slowing down our U.S. operations, at times we open up some
opportunities for others . . . in Canada, so they see more
fertile ground right now because there's less competition. It's
like a business. It might be illegal, it might be corrupted,
but it is a business and they're competing against one another
and it's very organized.
Senator Collins. Finally, Mr. Maxwell, let me ask you to
explain to us the role of commercial mail receiving agencies
and how they may relate to con artists seeking to defraud
consumers.
Mr. Maxwell. That was an area that's--the commercial mail
receiving agency itself, it's similar to a post office box, for
those who are unfamiliar with it. It's like Mailboxes Etc. or
any one of the legitimate concerns, where you can rent a box
and receive mail. The Postal Service has a requirement that you
fill out an application so that we'll know who we're delivering
the mail to. Your identity is required.
Over the years, registration wasn't enforced that heavily
and a lot of commercial mail receiving agencies cropped up
without identification and so forth. So as we began to tighten
that up, we saw the need to greater tighten it because these
addresses were being used to conduct frauds. Obviously, using
CMRA addresses can work particularly well in cross-border
frauds, but it works from State to State, as well. Somebody
could take out a box at a CMRA and it could say, Suite 76,
Rodeo Drive, California. That would imply to the person sending
money that, hey, this is quite an operation, it's in an
exclusive part of town, and so forth. It's not----
Senator Collins. When, in fact, it's just a private
mailbox, a mail drop, essentially.
Mr. Maxwell. Correct. And this came to light primarily as a
result of some of our work in the credit card area, but also in
the mail fraud area, and we enhanced the regulations most
recently and it was controversial because, again, you're
dealing with--that was one of the draws, to have this open-
ended kind of address. It looks very flattering, to make it
sound however you want.
What we asked was that they use the designation PMB for
private mailbox, and again, there was some push-back on that.
We debated with the industry and a compromise was reached. So
as of August 2001, they will be required, ``they'' being anyone
using a commercial mail receiving agency, to use the
designation PMB, similar to post office box, but private
mailbox, or the number or pound sign (#) that can also be a
designation, which the post office will recognize, the Postal
Service will also provide a toll-free number in which consumers
can call to get verification of CMRA addresses.
Having said that, the weakness in it is that not every CMRA
is registered, and we have, I think, a list right now of
13,500. I suspect there are considerably more, and from what
I've seen just in the New York area, there's many of them. So
with enforcement of this and the more information we can get,
it would be a lot better.
And again, I'll qualify by saying that there are many
legitimate companies using CMRAs. CMRA operators and the
industry are now working with us very closely. We're actually
participating in the training of their new franchise owners.
We've had cooperation with CMRA operators in Canada. We've
called them and said, you don't have to, but can you give us
some information, and they've been very helpful. So, again,
that's an area we'd like to explore with Canada Post, as well,
what we could do up there.
Senator Collins. And finally, Mr. Maxwell, I am very
impressed with this brochure. I think it is excellent, and we
have heard from Detective Elliot what a difference public
education efforts have made in making Canadian consumers far
less likely to fall prey to these kinds of schemes.
Could you tell me a little bit more about how this was
funded? Was it a grant from the Postal Service Inspection
Service, or----
Mr. Maxwell. Actually, my understanding for this promotion,
and again, this is an example of a local initiative, where you
have the Senior Action Coalition in Pittsburgh, you have this
advertising group and also the Postal Inspection Service, and
they did this for free. I mean, they prepared this pamphlet and
published it and the seniors, and working with the postal
inspectors, came up with the language and some of the
materials, and it comes in a thicker brochure almost this size,
where you open it up and you have additional information. We
have some of our pamphlets in there on telemarketing fraud and
some other schemes. It's a nice package. I've been impressed
with that more than most I've seen.
Senator Collins. I've often thought that if we could
somehow distribute a pamphlet like this to every senior
citizen, maybe as an enclosure with the Social Security check--
except that most people use direct deposit now, so I do not
know how you would do it exactly--we could save people a lot of
grief and a lot of financial loss.
Mr. Maxwell. I had a chart earlier, but I didn't think time
would permit, showing the States that we have shown to be the
most frequently seen in our complaint database for cross-
border--well, that's it there.\1\ The thought we had when we
saw this and in talking with some of your staff members was
that perhaps that compelling picture of the senior with that
language, if it was put in places where the overnight payments
are mailed, might at the last minute trigger the victims and
stop them in their tracks, so to speak, to question, am I doing
the right thing? We are exploring that. We're looking at maybe
some States where we could use that as a prevention campaign.
Sometimes it's very effective.
---------------------------------------------------------------------------
\1\ The chart referred to appears in the Appendix on page 151.
---------------------------------------------------------------------------
Senator Collins. Thank you. Mr. Elliot.
Mr. Elliot. Just to add to your education, once we drive
the telemarketers out of Canada, and assuming that we do,
they're not going to disappear. They're just going to move to
the Caribbean and other places. So you have to really
concentrate a lot on education. There is nothing wrong with
putting a telemarketer in jail, but education is the way to go.
Senator Collins. Thank you. I want to thank all of you
today for being with us. Your testimony was very helpful as we
grapple with this increasing problem, so thank you very much
for your efforts and your contributions, which are much
appreciated.
I want to thank all of our witnesses here today. We have
heard from three victims of cross-border fraud, innocent
citizens who were targeted or whose loved ones were targeted by
unscrupulous telemarketers or sweepstakes operators who were
operating out of what they may have assumed was a safe haven on
the other side of the border. Each of these witnesses has had a
special story to tell, but the underlying theme of them is the
same in each case, and that is that they trusted the words of a
smooth-talking stranger who contacted them at a vulnerable
point in their lives and preyed upon, took advantage of their
honesty, their trust, their hope, and their good will in order
to swindle them of thousands of dollars, and these cases help
put a human face on the problem of cross-border fraud.
Our elderly citizens deserve to be free from this type of
exploitation and to feel safe in their own homes, and our first
line of defense against such victimization is increasing
education and consumer awareness.
We also have learned about some of the challenges that law
enforcement officials face on both sides of the border, and I
think that some good work is underway, but clearly, there is
more that we can be doing to simplify the process and to
encourage cooperation on both sides of the border.
I also think that this Subcommittee will continue its work
in this area, and I am going to approach our Chairman about
joining me in signing a letter to President Bush urging that he
make fighting cross-border fraud a personal priority in the
dialogue that he began with the Canadian prime minister at the
summit in April, building upon the work that Detective Elliot
mentioned that was started in the previous administration.
I also think that this Subcommittee may be able to strike a
direct blow against some cross-border fraud ourselves. As the
result of the information that was provided to us during the
investigation of Mrs. Hersom's case involving her husband, we
contacted Western Union. I issued a subpoena, and we have found
the name and the location in Canada where her husband sent
thousands of dollars. We also have evidence of a great many
other wire transfers that were sent to the names in this
particular location. So, in other words, we have acquired some
direct evidence of what appears to be yet another cross-border
fraud ring. So I will, again, be approaching the Chairman about
a referral to the Department of Justice so that this matter can
be investigated further.
Again, thank you very much for your testimony today. Our
hearings will continue tomorrow, and the hearing is now
recessed until tomorrow at 9:30.
[Whereupon, at 12:27 p.m., the Subcommittee was recessed,
to reconvene at 9:30 a.m. on Friday, June 15, 2001.]
CROSS-BORDER FRAUD: IMPROVING TRANSNATIONAL LAW ENFORCEMENT
----------
FRIDAY, JUNE 15, 2001
U.S. Senate,
Permanent Subcommittee on Investigations,
of the Committee on Governmental Affairs,
Washington, DC.
The Subcommittee met, pursuant to notice, at 9:36 a.m., in
room SD-342, Dirksen Senate Office Building, Hon. Carl Levin,
Chairman of the Subcommittee, presiding.
Present: Senators Levin, and Collins.
Staff Present: Linda Gustitus, Chief Counsel and Staff
Director; Mary D. Robertson, Chief Clerk; Laura Stuber,
Counsel; Christopher A. Ford, Minority Chief Counsel and Staff
Director; Frank Fountain, Senior Counsel to the Minority,
Marianne Kenny, Detailee/Secret Service; Susan M. Leonard,
Congressional Fellow; Alan F. Stubbs, Detailee/Social Security
Administration; Bos Smith, Intern; and Kim Wojcik (Senator
Akaka).
OPENING STATEMENT OF SENATOR COLLINS
Senator Collins. Good morning. The Subcommittee hearing
will come to order.
This morning, the Subcommittee holds a second day of
hearings regarding cross-border fraud. Yesterday, we began
these hearings by hearing from the victims of cross-border
telemarketing fraud. Their testimony placed a human face on the
cold statistics of financial loss and potential ruin that can
result from the crimes of con artists operating from beyond our
borders, outside the reach of ordinary law enforcement efforts,
but not so far off that they cannot plague American consumers
with smooth-talking fraudulent telephone pitches and bogus
direct mailings.
Our second panel yesterday placed this problem in
perspective by describing the sweeping reach and the high
volume, and the growing volume, of cross-border fraud and what
American and Canadian law enforcement authorities have begun to
do about it. We heard from a Canadian official, for example,
who explained an initiative called Phonebusters, which
illustrated both the importance of international information-
sharing and of aggressive consumer education and awareness
campaigns in combating cross-border fraud.
We also heard from a representative of a State attorney
general's office who explained the impact of cross-border fraud
on the constituents of that State from the perspective of a
prosecutor who has worked long and well with her counterparts
across the border. Finally, we heard from a representative of
the U.S. Postal Inspection Service who discussed efforts aimed
at stemming the flow of fraudulent solicitations and efforts
made to educate the American consumer.
As I noted yesterday, the relationship between the United
States and Canada is one we treasure. It is built upon a solid
foundation of close economic, cultural, and political ties.
This interconnectedness, however, makes it easier for cross-
border con artists to prey upon the citizens of another
country, even while the presence of an international border
makes cross-border law enforcement far more challenging.
As a final note before we hear from our witnesses and our
Subcommittee Chairman today, I should note that one party we
had hoped to hear from is not present today. In early May, I
invited a representative from the Royal Canadian Mounted Police
to testify at these hearings. I had hoped that he would be able
to discuss with us the challenges and opportunities of fighting
cross-border fraud, as seen from his perspective as an officer
of Canada's premier national-level law enforcement agency.
Just a few days ago, however, we were informed by the
Canadian Embassy that its government had decided to prohibit
all Canadian national-level officials from participating in our
hearings. This is troubling, since a major purpose of these
hearings is to foster and promote more U.S.-Canadian
cooperation in preventing and prosecuting cross-border fraud.
In any event, I very much look forward to hearing the testimony
of our American witnesses today.
Again, I would like to thank Chairman Levin for agreeing to
hold these hearings and for working so closely with me on this
important issue.
Thank you, Senator Levin.
OPENING STATEMENT OF SENATOR LEVIN
Senator Levin [presiding]. Thank you, Senator Collins.
First, let me thank you and again say just how important this
subject is to many of our citizens who are being fleeced by
these crooks and con artists.
Senator Collins has been extremely active in a whole host
of areas in an effort to protect our consumers in this country.
Our seniors in this country are some of the most vulnerable
people who are the targets of these crooks. These hearings were
scheduled by her and I am delighted to follow through with them
because the subject is so important.
As Senator Collins indicated, yesterday we heard from three
victims of the con artists who perpetrate these frauds, and
their stories were truly disturbing and truly touching. In each
of the cases, the victims genuinely believed that the crooked
solicitors were telling them something truthful. They were
taken in by the manner and the claims of these solicitors. We
also heard about a very successful Canadian program designed to
stop these kinds of scams. It is called Phonebusters. It is an
excellent model for the work that we could be doing in the
United States.
Today, we are going to hear from three U.S. law enforcement
officials who are going to talk about their views on the
current state of U.S.-Canada cooperation with respect to cross-
border fraud and how we can improve such coordination in the
future. I also hope that they will address the question of
whether or not there are loopholes or weaknesses in our own
laws which should be corrected.
The subject matter of these hearings is similar at least in
one respect to hearings which the Subcommittee held in 1999 on
deceptive mailings and sweepstakes promotions. Those hearings
eventually led to the Deceptive Mail Prevention and Enforcement
Act which Senator Collins and I introduced and sponsored and
got adopted.
Like the 1999 hearings, the target of these fraudulent
promotions is generally the elderly. But in the fraud that we
are looking at yesterday and today, there is one key
difference. The perpetrators here are outside of the United
States and our law enforcement officials don't have as much
authority to catch these criminals.
Other countries work closely with us; Canada surely does.
As Senator Collins points out, they are a treasured neighbor,
both directly and in our States, as a matter of fact, since the
border rests along Maine and Michigan as well.
But there are obstacles, no matter how good the intentions
are, to cross-border enforcement. Any criminal with a cell
phone or a laptop computer can set up a scam operation very
easily in a foreign country. They don't need to have an office
or a room. Telemarketing is a movable crime that is difficult
to trace. In a pinch, cell phones can be discarded, so can
computers. Even if an illegal solicitation is traced to a
particular cell phone or computer, it could be gone by the time
the trace occurs.
The fast nature of this crime makes it imperative that we
work to improve interstate, interagency and international
coordination of these cross-border frauds. Many of our Federal
agencies are working to educate vulnerable groups and
individuals. We heard yesterday about the ``Know Fraud''
program, which is a mail campaign designed to fight
telemarketing fraud which is coordinated with the American
Association of Retired Persons, AARP, the Federal Trade
Commission, the Justice Department, and the U.S. Postal
Inspection Service, among others.
Today, we are going to hear about the Justice Department's
grants to States for senior fraud prevention programs and about
the Federal Trade Commission's Consumer Sentinel, a large
consumer fraud complaint database.
But despite these efforts, it appears that consumers still
often don't know where to go when they are the targets of
telemarketing scams. The Postal Inspection Service told us
recently that ``consumers are uncertain as to what entity they
should send their fraud complaints to.''
There are a number of options: Local police, State
attorneys general, FBI, the Department of Justice, the Federal
Trade Commission, and the Postal Inspection Service, among
others. One answer to this may be to have a 1-800 number for
all persons across the country seeking Federal assistance to
call, and the various cases could perhaps then be assigned to
an appropriate agency from that point, similar to the
successful Phonebusters in Canada. The FTC has its own consumer
fraud hotline, and perhaps that is the hotline to build on. I
am not sure it has the public awareness that the Phonebusters
hotline has, but nonetheless, that is at least one possibility.
Another issue is that of coordination between Canada and
the United States in fighting these crimes. President Clinton
took the lead on this issue in 1997 when he met with Prime
Minister Chretien. At that time, they directed officials from
both countries to prepare a joint study to examine ways to
counter cross-border fraud. The United States-Canada Working
Group was formed as a result and it released its report, with a
number of recommendations which the witnesses today will be
discussing. That working group continues its work and will meet
again, I understand, next week.
Again, I want to thank Senator Collins and her staff for
their pioneering work in this area, and we look forward to
today's testimony. I wish I could stay for it. My staff will be
here because I can't.
But at this point now, in keeping with our rules of this
Subcommittee, we will ask our witnesses to stand, raise your
right hand, and be sworn in.
Do you swear that the testimony that you will give before
the Subcommittee will be the truth, the whole truth, and
nothing but the truth, so help you, God?
Mr. Sorrell. I do.
Ms. Warlow. I do.
Mr. Stevenson. I do.
Senator Levin. Thank you.
We have three witnesses today: William Sorrell, Attorney
General of Vermont. We are delighted to have you here. A nephew
of mine now lives in your capital, so if I can get back here
before this hearing is over, I may ask you how he is doing,
even though you don't have the vaguest idea how he is doing.
Mr. Sorrell. Well, we only have a population of about 7,000
in the State capital, so I might know him.
Senator Levin. Well, he has only been there a month or two.
Mr. Sorrell. I still might know him.
Senator Levin. You still might know him. It is a small
capital. Anyway, thank you for being with us, General.
TESTIMONY OF HON. WILLIAM H. SORRELL,\1\ ATTORNEY GENERAL,
STATE OF VERMONT, MONTPELIER, VERMONT
Mr. Sorrell. It is my pleasure to be here, Mr. Chairman.
Senator Collins, thank you, too.
---------------------------------------------------------------------------
\1\ The prepared statement of Mr. Sorrell appears in the Appendix
on page 152.
---------------------------------------------------------------------------
I am pleased to represent my office and the National
Association of Attorneys General in addressing issues of
telemarketing fraud, particularly cross-border telemarketing
fraud.
Senator Levin. Let me ask you, if you would, to bring your
mike as close as you can. We will ask you each to summarize in
about 10 minutes, so that would leave adequate time for
questions.
Mr. Sorrell. The attorneys general laud your Subcommittee
for addressing this issue. As you no doubt heard yesterday,
telemarketing fraud presents significant challenges to law
enforcement. The financial losses to Americans number in the
billions of dollars. It is a vastly unreported crime. When the
reports are made, the cases are difficult to investigate and
more difficult to successfully prosecute. When you add the
cross-border component to it, with a perpetrator typically in
Canada and the victims in the United States, those hurdles that
I talked about increase significantly.
Today, I would like to address a few concerns or problems
that the State attorneys general recognize from our experience
in going after these cases and some suggestions of
congressional action that might assist us to make our jobs
easier.
The cases of cross-border telemarketing fraud--I don't know
whether Vermont is unique, and perhaps Canadians think
Vermonters are particularly gullible, but whereas nationally, I
think, the percentages differ, in our office over the last 18
months we have looked at 90 separate cases of telemarketing
fraud. Of those, all but four involve calls being made from
Canada into Vermont. So the vast majority of the telemarketing
fraud cases that we have looked at in the last 18 months have
involved a cross-border component.
The first issue I would like to address is the time that it
seems to be taking for there to be action under the Mutual
Legal Assistance Treaty and extradition processes.
It seems to the States that it takes an unduly long period
of time when we make so-called MLAT requests to the Department
of Justice and/or extradition requests to the Department of
Justice. It seems to us to take an unduly long time for these
requests to be addressed.
Now, we are mindful of the fact that significant crimes of
violence will be placed higher on the priority list for
attention. But, anecdotally, waiting 6 months for any reaction
to our requests, and then after making necessary revisions to
submissions, waiting as long as 2 years or more for an
extradition request to be sent on to Canadian authorities, and
then potentially further attendant delays within Canada, seems
unduly long to us.
When we asked the Department of Justice and the Federal
Trade Commission for information on the average length of time
for the processing of such requests, they did not seem to
readily have that information. So we would appreciate your
assistance in requesting periodic reports on a quarterly or
semi-annual basis on the timing of when requests come in and
the time for initial response to the States, and then
ultimately in the extradition matters when the communication
went to the Canadian Government requesting extradition or a
final determination that extradition would not be requested,
and similarly, under MLAT processes, when the ultimate request
went to Canadian authorities for the documentary evidence or
other materials sought through the request.
We would ask that there be some encouragement brought to
bear to have the Department of Justice, the FTC, and State,
local and Federal law enforcement officials sit down and see if
there are ways that can speed these processes. To the extent
that it is at the Department of Justice that there are resource
needs. That the Department is prioritizing, as I indicated,
other matters--terrorist bombings and such, and additional
resources at the Canadian desk are needed--we would ask the
Congress to appropriate the funds to make those resources
available.
Formerly, there was an arrangement whereby an assistant
attorney general from a State served as a fellow at the
Department of Justice in the extradition office, where the
State continued to pay the assistant attorney general's salary,
but travel and housing expenses were picked up by the
Department of Justice.
It is possible that revisiting that kind of a program,
reinstating that kind of a program, would be something that
would be sort of a win-win; not a lot of extra money for the
Department of Justice, but we would have somebody there
physically with the priority in mind for handling the MLAT and
the extradition requests coming from the States.
Moving to a second issue, funding issues for travel of
victim witnesses and investigators to Canada, we have issues,
of course, about the aggressiveness with which Canadian law
enforcement addresses problems when the victims are in the
States and the perpetrators are in Canada. For victim witness
travel to Canada, the Canadian officials have taken the
position that unless there is a guarantee that an individual
State or the Federal Government is going to pay for victim
witness travel to Canada to participate in legal proceedings,
they won't go forward with the case in Canada without those
assurances.
I know the FTC has made arrangements to make best efforts
to fund that travel. But under Bureau of Justice Assistance
(BJA) grants, as I understand it, they cannot be used to fund
victim witness travel to Canada. We would hope that those
restrictions would be eased.
When it comes to investigator travel, what we have found--
and this is anecdotal, but what we have found is that dealing
with the Canadian bureaucracy for the kinds of investigative
information that we need when we are focusing on a Canadian
perpetrator--aliases, criminal record, business associates,
perhaps targeting other ongoing Canadian investigations and
such, much of the kind of information that is not gathered, as
I understand it, through the Phonebusters operation and
Consumer Sentinel--it is personal contact from law enforcement
to law enforcement that works rather than just a call into
Montreal P.D. or Toronto P.D. that kind of gets set there off
on a desk.
If you can form personal contacts sergeant to sergeant, you
tend to get more positive results. So to the extent that you
could appropriate funds for investigator travel, for State or
local investigators from the United States to travel to Canada
for these cases, that could be helpful to forge those kinds of
personal relationships that would foster a better exchange of
information.
I will say that you could leverage the funds with some sort
of a revolving fund through NAAG, or the National Association
of AGs, whereby we would require in a successful case that the
costs of investigation be reimbursed, and we would replenish
that fund so it wouldn't be just a simple draw-down.
I know my time is running short, so just a third issue is a
lack of resources to hire Canadian counsel to try to freeze
assets that are in Canada of these perpetrators. As you
probably heard yesterday, it is like getting money out of a
stone to actually recover from these individuals.
Private counsel in Canada usually require up-front payments
of thousands and thousands of dollars as retainers to process
these cases, and we would hope that you would appropriate some
funds for that purpose. Again, a revolving fund for that
purpose is something that would make sense so it could be
replenished in those cases when we successfully obtain assets
in Canada after a successful prosecution.
My time is up. I would be happy to field questions now or
after the full panel has addressed you.
Senator Levin. I am going to interrupt the flow here just
to ask one question, and perhaps Senator Collins wants to, too.
I was unclear on one thing you said about restrictions on
funds for victim travel. I thought you said BJA.
Mr. Sorrell. Bureau of Justice Assistance monies. It is my
understanding that the States are not allowed to use those
monies for victim witness travel to Canada under current
restrictions.
Senator Levin. And that fund is a Department of Justice
fund?
Mr. Sorrell. Yes.
Senator Levin. Then I would appreciate, if you would, Ms.
Warlow, your addressing that restriction and whether or not
that should continue. It seems to me that goes to the heart of
the matter as to whether we can get the victims to Canada. The
extradition thing, it seems to me, is so long and complicated
and time-consuming that if we can get victims there and if we
can get people there working with law enforcement on a much
more personal basis, as you just pointed out, it seems to me
that may be the most direct way we can do the enforcement part
of this.
But in any event, if you could address those restrictions--
--
Mr. Sorrell. In those cases when we can get the Canadian
authorities to prosecute against the perpetrators physically
located in Canada, it is absolutely key for our victims to be
able to get up there to participate in those proceedings.
Senator Levin. Thank you very much. Ms. Warlow.
TESTIMONY OF MARY ELLEN WARLOW,\1\ ACTING DEPUTY ASSISTANT
ATTORNEY GENERAL, CRIMINAL DIVISION, U.S. DEPARTMENT OF
JUSTICE, WASHINGTON, DC
Ms. Warlow. Thank you, Mr. Chairman.
---------------------------------------------------------------------------
\1\ The prepared statement of Ms. Warlow with an attachment appears
in the Appendix on page 158.
---------------------------------------------------------------------------
Senator Levin. Identify to us what your position is.
Ms. Warlow. Certainly, I currently hold the position of the
Acting Deputy Assistant Attorney General in the Criminal
Division, and in that capacity one of the sections that I
supervise is the Fraud Section. It is our Fraud Section that,
for the Division, is taking the lead in cross-border
telemarketing fraud.
Frankly, one of our senior attorneys, Jonathan Rusch, is a
key player in the U.S.-Canada Working Group on Telemarketing
Fraud.
Senator Collins [presiding]. I am sorry, Ms. Warlow. We
still can't hear you very well. They are very directional, so
if you could pull the mike up a little bit, that should do it.
Thank you.
Ms. Warlow. I was saying that I supervise the Fraud Section
in my current position, and the Fraud Section is a key
component in this. Our senior attorney on the issue of
telemarketing fraud, Jonathan Rusch, is, in fact, the U.S.
Chair of the U.S.-Canada Working Group that has been referred
to already. So I am the Acting Deputy Assistant Attorney
General. My other job, frankly, is that I am a senior counsel
for national security and international matters, and have had
long experience working with Canada in that role.
If I may submit my written statement for the record, I
would like to at this time.
Senator Collins. It will be entered in full, as will all of
your prepared testimony.
Ms. Warlow. Thank you. I will try to briefly summarize what
the Department of Justice is doing to work toward more
effectiveness in combating cross-border telemarketing fraud.
First, a brief overview of the problem; I don't think I
have to go into detail. You certainly seem well-apprised of the
problem and have had a series of witnesses. I will summarize
what we are doing and then talk a bit about some areas where we
need to look at how we might enhance our effectiveness.
It is next week that the Working Group on Telemarketing
Fraud will have their annual meeting in Canada. It will be
followed by, in that same week, the meeting of the Cross-Border
Crime Forum, which is presided over by Attorney General
Ashcroft and the Solicitor General of Canada, and this
telemarketing fraud is one of the issues that is the subject of
that Forum.
Certainly, there is no question that telemarketing is a
huge problem in terms not only of economic loss, but the injury
to victims and the severity of that injury. We have made
advances, certainly, in operational initiatives with Canada.
There have been legislative advances; Canadian law has
improved. But the fact remains that this is a pervasive crime
and a very serious one.
Currently, the activity is centered in three metropolitan
areas--Vancouver, Toronto and Montreal. In Montreal, there are
estimates from our experts of 5 to 10 large telemarketing
operations, and more than that in the Toronto area: 50 to 60.
And some of these have up to 50 employees; they are major
operations. In Vancouver, the estimates are even higher, over
200, 220 to 250 telemarketing operations, again some very
small, 2 or 3 employees, some up to 40 employees. So Vancouver
is a considerable center of activity for this.
Of course, it is not the fact that we only have the
phenomenon of Canadian-based operations targeting U.S.
citizens. We have had two cases in which there were U.S.
operations targeting Canadians, out of Buffalo and Florida.
But, of course, our focus here is on the pervasive phenomenon
of the Canadian-based operations.
What is appended to my statement is the report to the
Working Group on what the United States has done to implement
the 14 recommendations of the Working Group. We believe we are
substantially in compliance with them. I want to briefly deal
with two of those recommendations. The first one is a very
general one, but it is one of great significance: Treating
telemarketing fraud as a serious offense, recognizing it and
devoting the resources to it.
The Department of Justice has, since the early 1990's,
regarded telemarketing fraud as a serious problem. We had three
major undercover operations in the 1990's, with 1,400
defendants in all. Just in the last 18 months, we have had 12
significant cross-border cases. There are summaries of those
cases in my statement. I won't go into the details of them.
Again, you see the same pattern, the most disturbing
pattern, which is the victimization of the elderly in these
cases and, of course, any variety of schemes. As Attorney
General Sorrell has indicated, they are of quite different
varieties and cleverness in how they are presented.
But one of the successes, I think, in our most recent case
initiatives--first of all, I think we are doing more in part
because of the implementation of these recommendations. Also,
something that is encouraging to us is getting increased
sentences.
For example, one of the cases, the case of Eduardo
Cartagena, resulted in a 70-month sentence of imprisonment, and
this was particularly based on the enhanced penalties which
were enacted by the Congress as part of the telemarketing
legislation in the mid-1990's, and it relates to the
victimization of what we call vulnerable victims, or the
elderly in this case. And those penalties and subsequent
sentencing guidelines really give us the potential for more
significant sentences.
We have had, in addition to criminal prosecution, some
success in the civil area. I think I would agree very much with
Attorney General Sorrell that one of the most frustrating
aspects of this problem is with recovery of money for victims.
I think generally that is the case. It is even harder when you
have a border to deal with.
Our Civil Division has had some success in civil
enforcement in freezing assets in Canada. In one case, we were
able to get $1 million back in restitution, and this might be
something that we could explore more as a way to work together.
Certainly, trying to at least get some of the funds back is
extremely important to us.
As has been mentioned, we work with the States and the
National Association of Attorneys General particularly in
training and some projects with the States. We have an ongoing
and significant training initiative in telemarketing both for
our own people, State and local people, and with the Canadians.
Part of our work has focused on the notion of task forces.
The development of the three task forces in Canada has been a
significant help to us. These are in Montreal--and you have
heard, I think, extensively about the one in Toronto. There is
also one in Vancouver. Again, these correspond to the three
centers of the problem.
The FBI supports and works with these task forces through
something called Operation Canadian Eagle. It is a pairing
operation in which, for example, the Boston field office is
paired with Montreal, Detroit with Ontario, and Los Angeles
with Vancouver. Again, these are supportive of the task forces
in Canada.
This effort of the FBI--and it is certainly not the only
effort--the Postal Service and Customs Service are significant
players in this. But Operation Canadian Eagle has resulted so
far in 2 years of its work in the charging of 62 individuals
and the return of over $2 million to victims. These Operational
Canadian Eagle cases are some of those that are summarized in
my statement.
Now, the real question is how to improve cross-border
cooperation. Again, since the formation of the Working Group in
1997, which really focused our attention on the U.S.-Canadian
effort, I think we have made some significant advances in
meeting those recommendations. For example, enhanced penalties
was one of the recommendations that we had, and more training.
All of these are again detailed in the attachments to my
statement.
Certainly, one of the most challenging things is looking at
how we can sustain adequate resources to support the
investigation and prosecution of these cases. They are a
priority, they are difficult to investigate. So this is an
issue of how do we measure our level of support, how do we
sustain it particularly, in candor, in times when we have not
great increases in the law enforcement budget. But that doesn't
mean it is an impossible problem. You can deal through
prioritization and making more effective use of the resources
that you have.
Now, two other areas where we need to look carefully. One
has been noted by Attorney General Sorrell, and that is the
problem of dealing with the testimony of the victim witnesses
who find it very difficult to travel to Canada. We have new
opportunities because of Canadian legislation which allows
videoconferencing, but this is really in its first steps.
Issues of cost and of just the logistics of arranging for even
the videoconference testimony are difficult. This is something
we are going to try to work on with the Canadians.
And the final issue is that of how do we improve our
cooperation under these formal mechanisms, which are
extradition and particularly the MLAT. One of the focuses of
discussion at the Working Group next week will be trying to
find ways to move these requests forward in a more timely
manner.
There are legal impediments at times, there are problems,
but I think this is recognized as the most significant problem
that we have in administering our treaty in these cases. So,
that will be one of the focuses of the Working Group meeting
next week, and certainly is one area where we need to look to
improve our record.
Thank you.
Senator Collins. Thank you for your testimony.
Our final witness this morning is Hugh Stevenson, who is
Associate Director of Planning and Information of the Bureau of
Consumer Protection of the Federal Trade Commission.
TESTIMONY OF HUGH STEVENSON,\1\ ASSOCIATE DIRECTOR, PLANNING
AND INFORMATION, BUREAU OF CONSUMER PROTECTION, U.S. FEDERAL
TRADE COMMISSION, WASHINGTON, DC
Mr. Stevenson. Senator, thank you. I am Hugh Stevenson from
the Federal Trade Commission. Thank you for this opportunity to
talk about cross-border fraud and for holding these hearings.
---------------------------------------------------------------------------
\1\ The prepared statement of Mr. Stevenson with attachments
appears in the Appendix on page 191.
---------------------------------------------------------------------------
We have submitted written testimony, and also a statistical
report which I think has been referenced before during the
hearings. I would like to just highlight a few things from the
materials we have submitted.
One of the best ways to start addressing this problem of
telemarketing fraud is exactly the way this Subcommittee has
done; by listening first to the victims. We heard yesterday
from the victims describing their experiences, the effect it
has had on them.
We also need to listen to victims in a more systematic way,
to make the best use that we can of the information, the
evidence that they are providing to us, what they are telling
us. That has been a driving concept for us in developing the
project that you referred to earlier, called Consumer Sentinel.
Consumer Sentinel is a project that the Federal Trade
Commission started back in 1997, in partnership with a number
of other agencies, including Canada's Phonebusters, whom you
heard from yesterday. The idea here is to create a central
repository for consumer fraud complaints that come in from
various sources, from the FTC, from Canada's Phonebusters, from
many Better Business Bureaus, from the National Consumer
League, and the like.
We then provide secure Web access to law enforcers to those
complaints, which now number more than 300,000, and we also
provide access to other intelligence and law enforcers in the
United States and Canada. We now have several hundred agencies
signed up for that Web-based cyber tool.
What Consumer Sentinel tells us about this problem is
detailed in our report, but I wanted to highlight a couple of
things. First, the cross-border victims here come from anywhere
and everywhere. As the map we have here shows, we have received
in the year 2000 significant numbers of complaints from people
in every State in the United States.
The second point to emphasize is that the loss here is
substantial, with tens of millions of dollars in losses
reported, and in 2000 alone about $20 million in losses
reported by U.S. consumer victims against Canadian companies.
The third thing we want to note is that this is by no means
a one-way street, the way that cross-border fraud works. The
pattern we are seeing now, though, is that the cross-border
victims are predominantly U.S. consumers complaining about
Canadian companies, about 70 percent of them, as we can see
from this pie chart.
Now, what do we do about this? Well, on the domestic front
the FTC has for many years aggressively battled telemarketing
fraud. We have used our civil enforcement powers to get courts
to put a halt to scams, to recover tens of millions of dollars
for consumers, to use the powers that we have to work up cases
quickly. This approach of putting them out of the fraud
business and grabbing the money you can, has been a very
effective complement, we think, to the criminal law enforcement
approach of putting them in jail. To borrow a phrase from one
of the victims yesterday, Mr. Hathaway, who was saying the con
artist is going to ask, is this easy money, one of the goals is
to take that money away so it is not so easy after all.
When you are dealing with cross-border fraud, though, you
have more challenges, and I think we have heard from my
colleagues here about some of them. Let me just emphasize a
couple from our perspective.
One, getting the information to work up a case is a greater
challenge. When the fraud is international, so is the evidence,
and that means sometimes it is harder to get and sometimes it
is slower to get. I think a theme that we heard from both my
colleagues from Justice and Vermont is that speed is an issue
here. How fast can you get the evidence to chase the bad guys?
The second point is sharing information with foreign
agencies can be more challenging. The rules of the road on
information-sharing mean that there is some information that is
stopped at the border as we try to share with our Canadian
colleagues, or in some cases as they try to share it with us.
A third issue that Senator Levin touched on is making
remedies effective across borders is a challenge. Chasing money
across borders is a challenge, and we have had some experience
with this. It is possible, but it is more difficult. And even
sometimes finding money across borders in order to chase it is
more difficult when the borders are involved. What all this
means is that the bad guys can use the borders as an obstacle
to law enforcement.
We have worked to overcome these problems in a couple of
ways that I think are instructive. First, we have worked with
our Canadian colleagues and our American colleagues to develop
Consumer Sentinel. We have used this as a vehicle to fight
telemarketing fraud and Internet fraud and identity theft and
cross-border fraud, and there has been a real value in grouping
together the information to do that.
We have also worked on the bi-national regional
partnerships that the witnesses have referred to. We were the
original U.S. partner in the Ontario Strategic Partnership. We
funded witness travel. We provided computer and intelligence
support, including intelligence using the data in Consumer
Sentinel. We have worked up evidence, witness declarations, for
Canadian prosecutions.
The result has been there, from relatively little activity,
just since 2000 the Canadians have had more than 80 arrests and
several hundred thousand dollars have been returned to American
victims in restitution orders.
We have also worked for a number of years on the British
Columbia Project Emptor project, along with other agencies.
Particularly, we have worked with the British Columbia Ministry
of Attorney General bringing parallel civil actions on both
sides of the border, in some cases freezing money, and in those
cases returning probably about $2 million in restitution.
We have also worked on consumer education, a theme we heard
quite a bit about yesterday, and we have brought some of our
materials to show. We have more than 150 different
publications, many of them on topics relevant to telemarketing
fraud.
Overall, since fiscal 1997, we have sent out over 25
million paper publications on a variety of topics, 15 million
Web online accesses of our materials, and we have also held
focus groups to develop material to focus on helping consumers
and what we can do to bring them into a toll-free number.
We have an array of different materials. We do postcards,
we do bookmarks. We try to have a series of different messages,
depending on what will appeal to consumers. If they drive a
car, maybe they have a bumper sticker. Well, maybe they don't
have a car, so we have run this on the sides of buses.
Well, maybe they don't ride the bus and they stay home, so
we have refrigerator magnets. Well, maybe they don't have a
refrigerator, so then we have fans. We have tried in various
ways to reach out to consumers using different messages to
reach the target population.
Well, what more can we do here? There is more to do,
although there has been substantial progress made since the
1997 report on a number of fronts.
First, to echo a theme that I think has been made here, we
need to do even more to improve information-sharing. One thing
we plan to do there logistically is to strengthen Consumer
Sentinel's role as a central repository for consumer fraud
complaints. We need to get data from even more sources to make
this cyber tool every more cyber-smart, even more useful for
the people who are using it. We need to expand the number of
people who are using it.
There are a number of tools that are on the Web. There are
a number of interesting things. One joint project with DOJ and
NAAG is an index of undercover tape recordings that have been
made for investigations that we have put on and made available
for people to use to get that information fast because speed is
important.
We also are aiming to strengthen Consumer Sentinel as a
vehicle for communication and coordination. One of the issues
we also heard about today and yesterday is the problem of just
communicating with the other consumer cops on the beat in order
to coordinate to take effective action.
We would also like to encourage other members to be active
partners in the Consumer Sentinel project. We have had a postal
inspector detailed as a program manager for a year. We have had
a Secret Service agent detailed to work on the identify theft
aspects of this, and having them right there at the data hub
has been very effective.
We have also worked up some materials to promote to law
enforcers the use of Consumer Sentinel as a source of
information, a cyber tool for fraud-busters.
On a broader front, on a legal front, we need to look also
at how to modify the legal framework here to improve
information-sharing. This, I think, also echoes some of the
comments that have been made earlier. There are several issues
to consider: What information is it that we need to share that
we have difficulty sharing, in what cases do we share it, and
also what legal vehicles are there that could be used here.
We heard some references to MLATs, which are focused
actually on criminal matters. There are other vehicles to
consider, mutual assistance legislation or other possibilities.
I think one of the things that the Commission has recommended
is working with our colleagues in the United States and Canada
to explore what the options are to move forward on that front.
We also need to explore how to make our civil remedies more
effective across borders. For example, we need better tools, I
think, as the comments suggest, for chasing the offshore money.
There are some options out there, but the name of the game here
is not just to win against the bad guys, but to win efficiently
because we have to win a lot or else it still stays, as Mr.
Hathaway said, easy money.
Finally, we need to look for even more opportunities to
cooperate in concrete ways with our Canadian counterpart
agencies. It is important to rise to these challenges both
because this is a problem right now--people are being hurt
right now--but it is also an opportunity and a challenge
because with the globalization of telecom, of the Internet, of
financial transfers and financial institutions, these are
problems that we are going to see more often and not less.
Thank you.
Senator Collins. Thank you very much, Mr. Stevenson.
One of the disturbing statements that we heard yesterday
from all three of our victims is that not one of them received
a penny of restitution as a result of the fraud that they had
suffered. In talking with attorneys general and other law
enforcement officers, we found that that is the rule rather
than the exception.
Mr. Stevenson, you mentioned that the Consumer Sentinel
system reported $20 million of losses that were reported by
U.S. consumers last year against Canadian companies. I see that
this year the projected figure is $36.5 million, so it is
certainly going in the wrong direction.
Do you have any idea in the previous years what percentage
of recovery or restitution was in these cases?
Mr. Stevenson. I don't have exact figures. Certainly, the
anecdotal evidence that we have suggests that the percentage of
recovery is very small, and indeed the percentage of consumer
victims who complain is very small.
Senator Collins. One of the aspects that is going to
discourage consumers from reporting is not only the indignity
that they have suffered in feeling that they were taken
advantage of--and that obviously hurts their pride--but if they
don't think there is any chance they are going to get their
money back, it discourages them from reporting the crime.
Mr. Attorney General, based on your experience in Vermont,
have you also found that the likelihood of getting restitution
for consumers when you are dealing with cross-border fraud is
low?
Mr. Sorrell. It is not just cross-border fraud, Senator.
These are scam artists; they are not legitimate businesses. I
mean, we have a pretty good track record in other consumer
fraud matters when we are going against ongoing businesses of
getting reimbursement for our consumers.
But if we obtain 1 percent of the money that goes to these
scam artists, whether it is sweepstakes issues or to reinstate
their credit history or whatever, that would be a win. The
reality is you have got to find them. I mean, these are not
brick-and-mortar operations. All they need is access to a
phone, and then whatever they are using the money for, they
don't have a long useful life.
So you have got to identify them, find that they have
assets so you can get your hands on them, if you can identify
them and hold them accountable before you can grab the assets.
So we certainly wish we could do more in terms of getting
restitution, but I think I mentioned before it is sort of a
blood out of a stone situation.
So our emphasis has really been on the education side,
preventing it in the first place.
Senator Collins. I think that is absolutely key for just
the reason that you have said. And your distinction between
scam artists who are setting up shop or a boiler room 1 day and
are gone the next, versus an ongoing, legitimate business that
may be doing some unethical practices, is a very good one.
I spent 5 years in State government in Maine and I oversaw
the department that regulated banks, securities, insurance, and
licensing boards. We had a very high rate of restitution, but
the banks weren't going to disappear, the insurance agents
weren't going to pack up their bags in the middle of the night
by and large, and the brokerage houses weren't still going to
be there. We knew where to find them, and I think that shows
the difficulty in dealing with this type of consumer fraud. And
it is exacerbated when we have to deal with another country, as
well.
Mr. Attorney General, you were talking about whether
Vermonters are more gullible, and I don't think that is it and
I don't think that is it for Mainers. It is just that if you
live in Maine or Vermont or Michigan or another border State,
you are used to dealing with Canada all the time. It is a
friendly neighbor. There are family ties.
So sending money to Canada or receiving a phone call from
Canada does not raise any red flags. It doesn't sound any alarm
bells because of the close relationships that those of us who
live in border States have with Canada. That is why I think an
increased emphasis in our educational materials on cross-border
fraud would be very helpful.
The educational materials that I have seen have been
absolutely terrific, but by and large they are not aimed at
being wary if you receive a solicitation from Canada or another
country, and I think that is perhaps an area that we should
pursue. I would also like to see the consumer agencies such as
the FTC and the attorneys general do a list for consumers of
warning signs, typical pitches that they might hear. I think
that kind of practical advice would be helpful.
It is startling that Canada apparently has had more success
than we have, according to our witness yesterday, in educating
its senior citizens about the dangers of fraud. I think the FTC
has been terrific, and the Postal Service, as well, and groups
such as AARP. But it seems to me that we have to constantly
update our materials to respond to what the latest fraud is.
These scam artists are very clever.
Mr. Stevenson, do you have any materials or do you plan any
materials that speak directly to the issue of cross-border
fraud?
Mr. Stevenson. We do have one brochure that addresses that
specifically and the issue of online fraud. And then there are
also obviously, as we have heard, the particular frauds
involved here, some of which are largely associated in terms of
the number of complaints with Canada, the sweepstakes and
lotteries and advanced fee loans, where we also have materials
that are focused on that.
Senator Collins. Ms. Warlow, I want to talk to you about
the issue that every single person involved in trying to
investigate and prosecute these cross-border frauds has brought
up to us, and that is each one has expressed tremendous
frustration with the delays involved in the MLAT process, the
Mutual Legal Assistance Treaty process.
It is often felt, it appears, to be such a cumbersome
process that it, itself, is an obstacle to the efficient
investigation and prosecution of cross-border telemarketing
fraud. We have heard the attorney general this morning talk
about having to wait months for even an answer, and perhaps
years if we get into an extradition situation. That strikes me
as unacceptable in this situation because these are con artists
who will pack up and move to another city or another location.
They are not going to be there if we don't act quickly when we
have a lead.
What is the Department of Justice doing to try to expedite
and streamline these requests for assistance under the MLAT
process?
Ms. Warlow. Well, one thing certainly is to engage in a
dialogue with Canada about this problem. It would not be fair
to Canada to say it is only a problem with them. We also
receive complaints about the timeliness of the process when we
are sent requests.
One thing I think that we can do to speed the process is
not to overemphasize the use of the MLAT. In the investigative
stage, one of the most important things is police-to-police
cooperation, exactly the sort of cop-to-cop dialogue that the
attorney general has referred to.
I would hope that our folks are making it clear that you
needn't rely on the MLAT for all forms of cooperation. The
sticking point is there are certain things you do need to look
to the MLAT to get.
Senator Collins. I am sorry. I couldn't hear you.
Ms. Warlow. There are some things, however, that you do
need to use the MLAT for.
Senator Collins. Could you distinguish for us between when
it is required that you go through the MLAT process and what
kinds of information can you get more informally?
Ms. Warlow. The way I have tried to describe this--and I
have done this with training for our own prosecutors and law
enforcement agents--you generally think of two types of
information where you need to use an MLAT process. One is where
you need to use a compulsory measure in the other country. Now,
this means certainly a search. It also means compelling
production of documents, and in a fraud case this is
significant. There is a significant need for documentary
evidence, and so the need for compulsory process.
The other is when you are reaching or looking forward to
the trial stage because it is there, when you need evidence in
an admissible form, that more likely than not you are going to
need some sort of MLAT process, for example, to authenticate
documents; or in some circumstances, for example, with a
deposition if you need to compel the testimony of somebody. So
these are the categories.
To the extent that you can have police-to-police
cooperation, that is good. It does certainly depend on contacts
in the Federal system. We have the advantage of having a
permanent presence in Canada. We have a FBI legal attache's
office that is quite active.
One thing that enhances police-to-police cooperation,
frankly, is the opportunity to do joint investigations rather
than just having the situation in which you come for help.
Then, I think the information-sharing is much better. Moreover,
let's say that we are working with the Canadians. The Canadian
authorities aren't dependent on some sort of request from us to
invoke their own legal authority. It is their own
investigation.
So the extent that we can work more cases jointly, we will
have a better track record. But certainly there are going to be
instances in which we need this MLAT. That is clear, and we
need to do a better job in timeliness of response. And it is
not unique to Canada, it is not unique to these cases.
Senator Collins. What I am told is that many law
enforcement officers do not fully understand how much
information they can get and how much sharing of data they can
do without going through the formal process.
Do you think that is correct?
Ms. Warlow. I would suspect it is.
Senator Collins. And what can we do about that to help law
enforcement officials be better educated on what they can
obtain without going through the formal MLAT process?
Ms. Warlow. I think we are doing some things in training of
our State and local counterparts. We are tending to focus more
on the State and local prosecutors. We have had a training
session on international issues, I believe, last year for State
and local prosecutors. We have had a representative of a State
in our Office of International Affairs. I believe we now have
one either from the National Attorneys General Association or
the National District Attorneys Association.
In addition, we need to be sure we have people who are
available for case-specific advice. Also, I think if we can
educate our Federal investigating agents, and we generally do
have training with them, too, they can also be points of
contact for their State and local colleagues in discussing this
or pointing them in the direction to talking to the Justice
Department itself.
Senator Collins. Mr. Stevenson, I understand that Federal
law restricts in some ways the FTC's ability to share
information with Canadian officials, and that the rules to
interpret this law have not been modified since the 1980's,
when cross-border fraud was not as prevalent as it is today.
First of all, is my understanding correct, and if so, do
you have some specific recommendations on changes in the law
that would make it easier for the FTC to share information with
its Canadian counterparts?
Mr. Stevenson. Yes, your summary is correct. There are
certain kinds of information that we are prevented from sharing
with foreign agencies, where we can share them with State and
other Federal agencies. Maybe chief among the categories is the
information that we get pursuant to administrative subpoena or
compulsory process, and that is part of our statutory setup.
The Commission has not made specific legislative
recommendations so much as suggesting that this is an area that
does need to be looked at. As Mr. Warlow said, one of the good
things we can do here is, in having a dialogue with our
Canadian counterparts, figure out what are the most effective
vehicles for sharing information, because one of the things we
want to keep an eye on in thinking about what we may be able to
do is what our Canadian counterparts may be able to do, how
they would respond to greater information-sharing, so that we
can encourage greater mutual sharing of information because the
key to improving information-sharing is obviously flowing both
north and south in order to make this work as best we can.
Senator Collins. Mr. Attorney General, are there changes in
Federal law that you believe are needed to help coordinate the
attack on cross-border fraud?
You have mentioned the need for changes in streamlining the
MLAT process and you have mentioned the resources issue. Are
there any other recommendations that you would have for the
Subcommittee as we pursue remedies to the problems that you
have already identified?
Mr. Sorrell. Not specifically that I have in mind, Senator.
I am not well-versed in the issues of what information may be
exchanged or not. Our emphasis has been on the internal
processes and the adequate resources to be more quickly
responsive.
Senator Collins. Ms. Warlow, I want to give you the
opportunity to respond to an issue that the attorney general
has raised this morning, that Mr. Stevenson has raised, and
that every law enforcement official we have interviewed has
raised, and that is the lack of funding from DOJ or other
sources to help pay for witness expenses and travel and those
essential costs of investigating and prosecuting a crime.
Ms. Warlow. It is a significant problem. I think there are
a couple of facets to it. One is where we are producing
witnesses solely for a Canadian proceeding. There can be
limitations on how we use our own money. For example, with our
Marshals Service, the parameters of its authority deal with
matters before U.S. courts.
I am not familiar with the details of the problem of the
limitations on the Federal funding that the attorney general
has referred to, but I do know that there was a conclusion that
those funds that are being used otherwise to support the
activities of Vermont and other States were deemed not
available for the purpose of witness travel.
I would say that for some time it has been recognized there
is a general problem for the States and localities, not just in
this particular area of crime, telemarketing fraud, but
generally for the States and localities to deal with the
unusual expenses that often attach when they have a
transnational and international crime--issues of travel, even
things as simple as translation and interpretation.
So this is a problem for the States. It is expensive for us
as well, but I think particularly for the States, and in some
instances the funding for States is localized. We have had
instances where a county district attorney's office has been
taxed as to whole year's budget in trying to support a single
complex international case. So it is a problem.
Senator Collins. The final question that I want to ask each
of you deals with the problem that each of these cases tends to
be relatively small-dollar. Yet, if they were investigated,
they often reveal a fraud ring that has targeted hundreds or
even thousands of consumers. In fact, the losses in the
aggregate are quite large.
How does your offices make decisions on whether or not to
put the resources into a case to determine whether this is just
the tip of the iceberg?
What we have found in doing our own investigation involving
one of our consumers, the woman from Maine who testified
yesterday, is that when we issued subpoenas to Western Union to
try to track down the flow of funds from her husband to the
Canadian scam artists who defrauded her husband, we quickly
discovered is that it appears that this is part of a far
broader fraud ring and that he certainly is not the only
victim.
Mr. Sorrell.
Mr. Sorrell. The question is how do we make a decision to
proceed in a case not knowing really the magnitude of the case.
This is one area in which the attorneys general have been
working, I think, quite effectively in the telemarketing arena.
We have a periodic written publication on what is going on in
telemarketing issues, but perhaps more importantly there are
either monthly or bimonthly conference calls for the
individuals from the various offices that are working on
telemarketing fraud matters.
So in that sharing of information there, we have been
working most closely with the States of Ohio and North Carolina
that are also under a Federal grant right now for focusing on
these issues. And it has been interesting to us to see that
matters involving Canadian telemarketers--they are not just
preying on Vermonters, but they are also in other States. We
are obviously a small office and when we can see a case where
there are consumer victims in other States, then that opens up
to us working on a multi-State basis.
I think I also mentioned that I have an assistant attorney
general who is cross-designated as an Assistant U.S. Attorney.
Maybe I didn't mention that. So when we see a case that has
significant magnitude, we will work with the U.S. Attorney's
office and Canada. We are working one case right now where we
have identified 18 separate scam operations being operated by
the suspect in the matter. So that is a case where the
tentacles of impact go out, and the further we look into it the
more we see how broad that is. This is the occupation these
folks are in, so it is not a one-shot deal and that is what we
find.
Senator Collins. Exactly. When there is one victim, there
are undoubtedly many others. Indeed, one of the examples that
we looked at started with a single victim in North Carolina. It
was investigated, fortunately, and it turned out to be an
extensive fraud case involving hundreds of victims in 18
States.
The reason I raise this issue is I think it shows the
importance of having either the Consumer Sentinel system or the
Phonebusters system, where there is somewhere we can aggregate
these complaints, look for patterns, and then go after what are
undoubtedly complex, sophisticated crime rings that are
targeting thousands of our most vulnerable senior citizens.
Ms. Warlow.
Ms. Warlow. Of course, for the Department of Justice and
the FBI, we tend to look at the more complex cases, the multi-
district, multi-victim cases, and ones that involve larger
organizations. We should be working with the States in exactly
the way that the attorney general has described. It is the
particular role of the Federal Government to deal with these
widespread crimes, and we have particular investigative
authorities, and so on. So that is, in fact, our target.
You have stolen my thunder, I guess, because we would cite
exactly things like the Consumer Sentinel program and the
library of recorded conversations as tools that allow us to
identify where there are patterns and large operations
victimizing hundreds of people. So those are exactly the kinds
of resources that are very useful in distinguishing the
relatively small cases from those where we are getting into a
big operation.
Senator Collins. Mr. Stevenson.
Mr. Stevenson. I think that the key is gathering the
information together so that we can make intelligent cuts about
it and then communicating about it. We certainly have seen
cases where the individual loss might be $19.95 or some small
amount, and yet when we then brought the cases and we find out
about the total loss, it can be multi-million dollars a nickel
at a time, so to speak. So it is very useful to look at the
information in that way to make the cuts about where the big
problems are.
It is also useful to have that kind of information in
making the cuts about communicating with other agencies about
how we can divide up the work. One thing I don't think you are
going to get anybody to say to you is we are kind of running
out of potential defendants in this area. There is always
plenty of work to go around, and one of the challenges is how
do we do this as efficiently and quickly as we can. Which
targets does it make sense for the FBI to pursue based on the
criteria Ms. Warlow mentioned, for example; which ones for the
Vermont AG, and so forth?
One of the things that having the information in a network
helps you do is to see what is out there now. We have actually
done dozens of law enforcement sweeps with various law
enforcement partners, including Vermont and Justice, where we
can look, for example, at a particular kind of fraud and say
this is what we are seeing out there now. How does it make
sense to divide up this work based on a number of different
criteria that we might use?
The other thing that we have been working on is better
communication about who is working on what. In fact, my
colleagues at the Justice Department, John Rusch, and
elsewhere, have raised the issue of how do we communicate
better about what is going on. And one of the things we
developed in the Sentinel network is an alert technology so
that people can communicate about what they are looking into or
what they have information about, because that kind of
coordination is very important to move ahead in this work.
Senator Collins. Thank you. I want to thank all of our
witnesses for participating today. Your contributions have been
very valuable as we grapple with the extent of this problem and
possible remedies. I very much appreciate your joining us.
Thank you.
During the past 2 days of hearings, we have learned a great
deal about cross-border fraud, a growing phenomenon in which
con artists in other countries, notably Canada, target victims
in our own. In particular, such cross-border criminals tend to
target elderly Americans and their families, innocent victims
such as the three witnesses from whom we heard yesterday.
All three of the victims who appeared here, and many more
in communities across our country, were directly targeted or
had their loved ones directly targeted by cross-border
criminals seeking to take advantage of their honesty, their
optimism, and their trust. They fell prey to very common scams,
such as lottery frauds, sweepstakes, and other attempts to
swindle them out of their money.
Their testimony also helped highlight the crucial role of
consumer awareness as our first line of defense against such
fraud. An educated consumer, aware of the dangers of schemes
such as a lottery scam and wary enough to suspect that promises
that seem too good to be true probably are, is the single best
answer to cross-border fraud.
For this reason, I hope that the hearings that we have held
have helped to educate consumers and make them more wary about
falling for such pitches. I encourage all of the law
enforcement and consumer protection agencies that are involved
in this task to continue their efforts to promote better
consumer education and awareness programs. I think we can't
stop; we have to keep educating consumers because as scam
artists change their approaches, or stop using the mail and
start using phones for a while and then come back to the mail
with a new scheme, their ingenuity requires us to be ever-
vigilant.
We have also heard a lot of testimony from law enforcement
officials about the challenges in facing cross-border fraud and
areas in which further improvement is necessary. I want to
pursue those issues with Senator Levin to examine the budget
and legislative options that are available to us, and I would
invite any of our witnesses to submit to us any further
suggestions that they might have in that regard.
On behalf of the Chairman, I would announce that the record
will be open for 14 days. There are a number of statements that
I have received from other victims and from the attorney
general's office in Georgia, as well as from the Canadian
Embassy, that we will be submitting for the record.
Finally, I want to thank the Members of the Subcommittee
staff who prepared for these hearings, in particular
Christopher Ford, Marianne Kenny, Alan Stubbs, Barbara Cohoon,
Frank Fountain, and Mary Robertson. They are very hard-working
and dedicated individuals, and they have worked very hard
during the past 5 months to gather the information for these
hearings and I want to thank them.
Let me close by also thanking our new Chairman, Senator
Levin, for his efforts. We have had these hearings long
planned, but since he is now the new Chairman he could have
very easily chosen not to pursue them. He has been a dedicated
advocate for consumers and we have worked very closely on a
number of consumer protection efforts. So I am very grateful to
him for allowing this investigation to be concluded and these
hearings to proceed.
Thank you, and this hearing is now adjourned.
[Whereupon, at 10:50 a.m., the Subcommittee was adjourned.]
A P P E N D I X
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