[Senate Hearing 108-684]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 108-684

    BUYER BEWARE: THE DANGER OF PURCHASING PHARMACEUTICALS OVER THE 
                                INTERNET


=======================================================================

                                HEARINGS

                               before the

                PERMANENT SUBCOMMITTEE ON INVESTIGATIONS

                                 of the

                              COMMITTEE ON
                          GOVERNMENTAL AFFAIRS
                          UNITED STATES SENATE


                      ONE HUNDRED EIGHTH CONGRESS

                             SECOND SESSION

                               ----------                              

                       JUNE 17 AND JULY 22, 2004

                               ----------                              

      Printed for the use of the Committee on Governmental Affairs

      BUYER BEWARE: THE DANGER OF PURCHASING PHARMACEUTICALS OVER

                              THE INTERNET
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                                                        S. Hrg. 108-684

    BUYER BEWARE: THE DANGER OF PURCHASING PHARMACEUTICALS OVER THE 
                                INTERNET

=======================================================================

                                HEARINGS

                               before the

                PERMANENT SUBCOMMITTEE ON INVESTIGATIONS

                                 of the

                              COMMITTEE ON
                          GOVERNMENTAL AFFAIRS
                          UNITED STATES SENATE


                      ONE HUNDRED EIGHTH CONGRESS

                             SECOND SESSION

                               __________

                       JUNE 17 AND JULY 22, 2004

                               __________

      Printed for the use of the Committee on Governmental Affairs



                    U.S. GOVERNMENT PRINTING OFFICE
95-190                      WASHINGTON : 2004
____________________________________________________________________________

                   COMMITTEE ON GOVERNMENTAL AFFAIRS

                   SUSAN M. COLLINS, Maine, Chairman
TED STEVENS, Alaska                  JOSEPH I. LIEBERMAN, Connecticut
GEORGE V. VOINOVICH, Ohio            CARL LEVIN, Michigan
NORM COLEMAN, Minnesota              DANIEL K. AKAKA, Hawaii
ARLEN SPECTER, Pennsylvania          RICHARD J. DURBIN, Illinois
ROBERT F. BENNETT, Utah              THOMAS R. CARPER, Delaware
PETER G. FITZGERALD, Illinois        MARK DAYTON, Minnesota
JOHN E. SUNUNU, New Hampshire        FRANK LAUTENBERG, New Jersey
RICHARD C. SHELBY, Alabama           MARK PRYOR, Arkansas

           Michael D. Bopp, Staff Director and Chief Counsel
      Joyce A. Rechtschaffen, Minority Staff Director and Counsel
                      Amy B. Newhouse, Chief Clerk

                                 ------                                

                PERMANENT SUBCOMMITTEE ON INVESTIGATIONS

                   NORM COLEMAN, Minnesota, Chairman
TED STEVENS, Alaska                  CARL LEVIN, Michigan
GEORGE V. VOINOVICH, Ohio            DANIEL K. AKAKA, Hawaii
ARLEN SPECTER, Pennsylvania          RICHARD J. DURBIN, Illinois
ROBERT F. BENNETT, Utah              THOMAS R. CARPER, Delaware
PETER G. FITZGERALD, Illinois        MARK DAYTON, Minnesota
JOHN E. SUNUNU, New Hampshire        FRANK LAUTENBERG, New Jersey
RICHARD C. SHELBY, Alabama           MARK PRYOR, Arkansas

       Raymond V. Shepherd, III, Staff Director and Chief Counsel
                       Katherine English, Counsel
                       Jay Jennings, Investigator
        Elise J. Bean, Minority Staff Director and Chief Counsel
                     Mary D. Robertson, Chief Clerk


                            C O N T E N T S

                                 ------                                
Opening statements:
                                                                   Page
    Senator Coleman.............................................. 1, 49
    Senator Levin................................................ 4, 53
    Senator Collins..............................................     8
    Senator Lautenberg...........................................     9

                               WITNESSES
                        Thursday, June 17, 2004

Marcia Crosse, Director, Health Care--Public Health and Military 
  Health Care Issues, U.S. General Accounting Office.............    12
Robert J. Cramer, Managing Director, Office of Special 
  Investigations, U.S. General Accounting Office.................    14
Hon. Rudolph W. Giuliani, Chairman and Chief Executive Officer, 
  Giuliani Partners LLC, New York, New York......................    26
Marvin D. Shepherd, Ph.D., Director, Center for Pharmacoeconomic 
  Studies, College of Pharmacy, The University of Texas at 
  Austin, Austin, Texas..........................................    29
Elizabeth Carr, Sacramento, California...........................    40
Francine Hahn Haight, Organge County, California.................    42

                        Thursday, July 22, 2004

Richard M. Stana, Director, Homeland Security and Justice Issues, 
  U.S. Government Accountability Office..........................    57
Karen P. Tandy, Administrator, Drug Enforcement Administration...    67
Lee R. Heath, Chief Inspector, U.S. Postal Inspection Service....    68
Jayson P. Ahern, Assistant Commissioner, Office of Field 
  Operations, Bureau of Customs and Border Protection (CBP)......    70
John M. Taylor, III, Associate Commissioner for Regulatory 
  Affairs, U.S. Food and Drug Administration, Rockville, Maryland    72
William Hubbard, Associate Commissioner for Policy and Planning, 
  U.S. Food and Drug Administration, Rockville, Maryland.........    74
John Scheibel, Vice President, Public Policy, Yahoo! Inc.........    88
Sheryl Sandberg, Vice President, Global Online Sales and 
  Operations, Google Inc., Mountain View, California.............    90
Robert A. Bryden, Vice President, Corporate Security, FedEx 
  Corporation, Memphis, Tennessee................................    91
Daniel J. Silva, Corporate Security Manager for UPS, Atlanta, 
  Georgia........................................................    92
Joshua L. Peirez, Senior Vice President and Assistant General 
  Counsel, MasterCard International Incorporated, Purchase, New 
  York...........................................................    96
Steve Ruwe, Executive Vice President, Operations and Risk 
  Management, VISA U.S.A. Inc., Foster City, California..........    98

                     Alphabetical List of Witnesses

Ahern, Jayson P.:
    Testimony....................................................    70
    Prepared statement...........................................   218
Bryden, Robert A.:
    Testimony....................................................    91
    Prepared statement...........................................   269
Carr, Elizabeth:
    Testimony....................................................    40
    Prepared statement...........................................   172
Cramer, Robert J.:
    Testimony....................................................    14
    Prepared statement...........................................   130
Crosse, Marcia:
    Testimony....................................................    12
    Prepared statement...........................................   109
Giuliani, Hon. Rudolph W.:
    Testimony....................................................    26
    Prepared statement...........................................   136
    Haight, Francine Hahn:.......................................
    Testimony....................................................    42
    Prepared statement...........................................   174
Heath, Lee R.:
    Testimony....................................................    68
    Prepared statement...........................................   206
Hubbard, William:
    Testimony....................................................    74
Peirez, Joshua L.:
    Testimony....................................................    96
    Prepared statement with an attachment........................   274
Ruwe, Steve:
    Testimony....................................................    98
    Prepared statement...........................................   283
Sandberg, Sheryl:
    Testimony....................................................    90
    Prepared statement...........................................   262
Scheibel, John:
    Testimony....................................................    88
    Prepared statement...........................................   258
Shepherd, Marvin D., Ph.D.:
    Testimony....................................................    29
    Prepared statement with an attachment........................   150
Silva, Daniel J.:
    Testimony....................................................    92
    Prepared statement...........................................   272
Stana, Richard M.:
    Testimony....................................................    57
    Prepared statement...........................................   178
Tandy, Karen P.:
    Testimony....................................................    67
    Prepared statement...........................................   202
Taylor, John M., III:
    Testimony....................................................    72
    Prepared statement...........................................   227

                                APPENDIX

Additional FDA Enforcement Actions...............................   283

                                EXHIBITS

 1. Photo taken at JFK International Mail Branch (IMB)--Boxes 
  seized by CBP from a single vendor in the Netherlands that 
  contained a variety of controlled substances. (Source: 
  Permanent Subcommittee on Investigations' trip to JFK IMB, 
  March 2004.)...................................................   286

 2. Photo taken at JFK International Mail Branch (IMB)--Seized 
  Hydrocodine, Diazepam and codeine-laced products from a single 
  vendor in the Netherlands. (Source: Permanent Subcommittee on 
  Investigations' trip to JFK IMB, March 2004.)..................   287

 3. Photo taken at JFK International Mail Branch (IMB)--Seized 
  Valium (Diazepam), Xanax and codeine-laced products from a 
  single vendor in the Netherlands. (Source: Permanent 
  Subcommittee on Investigations' trip to JFK IMB, March 2004.)..   288

 4. Photo taken at JFK International Mail Branch (IMB)--three 
  bottles of fake Lipitor imported from Canada. The legitimate 
  Lipitor is the last bottle on the right. (Source: Permanent 
  Subcommittee on Investigations' trip to JFK IMB, March 2004.)..   289

 5. Photo taken at JFK International Mail Branch (IMB)--
  Sildenafil Citrate from India (Counterfeit Viagra). (Source: 
  Permanent Subcommittee on Investigations' trip to JFK IMB, 
  March 2004.)...................................................   290

 6. Photo taken at JFK International Mail Branch (IMB)--
  Injectable Steroids from China. (Source: Permanent Subcommittee 
  on Investigations' trip to JFK IMB, March 2004.)...............   291

 7. Photo taken at JFK International Mail Branch (IMB)--Box of 
  unknown drug product. (Source: Permanent Subcommittee on 
  Investigations' trip to JFK IMB, March 2004.)..................   292

 8. Photo taken at JFK International Mail Branch (IMB)--Packages 
  of drugs without any of the required inserts as well as 
  labeling and directions for usage in foreign languages. 
  (Source: Permanent Subcommittee on Investigations' trip to JFK 
  IMB, March 2004.)..............................................   293

 9. Photo taken at JFK International Mail Branch (IMB)--Backlog 
  of products waiting to be screened by FDA. (Source: Permanent 
  Subcommittee on Investigations' trip to JFK IMB, March 2004.)..   294

10. Photo taken at JFK International Mail Branch (IMB)--Backlog 
  of products waiting to be screened by FDA. (Source: Permanent 
  Subcommittee on Investigations' trip to JFK IMB, March 2004.)..   295

11. Customs and Border Protection Countries of Interest (COI) 
  List...........................................................   296

12. Photo taken at JFK International Mail Branch (IMB)--Imported 
  pharmaceutical products being x-rayed by Customs and Border 
  Protection. (Source: Permanent Subcommittee on Investigations' 
  trip to JFK IMB, March 2004.)..................................   297

13. Photo taken at JFK International Mail Branch (IMB)--Imported 
  pharmaceutical products being x-rayed by Customs and Border 
  Protection. (Source: Permanent Subcommittee on Investigations' 
  trip to JFK IMB, March 2004.)..................................   298

14. Photo taken at JFK International Mail Branch (IMB)--
  Approximately 20,000 boxes of suspected controlled substances, 
  seized by CBP, awaiting processing. (Source: Permanent 
  Subcommittee on Investigations' trip to JFK IMB, March 2004.)..   299

15. Photo taken at Chicago O'Hare International Mail Branch 
  (IMB)--Anabolic steroids seized by Customs. (Source: Permanent 
  Subcommittee on Investigations' trip to O'Hare IMB, April 
  2004.).........................................................   300

16. Photo taken at Chicago O'Hare International Mail Branch 
  (IMB)--Fake Viagra from Mexico. (Source: Permanent Subcommittee 
  on Investigations' trip to O'Hare IMB, April 2004.)............   301

17. Photo taken at Chicago O'Hare International Mail Branch 
  (IMB)--Injectable drugs being imported from Mexico. (Source: 
  Permanent Subcommittee on Investigations' trip to O'Hare IMB, 
  April 2004.)...................................................   302

18. Photo taken at Chicago O'Hare International Mail Branch 
  (IMB)--Illegally imported controlled substances containing 
  codeine. (Source: Permanent Subcommittee on Investigations' 
  trip to O'Hare IMB, April 2004.)...............................   302

19. Photo taken at Chicago O'Hare International Mail Branch 
  (IMB)--Improperly packaged Humulin. (Source: Permanent 
  Subcommittee on Investigations' trip to O'Hare IMB, April 
  2004.).........................................................   304

20. Photo taken at Chicago O'Hare International Mail Branch 
  (IMB)--Bulk drugs of unknown composition from Mexico. (Source: 
  Permanent Subcommittee on Investigations' trip to O'Hare IMB, 
  April 2004.)...................................................   305

21. Photo taken at Chicago O'Hare International Mail Branch 
  (IMB)--Packages being x-rayed by Customs and Border Protection. 
  (Source: Permanent Subcommittee on Investigations' trip to 
  O'Hare IMB, April 2004.).......................................   306

22. Photo of International Package Arrival Holding Area at the 
  FedEx Hub, Memphis, TN. (Source: Permanent Subcommittee on 
  Investigations' trip to Memphis, TN, July 2004.)...............   307

23. Photo of International Package Being Held for FDA Inspection 
  at the FedEx Hub, Memphis, TN. (Source: Permanent Subcommittee 
  on Investigations' trip to Memphis, TN, July 2004.)............   308

24. Printout of Google search, ``Purchase Vicodin,'' ``Results 
  1-10 of about 147,000 for purchase vicodin'' (5/3/04)..........   309

25. Printout of Google search, ``Purchase Vicodin,'' ``Results 
  1-10 of about 126,000 for purchase vicodin'' (7/16/04).........   310

26. Printout of Internet Website, http://hydrocodone.com-
  online.us--selling Hydrocodone/APAP (generic Lortab, Vicoden) 
  pain medication online.........................................   311

27. Internet Prescription Drug Buys, chart prepared by the 
  Government Accountability Office (GAO).........................   312

28. Photo of drugs purchased undercover by the GAO: Accutane, a 
  Restricted Drug That Causes Birth Defects, Illegally Imported 
  from Canada & Mexico. The Labels & Instructions Are in French 
  and Spanish....................................................   313

29. Photo of drugs purchased undercover by the GAO: Humulin N, A 
  Drug That Should Be Refrigerated, Shipped From Pakistan Without 
  Insulation Or A Cooling Pack...................................   314

30. Photo of drugs purchased undercover by the GAO: Crixivan, A 
  Drug Used To treat HIV, Hidden In A Sealed Can Inside A Box 
  Labeled As Gold Dye and Stain Remover Wax......................   315

31. Photo of drugs purchased undercover by the GAO: Counterfeit 
  OxyContin Smuggled In A CD Case From Spain.....................   316

32. U.S. General Accounting Office (GAO) Report to the Chairman, 
  Permanent Subcommittee on Investigations, Committee on 
  Governmental Affairs, U.S. Senate, INTERNET PHARMACIES, Some 
  Pose Safety Risks for Consumers, June 2004, GAO-04-820.........   317

33. Food and Drug Administration (FDA) Powerpoint Presentation 
  of July 22, 2004...............................................   351

34.a. Correspondence from Congressman John D. Dingell, Ranking 
  Member of the House Committee on Energy and Commerce, dated May 
  5, 2004, to Drug Enforcement Administrator Karen Tandy, 
  regarding illegal controlled substances entering the United 
  States through consignment carriers and international mail 
  branch facilities..............................................   378

     b. Correspondence from Drug Enforcement Administration 
      Congressional and Public Affairs Chief Christopher A. 
      Donesa, dated July 26, 2004, to Congressman John D. 
      Dingell, Ranking Member of the House Committee on Energy 
      and Commerce, responding to Congressman Dingell's May 5 
      letter regarding illegal entry of controlled substances 
      into the United States.....................................   383

     c. Correspondence from Congressman John D. Dingell, Ranking 
      Member of the House Committee on Energy and Commerce, to 
      GAO Comptroller General David M. Walker, dated September 
      22,2004, requesting GAO's evaluation of the efforts of DEA 
      and Customs to stem the growing tide of controlled 
      substances entering the United States......................   388

35. Statement for the Record of the Federation of State Medical 
  Boards of the United States....................................   391

36. Statement for the Record of the National Association of 
  Chain Drugs Stores, Inc........................................   394

37. Statement for the Record of James Christian, Vice President 
  and Head of Global Corporate Security, Novartis International 
  AG.............................................................   402

38. Submission for the Record of Pfizer Inc. with Powerpoint 
  Presentation...................................................   412

39. Submission of the U.S. Food and Drug Administration, U.S./
  Canadian Price Comparisons, October 2004.......................   481

 
    BUYER BEWARE: THE DANGER OF PURCHASING PHARMACEUTICALS OVER THE 
                                INTERNET

                              ----------                              


                        THURSDAY, JUNE 17, 2004

                                       U.S. Senate,
                Permanent Subcommittee on Investigations,  
                  of the Committee on Governmental Affairs,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 9:02 a.m., in 
room SD-342, Dirksen Senate Office Building, Hon. Norm Coleman, 
Chairman of the Subcommittee, presiding.
    Present: Senators Coleman, Levin, Lautenberg, Collins, 
Pryor, and Carper.
    Staff Present: Raymond V. Shepherd, III, Staff Director; 
Katherine English, Counsel; Mark Greenblatt, Counsel; Jay 
Jennings, Investigator; Mary D. Robertson, Chief Clerk; 
Katherine Russell, Detailee, FBI; Claire Diegel, Intern; Elise 
J. Bean, Staff Director/Chief Counsel to Minority; Jason Hill 
(Senator Levin); Priscilla Hanley (Senator Collins); Marianne 
Upton (Senator Durbin); Tate Heuer and Gita Uppal (Senator 
Pryor); and Demian Moore (Senator Dayton).

              OPENING STATEMENT OF SENATOR COLEMAN

    Senator Coleman. This hearing of the Permanent Subcommittee 
on Investigations is called to order.
    Americans are increasingly turning to the Internet for 
access to affordable drugs. In 2003, consumer spending on drugs 
purchased over the Internet exceeded $3.2 billion. 
Unfortunately, rogue Internet sites have proliferated and rake 
in millions of dollars by selling unproven, counterfeit, 
defective or otherwise inappropriate medications to 
unsuspecting consumers. Even more dangerously, these sites are 
profiting by selling addictive and potentially deadly 
controlled substances to consumers without a prescription or 
any physician oversight.
    In today's technological environment, it is essential that 
we understand the forces at work here. Internet pharmacies have 
the potential for bringing important and, in many cases, 
lifesaving drugs to our homes in a way that we have never 
before imagined. But, unless we understand the safety issues 
surrounding the use of the Internet and the delivery of 
prescription drugs, what should be about improving our lives 
may very well end up costing lives. I believe we have an 
obligation to develop coherent public policy that addresses 
these safety concerns.
    As Chairman of the Permanent Subcommittee on 
Investigations, I endeavored to provide an objective snapshot 
of what drugs are available to consumers on the Internet--the 
good, the bad, and the ugly.
    Our first inspection was at the JFK International Airport, 
in New York, home to the largest International Mail Branch 
(IMB) in the United States. Senior Customs officials at JFK 
estimate that 40,000 parcels containing drugs are imported 
through that airport on a daily basis. During last summer's 
FDA/Customs blitz, 28 percent of the drugs tested were 
controlled substances. This means that as many as 11,200 drug 
parcels containing controlled substances, like the painkillers 
Vicodin and OxyContin, are imported daily through JFK; 78,400 
weekly; 313,600 monthly, and 3,763,200 annually.
    Top countries of origin include Brazil, India, Pakistan, 
the Netherlands, Spain, Portugal, Canada, Mexico, and Romania.
    On March 15 and 17, 2004, PSI discovered at least 2,000 
boxes from a single vendor in the Netherlands that contained 
hydrocodone and generic Valium or Diazepam.\1\ In addition, 
Customs regularly seizes shipments of OxyCodone, a codeine-
laced product, GHB (the date rape drug), and morphine.
---------------------------------------------------------------------------
    \1\ See Exhibits 1, 2, and 3 which appear in the Appendix on pages 
286, 287, and 288.
---------------------------------------------------------------------------
    With PSI present, FDA uncovered a number of boxes of fake 
Lipitor--the real Lipitor is the last bottle on the right in 
this slide.\2\
---------------------------------------------------------------------------
    \2\ See Exhibit 4 which appears in the Appendix on page 289.
---------------------------------------------------------------------------
    FDA and Customs regularly seize and inspect packages 
containing: Counterfeit Viagra from India,\3\ injectable 
steroids from China,\4\ and boxes of unidentified drug 
product.\5\
---------------------------------------------------------------------------
    \3\ See Exhibit 5 which appears in the Appendix on page 290.
    \4\ See Exhibit 6 which appears in the Appendix on page 291.
    \5\ See Exhibit 7 which appears in the Appendix on page 292.
---------------------------------------------------------------------------
    FDA and Customs often discover packages of drugs without 
any of the required inserts that lack labeling and have 
directions for usage in foreign languages. An example of this 
is Lupron, an injectable hormone used to treat prostate 
cancer.\6\ I will note that I was with former Mayor Giuliani 
when we looked at the Lupron, and he looked at it and said, ``I 
know that drug''--he has suffered from prostate cancer and was 
well aware of it. He turned to me and said, ``You know, this is 
something that needs close physician supervision,'' and there 
it is, without any instructions, something that is clearly very 
dangerous when individuals use it without physician 
supervision. Unfortunately, all the labeling and directions for 
usage of this product are in Spanish.
---------------------------------------------------------------------------
    \6\ See Exhibit 8 which appears in the Appendix on page 293.
---------------------------------------------------------------------------
    Unfortunately, we found similar problems at Chicago O'Hare 
International Airport, which is home to the Nation's fifth-
largest International Mail Branch. Approximately 16,600 parcels 
are imported through the Chicago IMB each day. Of those 
parcels, 4,300 are estimated to contain drug products imported 
for personal use by consumers. Customs estimates that 75 
percent of the parcels that contain drug products are imported 
from Canada. Other top countries of origin include Great 
Britain, the Netherlands, and Mexico.
    While inspecting the Chicago IMB, PSI discovered packages 
of: Injectable steroids,\1\ counterfeit Viagra from Mexico,\2\ 
growth hormone from Mexico,\3\ codeine-laced products 
injectable insulin from Canada, which was not properly 
refrigerated,\4\ and a large box of unidentified and unlabeled 
white pills from Mexico.\5\
---------------------------------------------------------------------------
    \1\ See Exhibit 15 which appears in the Appendix on page 300.
    \2\ See Exhibit 16 which appears in the Appendix on page 301.
    \3\ See Exhibit 17 which appears in the Appendix on page 302.
    \4\ See Exhibit 18 which appears in the Appendix on page 303.
    \5\ See Exhibit 19 which appears in the Appendix on page 304.
---------------------------------------------------------------------------
    The same dangerous conditions are present at the Miami IMB. 
Senior Customs inspectors at Miami IMB estimate that as many as 
30,000 parcels that contain drug products are imported through 
Miami each day. This means that as many as 6 million parcels 
containing drugs are imported annually through this one IMB. Of 
the 30,000 daily imports, a couple thousand are dangerous 
controlled substances, including Valium, Ritalin, Bromazepam, 
Zolpidem, and steroids. Other types of drugs that FDA and 
Customs inspectors routinely see include fake Viagra from 
Belize, antibiotics including Ciprofloxin, and unknown drug 
products identified as vitamins or dietary supplements. Top 
countries of origin include Great Britain, Honduras, Mexico, 
Canada, Costa Rica, and the Bahamas.
    During the same period, at my request, the General 
Accounting Office made purchases of pharmaceuticals from both 
domestic and foreign Internet Websites. Their results confirmed 
what we discovered at JFK, Chicago and Miami--when consumers 
log onto the Internet to purchase their pharmaceuticals, it is 
truly ``buyer beware.''
    GAO demonstrated just how easy it is to purchase these 
drugs over the Internet. GAO used the Internet to purchase 
numerous prescription drugs-- including highly-addictive 
narcotics and other controlled substances. Notably, GAO 
purchased 66 percent of these pharmaceuticals, including 
narcotics, without a prescription and without visiting a 
doctor.
    GAO also used the Internet to purchase from foreign 
pharmacies counterfeit versions of American drugs, 
pharmaceuticals that have not been approved by the FDA, 
counterfeit drugs that lacked the active ingredient, damaged 
products, and drugs without proper packaging, no warning 
information, or instructions for use.
    The GAO investigation does reveal some encouraging news for 
those of us who use bona fide established domestic Internet 
pharmacies and those of us who support the safe importation of 
Canadian drugs to ease the cost of prescription medications. 
The preponderance of problems uncovered by GAO investigators 
with virtual pharmacies was associated with drugs that came 
from foreign countries other than Canada. All of the drug 
samples that GAO received from U.S. and Canadian Internet 
pharmacies included dispensing pharmacy labels that generally 
provided patient instructions for use. None displayed evidence 
of mishandling, and most included warning information.
    However, most disturbingly, GAO's Office of Special 
Investigation found that: Anyone, including children, can 
easily purchase the highly addictive painkiller hydrocodone 
from the Internet without providing a prescription or being 
examined by a physician; the Internet pharmacies from which GAO 
purchased hydrocodone charge significantly higher prices than 
walk-in pharmacies, regardless of whether a patient has health 
insurance; and some Internet pharmacies focus exclusively on 
selling hydrocodone. GAO has concluded that these sites are in 
the business of profiting from illegal drug use rather than 
providing a safe, inexpensive alternative source for consumers 
lacking health insurance.
    In order to put a human face on this dangerous and 
potentially lethal situation, we will hear testimony from two 
individuals who lost family members because of overdoses of 
drugs procured through rogue Internet sites.
    Francine Haight will tell us about her son, Ryan, who died 
from a mix of hydrocodone, morphine, and Valium. Ryan obtained 
these highly potent narcotics from Internet pharmacies. For 
some of these drugs, Ryan did not have a prescription; for 
others, Ryan had a prescription from a doctor that he had never 
met.
    Elizabeth Carr's husband, James Lewis, a tri-athlete, died 
of an overdose of Darvon on April 10, 2003. He purchased the 
Darvon, as well as other drugs from Internet pharmacies doing 
business in South Africa, Thailand, and Spain. Some of the 
websites that James used required him to fill out a short 
questionnaire before he could order the medication, while 
others required nothing.
    I cannot tell these witnesses how appreciative I am of 
their brave decision to come here and tell your story to 
Congress. I promise that I will do whatever is in my power to 
prevent the same tragedy from befalling other families.
    I also look forward to hearing testimony concerning his 
assessment of the U.S. pharmaceutical system from my friend, 
former New York Mayor, Rudy Giuliani. Lastly, I am eager to 
hear the results of the study performed by Dr. Marv Shepherd of 
the College of Pharmacy at the University of Texas at Austin 
that details the Canadian drug market.
    Now that PSI has identified some serious problems in the 
Internet pharmacy industry, we must start fashioning solutions. 
That is why I introduced S. 2464, the Ryan Haight Act, and S. 
2465, the Todd Rode Act. Taken together, these bills: Empower 
Customs to immediately seize and destroy any package containing 
a controlled substance that is illegally imported into the 
United States; provide new disclosure standards for Internet 
pharmacies; bar Internet sites from selling or dispensing 
prescription drugs to consumers who are provided a prescription 
solely on the basis of an on-line questionnaire; and allow 
State Attorneys General to go to Federal court to shut down 
rogue Internet pharmacies.
    Surely, we do not want to play what some correctly call 
``Rx roulette'' with the health of American consumers by 
blindly ignoring real safety concerns of the drugs we allow to 
be imported from the vast unregulated Internet pharmacy. 
Ignoring those concerns can have tragic consequences, like the 
tragic stories of Ryan Haight and James Lewis.
    With that, I will turn to the Ranking Minority Member, 
Senator Levin.

               OPENING STATEMENT OF SENATOR LEVIN

    Senator Levin. Thank you very much, Mr. Chairman, and thank 
you for your focus on this very critical issue and for your 
commitment to trying to see if we cannot get at the real 
fundamental problem here that you have just identified.
    As prescription drug prices in the United States continue 
to skyrocket, American consumers have become increasingly 
desperate to find the cheapest drugs available. In recent 
years, consumers are turning to the Internet to comparison shop 
and buy the lowest cost drugs online. The problem is that many 
Internet pharmacies are dispensing medicine illegally and, in 
some cases, selling counterfeit or unsafe drugs.
    Because U.S. enforcement efforts are currently inadequate 
to stop the illegal operators, the high cost of U.S. 
prescription drugs is driving increasing numbers of Americans 
to play Russian roulette with Internet pharmacies, gambling 
their safety on the lure of more affordable prices.
    Over the past 4 years, U.S. prescription drugs have 
increased an average of nearly 20 percent annually. Today, on 
average, Americans pay 60 percent more than the British or the 
Swiss for the same prescription drugs, two-thirds more than 
Canadians, 80 percent more than Germans, and twice as much as 
Italians. For poor and middle class individuals suffering 
chronic illnesses, high drug costs are forcing some to choose 
between taking their medicine on any given day, paying their 
bills, and even buying food.
    The GAO report before us today leads me to two conclusions. 
First, Internet purchases of illegal pharmaceuticals are out of 
control, and we need to increase enforcement. Second, medicines 
purchased from Canada are as safe or safer than those purchased 
in the United States.
    Now, I say that because 100 percent of the medicines 
purchased by the GAO on the Internet from Canadian pharmacies 
required patient prescriptions compared to only 5 out of 29, or 
17 percent of U.S. pharmacies.
    In addition, none of the Canadian medicines was 
counterfeit. That was also true of the U.S. medicines.
    Internet pharmacies are a relatively new response to the 
problem of high-cost medicines. Some Internet pharmacies are 
completely legal operations, set up to offer clients 
convenience and cost savings. They required patient 
prescriptions and deliver medications from U.S.-approved 
facilities.
    Other Internet pharmacies operate illegally, selling 
medications without prescriptions and using unapproved 
manufacturers either in the United States or offshore. Some 
shadowy operations send unsolicited offers to millions of 
Internet users, hawking medications like junk food bargains. 
These illegal operators have begun to capture attention as a 
health and safety threat requiring criminal and civil 
enforcement action. And again, I commend our Chairman, Senator 
Coleman, for focusing on this problem and holding this inquiry 
today.
    Pharmacies and pharmaceutical sales involve a complex web 
of State and Federal regulation to protect the public from 
unsafe or improperly prescribed drugs. In the United States, 
the practice of pharmacy is regulated by State boards which 
license both pharmacists and pharmacies. To legally dispense a 
prescription drug, a licensed pharmacist working in a licensed 
pharmacy must be presented with a valid prescription from a 
licensed health care professional before delivering the drug to 
the purchaser. On the Federal level, the Food and Drug 
Administration (FDA) is charged with ensuring the safety, 
effectiveness, and quality of domestic and imported drugs; the 
Bureau of Customs and Border Protection (Customs) is supposed 
to screen and stop unauthorized controlled substances at the 
border; and the Drug Enforcement Agency (DEA) is responsible 
for combating illegal narcotics and the abuse of controlled 
substances.
    To get a better sense of the enforcement problems 
associated with Internet pharmacies, at the request of this 
Subcommittee, the General Accounting Office (GAO) spent several 
months earlier this year buying prescription drugs online, 
tracking the Internet pharmacies and drugs delivered in 
response to their on-line orders, and then testing the 
delivered drugs to ascertain if they were actually the 
medications ordered. GAO efforts focused on buying popular 
medications such as Celebrex, an anti-inflammatory pain 
reliever; Lipitor, a cholesterol lowering drug; Viagra, a 
medication for sexual dysfunction; and Zoloft, an 
antidepressant.
    GAO found that buying medications from Internet pharmacies 
was not difficult. GAO placed 90 on-line orders for 
prescription drugs and received 68 samples, a success rate of 
75 percent. Of those 68 medications, 45 were shipped illegally 
because there had been no patient-provided prescription. Many 
were also shipped without FDA-required precautions such as 
patient instructions and temperature-controlled packaging. Of 
the 68 samples, 48 were from the U.S. or Canadian-based 
Internet pharmacies, 18 were from foreign or Canadian sites, 
and two could not be determined. Of the 18 foreign samples, 
three were found to be counterfeit, including two that 
contained incorrect but not necessarily dangerous chemical 
compositions, and one that had no active ingredients at all. 
Again, GAO determined that none of the U.S. or Canadian samples 
was counterfeit, evidence indicating that medications delivered 
from other foreign countries were less safe than those 
originating in the U.S. or Canada.
    The Subcommittee also examined operations at three U.S. 
ports of entry, in New York, Chicago, and Miami, to evaluate 
how Federal agencies screen parcels containing pharmaceutical 
products and originating from foreign countries. The 
investigation determined that tens of thousands of dangerous 
and addictive controlled substances are streaming into the 
United States on a daily basis from overseas and that, at ports 
of entry such as the John F. Kennedy International Airport, 
Miami International Airport, Customs agents are being 
overwhelmed as they attempt to prevent potentially hazardous 
materials from entering our borders.
    At JFK Airport, Customs officials estimated that over 
40,000 parcels containing pharmaceutical products pass through 
its facility every day. Miami Intentional Airport saw 30,000 
packages a day. Neither facility had sufficient personnel to 
screen those parcels. For example, JFK had an average of 50 
Customs agents and just six FDA inspectors working at its 
facilities during the course of a day, which meant that every 
person was responsible for screening more than 700 
pharmaceutical parcels every day--and remember, these agents 
and inspectors have lots of other responsibilities, too. They 
are charged, for example, with screening packages for firearms, 
nuclear material, counterfeit currency, and other contraband 
items.
    Millions of packages containing pharmaceutical products 
were imported into the United States last year and in 2003, and 
an estimated $1.1 billion worth of prescription drugs were 
imported into the United States solely from Canada. Internet 
pharmacies have contributed to this increase and to the ongoing 
strain on our enforcement resources. While some of these 
Internet pharmacies are based in the United States, many others 
are based in foreign countries which makes them harder to 
investigate, inspect, and shut down. Recent research indicates, 
for example, that the top countries of origin for imported 
medications include Brazil, Canada, India, Mexico, the 
Netherlands, Pakistan, Portugal, Romania, and Spain. While 
Federal agencies such as FDA, Customs, DEA, and the Department 
of Justice have successfully taken enforcement actions against 
both domestic and foreign Internet pharmacies and associated 
physicians in the past, these agencies face a host of 
enforcement issues with scarce resources. In an age of global 
terrorism where these same agencies are charged with protecting 
the public from dirty bombs, heroin sales, and chemical and 
biological weapons, it is tough to believe that stopping 
Internet pharmacies will become a top priority.
    There is also, again, the larger issue of drug 
reimportation. The importation of prescription drugs happens 
every day in this country, whether it is through private 
individuals purchasing drugs through the Internet, or a busload 
of seniors traveling to Canada to buy cheaper drugs from their 
drug stores there.
    It is the exorbitant price of prescription drugs in the 
United States that is driving Americans to buy low cost 
medicines from foreign countries. Folks are doing what they 
have to do in order to find and buy more affordable medicine.
    It is an ironic but comforting fact that the GAO study 
found no counterfeit drugs among the medications imported from 
Canada, since so many Americans are now shopping there, 
including thousands of my constituents from Michigan. And I am 
one of the Senators who favors legalizing the importation of 
drugs from countries such as Canada as a way to bring down 
prices here at home and stop the current practice of forcing 
American taxpayers alone to bear the burden of subsidizing 
research and development costs for drug companies.
    While I support stronger enforcement action--and I very 
strongly support enforcement action--to shut down illegal 
Internet pharmacies and to confiscate unsafe medications at the 
border, those actions will not cure the larger problem of 
overpriced drugs here in the United States. It is my hope that 
Congress will have an opportunity this year to vote on a real 
proposal, such as the Dorgan-McCain Pharmaceutical Market 
Access and Drug Safety Act, S. 2428, that will legalize the 
importation of drugs and begin to address the real issue of 
high drug prices for Americans.
    Again I commend you, Chairman Coleman, for taking on this 
important and complicated safety issue.
    Senator Coleman. Thank you, Senator Levin.
    It is my great pleasure to have with us the distinguished 
Chairman of the Committee on Governmental Affairs, Senator 
Collins.

             OPENING STATEMENT OF CHAIRMAN COLLINS

    Chairman Collins. Thank you, Mr. Chairman.
    Let me start by commending you for holding these very 
important hearings to highlight the safety concerns that can be 
associated with the purchase of prescription drugs over the 
Internet.
    I also want to echo Senator Levin's comments that one of 
the greatest challenges facing American consumers is the high 
cost of prescription drugs. Soaring drug costs have placed a 
tremendous strain on family budgets. They have also imposed a 
heavy burden on employers, both public and private, who are 
struggling to provide affordable health insurance coverage to 
their employees.
    It is therefore no wonder that American consumers 
throughout our country are looking across the border and into 
their computer screens in search of more affordable 
prescription drugs.
    It is well-documented that the average price of 
prescription drugs is much lower in Canada and in Western 
European countries than in the United States. The price 
differential we are particularly aware of in my home State of 
Maine, because consumers often do go across the border to 
Canadian drug stores to get the prescription drugs that they 
need.
    For example, a drug commonly used to treat Type II diabetes 
costs $124.65 in the United States and just $26.47 in Canada. 
It simply does not seem fair that American consumers are 
footing the bill for the remarkable yet costly advancements in 
pharmaceutical research and development, while our neighbors 
just across the border receive exactly the same medications at 
substantially lower prices. And that is why I have long 
supported legislation to allow American consumers to benefit 
from international price competition on prescription drugs by 
permitting FDA-approved medicines to be reimported into this 
country.
    But I am also concerned that we make certain that 
reimportation is done safely and responsibly. As Senator Levin 
mentioned, this is not likely to be a problem when we are 
dealing with a country like Canada, but as the evidence that 
Senator Coleman has outlined in his opening statement, it can 
be a very serious problem in dealing with imports from other 
countries.
    Today's hearing focuses on a closely-related issue, and 
that is the safety challenges posed by the sale of prescription 
drugs over the Internet. The Internet offers many advantages 
for on-line shoppers--convenience, competitive prices, privacy, 
and easy access to health and medical information. Moreover, 
through the Internet, individuals with disabilities, the 
elderly, and patients living in remote areas can more easily 
obtain the information, medicines, and services that they 
previously could acquire only with great difficulty.
    It is not surprising, therefore, that the number of on-line 
pharmacies has increased dramatically from the 190 identified 
by the General Accounting Office in October 2000 to an 
estimated 1,400 sites in April of this year.
    While on-line drug sales by reputable pharmacies can have 
many advantages for patients, they nevertheless present unique 
challenges for regulators, law enforcement, and policymakers. 
Years ago, when I was in State Government, I was responsible 
for the Board of Pharmacy, so I am well aware of how State 
regulators inspect pharmacies, something that is very difficult 
to do if you are dealing with an on-line entity.
    Much more problematic, however, are rogue on-line 
pharmacies that sell unsafe or counterfeit drugs that can be a 
prescription for disaster for unwary consumers. I have been 
particularly alarmed by recent surveys which have found that 
more than 90 percent of on-line sites do not require a 
prescription or even validate that there is a legitimate 
patient-physician relationship behind the prescription.
    The avenues for drug abuse that are provided by such 
pharmacies are painfully obvious and have caused much heartache 
to the family members who will be testifying before us today.
    I believe we need legislation to protect consumers from 
these rogue Internet pharmacies, and that is one of the reasons 
why I have joined with the Chairman in cosponsoring Senator 
Gregg's Safe Import Act, which establishes Federal licensing 
requirements for all Internet pharmacies. It also requires the 
verification of a legitimate patient-prescriber relationship 
and establishes verification procedures for all prescriptions. 
No longer could a teenager go online without having a valid 
prescription and be able to get powerful addictive drugs sent 
through the mail via the Internet pharmacy.
    Mr. Chairman, while I believe that we must do all that we 
can to make prescription drugs more affordable--and that 
includes passing a reimportation bill this year--we must also 
ensure patient safety. These hearings are a very important part 
of that process and will help ensure that we reach that goal.
    Thank you for your leadership.
    Senator Coleman. Thank you, Senator Collins. Senator 
Lautenberg.

            OPENING STATEMENT OF SENATOR LAUTENBERG

    Senator Lautenberg. Thanks, Mr. Chairman, and my 
compliments for the work you have done thus far. It is really 
critical to focus on what the problems are that would have 
people who in many cases desperately need these materials, 
these drugs, these products, and often are forced to make 
choices between food and medicine. That is a terrible place for 
anyone to be, and we ought to do what we can. We certainly do a 
lot to help people afford food in this country, with food 
stamps and things of that nature; yet the pharmaceutical needs 
are often unable to be met, and people resort to anything they 
can do to get their hands on these products. And it is 
understandable, whether you feel pain or you have other effects 
of illness that can be relieved, we certainly have a 
responsibility to deal with it, and I think you are doing it in 
a forthright fashion, and again, I commend you for it.
    I noticed a coincidence here, my three colleagues sitting 
on this Subcommittee with me all have borders that touch 
Canada. Accessibility to the marketplace is quite interesting, 
and people are pushing very hard.
    I come from the ``medicine chest State'' in the country. 
New Jersey is the place where so much is manufactured. These 
are responsible companies that invest huge sums in research, 
and many of these research attempts turn out to be fruitless 
after years and millions of dollars. But that in no way excuses 
the fact that you have different pricing structures in one 
place, radical differences that are avoided in another place. 
And we have got to do what we can to get these prices down.
    Again, I am pleased that we are examining what the problems 
are with importation, or reimportation as it is called, because 
when we heard Senator Levin's commentary about the safety of 
products coming from Canada, it starts to question the 
rationality of saying, well, the safety issue, because we have 
lots of problems within our own society with mixes of drugs 
that produce terrible effects, including death in many cases. 
So we have to be aware of that and scrutinize it very 
thoroughly.
    Unfortunately, the FDA does not have the funds available to 
it to provide the kind of monitoring that we need, and when we 
look at what is out there in front of us, and we see that on-
line pharmacies offer advantages--lower prices, easier 
accessibility, improved privacy--and many of these on-line 
pharmacies are legitimate businesses that do offer safe and 
convenient services and products similar to those provided by 
traditional pharmacies, and other on-line pharmacies engage in 
practices that are illegal, such as selling unapproved or 
counterfeit drugs, or dispensing drugs without a prescription. 
But the question is how can we protect consumers and regulate 
rogue pharmacies that peddle counterfeit medications, sell 
drugs without a doctor's prescription. There is a constant 
search. I use a local pharmacist, and he tells me about the 
number of times that suspicious prescriptions have come across 
his counter.
    So this is not a problem that is exclusively of on-line 
companies or reimportation. Since 2000, the number of 
counterfeit cases that the Food and Drug Administration has 
investigated has quadrupled, and it is obvious to me that the 
trend is going to continue. Americans looking for cheaper drugs 
online, especially from pharmacies abroad, are taking some 
gambles with their health, but again, if it is a choice that is 
so desperately motivated, then people do take risks in those 
conditions.
    Last November, the New York Times reported that Internet 
pharmacies have recently sprung up that claim to be based in 
Canada and do business from another country, using a Canadian 
domain name. We need to investigate these on-line pharmacies, 
but we also need to consider, as has been said, the underlying 
issue--what is driving consumers to risk their health by 
purchasing drugs from sources that they are not familiar with.
    The answer is obvious--the lower price that they can get 
these products for is very appealing. And we have got to 
protect consumers from fake drugs and unscrupulous on-line 
pharmacies. But we also must recognize that consumers, 
particularly the elderly on fixed incomes or modest-income 
families, are flocking to the Internet because it is the only 
way they can afford to buy these essential products. 
Prescription drugs in this country cost much more than people 
can generally afford to pay.
    Today we are looking at ways to regulate on-line 
pharmacies, protect consumers more effectively, but we cannot 
ignore the real problem, which is that prescription drugs in 
many cases are way too expensive, and ultimately, we have got 
to find ways to lower prescription drug costs for all 
Americans.
    Here, I will say that I have invited, and I extend the 
invitation again to those in the pharmaceutical industry to 
come forward and offer their ideas about how we can modify 
these prescription drug prices and equalize them, whether they 
are purchased in Canada or purchased here. Yes, we want to 
avoid price-fixing as is done in Canada, but the fact of the 
matter is that when the difference can be as much as 50 
percent, you are talking about sums of money that are really 
very tough for people to pry.
    So, Mr. Chairman, once again, my compliments for doing 
this, and I look forward to hearing from our witnesses.
    Senator Coleman. Thank you very much, Senator Lautenberg.
    I would note that Senator Levin, before he left, and I were 
also reflecting on the fact that he, Chairman Collins and 
myself all represent States that border Canada, so this is a 
very personal issue for the folks that we represent.
    I would also note that Senator Levin is managing the 
Defense Authorization Bill right now on the floor of the Senate 
and could not stay, but he is deeply committed to this issue of 
ensuring access to safe, affordable prescription drugs for his 
constituents and for all Americans, and I applaud him for that.
    I would now like to welcome our first panel to today's 
hearing. I welcome Marcia Crosse, Director of the Health Care 
Team at GAO, and Robert J. Cramer, Managing Director of GAO's 
Office of Special Investigations.
    As I mentioned in my opening statement, this morning, GAO 
is here to release the report of its investigation of Internet 
pharmacy website drug sales. The purpose of this hearing is to 
examine the extent to which consumers can purchase 
pharmaceutical and controlled substances over the Internet 
without a medical prescription or medical diagnosis and whether 
the pharmaceuticals that are pouring into the United States 
from foreign countries are counterfeit, unsafe, or legitimate.
    I appreciate your attendance at today's important hearing, 
and I am anxious to hear the results of your investigations.
    Before we begin, pursuant to Rule 6, all witnesses who 
testify before the Subcommittee are required to be sworn in. At 
this time, I will ask you to rise and please raise your right 
hand.
    Do you swear that the testimony you are about to give 
before this Subcommittee is the truth, the whole truth, and 
nothing but the truth, so help you, God?
    Ms. Crosse. I do.
    Mr. Cramer. I do.
    Senator Coleman. We will be using a timing system today, so 
when you see the amber light come on, you know it is time to 
wind up. If you have full written statements, they will be 
entered into the record at your request.
    I understand, Ms. Crosse, that we will have you go first, 
followed by Mr. Cramer. After we have heard all the testimony, 
we will turn to questions.
    Ms. Crosse, you may proceed.

 TESTIMONY OF MARCIA CROSSE,\1\ DIRECTOR, HEALTH CARE--PUBLIC 
HEALTH AND MILITARY HEALTH CARE ISSUES, U.S. GENERAL ACCOUNTING 
                             OFFICE

    Ms. Crosse. Thank you, Mr. Chairman. I am pleased to be 
here today as you discuss the safety of prescription drugs sold 
by Internet pharmacies. Various types of pharmacies offer 
prescription drugs over the Internet, including those that 
require a patient to provide a prescription, and other 
pharmacies that issue a prescription based on an on-line 
medical questionnaire or have no prescription requirement. My 
testimony will summarize the findings of a report that we are 
releasing today that examines issues surrounding the 
availability and safety of prescription drugs sold over the 
Internet as well as the business practices of certain Internet 
pharmacies.
---------------------------------------------------------------------------
    \1\ The prepared statement of Ms. Crosse with an attachment appears 
in the Appendix on page 109.
---------------------------------------------------------------------------
    My colleague Mr. Cramer will provide additional details on 
our purchases of narcotics.
    At your request, Mr. Chairman, we examined the extent to 
which certain prescription drugs can be purchased over the 
Internet without a prescription; whether drugs sold by Internet 
pharmacies are handled properly, are FDA-approved and are 
authentic; and the extent to which Internet pharmacies are 
reliable in their business practices.
    With respect to the availability of drugs, we were able to 
obtain the majority of prescription drugs we targeted for 
purchase from a wide variety of Internet pharmacies without 
providing a prescription. We obtained a total of 68 drug 
samples, each from a different pharmacy in the United States, 
Canada, or other foreign countries, including Argentina, Costa 
Rica, Fiji, India, Mexico, Pakistan, the Philippines, Spain, 
Thailand, and Turkey.
    The samples included drugs with special safety restrictions 
that require close physician supervision. We also purchased 
addictive narcotic painkillers.
    Some U.S. and all Canadian pharmacies where we purchased 
drugs required the patient to provide a prescription, but the 
majority of U.S. and all other foreign Internet pharmacies 
where we made purchases either issued prescriptions based on 
their own medical questionnaires or did not require a 
prescription.
    With respect to the safety of the drugs, we identified 
several problems with the handling, FDA approval status, and 
authenticity of the drug samples we received from foreign 
Internet pharmacies outside the U.S. and Canada, but fewer 
problems among the samples received from U.S. and Canadian 
Internet pharmacies. None of the samples from these other 
foreign pharmacies included dispensing pharmacy labels that 
provided instructions for use, and only about one-third 
included warning information.
    As you can see in this first figure,\2\ some samples 
arrived with no labeling of any kind. As you can see, there is 
no information as to even what drug is supposed to be contained 
in the bottle much less how many pills to take or how 
frequently.
---------------------------------------------------------------------------
    \2\ See Figure 1 of prepared statement of Ms. Crosse which appears 
in the Appendix on page 121.
---------------------------------------------------------------------------
    In our second figure,\1\ you can see that we also received 
products with no warnings in English. All of the information 
that came in this package was printed in Spanish.
---------------------------------------------------------------------------
    \1\ See Figure 2 of prepared statement of Ms. Crosse which appears 
in the Appendix on page 122.
---------------------------------------------------------------------------
    A majority of these samples displayed other problems 
associated with the handling of the drugs, such as three 
samples of a temperature-sensitive drug that were sent in 
envelopes without insulation. The product shown here requires 
refrigeration but was shipped from abroad in a regular envelope 
without any temperature control.
    We also received five samples containing tablets enclosed 
in punctured blisterpacks, potentially exposing the tablets to 
damaging light or moisture. You can see in this figure \2\ that 
this product arrived damaged, and this is a moisture-sensitive 
product.
---------------------------------------------------------------------------
    \2\ See Figure 2 of prepared statement of Ms. Crosse which appears 
in the Appendix on page 123.
---------------------------------------------------------------------------
    Some of the samples we received from these other foreign 
pharmacies arrived in unconventional packaging, in some 
instances with the apparent intention of concealing the actual 
contents of the package.\3\
---------------------------------------------------------------------------
    \3\ See Figure 1 of prepared statement of Ms. Crosse which appears 
in the Appendix on page 124.
---------------------------------------------------------------------------
    These are two unique shipping containers we received--one 
with the product packaged inside a CD case--as you can see, it 
was wrapped just in brown tape. Another product that we 
received was placed inside a sealed pop-top can and packaged in 
a box with a misleading label. This, as you can see, says 
``Gold Dye and Stain Remover Wax.''
    Manufacturers who tested the drugs for us reported that 
almost all of the drug samples from these other foreign 
pharmacies were unapproved for the U.S. market because, for 
example, the labeling or the facilities in which they were 
manufactured had not been approved by FDA. However, they 
reported that the chemical composition of all but four of the 
other foreign samples was comparable to the product that we had 
ordered.
    Among the exceptions, two samples were found to be 
counterfeit versions of the product we had ordered--Viagra--
containing a lesser amount of the active ingredient, and two 
samples had a significantly different chemical composition than 
that of the product that we had ordered--OxyContin and 
Accutane.
    In contrast, all of the drug samples that we received from 
U.S. and Canadian Internet pharmacies included dispensing 
pharmacy labels; almost all including warning information; and 
none displayed evidence of mishandling.
    Like the samples from other foreign pharmacies, most of 
those from Canada were also unapproved for the U.S. market. 
However, manufacturers determined that the chemical composition 
of all of these samples was comparable to the product that we 
had ordered.
    With respect to business practices, some Internet 
pharmacies, mostly other foreign pharmacies, were not reliable 
in their business practices. We did not receive six of the 
orders that we placed and paid for, five of which were placed 
with other foreign Internet pharmacies and one of which was 
placed with a pharmacy whose location we could not determine.
    Also, we found that several of the drug samples were sent 
from locations that raised questions, such as from private 
residences.
    We also observed Internet pharmacies that obscured details 
about the drugs sold, such as other foreign pharmacies from 
which we ordered brand name drugs but then received a generic 
or foreign version of the drug.
    Finally, about 21 percent of the Internet pharmacies that 
sent us samples were found to be under investigation by DEA or 
FDA. Reasons for the investigations included allegations of 
selling adulterated, misbranded, or counterfeit drugs and 
providing prescription drugs where no valid doctor-patient 
relationship exists. Nine of these pharmacies were from the 
United States, one from Canada, and four from other foreign 
countries.
    In summary, Mr. Chairman, consumers can readily obtain many 
prescription drugs over the Internet without providing a 
prescription, particularly from certain U.S. pharmacies and 
from foreign Internet pharmacies outside of Canada. Drugs 
available include those with special safety restrictions, for 
which a patient should be monitored for side effects, and 
narcotics, where the potential for abuse is high.
    For these types of drugs in particular, a prescription and 
physician supervision can help ensure patient safety.
    In addition to the lack of prescription requirements, some 
Internet pharmacies can pose other safety risks for consumers. 
Many foreign Internet pharmacies outside of Canada dispense 
drugs without instructions for patient use, rarely provide 
warning information, and in four instances provided drugs that 
were not the authentic product that we ordered.
    Consumers who purchase drugs from foreign Internet 
pharmacies that are outside of the U.S. regulatory framework 
may also receive drugs that are unapproved by FDA and 
manufactured in facilities that the agency has not inspected.
    Other risks that consumers may face were highlighted by the 
other foreign Internet pharmacies that fraudulently billed us, 
provided drugs we did not order, and provided false or 
questionable return addresses. It is notable that we identified 
these numerous problems despite the relatively small number of 
drugs we purchased, consistent with problems recently 
identified by regulatory agencies.
    Mr. Chairman, this concludes my prepared statement. I would 
be pleased to respond to any questions that you or other 
Members of the Subcommittee may have.
    Senator Coleman. Thank you very much, Ms. Crosse. Mr. 
Cramer.

TESTIMONY OF ROBERT J. CRAMER,\1\ MANAGING DIRECTOR, OFFICE OF 
     SPECIAL INVESTIGATIONS, U.S. GENERAL ACCOUNTING OFFICE

    Mr. Cramer. Thank you, Mr. Chairman and Members of the 
Subcommittee.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Cramer appears in the Appendix on 
page 130.
---------------------------------------------------------------------------
    I am pleased to be here today to report on some of the 
results of our investigation of the sources of hydrocodone that 
we purchased without a prescription from eight U.S. on-line 
pharmacies. hydrocodone is an addictive narcotic pain 
medication, and illicite use of this drug has increased 
significantly in recent years.
    We found that one can purchase hydrocodone from Websites on 
the Internet without providing a prescription or being examined 
by a physician, and the Internet pharmacies from which we made 
our purchases charge prices that are 3 to 16 times the prices 
charged by local retail pharmacies at which we inquired.
    We concluded that those who participate in these Internet 
drug operations appear to be in the business of knowingly 
servicing and richly profiting from individuals who may 
purchase narcotics for illicit purposes.
    We ordered and obtained hydrocodone from eight domestic 
Websites. Six purchases, each from different Websites, were 
dispensed by a single pharmacy. The two remaining purchases 
were ordered from two separate Websites and were dispensed by 
two other pharmacies.
    We obtained the hydrocodone by completing on-line 
questionnaires in which a GAO staff member, whom I will refer 
to here as ``the customer,'' claimed that he had pain.
    In an attempt to determine the relationship between the 
Internet site and the pharmacy that dispensed the drug, we 
contacted one of the pharmacies that sent us hydrocodone. This 
purchase was made from a Website that claimed that customers 
had to undergo a complete physical examination in order to 
receive the narcotic. However, the customer obtained the 
hydrocodone without undergoing a physical examination or seeing 
or even speaking to a physician.
    Instead, a physician's representative telephoned the 
customer and offered two options for satisfying the physical 
examination requirement. For $199, the customer could visit a 
physician at one of two clinics in the area where the customer 
lived, or for $49, the representative said that she would send 
paperwork that the customer could take to his own physician to 
fill out and return to them; and if the customer chose and paid 
for one of those options right then and there with a credit 
card, the physician would immediately issue a 30-day 
prescription.
    The customer chose the $49 option and gave the 
representative his credit card information and subsequently 
paid an additional $190 for the hydrocodone.
    After we received it, a GAO investigator posing as a 
relative of the customer contacted the pharmacy listed on the 
return address of the package in which it was delivered. The 
pharmacist confirmed that he had sent the drug and explained 
that he has a business relationship with a Website and with a 
physician who had sent him a prescription for it.
    The investigator then telephoned the physician, who 
confirmed that he had prescribed the hydrocodone. The physician 
claimed that he never writes prescriptions for new medications 
for patients and that he always confirms that the patient has 
been on the medication in the past. But when the investigator 
asked the doctor whether he had actually spoken with his 
relative, the doctor responded that one of his associates had 
in fact spoken to the relative. He said that he has a staff of 
several people who make such telephone calls. He repeatedly 
asserted that the staff calls and speaks with the customer's 
physician who previously prescribed the medication, but he 
confirmed that the telephone number his staff had called with 
respect to our purchase was the telephone number of the 
customer himself, not that of a physician.
    The physician indicated to our investigator that his 
Internet drug business is run from a clinic that he operates, 
but when asked the name of the clinic, it indicated that it is 
part of a health care network and gave a name that does not 
correspond to the name of any existing health care network we 
could find or to any medical practice with which this physician 
is in fact connected.
    He said to our investigator, ``Ninety percent of our 
business is for hydrocodone.'' He also said that he currently 
provides prescriptions for five different Internet drug sites 
and that he previously wrote prescriptions for two others that 
have been shut down.
    During our visit to the site where the physician purports 
to operate a clinic, we saw no evidence of a health clinic. The 
site is a one-room storefront set up with several computers and 
telephones. The only individuals that we saw going to or 
leaving the location appeared to be employees, and there was no 
sign on the premises indicating that the business there was 
health-related. When one of the employees was asked what kind 
of business is operated at the location, she responded that 
they do ``computer consultations.''
    When asked about the possibility of children buying 
narcotics through him, the physician claimed that the need for 
a credit card is the ``safeguard to prevent that from 
happening,'' and ``a kid should not have a credit card.'' 
However, he admitted that, in his own words, parents call him 
``all the time, saying that their children have gotten hold of 
their credit cards.''
    The physician repeatedly stressed that his on-line pharmacy 
offers a service for patients who do not have insurance. 
However, this assertion is patently false. To the contrary--the 
customer paid a total of $190 and an additional $49 
consultation fee for 60 hydrocodone pills that can be purchased 
for an average price of about $26 at local retail pharmacies at 
which we inquired. Thus, we paid nearly 10 times the ordinary 
retail price of this drug because we did not have a 
prescription.
    The street price, or illegal sales price, of hydrocodone 
that we bought online is about $5 to $6 per pill. Thus, we paid 
slightly less than the street price for this drug from this 
source.
    Indeed, as I mentioned earlier, the prices that we paid for 
hydrocodone at all eight of the Websites from which we ordered 
it were 3 to 16 times the ordinary retail price charged for it 
at local pharmacies.
    In sum, these Websites appear to purposely cater to 
hydrocodone customers who are willing to pay a substantial 
markup for the narcotic because they do not have prescriptions. 
Claims that these Websites provide a safe, inexpensive, 
alternative source of drugs for customers are bogus. Instead, 
they appear to be in the business of profiting from illicit 
drug use.
    That completes my prepared statement. I will be happy to 
answer any questions that you may have.
    Senator Coleman. Thank you very much, Mr. Cramer.
    To both Ms. Crosse and Mr. Cramer, I am very appreciative 
of the work that the GAO has done. In a very short period of 
time--and as Ms. Crosse noted, this is a small sample here; we 
have not fleshed all the concerns or all the challenges facing 
the importation of drugs from Canada or other countries--but in 
a short period of time, you have done outstanding work, and 
this Subcommittee and this Congress is very appreciative. So I 
want to start by saying thank you.
    Let me talk a little bit about the universe which we are 
dealing with, and there is some good news and some bad news in 
this. I am the optimist. The good news is that among those 
Canadian and American pharmacies that were sampled, the 
business practices were pretty solid?
    Ms. Crosse. Yes, Mr. Chairman. The problems that we had 
with the fraudulent billing were with other foreign pharmacies 
or in one case from a pharmacy where we could never determine 
the actual location of the pharmacy. We did not have that 
difficulty with pharmacies in the United States or in Canada.
    Of course, some of the narcotics purchases are from U.S. 
pharmacies. All of our hydrocodone purchases are actually from 
pharmacies that are located in the United States.
    Senator Coleman. But the concern is that you can get those 
narcotics by simply filling out a prescription online, at a 
minimum.
    Ms. Crosse. That is correct. Three of the sites also 
telephoned back to the customer with some follow-up questions, 
but at five of those sites, all that was required was to fill 
out the questionnaire online.
    Senator Coleman. Let me take you back a step. You described 
in your testimony a counterfeit sample, and I believe this 
purports to be OxyContin, which is a very addictive narcotic.
    Ms. Crosse. That is correct.
    Senator Coleman. One, do we know what country it was sent 
from?
    Ms. Crosse. We have been requested because of an ongoing 
investigation not to reveal that publicly. I would be happy to 
inform your staff.
    Senator Coleman. Let me step back. From the consumer's 
perspective, if I am going online, attempting to do a Google 
search for ``OxyContin,'' and I get a list of Websites, is 
there anything that--let us say hypothetically that this came 
from Pakistan or Turkey--is there anything that requires that 
Website to be identified as coming from Pakistan or Turkey?
    Ms. Crosse. No. For Internet pharmacies located outside the 
United States, they are totally outside any regulatory 
framework that we have in place. They can identify themselves 
or not identify themselves. In some instances, Websites 
identify themselves. We sought to try to trace to where their 
servers were located, to trace to where the payments were made; 
we also used the return address information on the packages 
when they arrived to help us identify where the pharmacies were 
actually located--but it is not a requirement, and it was not 
always there.
    Senator Coleman. And weren't there some instances in the 
investigation where, even looking at return address or other 
information, there was an effort to disguise where the pharmacy 
was actually located where the drugs came from?
    Ms. Crosse. Yes. There were discrepancies between 
information on the Websites and the shipping addresses for the 
packages that arrived.
    Senator Coleman. So for all we know, this Website could be 
AllAmerica.com or it could be RoyalCanadianMountedPolice.com, 
and it could come from Bangladesh or Turkey or Pakistan, and 
the consumer would not know.
    Ms. Crosse. Our information is that it is from abroad.
    Senator Coleman. But the consumer, sitting there, as he 
types in----
    Ms. Crosse. The consumer cannot necessarily tell.
    Senator Coleman. Thank you.
    One of the suggestions that Chairman Collins and I have 
supported would be having the FDA, even for extraterritorial 
pharmacies, give some kind of seal of approval which would mean 
they would investigate and check it out. Do you think that 
would be helpful to the consumer?
    Ms. Crosse. I think it would certainly be an extra layer of 
protection for consumers that currently does not exist.
    Senator Coleman. What is contained in here is called 
Crixivan.\1\
---------------------------------------------------------------------------
    \1\ See Exhibit 30, which appears in the Appendix on page 315.
---------------------------------------------------------------------------
    Ms. Crosse. Crixivan, yes, Senator. It is a drug for HIV 
and AIDS patients. Interestingly enough, it was packaged--that 
can had a sealed pop-top on it. When it arrived, we opened it 
and found inside an actual manufacturer's bottle of Crixivan. 
The manufacturer reports to us that it is the actual, authentic 
product, and that product, even though it came from abroad, was 
manufactured in an FDA inspected facility and is approved for 
distribution in the United States.
    Senator Coleman. And in fact, it notes that it comes from 
New Jersey, where it is manufactured.
    Ms. Crosse. It took a long route to get here.
    Senator Coleman. But what is fascinating is that the ``Gold 
Dye and Stain Remover Wax free promotion sample'' does say it 
is a product of Bassick Pharma and Chemicals in Istanbul, 
Turkey.
    Ms. Crosse. Yes, sir.
    Senator Coleman. Do we know if that is where this came 
from?
    Ms. Crosse. We believe that this came from Turkey. The 
Website and the shipping information led us to believe that the 
pharmacy we ordered from was in Istanbul.
    Senator Coleman. Again, I want to get back to the 
consumer's perspective and what they are looking at, because we 
are working backward. We get the product, and we trace as best 
we can where it came from, but from the consumer's perspective, 
can you help us understand how a consumer would somehow make 
contact with this particular drug seller?
    Ms. Crosse. They could find it by searching on the Internet 
for a particular brand name drug. We checked for pharmacies 
that sold Crixivan. We were specifically looking for 
pharmacies--for each of the drugs we purchased, we looked for 
pharmacies that sold them in the United States, in Canada, and 
in other foreign countries to the extent we could identify that 
from Website information. This Website, I believe, did identify 
that it was located in Turkey, so it was one that met our 
requirements for an ``other foreign purchase.'' But a consumer 
could not always tell.
    Senator Coleman. I believe you showed in one of your charts 
Roaccutan, which is a foreign version of Accutane.\2\
---------------------------------------------------------------------------
    \2\ See Exhibit 28, which appears in the Appendix on page 313.
---------------------------------------------------------------------------
    Ms. Crosse. That is correct. It is a foreign version of 
Accutane, which is an acne treatment.
    Senator Coleman. And this is one where the instructions 
came in Spanish?
    Ms. Crosse. Yes, that is right. All of the information 
included with this package was in Spanish. This was a product 
that came from Mexico. It had no pharmacy dispensing label 
information on it, and anyone who could not read Spanish would 
not be able to read the warning. It is also a product that the 
FDA warns against purchasing over the Internet because it has 
severe side effects and requires close monitoring by a 
physician.
    Senator Coleman. And particularly for women who are 
pregnant, this is a very dangerous drug.
    Ms. Cross. That is right. It is something that causes birth 
defects. It is a very dangerous drug for women of childbearing 
age.
    Senator Coleman. Mr. Cramer, the physician--I was stunned 
as I listened to you recount the conversation with the 
physician, who indicated that parents had in fact called him to 
raise concerns.
    Mr. Cramer. Yes. His words were: ``Parents call me all the 
time, saying that their children have gotten hold of their 
credit cards.''
    Senator Coleman. I am amazed your investigator restrained 
himself from asking about conscience.
    Mr. Cramer. He did. We wanted to encourage him to keep 
talking rather than turn him off, and as a result, he did give 
us a lot of very good information which we have been able to 
present to you today.
    Senator Coleman. And it is clear that there is nothing in 
place that would stop a child age 16, 17, perhaps 13 or 14, who 
had dad or mom's credit card from purchasing hydrocodone?
    Mr. Cramer. It seems that the key thing here is having a 
credit card. Five of the sources of hydrocodone never made any 
phone calls to the customer, so that all you had to do was get 
on the Internet, fill out the questionnaire and have a credit 
card number, and that was it for those five, and the three made 
phone calls, but as I explained with respect to our 
transaction, in which it appears that there actually was a 
physician involved, the phone call is a window dressing rather 
than any kind of true consultation.
    Senator Coleman. I think you were being generous in your 
testimony when you stated that the folks involved in these 
particular pharmacies that were subject to your investigation--
you used the words ``appear to be'' in the business of 
profiting from individuals seeking to illegally obtain drugs.
    Would you go further than that, not that they ``appear to 
be,'' but that your investigation demonstrated very clearly 
that the individuals here were generating great profit from 
providing drugs to folks whom they had no idea whether they in 
fact had a prescription or who they were--they simply had a 
credit card.
    Mr. Cramer. Certainly based on the prices alone, it is 
clear that there is big profit in this business.
    Senator Coleman. I will turn it over now to Senator 
Lautenberg.
    Thank you, Mr. Cramer.
    Senator Lautenberg. Thank you very much, Mr. Chairman, and 
I apologize for not having been in the room when these very 
credible witnesses were testifying.
    We are looking at situations here that almost extend beyond 
the fact that there is some risk in obtaining these products 
outside normal channels, and the price differences are driving 
much of this discussion, but if there is an addicted person in 
the house, and that person is obtaining his drugs over the 
Internet or across the borders, the fact of the matter is that 
this person, if he is truly an addict, is going to find other 
means, and it has little to do with whether they are rogue 
pharmacies on the Internet or, again, cross-border 
transactions.
    So we are not doing a review of addiction and the problems 
that follow in that kind of situation, but it is part of the 
overall problem. And when we look at the results of these 
investigations and we see that in many cases, these products 
are delivered in the kind of packaging that we see as original 
packaging right here in our own country, that in many ways, the 
safety is practically assured, but the price differential is 
still going to be enormously attractive to people--here is a 
product where they can see the container, the packaging, often 
the instructions are in there as they are if we buy the product 
in an unopened container--so the problem that results is how 
can we possibly monitor all of these things.
    Should the FDA be more involved? They are terribly short of 
funds. Which agency do you think should be taking the lead 
apart from your investigatory responsibility? Should the FDA be 
more involved? Should we be looking to increase their funding 
in the interest of the consuming public here? What do we do 
about this enormous problem?
    Ms. Crosse. Well, Senator, in the United States, the FDA is 
the Federal agency with the lead responsibility for ensuring 
the safety of the prescription drugs that are sold to 
consumers, and their jurisdiction currently does not extend to 
these foreign Internet sites and the drugs sold there.
    Some of the products that come in through these Internet 
sites are in facilities that are inspected by FDA either 
because the manufacturer has shipped U.S.-made products to 
Canada for sale there, or in some instances, because the 
manufacturer has a facility offshore where the manufacturer 
imports to the United States, so they have a facility offshore 
that the FDA already inspects.
    So there is some cross-border activity that is covered by 
the FDA. They could speak to you in greater detail about the 
extent of that coverage. However, they are certainly currently 
the most qualified to take on this issue if you want to extend 
Federal oversight to pharmaceuticals coming in from other 
countries.
    Senator Lautenberg. The question that arises is if there is 
a discount of approximately 37 percent on average by buying 
drugs in other countries, can we convince people that the risks 
of ordering from outside the U.S. boundary or an Internet 
pharmacy outweigh the financial benefit to these consumers?
    Ms. Crosse. I think it depends on the product that you are 
buying and where you are buying it from. I think it is very 
difficult right now for a consumer to make that determination, 
however.
    Senator Lautenberg. But that is not necessarily going to 
curtail their search for a cheaper product.
    Ms. Crosse. No, sir.
    Senator Lautenberg. Thanks, Mr. Chairman.
    Senator Coleman. Thanks, Senator Lautenberg. Chairman 
Collins.
    Chairman Collins. Thank you, Mr. Chairman.
    Ms. Crosse, how did the GAO select the Internet sites from 
which you purchased these drugs?
    Ms. Crosse. It is not a random sample. There is no list of 
Internet sites that exists from which one can make a random 
selection. We had certain criteria in mind that we were looking 
for. As I mentioned, we were searching to find Internet sites 
in the United States, in Canada, and abroad, in other foreign 
countries, for each of the drugs that we were seeking to 
purchase.
    We also searched to find sites that required prescriptions, 
those that had on-line questionnaires, and those that had no 
prescription drug requirement.
    So we had certain criteria that we were trying to fill. We 
began with a list of over 1,400 Internet sites that the FDA 
passed along to us. This was not their list of sites under 
investigation; it was a list that they had developed, and some 
of the information had been provided to them from others who 
have conducted such investigations.
    In addition, we conducted our own Internet searches using a 
variety of search engines such as Google and Yahoo! and Excite 
to try to identify different Internet sites that would meet the 
criteria that we set forth.
    Chairman Collins. Thank you.
    Mr. Cramer, it seems to me that we have two serious 
problems. First, we have consumers who are looking to save 
money by shopping for their drugs over the Internet who may be 
at risk of receiving unsafe, contaminated, or even counterfeit 
drugs; and then we have a second serious problem of consumers 
with problems with addiction or teenagers who are looking to 
experiment who are not particularly concerned about price but 
rather are looking for a way to get drugs, narcotics, for which 
they are not entitled.
    I want to take you through your testimony to illustrate the 
second problem.
    In any of the cases, did you have to submit a prescription 
in order to get access to the hydrocodone?
    Mr. Cramer. No. We provided no prescription with respect to 
any of the eight purchases we made.
    Chairman Collins. And did a physician interview you to make 
sure that it was an appropriate medication for your 
investigator?
    Mr. Cramer. In five instances, there was absolutely no 
telephone contact with anyone. We filled out the questionnaire, 
gave the credit card information, and got the drug. In three 
instances, we received a return phone call. We know in the one 
instance that we looked into very carefully that it was not a 
physician who spoke to our customer. In another instance, the 
individual identified herself as a customer sales 
representative of a physician. And in the third instance, it is 
unclear whether that person was a doctor or not. That was left 
very ambiguous during the course of the conversation.
    Chairman Collins. In none of the eight cases was there a 
physical examination by a qualified health care provider?
    Mr. Cramer. That is right. There was never a physical 
examination.
    Chairman Collins. And as I understand it, in the six 
purchases from six different Websites, you were able to trace 
the prescription back to a single pharmacy?
    Mr. Cramer. That is right.
    Chairman Collins. So a single pharmacy in a southeastern 
State was supplying the drugs that were ordered on six 
different Websites; is that accurate?
    Mr. Cramer. That is correct.
    Chairman Collins. How did you determine that? Was it 
obvious when you received the drug, or did you have to do some 
investigative work to determine that?
    Mr. Cramer. In three instances, it was obvious from the 
return address identified on the package. In three other 
instances, although it came from the same pharmacy, there was 
an intermediate delivery channel so that particular pharmacy 
was not in fact identified, and we had to do some further 
investigation to track down through the intermediary who in 
fact the source was.
    Chairman Collins. And I assume that southeastern State in 
which this pharmacy is located has a typical law that would 
require a prescription to be presented at the pharmacy before 
the drugs could be dispensed. Is that a correct assumption?
    Mr. Cramer. I believe that is the case here, yes.
    Chairman Collins. Was there any referral by the GAO, or has 
there been a referral yet by the GAO, to the State licensing 
board?
    Mr. Cramer. We have been in touch with both law enforcement 
authorities as well as State authorities with respect to our 
findings to date, to advise them of what we found and to refer 
to them so they could take further action.
    Chairman Collins. Thank you.
    Mr. Chairman, I think this is an excellent example of how 
one rogue pharmacy can use the Internet to reach so many people 
and to actually be involved in six different Websites--and 
there may be many more, since obviously, you did not look at 
all 1,400. So I think you are really doing a valuable service 
in examining this problem. Thank you.
    Senator Coleman. Thank you, Senator Collins. Senator Pryor.
    Senator Pryor. Thank you, Mr. Chairman.
    I concur with Chairman Collins' analysis. You are doing a 
great job here in getting us focused on this issue.
    When I was the Attorney General of my State before I came 
to the Senate, we had responsibility for the consumer 
protection in Arkansas. We would always recommend to people in 
Arkansas that when they purchased drugs, they do it through 
their local pharmacist, because they are dealing with a 
licensed professional, they are dealing with someone in their 
community, and if there is a problem, they know who to go to, 
they have recourse. And certainly we felt better because local 
pharmacists always require a prescription, etc., so we just 
felt like all the consumer safeguards and the integrity in the 
system was there.
    But given the high prices of prescription drugs in this 
country, certainly there is a lot of incentive for people to 
get online and go elsewhere, and in that industry, on-line 
pharmacies are now a reality.
    I would like to ask you a few questions, and either of you 
can answer. First, if you know, what percentage of on-line 
pharmacies that you have experience with or have dealt with are 
legitimate, following all the rules, going through all the 
procedures that we would hope and expect--how many of these are 
really operating in a way that we would feel satisfied that the 
integrity of the system is being protected?
    Ms. Crosse. I think we really cannot answer that. There is 
no known universe of Internet pharmacies. They change 
constantly. We observed in our searches that some of the 
Websites that were on the 1,400 that FDA provided to us had 
already closed when we went to look there to make a purchase.
    There is a very small number of pharmacies participating in 
a program where they seek certification from the National Board 
of Pharmacies, but I believe that is a handful of pharmacies, 
fewer than 20, I understand.
    However, I do not think that alone is the signal of whether 
or not they are dealing honestly and meeting requirements. I am 
sure there are other pharmacies out there who just have not 
sought certification who could meet those requirements.
    Senator Pryor. All right. Let me ask that, because this is 
something that Chairman Coleman mentioned a few moments ago. It 
seems to me that maybe there should be some kind of seal of 
approval or some process that these companies go through, and 
when they meet certain criteria, they get a seal of approval or 
whatever you want to call it that they can display on their 
Website so the consumer knows that they have met all of these 
thresholds.
    What you are saying is that only a very small percentage of 
the on-line pharmacies are participating in such a program?
    Ms. Crosse. That is right. This is a voluntary program from 
their national association. As you may be aware, pharmacies are 
regulated at the State level, so each State has its own 
controlling statutes and regulations. There is currently no 
Federal regulation of pharmacies, and there is no Federal body 
that would be empowered to provide such certification of a 
pharmacy. This is something that is regulated by the States.
    Senator Pryor. Personally, I think that the industry or 
some independent nonprofit group could provide a seal of 
approval to give the consumers the comfort level and assurances 
that they need to go online.
    Let me ask about some of your findings. As I understand 
it--and I do not want to put words in your mouth--but as I 
understand it, you found repeatedly that prescriptions were not 
required, a visit to a physician was not required. Were some of 
these drugs out-of-date as well?
    Ms. Crosse. Of the samples that we received from the 
manufacturer testing, none of those that we had could be 
determined to be out-of-date by the manufacturer. That 
certainly is true for some of the products that the FDA has 
investigated, but in our small number of samples, we did not 
find any that were out-of-date.
    Senator Pryor. OK. But there were other problems?
    Ms. Crosse. There were a number of other problems.
    Senator Pryor. I am about to run out of time, but I do want 
to ask you about the testing and the cost of the testing, 
because I think that is an important factor for us to consider.
    First, on the testing, let me ask a two-part question, 
because I am almost out of time. Who did the testing, who paid 
for it, and also, could you give us a sense of the cost that is 
required in testing these products?
    Ms. Crosse. For each of the products that we purchased, we 
sought initially to buy brand name drugs. We made a decision 
midcourse to accept generic products for the hydrocodone 
because of the difficulty of finding enough sites where we 
could place orders of the brand name narcotics. The generics 
were much more readily available. However, for the other 
drugs--Lipitor, Celebrex, Crixivan--all of those drugs, each 
was tested by its manufacturer. We entered into an agreement 
with each manufacturer to conduct the testing for us, because 
they have the specs on their products, they could make the 
determination of what the chemical composition was, what it was 
supposed to be. They have the lot number information to know if 
it was a valid lot number, to know if it was outdated, to know 
if it was fully potent. So they conducted the testing for us.
    I cannot speak to the price. They did it at their own 
expense for us and in service to us and to the Subcommittee and 
this investigation.
    Senator Pryor. Did we have anyone present there when they 
were doing it?
    Ms. Crosse. No, sir, we did not have anyone present in the 
laboratories. However, as part of this process, one of the 
reasons we were seeking to make purchases from what we call 
control pharmacies, these on-line pharmacies that are 
associated with big-name retail pharmacies such as Walgreen's 
or CVS, was to have a control sample. These were blinded to the 
manufacturers. They did not know which sample came from which 
country, which type of on-line pharmacy, which on-line pharmacy 
the product came from. So they had no knowledge; they only had 
a code number for each product when they did the testing.
    Senator Pryor. Thank you.
    Senator Coleman. Thank you, Senator Pryor.
    I have three very brief follow-up questions. One, Senator 
Collins in her line of questioning spoke about a single 
pharmacy that supplied multiple Websites. Do we know where this 
pharmacy got its drugs?
    Mr. Cramer. No. We do not have that information. This 
particular pharmacy has now been shut down, and we are unable 
at this point to probe any further with respect to that 
particular one.
    Senator Coleman. Is there anything that prevents the 
principals involved in that pharmacy from getting back in the 
business?
    [Pause.]
    Senator Coleman. Ms. Crosse.
    Ms. Crosse. Not to my knowledge, unless they were 
prosecuted and perhaps jailed.
    Mr. Cramer. It is my understanding that there are pending 
proceedings with respect to that pharmacy and the principals.
    Senator Coleman. That was my other question. I presume the 
results of your investigation have been turned over to the 
appropriate authorities for further criminal or any other type 
of enforcement actions?
    Mr. Cramer. Yes, and we will see what happens. But it is 
now being handled by law enforcement authorities who have taken 
action.
    Senator Coleman. Thank you very much. Do any of my 
colleagues have questions?
    [No response.]
    Senator Coleman. If not, I will thank the witnesses again 
for outstanding work in a short period of time. We are very 
appreciative. Thank you very much.
    Mr. Cramer. Thank you.
    Senator Coleman. I would now like to welcome our second 
panel to today's important hearing.
    I welcome the distinguished former Mayor of New York City, 
the Honorable Rudy Giuliani, currently Chairman and CEO of 
Giuliani Partners. Mr. Giuliani brings with him his expertise 
in border security and public safety issues.
    We appreciate you lending your expertise in security and 
international terrorism to assist us in developing 
recommendations to control the illegal flow of these 
unregulated rugs.
    And finally, I would like to welcome Dr. Marvin D. 
Shepherd, Director of the Center for Pharmacoeconomic Studies 
at the University of Texas at Austin. Dr. Shepherd will discuss 
his study concerning the Canadian drug supply.
    As previously mentioned, the purpose of this hearing is to 
examine the extent to which consumers can purchase 
pharmaceuticals and controlled substances over the Internet 
without a medical prescription or medical diagnosis; what role 
FDA, the Bureau of Customs and Border Protection, the U.S. 
Postal Service, and DEA play in preventing the illegal 
importation of scheduled pharmaceuticals or pharmaceuticals 
that are violative of the Food, Drug, and Cosmetics Act, and 
whether the pharmaceuticals that are pouring into the United 
States from foreign sources are counterfeit, unsafe, or 
legitimate.
    I appreciate your attendance at today's hearing and am 
anxious to hear your observations on the current state of 
affairs.
    Before we begin, pursuant to Rule 6, all witnesses before 
this Subcommittee are required to be sworn in. I would ask you 
to please raise your right hand and repeat after me: I swear 
that the testimony I am about to give is the truth, the whole 
truth and nothing but the truth, so help me, God.
    Mr. Giuliani. I swear that the testimony that I am about to 
give will be the truth, the whole truth and nothing but the 
truth, so help me, God.
    Mr. Shepherd. I do.
    Senator Coleman. Thank you.
    You understand the timing--when the yellow light goes on, 
if you can sum up your testimony. Your full testimony will be 
entered into the record.
    Senator Lautenberg. Mr. Chairman, just a side comment. The 
Mayor knows that when you see a red light, it does not mean 
stop--it means speed up.
    Senator Coleman. I thought it ought to be a suggestion.
    Mr. Giuliani, we will have you go first, followed by Dr. 
Shepherd, and after we have heard all the testimony, we will 
turn to questions.
    Mr. Giuliani, you may proceed.

 TESTIMONY OF HON. RUDOLPH W. GIULIANI,\1\ CHAIRMAN AND CHIEF 
 EXECUTIVE OFFICER, GIULIANI PARTNERS, LLC, NEW YORK, NEW YORK

    Mr. Giuliani. Mr. Chairman and Members of the Subcommittee, 
good morning, and thank you very much for the opportunity to 
present the results of the report that we are in the process of 
doing.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Giuliani appears in the Appendix 
on page 136.
---------------------------------------------------------------------------
    The availability of safe, effective, and reasonably priced 
medications for all Americans is without doubt, as you have all 
noted, a very important and very crucial issue for us. 
Individuals and even State and local governments have sought 
many different alternatives to see if they can find access to 
medicines for everyone at reasonable cost, and this is 
something that has to be pursued, and I commend you, the 
Members of the Senate and the House, who are trying to do that 
and to accomplish that.
    But pricing, which is the principal driver and motivation 
for this, although extremely important, can overshadow the 
dangers that are created or could be created and actually exist 
now for the integrity of our medicine supply in the United 
States. So whatever solution we find has to be one that does 
not pollute the supply of drugs in the United States, or 
further pollute it, because there is already a pretty serious 
issue.
    Under the current system, from what we have seen so far, 
there are already significant risks given the importation that 
takes place with regard to the dangers that are created for 
Americans, and based on what we have learned so far, there are 
serious concerns about the present quality of the medicines 
that people are buying and using. The FDA has warned repeatedly 
that if people continue to order prescriptions over the 
Internet or from foreign sources, it will create the danger not 
only for them but for the entire drug supply in this country 
that it will be polluted and not properly regulated.
    In this regard, my firm, Giuliani Partners, has been 
retained by the Pharmaceutical Research and Manufacturers of 
America to conduct a study, of which we are about one-third 
completed, and we presented our preliminary views to you in a 
report which I hope you all have and have a chance to look at, 
and also to the Department of Health and Human Services' Task 
Force on Drug Importation which has been charged with the 
responsibility of determining how safe is the present system 
and what kinds of safeguards would be necessary if there were 
to be any expansion of the current system.
    Let me very briefly state some of the things that we found 
and some of our preliminary observations--and I emphasize they 
are preliminary because we are about one-third of the way 
through the process of investigating this.
    It is evident that the existing pharmaceutical system right 
now, as it presently exists, before you consider any further 
expansion of it, is open to significant exploitation for 
counterfeit medication and diluted, adulterated drugs. The 
limitations on the system that we presently have are 
significant.
    The U.S. Surgeon General and the Health and Human Services 
Task Force are considering all of these issues, and the task 
force really has to complete its analysis before we have a 
basis on which we can figure out what to do about the present 
system realistically to make it safe, as safe as the American 
people deserve, which is a lot safer than it is right now, and 
then, what would be needed to expand that system and the 
safeguards that would have to be put in place.
    It really is important--and I commend the Chairman and the 
Members of this Subcommittee for conducting this hearing--
because part of the process also has to be putting the public 
on notice so that we deal with people honestly about the risks 
they are taking if they use the Internet or if they go to the 
alternative of seeking drugs from a foreign source. If people 
make that choice, they should at least be armed with the 
information that it is significantly different than, as Senator 
Pryor pointed out before, buying medicines at your local 
pharmacy. You are taking a risk. It may be a calculated one, 
but it is only a calculated one if you are on notice and you 
know the risk that you are taking.
    The system has many problems. There is a lack of 
standardization, a lack of oversight of wholesalers; there is 
no chain of custody, no pedigree. The volume almost cannot be 
described. The testimony that you just heard from GAO was very 
instructive, very valuable, very important, but it talked about 
68 samples, I believe. That is a minuscule percentage of what 
is coming into this country. It is something like 10 million 
packages a year. At the John F. Kennedy International Airport, 
where Senator Coleman and I had a chance to inspect the mail 
facility--which I believe is the largest or second-largest in 
the country for the receipt of any parcels as well as 
medications--they receive 40,000 packages a day allegedly 
containing medicines--40,000 a day. Their capacity--and again, 
this is one of the largest facilities in the country--allows 
them to inspect at best between 400 and 600 of those packages 
each day. So 99 percent are moving through totally uninspected, 
no one looking at them, no one having any idea of what is in 
them, and then they are able to inspect, in a fairly cursory 
way because of the lack of resources, only 500 a day. And that 
inspection has to be a very quick one and a very brief one.
    When we visited there, which happened to be on March 17 of 
this year, they described it as a ``fairly slow'' period 
because there had been some delay in the obtaining of 
medicines, yet the facility was overwhelmed with medicines of 
all different kinds. We saw Xanax, Valium, and Vicodin. As 
Senator Coleman pointed out, we saw Lupron that had been sent 
in from a foreign country--I have forgotten which country now, 
but not the United States, not Canada--it had been sent in from 
a foreign country. Lupron is a hormone that is administered to 
people with prostate cancer, and it has to be, should be, 
administered by a doctor, by injection. This packaging was 
adulterated. It had apparently been tampered with. There was 
Lupron, and there were the facilities and the devices for 
people to self-inject it, which would be extremely dangerous.
    We also saw medicines that were expired--you could see it 
right on the label--I believe it was antibiotics--that were 
expired by 2 and 3 years, and all you had to do was examine it, 
and in many cases, antibiotics that are expired by a year or 2 
years or 3 years are useless.
    We saw what appeared to be adulterated medicines--the 
coloration appeared suspicious and strange; the packaging was 
unusual--and medicines from 14 or 15 different countries, 
including Pakistan, Spain, Greece, Italy, and some from Canada.
    So the sheer volume that comes in--40,000 a day in one 
facility, 10 million a year in the United States--makes the 
ability to inspect under the present system, without any 
further increase in methods of foreign importation or Internet 
use--the present system is overwhelmed at this point, and it 
presents a threat. It presents a significant threat to the 
individual who is ordering by that method, because the 
percentage chance that they are going to receive the wrong 
medication or adulterated medication is significant. But it 
also presents a broader threat to this country. It presents the 
threat of polluting our drug supply because these medicines can 
also find their way into what appear to be more legitimate 
sources of medications. It offers an opportunity for organized 
criminals and for drug traffickers to take advantage, and for 
terrorists to take advantage.
    Here we are going through a period of time in which we are 
trying the best way can to deal with our borders in a more 
orderly and a more secure way, consistent with being a country 
that is open to people coming here, people feeling that they 
can come here, and also open to doing commerce correctly. But 
we are trying as best we can to secure our borders. The whole 
idea of the Department of Homeland Security is to do that, have 
the Customs Service and the Immigration Service work together 
more effectively. And this is an area in which our borders are 
right now, I think it would not be unfair to say, wide open. If 
you have 1 percent or less of what is coming in inspected, the 
odds are that if you are operating in Pakistan, or you are 
operating in Spain, or you are operating in Greece, or you are 
operating in Turkey, you can calculate that there is a much 
better than 9 out of 10 chance, and maybe greater than that, 
that what you are sending into this country is not going to be 
inspected by anyone even if it purports to be a dangerous 
medication.
    So from our analysis, our summary of our findings at this 
point, there is already a situation that needs further 
regulation, further technology, a lot more investment of 
resources so that significantly more inspection can be done at 
the vital, crucial point. Things are all going to go through 
mail facilities whether they are ordered by phone or by mail or 
over the Internet. They are all going to end up in these mail 
facilities to be distributed to different parts of the United 
States in most cases. And at that crucial point, a great deal 
more has to be invested in inspecting properly, inspecting with 
modern technology, and creating a lot more safety for people in 
the United States.
    The results of our preliminary study and the work that we 
are continuing to do are really no different than studies that 
have been done in the last 2 or 3 years by the FDA, U.S. 
Customs, and Border Protection. We have reviewed blitzes that 
they have done back in the fall and early winter of 2003. In 
the first one they did, 88 percent of the medicines they had a 
chance to inspect--that the FDA got a chance to inspect--were 
not approved by the FDA, and the drugs came from countries such 
as India, Thailand, and the Philippines. In the second 
examination, it was 87 percent that were coming in that were 
not approved, 16 percent of those shipments coming from Mexico. 
And a recent review of the Miami facility, which is very 
similar to the one at JFK, showed roughly the same 
percentages--no better than 1 percent being inspected, and the 
ones that were inspected, the overwhelming majority being 
unapproved either for technical reasons or for very serious and 
dangerous reasons.
    So, given that, it seems to me that the focus of the 
Congress should be on how do we take the present system that we 
have and make it much more effective in terms of affording 
safety to anyone who is seeking to buy drugs from a foreign 
source or an Internet source. And then, after we have 
accomplished that, and we have accomplished that for some 
appreciable period of time--2 years, 3 years--then to take a 
look at how we would open things up to further foreign sources 
of medicines coming into the United States, because the present 
situation, without being an alarmist, is probably, even if you 
understate it, very dangerous and an area in which there can 
be, if there is not already, significant exploitation.
    We would be happy to answer any questions about what we 
have found or any suggestions about how you would accomplish 
that.
    Again we commend the Chairman and the Members of the 
Subcommittee for looking at this, because this is a very 
complex issue, and it has very big implications for individual 
Americans who are seeking medicines and access to them, but for 
all of us. Thank you.
    Senator Coleman. Thank you very much, Mr. Giuliani. Dr. 
Shepherd.

TESTIMONY OF MARVIN D. SHEPHERD, Ph.D.,\1\ DIRECTOR, CENTER FOR 
 PHARMACOECONOMIC STUDIES, COLLEGE OF PHARMACY, THE UNIVERSITY 
               OF TEXAS AT AUSTIN, AUSTIN, TEXAS

    Mr. Shepherd. How are you all doing? Mr. Chairman, Members 
of the Subcommittee, I want to thank you very much for the 
invitation to come here today.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Shepherd with an attachment 
appears in the Appendix on page 150.
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    I have been studying drug importation mainly out of Mexico 
since 1994, and recently, in the last 3 years, have been 
looking at it coming out of Canada. I have been pretty active 
in the area and nationally, trying to figure out what is a 
sound way of doing this thing on drug importation or 
reimportation, and how can we best go about figuring out how to 
do it.
    There have been several congressional bills--and by the 
way, I have a written statement, and my report is also part of 
the record, on the Canadian market, but I am going to vary from 
my written statement because I do not want to be redundant of 
what has already been said, and I have inserted some new 
things.
    We have had three bills, I believe--maybe four now--that 
have been introduced to make drug importation a safe practice 
and to make drug importation, most importantly, a safe and 
cost-effective alternative for Americans.
    In addition, the legislative efforts of the Medication 
Prescription Drug Improvement and Modernization Act of 2003 has 
charged HHS to make a thorough examination of drug importation.
    And as stated, as we stand right now in this country, I am 
absolutely opposed to any type of methodology to figure out how 
the drug importation is unless we change and get safety back 
into the issue. It is a huge risk for the American public. 
There are no doublechecks in the system. There are no 
prescription drug accuracy checks from pharmacists. There are 
no drug interaction checks from pharmacists. There are no drug-
disease checks from physicians or pharmacists. There is 
virtually no counseling on the drug therapies coming in. You 
have lost total access to health care professionals.
    To Senator Collins, who mentioned the two classes of people 
who are using the Internet, I will say there are three classes 
of people. You have the drug abusers; you have the people 
shopping for price; and you have the people who have the money, 
but they do not want to see a physician, and they want simple 
access. They want access because I can get anything I want 
without a prescription, and they can go out and buy whatever 
they want. I have seen that in Mexico--because in Mexico, they 
do not require prescriptions unless it is a controlled 
substance--so you see thousands of people cross that border 
every day, bringing controlled substances back, but they also 
bring back all kinds of other medications. It is straight 
access. Plus it is price there. It is cheaper in Mexico than it 
is in Canada, a lot cheaper. But it is both issues. So you have 
three types of people going down there to get pharmaceuticals.
    The potential problems are very serious for those who 
obtain prescription drugs via the Internet--very serious, as 
already pointed out--and I am not so sure on the Canadian 
market, as some people have already purported in this room. 
Right now, we have one Canadian Internet site forwarding 
prescriptions to England. They are being filled there, and 
Americans are getting their prescriptions out of England and 
not out of Canada.
    I am also aware that a Scrip article reported that one 
Canadian Internet pharmacy provider is shipping pharmaceuticals 
which are made in Mexico to U.S. residents. The article goes on 
to say that the products of Mexico coming in through Canada as 
a drug diverter have not been approved by Health Canada and 
have not been approved by FDA.
    Furthermore, my research--and in this report, I point out 
to you that in 2003, Canada imported pharmaceuticals from over 
80 different countries. Now, Canada has good manufacturing 
agreements with 18 different countries, mainly Western Europe, 
and you would expect Canada to import from Ireland, Scotland, 
France and Germany. You would expect that because they have 
mutual recognition agreements. But I did not expect to find 
Canada importing drugs from Ecuador, Chile, Brazil, and all the 
other countries that make up the 80.
    From 2002 to 2003, Canadian imports from India increased by 
109 percent, or have doubled; Singapore, they are up 72 
percent; Mexico, they are up 50 percent; and Italy, they are up 
283 percent.
    Even U.S. pharmaceutical exports to Canada have increased. 
From 1999 to 2003, our exports to Canada have gone up $1 
billion. I think that is a significant amount of drugs going 
into Canada. But what is interesting is that our portion of the 
total imports that Canada gets is shrinking. In the year 2000, 
U.S. drugs comprised 55 percent of all Canadian imports for 
drugs. In the year 2003, it is down to 43 percent of all 
imports to Canada. So the Canadian market is decreasing for 
U.S. drugs in the source chain, and other countries are taking 
hold of that source of pharmaceuticals.
    I understand the plight of individuals having a 91-year-old 
mother-in-law or an 80-year-old father or mother struggling 
with prescription drug prices. I understand that completely.
    However, I am not too sure that the anticipated savings 
from importation will justify all the procedures that goes 
along with importation to make it safe. I am not convinced of 
that. And some one has to do some studies--either GAO or the 
FDA has got to look at this very seriously and ask what would 
it take to import drugs and how cost-effective that would be.
    There are 250,000 drugs manufacturers worldwide. You have 
1,400 just in Bombay. You have 6,500 in China. To bring all 
those products in and inspect from what country they are coming 
from and make sure they are safe is a tremendous task. You have 
got to do some modeling, hire some people to do some kind of 
statistical modeling, to figure out what would be the cost 
impact. If we are only talking about a 30 percent savings, I 
have a feeling that the intermediaries in the process will take 
it all away, and the consumer will have nothing in the end. 
That is not what we want. We want to get prescription prices 
lower. We do not want the wholesalers and the intermediaries to 
take off the cotton, and we are left with the stem at the end. 
That is not fair to the American public. But before we embark 
on that, we need to seriously look at that and go after it in 
some kind of modeling.
    One potential negative consequence of the program that 
permits pharmacies and wholesalers to import pharmaceuticals is 
that it may develop a two-tier pricing system in the United 
States. I am speaking now as a pharmacist--a two-tier system 
where you have some pharmaceuticals imported in a store, and 
you have some pharmaceuticals that are U.S.-made. That has me 
scared, because a lot of third-party pay plans, including 
Medicaid reimbursements programs or whatever it is, will 
gradually shift to the imported product because it is going to 
be less. I do not know how a pharmacist is going to deal with 
these two-tier programs if you have a differential in the price 
of U.S.-made products and imported products in a store. I do 
not think that has been mentioned. I raised it with the HHS 
Task Force on Drug Importation that it needs to be looked at 
seriously.
    The last point I want to raise is that it will definitely 
hurt the generic drug industry. I cannot see the generic drug 
industry developing new drugs when the imported drug is 
probably 20 or 30 percent below the brand name drug. I am not 
so sure they will invest the money for that generic drug 
industry product when it comes down to that end. I do not know 
the answer to that, but it just raises that question--how can 
you foster the generic drug industry and at the same time bring 
imported drugs that are cheaper than the generics?
    I want to close in the last 38 seconds and say I really 
believe that more data are needed. The likely impact of 
importation and the cost of drugs needs to be looked at in a 
really sophisticated manner. I am opposed to proposals that 
would allow importation of prescription drugs that leave the 
safety issue out.
    I really urge you and others to let the professionals at 
the FDA do what you charged them to do in the Medicare bill--
let them look at the issue thoroughly, run the numbers, answer 
some questions, and come up with a proposal for everybody to 
look at.
    I thank you very much.
    Senator Coleman. Thank you, Dr. Shepherd.
    Dr. Shepherd, let me start with you. You mentioned Health 
Canada. Does Health Canada have any regulatory authority or 
power over Internet drug sites?
    Mr. Shepherd. Each province has regulatory authority over 
each Internet site, and you will see differences from Ontario 
all the way to Manitoba. Ontario is pretty strict with them and 
basically does not allow them, versus Manitoba, where it is a 
free-for-all with 60 to 80 Internet sites out there.
    What is really important is that the Canadian rules and 
regulations do not require approval by Health Canada for drugs 
exported out of Canada. That is the clincher. If we can get 
Canada to say we will approve those drugs that are exported, 
that would be all right.
    Coming from the Detroit area originally, I had no problem 
going across to Windsor to buy a drug at a store, but I do have 
some serious concerns with going to the Internet in Canada to 
buy a drug.
    Senator Coleman. And just on that last point, these 
Canadian providers are not your neighborhood Canadian pharmacy. 
In fact, would it be fair to say that for many of them, their 
sole business is exporting to the United States rather than 
meeting any Canadian needs?
    Mr. Shepherd. Yes. There are a half a dozen where that is 
their main business.
    Senator Coleman. And you did not testify, but it is in your 
written report, that clearly, the Canadian market does not have 
the capacity in itself to supply American drug needs, so is the 
conclusion from that that they will have to turn to other 
countries and in effect be a flow-through to satisfy U.S. 
market needs?
    Mr. Shepherd. Yes. Can I explain that in just 2 minutes?
    Senator Coleman. How about 30 seconds?
    Mr. Shepherd. Thirty seconds, OK.
    The Canadian market right now as it stands would only take 
care of U.S. needs for 38 days. That means that if the United 
States wanted to buy all its drugs out of Canada, it would last 
38 days, and that would be the total annual consumption by 
Canadians. They only have 300 million prescriptions. We 
dispense 3 billion. They could not handle it.
    So now, with a shortage of supply of drugs coming into 
Canada--and you get conflicting reports on that--they are going 
to other countries and other sources to buy their product, and 
the numbers seem to point that out. They have gone to other 
sources for their product.
    Senator Coleman. Mr. Giuliani, I want to get right to the 
issue of terrorism, and you touched upon it. Just an 
observation--we see one cow infected with BSE, mad cow disease, 
from Canada, and we literally shut off the importation of any 
Canadian beef. We have in this hearing seen drugs coming in 
from other countries, foreign countries, but nothing to prevent 
a pass-through, yet we are talking about expanding the 
importation of drugs, and some of us have been very emphatic 
about the safety issues.
    I will say it publicly--is there anything to stop a 
terrorist from setting up an Internet site, giving it a red, 
white, and blue label, providing prices that are so low that 
consumers concerned about price would think they were getting 
the best buy ever, and somehow adulterating those medicines 
with some substance that could have a disastrous impact on the 
lives of citizens in this country--is there anything today to 
prevent that?
    Mr. Giuliani. Well, I hate to answer that question, 
because----
    Senator Coleman. I hate to ask that question.
    Mr. Giuliani [continuing]. You do not want to suggest 
anything to anyone--but the reality is that I do not think we 
are suggesting anything that they could not figure out 
themselves.
    It is pretty much right now a wide-open system with, as I 
said, 10 million packages a year coming in. The ability to 
inspect--I am not even sure what the overall percentage is; the 
percentage at Kennedy is about 1 percent, and I suspect the 
percentage nationwide is even less than that. So for 99 percent 
or more of what is coming in, you can rely on the fact that it 
is not going to be inspected.
    There is no really good field test. My experience in my 
early life before I was mayor was as a U.S. Attorney, an 
assistant U.S. Attorney and Justice Department official, where 
we often dealt with the problem of heroin, cocaine, and the 
traditional narcotics. And at least for those, there is a field 
test so that if you suspect that there is heroin or cocaine, 
you can open the package, and you have a fairly reliable field 
test that will tell you whether it is or it is not.
    For most of these, as GAO demonstrated, there is no really 
good field test. It requires extensive and very expensive 
analysis by the pharmaceutical company to determine whether or 
not this is in fact the medication that is ordered, whether it 
is safe, whether it is the right dosage. So this is a system 
that is open for exploitation.
    Global Options, Incorporated did a study that is now at 
least a year old--it may be 2 years old--in which they looked 
specifically at the potential threats to America in its medical 
supply and concluded that the threats were very significant and 
demonstrated what they think they are. I really recommend that. 
They actually looked at three possibilities--the ability of 
terrorists, of organized criminals, and of drug traffickers to 
take advantage of this system.
    And then there is one general concept that is enormously 
important. If the borders of this country are porous in any 
way, that is the area in which people can take advantage. If 
you are going to secure our borders, you have to secure them. 
We have to be more secure in determining the people who are 
coming into this country, but if we are more secure in 
determining the people who are coming into this country but not 
the things that are coming in, we have not accomplished 
anything, because then, people do not have to come in--all they 
have to do is send things in. And in an era in which we are 
trying to figure out a better way to regulate our borders, it 
would be counterproductive--we would be moving in the opposite 
direction--if we were to say, well, let us open our borders 
even more to foreign importation of medicines, which is a way, 
frankly, as you are asking me, Senator, of attacking us.
    Senator Coleman. Thank you. I am going to turn to Senator 
Lautenberg, since he has been here since the beginning. Senator 
Lautenberg.
    Senator Lautenberg. Thanks very much, Mr. Chairman.
    Mayor, welcome. We have had a lot of contact over the 
years, and I am glad to see you at work on this project. Your 
concern about the lives and well-being of our citizens is well-
known, and that is also something that is considered here as 
you pursue this research.
    I have enormous respect for the pharmaceutical industry. As 
a matter of fact, at my stage in life, rather than turn to the 
sports pages, I turn to the Federal pages and see what is 
coming along and urge them to hurry up. So we want this 
research to go on, and we want to make sure that the products 
that our people buy are safe.
    But the cost factor is an enormous difficulty for lots and 
lots of people. There are people, as I said earlier, who would 
do without food at times so they can continue to have the drugs 
they need, whether it is to get rid of the tremors or preserve 
memory or have their hearts continue to function as they 
should--all of these things. It is a desperate search for 
relief. And, unless we understand that, we are kind of fooling 
ourselves. That is an overriding consideration.
    So, why do you think, Mayor, given all the risks that you 
have highlighted, people continue to buy their drugs over the 
Internet or from unreliable sources as they seem to be?
    Mr. Giuliani. I think, Senator, you have hit on one of the 
reasons. Obviously, it is the pressure of lack of access and 
high cost. There is no question that your efforts, those of 
Senator Coleman, all of you on this Subcommittee and in the 
Congress, to try to find ways to reduce the cost will also ease 
some of this pressure. That is a very important component of 
this.
    But you said something in your opening statement that 
occurred to me. You said that we do a lot in this country to 
create access to food for people who are hungry and starving; 
there are all kinds of programs that we have to feed people--I 
am very aware of them in New York City, but they are all over 
the country. But when we do that, we do not look for programs 
that are going to make the supply of food more dangerous. We do 
not look for programs that will pollute the food supply in this 
country. And the pressure of accomplishing this cannot lead to 
creating even more danger for the American people. That is why 
taking a realistic look at the way this system operates now and 
what can be done--some of the approaches--and I think it is for 
absolutely the right motivation, which is how do we lower the 
cost of medicines--some of the approaches are very unrealistic 
about the dangers, because there is such a desire to produce 
the result of low cost.
    Dr. Shepherd raised the issue whether we will actually even 
produce that result, but that is the motivation. And you just 
cannot wave a wand and create the safety. It is going to need 
significantly more resources. It is going to need a period of 
time in which we can take the system that we presently have and 
make it work better before you can figure out how to expand it.
    And from Canada, the experience we had, which I neglected 
to mention earlier in my statement--which I would have liked to 
ask GAO, but I imagine you can ask them this--we found that the 
Internet pharmacies in Canada required a waiver signed by an 
American. I find that extraordinary.
    Senator Lautenberg. I would like to ask Dr. Shepherd, how 
is your research being funded?
    Mr. Shepherd. By me.
    Senator Lautenberg. By you, personally?
    Mr. Shepherd. Personally, yes with the help of the 
University of Texas. My group of graduate studies--I have 38 
graduate students, and I chose four of them, and we did this 
study in 3 months.
    Senator Lautenberg. You indicated that you were concerned 
about the supply of drugs that would be left in Canada if we 
just opened up this importation process of ours. We could ship 
more, we could export more. You talked about the exports 
growing, and then you talked about the percentage of 
reimportation shrinking. I do not know what that signifies 
except that maybe there is arithmetic ratio here that we are 
not looking at. If the export supply is growing, then perhaps 
it is faster than the reimportation factor.
    So I do not think that is really the key issue here. I 
would ask you this. If we could bolster--you are concerned 
about safety, and you have a professional background that 
indicates that you have been in the field--if we could deal 
with the safety factor, would you say open the doors to 
reimportation?
    Mr. Shepherd. Yes. I would say you could probably do it if 
you could assure the quality of the product and assure that 
people understand how to take the product.
    There are two safety issues. You have the commodity, the 
product, and then you have the safety issue--do people 
understand how to use the product properly. You have to 
incorporate both of them together.
    Senator Lautenberg. I will close, Mr. Chairman, with an 
observation and a question. That is, with the flow of illegal 
drugs into this country that kills people, that disrupts our 
society totally, and we have devoted enormous amounts of 
resources to stopping that flow, but we cannot do it. And here, 
with this, we are not spending anywhere near enough time 
looking at these products to really determine what the efficacy 
of the product is. I thank you, Mr. Chairman.
    Senator Coleman. Thank you, Senator Lautenberg. Senator 
Pryor.
    Senator Pryor. Thank you, Mr. Chairman.
    Mr. Giuliani, let me say at the outset that sometimes the 
industry may perceive that here in Congress, we are just 
beating up on the industry all the time, but certainly I 
recognize--and Senator Lautenberg just mentioned as well--the 
advances that the pharmaceutical industry has made, and some of 
the things they have done are just absolutely amazing. But I 
assume you would agree with me that some of the prices for 
pharmaceutical products in this country are too high?
    Mr. Giuliani. There is no question about that, and that is 
one of the driving forces in what is going on here.
    Senator Pryor. Yes. And I am glad to know that--I am sorry, 
I did not quite catch who funded your research----
    Mr. Giuliani. PhRMA.
    Senator Pryor. I am glad to know that PhRMA is doing this, 
because it indicates to me that they are starting to get 
serious about this issue. Can you tell the Subcommittee how 
much PhRMA is investing in your study?
    Mr. Giuliani. I do not know how much they are investing in 
my study. The cost of it is insignificant in comparison to the 
amount of money they are investing in trying to figure out a 
safe way of doing this and the amount they invest in research. 
Some companies put $4 and $5 billion into that.
    Senator Pryor. One thing I would encourage you to do as a 
representative of the pharmaceutical industry is to just 
encourage the industry to get very proactive on this issue. It 
is something that is of very grave concern to me and I know to 
the Subcommittee and to the country. We need to try to get a 
handle on this.
    One thing you mentioned in your testimony is you talked 
about inspections--repeatedly, you talked about inspections. Is 
it your view that government inspections are essential to 
protect Americans, or can we follow more of a market model 
where the industry kind of regulates itself--in other words, 
can the industry inspect itself--and put market conditions in 
there that give them the incentive to do that.
    Mr. Giuliani. I think you need both, Senator. I do not 
think you could ever have a system where there would not be 
some degree of inspections. Think of it as how do you create 
safety with regard to the cargo coming into the United States, 
where we have great concerns about packages or shipments coming 
in. There has to be a combination of market conditions and some 
degree of analysis and intelligence, but then you also have to 
have a certain basic number of inspections so you have a fail-
safe point.
    And when you are dealing with dangerous medications--one 
way that we can get to a better stage is to develop better 
technology and better pedigrees so that you know where it is 
coming from, who the manufacturer is, and all of that can be 
done--the problem is that it costs enormous amounts of money, 
and we are not doing it effectively--I think we have to be 
honest about it--we are not doing it effectively right now.
    So it seems to me the best approach is how do we improve 
the current system, how do we get better control over it, and 
then, once we have done that, how do we open it up even more, 
rather than just opening it up and creating a totally 
unrealistic situation.
    Senator Pryor. We talked a few minutes ago about this 
concept of a seal of approval--Chairman Coleman was the first 
to mention it--and someone said that the National Pharmacy 
Association----
    Mr. Shepherd. The National Association of Boards of 
Pharmacy.
    Senator Pryor. [continuing] Has something in place right 
now that is voluntary. Are they the proper group to do this, or 
should we somehow broaden that and really force more 
participation somehow?
    Mr. Shepherd. It is called the VIPP Program, the Verify 
Internet Pharmacy Provider, and it is a very strict inspection 
and certification program.
    Senator Pryor. Is that why a lot of firms will not comply 
and will not go through the process?
    Mr. Shepherd. I believe that last week, only 14 pharmacies 
had VIPP certifications. I was talking to Carmen Cattezone--
they have offered the VIPP certification to Canadian Internet 
pharmacy providers, but none of them has taken them up on the 
offer.
    Senator Pryor. Do you know how long that offer has been 
outstanding?
    Mr. Shepherd. It has been out there for at least 3 months.
    Senator Pryor. Let me ask you, Dr. Shepherd, while we are 
talking about it--a few moments ago, in your testimony, I got 
the impression that if it were up to you today, just under the 
current conditions which exist today, you would ban all on-line 
pharmacies.
    Mr. Shepherd. Right. As of today, I would. Without any 
regulation and what is going on right now, I would stop it from 
coming in.
    Senator Pryor. Because the safety protection is not there?
    Mr. Shepherd. Safety.
    Senator Pryor. You also talked about importation. But here 
in the Congress oftentimes we talk about reimportation, and we 
use the word ``reimportation,'' the way we usually mean it is 
drugs that are made in this country or made in FDA-approved 
facilities that may go to Canada or another country and be 
reimported back in.
    Is that one of the safeguards that you would like to see if 
you were able to set up your own system here that we should 
only be able to reimport, or import, however you want to look 
at it, drugs that are made in FDA-approved facilities?
    Mr. Shepherd. That is one approach that you could use. I 
have problems with the reimportation unless I have the pedigree 
paperwork that the mayor talked about, figuring out where that 
drug has been, how many times it has been sold, and how it has 
been stored, because it may have passed through six different 
countries before it comes back in.
    Senator Pryor. In other words, in the prosecutor's terms, 
you need a chain of custody.
    Mr. Shepherd. You need a chain of custody.
    Senator Pryor. You need to know where it comes from. One 
last clarification--you mentioned that you pay for your 
research out of your pocket?
    Mr. Shepherd. My group does, yes.
    Senator Pryor. What do you mean, your ``group''? Tell us 
about that.
    Mr. Shepherd. My group--the Center for Pharmacoeconomic 
Studies is comprised of 12 faculty members and 32 some-odd 
graduate students.
    Senator Pryor. So this is part of the University of Texas.
    Mr. Shepherd. Part of the University of Texas, right.
    Senator Pryor. Do you know where that funding comes from?
    Mr. Shepherd. The Center's funding comes from the 
University of Texas primarily, and then it also comes from 
grants or contracts that we get from pharmaceutical firms, 
foundations, grants, and contracts from State Government. The 
State of Texas provides us a lot of money, the Health 
Department.
    Senator Pryor. Thank you.
    Senator Coleman. Thank you, Senator Pryor. Senator Carper.
    Senator Carper. Gentlemen, welcome. Mayor, it is good to 
see you. Dr. Shepherd, thank you for your testimony.
    You know how this place works--we have multiple hearings 
going on at the same time, and I have been off at another one 
of those, and I apologize for missing your testimony.
    Let me ask both of you, if you were in our shoes, how would 
you approach this issue?
    Mr. Giuliani. I would approach it from the point of view of 
first addressing the current needs that the FDA and some of the 
other agencies have for more resources, more of an ability to 
inspect, create better pedigrees, work on developing 
technology. I would look at the current situation that exists 
and say it is a dangerous situation. Ninety nine percent of the 
medicines that are coming into this country, no one is 
inspecting, and no one has any idea what is in them. Any time 
anyone has had a chance to look--FDA, Customs, anyone else--at 
least FDA, when they do these ``blitz'' analyses, and our own 
analyses--shows that somewhere between 70 and 90 percent of 
those medicines are unapproved, some for serious reasons, like 
they are expired or they are the wrong medications, some for 
technical reasons, but for whatever reason, they are 
unapproved.
    So I would say let us see if you can create legislation, 
give FDA and the other agencies the help that they need to make 
that a better system, a safer system, and then take a look at 
it over a year or two or three and see if it has actually 
accomplished that--have some of those percentages gone down; is 
it safer.
    I think it is unrealistic to think you will ever have a 
perfectly safe system, but it has to be a lot better than this. 
And once that is accomplished, then take a look at are there 
ways that you can expand importation--but now that you have a 
better system in place. That is the way in which I would do it.
    Senator Carper. Dr. Shepherd.
    Mr. Shepherd. You could work with qualified pharmacies, 
Internet providers; inspect them, come up with a list of 
products, drugs, that could be reimported or imported, and work 
with a small pilot project to see how it flies, and make sure 
that provider provides it.
    You could do it a couple of ways. You could do it not only 
for personal importation, but you could also do it with a U.S. 
wholesaler. That U.S. wholesaler works with another wholesaler 
in another country, gets the U.S.-approved products, comes in 
and distributes to pharmacies. But they would have to be FDA-
approved in quality products.
    That is one approach. And I think a pilot project on that 
would probably be worth looking at to be sure the standards are 
upheld.
    Senator Carper. Thank you.
    Do you have any idea how the purchase of drugs from Canada 
via the Internet compares with, say, Internet purchasing from 
countries in the EU?
    Mr. Shepherd. No.
    Mr. Giuliani. We could find out for you, Senator. We could 
take a look and find out.
    The question that I raised before, which I really would 
suggesting finding out from GAO--because I am sure this is part 
of their material, but I have not had a chance to look at the 
report clearly enough--is the pharmacies in Canada that we have 
had a chance to look at so far all require waivers. So if you 
want to buy medicines from them, you have to sign a waiver that 
if they send you the wrong medication, you have no resources. 
To me, that is extraordinary.
    If I went into my pharmacy to buy the medicine that my 
doctor prescribed for me, and my pharmacist handed me a 
document that I had to sign in which I waived any recourse if 
he gave me dangerous medicine, or he gave my children dangerous 
medicine, I would not deal with that pharmacist.
    So I wonder if the pharmacies that they looked at in Canada 
have those disclaimers or waivers. And part of this process 
would have to be that you really should only deal with 
pharmacies that do not require that, pharmacies that are 
willing to stand behind the product that they are selling you--
if you are ordering Lipitor that it is actually Lipitor, 
whatever it is. This idea of having recourse is part of the way 
in which we assure that pharmacists are acting legitimately.
    Senator Carper. Why do you suppose people are willing to 
take that extraordinary step of signing that kind of waiver?
    Mr. Giuliani. For all the reasons that Dr. Shepherd 
mentioned, some of them just purely because they are desperate, 
because medicines are too expensive, and they are seeking--even 
though it may not be less expensive--they are hoping that they 
will find a source that is less expensive; some of them because 
they are drug abusers; some of them because they may actually 
be drug dealers, and this is an easy method of getting 
significant quantities of medicines that they can then resell 
on the black market. I think that would be particularly true 
with some of the medicines that are painkillers.
    Senator Carper. Thanks to both of you.
    Senator Coleman. There is so much more that we could 
explore here, but we do have a very important third panel that 
we do want to hear from. We have not even touched the issue of 
wholesale and that system, which you touch on, Mayor, in your 
report and some of the challenges that we face there and the 
opportunities for fraud that has been unearthed in some of the 
reports that have been done.
    So I think we have just touched the surface here, but as I 
said, we do have a third panel that I want to get to, so I want 
to thank you, Mayor, and thank you, Dr. Shepherd, for your very 
important testimony.
    Mr. Giuliani. Thank you, Mr. Chairman and Members of the 
Subcommittee.
    Mr. Shepherd. Thank you.
    Senator Coleman. I would now like to welcome our final 
panel for today's important hearing--Elizabeth Carr, whose 
husband died from taking illegal prescription drugs he 
purchased over the Internet, and Francine Haight, whose son 
died as a result of taking illegal prescription drugs he 
purchased over the Internet.
    Ms. Carr and Ms. Haight, I want to thank you for your 
courage in coming forward to testify about what I know are very 
difficult circumstances to talk about in public. I offer my 
personal condolences for your loss.
    As I mentioned in my opening statement this morning, we are 
here to address problems that are facing American consumers, 
the individuals who have been most directly, and unfortunately, 
affected by this growing phenomenon. So again, I appreciate 
your willingness to tell your personal stories.
    Before we begin, pursuant to Rule 6, in this Subcommittee, 
we do require the witnesses to be sworn.
    I would ask you to please stand and raise your right hand. 
Do you swear that the testimony you are about to give before 
this Subcommittee is the truth, the whole truth, and nothing 
but the truth, so help you, God?
    Ms. Haight. I do.
    Ms. Carr. Yes, sir.
    Senator Coleman. Thank you.
    As you have seen, we are using a timing system, so when the 
yellow light comes on, it is time to conclude your testimony. 
If you have written statements, they will be entered into the 
record in their entirety.
    Ms. Carr, we will have you go first and then proceed to Ms. 
Haight, and after that, we will go to questions. Ms. Carr, you 
may proceed.

     TESTIMONY OF ELIZABETH CARR,\1\ SACRAMENTO, CALIFORNIA

    Ms. Carr. Thank you. Good morning, Chairman Coleman and 
Subcommittee members. Thank you for the opportunity to speak 
today.
---------------------------------------------------------------------------
    \1\ The prepared statement of Ms. Carr appears in the Appendix on 
page 172.
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    My name is Elizabeth Carr, and on April 10, 2003, I lost my 
husband to an overdose of Darvon, a controlled substance. My 
husband Jim purchased this drug and others over the Internet 
from rogue pharmacies located in India, South Africa, Thailand, 
Spain, and other foreign countries.
    Jim and I were married in 1996. He moved from Los Angeles 
to accept a job in Sacramento, California. This was a 
significant climate change for him, as he was used to the mild 
temperatures of Los Angeles. He was a former tri-athlete and a 
marathon runner, and he loved to mountain bike. Through these 
activities, he had dislocated a hip and had to have operations 
on both knees.
    By 2002, it was painful for him to even take a brisk walk, 
and he said it was always worse during the winter. In January 
2003, Jim told me he was going to purchase codeine over the 
Internet for his pain. I did not think much about it at the 
time, because when I was growing up, codeine was in cough 
syrup. He never told me how much he was taking, and because he 
was working from home, I never saw the packages arriving. 
However, by the end of March, I grew concerned about a change 
in his demeanor, and I confronted him about it and asked him to 
stop, which he agreed to do.
    On the day before he died, he was behaving very disoriented 
when I got home from work. When I quizzed him about it, he 
explained that he had turned to Darvon to wean himself off the 
codeine. This was the first time that I knew he had taken the 
Darvon. He went to sleep that night, and he never woke up.
    The autopsy showed that Jim had eight times the recommended 
dosage of Darvon in his system. After he died, I received five 
packages in the mail that Jim had purchased in the weeks before 
he died. By looking at his credit card statements and the dates 
posted on the packages and when the packages arrived, I could 
tell that the time from order to receipt from these pharmacies 
took several weeks. In fact, all packages were from overseas, 
and none had a pharmacy label. Some had instructions, but most 
of the instructions were not in English. One of the packages 
even had a little green tag attached on the outside that looked 
to me like it said ``Sweets.''
    As I continued to go through his things, I found all kinds 
of empty pill containers. I also looked at his computer 
activities and discovered that he had done research into the 
different drugs and how to get them. Some Websites required him 
to fill out a short questionnaire before he could get the 
medication, while others did not require anything. All the 
overseas pharmacies required payment in credit card form and 
were shipped via U.S. mail.
    After his death, I worked with the California Medical Board 
to try to hold someone accountable for the delivery of these 
substances to my husband. However, there was nothing that the 
California Medical Board could do because the only documents I 
could provide them did not implicate doctors that were licensed 
in California. They told me something needed to be done at the 
Federal level.
    So that is why I am here today, Senator Coleman. I am here 
to tell you what is happening to real people--not just numbers 
or statistics on a piece of paper. This problem affects 
everyone in one way or another in our society, and something 
needs to be done to stop these companies from making money off 
of people's trust, their need, or their lack of awareness. 
Thank you.
    Senator Coleman. Thank you, Ms. Carr. Ms. Haight.

  TESTIMONY OF FRANCINE HAHN HAIGHT,\1\ SACRAMENTO, CALIFORNIA

    Ms. Haight. Good morning. My name is Francine Hahn Haight. 
My daughter Natalie and my son Jeremy are present and sitting 
behind me. I am very grateful for this opportunity to speak 
before this Subcommittee and share what has happened to our 
family.
---------------------------------------------------------------------------
    \1\ The prepared statement of Ms. Haight appears in the Appendix on 
page 174.
---------------------------------------------------------------------------
    I am the mother of three beautiful children. I am extremely 
sorry to say that one of them died. I am here to tell you about 
my son, Ryan Thomas Haight.
    Ryan was born on December 28, 1982 and died on February 12, 
2001. Ryan died of an overdose of narcotics he had easily 
purchased on the Internet. A medical doctor, Dr. Robert Ogle, 
that he never saw, prescribed them to him over the Internet. An 
Internet pharmacy, Clayton Fuchs of Mainstreet Pharmacy, mailed 
them to our home. He was only 17 when he purchased the 
narcotics, and he was only 18 when he died.
    Ryan was an incredible boy. From the time he was little, I 
always believed that he would make a difference in our world. 
He was very intelligent and excelled in school. He loved math 
and science. He was always at the top of his class, was a Gate 
student in the elementary years, and then went on to take 
honors classes. He was an A student, maintaining a 4.0 or above 
during his years in high school. He was looking forward to 
going to college. He loved his family, and we did many things 
together.
    Ryan loved to travel. He loved to hike. He loved the 
National Parks. He always looked forward to the holidays and 
gatherings of the family.
    He was athletic. In elementary school, he played little 
league baseball, starting with T-ball, and ended up being a top 
player in the majors and making the all-star team. He also 
played open junior tennis tournaments, and went on to play 
varsity tennis for 3 years in high school. Had he not died in 
his senior year, he would have been a 4-year varsity letterman 
in tennis.
    He loved to snow ski, snowboard, water ski, kneeboard, and 
attempted all sports with great enthusiasm. He loved to play 
billiards, go bowling, and play ping pong. He was competitive 
and competed on a swim team when he was young and loved to play 
Nintendo and other video games.
    Ryan loved to use the computer. He used the computer to 
play games against his friends, to compete in fantasy baseball, 
where you pick your teams, and he loved to chat with his 
friends online. He loved to trade baseball cards on E-Bay.
    Ryan was taking a computer graphics class in high school. 
He was considering a possible career designing software or 
doing something with computers. But all of his hopes and dreams 
died when he discovered that he could buy drugs on the 
Internet.
    He was curious about the party scene, went to Rave parties 
with friends, and started to experiment with drugs. He was 
encouraged to experiment with drugs from an Internet chat room. 
Someone in this chat room told him where you could buy drugs 
and how to buy them on the Internet. He found that you could 
buy powerful narcotics on the Internet very easily, right out 
of his own house. It was like buying candy in a grocery store.
    On February 11, 2001, Ryan had worked a full day at a 
retail store. He came home at around 8 p.m. and said he was 
hungry. I made him his favorite chicken soup in the crockpot. 
He told me his back was hurting because he had been moving 
plants at the nursery.
    It was cold and raining outside. He asked if he could use 
my spa. He used my bath at around 10 p.m. for about 30 minutes, 
got out, and we chatted. We talked for a few minutes, and then 
he said he wanted to relax in his sister's room and play video 
games. His sister Natalie was away at college. He missed her, 
and he felt comfortable using her room for the television and 
video games.
    About an hour later, just after midnight, I went to say 
goodnight to him in his room. He was just getting into bed and 
said he was going to listen to some music. Ryan loved all kinds 
of music--rap, techno. We share a common interest in our love 
for classic rock. I loved it that he loved listening to the 
Eagles and the Beatles with me. I told him I loved him, as I do 
every night, hugged him, and he said, ``I love you, too, Mom.''
    The next morning was a holiday, President's Day, so it was 
not unusual for Ryan to sleep in. I had 12 women showing up for 
dinner that night, so I had to go out and shop. My housekeeper 
was there, and I told her to call me if there was anything she 
needed, and that Ryan would be sleeping in.
    I got home about 3 o'clock that day and noticed Ryan's car 
still in the driveway. It had not moved, and I immediately felt 
something was wrong. I ran into his room and found that Ryan 
was not breathing.
    I could not believe what I saw. I knew he was dead. I 
called 911 and tried to do CPR. I screamed and I cried, and I 
screamed and I cried, and I prayed for him to come back to 
life. I remember a paramedic pulling me off of him and looking 
into my eyes and saying, ``Oh, my God, I am so sorry. There is 
nothing we can do.''
    I thought how, how, how, could this happen? What happened?
    The next thing I know, a sheriff is showing me a bottle, a 
bottle of hydrocodone, Vicodin. On the bottle, it says 
``Mainstreet Pharmacy.'' He also shows me a bottle of morphine. 
I thought, no way. These are controlled prescription drugs. He 
said he found the drugs after searching his room. These are 
drugs under lock and key in hospitals. How did he get them--
how?
    We parents often worry about our children. When they are 
little, we worry they will fall and get hurt. But as they 
become teenagers, we worry even more. We worry that they will 
drink alcohol and drive and get into a car accident. We worry 
that they will smoke cigarettes and marijuana. We worry that 
they will try illegal street drugs such as cocaine, LSD, 
heroin, and others. We worry about porn and strangers that 
might hurt them on the Internet. But never did I worry about 
buying prescription drugs on the Internet.
    After Ryan died, a friend of Ryan's called and told us that 
he got drugs off the Internet. Never did I think you could 
easily get prescription drugs on the Internet. I was in shock. 
Being an RN, I always thought that controlled substances were 
under lock and key.
    Ryan was encouraged to obtain these powerful narcotics that 
required nothing but filling out a simple questionnaire on the 
Internet.
    That week, Ryan's dad gave Ryan's computer to the DEA, and 
the investigation started. I have assisted in helping with the 
prosecution of these Internet drug dealers. They are just as 
bad if not worse than the drug dealers on the street.
    Since then, from the evidence they got from the Internet, 
Clayton Fuchs and Dr. Robert Ogle were found guilty and pleaded 
guilty of selling drugs illegally on the Internet. They said 
they did it just for the money.
    An autopsy report showed that Ryan died from a drug 
overdose of hydrocodone, Vicodin, which was prescribed by Dr. 
Ogle and sent to him from Mainstreet Pharmacy. Why did they 
sell these drugs to my son? They both said they did it for the 
money.
    Dr. Ogle had been to prison twice. Once, he served 3 years 
in a Federal penitentiary for illegally prescribing Quaaludes, 
a hypnotic sedative. Another time, for theft. But he still got 
his medical license back. He should have never gotten his 
medical license back.
    I think Ryan, as most kids would, thought that since a 
doctor was prescribing the drug, it is a legal drug obtained 
with a prescription, then it must be safe. The drug was 
delivered to our home with no instructions, no safety 
precautions, no adverse reactions attached. Ryan received these 
drugs without ever seeing the doctor, and never had any follow-
up.
    The pharmacy delivered these controlled substances with no 
instructions and no questions asked. These money-hungry drug 
pushers of doctors and pharmacies have got to be stopped. They 
are making millions of dollars and are only concerned about the 
money. They do not care about the person ordering them.
    There are over 500 rogue pharmacies on the Internet as I 
speak. Tighter regulations on our Internet need to be enforced 
with high penalties. I continue to receive emails from these 
pharmacies on a daily basis.
    What our public do not know is that just because it says 
``United States pharmacy'' does not mean it is coming from the 
United States. In fact, when you click on the site, it goes to 
other countries. They can buy from Canadian pharmacies and save 
money. But what they do not know is the risks that they are 
taking. Drugs are being distributed daily, like candy, and it 
is very dangerous.
    RyansCause is an organization I have started--Reaching 
Youths Abusing Narcotics. Saying no to drugs is not enough. We 
are losing this war against drugs. President Bush in his State 
of the Union Address a few months back mentioned that drug use 
in our youth is down. He might be right about street drugs, but 
he did not mention the increased usage of prescription drugs. 
Prescription drug usage is up.
    My hope is that with tighter restrictions on the Internet 
and more public awareness, we can save lives. I want to get 
RyansCause brochures into every high school classroom. I want 
to talk and educate our youth and parents. This tragic death 
could have happened to anyone. Ryan was the boy nextdoor. We 
need to fight this war against drugs and save others.
    With tighter regulations on the sale of prescription drugs 
on the Internet, it will make our increasingly technological 
world more safe.
    I want to thank Senator Feinstein and Senator Coleman for 
introducing legislation to improve the safety of buying 
prescription drugs on the Internet. Internet pharmacies should 
be required to identify their business.
    Our grief continues and extends beyond the immediate 
family. Ryan's grandparents, aunts and uncles, cousins and 
friends feel Ryan's death very deeply. Ryan will never see 
Jeremy play his clarinet, or take him out for ice cream. Ryan 
will never be able to sit for long hours and talk to his sister 
about what happened during his day. I will not see him graduate 
from college, attend his wedding, or be a grandmother to his 
children.
    But we continue to water our white roses and drink our 
sprite with no ice in his memory. Ryan will be forever missed 
and will remain in our hearts forever.
    Thank you for honoring my son Ryan by naming the important 
legislation you introduced after him.
    Thank you for allowing me to tell my story in front of the 
Subcommittee.
    Senator Coleman. Thank you, Ms. Haight and Ms. Carr. Again, 
my deepest personal condolences for your loss.
    As the dad of an 18-year-old who loves the computer, your 
pain is more than an abstract story; it is very personal for a 
lot of people. So I do want to thank you for coming forward.
    And Ms. Haight, I think in a very tragic way, but Ryan will 
make a difference in our world, and certainly I am committed to 
that, Senator Feinstein is, and many of my colleagues. So I 
hope that provides a little glow of warmth in what is a 
difficult situation.
    Ms. Carr, I think you have with you some of the drugs that 
were received after your husband's death. Let me back up--did 
he have prescriptions for Darvon to be taken through a local 
pharmacy? Do you know what kind of prescriptions he had for 
painkillers?
    Ms. Carr. At the time, I do not think he had any. He had 
not, as far as I know, been to a doctor for that. As a tri-
athlete and a mountain biker, he had had painkillers all his 
life, because he was always hurting himself--but not at the 
time that I know of.
    Senator Coleman. Can you show us what you received?
    Ms. Carr. OK. This is one of the packages that came after 
he died. I could tell immediately it was not a normal U.S. 
package. It has a little label on it from New Delhi, and it has 
all the weird stamps with the different kind of writing on it.
    Do you want me to open this?
    Senator Coleman. You can take it out.
    Ms. Carr. And it was kind of strange when I first opened 
it. It comes in this wrapping, with scarves or something 
underneath it, and then you pull it out--professionally 
wrapped, you see--and it has a newspaper that is probably an 
Indian newspaper, and then more of that professional look, the 
cardboard, and then there is the pills.
    Senator Coleman. No description of dosage or what it is?
    Ms. Carr. No. This one did not even have--well, it has some 
label or something on there. But as far as----
    Senator Coleman. But no instruction booklets or anything 
like that.
    Ms. Carr. No instructions.
    Senator Coleman. Did you have a chance to look at the 
Websites? I think you indicate that you saw some of them.
    Ms. Carr. I did, because he not only used it on his 
computer, but he used it on mine, so I was able to go to a 
couple of the Websites--although by the time I got around to 
doing it, some of the Websites, you could not get to anymore, 
and you got the screen that says they are no longer available. 
But yes, I did look at some of them to see what was required to 
get something through them.
    Senator Coleman. And there was another package you 
received, you said, or a series of some others?
    Ms. Carr. Yes. This one was from Bangkok, just a small, 
little package. I did not even think it was prescription drugs, 
but it was one of the five packages that came. I opened it up, 
and it was really scary, because it looks like that was done in 
a garage somewhere--no labeling on it at all, nothing. I do not 
know why anyone would even put this stuff into their body. And 
it has some word on it, and I could not even quite read it, 
except it looks like it has a ``D'' and maybe a ``V'', and I am 
thinking maybe that was the Darvon; I do not know. But it was 
very scary.
    Senator Coleman. Do you know if, on the Websites that you 
had a chance to look at, there was a discussion about 
prescription or anything of that nature?
    Ms. Carr. No. The ones that I looked at did not mention 
anything about a prescription, and I am sure that--I mean, he 
had done a lot of research, and he was probably looking for 
places where he did not have to fill out a prescription.
    Senator Coleman. And law enforcement's response in terms of 
your desire to deal with this, to shut it down, to impact it in 
some way--what kind of response did you get from law 
enforcement?
    Ms. Carr. The only law enforcement I dealt with--I talked 
to the California Medical Board, and they had an investigator 
who was really good with the computer stuff. I gave him my 
husband's laptop, and he looked into it as much as he could. I 
gave him what documents I could. He wanted to find something, 
but he could only deal with doctors who were licensed in 
California. That was the extent of what he could do.
    Senator Coleman. They had no other jurisdiction or control 
over anything.
    Ms. Carr. No other jurisdiction. That is why he told me--he 
said something has to be done at the Federal level.
    Senator Coleman. Thank you.
    Ms. Haight, how was Ryan able to pay for the Vicodin and 
the morphine from this Internet pharmacy? Did you ever trace 
that back?
    Ms. Haight. I believe he purchased it with a money order.
    Senator Coleman. Money orders. Do you know if any credit 
cards were used at all?
    Ms. Haight. I was told that there is a possibility that he 
bought it with a credit card, but I have not seen that. I 
believe it was a money order.
    Senator Coleman. Did you ever talk to Dr. Ogle?
    Ms. Haight. No.
    Senator Coleman. Do you know whether he was subject to any 
criminal proceedings or any actions after your son's death?
    Ms. Haight. Yes. He is actually in prison right now as we 
speak, awaiting sentencing.
    Senator Coleman. What about the folks who own Mainstreet 
Pharmacy--did you ever identify them?
    Ms. Haight. The pharmacy has been shut down, and Clayton 
Fuchs is also in prison at this time.
    Senator Coleman. And Clayton Fuchs is the principal in 
Mainstreet Pharmacy.
    Ms. Haight. Mainstreet Pharmacy, yes.
    Senator Coleman. Do you know anything about his background?
    Ms. Haight. I do not know anything about his background.
    Senator Coleman. You are reaching out with RyansCause. You 
are trying to reach youth that way. What do you recommend we 
do? If you had a list of one, two, or three things that we 
could do, both in dealing with the plague of predators that 
allow young people and others to buy quantities of narcotics 
that have deadly impact, without any conscience, but beyond 
that, are there other things that we can do to assist in your 
cause and the cause that you have dedicated yourself to?
    Ms. Haight. I think by passing this bill, having tighter 
regulations, would definitely help, and being able to go in and 
make sure that these are legitimate pharmacies, legitimate 
doctors, that they have actually been seen by the doctor. I do 
not think any controlled substance or any mind-altering drug 
should ever be sold on the Internet--I do not care if you have 
seen your doctor or not--I think it should be done within a 
doctor's office.
    Senator Coleman. Thank you.
    Senator Pryor. Thank you, Mr. Chairman. I really just had 
one question for Ms. Haight, and that is a clarification.
    Mainstreet Pharmacy was a U.S. company. Was that in 
California--where was that?
    Ms. Haight. Texas.
    Senator Pryor. And it was just a rogue pharmacy that was 
giving out drugs to whomever could pay for them?
    Ms. Haight. They had actually made millions of dollars 
selling drugs throughout the United States and other countries.
    Senator Pryor. That is all I have, Mr. Chairman. Thank you.
    Senator Coleman. Thank you.
    Again I want to thank both of the witnesses--Ms. Carr?
    Ms. Carr. Could I just say that if you go ahead with 
setting up the safe pharmaceutical sites, I know that the way 
the Internet is, there will be other sites that are going to 
pop up out there, and people like my husband would have gone to 
those--they would have bypassed the safe ones. So on these safe 
ones, if you have some way of recognizing when the packages are 
coming in, because they are just coming in through the U.S. 
mail, so you have some special package that comes in, and all 
the other packages that come in, if you can detect drugs in 
them, they just do not get shipped, they do not get to their 
destination.
    Senator Coleman. You raise an issue that we are struggling 
with here. There will be a second hearing. I will have a 
hearing on July 22, and we will have representatives of the 
Postal Services, United Parcel Service, and FedEx there, to try 
to figure out how to deal with this.
    The problem that we face, as you heard from the other 
witnesses, is the extraordinary volume. We have heard about 
millions of packages coming through--in single mail production 
operations in New York, 40,000 a day. And I have been there, 
and what they do at the post office is actually have a list of 
identified countries that they know are most problematic, so 
they are going to prioritize what they try to pull. But I just 
have a sense that we are trying to find needles in haystacks 
here. So it is extraordinarily challenging.
    But at a minimum, we should do what we are doing in the 
Ryan Haight Act, which is requiring pharmacies that ship to be 
FDA-approved, require them to be subject to inspection, require 
that individuals have a patient-physician relationship and 
ensure that you cannot get prescriptions by filling out a form 
online. That is a joke. It is a sad joke. It is a terrible 
joke. It is a tragedy.
    So we can do some of those things, but we are struggling 
with this, Ms. Carr. This is not something for which there is 
an easy answer.
    You should know that I will be speaking with DEA 
Administrator Tandy next week, and I am going to follow up on 
what the DEA can do in dealing with your case, and Ms. Haight, 
we are certainly committed to the act named in memory of your 
son.
    So I want to thank the witnesses, I want to thank my 
colleagues.
    The record of this hearing will be kept open for 10 days.
    Again, I want to thank the witnesses, and this hearing is 
now adjourned.
    [Whereupon, at 11:38 a.m., the Subcommittee was adjourned.]


    BUYER BEWARE: THE DANGER OF PURCHASING PHARMACEUTICALS OVER THE 
             INTERNET--FEDERAL AND PRIVATE SECTOR RESPONSES

                              ----------                              


                        THURSDAY, JULY 22, 2004

                                       U.S. Senate,
                Permanent Subcommittee on Investigations,  
                  of the Committee on Governmental Affairs,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 9:05 a.m., in 
room SD-342, Dirksen Senate Office Building, Hon. Norm Coleman, 
Chairman of the Subcommittee, presiding.
    Present: Senators Coleman and Levin.
    Staff Present: Raymond V. Shepherd, III, Staff Director and 
Chief Counsel; Katherine English, Counsel; Jay Jennings, 
Investigator; Mary D. Robertson, Chief Clerk; Elise J. Bean, 
Staff Director/Chief Counsel to the Minority; and Clare Diegel, 
Intern.

              OPENING STATEMENT OF SENATOR COLEMAN

    Senator Coleman. This hearing of the Permanent Subcommittee 
on Investigations is called to order.
    Good morning and welcome to the Subcommittee's second day 
of hearings into the dangers associated with purchasing 
pharmaceuticals over the Internet.
    According to a 2003 University of Michigan study, the 
painkiller Vicodin was second only to marijuana in illicit use 
by 12th graders. Federal statistics estimated that 6.2 million 
Americans misuse prescription drugs in 2002, compared with 2 
million who use cocaine and 700,000 who use Ecstasy.
    It is all too easy. Go online with your favorite search 
engine and type in ``purchase Vicodin,'' \1\ click onto a 
Website and you can purchase your Vicodin or the generic 
equivalent, hydrocodone, with a variety of credit cards 
including MasterCard, Visa, or American Express.\1\ No 
prescription is necessary. All you need to do is have an on-
line consultation and your medication will be FedExed to you.
---------------------------------------------------------------------------
    \1\ See Exhibit No. 24 which appears in the Appendix on page 309.
    \2\ See Exhibit No. 26 which appears in the Appendix on page 311.
---------------------------------------------------------------------------
    The first Internet pharmacies began on-line services in 
early 1999, and FDA estimated that 104 businesses were selling 
prescription drugs on the Internet by July of that year. In 
1999, Americans spent an estimated $160 million on prescription 
drugs purchased over the Internet. By 2003, spending on 
Internet prescription drugs had grown to $3.2 billion.
    By November 2000, the FDA had identified between 200 and 
400 Internet pharmacies, as well as other Websites, where drugs 
were accessible with the click of a mouse. A new study by the 
National Center on Addiction and Substance Abuse at Columbia 
University identified 495 Websites advertising controlled 
prescription drugs during a one-week analysis. Of these, 157 
sites that sold opioid-based drugs such as OxyContin, Percocet, 
and Darvon. Only 6 percent of the sites selling drugs required 
a prescription, and none took steps to prevent the sale of 
drugs to children.
    Other evidence suggests the number of Internet pharmacies 
is much larger. The firm Cyveillance has identified 1,009 
Internet pharmacies that purport to be Canadian pharmacies. 
Earlier this year, the FedEx brand appeared on 12,200 unique 
websites selling at least one of the 22 top-selling 
pharmaceuticals in a search by Nameprotect of its 400 million 
web page database estimated at one-tenth the size of Google's 
database.
    At our first hearing on June 17, we heard the tragic story 
of two men who died from taking drugs they had purchased over 
the Internet. Seventeen-year-old Ryan Haight of La Mesa, 
California was an honor roll student and avid baseball card 
collector about to enter college. How did a healthy 17-year-old 
obtain prescriptions for painkillers without a medical exam? He 
got them from Dr. Robert Ogle, an on-line physician based out 
of Texas. With the bogus prescriptions from Dr. Ogle, Ryan was 
able to order hydrocodone, morphine, and Valium and have then 
shipped via U.S. mail to his front door. In February 2001, Ryan 
overdosed on a combination of these prescription drugs. His 
mother found him dead on his bedroom floor.
    James Lewis, a tri-athlete, died of an overdose of Darvon 
on April 10, 2003. He purchased Darvon, as well as other 
controlled substances, from Internet pharmacies doing business 
in South Africa, Thailand, and Spain. Some Websites required 
James to fill out a short questionnaire before he could order 
the medication. Others required nothing.
    Our investigation found that these are not isolated events. 
At my request, the General Accounting Office made purchases of 
pharmaceuticals from both domestic and foreign Internet 
Websites. With disturbing ease, GAO used the Internet to 
purchase numerous prescription drugs, including highly 
addictive narcotics and other controlled substances. Notably, 
GAO purchased 66 percent of these pharmaceuticals, including 
narcotics, without a prescription and without visiting a 
doctor.
    GAO also used the Internet to purchase from foreign 
pharmacies counterfeit versions of American drugs, 
pharmaceuticals that have not been approved by the FDA, 
counterfeit drugs, damaged products, and drugs without proper 
packaging, no warning information, or instructions for use.
    As Chairman of the Permanent Subcommittee on 
Investigations, I endeavor to provide an objective snapshot of 
what drugs are available to consumers on the Internet by 
inspecting the operations at the JFK International Airport in 
New York, home to the largest international mail branch, IMB, 
in the United States.
    Senior Customs officials at JFK estimated that 40,000 
parcels containing drugs are imported through the airport each 
day. During last summer's FDA-Customs blitz, 28 percent of the 
drugs tested were controlled substances.
    This means that as many as 11,200 drug parcels containing 
controlled substances, like the painkillers Vicodin and 
OxyContin are imported through JFK daily, 78,400 weekly, 
313,600 monthly, and 3,763,200 annually. Top countries of 
origin include Brazil, India, Pakistan, Spain, Portugal, 
Canada, Mexico, and Romania.
    FDA and Customs officials also regularly seize and inspect 
packages containing controlled substances like hydrocodone and 
generic Valium or Diazepam;\1\ counterfeit Viagra from 
India;\2\ injectable steroids from China;\3\ boxes of 
unidentified drug products;\4\ and drug packages without any of 
the required inserts that lack labeling and have directions for 
usage in foreign languages.
---------------------------------------------------------------------------
    \1\ See Exhibit No. 3 which appears in the Appendix on page 288.
    \2\ See Exhibit No. 5 which appears in the Appendix on page 290.
    \3\ See Exhibit No. 6 which appears in the Appendix on page 291.
    \4\ See Exhibit No. 7 which appears in the Appendix on page 292.
---------------------------------------------------------------------------
    PSI staff made similar findings at the IMBs in Chicago and 
Miami.
    Simply put, we are drowning in a flood of imported drugs of 
unknown composition and origin, as well as potentially lethal 
controlled substances.
    Given the overwhelming volume of drug products imported 
daily, FDA cannot fully process all the packages containing 
drugs. For example, at JFK, FDA inspectors can only inspect 200 
packages daily. As a result, there is a significant backlog of 
product waiting to be screened by FDA.\5\ Because of the sheer 
volume of drug product, the FDA acknowledges the vast majority 
of prescription drugs that are illegally imported into the U.S. 
through JFK are not screened or regulated in any manner.
---------------------------------------------------------------------------
    \5\ See Exhibit No. 10 which appears in the Appendix on page 295.
---------------------------------------------------------------------------
    Unfortunately, the same is true for Customs. Despite yeoman 
efforts, because of the sheer number of controlled substances 
being imported, Customs can screen only a de minimis number of 
the packages that contain controlled substances.
    In conjunction with Senator Levin and John Dingell, the 
dean of the U.S. House of Representatives, who was the author 
of the Prescription Drug Marketing Act, I asked the GAO to 
assess the steps taken by the Federal Government to address 
this problem. This effort is emblematic of the fact that this 
issue is not only bipartisan, it is bicameral. GAO confirmed 
what the Subcommittee has documented at five other sites:
    There is no uniform approach to screening and processing 
imported pharmaceuticals, the quality and health risks 
associated with imported prescription drugs is unknown, there 
is no reliable estimate of the quantity of drugs being 
imported, and most disturbingly, more prescription drugs are 
released without ever being inspected.
    The Federal Government has been on notice about this issue 
for at least 5 years. On July 30, 1999, representatives from 
FDA, Customs, and the Department of Justice testified at a 
hearing entitled, ``Drugstores on the Net: The Benefits and 
Risks of Online Pharmacies,'' before the House Oversight and 
Investigation Subcommittee. At that hearing, FDA announced that 
along with DEA and Customs they had formed an interagency 
working group to address the problem of on-line pharmacies. In 
addition, FDA testified that they had purchased a web crawler 
so they could have ``surveillance over the Internet.'' We will 
be able to refer controlled substances illegally offered for 
sale to the appropriate enforcement people.
    Many of the initiatives that we will hear about today sound 
eerily familiar. I am concerned by the apparent lack of 
progress in getting our arms around this glaring problem. Those 
charged with the responsibility to protect the American 
consumers from the illegal importation of controlled substances 
and counterfeit or unsafe drugs cannot allow themselves to fall 
victim to rapidly advancing technology.
    Interestingly, in comparison to the Federal Government's 
response, the response of much of the private sector has been 
swift and proactive. For example, in response to news reports 
about the availability of controlled substances on the 
Internet, in November 2003 Yahoo! blocked all search terms 
related to prescription drugs for approximately 2 months while 
it determined what action to initiate. Yahoo! then contracted 
with a private company to ensure that Internet pharmacies which 
buy ad space on Yahoo! are legitimate and properly licensed.
    Likewise, of its own accord, MasterCard initiated a 
campaign to identify sellers of OxyContin and Vicodin. 
MasterCard identified Internet sites that were offering these 
drugs and made dummy transactions. These transactions allowed 
MasterCard officials to identify the member bank where the 
merchant maintains an account. MasterCard then contacted the 
appropriate member bank and advised the bank of the need to, 
one, exercise due diligence to identify illegal activity; two, 
deny the use of MasterCard services if an Internet site was 
engaged in illegal activity; and three, to require the Internet 
site/merchant to demonstrate that its sales are legal.
    Last, UPS is proactively identifying Websites that offer 
prescription drugs without a written prescription and that 
advertise the services of UPS. UPS provided PSI with a list of 
105 such Websites. The same information was provided to DEA and 
FDA on February 20, 2004, with a request that they identify and 
address the sites that are offering illegal pharmaceuticals. Of 
these 105 Websites, 89 are still selling pharmaceuticals. I 
look forward to hearing what measures DEA and FDA undertook 
with this information.
    The potential problems associated with the importation of 
controlled substances and drugs of unknown origin and 
composition are far-reaching. Teenagers are getting unfettered 
access to controlled substances. Patients are self-medicating 
and receiving medication that could be sub-potent, super-
potent, stored in unsafe conditions, or even counterfeit. And 
unscrupulous drug dealers are getting rich preying on 
unsuspecting consumers in dire need of affordable medication.
    We as a government must do all we can to ensure access to a 
safe and affordable drug supply. DEA Administrator Tandy will 
testify that for consumers buying drugs over the Internet 
without a legitimate prescription are no safer than taking 
drugs offered to you by a street corner hustler. We have 
developed multiple strategies for controlling and shutting down 
the street corner hustler. We must approach Internet drug sales 
with the same vigor.
    With that, I would look forward to a statement by my 
Ranking Member and distinguished colleague, Senator Levin.

               OPENING STATEMENT OF SENATOR LEVIN

    Senator Levin. Mr. Chairman, thank you, first and foremost, 
for not just convening a second day of hearings into a very 
important subject, but also for your dogged determination to 
determine the extent of a real problem, which is the purchase 
of pharmaceuticals and prescription drugs over the Internet, as 
you have outlined, and to pursue solutions to this real 
problem. You are taking a leadership role here in the Senate. 
As you point out, it is both bipartisan and bicameral. There is 
strong support in the House for action, as well, for the 
reasons that you have given.
    Last year alone, U.S. consumers purchased over $3 billion 
in prescription drugs from Internet pharmacies. Now, there are 
many reasons that consumers do this. Some of them are improper 
reasons, kids trying to get drugs they otherwise aren't going 
to be able to get and other inappropriate efforts to obtain 
pharmaceuticals and prescription drugs over the Internet in 
ways that can accomplish those goals for the people who are 
seeking those drugs.
    But there are also appropriate efforts being made to obtain 
prescription drugs over the Internet. One of those appropriate 
reasons is the high cost of prescription drugs that drive 
Americans to take drastic measures to pursue lower-cost 
medications, including buying medicines from unfamiliar and 
sometimes shady Internet pharmacies.
    Right now, on average, Americans pay 60 percent more than 
the British or the Swiss for the same prescription drugs, two-
thirds more than Canadians, 80 percent more than the Germans, 
and twice as much as Italians. For average Americans suffering 
chronic illness, high drug costs are forcing some to choose 
between taking their medicine on any given day, paying their 
bills, or even buying food.
    At the last hearing, the Subcommittee released a report by 
the GAO describing key problems that are created when people 
buy medicine from Internet pharmacies. The highlights of that 
report have already been reviewed by our Chairman, and I will 
leave my statement for the record to give some of the specifics 
of the GAO study.
    But the picture that was painted raises a host of concerns 
and today's hearing examines what the Federal and the private 
sector are doing to protect the American public from unsafe and 
illegal prescription drugs purchased over the Internet. In its 
testimony, GAO is going to state that it concludes that very 
scarce resources in our agencies that are supposed to enforce 
our laws only selectively target packages by country of origin 
and other means, and they state that FDA officials acknowledge 
that tens of thousands of packages are allowed to reach U.S. 
consumers that violate current laws and pose public health 
risks.
    Our agencies have a key role in overseeing pharmaceuticals 
which are shipped into the United States. Under one law, the 
FDA is responsible for ensuring the safety, effectiveness, and 
quality of domestic and imported drugs. Under another law, the 
Drug Enforcement Agency is responsible for combatting illegal 
narcotics and the abuse of controlled substances. And under a 
third law, the Bureau of Customs and Border Protection is 
supposed to screen and stop unauthorized controlled substances 
at the border along with a wide range of other contraband. And 
the Postal Inspection Service is also charged with 
investigating the distribution of narcotics through the mail.
    So we have got a number of Federal agencies that have a 
responsibility to protect Americans from unsafe and illegal 
pharmaceuticals, but as a matter of fact, we know that they are 
overwhelmed. They are flooded. They are unable to do the job 
which they must do to protect our people.
    The Subcommittee staff that did this field work did not see 
a single FDA inspector during a 6-hour shift, even though the 
FDA is charged with helping Customs to look for unsafe and 
illegal pharmaceuticals. Customs agents interviewed by the 
staff indicated they had never met their FDA counterparts, even 
though the two agencies are tasked with coordinating their 
efforts to identify incoming drug shipments that could be 
seized and inspected more closely.
    Mr. Chairman, because of the number of witnesses that we 
have, I am going to ask that the balance of my statement be 
inserted in the record, but I want to just reinforce one point 
that our Chairman made about the risk to our children.
    Right now, a 12-year-old juvenile can use a parent's 
computer to log onto an Internet search engine, as the Chairman 
has outlined, type in the parent's credit card number, and 
direct illegal controlled substances to be shipped to an 
address via commercial carrier the next day.
    We have private organizations and businesses that are here 
today to help us understand what efforts they are making--and 
many of them are making great efforts to combat Internet sales 
of unsafe and illegal prescription drugs--and they will inform 
us as to how together we can more aggressively work to protect 
the public.
    These responsibilities are vast. We are falling down in 
terms of carrying out these responsibilities. Our Chairman is 
taking a leadership role in trying to get us back on track, but 
more importantly to address a new kind of a problem and a 
challenge which is represented by the Internet. So Congress has 
some responsibility, and I congratulate you, Mr. Chairman, in 
helping us to understand where we are falling short and how we 
can carry out those responsibilities.
    Senator Coleman. Thank you, Senator Levin, your entire 
statement will be entered into the record, without objection.
    [The prepared statement of Senator Levin follows:]

                  PREPARED STATEMENT OF SENATOR LEVIN

    Unapproved, misbranded, counterfeit, and adulterated prescription 
drugs are making their way into the United States, and I commend you, 
Mr. Chairman, for holding a second day of hearings to examine what we 
can do to reduce the various threats to the health and welfare of 
people buying pharmaceuticals over the Internet. Last year alone, U.S. 
consumers buying prescription drugs from Internet pharmacies spent more 
than $3 billion.
    The high cost of prescription drugs continues to drive Americans to 
take drastic measures to find lower-cost medications, including buying 
medicines from unfamiliar and sometimes shady Internet pharmacies. 
Right now, on average, Americans pay 60 percent more than the British 
or the Swiss for the same prescription drugs, two-thirds more than 
Canadians, 80 percent more than Germans and twice as much as Italians. 
For average Americans suffering chronic illness, high drug costs are 
forcing some to choose between taking their medicine on any given day, 
paying the bills, or even buying food.
    At the last hearing, the Subcommittee released a report by the 
Government Accountability Office (GAO) describing key problems created 
when people buy medicine from Internet pharmacies, and I'd like to 
recap a few of the highlights. GAO found that buying medications over 
the Internet was not difficult. GAO placed 90 on-line orders for 
prescription drugs and received 68 shipments, a success rate of 75 
percent. Of those 68 medications, 45 were shipped illegally, because 
there had been no patient-provided prescription. Of those Internet 
pharmacies based in the United States, only 5 out of 29, or 17 percent, 
had required GAO to provide a patient prescription. Many of the shipped 
medications also arrived without Food and Drug Administration (FDA) 
required precautions such as patient instructions and temperature-
controlled packaging.
    Of the 68 shipments received by GAO, 48 were from U.S. or Canadian 
based Internet pharmacies, 18 were from foreign sites, and 2 could not 
be determined. Of the 18 foreign shipments, 3 were found to contain 
counterfeit medications, including 2 with incorrect but not necessarily 
dangerous chemical compositions, and one with no active ingredients at 
all.
    Today's hearing examines what the federal and private sector are 
doing to protect the American public from unsafe and illegal 
prescription drugs purchased over the Internet. In its prepared 
testimony for today, GAO concludes that scarce resources have forced 
our enforcement personnel to ``selectively target'' pharmaceutical 
packages for inspection, and that most shipments reach the public 
without any federal oversight at all. GAO also states that federal 
officials acknowledge that tens of thousands of pharmaceutical packages 
that are allowed to reach U.S. consumers may violate current laws and 
pose public health risks.
    Three federal agencies have key roles in overseeing pharmaceuticals 
shipped into the United States. Under the Federal Food, Drug and 
Cometic Act, the FDA is responsible for ensuring the safety, 
effectiveness and quality of domestic and imported drugs. Under the 
Controlled Substances Import and Export Act, the Drug Enforcement 
Agency (DEA) is responsible for combating illegal narcotics and the 
abuse of controlled substances. And under the Homeland Security Act, 
the Bureau of Customs and Border Protection (Customs) is supposed to 
screen and stop unauthorized controlled substances at the border--along 
with a wide range of other contraband. In addition to the FDA, DEA and 
Customs, the U.S. Postal Inspection Service is charged, among other 
tasks, with investigating the distribution of narcotics through the 
mail.
     Each of these federal agencies has a responsibility to protect 
Americans from unsafe and illegal pharmaceuticals, but it is clear that 
they are being overwhelmed by an increasing flood of pharmaceutical 
imports. Earlier this month, for example, the Subcommittee staff 
visited the Memphis International Airport in Tennessee to get a first-
hand view of incoming shipments of pharmaceuticals. This visit follows 
earlier ones described at the last hearing to international airports in 
New York City, Miami, and Chicago. The Memphis airport is the primary 
commercial hub for Federal Express (Fed Ex), a commercial company that 
operates a major shipping business, including shipments from over 200 
foreign countries. The Subcommittee staff observed the key 6-hour shift 
for incoming Fed Ex packages, from 9:30 p.m. to 3 a.m.
    The Subcommittee learned that, at this commercial hub at the 
Memphis airport, approximately 740,000 packages arrive during a single 
night shift. Only 24 Customs agents were present at the hub to view 
these incoming packages. That meant each Customs agent had 6 hours to 
review about 30,000 packages. Those numbers made it impossible for the 
agents to give more than a cursory glance to pharmaceutical shipments, 
while also searching for such high priority contraband as narcotics, 
weapons, and terrorism-related materials.
    The Subcommittee staff did not see a single FDA inspector during 
the 6-hour shift, even though the FDA is charged with helping Customs 
to look for unsafe and illegal pharmaceuticals. Customs agents 
interviewed by the staff indicated that they had never met their FDA 
counterparts, even though the two agencies are tasked with coordinating 
their efforts to identify incoming drug shipments that should be seized 
and inspected more closely. One Customs agent stated that he got his 
seizure directives from the FDA website, instead of communicating 
directly with an FDA agent. The FDA later told the Subcommittee that 
develops these directives by reviewing manifests for incoming 
shipments, and identifying about 25-30 packages per day to be held by 
Customs at the hub. The FDA indicated that it inspects these packages 
at a later time and determines how each should be handled. The FDA also 
indicated that, beginning in the fall, new funding would enable it to 
assign 2 FDA inspectors to help with incoming shipments at the Fed Ex 
hub.
    It is also unclear whether federal agencies are working as 
effectively as they could with the private sector such as the Internet 
search engines that direct Internet users to particular on-line 
pharmacies, the credit card companies that approve payments to these 
pharmacies, and the shipping companies that move pharmaceuticals from 
Internet pharmacies to American consumers.
    Right now, a 12-year-old juvenile can use a parent's computer to 
log onto an Internet search engine, type in the parent's credit card 
number, and direct an illegal controlled substance to be shipped to an 
address via commercial carrier next day air. We need to learn from the 
private entities represented here today what steps they are taking to 
combat Internet sales of unsafe and illegal prescription drugs and how 
they can engage in more aggressive efforts with federal agencies to 
protect the public.
    The agencies here today have vast responsibilities to protect 
Americans from illegal narcotics, weapons, human trafficking and 
terrorism. They are also charged with protecting the public from unsafe 
and illegal prescription drugs. That's a tall order, and Congress needs 
to exercise our oversight responsibility to determine what is being 
done, what can be improved upon, and how we can enable these agencies 
to do their jobs more effectively, including leveraging help from the 
private sector.
    Congress also needs to bring down the escalating cost of 
prescription drugs in the United States. Chairman Coleman and I both 
represent northern border States, in which thousands of our 
constituents are already crossing the border to get their prescription 
medications from Canada--either in person or over the Internet. Folks 
are going to continue that conduct until prices become reasonable here 
at home.
    Legislation has been introduced by Senator Dorgan and others to 
tackle this problem, but there is no sign that the Senate Health, 
Education, Labor and Pensions Committee plans to take up this 
legislation in the near future. The latest setback came yesterday, when 
that Committee postponed action on a more modest drug importation bill 
that had been scheduled for consideration. While weaker than the Dorgan 
bill, that legislation included some useful provisions, inspired in 
part by this investigation, authorizing the FDA to regulate the 
licensing of Internet pharmacies.
    I look forward to the testimony today.

    Senator Coleman. I would now like to welcome our first 
witness for today's hearing. I welcome Richard M. Stana, 
Director of the Homeland Security and Justice Team at the 
Government Accountability Office. Welcome, Mr. Stana.
    Mr. Stana. Thank you.
    Senator Coleman. As I mentioned in my opening statement 
this morning, in conjunction with the Subcommittee's June 17 
hearing on this matter, GAO recently released a report on GAO's 
investigation of Internet pharmacy drug sales. The purpose of 
these hearings is to continue our examination of the extent to 
which consumers can purchase pharmaceuticals and controlled 
substances over the Internet without a medical prescription, a 
medical diagnosis, and whether the pharmaceuticals that are 
pouring into the United States from foreign countries are 
counterfeit, unsafe, or illegitimate.
    My distinguished Ranking Member talked about the issue of 
children. It is almost as if there is a candy roll out there 
for kids who want to get this, and not only is no parent not 
around, but if you have got Mom and Dad's credit card, you have 
access to it. Can we do something about that? We need to.
    The purpose of today's hearing is to examine the Federal 
response and the private response to the problems highlighted 
at our June 17 hearing and to learn what Internet search firms, 
credit card companies, and package delivery services, whose 
participation is needed to complete these transactions, are 
doing to address the problem.
    I appreciate everyone's attendance at today's important 
hearing and am anxious to hear the testimony this morning.
    Before we begin, pursuant to Rule 6, all witnesses before 
this Subcommittee are required to be sworn. At this time, Mr. 
Stana, I ask you to stand and please raise your right hand.
    Do you swear that the testimony you give before this 
Subcommittee is the truth, the whole truth, and nothing but the 
truth, so help you, God?
    Mr. Stana. I do.
    Senator Coleman. Thank you, Mr. Stana. We will have a 
timing system today. When you see the light change from green 
to yellow, you have about a minute left. We will enter your 
complete statement for the record. So at that point, please 
summarize your testimony and then we will go to questioning 
after that. You have 5 minutes. You may proceed.

 TESTIMONY OF RICHARD M. STANA,\1\ DIRECTOR, HOMELAND SECURITY 
   AND JUSTICE ISSUES, U.S. GOVERNMENT ACCOUNTABILITY OFFICE

    Mr. Stana. Mr. Chairman, Mr. Levin, I am pleased to be here 
today to participate in this hearing on prescription drug 
importation.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Stana appears in the Appendix on 
page 178.
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    As you know, American consumers are increasingly drawn to 
the convenience, privacy, and cost advantages of purchasing 
drugs over the Internet. But at the same time, there is growing 
concern that prescription drugs from Internet pharmacies are 
risky because they may be compromised or not the authentic 
product that you think you are going to get.
    Further, consumers may also be violating the law 
unknowingly or intentionally by having these drugs shipped to 
the United States through international mail and private 
carriers. It is primarily the responsibility of U.S. Customs 
and Border Protection and the Food and Drug Administration to 
inspect and interdict prescription drugs and controlled 
substances that might be illegally imported into the United 
States via the mail or private carriers.
    My prepared statement discusses these issues in detail and 
I would just like to summarize four main points.
    First, as you mentioned in your opening statements, the 
amount of unapproved drugs illegally entering the country is 
said to be large and increasing. Owing to the popularity of 
Internet drug sales, large numbers of parcels arrive each day 
at the 13 international mail branches and 29 express 
consignment carrier facilities operated by private carriers 
like DHL or FedEx. Even though they are purchased from some 
sites that might be considered safe, the overall safety and 
quality of imported drugs, particularly those purchased from 
foreign-based sites, is not assured.
    CBP did an analysis which demonstrates this, and Mr. 
Chairman, you also mentioned our previous work which showed 
that about 45 of 68 purchases we received were made without a 
prescription and 29 had labeling, packaging, and handling or 
other chemical composition problems. Some who feel they are 
getting reliable drugs at bargain prices might unknowingly be 
putting themselves at risk.
    My second point is that many packages known to contain 
prescription drugs are released to the addressees with or 
without inspection. CBP officials told us that certain packages 
were targeted for inspection, but packages not targeted 
typically bypass inspection and are released to addressees. 
Many packages that were targeted by FDA and subsequently 
inspected were also later released to addressees. FDA officials 
acknowledge that they release tens of thousands of packages 
that contain drug products that may violate current laws and 
pose health and safety risks to consumers. This is because 
available staff are not able to process the volume of packages 
turned over to them for inspection.
    For example, at one IMB, CBP targeted its efforts on 
packages arriving from 78 countries and forwarded to the FDA 
packages arriving from the eight countries it targeted for 
inspection. Packages coming from countries not targeted by CBP 
or FDA were not routinely inspected, and most continued in the 
mail. Further, FDA released to addressees some packages 
containing drugs that were not considered a priority and 
packages with drug amounts deemed for personal use.
    At another IMB, if CBP's x-ray inspection revealed 
prescription drugs, FDA's instructions to CBP were to fill 
eight bins of packages twice each week, which would total about 
3,000 packages. Once the capacity of the 16 bins per week was 
filled, other packages would continue on without inspection. At 
this site, FDA had the capacity to inspect about 140 of the 
3,000 packages set aside each week and the remaining packages, 
2,800 or so, were released without inspection, as were some of 
the 140 which were deemed not suitable for holding.
    At another IMB, CBP officials told us that they usually 
released packages containing prescription drugs that appeared 
to be a 90-day supply or less, which they felt was in line with 
FDA's personal importation policy. At this facility, FDA 
officials told us that each week, CBP turned over to them 
hundreds of packages for inspection, but FDA had the capacity 
to inspect about 100 of them. They returned many of the other 
packages without inspection and CBP, in turn, released them to 
the addressees.
    At the express consignment facilities, CBP and FDA relied 
mainly on reviews of manifests of incoming packages to 
determine which to inspect. Packages could avoid inspection if 
manifest information was not accurate. Further, as you 
mentioned, FDA officials are not on site to coordinate with CBP 
on targeting activities or random inspections.
    My third point is that processing requirements are time 
consuming and can hamper enforcement efforts. CBP and FDA 
typically have about two to three staff each to perform the 
inspections and prepare the paperwork at each location. 
Processing for these packages can strain available staff, and 
staff are tied up processing as opposed to inspecting. An 
average inspection can take anywhere from about 10 to 15 
minutes if there is not much to inspect or it is a known 
product, to 2 or more hours to fully investigate what is in the 
package. Similarly, CBP's seizure processes are time consuming, 
and because I need to sum up, I will not go into much detail on 
those.
    I do want to mention one other thing here which I think is 
very important. At one IMB, as an alternative to seizure, CBP 
headquarters approved returning 123 bins containing roughly 
40,000 packages of Schedule IV controlled substances, including 
Valium, pain killers, and antidepressants, to the sender. The 
123 bins amounted to a processing backlog of a year or more. 
According to CBP officials, most of these packages were sent by 
two companies located in two countries. This stop-gap action 
avoided the need to fully process the packages and store them 
for possible forfeiture and destruction, but it is not 
consistent with policy. We plan to pursue this further in the 
coming weeks and to see how widespread this action might be.
    The last point is that, and I think you made this point, 
Mr. Chairman, purchasing prescription drugs from Internet 
pharmacies isn't new and concerns about importation have 
existed for many years. Action to mitigate this issue are still 
evolving.
    There have been task forces created in the last year in 
response to Congressional mandates. CBP created a task force 
which looks very similar to the task forces created in the late 
1990's that you have mentioned in your opening statement. It is 
too soon to tell whether these new task forces will have any 
better success than the old task forces in addressing this 
problem.
    In closing, CBP and FDA are charged with the responsibility 
of inspecting and interdicting these drugs and they both have 
many dedicated staff that try their hardest to do what they can 
with limited resources. Although initiatives are underway to 
help either interdict the drugs or prevent their importation, 
it is too soon to tell whether these are going to have any 
better success than those that were started in the late 1990's.
    This completes my oral statement. I would be happy to 
address any questions you or other Members of the Subcommittee 
may have.
    Senator Coleman. Thank you very much, Director Stana.
    As I read the report and listen to the testimony, it is 
somewhat mind boggling that we have a system of substances 
coming into this country, many of which we know are legal. We 
know from spot checks and searches that there is a substantial 
volume of material that is counterfeit, dosages not correct, 
and instructions not there, particularly as we deal with 
foreign countries, certainly countries outside the U.S. and 
Canada. The information is a crap shoot. You don't know what 
you are getting. And yet we really don't have an effective 
system for monitoring and controlling that, do we?
    Mr. Stana. The system that we have in place has simply been 
overrun by the volume of drugs coming in due to Internet 
purchases. There is a system in place as you are well aware. 
You have seen it at the mail branches and at the carrier 
facilities. But there just aren't enough people to manage it 
properly.
    Senator Coleman. And I am not directly criticizing our 
folks who are out there making an effort. Now, I am going to 
talk about some areas where I do have concern a little later 
this morning, but I sense it is kind of like sand castles 
against the tide. It can be as pretty as--I have seen some 
pretty nice sand castles on the beach, but the tide keeps 
coming in and just overwhelms it and overwhelms it. Is that a 
fair assessment?
    Mr. Stana. Well, one of the frustrating things is that this 
is a problem that has been known for many years, and as I 
pointed out and you mentioned, we started in the late 1990's to 
focus on the issue, but for too long we have been discussing 
what needs to be done and not taking appropriate action. Now 
the problem is much larger and much more difficult to----
    Senator Coleman. That is where I want to go next. Help me 
understand the period from 1999 to today. In 1999, there was 
testimony before a House Subcommittee, Dr. Janet Woodcock 
discussing FDA actions dealing with the sale of illegal drugs 
over the Internet. There are discussions of something called 
the web crawler. Let me back up. What is a web crawler?
    Mr. Stana. I believe, and I am not a technical expert, but 
what a web crawler does is it identifies certain sites that 
shouldn't be used for illegal purchases.
    Senator Coleman. Are you familiar with FDA's results from 
using the web crawler?
    Mr. Stana. No, I am not. I think you might better address 
that to FDA.
    Senator Coleman. Do you even know if a web crawler was 
actually accessed?
    Mr. Stana. My understanding is they tried to use it, but it 
didn't meet with the success that they anticipated.
    Senator Coleman. And clearly, we go from 1999, when we 
raised this issue, to today, in which certainly the volumes has 
increased exponentially, the volumes of access to illegal 
drugs. I am trying to understand what happened. I am trying to 
understand whether we started fast out of the gate and just 
slowed up, or whether we turned our attention elsewhere. Can 
you give me a kind of overview or summary of what happened in 
the efforts from 1999 and at what point it slowed up and what 
happened? Why aren't we in a better place today?
    Mr. Stana. In 1999, FDA started with two task forces that 
looked similar to what was created just in the past few months. 
One had a working group on legal and regulatory issues. One had 
a working group on legal issues. Another had one on public 
education. And these are very similar to the kinds of working 
groups we have now.
    On the positive side, what they did is they brought 
affected agencies together and they talked and to some extent 
coordinated, but there really was very little action taken 
there. It was more of a talking exercise, a coordination 
exercise. So not much has happened. And those efforts, while 
may be well intentioned, really didn't have much impact at the 
incoming facilities.
    The more recent task forces have so far had maybe a little 
bit more impact in that there were a couple of blitzes done at 
three IMBs. They also did one at the border for incoming 
travelers. They posted Public Service Announcements. I was at a 
Giant a few days ago. There is a notice posted near the 
pharmacy there about the dangers of using Internet pharmacies. 
So it is having some impact. But the fact remains that if you 
need to stop this importation of dangerous and risky drugs, 
these approaches, while useful, aren't having the kind of 
impact that is needed to really mitigate the problem.
    Senator Coleman. My question or comment is probably better 
directed to the agency heads, but as a policy maker, I have to 
reflect upon the question of why I should have confidence today 
on the formation of a new task force and efforts when we walked 
down that path 5 years ago and the problem is worse today than 
it was then.
    Mr. Stana. Well, there is so much that we just don't know 
about the size and nature of this problem. We knew that we 
didn't know it 5 years ago. We still don't know it today. We 
don't know how many packages are coming into the country. We 
don't know how many are getting by without inspection. We don't 
know how many resources it is going to take to mitigate the 
problem. One estimate I saw, although I didn't get behind the 
numbers so I can't vouch for its accuracy, stated there are 
about two million packages a year of illegal drugs coming into 
the country. That is a sizeable amount.
    There is another estimate that each IMB site where FDA has 
its resources, instead of having three staff on each shift, 
needs ten staff on each shift. We haven't examined the basis 
for that figure, but it demonstrates that, clearly, there is a 
resource problem here.
    Senator Coleman. Even if we were to increase the resources 
from three to ten, would it be fair to say that we would not 
have the capacity to investigate or review each and every 
parcel that came into the country, are the numbers simply too 
vast?
    Mr. Stana. I don't know how many resources it would take to 
do that. Clearly, the law states that these packages are not to 
come into the country unless there are certain very careful 
prescribed exceptions that are met. But I don't have the 
number, whether 10 is the right number, 15 is the right number, 
or if it is a problem that 100 people couldn't solve.
    Senator Coleman. I am just trying to look at the system we 
have, which is not unsystematic. Countries are highlighted that 
are known to be of greater risk, so it is targeted.
    Mr. Stana. Right. It is a risk management issue.
    Senator Coleman. You have got a risk targeted approach. But 
unfortunately, if a country is not a targeted country----
    Mr. Stana. Right.
    Senator Coleman [continuing]. You could be the worst 
business operator, the worst crook in the world, but if you are 
operating out of a country that is not targeted, you are 
essentially free from review at this time. Is that a fair 
statement?
    Mr. Stana. That is correct at some mail branches, at some 
IMBs. It is totally targeted initially by country. That is the 
first cut. You might get picked up on a random search.
    Senator Coleman. Talk to me about the random search. Are we 
talking needles in haystacks?
    Mr. Stana. Yes, you are.
    Senator Coleman. What are the chances of getting----
    Mr. Stana. You are talking about gut feelings----
    Senator Coleman. What is the mathematical chance of getting 
picked up in a random search?
    Mr. Stana. Very small. I don't have the exact number, but 
very small.
    Senator Coleman. Infinitesimal. Microscopic.
    Mr. Stana. It would be very small, certainly less than 3 
percent.
    Senator Coleman. I would think less than perhaps----
    Mr. Stana. One percent, perhaps.
    Senator Coleman. Maybe a percentage of 1 percent.
    Mr. Stana. But to amplify your underlying point, even in 
areas where CBP and FDA target countries, just because you are 
in one of the 70-some countries that CBP targets at one 
facility, that doesn't mean your package is going to be fully 
inspected because there are limits to the capacity. At the 
other IMB where inspection is a function of volume, if your 
package is in the 16 bins, it might be inspected, but the fact 
of the matter is, on average, of those 16 bins, your package in 
one of the bins is going to be inspected. The other ones are 
going to be returned without inspection.
    Senator Coleman. What is your response to, or your analysis 
of, the different approaches per IMB? Would you suggest that it 
would make better sense to have a more uniform approach for the 
agency?
    Mr. Stana. Yes. I think it would be beneficial to use a 
more consistent and uniform risk management approach from IMB 
to IMB that focuses in inspections, based on inspection 
statistics and experience--what are the more important packages 
to look at. Right now, we have an inconsistent policy.
    FDA has just come up with an SOP which is intended to 
provide a uniform inspection process. The problem is, without 
more resources, all you are doing is creating a uniform process 
which in the end returns packages to the mail without 
inspection.
    Senator Coleman. At one point, you talked about a 
situation, I forget the company, with a number of bins that 
were returned to sender.
    Mr. Stana. Yes. That was that one IMB where there was about 
a year or more backlog of controlled substances. These were 
Schedule IV controlled substances. The staff at the facility 
felt that in the interest of the government they would not 
spend time processing these packages. As an alternative to 
seizure, they sent them back to the originating pharmacy. 
Clearly, a controlled substance is supposed to be seized. It is 
not supposed to be returned to sender without proper 
processing. They phoned headquarters and headquarters approved 
the return of the packages to the senders.
    Now, by doing this, they missed a couple of opportunities. 
One, they missed opportunity to gather further intelligence on 
exactly who the sender, receiver, and shippers were. And 
second, when they do seize a package, they are supposed to tell 
the person who ordered it--the addressee--that he or she was 
performing an illegal act and the next time they do this the 
CBP will take action on it. That could act as a deterrent for 
future purchases. So they missed that opportunity, too.
    Senator Coleman. When you talk about missed opportunity, 
was there anything they did in returning it to the sender that 
would have precluded that sender from reselling it, from 
reintroducing those drugs back into the marketplace?
    Mr. Stana. Not that I am aware of.
    Senator Coleman. So the sender sold it and made their 
money, I presume. There is no COD here. You are paying up 
front. So they made their money and then they received back the 
goods with the complete freedom to resell them again.
    Mr. Stana. There is a possibility, unless there is 
something that happened that I am not aware of, there is a 
possibility they could be reintroduced to the market.
    Senator Coleman. When you say something happening, was 
there any coordinated enforcement action against these sellers? 
Was there anything that identified this list of sellers and 
then asked folks to go back and to proceed with some action 
against them?
    Mr. Stana. I am not aware of any. Records were not kept on 
these 123 bins and the 40,000 packages in them. What I know is 
they were predominately from two countries and they were from 
two companies within those two countries.
    Senator Coleman. I find that of concern. It is like busting 
a drug dealer and giving him back his drugs without any follow-
up. And I understand administratively we are faced with what to 
do with these things. But on the other hand, giving it back to 
somebody who is already breaking the law----
    Mr. Stana. As you know--you visited the New York facility--
there are seizure rooms with dozens and dozens of seized goods 
waiting for some sort of disposition. These were over and above 
that. But I didn't want to leave the impression that all 
controlled substances were returned to sender.
    Senator Coleman. But there were. We are looking at a 
picture \1\ taken at JFK. Approximately 20,000 boxes of 
suspected controlled substances seized by Customs are awaiting 
processing.
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    \1\ See Exhibit 14, which appears in the Appendix on page 299.
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    Mr. Stana. Right. It would look like that. There were 123 
bins in an open area with bags in them that looked similar to 
those.
    Senator Coleman. And we clearly don't have the resources to 
do those inspections, to process that.
    Mr. Stana. Well, they said that it was a year, maybe 2 
year's worth of processing backlog given the current required 
procedures and available staff.
    Senator Coleman. Let me ask you a question. You talked 
about express facilities at one time. Are you talking about 
private operators?
    Mr. Stana. Right, FedEx, DHL, UPS, those facilities.
    Senator Coleman. And their representatives will be here and 
I appreciate that. They have manifests. Now, manifests means 
that somebody is declaring that this is a controlled 
substance----
    Mr. Stana. Someone is to declare what good is inside, and 
certain characteristics like weight, volume, and so on.
    Senator Coleman. So the sender, the wholesale, whoever is 
selling the drugs, would typically have to declare.
    Mr. Stana. Yes.
    Senator Coleman. But if they don't declare, then we are 
stuck with the same situation we see with Postal. There is no 
way to readily identify.
    Mr. Stana. Well, again, they may be picked up in a random 
search, but it is not likely. The other thing is, because FDA 
is not on site at the same time CBP is--they work different 
shifts, FDA works primarily during the day and CBP works at 
night--they can't be there side-by-side to coordinate what 
these random searches might focus on.
    Senator Coleman. But you are depending upon the 
credibility, the good word, the willingness of somebody to 
subject themselves to review and investigation by the nature of 
declaration, knowing that if they don't declare, then all they 
have got to do is gamble, and the odds are substantially in 
their favor because the odds of getting picked up in a random 
search are so small.
    Mr. Stana. Any kind of cargo, whether it is ocean-going 
cargo, air freight, whatever, is subject to the same risk here. 
The veracity of manifests is a longstanding problem.
    Senator Coleman. And particularly in an area where it would 
be different if there are manifests where you are not dealing 
with substances that are subject to seizure, that are 
potentially illegal. In fact, in the kind of spot searches that 
we have done, we have seen significant percentages of drugs 
which are controlled substances which are not in this country 
legally. So it is almost as if going across the border, you are 
telling the drug dealer, tell us what drugs you have.
    Mr. Stana. Well, that is true, but in reviewing the 
manifests, the FDA people are also looking for other things, 
like certain structured shipments or a certain address they 
received a tip on. CBP inspectors might also have a gut feeling 
about a shipment where the weight doesn't match the description 
of the goods. So it is not strictly on the declared item, but 
that is a big part of the targeting.
    Senator Coleman. I am looking, just trying to figure out if 
there are solutions here, trying to sort out the purpose of 
what we are doing here. One of the thoughts is to give Customs 
the ability to seize and destroy. So in other words, instead of 
sending back these 123 bins, if they could be identified as 
controlled substances which are, per se, illegal, they could 
have the ability for on-site destruction. Your reaction to that 
proposal?
    Mr. Stana. Obviously, it would require a change in law. But 
at the same time, if that were enacted, it would certainly 
reduce the backlog and make the whole process more manageable. 
We haven't really examined all the pros and cons to it, but on 
the face of it, it would solve one problem. I don't know if it 
would create another.
    Senator Coleman. I would, at some point, like you to be 
able to do that. Again, I am looking for solutions.
    If there were a few other obvious things based on your 
study and your review, changes in the law that would improve 
our ability to provide a greater measure of safety for American 
consumers in this area?
    Mr. Stana. Well, I think some of the initiatives that are 
underway are going to help, like consumer education, alerting 
people to the fact that this is just not getting the same drug 
at a bargain price, that there are health risks. Having looked 
at the table at the John F. Kennedy International Airport and 
saw what was on it, I would never put that stuff in my body. I 
think just getting that kind of word out is very important.
    On the enforcement side, we talked about several options, 
including more people and maybe a summary destruction of 
illegal shipments. Another option is a summary return to 
sender; that wouldn't take the drugs out of the commerce chain, 
but it does make it more expensive for an Internet pharmacy to 
operate. There are other options that have been proposed that 
we are trying to get more information on, like working with the 
credit card companies, as you mentioned, to stop purchases from 
seemingly illegal sites, and identifying those sites that 
appear to be in safe countries but are actually located 
elsewhere and are selling dangerous drugs.
    Senator Coleman. Aren't we also faced with the problem 
today of sites that are located in safe countries, located in 
Canada----
    Mr. Stana. Or in the United States.
    Senator Coleman [continuing]. Or the United States, but are 
getting their drugs from unsafe countries.
    Mr. Stana. I don't know if U.S. pharmacy outlets are 
getting from third countries, but when we made our purchases of 
drugs from U.S.-based Internet pharmacies, we also found 
problems with the drugs. But your point is correct. There are 
Internet drug sites that mask their actual locations. I read 
about one site that posed as a Canadian site with Canadian 
flags on the web page but the orders were filled by a pharmacy 
in China.
    Senator Coleman. And the consumer has no way to distinguish 
between an all-American Drugs-dot-com coming from Fiji or 
Thailand----
    Mr. Stana. Not without a lot of sophisticated research. 
They can be pretty well masked. Of course, there are two 
dimensions to this problem and you mentioned them both. One is 
the well-intentioned consumer like you or me that just wants a 
bargain drug. The other involves, for example, the kid who 
wants to get high and sees ordering from the Internet 
pharmacies as an easy way to do it. Too often, we focus on the 
former, and that is part of a great national debate about 
trying to lower drug prices. But the latter is also very 
important and plays right into this issue.
    Senator Coleman. In 1999, this issue was reviewed. Folks 
came before a House Committee, talked about task forces, talked 
about reviews, talked about web crawlers. We had a series of 
hearings. I believe Judiciary had a hearing just a couple weeks 
ago. What advice or direction would you give to some of the 
other witnesses who are coming before us from the FDA and 
Customs and Postal and the private folks? What advice do you 
give them to help raise the prospect of not coming back in 
another 5 years, because if we come back in another 5 or 6 
years and I am still here, I am going to be very angry.
    Mr. Stana. Well, I think that this problem grows 
exponentially. It doesn't grow on a straight line. With the 
growth on the Internet, I think you would not see anything but 
a tremendous growth in the future.
    I think really that the core solution is getting a 
consensus and a commitment to address this problem and do what 
it takes to get on top of it. I don't know if FDA and Customs 
and now CBP have asked for more resources or if they haven't, 
whether any requests for more resources have been denied either 
by the past couple of administrations or by appropriators. But 
clearly, there has to be a demonstrated commitment to address 
the problem. There are a lot of really hard-working people that 
are trying to do the best that they can with the resources they 
have. We don't want to create a cynacism because they are being 
put on the line with an impossible task that they are never 
going to have the resources to adequately addrss the problem.
    Senator Coleman. I appreciate that, Director Stana. Thank 
you. Your testimony has been very helpful.
    Mr. Stana. Thank you very much.
    Senator Coleman. I would now like to welcome our second 
panel to today's hearing. Our second panel is comprised of 
representatives of the law enforcement and regulatory 
community, the Drug Enforcement Administration, the Bureau of 
Customs and Border Protection, the U.S. Postal Service, and the 
Food and Drug Administration.
    I would like to welcome the Hon. Karen P. Tandy, the 
Administrator of the Drug Enforcement Administration; Lee R. 
Heath, Chief Postal Inspector for the U.S. Postal Service; 
Jayson P. Ahern, Assistant Commissioner at the Office of Field 
Operations at the Bureau of Customs and Border Protection; John 
M. Taylor III, the Associate Commissioner for Regulatory 
Affairs at the Food and Drug Administration; and finally 
William Hubbard, Associate Commissioner for Policy and Planning 
at the FDA.
    As previously mentioned, the purpose of this hearing is to 
examine what role the FDA, the Bureau of Customs and Border 
Protection, the U.S. Postal Service, and DEA play in preventing 
the illegal importation of scheduled pharmaceuticals and 
pharmaceuticals that violate the Food, Drug, and Cosmetics Act, 
and whether the pharmaceuticals that are pouring into the 
United States from foreign sources are counterfeit, expired, 
unsafe, or illegitimate. Again, I appreciate all of your 
attendance at today's important hearing and am anxious to hear 
your observations on the current state of affairs.
    But before we begin, pursuant to Rule 6, all witnesses that 
testify before the Subcommittee are required to be sworn. At 
this time, I would ask you all to please stand and raise your 
right hand.
    Do you swear that the testimony you are about to give 
before this Subcommittee is the truth, the whole truth, and 
nothing but the truth, so help you, God?
    Ms. Tandy. I do.
    Mr. Heath. I do.
    Mr. Ahern. I do.
    Mr. Taylor. I do.
    Mr. Hubbard. I do.
    Senator Coleman. I think all the witnesses here are aware 
of the timing system. When the lights go from green to yellow, 
you have about a minute left to conclude. Your complete written 
statements will be entered into the record.
    Administrator Tandy, we will have you go first, followed by 
Mr. Heath, Mr. Ahern, and finish up with Mr. Taylor and Mr. 
Hubbard. After we have heard all your testimony, we will 
proceed to questions. With that, Administrator Tandy, you may 
proceed.

TESTIMONY OF KAREN P. TANDY,\1\ ADMINISTRATOR, DRUG ENFORCEMENT 
                         ADMINISTRATION

    Ms. Tandy. Thank you, Chairman Coleman. The DEA appreciates 
your leadership on this issue, Mr. Chairman, as well as the 
other Members of the Subcommittee, and I thank you for the 
opportunity to discuss what is clearly a growing threat of on-
line purchases of pharmaceuticals.
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    \1\ The prepared statement of Ms. Tandy appears in the Appendix on 
page 202.
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    In the 21st Century, the Internet is becoming the cyber 
street corner where dangerous and addictive drugs are bought 
and sold. Pharmaceutical drugs are peddled by multi-million 
dollar organizations, albeit the same as Internet drug lords, 
who are as sophisticated as traditional drug cartels.
    Prescription drugs are not the only drugs being peddled by 
criminals on the web. I want to share with you an operation 
that just concluded. It was conducted yesterday, and 
successfully so, by DEA along with my colleagues at this table 
from Homeland Security, Immigration and Customs Enforcement, 
FDA, U.S. Postal and Inspection Service. Together, we targeted 
on-line sellers of illegal designer drugs in Operation Web 
Trip. We arrested ten Website operators who were distributing 
highly dangerous designer drug analogs. DEA issued one 
restraining order, executed one search warrant, and obtained 
three voluntary terminations of five targeted Internet domains. 
Users refer to these analog drugs, designer drugs, as Foxy, 
Methoxy, or DIPT, and too many young people tragically believe 
that these designer drugs are legal substitutes for Ecstasy or 
LSD.
    In reality, these drugs are research chemicals with no 
medical use, and when consumed, they produce hallucinogenic 
effects and users often exhibit violent behavior. These are 
volatile, powerful drugs that are not meant for human 
consumption. If users ingest as little as five milligrams too 
much, fatality can result.
    The Websites that were targeted in Operation Web Trip sold 
substances that led to the fatal overdose of at least two 
people and many more non-fatal overdoses. This operation 
demonstrates that we together will shut down these Websites and 
arrest those behind them.
    Rogue Internet pharmacies have also claimed too many 
unsuspecting victims. DEA's investigations have discovered 14 
deaths or overdoses and 15 people who have entered treatment or 
sustained injuries from drugs obtained over the Internet. With 
the click of a mouse, consumers are buying controlled 
substances over the Internet without a legitimate prescription. 
Physicians associated with these Websites almost never 
establish a proper diagnosis through the use of accepted 
medical practice. In short, there is no authentic doctor-
patient relationship. Visitors to these pharmaceutical Websites 
are, in essence, helping themselves to controlled substances. 
Consumers are subject to habit-forming drugs, dangerous drug 
interactions, and counterfeit or tainted products.
    The Bush Administration has implemented a coordinated 
strategy announced this past spring to deal with the abuse of 
prescription drugs. For our part, DEA is targeting the 
diversion of drugs using the Internet by utilizing additional 
tools that Congress has given to us. Appropriations for this 
fiscal year included 63 additional positions dedicated to our 
Internet initiative, which targets rogue pharmacies and 
affiliated doctors and has resulted in 91 active investigations 
involving the diversion of pharmaceutical controlled substances 
using the Internet, and those investigations cover some 537 
Websites currently.
    This fiscal year, we have shut down 25 Internet pharmacy 
organizations. Over $3.3 million has been forfeited, and 3.2 
million dosage units have been seized. Eleven million dollars 
in assets are pending forfeiture currently.
    In addition, Congress provided $6.3 million to DEA to put 
into place sophisticated technology to track down these rogue 
Internet pharmacy Websites. We are also using the Internet 
itself as a tool. DEA is working with major search engines and 
Internet service providers to warn consumers searching for 
controlled substances of the dangers, and we have recently 
established a link to DEA's home page that allows citizens in 
this country and others who access that home page to report 
suspicious Internet pharmacies, which is an initiative that has 
also brought us investigative leads.
    The scope of this problem is too broad for DEA or any one 
of the single agencies before you to tackle alone. We are 
enlisting the support of the private sector, the legitimate 
businesses essential to the on-line trade in diverting 
pharmaceutical drugs through the Internet.
    For example, we are working with FedEx and UPS, who are 
acutely aware that their businesses are being exploited and 
alert us with any unusual patterns. Similarly, consistent with 
my emphasis and this administration's emphasis on taking away 
the proceeds of the illicit drug trade, both Visa and 
MasterCard are assisting us in investigations and with 
financial leads. Both shippers and credit card companies have 
agreed to shut down sites determined to be conducting illegal 
activities.
    And as this Subcommittee has noted, a significant aspect of 
the pharmacy problem is located abroad. The DEA is cooperating 
with our Federal and foreign counterparts and we have assumed a 
leadership role in the international forum on Internet 
diversion.
    We look forward to working closely with you, Mr. Chairman, 
and with the Congress to ensure that the Controlled Substances 
Act addresses illegal Internet pharmacies as vigorously as we 
intend to address them through our enforcement efforts, and I 
would be happy to answer questions at the appropriate time. 
Thank you.
    Senator Coleman. Thank you very much, Administrator Tandy. 
Mr. Heath.

  TESTIMONY OF LEE R. HEATH,\1\ CHIEF INSPECTOR, U.S. POSTAL 
                       INSPECTION SERVICE

    Mr. Heath. Good morning. As Chief Postal Inspector, I 
appreciate you giving me the opportunity to present the views 
of the U.S. Postal Service regarding this growing concern and 
the role the Postal Inspectors play in combatting it.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Heath appears in the Appendix on 
page 206.
---------------------------------------------------------------------------
    The responsibility for safeguarding approximately 200 
billion pieces of mail a year and ensuring America's trust in 
the Postal system falls on the shoulders of the U.S. Postal 
Inspectors. I have submitted a written statement which 
highlights what we have done and continue to do with regards to 
illegal narcotics, child pornography, and other dangerous 
mailings. It outlines what we are doing and will do to better 
address today's issue.
    There are numerous items prohibited from being sent through 
the mail under various sections of Title 18 of the U.S. Code. 
For instance, it forbids the mailing of lottery tickets or 
other gambling instruments. Customs agents open suspected 
foreign lottery mailings upon entry into the United States and 
then refer the mailing to us, since we have the primary 
enforcement jurisdiction. Using our existing authority, Postal 
Inspectors obtain destruction orders for this lottery mail to 
disrupt the operation.
    We have met with the Postal Service General Counsel to 
explore applying our existing statutory authority to declare 
illegally mailed drugs in violation of the prohibition against 
dangerous mail. This strategy would enable us, working with FDA 
and Customs, to handle these items in a manner similar to what 
we do with lottery mailings.
    To be successful, we must rely on the cooperative efforts 
of Customs and the FDA. Controlled substances may be mailed if 
they are not otherwise banned by Title 21 of the U.S. Code and 
are packaged in accordance with the Controlled Substance Act. 
Prescription drugs may be sent through the mail as long as the 
inner packaging is labeled to show the name and address of the 
dispenser and the label conforms to the other requirements. The 
outer wrapper has to be free of content markings.
    This requirement creates an enforcement difficulty for 
Postal Inspectors acting alone. However, I am confident that we 
can overcome such challenges with the assistance of Customs and 
FDA using their existing authorities. Without these agencies, 
it is difficult, if not impossible, for us to articulate the 
probable cause necessary to secure a Federal search warrant 
based solely on the exterior appearance of the package or the 
mailing or the country of origin.
    Since meeting with the Subcommittee on June 18, Postal 
Inspectors have met with our law enforcement and regulatory 
partners. We asked to be included in the standing working 
groups focusing on on-line drug sales.
    We also conducted an assessment of the extent of the 
problem at the Miami, New York, Los Angeles, San Francisco, and 
Chicago International Mail Service Centers to develop 
strategies to address this problem with the interagency task 
forces. We proposed to the task force our intent to host a 
conference of the interested agencies from each of the 
International Service Centers to develop a strategy to combat 
this problem.
    Finally, as the Chief Postal Inspector, I also serve as the 
Chairman of the Postal Security Action Group of the Universal 
Postal Union. The Universal Postal Union is the regulatory 
organization for all postal administrations, and the Postal 
Security Action Group is made up of approximately 75 
international postal administrations. One of our major efforts 
since September 11 has been to promote and adopt measures which 
are designed to keep the mails of the world free from dangerous 
goods. I will obtain the necessary information from Customs and 
the FDA with regards to target countries and raise this issue 
with the other foreign postal administrations.
    The Postal Inspection Service will do whatever it can to 
better address the problem of illegal drugs and illegally 
imported drugs in the mail. We remain greatly dependent on 
those agencies which have the primary jurisdiction in these 
matters and I am confident that we can work with them to 
overcome any obstacles.
    I appreciate your recognition of the importance of this 
issue and the support shown by all of you. Thank you.
    Senator Coleman. Thank you very much, Inspector Heath. Mr. 
Ahern.

TESTIMONY OF JAYSON P. AHERN,\1\ ASSISTANT COMMISSIONER, OFFICE 
  OF FIELD OPERATIONS, BUREAU OF CUSTOMS AND BORDER PROTECTION

    Mr. Ahern. Good morning, Mr. Chairman, and thank you very 
much for the opportunity to testify here today. I would like to 
discuss with you CBP's ongoing efforts to address the ever-
increasing trend of personal and bulk importation of 
pharmaceutical products and controlled substance into the 
United States.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Ahern appears in the Appendix on 
page 218.
---------------------------------------------------------------------------
    Although the main focus of CBP has shifted to protecting 
the United States from terrorist attacks, CBP also enforces 
over 400 requirements from more than 40 agencies at our U.S. 
borders. These include the laws that prohibit the importation 
of illegal and unapproved pharmaceuticals that fall under the 
jurisdiction of the FDA, as well as those controlled substances 
that are under the jurisdiction of the Drug Enforcement 
Administration.
    The issue of U.S. consumers buying prescription drugs from 
foreign sources have become a significant concern to CBP, and a 
growing number of Americans obtain their medications from 
foreign locations, often seeking out suppliers in Mexico and 
Canada, as well. However, the safety of the drugs purchased 
from these sources cannot be ensured.
    CBP is concerned with several ways that pharmaceuticals are 
imported, including those that are purchased through the 
Internet and shipped through our international mail or express 
courier facilities, those carried by individuals across the 
U.S. borders, and also bulk shipments of adulterated or 
counterfeit pharmaceuticals. During the course of the past 
year, we have taken some steps to address each of these areas 
of concern.
    Millions of packages, though, come through our mail and 
express courier facilities each year and thousands of these 
packages, particularly in the mail, are found to contain 
illegal and unapproved pharmaceuticals. Additionally, we have 
found bulk pharmaceutical shipments that were attempted to be 
imported through the mail, potentially indicating that these 
products could be making their way to pharmacy shelves.
    The volume of the imported material brought into the United 
States via the mail is overwhelming. The international mail 
poses also several unique challenges to CBP, since it is not 
accompanied by any electronic manifest information.
    While we do not have statistics on the total number of 
imports of controlled substances or pharmaceuticals that enter 
the country each year, the U.S. Postal Service estimates that 
over 400 million pieces of mail enter the United States through 
our international mail branches each year. It is also 
significant to note that during fiscal year 2003, Customs and 
Border Protection made over 24,000 seizures of mail, and during 
this period, of those 24,000, 12,353 were pharmaceutical and 
controlled substances.
    At the express consignment facilities that we staff, there 
are over 46 million packages arrive, with Customs and Border 
Protection making over 4,900 seizures, of which 1,543 were 
related to pharmaceuticals or controlled substances.
    In order to address some of these challenges, we recognize 
certainly there is a significant threat growing to the public's 
health and CBP has been working very cooperatively with the 
DEA, the FDA, the U.S. Immigration and Customs Enforcement, 
ICE, and the U.S. Postal Inspection Service, and now the 
offices of the National Drug Control Policies have become 
involved, as well. We have directed these issues related to the 
importation of prescription drugs and miscellaneous 
pharmaceuticals. The goals of this interagency working group 
are to create a strategy for enforcement, interdiction, and 
disposition of unlawful pharmaceuticals entering the United 
States and to develop proposals for joint enforcement 
operations at our ports of entry and mutually agreed upon 
policies to unauthorized importations.
    Since a large percentage of pharmaceuticals and controlled 
substances arrive through the mail and by express consignment, 
a separate working group has also been created to address these 
areas. The working group was charged with reviewing and 
revising procedures used at international mail and express 
consignment operator facilities in addition to assessing 
resources used at these locations. CBP is currently working 
with the FDA to develop standard operating procedure for mail 
operations.
    On the concrete results of the mail and express task force 
is the coordination of the effort that is being conducted at 
all of our international mail branches this year. The 
operation's goals, called Operation Safeguard, is to identify 
the type and the volume and the quality of the pharmaceuticals 
imported into the United States. This enforcement effort found 
the volume of pharmaceuticals shipped through the international 
mail to be enormous. We have also found that a significant 
number of these do not contain any active pharmaceutical 
ingredient but merely contain substances such as starch and 
sugar.
    The latest blitz that was conducted in June uncovered a 
substantial volume of controlled substances, and of the 
packages that were examined, 46 percent are suspected to 
contain controlled substances and these products were seized.
    The working group has also conducted regular meetings since 
January 2004 and several key accomplishments have also been 
created through the reimplementation of Operation Safety Cap, 
which is designed to look at passenger importations of 
pharmaceuticals from Mexico. Safety Cap was an agency-wide plan 
to enforce laws related to the importation of prescription 
drugs at the border. Both FDA and ICE also participated in this 
enforcement operation and this plan continues to develop for 
further locations along the Southwest border, which we have 
done four to date. We will also turn to the North and look at 
crossings coming across the Northern border from Canada.
    In conclusion, it is clear that the importation of the 
pharmaceuticals and controlled substances remains an 
overwhelming problem for Customs and Border Protection. We are 
committed to continue to work with the FDA, the DEA, ICE, and 
other regulatory agencies to develop a more practical and 
workable approach to solving this problem.
    I want to thank you and the Members of this Subcommittee 
for including Customs and Border Protection in your review of 
importation of pharmaceuticals and I will be happy to take any 
questions later.
    Senator Coleman. Thank you, Commissioner. Mr. Taylor.

TESTIMONY OF JOHN M. TAYLOR, III,\1\ ASSOCIATE COMMISSIONER FOR 
    REGULATORY AFFAIRS, U.S. FOOD AND DRUG ADMINISTRATION, 
                      ROCKVILLE, MARYLAND

    Mr. Taylor. Mr. Chairman, before I begin, I would like to 
ask that some additional and updated enforcement cases be 
included in the record along with my written statement.\2\
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Taylor appears in the Appendix on 
page 227.
    \2\ Additional FDA Enforcement Actions appears in the Appendix on 
page 283.
---------------------------------------------------------------------------
    Senator Coleman. Without objection.
    Mr. Taylor. Thank you, sir. Mr. Chairman, I appreciate 
having this opportunity to discuss with you issues related to 
on-line pharmacies and importation of prescription drugs to the 
United States. Despite the many proposals that would legalize 
the importation of prescription drugs, FDA continues to have 
serious public health concerns about the importation of drugs 
outside the current safety system established by Congress under 
the Food, Drug, and Cosmetic Act.
    When it comes to buying drugs absent our existing 
regulatory protections, FDA has consistently concluded that it 
is unable to endorse a ``buyer beware'' approach. Currently, 
new drugs marketed in the United States, regardless of whether 
they are manufactured here or in a foreign country, must be 
approved by FDA based on demonstrated safety and efficacy. They 
must be produced in inspected manufacturing plants that comply 
with good manufacturing practices, and the shipment and storage 
of these drugs must be properly documented and, where 
necessary, inspected.
    Unfortunately, the drug supply is under unprecedented 
attack from a variety of progressively more sophisticated 
threats. For example, FDA's counterfeit drug investigations 
have risen fourfold since the late 1990's. At the same time, 
inadequately regulated foreign Internet sites have also become 
portals for unsafe and illegal drugs.
    For example, FDA recently worked with domestic and 
international authorities to shut down a Website advertising 
FDA approved and safe European birth control pills and other 
drugs, but they were actually importing ineffective counterfeit 
products. FDA believes this Website and the four Websites that 
FDA knocked out in February 2004 that were selling 
contraceptive patches are indicative of the dangers consumers 
face when they purchase drugs over the Internet.
    Consumers are exposed to a number of potential risks when 
they purchase drugs from foreign sources or from sources that 
are not operated by pharmacies properly licensed under State 
pharmacy laws. When consumers take such medications, they face 
the risk of subpotent, contaminated, counterfeit product, 
dangerous drug interactions, and/or suffering adverse events, 
some of which can be life threatening. More commonly, if the 
drugs are subpotent or ineffective, patients may suffer 
complications from the illnesses that their prescriptions were 
intended to treat without ever knowing the true cause.
    Due to the huge volume of drug parcels entering the United 
States through international mail facilities and courier 
services, the requirements for notice and hearing, and FDA's 
limited resources, it is difficult for FDA to obtain and refuse 
the many mail imports consisting of individual small quantity 
shipments. As a consequence, tens of thousands of parcels that 
FDA is not able to review as a result of its limited 
enforcement resources and competing priorities are eventually 
released by FDA and the Bureau of Customs and Border 
Protection, even though the products contained in the parcels 
may violate FDA statute.
    While we do not believe that this is an acceptable public 
health outcome, it is one which presents a significant 
challenge to the agency. We have responded to this challenge by 
employing a risk-based enforcement strategy, the refinement of 
which is ongoing, to target our existing resources effectively 
in the face of multiple import priorities, including homeland 
security and food safety.
    To enhance our ability to effectively carry out this task 
and to assess the extent of the problems posed by imported 
drugs, CBP and FDA conducted import blitzes at four 
international mail facilities last summer. We found that 88 
percent of the drug products we examined were unapproved or 
otherwise illegal. Examples of the potentially hazardous 
products encountered during the blitz included drugs never 
approved by FDA, drugs requiring careful dosing, drugs 
withdrawn from the market, drugs with clinically significant 
drug interactions, drugs with inadequate labeling, drugs 
inappropriately packaged, drugs requiring initial screening 
and/or close physician monitoring, and controlled substances.
    CBP and FDA performed another round of blitzes at four 
international mail facilities and at several courier hubs in 
November 2003, resulting in similar findings. CBP and FDA 
continue to perform blitzes which help quantify the type of 
drugs coming into this country, identify the public health 
issues surrounding these products, and identify trends in 
illegal importation of unsafe drugs. The results enable us to 
strategically focus our investigatory and regulatory resources 
and drive our efforts to reevaluate, refine, and improve the 
programs and procedures used to ensure the availability of safe 
and effective drugs to U.S. consumers.
    As a result of these efforts, the agency has finished 
drafting procedures that encompass the best and most effective 
practices identified from our operations around the country. 
These procedures will be used by all FDA personnel responsible 
for handling mail at the international mail facilities and at 
the air courier hubs. We have implemented these new mail 
procedures in a staggered approach, starting with the 
international mail facilities located at JFK Airport and 
Carson, California. The air courier procedures will be 
implemented in a similar manner next month starting with the 
air courier hubs in Memphis and Louisville.
    The completion of these procedures is significant because 
it represents a strengthening in the programs and procedures 
that are used to ensure the availability of safe and effective 
drugs to U.S. consumers. The procedures increase efficiency and 
consistency by providing well-defined steps for targeting 
packages for inspection and detention, and they also help CBP, 
DEA, Postal, and our other partners because they provide a 
better understanding of what products are of greatest concern 
to the agency, and they also make the process more transparent.
    In closing, a large and growing volume of parcels 
containing foreign prescription drugs ordered by individuals 
from foreign sources are entering the United States. This 
volume represents a substantial challenge for the agency to 
adequately assess and process these parcels, resulting in an 
increased workload for agency field personnel. The new 
procedures, however, will help the agency target its limited 
resources in a manner that will best protect the public health 
from unsafe, illegal imported drugs, and drugs purchased from 
overseas Internet sites.
    Thank you for this opportunity to testify. I look forward 
to responding to any questions that you may have.
    Senator Coleman. Thank you, Mr. Taylor.
    For all the witnesses, there is a lot of information in 
your prepared statements and 5 minutes doesn't do justice to 
the range of concerns that you have identified and some of your 
suggestions for addressing those. So I just want you to know I 
appreciate that. I don't know if the audience, listening to 5 
minutes, knows the extent to which you have been looking into 
these problems and trying to figure out a way to deal with 
them. But I do appreciate that.
    Commissioner Hubbard.

TESTIMONY OF WILLIAM HUBBARD, ASSOCIATE COMMISSIONER FOR POLICY 
  AND PLANNING, U.S. FOOD AND DRUG ADMINISTRATION, ROCKVILLE, 
                            MARYLAND

    Mr. Hubbard. Thank you, Mr. Chairman, and on that note, I 
am going to race through some exhibits that FDA has that I 
believe complement the very findings that you and GAO have made 
and also give you some results of some recent investigations 
that we have done.\1\
---------------------------------------------------------------------------
    \1\ See Exhibit No. 33 which appears in the Appendix on page 351.
---------------------------------------------------------------------------
    As you saw in New York, Customs is the initial screening 
organization for these drugs that turns it over to the FDA. We 
get presented with these huge bins----
    Senator Coleman. Mr. Hubbard, I will let you take your time 
a little bit, too. I will extend your time.
    Mr. Hubbard. Great. Thank you. [Laughter.]
    Senator Coleman. I grew up in Brooklyn, New York, spending 
my last 4 years in Minnesota, but the good news about growing 
up in Brooklyn is that you can talk fast. The bad news is, 
nobody understands you. [Laughter.]
    Mr. Hubbard. Thank you very much, Mr. Chairman. So FDA is 
presented with these huge bins of packages, and I have got some 
here before me. These are actual orders that patients have 
made, and let me just make up a scenario here.
    They send me to New York and become one of these 
inspectors, and I have an M.D. degree and a pharmacy degree and 
a law degree, and I begin to open these packages, and maybe I 
can get through one bin in a day, but I can't make any 
reasonable judgments about these drugs. I can look at the name. 
I can look at the pill. But it doesn't tell me very much.
    So I think to answer the question that you raised about 
more resources--a visual inspection with more resources will 
not actually solve this problem, we fear. And we are also very 
concerned that controlled substances are finding their way 
through with the prescription medications because of the 
difficulty of finding those, and as you saw in New York, there 
is a mountain of those sitting there waiting to be dealt with, 
as well.
    Now, one of the things that we have recently done is ask a 
local computer security firm named Cyveillance to look at some 
of the sites that purported to be Canadian, which are generally 
believed to be the best of these pharmacies. So they use a web 
crawler, as you asked about, to examine sites and found 1,000 
sites--1,009--that appeared to be Canadian. And then we did a 
random deeper analysis of 10 percent of those and found that 
almost half are offering controlled substances. Two-thirds or 
more are selling prescription distribution drugs. These are 
drugs like Accutane or something that FDA would only approve 
under very restricted use by certain doctors and pharmacists. 
They also lie and they say the drugs are FDA approved when, in 
fact, they are not, and they have liability disclaimers that 
say to the patient, we are not responsible if you are injured.
    As an example, here is one, Discount Drugs of Canada. It 
appears to be very legitimate. We asked, where is it? They say 
they are in Manitoba. Who is the registrant of it? It is a Mr. 
Thuy. Where is he? He is in Vietnam. That concerns us. Why is 
the registrant of this site in Asia? They are selling not only 
drugs from Canada, they are offering drugs from Australia and 
Britain. So we see this almost inexorable dimunition of the 
source, and there are reports now of drugs coming from Chile, 
from Israel, from South Africa, and so the whole system, we 
fear, is degrading. And, of course, they are offering 
controlled substances like Meridia and restricted distribution 
drugs like the Somatropin that you see here.
    And then lastly, these sites are essentially saying to the 
patient, sign away any right to sue us and attest to the fact 
that if you are injured, it is your responsibility, patient. No 
American drug store would ever do that.
    We are also worried about an even slippery slope. As you 
see, this is a communication from a Pakistani drug manufacturer 
who is saying essentially to Canadian pharmacies, when you 
start running short of your supply of the good Canadian or 
American drugs, let us know. We will fill your pipeline with 
drugs that we make here in Pakistan.
    One site that we and the DEA have been investigating is 
this one that offers to sell generic versions of Canadian 
drugs, and we have actually made some buys there and explored 
where they are. They are actually registered in China. But the 
postmark was Dallas, Texas. The return address was Miami, 
Florida. The credit card was billed to a business on the Island 
of St. Kitts. And the listed phone number for this site when we 
began to investigate where it really is was the South American 
country of Belize. Again, why if this is legitimate are these 
things all over the place?
    And, of course, it is not legitimate. We actually bought 
drugs and tested them, Lipitor, Viagra, and Ambien, Ambien 
being a powerful sleep aid. We tested for potency. They failed. 
We tested them for so-called dissolution, to see if they would 
dissolve in the body and go into the bloodstream. Two failed. 
And they had impurities in most cases. In fact, in some cases, 
their potency was half-potent or double-potent. So, for 
instance, a senior citizen could take this Ambien thinking one 
pill was what he was supposed to take. It is double-potent. It 
could sedate him to the point of death, a very serious public 
health concern.
    Now, as you know, part of the problem, Senator, is that the 
public officials are telling people to go buy these drugs 
because they are cheaper, and this is the Wisconsin site that 
Governor Doyle has put up. They use three Canadian pharmacies 
in British Columbia, in Alberta, and in Manitoba, as you see, 
Canada drugs, Granville Pharmacy, and Total Care. So recently, 
the Pharmacy Society of Wisconsin has been examining the actual 
purchases from those sites and they are finding that a third of 
the prescriptions from that site, and this is supposedly the 
site has been checked out by the State. It is supposed to be 
one of the better ones. A third of the prescriptions are not 
meeting the State's agreement. Two-hundred-and-thirty-seven 
impermissible drugs have been dispensed. Many of them were non-
FDA approved drugs. And they had a specific requirement not to 
ship refrigerated drugs because that had been a problem.
    So FDA then did its own examination to determine if, in 
fact, the Pharmacy Society results were accurate, and in fact, 
we found even worse, that in the case of Total Care Pharmacy, 
two-thirds of their prescriptions violated the State agreement. 
But unfortunately, Mayor Thomas Menino of Boston just yesterday 
announced a program to give employees of Boston drugs from 
Total Care Pharmacy, the very pharmacy that has been found to 
be violating the standards that had been established.
    And even worse, in many cases, they are selling Americans 
generic drugs that they could have gotten here in the United 
States at a corner drug store cheaper than in Canada. So they 
could have gotten the regulated, FDA-approved drug here, and 
they are being sent to Canada to buy a drug that is actually 
more expensive and less regulated.
    Last, I will just close with a couple of mentions of 
counterfeiting. These are two counterfeit drugs that are 
virtually identical in appearance and very difficult for the 
patient to distinguish between.
    This is a Viagra die that a counterfeiter had been using. 
As you can see, it is quite filthy. You can see the Pfizer name 
upside down on the reverse side of the pill, the Viagra 
imprint.
    This is a tableting machine. This is not what you would see 
in a licensed manufacturing organization.
    This is how they dry the pills using light bulbs, as you 
see.
    Now, this is the Viagra--this is their sophisticated 
packaging process. The blue pills on the bed are the Viagra and 
the bottles in the large plastic bags are to be inserted. I am 
not sure what the microwave oven is for.
    This is again a packaging machine.
    And then lastly, I will point out that a toilet is an 
effective porcelain vessel to make drugs. As you can see, that 
toilet is filled with them. But I don't think any of us believe 
that is the way to make good drugs, and so we are very worried 
that the counterfeiters will be able to use this mechanism, as 
you have pointed out, Mr. Chairman, to get these unsafe drugs 
into our system.
    With that, I will end my presentation. Thank you.
    Senator Coleman. Thank you very much, Commissioner Hubbard.
    Let me start, and I am going to have questions for the 
panel, but just a statement about the work that the line folks 
have done. I have had a chance to be out at JFK, Customs and 
the FDA--I do have great respect for the work that your folks 
are doing out there. They are faced with a challenge of 
overwhelming proportion. I do have concerns about our ability 
to get our hands around this, whether in the 5 years from 1999 
to today, did we move quickly enough in that period of time.
    But I just want to say thank you to the folks on the front 
line. We have some issues that we have to deal with in terms of 
resources, whether this Congress is providing enough resources 
and whether we have worked in a coordinated enough approach. 
But I do want to let the folks on the front line know that we 
appreciate what they do.
    How do you deal with the comments out there? And by the 
way, let me back it up and say I note you looked at Wisconsin's 
site. Minnesota has a similar site, and perhaps you are being 
kind to the Chairman and my governor by not commenting on the 
Minnesota site. I do recall in my review for this hearing that 
even the Minnesota site was one where one of the issues there 
was that site was providing drugs that were actually from 
another country. Now, apparently they provide notice to the 
customer that they are not getting Canadian drugs, but can 
somebody comment on that phenomena, that even those 
``legitimate'' Canadian operations are at this point in the 
process of going elsewhere for their drugs? They are not 
American and they are not Canadian. They could be produced 
anywhere in the world. Any reflections on that?
    Mr. Hubbard. I think you are right. We pointed that out 
substantially because the sites often promise FDA-approved, 
U.S.-made drugs sold through Canada, and this trend of going to 
other countries is a slippery slope that we are very concerned 
about. And, in fact, it is happening. And while some do say 
that, others don't even say that. They just send the drug.
    We had a case recently of a gentleman from Michigan who had 
ordered a drug from a Canadian pharmacy and was told he was 
going to get the U.S.-made, FDA-approved, Canadian-sold drug 
and it came from India. So he was lied to, and that is a 
concern, that in this case a senior citizen was duped into 
believing he was going to get the good drug and he didn't.
    Mr. Taylor. It is directly attributable to supply and 
demand. One of the reasons why we conducted the blitzes is 
because there often is a lot of conjecture about what is out 
there and there is also a lot of conjecture about all the 
products being perfectly safe or all the products being 
harmful. And one of the things we have noticed is that, 
obviously, as the American consumers purchase more and more 
products over the Internet or through storefront pharmacies, 
the supply is dropping, and so these suppliers are having to 
look to other countries to backfill that supply. Our concern is 
that as they look at these other suppliers, that additional 
quality issues will arise, we will know even less about the 
origin of the products and how the products are manufactured.
    Senator Coleman. How do you respond to the quip, ``Where 
are the dead Canadians?''
    Mr. Taylor. I am sorry, the----
    Senator Coleman. How do you respond to the quip saying, 
``Where are--''
    Mr. Hubbard. Well, first of all, there are----
    Senator Coleman. ``Where are the dead Canadians?'' With all 
of the concerns that we are raising here, we are not seeing 
lives being lost.
    Mr. Hubbard. There are injuries that have occurred from 
drugs bought by Americans from Canada. It is not a long list. 
But part of the problem, Mr. Chairman, is that there is no 
system in place to track injuries from these drugs. These drugs 
shouldn't even be here. So the health care system doesn't track 
them. And we have learned from patients, they tend not to tell 
anyone they are buying these drugs. They feel that maybe they 
have done something a little wrong and they don't admit it.
    So let us say a patient gets a drug for his high blood 
pressure, it doesn't work, he has a stroke. They ask his doctor 
later and he said, ``Well, my patient had the high blood 
pressure and he was stroke-prone,'' but maybe didn't know that 
the patient was getting not the legitimate drug but the foreign 
drug that wasn't working and caused his stroke.
    Mr. Taylor. I think that is right. I mean, I think there is 
an additional facet to it, which is we don't always expect, 
quite frankly, to see gross negative health outcomes. However, 
our overarching concern is that a person is purchasing a drug 
with the expectation that it will treat or control the 
condition that they have, and if a drug is without any active 
ingredients, like the products that CBP tested, or like the 
counterfeit Lipitor that we dealt with last year, or like the 
contraceptive patches that were in my oral testimony, then the 
person's condition is not going to be treated or their 
depression is not going to be controlled. So that might not 
lead to mortality, but it certainly has a negative health 
impact that is not desirable.
    Senator Coleman. I would also note at our last hearing 
where we dealt with the instance of dead Americans, a young 
man's family was involved in the testimony, and a tri-athlete 
whose wife didn't know that he was getting these drugs until he 
died. Perhaps she might not have known if certain information 
hadn't shown up. So I hear that quip again and again.
    A question I would like you all perhaps to respond to. 
Knowing the extent of the problem or the extent of the 
challenge, was it 200 billion pieces, right, billion pieces of 
mail coming through this country? The percentage of stuff 
coming in from other countries, what was the figure there? Was 
it 400 million? Does anyone here envision, if you had access to 
whatever resources you needed, within reason, a system whereby 
we truly get our hands around this problem? Ms. Tandy.
    Ms. Tandy. Mr. Chairman, if you liken this flow of 
pharmaceuticals coming into the United States as water through 
a faucet, my panel colleagues are at that downstream of the 
faucet trying to catch it all. What we are doing with DEA with 
the resources that were committed to us in the 2004 
appropriation, we are focusing on turning the spigot off, which 
is attacking the organizations that are responsible for that 
flow.
    It requires very sophisticated technology which we have in 
place now and are refining to identify these hundreds of rogue 
pharmacy Websites, many of which are outside this country. It 
is critical in order to truly get our hands around this to stop 
the spigot at the top and put those Websites out of business 
and those organizations that are responsible for that, put them 
in American jails for sending those drugs here.
    Senator Coleman. Let me, before others respond, just to 
follow up on that. It has been highlighted here that you have 
sites that purport to have FDA approval, that have seals of 
approval. There have been some proposals to, in fact, require 
FDA approval in order for folks to operate. But assuming, do we 
have the authority today? Do we have the laws on the books 
today? If we were to put in place a system whereby there was 
bona fide FDA approval but you had folks who were 
counterfeiting that approval, who were fraudulently stating 
that they had FDA approval, do we have in place the legal 
mechanisms to go after and shut down these rogue operations?
    Mr. Taylor. So far, a lot of our discussion has surrounded 
the issue of resources, but for FDA, it is not just resources. 
It is a question of adequate authorities. As Mr. Hubbard said, 
mere visual inspection of the product at the border is not 
going to--it is just not that useful in determining in a 
dispositive way whether a product is safe or not or whether it 
is approved or not. An important part of knowing the content of 
a product is knowing where it comes from and knowing its 
origins.
    And yet when people ask, well, why doesn't FDA go and do a 
foreign inspection of some of these overseas pharmacies or 
overseas sites, what people don't understand is we don't have 
the jurisdiction to do those inspections. In order for us to do 
our foreign inspections, even the foreign inspections we do now 
as part of a new drug approval, we need the company to invite 
us in, and the incentive is that they invite us in and we do 
the inspection and their product will get approved, and we need 
the country to allow us to come in, and there have been 
instances where we have been on a plane on our way to a 
facility and either the country or the company has decided they 
are not ready and we have had to turn around--so it is a 
question of resources and authorities that are necessary to 
really do a better job of controlling this problem.
    Senator Coleman. Do you currently have the authority to, if 
you have a site that is fraudulently proclaiming that it has 
FDA approval, to shut down that site and to prosecute those for 
some sort of false representation?
    Mr. Taylor. We do not have that authority. Sometimes we 
will--what we will do is sometimes we will talk to the Internet 
service provider and they will do it for us, depending on the 
evidence that we have in hand. Other times, we work with our 
partners at DEA or at ICE and they might have the 
administrative authority to shut down a site. But FDA does not 
have the authority to shut down a site. What we often do is we 
will either enjoin an operation, which will lead to the site 
shutting down, or we will indict or convict the people who are 
behind the site. But we don't have express authority to shut 
down the site.
    Senator Coleman. Talking about authority, Commissioner 
Ahern, do you have the ability at this point to seize 
controlled substances? We have seen boxes of this stuff, there 
was one discussion of those being sent back, literally sent 
back to the illegal purveyor of this. What kind of increased 
authority do you need to immediately seize and destroy, and 
would you want that kind of authority?
    Mr. Ahern. Thank you, Chairman. I would also like to answer 
the previous question, too, about the resource impact of this 
and is resource an acceptable solution to this problem.
    I think, certainly, I am not certain you can throw enough 
resources given the volumes that we are dealing with, and I am 
not sure a resource response is the appropriate response for 
the government agencies. I think we need to take a very layered 
approach. I think it certainly is very appropriate to look at 
taking out the Websites, taking out the profiteers of this, and 
also I think a very layered approach with interdiction, 
investigation, intelligence, and public outreach. I think those 
are very key components that certainly is part of the task 
force, and by adding ONDCP recently onto the task force, we are 
getting that outreach part along with FDA.
    But certainly to the question of authorities and to the 
referenced parcels that were returned to sender at JFK, I would 
like to respond to that directly. That is true, that there was 
the shipments up in JFK that were returned to sender. Most of 
those were Schedule IV as well as a lot of pharmaceuticals, as 
well. That was a 5- to 6-month backlog of detentions and 
seizures that were made at that point in time.
    The people at JFK did not respond to policy of this 
organization and we have made the corrections with them to make 
sure that they know that they do not send return to sender on 
seizures. It should be affected at the borders.
    However, I would like to state that for each one of those 
seizures that does occur, it requires about one hour of front-
end processing at the mail facility to process those seizures, 
and that is why when you had your opportunity to go up and take 
a look at the JFK mail facility, and what has been depicted 
here today in the hearing shows the volume actually of what is 
being stored and detained in our storage facilities there for 
processing, not all for FDA determination, or for Customs and 
Border Protection processing.
    We have to do the same level of processing of that seizure 
because of the due process the individual importer is afforded 
under current law and procedure. We have to do the same long-
form enforcement report as we would for if it was ten pounds of 
heroin or cocaine. We need to find a way to do consolidated 
seizure reports that could take the time involved with this 
processing down significantly, as well as move to a very 
efficient and effective summary forfeiture proceeding where we 
don't need to send the notice out but we can destroy these 
things on site and continue with the interdiction mission as 
part of that layered strategy.
    Senator Coleman. In order to find that way, is that 
something that requires administrative changes or does it 
require legislature changes?
    Mr. Ahern. For the summary forfeiture authority, we 
certainly need to have the legislative change to support that.
    Senator Coleman. I look forward to working with you on 
those proposals.
    Also in your testimony, you talked about interagency 
working groups. I reflected earlier in my opening statement, 
there were working groups formed in 1999. What is the 
difference between the working groups we have today and those 
that we had 5 years ago?
    Mr. Ahern. I can't reflect back to 1999 and what might have 
not occurred under the group that was put in place at that 
point in time. I was not directly involved with that. I will 
tell you, looking back in history, shortly after this group was 
created, there were some operations that were conducted, not 
many. We also then had the 9/11 tragedy which certainly took 
the focus of the Border agency, certainly the agency that I am 
part of, and redirected our focus to preventing terrorists or 
implements of terrorism from coming into this country, and I 
think that was a very appropriate response from us for us at 
that time.
    However, within the last several months, we have created 
these additional task forces to try to rejuvenate the 
collaboration that is necessary to achieve the layered approach 
with stopping this problem. It is not just a border 
interdiction problem. It is not just an investigative problem 
or a regulatory problem. We need to tackle this on all fronts.
    I believe that the five working groups that are part of 
this have some comprehensive plans, and I would also submit 
that with the actions that have come out through the task 
force, special operations and blitzes that have been conducted 
as well as the laboratory and scientific services sampling 
reports, have shown the level of concern and I believe we will 
take these and continue to move forward with our action.
    Senator Coleman. I would hope there would be some objective 
ways to measure progress here so we are not coming back in 5 
years and asking the same question.
    Mr. Taylor. Mr. Chairman, one objective measure is the work 
that we have done on procedures. One of the subgroups is just 
devoted to mail procedures and targeting. As part of our 
staggered approach, we have shared the procedures with DEA, 
Postal, and CBP. We welcome their comments. But more 
importantly, the information that was used to provide the 
framework for those procedures is part of our collaborative 
working relationship.
    I agree with Jay. I think that the working group, and I 
wasn't around in 1994 either, but I think the working group has 
proven to be a springboard, if for no other reason we have a--
it has made our working relationship here in Washington closer. 
If I need something, I can call Mr. Ahern or I can call Ms. 
Tandy's people inside or outside those meetings. It has been 
easier to involve more headquarters people as part of the 
subgroups.
    And so one objective measure is the fact that after 
realizing the need for these mail procedures, we have 
introduced them. We will continue to refine them with the help 
of our partners. And then we will introduce the air courier 
procedures, again, in conjunction with our partners. So those 
are two small hallmarks that signify the robustness of what we 
are doing now.
    Senator Coleman. And I would, Mr. Ahern, suggest a 
terrorist threat to what we are dealing with here, and we 
talked about this at the last hearing with Mayor Giuliani. You 
don't want to give anybody ideas, but it doesn't take rocket 
science to figure out that we are using extraordinary measures 
to protect our borders, to protect particularly people coming 
in, and we are doing things with cargo and other areas, 
understanding some of the challenges, to take a look at what is 
coming in. We are concerned about radioactive devices.
    But the reality is that any terrorist network could set up 
an American A-Plus Number One Internet Drugs at bargain 
basement prices and flood this country with materials and drugs 
that could have a devastating impact and raise the level of 
fear. We shut off access to Canadian meat with the 
identification of one cow with BSE, and yet clearly we have a 
system here that is without controls, without the ability to, 
at this point, sufficiently prevent something like this from 
happening. So I would maintain there is a national security 
aspect to the availability of or the ease of getting these 
types of substances into the hands of American consumers.
    Mr. Ahern. My comment to that is certainly I don't disagree 
with you. However, we certainly have to take a very risk-based 
approach and we know that there are concerns with people 
crossing our borders, coming into this country, as well as the 
threat posed by sea containers, as well as other cargoes coming 
into this country. So we do take a very risk-based, 
intelligence or information driven approach in our response 
with our resources.
    To this point, there has been no active intelligence that 
indicates that this would present itself as a threat. 
Certainly, all the 400 million mail shipments coming into this 
country, as well as the half-a-billion people that cross our 
borders legitimately, as well as the sea containers and cargo 
opportunities, we look at as windows of opportunity and we take 
a very risk-based approach with addressing those threats. But 
certainly we haven't disregarded this as a potential at this 
point in time. There is no active intelligence that indicates 
that threat is present.
    Senator Coleman. There is a system, is it VIPPS? There is a 
system that the pharmacy organizations have set up to provide 
some measure of bona fide, legitimate. Can someone talk a 
little bit about that?
    Mr. Hubbard. It is established by the National Association 
of Boards of Pharmacy and it has very high standards, and it 
basically says, if you want to sell drugs over the Internet and 
you meet all the requirements that a brick-and-mortar pharmacy 
would meet, you can receive this Good Housekeeping seal called 
a VIPPS seal. We believe it is a good idea.
    There are two, of course, flaws in it. One is that the bad 
guys can fake the seal. And second, VIPPS cannot reach out into 
other countries. It is really for domestic Internet sites.
    Senator Coleman. Is there anything that would preclude 
Canadian pharmacies from voluntarily adhering to the VIPPS 
standards?
    Mr. Hubbard. No. In fact, the National Association of 
Boards of Pharmacy has proposed to Minnesota that they work 
with them on inspecting Canadian pharmacies and making that 
very consideration. I don't believe we have heard back from the 
Minnesota officials on that recently, but FDA has expressed a 
willingness to be helpful in any way we can in that process.
    Senator Coleman. Mr. Taylor.
    Mr. Taylor. It is a good consumer outreach and education 
tool. A consumer can look at the site and know that the product 
is being dispensed pursuant to a legitimate State pharmacy 
license and that the products are FDA approved.
    Senator Coleman. Help me understand this issue again. We 
have talked about how you can fake the seal. What are the 
consequences of falsely advertising FDA approval? Or what is 
the level----
    Mr. Hubbard. If you are a foreign Website, there is not 
much that can be done because your server is in another 
country. The business is in another country. I don't think any 
of us can reach to that country in any effective way. We try to 
work with other governments, but our actual legal authority 
doesn't reach there.
    Mr. Taylor. Yes. If--I am sorry, Bill.
    Mr. Hubbard. There have been proposals in the past, 
bipartisan proposals, to at least require Websites to disclose 
who they are and where they are by both Republicans and 
Democrats in the House and Senate, and we have felt that 
concept has generally been a good one.
    Mr. Taylor. That is because even though the overseas site 
might fall outside our jurisdiction, if there is a U.S. agent 
or a U.S. entity that is part of the business, then we can take 
action against them.
    For example, we brought an injunction last year against RX 
Depot, which was a storefront pharmacy that was advertising 
FDA-approved products. In that case, we enjoined the American 
operation, which was essentially roughly about 80 other 
storefront pharmacies, and enjoined them from doing business. 
So even though we couldn't necessarily bring an action against 
the Canadian entities, we did deal with the domestic entity.
    Senator Coleman. I would hope we would look at some way to 
substantially enhance the penalty and the ability to get 
compliance, even those who are operating extraterritorially, 
that some action could be taken. I would anticipate that we are 
going to reach a point, I would hope, and certainly a proposal 
that Senator Gregg has offered and Senator Smith and I 
cosponsored that would require those who want to sell, Canadian 
and other pharmacies, to, in fact, be subject to FDA review and 
authorization and the same standards and that there be very 
strong penalties for those who fraudulently claim to have that 
kind of approval.
    Let me ask, I just want to focus a little bit on some 
individual cases, and this goes to the enforcement actions for 
Mr. Taylor and Mr. Hubbard. Can you tell me who Eric Kaiser is? 
Does that name ring a bell?
    Mr. Taylor. No, it does not, sir.
    Senator Coleman. I am told that he is a registered owner of 
numerous Internet pharmacy Websites that offer Accutane, 
Prozac, Zocor without a prescription. Do you have any 
information on his actions and his response or lack of response 
to cease and desist letters, E-mails, etc.?
    Mr. Taylor. Actually, it does--I know him in the context of 
some things that JFK has recently discovered and is looking 
into. It wasn't specifically with those products, but it was in 
another context.
    Senator Coleman. I raise the question, using him as an 
example, and I may have one or two others for some of the other 
witnesses here, but again, it goes back to this ability to 
track down, to have some sort of effective control over folks 
who are operating illegally. If you identify somebody as the 
owner of an Internet pharmacy but they don't respond to 
letters, E-mails, etc., then you check down as you have shown 
here. You show them a Website registration that says it is 
registered in one place, but it doesn't correspond to a 
particular name. How do you follow up on this stuff? What are 
you doing to track down those people that you get a clear sense 
that they are abusing this process?
    Mr. Taylor. Let me use the two examples in my oral 
testimony. For the contraceptive patches, that Website first 
appeared to be a U.S. Website. And by the way, this is a 
product that was brought to our attention by a consumer who 
received the contraceptive patches in a clear plastic bag, 
which caused warning bells to go off in her head. So she 
contacted the manufacturer who contacted us. There were tests 
and there is no active ingredient.
    From there, we looked at the Website that she purchased the 
product from and had to, with the help of Immigration and 
Customs Enforcement and use of administrative subpoenas, and by 
working also with the Internet service provider, track the fact 
that there were actually five or six different levels--five or 
six additional Websites between the one that she was using and 
the one that was registered in India, where the products came 
from.
    So to answer your question, there is a lot of interim 
investigatory work that is time consuming and requires not only 
good web crawling, but also good analytical skills to figure 
out the various links.
    Once we realized that--and this case is still ongoing, so I 
don't want to go into a lot of detail--but once we realized 
where it was registered, we contacted the Customs officials 
overseas and the local authorities to enlist their aid. In some 
cases, the local governments have been helpful in helping us 
figure out where the person we are seeking is. In other cases, 
people have been less cooperative. We also utilize the in-
country expertise of either Customs or DEA.
    Now, I don't want to suggest this is easy. It is not. It is 
actually very difficult. And in some cases, we have people who 
are in countries where there is no extradition. But that is the 
general steps that we use to try and determine the location of 
someone who is operating outside the country.
    Senator Coleman. I appreciate that.
    Administrator Tandy, if I can just turn to one or two 
examples, and I think we have Exhibits 1 and 3,\1\ over a 2-day 
period at JFK, our staff and I observed a shipment of 3,000 
parcels of controlled substance from Amert, a single vendor in 
the Netherlands. That is one of the things that I noticed, that 
there were a number of parcels from single vendors containing 
illegal prescription drugs. When you see something like that, 
when you see massive quantities coming from single vendors, and 
I think that is Exhibit 1? I think there is another exhibit 
there which shows the same thing, single vendor, massive 
quantities.
---------------------------------------------------------------------------
    \1\ See Exhibits 1 and 3 which appear in the Appendix on pages 286 
and 288.
---------------------------------------------------------------------------
    What can you do to stop that company from continuing with 
these illegal drug transactions? What is your authority and 
what kind of action do you take?
    Ms. Tandy. The process that we follow, once these vendors 
are identified, is to work with our foreign counterparts in law 
enforcement in the Netherlands or wherever the country is from 
whence these drugs have been shipped and to have our foreign 
counterparts assist us in the foreign-based piece of that 
investigation.
    We do have long-armed jurisdiction under Title 21 as to 
Schedule I and Schedule II controlled substances. Schedules 
III, IV, and V, which often are what you see over the Internet, 
are not included under that long-armed jurisdictional statute.
    Senator Coleman. And could you, for the record, describe 
the difference between Schedules I and II versus III, IV, and 
V.
    Ms. Tandy. I say Schedule I, because under the statute it 
is covered, but Schedule I, of course, these are not medically 
accepted drugs. So you can set aside Schedule I.
    Schedule II, there is a high risk of abuse of drugs in 
Schedule II. These are typically opioids.
    Schedule III, which is where you have seen some of the 
deaths, would be Vicodin, which is not pure hydrocodone but is 
a mix of hydrocodone and acetaminophen.
    So those schedules, the penalties are tiered by those 
schedules. Our authorities are cabined by the statute under the 
schedules.
    Essentially, we have to rely on our foreign counterparts to 
assist us in further identification of these Websites because 
these are not brick-and-mortar locations and require 
sophisticated investigation in order to identify where they are 
really operating from. And then our foreign counterparts, we 
rely on to shut down those sites that are outside of our long-
armed jurisdiction. We can always bring charges against these 
institutions, these Website companies, even though they are 
outside the country, for what they send into our country under 
the standard Title 21 process.
    Senator Coleman. I believe that hydrocodone is pictured in 
this photo. Do you know if there was any follow-up with this, 
what are they, a Dutch operation, Amert, a Netherlands 
operation? Do you know if there was any follow-up on----
    Ms. Tandy. I can tell you that we have a number of foreign-
based Website investigations underway now, but I wouldn't be in 
a position to tell you any specifics about those investigations 
at the risk of compromising them.
    Senator Coleman. Let me just introduce a last area of 
inquiry for you, and that is we talked about the web crawler. 
My understanding was in 1999, FDA purchased a web crawler. We 
are talking about it today. Help me understand why you believe 
the web crawler today will be more successful than the web 
crawler in 1999.
    Ms. Tandy. I can't speak to FDA's web crawler. DEA just 
received funding in 2004 for what has been colloquially 
referred to as a web crawler. It is to conduct these on-line 
investigations. We have worked very diligently to put into 
place an on-line investigative tool that, as it is refined, is 
going to be the equivalent of essentially six Google search 
engines together that will go through these on-line pharmacies 
using specific information to try to connect the links to the 
various Websites to specific targets. So I don't know how this 
differs from what FDA attempted to do in 1999----
    Senator Coleman. You have your own web crawler then?
    Ms. Tandy. We have our own web crawler, which after today I 
won't refer to as a web crawler anymore. It will be the on-line 
investigations tool.
    Senator Coleman. Mr. Heath, you talked about rogue 
pharmacies getting increased legal private scrutiny, and I 
believe some of the private operations, Google and Yahoo!, have 
been doing some things in regard to that. Does the Postal 
Service work with the private sector to address this issue of 
illegal sale of pharmaceuticals over the Internet? What kind? 
Because our next panel is going to be the private sector and I 
want to segue into that. Can you talk a little bit about that 
relationship?
    Mr. Heath. Absolutely. I think we have an excellent working 
relationship, especially with FedEx and UPS, not only to work 
on the illegal pharmaceuticals, but we share our intelligence 
and our methodologies with them, whether it is in the mail or 
in the private courier system, to target illegal narcotics, to 
target child pornography, and we certainly will do the same 
things with them with regard to this issue.
    There is one other point I would offer up when we look 
here. Administrator Tandy has talked a lot about the highlights 
of the investigative effort they put in to addressing the 
problem. When we look at mailings or shipments, as would be 
reflected in this, if they are fresh, that is pretty good for 
an investigative and evidentiary purposes. I know at Miami and 
at JFK, there is a significant dated backlog of materials that 
were seized months and months ago.
    I would suggest that along with Customs and Border 
Protection, FDA, that we take a look at using our enforcement 
authority with the destruction methodology to attack that 
backlog. If we can, in fact, demonstrate that there are 
multiple mailings from the same supplier, due to the dated 
nature, it is probably not going to be of much benefit from an 
investigative nature, but I think we should try out our 
methodologies to try to destroy that.
    As you mentioned, it does not make good sense to return it 
to the sender because it is only going to be sent back either 
to this country or to another country again.
    Senator Coleman. Let me talk a little bit about your 
authority. Does the Postal authority have the ability to open 
packages without a warrant?
    Mr. Heath. No, sir.
    Senator Coleman. So you have to turn to who in order to----
    Mr. Heath. We rely, especially on the international, the 
ones coming in from the foreign countries, we rely very heavily 
on Customs and Border Protection. They open the materials at 
the point of entry, and then for an enforcement process, once 
they have determined that it is an illegal product, then we can 
seek the destruction order.
    Senator Coleman. What about the possibility of cross-
designation to make it a little easier for you?
    Mr. Heath. Yes, sir, it definitely would.
    Senator Coleman. I think it is something worth exploring.
    I want to thank the members of the panel. We could go on 
and on. I do appreciate your efforts and your understanding of 
the nature of a growing problem and the importance of working 
together to address it. So again, I want to thank you for 
appearing before the Subcommittee.
    I would now like to welcome our final panel to today's 
hearing. This panel is composed of representatives of the 
private sector.
    I would like to welcome John Scheibel, Vice President for 
Public Policy at Yahoo!; Sheryl Sandberg, Vice President for 
Global Online Sales and Operations at Google; Joshua Peirez, 
Senior Vice President and Assistant General Counsel at 
MasterCard International; Steve Ruwe, Executive Vice President 
of Operations and Risk Management at Visa U.S.A.; Robert 
Bryden, Vice President of Corporate Security at Federal Express 
Corporation; and finally, Daniel Silva, Vice President and 
Director of Security at United Parcel Service.
    The purpose of this panel is to examine the extent to which 
consumers can purchase dangerous and often addictive controlled 
substances from both domestic and international Internet sites 
and the role that Internet search firms, credit card companies, 
and package delivery firms can play in identifying rogue sites 
and preventing them from utilizing their services. I do 
appreciate everyone's testimony at this important hearing and 
am anxious to hear your testimony.
    Pursuant to Rule 6, all witnesses before the Subcommittee 
are required to be sworn. At this time, I would ask you all to 
rise, raise your right hand.
    Do you swear that the testimony you are about to give 
before this Subcommittee is the truth, the whole truth, and 
nothing but the truth, so help you, God?
    Mr. Scheibel. I do.
    Ms. Sandberg. I do.
    Mr. Peirez. I do.
    Mr. Ruwe. I do.
    Mr. Bryden. I do.
    Mr. Silva. I do.
    Senator Coleman. As I am sure you are aware by now, we do 
try to have a timing system here, and for such a large panel, I 
would like to hold people to that. I will ask that folks limit 
their oral testimony to no more than 5 minutes, but I will make 
sure that your entire written testimony is entered into the 
record. When the light turns from green to amber, it gives you 
about a minute to sum up, so please follow that.
    We will begin with Mr. Scheibel--we will have you go first 
this morning--followed by Ms. Sandberg, then Mr. Peirez, Mr. 
Ruwe, Mr. Bryden, and finish up with Mr. Silva, and after we 
have heard all the testimony, we will turn to questions. So 
with that, Mr. Scheibel, you may proceed.

 TESTIMONY OF JOHN SCHEIBEL,\1\ VICE PRESIDENT, PUBLIC POLICY, 
                           YAHOO! INC

    Mr. Scheibel. Chairman Coleman, thank you for the 
opportunity to testify on an extremely serious issue, 
prescription drug sales over the Internet.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Scheibel appears in the Appendix 
on page 255.
---------------------------------------------------------------------------
    Yahoo! is a leading provider of comprehensive on-line 
products and services to consumers and businesses worldwide. 
Yahoo! is the number one Internet brand globally and the most 
trafficked Internet destination worldwide.
    Mr. Chairman, we appreciate your leadership in this 
critical area and we share your concern with protecting 
consumers. That is why, beginning in 2002, Overture, which 
later became a wholly owned subsidiary of Yahoo!, took its 
first preliminary steps to address this issue. At that time, 
Overture prohibited on-line pharmacies from advertising that 
prescription drugs could be purchased without a prescription.
    Then in November 2003, we took industry-leading actions to 
better ensure that our sponsored search listings of on-line 
pharmacies meet high standards of integrity and accountability. 
Sponsored search is a program under which advertisers bid on 
search terms in order to get placement in search results. Only 
those listings relevant to a search term are permitted to enter 
or remain in the active database. These listings are clearly 
labeled ``Sponsor Results'' throughout the Yahoo! site.
    As you mentioned, in November 2003, Yahoo! took the 
unprecedented action of removing all sponsored search pharmacy 
listings for prescription drugs as an interim step to 
developing a more comprehensive program that would maintain our 
commitment to providing consumers, advertisers, and partners 
with the best on-line experience possible. Our message was 
clear. Until we could create a safer environment for such on-
line advertising, there would be no sponsored search listings 
for prescription drugs on Yahoo!.
    Beginning in February 2004, we launched our more 
comprehensive program, which was the first of its kind. Our 
goal is to enable a more trusted marketplace for legitimate on-
line pharmacies to competitively offer consumers access to 
prescription drugs. The on-line pharmacy qualification program 
employs a five-facet approach to enhance consumer trust in 
participating on-line pharmacies.
    First, we determine whether an advertiser is participating 
in the sale of prescription drugs. If it is, Yahoo! requires 
the advertiser to join the program and comply with its terms in 
order to participate in the sponsored search marketplace.
    Second, the advertiser is directed to Square Trade, a 
leading on-line trust infrastructure company, which verifies 
whether the appropriate governmental body where the company is 
located has licensed both the pharmacy itself and its 
associated pharmacists. Unless Square Trade determines that the 
advertiser and its associated pharmacists are currently 
licensed, Yahoo! will not allow the pharmacy to advertise.
    Third, the advertiser is required to certify that it 
engages in a set of industry best practices that have been 
approved by the National Community Pharmacists Association, the 
NCPA, including certification that it will not provide 
prescription drugs without verifying the existence of a valid 
prescription from the person's health care practitioner and 
such prescription was not obtained solely by means of an online 
or telephone consultation.
    Fourth, Square Trade, in a program administered in 
conjunction with the NCPA, regularly monitors the licensure 
status of participating pharmacies as well as responds to any 
complaints it receives regarding these pharmacies. Any negative 
action taken by the licensing entity or any complaints that are 
substantiated by Square Trade are reported to Yahoo! and the 
advertiser will be removed, as appropriate. Complaints will 
also be forwarded by Square Trade to the appropriate government 
licensing authority.
    Finally, Yahoo! prohibits on-line pharmacies from 
advertising the most dangerous and abused prescription drugs, 
FDA Schedule II prescription drugs, in the Yahoo! marketplace.
    Yahoo! believes that this five-pronged on-line pharmacy 
qualification program complements our mission of aligning the 
interests of consumers, advertisers, and Internet destination 
sites.
    Prior to finalizing the terms of our program, we briefed 
officials at the Food and Drug Administration on its terms. 
They warmly received our program and were very encouraged by 
the fact that we were taking a leadership role in this area.
    Mr. Chairman, you have also asked for our comments on 
pending applicable legislation. S. 2464, introduced by Senators 
Coleman and Feinstein, precludes the sale of prescription drugs 
over the Internet absent disclosure by the site of identities 
and licensing information of the seller, pharmacist, or medical 
consultants. It also prohibits the sale of prescription drugs 
over the Internet absent a valid prescription, as that is 
described. This is a very thoughtful piece of legislation.
    The bill would follow the lead of the Communications 
Decency Act by providing that an interactive computer service 
provider would not be liable under this bill on account of 
another person selling or dispensing prescription drugs, 
provided that the interactive computer service does not 
exercise corporate control over such person.
    Senator Coleman, we applaud you for including this critical 
provision. It recognizes that telephone companies, Internet 
service providers, and Internet portals should not be liable 
for what others place on their sites or send over their lines.
    Mr. Chairman, we at Yahoo! are proud of the steps that we 
have taken to create a safer environment for the on-line 
advertising of prescription drugs. Thank you for the 
opportunity to appear before you today.
    Senator Coleman. Thank you, Mr. Scheibel.
    Ms. Sandberg, I will take your testimony, and then I am 
going to have to recess. We have three stacked votes. So we 
will do Ms. Sandberg, recess for 45 minutes--I think that is 
what it will take--and be back here at noon, so if you can just 
plan your schedules accordingly. Ms. Sandberg.

TESTIMONY OF SHERYL SANDBERG,\1\ VICE PRESIDENT, GLOBAL ONLINE 
    SALES AND OPERATIONS, GOOGLE, MOUNTAIN VIEW, CALIFORNIA

    Ms. Sandberg. Good morning, Chairman Coleman. Thank you for 
inviting me to testify on this very important issue.
---------------------------------------------------------------------------
    \1\ The prepared statement of Ms. Sandberg appears in the Appendix 
on page 259.
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    Google shares your concerns about the risks of on-line 
pharmacies and some of the unsafe products they sell. In my 
written testimony, I provided a detailed account of our 
policies and programs on this matter, so in view of the vote, 
will keep my oral comments very short.
    Senator Coleman. Your testimony will be entered into the 
record as a whole, without objection.
    Ms. Sandberg. Thank you very much. Google's mission is to 
organize the world's information and make it universally 
accessible and useful. When a user, defined as someone who 
visits our site, goes to Google-dot-com or one of our 95 other 
domains, the user is able to search for information on over 
four billion web pages and over 880 million images.
    We are dedicated to preserving the trust our users have 
placed in us. We always place the interests of our users first 
and their search for information, and that is the core value on 
which our company is built.
    Like our search results, the goal of our advertising 
program is to provide users with useful information. Our users 
want information about pharmaceuticals and we know that 
providing relevant information from trusted sources can be 
critically important. We have received numerous E-mails from 
Google users who have found life-saving information through our 
Website.
    We believe that advertising by licensed pharmacies, 
treatment and detox centers, and pharmaceutical manufacturers 
helps consumers locate services, compare options, and make 
cost-effective informed choices about their health. Our belief 
is supported by research showing that pharmaceutical-related 
advertising is strongly positive for consumers. However, we 
share your concerns that there are disreputable Internet sites, 
some of which are on-line pharmacies.
    In response to the increasingly complex on-line 
pharmaceuticals market, we have taken proactive and aggressive 
steps to make sure that our advertising program provides users 
with relevant and safe information. In order for on-line 
pharmacies to advertise with Google, they must be certified by 
Square Trade, a leading third-party trust infrastructure 
company. Square Trade's licensed pharmacy program has been 
approved by the National Community Pharmacists Association.
    By working with Square Trade, we require pharmacies that 
advertise on Google to be licensed, to maintain licensed 
pharmacists, to obey all applicable laws, rules, and 
regulations, to not provide prescription drugs unless they 
receive and verify a valid prescription, to make sure that 
prescription is not obtained online and not obtained over the 
phone, and also guarantee that they are only delivering 
medications through a provider that requires an adult signature 
for delivery.
    Square Trade regularly monitors the licensure status of 
these pharmacies and we require that advertisers have a valid 
and current Square Trade ID before participating in our 
program. Through this process, we strive to permit only 
licensed pharmacies and pharmacists to advertise with Google. 
We are pleased to provide a means of connecting individuals 
with valid prescriptions to licensed pharmacies that can 
provide them cost-effective and convenient service. We are also 
proud that our Website helps people find information they need, 
information on education, rehabilitation, or other medical 
needs.
    Thank you again for this opportunity to share our views. We 
are grateful for your leadership on this important issue.
    Senator Coleman. Thank you very much, Ms. Sandberg.
    Again, because of the three stacked votes, I will have to 
recess the hearing until approximately 12 o'clock. We may get 
started a little bit before that. This hearing is now recessed.
    [Recess from 11:13 a.m. to 11:32 a.m.]
    Senator Coleman. I am going to reconvene the hearing at 
this time. I apologize for the confusion but we have a series 
of three stacked votes and I probably have another 15 minutes 
in between this vote and the next vote. We do not have the 
entire panel in front of us but we have two of the witnesses, 
the carriers, here and I think it would be very helpful to get 
their testimony on the record. I am just not sure what time we 
are going to have for questioning but I think it is important 
to get the testimony on the record.
    So with that, why don't we begin. Mr. Bryden, please begin 
your testimony.

  STATEMENT OF ROBERT A. BRYDEN,\1\ VICE PRESIDENT, CORPORATE 
   SECURITY, FEDERAL EXPRESS CORPORATION, MEMPHIS, TENNESSEE

    Mr. Bryden. Thank you, Mr. Chairman. Pleasure to be here 
with you today to talk about this important topic. I have 
submitted a statement and I would ask that you accept that for 
the record and I will make some short summary comments.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Bryden appears in the Appendix on 
page 266.
---------------------------------------------------------------------------
    Senator Coleman. Without objection.
    Mr. Bryden. Thank you, sir.
    FedEx has been working with members of your staff and 
members of another committee in the House on this issue for 
almost 2 years now. We have met many times with the staff, and 
met with many of the Federal agencies numerous times. I feel 
like the research that we have done and the meetings that we 
have had have given us a good understanding of the scope of the 
problem and where our company fits within that problem.
    I also think we have identified ways that we can assist the 
law enforcement agencies in doing, as you heard in earlier 
testimony, the virtually impossible task that they face in 
keeping these illegal drugs out of our country and out of the 
hands of children and people that should not have them. I think 
that we have discovered ways in this 2-year journey that we 
have been on that we can enhance our cooperation with law 
enforcement organizations. We have made those offers to law 
enforcement. We think we have something to offer to their 
investigations.
    At the end of the day, we believe it is a law enforcement 
issue and that the technical issues involved in getting to the 
bottom of who is doing this shipping does require law 
enforcement power authority and through the use of subpoenas 
and so forth. But we are happy to cooperate in any way we can. 
We appreciate you having us here today and I look forward to 
answering questions that you may have.
    Senator Coleman. Thank you Mr. Bryden. Mr. Silva.

 STATEMENT OF DANIEL J. SILVA,\1\ VICE PRESIDENT, DIRECTOR OF 
       SECURITY, UNITED PARCEL SERVICE, ATLANTA, GEORGIA

    Mr. Silva. Chairman Coleman, my name is Dan Silva. I am the 
corporate security manager for UPS, and in that capacity I am 
responsible for security activities worldwide for the 
organization. I would like to thank you for the opportunity to 
participate here today.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Silva appears in the Appendix on 
page 269.
---------------------------------------------------------------------------
    You asked us to comment on three questions and I will do 
those in order. First, you asked about efforts that we have 
undertaken to preclude the delivery by UPS of illegal 
controlled substances and other pharmaceuticals purchased over 
the Internet. Let me first state that it is the clear policy of 
UPS as stated in our tariff that illegal products of any type 
are prohibited from being transported through our system. We 
have a long history of working with law enforcement agencies at 
all levels to enforce legal requirements. While our company 
privacy policy prohibits us from disclosing customer 
information in general, we regularly provide law enforcement 
agencies with information required by lawful subpoena.
    Additionally, since 2001 we have conducted an on-line 
pharmacy monitoring program. Through our outside counsel we 
conduct weekly searches of the Internet to identify on-line 
pharmacies that use the term UPS. We send cease and desist 
letters and are prepared to follow up with appropriate legal 
remedies to on-line pharmacies that offer UPS services and 
offer to sell pharmaceuticals without a prescription, and 
second, that display a UPS trademark or logo, so to avoid any 
appearance of sponsorship or endorsement.
    We have shared information about Internet pharmacy sites 
that we have gathered through our monitoring program with the 
FDA and DEA. Since much of the concern in this area arises from 
imported pharmaceuticals I would like to mention efforts we 
have undertaken with the Customs Service and FDA. First of all, 
UPS identifies to Customs and FDA all packages it delivers into 
the United States that are declared to be pharmaceuticals. 
Customs and FDA have the ability to pull any of these packages 
for further examination and enforcement action.
    Additionally, in conjunction with our new automated 
international air hub in Louisville, Kentucky, we developed a 
computer program called Target Search for the use of Customs. 
This is a sophisticated and flexible tool that enables Customs 
to search manifest information for all imported packages 
passing through that facility. Customs can use this system to 
help identify illicit shipments by screening for a wide variety 
of data.
    Your second question relates to current efforts with the 
DEA and FDA to address the issue of illegal purchases of 
controlled substances. On an ongoing basis we respond to many 
subpoenas with information requested in support of ongoing 
investigations by these agencies.
    Additionally, we have met twice this year with officials of 
FDA and DEA here in Washington to discuss ways in which we 
might further our cooperation concerning illegal pharmaceutical 
shipments. As I have already indicated, we have shared 
information about Internet pharmacies that we have identified 
through on-line pharmacy monitoring program with these 
agencies. These meetings with FDA and DEA officials have been 
productive and we will continue to meet as needed in the 
future.
    The third question seeks our views on pending legislation 
regarding Internet pharmacies. We support legislation that 
would establish clear requirements for Internet pharmacies. In 
particular, we like provisions of the Coleman bill, S. 2464, 
that would require Internet pharmacies to be licensed. The 
requirements of S. 2464 are appropriate for ensuring that 
requirements for the safety and efficacy of drugs are met when 
U.S. consumers make purchases in this new marketplace. From the 
standpoint of a package delivery company, these requirements 
would provide more certainty that the products we are carrying 
meet the requirements of law and therefore meet our own tariff 
requirements.
    We also support the goal of S. 2465. The criminal use of 
the Postal Service and carriers like UPS to unwittingly deliver 
fraudulently declared prescription drugs into the United States 
is an enforcement problem for Customs, FDA and DEA. UPS alone 
ships more than 3 billion packages a year, about 15 million of 
which are imported into the United States. We and other 
carriers have a limited ability to look behind the declarations 
supplied by the shipper in the manifest. S. 2465 would direct 
the attention of Federal agencies to this problem and we would 
gladly work with them, as we are already doing under the 
current law.
    Thank you for the opportunity to share the views of UPS and 
I look forward to any questions that you may have.
    Senator Coleman. Thank you, Mr. Silva.
    For both you gentlemen, do Websites selling pharmaceuticals 
advertise the service of either Federal Express or UPS without 
authorization?
    Mr. Bryden. They do.
    Mr. Silva. Yes, they do.
    Senator Coleman. Help me get a better understanding of what 
you do to combat those situations where you have Websites 
selling. For instance, is there a way not to accept packages 
from these groups? What kind of ability do you have to react to 
or respond to folks that advertise selling pharmaceuticals with 
authorization?
    Mr. Bryden. We have a group of attorneys who spend their 
full time every day looking for those types of infringements 
and then trying to find the right person to send cease-and-
desist letters to. As you well know from this investigation, 
the problem of Internet pharmacies presents a particular 
problem because, in the main, people that are selling illegal 
drugs illegally into this country are not going to put their 
right name and address on the E-mail, on the Website. We have 
found Websites, as you saw testimony this morning where you 
would have a pharmacy pretending to be located in Canada and it 
would be linked to servers in several different countries, so 
there is no way for us to send cease-and-desist letters to 
that.
    At the same time, it is very difficult to list shipping 
information with our customers because those Websites are not 
the ones that are shipping the drugs. They are putting in an 
order at another location, in the main, and then we are picking 
up at a completely different location not associated with a 
Website. So it is a difficult problem for us and, frankly, 
without subpoena power it is one that we are not finding we can 
make much headway into.
    Senator Coleman. I believe Slide 26 \1\ is that one that 
had FedEx?
---------------------------------------------------------------------------
    \1\ See Exhibit 26, which appears in the Appendix on page 311.
---------------------------------------------------------------------------
    Mr. Bryden. Yes, sir, that is FedEx.
    Senator Coleman. I believe this is one that was done 
without authorization. Do you have any knowledge----
    Mr. Bryden. My written testimony which I submitted will 
substantiate for you, there are no Internet pharmacies that 
have the authority to use the FedEx logo.
    Senator Coleman. Mr. Silva.
    Mr. Silva. The same is true for us. We have had some 
success with cease-and-desist letters. Eric Kaiser, a gentleman 
that you mentioned earlier, had somewhere in the vicinity of 30 
sites. We have sent cease-and-desist letters. We have done that 
electronically. We have done that through certified mail. The 
mail got returned to us as undeliverable. But at the end of the 
day, all but one of his sites no longer mentions UPS.
    Senator Coleman. What kind of assistance do you get from 
law enforcement? Use the Kaiser case as an example. What kind 
of assistance did you get?
    Mr. Silva. We provided the information to FDA and DEA. They 
were aware of Mr. Kaiser's existence through other sources. In 
that particular case they were already investigating it.
    Senator Coleman. Mr. Bryden, you have had experience with 
the DEA; is that correct?
    Mr. Bryden. Yes, sir, I spent 24 years with DEA.
    Senator Coleman. Could you give an honest assessment from 
this side, now looking from the private sector, DEA's response 
to these matters, these issues?
    Mr. Bryden. I can honestly say I am glad I was not a member 
of the law enforcement panel today. I just think they have a 
real uphill battle to climb.
    I will say this, when I listened to all of the testimony 
from the law enforcement agencies today it struck me that we 
may be looking at the forest and not seeing the trees. What I 
mean by that is, on every one of these shipments that has been 
destroyed in New York and other locations, and the ones that 
are seized and are let into the country, there is data point 
that we are not doing much with. That is the recipient of the 
package. Anyone who ordered that drug over that Internet site 
committed an illegal act. I chagrin the fact that in this 
country we seem to have drifted away from holding people 
responsible for their actions. That may be an opportunity for 
the law enforcement agencies.
    I am not suggesting, sir, that we put everybody in jail 
that bought drugs over the Internet. I am suggesting that they 
should perhaps get a letter from one of the law enforcement 
agencies saying, we have a package here. It has been seized. 
You violated the law when you did it. You are on notice. Then 
you can have a stair-step ladder of increasing penalties 
including fines. Because I just cannot--the testimony I heard 
today, I do not know how much resources it would take to get a 
handle on this, whether it is DEA or FDA, but if we start 
holding people accountable, that changes behavior. I have 
always believed as a law enforcement officer and I believe it 
now. That may be an opportunity.
    Senator Coleman. We will get the credit card companies 
here, but it would occur to me, if somebody has got a series of 
credit card transactions, single individuals with multiple 
Internet pharmacies, there should be some way to deal with 
that.
    Can you talk to me a little bit in the couple minutes I 
have left here, talk about the tracking systems. I raised the 
question about you are asking people to be honest. Maybe I have 
become cynical in my almost 2 years here, that if folks are 
sending illegal pharmaceuticals I doubt there is any incentive 
for them to honestly list on a manifest. Help me understand why 
you believe the manifest provides some way to control the 
system. You both use manifests; is that correct? Mr. Silva, why 
don't you start.
    Mr. Silva. Yes. When we are referring to Target Search, it 
is a targeting tool that enables Customs to use a number of 
data fields off of the manifest to search for any packages that 
travel into our facility. The value of it is intelligence. You 
heard some of the earlier testimony revolve around intelligence 
and that there seems to be a lot of intelligence out there. I 
do not know how much of it is actionable. I do not know how 
effective we are in fully utilizing the tools that have been 
deployed in some of the private courier companies to the 
maximum. The Target Search tool and the second brokerage 
operation support system tool afford these law enforcement 
agencies some tremendous resources. We do, believe it or not, 
get shipments that come in that have either the generic name of 
the drug or are identified, and they do get picked off.
    Mr. Bryden. Let me also say that the tracking and tracing 
capabilities that both UPS and FedEx have in order to help law 
enforcement can be used in other ways as well. For instance, if 
law enforcement comes to us with a name or an address, we can 
research that name and address and tell them how many previous 
times shipments have occurred. That helps them build conspiracy 
investigations.
    The other thing that we use the manifest information for is 
if we get something that is manifested and it is supposed to 
weigh--let us say, it is a VCR. It is supposed to weigh 10 
pounds, and it weighs one pound. That is a potential targeted 
package, we probably would open that package and take a look at 
it. We heard people refer to random searches. In FedEx, we do 
not like to do random searches. It is largely a waste of time. 
We like to do targeted searches, and I think my counterpart 
here at UPS feels the same way from a security standpoint. That 
is not to say we do not do random searches from time to time, 
but we teach our employees to look for suspicious packages. 
Weights that are different to the manifest, something that 
rattles when it should not rattle, quickly filled out shipping 
data on a bill of lading. Things like that enable us to catch 
more drugs and illegal things than a random search does.
    Senator Coleman. I appreciate that.
    Gentlemen, I will now recess till 12 o'clock. I do 
appreciate fitting your testimony in. It has been very helpful 
to me.
    So this hearing is now recessed till 12 o'clock.
    [Recess.]
    Senator Coleman. This hearing of the Permanent Subcommittee 
on Investigations is called back to order.
    I would note that during the recess, I actually got back 
between votes, reconvened the hearing for a brief period of 
time, had Mr. Bryden and Mr. Silva give their testimony, so we 
will now turn to Mr. Peirez for your testimony. You may begin.

  TESTIMONY OF JOSHUA L. PEIREZ,\1\ SENIOR VICE PRESIDENT AND 
ASSISTANT GENERAL COUNSEL, MASTERCARD INTERNATIONAL, PURCHASE, 
                            NEW YORK

    Mr. Peirez. Thank you, Chairman Coleman. My name is Joshua 
Peirez and I am Senior Vice President and Assistant General 
Counsel at MasterCard in Purchase, New York. It is my pleasure 
to appear before you today to discuss the important issue of 
the sale of pharmaceuticals over the Internet.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Peirez with an attachment appears 
in the Appendix on page 271.
---------------------------------------------------------------------------
    MasterCard is a global organization that has licensed more 
than 23,000 financial institutions to use the MasterCard marks 
in connection with the issuance and acceptance of MasterCard 
cards. MasterCard requires that all licensees conduct business 
in accordance with all applicable laws. Any failure to comply 
with the law empowers MasterCard to assess stiff financial 
penalties and ultimately to suspend or terminate the licensee.
    MasterCard deplores the use of its systems for any illegal 
purposes, including for the illegal sale of pharmaceuticals. As 
you highlighted in your opening statement, Mr. Chairman, 
MasterCard has recently taken a number of steps to help prevent 
Internet pharmacies from accepting MasterCard cards for illegal 
pharmaceutical sales.
    These steps include, first, issuing a global bulletin to 
all our licensees around the world, reminding them of their 
obligation to comply with all applicable laws and specifically 
highlighting Internet drug sales as risky transactions.
    Second, working with our licensees to shut off more than 
370 Websites from accepting MasterCard cards for the illegal 
sale of pharmaceuticals over the Internet.
    Third, exploring new ways to protect the MasterCard system 
against use for any illegal activity.
    And fourth, working with the DEA and the FDA in a 
collaborative fashion, as we always do with law enforcement.
    The efforts we have undertaken to date represent important 
steps in demonstrating MasterCard's commitment to play an 
appropriate role in addressing this issue. These steps began 
about 8 months ago when we met with staff of this Subcommittee, 
as well as with staff of the House Energy and Commerce 
Committee. The meeting with your staff, Mr. Chairman, was 
particularly helpful in highlighting the scope of this problem 
and in clarifying some of the legal issues surrounding the 
Internet sale of pharmaceuticals, particularly the issues as 
they relate to controlled substances. We also met with staff of 
the DEA and the FDA at that time to exchange information and to 
explore ways in which MasterCard could be helpful to them in 
their efforts to enforce the law.
    Since the time of our initial meeting with the Subcommittee 
staff, MasterCard's Merchant Security Team has been searching 
the Internet for Internet pharmacies that purport to accept 
MasterCard cards for illegal sales of controlled substances. We 
are pleased to report that, to date, these efforts have been 
successful in shutting off the acceptance of MasterCard cards 
at over 370 Websites.
    Despite our success, the task has been made more difficult 
because it is not entirely clear that all these transactions 
are illegal, although the vast majority likely are. The lack of 
a clear prohibition has made it more difficult to educate our 
licensees around the world on this issue.
    Additionally, because the DEA informed us that MasterCard 
and its employees are prohibited by law from knowingly making 
illegal buys, it has been difficult to identify the true nature 
of sales on a Website in some circumstances.
    If Congress adopts a legislative solution to this issue, it 
would be helpful to reduce the confusion regarding a number of 
legal issues surrounding the sale of pharmaceuticals over the 
Internet. In particular, requiring pharmacies to be licensed or 
approved to sell over the Internet would be helpful in 
providing a clear understanding of whether particular pharmacy 
merchants are engaged in legal or illegal activities.
    MasterCard requests that any statutory obligations on 
payment systems be carefully crafted to ensure they function 
appropriately without creating undue liability on the payment 
systems for simply meeting their obligations under the law.
    Mr. Chairman, thank you again for the opportunity to 
discuss these important issues and for the help your staff has 
provided to us. I would be glad to answer any questions you may 
have.
    Senator Coleman. Thank you, Mr. Peirez. Mr. Ruwe.

     TESTIMONY OF STEVE RUWE,\1\ EXECUTIVE VICE PRESIDENT, 
OPERATIONS AND RISK MANAGEMENT, VISA U.S.A., INC., FOSTER CITY, 
                           CALIFORNIA

    Mr. Ruwe. Chairman Coleman, my name is Steve Ruwe. I am 
Executive Vice President of Operations and Risk Management for 
Visa U.S.A., Inc. Thank you for the invitation to participate 
in this hearing. Visa fully supports the Subcommittee's efforts 
to prevent illicit sales of prescription pharmaceuticals over 
the Internet.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Ruwe appears in the Appendix on 
page 280.
---------------------------------------------------------------------------
    The Visa payment system consists of Visa, which performs 
communication and settlement services for its member banks, and 
Visa's member banks that issue Visa payments cards or that 
acquire transactions from merchants that have accepted Visa 
payment cards. Visa and the Visa member banks that only issue 
credit cards do not have direct relationships with Internet 
pharmacies or other merchants that accept Visa payment cards. 
On the other hand, Visa member banks that acquire transactions 
from merchants do have a direct relationship with the merchants 
and the Visa rules require that these acquiring banks assume 
responsibility for certain aspects of their relationship with 
the merchants.
    Because Visa cards are accepted worldwide, many of these 
banks, like the merchants that they service, are located in 
foreign countries.
    Visa believes that the Visa payment system has responded 
effectively to the challenges posed by Internet transactions. 
Visa rules prohibit the use of Visa cards for illegal 
transactions. Visa has a long history of working with law 
enforcement, including the Secret Service, the Federal Bureau 
of Investigation, the Federal Trade Commission, and State and 
local law enforcement.
    In the specific area of illicit sales of prescription 
pharmaceuticals over the Internet, Visa has met with 
representatives of the DEA and the FDA to discuss approaches to 
the problem of illicit transactions with Internet pharmacies. 
In March 2004, Visa reminded its member banks of their 
responsibilities to ensure that only legal transactions enter 
the Visa payment system and directed their attention to the 
list of controlled substances and problematic drugs maintained 
at the FDA and DEA Websites. Visa advised its member banks to 
consider relying on a reputable seal program, such as the VIPPS 
operated by the National Association of Boards of Pharmacy, as 
a means of identifying reputable Internet pharmacies.
    In June 2004, Visa used the services of an outside firm to 
search the Internet for Websites selling controlled substances 
and accepting Visa payment cards. As a result of this 
monitoring effort, we have had discussions with some of our 
member banks regarding their merchants who appear to be 
involved in selling controlled substances. These member banks 
have conducted their own investigations and have terminated or 
restricted the activity of merchants found to be selling 
controlled substances.
    In May 2004, Visa updated its consumer Website to provide 
safety messages regarding the dangers of purchasing 
pharmaceuticals over the Internet and to provide links to the 
Websites of the DEA and the National Association of Boards of 
Pharmacy and to remind consumers that they should only use 
their Visa cards for legal purposes.
    We understand that S. 2493 would place additional 
responsibilities on the operators of payment card systems to 
prevent the use of payment cards in illicit Internet pharmacy 
transactions. Visa believes that, in many cases, the only 
parties that can actually determine the legality of the 
transactions are the parties in the transactions themselves.
    Accordingly, telephone companies, payment systems, and 
delivery services typically are not required to know whether 
transactions that are effected using their facilities or 
services are legal. Historically, it has been only in those 
circumstances where the use is so unusual as to suggest 
illegality in its own right, such as transactions that trigger 
suspicious activity reports or currency transaction report 
requirements, or where the illegality is so overt and 
egregious, such as child pornography, that Congress and law 
enforcement have enlisted the aid of third-party intermediaries 
to monitor the use of their facilities or services for policing 
illegal transactions.
    In this regard, I note that imposing the cost of acting as 
law enforcement on financial institutions, communication 
channels, or other intermediaries for public purposes is 
effectively a tax on all the members of the public who use 
those services. In choosing alternatives, that tax must be 
measured against alternate expenditures that might accomplish 
the same purpose, such as hiring more law enforcement 
personnel.
    With respect to S. 2493, we have reviewed this legislation 
and suggested technical changes. If these provisions are 
adopted, Visa will move aggressively to see that the Visa 
payment system compiles with any and all applicable 
requirements. Visa will continue to work with law enforcement 
to fight against illegal activity, including those involving 
Internet pharmaceutical sales. We will also continue to monitor 
the Internet for Internet pharmacies selling controlled 
substances.
    We appreciate the opportunity to appear before you today 
and would be happy to answer any questions you may have.
    Senator Coleman. Thank you, Mr. Ruwe.
    I do want to compliment the folks here. You have clearly 
made an effort to try to deal with this situation. 
Unfortunately, as you listened to the prior testimony, it is 
simply not enough. We continue to be overwhelmed, and it is the 
nature of technology, nature of the ease of use of technology, 
and so we are presented with a challenge.
    But Mr. Ruwe, you made the comment that it is helpful--let 
me step back. You made the comment that it is companies like 
Visa, MasterCard, the search engines, the folks that provide 
the transport, they are not required to know something is 
illegal. With all the commerce that you do, it may be difficult 
to do.
    But what if, in fact, you knew that certain activities were 
not legal? So, for instance, if there were to be a requirement 
that pharmacists be licensed or approved to sell over the 
Internet and you have a list of those that you could easily 
enter. If you knew then that others were operating illegally, 
how would you respond to that and do you have any other 
examples of that kind of situation, where you know something is 
illegal but they are still using Visa, MasterCard? And I turn 
to our friends at Google and Yahoo! with the same question.
    The question is, let us assume we had a situation where it 
would be illegal to sell drugs over the Internet unless you 
were licensed by the FDA, and we can get you a list of those 
groups that are licensed by the FDA. How would you respond to 
transactions from companies that are not licensed by the FDA 
which then are, per se, illegal operations?
    Mr. Ruwe. I believe if we had a list of the pharmacies that 
you believe to be legal and be registered and be approved, that 
we could manage that within our system, to make sure that they 
were the only ones that would be permitted to operate.
    Senator Coleman. I am just trying to think, is there 
anology to something else you do today where you do those kind 
of runs, you have a list of these legal organizations and 
anything outside that is something that you wouldn't accept the 
transaction?
    Mr. Ruwe. I cannot think of an example that parallels that 
exact situation today. I mean, we do deal with the continual 
search for illegal activities, but nothing of the nature that 
is being proposed here.
    Senator Coleman. Mr. Peirez.
    Mr. Peirez. I am also not aware of such a list. However, we 
think that such a list could be highly effective and would be 
useful to us. I think it is the nature of the Internet that 
causes the problem in that activities may be perfectly legal in 
one jurisdiction and not in another. So by having a list like 
that we could provide to the banks located outside of the 
United States and tell them, look, if someone is not on this 
list, you cannot provide them the service to sell 
pharmaceuticals over the Internet to persons in the United 
States with a MasterCard card, we believe that is a very clear 
guideline and something that could be very effective in our 
system.
    Senator Coleman. Another area, and again, I am trying to 
find analogies to things that you do already that would then be 
applicable to these kinds of situations. I know you have the 
capacity if a series of purchases are made, that generate some 
sort of suspicion that I have gotten a call about, was your 
card used so and so, and if the answer was no, you would take 
action. That has been proactive on your part. I didn't inquire, 
but you have gotten those kind of calls. So you have the 
ability in some way to monitor. I don't want to inquire into 
your security operations, but I presume you have that capacity.
    On this issue of buying prescriptions over the Internet, in 
the instances where we had the tragedies or folks have died, 
often what you see is multiple sales over the Internet, 
multiple pharmacies within a short period of time of a range of 
prescription drugs, clearly something that would raise an 
eyebrow. Do you have the capacity to kind of spot that kind of 
stuff and would that raise any red flags?
    Mr. Ruwe. I think the example you are referencing, 
Chairman, has to do with fraud. When I say fraud, I mean not 
fraud in the sense that the Internet pharmacy is doing 
something illegal or selling an illegal substance, but where 
these are unauthorized transactions where the true card holder 
did not initiate the transaction. In those cases, we have been 
successful at trying to identify those patterns, but those 
things are based on other factors, such as the amount of the 
transaction, where the transaction is taking place, and factors 
that would indicate patterns of unauthorized use as opposed to 
authorized use where they were buying something illegal.
    Senator Coleman. And I understand the difference, but what 
I am trying to understand or to see if I can envision is where 
you could use the same process. You are looking at the activity 
of an individual card, and from whatever signals you have, 
things that raise a red flag, you are all of a sudden saying, 
hey, this may be fraud.
    If we are dealing with the purchase of controlled 
substances in massive quantities from a range of different 
sites which then, if one checks back, are illegal sites, would 
you have the capacity to do the same thing, to raise a question 
about that and then perhaps deal with it?
    Mr. Peirez. Mr. Chairman, you are asking a question about 
something we have thought quite a bit about. There are a couple 
of things I think that are important to understand. The 
examples you are raising are activities that are undertaken by 
the bank that has issued you your card in looking at your 
purchasing patterns, not an activity undertaken by MasterCard 
because we have no relationship with you. We don't even know 
who you are when your transactions run through our system.
    Typically, the information that is contained in a 
transaction record does not include information on what is 
being purchased. It is simply where it is being purchased, 
which is not necessarily the name that you would see on a 
Website or on a URL. Typically, it would not be that type of a 
name through the system.
    So it is something that we would like to explore a little 
more, but we think that it would not be nearly as effective as 
the list of registered pharmacies that we have spoken about 
previously.
    Senator Coleman. Can I go back to the previous slide \1\ 
that showed the Internet drug site that had the FedEx label and 
I believe had Visa or MasterCard.
---------------------------------------------------------------------------
    \1\ See Exhibit 26, which appears in the Appendix on page 311.
---------------------------------------------------------------------------
    This is a site, hydrocordone-dot-com, etc. What do you do 
here? They have got major credit cards accepted. This is one 
which we have concern about selling drugs illegally. And you 
have got masses of these. If something like this is brought to 
your attention, what can you do? Mr. Peirez, then Mr. Ruwe?
    Mr. Peirez. Sure. Mr. Chairman, the first thing I will say 
is obviously we did see this exhibit earlier and we have 
already contacted our Merchant Security Team and asked them to 
begin an investigation into whether this site is still live and 
whether, in fact, it accepts MasterCard cards. Our experience 
has been sometimes the logo is there but the card cannot be 
used. What we can try to do is identify the bank that has 
contracted with this type of a merchant and if we can find that 
bank, we then follow up swiftly with the bank and have them 
either confirm that this is only legal activity, which in this 
case they will be highly pressed to do, or to shut off this 
merchant from accepting MasterCard cards, and that is the 
process we have used that has resulted in the successes I 
highlighted earlier in my testimony.
    Senator Coleman. Mr. Ruwe.
    Mr. Ruwe. I think the process Mr. Peirez describes would be 
very similar to the one we would follow, as well. It would be 
necessary to reach out through the Visa member who signed that 
merchant to initiate the remediation.
    Senator Coleman. Mr. Scheibel and Ms. Sandberg, I would 
like to inquire a little bit about Square Trade. That is your 
process for certifying vendors who are meeting certain 
standards. First, have you had a problem with unauthorized use 
of the Square Trade logo?
    Mr. Scheibel. Not to date.
    Ms. Sandberg. No, not to my knowledge, not to date.
    Senator Coleman. You have a system in place if there is 
unauthorized use to then deal with that?
    Mr. Scheibel. Yes. In fact, it is a live seal, so it is 
harder for somebody to steal that seal than others.
    Senator Coleman. If we can go to Slide 24,\1\ please. On 
Slide 24, it is a Google site, no offense to Yahoo!. What you 
see is on the right hand side, that is your sponsored links. 
Those are the ones in which you have some controls, is that 
correct, Ms. Sandberg?
---------------------------------------------------------------------------
    \1\ See Exhibit 24, which appears in the Appendix on page 309.
---------------------------------------------------------------------------
    Ms. Sandberg. That is correct.
    Senator Coleman. And again, explain that to me the nature 
of what makes this sponsored link versus--I think in this 
search there were, if I can recall----
    Ms. Sandberg. A search listing.
    Senator Coleman. Yes. If you look at a Google search for 
Vicodin, for instance, you will get 147,000 results. But then 
you have a listing of sponsored sites. Explain the difference.
    Ms. Sandberg. Sure, and everyone can see it on here. If you 
look on the left side, those are search results. Those are the 
result of our computers crawling the web, looking for 
information on over four billion web pages. On the right, noted 
as ``Sponsored Links,'' and when you look at it online, they 
are colored, so you can tell that they are sponsored links, 
those are the results from our advertising program.
    Senator Coleman. Just so I understand kind of how your 
system works, if somebody goes to a sponsored site, do you get 
something out of that? Is there a payment simply for visiting 
the sponsored site?
    Ms. Sandberg. Yes. It is an advertising relationship with 
the partner. The partner is signing up, registering as a Google 
advertiser. In the case of pharmaceuticals, they would need to 
be Square Trade verified. And then we are in a business 
relationship with them. They pay us for clicks to their site.
    Senator Coleman. There are, I think, 147,000 results for 
Vicodin. If one visits any of the unsponsored sites, does 
Google get anything there?
    Ms. Sandberg. No.
    Senator Coleman. So the control you have is just over that 
limited number of sponsored sites, but there is nothing you can 
do to channel customers to go to the sponsored sites in which 
you have then some basis for checking credibility, whether they 
are using a process that would meet with concerns of law 
enforcement?
    Ms. Sandberg. We don't have any control. You are correct, 
Chairman, that we don't have any control over the search 
results. However, we do take proactive steps to let people know 
that we have the Square Trade program in place and let 
consumers know that these are verified, licensed pharmacies. We 
display that information on our Website and you can read about 
the program by clicking on those links.
    Mr. Scheibel. Mr. Chairman, in addition, on Yahoo!, the 
first links that a user will come to will be the sponsored 
links. So in this case, the most trusted parties, the people 
who we have worked with to try to create a safer environment 
for consumers will be the first links that a consumer comes to.
    Senator Coleman. But for the massive number, the 140,000 or 
149,000, what are those, alogarithmic searches?
    Ms. Sandberg. Yes.
    Senator Coleman. In other words, if you have a word in 
there, this is the universe and Yahoo! and Google lets people 
access the universe.
    Ms. Sandberg. That is exactly right.
    Senator Coleman. The known universe. That is it.
    Ms. Sandberg. That is right.
    Senator Coleman. Do you have, just hypothetically, do you 
have the ability to block portions of alogarithmic searches?
    Ms. Sandberg. We do have the technical capability to remove 
things from the index, but given that we are an information 
company trying to provide all information to the world that is 
universally useful and accessible, that is done in only very 
limited circumstances.
    Senator Coleman. What about child pornography?
    Ms. Sandberg. That is one example where it is done. The 
content there is illegal and it is removed from the index when 
we find it.
    Senator Coleman. But is the issue of the illegality of the 
content or is illegal content here, too? I am trying to 
understand how you draw that line. I know these are tough 
questions. Can you help me understand how you draw that line? 
Clearly, you have illegal content, but there is something else. 
There is almost a moral equation that you are putting in here 
that says, this goes so far beyond the standards of what we can 
accept that you are willing to do that. Help me figure out how 
you draw that line.
    Mr. Scheibel. Two points, Mr. Chairman. The first is that 
when it comes to child pornography, the simple display of that 
information is illegal per se, as opposed to what we are 
dealing with here, which is commercial.
    The second point is that when you type in a search term for 
many of these drugs, you will get as part of your results 
treatment centers, antidotes, information about the drug, 
problems with use and abuse of the drug, much of which is 
obviously very useful to consumers. So as to both Yahoo! and 
Google, we are search engines. We are in the business of 
facilitating access to information, and that is part of the 
information that we provide access to.
    Senator Coleman. Let me go to Slide 25.\1\ This shows the 
results from a research, again on Google, to purchase Vicodin 
last month. I think there were 129,000 hits on this. If you 
look at the sponsored links, you have, ``Order Vicodin Online, 
$44.94 shipped, you save, 100 percent legal purchase.'' We 
don't know if this is a legal purchase, do we?
---------------------------------------------------------------------------
    \1\ See Exhibit 25, which appears in the Appendix on page 310.
---------------------------------------------------------------------------
    Ms. Sandberg. Well, this advertiser that you are pointing 
to, the first one on the right, was verified by Square Trade as 
a licensed pharmacy and meets all of the requirements of Square 
Trade.
    Senator Coleman. So from a Square Trade perspective, it is 
like whether--we get back to that basic question. Let me back 
it up. Does Square Trade then screen out those folks, for 
instance, who try to use--who fill out prescription on line?
    Ms. Sandberg. Square Trade----
    Senator Coleman. Do they filter out----
    Ms. Sandberg. They make sure that you do not accept 
prescriptions obtained solely online or through the phone. That 
is part of their verification process.
    Senator Coleman. Are there legal products that Google or 
Yahoo! refuses to accept advertising for?
    Mr. Scheibel. Yes. The Schedule II drugs, FDA Schedule II. 
Those search terms are not available, nor are the generic 
equivalent of those search terms.
    Senator Coleman. Anything else?
    Ms. Sandberg. Yes. There are several legal products that we 
don't accept advertising for. We don't accept advertising for 
tobacco, as an example.
    Senator Coleman. Can you tell me a little bit about your 
relationship with law enforcement? Have they approached you 
with guidance or assistance in this area? One of the challenges 
we have is technology is moving faster than the law, and 
obviously you are on the cutting edge of that. Can you help us 
understand a little bit about the relationship with law 
enforcement, what kind of assistance they have been seeking 
from both of you?
    Mr. Scheibel. Generally, Mr. Chairman, we work closely with 
law enforcement. We try to be responsive to their requests and 
it is a relationship that is evolving.
    Senator Coleman. Ms. Sandberg.
    Ms. Sandberg. As well, we have worked closely with law 
enforcement on a number of issues. This is one of them. We were 
in conversations with the FDA as we were thinking through what 
to do in this area.
    Senator Coleman. How does Square Trade deal with foreign 
Internet sites, for instance, Canadian Internet sites? Can you 
talk a little bit about what they do with them?
    Mr. Scheibel. Well, there is a distinction here. One is if 
you are other than a U.S. or Canadian company, you are not 
eligible for the sponsored search program on pharmaceuticals. 
With respect to Canadian companies, the requirements are just 
the same as in the United States. They have to be licensed by 
the regulatory body that would license them. And then there are 
several self-certification measures which we also require as 
part of the Square Trade program.
    In addition, Canadian sites are not allowed to target U.S. 
consumers, and there is also a requisite statement, and I can 
read it to you, Mr. Chairman. ``The FDA, due to the current 
state of their regulations, has taken the position that 
virtually all shipments of prescription drugs imported from a 
Canadian pharmacy by a U.S. consumer will violate the law.''
    Senator Coleman. Let me just back up one question. You 
talked about, I thought you said, Mr. Scheibel, about Schedule 
II drugs. Is hydrocodone a Schedule II?
    Mr. Scheibel. I believe it is.
    Senator Coleman. And does either Google or Yahoo! block out 
or accept ads from Internet pharmacies selling hydrocordone?
    Mr. Scheibel. I don't believe we do. Now, let us draw a 
distinction. We do not allow pharmacies to bid on the search 
term. If they bid on another search term and that same pharmacy 
is selling the Schedule II, then we would go to DEA and verify 
that pharmacy is licensed to sell that drug.
    Senator Coleman. Ms. Sandberg.
    Ms. Sandberg. We do allow licensed pharmacies to advertise 
on the majority of Schedule II terms. These are legal to be 
prescribed with a valid prescription and we make sure that they 
are done in accordance with the law.
    Senator Coleman. One of the problems we confronted in our 
last hearing was young people using mom and dad's credit card 
and getting these drugs with a devastating impact. What are the 
type of things you can do to deal with that, if anything? Mr. 
Peirez, Mr. Ruwe, is that a problem that you see?
    What I am trying to figure out is if there is--I keep 
coming back to whether you have the capacity to somehow look at 
the use of credit cards in dealing with on-line pharmacies that 
we know aren't legal or where they have the capacity to deal 
with large numbers of purchases of prescription drugs using 
your credit cards from operations that you know are 
questionable that have to raise a red flag. Just as you have 
the capacity to question large numbers of purchases for the 
sake of checking fraud, that seem to be suspicious, I am just 
trying to kind of hone in from a technical perspective. Are 
there ways in which you can work with us more effectively to 
stop some of the abuses of sale of drugs over the Internet to 
either young kids or to addicts?
    Mr. Peirez. Mr. Chairman, we heard earlier the analogy to a 
running faucet and people talking about how difficult it is to 
try to control. I think the administrator from the DEA was 
discussing how difficult it is to try to deal with the water 
once it is coming out of the faucet, and MasterCard's focus on 
this particular issue has been on turning the faucet off. We 
are focused on the suppliers. We are not looking at 
individuals.
    Frankly, there is no way for us to tell when a particular 
card is being used, if it is being used by the person who the 
card is issued to, their spouse, their child. We certainly 
would hope that parents don't make their cards available to 
their children. That is certainly something that they are 
educated on on a regular basis.
    But in general, on this particular issue, we believe where 
we can be most effective is trying to control the suppliers 
from getting into the commerce stream using our cards. 
Obviously, there are other payment means that they will then 
turn to and can turn to, but we draw a very clear line on the 
legal and illegal activities. If it is illegal, we don't want 
it and that is where we are focused.
    Senator Coleman. Mr. Ruwe.
    Mr. Ruwe. I think it does go back to the basic question of 
whether the transaction is legal or not. In terms of the 
individuals, I mean, there are now products in the market where 
a teenager could legitimately have a credit card in their 
possession, whether it might be a gift card, or in the case of 
Visa we have a ``Bucks'' card program. So it would be very 
difficult to manage it from that perspective, I believe.
    But I would totally agree that there are further things 
that we could explore in terms of technology and working 
together with law enforcement to do our part and we would be 
most happy to entertain any of those things going forward.
    Senator Coleman. How do you deal with gambling, for 
instance? Gambling sites present similar problems--not legal, 
overseas operations. For all of you, Mr. Ruwe, Mr. Peirez, do 
you accept transactions or do you screen any of those out?
    Mr. Ruwe. Gambling is a little easier, Chairman, because it 
is just illegal. So in our system, if they are coded as a 
gambling institution and they are coded as an Internet gambling 
institution, those transactions can be blocked, period. There 
is no distinction between a legal gambling institution and an 
illegal gambling institution, such as we are dealing with in 
the pharmacy example.
    Senator Coleman. Mr. Peirez.
    Mr. Peirez. It is pretty much the same answer as Mr. Ruwe. 
In that scenario, U.S.-based banks are able to recognize those 
codes for the Internet form of transaction and the gambling 
transaction and then block it. If they were to do that in this 
scenario, they would be blocking perfectly legal transactions, 
like if somebody is buying drugs on the Internet from Merck, 
Medco, or from Duane Reade or some other big pharmacy that does 
sell on the Internet. So you would be blocking legal 
transactions, which nobody wants in that scenario.
    Senator Coleman. So if the FDA again were to have the 
capacity to distinguish between specifically approved legal 
versus illegal, you would have the capacity to block out the 
illegal?
    Mr. Peirez. If we were provided with that list, frankly, it 
wouldn't have to be blocking transactionally. We would be 
blocking them from getting into the system in the first place.
    Senator Coleman. I would be interested with FedEx and UPS. 
The problem there may be a little different in that your source 
of pickup may be different from the Website. But would that 
make a difference, if you had a list of places that are legal 
and anything outside of that, any sites or anything that are 
illegal, would you have the ability to somehow on your system 
figure that out or filter that out?
    Mr. Bryden. Mr. Chairman, I think a list would be useful if 
it was a list of the distribution sites offshore. If it were a 
list of the Internet sites without some linkage to the place 
that we would pick up a package, it would be less useful to us, 
but I think it would be useful to solving the overall problem.
    Senator Coleman. Mr. Silva.
    Mr. Silva. I would agree with Mr. Bryden, but I would also 
say that might be valuable information for targeting.
    Senator Coleman. I want to thank the witnesses here. This 
is a difficult area. It is a universe that is growing and 
expanding. I have a great respect for technology. I think it is 
the key to America's economic future. I respect what Yahoo! and 
Google do overall, but I am still troubled by the ability of 
folks to access clearly illegal operations with such ease. 
Perhaps the more that we can do to help consumers distinguish 
between the legitimate and the illegitimate, between the bona 
fide and the false, I think we would all be well served.
    So I would encourage you to continue working with law 
enforcement, looking at your systems and seeing what we can do 
to ensure that we are not facilitating a process here that 
really has the potential and the reality of inflicting great 
harm on consumers in this country.
    So again, I want to thank you for appearing. We will keep 
the record open for a period of 2 weeks for any additional 
questions.
    With that, this hearing is now adjourned.
    [Whereupon, at 12:37 p.m., the Subcommittee was adjourned.]


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