[Senate Hearing 109-1082]
[From the U.S. Government Publishing Office]


                                                       S. Hrg. 109-1082
 
                     COMBATING CHILD PORNOGRAPHY BY 
                ELIMINATING PORNOGRAPHERS' ACCESS TO THE 
                        FINANCIAL PAYMENT SYSTEM 

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

                                HEARING

                               before the

                              COMMITTEE ON
                   BANKING,HOUSING,AND URBAN AFFAIRS
                          UNITED STATES SENATE

                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION

    ON DRAWING ATTENTION TO THE PROBLEM OF CHILD PORNOGRAPHY AND TO 
HIGHLIGHT WHAT FINANCIAL SERVICE COMPANIES CAN DO TO ELIMINATE IT FROM 
                      THE FINANCIAL PAYMENT SYSTEM
                               __________

                      TUESDAY, SEPTEMBER 19, 2006

                               __________

  Printed for the use of the Committee on Banking, Housing, and Urban 
                                Affairs


      Available at: http: //www.access.gpo.gov /congress /senate /
                            senate05sh.html

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            COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

                  RICHARD C. SHELBY, Alabama, Chairman
ROBERT F. BENNETT, Utah              PAUL S. SARBANES, Maryland
WAYNE ALLARD, Colorado               CHRISTOPHER J. DODD, Connecticut
MICHAEL B. ENZI, Wyoming             TIM JOHNSON, South Dakota
CHUCK HAGEL, Nebraska                JACK REED, Rhode Island
RICK SANTORUM, Pennsylvania          CHARLES E. SCHUMER, New York
JIM BUNNING, Kentucky                EVAN BAYH, Indiana
MIKE CRAPO, Idaho                    THOMAS R. CARPER, Delaware
JOHN E. SUNUNU, New Hampshire        DEBBIE STABENOW, Michigan
ELIZABETH DOLE, North Carolina       ROBERT MENENDEZ, New Jersey
MEL MARTINEZ, Florida

             William D. Duhnke, Staff Director and Counsel
     Steven B. Harris, Democratic Staff Director and Chief Counsel
                        Jonathon Gould, Counsel
              John V. O'Hara, Senior Investigative Counsel
            Genevieve de Sanctis, Professional Staff Member
              Stephen R. Kroll, Democratic Special Counsel
                 Lee Price, Democratic Chief Economist
   Joseph R. Kolinski, Chief Clerk and Computer Systems Administrator
                       George E. Whittle, Editor





















                            C O N T E N T S

                              ----------                              

                      TUESDAY, SEPTEMBER 19, 2006

                                                                   Page

Opening statement of Chairman Shelby.............................     1

Opening statements, comments, or prepared statements of:
    Senator Bennett..............................................     3
    Senator Stabenow.............................................     4
    Senator Allard...............................................     5
    Senator Sarbanes.............................................     5
    Senator Enzi.................................................     6
    Senator Bunning..............................................     8

                               WITNESSES

Alberto Gonzales, Attorney General of the United States..........     9
    Prepared Statement...........................................    39
Ernie Allen, President and Chief Executive Officer, National 
  Center for Missing and Exploited Children......................    25
    Prepared Statement...........................................    50
    Response to written questions of:
        Senator Shelby...........................................   103
Kim Mowder, Senior Vice President, Bank of America Merchant 
  Services.......................................................    27
    Prepared Statement...........................................    60
Mike DeNoma, Group Executive Director and CEO of Consumer 
  Banking, Standard Chartered Bank...............................    29
    Prepared Statement...........................................    69
Jodi Golinsky, Vice President, Regulatory and Public Policy 
  Counsel, MasterCard Worldwide..................................    31
    Prepared Statement...........................................    89
    Response to written questions of:
        Senator Shelby...........................................   106
Mark MacCarthy, Senior Vice President, Public Policy, Visa USA, 
  Inc............................................................    33
    Prepared Statement...........................................    95


COMBATING CHILD PORNOGRAPHY BY ELIMINATING PORNOGRAPHERS' ACCESS TO THE 
                        FINANCIAL PAYMENT SYSTEM

                              ----------                              


                      TUESDAY, SEPTEMBER 19, 2006

                                       U.S. Senate,
          Committee on Banking, Housing, and Urban Affairs,
                                                    Washington, DC.
    The Committee met at 10:07 a.m., in room SD-538, Dirksen 
Senate Office Building, Hon. Richard Shelby, presiding.

        OPENING STATEMENT OF CHAIRMAN RICHARD C. SHELBY

    Chairman Shelby. The Committee will come to order.
    This morning, the Banking Committee will examine the 
exploding problem of child pornography on the Internet, and the 
roles the Congress, the executive branch and the financial 
services community can play in combating this global problem. 
We will hear from the Attorney General of the United States on 
the efforts of the Department of Justice to attack and stop 
this criminal activity. The Committee will also review the 
progress of the Financial Coalition Against Child Pornography 
since its recent launch in March of this year.
    Child pornography has become a multibillion dollar industry 
worldwide because it is low-risk and highly profitable. The sad 
truth is that there is a large and growing demand for these 
disturbing images. Combine that demand with ease of access 
provided by the Internet and the ability to use credit cards 
and other payment methods and you get one of the fastest 
growing on-line businesses.
    Unfortunately, our banks and credit card companies, which 
have been instrumental in the Internet commerce revolution, 
have become an unintentional part of the problem. Credit cards 
provide an easy and quick method of payment and are accepted 
worldwide. Purveyors of child pornography know this and they 
use the Internet and the credit card system to exploit and 
abuse innocent children for profit.
    While this all began as a mostly concealed cottage 
industry, investigations today have unraveled complex 
international financial trails. Billions of dollars a year in 
illicit profits attract organized criminals who are highly 
adept at using sophisticated finance and money-laundering 
mechanisms such as shell and front companies which hide true 
identities and process payments internationally. As the 
Attorney General will soon discuss, an important key to 
combating this growing transnational cancer is to follow the 
money, the same tactic we use in disrupting organized crime 
syndicates, narcotics traffickers, and terror networks.
    If it were in the realm of possibility to eliminate the 
incomprehensible demand for this type of disturbing material, 
we would surely do it. But, unfortunately, that noble goal is 
well beyond any of our capabilities. It is, nonetheless, all of 
our responsibilities to do everything we can to protect our 
children by combining our efforts to combat this undeniable 
evil. The members of this Committee are committed to doing just 
that by going after the money.
    One such measure involves organizing banks, credit card 
companies, Internet service providers, and alternate payment 
providers to work together to address this issue. The Financial 
Coalition Against Child Pornography is an initiative involving 
the National Center for Missing and Exploited Children and its 
international sister organization. These two groups are 
collaborating with several financial institutions and Internet 
industry leaders to eradicate the commercial viability of child 
pornography by the year 2008. So far, 25 companies have joined 
the Coalition. It is our hope that number will grow 
significantly in the very near future.
    In my role as Chairman of the Senate Banking Committee, I 
have worked with the Center to bring together industry leaders 
to develop and implement a comprehensive strategy to attack the 
problem. We have the technology, resources and expertise--but 
the key is cooperation, coordination and perhaps most 
important, commitment in the financial services community.
    I look forward to hearing from our witnesses as we discuss 
these issues in more detail.
    This morning, we will hear first from The Honorable Alberto 
R. Gonzales, Attorney General of the United States. General 
Gonzales, who, since taking the helm at Justice, has made 
combating the scourge of child pornography one of the 
Department's highest priorities. The Attorney General has 
developed a new initiative, Project Safe Childhood, which will 
coordinate Federal, State, and local law enforcement efforts to 
prosecute child predators and rescue their victims. Under his 
leadership, the Justice Department has partnered with the 
National Center for Missing and Exploited Children and other 
organizations, to deploy their considerable resources against 
this threat.
    Also, the Attorney General has worked with Congress to 
craft new laws to combat those who would harm children--
particularly the recently enacted Adam Walsh Child Protection 
and Safety Act of 2006. Mr. Attorney General, I commend you for 
your efforts and we are very pleased that you are with us 
today.
    Our second panel will include Mr. Ernie Allen, President 
and Chief Executive Officer of the National Center for Missing 
and Exploited Children.
    Ms. Kim Mowder, Senior Vice President of Bank of America 
Merchant Services.
    Mr. Mike DeNoma, Group Executive Director and CEO of 
Consumer Banking for Standard Chartered Bank.
    Ms. Jodi Golinsky, Vice President and Regulatory and Public 
Policy Counsel for MasterCard Worldwide.
    Mr. Mark MacCarthy, Senior Vice President for Public 
Policy, Visa U.S.A., Inc.
    So, we are looking forward to a great panel.
    Senator Bennett, do you have any comments?

             STATEMENT OF SENATOR ROBERT F. BENNETT

    Senator Bennett. Thank you very much, Mr. Chairman. I 
appreciate your calling the hearing. It is very timely here for 
the Senator from Utah. I am going to read excerpts from a 
release that came out of the United States Attorney's Office in 
Salt Lake City that perhaps illustrates what it is we are 
dealing with.
    A complaint unsealed Friday in Federal court charges a 
registered sex offender in Salt Lake City with enticing and 
coercing a minor child in Illinois to engage in sexually 
explicit conduct for the purpose of producing visual depictions 
of the conduct.
    The defendant allegedly told the child he needed the 
pictures for modeling. And, on another occasion, offered the 
child a modeling contract. U.S. Attorney Brett Tolman, District 
of Utah, FBI special agent in charge Timothy Fuhrman of the 
Salt Lake Field Office and Utah attorney general Mark Shurtleff 
announced the arrest of Gerald Wheeler, 40, of Salt Lake City.
    According to the complaint, a parent contacted law 
enforcement authorities in Naperville, Illinois, saying that 
his 13-year-old daughter had been receiving obscene, lewd, and 
sexual messages on her computer site. The messages include 
requests for the child to engage in various sexual acts, and 
the child was asked to fly to New York to engage in sexual 
conduct in exchange for a modeling contract.
    Detectives were able to trace the IP address to an Internet 
cafe in Salt Lake City, Utah. According to the complaint, the 
owner of the cafe compared the log-in times to possible users 
at the cafe at 3:16 a.m. on August 15, 2006. Because the cafe 
is not a 24-hour facility, the owner confirmed that the only 
individual with access to the IP address at 3:15 a.m. would be 
the facility manager, Jerry. The owner also confirmed that he 
knew that the cell number Brian--that is the pseudonym used--
had used to call the child belonged to a former employee of the 
facility who was close to Jerry. Jerry was identified as Gerald 
Wheeler. The owner of the cafe confirmed that a computer 
recovered from the basement of the cafe was used primarily by 
Wheeler prior to August 2006.
    So here is an actual case, interstate, from Salt Lake City 
to Naperville, Illinois, that required intelligent cooperation 
with Federal authorities and local authorities that illustrates 
that this is not a matter that can be left to local police 
departments. It does require the attention of Federal 
authorities, and, Mr. Attorney General, along with the 
Chairman, I salute you for your attention to this.
    When we get into the question period, Mr. Attorney General, 
I am going to take you back to the Reagan administration when 
your predecessor, Ed Meese, formed an Attorney General's 
Commission to deal with this, a Commission that made a number 
of recommendations. And, unfortunately, in the intervening 
time, very little has been done about these recommendations, 
and I am going to ask you if the Justice Department is 
considering appointing another Commission.
    I am told and cannot verify that at least one of your 
predecessors told the U.S. Attorneys not to prosecute any 
pornography cases. I will not use names because I cannot verify 
that this actual order was given, but I think it is a very 
significant issue, and I applaud you for your attention to it, 
and you, Mr. Chairman, for holding this hearing.
    Thank you.
    Chairman Shelby. Senator Stabenow.

              STATEMENT OF SENATOR DEBBIE STABENOW

    Senator Stabenow. Thank you, Mr. Chairman, for scheduling 
what is a very important hearing, and I also welcome Attorney 
General Gonzales. I think this is one of the most important 
topics that, frankly, we will deal with as it relates to 
people's lives, because what happens to children fundamentally 
can change their life forever. And it is incredibly important 
that we have a sense of urgency about this issue. So I am 
pleased that you are here, and I am very concerned about the 
information we are uncovering, as the Chairman and Senator 
Bennett have talked about.
    First, the growth of the industry. Since 1988, the number 
of Internet pornography images has increased 1,500 percent--
1,500 percent. That is astounding.
    Second, the economics of the industry. Today, the market 
for child pornography is estimated to be about a $30 billion 
business that accounts for about 20 percent of the Internet 
pornography market.
    And, last, and most disturbing, is where the Internet sites 
are being hosted, because, as we know, according to the 
National Criminal Intelligence Service, more than half of all 
the illegal sites are coming from here, coming from the United 
States. Half--more than half.
    While I recognize that the internet has provided a 
distribution mechanism for illegal activity, we all agree it 
should be a tool to combat the illegal activity. we have the 
technology to trace money flows directly to child pornography 
predators, identify websites around the world, and we need to 
be having a sense of urgency as we move forward. We should also 
be able to stay ahead of the predators using the Internet as a 
vehicle for justice.
    I know the coalition has targeted 2008, but as I review the 
numbers, it may not seem far away for us working on a daily 
basis, but for too many children that is a long ways away--
2008. Whether we invest in high-tech computer-based tracking 
techniques, stiffer regulations, or increase education of 
front-line law enforcement personnel, I believe we need to move 
faster.
    I have supported and will continue to support every effort 
I can to address issues concerning the Internet and 
exploitation of children. I am very proud to be one of the 
sponsors of the Internet Safety and Child Protection Act, which 
would tighten our laws regarding pornography purchases over the 
Internet. And I hope that we will see action on that bill.
    Again, Mr. Chairman, thank you very much for holding this 
hearing. When it comes to child pornography and our children, 
we are talking about a very profound area of changing a child's 
life, and I hope that we will do everything together that we 
can to have a sense of urgency about this issue, and I thank 
you again for your leadership.
    Chairman Shelby. Senator Allard.

               STATEMENT OF SENATOR WAYNE ALLARD

    Senator Allard. Mr. Chairman, I would like to join my 
colleagues in thanking you for holding this hearing and your 
leadership on this particular matter. I would also like to join 
them in welcoming Attorney General Gonzales here before the 
Committee; your leadership in combating child pornography is 
very much appreciated by many of us on this Committee.
    I would also like to second Senator Bennett's comments that 
it is important that we put together a program that really 
yields results. Child pornography is one of the most appalling 
and horrific crimes imaginable. Unfortunately, technology has 
created some vulnerabilities. Child predators prey on 
unsuspecting children and teenagers over the Internet via 
social networking websites, web cams, and Internet access to 
cell phones.
    A recent study discovered one in five young people ages 10 
to 17 who use the Internet regularly received a sexual 
solicitation over the Internet within the previous year. 
However, less than 10 percent of sexual solicitations were 
reported to authorities.
    According to a Mackenzie Worldwide report, child 
pornography is a $20 billion industry worldwide, much of which 
is funded by the Internet. The Internet has enabled child 
pornography to become a fast-growing industry. It has allowed 
thousands upon thousands of individuals worldwide access to 
child pornography by simply using their credit cards and other 
electronic payment methods.
    I am pleased to see that Qwest Communications in Colorado 
has been proactive and is showing initiative to raise awareness 
and help combat the exploitation of young people over the 
Internet. Qwest has partnered with the National Center for 
Missing and Exploited Children to form a coalition to increase 
parental and guardian education through the Qwest Connected 
Family Online Classroom.
    Again, I would like to thank Chairman Shelby for being the 
motivation that brought together some of the world's most 
prominent financial institutions, the Internet industry, and 
the International Centre for Missing and Exploited Children to 
form the Financial Coalition Against Child Pornography. The 
goal of the coalition is to eradicate commercial child 
pornography by 2008. In order to accomplish this, we need to 
eliminate the flow of money being used to exploit innocent 
victims.
    I would like to thank the witnesses for being here today, 
and I look forward to all of your testimony. Thank you, Mr. 
Chairman.
    Chairman Shelby. Senator Sarbanes.

             STATEMENT OF SENATOR PAUL S. SARBANES

    Senator Sarbanes. Well, Mr. Chairman, I first want to very 
strongly commend you for your work in this area and, in 
particular, for bringing together the National Center for 
Missing and Exploited Children, which has been under the very 
capable leadership of Mr. Allen here, and the leading 
participants in the payment system to fight the spread of child 
pornography over the Internet.
    I think as all my colleagues know, Chairman Shelby convened 
a meeting of financial leaders to address this issue, and as he 
said in a letter which he sent to all of his colleagues in the 
Senate, and I quote him, ``If people were purchasing heroin or 
cocaine and using their credit cards, we would be outraged and 
we would do something about it. This is worse.''
    So I want to join with others in recognizing your leading 
efforts in this area.
    The exploitation and greed that characterizes the 
production and sale of child pornography are obvious and 
apparent. The sale of child pornography is a multi-billion-
dollar-a-year industry worldwide. The human pain inflicted to 
produce these moneys is dreadful to contemplate.
    The Internet child pornography industry exists largely 
because the use of credit cards and other online payment 
mechanisms makes it possible easily to buy and sell 
pornography, with potential secrecy, from anywhere in the 
world. Without access to the payment system, it is reasonable 
to believe that the Internet child pornography industry would 
certainly shrink, and perhaps die. That is why an essential way 
to identify and stop the criminals involved is to ``follow the 
money.'' We can expect to find many of the common tools of 
money laundering along the way, including front companies, 
anonymous aggregators interposed between credit card merchant 
banks and their customers, misuse of correspondent banking 
relationships, all of which allow the child pornography 
industry to disguise its operations and to facilitate the 
international movement of funds derived from this criminal 
activity.
    I am encouraged that leading members of the payment system, 
legitimate enterprises, amongst our most legitimate 
enterprises, have pledged under the initiative and leadership 
of Chairman Shelby to work to deal with these issues in 
connection with the fight against child pornography.
    I am pleased to join with my colleagues in welcoming the 
Attorney General to the Committee this morning, and also, 
because I am not sure I will be able to stay the entire 
morning, Mr. Chairman, I want to welcome Mr. Allen, whose 
tireless work on behalf of at-risk children is well known, and 
the other members of the second panel. I look forward to 
hearing the testimony of today's witnesses.
    Thank you.
    Chairman Shelby. Thank you.
    Senator Enzi.

                 STATEMENT OF SENATOR MIKE ENZI

    Senator Enzi. Thank you, Mr. Chairman, and I, too, want to 
thank you for holding this hearing and for your tireless 
efforts. I want to thank the Attorney General for being here 
and the other members of the panel. We need to do everything we 
can to stomp out this terrible blight on our children.
    Each year, thousands of children are exploited by 
photographing them and making those images and videos available 
to child predators. We need to stop those terrible crimes, and 
I look forward to hearing from the witnesses, with the ideas 
about what can be done.
    The sexual victimization of children is a tremendous 
problem in our Nation, and, unfortunately, the problem is 
probably more widespread than most recognize. According to the 
National Center for Missing and Exploited Children, statistics 
show that one in five girls and one in ten boys are sexually 
exploited before they reach adulthood. Although these abuses 
are so prevalent, less than 35 percent of those child sexual 
assaults are even reported to authorities. The abused children 
who are the victims of child pornography are harmed both 
mentally and physically. Physically, they can be molested or 
face exposure to sexually transmitted diseases. Although the 
physical traumas are problematic, many child victims struggle 
with the mental abuse for far longer.
    Victims of child pornography can often face depression, 
anger, and feelings of worthlessness and low self-esteem. These 
feelings follow them into adulthood and forever alter their 
lives. In addition, because emotional scars are not as visible 
as physical wounds, they often go untreated.
    Child pornography is illegal in all 50 States and most 
countries. Although the growth of the Internet has been 
beneficial in many ways, bad actors are using this information-
sharing tool to spread their filth. Unfortunately, the vastness 
of cyberspace often makes prosecution of these criminals 
difficult.
    Congress has taken steps to combat child pornography, but 
our actions up to this point have not gone far enough. Earlier 
this year, the Senate passed and President Bush signed the Adam 
Walsh Child Protection and Safety Act of 2006. This legislation 
included provisions requiring producers of sexually explicit 
material and simulated sexually explicit material to keep 
records of every performer's name and date of birth.
    While ensuring that performers are of legal age, Congress 
and President Bush took one more step to protect the innocent. 
In addition to this act, there are a number of other ideas 
being discussed in Congress and within the administration. The 
Department of Justice has sent proposals to the Hill to 
increase fines if an electronic communication service provider 
knowingly and willfully fails to report the presence of child 
pornography on their systems. In addition, Justice hopes to 
eliminate the practice of hiding terms in the website's code so 
that the pornography site will come up on a search of the 
Internet.
    For example, some pornography website owners will place 
terms such as ``Sesame Street'' in the code. When someone 
searches on Google for children's shows, the pornography 
website will also come up on the list of possible websites.
    Many of the proposals attack the problem of child 
pornography with increased regulation of the Internet. Those 
deserve serious consideration, but in addition to taking action 
on the Internet, there are many other ways we can prevent the 
exploitation of children.
    Today we are here to examine the role of the financial 
industry on stopping child pornography and child pornographers. 
I am pleased Chairman Shelby scheduled this hearing to tackle 
this important issue before the Banking Committee. I also 
applaud the efforts of the Financial Coalition Against Child 
Pornography to wipe out commercial child pornography by 2008. 
They seek to do so by destroying the financial network of these 
criminals. The ambitious goal will take coordination of law 
enforcement, private industry, States, and the Federal 
Government.
    I am committed to providing these individuals with the 
resources they need to eliminate and eradicate child 
pornography. I look forward to learning about efforts that are 
currently underway and learning about what more can be done so 
we can provide the resources to help law enforcement deal with 
this problem. This hearing will help lay the groundwork for 
legislative action as we engage in the fight against child 
pornography.
    Thank you again for holding this hearing and for our 
distinguished guests taking the time to testify.
    Chairman Shelby. Mr. Attorney General, we welcome you 
again--oh. Senator Bunning, that is right.

                STATEMENT OF SENATOR JIM BUNNING

    Senator Bunning. Thank you, Mr. Chairman. I know I was a 
little late, but I appreciate being recognized.
    Chairman Shelby. He is recognized.
    Senator Bunning. First of all, I would like to congratulate 
Senator Shelby on all the work that he has done to bring the 
hideous incidents, many incidents to our attention. And I would 
like to welcome all of our witnesses today. I am especially 
glad to see that Attorney General Gonzales was able to join us. 
I would also like to extend a warm welcome to one of my fellow 
Kentuckians who is on the second panel, Ms. Kim Mowder with the 
Bank of America.
    Mr. Chairman, I am pleased that the Committee will be 
hearing testimony today regarding how to combat child 
pornography through our financial institutions. I believe it is 
an issue that deserves our attention and consideration.
    Like my colleagues here today, I believe that sexual 
predators are among the worst criminals in our society. My 
thoughts and prayers go out to the victims and the victims' 
families. It breaks my heart to hear stories in the news about 
children who have been exploited by predators on the Internet. 
I believe there is no punishment too severe for these 
criminals.
    This past year, Congress has addressed several ways to 
combat such predators. Most of those ways, however, have 
focused on increasing Federal penalties and establishing a 
national registry. I believe it is time that we focused on the 
finances of the industry. It is basic business sense to do so. 
If we take away the money, then we can take away the incentives 
for those who want to profit from exploiting children.
    I am glad the industry has taken a leading role in this, 
and I look forward to hearing about their plans. I would like 
to thank all of the witnesses for their testimony today. I look 
forward to hearing their thoughts on how we can best put an 
end--an end--to this industry.
    Thank you, Mr. Chairman.
    Chairman Shelby. Thank you, Senator Bunning.
    Mr. Attorney General, your written testimony will be made 
part of the hearing record in its entirety. We welcome you 
again. You proceed as you wish.
    Attorney General Gonzales. I would like to make an opening 
statement, Mr. Chairman.
    Chairman Shelby. Absolutely.

   STATEMENT OF ALBERTO R. GONZALES, ATTORNEY GENERAL OF THE 
                         UNITED STATES

    Attorney General Gonzales. Mr. Chairman, Senator Sarbanes, 
and distinguished Members of the Committee, thank you----
    Chairman Shelby. Please bring the mike just a little 
closer. We have got a lot of people in this room.
    Attorney General Gonzales. Thank you for having me here 
today to discuss a very important and vital issue: protecting 
our children from exploitation on the Internet.
    As all of you know, none of us can underestimate the 
importance or the urgency of this threat against our kids. 
Every day pedophiles troll the Internet to see and sell images 
of child abuse. They also look for ways to contact our children 
over the Internet. They are hoping to make contact with the 
very young, the very innocent, to commit unthinkable acts and 
to potentially sell images of those crimes to other pedophiles.
    It is unfortunate that one of the greatest inventions of 
our generation, the Internet, is providing the building ground 
for the heinous crimes. That is why parents and volunteers and 
law enforcement must make the Internet a battleground. We must 
fight every day because predators seek to hurt our kids every 
day.
    As a father of two young boys, this issue is one that I 
take extremely seriously on both personal and professional 
levels. I know the same is true for Members of this Committee. 
We are all aware that society's ability to protect its children 
is a critical marker of that society. That is why protecting 
our children from sexual exploitation on the Internet is a high 
priority for the Department.
    I know that the issue of child molestation, rape, and 
pornography can be difficult for people to focus on because it 
is simply so terrible. But we cannot turn away to preserve our 
comfort level. We must confront the brutal facts.
    For example, virtually all images of child pornography 
depict the actual sexual abuse of real children. In other 
words, each image literally documents a crime scene. These are 
not just pornographic pictures or videos. They are images of 
graphic sexual and physical abuse--rape, sodomy, and forced 
oral sex--of innocent children, sometimes even babies.
    The Internet has created a shocking field of competition to 
see who can produce the most unthinkable photos or videos of 
rape and molestation. In the perverse eyes of the pedophiles 
and predators, this means the younger, the better.
    Now, working with Federal investigators and advocacy 
groups, I have seen just how horrific these images can be. I 
have seen a young toddler tied up with towels, desperately 
crying in pain, while she is brutally raped and sodomized by an 
adult man. I have seen videos of very young daughters forced to 
have intercourse and oral sex with their fathers and pictures 
of older men forcing naked young girls to have anal sex. Now, 
these are shocking images that cry out for the strongest law 
enforcement response possible.
    Moreover, these disturbing images are only the beginning of 
a cycle of abuse. Once created, they become permanent records 
of the abuse they depict and can haunt the victims literally 
forever once they are posted on the Internet. Unfortunately, 
advances in technology have also made it easier for offenders 
both to profit from these images and to distribute them to each 
other. Once images are posted on the Internet, it becomes very 
difficult to remove them from circulation. Even more disturbing 
is the fact that offenders rely on these images to develop a 
plan of action for targeting their next victims and then use 
the images to bring victims into submission.
    The challenge we face in cyberspace was illustrated by a 
new national survey released in August of 2006, conducted by 
University of New Hampshire researchers for the National Center 
for Missing and Exploited Children. The study revealed that a 
full third of all kids ages 10 through 17 who use the Internet 
were exposed to unwanted sexual material. Much of it was 
extremely graphic.
    As I mentioned, this battle against child exploitation is a 
top priority. Earlier this year, as the Chairman indicated, we 
launched a program called Project Safe Childhood that is 
helping to coordinate the good efforts of U.S. Attorney's 
Offices, law enforcement, and advocacy groups. Through Project 
Safe Childhood, we are constantly expanding our efforts to 
address the sexual exploitation of children on the Internet and 
the financial underpinnings of this exploitation. This program 
is helping law enforcement and community leaders develop a 
coordinated strategy to prevent, investigate, and prosecute 
sexual predators, abusers, and pornographers who target our 
children.
    As we have looked at ways to improve the law enforcement 
response to the problem of online exploitation and abuse of 
children, one thing we have continually heard from State and 
local investigators and prosecutors is that many Internet 
service providers do not retain records for a sufficient period 
of time. Several months ago, I asked a working group within the 
Department to look at this issue, and we are working hard on 
ways to remedy this problem.
    I see the initiative to protect our children as a strong, 
three-legged stool. One leg is the Federal contribution led by 
United States Attorneys around the country. Another is State 
and local law enforcement, including the outstanding work of 
the Internet Crimes Against Children Task Forces, which are 
funded by the Department's Office of Justice Programs. And the 
third is nongovernmental organizations like the Financial 
Coalition Against Child Pornography and the National Center for 
Missing and Exploited Children, without which we would not have 
a CyberTipline.
    I want to note that the Financial Coalition would not exist 
without the leadership and vision of you, Mr. Chairman. You 
were the catalyst in bringing industry leaders together to 
address this serious problem.
    Congress, of course, has also provided valuable support for 
our efforts by passing the Adam Walsh Child Protection and 
Safety Act earlier this year. The Adam Walsh Act, signed by the 
President, will help us keep our children safe by preventing 
these crimes and by enhancing penalties for these crimes across 
the board. But none of our efforts can stand alone. All must 
involve high levels of sharing and coordination. That is what 
Project Safe Childhood is all about.
    One final note that I would like to share with the 
Committee today is that our fight against the proliferation of 
child sexual exploitation on the Internet does not stop at our 
borders. It demands a global strategy. This makes it imperative 
that we pay attention to the laws governing child sexual 
exploitation in other Nations. Many countries have 
astonishingly lenient punishments for child pornography 
offenses.
    For instance, in several nations, the production of child 
pornography is punished with only a fine or imprisonment of 
less than 6 months or a year. Simple possession is punishable 
merely by a fine. And just as we need some States to strengthen 
their laws to punish child sex offenders, we must encourage 
foreign lawmakers to strengthen their laws as well, including 
those concerning the financial components of these crimes.
    I am, of course, grateful, Mr. Chairman, that the Committee 
shares the Department's commitment to protecting our children. 
Again, I want to thank you for establishing the Financial 
Coalition Against Child Pornography. I also want to acknowledge 
Senator Santorum's work for authoring the provision in the Adam 
Walsh Act that authorized the Department's Project Safe 
Childhood initiative. Senators, all of you, your exemplary 
actions have truly shown the depth of your commitment to 
protecting our children from abuse that no human being should 
have to endure.
    Mr. Chairman, thank you and the Committee for the 
opportunity to speak to you. I would be pleased to answer any 
questions the Committee may have.
    Chairman Shelby. Thank you, Attorney General Gonzales.
    Picking up on something you just said a minute ago, it has 
been reported that in most of the world there are no statutes 
or laws on child pornography, and only a handful of countries 
actually have laws and harsh punishment for offenders. Mr. 
Attorney General, what kind of collaborative efforts are 
currently underway or contemplated between the Department of 
Justice and international governments and law enforcement 
officials? In other words, how can we, you as the Attorney 
General and we as legislators, create a uniform system that 
would help combat this commercial child pornography?
    Attorney General Gonzales. An important part of my 
responsibility as Attorney General is to develop and solidify 
relationships with my foreign counterparts, because there are 
many crimes that know no borders, such as terrorism, such as 
the protection of intellectual property, and, of course, such 
as the protection of our children. And for that reason, 
whenever I travel it is always one of the items that is on my 
list to raise with my counterparts in terms of what are the 
efforts ongoing in that country and what can we do together to 
help deal with this issue, because I think it is becoming more 
and more of a problem in foreign countries as well, and my 
foreign counterparts, they understand. They can't successfully 
address this issue without the cooperation of the United 
States.
    We are also working with the European Union. There is an 
organized effort within the European Union to focus on this 
issue to see what we can do together collectively as a group 
working with the United States and the member countries to 
address this issue.
    Senator, in terms of what Members of Congress can do, I 
know that you have a lot of international travels, and I would 
certainly put this at the top of the list of items to raise 
with foreign legislators and foreign officials in terms of the 
importance of protecting our children, because we will not be 
able to protect our children here in America without the 
cooperation of other countries. This is a very important 
effort.
    Chairman Shelby. Thank you. Shell corporations. Law 
enforcement officials over the world over are concerned about 
the use of U.S. shell companies to hide or facilitate criminal 
activity, particularly money laundering. In a number of States, 
they can be registered by foreign citizens by way of the 
Internet in just minutes without any ownership information 
being supplied. Officials have often noted that some cases had 
to be because of insufficient information on what we call 
beneficial owners. Does the Justice Department have an opinion 
on whether having more information at the incorporation stage 
and periodic updates of that information thereafter would be 
beneficial in pursuing the fruits of crime like child 
pornography? Would this take an intervention of Congress to 
achieve the desired result? In other words, could we reach 
other States, amend laws, or what?
    Attorney General Gonzales. Mr. Chairman, I don't know 
whether or not it would require the intervention of Congress. 
That is something that I would be happy to look at and get back 
to you. Obviously, the more information we have about those 
engaged in criminal activity, the easier it is for the law 
enforcement community to deal with it effectively. So I would 
be happy to look at that and get back to you.
    Chairman Shelby. That would be good.
    Attorney General Gonzales. If I may, I was recently 
reminded that I should have--I neglected to mention this. 
Congress recently ratified the Cyber Crime Treaty, and that 
will help us with respect to our efforts with our overseas 
partners in fighting this problem.
    Chairman Shelby. Stored value cards, there are many ways to 
get money, I guess, and use it. This Committee has been 
interested in stored value cards for some time. There is no 
doubt that most people want to use these cards in a legitimate 
way, yet there are always some others who will make illicit use 
of them. Some of the cards' vulnerabilities stem from the ways 
they are obtained. Programs often accept applications online, 
by way of fax, or even through local check-cashing outlets, or 
even convenience stores, often without having any customer 
identification or suspicious activity reporting program in 
place. In fact, some issuers flaunt being anonymous.
    What effect do you think such cards are having or could 
have on the ability of law enforcement to follow the money of 
child pornography purveyors as they quickly process payments? 
And will they be able to later identify online child porn?
    Attorney General Gonzales. Mr. Chairman, they make it more 
difficult, quite frankly, in our efforts to prosecute child 
pornographers. I think one of the challenges that we will have 
to wrestle with, and I think we need to approach this with an 
open eye, and that is, we are dealing with a criminal element 
that is smart and they watch what we do. And so while I hope to 
see----
    Chairman Shelby. And international in scope, right?
    Attorney General Gonzales. And international in scope. And 
so while I hope to see us make great success and great strides 
in eliminating commercial websites that promote child 
pornography by 2008 by following the money and going after 
these credit card transactions, I fully expect that these 
enterprisers will try to find other ways in which they can 
facilitate these transactions other than through credit card 
payments. And so they are smart. They are going to adjust to 
what we do. We are going to have to be smart and flexible and 
adjust in the way that we deal with this problem.
    Chairman Shelby. But, notwithstanding, this is a daunting 
challenge. We know that. But it is something that we cannot 
afford to lose. We have got to prevail, have we not, for our 
children?
    Attorney General Gonzales. Mr. Chairman, this is a very 
important fight for the future of our country. It is a serious 
fight. The problem is enormous and it is immense, but we should 
not shy away from the challenge. We have an obligation to 
protect our children, and so I appreciate the effort of this 
Committee.
    Chairman Shelby. Thank you.
    Senator Sarbanes.
    Senator Sarbanes. Well, thank you very much, Mr. Chairman.
    Mr. Attorney General, I first want to follow up on the 
first question that Chairman Shelby put with respect to 
cooperative efforts in the international arena. As I understand 
it, the G8 law enforcement officials meet at least annually, I 
gather, as a group. Is that correct?
    Attorney General Gonzales. That is correct, sir.
    Senator Sarbanes. Has this issue of the Internet 
pornography issue been raised at those meetings of the G8 
leading law enforcement officials?
    Attorney General Gonzales. It has been raised. Yes, sir. I 
have been in discussions with my G8 counterparts, and this is 
an issue that we have discussed. Yes, sir. And I believe it is 
an issue that has been discussed prior to my tenure as Attorney 
General, but I am not certain of that.
    Senator Sarbanes. But it is a matter that is high on the 
agenda of those meetings? Would that be fair to say?
    Attorney General Gonzales. Sir, I believe everything that 
is on that agenda is a matter of priority for the member 
countries, and it is an issue that we have talked about. Yes, 
sir.
    Senator Sarbanes. Now, under Section 314(a)(1) of the 
PATRIOT Act, we have authorized law enforcement officials to, 
and I now quote the Act, ``share with financial institutions 
information regarding persons engaged in or reasonably 
suspected, based on credible evidence, of engaging in terrorist 
acts or money laundering.''
    Now, presently, the regulations issued under that section, 
which are issued by the Treasury Department, largely involve 
financial institutions giving information to law enforcement. 
Should the rules be revised for situations such as the fight 
against child pornography so that enforcement agencies can 
assist the coalition that we have made reference to earlier 
more effectively by sharing information with cleared officials 
about possible dishonest aggregators or shell companies? Is any 
thought being given to that? And what can be done?
    Attorney General Gonzales. Senator, I have not given any 
thought to that in terms of looking at that regulation and the 
sharing of information. I think if it can be done, it is 
something that I think we should look at. If you are talking 
about taking information about individuals and now sharing it 
with a nongovernmental entity, there may be privacy issues that 
we would have to look at. But that is something that we would 
be happy to look at.
    Senator Sarbanes. Would you undertake to do so? I think it 
might be helpful in this effort.
    Attorney General Gonzales. We will look at that, sir, and 
give you our views about it.
    Senator Sarbanes. All right. Several recent administrative 
actions against international banks involving failure properly 
to monitor correspondent accounts have been identified in the 
press as potentially involving the flow of funds derived from 
the sales of child pornography.
    In your view, to what extent should international banks 
take stronger steps to guard their correspondent banking 
practices from abuse in this way? I mean, the bank itself in 
its own practices may have some effective safeguards, but there 
is a concern that the correspondent banking practices are not 
subjected to the same scrutiny and standards.
    Attorney General Gonzales. Sir, I believe that Mr. Allen is 
going to talk about the importance of trying to have as many 
members of the Financial Coalition involved as possible. I 
think, as the Chairman indicated, we have over 20 members 
currently, and that represents, I believe, something like 87 
percent of the U.S. payments. But obviously, we need to get 100 
percent in. As you have identified, it is not just a question 
of U.S. banks. We also need to get banks outside of the United 
States involved.
    Senator Sarbanes. Well, in that regard, would additional 
international agreements relating specifically to Internet 
child pornography be helpful in furthering the effort to 
develop international cooperation?
    Attorney General Gonzales. It may be helpful, Senator. 
Obviously, it depends on what those agreements say. But they 
could be helpful, yes, sir.
    Senator Sarbanes. Is there a special unit within the 
Department of Justice that focuses on this issue only?
    Attorney General Gonzales. Sir, we have a special--within 
the Criminal Division we have a Child Exploitation and 
Obscenity Section which focuses on child pornography generally. 
Also, we have within the Criminal Division an International Law 
Section, and so when we are dealing with our foreign 
counterparts, we primarily deal with them through that 
International Law Section. But it is all under the penumbra of 
the Assistant Attorney General for the Criminal Division.
    Senator Sarbanes. And how much cooperation do you get from 
other agencies and departments of our Government, for example, 
the Department of the Treasury? After all, much of what I have 
referenced to, they are the first agency to work with these 
money-laundering questions.
    Attorney General Gonzales. Sir, I would say that the 
cooperation that we have got from our sister agencies has been 
very, very good, not only Treasury but, of course, the Internal 
Revenue Service within Treasury, the Department of Homeland 
Security, in particular ICE. The Postal Service has been 
outstanding, as has the Secret Service. And so I would 
characterize the cooperation and commitment to this issue as 
being very strong.
    Senator Sarbanes. Is there a structure established within 
the executive branch of our Government to achieve this? Or is 
this done on some ad hoc basis? Or is there a regular 
monitoring, coordinating unit, interagency unit, that follows 
this matter?
    Attorney General Gonzales. Sir, I do not believe that there 
is--I think you are kind of asking--I do not want to put words 
in your mouth, but is there sort of a task force that is kind 
of focused on this issue. None exists within the executive 
branch that focuses solely on child pornography.
    We do have a formal mechanism to look at trafficking that 
is chaired out of the Secretary of State's office. But with 
respect to child pornography, I would say, sir, that what we 
have instead is an understanding of the scope of the problem 
throughout the administration and a commitment throughout the 
administration to work together to deal with this issue.
    Senator Sarbanes. Well, it might be worth considering 
whether establishing such a structure would be helpful, and I 
commend that to you for the Department to give some thought to 
it.
    Attorney General Gonzales. Yes, Senator.
    Senator Sarbanes. Mr. Chairman, I see my time is up. Thank 
you.
    Chairman Shelby. Senator Bennett. Thank you, Senator 
Sarbanes.
    Senator Bennett. I want to follow up a little on what 
Senator Sarbanes was talking about. I do not want to imply that 
Salt Lake City is a hotbed of these kinds of problems by going 
again to a Utah case, but it demonstrates that the problems can 
occur anywhere.
    During the last week of July of this year, a 5-year-old 
girl was kidnapped and murdered, and then after she was dead, 
her body was raped.
    Now, the man who had admitted having committed this crime 
acknowledged that he was addicted to pornography and that the 
murder of this child--her name was Destiny Norton--and the 
subsequent act was his acting out of the pornographic fantasies 
to which he was addicted.
    This says to me that law enforcement of other kinds of 
crimes--murder, in this case--should pay attention to 
pornography. And I go back to the creation of the Meese 
Commission, and it has been 20 years since we had the Meese 
Commission on Pornography, and I remember a great deal of 
ridicule that was heaped on the Meese Commission, in the media 
and elsewhere, of people saying, ``Why is the Attorney General 
wasting his time on a victimless crime? And why should the 
Attorney General's Commission focus on this?''
    Well, the addiction to pornography by the man's own 
admission was a major motive in this horrible crime that took 
the life of Destiny Norton. And it seems to me that is the 
answer to the question of why law enforcement officials should 
pay attention to ``a victimless crime,'' looking at these 
pictures on the Internet is not the kind of thing we should be 
spending the Justice Department's money on. As I say, the Meese 
Commission was ridiculed for the focus that it had on 
pornography.
    My question to you, Mr. Attorney General, is: Isn't it time 
we revisited the creation of an Attorney General's Commission, 
an update, if you will of the kinds of things that the Meese 
Commission prophesied would happen, a careful review of what 
has happened over the last 20 years, and an analysis of whether 
or not Destiny Norton's fate was an isolated incident or 
represents part of a pattern that law enforcement officials 
have been ignoring?
    Now, do you have enough discretionary money in the Office 
of Juvenile Justice and Delinquency Prevention to fund a new 
AG's Commission on this issue?
    Attorney General Gonzales. I do not know whether or not, 
Senator, whether the funds are there, but that is something 
that we can easily look into and get back to you. Let me just 
say that we are doing a lot of--you talked about is it not now 
time to go back and look at the sources of this issue and look 
at what we ought to do to address it. That is ongoing and has 
been ongoing, and it is not just a function or commitment by 
the Federal Government, but obviously, organizations like the 
National Center for Missing and Exploited Children are very 
focused on this issue.
    The recommendations of the Meese Commission, you have to 
remember also, you know, a long time ago, and the changes in 
technology have been unbelievable. I have not read the Meese 
Commission report lately. I am not sure they could have 
imagined the scope, the depth of the threat to our children 
that exists today.
    Senator Bennett. That is why I am asking you to consider 
creating a new one, because those data are significantly out of 
date, 20 years after the fact. I think you may get some of the 
same ridicule from some of the same sources that pooh-poohed 
the Meese Commission, but I would hope you would consider 
creating a new one and ignoring those kinds of attacks.
    Attorney General Gonzales. Well, the only thing I would 
add, Senator, is that, you know, one of the recommendations of 
the Meese Commission was that we ought to have recordkeeping in 
terms of sexually explicit materials. And we now have, of 
course, 2257 and we just had for the first time a conviction, 
``Girls Gone Wild,'' there was a conviction for not keeping the 
appropriate records of minors used in the production of 
sexually explicit materials.
    And so that was a recommendation of the Meese Commission, 
and, of course, since the recommendations of the Meese 
Commission, we have had Congress take action through the 
PROTECT Act, through the Adam Walsh Child Protection Act. And 
so I suspect if you look carefully at the Meese Commission, 
some of the recommendations are reflected in some of the 
protections given by Congress in these two very important 
pieces of legislation.
    What I care about is protecting our kids. If it requires a 
task force, I am happy to look at that. I think we are doing a 
lot, quite frankly, working closely with our Federal 
counterparts, international counterparts, our State and local 
partners, nonprofit groups around the country, parents who care 
very much about this issue. But if we need to do more, I am 
happy to look at it.
    Senator Bennett. I cannot speak for the Chairman, but he is 
in a position on the Appropriations Committee to help you out 
if money is a problem.
    Thank you.
    Chairman Shelby. We hope money will never be a problem, Mr. 
Attorney General, when it comes to justice. You know that.
    Attorney General Gonzales. Yes, sir.
    Chairman Shelby. Senator Stabenow.
    Senator Stabenow. Thank you, Mr. Chairman.
    Just to follow up with Senator Bennett in terms of funding, 
one of the questions that I had related to just keeping up with 
the demand, when we look at the National Center for Missing and 
Exploited Children that says that the CyberTipline in 2001 
received 24,000 reports of child pornography, as you know, and 
that August of this year, the number had climbed to 375,000.
    So, Mr. Attorney General, my first question would be just 
simply: How are you going to keep up with this, and, in fact, 
is this an issue just from an enforcement standpoint alone in 
which we need to be looking increased resources?
    Attorney General Gonzales. I think that, as I indicated, 
the problem is enormous. It is immense. It presents some 
tremendous challenges for the Department--not only for the 
Department, but our State and local counterparts.
    Do we need more resources? We need more resources, quite 
frankly, but we realize that we do not live or operate in an 
environment of limitless resources. There are other priorities 
that are important that have to be met as well, which means 
that we have to be smart in utilizing the resources that 
Congress gives to us. And I think that we have been smart by 
greater collaboration and coordination with State and local 
counterparts, by leveraging what we know through additional 
trainings with State and local counterparts.
    I must tell you that, of course, the Adam Walsh Child 
Protection Act authorized additional prosecutors. I think that 
is something that should be seriously looked at, not only 
prosecutors within the U.S. Attorneys' Offices around the 
country, but additional prosecutors in the Child Exploitation 
and Obscenity Section. The Adam Walsh Child Protection Act also 
authorized funding for additional computer forensic experts. 
There is a serious backlog because we do not have enough 
computer forensic experts, and so there was an authorization 
for additional such experts for both the FBI and for ICE. I 
view it as a serious backlog, and I think that is something 
that Congress should be looking at.
    I think also we have a serious need with respect to 
children who are victimized. Oftentimes there is no place to 
put them. The State and local facilities simply are not 
available, and so we have to put them in juvenile facilities, 
which is not the best place to put kids who have been 
victimized. And so one of the things that I think ought to be 
looked at is whether or not there should be additional grants 
so that we--grants for State and local entities that can 
provide additional shelters for kids.
    So there are needs there. There is no question about it. 
But we have to be smart, and I look forward to working with the 
Congress to come up with the appropriate level of 
appropriations to meet these needs, these very important needs.
    Senator Stabenow. I appreciate that. This is an area, in 
one way or another, that I have worked in my whole adult career 
and have tracked in Michigan what happens when we do not pay 
attention to children, to shutting these kinds of things down. 
In the past, it was different kinds of exploitation, but the 
truth is we are going to pay there the mental health system, 
the juvenile justice system, the lack of children being 
successful in school or successful adults because of the 
outrageous victimization of children. And so I would just 
encourage you to have a loud voice, because I believe you have 
people here who would like very much to respond to that.
    If I might just go on, before my time runs out, to a couple 
of other different kinds of questions, one back to looking at 
the international front because, as I understand it, Russia's 
illegal sites may be growing even faster than the United 
States' and so what happens with our G8 partners becomes very, 
very important.
    When we worked on the PATRIOT Act legislation together, I 
was proud to author amendments to put in the concentration 
accounts language, and at that time we had language relating to 
correspondent bank accounts. We did not end up passing that and 
putting it in the PATRIOT Act.
    But I am wondering, as you have these discussions now, are 
there very specific things that you are hearing or tools that 
we should be addressing that would help you as you are working 
with our G8 counterparts to be able to do what you need to do?
    Attorney General Gonzales. Senator, most of our 
discussions, quite candidly, relate to sharing of information, 
evidence that could be useful in prosecutions. And we have had 
some successes, some international takedowns involving sites 
around the world because of this kind of cooperation and 
collaboration.
    In addition to information or evidence that would be useful 
in connection with a prosecution, my discussions have also 
centered upon legislation, what laws exist in those countries 
that would discourage the growth of Internet sites.
    So those are the kinds of things we have focused on. I do 
not have any recollection about specific discussions about 
financial transactions, but we may very well have had them. I 
just do not recall them at this time.
    But as I think Senator Sarbanes said, following the money 
is extremely critical, and having additional tools to do so 
would be most helpful.
    Senator Stabenow. And, Mr. Chairman, I know my time is up. 
I would just comment again on The Internet Safety and Child 
Protection Act, and I just mention this only because this deals 
with the other side of victimization, which is the number of 
young people under the age of 18 that are getting on these 
sites. So we not only, as you so rightly indicated, have crimes 
being committed in full view while we are watching this, but we 
need to be addressing and passing legislation that requires 
verification of age so that 10-year-olds, 11-year-olds, 12-
year-olds, who are now being able to get on and see this and 
may become the next generation of pornographers and predators 
are not able to get on these sites.
    Attorney General Gonzales. Senator, as the father of 14-
year-old and 11-year-old boys, I very much appreciate your 
comments. Let me just take a moment, Senator, to say that 
parents have a responsibility here. This is not something that 
the Congress, as wonderful and as powerful as this Committee 
is, can deal with effectively. We have to get parents involved. 
We have to make them understand this really is a war.
    Chairman Shelby. You are absolutely right, Mr. Attorney 
General.
    Senator Stabenow. The only thing I would say is that we can 
verify age, and so I agree with that as a parent totally, but 
we can work together to verify age.
    Attorney General Gonzales. Yes, Senator.
    Chairman Shelby. Mr. Attorney General, I am going to say it 
again, you are absolutely right, because without the parents 
being involved, we are wasting our time and money.
    Attorney General Gonzales. I am afraid to say that is true, 
Senator.
    Chairman Shelby. Senator Allard.
    Senator Allard. Thank you, Mr. Chairman.
    Attorney General Gonzales. I want to explore a little bit 
with you those things that may lead to the success of your 
effort and those things that may create obstacles.
    My first question is: What do you think would be the 
greatest obstacle to success in your war against child 
pornography?
    Attorney General Gonzales. We need information, Senator, 
and information helps us make cases. There is, understandably, 
reluctance about the Government having too much information 
about individuals and individual transactions. And obviously, 
we operate under a very strong Constitution. We respect and 
understand the civil liberties and the privacy rights of 
individuals. But we have got to find a way to harmonize this so 
that we can get access to information that would be helpful.
    I talked in my remarks about the issue of data retention. 
When I travel around the country, every cop, every agent, every 
prosecutor, they understand and they support this notion that 
we need to figure out a way to have Internet service providers 
retain data for a sufficient period of time that would allow us 
to go back and retrieve it through a legal process in 
connection with an investigation of someone who is harming a 
child.
    I believe Congress has recently received a letter signed by 
49 State Attorneys General supporting this, asking the Congress 
to look at this. And if it is not part of the record, I would 
like to have it submitted. I am not sure if it is appropriate 
for me to do that, Mr. Chairman, but I think that it is an 
important letter that the Committee should have before them as 
they consider this issue. And it is the kind of issue where 
even the State Attorneys General, you know, they reluctantly 
concede this is a problem that is national scope, and they 
would normally like to deal with issues on a local level, the 
State level. But they understand that this is a national 
problem that requires Federal legislation.
    Again, this is all related to the question of information. 
The more information we can have in a way that respects the 
privacy rights and the civil liberties of Americans, the more 
effective we can be in prosecuting these cases.
    Senator Allard. Attorney General Gonzales, what part of 
your program do you think is most likely to be successful?
    Attorney General Gonzales. I think that--two. I think 
education is important. Things like this hearing today are 
extremely important. When I go out and talk about this, it is 
important. When you go out and talk, it is important.
    We think that people understand the scope of this problem, 
but so many people really do not. And so we need to educate 
people about the dangers that exist. I think we can be 
successful in that. The Ad Council has been very, very helpful 
working with NCMEC, with ads in the past. We are going to 
partner with the Ad Council and NCMEC for new ads next year 
again--all with the goal of trying to educate people about the 
scope of this problem.
    Obviously, at the Department of Justice, what we do is 
prosecute. That is what we do. And I think that we have had 
some good successes to date. We are going to continue to push 
forward and to be aggressive in this area.
    Just last week I was in South Carolina. I asked every 
United States Attorney to send a representative to the training 
center in South Carolina so they can be trained, spend 4 days 
there or 3 days there to learn about prosecuting obscenity 
cases.
    In every district around the country, we have a Project 
Safe Childhood Coordinator in every U.S. Attorney district to 
develop a comprehensive, district-wide strategy. So we know 
what works, what is effective, what makes us most effective in 
prosecuting these kinds of cases. So we are going to do our 
part in prosecuting these cases. I think programs like the 
Financial Coalition are extremely important because it is 
another avenue of getting information to the law enforcement 
community. We are now able to have our own data base of the 
commercial websites that are promoting child pornography. That 
was not possible before the Financial Coalition, and so that 
has been very, very helpful.
    Senator Allard. Mr. Chairman, the Congress has passed the 
Government Procedures and Results Act. It is now adopted on the 
administrative side as PART. And one of the toughest things, I 
think, to measure in the PART program is your educational 
effort. I agree with you, education is a vital part to 
accomplish it. But how are you going to measure success when we 
come in to using education that is measurable?
    Attorney General Gonzales. Well, hopefully, if you look at 
recent studies about the number of children who have been 
solicited online and you look at the number of children who are 
responding to those solicitations, which I believe are going 
down, I think part of the reason is because we are doing a 
better job of educating parents and educating kids about the 
dangers of online solicitation.
    So you are right, this may be an area that is going to be 
tough to measure. But I think you and I can both agree how 
important this is and, nonetheless, while it may be tough to 
measure, we have an obligation, in order to be successful in 
this, to educate parents and educate kids about the dangers of 
child pornography on the Internet.
    Senator Allard. I hope you spend some time in figuring out 
how to best measure this, because I think that is vital for the 
continuation of this program that you are starting. And if we 
cannot show results in some way, then I think it is difficult 
to come to the appropriators for more money for the program.
    Attorney General Gonzales. We will look at that, Senator.
    Senator Allard. Thank you, Mr. Chairman.
    Chairman Shelby. Thank you, Senator Allard.
    Senator Enzi.
    Senator Enzi. Thank you, Mr. Chairman. Senator Sarbanes 
mentioned an American law that could provide some follow-up. In 
England, a law was passed earlier this year that allows law 
enforcement officials to pass along to credit card companies 
the information of those who are suspected of or convicted of 
accessing child pornography. The credit card industry then has 
the ability to revoke the offender's credit card.
    Is the Department of Justice interested in participating in 
such a program? And what liability issues exist if you were to 
participate?
    Attorney General Gonzales. I would need to look at that 
program, quite frankly, Senator. Obviously, we operate under 
different legal systems, and I would have to--I would want the 
opportunity to look at that. There may be, again, if you are 
talking about sharing information, Government information, with 
commercial enterprises or nongovernmental entities, there may 
be privacy interests that we would have to take into 
consideration.
    But this is a kind of crime where the more information we 
have, the more helpful it is, as I have indicated already. And 
it is something that I would be interested in looking at, so I 
would be happy to do that.
    Senator Enzi. OK. Thank you.
    Now, last year the administration announced its intention 
to ramp up the prosecution of Federal obscenity cases. What is 
the status of that increased prosecution? And has it increased 
the prosecution of obscenity cases that have led to increased 
prosecution of child pornographers? And do you find that people 
that do obscenity also do child pornography?
    Attorney General Gonzales. There is a connection. I think 
there is a connection. I think we can cite the studies that 
show a connection. If you are talking about--people ask, well, 
why are you going after obscenity cases? It is because 
oftentimes there is child pornography involved, and that is why 
we think it is important, and that is why in this discussion we 
should not lose sight of obscenity prosecution. That is 
important. And it is a reason why, as I indicated in response 
to an earlier question, I have asked our U.S. Attorneys to do 
more. You asked me what is our status. We need to do more, 
quite frankly.
    I have spoken with the troops out in the field about why I 
think this is important. I think we need to do a better job, 
and so we will continue to work at it.
    Senator Enzi. What has been the result of the increased 
prosecution of obscenity cases?
    Attorney General Gonzales. I cannot cite to you the 
numbers, but we can certainly get that for you, Senator. I 
would have to say that probably--I will say that I am 
disappointed in the efforts to date. But in defense, in 
fairness, I mean, these are tougher cases to make, again, 
depending on the prevailing standards of a community, whether 
or not you can have a successful prosecution. I suspect it is 
probably easier in some portions of the country than it is in 
other portions of the country. And so we are asking in some 
cases much more of a U.S. Attorney, depending on, you know, 
what city or town they are located in as opposed to someone 
else.
    But, nonetheless, because of the correlation between 
obscenity and child pornography, I think it is important that 
we not lose sight of these kinds of cases as well.
    Senator Enzi. And I would appreciate it if you would give 
me those numbers. I have reviewed a number of proposals to curb 
pornography and child pornography, and most of the proposals 
from the Department of Justice deal with the regulation of the 
Internet.
    Will you be presenting us with any formal legislative 
proposals for the Banking Committee to consider? And if so, 
could you give us a preview of those proposals?
    Attorney General Gonzales. Senator, I do not know whether--
we are still in discussions about what, if anything, we would 
present to this Committee. Again, I apologize, but I do not 
have an answer to that question.
    Senator Enzi. OK. Thank you.
    Thank you, Mr. Chairman.
    Chairman Shelby. Thank you, Senator.
    Senator Bunning.
    Senator Bunning. Thank you, Mr. Chairman.
    Attorney General Gonzales, in observation of what we have 
done and where the status of Internet pornography and 
exploitation of children presently is, we seem to be going 
backwards. And the reason I say that we seem to be going 
backwards is that every time I watch or see a case, I see 
local, State, and Federal laws conflicting on what we can 
actually arrive at.
    Now, I am asking you as the Attorney General, the chief law 
enforcement of the United States of America, what law would 
best serve our purpose so that we can wipe away the conflicting 
laws of local and State jurisdiction? Because if you watch some 
of the cases that are coming up, it always seems that local, 
State, and Federal jurisdictions are bumping into each other 
trying to prosecute the very people we know are exploiting our 
children, my grandchildren, and your two children.
    So what can you do and what can your Department do to 
suggest getting rid of or making sure that the privacy laws are 
not violated and we can get at the perpetrators?
    Attorney General Gonzales. Senator, I do not know whether 
it would make sense, quite frankly, to have a Federal law that 
would preempt State law. We have some very dedicated, very 
committed State and local prosecutors. Quite frankly, we do not 
have the resources--there are only 12,000 Federal law 
enforcement officials. There are 800,000 State and local law 
enforcement officials. And so we need them as partners, quite 
frankly. And so we need them to be able to prosecute State and 
local violations.
    I would not characterize it as us bumping into each other. 
You know, obviously, we run--everyone is committed to this 
issue. In many cases, State and local officials are quite happy 
to have the Feds take over a prosecution. Why? Because we in 
most cases have better resources. We have more experience in 
dealing with these cases. And, quite frankly, the sentences, 
the Federal sentences are much tougher.
    And so, for that reason, it has been my experience that the 
cooperation in terms of how to resolve these cases has been 
actually pretty good. And, obviously, from time to time, there 
are disagreements, but my general experience is that the end 
goal here is, again, to get a successful prosecution, and we 
try to work together whenever we can.
    Senator Bunning. I can understand us working together, but 
I have seen many cases that are stymied because of local, 
State, and Federal laws conflicting on certain privacy, 
evidence, and how a case is handled. We know the person is 
guilty. We cannot get to them because of some local 
jurisdiction--or State jurisdiction, for that matter. And I 
just think that the situation is such that we have to be able 
to get to the perpetrators.
    Attorney General Gonzales. Senator, I would like the 
opportunity to think about this question, and perhaps I could 
get back to you with a response.
    Senator Bunning. OK. In preparing for this hearing, I was 
looking over the list of organizations in the Financial 
Coalition Against Child Pornography, but I did not see the 
Child Exploitation and Obscenity Section of the Department of 
Justice anywhere.
    What role does this section play in this group?
    Attorney General Gonzales. Senator, the Financial Coalition 
is a nongovernmental entity, and the members include NCMEC, its 
international partner, Internet industry leaders, and banks and 
financial institutions.
    The coalition sort of serves as a clearinghouse. We have 
folks from the Department of Justice, the FBI, CEOS, the Postal 
Service, ICE, there on the premises at NCMEC. And so as they 
receive information, we receive it real-time, and that is why I 
talked earlier about this data base that has been created of 
commercial websites. And so when this information comes in, 
NCMEC makes an evaluation as to whether or not is this, in 
fact, child pornography. If it is, if they believe it is, they 
refer it to the law enforcement community. We then make an 
assessment as to whether or not this is something that should 
be prosecuted. If we cannot make that assessment within 10 
days, then NCMEC goes back to the bank, say it is Visa or 
MasterCard, and then Visa or MasterCard takes the action that 
they believe is appropriate in dealing with that particular 
merchant.
    So CEOS is involved in terms of assisting in the 
investigations, assisting in the prosecutions, and also 
involved very much so in training programs around the country 
with State and local officials.
    Senator Bunning. I know my time is almost--last question. 
Internationally, what countries are you seeing the most child 
pornography come from? And what cooperation have you gotten 
from those governments?
    Attorney General Gonzales. Senator, I would say--I would 
characterize it as sort of Eastern Europe and Asia. I do not 
want to name a country in terms of--I do not want to emphasize 
a particular----
    Senator Bunning. You do not have to name a country. Just 
give me sections.
    Attorney General Gonzales. Eastern Europe.
    Senator Bunning. Eastern Europe. And what cooperation have 
you gotten from those governments?
    Attorney General Gonzales. Senator, we have seen 
cooperation in connection with specific cases where there has 
been a willingness to share information and to participate in 
prosecutions. But, quite frankly, I think that countries ought 
to be doing more.
    We worry about the explosion of child pornography in our 
country. I believe it is even worse in other countries. It is 
because, I think, the efforts there are not as great as they 
are here in this country.
    Senator Bunning. They do not realize the damage that is 
being done.
    Thank you.
    Chairman Shelby. Thank you, Senator Bunning.
    Senator Sarbanes.
    Senator Sarbanes. I really want to go to the next panel, 
Mr. Chairman.
    Mr. Attorney General, child pornography, as I understand 
it, is per se obscene, correct?
    Attorney General Gonzales. Child pornography is not 
protected. That is correct, sir.
    Senator Sarbanes. That is right. So it does not have any 
First Amendment protections.
    Attorney General Gonzales. That is correct, sir.
    Senator Sarbanes. So getting at child pornography, it seems 
to me, is a matter of implementation and enforcement. We do not 
have any sort of problem with the legal standard because the 
courts, in effect, have said on its face it is obscene, 
correct?
    Attorney General Gonzales. That is correct, sir.
    Senator Sarbanes. Well, it seems to me that that really 
lays the basis for a pretty intense enforcement effort on the 
part of Federal, State, and local governments at all levels. I 
mean, I was listening carefully to Senator Bunning's question, 
and I thought it was a very, very important question. But we do 
not have a situation here where there is some question about 
the legality and so forth. The courts have been very clear 
about that, as I understand it.
    And so it seems to me the challenge is the enforcement and 
the implementation. We appreciate what the Department of 
Justice is doing, and I think the other Federal agencies could 
also do more. And, of course, we need to back it with resources 
from here if we are going to--and I do, again, in closing, 
commend Chairman Shelby for launching this initiative, which I 
think was a very innovative approach. If we can dry up the 
money, we are going to dry up at least a very large part of 
this activity.
    Thank you, Mr. Chairman.
    Chairman Shelby. Thank you, Senator.
    Mr. Attorney General, we thank you for your presence today. 
We know you are a busy man. Let's continue to work on this. And 
there are a number of things for the record that you said you 
would get back to various Members here today.
    Attorney General Gonzales. Thank you, Mr. Chairman.
    Chairman Shelby. Thank you.
    We now will welcome the members of our second panel: Mr. 
Ernie Allen, President and Chief Executive Officer of the 
National Center for Missing and Exploited Children; Ms. Kim 
Mowder, Senior Vice President, Bank of America Merchant 
Services; Mr. Mike DeNoma, Group Executive Director of Consumer 
Banking for Standard Chartered Bank; Ms. Jodi Golinsky, Vice 
President, Regulatory and Public Policy Counsel for MasterCard 
Worldwide; Mr. Mark MacCarthy, Senior Vice President for Public 
Policy, Visa USA, Inc.
    I will tell all of you now, all of your statements will be 
made part of the record in their entirety. The bad news--or 
maybe the good news--we have a vote pending at noon, so we ask 
that you summarize your remarks as quickly as possible.
    Mr. Allen, I just want to say something about you and thank 
you for your tireless efforts. You have been very 
instrumental--very--in the success of the coalition thus far--
we have got a long way to go--for your work on behalf of 
children all over the world. Thank you so much, and welcome 
again to the panel.

    STATEMENT OF ERNIE ALLEN, PRESIDENT AND CHIEF EXECUTIVE 
  OFFICER, NATIONAL CENTER FOR MISSING AND EXPLOITED CHILDREN

    Mr. Allen. Thank you, Mr. Chairman, Senator Sarbanes, and 
Members of the Committee. I will be brief and summarize my 
testimony.
    Mr. Chairman, as the Committee has pointed out, 1 year ago 
you convened leaders of the financial industry in this room and 
challenged us to do more to attack this problem. Six months 
ago, you joined us as we launched this new Financial Coalition. 
And as you know, and as has been mentioned, we set a goal, and 
that goal was to eradicate commercial child pornography by 
2008. Well, today what I wanted to report to you and the 
Committee is what we believe is significant progress.
    As you mentioned, financial industry leaders who represent 
87 percent of the U.S. payments industry, measured in dollars 
running through the system, have signed on. They involve the 
largest credit card companies, major banks, third-party payment 
companies, Internet leaders, and we are seeking to expand the 
membership internationally.
    I am pleased that an international bank, a coalition 
member, is with us today, Standard Chartered Bank of Singapore. 
Our mission, as the Committee has mentioned, is to follow the 
money, stop the payments, shut down the accounts, and put an 
end to this multi-billion-dollar worldwide enterprise.
    The Attorney General spoke in vivid terms about what this 
problem really is, and let me emphasize that we still believe 
that most of America does not get it. They think this a problem 
about 20-year-olds in pigtails made to look like they are 15. 
Eighty percent of the offenders who have been identified have 
had images of prepubescent children, 39 percent less than 6 
years old, 19 percent younger than 3 years old. That is what 
this problem is about.
    Since our March announcement, we have built a mechanism for 
sharing information between the participating companies and law 
enforcement. Our goal is to quickly identify the merchant bank 
at which the account is located and then utilize existing 
banking law to stop the payments and shut down the sites.
    Our first priority remains investigation and prosecution, 
and as the Attorney General indicated, law enforcement always 
has first crack at the data. But our premise is you cannot 
possibly prosecute everybody. I have talked on many occasions 
about that Texas website that we identified through a report to 
our CyberTipline 5 or 6 years ago which, when it was shut down 
by the Dallas Police Department, had 70,000 customers paying 
$29.95 a month and using their credit cards to access graphic 
images of small children being raped and sexually assaulted. 
That is not acceptable.
    What I am prepared to report to you today is that, even 
though we have just completed the pilot phase of this effort, 
testing the mechanisms and systems that we have put into place 
for information sharing and action, there are three basic 
conclusions that we have drawn that we are seeing already. One 
is because of the strong, unprecedented efforts of law 
enforcement at all levels, the efforts of the financial 
companies and others. We believe that we are already disrupting 
these enterprises.
    Our first and primary goal was to eliminate the use of the 
credit card for child pornography purposes. We want these 
processes to be as difficult and cumbersome as possible and 
make the business plan unworkable for these enterprises. And 
what we are seeing is that, while we are still finding credit 
card logos on many of these sites, in most instances when we 
look deeper, we are finding that they do not link to real 
accounts.
    There are a couple of possible explanations. One is we are 
finding that in many cases these logos are being used for 
purposes of identity theft. If you attempt to purchase access 
to a child pornography site and you do not get access to that 
product, who are you going to tell? So there is no question 
that criminals are using this technique for identity theft.
    The other thing we are seeing is that in many cases the 
operators are going back to the purchaser and offering other 
payment mechanisms. These tend to be non-mainstream payment 
devices, but, clearly, as the Attorney General indicated, these 
businesses are evolving and they are changing, and we think the 
leadership of this industry and the pressure that is being put 
on these illegal sites is already having impact.
    There are some things that we believe that you and Senator 
Sarbanes and the Committee can help us do. One, we are proud of 
the fact that companies representing 87 percent of the U.S. 
payments industry are part of the coalition. But it ought to be 
100 percent. We welcome your help in bringing the rest of the 
U.S. financial industry into this process.
    Second, we recognize that this is a global phenomenon. We 
need your help in bringing more international institutions and 
international decisionmakers into this process.
    And then, as the Committee pointed out, third, as it 
relates to the Attorney General's report, we need much more law 
enforcement presence and much more law enforcement attention to 
this problem. What we have discovered is that the sheer scale 
of this is far greater than any of us ever imagined. The 
Internet has spawned a problem that is of a magnitude 
unimaginable.
    Mr. Chairman, I am pleased to report to you that we are 
making progress, but we have only just begun.
    Chairman Shelby. Thank you.
    Ms. Mowder.

STATEMENT OF KIM MOWDER, SENIOR VICE PRESIDENT, BANK OF AMERICA 
                       MERCHANT SERVICES

    Ms. Mowder. Chairman Shelby, Senator Sarbanes, and MM 
embers of the Committee, my name is Kim Mowder. I am the head 
of Risk and Fulfillment for BA Merchant Services, a subsidiary 
of Bank of America. Bank of America BA Merchant Services 
provides card processing services for merchants across the 
United States. We applaud the Chairman's focus on this issue 
and the resulting coalition that Ernie Allen so ably chairs. We 
are proud to be a part of this collective effort and believe 
that your involvement, Mr. Chairman, is what led to this first 
ever joint industry effort to combat child pornography--a 
process that I understand began right here in this room. We 
certainly commend Kathy Casey as well for all of her efforts 
before she left the Committee.
    We are equally proud to be associated with the National 
Center for Missing and Exploited Children. We subscribe to and 
wholeheartedly agree with all of the benefits and progress Mr. 
Allen has described to you. Like everything Ernie brings his 
passion and commitment to, it is working, and it goes without 
saying that we appreciate the excellent work being done by the 
Attorney General, the Department of Justice, and all law 
enforcement to combat the issue.
    I would like to begin my testimony by emphasizing that Bank 
of America's policy and practice is to vigorously screen for 
and avoid signing merchants that are engaged in any kind of 
questionable activity, let alone child pornography, and to 
terminate any relationships that subsequently change in that 
direction should that happen. We simply have zero tolerance 
when it comes to issues like child pornography, and like our 
colleagues, we are closely aligned with and cooperate with law 
enforcement at every level.
    Bank of America is the second largest acquirer of merchant 
services in America. We have been processing credit cards for 
merchants since 1958 and have approximately 700,000 active 
merchants in our system. We take great pride in our very 
conservative risk-averse approach to the merchant services 
business and do not hesitate to decline nearly 2,000 applicants 
a year because the activity of the merchant is inconsistent 
with our policies.
    In that regard, our underwriting policy clearly defines 
those merchant types whom we deem to be unacceptable for a card 
servicing relationship. We are much more conservative than is 
legally permissible, and the following business types are 
routinely declined by us: adult entertainment products and 
services, dating and escort services, debt collection firms, 
pornography products and services, tobacco products being sold 
via mail order, telephone order, or Internet sales, wire 
transfer of money, or any money-related services. No exceptions 
are made on these business entities and, again, we have zero 
tolerance for issues like child pornography.
    Our process of thoroughly vetting merchant applications 
begins with the salesperson talking directly to a merchant, 
often face to face. Together they complete a merchant 
application that is sent to the underwriting experts in our 
processing center. Our process is based on the principle of 
know your customer, not only to screen out undesirable 
activities but also to look for other potential business 
opportunities.
    Merchant application packages contain profile information 
on the merchant's business that includes but is not limited to 
a description of the products and services being sold, a 
description of how sales will occur, and demand deposit banking 
information. In addition, the merchant application may include 
personal name, address, and Social Security information on the 
owner or officer of the business. This information is used in 
the due diligence process to validate the business type and 
ownership.
    Underwriters review new merchant applications, and they are 
charged with validating the merchant's physical business 
address, confirmation of the products or services being sold, 
and the methods of sale, i.e., retail storefront, mail order, 
Internet. And of course, all pages and links in a merchant's 
website are examined and maintained for future comparisons. I 
have listed in my written testimony nine of the tools we use to 
properly vet merchant applications, including verifying 
physical inventory, contacting neighboring businesses, and 
based upon information from these sources, the underwriter may 
decide it is necessary to perform additional due diligence.
    We will do whatever is necessary to ensure we are signing 
merchants consistent with our very conservative policies. 
Again, should the merchant be selling products or services via 
the Internet, the merchant's Internet links are a substantial 
focus, and we look at embedded links to any other sites to 
identify products and services that might be offered through 
this merchant's site that could be identified as unacceptable.
    Screening for unacceptable activities does not end with the 
initial due diligence process. All accounts are reviewed every 
year by BA Merchant Services, and our Risk Department performs 
daily monitoring of merchant transaction activity to ensure 
close monitoring of their daily processing. Daily activity 
reports are generated on those merchants that appear to be 
processing sales contrary to the expected norm based on the 
original terms of their processing agreement and the business 
type and size.
    Risk investigators utilize the same due diligence tools to 
investigate the merchants appearing on our exception reporting 
as those used by the underwriters on new merchant applications, 
all in an effort to gain an understanding of the merchant's 
current processing behavior. And due diligence may include, but 
is not limited to, talking directly to card holders to confirm 
transaction validity and makeup, communicating with the 
merchant's banking representative, or speaking directly with 
the merchant.
    From this investigation, the investigator will determine 
what, if any, post-due diligence must occur. Should the 
investigation determine that the merchant subsequently has 
begun engaging in unacceptable activities, the following 
actions are immediately taken: the merchant processing 
capability is terminated, merchant profile information is 
forwarded to the bank's Investigation Service Division for 
immediate investigation, and the bank coordinates with law 
enforcement.
    And, of course, we work in very close partnership with the 
card associations. They employ on our behalf a vast array of 
protocols, all designed to be a formidable line of defense to 
capture potential illegal activities. Our efforts and theirs 
are not discrete, but a seamless and cooperative venture to 
ensure we all prevent the use of our payment networks for such 
practices. It is a partnership made stronger by the coalition 
Ernie chairs.
    In summary, Bank of America has a zero tolerance for 
anything related to child pornography. We believe strongly that 
our investigations and due diligence procedures provide 
assurance that no undesirable merchant activities are being 
processed through our service, and we work closely with the 
card associations to close any merchants that they identify as 
posing a risk. Finally, we support the collective efforts of 
the coalition and this Committee to ensure the legitimate 
electronic payments industry is neither wittingly or 
unwittingly facilitating the sale of online child pornography.
    Thank you.
    Chairman Shelby. Thank you.
    Mr. DeNoma.

 STATEMENT OF MIKE DeNOMA, GROUP EXECUTIVE DIRECTOR, CONSUMER 
                BANKING, STANDARD CHARTERED BANK

    Mr. DeNoma. Thank you, Mr. Chairman and distinguished 
Members of the Committee, for the opportunity to contribute to 
this discussion. My name is Mike DeNoma. I am the Group 
Executive Director of Standard Chartered Bank and the CEO of 
Global Consumer Bank. My home base is Singapore.
    As we all know, the scourge of child pornography knows no 
boundaries. For that reason, I was eager to travel to 
Washington yesterday to be part of these important hearings.
    I commend the Senate Committee on Banking, Housing, and 
Urban Affairs for its commitment to this vital issue. In 
particular, I want to acknowledge Senator Shelby for his 
leadership in helping us to build and launch the Financial 
Coalition Against Child Pornography.
    In addition to my role at Standard Chartered, I am a member 
of the Board of International Centre for Missing and Exploited 
Children, and it is an honor to be affiliated with that group.
    Standard Chartered is a founding member of the Financial 
Coalition Against Child Pornography. As an individual 
institution, Standard Chartered, like Bank of America, has its 
own processes for ridding its systems of child pornography 
merchants, and we are beginning to share best practice with 
other industry players. However, we firmly believe the best way 
to battle this horrendous problem is to join forces and brain 
power with other members of the industry on both a global and a 
country-by-country basis. Given my company's 153-year history 
and role in Asia, Africa, and the Middle East, we have 
committed to take the lead in attempting to recruit key 
actors--governments, payment providers, regulators, financial 
institutions, and Internet service providers--within each of 
our 56 countries and have them join forces to combat this 
serious problem on a national level.
    Our objective is to present these key actors in 75 percent 
of our countries by the end of March 2007. We have been working 
in Singapore as a pilot market for this approach over the last 
5 months. The Association of Banks in Singapore, which has 110 
members, and the coalition it formed, we believe, is now just 
weeks away from making an important announcement on how it will 
combat this problem on a Singapore level. India, Hong Kong, 
Thailand, and Indonesia are next on our list and will be 
presented in the next 60 days.
    Further, we are trying to raise awareness of the size, 
scope, and intensity of this problem amongst critical local 
decisionmakers as well as with the general public and opinion 
formers across our markets and the globe.
    The Attorney General mentioned the need for education. To 
that end, we recently launched a campaign that we call ``Light 
A Million Candles.'' Our goal is to gather a million signatures 
in a virtual petition to challenge financial institutions, 
governments, payment organizations, Internet service providers, 
technology companies, and law enforcement agencies to work 
together to eradicate this problem. The internet is much of the 
cause of this problem, and we believe the internet must be used 
to fight it. It is a platform to tell the facts and get people 
to take action.
    The campaign was developed by a team lead by Standard 
Chartered employees who donated not only their time but also 
their creativity, and, in fact, their personal funds in raising 
the $60,000 to produce the television spot, which we will get 
you all a copy of, and they raised those funds in 48 hours. 
Global advertising agency TBWA worked with award-winning 
director Royston Than and well-known photographer Geoff Ang to 
develop a hard-hitting campaign involving a TV commercial, 
print ads, a viral e-mail that is in 22 languages on its way to 
50 languages, and a website to increase awareness of the global 
problem of child pornography and to motivate people to visit 
lightamillion candles.com to pledge their support for this 
cause. One week old, 76,000 candles were lit by Sunday evening 
on the website by individuals from 130 countries. In fact, the 
last record before this meeting started, it is now up to 
105,000 signatures from 130 countries.
    In addition, the global media agency OMD is approaching 
international media owners to support the cause by running the 
TVC and print ad as a public service. So far, CNN, MTV, the 
BBC, Discovery Channel, Time Magazine, and Reader's Digest in 
four languages have already agreed to donate media space to 
support the campaign. We expect much more coverage in the weeks 
and months ahead.
    The TV commercial itself involves 11 children of 11 
different nationalities, giving the facts of child pornography 
in their own language, with subtitles in English below. We 
tested it with consumers. It is both a sad and disturbing 
commercial, but it does drive action.
    In terms of financial services industry push, the 23,000 
delegates and observers to the IMF/World Bank meetings in 
Singapore this week will see the TV spot in elevators of the 
110 buildings and hotels and on the big video screens in the 
main conference area of the IMF. And perhaps most important, 
our chairman and senior executives will be working at the IMF 
on a personal level to raise awareness of this issue and to 
enlist international and local financial institutions to join 
the Financial Coalition Against Child Pornography.
    As you can see, Standard Chartered is engaged in the fight 
on a number of fronts. To be sure, the challenge is 
considerable in many areas, and includes safe harbor 
legislation on legal liability, clearinghouse administration 
and accountability, whether it is on a national or a global 
level, and the rapidly evolving alternative payment methods. 
But the good news is that awareness of the problem is growing 
rapidly, and the payments industry is putting a great deal of 
muscle into following and stopping the flow of funds to this 
insidious enterprise. But I agree with the Attorney General. 
Much more needs to be done.
    Again, I commend the Committee for its proactive work on 
this critical matter and look forward to continuing our dialog 
with you in the future.
    Chairman Shelby. Thank you very much.
    Ms. Golinsky.

  STATEMENT OF JODI GOLINSKY, VICE PRESIDENT, REGULATORY AND 
          PUBLIC POLICY COUNSEL, MASTERCARD WORLDWIDE

    Ms. Golinsky. Good morning, Chairman Shelby, Ranking Member 
Sarbanes, and Members of the Committee. My name is Jodi 
Golinsky, and I am Vice President, Regulatory and Public Policy 
Counsel at MasterCard Worldwide. It is my pleasure to appear 
before you today to discuss our efforts to combat child 
pornography.
    MasterCard deplores attempts to use our system for illegal 
purposes, and we are deeply committed to combating the sale of 
child pornography. Our efforts in this area include: one, 
working to prevent offending websites from accepting 
MasterCard-branded payment cards; two, detecting websites 
attempting to circumvent our prohibition; and, three, assisting 
law enforcement to detect, apprehend, and prosecute child 
pornographers.
    We have had great success in impeding these criminals from 
accessing our system. We recognize, however, that we see only 
part of the problem and that criminals who are denied access to 
our system are quick to look for other payment alternatives. We 
also recognize that private sector efforts alone are simply not 
enough. Collaboration with law enforcement is critical. Law 
enforcement must be given the tools and resources to apprehend 
and prosecute these criminals, and there must be an effective 
mechanism for the private sector to assist law enforcement in 
achieving those objectives.
    To address these issues, MasterCard has partnered with the 
National Center for Missing and Exploited Children, or NCMEC, 
to form the Financial Coalition Against Child Pornography. We 
strongly commend the Chairman for his leadership in the 
formation of the coalition. In conjunction with government 
leaders and law enforcement agencies worldwide, the coalition 
has embarked on a first of its kind globally focused effort to 
identify and eliminate commercial sources of child pornography.
    I want to discuss more directly MasterCard's efforts to 
combat this problem as well. MasterCard has a series of rules 
that require financial institutions that contract with 
merchants, also known as acquiring banks, to ensure that the 
merchants are legitimate and engaged in solely legal 
activities. These rules mandate, among other things, that 
acquirers perform due diligence before authorizing merchants to 
accept MasterCard payment cards and that acquirers monitor 
merchants on an ongoing basis for compliance with the rules. We 
have also proactively educated our customer financial 
institutions around the world about our rules and their 
obligations with respect to illegal transactions, such as child 
pornography.
    MasterCard also works closely with law enforcement 
officials to assist them in detecting and prosecuting child 
pornographers. In addition, we undertake significant efforts to 
detect child pornographers seeking to circumvent our controls. 
These efforts include searching the Internet to identify sites 
that appear to be selling child pornography and purporting to 
accept our cards as payment. In the overwhelming majority of 
cases where our brand appears on the site, we have found that 
the site does not actually accept our cards but impermissibly 
displays our logo. Our success in impeding these criminals from 
using our system does not end the problem, however. We have 
seen a clear trend in which child pornographers denied access 
to our system are moving rapidly to alternative payment methods 
to avoid detection and prosecution. We are not, therefore, 
content simply to drive these criminals from our system, and we 
are devoting considerable resources to a more comprehensive 
approach to dealing with the problem.
    We believe that our partnership with NCMEC and the 
coalition provides such an approach. MasterCard provides to 
NCMEC the fruits of our investigative efforts and other 
information that may be helpful to them. NCMEC in turn 
investigates and then refers this information to the 
appropriate law enforcement officials who are given the 
opportunity to conduct their own investigation. If law 
enforcement decides to proceed with an investigation, we work 
with law enforcement to support their efforts. If law 
enforcement decides not to proceed, a notice is sent to any 
payment service provided on that site, and those services work 
to terminate payment acceptance at the site.
    In addition to our active participation in the coalition, 
MasterCard is also a corporate sponsor of NCMEC. MasterCard 
views our sponsorship of NCMEC as an extension of our fight 
against the exploitation of children and dissemination of child 
pornography on the Internet, and we are very proud to 
contribute to their efforts.
    Chairman Shelby, Ranking Member Sarbanes, and Members of 
the Committee, thank you again for the opportunity to discuss 
these important issues with you today. MasterCard is deeply 
committed to doing its part to eliminate the commercial 
viability of child pornography on the Internet. It has also 
been our pleasure to work with your staff, with NCMEC, with law 
enforcement, and others to try to develop solutions to this 
problem, and we look forward to continuing those efforts.
    I would be glad to answer any questions you may have.
    Chairman Shelby. Mr. MacCarthy.

  STATEMENT OF MARK MacCARTHY, SENIOR VICE PRESIDENT, PUBLIC 
                     POLICY, VISA USA, INC.

    Mr. MacCarthy. Thank you, Chairman Shelby, Ranking Member 
Sarbanes, and Members of the Committee. My name is Mark 
MacCarthy. I am Senior Vice President for Public Policy with 
Visa, and thank you for the opportunity to appear at today's 
hearing.
    Mr. Chairman, Visa does not allow its payment system to be 
used for illegal activity, and that includes child pornography. 
And because the crime of child pornography is such a heinous 
exploitation of the vulnerable and the innocent, we have a 
special program designed to search the Internet to detect child 
pornography merchants and expel them from the Visa system. I 
want to describe that program for you in more detail today, but 
I want to start with the Financial Coalition Against Child 
Pornography.
    Visa cannot conduct a successful campaign against child 
pornography by itself. We need to cooperate with others. And 
that is why, under your leadership, Mr. Chairman, Visa and 
other payment systems joined to form the Financial Coalition 
Against Child Pornography.
    Together with our coalition partners, we will enhance our 
efforts to identify these websites, we will pinpoint the 
merchants who are involved in this illicit activity, and we 
will cut them off from our networks, and we will provide 
assistance to law enforcement to track them down and get rid of 
them for good.
    Our own zero tolerance anti-child pornography program has 
two parts: We have got a set of due diligence requirements, as 
my colleague at MasterCard has mentioned, and we have our 
monitoring program designed to detect child pornography sites 
and get them out of our payment system.
    A brief word on our system. Visa itself conducts 
communication and settlement functions for the members of the 
Visa Payment System. It is the members of the Visa Payment 
System themselves who have these direct relationships with the 
merchants.
    We have explicit rules to govern their conduct. One of the 
rules is not to introduce illegal transactions into the system. 
And our pornography rules are quite clear. On child porn, 
acquires must ensure that Internet merchants do not submit 
child pornography transactions into the Visa system, and they 
must terminate acceptance at any child pornography site that is 
found to be accepting Visa cards.
    You have heard from another one of my colleagues at Bank of 
America the kind of due diligence requirements that they go 
through. We think that these are important and necessary lines 
of defense against child pornography entering our system, but 
they are not a panacea. Child pornography merchants do not 
present themselves as such to our financial institutions. They 
often appear to be legitimate merchants. They use a variety of 
techniques to fool acquires and gain access to our system. 
Senator Sarbanes mentioned a few of those techniques earlier.
    As a result, Visa has a monitoring system to identify and 
eliminate child porn transactions. Since 2002, we have retained 
the services of an outside firm to search the Internet for 
child pornography websites that appear to be accepting Visa 
payment cards. This firm uses advanced webcrawling and 
filtering technology to detect the websites. It looks for 
websites that display the Visa logo and that satisfy one or 
more indicators that they are engaged in the sale of child 
pornography or that they advertise themselves as engaged in the 
sale of child pornography.
    These sweeps are ongoing. They are conducted 24 hours a 
day, 7 days a week, 365 days a year. Hundreds of millions of 
websites are searched every month.
    When our search firm detects one of these problematic 
sites, they conduct test transactions to see whether, in fact, 
the site is accepting Visa cards or whether they are simply 
purporting to accept Visa cards. As my colleague from 
MasterCard pointed out, in most of the cases they are merely 
purporting to accept the Visa cards.
    When we find a site that is actually accepting Visa, we 
immediately get in touch with law enforcement and find out 
whether they have an active and ongoing investigation. If there 
is no request from law enforcement to keep the site open, Visa 
instructs the acquiring bank to shut down that website 
immediately.
    If the sites are not, in fact, accepting Visa cards but 
they just appear to be, we then attempt to contact the web 
hosting service and get them to take down the Visa logo.
    In addition, Visa provides information on all these sites 
to law enforcement, and if they request it, we do allow these 
sites to remain operational.
    Visa's anti-child pornography program has made progress 
since we started it in 2002. Our most recent numbers tell the 
story. In August of this year, our search firm examined over 11 
million Internet sites a day and found two child pornography 
sites that accepted Visa cards. Of course, that is two too 
many. Since the beginning of this year, nine such sites have 
been identified in the Visa system, and all of these sites were 
quickly expelled from our system.
    Mr. Chairman, in conclusion, let me repeat the point I 
started with. The way forward lies with collective action. Visa 
intends to continue and to increase our efforts with the 
Financial Coalition Against Child Pornography and to work 
cooperatively with law enforcement to put an end to this 
scourge.
    I would be happy to answer any questions you might have.
    Chairman Shelby. First, I would recognize Senator Allard, 
and I will conclude after everybody else because we have got a 
vote on the floor. Senator Allard.
    Senator Allard. Thank you, Mr. Chairman. I have a couple of 
questions I would like to ask.
    We have just been provided with some material here by Mr. 
Allen on some of the websites. For the audience's benefit, all 
the offensive material has been blacked out. But I noticed that 
there were some claims on these websites I would like to 
investigate with you.
    There are some copyright claims. Now, are these false 
claims, or are they actually protected by the copyright system? 
And the question is: If they are protected by our copyright 
system, is that good in the fact that it prevents the 
dissemination of the offending material? Or is it bad in the 
fact that it protects the profits for those who are--protects 
the profits of the child porn exploiters?
    Mr. Allen. Senator Allard, I think it is a bad thing. I 
think it is a misuse of the copyright system. However, in 
most--the examples we have given you are pretty explicit, and I 
am not sure how they got through the copyright system. But most 
of them are not quite as clear-cut.
    Frankly, this has not been an aspect that we have focused 
on, but I think your point is a very good one, and we need to 
look more closely at that.
    Senator Allard. Maybe in the Library of Congress I believe 
is where we have those copyrights provided for.
    Mr. Allen. Absolutely.
    Senator Allard. And so maybe some kind of program at the 
Library of Congress might be helpful in that regard.
    The other question that I have, there is actually a 
guarantee on those sites also about absolute privacy. Now, is 
that a false claim?
    Mr. Allen. Well, I think pretty clearly it is a false 
claim, but certainly that is the premise. If you think about 
the pressure that is on these sites, the kind of consumer 
audience that is being attracted, and certainly part of the 
premise is you can come to the site and you can patronize with 
no risk. Clearly, the effort of this coalition, the effort of 
Federal, State, local, and international law enforcement is to 
pierce that veil of privacy and make sure that they are not 
private so we can look behind the curtain. But, nonetheless, it 
is going to be a continuing representation that these sites 
make.
    Senator Allard. Thank you, Mr. Chairman.
    Chairman Shelby. Senator Sarbanes.
    Senator Sarbanes. Well, thank you, Mr. Chairman. I will be 
very quick because I know there is a vote going.
    Mr. MacCarthy, I wanted to ask you a quick question. You 
said if they are using the Visa logo, you ask them to stop 
using it. Is that correct?
    Mr. MacCarthy. If the site is actually accepting Visa 
cards, we are able----
    Senator Sarbanes. You expel them from your system.
    Mr. MacCarthy. Right.
    Senator Sarbanes. But if you are not actually doing that, 
they are just advertising the Visa logo, what do you do?
    Mr. MacCarthy. We have no ability to get directly to them 
through our banks, but we try to track them down using our 
search firm to find the hosting service that provides them the 
ability to maintain a website on the Internet.
    When we find that hosting service, we say to them, No. 1, 
look what you are involved in; and, No. 2, at the very least, 
take down our logo from the site, they are not authorized to do 
it.
    Senator Sarbanes. Well, you can order them to take it--can 
they use your logo as an advertising way without your 
permission?
    Mr. MacCarthy. No, they cannot, but the question is: How do 
you enforce that? How do you make them stop doing it? You have 
to find them. And the way you find them is to go to the web 
hosting service and try to have their relationship with the 
merchant used to take down the logo. That is how we have to do 
it.
    Going forward, we will probably be able to use the NCMEC 
facilities to have a better way of proceeding in this area, but 
right now the best way we have got to do it is to go to the web 
hosting services.
    Senator Sarbanes. Now, Mr. Allen, you said earlier there 
was a site in, I think you said, Dallas with 70,000 people a 
month, they pay $30 a month?
    Mr. Allen. Right.
    Senator Sarbanes. So that is over $2 million a month just 
on that site. Is that correct?
    Mr. Allen. That is right, Senator.
    Senator Sarbanes. That is $25 million a year.
    Mr. Allen. And this was a mom-and-pop operation. This was 
not a highly sophisticated operation.
    Now, in the interest of full disclosure, that is now 6 or 7 
years ago. We think that that level of misuse of the payment 
system has disappeared because of the efforts of these 
companies. But I think that demonstrated what the potential 
consumer audience is for this content. That is one site.
    Senator Sarbanes. Now, where are they shifting off to when 
they get blocked out from using the credit cards? Where are 
these snakes going off to, sneaking off to?
    Mr. Allen. They are going to a variety of places. Two of 
our key partners in this effort are PayPal and E-Gold, the 
third-party payment mechanisms who have increased their 
vigilance to make sure they do not go there, the use of Western 
Union, the use of a host of other payment mechanisms, and 
increasingly we are hearing that there are small aggregators 
who are being developed and customized specifically for the 
purpose of serving this kind of enterprise. So it is a moving 
target.
    Senator Sarbanes. Thank you, Mr. Chairman
    Chairman Shelby. Senator Bunning.
    Senator Sarbanes. I want to thank the panel. It was very 
helpful testimony. We appreciate it.
    Senator Bunning. I am just going to ask anyone of the 
panel. You have set a very ambitious deadline to meet your goal 
of eliminating all commercial child pornography. Why do you 
believe you can accomplish this goal by 2008, especially given 
the challenge posed by the Internet?
    Mr. Allen. Senator, I believe, we believe it is realistic. 
The reality is I do not think there is a precedent for this 
kind of industry-wide approach to the problem. Our view 
simplistically is that if we can disrupt these enterprises, if 
you can eliminate the use of the credit card, it is going to be 
very difficult to maintain these businesses if you have to pay 
cash to gain access to a----
    Senator Bunning. But you just gave us some examples of 
where they are going.
    Mr. Allen. That is where they are going, but clearly, the 
effort here is to stay ahead of the curve and to follow them 
where they go. One of the things that we are learning now from 
law enforcement is a huge percentage of the operators of these 
businesses today are organized criminals, many of them in 
Eastern Europe. And in our judgment, at some point this is just 
not going to be worth the price that it costs. The reason they 
are into this now is because the profits are enormous and the 
risks are minimal. What we are trying to do is increase the 
risks and eliminate the profit.
    Senator Bunning. Yes, but you say that Eastern Europe or 
the European--isn't it more difficult to prosecute at that 
level?
    Mr. Allen. Oh, absolutely, and one of the things we are 
doing through our International Centre in partnership with 
Interpol is training law enforcement around the world, building 
capacity. There is now a virtual global task force based in the 
U.K. to create a more unified law enforcement approach. The FBI 
has an international task force through its Innocent Images 
National Initiative.
    So we are bringing a lot more troops to the battlefield.
    Mr. DeNoma. I think part of it is by setting the deadline, 
you force action.
    Senator Bunning. Setting the deadline would actually force 
the perpetrators or the----
    Mr. DeNoma. No. I think it will force action from----
    Senator Bunning. From the financial----
    Mr. DeNoma. The financial, governments, law enforcement, 
ISPs, and the reason is I think there should be increasingly an 
argument why a bank is not on the coalition.
    Senator Bunning. On the list, yes.
    Mr. DeNoma. Frankly, I think alternative payment methods 
should have to provide a reason why they are not in the 
coalition. And increasingly what we are trying to do 
internationally is ask why a government of a certain country is 
not pursuing action like many other countries in the world are.
    Senator Bunning. Well, I would think Visa and MasterCard 
would also not only throw the people out but report everything 
they do to the law enforcement agencies in the country or in 
the area where these perpetrators are exploiting.
    Ms. Golinsky. Absolutely, Senator.
    Mr. MacCarthy. Senator, we have reporting relationships all 
over the world with international law enforcement as well as 
U.S. law enforcement.
    Senator Bunning. Thank you.
    Ms. Golinsky. And MasterCard does as well.
    Senator Bunning. Thank you very much, Mr. Chairman.
    Chairman Shelby. Thank you, Senator.
    I want to thank all of you, starting again with Mr. Allen, 
for your commitment. I want to thank the whole panel.
    Mr. DeNoma, I want to especially thank you for the work 
that you are doing. You have taken the lead in recruiting 
international members, which the Attorney General pointed out 
is so important, to join the Financial Coalition Against Child 
Pornography. We hope you will continue in this effort and work. 
We have got a long way to go.
    This has been, I think, a good hearing this morning. We 
have also had a chance to conduct an up-to-date review on the 
effort to eradicate child pornography. We have learned of the 
positive steps--and they are out there--that the Government and 
the financial service industry that a lot of you represent have 
taken.
    We have also had a chance to get a glimpse of the ongoing 
efforts of the criminals who seek to profit from this horrible 
crime. Clearly, they will not simply give up. You know, they 
are going to be around. You are talking about billions of 
dollars. Billions. Easy money, too.
    I noted in my opening statement that our commitment and 
your commitment is crucial, and our level of commitment, that 
of the Government, the industry, and families must be greater 
than that of the criminals. If it is not, we will not win.
    I think it will not be enough--it never is enough--to have 
press releases or normally participating organizations like the 
Financial Coalition. But if we are going to achieve our goal to 
eradicate child pornography, it is going to take constant 
vigilance and hard, hard work. And I commend you for your 
participation. I think we have a long way to go.
    I personally believe that the software, if it is not 
there--and I know Bill Gates is very interested in this, too. 
Like everybody, he has got children. Maybe they can come up 
with software that will help you folks at Visa and MasterCard 
and the banking industry track these people a lot easier than 
it is today, because we have to win this battle.
    We have a vote on the floor. The Committee is adjourned. 
Thank you.
    [Whereupon, at 12:07 p.m., the hearing was adjourned.]
    [Prepared statements and responses to written questions 
supplied for the record follow:]

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

  RESPONSE TO WRITTEN QUESTIONS OF SENATOR SHELBY FROM ERNIE 
                             ALLEN

    Q.1. In your testimony, you highlighted the success of the 
Coalition pilot program. As we move forward, have you learned 
of any new challenges that the Financial Coalition Against 
Child Pornography will face, and do you have the tools and 
cooperation to address them?

    A.1. We are very encouraged by the unprecedented level of 
cooperation among the companies of the Financial Coalition 
Against Child Pornography (``FCACP''), the National Center for 
Missing & Exploited Children (``NCMEC'') and the International 
Centre for Missing & Exploited Children (``ICMEC''). At the 
same time, we are realistic that we are attacking a global 
problem that has flourished on the Internet, a channel that has 
no geographic or jurisdictional boundaries. The Coalition's 
commitment is strong, but challenges abound.
    Most immediately, the worldwide scope of this problem 
necessitates the cooperation of financial institutions around 
the globe. We are in discussions with banking associations and 
individual companies outside the U.S., but progress is slow. 
There is hesitation about reporting into a US-based 
clearinghouse. The way forward may be to build regional 
networks that ultimately flow into our core system here, but we 
need the participation of companies and governments around the 
world in order to build a framework that will get us to our 
goal.
    A centerpiece of the Coalition's work will be test 
transactions done by law enforcement once a commercial child 
pornography site is identified. The issuing members of the 
Coalition are being asked to contribute test cards on an 
ongoing basis. It is too early to determine if we will secure 
an adequate flow of test cards to keep the clearinghouse 
running to optimum effectiveness. The early response has been 
positive and enthusiastic.
    The importance of law enforcement in our efforts to 
eradicate commercial child pornography cannot be understated. 
We are encouraged that the FBI has joined ICE in helping us to 
conduct test transactions. It is our hope to engage more law 
enforcement agencies going forward.
    As for detection of the websites, thus far, we are reliant 
on one company (G2), Electronic Service Providers (ESPs) and 
the general public through NCMEC's CyberTipline 
(www.cybertipline.com) to report commercial child pornography 
sites. Awareness of reporting to the CyberTipline needs to be 
dramatically increased.
    Despite the fact that we are nearing our 425,000th report 
since 1998, our research indicates that most of the American 
public still doesn't know about the CyberTipline. Reporting of 
child pornography and online enticement of children should be 
easier and more universal. We are eager to work with the 
private sector to explore mechanisms that will make reporting 
easier and more instantaneous, such as a link or icon on the 
screen that enables reporting at the very moment the illegal 
conduct is detected by the public. Such an icon could serve as 
a virtual panic button for children in chat rooms and on social 
networking sites, and an easy way for millions to report 
without having to know or remember www.cybertipline.com. In 
addition, methods of detecting these websites as soon as they 
are uploaded onto the web must be developed.
    We are mindful that as we put pressure on commercial child 
pornographers' reliance on traditional payment methods, they 
will move to alternative payment schemes. We are just starting 
to understand the implications of that migration but clearly we 
must identify and get cooperation from alternative billing 
companies that exist today and those that are sure to be 
created as this business adjusts to the disruption that is 
already taking place.
    From a legislative/regulatory perspective, the Financial 
Coalition strategy is impacted by the inability to share data 
among the companies to build a more robust investigative 
resource. Legislation allowing for the transfer of information 
between and among companies registered with NCMEC would enhance 
the ability to keep offenders from acquiring financial payment 
capabilities.
    We would be remiss if we did not share with the Committee 
concerns we have about existing laws that negatively impact the 
broader battle against commercial child pornography.
    In April 2006 NCMEC's sister organization, the 
International Centre for Missing & Exploited Children (ICMEC), 
completed a study of child pornography laws around the world. 
The results were alarming: of the 186 Interpol member 
countries, more than half (95) have no laws addressing child 
pornography and in many other countries, the existing laws are 
inadequate.
    As Attorney General Gonzales said in his testimony, ``Just 
as we need some states to strengthen their laws to punish child 
sex offenders, we must encourage some foreign lawmakers to 
strengthen their laws as well, including those concerning the 
financial components of these crimes.''
    Also, while not directly related to the financial industry, 
NCMEC believes another obstacle to overcome is the reporting of 
child pornography found on customers' accounts by electronic 
service providers to NCMEC. Though apparently mandated by 
federal statute, 42 U.S.C. Sec. 13032, not all ESP's are 
reporting and those that do report are not sending uniform 
types of information, rendering some reports useless. Some ESPs 
take the position that the statute is not a clear mandate and 
that it exposes them to possible criminal prosecution for 
distributing child pornography themselves.
    In addition, because there are no guidelines for the 
contents of these reports, some ESPs do not send customer 
information that allows NCMEC to identify a law enforcement 
jurisdiction. So potentially valuable investigative leads are 
left to sit in the CyberTipline database with no action taken. 
Together with the U.S. Internet Service Providers Association 
(``USISPA''), we developed ``best practices'' reporting 
guidelines to address this problem. The major ESPs are 
following these guidelines. However, these are voluntary rather 
than mandatory, so there is no enforcement mechanism for those 
who choose not to follow them.
    This reporting statute also constrains NCMEC in that it 
permits us to forward the CyberTipline leads only to U.S. law 
enforcement. This is a real problem, considering the global 
nature of the Internet. As an example, there is a portion of 
one major ESP system based in the U.S. that is used primarily 
in Brazil. This ESP wants us to send information about child 
pornography they find on their customers' accounts to Brazilian 
law enforcement. But we are prohibited from doing so.
    There is also another necessary yet missing link in the 
chain from detection of child pornography to conviction of the 
distributor. Once the CyberTipline analysts give law 
enforcement all the information they need about specific images 
traded on the Internet, there can be no prosecution until the 
date and time of that online activity is connected to an actual 
person. There is currently no requirement for ESPs to retain 
connectivity logs for their customers on an ongoing basis. Some 
have policies on retention but these vary, are not implemented 
consistently, and are for too short a time to have meaningful 
prosecutorial value.

    Q.2. It should disturb all of us that child pornographers 
assume that they can still use the financial payment system to 
purchase and sell their products. What can we do to change the 
perception that the payment system is an option of any kind for 
child pornography transactions?

    A.2. The Senate Banking Committee raises an intriguing 
concept that, by coincidence, was discussed at the most recent 
Coalition meeting. Specifically, what opportunities exist to 
educate the public and the business community of the risks they 
are now taking if they attempt to buy or sell child 
pornography, now that groups such as the FCACP exist? We will 
explore launching a media relations and/or public service 
campaign that puts people on notice. The participation of 
members of the Senate Banking Committee would give such a 
campaign significant momentum. In the future, as the work of 
the Coalition leads to actual arrests, this type of news will 
generate even greater awareness.

    Q.3. The Internet has no boundaries and, consequently, has 
fueled consumption of child pornography by facilitating 
distribution and accessibility of these images. Thus, we need 
to think about attacking this problem not only by detection and 
action, but also by discouraging initial engagement and 
participation. What else can be done within the financial 
services community to raise barriers to entry in order to deter 
criminals and to diminish the attractiveness of the commercial 
child pornography industry?

    A.3. In its first six months of operation, the Coalition's 
focus was to build the clearinghouse and make it operational. 
Now that the clearinghouse is up and running, we can turn our 
attention to additional priorities. The Prevention Working 
Group's mandate is to explore what the industry can do to make 
it harder for these merchants to get into the system in the 
first place. As a starting point, this group has collected best 
practices for underwriting and verifying merchants. The idea is 
to ensure that all Coalition members benefit from the best 
ideas currently being implemented by industry leaders. Once 
complete, the Best Practices document will be an appropriate 
platform from which to address how barriers to entry can be 
raised.
    We are committed to working with banking leaders in the 
United States and worldwide to erect barriers, train and 
empower employees, and ensure worldwide vigilance in order to 
stop this insidious criminal enterprise.

   RESPONSE TO WRITTEN QUESTIONS OF SENATOR SHELBY FROM JODI 
                            GOLINSKI

    Q.1. Can you describe some of the techniques that child 
pornography merchants use to fool acquiring banks and thereby 
gain access to the Visa and MasterCard systems?

    A.1. MasterCard is deeply committed to eliminating the 
commercial viability of child pornography on the Internet and 
we have been working with our customer financial institutions, 
law enforcement and the National Center for Missing and 
Exploited Children (``NCMEC'') to prevent child pornographers 
from using our system. These efforts are succeeding, as it is 
rare for a child pornography merchant to successfully obtain 
access to our system. Nonetheless, the criminals that operate 
child pornography web sites have become increasingly 
sophisticated over time and work hard to evade our controls. 
For example, some child pornography merchants will attempt to 
engage in so-called ``factoring'' schemes in which the child 
pornographer seeks to dupe a legitimate business into 
submitting the child pornographer's transactions into our 
system. We are also aware of schemes in which a child 
pornographer will establish a seemingly legitimate business to 
gain access to our system and later sells child pornography 
through that business. MasterCard uses a variety of approaches 
to detect this type of activity. These include searching the 
Internet for such merchants and having test transactions 
performed at the site.

    Q.2. Credit card association rules require acquiring banks 
to shoulder responsibility for weeding out illegal merchants 
such as child pornographers in their portfolios. In your 
testimony, you both mention a number of sanctions that your 
companies may impose on acquiring banks that do not meet these 
responsibilities. How do you know that these sanctions are 
working?

    A.2. MasterCard has a series of rules that require 
acquirers to ensure that merchants with whom they contract to 
accept MasterCard-branded cards are legitimate and engage in 
solely legal activities. These rules mandate, among other 
things, that acquirers perform due diligence on a merchant 
before authorizing the merchant to accept MasterCard payment 
cards and that acquirers monitor merchants for compliance with 
the rules. When we detect that a child pornographer has gained 
access to the system through an acquirer, we work closely with 
the acquirer to address the problem. In our experience, the 
acquirers we permit to participate in our system are extremely 
cooperative in addressing child pornography problems and work 
rapidly to resolve these issues.
    In addition, MasterCard undertakes significant efforts to 
detect child pornographers seeking to circumvent our controls. 
These efforts include searching the Internet to identify sites 
that appear to be selling child pornography and purporting to 
accept our cards as payment. Through these efforts we have 
found that our anti-child pornography programs have been quite 
effective. Indeed, it is increasingly rare that child 
pornography sites actually accept our cards as payment. We are 
not content, however, simply to drive these criminals from our 
system and are working with NCMEC and others in the payments 
industry to ensure that child pornographers driven from our 
system do not find safe haven in other payment systems.

    Q.3. Both Visa and MasterCard use advanced web crawling and 
filtering technology to monitor websites for child pornography. 
Has this technology detected any trends in the prevalence of 
child pornography?

    A.3. As part of our efforts to detect child pornography, 
MasterCard uses the services of a technology company that 
constantly searches the Internet to identify child pornography 
sites that purport to accept our cards. As a result of these 
efforts, we have detected a clear trend away from accepting 
traditional payment cards on these sites toward the acceptance 
of alternative payment methods. For example, many of these 
sites direct their customers to another site where the customer 
can establish a special electronic payment account that has 
been used to pay the child pornographer. Some of these 
electronic payment sites use unusual value propositions such as 
offering the ability to transact over the Internet using 
virtual precious metals or calling card minutes to pay for 
products sold by web sites. Through the coalition formed by 
NCMEC we are working to find ways to address these evolving 
schemes.
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