    [House Hearing, 110 Congress]
    [From the U.S. Government Publishing Office]

     E-FENCING ENFORCEMENT ACT OF 2008, THE ORGANIZED RETAIL CRIME ACT OF
           2008, AND THE COMBATING ORGANIZED RETAIL CRIME ACT OF 2008

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

                                    HEARING

                                   BEFORE THE

                       SUBCOMMITTEE ON CRIME, TERRORISM,
                             AND HOMELAND SECURITY

                                     OF THE

                           COMMITTEE ON THE JUDICIARY
                            HOUSE OF REPRESENTATIVES

                           ONE HUNDRED TENTH CONGRESS

                                 SECOND SESSION

                                       ON

                        H.R. 6713, H.R. 6491 and S. 3434

                                   __________

                               SEPTEMBER 22, 2008

                                   __________

                               Serial No. 110-210

                                   __________

             Printed for the use of the Committee on the Judiciary

          Available via the World Wide Web: http://judiciary.house.gov

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                           COMMITTEE ON THE JUDICIARY

                     JOHN CONYERS, Jr., Michigan, Chairman
    HOWARD L. BERMAN, California         LAMAR SMITH, Texas
    RICK BOUCHER, Virginia               F. JAMES SENSENBRENNER, Jr.,
    JERROLD NADLER, New York                 Wisconsin
    ROBERT C. ``BOBBY'' SCOTT, Virginia  HOWARD COBLE, North Carolina
    MELVIN L. WATT, North Carolina       ELTON GALLEGLY, California
    ZOE LOFGREN, California              BOB GOODLATTE, Virginia
    SHEILA JACKSON LEE, Texas            STEVE CHABOT, Ohio
    MAXINE WATERS, California            DANIEL E. LUNGREN, California
    WILLIAM D. DELAHUNT, Massachusetts   CHRIS CANNON, Utah
    ROBERT WEXLER, Florida               RIC KELLER, Florida
    LINDA T. SANCHEZ, California         DARRELL ISSA, California
    STEVE COHEN, Tennessee               MIKE PENCE, Indiana
    HANK JOHNSON, Georgia                J. RANDY FORBES, Virginia
    BETTY SUTTON, Ohio                   STEVE KING, Iowa
    LUIS V. GUTIERREZ, Illinois          TOM FEENEY, Florida
    BRAD SHERMAN, California             TRENT FRANKS, Arizona
    TAMMY BALDWIN, Wisconsin             LOUIE GOHMERT, Texas
    ANTHONY D. WEINER, New York          JIM JORDAN, Ohio
    ADAM B. SCHIFF, California
    ARTUR DAVIS, Alabama
    DEBBIE WASSERMAN SCHULTZ, Florida
    KEITH ELLISON, Minnesota

                Perry Apelbaum, Staff Director and Chief Counsel
          Sean McLaughlin, Minority Chief of Staff and General Counsel
                                     ------

            Subcommittee on Crime, Terrorism, and Homeland Security

                 ROBERT C. ``BOBBY'' SCOTT, Virginia, Chairman

    MAXINE WATERS, California            LOUIE GOHMERT, Texas
    WILLIAM D. DELAHUNT, Massachusetts   J. RANDY FORBES, Virginia
    JERROLD NADLER, New York             F. JAMES SENSENBRENNER, Jr.,
    HANK JOHNSON, Georgia                Wisconsin
    ANTHONY D. WEINER, New York          HOWARD COBLE, North Carolina
    SHEILA JACKSON LEE, Texas            STEVE CHABOT, Ohio
    ARTUR DAVIS, Alabama                 DANIEL E. LUNGREN, California
    TAMMY BALDWIN, Wisconsin
    BETTY SUTTON, Ohio

                          Bobby Vassar, Chief Counsel

                        Caroline Lynch, Minority Counsel
                                C O N T E N T S

                                  ----------

                               SEPTEMBER 22, 2008

                                                                       Page

                                   THE BILLS

    H.R. 6713, the ``E-fencing Enforcement Act of 2008''.............    64
    H.R. 6491, the ``Organized Retail Crime Act of 2008''............    68
    S. 3434, the ``Combating Organized Retail Crime Act of 2008''....    83

                               OPENING STATEMENTS

    The Honorable Robert C. ``Bobby'' Scott, a Representative in
      Congress from the State of Virginia, and Chairman, Subcommittee
      on Crime, Terrorism, and Homeland Security.....................     1
    The Honorable Louie Gohmert, a Representative in Congress from
      the State of Texas, and Ranking Member, Subcommittee on Crime,
      Terrorism, and Homeland Security...............................     3

                                   WITNESSES

    The Honorable Brad Ellsworth, a Representative in Congress from
      the State of Indiana
      Oral Testimony.................................................     5
      Prepared Statement.............................................     8
    Mr. Frank Muscato, Organized Retail Crime Field Investigator,
      Walgreens, Deerfield, IL
      Oral Testimony.................................................    11
      Prepared Statement.............................................    13
    Mr. Grady Judd, Sheriff, Polk County Sheriff's Office, Bartow, FL
      Oral Testimony.................................................    16
      Prepared Statement.............................................    19
    Mr. Steve DelBianco, Executive Director, NetCHOICE, Washington,
      DC
      Oral Testimony.................................................    22
      Prepared Statement.............................................    24
    Mr. Edward Torpoco, Senior Regulatory Counsel, eBAY, Inc.,
      Washington, DC
      Oral Testimony.................................................    27
      Prepared Statement.............................................    29
    Mr. Joseph J. LaRocca, Vice President, Loss Prevention, National
      Retail Federation, Washington, DC
      Oral Testimony.................................................    34
      Prepared Statement.............................................    35

                                    APPENDIX

    Material Submitted for the Hearing Record........................    53

     E-FENCING ENFORCEMENT ACT OF 2008, THE ORGANIZED RETAIL CRIME ACT OF
           2008, AND THE COMBATING ORGANIZED RETAIL CRIME ACT OF 2008

                                  ----------

                           MONDAY, SEPTEMBER 22, 2008

                  House of Representatives,
                  Subcommittee on Crime, Terrorism,
                                  and Homeland Security
                                    Committee on the Judiciary,
                                                        Washington, DC.

        The Subcommittee met, pursuant to notice, at 4:03 p.m., in
    room 2141, Rayburn House Office Building, the Honorable Robert
    C. ``Bobby'' Scott (Chairman of the Subcommittee) presiding.
        Present: Representatives Scott, Gohmert, Coble, Chabot, and
    Lungren.
        Also Present: Representative Putnam.
        Staff Present: Bobby Vassar, Majority Chief Counsel; Ameer
    Gopalani, Majority Counsel; Mario Dispenza, Fellow, BATFE
    Detailee; Karen Wilkinson, Fellow, Federal Public Office
    Detailee; Veronica Eligan, Majority Professional Staff Member;
    Caroline Lynch, Minority Counsel; and Kelsey Whitlock, Minority
    Staff Assistant.
        Mr. Scott. The Subcommittee will now come to order.
        I am pleased to welcome you to today's hearing on
    legislative proposals in the 110th Congress for curbing
    organized retail theft, which by some estimates has become a
    $30 billion illicit industry that not only affects legitimate
    interstate commerce, but poses a significant public safety risk
    to consumers.
        Theft of merchandise is nothing new and has traditionally
    been handled effectively through State criminal laws. In my
    home State of Virginia, for example, any theft in excess of
    $200 is grand larceny with a maximum penalty of 20 years. A
    third offense of petty larceny is, by law, treated the same as
    grand larceny.
        With diligent enforcement activities, such measures are
    ordinarily adequate to keep the problem of merchandise theft
    sufficiently in check. However, organized theft rings, or OTRs,
    have become more sophisticated, learning to reduce their risks
    of penalty and capture. For example, to avoid the grand larceny
    threshold, they operate across the State lines, and using this
    tactic, they can shoplift with acceptable risk by remaining
    under the grand larceny threshold for each incident while
    stealing thousands of dollars worth of merchandise.
        OTRs have reduced their risk of capture by exploiting the--
    being anonymous on the Internet. Traditionally, thieves who
    dispose of stolen goods locally through flea markets,
    pawnshops, swap meets or shady storefront operations where
    State and local police can investigate and make arrests, as the
    thieves have to physically stand behind the stolen goods. But
    without having to identify themselves or their contact
    information to consumers or others who seek information about
    them, OTRs that operate online evade identification much easier
    than traditional thieves, and they put themselves beyond the
    reach of local law enforcement.
        In fact, OTRs now use the Internet to fence stolen goods to
    such a large extent that a new term has been coined for it.
    They call it ``e-fencing.''
        But the volume of organized theft and its impact on
    commerce is not the only problem prompting congressional
    action. Purchasing stolen, consumable products online or in the
    physical world exposes consumers, often unwittingly, to serious
    safety and health risks. The products most frequently targeted
    by theft--by OTRs include FDA-regulated items like over-the-
    counter drug products or infant formula. Once stolen, these
    products are not kept under appropriate storage conditions, and
    we have reports that OTRs actually may be changing expiration
    dates on their labels.
        These practices not only threaten the integrity of the
    products, but endanger the safety of consumers. They may
    believe that the vendor is selling products in conformance with
    consumer safety guidelines when, in fact, the products may
    actually be dangerous or even deadly.
        Having risen to the point of affecting interstate commerce
    and safety, we have three legislative proposals addressing
    organized retail theft that will be discussed today.
        H.R. 6713, the ``E-fencing Enforcement Act of 2008,'' which
    I introduced, places requirements on online market providers.
    The providers would identify high-volume sellers, those who
    sell more than $12,000 of merchandise in 1 year or more than
    $5,000 in a single transaction. Information regarding the
    identity of such sellers and the transaction would be required
    to be retained by the online market and made available to
    aggrieved parties with specified standing to obtain the
    information. The bill would also require the provider to
    investigate an allegation of stolen property upon the request
    of a person with such standing and to deny access to the
    marketplace to the seller if the provider has good reason to
    believe that the seller is using the market to sell stolen
    goods.
        H.R. 6491, introduced by the Representative Brad Ellsworth
    of Indiana, who is with us as a witness today, and
    Representative Jim Jordan of Ohio's Fourth District, defines
    organized retail crime and provides for Federal criminal
    penalties. The definition under the bill is illegally obtaining
    merchandise in quantities beyond what would be normal for
    personal consumption or recruiting persons to participate in
    such activity.
        The bill also defines online marketplace as an Internet
    site where someone other than the site operator can enter into
    transactions to sell goods or services. There is a search
    engine on the site for the buyer to use to identify the
    seller's goods, and the site operator has the right to
    supervise the seller's activities or has a financial interest
    in the goods sold.
        That bill also criminalizes the failure of an online market
    to investigate when credible evidence exists that a seller is
    using the marketplace for selling stolen goods, to require a
    merchant to post certain information about his product or to
    keep identifying information about merchants who sell more than
    $12,000 of merchandise in any given year.
        S. 3434 is wider in scope than H.R. 6713 and 6491 in that
    it addresses organized theft in physical as well as online
    markets. The bill has similar provisions to 6491 in its
    definitions and criminal penalties. However, the bill also
    requires operators of physical retail locations to notify the
    Attorney General if the operator reasonably determines that a
    vendor is using that operator's space in selling stolen goods.
        This is the second hearing we have had on organized retail
    theft that the Subcommittee has held during this Congress. In
    October 2007, we heard testimony from representatives from the
    convenience retail industry, law enforcement and
    representatives from the online retail industry hoping to
    stimulate a discussion that would assist in developing mutually
    agreed solutions among the retail and online industries to the
    growing problem of organized retail theft. While there have
    been some efforts to do so by affected parties, they have not
    come to a final workable agreement, prompting the legislative
    proposals before us in today's hearing. The size and complexity
    of this problem clearly suggests the need for some
    congressional attention but exactly what form any assistance
    would take is what we are here to discuss.
        It is now my pleasure to recognize the esteemed Ranking
    Member of the Subcommittee, the gentleman from Texas, Judge
    Gohmert.
        Mr. Gohmert. Thank you, Mr. Chairman. I do also thank you
    for holding this hearing. This is a very serious issue. I first
    became aware of it back as a judge when we started hearing
    about massive amounts of baby formula being stolen.
        The problem of organized retail theft is not only growing,
    but it involves the theft of large quantities of retail
    merchandise. Organized retail theft is not a high-profile
    crime--and that is one of the problems--but it certainly is
    costly. Unlike shoplifters or small-time thieves who steal for
    their own personal use, organized retail thieves steal
    merchandise in order to sell it back into the marketplace.
    These criminals typically target merchandise that can be easily
    concealed and easily resold. The stolen items range from low-
    cost products such as razor blades--baby formula is not so low
    cost for those that have bought any lately--but also things
    like batteries, as well as expensive items like electronics or
    appliances.
        Organized retail thieves, commonly referred to as
    ``boosters,'' will sell the stolen merchandise at flea markets,
    pawnshops, swap meets and increasingly on the Internet.
    According to the FBI, organized retail theft accounts for
    between $30 and $37 billion in losses annually. The Coalition
    Against Organized Retail Crime estimates that States with sales
    tax annually suffer over $1.5 billion in lost tax revenue due
    to organized retail theft.
        In 2005, Congress directed the Attorney General and the FBI
    in consultation with the retail community to establish a task
    force to combat organized retail theft and create a national
    database or clearinghouse to track and identify organized
    retail thefts across the country. The result of that
    legislation is the Law Enforcement Retail Partnership Network,
    which was launched in 2006. This national database allows
    retailers to share information about suspected theft with each
    other and with law enforcement officials.
        In addition, the FBI has created the major Theft Task
    Forces to identify and target multijurisdictional organized
    retail theft rings. There are currently nine FBI-led major
    Theft Task Forces staffed by FBI agents and State and local law
    enforcement officers, located in FBI field offices across the
    country.
        Although Federal agencies work to investigate the criminals
    that engage in this conduct, retail organizations argue that
    there is still too little prosecution of this crime. They would
    seem to be right in their assertions. They argue that State
    felony thresholds that stolen goods must amount to $500 or, in
    some cases, $1,000 or $2,500 in order to be a felony are too
    high to provide for prosecution of organized retail theft. The
    Federal threshold for prosecution of a crime of transportation
    of stolen goods and interstate commerce is also high, as the
    amount of stolen goods must be in excess of $5,000 to trigger
    Federal criminal liability.
        Several bills have been introduced in this Congress to
    prohibit organized retail theft and, in particular, e-fencing.
    Auction sites such as eBay and other online marketplaces, such
    as Amazon.com, have expressed concerns about the bills.
        I have met with representatives from both industries and on
    all sides. And I, like the Chairman, was hoping the groups
    could come together to find a solution without congressional
    action.
        Several merchants have used the comparison of pawnshops
    when discussing e-fencing with me. And I do think that there
    are certain parallels that are worth noting. Pawnshops are
    generally required to keep records of the merchandise available
    for sale because it is known that they are frequently used by
    criminals who have stolen merchandise. It seems reasonable to
    ask online marketplaces to do the same. Pawnshop records, on
    the other hand, are kept for law enforcement officials and not
    made available to private third parties.
        I would like to hear from witnesses during the course of
    this hearing on their thoughts about imposing a duty to
    maintain records on merchandise on the Web sites that are not
    required of pawnshops, and whether this should be made
    available just for law enforcement and not anyone else.
        One bill before the Subcommittee would create a new Federal
    crime of facilitation of organized retail theft. This provision
    exposes online marketplaces to incarceration based on a lower
    mental state than is traditionally required for criminal
    penalties.
        I very much appreciate a desire to craft legislation that
    addresses innovative criminal conduct, but I am also wary of
    legislation that deviates from the mens rea, or mental states,
    of knowing or intentional that are commonly used in criminal
    offenses. That is important because criminal offenses, which
    lock people up in prison and take away so many of their
    constitutional rights just to walk around, are intended to
    impose penalties on those normally who consciously act to
    commit a crime and consciously act in furtherance of a crime.
        In fact, we have a group currently meeting to rein in some
    of the overzealous laws that have been crafted and passed in
    the past that have caused the incarceration of people for very
    unreasonable reasons when they had no idea that they were
    committing a crime as the law was later interpreted.
        I also think it is helpful to note that civil penalties are
    also a possibility when it comes to crafting legislation. It
    doesn't require anybody to be locked up, and therefore, the
    mental state can sometimes be much lower and the penalties be
    career-ending for a business, so they do have a strong effect.
        But I am very interested in hearing the testimony of our
    witnesses on this legislation. I am still trying to come to
    grips with what would be the best solution. And I am glad to
    see my office neighbor, Congressman Ellsworth, here and look
    forward to hearing him.
        And I yield back the balance of my time.
        Mr. Scott. Thank you.
        We have been joined by the gentleman from North Carolina,
    Mr. Coble.
        Good to see you.
        Our first panelist will be the Honorable Brad Ellsworth who
    represents Indiana's Eighth District. He is serving his first
    term in the United States Congress after serving 24 years as
    the Vanderburgh County sheriff in the county sheriff's office,
    serving two terms as the Vanderburgh sheriff.
        He was twice decorated for heroism in the line of duty and
    graduated from the FBI Academy. He also has a bachelor's degree
    in sociology and a master's degree in criminology from Indiana
    State University.
        Mr. Brad Ellsworth, you are familiar with the lights. We
    have your entire statement for the record. So if you would like
    to summarize your testimony in 5 minutes or less, we would be
    happy to hear from you.
        Mr. Ellsworth. Thank you.

    TESTIMONY OF THE HONORABLE BRAD ELLSWORTH, A REPRESENTATIVE IN
                   CONGRESS FROM THE STATE OF INDIANA

        Mr. Ellsworth. Thank you.
        Thank you, Mr. Chairman, Ranking Member Gohmert and the
    rest of the Committee. I appreciate you letting me come and
    testify in front of the Committee today about this bill that--
    again, as Mr. Gohmert said, our purpose here is not to penalize
    entrepreneurs and online sites or--it is to take criminals off
    the streets and stop crime. That is my sole purpose here.
        I appreciate this opportunity to testify before your
    Committee in support of my bill, knowing that as we work
    together, we can craft good legislation that gets to the bottom
    of this problem, the Organized Retail Crime Act of 2008.
        I also want to thank you for your leadership in the area of
    e-fencing and organized retail crime. To both of you and this
    entire Committee, I look forward to working with you to craft
    legislation that gets to the problem.
        As the Chairman said, before I came to Congress, I spent
    nearly 25 years in law enforcement with the Vanderburgh County
    sheriff's office. I can remember, when I was talking about this
    legislation, a particular incident. We made what we thought was
    a routine shoplifting run until we opened this gentleman's
    trunk, and in the trunk was a copy machine that had been
    rewired to 12 volt and was full of electric drills, the same
    particular electric drill out of this store.
        What we found out through our investigation was that these
    gentlemen would go in and buy one drill, go out, take the
    legitimate receipt, go out to the trunk, turn on the car, run
    copies of that, go in and steal more drills. And they would
    actually have receipts for those drills, for as many as they
    wanted, on that particular day and have legitimate receipts.
        That was one of my first real brushes with what I thought
    was organized retail crime, when someone puts a copy machine in
    their trunk and rewires that. Using fraudulent copied receipts,
    the thieves would then return that, like I said.
        I share this story as an example of the length that these
    thieves will go to. And like Ranking Member Gohmert said, they
    are hijacking trucks of baby formula out of the Bristol-Myers,
    MeadJohnson Enfamil--it happens quite often--to take advantage
    and to make a quick profit.
        Today, criminals with the same motives are using the
    Internet with increasing frequency to sell stolen merchandise.
    It is taking a heavy toll on our communities throughout the
    country. According to the Food Marketing Institute, a study in
    2006 alone, retailers in my State of Indiana lost $662 million
    in stolen merchandise. Indiana has a 6 percent sales tax, so
    these stolen goods account for close to $40 million in lost
    sales tax to the revenue of my State. This is a major problem,
    as you know.
        Not only does organized retail crime result in substantial
    losses for retailers, it also has significant negative
    consequences for consumers. As you said, they steal baby
    formula, diabetic test strips, over-the-counter drugs from
    retailers. Needless to say, criminals are not interested in the
    proper storage of these sensitive health products, and as a
    result, the health and safety of consumers who unknowingly
    purchase these stolen products is often jeopardized.
        ORC rings also negatively impact the bottom line for
    consumers because leading American retailers are forced to
    spend millions of dollars each year conducting loss prevention
    efforts. Organized retail crime currently accounts for tens of
    billions of dollars in retail loss annually.
        The criminals who operate these organized crime rings are
    becoming more sophisticated in the ways they sell their goods
    to an often-unsuspecting public. ORC rings have expanded their
    base of operation from the streets--like you said, flea
    markets, pawnshops--to the online marketplace where they can
    break the law with anonymity.
        For these reasons, I felt compelled to introduce H.R. 6491,
    the Organized Retail Crime Act of 2008. This legislation cracks
    down on ORC by amending the Federal Criminal Code to include
    activities such as stealing, embezzlement, obtaining by fraud
    or false pretenses retail merchandise in quantities that are
    not purchased for personal use or consumption for the purpose
    of reselling such retail merchandise in commerce.
        By criminalizing facilitation, organized retail crime,
    Federal, State and local law enforcement will be better
    equipped to crack down on illegal activity as this takes place
    offline at pawnshops, flea markets. And, Judge, like you said,
    the definition of facilitation will be defined as we move down
    the road with this.
        In addition to amending the Federal Criminal Code, H.R.
    6491 requires specific and narrow obligations for the online
    marketplace used by high-volume dollars, $12,000 or more.
    Specifically, H.R. 6491 requires online auction sites to
    expeditiously assist with an investigation of the sale of
    stolen goods on its site where incredible evidence comes to its
    attention and remove or disable access to the material when
    there is reasonable cause to believe the goods or services were
    acquired through organized retail crime. These sites are also
    to maintain a record of all investigations for a minimum of 3
    years.
        The legislation also requires the online auction site to
    maintain the name, telephone number, e-mail address and a
    legitimate physical address of any user identification company
    name and transactions conducted by these high-volume sellers.
    And as I said, high-volume is someone selling more than $12,000
    in merchandise annually.
        Opponents to this legislation might say it unfairly targets
    online auction sites. I would like to reiterate the fact that
    the legislation criminalizes facilitation of organized retail
    crime. Facilitation includes criminal activity that takes place
    offline as well as online. The proposed record-keeping
    obligation for online marketplaces is far less burdensome than
    regulations in place for pawnshop brokers, for example. In the
    pawnbroker industry, many States require that these records are
    kept and provided to law enforcement. Some require
    fingerprinting and the presentation of valid government-issued
    IDs before any transaction is approved.
        I want to acknowledge the efforts by some in the online
    marketplaces to police their own sites for criminal activity.
    These efforts are certainly beneficial toward deterring the
    resale of stolen merchandise. But I firmly believe these
    efforts do not go far enough.
        ORC is a growing problem that must be addressed through a
    robust effort of cooperation between retailers, the online
    marketplace and law enforcement. I believe we can put in place
    a legal framework to make this happen. My goal is very simple:
    The online marketplace should be fair and protect consumers,
    producers and a free market when goods are traded.
        I want online auction sites to prosper in a marketplace
    that has rules that are enforceable. It is important that the
    State and local law enforcement retailers have the tools
    necessary to pursue and stop crime where it exists. This
    legislation is important, and it defines organized retail crime
    in the Federal Criminal Code and requires online auction sites
    to perform the necessary record keeping of high-volume sellers
    so that criminals are prevented from exploiting the online
    marketplace.
        I would also like to note that this legislation will not
    place an undue burden on users who play by the rules. The
    obligation is on the online marketplace to keep transparent
    records and assist with law enforcement when criminal activity
    is suspected.
        Mr. Chairman, H.R. 6491, the Organized Retail Crime Act of
    2008, is not intrusive. It is a commonsense bill that aims to
    dry up avenues for the organized retail crime criminals to sell
    their stolen merchandise at the expense of retailers and
    consumers.
        I look forward to hearing the expert testimony today, and I
    urge colleagues to join Congressman Jim Jordan and myself in
    supporting this important legislation as a first step toward
    cracking down on ORC.
        And just in closing, Mr. Chairman, I agree with Ranking
    Member Gohmert in that with--how much Federal law enforcement
    FBI has committed to this; but obviously, in just my State
    alone, with the tens of billions that are being lost in my
    State alone, the millions that are being lost, obviously the
    job is not getting done with law enforcement alone.
        So I appreciate any questions. I would be willing to answer
    any questions, and I will offer this for the record. Thank you.
        [The prepared statement of Mr. Ellsworth follows:]
    Prepared Statement of the Honorable Brad Ellsworth, a Representative in
                       Congress from the State of Indiana
        Mr. Chairman, I appreciate the opportunity to testify before your
    committee in support of my bill--the Organized Retail Crime Act of
    2008. I also want to thank you for your leadership in the area of e-
    fencing and organized retail crime. I look forward to working with you
    and our colleagues on this committee in the coming days and weeks on
    legislation that will address the emerging issue of e-fencing.
    Together, we can craft legislation that cracks down on organized retail
    crime and protects consumers.
        Before I came to Congress, I spent a career fighting crime in the
    Vanderburgh County Sheriff's Department. I remember a particular
    instance where we arrested two thieves who were running a sophisticated
    criminal enterprise from the trunk of their car. At a hardware retailer
    that had several Evansville locations, these two thieves would pay cash
    for one drill, make copies of the receipt using a copier that they had
    in the trunk of their car, and then shoplift the same drills in bulk.
    Using the fraudulent copied receipts, the thieves would then return the
    stolen merchandise and receive cash back multiple times over. I share
    this story as an example of the lengths criminals will go to
    fraudulently take advantage of businesses to make a quick profit.
        Today, criminals with the same motives are using the internet with
    increasing frequency to sell stolen merchandise, and it's taking a
    heavy toll on retailers throughout the country. According to a Food
    Marketing Institute study, in 2006 alone, retailers in my state,
    Indiana, lost $662 million in stolen merchandise. Indiana has a six
    percentage sales tax so these stolen goods account for close to $40
    million in lost sales tax revenue to the state. This is a major
    problem.
        Not only does organized retail crime result in substantial losses
    for retailers, it also has significant, negative consequences for
    consumers. These criminals often steal products like baby formula,
    diabetic test strips, and over-the-counter drugs from retailers.
    Needless to say, criminals are not interested in properly storing these
    sensitive health products, and as a result, the health and safety of
    consumers, who unknowingly purchase these stolen products, is often
    jeopardized. ORC rings also negatively impact the bottom line for
    consumers because leading American retailers are forced to spend
    millions of dollars each year conducting loss prevention efforts.
        The Federal Bureau of Investigation estimates that organized retail
    crime currently accounts for $30 billion in retail losses annually. The
    criminals who form and operate these organized crime rings are becoming
    more sophisticated in the ways they sell their stolen goods to an often
    unsuspecting public. ORC rings have expanded their base of operation
    from the streets, flea markets, and pawn shops to the online
    marketplace where they can break the law with anonymity.
        For these reasons I felt compelled to introduced H.R. 6491, the
    Organized Retail Crime Act of 2008. This legislation cracks down on ORC
    by amending the federal criminal code to include activities such as the
    stealing, embezzlement, obtaining by fraud or false pretenses retail
    merchandise in quantities that are not purchased for personal use or
    consumption for the purpose of reselling such retail merchandise in
    commerce. By criminalizing the facilitation of organized retail crime,
    federal, state, and local law enforcement will be better equipped to
    crack down on illegal activity that takes place offline--at pawnshops
    and flea markets--as well as online.
        In addition to amending the federal criminal code, H.R. 6491
    requires specific and narrow obligations for the online marketplace
    used by high-volume sellers. Specifically, H.R. 6491 requires online
    auction sites to expeditiously assist with an investigation of the sale
    of stolen goods on its site when credible evidence comes to its
    attention, and remove or disable access to the material when there is
    reasonable cause to believe the goods or services were acquired through
    organized retail crime. These sites are to maintain a record of all
    investigations for a minimum of three years.
        The legislation also requires the online auction site to maintain
    the name, telephone number, email address, legitimate physical address,
    any user identification, company name, and transactions conducted of
    each high-volume seller. A high-volume seller is defined as someone
    selling more than $12,000 in merchandise annually.
        Opponents of this legislation say it unfairly targets online
    auction sites. I would like to reiterate the fact that this legislation
    criminalizes the facilitation of organized retail crime. Facilitation
    includes criminal activity that takes place offline as well as online.
        The proposed recordkeeping obligation for online marketplaces is
    far less burdensome than regulations in place for pawnshop owners, for
    example. In the pawnbroker industry, many states require fingerprinting
    and the presentation of valid government issued IDs before a
    transaction.
        I want to acknowledge efforts by some online marketplaces to police
    their own sites for criminal activity. These efforts are certainly
    beneficial towards deterring the resale of stolen merchandise but I
    firmly believe these efforts do not go far enough. ORC is a growing
    problem that must be addressed through a robust effort of cooperation
    between retailers, the online marketplace, and law enforcement. I
    believe we can put in place a legal framework to make this happen.
        My goal is simple. The online marketplace should be fair and
    protect consumers, producers, and the free market where goods are
    traded. I want online auction sites to prosper in a marketplace that
    has rules that are enforceable. It is important that state and local
    law enforcement have the tools necessary to pursue and stop crime where
    it exists. This legislation is important in that it defines organized
    retail crime in the federal criminal code and requires online auction
    sites to perform the necessary recordkeeping of high-volume sellers so
    that criminals are prevented from exploiting the online marketplace.
    I'd also like to note that this legislation will not place an undue
    burden on users who play by the rules. The obligation is on the online
    marketplace to keep transparent records and assist with law enforcement
    when criminal activity is suspected.
        Mr. Chairman, H.R. 6491, the Organized Retail Crime Act of 2008, is
    a non-intrusive, common sense bill that aims to dry up avenues for
    organized retail criminals to sell their stolen merchandise at the
    expense of retailers and consumers. I look forward to hearing the
    expert testimony today and I urge my colleagues to join Congressman Jim
    Jordan and me in supporting this important legislation as a first step
    toward cracking down on organized retail crime.

        Mr. Scott. Thank you very much. I have no questions.
        The gentleman from Texas, the gentleman from North
    Carolina, and the gentleman from Ohio; we have been joined by
    Mr. Chabot.
        Thank you.
        Mr. Ellsworth. Thank you very much.
        Mr. Scott. If the next panel will come forward.
        As you are being seated, I will begin to introduce the
    witnesses.
        Our first witness will be Frank Muscato, Organized Retail
    Crime Field Investigator for Walgreens pharmacies. In addition
    to investigating retail crime, his duties include assisting in
    legislative issues that pertain to loss prevention; and he has
    helped draft more than 17 loss prevention proposals for State
    legislatures.
        Before joining Walgreens, he spent 25 years at the Dallas
    Police Department's Intelligence Division as a Case Supervisor.
    Upon his retirement in 1994, he was recruited by Walgreens to
    assist in creating the first Organized Retail Crime
    Investigative Division and supervise its loss prevention team.
        Our second witness will be introduced by the distinguished
    gentleman from Florida, Mr. Putnam.
        Mr. Putnam. Thank you, Mr. Chairman. And I want to thank
    the Ranking Member, Mr. Gohmert, for the privilege of
    temporarily joining the Judiciary Committee's Subcommittee on
    Crime long enough to introduce a terrific witness.
        As a Representative of Florida's 12th District, I am
    honored to introduce my sheriff, Sheriff Grady Judd, to your
    Subcommittee. Sheriff Judd is a leading force in the Nation
    when it comes to combating organized retail crime. In the past
    year, he added to his long record of accomplishment one of the
    largest organized retail crime busts to date.
        In January this year, after months of working across a
    number of jurisdictions, partnering with the private sector and
    tracking the perpetrators, the Polk County sheriff's office
    arrested 18 people with ties to a crime ring that was
    responsible for an estimated loss of $100 million to retailers.
    That is just in Polk County, Florida. He was joined in that
    effort by Detective Ostojic, who was just recognized as Law
    Enforcement Officer of the Year by the Florida Retail
    Federation.
        Organized retail crime threatens the very soundness of
    commerce in our communities. The criminals and the tactics they
    use to steal consumer products generally fly under the radar of
    law enforcement at a significant cost to retailers and,
    therefore, to consumers. The FBI has reported that such
    organized crime costs retailers $30 billion every year. You
    don't have to be in law enforcement to know that the funds
    generated from these crimes are used to proliferate additional
    criminal activity, possibly gang related.
        Law enforcement and retailers need the support of Congress
    to pursue organized retail criminals with the proper tools to
    close down their operations. I am pleased to join Mr. Ellsworth
    as a cosponsor of his Organized Retail Crime Act, and I support
    my sheriff's efforts to go after these illusive criminals and
    to make the public more aware about the pervasive effects of
    organized retail crime.
        Our sheriff is a dynamic leader in central Florida, and his
    efforts and his accomplishments are a testament to his
    commitment to the safety and security of our community. I know
    that his testimony would be enlightening to your Subcommittee
    as you attempt to prepare the best possible legislative remedy
    to this problem.
        I applaud you, Mr. Chairman, for bringing in our local
    experts who are on the front lines of this battle. And I thank
    you for the privilege of introducing him.
        Mr. Scott. Well, thank you.
        And welcome, Sheriff.
        Our next witness will be Steve DelBianco, the Executive
    Director for NetChoice, a coalition of trade associations and
    e-commerce leaders. He is a well-known expert on Internet
    governance, online consumer protection and Internet taxation.
    He has testified several times before the United States
    Congress and is a frequent witness in State legislatures and
    represents NetChoice in Internet governance meetings around the
    world.
        Before joining NetChoice, he founded and was President of
    Financial Dynamics, an information technology consulting firm
    delivering financial and marketing solutions. He has degrees in
    engineering and economics from the University of Pennsylvania,
    and an MBA from the Wharton School of Business.
        Our next witness will be Ed Torpoco, a Senior Regulatory
    Counsel for eBay. He provides legal counsel to eBay's
    policymakers regarding the company's efforts to keep the eBay
    marketplace a safe place for consumers.
        Prior to joining eBay in 2006, he was a State and Federal
    prosecutor for 7 years, having worked in the Los Angeles
    District Attorney's Office, U.S. Department of Justice and U.S.
    Attorney's Office in northern California. He has a bachelor's
    degree from Georgetown University and Juris Doctorate from
    Harvard Law School.
        Our final witness will be Joseph LaRocca, Vice President of
    the National Retail Federation. He has over 20 years of retail
    loss prevention security and operations experience. In January
    2005, he joined the National Retail Federation as Vice
    President for Loss Prevention, working with retailers, small
    developers and government agencies to develop programs and
    content.
        He serves on several U.S. Department of Homeland Security
    committees, is a member of the International Association of
    Chiefs of Police and works closely with Federal, State and
    local law enforcement agencies.
        Mr. Scott. Each of our witnesses' written statements will
    be made a part of the record in its entirety.
        I would ask each of our witnesses to summarize your
    testimony in 5 minutes or less. And to help you stay within
    that time, there is a timing device that is right behind your
    display on that side. It is back there. The timing light will
    start off green, will go to yellow when 1 minute is remaining,
    and to red when 5 minutes are up.
        We begin with Mr. Muscato.

       TESTIMONY OF FRANK MUSCATO, ORGANIZED RETAIL CRIME FIELD
                 INVESTIGATOR, WALGREENS, DEERFIELD, IL

        Mr. Muscato. Good afternoon, Chairman Scott and Ranking
    Member Gohmert and Members of the Subcommittee. My name is
    Frank Muscato. I am an Organized Retail Crime Investigations
    Supervisor with Walgreens, and I thank you for the opportunity
    to appear here at the Subcommittee as it examines the
    significant problem of organized retail crime, we refer to as
    ORC.
        Walgreens operates over 6,300 drugstores in 49 States, the
    District of Columbia and Puerto Rico and serves 1.8 billion
    customers nationwide annually. I am here today to testify on
    behalf of Walgreens and the Coalition Against Organized Retail
    Crime. I thank you for your interest in this issue and for
    introducing H.R. 6713. I would also like to thank Congressmen
    Ellsworth and Jordan for their work on H.R. 6491.
        I realize my time is limited so I will refer you to my
    written testimony for a more detailed discussion.
        ORC is a significant problem that victimizes diverse
    segments of the retail community from supermarkets to
    drugstores to department stores and specialty shops. Unlike
    shoplifters, ORC gangs are sophisticated criminal enterprises
    that steal large quantities of merchandise with the intent of
    reselling those goods for profit.
        ORC is not what is commonly known as shoplifting. It is not
    an opportunistic theft where merchandise like food and clothing
    are stolen for personal use. Rather, ORC is an extremely
    sophisticated and coordinated crime. It involves highly
    structured organizations and gangs that hire and control teams
    of thieves to steal merchandise in large quantities. These
    teams move from store to store, city to city and State to
    State, employing sophisticated tactics and methods to allude
    store security, fraud prevention tools and law enforcement.
    This is a Federal problem with all the multijurisdictional law
    enforcement challenges that come with it.
        Walgreens has been a leader in advocating ORC legislation
    in States and supports making ORC a Federal criminal offense.
    We understand the first line of defense against ORC is in our
    stores and within our distribution channels. For this reason,
    Walgreens in 2003 created an Organized Retail Crime Division
    that is devoted to working both State and Federal ORC cases in
    collaboration with law enforcement. Our 6,300 stores operate
    under a comprehensive loss prevention program.
        I would like to briefly outline one example where the
    Federal law would have helped in the prosecution of a case. It
    involves a grocery store up in Chicago. In collaboration with
    the Cook County Sheriff's Department, we observed more than 52
    boosters in a 2-hour period enter the grocery store, carrying
    what appeared to be stolen property and many leaving, counting
    money as they walked out. We discovered the store owner was
    selling these stolen goods to other businesses there in Chicago
    and out of State.
        Because of the limited resources and jurisdictional issues,
    the out-of-State case were not pursued. If ORC was identified
    as a specific crime in Title 18 of the Criminal Code, a Federal
    agency may have been more inclined to pursue that case. H.R.
    6491 focuses the theft and sale of stolen goods obtained
    through ORC.
        There are several provisions Walgreens believes would be
    particularly impactful on combating this crime. The bill would
    explicitly criminalize the transportation, sale and receipt of
    stolen goods through ORC for the first time under Title 18. The
    bill would also criminalize its facilitation of ORC, including
    the facilitation through the operation of an online
    marketplace.
        Additionally, as I understand it, the bill will impose
    stronger criminal penalties and sentences for ORC. It is
    organized crime and should be treated as such with stronger
    penalties and enforcement.
        H.R. 6713 focuses on the serious problem of e-fencing. This
    bill requires certain information about high-volume sellers to
    be available for criminal investigations. Similarly, the online
    marketplace would be required to take down items where there is
    good--that they know were obtained unlawfully.
        In summary, ORC poses harm to consumers, retailers of every
    kind and deprives local and State governments of valuable and
    needed tax revenue. Walgreens supports legislation that makes
    ORC a Federal crime and targets the facilitator and the tools
    used to conduct these unlawful activities. Walgreens supports
    efforts to reduce ORC and all the various channels used to
    dispose of this illegally acquired merchandise.
        I thank you for the time, the opportunity to speak before
    your Subcommittee; and I look forward to your questions and
    working with the Subcommittee on this legislation. Thank you.
        Mr. Scott. Thank you.
        [The prepared statement of Mr. Muscato follows:]
                      Prepared Statement of Frank Muscato
                                i. introduction
        Good afternoon Chairman Scott and members of the Subcommittee. I am
    Frank Muscato, Organized Retail Crime Field Investigator with
    Walgreens, and I thank you for the opportunity to appear before the
    Subcommittee as it examines the significant problem of organized retail
    crime (``ORC''). Walgreens operates over 6,300 drugstores in 49 states,
    the District of Columbia and Puerto Rico and serves 1.8 billion
    customers nationwide annually. I have spent the last 15 years working
    ORC cases after retiring from a major metropolitan police department
    following 25 years of service. I am here today testifying on behalf of
    Walgreens, and the Coalition Against Organized Retail Crime. Mr.
    Chairman, I thank you for your interest in this issue, for convening
    this hearing to explore legislative means of addressing this growing
    problem, and for introducing your bill, H.R. 6713, the ``E-fencing
    Enforcement Act.'' I would also like to take this opportunity to
    commend Congressmen Ellsworth and Jordan for their work on H.R. 6491,
    the ``Organized Retail Crime Act.''
        My testimony today will cover three issues:

              First, I will describe the nature and scope of the
            problem of ORC;

              Second, I will describe more specifically ORC's
            impact on Walgreens and our customers, as well as set forth the
            broad fraud prevention efforts we undertake; and

              Finally, I will provide specific comments on the
            proposed legislation.
                      ii. nature of organized retail crime
        ORC is a significant problem that is victimizing diverse segments
    of the retail community from supermarkets and drug stores to department
    stores and specialty shops. Unlike shoplifters, ORC gangs are
    sophisticated criminal enterprises that steal large quantities of
    merchandise from retail stores with the intent to resell the goods for
    a profit. Products most often stolen by professional rings include:
    infant formula, over-the-counter medications, razor blades, batteries,
    DVDs, and CDs. These criminals also target other retailers for higher-
    end items such as designer clothes and accessories, household
    appliances, and consumer electronics. The more sophisticated rings
    often engage in identity theft, credit card fraud, gift card fraud, and
    returns fraud that amount to millions in lost revenue. Equally alarming
    are the possible health and safety consequences for consumers who
    unknowingly purchase merchandise acquired through illegal means--
    particularly over-the-counter medications and other consumables.
        ORC rings frequently travel to a designated area and methodically
    steal merchandise from a number of stores over a short period of time.
    The stolen merchandise is then moved and sold through fencing
    operations, flea markets, pawnshops, Internet auction sites and swap
    meets. Merchandise also may be fed back through the supply chain by re-
    packagers and illegitimate wholesalers who move the products into the
    distribution system, rerouting the items to unsuspecting retailers and
    consumers.
        As you can see, ORC is not what is commonly known as shoplifting.
    It is not opportunistic theft where merchandise like food, clothing,
    sundries or music are stolen for personal use. Rather, ORC is an
    extremely sophisticated and coordinated crime. It involves highly
    structured organizations and gangs that hire and control teams of
    thieves to steal merchandise in large quantities. These teams move from
    store-to-store, city-to-city, and state-to-state employing
    sophisticated tactics and methods to elude store security, fraud
    prevention tools, and law enforcement. Make no mistake about it, ORC
    rings have networks throughout the United States, and they distribute
    their stolen goods through interstate commerce. This is a Federal
    problem with all the multijurisdictional law enforcement challenges
    that come with it.
        The FBI estimates that ORC costs retailers $30 billion annually.
    This type of crime also deprives state and local governments of
    hundreds of millions in lost sales tax revenues. Losses resulting from
    ORC also increase costs to consumers--every time a truckload worth of
    over-the-counter medication or baby formula is stolen, our customers
    ultimately incur the cost of products that must be replaced. Proceeds
    from ORC are often used to finance other criminal enterprises such as
    drug trafficking, terrorism, and gang activity. In fact, the low risk--
    high return nature of this crime is attractive to street gangs. Many
    gangs even finance the travel and expenses for illegal immigrants and
    put them to work stealing from retailers. Some crime rings, in an
    attempt to protect their interests, have resorted to murdering
    witnesses and plotting to murder law enforcement agents and federal
    prosecutors. ORC has evolved into serious, organized criminal activity
    that impacts consumer welfare and our national economy as a whole.
        Retailers have identified the hierarchy consisting of ``boosters''
    and ``fences'' within the ORC rings. ``Boosters'' are those individuals
    who actually steal the merchandise. There are three levels of boosters:
    ``level 1'' is a person who steals close to home, is typically
    dependent on drugs or alcohol, and sells the goods the day they are
    stolen to support a habit; ``level 2'' boosters are persons that work
    with accomplices who travel to nearby states to steal and there is
    usually a leader of the group who sells the goods to a ``fence'';
    ``level 3'' boosters travel in organized groups, cover large
    geographical areas and can be on the road for weeks at a time--these
    groups are often organized by a ``fence''. A ``fence'' buys stolen
    goods from the boosters and is also identified in three distinct
    levels. A ``level 1'' fence often controls the three levels of
    boosters, they purchase goods for 20-30 percent of retail value and
    often have small retail businesses where boosters brings the
    merchandise; a ``level 2'' fence typically controls 10-20 different
    ``level 1'' fences and many ``level 2 and 3'' boosters--they often work
    out of small warehouses where product is cleaned, stored and sold to
    ``level 3'' fences for 50-60 percent of the retail value; ``level 3''
    fences redistribute stolen retail goods, they have several ``level 2''
    fences working for them and buy millions of dollars worth of stolen
    property every month--they operate large warehouses where stolen goods
    are mixed with legitimate product and sold back to some retailers
    through the supply chain.
        I would like to share a few examples of recent large-scale ORC
    cases reported in the press to illustrate the nature of this crime. As
    you heard from Sherriff Grady Judd, in early 2008 authorities broke up
    an enormous ORC ring in Polk County, Florida. What started as a single
    shoplifting investigation led to an 18-member organized enterprise that
    stole up to $100 million in over-the-counter medications and health and
    beauty aids. This criminal enterprise operated for at least five years
    under the control of ringleaders, which directed a sophisticated theft
    ring that stole from convenience and grocery stores statewide.
    Unfortunately, such incidents are all too common and not isolated. In
    June of this year, state and federal law enforcement broke up two ORC
    rings in the San Jose / San Francisco Bay area, arresting 17 members
    and on the day of the bust, recovered over $5.5 million dollars worth
    of stolen property. These rings employed hundreds of shoplifters to
    steal razor blades, baby formula, tooth whitening strips, and over-the-
    counter medications for sale through storefronts, flea markets, and the
    Internet.
        In Texas, Walgreens and other retailers collaborated with law
    enforcement on a case that involved a fence who was buying $50,000 to
    $100,000 worth of stolen baby formula, diabetic test strips and other
    over-the-counter medications every single day. The stolen product was
    being stored in a mini warehouse with no temperature controls in an
    area where temperatures routinely exceed 100 degrees during the summer
    months. The merchandise was being sold back to unsuspecting retailers
    and fenced over the internet. This type of activity puts the public's
    health and safety at risk as merchandise like baby formula and OTC
    medications can easily degrade. The fence was selling this product to
    an out of state fence that operated a distribution warehouse.
        In 2002, Walgreens and other retailers were instrumental in
    investigating one of the first groups identified by law enforcement as
    an ORC ring, in this case members of the same family. They were
    operating a large network of ORC repack and redistribution warehouses.
    Members of this crime ring fenced more than $78 million dollars worth
    of stolen property to and from Kentucky through Ohio, Texas, Utah,
    California, Florida, New York, New Jersey and North Carolina. This
    investigation led to a conviction. In 2004, the FBI investigated and
    charged other members of the same family who continued to conduct the
    same type of business.
        Law enforcement was ultimately successful in these cases, but this
    is the exception not the rule. Too often, cases are abandoned due to
    lack of resources and jurisdictional challenges. The legislation
    currently being considered would make ORC a federal criminal offense
    which would be extremely helpful in prosecuting more of these large,
    mulitjurisdictional cases.
                     iii. impact of organized retail crime
        As previously mentioned, Walgreens operates over 6,300 community
    pharmacies in 49 states, the District of Columbia and Puerto Rico. ORC
    impacts us throughout the country and costs Walgreens in excess of $300
    million dollars a year. Walgreens has been a leader in advocating for
    ORC legislation in the states and supports making ORC a federal
    criminal offense, including criminalizing those activities that clearly
    facilitate the furtherance of ORC.
        We understand the first line of defense against ORC is in our
    stores and within our distribution channels. For this reason, in 2003
    Walgreens created an Organized Retail Crime Division that currently
    consists of six experienced investigators solely devoted to working
    both state and federal ORC cases in collaboration with law enforcement.
    We have a robust fraud prevention program that includes upgrading the
    cameras in our stores to ``state of the art'' digital systems, in-store
    security, anti-theft tagging, retail secure devices and employee
    training. We developed a sophisticated ``computer dashboard'' which
    helps our loss prevention personnel track stolen property using the
    ``top 25 stolen items list.'' This list is continually updated using
    our perpetual inventory system. Although our fraud prevention program
    has proven successful and effective, legislation is necessary to
    supplement our efforts and target facets of the criminal activity
    beyond our reach. Without this legislation, cases involving multiple
    jurisdictions and facilitators will continue to be a challenge to
    prosecute.
        I would like to briefly outline two examples where this federal law
    would have helped in the prosecution of the cases. The first involves a
    small grocery store in Chicago. In collaboration with the Cook County
    Sheriff's Department we observed more than 52 boosters enter the
    grocery store with what appeared to be stolen property and leave
    counting money as they walked out. An informant admitted on tape that
    he would travel to Wisconsin, Indiana, Michigan, and Iowa to steal
    property and sell thousands of dollars worth of goods to this grocery
    store every day. We discovered the store owner was selling stolen goods
    to other business in Chicago and out of state. Because of limited
    resources and jurisdictional issues the out of state cases were not
    pursued. If ORC was identified as a specific crime in Title 18 of the
    criminal code, we could have taken the case to a federal agency to
    pursue further investigation and/or prosecution.
        The second case occurred this year in New York City. Three small
    ``mom & pop'' stores were identified by an informant as buying stolen
    retail property. NYPD worked this case and was able to infiltrate the
    businesses. After several months of investigation and surveillance the
    stores were busted and proprietors arrested. At one of the stores,
    police recovered more than $600,000 in stolen property that was boxed
    up and ready for shipment to out of state locations. The Queens County
    Attorney working this case said the department could not pursue the
    case further because of budget and jurisdictional issues. Again, if ORC
    was identified as a specific crime in the criminal code we could have
    pursued the case federally.
                 iv. specific comments on proposed legislation
        Mr. Chairman, as you know, there is no federal statute on the books
    to specifically address ORC. We are hopeful that legislation in this
    area will result in greater awareness of this crime by both law
    enforcement and prosecutors alike. Today, ORC, like many property
    crimes, goes unrecognized and unpunished. Those who are caught often
    get away with only a ``slap on the wrist'' due to lagging investigative
    resources and federal prosecutors who may be unwilling to take
    complicated cases if high-dollar thresholds are not met. We are hopeful
    provisions in the law will serve to reduce the transfer and sale of
    stolen goods obtained through ORC by applying more scrutiny to those
    who may facilitate this crime.
        As you know, two bills, H.R. 6491 and H.R. 6713, are now pending
    before this Subcommittee. H.R. 6491, the ``Organized Retail Crime
    Act,'' focuses on ORC itself and the sale of stolen goods obtained
    through ORC. There are several provisions Walgreens believes will be
    particularly impactful on combating this crime. First, the bill would
    explicitly criminalize the transportation, sale, and receipt of goods
    and services through ORC for the fist time under Title 18. The bill
    would also criminalize the facilitation of ORC, including facilitation
    through the operation of an online marketplace. It is our strong belief
    the facilitation provisions will help ensure both individuals and
    entities are held accountable for perpetuating this criminal activity.
    In the case of online marketplaces, this provision will require them to
    take reasonable steps to gather information about sellers, assist
    retailers in investigations, and affirmatively limit the sale of stolen
    goods.
        We also strongly support the provision in H.R. 6491 that amends the
    existing ``access device'' fraud statute to include devices commonly
    used to commit retail fraud such as gift cards, universal product codes
    and radio frequency identification transponders. By specifically
    enumerating these devices in the code, law enforcement will be able to
    more efficiently prosecute crimes involving the unlawful production and
    use of these devices. Additionally, as I understand it, the bill will
    impose stronger criminal penalties and sentences for ORC. As indicated
    earlier in my testimony, ORC is not garden variety shoplifting. It is
    organized crime and should be treated as such with stronger penalties
    and enforcement.
        The second of the two bills, H.R. 6713, the ``E-fencing Enforcement
    Act,'' focuses on the serious problem of ``e-fencing.'' We thank the
    Chairman for his recognition that the problem of ``e-fencing'' is
    getting worse, not better. We believe status quo will not solve the
    problem and this bill takes the appropriate approach to limiting ``e-
    fencing.'' Like H.R. 6491, this bill would require certain information
    about high volume sellers be available to retailers for criminal
    investigations. Similarly, an online marketplace would be required to
    take down items where there is good reason to know they were not
    acquired lawfully.
                                 v. conclusion
        In summary, ORC poses harm to consumers, retailers of every kind,
    and deprives local and state governments of valuable and needed tax
    revenue. Walgreens supports legislation that makes ORC a federal crime
    and targets the facilitator and tools used to perpetrate these unlawful
    activities. Walgreens supports efforts to reduce ORC in all of the
    various channels used to dispose of the illegally acquired merchandise.
    A significant portion of ORC continues to be furthered through physical
    markets, such as flea markets, pawnshops, swap meets, and other large-
    scale distribution networks. For this reason, we hope legislation
    ultimately enacted by Congress includes provisions that go after all
    the channels used to dispose of stolen merchandise, and addresses the
    unique challenges of conducting investigations related to ``e-
    fencing.''
                                   __________
        I thank you for your time and the opportunity to speak before your
    Subcommittee. I look forward to your questions and working with the
    Subcommittee on this legislation.

        Mr. Scott. Sheriff Judd.

    TESTIMONY OF GRADY JUDD, SHERIFF, POLK COUNTY SHERIFF'S OFFICE,
                               BARTOW, FL

        Sheriff Judd. Good afternoon, Mr. Chairman and Members of
    the Subcommittee. It is my pleasure to be with you today to
    talk about the very serious and far-reaching ramifications of
    organized retail crime.
        I appreciate my Representative, Adam Putnam, introducing me
    today.
        As Sheriff of Polk County, my agency learned of a so-called
    ``simple shoplifting incident'' that occurred on June 22, 2007.
    When the incident crossed Detective Jim Ostojic's desk, he
    didn't dismiss it as just another retail theft, but took the
    time to investigate.
        Seven months, a task force involving over 100 local and
    statewide law enforcement officers and retail loss crime
    prevention specialists, multiple old-fashioned stakeouts,
    several undercover purchases, numerous tracking devices, two
    storage warehouses, four flea markets, two Internet sites, five
    search warrants and one consent to search later, detectives
    uncovered a 5-year-old organized crime ring which resulted in
    approximately $100 million worth of stolen property.
        Operation Beauty Stop culminated in the arrest of 18
    individuals. For these criminals, the profits were high and the
    risks were very low.
        Retailers suffer hefty losses as a result of organized
    retail crime. However, this crime does not affect retailers
    alone. It has a major impact on consumers, our governments and
    our society's quality of life. The quality of life we, as
    Americans, enjoy is compromised by this alleged simple act of
    theft because, you see, these insignificant shoplifters are all
    too often connected to other crimes.
        Fourteen of the 18 subjects charged in our recent operation
    had extensive criminal histories. Along with their shoplifting
    charges, their past charges included felony burglary, hit and
    run, drug possession, carrying a concealed weapon, domestic
    violence, aggravated battery with a deadly weapon, robbery,
    lewd and lascivious conduct, resisting arrest with violence,
    and battery on a law enforcement officer, just to name a few.
    These are people who constantly live outside of society's
    rules.
        Progressive law enforcement agencies have experienced a
    paradigm shift from the traditional reactive focus on crime.
    Years ago the New York City Transit Police began to place the
    focus on toll jumpers. At the time, some postulated it was
    unconscionable that resources were going to be wasted on such
    insignificant violations. However, this new focus proved very
    beneficial and crime decreased considerably. You see, the
    murders, the robbers, the thieves, the other violent criminals
    haunting the subway systems were the very same ones committing
    the minor violation of jumping the toll booths.
        My agency is progressive in following a similar process
    called ProCap, proactive community attacking problems, based on
    zero tolerance for crime, even insignificant crime. Our
    philosophy is to arrest all on arrestable offenses. We dig into
    cases in order to prevent further crime and not enable it. As a
    result to our paradigm shift, major crime has decreased 37
    percent in unincorporated Polk County.
        Operation Beauty Stop was so intensive it was a multiple
    jurisdictional effort that even needed the Federal agencies to
    become involved. As a matter of fact, the illicit criminal
    organization uncovered during this investigation had tentacles
    throughout other States to include North Carolina, South
    Carolina and New York.
        These criminals operate secure in the knowledge that local
    and State law enforcement agencies have neither the resources
    nor the jurisdiction to expose the full extent of their
    operations. Criminals do not limit themselves to jurisdictional
    lines for the convenience of law enforcement. Crimes
    perpetrated in this operation crossed all city, county and
    State lines.
        This proposed legislation would assist with the ease of
    prosecution for crimes that occur across jurisdictional lines
    and ensure the significance of these crimes is realized through
    standardized charges and sentencing across our great country.
    For these reasons, I am in full support of the Organized Retail
    Crime Act of 2008.
        Those involved in organized retail crime use every means to
    support their low-risk, high-profit criminal activity. The
    Internet has helped facilitate this illegal activity. The
    Internet adds a new dynamic to law enforcement; I liken it to
    the Wild West with very little regulation or enforcement and
    many prospects. Along with the vast benefits and endless
    opportunities derived from the Internet come the endless
    opportunities to perpetuate crimes and victimize our
    constituents in new ways.
        The Internet has indeed become the new frontier for crime.
    As a result, we must be prepared with resources to combat the
    new criminal tactics. I am in full support of the E-fencing
    Enforcement Act of 2008, not for the sake of regulation, but to
    require responsible business practices that protects consumers
    and our governments.
        I must tell you as I close today that organized retail
    crime is a sinister crime, negatively impacting our economy and
    directly tied to more violent and dangerous crimes. There is
    every indication that some of these criminal groups are even
    involved in funding terrorism. Please look beyond the tentacles
    to the monster to which they are attached.
        Thank you.
        Mr. Scott. Thank you.
        [The prepared statement of Sheriff Judd follows:]
                        Prepared Statement of Grady Judd

        Mr. Scott. Mr. DelBianco.

     TESTIMONY OF STEVE DelBIANCO, EXECUTIVE DIRECTOR, NetCHOICE,
                             WASHINGTON, DC

        Mr. DelBianco. Thank you, Chairman Scott, Ranking Member
    Gohmert and distinguished Members of the Subcommittee. And
    thank you for holding this hearing on this important issue
    today.
        NetChoice, as was described earlier, is a coalition of e-
    commerce leaders and includes the Electronic Retailing
    Association, AOL, eBay, Overstock.com, Yahoo! and about 18,000
    small retailers who use the Internet to reach customers; and at
    State and Federal levels and at international venues NetChoice
    advocates for the integrity in expansion of e-commerce. That is
    why it is a NetChoice priority to improve consumer trust and
    confidence in the online space; and we vigorously support
    efforts to pursue and control and punish criminals who pollute
    our online markets by selling stolen or counterfeit goods.
        We fully support tougher Federal penalties and increased
    resources and authority for law enforcement. The hearings held
    and the record that has been built by this Subcommittee since
    last October, I think they support exactly these kinds of
    measures. As Detective David Hill said in October, quote,
    ``Professional thieves are getting off with little more than a
    slap on the wrist because many jurisdictions are still treating
    ORC crimes like shoplifting.''
        But compare the committee's record with the rhetoric that
    you hear from retailers today, particularly that from the
    National Retail Federation. Their own data show that two-thirds
    of the stuff that is stolen is stolen by a store's own
    employees and their own suppliers.
        We have heard so much--and you will hear it in the
    testimony today--about the retailers' trouble with retail
    theft. But it reminds me of the saying that when someone talks
    so openly about their problems, they are fixing to blame
    somebody else. And who do they want to blame? They like to
    blame the Internet.
        NRF's written testimony includes this: That selling online
    has, quote, ``addictive qualities,'' and that the Internet is
    causing people who have never stolen before to take up retail
    theft. Mr. Chairman, that is like saying the back seat of cars
    causes teenage sex. Retailers are using this extreme rhetoric
    to justify what they really want in legislation, which we have
    heard repeatedly over the last 3 years in States and even on
    the Hill.
        The retailers have one course of action and that is to take
    law enforcement out of the loop by granting retailers their own
    power to demand investigations and takedowns on the Web sites
    of businesses they compete with; then, of course, to sue the
    marketplace if they are not happy with the investigation that
    occurred.
        Now you know how it works today. EBay, Overstock and other
    markets earn great marks from law enforcement for their quick
    and thorough attention when law enforcement is involved in
    asking for an investigation. Therefore, if a retailer has a
    good reason to suspect that a listing includes a stolen item,
    he need only get a law enforcement official to get on the
    phone, send a fax, push ``send'' on their button, and eBay and
    Overstock cooperate fully.
        But all three of these bills would give retailers unique
    new power to force an online marketplace to interrogate their
    own customers about how they obtained the item they are listing
    for sale. This has the effect of presuming that their customers
    and sellers are selling stolen items unless they can prove
    their ownership. How could a seller prove ownership of
    something they have received as a gift, in a trade for cash or
    something for which they have lost the receipts a long time
    ago? The vast majority of online sellers are honest people
    trying to find the highest bidder for something they have and
    don't need or something they have acquired legally at a
    discounted price.
        Honest citizens are understandably going to resent having
    to provide receipts and personal information to prove that they
    are not involved in organized criminal activity. They will
    protest, and it could be your in-boxes that get flooded with
    angry complaints if this becomes law.
        Now, to avoid this potential abuse that I am speaking of,
    Congress should preserve the role of law enforcement in the
    investigations that a retailer might demand from businesses
    that they compete with. And it is frankly not quite enough
    police involvement to just let a retailer use a police report
    that they filed as much as a year ago and then use that over
    and over again any time they see a listing for something of a
    similar description. That leaves law enforcement out of the
    loop between competitors. I think that someone from law
    enforcement must review a listing and ask the marketplace to
    investigate the way it works today.
        Now, the retailers are understandably frustrated by their
    ORC problems, but that is no reason to cut police out of the
    loop when we are investigating criminal activity. So I have
    tried here and in my written testimony to alert the
    Subcommittee to the risks in this legislation, that is, the
    risk of abuse and harassment of e-markets by competing
    retailers.
        And I guess I don't worry so much about loss prevention
    professionals like Mr. Muscato here at the table. I don't think
    he would abuse the law. But think for a moment about a small
    retail store manager who is trying to maintain margins in a
    declining economy, and he has got to be incredibly frustrated
    about losses that are due to theft, in most cases by his own
    employees and suppliers. So if a batch of items are stolen from
    his store and he later sees the same items, similar items,
    online, he is going to pull the trigger on the bill that you
    are giving him and he is going to use that power to force the
    online marketplace to interrogate its seller. And the retailer
    has no cost, he has no downside at all, and he can actually
    reuse the same investigation notice over and over again for
    every listing he sees on the Internet.
        The legislation could escalate the conflict--in closing
    here, it could escalate the conflict between retailers and
    online marketplaces. What is really needed right now is
    cooperation, because these parties all want to reduce the
    amount of crime and increase the integrity of what happens
    online.
        In your hearing last October Safeway's Karl Langhorst said
    that Safeway was forming, quote, ``unprecedented alliances''
    with other retailers to combat ORC. Well, Safeway should build
    unprecedented alliances with online markets, too, instead of
    blaming and battling them. I understand the frustrations the
    retailers have but that doesn't justify the soliciting of
    blame. These bills were designed for loss prevention, but they
    include dangerous tools for competition prevention.
        I close by thanking the Committee for considering
    alternative views and I look forward to your questions.
        Mr. Scott. Thank you.
        [The prepared statement of Mr. DelBianco follows:]
                     Prepared Statement of Steve DelBianco
        Chairman Scott, Ranking Member Gohmert, and distinguished members
    of the Subcommittee: My name is Steve DelBianco, and I would like to
    thank you for holding this important hearing on the e-Fencing
    Enforcement Act and related legislation.
        I serve as Executive Director of NetChoice, a coalition of trade
    associations and e-commerce leaders such as AOL, eBay, IAC,
    Overstock.com, and Yahoo!, plus 18,000 small online retailers. At the
    state and federal level and in international venues, NetChoice
    advocates against regulatory barriers to the expansion and integrity of
    e-commerce.
        It's a NetChoice priority to improve consumer trust and confidence
    in e-commerce, so we naturally support efforts to pursue and punish
    criminals who pollute online marketplaces by selling stolen or
    counterfeit goods. Unfortunately, the measures proposed in HR 6491, HR
    6713 and S 3434 go too far in two ways: imposing unprecedented
    liability and unworkable burdens upon online marketplaces.
      the hearing record does not justify imposing harsh liabilities and
                        burdens on online marketplaces.
        We appreciate the chairman's efforts to gather substantial data and
    testimony on the issue of organized retail crime (ORC). However,
    nothing in the record thus far would justify imposing criminal
    liability, civil lawsuits, and new burdens on online marketplaces,
    especially when these impacts could be triggered by complaints from
    competing retailers.
        In October 2007, this subcommittee heard testimony on ORC, and all
    witnesses made the case for enacting tougher federal penalties and
    additional law enforcement attention. As Maryland Police Detective
    David Hill told this subcommittee, ``professional thieves are getting
    off with little more than a slap on the wrist because many
    jurisdictions are still treating ORC crimes as shoplifting cases.''
        In that same hearing, loss prevention officials from Safeway and
    Target said they needed more information about sellers and listings so
    they could convince law enforcement officials to investigate. During
    Q&A, Target's Brad Brekke summed up with, ``We're just looking for
    transparency.'' And Safeways's Mr. Langhorst said, ``We want eBay to
    tell us who the seller is.''
        It's therefore understandable why ORC legislation would include
    tougher penalties for those convicted of crimes, and better
    transparency and information exchange between retailers and online
    marketplaces. However, these bills go much further, handing competing
    retailers a blunt instrument to harass online marketplaces they compete
    with. A stereo retailer, for instance, could tell Amazon or eBay,
    ``Those speakers are listed so cheap that I just KNOW they are
    stolen.'' Never mind that big-box retailers fill our weekend newspapers
    with ads offering deep discounts to draw shoppers into their stores,
    too.
        These bills threaten online marketplaces with criminal penalties
    and even forfeiture of assets if they fail to interrogate people about
    how they acquired an item they want to list for sale. Imposing criminal
    penalties and asset seizure on an online marketplace is unprecedented
    at the federal or state level, and would be the harshest anti e-
    commerce law of any major industrialized country.
        Specifically, HR 6713, the E-Fencing Enforcement Act, would require
    marketplaces to conduct investigations if a retailer provides a police
    report--dated anytime in the last year--claiming theft of goods
    matching the description of items offered in an online listing. A big-
    box chain could file a single police report for theft of an item, then
    use this report all year long to force any online marketplace to
    investigate every listing of similar items--without any involvement of
    law enforcement officials.
        All three ORC bills would give retailers the power to force online
    marketplaces to interrogate sellers about where and how they obtained
    an item they're listing for sale. This would have the effect of
    presuming that sellers are listing stolen items--unless they can prove
    their ownership. But how would a seller prove ownership of items
    received as gifts, or something received in a trade? What about cash
    transactions, or purchases where original receipts were lost long ago?
        The vast majority of online sellers are honest people trying to
    find the highest bidder for something they have legitimately acquired.
    Honest citizens and businesses will naturally resent the presumption
    that they acquired their goods through organized criminal activity.
    When sellers protest about having to prove their innocence, online
    marketplaces would surely reply that Congress passed a new law
    requiring this unprecedented interrogation. Your inboxes could be
    flooded with constituent complaints.
        the cure for orc should not become a tool for authorized retail
                       harassment of online marketplaces.
        Forcing online marketplace operators to interrogate innocent
    sellers is just one aspect of what could become ``authorized retail
    harassment.'' A flood of new lawsuits is another potential for abuse by
    retailers.
        Specifically, HR 6491 grants retailers the ability to sue online
    marketplaces in any district court for failing to ``expeditiously
    investigate'' a listing based on a retailer notification, even if no
    law enforcement official ever reviewed the actual listing. After
    challenging a seller's honesty and reviewing his reply, a marketplace
    might reasonably conclude that the seller's listing has no connection
    to organized retail crime. However, a retailer could still sue the
    marketplace for failing to remove a listing, based only on the
    retailer's belief that the marketplace had ``reasonable cause to know''
    that an item involved organized retail crime.
        These ORC bills contain a ``notice and take down'' regime that's
    markedly different from what Congress included in another law designed
    to help property owners stop online theft. The Digital Millennium
    Copyright Act (DMCA) includes safeguards to prevent abuse of the powers
    granted to content owners. DMCA notices are submitted under penalty of
    perjury and must specifically identify the location of allegedly
    illegal items. Neither of the two House ORC bills include any sanction
    whatsoever on retailers who could 'game the system' by providing
    incorrect notices.
        The DMCA also includes a mechanism to contest incorrect
    allegations. Again, these ORC bills provide no such mechanism for
    online marketplaces to push-back on retailers who repeatedly use a
    single police report to harass multiple sellers of similar goods.
    Retailers can harass marketplaces with information requests about
    sellers--based on undocumented suspicion or a year-old theft of similar
    items.
        The combined threat of legal action combined with customer data and
    interrogation requirements are burdensome enough on large marketplaces,
    but would effectively strangle small businesses. NetChoice member
    Dawdle.com is a small online marketplace for new and used videogames,
    with 5 employees operating out of Chicago. According to founder Sachin
    Agarwal, ``I can't imagine how I could afford to stay in this business
    if overzealous retailers swamped me with investigation and take-down
    requests.'' Smaller companies simply do not have in-house attorneys or
    financial resources to conduct legal investigations and answer to
    multiple lawsuits.
        Simply put, these ORC bills create too many opportunities for abuse
    by retailers who compete with online marketplaces.
       states have rejected legislation that would blame e-commerce for
                            retailers' orc problems.
        Legislation imposing these kinds of obligations on online
    marketplaces has been introduced in several state legislatures.
    Colorado, Maryland, New Jersey, New York and Wisconsin have seen
    retailer-backed bills targeting online resale of merchandise such as
    baby food, cosmetics, drugs, infant formula and batteries. In spite of
    intense lobbying by big-box chains, none of these states has passed any
    version of the retailers' preferred legislation.
        In addition, the bi-partisan National Conference of State
    Legislatures (NCSL) has soundly rejected this approach. At its annual
    meeting in August 2007, the National Retail Federation (NRF) attempted
    to modify NCSL policy by adding language that effectively blamed online
    markets for theft by suppliers, employees, and shoplifters: ``the
    Internet also has become a tool of Organized Retail Crime gangs that
    may sell stolen merchandise and gift cards online.'' The retailers'
    attempt to blame e-commerce for their theft problems was overwhelmingly
    rejected by state legislators at NCSL, by a vote of 45-0.
       does congress really want to make websites liable for content and
                       conduct provided by third parties?
        A law that creates legal liability for online marketplaces for the
    wrongdoings of others violates the intent--if not the letter--of an
    existing federal law, Section 230 of the Communications Decency Act.
    Section 230(c) explicitly protects interactive computer services from
    liability for content provided by third parties.
        When Congress passed Section 230, it decided to promote the
    continued development of the Internet and online services. Congress
    also sought to ``preserve the vibrant and competitive free market that
    presently exists for the Internet and other interactive computer
    services, unfettered by Federal or State regulation.'' [47 U.S.C. Sect.
    230(b)].
        Legislation that creates new liabilities on Internet marketplaces
    for the bad actions of third parties chips away at the goals expressed
    by Congress in Section 230. The continued development of a competitive
    marketplace for online commerce would be at risk, as would long-
    established protections for ISPs, online services, and the entire
    Internet community. The combined effect of new liabilities and
    affirmative obligations would result in an unacceptable chilling of
    online innovation and competition.
       the house bills unfairly discriminate against online marketplaces.
        Nobody doubts that shoplifting is a serious problem for retailers.
    And nobody faults retailers for doing whatever they can to deal with
    inventory losses. But trying to shift blame and burdens to online
    marketplaces is the wrong approach. It may be true that thieves are
    tempted to fence their stolen goods online, but shoplifting was a big
    problem for retailers long before the Internet ever appeared on the
    scene.
        A witness in your October 2007 hearing quoted a 2005 report from
    this Committee, finding that stolen goods are fenced through multiple
    channels, including beauty shops, gas stations, flea markets, pawn
    shops, truck stops, newspaper classified ads, overseas buyers, plus
    several kinds of Internet sites. While the Senate bill applies to both
    online and offline resellers, both House bills impose obligations and
    liability only upon online marketplaces. Newspaper classifieds and the
    many off-line resale marketplaces are not covered by the two House
    bills.
        While the two House bills discriminate against the online channel,
    all three ORC bills would foster state laws that could create
    compliance burdens on online businesses that usually serve customers in
    all 50 states. Different--potentially conflicting--new state laws could
    create impossibly complex investigation requests and a flood of
    retailer lawsuits. In last October's hearing, several witnesses called
    for a federal solution to the ORC problem, yet none of these bills
    would preempt states from quilting a patchwork of different state laws.
      there are better, less restrictive ways to stop online retail crime.
        The National Retail Federation's own commissioned surveys,
    conducted annually by the University of Florida, consistently show that
    two-thirds of retailer inventory losses are directly attributable to
    internal causes, including theft by their own employees and suppliers.
    Year after year, about half of all retail inventory losses are the
    result of employee theft. To put this in a national context, the
    retailers' own study concluded that ``. . . there is no other form of
    larceny that annually costs American citizens more money than employee
    theft.''
        These are the retailers' own employees, people who are hired,
    managed, and paid by the retailers. With that kind of direct control,
    retailers are in the position to stop employee theft where it starts.
        In last October's hearing, Rep. Forbes asked Safeway what they
    doing to prevent in-store theft, and Mr. Langhorst answered, ``our
    associates are there to sell groceries, not to be police officers.''
    Yet witnesses from both Target and Safeway stressed the importance of
    limiting and deterring theft ``in the first place.'' The first place
    that theft occurs is in their own stores, most often by their own
    employees and suppliers. Rather than shifting blame and burdens to
    online marketplaces, retailers should improve their employee screening,
    inventory control measures, and store security systems.
        Another essential step to combat ORC is to create better working
    relationship between crime prevention professionals at retailers and
    online marketplaces. In your hearing last October, Safeway's Karl
    Langhorst said, ``In spite of Safeway's best efforts and unprecedented
    alliances with other retailers to combat ORC, we continue to suffer
    significant losses.'' Rather than continue to battle with eBay and
    others, Safeway should build 'unprecedented alliances' with online
    marketplaces, too. Working together, retailers and online marketplaces
    can raise the effectiveness of the ``best efforts'' they are now making
    individually.
                                   conclusion
        These three ORC bills would impose extraordinary and discriminatory
    restrictions on Internet marketplaces that help millions of people to
    legitimately buy and sell products every day.
        I understand that retailers feel frustrated about their efforts to
    stop ORC, but that does not justify shifting blame and burdens to
    online marketplaces. These ORC bills are intended for loss prevention,
    but they include dangerous tools for competition prevention--preventing
    online marketplaces from competing with big retailers.
        I close by thanking the Committee for considering alternative views
    in this hearing, and I look forward to your questions.

        Mr. Scott. Mr. Torpoco.

     TESTIMONY OF EDWARD TORPOCO, SENIOR REGULATORY COUNSEL, eBAY,
                          INC., WASHINGTON, DC

        Mr. Torpoco. Mr. Chairman, Ranking Member Gohmert and
    Members of the Committee, I would like to thank the Committee
    for giving eBay this opportunity to discuss the importance of
    fostering real and effective solutions to the problem of
    organized retail theft.
        Prior to joining eBay in 2006, I was a State and Federal
    prosecutor for 7 years. At eBay I work with the law enforcement
    community, government regulators, private sector companies and
    eBay's own policymakers to help keep the eBay marketplace a
    safe site for eBay's community of consumers and small
    businesses.
        EBay recognizes that organized retail theft is a serious
    challenge facing many retailers. When we appeared before this
    Committee last year we made it clear that eBay does more than
    any other Internet company to make sure that online consumers
    have a safe and well-lit place to buy and sell goods, and that
    includes stopping the sale of stolen goods.
        EBay has strong policies in place that specifically
    prohibit the sale of stolen and illegal items. We employ more
    than 2,000 employees worldwide to enforce those policies, and
    we work closely with law enforcement officials at all levels to
    help them prosecute criminals. More than any other Internet
    company, we work to put criminals and thieves behind bars.
        But that is not all. In response to this Committee's calls
    last year for greater cooperation in the fight against stolen
    goods, we stepped up and we created a new program called the
    PROACT program to foster evidence-sharing among victimized
    parties. Retailers that have joined this voluntary program now
    have an easy, streamlined mechanism to submit reports on eBay's
    hotline, showing that an eBay member has sold or is attempting
    to sell stolen items.
        We investigate all evidence-based reports, and when we find
    proof of wrongdoing, we restrict or suspend the account and we
    will forward proof of criminality to law enforcement for
    prosecution. We want criminals arrested and prosecuted because
    criminal behavior on eBay undermines trust in the eBay brand.
        So with all eBay has done to combat nefarious activity on
    our platform, why are we here today to debate legislative
    proposals that almost exclusively target one Internet business
    model, that of online marketplaces like eBay, for liability in
    the context of organized retail theft?
        Our site is the most transparent. Our antifraud teams are
    the biggest and most active and we work most closely with law
    enforcement. Rather than work with us to prosecute criminals,
    some retail giants are actively promoting proposals to restrict
    online marketplaces that primarily serve small retail
    competitors and provide consumers low prices. To be honest, we
    believe that the focus of some giant retailers on large and
    popular Internet marketplaces is colored by competition.
        The Internet, including eBay, has empowered consumers and
    small businesses. It is a revolutionary tool that drives down
    prices by increasing competition, including through a
    completely legal gray market, closeout and end-of-cycle goods.
    Many big brick-and-mortar retailers who are themselves online
    want to dominate Internet retail the same way they dominate in
    store retail. They like the Internet, but they don't like
    Internet-based competition from small sellers who drive down
    prices and give consumers more choices. One way to attack pesky
    secondary market competitors that sell at low prices is to
    suggest that there is something shady about them.
        By our estimates, there are roughly 750,000 honest,
    hardworking Americans who make all or a significant share of
    their income actively selling items on eBay. They will be
    directly impacted by the legislative proposals that the big
    retailers are asking you to consider.
        If this Committee is going to legislate on the issue of
    organized retail theft, we believe such legislation should
    recognize that efforts to stop organized retail theft must be
    built on deterring criminals from stealing in the first place,
    through adequate investment in inventory control and antitheft
    technologies. Recognize that any solutions must be technology
    neutral and business model neutral.
        Impose tougher penalties, including mandatory sentences, on
    the actual criminals who are selling stolen goods rather than
    scapegoat the Internet service provider for such conduct in a
    way that would undermine Internet growth. Protect the privacy
    interests of consumers and small businesses who provide their
    personal data to Internet service providers and trust that
    their personal data won't be disclosed to retailers or
    government agencies based on unsupported accusations of
    wrongdoing. Protect legitimate gray markets that expand
    consumer choice and purchasing power.
        In conclusion, we continue to be committed to working with
    this Committee on ways to effectively empower law enforcement
    to fight the problem of retail theft. We stand ready to work on
    balanced and responsible solutions. We are committed to
    protecting the privacy and rights of law-abiding Americans and
    small business people. And we hope that this Committee will
    work with us to ensure that the Internet continues to thrive as
    a place that benefits consumers, especially in these
    challenging economic times, and allow small businesses to
    compete on a level playing field with even the biggest retail
    giants.
        Thank you. And I am happy to answer questions.
        Mr. Scott. Thank you.
        [The prepared statement of Mr. Torpoco follows:]
                      Prepared Statement of Edward Torpoco

        Mr. Scott. Mr. LaRocca.

         TESTIMONY OF JOSEPH J. LaROCCA, VICE PRESIDENT, LOSS
         PREVENTION, NATIONAL RETAIL FEDERATION, WASHINGTON, DC

        Mr. LaRocca. Thank you, Mr. Chairman, Ranking Member
    Gohmert, Members of the Subcommittee. Good afternoon. Thank you
    for the opportunity to testify before you on organized retail
    crime.
        My name is Joseph LaRocca, and I am the Vice President of
    Loss Prevention with the National Retail Federation. Today, we
    are testifying on behalf of the larger Coalition Against
    Organized Retail Crime in support of H.R. 6713 and H.R. 6491.
        As we have heard, organized retail crime refers to
    professional shoplifters who engage in illegally obtaining
    substantial quantities of retail merchandise and gift cards as
    part of a criminal enterprise. Stolen merchandise is then
    resold through illegal street vendors, pawnshops, flea markets
    and large-scale distribution networks and the Internet. Due to
    these black market operations, State and local sales tax is not
    collected, and in the case of returns fraud, actually takes
    money out of State funds. This type of criminal activity can
    even put consumers' health and safety at risk, particularly
    when items such as infant formula and over-the-counter
    medications are mislabeled and stored improperly.
        According to the NRF's 2008 ORC survey, 85 percent of
    retailers nationwide reported being a victim of organized
    retail crime. Precise measurements and the true scope of this
    problem are difficult to determine given the inherent secretive
    nature of these criminal operators. However, according to one
    prominent study, retail losses amount to over $30 billion a
    year.
        FBI Director Mueller also testified before Congress that
    ORC losses are estimated between $15 and $30 billion annually.
    When compared to other retail crimes across the country, retail
    losses are double those of property crimes nationwide, robbery,
    burglary, larceny and auto thefts combined, as reported in the
    FBI's 2006 Uniform Crime Report.
        People have quickly learned that the Internet presents a
    low-risk way to sell stolen goods, primarily due to its
    anonymous nature. More disturbing, however, is, the Internet
    seems to be contributing to the creation of a brand-new retail
    thief, people who have never stolen before but are lured by the
    convenience and anonymity of the Internet. Internet auction
    sites have been blaming retailers for security lapses in order
    to justify the conduct of some of the biggest sellers on their
    site.
        Mr. Chairman, retailers take this issue very, very
    seriously and spend an estimated $11 billion each year on loss
    prevention. Our industry relies heavily on external theft
    controls such as electronic article surveillance, external
    theft training and closed circuit television systems in many
    stores. You may have noticed that more and more product is
    being placed under lock and key in your neighborhood pharmacy
    and other retailers. This comes at great inconvenience to
    honest customers. But these controls are no match for
    professional shoplifters determined to steal. Criminals will
    always find a way to get the product out of our stores.
        One of the biggest obstacles in apprehending thieves who
    sell and resell through online marketplaces is the lack of
    resources available to law enforcement and the lack of
    cooperation offered by Internet providers. EBay, for example,
    will only provide assistance on a case-by-case basis and only
    to law enforcement.
        Due to the lack of manpower and resources, law enforcement
    will typically not undertake a suspected Internet fraud case
    unless there is irrefutable evidence or a written statement of
    theft. Then most State and local police departments run into
    jurisdictional issues since most online cases encompass
    multiple stores in multiple jurisdictions in multiple States.
        Recently eBay unveiled a new program called PROACT.
    Although, on the surface, it may seem like a good start, the
    burden is still on retailers. It requires retailers to
    investigate, identify and determine that the product online may
    be stolen. This is why a vast majority of retailers eBay
    approached have declined to participate.
        With over a million auctions on any given day, we need to
    proactively change criminal behavior, Mr. Chairman; we cannot
    keep addressing this issue by investigating and apprehending
    one seller at a time. We need a new approach to this problem.
    We need responsible Internet auction sites to make modest
    changes to help reduce the sale of stolen property in the first
    place, and thieves need to know when they try and fence their
    wares on a site like eBay, for example, they will be taking a
    huge risk and likely be caught.
        Organized retail crime is a serious issue affecting
    retailers, consumers and law enforcement officials nationwide.
    This criminal activity can put consumers' health and safety at
    risk, particularly when items such as infant formula and over-
    the-counter medicines are mislabeled and stored improperly. ORC
    creates enormous financial losses and negatively impacts
    revenue for businesses and States.
        I wish to commend you, Chairman Scott and Ranking Member
    Gohmert, for today's hearing. The focus on this very serious
    issue is a timely and appropriate response to a problem that is
    victimizing practically every segment of the retail industry.
        Thank you for your time and attention.
        Mr. Scott. Thank you.
        [The prepared statement of Mr. LaRocca follows:]
                    Prepared Statement of Joseph L. LaRocca
                                  introduction
        Chairman Scott, Ranking Member Gohmert, and members of the
    Subcommittee, good afternoon. Thank you for the opportunity to testify
    before you today on the growing problem of organized retail crime. My
    name is Joseph LaRocca and I am the Vice President of Loss Prevention
    with the National Retail Federation. Based in Washington D.C., our
    membership comprises all retail formats and channels of distribution.
    As the industry umbrella group, NRF also represents more than 100
    state, national and international retail associations. I work closely
    with retail organizations, as well federal, state, and local law
    enforcement officials across the country. Prior to joining the
    Federation in 2005, I spent 18 years working in retail loss prevention
    witnessing these crimes and their impact first hand. I am here today
    testifying on behalf of the National Retail Federation and the larger
    Coalition Against Organized Retail Crime in support of H.R. 6713, the
    ``E-fencing Enforcement Act of 2008'' and H.R. 6491, the ``Organized
    Retail Crime Act of 2008.''
        As we have heard, Organized Retail Crime refers to the growing
    problem of professional shoplifters who engage in illegally obtaining
    retail merchandise or gift cards through both theft and fraud in
    substantial quantities and as part of a criminal commercial enterprise.
    Some of the more sophisticated criminals even engage in changing the
    UPC bar codes on merchandise so they ring up differently at check-out.
    This is commonly called ``ticket switching.'' Others use stolen or
    cloned credit cards and gift cards to obtain merchandise. Yet others
    steal merchandise with the express intent of returning it to stores for
    cash or credit (most often in the form of gift cards). Stolen
    merchandise is resold through illegal street vendors, pawn shops, flea
    markets, the Internet, and even large scale distribution networks. Due
    to these black-market operations, state and local sales tax is not
    collected and, in the case of returns fraud, can actually diminish
    general fund holdings.
            high-profile cases illustrate the serious nature of orc
        In 2005, Operation Blackbird, as Texas investigators dubbed their
    multi-state baby-formula investigation, led to felony charges against
    more than 40 suspects; about half of those were illegal immigrants.
    Authorities seized some $2.7 million in stolen assets, including $1
    million worth of formula.
        Sherriff Grady Judd from Polk County Florida will discuss his case,
    announced in January, in which $60-100 million in product was stolen
    from retailers and resold, primarily through the Internet.
        This May (2008) in New Jersey, one of the highest-ranking officers
    in the Gambino crime family was arrested and indicted along with 23
    reputed crime family members and associates. A 30-count indictment that
    was unsealed in Newark alleges a variety of schemes, including forging
    bar codes to obtain electronics equipment from big box stores at
    extremely low prices, and making those purchases with credit cards
    obtained using stolen identities.
        In June, a joint task force of federal agents and the San Jose
    Police Department conducted a series of raids and arrested 17 members
    of two crime families they say employed hundreds of shoplifters to
    steal from stores, including Safeway, Wal-Mart, Walgreens, Longs Drugs,
    Save-Mart and Target. The stolen loot was resold for millions of
    dollars from homes, store fronts and flea markets, authorities said.
        These important investigations rely upon the ongoing partnership
    between law enforcement and the retail sector. The successful take down
    and prosecution of these theft rings is a positive development, but
    more needs to be done on the federal level because the problem is
    growing and these theft rings are becoming more aggressive and violent
    in their behavior. In fact, in the Texas case, hits were put out on the
    federal investigators involved in the infiltration of that gang. To
    bring it to an even more troubling conclusion, the proceeds from the
    crime were eventually traced back to the terrorist group Hamas. To put
    it succinctly, baby formula theft was funding assassination plots and
    international terrorism.
        These are just a few extreme examples. However according to NRF's
    National ORC Survey released on June 4, 85 percent of retailers
    surveyed report being victims of ORC and 66 percent saw increases in
    ORC activity last year. Precise measurements of the true scope of this
    problem are difficult to determine given the inherently secretive
    nature of these criminal operators. However, according to one prominent
    study, industry-wide retail fraud and theft losses amount to over $30
    billion a year. When compared to other property crimes across the
    country, according to the FBI's Uniform Crime Report in 2006, retail
    losses are double those from robbery, burglary, larceny, and auto
    thefts combined ($16.9 billion) nationwide.
        Most disturbing is the fact this type of criminal activity can put
    consumer's health and safety at risk. For example, consumers are
    potentially at risk when professional shoplifting rings steal
    consumable products, such as over-the-counter medications and infant
    formula. Pilfered products may not be kept under ideal or required
    storage conditions which can threaten the product's integrity. And
    often times these organized thieves will repackage and re-label stolen
    products to falsely extend the product's expiration date or to disguise
    the fact that the merchandise has been stolen.
       the increased use of internet auctions to dispose of stolen goods
        Dishonest people have quickly learned the Internet presents a low
    risk way to sell stolen goods, primarily due to its anonymous nature.
    They are surfing the web and learning about the limitless opportunities
    offered by auction sites. Criminals are even setting up their own sites
    and enabling ``secure'' customer payments through tools offered by
    companies such as PayPal and Yahoo! Checkout. In the past, these same
    people were selling at flea markets and pawnshops, but not in 2008.
    Online marketplaces are being used as the Internet equivalent of
    pawnshops, but, unlike pawnshops, they are largely unregulated. More
    disturbing, however, is the fact that the Internet seems to be
    contributing to the creation of a brand new type of retail thief--
    people who have never stolen before, but are lured in by the
    convenience and anonymity of the Internet.
        Sophisticated ``professionals'' or not, what all of these thieves
    have in common is that they often are--or become--career criminals.
    They have ``shopping lists,'' if you will. Some target luxury clothing,
    accessories, and perfume, while others focus on baby formula and
    expensive over-the-counter medications or beauty aids. Gift cards and
    electronics are other popular targets. Believe it or not, these
    criminals are even stealing vacuum cleaners and power tools. Whatever
    is new; whatever is hot; that's what the criminals want. The Internet
    not only makes it easier for ORC ``rings'' to unload merchandise at
    near retail prices, it also enables sophisticated single-operators to
    realize a huge profit off of their crimes as well.
        In videotaped admissions of people who have stolen from retail
    stores and resold the product on e-Bay, for example, thieves often tell
    the same disturbing story: they begin legitimately selling product on
    e-Bay and then become ``hooked'' by its addictive qualities, the
    anonymity it provides, and the ease with which they gain exposure to
    millions of customers. When they run out of ``legitimate merchandise,''
    they begin to steal intermittently, many times for the first time in
    their life, so they can continue selling online. The thefts then begin
    to spiral out of control and, before they know it, they quit their
    jobs, are recruiting accomplices (some are even hiring ``boosters''),
    and are crossing state lines to steal--all so they can support and
    perpetuate their online selling habit. At least one major retailer has
    reported that 80 percent of thieves interviewed in their e-Bay theft
    cases admit that selling stolen property on e-Bay is their sole source
    of income. In fact, many of the e-Bay sellers have used those proceeds
    to obtain mortgages, new cars, and even boats.
        To give you a clear example of the high-dollar figures involved, in
    February of this year the Kansas City Police Department, FBI and U.S.
    Postal Inspection Service, charged 7 suspects with $1.2 million of
    theft and resale of stolen items online. According to court records,
    boosters were hired to steal merchandise and then paid a percentage of
    the booty and given gas cards for their expenses. The ring leader sold
    the product on e-Bay and used part of the money to bail the boosters
    out of jail when they were arrested!
        As a Loss Prevention professional a question I am often asked is
    why we don't just catch the thieves in stores before the thieves have
    the opportunity to sell the product online. In meetings, we have also
    heard from folks representing the Internet auction sites who have taken
    the tack here on Capitol Hill to blame retailers for security lapses in
    order to justify, or obviate scrutiny of, the conduct of the sellers on
    their site. Mr. Chairman, retailers take loss prevention very, very
    seriously. Our industry relies heavily on external theft controls such
    electronic article surveillance (EAS), external theft training, and
    closed circuit television systems (CCTV) in many stores. You may also
    have noticed that more and more retail product is being placed under
    lock and key in your neighborhood pharmacy, department stores and other
    specialty retailers--at great inconvenience to honest customers. But,
    as we have learned, these controls are no match for professional or
    habitual shoplifters determined to steal. As you have heard today and
    in previous hearings, committed criminals will always find a way to get
    the product out of retail stores. Some of these thieves are masters at
    fraud or concealment, others are bold and brazen and potentially put
    employees and consumers at risk.
    the challenges of law enforcement and failure of online marketplaces to
                          adequately assist retailers
        One of the biggest obstacles in investigating and apprehending the
    thieves who steal and resell through online marketplaces is the lack of
    resources available to local, state, and even federal law enforcement
    to investigate these crimes and the lack of cooperation offered by
    Internet auction providers themselves.
        e-Bay, for example, will only provide assistance and information on
    a case-by-case basis, and only when requested by law enforcement.
    However, law enforcement, due to lack of manpower and resources, will
    typically not undertake a suspected Internet fraud case unless there is
    irrefutable evidence or a written statement of theft. Even then, most
    state and local police departments run into ``jurisdictional'' issues
    since, in most online cases, the thefts encompass multiple stores, in
    multiple states, in multiple jurisdictions. Further, even when
    retailers provide law enforcement with a written statement and
    videotaped admission, they are reluctant to take the case because the
    company investigator did not observe the actual theft, nor provide
    proof that a specific item came from a unique store.
        Recently, e-Bay unveiled a new program called PROACT. Although on
    the surface it may seem like a good start, it still requires retailers
    to investigate, identify, and determine that the product being sold
    online may be stolen. Thus the burden is still placed on retailers to
    identify each discrete seller that may be selling stolen product on
    their site. That is why the vast majority of retailers that they
    approached with the program declined to participate. With over a
    million auctions on any given day, we need to proactively try to change
    criminal behavior in partnership with the Internet auction companies.
    Mr. Chairman, we can't keep addressing this issue by investigating and
    apprehending one seller at a time; we need a new approach to this
    problem.
        Mr. Chairman, we need to have responsible Internet auction sites
    make modest changes to their businesses to help reduce the sale of
    stolen property in the first place. In other words, we need to create
    affirmative deterrents to this illicit behavior. Thieves need to know
    that if they try to fence their wares on a site like e-Bay, for
    example, they will be taking a huge risk and will likely be caught. We
    can do this by applying traditional models of stolen property
    regulation to the Internet and inject some much-needed transparency to
    these transactions. These are the type of approaches taken in the bills
    we are discussing today.
        H.R. 6491 imposes specific obligations on online marketplaces.
    Specifically, the requirement that an online marketplace investigate
    certain goods when a retailer provides ``credible evidence'' that the
    goods are stolen is essential. Such an obligation does not exist today.
    Similarly, if after investigation the online marketplace determines
    that in fact the goods are stolen, the marketplace would be required to
    remove them from sale from the marketplace. This is common sense. Goods
    that are known by an online marketplace to be stolen should no longer
    be sold on the site and, if they are, the marketplace should be liable
    for such behavior.
        The bill would also require that information about merchandise that
    is otherwise only offered for sale exclusively by a retail source be
    posted conspicuously. There are many instances where goods that are
    known to only be sold by a particular retailer are available for sale
    by third parties in large quantities on an online marketplace. Many
    times these sales warrant additional investigation by retailers due to
    the exclusive nature of the product. Finally, we strongly support the
    provision that would require high-volume sellers to make contact
    information available online. Retailers have difficulty obtaining
    seller contact information from the online marketplaces even though
    that information is vital to conduct a preliminary investigation.
    Oftentimes, the identity of the seller leads to a quick confirmation
    that the sales are in fact legitimate and the investigation can be
    closed.
        The second of the two bills, H.R. 6713, the ``E-fencing Enforcement
    Act,'' focuses exclusively on the E-fencing problem just described. We
    thank the Chairman for his recognition that this is a problem that is
    getting worse, not better. We believe that the status quo will not
    solve the problem and that this bill takes the appropriate approach to
    limiting e-fencing. Like H.R. 6491, this bill would require that
    certain information about high volume sellers be available to
    retailers. Similarly, an online marketplace would be required to take
    down goods where there is good reason to know that they were not
    acquired lawfully.
        NRF feels strongly that companies like e-Bay should also no longer
    be able to hide behind the assertion that they are ``merely a
    platform'' with little responsibility to supervise sellers on their
    site when they earn listing fees and commissions from each and every
    sale on their site. That is a fee for both stolen and legitimate goods.
    In the case of e-Bay these fees and commissions have earned them
    billions of dollars in profits and made them one of the fastest growing
    companies in American history. Isn't there some greater responsibility
    here to take some simple, and quite frankly, commonsense steps like
    those outlined in H.R. 6713, H.R. 6491, and S. 3434? It seems like a
    no-brainer to me.
                                   conclusion
        While retailers will continue to invest billions of dollars in
    trying to prevent organized retail crime and apprehend and prosecute
    the perpetrators, it is clear that the problem cannot be solved by
    fighting these cases one-by-one and only in the shopping aisles.
    Without new Federal laws in place, such crimes are far too often
    treated as petty theft or a misdemeanor. As a result, organized retail
    crime cases are rarely appropriately prosecuted, and when they are,
    individuals who are convicted usually see limited jail time or are
    placed on probation if they have no prior arrests.
        Organized Retail Crime is a serious priority for large and small
    retailers nationwide. Locking everything behind glass may reduce sales,
    dramatically impacting the revenue for businesses and tax revenues for
    states. Expenditures against retail theft have become part of
    construction budgets, merchandising budgets and information technology
    and staffing budgets. This is an enormously important and expensive
    effort for the retail industry. The continuing growth of retail crime
    and the damage it causes to communities dictates something needs to be
    done to control the theft and resale market for stolen goods. Further,
    at the rate the Internet is growing and the constantly and rapidly
    escalating scale at which any criminal is now able to operate, it is
    clear that there is an immediate need to update the law to cover these
    21st century criminal operations.
        I wish to commend Chairman Scott and Ranking Member Gohmert for
    scheduling today's hearing. The focus on this very serious issue is a
    timely and appropriate response to the problem of organized retail
    crime and Internet auction fraud that is victimizing practically every
    segment of the retail community. Thank you for your time and attention.

        Mr. Scott. And we thank all of our witnesses for your
    testimony.
        We will now direct questions to you under the 5-minute
    rule. And I will recognize myself to begin with for 5 minutes.
        Mr. DelBianco and Mr. Torpoco, we know that some of the
    stuff online is stolen. What chance is there that there would
    be legal sales of consumer products in the amount of $5,000 in
    one sale or $12,000 over the course of a year? How often would
    that be actually legal?
        Mr. Torpoco. Mr. Chairman, on eBay it is quite common for a
    seller to sell, for example, an automobile. And so the language
    is currently drafted to define ``small seller'' as somebody,
    for example, who has over $5,000 in sale, which would sweep in
    a large number of individuals who are not selling very
    frequently, but who are selling items that are high-ticket,
    big-priced items. And that is one of the concerns that we have
    with the legislation as drafted, that in reality there are
    actually many, many thousands, if not tens of thousands, of
    sellers on eBay who don't sell all that frequently, but sell
    big-ticket items.
        Mr. Scott. How often does somebody sell small-ticket items
    in the $5,000 to $12,000 level that would be actually legal,
    that could not immediately produce some records to show where
    they got the product from?
        Mr. Torpoco. I imagine, Mr. Chairman, that there are
    thousands of small retailers that are using eBay that probably
    exceed the $5,000 level threshold and which are selling
    commonly marketed goods, such as the goods that you would find
    in a brick-and-mortar retailer or a pharmacy.
        What we see on eBay is that a lot of small businesses have
    used eBay to sell perfectly legitimate and legal gray-market
    goods that are the result of exceptions in the supply chain, as
    well as out of season, oversupplied, liquidated sorts of goods
    that are looking for a secondary market to be sold; and there
    is nothing illegitimate with that conduct.
        But unfortunately, some of the legislative proposals that
    we are hearing really assume that anybody who is selling goods
    at a substantial discount and in a large quantity on an online
    marketplace must be a thief. And the presumption is, let's put
    the blame and burden on the seller that is using the eBay
    marketplace to prove that they are innocent by providing
    records before there is actually any specific evidence
    indicating that they have done anything wrong.
        Mr. Scott. Mr. Muscato, what happens when you make a
    complaint to police if you notice some suspicious activity.
        Mr. Muscato. When we contact the police on these cases,
    they will get the information that we need, if that is what
    they are going to do. The problem is when we take cases to the
    police, we need to take the case to the police, not just
    suspicion. They have a thousand things to do--been there, done
    that--thousand things to do, and if we go and say, ``Would you
    call eBay to find out why this guy is selling these test strips
    for $50 when they are $100 in the store, you just can't do it
    unless there is something wrong with this,'' they are going to
    say, ``Frank, put it together for me and bring it to me.'' They
    are not going to just call out.
        Now, I am lucky enough that I have friends that I can call
    and ask to do that because I work with. But I won't do that; I
    wouldn't take advantage of them like that. But that is what
    makes it difficult to do that.
        And to call eBay, even under PROACT, the program they had,
    was too hard for us to do, because by giving them the
    information and giving that, we are giving the case away. We
    have no control in what they do with it. So we are not going to
    reach out and give them that information without some kind of
    guarantee on the side.
        And when they talk about working together, gosh, there is
    no two bigger competitors in the Nation than Walgreens and CVS.
    Stand at almost any Walgreens in the Nation and look across the
    street and you will see a CVS. But we work side by side. We
    purchase radios with the same channels, so when we do
    surveillance together we can talk to each other. And other
    retailers are doing that.
        And if eBay would come over here with us or open their
    doors and let us go over there with them and work together on
    these cases--I don't know, them send us stuff or we send them
    stuff--work together on these cases, wow, there would be giant
    steps ahead. We wouldn't need legislation.
        Mr. Scott. Well, Mr. Torpoco, you have indicated that you
    have been working. What have you offered to do?
        Mr. Torpoco. Well, Mr. Chairman, under the PROACT program,
    what eBay intended to do and what eBay has done in response to
    the Committee's statements last year was to create an easy
    mechanism for retail partners to send us any evidence or
    intelligence they have of wrongdoing by an eBay member. And,
    frankly, I am stunned by the notion that a company would not
    join that program because they are concerned about losing
    control. I mean, the pledge that we have made under the PROACT
    program is, if you have evidence, provide it to eBay. We will
    do the right thing. We want to suspend individuals who are
    violating our user agreement by selling stolen goods.
        And if you have trouble getting law enforcement involved on
    your end, well, eBay is going to leverage its connections to
    call up the detective and say, ``There is a case of somebody
    who is selling goods stolen goods on eBay, and we want you to
    prosecute them.'' It is absolutely in eBay's business interest
    to make sure that there are not individuals on eBay who are
    breaking the law and undermining the integrity of the eBay
    brand.
        And I am certainly surprised to hear that a retailer would
    not join in eBay's efforts to prosecute an individual out of
    concern about losing control. I think this issue is serious
    enough that we need to put aside such irrational fears and
    really work in a spirit of partnership and cooperation to make
    sure that the right thing is done.
        Mr. Scott. Now, what does eBay--I understand that, in Great
    Britain, eBay has an agreement that puts most of the burden of
    this problem on the seller so that eBay is not burdened by
    cooperating; is that right?
        Mr. Torpoco. That is not correct, Mr. Chairman. Under the
    PROACT program, what we want to do is create an invitation for
    the retailers who have well-established loss-prevention teams
    to share their evidence that somebody is misbehaving or to
    share their intelligence with us so that we can, in turn, look
    at the data that eBay and PayPal retain and see if there is
    anything there that would cause us suspicion.
        And what we have pledged to do is, once we marry that sort
    of intelligence both in the retail end and within eBay, and if
    we find something wrong, we have absolutely no hesitancy about
    taking action against a member's account and, if necessary, if
    there is evidence of criminality, referring that case out to
    law enforcement.
        So the intent behind the PROACT program is not to put a
    burden on any retailer to actually invest in the area. What we
    want to do is create an invitation for partnership. And of
    course that is going to require some investment on the retail
    end, not just eBay's end, to make sure that the right thing is
    done to further an investigation.
        Mr. Scott. Now, how is what you do in retail theft
    different from what you do in trademark and copyright
    suspicious cases?
        Mr. Torpoco. Mr. Chairman, the liability regimes are vastly
    different. And what we need to do in the copyright and
    counterfeiting context is we rely on the expertise that brand
    owners and right owners have about whether or not a product is
    genuine and invite them to submit sworn affidavits to us
    letting us know that something that they see, for example on
    the eBay marketplace, is not a genuine product. And that sort
    of regime certainly makes sense when you are talking about the
    authenticity of goods.
        But our concern in this particular context is we are not
    talking about whether or not an item is authentic on eBay. The
    issue that is presented to us in any reporting regime where a
    retailer could submit a report to eBay and demand that it be
    taken down is a question of where that item came from, I mean,
    what was the ownership history. And whereas in the motor
    vehicle context we have a very well-developed program under the
    VIN number system to be able to track the ownership of an item
    through its life, in the retail context we don't have that for
    things like razor blades or baby formula or Crest White Strips.
        The reality is there is no adequate inventory tracking of
    those sorts of items that would enable a police officer, for
    example, who finds a suspicious amount of quantity of these
    goods in the back of a van to look at item by looking at the
    box or the code on it or the SKU number and say, ``Aha, that is
    an item that came from Target and was stolen.'' That sort of
    tracking does not exist in the retail system for commonly
    shoplifted goods.
        The only effective tracking system that exists for goods is
    really in the motor vehicle context. And that is why, in the
    motor vehicle context, we require of all eBay members who are
    listing an item for sale, an automobile, to list the VIN number
    on the listing. If we had any such sort of airtight tracking
    system for commonly shoplifted goods, such a regime might make
    sense. But that sort of regime has not been developed by the
    retail industry. It certainly does not exist to the extent that
    having that sort of information would enable us to know the
    history of the item, where it was purchased, was it given as a
    gift, was there a receipt for it. I mean, that sort of tracking
    just does not exist.
        Mr. Scott. My time has expired.
        Mr. DelBianco, did you want to comment?
        Mr. DelBianco. Thank you, Mr. Chairman.
        In response to your question, Mr. Muscato said that there
    are times it is difficult to get law enforcement to pay enough
    attention to the cases. And I would point out that two of the
    three bills here actually dramatically increase the penalties
    and minimum sentencing guidelines that explicitly spell out
    what is the ORC crime. And the hope of all of us would be that
    that will increase the attention that law enforcement will pay
    to an interstate crime.
        But at the same time we have this notion of a PROACT
    program, it is a voluntary program of cooperation between the
    parties along here. And retailers would understandably say, we
    are not ready to sign up for a voluntary program if someone is
    dangling in front of us legislation that creates a club, a club
    they can use against their competing retailers and online
    marketplaces. And that club comes in the form of being able to
    demand the interrogation of customers without any law
    enforcement being involved.
        Mr. Scott. Thank you.
        Mr. Gohmert?
        Mr. Gohmert. Thank you, Mr. Chairman.
        And I do appreciate all of your testimony.
        Mr. Scott. I recognize, in fact, the gentleman from
    California, Mr. Lungren, has joined us. Thank you.
        Mr. Gohmert?
        Mr. Gohmert. Okay, thank you.
        First of all, Mr. Muscato, I see you have some Rogaine. Why
    would anybody ever want Rogaine? [Laughter.]
        But there are a number of problems, and you all do a good
    job of pointing out the various difficulties here.
        But, Mr. DelBianco, you mentioned the backseat of the car.
    I actually heard a similar reference from a pawn shop owner
    about, ``Hey, why should we be responsible for theft of things?
    We are just a legitimate business.'' So it does go deeper than
    that.
        And, again, as I mentioned previously, there are some
    parallels. There are pawn shop owners that are completely--I
    think the vast majority are legitimate businesses, and it is a
    great source for people to come in, get money, get rid of
    things they don't need and get some cash back from it. But it
    does facilitate some theft. So the issue is, how do we go about
    merging these different interests?
        Mr. LaRocca, you mentioned that putting products under lock
    and key comes at great inconvenience to customers. You are
    talking to Congress. As I have seen in my 3\1/2\ years here,
    not a lot of people care about great inconvenience. While we
    were in the majority, my friends passed a bill that makes it
    extremely difficult for me to just go get Sudafed. It is the
    only thing that clears up my head. So I couldn't convince my
    friends not to make my life more difficult and at great
    inconvenience to me. So sometimes those things are going to
    happen if it is for the greater good.
        But, Sheriff Judd, you know, Mr. DelBianco, Mr. Torpoco--is
    that how you pronounce it?
        Mr. Torpoco. That is right.
        Mr. Gohmert. Okay. They bring up a point, you know, whether
    it is blades or some of those things, how do you identify if
    those items are stolen? If you went in a pawn shop and saw a
    bunch of new things like this, is there any way you can
    identify if they are stolen?
        Sheriff Judd. He brings up a good point. It is a challenge.
    In fact, we have gone to the industry and suggested to them
    that there needs to be a way to identify those, because once it
    comes out of whatever industry--it may go to South Florida, and
    then that lot number is divided up from there.
        But in addition to that, which would be a wonderful help
    for us, we need to understand that the criminal justice system
    was not created and currently doesn't have the infrastructure
    to deal with the speed and the quantity of people we are having
    to deal with that are into crime on the Internet. We are back
    riding horses, and the Internet is jet planes. And that is the
    problem.
        So we all need to work together for this to be proactive
    systems and a proactive approach, so that we can let our
    colleagues that are doing organized retail theft investigations
    for eBay, for big industry, to come together and do some of
    this work for us. And if they will be proactive with that
    approach, then they can certainly make this a manageable
    problem.
        As I testified to a minute ago, the problem is this is
    extremely low-risk and extremely high-profit, and the system we
    have in place today doesn't allow us to change that.
        Mr. Gohmert. Yeah, that is what we are trying to figure
    out. And my friends in law enforcement that I came to know so
    well as a judge, they told me that they also started having
    lots and lots of juveniles that are actually hired to go in and
    do the theft, because they know, if they are caught, they are
    probably going to go to a juvenile procedure and it is going to
    be very easy and they are going to get a wrist slap. So these
    are very sophisticated people, and they are finding ways to
    beat the system all the time.
        One of them I was wondering about, Mr. Torpoco, is the
    value of $12,000. How difficult would it be for people to
    change their e-mail address or change the address and just keep
    skirting under the $12,000 limit?
        Mr. Torpoco. Sir, on eBay we actually retain detailed
    records of membership information. So when somebody registers
    on eBay or changes their e-mail address or changes their
    physical address----
        Mr. Gohmert. No, but I mean would register with a different
    e-mail address, the same person. I mean, are you able to track
    to the same computer or laptop and say, uh oh, this is the same
    guy that used these four other e-mail addresses?
        Mr. Torpoco. Yes, we are, absolutely. And we have a
    powerful incentive to do so, because we want to make sure that
    individuals who are selling on the eBay marketplace are not bad
    actors. And if we suspend them, we want to make sure that they
    don't come back to eBay.
        So, in addition to tracking the sort of information that
    you noted, we actually have internal risk models that predict
    or note when an individual is trying to change their
    registration information or other individual account
    information in a way that would cause us suspicion. That would
    include, for example, having their account suspended and coming
    back trying to register with a different telephone number or
    with maybe the same IP address, which is a good telltale sign
    that the individual we kicked off previously is trying to come
    back.
        So those sorts of internal safeguards to make sure that bad
    actors are not trying to game the system by changing their
    contact information is something we have invested heavily in as
    a company, because we want to make sure that we know the----
        Mr. Gohmert. When you see those indicators, who do you
    tell?
        Mr. Torpoco. In addition to taking action on those
    accounts, for example, if somebody tries----
        Mr. Gohmert. I understand you would take action, but do you
    know anyone else that----
        Mr. Torpoco. Certainly. If it is a criminal actor, we would
    notify law enforcement. But obviously----
        Mr. Gohmert. And who with the law enforcement would you
    notify, local or fed or who?
        Mr. Torpoco. All of them. As a company, we like to say we
    have a Rolodex full of tens of thousands of law enforcement
    officials that not only have we trained across the country in
    how to do eBay investigations but with whom we have worked
    actual cases.
        So I oftentimes hear from the retail industry that they, in
    an individual case, might have a hard time getting law
    enforcement interested to take the case. We, as a company, have
    a really good track record of picking up the phone and calling
    the detective or somebody with the FBI with whom we have worked
    a prior case and saying, ``Hey, we have a good case for you.''
    And, by and large, if it is a sizable case, law enforcement has
    been really receptive to our call.
        Mr. Gohmert. So you don't notify them unless you have a
    good case?
        Mr. Torpoco. As a former prosecutor, I recognize that there
    are certain thresholds that have to be met before, for example,
    a Federal agency is going to institute criminal proceedings
    against somebody.
        So what we try to do is try to tailor the loss or the fraud
    in a particular case to the appropriate jurisdiction. If it is
    a small petty loss, we might refer it to a local DA's office or
    a local police department. If it is a massive fraud that we are
    investigating, we would probably go with a Federal agency. But
    what we want to do is thoroughly investigate the case and then
    decide how big is it and who is the appropriate law enforcement
    agency to refer it to.
        And we have a great track within the Internet industry of
    being one of the most proactive companies in actually making
    those sorts of referrals to law enforcement. Because we, as a
    company, decided early on that if the eBay marketplace is going
    to be a safe place for consumers to shop with confidence, we
    need to make law enforcement our allies in going after the
    criminals.
        And that is why, I think, when you compare us with the
    other companies that have invested in this area, you will see
    that eBay really has an unmatched track record in working in a
    spirit of cooperation and partnership with law enforcement.
    Which is why it is so surprising to us that the regulation that
    has been proposed targets the player in the industry that is
    actually doing the most to work with law enforcement in a
    proactive and cooperative posture.
        Mr. Gohmert. Well, I guess that was my point. Sometimes it
    helps to get outside looks. You are talking about basically
    getting a case put together yourselves, and sometimes maybe you
    miss an indicator. I mean, as a judge, I have had psychiatrists
    say, if you hear somebody say the words, as you did earlier,
    ``to be honest,'' then it may mean that you were not honest up
    to that point, and so you need to watch that witness. And I am
    sure that is not the case in your situation.
        Mr. Torpoco. Maybe I should have said ``to be direct.''
        Mr. Gohmert. All right. Anyway, well, thank you for your
    testimony.
        Mr. Torpoco. Thank you.
        Mr. Scott. The gentleman from California?
        Mr. Lungren. We have to watch our language around Judge
    Gohmert here.
        This is one of those interesting things where we all know
    there is a problem; the question is, how do you solve it?
        I remember when I was Attorney General of California, even
    though eBay existed, we didn't have this as the means by which
    these goods would be fenced. We had problems basically with
    swap meets, which we still have. And we used to have task
    forces that worked with local law enforcement to attempt to try
    and identify counterfeit and stolen property. But it was very
    difficult and very time-consuming, and it was really sort of a
    rifle-shot approach. You would try and have enough presence
    there that you would have the bad guys worried about what you
    were doing, but you knew you really couldn't cover the
    waterfront here.
        Mr. Torpoco--Torpoco?
        Mr. Torpoco. That is close enough.
        Mr. Lungren. What is it?
        Mr. Torpoco. ``Torpoco.''
        Mr. LaRocca. To be honest.
        Mr. Lungren. Honestly speaking.
        Mr. Torpoco, you have talked about everything that eBay
    does, and it is very impressive. Can you tell me how many cases
    you have referred to law enforcement for prosecution over the
    last year or so?
        Mr. Torpoco. By my understanding, in 2007, for example, we
    assisted law enforcement in roughly 7,800 cases, criminal
    cases. And I don't know----
        Mr. Lungren. In the United States?
        Mr. Torpoco. That is in North America, so that would
    include the United States and Canada.
        Now, I don't know the specific breakdown of how many cases
    involved reactive responses to requests for information versus
    proactive responses. But I do know that we have assisted in
    approximately 7,800 stolen property cases specifically.
        And we believe that that sort of figure demonstrates the
    extent of not only the transparency on eBay, which enables
    these individuals who misbehave on the eBay Web site to get
    caught and prosecuted, but the level of our commitment to make
    sure that individuals who abuse our marketplace are prosecuted
    to the fullest extent of the law.
        Mr. Lungren. Mr. LaRocca, that sounds like a pretty
    impressive record from eBay. Why is that insufficient?
        Mr. LaRocca. Well, Mr. Lungren, as a resident of
    California, thank you for representing our great State.
        And let me say that we are not impressed by that number.
    Retailers have consistently tried to work with the online
    marketplaces like eBay on theft cases taking place across the
    country and in the State of California. And, unfortunately,
    these terms, PROACT and proactive, when you really cut through
    all of the fluff, what we are looking at are programs that, if
    the retailer conducts the investigation and if the retailer
    contacts eBay and if eBay in their opinion believes that a
    theft or a crime has taken place, they will contact law
    enforcement on your behalf.
        Retailers, if they can go that far in the investigative
    process, are perfectly capable of making that call directly.
    And that is why a majority of retailers have said PROACT for
    eBay is a good first step, but it doesn't go nearly far enough
    to prevent or put an affirmative responsibility on eBay to do
    the work.
        And in listening to Mr. Torpoco's answer, he said that they
    have assisted law enforcement in 7,800 cases. Well, ``assisted
    law enforcement'' doesn't recognize the work that went into the
    sting operations, the surveillance by detectives, and all of
    the calls that were originated by retailers and law enforcement
    to eBay for the purpose of assisting in those investigations.
        So the number really does need to be parsed out in what is
    truly assisting versus eBay, with all of these tools that they
    have available in tracking identification and tracing e-mail
    addresses and monitoring sellers through eBay and PayPal,
    taking that information and then using that information to
    conduct the investigation and coming back to retailers with a
    notification that a crime has been committed, to file a police
    report, et cetera.
        Mr. Lungren. Well, let me ask it this way then: We have
    noted in this Subcommittee and full Committee that the Federal
    Justice Department has a lot on its plate. After 9/11, we saw
    the FBI turning to counterterrorism as its major objective. And
    there are a number of other things that have been within their
    bailiwick that they are still responsible for, but, admittedly,
    they don't have as much time and attention there. The same
    thing with U.S. attorneys and so forth.
        So we can pass Federal legislation which would make the
    assumption that the obligations we place on eBay and the
    Federal penalties and the Federal laws would be enhanced over
    what the situation is today, but I am not certain that, in
    fact, you would have the attention of the Justice Department in
    many of these matters of U.S. attorneys. So I am trying to
    figure out how to get better cooperation among all of you here.
        So here is my question. You say eBay should be doing more.
    And eBay turns around and says, look, the retailers don't have
    a tracking system for some of the goods that they are
    complaining that you can find available on eBay. So it is
    almost as if I am hearing both sides. And you are all trying to
    make jobs for people and make some money and enhance commerce
    in the United States, and you are the victims of the bad guys
    here.
        So the question is, how do you say that eBay ought to do
    more when eBay turns around and says you guys ought to do more?
    And I assume your answer to me would be, well, it costs too
    much for us to have a tracking system for all of our blades and
    baby formula and other things. And eBay says, well, wait a
    second, it costs us too much to do these additional things you
    are asking for, which suggests to me that what I am hearing is
    it is an acceptable level of loss that we take because it would
    be too expensive for us to go further.
        And if that is the case, we are not going to have
    additional information, additional evidence being brought
    forward to law enforcement to prosecute the cases that would be
    allowed under the laws you wish us to pass.
        So I wish both of the two of you at the end would comment
    on the fact that you both seem to be saying, ``Yes, we are
    doing something, but for us to do more would be too costly for
    our enterprise.'' And I am hearing it from both sides. How do
    you respond to that?
        Mr. Torpoco. If I may, Mr. Chairman, eBay absolutely agrees
    that that one prong to the solution in this situation has to be
    to get law enforcement involved, to get them adequate funding,
    to get them enhanced prosecutorial powers, to elevate the
    priority of these prosecutions, and, frankly, to increase the
    cost for the criminal, from a deterrent perspective, by raising
    the sentencing exposure that these criminals face for abusing
    online marketplaces and selling stolen goods.
        But that is not enough. And that is why eBay, in response
    to this Committee's hearing back in October of 2007, stepped up
    and created a specific program specifically designed to get
    retailers involved in sharing evidence of theft with eBay's
    investigators on a team-level basis, so that not only could we
    refer cases to law enforcement, so that as an internal matter
    eBay could shut off accounts when there was evidence of their
    misbehavior, irrespective of whatever happens in terms of
    referrals to law enforcement.
        And on that point, I have to correct the record on one
    important point, and that is something that Mr. LaRocca has
    represented to the Committee in his written activity and
    verbally before you today. And he has suggested that the
    overwhelming majority of retailers that we have approached to
    join in this PROACT program have rejected eBay's invitation,
    and that is flatly false--flatly false. I know that it is
    false, because I am the individual within eBay who has, kind
    of, overseen our enrollment efforts, trying to reach out to
    retailers to work with us in a cooperative spirit.
        And we have approached roughly, I would say, 30 retailers
    in the pilot phase of this program to enlist with us in a
    cooperative basis. And of those 30, roughly six retailers have
    rejected that invitation, choosing to pursue politics or
    whatever else rather than work with us on a case-by-case basis.
    To this day----
        Mr. Lungren. Does that mean 24 cooperated, or you just
    haven't heard from the rest of them?
        Mr. Torpoco. No. As a matter of fact, our goal was to
    enroll during the pilot phase of this program only six to 12
    retailers until we could assess the cost and effectiveness of
    the program. But to date, we have roughly 21 or 22 retailers
    that have said yes to us, that they want to work cases with us.
        And, unfortunately, what we have seen in this debate is
    that, say, the six hardest critics have hijacked the debate and
    accused eBay of being unwilling to work with the retail
    community, when the reality is that most retailers recognize
    that it is an insufficient approach to combating organized
    retail theft to just scapegoat the marketplace and refuse to
    work us with on a cooperative basis.
        So, actually, I want to make clear to this Committee that
    many retailers, in fact, have been willing to put aside
    politics and work with us since this Committee last heard
    testimony on this subject back in 2007.
        Mr. Lungren. Mr. Chairman, with your indulgence, could I
    hear from Mr. LaRocca?
        Mr. LaRocca. Thank you for the question, Mr. Lungren.
        To answer your question, about Federal legislation
    wholistically, the first goal, obviously, for us, is to prevent
    these losses from occurring in the first place. Retailers spent
    $11 billion last year in loss prevention. So, ideally, we would
    like to prevent these losses from occurring. And if we send a
    strong message to criminals and tell them this is a Federal
    offense, there are stiffer penalties, we believe that will
    happen.
        The second part is that, by defining organized retail crime
    specifically, we believe that we can get Federal investigators
    and assistant U.S. Attorneys more interested in this topic. It
    is not just a property crime, but it is a serious Federal
    offense called out to them to investigate.
        And you made a point about terrorism and linking that in,
    and let me just say that in several of the very large cases
    around the country now there have been illegal immigrants
    involved in those cases. In one case several years ago, there
    were funds that were shipped overseas to groups like Hamas and
    involved some very bad people that put out hits on Federal
    agents involved in that investigation. So this is absolutely,
    in some ways, linked to terrorism. And a very big concern for
    retailers, but we should be concerned as U.S. citizens.
        And let me just--I just should ask this question, because I
    did make the comment about PROACT. With the retailers that have
    responded, what have the results been? Because we--and we have
    asked this question of our coalition members--have heard
    nothing about the results of PROACT, and it has been in
    operation now for several months.
        Thank you.
        Mr. Scott. Let me ask one additional question to Mr.
    Torpoco.
        One of the things that the retailers are looking for is
    information on the seller. Does the seller on eBay have an
    expectation of privacy for their name and address?
        Mr. Torpoco. Yes, absolutely. Most Americans are perfectly
    law-abiding. We have millions that are using eBay, and most of
    them absolutely have a privacy interest in making sure that
    their personal member data that they provided to eBay isn't
    provided to our competitors, the retailers.
        We obviously don't have any problem disclosing information
    to law enforcement, to the government, in connection with a
    criminal investigation, which is why eBay took, really, the
    unique step of creating a privacy policy that is posted on the
    eBay Web site which says that eBay will provide certain member
    data to law enforcement and government entities in connection
    with a criminal investigation, not with the need for a
    subpoena, not with the need for a court order, but based on a
    simple letterhead request stating that the agency is
    investigating criminal conduct.
        Very few companies can say that, but we took that
    extraordinary step because our members expect the eBay
    marketplace to be a safe place, and they understand that we
    need to do something like that to make sure that we are not
    standing in the way of law enforcement investing a case but we
    are actually viewing them as an ally.
        But that is a very different situation than creating a
    regime where a competitor, like another retailer, can submit
    some sort of report to eBay and all of a sudden demand, under
    the threat of liability, that eBay hand over that member data
    to the competitor.
        And I think most Americans when confronted with that
    situation would say, hold on, we are not talking about giving
    my personal data, on the basis of this suspicion, to the
    government in connection with a criminal case; you are talking
    about handing over my personal member information to a
    competitor that could potentially use that information to
    harass and try to curtail the business of a small retailer that
    is using the eBay marketplace to compete with the big-time
    retailers.
        Mr. Scott. You don't make that information available in the
    United Kingdom?
        Mr. Torpoco. I don't counsel the United Kingdom, so I don't
    know their specific policies.
        But one thing I would also note is that any party on eBay,
    using the contact eBay member functionality, anybody who is a
    party to a transaction on eBay like somebody who is a bidder or
    who has bought an item--and that would include a retailer who
    creates an undercover account--can actually swap member contact
    information using the eBay service. It is an automatic swap if
    you are a party to a transaction.
        So oftentimes, you know, eBay is asked to go talk to retail
    loss-prevention teams or criminal investigators in law
    enforcement about using the eBay tools that exist on the eBay
    Web site to facilitate a criminal investigation. And we talk
    about this functionality that exists that is available to
    anybody----
        Mr. Scott. Are you saying that if Walgreens wanted the
    information, all they would have to do would be to buy one of
    those razer blades----
        Mr. Torpoco. To do a controlled purchase, for example, or--
    --
        Mr. Scott.--and they could get that information?
        Mr. Torpoco. Yes, they could use that functionality. If
    they created an undercover account and they bid on an item or
    purchased an item, using that functionality they could swap
    member information with that other member. And it is an
    automatic swap.
        Mr. Scott. Thank you.
        Mr. LaRocca, do you have a final comment?
        Mr. LaRocca. Thank you, Mr. Chairman. Two very quick
    comments.
        One, eBay does currently release that information to the
    private sector upon request under a program for intellectual
    property rights violation called VeRO, the Verified Rights
    Owner program. So there is also a precedent established by
    their organization to do exactly what we are asking for. Today
    it just applies to the intellectual-property-rights side versus
    stolen or fraudulently obtained merchandise.
        And one other quick comment. You asked about the United
    Kingdom, posting the seller information when a company lists
    themselves as a business, and this information is required if
    they are a business seller and it is posted up on their site
    for consumers to authenticate or to verify who they are and
    conduct business with them.
        Thank you.
        Mr. Scott. Thank you.
        My time has expired. There are a couple who want to make
    their final comments, but I will recognize the gentleman from
    Texas.
        Mr. Gohmert. Just a follow-up. In response to Mr. LaRocca's
    question, do we have results on PROACT?
        Mr. Torpoco. We don't have any systematic results that I
    could report to the Committee.
        Mr. Gohmert. How about any nonsystematic results?
        Mr. Torpoco. Honestly, the program was launched in April,
    and I would say that it has been within the past 8 weeks or so
    that we have actually reached a critical mass of participation
    to actually make the tracking of reports possible.
        What our intent has been all along, after the 6-month trial
    period, which would be roughly in October, to actually look
    back at the program, see where it is working, where it is not
    working, what kind of reports we are getting, how many accounts
    we suspended, how many referrals we made to law enforcement.
    But that sort of examination hasn't taken place because----
        Mr. Gohmert. Could you provide those results to our
    Committee when you get them?
        Mr. Torpoco. Yes.
        Mr. Gohmert. Thank you.
        Mr. Scott. Mr. Muscato?
        Mr. Muscato. Thank you, Mr. Chairman. I just wanted to make
    a comment. And I have heard Mr. Torpoco say this several times,
    about the competition, that we think they are competing with
    us. We are a neighborhood drug store. We don't compete with
    eBay. If someone has eaten a big ol' bowl of chili, they are
    not going to get on eBay to order some Pepcid AC. They are
    going to go to our store and get it. We don't compete with
    them.
        The only thing we are trying to do is to keep our property
    from leaving our stores illegally and being sold on those e-
    commerce. That is all we are trying to do. That is why we want
    to work as partners with them, but not by sending them
    information to see what they do with it. Let's work together.
        Mr. Torpoco. Mr. Chairman, may I comment on that?
        Mr. Scott. Wait a minute.
        Mr. DelBianco?
        Mr. DelBianco. Thank you, Mr. Chairman.
        I just wanted to mention that, in your opening statement,
    you talked about the anonymity issue, and then Ranking Member
    Gohmert talked about the comparison with pawn shops. And I
    think it is relevant to, sort of, bridge that right now.
        And one has to remember that Amazon, eBay, Overstock, they
    all know exactly who the sellers are behind those user names
    that show up on the Internet. It is only anonymous to the folks
    who might want to invade the privacy of that seller.
        However, the men at law enforcement, so much as phone call,
    fax, or e-mail, asks them eBay, Amazon, Overstock always reveal
    that information to law enforcement. They have all that
    information in there.
        And I would contrast that with a pawn shop, where somebody
    walks in the door and walks out with a fist full of cash. Their
    identity then has to be captured, whether it is a fingerprint
    or a photocopy of a license. It is a fundamentally different
    transaction than the marketplaces which actually know the
    identity and the location of the individuals that list long
    after the sale was closed.
        And on the table in front of you, drawing a parallel to
    pawn shops, none of these items that you see on this table are
    going to wind up in a pawn shop. Pawn shops are used items that
    are hocked or sold. These are new items, and they are precisely
    the kind of new items that legitimate small businesses can get
    hold of at discount prices through freight liquidators, through
    businesses that are going out of business, through overstock,
    hence the name Overstock.com. These are legitimate owners who
    seek to sell it at big discounts.
        And I know, as Mr. Muscato says, that when I have an
    emergency, I am unlikely to buy it. But if I have to take this
    stuff every day for the rest of my life, you bet I will go
    online to try to buy these items at the lowest price I can get
    from a legitimate source.
        Thank you.
        Mr. Scott. Thank you.
        And final comment, Mr. Torpoco?
        Mr. Torpoco. Yes, Mr. Chairman. I have to reiterate what
    Mr. DelBianco said. I mean, eBay as a marketplace is just so
    vast that we have moved on from the days of being the site
    where people could find and collect Beanie Babies, for example,
    to a site where you can find just about anything. And our
    policies allow just about anything to be sold, provided that it
    is legal.
        So I would hazard a guess to say that, of the sorts of
    items that you see displayed on this table, you could probably
    find all or most of them on this site, provided it is not,
    like, a prescription item that we don't allow.
        So it is not the case to say that a company like Walgreens
    doesn't compete with the small retailers that are on eBay. You
    bet Walgreens does compete with them, because those small
    retailers, as Mr. DelBianco indicated, have obtained a lot of
    this perfectly legitimate product and are selling it at deeply
    discounted prices.
        The other thing I would just briefly note is, since we do
    have a sheriff here who did a massive takedown of a big case,
    is to kind of put some perspective on what we are talking about
    when we talk about organized retail theft and the significant--
    or the share of the loss that is actually attributable to eBay,
    for example, as a fencing site as opposed to other channels.
        Now, one thing that I did prior to coming to this Committee
    hearing was actually having one of our senior fraud
    investigators pull up the account record of the account that
    was used in that big Florida case to actually fence stolen
    goods. And I wasn't surprised to see that, of the one account
    that was used in that case, it had approximately $100,000 in
    sales, $180,000. And we are talking about a takedown that
    involved, according to the press that I have seen in the case,
    between $60 million and $100 million of losses to the retail
    industry.
        So it is simply not fair to somehow equate eBay with the
    Internet and suggest that somehow taking punitive or regulatory
    actions against eBay is really going to get at the meat of
    curtailing the problem of organized retail theft, when, in this
    particular case, for example, the eBay account at issue
    constituted maybe one-third of 1 percent of the goods that were
    actually fenced in that case.
        So we obviously want to see comprehensive approaches to
    this problem, not approaches that just scapegoat online
    marketplaces.
        Mr. Scott. Well, we are going to try to get something done,
    because obviously, with the amounts of money that are being
    stolen, something has to be done.
        But I would like to thank our witnesses for being with us
    today. I would like to thank Mr. Putnam and Mr. Ellsworth for
    their participation.
        Members may have additional written questions for our
    witnesses that we will forward to you and ask you to respond as
    quickly as you can so it can be made part of the record.
        Without objection, the statement from the senior Senator
    from Illinois, Senator Durbin, will be made part of the record.
        And, without objection, the hearing record will remain open
    for 1 week for the submission of additional materials.
        And, without objection, the Subcommittee stands adjourned.
        [Whereupon, at 5:40 p.m., the Subcommittee was adjourned.]
                                A P P E N D I X

                                  ----------

                   Material Submitted for the Hearing Record

    Prepared Statement of the Honorable John Conyers, Jr., a Representative
    in Congress from the State of Michigan, and Chairman, Committee on the
                                   Judiciary
        We all agree that our Nation's economy thrives on strong markets
    that in a perfect world would operate with no need for oversight and
    regulation. But, as was made painfully obvious to all of us over the
    past week through our continuing financial crisis, our economy does not
    operate in a perfect world and in the absence of appropriate oversight,
    greed leads to dishonesty and even further to criminal activity.
    Unregulated financial industries have brought us to the brink of
    disaster and like banking and the financial markets, retailers whether
    they be traditional brick and mortar stores or operating online must
    have appropriate regulation.
        The goal of the legislation before the subcommittee today, namely
    to curb organized retail theft, is very important for three overall
    reasons. First, organized retail theft costs retailers over $30 billion
    dollars each year according to the FBI and this financial pinch is not
    simply shouldered by the retailer. The costs to the retailer are
    sometimes passed along to the honest consumer in higher prices that the
    retailer must set to cover losses due to theft and in some instances
    the retailer must lay off employees to cover costs.
        Second, the $30 billion in losses each year translate in to $1.6
    billion in lost tax revenue to state and local governments making it
    increasingly difficult to provide necessary services. Salaries for
    police officers, firefighters, teachers, sanitation workers, and many
    others become stagnant as governments cannot raise their salaries even
    to meet inflation. These workers are already underpaid and overworked
    and their departments' budgets are stretched beyond their limits
    hindering their ability to protect us, teach our children and to
    provide basic quality of life services.
        Third, consumer safety is compromised when thieves steal and to not
    properly store products that are date sensitive or sensitive to
    elements such as temperature and light and then sell those items to
    unsuspecting consumers. Over the counter drugs are a favorite target of
    organized retail thieves because they are easy to steal and easy to
    sell. We have reports of thieves changing expiration dates on these
    products and storing them in facilities that are not temperature
    controlled. They sell these dangerous products with no notice to the
    consumer and for over the counter medications, this is dangerous enough
    but we even have evidence of thieves stealing baby formula and selling
    it beyond its expiration date and not storing it appropriately. This is
    particularly unconscionable.
        Underlying all of these problems is that the poor and minorities
    are most affected by the higher prices and lay offs more than any other
    segment of society. Most of the retail stores that thieves target are
    in less economically developed areas. Consequently, the higher prices
    that the retailer must charge are passed on directly to that community
    and any layoffs fuel the chronic unemployment in these areas. And the
    reduced city services from the reduced revenue of course also hit the
    poor areas the hardest. Moreover, the organized retail thief's target
    market is the consumer having difficulty meeting retail prices making
    the likely purchaser of the outdated medicine or tainted baby formula
    someone who is poor, trying to find a way to make ends meet and is
    trying thinks that he or she has simply found a bargain. How tragic
    would it be for that purchase to be poisonous?
        Whether we adopt one or a hybrid of all of these proposals, we must
    fully address and do our best to curb organized retail theft. Our
    economy depends on it, our well-functioning governments depend on it,
    and the safety of our citizens depend on it. I thank the Chairman and I
    yield back

    Prepared Statement of the Honorable Louie Gohmert, a Representative in
     Congress from the State of Texas, and Ranking Member, Subcommittee on
                    Crime, Terrorism, and Homeland Security
        Thank you, Mr. Chairman.
        I would like to thank you for holding this hearing on the very
    important issue of organized retail theft. As you know, this is the
    second hearing the Crime Subcommittee has had on this topic during this
    Congress.
        The problem of organized retail theft is growing and involves the
    theft of large quantities of retail merchandise. Organized retail theft
    is not a high-profile crime but it is a costly one. Unlike shoplifters
    or small-time thieves, who steal for their own personal use, organized
    retail thieves steal merchandise in order to sell it back into the
    marketplace.
        These criminals typically target merchandise that can be easily
    concealed and easily resold. The stolen items range from low-cost
    products such as razor blades, baby formula or batteries to expensive
    products such as electronics or appliances.
        Organized retail thieves, commonly referred to as ``boosters,''
    will sell the stolen merchandise at flea markets, pawn shops, swap
    meets and increasingly on Internet websites.
        According to the FBI, organized retail theft accounts for between
    $30 and $37 billion in losses annually. The Coalition Against Organized
    Retail Crime estimates that states with sales tax annually suffer over
    $1.5 billion in lost tax revenue due to organized retail theft.
        In 2005, Congress directed the Attorney General and FBI, in
    consultation with the retail community, to establish a task force to
    combat organized retail theft and create a national database or
    clearinghouse to track and identify organized retail thefts across the
    country.
        The result of this legislation is the Law Enforcement Retail
    Partnership Network (LERPnet), which was launched in 2006. This
    national database allows retailers to share information about suspected
    theft with each other and law enforcement officials.
        In addition, the FBI has created Major Theft Task Forces to
    identify and target multi-jurisdictional organized retail theft rings.
    There are currently 9 FBI-led Major Theft Task Forces, staffed by FBI
    agents and state and local law enforcement officers, located in FBI
    field offices across the country.
        Although federal agencies work to investigate the criminals that
    engage in this conduct, retail organizations argue that there is too
    little prosecution of this crime. They argue that state felony
    thresholds--that stolen goods must amount to $500, or in some states
    $1000 for the offense to be a felony--are too high to provide for
    prosecution of organized retail theft. The federal threshold for
    prosecution for the crime of transportation of stolen goods in
    interstate commerce is also high as the amount of stolen goods must be
    in excess of $5000 to trigger federal criminal liability.
        Several bills have been introduced this Congress to prohibit
    organized retail theft and, in particular, ``e-fencing''--the sale of
    stolen goods on online auction sites. Auction sites such as eBay and
    other online marketplaces such as Amazon.com have expressed concerns
    about these bills.
        I've met with representatives from both industries and I would hope
    that these groups could come together to find a solution without
    Congressional action.
        Several merchants have used the comparison of pawnshops when
    discussing ``e-fencing'' with me. Pawnshops generally are required to
    keep records of the merchandise available for sale. It seems reasonable
    to ask online marketplaces to do the same. However, pawnshop records
    are kept for law enforcement officials, not private third parties. With
    that in mind, I would like to hear from our witnesses their thoughts on
    imposing a limited duty to maintain records of merchandise on the
    websites.
        Further, one bill before this subcommittee would create a new
    federal crime of facilitation of organized retail theft. This provision
    exposes online marketplaces to incarceration based on a lower mental
    state than is traditionally required for criminal penalties. Although I
    appreciate a desire to craft legislation that addresses innovative
    criminal conduct, I am wary of any legislation that deviates from using
    the ``knowing'' or ``intentional'' mental states that are commonly used
    in criminal offenses. That is important because criminal offenses are
    intended to impose penalties against those who consciously act to
    commit a crime or consciously act in furtherance of a crime.
        I look forward to hearing the testimony of our witnesses on the
    legislation before the subcommittee. I yield back the balance of my
    time.

           Prepared Statement of the Honorable Sheila Jackson Lee, a
        Representative in Congress from the State of Texas, and Member,
            Subcommittee on Crime, Terrorism, and Homeland Security
        Thank you, Mr. Chairman, for convening today's very important
    hearing addressing organized retail crime. Organized Retail Crime (ORC)
    has gown in dimension and scope in recent years. It is contended that
    the amount of ORC exceeds $38 billion per year. At today's hearing, we
    will explore the problem and consider three bills that present markedly
    different legislative approaches aimed at addressing the problem. I
    look forward to hearing from and questioning Representative Brad
    Ellsworth, the sponsor of HR 6491; Mr. Frank Muscato, an investigator
    at Walgreens; Sheriff Judd; Mr. Steve DelBianco, Executive Director,
    Net Choice; Mr. Edward Torpoco, Senior Regulatory Counsel of eBay; and
    Mr. Joseph LaRocca, Vice President, Loss Prevention of the National
    Retail Federation. I welcome these distinguished witnesses.
        Organized retail crime is not new. Stolen goods have been sold at
    swap meets, flea markets, pawn shops, and a myriad of other venues for
    many years. Recently, organized retail crime has found a home on the
    internet, and on-line marketplaces have provided a haven for
    individuals to trade and sell in stolen goods. This practicing of
    selling and trading in stolen goods is known as ``E-fencing.'' By some
    estimates, the loses suffered by these retail industries and
    governments is in the billions of dollars. The products stolen and sold
    on the internet range from items stolen from stores and includes such
    products as sensitive U.S. military items, baby-formula, and over-the-
    counter medicines, etc.
        The problem of stolen goods has historically been addressed at both
    the State and Federal level. Existing Federal laws that criminalize the
    transportation, sale and receipt of stolen goods transported in
    interstate or foreign commerce have been used to convict organized
    retail criminals, including those that have turned to the internet.
    Because of increasing demands on the existing limited resources, very
    few organized retail crime cases have been brought by the FBI, DOJ,
    etc.
        eBay contends that the laws that we are discussing today will
    disproportionately affect it and its business. eBay claims that it
    already has internal controls and regulations that address this issue.
    We will explore these issues further in this hearing and consider three
    bills aimed at addressing this practice: HR 6713, the ``E-fencing
    Enforcement Act of 2008'', HR 6491, the ``Organized Retail Crime Act of
    2008'', and S. 3434, the ``Combating Organized Retail Crime Act of
    2008''. Each is discussed briefly below.
            a. h.r. 6713, the ``e-fencing enforcement act of 2008''
        H.R. 6713 recognizes that knowing participation in passing stolen
    property by online marketplace providers is already a crime under 18
    U.S.C. ? 2314. H.R. 6713, however, imposes new duties on online
    marketplace providers with respect to high volume sellers, defined as
    those who sell or offer goods or items of a value of $5,000 or more in
    a single offering, or a value of $12,000 or more in one or more
    offerings in the last year. Those duties include a duty to retain
    contact information about high volume sellers and to disclose that
    information to certain persons with standing when a report has been
    made by or to law enforcement regarding theft by that seller. It also
    imposes a duty to initiate an internal investigation, based on
    available or easily obtained information, and to take-down a site when
    there is good reason to believe the goods or items offered for sale
    were unlawfully acquired. The Department of Justice should normally
    consider compliance with these duties as a negation of culpability
    under section 2314. The bill also creates a civil cause of action for
    persons aggrieved by a provider's failure to comply with these duties.
            b. h.r. 6491, the ``organized retail crime act of 2008''
        H.R. 6491 amends existing federal code by expressly including
    organized retail crime and the facilitation of organized retail crime
    in existing criminal felony statutes. H.R. 6491 also makes it unlawful
    for online marketplace operators to facilitate organized retail crime
    by failing to conduct internal investigations and ``take-down''
    suspected sites; by failing to maintain certain records; by failing to
    require high volume sellers to publicly disclose certain identifying
    information on the Internet; and by failing to provide certain contact
    information to businesses who have a reasonable suspicion that online
    products offered for sale were obtained by ORC.
        The bill provides for civil forfeiture of property used or intended
    to be used to commit or facilitate ORC or constituting proceeds of ORC.
    It also provides a civil cause of action for injunctive relief or
    damages against online marketplace operators. Finally, H.R. 5391
    directs the United States Sentencing Commission to review and, if
    appropriate, amend the sentencing
        c. s. 3434, the ``combating organized retail crime act of 2008''
        S. 3434 expands the reach of existing Federal crimes on stolen
    goods by decreasing the value of goods that would trigger federal
    jurisdiction from $5,000 to an aggregate value of $5,000 within any 12
    month period. It directs the United States Sentencing Commission to
    review and, if appropriate, amend the Federal sentencing guidelines as
    they apply to ORC. It defines ``high volume seller'' as any user of an
    online retail marketplace who, in any continuous 12-month period during
    the previous 24 months, has entered into multiple discrete sales with
    an aggregate total of $20,000 or more in gross revenues, or 200
    discrete sales resulting in an aggregate total of $10,000 or more in
    gross revenues.
        S. 3434 imposes duties on both online retail marketplace operators
    and operators of physical marketplaces. Upon presentation of
    documentary evidence that a transient vendor at a physical marketplace
    or a user on an online marketplace has used the marketplace to sell
    stolen items, the operators must file a suspicious activity report to
    the Attorney General. Upon clear and convincing evidence that a vendor
    or user has used or is using the marketplace to sell stolen goods, the
    operator must terminate the vendor or user's sales activities. In the
    alternative, the operator may ask the vendor or user for evidence
    showing that it is not engaging in illegal activity. Upon a clear and
    convincing showing that the vendor or user is not engaging in illegal
    conduct, the operator need not shut down the vendor or user. The
    operator shall notify the Attorney General of its decision to shut-down
    or allow the vendor or user to continue to sell.
        Online marketplace operators must maintain, for three years,
    contact information for all high volume sellers. They must require such
    seller to display its contact information along with product
    information. If the seller fails to do so, the operator must contact
    the Attorney General, and file a suspicious activity report to the
    Attorney General.
        Any operator who knowingly fails to comply with these duties is
    liable for a civil penalty of up to $10,000 for each violation. Any
    person who knowingly makes a material false statement with the intent
    to influence an operator to file a suspicious activity report is
    subject to a civil penalty of not more than $10,000 per violation. The
    bill grants a State Attorney General the authority to bring a civil
    action on behalf of citizens of its State for injunctive relief,
    damages, or civil penalties.
        Thank you, Mr. Chairman. I welcome today's witnesses. I yield back
    the balance of my time.

     Prepared Statement of the Honorable Richard J. Durbin, a U.S. Senator
                           from the State of Illinois
        Chairman Scott and Ranking Member Gohmert, thank you for holding
    this hearing and thank you for the opportunity to address the issue of
    organized retail crime and to discuss the Combating Organized Retail
    Crime Act of 2008, which I introduced in the Senate on August 1, 2008.
        Organized retail crime is a persistent and growing problem that
    costs retailers billions of dollars and poses serious health and safety
    risks for consumers. It involves the coordinated theft of large numbers
    of items from retail stores with the intent to resell those items.
    Typically, crime organizations hire teams of professional shoplifters
    to steal over-the-counter drugs, health and beauty aids, designer
    clothing, razor blades, baby formula, electronic devices and other
    items from retail stores. Using sophisticated means for evading anti-
    theft measures, and often the assistance of employees at stores, the
    thieves target 10-15 stores per day. They steal thousands of dollars
    worth of items from each store and deliver the items to a processing
    and storage location. There, teams of workers sort the items, remove
    anti-theft tracking devices, and remove labels that identify the items
    with a particular store. In some instances, they change the expiration
    date, replace the label with that of a more expensive product, or
    dilute the product and repackage the modified contents in seemingly-
    authentic packaging. The items are then stored in a warehouse, often
    under poor conditions that result in the deterioration of the contents.
        Organized retail crime rings typically sell their stolen
    merchandise in different markets, including flea markets, swap-meets,
    and online auction sites. Online sales are of particular concern, since
    the internet reaches a worldwide market and allows sellers to operate
    anonymously and maximize return. A growing number of multi-million
    dollar organized retail crime cases involve internet sales. For
    example, in Florida recently, law enforcement agents arrested 20 people
    in a $100 million case involving the sale of stolen health and beauty
    aids on an online auction site and at flea markets.
        Organized retail crime has a variety of harmful effects. Retailers
    and the FBI estimate that it costs retailers billions of dollars in
    revenues and costs states hundreds of millions of dollars in sales tax
    revenues. With respect to certain products, such as baby formula and
    diabetic test strips, improper storage and handling by thieves creates
    a serious public safety risk when the products are resold. And, the
    proceeds of organized retail crime are often used to finance other
    forms of criminal behavior, including gang activity and drug
    trafficking.
        The Combating Organized Retail Crime Act would address this problem
    in several ways. First, it would toughen the criminal code's treatment
    of organized retail crime by refining certain offenses to capture
    conduct that is currently being committed by individuals engaged in
    organized retail crime, and by requiring the U.S. Sentencing Commission
    to consider relevant sentencing guideline enhancements.
        Second, the bill would require physical retail marketplaces, such
    as flea markets, and online retail marketplaces, such as auction
    websites, to review the account of a seller and file a suspicious
    activity report with the Justice Department when presented with
    documentary evidence showing that the seller is selling items that were
    illegally obtained. If the physical or online retail marketplace were
    presented with clear and convincing evidence that the seller is engaged
    in such illegal activity, it would be required to terminate the
    activities of the seller. This requirement will lead to greater
    cooperation between retail marketplaces, retailers and law enforcement,
    and will result in an increased number of organized retail crime
    prosecutions.
        Third, the bill would require high-volume sellers on online auction
    sites (meaning sellers that have obtained at least $10,000 in annual
    gross revenues on the site) to display a physical address, post office
    box, or private mail box registered with a commercial mail receiving
    agency. This requirement will help online buyers get in touch with
    sellers, and assist law enforcement agents who wish to identify people
    who may be selling stolen goods online. It is analogous to a provision
    in the federal CAN-SPAM Act, which also requires persons who send mass
    emails to disclose their physical addresses.
        This legislation has broad support in the retail industry in my
    home state of Illinois and nationwide. It is supported by the Illinois
    Retail Merchants Association, the National Retail Federation, the
    Retail Industry Leaders Association, the Food Marketing Institute, the
    National Association of Chain Drug Stores, and the Coalition to Stop
    Organized Retail Crime, whose members include such retail giants as
    Home Depot, Target, Wal-Mart, Safeway, Walgreens, and Macy's.
        In summary, the Combating Organized Retail Crime Act addresses a
    serious problem that hurts businesses that are struggling to survive in
    a weak economy, and that harms consumers who unknowingly purchase
    stolen items that have been subjected to tampering. It would heighten
    the penalties for organized retail crime, shut down criminals who are
    selling stolen goods, and place valuable information about illegal
    activity into the hands of law enforcement. This bill is a big step
    forward in the fight against a nationwide problem.
        Thank you again for holding this hearing and for the opportunity to
    submit this testimony. I look forward to working with you to enact
    legislation to crack down on the growing problem of organized retail
    crime.