[House Hearing, 110 Congress] [From the U.S. Government Publishing Office] INVESTIGATION INTO THE SALE OF SENSITIVE, IN-DEMAND MILITARY EQUIPMENT AND SUPPLIES ON THE INTERNET ======================================================================= HEARING before the SUBCOMMITTEE ON NATIONAL SECURITY AND FOREIGN AFFAIRS of the COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM HOUSE OF REPRESENTATIVES ONE HUNDRED TENTH CONGRESS SECOND SESSION __________ APRIL 10, 2008 __________ Serial No. 110-178 __________ Printed for the use of the Committee on Oversight and Government Reform Available via the World Wide Web: http://www.gpoaccess.gov/congress/ index.html http://www.oversight.house.gov ----- U.S. GOVERNMENT PRINTING OFFICE 50-350 WASHINGTON : 2009 ----------------------------------------------------------------------- For sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; DC area (202) 512-1800 Fax: (202) 512-2104 Mail: Stop IDCC, Washington, DC 20402-0001 COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM HENRY A. WAXMAN, California, Chairman EDOLPHUS TOWNS, New York TOM DAVIS, Virginia PAUL E. KANJORSKI, Pennsylvania DAN BURTON, Indiana CAROLYN B. MALONEY, New York CHRISTOPHER SHAYS, Connecticut ELIJAH E. CUMMINGS, Maryland JOHN M. McHUGH, New York DENNIS J. KUCINICH, Ohio JOHN L. MICA, Florida DANNY K. DAVIS, Illinois MARK E. SOUDER, Indiana JOHN F. TIERNEY, Massachusetts TODD RUSSELL PLATTS, Pennsylvania WM. LACY CLAY, Missouri CHRIS CANNON, Utah DIANE E. WATSON, California JOHN J. DUNCAN, Jr., Tennessee STEPHEN F. LYNCH, Massachusetts MICHAEL R. TURNER, Ohio BRIAN HIGGINS, New York DARRELL E. ISSA, California JOHN A. YARMUTH, Kentucky KENNY MARCHANT, Texas BRUCE L. BRALEY, Iowa LYNN A. WESTMORELAND, Georgia ELEANOR HOLMES NORTON, District of PATRICK T. McHENRY, North Carolina Columbia VIRGINIA FOXX, North Carolina BETTY McCOLLUM, Minnesota BRIAN P. BILBRAY, California JIM COOPER, Tennessee BILL SALI, Idaho CHRIS VAN HOLLEN, Maryland JIM JORDAN, Ohio PAUL W. HODES, New Hampshire CHRISTOPHER S. MURPHY, Connecticut JOHN P. SARBANES, Maryland PETER WELCH, Vermont ------ ------ Phil Schiliro, Chief of Staff Phil Barnett, Staff Director Earley Green, Chief Clerk Lawrence Halloran, Minority Staff Director Subcommittee on National Security and Foreign Affairs JOHN F. TIERNEY, Massachusetts, Chairman CAROLYN B. MALONEY, New York CHRISTOPHER SHAYS, Connecticut STEPHEN F. LYNCH, Massachusetts DAN BURTON, Indiana BRIAN HIGGINS, New York JOHN M. McHUGH, New York TODD RUSSELL PLATTS, Pennsylvania Dave Turk, Staff Director C O N T E N T S ---------- Page Hearing held on April 10, 2008................................... 1 Statement of: Estevez, Alan F., Principal Assistant Deputy Under Secretary of Defense, Logistics and Materiel Readiness, U.S. Department of Defense; and Sarah H. Finnecum, Director, Supply and Maintenance Directorate, U.S. Army, G-4, Logistics.................................................. 83 Estevez, Alan F.......................................... 83 Finnecum, Sarah H........................................ 85 Kutz, Gregory D., Managing Director, Forensic Audits and Special Investigations, U.S. Government Accountability Office; Charles W. Beardall, Deputy Inspector General for Investigations, U.S. Department of Defense; Tod Cohen, vice president, Government Relations, eBay Inc.; and Jim Buckmaster, chief executive officer, Craigslist.org........ 9 Beardall, Charles W...................................... 45 Buckmaster, Jim.......................................... 64 Cohen, Tod............................................... 58 Kutz, Gregory D.......................................... 9 Letters, statements, etc., submitted for the record by: Beardall, Charles W., Deputy Inspector General for Investigations, U.S. Department of Defense, prepared statement of............................................... 47 Buckmaster, Jim, chief executive officer, Craigslist.org, prepared statement of...................................... 66 Cohen, Tod, vice president, Government Relations, eBay Inc., prepared statement of...................................... 60 Finnecum, Sarah H., Director, Supply and Maintenance Directorate, U.S. Army, G-4, Logistics, prepared statement of......................................................... 87 Kutz, Gregory D., Managing Director, Forensic Audits and Special Investigations, U.S. Government Accountability Office, prepared statement of.............................. 11 Tierney, Hon. John F., a Representative in Congress from the State of Massachusetts, prepared statement of.............. 4 INVESTIGATION INTO THE SALE OF SENSITIVE, IN-DEMAND MILITARY EQUIPMENT AND SUPPLIES ON THE INTERNET ---------- THURSDAY, APRIL 10, 2008 House of Representatives, Subcommittee on National Security and Foreign Affairs, Committee on Oversight and Government Reform, Washington, DC. The subcommittee met, pursuant to notice, at 10 a.m. in room 2154, Rayburn House Office Building, Hon. John F. Tierney (chairman of the subcommittee) presiding. Present: Representatives Tierney, McCollum, Hodes, Welch, and Shays. Staff present: Dave Turk, staff director; Andrew Su, professional staff member; Davis Hake, clerk; Andrew Howell, intern; A. Brooke Bennett, minority counsel; Nick Palarino, minority senior investigator and policy advisor; Chris Espinoza, minority professional staff member; and Mark Lavin, minority Army fellow. Mr. Tierney. Good morning, and thank you for being here. Most Members, as you know, have multiple conflicting items on their schedule, and they will be in and out as the morning goes on. Mr. Shays is on his way over, but you folks are kind enough to be here in a timely fashion and we want to get started so that your day is put to good use. The Subcommittee on National Security and Foreign Affairs hearing entitled, ``Investigation into the Sale of Sensitive, In-Demand Military Equipment and Supplies on the Internet,'' will come to order. There is unanimous consent that only the chairman and ranking member will be allowed to make opening statements. Mr. Shays will be allowed to make his when he arrives. There is unanimous consent that the hearing record will be kept open for five business days so that all members of the subcommittee will be allowed to submit a written statement for the record. Last summer the subcommittee, on a bipartisan basis, asked the special investigators at the Government Accountability Office to begin an undercover operation into whether sensitive and stolen military equipment and supplies were being sold on the Internet on such sites as eBay and Craigslist--obviously, not exclusively those sites. We also asked GAO to investigate how such items were acquired and able to be put for sale online. We were concerned, first, about the possibility that sensitive military equipment was being sold to would-be terrorists or criminals or hostile nations to the harm of our troops abroad, as well as the rest of us here in the United States. Second, we were concerned about taxpayer-funded equipment being stolen or otherwise accounted for and sold for profit, especially with respect to any items currently in demand by our service members fighting abroad. Today we will hear and we will see with our own eyes what the GAO was able to buy online. Unfortunately, the undercover investigators found not only significant amounts of stolen goods being sold for profit; they also were able to buy sensitive technology and equipment we wouldn't want to fall into the hands of our enemies. GAO was able to buy, for example, F-14 aircraft parts; sophisticated night vision goggles; infrared tabs worn by our troops to differentiate friend from foe; a complete current issue of a U.S. military uniform; nuclear, biological, and chemical protective gear; and body armor currently worn by our troops--just to name a few items. It doesn't take a whole lot of imagination to understand the troubling nature of some of these items being sold online. For instance, Iran is the only country currently operating F- 14s. The type of night vision goggles purchased on eBay, because of its ability to read infrared tabs worn by our soldiers, could be used by our enemies to easily locate U.S. troops on the battlefield. A leading manufacturer was previously fined $100 million for selling sensitive technologies found in night vision goggles to China. Just over a year ago, insurgents dressed in American combat uniforms raided a security post in Karbala, Iraq, killing five American soldiers. And what are the ramifications of having for sale online body armor and nuclear, biological, and chemical protective gear our troops are currently using? What are the homeland security concerns? Could an enemy who buys these items probe them for weaknesses and countermeasures? What the undercover GAO special investigator found, and the ease by which they were able to buy these items caused us to call this hearing today. We wanted to bring everyone together in the same room who has a role to play, all in the spirit of constructive oversight, to focus on what we can all do to fix the problem going forward. We will soon hear from the head of the GAO special investigations unit about the undercover efforts here and their followup investigatory work. We will also get an update from the law enforcement arm of the Department of Defense on their own investigations. We will then hear from eBay and Craigslist about their respective current efforts to prevent and detect the sale of sensitive stolen military equipment on their Web sites. eBay and Craigslist are certainly different types of organizations. eBay is a for-profit company with thousands of employees and serves as an international marketplace. Craigslist, on the other hand, has a self-described public service mission, with only 25 employees, and maintains city-specific sites. The subcommittee also, of course, understands that eBay and Craigslist are only part of the e-marketplace, and that there are thousands of other sites out there, many of which operate in the shadows. We will also hear from the logistics and supply chain experts within the Defense Department and the U.S. Army. The very nature of our global marketplace underscores the vital importance of keeping a very close hold on sensitive military technologies and equipment in the first place. In other words, we need to ensure that we have robust controls in place, as robust as possible, to minimize the opportunities for items to be siphoned off beyond our control, whether by negligence or by criminal activity. Of course, if an item does slip through the cracks, we need to have swift and rigorous response to recapture the materiel and punish the wrongdoers. We also want to make sure that the Defense Department and companies like eBay and Craigslist coordinate as much as possible. We will be asking if there are ways to improve our public/private partnerships with the companies who want to do the right thing to better differentiate between sensitive or stolen items versus those allowed to be sold. Finally, I should add that today's hearing builds off the oversight work that Mr. Shays spearheaded during his time as chairman of the subcommittee. Through the previous impressive work of the GAO special investigative team, this subcommittee was able to identify and play a helpful role in correcting weaknesses in Defense Department controls regarding excess property. I want to thank our ranking member for leading those past hearings and for working with me on this current bipartisan and constructive oversight. We come to this hearing without attributing blame to any single entity and without any cure-all fixes; rather, we felt it was important to bring all the relevant actors and stakeholders together to discuss GAO's investigation and, most importantly, to strategize on what possible actions we can take individually and cooperatively going forward to strengthen our controls. [The prepared statement of Hon. John F. Tierney follows:] [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] Mr. Tierney. I now turn to Mr. Shays for his opening remarks. Mr. Shays. Mr. Shays. Thank you, Mr. Chairman, for continuing the work of this subcommittee concerning the Department of Defense's controls on sensitive military equipment. In 2002 our subcommittee discovered DOD had been selling top-grade chemical protective suits to the public, while military units were waiting in line to acquire the same gear. In 2003 we determined DOD was selling items on the Internet that could be used to make a biological warfare laboratory. The equipment was being sold for pennies on the dollar. At a June 2005 subcommittee hearing we learned DOD was transferring, donating, or selling excess property in new or good condition, while at the same time purchasing similar items for our soldiers. At a July 2006 subcommittee hearing we confirmed, through a Government Accountability Office investigation, sensitive military equipment was being sold or given to the public. As a direct result of this subcommittee's oversight, DOD has improved its procedures for processing and disposing of military equipment. A July 2007 entitled Sales of Sensitive Military Property to the Public confirmed these improvements. However, a recent GAO investigation discovered night vision goggles, F-14 parts, body armor, and infrared tape are being sold on the Internet. Today's hearing focuses on the actions needed to prevent sensitive military equipment from being sold to the public. These items were not bought directly from DOD, as they had been in the past; they were provided by private citizens in legal possession of the equipment, by individuals who had stolen the equipment, or by authorized vendors not following established industrial guidelines. We are pleased to have representatives from eBay and Craigslist at our hearing to help us better understand how we can prevent sensitive items from being sold on the Internet in the future. I will be interested in hearing how they have cooperated with Government agencies and local law enforcement officials. For example, I am interested in learning how information channels can be streamlined and how this can be incorporated into an industrial standard. eBay and Craigslist are only two of many companies, but all must cooperate. The military newspaper, ``Stars and Stripes,'' published an article detailing the court martial proceedings for a soldier who stole and sold body armor, protective masks, and helmets on the Internet. The soldier is serving a 30-month sentence for these actions. Hopefully this will be a deterrent to others thinking about stealing unauthorized military equipment. At this point I am not sure if we have a supply accountability problem, a law enforcement issue, or both. I look forward to the witnesses to sort this out, as well. The July 2007 GAO report describes the comprehensive changes and programs implemented by the DOD, and they should be commended for these improvements. With this in mind, Mr. Chairman, I look forward to the testimony of our distinguished witnesses and thank each of them for being here today, and particularly thank you for conducting this hearing and continuing this investigation on such a bipartisan basis. Mr. Tierney. Thank you, Mr. Shays. We will now receive testimony from our witnesses. I want to begin by introducing the witnesses on our first panel. Mr. Greg Kutz is the Managing Director of the Forensic Audits and Special Investigations Team of the U.S. Government Accountability Office. Mr. Kutz joined GAO in 1991 and has served as point for countless previous investigations, including Hurricane Katrina fraud, waste, and abuse; military pay problems; credit card and travel fraud and abuse; and security issues such as airport security, border security, and security over the purchase and transportation of radioactive materials. Mr. Kutz, the subcommittee thanks you and Rick Nobold and everybody else on your team for the conscientious work done here. Your efforts in helping to provide independent oversight are greatly appreciated and extremely important. We also welcome Mr. Charles W. Beardall, who is the Deputy Inspector General for Investigations at the Department of Defense Office of the Inspector General. Prior to his appointment, Mr. Beardall served as the Director of the Defense Criminal Investigative Service, the criminal investigative arm of the Defense Department Inspector General. Mr. Todd Cohen is the vice president and deputy general counsel for Government relations at eBay, Inc. Mr. Cohen joined eBay in 2000 as its first full-time public policy employee. Since 2004 he has led eBay's global government relations efforts. And Mr. Jim Buckmaster is CEO of Craigslist.org. Mr. Buckmaster has led Craigslist since 2000. He has also served as chief technology officer and lead programmer. Again, I want to welcome all of you and thank you for being here today. It is the policy of this subcommittee to swear in people before they testify, so I would ask you to stand please and raise your right arm. If there is anybody else that is going to be testifying with you, I would ask them also to stand and be sworn. [Witnesses sworn.] Mr. Tierney. The record will please reflect that all of the witnesses answered in the affirmative. Your full written statements will be placed on the record, so you don't have to feel compelled to be married to the written statement. But we would like you to put it in about a 5-minute block so that we can get some time to go back and forth with questions. Mr. Kutz, we will begin with you. We are going to give you a little longer because, of course, your investigation is the subject of this hearing and we want you to feel free to make a complete presentation. Thank you. STATEMENTS OF GREGORY D. KUTZ, MANAGING DIRECTOR, FORENSIC AUDITS AND SPECIAL INVESTIGATIONS, U.S. GOVERNMENT ACCOUNTABILITY OFFICE; CHARLES W. BEARDALL, DEPUTY INSPECTOR GENERAL FOR INVESTIGATIONS, U.S. DEPARTMENT OF DEFENSE; TOD COHEN, VICE PRESIDENT, GOVERNMENT RELATIONS, EBAY INC.; AND JIM BUCKMASTER, CHIEF EXECUTIVE OFFICER, CRAIGSLIST.ORG STATEMENT OF GREGORY D. KUTZ Mr. Kutz. Mr. Chairman and members of the subcommittee, thank you for the opportunity to discuss the sales of military property on eBay and Craigslist. Previously I testified before this subcommittee that DOD was selling sensitive military property through its excess property system. Today's testimony responds to your request that we investigate the sales of military property on eBay and Craigslist. My testimony has two parts. First, I will discuss what we did and provide you with some background; second, I will discuss the results of our investigation. First, this investigation was done primarily as an undercover operation. For all of our purchases we posed as a bogus private citizen with only a credit card, mailbox, and a telephone necessary for this operation. Most of the purchases we made were on eBay. We appreciate the cooperation of eBay's fraud investigation team throughout this investigation. Several of our purchases were also made on Craigslist, which serves as an Internet version of the newspaper classified ads. Major criminal cases in the last year highlight the importance of protecting sensitive military property. For example, in April 2007 an individual pled guilty to selling night vision devices to a terrorist organization in Sri Lanka. In May 2007 an individual was sentenced for illegally exporting F-14 parts to Iran. A search of his home led to the seizure of over 13,000 aircraft parts and a shopping list provided to him by a military officer from Iran. And in September 2007 an Air Force staff sergeant pled guilty to charges of stealing military night vision goggles to sell overseas. These are just a few of the hundreds of cases related to sales of sensitive military property to places such as Iran and China. I provide this background because our undercover operation could have easily been financed by China, Iran, or a terrorist organization looking to acquire U.S. military property, which leads to the second part of my testimony: the results of our investigation. Overall our undercover investigators purchased a dozen sensitive military items to show just how easy it was for anybody to obtain them. Once in possession of this property, we could have resold it to an international broker or shipped it overseas. According to DOD, the sensitive items that we purchased are U.S. munitions list items. These items require Government approval before they can be exported. Some of these items could also be reverse engineered to develop similar technology or used, as the chairman said, to develop countermeasures. These items would also be useful to terrorists or criminals right here in the United States. A recent Craigslist ad touted military body army as ``a must-have for gangsters.'' The majority of the items that we purchased are displayed on the table to my right. Let me discuss the items that are the most disturbing or troubling to me, which I will also show on the monitor as I go through this discussion. First, I have in my hand this new, unused F-14 antenna wave guide. This item is part of the F-14 radar warning system. Iran is the only country with operational F-14 fighter jets. Second, I have in my hand these new and unused night vision goggles. These goggles are a critical part of the U.S. night fighting system because of an image intensifier tube. This tube allows U.S. soldiers in Iraq and Afghanistan to distinguish friendly fighters wearing infrared tabs from the enemy at night. Third, we have on the hanger to my right an Army combat uniform [ACU], and associated gear on the table. Why is this troubling? Because, as the chairman said, in January 2007 insurgents wearing U.S. military uniforms passed through security, entered a compound in Karbala and killed five U.S. soldiers. In addition, this ACU has the infrared tabs I mentioned, which would allow enemy fighters to pose as friendlies at night. Fourth, we have the body armor on the table. The enhanced small arm protective inserts [ESAPIs], are currently used in body armor worn by our troops in Iraq and Afghanistan. In addition to these purchases, we identified other sensitive military property that was also sold to the highest bidder. Examples include hundreds of sets of military body armor, dozens of aircraft and helicopter parts, additional night vision goggles, and ACUs. High bidders on some of these items were from places such as Hong Kong, Russia, Thailand, Costa Rica, Hungary, and Singapore. Most of the military property that we purchased was stolen. For example, two sellers with eBay storefronts bought stolen property from service members and resold it on eBay. Examples of this property include kevlar helmets, gas masks, and additional ACUs. I have in my hand this military meal ready to eat [MRE]. We identified a robust Internet market for the sales of these stolen MREs. For example, we identified two individuals that each sold over $50,000 of MREs stolen from nearby military bases. We also identified a soldier at Camp Casey in South Korea who sold us MREs on eBay. After we referred him to the Army Criminal Investigative Division, they determined that he was responsible for numerous thefts at the camp. This eBay seller is now serving a 3\1/2\ year sentence in prison. In conclusion, we believe that the technology used by our soldiers on the battlefield today should not be available to the highest bidder. Ironically, eBay prohibits the sales of used cosmetics, while at the same time the latest in military body armor is available to anybody with a credit card. Our soldiers deserve better than to have our own technology used against them on the battlefield. Mr. Chairman, that ends my statement. I look forward to your questions. [The prepared statement of Mr. Kutz follows:] [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] Mr. Tierney. Again, thank you, Mr. Kutz, and your staff, as well, for that investigation and for the report. Mr. Beardall. STATEMENT OF CHARLES W. BEARDALL Mr. Beardall. Chairman Tierney, Chairman Shays, distinguished members of the Subcommittee on National Security and Foreign Affairs, thank you for the opportunity to appear before you to discuss the DOD Office of the Inspector General's role in stemming the theft, diversion, and sale of sensitive military materiel, especially on the Internet. Consistent with our mission of protecting America's war fighters, the Defense Criminal Investigative Service, the law enforcement arm of the DOD Inspector General, has been actively engaged in investigating the theft, diversion, and sale of sensitive military technologies since the early 1990's. These investigations joined terrorism, major procurement fraud, corruption, and the protection of the global information grid as DCIS' top five priorities. DCIS technology protection investigations now comprise 20 percent of our caseload. Also, 90 percent of DCIS undercover operations focus on technology protection. DCIS comprises 340 of America's finest, most dedicated special agents. They are assigned to offices nationwide and in Europe and Southwest Asia. DCIS has broad investigative jurisdiction over DOD programs and operations, including technology protection. We are recognized as a major partner in the battle against proliferation and illicit technology transfers. Yet, despite broad commitment, manpower limitations restrict DCIS from becoming involved in all investigations involving theft and sale of DOD equipment; therefore, we focus on the most serious or threatening offenses. Most investigations involve foreign nationals contacting Defense contractors to obtain control of technologies and U.S. munitions list items for export to proscribed nations. Popular items are missiles, UAVs, M-16 and M-4 rifles, night vision goggles, aircraft parts, and components for weapons of mass destruction. DCIS also investigates disposal of military equipment that is not properly demilitarized, particularly items that threaten the U.S.'s interests or our export control. A few example provide a vivid illustration of the investigation DCIS conducts in technology protection. In July 2005 an Iranian citizen was sentenced to 57 months confinement for attempting to export aircraft component parts for F-4 and F-14 fighters to Iran. One component the individual attempted to export was a Vulcan six-barrel drum which feeds ammunition into a Gatling gun used in military aircraft. The weapon can fire 6,000 rounds of ammunition per minute. Also, over a 2-year period DCIS and the Immigration and Customs Enforcement agents investigated a covert agent of the People's Republic of China who was seeking to procure up to 70 Black Hawk helicopter engines, several F-16 engines, and air- to-air and air-to-ground missiles. The subject was induced to travel to the United States, where undercover agents showed him an F-16 engine. He wired $140,000 to an undercover bank account and was arrested. He was convicted of export violations, bribery of a public official, and being a covert agent of the PRC. In July 2006 he was sentenced to 6\1/2\ years confinement and fined $1 million. DCIS and partner agencies regularly use undercover operations to stop illegal technology transactions, including searching Internet Web sites for controlled military items. One significant undercover operation targeting illegal sales on the Internet was DCIS' Operation High Bidder, initiated in 2003, and, frankly, continuing today with other efforts. The operation identified numerous sales of military grade body armor on eBay. High Bidder resulted in 183 investigative reports, from which 139 cases were opened, 51 criminal charges were filed, that resulted in 44 persons being convicted and sentenced to a total of 48 years confinement and over $400,000 in fines. The unquantifiable benefits of High Bidder are reduced number of sales of certain controlled items and greater public confidence that DOD is policing these illegal sales. A DCIS High Bidder vulnerability report was provided to Defense Logistics Agency and the DOD Office of Supply Chain Integration. DCIS also prepared a criminal intelligence report warning military and law enforcement organizations of the availability of stolen body armor and other military equipment to potential terrorists and criminals. We note that eBay supported High Bidder and the operation resulted in the installation of filters to identify body armor and related items, and we keep on trying to refine those filters. I conclude by emphasizing that to protect America's war fighters, allies, and our citizens, the DOD Office of Inspector General remains steadfastly committed to aggressively countering the illegal sales of sensitive DOD equipment and technology, including those on the Internet. We will continue to keep Congress and the DOD leadership fully and promptly informed regarding our efforts. I look forward to your questions. [The prepared statement of Mr. Beardall follows:] [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] Mr. Tierney. Thank you, sir. Mr. Cohen. STATEMENT OF TOD COHEN Mr. Cohen. Chairman Tierney, Ranking Member Shays, members of the committee, my name is Tod Cohen, and I am vice president and deputy Government counsel for Government relations at eBay, Inc. I would like to thank the committee for giving eBay this opportunity to discuss the sale of military items on our site, and I ask that my full statement be entered into the record. Mr. Tierney. It will be entered in, as I said. Mr. Cohen. One of my focuses in my 8-year career at eBay has been to make sure that we work closely with governments around the world to keep our site as safe as possible for our community of users and for our communities, in general. We seek to achieve this goal by working with government experts to create clear, effective rules regarding what can and cannot be listed for sale on our site, and then aggressively enforce those rules. We partner with law enforcement agencies proactively and reactively to make sure that sellers who break the law get prosecuted. Since 1995, eBay has created prohibited and restricted item policies covering over 60 classifications of items, including firearms, prescription drugs, counterfeit goods, and drug paraphernalia, to name just a few. We have developed industry- leading advanced programs to identify suspicious items and user behaviors. We have teams of people in place around the world and around the clock to review and remove items that are flagged by our systems. We sanction and remove members who engage in harmful practices and we have, as mentioned, a global fraud investigations team that partners with law enforcement to make sure that criminals get prosecuted to the fullest extent of the law. Let me provide some sense of scale to our efforts and our challenges. We have trading platforms in 39 markets, with over 82 million active users worldwide. At any one time, around 113 million items are listed for sale, with more than 6 to 7 million new items listed 24 hours a day, 7 days a week, 365 days a year. With such high volumes, we must work closely with regulatory and law enforcement agencies to police against abuses, both intentional and unintentional. We work with them to determine the key words and phrases that are commonly used to describe the goods that we would want to prevent from being available for sale. One of our 60 prohibited item policies concerns the sale of military items. It essentially prohibits the sale of military items that have not been disposed in accordance with Department of Defense regulations. We have worked on these policies with national security experts at the Defense Criminal Investigative Service, the Government Accountability Office, the Department of Defense, the Naval Criminal Investigative Service, and the Air Force Office of Special Investigations, among others. We work with Government experts to build detection tools to flag listings for items such as body armor and MREs. The goal is to identify items that cannot be sold commercially. We build the technology filters, test them, get extensive input and followup from Defense agencies, and then use them to flag suspicious listings. To give you just one example, in 2007 we reviewed 4,273 listings flagged by our body armor filters we developed with the help of DCIS and removed 1,278 listings from eBay. The nearly three-quarters that were not removed were deemed to be false positive, and the listings were allowed to remain active. Our fraud investigative team has also assisted in a number of cases involving the illegal sale of body armor by providing seller information to DCIS and other enforcement agencies. When we receive a request for member records from GAO or one of the military investigative services, we respond quickly. Our goal is to make it as easy as possible for these agencies to prosecute criminals, and we work tirelessly to attain this goal, including having investigators appear as witnesses to support prosecutions. To sum up, we believe that eBay has the most proactive policies and tools to combat fraud and illegal activity of all the major Internet commerce companies. There are over 2,000 eBay, Inc. employees around the world working to combat all forms of harmful behaviors on our site, including the sale of illegal or stolen items. As we have grown in business over the last 12 years, we have dedicated more and more resources to this fight. We believe our programs are not only best in class on the Internet; we also believe that they match up and surpass offline retailers and marketplace efforts. Simply put, eBay is no place for the sale of stolen or illegal military goods. The transparency of our site, our rules, our enforcement tools, and our commitment to working with law enforcement makes it an unwelcome venue for criminals seeking to fence these goods. We look forward to working with this committee and our partners in the military and Federal Government agencies on ways to more effectively prevent stolen or illegal military items from being listed on our site. We very much appreciate the opportunity to participate in this important hearing, and thank you for your time and consideration. [The prepared statement of Mr. Cohen follows:] [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] Mr. Tierney. Thank you, Mr. Cohen. Mr. Buckmaster, we appreciate that one-twentyfifth of your company is sitting before us and that you have made the time for us today. Please feel free to take your time. STATEMENT OF JIM BUCKMASTER Mr. Buckmaster. Chairman Tierney, Congressman Shays, good morning. As introduced, my name is Jim Buckmaster, and I am the CEO of Craigslist. I would like to thank the subcommittee for inviting me here to participate in today's hearing, and look forward to working together with all of the organizations represented here to solve the problems identified in the GAO report. Founded in 1995, Craigslist operates local community Web sites for 450 cities featuring classified ad services used by over 25 million Americans each month to find jobs, housing, for sale items, services, friendship, romance, and community information, generating almost 10 billion page views per month. Nearly all Craigslist services are offered free of charge and without banner ads or text ads or other commercial impediments. Of our revenue, 100 percent comes from fees for job listings in 10 cities and a fee for brokered apartment listings in New York. I would like to congratulate and thank the authors of the GAO report for their excellent work, but with all due respect I do feel some corrections and amplifications are in order regarding Craigslist, and will mention three of those here. First, describing Craigslist as ``a global marketplace with international reach'' is somewhat misleading. Craigslist is a collection of separate, strictly local marketplaces. The for sale section of each local Craigslist site is used nearly exclusively to facilitate in-person, face-to-face transactions. Sales involving shipping are rare and are strongly discouraged by Craigslist, and international sales are extremely rare. I should hasten to add that, although Craigslist is not close to being a go-to site for international trade in military items, we do not accept any misuse of Craigslist, and are determined to do our very best to eliminate it. Contrary to what the GAO report implies, Craigslist actually has more people actively engaged in its anti-fraud efforts than any Web site on Earth. In addition to our in-house anti-fraud team numbering a dozen or more staff members and the automated blocking and screening routines we have developed, Craigslist benefits from tens of millions of passionate users diligently reviewing every ad on the site, with each user having the power to delete inappropriate ads, which they do to the tune of several million ads each month. On the plus side, the GAO investigators did notice that ads were being actively removed from Craigslist as they were searching the site, an observation that they did not make about any other site in their report. I was surprised that the GAO did not highlight in the report the fact that, unlike every other party cited, Craigslist uniquely earns absolutely nothing from the sale of military items. Military personnel, shopkeepers, online storefronts, Web sites large and small, as cited in the report, all are earning money from each sale of sensitive military equipment, with the largest players undoubtedly reaping many millions of dollars per year from such sales. It should be noted that, with the exception of Craigslist, each of these parties has a strong financial incentive for failing, or at least delaying, putting an end to this trade. Craigslist has no such incentive, and we are eager to solve this problem. My humble request to those assembled here is for clear and concise guidelines as to which items are allowed to be sold and which are not. With clear and concise guidelines available, very few of our users will violate them, and those few who do will quickly find themselves blocked, screened, and flagged off of our site. Without clear and concise guidelines, though, I fear that even the most conscientious efforts to eliminate this trade will struggle. Armed with clear and concise guidelines which we will use to educate our users, our staff, and our blocking and screening software, I am extremely confident that we can quickly reduce the volume of such ads on Craigslist by more than 90 percent. By the way, I do have an idea for removing all financial disincentives that may delay a solution to this problem. I would like to challenge each party cited in the GAO report to make a commitment to donate 100 percent of any revenue they may have earned in connection with the sale of sensitive and/or stolen military items to charity, preferably one that provides aid to our military veterans. Although Craigslist has collected no revenue from such sales, as a show of good faith, if each of the other parties is willing to commit to donating all such revenue to charity, past, present, and future, Craigslist would be proud to make a very sizable donation, as well. I think my 5 minutes are up. Thank you, Mr. Chairman and members of the subcommittee, for inviting me to speak. I look forward to your questions. [The prepared statement of Mr. Buckmaster follows:] [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] Mr. Tierney. Thank you very much. We are going to start with some questions and answers here. Some of the Members have left to go vote, so as it gets closer to that we will probably take a brief break and go back and then ask you folks to rejoin us at the end of that. I apologize for that, but it is something beyond the control of this subcommittee. Let me start with the last suggestion that was made by Mr. Buckmaster. Is the financial gain by not just eBay but any company that might be being used as a conduit by bad actors, is that perceived to be the driving force here, Mr. Kutz? Mr. Kutz. I can't discuss intent of people, but certainly it is a fact. I mean, if eBay sells something that is stolen from the Government, the taxpayers paid for it and eBay would make a small profit on that, and whoever sold it and got it for zero dollars or whatever. One of our eBay sellers was buying them from soldiers for $20 and selling them for $55, so they were making $35. There is profit for the seller. Mr. Tierney. That was a seller, but not an Internet company. Mr. Kutz. As a seller, but eBay would get some sort of commission on that, I would assume, and so would other sites. I am not pointing to them only, but others are doing for-profit. And I agree with Craigslist, they are not making any money on those sales. I believe that is factually accurate. Mr. Tierney. Mr. Beardall. Mr. Beardall. I think so as well, sir, that for the Internet sales, that is the main motivator. Now, the cases that we get involved in in our undercover operations, then it usually involved nationalistic interests as well as big dealers making big bucks, which are the arms dealers who we ferret out by a number of means, including undercover operations setting up storefronts for them to come in and try to buy items from us. Mr. Tierney. Mr. Beardall, it seems to me from your testimony that you are, in a sense, trying to do what Mr. Kutz' group did as an enforcement mechanism. You are trying to do the same kind of things from time to time. Is that the best way for us to approach it? Is that the best we can do, is after the horse is out of the barn, sort of go around and collect it? I am sure we have a lot of questions for our next panel as to what are policies going on here and how do these things hit the place in the first instance. Mr. Beardall. Sure, preventive measures would be much preferable to us devoting the amount of time that we do, and with the small force I have, that is why we have to prioritize, as well, and cannot spend a lot of time on the Internet, but are going after more serious things that Iranians and the Chinese want. Mr. Tierney. From the standpoint of Mr. Kutz, Mr. Beardall, and your respective agencies, is there anything more that private or not-for-profit Web sites that these two witnesses represent, but are certainly not exclusive just those, is there anything they can do? Mr. Beardall. Sir, I think one of the great examples of what we can do is what was referred to by Mr. Cohen, regarding our cooperation. As you noticed, he mentioned the DCIS continues to work with eBay to try to find ways that we can stop this stuff and, if we discover it, then go after it. Now, in a lot of cases, because of our small number of agents, we also get the assistance of Army CID, of OSI--Office of Special Investigations--for the Air Force, and Naval Criminal Investigative Service. Unfortunately, those folks are also tied up with major missions in Southwest Asia, which reduces the amount of agents they can provide to this effort. Mr. Tierney. So assuming we have all these different people doing investigations, trying to get people that have sort of breached the gap here and gotten on some site at some point in time, and that is not drying up what is going on, because apparently the incentive is too high, either nationalism or some other driving forces like the money, itself, for these people, we are going to continue to find them trying to do this. You are going to continue to clean up, unless we take care of those policies that allow for these types of things to get out into the marketplace to begin with. Is that a fair assessment? Mr. Beardall. Correct. And one of the other things is sometimes the sellers don't even know what they have. This stuff is picked up at garage sales and other things and it comes on the Internet and it raises our antenna up, but it is just an inadvertent sale. That is the trouble with prosecutions, as well. You understand that most of these cases--you have a couple of cases of MREs, night vision goggles here and there--are not going to get prosecuted because, again, the amount of work that the U.S. Attorney's Office has to prosecute this. That is why at times I think we have been lucky to have some UCMJ results. I smiled today when Mr. Kutz talked about the soldier who got 30 months. He's lucky he wasn't a marine, because one marine staff sergeant was sentenced to 10 years and a dishonorable discharge by the marines for the theft and sale of body armor. I think that made a point in Camp Pendelton and other areas of the Marine Corps. Mr. Tierney. How extensive is this situation? How many Web sites might we be talking about? Mr. Beardall. Well, there are two that are the main Web sites, High Bidder and Inventory Locator Service, which actually is a compendium of a number of links where you can try to get stuff from legitimate dealers in military equipment and all the rest, but, again, if somebody is looking for that odd item--and, again, the trouble with Defense contractors, we have tons of them doing a small part here, a big part there, and, again, we are looking for bulk and stuff that will harm our soldiers, sailors, airmen, and marines, and have them lose the advantage on the battlefield. Mr. Tierney. How real is the prospect that somebody would move some of these very sensitive materials internationally? Are there a lot of barriers for people to break to get that done successfully, or is it something that we know happens more frequently than we like, and on a large scale? Mr. Beardall. I am really not the right person. Perhaps the FBI has a better handle on that. But I do at times feel like the Dutch boy in trying to stop the flow of the dam. And it is all kinds of stuff. I just got a report this week about one of our investigations resulting in an 11-year sentence and a 9- year sentence from two Americans who were sending weapons to Canada, and it was a large shipment of sensitive items, and Canada is recognized as one of the trans-shipment areas for Iraq. Again, we were pleased to be able to get these two guys off the street. It takes a lot of work. The problem with it is that undercover operations are very agent intensive. If I have an agent or two working an undercover operation, they are no use to me in any of the other stuff we do with fraud and all the rest, and so we have a small force. You have to really pick and choose and try to get your biggest bang for the buck. Mr. Tierney. Mr. Cohen, something that Mr. Kutz said grabbed my attention, and I want to ask you to respond to it. We talk about enforcement maybe not being adequate, there are no resources that it ties up in the cost/benefit of that, but there was a comment made that eBay is able to keep used cosmetic sales or ban used cosmetics from being sold on eBay. If that is the case and you are successful in doing that, where is the breakdown in our apparent inability to keep sensitive military equipment off of eBay? Mr. Cohen. There are a lot of categories like the used cosmetic category in which we have a prohibition on, and we rely on the community to help us to enforce those tools. Where we think we should be spending our time and effort, obviously, is on sensitive military equipment. That is where we devote our energy, so that a listing of different standards of what is allowed and what is not allowed does not reflect where we are going to place our efforts against that. Mr. Tierney. So for all you know the ban on used cosmetics may not be any more successful than your attempts to keep off the sensitive military equipment? Mr. Cohen. No. I would say just that it is more in the line of where is the greater risk to the public. Mr. Kutz. And that is based on an FDA regulation that they do that. Mr. Tierney. I guess what I am trying to say is if you are successful at keeping the used cosmetics off, then what are we doing with respect to used cosmetics that we are not doing and should be doing with respect to sensitive equipment? Mr. Cohen. I do think that it is fair to say that, because the regulation is in place--and I can't quote specifically as to what our effectiveness is on the used cosmetic categories, so I can't necessarily say that we have a large problem or a small problem in that area, so I don't want to suggest that we have absolutely eliminated the sale of all used cosmetics, but I wanted to suggest more so that it is where we are going to place our resources to where the greater risk is to the public, and obviously it is going to be in this other area. We also prohibit other items that are prohibited that may be found in lots of different locations, and yet we don't invest energy to try to eliminate that category. Mr. Tierney. Right. So are we fair in saying that there is at least as strong a regulation prohibiting the sale of sensitive military equipment as some of these other products? Mr. Cohen. Yes. Mr. Tierney. All right. We are all comfortable with that. I will stop for a second and yield to Mr. Shays. Mr. Shays. Thank you, Mr. Chairman, again for holding this hearing. In 2002 the subcommittee basically was made aware of top- grade chemical suits that were being sold to the public when we had the military waiting in line, and then in 2003 we saw biological warfare laboratory that was basically sold for pennies on the dollar. In 2005 we learned DOD was transferring, donating, and selling excess property in near or good condition, while at the same time purchasing similar items for a soldier. In 2006 we learned from the GAO that sensitive military equipment was being sold or given to the public. I want to first know, are those problems still occurring, or do we not know because we haven't looked at that again? Has there been improvement in those areas? Mr. Kutz. There is definitely improvement, and only a couple of these cases could potentially have come from Government liquidation, which is the one that sells the excess property for DOD. Both of the individuals we bought the F-14 parts from also were buyers from Government liquidation, as was one of the individuals that said they bought their kevlar helmets from Government liquidation. So there is potentially two or three of the buys we made that may have come from Government liquidation; otherwise, these are other sources feeding the secondary market for military property. Mr. Shays. But, bottom line, this committee has continued to look at this. The GAO has determined that you all have determined that things have gotten noticeably better. So now what we are looking at is something different. We are looking at theft. My first question is: should we have been aware of the theft without seeing it being sold on eBay, but just seeing that our inventory didn't match, that there was tampering with the record or there was an imbalance, there were things not there that should have been? Should that have been what told us that there was some stolen items taken, whether they were sold or just kept for that person's use? Mr. Kutz. Yes, most of the items that we identified were, in fact, stolen, we believe. Other ones we are not sure of. Mr. Shays. You are not hearing my question. The issue is: how did we learn they were stolen? If you have a system that works properly, if Sam's Club can tell us in 15 minutes where everything is stored and what sold in the last half hour or earlier, why do we still not have the ability? Do we have leakage, stolen items that we would never know about because we don't have systems in place? Or do we now start to have systems in place to know when we have this problem? In other words, we found out this was stolen, I think, Mr. Beardall, because you noticed it on eBay, correct? Mr. Beardall. EBay and other things, as well. Our undercover operations are the most successful in finding people who are stealing and selling or people who are wanting to buy. But eBay items is another place that we keep looking. Again, a lot of the sellers on eBay are, frankly, one or two items. Mr. Shays. I understand that. Mr. Beardall. We are concerned more with the bulk items, and I have not seen a lot of that, and perhaps---- Mr. Shays. Do we have a serious theft problem, or do we not even have the ability to know we have a serious theft problem? Mr. Beardall. I might say the latter might be more accurate. Mr. Shays. OK. Mr. Beardall. And I would defer to the witnesses on the next panel who manage the distribution centers and know more. Mr. Shays. Really, what I am asking you, Mr. Kutz, is, if we did the same operations that you did in 2002, 2003, and so on, would we encounter the same abuses that I just read off, or would it be likely that DOD is in a better position to prevent that? Mr. Kutz. I believe there are fundamental DOD property management issues that resulted in the stolen property, yes. But I don't think they are excess property; I think they are the rest of the supply chain. You are talking about items distributed to the Army from DLA that the Army loses control of, either through soldiers or a warehouse or something like that. So it is a little different problem. I think you said at the beginning, it is stolen property, but the source of it is not the stuff that is going through the excess property system. Now you are talking about supply warehouses, like the Korea case, where soldiers are stealing body armor. This didn't come from a soldier, this came from a contractor, and the contractor sold it to us. Mr. Shays. When I see that, what I wrote down, you know, night vision goggles, F-14 parts, body armor, infrared tape are being stolen, you know, and then it is either a private citizen's illegal possession, maybe something that was stolen or not stolen, but equipment that has been stolen by individuals or unauthorized vendors, to me that is what we are looking at today. To me that is basically treason. I mean, the fact that someone can get a uniform and basically get in our base using that uniform--now, admittedly, that may have been items that were stolen in Iraq, but, in particular, the night vision goggles, we go out at night in Iraq every night with Special Forces. We go out at night instead of the daytime because we have that advantage. If we lose that advantage, we are going to have many of our soldiers killed and marines killed. That is the thing that I find most outrageous. I am going to end my question by saying progress has been made. It appears that stolen items is an issue. It appears that it is small items so far. You have prosecuted some when you should. We are always going to have a stolen item issue, it seems to me. We want to catch them quick and go after them. Thank you. Mr. Tierney. Thank you. Mr. Welch. Mr. Welch. Thank you, Mr. Chairman. Mr. Kutz and Mr. Beardall, are there any things that you would recommend that could be done in what I understand is a positive relationship with eBay and Craigslist that would improve it so that we could diminish the illicit sale? Mr. Beardall. Yes, sir. I think one of the things that is obvious is that the DCIS--Defense Criminal Investigative Service--and eBay have a long-term relationship after our original operation was completed, and we continue to try to refine ways to identify those items on eBay. They have been very cooperative and helpful, and we are trying to work through them because they, of course, are the biggest online seller where these things are showing up. Mr. Welch. But then there are other locations like, I guess, Craigslist and all kinds of entities out there that can sell on the Internet. Are there any things that you would recommend to us legislatively or rulemaking that might provide better protection? Mr. Beardall. I think the emphasis is obviously on keeping the stuff from getting stolen. Again, in comment to Mr. Shays' questions, if there are going to be large, bulk thefts of items from the Department of Defense, we are not going to see those on eBay. Those are going to be sold another way, which is what DCIS is trying to really home in on. I think that is the area where you try to stop it later on. We are just cleaning up the mess. Mr. Welch. Sure. Mr. Cohen, I understand eBay gets millions of for-sale opportunities a day from participants, so obviously it is a huge management issue. I understand you have testified about your fraud investigation teams. Do you have any recommendations on what the Government and Department of Defense could do that would facilitate your efforts to keep improper military and other things offline? Mr. Cohen. I think the most important thing was what Jim alluded to with regard to clear rules. One of the dilemmas we face is, because we are visible and the Internet is more visible, there sometimes is the tendency to try to impose restrictions on the Internet that would not apply to an off- line world. Our goal is to say that if we want to prohibit the sale of night vision goggles, then it should be a technology neutral decision to make it illegal across the board, and especially in the area of export control. For us, the most difficult issue of all is that you can buy an item that is limited for export control at a store and then walk out the store and ship it overseas for individuals to do that, and yet the complaint has been raised that we aren't able to do that because individuals are able to look at our items from around the world. So if there is a decision made by the Congress to say that these are export controls, then we probably should try to have that consistent across all the different platforms, rather than just picking one platform. That would be our request from the Congress. Mr. Welch. OK. How about just in the day-to-day interaction that you have with the Government about trying to monitor and sty on top of what should not be sold? Mr. Cohen. We receive remarkable cooperation from law enforcement and a desire for people to help solve the problems, and that is why we spend so much time and effort on it. I mean, it is important. I think it is important for there to be always an open level of cooperation, and from our perspective one of the things that we and others in all industry should do is, wherever possible, not make our law enforcement officials jump through hoops, like subpoenas, on areas of important national security. That is why we have always had a much more open and active policy to cooperate, work with DCIS and others, before making them have to jump through the hoops. I will mention one other thing. We many times get requests from DCIS and others to leave items up for sale that may be sensitive military equipment, and that may then end up in the press, and that is at a direct request from the investigators to say leave that up so we can help track down both who are the buyers or potential buyers, and who the seller is. That is why you may see stories in which items would be inappropriate but have been left up. Mr. Welch. OK. Thank you. I yield back. Mr. Tierney. Thank you. While Mr. Hodes is getting situated, I just want to ask one question. Mr. Kutz and Mr. Buckmaster, I noticed that some items were body armor vests, and were purchased from eBay and Craigslist sellers. Am I right in assuming that Craigslist is like a newspaper, but online, and it could have also been that somebody went to a newspaper and saw a listing for this and made the same kind of transaction? Is that right? Mr. Kutz. That is correct, yes. Mr. Tierney. And Mr. Buckmaster, that fits? Mr. Buckmaster. Yes, I think that is correct, and I would just quickly say that I think the problem from our perspective is that our otherwise well-intentioned users are somewhat ignorant about what they are allowed to sell and what they are not. From our perspective, it would simplify things greatly if a law were passed banning the sale of any U.S. military issued item, say, that is less than 50 years old, and our users would understand that. If we, absent such a law, try to make such a blanket rule on our site, our users would rightfully chaff. Why are we not allowed to do this when it is legal? If we are going to end up with a 50-page long description of items that can and cannot be sold, our users, if we are lucky, will read half a page of items. Mr. Tierney. Lucky if they read half a page is right. Well, what about that, Mr. Kutz and Mr. Beardall? Would you recommend legislation that just banned the sale of military equipment beyond a certain vintage date? Mr. Beardall. That could potentially work. Yes, sir. Mr. Kutz. Certain items, possibly, yes. Mr. Tierney. Why just certain items? Mr. Kutz. Well, it depends. Meals ready to eat, all of these are potentially stolen. Stolen ones should not be sold, certainly, but there is a whole bunch of other types of meals ready to eat out there. But certainly things like the night vision goggles, these are the ones that are used by hundreds of thousands of troops today. That doesn't seem like something that---- Mr. Tierney. It is sort of amazing to me that we haven't had a law to ban the sale of that, or the units and all that. It certainly would make things easier on this end, and it would make the prosecution easier on your end. Mr. Kutz. Yes, for certain. Mr. Beardall. But, again, you have to react to the most sensitive and the most controlled and, for example, night vision goggles in versions one and two are now sold commercially. Three, four, and five are still controlled. Mr. Tierney. I mean, it would let you prioritize what you need to do, but, on the other hand, it would help these gentlemen out in terms of just saying to all of their users it is just not allowed. Mr. Beardall. Roger. Mr. Tierney. Now you know that if they put it on there they are at risk, or whatever, and you go after it, it simplifies it a little bit on that basis. Mr. Beardall. And there are some other little things that we can talk to your staff about that we would like to discuss. One of the things if I don't mention my agents will really get mad, and that is demilitarized items. If somebody is in possession of an item that has not been demilitarized, agents do not have the authority to seize that item if we can't tie another offense to it, as in it was stolen. Mr. Tierney. So possession of a demilitarized item is not yet an offense? Mr. Beardall. If it was improperly demilitarized and somebody has it, we usually have to say, couldn't we have it back? We can't seize it because we don't have that authority. Mr. Tierney. I do think we need to hear those kinds of recommendations. I think that was well put, Mr. Buckmaster, and that is something for us seriously to consider yours, as well, and if you have others I am not averse to hearing them publicly so that people know that you have some ideas here and things we do. Mr. Beardall. Yes, sir. Mr. Tierney. So you think of those while we go to Mr. Hodes, and then before we close out I would like to hear what other things you think we might do legislatively. Mr. Beardall. That is a big one, because when we try to take it they also say, well, are you going to reimburse me for it, and we can't do that, either. Mr. Tierney. Exactly. Thank you. Mr. Hodes, you are recognized for 5 minutes. Mr. Hodes. Thank you, Mr. Tierney. I just want to followup on the discussion you have just been having so I am clear. Mr. Beardall, you amplified your written testimony, in which you said, ``One limitation to our efforts is that DCIS agents have no statutory authority to seize items that were legally sold but were not appropriately demilitarized.'' Mr. Beardall. Yes, sir. Mr. Hodes. How do you think, exactly, we need to expand legislation to address that concern? Mr. Beardall. Right. Particularly authorize us to seize items that were not properly demilitarized and that are in the possession of the public when they should not be. And we had that issue a lot in our Operation High Bidder, where we were going after the vests, and unfortunately a lot of times it was moms and pops who were distressed because they heard from their soldier in Iraq that they weren't getting the best vests or didn't have enough vests to distribute, and there was that initial surge and concern that raised the public concern, and we went out and, of course, at times there were people who had items that were military items and we couldn't seize them from them, we had to give them back. That was a little tough. Mr. Hodes. I note that eBay lists numbers of items that it says are prohibited or restricted from being sold online because of Federal or State regs. The list includes prescription medications, pesticides, firearms, ammunition, lock-picking devices. And eBay also says that many restrictions may involve the sale of dangerous or sensitive items not necessarily prohibited by law. So both seem to list prohibited or restricted items and provide links to State and Federal agencies Web sites. To Mr. Cohen and Mr. Buckmaster, what are some examples of dangerous or sensitive items prohibited on eBay and Craigslist that are not specifically restricted by Federal or State regulation? Mr. Cohen. I can give you one example, the meals ready to eat. We prohibit the sale of any of the MREs that have the internal heating device in it, which, because of safety reasons, we decided to prohibit those from being transferred and sold on our site, even though it is not illegal to do that. So it is a safety issue in which we made a decision that we would prohibit those from being sold. Mr. Hodes. But there is no current legislation prohibiting it; that was your own decision? Mr. Cohen. That was our own decision. That is correct. Mr. Hodes. And what factors do eBay and Craigslist use to decide to prohibit the sale of items that are not restricted by law, other than safety? Are there other factors that you have taken it upon yourself to say we won't sell because we just don't think it is a good idea? Mr. Cohen. Certainly. There are lots of different areas in which, for taste reasons, for community acceptance, I can think of many different areas in which it would make sense for us to work, as any other industry does with any other community of interest. There are certain areas where you are going to say this is something that we would like to be available, and this is something we wouldn't like to be available. Mr. Kutz. Congressman, could I use an example of that is particularly relevant here? Mr. Hodes. Sure. Mr. Kutz. They did prohibit the sales of police officer uniforms, I guess working with local law enforcement, etc. But these Army combat uniforms are not specifically prohibited, so hopefully something like today's hearing can bring DOD together with eBay to consider do we want to have Army combat uniforms that are used by our soldiers today, especially with infrared tabs on them, available for sale on eBay? That would be an example of something that isn't illegal at this point, I don't believe, but that would hopefully be something eBay and DOD could work on together to improve after today. Mr. Hodes. I guess for the folks from eBay and Craigslist, what I am getting at is not generally community taste factors, but more specifically dealing with the military issues that we are dealing with today. What factors are you currently using to decide whether or not to allow the sales of arguably military equipment. It may not be illegal, but what factors are you using there? And is this a protocol or policy that your companies have written out? Is it a written policy? Mr. Buckmaster. We do have written policies. Postings that our staff remove are mostly illegal postings or sale of illegal items, although we do have a blanket ban on the sale of all weapons, whether they are legal or not, and a ban on the sale of pet animals. Our users, on the other hand, are empowered to remove any ad for any reason. Mr. Hodes. I know my time is up, but let me just ask both eBay and Craigslist if you would be willing to provide this committee with a copy of your written policies as they may relate to the subjects of today's hearing, which will help us understand how you are currently self-limiting, if you will, the legal but items of concern that are at issue here today. Mr. Cohen. Yes, we will be absolutely responding in writing, Mr. Chairman. Mr. Hodes. That would be very helpful. Mr. Buckmaster. We will do so, as well. Mr. Hodes. Thank you, Mr. Chairman. Mr. Tierney. Thank you. I guess part of the issue is you probably feel constrained about not selling anything that hasn't been made illegal to sell. Other than self-constraint, otherwise kind of what maybe controls is it is not illegal, where you jump in is not pulling people back. My question I guess is what is the driving, overwhelming need for people to be able to purchase this type of thing unless they are up to no good. That is part of the problem. So I think the idea of us defining what should and should not be made available for public sale and consumption is probably a large part of this, and I am just sort of stunned that nobody stumbled across that before. We will talk to the next panel about that. I want to thank all of you that have shown up here this morning. Mr. Buckmaster, I know you came all the way from California, and I greatly appreciate that. I know that both eBay and Craigslist stood the list of looking like they were somehow complicit or involved in this, or whatever, as opposed to what really is the fact here, that they have tried to be cooperative and they have tried very hard on their own, as well as in cooperation with the Government agencies, to work with us on this, and I thank both of you for that. There are many, many other companies out there on the Internet that are part of this discussion. Mr. Beardall, thank you for the good work that you and your agency do every day. It is hard to chase it down on the other end after it is out of the box, and we realize that. Mr. Kutz, thank you and your organization and staff for providing us the information that we needed to be able to have this hearing and try to root out some solutions. We always appreciate the good investigations that you do. I am going to let this panel go, rather than retain you during the vote. We are going to suspend until after the next votes, and then ask the second panel to come back at that time. I apologize for any inconvenience that causes. Thank you once again. [Recess.] Mr. Tierney. The hearing will reconvene. I want to thank our witnesses for waiting. It was a little bit longer than we anticipated. There was a new Member being sworn in, as you may know, to fill Mr. Lantos' seat, who used to be a member of this subcommittee, in fact. The subcommittee will now receive testimony from our second panel of witnesses. Before us we have Mr. Alan Estevez, who is the Principal Assistant Deputy Under Secretary of Defense for Logistics and Materiel Readiness. From 2002 to 2006 Mr. Estevez served as Assistant Deputy Under Secretary of Defense for Supply Chain Integrations. And we have Ms. Sarah Finnecum, Director of the Supply and Maintenance Directorate within the U.S. Army. Ms. Finnecum was an Army civilian for over 25 years of Federal service. I also want to just note for the record that we had asked Mr. Estevez and Ms. Finnecum to testify and appear on the first panel with the other witnesses, and we thought that if everybody who had a stake in the process was on the same panel, that this would be the best way to comprehensively explore all the links of the chain from these materials being in the Defense Department's control and ending up for sale on the Internet. In the spirit of constructive oversight, we thought having everybody on the same panel would facilitate a free exchange of ideas and communications between all the actors and the stakeholders on how best to work together to clamp down on theft and sale of sensitive military items. However, the Defense Department insisted on appearing separately from our private sector witnesses, and therefore you had to wait during that period of time and we had to break up the discussion that we were on. The reasoning apparently given doesn't appear clear to me, but it was not clear to anybody, I don't think, especially as the focus of the hearing is how we can all do our part to fix this situation going forward. You can rest assured, I don't think we will have that problem again, because if we have to use a subpoena next time to make sure that we bring them in, we will do it, if we can't get the cooperation of the Department of Defense to come in and work with Congress on these issues without looking for some special dispensation. I don't know what the concern was, whether people thought that they were going to be held accountable and didn't want to be held accountable or what the problem was, but I have now talked to the chairman and the ranking member and we won't have that issue again. Next time we ask somebody to come in and cooperate with us, I expect that they will come in and cooperate with us. But we got notice too late that kind of pettiness was going to be going on, and so we didn't have a chance to issue a subpoena or whatever. And so we have a second panel and you are on it and I hope we now can go forward and try to at least look at this part of the picture. Given the nature of the ubiquitous marketplace here, we want to find out what is the best line of defense for keeping track of this materiel in the first place. Once body armor or night vision goggles or F-14 parts leave our control, as you heard from the first panel, we seem to have already lost a good part of the battle. So we are not going to waste any more time on ceremony or playing games. We have a panel going in. It is the policy of this subcommittee to swear you in before you testify. I ask you to please stand and raise your right hands. If there are any other persons who are going to testify or assist in your testimony, I would ask that they stand to be sworn, as well. [Witnesses sworn.] Mr. Tierney. The record will please reflect that both witnesses answered in the affirmative. I understand, Ms. Finnecum, that you did provide testimony. I would like to thank you for that. Mr. Estevez, you did not, so we would ask you to give a brief oral statement to fill the subcommittee in on policies and procedures in place across the Department of Defense to keep a tight hold on sensitive and expensive military technology and equipment. Please keep your oral statements as close to 5 minutes as you can, and then we will allow for some questions and answers. Mr. Estevez, you are recognized. STATEMENTS OF ALAN F. ESTEVEZ, PRINCIPAL ASSISTANT DEPUTY UNDER SECRETARY OF DEFENSE, LOGISTICS AND MATERIEL READINESS, U.S. DEPARTMENT OF DEFENSE; AND SARAH H. FINNECUM, DIRECTOR, SUPPLY AND MAINTENANCE DIRECTORATE, U.S. ARMY, G-4, LOGISTICS STATEMENT OF ALAN F. ESTEVEZ Mr. Estevez. Thank you, Chairman Tierney, and thank you for the opportunity to appear before you to discuss the issue of Internet sales of sensitive Defense-related items. As you note, I am Alan Estevez, Principal Assistant Deputy Under Secretary of Defense for Logistics and Materiel Readiness. In my position I am responsible for developing over- arching logistics policy for the Department of Defense, which includes policies related to how our Department ensures our soldiers, sailors, airmen, and marines are supplied with materiel needed to fulfill their missions. Our focus is to ensure that policies and procedures are in place to effectively provide that materiel, including food, fuel, munitions, protective equipment, and repair parts to our globally deployed forces when and where they need it, as cost effectively as possible to meet mission requirements. Before focusing on the specific issues of this hearing, I believe it would be useful to put those issues within the context of the broader DOD logistics enterprise, a $178 billion operation in fiscal year 2007, including supplemental funding. We feed and clothe over 2 million fighting men and women and support weapons systems engaged in air, land, sea, space, and cyberspace programs around the world daily. Today more than 2.4 million American men and women are in uniform, including active, reserve, and National Guard components. Over the last 5 years, approximately 1.7 million American military forces have deployed to the U.S. Central Command area of operations. In support of our global operations, the DOD manages more than 4.4 million types of items, we process over 82,000 requisitions for that materiel daily. DOD issued 31.6 million cases of meals ready to eat [MREs], over the last 5 years, both in support of our forces and for humanitarian assistance, to include providing MREs to other Federal agencies and to international partners in support of Hurricanes Katrina and Rita, for the Indian Ocean tsunami, and Pakistani earthquake relief. Over that same period, over 1.6 million small arms protective inserts and 846,000 enhanced small arms protective inserts were issued in support of current military operations. With the assistance from this Congress, DOD maintains a world class military logistics system. That said, the Department is always concerned about ensuring the security of our forces. In past hearings before this committee, the focus has been on our reutilization and disposal process. The Department has made significant strides over the past few years based on our own internal transformation, with some guidance and support from the U.S. Government Accountability Office and this committee to significantly tighten procedures associated with those operations. As Congressman Shays noted, in a July 6, 2007, letter to the committee GAO noted DOD's significant progress in this area. Even with that progress, we continue to reassess our policies and tighten our procedures related to realization and disposal. The focus of the GAO investigation that prompted this hearing is not to be the Department's internal materiel disposition processes, but rather on the criminal activity of a few members or former members of our armed forces, as well as the sale of Defense-related materiel from commercial sources. The Department obviously deplores criminal activity, especially when committed by members or former members of the armed forces, and supports law enforcement efforts to prosecute such malfeasance. With regards to sales of materiel over Internet sites, I want to emphasize that the DOD does not set nor enforce export control policy. In addition, the Department does not manage commercial entities nor determine what they are allowed to legally sell domestically or internationally when the associated technology is not owned by the Government, nor can we prevent legal sales of that materiel. Responsibility for export control of military unique items is assigned to the Department of State, for dual use items to the Department of Congress [sic]. Enforcement resides with the Departments of Homeland Security and Justice. DOD complies with the controls for that materiel within our passenger after the controls are set by those agencies. With regard to DOD's internal inventory management practices, my office is responsible for establishing the policies for an integrated DOD supply chain process that fully supports military operational requirements. In this capacity, DOD prescribes policies for the management and control of the materiel from its initial entry into the Department of Defense to disposal, when the materiel becomes excess to the needs of our war fighters and military services. My office establishes Department-level policies, while the military components are charged with establishing their own processes and procedures to execute those policies within the guidelines provided. In closing, Mr. Chairman, thank you for the opportunity to testify before the committee. As the DOD continues to provide support to our military forces at the scale referenced above, the Department also continues to monitor and adjust our policies, as required, to continue to better support our American men and women in harm's way and to do justice to the American taxpayer. I would be happy to answer any questions you or the committee may have. Mr. Tierney. Thank you, Mr. Estevez. Ms. Finnecum, you are recognized. STATEMENT OF SARAH H. FINNECUM Ms. Finnecum. Chairman Tierney, on behalf of the Army we thank you for the opportunity to appear before you today to discuss the sale of sensitive, in-demand Army equipment and supplies on the Internet, specifically the two Web sites eBay and Craigslist. Mr. Chairman, I have submitted a written statement that I ask be made part of the official record. Mr. Tierney. It is done, without objection. Ms. Finnecum. I want to assure you that the Army has both law and policy that prohibits the sale of Government property by private individuals. We also have processes and systems to account for our materiel and prevent such abuses. Having said that, there is a fine balance between providing our fighting forces the equipment they need as expeditiously as possible, while also maintaining accountability of that equipment. In the early stage of OIF and OEF, we recognized the obstacles that field commanders faced in conducting combat operations while carrying out the property accountability responsibilities. Therefore, in May 2003 the Army developed a limited wartime accountability policy to relieve commanders of the administrative burden that impeded the rapid re-supply and refit of our forces; however, we found our aggressive efforts to ensure deploying and deployed units had the best equipment possible also created challenges to account and track equipment. In November 2005 we rescinded the limited wartime accountability policy. We followed with additional guidance on accountability requirements to include safekeeping and disposition of Government property entrusted to units and individuals. The Army's bottom line is that soldiers and civilians are responsible for maintaining and properly accounting for materiel in their possession. The Uniform Code of Military Justice authorizes punitive action to be taken against soldiers for the following: Article 92, failure to obey an order or regulation; Article 108, military property of the United States lost, damaged, destruction, or wrongful disposition of property; and Article 134, stolen property, knowingly receiving, buying, or concealing. Additionally, the Army has two specific regulations that address accounting for Army property. The principal regulation is AR735-5, policies and procedures for property accountability. This regulation establishes the basic policies and procedures to account for Army property. It also prescribes the accounting procedures to be used when Army property is discovered lost, damaged, or destroyed through causes other than fair wear and tear. AR735-5 clearly states that no Government property will be sold, given as a gift, loaned, exchanged, or otherwise disposed of unless specifically authorized by law. The second regulation is AR710-2, supply policy below the national level. It provides policy for the accountability and responsibility of property issued to a unit or an individual. The key provision of this regulation requires employees of the Army, be that a civilian or a soldier, to turn in to the supply system all Government property that has been found, and to place that property under the control of an accountable property officer. I would also like to quickly provide you a summary of some of the other initiatives we have put in place to prevent improper use of our Government materiel. We implemented Operation Total Recall in September 2006 to improve accountability of Army assets. All Army units were directed to conduct focused inventories, training, and emphasize the command supply discipline program. To date, the Army has returned to property book accountable records over 20,000 items worth more than $135 million. Two, revitalization of the command supply discipline program. This is a commander's program that standardizes supply discipline requirements across the Army. Each commander is required to provide the personal interest and direction necessary to establish and ensure the success of his or her unit is stewardship of resources and property. We have also fielded a new Web-based system called the property book unit supply enhanced system. We did that in 2001 and completed fielding of it in 2007. This system significantly improves accountability at the local level--and by that I mean unit--and allows asset visibility of unit property across the Army. We have also implemented the central issue facility integrative system management in 2006. That system captures organizational clothing and individual equipment issued to soldiers and civilians. We are constantly putting articles in soldier magazines, on the Internet so that soldiers are aware of the proper procedures for accounting for equipment. We have ongoing and constant review and analysis of property accountability. Mr. Chairman, I will save any further comments on Army property accountability for the question and answer session. Thank you for your time today. [The prepared statement of Ms. Finnecum follows:] [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] Mr. Tierney. Thank you for your testimony. Mr. Shays gives his apologies. He has been called away. He had wanted to ask questions, and unfortunately the delay has prohibited that. Let me ask each of you, do you think that our systems in place are working? Mr. Estevez. Let me answer that first, Chairman Tierney. I think yes, on the macro scale. Obviously, there are some cases up in front of us of theft on the part of some individuals. Let me start off by saying of those 2 million American men and women under uniform, most of those, the vast, vast majority of those are heroes who deserve our gratitude. Within that small group that have committed some crimes, as I stated in my statement, we support prosecuting them to the fullest extent of the law. To the greater extent, I would put our processes for maintaining accountability and control of materiel up against the retail sector, for example. Mr. Tierney. Well, at what point do you think you reach the capacity of the retail center, because it doesn't appear that is the case for some time. I notice that Ms. Finnecum indicated she put some things into effect in 2006 on that basis. It seems to me a little bit late. Did we learn nothing from prior engagements or missions? Mr. Estevez. I think, Congressman, we have to separate stolen from our warehouses and from our controls versus stolen by individual soldiers or sailors, airmen, and marines that may have been issued that equipment and, in the combat operation where things are not quite as stable as they are inside a Wal- Mart store, for example. But the retail sector gets about 1\1/ 2\ to 2 percent material that they own percent of sales is lost, shrinkage. Mr. Tierney. You are not making the assertion that all of the stolen materials are stolen on the battlefield? Mr. Estevez. No, I am not, but I am saying that it is not stolen from our wholesale national inventory for the most part. Obviously, there are always cases, and we put processes and procedures to mitigate those possibilities as best we can. If we find a hole in that, we go back and we close that hole, as well. Mr. Tierney. Where do you suppose things like complete uniforms are stolen from? Mr. Estevez. Well, I can't say that was stolen, that one in particular. We issue uniforms and soldiers buy their own uniforms. They are allowed to sell them. American companies are allowed to sell those uniforms. They are legal for sale worldwide, frankly. Mr. Tierney. Toward what end? I mean, other than issuing uniforms to people that are in the service going to use them in their military duty, why are people selling military uniforms? Mr. Estevez. Our soldiers, sailors, and marines buy their uniforms at the officer level. They buy them direct from some of these companies, first. Second, there is an industrial base issue at large. If we are going to discuss shutting down uniform sales, I think that raises a broader issue. I am probably not the person from a force protection perspective to have that discussion. My focus is on providing materiel to our folks inside the Department of Defense. But there are certainly industrial base issues on precluding some of those companies from selling materiel that is legal. Mr. Tierney. Well, at least directly. You would think that if you wanted to keep some control on your inventory you wouldn't have the people sell directly, you would have them sell them through the military to their members and you could keep track of it. Mr. Estevez. A uniform is not in DOD inventory. That is owned by the individual soldier. Mr. Tierney. I understand that. My question is whether or not that is a good idea; whether, if we are worried about uniforms ending up on eBay and Craigslist and other places, whether it is a great idea to allow them to be sold outside of the chain that you can keep some monitoring on. Mr. Estevez. Again, Congressman, that is a force protection issue regarding whether we want people that are not members of the military to be wearing our uniform, and I understand that. I am not the person to be having that discussion with. As far as controlling our own inventory inside the Department, the uniform is not an item that we manage. We do issue uniforms and we manage those due to folks going off into battle, but once they are issued they are owned by those folks. Mr. Tierney. So lets just drill down a little bit, the problem is the uniform with the infrared identifier that was purchased and sold, either as a composite or individual parts and then put together. I think that would be a problem. We don't disagree about that, or do we? Mr. Estevez. I certainly agree that having someone dress themselves up as a U.S. military member is an issue that we need to control, from a force protection perspective. Again, I am not the force protection person. You would have to have someone in here to discuss that. Mr. Tierney. That is the beauty of bureaucracy. Mr. Estevez. But a uniform, in and of itself, does not gain access to anywhere. It is a uniform, it is procedures, it is a TAC card, your entry card. So a uniform in and of itself does not gain entrance to an facility. Mr. Tierney. It certainly helps, doesn't it? Mr. Estevez. It lowers the threshold. Mr. Tierney. As in that incident in January where somebody put one on and ended up killing five of our people. They certainly lowered the threshold enough to cause some damage there. Mr. Estevez. I am not the person to discuss that particular incident, but there is more to that incident than just a uniform. And there is tactics, techniques, and procedures that mitigate those risks out in the field. Mr. Tierney. So you have identified two possible ways of this equipment or supplies getting into control. One is that they are stolen directly from the warehouse or in your control. Each of you contested you have that perfectly under control, as best we can possibly do; there is nothing else we can do to improve those system? Mr. Estevez. We are always looking at other ways to control our inventory. Like our counterparts in the commercial sector, we have a viable program to introduce things like radio frequency identification technology to help us manage our inventory. We are one of the leaders of pushing that technology across the globe right now, quite frankly. We are moving toward more serial numbered tracking of our materiel so you can get down to each part versus the gross level of parts. Again, we are leading the world in that push. But those are things that are out there in the commercial sector, so we are constantly assessing how things are done to better control our inventory and better account for that inventory. Mr. Tierney. What would you do or what do you recommend be done to stop this type of thing? The vests, for instance, where do you suspect they came from? Was it the warehouse? Was it some place else in your custody? Or was it a member of the forces selling it later on, or was it somebody that stole it from somewhere else? Mr. Estevez. The outer tactical vest, I am not sure. I would have to go back to the GAO report. I can't say whether that was stolen or whether that was an individual soldier. That is an accountable item that the soldier should have turned in, whether that was from an individual soldier. Mr. Tierney. Does seeing any of this displayed and listening to the testimony earlier and reading the Government Accountability Office's report strike the notion in you that we ought to change our policies in any way? Ms. Finnecum. Sir, I don't believe we need to change our policies. I think we need, in some instances, to do a better job of enforcing our policies and procedures. Mr. Tierney. Speak to me specifically, if you would, please, about what better enforcement would look like, in your estimation. Ms. Finnecum. I would tell you, sir, if you take the outer tactical vest that you are looking at, when we were pushing so desperately to get those fielded, we did not put them on the individual clothing records. We issued it to a soldier, and so when he came out of the war zone, redeployed back to home station, we did not have on his record whether he had been issued that outer tactical vest or not. Mr. Tierney. It strikes me, this is not the first time we have deployed soldiers in this country. Ms. Finnecum. No, sir. Mr. Tierney. And given them equipment that we have had to track. I mean, we have had a number of other missions. My earlier question, did we learn nothing from those occasions so that when we have to deploy people we were ready to ramp up and do it with these precautions in place. Ms. Finnecum. Well, what I would tell you, Mr. Chairman, is that if you take Operation Desert Storm, that only lasted for such a short amount of time, we were not rapidly fielding new technology like we have done here. Mr. Tierney. And nobody anticipated it? Ms. Finnecum. No, sir. If you look at our budget, we certainly didn't anticipate fielding all of this new gear in such a short span of time. Mr. Tierney. This is stunning that nobody in that whole outfit thought that there might be an occasion where this has to be done and we would better put it in place. You don't need the money to actually conceptualize a plan. You don't need that much imagination, I don't think, to think that you would be in a situation like this some day. I just think it is sort of stunning that nobody was ready for it. Ms. Finnecum. Well, again, sir, we have gone from a flack vest, which you have up there, to an outer tactical vest, to a new IOTV. We have gone through three iterations in 5 years. I will tell you, as we fielded the IOTV we can account for the issue of every IOTV. We know which soldier has it and when it got issued to him, and when he comes out of the war zone we will collect it. Mr. Tierney. And why is that not the case in the other items? Ms. Finnecum. Sir, because as we were fielding them so rapidly and trying to get them out there because of the pressure--they had nothing that would give them the protection that they needed. Now we continue to improve. Mr. Tierney. So you developed the system after the fact, and now you are applying the system? Ms. Finnecum. No, sir, we had the system; we didn't enforce the system. We have always required soldiers to carry this gear on their clothing records. In our effort to push it out there, we took the gear to Iraq and issued it to soldiers, in many cases on the FOBs. We did not capture it because of doing it in the environment. We have changed that. We know that we made mistakes in that. That is why we rescinded our policy. Mr. Tierney. That is a little bit more direct. It could have been done; it just wasn't done. Ms. Finnecum. It was not done. Mr. Tierney. That is at least an acknowledgement of making sure that looking forward we will know what we didn't do. Ms. Finnecum. Yes. Mr. Tierney. We realize what could have been done, and we just messed up and didn't do it. Ms. Finnecum. Yes. Mr. Tierney. Somebody hopefully was held accountable for that, and now we will move forward and hopefully keep improving on the system that we have. That is at least a start. Ms. Finnecum. Yes, sir. I have to tell you, if I am still in charge of supply policy and we get back into this, wartime accountability procedures will not be put in place. We thought we were doing something that would be of benefit, and instead it has caused us some problems, and we have taken corrective action. Mr. Tierney. OK. The other military items, like the night vision goggles, Mr. Estevez, you said that they were probably stolen from a manufacturer or something like that. How do you think they got into play? Mr. Estevez. Those were legally sold by manufacturer. Mr. Tierney. With the insert for infrared reading? Mr. Estevez. Yes, sir. Mr. Tierney. The sensitive information? Mr. Estevez. Yes, sir. There is an export control on that item, but it is legal to sell that item in the United States. Mr. Tierney. Do you think that is wise? Some of the earlier witnesses today made a recommendation that some of that equipment just be banned and not allowed to be sold. Would that be a way of solving some of our issues here? Mr. Estevez. Yes, but there are issues on the industrial base that we need to concern ourselves with. We have to deal with the fact that this is technology that is not owned by the Department of Defense; it is owned by companies who are subject to the export control laws of the United States in moving that technology. Mr. Tierney. Are there other uses for that particular technology that the public may not be aware of? Mr. Estevez. Hunting. Mr. Tierney. Are there other uses that would be more compelling in protecting our troops other than sports? Mr. Estevez. Night vision goggles are all over the world. Mr. Tierney. Not with the special insert, though. Mr. Estevez. I am not even sure what the special insert does. Mr. Tierney. The infrared item on our particular troops---- Mr. Estevez. Well, actually, any night vision goggle will read that tab. That is also a legal technology that is sold worldwide, though we restrict it from export with an export control. Mr. Tierney. So it is sold worldwide. Mr. Estevez. Well, we are not the only---- Mr. Tierney. They can get it someplace else? Mr. Estevez. Congressman Tierney, we are not the only country that makes that IR technology. Mr. Tierney. That particular one? Mr. Estevez. That particular one. Mr. Tierney. So that we have more than just a problem with controlling its export from this country; we have a problem with it getting used because they bought it somewhere else. Mr. Estevez. That technology is worldwide, global technology. That is not the only method that we would identify friend or foe in the battlefield. Mr. Tierney. OK. Having heard the testimony earlier, and one of the individuals indicating that eBay already bans the sale of police uniforms on its system, do either of you think that it makes sense to talk or think about banning the sale of military items and prohibiting their sale on the Internet, period, or at least some of them? Mr. Estevez. I certainly think we need to have that dialog with eBay. But, again, because most of these items that are up here are legal, unless they were stolen, it becomes hard to control that because you can sell night vision goggles legally in the United States. Maybe not the night vision goggles, the latest advancement of those, but if I was going to sell something on eBay I wouldn't say night vision goggle with special U.S. military insert; I would just say night vision goggles. You can sell body armor legally in the United States. So in order to control that with eBay, we would have to go through some other rigor on how to control items that are legally sold by domestic---- Mr. Tierney. Does anybody at DOD ever have that discussion or ever sit down and start thinking about whether there ought to be some recommendations made in that regard? Mr. Estevez. DOD is a large place, Congressman. Mr. Tierney. In your outfit? Mr. Estevez. From a logistics standpoint, sir, that is not a logistics management issue. Again, we are focused on maintaining our inventory and ensuring we have that inventory for the support of our forces. Mr. Tierney. Within the constraints of what it is each of you do, what assurance can you give the public that items like this will not come from any lapse in what it is you are doing in tracking this equipment? Ms. Finnecum. I would say to you that most of that gear would be a result of a criminal activity occurring, somebody stealing the property. I can't give you that assurance with regards to the Army combat uniform or boots or berets. If you don't mind, I would take just a moment. The Army combat uniform and the boots, the berets, those are considered personal items of clothing. The rest of the gear up there, the plates, the mask, the vest, those are considered organizational items. The Army pays for those and the Army tracks the accountability of those. When a soldier either PCSes, leaves the Army, retires, his clothing record is reviewed and he is responsible to turn that gear in. He has to pay for it if he does not have it in his possession when it is time to clear. If he has wilfully disposed of it inappropriately, the military can take corrective action against it plus collect the dollars. For the Army combat uniform, many of our soldiers pay for that out of their own pocket. Officers have to buy that uniform. It would be very hard, I think, to tell them you can't resell that item, when they have purchased it with their own resources. That is my personal opinion, sir. Mr. Tierney. I guess the question would be whether or not they should be purchasing it or the Army ought to be purchasing it and issuing it, one or the other. That would be a policy approach to that. Ms. Finnecum. Yes, sir, that is a policy and a resource issue. Mr. Tierney. You also indicated that the Army's total recall operation yielded 20,000 items returned with $135 million value in less than 2 years. Ms. Finnecum. Yes, sir. Mr. Tierney. That is pretty big leakage. Ms. Finnecum. I think it goes directly back in many cases to when we had that wartime accountability and we fielded items that we did not pick up to the appropriate accountable record. Mr. Tierney. Well, the recall only went into effect, when, in 2006? Ms. Finnecum. Yes, sir. Mr. Tierney. So you are saying all of that 20,000 items and $135 million in value is all from pre-2006 disposition? Ms. Finnecum. I think there is a strong possibility that is where it came from. Mr. Tierney. OK. Do you have any numbers from more recently to show that there has been a decline, then, that this thing is winding up? Ms. Finnecum. What I can talk to you about is just overall inventory accuracy rates. We require literally everything in the Army inventory to be inventoried--sorry for the duplication of words. Mr. Tierney. That is all right. Ms. Finnecum. For weapons, they are inventoried quarterly. For going out and just checking on a warehouse of materiel that belongs to a specific unit, that is done on an annual recurring basis. Clothing items are either you do a lay-down where we say we want to make sure you have your gear and the first sergeant says bring it in, and you look at it, and you make sure he has what is on his clothing record. Our inventory rates are in the 98 percentile in terms of accuracy. And, as Mr. Estevez---- Mr. Tierney. That is since 2006? Ms. Finnecum. No, sir. That is in terms of what is on the accountable record. Found on installation or things that we pick up, we track that. Mr. Tierney. I guess one question, if you don't mind me interrupting, would be this: you started this total recall operation in 2006? Ms. Finnecum. Yes, sir. Mr. Tierney. All right. And that deals with equipment that you issued as of that date? Ms. Finnecum. Yes, sir. Mr. Tierney. OK. So are we able to track what kind of leakage we have with respect to that equipment over these last couple of years and see if it is better than the 20,000 items and $135 million of value from what you say was previous issuance? Ms. Finnecum. I would have to take that for the record and get back to you, sir. Mr. Tierney. All right. I would at least like to know if you have a system to track that so we can determine whether or not your new system is working better than your old system. Ms. Finnecum. No. We do have records of our inventory accuracy. When we go and do it, we know whether we have found 100 percent of what we have on our accountable record or if there is a shortfall. Mr. Tierney. OK. That would be good to know for us, and know how it measures up against past records, whether or not you have a handle on this thing now going forward. Ms. Finnecum. Yes, sir. Mr. Tierney. I don't want to beat this thing to death. I appreciate your both being here. But let me ask each of you to give me your thoughts generally on this. You have heard the testimony this morning. You have read the GAO report. You know what we are concerned about here. What recommendations do you have to make in terms of moving forward and trying to stop those kinds of purchases with those kinds of serious implications from being made. Mr. Estevez. Thank you, Mr. Chairman. Let me start off. Again, any assistance we have in looking at our inventory systems and processes, frankly, is beneficial to the Department, because it is always good to help tighten up your procedures and processes. We have worked with GAO before and we have worked with this committee before to do that very thing, and we will continue to do so. Individual theft is a hard thing to stop, and we are working to do that and identifying that, as Mr. Beardall and Mr. Kutz alluded to earlier. Mr. Tierney. Won't that new system Ms. Finnecum talks about address that pretty starkly, if somebody is responsible for their items and you know whether or not they turn it in when they are discharged? Mr. Estevez. That is the process the Army has put in place, to do exactly that. Mr. Tierney. And does that go across all the services now, or is the Army the only service? Mr. Estevez. No. Each service manages how the individual issue, certain gear that they expect back to the Government. Mr. Tierney. And are they all on the same page on this, or are there different levels of success with their programs, running various programs and having different results? Mr. Estevez. I would have to take that for the record. But let me just say that there are different degrees of vulnerability in a ground combat situation that the Army and the Marine Corps find themselves in in Iraq versus a more or less fixed even though expeditionary installation that the Air Force may be working out of or on a vessel that the Navy may be working out of. Mr. Tierney. I understand. Mr. Estevez. So there are different degrees across the services. Mr. Tierney. Sure. Mr. Estevez. But we obviously need to tighten down what happens with an individual. As I said, on the wholesale level I think we are pretty good, but we are always looking at that, too. I think the larger question is: what do we allow for sale to the general public and to the American people, quite frankly, and what are our expectations there and what are the implications for the industrial base? Frankly, that is something that you, as a Congressman, and we as the Department and Commerce and other folks at Justice, Homeland Security, should be having that dialog at large, because some of these items are, as I pointed out, quite legal, and some of the technology is not just a motion technology, it is global technology, and we need to deal with the implications of that. Mr. Tierney. It seems to make sense that an interagency group might be put together to have just that discussion and make recommendations, I would think, on that, and that might be one of the things that results from this hearing. Ms. Finnecum. Ms. Finnecum. Sir, what I would offer to you is it is very distressing to see SAPI plates available for sale. I mean, the Army finally has turned the corner on our protective gear where every soldier going into Afghanistan and Iraq gets what he needs before he enters the theater. But 5 years ago that wasn't the case. It is very disturbing for anybody to see something available commercially that you can't get to give to your own soldiers. I like the idea of trying to identify things that shouldn't be sold and that there is an immediate flag that says don't even think about trying to put this on eBay. I know that there is a challenge with that, because many of these things are commercial products, but I would think body armor, tactical vests, we could figure out a way to crack the code on that. Mr. Tierney. Would it be too much to ask for you to go back and talk to your folks, your superiors, whoever you have to talk to, about starting to put a list of those things together that they think would be appropriate for that? Ms. Finnecum. Sure. Mr. Tierney. To the extent that involves you, Mr. Estevez, I would appreciate you doing that, as well. Mr. Estevez. Certainly, sir. Mr. Tierney. Thank you. I was just going to note here it indicates the Department of Defense recently discovered a lost nuclear missile component that was shipped to Taiwan. It is that kind of thing that sort of gets everybody unnerved, so that there are obviously issues out there that we have to have some level of confidence that this kind of stuff is under control and moving forward on that. I think we have taken some lessons out of this hearing. I appreciate your willingness to cooperate on some of those lists. On that, I think we still have some things to do with the manufacturing companies and, as you call them, the industrial base that will have to be included on that discussion, and the determination of just what makes sense to have the public use and then what doesn't make sense in terms of trying to balance safety of our troops against some other commercial or private use that people may have. Do either of you have any final comment that you would like to make? [No response.] Mr. Tierney. Thank you for your testimony. This meeting is adjourned. Thank you. [Whereupon, at 12:45 p.m., the subcommittee was adjourned.]