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

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              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:]

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    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.]