[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]
COMBATING ORGANIZED RETAIL CRIME--
THE ROLE OF FEDERAL LAW ENFORCEMENT
SUBCOMMITTEE ON CRIME, TERRORISM,
AND HOMELAND SECURITY
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES
ONE HUNDRED ELEVENTH CONGRESS
NOVEMBER 5, 2009
Serial No. 111-96
Printed for the use of the Committee on the Judiciary
Available via the World Wide Web: http://judiciary.house.gov
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COMMITTEE ON THE JUDICIARY
JOHN CONYERS, Jr., Michigan, Chairman
HOWARD L. BERMAN, California LAMAR SMITH, Texas
RICK BOUCHER, Virginia F. JAMES SENSENBRENNER, Jr.,
JERROLD NADLER, New York Wisconsin
ROBERT C. ``BOBBY'' SCOTT, Virginia HOWARD COBLE, North Carolina
MELVIN L. WATT, North Carolina ELTON GALLEGLY, California
ZOE LOFGREN, California BOB GOODLATTE, Virginia
SHEILA JACKSON LEE, Texas DANIEL E. LUNGREN, California
MAXINE WATERS, California DARRELL E. ISSA, California
WILLIAM D. DELAHUNT, Massachusetts J. RANDY FORBES, Virginia
ROBERT WEXLER, Florida STEVE KING, Iowa
STEVE COHEN, Tennessee TRENT FRANKS, Arizona
HENRY C. ``HANK'' JOHNSON, Jr., LOUIE GOHMERT, Texas
Georgia JIM JORDAN, Ohio
PEDRO PIERLUISI, Puerto Rico TED POE, Texas
MIKE QUIGLEY, Illinois JASON CHAFFETZ, Utah
JUDY CHU, California TOM ROONEY, Florida
LUIS V. GUTIERREZ, Illinois GREGG HARPER, Mississippi
TAMMY BALDWIN, Wisconsin
CHARLES A. GONZALEZ, Texas
ANTHONY D. WEINER, New York
ADAM B. SCHIFF, California
LINDA T. SANCHEZ, California
DEBBIE WASSERMAN SCHULTZ, Florida
DANIEL MAFFEI, New York
Perry Apelbaum, Staff Director and Chief Counsel
Sean McLaughlin, Minority Chief of Staff and General Counsel
Subcommittee on Crime, Terrorism, and Homeland Security
ROBERT C. ``BOBBY'' SCOTT, Virginia, Chairman
PEDRO PIERLUISI, Puerto Rico LOUIE GOHMERT, Texas
JERROLD NADLER, New York TED POE, Texas
ZOE LOFGREN, California BOB GOODLATTE, Virginia
SHEILA JACKSON LEE, Texas DANIEL E. LUNGREN, California
MAXINE WATERS, California J. RANDY FORBES, Virginia
STEVE COHEN, Tennessee TOM ROONEY, Florida
ANTHONY D. WEINER, New York
DEBBIE WASSERMAN SCHULTZ, Florida
MIKE QUIGLEY, Illinois
Bobby Vassar, Chief Counsel
Caroline Lynch, Minority Counsel
C O N T E N T S
NOVEMBER 5, 2009
The Honorable Robert C. ``Bobby'' Scott, a Representative in
Congress from the State of Virginia, and Chairman, Subcommittee
on Crime, Terrorism, and Homeland Security..................... 1
The Honorable Louie Gohmert, a Representative in Congress from
the State of Texas, and Ranking Member, Subcommittee on Crime,
Terrorism, and Homeland Security............................... 4
The Honorable Lamar Smith, a Representative in Congress from the
State of Texas, and Ranking Member, Committee on the Judiciary. 5
The Honorable Bob Goodlatte, a Representative in Congress from
the State of Virginia, and Member, Subcommittee on Crime,
Terrorism, and Homeland Security............................... 7
Mr. David J. Johnson, Section Chief, Violent Crime Section,
Criminal Investigative Division, Federal Bureau of
Investigation, Washington, DC
Oral Testimony................................................. 9
Prepared Statement............................................. 11
Ms. Janice Ayala, Deputy Assistant Director, Office of
Investigations, United States Immigration and Customs
Enforcement (ICE), Washington, DC
Oral Testimony................................................. 14
Prepared Statement............................................. 16
Mr. John R. Large, Special Agent in Charge, Criminal
Investigations Division, United States Secret Service,
Oral Testimony................................................. 24
Prepared Statement............................................. 26
Mr. Zane M. Hill, Deputy Chief Postal Inspector, United States
Postal Inspection Service, Washington, DC
Oral Testimony................................................. 34
Prepared Statement............................................. 36
Material Submitted for the Hearing Record........................ 47
COMBATING ORGANIZED RETAIL CRIME--
THE ROLE OF FEDERAL LAW ENFORCEMENT
THURSDAY, NOVEMBER 5, 2009
House of Representatives,
Subcommittee on Crime, Terrorism,
and Homeland Security
Committee on the Judiciary,
The Subcommittee met, pursuant to notice, at 9:31 a.m., in
room 2141, Rayburn House Office Building, the Honorable Robert
C. ``Bobby'' Scott (Chairman of the Subcommittee) presiding.
Present: Representatives Scott, Conyers, Lofgren, Quigley,
Gohmert, Smith, and Goodlatte.
Staff present: (Majority) Bobby Vassar, Subcommittee Chief
Counsel; Joe Graupensperger, Counsel; Veronica Eligan,
Professional Staff Member; and (Minority) Robert Woldt, FBI
Mr. Scott. Good morning. First we have an announcement to
make: Because the full Committee markup from yesterday
unexpectedly went over to today the hearing previously
scheduled for noon on python snakes in Florida, which was
originally scheduled for noon today, will be moved to 10
o'clock tomorrow morning.
Subcommittee will now come to order, and I am pleased to
welcome you today to the hearing before the Subcommittee on
Crime, Terrorism, and Homeland Security about the role of
Federal law enforcement in combating organized retail crime.
Theft from retail establishments has long been a problem,
but the problem gradually grew beyond simple, isolated
incidences of shoplifting and burglary into something more
complex. It wasn't until the 1980's that organized retail crime
was recognized as a phenomenon, but the problem has continued
to grow in volume, sophistication, and scope.
What has emerged are sophisticated, multilevel criminal
organizations that steal large amounts of high-value products,
focusing on small and easily resalable items, and then resell
the goods through a variety of means, including flea markets,
smaller stores, and increasingly over the Internet. Sales over
the Internet have evolved to a point where they have become a
new crime phenomenon referred to as ``eFencing.''
Organized retail crime is now a significant issue that has
been--that has a big impact on the retail industry and our
economy. According to the National Retail Federation there are
now more than 1.6 million retail establishments in the United
States with more than 24 million employees--approximately 20
percent of our workforce--with sales of $4.6 trillion in 2008.
Clearly protecting the health of retail businesses is extremely
And so it impacts everyone from the big box retailers to
the small, independent stores. I have seen estimates that
organized retail crime amounts to between $30 billion and $42
billion a year in losses.
This type of crime obviously has a direct impact on those
from whom the items are stolen. They have fewer items in their
inventory to sell and their profits suffer. To make up for it
they must often pass along the burden to consumers in the form
of higher prices.
Organized retail crime also harms the public in several
other ways. To try to stop the thefts retailers engage in a
variety of loss prevention efforts that costs them money and
also results in higher prices for consumers. Lost sales to
retailers also means loss of tax revenue for State and local
government who are under extreme financial pressure in this
Consumers are also at risk when retail crime organizations
steal consumable products, especially the over-the-counter drug
items and infant formulas, two popular items for organized
retail theft rings. In many cases, after the merchandise has
been stolen the products are not stored properly, which can
render the products ineffective or even dangerous.
Retailers spend a lot of time and resources trying to
prevent thefts and catch thieves, but it is becoming
increasingly more difficult to do so. I commend the efforts of
retailers who normally compete with each other on a daily
basis, but they come together and learn from each other about
how to deal with emerging threats in retail crime by sharing
their collective wisdom on loss prevention.
While there have been significant disagreements between
retailers and online marketplaces about how to best deal with
thieves selling stolen goods using Internet sites such as
auction sites or direct sale sites, some progress has been
made. Accordingly, I encourage retailers and online
marketplaces to continue to work together with law enforcement
in catching and prosecuting organized retail thieves and to try
to forge a more cooperative effort to identify and weed out
those bad actors to stop and prevent them from selling stolen
goods over the Internet.
I have introduced legislation on this problem of eFencing,
and I will certainly continue to work with retailers, Internet
market representatives, and law enforcement to do all we can to
bring about effective solutions to the problem. Today the
Subcommittee will focus on the role of the Federal law
Organized retail crime poses some difficult challenges to
law enforcement. For example, theft rings often operate in
multiple jurisdictions, making it impossible for any one State
or local law enforcement agency to investigate and prosecute
The Internet has also made it much more--much easier for
some such sellers to access a national or even international
market of buyers of stolen goods. In addition, the proceeds of
these crimes are often laundered with tremendous
These types of cases can be very resource-intensive. Even
in the best of circumstances there are many--circumstances
where it is obvious that items offered for sale are stolen, and
it may be the case that a seller is offering store brand-named
items in large qualities--quantities--and at prices
substantially lower than retail value.
However, even these relatively obvious cases can be very
expensive and time-consuming for law enforcement to investigate
and bring charges. Large amounts of resources are needed to
engage in the necessary investigatory techniques such as
stakeouts, sting operations, development of sources, financial
analysis, video and audio surveillance, undercover meetings,
wiretaps, and PIN registers.
These cases are even more difficult and more expensive to
investigate if it is not obvious which retailer the goods were
stolen from, and this is why it is important that law
enforcement agencies have sufficient resources to take down
these types of criminal enterprises.
The FBI has indicated how serious the problem of organized
retail crime is. When speaking about organized theft and
reselling of infant formula Director Mueller, of the FBI, said
that ``in a number of our cases the subject of these
investigations are suspected of providing financial support to
I believe we have taken some positive steps in law
enforcement in this area in recent years. In 2006 the FBI
created its organized retail crime task force. A year later the
FBI collaborated with the National Retail Federation and the
Retail Industry Leaders Association to launch the Law
Enforcement Retail Partnership Network, called LERPnet--thank
you, LERPnet--which is a secure national database that allows
retailers to share information with each other about incidences
of organized retail crime and other types of crime.
ICE has launched a pilot program to get a better
understanding of the problem and how to combat it. The Secret
Service uses capabilities with respect to investigating
activities such as credit card fraud, which are often tied to
organized retail crime schemes. The U.S. postal inspectors take
action against those involved in this type of crime who ship
stolen products through the mail.
And I am pleased that our law enforcement agencies have the
investigative expertise and jurisdiction to investigate many of
the aspects of organized retail crime. And while State and
local law enforcement agencies are on the front line of
combating local incidences of these crimes, the Federal law
enforcement is uniquely positioned to take down large
investigated multi-state operations.
So if we can learn from these agencies what Congress can do
to better equip them to do this type of crime--to pursue this
kind of crime more vigorously and to coordinate their efforts
with specific purpose of breaking up these crime rings. To this
end, we see the beginning of a dialogue with and between these
agencies and the businesses affected with the goal of enhancing
Federal enforcement efforts in this area.
We will hear from law enforcement--federal law enforcement
agencies today about their experiences with organized retail
crime and what they are doing to investigate it, and I look
forward to their testimony.
I will now recognize the Ranking Member of the
Subcommittee, the gentleman from Texas, Judge Gohmert.
Mr. Gohmert. Thank you, Mr. Chairman, and thank you for
holding this hearing on such an important issue on organized
retail crime. While I was still on the bench as a judge
handling felonies, I recall the law enforcement talking to be
about this new thing of people going in and stealing massive
amounts of baby formula, and at first they weren't really sure
where this was all going but then it became very clear.
This problem of organized retail crime is growing. It
involves the theft of large quantities of retail merchandise.
Organized retail crime is not necessarily a high-profile crime,
but it certainly is a high-volume crime and a very costly one.
Unlike shoplifters or small-time thieves who steal for
their own personal use, organized retail thieves steal
merchandise in order to sell it back into the marketplace. What
is worse, apparently much of the proceeds are often used to
fund even more devastating crimes.
These criminals typically target merchandise that can be
easily stolen and easily resold. The stolen items range, of
course, from low-cost products such as razor blades, baby
formula, or batteries, to expensive products that include
electronics or appliances. Organized retail thieves, commonly
referred to as boosters, will sell the stolen merchandise at
flea markets, pawn shops, swap meets, and increasingly on the
According to the FBI, organized retail crime accounts for
between $30 billion and $37 billion in losses annually. The
Coalition Against Organized Retail Crime estimates that States
with sales tax annually suffer over $1.5 billion in lost tax
revenue due to organized retail theft.
In 2005 Congress directed the attorney general and the FBI,
in consultation with the retail community, to establish a task
force to combat organized retail crime and create a national
database or clearinghouse to track and identify organized
retail crimes across the country. The result of this
legislation is the Law Enforcement retail Partnership Network,
LERPnet--you have got to like that--which was launched in 2006.
This national database allows retailers to share information
about suspected theft with each other and law enforcement
In addition, the FBI has created major theft task forces to
identify and target multijurisdictional and organized retail
crime rings. There are currently nine FBI-led major theft task
forces staffed by FBI agents and State and local law
enforcement officers located in FBI field offices across the
I am looking forward to learning more about not only the
FBI's efforts to combat organized retail crime but also the
efforts of the U.S. Secret Service, U.S. Immigration and
Customs Enforcement, and U.S. Postal Inspection Service. I
understand the work of these agencies has led to the
prosecution of numerous perpetrators of organized retail crime.
For example, in 2008 the U.S. Secret Service investigated a
case involving four thieves who used fraudulent credit cards to
purchase more than $1 million of Target and Walmart gift cards.
This led to the arrest of all four thieves, three of whom are
serving Federal sentences ranging from 44 months to 84 months
The restaurant servers from whom the four conspiring
thieves obtained credit card numbers were also arrested. After
getting credit card numbers from the restaurant the four
primary conspirators created fraudulent credit cards to
purchase Target and Walmart gift cards, which were then resold
online at eBay and in person to acquaintances. The eBay seller
was arrested in addition to the restaurant servers and the four
Several bills have been introduced in this Congress to
prohibit organized retail theft, and in particular eFencing--
the sale of stolen goods at online auction sites. Auction sites
such as eBay and other online marketplaces, including
Amazon.com, have expressed concerns about these bills.
I appreciate the desire to craft legislation that addresses
innovative criminal conduct, but I am wary of legislation that
deviates from using the knowing or intentional mental states
that are commonly used in criminal offenses--because criminal
offenses are intended to impose penalties against those who
consciously act to commit a crime or consciously act in
furtherance of a crime. Another alternative to the use of
intent would be massive civil fines to get people's attention
even if they do not act with criminal intent.
With these concerns in mind, I look forward to hearing from
our witnesses and getting their perspectives on the Federal
agencies enforcing the law today. We need to learn more and do
all we can to investigate and prosecute perpetrators of
organized retail crime and those who assist them, and we need
everyone--retailers, online marketplaces, and law enforcement--
working together in the most efficient way possible toward this
With that I yield back the balance of my time.
Mr. Scott. Thank you.
The Ranking Member of the full Committee, Mr. Smith, from
Mr. Smith. Thank you, Mr. Chairman, and thank you and the
Ranking Member for having this hearing today on an especially
important subject. And I hope as a natural outgrowth of this
hearing we will, as a Subcommittee and a full Committee, be
able to enact legislation that will address some of the
problems that we are going to hear about today.
Organized retail crime affects millions of Americans each
year. Unfortunately, Federal law enforcement agencies lack
adequate resources to combat this growing crime.
Organized retail crime involves the theft of large
quantities of merchandise from retail stores by an organized
criminal organization. Unlike shoplifters, these thieves steal
the merchandise with the intention of selling it back into the
According to FBI estimates, organized retail crime rings
cost businesses more than $30 billion a year in losses. A 2007
organized retail crime survey by the National Retail Federation
found that 79 percent of the retailers polled were victims of
organized retail crime.
For these reasons the FBI established an organized retail
crime initiative to identify and dismantle large,
multijurisdictional organized retail crime rings. This
initiative included the formation of a National Retail
Federation-FBI Intelligence Network. The network is intended to
establish an effective means of sharing organized retail crime
information and to discuss trends as they relate to specific
sectors and regions of the retail market and to identify and
target the more sophisticated criminal enterprises.
Congress should increase funding to the FBI's organized
retail crime initiative. That is why last month I sent a letter
to the Chairman and the Ranking Member of the Appropriations
Subcommittee on Commerce, Justice, Science, and Related
Agencies requesting that Congress authorize additional funds to
help the FBI fight organized retail crime.
The FBI is not the only Federal agency pursuing organized
retail crime. The U.S. Secret Service, U.S. Immigration and
Customs Enforcement, and the U.S. Postal Inspection Service
also combat these criminal organizations.
For example, the Postal Inspection Service and Immigration
and Customs Enforcement investigation worked last year to
uncover a refund scheme involving the use of counterfeit serial
numbers to obtain new video game hardware. The wrongfully
obtained hardware was then sold on eBay for the gang's profit.
The cost to Target and other retailers, including Walmart,
of just this one scam was a half a million dollars. The
thieves' activities were tracked in seven States before they
were arrested and prosecuted, thanks to the good work of these
Federal agencies here today.
Examples like this one are encouraging, but there is still
too little prosecution of organized retail crime. State felony
thresholds, which require that the value of the stolen goods
must amount to $500--or $1,000 in some States--for the offense
to be a felony are too high to prosecute organized retail crime
effectively. The Federal threshold for prosecution for the
crime of transportation of stolen goods and interstate commerce
is even higher, as the value of the stolen goods must exceed
$5,000 to trigger Federal criminal liability.
To help Federal agencies combat the phenomenon of organized
retail crime more effectively, earlier this week I introduced
H.R. 4011, the Organized Retail Crime Prevention and
Enforcement Act of 2009. This bill reduced the Federal felony
threshold from $5,000 to $1,000 for the sale of stolen goods
through online marketplaces. The bill also provides that ``the
attorney general shall establish multijurisdictional task
forces to initiate investigations of organized retail theft and
dismantle organized retail theft criminal enterprises in the
six United States district court districts with the greatest
incidence of organized retail theft.''
Mr. Chairman, I think this bill is a good start, and I look
forward to hearing from our witnesses what more we can do to
combat the serious problem of organized retail crime in
America. And you don't need to answer this question now, but I
would hope that a piece of legislation--perhaps the one I
introduced--could be the subject of a bipartisan effort to try
to address this serious problem of organized retail crime.
And I will yield back.
Mr. Scott. Thank you. And I will answer. I have introduced
a bill on this subject, but I don't have any pride in
authorship. We should consider everything that can address this
problem, so that will certainly take place.
We usually ask other Members to put their statements in the
record, but my colleague from Virginia has been hard-working on
this issue, and I understand you have a statement to make.
Mr. Goodlatte. Well, Mr. Chairman, thank you very much for
your kind words and for allowing me to give this statement. I
want to thank you especially for the hard work that you have
put into this issue over a few years now, and I hope we do make
progress and look forward to working with you and Mr. Gohmert
and Mr. Smith on that.
Organized retail crime, or ORC, is a huge and growing
problem in the United States. Retailers estimate their losses
from ORC to be in the tens of billions of dollars. ORC groups
target anything from everyday household commodities, to health
products, to baby formula that can be easily sold through flea
markets, swap meets, shady storefront operations, and through
Thieves often travel from retail store to retail store
stealing relatively small amounts of goods from each store but
cumulatively stealing significant amounts of goods. Once
stolen, these products are sold back to fencing operations,
which can dilute, alter, and repackage the goods and then
resell them, sometimes back to the same stores from which the
products were originally stolen.
When a product does not travel through the authorized
channels of distribution there is an increased potential that
the product has been altered, diluted, reproduced, and/or
repackaged. These so-called diverted products pose significant
health risk to the public, especially the diverted medications
and food products.
Diverted products also cause considerable financial losses
for legitimate manufacturers and retailers. Ultimately the
consumers bear the brunt of these losses as retail
establishments are forced to raise prices to cover the
additional cost of security and theft prevention measures.
Even more troubling is where the money is going. Our
witnesses today will explain that oftentimes this money is
being sent overseas and is being used to fund international
organized crime and even terrorist organizations.
At the State level, organized retail theft crimes are
normally prosecuted under State shoplifting statutes as mere
misdemeanors. As a result, the thieves that participate in
organized retail theft rings typically receive the same
punishment as common shoplifters. The thieves who are convicted
usually see very limited jail time or are placed on probation.
I believe that the punishment does not fit the crime in
these situations. Mere slaps on the wrist of these criminals
has practically no deterrent effect. In addition, the low-level
criminals actually stealing these goods from the shelves are
easily replaced by the criminal organization's higher-level
During my 7 years working on ways to combat ORC, I found
that the Federal law enforcement community believed it had
adequate Federal laws to prosecute ORC crimes but that
communication and coordination among outside groups and State
and local law enforcement was lacking.
In order to improve the communications and intelligence-
sharing between industry and law enforcement, I offered an
amendment to the Department of Justice Reauthorization bill
back in 2005 that created a Federal definition of organized
retail theft crimes and directed the FBI to contribute to the
construction of a national database housed in the private
sector where retail establishments as well as Federal, State,
and local law enforcement could compile evidence on specific
organized retail theft crimes to aid investigations and
I was my hope that this database, which has now become the
current LERPnet, would help to put the pieces together to show
the organized and multistate nature of these crimes as well as
provide important evidence for prosecution. I am pleased to see
in the written testimony today that law enforcement believes
this initiative is proving helpful.
In addition, in December of 2003 the FBI established an
organized retail theft initiative to combat this growing
problem. While this is a good start, I look forward to hearing
the FBI's plans to bolster its efforts to combat these crimes
which are increasing in frequency, posing greater threats to
consumers, and resulting in greater losses to businesses.
Recent busts have shown how widespread this problem truly
is. We need more arrests like this to effectively combat
organized retail theft.
I am also pleased to hear about ICE's ORC pilot program,
and I hope that this program will lead to more information
about how these crime rings operate and how we can more
effectively shut them down. I continue to look for new ways to
help law enforcement combat ORC.
In fact, I joined with Ranking Member Smith this week to
introduce H.R. 4011, which would lower certain monetary
thresholds in the criminal law and give law enforcement more
resources to combat these crimes. I urge the Members of this
Subcommittee to consider this approach when contemplating
legislation in this area.
And, Mr. Chairman, I look forward to continuing to work
with you to find additional approaches to solve this problem.
One concern I have had is that we need to make sure that
legitimate online businesses, like eBay and craigslist and a
whole host of other online businesses, are accommodated in the
sense that we need to find ways where they can cooperation with
law enforcement without having legislative requirements that
are too intrusive in terms of their business model relative to
others who are a part of the overall network that is a problem
for organized retail crime.
These entities want to be helpful, want to cooperate with
law enforcement, and I think we can find ways to enhance their
cooperation without making them subject to unreasonable
requests for information that would make it difficult for them
to continue to operate.
Thank you, Mr. Chairman, for holding this important
Mr. Scott. Thank you.
Our first panelist will be David Johnson, section chief of
the violent crime section of the Criminal Investigation
Division of the FBI. He began his FBI career at the San Jose
resident agency serving on the Violent Crime Squad and the
Mexican Drug Trafficking Organization Squad. He was promoted to
supervisory special agent of the Asian Organized Crime Squad.
He also served as assistant special agent in charge for the San
Francisco division and the unit chief of the Crimes Against
Children Unit at FBI headquarters.
Our second panelist will be Janice Ayala, assistant
director of the Office of Investigations of ICE. In this
position she has management oversight of all investigative
programs and initiatives for the Office of Investigations.
Previously she held several positions--several other positions
at ICE, including deputy assistant director for Financial,
Narcotics, and Public Safety Division. In that position she had
direct oversight of the financial, narcotics, and national gang
programs conducted by ICE throughout the United States.
The third panelist will be John Large, special agent in
charge of the Criminal Investigative Division of the U.S.
Secret Service. In this position he is responsible for
planning, reviewing, and coordinating all domestic and
international criminal investigations involving counterfeiting,
financial crimes, and electronic crimes.
Our fourth panelist will be Zane Hill, deputy chief
inspector of the United States Postal Inspection Service. In
this position he is directly responsible for the Inspection
Service's criminal investigation programs in the areas of
fraud, money laundering, and asset forfeiture.
Each of our witnesses' written statements will be entered
into the record in its entirety. I will ask each witness to
summarize his or her testimony in 5 minutes or less, and I ask
you to help stay within the time there is a lighting device at
the table that will start green, turn yellow when there is 1
minute left, and turn red when your time has expired.
TESTIMONY OF DAVID J. JOHNSON, SECTION CHIEF, VIOLENT CRIME
SECTION, CRIMINAL INVESTIGATIVE DIVISION, FEDERAL BUREAU OF
INVESTIGATION, WASHINGTON, DC
Mr. Johnson. Good morning, Chairman Scott, Ranking Member
Mr. Scott. Could you move your microphone a little closer
Mr. Johnson. Absolutely.
Mr. Scott. These don't work very well.
Mr. Johnson [continuing]. Of the Subcommittee. I appreciate
the opportunity to testify before you today on the FBI's
efforts to combat organized retail theft in the United States.
Each year organized retail theft is responsible for significant
economic losses to retailers, which are then passed on to the
American consumer. While it is difficult to pinpoint the exact
annual dollar loss caused by this crime problem, retailers
estimate all crimes where they are victims result in billions
of dollars in losses.
The tax revenue losses attributable to organized retail
theft also negatively impact States. In the face of the current
economic downturn, the hundreds of millions of dollars in
revenue losses to our States can be considered catastrophic.
The unsuspecting consumer also faces potential health and
safety risks from legitimate products which may have been
mishandled by the criminal enterprises who stole them for
resale to consumer. Also of concern for the FBI in particular
is the potential nexus between organized retail theft
syndicates and other criminal enterprises.
There are many challenges on the road to combating
organized retail theft. Lack of available resources to State
and local police departments who have the primary
responsibility for investigating most retail crimes is a huge
hurdle. Sharing information between public and private
enterprise is another.
As with other forms of criminal enterprises, there is a
loose hierarchy within organized retail theft groups.
Specifically, these groups utilize low-level boosters--those
who actually steal the merchandise--and higher-level fencers,
who frequently coordinate booster thefts. Often these boosters
are illegal immigrants working off a debt or individuals
suffering from some form of addiction. If these low-level
boosters are removed from the criminal enterprise others will
simply step in to take their place.
These criminal groups are also particularly nimble, able to
easily change their appearance, alter their method of
operation, and particularly adept and circumventing security
devices and procedures. Further, the wide reach of the Internet
and online auction sites has provided global marketplaces for
savvy entrepreneurs and, not surprisingly, criminal
Sophisticated organized retail theft groups can best be
dismantled--a coordinated and cooperative effort between law
enforcement and the retail industry. In December 2003 the FBI
establish an organized retail theft initiative to identify and
disrupt multijurisdictional groups using Federal statutes such
as conspiracy, interstate transportation of stolen property,
and money laundering.
Additionally, Congress passed legislation signed by the
President in January of 2006 that required the attorney general
and the FBI, in consultation with the retail community, to
build a system for information-sharing, to include intelligence
as well as lessons learned and best practices regarding
organized retail theft. As a result, the Law Enforcement Retail
Partnership Network, or LERPnet, was subsequently launched in
The database, which is housed and run by the private
sector, allows retail members to track and identify organized
retail theft via a secure Web portal. To date, nearly 100,000
retail locations are included in the data, which represents
$1.17 trillion in retail sales or nearly 25 percent of all
retail sales in 1 year.
With a recently signed memorandum of understanding, law
enforcement will also be able to access LERPnet via the FBI's
Law Enforcement Online to search reported incidents and track
organized retail theft throughout the country. This partnership
between law enforcement and private industry provides for
greater efficiency in intelligence gathering and dissemination,
enabling increased arrests, prosecutions, and recoveries of
In addition to LERPnet and coordination with the retail
industry, the FBI is identifying and targeting
multijurisdictional groups utilizing existing task force
resources. Staffed by FBI agency and other Federal, State, and
local law enforcement officers, the task forces are responsible
for conducting investigations in the major theft areas of
organized retail theft, cargo, vehicle, and jewelry theft
crimes. Further, in cases where an organized retail theft
enterprise can be tied to other criminal entities, additional
FBI or law enforcement resources may be able to assist.
The use of the task force approach to combating crime
coupled with successful partnerships within industry is seen by
the FBI as one of the most effective and efficient tools by
which to identify, disrupt, and dismantle any criminal
enterprise. That strategy is working.
For example, in May 2008, 23 organized crime associates of
the Gambino crime families, including a Gambino crew
supervisor, were arrested based on a racketeering indictment
charging them with operating an illegal enterprise involved in
illegal gambling, extortion, fraud, and labor racketeering.
The fraud schemes pertained to eight or more associates
involved in wire fraud because they created and used
counterfeit UPC labels to obtain merchandise from numerous
retail outlets. This 6-year investigation was conducted by the
FBI as well as our partners at the U.S. Department of Labor,
Office of Inspector General, Internal Revenue Service, the New
Jersey State Police, and the Union County Prosecutors Office.
In August of that same year, the FBI and its law
enforcement partners at the Internal Revenue Service, U.S.
Immigration and Customs Enforcement, and the Broward County
Sheriff's Department, participated in a raid of PharmaCare
Health Services in Sunrise, Florida. The resulting indictments
charged transportation of stolen goods, money laundering,
conspiracy, and fraud.
According to court documents, PharmaCare was actually a
wholesaler that often purchased bulk quantities of mixed and
damaged stolen products. Its employees were subsequently
convicted of selling millions of dollars worth of over-the-
counter medications, health and beauty aids that had been
stolen from Walgreens, Target, CVS, and Rite Aid.
Chairman Scott, Ranking Member Gohmert, and Members of the
Subcommittee, I appreciate the opportunity to come before you
today and share the work that the FBI is doing to address the
problem posed by organized retail theft syndicates in this
country. I am happy to answer any questions.
[The prepared statement of Mr. Johnson follows:]
Prepared Statement of David J. Johnson
Good morning, Chairman Scott, Ranking Member Gohmert and Members of
the Subcommittee. I appreciate the opportunity to testify before you
today on the FBI's efforts to combat organized retail theft (ORT) in
the United States. We prefer to use the term ``organized retail theft''
because the term ``organized crime'' has a specific meaning within the
context of law enforcement. Therefore referring to the criminal
activity as ``organized retail crime'' creates confusion.
What is called Organized Retail Theft or ORT by Retail Loss
Prevention Professionals, can generally be described as professional
burglars, boosters, cons, thieves, fences and resellers conspiring to
steal and sell retail merchandise obtained from retail establishments
by theft or deception. 'Boosters'--the front line thieves who intend to
resell stolen goods--generally coordinate with 'fences' who may sell
the items outright at flea markets or convenience stores or online; or
repackage them for sale to higher level fences. The problem is
significant for its negative economic impact, the safety issues it
brings to unsuspecting consumers, and its potential link to other
Each year, organized retail theft is responsible for significant
economic losses to retailers, which are then passed along to the
American consumer. While it is difficult to pinpoint the exact annual
dollar loss caused by this crime problem, retailers estimate all crimes
where they are victims results in billions of dollars in losses.
The tax revenue losses attributable to ORT also negatively impact
states. In the face of the current economic downturn, the hundreds of
millions of dollars in revenue losses to our states can be considered
This crime problem also has the potential to negatively impact
consumer health and safety. Specifically, the unsuspecting consumer
faces potential health and safety risks from legitimate products which
may have been mishandled by the criminal enterprises who stole them for
resale to consumers. In many cases, stolen infant formula,
pharmaceuticals, and other consumables are not stored under proper
conditions. When these items are reintroduced into the retail market,
they may pose a significant health risk to the consumer. The potential
threat is perhaps most evident in cases in which infant formula is
stolen, repackaged and then resold to both knowing and unknowing
wholesalers, who then sell the infant formula to government food
programs and discount stores. In addition to these concerns, the
potential for intentional product tampering prior to the reintroduction
of the stolen merchandise into the retail market is significant.
Also of concern for the FBI, in particular, is the potential nexus
between organized retail theft syndicates and other criminal
enterprises. In 2006, for example, nine members of an alleged Michigan
smuggling operation were arrested, accused of taking part in a global
scheme involving bootlegged cigarettes, phony Viagra and counterfeit
tax stamps, and sending a cut of their illicit profits to Hezbollah.
The FBI has also investigated criminal ties between members of the
international street gang MS-13 and fencing rings suspected of
trafficking in millions of dollars in stolen medicine and other retail
There are many challenges on the road to combating organized retail
theft. Lack of available resources to state and local police
departments, who have the primary responsibility for investigating most
retail crimes, is a huge hurdle. Sharing information between public and
private enterprise is another.
As with other forms of criminal enterprise, there is a loose
hierarchy within organized retail theft groups. Specifically, these
groups utilize low-level 'boosters'--those who actually steal the
merchandise and higher level 'fencers,' who frequently coordinate
booster thefts. Often, these boosters are illegal immigrants working
off a debt or individuals suffering from some form of addiction. If
these low-level boosters are removed from the criminal enterprise,
others will simply step in to take their place.
These criminal groups are also particularly nimble--able to easily
change their appearance, alter their method of operation, and
particularly adept at circumventing security devices and procedures.
Groups typically utilize methods ranging in sophistication from the
development and use of counterfeit receipts and UPC codes to refund and
check/credit card fraud to something as basic as the 'grab and run.'
They frequently identify store locations with Global Positioning
Systems (GPS), identify escape routes, use false identification,
utilize rented or borrowed vehicles, and employ diversionary tactics in
stores. They are known to travel from state to state or city to city
following interstate corridors around large cities.
Further, the wide reach of the Internet and online auction sites
has provided global market places for entrepreneurs and, not
surprisingly, criminal enterprises.
law enforcement/private industry response
Sophisticated ORT groups can best be dismantled through a
coordinated and cooperative effort between law enforcement and the
retail industry. In December 2003, the FBI established an ORT
Initiative to identify and disrupt multi-jurisdictional ORT groups,
using federal statutes such as Conspiracy, Interstate Transportation of
Stolen Property, and Money Laundering. Increased information sharing
and cooperation between law enforcement and the private sector will
enable both to gain a better understanding of the full nature and
extent of the threat ORT poses, as well as to identify the best methods
for law enforcement and the retail industry to attack this crime
Additionally, Congress passed legislation signed by the President
in January 2006 that required the Attorney General and the FBI, in
consultation with the retail community--specifically, the National
Retail Federation (NRF) and the Retail Industry Leader's Association
(RILA)--to build a system for information-sharing, to include
intelligence as well as lessons learned and best practices regarding
ORT. As you may already be aware, the result of that measure--the Law
Enforcement Retail Partnership Network (LERPnet)--was subsequently
launched in 2007.
The database, which is housed and run by the private sector, allows
retail members to track and identify organized retail theft via a
secure web portal. To date, nearly 100,000 retail locations are
included in the data, which represents $1.17 trillion in retail sales
or nearly 25% of all retail sales in one year.
With a recently signed Memorandum of Understanding (MOU), law
enforcement will also be able to access LERPnet via the FBI's Law
Enforcement Online to search reported incidents and track organized
retail theft throughout the country. This partnership between law
enforcement and private industry provides for greater efficiency in
intelligence gathering and dissemination, enabling increased arrests,
prosecutions, and recoveries of stolen merchandise.
Intelligence goes hand-in-hand with partnerships. One good piece of
intelligence can be the breakthrough needed to make a vital connection
or solve a case. By arming the retail industry with the infrastructure
necessary to share such intelligence, it is our hope that they--along
with their partners in law enforcement--are better able to thwart
criminal efforts and reduce subsequent losses. Previously, individual
retailers reported thefts to local law enforcement, but no uniform
method of tracking these crimes across jurisdictions existed.
In addition to LERPnet and coordination with the retail industry,
the FBI is identifying and targeting multi-jurisdictional ORT groups
utilizing existing task force resources. Currently, there are seven
FBI-led Major Theft Task Forces which are located in the Chicago, El
Paso (2), Memphis, Miami (2) and New York Field Offices. Staffed by FBI
Agents and other federal, state and local law enforcement officers, the
task forces are responsible for conducting investigations in the major
theft areas of ORT, cargo, vehicle, and jewelry theft crimes. Further,
in cases where an organized retail theft enterprise can be tied to
other criminal entities, additional FBI or law enforcement resources
may be able to assist.
These task forces, which combine the resources of local, state and
federal law enforcement, as well as retail loss prevention
professionals, are applying investigative techniques and strategies
which the FBI has successfully utilized to target traditional organized
crime, including the development of a solid intelligence base and the
use of undercover operations. Clearly, this approach increases the
effectiveness and productivity of limited personnel and logistical
resources, avoids the duplication of investigation resources, and
expands the cooperation and communication among federal, state, and
local law enforcement agencies as well as the retail industry.
The use of the task force approach to combating crime, coupled with
successful partnerships within industry, is seen by the FBI as one of
the most effective and efficient tools by which to identify, disrupt
and dismantle any criminal enterprise. That strategy is working.
In February 2008, for example, seven individuals were indicted for
participating in a scheme to shoplift merchandise and then sell it on
the Internet auction site eBay. All seven defendants were charged with
participating in a conspiracy to commit wire fraud and to engage in the
interstate transportation of stolen property. That case was
investigated by the FBI, Kansas City Police Department, and the Postal
Inspection Service. It has since been prosecuted by the U.S. Attorney's
Office, Western District of Missouri.
In May of that same year, 23 Organized Crime associates of the
Gambino Crime Families--including a Gambino Crew Supervisor--were
arrested based on a racketeering indictment charging them with
operating an illegal enterprise involved in illegal gambling,
extortion, fraud and labor racketeering. The fraud schemes pertained to
eight or more associates involved in wire fraud because they created
and used counterfeit UPC labels to obtain merchandise from numerous
retail outlets. This six year investigation was conducted by the FBI as
well as our partners at the U.S. Department of Labor, Office of
Inspector General; the Internal Revenue Service; the New Jersey State
Police; and, the Union County Prosecutors Office.
In August 2008, following months of investigation, the FBI and its
law enforcement partners at the Internal Revenue Service, U.S.
Immigration and Customs Enforcement, and the Broward County Sheriff's
Department, participated in a raid of PharmaCare Health Services in
Sunrise, Florida. The resulting indictments charged transportation of
stolen goods, money laundering, conspiracy, and fraud. According to
court documents, PharmaCare was actually a wholesaler that often
purchased bulk quantities of mixed and damaged stolen products. Its
employees were subsequently convicted of selling millions of dollars
worth of over-the-counter medications, health and beauty aids that had
been stolen from Walgreens, Target, CVS and Rite-Aid.
Chairman Scott, Ranking Member Gohmert and Members of the
Subcommittee, I appreciate the opportunity to come before you today and
share the work that the FBI is doing to address the problem posed by
organized retail theft syndicates in this country. I am happy to answer
Mr. Scott. Thank you very much.
I would like to recognize the--we have been joined by the
Chairman of the full Committee, Mr. Conyers, and the gentleman
from Illinois, Mr. Quigley.
TESTIMONY OF JANICE AYALA, DEPUTY ASSISTANT DIRECTOR, OFFICE OF
INVESTIGATIONS, UNITED STATES IMMIGRATION AND CUSTOMS
ENFORCEMENT (ICE), WASHINGTON, DC
Ms. Ayala. Chairman Scott, Ranking Member Gohmert, and
distinguished Members of the Subcommittee, on behalf of
Secretary Napolitano and Assistant Secretary Morton thank you
for the opportunity to testify today about our efforts in the
area of organized retail crime. ICE investigates individuals
and organizations that exploit vulnerabilities in financial
systems to launder their illicit proceeds domestically and
internationally. This includes organized retail crime, or ORC.
ICE's financial investigative expertise coupled with its
extensive customs and immigration authorities enables ICE
special agents to identify, dismantle, and disrupt financial
criminal interprises threatening our national economy and
security. Additionally, ICE is well aware of the impact of ORC
on the retail industry.
ICE recognizes that ORC groups engage in activities that
cross over into one or more of ICE's ongoing initiatives or
violate laws in which ICE has jurisdiction. ICE has been
involved in a number of successful ORC investigations, but I
would like to briefly discuss two.
In 2005 San Francisco Bay area retailers provided
information to the Oakland Police Department regarding an ORC
ring. They, in turn, forwarded the information to ICE agents
who, with the assistance of the IRS, the Oakland Police
Department, USDA, and FBI, uncovered a ring involving thieves
who stole over-the-counter products from large retailers. The
stolen products were then resold through Rosemont Wholesale, a
company involved in selling products such as medicines, razor
blades, baby formula over the Internet and to small local
Two fencing operations purchased the stolen merchandise on
behalf of Rosemont and generated illicit profits by selling it
to Rosemont at a premium. Rosemont then laundered the products
through their online auction site, shipping them throughout the
U.S. and Canada. They structured numerous banking transactions
to avoid currency reporting requirements, and some of the
illicit proceeds turned up in Yemen.
Following an extensive investigation, agencies--more than
12 tractor-trailer loads of stolen merchandise valued at
approximately $4.4 million. Charges including interstate
transportation of stolen goods, fraudulent State tax stamps,
money laundering, structuring, false statements, and conspiracy
were brought against eight defendants.
After a 6-week jury trial Hassan Swaid, president, CEO, and
owner of Rosemont, was sentenced to 78 months in prison. Five
other members of this organization pled guilty to various
crimes and are awaiting sentencing.
In 2001 ICE initiated the Mohammed Ghali investigation
after receiving information that a criminal organization he
headed was involved in the interstate transportation of stolen
merchandise and laundering the proceeds of the sales
internationally. Information uncovered during the
investigations revealed several members of the organization may
have had ties to terrorist organizations.
The Ghali organization recruited hundreds of shoplifters
and drug addicts to steal over-the-counter medicinal products,
prescription drugs, infant formula, glucose test strips,
razors, and pregnancy test kits. Merchandise was repackaged and
sold to wholesalers and retailers.
Numerous convenience stores owners operated by the
organization in the Fort Worth, Texas area were used as fencing
locations. They obtained product by committing various frauds,
as well as through armed robbery and warehouse thefts. A
shipment of Viagra valued at over $1 million was stolen from a
legitimate drug wholesaler and purchased by the Ghali
organization and then resold on the street.
ICE initiated a joint undercover operation between its
Dallas SAC office and the Fort Worth Police Department and the
FDA utilizing a number of investigative techniques to include
wiretaps. The loss prevention community also participated
throughout the course of the investigation.
As a result, 35 members of the organization were charged
with State and Federal violations, including conspiracy;
possession, receipt, or interstate transportation of stolen
property; and money laundering. Ghali was convicted and
sentenced to serve a 14-year Federal prison sentence.
ICE launched an ORC pilot program in July of 2009 in
Houston, Los Angeles, Miami, and New York. The pilot focuses on
the development of a threat assessment to determine how these
groups are engaged in crimes over which ICE has jurisdiction,
the tracking system and the database which places ICE agents in
contact with members of the retail community and complements
information contained in the National Retail Federation's
LERPnet, and an enhanced effort to fully explore how these
groups are exploiting systemic vulnerabilities in the banking
The ORC pilot program encompasses ORC-related criminal
activities under the jurisdiction of ICE, including those
committed over the Internet, and previous successful ICE
investigations have yielded indicators of suspicious banking
activity which have been shared with the financial sector.
While the ORC initiative is only a pilot program at this time,
based on our preliminary results ICE hopes to develop it into
an ongoing initiative.
Thank you for your continued support of ICE, DHS, and our
law enforcement mission. I would be happy to answer any
questions that you may have at this time.
[The prepared statement of Ms. Ayala follows:]
Prepared Statement of Janice Ayala
Mr. Scott. Thank you.
TESTIMONY OF JOHN R. LARGE, SPECIAL AGENT IN CHARGE, CRIMINAL
INVESTIGATIONS DIVISION, UNITED STATES SECRET SERVICE,
Mr. Large. Good morning, Chairman Scott, Ranking Member
Gohmert, Committee Chairman Conyers, and distinguished Members
of the Subcommittee. Thank you for today's opportunity to
address the Secret Service's role in investigating financial
crimes as they relate to organized retail crime.
United States Secret Service is responsible for two
significant missions: protection and criminal investigations.
While we are perhaps best known for protecting our Nation's
leaders, I would like to point out that we were originally
established in 1865 to investigate and prevent the
counterfeiting of U.S. currency.
As the original guardian of the Nation's financial payment
system, the Secret Service has established a long history of
protecting American consumers, industries, and financial
institutions from fraud. Over the last 144 years our
investigative mission and statutory authority has expanded, and
today we are recognized worldwide for our expertise and
innovative approaches to detecting, investigating, and
preventing financial fraud.
In recent years, the combination of the information
revolution and the effects of globalization have caused the
investigative mission of the Secret Service to evolve. On
account of our work in the areas of financial and electronic
crimes, we have developed particular expertise in the
investigation of identity theft, false identification fraud,
credit card fraud, debit card fraud, check fraud, bank fraud,
cyber crime, and computer intrusions.
Globalization has made commerce easy and convenient for
corporations and consumers. Financial institutions and systems
are readily accessible worldwide. Today's financial fraud and
cyber criminals have adapted to this new means of global trade
and are subsequently seeking to exploit our dependence on
With the explosion of Internet accessibility worldwide, the
criminal element has modified their fraudulent schemes to a
new, more anonymous, and constantly evolving cyber arena. The
Secret Service looks to outpace emerging threats posed by
financial fraud and cyber criminals by adopting an innovative
and multifaceted approach.
Through years of collaboration on our investigative and
protective endeavors we have established unique and vital
partnerships with State, local, and other Federal law
enforcement agencies. These partnerships have enabled us to
establish a national network of financial crimes task forces
and electronic crimes task forces that combine the resources of
the private sector, other law enforcement agencies, and
academia in an organized effort to combat threats to our
financial payment systems and credible infrastructures.
We currently maintain 37 financial crime task forces and 28
electronic crime task forces located in metropolitan regions
across the country, including the first international
electronic crimes task force, based in Rome, Italy.
Looking specifically at statistics for fiscal year 2009,
agents assigned to Secret Service offices throughout the United
States arrested over 5,800 suspects for financial crime
violation. These individuals are noted to be responsible for
approximately $443 million in actual fraud loss to specific
victims and/or financial institutions. With this globalization
of ecommerce, online auction houses have found themselves the
victims or even the unwitting participants in these organized
While investigating our core violations related to
financial crimes, the Secret Service has also opened criminal
investigations into these organized cyber groups. The Secret
Service has found these cases primarily evolve from access
device fraud investigations, wherein criminals fraudulently
purchase merchandise from traditional and online retailers and
then resell the merchandise through online auction houses.
In the recent past we have worked closely with online
auction houses to successfully investigate and prosecute
several of these groups. For example, in March 2008 we
identified a complex fraud scheme in which an organized group
of suspects were compromising credit cards at a local
Washington, D.C. area restaurant, using the skimmed credit card
numbers to purchase gift cards for nationally identified retail
Upon obtaining gift cards, the subjects would purchase
electronic merchandise and sell those items and other gift
cards through various online auction houses. Through the
collaborative effort of the Secret Service, the online auction
houses, the victim retail stores, all suspects associated with
this case were subsequently arrested on Federal charges of
access device fraud, aggravated identity theft, and conspiracy.
In conclusion, as I have highlighted, Secret Service
remains steadfastly committed to our mission of protecting the
integrity of the U.S. currency and safeguarding the Nation's
critical infrastructure and financial payment systems. Although
our core violations remain the same, our methods of
investigation have changed along with emerging technologies
that drive crime today.
Through our successful partnerships with public and private
task force members we continue to adapt to ever evolving cyber
criminal environment and dedicate significant resources to
aggressively investigate all offenses within our purview. Our
efforts continue to fill our originating investigative mission
and protect consumers and financial institutions.
Chairman Scott, Ranking Member Gohmert, Committee Chairman
Conyers, and distinguished Members of the Subcommittee, I thank
you again for this opportunity to testify on behalf of the U.S.
Secret Service, and I will be pleased to answer any questions
at this time.
[The prepared statement of Mr. Large follows:]
Prepared Statement of John R. Large
Mr. Scott. Thank you.
TESTIMONY OF ZANE M. HILL, DEPUTY CHIEF POSTAL INSPECTOR,
UNITED STATES POSTAL INSPECTION SERVICE, WASHINGTON, DC
Mr. Hill. Mr. Chairman, Members of the Committee, thank you
for holding this hearing on organized retail crime. The U.S.
Postal Inspection Service is committed to protect the American
public from criminals who use the United States Postal Service
in furtherance for fraud and theft schemes, including organized
The Postal Inspection Service has a long, proud, and
successful history of securing the Nation's mail system and
maintaining the public's trust in the mail. Postal inspectors
are charged with ensuring the mail is safe and free from
fraudulent schemes, illegal drugs, various forms of contraband,
child pornography, as well as other dangerous products.
Additionally, we work with other law enforcement and government
agencies at the local, State, and Federal level to ensure the
postal service is not used to facilitate the commission of
other crimes or as a conduit for the transportation of proceeds
from illegal activities.
It is this commitment that makes the Postal Service the
most trusted government agency and one of the most trusted
organizations in the United States. The use of the mails in
organized retail theft has not historically been one of the
major types of criminal activities we have encountered. That
being said, we are now aware of its potential impact and a
number of these types of cases have been referred to us from
other law enforcement agencies as well as the retail industry.
Our colleagues in Federal, State, and local law
enforcement, as well as corporate security professionals, are
the principal investigators in the area of organized retail
crime. When these crimes or aspects of these crimes cross into
the postal system we have the jurisdiction and statutory
authority to investigate and ssist other law enforcement
agencies and retailers in combating these illegal activities.
We generally see two types of schemes, which I will discuss
briefly: Internet auction fraud and reshipper fraud. Both of
these crimes take advantage of increasing use of the online
marketplace in order to sell the stolen or fraudulently
The Internet has become a critical component of the world's
commerce. More and more businesses are increasing their use of
this commerce channel. Likewise, consumers have the convenience
and ease of shopping in this expanded marketplace with a simple
click of the mouse without having to leave home.
This convenience, though, has a downside. Criminals now
have a larger market in which to sell and distribute their
stolen products and can made substantial profits with fewer
risks than the physical fencing operations that these criminals
have historically used.
By far, there is a greater reach for advertising of the
stolen products and the risk of detection is somewhat limited,
making this online marketplace option so attractive to the
organized retail crime groups. Like all law enforcement
agencies, we have had to adapt our investigative strategies and
tactics in order to investigate and prevent cyber crime of all
Our jurisdiction in organized retail crime lies in the use
of the mails to ship the stolen products or as a means to remit
payments to the online seller. In these investigations we have
seen the criminal groups attempt to utilize the full spectrum
of postal service products and services in their fraudulent
One example of a recent Post Inspection Service case began
early 2008. Postal inspectors received a tip that owners of two
Toledo, Ohio convenience stores were buying stolen merchandise,
selling it on eBay, and then shipping the items both
domestically and internationally via the Postal Service. Postal
inspectors determined that proceeds from the fraudulent sales
were then being laundered by the operators' relatives in
We alerted special agents of ICE in July when it was
determined one of their operators was--one of the operators was
leaving for Jordan on a flight from the Detroit Metro Airport
and was believe to be smuggling an unknown amount of cash. ICE
agents stopped the owner, his wife, and their two children at
the airport and seized $75,000 in undeclared funds which were
hidden in the children's clothing. The husband and wife each
pled guilty to illegally smuggling cash and were sentenced to
time in prison.
Postal inspectors continued their investigation of the
other suspect operator with excellent cooperation from eBay and
PayPal and obtained records from the owner which identified
over 7,500 items valued at $650,000 that had been sold online.
Postal inspectors working with loss prevention specialists from
the victim companies identified most of the items as coming
from their stores.
Throughout 2008 postal inspectors and corporate security
investigators continued their work undercover, purchasing
stolen items from online sites operated by the suspect. In
February 2009 postal inspectors, ICE agents, and Toledo, Ohio
police executed a search warrant at the suspect's home and
recovered boxes of stolen merchandise as well as maps of
pharmacies he apparently planned to target in Cleveland,
Columbus, and Toledo. He was arrested and charged with mail
fraud, pled guilty in August, and is being detained until
Second area of retail crime we have become involved in is
in reshipper fraud. In these types of cases criminal
organizations enlist individuals to receive and then reship
products to other segments of the criminal enterprise,
generally to locations outside of the United States.
In the majority of these cases the products are obtained by
the retail crime groups through credit card theft and fraud.
Reshippers are oftentimes unwitting accomplices to the scheme,
receiving and mailing the products based on instructions
provided by the fraudsters. The reshippers do not know the
source of the products they receive and then reship.
Many of these groups recruit the reshippers in an attempt
to further insulate themselves from detection using a variety
of ploys to trick individuals looking for easy work-at-home
jobs. Ultimately these reshippers become part of the fraudulent
Retailers, shipping companies, and financial institutions
have all seen an increase in this type of crime. Again, the
ability to move the stolen product with the least amount of
exposure to those perpetrating the crimes is the reason for the
use of the reshipper approach.
The Postal Inspection Service continues to educate
consumers about these fraudulent schemes through an aggressive
consumer awareness and education program. These are distributed
through the Postal Service, our Web site, videos, and
newspaper, as well as online publications.
In closing, be assured the Postal Inspection Service
remains committed to working with law enforcement and retailers
to deal with the criminal distribution of illicit goods. Thanks
for the opportunity to testify at this hearing. I am ready to
answer any questions you might have.
[The prepared statement of Mr. Hill follows:]
Prepared Statement of Zane M. Hill
Mr. Chairman and members of the Committee: thank you for holding
this hearing on organized retail crime. The Postal Inspection Service
appreciates the opportunity to be here with our colleagues from the
U.S. Secret Service, Federal Bureau of Investigation and Immigration
and Customs Enforcement to talk about our efforts to thwart organized
retail crime. The Postal Inspection Service is committed to protect the
American public from criminals who use the United States Postal Service
in furtherance of fraudulent schemes, including organized retail crime.
The Postal Inspection Service has a long, proud, and successful
history of securing the nation's mail system and ensuring the public's
trust in the mail. Postal Inspectors have been fighting consumer fraud
since the mail fraud statute was enacted in 1872. The company name,
address and ``product'' may change, but con artists take advantage of
economic trends and current events to plan their schemes and illegal
activities. With modern technology, the potential for the American
public to be defrauded through the mail is much greater and potentially
impacts more people than ever before.
Because it is essential the public have full trust and confidence
in the mail, Postal Inspectors are intent on preserving the integrity
of the U.S. Mail through vigorous law enforcement, public education,
and crime prevention efforts.
Postal Inspectors are charged with ensuring the mails are safe and
free from fraudulent schemes, illegal drugs, various forms of
contraband, child pornography, as well as other dangerous products.
Additionally, we work with other law enforcement and government
agencies at the local, state, and federal level to ensure the Postal
Service is not used to facilitate the commission of other crimes or as
a conduit for the transportation of proceeds from illicit activities.
It is this commitment that makes the Postal Service the most
trusted government agency and one of the most trusted organizations in
the United States. It is the ongoing vigilance of the Postal Service
and Postal Inspectors in identifying criminals who attempt to use the
mails in furtherance of their illegal activities. The use of the mails
in organized retail theft has not historically been one of the major
types of criminal activities we have encountered. That being said, we
are now aware of its potential impact and a number of these types of
cases have been referred to us from other law enforcement agencies as
well as the retail industry.
Our colleagues in federal, state, and local law enforcement, as
well as corporate security professionals, are the principal
investigators in the area of organized retail crime. When these crimes
or aspects of these crimes cross or enter into the postal system, we
have the jurisdiction and statutory authority to investigate and assist
other law enforcement agencies and retailers in combating these illegal
We generally see two types of schemes which I will discuss briefly:
Internet auction fraud and Re-shipper fraud. Both of these crimes take
advantage of the increasing use of the on-line marketplace in order to
sell the stolen or fraudulently obtained goods.
The Internet has become a critical component of the world's
commerce. More and more businesses are increasing their use of this
commerce channel. Likewise consumers have the convenience and ease of
shopping in this expanded marketplace with a simple click of the mouse
without having to leave home. This convenience though has a downside--
criminals as well as others who seek to take advantage of consumers,
now have a larger market in which to sell and distribute their stolen
products while making substantial profits with fewer risks than the
physical fencing operations that these criminals have historically
used. By far, there is a greater reach for advertising of the ill-
gotten products and the risk of detection is somewhat limited, making
this online marketplace option so attractive to the organized retail
As noted our jurisdiction in organized retail crime lies in the use
of the mail in order to ship the stolen products or as a means to remit
payment to the online seller. In these investigations, we have seen
criminal groups utilize the full spectrum of postal products, including
Priority Mail, Express Mail, postal money orders as well as Post Office
boxes from which they run their fraudulent schemes.
One example of a recent Postal Inspection Service case began in
early 2008. Postal Inspectors received a tip that owners of two Toledo,
OH convienence stores were buying stolen merchandise, selling it on
eBay and then shipping the items, both domestically and internationally
via the Postal Service. Postal Inspectors determined that proceeds from
the fraudulent sales were being laundered by the operators' relatives
in Jordan. We alerted special agents of Immigration and Customs
Enforcement (ICE) in July when it was determined one of the operators
was leaving for Jordan on a flight from the Detroit Metro Airport, and
was believed to be smuggling an unknown amount of cash. ICE special
agents stopped the owner, his wife, and their two children at the
airport and seized $75,000 in undeclared funds which were hidden in the
children's clothing. The husband and wife each pled guilty to illegally
smuggling cash and were sentenced to time in prison.
Postal Inspectors continued their investigation of the other
suspect operator with excellent cooperation from eBay and PayPal and
obtained records of the owner which identifed over 7,500 items valued
at $650,000 that he had sold online. Postal Inspectors worked with
loss-prevention specialists from the victim companies and identified
most of the items as coming from their stores.
Throughout 2008, Postal Inspectors and corporate security
investigators worked undercover, purchasing stolen items from online
sites operated by the suspect. In February 2009, Postal Inspectors, ICE
special agents, and Toledo, OH police executed a search warrant at the
suspect's home and recovered boxes of stolen merchandise as well as
maps of pharmacies he apparently planned to target in Cleveland,
Columbus, and Toledo. He was arrested and charged with mail fraud. He
pled guilty in August and is being detained until he is sentenced.
The second area of retail based crime we have become involved in is
re-shipper fraud. In these types of cases, criminal organizations
enlist individuals to receive and then reship products to other
segments of the criminal enterprise generally to locations outside of
the United States. In the majority of these cases, the products are
obtained by retail crime groups through credit card theft as well as
fraud. The re-shippers are oftentimes unwitting accomplices to the
scheme, receiving and mailing the products based on instructions
provided by the fraudsters. The re-shippers are then paid for their
services. Many of these groups recruit the ``re-shippers'' in an
attempt to further insulate themselves from detection, using a variety
of ploys to trick individuals looking for easy work-at-home jobs.
Ultimately, these re-shippers become part of the fraudulent activity.
Retailers, legitimate shippers and financial institutions have all seen
in increase in this type of crime. Again, the ability to move the
stolen product with the least amount of exposure to those perpetrating
the crimes is the reason for the use of the re-shipper approach.
As part of their operation recruiters for the groups post bogus job
listings on the various Internet career sites purporting to employ
``merchandising managers'' and ``package processing assistants.'' The
employment is described as, ``receiving packages in the mail and
resending them to foreign addresses.'' This certainly sounds attractive
as well as easy to the prospective participants. The groups further the
scheme often providing bogus and fraudulently obtained postage-paid
mailing labels to their re-shipper recruits. The Postal Service can
also suffer significant losses as well as damage to its brand integrity
when postal products or services are targeted by criminal schemes.
Re-shippers are also recruited by a variety of other fraudulent
solicitations, such as on-line dating Web dating sites. In the typical
``sweetheart scammer'', the fraudster sends e-mails to the potential
recruit in order get to know them. Once they have aroused their
attention, the fraudster asks them to help the business or family by
shipping packages to Europe or Africa.
Other scammers oftentimes claim to be working with a charity or
mission which needs help getting ``donated'' merchandise delivered to
third-world countries as well as other parts of the world.
In reality, both the ``sweetheart'' and the ``charity worker'' need
assistance with smuggling goods out of the United States which were
purchased with stolen and other fraudulently obtained credit cards. In
the end there's no sweetheart or legitimate charity--even the mailing
labels are either fraudulent or obtained using stolen credit cards.
The U.S. Postal Inspection Service continues to educate consumers
about these fraudulent schemes using, for example, prevention-oriented
messages delivered through online videos, newspaper and ad awareness
campaigns (such as fakechecks.org), as well as via online publications,
and our Web site at: www.usps.com/postalinspectors.
In closing, be assured the Postal Inspection Service remains
committed to collaborating with our law enforcement and corporate
partners to deal with the problem of distribution of illicit goods
through on-line market places and ultimately the U.S. mail.
Mr. Scott. Thank you very much.
I want to thank all of our witnesses for their testimony,
and now we will recognize ourselves for 5 minutes each for
And my first question, probably to Mr. Johnson: If somebody
notices that their goods are being sold on an Internet auction
site who should they call?
Mr. Johnson. Well, I think they have a couple of options.
One, they can call their local police department or they can
call their local FBI office and report the activity which they
believe may be criminal. And, although I can only speak for the
FBI, to the extent possible we would follow up that information
and determine whether or not enough facts exist to open an
investigation or not.
Mr. Scott. And do you have enough authority under present
criminal law procedure to open an investigation and proceed? Do
you need any new laws on the books, from a procedural
perspective, to investigate?
Mr. Johnson. Although I can't comment specifically on
legislation here--we typically do it through DOJ--my personal
opinion is that the existing laws on the books, whether it is
Title 18, U.S. Code 2314 or 2315, or the conspiracy statutes,
or the money laundering statutes, or even the RICO statute, do
provide adequate criminal remedies to address these matters----
Mr. Scott. Okay. Those are criminal remedies. What about
procedure? Do you have enough in terms of probable cause to get
information from the auction site?
Mr. Johnson. Although I have not personally been involved
in any of those types of investigations, what I can tell you is
that based on my limited interaction with some of those auction
sites the answer is yes, they have been cooperative with the
FBI and provided us with the assistance that we have requested,
Mr. Scott. Are there any problems with jurisdiction, or
which agency ought to be involved? Do you have problems in
coordination to make sure that the Federal Government is doing
what it can in an investigation without people tripping over
themselves and not cooperating?
Mr. Johnson. Yes. No, I have had no experience--let me
rephrase that--the level of cooperation between local, State,
and Federal law enforcement with regard to this particular
effort, as well as private industry, has been outstanding. We
haven't had any issues that I am aware of where we haven't been
able to work effectively together to address the problem.
Mr. Scott. Now, the investigation of the--Ranking Member of
the full Committee has mentioned the investigation of these
cases can be resource-intensive. What do you need--or, have you
had to prioritize and not investigate cases that you thought
you could investigate and solve because of lack of resources?
Mr. Johnson. The answer to that question is yes, we have to
prioritize on a daily basis, in terms of what cases we will
investigate and dedicate resources to. One of the difficult
things that we have to do is we have to select our target based
on the intelligence that we have, that is one of the--one of
the criteria that we have is making sure that we are on the
right target, and those that don't meet certain criteria we
will refer to local or State law enforcement.
Mr. Scott. Have you requested additional resources so that
you could chase after more of the organized retail thieves?
Mr. Johnson. Can I ask somebody a question real quick?
The answer is yes, we have requested additional resources.
Typically, or at least to my knowledge, they have not been
successful to date.
Mr. Scott. If you could provide us with that information
we--hopefully we can be helpful in that because it is my belief
that the responses to your questions were criminal law is
enough, the procedures are enough, and the problem in chasing
down the thieves is lack of resources. So if we want to do
something we have to give you the appropriate resources and
that is our challenge.
Mr. Johnson. We will get that information for you.
Mr. Scott. Thank you.
Gentleman from Virginia?
Mr. Goodlatte. Thank you, Mr. Chairman.
Mr. Johnson, when we talk to retailers the most common
complaint they have about the difficulty in dealing with
organized retail crime is that the Federal law enforcement
organizations just don't give them the time of day when it
comes to dealing with these. They view it as just another
shoplifting case or maybe a shoplifting case of a little
greater magnitude, but they don't get enough effort in terms of
digging beyond the person that may be apprehended in the store,
or at a swap meet, or at a flea market, or whatever the case
And these are national organized rings that really do
require the Federal Government to step in. What do you say in
response to that?
Mr. Johnson. What I will say is that yes, typically, as we
have talked about today, typically these cases can be very
resource-intensive. Generally speaking the FBI will approach
these types of cases from a criminal enterprise theory, so what
we are trying to do, as opposed to selecting one or two low-
level boosters or fencers to try and develop a case on we try
and look at the entire enterprise, which may be 10, 15, 20 or
more individuals. And as a result of that, the investigative
techniques that we typically utilize generally tend to be very
expensive and require a lot of personnel to, you know, to
utilize those particular techniques.
So what I can say is that as always, we can do a better job
in terms of investigating these cases. We do the best we can
with the resources that we have and we try and target the most
sophisticated enterprises that are engaged in this conduct.
Mr. Goodlatte. Now, last year how many of these types of
investigations were conducted by the FBI?
Mr. Johnson. I can get you exact numbers, but my
understanding is somewhere between 70 and 80 investigations
were pending last fiscal year.
Mr. Goodlatte. And how many of them were opened last year?
Mr. Johnson. I don't have that information right now.
Mr. Goodlatte. If you could get us information about how
many were opened and how many were closed so we would get a
gauge for exactly how many investigations you are initiating
per year that would be helpful to us, maybe going back over the
last 3 or 4 years.
Mr. Johnson. Sure.
Mr. Goodlatte. Would prosecutions of organized retail
criminals increase if State and Federal felony thresholds were
Mr. Johnson. Could you repeat the question? I am sorry.
Mr. Goodlatte. Yes. The question was, would prosecutions of
organized retail criminals increase if State and Federal felony
thresholds were lowered?
Mr. Johnson. Again, that is a difficult question to answer.
What I can say is that, again, as the FBI has resource issues
to deal with the United States Attorneys Offices have resources
issues to deal with. So it is a question of whether or not
there are available investigative and prosecutive resources to
investigate and prosecute those cases.
Mr. Goodlatte. In my opening statement I referred to the
Law Enforcement Retail Partnership Network, and I am wondering
what you can tell us about how that has improved your ability
Mr. Johnson. As I mentioned in my statement, there is a lot
of data in LERPnet currently. Law enforcement will have access
through LEO Online very shortly--we are working through some
technical issues right now--but what that will do is it will
make that data available to a variety of local, State, and
Federal law enforcement officers to go in and conduct some
analysis in terms of trends or to try and connect the dots, if
you will, between particular events that are happening in
various locations throughout the United States.
Mr. Goodlatte. Let me ask everyone on the panel, how do you
typically become aware of ORC violations? It seems like once
they are brought to your attention Federal law enforcement
agencies can effectively prosecute these criminals.
What is the best way for Congress to help facilitate
bringing these crimes to your attention, number one? And number
two, is it a problem of not being aware of these things? Are
the big box stores and other retailers who are suffering some
serious problems from organized retail crime not bringing
enough information to you or is it a problem of having the
resources to investigate them further?
Well start with you, Mr. Hill.
Mr. Hill. Over the last 3 years we have only received
information--we have investigated 21 of these types of cases.
Last year we did eight that we attribute to organized retail
crime groups, and those were referrals from either other law
enforcement agencies, including my colleagues here, or the
retailers themselves. So we are not getting a lot of
information that, at least from the perspective of the Postal
Service, is being used to facilitate these types of crimes
Mr. Goodlatte. Well, that is interesting because I would
assume that if you bought something on the Internet that it
would be shipped to you using the mail in many instances, would
it not? And therefore, that would entail your involvement. You
could investigate those.
Mr. Hill. In many instances the mail jurisdiction is
limited to the U.S. Mail, not to FedEx, not to UPS----
Mr. Goodlatte. Right. So do you think criminals avoid using
the U.S. Mail to avoid your investigative powers and focus on
FedEx and UPS?
Mr. Hill. Well, we would like to think that they stay out
of the mail because of our----
Mr. Goodlatte. That would be an interesting question to
have answered, because if they are evading your organization's
involvement that would shift the focus down the table here, but
it also would say maybe we need to be looking at some changes
in the law to address that.
Mr. Large. Yes, sir. Typically we become aware of these
cases through our access device investigations, and primarily
that is through our task force model. We have over 100 retail
fraud investigators that either participate on a full-or a
part-time basis with either a financial crime task force or an
electronic crime task force that are spread out throughout the
country. They will bring cases to us typically----
Mr. Goodlatte. Do you have much direct interaction with
major retailers bringing matters to your attention?
Mr. Large. With their investigators, sir. Their
investigators that participate with our task forces will bring
cases directly to our agents. We get cases from State and local
Mr. Goodlatte. Are you able to investigate all of the cases
that are brought to your attention, or do you have limited
resources and have to select amongst those?
Mr. Large. Well again, like my comrade said from the FBI,
that is a tough question to answer. We will look into it and
see if there is a nexus to organized criminal groups that are
operating in multiple different States and see if we can build
a bigger case from the small case, but we cannot investigate
everything that is brought to our attention.
Mr. Goodlatte. And Ms. Ayala?
Ms. Ayala. Well, we work closely with the National Retail
Federation and RILA in order to determine what the large threat
cities are, and they have polled their membership and due to
our pilot program have been able to identify the top 10 cities,
of which we selected four where we think ICE resources could
best be able to investigate these cases. The industry provides
leads to us at the headquarters level, and then we funnel the
leads out to the field.
Mr. Goodlatte. Thank you.
Mr. Chairman, my time is well expired, so thank you for
Mr. Scott. Thank you.
Gentleman from Michigan, Chairman of the full Committee,
Mr. Conyers. Thank you, Mr. Chairman. This is a good
I am preparing a memo along with our Chairwoman that is
trying to get out of the room right now, and what we are going
to recommend is that we meet with the head of the FBI, with the
Secret Service, with the Postal--the same witnesses you have
here--and try to get in front of--this is a crime, a new crime
aspect that is going to grow, and if we just keep measuring how
it grows every year it will keep on growing. It is probably out
of hand now in a proportion that we are probably not aware of.
And I think meeting to try to get the resources that are
going to be needed--just informally, we don't--our memo will
not recommend another hearing, but that we just meet in your
office and get down with it, and we didn't even include ICE.
Ayala is probably the nicest person over there.
I mean, we only hear bad things about ICE in the Judiciary
Committee, so we recognize that you have been deliberately
selected to come over here and put a nice face on that outfit.
But I think this is good, and, Mr. Large, while you were
arresting so many people did you get anybody on Wall Street
while you were at it?
Mr. Large. None that I am aware of, sir.
Mr. Conyers. Yes, well this is probably petty stuff. They
don't deal in multimillion dollar crime--retail crime things.
Why do you have to? You have got some many derivatives and new
designs, many of which are not even regulated. So I just wanted
to--any of those guys that might have fallen on hard times that
just do this on the side.
Well, thank you, Mr. Chairman.
Mr. Scott. Thank you.
And I would point out that we have been working on this.
LERPnet has helped coordinate, and the FBI has already
testified on the record that criminal law and criminal
procedures are sufficient to deal with it, but the thing we
have not provided are appropriate resources.
These cases take a lot of people, a lot of investigation, a
lot of stakeouts, and it is resource-intensive, and I think the
meeting that you have suggested would be helpful that we could
bring in and see exactly--the FBI has indicated that they will
be providing us with some ideas about what kind of resources
would be helpful. So that would be very helpful.
Mr. Goodlatte. If the Chairman would yield, we would
certainly like to participate in that on our side of the aisle,
Mr. Scott. The expectation would be that you would
Mr. Goodlatte. Thank you.
Mr. Scott. Thank you.
Gentleman from Illinois, Mr. Quigley?
Mr. Quigley. Thank you, Mr. Chairman.
For any of the panelists--apologize if I----
Mr. Scott. Excuse me, Mr. Quigley. I thought the gentleman
from Michigan had yielded back. He did. Okay, I am sorry.
Mr. Quigley. Okay.
The online marketplace companies, people resell stolen
items--part of me thinks it is sort a needle in the haystack. I
am not sure how they are possibly going to be able to police
themselves. But in a perfect world, how do they police this
sort of thing? And the question for all of you is, how well are
they doing it?
I guess we will start with Mr. Johnson.
Mr. Johnson. I don't know how they would police themselves,
to be perfectly honest with you. I would have to think about
that question a little bit more before----
Mr. Quigley. Not so much policing themselves but policing
the marketplace that they provide.
Mr. Johnson. Yes, I believe that they are--I say they--
online marketplaces are--some of them are looking at the
postings on a daily basis and are attempting to identify those
that just look suspicious. And based on those postings--again,
this is just my understanding having talked to a couple of
them--then they have investigators or somebody internally
taking a look at what those postings are or what the items are,
and then if they develop enough information to refer it to law
enforcement they will. That is just based on my limited
I am sorry, could you repeat the second half of that
Mr. Quigley. Well I guess you sort of answered the
question. How well are they doing what they can?
Mr. Johnson. Yes, and again, based on my experience working
with a limited number of them, in my opinion I believe they
realize that they have an issue, and they are actively trying
to address it.
Mr. Quigley. Thank you.
Ms. Ayala. Yes, I recently attended a RILA conference where
I saw a presentation from eBay and some of the other online
services where they do have mechanisms in place to look at the
Internet as far as the volume of activity in a given timeframe,
also multiple addresses or sites tied back to one or two
individuals, so they are attempting to look at that. I know
they are working closely with the federation on these issues.
Mr. Quigley. Thank you.
Mr. Large. Yes, sir. While the Secret Service is not in a
position really to evaluate their internal controls and the
methods they use to detect this type of fraud, we do say--we
can say that they do cooperate with us, they participate in our
task forces, on occasion they have noted fraudulent activity
and brought cases to us to investigate. So that we can give you
an opinion on.
Mr. Hill. The legitimacy of the auction house is the start.
That is probably the beginning because you have a lot of very
legitimate, well-established businesses that are in this
sector, and then you have other ones that aren't. Those
legitimate businesses that we have worked with have protective
measures in place to police the use of the Internet for
purposes of their operation.
The problem with this is obviously that they don't control
the inventory. It is not like a pawn shop or fencing operation
where you have the product there. They are basing it on the
assurance that the seller is that I have this product, and I am
going to sell it on your site.
In terms of what they can do for policing, I think all they
can do is establish a good business relationship, the
legitimacy of the seller, and if they have a bad seller, or
picked a bad seller, they take them down off the system and
deny them access.
Mr. Quigley. Do you also understand that I guess some sites
would be too good to be true, right? Blue jeans for $10 or
something like that, and they are all new. Some of that must be
I guess in the end what I would like is, if it is possible
in the future for us to advise us on what else they might be
able to do, again, in a perfect world. Are there computerized
systems or is it a random check, or as you suggested, multiple
sites for one person or a deal that is too good to be true--
what else can they be doing to help monitor this and send
information of suspected sites to all of us? Thank you.
Mr. Scott. Does the gentleman yield back?
Mr. Quigley. Yes, I yield back.
Mr. Scott. Thank you.
We have talked about meetings with law enforcement. I think
it would also be helpful if we--and we have in the room
representatives of the retail industry and the Internet
industry--if they could be in the room and discuss what some of
the problems are at the same time.
But I would like to thank all of our witnesses for their
testimony today. Members----
Ms. Lofgren. Mr. Chairman?
Mr. Scott. [Off mike.]
Ms. Lofgren. I don't have a lot of questions, Mr.
Mr. Scott. I am sorry. I looked, and I didn't see you, and
Ms. Lofgren. That is all right. I was getting a cup of
I just wanted to make a quick----
Mr. Scott. Gentlelady is recognized for 5 minutes.
Ms. Lofgren [continuing]. A quick comment because eBay
actually is headquartered in my congressional district, and as
a consequence I am in touch with them often. I have, you know,
thousands of constituents who work there, and I think they take
this very, very seriously, and certainly with local law
enforcement as well as federal, if there is an issue they are
all over it because, you know, they value the law.
And I would just like to note that hundreds of thousands of
Americans have their entire business and livelihoods are
because of eBay. And so there is that aspect to it as well.
There are just many Americans who earn a living by selling
things through eBay and we need to value that as well. It is a
great source of income for Americans.
I just wanted to leap to the defense of my constituents,
Mr. Chairman, and thank you for holding this hearing.
Mr. Scott. Thank you.
We have to leave in just a moment. I understand the Ranking
Member pro temp has another question.
Mr. Goodlatte. Thank you, Mr. Chairman, and this will be
quick, and it pertains to the gentlewoman from California's
One of the issues that comes up is that a lot of this
activity may take place on the Internet. And the problem is
that the bricks and mortar retailers have a problem with
getting information about whether particular Web sites have
information about a product that they suspect is being fenced
on the Internet, but they don't have any real proof of it
unless they can gather information.
Well, that draws a response from the online businesses that
they don't want other competitors being able to ask them
literally thousands of questions regarding their customers that
are doing business on their Web sites and so on without the
involvement of law enforcement.
So we have been trying to find some common ground here to
work out this situation and move it forward. And my question to
you, Mr. Johnson, is would you be willing to participate in a
program to allow expedited requests for information from online
marketplaces when probably cause is found that goods being sold
online are stolen?
Mr. Johnson. I think the answer to that question is yes.
Mr. Goodlatte. And if we gave you the resources to have
some people dedicated to that information--gathering that
information that might help the bricks and mortar folks and
allow the online folks to have greater cooperation, greater
results without having to interface with private citizens
demanding information from them that they don't think it is
appropriate for them to be asking.
Mr. Johnson. Correct.
Mr. Goodlatte. Thank you very much.
Mr. Scott. Thank you.
And I would like to thank our witnesses for their testimony
today. Members may have additional written questions which we
will forward to you and ask you to answer as promptly as
possible so that the answers may be made part of the hearing
Without objection the case summary and chart describing
Target's double deal investigation and additional statements
that have been submitted to the Subcommittee from the Coalition
Against Retail Crime, the Food Marketing Institute, the
National Association of Chain Drug Stores, the National
Insurance Crime Bureau will all be entered into the record. The
record will remain open for 1 week for the submission of
And without objection, the Subcommittee stands adjourned.
[Whereupon, at 10:47 a.m., the Subcommittee was adjourned.]
A P P E N D I X
Material Submitted for the Hearing Record