[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]



 
                   COMBATING ORGANIZED RETAIL CRIME--
                  THE ROLE OF FEDERAL LAW ENFORCEMENT

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


                                HEARING

                               BEFORE THE

                   SUBCOMMITTEE ON CRIME, TERRORISM,
                         AND HOMELAND SECURITY

                                 OF THE

                       COMMITTEE ON THE JUDICIARY
                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                               __________

                            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

                                                                   Page

                           OPENING STATEMENTS

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

                               WITNESSES

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, 
  Washington, DC
  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

                                APPENDIX

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,
                                                    Washington, DC.

    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 
Detailee.
    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 
important.
    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 
economy.
    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 
enforcement agencies.
    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 
them effectively.
    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 
sophistication.
    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 
terrorist organizations.''
    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 
Internet.
    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 
officials.
    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 
country.
    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 
in prison.
    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 
conspiring thieves.
    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 
end.
    With that I yield back the balance of my time.
    Mr. Scott. Thank you.
    The Ranking Member of the full Committee, Mr. Smith, from 
Texas.
    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 
marketplace.
    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 
online marketplaces.
    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 
coordinators.
    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 
prosecutions.
    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 
hearing.
    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.
    Mr. Johnson?

  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 
Gohmert----
    Mr. Scott. Could you move your microphone a little closer 
to you?
    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 
enterprises.
    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 
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 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 
stolen merchandise.
    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.
                               ort threat
    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 
criminal enterprises.
    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 
catastrophic.
    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 
goods.
                               challenges
    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 
problem.
    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.
                               successes
    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 
any questions.
                               __________

    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.
    Ms. Ayala?

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 
grocery stores.
    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 
system.
    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.
    Mr. Large?

 TESTIMONY OF JOHN R. LARGE, SPECIAL AGENT IN CHARGE, CRIMINAL 
    INVESTIGATIONS DIVISION, UNITED STATES SECRET SERVICE, 
                         WASHINGTON, DC

    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 
information technology.
    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 
schemes.
    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 
stores.
    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.
    Mr. Hill?

   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 
retail crime.
    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 
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 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 
types.
    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 
schemes.
    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 
Jordan.
    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 
sentencing.
    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 
activity.
    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 
activities.
    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 
crime groups.
    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 
questions.
    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, 
yes.
    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 
might be.
    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 
lowered?
    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 
to investigate.
    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 
that----
    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?
    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 
law enforcement----
    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 
your forbearance.
    Mr. Scott. Thank you.
    Gentleman from Michigan, Chairman of the full Committee, 
Mr. Conyers?
    Mr. Conyers. Thank you, Mr. Chairman. This is a good 
hearing.
    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, 
too.
    Mr. Scott. The expectation would be that you would 
participate.
    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. 
Proceed.
    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 
knowledge.
    I am sorry, could you repeat the second half of that 
question?
    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 
obvious.
    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. 
Chairman----
    Mr. Scott. I am sorry. I looked, and I didn't see you, and 
you----
    Ms. Lofgren. That is all right. I was getting a cup of 
coffee.
    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 
constituents.
    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 
record.
    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 
additional material.
    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

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