[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]






 HOMELAND SECURITY INVESTIGATIONS: EXAMINING DHS'S EFFORTS TO PROTECT 
                 AMERICAN JOBS AND SECURE THE HOMELAND

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

                                HEARING

                               before the

                       SUBCOMMITTEE ON OVERSIGHT,
                     INVESTIGATIONS, AND MANAGEMENT

                                 of the

                     COMMITTEE ON HOMELAND SECURITY
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

                              JULY 7, 2011

                               __________

                           Serial No. 112-34

                               __________

       Printed for the use of the Committee on Homeland Security






      Available via the World Wide Web: http://www.gpo.gov/fdsys/

                                _____

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                     COMMITTEE ON HOMELAND SECURITY

                   Peter T. King, New York, Chairman
Lamar Smith, Texas                   Bennie G. Thompson, Mississippi
Daniel E. Lungren, California        Loretta Sanchez, California
Mike Rogers, Alabama                 Sheila Jackson Lee, Texas
Michael T. McCaul, Texas             Henry Cuellar, Texas
Gus M. Bilirakis, Florida            Yvette D. Clarke, New York
Paul C. Broun, Georgia               Laura Richardson, California
Candice S. Miller, Michigan          Danny K. Davis, Illinois
Tim Walberg, Michigan                Brian Higgins, New York
Chip Cravaack, Minnesota             Jackie Speier, California
Joe Walsh, Illinois                  Cedric L. Richmond, Louisiana
Patrick Meehan, Pennsylvania         Hansen Clarke, Michigan
Ben Quayle, Arizona                  William R. Keating, Massachusetts
Scott Rigell, Virginia               Kathleen C. Hochul, New York
Billy Long, Missouri                 Vacancy
Jeff Duncan, South Carolina
Tom Marino, Pennsylvania
Blake Farenthold, Texas
Mo Brooks, Alabama
           Michael J. Russell, Staff Director/General Counsel
               Kerry Ann Watkins, Senior Policy Director
                    Michael S. Twinchek, Chief Clerk
                I. Lanier Avant, Minority Staff Director
                                 ------                                

       SUBCOMMITTEE ON OVERSIGHT, INVESTIGATIONS, AND MANAGEMENT

                   Michael T. McCaul, Texas, Chairman
Gus M. Bilirakis, Florida            William R. Keating, Massachusetts
Billy Long, Missouri, Vice Chair     Yvette D. Clarke, New York
Jeff Duncan, South Carolina          Danny K. Davis, Illinois
Tom Marino, Pennsylvania             Bennie G. Thompson, Mississippi 
Peter T. King, New York (Ex              (Ex Officio)
    Officio)
                  Dr. R. Nick Palarino, Staff Director
                   Diana Bergwin, Subcommittee Clerk
              Tamla Scott, Minority Subcommittee Director









                            C O N T E N T S

                              ----------                              
                                                                   Page

                               Statements

The Honorable Michael T. McCaul, a Representative in Congress 
  From the State of Texas, and Chairman, Subcommittee on 
  Oversight, Investigations, and Management:
  Oral Statement.................................................     1
  Prepared Statement.............................................     3
The Honorable Gus M. Bilirakis, a Representative in Congress From 
  the State of Florida:
  Prepared Statement.............................................     6
The Honorable Bennie G. Thompson, a Representative in Congress 
  From the State of Mississippi, and Ranking Member, Committee on 
  Homeland Security..............................................     5

                               Witnesses

Mr. Brian Toohey, President, Semiconductor Industry Association:
  Oral Statement.................................................     9
  Prepared Statement.............................................    11
Mr. Michael Russo, Director, Global Security and Product 
  Protection, Eli Lilly and Company:
  Oral Statement.................................................    17
  Prepared Statement.............................................    20
Mr. Mario Mancuso, Partner, Fried, Frank, Harris, Shriver & 
  Jacobson LLP:
  Oral Statement.................................................    23
  Prepared Statement.............................................    25
Ms. Jena Baker McNeill, Private Citizen:
  Oral Statement.................................................    27
  Prepared Statement.............................................    29

                             For the Record

The Honorable Michael T. McCaul, a Representative in Congress 
  From the State of Texas, and Chairman, Subcommittee on 
  Oversight, Investigations, and Management:
  Statement of the Motion Picture Association of America, Inc....     7
  Statement of the Recording Industry Association of America, 
    Inc..........................................................     8

 
 HOMELAND SECURITY INVESTIGATIONS: EXAMINING DHS'S EFFORTS TO PROTECT 
                 AMERICAN JOBS AND SECURE THE HOMELAND

                              ----------                              


                         Thursday, July 7, 2011

             U.S. House of Representatives,
    Subcommittee on Oversight, Investigations, and 
                                        Management,
                            Committee on Homeland Security,
                                                    Washington, DC.
    The subcommittee met, pursuant to call, at 10:10 a.m., in 
Room 311, Cannon House Office Building, Hon. Michael T. McCaul 
[Chairman of the subcommittee] presiding.
    Present: Representatives McCaul, Long, Duncan, and 
Thompson.
    Also present: Representative Rogers.
    Mr. McCaul. The committee will come to order. First order 
of business, I would like to ask for unanimous consent that the 
gentleman from Alabama Mr. Rogers, the Chair of the committee's 
Subcommittee on Transportation Security, be permitted to sit on 
the dais and participate in today's hearing. Without objection, 
so ordered.
    This committee is meeting today to hear testimony from our 
private-sector working citizens in order to examine the 
effectiveness of DHS' enforcement policies and their impact on 
private industry, and I recognize myself now for an opening 
statement.
    American innovation is the envy of the world. It is a 
constant target for competitors, including rogue nations that 
prefer to steal and copy rather than create. In addition to 
overcoming a depressed business climate, our Nation's job 
creators must protect their intellectual property from 
sophisticated counterfeiters all over the world, make sure 
their exports do not end up in the wrong hands, and comply with 
immigration laws. The consequences of failure are serious.
    When counterfeit prescription drugs enter the marketplace 
or cheap imitation parts breach a semiconductor manufacturing 
plant, it costs American businesses revenues and jobs. When 
sensitive equipment manufactured for the Department of Defense 
falls into the wrong hands of rogue nations, it poses a threat 
to our National security. And when businesses seek assistance 
from the Government, it is the responsibility of the Department 
of Homeland Security to protect intellectual property, 
safeguard against counterfeit goods, maintain the integrity of 
export supply chains, and to ensure that businesses are in 
compliance with immigration laws in order to maintain a high-
level playing field.
    So today we ask these questions: Is the help they receive 
from DHS, in collaboration with other Government agencies, 
adequate? What improvements can be made? What more needs to be 
done? Indeed, several cases in recent years indicate that there 
is room for improvement in these measures that directly impact 
the bottom line of businesses and their ability to create jobs.
    A 2008 investigation by Business Week magazine uncovered a 
polluted supply chain in some of our Nation's military 
equipment. According to Business Week, counterfeit products 
have been linked to the crash of mission-control networks, and 
they contain hidden back doors enabling network security to be 
bypassed and sensitive data accessed by hackers, thieves, and 
spies.
    The same investigation found that as many as 15 percent of 
the spare parts and microchips the Pentagon buys are actually 
counterfeit. Recently, Wired magazine reported that the 
military purchased 59,000 counterfeit microchips from China in 
2010. These chips were to be installed into an array of 
equipment, including U.S. missile-defense systems. This problem 
has been highlighted in many Federal prosecutions, including 
one in Houston where the defendant was sentenced to prison for 
selling counterfeit network cards to the U.S. Marine Corps for 
use in combat in Iraq and Afghanistan.
    Pharmaceutical companies are seeing more of their products 
counterfeited. These counterfeits are often ineffective and, in 
some cases, dangerous. A recent report by CBS News found that 
the counterfeit drug network is worth an estimated $75 billion 
per year. This market has produced pharmaceutical drugs that 
contain little, none, or too much of the drug's active 
ingredient, and in some cases they contain harmful substances.
    One recent case involved Mr. Ken Wang, the owner of a 
Houston-based company, who was convicted of conspiring with 
individuals in China to traffic in counterfeit and misbranded 
prescription drugs. ICE began its investigation after CBP 
seized 6,500 Viagra tablets from a mail facility in San 
Francisco addressed to Mr. Wang. Pfizer Pharmaceuticals, the 
manufacturer of Viagra, confirmed that these tablets were 
counterfeit and contained a substance used to manufacture 
sheetrock. I am sure some buyers were severely disappointed 
upon the receipt of these counterfeit Viagra. After being 
convicted, Mr. Wang fled to China, where he is still in hiding.
    Such cases often involve a bizarre, multijurisdictional 
chain supply, making it difficult to prosecute and harder to 
track. In one instance the supply chain began with the 
medication being manufactured in mainland China, shipped to 
Hong Kong, then to the United Arab Emirates, and then, lastly, 
to the Bahamas. Once in the Bahamas, the individual 
prescriptions were filled, put into packets, addressed, and 
sent to the United Kingdom. From the United Kingdom, the drugs 
were then shipped to the consumers in the United States, who at 
the time believed--when they placed an order on-line believed 
they were purchasing them from a Canadian pharmacy.
    ICE is the only Federal law enforcement entity with full 
statutory authority to pursue violations of U.S. export laws 
related to military items and controlled dual-use commodities, 
which will be another focus of this hearing. These are products 
that may have a seemingly innocuous civilian use, but also can 
have a potent military use as well.
    A glaring example is the triggered spark gap. This device 
is used legally by doctors to break up kidney stones in 
patients; however, it can also be used to detonate a nuclear 
device. In one case, a Pakistani businessman with close ties to 
Pakistan military and linked to the militant Islamic groups 
attempted to use a third party in South Africa to purchase 200 
triggered spark gaps. Under U.S. law, as a dual-use item, it is 
legal to export the devices to South Africa, but illegal to 
export them to Pakistan. The third-party buyer was arrested, 
but the Pakistani businessman has not yet been apprehended.
    Finally, this subcommittee will examine the issue of 
worksite enforcement. In 2009, ICE, citing finite resources, 
instituted a shift in strategy from targeting undocumented 
employees to the employers that hire them. The results have 
been striking.
    According to the Congressional Research Service, since 
2008, administrative arrests have declined 77 percent, criminal 
arrests have declined 59 percent, and criminal convictions have 
declined 66 percent. These figures strongly suggest that the 
shift in strategy has led to a scaling back of worksite 
enforcement efforts that allow bad actors to get away with 
breaking the law with little or no penalty.
    As is evident from my opening statement, ICE and CBP have a 
broad array of laws and issues they are responsible for 
enforcing, and we have a lot to talk about. I will, therefore, 
conclude my remarks by thanking our witnesses for being here 
today, and I do look forward to your testimonies.
    [The information follows:]
            Prepared Statement of Chairman Michael T. McCaul
    The Committee on Homeland Security Subcommittee on Oversight, 
Investigations, and Management will come to order. The subcommittee is 
meeting today to hear testimony from our private sector witnesses in 
order to examine the effectiveness of DHS enforcement policies and 
their impact on private industry. I now recognize myself for an opening 
statement.
    American innovation is the envy of the world. It is a constant 
target for competitors, including rogue nations that prefer to steal 
and copy rather than create.
    In addition to overcoming a depressed business climate, our 
Nation's job creators must protect their intellectual property from 
sophisticated counterfeiters all over the world, make sure their 
exports do not end up in the wrong hands, and comply with immigration 
laws.
    The consequences of failure are serious. When counterfeit 
prescription drugs enter the marketplace or cheap imitation parts 
breach a semiconductor manufacturing plant it costs American businesses 
revenue and jobs. When sensitive equipment manufactured for the 
Department of Defense falls into the hands of rogue nations, it poses a 
threat to our National security.
    When businesses seek assistance from the Government, it is the 
responsibility of the Department of Homeland Security to protect 
intellectual property, safeguard against counterfeit goods, maintain 
the integrity of export supply chains and to ensure that businesses are 
in compliance with immigration laws in order to maintain a level 
playing field.
    Today we ask: Is the help they receive from DHS, in collaboration 
with other Government agencies, adequate? What improvements can be 
made? And what more can be done? Indeed, several cases in recent years 
indicate that there is room to improve these measures that directly 
impact the bottom line of businesses and their ability to create jobs.
    A 2008 investigation by Businessweek magazine uncovered a polluted 
supply chain in some of our Nation's military equipment. According to 
Businessweek: ``Counterfeit products have been linked to the crash of 
mission-critical networks, and may contain hidden `back doors' enabling 
network security to be bypassed and sensitive data accessed by hackers, 
thieves, and spies.'' The same investigation found that as many as 15% 
of the spare parts and microchips the Pentagon buys are counterfeit.
    Recently Wired Magazine reported that the military purchased 59,000 
counterfeit microchips from China in 2010. These chips were to be 
installed into an array of equipment, including U.S. missile defense 
systems.
    This problem has been highlighted in many Federal prosecutions, 
including one in Houston where the defendant was sentenced to Federal 
prison for selling counterfeit network cards to the U.S. Marine Corps 
for use in combat in Iraq and Afghanistan.
    Pharmaceutical companies are seeing more of their products 
counterfeited. These counterfeits are often ineffective and, in some 
cases dangerous. A recent report by CBS News found that the counterfeit 
drug network is worth an estimated $75 billion dollars per year. This 
market has produced pharmaceutical drugs that contain little, none, or 
too much of the drug's active ingredients. In some cases, the drugs 
contained harmful substances.
    One recent case involved Mr. Ken Wang, the owner of a Houston-based 
company, who was convicted of conspiring with individuals in China to 
traffic in counterfeit and misbranded prescription drugs. ICE began its 
investigation after CBP seized 6,500 loose Viagra tablets from a mail 
facility in San Francisco addressed to Mr. Wang. Pfizer 
Pharmaceuticals, the manufacturer of Viagra, confirmed that the tablets 
were counterfeit and contained a substance used to manufacture 
sheetrock. After being convicted, Mr. Wang fled to China, where he is 
still in hiding.
    Such cases often involve a bizarre, multijurisdictional supply 
chain, making it difficult to prosecute and harder to track. In one 
instance, the supply chain began with the medication being manufactured 
in mainland China, shipped to Hong Kong, then the United Arab Emirates 
and lastly to the Bahamas. Once in the Bahamas, the individual 
prescriptions were filled, put into packets, addressed, and sent to the 
United Kingdom. From the United Kingdom the drugs were shipped to the 
consumer in the United States who, at the time of placing their on-line 
order, believed they were purchasing them from a Canadian pharmacy.
    ICE is the only Federal law enforcement entity with full statutory 
authority to pursue violations of U.S. export laws related to military 
items and controlled dual-use commodities. These are products that may 
have a seemingly innocuous civilian use, but also can have a potent 
military use as well. A glaring example is the triggered spark gap. 
This device is used legally by doctors to break up kidney stones in 
patients. However, it can also be used to detonate a nuclear device.
    In one case, a Pakistani businessman with close ties to the 
Pakistani military, and linked to militant Islamic groups, attempted to 
use a third-party in South Africa to purchase 200 triggered spark gaps. 
Under U.S. law, as a duel-use item, it is legal to export the devices 
to South Africa, but illegal to export them to Pakistan. The third-
party buyer was arrested, but the Pakistani businessman has not yet 
been apprehended.
    Finally, the subcommittee will examine the issue of worksite 
enforcement.
    In 2009, ICE, citing ``finite resources'', instituted a shift in 
strategy from targeting undocumented employees to the employers that 
hire them.
    The results have been striking. According to the Congressional 
Research Service, since 2008, administrative arrests have declined 77 
percent, criminal arrests have declined 59 percent, and criminal 
convictions have declined 66 percent.
    These figures strongly suggest that this shift in strategy has lead 
to a scaling back of worksite enforcement efforts that allow bad actors 
to get away with breaking the law with little or no penalty.
    As is evident from my opening statement, ICE and CBP have a broad 
array of laws and issues they are responsible for enforcing and we 
clearly have much to talk about today. I will therefore conclude my 
remarks by thanking our witnesses for being here. I look forward to 
each of your testimonies.

    Mr. McCaul. I see that my Ranking Member of the 
subcommittee Mr. Keating is not available today. I believe he 
is attending a funeral back in his district, and with that, I 
will recognize the Ranking Member of the full committee, the 
gentleman from Mississippi, Mr. Thompson.
    Mr. Thompson. Thank you very much, Mr. Chairman, for 
convening this hearing.
    We are here today to discuss the work of the Homeland 
Security Investigations Division of ICE, responsible for a wide 
range of duties from investigations involving the illegal 
production, smuggling, and distribution of counterfeit and 
priority products to money laundering violations and workplace 
immigration enforcement efforts. ICE Homeland Security 
Investigation is called upon to handle these matters on very 
stretched resources.
    ICE Homeland Security Investigation's International Affairs 
Unit also represents the largest investigative law enforcement 
presence abroad from the Department of Homeland Security, yet, 
according to ICE and the Intellectual Property Enforcement 
Coordinator, they are required to do much with very little.
    In this Congress, the majority passed H.R. 1, which cut 
$350 million from the Department of Homeland Security budget 
for border security and technology. Despite these financial and 
staffing changes, the Obama administration has made numerous 
advances in confronting both worksite enforcement and 
intellectual property issues.
    For example, Operation Network Raider, a collaborative 
interagency initiative aimed at ending illegal distribution of 
counterfeit network hardware manufacturing in China, resulted 
in 30 felony convictions and over 700 seizures of counterfeit 
hardware valued at more than $143 million. In fiscal 2010, ICE 
intellectual property investigations are up more than 41 
percent, arrests are up more than 37 percent, and the 
Department of Homeland Security intellectual property seizures 
are up more than 34 percent.
    Regarding worksite enforcement, in April 2009, the 
administration shifted the country's focus from large-scale 
raids, which cost millions and yielded minimal criminal 
convictions, to focusing on unscrupulous employers that hire 
and sometimes exploit undocumented immigrants. Prior to this 
shift in strategy, ICE conducted numerous high-profile worksite 
raids that were high on costs, but low on substance.
    In August 2008, one of the largest raids occurred in 
Laurel, Mississippi, where over 600 workers were detained. 
Approximately 475 of the 600 workers were detained; yet, 
according to reports, only 8 appeared in Federal court to face 
criminal charges. This form of military-style raids destroyed 
families, disrupted local economies, and had a negative impact 
on small towns and rural communities.
    The new approach represents an aggressive enforcement 
strategy that targets the worst employers. A major focus of 
this strategy is the audit of Form I-9, Employment Eligibility 
Verification Form. ICE use of Form I-9 audits to test an 
employer's compliance with existing documentation laws has 
skyrocketed from 254 in fiscal year 2007 to 2,196 in fiscal 
year 2010. Furthermore, forced removals are at a record high, 
393,000 in fiscal year 2009, up from 30,000 in fiscal year 
1990; as well as detentions, which are at a record high of over 
360,000 in fiscal year 2010, up from 95,000 in fiscal year 
2001.
    But let me be clear, enforcement alone will not fix our 
immigration system. Congress can no longer delay enacting 
comprehensive immigration reform and should immediately do what 
the American people demand: Fix the broken immigration system, 
not enact more piecemeal policies that don't solve the problem.
    I am looking forward to receiving the testimony of our 
private-sector witnesses; however, I know that it is ultimately 
the responsibility of multiple Federal partners to enforce our 
immigration laws and prevent counterfeit goods from entering 
into our supply chain. ICE, CBP, FDA, and the newly created 
Intellectual Property Enforcement Coordinator could have 
provided helpful testimony on existing challenges and 
recommendations for staying ahead of changes in technology that 
make intellectual property theft a constantly moving target. 
Furthermore, testimony from ICE would have revealed the strides 
that have been made under the country's new worksite 
enforcement approach. Unfortunately, they were not invited to 
testify, and as a result, the record will not reflect the facts 
that they could have provided.
    However, I do look forward to the testimony, Mr. Chairman, 
as I indicated, and I yield back the balance of my time.
    Mr. McCaul. I thank the Ranking Member, and other Members 
may submit opening statements for the record.
    [The statement of Hon. Bilirakis follows:]
            Prepared Statement of Honorable Gus M. Bilirakis
                              July 7, 2011
    Thank you, Mr. Chairman, and thank you for holding this important 
hearing.
    The American economy has been working for the last several years to 
climb out of its economic rut. In my Congressional district in the 
Tampa Bay area, and throughout the State of Florida, the unemployment 
rate is still in double digits, which is far too high. I regularly 
visit with businesses throughout my Congressional district. Too often, 
I hear from them that the Federal Government appears, at best, 
indifferent to the concerns of America's job creators.
    In the global marketplace that we live and work in, we must ensure 
that sensitive products and services do not end up in the hands of 
those who wish to harm us, while at the same time allowing American 
employers and employees to compete with the rest of the world and 
create much-needed jobs. Entities within the Department of Homeland 
Security are tasked with enforcing our laws pertaining to intellectual 
property rights, commercial fraud, export control, and worksite 
immigration enforcement. We must ensure that Immigrations and Customs 
Enforcement (ICE) and Customs and Border Protection (CBP) are working 
seamlessly with the private sector in the most effective and efficient 
ways possible to prohibit pirated goods from entering our marketplace, 
counterfeit medicines from harming our sick, jobs from going to illegal 
immigrants, and sensitive security technology from falling in the hands 
of our enemies.
    These goals can best be achieved through a cooperative and 
collaborative approach, rather than an adversarial relationship with 
American businesses. I look forward to learning how the Congress and 
the Department can work together with the private sector to help ensure 
that our economic strength and freedoms and National security are not 
compromised.
    I yield back.

    Mr. McCaul. Before I introduce the witnesses, I ask 
unanimous consent to insert into the record statements from the 
Motion Picture Association of America and the Recording 
Industry Association of America. Without objection, so ordered.
    [The information follows:]
      Statement of the Motion Picture Association of America, Inc.
                              July 7, 2011
                     a. background and introduction
    We want to thank the subcommittee for holding this oversight 
hearing to review the efforts of the Department of Homeland Security to 
combat counterfeiting, trademark, and intellectual property theft, a 
crime that damages our economy and threatens American jobs. We 
appreciate the opportunity to submit this statement on behalf of the 
Motion Picture Association of America, Inc.\1\ and its member companies 
regarding the serious and growing threat of this crime. As the primary 
voice and advocate for the American motion picture, home video, and 
television industries in the United States and around the world, we 
have witnessed the proliferation of web-based enterprises dedicated 
solely to stealing the product of our industry's workforce and are 
gravely concerned about the detrimental impact that digital theft has 
on the millions of American men and women who work in our industry.
---------------------------------------------------------------------------
    \1\ The Motion Picture Association of America and its international 
counterpart, the Motion Picture Association (MPA) serve as the voice 
and advocate of the American motion picture, home video, and television 
industries, domestically through the MPAA and internationally through 
the MPA. MPAA members are Paramount Pictures Corporation, Sony Pictures 
Entertainment Inc., Twentieth Century Fox Film Corporation, Universal 
City Studios LLC, Walt Disney Studios Motion Pictures, and Warner Bros. 
Entertainment Inc.
---------------------------------------------------------------------------
    The U.S. intellectual property (IP) industries--of which ours is 
one--are critical to the health of our economy. Our industry alone 
produces billions in tax revenue each year, consistently generates a 
positive balance of trade with every country in the world, and has 
shown it can contribute to the economic recovery of areas hard-hit by 
the recession. We are woven into the fabric of the U.S. economy.
    More than 2.4 million working Americans residing in all 50 U.S. 
States rely on the motion picture and television industry for their 
livelihoods. While it is true that our industry employs some well-known 
artists, that is not the real story of our business. Whether they are 
set builders, costume designers, electricians, assistant directors, or 
cast members, the overwhelming majority of those who work behind the 
scenes in our industry are middle-class workers who are proud to be 
part of a business that has created a quintessential American product 
for almost 100 years: filmed entertainment. The major motion picture 
companies represent only a fraction of the businesses that make up our 
industry, as there are a host of U.S. companies who play a critical 
role in the creation of filmed entertainment providing technologies and 
services utilized in every step of the post-production process. More 
than 95,000 small businesses--93 percent of whom employ fewer than 10 
people--are involved in the production and distribution of movies and 
television. Those individuals, small business owners and their families 
are extremely vulnerable to changes in the production economy.
    We appreciate the efforts of the Immigration and Customs 
Enforcement (ICE) agency to combat digital theft and counterfeiting for 
a range of U.S. industries. In the case of the entertainment industry, 
the theft of motion picture and television productions threatens the 
economic vitality of our business, and the millions of American working 
men, women, and local small businesses that depend on it. The websites 
targeted by ICE--via a transparent process that requires a judicial 
finding of probable cause--are not ``innocent'' internet users; they 
are illegal for-profit businesses knowingly trafficking in stolen and 
counterfeit goods. They pose a threat to us, to movie theaters large 
and small, to the American public who unknowingly gives over personal 
financial income to unscrupulous traders, and to the health of the U.S. 
economy. In the past decade, we have seen increasing evidence that 
organized crime and terrorist organizations are engaging in 
counterfeiting and intellectual property theft to support a variety of 
criminal activities.\2\ ICE, by initiating Operation In Our Sites in 
June 2010, has stepped forward to protect U.S. industries and citizens 
from this form of cybercrime.
---------------------------------------------------------------------------
    \2\ ``Film Piracy, Organized Crime, and Terrorism'' Published 2009 
by the RAND Corporation.
---------------------------------------------------------------------------
    Digital theft threatens the jobs of all who work in our business. 
Such theft destroys the ability of those who finance and produce filmed 
entertainment to recoup their investment, and in turn, the ability of 
film artists to continue to create. The majority of films produced must 
secure financing and distribution partners prior to production. Digital 
theft damages the confidence of those partners in their ability to do 
so, the end result being a diminished number of films being made and 
American jobs disappearing.
    We are not talking about a distant future. Over the last 3 months, 
no fewer than three reports have demonstrated that infringing content 
represents a significant percentage of global internet traffic. Most 
recently, a report released by Envisional, an independent internet 
consulting company, estimated that almost a quarter of global internet 
traffic and over 17 percent of U.S. internet traffic is copyright 
infringing. This is a level of theft that cannot be sustained without 
significant damage to the motion picture industry, the workforce it 
supports, and the American economy.
    The Intellectual Property Enforcement Coordinator's (IPEC) Joint 
Strategic Plan on Intellectual Property Enforcement released in June 
2010 committed to using these resources and existing resources to 
increase law enforcement activity. ICE, the Department of Justice, and 
the IPR Center have stepped forward to carry out that mandate. 
Operation In Our Sites has not only put illegal sites out of business, 
but has raised public awareness about this specific form of crime on 
the internet. Most importantly, these enforcement efforts have resulted 
in most of these entities ceasing their illegal activity. Movies and TV 
programs, some of the biggest draws on the internet, are in many ways 
the ``canary in the coal mine.'' Stealing and illegally selling this 
content may appear to be victimless crimes or a harmless form of theft, 
but they are neither. If it is not made clear that this kind of 
activity is illegal, it has the potential to become the harbinger of 
even more forms of illegal activity on the internet.
    Again, we appreciate the opportunity to submit this statement and 
applaud the subcommittee for holding this important oversight hearing. 
We look forward to working with Congress to support strong IP 
enforcement and to secure the additional resources that will protect 
our industry--and American jobs--from those who engage in the illegal 
activity of digital theft with disregard.
                                 ______
                                 
       Letter From the Recording Industry Association of America
                                      July 7, 2011.
The Honorable Michael T. McCaul,
Chairman, Subcommittee on Oversight, Investigations, and Management, 
        Committee on Homeland Security, House of Representatives, 131 
        Cannon House Office Building, Washington, DC 20515.
    Dear Chairman McCaul: On behalf of the RIAA\1\ and its member 
companies, I want to thank you for holding today's hearing examining 
the work of the Department of Homeland Security to protect American 
jobs. I believe it is important to recognize the significant anti-
piracy work of the U.S. Immigration and Customs Enforcement Bureau. 
ICE's considerable enforcement efforts have been invaluable in 
protecting our industry's--and our country's--valuable creative works.
---------------------------------------------------------------------------
    \1\ The Recording Industry Association of America, Inc. (``RIAA'') 
is a trade association whose member companies create, manufacture, and/
or distribute approximately 85% of all legitimate sound recordings 
produced and sold in the United States.
---------------------------------------------------------------------------
    In particular, I would like to bring attention to ICE's on-going 
program, Operation In Our Sites. This initiative has brought much-
needed attention to the rogue on-line sites dedicated to infringement 
of copyrighted and trademarked works, and takes appropriate and 
necessary action to stop their illegal activity. These illicit 
businesses have, until recently, operated with near-impunity, making 
millions of dollars through the theft and unauthorized distribution of 
others' products and content. The result has been the loss of thousands 
of jobs, of billions in economic development, and of countless creators 
who can't afford to make new contributions to our culture and economy.
    We understand how easy it is, particularly in the digital era, to 
wave off the value of recorded music. Yet, our industry contributes 
billions to our economy and remains one of our country's most important 
exports. And few can deny the importance of music in our everyday 
lives. Keeping the U.S. music industry the envy of the world requires 
increased vigilance and action. We greatly appreciate ICE for 
recognizing the growing threats to these works on-line, and for taking 
the necessary steps to ensure they are properly protected. We look 
forward to working with the Committee on Homeland Security, the 
Department and other interested parties in the future.
            Sincerely,
                                             Mitch Bainwol,
                                                  Chairman and CEO.

    Mr. McCaul. Mr. Brian Toohey is the president of 
Semiconductor Industry Association and has served in this 
capacity since 2010. His responsibilities include crafting and 
leading SIA's policy agenda and serving as an advocate for U.S. 
semiconductor design and manufacturing across the globe. Prior 
to joining SIA, Mr. Toohey served in leadership positions at 
the Pharmaceutical Research and Manufacturers of America, DKA 
Research and Development, and the Europe office of the U.S. 
Department of Commerce. He holds an undergrad and graduate 
degree from Georgetown University School of Foreign Service, 
and he currently serves as an adjunct professor. Welcome here 
today.
    Mr. Michael Russo is the global security director for Eli 
Lilly and Company. Mr. Russo is responsible for the management 
of Lilly's global product protection security team, which 
includes eight experienced investigators based in Asia, Europe, 
and the United States. His team handles cases involving 
counterfeit, stolen, and diverted pharmaceuticals. Mr. Russo 
joined Eli Lilly in 1997 as a global security associate and has 
supported various security roles prior to his current 
assignment. He is a native of Indianapolis and received a 
bachelor of science in public administration and criminal 
justice from Indiana University; also a graduate of the FBI 
National Academy at Quantico, Virginia; and the United States 
Secretary Service Dignitary Protection School. Welcome, Mr. 
Russo.
    Next we have Mr. Mario Mancuso, who is a corporate partner 
at the Fried Frank in Washington, DC. He is a leading authority 
on U.S. regulation and international trade and export control 
enforcement. From 2007 to 2009, he served as Under Secretary 
for Industry and Security at the U.S. Department of Commerce. 
In this role Mr. Mancuso was responsible for, among many other 
things, identifying and opening key export markets around the 
world for U.S. technology products consistent with the United 
States' security interests. He graduated magna cum laude from 
Harvard University and received his law degree from the New 
York University School of Law; former Army infantry officer. He 
is a combat veteran of Operation Iraqi Freedom, and we thank 
you for that.
    Ms. Jana Baker McNeill is a senior policy analyst for 
homeland security at The Heritage Foundation. Today Ms. McNeill 
is testifying as a private citizen. She is an expert on 
homeland security and science and technology issues, including 
the issue of worksite enforcement of immigration laws. She has 
provided commentary in her research and writings on multiple 
media outlets and renowned publications. Before joining 
Heritage, she worked as a research assistant for the Hutchinson 
Group; also worked as an environmental management consultant 
for Booz, Allen, Hamilton. Prior to that, she worked on the 
staff of Maryland Governor Robert Ehrlich. Ms. McNeill 
graduated from the University of Arkansas Little Rock School of 
Law and has a bachelor's degree in environmental science from 
the University of Maryland.
    With that, I want to thank the witnesses for being here 
today. I think this will be very interesting testimony, and now 
the Chair recognizes Mr. Brian Toohey for his remarks.

 STATEMENT OF BRIAN TOOHEY, PRESIDENT, SEMICONDUCTOR INDUSTRY 
                          ASSOCIATION

    Mr. Toohey. Thank you, Chairman McCaul, Ranking Member 
Thompson, and the other Members of the subcommittee. Greatly 
appreciate the opportunity to be here today before this 
oversight subcommittee to testify about the dangers that 
counterfeit semiconductors pose to U.S. National security and 
public safety, as well as the proven, common-sense steps that 
DHS can take to prevent counterfeit chips from entering 
military and civilian supply chains.
    This issue is of more and more importance as semiconductors 
are being used in an increasing number of mission-critical 
applications such as life-saving medical devices, automotive 
safety systems, airplanes, and military equipment.
    By way of brief background, the semiconductor industry is 
America's largest export industry. Semiconductor innovations 
form the foundation of America's trillion-dollar technology 
industry that supports a workforce of nearly 6 million in the 
United States. The semiconductor industry is a great American 
innovation story invented here, and our companies still lead 
the world in the pace of innovation and global market share, 
and we consider our industry a model for the innovation economy 
of the future. Our companies still do the vast majority of 
advanced design and manufacturing here in the United States and 
sell nearly 85 percent of our products internationally.
    But the importation of counterfeit semiconductor chips is a 
growing National security and health and safety threat. For 
years manufacturers abroad, primarily in China, have used crude 
techniques, including surface sanding, acid washes, and other 
procedures, to turn e-waste into counterfeit semiconductors. 
These chips, already weakened from their original state and at 
great risk of failure, are then relabeled using digital 
printing and laser-etching techniques, and packaged for sale to 
international brokers.
    Recently counterfeiters have begun acquiring even more 
sophisticated equipment and advanced techniques, making it 
increasingly difficult to identify fake semiconductors. As a 
result, more and more counterfeit chips make it through our 
borders into a wide range of products, including automobile 
technology, such as brake systems; health care technology, such 
as defibrillators; and, most troubling, into military 
equipment, such as missiles, navigation systems, and jets. 
Given their high risk of failure, this places our citizens and 
our military personnel at unreasonable risk.
    I would like to draw the subcommittee's attention to 
Exhibit No. 1 up on the screen. This is a picture of an 
authentic and counterfeit voltage regulator for an automotive 
air bag and braking system. Very, very difficult to tell the 
difference between the two, and I will explain more about the 
markings in my testimony.
    Experts have estimated that 15 percent of all spare and 
replacement semiconductors purchased by the Pentagon are 
counterfeit, and DHS is equally vulnerable. Overall, more than 
$7 billion of counterfeit chips are sold in the United States 
every year. Our industry takes this threat very seriously and 
is committed to doing everything within our power from 
establishing publicly available databases of authorized 
distributors to training Customs officials around the world to 
working cooperatively with U.S. law enforcement.
    We appreciate the Obama administration's commitment to 
intellectual property rights and its resolve to prevent 
counterfeit goods from entering our borders. U.S. Immigration 
and Customs Enforcement, the Federal Bureau of Investigation, 
the Department of Justice, and Department of Defense all play 
crucial roles in combating the infiltration of counterfeit 
goods, including semiconductors, and we have been working 
cooperatively with these agencies for many years.
    Historically, Customs and Border Protection also 
facilitated anticounterfeiting efforts. Prior to 2000, when 
port officers suspected a shipment contained counterfeit chips, 
they would contact the manufacturer and share one of the 
products. After 2000, but before 2008, port officers 
photographed the outside of suspected chips and sent the 
publicly viewable information to the chip manufacturer whose 
trademark appeared on the surface to determine whether the chip 
was counterfeit. Using highly confidential databases, 
manufacturers then determined very quickly, in about 85 percent 
of the cases, whether or not the chips were counterfeit by 
analyzing the codes on the surface of the chip. It was a system 
that worked very well and prevented enormous quantities of 
counterfeit chips from entering the United States.
    In mid-2008, however, CBP officers were instructed to 
redact or cross out the identifying marks in the photographs 
except the trademarks before sending them to manufacturers, 
thereby scuttling the cooperative system that worked so well 
for so many years. The current redaction practice makes it 
virtually impossible for the industry, much less the importer 
or CBP, to authenticate suspected counterfeit semiconductors. 
U.S. Treasury officials argue that this policy shift is 
intended to shield port officers from criminal liability for 
disclosure of confidential information; however, to the extent 
the codes on the surface of semiconductors which are publicly 
viewable to anyone who picks up the chip or looks at the label 
are confidential, they belong to the manufacturers to whom the 
photographs would be sent.
    We respectfully ask this subcommittee to exercise its 
oversight authority to insist that CBP revert to its historical 
practice of sharing the unredacted photographs and, where 
necessary, the physical products of suspected counterfeit 
semiconductors with manufacturers. Such a policy is clearly in 
the National interest and public safety. It is a practical, 
discrete action that could be implemented today. It would stop 
untold number of counterfeits at our borders, improve our 
National security, and save American lives.
    Thank you for this opportunity. I would welcome any 
questions.
    [The statement of Mr. Toohey follows:]
                   Prepared Statement of Brian Toohey
                           executive summary
    The importation of counterfeit semiconductor ``chips'' is a growing 
National security threat. For years, manufacturers abroad (primarily in 
China) have used crude techniques, including open fires, surface 
sanding, and acid washes, to turn ``e-waste'' into counterfeit 
semiconductors. These chips--already weakened from their original state 
and at great risk of failure--are then re-labeled using digital 
printing and laser etching and packaged for sale to international 
brokers. However, counterfeiters have begun acquiring more 
sophisticated equipment and advanced counterfeiting techniques, making 
it increasingly difficult to identify counterfeit semiconductors. As a 
result, more and more counterfeit chips make it through our borders and 
into a wide range of products, including automobile technology such as 
brake systems, health care technology such as defibrillators, and, most 
troublingly, into military equipment such as missiles, navigation 
systems, and jets. Given their high-failure risk, counterfeit 
infiltration places our citizens and military personnel in unreasonable 
peril.
    SIA appreciates the Obama administration's commitment to 
intellectual property rights and its resolve to prevent counterfeit 
goods from entering the United States supply chain. Immigrations and 
Customs Enforcement (``ICE''), the Federal Bureau of Investigation 
(``FBI''), the Department of Justice (``DOJ''), and the Department of 
Defense (``DOD'') have all played crucial roles in combating the 
infiltration of counterfeit goods.
    Historically, Customs and Border Protection (CBP) has also 
facilitated anti-counterfeiting efforts. Prior to 2000 when Port 
Officers suspected a shipment contained counterfeit chips, they would 
contact the trademark owner and share one of the products. After 2000 
but before 2008, Port Officers photographed the outside of a suspect 
chip and sent the publicly viewable information to the chip 
manufacturer whose trademark appeared on the surface of the chip to 
determine whether the chip was counterfeit. Using a highly confidential 
database, the trademark owner could then determine very quickly, in 
almost 85% of the requests, whether or not the chips were counterfeits 
by analyzing the codes on the surface of the chip.
    In mid-2008, however, CBP Officers were instructed to redact any 
identifying marks in the photographs, except the trademark, before 
sending them to manufacturers, thereby scuttling the cooperative system 
that worked so well for 8 years. The current redaction practice makes 
it impossible for the industry, much less the importer or CBP, to 
authenticate suspected counterfeit semiconductors. U.S. Treasury 
officials argue that its policy shift is intended to shield Port 
Officers from criminal liability for the disclosure of confidential 
information. However, to the extent the codes on the surface of 
semiconductors, which are publicly viewable to anybody who picks up a 
chip or looks at a chip's packaging label, are confidential, they 
belong to the manufacturers to whom photographs would be sent.
    SIA simply asks CBP to revert to its historical pre-2008 practice 
and share unredacted photographs, and where necessary physical 
products, of suspected counterfeit semiconductors with semiconductor 
manufacturers. Such a policy is clearly in the Nation's National 
security interest. Preventing counterfeit semiconductors from entering 
the United States will protect public safety and safeguard the military 
supply chain.
    Chairman McCaul, Ranking Member Keating, and other Members of the 
subcommittee, my name is Brian Toohey. I am the President of SIA, the 
Semiconductor Industry Association (``SIA''). I thank the committee for 
inviting me to testify about the dangers that counterfeit 
semiconductors pose to the U.S. military and the civilian population at 
large, as well as the common-sense steps the Obama administration can 
take to prevent counterfeit semiconductors from entering highly 
sensitive military and civilian supply chains. This issue is more and 
more important as semiconductors are being used in an increasing number 
of mission-critical applications such as medical lifesaving equipment, 
car brakes and air bag systems, nuclear reactors, airplanes and 
military weapon systems.
    SIA is the voice of the U.S. semiconductor industry, America's 
largest export industry since 2005 and a bellwether of the U.S. 
economy. Semiconductor innovations form the foundation for America's 
$1.1 trillion dollar technology industry affecting a U.S. workforce of 
nearly 6 million. Founded in 1977 by five microelectronics pioneers, 
SIA unites more than 60 companies from across the United States that 
account for 80 percent of the Nation's semiconductor production. Our 
industry has an especially robust presence in Texas and Massachusetts, 
with SIA members AMD, Freescale, Intel, STMicroelectronics and Texas 
Instruments in Texas, and Analog Devices, Intel, Maxim and Rochester 
Electronics in Massachusetts. SIA seeks to strengthen U.S. leadership 
in semiconductor design and manufacture by working with Congress, the 
administration, and other industry groups to enable the right ecosystem 
for technology development and commercialization. Specifically, SIA 
encourages policies and regulations that fuel innovation, propel 
business and drive international competition in order to maintain a 
thriving semiconductor industry in the United States.
                      background on semiconductors
    Semiconductor ``chips'' are used in everything that is computerized 
or uses radio waves. Indeed, semiconductors are components in a 
staggering variety of products, from computers and smart phones to 
medical devices, LEDs and smart meters, automobiles and military 
equipment, including missiles, navigation systems and jets. They are 
making the world around us smarter, greener, safer, and more efficient. 
They are also economically vital to the Nation. In 2010, U.S. 
semiconductor companies generated over $140 billion in sales--
representing nearly half the worldwide market, and making 
semiconductors the Nation's largest export industry. Our industry 
directly employs nearly 200,000 workers in the United States, and 
another 6 million American jobs are made possible by the use of 
semiconductors. Studies show that semiconductors, and the information 
technologies they enable, represent 3 percent of the economy, but drive 
25 percent of economic growth.
                 increasing prevalence of counterfeits
    Due to the increasing availability and decreasing price of 
equipment needed to counterfeit semiconductors, unscrupulous brokers 
looking to garner illicit profits are importing ever greater numbers of 
counterfeit chips into the United States. In fact, the Department of 
Commerce has reported that counterfeit incidents discovered by the 
military and military suppliers more than doubled between 2005 and 
2008, from 3,868 to more than 9,356 cases.\1\ Alarmingly, these 
counterfeit chips can be found in automobile airbag systems, 
defibrillators, and even highly sensitive military equipment. As 
BusinessWeek explains:
---------------------------------------------------------------------------
    \1\ U.S. Department of Commerce, Defense Industrial Base 
Assessment: Counterfeit Electronics available at http://
www.bis.doc.gov/defenseindustrialbaseprograms/osies/defmarketresearch- 
rpts/final_counterfeit_electronics_report.pdf; see also Michele Moss, 
Systems Assurance, The Global Supply Chain, and Efforts to Increase 
Communication Between Acquisition and Development, available at http://
www.dtic.mil/ndia/2010CMMI/WednesdayTrack4_11328Moss.pdf; Surge in 
counterfeit items in Pentagon's supplies, Homeland Security Newswire, 
Aug. 10, 2010, available at http://www.homelandsecuritynewswire.com/
surge-counterfeit-items-pentagons-supplies.

``The American military faces a growing threat of potentially fatal 
equipment failure--and even foreign espionage--because of counterfeit 
computer components used in warplanes, ships, and communications 
networks. Fake microchips flow from unruly bazaars in rural China to 
dubious kitchen-table brokers in the U.S. and into complex weapons. 
Senior Pentagon officials publicly play down the danger, but government 
documents, as well as interviews with insiders, suggest possible 
connections between phony parts and breakdowns. In November 2005, a 
confidential Pentagon-industry program that tracks counterfeits issued 
an alert that `BAE Systems experienced field failures,' meaning 
military equipment malfunctions, which the large defense contractor 
traced to fake microchips . . . In a separate incident last January, a 
chip falsely identified as having made by Xicor . . . was discovered in 
the flight computer of an F-15 fighter jet at Robins Air Force Base . . 
. Special Agent Terry Mosher of the Air Force Office of Special 
Investigations confirms that the 409th Supply Chain Management Squadron 
eventually found four counterfeit Xicor chips.''\2\
---------------------------------------------------------------------------
    \2\ Brian Grow et al., Dangerous Fakes: How counterfeit, defective 
computer components from China are getting into U.S. warplanes and 
ships, BusinessWeek, Oct. 2, 2008, available at http://
www.businessweek.com/magazine/content/08_41/b4103034193886.htm.

    Some experts have estimated that as many as 15 percent of all spare 
and replacement semiconductors purchased by the Pentagon are 
counterfeit.\3\
---------------------------------------------------------------------------
    \3\ Id.
---------------------------------------------------------------------------
    Many counterfeit chips are traced back to China. BusinessWeek 
writers visited China and described the counterfeiting economy as 
follows:

``The traders typically obtain supplies from recycled-chip emporiums 
such as the Guiyu Electronics Market outside the city of Shantou in 
southeastern China. The garbage-strewn streets of Guiyu reek of burning 
plastic as workers in back rooms and open yards strip chips from old PC 
circuit boards. The components, typically less than an inch long, are 
cleaned in the nearby Lianjiang River and then sold from the cramped 
premises of businesses such as Jinlong Electronics Trade Center. A sign 
for Jinlong Electronics advertises in Chinese that it sells `military' 
circuitry, meaning chips that are more durable than commercial 
components and able to function at extreme temperatures. But proprietor 
Lu Weilong admits that his wares are counterfeit. His employees sand 
off the markings on used commercial chips and relabel them as military. 
Everyone in Guiyu does this, he says: `The dates [on the chips] are 
100% fake, because the products pulled off the computer boards are from 
the '80s and '90s, [while] consumers demand products from after 
2000.'\4\
---------------------------------------------------------------------------
    \4\ Id.

    While the Chinese have admitted the prevalence of semiconductor 
counterfeiting in China, Chinese officials claim they can do little 
about the counterfeiting. As Wayne Chao, secretary general of the China 
Electronics Publishing Association and anticounterfeiting advocate 
said, ``[e]veryone wants to blame China. But it's difficult to 
differentiate between a legitimate product and a fake.''\5\
---------------------------------------------------------------------------
    \5\ Id.
---------------------------------------------------------------------------
             administration resolve to combat counterfeits
    Mr. Chao is correct--it is difficult to differentiate between a 
legitimate semiconductor and a fake. And it is precisely because of the 
difficulties inherent in differentiating between a legitimate and 
counterfeit semiconductor that the Government must place a single-
minded emphasis on preventing the importation of counterfeit chips.\6\ 
Thankfully, the Obama administration--like the previous Bush and 
Clinton administrations--has shown an admirable resolve to combat 
counterfeiting and other forms of intellectual property theft. Indeed, 
President Obama himself has promised:
---------------------------------------------------------------------------
    \6\ See Exhibit 1, a photograph comparing a genuine and counterfeit 
semiconductor.

``We're going to aggressively protect our intellectual property. Our 
single greatest asset is the innovation and the ingenuity and 
creativity of the American people. It is essential to our prosperity 
and it will only become more so in this century.''\7\
---------------------------------------------------------------------------
    \7\ Victoria Espinel, 2010 Joint Strategic Plan on Intellectual 
Property Enforcement 3, available at http://www.whitehouse.gov/sites/
default/files/omb/assets/intellectualproperty/intellectual- 
property_strategic_plan.pdf (``IPEC Report'').

    Last year, DOJ, ICE, the Office of Homeland Security 
Investigations, Naval Criminal Investigative Service (``NCIS''), Postal 
Inspection Service, Internal Revenue Service, Department of 
Transportation, and General Services Administration worked together 
with the semiconductor industry on an investigation that led to the 
indictments of the principals of a Florida-based company that generated 
nearly $16 million in gross receipts between 2007 and 2009 by importing 
nearly 60,000 counterfeit semiconductors from China and selling them to 
the military as ``military grade.''\8\ As the U.S. Attorney in charge 
of the investigation explained:
---------------------------------------------------------------------------
    \8\ Press Release, U.S. Department of Justice, Owner and Employee 
of Florida-based Company Indicted in Connection with Sales of 
Counterfeit High Tech Devices Destined to the U.S. Military and Other 
Industries (Sept. 14, 2010), available at http://www.justice.gov/
criminal/cybercrime/wrenIndict.pdf; Spencer H. Hsu, U.S. charges 
Florida pair with selling counterfeit computer chips from China to the 
U.S. Navy and military, Washington Post, Sept. 14, 2010, available at 
http://www.washingtonpost.com/wp-dyn/content/article/2010/09/14/
AR2010091406468.html.

``Product counterfeiting, particularly of the sophisticated kind of 
equipment used by our armed forces, puts lives and property at risk. 
This case shows our determination to work in coordination with our law 
enforcement partners and the private sector to aggressively prosecute 
---------------------------------------------------------------------------
those who traffic in counterfeit parts.''

    The Obama administration's Intellectual Property Enforcement 
Coordinator, Victoria Espinel, also understands the importance of 
enforcing intellectual property laws and preventing the importation of 
counterfeit semiconductors. In the administration's 2010 Joint 
Strategic Plan on Intellectual Property Enforcement, Ms. Espinel 
explained the vital role of intellectual property enforcement in 
protecting the consumer safety and National security:

``Violations of intellectual property rights, ambiguities in law and 
lack of enforcement create uncertainty in the marketplace, in the legal 
system and undermine consumer trust. Supply chains become polluted with 
counterfeit goods. Consumers are uncertain about what types of behavior 
are appropriate and whether the goods they are buying are legal and 
safe. Counterfeit products can pose a significant risk to public 
health, such as . . . military systems with untested and ineffective 
components to protect U.S. and allied soldiers, auto parts of unknown 
quality that play critical roles in securing passengers and suspect 
semiconductors used in life-saving defibrillators . . . Intellectual 
property infringement [also] can undermine our national and economic 
security. This includes counterfeit products entering the supply chain 
of the U.S. military, and economic espionage and theft of trade secrets 
by foreign citizens and companies.''\9\
---------------------------------------------------------------------------
    \9\ IPEC Report at 4.

    Unfortunately, despite the Obama administration's understanding of 
the dangers posed by counterfeit semiconductors, a 2008 Customs and 
Border Protection (``CBP'') action required by the Department of the 
Treasury is frustrating the efforts of other Government agencies to 
combat the importation of counterfeit chips.
   cbp action halts industry assistance in combatting counterfeiting
    Historically, when a CBP Port Officer suspected that an imported 
semiconductor was counterfeit, CBP would send the manufacturer of the 
semiconductor (as identified by the trademarks featured on the 
semiconductor) either a sample of a suspect semiconductor or a 
photograph of the surface of the suspect chip. The surface of 
semiconductors contain identifying manufacturing marks--these usually 
represent part number, lot number, date of manufacture and place of 
manufacture--all in clear sight to anyone looking at the chip. The 
meaning of these identifying marks, however, is known only to the 
manufacturer--and only the manufacturer of the semiconductor can 
identify the authenticity of the chip using highly confidential and 
proprietary company-specific databases. After receiving a photograph of 
a suspected counterfeit chip, a semiconductor manufacturer would 
quickly locate the specific product in its internal computer systems, 
determine the product's authenticity, and inform CBP of its 
determination. CBP could then seize the counterfeit chips. While this 
policy did not prevent all counterfeits from entering the country, it 
did lead to numerous successful raids of counterfeit manufacturers in 
China and brokers in the United States.\10\
---------------------------------------------------------------------------
    \10\ See note 8; Press Release, U.S. Department of Justice, Three 
California Family Members Indicted in Connection with Sales of 
Counterfeit High Tech Parts to the U.S. Military (Oct. 9, 2009), 
available at http://www.justice.gov/criminal/cybercrime/
aljaffIndict.pdf.
---------------------------------------------------------------------------
    Unfortunately, in August 2008 manufacturers discovered that Customs 
Officers had been ordered to stop sending photographs (or samples) of 
suspect chips showing the information required by a manufacturer to 
authenticate a chip, even though CBP had been sending such photographs 
for nearly 8 years. Instead, CBP began sending redacted photos that 
obscured identifying information and left only the manufacturer's 
trademark visible. Given the advanced labeling technology now available 
to counterfeiters, manufacturers cannot determine whether chips are 
counterfeit based on these logo-only pictures. Unsurprisingly, before 
August 2008, seizures of counterfeit semiconductors were increasing 
year after year. Since CBP changed its policy, SIA members have 
reported receiving an increased number of complaints about 
counterfeits. Semiconductor manufacturers were not notified or provided 
an opportunity to comment before CBP began implementing the new policy: 
One day in August 2008, the identifying markings on photographs sent to 
manufacturers were simply redacted.
    The CBP's new post-2008 redaction practice is based on an April 
2000 Customs Directive \11\ which instructed Customs Officers to 
``remove or obliterate any information indicating the name and/or 
address of the manufacturer, exporter, and/or importer, including all 
bar codes or other identifying marks'' before providing samples of 
chips suspected to bear ``confusingly similar'' trademarks to 
semiconductor manufacturers. Of course, Customs Officers understood 
that this policy could not effectively prevent the importation of 
counterfeit semiconductors, and did not interpret the restrictive 
Directive to apply to photographs until August 2008 when, we have been 
told, CBP Port Officers were ``reminded'' by Treasury officials that 
the April 2000 Directive applies to photographs.
---------------------------------------------------------------------------
    \11\ Customs Directive No. 2310-008A (April 7, 2000), available at 
http://www.cbp.gov/linkhandler/cgov/trade/legal/directives/2310-
008a.ctt/2310-008a.pdf.
---------------------------------------------------------------------------
     customs needs industry support to prevent the importation of 
                       counterfeit semiconductors
    CBP cannot effectively prevent the importation of counterfeit 
semiconductors without the industry's assistance. A semiconductor is 
very different from apparel, for example, where a photograph of a fake 
Gucci handbag redacted per the Customs Directive's instructions likely 
still provides sufficient information for an intellectual property 
rights holder to determine the authenticity of merchandise. In 
contrast, semiconductor manufacturers use common exterior packages 
(which fit in common board sockets) for their semiconductors. Moreover, 
counterfeiters have obtained professional laser etching equipment to 
place fake codes on counterfeit chips. Thus, it is nearly impossible to 
determine whether a given chip is legitimate or counterfeit based on 
the redacted photographs.\12\
---------------------------------------------------------------------------
    \12\ See Exhibit 1.
---------------------------------------------------------------------------
    Semiconductor manufacturers can only assist CBP in preventing 
importation of counterfeit merchandise if CBP provides manufacturers 
with sufficient information to determine whether suspect chips are 
authentic. An unredacted photograph of a suspect chip would ordinarily 
be sufficient to provide the manufacturing codes (that usually 
represent lot numbers, dates, and locations of manufacture) that a 
manufacturer needs to authenticate a chip. Alternatively, CBP could 
provide manufacturers with these numbers or a sample chip. However, a 
photograph that has been redacted to remove these numbers does not 
provide sufficient information to determine the authenticity of a chip. 
Unless CBP provides manufacturers unredacted photographs of suspect 
chips (or provides the manufacturing codes and dates and locations of 
manufacture reflected on the face of the suspect chips that only 
manufacturers can decipher), CBP cannot discharge its statutory 
obligation to ensure that imports comply with U.S. intellectual 
property laws. In such circumstances, the risk that counterfeit chips 
will enter U.S. commerce and ultimately end up as components in 
commercial, industrial, and military devices increases as we have 
witnessed since Treasury's policy shift.
             customs has the authority to get industry help
    The most frustrating aspect of the current policy is the fact that 
CBP has all the legal authority necessary to provide semiconductor 
manufacturers with the information necessary to stem the tide of 
counterfeit chips. Treasury officials have claimed that the 2000 
Directive is meant to protect Customs Officers from liability under the 
Disclosure of Confidential Information (``DCI'') provision of the Trade 
Secrets Act.\13\ However, such protection is unnecessary, as Customs 
Officers are only exposed to DCI liability to the extent that CBP 
decides that information is confidential.\14\ Therefore, CBP can 
effectively protect Customs Officers by simply declaring that the 
information included on the surface of semiconductors is not 
confidential information, as it had implied prior to its policy shift. 
Indeed, it is unclear how a code that is readily visible to anyone 
looking at the product label on a container containing semiconductors 
or the surface of a semiconductor can be confidential information. 
Tellingly, when Customs promulgated the rule that the 2000 Directive 
was intended to ``fix,''\15\ it identified two potential trade secrets 
that might be divulged when disclosing information: The identity of the 
manufacturer and the identity of the importer.\16\ But sharing the 
codes on the surface of semiconductors and product labels on the 
packaging with semiconductor manufacturers would not reveal either, as 
the manufacturer knows its own identity and the surface codes reveal no 
information about a chip's importer.
---------------------------------------------------------------------------
    \13\ 18 U.S.C.  1905.
    \14\ In United States v. Wallington, 889 F.2d 573 (5th Cir. 1989), 
the Fifth Circuit logically found that the DCI only prohibits the 
disclosure of confidential information. In addition, the Fifth Circuit 
clarified that Customs agents cannot be held liable for DCI violations 
without ``at least . . . knowledge that the information is confidential 
in the sense that its disclosure is forbidden by agency official policy 
(or by regulation or law).'' Thus, since the Trade Secret Act does not 
address the information at issue, CBP Officers could be shielded from 
any potential DCI liability (to the extent such liability may exist) 
with a stroke of a pen if CBP were to clarify the Directive to permit 
Customs agents to share with semiconductor manufacturers unredacted 
photographs.
    \15\ 19 C.F.R.  133.25 (``Customs may disclose to the owner of the 
trademark or trade name . . . in order to obtain assistance in 
determining whether an imported article bears an infringing trademark 
or trade name . . . [a] description of the merchandise'').
    \16\ Copyright/Trademark/Trade Name Protection; Disclosure of 
Information, 63 Fed. Reg. 11996, 11997 (Mar. 12, 1998); see also Gray 
Market Imports and Other Trademarked Goods, 64 Fed. Reg. 9058 (Feb. 24, 
1999).
---------------------------------------------------------------------------
    CBP has failed to understand that even if the publicly viewable 
codes were confidential, Congress clearly contemplated CBP disclosing 
such information to rights holders in order to permit CBP to fulfill 
the many laws and treaties requiring it to stop counterfeits from 
entering the United States. The DCI simply prohibits Government 
officials from disclosing confidential information that ``concerns or 
relates to . . . the identity . . . of any person'' to ``any extent not 
authorized by law.'' Accordingly, Congress has authorized CBP to 
provide unredacted photos to semiconductor manufacturers through the 
Tariff Act of 1930, the Lanham Act, the North American Free Trade 
Agreement and the GATT Agreement on Trade-Related Aspects of 
Intellectual Property Rights. In addition, CBP's own Disclosure of 
Information Regulation authorizes such disclosure.\17\ It is truly 
difficult to understand why CBP believes disclosing information to 
semiconductor manufacturers is unlawful when ICE, DOD, DOJ, NCIS, and 
even the FBI--the agency tasked with enforcing the Trade Secrets Act--
do not, and in fact routinely disclose such information to 
semiconductor manufacturers.
---------------------------------------------------------------------------
    \17\ See note 15.
---------------------------------------------------------------------------
                               conclusion
    As a trade association that represents one of America's most vital 
industries, SIA hopes that all executive agencies will support the 
Obama administration's intellectual property enforcement efforts by 
resolving this counterfeit issue expeditiously. Counterfeit 
semiconductors are a clear and present National security threat and 
danger to human health because they are used in many mission-critical 
applications. SIA is pleased with the efforts by the U.S. Attorney for 
the District of Columbia, ICE, NCIS, and other Federal law enforcement 
agencies to bring to justice unscrupulous brokers selling dangerous 
counterfeits into the civilian and military supply chain. However, the 
2000 CBP policy, further refined in 2008, prevents the U.S. Government 
from most effectively working with industry to prevent counterfeit 
chips from being imported into the United States. This is alarming, 
especially given the danger such chips so obviously present.
    We respectfully request this subcommittee and Congress to work with 
CBP and Treasury to ensure that the pre-2008 practice of sharing 
unredacted pictures of suspected counterfeit semiconductors and product 
labels with manufacturers is reinstated in the interest of safeguarding 
the health and safety of the American public and our military. 




    Mr. McCaul. Thank you.
    Mr. Toohey, I will ask in my questions why DHS changed that 
practice. I don't know how you can identify with the markings 
taken off. So it seems a bit absurd to me, but we will follow 
up with that in questions.
    Mr. Russo, you are now recognized.

   STATEMENT OF MICHAEL RUSSO, DIRECTOR, GLOBAL SECURITY AND 
           PRODUCT PROTECTION, ELI LILLY AND COMPANY

    Mr. Russo. Good morning, Mr. Chairman and Members of the 
committee.
    First, let me thank the committee for inviting Eli Lilly to 
testify about the dangers of counterfeit pharmaceuticals and 
the efforts of ICE and CBP to stop these products which have 
serious consequences for Americans, global public health, our 
economy, National security, and certainly our industry. In 
order to meet time constraints, I will request that my full 
testimony be submitted for the record, and I will provide a 
summary of my comments today.
    I am Michael Russo, director of global security and asset 
protection for Eli Lilly and Company, a global pharmaceutical 
company. Lilly invests heavily to research, develop, and 
manufacture safe and effective pharmaceutical therapies which 
treat many diseases and save lives. Criminal counterfeiters 
steal those innovations by copying our branding attributes, 
packaging characteristics, and deliberately misleading 
consumers to believe they are buying our legitimate, safe, 
quality-controlled medicines. Our analysis of counterfeits have 
determined that in many cases they are poorly made, lack 
efficacy, and may contain dangerous and other unknown 
substances. There are several known cases in which counterfeit 
products have been responsible for patient deaths.
    We are also seeing that the problem is on the rise 
globally. We have learned from our work that many 
counterfeiters are highly sophisticated and are associated with 
international organized crime networks. For this reason, the 
United States and other governments must continue to work and 
dismantle these organizations before the counterfeit drug trade 
extends so broadly that it undermines the legitimate global 
pharmaceutical supply. Lilly is committed to assisting 
Government agencies like ICE in tackling this threat.
    In short, ICE and CBP have been highly supportive and 
responsive to our concerns, though we all need to increase 
efforts and do more. Their efforts have resulted in numerous 
criminal convictions and a significant number of seizures of 
counterfeit pharmaceuticals at our borders. Through their 
efforts we have seen an increased cooperation of foreign law 
enforcement agencies that target counterfeit operations outside 
the United States.
    The effectiveness of ICE has been the result not only of 
work of numerous individual ICE agents globally, but also the 
critical coordination and support provided by the IPR Center. 
The internet has posed a significant challenge by facilitating 
criminal counterfeiting. ICE has responded to complaints by 
brand owners with Operation in Our Sites II, a new approach to 
the internet trade in counterfeits. These actions sent a 
message that the internet was no longer a safe haven for the 
distribution of counterfeit product. We would like to see more 
attention by this committee and other relevant U.S. Government 
agencies to the dangerous counterfeit pharmaceuticals that are 
being sold on the internet.
    Customs and Border Protection officers have also increased 
their efforts to combat counterfeit pharmaceuticals. There are 
thousands of illegal small parcels and express mail packages 
entering the United States every day facilitated by 
illegitimate on-line drug sellers posing as legitimate 
pharmacies. We support continuing and increasing high-profile 
interdiction operations, as well as using the collection of 
data to inform and educate Americans about the dangers of 
purchasing medicines on-line.
    International cooperation aimed at coordinated law 
enforcement operation and training is another vital element of 
how ICE is contributing to this problem. We support continued 
and expanded posting of ICE and CBP attaches outside the United 
States, and encourage effective resourcing to enable an 
increase in focus on counterfeit pharmaceuticals given their 
unique threat.
    The efforts by ICE to combat counterfeit pharmaceuticals 
are noteworthy, but going forward, more needs to be done to 
protect Americans. We view the following as key areas of 
concern and additional focus going forward.
    More operations and public education is needed to disrupt 
thousands of illegal shipments entering the United States 
daily. CBP needs more resources and technology to interdict 
these shipments, and all appropriate agencies need authority to 
destroy the known counterfeits and illegal drugs instead of 
shipping them back to the criminals who are sending them to our 
country.
    More attention needs to be focused on a broad internet 
strategy to address thousands of illegal websites that are 
selling fake and dangerous pharmaceutical products to U.S. 
patients.
    We believe a major public awareness campaign is needed to 
educate citizens about the dangers of fake products and the 
importance of purchasing medicines safely on the internet. The 
FDA and IPEC are working to develop a coordinated education 
effort.
    DHS has the unique ability to contribute to this campaign 
by providing real data about what is coming across our borders.
    Additionally, more should be done to encourage the 
voluntary efforts initiated by Google and Go Daddy in their 
Center for Safe Internet Pharmacies to stop providing services 
to illegal on-line drug sellers and distributors of counterfeit 
drugs. Their efforts have the potential to drastically reduce 
the threat posed to patients and reduce the burden on law 
enforcement agencies. Therefore, we encourage this committee to 
support more voluntary efforts.
    As a final part of internet strategy, more effort is needed 
through investigation to track websites back to the source of 
supply and to major distributors of counterfeit medicines. This 
requires increased international law enforcement cooperation in 
response to leads developed and aggressive law enforcement 
action when justified.
    In this spirit we support and encourage the on-going work 
of the IPR Center to bring together the various Government 
authorities and brand holders to fight this criminal activity 
that is endangering our homeland and National security. It is 
critical that all of the relevant agencies, ICE, CBP, the FDA, 
the FBI, and local authorities, are working together with the 
utmost coordination to fight the counterfeit drug trade. 
Counterfeit pharmaceuticals pose a very unique and frightening 
threat and must not be viewed as an economic or IP crime alone.
    In conclusion, I want to underscore that combating 
counterfeited pharmaceuticals is a very complex issue requiring 
the cooperation of many agencies and governments, as well as 
the private sector, health care professionals, and 
nongovernment organizations. None of us can do this alone.
    I might also add, Mr. Chairman, that DHS and ICE get this 
situation. Just 2 weeks ago we were summoned to New York to 
meet with Secretary Napolitano, who was focusing on this 
matter, and additional resources from her team are being added 
to this as we see it.
    We stand with you in the effort to protect U.S. consumers 
and the homeland from counterfeit medicines. There is a lot of 
work needed, and we believe that it is vital to the mission of 
preventing crime and protecting patients.
    Again, I thank the committee for inviting Lilly to testify 
today and look forward to any of your questions.
    Mr. McCaul. Thank you, Mr. Russo.
    [The statement of Mr. Russo follows:]
                  Prepared Statement of Michael Russo
                              July 7, 2011
    Good morning, Mr. Chairman and Members of the subcommittee. First, 
let me thank the committee for inviting Lilly to testify about the 
dangers of counterfeit pharmaceuticals and the efforts of ICE and CBP 
to stop these dangerous products which have serious consequences for 
Americans, global public health, our economy, National security, and 
certainly our industry. In order to meet time constraints, I will 
request that my full testimony be submitted for the record, so that I 
can provide a summary of my comments today.
    I am Michael Russo, Director of Global Security Product and Asset 
Protection for Eli Lilly and Company, a global researched-based 
pharmaceutical company based in Indianapolis. Lilly invests heavily to 
research, develop, and manufacture safe and effective pharmaceutical 
therapies which treat many diseases and save lives. Criminal 
counterfeiters steal those innovations, by copying our branding 
attributes and packaging characteristics and deliberately misleading 
consumers to believe they are buying and using the legitimate, safe, 
quality-controlled products that we manufacture. In our experience with 
counterfeit products, we have observed that in many cases they are 
poorly made in filthy facilities, lack efficacy, and may contain 
dangerous and other unknown substances. There are several known cases 
in which counterfeit products have been responsible for patient deaths. 
And it is likely that counterfeit medicines have inadvertently caused a 
patient harm by denying the effective treatment of a genuine medicine.
    We are also seeing that the problem is on the rise globally. 
Criminals cannot resist the allure of extremely high profits and 
surprisingly low risks associated with counterfeit pharmaceuticals. 
They are producing counterfeit versions of expensive and innovative 
anti-cancer drugs, as well as less expensive generic medicines such as 
antibiotics and vaccines. They target developed markets in the United 
States and Europe, but also sell fake medicines to some of the poorest 
populations, in some cases contributing to drug-resistant strains of 
disease. I mention this because it is important to understand that this 
is a crime against global public health, not just our company, and not 
just our country. It threatens all of us, whether you buy medicine from 
a fake on-line pharmacy, or you are administered a counterfeit vaccine. 
If the fake products continue to proliferate; theoretically, they could 
overtake genuine product in some countries, and that is frightening.
    For these obvious implications on public health, our company has 
prioritized the issue, acting as an industry leader to raise the matter 
with U.S. agencies and other governments. We have established a 
coordinated team of Lilly professionals who analyze the problem and 
directly assist U.S. and foreign governments in the fight against 
counterfeit pharmaceuticals. We also chair our industry association's 
Anti-Counterfeiting Working Group, working through PhRMA and in 
partnership with other sectors to combat this threat.
    We have learned from our work that the counterfeiters are highly 
sophisticated and are associated with international organized crime 
networks. While our companies work to comply with numerous laws and 
regulations to ensure our medicines are safe for patients, criminal 
networks circumvent all of them with no concern for the patient's 
health or our company's brand. They are pretending to be us, but they 
do not regulate or control the quality of their products, and our 
patients suffer the consequences.
    For this reason, the United States and other governments must 
continue work to disrupt and dismantle these organizations before the 
counterfeit drug trade extends so broadly that it undermines the 
legitimate global pharmaceutical supply.
    Lilly is committed to assisting Government agencies like ICE in 
tackling this threat. Lilly investigators work globally to develop 
information regarding the various manufacturing and distribution 
networks involved in the counterfeit pharmaceutical trade and the 
individuals responsible for them. In order to succeed, we turn this 
information over to a law enforcement agency capable of developing the 
information we provide and ultimately bringing those responsible to 
justice. ICE and CBP have been highly supportive and responsive to our 
referrals. Their efforts have resulted in numerous criminal convictions 
and a significant number of seizures of counterfeit pharmaceuticals at 
our borders. Through their efforts, we have seen an increase in 
cooperation with foreign law enforcement agencies that target 
counterfeit operations outside the United States.
    The effectiveness of ICE has been the result of not only the work 
of numerous individual Homeland Security Investigative (HSI) agents 
globally, but also the critical coordination and support provided by 
the National Intellectual Property Rights Coordination Center (IPR 
Center) which has served as a model of interagency and public-private 
coordination for Government agencies and brand holders here in the 
United States. The IPR Center maintains continuous communication with 
brand owners and uses the expertise of its member agencies to share 
information, test new initiatives, coordinate enforcement actions, and 
conduct joint investigations. It also provides an effective forum for 
brand owners to share information directly with investigative 
professionals familiar with counterfeit/intellectual property (IP) 
crime and for us to provide training regarding the characteristics of 
our products.
    The efforts by ICE to combat counterfeit pharmaceuticals have 
resulted in several criminal convictions. In 2009, Kevin Xu was 
convicted and sentenced in U.S. District Court in Houston for 
distributing counterfeit and misbranded pharmaceuticals. Xu's criminal 
activities resulted in him profiting in the amount of $1.5 million in 1 
year from the sale of counterfeit pharmaceuticals. He was also 
responsible for distributing counterfeits in Europe which resulted in 
the recall of three pharmaceutical products. In Houston, Lawrence Chow 
was sentenced to 12 months and one day for conspiring to distribute 
counterfeit pharmaceuticals and trafficking in pharmaceuticals bearing 
false labeling and counterfeit trademarks. In St. Louis this February, 
Mark Hughes was sentenced to 48 months in Federal prison on multiple 
charges including the sale of counterfeit and misbranded 
pharmaceuticals. These convictions send an important deterrent message 
to criminals who engage in this activity. We are thankful for and 
support additional criminal investigations and resulting prosecutions 
to send a clear message to drug counterfeiters who target the United 
States and elsewhere. That said, the convictions are paltry compared to 
the severity of the offense and do not send a strong enough message to 
future criminals.
    As this committee may know, the internet has posed a significant 
challenge by facilitating criminal counterfeiting. It is used as a 
conveniently anonymous platform by manufacturers, distributors, and 
buyers of counterfeit pharmaceuticals. Criminal organizations dupe 
customers into buying counterfeits through fake on-line ``pharmacies'' 
which use trademarked images of branded pharmaceutical products. In 
response to this, ICE has responded to complaints by brand owners with 
Operation in Our Sites II--a new approach to the internet trade in 
counterfeits. In late 2010, the Justice Department Criminal Division, 
ICE and nine U.S. Attorneys' offices across the country executed 
seizure orders against 82 internet domain names of websites engaged in 
the sale and distribution of counterfeit goods and illegal copyrighted 
works. These actions sent a message that the internet was no longer a 
safe haven for the distribution of counterfeit product. We would like 
to see more attention by this committee and relevant U.S. Government 
agencies to the number of dangerous counterfeit pharmaceuticals that 
are being sold on the internet. Law enforcement operations such as 
Operation in Our Sites are crucial deterrents, but more must be done to 
take down fake on-line pharmacy sites and interdict incoming shipments 
from these sites. This will undoubtedly require more active support 
from the private sector companies that are indirectly facilitating the 
registration and advertisement of new sites every day as well as 
processing and shipping the purchased fake and illegal medicines 
through their services. They can do a lot to support law enforcement 
and prevent this criminal activity. We endorse the excellent work of 
the Intellectual Property Enforcement Coordinator (IPEC), Victoria 
Espinel, in fostering this collaboration and seeking ways to work more 
robustly with the private sector as part of her Joint Strategy. We also 
endorse the work of the Alliance for Safe Online Pharmacies (ASOP) 
(www.safeonlinerx.com) of which Lilly is a member.
    International cooperation aimed at coordinated law enforcement 
operation and training is another vital element of how ICE is working 
to address this problem. In addition to operations and trainings 
conducted through such multi-lateral institutions as the Asia Pacific 
Economic Cooperation (APEC), there is regular bilateral engagement 
through the ICE and CBP Attache's posted in U.S. Embassies. These 
attaches are critical to the success of international counterfeit 
pharmaceutical investigations. They develop the critical links and 
relationships with foreign law enforcement authorities that are 
necessary to effectively dismantle counterfeit networks. In addition, 
they provide brand owners with a professional investigative resource 
in-country with whom to discuss and refer cases. ICE attaches 
coordinate important training between local authorities and brand 
owners that increase the importance and awareness of IP crimes and 
familiarize local authorities with the dangers of counterfeit 
pharmaceuticals and how these products can harm local populations. We 
support the continued and expanded posting of ICE and CBP attaches 
outside the United States and we encourage effective resourcing to 
enable an increase in focus on counterfeit pharmaceuticals, given the 
unique threat they pose to global public health and our own National 
security.
    Customs and Border Protection (CBP) officers who inspect the 
millions of shipments entering the United States have also increased 
their efforts to combat counterfeit pharmaceuticals. There are 
thousands of illegal small parcels and express mail packages entering 
the United States every day facilitated by illegitimate on-line drug 
sellers posing as legitimate pharmacies. CBP officers have effectively 
responded to our concerns about these shipments by implementing 
coordinated efforts to inspect large volumes of packages for 
counterfeits and referring those in violation to ICE HIS agents for 
follow-up. Lilly, along with other industry partners, provided product 
identification training as well as on-site analysis of seized products. 
These efforts are critical to protecting U.S. consumers. They send an 
important deterrent and educational message to U.S. consumers. We 
support continuing and increasing high-profile interdiction operations, 
as well as using the collection of data to inform and educate Americans 
about the dangers of purchasing medicines on-line.
    The efforts by ICE to combat counterfeit pharmaceuticals are 
noteworthy but going forward more needs to be done to protect 
Americans. We view the following as key areas for concern and where we 
recommend additional focus going forward:
   More operations and public education is needed to disrupt 
        the thousands of illegal shipments entering the United States 
        daily in small parcels and express mail. CBP needs more 
        resources and technology to interdict these shipments and all 
        appropriate agencies need the authority to destroy the known 
        counterfeit and illegal drugs seized instead of shipping them 
        back to the criminals who are sending them to our country. We 
        refer to the March 2011 administration's White Paper on 
        Intellectual Property Enforcement Legislative Recommendations 
        and Counterfeit Pharmaceutical Interagency Working Group Report 
        to the Vice President and Congress, which provided important 
        insight and suggestions related to this challenge.
   We recommend legislation to increase penalties for 
        counterfeit and diverted products, which pose a direct threat 
        to public health and safety. Increased penalties will help to 
        send an important message to criminals engaged in 
        counterfeiting pharmaceuticals.
   More attention needs to be focused on a broad international 
        internet strategy to address the thousands of illegal websites 
        that are selling fake and dangerous pharmaceutical products to 
        U.S. patients. We are currently providing ICE with lists of 
        offending internet websites which are infringing on our 
        trademarks and placing patients at risk. While their 
        investigative/deterrent work continues, more must be done with 
        education and voluntary action to compliment that effort.
   As part of this strategy, we believe a major public 
        awareness campaign is needed to educate citizens about the 
        dangers of fake products and the importance of purchasing 
        medicine safely on the internet. The FDA and IPEC are working 
        to develop a coordinated education effort, and we believe that 
        funding and resources for this kind of a campaign are critical 
        to preventing this crime and protecting the homeland. Though 
        Government funding is needed to kick-start the effort, its 
        success requires the participation of several stakeholders, 
        from non-governmental organizations such as patient advocates, 
        to health-care professionals such as doctors, nurses, and the 
        local pharmacist. It must be a comprehensive education effort 
        to inform people about the dangers of fake drugs and why they 
        should go through legitimate channels when purchasing 
        medicines.
   DHS has the unique ability to contribute to this campaign by 
        providing real data about what is coming across our borders as 
        well as information about the true nature of the criminal 
        organizations involved in the fake drug trade. DHS is needed to 
        help tell the story of the criminals involved in making fake 
        medicines in order to educate the public and health care 
        professionals.
   Additionally, more should be done to encourage and realize 
        outcomes from the voluntary initiative of companies like Google 
        and Go Daddy to stop providing services to illegal on-line drug 
        sellers and distributors of counterfeit drugs. Google and Go 
        Daddy have initiated a new nonprofit called the Center for Safe 
        Internet Pharmacies (CSIP) with membership that includes search 
        engines, domain name registrars, credit card companies, and 
        shippers. CSIP is a vital development in efforts to reduce this 
        crime on the internet over the long term, and it is an 
        important compliment to the day-to-day work that ICE is doing. 
        CSIP has the potential to drastically reduce the threats posed 
        to patients and reduce the burden on law enforcement agencies; 
        therefore, we encourage this committee to support the work that 
        CSIP is doing.
   Specifically, we ask for your support of the section in the 
        Protect IP Act of 2011 (S. 968) which provides legal immunity 
        to CSIP and other internet-related companies who stop providing 
        services to websites that endanger the public health. No House 
        version has been introduced yet, but that section would be very 
        helpful in any final House legislation. It helps to remove any 
        final disincentive to voluntary action that will protect 
        American citizens.
   As a final part of the internet strategy, more effort is 
        needed through investigations to track websites back to the 
        source of supply and the major distributors of counterfeit 
        medicines. This requires increased international law 
        enforcement cooperation in response to leads developed and 
        aggressive enforcement action to follow up when justified. The 
        counterfeit drug trade is providing enormous profit that fuels 
        other dangerous criminal activity by organized criminal 
        networks. Dismantling these counterfeit pharmaceutical networks 
        must become a higher priority for law enforcement agencies 
        globally.
   In this spirit, we support and encourage the on-going work 
        of the IPR Center to bring together the various Government 
        authorities and brand holders to fight this criminal activity 
        that is endangering our homeland and National security. It is 
        critical that all of the relevant agencies, ICE and CBP, the 
        FDA, the FBI, and local authorities, are working together with 
        the utmost coordination to fight the counterfeit drug trade. 
        This growing threat of counterfeit pharmaceuticals poses a very 
        unique and frightening threat, and it must not be viewed as an 
        economic or IP crime alone.
    In conclusion, I want to underscore that combating counterfeit 
pharmaceuticals is a very complex issue requiring the cooperation of 
many agencies and governments, as well as the private sector, health 
care professionals, and non-government organizations. None of us can do 
it alone. We stand with you in the effort to protect U.S. consumers and 
the homeland from counterfeit medicines and dismantle the international 
crime networks that profit from the counterfeit drug trade. There is a 
lot of work needed, and we do believe it is vital to the mission of 
preventing crime and protecting patients everywhere. Again, I thank the 
committee for inviting Lilly to testify today and for your commitment 
to this important issue and look forward to any questions.

    Mr. McCaul. The Chairman now recognizes Mr. Mancuso for 5 
minutes.

  STATEMENT OF MARIO MANCUSO, PARTNER, FRIED, FRANK, HARRIS, 
                     SHRIVER & JACOBSON LLP

    Mr. Mancuso. Thank you, Chairman McCaul, Ranking Member 
Thompson, and distinguished Members of the subcommittee. Thank 
you for the opportunity to testify today.
    Today's hearing is a timely and important one and 
implicates a number of vital U.S. National interests, our 
technological competitiveness, U.S. jobs, and our Nation's 
security.
    As an initial matter, I believe we are fortunate to have 
talented and committed career civil servants in our Government, 
including at DHS. Unfortunately, this alone is not enough to 
either keep U.S. industry globally competitive or dangerous 
technologies out of the hands of U.S. adversaries. Ironically, 
we need to do both more and less, and we might start by raising 
our expectations for what constitutes success in the export 
control context.
    In my view, we should seek to enhance U.S. National 
security and remain the most competitive, the most innovative 
economy in the world. That objective is not merely desirable; 
it is vital, and it is possible.
    Before giving my general observation about DHS' role in 
export control enforcement, I would like to simply describe the 
context in which export control policy and enforcement take 
place.
    The world has changed since the end of the Cold War, and it 
is changing still. Globalization is reordering our world, and 
certain facets of globalization, economic, technological, and 
political, are impacting our Nation's security profile and 
shaping the exercise of our National power.
    Today's National security threats are more numerous and 
varied than ever before, and they require more and more 
differentiated approaches to mitigate risk to U.S. security 
interests. At the same time, the global, economic, and 
competitive landscape has changed profoundly, fundamentally 
realtering the efficacy and opportunity costs of export 
controls.
    Indeed, the very success of our economic diplomacy, the end 
of the Cold War, and globalization generally, has increased the 
pool of world-class competitors and altered the dynamics of 
global economic competition. Unlike when U.S. export controls 
were originally instituted, technology, talent, and capital are 
now ubiquitous. Today U.S. companies compete with the rest of 
the world, including companies in China and in India, but also 
in Brazil, Korea, Indonesia. The list goes on.
    Consider two startling facts. In 2009, King Abdullah 
University opened its doors in Saudi Arabia. On the day it 
opened, it had an endowment roughly equivalent to that of MIT, 
except it took MIT 142 years to get there. Today it is 
estimated that 90 percent of all scientists and engineers live 
in Asia.
    But there is more. The alchemy of our military 
technological superiority has also changed. In the past, 
approximately two-thirds of our Nation's military technologies 
were developed in defense-unique R&D settings with the 
remaining third generated from adaptations of commercial, off-
the-shelf technologies. Today those proportions are almost 
exactly reversed. Thus, in a very real way, the vitality of our 
civilian technology industry is now linked to U.S. National 
security.
    In the aggregate these developments are not altogether a 
bad thing. In fact, the United States welcomes the integration 
of developing countries into a rules-based global economy, but 
these changes have challenged the core assumption of export 
controls, that we have something that other people do not have, 
that complicated the calculus of export controls generally and 
further elevated the salience of U.S. economic competitiveness 
and technology leadership in National security policymaking.
    To some degree, U.S. export control regulations impact the 
competitiveness of U.S. industry and, therefore, jobs in 
America. To the extent that such export controls actually 
advance U.S. security interests, those export controls are 
necessary. However, to the extent that such controls create 
protected foreign markets for U.S. competitors without 
advancing U.S. security interests, they should be reconsidered, 
unless doing so would be inconsistent with other important U.S. 
National interests.
    While this broader policy calculus is really beyond the 
scope of this hearing, it should nonetheless inform DHS' 
enforcement work. On a surface level, DHS has impressive 
institutional tools at its disposal: A large pool of special 
agents, fulsome legal authorities to conduct export control 
investigations here and abroad, and a network of law 
enforcement personnel deployed around the world. Yet, thus far, 
DHS' enforcement results appear to be modest in comparison to 
its resources. In this connection I offer the following 
practical observations.
    First, it is not only about DHS. DHS is an important actor 
in export control enforcement, but it is not the only one. 
While there is generally effective coordination at the senior 
policy and special agent level, there could be improved 
coordination at the middle-management level of the various 
departments and agencies with export control responsibilities. 
Indeed, our Nation's success in export control enforcement 
matters at all is largely attributable to the make-it-happen 
attitude of special agents in the field, and while President 
Obama's creation of an export control coordination center is a 
good idea, it will not, by itself, guarantee a positive result.
    Second, DHS should improve its export control enforcement 
acuity and operational concept. Large parts of DHS' 
investigative culture developed around the investigation of 
very different kinds of cases. As a result, export control 
acumen is not a prominent part of the DHS investigative self-
identity. This is not an insuperable obstacle, but it will 
require organizational leadership to ensure that export control 
expertise remains a visible and highly regarded DHS capability.
    Third, DHS should strengthen its enforcement architecture.
    Fourth, DHS should refocus its enforcement activities. No 
entity, including the Department of Homeland Security, can do 
everything everywhere all the time. This is particularly true 
in a resource-constrained environment. DHS should refine its 
classified intelligence gathering and analysis capability and 
prioritize its efforts accordingly. This should be done 
periodically to ensure that DHS is focusing in the geographic 
and other areas of maximum National consequence.
    Finally, DHS should accelerate its engagement with allied 
and partner governments to help address our shared security 
interests. DHS should accelerate and elevates its engagement 
with other governments through its attache presence around the 
world. While it should seek to work with all governments of 
goodwill, it should prioritize its efforts based on their 
contribution to U.S. and international security. This important 
work should be closely coordinated with the U.S. State 
Department and, in every case, with our Chiefs of Mission 
abroad.
    Thank you for your kind attention. I understand I went over 
my limit, but I would be pleased to answer any questions you 
may have. Thank you.
    [The statement of Mr. Mancuso follows:]
                  Prepared Statement of Mario Mancuso
                              July 7, 2011
    Chairman McCaul, Ranking Member Thompson, and distinguished Members 
of the subcommittee: Thank you for the opportunity to testify today. 
Today's hearing, ``Homeland Security Investigations: Examining DHS's 
Efforts to Protect American Jobs and Secure the Homeland,'' is a timely 
and important one, and implicates a number of vital U.S. National 
interests--our technological competitiveness, jobs, and our Nation's 
security.
    I have been fortunate to have had the opportunity to consider these 
issues from a variety of perspectives in the public and private 
sector--as Deputy Assistant Secretary of Defense for Special 
Operations, as Under Secretary of Commerce for Industry and Security in 
the administration of President George W. Bush, and as an international 
lawyer counseling clients in export control and related matters. I hope 
my testimony today will be of some value to the Members of this 
subcommittee as you continue your important work in assessing the 
efficacy and multiple impacts of DHS investigations.
    As an initial matter, I believe we are fortunate to have talented 
and committed career civil servants in our Government, including at 
DHS. Unfortunately, this alone is not enough to either keep U.S. 
industry globally competitive or dangerous technologies out of the 
hands of U.S. adversaries.
    Ironically, we need to do both more and less. And, we might start 
by raising our expectations for what constitutes ``success'' in the 
export control context. In my view, we should seek to enhance U.S. 
National security and remain the most competitive, the most innovative 
economy in the world. That objective is not merely desirable, it is 
absolutely vital--and possible to achieve.
    Before giving my general observations about DHS's role in export 
control enforcement, I would like to simply describe the context in 
which export control policy and enforcement take place.
                           the policy context
    The world has changed since the end of the Cold War, and it is 
changing still. Globalization is reordering our world and certain 
facets of globalization--economic, technological, and political--are 
impacting our Nation's security profile, and shaping the exercise of 
our National power.
    Today's National security threats are more numerous and varied than 
ever before, requiring more and more differentiated approaches to 
mitigate risk to U.S. security interests. At the same time, the global 
economic and competitive landscape has changed profoundly, 
fundamentally re-altering the efficacy and opportunity costs of export 
controls.
    Indeed, the very success of our post-war economic diplomacy, the 
end of the Cold War, and globalization generally, has increased the 
pool of world-class competitors and altered the dynamics of global 
economic competition. Unlike when U.S. export controls were instituted, 
technology, talent, and capital are now ubiquitous. Today, U.S. 
companies compete with the rest of the world, including companies in 
China and India, but also in Brazil, Korea, Indonesia--and the list 
goes on.
    Consider two startling facts:
   In 2009, King Abdullah University opened its doors in Saudi 
        Arabia. On the day it opened it had an endowment roughly 
        equivalent to that of MIT--except it took MIT 142 years to get 
        there.
   Today, it is estimated that more than 90% of all scientists 
        and engineers live in Asia.
    But there's more. The very alchemy of our military technological 
superiority has also changed. In the past, approximately two-thirds of 
our Nation's military technologies were developed in defense-unique R&D 
settings, with the remaining one-third generated from adaptations of 
commercial, off-the-shelf technologies. Today, those proportions have 
been almost exactly reversed. Thus, in a very real way, the vitality of 
our civilian technology industry is now linked to U.S. National 
security.
    In the aggregate, these developments are not altogether a bad 
thing. In fact, the United States welcomes the integration of 
developing countries into a rules-based global economy. But these 
changes have: (i) Challenged the core assumption of our export 
controls--i.e., that we have something that others do not, (ii) 
complicated the net-benefit calculus of export controls generally, and 
(iii) further elevated the salience of U.S. economic competitiveness 
and technology leadership in National security policymaking.
    In this environment, we can no longer assume that export controls 
always and automatically work to enhance U.S. security interests. 
Instead, we must be discerning in the application of export controls, 
rigorous in our enforcement of a right-sized export-control regime, and 
mindful of the long-term relationship between U.S. security interests 
and U.S. technology competitiveness.
    To some degree, U.S. export control regulations impact the 
competitiveness of U.S. industry--and therefore, jobs--in America. To 
the extent that such export controls actually advance U.S. security 
interests, those export controls are necessary. However, to the extent 
that such controls create protected foreign markets for U.S. 
competitors without advancing U.S. security interests, they should be 
reconsidered.\1\
---------------------------------------------------------------------------
    \1\ Unless doing so would be inconsistent with other U.S. National 
interests.
---------------------------------------------------------------------------
    While this broader policy calculus is beyond the scope of this 
hearing (and the mandate of DHS enforcement officials), it should 
nonetheless inform the tenor of DHS's enforcement work.
                   dhs and export control enforcement
    On a surface level, DHS has impressive institutional tools at its 
disposal: A large pool of highly-trained special agents, fulsome legal 
authorities to conduct export control investigations here and abroad, 
and a network of law enforcement personnel deployed around the world. 
Yet, thus far, DHS's enforcement results appear to be modest by 
comparison to its resources.
    In this connection, I offer the following observations:
    First, it's not only about DHS.
    DHS is an important actor in export control enforcement, but it is 
not the only one. While there is generally effective coordination at 
the senior policy and special agent level, there could be improved 
coordination among the middle-management levels of the various 
departments and agencies with export control responsibilities. Indeed, 
our Nation's success in export control enforcement matters is largely 
attributable to the ``make it happen'' attitude of our special agents 
in the field. And, while President Obama's creation of an Export 
Control Coordination Center (ECCC) is helpful, it will not guarantee a 
positive result in this regard.
    Second, DHS should improve its export control enforcement acuity 
and ``operational concept.''
    Large parts of DHS's investigative culture developed around the 
investigation of very different kinds of cases (e.g., border security, 
human trafficking, bulk cash smuggling). As a result, export control 
acumen is not a prominent part of the DHS investigative self-identity. 
This is not an insuperable obstacle, but it will require organizational 
leadership to ensure that export control expertise remains a visible, 
and highly-regarded, DHS capability.
    In addition, DHS has historically focused its export control 
enforcement efforts on detecting illegal exports, investigating 
potential violations, and obtaining international cooperation to 
investigate leads abroad. This approach is reasonable but may lead to 
sub-optimal enforcement results by not fully leveraging the 
informational resources of the private sector. DHS should, therefore, 
refine and build upon Project Shield America to better inform private 
industry of export control issues and to more effectively engage the 
private sector as a full partner.
    Third, DHS should strengthen its enforcement architecture.
    Though it did not resolve thorny jurisdictional and other issues, 
President Obama's creation of the ECCC is a promising initiative to 
enhance interagency coordination and limit duplicative or conflicting 
enforcement activities. But, even a Presidential Executive Order is of 
limited utility without consistent day-to-day leadership attention and 
without appropriate DHS prioritization. Indeed, in the absence of 
leadership involvement, the ECCC could make matters worse if it only 
adds organizational complexity without operational value.
    Fourth, DHS should refocus its enforcement activities.
    No entity, including DHS, can do everything, everywhere, all the 
time. This is particularly true in a resource-constrained environment. 
DHS should refine its classified intelligence gathering and analysis 
capability, and prioritize its enforcement efforts accordingly. This 
should be done periodically, to ensure that DHS is focusing in the 
geographic and other areas of maximum National consequence.
    Finally, DHS should accelerate its engagement with allied and 
partner governments to help address our shared security interests.
    DHS should accelerate and elevate its engagement with other 
governments through its attache presence around the world. While it 
should seek to work with all governments of good will, it should 
prioritize and rationalize its efforts based on their contribution to 
U.S. and international security interests (e.g., WMD proliferation). 
This important work should be closely coordinated with the U.S. State 
Department and, in every case, with our Chiefs of Mission abroad.
    Thank you for your kind attention. I would be pleased to answer any 
questions that you may have at this time.

    Mr. McCaul. Thank you, Mr. Mancuso.
    The Chairman now recognizes Ms. McNeill for 5 minutes.

       STATEMENT OF JENA BAKER MC NEILL, PRIVATE CITIZEN

    Ms. Baker McNeill. Chairman McCaul, Ranking Member 
Thompson, and subcommittee Members, thank you for this 
opportunity to testify today. I should state beforehand, as 
Chairman McCaul expressed, that these views are my own and not 
an official position of The Heritage Foundation.
    I hope to make three points today. First, worksite 
enforcement is vital to our Nation's security, economic well-
being, and rule of law. The Obama administration, however, has 
used its tenure to roll back or deemphasize several key 
worksite enforcement measures.
    Second, the Department of Homeland Security's employer-
focused strategy for worksite enforcement is inadequate in 
terms of creating a legal workforce in the United States, and 
it really sends the message that the Government does not take 
enforcement of our immigration laws seriously.
    Third, the right worksite enforcement strategy will address 
both employers of illegal labor and illegal workers alike, 
deploying a menu of enforcement tools aimed at stopping all 
forms of illegal employment, which largely include identity 
theft, fake documentation, and off-the-books employment.
    While the employment of illegal workers has been unlawful 
in the United States since 1986, these laws were not seriously 
enforced. From 2004 to 2008, the Bush administration set up a 
strategy to ramp up worksite enforcement of immigration laws, 
including initiatives aimed at both employers of illegal labor 
and illegal workers.
    One of the more well-known of these actions was commonly 
referred as to worksite raids. Law enforcement and immigration 
authorities, pursuant to a criminal investigation, would arrive 
unannounced at workplaces suspected of employing illegal 
immigrants. Illegal immigrants would then be turned over to law 
enforcement, while employers would then be prosecuted. These 
checks were a huge deterrent mechanism to those seeking to 
avoid the law.
    Other efforts used by the administration at the time 
included expanded use and promotion of E-Verify, as well as an 
effort to use Social Security no-match letters as an 
enforcement tools. These efforts, I think, were good first 
steps towards effectively identifying individuals working 
illegally and employers that were abusing immigration laws.
    The Obama administration has since announced a change in 
strategy, taking emphasis off of identifying illegal workers 
and on punishing employers of illegal labor. The administration 
has, for instance, avoided worksite raids and has focused its 
efforts on 
I-9 audits where employers have lead time by which to clear out 
a staff of illegal labor. Even upon auditing, employers are 
largely oftentimes free of further investigation as long as 
they are doing the rote technicality of filling out the I-9 
forms appropriately, even if they are aware that rampant 
identity theft could be going on in their workplace.
    Essentially, with plenty of notice, it is fairly easy for 
most employers to clean up their payroll to pass the Obama's 
administration's muster. With less threat of criminal 
punishment, they can pass off any civil fines they receive as 
just another cost of doing business. While these audits look 
great on paper, they do very little in terms of actually 
enforcing immigration laws.
    These actions are also missing out on an opportunity to 
identify and hold accountable illegal workers. Instead, now 
they can go down the street and find another job illegally. 
This pattern sends a message that we don't take enforcement 
seriously, but it also hinders enforcement efforts because 
apprehended illegal workers were often helpful to investigators 
in a prosecution of employers who were abusing the law.
    The administration has also expressly abandoned the effort 
to use no-match as an enforcement tool and has been active in 
trying to roll back implementation of REAL ID. Given that 
identity theft is one of the biggest challenges facing worksite 
enforcement, setting minimum standards for driver's licenses 
just makes sense. However, the administration has spent more 
time trying to get the act repealed or replaced than on meeting 
its own implementation deadlines.
    Meanwhile, the administration has made E-Verify the 
centerpiece of its worksite enforcement efforts. Let me 
emphasize: E-Verify is an outstanding tool for catching the use 
of fake identification by illegal workers, but it is not a 
silver bullet solution for enforcement. For instance, it can't 
catch off-the-books employment or situations of identity theft.
    If DHS is serious about holding employers accountable, it 
has to be serious about holding illegal workers accountable. 
The two aren't separate issues, and they require a strategy 
with the right tools to deter the use of illegal labor in the 
workplace.
    I urge Congress to push the administration to better 
delineate how its current worksite enforcement strategy will 
better maintain the integrity of the U.S. workforce.
    Thank you for this opportunity to testify, and I will be 
happy to answer any questions you might have.
    [The statement of Ms. Baker McNeill follows:]
                Prepared Statement of Jena Baker McNeill
                              July 7, 2011
    Chairman McCaul, Ranking Member Keating, and subcommittee Members, 
thank you for this opportunity to share my thoughts on this very 
important topic.
    I am currently the Senior Policy Analyst for Homeland Security at 
The Heritage Foundation, a position I have held for over 3 years. In 
this capacity, I research, write, and speak on homeland security 
issues, including the issue of worksite enforcement of immigration 
laws. I should state beforehand that the views expressed in this 
testimony are my own and should not be construed as any official 
position of The Heritage Foundation.
    Today's hearing will examine the Department of Homeland Security's 
efforts to protect American jobs and secure the homeland. Specifically, 
I hope to make three points during my testimony:
   Worksite enforcement of immigration laws is vitally 
        important to our Nation's security, economic well-being, and 
        rule of law. The Obama administration, however, has used its 
        tenure to rollback several key worksite enforcement measures 
        put in place during and prior to the Bush administration.
   The Department of Homeland Security's ``employer-focused'' 
        strategy for worksite enforcement is inadequate in terms of 
        creating a legal workforce in the United States. It fails to 
        effectively address the problem of off-the-books and identity 
        fraud employment and sends the message that the Government does 
        not take enforcement of our immigration laws seriously.
   An effective worksite enforcement strategy must combat both 
        employers of illegal labor and illegal workers alike, deploying 
        an extensive menu of enforcement tools, meant to combat 
        identity theft/fraud, fake documentation, off-the-books 
        employment, and other abuses of immigration laws in the 
        workplace.
    I feel it is important to the discussion of worksite enforcement to 
first delineate the primary means by which an individual might try to 
work illegally in the United States. Understanding these illegal 
methods is essential in terms of assessing the strategies that have 
been employed by both the Obama and Bush administrations to enforce 
immigration laws in the workplace. There are three main methods by 
which most individuals attempt to gain illegal employment:\1\
---------------------------------------------------------------------------
    \1\ Robert Rector, ``Reducing Illegal Immigration Through 
Employment Verification, Enforcement, and Protection,'' Heritage 
Backgrounder No. 2192, October 7. 2008, at http://www.heritage.org/
Research/Reports/2008/10/Reducing-Illegal-Immigration-Through-
Employment-Verification-Enforcement-and-Protection (July 4, 2011).
---------------------------------------------------------------------------
    1. Working ``on the books'' with a fictitious Social Security 
        number.--In this situation, the illegal worker is employed 
        formally by a business, just as any other employee. The 
        employer withholds Social Security (FICA) taxes and files a 
        W-2 tax form for the employee. The illegal employee presents 
        identity documents to the employer showing that he is either a 
        U.S. citizen or lawful immigrant entitled to work.
    These documents will contain a name, date of birth, Social Security 
        number, and possibly a green card number, which are either 
        partially or completely fictitious. The employer dutifully 
        records this fictitious information on an official form called 
        an I-9 and stores the form in a file cabinet. If the 
        information on the I-9 were checked, it would immediately be 
        found to be fraudulent.
    2. Working ``on the books'' through identity fraud.--In this 
        situation, the illegal worker is also employed by a business 
        just like any other employee. The employer withholds Social 
        Security (FICA) taxes and files a W-2 tax form for the 
        employee. The illegal employee presents identity documents to 
        the employer showing that he is either a U.S. citizen or lawful 
        immigrant entitled to work.
    However, in this case, the name, date of birth, Social Security 
        number, and (in some instances) green card number on the 
        documents corresponds to the identity of a real U.S. citizen or 
        lawful immigrant. To obtain employment, the illegal 
        fraudulently assumes the identity of another real person. The 
        employer records the fraudulent information on the I-9 and 
        keeps the I-9 on file, but neither the employer nor the 
        Government checks to determine whether the employee is the 
        person he purports to be.
    3. Working ``off the books.''--In this situation, the employer 
        deliberately conceals the employment of the illegal worker from 
        the Government. There is no public record of the employee, FICA 
        taxes are not paid, and no W-2 is sent to the Government. It is 
        very unlikely that an I-9 form is completed or kept.
    An effective worksite enforcement strategy will deploy enforcement 
tools aimed at combating all three types of illegal employment.
                        weak enforcement history
    The employment of illegal workers has been unlawful in the United 
States since 1986 when Congress enacted the Immigration Reform and 
Control Act (IRCA). IRCA set penalties for knowingly hiring illegal 
workers and sought, through the requirements of the paper I-9 process, 
to require employers to verify whether newly hired workers could 
legally work in the United States.
    This policy was ineffective at stemming the tide of illegal labor, 
largely because it was never seriously enforced. While most employers 
dutifully checked the information given to them from newly hired 
employees, there was little accountability by the Federal authorities 
to ensure that employers were following through on their obligations. 
Furthermore, the Government failed to actually identify and deport 
those found illegally employed in the United States. Employers had few 
tools by which to know whether documents and other information provided 
by employees were fake, authentic, or stolen from another authorized-
to-work American or lawful immigrant.
    Partially because of this lackadaisical worksite enforcement 
policy, in the years from 1986 to today, the illegal immigrant 
population in the United States grew from approximately 2.8 million to 
12 million in 2008 and down to around 10.8 million in 2010.\2\ Some of 
this decrease can arguably be attributed to the enforcement measures 
carried out from 2004-2008 which I will describe below, admittedly 
however, most of the decrease in the past few years can be attributed 
to our fledging economy and high unemployment rate which has and 
continues to discourage many would-be illegal immigrants from choosing 
to come to the United States. Without a strong enforcement strategy in 
place, any economic rebound will likely increase these numbers to 2008 
levels or possibly higher.
---------------------------------------------------------------------------
    \2\ Michael Hoefer, Nancy Rytina, and Bryan C. Baker, Estimates of 
the Unauthorized Immigrant Population Residing in the United States: 
January 2009, http://www.dhs.gov/xlibrary/assets/statistics/
publications/ois_ill_pe_2009.pdf (July 4, 2011).
---------------------------------------------------------------------------
                            enforcement push
    From 2004-2008, the Bush administration began an aggressive 
strategy to ramp-up enforcement of immigration laws in the workplace, 
including initiatives aimed at both employers of illegal labor and 
illegal workers alike.
    Despite the fact that IRCA provides both civil and criminal 
penalties to employers that knowingly hire an individual without 
complying with the employment verification system (the paper I-9 
process), prior to the Bush administration, it was commonplace that 
employers found hiring illegal labor might only be subject to 
administrative hearings and at most civil penalties. The Bush 
administration, however, began to perform large-scale criminal and 
civil investigations of employers and used stiff criminal and civil 
penalties to prosecute those that were abusing the law, while 
identifying illegal workers.
    Popularly referred to as ``worksite raids,'' the Bush 
administration used unannounced immigration enforcement checks as a 
means to identify employers of illegal labor and illegal workers. Law 
enforcement and immigration authorities, pursuant to a criminal 
investigation would arrive unannounced at workplaces suspected of 
employing illegal immigrants and require proof of legal status. The 
employees found to be illegal would be turned over to law enforcement, 
while employers would be subjected to fines and other penalties for 
employing illegal labor. These checks were essential in terms of 
discovering all three types of illegal employment and served as a huge 
deterrent mechanism to those seeking to avoid the law.
    Other efforts used by the Bush administration included the expanded 
use and promotion of E-Verify--an on-line tool by which to check the 
employment status of newly hired employees. While deployed on a limited 
basis as a pilot program since 1996, it was extended to all 50 States 
in 2003. E-Verify today remains a voluntary program, and yet has more 
than 225,000 participating employers.\3\ As part of the Bush 
administration's push to increase participation in E-Verify, the 
administration propagated a rule, in place today, which requires all 
Federal contractors to use E-Verify for their employees.
---------------------------------------------------------------------------
    \3\ United States Citizenship and Immigration Services, What is E-
Verify? http://www.uscis.gov/portal/site/uscis/
menuitem.eb1d4c2a3e5b9ac89243c6a7543f6d1a/?vgnextoid=- 
e94888e60a405110VgnVCM1000004718190aRCRD&vgnextchannel=e94888e60a405110V
gn- VCM1000004718190aRCRD (July 4, 2011).
---------------------------------------------------------------------------
    The Bush administration also began an effort in 2007 to use Social 
Security No-Match letters as a worksite enforcement tool. The Social 
Security Administration (SSA) has long issued letters to workers to let 
them know that there was discrepancies in the use of their Social 
Security numbers. In 1994, the SSA began sending such letters to 
employers with 10 or more no-match W-2 forms. The Bush administration, 
however, issued a new rule clarifying that receipt of such a no-match 
letter ``may,'' depending on the circumstances, constitute constructive 
knowledge that a worker is unauthorized. The rule then granted 
employers a safe harbor from immigration enforcement actions based on 
no-match letters when they took certain simple actions, such as double-
checking their records.\4\ After a court challenge, DHS proposed a 
supplemental rule which would have resolved court concerns over the 
rule's implementation and yet still preserve No-Match as an enforcement 
tool. However, the administration was unable to follow through with 
full implementation before the end of its tenure, and the Obama 
administration would later completely abandon the effort.
---------------------------------------------------------------------------
    \4\ Charles Stimson and Andrew Grossman, No Match Immigration 
Enforcement: Time for Action, Heritage Legal Memorandum No. 25, at 
http://www.heritage.org/Research/Reports/2008/05/No-Match-Immigration-
Enforcement-Time-for-Action (July 7, 2011).
---------------------------------------------------------------------------
    When the Bush administration began actually enforcing immigration 
laws in the workplace, the frequency of worksite arrests jumped from 
845 in fiscal year 2004 to 6,287 in fiscal year 2008. These efforts 
were essential first steps towards effectively identifying individuals 
working illegally in the United States and employers that were abusing 
immigration laws. While certainly not the end of the road for worksite 
enforcement, augmented and effectively deployed, these efforts did and 
would have continued to have a gigantic impact on worksite enforcement.
                         ``change'' in strategy
    The Obama administration, upon taking office, announced a change of 
course in terms of its own worksite enforcement strategy. It has 
emphasized that it has switched to one that is ``employer,'' rather 
than ``employee'' focused, taking the emphasis off of identifying 
illegal workers, and more on punishing those who hire illegal labor. 
What this has meant in practice, however, seems to be significantly 
less worksite enforcement than the Bush administration.
    For instance, the administration has emphasized that it no longer 
prefers to use ``worksite raids'' or unannounced worksite enforcement 
checks, largely abandoning criminal investigations in favor of civil 
actions. Instead, it has focused its efforts on paper I-9 audits where 
employers would be told in advance that they will be audited and are 
given significant lead time by which to clear out a staff of illegal 
labor. Even upon auditing, employers are largely left free of 
additional investigation as long as they are filling out the I-9 
paperwork appropriately. Essentially, with plenty of notice, it is 
fairly easy for most employers to clean-up their payroll to pass the 
Obama administration's muster. While these audits look nice on paper, 
they do very little in terms of actually enforcing immigration laws.
    In at least one instance where the Department of Homeland Security 
has performed investigations into employers, the enforcement check 
reportedly resulted in no identification, detention, or deportations of 
apprehended illegal workers. In February of 2009, an investigation into 
Yamato Engine Specialists Company in Bellingham, Washington yielded 28 
illegal workers. The Secretary of Homeland Security, however, 
apparently uninformed of the enforcement check, according to press 
reports, gave the apprehended workers temporary work permits.
    This pattern sends a message that the administration is not serious 
about enforcement. But it is also disappointing because the actual 
apprehension of illegal workers was often helpful to investigators 
during the Bush administration as witnesses to provide testimony in a 
prosecution of employers for abuse of the law.
    Rescission of Social Security No-Match.--Instead of pushing forward 
with the supplementary rule propagated by the Bush administration that 
would have likely met court muster and allowed for full deployment of 
no-match as an enforcement tool, the Obama administration halted no-
match letter issuance completely and expressly emphasized its intention 
to prevent the use of such letters as evidence for constructive 
knowledge of unauthorized workers. While the administration has in 
recent months quietly begun issuing letters again, it has shown no 
appetite to push forward with the Bush administration's plan to use no-
match as an enforcement tool. Given that the administration has 
emphasized its preference for an ``employer-focused'' strategy for 
immigration enforcement--such a policy should fit squarely into the 
administration's agenda.
    Abandonment of REAL ID.--REAL ID was enacted in 2005 in direct 
response to the 9/11 Commission Recommendation that the Federal 
Government set secure standards for identification as a means of 
preventing terrorist travel, but also to combat identity theft and 
fraud. Given that identity theft and fraud is one of the biggest 
challenges facing worksite enforcement and driver's licenses are 
routinely used as part of the worker verification process, requiring 
States to meet a minimum standard for driver's licenses only makes 
sense. However, while many States have moved forward to meet the Act's 
requirements, the administration has spent more time trying to get the 
Act repealed or replaced than meeting implementation deadlines. The 
administration's efforts to get rid of the mandate make little sense if 
it is serious about combating the rampant identity theft used to obtain 
employment illegally.
    At the same time as rolling back these measures, the Obama 
administration has made E-Verify the centerpiece of its worksite 
enforcement strategy and has pushed aggressively to increase 
participation in the E-Verify program. At a conference on E-Verify in 
2009, Secretary Napolitano stated that ``E-Verify is at the centerpiece 
of our efforts to maintain a legal workforce both for large and small 
businesses.''
    Let me emphasize, E-Verify is an outstanding tool for catching the 
use of fake information by would-be illegal workers. It can accurately 
and inexpensively do so and it absolutely should be promoted. However, 
it is not a silver bullet solution for enforcement and should not be 
sold as such by the administration. For instance, E-Verify cannot catch 
off the books employment. It also does not catch situations where an 
illegal worker steals a legitimate Social Security number and other 
documentation and gives that information to an employer. In essence, 
without other tools aimed at squeezing out other forms of illegal 
employment, an E-Verify focused enforcement strategy will simply 
further the market for identity theft and off-the-books employment, and 
only detect a small percentage of the illegal workforce.
                         an effective strategy
    The Department of Homeland Security's so-called employer-focused 
strategy has resulted in less enforcement, not more. While it has in 
some instances exceeded the Bush administration's levels in terms of 
sheer number of investigations and penalties, these efforts have 
largely lacked in substance, and have done very little to actual stop 
the employment of illegal labor. Some of the right questions to be 
asked should be the number of worksite arrests, what actions ICE has 
taken to investigate identity theft discovered in the course of an 
investigation, and what steps is it taking to follow up with employers 
that have been investigated through a soft I-9 audit.
    If DHS is serious about holding employers accountable, it must also 
be serious about holding illegal workers accountable. The two are not 
separate issues, and require a comprehensive strategy aimed at 
disincentivizing the use of illegal labor in the workplace.
    Effective enforcement requires a menu of enforcement tools aimed at 
squeezing all forms of illegal labor out of the market, including off-
the-books, identity theft, and fake documentation. Such a menu of 
enforcement tools should include:
   Reinstatement of worksite enforcement checks.--These checks, 
        pursuant to a criminal investigation are a valuable tool in 
        terms of identifying those employers that are consistently 
        hiring illegal labor. Diluting their effectiveness by alerting 
        employers or not actually identifying, detaining, and deporting 
        identified illegal workers makes such raids useless.
   Continued use of civil audits in conjunction with criminal 
        enforcement.--I-9 audits can be used effectively to alert 
        employers of potential violations of immigration law. These 
        audits should continued to be used, in conjunction with a 
        robust criminal investigation process. Together, these actions 
        can provide the deterrent effect necessary to combat violations 
        of worksite immigration laws.
   Provide resources to limit the impact of worksite raids on 
        families and local communities.--While worksite enforcement 
        checks are a perfectly legitimate and effective means by which 
        to identify illegal workers, the impact of these raids on 
        families and local communities should not be ignored. Often the 
        children of detainees, most of them U.S.-born citizens, suffer 
        when their parents are detained and deported. ICE has tried to 
        put in place several initiatives to allow families to stay 
        together during the deportation process as well as the release 
        of sole caregivers from detention facilities. The Obama 
        administration could go further to coordinate with local 
        communities before and after raids, including working with 
        schools, social services, and religious institutions to ensure 
        that no children are being left behind, as well as working to 
        ensure quick release of sole caregivers to minimize the time 
        that children of single parents are left in the care of others.
   Continued efforts to promote and improve upon E-Verify.--E-
        Verify is highly accurate at detecting false information 
        provided by an illegal worker. It should continue to be 
        promoted as a means for employers to check the work eligibility 
        of their employees. Congress and the administration should 
        remain committed to its reauthorization and to continually 
        refine the accuracy of its databases. Another step may be to 
        investigate whether employers are actually discharging the 
        employees who receive final non-confirmations.
   Promote IMAGE.--IMAGE is the ICE Mutual Agreement between 
        Government and Employees. It was meant to improve internal 
        enforcement by giving companies training on ICE on hiring 
        procedures, detecting fraudulent documents and using E-Verify. 
        In addition, participating companies have to undergo an I-9 
        audit and check the legitimacy of existing employees' Social 
        Security numbers. IMAGE should be supported in order to give 
        willing companies more resources by which to ensure the 
        legality of their workplace.
   Move forward with Social Security No-Match as an enforcement 
        tool.--No-Match has the ability to help tackle identity theft 
        situations and help employers identify illegal workers in their 
        labor force. A next step would be to allow information sharing 
        between DHS and SSA on no-match data to assist in immigration 
        investigations.
   Examine supplemental procedures to prevent identity fraud/
        theft.--One method may be for the SSA to scan its wage database 
        to identify individuals who held two or more jobs at the same 
        time, over an extended period, were receiving Social Security 
        benefits, or were employed under the age of 16. These red flags 
        could then be used by SSA to send a letter to the individual 
        notifying them that a potential identity theft may have 
        occurred.
   Ramp-up support for investigations of off-the-books 
        employment.--While off-the-books employment situations are the 
        most difficult for investigators to tackle, additional 
        resources for investigations of these incidents could decrease 
        the incentive for employers to hire workers in this manner.
   Increase penalties for unlawful hiring.--The financial 
        penalties for hiring legal workers is too low, so low, in fact 
        that it does not always deter illegal hiring. As a result, many 
        employers can factor in fines as a cost of doing business. 
        Congress should look to set fines in a way that will have an 
        actual deterrent effect.
   Move Forward with REAL ID.--Postponing or modifying 
        implementation confuses the work already in process and 
        detracts from the underlying purpose of REAL ID--to maintain 
        security and combat identity theft.
    A legal workforce is absolutely essential in terms of an effective 
immigration strategy that preserves National security, promotes the 
economy, and maintains rule of law. I urge Congress to push the 
administration to better delineate how its worksite enforcement 
strategy will meet these goals.
    Thank you for this opportunity to testify. I would be happy to 
answer any questions you have at this time.

    Mr. McCaul. I want to thank the witnesses for their 
testimony. The Chairman now recognizes himself for 5 minutes.
    Mr. Toohey, I want to start with you. We have some 
photographs I hope we can put up on the screen that deal with 
the issue you were talking about. As I understand it, this is a 
semiconductor chip that has included information about date and 
manufacturing location codes; is that correct?
    [The information follows:]

    
    

    Mr. Toohey. That is correct, Mr. Chairman.
    Mr. McCaul. Why is that important?
    Mr. Toohey. It is important because in this context it 
enables us to determine whether or not the chip is authentic or 
counterfeit. Companies have databases which can tell you 
exactly where the chip was manufactured, on what day, what type 
of chip it is, and by verifying the type of chip versus that 
coding system, we can almost instantaneously verify whether 
that is an authentic chip or not.
    Mr. McCaul. Okay. So DHS would come to you and say, hey, we 
have got this chip, is this authentic, is it yours, and if it 
is not, if it is counterfeit, they need to confiscate it, 
correct?
    Mr. Toohey. Yes, sir.
    Mr. McCaul. That was going on between--that was the 
practice----
    Mr. Toohey. Practice for many years.
    Mr. McCaul. Two-thousand to 2008 or----
    Mr. Toohey. Even before, Mr. Chairman--sorry. Even before 
2000, it was the practice for many years. Starting in 2000, 
they stopped sending out the actual product and just sent us 
pictures, which is fine. As long as we have the code, we can 
determine. Actually it was a system that worked very well, but 
in 2008 it all stopped, and they redacted the information from 
the pictures that they were sending.
    Mr. McCaul. So early on they would actually send you the 
actual product, which is the best evidence, then they sent the 
picture which had information on it so you could identify, and 
then in 2008 something else--something happened--and let us 
show the other picture if we can. This is what you get. Is this 
an example of what you would currently receive from DHS?
    [The information follows:]

    
    

    Mr. Toohey. Yes, Mr. Chairman, and as you can see, it is 
virtually impossible--you can't see the number, and it is 
virtually impossible based on that for anyone to authenticate 
that chip.
    Mr. McCaul. You don't have the trace codes or any of the 
information contained in the previous photograph to identify 
this intellectual property, this semiconductor chip?
    Mr. Toohey. Yes, Mr. Chairman, that is exactly right.
    Mr. McCaul. It is astounding. Why? Has DHS explained to you 
why they have stopped providing this kind of information?
    Mr. Toohey. Yes. First of all, let me clarify. This isn't a 
policy that was directed only at our industry. It affects all 
products, and it was based on a reinterpretation that Treasury 
Department, which has policy responsibilities in this area, 
established in 2000. It was a reinterpretation of the Trade 
Secrets Act, in which it determined that--or at least its 
opinion was that by sending that information to the 
manufacturer, that would violate the disclosure of confidential 
information provisions of the Trade Secrets Act.
    As I mentioned in my statement, that just doesn't make any 
sense, even common sense, because to the extent anyone owns 
that publicly viewable information, it is the manufacturing. It 
is the company that it would be sent to. We provided detailed 
legal analysis to the Department of Treasury and DHS in terms 
of why that just isn't the case. They haven't really given us 
any reason why our legal analysis is wrong.
    Part of the motivation that I understand is a desire to 
protect parallel importers, so as to not have any, you know, 
information disclosed to manufacturers that could affect 
importers, but there is nothing in that code that can tell us 
who the importer is. At the most it could tell us who we 
originally sold it to, but that information simply is not 
possible to obtain from that code. So, from our perspective, 
that doesn't make much sense.
    You know, if one can even understand that justification for 
handbags or some other products, you know, one could maybe 
understand it, but for products where there is critical, you 
know, life-saving technologies, health and safety, our 
soldiers' technologies on the line--we know for a fact, as you 
said in your opening statement, Mr. Chairman, this is a clear 
and present danger. We know that there is 15 percent of current 
inventories of the Pentagon where these chips are counterfeit. 
So we know this is a problem. We know that this is an on-going 
issue, and it is affecting the lives of our soldiers and the 
health and safety of our citizens. So, in this particular area, 
it just doesn't make any sense to us why we would tie our hands 
and not allow our industry to help the Government determine 
instantly where these products are coming from.
    Mr. McCaul. You want to help the Government identify 
counterfeit chips, and it is my understanding the lawyers at 
the Department have now determined that they cannot give you 
this information unless they have basically, you know, taken 
all the identifying information off of it. How can you possibly 
identify something as counterfeit when they have taken off all 
the code numbers?
    Mr. Toohey. You are exactly right; you can't, Mr. Chairman.
    Mr. McCaul. You can't?
    Mr. Toohey. You cannot.
    Mr. McCaul. So, as a result of this legal policy or 
analysis that was done, we probably have God knows how many 
counterfeit chips coming into this country, and we are 
excluding the private sector from being able to assist DHS in 
identifying, you know, counterfeit chips coming into the 
country; is that correct?
    Mr. Toohey. That is exactly correct, Mr. Chairman. We are 
desperate to help. We have been begging Treasury and DHS to let 
us help stop dangerous chips that are coming in.
    Mr. McCaul. Well, we are going to try to help you. I hope 
Mr. Thompson--I don't see this as a Republican or Democrat 
issue. I see it as just a common-sense issue that I hope 
perhaps we can work together to change this policy. Otherwise 
we are going to have counterfeit goods coming in that can't be 
identified.
    I want to try to hit a quick question with each of you. I 
know my time is limited, but going to Mr. Russo, you know, I 
talked about the example of just one drug going to so many 
different countries around the world and finally ending up in 
the United States being counterfeit. When we talk about this 
chain of supply, what do you consider to be the greatest threat 
to pharmaceutical companies, the supply chain?
    Mr. Russo. Mr. Chairman, the greatest threat that we see to 
the supply chain is what is available over the internet. The 
ease in which a consumer, wherever it is in the world, can 
order counterfeit pharmaceuticals over rogue websites presents 
a significant threat to patients in the United States and, for 
that matter, other countries.
    Mr. McCaul. You know, there has been some talk about making 
it legal for people to import from Mexico and Canada. Does that 
pose any threat in terms of the quality of the product?
    Mr. Russo. The problem is that when you look at internet 
sites that sell pharmaceutical products, what you look at is 
what is a very slickly designed website with a person in a 
white coat with a stethoscope around their neck, and the 
patient throws a credit card in there and orders product, and 
you really don't know what you are going to get. You could get 
diverted product, you could get stolen product, you could get 
counterfeit product. As you said in your remarks, sir, those 
products are less than efficacious and don't treat disease. So 
that is the issue is you have a slick front, and you don't know 
what is behind that, and as we have purchased from those sites, 
we found many of those products to be substandard coming into 
the United States.
    Mr. McCaul. Do you know what percentage of these consumers 
are seniors that buy their medications on-line?
    Mr. Russo. No, Mr. Chairman, I don't have that data. We see 
a lot of different consumers buying over the internet, you 
know, for various reasons.
    Mr. McCaul. If I can move on to Mr. Mancuso, you know, in 
my prior life I worked at the Department of Justice. We worked 
quite a bit on Export Control Act cases, dual-use technologies, 
so I am very familiar with that. Most of these cases involved 
China, you know, and we know that the most probably hacked-into 
office from a cyberattack is this export control office within 
the Department of Commerce, for obvious reasons.
    What more needs to be done to protect--you know, we don't 
want to slow commerce down, but we certainly don't want to be 
giving nations, you know, that don't have our best interests at 
heart, you know, technology like the example I gave; one is it 
is a medical device, but that it can be used, you know, for a 
nuclear device. What more needs to be done?
    Mr. Mancuso. Mr. Chairman, I would suggest, just to begin 
with, to distinguish two things. First is refining our export 
controls and reaching out to industry to ensure that the 
private sector is really a partner in enforcement. You know, 
many U.S. companies want to help and have more information at 
their disposal with respect to industry competitors who may not 
be complying with the law.
    On the other hand is industrial espionage, which is, of 
course, different because industrial espionage is the 
intentional theft of technology. I think we have to, 
specifically with respect to State-based competitors, near-peer 
competitors, looming adversaries perhaps, we need to buttress 
our counterintelligence capabilities to figure out what 
technologies they are interested in and what vectors they use 
to acquire our technologies.
    So I would submit to you, Mr. Chairman, that there are two 
things: Export controls and outreach to industries to ensure 
that on the U.S. side of the equation, industry knows what is 
controlled, how it is controlled, how it can be exported. But 
on the sort of foreign side, we need to build a better firewall 
in terms of our counterintelligence capability to uncover, 
prosecute industrial espionage.
    Mr. McCaul. Thank you.
    Last question to Ms. McNeill on the worksite enforcement 
issue.
    According to the Congressional Research Service, since this 
administration has come into power, administrative arrests have 
declined 77 percent, criminal arrests have declined 59 percent, 
and convictions declined 66 percent. I know there was a shift 
in policy in terms of going after, I guess, employers and not 
the employees, but these numbers are, to me, very disturbing in 
the sense that we are not enforcing the law. What is your 
opinion?
    Ms. Baker McNeill. Well, you know, it is sometimes very 
difficult, Mr. Chairman, to disaggregate the employers of 
illegal labor from the illegal workers. You know, if you look 
at the situations where they--if they are in the Bush 
administration, during worksite arrests they may find 
individuals who either the employers had knowledge of the 
identity theft ring that was going on, that the employers maybe 
were violating other workplace standards, other immigration 
laws in the workplace, and these illegal workers were so 
essential to providing that kind of case to be able to 
prosecute employers. So you can't take one and not have the 
other to have an effective enforcement strategy. You really 
have to do both because they work--you know, they work off of 
one another. It is an economic problem because workers want 
jobs, employers need labor. So we have to attack it from both 
sides.
    Mr. McCaul. This hearing is really about protecting 
intellectual property and innovation in this country and 
protecting American jobs, jobs that Americans would have but 
they're losing. So, you know, the E-Verify I always thought has 
great promise if it is fully implemented. The verification on 
Social Security numbers, if we could fully implement that. But 
we just have never--and I'll say in fairness to both the prior 
administration and this administration, we have yet to fully 
implement that program.
    Ms. Baker McNeill. Well, I will give significant credit, 
Mr. Chairman, to the Obama administration for taking the time 
to look at ways to improve E-Verify as a system. They have done 
E-Verify self-check, which essentially allows individuals to go 
and look at their own information. That only helps improve the 
accuracy of E-Verify. So I think that is an area. But we can't 
make E-Verify the only centerpiece enforcement tool, because it 
doesn't take into account identity theft and off-the-books 
employment, which are huge issues in the workplace.
    Mr. McCaul. Thank you.
    My time has expired. The Chairman now recognizes the 
Ranking Member of the full committee, Mr. Thompson.
    Mr. Thompson. Thank you very much, Mr. Chairman.
    Since we are talking about American jobs and how this 
process yields some increased numbers, Mr. Toohey, I looked at 
your semiconductor picture, and it struck me that most of the 
problems we are dealing with is these chips are made somewhere 
else. If we really wanted to generate some jobs, I would think 
we would try to bring that business back here. Has your 
industry ever looked at what it would take to bring that 
industry back, thus creating new jobs and eliminating a large 
portion of this counterfeiting that's going on right now?
    Mr. Toohey. Well, thank you, Mr. Ranking Member.
    Our industry is committed to building jobs in this country. 
As I mentioned in my opening statement, we manufacture the 
majority, about 75 percent, of the chips that we sell all 
around the world here in the United States. So we are very much 
committed to manufacturing and design here in the United 
States, and it is something that we continue to build and we 
continue to invest in manufacturing here in the United States.
    This counterfeit problem is a little bit different. Most of 
the chips that come back as counterfeits were originally 
manufactured as some other type of chip, probably here in the 
United States, and they're sent around the world as e-waste, 
you know, old computers, old things.
    The counterfeiters, they don't have the capability to 
manufacture chips themselves. They can't build $5 billion 
fabrication facilities. They take these old chips out of old 
computers or old cell phones and then they remark them as 
something, you know, milspec chips or some very specific 
application, and then sell them as international brokers.
    So the problem is it is not that they are manufactured 
overseas originally or that there is great investment in jobs. 
That is mostly still here, Mr. Ranking Member. The problem is 
that these counterfeiters then take the waste and then mark 
them up and then send them back here as something else, and 
that's what we need to stop.
    Mr. Thompson. So have you looked at or has your trade group 
looked at any additional methods that it would recommend to 
prevent those chips from coming back in?
    Mr. Toohey. Thank you, Mr. Ranking Member.
    Certainly closing the front door, taking the very discrete 
action that we recommend would be an enormous help, something 
we could do today that would significantly advance our efforts 
and prevent these counterfeit, dangerous chips from coming in. 
So that's one aspect.
    Another aspect is increasing the prosecution of these 
unscrupulous dealers. Much of the prosecution--and ICE and 
other agencies are great at doing this, but providing--stopping 
the counterfeiters first will actually facilitate additional 
prosecutions.
    From the Business Week articles and others, you will see 
that many of the dealers selling chips into the DOD system are 
these small, unscrupulous dealers. They know what their problem 
is.
    A third area where I think we could do more is in 
tightening up our Federal acquisition regulations so that DOD, 
DHS, other agencies only purchase from authorized dealers. 
That's not the case today. That's something we ought to look 
at.
    A final area, Mr. Ranking Member, is working with our 
international partners more closely. We know where these chips 
are being counterfeited. We know they're being sold openly in 
Shinsen in a big market there. One of my colleagues just came 
back from there and brought some samples he was freely given. 
We know exactly where this is, and so we need to work more 
closely with China to stop this and increase enforcement on the 
ground.
    Those are some other practical measures we could take.
    Mr. Thompson. Thank you very much.
    Mr. Russo, with respect to counterfeit pharmaceuticals, I 
think part of your testimony talked about these rogue websites 
and the fact that a number of them have been shut down, but a 
number of them still exist. Taking off from the Chairman's 
comments, sometimes people are lured to those sites because of 
the cost factor of the drugs. A lot of seniors get caught up in 
the trap. Knowing that a disproportionate number of those 
individuals might be seniors, has your industry looked at any 
programs that could drive seniors back to the marketplace 
versus the websites?
    Mr. Russo. Thank you, Mr. Ranking Member.
    I want to say that no pharmaceutical company wants to see a 
patient that needs medication without product. To help seniors 
and others who don't have funds to buy product, there are a 
number of programs that our company has and other competitors 
to us have for seniors who can't afford medication. Many of 
those are available publicly on our website. Through some of 
the enhancements in Medicaid and Medicare, there are other 
programs for seniors. So there are, we believe, a number of 
ways for seniors who don't have funds to obtain product; and we 
encourage them to use those programs to seek safe and 
efficacious pharmaceutical products.
    Mr. Thompson. I appreciate your indulgence, Mr. Chairman.
    You know, we created the position of Intellectual Property 
Enforcement Coordinator; and to the extent that that's been 
there for a while, Mr. Toohey, can you comment as to what the 
industry's experience has been with that operation?
    Mr. Toohey. Sure, I would be happy to. Thank you, Mr. 
Ranking Member.
    We have had a great experience with Victoria Espinel and 
her office that has been tremendously helpful to us in a wide 
range of areas in intellectual property enforcement globally. 
So that office, as a matter of fact, used--they spent a lot of 
time trying to help us solve this problem, but they weren't 
able to change the Treasury Department's and DHS' policy views. 
They weren't able to overrule them. But we have had a fantastic 
experience and great support from that office.
    Mr. Thompson. What about you, Mr. Russo? Do you have any 
contact with that office?
    Mr. Russo. Thank you, Mr. Ranking Member.
    I would echo Mr. Toohey's comments and say that I 
personally have been very impressed with Ms. Espinel and her 
staff who have really got to the low-level understanding of the 
issues that face our industry and, as you can see, their 
industry; and they have been very helpful and very effective in 
helping us fight counterfeit pharmaceuticals.
    Mr. Thompson. Thank you.
    I yield back, Mr. Chairman.
    Mr. McCaul. I thank the Ranking Member.
    The Chairman now recognizes the gentleman from Missouri, 
Mr. Long.
    Mr. Long. Thank you, Mr. Chairman.
    Mr. Toohey, you testified that we need to take proven, 
commonsense steps, which the trouble with common sense is it 
isn't common, as you know.
    Then you said that 15 percent of--was it--spare chips 
purchased by Department of Defense are counterfeit.
    Now I have got a visual in my head of a guy in a trench 
coat standing over at the Pentagon saying, hey, buddy, you want 
to buy a chip? How in the world are we buying 15 percent of 
counterfeit chips? What's the supply chain? Where do those come 
from?
    Mr. Toohey. Well, Mr. Long, thank you very much for the 
question.
    It is a big problem that we would recommend be fixed, and 
the Department of Defense and the Federal acquisition 
regulations need to be tightened to only purchase through 
authorized dealers. Right now, they purchase essentially at the 
lowest price. The regulations are the lowest price. Anybody who 
is willing to sell them these chips or other military products 
is, at least my understanding, they have to purchase at the 
lowest price. So they purchase, many times, from these very 
kind of fly-by-night, unscrupulous dealers who get their chips 
from China; and they mark them up as milspec and----
    Mr. Long. Educate me. What is milspec?
    Mr. Toohey. Sorry. Military specifications, so increased 
heat and endurance, you know, very sophisticated equipment.
    So, you know, it is--that system is broken. So part of the 
solution would be to tighten our Federal acquisition 
regulations, especially for the critical areas like DOD and 
DHS, to make sure they are only buying from authorized dealers. 
That just makes sense. That's just in our National interest.
    So we would strongly recommend--we have been recommending 
for many years--that the Department of Defense do that.
    Mr. Long. These are coming in large enough quantity--
obviously, they are--where they can buy 15 percent of them.
    Mr. Toohey. Yeah. That's their number. Officials publicly 
have said that from DOD and said that's what they estimate.
    Mr. Long. On your first exhibit, which was the authentic 
and the counterfeit voltage regulator and automotive airbag 
brake systems, the numbers on there, they don't look to be 
quite identical. But walk me through the redacted part where 
they are sending you these redacted pictures. What are those 
pictures of? Are these shipments that they suspect are 
counterfeit or they know are counterfeit and then they send the 
industry these pictures with the redacted information?
    Mr. Toohey. Yes, Mr. Long. They are suspected counterfeit. 
So for whatever reason, maybe it is the location they came 
from, the way they are packaged, the port officers suspects 
that they don't look quite right. So, in that instance, they 
traditionally send us the full picture of the chip where we can 
tell them right away whether it was authentic or not.
    Mr. Long. How can you do that? It looks like they could 
copy identical the coding and everything if they're going to--I 
mean, that's what I am having trouble with is understanding how 
that helps you. Because it looks to me like they could--if they 
are going to counterfeit the chip, it looks like they could 
counterfeit the identifying numbers.
    Mr. Toohey. Well, they don't always have the exact type of 
chip that they are trying--many times, they are selling very 
sophisticated, advanced chips, and what they are dealing with 
are those old e-waste, and so they take numbers that----
    Mr. Long. Is that 100 percent of the time this all starts 
with e-waste?
    Mr. Toohey. Mainly, yes. I mean, almost always. They don't 
manufacture their own chips, so they get them from some other 
place.
    Mr. Long. I am flabbergasted that there is that much volume 
out there where they could, all through e-waste, and come up 
with a big enough shipment to ship to our military and we are 
buying 15 percent of counterfeit product. It is just mind-
boggling.
    Mr. Toohey. Yes, sir, it is. It is a system that we can 
dramatically improve today by making the right type of policy 
change.
    Mr. Long. Okay. I hope we can help you with that.
    Mr. Toohey. Thank you, Mr. Long.
    Mr. Long. Mr. Russo, are you aware of any instances where a 
country has prohibited FDA to inspect a facility within that 
country?
    Mr. Russo. Thank you, Mr. Long.
    That's an area of expertise I don't have. My remit is 
strictly counterfeit. FDA inspects a lot of facilities for 
compliance and regulatory matters, and it would not be 
information that I have. But I would be happy to go back to my 
company, to the experts in that area, and get you a written 
response.
    Mr. Long. If you would, I'd appreciate it. Also to follow 
up with the written response.
    If there are countries that are doing that, my next 
question would be if you all have any facilities within those 
countries.
    Mr. Russo. Yes, sir. We will follow up, and I thank you for 
the question.
    Mr. Long. Thank you, Mr. Chairman. I yield back.
    Mr. McCaul. Thank you, Mr. Long, for your questions.
    We are going to follow up on this issue. It is unacceptable 
that 15 percent of the military's semiconductor chips are 
coming--well, not only foreign countries but counterfeit. So I 
think that's going to be one of the tangible takeaways we will 
get from this hearing, and I appreciate your help on that.
    The Chairman now recognizes the gentleman from South 
Carolina, Mr. Duncan.
    Mr. Duncan. Thank you, Mr. Chairman.
    You know, sitting here, thinking about it, just listening 
to the testimony, I think it is ironic that we are debating a 
defense authorization or appropriations bill this week when so 
much money has been spent with independent contractors out 
there that are supplying these chips.
    I want to reference a Business Week article. The cover says 
``Dangerous Fakes'', and the article talks about a contractor 
out in Bakersfield, California, who wasn't involved in any sort 
of microchip business before, but she heard there may be a 
business opportunity to begin selling microchips to the 
military. So she created a business in her home, and since 2004 
she has won Pentagon contracts worth a total of $2.7 million. 
The military has acquired microchips and other parts from her 
for use in radar on the aircraft carrier Ronald Reagan and 
antisubmarine combat systems of destroyers. She said she knows 
very little about the parts that she buys.
    So I am sitting here thinking about all the money that we 
spend with these independent contractors that, if you look at 
what she went through to get that military contract, it was 
very little. Then, to find the products that she sells, she 
plugged parts into Google--part codes into Google and found 
websites offering low prices. She bought those microchips from 
the website and sold them to the military.
    So I'm sitting here thinking how many men and women in our 
armed services are in harm's way because of faulty microchips 
that might be in an airplane system, now that we are doing fly 
by wire in the F-18 and other future aircraft. How many faulty 
weapon systems or faulty chips are in weapons systems there in 
the drones that are used and in commercial aircraft? I'm going 
to take this even further, commercial energy production, 
nuclear power, the power grid?
    We know what happened in Iran with the centrifuges with the 
virus that shut them down. Do any of these microchips--is there 
a possibility of espionage from a country or a rogue entity 
that puts a virus in place or puts a back-door access code that 
they can access these power systems on the commercial side, not 
on the military side?
    So these are things that I'm thinking about. So my question 
to you is: Where are most of these microchips being produced? 
What countries would you say they are coming from mostly?
    Mr. Toohey. By far, China. By far some specific places 
within China, that they take the old, used electronics and take 
out the chips and then, you know, sand off the number and put a 
new number on and then repackage them, sell them to people like 
the person you mentioned, very unscrupulous dealers. 
Unfortunately, that's not an isolated incident. But we know 
exactly where they are coming from.
    These are counterfeit chips. Just a couple of days ago one 
of my colleagues was there in Shinsen and walked openly in the 
market. He was given samples of counterfeit chips. So we know 
exactly where it is. You know, part of the solution is 
certainly targeting those places.
    But I think the first thing we ought to do is use the very 
practical, known, proven solutions to close our front door. 
There is, obviously, a multi-tiered effort. We have to go on 
tightening up our Federal acquisition regulations, prosecuting 
these people, these unscrupulous dealers, and working with 
other countries, especially China.
    Mr. Duncan. What other countries are better to work with 
than others? Do we have some that are proven difficult to work 
with?
    Mr. Toohey. Well, I think China has been difficult to work 
with. I think our Government officials would tell you, on 
overall enforcement of intellectual property, there are efforts 
certainly going on in China to step that up, which we 
appreciate, but we need more, and we need a stronger focus on 
the part of our trade negotiators. But this problem almost 
entirely emanates from China.
    Mr. Duncan. Mr. Chairman, I am concerned that DHS is 
writing security directives that change policy without 
Congressional authority and Congressional consent and holding 
up the ability to verify the validity of these chips that are 
coming in. Through digital photography and email, it can be 
almost instantaneous; and I appreciate the companies that are 
willing to work with the DHS in trying to solve this issue.
    We had an issue of a carburetor on a small engine that--EPA 
requires an anti-tamper or adjustment mechanism on the 
carburetor so that you can't adjust the carburetor and emit 
more pollutants into the air. So these came into a port. 
Homeland Security and CBP held that shipment up. A member of 
the Customs and Border Patrol was able to defeat the mechanism 
that blocked that device and that blocked your ability to 
adjust that carburetor over a period of an hour with a hammer 
and a screwdriver. They held up that whole shipment, even 
thought that blocking device was approved by the EPA prior to 
this.
    But yet the Department of Homeland Security will not simply 
take a digital photo and send it to a company who is willing to 
say that is our chip or not our chip. We have got our 
priorities mixed up in this country, especially when it comes 
to espionage or for our power grid and protecting our armed 
services, the men and women defending our liberties in this 
country, and we are failing to do that, and these chips are 
going into weapons systems and into our commercial power grid.
    This is a very timely meeting, Mr. Chairman. I appreciate 
that. Thanks, guys, for coming.
    Mr. McCaul. Thank you, the gentleman from South Carolina, 
for your remarks.
    I think the Chinese have a saying, why invent it when you 
can steal it? So that's what they do. There is no incentive. 
They steal our intellectual property. They engage in espionage. 
They hack our systems, every Federal agency, and now we have 
our own department tying our hands with the private sector to 
be able to identify what's counterfeit.
    We will take action, and that's what this committee is all 
about.
    With that, I recognize the gentleman from Alabama, Mr. 
Rogers.
    Mr. Rogers. Thank you, Mr. Chairman.
    I listened to your opening statements, yours and the 
Ranking Member's, and they're pretty different. You paint a 
pretty grim picture of ICE's effectiveness in the last 2 years 
and the statistics, and then the Ranking Member comes back with 
statistics that makes it appear that the Obama administration, 
through its ICE director, has just been doing a stellar job. I 
am really confused about which of those is correct. I have 
asked my staff to get both of your statements and look at the 
supporting evidence so we can find out which is right.
    But I can tell you my personal experience is John Morton 
and ICE have decided not to pursue worksite enforcement and not 
enforce the law. I think the best evidence of that, aside from 
the statistics, is his own employees gave him a vote of no 
confidence for refusing to allow them to enforce the law.
    I have got a chart up on the board right now that states--
and this is from CRS. This is not my numbers, CRS showing the 
number of criminal convictions in the last 2 years. You can see 
the last year of the Bush administration we had a very high 
rate. My guess is, as a recovering attorney, that most of the 
2009, 2010 cases were in the pipeline when this administration 
took office. I would be very interested and will be interested 
in seeing what 2011 and 2012 look like.
    [The information follows:]
    


    
    Mr. Rogers. But I want to talk--this is less for Mr. Toomey 
and Russo than it is for Mancuso and McNeill. I have got a 
problem in the south in that we have a lot of illegals working 
for companies just to be more competitive. We have turned in--I 
know of companies that have turned it in to ICE, and I have 
turned them in, just to find ICE not to do anything about it. 
This has basically been the stated position since this 
administration came in, that they were going to cease worksite 
raids or dramatically reduce them. First, it was because of the 
census. We didn't want to chill the enthusiasm of illegals 
being counted. You know, then it was, after that, well, it's 
because we don't want them to be afraid of the police or 
reporting robbery or whatever. But it's always an excuse as to 
why we don't want to alienate the illegal Hispanics that are 
here in the country and punish their employers.
    I notice in Ms. McNeill's statement that you talk about the 
administrative change, getting away from, even using the phrase 
``worksite raids''. Tell me more about that.
    Ms. Baker McNeill. Mr. Rogers, as far as--are you asking 
specifically about my use of the phrase?
    Mr. Rogers. No. You talk about the fact that this 
administration made a conscious decision to move away from 
worksite raids. Why? What's their stated reason?
    Ms. Baker McNeill. Well, there has been a number of stated 
reasons. Partially, it has been because they have said that it 
is better to go after employers because employers were the ones 
hiring the illegal laborer and that the illegal workers were 
simply just taking jobs.
    Mr. Rogers. Have they followed that up with actual raids of 
work sites and criminal actions against employers?
    Ms. Baker McNeill. My impression is it is kind of twofold. 
The first is that there have been a few investigations that 
have occurred. I won't say that that didn't happen ever. There 
have been some worksite raids. But in those cases you have had 
the fact that the illegal workers were oftentimes not even 
identified, much less detained or deported. They weren't even 
identified. These could be significant rings of identity theft 
that we just kind of let them go or give them temporary work 
permits.
    On the other side, you have the fact that, while criminal 
arrests under the Obama administration of employers are up, 
that that statistic is there, the reality is that, for most 
employers, they have been sent the message that they are only 
going to be subject to a civil I-9 audit.
    Mr. Rogers. So that arrest is going to arise in a civil 
penalty rather than a criminal penalty.
    Ms. Baker McNeill. Well, somewhat. For most of the 
employers who were doing the kind of on-the-books employment, 
they have been sent the message, because they are only being 
subject to 
I-9 audits and not really criminal investigations, that what 
they will get is their notice that they are going to be audited 
and, you know, they get a decent amount of time by which to 
basically clear their rolls of people that they think are 
suspicious.
    Mr. Rogers. So what happens with the arrest? I am trying to 
figure out where the arrest comes in.
    Ms. Baker McNeill. Well, from what I know, the Obama 
administration has done some smaller investigations of 
employers where they have done arrests. But as far as from what 
I have seen, as far as big employers who have lots of labor and 
potentially lots of illegal labor, they are not even touching 
them with criminal investigations.
    Mr. Rogers. Mr. Mancuso, do you agree with that?
    Mr. Mancuso. I generally do agree with that.
    I would also add that in our setting, in the export control 
sort of enforcement setting, it is actually even a more 
fundamental problem. If someone is inside the country 
illegally, it stands to reason they are in the country 
illegally. That's a problem.
    But even with respect to legal immigrants inside this 
country, one of the known vectors--and, clearly, most legal 
immigrants who are here on special purpose visas to work for 
technology companies are here for legitimate purposes. But we 
know as a fact, we know in this Government as a fact that some 
of those individuals who come here legally on special purpose 
visas are collecting, are engaging in essentially espionage, 
and we know that.
    At the latter--towards the latter part of the Bush 
administration, in fairness, in response to a number of reports 
from the GAO, CRS, I believe, and some inspectors general at 
various agencies, the Bush administration put in the pipeline a 
policy change that would require employers who employ foreign 
nationals legally in the country to make certain certifications 
about those persons' access to controlled technology in the 
United States. That is a positive change. But this is an area 
that's important, and I would just underscore that I largely 
agree with this Ms. McNeill.
    Mr. Rogers. Great. Thank you. My time is expired.
    Mr. Chairman, I do agree with the Ranking Member, and I 
hope that you will consider calling John Morton from ICE in 
here to help reconcile some of the differences that have been 
stated here about his performance.
    I yield back. I hope you have a second round.
    Mr. McCaul. We do intend to call him as a witness at a 
later hearing, because some of these numbers are disturbing to 
me. When I do see even the employer prosecutions convictions, 
they are not really of any significance. I don't think it is 
having a deterrent effect as we talk about protecting American 
jobs, you know, here in the United States.
    So the other interesting point was, Mr. Mancuso, you 
mentioned 90 percent of the scientists and engineers are now in 
Asia. That's a pretty sad commentary on the state of education 
in the United States and the workforce.
    I talked about the H1-B visas. You know, I have got the 
University of Texas with their Pickle Center. They train, 
educate these students at taxpayer expense, and then, when they 
graduate, they can't stay. They go back to our competitor. I 
just find that to be--we need a high-skilled workforce in this 
country, and I think that that would be a way to maybe change 
some of those numbers that you talked about.
    So the Ranking Member and have I agreed that we are 
probably going to go ahead and conclude, unless the other two 
have questions.
    But I want to thank the witnesses for their testimony. It 
has been very enlightening. I have a couple of action items to 
follow up on, particularly on the semiconductor chips. I just 
want to thank y'all for calling this to our attention.
    Members have 10 days to submit written questions. If they 
do so, I would ask that you respond to those. Again, thank you 
for your valuable insight to this committee.
    The committee stands adjourned.
    [Whereupon, at 11:32 a.m., the subcommittee was adjourned.]

                                 
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