[Joint House and Senate Hearing, 115 Congress]
[From the U.S. Government Publishing Office]
115th Congress Printed for the use of the
2nd Session Commission on Security and Cooperation in Europe
_____________________________________________________________________________
Roundtable on Illicit Trade
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
JUNE 21, 2018
Briefing of the
Commission on Security and Cooperation in Europe
_____________________________________________________________________________
Washington: 2019
Commission on Security and Cooperation in Europe
234 Ford House Office Building
Washington, DC 20515
202-225-1901
[email protected]
http://www.csce.gov
@HelsinkiComm
Legislative Branch Commissioners
HOUSE SENATE
CHRISTOPHER H. SMITH, New Jersey ROGER WICKER, Mississippi,
Co-Chairman Chairman
ALCEE L. HASTINGS, Florida BENJAMIN L. CARDIN. Maryland
ROBERT B. ADERHOLT, Alabama JOHN BOOZMAN, Arkansas
MICHAEL C. BURGESS, Texas CORY GARDNER, Colorado
STEVE COHEN, Tennessee MARCO RUBIO, Florida
RICHARD HUDSON, North Carolina JEANNE SHAHEEN, New Hampshire
RANDY HULTGREN, Illinois THOM TILLIS, North Carolina
SHEILA JACKSON LEE, Texas TOM UDALL, New Mexico
GWEN MOORE, Wisconsin SHELDON WHITEHOUSE, Rhode Island
Executive Branch Commissioners
Department of Stae
Department of Defense
Deartment of Commerce
[II]
ABOUT THE ORGANIZATION FOR SECURITY AND COOPERATION IN EUROPE
The Helsinki process, formally titled the Conference on Security
and Cooperation in Europe, traces its origin to the signing of the
Helsinki Final Act in Finland on August 1, 1975, by the leaders of 33
European countries, the United States and Canada. As of January 1,
1995, the Helsinki process was renamed the Organization for Security
and Cooperation in Europe (OSCE). The membership of the OSCE has
expanded to 56 participating States, reflecting the breakup of the
Soviet Union, Czechoslovakia, and Yugoslavia.
The OSCE Secretariat is in Vienna, Austria, where weekly meetings
of the participating States' permanent representatives are held. In
addition, specialized seminars and meetings are convened in various
locations. Periodic consultations are held among Senior Officials,
Ministers and Heads of State or Government.
Although the OSCE continues to engage in standard setting in the
fields of military security, economic and environmental cooperation,
and human rights and humanitarian concerns, the Organization is
primarily focused on initiatives designed to prevent, manage and
resolve conflict within and among the participating States. The
Organization deploys numerous missions and field activities located in
Southeastern and Eastern Europe, the Caucasus, and Central Asia. The
website of the OSCE is: .
ABOUT THE ORGANIZATION FOR SECURITY AND COOPERATION IN EUROPE
The Commission on Security and Cooperation in Europe, also known as
the Helsinki Commission, is a U.S. Government agency created in 1976 to
monitor and encourage compliance by the participating States with their
OSCE commitments, with a particular emphasis on human rights.
The Commission consists of nine members from the United States
Senate, nine members from the House of Representatives, and one member
each from the Departments of State, Defense and Commerce. The positions
of Chair and Co-Chair rotate between the Senate and House every two
years, when a new Congress convenes. A professional staff assists the
Commissioners in their work.
In fulfilling its mandate, the Commission gathers and disseminates
relevant information to the U.S. Congress and the public by convening
hearings, issuing reports that reflect the views of Members of the
Commission and/or its staff, and providing details about the activities
of the Helsinki process and developments in OSCE participating States.
The Commission also contributes to the formulation and execution of
U.S. policy regarding the OSCE, including through Member and staff
participation on U.S. Delegations to OSCE meetings. Members of the
Commission have regular contact with parliamentarians, government
officials, representatives of non-governmental organizations, and
private individuals from participating States. The website of the
Commission is: .
[III]
Roundtable on Illicit Trade
_________
June 21, 2018
Page
PARTICIPANTS
Paul Massaro, Policy Advisor, Commission on Security and Cooperation in Europe ...... 1
Russ Travers, Acting Director, National Counterterrorism Center, Office of the Director
of National Intelligence ........................................................... 3
Christa Brzozowski, Deputy Assistant Secretary, Trade and Transport, Department of
Homeland Security ........................................................... ....... 6
Lisa Dyer, Director, Office of Intellectual Property Enforcement, Department of State .. 10
Aaron Seres, Acting Section Chief, Financial Crimes Section, FBI ....................... 13
OTHER PARTICIPANTS
Frank Cullen; Cynthia Braddon, Trace It; Kasey Kinnard, Financial and
Outreach Coordinator, Terrorism, Transnational Crime and Corruption
Center, George Mason University; John Kennedy; Gretchen Peters; Steven
Sin, Director, Unconventional Weapons and Technology, Subject Matter
Expert Instructor, National Center for Security & Preparedness; David
Lynch, Director of Solutions, Sayari Analytics; John Pacheco; John
Clark; Kristin Reif, Director Illicit Trade Prevention, Philip Morris
International; John Clark; Susan Fridy, Acting Head of Center,
Washington Center, Organization for Economic Co-operation and
Development; Jim King; Rob Quartel, Chairman and CEO, NTELX; Tyler
Crowe; Kevin Rosenbaum, Attorney, Mitchell Silberberg & Knupp LLP;
David Luna, President and CEO, Luna Global Networks; Travis Johnson;
Jon Kent; Blake Marshall; Chris Martin, Assistant Director, Fiscal
Crime Liaison, Her Majesty's Revenue and Customs, United Kingdom; Jerry
Cook, Vice President of Government and Trade Relations, Hanesbrands,
Inc.; Liz Confalone; Kevin Delli-Colli, Managing Director, Forensic and
Investigations Practice, Deloitte; James J. Duggan, Vice President,
Coty Inc.; Flora Okereke; Clay Fuller, Jeane Kirkpatrick Fellow,
American Enterprise Institute; Matthew Rubin; Crawford Allan, Senior
Director, TRAFFIC, World Wildlife Fund; Dawson Hobbs; and Megan Glibin,
Director, Customs and Trade Facilitation, U.S. Council for
International Business.
[IV]
Roundtable on Illicit Trade
----------
June 21, 2018
Commission on Security and Cooperation in Europe
Washington, DC
The briefing was held at 1:05 p.m. in Room 485, Russell Senate
Office Building, Washington, DC, Paul Massaro, Policy Advisor,
Commission on Security and Cooperation in Europe, presiding.
Panelists present: Paul Massaro, Policy Advisor, Commission on
Security and Cooperation in Europe; Russ Travers, Acting Director,
National Counterterrorism Center, Office of the Director of National
Intelligence; Christa Brzozowski, Deputy Assistant Secretary, Trade and
Transport, Department of Homeland Security; Lisa Dyer, Director, Office
of Intellectual Property Enforcement, Department of State; and Aaron
Seres, Acting Section Chief, Financial Crimes Section.
Mr. Massaro. All right. So we've got a real full table today. I
know everybody's shoulder to shoulder and everyone's going to get to
know one another real well. You'll see, they pulled a fast one on us at
the very last minute and gave us 12 mics, instead of the expected 36,
so we're going to have to share. And I hope that's okay with everybody.
But in any case, my name's Paul Massaro. I work for the Helsinki
Commission and put together this event today. I'm going to go ahead and
start with my opening statement, and we'll take it from there.
Good afternoon and welcome to this roundtable of the U.S. Helsinki
Commission. The commission is mandated to monitor compliance with
international rules and standards across Europe, which include military
affairs, economic and environmental issues, and human rights and
democracy. My name is Paul Massaro and I am the policy advisor for
economic and environmental issues, including illicit trade. I would
like to welcome you today on behalf of our bipartisan and bicameral
leadership to discuss a topic fundamental to the national security of
the United States and government based on the rule of law as a whole.
In the 21st century, criminals are hijacking globalization. By
leveraging new technologies and exploiting archaic legal frameworks,
transnational criminal networks have become a looming presence across
the world. These networks engage in whatever nefarious activity makes
them the most money. There is no specialization in the criminal world.
Meanwhile, the rule of law, which has largely remained a national
competency, struggles to keep up.
This is complicated further by the emergence of kleptocracies,
authoritarian states that have merged with criminal interests and have
at their core the personal enrichment of the autocrat and his cronies.
It can often be difficult to tell where the public sector ends and the
private sector begins in these kleptocracies. By taking advantage of
this opaque structure and the one-sided openness of governments based
on the rule of law where reliable information is readily available,
kleptocracies profit at the expense of those who play by the rules.
The unique national security threat born of the merger of
transnational criminal networks and authoritarian states is nowhere
better expressed than in the booming enterprise of illicit trade, the
topic of today's discussion. The damage done by illicit trade is
immense. There is an economic cost, in the form of stolen intellectual
property, lost sales, and tarnished brands. There is a social cost in
the form of stalled development, environmental destruction and
political corruption. Finally, there is a human cost in the form of
those who are hurt or killed by counterfeit products, defective
machinery, and deadly narcotics--not to mention those who have their
lives destroyed through modern slavery.
The diverse group at today's roundtable represents a broad
coalition seeking to combat illicit trade. We are joined by large
companies, small- and medium-sized enterprises, universities, think
tanks, trade associations, advocacy groups, and many other
organizations that demonstrate the leadership and diversity of the U.S.
private sector and civil society, and those of our allies. You all
represent the prosperity and innovation that the rule of law makes
possible. On behalf of our leadership, I would like to thank each of
you for attending today. Each of your organizations is a valuable
member in curbing illicit trade. And I encourage you to stay in touch
with me and one another as we develop strategies to do so.
This roundtable is meant to signal clearly that the legislative
branch, the executive branch, the private sector, and civil society are
united when it comes to countering transnational criminal networks and
their facilitators.
I have a short administrative note here about mic capacity, but I
think I've kind of explained that already and we'll make do. So let me
go ahead and introduce our panelists. Russ Travers will be our first
speaker. Russ is the acting director of the National Counterterrorism
Center. NCTC is responsible for leading and integration of the national
counterterrorism effort by fusing foreign and domestic CT information,
providing terrorism analysis, sharing information with partners across
the CT enterprise, and driving whole-of-government action to secure
national CT objectives. Thanks so much for taking the time, Russ.
Christa Brzozowski will follow Russ. Christa serves as deputy
assistant secretary for trade and transportation policy within the
Department of Homeland Security's Office of Policy, where she is
responsible for multiple economic and security policy issues that
affect the United States. She is also the co-chair of the Organisation
for Economic Cooperation and Development [OECD] taskforce on countering
illicit trade. Christa, so glad you're here.
Ms. Brzozowski. My pleasure. Thank you.
Mr. Massaro. We will then hear from Lisa Dyer. Lisa is the director
of the Office of Intellectual Property Enforcement in the Bureau of
Economic and Business Affairs at the Department of State, where she
works with her colleagues to identify intellectual property rights
[IPR] issues and formulate strategies to engage foreign governments on
issues of concern. Lisa, thank you. Trying to see you. Thanks for so
much for joining us.
Finally, we will hear from Aaron Seres. Aaron is the acting section
chief of the FBI's Financial Crimes section. Here, he oversees all of
the FBI's financial crime programs nationally, which include a wide
variety of fraud schemes as well as intellectual property crimes. He
also has oversight responsibility for the FBI's Forensic Accountant
Program. Aaron, it's a real pleasure to have FBI at the table.
Mr. Seres. Thank you. It's good to be here.
Mr. Massaro. Russ, without further ado, the floor is yours.
Mr. Travers. Thanks very much. It is a great pleasure to be here.
Paul indicated I am a counterterrorism guy. And so that is going to be
my optic as I talk about convergence. I'm going to do three things.
First, I'm going to give you a little bit of nuance in terms of what
convergence means from my perspective. Second, I will then burrow down
into the relationship between terrorists and criminal actors. And then
third, I want to give you a couple of very brief observations about how
I think some of the lessons learned from counterterrorism over the last
17 years could be applied to transnational crime.
So, first, on nuance. A few years ago, we started talking about
TCOs [transnational criminal organizations] and terrorism converging.
That left the terrorism community a little bit uncomfortable. And
definitionally, it would seem to suggest that they are coming together.
And, kind of reduction ad absurdum, that al-Qaida was coming together
with Russian organized crime, or something along those lines. And that
clearly is not what's happening. Now, in our view there is a spectrum.
On the one hand, you've got terrorists that definitely use crime, and
have forever, for funding, logistics--Bali, Beslan, Madrid, 77--all,
the entire spectrum. That motivation was ideological.
At the other end of the spectrum, you've got criminals who will use
terrorist tactics for the purposes of intimidation. So that, for
instance, you see Mexican drug cartels using beheadings. Their
motivation is profit. And in the middle, you've got a whole host of
kind of blurry interactions. You will have seen arrangements of
convenience. For instance, Al-Shabaab and pirates a decade ago. You'll
have fellow travelers. You'll have the Abu Sayyaf group in the
Philippines, who are truly a bunch of thugs that wrap themselves in the
Islamist flag. You might have AQIM, which is an amalgam of terrorists
but also just long-standing smugglers. And then you've perhaps got the
most complicated, which is Hezbollah.
Occasionally, you will get rather bizarre cases like that of
Arbabsiar, who was convicted several years ago. He had a cousin who was
Quds Force, Iranian. And he was trying to do the bidding of his cousin
to reach out to Mexican drug trafficking organizations to eventually
assassinate the Saudi Ambassador to the U.S. That's a little bit on the
rarer side. The point is I think that you do have a very broad spectrum
of interaction. And at least in our view, convergence as a bumper
sticker kind of suggests a single narrative that we think actually is
far more complex than that which may be concluded.
So what is going on? Again, from the terrorism perspective, there
is no question that there is a nexus between criminal actors and
terrorist actors in a number of different ways. I'll only give you two.
First, we believe that terrorist groups knowingly exploit criminal
activities for operational purposes, and they have done so forever.
Interestingly, in the last several years you've also seen terrorists
begin to provide a religious justification for engaging in criminal
activity. Second, we find that non-ideological driven criminal
enterprises--such as human smugglers, weapons dealers, and document
forgers--will work with terrorist groups solely for financial gain.
Sometimes they're witting. Sometimes they're not. I want to address
both of those in some detail.
So let's start with how terrorist groups knowingly exploit criminal
activities for operational purposes. They tap into criminal networks or
use criminal means to facilitate funding for the acquisition of
materials or weapons. A few examples: To fund the majority of the
group's operations, ISIS members have illicitly gathered and sold oil,
pillaged antiquities, and they've extorted individuals in both Iraq and
Syria. In a number of ISIS plots in Europe, the operatives tapped in
criminal networks, including using personal relationships within those
networks to identify co-conspirators and obtain fraudulent documents.
It was pretty easy for them because if you look at someone like
Abaaoud, who was responsible for the attacks in Paris, he had been a
criminal. He had been in and out of prison. He had a very wide array of
criminal contacts.
And it's not just ISIS. AQAP-associated attackers leveraged
organized crime networks to acquire firearms to conduct the Charlie
Hebdo attack back in 2015. And certainly, in Africa there have been
concerns for years that extremists have supported financing group
operations through illicit smuggling of everything from gemstones, to
ivory, to charcoal. As Paul mentioned, the advent of technologically
enabled services--dark web, digital currencies--have helped terrorist
groups conduct their operations. They are quite good at exploiting the
attributes of globalization and can move far quick than governments
can.
An example: We had an al-Qaida supporter in Britain using stolen
credit card numbers obtained on the dark web to generate more than $3
\1/2\ million of revenue for the terrorist group. And a relatively
recent EU commission study found that firearms acquired from criminal
networks were a primary source of weapons for European terrorist
attacks, all purchased on the dark web.
As I mentioned, interestingly, we started to see terrorist groups,
through their propaganda, provide religious justification for engaging
in criminal activities. ISIS has urged supporters to engage in criminal
activities such as theft in Rumiyah and in multiple propaganda organs.
In one article, ISIS argued that they should take wealth by any means.
A prominent ISIS recruiter in Belgium said that stealing from the
infidels is permitted by Allah and necessary to finance travel to
jihadist hotspots. Amedy Coulibaly took out a consumer loan using
fraudulent pay slips from a fake company to acquire over $30,000. He
then used that money to purchase weapons.
The propaganda espoused tactics more commonly associated with
crimes with a broad range of attack nodes. So within AQAP's Inspire
magazine groups encouraged individuals to conduct arson, stabbings, and
deliberate vehicle rammings, in addition to tactics more commonly
associated with terrorism. And that kind of blurs the line for us in
terms of determining motivation. Is it criminal, or is it terror?
You'll also note that in publications like Rumiyah and Inspire, they
use recruiting posters from organizations like al-Qaida and ISIS that
advocate going after criminals to bolster their ranks--almost like an
opportunity for redemption.
It's very common for individuals to start out in prisons as
criminals, get radicalized, and go on to conduct terrorist attacks when
they get out. And that is a trend that we've seen increasing around the
globe. In the post-mortem for terrorist attacks, the individuals are
often known to local security services as criminals, but not as
terrorists. And that is a significant challenge for the intelligence
community. An interesting guide point from the EU--last year a growing
trend that ISIS had probably had the most success in exploiting
criminals to conduct attacks. Recruits are at least twice as likely to
have a criminal record in the case of ISIS as they were in the case of
al-Qaida.
So that's the terror side of the equation. We briefly discussed
thoughts on how, when, why we believe criminal enterprises engage with
terrorist groups. We believe the intersection between criminal
enterprises and terrorist groups is largely transactional in nature and
absent any common ideological views. Criminal enterprises will continue
to place a higher value on the financial or material incentives they
gain through various transactions over the actors that they are working
with. In October 2017, a Pakistani national was sentenced to almost 3
years in prison for smuggling individuals to the U.S. At least one of
them had family ties to the Taliban and who was implicated in a plot to
attack the U.S. or Canada.
Several years earlier, three Pakistani citizens were sentenced to
multiple years in prison for conspiring to provide material support to
a foreign terrorist organization when they agreed to smuggle an
individual who they believed to be a Taliban member. However, we've
also seen many cases where criminals have been concerned that dealing
with terrorists may bring unwanted law enforcement attention. So it's a
bit of a risk calculus for them.
Criminal networks routinely conduct kidnapping operations targeting
U.S. and other Western citizens. They also carry out kidnappings with
the intent of selling the hostages to terrorist groups for financial
gain, rather than any ideological motivation. A cooperative
relationship between criminals and terrorists is, in fact, prominent in
Afghanistan and Yemen, where foreign hostages often change hands
between criminals and terrorist groups. The Taliban and Haqqani network
in Afghanistan routinely cooperate with criminal groups and receive
hostages from those criminal groups.
And that brings me to my last topic. I want to say just a quick
word about the opportunities to apply lessons learned from
counterterrorism to countertransnational organized crime. The nexus
does have significant policy implications. Since 9/11, counterterrorism
focus across the government has been very much focused on the whole of
government efforts, better integration across the U.S. Government, to
improvements in information sharing that may be horizontally within the
Federal structures, vertically, Federal, non-Federal, with our
international partners, and with the private sector. And it has
involved the establishment of authoritative data bases and a completely
integrated screening and vetting architecture.
It is not perfect, but we are dramatically better than we were 17
years ago. It has allowed us to push borders out. It has allowed us to
keep potential terrorists out of the country, better track individuals,
and build out networks. Many of these capabilities would be relevant to
any transnational threat, but crime in particular, with better
integration across law enforcement and intelligence across the United
States, but also a better sharing of criminal history data with
international partners. Judging from the improvements we've seen in CT,
I think there will be substantial improvements in our understandings of
transnational crime. And equally important, it would further enhance
our own counterterrorism efforts, help plug a bit of a hole that exists
as a result of this crime-terror nexus.
With that, I'll stop. And I look forward to questions after my
colleagues.
Mr. Massaro. Christa, please.
Thank you, Russ.
Ms. Brzozowski. Great. Thank you. So I will note start off with a
little bit of a humorous note. The task for today is how to stop the
flow of illicit goods. Not giving a sense of the problem, but just what
is the answer to stop the flow of all illicit goods. And because it's
not qualified in any way, I take that to mean globally as well.
Mr. Massaro. I figure it's a pretty easy problem.
Ms. Brzozowski. [Laughs.] So I hope I have some good solutions here
today. And I clearly don't have them, otherwise I would be on my yacht
somewhere in the Bahamas. [Laughter.] I'm from the Department of
Homeland Security [DHS], where I do trade and transport policy. And my
usual disclaimer is have everyone emphasize the policy aspect of that.
So please don't ask me any very specific questions about quarter rates
or tariff numbers or the harmonized tariff schedule or anything like
that. I'll know enough to get myself in trouble and not enough to
actually answer the question. So we'll keep it at a pretty strategic
level.
Within DHS, I'll give perhaps just a quick overview--although I'm
assuming many of you, if not all, are very familiar with the mission of
that department. It's always helpful to kind of give you at least my
perspective so we're maybe starting off on the same page. The
Department, as folks know, is a relatively new organization, a
relatively still immature organization still figuring out how to
integrate and how to work in concert with other Federal partners and
other global partners. It brings together 22 different agencies that
had previously been scattered across other departments.
And so it has a tremendously broad mission area that includes
things as diverse as the counterterrorism mission that Russ was talking
about, and it is focused on protecting critical infrastructure,
including the broad transportation sectors, financial sectors,
telecommunications sectors. So that mission set specifically for
working with owners and operators and private sector folks is to
protect those critical infrastructures here domestically. Also, a huge
focus is protecting Federal networks and systems from cyberattacks--so
putting out cyber guidance, hiring some of those professionals, and
making sure that, first, Federal systems are secure, and then working
and engaging with private sector folks to make sure that broader
networks throughout the country are also secured and free from attack.
And finally, I'm giving you a high-level overview of the many, many
missions in DHS--a big part of the mission is to facilitate the secure
flows of goods and people. I'm here today to talk about the goods side
of that house. That's my little niche of the world. But still, some
pretty significant problem sets and challenges there.
So when we're talking about cross-border commerce, you'll usually
hear about, customs--so Customs and Border Protection [CBP] or the
Immigration and Customs Enforcement [ICE] folks. We get a lot of
assistance from our science and technology people who provide and
deliver some of the capabilities that are used. But ultimately, all
groups come together within the Department of Homeland Security around
the singular mission of supporting the vital economic benefit that we
all derive from cross-border trade. We support it by both enforcing the
number of laws that ensure both security and compliance and the revenue
streams that continue to come, but strive to do so it in a way that
doesn't impede free movement. That balancing act is one that we're
constantly striving to maintain as we deal with goods coming across the
border.
Here are a couple of stats just to put this in perspective. These
are from 2017. So $2.4 trillion in imports and $1.5 trillion in exports
are processed by DHS at the border annually. That's across 328
different ports of entry, so a huge land expanse there as well. We deal
with around 365,000 formal importers of records, folks that are
actually accomplishing imports, and collect about $45 billion in
duties, taxes, and other types of fees at the border.
If that wasn't enough, we--the DHS--are also doing that, hopefully,
in close coordination with 47 different agencies that have some border
responsibility or need for the data that is collected on the things and
people that come across the border. This becomes immensely complex
when, in addition to dealing with the flows of goods, you are
coordinating with 47 different agencies, not only operationally but in
terms of law and with their legal departments as well, as we are
dealing with a huge amount of systems and capabilities. So there's a
technology angle as well. We also deal with people actually working at
the border. So a huge operational component there as well.
It's not an easy task on any day, particularly as we're in the
midst of an evolving and dynamic environment the task is ever more
complicated. DHS has a unique mission set and a unique set of
authorities and capabilities working on behalf of all these different
agencies. It is an area where the rules of the road and the lanes are
being worked out on a minute-by-minute basis. But DHS is the biggest
physical presence actually at the border. So we serve on behalf of
these 47 different agencies to enforce compliance with laws that might
not necessarily be DHS laws, but laws from the Department of
Agriculture or the Department of Interior Fish and Wildlife Service.
We deal with everything from invasive species like a nematode to
consumer health and safety on pharmaceutical or engine parts, to
counterfeit and pirated goods, which we'll hear a bit more about today,
to dealing with folks who are looking to misclassify or misvalue goods
to avoid tariffs or duties or quotas or to claim preferential
treatment, all the way to big, big concerns about the bomb in the box
or WMD-type of weapons of mass destruction. Included in this is money,
narcotics, weapons, and then a whole array of controlled technologies
that are either conceived of or developed here in the United States,
and that we just don't want to get in the hands of bad folks, and so we
control those technologies for the purpose of export.
That was a quick overview of the diversity of the DHS mission set
to again emphasize why I might not have all the answers on how to stop
illicit flows. I thought I'd give you a quick overview of what that
actually looks like and the challenge before us all. But I can give a
sense of what the emerging and dynamic environment in the trade world
looks like from our perspective. And as we've worked with many of you,
and as we make sense of some of the evolving trends and look to
characterize some of the flows and develop policies to address it,
understanding the as-is and understanding the changes that are on the
horizon is incredibly important. So I'll do that, and then outline some
of the ongoing strategies and activities, not purporting to have all
the answers, but some of the work that is being done and, in my
opinion, should be done to counter illicit trade.
So on some of the evolving trends--I'm among an increasingly rare
breed of folks that have been with the department since before it was
the department--who came in with a new administration right before 9/
11, and so had the opportunity to see this department develop, see the
legislation that created it be worked on, see how the department has
seen the issue of cross-border flows develop and mature, and see some
of the priorities that we've had, some of the priorities I know
Congress has had, and some of the priorities that I know industry has
had change over the years.
I'll put two environments before you. First is the immediate post-
9/11 trade which I'll juxtapose with some of the changes that we're
seeing now. From there I'll address how those changes are impacting the
types of illicit goods, and how that's impacting our strategies to
counter those flows.
In the days right after 9/11, and probably even the years, the
focus and the emphasis was very much on physical goods, stuff coming
across the border, largely coming across in containers. You had a big
maritime volume there, so lots of goods coming on big ships, either in
bulk or in these big containers, from known retailers--the big
importers, the big exporters, working through some of the big carriers.
You had a focus then--I'm not saying other issues weren't important--
but I recall many of the hearings, many of the meetings, many of the
work with international partners tended to focus on this big bomb-in-
the-box security concern. WMD, money, drugs, weapons, with a big import
focus on security. The tools that DHS and other governments brought to
bear at that time were based on the mantra of we have a risk-based,
layered approach. We worked with foreign governments to push the
borders out as far as possible and get as much information about
entities and things as early in the process as we could to advance
data. We used technology. And at that time, we were thinking about
technology as scanners at the border to run goods through. And we
always worked wanting to develop global standards.
In today's environment, I see many of those same types of concepts,
but they need to be tweaked, evolved, or even, perhaps, developed
wholesale, out of whole cloth, to accommodate the new world that we're
in. Instead of just physical goods crossing the border, we see lots of
services, lots of intangibles, transactions that are occasioned by not
only globalization, but this move toward digitalization. We no longer
see those giant containers, but rather e-packets, these small little
things that I know end up on my front doorstep, more often than they
should, coming from Amazon or other intermediaries. They're small,
little packages.
We've got tens of thousands of new entrants to the marketplace, in
addition to the big retailers, the big importers, the big exporters,
you start to see more micro and medium and small business. And vendors
or sellers that before had too many boundaries to participate in the
global marketplace now find through digital capabilities an ability to
do so. You therefore see a shift in some of the threats, at least from
our perspective. And I'll put a big question mark over this whole area,
because we're still making sense out of the threats in this space. But
of course, intellectual property rights protection is a huge concern as
we start to begin to believe that we're seeing, and are now working
very hard to quantify, the growth of counterfeit goods and pirated
goods.
That triggers consumer safety concerns, not knowing what is
immaterial or where it's coming from if it is counterfeited, as well as
economic concerns--not only to the brand owners, but to the taxes lost
by U.S. Government, as well as concerns over where that money is going
and what illicit activities is it perhaps feeding. There are a huge
amount of data privacy concerns in this new world. This new marketplace
runs on information. And as we've seen recently with Facebook,
consumers and vendors have traditionally been willing to provide
information on how to derive value from that information, how to tax
that information, whether to tax that information, how to protect that
information, and how to understand the future benefit of that
information as we see the advent of big data analytics, as we see
robotics, big data, and perhaps see the capabilities of our adversaries
to suck in that data and potentially use it in ways that we can't even
conceive of right now.
And then we also see the threats to the information and
communication technology [ICT] that underpins this whole process
itself, the component pieces that are being hooked into an increasingly
globalized and interconnected information communication technology
system that's the engine for this entire thing. What are its
components? Who's producing them? What are their capabilities now and
potentially in the future? These are things that are very much our
concern here.
Many of the areas that we're working on are really to address this
paucity of data, understanding the problem in this space. What are the
new trends? What are the new risks? Who are the new actors? There is
lots of work. You mentioned I was one of the chairs of the OECD Illicit
Trade Task Force. Let me introduce my co-chair, Chris Martin, and
former chair, David Luna. So we've got a font of expertise, mostly on
that end of the room.
Mr. Massaro. And the OECD is right there.
Ms. Brzozowski. And the OECD is here as well. Great. So sorry,
didn't recognize you. [Laughter.] But organizations like this, like the
World Customs Organization, are working to try to understand what these
flows look like. We see assessments that are dated now, but that tell
us that up to 2.5 percent of total world trade is in fake goods. We
probably have newer numbers but I don't have them. And from that we see
a lot of the innovative sectors being at high risk. And this is the
bread and butter of the U.S. economy, is their innovation. When 6.5
percent of the trade in high-tech goods is fake, that's a problem not
only for the producers of those goods and for innovation in general.
Further, knowing and trying to figure out where are those fake pieces
going is another major problem. Into satellites? Into nuclear plants?
Into the defense industrial base?
We are also, through the OECD, starting to understand who are the
players? Whose countries' rights are being infringed? What countries
are doing it? Where are the hubs? And from there start to develop some
very country-specific assessments. I point folks to the one that the
OECD did of the U.K. that really tried to quantify some of the jobs
lost, the impacts moneywise to the economy, as well as to specific
companies of some of these flows. And it allows policymakers like
myself to tease out areas where governance frameworks are most
necessary. And we've been focusing on three areas: Understanding free
trade zones and the impact that those zones and the policies and
security features around those zones have on illicit trade. It's a
little bit outside my wheelhouse, but our Department of Justice
colleagues, and other legal folks around the world, look at the
penalties and sanctions regimes that could be perceived as enabling
this flow.And then finally I would like to focus on the term everyone's
using these days, the tsunami of small packages or e-packages that are
now hitting borders. We've got a significant amount of not only these
small packages coming across the border, but just an alarming lack of
global consensus around the basic things, like definitions, like
advanced information requirements so folks can assess and target risk,
around how companies should engage with governments. Where does
liability lie for the movement of both goods and digital transactions?
And then how do we collect revenue and who's responsible for it? So
these are some of the big policy questions in the world on this issue.
So unfortunately, I'll leave you probably with a few more questions
than with actual answers to them. But to the question of how to stop
illicit goods, I think the old frameworks or the traditional frameworks
still apply, they just need to be perhaps revised and some gaps need to
be filled. It's all about whole-of-government approaches. It's about
partnership with foreign governments. It's about understanding and
using data, both to understand the problem and then data to understand
the movement and the actors involved. And it's about having the very
best technology and resources from government and from the private
sector to address the problem.
Mr. Massaro. Thanks so much, Christa.
And we'll go to Lisa.
Ms. Dyer. Thank you very much. And thank you to the Helsinki
Commission and its staff for the invitation to appear today to
represent the State Department's views on this very important topic. As
you mentioned, I am absolutely honored to represent the State
Department's Office of Intellectual Property Enforcement here today.
Our motto: We represent America's genius to the world.
Why does the United States promote intellectual property
protections in overseas markets? Quite simply: Intellectual property
rights are an economic powerhouse. According to the Department of
Commerce, 45 million U.S. jobs and $6.6 trillion of U.S. gross domestic
products can be attributed to IP-intensive industries, as many of you
in the room know. But small- and medium-sized enterprises, which
represent almost 90 percent of all of the new businesses in the United
States, also rely on IP protections to grow their business, to become
stronger in our economy. These small- and medium-sized enterprises are
also the highest percentage of new businesses in some of the emerging
and developing countries around the world.
On a more serious side, supply chains that knowingly or unknowingly
are including substandard counterfeit goods represent a real danger to
all of us, as many of my colleagues have already mentioned. And that
includes our soldiers, sailors, airmen and Marines. The dangers to the
defense side is also equally as important. Pirated products transmit
spyware, ransomware, and all manner of computer viruses, undermining
the privacy and freedom of our electronic communications. At the
Department of State, we have a special role to play on behalf of
America's taxpayers. And I thank you for the opportunity to outline
what we are doing to better combat violations of intellectual property
protections and outline our suggestions to strengthen the U.S.
Government's efforts in this area.
Our embassies are essential platforms for promoting innovation and
intellectual property protections in overseas markets, as well as
defending U.S. rights holders and combating counterfeit and pirated
goods. The State Department's 1,500 economic officers posted worldwide
ensure that the United States remains the world's strongest and most
dynamic economy and help to ensure that global supply chains work
efficiently, effectively, and responsibly. Each of these economic
officers is evaluated on their efforts to promote intellectual property
protections for Americans. What a tremendous resource for the American
taxpayers--1,500 people working around the world to promote
intellectual property protections.
Representing America's genius also means spreading the word. We
show our foreign counterparts and public audiences that the United
States economy is a strong example of the powerful gross domestic
product building, economy expanding, job creating effects of strong
intellectual property protections. We point out that if it works for
us, it can work for them. But many audiences don't always see the
connection between something as commonplace as a counterfeit purse or a
pirated movie and the economic security of a nation.
The December 2017 National Security Strategy draws a direct line
between economic security and this administration's national security
priorities. For all intents and purposes, the document states that
economic security is national security. It further states that we need
to reduce the illicit appropriation of U.S. public and private sector
technology and technical knowledge by foreign competitors. For those
who are interested, it's on page 22 of the strategy. In my office, and
more widely in the Department, we took this charge seriously. We've
embarked on a new strategy that takes advantage of the strengths of all
agencies and stakeholders to fight this battle. After all, there are no
so safe counterfeit or pirated goods.
For those who don't know, our embassies are also staffed by
representatives from a number of U.S. Government agencies who work with
states' political, economic, and public affairs officers to promote
intellectual property protections. Legal, law enforcement, and
technical experts from the Department of Justice, the Department of
Homeland Security, Health and Human Services, and the Patent and
Trademark Office, among others, are key members of embassy working
groups that are advancing intellectual property protections and
fighting counterfeits and piracy.
I will agree adamantly with my colleagues that in the United States
we all know that no one Federal agency can effect positive changes in
tough policy challenges. By leveraging the strengths of a number of
Federal agencies, but also you all in the room and those on Facebook
Live, the U.S. companies and trade associations and small businesses,
as well as our academic partners, we can make changes that benefit U.S.
businesses and taxpayers. The U.S. Government doesn't have all the
answers, and we'd be kidding ourselves if we thought we did.
Let me give you an example of how putting together the strengths of
many agencies and stakeholders can effect positive change. Customs
officials, as noted previously, are absolutely critical to stopping the
flow of counterfeit goods into the United States and other countries.
However, in many countries there are far too few customs officials that
can adequately deal with this growing problem. We know this because our
officers report these facts: What the word is about IP among citizens
within their countries, where the government is putting their
resources. And it's clear that many countries just do not have the
right amount of customs officials to work closely with us.
To raise attention toward the role of customs officials, custom's
top political leaders need to understand the importance of intellectual
property protections. They need to understand enforcement as a way to
counter the negative effects of counterfeit and pirated goods on the
economy and, more importantly, on the health and safety of their
citizens. Countries need to prioritize and allocate funds to increase
the numbers of customs officials and to adequately train them. In some
cases, legislative changes are needed.
Our ambassadors--political, economic, and public affairs officers--
serving in embassies know enough of these top political leaders who
have the power to make these changes. Our officers also know to include
intellectual property in the broader economic goals of their host
countries. And they are doing just that. Technical experts, legal and
law enforcement experts, are also absolutely vital to this process.
They can help write legislation, provide training to current and new
customs officials, and work with the country's technical experts on a
day-to-day basis to stop the flow of counterfeit and pirated goods.
You all in the room and other industry groups have developed on a
voluntary basis a variety of best practices to combat counterfeits and
privacy. And I wanted to highlight just a couple of these valuable
resources. The International Chamber of Commerce Business Action to
Stop Counterfeiting and Piracy has released several publications for a
variety of audiences, ranging from landlords to property owners to
governments and enforcements agencies. Its goal is to protect each
member's grants and investments from the illegal practices of
counterfeiting and piracy. If you haven't had a chance to look at their
publications, I recommend you do so.
I'm also excited about the work of the Trustworthy Accountability
Group and their Certified Against Piracy program. According to Mike
Zaneis, the president and CEO of the Trustworthy Accountability Group,
this voluntary initiative is designed to help advertisers and ad
agencies avoid damage to their brands from ads placed on websites and
other media properties that facilitate the distribution of pirated
content and counterfeit goods.
We work closely with a number of other organizations. I'm a huge
fan of the National Intellectual Property Rights Coordination Center,
which just turned 10 years old this year. They bring together U.S. and
foreign law enforcement officials whose common goal is to combat IP
theft, actively reduce the flow of counterfeit and pirated goods, and
to train domestic and international law enforcement officials. If you
haven't had a chance to get to know these folks, I highly recommend you
do. If we can do anything to help make those introductions, please let
one of us know.
I will also acknowledge the OECD, the Organization for Economic
Cooperation and Development. The works they've published on the flows
of counterfeit and pirated goods are extremely valuable for, as Christa
said, understanding just the staggering sums of money that are flowing
across borders in the counterfeit space.
I've spoken about the talented people we work with to combat IP
violations and reduce the prevalence of counterfeit and pirated goods.
Now I will tell you how we protect intellectual property and thereby
further the goals of the National Security Strategy. This year my team
looked to our colleagues at embassies from around the world to ask them
how we could help, but also understand the best practices that they
embarked upon to just actually do what we've been talking about here.
Some of our indices have been active on these fronts in years,
especially at some of the larger cities. They work closely with the top
political leaders and their technical experts in those countries. But
others have not. And we wanted to make sure that everybody had in their
hand the right information and tools they could do to fight
counterfeits and pirated goods. Based on the feedback we got from them,
I'll touch on just three themes.
The first suggestion is disarmingly simple: Make it interesting and
relevant to the audience. Illegal copies of music, videos, shoes, and
even software can get into the hands of students all too easily. And
that can begin a potentially lifelong habit of purchasing substandard
counterfeit products. We tailor our public outreach activities to these
very impressionable audiences. Most recently, our embassy in Cambodia
hosted a panel trumpeting how IP enables musicians to make a living.
They showcased the talents of a Cambodian pop star. The message was
simple: If people don't pay for music, the musicians you love can't
make a living. The event was streamed on Facebook Live and as of today
has garnered over 41,000 views.
Another recommendation: That the Federal Government become fluent
in emerging technologies, such as artificial intelligence, blockchain,
quantum computing--any technologies that have the possibility to combat
violations of IP protections and reduce the prevalence of counterfeit
and pirated goods. Frankly, some of these technologies will not pan out
or they won't live up to their hype. I have to say, though, if we do
not have sufficient understanding of these technologies to have an
informed discussion among ourselves with those of you in industry or
with academia about them, how can we convince a foreign government that
nurturing and adopting promising technologies that can help them in
this space is beneficial for their economy and to help protect its
citizens from harmful effects and counterfeit goods?
One foreign government official has already approached us asking:
What do you think about artificial intelligence? What if this
artificial intelligence creates some really important intellectual
property? Who owns those properties? It's a great question. And an
effort to answer these types of questions, or at least engage in
conversations with them, continues providing our embassies with
information to strike at the nexus of these leading-edge technologies
and intellectual property rights. And we're doing so in plain language,
because remember our audience. We are prepared to engage with foreign
interlocutors on this front.
Most of the things that I talked about here are repeating what Russ
and Christa talked about. It's about sharing information. We can
outsmart the interconnected unofficial networks that facilitate and
circulate illicit products by sharing information. We aren't perfect,
as Russ noted. And can you imagine other countries, where the idea of
talking to other ministries or other law enforcement or legal officials
is an entirely strange concept to them. It's not easy, as we've seen in
our own government, but we are continuing to work with our embassies to
make sure that they understand the best practices that have worked
elsewhere and trying to help them engage with those host governments,
industry, and trade groups.
We share information for action to protect the health and safety of
all citizens from the prevalence of counterfeit and pirated goods, and
to improve the economies of countries around the world. On that note,
this roundtable is an absolutely fantastic opportunity to establish
this teamwork between government and business, and to build new
understandings and partnerships. It's through these partnerships that I
think we'll find the new tools that we can use to fight this difficult
problem, to shut down illicit markets, put criminal entrepreneurs out
of business, and help create a safer, more prosperous future for our
citizens.
Thank you, again, for the opportunity to describe the outstanding
work of our embassies, the Department of State, the private sector, and
the technical experts from around the world in strengthening IP
protections, thereby reducing the prevalence of counterfeit and pirated
goods. I look forward to a productive discussion. And I, again, thank
you.
Mr. Massaro. Thank you so much, Lisa.
And we have our anchor here, Aaron, here from the FBI. Thanks so
much.
Mr. Seres. Thank you, Paul. I appreciate it. And I realize it's
between me and your questions, so I'll try to be brief. And I'll be
probably echoing many of the sentiments of my colleagues that are here
today.
Ladies and gentlemen, I thank you for the opportunity to speak with
you here today about this important topic. My name is Aaron Seres,
assistant section chief for financial crimes at the FBI. An expertise
of mine is in financial crimes. So, for this past year I've been
enlightened about the intellectual property crimes rights issues that
are facing us in this country. It'll be my pleasure here to discuss
illicit trade, specifically intellectual property rights crimes. They
have a profound effect on businesses and consumers alike.
The investigation of intellectual property crimes traces back to
the beginning of the FBI in 1908, where our initial agents focused
primarily on white-collar crime, one of those crimes being copyright
violations. Copyright and patent clause of the Constitution has
provided protection of intellectual property since the foundation of
our country, recognizing the importance of such rights to encourage
innovation and protect economic value for the United States. Our
country showed great foresight in protecting these assets. However, I'm
sure few could have imagined the growth of the intellectual property
and the related crime problem facing us today in this interconnected
global marketplace we all operate in.
It is currently estimated that intellectual property rights crimes
generate approximately 461 billion dollars per year, a tremendous
amount of illicit revenue for criminals, transnational and the like, to
launder around the world in support of their criminal activities. Here
in the FBI, we are a very broad agency. Just in the financial crimes
section alone I have experts and specialists that assist us in money
laundering and health care fraud to help us to support our intellectual
property rights efforts. In addition to our specialists in intellectual
property--many of them patent lawyers themselves in a prior life--we
have experts in organized crime and our cyber division folks with
technical expertise to help us with these upcoming technologies, such
as virtual currency and the new platforms we see through the dark web.
You saw recently in the past year, the FBI and other partner
agencies and international agencies have taken out some of these dark
web marketplaces, which have been open forums for some illicit products
and trade. But as our experts in the FBI and IPR have explained to me,
that is not always the case with the products that we're talking about
here today for you all. For you all, the products are so good and so
well counterfeited they don't need the dark web often. They can trade
over an open platform in the clear web, giving more credibility to the
products that they're selling to consumers.
With the growth of the internet and ecommerce platforms, the
opportunities for criminals to bring illicit goods to the market has
grown exponentially. Criminals who once had to find ways to bring large
quantities of fake goods into the United States now can direct ship to
an unsuspecting consumer's home. This has lowered the barriers and
costs for criminals who engage in intellectual property rights crimes,
making these profitable schemes lucrative opportunities for
transnational criminals.
Intellectual property rights crimes today are not only large in
regards to the volume of illicit goods, but as our partners here have
also mentioned, the potential harmful effects for our consumers, here
in the United States and abroad. Counterfeits no longer just imitate
popular clothing lines or the like. They now include items such as
counterfeit pharmaceuticals, children's toys, and makeup with harmful
toxins, fake airbags--all of which can lead to serious harm or even
death to those consumers of such products.
The intellectual property rights program in the FBI prioritizes the
investigation of theft of trade secrets, counterfeit products, and
copyright and trademark infringement investigations, placing an
emphasis on those matters that pose a threat to public safety and the
health of our consumers and cases involving significant economic
impact. However, we are not alone in this fight. These crimes are best
addressed collaboratively with government agencies working together in
a partnership with industry and foreign partners who bring all of our
expertise and ideas to fight this crime problem.
I'm proud the FBI has such great partners as all of you here today,
and many others who would partner with you. The FBI, along with our
other founding partner, the Department of Homeland Security, and other
partners in the National Intellectual Property Coordination Center, the
IPR Center, which was mentioned by Lisa Dyer here just recently. The 23
agency IPR-focused fusion center that promotes national security
through safeguarding of the public's health and safety, U.S. economy,
and our military from predatory and unfair trading practices.
Through this center, which celebrated its 10th year back in April,
government agencies are working together with our foreign partners,
through Europol and others, to address IPR crimes. Although law
enforcement efforts can have a significant educational and deterrent
impact on the crime problem, we are greatly aided through the
expertise, criminal referrals, and support of our industry partners.
The FBI, with our IPR Center partners, participate in several national
multiagency initiatives aimed at providing a comprehensive response to
several high-priority counterfeiting problems.
One such initiative was Operation Ingenuity, formed to address
counterfeit aerospace and automotive parts that pose a threat to human
health and safety, such as airbags, brake pads, and the like. Through
this initiative, law enforcement, working closely with a consortium of
private companies from the automotive industry and e-commerce brought
forth effective change, decreasing the supply of counterfeit airbags
available to be purchased by consumers in online marketplaces. So the
threat to the public has been significantly decreased as these
potentially explosive devices are removed from our marketplaces.
Transnational criminals have expanded their counterfeit activities
into all categories of merchandise with the primary purpose of
generating criminal proceeds, with no regard for public health and
safety. These criminal actors capitalized on the current ecommerce
platforms available to sell counterfeit goods direct to U.S. consumers,
capitalizing on copyright matters through illicit streaming services,
and are targeting proprietary information to seek ransom payments for
its return or to prevent release.
So how do we address these criminal organizations and individuals
that manufacture and traffic counterfeit and pirated goods or other
intellectual property? Similar to my colleagues here today, we will not
have all the answers, but I think this is a great start. And I have
some ideas from the FBI's perspective as to what we can do for good
enforcement in IP. As law enforcement, we make good cases that will
convict subjects, we have the handcuffs and we put the folks in jail.
This is a significant deterrent for intellectual property rights
criminals. Providing law enforcement deterrent to the crime problem is
one solution, but we cannot arrest our way to a solution to the IPR
crime problem. As mentioned and illustrated here today, it's going to
take a village for us to address this issue.
One way we attack this problem is by addressing the supply and the
demand for counterfeit goods. On the supply side, through interagency
and public-private collaboration we have seen effective results in
addressing counterfeits. The success in the automotive industry already
mentioned, we have other similar initiatives to address counterfeit
pharmaceuticals and to protect our U.S. Government supply chain. The
goal on the supply side is to do what we can to create enough barriers
to entry into the marketplace where criminals are deterred from
trafficking in counterfeit goods. We will not stop all the flow of
counterfeit goods into our marketplaces, but we can make it much harder
for the criminals to make an entryway.
The FBI in this regard spends a good amount of time collaborating
with the private sector through the IPR sector and various conferences,
seminars, and events throughout the United States and the world. Here,
the latest trends and best practices work to educate one another and
find solutions to identify, disrupt, and dismantle counterfeit
operations. Sharing best practices with companies can be one of our
best tools to prevent proprietary information theft. As with all
financial crimes, I always say the best victim is no victim at all.
Right? I'd love to be there in all situations. And the more we can get
toward that goal the better.
Our companies are on the front lines facing criminals--you all are
seeing this from a front row perspective--seeking to steal their
information. And there are efforts that have been taken in regards to
compartmentalizing your production, your manufacturing, your sales,
ensuring your human resources are putting in strong noncompete
nondisclosures, exit interviews are being completed of individuals, and
there's a robust structure to monitor and track activity of folks
within your private entity. Much as the case with the FBI, the biggest
threat often to the loss of information in our IP is an inside threat
from folks who work in our companies or have worked in our
organizations. We must be diligent in protecting from this threat.
It's also critical for law enforcement and the private sector to
build relationships, so that in the even if there is an incident or
response there can be a response as quickly as possible. Similar to a
kidnapping event, we see the theft of intellectual property from a
company in a similar situation in terms of the need for speed to try to
get back the intellectual property that was taken from you. The faster
that law enforcement is made aware of an issue, the more effective we
can be in assisting a private sector company.
On the demand side, public awareness campaigns are very important
to educate consumers on the risk of fake products. I will be the first
to admit that I did not have breadth of the mass amounts of counterfeit
products that are out there prior to my current role here in
Washington, DC. And it is immense. We live in a digital society where
consumers--including myself, including people in our families and
families around the world--our consumers are used to searching the web
for the best price for the item they want to buy. They just want to
find the best opportunity at the lowest cost, and then it's shipped
direct to their door.
However, there may be a reason that price is so good, and it's not
for the benefit of the customer. The more we can educate consumers, the
better. For some products the message is safety, as we discussed in
regards to the airbags on our auto parts, toxic toys, and the like. But
in other areas, like fraudulent, illicit streaming, we must educate the
public on the risks of the illegal streaming boxes and their services.
These devices can be a gateway for criminals not only to make money off
of individuals, but potentially allow them access to your network and
your personal information that can lead to further victimization.
I believe it's messaging through ways like this where we can reach
these consumers with a message that is important for them. We would not
just leave our front doors open for all to enter, and that may be
exactly what's happening with some of these products. In addition to
addressing supply and demand, criminals cannot get their fake goods to
market without private sector intermediaries, such as online
marketplaces, payment processors, different companies. The FBI has
worked with these industries on education and these entities have their
own form of monitoring, looking for indicators of IPR crime, and are
making referrals to law enforcement.
Criminals are often, though, the early adopters of new and a
disruptive technology and will seek to exploit vulnerabilities when
they can. The sharing of information amongst y'all in industry, amongst
law enforcement, and amongst foreign and U.S. partners is vital for us
to connect the dots--not just identify a bad vendor, but the network
behind it is critical as we work together to disrupt and disband these
operations, protect IP, and keep consumers safe. We go around the world
not only training and providing outreach with private sector folks and
individuals, but also with our foreign partners.
Just recently, we've had a request to go to Europe--over to Eastern
Europe, to the Middle East, and other locations around the world to
provide training on organized crime, corruption, and intellectual
property rights enforcement. Sometimes those are basic, building the
foundation for these other agencies, other law enforcement to assist us
in these efforts. Sometimes it's more advanced. But I think these
efforts are going to work over time, and we're trying to see some
fruits of our action. In addition, the FBI has deployed around the
world 63 legal attache offices and works very closely with our partners
in Homeland Security, Department of State and others, on continuous
education and law enforcement efforts around the world.
One issue that I would like to finally note here is the
pervasiveness of the intersection between transnational organized crime
and the counterfeiting. What we're seeing is not just the trafficking
of the counterfeit goods into the United States for the purposes of
profiting these organizations. It's also a tool and a vehicle for
agencies and entities, such as the Mexican mafia and Los Zetas and
others, drug trafficking organizations south of the border, that are
not only trafficking counterfeit goods or profits--such as DVDs and
other Motion Picture Association issues--but also to use those as a
vehicle for trade-based money laundering to move funds across the
border through the United States and other countries.
The FBI is committed to addressing this issue, not only going after
the counterfeiting but also trying to address specifically these
professional money laundering facilitators that are out there to
provide the facilitation of illicit proceeds, regardless of source,
around the world for a fee. And we are seeking to hold the individual
companies that are out to steal your IP rights accountable for their
action. As given in a recent example up in Milwaukee of a wind turbine
investigation related to the company by the name of Sinovel, who
acquired wind turbine technology from a U.S. company, resulting in
hundreds of jobs lost, hundreds of millions of dollars in lost funds to
that U.S. entity. There was a very successful investigation. It
resulted in a conviction of a foreign company, who sought to shortcut
their efforts by stealing the properties of a U.S. company, and sought
to advance their efforts and cut out the U.S. partner.
These are just a couple examples of what we're seeing across the
globe. I believe that what we're all echoing here today is that
partnership amongst the folks in this room, amongst the folks in the
world are the most important efforts we can make in addressing this
problem. I appreciate the time to discuss this important topic and I
look forward to our discussions here today.
Thank you.
Mr. Massaro. Thanks so much, Aaron. Do you mind if I take a
microphone now?
Mr. Seres. Yes, sir. Here you go.
Mr. Massaro. [Laughter.] Thank you. All right, so for the
discussion section, here's how we're going to proceed. If you could
place your nameplate like this if you'd like to speak. We're going to
go left to right around, Okay? If you have a question or if you have a
comment, if you can just please keep it to about 5 minutes. We'll just
keep going around left to right, in that order, until we've exhausted
everybody's time and patience and/or we've hit 4:00 p.m., all right?
Okay, great. And please also if you're asking a question, if you could
let us know who you're asking it to--one, two, three of the panelists,
whatever--that'd be very helpful.
Okay, so we're going to start right there. Clay, if you could just
state your name and organization.
Mr. Fuller. Thank you. Clay Fuller with the American Enterprise
Institute. I'm a Jeane Kirkpatrick Fellow in foreign and defense policy
studies. I specialize in authoritarian political institutions.
I'd just like to start off quickly by saying to all our panelists,
and to Paul, and to everybody at the table, thank you for everything
that you do that makes America the greatest, most prosperous, and most
powerful country on the planet in the history of Earth. I mean, I think
that's awesome. And I think we need to make sure we don't lose sight of
how great everybody is at what we are actually doing. That's not to say
that there's not problems. There are lots of them. But America is also
the best at always solving them, so we'll get to work.
Forgive me if I put on my professor's cap for a second. It'll only
be a second before I have some questions and policy stuff. But in
thinking of this in the connection with kleptocracies in particular, I
don't know that there's such thing as an authoritarian regime out there
that's not a kleptocracy. They are all kleptocracies in my view. But,
again, you could debate forever over what's what. Is democracy in
decline? All this stuff.
So I'll go with illicit trade, illicit finance are both forms of
corruption, right? But if you ask, what is corruption, right, every
single person that you ask is going to give you a very different
answer. Corruption is typically perceived through the eye of the
beholder, through the eye of the victim typically. This is why we have
such a diverse crowd from very diverse sectors all around the table,
which we could have representatives of every agency of government that
deal with aspects of this, because it's a very, very--in social
sciences, we call it fuzzy. A fuzzy concept.
So if we all agree, though, we want to fight illicit trade, we want
to fight illicit finance, we want to combat corruption, it's useful, I
think, to think about what the opposite of corruption would be? Which
is something I don't think we do very much, and it's important to do. I
hope whatever the opposite of it is, is what we are fighting for. We
have to have something that we're fighting for, right, if we're going
to successfully get rid or something or weed it out.
Most people fall back on the rule of law definition, right? But
this is an equally fuzzy concept, right? Whose laws? What rules? Where?
The questions could go on forever. So to make it simple, start with
Transparency International. Their most basic definition of corruption
is the abuse of entrusted power for private gain, right? Reverse that,
and you get a definition: the use of earned power for public gain,
right? So the use of earned power for public gain. If you think about
it, earned power--it could be considered to be somewhat synonymous with
private enterprise, right, especially as it relates to trade and
finance, right? But it could also be reputational power, such as in the
media or in nongovernmental organizations, right?
And then if you think of a term for the use of earned power for
public gain, public gain can be considered synonymous with the benefits
of living in a democracy, which we all enjoy--the prosperity, the
freedom, the stability and the strength of living in democratic
countries. With this, we can start, I think, thinking clearly about
policy objectives and ways to structure our conversations around this.
I'd call it a guiding principle. So if you want--if you take that
reverse definition of corruption and you want to fight illicit trade,
then that means it can be fought by increasing more opportunities for
rules-based trade. We fight illicit trade with more rules-based trade.
Specifically, this means expanding our own foreign trade zone
program, modernizing, growing it even more, publicizing it more,
bringing more of the private sector into them to increase our exports,
to increase our imports, and to grow our trade program will minimize
the size of the illicit sector. It will actually provide opportunities
for illicit actors to join the actual licit market. Internationally,
through the State Department we could move to improve compliance
standardization around the world through the OECD recommendations that
are out there right now. There are special economic zones all around
the world that grew Dubai from a bunch of mud huts into the beautiful
spectacle that it is today, right? Grew Tianjin into the beautiful
skyline that it is today, right? But they need some rule of law. There
needs to be some help there to get in compliance standardization around
the world so that we can all respect our own--the privacy rights.
Specifically thinking of illicit finance, there are things we could
do at home such as beneficial ownership registries I think are a very
pragmatic start that Congress could do that would give the executive
agencies a tool not only to enforce the law but will also lighten the
load on compliance departments of our banks, and would actually lighten
the load on the compliance departments of small banks, which would
actually allow small financial institutions to actually compete better
in the game. So you combat illicit finance by creating opportunities
for more licit finance.
In my expertise, it might be helpful to reevaluate the way
sanctions work as well too, because there's actually a conundrum when
you enforce sanctions--which I'm not against sanctions, I like
sanctions--but when you enforce them, it actually creates illicit
trade. It creates--North Korea has to go around them. And this creates
networks. This creates illicit trade highways that criminals and
terrorist organizations can jump on and use as well. And so we can
recognize that in sanctions legislation and actually design ways to get
into countries that are being sanctioned and help them facilitate
better rules-based trade.
So I'm curious if you have thoughts on where that fits into your
specific agencies.
Mr. Massaro. Any particular person, or the whole panel?
Mr. Fuller. The whole panel.
Mr. Massaro. Thanks, Clay. Let's just go left to right here, Lisa
to Aaron.
Ms. Dyer. There's a lot there. [Laughter.]
Mr. Massaro. Clay always gives us a lot to unpack. [Laughter.]
Mr. Fuller. Sorry.
Ms. Dyer. I think I'm going to defer my response to Christa,
because I think some of her--[laughter]--I think some of her remarks
actually touched on a few of the items that we talked about with free
trade zones, and her remarks about sanctions. So I will defer my time
to her.
Mr. Travers. And I'm afraid it's not really a terrorism or
intelligence question. So I'll pass it along.
Mr. Massaro. [Laughter.] Christa's very on the spot.
Ms. Brzozowski. Man, thank you. No, very interesting comments. I
was particularly taken with your thought that you have to figure out
the opposite of what it is that you're coming to oppose, therefore
bringing something to the table. Actually wrote that down. It's going
to inform some problems that we're having with international
organizations as well, and that you can't just say no as we're trying
to tell you something. We actually have to have something to hold up as
the best practice or as the standard.
On illicit finance, that area is not really my area of expertise.
But I think some of your comments about the kleptocracy and the
figuring out what these finances are actually funding and how they are
funding it is--it's an interesting framework. I don't think we've
written a lot on this. Some of those recommendations might be helpful
to digest a bit more in a written form.
FULLER: There's a report coming out soon I'll be happy to share
with everyone. [Laughter.]
Ms. Brzozowski. Yes, perfect. I'd invite you to also take a look at
a report either coming out or just recently came out from the OECD,
where they are looking at what happens in those foreign trade zones/
free trade zones. And a lot of the illicit finance, a lot of the
figuring out who's who and what corruption is and how it's defined are
issues that were discussed. This report doesn't necessarily purport to
have all the answers, but it does provide guidelines. And so, but if
it's not final yet, it's in the state of being released for public
comment and input. I'd invite you to take a look at that as well and
maybe some of the intersections and the ideas--[inaudible].
Mr. Massaro. Aaron, you do finance, right?
Mr. Seres. I do. Yes. [Laughter.] That's right up my alley.
Ms. Brzozowski. Should have started at this end. [Laughter.]
Mr. Massaro. That's true enough.
Mr. Seres. Right to left. On the issues of legislative affairs, I
would defer to our partners at the Department of Justice. But I would
make a comment from a law enforcement perspective, we are seeing a lot
of increasing professional facilitation of money laundering and
individuals who are, in the business of moving money around the world
for a fee. It used to just be a guy who was connected maybe an
organized crime family or some other group with criminality. And now
it's very professionalized. In that regard, any tools that we would
have at our discretion to allow us to do our job better in that space
are always welcome. One challenge for us nominally is trying to trace
through the funds, through a multitude of shell entities and other
structures where the money moves from place to place. So just in
regards to your beneficial ownership comment, any tool in that regard
for law enforcement to utilize is a helpful tool.
Mr. Massaro. Thank you very much, Aaron. Let's move to the next
speaker, right over there. Jerry.
Mr. Cook. Thank you. Jerry Cook with Hanesbrands.
Let me start with thank you for what you all do and your teams do,
because we need a very strong U.S. Government. And we need you all to
employ the best people with the greatest acumen in what you do. And we
need you to share that, use that, and help defend us along the way. And
we share a lot of risk. And we share risks sometimes not with y'all,
but with others. And one of the things in our company, we were one of
the original CTBAC, Counterterrorism and Business Against Smuggling.
But we do not share any risk data or any risk situations with a single
foreign country. We will only share that directly with the U.S.
Government and no other.
And we have a policy not to allow the U.S. Government to share
anything we share with them to a foreign government. And our experience
has been no good deed goes unpunished by a foreign government. And that
includes the kidnapping of our management team--not just senior but low
level--and other things that happened to them in this process. So the
first thing we run into is, our people are most important to us. It
just seems too often we find ourselves in a situation where once we
leave the U.S. shore the criminal element, terrorist element, whatever
you want to call it, we have no government.
I've dealt with nine kidnappings, and there is nobody that comes to
your rescue. You're on your own. It doesn't matter if you're in Haiti,
Colombia, if you're in Jordan, if you're in Brazil, or if you're in
Mexico. There is no government that's there with you on that. And
that's a big issue, because you talk about real threat and
intimidation. It is a real threat and intimidation when one of your
peers has been taken.
The second item I'd like to point out is there is no universal
definition of illicit trade. So if you picture going hunting, and
someone says, look, we're going hunting and we're going to go out. What
are you hunting with and what are you hunting? Are you hunting deer or
rabbit? Are you hunting criminals? Are you hunting terrorists? So
that's a very big issue for trying to narrow down what you're chasing.
But the one thing that we've learned overall is that in the world
that we live today it seems that the one caution that we would flag is
that the U.S. Government has--like businesses--sometime we're
overdriving our headlights. And we're doing that right now in the world
of ecommerce. The ecommerce sphere, you compare--I'm moving a
container, let's say 10,000 pair of underwear coming into the United
States. Hopefully you're all wearing it, and if you are you're
comfortable. [Laughter.] If you're not, we can fix that. [Laughter.]
But one of the challenges you have is that you know everything
about who my manufacturer is, where my manufacturer is located, you can
see us. You can look on Google Earth and watch. You can see a lot of
those things. You can see my containers move, see where I'm shipping
to. But in the ecommerce world, you don't know any of that. You know
there's 50,000 people in a container. It was said earlier, and it's
true, a container catches the U.S. Government through enforcement when
it's one person bringing it in. But if there's 50,000 different
entities in it, the government doesn't care about the 50,000. It's too
small to go after one person, but who do you go after?
So those tend to become an accelerator. Why that's important? If
they're in a free zone next door to us, doing bad behavior, you're
bringing bad behavior into a free zone that I'm trying to defend, keep
clean, and keep the other people out of. And so we operate in certain
free zones around the world. We're large enough to keep other people
out, not for competitive reasons, but for security reasons. We will
only use a certain class of carriers off the seaboard and only certain
airlines. And we won't use others.
The third item is time. The way the government's working today with
data, you're making us hurry up and wait. The TSA is a good example of
that. So if I'm shipping something by air, or if I'm shipping by ocean,
I've got to hurry a container to a point to have it sit there for 2
days. It is open for anybody and their brother to grab that container.
In the days that we used to, we could take a container, be the last one
on board, drive it to my plant. We used two different security groups
plus the government. It would go straight on. No one could touch that.
So we have increased the danger for the shipper, we've increased risk
for the U.S. Government, and we've increased risk for our own nation by
having this pause process. If I give you data, you can see it moving by
GPS, just pick--[inaudible]. We'd like to slide that data model over to
y'all. Y'all picked it up and it's coming straight through because you
can move and move faster.
The other one is that when it gets down to it, when there's a
failure there's only one person that loses in a failure--the company.
We get fined. Somebody stows in a container, someone smuggles drugs in,
the government fines us. No U.S. employee loses their job. No
government employee gets fined. Only a company gets fined. Then we can
advertise in the newspaper: Somebody found marijuana. So when you pull
all that down, there's a hybrid inside the government today that's
called Customs and Border Patrol. They've been through so many wars
with companies like us. They have an incredible intuitive knowledge
base. They've taught their people how to work tightly with industry. We
share data. They share.
But we have backed away from government sharing risk to us now. So
we don't get a risk profile. You're sharing it with other governments,
but you're not sharing it with us. And the compounded problem now is
you're also sharing all of my shipment data. You publish it.
[Inaudible]--gets it. It's enough that Jon Kent's here. It's enough we
share all that with our broker. You make our brokers go through a lot
of background checks for employees because they have intense data. And
they have a lot of exposure if they have bad employees. And so we have
good brokers.
And when you share our cargo information, which you do, you release
it and organizations like yours publish it, you will allow every drug
cartel, every smuggler to mimic our cases, our quantities, from what
location. And then the last piece that goes with it, we used to never
tell anybody where we were shipping through. We'd ship from a foreign
location. We'd tell the carrier to go to a certain port. But we would
never tell you where it's being distributed to. Customs would know
through a third-party paper to them.
The trucker would never know which trucker is picking you up,
because we use the roulette wheel, so that they could never--the cartel
could never go to the trucking firm and go after them, because we knew
if we kept that silent--the only reason they're going to try to use our
supply chain is if they know they can get the drugs out. So the more we
could control, not knowing where it's going to and who's going to get
it, that now is a requirement. We have to tell you where it's going,
who's getting it, who the driver is. And you've put all these people at
risk in the process, maybe for good reason.
But our request to you is, let's go back to the world of intimacy.
We will give you everything you want, but don't make us tell everybody
else and don't share it with everybody else. We trust you. We want you
to trust us. But we don't trust the process today that's so public. And
the other is, we really need the random factor to be in there. But we
also need to respect the people that make the product around the world
that are put in harm's way, whether it's criminal or terrorist, because
they no longer pay people off to do something wrong. They hurt them.
And they disappear. And that's our concern. We got 74,000 people around
the world. We don't like it when they disappear. We don't like it when
somebody doesn't come to work. We are very aware when you don't show up
for work today, it's probably not because you're sick. It's probably
because somebody has threatened you and you have chosen not to be
disloyal to the company, so you just don't come to work. So we need
your help. And we need to do this together. The process today I think
is a little misdirected.
Mr. Massaro. Would anyone on the panel like to respond? Maybe
Christa, or--yes, Russ?
Mr. Travers. I'll start. So after 9/11 I was one of the deputies at
the NCTC. And I was given the charter of trying to figure out how we
had improved information sharing. I didn't know anything about the
subject at the time. I've now been in the government for the better
part of 40 years. So I'm pretty convinced that information sharing is
more complicated than any intelligence discipline I've ever been
involved in. Your points are fascinating, and I would frankly love to
follow up. The NCTC doesn't deal a ton with the private sector. I think
we have gone miles in terms of fixing department-to-department
information sharing. But we're not as good at the Federal to non-
Federal. And while we try to push out more information to the private
sector, that tends to be a little bit more DHS and FBI than statutorily
my remit.
But I could certainly bring together the relevant executive branch
organizations to sit down and talk about pairing with the private
sector, what you give us, what we give you. The international thing is
a huge challenge. There's no question that when it comes to terrorism
our country can't do it alone. And so we are absolutely having to deal
with lots and lots of other counterterrorism-focused countries around
the globe. We try to do it smartly. So we share a lot more with our
very close allies and we share a lot less with those that we may have
interests that overlap. But I take your point. I don't know the private
sector in particular, but it really plays into that. So I will get your
card and exchange notes.
Ms. Brzozowski. Yes. I mean, yes, very compelling points, Jerry.
Being responsible for 74,000 people across a global footprint sounds
like an extraordinary challenge. And when you're dealing with people's
lives, it's going into a whole new terrain.
I guess from the DHS or customs perspective in how we see the
world, I'll take on your point regarding this very sensitive shipping
data and some of the vulnerabilities that it produces for your folks
and also for your product. Perhaps it's helpful to look at some of the
issues in the regulatory data. So what's required per regulation, which
has gone through a formalized public comment review process where we
take into consideration a lot of the points that you're making, and the
voluntary data, which is also positive and can be the germ of later,
smarter, more informed regulations. I think the CTBAC might have even
started out as a voluntary partnership before being regulated. And you
see other types of programs that DHS has for getting advanced
information, programs which start off as a voluntary exchange of data
to figure out what makes sense, who has what when, who can share it
through what means.
And so grouping those two things--regulatory and voluntary--when
you're talking the regulatory data, in terms of the shipping data,
there--it is an interesting conversation that I'd love to continue as
well. You've got--on one hand, you do hear industry wanting some
sharing of that customs data between administrations through formalized
processes and mutual information-sharing agreements so that there's
some consistency as you're trying to get stuff across borders, and that
some of the countries that could benefit from the information that
we're seeing--there's benefits to business of that sharing as well.
So unpacking that--where there's benefits and then when does it
really start to become dangerous, I think, is a very interesting
question. We see really tangible benefits in sharing among allies, be
it the Border Five or Five Eyes or all these different acronyms, to
compare notes--where new threats are coming, where new actors are, and
expanding each of our regulatory reaches. Kind of dividing that--
finding that line of when it slips over to too much, I think, is a big,
big concern.
And then I'll just touch quickly on the provision of this voluntary
data, because I do think that's something that we're wrestling with
right now as a matter of fact. Customs and Customs and Border
Protection, as you said, and DHS, have a really solid, decades-long
relationship with industry and there is a trust that I hope we've
developed over those years. That's not to say that we should always be
requiring or asking for voluntary data. Voluntary could very easily
slip into de facto required. I think we appreciate that. So we
ourselves need to be disciplined. And then we also need to be
disciplined when we're establishing global standards and talking about
provision of voluntary data, And the default of exchanging everything
and opening the kimono to everyone may be something that's attractive
to some when you're talking about the United States having that
relationship with businesses, when we're talking about adversaries
having that relationship with U.S. businesses, requests data from U.S.
companies to get access to other markets, it's not a voluntary request
anymore. So maybe just some thoughts there.
But I think from the shipping-data angle, I'd push back just a hair
and say there is a real and demonstrated value to governments sharing
that information, but we've got to make sure we've got that calibrated
correctly so it's not leaking out to places where it shouldn't.
Mr. Massaro. Great. Thanks so much.
Let's have the next speaker here. Chris, please.
Mr. Martin. Thank you, Chair. I'm going to make an observation and
then ask what I think is a rhetorical question.
Mr. Massaro. Please, real quick, get your full name and
organization. [Laughs.]
Mr. Martin. All right. Yes, I do beg your pardon. Sorry. I'm Chris
Martin. I represent the U.K. customs and tax administration here in
Washington, but I'm also speaking on behalf of the OECD Countering
Illicit Trade Task Force.
So I'll make an observation, I'll ask what I hope is a rhetorical
question. I think to the point made by Mr. Cook about how there is no
definition of illicit trade, I think I'd just like to say that it's
been an asset to the OECD Countering Illicit Trade Task Force that we
didn't tie ourselves down too firmly to a definition. By keeping it
broad--by keeping the task force focused on all aspects of illicit
trade from counter-narcotics, people smuggling, alcohol, tobacco,
pharmaceuticals, wildlife products--keeping it broad meant that we
attract the broadest range of stakeholders to the task force--law
enforcement, NGOs, industry, academia. I think that's to our advantage.
The question of free-trade zones, I'll say there's no smoke without
fire. Back in 2008, the Financial Action Task Force on Money Laundering
recognized the vulnerabilities in free-trade zones, and prior to that
the World Customs Organization. And there have been some excellent
reports since that time: World Customs Organization; Europol; Interpol;
the Business Action to Stop Counterfeiting and Piracy [BASCAP]; and
very recently, of course, the TRACIT report, the Global Illicit Trade
Environment Index, which includes five free-trade zone case studies,
which are excellent. Of course, free-trade zones, offer a preferential
environment for businesses to thrive, to attract investment and
innovation. But those same benign circumstances and environments--lack
of taxes, duties, bureaucracy, and oversight--have allowed illicit
actors to thrive in those zones.
And as a consequence of that, and building on all of the work that
others have done in the past, the task force has had a sharp focus on
the lack of transparency in free-trade zones and what we might do about
that. Working with the European IPO, we've developed a code of conduct,
voluntary guidance for governments and free-trade zone operators. That
guidance will be released to public consultation in the very near
future.
So my question to the panel, and to everybody else here actually,
is: When that public consultation is launched, I would ask you to
please take part of that. The more evidence and the more responses we
can get to that, the greater weight we have in implementing something
which is absolutely necessary to improve transparency and governance in
free-trade zones across the world.
Mr. Massaro. Thank you.
Yes, you want to have everybody respond to that, Chris?
Mr. Martin. Maybe [just a little ?].
Mr. Massaro. Okay, just to nod your head yes, everyone. Okay, got
it. [Laughter.] Perfect.
Okay. David?
Mr. Luna. Thank you very much, Paul. My name is David Luna. I'm the
president and CEO of Luna Global Networks, a former U.S. Government
employee for the last 20 years working for the executive branch,
started my career here in the U.S. Senate.
Let me first start by applauding Senator Wicker and his co-chair,
Congressman Smith, for their leadership in encouraging his staff in
organizing this very important illicit trade roundtable. The U.S.
Helsinki Commission is a very unique mechanism that, as you said, Paul,
is bicameral as well. And it's great to see the executive branch here,
and I applaud the administration and my former colleagues for being
here on this important roundtable.
I do also recognize and applaud the support of the private sector
and civil society organizations for being here. It's not only the whole
of government, but really it's the whole of society that I think is
important to tackle the illicit trade.
As we have learned from the important research of the OECD, we're
finding more and more about the breadth and scale of today's illicit
market. It's really in the trillions of dollars, as we heard at the
opening, and it's getting worse. Whether it's in counterfeits--I know
from the IDSA [ph] and the ICC BASCAP project that the value of the
counterfeiting and pirated goods will double in 5 years. And I think if
we look at the issue of cybercrime, it will go from $1.5 trillion to $3
trillion in 5 years as well.
So I think it is a very important time to be discussing these
issues with the administration. And, I think the question that I had is
in February 2017, President Trump issued a very important executive
order to combat transnational organized crime. And we've heard a little
bit from NCTC on the overarching National Security Strategy. We also
heard from DHS.
The specific question that I had: Is there any effort within the
administration to do a deeper dive in developing an anti-illicit-trade
strategy to help not only work with the private sector, but with other
partners overseas to combat these threats? We heard on how free-trade
zones are becoming more and more important as a conduit to various
illicit criminal activities.
And related to that, I think the resource issue is becoming
important. I know that the OECD has also undertaken an exercise of case
studies for intellectual property. And I think it would be great if the
United States were to follow on those case studies and join other
partners, helping partners like Panama in their capacities in the Colon
Free Trade Zone so that they can fight corruption and the various
illicit activities that are going on in Panama.
And finally, I think public-private partnerships are very
important, and I would hope if there were to be any strategy that we
could leverage and harness the expertise and resources of the public--
or the private sector as well. Thank you.
Mr. Massaro. Fantastic.
David, anyone in particular you want to hear from first there?
Mr. Luna. Well, I mean, there's four and they represent the
administration. So, as a followup to the executive order, whether
there's any effort to do a specific strategy to combat the illicit
trade----
Mr. Massaro. We'll start from the left. Lisa, you got anything to
say on that?
Ms. Dyer. I will defer to Russ. I mean, his----
Mr. Massaro. Great.
Ms. Dyer. His organization has a very strong lead in that area--
[inaudible]--activity.
Mr. Travers. I would just say, David, as I think, when the last
strategy was done on transnational organized crime, it explicitly noted
that our efforts against that problem suffered after 9/11, that we--
from my optic for the intelligence community, we cut back on both
analysis and production related to transnational crime to move
resources to terrorism.
I do think it's fair to say that, as you've seen in the National
Defense Strategy, that terrorism is no longer viewed as the Number 1
priority for the country. I completely agree with that assessment.
When it comes to transnational crime, within the intelligence
community it's absolutely fair to say that there is now greater focus
on the problem, and that within the interagency there--the executive
order has spawned a number of very senior-level meetings to figure out
how exactly do we handle prioritization and mission management and
those sorts of things. I can't say--and, frankly, I just don't know--
whether or not there's a new strategy on the horizon. But I take your
point entirely that the executive order, I think, has reflected a new
focus--a renewed focus on the problem at hand, and that's just a really
big deal.
Mr. Massaro. Next speaker, please.
Mr. Luna. Just one followup, related to that. On the resource
issue, is there an effort to work with Congress to try to earmark or
get more resources to combat illicit trade and organized crime?
Mr. Travers. In that regard, you're now way out of my lane. That
would be Department of Justice and Department of Homeland Security.
Ms. Brzozowski. Yes, I will say that--just, again, back to the
definitional issue. On illicit trade, I don't think anything is
specifically earmarked. But you do see requests--and I don't want to
get ahead of any new budget items--but reflective of the most recent
president's budget that came out, new moneys are requested from DHS
specifically to help implement the Trade Enforcement and Trade
Facilitation Act that came out in 1915, but was started to be
implemented in 1916. That covers a lot of issues that I think would be
germane to this umbrella title of illicit trade, forced labor, human
trafficking, import safety, IP violations, and other types of trade
issues that are perhaps less specific. So in that regard, yes, there
was a wholesome DHS-wide request of resources to make sure that we've
got that customs presence that we noted was so important.
And then I'll also note, too, that we're very interested--we
haven't cracked this nut yet--in finding ways to better understand the
IP-specific impact, as I noted in my opening comments, to the U.S.
economy, and find ways to potentially have the OECD assist us with the
work and have a resulting document similar to the one that I think the
U.K. has and that's been valued by them and which has benefited them
enormously in being able to tailor very specific policy and operational
responses because they've had that quantitative data and are able to
use that as the basis for action. So in that very specific regard, yes,
but watch that space.
Mr. Luna. Great. Thanks.
Mr. Massaro. Thanks so much.
Please.
Mr. Rosenbaum. Thank you very much. My name is Kevin Rosenbaum. I'm
an attorney with Mitchell Silberberg & Knupp LLP, and I represent a
coalition of the copyright industries. I am here in my individual
capacity, though, so these comments may not reflect my clients. Just to
get that set. [Laughter.]
Mr. Massaro. Okay.
Mr. Rosenbaum. So, again, thank you for having me. I've enjoyed the
discussion so far. In particular it was great to hear a lot of talk
about the dangers of digital piracy, which is what I spend a lot of my
time worried about, and in particular how digital piracy websites are
sources of malware and funding for criminal networks, and of course
damaging very much to the economy.
And I think, for one, I just wanted to make a fairly brief comment.
I think in the early days of the internet there was this notion that
the rules don't apply to some things online--that piracy, we should
just kind of look the other way. I think that has slowly changed. I
think there is a growing recognition that principles in the physical
world should be brought to bear in the virtual world.
And we've heard a lot of talk about it taking a village and this
being a group effort, and one group I wanted to make sure we note here
is the role of internet platforms and intermediaries. Just like how in
the physical world landlords can't look the other way while
counterfeiting is happening on their sites, the same principles of
liability needs to be looked at for internet platforms that may look
the other way or not take appropriate action to prevent illicit
activity on their sites.
And in foreign countries where piracy rates are sky high, a lot of
times these countries do not have adequate principles of protection or
liability, and that is a huge problem that I see around the world. And
then I think it's a problem that our trade policy really does not
adequately address. So I just wanted to kind of note the role that
these internet intermediaries have in this discussion, and to mention
that principles of intermediary liability that are at least as strong
as what we have here in the U.S. should be very important to promote
overseas as well.
Mr. Massaro. Thank you, Kevin.
Christa, would you like to comment on that?
Ms. Brzozowski. Yes, thank you so much. This issue of intermediary
liability is one that's very timely right now. We're looking at this as
an interagency and finding ourselves at tension with some of these
principles, meaning these very questions that you had noted on, which
physical-world principles and rules apply to this new world? Where is a
tweaking necessary or where is a wholesale new way of looking at it in
a transformational way necessary? And that's exactly what's happening
literally today in organizations like the World Customs Organization,
that we have a working group on e-commerce that is looking at these
very issues.
I'll just give you a little sense of the conflict as we see it--not
necessarily an answer, but maybe some input from you during or after on
whether we're conceiving of this in the right way. I hear your point
that liability should be with the platforms, the marketplaces, and that
is a thought or a way to do this. But really they're pushing back a
bit. And their defense is you've got to understand that business model,
and there's very specific ways that currently laws are enforced,
compliance is enforced, revenue is collected, and then often it's
associated with who is formally designated in certain capacities as the
importer of record, for instance.
As these value chains and supply chains become even more attenuated
and you've got a whole bunch of new actors, you've got some new models
that countries are looking at--Australia, the EU, China with the
Alibaba model--that are very, very different. And some of the questions
we have to ask ourselves is that pro/con analysis. Making the
intermediaries liable and asking them to do more about the safety of
the products and the intent of the players using their platform is one
thing, and there is value there. It assumes, though, or is predicated,
I think, on those intermediaries having access to more information. And
if, again, you flip that prism, we're now potentially asking U.S.
companies and U.S. citizens to provide a whole bunch of data to
platforms that probably have closer relationships with governments than
our U.S. platforms do.
And so what are the security implications there? What are the
business implications? What are the consumer privacy, what are the
market access implications? Is this veiled tech transfer? So those are
the two sides that are at tension right now, even among us in the U.S.
Government as we try to work to establish global standards.
So I take one--I take the point I think David--or Jerry had made
earlier of you can't just say no, you've got to come with an
alternative. And so that's very, very much front and center--I mean,
that's what we're working on among the interagency, key players being
Treasury, from the revenue angle, DHS, State Department of course,
Commerce, and then FTC, of course, because of the consumer safety and
anti-competition law angle of what is the U.S. policy and position on
this, and should we be piloting concepts of how best to leverage this
immense power of these new players of the intermediary platforms.
Mr. Massaro. Yes, please, please.
Ms. Dyer. Thanks for your remarks. For those of you who aren't
aware, I will tell you that the United States Trade Representative's
Notorious Markets List that comes out annually contains information
from our embassies overseas. One of my colleagues reaches out to them
to say what online and physical marketplaces are you all seeing as you
are living in those countries that we should be worried about, that we
should identify as places trading in counterfeit goods or listing
pirated content, for instance. And we make that information available
to the entire network of government agencies, taking a look at that
information, and together with work from your organization helps to
create that Notorious Markets List, and for those who haven't seen it,
it's available on the United States Trade Representative's website.
Our embassies are really focusing on trying to shut down some of
these digital piracy websites. I'm delighted to say that our embassy in
Vietnam just had a major success in shutting down one of the largest
pirated websites. The government of Vietnam made that happen thanks to
the intervention and the conversations that our embassy had with the
government.
We are actively working with other governments around the world to
do the same thing, and you will forgive me if I don't tell any more
details because these sites are slippery little suckers. [Laughter.] We
close them down in one place and they pop up on a server in a different
country. It's extraordinarily difficult, but that doesn't mean that we
don't pay attention to it. So I wanted to just make sure that we let
that we are actively working on it.
Mr. Massaro. Thanks, Lisa. Rob, please.
Mr. Quartel. I'm Rob Quartel. I chair NTELX, which is a technology
company that does autonomous decision management systems for the
government, including FDA, and [predict O&I ?]--you and Customs are an
indirect client, British Customs--the former Federal maritime
commissioner, and sit on a number of technology boards including the
Center for Innovative Technology out in Northern Virginia which has two
funds, one of which is a cyber fund.
And I have a couple observations and a question, and one is that
I've been hearing the issue of data since about 2001 when I first
brought the idea of container security as an issue to Customs and some
of the working task forces, and of course the issue then was that the
industry, with which I was very familiar, didn't trust Customs to
secure their data, and yet they were being told they had to give their
data to Customs, including some that was voluntary, and Customs has
now, for 17 years, been unable to bridge that gap between industry and
the data collectors. And it's a huge problem partly because there's a
dilemma involved in it, which is that we use a lot of that data for
high-level commercial decisionmaking and the analytics, and companies
like Haines use it for tactical security. So that one has not been
solved in all of this time.
The bigger issue, I think, is the technology one. Lisa, you
mentioned that you all are looking at things like blockchain and all
the rest of that. I see these technologies every day--blockchain and
many others, quantum computing, et cetera. I deal with that. And it
seems to me--and this is my suggestion--if you are not doing it, you
and the DHS should--and I know the NCTC is doing some of this, but
government agencies never can keep up with what's happening in the
private sector on technology. There is always a lag--always a lag.
So I don't know if you have, but you should have an industry-based
technology committee that people who actually are on the front lines of
technology development--not to have a Cisco or whatever company--
because they are not doing it. You ought to have a working group that
deals with technology advancement in both of your situations, and you
may already have it.
So that's a suggestion, and I don't know if you have.
Mr. Massaro. Does anyone want to comment on that?
Mr. Quartel. Let me make one more point about blockchain.
Mr. Massaro. Sure.
Mr. Quartel. We all tend to think of blockchain--all we who are in
business--as a solution to security, but it's also a solution for the
guys--the bad guys, particularly if it's combined with pneumatic [ph]
data--not nemetic [ph], but pneumatic [ph], which is miming real data
at the outset of a blockchain pathway.
So it's both a good and a bad.
Ms. Dyer. I will be honest. I'm not aware of an industry-based tech
committee that's advising the U.S. Government on it, but it's a great
suggestion. I've said it's fascinating to see the claims of what
blockchain is going to solve out there, the environmental challenges
associated with blockchain and the amount of energy required to make
that work on a global scale I think is something that I'm really
looking forward to learning more about--whether it actually is a viable
solution for some of these, so thank you very much for your suggestion,
and that should be a great one.
You may know something else, Christa, that I don't know.
Ms. Brzozowski. I don't know anything specific to blockchain or
some of the technologies you mentioned. I know enough to be dangerous,
again--[laughter]--but without having the answer or relationships with
the Office of Science and Technology Policy at the White House, or
OSTP--I mean, they do a lot of the engagement across the administration
on making sure that we're connecting with industry.
I've benefited from some of their engagements so I know their work,
so we probably do need to query them and see specific to this set of
problems that we're looking at, what are some of the solutions.
I have to admit I've received--it's got to be dozens of briefings
I'm watching right now, and I still don't get--[laughter]--how it
works, and I do have a natural skepticism that I would need to overcome
on how is this just not the next silver bullet that 2, 3, 4, 5 years
from now we're going to understand how it could be used--not only by
the bad guys but attacked and delegitimized by folks having access to
it in ways that we just haven't thought of today.
So, yes, helpful solution, and I think we've got a couple of calls
in to OSTP to point us in the right direction.
Mr. Quartel. If I can add, it's not just blockchain. That's just
the symbolic technology. I think there are numerous technologies----
Ms. Brzozowski. Yes, the autonomous decisionmaking--yes,
absolutely.
Mr. Massaro. Okay, thank you so much. We'll go on to the next
speaker. Susan?
Ms. Fridy. First of all, I'd like to say I'm really grateful to
have heard a couple of the speakers already mention the OECD. I should
say I'm Susan Fridy, the head of the OECD's Washington Center, so
hopefully that's already putting in people's minds that the OECD is a
key partner for working on these issues.
Our secretary general likes to say that global issues require
global solutions, and I think this issue is one that certainly
exemplifies that. And I also like the phrasing that David Luna used a
few minutes ago, saying that we need not just a whole-of-government
approach, but a whole-of-society approach.
So I just want to make a plug for the OECD's role in this because I
have a colleague here from the U.S. Council for International Business,
which is the formal U.S. business arm of the OECD. So, if you are a
business representative, you should talk to the U.S. Council for
International Business--USCIB--about how is it that business can work
with the OECD and work with other international organizations as well
on this and other key issues. And there are also ways that civil
society and labor can participate with USCIB, but I think on this issue
especially, the private sector really ought to be having a good, strong
voice, and showing governments--not just the U.S., but other
governments that are members of USCIB, what are the key issues that you
are facing every day, the kind of conversation that we're having here
today is crucial for letting policymakers know what is happening on the
ground, what are you seeing that they might not be aware of.
So I think my question for the panel is along those same lines, do
you see how the private sector could be more engaging, I think maybe
especially for Lisa and for Christa, since you are familiar at least
with the OECD through the task force and through other work? I know
business is involved, but how do you think that they could be more
involved with international fora?
Mr. Massaro. Thank you, Susan.
Ms. Dyer. I know that we very firmly support having U.S. business
at international organizations. It is a fundamental tenet. We are
delighted when people do join us at those organizations.
I am incredibly grateful for the number of people who come to us
and say, hi, can we talk, can we share what we know and what we've seen
so that it better informs your work. I know that it takes a lot of time
to get to the Department of State, to get through the security, but
thank you for doing that.
I also want to say, please, when you are traveling overseas--if you
don't already--please stop in to see the embassies. Again, it's not
easy, but the more they know about your challenges, the more people in
Washington hear about them because they let us know that you've stopped
by and you've made your issues known. It makes them smarter and more
capable to--hey, I have an upcoming meeting; I might be able to raise
this with my counterparts over there.
And then I will just say that I am grateful for the questions and
the comments here today. I have learned a tremendous amount from each
one of you, and I look forward to the rest of the questions.
Mr. Massaro. Thank you, Lisa. Christa?
Ms. Brzozowski. Yes, very quickly, and thank you again for all the
excellent help from the OECD. We rely on a lot of that data that comes
out of the organization very extensively in my work.
So how best to plug in industry? I mean, again, you can make
millions off that if you came up with a perfect answer. [Laughter.]
I've got a couple of thoughts because from the very beginning my work
in trade and supply chains is vitally dependent on input from industry
and across the spectrum. And I find two things extraordinarily
valuable. One is when you are having a formalized conversation with
industry--and by formal I mean on a specific issue, or with a specific
agency--some internal consensus or a prioritization done by industry of
self-organizing before or as they engage with government is really
helpful.
What can be difficult for government stakeholders who are not
experts in each of the areas that everyone else is is to have--
roundtable discussions like this are great when we have a diversity of
thought and opinion, but prescriptive do this, do that, government can
fix the problem, coming from various voices without being prioritized
can increase the noise-to-signal ratio. So formal advisory committees
are also extraordinarily valuable. There's a process then by which
there is some self-vetting among the industry, some consensus emerges,
and what issues are the most important and how they should be
prioritized, and how they should be teed up for government stakeholders
to consider.
So in that regard I would say, those formal pathways are very, very
important, but we also very much appreciate these types of less formal
and also just we pick up the phone and call us so that we know--we have
a network of folks to call up--hey, I've got a question, who might know
that answer.
I'll give an example. USCIB and Harry [sp] have put together, and
the Chamber, a session for interagency stakeholders, government folks
before we sent a team to the current meetings in the World Customs
Organization that I just mentioned so that we could talk about the
agenda and get that perspective from our various industry stakeholders.
So that kind of very agile/flexible hey, tell us what you think on a
particular issue, that was a bit outside of the formal advisory
constructs that government has but are a bit more of a listening
session for government to just be informed and updated by the industry
perspective. So just a couple of ideas.
Mr. Massaro. And let me also say just from the Helsinki Commission
perspective, we want to hear from you, too. [Laughter.] The legislative
branch has to play our role, so you all have my information; now please
reach out to me, my interlocutors on the committees, and things like
that. We've got a role to play in this somewhere.
So, all right--oh, Aaron, yes, please.
Mr. Seres. I just want to echo what Christa was saying--we do a lot
of outreach with private sector entities. A lot of them have interests
when they have overseas assets or deployments of operations forward in
another country--what do you do, how do I go about that, how do I
assess the risk--so any international outreach to that extent is
helpful to these companies. And when I do outreach like that I implore
them, as Lisa and I go to the embassy, make a contact, find individuals
who are on the ground, where you are putting your assets
internationally. And then here locally those forums are great for
companies who share information about best practices or what they're
seeing.
And what Christa mentioned about the coalition of industry--in the
automotive industry we talked about the success against airbag products
that are defective and others. And there is an entity, A2C2--it's a
coalition of automotive industry that brings together one voice for
that industry to help message to us and message to other entities, what
their issue is as an industry. So I would second that that is a great
way to go about it if they've been dealing with a government entity and
trying to get a message to law enforcement, trying to get some
effective change from a working perspective.
Ms. Dyer. May I----
Mr. Massaro. Yes, please. Please, definitely.
Ms. Dyer. Jerry, your comments about the safety and security of
your people, I'm sure that is shared by everyone here. If you haven't
had a chance to join the Overseas Security Advisory Committee that
Diplomatic Security in the Department of State runs, I urge you to do
so.
When you are traveling overseas you can easily register that you
are traveling, or your employees can register when they're traveling.
It helps them when an emergency takes place--whether that's a political
coup, or some humanitarian or natural disaster that hits. Immediately
our first priority is supporting American citizens overseas when
something like happens. But our job is more challenging if we don't
know that you are there. So please, if you have a chance to do that, I
urge you to do so.
Mr. Massaro. Thank you very much. Kristin, please.
Ms. Reif. Okay, thank you. I'm Kristin Reif from Philip Morris
International. I'm the director of Illicit Trade Prevention for us,
based here in Washington, DC. I want to thank everybody for their
comments so far, and folks on the panel as well as the guests.
Illicit trade in tobacco has actually been labeled by the U.S.
State Department as a threat to national security. There was a report
issued under the leadership of David Luna, who's here today, that said
as much. And right now the State Department is leading an interagency
effort to come up with an international strategy in combating this, so
we are looking forward to seeing the results of that.
For those who don't know, illicit trade in tobacco, the value of it
on the low end is $40 billion to $50 billion a year. That's more than
blood diamonds, oil, wildlife, and antiquities trafficking combined. So
this is an incredibly serious issue. So thank you to the Helsinki
Commission, especially Chairman Wicker and all of his staff there for
bringing this together. They also led the charge last summer, holding a
hearing specifically on this issue to show that level of seriousness.
I have a couple of questions, and I'll just read them through and
then hand them over. The first one to Russ, when he talked about threat
financing, specifically mentioning ISIS--I wanted to point out also
that ISIS has made millions of dollars over the years trafficking in
illicit cigarettes via confiscations and then resale of that product.
The fines were for consumers and then taxing of safe passage through
there. And I'm just sharing that as an example because, as a brand
owner, and as someone who works in the illicit trade space, we often
talk to law enforcement and intelligence services, and they tell us we
don't care about the product; we're product agnostic. We care about the
network. And I couldn't agree more. The point that I would be curious
about, though, is if we all have an individual piece in filling the
picture of how the network is gaining their money, what is the
systematic approach for the U.S. Government to engage with us? Not just
so we can protect our own markets and our own brands, but so that you
all can have the benefit of that knowledge, whether it's the modus
operandi, whether it's the hot spots of activity, under- and over-
valuation of the product--I think we bring a lot to the table.
So my question to you--and I also have one for Christa as well--the
question to you is--what can systematically be put in place--because a
couple of people have talked about some of this informal sharing, and
picking up the phone, and certainly a lot of people in this room get
things done that way, but what can systematically be put in place?
A question to Christa--and I'm glad there is wonderful OECD
representation here. I think that they've made wonderful, not only
awareness raising, but also recommendations on free-trade zones.
To be clear, those free-trade zones in Panama end up flooding the
Central American countries with illicit markets, illicit products that
then go in the hands of MS-13 and others, and that is directly what is
leading to people being on our borders. In the United Arab Emirates
[UAE], the free-trade zones are exploited and product goes through
Iran, and it goes to the Afghanistan-Pakistan border. That was in that
State Department report, and the Department of Defense has listed it as
a threat to national security as well.
So I am very appreciative of OECD leadership, U.K. leadership on
this. What is the U.S. Government willing to do and recommend to our
friends and allies--Panama is an ally; UAE is an ally--that they can be
doing, because I think we have some common-sense, due-diligence
measures that we are willing to offer, and is the U.S. Government
willing to get behind those?
And then last, to Aaron, just really quickly--as I have stated my
case about illicit trade in tobacco funding nefarious activity, it was
recently reported on that alcohol and tobacco enforcement will be
actually spun out ATF and go strictly to the tobacco tax bureau, taking
a threat financing mechanism away from those with criminal
investigations institutional knowledge and authorities and putting it
in the tobacco tax bureau.
I don't know if you can speak to the rationale behind that and
maybe what could or should be done about it.
Thank you.
Mr. Massaro. Thanks so much, Kristin. We're going to start with
your question for Russ.
Mr. Travers. Yes, first to your point about illicit tobacco in
particular, my listing of the ways in which ISIS was making money was
not in any way meant to be--there are a ton. I mean, these guys are
very entrepreneurial in terms of how they move commodities.
Second, unfortunately I don't have an answer for you other than to
say that it was directed this last year. Treasury has stood up an
interagency effort that is looking at threat finance. What I don't know
is the extent to which they outreach to the private sector, but if you
want to give me your card, I can certainly get you the [information ?].
Mr. Massaro. Christa?
Ms. Brzozowski. Thank you. So if I understood the question, it's
more on the foreign-trade zones than the free-trade zones and our
relationships. So I'll narrow it to a couple of things. Again, as Chris
and as I mentioned before, we are very much looking forward to the OECD
report on the guidelines, your contribution, your steers on whether we
are hitting that message right in the guidelines document would be
great.
And then, absolutely, the U.S. did endorse that document in its
draft stage, and unless it changes wholesale, we look forward to
continuing to endorse it, and we take that forward to all our
engagement with partners.
The link between--and I'll be brief on this--the economic
prosperity and reduced migration flows is not lost on DHS and not lost
on the interagency. To the extent that we, DHS, and the broader U.S.
Government can make the situation in Central America, the Northern
Triangle more secure, more safe, and more economically viable for
people to enjoy their local area, I think we could all see the benefits
of that.
I hadn't really thought about the more attenuated Panama to Central
America demarcation, that circle, so that's an interesting takeaway for
me.
Mr. Seres. And on your question regarding the removal of
authorities, to speak on behalf of another agency that maybe has a
different authority than we do, and it's not an area of expertise that
I have. So it's something I can get back to you if we do have an FBI--
[inaudible]--that's relevant. I'll get back to you later.
Mr. Massaro. Lisa, please.
Ms. Dyer. I just wanted to add that the United States Trade
Representative puts together a report to Congress called the Special
301 Report, and for those who don't know, it's the countries that are
not respecting intellectual property and are putting up market access
barriers to those who own intellectual property.
The UAE was placed back on that list this year for some of the very
reasons that you articulated, so just as an additional----
Mr. Massaro. Thanks, Lisa. Thanks, Kristin. David, please.
Mr. Lynch. Hi, my name is David Lynch from Sayari Analytics. We are
a financial intelligence firm based here in D.C. that works with
government, law firms and private sector to better map and track
transnational illicit networks across a range of different threat
verticals from terror financing to illicit trade.
As an organization, we leverage official public records across the
globe with a focus on data sets that are traditionally siloed within a
certain jurisdiction, within a language, or within a certain medium of
dissemination. We try to bridge those gaps between jurisdictions and
between languages to paint a hopefully clearer picture of the full
extent of these illicit networks.
And so my question to you guys would be, for your respective
mandates on illicit trade, what do you guys feel is your biggest data
gap in trying to tackle these issues?
Mr. Massaro. One for everyone.
Mr. Lynch. Yes.
Mr. Massaro. All right, so Lisa.
Ms. Dyer. Interesting question. From a policy standpoint, from a
persuading-foreign-governments standpoint, I think we have a lot of
data that, at that very strategic level that we are communicating with,
I think works. The statistics are compelling, they are powerful, it's a
message that we're able to deliver that these actual illicit trade
activities are harming your economy. That would be my answer to your
question because we are talking at such a very strategic level. But
others with a more tactical mission might have a different answer.
Mr. Massaro. I was going to say, specifically how harm is
occurring. How----
Ms. Dyer. Yes.
Mr. Travers. We could talk for hours. Ten years ago, Mike Hayden
was talking volume and the velocity of data, and to Lisa's point, we
are all drowning in it. I used to keep statistics on how much was
incoming to NCTC every day. I've long since quit because there is so
much.
The specific point you made with respect to financial data I agree
with entirely. It's not just between and amongst countries, frankly.
There are a host of legal policies, security, privacy reasons--we have
these same challenges within the USG--and then when you are looking at
financial, in particular, I've had many conversations with the big
banks who would argue, I think, that the government has the context,
but the private sector has the data, so how do you bring that marriage
together in a way that doesn't give competitive advantage to one over
another, and how do you respect the privacy rights.
I am an intel officer. How much U.S. persons' data do you or don't
you want me to have? These are questions that we have not yet resolved
as a country, and it just so happens that the financial datasets bring
an additional level of complexity over and beyond--[inaudible].
Ms. Brzozowski. Great, yes, I should have gone first because I had
an answer right out of the gate for you. So a little bit more specific,
but on Lisa's flow of her--of the threats in the space--I would
specifically say that we've got a pretty big gap that work in the OECD
is looking to address, but any additional help or hands on deck would
be appreciated on what are the new threats in the ecommerce space, and
I think there is a particular interest in answering the question of
whether we are seeing more counterfeit products or just the same number
or volume, I guess, in different forms. So instead of coming in a giant
container, there is now just as many counterfeits which are coming
through all these kind of little e-packets. Answering that question is
really necessary for us to, as I said, apply the right policy answers.
And we just don't have a sense of that.
There's a particular interest as well in what we're terming low-
value shipments, and low value because they tend to be not required to
pay certain duties and taxes if they're under a certain threshold of
value.
Is that value--is that waiver of taxes and fees being exploited by
folks by either undervaluing the product inappropriately and/or by
assuming or perceiving there to be a lighter law enforcement touch for
those types of products? So very quickly the counterfeit threat in low-
value ecommerce space.
Mr. Seres. And I would just like to add a comment from more of a
tactical law enforcement perspective as it relates to intellectual
property rights crimes and illicit trade.
From a law enforcement standpoint, we're just looking for
information so we can try to identify where the bad actor is coming
from--are they aggregating, is it a network, is it an organized group
or is it just one guy, right? So how do we best place our assets from
that perspective against whatever criminal group is out there?
That being said, I think a good comparison was made in regards to
the banking industry. We've been receiving information from finance
institutions for a long time. We've set up mechanisms, teams, and data
information systems to cull that data, look for commonalities--
commonalities of address, the bad guys--so we can target our
effectiveness with our resource utilization.
Similarly here, we have bad actors who I think are agnostic to what
platform they are going to utilize, whether it be one company or the
next, one shipping lane or the next. I don't think they really care
about that, so to the extent that we're seeing a bad actor in a certain
platform, an ability to start to find a way to share some of that
information, whether it's a bad IP address, a bad overseas address, et
cetera, in an aggregated way so we can start targeting our resources a
little bit more effectively, I think would be a helpful tool from a law
enforcement perspective.
Thank you.
Mr. Massaro. Thank you so much. START, please.
Mr. Sin. Good afternoon. Thank you very much for your participation
and words of wisdom this afternoon.
My name is Steve Sin. I'm from START National Consortium based at
the University of Maryland. I'm currently the director of
unconventional weapons and technology for that organization.
Some of the work that we do--we have looked at emerging technology.
I'm a radiological and nuclear terrorism specialist, so we looked at
things like what kind of technology 5 or 10 years out from now will
affect nuclear or radiologic terrorism in the--[inaudible]--space.
So my question from that perspective was, are there works or
organizations or committees that you have that look at what illicit
trade or what illicit trafficking would look like 5, 10, 15 years from
now? Kind of do a net assessment--[inaudible]--we do, and that would be
one of the questions.
And the second question actually is a personal question, just
because I'm from academia. We talk about illicit trade and illicit
trafficking, ordinarily, a lot of times we talk about it in terms of
industry. So the question that I would have is, are there any efforts
being done to limit--since our product is largely intellectual
property--limit the trafficking of academic intellectual property so
that we actually don't lose--because universities are a number-one
target of foreign [governments ?] as well, especially universities like
the University of Maryland. So I was wondering if there was a measure
or something that is being done to address that, or do you need our
help to be more involved. So those are my questions.
Mr. Massaro. Is there anyone in particular you would like to
address your questions to?
Mr. Sin. No.
Mr. Massaro. Okay. All right. Anyone like to take it first? Illicit
trade in 10, 15 years.
Ms. Brzozowski. I'll jump on that part----
Mr. Massaro. Sure.
Ms. Brzozowski. ----very quickly. Just taking the fact that what
came to my head immediately, and maybe the gut reaction is the best
thing, or maybe you primed the pump by talking about emerging
technology initially, but I do think that much interagency, and the
White House, and administration, and congressional branch discussion on
the new threats that we are going to potentially see with the emerging
technology and--links to our ability to protect intellectual property.
You see this in a Defense Intelligence Agency legislation currently
under consideration, and which partners--or part of the new CFIUS, or
Committee on Foreign Investment in the United States' modernization
rules that have now added an export control component, and that link is
that we've got valuable IP on emerging technologies that's absolutely
critical to DoD, to DHS for Homeland Security enterprises, for
Commerce, for some of the economic applications.
And the current export control regime might not be appropriately
situated to account for these new emerging technologies. And we are
kind of seeing vulnerabilities kind coming at different angles. The
ability to export these might not be appropriately controlled, and
we're looking just to take that up, but we're also seeing foreign
acquirers just come in and wholesale buy the business or hire the
engineer, and that's where this new legislation is looking to come at
it from a couple of different angles.
When we're talking illicit trade, it's getting around some of these
new tools and new requirements that the administration is putting in
place.
Mr. Massaro. Aaron, do you have----
Mr. Seres. Yes, I would just say, in regards to the academic
property, I don't know of a specific initiative or effort in relation
to that specific area, but it's something I'd be happy to put you in
contact with the FBI's center and maybe discuss it a little further. I
appreciate the suggestion.
Mr. Massaro. Okay, yes, we'll move on to TraCCC, please.
Ms. Kinnard. My name is Kasey Kinnard, and I'm from the Terrorism,
Transnational Crime and Corruption Center at George Mason University,
and conveniently put academia together because that's where most of my
comments lie.
We've been very privileged to work with a lot of the folks and
organizations in the room, so I have several comments. I'll try to keep
them concise.
Mr. Travers spoke about the difficulty of sharing information, but
I wanted to specifically encourage everyone to continue to try and do
that. And, specifically, we've heard a lot about including private
industry in that. I would throw academia in the ring wholeheartedly,
for several reasons. First of all, I would say that it helps to think
about some of these problems more creatively, particularly when coming
to a lot of--you've all spoken about intellectual property crime or
terrorism. Some of those are crimes that are higher risk, and we looked
at sometimes problems that are lower risk and therefore are a good,
creative way to get at a criminal element, but you might have influence
or get information from folks like academia.
Within academia, new threats is a place that we focus and would be
a great place to help, hopefully, inform the executive which might also
serve other purposes. When we talk about other governments and where
you share information, we find sometimes that we might be more
affordable than government researchers. We might also be able to get
into a niche where the U.S. Government is not so welcome, and that has
helped to make, create some bridges.
So I would also say that when getting into grants and programs,
like most of the agencies do because we've gotten these funds before,
will allow for some flexibility because academia tends to be able to be
flexible, like transnational organized criminal groups are, but the
U.S. Government is not set up to be. We can be flexible, but we've also
been hindered when asked, by global partners, can you help us with this
issue. Nope, I'm only a stovepipe. But we look at all illicit trade,
and we know we are connected and we could help, but we can't touch it.
So I would encourage that type of flexibility.
I also was encouraged to hear that money is moving a bit out of the
absolute concentration of terrorism and into a bit of a broader
spectrum because we've been saying for a long time we need to be
looking at a crime-terror nexus. Crime is often the funding for
terrorism, and we have found that sometimes getting funding--it's hung
up unless you can point at a terrorism connection, which has been
problematic because, to get that funding, some people have needed those
connections and are not quite there.
We want the government to have the best and most academically sound
information, but if you are hamstrung in trying to get that funding--
[inaudible]--for getting the best information.
Thank you very much.
Mr. Massaro. Thank you. We'll just go on to the next speaker,
please. Cyndi [sp].
Ms. Braddon. Thank you. I am here today for a new organization
called Trace It, and only been around since last September, and
essentially, and it's an organization that consists of business,
companies that are cross-sector--we represent 11 sectors and everything
from alcohol, to pharmaceutical, to oil and gas, to tobacco, to
counterfeit goods, wildlife, forestry, et cetera, and also concerned
with human trafficking.
As an entity, we were formed basically to try to unite, across
sectors, businesses to come together to advocate on behalf--or to
create a voice of advocacy, working with governments around the world
to deal with the issues of trade.
One of our first products, which Chris mentioned, was that we
commissioned the Economist Intelligence Unit to prepare a global,
illicit trade environment in-depth, and it analyzes 84 countries which
represent 95 percent of GDP, 95 percent of trade, and it measures how
each of the countries stand up and how they are--through policy
primarily--set up to either encourage or discourage illicit trade.
We did this because we wanted to expand the learning around what
are the better practices, so we can go to governments and help advise
them on where efforts need to be made. And what we learned through the
process is, to quote Chris again--is that everybody needs to pull up
their socks a bit, including us here in the United States.
We also did a case--a report on free-trade zones, and picking up
points that have been raised before, and what we did was put together
five cases studies, including in Panama, and really identified some
areas that need work--most commonly is devoting more resources to
hiring and training, customs and law enforcement to work together and
to do their jobs and to do it with due diligence. And what we'd like to
see is more coordination--more formal coordination between the private
sector and all stakeholders, and government, to help stop illicit
trade.
So let me start with a question, and that is with regards to free-
trade zones. And maybe it's from State and Homeland Security across the
board. What do you envision will change in the near future that can
continue to facilitate trade--the good trade--but can help with
stemming the really serious issues we have with illicit goods going
through either small packages or large containers?
And second, knowing that China and Panama are negotiating a treaty
now, with regards to what we got to see in Panama, what's the U.S.
Government doing to 3:13--[inaudible]--that especially?
Mr. Massaro. Great, thanks so much. Shall we start with Christine--
Christa? [Laughter.] You're up.
Ms. Brzozowski. All right. I will probably speak to more of the--
well, first let me thank you for the excellent work on the index. I
mean, that's exactly the kind of data that's really necessary to help
us as DHS, as the U.S. Government, and then in international forums,
like the OECD terror and illicit trade task force, to understand what's
working, what's not, and to be able to identify best practices that can
then be promulgated in various ways.
I'd very much love to--and I'm assuming it's just online, but I'd
love the case study on Panama that you just did. This is a fairly new
issue to me, but as I said, we are exploring ways, in concert with the
development bank, and USAID, and of course, State Department, on how a
security and prosperity message supporting Central American and
Northern Triangle countries in a variety of ways to reap those
benefits. So we'd love to see that report.
On the China-Panama free-trade agreement, I don't have anything on
that. This is not my area, about what the United States is probably
doing. If I knew, I probably couldn't say, so--[laughter]--I'll just
hit quiet and mute on this one. [Laughter.]
Ms. Dyer. I will say that it's not just Panama that people are
concerned about where China is expanding, and not just within the free-
trade zone. Africa is a huge area, and I think there's a lot to watch
there and keep an eye on how we do keep the good stuff coming and the
bad stuff not.
I will actually take your question back to some of our free-trade-
zone experts, and I'd love to take a card to--[inaudible]--with me.
Thank you.
Mr. Massaro. Megan, please.
Ms. Giblin. Megan Giblin of the U.S. Council for International
Business. I am the director of customs and trade facilitation, and
unlike Christa, I am steeped in the details, mostly. [Laughter.] And
unfortunately, I could probably talk to you about classification codes,
and valuation. And Susan, thank you for your mention about USCIB being
the--[inaudible]--unfortunate that my boss is the chair of the trade
committee, so, feel free to reach out if you have any questions.
And I just wanted to make a couple of points, to add some
discussion to discussion points from earlier, so after Jerry's point
about data elements, and sharing customs data with other governments
and other government agencies, I know from our membership perspective,
for a number of reasons over the past year or so, we've talked about
concerns about data being shared with other parties, under what
mechanisms, and unintended consequences of that information being
shared as a result of questions about trading, do others know what they
are looking at, or potentially controls around that data, and so that's
the discussion that we are having with some of Christa's colleagues.
And then I just wanted to touch on Rob's point, and at a much more
granular level, so in the context of the Customs operational advisory
committee, there is a group looking at--at least in the customs space--
emerging technologies--[just wanted to leave that there ?]--so it's a
subject matter--[inaudible].
And then back to Christa's point about the work going on in
Brussels and the international discussions--again, being steeped in the
content details like--[inaudible]--there has been discussion and
context about looking at emerging technologies,--I just thought that
would be helpful for you to understand.
Thank you.
Mr. Massaro. Definitely, definitely. Thank you so much.
Now, Crawford, I know you've been waiting very patiently.
[Laughter.] I saw you were the first to flip it and then had to wait 2
hours to speak, so I really----
Mr. Allen. This is called the last----
Mr. Massaro. I really, really appreciate it. [Laughter.] Thank you
so much.
Mr. Allen. The last man caught standing. [Laughter.]
So thank you very much. My name is Crawford Allan. I'm a senior
director of the TRAFFIC group at the World Wildlife Fund, and we've
been working on setting up the first global coalition to end online
wildlife trafficking. And we've got 22 of the world's biggest companies
involved--[inaudible]--Google, Facebook, Microsoft, Instagram. We've
got 10 Chinese companies--Alibaba, Tencent and Baidu--all working
together to prevent this pernicious threat of trafficking in wildlife.
One thing we have learned in this is that there are some really
critical nexus here between the companies, the online marketplaces,
between the parcel companies, the express courier companies, and
between the paying and processing companies in the finance sector. What
we are finding is we don't know how to bring those three sectors of
finance, transport, and commerce together, and we wondered whether
people around this table or our lovely panelists here had suggestions
or recommendations about that, because we feel this is a trick and what
we are missing is bringing those together, and we think that they've
all got a piece of the puzzle, but they're sitting there and doing it
separately. And I'm sure that many of you have been through hoops of
working in the private sector yourselves, for your own interests, that
we have still yet to learn, and we would love to learn more.
I also think the other thing that we've found very much is that
it's absolutely critical, and what you all say is true--information
sharing is the one blockage that we find is most pertinent and most
problematic. We know that we've got a fortunate situation where
hundreds are sitting together and sharing best practice. How do you--
[inaudible]--tech companies, they are really [competitive ?] with each
other, but around this issue of wildlife they put that competition
aside and they are really trying to share information about how we
refine algorithms to protect wildlife, how we prevent the odds of being
poached in the first place. I'm sure you've got expertise and insight
that we could learn.
But what platform, what forum could we take this expertise and join
these people together? We're all from different sectors. We're from
probably the best--[inaudible]--in the world, which I'm going to--
[inaudible]--[laughter]--take them to pharmacies to give them the
cigarettes. How--what platform is it--[inaudible]--that could bring us
together to look at the interface between online, transport, and
payment--and finance. I think you've probably got some great ideas
about that, so I really appreciate it. We just need to build trust with
these companies. They're very scared of working with law enforcement,
unfortunately, in sharing information.
Thank you.
Mr. Massaro. Would someone like to start with that? I assume--
[inaudible]--that the right person will start.
Ms. Brzozowski. Yes, welcome to my world here. [Laughter.] That
very question, that, very powerful, very economically successful
companies, different agendas, different perspectives. People are
realizing that things are changing, but maybe not--without being able
to control where they're going, aren't jumping up and down to say, come
regulate us, U.S. Government and other government. [Laughter.] So
surprising. But those are exactly the types of groups that we're trying
to, as an interagency--have engagement with and understand from the
U.S. perspective where we see ourselves--what concepts need to be
tested, and where we see ourselves potentially in 2 to 5 years.
This is exactly--I'll put in a pitch--this is exactly the
conversation that is happening in Brussels, as I said, today. It's the
World Customs Organization ecommerce working group. It's from a very
specific Customs perspective, and we would like to keep it like that.
So that's one forum, I think, for some of these engagements. I believe
they will be getting a mandate to extend their working group for
another year, and we're looking right now to figure out how to organize
that so that that year is beneficial, so that we get some standards
coming out of that year, we get some definitions coming out of that
year. We'll maybe get some additional case studies out of that year. So
now is the time for engagement with that group.
And then Chris and I, following David's lead, hosted the Countering
Illicit Trade Task Force within the OECD, so a different group of
stakeholders, but in some ways a good set of stakeholders will be
taking on this issue. We're working now to figure out what our next-
year and 2-year trajectory looks like, what workshops are necessary on
what issues. I think we've got general consensus among the member
States that we do want to tackle e-commerce next. That's a pretty big
mandate; almost as big as how do you solve illicit trade. [Laughter.]
So defining that work plan and coming up with that schedule of the who
needs to meet around what issues in the coming year, 18-month
timeframe. But very, very timely, again. I don't have the answer yet,
necessarily, but we'd love to engage to make sure you're part of the
development of the answer.
Mr. Massaro. Lisa, you wanted to say something?
Ms. Dyer. I'll just add, in addition to what Christa has said, that
our team has worked with the International AntiCounterfeiting Coalition
to put together a toxics/counterfeits workshop. And the idea is pulling
together people from different sectors around to look at what hidden
dangers are in some of our most common consumer items, such as luxury
goods, cosmetics, toys, apparel, and test them for those toxins, and to
see what exactly are we finding that could then be used for a public-
awareness campaign to get some more information out to the public to
support consumer safety.
I will take your suggestion back to the team in the State
Department that works on wildlife activities, and--[inaudible]--similar
things.
Mr. Massaro. And IACC is here, right? Over there? Great. Cool.
Jim?
Mr. Duggan. Hi. Jim Duggan from Coty, fragrance and cosmetics. Lisa
just stole what I was going to say.
Ms. Dyer. I'm sorry. [Laughter.]
Mr. Duggan. So I'll start in reverse, then. Aaron made a very
excellent point. Arrests are a significant way to curtail, but you
can't arrest your way out of this. And I've heard that ever since I've
been--[inaudible]--counterfeit for the last 18 years. It's been stated
by many other federal agents that I've worked with over time. Homeland
Security, Customs and Border Patrol, and the IPR Center are all
excellent tools for us to use to combat the problem.
At the end of the day, the most important thing from my perspective
is educating the American consumer. When I talk to the American
consumer in a counterfeit 80 to 90 percent of the time I get a shrug of
the shoulder; what's the big deal? And they just don't get it, and they
don't understand it because at the end of the day, the consumer wants--
and it's not just the American consumer--it's my knowledge of the world
that every consumer wants to get the product at the best price.
So we are working with Joe Giblin [ph], under his group, and we're
very happy to be--further, that the company is very interested in
seeing that through.
Ms. Dyer. Thank you for investing the time.
DUGGAN: Education is effective, just so important. If the consumer
is not there--the consumer doesn't buy it, that world is going to dry
up.
Mr. Massaro. There has to be demand for these products.
Ms. Brzozowski. Can I----
Mr. Massaro. Yes, please.
Ms. Brzozowski. Yes, I thought of--thank you for that comment. A
very quick note on that, and I think it's a great example of why the
data is going to be so critical to us. I'll go back again to this in-
country, in-depth study the U.K. did utilizing the OECD, which found
that, I think--I'm trying to look through my stack here--about 50
percent of consumers said they weren't aware that they were buying a
counterfeit product, so that gives policymakers an immediate, okay, now
half the problem is people that do know they're doing it, and we've got
to dissuade them through campaigns at the State Department, but we've
got half of these people that don't even know that they're doing it, so
that's a whole set of policy options to counter it.
So that was an eye-opener for me when I read that report, and we're
very interested in trying to get that type of granularity for the U.S.
market as well.
Mr. Massaro. Okay, do we have any other questions? We've got maybe
time for one more if anybody's got something to say.
All right, so we're all exhausted. That's fantastic. [Laughter.]
So thank you all so much for coming. I want to thank our panel of
executive branch officials, if you will join me in a round of applause.
[Applause.]
And to all of you, as well, I just want to extend my sincerest
thanks, and on behalf of our, again, bipartisan and bicameral
leadership, I can't think of a single member, a single commissioner who
doesn't care deeply about these issues. I really hope that we'll keep
this dialog going. And thank you all again for attending.
Mr. Luna. Paul, would it be possible to circulate the contact
information for people who attended the hearing?
Mr. Massaro. Sure. Anybody object to that? [Pause.] No? All right,
great. We'll do it.
[Whereupon, at 3:52 p.m., the roundtable was adjourned.]
[all]
This is an official publication of the Commission on
Security and Cooperation in Europe.
* * *
This publication is intended to document
developments and trends in participating
States of the Organization for Security
and Cooperation in Europe [OSCE].
* * *
All Commission publications may be freely reproduced,
in any form, with appropriate credit. The Commission
encourages the widest possible dissemination of its
publications.
* * *
www.csce.gov @HelsinkiComm
The Commission's Web site provides access
to the latest press releases and reports,
as well as hearings and briefings. Using the
Commission's electronic subscription service, readers are
able to receive press releases, articles, and other
materials by topic or countries of particular interest.
Please subscribe today.