[House Report 105-158]
[From the U.S. Government Publishing Office]



105th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES

 1st Session                                                    105-158
_______________________________________________________________________


 
               TELEMARKETING FRAUD PREVENTION ACT OF 1997

                                _______
                                

 June 26, 1997.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

_______________________________________________________________________


   Mr. McCollum, from the Committee on the Judiciary, submitted the 
                               following

                              R E P O R T

                        [To accompany H.R. 1847]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on the Judiciary, to whom was referred the 
bill (H.R. 1847) to improve the criminal law relating to fraud 
against consumers, having considered the same, report favorably 
thereon with an amendment and recommend that the bill as 
amended do pass.
  The amendment is as follows:
  Strike out all after the enacting clause and insert in lieu 
thereof the following:

SECTION 1. SHORT TITLE.

  This Act may be cited as the ``Telemarketing Fraud Prevention Act of 
1997''.

SEC. 2. FORFEITURE OF FRAUD PROCEEDS.

  Section 982(a) of title 18, United States Code, is amended by adding 
at the end the following:
  ``(8) The Court, in sentencing a defendant for an offense under 
section 2326, shall order that the defendant forfeit to the United 
States any real or personal property--
          ``(A) used or intended to be used to commit or to promote the 
        commission of such offense, if the court in its discretion so 
        determines, taking into consideration the nature, scope, and 
        proportionality of the use of the property in the offense; and
          ``(B) constituting, derived from, or traceable to the gross 
        proceeds that the defendant obtained directly or indirectly as 
        a result of the offense.''.

SEC. 3. SENTENCING GUIDELINES CHANGES.

  Pursuant to its authority under section 994(p) of title 28, United 
States Code, the United States Sentencing Commission shall review and 
amend the sentencing guidelines to provide a sentencing enhancement for 
any offense listed in section 2326 of title 18, United States Code--
          (1) by at least 4 levels if the circumstances authorizing an 
        additional term of imprisonment under section 2326(1) are 
        present; and
          (2) by at least 8 levels if the circumstances authorizing an 
        additional term of imprisonment under section 2326(2) are 
        present.

SEC. 4. INCREASED PUNISHMENT FOR USE OF FOREIGN LOCATION TO EVADE 
                    PROSECUTION.

  Pursuant to its authority under section 994(p) of title 28, United 
States Code, the United States Sentencing Commission shall amend the 
sentencing guidelines to increase the offense level for any fraud 
offense by at least 2 levels if the defendant conducted activities to 
further the fraud from a foreign country.

SEC. 5. SENTENCING COMMISSION DUTIES.

  The Sentencing Commission shall ensure that the sentences, 
guidelines, and policy statements for offenders convicted of offenses 
described in sections 3 and 4 are appropriately severe and reasonably 
consistent with other relevant directives and with other guidelines.

SEC. 6. CLARIFICATION OF ENHANCEMENT OF PENALTIES.

  Section 2327(a) of title 18, United States Code, is amended by 
striking ``under this chapter'' and inserting ``for which an enhanced 
penalty is provided under section 2326 of this title''.

SEC. 7. ADDITION OF CONSPIRACY OFFENSES TO SECTION 2326 ENHANCEMENT.

  Section 2326 of title 18, United States Code, is amended by inserting 
``, or a conspiracy to commit such an offense,'' after ``or 1344''.

                          Purpose and Summary

    H.R. 1847, the ``Telemarketing Fraud Prevention Act of 
1997,'' increases penalties for fraudulent schemes committed by 
illegitimate, criminal telemarketers. The bill directs the 
United States Sentencing Commission to review and amend the 
guidelines to provide a sentencing enhancement for any offense 
listed in Sec. 2326 of title 18, United States Code. Section 
2326 is the penalties section of the Telemarketing Fraud 
chapter of the criminal code. The Sentencing Commission is 
instructed to increase the sentence by at least 4 levels for 
general telemarketing fraud, and increase by at least 8 levels 
if the defendant victimized persons over the age of 55. The 
Sentencing Commission is also directed to increase the offense 
level for any fraud which involved criminal activities 
committed from a foreign country.
    H.R. 1847 also requires that a defendant convicted of a 
telemarketing scam forfeit all property used in the offense, or 
any proceeds received as a result of the offense. Finally, the 
bill includes a conspiracy provision, to allow prosecutors to 
punish the organizers of these illegal activities.

                Background and Need for the Legislation

    Older Americans are popular targets for fraudulent 
telemarketers. Many elderly people are lonely and appreciate 
having someone to talk to, even if that person is asking for 
money. Others are too polite, or too intimidated, to hang up on 
their callers. A survey conducted by the American Association 
of Retired Persons shows that two-thirds of older victims 
simply can't tell an honest sales pitch from a dishonest one. 
1
---------------------------------------------------------------------------
    \1\ American Association of Retired Persons, Telemarketing Fraud 
Victimization of Older Americans, January, 1996.
---------------------------------------------------------------------------
    These con artists blend psychology with salesmanship to 
persuade their elderly victims to send them money. They 
sometimes feign friendship, and ask questions about the 
victim's families, neighbors and pets. They encourage their 
victims to share personal information, which they later use 
against them. If the victim resists, the callers sometimes 
become abusive, or threaten bogus lawsuits. If met with 
continued resistance, the con artist simply sells the elderly 
person's name to another fraudulent telemarketer, and the cycle 
begins anew. 2
---------------------------------------------------------------------------
    \2\ See, Consumer Fraud Prevention Act,: Hearing on H.R. 1499 
Before the Subcomm. on Crime of the House Comm. On the Judiciary, 104th 
Cong., 2nd Sess. No. 97 (April, 1996).
---------------------------------------------------------------------------
    Although older Americans are prime targets for fraudulent 
telemarketers, they are certainly not the only citizens 
victimized by these crimes. Fraudulent telemarketers strike at 
all ages, sexes, financial and educational levels. Many 
otherwise savvy consumers are tricked into believing that the 
caller is collecting money for a religious or charitable 
organization. Other crooks promote phony investment schemes. A 
common ploy is for the caller to claim that the victim has won 
a valuable prize, and to collect that prize, the victim need 
only send a few hundred dollars to cover taxes and shipping 
charges. The victim is then plagued by additional telephone 
calls, with the caller promising bigger and grander prizes each 
time if more money is sent. Often, paltry trinkets are mailed 
to the victim to keep the charade alive.
    One of the most vicious scams is the ``recovery room'' 
operation. Recovery room operators buy lists from other 
fraudulent telemarketers containing the names of victims and 
how much money they have already lost. In this particularly 
cruel scam, the con artists then call the victims pretending to 
be private investigators or attorneys. They pledge to recover 
the money the victims have already lost to the other 
telemarketers, in return for an enormous advanced fee. Most 
victims are so desperate that they are willing to try anything, 
and they send the requested payment to the recovery room 
operators.
    The Federal Trade Commission estimates that telemarketing 
fraud costs consumers about $40 billion a year. Many people 
lose thousands of dollars, some have reported losing their 
entire life's savings. H.R. 1847 strikes back at crooked 
telemarketers by forcing them to forfeit all real or personal 
property used in the offense, or any proceeds received as a 
result of the offense. It also directs the U.S. Sentencing 
Commission to amend the guidelines to provide a sentencing 
enhancement for any telemarketing offense. The punishment shall 
be even harsher for criminals who purposely target the elderly. 
Moreover, the bill includes conspiracy language, so prosecutors 
can attack those crooks who arrange and organize crooked 
telemarketing schemes, but who are also crafty enough to avoid 
committing the fraud themselves.

                                Hearings

    No hearings were held on H.R. 1847.

                        Committee Consideration

    On June 12, 1997, the Subcommittee on Crime met in open 
session and ordered reported the bill H.R. 1847, by a voice 
vote, a quorum being present. On June 18, 1997, the Committee 
met in open session and ordered reported favorably the bill 
H.R. 1847 with amendment by a voice vote, a quorum being 
present.

                         Vote of the Committee

    There were no recorded votes.

                      Committee Oversight Findings

    In compliance with clause 2(l)(3)(A) of rule XI of the 
Rules of the House of Representatives, the Committee reports 
that the findings and recommendations of the Committee, based 
on oversight activities under clause 2(b)(1) of rule X of the 
Rules of the House of Representatives, are incorporated in the 
descriptive portions of this report.

         Committee on Government Reform and Oversight Findings

    No findings or recommendations of the Committee on 
Government Reform and Oversight were received as referred to in 
clause 2(l)(3)(D) of rule XI of the Rules of the House of 
Representatives.

               New Budget Authority and Tax Expenditures

    Clause 2(l)(3)(B) of House Rule XI is inapplicable because 
this legislation does not provide new budgetary authority or 
increased tax expenditures.

               Congressional Budget Office Cost Estimate

    In compliance with clause 2(l)(3)(C) of rule XI of the 
Rules of the House of Representatives, the Committee sets 
forth, with respect to the bill, H.R. 1847, the following 
estimate and comparison prepared by the Director of the 
Congressional Budget Office under section 403 of the 
Congressional Budget Act of 1974:

                                     U.S. Congress,
                               Congressional Budget Office,
                                     Washington, DC, June 25, 1997.
Hon. Henry J. Hyde,
Chairman, Committee on the Judiciary,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 1847, the 
Telemarketing Fraud Prevention Act of 1997.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Mark 
Grabowicz.
            Sincerely,
                                              James L. Blum
                                   (For June E. O'Neill, Director).
    Enclosure.

H.R. 1847--Telemarketing Fraud Prevention Act of 1997

    CBO estimates that implementing H.R. 1847 would result in 
additional federal costs, subject to the availability of 
appropriated funds, to accommodate prisoners for longer periods 
of time, but such costs would be less than $500,000 annually 
for the next five years. Enacting H.R. 1847 also could lead to 
an increase in direct spending and receipts; therefore, pay-as-
you-go procedures would apply. However, CBO estimates that any 
increases in direct spending and receipts would likely be less 
than $500,000 annually.
    H.R. 1847 would direct the United States Sentencing 
Commission to increase penalties recommended for telemarketing 
fraud. The commission has assigned each federal crime a base 
offense level, numbered from 1 to 43, which corresponds to a 
certain recommended length of imprisonment, with higher numbers 
reflecting longer prison terms. The bill would direct the 
commission to amend the federal sentencing guidelines to 
increase the base offense level by at least 2 levels if the 
offense involves use of a foreign location, by at least 4 
levels for any case of telemarketing fraud, and by at least 8 
levels if elderly victims are involved. In addition, the bill 
would subject any real or personal property used in or gained 
from telemarketing fraud to forfeiture to the United States.
    According to the U.S. Sentencing Commission, the bill's 
provisions probably would affect fewer than 10 individuals per 
year. Assuming no significant change in the number of annual 
convictions, CBO estimates that additional costs of longer 
prison sentences would be less than $500,000 a year for at 
least the next five fiscal years, subject to the availability 
of appropriated funds.
    Because the maximum fine for an offense increases as the 
offense level increases, the bill's sentencing enhancements 
also could result in increased criminal fines. Therefore, 
enacting H.R. 1847 could increase governmental receipts through 
greater fine collections. However, CBO estimates that any such 
increase would be less than $500,000 annually. Criminal fines 
are deposited in the Crime Victims Fund and spent the following 
year. Thus, the change in direct spending from the fund would 
match any increase in revenues attributable to H.R. 1847, with 
a one-year lag.
    Finally, enacting H.R. 1847 could lead to more assets 
seized and forfeited to the United States, but we estimate that 
any such increase would be less than $500,000 annually in 
value. Proceeds from the sale of any such assets would be 
deposited as revenues into the assets forfeiture fund of the 
Department of Justice and spent out of that fund in the same 
year. Thus, the change in direct spending from the asset 
forfeiture fund would match any increase in revenues to that 
fund.
    H.R. 1847 contains no intergovernmental or private-sector 
mandates as defined to the Unfunded Mandates Reform Act of 1995 
and would have no significant impact on the budgets of state, 
local, or tribal government.
    The CBO staff contact for this estimate is Mark Grabowicz. 
This estimate was approved by Paul N. Van de Water, Assistant 
Director for Budget Analysis.

                   Constitutional Authority Statement

    Pursuant to rule XI, clause 2(l)(4) of the Rules of the 
House of Representatives, the Committee finds the authority for 
this legislation in Article I, section 8 of the Constitution.

                      Section-by-Section Analysis

                         Section 1. Short Title

    This section states that this bill shall be cited as the 
``Telemarketing Fraud Prevention Act of 1997.''

                  Sec. 2. Forfeiture of Fraud Proceeds

    This section states that a defendant convicted of an 
offense under Sec. 2326 of title 18, United States Code, shall 
be ordered to forfeit any real or personal property--(A) used 
or intended to be used to promote the commission of the 
offense; or (B) constituting, derived from, or traceable to the 
gross proceeds that the defendant obtained directly or 
indirectly as a result of the offense.

                 Sec. 3. Sentencing Guidelines Changes

    This section directs the U.S. Sentencing Commission to 
review and amend its guidelines to provide a sentencing 
enhancement for any offense listed in Sec. 2326 of title 18, 
United States Code. The Committee expects the Commission to 
ensure that sentences, guidelines and policy statements are 
appropriately severe, and reasonably consistent with other 
relevant guidelines and directives. The Committee further 
expects the Commission to review the guidelines to avoid issues 
of double counting for the same or substantially similar 
offenses. As an example, the Committee leaves to the Sentencing 
Commission's discretion whether an adjustment for vulnerable 
victims would be appropriate with an adjustment for 
telemarketing fraud targeting persons over the age of 55.

   Sec. 4. Increased Punishment For Use Of Foreign Location To Evade 
                              Prosecution

    This section directs the U.S. Sentencing Commission to 
review and amend the guidelines to increase the offense level 
for any fraud offense by at least 2 levels if the defendant 
conducted activities to further the fraud from a foreign 
country. Again, the Committee expects the Commission to ensure 
that the sentences, guidelines and policy statements are 
appropriately severe and reasonably consistent with other 
relevant directives, and avoid issues of double counting.

           Sec. 5. Clarification Of Enhancement Of Penalties

    This section clarifies that section 2326 is a penalty 
enhancement.

  Sec. 6. Addition Of Conspiracy Offenses To Section 2326 Enhancement

    This section adds conspiracy language to Sec. 2326 of title 
18, United States Code. This will allow prosecutors to target 
the organizers of fraudulent telemarketing activities.

                              Agency Views

    No agency views were received on H.R. 1847.

         Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3 of rule XIII of the Rules of the 
House of Representatives, changes in existing law made by the 
bill, as reported, are shown as follows (existing law proposed 
to be omitted is enclosed in black brackets, new matter is 
printed in italic, existing law in which no change is proposed 
is shown in roman):

                      TITLE 18, UNITED STATES CODE

          * * * * * * *

                             PART I--CRIMES

          * * * * * * *

                         CHAPTER 46--FORFEITURE

          * * * * * * *

Sec. 982. Criminal forfeiture

  (a)(1) * * *
          * * * * * * *
  (8) The Court, in sentencing a defendant for an offense under 
section 2326, shall order that the defendant forfeit to the 
United States any real or personal property--
          (A) used or intended to be used to commit or to 
        promote the commission of such offense, if the court in 
        its discretion so determines, taking into consideration 
        the nature, scope, and proportionality of the use of 
        the property in the offense; and
          (B) constituting, derived from, or traceable to the 
        gross proceeds that the defendant obtained directly or 
        indirectly as a result of the offense.
          * * * * * * *

                   CHAPTER 113A--TELEMARKETING FRAUD

          * * * * * * *

Sec. 2326. Enhanced penalties

  A person who is convicted of an offense under section 1028, 
1029, 1341, 1342, 1343, or 1344, or a conspiracy to commit such 
an offense, in connection with the conduct of telemarketing--
          (1) * * *
          * * * * * * *

Sec. 2327. Mandatory restitution

  (a) In General.--Notwithstanding section 3663 or 3663A, and 
in addition to any other civil or criminal penalty authorized 
by law, the court shall order restitution for any offense 
[under this chapter] for which an enhanced penalty is provided 
under section 2326 of this title.
          * * * * * * *

                                
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