[House Report 105-418]
[From the U.S. Government Publishing Office]



105th Congress                                                   Report
 2d Session             HOUSE OF REPRESENTATIVES                105-418
_______________________________________________________________________


 
                   WIRELESS TELEPHONE PROTECTION ACT
                                _______
                                

 February 24, 1998.--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. 2460]

      [Including cost estimate of the Congressional Budget Office]

  The Committee on the Judiciary, to whom was referred the bill 
(H.R. 2460) to amend title 18, United States Code, with respect 
to scanning receivers and similar devices, having considered 
the same, report favorably thereon with an amendment and 
recommend that the bill as amended do pass.

                                CONTENTS

                                                                   Page
The Amendment....................................................     1
Purpose and Summary..............................................     3
Background and Need for Legislation..............................     3
Hearings.........................................................     6
Committee Consideration..........................................     6
Vote of the Committee............................................     6
Committee Oversight Findings.....................................     6
Committee on Government Reform and Oversight Findings............     6
New Budget Authority and Tax Expenditures........................     6
Congressional Budget Office Estimate.............................     6
Constitutional Authority Statement...............................     8
Section-by-Section Analysis and Discussion.......................     8
Agency Views.....................................................    10
Changes in Existing Law Made by the Bill, as Reported............    11

      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 ``Wireless Telephone Protection Act''.

SEC. 2. FRAUD AND RELATED ACTIVITY IN CONNECTION WITH COUNTERFEIT 
                    ACCESS DEVICES.

  (a) Unlawful Acts.--Section 1029(a) of title 18, United States Code, 
is amended--
          (1) by redesignating paragraph (9) as paragraph (10); and
          (2) by striking paragraph (8) and inserting the following:
          ``(8) knowingly and with intent to defraud uses, produces, 
        traffics in, has control or custody of, or possesses a scanning 
        receiver;
          ``(9) knowingly uses, produces, traffics in, has control or 
        custody of, or possesses hardware or software, knowing it has 
        been configured for altering or modifying a telecommunications 
        instrument so that such instrument may be used to obtain 
        unauthorized access to telecommunications services; or''.
  (b) Penalties.--
          (1) Generally.--Section 1029(c) of title 18, United States 
        Code, is amended to read as follows:
  ``(c) Penalties.--The punishment for an offense under subsection (a) 
of this section is--
          ``(1) in the case of an offense that does not occur after a 
        conviction for another offense under this section--
                  ``(A) if the offense is under paragraph (1), (2), 
                (3), (6), (7), or (10) of subsection (a), a fine under 
                this title or imprisonment for not more than 10 years, 
                or both; and
                  ``(B) if the offense is under paragraph (4), (5), 
                (8), or (9), of subsection (a), a fine under this title 
                or imprisonment for not more than 15 years, or both; 
                and
          ``(2) in the case of an offense that occurs after a 
        conviction for another offense under this section, a fine under 
        this title or imprisonment for not more than 20 years, or 
        both.''.
          (2) Attempts.--Section 1029(b)(1) of title 18, United States 
        Code, is amended by striking ``punished as provided in 
        subsection (c) of this section'' and inserting ``subject to the 
        same penalties as those prescribed for the offense attempted''.
  (c) Definitions.--Section 1029(e)(8) of title 18, United States Code, 
is amended by inserting before the period ``or to intercept an 
electronic serial number, mobile identification number, or other 
identifier of any telecommunications service, equipment, or 
instrument''.
  (d) Applicability of New Section 1029(a)(9).--
          (1) In general.--Section 1029 of title 18, United States 
        Code, is amended by adding at the end the following:
  ``(g) It is not a violation of subsection (a)(9) for an officer, 
employee, or agent of, or a person under contract with, a facilities-
based carrier, for the purpose of protecting the property or legal 
rights of that carrier, to use, produce, have custody or control of, or 
possess hardware or software configured as described in that subsection 
(a)(9).''.
          (2) Definition.--Section 1029(e) of title 18, United States 
        Code is amended--
                  (A) by striking ``and'' at the end of paragraph (6);
                  (B) by striking the period at the end of paragraph 
                (7) and inserting a semicolon; and
                  (C) by striking the period at the end of paragraph 
                (8) and inserting ``; and''; and
                  (D) by adding at the end the following:
          ``(9) the term `facilities-based carrier' means an entity 
        that owns communications transmission facilities, is 
        responsible for the operation and maintenance of those 
        facilities, and holds an operating license issued by the 
        Federal Communications Commission under the authority of title 
        III of the Communications Act of 1934.''.
  (e) Amendment of Federal Sentencing Guidelines for Wireless Telephone 
Cloning.--
          (1) In general.--Pursuant to its authority under section 994 
        of title 28, United States Code, the United States Sentencing 
        Commission shall review and amend the Federal sentencing 
        guidelines and the policy statements of the Commission, if 
        appropriate, to provide an appropriate penalty for offenses 
        involving the cloning of wireless telephones (including 
        offenses involving an attempt or conspiracy to clone a wireless 
        telephone).
          (2) Factors for consideration.--In carrying out this 
        subsection, the Commission shall consider, with respect to the 
        offenses described in paragraph (1)--
                  (A) the range of conduct covered by the offenses;
                  (B) the existing sentences for the offenses;
                  (C) the extent to which the value of the loss caused 
                by the offenses (as defined in the Federal sentencing 
                guidelines) is an adequate measure for establishing 
                penalties under the Federal sentencing guidelines;
                  (D) the extent to which sentencing enhancements 
                within the Federal sentencing guidelines and the 
                court's authority to sentence above the applicable 
                guideline range are adequate to ensure punishment at or 
                near the maximum penalty for the most egregious conduct 
                covered by the offenses;
                  (E) the extent to which the Federal sentencing 
                guideline sentences for the offenses have been 
                constrained by statutory maximum penalties;
                  (G) the extent to which Federal sentencing guidelines 
                for the offenses adequately achieve the purposes of 
                sentencing set forth in section 3553(a)(2) of title 18, 
                United States Code;
                  (H) the relationship of Federal sentencing guidelines 
                for the offenses to the Federal sentencing guidelines 
                for other offenses of comparable seriousness; and
                  (I) any other factor that the Commission considers to 
                be appropriate.

                          Purpose and Summary

    H.R. 2460 amends section 1029 of Title 18 of the United 
States Code, relating to fraud and related activity in 
connection with access devices. The bill amends subsection 
(a)(8) of section 1029 by deleting the ``intent to defraud'' 
requirement which exists under current law in order to prove a 
violation of that section. This section relates to persons who 
knowingly use, produce, traffic in, have custody or control of, 
or possess hardware or software which has been configured for 
altering or modifying a telecommunications instrument. As a 
result of the amendments made by the bill, in order to prove a 
violation of section 1029, law enforcement officials will no 
longer have to prove that a defendant possessing such hardware 
or software did so with the intent to defraud another person.
    The amendment to the statute is being made because law 
enforcement officials occasionally have been thwarted in 
proving true violations of the statute by the ``intent to 
defraud'' requirement. As the hardware and software in question 
can be used only for the purpose of altering or modifying 
telecommunications instruments, persons other than those 
working in the telecommunications industry have no legitimate 
reason to possess the equipment. Therefore, requiring the 
government to prove an ``intent to defraud'' in order to prove 
a violation of the section for possessing this equipment is not 
necessary. By eliminating this requirement from existing law 
this bill will make it easier to obtain convictions against 
criminals who possess this equipment before they actually use 
it for illegal purposes.

                Background and Need for the Legislation

    Cellular telephone fraud is a significant criminal activity 
in the United States. Each year the wireless telephone industry 
loses hundreds of millions of dollars in revenue as the result 
of calls made from stolen telephones or cloned telephones. In 
1996, the last year for which data is available, the wireless 
telephone industry has reported that the aggregate loss to the 
industry was approximately $710 million. While the industry 
estimates that the losses for 1997 will be less, largely 
attributable to anti-fraud technologies it has developed and 
employed, the loss to this industry is still unacceptably high.
    As significant as is the loss of revenue to the wireless 
telephone industry, cellular telephone fraud poses another, 
more sinister, crime problem. A significant amount of the 
cellular telephone fraud which occurs in this country is 
connected with other types of crime. In most cases, criminals 
used cloned phones in an effort to evade detection for the 
other crimes they are committing. This phenomenon is most 
prevalent in drug crimes, where dealers need to be in constant 
contact with their sources of supply and confederates on the 
street. These criminals often use several cloned phones in a 
day, or switch from one cloned phone to another each day, in 
order to evade detection. Most significantly, this technique 
thwarts law enforcement's efforts to use wiretaps in order to 
intercept the criminals' conversations in which they plan their 
illegal activity.
    In 1994, Congress passed the Communications Assistance for 
Law Enforcement Act (Public Law No. 103-414) which, in part, 
amended 18 U.S.C. Sec. 1029, which concerns fraud and related 
activity in connection with access devices. That act added a 
new provision to section 1029 to make it a crime for persons to 
knowingly, and with intent to defraud, use, produce, traffic 
in, or have custody or control of, or possess a scanning 
receiver or hardware or software used for altering or modifying 
telecommunications instruments to obtain unauthorized access to 
telecommunications services.
    Law enforcement officials have testified before the 
Subcommittee on Crime that it is often hard to prove the intent 
to defraud aspect of this section with respect to the 
possession of hardware or software used for altering or 
modifying telecommunications instruments to obtain unauthorized 
access to telecommunications services. In the most common case, 
law enforcement officials will arrest criminals for other 
crimes and find telephone cloning equipment in the possession 
of the criminals. Without finding specific evidence that the 
criminals intended to use this equipment to clone cellular 
telephones, law enforcement officials often have been thwarted 
in an effort to prove a violation of this statute. But because 
there is no legitimate reason why any person not working for 
wireless telephone industry carriers would possess this 
equipment, there is no question that these criminals intended 
to use that equipment to clone cellular telephones. Law 
enforcement officials have informed the Committee that deleting 
the ``intent to defraud'' requirement from section 1029(a)(8) 
with respect to this equipment would enable the government to 
punish a person who merely possesses this equipment, as well as 
those who produce, traffic in, or have custody or control over 
it.
    While the Committee is generally hesitant to criminalize 
the mere possession of technology without requiring proof of an 
intent to use it for an improper purpose, the testimony before 
the Subcommittee of Crime, both by law enforcement agencies and 
representatives of the wireless telephone industry, confirms 
that the only use for this type of equipment, other than by 
persons employed in the wireless telephone industry and law 
enforcement, is to clone cellular telephones. While wireless 
telecommunications companies use this equipment to test the 
operation of legitimate cellular telephones, to test the anti-
fraud technologies their companies employ to thwart the use of 
cloned telephones, and in other ways to protect their property 
and legal rights, the equipment has no other legitimate 
purpose. Thus, there is no legitimate reason for any other 
person to possess this equipment. In short, the requirement in 
existing law to prove an intent to use this equipment for an 
illegal purpose is unnecessary.
    The bill H.R. 2460, amends existing law by deleting the 
intent to defraud requirement currently found in section 
1029(a)(8). The bill strikes current subsection (a)(8) of 
section 1029 and replaces it with two separate subsections. New 
paragraph (8) restates the language presently found in section 
1029(a)(8)(A). New paragraph (9) restates the introductory 
phrase of existing paragraph (8), but omits the ``intent to 
defraud'' requirement and essentially restates the text of 
existing subparagraph (B) of current paragraph (8).
    The bill also clarifies the penalties which may be imposed 
for violations of section 1029. Under existing law, violations 
of subsections (a)(5), (6), (7), or (8) are subject to a 
maximum penalty of 10 years under section 1029(c)(1). However, 
these same violations are also subject to a maximum penalty of 
15 years under subsection (c)(2) of that same section. This 
unintentional duplication of penalty provisions for these 
crimes should be corrected. The bill corrects this problem by 
restating the punishment section of section 1029 to more 
clearly state the maximum punishment for violations of each 
paragraph of section 1029(a).
    In order to ensure that telecommunications companies may 
continue to use these devices, the bill provides that it is not 
a violation of new subsection (a)(9) for an officer, employee, 
or agent of, or person under contract with, a facilities-based 
carrier to use, produce, have custody or control of, or possess 
hardware or software as described in that subsection if they 
are doing so for the purpose of protecting the property of or 
legal rights of that carrier. Section 1029 presently contains 
an exception to that section's prohibition for any lawful 
investigative, protective, or intelligence activities of law 
enforcement agencies of the United States, a State, or a 
political subdivision of a State, or of an intelligence agency 
of the United States. The bill also defines ``facilities-based 
carrier'' in order to make it clear that the exception to new 
subsection (a)(9) is only available to officers, employees, 
agents, or contractors of companies that actually 
owncommunications transmission facilities, and persons under contract 
with those companies, because only those persons have a legitimate 
reason to use this property to test the operation of and perform 
maintenance on those facilities, or otherwise to protect their property 
or legal rights of the carriers.
    The bill also amends the definition of scanning receiver 
presently found in subsection (e)(8) of section 1029. Under 
that definition, a scanning receiver is a device or apparatus 
``that can be used to intercept a wire or electronic 
communication in violation of Chapter 119'' of Title 18. The 
bill would add to that definition to ensure that the term 
``scanning receiver'' will be understood to also include 
devices which intercept electronic serial numbers, mobile 
identification numbers, or other identifiers of 
telecommunications service, equipment, or instruments.
    Finally, the bill provides direction to the United States 
Sentencing Commission to review and amend, if appropriate, its 
guidelines and policy statements so as to provide an 
appropriate penalty for offenses involving cloning of wireless 
telephones. The bill states eight factors which the Commission 
is to consider in reviewing existing guidelines and policy 
statements.

                                Hearings

    The Committee's Subcommittee on Crime held a hearing on the 
subject of cellular telephone fraud on September 11, 1997. The 
Subcommittee held no hearings on H.R. 2460.

                        Committee Consideration

    On October 9, 1997, the Subcommittee on Crime met in open 
session and ordered reported favorably the bill, H.R. 2460, by 
a voice vote, a quorum being present. On October 29, 1997, the 
Committee met in open session and ordered reported favorably 
the bill, H.R. 2460, without amendment by voice vote, a quorum 
being present. At the direction of the Committee, the staff was 
directed to make technical and conforming changes in the bill 
which are incorporated in the amendment in the nature of a 
substitute reported.

                         Vote of the Committee

    There were no recorded votes on the bill H.R. 2460.

                      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. 2460, 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, October 31, 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. 2460, the Wireless 
Telephone Protection Act.
    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. 2460--Wireless Telephone Protection Act

    CBO estimates that enacting H.R. 2460 will have a small 
impact on discretionary spending over the next five years. In 
addition, the bill could lead to increases in both direct 
spending and receipts, but the amounts involved would be less 
than $500,000 a year. Because the bill could affect direct 
spending and receipts, pay-as-you-go procedures would apply. 
H.R. 2460 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act of 1995 
and would impose no costs on state, local, or tribal 
governments.
    H.R. 2460 would make it easier for United States attorneys 
to prosecute certain fraud offenses involving wireless 
telephones. The bill also would direct the United States 
Sentencing Commission to review the federal sentencing 
guidelines for wireless telephone fraud.
    Enacting H.R. 2460 could increase the number of successful 
prosecutions against perpetrators of wireless telephone fraud. 
In turn, collections of criminal fines could increase, but we 
estimate that any increase would be less than $500,000 
annually. Criminal fines are deposited in the Crime Victims 
Fund and spent the following year. Thus, any change in direct 
spending would match the increase in revenues with a one-year 
lag.
    Any increase in convictions in fraud cases would result in 
additional federal costs, subject to the availability of 
appropriations, to accommodate more prisoners. Prison costs 
would also rise if the U.S. Sentencing Commission elects to 
enhance prison sentences for wireless telephone fraud, as 
allowed by the bill. CBO cannot predict the effect of H.R. 2460 
on conviction rates or the actions of the U.S. Sentencing 
Commission, but any increase in discretionary spending over the 
next five years is likely to be small.
    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. Section 1 of the bill states the 
short title of the bill as the ``Wireless Telephone Protection 
Act.''
    Section 2. Fraud and Related Activity in Connection with 
Counterfeit Access Devices. Section 2 of the bill sets forth 
the amendments made by the bill to section 1029 of Title 18 of 
the United States Code.
    Section 2(a) of the bill deletes existing paragraph (8) 
from section 1029(a) and replaces it with two new paragraphs. 
New paragraph (8) restates in its entirety the text of old 
paragraph (8)(A). The text of new paragraph (9) is essentially 
the text of existing paragraph (8)(B), except that the existing 
requirement that the government show an ``intent to defraud'' 
in order to prove a violation has been deleted. Therefore, as 
section 1029 will be amended, in order to prove a violation of 
new subsection (a)(9), the government need only prove that the 
defendant knowingly used, produced, trafficked in, had custody 
or control of, or possessed hardware or software with the 
knowledge that it had been configured for altering or modifying 
a telecommunications instrument so that the instrument could be 
used to obtain unauthorized access to telecommunications 
services.
    As amended, new subsection (a)(9) does not make it a crime 
to simply possess a wireless telephone or access device that 
has been manufactured or modified to obtain unauthorized use of 
telecommunications services. Under other subsections of section 
1029, however, it will continue to be illegal to use, produce, 
traffic in, have custody or control of, or possess such a 
telephone or access device if the act was done with the intent 
to defraud another person. This is current law, and it remains 
unchanged by the bill.
    The statute, as amended, also does not prohibit persons 
from simply possessing equipment that only intercepts 
electronic serial numbers or wireless telephone numbers 
(defined as ``scanning receivers'' under section 1029, as 
amended by the bill). For example, companies that produce 
technology to sell to carriers or state and local governments 
which ascertains the location of wireless telephones as part of 
enhanced 911 services do not violate section 1029 by their 
actions. Under new subsection (a)(8), however, it will continue 
to be illegal to use, produce, traffic in, have custody or 
control of, or possess a scanning receiver if such act was done 
with the intent to defraud another person. This also is current 
law, and it remains unchanged by the bill.
    While not specifically defined in the bill, the Committee 
intends that the term ``telecommunications instrument'' as used 
in new subsection (a)(9) will be construed to mean the type of 
device which can be used by individuals to transmit or receive 
wireless telephone calls. The term should be construed to 
include within its definition the microchip or card which 
identifies the device or communications transmitted through the 
device. The term ``telecommunication services'' should be given 
the same meaning as the term ``telecommunication service'' 
defined in section 3 of title I of the Communications Act of 
1934 (47 U.S.C. Sec. 153).
    Section 2(b) of the bill amends all of existing subsection 
(c) of section 1029. Due to a previous amendment to this 
subsection, an inconsistency exists in current law with respect 
to the maximum punishment which may be imposed for violations 
of current subsections (a) (5), (6), (7), or (8). Currently, 
the maximum punishment for violations of these paragraphs is 10 
years under subsection (c)(1) but 15 years under subsection 
(c)(2). Clearly, it is inappropriate for there to be different 
maximum punishments which may be imposed for violations of 
these subsections. Section 2(b) of the bill eliminates this 
inconsistency by clearly stating the maximum punishments which 
may be imposed for violations of section 1029.
    Section 2(b) of the bill also amends existing subsection 
(b)(1) of section 1029 to state more clearly the maximum 
punishment which may be imposed for attempts to commit the 
crimes described in section 1029. As amended, subsection (b)(1) 
will provide that convictions for attempts under section 1029 
are to be subject to the same penalties as those proscribed for 
the offense attempted.
    Section 2(c) of the bill amends the definition of 
``scanning receiver'' currently found in section 1029(e)(8). 
The bill adds to the definition of scanning receiver additional 
language to ensure that the defined term is understood to 
include a device or apparatus that can be used to intercept an 
electronic serial number, mobile identification number, or 
other identifier of any telecommunications service, equipment, 
or instrument.
    Section 2(d) of the bill creates an exception to the crime 
described in new subsection (a)(9) for persons who are employed 
by or under contract with certain telecommunications carriers. 
The new exception provides that it is not a violation of new 
subsection (a)(9) for an officer, employee, or agent of a 
facilities-based carrier, or a person under contract with a 
facilities-based carrier, to use, produce, have custody or 
control of, or possess hardware or software configured as 
described in subsection (a)(9). Thus, these persons legally may 
continue to possess and manufacture this type of hardware or 
software. Additionally, these persons legally may send such 
hardware or software through the mails or send or carry it in 
interstate commerce.
    It should be noted, however, that these actions are only 
permitted under the exception if these actions were taken for 
the purpose of protecting the property or legal rights of the 
facilities-based carrier. The Committee intends that the phrase 
``for the purpose of protecting the property or legal rights of 
the carrier'' be narrowly construed. Only such actions which 
might be deemed to part of the ordinary course of business of a 
telecommunications carrier, such as actions involving 
maintenance on or modifications to a telecommunications system, 
or which are designed to test the operation of the system or 
the system's ability to deter unauthorized usage including the 
reverse engineering of hardware or software configured as 
described in new subsection (a)(9), should be deemed to fall 
within this exception. Acts taken with the intent to defraud 
another, even if taken by officers, employees, or agents of a 
facilities-based carrier, or persons under contract with a 
facilities-based carrier, would still violate the statute.
    The Committee takes particular note of the fact that under 
some circumstances a facilities-based carrier may use this 
equipment to intercept signals carried on another 
telecommunications carrier's system for the purpose of testing 
whether customers of the one carrier may be able to utilize the 
other carrier's system when those customers initiate or receive 
calls while inside the other carrier's geographic area of 
operation. It is the Committee's understanding that, in the 
past, these types of legitimate interceptions have always 
occurred with the express consent of the two carriers involved. 
The Committee believes that this is the appropriate practice. 
Thus, the exception created by subsection (d) of the bill 
should only be understood to apply to situations where the 
other carrier has consented to the use of this equipment on its 
system.
    Section (d) of the bill also adds new paragraph (9) to 
subsection (e) of section 1029 in order to define the term 
``facilities-based carrier'' as it is used in the exception to 
new subsection (a)(9). That term is defined to mean an entity 
that owns communications transmissions facilities, is 
responsible for the operation and maintenance of those 
facilities, and holds an operating license issued by the 
Federal Communications Commission. Thus, it does not include 
so-called ``resellers'' of wireless telephone air time, 
companies which buy blocks of air time and resell it to retail 
customers. The definition also does not include companies which 
hold nominal title to telecommunications equipment but which 
have no responsibility for their operations or for performing 
maintenance on them. Finally, the definition does not include 
persons or companies which may own and operate tangible 
telecommunications equipment but which do not hold the 
appropriate license for that purpose issued by the Federal 
Communications Commission.
    Section 2(e) of the bill directs the United States 
Sentencing Commission to review and amend its sentencing 
guidelines and policy statements, if appropriate, to provide an 
appropriate penalty for offenses involving the cloning of 
wireless telephones. This section of the bill states a number 
of factors which the Sentencing Commission is directed to 
consider during its review. The Committee is concerned that 
violations of section 1029 are not punished as severely as 
other, similar, fraud crimes are punished under the Sentencing 
Commission's sentencing guidelines and, in any event, are not 
punished as severely as they should be in light of the 
magnitude of loss resulting from this crime and the fact that 
this crime is often used to facilitate more serious crimes. 
This section of the bill directs the Sentencing Commission to 
consider these and other factors in making to Congress as part 
of its annual reporting process whatever recommendations it 
deems appropriate with respect to the guidelines for imposing 
punishment for violations of section 1029.

                              Agency Views

    No agency views were received with respect to the bill H.R. 
2460.

         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):

              SECTION 1029 OF TITLE 18, UNITED STATES CODE

Sec. 1029. Fraud and related activity in connection with access devices

  (a) Whoever--
          (1) * * *
          * * * * * * *
          [(8) knowingly and with intent to defraud uses, 
        produces, traffics in, has control or custody of, or 
        possesses--
                  [(A) a scanning receiver; or
                  [(B) hardware or software used for altering 
                or modifying telecommunications instruments to 
                obtain unauthorized access to 
                telecommunications services, or]
          (8) knowingly and with intent to defraud uses, 
        produces, traffics in, has control or custody of, or 
        possesses a scanning receiver;
          (9) knowingly uses, produces, traffics in, has 
        control or custody of, or possesses hardware or 
        software, knowing it has been configured for altering 
        or modifying a telecommunications instrument so that 
        such instrument may be used to obtain unauthorized 
        access to telecommunications services; or
          [(9)] (10) without the authorization of the credit 
        card system member or its agent, knowingly and with 
        intent to defraud causes or arranges for another person 
        to present to the member or its agent, for payment, 1 
        or more evidences or records of transactions made by an 
        access device;
shall, if the offense affects interstate or foreign commerce, 
be punished as provided in subsection (c) of this section.
  (b)(1) Whoever attempts to commit an offense under subsection 
(a) of this section shall be [punished as provided in 
subsection (c) of this section] subject to the same penalties 
as those prescribed for the offense attempted.
          * * * * * * *
  [(c) The punishment for an offense under subsection (a) or 
(b)(1) of this section is--
          [(1) a fine under this title or twice the value 
        obtained by the offense, whichever is greater, or 
        imprisonment for not more than ten years, or both, in 
        the case of an offense under subsection (a) (2), (3), 
        (5), (6), (7), (8), or (9) of this section which does 
        not occur after a conviction for another offense under 
        either such subsection, or an attempt to commit an 
        offense punishable under this paragraph;
          [(2) a fine under this title or twice the value 
        obtained by the offense, whichever is greater, or 
        imprisonment for not more than fifteen years, or both, 
        in the case of an offense under subsection (a) (1), 
        (4), (5), (6), (7), or (8) of this section which does 
        not occur after a conviction for another offense under 
        either such subsection, or an attempt to commit an 
        offense punishable under this paragraph; and
          [(3) a fine under this title or twice the value 
        obtained by the offense, whichever is greater, or 
        imprisonment for not more than twenty years, or both, 
        in the case of an offense under subsection (a) of this 
        section which occurs after a conviction for another 
        offense under such subsection, or an attempt to commit 
        an offense punishable under this paragraph.]
  (c) Penalties.--The punishment for an offense under 
subsection (a) of this section is--
          (1) in the case of an offense that does not occur 
        after a conviction for another offense under this 
        section--
                  (A) if the offense is under paragraph (1), 
                (2), (3), (6), (7), or (10) of subsection (a), 
                a fine under this title or imprisonment for not 
                more than 10 years, or both; and
                  (B) if the offense is under paragraph (4), 
                (5), (8), or (9), of subsection (a), a fine 
                under this title or imprisonment for not more 
                than 15 years, or both; and
          (2) in the case of an offense that occurs after a 
        conviction for another offense under this section, a 
        fine under this title or imprisonment for not more than 
        20 years, or both.
          * * * * * * *
  (e) As used in this section--
          (1) * * *
          * * * * * * *
          (6) the term ``device-making equipment'' means any 
        equipment, mechanism, or impression designed or 
        primarily used for making an access device or a 
        counterfeit access device; [and]
          (7) the term ``credit card system member'' means a 
        financial institution or other entity that is a member 
        of a credit card system, including an entity, whether 
        affiliated with or identical to the credit card issuer, 
        that is the sole member of a credit card system[.];
          (8) the term ``scanning receiver'' means a device or 
        apparatus that can be used to intercept a wire or 
        electronic communication in violation of chapter 119[.] 
        or to intercept an electronic serial number, mobile 
        identification number, or other identifier of any 
        telecommunications service, equipment, or instrument; 
        and
          (9) the term ``facilities-based carrier'' means an 
        entity that owns communications transmission 
        facilities, is responsible for the operation and 
        maintenance of those facilities, and holds an operating 
        license issued by the Federal Communications Commission 
        under the authority of title III of the Communications 
        Act of 1934.
          * * * * * * *
  (g) It is not a violation of subsection (a)(9) for an 
officer, employee, or agent of, or a person under contract 
with, a facilities-based carrier, for the purpose of protecting 
the property or legal rights of that carrier, to use, produce, 
have custody or control of, or possess hardware or software 
configured as described in that subsection (a)(9).

                                
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