their for profit male partners in a moment of candor the head of one of the veterans charities said that if the public knew what they were doing we'd all be out of business no one would donate it would dry up so i hope this hearing will help us explore ways to attack this fraud on the public we're also going to discuss the issue of making cigarettes another to back a product non mailable the internet has created a way for children to buy cigarettes there are hundreds of websites t kids can use order cigarettes without any face to face in fact because many sites have to court minimum kids to buy cigarettes through the mail and give or sell cigarettes to their friends the major private carriers have acknowledged the dangers and ventured into agreements with states not to transport cigarettes the result is that the postal service has become the major carrier of mail order cigarettes to our young people today an estimated ninety percent of cigarettes and other to bacco products are sent through the u s postal service many of these purchases are made to evade state id or tax requirements a federal agency should not be good afternoon chairman davis chairman waxman representatives norton i am here today to discuss the important issue of effective and efficient fund raising through the mouth to support those in need of america's generosity throughout the sions work together to support those in need they carry out their mission by reaching out and seeking the help of others they do it using their own often limited resources at times they do it with the assistance of professional fund raising groups these are critical at reach efforts that fund very important charitable work we are proud that the united states postal service is one of the links between these fund raising groups and potentials onus our role is very simple to provide the prompt accurate and affordable service to help them raise the funds they need to service the privilege of mailing at reduced nonprofit rates makes it possible for eligible groups to devote a larger portion of their funding to achieve them mission the postal inspection service investigates reports of fraud or misuse of this raid in connection with mail solicitations despite a steady increase in the number of nonprofit mailing permits now more than three hundred fifty thousand we have experienced a seventy five percent reduction in mail related charity fraud complaints over the last several years this because of varying capabilities and needs charitable organizations often use the services of professional fund raising businesses to help them reach out to the public through the nonprofit rate now before two thousand and three the relationship between nonprofits and the professional fund raising groups was a simple fee for service model all risk was borne by the charitable organization for example if the total cost of a fund raising campaign was one hundred thousand dollars and the mailing only produced fifty thousand in revenue the nonprofit group would have the entire show up all the contracted would still receive the anti a fee for the mailing and other services provided concerned with this model and examples nonprofits losing money lead twenty states to require that for profit fund raises the risk of a mailing with the nonprofit organization the state's efforts were inconsistent with our policy after seeking input of affected stakeholders the postal service amended its whopper of male role in two thousand and three to align with the state efforts those twenty states the change permitted non profits to move beyond the limitations of up your fee for service relationship to one and cooperating share address also she had would be the names of those responding to a solicitation following the change if there were to be a shortfall between the cost of a mailing and the revenue it produced it could be shared by both parties rather than just being borne by the charity we all share the goal that charities reap the maximum benefit from nonprofit mailings produced in cooperation with commercial farms this is a complex issue one that requires an approach that works for every nonprofit organization whether they use the mal or other ways to reach potential contributors on behalf of the postal service i offer to you my full there we go good afternoon chairman davis norton i had a longer prepared statement along with my correspondence with postmaster general potter and his response which what i asked the committee can include for the record his interest in the commission's work on the property mail study when i had the opportunity to testify several weeks ago i'm pleased to be able to give you an update on where the commission stands at the commission relatively recent revision to the cooperative mailing rules to cooperate mail rules a longstanding postal service regulation designed to control or limit access to reduced rates limits are needed because reduced rates provide a significant benefit to those who meet the eligibility requirements current law mandates that nonprofit mailers pay sixty percent of the regular standard mail rate co operative mailings fall into two categories those mailings are deemed eligible for a reduced rate and those that are not traditionally it has not been easy to qualify as an eligible mailing each cooperating party has to qualify individually for reduced rates on its own merits this requirement disqualified most cooperation with for profit entities important importantly unwitting violations of the rule could result in large postal deficiency assessments these are most often identified by the postal service or through its inspection service knowing violations could result in criminal charges for fraud the focus of the new laws directive is for the commission to study the exception to this general rule the current exception was adopted by the postal service in two thousand and three the exception applies to solicitation for monetary donations which do not advertise or promote products or services even if these are nominal value the postal service characterized its adoption as representing the consensus of comments it received during a formal making those comments serve as a starting point for the commission study in determining whether appropriate safeguards exist to protect against abuses of rates and deception of consumers to assist the commission's work we recently issued a notice seeking public comment on the scope and nature of the study's directive in particular we asked for comments on developments in the fund raising field and nonprofit educational efforts since adoption of the exception our study touches on that historically has been the purview of the postal inspection service and the postal inspector general i shared my letter to mr potter with the inspection service further we've met several times with the staff to flesh out the issues involved in this report i'm told also preparing a report involving how the postal service monitors the use of the fund raising exception their report and work in this area will inform the commission's efforts on our report your staff has asked whether nonprofit standard rates result in a net loss or gain for the postal service ivileges for the first twenty years of cooperative male enforcement to focus upon the sale of goods and services by authorized nonprofit but changes in law and some of the tories involving fundraising practices changed  on the other hand a number of controversy by the service sent chills through the community and seem to put much of conventional fundraising by mainstream organizations in this environment small group of commercial fundraising companies  legislative initiative aimed at insulating fundraising from cooperative male rule enforcement the organized fundraising community through a coalition of prominent umbrella organizations developed a nearly universal and uniform response  reasonable certain protections for nonprofit mailers the provision of a safe harbor and other words questionable practices could be interdicted or sanctioned by the service but legitimate ethical fund raising could proceed without jeopardy contrary to the wishes of most of those of us who would have been subject to the regulation service chose to remove fund raising e mail rule oversight altogether we believe that the service could have and should have found a finer balance and its two thousand and three rule making to be proposal it would offer strictly qualified protection for fundraising but at the same time provide more than ample space for a cooperative male role in its two thousand and three rule making the postal service gave great deference to the immense importance of direct board of governors chairman and postmaster general potter urging them to reconsider the wisdom of the exemption in the following passage from the november letter is illustrated under the current regulation consumers are protected from result it will be perfectly legal for these marketers to enter into arrangements that allow them to keep the funds that consumers are giving they are giving to the nonprofit according to the alliance a nonprofit mailer's which represents over four hundred   it was in response to what was perceived by the state to be a situation where for profit fundraisers were being hired by charities on a on a  basis and were you know in a sense being taken by them so again this notion of shared rest was our response to that obviously your hearings have exposed areas where you know  i just meant might close loopholes and we're open to that another problem we have that full committee charity hearing is the donors don't know where to get the information about these charities they don't know where to look to find out that mystery was one of the leaders of veterans charity where very little was going to the veterans at his organization only twenty five cents per dollar on programs with the rest going to fund chairman i think that we should have charity include that information as part of the mailing you know i think it's unfair to the consumer to ask them to go look for it if that is information that's the vital or important for the donor why not make it part of the requirements of the mailing that they say how much of the funds are going to charitable work versus how much is going to and i think that that would be something that you know would really enhance the credibility of each and every letter and would be something that  appropriate of the government to do that however the concept as a consumer is nothing that i would oppose but i just don't know if it's appropriate for the postal service to you know  have information that goes to the charities the folks that do participate in the in these programs and i'm very amenable to have discussions about that and to better inform the american public and better of all the charities on on how to that continues and so we do have a mail classification group that does look at who should be eligible and the inspection service continues to deal with any seventy five percent reduction in the amount of complaints that were made about nonprofits and so in that sense we continue to do that right after the after the rules change we reached out to the nonprofit community and provided brochures and information regarding the changes that were made and informing them about how to you know make sure that their relationship  with the people that they contract with to do the mailing whether that was a for profit fundraiser or other was going to be one that was satisfactory to them and that would be a relationship that would keep them away from the abuser so yes we have formed you know work with the nonprofits as well as continue to monitor our inspection service any complaints requirements for us to figure out how we would manage that and when we think of nonprofit fundraising we think that there are multiple channels to raise funds for non profits and so that nonprofit and we chose to look at the fact that mailing out a reduced rate is a privilege and it was our job to deliver the mail so we could raise funds but also to be consistent with state law and do our best to protect non profits so again the notion here was that there were non profits being i'll call it ripped off for lack of a better term by professional fund raisers under a different type of time tracting scenario one that was a fee for service and one that we had numerous cases where people had lost money non profits had lost money today you know i think that there's an opportunity to do everything that's being suggested by the nonprofit itself there is nothing that would preclude them from saying i want the money deposited in my bank account i want the names of the people that are going to make in the donation there is nothing there that was good advice on the behalf of multiple communities including the leadership of those organizations that would preclude a nonprofit organization from entering into an agreement that would satisfy all of those requirements the then there are multiple channels that non nonprofit organizations can use multiple methods to reach out to the american public to get those very aware of the zone nations and we'll do our best to help make sure that the mail is not abused but we don't want to be the such sales may also violate state tax and public health codes although tobacco products are presently eligible to be entered into the mail we are committed to working with state local and federal officials to combat illegal tobacco transactions the postal service has taken several steps using our existing authority to address this issue for example the postal service collaborated with experts from several federal agencies to develop a comprehensive listing of relevant restrictions on the importation of cigarettes into the united states we have a list distributed to foreign pows and this some illegal traffic from abroad we've also worked with federal and state officials to the valid strategies for dealing with illegal tobacco sales for example beginning in april two thousand and four the post one through november two thousand and four the postal inspection service participated  an introduction led by the a t f and customs to execute a seizure warrants of packages boxes containers and envelopes entering the united states that j f k international and newark airport the operation resulted in the of over twenty five thousand airline containers containing more than two hundred thousand cartons of cigarettes postal inspectors in new york provided assistance from the early stages of a case by conducting an investigation of a company that was marketing tax free cigarettes through the internet to customers in the united states in addition to assisting federal agencies the inspectors work closely with agents from the do york state department of finance during the investigation this case is presently being prosecuted by the united states attorney's office for the southern district of new york charges have been filed for violations of the mail fraud  and the jenkins act the inspection service has provided similar assistance to law enforcement agencies on other cases in new york and new jersey as well as in alaska pennsylvania and texas cigarettes and smokeless tobacco today are legal and mail products in the united states and some cigarette vendors also sell non secure and non tobacco products priority mail which is often used for shipping tobacco is sealed against inspection therefore a federal search warrant would be needed to open the packages unless the mail or voluntarily that a package contains non  matter generally the only way to determine whether it contains unlawful contents is to open the package which as i just mentioned can only be done with a search warrant or the mailers consent we are aware that proposed legislation would make tobacco non mailable there are practical difficulties in the enforcement of the proposed legislation and extraordinary resources might be needed to enforce new restrictions in two thousand and seven for example the postal service handled eight hundred ninety seven million priority mail pieces unlike private sector shipping companies the postal service does not have contracts with priority mail customers and customers can deposit priority mail packages at any one of nearly thirty seven thousand post offices in the united states and if the package is under thirteen ounces intellection boxes the postal inspection service has approximately exploitation of the elderly through mail fraud as the ban on tobacco were enacted the postal service would have to the postal inspectors would have to shift resources to combating cigarette mailings which would likely come at the expense of some of these other proposed under title thirty nine this approach with the regulation of alcohol shipments which are non mailable under title eighteen in closing your you that the postal service is committed to helping law enforcement deal tobacco sales represent a serious public health challenge let me take a moment and explain why it is so important to the public health community ninety percent of adult smokers begin smoking when they are eighteen years of age or younger if we are to succeed in reducing the enormous toll that tobacco takes on our country we must help the forty five million adults who smoke quit but we also must prevent kids from starving we have made progress in this regard but we still have twenty three percent of our high school students three and a half million young people who smoke and thirteen and a half percent of our high school students using smokeless tobacco products we know how to make progress we must use several proven strategies that have conclusive evidence supporting them one of those is to raise the price of tobacco products economic studies confirm that a ten percent increase in price produces a six to seven percent reduction in the number of kids who smoke and a three to four percent reduction in the total consumption by adults in kids states are using this tool of higher prices since two thousand and two forty three states have raised their tobacco taxes seventy five times by raising prices states are reducing tobacco use and saving lives they're reducing health care costs and they're providing revenue for key programs oftentimes health programs internet tobacco sellers by not collecting state and federal taxes are selling at lower prices undermining all the benefit of these higher state and oftentimes local tobacco tax increases to make matters worse tobacco products are typically sold without any effective safeguards again sales to kids when they buy over the internet these kids these are kids who have a hard time purchasing at a retailer can turn to the internet to purchase their cigarettes and has been pointed out by this committee several members on the committee typically internet sellers require minimum purchases like two cartons which means when one kid buys it there's plenty to go around to their friends the current state of internet tobacco sales is very troubling surveys show that the number of kids using the internet to purchase tobacco is rising starting with the two thousand and one government survey which showed that over three percent of twelve to seventeen year olds had bought cigarettes from the internet in the previous thirty days subsequent surveys have shown these numbers rising the number of internet sites is increasing most internet sites advertise that they sell cigarettes studies that kids can easily buy at these internet sites with success rates of seventy to ninety percent because no i d s are checked kids increasingly have credit cards and debit cards to use on the internet and new restrictions on retail outlets are pushing kids to the internet at these low prices adults are also smoking more as well all of this means that internet tobacco sales are undermining our public health strategies to reduce tobacco use without question reducing internet sales of cigarettes and smokeless tobacco products by making them  important public health benefits because our mails are now the vehicle by which these internet sales are being made one survey in two thousand and seven of a hundred and one orders showed that eighty one percent through the u s ma three by fed ex one by sixteen were not delivered state and local governments have taken innovative actions but they cannot do this by themselves no matter how comprehensive and effective their efforts might be illegal internet are occurring because they are being sent through the us mail in conclusion mr chairman making all cigarettes and smokeless tobacco nonmetal of all matter would serve many important purposes he would close the door on this enormous enforcement loophole at the state level making it impossible for the states to use other tools at their disposal to address the problem it would immediately hinder internet contraband trafficking of tobacco products it would protect honest businesses it would protect the government revenue and most importantly it would improve public health and protect our children the public health community strongly urging its adoption thank you thank you very much f thank you mr chairman thank you congresswoman holmes norton and to congressman waxman as well i want to begin by thanking you for your leadership in advancing this critically important bill it may sound arcane and technical to most american citizens including most connecticut citizens but it goes to the core of the fight against tobacco addiction in this country it is not only a matter of revenue loss as severe as that problem is but it also is a threat to effect of enforcement of laws that prohibit sales to minors the current practices of the united states postal service enable and encourage the illegal purchases of these sales via the internet there may be intellectually viable reasons that are advanced here today as they have been before we disagree with those reasons but we're asking the united states congress to put aside the intellectual or the legal debate and simply act now to achieve the well established purposes of the jenkins which are essentially to prevent revenue loss and those sales where the disparities of prices become so great as they are now we need to deal with the technological demands that danced and exceeded the powers of state government to apprehend and prosecute violations of law we need a national approach we've worked very very hard and i started on this issue back in the mid one nine hundred ninety s with the lawsuit against the tobacco industry which connecticut helped the way along with others and then efforts since then to enlist voluntarily the private delivery service which have cooperated and may have some out of the practical difficulties that are suggested here today we've also worked with the credit card company and we've achieved agreements with them including visa master card american express discover paper how we are gradually surrounding and choking literally suffocating the sources of this internet supply but we need now the united states postal service to stop enabling the internet sales and if an act of congress is necessary to do it we ask you to achieve that and now there are more than seven hundred websites perhaps is more than a thousand they appear and disappear they sell via the mail as you just heard easily and readily avoiding the law they are impossible for any one state or even a group of states to effectively process we need have though is given limited resources that congress have to ask states to spend that you would want to pick probably the most effective means this would be one means of addressing the problem there would be a number of other means through education pro stopping source of the cigarettes i think states i've looked through a lot of what the states have done they have done number of things to intercept shipments of cigarettes before they even get to the postal service they've done things to shut businesses down and it would seem to me that there are a number of potentially effective means and you don't want to kind of pick the one that's going to have the most i guess the most widespread effect  but of course if cigarettes are made on mailable the postal service would enforce that prohibition thirty nine evidence has to be gathered before we can take action and evidence can come in through information that comes to us but it can also come through information that comes to other law enforcement agencies so they could not do it alone they would have to continue to probably best to refer to an institute of medicine study in the summer of two thousand and seven that laid out everything that we have learned over the last twenty years an article control effort we have conclusive evidence that there are ways to bring down you smoking and use tobacco use one of those is raising the price that's what we've been talking about here and how to tackle coming through the mail that lower prices undermine those efforts smoke free workplace laws change exposure to second hand smoke for adults but they also change social norms comprehensive prevention and cessation programs that include counter marketing activities that are implemented at the state and local level have been proven when they're adequately funded to reduce tobacco use among kids we know exactly how to bring down smoking rights when states implement these proven strategies the r come down california's probably our best example they've been at this the longest they now have the national average is around twenty two percent twenty three percent california is down now to fourteen percent among  kids if we implement these strategies we will bring the smoking rates down it's a different strategy to deal with adults with adults it's a matter of helping them quit providing this is station assistance that's also something we have to do and the social norms about state in these difficult economic times when we are challenged by deficits but even in good times the estimates are that somewhere between five hundred million to four or five million nationally are lost to state and local governments and there's a fairly common consensus that the numbers those estimates actually undercount the amount of revenue lost but i think the revenue has to be seen as the other side of the enforcement coin involving discouraging under a consumption of tobacco products an addiction to those products because as mr core rightly and pointedly is a major weapon against kids beginning to smoke in connecticut and my guess is new york is not much different because most dates are the same the average age that people begin to smoke is still eleven years old and the amount of the  price of the product is very often a major determinant as to whether that young person can have access to a tobacco product the price differential is huge if the sale is via the internet at the counter whether it's a convenience store the gas station or elsewhere and so i think the revenue loss has to be seen in that context and in the longer range picture and i've said this a million times consumption is one of the most costly as well as painful type customs authority has customs has authority to open shipments coming into the united states and they frequently you know will do that not only with cigarettes but with other shipments into the country to determine whether the shipment is but again as i said there's information sharing that goes back and forth between the various law enforcement agencies evidence that there might be something amiss could come up in any agency and they would share that delivery services in stopping shipments and delivery of tobacco products i would add that the postal inspectors are among the most able and effective of our