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20–018 PDF 2005

RESPONDING TO ORGANIZED CRIMES AGAINST

MANUFACTURERS AND RETAILERS

HEARING

BEFORE THE

SUBCOMMITTEE ON CRIME, TERRORISM, 

AND HOMELAND SECURITY

OF THE

COMMITTEE ON THE JUDICIARY 

HOUSE OF REPRESENTATIVES

ONE HUNDRED NINTH CONGRESS

FIRST SESSION

MARCH 17, 2005

Serial No. 109–36

Printed for the use of the Committee on the Judiciary

(

Available via the World Wide Web: http://www.house.gov/judiciary 

(II)

COMMITTEE ON THE JUDICIARY 

F. JAMES SENSENBRENNER, JR., Wisconsin, Chairman 

HENRY J. HYDE, Illinois 

HOWARD COBLE, North Carolina 

LAMAR SMITH, Texas 

ELTON GALLEGLY, California 

BOB GOODLATTE, Virginia 

STEVE CHABOT, Ohio 

DANIEL E. LUNGREN, California 

WILLIAM L. JENKINS, Tennessee 

CHRIS CANNON, Utah 

SPENCER BACHUS, Alabama 

BOB INGLIS, South Carolina 

JOHN N. HOSTETTLER, Indiana 

MARK GREEN, Wisconsin 

RIC KELLER, Florida 

DARRELL ISSA, California 

JEFF FLAKE, Arizona 

MIKE PENCE, Indiana 

J. RANDY FORBES, Virginia 

STEVE KING, Iowa 

TOM FEENEY, Florida 

TRENT FRANKS, Arizona 

LOUIE GOHMERT, Texas 

JOHN CONYERS, JR., Michigan 

HOWARD L. BERMAN, California 

RICK BOUCHER, Virginia 

JERROLD NADLER, New York 

ROBERT C. SCOTT, Virginia 

MELVIN L. WATT, North Carolina 

ZOE LOFGREN, California 

SHEILA JACKSON LEE, Texas 

MAXINE WATERS, California 

MARTIN T. MEEHAN, Massachusetts 

WILLIAM D. DELAHUNT, Massachusetts 

ROBERT WEXLER, Florida 

ANTHONY D. WEINER, New York 

ADAM B. SCHIFF, California 

LINDA T. SA ́ NCHEZ, California 

ADAM SMITH, Washington 

CHRIS VAN HOLLEN, Maryland

PHILIP G. KIKO, Chief of Staff-General Counsel 

PERRY H. APELBAUM, Minority Chief Counsel 

SUBCOMMITTEE ON CRIME, TERRORISM, AND HOMELAND SECURITY

HOWARD COBLE, North Carolina, Chairman

DANIEL E. LUNGREN, California 

MARK GREEN, Wisconsin 

TOM FEENEY, Florida 

STEVE CHABOT, Ohio 

RIC KELLER, Florida 

JEFF FLAKE, Arizona 

MIKE PENCE, Indiana 

J. RANDY FORBES, Virginia 

LOUIE GOHMERT, Texas 

ROBERT C. SCOTT, Virginia 

SHEILA JACKSON LEE, Texas 

MAXINE WATERS, California 

MARTIN T. MEEHAN, Massachusetts 

WILLIAM D. DELAHUNT, Massachusetts 

ANTHONY D. WEINER, New York

JAY APPERSON, Chief Counsel 

MICHAEL VOLKOV, Deputy Chief Counsel 

ELIZABETH SOKUL, Counsel 

KATY CROOKS, Counsel 

JASON CERVENAK, Full Committee Counsel 

BOBBY VASSAR, Minority Counsel 

(III)

C O N T E N T S 

MARCH 17, 2005

OPENING STATEMENT 

Page 

The Honorable Daniel E. Lungren, a Representative in Congress from the 

State of California ................................................................................................ 1

The Honorable John Conyers, Jr., a Representative in Congress from the 

State of Michigan ................................................................................................. 9

The Honorable Robert C. Scott, a Representative in Congress from the State 

of Virginia, and Ranking Member, Subcommittee on Crime, Terrorism, 

and Homeland Security ....................................................................................... 11

WITNESSES 

Mr. Chris Swecker, Assistant Director, Criminal Investigative Division, Federal Bureau of Investigation 

Oral Testimony ..................................................................................................... 12

Prepared Statement ............................................................................................. 14

Mr. Chris Nelson, Director of Asset Protection, Target Corporation, on behalf 

of the Coalition Against Organized Retail Theft 

Oral Testimony ..................................................................................................... 15

Prepared Statement ............................................................................................. 18

Mr. Paul D. Fox, Director, Global External Relations, The Gillette Company, 

and Chair, Coalition Against Counterfeiting and Piracy 

Oral Testimony ..................................................................................................... 20

Prepared Statement ............................................................................................. 22

Ms. Lauren V. Perez, Vice President, Regulatory Matters, Sandler, Travis 

& Rosenberg, P.A., on behalf of the American Free Trade Association 

Oral Testimony ..................................................................................................... 25

Prepared Statement ............................................................................................. 26

LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING 

Prepared Statement of the Honorable Joseph Knollenberg, a Representative 

in Congress from the State of Michigan ............................................................. 3

Letter from the Honorable Donald A. Manzullo, a Representative in Congress 

from the State of Illinois, to the Honorable Howard Coble .............................. 5

Letter from the American Apparel & Footwear Association, Automotive 

Aftermarket Industry Association, Gas Appliance Manufacturers Association, et al., to the Honorable Joseph Knollenberg ............................................. 7

APPENDIX 

MATERIAL SUBMITTED FOR THE HEARING RECORD

Prepared Statement of the Honorable Robert C. Scott, a Representative in 

Congress from the State of Virginia, and Ranking Member, Subcommittee 

on Crime, Terrorism, and Homeland Security ................................................... 37

Prepared Statement of the Honorable Mark Green, a Representative in Congress from the State of Wisconsin, and Member, Subcommittee on Crime, 

Terrorism, and Homeland Security .................................................................... 37

Prepared Statement of the Honorable John Conyers, Jr., a Representative 

in Congress from the State of Michigan ............................................................. 38

Page

IV

Prepared Statement of the Honorable Bob Goodlatte, a Representative in 

Congress from the State of Virginia ................................................................... 38

Letter from Sandy Kennedy, President, Retail Industry Leaders Association 

(RILA), to the Honorable Howard Coble ............................................................ 40

Prepared Statement of the National Electrical Manufacturers Association 

(NEMA) ................................................................................................................. 44

Document entitled ‘‘Organized Retail Crime: Describing a Major Problem,’’

by Read Hayes, Loss Prevention Research Council and University of Florida .......................................................................................................................... 48

Response to post-hearing questions from Chris Swecker, Assistant Director, 

Criminal Investigative Division, Federal Bureau of Investigation .................. 107

Response to post-hearing questions from Chris Nelson, Director of Asset 

Protection, Target Corporation, on behalf of the Coalition Against Organized Retail Theft ................................................................................................. 110

(1)

RESPONDING TO ORGANIZED CRIMES 

AGAINST MANUFACTURERS AND RETAILERS 

THURSDAY, MARCH 17, 2005

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON CRIME, TERRORISM, AND HOMELAND SECURITY

COMMITTEE ON THE JUDICIARY, Washington, DC.

The Subcommittee met, pursuant to notice, at 1:17 p.m., in Room 

2141, Rayburn House Office Building, the Honorable Daniel E. 

Lungren (acting Chair of the Subcommittee) presiding. 

Mr. LUNGREN. All right. The Subcommittee on Crime, Terrorism, 

and Homeland Security is having a legislative hearing today on 

crimes against manufacturers and retailers. 

We’ll also have a markup of the bill H.R. 32, the ‘‘Stop Counterfeiting in Manufactured Goods Act,’’ as soon as we have a voting 

quorum, which will be nine. 

My intention is to begin the hearing from our witnesses, and at 

such time as we have a reporting quorum, to break the hearing 

here, have the vote on the proposed bill, and then go back into the 

hearing. 

The purpose of today’s hearing is to examine the harm caused to 

consumers, manufacturers, and retailers by counterfeit products 

and organized retail theft. Because of the suspected involvement of 

organized crime and connections to terrorism in these activities, 

Federal law enforcement has undertaken a number of efforts to 

combat these crimes. Today, we will examine additional options for 

combating trafficking in counterfeited goods and organized retail 

theft. Both of these crimes produce staggering losses to businesses 

and, therefore, jobs across the United States and around the world. 

The level of organization required for these criminal activities and 

the established links to terrorism have made this a priority for the 

Federal Government. 

Task forces have been created by the Administration to direct resources to investigate and prosecute these crimes at the Federal 

level. The proliferation of counterfeit products in recent years creates not only a threat to legitimate businesses but also to the consumer. Many of the products that are falsely labeled are labeled 

with brand names or trademarks that consumers know and trust. 

Mislabeling of all often inferior products creates a false sense of security for consumers. 

Additionally, and as importantly, some of the counterfeited products, such as prescription or over-the-counter medications, could 

have serious health consequences if they are used by an unsuspectVerDate 0ct 09 2002 08:56 Aug 25, 2005 Jkt 000000 PO 00000 Frm 00005 Fmt 6633 Sfmt 6601 G:\WORK\CRIME\031705\20018.000 HJUD1 PsN: 20018
2

ing consumer. FBI and Customs and Border agents estimate sales 

of counterfeit goods are lining the pockets of organized crime organizations to the tune of about $500 billion in sales per year. By 

mid-year of fiscal year 2003 the Department of Homeland Security 

already reported 3,117 seizures of counterfeit branded goods, including cigarettes, books, apparel, handbags, toys, and electronic 

games, with an estimated street value of about $38 million. 

According to the FBI’s Financial Institution Fraud Unit, counterfeit products cheat the U.S. of tax revenues, adds to the national 

trade deficit, subjects consumers to health and safety risks, and 

leaves consumers without any legal recourse when they’re financially or physically injured by counterfeit products. The FBI has 

identified counterfeit products not only in pharmaceuticals and 

automobile parts, but also in such products as airplane parts, baby 

formulas, and children’s toys. 

Organized retail theft is another growing problem throughout the 

United States affecting a wide range of retail establishments, including supermarkets, chain drug stores, independent pharmacies, 

mass merchandisers, and convenience stores. It has become one of 

the most pressing security problems confronting retailers and suppliers and now accounts for over $30 billion of losses at store level 

annually, according to the FBI Interstate Theft Task Force. 

Organized retail theft is a separate and distinct crime from petty 

shoplifting. It involves professional theft rings that move quickly 

from community to community and across State lines to pilfer large 

amounts of merchandise that is then repackaged and sold back into 

the marketplace. Because of the prevalence of this criminal activity, the FBI created a task force to specifically focus on this problem. In addition to prosecutions under State laws, the Federal Government may use RICO laws to prosecute these large theft rings. 

In addition to the harm this crime causes for business, consumers are put at risk when these rings steal consumable products, 

especially over-the-counter medications and infant formula. In 

many cases, after the merchandise has been stolen, the products 

are stored under conditions that could threaten the integrity of the 

product. For example, extreme heat or extreme cold can affect the 

nutrient content or physical appearance of infant formulas. There 

is no guarantee that these products have not been stored or kept 

past the expiration dates. Expiration dates, lot numbers, and labels 

may have changed—may have been changed to falsely extend the 

shelf life of the product and to disguise the fact that the merchandise has been stolen. 

I find both of these crimes very troubling, not only because of 

their effect on businesses and our economy and our jobs, but also 

because of the real threat to consumers who may unknowingly receive these products. I am interested and the Committee is interested in hearing from each of the witnesses here today regarding 

appropriate efforts to prevent and prosecute these crimes. 

Also, I note that Congressman Knollenberg is unable to be in attendance. He is the author of H.R. 32, the ‘‘Stop Counterfeiting in 

Manufactured Goods Act.’’ I thank him for his contribution to this 

effort and ask for unanimous consent to submit a statement by 

Congressman Knollenberg in the record in support of his legislation, as well as a statement from Congressman Don Manzullo, and 

3

a letter from the Coalition Against Counterfeiting and Piracy. And 

without objection, it is so ordered. 

[The prepared statement of Mr. Knollenberg follows:]

PREPARED STATEMENT OF THE HONORABLE JOSEPH KNOLLENBERG, A

REPRESENTATIVE IN CONGRESS FROM THE STATE OF MICHIGAN

Mr. Chairman and members of the Subcommittee, thank you for the opportunity 

to submit testimony for your hearing on ‘‘Responding to Organized Crimes Against 

Manufacturers and Retailers.’’

The focus of my testimony today is the scourge of counterfeit manufactured goods. 

As you know, I have introduced the Stop Counterfeiting in Manufactured Goods Act, 

which you will markup following this hearing. I want to thank the subcommittee 

and, especially Chairman Coble, for taking up this important issue and considering 

my bill. 

The economy of my congressional district, as you would expect being located just 

northwest of Detroit, is largely centered around the auto industry, particularly auto 

suppliers. I represent quite a few large suppliers, such as Delphi and Arvin-Meritor. 

In fact, my district includes the headquarters of over one-fourth of the 100 largest 

auto suppliers in North America, as well as a host of small suppliers. To say that 

the manufacturing sector is important to my district and to the State of Michigan 

is an understatement. In my district alone, there are more than 1,500 manufacturing entities, and 93% of them have less than 100 employees. 

Early last year an association that represents auto parts suppliers came to my 

office and told me about the serious and growing problem of counterfeit auto parts. 

I was particularly struck by the impact that counterfeiters were having on the auto 

supplier industry. 

The numbers, in fact, are staggering. In addition to the obvious safety issues, 

counterfeit automobile parts cost the automotive supplier industry over $12 billion 

annually. It’s estimated that if these losses were eliminated, the auto industry could 

hire 200,000 additional workers. 

It’s important to remember those numbers, because counterfeiting is not a 

victimless crime. In addition to selling bogus products, the counterfeiters are stealing jobs and money away from legitimate companies, destroying brand names, increasing warranty claims, and requiring legal fees and costly investigations. 

The fight against counterfeiters is not limited to the automotive industry. The impact of counterfeiters is broad. When it comes to the economy overall, the U.S. Customs Service has estimated that counterfeiting has resulted in the loss of 750,000 

jobs and costs the United States around $200 billion annually. The International 

Chamber of Commerce estimates that seven percent of the world’s trade is in counterfeit goods and that the counterfeit market is worth $350 billion. 

That’s why the Stop Counterfeiting in Manufactured Goods Act not only has 

united support from the auto industry, but from many, many other industries. 

Counterfeiting is a problem that is growing larger every day. We must take a 

more aggressive stand against it. And one of the ways we are going to do that is 

to give the government more tools to fight counterfeiters. 

My bill has two key provisions that will help stop criminals who use counterfeit 

trademarks. 

The first provision is the most important and gets at the roots of the problem—

it requires the mandatory destruction and forfeiture of the equipment and materials 

used to make the counterfeit goods. 

Under current law, a convicted trademark counterfeiter is only required to give 

up the actual counterfeit goods, not the machinery. What’s to stop them from going 

back to make more? 

My bill would require the convicted criminals to give up not just the counterfeit 

goods, but also the equipment they used to make those goods. 

In addition to this provision, my bill also prohibits trafficking in counterfeit labels, 

patches, and medallions that are not necessarily attached to a particular counterfeit 

good. This provision will close a loophole that was created through the case of the 

United States vs. Giles, also known as the ‘‘Fabulous Fakes’’ case. 

I believe that these simple changes will have a profound impact in combating 

counterfeit manufactured goods in many different ways. 

This bill will send a signal to counterfeiters that the United States is serious 

about fighting this growing problem. Passing this bill will give prosecutors more 

tools to go after the criminals here in the U.S. and punish them severely. 

This bill is also necessary to address the problem globally. Most of the counterfeit 

auto parts are coming from other countries, particularly China. Some countries are 

4

better than others at fighting counterfeiting, but we do have ways to prod the stragglers. 

However, we can’t demand that other countries take steps to combat trademark 

counterfeiting that we have not taken ourselves. So, by passing my bill and improving our own law, Congress will empower our trade negotiators to press for stronger 

anti-counterfeiting provisions in other countries. 

As the United States is currently engaged in a variety of trade negotiations, it 

is critical to pass this bill as soon as possible so that it can have the greatest impact 

abroad. 

This bill has broad support, including the U.S. Chamber of Commerce, the National Association of Manufacturers, the Motor and Equipment Manufacturers Association, the National Electrical Manufacturers Association, the IACC, International 

Trademark Association and a host of major corporations. 

For these reasons, Mr. Chairman, I respectfully urge you and your colleagues on 

the subcommittee to pass H.R. 32, the Stop Counterfeiting in Manufactured Goods 

Act. As I have outlined, counterfeiting is a very serious worldwide problem that 

threatens public safety, hurts the U.S. economy and costs Americans thousands of 

manufacturing jobs. No one supports counterfeiters, and we must do everything we 

can to eliminate the problem. Passing my bill, the Stop Counterfeiting in Manufactured Goods Act is one important step we need to take. I look forward to working 

with all of you to advance this cause.

[The letter from Mr. Manzullo follows:]

5


Manz1.eps
6


Manz2.eps
7

[The letter from the coalition follows:]


Coal1.eps
8


Coal2.eps
9

Mr. LUNGREN. At this time I would say that normally Congressman Coble would be presiding over this hearing, but Congressman 

Coble was required to appear to give a eulogy for a close friend of 

his in his district and otherwise would be in attendance. 

When Congressman Bobby Scott appears, I will recognize him for 

his opening statement. He is still on the floor, having just managed 

the Congressional Black Caucus amendment to the Budget Act. 

Mr. CONYERS. Mr. Chairman? 

Mr. LUNGREN. Yes? 

Mr. CONYERS. Might I make a brief opening statement in his absence? 

Mr. LUNGREN. In his absence, yes, sir. The gentleman is recognized. 

Mr. CONYERS. I thank you very much. Always happy to see Dan 

Lungren sitting in the chair again. He took a leave of absence to 

be Attorney General in California, and now he is back on the Committee, I think his seniority is restored. And, of course, our good 

friend Bobby Scott of Virginia is the ranking Subcommittee person 

here, and he will be here shortly, I am sure. 

But this is a timely hearing. There has been, without question, 

more organized retail theft and trafficking in counterfeit trademarks that cause us to be here today. And we know that the numbers that Chairman Lungren brought to us, the FBI estimates and 

retail losses, are about where he said they are. 

We are here to talk about solutions to these problems, and I 

wanted to just throw out a couple of common-sense principles that 

might guide us as we proceed in this discussion. 

As we consider strengthening remedies against illicit counterfeiters, we want to be careful not to unnecessarily infringe on legitimate businesses and commercial activities. Many law-abiding 

companies operate in the parallel importation market which involves the selling and reselling of genuine goods and services, and 

in turn, they are then provided to customer—to consumers at competitive discount rates. Thus, any limits placed on such companies 

have a detrimental effect on consumers in search of bargains. 

And, finally, we should agree just as a general principle—and I 

think that this does guide us most times. We don’t want to add 

laws to the criminal code unless they are absolutely necessary. 

That goes back to the principles of federalism that dictate that we 

offer solutions only to those problems not left within the domain of 

the State, and the prosecution of shoplifters at the Federal level 

may not meet this requirement. And I am hoping that we’ll be discussing somewhere along the line, Mr. Chairman, the verification 

of secondary sourcing. 

And with that, I ask that my statement be included in the record 

and return my time. Thank you very much. 

Mr. LUNGREN. It shall be. Thank you. 

Our first witness is Assistant Director of the FBI Criminal Investigative Division, Chris Swecker. The Criminal Investigative Division is responsible for coordinating, managing, and directing all 

criminal investigative programs nationwide. Mr. Swecker entered 

the FBI in 1982. Prior to being appointed to his current position 

by Director Mueller on July 7, 2004, he served as the special agent 

10

in charge of the Charlotte, North Carolina, field office. A native of 

Spain? 

Mr. SWECKER. Navy family. 

Mr. LUNGREN. Navy family, okay. A native of Spain, he received 

his early education in Virginia Beach, Virginia, earned a bachelor 

of science degree in political science and economics from Appalachian State University in North Carolina, and juris doctorate degree from Wake Forest School of Law. 

This is a little earlier than we thought we were going to have a 

vote. We will find out what it is. 

Upon graduating from law school, he became Assistant District 

Attorney for the First District of North Carolina September 1981. 

Our next witness is here today on behalf of the Gillette Corporation. Mr. Paul Fox is the Director of External Relations for the Gillette Corporation. Over the last 3 years, he has devoted specific 

focus to assisting Gillette identify the issues associated with the 

counterfeiting and theft of its products, developing wide-ranging 

programs designed to combat the impact of these crimes on Gillette’s businesses, and is currently the Chair of the Coalition 

Against Counterfeiting and Piracy. Mr. Fox was educated in England. 

Our third witness, Mr. Chris Nelson, is the Director of Asset Protection for the Target Corporation. Before being appointed to this 

role, Mr. Nelson held the position of Director of Investigations for 

the Target Corporation. In this capacity, he led the corporation’s 

investigative strategy and teams, including field investigations, corporate investigations, financial investigations, and intelligence. 

Prior to joining Target, he served as an officer of the U.S. Army 

Military Police. Assignments required him to serve all over the 

world, from South Korea to Washington, D.C., and even led him to 

command a military police company at Fort Riley, Kansas, and in 

Mogadishu, Somalia, supporting U.S. and UN operations during 

the Somalian conflict. He received his B.A. from St. Cloud State 

University in criminal justice, is a graduate of the military police 

skills officer basic and advanced course in combined arms and services staff school at Fort Leavenworth, Kansas. 

Our final witness, Ms. Lauren Perez, is Vice President on Regulatory Matters and an international trade adviser with Sandler, 

Travis, and Rosenberg, specializing in global regulatory issues. 

Again, I turn to my colleague, the distinguished gentleman from 

Michigan, to make a few remarks with respect to Ms. Perez. 

Mr. CONYERS. We want to welcome Attorney Perez, who has now 

been promoted within her firm for her good work. And she is an 

old friend of intellectual property issues and has been before the 

Committee many times. And she conducts corporate seminars and 

deals with international protection of international—intellectual 

property rights and has been very good in working with the Committee on the Judiciary. And I must say that we’re always happy 

to have her come up from Florida to be with us. 

Thank you, Mr. Chairman. 

Mr. LUNGREN. Thank you, Ranking Member. 

It’s the practice of the Subcommittee to swear in all witnesses 

appearing before it, so if you would please stand and raise your 

right hand. 

11

[Witnesses sworn.] 

Mr. LUNGREN. Thank you. Let the record show that each of the 

witnesses answered in the affirmative, and please be seated. I notice this was probably easier than the hearing they were having 

just down the hall. Some of you may have realized why you could 

have seats at this place. Canseco is down the hall. 

We have written statements from all the witnesses on this panel, 

which I will ask unanimous consent to submit into the record in 

their entirety, and without objection, so ordered. 

We have been informed that we have a vote on a motion to rise 

from the Committee considering the budget bill. The reason why 

we’re surprised is we did not know—this was not scheduled. That 

is a 15-minute vote, I understand, and we will have to break and 

go over and vote and come back, and I apologize to our witnesses. 

We are a half-hour past when we wanted to, but this is what happens when you have hearings while we’re also voting on something 

on the floor, the budget. And we shall adjourn and be back as soon 

as possible. 

[Recess.] 

Mr. LUNGREN. All right. We’ll reconvene the Subcommittee hearing. 

First of all, I want to ask unanimous consent that the statement 

of Mr. Green be placed in the record. Without objection, so ordered. 

I recognize the Ranking Member of the Subcommittee, Congressman Bobby Scott. 

Mr. SCOTT. Thank you, Mr. Chairman. I apologize for being delayed. The amendment that was voted on previous to this last vote 

was an amendment that I had drafted, so I had to be there to answer questions. So although there was plenty of time to get back 

after people had an opportunity to vote, I felt compelled to stay. So 

I apologize. 

But I’m pleased to join you in convening this hearing on counterfeiting of manufactured goods and organized retail theft. We have 

Federal laws to address counterfeiting of manufacturing goods. H.R 

32, the ‘‘Stop Counterfeiting in Manufactured Goods Act,’’ amends 

existing law in a manner designed to intensify the effort to prevent 

counterfeiting of goods. Counterfeited goods not only victimize the 

manufacturer but shortchanges the purchasers with substandard 

products, exposes us to—all of us to risks of unsafe products, and 

deprives Americans of jobs and other benefits of commerce of authentic goods. 

Yet there is concern that H.R. 32 as drafted may go too far and 

criminalizes legitimate, time-honored practices of law-abiding merchants who legally purchase manufactured goods and repackage 

them in various ways to enhance sales of such goods. We have been 

able—we have able witnesses who may speak to these points, so I 

look forward to their testimony. 

For some now—for some time now, we’ve been hearing about the 

problem of organized retail theft, or ORT, from business representatives in my congressional district, so I am pleased that we’ll be 

able to report to them that we’re giving this issue attention in Congress. Theft of merchandise through shoplifting from retail outlets 

and through other means is not new and has traditionally been 

handled by State criminal laws. In Virginia, for example, any theft 

12

in excess of $200 is grand larceny, with a maximum penalty of 20 

years. A third offense of petty larceny is by law in Virginia treated 

the same way as grand larceny. With the diligent enforcement activities, such measures are ordinarily adequate to—ordinary law 

enforcement activities are usually adequate to keep the problem of 

merchandising theft sufficiently in check. 

However, with organized theft rings deploying numerous individuals operating across State lines, ordinary enforcement approaches 

may not be adequate. These individuals can shoplift with acceptable risks by maintain—by remaining under the grand larceny 

threshold for each incident and steal thousands of dollars worth of 

merchandise for the ring. I expect that our witnesses will describe 

ORT as a problem of growing dimensions with organized crime, 

interstate, and international elements. 

As with counterfeiting of goods, we already have Federal laws 

which can be utilized, and I’m pleased to have a representative 

from the FBI to describe what the Federal Government is doing 

about it and what is needed for further effectiveness. 

So, Mr. Chairman, I look forward to hearing testimony from our 

witnesses and working with you and Chairman Coble to do what 

makes sense at the Federal level to curb both problems, including 

counterfeiting of manufactured goods and organized retail theft. 

Thank you. 

Mr. LUNGREN. Thank you very much. 

Now it becomes my duty to explain to you that even though you 

have waited here for almost 50 minutes, we’re going to ask you to 

please confine your comments to 5 minutes apiece. The green light 

goes on to show you there’s 5 minutes; the yellow light goes on 

with 1 minute; and I’ll be as lenient as I possibly can, and then 

we’ll have questions and answers. And we very much appreciate 

you being here. It is just a crazy schedule. And the absence of some 

Members is no reflection on the quality of your testimony. It is just 

the craziness of this Congress. 

Mr. Swecker, if we could begin with you, please. 

TESTIMONY OF CHRIS SWECKER, ASSISTANT DIRECTOR, 

CRIMINAL INVESTIGATIVE DIVISION, FEDERAL BUREAU OF 

INVESTIGATION 

Mr. SWECKER. Good afternoon, Mr. Chairman, Members of the 

Committee. I appreciate the opportunity to be here to talk about 

the problem posed by criminal enterprises involved in the theft, diversion, repackaging, and ultimate resale of consumer products to 

include such items as over-the-counter medications, prescription 

drugs, health and beauty aids, and infant formula. 

The problem is significant for the economic loss it brings to retailers and manufacturers, which are then passed on to consumers. 

Ultimately, the consumer ends up paying significantly higher 

prices for these products because of this. The problem is particularly acute in the area of organized retail theft by criminal enterprises. It is estimated that the retail industry loses between $15 to 

$30 billion annually to such theft. 

The unsuspecting consumer also faces potential health and safety 

risks from legitimate products which may have been mishandled by 

the criminal enterprises who stole them for resale to consumers. In 

13

many cases, stolen infant formula, pharmaceuticals, and other 

consumables are not stored under proper conditions. When these 

items are reintroduced into the retail market, they can pose a significant health hazard to the consumer. The potential threat to the 

health and safety of unsuspecting consumers is most evident in 

cases in which infant formula is stolen, repackaged, and then resold to both knowing and unknowing wholesalers, who then sell the 

infant formula to Government food programs and discount stores. 

The first phase of the initiative included the formation of a National Retail Federation/FBI Intelligence Network, which is a partnership between the FBI, State and local law enforcement, and corporate security entities, to establish an effective means of sharing 

intelligence information. 

Stolen prescription and over-the-counter medications and health 

and beauty aids are also sold to illegitimate wholesalers who specialize in repackaging and reintroduction of these products into the 

retail market, creating the same health and safety concerns. These 

illegitimate wholesalers also work with other criminal enterprises 

to facilitate the introduction of counterfeit prescription and overthe-counter medications and health and beauty aids to 

unsuspecting retailers and consumers. In addition to these concerns, the potential for intentional product tampering prior to the 

reintroduction of the stolen merchandise into the market is significant. 

These significant criminal enterprises can best be dismantled 

through a coordinated and cooperative effort between local law enforcement, Federal law enforcement, and the manufacturing and 

retail industry. In December of ’03, we established the Organized 

Retail Theft Initiative to identify and ultimately to disrupt and dismantle the most sophisticated, multi-jurisdictional criminal enterprises, using the Federal statutes, including RICO and money laundering. Increased information sharing and cooperation between law 

enforcement and the private sector will enable both to gain a better 

understanding of the full nature and extent of this problem, as well 

as to identify the best methods for law enforcement and the industry to attack this serious problem. 

The FBI’s initiative and the formation of the Intelligence Network has received strong support from the retail/food industry. Information obtained through this initiative has been furnished to 

FBI field offices to initiate investigations and facilitate a more effective, intelligence-driven investigative response to the significant 

problem. 

As part of the Intelligence Network, a Retail Loss Prevention—

or, excuse me. As part of the Intelligence Network, the NRF has 

created a Retail Loss Prevention Intelligence Network Database. 

This database will provide retail entities and law enforcement with 

intelligence/information capability. The FBI is serving on the 

RLP—or on this committee in an advisory capacity. 

In addition to this initiative, the FBI is identifying and targeting 

multi-jurisdictional criminal enterprises utilizing major theft task 

forces. These task forces combine the resources of State, Federal, 

and local law enforcement as well as the industry to apply investigative techniques and strategies which the FBI successfully utilize to target traditional organized crime, including the developVerDate 0ct 09 2002 08:56 Aug 25, 2005 Jkt 000000 PO 00000 Frm 00017 Fmt 6633 Sfmt 6601 G:\WORK\CRIME\031705\20018.000 HJUD1 PsN: 20018
14

ment of a solid intelligence base and the use of undercover operations and various electronic surveillance techniques. These task 

forces increase the effectiveness of the effort. 

Currently there are nine FBI-led major theft task forces located 

in Houston, Memphis, Miami—where there are two—Newark, New 

York, Philadelphia, San Juan, and the Washington field office. 

They’re responsible for conducting investigations of all major theft 

violations including retail, cargo, vehicle, jewelry and gem theft. As 

of this date, the nine FBI-led task forces are staffed by FBI agents 

and other State, Federal, and local law enforcement. 

In FBI field offices that do not have a task force, significant investigations are being conducted by criminal enterprise squads. 

Many of these investigations are worked in coordination with State 

and local law enforcement and include assistance from the industry. 

In summary, major theft task forces are an extremely effective 

manner by which to combat organized retail theft enterprises. They 

‘‘force multiply’’ the resources available, eliminate redundant investigative efforts, reduce concurrent jurisdictional issues, and encourage that information sharing that is so critical. 

The use of the task forces, coupled with a partnership with the 

industry, is seen as one of the most effective and efficient tools by 

which to identify, disrupt, and dismantle organized retail theft enterprises impacting the health, safety, and pocketbook of the American consumers. 

Thank you. 

[The prepared statement of Mr. Swecker follows:]

PREPARED STATEMENT OF CHRIS SWECKER

Good morning Mr. Chairman and members of the Judiciary Committee. On behalf 

of the Federal Bureau of Investigation, I would like to express my gratitude to the 

committee for affording me the opportunity to speak with you concerning the FBI’s 

efforts in addressing the nationwide problem posed by criminal enterprises involved 

in the theft, diversion, repackaging, and ultimate resale of consumer products, to 

include such items as over-the-counter medications, prescription drugs, health and 

beauty aids, and infant formula. 

This problem is significant for the economic losses it brings to manufacturers and 

retailers, which are then passed on to consumers. Ultimately, the American consumer ends up paying significantly higher prices for these products. This problem 

is particularly acute in the area of Organized Retail Theft (ORT) by criminal enterprises. It is estimated that the retail industry loses between $15 to $30 billion annually to such theft. 

The unsuspecting consumer also faces potential health and safety risks from legitimate products which may have been mishandled by the criminal enterprises who 

stole them for resale to consumers. In many cases, stolen infant formula, pharmaceuticals, and other consumables are not stored under proper conditions. When 

these items are reintroduced into the retail market, they can pose a significant 

health hazard to the consumer. The potential threat to the health and safety of 

unsuspecting consumers is most evident in cases in which infant formula is stolen, 

repackaged and then resold to both knowing and unknowing wholesalers, who then 

sell the infant formula to government food programs and discount stores. 

The first phase of the ORT Initiative included the formation of a National Retail 

Federation (NRF)/FBI Intelligence Network. This network is a partnership between 

the FBI, state and local law enforcement, and corporate security entities; to establish an effective means of sharing ORT information/intelligence; to discuss ORT 

trends as they relate to specific areas of the retail market; and, to identify and target the most significant ORT criminal enterprises, particularly those that may be 

involved in the funding and/or supporting of terrorist organizations or activities. 

Stolen prescription and over-the-counter medications and health and beauty aids 

are also sold to illegitimate wholesalers who specialize in the repackaging and reVerDate 0ct 09 2002 08:56 Aug 25, 2005 Jkt 000000 PO 00000 Frm 00018 Fmt 6633 Sfmt 6621 G:\WORK\CRIME\031705\20018.000 HJUD1 PsN: 20018
15

introduction of these products into the retail market, creating the same health and 

safety concerns. These illegitimate wholesalers also work with other criminal enterprises to facilitate the introduction of counterfeit prescription and over-the-counter 

medications and health and beauty aids to unsuspecting retailers and consumers. 

In addition to these concerns, the potential for intentional product tampering prior 

to the reintroduction of the stolen merchandise into the retail market is significant. 

These sophisticated ORT criminal enterprises can best be dismantled through a 

coordinated and cooperative effort between law enforcement and the manufacturing 

and retail industry. In December 2003, the FBI established an ORT Initiative to 

identify and ultimately to disrupt and dismantle the most sophisticated, multi-jurisdictional ORT criminal enterprises, using the Interstate Transportation of Stolen 

Property, Money Laundering, and RICO statutes. Increased information sharing and 

cooperation between law enforcement and the private sector will enable both to gain 

a better understanding of the full nature and extent of this crime problem, as well 

as to identify the best methods for law enforcement and the manufacturing and retail industry to attack this serious crime problem. 

The FBI’s ORT Initiative and the formation of the Intelligence Network has received strong support from the retail/food industry. Information obtained through 

this initiative has been furnished to appropriate FBI field offices to initiate investigations and to facilitate a more effective, intelligence-driven investigative response 

to the significant problem of ORT criminal enterprises. 

As part of the Intelligence Network, the NRF is creating a Retail Loss Prevention 

Intelligence Network Database (RLPIN). This database will provide retail entities 

and law enforcement with an ORT information/intelligence sharing capability. The 

FBI is serving on the RLPIN committee in an advisory capacity. 

In addition to the ORT Initiative, the FBI is identifying and targeting multi-jurisdictional ORT criminal enterprises utilizing joint Major Theft Task Forces. These 

task forces, which combine the resources of local, state and federal law enforcement, 

as well as manufacturing or retail security personnel, are applying investigative 

techniques and strategies which the FBI has successfully utilized to target traditional organized crime, including the development of a solid intelligence base and 

the use of undercover operations and various electronic surveillance techniques. 

These task forces increase the effectiveness and productivity of limited personnel 

and logistical resources, avoid the duplication of investigation resources, and expand 

the cooperation and communication among federal and state law enforcement agencies. 

Currently there are 9 FBI-led Major Theft Task Forces located in the Houston, 

Memphis, Miami (2 Task Forces), Newark, New York, Philadelphia, San Juan, and 

Washington DC Field Offices. These task forces are responsible for conducting investigations of all major theft violations to include retail, cargo, vehicle, and jewelry 

and gem theft. As of this date, the 9 FBI-led Major Theft Task Forces are staffed 

by FBI Agents and other federal, state and local law enforcement officers. 

In FBI Field Offices that do not currently have formal Major Theft Task Forces, 

significant ORT investigations are being conducted by criminal enterprise squads. 

Many of these investigations are worked in coordination with state and local law 

enforcement agencies, and include assistance from manufacturing and retail security entities. 

In summary, Major Theft Task Forces are an extremely effective manner by 

which to combat ORT criminal enterprises. They ‘‘force multiply’’ federal resources, 

benefit local law enforcement efforts, eliminate redundant investigative efforts, reduce concurrent jurisdictional issues, encourage information sharing and intelligence development, and reduce substantial organized retail theft. 

The use of Major Theft Task Forces, coupled with a partnership with the retail 

industry, is seen by the FBI as one of the most effective and efficient tools by which 

to identify, disrupt and dismantle organized retail theft criminal enterprises impacting the health, safety and pocketbook of American consumers. 

Thank you.

Mr. LUNGREN. Thank you very much. 

Mr. Nelson? 

TESTIMONY OF CHRIS NELSON, DIRECTOR OF ASSET PROTECTION, TARGET CORPORATION, ON BEHALF OF THE COALITION AGAINST ORGANIZED RETAIL THEFT 

Mr. NELSON. Thank you. Mr. Chairman, Members of the Subcommittee, Congressman Goodlatte, my name is Chris Nelson. I’m 

16

the Director of Asset Protection for Target Corporation, which is 

headquartered in Minneapolis, Minnesota. Thank you for conducting today’s hearing on counterfeiting and organized retail theft. 

My statement today is presented on behalf of the Coalition Against 

Organized Retail Theft, This group, which has been together for 

close to 5 years, consists of national manufacturing and retail organizations as well as individual companies from both of these sectors. A listing of all the coalition members can be found at the end 

of my statement. 

Mr. Chairman, organized retail theft, or ORT, is a growing problem throughout the United States affecting many sectors of the retail community from supermarkets and chain drug stores to mass 

merchandisers and specialty stores. It is clearly the most pressing 

security problem facing our industry. Organized retail theft now accounts for up to $30 billion in losses at the store level annually, 

according to the FBI interstate task force. 

More importantly and most disturbing is the fact that the type 

of criminal activity can put consumers’ health and safety at risk. 

For example, consumers are potentially at risk when professional 

shoplifting rings steal consumable products, such as over-thecounter medications and infant formula. Pilfered products may not 

be kept under ideal or required storage conditions, and they can 

threaten the product’s integrity. Oftentimes these organized thieves 

will repackage and change labels of stolen merchandise or products 

to falsely extend that product’s expiration date or to disguise the 

fact that that merchandise has been stolen. 

Additionally, we at Target and several retailers have been victimized by ORT groups involved in other illicit activities, including 

the distribution of narcotics and money laundering supporting overseas operations. 

After working last year in the Fort Worth-Dallas area to close 

down a very large organized retail theft group stealing and reselling baby formula, we were advised by law enforcement that the 

group has sent $6 million to the Middle East. 

Organized retail theft rings are highly mobile and sophisticated, 

moving from community to community, and across State lines 

stealing large amounts of merchandise from retailers. Typical retail 

security practices are not enough to deter these groups. At Target, 

we studied the tactics of these groups and responded by fielding a 

highly trained investigative team throughout the country specifically equipped to deal with these groups. Unfortunately, not all retailers are in a fiscal position to resource such an endeavor. This 

creates an environment where ORT groups have the advantage and 

significantly lessens their risk. 

ORT groups typically target everyday household products that 

can easily be sold through fencing operations, flea markets, over 

the Internet, swap meets, and shady storefront operations. In addition to infant formula and OTC medications, other items that are 

in high demand by these professional shoplifting rings include 

razor blades, camera film, batteries, DVDs, CDs, and smoking cessation public sector. These items are attractive because they are 

commodities which are easy to conceal and easy to sell on the secondhand market. High-end items including designer clothes and 

electronics are also popular items for theft by these gangs. ORT 

17

groups target the same trend or hot items that honest consumers 

want. 

The coalition wishes to express its gratitude to both the Justice 

Department and the FBI for their hard work and dedication to the 

organized retail crime front as well as outstanding efforts of State 

and local law enforcement. In particular, retailers and manufacturers are very pleased about the recent collaborative efforts between 

Federal and State law enforcement officials who have broken up a 

retail theft ring operating in North Carolina and Virginia that was 

responsible for moving more than $2 million worth of stolen infant 

formula and OTC products. 

The coalition views the apprehension of this theft ring as a very 

positive development, but more needs to be done because the problem is prevalent throughout the country and these theft rings are 

becoming increasingly more aggressive and violent in their behavior. Unfortunately, this goal may be elusive, and that’s because 

there is no Federal statute currently on the books that specifically 

addresses organized retail theft crimes. The Federal statute most 

frequently utilized in dealing with professional theft rings is the 

Interstate Transportation of Stolen Property Act, but this law is 

limited to situations involving transportation of stolen goods. Thus, 

when professional thieves are apprehended for stealing large quantities of merchandise from a retail store, no Federal statute is readily available. This means the case is likely to be handled under 

State shoplifting law and usually treats such crimes as petty theft 

and a misdemeanor. As a result, organized retail theft cases are 

rarely prosecuted, and when they are, individuals who are convicted usually see limited jail time and are placed on probation if 

they have no prior arrests. That means they are back out on the 

street quickly, only to continue their illegal efforts and further injure both businesses and consumers. 

Retailers and manufacturers firmly believe that there is an overriding need to make organized retail theft a Federal felony as we 

believe it would serve as a strong deterrent against the commission 

of crimes of this nature in the future. The 108th Congress—or in 

the 108th Congress, our coalition endorsed such a bill, S. 1553, that 

was introduced by Senator Larry Craig. 

In addition to our support for an initiative that would make organized retail theft a Federal felony, the coalition offers the following 

legislative recommendations for consideration by the Congress: 

The establishment of a national database or clearinghouse to collect and track organized retail theft crimes. Such a national database would allow State and local law enforcement officials as well 

as retail stores to transmit electronically appropriate information 

into the database. The transmitted information would allow the 

FBI to quickly identify hot spots throughout the United States 

where ORT crimes are being committed and to deploy its agents 

and the resources more effectively in the field. 

Second is the authorization of funding for the establishment and 

maintenance of the national database, and for the purposes of educating and training Federal law enforcement agents for investigating, apprehending, and prosecuting individuals engaged in 

ORT activities. 

18

Third, the prohibition of the sale of certain products that are regulated by the Food and Drug Administration, such as infant formula and OTC medications, by flea markets and transient vendors 

unless such vendors have written authorization from the manufacturer to sell their products. 

And, finally, to amend Federal law to specifically reference organized retail theft as a Federal offense and to include a working definition of what constitutes organized retail theft so that Federal 

and State law enforcement agencies can identify these crimes and 

respond accordingly. In addition, better sentencing guidelines so 

that ORT crimes are not considered petty theft whereby individuals 

receive little jail time or probation. 

Mr. Chairman, this concludes my statement. Thank you for allowing me on behalf of Target Corporation and the Coalition 

Against Organized Retail Theft to participate in this important 

hearing. 

[The prepared statement of Mr. Nelson follows:]

PREPARED STATEMENT OF CHRIS NELSON

INTRODUCTION

Mr. Chairman, Members of the Subcommittee, Congressman Goodlatte. My name 

is Chris Nelson, and I am Director of Asset Protection for Target Corporation, 

headquartered in Minneapolis, Minnesota. Thank you for conducting today’s hearing 

on counterfeiting and organized retail theft. My statement today is presented on behalf of the Coalition Against Organized Retail Theft. This group, which has been 

together for close to five years, consists of national manufacturing and retail organizations as well as individual companies from both of these sectors. A listing of all 

Coalition Members can be found at the end of my statement. 

ORGANIZED RETAIL THEFT—A GROWING PROBLEM

Mr. Chairman. Organized Retail Theft is a growing problem throughout the 

United States affecting many sectors of the retail community from supermarkets, 

and chain drug stores to mass merchandisers and specialty stores. It is clearly the 

most pressing security problem facing our industry. Organized Retail Theft now accounts for up to $30 billion in losses at store level annually according to the Federal 

Bureau of Investigation’s (FBI) interstate task force. 

More importantly and most disturbing is the fact that this type of criminal activity can put consumer’s health and safety at risk. For example, consumers are potentially at risk when professional shoplifting rings steal consumable products, such as 

over-the-counter medications and infant formula. Pilfered products may not be kept 

under ideal or required storage conditions which can threaten the product’s integrity. And often times these organized thieves will repackage and change the labels 

of stolen products to falsely extend the product’s expiration date or to disguise the 

fact that the merchandise has been stolen. 

Organized retail theft rings are highly mobile, moving from community to community, and across state lines stealing large amounts of merchandise from retail stores. 

They typically target everyday household products that can be easily sold through 

fencing operations, flea markets, over the Internet, swap meets and shady storefront 

operations. In addition to infant formula and OTC medications, other items that are 

in high demand by these professional shoplifting rings include razor blades, camera 

film, batteries, DVDs, CDs, and smoking cessation products. High end items including designer clothes and electronics are also popular items for theft by these brazen 

gangs. 

The Coalition wishes to express its gratitude to both the Justice Department 

(DOJ) and the FBI for their hard work and dedication on the organized retail crime 

front as well as the outstanding efforts of state and local law enforcement. In particular, retailers and manufacturers are very pleased about the recent collaborative 

effort between federal and state law enforcement officials who have broken up a retail theft ring operating in North Carolina and Virginia that was responsible for 

moving more than $2 million dollars worth of stolen infant formula and OTC products. 

19

The Coalition views the apprehension of this theft ring as a very positive development, but more needs to be done because the problem is prevalent throughout the 

country and these theft rings are becoming more aggressive and violent in their behavior. Unfortunately, this goal may be elusive, and that’s because there is no federal statute currently on the books that specifically addresses organized retail theft 

crimes. The federal statute most frequently utilized in dealing with professional 

theft rings is the Interstate Transportation of Stolen Property Act, but this law is 

limited to situations involving the transporting of stolen goods. Thus, when professional thieves are apprehended for stealing large quantities of merchandise from a 

retail store, no federal statute is readily available. This means the case is likely to 

be handled under a state shoplifting law that usually treats such crimes as petty 

theft and a misdemeanor. As a result, rarely are organized retail theft cases prosecuted, and when they are, individuals who are convicted usually see limited jail 

time or are placed on probation if they have no prior arrests. 

COALITION RECOMMENDATIONS

Therefore, retailers and manufacturers firmly believe that there is an overriding 

need to make Organized Retail Theft a federal felony as we believe it would serve 

as a strong deterrent against the commission of crimes of this nature in the future. 

In the 108th Congress, our Coalition endorsed such a bill (S. 1553) that was introduced by Senator Larry Craig (R-ID). 

In addition to our support for an initiative that would make Organized Retail 

Theft a federal felony, the Coalition offers the following legislative recommendations 

for consideration by the Congress:

1. The establishment of a national data base or clearinghouse to collect and 

track organized retail theft crimes. Such a national data base would allow 

state and local law enforcement officials as well as retail stores to transmit 

electronically appropriate information into the data base. The transmitted information would allow the FBI to quickly identify ‘‘hot spots’’ throughout the 

United States where ORT crimes are being committed and to deploy its 

agents and resources more efficiently in the field.

2. The authorization of funding for the establishment and maintenance of the 

national data base, and for the purposes of education and training of federal 

law enforcement agents for investigating, apprehending and prosecuting individuals engaged in ORT crimes.

3. The prohibition of the sale of certain products that are regulated by the Food 

and Drug Administration, such as infant formula and OTC medications, by 

flea markets and transient vendors unless such vendors have written authorization from the manufacturer to sell their products.

4. Amend federal law to specifically reference organized retail theft as a federal 

offense and to include a working definition of what constitutes organized retail theft so that federal and state law enforcement agencies can identify 

these crimes and respond accordingly. In addition, better sentencing guidelines so that ORT crimes are not considered petty theft whereby individuals 

receive little jail time or probation.

Mr. Chairman, this concludes my statement and thank you for allowing the Coalition Against Organized Retail Theft to participate in this important hearing.

COALITION AGAINST ORGANIZED RETAIL THEFT

Abbott Laboratories 

Consumer Healthcare Products Association 

Cosmetic, Toiletry and Fragrance Association 

CVS/Pharmacy 

Duane Reade 

Eastman Kodak Company 

Eckerd Corporation 

Food Marketing Institute 

The Gillette Company 

GlaxoSmithKline 

Grocery Manufacturers of America 

International Formula Council 

The Kellen Company 

National Association of Chain Drug Stores 

National Association of Convenience Stores 

20

National Community Pharmacists Association 

National Retail Federation 

Retail Alliance of Virginia 

Retail Industry Leaders Association 

Security Industry Association 

Wal-Mart Stores, Inc. 

Walgreen Co.

Mr. LUNGREN. Thank you, Mr. Nelson. 

Mr. Fox? 

TESTIMONY OF PAUL D. FOX, DIRECTOR, GLOBAL EXTERNAL 

RELATIONS, THE GILLETTE COMPANY, AND CHAIR, COALITION AGAINST COUNTERFEITING AND PIRACY 

Mr. FOX. Mr. Chairman, Members of the Subcommittee, my 

name is Paul Fox. I am Director of Global External Relations for 

The Gillette Company. 

Gillette is a large, publicly held consumer product company 

based in Boston with world-renowned branches such as MACH3, 

Venus, Right Guard, Oral-B, Duracell, and Braun. 

I am also Chair of the Coalition Against Counterfeiting and Piracy, a cross-industry group created by a joint initiative between 

the U.S. Chamber of Commerce and the National Association of 

Manufacturers to act as the interface between U.S. business and 

the U.S. Government’s Strategy Targeting Organized Piracy Program. A list of member organizations to the coalition is attached 

to my written testimony. That written testimony also includes a 

copy of the report Gillette commissioned last year on the scale and 

impact of the illicit market in stolen and counterfeit goods on the 

fast-moving consumer goods sector. 

I am also Chair of the National Association of Manufacturers’

Working Group on Counterfeiting. 

I am here today on behalf of both Gillette and the coalition to 

discuss counterfeiting and theft, two issues of intense concern to 

Gillette and U.S. businesses nationwide. 

First and foremost, I want to emphasize that counterfeiting and 

theft pose a significant threat to the economy of the United States 

and undermine the welfare, the security, and the safety of its citizens. 

Let me begin by focusing on the issue of counterfeiting. 

I have two packages of Duracell batteries here, one of which is 

counterfeit. You should know that I can tell you a lot about the real 

batteries in my right hand—where they were made, what’s in 

them, how they perform, how much we and the retailer can expect 

to make on them; and last, but not least, the amount of tax that 

Federal and State governments make from their sale. 

On the other hand, all I can tell you about these fakes is that 

they will probably last one-tenth as long as the real ones, probably 

would sell for half as much, and that Gillette, the retailer, and the 

Government would get nothing from their sale. These counterfeit 

batteries are part of more than 34 million that we seized during 

2004. During that same period, we also seized more than 31 million 

fake Gillette shaving products and tens of thousands of Oral-B 

toothbrushes. 

21

When you apply these issues to the entire U.S. business commu- nity, the cost is staggering: an estimated $200 billion to the U.S. 

economy and a loss of 750,000 American jobs. 

Counterfeiting is clearly not a small problem, nor is it a 

victimless crime. We know that counterfeiting is used by organized 

crime and terrorist groups, including al Qaeda, to help fund their 

activities. But in addition to the risks from these organizations, our 

citizens also face direct health and safety dangers. These dangers 

range from fake, substandard auto and aircraft parts to fake pharmaceuticals that have no therapeutic value and may even cause direct harm. 

So what do we do and where do we start? First, we must make 

sure our law enforcement people have the resources they need to 

make a real impact, including the ability to seize and destroy the 

machinery used in making counterfeit products. A recent Gallup 

survey on consumer attitudes to counterfeiting revealed that more 

than 70 percent of American consumers wanted to see tougher laws 

against these criminals. And we urge the Department of Commerce 

to complete the counterfeiting study for which it earmarked funds 

3 years ago, but for which work has not yet begun. 

And, second, we use an improved domestic posture to influence 

international action on counterfeiting, to enact mandatory confiscation and destruction laws, to strengthen criminal penalties, and to 

enhance global cooperation on this issue. 

In the end, this is not a problem we can solve overnight or alone. 

But as leaders in global commerce, we must take real steps to protect the integrity of U.S. brands and products. Our citizens and our 

businesses deserve nothing less. 

Now let me turn to the question of organized retail theft. Theft within the U.S. retail industry is a $30 billion problem often linked 

to the same organized crime syndicates that perpetrate the outrages connected with counterfeiting. It is the same shady middlemen who peddle counterfeit goods that also help fence stolen merchandise and put it back into the licit retail chain. 

The majority of goods are stolen not for personal use but by organized criminals intent on the resale of the goods or to use them as 

collateral for other consumables such as drugs. 

Increasingly, criminals use violence to enforce their activities and 

to conduct their crimes. Retail staff face serious physical threats 

from thieves intent on removing products from store shelves. 

Because petty shoplifting is generally a misdemeanor prosecuted 

only under State statutes, organized crime rings have been using 

shoplifting to feed large-scale, high-revenue theft. ORT kingpins recruit gangs of shoplifters, giving them lists of low-volume, highvalue items to be stolen from retail outlets—items such as razor 

blades, batteries, over-the-counter drugs, infant formula, and designer clothing. 

The individual shoplifter may not seem worth prosecuting by 

local authorities since the value of the goods stolen from the single 

store is usually, and purposely, below the dollar value that would 

make the single act of shoplifting a felony under State law. 

However, while each individual instance of theft may itself be 

relatively small, the combined impact of these gangs can be devastating. During one recent FBI investigation, theft amounting to 

22

more than $10 million over a 5-year period was conducted by one 

criminal enterprise. 

So what can Congress do? First, Congress should establish and 

provide ongoing funding for a national organized retail crime database that would allow the FBI to quickly deploy resources against 

these crimes. We have a national database for stolen cars. We need 

a national database on ORT as well. 

Second, we need a focused Federal criminal statute to give Federal prosecutors better tools and more incentive to go after these 

criminals. Right now, Federal prosecutors spend little time on individual shoplifting crimes even though this may be the most effective way to crack a much larger ORT ring. 

In short, the organized criminals are using the low level of attention paid to the crime of shoplifting as a cover for a massive theft 

effort that costs billions of dollars each year. For our part, American industry stands ready to assist you in any way possible. 

This concludes my submission, and I would like to thank you for 

your time. 

[The prepared statement of Mr. Fox follows:]

PREPARED STATEMENT OF PAUL D. FOX

Mr. Chairman, Members of the Sub-Committee. My name is Paul Fox, and I am 

the Director of Global External Relations for The Gillette Company. 

Gillette is a large, publicly held consumer product company based in Boston with 

world-renowned brands such as MACH3, Venus, Right Guard, Oral-B, Duracell, and 

Braun. 

I am also Chair of the Coalition Against Counterfeiting and Piracy . . . a cross 

industry group created by a joint initiative between the US Chamber of Commerce 

and the National Association of Manufacturers to act as the interface between US 

business and the US Government’s Strategy Targeting Organized Piracy Program. 

A list of member organizations to the Coalition is attached to my written testimony. 

That written testimony also includes a copy of the report Gillette commissioned last 

year on the scale and impact of the illicit market in stolen and counterfeit goods 

on the fast moving consumer goods sector. 

I also Chair the National Association of Manufacturers’ Working Group on Counterfeiting. 

I am here today on behalf of both Gillette and the Coalition to discuss counterfeiting and theft—two issues of intense concern to Gillette and US businesses nationwide. 

First and foremost, I want to emphasize that counterfeiting and theft 

pose a significant threat to the economy of the United States and undermine the welfare, security and safety of its citizens. 

Let me begin by focusing on the issue of counterfeiting. 

I have two packages of Duracell batteries here . . . one of which is counterfeit. 

You should know that I can tell you a lot about the real batteries in my right 

hand—

—where they were made,

—what’s in them,

—how they perform,

—how much we and the retailer can expect to make on them,

—and last, but not least, the amount of tax that federal and state governments 

make from their sale.

On the other hand, all I can tell you about these fakes is that they will probably 

last one-tenth as long as the real ones,

—probably would sell for half as much,

—and that Gillette, the retailer and the government would get nothing from 

their sale.

These counterfeit batteries are part of more than 34 million that we seized during 

2004. 

23

During the same period, we also seized more than 31 million fake Gillette shaving 

products and tens of thousands of fake Oral-B toothbrushes— When you apply these issues to the entire US business community, the cost is staggering . . . an estimated $200 Billion to the US economy and a loss of 750,000 

American jobs. 

COUNTERFEITING IS CLEARLY NOT A SMALL PROBLEM NOR IS IT A VICTIMLESS CRIME—

We know that counterfeiting is used by organized crime and terrorist groups, including Al Queda, to help fund their activities 

But in addition to the risks from these organizations, our citizens also face direct 

health and safety dangers. 

These dangers range from fake, substandard auto and aircraft parts——

—to fake pharmaceuticals that have no therapeutic value and may even cause 

direct harm.

So what do we do and where do we start? 

First, we make sure our law enforcement people have the resources they need to 

have a real impact, including the ability to seize and destroy the machinery used 

in making counterfeit products, 

A recent Gallup survey on consumer attitudes to counterfeiting revealed that 

more than 70 percent of American consumers wanted to see tougher laws against 

these criminals.

—and we urge the Department of Commerce to complete the counterfeiting 

study for which it earmarked funds three years ago, but for which work has 

not yet begun.

And second, we use an improved domestic posture to influence international action on counterfeiting,

—to enact mandatory confiscation and destruction laws

—to strengthen criminal penalties

—and to enhance global cooperation on the issue.

In the end, this is not a problem we can solve overnight or alone. 

But as leaders in global commerce, we must take real steps to protect the integrity of US brands and products. 

Our citizens and our businesses deserve nothing less. 

Now let me turn to organized retail theft. 

Theft within the US retail industry is a $30 billion dollar problem often linked 

to the same organized crime syndicates that perpetrate the outrages connected with 

counterfeiting. It is the same shady middlemen who peddle counterfeit goods that 

also help fence stolen merchandize and put it back into the licit retail chain. 

The majority of goods are stolen not for personal use but by organized criminals 

intent on the resale of the goods or to use them as collateral for other consumables 

such as drugs. 

Increasingly, criminals use violence to enforce their activities and to conduct their 

crimes. Retail staff face serious physical threats from thieves intent on removing 

products from store shelves. 

Because petty shoplifting is generally a misdemeanor prosecuted only under state 

statutes, organized crime rings have been using shoplifting to feed large-scale, highrevenue theft. 

ORT kingpins recruit gangs of shoplifters, giving them lists of low-volume, highvalue items to be stolen from retail outlets—items such as razor blades, batteries, 

over-the-counter drugs, infant formula, and designer clothing. 

The individual shoplifter may not seem worth prosecuting by local authorities, 

since the value of the goods stolen from the single store is usually, and purposefully, 

below the dollar value that would make the single act of shoplifting a felony under 

state law. 

However, while each individual instance of theft may itself be relatively small, the 

combined impact of these gangs can be devastating. During one recent FBI investigation, theft amounting to more than $10 million over a five year period was conducted by one criminal enterprise. 

So, what can Congress do? 

First, Congress should establish and provide ongoing funding for a national organized retail crime database that would allow the FBI to quickly deploy resources 

against these crimes. 

We have a national database for stolen cars. We need a national database on ORT 

as well. 

24

Second, we need a focused federal criminal statute to give federal prosecutors better tools and more incentive to go after these criminals. Right now, federal prosecutors spend little time on individual shoplifting crimes even though this may be the 

most effective way to crack a much larger ORT ring. 

In short, the organized criminals are using the low-level of attention paid to the 

crime of shoplifting as a cover for a massive theft effort that costs billions of dollars 

each year. 

For our part, American industry stands ready to assist you in any way possible. 

This concludes my submission and I would like to thank you for your time. 

I would be happy to answer any questions.

Coalition Against Counterfeiting and Piracy—Membership

Associations

1. AeA, Advancing the Business of Technology (AeA) 

2. Advanced Medical Technology Association (ADVAMED) 

3. American Apparel & Footwear Association (AAFA) 

4. American Association of Exporters and Importers (AAEI) 

5. American Intellectual Property Lawyers Association (AIPLA) 

6. American Society of Association Executives (ASAE) 

7. The Cosmetic, Toiletry and Fragrance Association (CTFA) 

8. Consumer Electronics Association (CEA) 

9. Entertainment Software Association (ESA) 

10. Food Marketing Institute (FMI) 

11. Gas Appliance Manufacturers Association (GAMA) 

12. Global Business Leaders Alliance Against Counterfeiting (GBLAAC) 

13. Grocery Manufacturers of America (GMA) 

14. International Anti-counterfeiting Coalition (IACC) 

15. Intellectual Property Owners Association (IPO) 

16. International Communications Industries Association (ICIA) 

17. International Trademark Association (INTA) 

18. Motor & Equipment Manufacturers Association (MEMA) 

19. Motion Picture Association of American (MPAA) 

20. National Association of Manufacturers (NAM) 

21. Recording Industry Association of America (RIAA) 

22. Toy Industry Association (TIA) 

23. U.S. Chamber of Commerce (USCC) 

24. U.S. Council for International Business (USCIB) 

25. U.S.-India Business Council 

26. Vision Council of America (VCA) 

27. U.S.—India Business Council 

28. Vision Council of America (VCA) 

Corporations

1. Altria Corporate Services, Inc. 

2. Amgen Inc. 

3. American Standard Inc. 

4. Aspen Systems Corporation 

5. BellSouth Corporation 

6. C&M International, LTD 

7. Dayco Products, LLC 

8. DuPont Security & Solution 

9. Eastman Kodak Company 

10. Gillette 

11. News Corporation 

12. Oakley 

13. Pernod Ricard USA 

14. Robert Branand International 

15. SICPA Securink Corporation 

16. Stanwich Group LLC. 

17. The Fairfax Group 

18. Transpro, INC 

19. Underwriters Laboratories, Incorporated 

20. Xerox Corporation

Mr. LUNGREN. Thank you very much, Mr. Fox. 

Ms. Perez? 

25

TESTIMONY OF LAUREN V. PEREZ, VICE PRESIDENT, REGULATORY MATTERS, SANDLER, TRAVIS & ROSENBERG, P.A., 

ON BEHALF OF THE AMERICAN FREE TRADE ASSOCIATION 

Ms. PEREZ. It’s a privilege and honor to appear before the Subcommittee to offer these comments on behalf of the American Free 

Trade Association. AFTA is a nonprofit trade association of independent American retailers, distributors, importers, and wholesalers, committed to preserving the parallel market in order to assure American consumers cost competition and distribution of genuine and legitimate brand-name merchandise. 

To be honest, AFTA is never going to come before you and oppose 

legislation committed to eliminating organized crime or combating 

retail theft. AFTA supports any measures that’s going to make 

American businesses and consumers safer and more profitable. 

AFTA, in fact, supports legislation that criminalizes counterfeiting 

activity, so long as that legislation does not also prove to the detriment of consumers, relying upon the benefit of a freely competitive marketplace. AFTA supports the intentions of H.R. 32 but has 

grave concerns about the unintended consequences of its language. 

I’m going to spend a couple of minutes talking about and briefly 

illustrating some of those concerns. 

The amendment to the definition of a counterfeit trademark in 

H.R. 32 is a dramatic amendment, and it’s put in the context of a 

criminal statute. The bill’s proposed amended definition of a counterfeit trademark ignores entirely the fact that, under certain necessary, lawful, and desired commercial transactions, parties other 

than the registered trademark owner need to and should be able 

to reproduce and refer to registered trademarks on product packaging, labeling, tags, stickers, or labels. 

Product retailers and wholesalers in the United States often consolidate and combine legitimate brand-name merchandise into gift 

sets. We love this, especially around holiday time. You get lipsticks 

with mirrors or perfumes with hairbrushes. And then what these 

traders do is they make packaging or labeling to combine these 

products, and on that packaging and labeling they reproduce or 

refer to the registered trademarks to accurately identify the genuine brand-name merchandise contained in those gift sets. There’s 

nothing wrong with this. But H.R. 32 would potentially make that 

packaging counterfeit. It would turn the people who traffick in that 

packaging into criminals. That’s not what legislation intended to 

stop counterfeiting should also do. 

We all love coupons, discount coupons. American consumers and 

retailers, everyone depends upon the availability of coupons. There 

are third-party service providers that, quote-unquote, traffic in 

these promotional vehicles that necessarily contain registered 

trademarks that accurately refer to the genuine brand-name merchandise being sold at a discount. H.R. 32 would potentially make 

these coupons counterfeit if they weren’t manufactured under the 

authority of the registered trademark owner. That’s not what this 

legislation should do. 

For many, many, many years, trademark owners and product 

manufacturers have rushed into court charging that parallel marketers and suppliers to the secondary marketplace are counterfeiters, and oftentimes they’re just not right. That’s just not true. 

26

There’s one case I just want to briefly talk about, and it does 

deal with infant formula. I want to separate the issue of the health 

and safety of infant formula from the portion of this case that I 

think is germane to what I’m talking about. 

In that case, there was a third-party distributor that had in its 

possession unadulterated, untampered-with infant formula that 

was well still within its sell-by date. This infant formula was consolidated and combined, all of one single manufacturer, into a shipping container, a cardboard shipping container. The shipping container, the packaging, was made so that consumers could see that 

the products had not been tampered with. They could see that the 

products could still be consumed within the sell-by date and had 

on it the registered trademark accurately identifying the brand of 

the infant formula contained on those trays. 

The Government argued that the trays were counterfeit. They 

wanted this third-party distributor held criminally liable for counterfeiting under section 2320 of the Criminal Code. The court fortunately didn’t buy it and said that the shipping trays that just actually reproduced the trademarks of the actual products, genuine 

products contained on the shipping trays were not counterfeit. H.R. 

32 would reverse that decision. 

AFTA is absolutely convinced and remains convinced and confident that H.R. 32 is intended to stop illicit criminal counterfeit 

activity and supports that intention. Again, it’s the failure of the 

legislation to distinguish between lawful and unlawful application 

of registered trademark that needs to be fixed. We need to work 

together to find an amendment that fixes it. 

While there’s absolutely no question that all American trade 

groups and associations need to bind together to make sure that 

criminal counterfeiting activity stops, it’s an inappropriate legislative remedy to stop also normal, desirable, and necessary commercial transactions. 

AFTA has submitted in its written testimony proposed amendment language that we ask the Subcommittee and the Committee 

to consider. This language attempts to preserve criminal penalties 

for counterfeit packaging, labels, tags, while it also exempts from 

criminal prosecution the lawful sale and resale of genuine products 

that merely contain packaging that reproduce the trademarks accurately reflecting those genuine brand-name products and merchandise. AFTA looks forward to working with the proponents and supporters of this legislation to stop retail theft, to stop organized 

crime, and to ensure that any amendment to H.R. 32 equally protects the rights of intellectual property rights owners with the 

rights of American consumers to continue to be able to enjoy the 

benefit of a competitive marketplace which is supported by the 

members of the American Free Trade Association. 

Thank you again for the opportunity to speak before you today. 

[The prepared statement of Ms. Perez follows:]

PREPARED STATEMENT OF LAUREN V. PEREZ

It is a privilege and honor to appear before this Subcommittee to offer these comments on behalf of the American Free Trade Association (AFTA). The American 

Free Trade Association is a not-for-profit trade association of independent American 

importers, distributors, retailers and wholesalers, dedicated to preservation of the 

27

parallel market to assure competitive pricing and distribution of genuine and legitimate brand-name goods for American consumers. 

To be honest, there is no testimony or comments AFTA would ever offer opposing 

any legislation committed to eliminating organized crime. Summarily, AFTA supports any measures furthered by this subcommittee that makes our borders and our 

domestic businesses safer and more able to prosper and succeed. Specifically, AFTA 

supports any legislation that criminalizes counterfeiting activity so long as consumers remain the beneficiaries of a freely competitive marketplace. In that regard, 

AFTA fully supports the intentions of H.R. 32—although it seeks modification of the 

bill to ensure that lawful commercial activity will not unintentionally be obstructed 

by its provisions. 

Following is a brief discussion illustrating certain of AFTA’s concerns:

1. The amendment to subsection (e)(1) of 18 U.S.C. Section 2320 as proposed 

in H.R. 32 would dramatically alter the definition of a counterfeit trademark 

in the context of a criminal statute. The Bill’s proposed amended definition 

of a counterfeit trademark ignores the fact that, under certain necessary and 

desirable business conditions, applications of registered trademarks to product packages, labels, containers, stickers or wrappers by parties other than 

the U.S. trademark owner must be protected as lawful business activities.

2. Product retailers in the U.S. often combine different branded products into 

‘‘gift sets’’—particularly around holiday times. Perfumes are often combined 

with mirrors, or lipsticks may be placed together with hairbrushes. The retailer or wholesaler then affixes trademarks to the repackaged gift sets to 

identify the ownership of intellectual property rights and to inform consumers, at the point of sale, about the branded products contained in those 

gift packs. As harmless as this conduct is, and despite the fact that such activities are intended only to facilitate sales of legitimate branded merchandise, H.R. 32 would, nevertheless, create the possibility that such combining 

or consolidation of genuine brand name merchandise would become a criminal act if the third party consolidator includes packaging or labeling bearing 

a registered trademark that was not authorized for manufacture by the original trademark owner.

3. Many retailers, wholesalers and other lawful product distributors in this 

country offer discount coupons to customers. This is not only a normal commercial transaction, but is a practice depended upon by consumers who seek 

the best bargains on branded goods. H.R. 32 would make this activity illegal, 

though, because such coupons may be considered counterfeit goods. That is, 

because the coupons contain a reproduction of a registered trademark to 

identify the genuine branded merchandise being offered at a discount and because coupons are manufactured by third parties ‘‘trafficking’’ in such promotional vehicles to assist sales of genuine merchandise, a literal interpretation of H.R. 32 criminalizes use of coupons by anyone other than the original 

trademark owner.

4. It is true that, for many, many years, U.S. trademark owners have attacked 

lawful parallel traders of genuine merchandise with charges of counterfeiting 

activity. And, perhaps, one such recent case, United States Of America versus 

Ibrahim Elsayed Hanafy, et. al, 302 F.3d 485 (5th Cir. 2002), in fact gave 

rise to the type of increased criminal culpabilities sought to be established 

by passage of H.R. 32. In this case, cans of genuine, unadulterated infant 

formula were consolidated onto shipping trays or cardboard containers by a 

third party distributor, in a manner where expiration dates and the manufacturer’s registered trademarks were visible. The government argued that 

the plain language of Section 2320 required a finding that even these truthfully marked shipping trays were counterfeit goods and urged that the distributors be found criminally culpable for such unauthorized activities. Fortunately, the Appellate Court agreed that such third party distributors could 

not be held criminally liable for consolidating genuine products and selling 

them on a shipping tray that referenced the registered trademarks used on 

those same products! However, AFTA members are very concerned that H.R. 

32 will broaden the criminal liability statutes to specifically include—even in 

a narrowly construed interpretation—unauthorized application of a registered trademark on a shipping tray, if that shipping tray that bears the 

registered trademark was not manufactured under authority of the U.S. 

trademark owner. 

28

RECOMMENDATION AND CONCLUSION

AFTA is confident that H.R. 32 is not intended to do anything other than 

strengthen remedies against illicit counterfeiters. To repeat, AFTA’s concerns with 

this legislation is not with its intentions, but with its unintended consequences on 

legitimate businesses and commercial activities. By not distinguishing between lawful and unlawful applications of trademarks by parties other than the registered 

trademark owner or those authorized by such rights holder, H.R. 32 would criminalize many legitimate, necessary and normal commercial activities. While there is 

no doubt whatsoever that all commercial traders should unite to defeat unlawful, 

criminal counterfeiting activities that deceive American purchasers and deprive 

rights holders from their just rewards, assessing criminal liability against legitimate 

traders for normal commercial practices that provide such benefits to the American 

consumer and the competitive marketplace is, respectfully, an inappropriate legislative remedy. 

AFTA recommends that the following be substituted as subsection (f) in H.R. 32:

(f) Nothing in this section shall entitle the United States to bring a criminal 

cause of action alleging criminal trafficking in counterfeit goods against lawful resale or otherwise legal third party sale of genuine, unadulterated goods 

or services, so long as such sales or resales do not utilize, rely upon or refer 

to a trademark other than that trademark registered, used or authorized for 

use by the original manufacturer or offerer of such goods or services, even 

if reproduced by a party other than the original trademark owner and 

whether or not in combination with other, third party marks or designations.

This language attempts to preserve criminal penalties for counterfeit packaging, labels, containers, tags and similar accoutrements at the same time it specifically exempts from criminal prosecution at least certain of the lawful activities referred to 

in this testimony. AFTA continues to look forward to working with the proponents 

of this legislation to ensure that any amendment to H.R. 32 equally protect the interests of intellectual property rights holders and American consumers who deserve 

the continuing benefit of the competitive trade made possible through the lawful domestic secondary marketplace. 

Thank you again for the opportunity to offer our testimony before you today.

Mr. LUNGREN. Thank you very much for your statement and the 

statements of all of you. 

Let me first ask Mr. Swecker whether or not—with all the focus 

of the FBI on terrorism, is it reasonable for us to expect that you 

can give sufficient attention to this problem? 

Mr. SWECKER. It is more difficult in the current environment, sir, 

because we have had to divert resources from major theft operations around the country to terrorism investigations. We have less 

than half the number of agents working these major theft issues 

that we did prior to 9/11. We’re still at it. We still have the task 

forces. We had 18 task forces. We are actually down to nine. So it 

has had its impact. 

Mr. LUNGREN. What about the suggestion that current Federal 

statutes are insufficient for the Federal Government to move when 

they need to in these cases, that is, that you need something other 

than RICO and the money-laundering statutes, you would need a 

specific criminal statute dealing with organized retail theft? 

Mr. SWECKER. We’re happy to have any tool we can use to take 

cases into Federal court. RICO has been very easy to use. Predicate 

acts that are included in RICO have been easy to work with and 

pretty inclusive. I’m not sure—actually, I couldn’t tell you if they 

included counterfeiting. I don’t think it does. Money-laundering 

statutes do apply because they’re—any hiding or changing the nature of criminal proceeds is—constitutes money laundering. 

Mr. LUNGREN. No, I wasn’t referring to the counterfeiting question. It was concerning the organized retail theft crime that we 

have heard others discuss. 

29

Mr. SWECKER. The statute, Interstate Transportation of Stolen 

Property statutes have been adequate to work with, but we do welcome additional tools, as I said. 

Mr. LUNGREN. Has RICO been actually utilized in any cases involving organized retail theft? 

Mr. SWECKER. I believe it has, but it has been in the larger context of a criminal organization where it was one of the predicate 

acts included in the RICO, particularly with organized crime. 

Mr. LUNGREN. Mr. Nelson, I know that you believe that we need 

a new statute. My question is this: Given the fact that we have this 

overwhelming threat on terrorism that we’ve diverted, and I think 

properly so, resources of the FBI toward that, we’ve taken the FBI 

and made them in more of a counterterrorism operation where 

they’re analyzing intelligence—gathering intelligence, analyzing it, 

that there probably will be an inadequate dedication of resources 

to this particular problem. 

Is it still your feeling that a new law would be what would be 

most effective, or would greater attention to multi-level task forces 

or multi-jurisdictional task forces be perhaps a better answer to the 

problem? 

Mr. NELSON. Mr. Chairman, I think the answer lies in a combination of efforts, including laws, including a law that would be 

more readily available to be used, including task forces, including 

the database that we talked about. 

If you look back through history, in my days in the military we 

were fighting the war on drugs, and what happened with the war 

on drugs is there was a lot of task forces. There was very supportive laws. There was an effort across the board with multiple 

venues and multiple tools available. And the result was fairly successful. We put many people in jail who were trafficking in narcotics for 5 to 15 years. If you look at the time now, that 5 to 15 

years has gone by, and what we’re starting to see is people who 

maybe perpetrated those sort of offenses in the past are now coming over into organized retail theft. 

I fully understand the terrorism implications. We’ve actually had 

several times where money that was involved in our cases was 

going overseas, likely to support those type of activities. So I think 

if I dare say both, there’s a piece here that we need to cover both. 

Mr. LUNGREN. I just want to be realistic. I want to be—I don’t 

want to be Major League Baseball that promises something and 

doesn’t show it, to use a timely topic these days. 

Mr. Fox, the Federal Criminal Code already provides for penalties for counterfeit products. Do you believe that H.R. 32 would 

further that? Would you support H.R. 32 as something that is essential to the fight against counterfeit products? 

Mr. FOX. We would, Mr. Chairman, with absolute certainty. The 

whole question about intellectual property law, as it stands right 

now, there are plenty of laws that exist not only in the United 

States but around the world to protect IP. One of the issues that 

we do face, of course, is the penalties against those that breach 

those laws. And one of the areas that we really are—want to focus 

on is the question of the severity of the penalties for those people 

caught counterfeiting. 

30

My colleague Mr. Nelson made a reference to the drug-trafficking 

issue, which is a very good example on perhaps two levels. One is 

this whole question about legislation enforcement and, if you like, 

an education program on the dangers of drug trafficking have 

proved to be an exceptionally useful and powerful argument in that 

fight against drugs. 

But, of course, what we’re seeing now is that the rewards from 

counterfeiting far outweigh the rewards from drug trafficking. To 

give you an example, a kilo of drugs has a certain level of return 

for the criminals that undertake that activity. The returns from 

counterfeiting CDs or DVDs is far higher than that. So—and the 

risks are much lower. So it’s not really surprising that those organized crimes are moving away from drug trafficking and moving toward counterfeiting because the rewards are so much higher for 

their enterprise, but the risks are so much lower in terms of penalties. 

So, no, we would absolutely support H.R. 32. 

Mr. LUNGREN. Thank you, Mr. Fox. 

Mr. Scott, you’re recognized for 5 minutes. 

Mr. SCOTT. Thank you. 

Mr. Swecker, Mr. Nelson said that with organized retail theft 

there’s no Federal law involved. Aren’t there some Federal laws 

that you can look at? 

Mr. SWECKER. The laws that address interstate transportation of 

stolen property, thefts from interstate shipment, the interstate 

theft-type laws—I couldn’t name each individual statute—are there 

on the books. We use them. We also use, as I said, RICO. Most of 

the time we’re working these cases, we’re working in enterprise, a 

criminal enterprise. 

Mr. SCOTT. And what kind of penalty can be assessed against 

those who are found guilty? 

Mr. SWECKER. I think those statutes range from 5 to 15 years. 

RICO may go higher. I will say that anything—our ability to penetrate these enterprises is directly proportional to the sentences that 

these folks are facing when we try to get them to cooperate. So 

anything that addresses increased penalties increases our chances 

of getting cooperators and people who will help us penetrate the 

enterprise. And as I said, we’re usually dealing with a criminal enterprise, organized crime of some type, so it would be—as I said, 

any tool—anything that puts another tool in the toolbox is a good 

thing for us. 

Mr. SCOTT. Well, I think you indicated if you had more funding 

you could do more investigations. 

Mr. SWECKER. I have been told to stay away from budgetary 

issues, but—— [Laughter.] 

Anything that puts agents on the—boots on the ground is a good 

thing. 

Mr. SCOTT. Ms. Perez, you offered new language for the legislation before us. Can you tell us exactly what your language would 

do that the language on the bill on trademarks does not do? 

Ms. PEREZ. Yes. Let me read the language that we’ve put forward. ‘‘Nothing in this section shall entitle the United States to 

bring’’—‘‘Nothing in this section shall entitle the United States to 

bring a criminal cause of action alleging criminal trafficking in 

31

counterfeit goods against lawful resale or otherwise legal third 

party sale of genuine, unadulterated goods or services, so long as 

such sales or resales do not utilize, rely upon or refer to a trademark other than that trademark registered, used or authorized for 

use by the original manufacturer of offerer of such goods or services, even if reproduced by a party other than the original trademark owner and whether or not in combination with other, third 

party marks or designations.’’

What that will do is that will still preserve the ability to go after 

parties who use counterfeit labels, who use counterfeit packaging, 

who are peddling counterfeit goods. It will protect from criminal 

prosecution parallel marketers, suppliers on the secondary marketplace who are supplying genuine merchandise and using packaging 

or labeling with registered trademarks to identify for the consumer 

what that brand-name merchandise is. 

Mr. SCOTT. Well, what activity is—do they get away with with 

the language that’s in the bill that—well, I guess what language 

in the bill would be—would capture what you don’t want captured? 

Ms. PEREZ. Okay. The bill—what the bill does is it amends the 

definition of a counterfeit trademark, as I said. And it includes language in here that—I’m going to try to find the exact phrase that’s 

of concern. It’s a spurious mark used in connection with the trafficking in any goods, services, label, patch that’s identical or substantially indistinguishable from a registered trademark, that is 

applied to or used in connection with the goods or services for 

which the market is registered so that that label, package, or container is used in connection with genuine goods or is applied to or 

consists of a label, patch, sticker, wrapper, badge, emblem, medallion, charm, box, container, can, case, hangtag, documentation, or 

packaging of any type or nature that is capable of being applied to 

or used in connection with the goods or services. That language absolutely says that even if your packaging is used with genuine 

goods, it’s a problem. And that label and that packaging may not 

be counterfeit. It may merely be accurately representing to the consumer the branded goods and the genuine goods contained inside. 

Mr. SCOTT. Mr. Fox, do you have a problem with that language? 

Mr. FOX. Elements of that. I think, you know, one of the issues 

with my colleague’s proposition is that it does allow—certainly not 

her member organizations, but certainly some of the illicit organizations to take things like stolen goods, repackage those and then 

put them back into the licit chain. That clearly would be of a major 

issue to us and law enforcement agencies. 

The whole question about the use of trademarks—trademarks 

and copyright is clearly, you know, the property of the brand owners themselves. Considerable millions of dollars have gone into the 

development of those brand names, and simply to allow a third 

party without authority to use those brand names in another way 

that a company cannot control, it’s something that we wouldn’t necessarily support. 

Mr. SCOTT. I take that to mean that you don’t like her language; 

you like the language in the bill. 

Mr. FOX. We do indeed. 

32

Mr. SCOTT. How does the bill language prevent what you just 

said? Does the bill language prevent someone from doing what you 

just said, using the label—stolen goods and stuff like that? 

Mr. FOX. That’s certainly the way that we interpret it. 

Mr. SCOTT. Okay. Mr. Swecker, the bill takes away the ability of 

the judge to exercise judgment in asset confiscation of counterfeit 

goods. By changing ‘‘may’’ to ‘‘shall,’’ it essentially requires the destruction rather than allow the destruction. Why is that a good 

idea? 

Mr. SWECKER. Often we find with these forfeiture statutes that 

they neglect to provide a way to dispose of the property. There is 

no legitimate reason to keep the property around other than for 

evidentiary purposes. So it does give us the ability to dispose of the 

property when the case is over after there’s no use for it as evidence. 

Mr. SCOTT. If you get rid of it, are there any proceeds? I mean, 

can you possibly sell the goods? Or you have to destroy the goods? 

Mr. SWECKER. If it’s counterfeit goods, I would suspect that the 

industry would argue that it shouldn’t be sold anywhere out on the 

market anywhere. If it’s stolen, that’s another story. I think we’re 

talking about two different things. 

Mr. SCOTT. I don’t have any further questions. 

Mr. LUNGREN. Before I recognize the gentleman from Florida, 

Mr. Keller, Ms. Perez, I just would note that the bill as drafted has 

the language that you talked about, but it also has ‘‘and the use 

of which is likely to cause confusion, to cause mistake, or deceive.’’

And then there is—the very last part of the bill says, ‘‘Nothing in 

this section shall entitle the United States to bring a criminal 

cause of action for the repackaging, without deception, of genuine 

goods or services.’’ I believe the drafters of the legislation believe 

that meets your concern, and I take it you don’t think it does and 

want it to be more specific. 

We will look at what you are talking about, but there was an effort to try and address your concerns with that last part, basically 

saying that if there’s no deception, which would be required to be 

part of the proof of the prosecution, there could not be a successful 

prosecution. 

Mr. Keller is recognized for 5 minutes. 

Mr. KELLER. I thank the Chairman for yielding. 

Mr. Swecker, let me ask you a question in the context of counterfeit pharmaceuticals and drugs. It’s an issue that we wrestle with, 

those of us from Florida, Congressman Feeney and myself. We 

have a lot of seniors. We want them to have drugs as cheap as possible, and we wrestle with whether to allow the reimportation of 

drugs from Canada and other countries. And in a nutshell, it comes 

down to this. We would like them to have safe drugs so they could 

be cheaper, but every time it comes up, we get letters from law enforcement agencies, DEA and FDA, telling us of the mass problems 

with counterfeit drugs. And when we raise that as an issue, others 

will say, no, you know, you’re just saying that because the pharmaceutical companies made a contribution here or there and it’s really 

not a problem, and they allow fruit in from other countries, why 

don’t you allow these drugs in. 

33

So with that as the background—and I’m open-minded on this 

issue—in your experience is this problem with altered or counterfeit pharmaceutical drugs from other countries a real or an imaginary problem? 

Mr. SWECKER. It actually is a fairly real problem. The problem 

is that you have a whole network of wholesalers and repackagers 

of pharmaceuticals. They rarely go directly from the manufacturer 

to the market. They fall into the hands of wholesalers, packagers, 

6,500 or so of them out there that are unregulated. And so we don’t 

know what’s being—you know, when you introduce counterfeit or 

stolen—and stolen can involve drugs that are outdated, expired. 

There isn’t much control over how these drugs are repackaged. 

So it is—the short answer is yes, it’s a problem. 

Mr. KELLER. Do you find a distinction in terms of the problem 

with drugs coming from Canada versus other countries? Are other 

countries a big concern and is Canada safer? Or are they all a concern? What do you find there? 

Mr. SWECKER. You’re actually getting into an area that’s out of 

my area of expertise. I would be guessing. 

Mr. KELLER. Okay. I just heard it suggested that there’s a problem everywhere but Canada is less of a problem, but I’ll explore 

that with someone else. 

Mr. SWECKER. I know drugs are coming up from Mexico. No 

question about that. 

Mr. KELLER. Okay. Beyond stiffening penalties, if we were concerned about this problem with the counterfeit pharmaceuticals 

coming into our country, let’s say, from Canada, do you have some 

ideas that we should be looking at that would make us more likely 

to be able to reimport these drugs and make sure that they’re 

safer? 

Mr. SWECKER. Actually, I don’t. I mean, I do think that the 

wholesalers—I’m sorry, the repackagers need to be addressed because that’s a completely unregulated area, and that’s where we 

find most of our problems. We’re working some operations right 

now that have really highlighted that problem, and there are thousands of them, many in Florida, and we just don’t know what’s 

going back in. Once they repackage the drugs, you have no idea 

what’s going into the final packaging. 

Mr. KELLER. Do you believe this legislation before us today will 

help you at all with respect to giving you a tool to go after the repackagers? 

Mr. SWECKER. It could be used to address that, yes. 

Mr. KELLER. Okay. Thank you. 

Mr. Chairman, I’ll yield back the rest of my time. 

Mr. LUNGREN. Mr. Conyers, do you have questions? Five minutes. 

Mr. CONYERS. Thank you, Mr. Chairman. 

What I am curious about is how did the American Free Trade 

Association come into existence in the first place. 

Ms. PEREZ. You’re way before my time. The American Free Trade 

Association has been around for well over 20 years, and it’s served 

as amicus curiae on the two leading Supreme Court cases upholding the legality of the parallel market trade. It’s served to support 

numerous lower court decisions. As you noted before, it’s worked a 

34

lot with the Judiciary Committee and the Intellectual Property 

Committee on legislation and trying to work to preserve a competitive marketplace. It’s a respected and well-known trade association, 

and as I said, started way before my professional career did. 

Mr. CONYERS. Now, Ms. Perez, what about the unintended consequences of criminal laws and adding laws in this atmosphere 

that we find ourselves? Because, after all, there is, I think, more 

activity in these parallel markets than ever before. I suspect that 

it may be growing. 

Ms. PEREZ. I suspect you may be right, and I think a large part 

of that is frankly out of economic need. As I said before, the members of AFTA in particular—and it is a reputable trade association, 

and we’re not going to favor or be in support of any criminal activity, anything that’s going to make possible retail theft or organized 

crime. Any legislation that will work to cure those problems, we 

want to work with you on that. Our concern is, as I said before, 

that legislation not be couched in rhetoric that is going to stop organized crime or impede retail theft or be anti-counterfeiting, 

when, in fact, what it looks to do is to stop the parallel market 

trade so that intellectual property owners get much broader rights 

and remedies that they’re legitimately entitled to under U.S. intellectual property laws. 

Mr. CONYERS. Now, under the kind of business that many of your 

folks are in, repackaging with trademarks is standard operating 

procedure. 

Ms. PEREZ. It is. Also, I might add that the members who do the 

repackaging consult with the law firm I work with often to make 

sure that they’re doing it right. 

Mr. CONYERS. Who do they consult with? 

Ms. PEREZ. They consult with our law firm. 

Mr. CONYERS. Sure. 

Ms. PEREZ. With their lawyers, with their counsel, to make sure 

that the intellectual property they are noting on their packaging is 

correctly attributed to the rightful owner. They add disclaimers 

where appropriate to make sure that there’s no perceived deception 

or confusion as to the source of the repackaged product. So we 

talked about the repackaging deception in here, and our concern 

with that language is that it just doesn’t, frankly, consider all possible commercial activities that need to be protected. I mean, as I 

said before, is affixing a shrink wrap over a gift set, is that repackaging? Is coming up with a shipping container or a cardboard container, is that repackaging? Is inserting a coupon, two-for-one special, is that repackaging? And while, you know, we love the fact, 

frankly, that this Committee and the Subcommittee and the drafters of this bill obviously were concerned about legitimate commercial activities, we started to work on this bill a little bit, and we 

look forward to doing that. 

Mr. CONYERS. Well, you seem like a firm that’s been recommending and working in this area for quite a while, and I just 

wanted to ask Mr. Nelson about his understanding that there are 

activities engaged in by the companies that Attorney Perez represents that are perfectly lawful and support all the crime-fighting 

activity against trademarks and thefts that has been discussed 

here today and that it’s good for consumers who are looking someVerDate 0ct 09 2002 08:56 Aug 25, 2005 Jkt 000000 PO 00000 Frm 00038 Fmt 6633 Sfmt 6601 G:\WORK\CRIME\031705\20018.000 HJUD1 PsN: 20018
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times for bargains. I know that I am one of those that—I can cite 

that one place I went to told me that an educated consumer were 

their best customers, and I perked up immediately when I found 

out that I was in this very special group. 

What do you think about, you know, what they’re doing and 

what they’re—— Mr. NELSON. Our primary concern would obviously be for the 

safety of the consumer so that what goes back into the market is, 

in fact, safe. Unfortunately, my area of expertise in this case is organized retail theft as opposed to the counterfeiting piece. 

Mr. CONYERS. Sure. Well, you would—I know my time is up. I 

see the tendency that the Chairman has developed across the years 

to reach for his gavel and put a firmer grip around the handle is 

a tipoff of what might be happening soon. But you don’t have any 

problem with an organization of this kind, a trade organization 

that tries to help you keep everybody in line? They’re paying a 

pretty big firm in Florida to keep this thing, this show on the road, 

in good shape. 

Mr. FOX. Yes, and on its face, I wouldn’t think they’d have a 

problem, but it would be unfair for me to comment on that because 

it’s not my area of expertise. 

Mr. CONYERS. Okay. 

Mr. LUNGREN. The gentleman’s time has expired. 

Mr. CONYERS. Thanks, Mr. Chairman. 

Mr. LUNGREN. Although the gentleman has not expired, so we 

appreciate that. 

[Whereupon, at 2:43 p.m., the Subcommittee proceeded to other 

business.] 

(37)

A P P E N D I X 

MATERIAL SUBMITTED FOR THE HEARING RECORD

PREPARED STATEMENT OF THE HONORABLE ROBERT C. SCOTT, A REPRESENTATIVE IN

CONGRESS FROM THE STATE OF VIRGINIA, AND RANKING MEMBER, SUBCOMMITTEE

ON CRIME, TERRORISM, AND HOMELAND SECURITY

Thank you, Mr. Chairman. I am pleased to join you in convening this hearing on 

counterfeiting of manufactured goods and organized retail theft. We have federal 

laws to address counterfeiting of manufactured goods. H.R. 32, the ‘‘Stop Counterfeiting in Manufactured Goods Act,’’ amends existing law in a manner designed to 

intensify the effort to prevent counterfeiting of goods. Counterfeited goods not only 

victimizes the manufacturer, but short changes purchasers with substandard products, exposes us all to risks from unsafe products and deprives Americans of jobs 

and other benefits from the commerce of authentic goods. 

Yet, there is concern that H.R. 32, as drafted, goes too far and criminalizes currently legitimate, time-honored practices by law-abiding merchants who legally purchase manufactured goods and repackage them in various ways to enhance sales of 

such goods. We have able witnesses who will speak to these points, so I look forward 

to their testimony for clarification of issues and concerns with the bill. 

For some time now, I have been hearing about the problem of organized retail 

theft, or ORT, from business representatives in my Congressional District, so I am 

pleased to be able to report to them that we are giving attention to this issue in 

the Congress. Theft of merchandise through shoplifting from retail outlets and 

through other means is not new and has traditionally been handled through state 

criminal laws. In Virginia, for example, any theft in excess of $200 is grand larceny 

with a maximum penalty of 20 years. And a third offense of petty larceny is, by 

law, treated the same as grand larceny. With diligent enforcement activities, such 

measures are ordinarily adequate to keep the problem of merchandise theft sufficiently in check. However, with organized theft rings deploying numerous individuals operating across state lines, ordinary enforcement approaches are inadequate. 

These individuals can shoplift with acceptable risks by remaining under the grand 

larceny threshold for each incident, and steal thousands of dollars worth of merchandise for the ring. 

I expect that our witnesses will describe ORT as a problem of growing dimension, 

with organized crime, interstate and international elements. As with counterfeiting 

of goods, there are already federal laws which can be utilized to address ORT. I am 

pleased that we have a representative from the FBI here to describe what the federal government is doing about it and what is needed for greater effectiveness. 

So, Mr. Chairman, I look forward to hearing the testimony of our witnesses and 

to working with you and Chairman Coble to do what makes sense at the federal 

level to curb both the problem of counterfeiting manufactured goods and organized 

retail theft. Thank you. 

PREPARED STATEMENT OF THE HONORABLE MARK GREEN, A REPRESENTATIVE IN

CONGRESS FROM THE STATE OF WISCONSIN, AND MEMBER, SUBCOMMITTEE ON

CRIME, TERRORISM, AND HOMELAND SECURITY

First, I want to thank Chairman Coble for bringing this bill up today. I also want 

to thank our colleague, Mr. Knollenberg, for his hard work and dedication to this 

legislation. 

From skyrocketing health care costs to excessive taxes, the hurdles U.S. manufacturers face today are larger than ever and that is why we must continue to do everything we can to help American manufacturers stay competitive. One way to do 

that is by getting tougher laws on the books to punish those who counterfeit our 

38

manufactured goods. By strengthening our laws we are strengthening the hands of 

our trade representatives to demand tougher penalties on foreign businesses that 

counterfeit U.S. goods. 

It is time we sent a strong message to foreign counterfeiters and the countries 

that ignore their criminal behavior: if you keep stealing our products, you’re going 

to face harsh consequences. This legislation is an important part of that message 

and I encourage my colleagues to support it. 

PREPARED STATEMENT OF THE HONORABLE JOHN CONYERS, JR., A REPRESENTATIVE

IN CONGRESS FROM THE STATE OF MICHIGAN

Let me begin by thanking Chairman Coble and Ranking Member Scott for convening this important and timely hearing. The recent rise in organized retail theft 

and the continued growth in trafficking in counterfeit trademarks are issues of great 

concern. Some security professionals estimate that the retail industry experiences as much as $15 billion a year in operating losses as a result of such thefts. And, I’m told 

those numbers continue to grow. 

With regard to counterfeit trademarks, the FBI estimates sales of counterfeit goods line the pockets of criminal organizations to the tune of about $500 billion 

per year. 

Today, we’re here to talk about possible solutions to these growing problems. At 

the outset, I’d like to suggest that any such discussion be guided by two commonsense principles. 

First, as we consider strengthening remedies against illicit counterfeiters, we 

must be careful not to unnecessarily infringe upon legitimate businesses and commercial activities. 

Many law abiding companies operate in the parallel importation market which involves the selling and reselling of genuine goods and services. These goods and services, in turn, are then provided to consumers at competitive discount prices. Thus, 

any limits placed on such companies has an equally detrimental effect on consumers 

in search of bargains. 

Second, we should agree to refrain from adding any new laws to the current federal criminal code unless such new laws prove to be absolutely necessary. Principles 

of federalism dictate that we should only offer solutions to those problems not left 

within the sole domain of the state. And, the prosecution of organized shoplifters 

at the federal level simply does not satisfy this requirement. 

I would like to thank each of the witnesses for agreeing to appear before us today. 

I look forward to your testimony. 

PREPARED STATEMENT OF THE HONORABLE BOB GOODLATTE, A REPRESENTATIVE IN

CONGRESS FROM THE STATE OF VIRGINIA

Mr. Chairman, thank you for holding a hearing on the important issues of organized retail theft and counterfeit products. 

There is a growing problem relating to organized retail theft (ORT) rings in America. It is estimated that professional organized retail theft rings are responsible for 

pilfering up to $30 billion in merchandise from retail stores annually. 

Organized retail theft groups typically target everyday household commodities 

and consumer items that can be easily sold through fencing operations, flea markets, swap meets and shady store-front operations. Items that are routinely stolen 

include over-the-counter drug products, such as analgesics and cold medications, 

razor blades, camera film, batteries, videos, DVDs, CDs, smoking cessation products, 

infant formula and computer software items. Thieves often travel from retail store 

to retail store, stealing relatively small amounts of goods from each store, but cumulatively stealing significant amounts of goods. Once stolen, these products can be 

sold back to fencing operations, which can dilute, alter and repackage the goods and 

then resell them, sometimes back to the same stores from which the products were 

originally stolen. 

When a product does not travel through the authorized channels of distribution, 

there is an increased potential that the product has been altered, diluted, reproduced and/or repackaged. These so-called ‘‘diverted products’’ pose significant health 

risks to the public, especially the diverted medications and food products. Diverted 

products also cause considerable financial losses for legitimate manufacturers and 

retailers. Ultimately, the consumers bear the brunt of these losses as retail establishments are forced to raise prices to cover the additional costs of security and theft 

prevention measures. 

39

At the state level, organized retail theft crimes are normally prosecuted under 

state shoplifting statutes as mere misdemeanors. As a result, the thieves that participate in organized retail theft rings typically receive the same punishment as 

common shoplifters. The thieves who are convicted usually see very limited jail time 

or are placed on probation. I believe that the punishment does not fit the crime in 

these situations. Mere slaps on the wrists of these criminals has practically no deterrent effect. In addition, criminals who are involved in organized retail theft rings 

pose greater risks to the public because their intent is for the goods to be resold. 

Because the routes of these diverted products are extremely difficult to trace, there 

is a greater risk that these goods will be faulty, outdated and dangerous for consumer use. The punishment for these criminals should be greater than that for common shoplifters. 

In December of 2003, the FBI established an Organized Retail Theft initiative to 

combat this growing problem. While this is a good start, I look forward to hearing 

the FBI’s plans to bolster its efforts to combat these crimes, which are increasing 

in frequency, posing greater threats to consumers, and resulting in greater losses 

to businesses. Recent busts have shown how widespread this problem truly is. Federal and state law enforcement broke up an organized retail theft ring in North 

Carolina and Virginia that was responsible for moving more than $2 million dollars 

worth of stolen infant formula and over-the-counter products. This arrest shows that 

these crimes come with huge potential costs and that they affect the most vulnerable among us. We need more arrests like this to effectively combat organized retail 

theft. 

I am pleased that we have witnesses today from the FBI and the private sector 

to describe this growing problem and what can be done to solve it. Thank you again, 

Mr. Chairman, for holding this important hearing.

40

LETTER FROM SANDY KENNEDY, PRESIDENT, RETAIL INDUSTRY LEADERS ASSOCIATION

(RILA), TO THE HONORABLE HOWARD COBLE


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PREPARED STATEMENT OF THE NATIONAL ELECTRICAL

MANUFACTURERS ASSOCIATION (NEMA)


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DOCUMENT ENTITLED ‘‘ORGANIZED RETAIL CRIME: DESCRIBING A MAJOR PROBLEM,’’

BY READ HAYES, LOSS PREVENTION RESEARCH COUNCIL AND UNIVERSITY OF FLORIDA


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RESPONSE TO POST-HEARING QUESTIONS FROM CHRIS SWECKER, ASSISTANT DIRECTOR, 

CRIMINAL INVESTIGATIVE DIVISION, FEDERAL BUREAU OF INVESTIGATION


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RESPONSE TO POST-HEARING QUESTIONS FROM CHRIS NELSON, DIRECTOR OF ASSET

PROTECTION, TARGET CORPORATION, ON BEHALF OF THE COALITION AGAINST ORGANIZED RETAIL THEFT


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