```

[Senate Hearing 107-85]
[From the U.S. Government Publishing Office]

                                                         S. Hrg. 107-85

                           CROSS-BORDER FRAUD

=======================================================================

                                HEARINGS

                               before the

                       PERMANENT SUBCOMMITTEE ON
                             INVESTIGATIONS

                                 of the

                              COMMITTEE ON
                          GOVERNMENTAL AFFAIRS
                          UNITED STATES SENATE

                      ONE HUNDRED SEVENTH CONGRESS

                             FIRST SESSION

                               __________

                          JUNE 14 AND 15, 2001

                               __________

      Printed for the use of the Committee on Governmental Affairs

                   U.S. GOVERNMENT PRINTING OFFICE
74-107                     WASHINGTON : 2001

_______________________________________________________________________
 For sale by the Superintendent of Documents, U.S. Government Printing 
                                 Office
Internet: bookstore.gpo.gov  Phone: (202) 512-1800  FAX: (202) 512-2250
               Mail: Stop SSOP, Washington, DC 20402-0001

                   COMMITTEE ON GOVERNMENTAL AFFAIRS

               JOSEPH I. LIEBERMAN, Connecticut, Chairman
CARL LEVIN, Michigan                 FRED THOMPSON, Tennessee
DANIEL K. AKAKA, Hawaii              TED STEVENS, Alaska
RICHARD J. DURBIN, Illinois          SUSAN M. COLLINS, Maine
ROBERT G. TORRICELLI, New Jersey     GEORGE V. VOINOVICH, Ohio
MAX CLELAND, Georgia                 PETE V. DOMENICI, New Mexico
THOMAS R. CARPER, Delaware           THAD COCHRAN, Mississippi
JEAN CARNAHAN, Missouri              ROBERT F. BENNETT, Utah
MARK DAYTON, Minnesota               JIM BUNNING, Kentucky
           Joyce A. Rechtschaffen, Staff Director and Counsel
         Hannah S. Sistare, Minority Staff Director and Counsel
                     Darla D. Cassell, Chief Clerk

                                 ------                                

                PERMANENT SUBCOMMITTEE ON INVESTIGATIONS

                     CARL LEVIN, Michigan, Chairman
DANIEL K. AKAKA, Hawaii              SUSAN M. COLLINS, Maine
RICHARD J. DURBIN, Illinois          TED STEVENS, Alaska
ROBERT G. TORRICELLI, New Jersey     GEORGE V. VOINOVICH, Ohio
MAX CLELAND, Georgia                 PETE V. DOMENICI, New Mexico
THOMAS R. CARPER, Delaware           THAD COCHRAN, Mississippi
JEAN CARNAHAN, Missouri              ROBERT F. BENNETT, Utah
MARK DAYTON, Minnesota               JIM BUNNING, Kentucky
          Linda J. Gustitus, Chief Counsel and Staff Director
     Christopher A. Ford, Minority Chief Counsel and Staff Director
                     Mary D. Robertson, Chief Clerk

                            C O N T E N T S

                                 ------                                
Opening statements:
                                                                   Page
    Senator Collins.............................................. 1, 43
    Senator Levin................................................ 4, 44

                               WITNESSES
                        Thursday, June 14, 2001

Julia Erb, Kimball, Michigan.....................................     9
Bruce Hathaway, Columbus, Ohio...................................    12
Ann Hersom, Acton, Maine.........................................    14
Detective Staff Sergeant Barry F. Elliot, Ontario Provincial 
  Police, Anti-Rackets Section, North Bay, Ontario, Canada.......    21
Jackie DeGenova, Chief, Consumer Protection Section, Ohio 
  Attorney General's Office, Columbus, Ohio......................    24
Lawrence E. Maxwell, Postal Inspector In Charge, Fraud, Child 
  Exploitation, and Asset Forfeiture Division, U.S. Postal 
  Inspection Service, Washington, DC.............................    27

                         Friday, June 15, 2001

Hon. William H. Sorrell, Attorney General, State of Vermont, 
  Montpelier, Vermont............................................    46
Mary Ellen Warlow, Acting Deputy Assistant Attorney General, 
  Criminal Division, U.S. Department of Justice, Washington, DC..    49
Hugh Stevenson, Associate Director, Planning and Information, 
  Bureau of Consumer Protection, Federal Trade Commission, 
  Washington, DC.................................................    52

                     Alphabetical List of Witnesses

DeGenova, Jackie:
    Testimony....................................................    24
    Prepared statement...........................................   123
Elliot, Barry F.:
    Testimony....................................................    21
    Powerpoint presentation......................................    77
Erb, Julia:
    Testimony....................................................     9
    Prepared statement...........................................    65
Hathaway, Bruce:
    Testimony....................................................    12
    Prepared statement...........................................    68
Hersom, Ann:
    Testimony....................................................    14
    Prepared statement...........................................    74
Maxwell, Lawrence E.:
    Testimony....................................................    27
    Prepared statement with attachments..........................   129
Sorrell, Hon. William H.:
    Testimony....................................................    46
    Prepared statement...........................................   152
Stevenson, Hugh:
    Testimony....................................................    52
    Prepared statement with attachments..........................   191
Warlow, Mary Ellen:
    Testimony....................................................    49
    Prepared statement with attachments..........................   158

                              Exhibit List

 1. GMap of United States highlighting ``Locations of 
  Telemarketing Fraud Victims For Just One Scam''................   237

 2. G``Platinum Industries'' scam letter.........................   238

 3. G``Cash Disbursement Division'' scam letter..................   239

 4. G``Trans-American Equities (TAE)'' scam letter...............   240

 5. GDescription by convicted felon of a ``Down The Road Pitch''.   241

 6. GExcerpts of audio tapes in which cross-border criminals 
  solicited Bruce and Anne Hathaway..............................   242

 7. G``Center for International Disbursements'' mailing..........   251

 8. GReport of the United States-Canada Working Group on Cross-
  Border Telemarketing Fraud.....................................   253

 9. GPostmaster General mailing, ``Know Fraud,'' regarding 
  telemarketing fraud............................................   281

10. GBrochure prepared by The Senior Action Coalition and 
  distributed by the U.S. Postal Inspection Service regarding 
  fraudulent telemarketing abuse against senior citizens.........   283

11. GBrochure prepared by the Federal Trade Commission on 
  consumer protection efforts....................................   295

12. GStatement for the Record of Michigan Attorney General 
  Jennifer M. Granholm...........................................   297

13. GStatement for the Record of Monty D. Mohr, Deputy Director 
  of Investigations, Georgia Governor's Office of Consumer 
  Affairs........................................................   302

14. GStatement for the Record of ``Son of Victim'' of cross-
  border fraud...................................................   326

15. GStatement for the Record of Stephen M. Hills, son of parents 
  who were victims of cross-border fraud.........................   329

16. GMaterial regarding cross-border fraud submitted for the 
  record of Canadian Ambassador Michael Kergin...................   332

17. GPermanent Subcommittee on Investigations, Republican Staff 
  Background Memorandum on June 14-15, 2001, Cross-Border Fraud 
  hearings.......................................................   361

 
              CROSS-BORDER FRAUD: SCAMS KNOW NO BOUNDARIES

                              ----------                              

                        THURSDAY, JUNE 14, 2001

                                       U.S. Senate,
                Permanent Subcommittee on Investigations,  
                  of the Committee on Governmental Affairs,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 9:30 a.m., in 
room SD-342, Dirksen Senate Office Building, Hon. Carl Levin, 
Chairman of the Subcommittee, presiding.
    Present: Senators Levin and Collins.
    Staff Present: Linda Gustitus, Chief Counsel and Staff 
Director; Mary D. Robertson, Chief Clerk; Laura Stuber, 
Counsel; Christopher A. Ford, Minority Chief Counsel and Staff 
Director; Frank Fountain, Senior Counsel to the Minority; 
Marianne Kenny, Detailee/Secret Service; Susan M. Leonard, 
Congressional Fellow; Bos Smith, Intern; Alan Stubbs, Detailee/
Social Security Administration; Bob Westbrooks (Senator Akaka); 
and Ian Morrill (Senator Collins).
    Senator Levin. The Subcommittee will come to order. Today 
and tomorrow, this Subcommittee will be looking at cross-border 
fraud. These hearings have been initiated and led by Senator 
Collins. I thank her for her hard work in this area and so many 
other areas involving the protection of America's seniors and 
America's consumers and I call upon her now to give her opening 
statement. I will follow that up with my opening statement. 
Senator Collins.

              OPENING STATEMENT OF SENATOR COLLINS

    Senator Collins. Thank you very much, Mr. Chairman. I would 
like to begin today by thanking the distinguished Subcommittee 
Chairman for convening this hearing. As he indicated, these 
hearings are the result of a 5-month investigation by my staff 
and they had been scheduled before the change in control of the 
Senate. Nevertheless, Senator Levin was under absolutely no 
obligation to proceed and I am very grateful for his 
willingness to convene these hearings.
    In this age of ubiquitous international communications, 
cross-border fraud has emerged as a serious problem. Foreign 
countries, and particularly Canada, have unfortunately become a 
major point of origin for lottery, sweepstakes, and advance-
fee-for-loan scams that prey upon Americans through direct mail 
and telemarketing. Last year, the Canadian Phonebusters fraud 
hotline alone received information about frauds involving $16 
million in losses affecting nearly 5,000 American citizens. The 
National Association of Attorneys General in the United States, 
moreover, estimates that cross-border fraud costs Americans 
tens or perhaps even hundreds of millions of dollars each and 
every year.
    Worse yet, such schemes often specifically target the 
elderly, who are often especially vulnerable and least able to 
afford being defrauded. A 1997 U.S.-Canadian working group on 
cross-border telemarketing fraud concluded that senior citizens 
are over-represented among victims and defenders have admitted 
to targeting them specifically. Similarly, a survey by AARP 
found that older Americans are disproportionately victims of 
telemarketing scams.
    Almost all of the elderly victims interviewed by the 
Subcommittee had suffered a traumatic experience prior to 
falling victim to a scam. For example, one of our witnesses was 
distressed over his wife's stroke and was worried about the 
high cost of her nursing home care. The enticements of a con 
artist came at a time when he was particularly vulnerable to 
such a pitch.
    Our investigation indicates that the cross-border fraud 
industry is a fairly sophisticated one. Cross-border fraud very 
often involves ``boiler rooms,'' in which hundreds of people 
may be involved, operating out of warehouses in Canada, with 
dozens of telephone lines, making high-pressure calls perhaps 
16 hours out of each day, 7 days a week. Nor do such boiler 
rooms necessarily operate in isolation. Rather, Canadian 
telemarketing fraud appears to involve a closely-connected 
network in which criminals actually share information on 
successful pitches and purchase and trade victim lists among 
themselves. Through the use of multiple company names, con 
artists who pretend to represent different internal offices of 
the same company, and systems for handing off defrauded victims 
to other ``boiler rooms,'' fraud rings may be able to swindle 
the same person time and again.
    Cross-border fraud is a growing phenomenon. According to 
the Federal Trade Commission, U.S. consumers' complaints 
against Canadian companies rose from nearly 5,000 in 1999 to 
more than 8,000 last year and are projected to reach more than 
10,000 this year. Similarly, the dollar value of losses 
reported by consumer complaints against Canadian companies rose 
from $5.3 million in 1999 to $19.5 million in 2000 and is 
projected to reach $36.5 million this year. As our witnesses 
today will illustrate, the impact of such fraud upon the lives 
of ordinary Americans can be devastating, not only to their 
finances but also to their pride.
    One of the most common forms of cross-border fraud is the 
lottery scam. The smooth-talking cross-border criminals 
involved in lottery scams convince their victim that he or she 
has won millions of dollars in a drawing and that the only 
thing that the victim has to do in order to claim these 
winnings is, first, to pay legal fees or back taxes or excise 
fees supposedly due to the Canadian Government. Since there is 
no lottery and there are no winnings, this ruse far too often 
defrauds the victim of many thousands of dollars. Our witness 
today from Acton, Maine, Mrs. Ann Hersom, saw her own family 
defrauded of several thousand dollars in this fashion, and her 
family is not alone. There are many more victims in communities 
all across America.
    Another victim was an elderly woman in North Carolina who 
was tragically defrauded of more than $100,000. A telemarketing 
fraud operation based in Montreal convinced her that she had 
won a lottery and could collect a huge prize if only she paid 
certain taxes on her winnings. To convince her of their bona 
fides, they sent her some relatively small items, such as a 
VCR, which helped persuade her to send them more than $100,000.
    The fraud ring that destroyed her financial security was a 
major one which combined elements of the lottery scam with 
various other promotional offers, all of which, of course, were 
no more than cruel illusions. According to documents provided 
to us by the FBI, this one fraud ring defrauded literally 
thousands of victims in 18 States and Canada of between $4 and 
$6 million in the last 4 years.
    But this scam was not the only one out there. More seem to 
spring up every day.\1\ Joyce Noble from my hometown of 
Caribou, Maine, recently sent me a mailing from Toronto that 
illustrates what may be yet another such fraud. This mailing 
announced that Ms. Noble was eligible to receive a cash payment 
of $7,500 and entitled to further awards of up to $500,000. 
Before this prize could be released, however, the mailing 
advised that she needed to send an entitlement fee.
---------------------------------------------------------------------------
    \1\ Exhibit No. 1 appears in the Appendix on page 237.
---------------------------------------------------------------------------
    Now, this mailing fits a very familiar pattern. It promises 
considerable payoffs, but not unless the victim pays money up 
front, which must be returned to an official-sounding location 
in Canada, denoted by a suite address, which may only mean that 
it is a simple post office box. The entitlement fee that is 
listed is $26, in return for which this woman is supposedly 
eligible for $7,500. I have little doubt that if Ms. Noble had 
sent in this $26, that she soon would have been told that her 
chances had greatly improved for a half-million-dollar grand 
prize, or that she had won it, but that she could collect only 
in return for yet another even larger entitlement fee. In other 
words, my constituent would have embarked on a long road of 
repeated contacts in which she would have been promised ever-
greater rewards in return for ever-greater payments.
    One convicted cross-border felon had a term for this kind 
of scam. He called it the ``down the road'' pitch.\2\ It is a 
method for stringing victims along for long periods of time, 
getting more and more money out of them at every turn. A 
handwritten document prepared by this criminal and given to the 
Subcommittee staff sets out the ``down the road'' pitch used in 
his fraud ring. According to this document, a salesman called a 
``loader'' would contact persons who had already sent in money, 
announcing that they had been selected to participate in an 
upcoming awards presentation. This loader would send them small 
gifts of low value to help convince them of his legitimacy and 
asking for more up-front payments. Subsequently, the loader 
would call back, happily announcing that the victim had moved 
up in the standings and now was set to receive an even bigger 
gift.
---------------------------------------------------------------------------
    \2\ Exhibit No. 5 appears in the Appendix on page 241.
---------------------------------------------------------------------------
    The gifts sent to the victim kept getting more valuable, 
but they never, ever came close, anywhere near the value of the 
money that the victim kept sending in the hopes of receiving 
the promised ever-larger grand prize. As this criminal stated, 
this was totally a scam because there was never an award 
presentation, never a million or more in cash and prizes, and 
we never sent a client any kind of gift that he did not already 
pre-pay for. These are the kinds of people who set out to 
victimize innocent Americans such as the three witnesses on our 
first panel today.
    Now, how do we fight such fraud? The first line of defense 
against cross-border fraud is to promote public awareness of 
the types of schemes in which criminals like this engage, and 
we should also help educate consumers on what they can do to 
report fraudulent overtures and to help law enforcement 
officials catch up with these con artists.
    The second line of defense is to ensure a prompt, 
aggressive, and efficient response by law enforcement 
officials. Naturally, this is a particular challenge in cross-
border crime fighting for which law enforcement coordination is 
required among Federal, State or provincial, and local and 
municipal authorities on both sides of the border. I hope that 
these hearings will serve as a catalyst for better public 
awareness, greater consumer wariness, and improved law 
enforcement cooperation across the U.S.-Canadian border.
    Finally, let me note that the relationship between the 
United States and Canada is an extremely, perhaps even 
uniquely, good one. As symbolized by the fact that we share the 
world's largest unguarded border, our two countries have long 
enjoyed a special relationship of close economic, cultural, and 
political ties. In fact, in Northern Maine, where I am from, 
those ties frequently involve family members, as well. My 
sister-in-law is a Canadian citizen, for example. With the many 
benefits of these U.S.-Canadian economic and social bonds, 
however, has come the problem that it is very easy for 
criminals in one country to defraud victims in the other.
    However strong our ties, the United States and Canada 
remain two separate, sovereign nations, each with its own legal 
system and each with a law enforcement jurisdiction in some 
respects off-limits for officials from the other side of the 
border. Consequently, the challenge of fighting fraud across 
international boundaries is a formidable one. The physical 
border is no barrier for scam artists, however, and that is why 
I am very pleased that Senator Levin is holding these hearings 
today. Thank you, Mr. Chairman.

               OPENING STATEMENT OF SENATOR LEVIN

    Senator Levin. Senator Collins, thank you. Senator Collins 
has just outlined that cross-border fraud is a real problem. 
This is true despite significant law enforcement efforts in the 
last few years and it is also on the rise, as Senator Collins 
has indicated. We know that there is more money that was lost 
to these scam artists last year than the year before, and that 
was true relative to the year before that. These scams 
frequently involve advance fees for loans, they involve foreign 
sweepstakes, foreign lotteries that are initiated by people in 
one country against residents of the United States, usually 
through phone solicitations, but often in the mail.
    The perpetrator of the frauds uses the border as an 
obstacle to being caught and being prosecuted, and one major 
border for such activity is the U.S.-Canadian border. This is 
not now a matter of either us or the Canadians not caring 
enough. Both our governments care a great deal. But because of 
the complications of any border, even between two friends like 
the United States and Canada, that border is being used by the 
scam artists as a way of complicating their arrests and their 
prosecutions. The reason that is true is that law enforcement 
personnel are faced with multiple extra steps and procedures to 
bring the perpetrators to justice.
    A common practice in a Canadian-U.S. cross-border fraud 
scheme is for a con artist to operate out of British Columbia 
or some other province in Canada and make calls to persons in 
the United States, frequently elderly persons and people who 
are vulnerable. Using a warm and a friendly style, they offer 
the U.S. resident some exciting and large financial winnings or 
an opportunity which requires an up-front payment, which the 
con artist then claims is necessary for taxes or customs fees 
or some similar purpose.
    We have had many examples of how these con artists work. 
Senator Collins has just reviewed a number of those examples. 
The one that I am going to focus on here is a tape which was 
obtained by Senator Collins' staff, and this tape was made by 
the daughter of one of our witnesses. The first excerpt which 
we are going to hear is a tape that was made by Ann Hathaway, 
the daughter of witness Bruce Hathaway. Now, Ms. Hathaway 
recorded this conversation on October 15, 1998, with the help 
of the Ohio Attorney General's Office, and that office will be 
testifying here later on today.
    In this phone conversation, someone who identifies herself 
as Mary Thompson claims to be from the U.S. Customs Service and 
she lays out an elaborate and chillingly believable scam to Ms. 
Hathaway. The woman who calls herself Mary Thompson says that 
because Ms. Hathaway's father had entered scam sweepstakes and 
lotteries, that these scam sweepstakes and lottery people had 
been caught and had agreed to a court settlement of $110,000, 
to be paid to 1,200 people who lost their money. Now, the catch 
was that the people who she said were entitled to the 
settlement money must first send money to Mary Thompson at the 
U.S. Customs Service to cover the taxes on the settlement 
amount that they would be receiving, and, of course, nobody 
ever gets the settlement money. We will play the first excerpt 
now.
    [An audio tape was played.]
    Mary Thompson: It's very simple, Ann, I'm going to explain 
to you from the beginning.
    Ann Hathaway: Oh, well, thank you.
    Mary Thompson: Your father, your father has got a bad habit 
to enter sweepstakes and lottery companies. You know those 
sweepstakes that you get by the mail?
    Ann Hathaway: Right.
    Mary Thompson: You send $10 dollars, $20 dollars, they 
promise you money now.
    Ann Hathaway: Right.
    Mary Thompson: He lost . . . he, he sent quite a bit of 
money to those sweepstakes and lotteries within maybe 3 years, 
yes?
    Ann Hathaway: Oh, ok.
    Mary Thompson: What happened is that those companies are 
illegal. They promise him money, they never send him anything, 
so those companies were seized. I've got some lists here that 
I, I did send your father----
    Ann Hathaway: Yes.
    Ms. Thompson [continuing]. Of the companies that were 
seized, and those companies were brought to court. It was a 
class-action suit done against them, and finally they decided 
to, with the money they made with that, to send it back to (uh) 
some people in a lot of countries.
    Ann Hathaway: Yes.
    Mary Thompson: People from Australia, United States, and 
Canada who were playing those sweepstakes and lotteries. It is 
very hard for them to send like $10, $20, or $40 back to 30 
million people. I would have to call everybody and say, ``OK, 
how much did you lose? We're gonna send it back to you.'' So 
what they decided to do instead is offer a court settlement of 
$110,000, ah, to about, let me see, it's about 1,200 people 
that are going to be getting that money, OK? What they did is 
they called your father up, there's an attorney by the name of 
Robert Duran, which I didn't know. They called him up, and they 
told him about that story. And he said, ``Listen, you have to 
pay taxes on that.''
    Ann Hathaway: Yes.
    Mary Thompson: Because it's coming from another country. 
I'm at the United States Customs Office. So what we did is we 
confirm everything with Mr. Duran, and your father sends in 
$2,000 for his taxes because he's a senior citizen and he's 
able to pay the balance only after he receives the court 
settlement.
    [End of recorded tape.]
    Senator Levin. Now, in the second excerpt, which Ms. 
Hathaway recorded on November 25, 1998, Ms. Hathaway is now 
speaking with a person who identifies himself as Mark Davis. He 
says he is the associate of Mary Thompson, who we just heard in 
this first excerpt. Mark Davis says that he is the owner of a 
law firm which is handling the settlement. On the phone is also 
someone called Mr. Taylor, who Mark Davis says is an attorney 
at the law firm.
    Both Mary Thompson and Mark Davis have explained to Ms. 
Hathaway that there are additional settlements for her father 
to claim. Ms. Hathaway has been told that her father is now 
entitled to $170,000 from a settlement, but Ms. Hathaway or her 
father must pay first $78,000 before they receive any money. 
Neither Ms. Hathaway or her father paid at the time of the 
following conversation, when Mark turns up the pressure and 
tells Ms. Hathaway that he is losing money as a result and is 
upset that she has not paid. So now we are going to hear that 
piece of the conversation, first hearing from someone who is 
identifying himself as Mark Davis.
    [An audio tape was played.]
    Mark Davis: Now, I know that (uh) you spoke with Mrs. (uh) 
Thompson, and she was expecting those payments, and all the 
time something happened. Now, you have to know that we're 
running late, and every day that passes by I'm paying interest 
for that money that is (uh, uh) held at U.S. Customs.
    Mr. Taylor, an associate fo Mark Davis, in the background: 
That's right.
    Mark Davis: And here, at the law firm, we're not too crazy 
about this. So this is why I'm trying to find answers and I'm 
trying to find some solutions to get through this so you can 
have the money already.
    [End of recorded tape.]
    Senator Levin. Fortunately, Ms. Hathaway did not send the 
money, but her dad had already sent $47,000 to these people and 
never received one cent in return. These crooks are still at 
large. They are probably making calls similar to the ones that 
we have just heard.
    In addition to hearing from Mr. Hathaway, we are going to 
be hearing from two other victims of similar scams, including a 
witness from Michigan, Mrs. Julia Erb, who I met yesterday with 
her daughter. She is going to describe how she lost $2,971 from 
similar calls informing her that she had won a lottery but 
needed to send money to cover the taxes that she would first 
have to send in, because those taxes would have to be paid on 
the money.
    [The prepared statement of Senator Levin follows:]

              PREPARED OPENING STATEMENT OF SENATOR LEVIN
    Today and tomorrow this Subcommittee will be looking at cross-
border fraud. These hearings have been initiated and led by Senator 
Collins, and I thank her for her hard work in this area and so many 
other areas involving protection of America's consumers and seniors.
    Cross-border fraud is a serious problem that, despite significant 
law enforcement efforts in the last few years, is still on the rise. 
When I say ``cross-border fraud'' I am describing scams involving 
advance fees-for-loans, foreign sweepstakes, and foreign lotteries that 
are initiated by persons in another country against resident sof the 
United States often through phone solicitations, sometimes through the 
mail. The perpetrator of the fraud uses an international border as an 
obstacle to being caught and prosecuted. One major border for such 
activity is the U.S.-Canadian border. Victims in our country often 
think it isn't worth the trouble to seek a remedy, and law enforcement 
personnel are faced with multiple extra steps and procedures to bring 
the perpetrators to justice. Perpetrators rely on this reality to 
escape prosecution.
    A common practice in a Canadian-U.S. cross-border fraud scheme is 
for a con artist to operate out of British Columbia or some other 
province in Canada and make calls to persons in the United States who 
are most often elderly. Using a warm and friendly style, they offer the 
U.S. resident some exciting and large financial winnings or opportunity 
which requires an up-front payment of a significant amount which the 
con artist claims is necessary for taxes or customs fees or similar 
purpose.
    The FTC estimates that the dollar loss reported by U.S. consumers 
with respect to Canadian companies for FY 2000 was $19.5 million, and 
for FY 2001, the FTC estimates that number will rise to $36.5 million. 
And these are just the reported losses. Many people don't even report 
their losses, because of the embarrassment of having been duped.
    We have a first-hand example of how these con-artists work their 
persuasive talents over the phone. It comes from a tape made by the 
duaghter of one of our witnesses. The first excerpt we will hear was 
taped by Ann Hathaway, the daughter of witness Bruce Hathaway. Until 
recently, Miss Hathaway was a Michigander. She moved from Michigan to 
Ohio in 1998 to take care of her parents. Miss Hathaway recorded this 
conversation on October 15, 1998, with the help of the Ohio Attorney 
General's Office.
    In this conversation a ``Mary Thompson,'' who claims to be from the 
U.S. Customs Service lays out an elaborate and chillingly believable 
scam to Ms. Hathaway. Mary Thompson says that because Miss Hathaway's 
father entered illegal sweepstakes and lotteries (foreign sweepstakes 
and lotteries are illegal for U.S. citizens to play) in the past, these 
lottery and sweepstakes companies have agreed to a court settlement 
which will pay $110,000 to 1,200 people who have all lost money in the 
past due to participating in foreign lotteries and sweepstakes. The 
catch is that the people who are entitled to the settlement money must 
send money to Mary Thompson at the U.S. Customs Service to cover the 
taxes on the settlement amount that they will be receiving. Of course, 
no one ever gets the settlement money.
    Conversation No. 1
    Mary Thompson: It's very simple, Ann, I'm going to explain to you 
from the beginning.
    Ann Hathaway: Oh, well, thank you.
    Mary Thompson: Your father, your father has got a bad habit to 
enter sweepstakes and lottery companies. You know those sweepstakes 
that you get by the mail?
    Ann Hathaway: Right.
    Mary Thompson: You send $10 dollars, $20 dollars, they promise you 
money now.
    Ann Hathaway: Right.
    Mary Thompson: He lost . . . he, he sent quite a bit of money to 
those sweepstakes and lotteries within maybe 3 years, yes?
    Ann Hathaway: Oh, ok.
    Mary Thompson: What happened is that those companies are illegal. 
They promise him money, they never send him anything, so those 
companies were seized. I've got some lists here that I, I did send your 
father----
    Ann Hathaway: Yes.
    Ms. Thompson [continuing]. Of the companies that were seized, and 
those companies were brought to court. It was a class-action suit done 
against them, and finally they decided to, with the money they made 
with that, to send it back to (uh) some people in a lot of countries.
    Ann Hathaway: Yes.
    Mary Thompson: People from Australia, United States, and Canada who 
were playing those sweepstakes and lotteries. It is very hard for them 
to send like $10, $20, or $40 back to 30 million people. I would have 
to call everybody and say, ``OK, how much did you lose? We're gonna 
send it back to you.'' So what they decided to do instead is offer a 
court settlement of $110,000, ah, to about, let me see, it's about 
1,200 people that are going to be getting that money, OK? What they did 
is they called your father up, there's an attorney by the name of 
Robert Duran, which I didn't know. They called him up, and they told 
him about that story. And he said, ``Listen, you have to pay taxes on 
that.''
    Ann Hathaway: Yes.
    Mary Thompson: Because it's coming from another country. I'm at the 
United States Customs Office. So what we did is we confirm everything 
with Mr. Duran, and your father sends in $2,000 for his taxes because 
he's a senior citizen and he's able to pay the balance only after he 
receives the court settlement.
    [End of tape]
    In the second excerpt, which Ms. Hathaway recorded on November 25, 
1998, Ms. Hathaway is now speaking with a ``Mark Davis'' who says he is 
an associate of Mary Thompson, whom we heard in the previous call. Mark 
says that he is the owner of a law firm which is handling the 
settlement. On the phone is also a ``Mr. Taylor'' who Mark Davis says 
is an attorney at the law firm. Both Mary Thompson and Mark Davis have 
explained to Miss Hathaway that there are additional settlements for 
her father to claim. Miss Hathaway has been told that her father is now 
entitled to $170,000 from a settlement, but Miss Hathaway or her father 
must pay $78,000 before they receive any money. Neither Miss Hathaway 
or her father have paid as of the time of this call, and in the 
following conversation, Mark turns up the pressure and tells Miss 
Hathaway that he is losing money as a result and is upset that she has 
not paid.
    Conversation No. 2
    Mark Davis: Now, I know that (uh) you spoke with Mrs. (uh) 
Thompson, and she was expecting those payments, and all the time 
something happened. Now, you have to know that we're running late, and 
every day that passes by I'm paying interest for that money that is 
(uh, uh) held at U.S. Customs.
    Mr. Taylor, an associate fo Mark Davis, in the background: That's 
right.
    Mark Davis: And here, at the law firm, we're not too crazy about 
this. So this is why I'm trying to find answers and I'm trying to find 
some solutions to get through this so you can have the money already.
    [End of tape]
    Fortunately, Ms. Hathaway did not send any money, but her father 
had already sent $47,600 to these people, and he never received one 
cent in return. Although the Ohio Attorney General's office tried to go 
after these crooks, they were not able to prosecute them because they 
were located in Canada. So these crooks are still at large and are 
probably making calls similar to the ones we just heard.
    Today we will also be haring from two other victims of similar 
scams, including a witness from Michigan, Mrs. Julia Erb, who will 
describe how she loast $2,971 from similar calls informing her that she 
had won a lottery but needed to send money to cover the taxes she would 
have to pay on the money.
    I thank these witnesses for having the courage to come forward and 
tell their stories. In doing so they will help others to avoid being 
victimized by these criminals. And, again, I thank Senator Collins for 
identifying this issue for the Subcommittee and for the work she and 
her staff have done to make these hearings possible.

    Senator Levin. I want to thank our witnesses today for 
having the courage to come forward to tell your stories. It is 
not easy to do what you are doing today, but in doing this, you 
are going to be helping to prevent other people from being 
victimized the way you were by these criminals.
    Again, before I swear our witnesses in, which is 
traditional for this Subcommittee, I want to thank Senator 
Collins. It is her energy, her effort, and her staff work, in 
addition to her own, which have made these hearings possible 
and which hopefully will reduce the number of people who are 
taken advantage of by these scam artists and these crooks.
    So if our witnesses would now all stand and raise your 
right hands. Do you swear that the testimony you will give 
before this Subcommittee will be the truth, the whole truth, 
and nothing but the truth, so help you, God?
    Mrs. Erb. I do.
    Mr. Hathaway. I do.
    Mrs. Hersom. I do.
    Senator Levin. Why don't we call on you, Mrs. Erb, first. I 
am trying to figure out some rhyme or reason to the order in 
which we will call our witnesses, so we will do it 
alphabetically.

          TESTIMONY OF JULIA ERB,\1\ KIMBALL, MICHIGAN

    Mrs. Erb. Senator Collins and Senator Levin, my name is 
Julia Erb and I'm a resident of Kimball, Michigan, which is 
about 60 miles from Detroit. I have lived in Kimball for the 
past 12 years with my husband, Ed. I have six grown children. I 
might say four were born in Canada, and it says 14 
grandchildren, but I also have three more as of last Monday--my 
son adopted them--and five great-grandchildren. I've been a 
small business owner and am now retired.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mrs. Erb appears in the Appendix on 
page 65.
---------------------------------------------------------------------------
    Starting on November 17, 2000, I began receiving phone 
calls from persons telling me I had won various prizes. I don't 
know why I started to get these calls. The people on the phone 
sounded sincere and very excited. They asked me to send money 
to cover various expenses in the delivery of cash prizes, and I 
did, using my Visa credit card, which I am usually very careful 
of because I like to pay it off every month. Then I also 
started sending cashier's checks. I never received any of the 
promised prizes. I can't believe I did this, but in order to 
stop other people from my situation, from doing what I did and 
losing money--I lost a total of almost $3,000, which is a lot 
for me because I had a stroke a few years back, which cost a 
lot--I would like to describe several of my experiences for the 
Subcommittee.
    My first encounter was November 17, 2000. I was called by a 
Roy Taylor, who said he was calling from the First Liberty 
Exchange Bank of Carson City, Nevada, phone number 1-800-223-
6971. He said I had won $60 million prize money. He said there 
were ten contestants drawn down to three who would win, but I 
came in first. I asked him if he was kidding and how many 
zeroes that was, and he laughed and said, ``Six.'' I said, 
``You're kidding, right? What do I have to do?'' He said, 
``Just be there.'' Then he asked me for my Visa credit card 
number and I gave it to him. He said I would be receiving 99 
British Sterling bonds which were worth $60 million, that I 
would receive $1,800,000 to start and that I would get $10,000 
every month after January 1, 2001.
    He then switched me to a Jeff Lee, who said I had entered a 
sweepstakes several weeks ago, which I didn't remember. Mr. Lee 
asked me if I had just spoken with Roy Taylor. I said, ``yes,'' 
and he said he would explain what happened next. He said I 
would receive a package in 3 or 4 weeks verifying who I am and 
that I am Julia Erb of good address and I had won $60 million. 
He said it would be 99 units of British Sterling premium 
savings bonds and that I would have a one-time legal fee of 
$1,498 which would go to the lawyers who would put the money in 
my name on the bonds for me. He asked me if I could manage that 
or did I need more time.
    He told me it was important that I not tell anyone about 
this. I was beside myself. He also said it was imperative for 
security 
reasons to speak to a Mr. Jordan Richards, who would record our 
conversation. He said I was to answer only ``yes'' or ``no.'' 
Mr. Richards repeated the terms of payment, asked if I 
understood what I was saying, and I answered, ``Yes.''
    Then Mr. Lee, who is a real gentleman, came back on the 
line and said my package would arrive in 3 or 4 weeks. I was to 
sign the papers they identified and phone him when I got the 
package. I was surprised I could read my notes as I scribbled 
any which way while holding the phone. I could hardly write, I 
was shaking so.
    I called Mr. Lee again on November 30, 2000, because I was 
concerned that my Visa showed that the $1,498 was going to a 
Hyperion Bank in Kansas City, yet he was calling me from a 
First Liberty Exchange Bank in Carson City. He laughed and 
said, ``Yes, dear.'' I only answered, ``Yes, dear,'' too. He 
got a laugh out of that, and I said I was so hyper I'd say just 
about anything. He said not to worry, that he had many banks 
and that the one--that was the one he used. He reminded me 
again to call him as soon as I received my package and told me 
not to worry and to take it easy. He was very gracious.
    I did get worried, however, and called First Liberty 
Exchange Bank on December 19, 2000, after I didn't receive any 
package. I got a Mr. Redfield, who said he was the president of 
the bank. Mr. Redfield told me that Mr. Lee was no longer 
there. I told Mr. Redfield about our conversation and that the 
$1,498 was charged to my Visa but I hadn't received a package. 
He said he'd take care of it.
    I received a package about 1\1/2\ weeks later which 
congratulated me and told me I now had a ``personal, exclusive 
two-year Premium Bond Membership package.'' I immediately 
called Mr. Redfield and said I had the bond package. He told me 
to sign the two papers in the package and mail them right back 
to him, which I did. The papers I sent confirmed that on 
November 17, 2000, Hyperion Bank had drawn $1,498 from my Visa 
account, which would enroll me in the premium bond program, 
which would entitle me to win $60 million. The letterhead on 
the package showed the address from Nicaragua, but Mr. Redfield 
told me to return the signed papers to him in Carson City. I 
never received any money. I phoned the bank in Carson City, but 
the number was disconnected.
    My second experience occurred in March of this year. I 
thought I was just lucky to get another call. On March 1, 2001, 
at 5:45 p.m., I was called from Australia by a John Turner who 
said I was in a drawing that was held every 10 years, 1971, 
1981, 1991, and 2001. He said this was an Australian 
international lotto. The drawing was to be held on Saturday, 
March 3, 2001, at 8 p.m. A Michael Wilson came on the phone and 
gave me a number which he said to tell no one. Number 25185 was 
the number and the payoff would be $50 million. I was to send 
$445 (plus $20 I paid to Fed Ex) in a cashier's check for a 
chance to win to World Marketing Service in Vancouver, Canada. 
I never did receive anything.
    The next encounter occurred on Wednesday, March 7, 2001, 
when an Andrew Dalton called me from Australia and said I had 
just won the top prize of $10 million now and $10 million in 
the future. Alan Wilson then called me and said he was working 
with Andrew Dalton. Alan asked me if I was a U.S. citizen or if 
I had ever been to Australia. When I told him I had never been 
to Australia, he told me I should come to visit and he would 
take me around.
    Alan called me every night for about 2 weeks and asked 
whether I had sent the money and to talk. According to Alan, I 
needed to send him $498 for legal fees to pay the Australian 
income taxes on my winnings. Alan would call around 9 p.m. 
every night. When the phone rang around 9 p,m,, I would look at 
my husband and say, ``That must be Alan.'' One night, my 
husband and I went to church and when we got home, the phone 
was ringing. It was Alan. He said, ``Where were you? I tried to 
reach you several times tonight.'' I told him I had been to 
church. Alan said, ``You are a lovely lady.'' I believe he was 
a criminal with a conscience. I think he felt bad about what he 
was doing. I really did, from his voice and all, but then 
again, that's their selling point.
    On March 7, 2001, I sent a cashier's check for $498 to 
R.M.G., in Vancouver, British Columbia, Canada. I received 
nothing in return. A few days later, Alan stopped calling.
    The fourth encounter involved a Mario Lopez from Madrid, 
Spain, at 8:30 p.m. on March 8, 2001. Mario told me he knew 
Alan. Now, Mario said that King Carlos and Queen Sophia had a 
two-person drawing and I was one of the two winners, the other 
person being in California. He said the amount of the winnings 
was $200,000--we're getting cheaper--and he would send it to me 
within 1 month by Federal Express.
    He said I was chosen completely at random because of the 
way the Americans helped Spain and they wanted to give back to 
the United States and he needed $1,900 from me. When I told him 
I couldn't afford that, he said I could win $2,000 [sic] and 
ten free tickets to El Gordo, the Spanish lottery. He then 
said, ``Well, send $500,'' which would cover the amount it 
would take to exchange $200,000 to American dollars from 
Spanish money at Banco Expano. I sent a cashier's check for 
$500 to R.M.G., Suite 277, 3351 Kingsway, Vancouver, British 
Columbia, Canada, V5R5K6. He gave me his phone number, which I 
never called, since he said it was $9 a minute.
    I have not received any money that I was promised. I lost 
only a total of almost $3,000, and I feel terrible, but that 
was a lot of money to me at this time. I can't believe I was so 
stupid to have done this. I just wanted to provide for my 
children and grandchildren. My husband and I don't need 
anything at this age, but I thought I could do something for 
them.
    They did it very cleverly, as my bonds had to be in for a 
complete month, which wouldn't be until February 2001, and then 
March would be the drawing. It was very stupid of me and I felt 
I was just lucky. I had prayed always for a way to help my 
family, and I believed I could after paying the income tax on 
all this money, and here I am, broke. Thank you.
    Senator Levin. Thank you. Your extraordinary good nature 
was taken advantage of, and somehow or other, you've been able 
to retain it.
    Mrs. Erb. Well, lots of kids around.
    Senator Levin. I was just chatting here with Senator 
Collins, that you could believe somehow or other that he felt 
badly about scamming you is the scam.
    Mrs. Erb. I don't any longer.
    Senator Levin. Believe me, he didn't feel the slightest bit 
badly about scamming you.
    Mrs. Erb. They're probably actors, very polished.
    Senator Levin. Yes, and that is the problem that they are 
credible and they make people believe who are trustful people 
like you.
    Mrs. Erb. Well, I had hoped I could help my family. I 
really did. Well, I'm not much help this way.
    Senator Levin. Well, I am sure you are helping them in a 
lot of other ways, indeed.
    Mr. Hathaway, let me call upon you next. You are from 
Columbus and we appreciate you and our other witnesses 
traveling here to discuss this issue, and again, I know it is 
not easy to talk about these things, but you will be saving a 
lot of other people from being scammed the way you were. We 
also appreciate, as Mrs. Erb did, trying to do your statement 
in no more than 10 minutes because of our time constraints, and 
we may be interrupted at any time, as a matter of fact, to have 
to run over for a vote or two votes. Mr. Hathaway, would you 
proceed?

         TESTIMONY OF BRUCE HATHAWAY,\1\ COLUMBUS, OHIO

    Mr. Hathaway. I would like to thank the distinguished 
Members of the U.S. Senate Subcommittee for providing me the 
opportunity to speak with you today. My name is Bruce Hathaway. 
I am 83 years old, a certified public accountant and Lieutenant 
Colonel in the U.S. Air Force, retired. I have come before you 
today to share with you my experiences as they relate to cross-
border telemarketing fraud.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Hathaway appears in the Appendix 
on page 68.
---------------------------------------------------------------------------
    My wife, Helen Hathaway, has been confined to a nursing 
home since March 1997. Unfortunately, my health insurance did 
not cover long-term aftercare, and I was forced into a costly 
self-pay situation regarding her care. Shortly after her 
admittance, I began entering direct mail sweepstakes, hoping 
that winnings could be used to offset the burden of these 
additional expenses. As my participation in these sweepstakes 
increased, so did the frequency in which these solicitations 
were received.
    Over the next year-and-a-half, I spent nearly $10,000 
entering sweepstakes. On several occasions, I believed I had 
won a substantial amount of money, later to find out I had been 
deceived. I have since learned that it was my participation in 
these sweepstakes that made me vulnerable to future 
telemarketing scams.
    In August 1998, I received a phone call from an individual 
identifying himself as Robert Duran, an attorney with the 
Canadian law firm of Rudel, Wiseman and Associates, informing 
me of a $90 million settlement resulting from a class action 
lawsuit against a group of United States sweepstakes companies 
who were defrauding Canadian citizens. By utilizing information 
they obtained from the United States sweepstakes companies, I 
had been identified as one of many American citizens who had 
been victimized by these companies. Further, having reimbursed 
all of the Canadian parties involved, I was entitled to 
$110,000 as my share of the remaining monies awarded their firm 
for disbursement.
    I received a call from a woman identifying herself as Mary 
Thompson with the Canadian Tax Bureau. She called regarding 7 
percent tax required before these monies could be released to 
me. I asked if this amount of $7,700 could be taken out prior 
to sending me the settlement, but she said that would not be 
possible. I then requested that upon receipt of the settlement, 
I could forward a check to cover the taxes, but again, she 
refused. Since we could not reach an agreement, she said she 
would talk to her superiors about releasing these monies.
    Her return call concluded I could pay $2,000 up front with 
the remaining $5,700 to be due 15 days after receiving the 
settlement check. I acquired a cashier's check in the amount of 
$2,000, payable to Tony Wiseman, and mailed it to a couple in 
Montreal as instructed.
    Several days later, I received another call from the 
Canadian Tax Bureau, this time from a man identifying himself 
as James Jann. He informed me that my settlement check was 
being withheld pending the addition of another $170,000 claim. 
He also informed me that these monies were subject to the same 
7 percent tax rate. I asked if I could wait until I received 
the first $110,000 check before paying the 7 percent tax on the 
second $170,000. He said this was not an option, as there had 
already been one check issued in the amount of $280,000, the 
sum of both settlement checks. However, I could pay $3,000 now 
and the remainder upon receipt of my settlement check.
    This time, I sent a cashier's check in the amount of $3,000 
made out to Julie M. Wilson and mailed to Gloria Sax, her 
assistant in Montreal. I was told that I would receive my 
$280,000 check delivered by armored car between October 5 and 
October 9, 1998, and that the driver would accompany me to the 
bank to deposit the check directly into my checking account or 
savings account. He reminded me that upon receipt of these 
monies, I would be asked to pay the amount of $14,600, which 
was 7 percent owed in taxes less the $5,000 that had been paid. 
I mailed the check and waited for the beginning of October and 
the receipt of the settlement check, as promised.
    On September 29, 1998, I received a call from John Taylor, 
who purported to be with the U.S. Customs Department. He 
indicated that he had my $280,000 settlement check. He said 
before these monies could enter the United States, I had to pay 
a 10 percent Customs fee, the taxes of 7 percent and Customs 
fees of 10 percent. Mr. Taylor said the total was $42,600 owed, 
which was $14,600 for taxes and $28,000 for Customs fees. 
Adding the $5,000 in taxes that I had already paid, the grand 
total was $47,600.
    I have asked my daughter to accompany me here today 
because, as my caregiver, she is a victim of these 
circumstances, as well. Had it not been for her intervention, 
the involvement of the Ohio Attorney General's Office, and the 
combined efforts of Robert E. Morgan and Edward J. Earley, the 
scam artists would have continued trying to exploit more taxes 
and fees from me.
    That ends my brief. This has been an honor and a privilege 
for me to be here today. I am confident your thoughts will be 
with all of the senior citizens across our country that have or 
will have fallen victim to similar scams. If it is true that 
these criminals are seeking refuge in Canada, using the United 
States-Canadian border to avoid detection, apprehension, and 
prosecution from the United States law enforcement, please 
continue your efforts to better the communications and 
assistance needed from the Canadian authorities. Thank you.
    Senator Levin. Thank you very much, Mr. Hathaway, for 
coming forward with this story, which I know is painful to you 
and your family, and we thank you and your daughter both.
    Senator Collins.
    Senator Collins. Thank you, Mr. Chairman. It is a great 
pleasure for me to introduce the final witness on this panel, 
Mrs. Ann Hersom, who is from Acton, Maine. That is a small 
community in Southern Maine, in York County, and it is a great 
pleasure to have Mrs. Hersom here today. We had a chance to 
visit yesterday and I want to echo the thanks of our Chairman 
to all three witnesses for having the courage to come forward. 
Mrs. Hersom, we look forward to your testimony, if you would 
like to proceed.

            TESTIMONY OF ANN HERSOM,\1\ ACTON, MAINE

    Mrs. Hersom. My name is Ann Hersom. I appreciate this 
opportunity to address the distinguished Members of the U.S. 
Senate Permanent Subcommittee on Investigations regarding how 
my family was victimized by cross-border telemarketing fraud.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mrs. Hersom appears in the Appendix 
on page 74.
---------------------------------------------------------------------------
    I am a 62-year-old business woman and my 80-year-old 
husband is retired. I have owned a small gift shop in downtown 
Sanford since 1994. My husband, Mr. Leon Hersom, was initially 
contacted sometime in 1997 through mail solicitations offering 
chances in foreign lotteries. I really did not pay much 
attention to what my husband was doing until 1998. I suffered 
an injury to my back in January 1998 and had surgery in August 
1998. Since 1999, I have remained at home, caring for my 
husband and 20-month-old grandson. My son took over the day-to-
day operations of my business.
    Since remaining at home, I became aware that my husband was 
receiving numerous telephone calls during the day from 
telemarketers. I could not help but notice the calls. They 
would start at 7 a.m. and continue until 9 p.m. at night. It 
was only then that I discovered that my husband had been 
sending money to Canadian telemarketers and sweepstakes 
drawings in the United States in the belief that he had won a 
lottery and needed to pay the taxes on the winnings.
    While I have no exact way of knowing how much my husband 
actually sent these people, I believe our financial loss is 
between $15,000 and $20,000. For the records I could piece 
together, I know that my husband wired via Western Union $2,700 
to specifically pay for the taxes on his winnings. In one 
instance, he wired $1,500, which was all of our income for that 
month.
    I am sure you can understand how hard it is to manage when 
all your money has been thrown away. After I became aware of 
this situation, I reviewed our checkbook and credit cards and 
found numerous checks and credit card charges made out to these 
people for $300 to $500 at a time. It was so bad that I took 
the checkbook and the credit cards away from him.
    I then discovered that my husband was obtaining cash and 
mailing that directly to Canada. When he was unable to obtain 
cash, he would take his medical insurance reimbursement checks 
from the mail, sign them, cash them, and send the money to 
people in Canada and the United States. My husband would 
receive approximately 20 sweepstakes mailings on Monday and 
five to ten sweepstakes mailings the other days of the week. 
These sweepstakes mailings would be from all over the world 
telling my husband that he had won the lottery and just had to 
pay for processing fees.
    Many of the mailings had catchy slogans: ``You are a winner 
of $1 million and all you have to do is pay $19.95.'' Many of 
the tactics from the mailings and telemarketers are also,--
``This is a one-time only offer, you can only do this today,'' 
``you mean you don't want to win all this money?'' and ``you 
could really use this money, couldn't you?'' These tactics prey 
on people's minds. Senior citizens need to be made aware that 
they don't have to pay to win something.
    We have started to receive telephone calls at our home from 
people with foreign accents. The telephone operator will say, 
``You have an international collect call, will you accept,'' 
and before I can say no, someone with a foreign accent will 
say, ``Pick up the phone, Mr. Hersom.'', say ``yes, Mr. 
Hersom.'' This has been very, very frustrating--I try to always 
be the one to answer the phone.
    My husband still insists that he will win ``the lottery'' 
and even opened a postal box, unbeknownst to me, in order to 
continue to receive ``lottery'' information. I don't think I 
can fully explain how surprising and frustrating this 
experience has been.
    My husband was a businessman for many years who owned his 
own lumber business. My husband was always very intelligent and 
was good at making smart decisions. He is not the type of man I 
would have imagined could fall for a con artist. However, my 
husband is not in good health. He suffers from congestive heart 
failure and is on oxygen 24 hours a day. With the onset of his 
illness, it also appeared as though he became exceedingly 
concerned about having enough money to pay for his ongoing 
medical treatment, as well as to meet normal living expenses.
    I believe that as people get older and they can no longer 
work to support themselves, they become fearful of how much 
money they will have and how they will be able to manage. 
Senior citizens are afraid that their money will not last as 
long as they will. This is a deep-seated fear that younger 
people--who are able to work, to make more money if they need 
to--do not fully understand. I think these telemarketers prey 
on this fear to the point that people respond to an enticement 
that under normal circumstances would not make sense. Even now, 
I still monitor the mail and telephone calls to ensure that 
telemarketers are not getting to him.
    This entire experience has been extremely hard on our 
marriage. At one point, in desperation, I told him I would 
leave him if he didn't stop. Even today, after everything we 
have been through--he still believes he can win the lottery. Or 
that he has already won and merely has to pay a processing fee.
    I hope my remarks today may alert potential victims to this 
type of fraud. More importantly, I hope that spouses, brothers 
and sisters, and children of the elderly pay attention to their 
loved ones and become involved in their life in order to 
prevent some telemarketer from defrauding them. Many senior 
citizens are alone and fearful. They are easy targets for 
telemarketers, whose scripted calls appear to offer friendship 
but only play on senior citizens' fears in order to steal their 
life savings.
    I want to say today to everyone that ``if it sounds too 
good to be true, it is.'' I also want to say that senior 
citizens should not be embarrassed to talk about this with 
their families. Their families can help them to understand that 
this is not their fault. They are being preyed upon by these 
telemarketers and what is needed is more people to know about 
this so that it can be prevented in the future.
    Senator Levin. Mrs. Hersom, thank you for coming forward. 
Thank you for your wise advice at the end of your statement. I 
just wish everybody who receives a phone call could hear that 
advice.
    The purpose of these hearings, as Senator Collins has 
mentioned, is in part, at least, to spread the word about these 
crooks and to try to prevent people from being taken in. There 
are other purposes, as well, in terms of oversight of how our 
laws work and possible legislation, but this is one of the 
primary purposes of this hearing and these hearings which 
Senator Collins has scheduled.
    We will now go and vote. We will be back, hopefully--are 
there one or two votes, do we know? It is two votes, which 
means we could be gone possibly 20 minutes. We will resume with 
questions when we come back, so the three of you feel free to 
get up and move about, but we will proceed with questions of 
the three of you briefly, and then we will move to our second 
panel, upon our return. Thank you.
    [Recess.]
    Senator Collins [presiding]. The Subcommittee will come to 
order. As we are waiting for Senator Levin to return, he has 
agreed that I can proceed with some questions.
    I first want to thank all three of our witnesses for their 
very compelling testimony. As we have mentioned several times, 
we hope that people who hear your tragic stories will be far 
more careful when they receive telemarketing calls or direct 
mail solicitations about sending money, particularly when they 
do not really know who is on the other end.
    I would like to ask all three of you the same question to 
start off with--Mrs. Hersom, I will start with you. Did your 
husband recover any of the money that he sent?
    Mrs. Hersom. No, he didn't.
    Senator Collins. Mr. Hathaway, did you get back any of the 
money that you sent in response to the solicitations?
    Mr. Hathaway. I am sorry, I didn't hear all that.
    Senator Collins. I am sorry. Did you recover any of the 
money that you sent to these telemarketers?
    Mr. Hathaway. No.
    Senator Collins. Mrs. Erb, did you ever recover any of the 
money that you sent?
    Mrs. Erb. No, I haven't.
    Mr. Hathaway. Not one dollar.
    Senator Collins. So all three of you, to this very day, 
have sustained these losses and not recovered a cent, is that 
correct?
    Mrs. Erb. That's true.
    Senator Collins. And I think that highlights one of the 
problems that we have here, because unfortunately, the 
prosecution of cross-border fraud is very complicated because 
of the different countries' law enforcement systems that are 
involved, which make criminals very difficult to pursue and 
makes it very difficult to recover money for those who have 
been defrauded. I think that is an important lesson, as well.
    Mrs. Hersom, how difficult is it for the loved ones of a 
victim to deal with this issue? You talked a little bit about 
that in your testimony. Could you talk a little bit more about 
what it was like for you when you discovered that your 80-year-
old husband had apparently been sending money without your 
knowledge?
    Mrs. Hersom. Well, when I first realized he was doing this, 
I was in a state of shock because I couldn't believe that he 
would do something like this, because he has always been the 
type of person that if he heard that this was happening to 
someone else--when he was probably 10 years younger--he would 
have been shocked, because he's just not the type of person to 
do this. And it's so frustrating to know that someone is doing 
this and that there's nothing you can do about it.
    Senator Collins. And if you hadn't happened to have been 
injured and been home when these calls and other solicitations 
were coming, you might never have discovered this.
    Mrs. Hersom. I might never have discovered it.
    Senator Collins. And to this day, you testified that your 
husband believes that he is likely to win one of these Canadian 
lotteries, is that correct?
    Mrs. Hersom. I think he really does believe it.
    Senator Collins. Still believes. And what do you think made 
him vulnerable? As you pointed out, he was a businessman. Was 
it his illness? Was it concern about finances? What seems to 
have been a factor in the other cases we have heard, is either 
wanting to do something nice for your family, as in the case of 
Mrs. Erb--or in Mr. Hathaway's case--concern about the very 
large nursing home bills that his wife was incurring. In your 
case, what do you think made your husband particularly 
susceptible to these kinds of fraudulent pitches?
    Mrs. Hersom. I think, for one thing, he may have been 
lonely, because he was home alone all the time and these people 
offered him friendship. And I think he was concerned that he 
had a lot of medical expenses. I think as senior citizens get 
older, they start worrying about how long they're going to live 
and is their money going to hold out, and, of course, he knew 
that I'm about 18 years younger than he is, that I would need 
some financial support after he goes.
    Senator Collins. One of the parts of this whole problem 
that is most troubling to me is that these con artists are 
preying on very good intentions of people and people's trusting 
nature. They are taking advantage of people who want to make 
sure that their families are provided for and that their bills 
are paid when they are incurring high medical expenses. That is 
what makes this even more deplorable, because these con artists 
really are hitting people when they are vulnerable.
    Now, Mrs. Hersom, most Americans do not realize this, and I 
think this is part of the problem, but it actually is illegal 
for someone to sell you a foreign lottery ticket in the United 
States. So any offer that comes from a Canadian source offering 
a lottery ticket is illegal. Were you aware of that?
    Mrs. Hersom. I was aware of it, but my husband wasn't, and 
when I found out this was going on, I told him that this is 
illegal.
    Senator Collins. Finally, I would like to ask all three of 
you, what do you think we should do--perhaps in conjunction 
with law enforcement officials or groups like AARP--to try to 
alert senior citizens about the dangers of these scam artists? 
Do you think, for example, that public service announcements on 
television should tell people that lottery tickets from other 
countries are illegal or that they should be careful in sending 
money when they do not know who is asking you for it? What do 
you think would be helpful and might have helped in your 
personal case? Mrs. Hersom.
    Mrs. Hersom. I think anything that can be done would help. 
But in my case, I don't know if anything would have helped, 
really, because there had been programs on TV about fraudulent 
people like this and I would sit him down and have him watch it 
and explain it to him, and even explain how people can take 
your identity from your credit card number, your birthdate, and 
all of this, and he still kept doing this. So I really don't 
know, but I think maybe in other people's cases, the more 
information that is out there, the better.
    Senator Collins. I think you are right that in some cases, 
the only answer is for law enforcement to try to shut down 
these fraud rings altogether, but it is hard to do this given 
that they proliferate so easily. I think consumer education is 
an important part of the solution, as well.
    Mr. Hathaway, would it have helped you if you had seen 
television ads or some kind of public service campaign to alert 
you that Canadian lottery tickets being sold in the United 
States were illegal, or some other information campaign? Would 
that have been of assistance in your case, do you think?
    Mr. Hathaway. If I had known what I know today--I learned a 
lot from that experience--I would have been much more 
skeptical. But they snowed me and I respected the fact that 
they were attorneys, or they claimed to be attorneys. I can't 
say if they are or were.
    Senator Collins. They almost certainly were not, I would 
guess.
    Mr. Hathaway. I would think that if we could convince the 
Canadian Government that this scam business is going to 
boomerang on the country of Canada in many respects. The scam 
artists are making some money off of that and the people that 
aren't involved but have financial problems will be inclined to 
ignore the law, their laws, with respect to making money. I 
think the scam artists are going to encourage a lot of people 
that are in Canada to get involved for making easy money.
    Senator Collins. So you would like to see a crackdown by 
Canadian law enforcement and more cooperation with law 
enforcement.
    Mrs. Erb, is there something that could have been done to 
have made you more aware that this was a scam?
    Mrs. Erb. I didn't know it was illegal, for one thing, and 
I think advertisements would help, that say to be careful of 
it, and put the ads in papers and magazines. I didn't know it. 
And another thing on their side, tell no one. They said, 
``You're going to have friends you never knew you had,'' and I 
didn't even tell my family. Only my husband knew about it, of 
course. My son only found out about it because he's a 
chiropractor and he adjusts me all the time. He kept saying, 
``Mom, what's wrong? There's something bothering you. You're 
all tense.'' And finally, I did tell him.
    Senator Collins. So part of the scam was to try to make 
sure you did not tell anybody.
    Mrs. Erb. And he said he wouldn't, and he did say something 
to his wife and she called Jennifer Granholm. I believe that's 
how I got in here.
    Senator Levin. The Attorney General.
    Senator Collins. Thank you very much. Thank you, Mr. 
Chairman.
    Senator Levin [presiding]. Thank you, Senator Collins. The 
reference to Jennifer Granholm is to the Attorney General of 
Michigan.
    Mrs. Erb. Right.
    Senator Levin. So it was your daughter who called her?
    Mrs. Erb. Daughter-in-law
    Senator Levin. Daughter-in-law, and then she, in turn, as I 
understand it, put you in touch with Phonebusters.
    Mrs. Erb. Right. I called and I know I talked to them, and 
I've had letters from another gentleman there and I sent him 
copies of my so-called bonds package here.
    Senator Levin. And Phonebusters is an organization, a 
Canadian organization----
    Mrs. Erb. A Canadian one.
    Senator Levin [continuing]. Which fights fraud across the 
borders.
    Mrs. Erb. Right. I'm willing to work with them.
    Senator Levin. And they are well known in Canada and known 
to some extent here as a real great resource to fight fraud, 
and we will welcome them in a moment.
    Are you still getting phone calls?
    Mrs. Erb. No, but I'm getting lots of letters.
    Senator Levin. The scam artists are still working on you?
    Mrs. Erb. Oh, yes, France, Spain, Australia, dozens there, 
and I keep giving them to Laura.
    Senator Levin. OK. Laura on my staff.
    Mrs. Erb. Right.
    Senator Levin. Are you getting any phone calls or mail 
these days from these scam artists, Mr. Hathaway?
    Mr. Hathaway. I haven't been in the last year or two.
    Senator Levin. Since you went to the Ohio Attorney General.
    Mrs. Hersom, do you know if the phone calls have stopped?
    Mrs. Hersom. No, they haven't stopped. We still get 
numerous phone calls every day. But I've been doing a new 
thing. When they call and ask for my husband, I ask them to 
wait a minute, please, and I just put the phone down on the 
counter and leave it there. [Laughter.]
    Mrs. Hersom. Let them pay for the call.
    Senator Levin. Let them pay the extra money. If a law 
enforcement organization gave you a tape recorder and asked you 
to punch a button the next time you got a call from one of 
these people, would you be willing to do that?
    Mrs. Hersom. I sure would.
    Senator Levin. This is what Mr. Hathaway's daughter did in 
Ohio. Mrs. Erb, would you be willing to do that, if law 
enforcement gave you a tape recorder?
    Mrs. Erb. I did get one call from, I believe it was 
Australia, too, and he congratulated me and said, ``Mrs. Erb?'' 
And I said yes. And he says, ``You just won another bond of 
British Sterling silver, one of the bonds.'' And I said, ``Oh, 
that's so nice,'' and I led him on a little bit. And then he 
said I was going to make so much money from it, and I said, 
``Gee, I've got 99 more. Would you like to help me make 
something of that?'' Bang, the phone went down.
    Senator Levin. I think the next panel can help us 
understand what law enforcement is doing, what the response is, 
where people should go when they get these calls in terms of 
seeking help to try to stamp this out.
    Do any of you have the service on your phone where you get 
the phone number that is calling you, that you can tell what 
number is calling you on your telephone?
    Mrs. Hersom. Yes, but a lot of them are unknown name, 
unknown numbers.
    Mrs. Erb. Yes. On the foreign----
    Senator Levin. Numbers that are not known to you, but they 
are there. Do you have that service on your phone, Mr. 
Hathaway, do you know, the caller ID? Do you have that on your 
telephone?
    Mr. Hathaway. Yes.
    Senator Levin. You do. Mrs. Erb?
    Mrs. Erb. I don't have it----
    Mr. Hathaway. We changed phone numbers and that stopped a 
lot of them, because we'd had the phone for over 25 years.
    Senator Levin. I see. You changed your phone number. That 
is why you are not getting phone calls. That explains it.
    Mrs. Erb, you do not have the caller ID on your phone?
    Mrs. Erb. No, I don't, but I know a friend of mine said 
that it wouldn't identify anyway because it's out of State or 
something like that and it's unknown.
    Senator Levin. I do not know the answer to that question, 
whether caller ID works across the border or not, actually.
    Mrs. Erb. I don't know.
    Senator Levin. All right. Senator Collins, do you have any 
additional questions?
    Senator Collins. No. Thank you.
    Senator Levin. We thank you all again for coming forward, 
for not just your cooperation, but for your willingness, your 
interest in having your stories known, as painful as they are, 
so that others can be saved the kind of pain which you have 
suffered and hopefully put these crooks out of business as soon 
as we can, or at least put as much pressure on them as we 
possibly can from every direction that we can. Your 
contribution to that is very much appreciated. Thank you.
    Senator Levin. We will now call our next panel. We have 
three witnesses, Barry Elliot, who is Staff Sergeant in the 
Ontario Provincial Police; Jackie DeGenova, who is the Chief of 
the Consumer Protection Section of the Ohio Attorney General's 
Office; and Lawrence Maxwell, Inspector in Charge, U.S. Postal 
Inspection Service. You can all just stay standing for a moment 
while we swear you in under our rules, as we are required to 
do.
    Do you swear that the testimony that you will give before 
this Subcommittee today will be the truth, the whole truth, 
nothing but the truth, so help you, God?
    Mr. Elliot. I do.
    Ms. DeGenova. I do.
    Mr. Maxwell. I do.
    Senator Levin. Thank you very much. We welcome you. You are 
experts in the area of cross-border fraud prosecution and we 
very much welcome your testimony. Let's start with Mr. Elliot, 
who is a Staff Sergeant with the Ontario Provincial Police. We 
welcome you to our country and thank you for coming forward. 
Detective Elliot.

   TESTIMONY OF DETECTIVE STAFF SERGEANT BARRY F. ELLIOT,\1\ 
     ONTARIO PROVINCIAL POLICE, NORTH BAY, ONTARIO, CANADA

    Mr. Elliot. Thank you, Senator. First of all, I am 
Detective Staff Sergeant Barry Elliot, OPP Anti-Rackets 
Section, creator and coordinator of Phonebusters and 
Seniorbusters, which is the national call center located in 
North Bay, Ontario, Canada.
---------------------------------------------------------------------------
    \1\ Mr. Elliot's Powerpoint presentation appears in the Appendix on 
page 77.
---------------------------------------------------------------------------
    I am disappointed that I am the only Canadian here for the 
next 2 days, and I know that there were others who would have 
liked to have come. I would like to thank the many agencies and 
individuals on both sides of the border for their support of 
Phonebusters, too many to mention. I would also like to 
personally thank Premier Mike Harris from the Ontario 
Government and his Minister David Tabuchi for their personal 
support of Phonebusters, which without, we would not exist.
    I have supplied the Committee with a copy of the latest 
Powerpoint presentation, which shows some obvious trends. We 
have seen since 1995, an X pattern created on the number of 
Canadian victims of telemarketing fraud and the number of 
American victims of telemarketing fraud that are being hit by 
Canadian-operated fraud companies, and the X represents a huge 
drop since 1995 in the number of reported Canadian victims. At 
the same time, we see a huge increase in the number of reported 
American victims.
    The large result of the reduction in Canadian victims is 
due mainly through education. Today, more than 80 percent of 
the calls that we get at Phonebusters are American victims. 
They are being targeted with the three major pitches--I mean, 
there is a number of them--the sweepstakes lottery pitch, which 
you have heard here today, loan scams, and a number of credit 
card pitches. They are targeting mainly the American elderly, 
as well as the American poor.
    When we identified the trend or the beginning of a trend in 
1995, we initiated the first-ever cross-border fraud meeting 
involving telemarketing fraud in Toronto. One of the members of 
that meeting is Jonathan Rusch from the U.S. Department of 
Justice, who I know is here today and will be testifying 
tomorrow, and I am sure he will corroborate some of the things 
that I'm going to say today.
    We had a series of meetings trying to inform the Canadian 
Government of this very serious problem, or what we thought was 
growing to be a very serious problem. Due to the complete lack 
of action by the Canadian Federal Government to take this 
problem seriously over the series of meetings that we had to 
develop a national strategy, I know that President Clinton 
asked Prime Minister Chretien to do something about it around 
1996 or 1997. As a result of that, there was a number of 
meetings again and a cross-border fraud report was presented to 
both heads of both countries.
    A number of things happened as a result of this cross-
border fraud report. Industry Canada Competition Bureau started 
to beef up its telemarketing task force in Ottawa. There was 
new legislation that was being developed under the Competition 
Act to try and make it easier to convict fraudulent 
telemarketers, something similar to the telephone rules that 
were created here. Project Colt in Montreal, where 99 percent 
of all Canadian victims are being hit from and also where, 
starting in 1995 big time Americans were targeted. So there was 
a task force created in Montreal to do something about it, and 
there was also a small task force created in Vancouver, and, of 
course, this was all as a result of the recommendations or part 
of the recommendations brought forward by the cross-border 
fraud report.
    Three years later, and I'd like to repeat that, 3 years 
later, we now have a task force that's been created in February 
2000 in Toronto and it was largely created by people who were 
interested in trying to do something about cross-border fraud 
and the members at the time were the Toronto Police, Industry 
Canada Competition Bureau, Ministry of Consumer Business 
Services, Ontario, and the Federal Trade Commission. This year, 
the Ontario Provincial Police and the U.S. Postal have also 
joined. In March of this year, 4 years later, the RCMP and the 
OPP have finally signed an MOU agreeing that Phonebusters is 
the national call center for the country.
    The three task forces are small, under-funded, and 
overtaken by the sheer mass of organized criminal telemarketing 
that is operating daily in these areas. On any given day in 
Canada, we have 300 to 500 criminal operations that are mainly 
targeting American victims.
    I was just in Raleigh, North Carolina, at a conference 
sponsored by NAAG and the National White Collar Fraud Program 
and all I heard were complaints asking what is Canada doing 
about these companies that are attacking Americans? The problem 
is continuing to get worse all the time.
    The Canadian Government has reviewed the 1997 report and 
gone over the recommendations that were provided and have given 
themselves ``A''s on all the things that they have done. My 
personal thoughts on what the Federal Government of Canada has 
done can be compared to moving a truckload of sand from Toronto 
to Washington by using a coffee cup.
    The reasons are clear for this epidemic of crime in Canada. 
We have collected approximately 126,000 complaints at 
Phonebusters from 123 countries, mainly from the United States. 
Accomplishments of the task force in Toronto, which has only 
been operating for about 18 months, include shutting down 36 
boiler rooms, charging 61 individuals and arresting many more 
who were not charged. If you average that yearly, they are 
taking down about 18 rooms a year, where we have anywhere from 
100 to 200 rooms operating daily. It is very minute.
    Senator Levin. I am sorry, just to interrupt just for a 
second, I thought you said 300 to 500 before.
    Mr. Elliot. That was for Canada. This is just Toronto. We 
have three hot spots, Montreal, Toronto, and Vancouver.
    Senator Levin. Thank you.
    Mr. Elliot. The reasons are clear as to what we should be 
doing about it and why the problem is so big. We have a lack of 
real Canadian Federal Government leadership and ownership of 
this problem. We have a lack of new Federal resources, which 
are desperately needed by the task forces who now have to use 
very expensive techniques, such as wiretap, to get these guys.
    The Toronto task force, for example, is operating on a 
shoestring budget. They are doing a great job and they're 
working very hard, a small group of guys, about eight of them. 
These guys are working and taking down one room after a time, 
but there's hundreds of rooms around them.
    When they take them down and successfully charge them and 
take them before the courts, we encounter an additional 
problem. We have extremely light sentencing within the Canadian 
courts, it does not deter the crime but only encourages the 
convicted to continue operating even while they're in jail, 
which is usually for a very short period of time, if they do in 
fact get jail time. It also encourages all the sales people who 
are working in these rooms to go out and create their own 
businesses and make more money because nothing is happening to 
their bosses.
    Canada has a great deal of success in fighting fraud 
domestically because of education and awareness. We're very 
proud of that. We've destroyed the criminal market in Canada 
through education. I can assure you that the success was not 
because the criminals are afraid of spending any length of time 
in jail. Internationally, Canada is known and is proud to be a 
safe place to do business. Unfortunately, it has become a safe 
place for criminals to do business.
    In conclusion, the Canadian Federal Government must stop 
sending two tablets of Tylenol to try and cure what appears to 
be an epidemic and take this cross-border crime seriously and 
commit the necessary resources to successfully combat it. Thank 
you.
    Senator Levin. Thank you, Detective Elliot, very much for 
your very helpful testimony.
    Senator Levin. Ms. DeGenova.

  TESTIMONY OF JACKIE DeGENOVA,\1\ CHIEF, CONSUMER PROTECTION 
    SECTION, OHIO ATTORNEY GENERAL'S OFFICE, COLUMBUS, OHIO

    Ms. DeGenova. Good morning, Chairman Levin and Senator 
Collins. My name is Jackie DeGenova and I am Chief of the 
Consumer Protection Section at the Ohio Attorney General's 
Office. Thank you for the opportunity to speak with you today 
on behalf of Ohio Attorney General Betty D. Montgomery 
regarding cross-border fraud.
---------------------------------------------------------------------------
    \1\ The prepared statement of Ms. DeGenova appears in the Appendix 
on page 123.
---------------------------------------------------------------------------
    I also would especially like to thank our victims who 
traveled here today. They made a tremendous effort and a 
commitment, and as you both pointed out, the courage to speak 
today about the frauds perpetrated against them really are a 
reminder of why we are all here today.
    Their stories told this morning--Mr. Hathaway, Mrs. Hersom, 
and Mrs. Erb--are simply remarkable, but unfortunately, they 
are not unique to the tens of thousands of Americans victimized 
each year. We know that violent crime has been on the decline 
in recent years, but that international economic crimes are 
dramatically increasing. Like our panel of witnesses this 
morning, the majority of victims that we interview at the Ohio 
Attorney General's Office are not uneducated, reckless, or 
feeble-minded folks who carelessly throw away their hard-earned 
money. Their statements speak for themselves. Instead, the 
cross-border con artists are capitalizing on the globalization 
of communication, technological advances, and the limitations 
of law enforcement to combat the crimes without geographical 
constraints.
    You have asked me to comment on the stumbling blocks in 
investigating and prosecuting these crimes. It will come as no 
surprise to you that the obstacles are many, including the fact 
that many States do not have the resources to prosecute the 
crimes. Ohio is one of the few States that has specific 
legislation requiring telemarketers to register with the Ohio 
Attorney General's Office, and it also requires certain conduct 
by the telemarketers when they are on the phone. But even so, 
our cases are often stymied.
    Certainly, as well, there is a need for more resources and 
a stronger commitment by the Canadian Government to combat the 
telemarketing fraud. Understanding, however, that we can do 
little, if anything, to change the flow of resources for 
Canadian law enforcement, my comments today will focus on 
solutions we can implement within our own borders.
    Five years ago, as has been mentioned, there was a need for 
such white-collar crimes to be recognized as the predatory and 
life-altering crimes we know them to be today. Awareness of the 
crimes by law enforcement and the public is at a higher level 
than ever, yet adequate training and funding for our law 
enforcement continues to be a problem.
    We believe that improvements made in three key areas will 
also facilitate investigations and prosecutions of the 
criminals behind these cross-border crimes. First, the United 
States must follow through on its commitment to the Canadian 
authorities. Second, a reevaluation is necessary of the methods 
that we use to obtain information which is essential in a 
criminal case. And third, sufficient funds must be allocated 
for law enforcement to prosecute within our own borders and to 
assist in Canadian prosecutions. I will address each of these 
separately.
    First, the United States must pledge and follow through on 
its membership commitments made to Canadian authorities on the 
various task forces and in its commitment to assist Canadian 
prosecutions. In recent years, there have been initiatives 
designed to specifically combat cross-border fraud between the 
United States and Canada, which Mr. Elliot had also mentioned. 
These are such projects as Project Colt, Project Emptor, the 
Toronto Strategic Partnership Against Telemarketing Fraud, 
which I will refer to as the Toronto Task Force.
    Project Colt consists of six members of the Royal Canadian 
Mounted Police, or RCMP, a provincial attorney general, and a 
member each from the FBI, Customs, and U.S. Postal Service. Its 
goal is to reduce and prevent fraudulent telemarketing 
operations in Montreal by largely intercepting the money sent 
by the victims before it's received by the telemarketers. 
Unfortunately, there's not nearly enough investigators to 
combat the 400 boiler rooms that have been identified in 
Montreal alone.
    Project Emptor is a similar operation in the Vancouver area 
of British Columbia. It has five members, Canadian authorities, 
and one FBI member. It has had positive results by 
concentrating on the theory that the forfeiture of the 
criminal's assets has the most significant deterrent effect on 
them.
    The Toronto Task Force has United States designated members 
from the Federal Trade Commission and the Postal Service, and 
at the Ohio Attorney General's Office we have forged excellent 
relationships with members of the Toronto Task Force and hope 
this fall to become a named member of that task force.
    While these initiatives have been excellent resources, the 
United States must be more diligent in its commitment of 
assistance by the various U.S. agencies. On Project Colt and 
Project Emptor, the presence of Federal agencies has been 
sporadic. Prosecutors from our office in Ohio have spent a 
great deal of time with the law enforcement authorities in 
Canada, Vancouver, Montreal, and Toronto. It's apparent that 
the Canadians have a very limited understanding of the 
complexity of our Federal and State laws and the legal system 
and the seemingly incongruous laws of the different entities. 
Full-time membership by the United States designees on these 
projects could be an effective tool to sharpen our skills 
necessary to investigate and prosecute these types of crimes. 
In addition, they can help law enforcement on both sides better 
understand the intricacies of the laws on both sides.
    In Ohio, our most successful cross-border cases have been 
those in which we have acted in a support capacity for the 
Canadian authorities. We have been available as a resource for 
legal questions. We assist in identifying and locating Ohio 
victims. We follow up with witness statements and even draft 
victim impact statements for trial. We have even funded travel 
and expenses for victims willing to travel to Canada for the 
prosecutions.
    Our second recommendation is to reexamine the required 
Federal process for States to obtain information which is 
essential to criminal investigations and prosecution. In cross-
border cases, States are completely dependent upon the Federal 
Government to assist in obtaining that information. The current 
system to obtain information from the Canadian authorities that 
may be used as evidence is through what is called an MLAT, or a 
Mutual Legal Assistance Treaty. These are available only 
through the U.S. Department of Justice, Office of International 
Affairs. An MLAT or other formal request, such as extradition, 
requires extensive paperwork--which, incidentally, will only be 
accepted in Word Perfect format--before beginning the process 
of review by two government branches before final approval. We 
have also encountered differing opinions as to when a MLAT is 
needed for evidence to be admissible in court.
    Overall, the MLAT process takes a considerable amount of 
time and is quite intimidating. Meanwhile, the telemarketers 
are adapting their scams based on the availability of new 
technology. They are using prepaid digital phones, laptops, and 
personal digital assistants. We have seen the rapid increase of 
boiler rooms that are transient and fly-by-night operations. In 
the time it may take for us to obtain information for a search 
warrant or summons through MLAT, there is a substantial 
likelihood that today's telemarketing operations will have 
moved on to their next victim.
    The relationship of the Ohio Attorney General's Office with 
the Canadian authorities has allowed us to obtain information 
on an informal basis without resorting to the MLAT process. The 
information can be used to develop cases but is of no 
evidentiary value to us in court because of the manner in which 
it was obtained. Thus, we still must obtain admissible evidence 
and prepare appropriate State charges against Canadian targets.
    For these reasons, we suggest examination of workable, 
cooperative means to shorten the time for the MLAT process, or 
examining ways for States to obtain evidence that would be 
admissible in a court of law.
    Finally, perhaps our best resource comes through funding. 
Suspects, witnesses, and victims are often separated by 
literally thousands of miles. Direct funding for States, for 
witnesses to travel to Canada for pretrial and trial matters, 
would go a long way in support of foreign enforcement efforts. 
Funding to aid in case preparation, such as perhaps purchasing 
video conferencing facilities to preserve the testimony of our 
elderly victims, would also be helpful.
    In addition, some flexibility in the rules at DOJ's Bureau 
of Criminal Assistance would assist us and enable the National 
Association of Attorneys General to earmark grant funds for 
witness travel. I know that General Sorrell will be talking 
also about funding tomorrow, so I will defer to his comments 
for you tomorrow.
    In sum, I believe that the three recommendations outlined, 
if implemented, will go a long way in assisting the United 
States and Canadian prosecutions.
    Again, please consider the stories told by the victims, and 
for a moment, I urge you to step into the shoes of an Ohio 
Attorney General investigator or prosecutor. Every week, they 
have the unenviable task of sitting next to our victims, like 
Mr. Hathaway from Ohio, faced with his loss of money and what 
he has explained is his loss of dignity, and attempt to explain 
to him why we are unable to get back his money or that the 
prosecution of criminals is highly unlikely. Our task today is 
to find a better approach to fighting cross-border fraud, and I 
know it is a difficult one, but I submit to you it is not 
nearly as difficult or regrettable as facing our victims 
without any answers. Thank you very much for allowing me to 
testify.
    Senator Levin. Thank you so much for your testimony.
    Mr. Maxwell.

   TESTIMONY OF LAWRENCE E. MAXWELL,\1\ POSTAL INSPECTOR IN 
    CHARGE, FRAUD, CHILD EXPLOITATION, AND ASSET FORFEITURE 
    DIVISION, U.S. POSTAL INSPECTION SERVICE, WASHINGTON, DC

    Mr. Maxwell. Thank you, Senator Levin and Senator Collins. 
I really appreciate being here today. The last time I was here, 
you may not remember me, as I was behind a very broad-
shouldered chief inspector during the deceptive mails hearing, 
so I am here today up front and it's a great pleasure.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Maxwell appears in the Appendix 
on page 129.
---------------------------------------------------------------------------
    I'd like to draw your attention here to something that I 
think gets right to the heart of why we are here. One of our 
local offices in Pittsburgh, the Allegheny region, worked with 
the Senior Action Coalition and also a private advertising 
agency, Boswell and Kamastra Creative Communications, and they 
did this pro bono. They did this on their own as a public 
service. If you read the caption here, and I think it's very 
compelling, ``He lived through two World Wars and fought in 
one. He helped raise six children and three dogs. He saved a 
long time for his retirement. Don't let one phone call take it 
all away.'' \2\
---------------------------------------------------------------------------
    \2\ Exhibit No. 10 appears in the Appendix on page 283.
---------------------------------------------------------------------------
    This message and the information in this booklet, I think 
was done extremely well and it emphasizes what I'd like to say 
to you today, and again, I say this as somewhat contradictory. 
I come from a long line of law enforcement. Like Senator 
Collins, I have roots in Canada. My great-grandfather was a 
Royal Canadian Mountie. My father was a New York State Trooper. 
Yet, I think the enforcement part of law enforcement, the 
arrest, the conviction, is very important. However, in the area 
of fraud, awareness and education are critical. If we can get 
the word out, I think it will do a lot more than some of these 
other issues that we have faced.
    One of the things we announced at your hearing on deceptive 
mailings, the chief announced for the first time an ambitious 
consumer protection event called ``Know Fraud,'' \1\ and 
probably at the time, and I still think, is the most ambitious 
attempt ever attempted by a conglomeration of agencies. We had 
a number of partners, including the FTC, Department of Justice, 
FBI, NAAG, there was a number of them. This card, you may see 
is familiar. It went to every home in the United States. That's 
120 million addresses. It was expensive. It was ambitious. It 
was multi-media. We had a Website. We had a toll-free number. 
We still get letters today, and this went out in the fall of 
1999, and we are planning a second one.
---------------------------------------------------------------------------
    \1\ Exhibit No. 9 appears in the Appendix on page 281.
---------------------------------------------------------------------------
    My point is that the funding for this, because funding was 
mentioned, and again, as I'm going through my remarks here, I 
certainly don't want to repeat too much for the group, the 
funding came from a very innovative thinking prosecutor in Iowa 
U.S. Attorney's Office. We had an advance fee scheme. We seized 
about $4 million and we could not identify most of the victims, 
or they would get a small amount of what they lost.
    So the U.S. Attorney asked us if we could put it in a 
special fund, if we could forfeit it, put it in a special fund, 
and use it for fraud prevention initiatives, and we said 
absolutely. So we got the approvals up the line. We established 
the fund. We still have monies today in that fund. We used that 
to fund the printing and the design of the card and some of the 
other aspects of it. I think it's an effective use and just 
shows that there's a lot of things that we can do if you get 
creative, and also if you do them together.
    The Deceptive Mail Prevention Enforcement Act had an 
excellent effect for us. Besides giving us powers like 
administrative subpoenas, it spreads the word. In showcasing 
things like we're doing here, it emphasizes the problem and it 
educates people that there is a problem. We've seen a decline 
by 26 percent in our complaints in deceptive mails right now. 
We're not exactly where we want to be, but a lot of that is 
because the legitimate portions of the industry knew this was 
coming. They policed themselves. They worked with us. They 
worked with your staffs, and I think that helped tremendously. 
Probably an unanticipated result of this, it opened up possibly 
some areas for the cross-border fraud, as well, because, again, 
some of ours closed down.
    Interesting, too, if you look at a correlation with the 
history of the Inspection Service and the evolution of fraud, 
and I'll just cover this briefly, we've been around since the 
ark. As you know, we started out with the Postmaster General, 
Mr. Franklin, and we worked our way through 200 years or more 
of the Postal Service. In 1872, in response to the advances 
made in communications through the mail on train routes, 
promoters, operators, fraudulent operators capitalized on the 
absence of Federal law and they would jump from State to State 
to reach--with different types of schemes, land frauds, medical 
quackery, whatever.
    As we clamped down, in 1872, Congress enacted the Mail 
Fraud Statute. It is the grand-daddy. It is the oldest consumer 
protection law. In my mind, it's the best. I think many 
prosecutors will still tell you that. It's been tampered with 
very little through the years. In 1994, Congress modified it to 
include private couriers, and that helps us here because we're 
addressing a lot of private overnight shipments. So the Mail 
Fraud Statute has held up well. We have several other weapons, 
as you may remember from our hearings, in the deceptive mails 
area, most notably the false representation statutes, and we 
can utilize those.
    However, as we talked about, in this climate, where we saw 
in our history how the perpetrators would jump from State to 
State in the absence of law, as we clamped down on boiler 
rooms, which we did in the 1980's and 1990's in this country, 
now they're moving up into Canada. So we are seeing a 
proliferation of them.
    This next chart I have here of our statistics we ran 
through our mail fraud complaint system.\1\ And initially, if 
you see, in 1996 through 1999, it stayed fairly steady, and 
then all of a sudden the big jump in 2000, and, of course, the 
question is, what happened here? A 105 percent increase. These 
are complaints against Canadian operations by U.S. citizens, 
and my response to that would be two or three things happening.
---------------------------------------------------------------------------
    \1\ The chart attached to Maxwell's statement appears in the 
Appendix on page 149.
---------------------------------------------------------------------------
    In 1997, of course, we started focusing on the problem of 
cross-border fraud. In 1999, we had ``Know Fraud.'' We also had 
the Deceptive Mailings Enforcement and Prevention Act, or 
Prevention Enforcement Act. I think those things, the ``Know 
Fraud'' campaign and some other initiatives, brought to light 
some of this. People know where to go, to some extent.
    One thing we learned in the ``Know Fraud'' campaign, which 
I think is very relevant to what you're focusing on, is that we 
did about 40 focus groups of mixed ages. Oftentimes we talk 
here about senior citizens, and it is very true they are 
disproportionately represented here. I mean, they're retired, 
they're home, they're available to answer phone calls, and 
they're worried about their financial futures. But there is a 
random selection. There are others that aren't senior citizens 
that are also victimized.
    But in one case we had in Vancouver, in which there were 
thousands of victims, we forfeited over $12 million that we 
returned to victims. The average age was 74, so that will tell 
you where these people focus. They're predatory, they're 
opportunistic, and they're relentless.
    Personally speaking, I've had a member of my family 
targeted and I can tell you, there are remedies you can do and 
we're advocated those in prevention campaigns. But the younger 
people that know this, it's even better because they can relay 
this to the older people in their family.
    On this chart here, we show the top types of complaints, 
and it's similar to what Mr. Elliot and the others will 
probably share with you--advance fee loans, failure to provide, 
and foreign lotteries.
    If we look at the theaters of operation in this, we talked 
about there's three areas, Montreal, Toronto, and Vancouver. 
Mr. Elliot mentioned those three areas earlier. We have a 
member in Montreal. The focus on that is on the advanced--on 
the telemarketing promotions, and it's mostly organized in 
nature. We have a lot of criminal focus on that with the Royal 
Canadian Mounties. In Toronto, they're focusing on advance fee 
schemes. And in Vancouver, what appears to be predominant is 
lottery schemes.
    My concern is this. We've focused in the Inspection Service 
primarily in the Montreal area and Toronto, a little lesser 
extent in Vancouver. I haven't seen numbers of instances of 
lottery mail coming across the border from Canada in Vancouver. 
I suspect there is a lot, and what I suspect is they're coming 
across the border and mailing it in the United States. So I 
think that's an area where we in the Inspection Service 
certainly can be of value.
    There's a couple of other areas I indicated in my 
testimony, my written testimony, where we can focus. One would 
be in the area of what I call alternative remedies. The Postal 
Service has a unique position in the Universal Postal Union. 
There is a group called the Postal Security Action Group. The 
chief inspector a few years ago used that chair, if you will, 
to force through an understanding of a problem that the world 
was experiencing with what we call the ``419 fraud letter.'' 
Many of you may have received that letter at home. Essentially, 
it's a solicitation for money from Nigeria. You give some 
money, we have some money for you. It predominantly comes from 
Nigeria, and other West African nations.
    What we did, as a union, we looked at the postage, we 
looked at the means of mailing, and it was determined that they 
were using counterfeit postage and we were able to set up 
memorandums of understanding with these countries, seize the 
mails, and destroy them, and today, we've destroyed about five 
million pieces, and that was done without any type of legal 
intervention. It was done through the Universal Postal Union.
    Right now, the Postal Inspection Service has been meeting 
very closely with the Canada Post, our counterpart in Canada. 
We're looking at ways we can possibly complement one another's 
civil remedies. So possibly when we get a representation order 
here in the United States, they'll be able to use their 
prohibitory order in Canada. We have a draft memorandum of 
understanding (MOU) we are working on in that regard.
    I could go on about a number of other initiatives, but I 
think the point is that there is definitely alternatives we 
need to be focusing on. There are other alternatives in terms 
of some of the funding issues, too, such as the fund I 
mentioned earlier.
    I would like to summarize by highlighting some of the 
recommendations I made in the written report that I furnished 
the Subcommittee. First and foremost, Barry Elliot mentioned 
Jonathan Rusch. I think the Department of Justice deserves a 
great deal of credit for their spearheading of the United 
States representation on that. Mr. Rusch has kept us focused on 
the importance of the cross-border initiatives so we know 
exactly where we've going with it. I cannot commend his 
leadership of the U.S. representative team to the cross-border 
telemarketing Task Force.
    I would encourage the existing cross-border forum. What we 
have going on now is very unique. It foreshadows what possibly 
we will see in the future as online solicitations grow. We're 
starting to see more complaints from Europe and other 
countries. So what we do here with Canada, what we can do with, 
as you said so eloquently in your opening remarks, if we can 
prepare initiatives and strategies with the Canadians, 
together, we can possibly use them in the future as we face 
other problems elsewhere.
    The funding solution for the witness and the video 
conferencing, what I proposed to the staffers was that possibly 
the Subcommittee could consider recommending monies that are 
taken in fines. Perhaps we could even double the fines for 
cross-border fraud. But monies taken in fines, also monies, 
proceeds from forfeiture that we can't return to victims, we 
could put in a fund and use that for the video conferencing and 
for the witness travel whenever possible. I think that would be 
very beneficial. You would hate to see, although I don't know 
of any yet, you would hate to see a case not go forward because 
of a situation caused by the lack of funding. I mean, that 
would seem unreasonable.
    We talked about the MLATs. That was mentioned earlier, too. 
Again, most agents tell me that the streamlining of that 
process would be very helpful and I would encourage that.
    Enhancing oral communications between the cross-border 
council and the agents, making it less formal should be 
encouraged. That's been a little bit formal, from what I 
understand, in some instances. But the local contacts have been 
excellent and these task forces, that's certainly a great first 
step. The way we're working there, I think is excellent.
    What I suggest, also, are joint training initiatives 
between Canadians and American law enforcement and consumer 
groups. If we brought ourselves together, that was mentioned 
earlier, about how we do not sometimes understand the 
complexities of our different laws in our sovereign nations, 
the mixing of the agents, the training, the strategizing, I 
think would be of great benefit. It would also establish great 
relationships.
    And then finally, I would say in the area that troubled a 
lot of us is how do you stop this plague on the phone, the 
constant repetitive calls and so forth, particularly when law 
enforcement is slow to get some action into place. Most agents 
say the obvious. If we could shut off the phone service, we'd 
be way ahead of the game. In the United States, we can move 
under an 18 U.S.C. 1345, which is an injunction against fraud, 
and we can shut down that phone service to a known boiler room. 
Obviously, that wouldn't apply in Canada.
    What the Department of Justice was pursuing, and perhaps 
Jonathan Rusch could expand on this tomorrow, is in last year's 
crime bill, there was a provision, which was not passed, which 
did address that issue. I understand they did some research 
with the telephone companies and it is possible, that they can 
shut off known telephone numbers coming into the States. That 
would be of great immediate relief.
    So apart from that, again, I do applaud the Subcommittee's 
efforts in this area. Again, I think it is visionary in 
addressing a problem that's coming down the pike. I offer 
whatever assistance we can provide, and thank you very much.
    Senator Levin. Thank you very much, Mr. Maxwell.
    Just a question not directly related to this morning's 
subject, but you said that there's 26 percent fewer complaints 
of deceptive mail relative to sweepstakes.
    Mr. Maxwell. That's correct.
    Senator Levin. Do you have a figure for how much less 
sweepstakes mail there is altogether?
    Mr. Maxwell. I can give you that. I don't have it with me.
    Senator Levin. Has there been a reduction since our 
hearings, do you know?
    Mr. Maxwell. Yes. In fact, during the hearings, we saw some 
reduction, and then probably within 2 months after the 
hearings, some of the postal delivery folks came to us and 
said, ``What happened here?'' So it was a definite reduction, 
yes.
    Senator Levin. It is good to hear the reduction in the 
number of complaints, that these hearings did have an effect. 
That is always good to hear, and that is really what the 
purpose of these hearings are. I think that Senator Collins has 
expressed it well, that one of the purposes here is to help to 
educate our public as to what these scam artists do to us and 
to our most vulnerable people, how they take advantage of 
people who are trustful. So these hearings serve a purpose in 
many ways, hopefully, but that surely is one of the ways.
    Just a couple quick questions before I have to leave. First 
of all, relative to Ohio, you said that the telemarketers, Ms. 
DeGenova, how many of the telemarketers do you think actually 
register of the ones who are required to register? Do you have 
any idea what percentage of them do, in fact, comply with your 
law?
    Ms. DeGenova. I think the most unscrupulous telemarketers 
are not going to register, even if it is a requirement. They're 
obviously breaking the law to begin with. I think you make a 
good point that that registration would be difficult. We have--
I think it's preventative. Our law is preventative, also, in 
the fact that it sends the word out there to unscrupulous or 
legitimate telemarketers that you're going to have to register 
in Ohio, and we've gotten several of our convictions on that 
failure to register part.
    Senator Levin. Now, Canada has the Phonebusters central 
number. Do we have anything like that in the United States, 
where everybody can call one number, so we don't have six 
different law enforcement agencies and people aren't sure whom 
to call? Do we have anything similar to Phonebusters?
    Mr. Elliot. The Federal Trade Commission has Consumer 
Sentinel with an 800 number, it is built on the concept of 
Phonebusters and they've done a great job.
    Senator Levin. All right. I guess we'll find out how that 
works later on. Do we know whether, from your perspectives, 
whether or not that is working well, that 800 number that FTC 
has?
    Mr. Maxwell. Yes. I could say, Senator, that with ``Know 
Fraud,'' we used the Consumer Sentinel for the collection of 
complaints and we explored possibly merging with the, to some 
extent, with our fraud complaint. We get about 60,000 to 
100,000 mail fraud complaints a year. We have signed a 
memorandum of understanding with FTC to partner with them in 
the future, and about a year ago, I received a letter--our 
office received, the Chief Inspector, a letter from Senator 
Durbin addressing that same fact, that consumers don't know 
where to go. It's very confusing. We need one-stop shopping in 
this country where the agencies can go and be advised.
    Senator Levin. You say we do need one?
    Mr. Maxwell. We definitely need--if we can build on FTC's 
concept and what they're doing, I think it's a great place to 
begin.
    Senator Levin. All right. Well, that can be explored, also, 
further tomorrow.
    When a person is caught in Canada, when you get one of 
these shops, is that what you call them----
    Mr. Elliot. Boiler rooms.
    Senator Levin [continuing]. Boiler rooms--when you get one 
of these boiler rooms and you actually arrest people, what is 
the penalty, typically?
    Mr. Elliot. Well, depending whether they've got a previous 
record or not----
    Senator Levin. Assume none.
    Mr. Elliot. Assume not, the chances of going to jail are 
next to nil.
    Senator Levin. What about fines?
    Mr. Elliot. Fines, we've had some recovery of restitution, 
a small amount. Toronto has recovered about $500,000 over the 
last 18 months, which is really peanuts.
    Senator Levin. What is the maximum fine, and what is the 
typical fine?
    Mr. Elliot. Well, one of the guys in Montreal got fined $1 
million for restitution, but the problem is, it looks good, but 
they didn't collect one dime. So fines and recovery, it's not 
really a--it doesn't really work.
    Senator Levin. It does not work well. It is not much of a 
deterrent.
    Mr. Elliot. No. The only thing you can do is when you're 
arranging the plea, I've found in the past is you have the 
restitution made while the plea's being made so that the 
payment can be made to the court upon sentencing.
    Senator Levin. Ohio used the phone to capture some of that 
telephone conversation we played before. How often do we use, 
and do you use in Canada, recordings? In other words, when you 
get complaints, do we often tell the victim or their family, 
hey, here is a tape recorder. We will attach it to your phone 
if you are willing. All you have to do, if you are receiving a 
lot of these phone calls, is to just punch this button when you 
get one.
    Let me first ask Detective Elliot about Canada. Do you use 
that a lot? Is it helpful?
    Mr. Elliot. In my early years, I actually prosecuted cases, 
successfully prosecuted them. We used tape recordings as 
evidence and we did not have a problem introducing them in 
court. The problem was finding an informant from the room that 
could identify the voice on the tape. And once we did that, we 
were able to get it in as evidence and it was very useful 
because it really showed what the pitch was all about, the lies 
and deception. So yes, it is true that we can do that.
    The problem we have now with the telemarketers is they're 
not stupid. I mean, they look at every case that we do, they 
sit down with their lawyers and they analyze how they can beat 
the system. And what they do now is they make sure that the 
individual telemarketers can't hear each other's pitch. In some 
cases, the telemarketers don't even know the real name of the 
criminal next to them. They are attempting to evade how they 
can be caught and prosecuted in court.
    Senator Levin. Any other comments about taping telephone 
conversations?
    Ms. DeGenova. I think it is very useful. Also, it's 
educational if you can play those things for the public, as we 
have done here today.
    I did just want to take a quick moment and mention the 
freezing of assets. We can do that through the FTC in the 
United States, but I think those mechanisms are more difficult 
when the assets are in Canada.
    Senator Levin. What is the penalty in the United States, by 
the way, for this kind of fraud?
    Ms. DeGenova. I think it would vary whether you're in the 
State or Federal system.
    Senator Levin. What about the Federal penalty?
    Mr. Maxwell. The Federal system, you could get sentenced 
for up to 5 years for each count or more, and fines and 
penalties. But normally, they'll serve a couple of months for a 
telemarketing violation. One of the serious crimes I mentioned 
earlier in Vancouver, that gentleman received several months 
and he was able to serve the time in Canada as part of his plea 
agreement.
    Senator Levin. I did have one additional question. As to 
getting witnesses to Canada, is there a problem? Are people 
willing to go there to help prosecute cases? Are there any 
problems with travel expenses?
    Mr. Elliot. Well, yes. One of the problems has been with 
these jurisdictional issues. Who's going to prosecute, 
especially when you've got witnesses from other countries, and, 
of course, an additional problem is the cost involved with 
these witnesses coming in.
    The agreement we have in Toronto, for example, we have a 
great relationship with the Federal Trade Commission. They 
provide us with a letter of intent that we may produce to the 
defense counsel stating that if you're going to go ahead to 
trial, we're prepared to fly these witnesses in at their cost, 
and that's worked out very well. So far, they haven't 
challenged that.
    Regarding video conferencing, there was just a recent case 
in Winnipeg where they used video conferencing with U.S. 
victims. The problem with video conferencing is that it's very 
expensive. It would have been cheaper to fly the victims in 
than actually do the video conferencing.
    Senator Levin. Is the conference for the purposes of 
discovery? You can't use it at trial, can you?
    Mr. Elliot. We don't have the same kind of setup. Yes, we 
did. We used it for trial.
    Senator Levin. You mean the tape of a testimony----
    Mr. Elliot. Yes.
    Senator Levin [continuing]. Or the actual testimony at 
trial?
    Mr. Elliot. No, it was the actual, live video feed, and 
that was one of the things that came out of the 1997 report, 
was to try to come up with ways to make it easier to prosecute 
as far as the witnesses are concerned. But I would suggest that 
it's extremely expensive. The defense counsel doesn't like it. 
But, as things drop, costs drop in the future, it may be the 
way to go.
    Senator Levin. Thank you. Senator Collins.
    Senator Collins [presiding]. Thank you, Mr. Chairman.
    Mr. Elliot, first, I want to commend----
    Senator Levin. I'm sorry. Forgive the interruption. We have 
some letters that Mrs. Erb got that we'd like to turn over to 
you, Canadian scam letters that you could look into and 
investigate for us----
    Mr. Maxwell. We'd be happy to take them.
    Senator Levin [continuing]. And also, we have the testimony 
of the Attorney General of Michigan,\1\ Jennifer M. Granholm, 
that we'll make part of the record. Thank you.
---------------------------------------------------------------------------
    \1\ The prepared statement of Jennifer M. Granholm, Attorney 
General of Michigan appears in the Appendix on page 297.
---------------------------------------------------------------------------
    Senator Collins. Mr. Elliot, I first want to thank you very 
much for all the assistance that you've given the Subcommittee 
in this investigation and also to commend you on the 
Phonebusters project. I think it's an excellent one and has 
been extremely useful.
    One of the most important points that you made in your 
statement, or one of the ones that struck me was the fact that 
the incidence of Canadian victims has gone sharply down and the 
incidence of American victims has gone sharply up. Do you 
attribute that to the education efforts that the Canadian 
Government has undertaken, or could you talk a little bit more 
about why you see those trends.
    Mr. Elliot. Well, there's a few things that have caused the 
trend. No. 1 is education. We killed the criminal market 
through education. I mean, we really educate the heck out of 
Canadians. We drove home some simple facts, for example if you 
win a prize, it doesn't cost you ten cents to get it. We made 
people aware of the fact that if you get a phone call, which we 
don't get very often that you've won $100,000 or $1 million, 
that there's no cost associated in an honest contest, you don't 
have to buy any product. And we drove that home over and over 
again. We've done a lot of media interviews.
    And creating that call center with the toll-free number has 
been very successful, as well as the Seniorbusters program, 
where we call back to victims. These are a bunch of volunteers 
that offer peer support, and also kill the fresh victim market.
    Now, the other big reason that criminals are targeting 
Americans is your dollar is worth twice as much money. You've 
got ten times the market. And it causes--they know about the 
jurisdictional issues. They know all the problems that we have. 
They've got more information about us than we have about them. 
I mean, these guys are--this is organized crime. You know, it's 
associated to other traditional organized crime. It's an 
organized crime itself.
    Consumer fraud, people are just beginning to realize how 
big consumer fraud is. When you think that consumers drive the 
markets of all of our markets around the world, if you're a 
criminal and you tap into that, just think how much money you 
can make. And everybody looks at these credit card pitches, 
like $100 or $200 for a card that you don't get or a low-
interest-rate card, it doesn't look like a very serious 
problem. But you get a million people to send you $200, you've 
just made a lot of money. And you think a million people is a 
lot. You've got 200 million people here in the U.S. market that 
can be attacked either by phone or by mail or by Internet.
    So there's a number of reasons, jurisdictional, light 
sentencing, the risk that if they're going to get caught, it's 
pretty slim, and the risk that if they do get caught, that 
they're not going to jail are all contributing factors.
    Senator Collins. Thank you. Ms. DeGenova, is that right?
    Tell me a little more about what happened in Mr. Hathaway's 
case. You obviously did a lot of investigative work. You taped 
the phone calls that he was receiving. And yet when I asked him 
today whether he had received any restitution, the answer was 
no. Tell us what happened and why there was no restitution in 
this case.
    Ms. DeGenova. I think it comes down to resources. I think 
we did have a trap and trace line. We were able to locate the 
boiler room. We had it on tape, the actual scam. All of those 
things are really unusual and do take a lot of legwork and it's 
really a tribute to the hard work that our investigators have 
done in this case.
    I think we worked through Project Colt in that case and 
they were just not able to free up the resources to go after 
that particular boiler room, and I think what the others have 
said about even if you can locate those folks, the restitution 
itself, there's no assets or they're hidden or they're frozen 
or we can't get to them and the laws are complex. So those are 
some of the other difficulties.
    Senator Collins. Is there also a problem--and I would ask 
all three of you this question--with the individual case being 
of a relatively small dollar value, compared with the costs of 
prosecution, particularly when you are dealing with multiple 
jurisdictions? It seems to me there is a little bit of a catch-
22 here, because it seems that they are too expensive to 
prosecute the small dollars, and yet if you added them all 
together, as Mr. Elliot has suggested, you are talking about an 
enormous amount of money. But is the amount of the individual 
fraud a deterrent to enforcement and prosecution?
    Ms. DeGenova. It can be. I think that we need the 
education, again, for folks, no matter if it is $29 or $2,900 
or whatever the case may be. I also believe that, depending on 
the different civil and criminal laws in each individual State, 
if you're prosecuting here, you need to aggregate that amount. 
Those things can be done, but I think even as law enforcement, 
we view some of those cases, and even the general public has 
the sense that, well, $29 here or $59 per person. But as Mr. 
Elliot pointed out very aptly, it adds up to quite a lot of 
money.
    Senator Collins. And a lot of times, when there is 
investigation, and perhaps if we could put the first exhibit up 
as an example,\1\ once an individual case is investigated, it 
turns out that there are literally hundreds or thousands of 
other victims and that would be an example in this one scam 
that I mentioned in my opening statement, where a woman from 
North Carolina lost $100,000, which is a great deal of money. 
But when this case was investigated and ultimately successfully 
prosecuted, it turned out that there were thousands of victims 
in 18 States. So oftentimes, if these cases that appear to 
involve only small dollar amounts were investigated, it would 
turn out to be a significant fraud ring involved.
---------------------------------------------------------------------------
    \1\ Exhibit No. 1 appears in the Appendix on page 237.
---------------------------------------------------------------------------
    Mr. Maxwell.
    Mr. Maxwell. If I may, Senator, I think that speaks to why 
it's so important to have a centralized complaint collection 
similar to Phonebusters and FTC. If the agencies know, they 
might not be so quick to walk away from that, because with all 
the priorities, with all the cases coming at groups like 
Project Colt or groups we have set up in the States, they're 
going to prioritize by what looks like the worst, the most 
egregious. So, like you say, we could be missing a lot, and if 
we have a centralized collection somewhere where we can check 
complaints quickly and move swiftly, I think that would be of 
great benefit.
    Senator Collins. Mr. Elliot, based on your experience, even 
when there appear to be small dollar cases, if you add up the 
number of victims, is it usually a considerable amount of 
money?
    Mr. Elliot. Yes, and we have the adequate law in Canada, 
it's called Defraud the Public, when we can show three or more 
victims have lost something on a similar scheme, it's no longer 
a $100 scam, it adds up to whatever the number of--the amount 
of the loss is, and that's what you're convicted on. So it's 
not necessary for us to change the law to adapt to this type of 
crime. What is necessary for us to do is to actually prosecute 
and enforce it and get the necessary--a reasonable sentence.
    But just to add a little bit to that, it's certainly our 
experience, the smaller the amount of money, the less chance 
the victim's going to report it. In some cases when they're 
targeting the elderly, on the credit card protection, for 
example, in some of these sophisticated scams, the elderly 
don't even know that they've been scammed and they're having 
amounts taken out of their credit card, not realizing that the 
credit card protection doesn't exist. The higher the loss, the 
greater chance that the person's going to report it, but you 
still have a huge amount of people that have lost a lot of 
money who are not telling anybody about it. They're not telling 
their family. They're too embarrassed.
    So, when you talk about education and you talk about having 
one number, it's not just to educate the public about what's 
going on so they can better protect themselves. You've also got 
to educate the public to come forward, that it's a good thing 
to let everybody know what's happened because you can help 
fight the fraud, just like these three victims did today.
    Senator Collins. One of the striking aspects of the 
testimony of every single victim that we interviewed, and 
including the three that we heard from today, was that once 
they were taken in by a solicitation, whether on the phone or 
in the mail, they were inundated with other telemarketing calls 
and other solicitations from the mail. This suggests to us that 
these fraud rings are sharing information and that there are 
victim lists, or as one con artist described it, sucker lists. 
Could you all comment on what you have seen, based on your 
investigation? Is that the case? We will start with you, Mr. 
Elliot.
    Mr. Elliot. You have got a huge industry, not only in 
telemarketing fraud, but you've got a huge industry in creating 
these fake sweepstakes mail-outs and these fake lotteries that 
are worldwide. In a lot of cases, you have companies, criminal 
companies, that's their only thing, is to create these sucker 
lists to sell the information to the fraudulent rooms, the 
telemarketing rooms, so that they can call these victims.
    So in Canada, I know Industry Canada, under the Competition 
Bureau, are doing a complete analysis of these fake mail-outs 
coming out of Canada that are hitting countries around the 
world, and they are pinpointing certain individuals that are 
responsible for all of this. We have now found out that they 
are collaborating with other criminals in other countries, 
because what used to be just a North American problem is now 
spreading worldwide.
    We just had a delegation that came in from the Philippines 
which I just found out, that the major language in the 
Philippines is English. We've got rooms that are opening up and 
they're starting to use the same tactics that they used 5 years 
ago in the Philippines. We also have telemarketing rooms that 
are contacting the Philippines and using the same marketing 
concepts to create the sucker lists.
    Senator Collins. Ms. DeGenova, in your experience, do you 
see sharing of sucker lists?
    Ms. DeGenova. We do. I would concur with Mr. Elliot's 
statements. It's an industry all to itself, hundreds of 
thousands of dollars to buy what could be called a mooch list 
or a sucker list. We've confiscated them in search warrants and 
things like that and have done what's called a reverse boiler 
room, where we'll call the folks on that list and say, you're 
on this list and we're calling from the Ohio Attorney General's 
Office. That's another good way to educate.
    But I agree, and I think the problem will only proliferate 
with public information and Internet and other ways to share 
that information. I think folks really need to be cognizant 
about who they give their personal information to.
    Mr. Elliot. Senator, may I----
    Senator Collins. Yes.
    Mr. Elliot. There's also a problem with the sale of honest 
information, and just to give you an example of that, the 
credit bureaus, for example. On the credit card pitch where 
they're using--we can get you a credit card for $300 or $400--
they're buying freshly turned-down lists from the credit 
bureaus. So these people are really hot to get a credit card 
and they'll do just about anything to get a credit card and 
that information is being supplied by an honest company.
    Senator Collins. That is a very good point, and one issue 
we have not discussed today, but is another area of cross-
border fraud are these advance-fee-for-loan schemes, and that 
kind of information would be very useful for that.
    I participated in a reverse boiler room operation with the 
AARP in Maine and with our Attorney General's Office and we did 
do exactly what you said. We had access to a likely victim list 
and called and alerted the seniors on it that they are being 
targeted by telemarketing scam artists.
    Mr. Maxwell, I was very pleased to hear your comments about 
the law that Senator Levin and I authored to crack down on 
deceptive mailings. Do you think, ironically, that because of 
that law, the fraud is moving more toward telephone fraud or 
cross-border fraud which would not be covered as easily?
    Mr. Maxwell. I think what we are seeing, it's still a 
combination. As you were talking about the sharing of lists, we 
have one operator that we refer to as one-stop shopping--the 
one out in Vancouver I mentioned earlier. He would use 
saturation mailings in locations, get the information back 
where people would actually put their personal information and 
their phone number. Then he would conduct his telemarketing 
operation from that. There are some companies that just do 
mailings and then provide those phone numbers to the 
telemarketers.
    So I don't know if there's a growth spurt in the absence of 
the other. I think both remain. But in the cross-border 
instance and what I alluded to earlier was, I think, when we're 
slowing down our U.S. operations, at times we open up some 
opportunities for others . . . in Canada, so they see more 
fertile ground right now because there's less competition. It's 
like a business. It might be illegal, it might be corrupted, 
but it is a business and they're competing against one another 
and it's very organized.
    Senator Collins. Finally, Mr. Maxwell, let me ask you to 
explain to us the role of commercial mail receiving agencies 
and how they may relate to con artists seeking to defraud 
consumers.
    Mr. Maxwell. That was an area that's--the commercial mail 
receiving agency itself, it's similar to a post office box, for 
those who are unfamiliar with it. It's like Mailboxes Etc. or 
any one of the legitimate concerns, where you can rent a box 
and receive mail. The Postal Service has a requirement that you 
fill out an application so that we'll know who we're delivering 
the mail to. Your identity is required.
    Over the years, registration wasn't enforced that heavily 
and a lot of commercial mail receiving agencies cropped up 
without identification and so forth. So as we began to tighten 
that up, we saw the need to greater tighten it because these 
addresses were being used to conduct frauds. Obviously, using 
CMRA addresses can work particularly well in cross-border 
frauds, but it works from State to State, as well. Somebody 
could take out a box at a CMRA and it could say, Suite 76, 
Rodeo Drive, California. That would imply to the person sending 
money that, hey, this is quite an operation, it's in an 
exclusive part of town, and so forth. It's not----
    Senator Collins. When, in fact, it's just a private 
mailbox, a mail drop, essentially.
    Mr. Maxwell. Correct. And this came to light primarily as a 
result of some of our work in the credit card area, but also in 
the mail fraud area, and we enhanced the regulations most 
recently and it was controversial because, again, you're 
dealing with--that was one of the draws, to have this open-
ended kind of address. It looks very flattering, to make it 
sound however you want.
    What we asked was that they use the designation PMB for 
private mailbox, and again, there was some push-back on that. 
We debated with the industry and a compromise was reached. So 
as of August 2001, they will be required, ``they'' being anyone 
using a commercial mail receiving agency, to use the 
designation PMB, similar to post office box, but private 
mailbox, or the number or pound sign (#) that can also be a 
designation, which the post office will recognize, the Postal 
Service will also provide a toll-free number in which consumers 
can call to get verification of CMRA addresses.
    Having said that, the weakness in it is that not every CMRA 
is registered, and we have, I think, a list right now of 
13,500. I suspect there are considerably more, and from what 
I've seen just in the New York area, there's many of them. So 
with enforcement of this and the more information we can get, 
it would be a lot better.
    And again, I'll qualify by saying that there are many 
legitimate companies using CMRAs. CMRA operators and the 
industry are now working with us very closely. We're actually 
participating in the training of their new franchise owners. 
We've had cooperation with CMRA operators in Canada. We've 
called them and said, you don't have to, but can you give us 
some information, and they've been very helpful. So, again, 
that's an area we'd like to explore with Canada Post, as well, 
what we could do up there.
    Senator Collins. And finally, Mr. Maxwell, I am very 
impressed with this brochure. I think it is excellent, and we 
have heard from Detective Elliot what a difference public 
education efforts have made in making Canadian consumers far 
less likely to fall prey to these kinds of schemes.
    Could you tell me a little bit more about how this was 
funded? Was it a grant from the Postal Service Inspection 
Service, or----
    Mr. Maxwell. Actually, my understanding for this promotion, 
and again, this is an example of a local initiative, where you 
have the Senior Action Coalition in Pittsburgh, you have this 
advertising group and also the Postal Inspection Service, and 
they did this for free. I mean, they prepared this pamphlet and 
published it and the seniors, and working with the postal 
inspectors, came up with the language and some of the 
materials, and it comes in a thicker brochure almost this size, 
where you open it up and you have additional information. We 
have some of our pamphlets in there on telemarketing fraud and 
some other schemes. It's a nice package. I've been impressed 
with that more than most I've seen.
    Senator Collins. I've often thought that if we could 
somehow distribute a pamphlet like this to every senior 
citizen, maybe as an enclosure with the Social Security check--
except that most people use direct deposit now, so I do not 
know how you would do it exactly--we could save people a lot of 
grief and a lot of financial loss.
    Mr. Maxwell. I had a chart earlier, but I didn't think time 
would permit, showing the States that we have shown to be the 
most frequently seen in our complaint database for cross-
border--well, that's it there.\1\ The thought we had when we 
saw this and in talking with some of your staff members was 
that perhaps that compelling picture of the senior with that 
language, if it was put in places where the overnight payments 
are mailed, might at the last minute trigger the victims and 
stop them in their tracks, so to speak, to question, am I doing 
the right thing? We are exploring that. We're looking at maybe 
some States where we could use that as a prevention campaign. 
Sometimes it's very effective.
---------------------------------------------------------------------------
    \1\ The chart referred to appears in the Appendix on page 151.
---------------------------------------------------------------------------
    Senator Collins. Thank you. Mr. Elliot.
    Mr. Elliot. Just to add to your education, once we drive 
the telemarketers out of Canada, and assuming that we do, 
they're not going to disappear. They're just going to move to 
the Caribbean and other places. So you have to really 
concentrate a lot on education. There is nothing wrong with 
putting a telemarketer in jail, but education is the way to go.
    Senator Collins. Thank you. I want to thank all of you 
today for being with us. Your testimony was very helpful as we 
grapple with this increasing problem, so thank you very much 
for your efforts and your contributions, which are much 
appreciated.
    I want to thank all of our witnesses here today. We have 
heard from three victims of cross-border fraud, innocent 
citizens who were targeted or whose loved ones were targeted by 
unscrupulous telemarketers or sweepstakes operators who were 
operating out of what they may have assumed was a safe haven on 
the other side of the border. Each of these witnesses has had a 
special story to tell, but the underlying theme of them is the 
same in each case, and that is that they trusted the words of a 
smooth-talking stranger who contacted them at a vulnerable 
point in their lives and preyed upon, took advantage of their 
honesty, their trust, their hope, and their good will in order 
to swindle them of thousands of dollars, and these cases help 
put a human face on the problem of cross-border fraud.
    Our elderly citizens deserve to be free from this type of 
exploitation and to feel safe in their own homes, and our first 
line of defense against such victimization is increasing 
education and consumer awareness.
    We also have learned about some of the challenges that law 
enforcement officials face on both sides of the border, and I 
think that some good work is underway, but clearly, there is 
more that we can be doing to simplify the process and to 
encourage cooperation on both sides of the border.
    I also think that this Subcommittee will continue its work 
in this area, and I am going to approach our Chairman about 
joining me in signing a letter to President Bush urging that he 
make fighting cross-border fraud a personal priority in the 
dialogue that he began with the Canadian prime minister at the 
summit in April, building upon the work that Detective Elliot 
mentioned that was started in the previous administration.
    I also think that this Subcommittee may be able to strike a 
direct blow against some cross-border fraud ourselves. As the 
result of the information that was provided to us during the 
investigation of Mrs. Hersom's case involving her husband, we 
contacted Western Union. I issued a subpoena, and we have found 
the name and the location in Canada where her husband sent 
thousands of dollars. We also have evidence of a great many 
other wire transfers that were sent to the names in this 
particular location. So, in other words, we have acquired some 
direct evidence of what appears to be yet another cross-border 
fraud ring. So I will, again, be approaching the Chairman about 
a referral to the Department of Justice so that this matter can 
be investigated further.
    Again, thank you very much for your testimony today. Our 
hearings will continue tomorrow, and the hearing is now 
recessed until tomorrow at 9:30.
    [Whereupon, at 12:27 p.m., the Subcommittee was recessed, 
to reconvene at 9:30 a.m. on Friday, June 15, 2001.]

      CROSS-BORDER FRAUD: IMPROVING TRANSNATIONAL LAW ENFORCEMENT

                              ----------                              

                         FRIDAY, JUNE 15, 2001

                                       U.S. Senate,
                Permanent Subcommittee on Investigations,  
                  of the Committee on Governmental Affairs,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 9:36 a.m., in 
room SD-342, Dirksen Senate Office Building, Hon. Carl Levin, 
Chairman of the Subcommittee, presiding.
    Present: Senators Levin, and Collins.
    Staff Present: Linda Gustitus, Chief Counsel and Staff 
Director; Mary D. Robertson, Chief Clerk; Laura Stuber, 
Counsel; Christopher A. Ford, Minority Chief Counsel and Staff 
Director; Frank Fountain, Senior Counsel to the Minority, 
Marianne Kenny, Detailee/Secret Service; Susan M. Leonard, 
Congressional Fellow; Alan F. Stubbs, Detailee/Social Security 
Administration; Bos Smith, Intern; and Kim Wojcik (Senator 
Akaka).

              OPENING STATEMENT OF SENATOR COLLINS

    Senator Collins. Good morning. The Subcommittee hearing 
will come to order.
    This morning, the Subcommittee holds a second day of 
hearings regarding cross-border fraud. Yesterday, we began 
these hearings by hearing from the victims of cross-border 
telemarketing fraud. Their testimony placed a human face on the 
cold statistics of financial loss and potential ruin that can 
result from the crimes of con artists operating from beyond our 
borders, outside the reach of ordinary law enforcement efforts, 
but not so far off that they cannot plague American consumers 
with smooth-talking fraudulent telephone pitches and bogus 
direct mailings.
    Our second panel yesterday placed this problem in 
perspective by describing the sweeping reach and the high 
volume, and the growing volume, of cross-border fraud and what 
American and Canadian law enforcement authorities have begun to 
do about it. We heard from a Canadian official, for example, 
who explained an initiative called Phonebusters, which 
illustrated both the importance of international information-
sharing and of aggressive consumer education and awareness 
campaigns in combating cross-border fraud.
    We also heard from a representative of a State attorney 
general's office who explained the impact of cross-border fraud 
on the constituents of that State from the perspective of a 
prosecutor who has worked long and well with her counterparts 
across the border. Finally, we heard from a representative of 
the U.S. Postal Inspection Service who discussed efforts aimed 
at stemming the flow of fraudulent solicitations and efforts 
made to educate the American consumer.
    As I noted yesterday, the relationship between the United 
States and Canada is one we treasure. It is built upon a solid 
foundation of close economic, cultural, and political ties. 
This interconnectedness, however, makes it easier for cross-
border con artists to prey upon the citizens of another 
country, even while the presence of an international border 
makes cross-border law enforcement far more challenging.
    As a final note before we hear from our witnesses and our 
Subcommittee Chairman today, I should note that one party we 
had hoped to hear from is not present today. In early May, I 
invited a representative from the Royal Canadian Mounted Police 
to testify at these hearings. I had hoped that he would be able 
to discuss with us the challenges and opportunities of fighting 
cross-border fraud, as seen from his perspective as an officer 
of Canada's premier national-level law enforcement agency.
    Just a few days ago, however, we were informed by the 
Canadian Embassy that its government had decided to prohibit 
all Canadian national-level officials from participating in our 
hearings. This is troubling, since a major purpose of these 
hearings is to foster and promote more U.S.-Canadian 
cooperation in preventing and prosecuting cross-border fraud. 
In any event, I very much look forward to hearing the testimony 
of our American witnesses today.
    Again, I would like to thank Chairman Levin for agreeing to 
hold these hearings and for working so closely with me on this 
important issue.
    Thank you, Senator Levin.

               OPENING STATEMENT OF SENATOR LEVIN

    Senator Levin [presiding]. Thank you, Senator Collins. 
First, let me thank you and again say just how important this 
subject is to many of our citizens who are being fleeced by 
these crooks and con artists.
    Senator Collins has been extremely active in a whole host 
of areas in an effort to protect our consumers in this country. 
Our seniors in this country are some of the most vulnerable 
people who are the targets of these crooks. These hearings were 
scheduled by her and I am delighted to follow through with them 
because the subject is so important.
    As Senator Collins indicated, yesterday we heard from three 
victims of the con artists who perpetrate these frauds, and 
their stories were truly disturbing and truly touching. In each 
of the cases, the victims genuinely believed that the crooked 
solicitors were telling them something truthful. They were 
taken in by the manner and the claims of these solicitors. We 
also heard about a very successful Canadian program designed to 
stop these kinds of scams. It is called Phonebusters. It is an 
excellent model for the work that we could be doing in the 
United States.
    Today, we are going to hear from three U.S. law enforcement 
officials who are going to talk about their views on the 
current state of U.S.-Canada cooperation with respect to cross-
border fraud and how we can improve such coordination in the 
future. I also hope that they will address the question of 
whether or not there are loopholes or weaknesses in our own 
laws which should be corrected.
    The subject matter of these hearings is similar at least in 
one respect to hearings which the Subcommittee held in 1999 on 
deceptive mailings and sweepstakes promotions. Those hearings 
eventually led to the Deceptive Mail Prevention and Enforcement 
Act which Senator Collins and I introduced and sponsored and 
got adopted.
    Like the 1999 hearings, the target of these fraudulent 
promotions is generally the elderly. But in the fraud that we 
are looking at yesterday and today, there is one key 
difference. The perpetrators here are outside of the United 
States and our law enforcement officials don't have as much 
authority to catch these criminals.
    Other countries work closely with us; Canada surely does. 
As Senator Collins points out, they are a treasured neighbor, 
both directly and in our States, as a matter of fact, since the 
border rests along Maine and Michigan as well.
    But there are obstacles, no matter how good the intentions 
are, to cross-border enforcement. Any criminal with a cell 
phone or a laptop computer can set up a scam operation very 
easily in a foreign country. They don't need to have an office 
or a room. Telemarketing is a movable crime that is difficult 
to trace. In a pinch, cell phones can be discarded, so can 
computers. Even if an illegal solicitation is traced to a 
particular cell phone or computer, it could be gone by the time 
the trace occurs.
    The fast nature of this crime makes it imperative that we 
work to improve interstate, interagency and international 
coordination of these cross-border frauds. Many of our Federal 
agencies are working to educate vulnerable groups and 
individuals. We heard yesterday about the ``Know Fraud'' 
program, which is a mail campaign designed to fight 
telemarketing fraud which is coordinated with the American 
Association of Retired Persons, AARP, the Federal Trade 
Commission, the Justice Department, and the U.S. Postal 
Inspection Service, among others.
    Today, we are going to hear about the Justice Department's 
grants to States for senior fraud prevention programs and about 
the Federal Trade Commission's Consumer Sentinel, a large 
consumer fraud complaint database.
    But despite these efforts, it appears that consumers still 
often don't know where to go when they are the targets of 
telemarketing scams. The Postal Inspection Service told us 
recently that ``consumers are uncertain as to what entity they 
should send their fraud complaints to.''
    There are a number of options: Local police, State 
attorneys general, FBI, the Department of Justice, the Federal 
Trade Commission, and the Postal Inspection Service, among 
others. One answer to this may be to have a 1-800 number for 
all persons across the country seeking Federal assistance to 
call, and the various cases could perhaps then be assigned to 
an appropriate agency from that point, similar to the 
successful Phonebusters in Canada. The FTC has its own consumer 
fraud hotline, and perhaps that is the hotline to build on. I 
am not sure it has the public awareness that the Phonebusters 
hotline has, but nonetheless, that is at least one possibility.
    Another issue is that of coordination between Canada and 
the United States in fighting these crimes. President Clinton 
took the lead on this issue in 1997 when he met with Prime 
Minister Chretien. At that time, they directed officials from 
both countries to prepare a joint study to examine ways to 
counter cross-border fraud. The United States-Canada Working 
Group was formed as a result and it released its report, with a 
number of recommendations which the witnesses today will be 
discussing. That working group continues its work and will meet 
again, I understand, next week.
    Again, I want to thank Senator Collins and her staff for 
their pioneering work in this area, and we look forward to 
today's testimony. I wish I could stay for it. My staff will be 
here because I can't.
    But at this point now, in keeping with our rules of this 
Subcommittee, we will ask our witnesses to stand, raise your 
right hand, and be sworn in.
    Do you swear that the testimony that you will give before 
the Subcommittee will be the truth, the whole truth, and 
nothing but the truth, so help you, God?
    Mr. Sorrell. I do.
    Ms. Warlow. I do.
    Mr. Stevenson. I do.
    Senator Levin. Thank you.
    We have three witnesses today: William Sorrell, Attorney 
General of Vermont. We are delighted to have you here. A nephew 
of mine now lives in your capital, so if I can get back here 
before this hearing is over, I may ask you how he is doing, 
even though you don't have the vaguest idea how he is doing.
    Mr. Sorrell. Well, we only have a population of about 7,000 
in the State capital, so I might know him.
    Senator Levin. Well, he has only been there a month or two.
    Mr. Sorrell. I still might know him.
    Senator Levin. You still might know him. It is a small 
capital. Anyway, thank you for being with us, General.

  TESTIMONY OF HON. WILLIAM H. SORRELL,\1\ ATTORNEY GENERAL, 
             STATE OF VERMONT, MONTPELIER, VERMONT

    Mr. Sorrell. It is my pleasure to be here, Mr. Chairman. 
Senator Collins, thank you, too.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Sorrell appears in the Appendix 
on page 152.
---------------------------------------------------------------------------
    I am pleased to represent my office and the National 
Association of Attorneys General in addressing issues of 
telemarketing fraud, particularly cross-border telemarketing 
fraud.
    Senator Levin. Let me ask you, if you would, to bring your 
mike as close as you can. We will ask you each to summarize in 
about 10 minutes, so that would leave adequate time for 
questions.
    Mr. Sorrell. The attorneys general laud your Subcommittee 
for addressing this issue. As you no doubt heard yesterday, 
telemarketing fraud presents significant challenges to law 
enforcement. The financial losses to Americans number in the 
billions of dollars. It is a vastly unreported crime. When the 
reports are made, the cases are difficult to investigate and 
more difficult to successfully prosecute. When you add the 
cross-border component to it, with a perpetrator typically in 
Canada and the victims in the United States, those hurdles that 
I talked about increase significantly.
    Today, I would like to address a few concerns or problems 
that the State attorneys general recognize from our experience 
in going after these cases and some suggestions of 
congressional action that might assist us to make our jobs 
easier.
    The cases of cross-border telemarketing fraud--I don't know 
whether Vermont is unique, and perhaps Canadians think 
Vermonters are particularly gullible, but whereas nationally, I 
think, the percentages differ, in our office over the last 18 
months we have looked at 90 separate cases of telemarketing 
fraud. Of those, all but four involve calls being made from 
Canada into Vermont. So the vast majority of the telemarketing 
fraud cases that we have looked at in the last 18 months have 
involved a cross-border component.
    The first issue I would like to address is the time that it 
seems to be taking for there to be action under the Mutual 
Legal Assistance Treaty and extradition processes.
    It seems to the States that it takes an unduly long period 
of time when we make so-called MLAT requests to the Department 
of Justice and/or extradition requests to the Department of 
Justice. It seems to us to take an unduly long time for these 
requests to be addressed.
    Now, we are mindful of the fact that significant crimes of 
violence will be placed higher on the priority list for 
attention. But, anecdotally, waiting 6 months for any reaction 
to our requests, and then after making necessary revisions to 
submissions, waiting as long as 2 years or more for an 
extradition request to be sent on to Canadian authorities, and 
then potentially further attendant delays within Canada, seems 
unduly long to us.
    When we asked the Department of Justice and the Federal 
Trade Commission for information on the average length of time 
for the processing of such requests, they did not seem to 
readily have that information. So we would appreciate your 
assistance in requesting periodic reports on a quarterly or 
semi-annual basis on the timing of when requests come in and 
the time for initial response to the States, and then 
ultimately in the extradition matters when the communication 
went to the Canadian Government requesting extradition or a 
final determination that extradition would not be requested, 
and similarly, under MLAT processes, when the ultimate request 
went to Canadian authorities for the documentary evidence or 
other materials sought through the request.
    We would ask that there be some encouragement brought to 
bear to have the Department of Justice, the FTC, and State, 
local and Federal law enforcement officials sit down and see if 
there are ways that can speed these processes. To the extent 
that it is at the Department of Justice that there are resource 
needs. That the Department is prioritizing, as I indicated, 
other matters--terrorist bombings and such, and additional 
resources at the Canadian desk are needed--we would ask the 
Congress to appropriate the funds to make those resources 
available.
    Formerly, there was an arrangement whereby an assistant 
attorney general from a State served as a fellow at the 
Department of Justice in the extradition office, where the 
State continued to pay the assistant attorney general's salary, 
but travel and housing expenses were picked up by the 
Department of Justice.
    It is possible that revisiting that kind of a program, 
reinstating that kind of a program, would be something that 
would be sort of a win-win; not a lot of extra money for the 
Department of Justice, but we would have somebody there 
physically with the priority in mind for handling the MLAT and 
the extradition requests coming from the States.
    Moving to a second issue, funding issues for travel of 
victim witnesses and investigators to Canada, we have issues, 
of course, about the aggressiveness with which Canadian law 
enforcement addresses problems when the victims are in the 
States and the perpetrators are in Canada. For victim witness 
travel to Canada, the Canadian officials have taken the 
position that unless there is a guarantee that an individual 
State or the Federal Government is going to pay for victim 
witness travel to Canada to participate in legal proceedings, 
they won't go forward with the case in Canada without those 
assurances.
    I know the FTC has made arrangements to make best efforts 
to fund that travel. But under Bureau of Justice Assistance 
(BJA) grants, as I understand it, they cannot be used to fund 
victim witness travel to Canada. We would hope that those 
restrictions would be eased.
    When it comes to investigator travel, what we have found--
and this is anecdotal, but what we have found is that dealing 
with the Canadian bureaucracy for the kinds of investigative 
information that we need when we are focusing on a Canadian 
perpetrator--aliases, criminal record, business associates, 
perhaps targeting other ongoing Canadian investigations and 
such, much of the kind of information that is not gathered, as 
I understand it, through the Phonebusters operation and 
Consumer Sentinel--it is personal contact from law enforcement 
to law enforcement that works rather than just a call into 
Montreal P.D. or Toronto P.D. that kind of gets set there off 
on a desk.
    If you can form personal contacts sergeant to sergeant, you 
tend to get more positive results. So to the extent that you 
could appropriate funds for investigator travel, for State or 
local investigators from the United States to travel to Canada 
for these cases, that could be helpful to forge those kinds of 
personal relationships that would foster a better exchange of 
information.
    I will say that you could leverage the funds with some sort 
of a revolving fund through NAAG, or the National Association 
of AGs, whereby we would require in a successful case that the 
costs of investigation be reimbursed, and we would replenish 
that fund so it wouldn't be just a simple draw-down.
    I know my time is running short, so just a third issue is a 
lack of resources to hire Canadian counsel to try to freeze 
assets that are in Canada of these perpetrators. As you 
probably heard yesterday, it is like getting money out of a 
stone to actually recover from these individuals.
    Private counsel in Canada usually require up-front payments 
of thousands and thousands of dollars as retainers to process 
these cases, and we would hope that you would appropriate some 
funds for that purpose. Again, a revolving fund for that 
purpose is something that would make sense so it could be 
replenished in those cases when we successfully obtain assets 
in Canada after a successful prosecution.
    My time is up. I would be happy to field questions now or 
after the full panel has addressed you.
    Senator Levin. I am going to interrupt the flow here just 
to ask one question, and perhaps Senator Collins wants to, too.
    I was unclear on one thing you said about restrictions on 
funds for victim travel. I thought you said BJA.
    Mr. Sorrell. Bureau of Justice Assistance monies. It is my 
understanding that the States are not allowed to use those 
monies for victim witness travel to Canada under current 
restrictions.
    Senator Levin. And that fund is a Department of Justice 
fund?
    Mr. Sorrell. Yes.
    Senator Levin. Then I would appreciate, if you would, Ms. 
Warlow, your addressing that restriction and whether or not 
that should continue. It seems to me that goes to the heart of 
the matter as to whether we can get the victims to Canada. The 
extradition thing, it seems to me, is so long and complicated 
and time-consuming that if we can get victims there and if we 
can get people there working with law enforcement on a much 
more personal basis, as you just pointed out, it seems to me 
that may be the most direct way we can do the enforcement part 
of this.
    But in any event, if you could address those restrictions--
--
    Mr. Sorrell. In those cases when we can get the Canadian 
authorities to prosecute against the perpetrators physically 
located in Canada, it is absolutely key for our victims to be 
able to get up there to participate in those proceedings.
    Senator Levin. Thank you very much. Ms. Warlow.

  TESTIMONY OF MARY ELLEN WARLOW,\1\ ACTING DEPUTY ASSISTANT 
    ATTORNEY GENERAL, CRIMINAL DIVISION, U.S. DEPARTMENT OF 
                    JUSTICE, WASHINGTON, DC

    Ms. Warlow. Thank you, Mr. Chairman.
---------------------------------------------------------------------------
    \1\ The prepared statement of Ms. Warlow with an attachment appears 
in the Appendix on page 158.
---------------------------------------------------------------------------
    Senator Levin. Identify to us what your position is.
    Ms. Warlow. Certainly, I currently hold the position of the 
Acting Deputy Assistant Attorney General in the Criminal 
Division, and in that capacity one of the sections that I 
supervise is the Fraud Section. It is our Fraud Section that, 
for the Division, is taking the lead in cross-border 
telemarketing fraud.
    Frankly, one of our senior attorneys, Jonathan Rusch, is a 
key player in the U.S.-Canada Working Group on Telemarketing 
Fraud.
    Senator Collins [presiding]. I am sorry, Ms. Warlow. We 
still can't hear you very well. They are very directional, so 
if you could pull the mike up a little bit, that should do it. 
Thank you.
    Ms. Warlow. I was saying that I supervise the Fraud Section 
in my current position, and the Fraud Section is a key 
component in this. Our senior attorney on the issue of 
telemarketing fraud, Jonathan Rusch, is, in fact, the U.S. 
Chair of the U.S.-Canada Working Group that has been referred 
to already. So I am the Acting Deputy Assistant Attorney 
General. My other job, frankly, is that I am a senior counsel 
for national security and international matters, and have had 
long experience working with Canada in that role.
    If I may submit my written statement for the record, I 
would like to at this time.
    Senator Collins. It will be entered in full, as will all of 
your prepared testimony.
    Ms. Warlow. Thank you. I will try to briefly summarize what 
the Department of Justice is doing to work toward more 
effectiveness in combating cross-border telemarketing fraud.
    First, a brief overview of the problem; I don't think I 
have to go into detail. You certainly seem well-apprised of the 
problem and have had a series of witnesses. I will summarize 
what we are doing and then talk a bit about some areas where we 
need to look at how we might enhance our effectiveness.
    It is next week that the Working Group on Telemarketing 
Fraud will have their annual meeting in Canada. It will be 
followed by, in that same week, the meeting of the Cross-Border 
Crime Forum, which is presided over by Attorney General 
Ashcroft and the Solicitor General of Canada, and this 
telemarketing fraud is one of the issues that is the subject of 
that Forum.
    Certainly, there is no question that telemarketing is a 
huge problem in terms not only of economic loss, but the injury 
to victims and the severity of that injury. We have made 
advances, certainly, in operational initiatives with Canada. 
There have been legislative advances; Canadian law has 
improved. But the fact remains that this is a pervasive crime 
and a very serious one.
    Currently, the activity is centered in three metropolitan 
areas--Vancouver, Toronto and Montreal. In Montreal, there are 
estimates from our experts of 5 to 10 large telemarketing 
operations, and more than that in the Toronto area: 50 to 60. 
And some of these have up to 50 employees; they are major 
operations. In Vancouver, the estimates are even higher, over 
200, 220 to 250 telemarketing operations, again some very 
small, 2 or 3 employees, some up to 40 employees. So Vancouver 
is a considerable center of activity for this.
    Of course, it is not the fact that we only have the 
phenomenon of Canadian-based operations targeting U.S. 
citizens. We have had two cases in which there were U.S. 
operations targeting Canadians, out of Buffalo and Florida. 
But, of course, our focus here is on the pervasive phenomenon 
of the Canadian-based operations.
    What is appended to my statement is the report to the 
Working Group on what the United States has done to implement 
the 14 recommendations of the Working Group. We believe we are 
substantially in compliance with them. I want to briefly deal 
with two of those recommendations. The first one is a very 
general one, but it is one of great significance: Treating 
telemarketing fraud as a serious offense, recognizing it and 
devoting the resources to it.
    The Department of Justice has, since the early 1990's, 
regarded telemarketing fraud as a serious problem. We had three 
major undercover operations in the 1990's, with 1,400 
defendants in all. Just in the last 18 months, we have had 12 
significant cross-border cases. There are summaries of those 
cases in my statement. I won't go into the details of them.
    Again, you see the same pattern, the most disturbing 
pattern, which is the victimization of the elderly in these 
cases and, of course, any variety of schemes. As Attorney 
General Sorrell has indicated, they are of quite different 
varieties and cleverness in how they are presented.
    But one of the successes, I think, in our most recent case 
initiatives--first of all, I think we are doing more in part 
because of the implementation of these recommendations. Also, 
something that is encouraging to us is getting increased 
sentences.
    For example, one of the cases, the case of Eduardo 
Cartagena, resulted in a 70-month sentence of imprisonment, and 
this was particularly based on the enhanced penalties which 
were enacted by the Congress as part of the telemarketing 
legislation in the mid-1990's, and it relates to the 
victimization of what we call vulnerable victims, or the 
elderly in this case. And those penalties and subsequent 
sentencing guidelines really give us the potential for more 
significant sentences.
    We have had, in addition to criminal prosecution, some 
success in the civil area. I think I would agree very much with 
Attorney General Sorrell that one of the most frustrating 
aspects of this problem is with recovery of money for victims. 
I think generally that is the case. It is even harder when you 
have a border to deal with.
    Our Civil Division has had some success in civil 
enforcement in freezing assets in Canada. In one case, we were 
able to get $1 million back in restitution, and this might be 
something that we could explore more as a way to work together. 
Certainly, trying to at least get some of the funds back is 
extremely important to us.
    As has been mentioned, we work with the States and the 
National Association of Attorneys General particularly in 
training and some projects with the States. We have an ongoing 
and significant training initiative in telemarketing both for 
our own people, State and local people, and with the Canadians.
    Part of our work has focused on the notion of task forces. 
The development of the three task forces in Canada has been a 
significant help to us. These are in Montreal--and you have 
heard, I think, extensively about the one in Toronto. There is 
also one in Vancouver. Again, these correspond to the three 
centers of the problem.
    The FBI supports and works with these task forces through 
something called Operation Canadian Eagle. It is a pairing 
operation in which, for example, the Boston field office is 
paired with Montreal, Detroit with Ontario, and Los Angeles 
with Vancouver. Again, these are supportive of the task forces 
in Canada.
    This effort of the FBI--and it is certainly not the only 
effort--the Postal Service and Customs Service are significant 
players in this. But Operation Canadian Eagle has resulted so 
far in 2 years of its work in the charging of 62 individuals 
and the return of over $2 million to victims. These Operational 
Canadian Eagle cases are some of those that are summarized in 
my statement.
    Now, the real question is how to improve cross-border 
cooperation. Again, since the formation of the Working Group in 
1997, which really focused our attention on the U.S.-Canadian 
effort, I think we have made some significant advances in 
meeting those recommendations. For example, enhanced penalties 
was one of the recommendations that we had, and more training. 
All of these are again detailed in the attachments to my 
statement.
    Certainly, one of the most challenging things is looking at 
how we can sustain adequate resources to support the 
investigation and prosecution of these cases. They are a 
priority, they are difficult to investigate. So this is an 
issue of how do we measure our level of support, how do we 
sustain it particularly, in candor, in times when we have not 
great increases in the law enforcement budget. But that doesn't 
mean it is an impossible problem. You can deal through 
prioritization and making more effective use of the resources 
that you have.
    Now, two other areas where we need to look carefully. One 
has been noted by Attorney General Sorrell, and that is the 
problem of dealing with the testimony of the victim witnesses 
who find it very difficult to travel to Canada. We have new 
opportunities because of Canadian legislation which allows 
videoconferencing, but this is really in its first steps. 
Issues of cost and of just the logistics of arranging for even 
the videoconference testimony are difficult. This is something 
we are going to try to work on with the Canadians.
    And the final issue is that of how do we improve our 
cooperation under these formal mechanisms, which are 
extradition and particularly the MLAT. One of the focuses of 
discussion at the Working Group next week will be trying to 
find ways to move these requests forward in a more timely 
manner.
    There are legal impediments at times, there are problems, 
but I think this is recognized as the most significant problem 
that we have in administering our treaty in these cases. So, 
that will be one of the focuses of the Working Group meeting 
next week, and certainly is one area where we need to look to 
improve our record.
    Thank you.
    Senator Collins. Thank you for your testimony.
    Our final witness this morning is Hugh Stevenson, who is 
Associate Director of Planning and Information of the Bureau of 
Consumer Protection of the Federal Trade Commission.

 TESTIMONY OF HUGH STEVENSON,\1\ ASSOCIATE DIRECTOR, PLANNING 
 AND INFORMATION, BUREAU OF CONSUMER PROTECTION, U.S. FEDERAL 
                TRADE COMMISSION, WASHINGTON, DC

    Mr. Stevenson. Senator, thank you. I am Hugh Stevenson from 
the Federal Trade Commission. Thank you for this opportunity to 
talk about cross-border fraud and for holding these hearings.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Stevenson with attachments 
appears in the Appendix on page 191.
---------------------------------------------------------------------------
    We have submitted written testimony, and also a statistical 
report which I think has been referenced before during the 
hearings. I would like to just highlight a few things from the 
materials we have submitted.
    One of the best ways to start addressing this problem of 
telemarketing fraud is exactly the way this Subcommittee has 
done; by listening first to the victims. We heard yesterday 
from the victims describing their experiences, the effect it 
has had on them.
    We also need to listen to victims in a more systematic way, 
to make the best use that we can of the information, the 
evidence that they are providing to us, what they are telling 
us. That has been a driving concept for us in developing the 
project that you referred to earlier, called Consumer Sentinel.
    Consumer Sentinel is a project that the Federal Trade 
Commission started back in 1997, in partnership with a number 
of other agencies, including Canada's Phonebusters, whom you 
heard from yesterday. The idea here is to create a central 
repository for consumer fraud complaints that come in from 
various sources, from the FTC, from Canada's Phonebusters, from 
many Better Business Bureaus, from the National Consumer 
League, and the like.
    We then provide secure Web access to law enforcers to those 
complaints, which now number more than 300,000, and we also 
provide access to other intelligence and law enforcers in the 
United States and Canada. We now have several hundred agencies 
signed up for that Web-based cyber tool.
    What Consumer Sentinel tells us about this problem is 
detailed in our report, but I wanted to highlight a couple of 
things. First, the cross-border victims here come from anywhere 
and everywhere. As the map we have here shows, we have received 
in the year 2000 significant numbers of complaints from people 
in every State in the United States.
    The second point to emphasize is that the loss here is 
substantial, with tens of millions of dollars in losses 
reported, and in 2000 alone about $20 million in losses 
reported by U.S. consumer victims against Canadian companies.
    The third thing we want to note is that this is by no means 
a one-way street, the way that cross-border fraud works. The 
pattern we are seeing now, though, is that the cross-border 
victims are predominantly U.S. consumers complaining about 
Canadian companies, about 70 percent of them, as we can see 
from this pie chart.
    Now, what do we do about this? Well, on the domestic front 
the FTC has for many years aggressively battled telemarketing 
fraud. We have used our civil enforcement powers to get courts 
to put a halt to scams, to recover tens of millions of dollars 
for consumers, to use the powers that we have to work up cases 
quickly. This approach of putting them out of the fraud 
business and grabbing the money you can, has been a very 
effective complement, we think, to the criminal law enforcement 
approach of putting them in jail. To borrow a phrase from one 
of the victims yesterday, Mr. Hathaway, who was saying the con 
artist is going to ask, is this easy money, one of the goals is 
to take that money away so it is not so easy after all.
    When you are dealing with cross-border fraud, though, you 
have more challenges, and I think we have heard from my 
colleagues here about some of them. Let me just emphasize a 
couple from our perspective.
    One, getting the information to work up a case is a greater 
challenge. When the fraud is international, so is the evidence, 
and that means sometimes it is harder to get and sometimes it 
is slower to get. I think a theme that we heard from both my 
colleagues from Justice and Vermont is that speed is an issue 
here. How fast can you get the evidence to chase the bad guys?
    The second point is sharing information with foreign 
agencies can be more challenging. The rules of the road on 
information-sharing mean that there is some information that is 
stopped at the border as we try to share with our Canadian 
colleagues, or in some cases as they try to share it with us.
    A third issue that Senator Levin touched on is making 
remedies effective across borders is a challenge. Chasing money 
across borders is a challenge, and we have had some experience 
with this. It is possible, but it is more difficult. And even 
sometimes finding money across borders in order to chase it is 
more difficult when the borders are involved. What all this 
means is that the bad guys can use the borders as an obstacle 
to law enforcement.
    We have worked to overcome these problems in a couple of 
ways that I think are instructive. First, we have worked with 
our Canadian colleagues and our American colleagues to develop 
Consumer Sentinel. We have used this as a vehicle to fight 
telemarketing fraud and Internet fraud and identity theft and 
cross-border fraud, and there has been a real value in grouping 
together the information to do that.
    We have also worked on the bi-national regional 
partnerships that the witnesses have referred to. We were the 
original U.S. partner in the Ontario Strategic Partnership. We 
funded witness travel. We provided computer and intelligence 
support, including intelligence using the data in Consumer 
Sentinel. We have worked up evidence, witness declarations, for 
Canadian prosecutions.
    The result has been there, from relatively little activity, 
just since 2000 the Canadians have had more than 80 arrests and 
several hundred thousand dollars have been returned to American 
victims in restitution orders.
    We have also worked for a number of years on the British 
Columbia Project Emptor project, along with other agencies. 
Particularly, we have worked with the British Columbia Ministry 
of Attorney General bringing parallel civil actions on both 
sides of the border, in some cases freezing money, and in those 
cases returning probably about $2 million in restitution.
    We have also worked on consumer education, a theme we heard 
quite a bit about yesterday, and we have brought some of our 
materials to show. We have more than 150 different 
publications, many of them on topics relevant to telemarketing 
fraud.
    Overall, since fiscal 1997, we have sent out over 25 
million paper publications on a variety of topics, 15 million 
Web online accesses of our materials, and we have also held 
focus groups to develop material to focus on helping consumers 
and what we can do to bring them into a toll-free number.
    We have an array of different materials. We do postcards, 
we do bookmarks. We try to have a series of different messages, 
depending on what will appeal to consumers. If they drive a 
car, maybe they have a bumper sticker. Well, maybe they don't 
have a car, so we have run this on the sides of buses.
    Well, maybe they don't ride the bus and they stay home, so 
we have refrigerator magnets. Well, maybe they don't have a 
refrigerator, so then we have fans. We have tried in various 
ways to reach out to consumers using different messages to 
reach the target population.
    Well, what more can we do here? There is more to do, 
although there has been substantial progress made since the 
1997 report on a number of fronts.
    First, to echo a theme that I think has been made here, we 
need to do even more to improve information-sharing. One thing 
we plan to do there logistically is to strengthen Consumer 
Sentinel's role as a central repository for consumer fraud 
complaints. We need to get data from even more sources to make 
this cyber tool every more cyber-smart, even more useful for 
the people who are using it. We need to expand the number of 
people who are using it.
    There are a number of tools that are on the Web. There are 
a number of interesting things. One joint project with DOJ and 
NAAG is an index of undercover tape recordings that have been 
made for investigations that we have put on and made available 
for people to use to get that information fast because speed is 
important.
    We also are aiming to strengthen Consumer Sentinel as a 
vehicle for communication and coordination. One of the issues 
we also heard about today and yesterday is the problem of just 
communicating with the other consumer cops on the beat in order 
to coordinate to take effective action.
    We would also like to encourage other members to be active 
partners in the Consumer Sentinel project. We have had a postal 
inspector detailed as a program manager for a year. We have had 
a Secret Service agent detailed to work on the identify theft 
aspects of this, and having them right there at the data hub 
has been very effective.
    We have also worked up some materials to promote to law 
enforcers the use of Consumer Sentinel as a source of 
information, a cyber tool for fraud-busters.
    On a broader front, on a legal front, we need to look also 
at how to modify the legal framework here to improve 
information-sharing. This, I think, also echoes some of the 
comments that have been made earlier. There are several issues 
to consider: What information is it that we need to share that 
we have difficulty sharing, in what cases do we share it, and 
also what legal vehicles are there that could be used here.
    We heard some references to MLATs, which are focused 
actually on criminal matters. There are other vehicles to 
consider, mutual assistance legislation or other possibilities. 
I think one of the things that the Commission has recommended 
is working with our colleagues in the United States and Canada 
to explore what the options are to move forward on that front.
    We also need to explore how to make our civil remedies more 
effective across borders. For example, we need better tools, I 
think, as the comments suggest, for chasing the offshore money. 
There are some options out there, but the name of the game here 
is not just to win against the bad guys, but to win efficiently 
because we have to win a lot or else it still stays, as Mr. 
Hathaway said, easy money.
    Finally, we need to look for even more opportunities to 
cooperate in concrete ways with our Canadian counterpart 
agencies. It is important to rise to these challenges both 
because this is a problem right now--people are being hurt 
right now--but it is also an opportunity and a challenge 
because with the globalization of telecom, of the Internet, of 
financial transfers and financial institutions, these are 
problems that we are going to see more often and not less.
    Thank you.
    Senator Collins. Thank you very much, Mr. Stevenson.
    One of the disturbing statements that we heard yesterday 
from all three of our victims is that not one of them received 
a penny of restitution as a result of the fraud that they had 
suffered. In talking with attorneys general and other law 
enforcement officers, we found that that is the rule rather 
than the exception.
    Mr. Stevenson, you mentioned that the Consumer Sentinel 
system reported $20 million of losses that were reported by 
U.S. consumers last year against Canadian companies. I see that 
this year the projected figure is $36.5 million, so it is 
certainly going in the wrong direction.
    Do you have any idea in the previous years what percentage 
of recovery or restitution was in these cases?
    Mr. Stevenson. I don't have exact figures. Certainly, the 
anecdotal evidence that we have suggests that the percentage of 
recovery is very small, and indeed the percentage of consumer 
victims who complain is very small.
    Senator Collins. One of the aspects that is going to 
discourage consumers from reporting is not only the indignity 
that they have suffered in feeling that they were taken 
advantage of--and that obviously hurts their pride--but if they 
don't think there is any chance they are going to get their 
money back, it discourages them from reporting the crime.
    Mr. Attorney General, based on your experience in Vermont, 
have you also found that the likelihood of getting restitution 
for consumers when you are dealing with cross-border fraud is 
low?
    Mr. Sorrell. It is not just cross-border fraud, Senator. 
These are scam artists; they are not legitimate businesses. I 
mean, we have a pretty good track record in other consumer 
fraud matters when we are going against ongoing businesses of 
getting reimbursement for our consumers.
    But if we obtain 1 percent of the money that goes to these 
scam artists, whether it is sweepstakes issues or to reinstate 
their credit history or whatever, that would be a win. The 
reality is you have got to find them. I mean, these are not 
brick-and-mortar operations. All they need is access to a 
phone, and then whatever they are using the money for, they 
don't have a long useful life.
    So you have got to identify them, find that they have 
assets so you can get your hands on them, if you can identify 
them and hold them accountable before you can grab the assets. 
So we certainly wish we could do more in terms of getting 
restitution, but I think I mentioned before it is sort of a 
blood out of a stone situation.
    So our emphasis has really been on the education side, 
preventing it in the first place.
    Senator Collins. I think that is absolutely key for just 
the reason that you have said. And your distinction between 
scam artists who are setting up shop or a boiler room 1 day and 
are gone the next, versus an ongoing, legitimate business that 
may be doing some unethical practices, is a very good one.
    I spent 5 years in State government in Maine and I oversaw 
the department that regulated banks, securities, insurance, and 
licensing boards. We had a very high rate of restitution, but 
the banks weren't going to disappear, the insurance agents 
weren't going to pack up their bags in the middle of the night 
by and large, and the brokerage houses weren't still going to 
be there. We knew where to find them, and I think that shows 
the difficulty in dealing with this type of consumer fraud. And 
it is exacerbated when we have to deal with another country, as 
well.
    Mr. Attorney General, you were talking about whether 
Vermonters are more gullible, and I don't think that is it and 
I don't think that is it for Mainers. It is just that if you 
live in Maine or Vermont or Michigan or another border State, 
you are used to dealing with Canada all the time. It is a 
friendly neighbor. There are family ties.
    So sending money to Canada or receiving a phone call from 
Canada does not raise any red flags. It doesn't sound any alarm 
bells because of the close relationships that those of us who 
live in border States have with Canada. That is why I think an 
increased emphasis in our educational materials on cross-border 
fraud would be very helpful.
    The educational materials that I have seen have been 
absolutely terrific, but by and large they are not aimed at 
being wary if you receive a solicitation from Canada or another 
country, and I think that is perhaps an area that we should 
pursue. I would also like to see the consumer agencies such as 
the FTC and the attorneys general do a list for consumers of 
warning signs, typical pitches that they might hear. I think 
that kind of practical advice would be helpful.
    It is startling that Canada apparently has had more success 
than we have, according to our witness yesterday, in educating 
its senior citizens about the dangers of fraud. I think the FTC 
has been terrific, and the Postal Service, as well, and groups 
such as AARP. But it seems to me that we have to constantly 
update our materials to respond to what the latest fraud is. 
These scam artists are very clever.
    Mr. Stevenson, do you have any materials or do you plan any 
materials that speak directly to the issue of cross-border 
fraud?
    Mr. Stevenson. We do have one brochure that addresses that 
specifically and the issue of online fraud. And then there are 
also obviously, as we have heard, the particular frauds 
involved here, some of which are largely associated in terms of 
the number of complaints with Canada, the sweepstakes and 
lotteries and advanced fee loans, where we also have materials 
that are focused on that.
    Senator Collins. Ms. Warlow, I want to talk to you about 
the issue that every single person involved in trying to 
investigate and prosecute these cross-border frauds has brought 
up to us, and that is each one has expressed tremendous 
frustration with the delays involved in the MLAT process, the 
Mutual Legal Assistance Treaty process.
    It is often felt, it appears, to be such a cumbersome 
process that it, itself, is an obstacle to the efficient 
investigation and prosecution of cross-border telemarketing 
fraud. We have heard the attorney general this morning talk 
about having to wait months for even an answer, and perhaps 
years if we get into an extradition situation. That strikes me 
as unacceptable in this situation because these are con artists 
who will pack up and move to another city or another location. 
They are not going to be there if we don't act quickly when we 
have a lead.
    What is the Department of Justice doing to try to expedite 
and streamline these requests for assistance under the MLAT 
process?
    Ms. Warlow. Well, one thing certainly is to engage in a 
dialogue with Canada about this problem. It would not be fair 
to Canada to say it is only a problem with them. We also 
receive complaints about the timeliness of the process when we 
are sent requests.
    One thing I think that we can do to speed the process is 
not to overemphasize the use of the MLAT. In the investigative 
stage, one of the most important things is police-to-police 
cooperation, exactly the sort of cop-to-cop dialogue that the 
attorney general has referred to.
    I would hope that our folks are making it clear that you 
needn't rely on the MLAT for all forms of cooperation. The 
sticking point is there are certain things you do need to look 
to the MLAT to get.
    Senator Collins. I am sorry. I couldn't hear you.
    Ms. Warlow. There are some things, however, that you do 
need to use the MLAT for.
    Senator Collins. Could you distinguish for us between when 
it is required that you go through the MLAT process and what 
kinds of information can you get more informally?
    Ms. Warlow. The way I have tried to describe this--and I 
have done this with training for our own prosecutors and law 
enforcement agents--you generally think of two types of 
information where you need to use an MLAT process. One is where 
you need to use a compulsory measure in the other country. Now, 
this means certainly a search. It also means compelling 
production of documents, and in a fraud case this is 
significant. There is a significant need for documentary 
evidence, and so the need for compulsory process.
    The other is when you are reaching or looking forward to 
the trial stage because it is there, when you need evidence in 
an admissible form, that more likely than not you are going to 
need some sort of MLAT process, for example, to authenticate 
documents; or in some circumstances, for example, with a 
deposition if you need to compel the testimony of somebody. So 
these are the categories.
    To the extent that you can have police-to-police 
cooperation, that is good. It does certainly depend on contacts 
in the Federal system. We have the advantage of having a 
permanent presence in Canada. We have a FBI legal attache's 
office that is quite active.
    One thing that enhances police-to-police cooperation, 
frankly, is the opportunity to do joint investigations rather 
than just having the situation in which you come for help. 
Then, I think the information-sharing is much better. Moreover, 
let's say that we are working with the Canadians. The Canadian 
authorities aren't dependent on some sort of request from us to 
invoke their own legal authority. It is their own 
investigation.
    So the extent that we can work more cases jointly, we will 
have a better track record. But certainly there are going to be 
instances in which we need this MLAT. That is clear, and we 
need to do a better job in timeliness of response. And it is 
not unique to Canada, it is not unique to these cases.
    Senator Collins. What I am told is that many law 
enforcement officers do not fully understand how much 
information they can get and how much sharing of data they can 
do without going through the formal process.
    Do you think that is correct?
    Ms. Warlow. I would suspect it is.
    Senator Collins. And what can we do about that to help law 
enforcement officials be better educated on what they can 
obtain without going through the formal MLAT process?
    Ms. Warlow. I think we are doing some things in training of 
our State and local counterparts. We are tending to focus more 
on the State and local prosecutors. We have had a training 
session on international issues, I believe, last year for State 
and local prosecutors. We have had a representative of a State 
in our Office of International Affairs. I believe we now have 
one either from the National Attorneys General Association or 
the National District Attorneys Association.
    In addition, we need to be sure we have people who are 
available for case-specific advice. Also, I think if we can 
educate our Federal investigating agents, and we generally do 
have training with them, too, they can also be points of 
contact for their State and local colleagues in discussing this 
or pointing them in the direction to talking to the Justice 
Department itself.
    Senator Collins. Mr. Stevenson, I understand that Federal 
law restricts in some ways the FTC's ability to share 
information with Canadian officials, and that the rules to 
interpret this law have not been modified since the 1980's, 
when cross-border fraud was not as prevalent as it is today.
    First of all, is my understanding correct, and if so, do 
you have some specific recommendations on changes in the law 
that would make it easier for the FTC to share information with 
its Canadian counterparts?
    Mr. Stevenson. Yes, your summary is correct. There are 
certain kinds of information that we are prevented from sharing 
with foreign agencies, where we can share them with State and 
other Federal agencies. Maybe chief among the categories is the 
information that we get pursuant to administrative subpoena or 
compulsory process, and that is part of our statutory setup.
    The Commission has not made specific legislative 
recommendations so much as suggesting that this is an area that 
does need to be looked at. As Mr. Warlow said, one of the good 
things we can do here is, in having a dialogue with our 
Canadian counterparts, figure out what are the most effective 
vehicles for sharing information, because one of the things we 
want to keep an eye on in thinking about what we may be able to 
do is what our Canadian counterparts may be able to do, how 
they would respond to greater information-sharing, so that we 
can encourage greater mutual sharing of information because the 
key to improving information-sharing is obviously flowing both 
north and south in order to make this work as best we can.
    Senator Collins. Mr. Attorney General, are there changes in 
Federal law that you believe are needed to help coordinate the 
attack on cross-border fraud?
    You have mentioned the need for changes in streamlining the 
MLAT process and you have mentioned the resources issue. Are 
there any other recommendations that you would have for the 
Subcommittee as we pursue remedies to the problems that you 
have already identified?
    Mr. Sorrell. Not specifically that I have in mind, Senator. 
I am not well-versed in the issues of what information may be 
exchanged or not. Our emphasis has been on the internal 
processes and the adequate resources to be more quickly 
responsive.
    Senator Collins. Ms. Warlow, I want to give you the 
opportunity to respond to an issue that the attorney general 
has raised this morning, that Mr. Stevenson has raised, and 
that every law enforcement official we have interviewed has 
raised, and that is the lack of funding from DOJ or other 
sources to help pay for witness expenses and travel and those 
essential costs of investigating and prosecuting a crime.
    Ms. Warlow. It is a significant problem. I think there are 
a couple of facets to it. One is where we are producing 
witnesses solely for a Canadian proceeding. There can be 
limitations on how we use our own money. For example, with our 
Marshals Service, the parameters of its authority deal with 
matters before U.S. courts.
    I am not familiar with the details of the problem of the 
limitations on the Federal funding that the attorney general 
has referred to, but I do know that there was a conclusion that 
those funds that are being used otherwise to support the 
activities of Vermont and other States were deemed not 
available for the purpose of witness travel.
    I would say that for some time it has been recognized there 
is a general problem for the States and localities, not just in 
this particular area of crime, telemarketing fraud, but 
generally for the States and localities to deal with the 
unusual expenses that often attach when they have a 
transnational and international crime--issues of travel, even 
things as simple as translation and interpretation.
    So this is a problem for the States. It is expensive for us 
as well, but I think particularly for the States, and in some 
instances the funding for States is localized. We have had 
instances where a county district attorney's office has been 
taxed as to whole year's budget in trying to support a single 
complex international case. So it is a problem.
    Senator Collins. The final question that I want to ask each 
of you deals with the problem that each of these cases tends to 
be relatively small-dollar. Yet, if they were investigated, 
they often reveal a fraud ring that has targeted hundreds or 
even thousands of consumers. In fact, the losses in the 
aggregate are quite large.
    How does your offices make decisions on whether or not to 
put the resources into a case to determine whether this is just 
the tip of the iceberg?
    What we have found in doing our own investigation involving 
one of our consumers, the woman from Maine who testified 
yesterday, is that when we issued subpoenas to Western Union to 
try to track down the flow of funds from her husband to the 
Canadian scam artists who defrauded her husband, we quickly 
discovered is that it appears that this is part of a far 
broader fraud ring and that he certainly is not the only 
victim.
    Mr. Sorrell.
    Mr. Sorrell. The question is how do we make a decision to 
proceed in a case not knowing really the magnitude of the case. 
This is one area in which the attorneys general have been 
working, I think, quite effectively in the telemarketing arena. 
We have a periodic written publication on what is going on in 
telemarketing issues, but perhaps more importantly there are 
either monthly or bimonthly conference calls for the 
individuals from the various offices that are working on 
telemarketing fraud matters.
    So in that sharing of information there, we have been 
working most closely with the States of Ohio and North Carolina 
that are also under a Federal grant right now for focusing on 
these issues. And it has been interesting to us to see that 
matters involving Canadian telemarketers--they are not just 
preying on Vermonters, but they are also in other States. We 
are obviously a small office and when we can see a case where 
there are consumer victims in other States, then that opens up 
to us working on a multi-State basis.
    I think I also mentioned that I have an assistant attorney 
general who is cross-designated as an Assistant U.S. Attorney. 
Maybe I didn't mention that. So when we see a case that has 
significant magnitude, we will work with the U.S. Attorney's 
office and Canada. We are working one case right now where we 
have identified 18 separate scam operations being operated by 
the suspect in the matter. So that is a case where the 
tentacles of impact go out, and the further we look into it the 
more we see how broad that is. This is the occupation these 
folks are in, so it is not a one-shot deal and that is what we 
find.
    Senator Collins. Exactly. When there is one victim, there 
are undoubtedly many others. Indeed, one of the examples that 
we looked at started with a single victim in North Carolina. It 
was investigated, fortunately, and it turned out to be an 
extensive fraud case involving hundreds of victims in 18 
States.
    The reason I raise this issue is I think it shows the 
importance of having either the Consumer Sentinel system or the 
Phonebusters system, where there is somewhere we can aggregate 
these complaints, look for patterns, and then go after what are 
undoubtedly complex, sophisticated crime rings that are 
targeting thousands of our most vulnerable senior citizens.
    Ms. Warlow.
    Ms. Warlow. Of course, for the Department of Justice and 
the FBI, we tend to look at the more complex cases, the multi-
district, multi-victim cases, and ones that involve larger 
organizations. We should be working with the States in exactly 
the way that the attorney general has described. It is the 
particular role of the Federal Government to deal with these 
widespread crimes, and we have particular investigative 
authorities, and so on. So that is, in fact, our target.
    You have stolen my thunder, I guess, because we would cite 
exactly things like the Consumer Sentinel program and the 
library of recorded conversations as tools that allow us to 
identify where there are patterns and large operations 
victimizing hundreds of people. So those are exactly the kinds 
of resources that are very useful in distinguishing the 
relatively small cases from those where we are getting into a 
big operation.
    Senator Collins. Mr. Stevenson.
    Mr. Stevenson. I think that the key is gathering the 
information together so that we can make intelligent cuts about 
it and then communicating about it. We certainly have seen 
cases where the individual loss might be $19.95 or some small 
amount, and yet when we then brought the cases and we find out 
about the total loss, it can be multi-million dollars a nickel 
at a time, so to speak. So it is very useful to look at the 
information in that way to make the cuts about where the big 
problems are.
    It is also useful to have that kind of information in 
making the cuts about communicating with other agencies about 
how we can divide up the work. One thing I don't think you are 
going to get anybody to say to you is we are kind of running 
out of potential defendants in this area. There is always 
plenty of work to go around, and one of the challenges is how 
do we do this as efficiently and quickly as we can. Which 
targets does it make sense for the FBI to pursue based on the 
criteria Ms. Warlow mentioned, for example; which ones for the 
Vermont AG, and so forth?
    One of the things that having the information in a network 
helps you do is to see what is out there now. We have actually 
done dozens of law enforcement sweeps with various law 
enforcement partners, including Vermont and Justice, where we 
can look, for example, at a particular kind of fraud and say 
this is what we are seeing out there now. How does it make 
sense to divide up this work based on a number of different 
criteria that we might use?
    The other thing that we have been working on is better 
communication about who is working on what. In fact, my 
colleagues at the Justice Department, John Rusch, and 
elsewhere, have raised the issue of how do we communicate 
better about what is going on. And one of the things we 
developed in the Sentinel network is an alert technology so 
that people can communicate about what they are looking into or 
what they have information about, because that kind of 
coordination is very important to move ahead in this work.
    Senator Collins. Thank you. I want to thank all of our 
witnesses for participating today. Your contributions have been 
very valuable as we grapple with the extent of this problem and 
possible remedies. I very much appreciate your joining us. 
Thank you.
    During the past 2 days of hearings, we have learned a great 
deal about cross-border fraud, a growing phenomenon in which 
con artists in other countries, notably Canada, target victims 
in our own. In particular, such cross-border criminals tend to 
target elderly Americans and their families, innocent victims 
such as the three witnesses from whom we heard yesterday.
    All three of the victims who appeared here, and many more 
in communities across our country, were directly targeted or 
had their loved ones directly targeted by cross-border 
criminals seeking to take advantage of their honesty, their 
optimism, and their trust. They fell prey to very common scams, 
such as lottery frauds, sweepstakes, and other attempts to 
swindle them out of their money.
    Their testimony also helped highlight the crucial role of 
consumer awareness as our first line of defense against such 
fraud. An educated consumer, aware of the dangers of schemes 
such as a lottery scam and wary enough to suspect that promises 
that seem too good to be true probably are, is the single best 
answer to cross-border fraud.
    For this reason, I hope that the hearings that we have held 
have helped to educate consumers and make them more wary about 
falling for such pitches. I encourage all of the law 
enforcement and consumer protection agencies that are involved 
in this task to continue their efforts to promote better 
consumer education and awareness programs. I think we can't 
stop; we have to keep educating consumers because as scam 
artists change their approaches, or stop using the mail and 
start using phones for a while and then come back to the mail 
with a new scheme, their ingenuity requires us to be ever-
vigilant.
    We have also heard a lot of testimony from law enforcement 
officials about the challenges in facing cross-border fraud and 
areas in which further improvement is necessary. I want to 
pursue those issues with Senator Levin to examine the budget 
and legislative options that are available to us, and I would 
invite any of our witnesses to submit to us any further 
suggestions that they might have in that regard.
    On behalf of the Chairman, I would announce that the record 
will be open for 14 days. There are a number of statements that 
I have received from other victims and from the attorney 
general's office in Georgia, as well as from the Canadian 
Embassy, that we will be submitting for the record.
    Finally, I want to thank the Members of the Subcommittee 
staff who prepared for these hearings, in particular 
Christopher Ford, Marianne Kenny, Alan Stubbs, Barbara Cohoon, 
Frank Fountain, and Mary Robertson. They are very hard-working 
and dedicated individuals, and they have worked very hard 
during the past 5 months to gather the information for these 
hearings and I want to thank them.
    Let me close by also thanking our new Chairman, Senator 
Levin, for his efforts. We have had these hearings long 
planned, but since he is now the new Chairman he could have 
very easily chosen not to pursue them. He has been a dedicated 
advocate for consumers and we have worked very closely on a 
number of consumer protection efforts. So I am very grateful to 
him for allowing this investigation to be concluded and these 
hearings to proceed.
    Thank you, and this hearing is now adjourned.
    [Whereupon, at 10:50 a.m., the Subcommittee was adjourned.]

                            A P P E N D I X

                              ----------                              

[GRAPHIC] [TIFF OMITTED] T4107.001

[GRAPHIC] [TIFF OMITTED] T4107.002

[GRAPHIC] [TIFF OMITTED] T4107.003

[GRAPHIC] [TIFF OMITTED] T4107.004

[GRAPHIC] [TIFF OMITTED] T4107.005

[GRAPHIC] [TIFF OMITTED] T4107.006

[GRAPHIC] [TIFF OMITTED] T4107.007

[GRAPHIC] [TIFF OMITTED] T4107.008

[GRAPHIC] [TIFF OMITTED] T4107.009

[GRAPHIC] [TIFF OMITTED] T4107.010

[GRAPHIC] [TIFF OMITTED] T4107.011

[GRAPHIC] [TIFF OMITTED] T4107.012

[GRAPHIC] [TIFF OMITTED] T4107.013

[GRAPHIC] [TIFF OMITTED] T4107.014

[GRAPHIC] [TIFF OMITTED] T4107.015

[GRAPHIC] [TIFF OMITTED] T4107.016

[GRAPHIC] [TIFF OMITTED] T4107.017

[GRAPHIC] [TIFF OMITTED] T4107.018

[GRAPHIC] [TIFF OMITTED] T4107.019

[GRAPHIC] [TIFF OMITTED] T4107.020

[GRAPHIC] [TIFF OMITTED] T4107.021

[GRAPHIC] [TIFF OMITTED] T4107.022

[GRAPHIC] [TIFF OMITTED] T4107.023

[GRAPHIC] [TIFF OMITTED] T4107.024

[GRAPHIC] [TIFF OMITTED] T4107.025

[GRAPHIC] [TIFF OMITTED] T4107.026

[GRAPHIC] [TIFF OMITTED] T4107.027

[GRAPHIC] [TIFF OMITTED] T4107.028

[GRAPHIC] [TIFF OMITTED] T4107.029

[GRAPHIC] [TIFF OMITTED] T4107.030

[GRAPHIC] [TIFF OMITTED] T4107.031

[GRAPHIC] [TIFF OMITTED] T4107.032

[GRAPHIC] [TIFF OMITTED] T4107.033

[GRAPHIC] [TIFF OMITTED] T4107.034

[GRAPHIC] [TIFF OMITTED] T4107.035

[GRAPHIC] [TIFF OMITTED] T4107.036

[GRAPHIC] [TIFF OMITTED] T4107.037

[GRAPHIC] [TIFF OMITTED] T4107.038

[GRAPHIC] [TIFF OMITTED] T4107.039

[GRAPHIC] [TIFF OMITTED] T4107.040

[GRAPHIC] [TIFF OMITTED] T4107.041

[GRAPHIC] [TIFF OMITTED] T4107.042

[GRAPHIC] [TIFF OMITTED] T4107.043

[GRAPHIC] [TIFF OMITTED] T4107.044

[GRAPHIC] [TIFF OMITTED] T4107.045

[GRAPHIC] [TIFF OMITTED] T4107.046

[GRAPHIC] [TIFF OMITTED] T4107.047

[GRAPHIC] [TIFF OMITTED] T4107.048

[GRAPHIC] [TIFF OMITTED] T4107.049

[GRAPHIC] [TIFF OMITTED] T4107.050

[GRAPHIC] [TIFF OMITTED] T4107.051

[GRAPHIC] [TIFF OMITTED] T4107.052

[GRAPHIC] [TIFF OMITTED] T4107.053

[GRAPHIC] [TIFF OMITTED] T4107.054

[GRAPHIC] [TIFF OMITTED] T4107.055

[GRAPHIC] [TIFF OMITTED] T4107.056

[GRAPHIC] [TIFF OMITTED] T4107.057

[GRAPHIC] [TIFF OMITTED] T4107.058

[GRAPHIC] [TIFF OMITTED] T4107.059

[GRAPHIC] [TIFF OMITTED] T4107.060

[GRAPHIC] [TIFF OMITTED] T4107.061

[GRAPHIC] [TIFF OMITTED] T4107.062

[GRAPHIC] [TIFF OMITTED] T4107.063

[GRAPHIC] [TIFF OMITTED] T4107.064

[GRAPHIC] [TIFF OMITTED] T4107.065

[GRAPHIC] [TIFF OMITTED] T4107.066

[GRAPHIC] [TIFF OMITTED] T4107.067

[GRAPHIC] [TIFF OMITTED] T4107.068

[GRAPHIC] [TIFF OMITTED] T4107.069

[GRAPHIC] [TIFF OMITTED] T4107.070

[GRAPHIC] [TIFF OMITTED] T4107.071

[GRAPHIC] [TIFF OMITTED] T4107.072

[GRAPHIC] [TIFF OMITTED] T4107.073

[GRAPHIC] [TIFF OMITTED] T4107.074

[GRAPHIC] [TIFF OMITTED] T4107.075

[GRAPHIC] [TIFF OMITTED] T4107.076

[GRAPHIC] [TIFF OMITTED] T4107.077

[GRAPHIC] [TIFF OMITTED] T4107.078

[GRAPHIC] [TIFF OMITTED] T4107.079

[GRAPHIC] [TIFF OMITTED] T4107.080

[GRAPHIC] [TIFF OMITTED] T4107.081

[GRAPHIC] [TIFF OMITTED] T4107.082

[GRAPHIC] [TIFF OMITTED] T4107.083

[GRAPHIC] [TIFF OMITTED] T4107.084

[GRAPHIC] [TIFF OMITTED] T4107.085

[GRAPHIC] [TIFF OMITTED] T4107.086

[GRAPHIC] [TIFF OMITTED] T4107.087

[GRAPHIC] [TIFF OMITTED] T4107.088

[GRAPHIC] [TIFF OMITTED] T4107.089

[GRAPHIC] [TIFF OMITTED] T4107.090

[GRAPHIC] [TIFF OMITTED] T4107.091

[GRAPHIC] [TIFF OMITTED] T4107.092

[GRAPHIC] [TIFF OMITTED] T4107.093

[GRAPHIC] [TIFF OMITTED] T4107.094

[GRAPHIC] [TIFF OMITTED] T4107.095

[GRAPHIC] [TIFF OMITTED] T4107.096

[GRAPHIC] [TIFF OMITTED] T4107.097

[GRAPHIC] [TIFF OMITTED] T4107.098

[GRAPHIC] [TIFF OMITTED] T4107.099

[GRAPHIC] [TIFF OMITTED] T4107.100

[GRAPHIC] [TIFF OMITTED] T4107.101

[GRAPHIC] [TIFF OMITTED] T4107.102

[GRAPHIC] [TIFF OMITTED] T4107.103

[GRAPHIC] [TIFF OMITTED] T4107.104

[GRAPHIC] [TIFF OMITTED] T4107.105

[GRAPHIC] [TIFF OMITTED] T4107.106

[GRAPHIC] [TIFF OMITTED] T4107.107

[GRAPHIC] [TIFF OMITTED] T4107.108

[GRAPHIC] [TIFF OMITTED] T4107.109

[GRAPHIC] [TIFF OMITTED] T4107.110

[GRAPHIC] [TIFF OMITTED] T4107.111

[GRAPHIC] [TIFF OMITTED] T4107.112

[GRAPHIC] [TIFF OMITTED] T4107.113

[GRAPHIC] [TIFF OMITTED] T4107.114

[GRAPHIC] [TIFF OMITTED] T4107.115

[GRAPHIC] [TIFF OMITTED] T4107.116

[GRAPHIC] [TIFF OMITTED] T4107.117

[GRAPHIC] [TIFF OMITTED] T4107.118

[GRAPHIC] [TIFF OMITTED] T4107.119

[GRAPHIC] [TIFF OMITTED] T4107.120

[GRAPHIC] [TIFF OMITTED] T4107.121

[GRAPHIC] [TIFF OMITTED] T4107.122

[GRAPHIC] [TIFF OMITTED] T4107.123

[GRAPHIC] [TIFF OMITTED] T4107.124

[GRAPHIC] [TIFF OMITTED] T4107.125

[GRAPHIC] [TIFF OMITTED] T4107.126

[GRAPHIC] [TIFF OMITTED] T4107.127

[GRAPHIC] [TIFF OMITTED] T4107.128

[GRAPHIC] [TIFF OMITTED] T4107.129

[GRAPHIC] [TIFF OMITTED] T4107.130

[GRAPHIC] [TIFF OMITTED] T4107.131

[GRAPHIC] [TIFF OMITTED] T4107.132

[GRAPHIC] [TIFF OMITTED] T4107.133

[GRAPHIC] [TIFF OMITTED] T4107.134

[GRAPHIC] [TIFF OMITTED] T4107.135

[GRAPHIC] [TIFF OMITTED] T4107.136

[GRAPHIC] [TIFF OMITTED] T4107.137

[GRAPHIC] [TIFF OMITTED] T4107.138

[GRAPHIC] [TIFF OMITTED] T4107.139

[GRAPHIC] [TIFF OMITTED] T4107.140

[GRAPHIC] [TIFF OMITTED] T4107.141

[GRAPHIC] [TIFF OMITTED] T4107.142

[GRAPHIC] [TIFF OMITTED] T4107.143

[GRAPHIC] [TIFF OMITTED] T4107.144

[GRAPHIC] [TIFF OMITTED] T4107.145

[GRAPHIC] [TIFF OMITTED] T4107.146

[GRAPHIC] [TIFF OMITTED] T4107.147

[GRAPHIC] [TIFF OMITTED] T4107.148

[GRAPHIC] [TIFF OMITTED] T4107.149

[GRAPHIC] [TIFF OMITTED] T4107.150

[GRAPHIC] [TIFF OMITTED] T4107.151

[GRAPHIC] [TIFF OMITTED] T4107.152

[GRAPHIC] [TIFF OMITTED] T4107.153

[GRAPHIC] [TIFF OMITTED] T4107.154

[GRAPHIC] [TIFF OMITTED] T4107.155

[GRAPHIC] [TIFF OMITTED] T4107.156

[GRAPHIC] [TIFF OMITTED] T4107.157

[GRAPHIC] [TIFF OMITTED] T4107.158

[GRAPHIC] [TIFF OMITTED] T4107.159

[GRAPHIC] [TIFF OMITTED] T4107.160

[GRAPHIC] [TIFF OMITTED] T4107.161

[GRAPHIC] [TIFF OMITTED] T4107.162

[GRAPHIC] [TIFF OMITTED] T4107.163

[GRAPHIC] [TIFF OMITTED] T4107.164

[GRAPHIC] [TIFF OMITTED] T4107.165

[GRAPHIC] [TIFF OMITTED] T4107.166

[GRAPHIC] [TIFF OMITTED] T4107.167

[GRAPHIC] [TIFF OMITTED] T4107.168

[GRAPHIC] [TIFF OMITTED] T4107.169

[GRAPHIC] [TIFF OMITTED] T4107.170

[GRAPHIC] [TIFF OMITTED] T4107.171

[GRAPHIC] [TIFF OMITTED] T4107.172

[GRAPHIC] [TIFF OMITTED] T4107.173

[GRAPHIC] [TIFF OMITTED] T4107.174

[GRAPHIC] [TIFF OMITTED] T4107.175

[GRAPHIC] [TIFF OMITTED] T4107.176

[GRAPHIC] [TIFF OMITTED] T4107.177

[GRAPHIC] [TIFF OMITTED] T4107.178

[GRAPHIC] [TIFF OMITTED] T4107.179

[GRAPHIC] [TIFF OMITTED] T4107.180

[GRAPHIC] [TIFF OMITTED] T4107.181

[GRAPHIC] [TIFF OMITTED] T4107.182

[GRAPHIC] [TIFF OMITTED] T4107.183

[GRAPHIC] [TIFF OMITTED] T4107.184

[GRAPHIC] [TIFF OMITTED] T4107.185

[GRAPHIC] [TIFF OMITTED] T4107.186

[GRAPHIC] [TIFF OMITTED] T4107.187

[GRAPHIC] [TIFF OMITTED] T4107.188

[GRAPHIC] [TIFF OMITTED] T4107.189

[GRAPHIC] [TIFF OMITTED] T4107.190

[GRAPHIC] [TIFF OMITTED] T4107.191

[GRAPHIC] [TIFF OMITTED] T4107.192

[GRAPHIC] [TIFF OMITTED] T4107.193

[GRAPHIC] [TIFF OMITTED] T4107.194

[GRAPHIC] [TIFF OMITTED] T4107.195

[GRAPHIC] [TIFF OMITTED] T4107.196

[GRAPHIC] [TIFF OMITTED] T4107.197

[GRAPHIC] [TIFF OMITTED] T4107.198

[GRAPHIC] [TIFF OMITTED] T4107.199

[GRAPHIC] [TIFF OMITTED] T4107.200

[GRAPHIC] [TIFF OMITTED] T4107.201

[GRAPHIC] [TIFF OMITTED] T4107.202

[GRAPHIC] [TIFF OMITTED] T4107.203

[GRAPHIC] [TIFF OMITTED] T4107.204

[GRAPHIC] [TIFF OMITTED] T4107.205

[GRAPHIC] [TIFF OMITTED] T4107.206

[GRAPHIC] [TIFF OMITTED] T4107.207

[GRAPHIC] [TIFF OMITTED] T4107.208

[GRAPHIC] [TIFF OMITTED] T4107.209

[GRAPHIC] [TIFF OMITTED] T4107.210

[GRAPHIC] [TIFF OMITTED] T4107.211

[GRAPHIC] [TIFF OMITTED] T4107.212

[GRAPHIC] [TIFF OMITTED] T4107.213

[GRAPHIC] [TIFF OMITTED] T4107.214

[GRAPHIC] [TIFF OMITTED] T4107.215

[GRAPHIC] [TIFF OMITTED] T4107.216

[GRAPHIC] [TIFF OMITTED] T4107.217

[GRAPHIC] [TIFF OMITTED] T4107.218

[GRAPHIC] [TIFF OMITTED] T4107.219

[GRAPHIC] [TIFF OMITTED] T4107.220

[GRAPHIC] [TIFF OMITTED] T4107.221

[GRAPHIC] [TIFF OMITTED] T4107.222

[GRAPHIC] [TIFF OMITTED] T4107.223

[GRAPHIC] [TIFF OMITTED] T4107.224

[GRAPHIC] [TIFF OMITTED] T4107.225

[GRAPHIC] [TIFF OMITTED] T4107.226

[GRAPHIC] [TIFF OMITTED] T4107.227

[GRAPHIC] [TIFF OMITTED] T4107.228

[GRAPHIC] [TIFF OMITTED] T4107.229

[GRAPHIC] [TIFF OMITTED] T4107.230

[GRAPHIC] [TIFF OMITTED] T4107.231

[GRAPHIC] [TIFF OMITTED] T4107.232

[GRAPHIC] [TIFF OMITTED] T4107.233

[GRAPHIC] [TIFF OMITTED] T4107.234

[GRAPHIC] [TIFF OMITTED] T4107.235

[GRAPHIC] [TIFF OMITTED] T4107.236

[GRAPHIC] [TIFF OMITTED] T4107.237

[GRAPHIC] [TIFF OMITTED] T4107.238

[GRAPHIC] [TIFF OMITTED] T4107.239

[GRAPHIC] [TIFF OMITTED] T4107.240

[GRAPHIC] [TIFF OMITTED] T4107.241

[GRAPHIC] [TIFF OMITTED] T4107.242

[GRAPHIC] [TIFF OMITTED] T4107.243

[GRAPHIC] [TIFF OMITTED] T4107.244

[GRAPHIC] [TIFF OMITTED] T4107.245

[GRAPHIC] [TIFF OMITTED] T4107.246

[GRAPHIC] [TIFF OMITTED] T4107.247

[GRAPHIC] [TIFF OMITTED] T4107.248

[GRAPHIC] [TIFF OMITTED] T4107.249

[GRAPHIC] [TIFF OMITTED] T4107.250

[GRAPHIC] [TIFF OMITTED] T4107.251

[GRAPHIC] [TIFF OMITTED] T4107.252

[GRAPHIC] [TIFF OMITTED] T4107.253

[GRAPHIC] [TIFF OMITTED] T4107.254

[GRAPHIC] [TIFF OMITTED] T4107.255

[GRAPHIC] [TIFF OMITTED] T4107.256

[GRAPHIC] [TIFF OMITTED] T4107.257

[GRAPHIC] [TIFF OMITTED] T4107.258

[GRAPHIC] [TIFF OMITTED] T4107.259

[GRAPHIC] [TIFF OMITTED] T4107.260

[GRAPHIC] [TIFF OMITTED] T4107.261

[GRAPHIC] [TIFF OMITTED] T4107.262

[GRAPHIC] [TIFF OMITTED] T4107.263

[GRAPHIC] [TIFF OMITTED] T4107.264

[GRAPHIC] [TIFF OMITTED] T4107.265

[GRAPHIC] [TIFF OMITTED] T4107.266

[GRAPHIC] [TIFF OMITTED] T4107.267

[GRAPHIC] [TIFF OMITTED] T4107.268

[GRAPHIC] [TIFF OMITTED] T4107.269

[GRAPHIC] [TIFF OMITTED] T4107.270

[GRAPHIC] [TIFF OMITTED] T4107.271

[GRAPHIC] [TIFF OMITTED] T4107.272

[GRAPHIC] [TIFF OMITTED] T4107.273

[GRAPHIC] [TIFF OMITTED] T4107.274

[GRAPHIC] [TIFF OMITTED] T4107.275

[GRAPHIC] [TIFF OMITTED] T4107.276

[GRAPHIC] [TIFF OMITTED] T4107.277

[GRAPHIC] [TIFF OMITTED] T4107.278

[GRAPHIC] [TIFF OMITTED] T4107.279

[GRAPHIC] [TIFF OMITTED] T4107.280

[GRAPHIC] [TIFF OMITTED] T4107.281

[GRAPHIC] [TIFF OMITTED] T4107.282

[GRAPHIC] [TIFF OMITTED] T4107.283

[GRAPHIC] [TIFF OMITTED] T4107.284

[GRAPHIC] [TIFF OMITTED] T4107.285

[GRAPHIC] [TIFF OMITTED] T4107.286

[GRAPHIC] [TIFF OMITTED] T4107.287

[GRAPHIC] [TIFF OMITTED] T4107.288

[GRAPHIC] [TIFF OMITTED] T4107.289

[GRAPHIC] [TIFF OMITTED] T4107.290

[GRAPHIC] [TIFF OMITTED] T4107.291

[GRAPHIC] [TIFF OMITTED] T4107.292

[GRAPHIC] [TIFF OMITTED] T4107.293

[GRAPHIC] [TIFF OMITTED] T4107.294

[GRAPHIC] [TIFF OMITTED] T4107.295

[GRAPHIC] [TIFF OMITTED] T4107.296

[GRAPHIC] [TIFF OMITTED] T4107.297

[GRAPHIC] [TIFF OMITTED] T4107.298

[GRAPHIC] [TIFF OMITTED] T4107.299

[GRAPHIC] [TIFF OMITTED] T4107.300

[GRAPHIC] [TIFF OMITTED] T4107.301

[GRAPHIC] [TIFF OMITTED] T4107.302

[GRAPHIC] [TIFF OMITTED] T4107.303

[GRAPHIC] [TIFF OMITTED] T4107.304

[GRAPHIC] [TIFF OMITTED] T4107.305

[GRAPHIC] [TIFF OMITTED] T4107.306

[GRAPHIC] [TIFF OMITTED] T4107.307

[GRAPHIC] [TIFF OMITTED] T4107.308

[GRAPHIC] [TIFF OMITTED] T4107.309

[GRAPHIC] [TIFF OMITTED] T4107.310

[GRAPHIC] [TIFF OMITTED] T4107.311

[GRAPHIC] [TIFF OMITTED] T4107.312

[GRAPHIC] [TIFF OMITTED] T4107.313

[GRAPHIC] [TIFF OMITTED] T4107.314

[GRAPHIC] [TIFF OMITTED] T4107.315

[GRAPHIC] [TIFF OMITTED] T4107.316

[GRAPHIC] [TIFF OMITTED] T4107.317

[GRAPHIC] [TIFF OMITTED] T4107.318

[GRAPHIC] [TIFF OMITTED] T4107.319

                                  

```