U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

For sale by the Superintendent of Documents, U.S. Government Printing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800

Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001

38–509 PDF 2008

ORGANIZED RETAIL THEFT PREVENTION: FOSTERING A COMPREHENSIVE PUBLIC-PRIVATE 

RESPONSE 

HEARING 

BEFORE THE

SUBCOMMITTEE ON CRIME, TERRORISM, 

AND HOMELAND SECURITY 

OF THE

COMMITTEE ON THE JUDICIARY 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED TENTH CONGRESS 

FIRST SESSION 

OCTOBER 25, 2007 

Serial No. 110–122 

Printed for the use of the Committee on the Judiciary 

( 

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

(II) 

COMMITTEE ON THE JUDICIARY 

JOHN CONYERS, JR., Michigan, Chairman 

HOWARD L. BERMAN, California 

RICK BOUCHER, Virginia 

JERROLD NADLER, New York 

ROBERT C. ‘‘BOBBY’’ SCOTT, Virginia 

MELVIN L. WATT, North Carolina 

ZOE LOFGREN, California 

SHEILA JACKSON LEE, Texas 

MAXINE WATERS, California 

WILLIAM D. DELAHUNT, Massachusetts 

ROBERT WEXLER, Florida 

LINDA T. SA ́ NCHEZ, California 

STEVE COHEN, Tennessee 

HANK JOHNSON, Georgia 

BETTY SUTTON, Ohio 

LUIS V. GUTIERREZ, Illinois 

BRAD SHERMAN, California 

TAMMY BALDWIN, Wisconsin 

ANTHONY D. WEINER, New York 

ADAM B. SCHIFF, California 

ARTUR DAVIS, Alabama 

DEBBIE WASSERMAN SCHULTZ, Florida 

KEITH ELLISON, Minnesota 

LAMAR SMITH, Texas 

F. JAMES SENSENBRENNER, JR., 

Wisconsin 

HOWARD COBLE, North Carolina 

ELTON GALLEGLY, California 

BOB GOODLATTE, Virginia 

STEVE CHABOT, Ohio 

DANIEL E. LUNGREN, California 

CHRIS CANNON, Utah 

RIC KELLER, Florida 

DARRELL ISSA, California 

MIKE PENCE, Indiana 

J. RANDY FORBES, Virginia 

STEVE KING, Iowa 

TOM FEENEY, Florida 

TRENT FRANKS, Arizona 

LOUIE GOHMERT, Texas 

JIM JORDAN, Ohio 

PERRY APELBAUM, Staff Director and Chief Counsel 

JOSEPH GIBSON, Minority Chief Counsel 

SUBCOMMITTEE ON CRIME, TERRORISM, AND HOMELAND SECURITY

ROBERT C. ‘‘BOBBY’’ SCOTT, Virginia, Chairman 

MAXINE WATERS, California 

WILLIAM D. DELAHUNT, Massachusetts 

JERROLD NADLER, New York 

HANK JOHNSON, Georgia 

ANTHONY D. WEINER, New York 

SHEILA JACKSON LEE, Texas 

ARTUR DAVIS, Alabama 

TAMMY BALDWIN, Wisconsin 

BETTY SUTTON, Ohio 

J. RANDY FORBES, Virginia 

LOUIE GOHMERT, Texas 

F. JAMES SENSENBRENNER, JR., 

Wisconsin 

HOWARD COBLE, North Carolina 

STEVE CHABOT, Ohio 

DANIEL E. LUNGREN, California 

BOBBY VASSAR, Chief Counsel 

MICHAEL VOLKOV, Minority Counsel 

(III) 

C O N T E N T S 

OCTOBER 25, 2007 

Page 

OPENING STATEMENT 

The Honorable Robert C. ‘‘Bobby’’ Scott, a Representative in Congress from 

the State of Virginia, and Chairman, Subcommittee on Crime, Terrorism, 

and Homeland Security ....................................................................................... 1 

The Honorable J. Randy Forbes, a Representative in Congress from the 

State of Virginia, and Ranking Member, Subcommittee on Crime, Terrorism, and Homeland Security .......................................................................... 2 

WITNESSES 

Mr. Brad Brekke, Vice President—Assets Protection, Target Corporation, 

TPS-20, Minneapolis, MN 

Oral Testimony ..................................................................................................... 4 

Prepared Statement ............................................................................................. 7 

Mr. David Hill, Detective, Montgomery County Police Department, Rockville, 

MD 

Oral Testimony ..................................................................................................... 14 

Prepared Statement ............................................................................................. 15 

Mr. Karl F. Langhorst, CPP, Director, Loss Prevention, Randalls/Tom Thumb 

Food and Pharmacy, Houston, TX 

Oral Testimony ..................................................................................................... 17 

Prepared Statement ............................................................................................. 19 

Mr. Robert Chesnut, Senior Vice President, Rules, Trust and Safety, eBay, 

Inc., Washington, DC 

Oral Testimony ..................................................................................................... 21 

Prepared Statement ............................................................................................. 23 

APPENDIX 

Material Submitted for the Hearing Record .......................................................... 41 

(1) 

ORGANIZED RETAIL THEFT PREVENTION: 

FOSTERING A COMPREHENSIVE PUBLICPRIVATE RESPONSE 

THURSDAY, OCTOBER 25, 2007 

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON CRIME, TERRORISM,

AND HOMELAND SECURITY

COMMITTEE ON THE JUDICIARY, 

Washington, DC. 

The Subcommittee met, pursuant to notice, at 10:03 a.m., in 

Room 2141, Rayburn House Office Building, the Honorable Robert 

C. ‘‘Bobby’’ Scott (Chairman of the Subcommittee) presiding. 

Present: Representatives Scott, Johnson, Ellison, Forbes, 

Gohmert, and Coble. 

Staff present: Bobby Vassar, Subcommittee Chief Counsel; Gregory Barnes, Minority Counsel; Mario Dispenza, (Fellow) BATFE 

Detailee; Caroline Lynch, Minority Counsel; and Veronica Eligan, 

Professional Staff Member. 

Mr. SCOTT. Good morning. The Subcommittee will come to order. 

I am pleased to welcome you to today’s hearing on organized retail theft prevention and the need to foster a comprehensive publicprivate response. 

For some time now, we have been hearing about the problem of 

organized retail theft, ORT, from business representatives in my 

congressional district and the problem is growing in dimension. Estimates indicate that the problem exceeds $30 billion a year. 

Theft of merchandise through shoplifting from retail outlets and 

through other means is not new, and it has additionally been handled through the State criminal laws. In Virginia, for example, any 

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

of 20 years in prison and a third offense of even petty larceny is, 

by law, treated the same as grand larceny. 

With diligent enforcement efforts, such measures are ordinarily 

adequate to keep the problem of merchandise theft sufficiently in 

check. However, with organized theft rings employing numerous individuals, operating across State lines, ordinary enforcement approaches are inadequate. 

These individuals can shoplift taking acceptable risks by remaining under the grand larceny threshold for each incident and still 

steal thousands of dollars worth of merchandise for the ring. 

The types of products most frequently targeted for theft by ORT 

rings include over-the-counter drug products, cough and cold mediVerDate Aug 31 2005 12:33 Oct 28, 2008 Jkt 000000 PO 00000 Frm 00005 Fmt 6633 Sfmt 6601 H:\WORK\CRIME\102507\38509.000 HJUD1 PsN: 38509
2 

cines, razor blades, batteries, CDs and DVDs, infant formula and 

electronic items. And after ORT rings obtain such products, they 

often turn right around and dispose of them through fencing operations, flea markets, pawn shops, swap meets and shady storefront 

operations. 

Now, we are seeing reports of indications that the Internet is 

now being used to fence stolen goods to the extent that a new term 

has been coined for it, ‘‘e-fencing.’’ Attempts to sell stolen 

consumable products online or in the physical world expose consumers to serious safety and health risks. 

In many cases, after the merchandise has been stolen, the products are not kept under ideal or required storage conditions and 

that can threaten the integrity of the product. For example, extreme heat or cold can affect the nutrient content or physical appearance in infant formula. 

Such practices also tend to drive up consumer prices. This is primarily true because retail establishments must cover their losses 

by passing on the expenses to other customers. Needless to say, 

those most affected by such increases often come from the lower 

economic, socioeconomic backgrounds, or the elderly. 

The size and complexity of this problem clearly suggests that the 

need for assistance from the Federal Government and I look forward to working with my colleagues and the industries affected to 

better address this problem. 

I now recognize my colleague from Virginia, the Ranking Member of the Subcommittee, Randy Forbes, for his statement. 

Mr. FORBES. Thank you, Mr. Chairman, and thank you for holding this hearing on the very important issue of organized retail 

theft. 

I wish to welcome our witnesses here today and thank you for 

taking time out of your busy schedules to be here and help enlighten us on this issue and hopefully forge a solution that will be 

workable to everyone. 

The problem of organized retail theft is growing and involves the 

theft of large quantities of retail merchandise, as the Chairman 

mentioned. Organized retail theft is not a high profile crime, but 

it is a costly one. Unlike shoplifters or small-time thieves who steal 

for their own personal use, organized retail thieves steal merchandise in order to sell it back into the marketplace. 

These thieves typically target merchandise that can be easily 

concealed and easily resold. The stolen items range from low-cost 

products such as razor blades, baby formula or batteries, to expensive products such as electronics or appliances. 

Organized retail thieves, commonly referred to as ‘‘boosters,’’ will 

sell the stolen merchandise at flea markets, pawn shops, swap 

meets and, increasingly, on Internet Web sites. 

According to the FBI, organized retail theft accounts for between 

$30 billion and $37 billion in losses annually. The Coalition 

Against Organized Retail Crime estimates that States with sales 

tax annually suffer over $1.5 billion in lost tax revenue due to organized retail theft. 

In 2005, Congress directed the attorney general and FBI, in consultation with the retail community, to establish a task force to 

combat organized retail theft and create a national database or 

3 

clearinghouse to track and identify organized retail thefts across 

the country. 

The result of this legislation is the law enforcement-retail partnership network, LERPnet, which was launched on April 9 of this 

year. This national database allows retailers to share information 

with each other and law enforcement. To date, more than 32 retailers, representing 46,000 stores, have signed on. 

In addition, the FBI has created major theft task forces to identify and target multi-jurisdictional organized retail theft rings. 

There are currently nine FBI-led major theft task forces, staffed by 

FBI agents and State and local law enforcement officers located in 

FBI field offices across the country. 

These task forces and the LERPnet, launched earlier this year, 

are important first steps for combating organized retail crime. 

However, billions of dollars are still being lost each year. 

The inherent interstate nature of many of these crimes poses jurisdictional hurdles for prosecution at the State level, while limited 

Federal resources and low theft thresholds create a roadblock for 

Federal prosecution. 

I look forward to hearing from today’s witnesses concerning the 

extent of the problem, practical limitations in the investigation and 

prosecution of these organizations, and possible solutions. 

I want to commend Congressman Goodlatte for his hard work in 

this area for so many years, and I also want to commit to working 

with Chairman Scott and Members of the Judiciary Committee, the 

retail community and the online marketplaces to create a common 

sense, practical solution to the problem. 

Mr. Chairman, I yield back the balance of my time. 

Mr. SCOTT. Thank you. Thank you. 

I will ask unanimous consent that other statements be placed in 

the record. 

We have the gentleman from North Carolina, Mr. Coble, with us 

today. 

Our first witness will be introduced, by unanimous, by the gentleman from Minnesota. 

Mr. ELLISON. Thank you, Mr. Chairman. Let me start by thanking you and Ranking Member Forbes for holding this hearing on 

organized retail theft prevention. 

We have with us today Mr. Brad Brekke, the vice president of 

asset protection at Target, a well known general merchandise retailer headquartered in my home district of Minneapolis, Minnesota. 

Target operates over 1,600 stores throughout the United States 

and reports more than $60 billion in sales. As vice president of 

asset protection, Mr. Brekke oversees all aspects of the corporate 

security and the team of several thousands of asset protection professionals supporting Target stores, distribution centers, and its 

supply chain. 

Mr. Brekke also oversees Target’s teams of criminal investigators, regional organized retail crime investigation centers, two forensic laboratories, and its cyber crime investigators. 

Prior to joining Target as the leader of its organized retail crime 

investigation team, Mr. Brekke served as a special agent with the 

4 

Federal Bureau of Investigation, focusing on fraud schemes and 

other white-collar crimes. 

Mr. Brekke is both a graduate of University of Minnesota and 

University of Minnesota Law School and a member of the bar in 

the state of Minnesota. 

Thank you, Mr. Chairman. 

Welcome, Mr. Brekke. 

Mr. SCOTT. Thank you. Thank you for the introduction. 

Our next witness we will hear from will be Mr. David Hill, who 

currently serves as a detective for the Montgomery County Police 

Department. He has 16 years of law enforcement experience in the 

state of Maryland, and he is a Committee member of the National 

Association of Property Recovery Investigators. 

He also serves on the board of the Montgomery County Retail Security Loss Prevention Association. He has an associate’s degree in 

electronic engineering from Montgomery College in Maryland. 

After he speaks, we will hear from Mr. Karl Langhorst, who currently serves as the director of loss prevention at Randalls and 

Tom Thumb Food and Pharmacy. He has over 25 years of experience in law enforcement and retail loss prevention. 

He is an author and frequent speaker on various loss prevention 

topics, including physical security and organized retail crime. He 

has a bachelor of political science from the University of Texas at 

Arlington. 

Our final witness will be Mr. Robert Chesnut, senior vice president and head of eBay’s rules, trust and safety department. In this 

capacity, he directs over 2,000 eBay employees around the world in 

the areas of fraud detection, buyer protection, Web site rules and 

policies, and law enforcement relations. 

Prior to joining eBay, he spent 11 years working as a Federal 

prosecutor in the U.S. attorney’s office in the eastern district of 

Virginia. He is a graduate of the University of Virginia and Harvard Law School. 

Now, each of the witness statements will be made part of the 

record in its entirety. We would ask each witness to summarize his 

or her testimony in 5 minutes or less. To help you stay within that 

time, there is a timing device on your table. When you have 1 

minute left, the light will switch from green to yellow and then finally to red when 5 minutes are up. 

Prior to, as you have heard, we have just been called for very important, momentous situation on the floor. 

We will be back in approximately 5 or 10 minutes. 

[Recess.] 

Mr. SCOTT. The Committee will come to order. We will now receive testimony from Mr. Brekke. 

TESTIMONY OF BRAD BREKKE, VICE PRESIDENT-ASSETS PROTECTION, TARGET CORPORATION, TPS-20, MINNEAPOLIS, 

MN 

Mr. BREKKE. Good morning, Chairman Scott, Ranking Member 

Forbes and Members of the Subcommittee. 

On behalf of Target and the Coalition Against Organized Retail 

Crime, we commend the Chairman and this Committee for recognizing this evolving problem. 

5 

Organized retail crime, also known as ORC, costs the industry 

billions of dollars a year. Compounding this problem are an increasing number of Internet auction sites which facilitate the sale 

of stolen property and undermine the integrity of our interstate 

commerce. 

Today we will offer solutions that can drastically reduce these 

crimes and protect consumers without expending valuable criminal 

justice resources on more arrests and prosecutions. 

For years, retailers have vigorously worked to reduce ORC. As the problem has grown, our industry has invested more than $10 

billion annually in measures including security staffing, employee 

background checks, secure packaging and technologies, such as 

video surveillance. 

At Target, we have even established two forensic laboratories to 

assist law enforcement. 

Retailers and law enforcement face an uphill battle now that the 

Internet marketplace has dramatically transformed the fencing of 

stolen property, as you will hear in this excerpt from ‘‘CNBC.’’ 

[Begin video.] 

[End video.] 

Mr. BREKKE. Fencing stolen goods used to be a local face-to-face 

process in which buyers and sellers were limited and operations 

were only marginally profitable. 

Today, the Internet has created a worldwide market for stolen 

goods in which the sellers are anonymous and the buyers are unaware of the product source. 

The number of sellers and lack of transparency has left law enforcement grasping at the sheer scale of the problem. The enormous profits have fueled criminal activity, hurting our communities. 

The rapid growth of this issue requires a solution beyond investigating and apprehending individual criminals. To illustrate this, 

consider that the entire criminal case load of all U.S. attorneys is 

less than 60,000 a year. 

Even this entire Federal criminal docket would be insufficient to 

address the 75,000 annual apprehensions made by Target alone. 

But sending more people into the criminal justice system is not the 

answer and not what we are proposing. 

Mr. Chairman, we need to take a new approach to this challenge. 

We need Internet auction sites to make simple changes that deter 

the sale of stolen property. The simple step of requiring high volume Internet sellers to identify themselves and add a unique product identifier, such as serial numbers to their listings, would permit identification and tracing of stolen property. 

It would also effectively constrain the sale of stolen property 

without additional law enforcement involvement. These same requirements have already proven successful in the online auction 

context. In fact, every vehicle listed for sale on eBay motors is now 

accompanied by a VIN number. This has virtually eliminated the 

sale of stolen vehicles on eBay. 

Additionally, in the United Kingdom, eBay has identified high 

volume sellers for years. Seller identification and property tracings 

are also the foundation of traditional pawn shop regulations that 

deter the sale of stolen goods. 

6 

These are the same State or local regulations that criminals 

evade when they move online. 

To protect the integrity of commerce in today’s dynamic marketplace, these types of regulations must be extended to the online 

fencing market. 

Finally, we believe that the Federal Government must act, since 

this cannot be resolved at the State level due to the nature of the 

Internet marketplace, and it is important to act now, since this 

issue will continue to grow. 

We believe responsible Internet auction sites will support these 

measures, which will protect consumers and the integrity of the 

Internet commerce. 

On behalf of the coalition, I thank you for the opportunity to address the Subcommittee and I welcome your questions. 

[The prepared statement of Mr. Brekke follows:] 

7 

PREPARED STATEMENT OF BRAD BREKKE


BB-1.eps
8 


BB-2.eps
9 


BB-3.eps
10 


BB-4.eps
11 


BB-5.eps
12 


BB-6.eps
13 


BB-7.eps
14 

Mr. SCOTT. Thank you. 

I would like to recognize the presence of the gentleman from 

Georgia, Mr. Johnson, who has joined the Committee. 

Mr. Hill? 

TESTIMONY OF DAVID HILL, DETECTIVE, MONTGOMERY 

COUNTY POLICE DEPARTMENT, ROCKVILLE, MD 

Mr. HILL. Good morning, Chairman Scott and Ranking Member 

Forbes. My name is Detective David Hill, and I am pleased to be 

testifying before the Subcommittee today for the growing problem 

of organized retail crime. 

By way of background, not only am I a detective with Montgomery County police, I am also a sworn special deputy of the 

United States Marshal Services and assigned to the metro area 

fraud task force of the United States Secret Service. 

To put my job in perspective, industry-wide retail fraud and theft losses amount to about $40 billion a year, according to one prominent study. That is more than double the losses of robbery, burglary, larceny and auto theft combined nationwide, which is $16.9 

billion. 

In the metropolitan area, there are thousands of retail outlets 

and several major malls, with one being in Montgomery County, 

that being Montgomery Mall. 

As we have heard, organized retail crime, which I will refer to 

as ORC, is a real and growing trend and accounts for a large portion of overall industry losses. The term ‘‘organized’’ can mean 

many things, from pairs of boosters who target retail stores with 

the intention of distracting a sales associate while the others steal 

merchandise from the shelves, to teams of five or more who stake 

out targets carefully and steal just discreetly undetected. 

In these cases, a member of the team will take the merchandise 

to a waiting vehicle, while in still other cases, members will act as 

lookouts to make sure that the team is not being followed by security. 

Some of the more sophisticated criminals engage in changing 

UPC barcodes on merchandise so that they ring up differently at 

checkout. This is commonly called ticket switching. 

Others use stolen or counterfeit credit cards to obtain merchandise. These criminals are working for bulk buyers or ring leaders 

who have shopping lists with specific products in mind. These lists 

target luxury clothes, accessories, perfumes, baby formula and expensive over-the-counter medications. Gift cards and electronics are 

very popular items, and let us not forget vacuum cleaners and 

power tools. Whatever is new and popular, that is what the buyer 

wants. 

We pick up on groups that travel the I-95 corridor from Maine 

to Miami, hitting numerous retailers along the way. They fill up 

trucks and vans with stolen merchandise and then drive the merchandise to their fences or have it shipped by way of plane. 

In one of our big cases, we recovered over $40,000 in merchandise that we witnessed the ring steal from over 12 stores in less 

than 1 hour. 

What we see more and more is the stolen property showing up 

on sale on the Internet. The reason so-called e-fencing is becoming 

15 

popular is the simple economics of risks and rewards. A typical 

fencing operation pays criminals $0.30 on a dollar, whereas online 

marketing and auction sites can bring closer to $0.70 on the dollar. 

Further, pawn shops tend to be regulated, requiring the disclosure of information about both the seller and the merchandise, 

which creates additional risks for the criminals. In contrast, online 

marketplaces provide an unregulated environment in which thieves 

can resell stolen property to customers on a national and even on 

an international level, with few or no questions asked. 

The Internet not only makes it easier for ORC rings to unload 

their merchandise at near retail price, it also enables sophisticated 

single operators to make huge profits off of their crimes, as well. 

On Christmas Eve 2005, in Montgomery County, we apprehended a college student who was the subject of a ‘‘CNBC’’ piece 

on e-fencing earlier this year. By his own admission, the student 

made over $50,000 in just over 2 months auctioning off merchandise on eBay that he had switched the UPC codes on and paid a 

very small fraction of the retail price. 

Mr. Chairman, important investigations like this one rely upon 

the ongoing partnership between law enforcement and the retail 

sector. A large portion of my cases are initiated and reported to me 

by loss prevention investigators employed by retail companies. 

By requiring online auction sites to collect and disclose serial 

numbers of products being offered on a sale, when appropriate, and 

to provide additional seller information to retailers’ loss prevention 

investigators will help our retail partnership build better cases that 

can then be turned over to detectives like myself. 

Increased seller disclosure should encourage and deter criminals 

from e-fencing stolen products online and should have little or no 

impact on legitimate sellers. 

Mr. Chairman, I commend the important work that you are 

doing to shed light on a very real problem, ORC. Too often, professional thieves are getting off with little more than a slap on the 

wrist because many jurisdictions are still treating ORC crimes as 

shoplifting cases. 

Some might say that this is a victimless crime, but ORC affects 

society because it increases prices and can compromise the quality 

and safety of consumer goods. 

As I have already stated, these are often multi-jurisdictional 

crimes where professional thieves are crossing State lines. With the 

added component of e-fencing on the Internet, this is a natural 

area for Congress to get involved. 

Clearly, Federal legislation would serve as a powerful tool for 

law enforcement and a deterrent to would-be criminals. 

Mr. Chairman, I appreciate the invitation to address you and the 

Subcommittee Members. I welcome any questions or comments you 

may have. 

Thank you. 

[The prepared statement of Mr. Hill follows:] 

PREPARED STATEMENT OF DAVID HILL

Good Morning Chairman Scott and Ranking Member Forbes, my name is Detective David Hill and I am pleased to be testifying before the subcommittee today on 

the growing problem of organized retail crime. 

16 

By way of background, I am currently a detective with the Montgomery County 

Police Department’s Retail Crimes Unit and have been in law enforcement for over 

16 years. I am a sworn Deputy of the U.S. Marshall Service and assigned to the 

Metro Area Fraud Task Force of the United States Secret Service. I am the only 

detective in my department and one of the few in the region assigned exclusively 

to investigate retail theft and fraud. 

To put my job in perspective, industry-wide retail fraud and theft losses amount 

to almost $40 billion a year according to one prominent study. That is more than 

double the losses of robbery, burglary, larceny, and auto theft combined ($16.9 billion) nationwide. As you know, the Washington Metropolitan Area is the eighth 

largest in the nation, with thousands of retail outlets and several major malls just 

in Montgomery County alone. I am a busy man. I typically handle scores of cases 

each year. 

As we have heard, organized retail crime is a real and growing trend, and accounts for a large portion of overall retail losses. According to the National Retail 

Federation, 79 percent of retailers surveyed report being victims of ORC and 71 percent saw increases in ORC activity last year. The term ‘‘organized’’ can mean many 

things, from pairs of ‘‘boosters’’ who target retail stores with the intention of distracting a sales associate while the other sweeps merchandise from the shelf, to 

teams of five or more who stake out targets carefully and steal discreetly in crowded 

stores. In many cases, ORC teams are efficiently segmented into collectors, packers, 

and movers that take the stolen merchandise to a waiting car, and still others who 

serve as lookouts to make sure that the team is not being followed by security. 

Some of the more sophisticated criminals engage in changing the UPC bar codes 

on merchandise so they ring up differently at check-out, this is commonly called 

‘‘ticket switching.’’ Others use stolen or cloned credit cards to obtain merchandise. 

Sophisticated or not, what all of these thieves have in common is that they are career criminals usually hired by bulk buyers or ring-leaders with specific products 

in mind. They have ‘‘shopping lists,’’ if you will. Some target luxury clothing, accessories, and perfume while others focus on baby formula and expensive over-thecounter medications or beauty aids. Gift cards and electronics are other popular targets. Believe it or not, these criminals are even stealing vacuum cleaners and power 

tools. Whatever is new; whatever is hot, that’s what the criminals want. 

Some of these ORC groups travel important interstate corridors, like I-95, from 

Miami to Maine, hitting numerous retailers along the way and filling vans or trucks 

with stolen merchandise. In one case, we recovered $40,000 in merchandise that 

was stolen in one hour. The booty ends up at underground bodegas, pawn shops and 

flea markets, some is repackaged and warehoused for re-distribution, and, in a 

growing trend, more and more of it is showing up for sale on the Internet. 

The reason so-called ‘‘eFencing’’ is becoming so popular is the simple economics 

of risk and reward. A typical fencing operation typically pays criminals $.30 cents 

on the dollar, whereas online marketplaces and auction sites can bring closer to $.70 

cents on the dollar for ‘‘new in box (NIB)’’ merchandise, and gift cards pay even 

more. Further, local pawnshops tend to be regulated—requiring the disclosure of information about both sellers and the merchandise being sold—which creates additional risks for criminals. In contrast, Online marketplaces provide an unregulated 

environment in which thieves can re-sell stolen property to customers on an national or even international level with few or no questions asked. 

The Internet not only makes it easier for ORC rings to unload merchandise at 

near retail prices, it also enables sophisticated single-operators to realize a huge 

profit off of their crimes as well. On Christmas Eve 2005 the Montgomery County 

PD apprehended a college student who was the subject of a CNBC piece on eFencing 

earlier this year. By his own admission, the student made over $50,000 auctioning 

off stolen merchandise on e-Bay. These items were stolen from stores such as Best 

Buy, Target, and Wal-Mart and included high-end computer graphic cards, GPS 

navigation units, books, expensive iPod accessories, and many other items 

Mr. Chairman, important investigations like this one rely upon the ongoing partnership between law enforcement and the retail sector. While I work a regular investigative beat, cases are most often initiated and reported by the loss prevention 

investigators employed by retail companies. It is true that many companies like eBay will provide information to law enforcement when asked to do so, however, requiring Online auction sites to collect and disclose serial numbers of products being 

offered for sale when appropriate, and to provide additional seller information to retailers’ loss prevention investigators will help our retail partners better understand 

and build cases that can then be turned over to detectives like myself. 

Additionally, as noted above, increased seller disclosures should discourage criminals from even attempting eFencing. Such transparency will likely disproportionVerDate Aug 31 2005 12:33 Oct 28, 2008 Jkt 000000 PO 00000 Frm 00020 Fmt 6633 Sfmt 6621 H:\WORK\CRIME\102507\38509.000 HJUD1 PsN: 38509
17 

ately affect and deter criminals who are interested in fencing stolen product Online, 

with little or no impact on legitimate sellers. 

Mr Chairman, I commend the important work that you are doing to shed light 

on the very real problem of organized retail crime. Too often professional thieves 

are getting off with little more than a slap on the wrist because many jurisdictions 

are still treating ORC crimes as shoplifting cases. Some would say that this is a 

‘‘victimless’’ crime, but ORC affects society because it increases prices and can compromise the quality and safety of consumer goods. As I have already described, 

these are often multi-jurisdictional crimes where professional thieves are regularly 

crossing state lines. With the added component of eFencing on the Internet, this is 

a natural area for Congress to get involved. Clearly, federal legislation would serve 

as a powerful tool for law enforcement and a deterrent to would-be criminals. 

Mr. Chairman, I appreciate the invitation to address you and the subcommittee 

members. I welcome any questions or comments you may have. 

Thank you. 

Mr. SCOTT. Thank you, Mr. Hill. 

Mr. Langhorst? 

TESTIMONY OF KARL F. LANGHORST, CPP, DIRECTOR, LOSS 

PREVENTION, RANDALLS/TOM THUMB FOOD AND PHARMACY, HOUSTON, TX 

Mr. LANGHORST. Chairman Scott, Ranking Member Forbes and 

Members of the Committee, good morning. My name is Karl 

Langhorst, director of loss prevention for Randalls-Tom Thumb of 

Texas, a division of Safeway. 

Safeway is a Fortune 100 company, one of the largest food and 

drug retailers in North America. 

I have been invited here to share with you my experiences with 

the increasing problem of organized retail crime. Retailers have always had to deal with shoplifting as part of doing business, but let 

me be clear—ORC is not shoplifting. It is theft committed by professionals in large volume for resale. It is being committed against 

retailers of every type at an increasing rate. 

Safeway estimates a loss of $100 million annually due to ORC. 

In a typical scenario that repeats itself hundreds of times each day, 

teams of boosters, or hired thieves, come into the store with a shopping list of desired product provided by the fence, the person behind the organization. 

Typical items stolen from Safeway stores include over-thecounter medicines, such as Prilosec, Tylenol, Abreva, Crest White 

Strips, Oil of Olay, diabetic test strips, and baby formula. 

Using well coordinated efforts and highly sophisticated methods 

to elude store security and management, they sweep the shelves 

clean of hundreds of dollars of product at a time. They are even out 

within a matter of 3 to 4 minutes. 

They often leave undetected and move on to other stores. Boosters will typically hit 10 to 15 retailers a day, often crisscrossing 

State lines and jurisdictions before going back to the fence to get 

payment for the goods they have stolen and to receive their marching orders for the next day. 

The fence then sells the items at traditional brick-and-mortar 

stores, flea markets, or increasingly online. They have great incentive to sell online because they know that they can operate anonymously and are protected. 

18 

They can move more merchandise more quickly and to a worldwide audience and they can receive the highest return for items 

sold online. 

Safeway has taken an unprecedented step in the grocery industry of creating a whole division to combat ORC, employing special 

investigators across the U.S. and Canada. Because of the prevalence of ORC in our stores, special teams of ORC undercover 

agents have been trained and deployed into the stores. 

These agents understand the difference in detecting and apprehending the boosters versus simple shoplifters. Safeway has implemented additional layers of security throughout the supply chain, 

from the warehouse to the shelves. State-of-the-art digital camera 

systems are installed in all of our stores at a cost of millions of dollars in order to aid law enforcement and our own investigators and 

store management teams. 

In spite of our extraordinary efforts, our company continues to 

see a steady increase of merchandise sold online in high volume 

and offered below the wholesale cost to the retailers. 

Fences know that the anonymity of the Internet presents an extremely low risk way to sell stolen goods. Online marketplaces, 

such as Internets, are being used as Internet pawn shops and are 

largely unregulated. 

We have had some successes in fighting ORC. In 2001, the Portland Division of Safeway opened an investigation of three major 

fences and presented the information to the FBI. Safeway and the 

FBI continued the investigation and successfully broke up a multiState ORC network operating from Oregon to Texas to Florida, 

that ultimately resulted in the seizure of over $3 million in product, $950,000 in cash and criminal prosecution of 49 suspects. 

The suspects told investigators that they resold much of their 

stolen product on eBay because of the anonymity. 

Last year, in cooperation with Walgreen’s, Wal-Mart and other 

retailers, our northern California division worked a case with ICE 

agents that resulted in the seizure of product valued at $5 million 

and the arrest and prosecution of Yemeni nationals. These individuals operated a warehouse containing 12 tractor-trailers full of 

merchandise, approximately 850,000 items, as well as a Web site. 

And just this week in Texas, agents from Department of Public 

Safety and Safeway ORC investigators completed a year long investigation and shut down a long time fence that was taking in an estimated $4 million annually in stolen HBC product and who employed over 100 boosters. 

The product was ultimately sold through an online marketplace. 

In this case, many of the boosters were known drug users, and the 

stolen product was stored under conditions that were not approved 

for these items. 

The need for a Federal solution to address the current free-forall of electronic fencing is obvious. The information we are seeking 

from online marketplaces is no more cumbersome than is currently 

in place for brick-and-mortar providers of the same type operations. 

Legitimate retailers, both those operated online and as brickand-mortar businesses, as well as consumers have the right to this 

type of protection. 

19 

In spite of Safeway’s best efforts and unprecedented alliances 

with other retailers to combat ORC, we continue to suffer significant losses. If we are to be successful in curtailing this enormous 

criminal enterprise that threatens the business of retailers across 

the country, millions of dollars in lost sales tax revenue and the 

impact to consumers through adulterated product, higher prices 

and lack of availability of merchandise, we must have strong Federal legislation that more clearly defines ORC and requires the 

same level of accountability on Internet sellers as that of traditional retail sites. 

I thank you very much for your attention and welcome any questions. 

[The prepared statement of Mr. Langhorst follows:] 

PREPARED STATEMENT OF KARL F. LANGHORST

Chairman Conyers, Chairman Scott, Congressmen Smith and Forbes, and members of the committee, good morning. Thank you for the opportunity to testify before 

the Crime Subcommittee today on the growing problem of organized retail crime. 

My name is Karl Langhorst, Director of Loss Prevention for Randall’s/Tom Thumb 

of Texas, a Safeway company. Safeway Inc. is a Fortune 100 company and one of 

the largest food and drug retailers in North America. The company operates 1,755 

stores in the United States and western Canada and had annual sales of $40.2 billion in 2006. 

I have been invited here to share with you our experience with the increasing 

problem of organized retail crime (ORC). Retailers have always had to deal with 

shoplifting as part of doing business, but let me be clear, ORC is not shoplifting. 

It is theft committed by professionals, in large volume, for resale. It is being committed against retailers of every type at an increasing rate. Safeway estimates a 

loss of $100 million dollars annually due to ORC. According to the FBI, the national 

estimate is between $15–30 billion annually. 

Let me describe for you how sophisticated and organized these enterprises are. 

In a typical scenario that repeats itself hundreds of times each day, teams of boosters, or hired thieves, come into the store with a shopping list of desired product provided by the fence—the person behind the organization. Typical items stolen from 

Safeway stores include over the counter medicines such as Prilosec, Tylenol, and 

Abreva, razor blades, Crest White Strips, Oil of Olay and other beauty products, diabetic test strips, and baby formula. Using well coordinated efforts and highly sophisticated methods to elude store security and law enforcement, they sweep the 

shelves clean of hundreds of dollars of product at a time. They are in and out within 

a matter of 3 to 4 minutes. They often leave undetected and move on to other stores. 

Typically, boosters will hit 10 to 15 retailers a day, in many areas criss-crossing 

state lines and jurisdictions, before going back to the fence to get payment for the 

goods they have stolen and to receive their marching orders for the next day. Their 

payment usually amounts to about twenty cents on the dollar. The fence then sells 

the items at traditional brick and mortar stores, flea markets, or— increasingly— 

online. They have great incentives to sell online because they know that they can 

operate anonymously and are protected, they can move more merchandise more 

quickly and to a broader audience, and they can receive the highest return for items 

sold online. 

You may ask what Safeway is doing to prevent ORC at the store level—why don’t 

we just hire a few more guards? The simple answer is that guards posted at store 

entrances provide only so much protection. In addition, Safeway has taken a step 

unprecedented in the grocery industry, of creating a whole division to combat ORC, 

employing special investigators across the US and Canada. This is in addition to 

the loss prevention teams based in each of our divisions. Because of the prevalence 

of ORC in our stores, special teams of ORC undercover agents have been trained 

and deployed into the stores. These agents understand the difference in detecting 

and apprehending the boosters versus simple shoplifters. Additionally, store personnel are trained and spend significant time in the store performing additional 

steps to prevent ORC at store level. There are special markings on high theft items 

to help deter theft. We limit quantities of this merchandise on the shelf to try and 

minimize losses, and we have invested in specialized shelving and display fixtures 

to thwart theft within the store. Unfortunately, these measures also make it difficult for customers to shop as easily as we would like and severely restricts the sale 

20 

of these items. Safeway has implemented additional layers of security throughout 

the supply chain—from warehouse, to the loading dock, to the shelves. We have 

spent a tremendous amount of money in training and awareness campaigns among 

other retailers and law enforcement. Further, state of the art digital camera systems are installed in all of our stores at a cost of millions of dollars in order to aid 

law enforcement and our own investigators and store management teams in identifying the boosters who repeatedly steal from our stores. 

In spite of our extraordinary efforts, our company continues to see a steady increase of our health, beauty and cosmetic goods sold on the internet in high volume 

and offered below cost of what retailers can obtain it directly from the manufacturer. Fences have quickly learned that the anonymity of the internet presents an 

extremely low risk way to sell stolen goods and are abandoning the previous model 

of brick and mortar locations and flea markets that were once used to dispose of 

this type product. Online marketplaces such as eBay are being used as internet 

pawn shops, and are largely unregulated. 

We have has some successes in fighting ORC. In 2001 the Portland division of 

Safeway opened an investigation of three major fences and presented the information to the FBI. Over the course of the next three years Safeway and the FBI continued the investigation and successfully broke up a multistate ORC network operating 

from Oregon to Texas to Florida that ultimately resulted in the seizure of over $3 

million in product, $950,000 in cash and federal criminal prosecution of 49 suspects. 

The suspects told federal investigators that they resold much of the stolen product 

on eBay because of the anonymity assured by the site. 

Last year, in cooperation with Walgreens, Wal Mart and other retailers, our 

Northern California division worked a case with ICE agents that resulted in the seizure of product valued at $5 million dollars and the arrest and prosecution of Yemeni nationals. These individuals operated a warehouse containing 12 tractor trailers 

full of merchandise—850,000 pieces of HBC product, as well as a website for internet sales. 

Just this week, state agents in Texas and Safeway ORC investigators completed 

an over year long investigation and shut down a long time fence that was taking 

in an estimated 4 million dollars in stolen HBC product and who employed over 100 

boosters. The fence was selling to another individual who was marketing it over the 

internet on both his own web site and eBay. In this case, many of the boosters were 

known drug users and the stolen product was stored under conditions that were not 

approved for these items. Storing these items in unregulated conditions can render 

the products ineffective, or in the worst case actually harm unsuspecting consumers, 

as in the case of baby formula. 

In each of these cases, we could have had quicker, more thorough investigations 

and clearer rules under which the suspects could be prosecuted if we had a federal 

law in place specifically to address ORC. Federal law enforcement and prosecutors 

are interested in prosecuting ORC cases, but they lack the tools and resources necessary to bring these cases to bear. Investigation of these types of cases is extremely 

difficult. A federal ORC bill would establish a definition of ORC in statute, help 

eliminate the state to state jurisdictional cherry picking by thieves, and would be 

especially helpful in making efencing a less attractive option for criminals to sell 

stolen property. Operators of sites such as eBay have historically failed to provide 

any meaningful information to retail investigators. Without this cooperation, we are 

severely hampered in securing the evidence needed by federal investigators to even 

open an investigation. 

The need for a federal solution to address the current ‘‘free for all’’ of electronic 

fencing is obvious. The information we are seeking from online marketplaces is no 

more cumbersome than is currently in place for brick and mortar providers of the 

same type operations. In many states sellers of product such as HBC must have 

proof upon demand of where they acquired the product and if they are pawning it 

they must have valid identification and serial numbers of the product, if any, are 

noted. Legitimate retailers—both those operating online and as brick and mortar 

businesses—as well as consumers have a right to this type of protection. 

As I am sure you are aware, retail is an extremely competitive environment and 

the grocery industry is no exception. In spite of that competitiveness, retailers understand that without cooperating with each other and working together on the investigations of boosters and fences we will not be able to effectively combat this 

problem. Because of the complexity of ORC cases and the many obstacles that stand 

in the way of investigating fences, especially internet based fences, it is not unusual 

for ORC investigators from several different retailers to work together to help gather evidence for law enforcement so that a fence can be shut down. 

In spite of Safeway’s best efforts and unprecedented alliances with other retailers 

to combat ORC, we continue to suffer significant losses. If we are to be successful 

21 

in curtailing this enormous criminal enterprise that threatens the businesses of retailers across the country, costs millions of dollars in lost sales tax revenue and impacts consumers through adulterated product, higher prices and lack of availability 

of merchandise, we must have strong federal legislation that more clearly defines 

ORC and requires the same level of accountability on internet sellers as that of traditional retail sites. 

I thank you very much for your attention and I look forward to answering any 

questions you may have. 

Mr. SCOTT. Thank you. 

Mr. Chesnut? 

TESTIMONY OF ROBERT CHESNUT, SENIOR VICE PRESIDENT, 

RULES, TRUST AND SAFETY, eBAY, INC., WASHINGTON, DC 

Mr. CHESNUT. Chairman Scott, Ranking Member Forbes, Members of the Committee, good morning. I would like to thank the 

Committee for giving eBay the opportunity to discuss the important issue of fostering real and effective solutions to the problem 

of organized retail crime. 

I ask that my full statement be entered into the Committee 

record. 

Prior to joining eBay in 1999, I was an assistant United States 

attorney over in the eastern district of Virginia for 11 years. Five 

of those years, I served as the chief of the office’s major crimes 

unit, prosecuted myself organized retail crime cases under Federal 

interstate transportation of stolen property statutes. 

My career at eBay has been focused on keeping the site safe for 

our community by working with law enforcement, the private sector, policymakers, the consumer protection agencies, State and Federal legislators. 

eBay recognizes that organized retail theft is a serious challenge 

that is facing many retailers. This Committee has compiled clear 

evidence that the problem stretches back many years and occurs at 

a disturbingly large scale. 

We share the view that this issue deserves serious attention by 

lawmakers, law enforcement, and all aspects of the retail businesses impacted and eBay stands ready to work with the other 

stakeholders on balanced and thoughtful responses, including taking account of the Internet as one of the many ways that criminals 

do reach consumers. 

And let me be clear that the eBay takes the problem of stolen 

goods and all forms of illegal activity that can impact our users 

very seriously. The delivery of stolen goods, counterfeit goods, or no 

goods at all is a horrible experience for our buyers. 

In the relatively rare circumstances where this does take place, 

buyers who get stolen property or get property that is not as described, they don’t come back to our Web site and they spread the 

word and say bad things about eBay. And by spreading the bad 

word about eBay and having a bad experience like this, it hurts 

our business. 

So it is not only the right thing to do, but it is also good for our 

business by fighting fraud and keeping bad sellers off our Web site, 

vital to our success. 

eBay has the most proactive policy to combat fraud and illegal 

activity of all major Internet commerce companies. We have over 

2,000 employees working around the world full-time, 24 hours a 

22 

day, 7 days a week to combat all forms of online fraudulent activity, including the sale of stolen property. 

Our fraud investigation team works closely with law enforcement 

officials at the State, Federal, local levels, including Detective Hill 

right here on our committee. We have worked with Detective Hill 

and other members of his staff. 

We have got dedicated hotlines, fax numbers, e-mail addresses 

for law enforcement to reach us quickly and efficiently and our 

fraud investigation team has trained over 3,000 law enforcement 

officials around the United States to help combat online crime. 

Our policies and commitment to fighting stolen goods are pretty 

straightforward. When a retailer has concrete evidence to the effect 

that stolen property is on our site, we work with them and we work 

with law enforcement to address the problem quickly and efficiently. This process exists and we believe that it works well. 

What does working well mean? It means that criminals are arrested and they are put in jail. The reality is that eBay is the 

dumbest way for a criminal to try to sell stolen property. Our site 

is actually quite transparent, with detailed recordkeeping, very 

open privacy policy with respect to working with law enforcement 

and providing information quickly, and tying these sorts of records 

directly to financial transactions and financial institutions through 

our PayPal payment service. 

I would like to spend a moment to comment on the broader ORC 

problem. This committee has done significant work developing a 

record of this troubling issue. Just in terms of the distribution of 

stolen goods, this committee’s 2005 report lists the following major 

venues for the sale of stolen property: small shops, flea markets, 

pawn shops, local fences, truck stops, newspaper ads, overseas buyers, and, yes, the Internet, through all different types of Web sites 

and chat forums. 

The committee report also describes how unscrupulous middlemen sell significant volumes of stolen goods right back to the traditional retailers, blended in with legitimate products. 

My point in mentioning the breadth of the process of turning stolen goods into money is that there are many avenues. Most of them 

are low tech and, actually, most of them are relatively anonymous 

compared to a site that is very open and transparent like eBay. 

And, yes, there are some tech savvy criminals that are finding 

ways to use Internet technologies. In terms of the Internet, if our 

eBay experience in working with law enforcement offers any insight, it would be that there are just as many varied schemes 

among Internet-enabled criminals as there are in the offline world. 

Similar to their offline counterparts, Internet criminals innovate 

to develop methods that are the least transparent and most fluid 

so that they can stay hidden in the darkest corners of the Internet. 

We look forward to working with the Committee on ways to effectively empower law enforcement to right the problem of organized 

retail crime. We supported legislation in a number of States calling 

for tougher penalties, mandatory sentences and higher priority 

prosecution of these criminals, and support the same at the Federal 

level. 

Thank you very much. I will be happy to answer any further 

questions. 

23 

[The prepared statement of Mr. Chesnut follows:] 

PREPARED STATEMENT OF ROBERT CHESNUT

Mr. Chairman, Ranking Member Forbes and members of the Committee, 

My name is Robert Chesnut, and I am the Senior Vice President for Rules, Trust 

and Safety for eBay Inc. I would like to thank the committee for giving eBay this 

opportunity to discuss the importance of fostering real and effective solutions to the 

problem of Organized Retail Crime, and I ask that my full statement be entered into 

the committee record. 

Prior to joining eBay in 1999, I was an Assistant United States Attorney in the 

Eastern District of Virginia for 11 years. For 5 of those years I served as Chief of 

the Major Crimes Unit. My career at eBay has been focused on keeping our site safe 

for our community by working with the law enforcement community, the private 

sector, policymakers, consumer protection agencies and state and federal legislatures, so I very much appreciate the opportunity to speak with you today on behalf 

of eBay about this important topic. 

eBay recognizes that organized retail theft is a serious problem facing many retailers in this country. This Committee should be applauded for the commitment it 

has shown to addressing this problem, compiling clear evidence that this is a problem that stretches back many years and occurs at a disturbingly large scale. We believe that it is a problem that deserves serious attention by lawmakers, law enforcement and all aspects of the retail businesses impacted. eBay stands ready to work 

with all stakeholders on balanced and thoughtful responses, including responses 

that account for the internet as one among many and varied ways that criminals 

attempt to sell stolen goods to unsuspecting consumers. 

Let me be clear, eBay takes the problem of stolen goods, and all forms of illegal 

activity that can impact our users, very seriously. We have the most pro-active policies and tools to combat fraud and illegal activity of all the major internet commerce 

companies. There are over 2000 eBay Inc. employees around the world working to 

combat all forms of on-line fraud, including the sale of stolen goods. As we have 

grown as a business over the last 12 years, we have dedicated more and more resources to the fight against criminal activity that harms our users. 

When eBay first emerged as a dynamic way for people to buy and sell items online back in 1995, there were really no rules in place for our users to follow. We 

established the feedback system which gave each member a rating for each transaction that any user could see, and for the most part all of the trust between buyers 

and sellers was based on that system in the early years of eBay. But the company 

realized in those early years that in order to become a truly safe and trusted e-commerce site we needed to put policies and tools in place to make sure that illegal 

items and harmful sellers were quickly identified and removed from our platform. 

We created clear policies about what is allowed and not allowed to be listed on the 

site and built state-of-the art tools to enforce those policies. We developed advanced 

anti-fraud tools to identify suspicious behavior, remove members who engaged in 

harmful practices and take steps to keep them from coming back on the site. And 

we established a global Fraud Investigations Team to partner with law enforcement 

to make sure that criminals who seek to abuse our community of users get prosecuted to the fullest extent of the law. Largely as a result of these efforts, we now 

have trading platforms in 38 countries with over 240 million registered users. At 

any one time around 100 million items are listed for sale on eBay around the world. 

Millions of transactions take place everyday on eBay where both the buyer and seller walk away totally satisfied. Here in the United States, over 750,000 Americans 

make all or a large percentage of their income selling items on eBay. 

Our acquisition of the online payment provider PayPal in 2002 only enhanced our 

ability to keep our users safe. PayPal offers our members a safe way to pay online, 

and in the last 5 years we have merged PayPal’s anti-fraud experts with the engineers, statisticians and fraud modelists at eBay to create an industry-leading team 

of experts dedicated to keeping our sites and our community of users secure and 

safe. We dedicate significant resources toward cooperating with law enforcement 

agencies around the world. I am one of 8 former law enforcement officials that work 

at eBay and PayPal, and the fact that we have a fairly large internal contingent 

of folks from that community helps us understand the challenges faced by enforcement agencies and how we can help those folks do their jobs and keep our users 

safe. 

Our Fraud Investigations Team works closely with law enforcement officials at 

the federal, state and local levels, and we have teams in San Jose and Salt Lake 

City to serve enforcement agencies throughout North America. Because we operate 

a truly global marketplace, we also have Fraud Investigation Teams in Dublin, IreVerDate Aug 31 2005 12:33 Oct 28, 2008 Jkt 000000 PO 00000 Frm 00027 Fmt 6633 Sfmt 6621 H:\WORK\CRIME\102507\38509.000 HJUD1 PsN: 38509
24 

land and Dreilinden, Germany to serve law enforcement in Europe and Asia. Earlier 

this week, two of our law enforcement liaisons were in Romania working with officials there to combat fraudulent activity based in that country. This is the 6th time 

that our US-based staff has traveled to Romania in the last three years, and we 

have an attorney based in Eastern Europe who is dedicated full-time to working 

with police and prosecutors in that region. We make it easy for law enforcement officials to find us—we have dedicated hotlines, fax numbers and email addresses for 

law enforcement to be able to reach us quickly and efficiently. When agencies request records from us to support their enforcement actions, they receive those 

records in days—not weeks or months, as can be the case with other companies. 

In addition to providing the records necessary to bring cases, our Fraud Investigations Team trains law enforcement officials around the United States and globally 

on the best way to combat crime online. My colleagues and I have spent a lot of 

time on the road in the last several years building relationships with enforcement 

agencies and teaching them how to investigate eBay and PayPal cases. In 2006 

alone, we trained over 3000 law enforcement personnel in North America about online fraud in the eBay/PayPal context and how we can help them prosecute criminals who attempt to abuse our users. The assistance that our teams provide to law 

enforcement agencies around the world lead to an average of two arrests every single day. Our Fraud Investigations has worked on numerous cases with both law enforcement and loss prevention staff from the large retailers to make sure that 

thieves get prosecuted. 

Our policies and commitment to combating the sale of stolen goods on eBay are 

straightforward. eBay is no place for the sale of stolen goods, and the transparency 

of our site combined with our commitment to working with law enforcement makes 

it an unwelcome venue for ‘‘fencing.’’ The reality is that eBay is the riskiest way 

for a criminal to try to sell stolen products over the internet. We work both reactively and proactively with law enforcement, often referring cases out to the appropriate agency where we detect fraudulent behavior by one of our sellers, including 

the listing of stolen goods. When any retailer has concrete evidence to the effect that 

stolen property is on our site, we will work with them and law enforcement to address the problem, including sharing information about a targeted seller with the 

appropriate enforcement agency. This process already exists and we believe it works 

well. 

In addition to our work with the law enforcement community, we have been engaging the retail industry for many years now to strengthen our relationships with 

retailer trade associations as well as individual companies to find ways we can work 

together to combat the sale of stolen property on eBay. We have held meetings with 

retailers all over the U.S. to hear their concerns and to explain how we can work 

with them on these issues. We have provided training to loss prevention teams 

about how to use the eBay website to investigate suspicious listings and gather information that can be used to bring a case to law enforcement. The manager of our 

Fraud Investigation Team in San Jose is presenting today at a joint law enforcement/retailer conference on Organized Retail Theft in Seattle, where over 400 officials from the retailer loss prevention community will be in attendance along with 

folks from local, state and federal law enforcement communities. 

In addition to our outreach to the law enforcement and retailer communities, we 

have also taken additional steps internally over the last year to keep bad sellers 

off of eBay before they have a chance to harm our buyers. All new sellers on 

eBay.com must register a credit card with us and they must accept PayPal as a payment option. By requiring new sellers to take these steps we lower the chances of 

a criminal attempting to use our trading platform to commit fraud, as criminals 

don’t generally like to provide financial information and use payment systems that 

make it easy to track them down once their illegal behavior becomes apparent. We 

have revamped our feedback system to allow buyers to provide much more detailed 

ratings of a seller’s transactional performance. We have put higher standards in 

place for seller performance and suspend sellers who to a significant extent fail to 

satisfy their buyers. Sellers who fail to deliver the goods at all get referred out to 

law enforcement for prosecution. Let me reiterate that the delivery of stolen goods, 

counterfeit goods, or no goods at all is a horrible buyer experience for our customers. 

In the relatively rare circumstances where these activities take place, the buyer generally leaves our site and never comes back. And probably tells everyone he or she 

knows to never buy anything on eBay. Fighting fraud and keeping bad sellers off 

of our site are vital to our success as a business. 

Regarding the broader ORC problem, this Committee has done significant work 

developing a record of this troubling issue. In terms of the distribution of stolen 

goods, your March 2005 Committee Report lists the following major venues: small 

shops (including beauty shops, gas stations, music stores, bars and gyms), flea marVerDate Aug 31 2005 12:33 Oct 28, 2008 Jkt 000000 PO 00000 Frm 00028 Fmt 6633 Sfmt 6621 H:\WORK\CRIME\102507\38509.000 HJUD1 PsN: 38509
25 

kets, pawn shops, local fences, truck stops, newspaper ads, overseas buyers, and yes, 

the Internet through all types of web sites and chat forums. The Committee report 

also described how unscrupulous middlemen sell significant volumes of stolen goods 

back to traditional retailers blended in with legitimate products. 

My point in mentioning the breadth of the process of turning stolen goods into 

money is that there are many avenues for this illicit process. Most of them are decidedly low tech in nature. While some tech savvy criminals are finding ways to use 

internet technologies, sensible solutions should address the entire range of distribution methods and not place disproportionate focus on less popular methods. Many 

large manufacturers and retailers have a negative view of the eBay marketplace because we provide an incredibly efficient secondary market for their goods. Our sellers are perceived by some as their competition, and one way to attack efficient secondary market competitors that sell goods at low prices is to suggest that there is 

something shady about those sales, when in reality those sales are completely legitimate. 

This past summer there was a story in USA Today about the disdain that many 

large retailers have for individual entrepreneurs who use the Internet, usually 

eBay, to resell their products. A spokesperson from Gymboree, the popular children’s clothing chain, explained their 5-item-per-customer limit by stating that ‘‘we 

need to protect our image . . . we don’t want people to think we’re selling things 

on eBay.’’ A colleague of mine at eBay sells her kids’ Gymboree clothes on eBay once 

they grow out of them. Those clothes are then worn by the buyer’s kids, and my 

colleague uses the money to buy new clothes for her growing children. This is a 

truly efficient use of consumer goods, but Gymboree does not like it, as they seem 

to feel that the only place you should be able to buy Gymboree clothes is at the 

Gymboree store. 

One approach to a legislative solution to the problem of organized retail theft is 

simple: increase the criminal penalties for this conduct. If these crimes are currently 

classified as misdemeanors, upgrade them to felonies. If the jail sentences tied to 

these crimes are too short, lengthen them. We have supported legislation in a number of states calling for tougher penalties, mandatory sentences and higher priority 

prosecutions of these criminals. We would support the same at the federal level. 

These steps will make these cases more attractive to law enforcement and will make 

judges more likely to put these criminals in jail rather than giving them probation. 

If these thieves make the unwise choice to use eBay to try and sell their stolen 

goods, we don’t just want them off of eBay, we want them to see the inside of jail 

cell. 

eBay has always been committed to providing a safe, well-lit marketplace. We believe that this commitment to our community has been key to growing eBay into 

the world’s largest global online marketplace. Working in a cooperative relationship 

with business partners and law enforcement has been central to this effort, and we 

will continue in that manner going forward. 

We look forward to working with this Committee on ways to effectively empower 

law enforcement to fight the problem of Organized Retail Crime. We stand ready 

to do our part to combat the long-term problem of retail theft in a balanced and 

responsible way. We believe that law enforcement is crucial to solutions regarding 

illegal activity, and we believe it is crucial across the board to protect the privacy 

and rights of the law-abiding citizens and small business people. 

Mr. SCOTT. Thank you. Thank you, Mr. Chesnut. 

We will now go to questions by Committee Members and I will 

recognize myself first for 5 minutes. 

Mr. Brekke and Mr. Langhorst, how do we know how much is 

being lost to organized crime as opposed to regular shoplifting and 

other kinds of I guess what is called shrinkage? 

Mr. LANGHORST. Excellent question, Mr. Scott. In the last few 

years, we have been driven to have to document our organized retail crime cases now. So when store management has an incident 

of it, they have to document it immediately. 

They are able to determine to that it was an ORC incident and 

not a shoplift incident. In fact, we have had to alert our stores so 

quickly now, they fill out an online report of the loss and it is immediately broadcast to all other stores, as well as my loss prevention investigators. 

26 

So they are very, very much aware that ORC is such a large 

problem in their stores, they are able to determine the difference. 

Additionally, we also have apprehensions in our stores by both 

store management and undercover agents. They fill out apprehension reports. We are able to look at those reports and immediately 

determine if it is an ORC case or a simple shoplifting case. 

Mr. SCOTT. Thank you. 

Mr. BREKKE. Just to add to that, some of the actual shoplifting, 

describe it that way, may be tagged to ORC. You cannot always tell 

at the source in the store. 

You have to work it out in an investigation to determine where 

the goods go, how it may be fenced later. So there is always a challenge with that. 

That is part of the reason the LERPnet was created, working 

with the FBI, so we can begin to gather data and analyze it and 

get a better number. 

Mr. SCOTT. Thank you. 

Mr. Chesnut, what do you do when someone alerts you to the 

fact that stolen merchandise is for sale on eBay? 

Mr. CHESNUT. First, we ask what is the evidence. So in other 

words, why do you believe that it is stolen, because we actually 

find in more than half of the reports that we get, when someone 

says to us that we believe that a particular item is stolen, investigation turns out that it is not stolen. There is a misunderstanding. 

Someone thinks that this particular guitar looks like a guitar 

that they lost a few months ago and, in fact, further investigation 

shows that it is not. 

So we ask for why do you believe it is stolen. We attempt to get 

law enforcement involved, because we think that the fact that 

there is a crime involved means that law enforcement ought to 

know about it and investigate it. 

If, from the evidence that we get, it appears that the item is stolen, we are taking the item down and we are suspending the seller, 

no matter what law enforcement does. 

We actually would hope that law enforcement would go further 

and investigate and do a prosecution and if they do, we fully support the prosecution. 

Mr. SCOTT. What do you do to protect from copyright infringement and sale of counterfeit goods? 

Mr. CHESNUT. Well, sale of counterfeit goods is actually governed 

by a Federal statute, the Digital Millennium Copyright Act, and 

there is actually a scheme set out by law about what should be 

done in those circumstances. 

When we are notified that a particular item is counterfeit, we are 

notified by the intellectual property owner, someone that actually 

has knowledge of that product because it is their product, and often 

they are able to tell just by looking at the item on our site that 

it is counterfeit. 

When they certify to us, under penalty of perjury, that that item 

is counterfeit, we immediately remove the item from our Web site. 

Mr. SCOTT. Mr. Chesnut, you have pointed out that the transactions on eBay are transparent and there is a paper trail, because 

27 

it is not like cash where you hand it and you don’t know where it 

came from or where it went, there is a paper trail. 

And I guess I will ask Mr. Hill. If we had enough resources, it 

seems to me that we could solve many of these cases, but the reason people get away with it is that we don’t actually pursue the 

cases because of lack of resources. 

If you had more resources, could you break up more of these 

major fence operations? 

Mr. HILL. That is for Mr. Chesnut and myself? 

Mr. SCOTT. Well, I am happy to get your perspective and Detective Hill may have a perspective, as well. 

Mr. CHESNUT. We are probably going to be full agreement on 

this. I think the answer is more resources would certainly help. 

Mr. SCOTT. Because you have got a paper trail that you don’t 

usually have in theft operations. Usually, the fence will give whoever gave it to him cash. 

In this case, you have to go through PayPal. If someone is running a big operation, you have got receipts. You know what they 

have sold, when they sold it, how many, and you can develop a pattern. 

I mean, where do you get all this stuff? 

Mr. CHESNUT. When you compare a site like an eBay to flea markets, pawn shops, truck stops, newspaper ads and the like, the 

amount of data that is available on eBay is pretty remarkable. 

We have records stretching back for over 5 years. We will have 

frequently copies of the exact listing. We will know who the buyer 

is, so we can actually go to the buyer and get the item back for examination, if necessary. 

Through PayPal, we have the bank account of the seller that sold 

the item. So we can actually trace where the money went. 

So there is a lot of information that is available when something 

is sold through eBay that is not available through many of these 

other avenues, which makes it, I think, far easier in terms of an 

investigation to actually track something down. 

The problem is we hear from law enforcement that there are too 

many cases for them to handle. They are busy on a whole host of 

fronts. 

Mr. SCOTT. And if we had more resources, we could eliminate a 

lot of this, if we would go ahead investigate the case. It is labor 

intensive because there is a lot of work to be done. 

We have got the same problem with identity theft, that somebody 

steals your credit card, the bank writes it off, law enforcement 

doesn’t check it out, and so people feel that they can steal people’s 

identity and make money with pretty much impunity. There is not 

very much at risk. 

I am getting the same idea that people are selling stuff over 

eBay and if it is not going to be investigated, they are not much 

at risk. 

Mr. HILL. Yes, I agree. 

Mr. SCOTT. And the evidence is there. If somebody told you there 

was stuff being stolen, if you did all the work, you could get back 

to who stole it and where the money went. 

Mr. HILL. Yes. 

28 

Mr. CHESNUT. Often, we get calls from the retail organizations 

saying that we would like to know who is selling a particular item 

on eBay, can we get the name and address. That is information we 

can provide to law enforcement. 

At eBay, we provide it even without a subpoena. We just need 

to get a law enforcement official on the phone to give them the information and, unfortunately, frequently, law enforcement doesn’t 

have the time to do it, because they are very stretched. 

Mr. SCOTT. Thank you. 

Mr. LANGHORST. Mr. Chairman, if I could address that. To Mr. 

Chesnut’s point, we will call and typically we will get that answer 

and response, please contact law enforcement. Law enforcement 

typically won’t deal with us on that type of thing because unless 

we bring them a completed case well laid out, they simply don’t 

have time to address it. 

That is why it would be nice to put some measures in place to 

try to slow down this type of activity so law enforcement can be focused on other things rather than eBay having to train 3,000 law 

enforcement officers across the country. 

It would be nice to have some regulations in place to try to limit 

this activity to begin with, loss prevention rather than loss reaction. 

Mr. SCOTT. Thank you. 

Mr. BREKKE. Mr. Chairman, I will also comment. What you are 

calling out is actually the challenge in front of us in the current 

model. The only resolution is a case by case basis. 

As the Internet continues to grow as a marketplace, which is a 

good thing, we see more and more bad guys taking advantage of 

that and shifting to us the Internet to fence. 

That means the number of cases continues to grow. The only resolution at this point is to go to law enforcement, ask them to intervene and try to fix this. 

We are looking for a solution that is more preventative or deterrent focused. We understand we can always investigate, but this is 

not a situation where we want to catch everyone. We want to prevent the loss to begin with. 

Mr. SCOTT. Thank you. 

Mr. Forbes? 

Mr. FORBES. Thank you, Mr. Chairman. 

First of all of you guys are wearing white hats. You are all doing 

good jobs. We appreciate you being here. We are just trying to forge 

a solution that is reasonable and everybody can work with to move 

the pile down the field. 

Mr. Brekke and Mr. Langhorst, for both of you, when we are talking about resources, we are talking about $37 billion that I assume that your industry is losing in some fashion or the other. 

One of the questions we oftentimes get is what are the security 

devices you could use that might help minimize that. I know that 

we look at—I have seen some big hardware warehouse operations 

that tell me they have lost six generators that are just pulled out 

and somebody walks out the door with them. 

I see other operations where, when somebody goes out, there is 

somebody there that is checking the receipts to make sure as they 

are going out. 

29 

What additional things can retailers do that would help cut down 

the theft? I know you said some of this goes undetected, but the 

Chairman and I just watched this news clip where somebody is 

filming it and somebody is seeing it taking place. 

What additional steps could be done there from a resource point 

of view that retailers could do to slow it down or have you tried 

that and it just doesn’t work? 

Mr. LANGHORST. Representative Forbes, we have quite a few deterrents in our stores, but at the end of the day, if someone is so 

inclined to come in and steal something and they are brazen and 

bold enough, they certainly can do so, as you saw in that video. 

We obviously have cameras in our stores. We have undercover 

agents in our stores. We have uniformed guards in our stores. We 

have markings on our product, both covert and overt. We limit supplies of high theft product on the shelves. 

We have all of our associates, all of our associates are aware of 

what organized retail crime are and retailers across the country 

are now very much active on that, as well, educating their associates. 

But at the end of the day, if there is a demand for this product 

and boosters understand that and fences send them out to the 

stores, they are going to come in and get the product. 

Mr. FORBES. When they are detected, like we saw here, will you 

apprehend them? 

Mr. LANGHORST. Our associates will try to apprehend them, our 

store management, but, again, at the end of the day, they are there 

to sell groceries, they are not there to be police officers, and we certainly don’t want to put them in harm’s way. 

Just this week, at one of our stores in Texas, we had an undercover agent assaulted and ended up with a broken ankle as a result of trying to stop a booster in the store. 

These people are very brazen. Many of them are drug addicts 

and, quite frankly, they don’t care who gets hurt. They are there 

to get their product and get their drugs. 

Mr. FORBES. Lay out for me what, Mr. Brekke, you and Mr. 

Langhorst feels that Mr. Chesnut should advise eBay to do. What 

would your recommendations be that would be reasonable for him 

to do? 

Mr. LANGHORST. Well, we would certainly like to be able, when 

we call eBay, to get an answer on our questions of who is selling 

this product. And when we say who is selling the product, we are 

looking for people that are selling multiple products or the same 

type product repeatedly, over and over and over again, below what 

we know that wholesalers can sell it to retailers for. 

Mr. FORBES. So you would like to find out who is selling the 

product. What else? 

Mr. LANGHORST. Absolutely. We would like to have serial numbers recorded on product that is serial number capable, tools, 

things such as that. That should be something that should be posted on the eBay Web site, as well. 

To Mr. Brekke’s point, that has worked well on the automotive 

side to help curtail some auto theft. 

Mr. FORBES. Now, you wouldn’t say that Mr. Chesnut, though, 

should be treated differently than newspaper or print classifieds, 

30 

should you? In others, if it is sauce for the goose, should it be sauce 

for the gander? 

In other words, if he has to do it online, would you require that 

newspaper classifieds do it? 

Mr. LANGHORST. The thing with the newspaper classifies, sir, is 

that you have a phone number to contact an individual and a place 

to meet that individual it they are going to sell their product, more 

than likely. So you have a point of contact. 

And, again, this isn’t—I think Mr. Brekke mentioned it, as well. 

This isn’t just an eBay issue. This is an Internet issue. 

Mr. FORBES. I understand. We just have Mr. Chesnut here and 

I am just trying—Mr. Chesnut, let me give you a short, although 

I still can’t understand why you would leave beautiful Charlottesville and go to Chairman’s alma mater there. 

But tell us what your position is. Is that unreasonable for you 

to do? Why can’t you do that? 

Mr. CHESNUT. In terms of who is selling the product, the issue 

really is the privacy of the individual sellers. There are a lot of people who I think would be quite concerned that any retailer could 

call eBay and, without any standard of proof at all, get their name, 

address and phone number. 

Mr. FORBES. How about if it was a high volume? And I think 

what Mr. Brekke would suggest, and I don’t know, I don’t want to 

put words in your mouth, but maybe you don’t do this for everybody, but there is a certain threshold of volumes that gives you a 

higher area of suspicion, which the Chairman suggested to me, 

which I think is right. 

Would that be more reasonable and less of an invasion of privacy? Because wouldn’t it make a little bit of sense that if you got 

a guy that is really marketing a lot of products, that maybe that 

would just raise the threshold just a little bit? 

Mr. CHESNUT. It might. In those situations, it is actually quite 

easy and they can simply buy one. Let us take razor blades, one 

of the issues that they have spoken about quite a bit. 

They can find out that information themselves and even they can 

get more information than what we could give them by buying a 

pack of razor blades. That way, they get the name, address, phone 

number, all the contact information of the seller directly themselves. 

Mr. FORBES. Mr. Brekke does make a good point, I mean, if we 

just throw out that—I don’t think that we have enough resources 

to arrest and apprehend and prosecute everybody, because we are 

talking about police doing that, we are talking about judges involved and prosecutors involved, and then we are going to have a 

lot of people say we are apprehending too many people and putting 

too many people in jail. 

If there is some way to be a deterrent and to prevent it, that 

would seem to make sense to us, I would think. 

Do you feel it would be reasonable, at some tolerance level, to say 

this guy is such a high volume seller that we at least ought to 

think about what would be reasonable to require of him? 

Mr. CHESNUT. It is certainly reasonable to think about different 

things that we could do for high volume sellers. I think that is fair. 

It is also there are a lot of people who are quite nervous about putVerDate Aug 31 2005 12:33 Oct 28, 2008 Jkt 000000 PO 00000 Frm 00034 Fmt 6633 Sfmt 6601 H:\WORK\CRIME\102507\38509.000 HJUD1 PsN: 38509
31 

ting their name, address and phone number on the Internet, where 

obviously people, spammers and the like can steal that information 

and take it right off and put it in other places. 

Right now, it is a balance between the privacy of the individuals 

and concern about having that information on the Internet versus 

the need of the retailers. 

What we have tried to do at eBay is we have—the information 

is available to any law enforcement official who can simply ask for 

it by e-mail. Any other Internet company will require a subpoena. 

We know how hard it is for law enforcement in these cases. 

So what we have said is, look, all we have to do is get a law enforcement official involved by e-mail or a quick phone call, we will 

give the information directly to them. So that way we assure that 

there is not any abuse. 

Mr. FORBES. Thank you. I don’t mean to cut you off, but we have 

got another vote, and we want to get Mr. Johnson’s questions in, 

and maybe we can talk a little bit later to all of you on it. 

Mr. SCOTT. The gentleman from Georgia, Mr. Johnson. 

Mr. JOHNSON. Thank you, Mr. Chairman. 

eBay is pretty much the largest online platform of buying and 

selling in the world, is that correct? 

Mr. CHESNUT. We are the largest online marketplace, right. 

Mr. JOHNSON. And at any one time, 100 million items are listed 

for sale, millions of transactions take place every day, 240 million 

registered users on eBay, and here in the United States, according 

to your written testimony, over 750,000 Americans make all or a 

large percentage of their incomes selling items on eBay. Is that correct? 

Mr. CHESNUT. I believe that is correct. 

Mr. JOHNSON. And you keep records on all of these transactions 

stretching back for 5 years or so. 

Mr. CHESNUT. Not only do we keep the records, we share with 

other organizations, like LeadsOnline, so that it can go into national databases to assist in these sorts of issues. 

Mr. JOHNSON. How many reports annually of stolen merchandise 

does eBay receive? 

Mr. CHESNUT. In a typical year—by the way, this is not something that we have seen materially increase over the last several 

years. In a typical year, it will be approximately 1,000 inquiries 

form law enforcement related to stolen property. 

That doesn’t mean that all 1,000 are, in and of themselves, stolen 

property. It means that the inquiry is about stolen property. 

How many of those are actually stolen property cases, we don’t 

know. Keeping it in context, we probably have about six to seven 

million items placed on our site every day. 

Mr. JOHNSON. How many reports from buyers do you get of stolen merchandise per year? 

Mr. CHESNUT. I don’t have the data on how many from buyers, 

but it is a very small number. It would certainly be less than the 

numbers from law enforcement. 

Mr. JOHNSON. How many referrals does eBay make to law enforcement annually of allegations of theft? 

32 

Mr. CHESNUT. We proactively make some. I don’t have the data 

today as to how many we proactively—where we make phone calls 

to law enforcement versus they make calls to us. 

But, again, I think the number of law enforcement inquiries to 

us are in the neighborhood of 1,000 per year on the issue of the 

stolen property. 

Mr. JOHNSON. I would ask any of the other panelists, are you 

aware of any data regarding the scope of the problem of resale of 

stolen goods online? Has anyone done any statistical analysis or 

gathered any data regarding the share of stolen merchandise that 

ends up being resold on the Internet? 

Mr. BREKKE. That is part of what we are trying to get at through 

the LERPnet. What we do have is the FBI’s number of $30 billion. 

We also internally know specific cases that we work with law enforcement tend to run in the million dollar ranges usually over the 

course of 6 months to 2 years. 

The most recent here in Baltimore area was a $4 million loss to 

Target involving an Internet auction site where the goods were sold 

online. That would be one case that we worked with law enforcement. 

Mr. JOHNSON. Yes, sir. 

Mr. LANGHORST. Representative Johnson, just a couple things. 

An example of fencing on eBay would be a case that the FBI 

worked in the last few years in Lexington, Kentucky, Mohammed 

Shalash, Unity Wholesale and Trading, where he was ending up 

fencing formula over the Internet, ended up $78 million was sent 

from this country back to Ramallah that was verified by Federal 

agents, don’t know what happened to the money after it ended up 

in Ramallah. 

Just as recently as yesterday, I pulled off two buyers on eBay 

selling quantities of baby formula far below wholesale cost. I can’t 

tell you if that formula is stolen or not. I can just simply tell you 

that there is no way any legitimate retailer can get it at that cost 

and sell it out on the market. 

To your point as to how many cases are worked, to Mr. Brekke’s 

point, as we work cases with law enforcement and we interview the 

fences, they are telling us that they do go to eBay or other Internet 

sites to fence their product. 

So it is on a case-by-case basis. 

Mr. CHESNUT. I would like to talk a little bit and just mention 

price. In a case like the one that was just recently brought up, on 

eBay’s site, many of these are auction prices. So they will put out 

as a starting bid of $1, knowing that with millions of buyers, the 

price will actually get driven up to the market price. 

And I know there is some frustration with a number of the retailers because they will go to eBay and see some of the prices. 

Some are because of the auction format of eBay and some can be 

for a wide variety of reasons that are legitimate. We recently sat 

down with a major manufacturer who was concerned about ten 

sellers selling health and beauty aids, a particular product, at 

below the retail price and they were concerned that all ten of these 

sellers were involved in illegal activity. 

We sat down and we contacted all ten sellers. We asked for proof 

of where they were getting the merchandise and asked for the pricVerDate Aug 31 2005 12:33 Oct 28, 2008 Jkt 000000 PO 00000 Frm 00036 Fmt 6633 Sfmt 6601 H:\WORK\CRIME\102507\38509.000 HJUD1 PsN: 38509
33 

ing information and it turned out that of the ten, four of them were 

actually getting the product from a different country where that 

manufacturer was making the goods available at a much lower 

price. 

These were entrepreneurs who were getting that inventory from 

one place in the country or one place in the world and reselling it 

somewhere else where the goods prices were higher and there was 

nothing improper or illegal with that. 

Three more had legitimate explanations showing where they 

were getting the merchandise and proving to us that there was not 

an issue. 

Two of the individuals we had already suspended for other reasons. And the tenth individual we looked at and we weren’t comfortable ourselves and we suspended the individual and reported 

him to law enforcement. 

So when you see prices on eBay, the same thing with stolen 

property and with counterfeit goods, there are a number of legitimate reasons why goods are on eBay at prices that may be lower 

in the stores and I think that is quite appropriate. 

It doesn’t mean that the goods are stolen, although in some cases 

they may be and those are situations we take seriously and want 

to investigate. 

Mr. LANGHORST. Could I quickly respond to that, sir? 

Mr. JOHNSON. Yes. 

Mr. LANGHORST. The prices that I am looking at are ‘‘buy it now’’ 

prices, those are not auction prices, and they are still far below the 

wholesale. And then, secondly, to Mr. Chesnut’s point, product 

being brought in from outside the country and manufactured and 

brought in here for sale, for instance, diabetic test strips may not 

have the same standards in other countries for testing that we do 

here in the United States. 

And certainly you would have concern in that one product and 

several others that we could go into of whether they meet the same 

regulations and qualities that we demand here in our country, if 

it is being brought in from other countries and sold to consumers 

knowing that it is coming in from another country. 

Mr. SCOTT. Thank you. We are going to have to recess. We will 

be right back after this vote. 

[Recess.] 

Mr. SCOTT. The Subcommittee will come to order. 

I understand that Mr. Chesnut wanted to respond to the last 

question. 

Mr. CHESNUT. Mr. Chairman, I believe there was a question 

about data on how much of the problem is on the Internet and I 

just wanted to emphasize that there is no data that I have seen 

or that I believe anyone is aware of about how much of this issue 

is on the Internet. 

We can say that over our time at eBay, we have not seen a significant increase over the last several years in terms of stolen property reports. That is not denying that some of this problem is moving on to the Internet and that there is stolen property being sold 

on the Internet. 

From all the data, though, it appears that this is a wide ranging 

issue where the stolen property is being sold in a wide number of 

34 

places still, in the garage sales and the flea markets and the like, 

and that is primarily where most of the stolen property is still 

being sold. 

And I think that is because, again, the Internet has a great number of advantages of transparency and a number of advantages for 

law enforcement. 

I believe the Chairman asked a question earlier about getting 

data and how these companies could get data and I mentioned purchasing the property. 

The retailers themselves actually have had a lot of success on 

eBay simply purchasing the property themselves. When they see 

something suspicious on eBay, by purchasing the property, they 

then get the name, address, phone number and all the contact information on anyone who is selling on eBay. It is widely available 

to them simply by making a purchase and that way we don’t—none 

of the privacy concerns that might traditionally be available because the information is posted somewhere come into play. 

Mr. BREKKE. Mr. Chairman, may I make a couple of responses? 

Mr. SCOTT. Mr. Brekke, yes, sir. 

Mr. BREKKE. One, the purchasing the property is, again, the one 

off solution, because you would have to visit many, many sites and 

purchase many, many products. 

We are looking for a solution that is more deterrent focused. 

That goes to transparency. What we are asking for is more transparency with a select group of sellers and select group of information regarding that. 

A parallel or an analogy is similar to—in the 1980’s, I was part 

of the some of the task force involved in dealing with narcotic trafficking, the Colombian cartels. One of the issues was cocaine comes 

up, they generate a lot of cash, deposit it in U.S. banks, shipped 

it out of the country. 

One of the solutions that Congress passed was money laundering 

acts, which required banking institutions to do some due diligence 

or have the people, not all people, but a certain group of people disclose more information when they would deposit that cash. 

That became a tool for law enforcement and it also tended to 

deter that type of activity across the board once the bad guys realized that for those types of transactions, there would be transparency or visibility. 

Mr. SCOTT. Mr. Hill? 

Mr. HILL. Mr. Chairman, I would also like to agree with everyone here that we don’t have stats either, but I believe I heard the 

number of 1,000 inquiries by law enforcement a year. 

I believe that that number would increase a whole lot if the description of the items being posted on the Internet were more detailed and included serial numbers. That would allow us to make 

matches with the reports that we receive when stolen property is 

reported to us, whether it is a burglary or whether it is from a retailer. 

We can match that number with the number in the report and 

that would allow us to do that. It would also allow them and their 

investigators to match up the stolen property. 

Right now, we know, through informants and everyone, that this 

property is being sold on eBay, but we can’t prove it. But that 

35 

would be one of the tools that would allow us to prove it by matching up serial numbers. 

Mr. LANGHORST. Mr. Chairman, if I could, just to remark on Mr. 

Chesnut’s comments about the majority of product being sold in 

flea markets and garage sales. 

Again, their law enforcement officers can have a presence. They 

can walk out, they can see who is selling the product. Our retail 

investigators make those flea markets and occasionally garage 

sales, as well. We can see who is selling those products. 

And to say that the majority of products are being sold there just 

isn’t correct. The one case alone that I have cited, the Unity Wholesale, where $78 million was sent to Ramallah, that is a lot of garage sales and that is only one case that we have that was used 

with the Internet. 

Mr. CHESNUT. In that particular case, I don’t believe $70 million 

came from eBay sales. 

On the serial number issue, because that has been raised a couple of times, on its own, without any prompting or any legislation, 

eBay made the decision to require VIN numbers on all motor vehicles sold on the site. So eBay is not against doing it where it makes 

sense. 

The reason it makes sense in motor vehicles is really for three 

reasons. One, when someone gives us a VIN number, we can automatically determine whether it is a legitimate VIN number and 

whether it matches the car that is on the site, because there is a 

database we can check, whereas for serial numbers on electronics 

items, for example, there is no such database. 

Someone could make up a serial number and the individual entering it, if they were stolen property, would simply enter an incorrect serial number and we would have no way of knowing it. There 

would be no database to check against. 

Secondly, when someone lists a motor vehicle on eBay, we take 

that VIN number and we run it against a national database of stolen cars, flood damaged cars, title issue cars. And so we are able 

to proactively deal with the problem ourselves simply with that 

VIN number. 

Unfortunately, there is no such national database that we could 

run stolen property against and make that kind of a quick decision. 

So because it would be so easy for a criminal to simply alter a serial number or come up with a different serial number and enter 

it on eBay and because there is no national database, it wouldn’t 

really solve the problem. 

And if you look at the sort of items that are being complained 

about here, the Crest White Strips, the health and beauty aids, the 

razor blades and the like, none of those things have serial numbers. 

We have no issue at all with introducing something like a serial 

number check where it is actually going to do some good, but unfortunately, for this sort of an issue, I am afraid that it really 

wouldn’t help. 

Mr. SCOTT. The gentleman from North Carolina, Mr. Coble. 

Mr. COBLE. Thank you, Mr. Chairman. Good to have you all with 

us today. 

36 

Mr. Chairman, I am concerned about the scope of organized retail crime, as are most of us. The problem is growing and I feel perhaps it is ripe for legislative attention. 

With that being said, I think we need to be concerned that we 

take a level and pragmatic approach to address the problem. 

Mr. Brekke, have you experienced any difficulties working with 

merchants or eBay on allegations or investigations or prosecuting 

cases where you products have been stolen and allegedly sold on 

eBay? 

Mr. BREKKE. We have worked numerous operations with merchants, other retailers. We have had mixed results with eBay, depending on the situation. 

Mr. COBLE. Mr. Hill, when you investigate allegations of stolen 

merchandises being sold, how do you determine that the product is, 

in fact, stolen? 

Mr. HILL. Either by a confession or a match of the property description and the date and time that it was posted compared to 

when the theft took place. 

Mr. COBLE. Would a pawn shop or eBay be able to make this determination without support from law enforcement? 

Mr. HILL. Can you ask the question again, please? 

Mr. COBLE. Would eBay or other merchants be able to determine 

what you just said without support from law enforcement or input 

from law enforcement? 

Mr. HILL. Well, when we request something, we get an answer 

from them. Now, how they work with the retailers, I am not sure 

if they give them as much information as we do. 

But as Mr. Chesnut—— 

Mr. COBLE. I will get to Mr. Chesnut later on. 

Mr. HILL. He stated earlier we send an e-mail to them, without 

a subpoena, they provide that information to us. So we have no 

problems getting that information. 

Mr. COBLE. I thank you, sir. 

Mr. Langhorst, what role, if any, does the FDA play in the investigation and prosecution of cases where pharmaceuticals are stolen 

and resold? 

Mr. LANGHORST. With over-the-counter product or pharmaceuticals, we haven’t dealt with the FDA directly. We have tended 

to deal with our local health agencies. 

I can speak directly to the state of Texas and the State health 

department that we have dealt with. 

Mr. COBLE. Mr. Chesnut, I understand that you are deeply concerned that any legislative attempt to address retail crime does not 

create an undue burden on eBay’s operations and I share that concern. 

Some feel that the reason that the seller should know a product 

being sold on eBay is, in fact, stolen and that eBay, therefore, 

should be responsible and should be held accountable. 

What do you say to that? 

Mr. CHESNUT. Well, if an individual seller knows that it is stolen 

and they are trying to sell it on eBay, they should be held accountable. If eBay is given evidence, meaningful, concrete evidence that 

the property is stolen, then eBay would be held responsible, as 

well, under existing Federal law. 

37 

If eBay had specific knowledge that something is stolen and did 

nothing about it, eBay would be responsible and that is fair. 

Mr. COBLE. So let us assume the standard would be that eBay 

should have known. Do you think that is too nebulous? 

Mr. CHESNUT. I think it is too nebulous. It is also not even the 

standard that individuals are held to under Federal law. Under 

Federal law, in order to be prosecuted under the interstate transportation of stolen property statute, they have to have specific 

knowledge. They have to actually know that the property is stolen 

in order to be prosecuted. 

So it wouldn’t make any sense to put a more nebulous or a looser 

standard on a marketplace like an eBay than the person that actually is selling it themselves. 

Mr. COBLE. Specific knowledge, of course, would make eBay or 

anyone else accountable. 

Mr. CHESNUT. Absolutely and that is the law today. 

Mr. COBLE. I thank you gentlemen. 

I yield back, Mr. Chairman. 

Mr. SCOTT. Thank you. 

The gentleman from Texas, Judge Gohmert. 

Mr. GOHMERT. Thank you, Mr. Chairman. I apologize for being 

late. I was over at a meeting with the majority leader, hearing him 

explain why we could put off SCHIP for 2 weeks, but we can’t put 

it off for a couple of days, now with a natural disaster going on. 

I was having trouble, and it took me a while to absorb the brilliance. 

But anyway, I do thank this panel here for being here and I 

know I have got a fellow Texan in Mr. Langhorst here from Randalls. And it is, obviously, a big problem. 

Of course, we are all products of where we came from and what 

experiences we have had and having been a prosecutor, a judge 

and chief justice in the State system, we dealt with this constantly 

with pawn shops. 

And so as this issue has arisen, I have tended to say, well, we 

do put some extra requirements on pawn shops in order to allow 

us to track down individuals who may take stolen goods and pawn 

them and we actually catch an awful lot of criminals and the pawn 

shops of which I am aware are always helpful back in my district 

and we catch a lot of folks that think they are going to get away 

with something. 

But in this bill, it appears that in the zeal to try to bring an end 

to this horrible retail theft problem, that maybe the bill does further than is actually necessary, as I understand, requiring an entity like eBay to provide information directly to the retailers. 

There is nothing analogous to that in what we do with pawn 

shops. I want law enforcement to catch the individuals who steal 

things, because as we know, so much of that is organized crime. 

But I am wondering if there isn’t something short of that, whether 

it is developing a system that will allow us to track serial numbers 

or scan barcodes or whatever is being used, the radio transmitters 

that are coming in now, which I am not a big fan of. 

But whatever it is, if we could find a way to track that, have that 

information available and, like we do with pawn shops, have people 

38 

routinely in law enforcement check that information and check that 

data. 

I would be interested in anyone’s response about if we could do 

something to help the retailers with this terrible problem, because 

as many people don’t realize, if it is a problem for retailers, whether it is Target or Randalls or Rocher’s or anywhere else, then they 

are not the ones that pay. They have to charge higher prices. So 

all of us pay for that. 

Any comments or thoughts? 

Yes, sir, Mr. Brekke. 

Mr. BREKKE. I think there is an initial solution to what you suggested in LERPnet going on right now with the retailers and the 

FBI. 

The idea is to create a database where you gather this information and you could include serial numbers, lot numbers, or other 

unique identifiers from the retail side and other areas. 

The issue then is transparency from the Internet auction sites 

and probably, at the end of the day, using a software solution to 

match up that type of information. Again, it requires cooperation 

from both parties, from both sides. 

Doing this is not that one is good and the other is bad, but working together to stop the bad guy, to share the information in the 

correct forum and, in this case, LERPnet is a step in that direction. 

Mr. GOHMERT. Anyone else? 

Mr. Langhorst? 

Mr. LANGHORST. Yes, sir. Well, again, I just want to get back to 

the basics, and I am using baby formula as an example, because 

Mr. Chesnut brought up earlier that some of their sellers bring in 

product from outside the country. 

And the nutritional value of baby formula outside of the country 

quite often isn’t the same that we require under USDA standards 

here in the country and to have that place on the Internet, with 

no oversight whatsoever as far as quality control, where it came 

from, and no accountability on the part of the seller or eBay to tell 

the consumer where it is coming from and the unsuspecting consumers taking that and feeding it to their child, that is a significant concern. 

To Mr. Brekke’s point, having lot numbers on there, things like 

that, those are things that are required. If you are selling that 

product, in the state of Texas, for example, you have to be licensed 

by the state of Texas to sell that product. 

We recently had a case in Texas where we worked with the 

health department, and they identified wholesalers of the product 

that they couldn’t up with receipts for a couple million dollars 

worth of baby formula and that was seized. 

Again, these are laws in the state of Texas, but they may not be 

able to be enforced, obviously, over the Internet and that product 

is out there. It is just a free market with no controls. 

Mr. GOHMERT. I see my time has expired. Could I allow Mr. 

Chesnut to respond? 

Mr. SCOTT. Certainly. 

Mr. CHESNUT. I would just like to clarify for the record that I did 

not State that infant baby formula was coming in from outside the 

country. I was talking about another product, razor blades, coming 

39 

in from outside the country and there is not an issue with an item 

like that coming in and being sold, manufactured outside of the 

country and coming in to the United States. 

I think it was probably a misunderstanding. 

Mr. GOHMERT. I got nicked this morning. Maybe that came from 

outside. 

Mr. SCOTT. Thank you. The gentleman’s time has expired. 

I want to thank our witnesses for their testimony. Members may 

have additional questions for the witnesses, which we will forward 

to you and ask that you respond as promptly as you can so that 

your answers may be made part of the record. 

Without objection, the hearing record will remain open for 1 

week for submission of additional materials. 

Without objection, the hearing is now adjourned. 

[Whereupon, at 11:43 a.m., the Subcommittee was adjourned.] 

41 

A P P E N D I X 

MATERIAL SUBMITTED FOR THE HEARING RECORD

PREPARED STATEMENT OF THE HONORABLE SHEILA JACKSON LEE, A REPRESENTATIVE

IN CONGRESS FROM THE STATE OF TEXAS, AND MEMBER, SUBCOMMITTEE ON CRIME, 

TERRORISM, AND HOMELAND SECURITY


A-1.eps
42 


A-2.eps
43 


A-3.eps
44 


A-4.eps
45 

f 


A-5.eps
46 


B-1.eps
47 

f 


B-2.eps
48 

f 


C.eps
49 


CAORC-1.eps
50 


CAORC-2.eps
51 


CAORC-3.eps
52 


CAORC-4.eps
53 


CAORC-5.eps
54 


CAORC-6.eps
55 


CAORC-7.eps
56 


CAORC-8.eps
57 

f 


CAORC-9.eps
58 


E-1.eps
59 

Æ 


E-2.eps