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COMBATING ORGANIZED RETAIL CRIME— 

THE ROLE OF FEDERAL LAW ENFORCEMENT 

HEARING 

BEFORE THE

SUBCOMMITTEE ON CRIME, TERRORISM, 

AND HOMELAND SECURITY 

OF THE

COMMITTEE ON THE JUDICIARY 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED ELEVENTH CONGRESS 

FIRST SESSION 

NOVEMBER 5, 2009 

Serial No. 111–96 

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 

STEVE COHEN, Tennessee 

HENRY C. ‘‘HANK’’ JOHNSON, JR., 

Georgia 

PEDRO PIERLUISI, Puerto Rico 

MIKE QUIGLEY, Illinois 

JUDY CHU, California 

LUIS V. GUTIERREZ, Illinois 

TAMMY BALDWIN, Wisconsin 

CHARLES A. GONZALEZ, Texas 

ANTHONY D. WEINER, New York 

ADAM B. SCHIFF, California 

LINDA T. SA ́ NCHEZ, California 

DEBBIE WASSERMAN SCHULTZ, Florida 

DANIEL MAFFEI, New York 

LAMAR SMITH, Texas 

F. JAMES SENSENBRENNER, JR., 

Wisconsin 

HOWARD COBLE, North Carolina 

ELTON GALLEGLY, California 

BOB GOODLATTE, Virginia 

DANIEL E. LUNGREN, California 

DARRELL E. ISSA, California 

J. RANDY FORBES, Virginia 

STEVE KING, Iowa 

TRENT FRANKS, Arizona 

LOUIE GOHMERT, Texas 

JIM JORDAN, Ohio 

TED POE, Texas 

JASON CHAFFETZ, Utah 

TOM ROONEY, Florida 

GREGG HARPER, Mississippi 

PERRY APELBAUM, Staff Director and Chief Counsel 

SEAN MCLAUGHLIN, Minority Chief of Staff and General Counsel 

SUBCOMMITTEE ON CRIME, TERRORISM, AND HOMELAND SECURITY

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

PEDRO PIERLUISI, Puerto Rico 

JERROLD NADLER, New York 

ZOE LOFGREN, California 

SHEILA JACKSON LEE, Texas 

MAXINE WATERS, California 

STEVE COHEN, Tennessee 

ANTHONY D. WEINER, New York 

DEBBIE WASSERMAN SCHULTZ, Florida 

MIKE QUIGLEY, Illinois 

LOUIE GOHMERT, Texas 

TED POE, Texas 

BOB GOODLATTE, Virginia 

DANIEL E. LUNGREN, California 

J. RANDY FORBES, Virginia 

TOM ROONEY, Florida 

BOBBY VASSAR, Chief Counsel 

CAROLINE LYNCH, Minority Counsel 

(III) 

C O N T E N T S 

NOVEMBER 5, 2009 

Page 

OPENING STATEMENTS 

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 Louie Gohmert, a Representative in Congress from the State 

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

Homeland Security ............................................................................................... 4 

The Honorable Lamar Smith, a Representative in Congress from the State 

of Texas, and Ranking Member, Committee on the Judiciary ......................... 5 

The Honorable Bob Goodlatte, a Representative in Congress from the State 

of Virginia, and Member, Subcommittee on Crime, Terrorism, and Homeland Security ........................................................................................................ 7 

WITNESSES 

Mr. David J. Johnson, Section Chief, Violent Crime Section, Criminal Investigative Division, Federal Bureau of Investigation, Washington, DC 

Oral Testimony ..................................................................................................... 9 

Prepared Statement ............................................................................................. 11 

Ms. Janice Ayala, Deputy Assistant Director, Office of Investigations, United 

States Immigration and Customs Enforcement (ICE), Washington, DC 

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

Prepared Statement ............................................................................................. 16 

Mr. John R. Large, Special Agent in Charge, Criminal Investigations Division, United States Secret Service, Washington, DC 

Oral Testimony ..................................................................................................... 24 

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

Mr. Zane M. Hill, Deputy Chief Postal Inspector, United States Postal Inspection Service, Washington, DC 

Oral Testimony ..................................................................................................... 34 

Prepared Statement ............................................................................................. 36 

APPENDIX 

Material Submitted for the Hearing Record .......................................................... 47 

(1) 

COMBATING ORGANIZED RETAIL CRIME— 

THE ROLE OF FEDERAL LAW ENFORCEMENT 

THURSDAY, NOVEMBER 5, 2009 

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

COMMITTEE ON THE JUDICIARY, Washington, DC. 

The Subcommittee met, pursuant to notice, at 9:31 a.m., in room 

2141, Rayburn House Office Building, the Honorable Robert C. 

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

Present: Representatives Scott, Conyers, Lofgren, Quigley, 

Gohmert, Smith, and Goodlatte. 

Staff present: (Majority) Bobby Vassar, Subcommittee Chief 

Counsel; Joe Graupensperger, Counsel; Veronica Eligan, Professional Staff Member; and (Minority) Robert Woldt, FBI Detailee. 

Mr. SCOTT. Good morning. First we have an announcement to 

make: Because the full Committee markup from yesterday unexpectedly went over to today the hearing previously scheduled for 

noon on python snakes in Florida, which was originally scheduled 

for noon today, will be moved to 10 o’clock tomorrow morning. 

Subcommittee will now come to order, and I am pleased to welcome you today to the hearing before the Subcommittee on Crime, 

Terrorism, and Homeland Security about the role of Federal law 

enforcement in combating organized retail crime. 

Theft from retail establishments has long been a problem, but 

the problem gradually grew beyond simple, isolated incidences of 

shoplifting and burglary into something more complex. It wasn’t 

until the 1980’s that organized retail crime was recognized as a 

phenomenon, but the problem has continued to grow in volume, sophistication, and scope. 

What has emerged are sophisticated, multilevel criminal organizations that steal large amounts of high-value products, focusing on 

small and easily resalable items, and then resell the goods through 

a variety of means, including flea markets, smaller stores, and increasingly over the Internet. Sales over the Internet have evolved 

to a point where they have become a new crime phenomenon referred to as ‘‘eFencing.’’ 

Organized retail crime is now a significant issue that has been— 

that has a big impact on the retail industry and our economy. According to the National Retail Federation there are now more than 

1.6 million retail establishments in the United States with more 

than 24 million employees—approximately 20 percent of our workVerDate Aug 31 2005 10:15 Jul 20, 2010 Jkt 000000 PO 00000 Frm 00005 Fmt 6633 Sfmt 6601 H:\WORK\CRIME\110509\53231.000 HJUD1 PsN: 53231
2 

force—with sales of $4.6 trillion in 2008. Clearly protecting the 

health of retail businesses is extremely important. 

And so it impacts everyone from the big box retailers to the 

small, independent stores. I have seen estimates that organized retail crime amounts to between $30 billion and $42 billion a year 

in losses. 

This type of crime obviously has a direct impact on those from 

whom the items are stolen. They have fewer items in their inventory to sell and their profits suffer. To make up for it they must 

often pass along the burden to consumers in the form of higher 

prices. 

Organized retail crime also harms the public in several other 

ways. To try to stop the thefts retailers engage in a variety of loss 

prevention efforts that costs them money and also results in higher 

prices for consumers. Lost sales to retailers also means loss of tax 

revenue for State and local government who are under extreme financial pressure in this economy. 

Consumers are also at risk when retail crime organizations steal 

consumable products, especially the over-the-counter drug items 

and infant formulas, two popular items for organized retail theft 

rings. In many cases, after the merchandise has been stolen the 

products are not stored properly, which can render the products ineffective or even dangerous. 

Retailers spend a lot of time and resources trying to prevent 

thefts and catch thieves, but it is becoming increasingly more difficult to do so. I commend the efforts of retailers who normally 

compete with each other on a daily basis, but they come together 

and learn from each other about how to deal with emerging threats 

in retail crime by sharing their collective wisdom on loss prevention. 

While there have been significant disagreements between retailers and online marketplaces about how to best deal with thieves 

selling stolen goods using Internet sites such as auction sites or direct sale sites, some progress has been made. Accordingly, I encourage retailers and online marketplaces to continue to work together 

with law enforcement in catching and prosecuting organized retail 

thieves and to try to forge a more cooperative effort to identify and 

weed out those bad actors to stop and prevent them from selling 

stolen goods over the Internet. 

I have introduced legislation on this problem of eFencing, and I 

will certainly continue to work with retailers, Internet market representatives, and law enforcement to do all we can to bring about 

effective solutions to the problem. Today the Subcommittee will 

focus on the role of the Federal law enforcement agencies. 

Organized retail crime poses some difficult challenges to law enforcement. For example, theft rings often operate in multiple jurisdictions, making it impossible for any one State or local law enforcement agency to investigate and prosecute them effectively. 

The Internet has also made it much more—much easier for some 

such sellers to access a national or even international market of 

buyers of stolen goods. In addition, the proceeds of these crimes are 

often laundered with tremendous sophistication. 

These types of cases can be very resource-intensive. Even in the 

best of circumstances there are many—circumstances where it is 

3 

obvious that items offered for sale are stolen, and it may be the 

case that a seller is offering store brand-named items in large 

qualities—quantities—and at prices substantially lower than retail 

value. 

However, even these relatively obvious cases can be very expensive and time-consuming for law enforcement to investigate and 

bring charges. Large amounts of resources are needed to engage in 

the necessary investigatory techniques such as stakeouts, sting operations, development of sources, financial analysis, video and 

audio surveillance, undercover meetings, wiretaps, and PIN registers. 

These cases are even more difficult and more expensive to investigate if it is not obvious which retailer the goods were stolen from, 

and this is why it is important that law enforcement agencies have 

sufficient resources to take down these types of criminal enterprises. 

The FBI has indicated how serious the problem of organized retail crime is. When speaking about organized theft and reselling of 

infant formula Director Mueller, of the FBI, said that ‘‘in a number 

of our cases the subject of these investigations are suspected of providing financial support to terrorist organizations.’’ 

I believe we have taken some positive steps in law enforcement 

in this area in recent years. In 2006 the FBI created its organized 

retail crime task force. A year later the FBI collaborated with the 

National Retail Federation and the Retail Industry Leaders Association to launch the Law Enforcement Retail Partnership Network, called LERPnet—thank you, LERPnet—which is a secure national database that allows retailers to share information with each 

other about incidences of organized retail crime and other types of 

crime. 

ICE has launched a pilot program to get a better understanding 

of the problem and how to combat it. The Secret Service uses capabilities with respect to investigating activities such as credit card 

fraud, which are often tied to organized retail crime schemes. The 

U.S. postal inspectors take action against those involved in this 

type of crime who ship stolen products through the mail. 

And I am pleased that our law enforcement agencies have the investigative expertise and jurisdiction to investigate many of the aspects of organized retail crime. And while State and local law enforcement agencies are on the front line of combating local 

incidences of these crimes, the Federal law enforcement is uniquely 

positioned to take down large investigated multi-state operations. 

So if we can learn from these agencies what Congress can do to 

better equip them to do this type of crime—to pursue this kind of 

crime more vigorously and to coordinate their efforts with specific 

purpose of breaking up these crime rings. To this end, we see the 

beginning of a dialogue with and between these agencies and the 

businesses affected with the goal of enhancing Federal enforcement 

efforts in this area. 

We will hear from law enforcement—federal law enforcement 

agencies today about their experiences with organized retail crime 

and what they are doing to investigate it, and I look forward to 

their testimony. 

4 

I will now recognize the Ranking Member of the Subcommittee, 

the gentleman from Texas, Judge Gohmert. 

Mr. GOHMERT. Thank you, Mr. Chairman, and thank you for 

holding this hearing on such an important issue on organized retail 

crime. While I was still on the bench as a judge handling felonies, 

I recall the law enforcement talking to be about this new thing of 

people going in and stealing massive amounts of baby formula, and 

at first they weren’t really sure where this was all going but then 

it became very clear. 

This problem of organized retail crime is growing. It involves the 

theft of large quantities of retail merchandise. Organized retail 

crime is not necessarily a high-profile crime, but it certainly is a 

high-volume crime and a very 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. What is worse, apparently much 

of the proceeds are often used to fund even more devastating 

crimes. 

These criminals typically target merchandise that can be easily 

stolen and easily resold. The stolen items range, of course, from 

low-cost products such as razor blades, baby formula, or batteries, 

to expensive products that include 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 the Internet. 

According to the FBI, organized retail crime 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 the FBI, in 

consultation with the retail community, to establish a task force to 

combat organized retail crime and create a national database or 

clearinghouse to track and identify organized retail crimes across 

the country. The result of this legislation is the Law Enforcement 

retail Partnership Network, LERPnet—you have got to like that— 

which was launched in 2006. This national database allows retailers to share information about suspected theft with each other and 

law enforcement officials. 

In addition, the FBI has created major theft task forces to identify and target multijurisdictional and organized retail crime 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. 

I am looking forward to learning more about not only the FBI’s 

efforts to combat organized retail crime but also the efforts of the 

U.S. Secret Service, U.S. Immigration and Customs Enforcement, 

and U.S. Postal Inspection Service. I understand the work of these 

agencies has led to the prosecution of numerous perpetrators of organized retail crime. 

For example, in 2008 the U.S. Secret Service investigated a case 

involving four thieves who used fraudulent credit cards to purchase 

more than $1 million of Target and Walmart gift cards. This led 

5 

to the arrest of all four thieves, three of whom are serving Federal 

sentences ranging from 44 months to 84 months in prison. 

The restaurant servers from whom the four conspiring thieves 

obtained credit card numbers were also arrested. After getting 

credit card numbers from the restaurant the four primary conspirators created fraudulent credit cards to purchase Target and 

Walmart gift cards, which were then resold online at eBay and in 

person to acquaintances. The eBay seller was arrested in addition 

to the restaurant servers and the four conspiring thieves. 

Several bills have been introduced in this Congress to prohibit 

organized retail theft, and in particular eFencing—the sale of stolen goods at online auction sites. Auction sites such as eBay and 

other online marketplaces, including Amazon.com, have expressed 

concerns about these bills. 

I appreciate the desire to craft legislation that addresses innovative criminal conduct, but I am wary of legislation that deviates 

from using the knowing or intentional mental states that are commonly used in criminal offenses—because criminal offenses are intended to impose penalties against those who consciously act to 

commit a crime or consciously act in furtherance of a crime. Another alternative to the use of intent would be massive civil fines 

to get people’s attention even if they do not act with criminal intent. 

With these concerns in mind, I look forward to hearing from our 

witnesses and getting their perspectives on the Federal agencies 

enforcing the law today. We need to learn more and do all we can 

to investigate and prosecute perpetrators of organized retail crime 

and those who assist them, and we need everyone—retailers, online 

marketplaces, and law enforcement—working together in the most 

efficient way possible toward this end. 

With that I yield back the balance of my time. 

Mr. SCOTT. Thank you. 

The Ranking Member of the full Committee, Mr. Smith, from 

Texas. 

Mr. SMITH. Thank you, Mr. Chairman, and thank you and the 

Ranking Member for having this hearing today on an especially important subject. And I hope as a natural outgrowth of this hearing 

we will, as a Subcommittee and a full Committee, be able to enact 

legislation that will address some of the problems that we are 

going to hear about today. 

Organized retail crime affects millions of Americans each year. 

Unfortunately, Federal law enforcement agencies lack adequate resources to combat this growing crime. 

Organized retail crime involves the theft of large quantities of 

merchandise from retail stores by an organized criminal organization. Unlike shoplifters, these thieves steal the merchandise with 

the intention of selling it back into the marketplace. 

According to FBI estimates, organized retail crime rings cost businesses more than $30 billion a year in losses. A 2007 organized 

retail crime survey by the National Retail Federation found that 79 

percent of the retailers polled were victims of organized retail 

crime. 

For these reasons the FBI established an organized retail crime 

initiative to identify and dismantle large, multijurisdictional orgaVerDate Aug 31 2005 10:15 Jul 20, 2010 Jkt 000000 PO 00000 Frm 00009 Fmt 6633 Sfmt 6601 H:\WORK\CRIME\110509\53231.000 HJUD1 PsN: 53231
6 

nized retail crime rings. This initiative included the formation of a 

National Retail Federation-FBI Intelligence Network. The network 

is intended to establish an effective means of sharing organized retail crime information and to discuss trends as they relate to specific sectors and regions of the retail market and to identify and 

target the more sophisticated criminal enterprises. 

Congress should increase funding to the FBI’s organized retail 

crime initiative. That is why last month I sent a letter to the 

Chairman and the Ranking Member of the Appropriations Subcommittee on Commerce, Justice, Science, and Related Agencies requesting that Congress authorize additional funds to help the FBI 

fight organized retail crime. 

The FBI is not the only Federal agency pursuing organized retail 

crime. The U.S. Secret Service, U.S. Immigration and Customs Enforcement, and the U.S. Postal Inspection Service also combat 

these criminal organizations. 

For example, the Postal Inspection Service and Immigration and 

Customs Enforcement investigation worked last year to uncover a 

refund scheme involving the use of counterfeit serial numbers to 

obtain new video game hardware. The wrongfully obtained hardware was then sold on eBay for the gang’s profit. 

The cost to Target and other retailers, including Walmart, of just 

this one scam was a half a million dollars. The thieves’ activities 

were tracked in seven States before they were arrested and prosecuted, thanks to the good work of these Federal agencies here 

today. 

Examples like this one are encouraging, but there is still too little prosecution of organized retail crime. State felony thresholds, 

which require that the value of the stolen goods must amount to 

$500—or $1,000 in some States—for the offense to be a felony are 

too high to prosecute organized retail crime effectively. The Federal 

threshold for prosecution for the crime of transportation of stolen 

goods and interstate commerce is even higher, as the value of the 

stolen goods must exceed $5,000 to trigger Federal criminal liability. 

To help Federal agencies combat the phenomenon of organized 

retail crime more effectively, earlier this week I introduced H.R. 

4011, the Organized Retail Crime Prevention and Enforcement Act 

of 2009. This bill reduced the Federal felony threshold from $5,000 

to $1,000 for the sale of stolen goods through online marketplaces. 

The bill also provides that ‘‘the attorney general shall establish 

multijurisdictional task forces to initiate investigations of organized 

retail theft and dismantle organized retail theft criminal enterprises in the six United States district court districts with the 

greatest incidence of organized retail theft.’’ 

Mr. Chairman, I think this bill is a good start, and I look forward 

to hearing from our witnesses what more we can do to combat the 

serious problem of organized retail crime in America. And you don’t 

need to answer this question now, but I would hope that a piece 

of legislation—perhaps the one I introduced—could be the subject 

of a bipartisan effort to try to address this serious problem of organized retail crime. 

And I will yield back. 

7 

Mr. SCOTT. Thank you. And I will answer. I have introduced a 

bill on this subject, but I don’t have any pride in authorship. We 

should consider everything that can address this problem, so that 

will certainly take place. 

We usually ask other Members to put their statements in the 

record, but my colleague from Virginia has been hard-working on 

this issue, and I understand you have a statement to make. 

Mr. GOODLATTE. Well, Mr. Chairman, thank you very much for 

your kind words and for allowing me to give this statement. I want 

to thank you especially for the hard work that you have put into 

this issue over a few years now, and I hope we do make progress 

and look forward to working with you and Mr. Gohmert and Mr. 

Smith on that. 

Organized retail crime, or ORC, is a huge and growing problem 

in the United States. Retailers estimate their losses from ORC to 

be in the tens of billions of dollars. ORC groups target anything 

from everyday household commodities, to health products, to baby 

formula that can be easily sold through flea markets, swap meets, 

shady storefront operations, and through online marketplaces. 

Thieves often travel from retail store to retail store stealing relatively small amounts of goods from each store but cumulatively 

stealing significant amounts of goods. Once stolen, these products 

are sold back to fencing operations, which can dilute, alter, and repackage the goods and then resell them, sometimes back to the 

same stores from which the products were originally stolen. 

When a product does not travel through the authorized channels 

of distribution there is an increased potential that the product has 

been altered, diluted, reproduced, and/or repackaged. These socalled diverted products pose significant health risk to the public, 

especially the diverted medications and food products. 

Diverted products also cause considerable financial losses for legitimate manufacturers and retailers. Ultimately the consumers 

bear the brunt of these losses as retail establishments are forced 

to raise prices to cover the additional cost of security and theft prevention measures. 

Even more troubling is where the money is going. Our witnesses 

today will explain that oftentimes this money is being sent overseas and is being used to fund international organized crime and 

even terrorist organizations. 

At the State level, organized retail theft crimes are normally 

prosecuted under State shoplifting statutes as mere misdemeanors. 

As a result, the thieves that participate in organized retail theft 

rings typically receive the same punishment as common shoplifters. 

The thieves who are convicted usually see very limited jail time or 

are placed on probation. 

I believe that the punishment does not fit the crime in these situations. Mere slaps on the wrist of these criminals has practically 

no deterrent effect. In addition, the low-level criminals actually 

stealing these goods from the shelves are easily replaced by the 

criminal organization’s higher-level coordinators. 

During my 7 years working on ways to combat ORC, I found that 

the Federal law enforcement community believed it had adequate 

Federal laws to prosecute ORC crimes but that communication and 

8 

coordination among outside groups and State and local law enforcement was lacking. 

In order to improve the communications and intelligence-sharing 

between industry and law enforcement, I offered an amendment to 

the Department of Justice Reauthorization bill back in 2005 that 

created a Federal definition of organized retail theft crimes and directed the FBI to contribute to the construction of a national database housed in the private sector where retail establishments as 

well as Federal, State, and local law enforcement could compile evidence on specific organized retail theft crimes to aid investigations 

and prosecutions. 

I was my hope that this database, which has now become the 

current LERPnet, would help to put the pieces together to show the 

organized and multistate nature of these crimes as well as provide 

important evidence for prosecution. I am pleased to see in the written testimony today that law enforcement believes this initiative is 

proving helpful. 

In addition, in December of 2003 the FBI established an organized retail theft initiative to combat this growing problem. While 

this is a good start, I look forward to hearing the FBI’s plans to 

bolster its efforts to combat these crimes which are increasing in 

frequency, posing greater threats to consumers, and resulting in 

greater losses to businesses. 

Recent busts have shown how widespread this problem truly is. 

We need more arrests like this to effectively combat organized retail theft. 

I am also pleased to hear about ICE’s ORC pilot program, and 

I hope that this program will lead to more information about how 

these crime rings operate and how we can more effectively shut 

them down. I continue to look for new ways to help law enforcement combat ORC. 

In fact, I joined with Ranking Member Smith this week to introduce H.R. 4011, which would lower certain monetary thresholds in 

the criminal law and give law enforcement more resources to combat these crimes. I urge the Members of this Subcommittee to consider this approach when contemplating legislation in this area. 

And, Mr. Chairman, I look forward to continuing to work with 

you to find additional approaches to solve this problem. 

One concern I have had is that we need to make sure that legitimate online businesses, like eBay and craigslist and a whole host 

of other online businesses, are accommodated in the sense that we 

need to find ways where they can cooperation with law enforcement without having legislative requirements that are too intrusive 

in terms of their business model relative to others who are a part 

of the overall network that is a problem for organized retail crime. 

These entities want to be helpful, want to cooperate with law enforcement, and I think we can find ways to enhance their cooperation without making them subject to unreasonable requests for information that would make it difficult for them to continue to operate. 

Thank you, Mr. Chairman, for holding this important hearing. 

Mr. SCOTT. Thank you. 

Our first panelist will be David Johnson, section chief of the violent crime section of the Criminal Investigation Division of the FBI. 

9 

He began his FBI career at the San Jose resident agency serving 

on the Violent Crime Squad and the Mexican Drug Trafficking Organization Squad. He was promoted to supervisory special agent of 

the Asian Organized Crime Squad. He also served as assistant special agent in charge for the San Francisco division and the unit 

chief of the Crimes Against Children Unit at FBI headquarters. 

Our second panelist will be Janice Ayala, assistant director of 

the Office of Investigations of ICE. In this position she has management oversight of all investigative programs and initiatives for 

the Office of Investigations. Previously she held several positions— 

several other positions at ICE, including deputy assistant director 

for Financial, Narcotics, and Public Safety Division. In that position she had direct oversight of the financial, narcotics, and national gang programs conducted by ICE throughout the United 

States. 

The third panelist will be John Large, special agent in charge of 

the Criminal Investigative Division of the U.S. Secret Service. In 

this position he is responsible for planning, reviewing, and coordinating all domestic and international criminal investigations involving counterfeiting, financial crimes, and electronic crimes. 

Our fourth panelist will be Zane Hill, deputy chief inspector of 

the United States Postal Inspection Service. In this position he is 

directly responsible for the Inspection Service’s criminal investigation programs in the areas of fraud, money laundering, and asset 

forfeiture. 

Each of our witnesses’ written statements will be entered into 

the record in its entirety. I will ask each witness to summarize his 

or her testimony in 5 minutes or less, and I ask you to help stay 

within the time there is a lighting device at the table that will 

start green, turn yellow when there is 1 minute left, and turn red 

when your time has expired. 

Mr. Johnson? 

TESTIMONY OF DAVID J. JOHNSON, SECTION CHIEF, VIOLENT 

CRIME SECTION, CRIMINAL INVESTIGATIVE DIVISION, FEDERAL BUREAU OF INVESTIGATION, WASHINGTON, DC 

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

Gohmert—— 

Mr. SCOTT. Could you move your microphone a little closer to 

you? 

Mr. JOHNSON. Absolutely. 

Mr. SCOTT. These don’t work very well. 

Mr. JOHNSON [continuing]. Of the Subcommittee. I appreciate the 

opportunity to testify before you today on the FBI’s efforts to combat organized retail theft in the United States. Each year organized 

retail theft is responsible for significant economic losses to retailers, which are then passed on to the American consumer. While it 

is difficult to pinpoint the exact annual dollar loss caused by this 

crime problem, retailers estimate all crimes where they are victims 

result in billions of dollars in losses. 

The tax revenue losses attributable to organized retail theft also 

negatively impact States. In the face of the current economic downturn, the hundreds of millions of dollars in revenue losses to our 

States can be considered catastrophic. 

10 

The unsuspecting consumer also faces potential health and safety 

risks from legitimate products which may have been mishandled by 

the criminal enterprises who stole them for resale to consumer. 

Also of concern for the FBI in particular is the potential nexus between organized retail theft syndicates and other criminal enterprises. 

There are many challenges on the road to combating organized 

retail theft. Lack of available resources to State and local police departments who have the primary responsibility for investigating 

most retail crimes is a huge hurdle. Sharing information between 

public and private enterprise is another. 

As with other forms of criminal enterprises, there is a loose hierarchy within organized retail theft groups. Specifically, these 

groups utilize low-level boosters—those who actually steal the merchandise—and higher-level fencers, who frequently coordinate 

booster thefts. Often these boosters are illegal immigrants working 

off a debt or individuals suffering from some form of addiction. If 

these low-level boosters are removed from the criminal enterprise 

others will simply step in to take their place. 

These criminal groups are also particularly nimble, able to easily 

change their appearance, alter their method of operation, and particularly adept and circumventing security devices and procedures. 

Further, the wide reach of the Internet and online auction sites has 

provided global marketplaces for savvy entrepreneurs and, not surprisingly, criminal enterprises. 

Sophisticated organized retail theft groups can best be dismantled—a coordinated and cooperative effort between law enforcement 

and the retail industry. In December 2003 the FBI establish an organized retail theft initiative to identify and disrupt multijurisdictional groups using Federal statutes such as conspiracy, interstate transportation of stolen property, and money laundering. 

Additionally, Congress passed legislation signed by the President 

in January of 2006 that required the attorney general and the FBI, 

in consultation with the retail community, to build a system for information-sharing, to include intelligence as well as lessons learned 

and best practices regarding organized retail theft. As a result, the 

Law Enforcement Retail Partnership Network, or LERPnet, was 

subsequently launched in 2007. 

The database, which is housed and run by the private sector, allows retail members to track and identify organized retail theft via 

a secure Web portal. To date, nearly 100,000 retail locations are included in the data, which represents $1.17 trillion in retail sales 

or nearly 25 percent of all retail sales in 1 year. 

With a recently signed memorandum of understanding, law enforcement will also be able to access LERPnet via the FBI’s Law 

Enforcement Online to search reported incidents and track organized retail theft throughout the country. This partnership between 

law enforcement and private industry provides for greater efficiency in intelligence gathering and dissemination, enabling increased arrests, prosecutions, and recoveries of stolen merchandise. 

In addition to LERPnet and coordination with the retail industry, the FBI is identifying and targeting multijurisdictional groups 

utilizing existing task force resources. Staffed by FBI agency and 

other Federal, State, and local law enforcement officers, the task 

11 

forces are responsible for conducting investigations in the major 

theft areas of organized retail theft, cargo, vehicle, and jewelry 

theft crimes. Further, in cases where an organized retail theft enterprise can be tied to other criminal entities, additional FBI or law 

enforcement resources may be able to assist. 

The use of the task force approach to combating crime coupled 

with successful partnerships within industry is seen by the FBI as 

one of the most effective and efficient tools by which to identify, 

disrupt, and dismantle any criminal enterprise. That strategy is 

working. 

For example, in May 2008, 23 organized crime associates of the 

Gambino crime families, including a Gambino crew supervisor, 

were arrested based on a racketeering indictment charging them 

with operating an illegal enterprise involved in illegal gambling, 

extortion, fraud, and labor racketeering. 

The fraud schemes pertained to eight or more associates involved 

in wire fraud because they created and used counterfeit UPC labels 

to obtain merchandise from numerous retail outlets. This 6-year investigation was conducted by the FBI as well as our partners at 

the U.S. Department of Labor, Office of Inspector General, Internal 

Revenue Service, the New Jersey State Police, and the Union 

County Prosecutors Office. 

In August of that same year, the FBI and its law enforcement 

partners at the Internal Revenue Service, U.S. Immigration and 

Customs Enforcement, and the Broward County Sheriff’s Department, participated in a raid of PharmaCare Health Services in 

Sunrise, Florida. The resulting indictments charged transportation 

of stolen goods, money laundering, conspiracy, and fraud. 

According to court documents, PharmaCare was actually a 

wholesaler that often purchased bulk quantities of mixed and damaged stolen products. Its employees were subsequently convicted of 

selling millions of dollars worth of over-the-counter medications, 

health and beauty aids that had been stolen from Walgreens, Target, CVS, and Rite Aid. 

Chairman Scott, Ranking Member Gohmert, and Members of the 

Subcommittee, I appreciate the opportunity to come before you 

today and share the work that the FBI is doing to address the 

problem posed by organized retail theft syndicates in this country. 

I am happy to answer any questions. 

[The prepared statement of Mr. Johnson follows:] 

PREPARED STATEMENT OF DAVID J. JOHNSON

Good morning, Chairman Scott, Ranking Member Gohmert and Members of the 

Subcommittee. I appreciate the opportunity to testify before you today on the FBI’s 

efforts to combat organized retail theft (ORT) in the United States. We prefer to use 

the term ‘‘organized retail theft’’ because the term ‘‘organized crime’’ has a specific 

meaning within the context of law enforcement. Therefore referring to the criminal 

activity as ‘‘organized retail crime’’ creates confusion. 

ORT THREAT

What is called Organized Retail Theft or ORT by Retail Loss Prevention Professionals, can generally be described as professional burglars, boosters, cons, thieves, 

fences and resellers conspiring to steal and sell retail merchandise obtained from 

retail establishments by theft or deception. ’Boosters’—the front line thieves who intend to resell stolen goods—generally coordinate with ’fences’ who may sell the 

items outright at flea markets or convenience stores or online; or repackage them 

for sale to higher level fences. The problem is significant for its negative economic 

12 

impact, the safety issues it brings to unsuspecting consumers, and its potential link 

to other criminal enterprises. 

Each year, organized retail theft is responsible for significant economic losses to 

retailers, which are then passed along to the American consumer. While it is difficult to pinpoint the exact annual dollar loss caused by this crime problem, retailers 

estimate all crimes where they are victims results in billions of dollars in losses. 

The tax revenue losses attributable to ORT also negatively impact states. In the 

face of the current economic downturn, the hundreds of millions of dollars in revenue losses to our states can be considered catastrophic. 

This crime problem also has the potential to negatively impact consumer health 

and safety. Specifically, the unsuspecting consumer faces potential health and safety 

risks from legitimate products which may have been mishandled by the criminal enterprises who stole them for resale to consumers. In many cases, stolen infant formula, pharmaceuticals, and other consumables are not stored under proper conditions. When these items are reintroduced into the retail market, they may pose a 

significant health risk to the consumer. The potential threat is perhaps most evident 

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

food programs and discount stores. In addition to these concerns, the potential for 

intentional product tampering prior to the reintroduction of the stolen merchandise 

into the retail market is significant. 

Also of concern for the FBI, in particular, is the potential nexus between organized retail theft syndicates and other criminal enterprises. In 2006, for example, 

nine members of an alleged Michigan smuggling operation were arrested, accused 

of taking part in a global scheme involving bootlegged cigarettes, phony Viagra and 

counterfeit tax stamps, and sending a cut of their illicit profits to Hezbollah. 

The FBI has also investigated criminal ties between members of the international 

street gang MS-13 and fencing rings suspected of trafficking in millions of dollars 

in stolen medicine and other retail goods. 

CHALLENGES

There are many challenges on the road to combating organized retail theft. Lack 

of available resources to state and local police departments, who have the primary 

responsibility for investigating most retail crimes, is a huge hurdle. Sharing information between public and private enterprise is another. 

As with other forms of criminal enterprise, there is a loose hierarchy within organized retail theft groups. Specifically, these groups utilize low-level ’boosters’—those 

who actually steal the merchandise and higher level ’fencers,’ who frequently coordinate booster thefts. Often, these boosters are illegal immigrants working off a debt 

or individuals suffering from some form of addiction. If these low-level boosters are 

removed from the criminal enterprise, others will simply step in to take their place. 

These criminal groups are also particularly nimble—able to easily change their 

appearance, alter their method of operation, and particularly adept at circumventing 

security devices and procedures. Groups typically utilize methods ranging in sophistication from the development and use of counterfeit receipts and UPC codes to refund and check/credit card fraud to something as basic as the ’grab and run.’ They 

frequently identify store locations with Global Positioning Systems (GPS), identify 

escape routes, use false identification, utilize rented or borrowed vehicles, and employ diversionary tactics in stores. They are known to travel from state to state or 

city to city following interstate corridors around large cities. 

Further, the wide reach of the Internet and online auction sites has provided global market places for entrepreneurs and, not surprisingly, criminal enterprises. 

LAW ENFORCEMENT/PRIVATE INDUSTRY RESPONSE

Sophisticated ORT groups can best be dismantled through a coordinated and cooperative effort between law enforcement and the retail industry. In December 2003, 

the FBI established an ORT Initiative to identify and disrupt multi-jurisdictional 

ORT groups, using federal statutes such as Conspiracy, Interstate Transportation 

of Stolen Property, and Money Laundering. Increased information sharing and cooperation between law enforcement and the private sector will enable both to gain 

a better understanding of the full nature and extent of the threat ORT poses, as 

well as to identify the best methods for law enforcement and the retail industry to 

attack this crime problem. 

Additionally, Congress passed legislation signed by the President in January 2006 

that required the Attorney General and the FBI, in consultation with the retail community—specifically, the National Retail Federation (NRF) and the Retail Industry 

Leader’s Association (RILA)—to build a system for information-sharing, to include 

13 

intelligence as well as lessons learned and best practices regarding ORT. As you 

may already be aware, the result of that measure—the Law Enforcement Retail 

Partnership Network (LERPnet)—was subsequently launched in 2007. 

The database, which is housed and run by the private sector, allows retail members to track and identify organized retail theft via a secure web portal. To date, 

nearly 100,000 retail locations are included in the data, which represents $1.17 trillion in retail sales or nearly 25% of all retail sales in one year. 

With a recently signed Memorandum of Understanding (MOU), law enforcement 

will also be able to access LERPnet via the FBI’s Law Enforcement Online to search 

reported incidents and track organized retail theft throughout the country. This 

partnership between law enforcement and private industry provides for greater efficiency in intelligence gathering and dissemination, enabling increased arrests, prosecutions, and recoveries of stolen merchandise. 

Intelligence goes hand-in-hand with partnerships. One good piece of intelligence 

can be the breakthrough needed to make a vital connection or solve a case. By arming the retail industry with the infrastructure necessary to share such intelligence, 

it is our hope that they—along with their partners in law enforcement—are better 

able to thwart criminal efforts and reduce subsequent losses. Previously, individual 

retailers reported thefts to local law enforcement, but no uniform method of tracking 

these crimes across jurisdictions existed. 

In addition to LERPnet and coordination with the retail industry, the FBI is identifying and targeting multi-jurisdictional ORT groups utilizing existing task force resources. Currently, there are seven FBI-led Major Theft Task Forces which are located in the Chicago, El Paso (2), Memphis, Miami (2) and New York Field Offices. 

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

the task forces are responsible for conducting investigations in the major theft areas 

of ORT, cargo, vehicle, and jewelry theft crimes. Further, in cases where an organized retail theft enterprise can be tied to other criminal entities, additional FBI 

or law enforcement resources may be able to assist. 

These task forces, which combine the resources of local, state and federal law enforcement, as well as retail loss prevention professionals, are applying investigative 

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

the use of undercover operations. Clearly, this approach increases the effectiveness 

and productivity of limited personnel and logistical resources, avoids the duplication 

of investigation resources, and expands the cooperation and communication among 

federal, state, and local law enforcement agencies as well as the retail industry. 

SUCCESSES

The use of the task force approach to combating crime, coupled with successful 

partnerships within industry, is seen by the FBI as one of the most effective and 

efficient tools by which to identify, disrupt and dismantle any criminal enterprise. 

That strategy is working. 

In February 2008, for example, seven individuals were indicted for participating 

in a scheme to shoplift merchandise and then sell it on the Internet auction site 

eBay. All seven defendants were charged with participating in a conspiracy to commit wire fraud and to engage in the interstate transportation of stolen property. 

That case was investigated by the FBI, Kansas City Police Department, and the 

Postal Inspection Service. It has since been prosecuted by the U.S. Attorney’s Office, 

Western District of Missouri. 

In May of that same year, 23 Organized Crime associates of the Gambino Crime 

Families—including a Gambino Crew Supervisor—were arrested based on a racketeering indictment charging them with operating an illegal enterprise involved in illegal gambling, extortion, fraud and labor racketeering. The fraud schemes pertained to eight or more associates involved in wire fraud because they created and 

used counterfeit UPC labels to obtain merchandise from numerous retail outlets. 

This six year investigation was conducted by the FBI as well as our partners at the 

U.S. Department of Labor, Office of Inspector General; the Internal Revenue Service; the New Jersey State Police; and, the Union County Prosecutors Office. 

In August 2008, following months of investigation, the FBI and its law enforcement partners at the Internal Revenue Service, U.S. Immigration and Customs Enforcement, and the Broward County Sheriff’s Department, participated in a raid of 

PharmaCare Health Services in Sunrise, Florida. The resulting indictments charged 

transportation of stolen goods, money laundering, conspiracy, and fraud. According 

to court documents, PharmaCare was actually a wholesaler that often purchased 

bulk quantities of mixed and damaged stolen products. Its employees were subsequently convicted of selling millions of dollars worth of over-the-counter medicaVerDate Aug 31 2005 10:15 Jul 20, 2010 Jkt 000000 PO 00000 Frm 00017 Fmt 6633 Sfmt 6621 H:\WORK\CRIME\110509\53231.000 HJUD1 PsN: 53231
14 

tions, health and beauty aids that had been stolen from Walgreens, Target, CVS 

and Rite-Aid. 

Chairman Scott, Ranking Member Gohmert and Members of the Subcommittee, 

I appreciate the opportunity to come before you today and share the work that the 

FBI is doing to address the problem posed by organized retail theft syndicates in 

this country. I am happy to answer any questions. 

Mr. SCOTT. Thank you very much. 

I would like to recognize the—we have been joined by the Chairman of the full Committee, Mr. Conyers, and the gentleman from 

Illinois, Mr. Quigley. 

Ms. Ayala? 

TESTIMONY OF JANICE AYALA, DEPUTY ASSISTANT DIRECTOR, OFFICE OF INVESTIGATIONS, UNITED STATES IMMIGRATION AND CUSTOMS ENFORCEMENT (ICE), WASHINGTON, DC 

Ms. AYALA. Chairman Scott, Ranking Member Gohmert, and distinguished Members of the Subcommittee, on behalf of Secretary 

Napolitano and Assistant Secretary Morton thank you for the opportunity to testify today about our efforts in the area of organized 

retail crime. ICE investigates individuals and organizations that 

exploit vulnerabilities in financial systems to launder their illicit 

proceeds domestically and internationally. This includes organized 

retail crime, or ORC. 

ICE’s financial investigative expertise coupled with its extensive 

customs and immigration authorities enables ICE special agents to 

identify, dismantle, and disrupt financial criminal interprises 

threatening our national economy and security. Additionally, ICE 

is well aware of the impact of ORC on the retail industry. 

ICE recognizes that ORC groups engage in activities that cross 

over into one or more of ICE’s ongoing initiatives or violate laws 

in which ICE has jurisdiction. ICE has been involved in a number 

of successful ORC investigations, but I would like to briefly discuss 

two. 

In 2005 San Francisco Bay area retailers provided information to 

the Oakland Police Department regarding an ORC ring. They, in 

turn, forwarded the information to ICE agents who, with the assistance of the IRS, the Oakland Police Department, USDA, and 

FBI, uncovered a ring involving thieves who stole over-the-counter 

products from large retailers. The stolen products were then resold 

through Rosemont Wholesale, a company involved in selling products such as medicines, razor blades, baby formula over the Internet and to small local grocery stores. 

Two fencing operations purchased the stolen merchandise on behalf of Rosemont and generated illicit profits by selling it to Rosemont at a premium. Rosemont then laundered the products 

through their online auction site, shipping them throughout the 

U.S. and Canada. They structured numerous banking transactions 

to avoid currency reporting requirements, and some of the illicit 

proceeds turned up in Yemen. 

Following an extensive investigation, agencies—more than 12 

tractor-trailer loads of stolen merchandise valued at approximately 

$4.4 million. Charges including interstate transportation of stolen 

15 

goods, fraudulent State tax stamps, money laundering, structuring, 

false statements, and conspiracy were brought against eight defendants. 

After a 6-week jury trial Hassan Swaid, president, CEO, and 

owner of Rosemont, was sentenced to 78 months in prison. Five 

other members of this organization pled guilty to various crimes 

and are awaiting sentencing. 

In 2001 ICE initiated the Mohammed Ghali investigation after 

receiving information that a criminal organization he headed was 

involved in the interstate transportation of stolen merchandise and 

laundering the proceeds of the sales internationally. Information 

uncovered during the investigations revealed several members of 

the organization may have had ties to terrorist organizations. 

The Ghali organization recruited hundreds of shoplifters and 

drug addicts to steal over-the-counter medicinal products, prescription drugs, infant formula, glucose test strips, razors, and pregnancy test kits. Merchandise was repackaged and sold to wholesalers and retailers. 

Numerous convenience stores owners operated by the organization in the Fort Worth, Texas area were used as fencing locations. 

They obtained product by committing various frauds, as well as 

through armed robbery and warehouse thefts. A shipment of 

Viagra valued at over $1 million was stolen from a legitimate drug 

wholesaler and purchased by the Ghali organization and then resold on the street. 

ICE initiated a joint undercover operation between its Dallas 

SAC office and the Fort Worth Police Department and the FDA utilizing a number of investigative techniques to include wiretaps. 

The loss prevention community also participated throughout the 

course of the investigation. 

As a result, 35 members of the organization were charged with 

State and Federal violations, including conspiracy; possession, receipt, or interstate transportation of stolen property; and money 

laundering. Ghali was convicted and sentenced to serve a 14-year 

Federal prison sentence. 

ICE launched an ORC pilot program in July of 2009 in Houston, 

Los Angeles, Miami, and New York. The pilot focuses on the development of a threat assessment to determine how these groups are 

engaged in crimes over which ICE has jurisdiction, the tracking 

system and the database which places ICE agents in contact with 

members of the retail community and complements information 

contained in the National Retail Federation’s LERPnet, and an enhanced effort to fully explore how these groups are exploiting systemic vulnerabilities in the banking system. 

The ORC pilot program encompasses ORC-related criminal activities under the jurisdiction of ICE, including those committed 

over the Internet, and previous successful ICE investigations have 

yielded indicators of suspicious banking activity which have been 

shared with the financial sector. While the ORC initiative is only 

a pilot program at this time, based on our preliminary results ICE 

hopes to develop it into an ongoing initiative. 

Thank you for your continued support of ICE, DHS, and our law 

enforcement mission. I would be happy to answer any questions 

that you may have at this time. 

16 

[The prepared statement of Ms. Ayala follows:] 

PREPARED STATEMENT OF JANICE AYALA


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Mr. SCOTT. Thank you. 

Mr. Large? 


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TESTIMONY OF JOHN R. LARGE, SPECIAL AGENT IN CHARGE, 

CRIMINAL INVESTIGATIONS DIVISION, UNITED STATES SECRET SERVICE, WASHINGTON, DC 

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

Gohmert, Committee Chairman Conyers, and distinguished Members of the Subcommittee. Thank you for today’s opportunity to address the Secret Service’s role in investigating financial crimes as 

they relate to organized retail crime. 

United States Secret Service is responsible for two significant 

missions: protection and criminal investigations. While we are perhaps best known for protecting our Nation’s leaders, I would like 

to point out that we were originally established in 1865 to investigate and prevent the counterfeiting of U.S. currency. 

As the original guardian of the Nation’s financial payment system, the Secret Service has established a long history of protecting 

American consumers, industries, and financial institutions from 

fraud. Over the last 144 years our investigative mission and statutory authority has expanded, and today we are recognized worldwide for our expertise and innovative approaches to detecting, investigating, and preventing financial fraud. 

In recent years, the combination of the information revolution 

and the effects of globalization have caused the investigative mission of the Secret Service to evolve. On account of our work in the 

areas of financial and electronic crimes, we have developed particular expertise in the investigation of identity theft, false identification fraud, credit card fraud, debit card fraud, check fraud, 

bank fraud, cyber crime, and computer intrusions. 

Globalization has made commerce easy and convenient for corporations and consumers. Financial institutions and systems are 

readily accessible worldwide. Today’s financial fraud and cyber 

criminals have adapted to this new means of global trade and are 

subsequently seeking to exploit our dependence on information 

technology. 

With the explosion of Internet accessibility worldwide, the criminal element has modified their fraudulent schemes to a new, more 

anonymous, and constantly evolving cyber arena. The Secret Service looks to outpace emerging threats posed by financial fraud and 

cyber criminals by adopting an innovative and multifaceted approach. 

Through years of collaboration on our investigative and protective endeavors we have established unique and vital partnerships 

with State, local, and other Federal law enforcement agencies. 

These partnerships have enabled us to establish a national network of financial crimes task forces and electronic crimes task 

forces that combine the resources of the private sector, other law 

enforcement agencies, and academia in an organized effort to combat threats to our financial payment systems and credible infrastructures. 

We currently maintain 37 financial crime task forces and 28 electronic crime task forces located in metropolitan regions across the 

country, including the first international electronic crimes task 

force, based in Rome, Italy. 

Looking specifically at statistics for fiscal year 2009, agents assigned to Secret Service offices throughout the United States arVerDate Aug 31 2005 10:15 Jul 20, 2010 Jkt 000000 PO 00000 Frm 00028 Fmt 6633 Sfmt 6601 H:\WORK\CRIME\110509\53231.000 HJUD1 PsN: 53231
25 

rested over 5,800 suspects for financial crime violation. These individuals are noted to be responsible for approximately $443 million 

in actual fraud loss to specific victims and/or financial institutions. 

With this globalization of ecommerce, online auction houses have 

found themselves the victims or even the unwitting participants in 

these organized schemes. 

While investigating our core violations related to financial 

crimes, the Secret Service has also opened criminal investigations 

into these organized cyber groups. The Secret Service has found 

these cases primarily evolve from access device fraud investigations, wherein criminals fraudulently purchase merchandise from 

traditional and online retailers and then resell the merchandise 

through online auction houses. 

In the recent past we have worked closely with online auction 

houses to successfully investigate and prosecute several of these 

groups. For example, in March 2008 we identified a complex fraud 

scheme in which an organized group of suspects were compromising credit cards at a local Washington, D.C. area restaurant, 

using the skimmed credit card numbers to purchase gift cards for 

nationally identified retail stores. 

Upon obtaining gift cards, the subjects would purchase electronic 

merchandise and sell those items and other gift cards through various online auction houses. Through the collaborative effort of the 

Secret Service, the online auction houses, the victim retail stores, 

all suspects associated with this case were subsequently arrested 

on Federal charges of access device fraud, aggravated identity 

theft, and conspiracy. 

In conclusion, as I have highlighted, Secret Service remains 

steadfastly committed to our mission of protecting the integrity of 

the U.S. currency and safeguarding the Nation’s critical infrastructure and financial payment systems. Although our core violations 

remain the same, our methods of investigation have changed along 

with emerging technologies that drive crime today. 

Through our successful partnerships with public and private task 

force members we continue to adapt to ever evolving cyber criminal 

environment and dedicate significant resources to aggressively investigate all offenses within our purview. Our efforts continue to 

fill our originating investigative mission and protect consumers and 

financial institutions. 

Chairman Scott, Ranking Member Gohmert, Committee Chairman Conyers, and distinguished Members of the Subcommittee, I 

thank you again for this opportunity to testify on behalf of the U.S. 

Secret Service, and I will be pleased to answer any questions at 

this time. 

[The prepared statement of Mr. Large follows:] 

26 

PREPARED STATEMENT OF JOHN R. LARGE


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Mr. SCOTT. Thank you. 

Mr. Hill? 


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TESTIMONY OF ZANE M. HILL, DEPUTY CHIEF POSTAL INSPECTOR, UNITED STATES POSTAL INSPECTION SERVICE, 

WASHINGTON, DC 

Mr. HILL. Mr. Chairman, Members of the Committee, thank you 

for holding this hearing on organized retail crime. The U.S. Postal 

Inspection Service is committed to protect the American public 

from criminals who use the United States Postal Service in furtherance for fraud and theft schemes, including organized retail crime. 

The Postal Inspection Service has a long, proud, and successful 

history of securing the Nation’s mail system and maintaining the 

public’s trust in the mail. Postal inspectors are charged with ensuring the mail is safe and free from fraudulent schemes, illegal 

drugs, various forms of contraband, child pornography, as well as 

other dangerous products. Additionally, we work with other law enforcement and government agencies at the local, State, and Federal 

level to ensure the postal service is not used to facilitate the commission of other crimes or as a conduit for the transportation of 

proceeds from illegal activities. 

It is this commitment that makes the Postal Service the most 

trusted government agency and one of the most trusted organizations in the United States. The use of the mails in organized retail 

theft has not historically been one of the major types of criminal 

activities we have encountered. That being said, we are now aware 

of its potential impact and a number of these types of cases have 

been referred to us from other law enforcement agencies as well as 

the retail industry. 

Our colleagues in Federal, State, and local law enforcement, as 

well as corporate security professionals, are the principal investigators in the area of organized retail crime. When these crimes or aspects of these crimes cross into the postal system we have the jurisdiction and statutory authority to investigate and ssist other law 

enforcement agencies and retailers in combating these illegal activities. 

We generally see two types of schemes, which I will discuss briefly: Internet auction fraud and reshipper fraud. Both of these crimes 

take advantage of increasing use of the online marketplace in order 

to sell the stolen or fraudulently obtained goods. 

The Internet has become a critical component of the world’s commerce. More and more businesses are increasing their use of this 

commerce channel. Likewise, consumers have the convenience and 

ease of shopping in this expanded marketplace with a simple click 

of the mouse without having to leave home. 

This convenience, though, has a downside. Criminals now have 

a larger market in which to sell and distribute their stolen products and can made substantial profits with fewer risks than the 

physical fencing operations that these criminals have historically 

used. 

By far, there is a greater reach for advertising of the stolen products and the risk of detection is somewhat limited, making this online marketplace option so attractive to the organized retail crime 

groups. Like all law enforcement agencies, we have had to adapt 

our investigative strategies and tactics in order to investigate and 

prevent cyber crime of all types. 

35 

Our jurisdiction in organized retail crime lies in the use of the 

mails to ship the stolen products or as a means to remit payments 

to the online seller. In these investigations we have seen the criminal groups attempt to utilize the full spectrum of postal service 

products and services in their fraudulent schemes. 

One example of a recent Post Inspection Service case began early 

2008. Postal inspectors received a tip that owners of two Toledo, 

Ohio convenience stores were buying stolen merchandise, selling it 

on eBay, and then shipping the items both domestically and internationally via the Postal Service. Postal inspectors determined that 

proceeds from the fraudulent sales were then being laundered by 

the operators’ relatives in Jordan. 

We alerted special agents of ICE in July when it was determined 

one of their operators was—one of the operators was leaving for 

Jordan on a flight from the Detroit Metro Airport and was believe 

to be smuggling an unknown amount of cash. ICE agents stopped 

the owner, his wife, and their two children at the airport and 

seized $75,000 in undeclared funds which were hidden in the children’s clothing. The husband and wife each pled guilty to illegally 

smuggling cash and were sentenced to time in prison. 

Postal inspectors continued their investigation of the other suspect operator with excellent cooperation from eBay and PayPal and 

obtained records from the owner which identified over 7,500 items 

valued at $650,000 that had been sold online. Postal inspectors 

working with loss prevention specialists from the victim companies 

identified most of the items as coming from their stores. 

Throughout 2008 postal inspectors and corporate security investigators continued their work undercover, purchasing stolen items 

from online sites operated by the suspect. In February 2009 postal 

inspectors, ICE agents, and Toledo, Ohio police executed a search 

warrant at the suspect’s home and recovered boxes of stolen merchandise as well as maps of pharmacies he apparently planned to 

target in Cleveland, Columbus, and Toledo. He was arrested and 

charged with mail fraud, pled guilty in August, and is being detained until sentencing. 

Second area of retail crime we have become involved in is in reshipper fraud. In these types of cases criminal organizations enlist 

individuals to receive and then reship products to other segments 

of the criminal enterprise, generally to locations outside of the 

United States. 

In the majority of these cases the products are obtained by the 

retail crime groups through credit card theft and fraud. Reshippers 

are oftentimes unwitting accomplices to the scheme, receiving and 

mailing the products based on instructions provided by the 

fraudsters. The reshippers do not know the source of the products 

they receive and then reship. 

Many of these groups recruit the reshippers in an attempt to further insulate themselves from detection using a variety of ploys to 

trick individuals looking for easy work-at-home jobs. Ultimately 

these reshippers become part of the fraudulent activity. 

Retailers, shipping companies, and financial institutions have all 

seen an increase in this type of crime. Again, the ability to move 

the stolen product with the least amount of exposure to those perVerDate Aug 31 2005 10:15 Jul 20, 2010 Jkt 000000 PO 00000 Frm 00039 Fmt 6633 Sfmt 6601 H:\WORK\CRIME\110509\53231.000 HJUD1 PsN: 53231
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petrating the crimes is the reason for the use of the reshipper approach. 

The Postal Inspection Service continues to educate consumers 

about these fraudulent schemes through an aggressive consumer 

awareness and education program. These are distributed through 

the Postal Service, our Web site, videos, and newspaper, as well as 

online publications. 

In closing, be assured the Postal Inspection Service remains committed to working with law enforcement and retailers to deal with 

the criminal distribution of illicit goods. Thanks for the opportunity 

to testify at this hearing. I am ready to answer any questions you 

might have. 

[The prepared statement of Mr. Hill follows:] 

PREPARED STATEMENT OF ZANE M. HILL

Mr. Chairman and members of the Committee: thank you for holding this hearing 

on organized retail crime. The Postal Inspection Service appreciates the opportunity 

to be here with our colleagues from the U.S. Secret Service, Federal Bureau of Investigation and Immigration and Customs Enforcement to talk about our efforts to 

thwart organized retail crime. The Postal Inspection Service is committed to protect 

the American public from criminals who use the United States Postal Service in furtherance of fraudulent schemes, including organized retail crime. 

The Postal Inspection Service has a long, proud, and successful history of securing 

the nation’s mail system and ensuring the public’s trust in the mail. Postal Inspectors have been fighting consumer fraud since the mail fraud statute was enacted 

in 1872. The company name, address and ‘‘product’’ may change, but con artists 

take advantage of economic trends and current events to plan their schemes and 

illegal activities. With modern technology, the potential for the American public to 

be defrauded through the mail is much greater and potentially impacts more people 

than ever before. 

Because it is essential the public have full trust and confidence in the mail, Postal 

Inspectors are intent on preserving the integrity of the U.S. Mail through vigorous 

law enforcement, public education, and crime prevention efforts. 

Postal Inspectors are charged with ensuring the mails are safe and free from 

fraudulent schemes, illegal drugs, various forms of contraband, child pornography, 

as well as other dangerous products. Additionally, we work with other law enforcement and government agencies at the local, state, and federal level to ensure the 

Postal Service is not used to facilitate the commission of other crimes or as a conduit for the transportation of proceeds from illicit activities. 

It is this commitment that makes the Postal Service the most trusted government 

agency and one of the most trusted organizations in the United States. It is the ongoing vigilance of the Postal Service and Postal Inspectors in identifying criminals 

who attempt to use the mails in furtherance of their illegal activities. The use of 

the mails in organized retail theft has not historically been one of the major types 

of criminal activities we have encountered. That being said, we are now aware of 

its potential impact and a number of these types of cases have been referred to us 

from other law enforcement agencies as well as the retail industry. 

Our colleagues in federal, state, and local law enforcement, as well as corporate 

security professionals, are the principal investigators in the area of organized retail 

crime. When these crimes or aspects of these crimes cross or enter into the postal 

system, we have the jurisdiction and statutory authority to investigate and assist 

other law enforcement agencies and retailers in combating these illegal activities. 

We generally see two types of schemes which I will discuss briefly: Internet auction fraud and Re-shipper fraud. Both of these crimes take advantage of the increasing use of the on-line marketplace in order to sell the stolen or fraudulently obtained goods. 

The Internet has become a critical component of the world’s commerce. More and 

more businesses are increasing their use of this commerce channel. Likewise consumers have the convenience and ease of shopping in this expanded marketplace 

with a simple click of the mouse without having to leave home. This convenience 

though has a downside—criminals as well as others who seek to take advantage of 

consumers, now have a larger market in which to sell and distribute their stolen 

products while making substantial profits with fewer risks than the physical fencing 

operations that these criminals have historically used. By far, there is a greater 

37 

reach for advertising of the ill-gotten products and the risk of detection is somewhat 

limited, making this online marketplace option so attractive to the organized retail 

crime groups. 

As noted our jurisdiction in organized retail crime lies in the use of the mail in 

order to ship the stolen products or as a means to remit payment to the online seller. In these investigations, we have seen criminal groups utilize the full spectrum 

of postal products, including Priority Mail, Express Mail, postal money orders as 

well as Post Office boxes from which they run their fraudulent schemes. 

One example of a recent Postal Inspection Service case began in early 2008. Postal Inspectors received a tip that owners of two Toledo, OH convienence stores were 

buying stolen merchandise, selling it on eBay and then shipping the items, both domestically and internationally via the Postal Service. Postal Inspectors determined 

that proceeds from the fraudulent sales were being laundered by the operators’ relatives in Jordan. We alerted special agents of Immigration and Customs Enforcement (ICE) in July when it was determined one of the operators was leaving for 

Jordan on a flight from the Detroit Metro Airport, and was believed to be smuggling 

an unknown amount of cash. ICE special agents stopped the owner, his wife, and 

their two children at the airport and seized $75,000 in undeclared funds which were 

hidden in the children’s clothing. The husband and wife each pled guilty to illegally 

smuggling cash and were sentenced to time in prison. 

Postal Inspectors continued their investigation of the other suspect operator with 

excellent cooperation from eBay and PayPal and obtained records of the owner 

which identifed over 7,500 items valued at $650,000 that he had sold online. Postal 

Inspectors worked with loss-prevention specialists from the victim companies and 

identified most of the items as coming from their stores. 

Throughout 2008, Postal Inspectors and corporate security investigators worked 

undercover, purchasing stolen items from online sites operated by the suspect. In 

February 2009, Postal Inspectors, ICE special agents, and Toledo, OH police executed a search warrant at the suspect’s home and recovered boxes of stolen merchandise as well as maps of pharmacies he apparently planned to target in Cleveland, Columbus, and Toledo. He was arrested and charged with mail fraud. He pled 

guilty in August and is being detained until he is sentenced. 

The second area of retail based crime we have become involved in is re-shipper 

fraud. In these types of cases, criminal organizations enlist individuals to receive 

and then reship products to other segments of the criminal enterprise generally to 

locations outside of the United States. In the majority of these cases, the products 

are obtained by retail crime groups through credit card theft as well as fraud. The 

re-shippers are oftentimes unwitting accomplices to the scheme, receiving and mailing the products based on instructions provided by the fraudsters. The re-shippers 

are then paid for their services. Many of these groups recruit the ‘‘re-shippers’’ in 

an attempt to further insulate themselves from detection, using a variety of ploys 

to trick individuals looking for easy work-at-home jobs. Ultimately, these re-shippers become part of the fraudulent activity. Retailers, legitimate shippers and financial institutions have all seen in increase in this type of crime. Again, the ability 

to move the stolen product with the least amount of exposure to those perpetrating 

the crimes is the reason for the use of the re-shipper approach. 

As part of their operation recruiters for the groups post bogus job listings on the 

various Internet career sites purporting to employ ‘‘merchandising managers’’ and 

‘‘package processing assistants.’’ The employment is described as, ‘‘receiving packages in the mail and resending them to foreign addresses.’’ This certainly sounds 

attractive as well as easy to the prospective participants. The groups further the 

scheme often providing bogus and fraudulently obtained postage-paid mailing labels 

to their re-shipper recruits. The Postal Service can also suffer significant losses as 

well as damage to its brand integrity when postal products or services are targeted 

by criminal schemes. 

Re-shippers are also recruited by a variety of other fraudulent solicitations, such 

as on-line dating Web dating sites. In the typical ‘‘sweetheart scammer’’, the 

fraudster sends e-mails to the potential recruit in order get to know them. Once 

they have aroused their attention, the fraudster asks them to help the business or 

family by shipping packages to Europe or Africa. 

Other scammers oftentimes claim to be working with a charity or mission which 

needs help getting ‘‘donated’’ merchandise delivered to third-world countries as well 

as other parts of the world. 

In reality, both the ‘‘sweetheart’’ and the ‘‘charity worker’’ need assistance with 

smuggling goods out of the United States which were purchased with stolen and 

other fraudulently obtained credit cards. In the end there’s no sweetheart or legitimate charity—even the mailing labels are either fraudulent or obtained using stolen 

credit cards. 

38 

The U.S. Postal Inspection Service continues to educate consumers about these 

fraudulent schemes using, for example, prevention-oriented messages delivered 

through online videos, newspaper and ad awareness campaigns (such as 

fakechecks.org), as well as via online publications, and our Web site at: 

www.usps.com/postalinspectors. 

In closing, be assured the Postal Inspection Service remains committed to collaborating with our law enforcement and corporate partners to deal with the problem 

of distribution of illicit goods through on-line market places and ultimately the U.S. 

mail. 

Mr. SCOTT. Thank you very much. 

I want to thank all of our witnesses for their testimony, and now 

we will recognize ourselves for 5 minutes each for questions. 

And my first question, probably to Mr. Johnson: If somebody notices that their goods are being sold on an Internet auction site 

who should they call? 

Mr. JOHNSON. Well, I think they have a couple of options. One, 

they can call their local police department or they can call their 

local FBI office and report the activity which they believe may be 

criminal. And, although I can only speak for the FBI, to the extent 

possible we would follow up that information and determine whether or not enough facts exist to open an investigation or not. 

Mr. SCOTT. And do you have enough authority under present 

criminal law procedure to open an investigation and proceed? Do 

you need any new laws on the books, from a procedural perspective, to investigate? 

Mr. JOHNSON. Although I can’t comment specifically on legislation here—we typically do it through DOJ—my personal opinion is 

that the existing laws on the books, whether it is Title 18, U.S. 

Code 2314 or 2315, or the conspiracy statutes, or the money laundering statutes, or even the RICO statute, do provide adequate 

criminal remedies to address these matters—— 

Mr. SCOTT. Okay. Those are criminal remedies. What about procedure? Do you have enough in terms of probable cause to get information from the auction site? 

Mr. JOHNSON. Although I have not personally been involved in 

any of those types of investigations, what I can tell you is that 

based on my limited interaction with some of those auction sites 

the answer is yes, they have been cooperative with the FBI and 

provided us with the assistance that we have requested, yes. 

Mr. SCOTT. Are there any problems with jurisdiction, or which 

agency ought to be involved? Do you have problems in coordination 

to make sure that the Federal Government is doing what it can in 

an investigation without people tripping over themselves and not 

cooperating? 

Mr. JOHNSON. Yes. No, I have had no experience—let me rephrase that—the level of cooperation between local, State, and Federal law enforcement with regard to this particular effort, as well 

as private industry, has been outstanding. We haven’t had any 

issues that I am aware of where we haven’t been able to work effectively together to address the problem. 

Mr. SCOTT. Now, the investigation of the—Ranking Member of 

the full Committee has mentioned the investigation of these cases 

can be resource-intensive. What do you need—or, have you had to 

39 

prioritize and not investigate cases that you thought you could investigate and solve because of lack of resources? 

Mr. JOHNSON. The answer to that question is yes, we have to 

prioritize on a daily basis, in terms of what cases we will investigate and dedicate resources to. One of the difficult things that we 

have to do is we have to select our target based on the intelligence 

that we have, that is one of the—one of the criteria that we have 

is making sure that we are on the right target, and those that don’t 

meet certain criteria we will refer to local or State law enforcement. 

Mr. SCOTT. Have you requested additional resources so that you 

could chase after more of the organized retail thieves? 

Mr. JOHNSON. Can I ask somebody a question real quick? 

The answer is yes, we have requested additional resources. Typically, or at least to my knowledge, they have not been successful 

to date. 

Mr. SCOTT. If you could provide us with that information we— 

hopefully we can be helpful in that because it is my belief that the 

responses to your questions were criminal law is enough, the procedures are enough, and the problem in chasing down the thieves is 

lack of resources. So if we want to do something we have to give 

you the appropriate resources and that is our challenge. 

Mr. JOHNSON. We will get that information for you. 

Mr. SCOTT. Thank you. 

Gentleman from Virginia? 

Mr. GOODLATTE. Thank you, Mr. Chairman. 

Mr. Johnson, when we talk to retailers the most common complaint they have about the difficulty in dealing with organized retail crime is that the Federal law enforcement organizations just 

don’t give them the time of day when it comes to dealing with 

these. They view it as just another shoplifting case or maybe a 

shoplifting case of a little greater magnitude, but they don’t get 

enough effort in terms of digging beyond the person that may be 

apprehended in the store, or at a swap meet, or at a flea market, 

or whatever the case might be. 

And these are national organized rings that really do require the 

Federal Government to step in. What do you say in response to 

that? 

Mr. JOHNSON. What I will say is that yes, typically, as we have 

talked about today, typically these cases can be very resource-intensive. Generally speaking the FBI will approach these types of 

cases from a criminal enterprise theory, so what we are trying to 

do, as opposed to selecting one or two low-level boosters or fencers 

to try and develop a case on we try and look at the entire enterprise, which may be 10, 15, 20 or more individuals. And as a result 

of that, the investigative techniques that we typically utilize generally tend to be very expensive and require a lot of personnel to, 

you know, to utilize those particular techniques. 

So what I can say is that as always, we can do a better job in 

terms of investigating these cases. We do the best we can with the 

resources that we have and we try and target the most sophisticated enterprises that are engaged in this conduct. 

Mr. GOODLATTE. Now, last year how many of these types of investigations were conducted by the FBI? 

40 

Mr. JOHNSON. I can get you exact numbers, but my understanding is somewhere between 70 and 80 investigations were 

pending last fiscal year. 

Mr. GOODLATTE. And how many of them were opened last year? 

Mr. JOHNSON. I don’t have that information right now. 

Mr. GOODLATTE. If you could get us information about how many 

were opened and how many were closed so we would get a gauge 

for exactly how many investigations you are initiating per year 

that would be helpful to us, maybe going back over the last 3 or 

4 years. 

Mr. JOHNSON. Sure. 

Mr. GOODLATTE. Would prosecutions of organized retail criminals 

increase if State and Federal felony thresholds were lowered? 

Mr. JOHNSON. Could you repeat the question? I am sorry. 

Mr. GOODLATTE. Yes. The question was, would prosecutions of organized retail criminals increase if State and Federal felony thresholds were lowered? 

Mr. JOHNSON. Again, that is a difficult question to answer. What 

I can say is that, again, as the FBI has resource issues to deal with 

the United States Attorneys Offices have resources issues to deal 

with. So it is a question of whether or not there are available investigative and prosecutive resources to investigate and prosecute 

those cases. 

Mr. GOODLATTE. In my opening statement I referred to the Law 

Enforcement Retail Partnership Network, and I am wondering 

what you can tell us about how that has improved your ability to 

investigate. 

Mr. JOHNSON. As I mentioned in my statement, there is a lot of 

data in LERPnet currently. Law enforcement will have access 

through LEO Online very shortly—we are working through some 

technical issues right now—but what that will do is it will make 

that data available to a variety of local, State, and Federal law enforcement officers to go in and conduct some analysis in terms of 

trends or to try and connect the dots, if you will, between particular events that are happening in various locations throughout 

the United States. 

Mr. GOODLATTE. Let me ask everyone on the panel, how do you 

typically become aware of ORC violations? It seems like once they 

are brought to your attention Federal law enforcement agencies 

can effectively prosecute these criminals. 

What is the best way for Congress to help facilitate bringing 

these crimes to your attention, number one? And number two, is 

it a problem of not being aware of these things? Are the big box 

stores and other retailers who are suffering some serious problems 

from organized retail crime not bringing enough information to you 

or is it a problem of having the resources to investigate them further? 

Well start with you, Mr. Hill. 

Mr. HILL. Over the last 3 years we have only received information—we have investigated 21 of these types of cases. Last year we 

did eight that we attribute to organized retail crime groups, and 

those were referrals from either other law enforcement agencies, 

including my colleagues here, or the retailers themselves. So we 

are not getting a lot of information that, at least from the perspecVerDate Aug 31 2005 10:15 Jul 20, 2010 Jkt 000000 PO 00000 Frm 00044 Fmt 6633 Sfmt 6601 H:\WORK\CRIME\110509\53231.000 HJUD1 PsN: 53231
41 

tive of the Postal Service, is being used to facilitate these types of 

crimes that—— 

Mr. GOODLATTE. Well, that is interesting because I would assume 

that if you bought something on the Internet that it would be 

shipped to you using the mail in many instances, would it not? And 

therefore, that would entail your involvement. You could investigate those. 

Mr. HILL. In many instances the mail jurisdiction is limited to 

the U.S. Mail, not to FedEx, not to UPS—— 

Mr. GOODLATTE. Right. So do you think criminals avoid using the 

U.S. Mail to avoid your investigative powers and focus on FedEx 

and UPS? 

Mr. HILL. Well, we would like to think that they stay out of the 

mail because of our—— 

Mr. GOODLATTE. That would be an interesting question to have 

answered, because if they are evading your organization’s involvement that would shift the focus down the table here, but it also 

would say maybe we need to be looking at some changes in the law 

to address that. 

Mr. Large? 

Mr. LARGE. Yes, sir. Typically we become aware of these cases 

through our access device investigations, and primarily that is 

through our task force model. We have over 100 retail fraud investigators that either participate on a full-or a part-time basis with 

either a financial crime task force or an electronic crime task force 

that are spread out throughout the country. They will bring cases 

to us typically—— 

Mr. GOODLATTE. Do you have much direct interaction with major 

retailers bringing matters to your attention? 

Mr. LARGE. With their investigators, sir. Their investigators that 

participate with our task forces will bring cases directly to our 

agents. We get cases from State and local law enforcement—— 

Mr. GOODLATTE. Are you able to investigate all of the cases that 

are brought to your attention, or do you have limited resources and 

have to select amongst those? 

Mr. LARGE. Well again, like my comrade said from the FBI, that 

is a tough question to answer. We will look into it and see if there 

is a nexus to organized criminal groups that are operating in multiple different States and see if we can build a bigger case from the 

small case, but we cannot investigate everything that is brought to 

our attention. 

Mr. GOODLATTE. And Ms. Ayala? 

Ms. AYALA. Well, we work closely with the National Retail Federation and RILA in order to determine what the large threat cities 

are, and they have polled their membership and due to our pilot 

program have been able to identify the top 10 cities, of which we 

selected four where we think ICE resources could best be able to 

investigate these cases. The industry provides leads to us at the 

headquarters level, and then we funnel the leads out to the field. 

Mr. GOODLATTE. Thank you. 

Mr. Chairman, my time is well expired, so thank you for your 

forbearance. 

Mr. SCOTT. Thank you. 

42 

Gentleman from Michigan, Chairman of the full Committee, Mr. 

Conyers? 

Mr. CONYERS. Thank you, Mr. Chairman. This is a good hearing. 

I am preparing a memo along with our Chairwoman that is trying to get out of the room right now, and what we are going to recommend is that we meet with the head of the FBI, with the Secret 

Service, with the Postal—the same witnesses you have here—and 

try to get in front of—this is a crime, a new crime aspect that is 

going to grow, and if we just keep measuring how it grows every 

year it will keep on growing. It is probably out of hand now in a 

proportion that we are probably not aware of. 

And I think meeting to try to get the resources that are going 

to be needed—just informally, we don’t—our memo will not recommend another hearing, but that we just meet in your office and 

get down with it, and we didn’t even include ICE. Ayala is probably 

the nicest person over there. 

I mean, we only hear bad things about ICE in the Judiciary 

Committee, so we recognize that you have been deliberately selected to come over here and put a nice face on that outfit. 

But I think this is good, and, Mr. Large, while you were arresting so many people did you get anybody on Wall Street while you 

were at it? 

Mr. LARGE. None that I am aware of, sir. 

Mr. CONYERS. Yes, well this is probably petty stuff. They don’t 

deal in multimillion dollar crime—retail crime things. Why do you 

have to? You have got some many derivatives and new designs, 

many of which are not even regulated. So I just wanted to—any of 

those guys that might have fallen on hard times that just do this 

on the side. 

Well, thank you, Mr. Chairman. 

Mr. SCOTT. Thank you. 

And I would point out that we have been working on this. 

LERPnet has helped coordinate, and the FBI has already testified 

on the record that criminal law and criminal procedures are sufficient to deal with it, but the thing we have not provided are appropriate resources. 

These cases take a lot of people, a lot of investigation, a lot of 

stakeouts, and it is resource-intensive, and I think the meeting 

that you have suggested would be helpful that we could bring in 

and see exactly—the FBI has indicated that they will be providing 

us with some ideas about what kind of resources would be helpful. 

So that would be very helpful. 

Mr. GOODLATTE. If the Chairman would yield, we would certainly 

like to participate in that on our side of the aisle, too. 

Mr. SCOTT. The expectation would be that you would participate. 

Mr. GOODLATTE. Thank you. 

Mr. SCOTT. Thank you. 

Gentleman from Illinois, Mr. Quigley? 

Mr. QUIGLEY. Thank you, Mr. Chairman. 

For any of the panelists—apologize if I—— 

Mr. SCOTT. Excuse me, Mr. Quigley. I thought the gentleman 

from Michigan had yielded back. He did. Okay, I am sorry. Proceed. 

Mr. QUIGLEY. Okay. 

43 

The online marketplace companies, people resell stolen items— 

part of me thinks it is sort a needle in the haystack. I am not sure 

how they are possibly going to be able to police themselves. But in 

a perfect world, how do they police this sort of thing? And the question for all of you is, how well are they doing it? 

I guess we will start with Mr. Johnson. 

Mr. JOHNSON. I don’t know how they would police themselves, to 

be perfectly honest with you. I would have to think about that 

question a little bit more before—— 

Mr. QUIGLEY. Not so much policing themselves but policing the 

marketplace that they provide. 

Mr. JOHNSON. Yes, I believe that they are—I say they—online 

marketplaces are—some of them are looking at the postings on a 

daily basis and are attempting to identify those that just look suspicious. And based on those postings—again, this is just my understanding having talked to a couple of them—then they have investigators or somebody internally taking a look at what those postings are or what the items are, and then if they develop enough 

information to refer it to law enforcement they will. That is just 

based on my limited knowledge. 

I am sorry, could you repeat the second half of that question? 

Mr. QUIGLEY. Well I guess you sort of answered the question. 

How well are they doing what they can? 

Mr. JOHNSON. Yes, and again, based on my experience working 

with a limited number of them, in my opinion I believe they realize 

that they have an issue, and they are actively trying to address it. 

Mr. QUIGLEY. Thank you. 

Ms. AYALA. Yes, I recently attended a RILA conference where I 

saw a presentation from eBay and some of the other online services 

where they do have mechanisms in place to look at the Internet as 

far as the volume of activity in a given timeframe, also multiple addresses or sites tied back to one or two individuals, so they are attempting to look at that. I know they are working closely with the 

federation on these issues. 

Mr. QUIGLEY. Thank you. 

Mr. LARGE. Yes, sir. While the Secret Service is not in a position 

really to evaluate their internal controls and the methods they use 

to detect this type of fraud, we do say—we can say that they do 

cooperate with us, they participate in our task forces, on occasion 

they have noted fraudulent activity and brought cases to us to investigate. So that we can give you an opinion on. 

Mr. HILL. The legitimacy of the auction house is the start. That 

is probably the beginning because you have a lot of very legitimate, 

well-established businesses that are in this sector, and then you 

have other ones that aren’t. Those legitimate businesses that we 

have worked with have protective measures in place to police the 

use of the Internet for purposes of their operation. 

The problem with this is obviously that they don’t control the inventory. It is not like a pawn shop or fencing operation where you 

have the product there. They are basing it on the assurance that 

the seller is that I have this product, and I am going to sell it on 

your site. 

In terms of what they can do for policing, I think all they can 

do is establish a good business relationship, the legitimacy of the 

44 

seller, and if they have a bad seller, or picked a bad seller, they 

take them down off the system and deny them access. 

Mr. QUIGLEY. Do you also understand that I guess some sites would be too good to be true, right? Blue jeans for $10 or something like that, and they are all new. Some of that must be obvious. 

I guess in the end what I would like is, if it is possible in the 

future for us to advise us on what else they might be able to do, 

again, in a perfect world. Are there computerized systems or is it 

a random check, or as you suggested, multiple sites for one person 

or a deal that is too good to be true—what else can they be doing 

to help monitor this and send information of suspected sites to all 

of us? Thank you. 

Mr. SCOTT. Does the gentleman yield back? 

Mr. QUIGLEY. Yes, I yield back. 

Mr. SCOTT. Thank you. 

We have talked about meetings with law enforcement. I think it 

would also be helpful if we—and we have in the room representatives of the retail industry and the Internet industry—if they could 

be in the room and discuss what some of the problems are at the 

same time. 

But I would like to thank all of our witnesses for their testimony 

today. Members—— 

Ms. LOFGREN. Mr. Chairman? 

Mr. SCOTT. [Off mike.] 

Ms. LOFGREN. I don’t have a lot of questions, Mr. Chairman—— 

Mr. SCOTT. I am sorry. I looked, and I didn’t see you, and 

you—— 

Ms. LOFGREN. That is all right. I was getting a cup of coffee. 

I just wanted to make a quick—— 

Mr. SCOTT. Gentlelady is recognized for 5 minutes. 

Ms. LOFGREN [continuing]. A quick comment because eBay actually is headquartered in my congressional district, and as a consequence I am in touch with them often. I have, you know, thousands of constituents who work there, and I think they take this 

very, very seriously, and certainly with local law enforcement as 

well as federal, if there is an issue they are all over it because, you 

know, they value the law. 

And I would just like to note that hundreds of thousands of 

Americans have their entire business and livelihoods are because 

of eBay. And so there is that aspect to it as well. There are just 

many Americans who earn a living by selling things through eBay 

and we need to value that as well. It is a great source of income 

for Americans. 

I just wanted to leap to the defense of my constituents, Mr. 

Chairman, and thank you for holding this hearing. 

Mr. SCOTT. Thank you. 

We have to leave in just a moment. I understand the Ranking 

Member pro temp has another question. 

Mr. GOODLATTE. Thank you, Mr. Chairman, and this will be 

quick, and it pertains to the gentlewoman from California’s constituents. 

One of the issues that comes up is that a lot of this activity may 

take place on the Internet. And the problem is that the bricks and 

mortar retailers have a problem with getting information about 

45 

whether particular Web sites have information about a product 

that they suspect is being fenced on the Internet, but they don’t 

have any real proof of it unless they can gather information. 

Well, that draws a response from the online businesses that they 

don’t want other competitors being able to ask them literally thousands of questions regarding their customers that are doing business on their Web sites and so on without the involvement of law 

enforcement. 

So we have been trying to find some common ground here to 

work out this situation and move it forward. And my question to 

you, Mr. Johnson, is would you be willing to participate in a program to allow expedited requests for information from online marketplaces when probably cause is found that goods being sold online are stolen? 

Mr. JOHNSON. I think the answer to that question is yes. 

Mr. GOODLATTE. And if we gave you the resources to have some 

people dedicated to that information—gathering that information 

that might help the bricks and mortar folks and allow the online 

folks to have greater cooperation, greater results without having to 

interface with private citizens demanding information from them 

that they don’t think it is appropriate for them to be asking. 

Mr. JOHNSON. Correct. 

Mr. GOODLATTE. Thank you very much. 

Mr. SCOTT. Thank you. 

And I would like to thank our witnesses for their testimony 

today. Members may have additional written questions which we 

will forward to you and ask you to answer as promptly as possible 

so that the answers may be made part of the hearing record. 

Without objection the case summary and chart describing Target’s double deal investigation and additional statements that have 

been submitted to the Subcommittee from the Coalition Against 

Retail Crime, the Food Marketing Institute, the National Association of Chain Drug Stores, the National Insurance Crime Bureau 

will all be entered into the record. The record will remain open for 

1 week for the submission of additional material. 

And without objection, the Subcommittee stands adjourned. 

[Whereupon, at 10:47 a.m., the Subcommittee was adjourned.] 

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