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21–823 PDF 2005

S. Hrg. 109–202

COUNTERFEIT GOODS: EASY CASH FOR

CRIMINALS AND TERRORISTS

HEARING

BEFORE THE

COMMITTEE ON 

HOMELAND SECURITY AND 

GOVERNMENTAL AFFAIRS 

UNITED STATES SENATE

ONE HUNDRED NINTH CONGRESS

FIRST SESSION

MAY 25, 2005

Printed for the use of the 

Committee on Homeland Security and Governmental Affairs

(

(II)

COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS 

SUSAN M. COLLINS, Maine, Chairman 

TED STEVENS, Alaska 

GEORGE V. VOINOVICH, Ohio 

NORM COLEMAN, Minnesota 

TOM COBURN, Oklahoma 

LINCOLN D. CHAFEE, Rhode Island 

ROBERT F. BENNETT, Utah 

PETE V. DOMENICI, New Mexico 

JOHN W. WARNER, Virginia 

JOSEPH I. LIEBERMAN, Connecticut 

CARL LEVIN, Michigan 

DANIEL K. AKAKA, Hawaii 

THOMAS R. CARPER, Delaware 

MARK DAYTON, Minnesota 

FRANK LAUTENBERG, New Jersey 

MARK PRYOR, Arkansas

MICHAEL D. BOPP, Staff Director and Chief Counsel 

THOMAS R. ELDRIDGE, Senior Counsel 

JOYCE A. RECHTSCHAFFEN, Minority Staff Director and Counsel 

RAJESH DE, Minority Professional Staff Member 

TRINA D. TYRER, Chief Clerk 

(III)

C O N T E N T S 

Opening statements: Page 

Senator Collins ................................................................................................. 1

Senator Lieberman ........................................................................................... 3

Senator Akaka .................................................................................................. 5

Senator Lautenberg .......................................................................................... 6

WITNESSES 

WEDNESDAY, MAY 25, 2005

John C. Stedman, Lieutenant, Sheriff’s Department, County of Los Angeles ... 7

Kris Buckner, President, Investigative Consultants ............................................ 10

Matthew Levitt, Senior Fellow and Director of Terrorism Studies, The Washington Institute for Near East Policy ................................................................. 14

ALPHABETICAL LIST OF WITNESSES

Buckner, Kris: 

Testimony .......................................................................................................... 10

Prepared statement .......................................................................................... 35

Levitt, Matthew: 

Testimony .......................................................................................................... 14

Prepared statement .......................................................................................... 41

Stedman, John C.: 

Testimony .......................................................................................................... 7

Prepared statement .......................................................................................... 31

APPENDIX

Timothy P. Trainer, President, Global Intellectual Property Strategy Center, 

P.C., prepared statement ..................................................................................... 55

(1)

COUNTERFEIT GOODS: EASY CASH FOR 

CRIMINALS AND TERRORISTS 

WEDNESDAY, MAY 25, 2005

U.S. SENATE, COMMITTEE ON HOMELAND SECURITY

AND GOVERNMENTAL AFFAIRS, Washington, DC. 

The Committee met, pursuant to notice, at 9:35 a.m., in room 

SD–562, Dirksen Senate Office Building, Hon. Susan M. Collins, 

Chairman of the Committee, presiding. 

Present: Senators Collins, Lieberman, Akaka, and Lautenberg. 

OPENING STATEMENT OF CHAIRMAN COLLINS 

Chairman COLLINS. The Committee will come to order. 

Good morning. During the past 2 years, this Committee has held 

three hearings to investigate terrorism financing. From the flow of 

money through certain Islamic charities in this country to terrorist 

organizations around the world, to the role played by Saudi Arabia, 

described to this Committee as the epicenter of terrorism financing, 

we have learned much about this complex and murky subject. 

Today, we explore another aspect of the shadowy world of terrorism financing. The theft of intellectual property rights through 

counterfeiting and pirating of consumer goods is a huge and growing criminal enterprise. It is estimated that counterfeit merchandise accounts for between 5 and 7 percent of all the goods moved 

in world trade. According to Interpol, this counterfeit merchandise 

is worth approximately $450 billion annually. According to the U.S. 

Trade Representative, American businesses lose as much as $250 

billion each year to counterfeiters. 

The U.S. Bureau of Customs and Border Protection seized about 

$138 million in fake goods in 2004, compared with $94 million in 

2003. Compact disks, computer software, sneakers, golf clubs, perfume, soft drinks, baby food, electronics, auto parts, name the product and someone is selling a bogus or pirated version on a street 

corner in some American city, and as you can see, we have an 

array of counterfeit merchandise that has been seized in various 

raids that is displayed on the table. 

For those unfamiliar with the terminology, counterfeit goods are 

knock-offs or look-alikes of brand-name products, such as this counterfeit Gucci watch. Goods are referred to as pirated when criminals steal and sell the content of a legitimate product, such as the 

latest Star Wars movie, already out in pirated version, and copy it 

illegally without the permission of its owner. Both kinds of illegal 

goods are often referred to as counterfeit. 

2

Combine counterfeiting’s high profits with the uninformed notion 

that the purchase of a knockoff designer handbag, a fake wristwatch, or a pirated DVD is a victimless crime and it is no surprise 

that the trade in counterfeit goods is extremely lucrative. This 

criminal activity has damaging consequences for our economy and 

for honest businesses and their employees. Moreover, given the evidence that terrorists are engaging in counterfeiting to secure 

money to support their operations, the potential consequences are 

far more dire than economic damage. 

The unclassified evidence linking terrorism and counterfeiting is 

compelling and it spans several agencies and years. For example, 

in a 2002 advisory entitled, ‘‘Financing Terror: Profits from Counterfeit Goods Pay for Attacks,’’ the Customs Service warned of an 

increasingly close connection between transnational crime and terrorism with the profits from counterfeit and pirated goods being 

the strongest link. 

In 2003, the Secretary General of Interpol testified before Congress that intellectual property crime, the pirating of such products 

as software, CDs, and DVDs, is becoming the preferred method of 

funding for a number of terrorist organizations. He cited direct and 

indirect connections between counterfeiting and Hezbollah, the 

Chechen rebels, extremist groups in Kosovo, and al Qaeda, among 

others. 

Also in 2003, the Terrorist Financing Operations Section of the 

FBI provided a document to the Committee stating that the sale 

of counterfeit goods is among the ways in which Hezbollah finances 

its terrorist activities, and we have a graphic that takes information from this FBI report. 

In its 2004 report, ‘‘Patterns of Global Terrorism,’’ the State Department wrote that the tri-border region of South America, Argentina, Brazil, and Paraguay, is a regional hub for Hezbollah and 

Hamas fundraising activities, including the manufacture and movement of pirated goods. 

In January of this year, the International Anti-Counterfeiting 

Coalition stated that there is ample evidence to confirm that terrorist organizations are profiting from the manufacture and sale of 

counterfeit and pirated goods. 

In addition to the high profits, there is another reason that terrorists have turned to this method of financing. The United States 

and our allies around the world have made some significant 

progress in shutting off the flow of terrorist money through established mechanisms and institutions. These concerted efforts are 

making a difference. But we know that terrorists are nothing if not 

resourceful and determined. When we shut off one avenue of financing, they find another. 

This point was made well recently by Treasury’s Under Secretary 

Stuart Levy when he said, ‘‘We have indications that terrorist 

groups like al Qaeda and Hamas are feeling the pressure and are 

hurting for money. We are also seeing terrorist groups avoiding formal financing channels and instead resorting to riskier and more 

cumbersome financial conduits, like bulk cash smuggling. One rich 

source of bulk cash is the sale of counterfeit consumer products.’’

Finally, I would note that the focus to date by this Committee 

on its hearings, as well as by our government and our allies, has 

3

been on high-level terrorist financing, for example, by multi-million-dollar charities and foundations, by entities linked to Saudi 

Arabia, and by Iran. That certainly is appropriate and it is where 

the primary focus should be. But we know that terrorism is also 

funded by street crime. There are many examples of this. 

Ahmed Ressam, the Millennium bomber, funded his activities by 

stealing tourists’ suitcases in hotels and by credit card fraud. In 

testimony before this Committee last June, the former general 

counsel at the Department of Treasury noted that the Madrid train 

bombers were financed through criminal activity, including drug 

dealing. 

We also know that it does not take a large sum of money to commit a devastating terrorist attack. After all, the organizing, planning, and training for September 11 cost only an estimated 

$500,000, a sum easily generated by criminal activity such as counterfeiting. 

The purpose of this hearing is to focus much-needed attention on 

what appears to be a fertile and growing source of financing for terrorists. It is my hope that this attention will lead consumers to reject these low-cost street corner bargains because, in fact, they 

carry a terrible price. It is my expectation that this attention will 

lead to increased efforts by our government and our allies to close 

off this rich avenue of terrorist financing. 

Senator Lieberman. 

OPENING STATEMENT OF SENATOR LIEBERMAN 

Senator LIEBERMAN. Thank you very much, Madam Chairman. 

Thanks so much for calling this hearing today on a problem that 

deserves far greater recognition than it has yet received. 

Over the years, we have obviously heard much and tried to do 

much about the counterfeiting of consumer goods and the economic 

losses suffered by manufacturers whose popular CDs or designer 

jeans are counterfeited for mass sale around the globe. I want to 

compliment you, Madam Chairman. I just heard yesterday that 

‘‘Return of the Sith’’ was already selling on the streets of Beijing, 

and here you have already got one, I see. Very impressive. [Laughter.] 

But today, obviously, we are going to look at counterfeit goods 

from a different perspective, from a national security perspective, 

which adds, of course, a new and critical dimension to the urgency 

of curtailing this illicit activity, counterfeiting. 

The experts estimate that as much as 7 percent of world trade 

is involved with the sale of counterfeit goods. That amounts to hundreds of billions of dollars a year that eat away at the income of 

American manufacturers and workers, but counterfeiting is obviously more than just a bunch of people hustling for a few extra 

bucks, a victimless crime. It has become a major source of income 

for organized crime and, as we shall hear today, for terrorists because of its low risks and high rewards. In other words, the risk 

of getting caught and the penalties if you are caught are minimal, 

while the potential for making money is maximal. 

There is a recently published book which was called Lightning 

Out of Lebanon, which details a notorious North Carolina case a 

few years ago that implicated Hezbollah, the terrorist organization, 

4

in counterfeiting here in the United States to support their activities in the Middle East. One of our witnesses here today, former 

FBI analyst Matthew Levitt, worked with the authors of the book 

and I look forward to hearing about his work in that area. 

Madam Chairman, as you well know, 3 years ago, in the context 

of another investigation by this Committee, the Terrorist Financing 

Operations Section of the FBI provided an unclassified document 

to the Committee that listed the sale of counterfeited goods among 

various criminal activities the terrorist organization Hezbollah uses 

to raise cash in the United States. This evidence puts the lie to 

what I think is that commonly held belief that trade of counterfeit 

goods is a victimless crime. If anybody suffers, it is only a couple 

of big people at the top of the corporations. 

That is not true. Certainly, it has never been true. But as the 

evidence strongly suggests that we will hear today, profits from 

counterfeit sales are used to finance terrorist activities, and this is 

anything but a victimless crime. This is a crime that finances random murder around the world, including, needless to say, the murder of Americans. 

We are very fortunate today, in addition to Mr. Levitt, to have 

two witnesses from Los Angeles who will testify to what they have 

done and discovered about the counterfeit trade and its connection 

to terrorism. All three witnesses, I hope, will help us understand 

the nexus between terrorism and counterfeiting, and also help us 

to evaluate whether the Federal Government, State, and local governments, and law enforcement generally are receiving the resources and are coordinating their investigatory and prosecutorial 

activities to meet this challenge. 

Local leads regarding counterfeit goods and possible terrorist 

connections are extremely valuable, particularly since the Federal 

Government has strong financial tracking capabilities with regard 

to terrorist financing that have been developed in recent years and 

were further improved by the intelligence reform legislation signed 

into law last year by the President, which came out of this Committee. That legislation authorized additional funding for the 

Treasury Department’s Financial Crimes Enforcement Network 

and its technical tracking capabilities to strengthen the Department’s anti-money laundering and anti-terrorist financing efforts. 

So we know that Federal agencies track and investigate terrorist 

financing. What we want to find out today from the witnesses is 

whether those agencies are doing enough to track and investigate 

and prosecute those who are using the sale of counterfeit consumer 

goods to finance terrorist activities. This is a very important hearing today and one in which, Madam Chairman, I think we are 

playing another appropriate role of oversight, which may lead to 

legislation—perhaps we will decide that there ought to be stiffer 

penalties for counterfeiting—but hopefully, we will focus attention 

on this problem that it hasn’t received before, and that attention, 

in turn, will engender the kind of prosecutorial activity that I believe this problem merits. 

Thank you very much. 

Chairman COLLINS. Thank you, Senator. Senator Akaka. 

5

OPENING STATEMENT OF SENATOR AKAKA 

Senator AKAKA. Thank you very much, Madam Chairman, for 

calling this hearing to learn more about a developing and growing 

problem not only in our country, but in the rest of the world, as 

well. 

Today’s hearing provides us, and I join Senator Lieberman in 

saying that this provides us with two opportunities. One opportunity is to understand the connection that may exist and is developing between organized crime and terrorism. The other opportunity is to, as was mentioned, evaluate the level of cooperation between the Federal level and the local level of law officials. 

I want to thank our witnesses for being here to provide us with 

their testimony. Thank you, Lieutenant Stedman from the Los Angeles County Sheriff’s Department, also Kris Buckner and Dr. Matthew Levitt for your expert testimony. 

The selling of counterfeit goods pervades every major area of the United States. According to recent estimates, $286 billion in counterfeit goods are sold in the United States every year. The problem 

is not just large companies protecting their intellectual property 

and their profits. It is also consumers paying for goods they believe 

are of a certain quality, only to receive fake goods. It is about people buying dangerous counterfeit pharmaceuticals over the Internet, as we heard at several hearings last year before the Permanent Subcommittee on Investigations. 

Interpol recently reported a tragic case of counterfeit baby formula sold in China which resulted in the deaths of 13 babies and 

serious illness to another 171 babies. Counterfeit goods is not a 

victimless crime. 

Of those organized criminal enterprises that are involved in the 

profitable business of counterfeit goods, there is a small number 

who directly threaten our national security by providing financial 

support to terrorists. 

In July 2003, the House Committee on International Relations 

held a hearing entitled, ‘‘Intellectual Property Crimes: Are Proceeds from Counterfeited Goods Funding Terrorism?’’ At that hearing, the Secretary General of Interpol, Mr. Ronald K. Noble, sounded the alarm that, and I quote him, ‘‘Intellectual property crime is 

becoming the preferred method of funding for a number of terrorist 

groups.’’

Department of Homeland Security Under Secretary Hutchinson 

said, ‘‘Terrorist organizations worldwide are looking for a variety of 

illegal activities to fund their efforts. They have looked at contraband and counterfeiting and piracy, all as means of illegal activity 

to fund their organizations.’’

One well-known case involving counterfeit and pirated goods was 

reported in the joint Departments of Justice and Treasury in 2003 

National Money Laundering Strategy, working with Canadian law 

enforcement. U.S. officials obtained 18 convictions of members of a 

Charlotte, North Carolina-based Hezbollah cell which had smuggled untaxed cigarettes into North Carolina and Michigan and used 

the proceeds to provide financial support to terrorists in Beirut. 

There is a danger that, over time, terrorist cells and criminal 

gangs could forge mutually beneficial financial links that will facilitate terrorist infiltration into the United States. It is one short step 

6

from smuggling narcotics to smuggling terrorists and explosives. 

Once this link is made, that challenge to our domestic security will 

have exponentially increased. 

Some concern has already been reported about possible connections between al Qaeda and the street gang known as MS–13. 

While these connections appear now not to have been made, our 

vigilance must be strict. It illustrates the important need for cooperation between criminal intelligence divisions in the local law 

enforcement field and terrorist intelligence agencies at the Federal 

level. 

Madam Chairman, I hope today’s witnesses will address some of 

these issues, and I hope, Madam Chairman, that the Committee 

will continue to look into these issues. I ask to be excused for another important Committee statement that I have to make elsewhere. Thank you very much. 

Chairman COLLINS. Thank you, Senator. You are a very dedicated Member of this Committee, and I appreciate your coming by 

this morning. 

Senator AKAKA. Well, it is no secret. I enjoy working with you. 

Chairman COLLINS. Thank you. Senator Lautenberg. 

OPENING STATEMENT OF SENATOR LAUTENBERG 

Senator LAUTENBERG. Thank you, Madam Chairman. It is pretty 

obvious that we must do whatever we can to interrupt funds that 

might go to terrorist organizations or countries that support terrorism, and today, we are looking at one way that funds are developed to support these enemies of the United States. 

We have all had the experience, as we talk about counterfeit 

goods, we have all had the experience of walking down streets in 

cities like Newark, New York, Philadelphia, or any other major city 

and see people selling items like handbags, clothing, and the miscellaneous replications that we see here on this table and that we 

are all aware of. At first glance, these items might appear to be a 

great bargain. 

But most of us have learned that when a deal seems too good to 

be true, it usually is, and that is certainly the case with counterfeit 

consumer goods. They are a bad deal for consumers because they 

don’t really receive what they think they are buying. And counterfeit goods are certainly a bad deal for the companies whose goods 

they mimic. 

That is one part of the thing. The result is, as we look at today, 

is not only does it hurt the economy, hurt the companies, and hurt 

the buyers, but it appears that trade in counterfeit merchandise 

might even damage our national security by funneling money into 

the hands of terrorists. 

President Bush has said it, that money is the lifeblood of terrorists, and that is certainly true. We have learned that. But there are 

other larger sources of income to terrorists that are also not being 

shut down, and one that I have focused on in the past is American 

companies that do business with terrorist States. 

That is why I have introduced a bill that would close the loophole 

in our current law that allows U.S. companies to do business with 

nations like Iran, simply by going through offshore subsidiaries. 

7

1The prepared statement of Lieutenant Stedman appears in the Appendix on page 31. 

Now, we need to close this loophole and cut off the flow of dollars 

to terrorists, people who want to destroy our lives and our Nation. 

I look forward to hearing more about the issue of counterfeit 

goods from our witnesses. It is my hope that my colleagues will join 

with me to stop U.S. companies from doing business with terrorists 

once and for all. We have got to do whatever we can to make sure 

that no help goes from any American company by any device or 

ruse to countries like Iran, where funds travel to terrorist organizations, wind up killing or injuring Americans, whether or not they 

are in or out of uniform, and I commend you, Madam Chairman, 

for calling this hearing and focusing on this issue of funds to terrorists. 

Chairman COLLINS. I would now like to welcome our first 

panel—our only panel this morning, of witnesses. Each is truly an 

expert in his field. Lieutenant John Stedman is a 24-year veteran 

of the Los Angeles County Sheriff’s Department and is currently a 

supervisor in the Criminal Investigative Section of the Department. 

Kris Buckner is President of Investigative Consultants, a private 

investigation firm specializing in intellectual property crime investigations. 

And Dr. Matthew Levitt is an expert on the subject of Hezbollah. 

He is also the Director of the Washington Institute’s Terrorism 

Studies Program. 

We are very pleased to have you here with us this morning. We 

appreciate all of the prior assistance you have given the Committee 

as we have investigated this issue. 

Lieutenant, we are going to start with you. Thank you. 

TESTIMONY OF JOHN C. STEDMAN,1 LIEUTENANT, SHERIFF’S 

DEPARTMENT, COUNTY OF LOS ANGELES 

Lieutenant STEDMAN. Thank you, Chairman Collins and Senator 

Lieberman, for the opportunity to testify today. My name is John 

Stedman. I am a lieutenant with the Los Angeles County Sheriff’s 

Department in California. My testimony today will address the enforcement efforts of the Sheriff’s Department regarding intellectual 

property rights crimes and the involvement of organized crime 

groups operating in Los Angeles county. 

My experience with IPR crimes dates to the late 1980s, when my 

unit was approached by members of the Latin American Music Association. They were experiencing large revenue losses due to proliferation of unauthorized and illegal duplication of music onto cassette tapes. The Music Association was seeking cooperation from 

local law enforcement to enforce a State of California statute that 

makes it a crime to illegally duplicate copyrighted or trademarked 

materials. Over the next 2 years, my unit investigated dozens of 

these cases, resulting in the seizure of hundreds of thousands of 

cassette tapes and the incarceration of many suspects. 

During the 1990s, the Motion Picture Association of America also 

requested the services of local law enforcement to enforce the same 

copyright or trademark statutes of California. Detectives under my 

supervision completed many of these investigations, seizing thouVerDate 0ct 09 2002 09:44 Dec 07, 2005 Jkt 021823 PO 00000 Frm 00011 Fmt 6633 Sfmt 6633 C:\DOCS\21823.TXT SAFFAIRS PsN: PAT
8

sands of illegally duplicated motion pictures. Many of these videos 

were of films not yet released to the theaters. 

In 2003, I was assigned to supervise the Criminal Investigations 

Section of the Emergency Operations Bureau. It was at this time 

that I gained a full realization of the pervasiveness of IPR crimes 

in Los Angeles County. We concentrated our investigative resources on IPR crimes and have uncovered significant organized 

criminal enterprises operating within Los Angeles County. Victims 

of the organized criminal groups include the tobacco industry, luxury goods manufacturers, clothing companies, and the music and 

motion picture industries. Information in open sources indicates 

that across the globe, anything that has a decent profit margin is 

being counterfeited. 

While there are no local statistics on the magnitude of the problem, I can relate what my small team of one sergeant and six investigators has accomplished in a little more than a year. We have 

served 60 search warrants, which have yielded 125 arrests and $16 

million in seized counterfeit products. An additional $3.5 million in 

cash has been seized and is currently in forfeiture proceedings. 

With your permission, Madam Chairman, I would like to show a 

short video which illustrates one of our warrant operations. 

Chairman COLLINS. Please do. 

[A videotape was played.] 

Lieutenant STEDMAN. Within the Sheriff’s Department, there are 

units designated to combat organized criminal enterprises, such as 

the one you just saw, and we are represented on nearly every task 

force created to investigate these groups. 

These units have similar experiences with IPR investigations, 

noting that the profits are enormous with minimal criminal exposure. Russian organized crime, Eurasian organized crime, Asian organized crime, and Lebanese organized crime groups all profit from 

IPR crimes. 

Additionally, we believe that there may be a trend developing for 

local gang involvement in IPR criminal activity. Recently, we have 

investigated several individuals with strong gang ties and extensive criminal records. During interviews, these suspects have admitted that IPR crime is attractive because of the high profit and 

minimal jail sentences. In the parlance of one suspect, it is better 

than the dope business. No one is going to prison for DVDs. 

There are also indicators that some associates of terrorist groups 

may be involved in IPR crime. During the course of our investigations, we have encountered suspects who have shown great affinity 

for Hezbollah and its leadership. The following are just two examples. 

During the service of a search warrant in which thousands of 

dollars in counterfeit clothing was seized, I saw small Hezbollah 

flags displayed in the suspect’s bedroom. Next to the flags was a 

photograph of Hassan Nasrallah, whom I recognized as the leader 

of Hezbollah. The suspect’s wife asked me if I knew the subject of 

the photograph. I identified Nasrallah and the wife said, ‘‘We love 

him because he protects us from the Jews.’’ Also in the home were 

dozens of audio tapes of Nasrallah’s speeches. During the search, 

one of my detectives also found a locket which contained a picture 

of the male suspect on one side and Sheik Nasrallah on the other. 

9

In 2004, detectives served an IPR search warrant at a clothing 

store in Los Angeles County. During the course of the search, thousands of dollars in counterfeit clothing was recovered, as were two 

unregistered firearms. During the booking process, the suspect was 

found to have a tattoo of the Hezbollah flag on his arm. To my left 

is a photo of that tattoo. 

Again in 2004, detectives served a multi-location IPR-related 

search warrant involving a large-scale counterfeit blanket operation. During the course of the investigation, detectives located a 

photo album. Within the photo album were dozens of pictures of 

attendees at a fundraising event for the Holy Land Foundation. 

When questioned about the album, the suspect said that the Holy 

Land Foundation was not a terrorist funding operation. When I informed the suspect that the U.S. Government had shut down the 

charity because of its alleged support of Hezbollah, the suspect replied that the U.S. Government was stupid and would do anything 

that the Jews told them. 

When confronted with these indicators, we passed the information immediately to the Los Angeles Joint Terrorism Task Force for 

further review. As a result of this kind of information sharing, we 

enjoy an outstanding relationship with the JTTF as well as with 

the other three FBI offices located in Los Angeles County. 

As I have stated, the financial rewards of IPR crimes are immense. Many times, the biggest issue for the criminal or his group 

is how to disperse the money generated from the crimes committed. 

It is difficult to use traditional banking practices to account for the 

huge profits generated. In one of our cases involving counterfeit 

baby blankets, we discovered over $800,000 in cash located 

throughout the suspect’s residence, hidden in trash bags, under 

beds, stuffed in trash cans, and stashed in the attic. In fact, more 

than $10,000 was found in a child’s piggybank. 

On other occasions, we have seen activity consistent with money 

laundering and structuring occurring between similar businesses. 

Another of our cases began with the stop of a suspect at Los Angeles International Airport by U.S. Customs officers. Strapped to 

the suspect’s body was more than $230,000 in cash. The suspect 

told the Customs officers that she was en route to Lebanon for a 

vacation. Information was developed that the suspect owned a 

chain of cigarette shops. Service of search warrants led to the seizure of more than 1,000 cartons of counterfeit cigarettes, an additional $70,000 in cash, as well as wire transfers to banks throughout the world. 

The financial cost of IPR-related crimes to the State of California 

is significant. As an example, my small team has seized about 

40,000 cartons of counterfeit, untaxed cigarettes. The California 

State tax on cigarettes is $8.70 per carton, representing a loss to 

the State of $348,000. 

It should also not be a surprise to anyone that suspects involved 

in IPR crime do not concern themselves with paying appropriate 

taxes, whether Federal, State, or local. Our experience has been 

that suspects claiming $20,000 or $30,000 on their yearly income 

tax forms routinely keep tens of thousands of dollars in cash at 

their homes. 

10

1The prepared statement of Mr. Buckner appears in the Appendix on page 35. 

The Los Angeles County Sheriff’s Department has, like most 

local agencies, suffered cutbacks in personnel over the past several 

years due to severe budget curtailments. There has not been a 

mechanism to address IPR crimes other than that based on interest from small units or individual investigators. We believe that 

there is a critical void in personnel to mount an effective campaign 

against the criminal enterprises that utilize IPR as a revenue 

stream. It is well-documented that organized criminal enterprises 

engage in IPR crimes. There are mounting indicators of the involvement of terrorist groups and their supporters. 

In Los Angeles County, we believe there should be a task force 

commitment in order to combat the problem. Members of the Sheriff’s Department have begun to explore different sources of revenue 

to fund such a task force in our region. The private sector has 

shown interest in contributing to such an effort. In fact, the private 

sector, comprised of manufacturers and companies such as Investigative Consultants, whose President, Kris Buckner, is speaking 

today, plays a vital role in our enforcement efforts. Without this cooperative public-private sector relationship, the Sheriff’s Department, because of limited personnel resources, would quickly be 

overwhelmed and would not be able to maintain our current investigative pace. 

We also believe that there should be legislation to enact or increase the levy on containers shipped through the ports of Los Angeles and Long Beach. These levies would fund intensified IPR enforcement efforts. It is my hope that by drawing more attention to 

this crime, we can reinforce the American dream of having an idea, 

bringing it to market, and profiting from its success without interference from the criminal element. 

On behalf of Los Angeles County Sheriff Leroy D. Baca, I wish 

to thank the Committee for this opportunity to represent our county in discussing this important topic. Thank you, and I look forward to any questions you might have of me. 

Chairman COLLINS. Thank you, Lieutenant. Mr. Buckner. 

TESTIMONY OF KRIS BUCKNER,1 PRESIDENT, INVESTIGATIVE 

CONSULTANTS 

Mr. BUCKNER. Thank you. I would like to thank Chairman Collins, Senator Lieberman, and all of the Members of the Committee 

for the opportunity to appear before you today. Intellectual property crime is an important topic, and I am very pleased that the 

Committee is holding this hearing to discuss how intellectual property crime affects our country, including the possibility that proceeds from counterfeiting fund terrorism. 

For the record, my name is Kris Buckner. I am the President of 

Investigative Consultants, a licensed private investigative firm 

based in Southern California. I have been a private investigator for 

over 10 years and specialize in investigations involving manufacture, distribution, and sale of counterfeit goods. 

Investigative Consultants began as a single-person operation in 

1994. The company now employs 14 full-time employees and several part-time and contract employees. Ninety-five percent of the 

11

company’s time is spent investigating intellectual property matters, 

and we currently represent over 80 different brand owners. 

The job of our company is to work on behalf of brand owners to 

uncover evidence of counterfeiting activities. When we find concrete 

evidence that some person or group is substantially engaged in 

counterfeit goods marketing, we contact the appropriate law enforcement agency and provide them with the evidence and assist 

them on behalf of the brand owners in the identification, inventory, 

and storage of the counterfeit items to ensure that the counterfeiters are brought to justice. 

How big is the problem of counterfeit goods? Let me answer that 

in three words. Out of control. In only 10 years, my company has 

conducted over 9,000 intellectual property investigations that have 

resulted in the recovery and seizure of over $1 billion worth of 

counterfeit and pirated merchandise. 

Over the past 10 years, our investigations have helped law enforcement arrest over 3,000 people for counterfeiting and piracy. 

There is no end in sight. My business continues to grow. 

I would like to show a short video that illustrates the problem, 

with your permission. 

[A videotape was played.] 

Mr. BUCKNER. What you are looking at here is a search warrant 

getting served at an embroidery factory that contained two sophisticated embroidering machines that were embroidering counterfeit 

clothing. Each of those machines is worth about $250,000. 

What you are looking at now is video footage of an LAPD search 

warrant of a warehouse that contained counterfeit handbags. The 

operator, who was subsequently convicted of trademark counterfeiting, advised law enforcement that he was making $30,000 cash 

per week in this business and had retired from a nine-to-five job 

at Northrup because this was so lucrative. 

What you are looking at now is a DVD lab that is manufacturing 

counterfeit and pirated movies. Those are finished movies there 

that you are looking at. This lab has the capability of manufacturing tens of thousands of counterfeit movies per week, and those 

are the computer tower burners that are used to manufacture the 

movies themselves. 

The counterfeiting problem is not just limited to handbags, 

watches, and other luxury goods. I have been involved in cases involving DVD movies, music CDs, glue, children’s toys, sunglasses, 

food items, computer equipment, toner products, and numerous 

other items. I have also seen cases where brake pads, aircraft 

parts, baby formula, and even cough syrup have been counterfeited. 

You name it and criminals can and will counterfeit it. As long as 

counterfeiters are making money, they do not care who they hurt 

or kill. 

Most brand owners go to great lengths to combat the problem. 

One of the ways in which they do this is hire people like me to 

serve cease and desist notices on people we know are engaging in 

the sale of counterfeit merchandise. I have served thousands of 

these notices. 

In my hand is what we call our subject book. This is just one of 

five such binders, all of which are as big or bigger than this one, 

that are kept in my office. These binders all contain photographs 

12

of people that we have served with the cease and desist notices. 

Ninety percent of these vendors continue to sell counterfeit merchandise, even after we advise them what they were doing was illegal. They continue their operations because of the large amount of 

money that they make. 

And make no mistake about it, counterfeiting is profitable. I have 

participated in multiple law enforcement operations in which huge 

sums of cash have been recovered. During one such raid, officers 

found over $370,000 in cash in a decrepit warehouse. That money 

was just some of the profits enjoyed by a subject who had merely 

been selling counterfeit blankets. 

Some counterfeit goods are manufactured in the United States. 

While assisting law enforcement, I have seen California factories 

involved in the large-scale manufacture of counterfeit merchandise. 

I have been involved in cases in which owners of factories routinely 

locked employees inside the manufacturing facilities. Law enforcement had to call the fire department, which used the Jaws of Life 

to cut open the doors and free the employees. If there had been a 

fire, the employees would have died. Counterfeiters valued cash 

more than human life. 

The vast majority of counterfeit merchandise is manufactured 

outside the United States in countries like China, South Korea, 

Taiwan, and Mexico. The merchandise is often manufactured under 

unsafe conditions, and there have been cases where counterfeiters 

used child labor to make products. 

Counterfeiters often smuggle goods into the United States. Several times, I have come across brand-name counterfeit handbags 

sewn inside the linings of generic handbags. Once the generic 

handbags pass Customs, counterfeiters cut open the generic handbags and remove the counterfeit ones. 

Lieutenant Stedman is going to show us a perfect example of one 

of these bags I just spoke about, where you look at the outside and 

it looks like a generic, non-descript handbag. But you cut open the 

lining of the bag and you will see what is inside. And inside, you 

have the counterfeit. It may seem like a lot of work to smuggle 

counterfeit handbags, but keep in mind that a counterfeiter can 

make approximately $500,000 in cash per container. 

It is wrong to think that counterfeit merchandise is only sold on 

the street corners. Counterfeit merchandise regularly ends up in all 

types of stores, including large chain department stores, hotel gift 

shops, upscale boutiques, swap meets, flea markets, and other retail locations. 

There is a shopping district in Los Angeles called Santee Alley, 

where counterfeit merchandise is openly sold. On any given day, 

there are over 75 vendors in Santee Alley selling all kinds of counterfeit merchandise. 

I am frequently asked whether I believe organized criminal 

groups engage in the sale of counterfeit and pirated merchandise, 

and my answer is yes. Sometimes, an organized counterfeiting operation profits primarily from the sale of counterfeit goods, whereas 

in other instances, counterfeiting is just another revenue stream 

for the criminal syndicate. 

In Los Angeles, the various criminal groups profiting from the 

sale of counterfeit goods are extremely well organized. They hire 

13

lookouts, utilize countersurveillance techniques to track my employees’ activities and the activities of law enforcement. The groups 

use two-way radios and have also developed an elaborate warning 

system to alert vendors of impending enforcement actions. 

During heavy enforcement periods, counterfeiters have placed 

lookouts near the Los Angeles Police Department’s Central Division to monitor the movements of law enforcement. Counterfeiters 

have surveiled my team of investigators. They have also been spotted surveiling our office location. During counterfeit goods raids, I 

found lists containing the names of my employees, their physical 

descriptions, descriptions of our company vehicles, and license plate 

numbers. 

Counterfeiters are making so much money that they will do anything to disrupt our efforts. My investigators have been assaulted 

by counterfeiters. Counterfeiters have slashed the tires of our vehicles. A counterfeiter injured one of my investigators when he broke 

out the window of the investigator’s vehicle while the investigator 

was driving it. 

There is clear and convincing evidence that street gangs have 

begun to profit from the sale of counterfeit merchandise on the 

streets of Los Angeles. Not only do the gangs place their soldiers 

on the street to sell pirated movies and music, they attack other 

street vendors who want to sell counterfeit merchandise on their 

turf. It only stands to reason, then, that the proceeds from the sale 

of counterfeit goods are used to buy guns and drugs. 

More and more organized criminal groups are engaging in the 

sale of counterfeit merchandise to raise money. The great profits 

and the limited risk of prosecution make it an extremely attractive 

enterprise. For these criminals, it is simply a matter of business. 

They get caught selling drugs, they go to prison. They get caught 

selling counterfeit goods, they get probation. 

I am also frequently asked if terrorist groups profit from the sale 

of counterfeit goods. I do not know the answer to that question. 

What I do know is that while working with law enforcement to conduct counterfeit goods raids, I have been in homes and businesses 

in which photos of Hezbollah Sheik Nasrallah have been prominently displayed. On several occasions during these same raids, I 

have heard subjects make anti-Israeli and anti-Jewish statements. 

I have also observed evidence indicating that counterfeiters send 

large amounts of money to places such as Lebanon and Paraguay. 

My company is hired by major corporations, and I know that 

many people don’t have any sympathy for big businesses. However, 

the public needs to understand that they are forced to pay higher 

prices for brand-name products because of counterfeiters. It has 

been estimated that counterfeiting costs brand owners billions of 

dollars a year in lost revenue. Brand owners must raise their prices 

to recoup those losses. 

In my opinion, the general public has no appreciation for how 

many mom-and-pop retail establishments are driven out of business every year by counterfeiters. As everyone knows, there is 

great demand for brand-name products. How can a legitimate small 

retailer compete when consumers have the option of buying a $20 

pair of generic sunglasses in their store or a $20 pair of brandVerDate 0ct 09 2002 09:44 Dec 07, 2005 Jkt 021823 PO 00000 Frm 00017 Fmt 6633 Sfmt 6633 C:\DOCS\21823.TXT SAFFAIRS PsN: PAT
14

1The prepared statement of Mr. Levitt appears in the Appendix on page 41. 

name counterfeit sunglasses in the store next door? Far too many 

consumers buy the counterfeit brand-name sunglasses. 

Time and again, I receive calls from legitimate small business 

owners begging me to investigate their counterfeit competitors. 

These people know that they will quickly be driven out of business 

if the seller of the counterfeit goods is allowed to continue to operate next door to them. There is nothing more rewarding than receiving a congratulatory phone call from these same small business 

owners after participating in a counterfeit goods raid with law enforcement. 

In closing, I would like to say that although I am not an expert 

on organized crime and terrorism, I do know how the counterfeit 

goods operations work, and every day in the course of my investigations, I see things that strongly suggest that terrorist groups are 

raising funds through the sale of counterfeit goods. The opportunity 

is there and the indicators are there. The sale of counterfeit goods 

is not a victimless crime. 

I again want to thank the Committee for holding this hearing, 

and I would like to acknowledge the outstanding efforts of the law 

enforcement agencies in California, especially the Criminal Investigations Section of the Los Angeles County Sheriff’s Department 

and the Los Angeles Police Department. They understand the importance of aggressively pursuing counterfeiters. 

Thank you, and I look forward to your questions. 

Chairman COLLINS. Thank you. Dr. Levitt. 

TESTIMONY OF MATTHEW LEVITT,1 SENIOR FELLOW AND DIRECTOR OF TERRORISM STUDIES, THE WASHINGTON INSTITUTE FOR NEAR EAST POLICY 

Mr. LEVITT. Thank you, Madam Chairman, Senator Lieberman, 

and Members of the Committee. I am grateful for having the opportunity to testify before you today. 

What I would like to do is to put Lieutenant Stedman’s and Mr. 

Buckner’s testimony into context in terms of what Hezbollah’s 

modus operandi is. First, let us understand what Hezbollah is all 

about. Aside from suicide truck bombings targeting U.S. and 

French soldiers in Beirut in 1983 and 1984, Hezbollah is also behind the Khobar Towers bombing in Saudi Arabia in 1986, two sets 

of bombings in Argentina in 1992 and 1994, attempted bombings 

in Thailand in 1994, attempted attacks in the streets of Singapore, 

and many other attacks internationally targeting American, 

French, German, British, Kuwaiti, Bahraini, and other interests 

worldwide. 

According to U.S. authorities, concern over the threat posed by 

Hezbollah is very well placed. FBI officials have testified that 

Hezbollah continues to have subjects based in the United States 

and have the capability to attempt terrorist attacks here should 

this be the desired objective of the group. Hezbollah continues to 

surveil U.S. interests internationally and in the United States. 

Former CIA Director George Tenet testified in 2003 that 

Hezbollah, as an organization with capability and worldwide presence, is al Qaeda’s equal, if not a far more capable organization. 

15

Therefore, anything it is doing to fund its activities should be our 

concern, and I commend the Committee for holding this hearing in 

the context of its national security implications. Iran is believed to fund Hezbollah to the tune of at least $100 

million a year. But the group is also believed to engage in all kinds 

of other fundraising techniques through charities, but perhaps 

most importantly and most successfully through criminal enterprises, and I would like to focus on that criminal enterprise aspect. 

Consider just a few examples, because in the open source world, 

there is only so much detailed information available to us. But in 

the Charlotte case that Senator Lieberman mentioned earlier, of 

which I was the government’s expert witness, law enforcement authorities were able to trace half-a-million dollars through various 

accounts tied to the cell members. They believe most of the funds, 

however, remained in cash. There was approximately $1.5 million 

to $2.5 million in profit made on $8 million of cigarettes that were 

smuggled. Of this, tens of thousands of dollars—some investigators 

still maintain it may be closer to hundreds of thousands of dollars—were never found and are suspected of going to Hezbollah beyond the funds that they can demonstrate went to Hezbollah. 

U.S. officials believe a substantial portion of the estimated millions of dollars raised by Middle Eastern terrorist groups in the 

United States comes from the $20 million to $30 million annually 

brought in by the illicit scam industry here in the United States. 

Of the Middle Eastern terrorist groups present in the United 

States, Hezbollah is far and away the most criminally oriented, and 

so we need to assume that the vast majority of that activity is 

being carried out by Hezbollah cells in this country, and there are 

several. 

In South America in the tri-border area, it is especially important to Hezbollah. There are criminal enterprises. The group there 

raises close to $10 million a year, according to a study by the U.S. 

Naval War College. According to that report, U.S. Southern Command estimates that the Islamist terrorist groups, including 

Hezbollah, raised between $300 million and $500 million per year 

in the Triple Frontier and the duty-free zones of the Iquique, 

Colon, Maicao, and Margarita Islands. 

Hezbollah also raises tremendous amounts of money through foreign expatriate remittances, and this is also tied to criminal activity. For example, in 1988, Lebanese expatriots in Senegal attempted to smuggle approximately $1.7 million to Lebanon. At the 

time, the local community claimed that the smuggling operation 

was not intended to fund Hezbollah but merely to evade Senegalese 

law. It appears that it was intended to both evade Senegalese law 

and finance Hezbollah. Israeli intelligence, according to one Israeli 

report, ranks Senegal as the second most important center in Africa for Hezbollah financing after the Ivory Coast. 

Similar activity has been documented in South America, where 

Hezbollah funds are raised through criminal enterprises and then 

sent back to Lebanon as foreign remittances, or under the cover of 

foreign remittances. 

A senior U.S. law enforcement official noted that, ‘‘there is a significant amount of money moved out of the United States attributed to fraud that goes to terrorism.’’ The most outstanding case 

16

that we know about is the case in Charlotte, North Carolina, where 

two brothers, Mohammed and Chawki Hamoud, led a cell in Charlotte, North Carolina, with a parallel part of the network in Canada. Investigators reviewed over 500 bank, credit card, and other 

financial accounts. 

Some members used multiple identities. For example, they would 

simply buy-out the identity of Middle Eastern students who had 

been studying at the University of North Carolina-Charlotte and 

use those legal identities under the names like Ali Abu Sala or 

Hassan Shavski. They had several legitimate driver’s licenses, INS 

work authorization cards, Social Security numbers. Each of these 

individuals had multiple identities. Said Harub, one of the cell 

members who turned evidence against his fellow cell members, had 

three legitimate driver’s licenses, over a dozen other I.D.’s with 

which he established credit and busted out that credit at the 

$150,000 limit and then did it over and over again. 

The bottom line is that every member of this cell, this network, 

entered the country illegally, stayed here illegally, committed 

crimes while they were here, and sent the proceeds back to 

Hezbollah. 

In Canada, where the network procured dual-use technologies, 

like night-vision goggles, for Hezbollah, some of the material was 

bought with funds that were sent from Lebanon. Some of the material, however, was bought through credit card scams. And to make 

matters worse, Hezbollah would still pay the cell members 50 cents 

on the dollar so that they made profit on the material that they 

were procuring for Hezbollah. It is a typical modus operandi for 

Hezbollah, where individual cell members are often out for the 

money, which is one of the reasons they are so interested in criminal activity. 

In a particularly disturbing case, the Canadian part of the network talked about—there is no evidence that it actually did—taking out life insurance policies for suicide bombers in Southern Lebanon—this was just before the Israeli withdrawal in 2000—taking 

out life insurance policies for suicide bombers who would then attack Israelis and then cashing in those life insurance policies in 

Canada. 

Hezbollah and other terrorist groups also traffic narcotics in 

North America. A DEA investigation into a pseudoephedrine smuggling scam in the American Midwest led investigators as far as Jordan, Yemen, Lebanon, and other Middle Eastern countries, including bank accounts tied to Hezbollah and Hamas. Then-DEA Chief 

Asa Hutchinson confirmed that a significant portion of some of the 

sales are sent to the Middle East and used to benefit terrorist organizations. 

In South America, Hezbollah operatives engage in a wide range 

of criminal enterprises to raise, transfer, and launder funds in support of their terrorist activities. In one case, Paraguayan officials 

arrested Ali Khalil Mehri, a Hezbollah operative, for selling millions of dollars in pirated software and funding Hezbollah with 

some of the profits. 

Assad Barakat, one of the most important Hezbollah operatives 

in South America, not only served as a treasurer for Hezbollah, but 

was also involved, according to their investigation, in a counterVerDate 0ct 09 2002 09:44 Dec 07, 2005 Jkt 021823 PO 00000 Frm 00020 Fmt 6633 Sfmt 6633 C:\DOCS\21823.TXT SAFFAIRS PsN: PAT
17

feiting ring that distributed fake U.S. dollars and generates cash 

to fund Hezbollah operations. He personally cleared contributions 

to Lebanon for Hezbollah. 

Hezbollah operatives also run otherwise legitimate business enterprises that function as shell companies or fronts for raising, 

laundering, and transferring large sums of money. For example, 

the Charlotte cell members used some of the money they raised to 

buy a BP gas station, funded in part with a loan from the Small 

Business Administration. Mohammed Hamoud, the cell leader, 

wondered to his wife at the time what kind of background investigation would be required, and when she asked why he was so 

concerned, he said, ‘‘There are some things about me you are better 

off not knowing.’’

According to Israeli officials, Hezbollah operatives run several 

Western Union offices in Lebanon and use the co-opted services of 

others worldwide. In some cases, they actually run the offices and 

skim some of the 7 percent service fee charge, which they split between themselves as profit and for Hezbollah. 

In at least one case in the United States involving Western 

Union, in January 2002, a case in Burbank, Illinois, three Middle 

Eastern men sent hundreds of thousands of dollars to Turkey, Germany, and the United Arab Emirates. There is no known terrorist 

link to that investigation, though it was never fully investigated 

and it remains an open question. 

According to a former senior law enforcement official, and I 

quote, ‘‘Hezbollah is very criminally oriented for its fundraising in 

the United States, including legitimate and illegitimate business 

activities.’’ Despite all the money the group receives from Iran, 

Hezbollah activists in the United States are believed to be selffunding, mostly through criminal enterprises, including counterfeit 

goods. 

The extent of Hezbollah counterfeit activity in South America, of 

which we know a great deal, combined with the group’s known 

presence in this country and its predilection for engaging in fraud 

and other criminal activity in this country, point to the group’s 

likely deep involvement in counterfeit activity in the United States. 

I thank you for having me here to testify and I look forward to 

answering any questions you may have. 

Chairman COLLINS. Thank you for an excellent statement. 

I want to thank all of you for adding to our knowledge of this 

important subject. When most consumers look at counterfeit goods, 

such as those displayed on the table, I think they believe, oh, it 

doesn’t matter if it is fake. It is kind of fun to have one and I am 

going to buy it. I hope through this hearing today that we can help 

increase public awareness of just what the consequences are of 

buying counterfeited goods, that it isn’t some kind of lark, but rather that the proceeds not only harm legitimate businesses and their 

workers, but even more troubling, are being used for criminal and 

terrorist activities. So one of the reasons I wanted to hold this 

hearing is to try to get consumers to think twice before purchasing 

counterfeited or pirated goods. 

Dr. Levitt’s statement talked about Hezbollah targeting Americans around the world, and indeed, the 9/11 Commission found 

that prior to the attacks on our country by al Qaeda on September 

18

11, that Hezbollah was responsible for killing more Americans than 

any other terrorist group. 

Lieutenant Stedman, you noted in your opening statement that 

one of the individuals you arrested for the sale of counterfeit goods 

had a Hezbollah logo tattooed on his arm, and you pointed to the 

picture, which we have blown up. Could you walk us through what 

is on the tattoo, since many of us are not familiar with the symbols 

and the Arabic script? 

Lieutenant STEDMAN. I had the Arabic examiner for the Sheriff’s 

Department take a good look at it and this is what he interpreted 

to me. The bottom script, underneath the green, in the Arabic writing would be translated as ‘‘The Islamic Revolution of Lebanon,’’ 

and you have the upraised arm, fist, holding the assault weapon. 

The script above that was translated as saying ‘‘Hezbollah are the 

Winners,’’ and then the dome you see at the top is a temple mount 

or—the disputed dome in Jerusalem. Pretty much, that is the same 

picture, Hezbollah logo that you see on the flags and all the other 

paraphernalia that we run across. 

Chairman COLLINS. And you have also found, I understand, 

audio tapes that contain the speeches of Hezbollah’s leader. Is this 

an isolated occurrence, or have you seen this evidence and audiotapes during other raids on counterfeit operations? 

Lieutenant STEDMAN. We have seen those on numerous occasions, both in the residences that we go to and the businesses. I 

have seen thousands of those tapes all over. 

Chairman COLLINS. You have seen thousands of those tapes? 

Lieutenant STEDMAN. Yes, ma’am. 

Chairman COLLINS. Dr. Levitt, you mentioned that Hezbollah is 

operating in the United States in cells. What do you think are 

Hezbollah’s objectives in the United States? 

Mr. LEVITT. Hezbollah, like Hamas and most other groups in this 

country, with extended continued presence in this country, take advantage of the freedoms in this country and use the United States 

primarily as a cash cow to engage in fundraising through charities 

and, of course, as we have discussed today, through criminal activities. 

I should note that in the Charlotte case, it was the same exact 

thing, tremendous amounts of Hezbollah material were found all 

over the place. 

The FBI has testified before Congress in the past, however, that 

Hezbollah operatives are also known to surveil potential targets in 

this country. The FBI has assessed that those activities are primarily used to vet new recruits, but the fact is that they then have 

that surveillance report available for off-the-shelf use, and the FBI 

has also testified, as I mentioned earlier, that Hezbollah has the 

capability to conduct attacks, should it be their desire to do so. So 

it is a tremendous concern to us. 

We know that Richard Reid, for example, the infamous shoe 

bomber, was sent on a similar vetting mission, including going to 

Israel and other places, and that his report was found in Afghanistan. That report was available to al Qaeda later should they want 

to use it for attacks, as Hezbollah would be able to use vetting reports, reports from vetting operations where new recruits are asked 

to surveil targets here. 

19

Chairman COLLINS. Mr. Buckner, you have mentioned that you 

have an excellent partnership with law enforcement, and that is 

obviously critical. Have you learned during the course of your investigations whether individuals that you are looking at for intellectual property crimes are also the subject of investigations by 

other law enforcement groups, particularly the FBI? 

Mr. BUCKNER. Yes, ma’am. On numerous occasions when we 

have conducted even civil enforcement actions at a location, I have 

received several calls from the FBI asking me about our activities 

and what we were doing at locations, and this has happened to us 

numerous different times. 

Chairman COLLINS. Have you seen any evidence of wire transfers 

to Lebanon? 

Mr. BUCKNER. Yes. During my 10 years of doing this, I have seen 

tremendous amounts of wire transfers going to both Lebanon and 

Paraguay, it seems like is one of the countries of choice. 

Chairman COLLINS. Lieutenant Stedman, what about you? Have 

you seen evidence of wire transfers and other ways to get funds 

from the United States from these counterfeit goods to Lebanon 

and the three-state area in South America? 

Lieutenant STEDMAN. My experience has been that—I don’t have 

a lot of experience in the three-state area, but we do see wire 

transfers, both Western Union and bank transfers, from the States 

to—I have seen them to Jordan, Lebanon, Syria. They are very 

common. As Kris said, we see them almost everywhere we go. 

Chairman COLLINS. And one final question for the three of you 

before I yield to my colleague. In addition to educating consumers 

that by their purchases of counterfeited or pirated goods, they may 

well be supporting terrorist activities, what more do you think we 

should be doing to assist law enforcement in cracking down in this 

area, or beyond law enforcement? What steps would you recommend that this Committee encourage? I will start with Dr. 

Levitt. 

Mr. LEVITT. Perhaps one of the most useful discussions could be 

about potential punishment for this type of activity. As my colleagues have discussed, there basically is none. In other areas, I 

know, and there may be in this already, I am not an expert on the 

legal side, but terrorism enhancements, and if there are not terrorism enhancements for this type of activity, that is something we 

should definitely consider. It should be. 

Senator LIEBERMAN. You mean enhanced penalties? 

Mr. LEVITT. Yes, sir. It should be considered a worse crime if you 

are doing something that is not only illegal but is also supporting 

terrorism, even if we can’t meet the threshold of the material support statute, which has very technical thresholds that need to be 

met. 

The other thing I think we are already well along in doing, and 

both my colleagues have highlighted this, and in Los Angeles, it 

certainly sounds like it is working very well, and that is the local 

law enforcement and FBI JTTF cooperation. Again in the Charlotte 

case, this started with an off-duty sheriff who came across a case. 

In that case, however, there was not direct communication with the 

FBI at that time. It is only when they went to the U.S. Attorney’s 

Office with their case. Then the FBI came to the U.S. Attorney’s 

20

Office and said, do you see this slide? They said, yes, that is our 

cigarette smuggling ring. And then they showed them another slide 

of identical people and said, well, this is our Charlotte Hezbollah 

cell, and they decided at the U.S. Attorney’s Office level to make 

this much more than just a smuggling fraud case. 

If we can get the cooperation at a much lower level, like Lieutenant Stedman said is common in his jurisdiction, I think we can do 

a lot more to prevent this activity. 

Chairman COLLINS. Thank you. Those are very helpful suggestions. 

Mr. Buckner. 

Mr. BUCKNER. I think public education is the most important 

key, as you stated previously. We have to kill the demand for the 

counterfeit goods, and we really do have to educate the public on 

where the proceeds go and that it is not a victimless crime. Though 

I represent the brand owners and that is how I make my living, 

there are a lot of mom-and-pop retail folks out there that are trying 

to make a living that get killed by the counterfeiters out there. 

Chairman COLLINS. Thank you. Lieutenant Stedman. 

Lieutenant STEDMAN. I agree with what both of my colleagues 

have said. I would only add that we have had some contact with 

the Department of State, and this is way out of my realm of expertise, but some pressure put on the countries that are manufacturing all these goods, specifically in my experience China, would 

be helpful, to stem the flow at the other end. 

Chairman COLLINS. That is another good suggestion. Thank you 

very much. Senator Lieberman. 

Senator LIEBERMAN. Thanks, Madam Chairman. Thanks to the 

witnesses. Your testimony has been excellent, I think. 

Let me ask you a few factual questions just to make sure I am 

clear of how this is happening, and to go really to the beginning 

of the counterfeiting operations themselves. This is not the kind of 

stuff that you can do in your living room or your basement. I mean, 

I suppose if you had enough sophisticated equipment, you could, 

but what I am saying is it is real manufacturing. You have got to 

have the semblance of a business. 

So my question is, who is doing it at that level? Are these just 

entrepreneurs here in the United States or Asia or other parts of 

the world, or is there organized criminal involvement at the level 

of the counterfeiting itself? I will start with anybody. Mr. Buckner. 

Mr. BUCKNER. In regards to certain different types of counterfeit 

goods, whereas DVDs and CDs can be mass produced in a small 

apartment—in fact, in my experience in Los Angeles, most of the 

labs that we come across are based out of small apartments. 

Senator LIEBERMAN. Right. Though as you said, or somebody did, 

you still have to have a pretty expensive set of equipment to do it. 

Mr. BUCKNER. Yes, sir. You are probably looking at about 

$10,000 worth of computer towers, printers, things of that nature, 

and you can really set up a nice operation that can——

Senator LIEBERMAN. Actually, that is relatively inexpensive compared to the profit. I guess I was thinking about the quarter-of-amillion dollars that was the other video. 

Mr. BUCKNER. Yes, the different goods will dictate how your operation needs to be set up. An embroidery factory, as we saw in the 

21

videotape, you do need a warehouse-type facility to house those machines and it takes a large-scale operation. 

Senator LIEBERMAN. So my question really is, who are those people here and other places around the world? Are they just unethical 

business people, or does organized crime get in at that level, at the 

manufacturing level? 

Lieutenant STEDMAN. Our experience has been that the people 

that are involved in importing these goods, which is most of my 

business, the importation, they have been doing this for a lot of 

years. The community in Los Angeles has been around for probably 

20 or 30 years in the garment district. My grandmother and my 

mother used to shop down there. These people have been importing 

textiles for years and years, and from the same companies that are 

dealing the counterfeits and the same countries. 

Senator LIEBERMAN. So it is not clear whether there is organized 

crime involved in the manufacturing. 

Lieutenant STEDMAN. That is outside my realm of expertise. I 

know there is once it gets here. 

Senator LIEBERMAN. Dr. Levitt, do you have any information on 

that? 

Mr. LEVITT. I don’t have any information on the extent of it in 

this country. My sense is that it is likely, coming from production 

in China or elsewhere, and if there are then, as you saw in the videos, selling it here. What we do know, there is a lot more information on what goes on in South America and the likely trends may 

be parallel. In South America, Hezbollah operatives are deeply involved in import-export companies. 

Senator LIEBERMAN. Right. 

Mr. LEVITT. They are deeply imbedded in the free trade zones in 

Iquique and Maicao——

Senator LIEBERMAN. Where there is manufacturing going on, or 

is that more the export-import? 

Mr. LEVITT. I don’t know if there is manufacturing going on 

there, but they are then at that level involved in the import-export 

themselves as opposed to someone else importing it and them just 

taking and running with it here. 

Senator LIEBERMAN. Got it. 

Mr. LEVITT. But the software side of it is extremely inexpensive. 

Senator LIEBERMAN. Inexpensive? 

Mr. LEVITT. Inexpensive. 

Senator LIEBERMAN. Right. 

Mr. LEVITT. In our think tank, after we have an event, we put 

it on CD. We send it out to our trustees. We have a tower. It 

doesn’t cost a lot of money. We do it in a couple hours. We produce 

a whole bunch of these CDs to send out to people who couldn’t 

make the event. 

Senator LIEBERMAN. Right. I mean, another question I raise, and 

I want to pursue it on my time, I want to get on to the subject, 

is whether legitimate businesses who happen to manufacture pocketbooks or hats are doing this as a sideline. 

Mr. BUCKNER. I have had cases where there have been legitimate 

businesses that have also turned after hours into counterfeiting operations, double-dipping, is what we will say. 

22

Senator LIEBERMAN. Let me ask you about the distribution chain. 

You said that these counterfeit goods are not only sold on street 

corners, etc., but often in stores. Is it your presumption that the 

merchants who are selling counterfeit goods know that they are 

counterfeit, or are they being duped? 

Mr. BUCKNER. Well, I think your street corner vendors do, but 

your fixed retail locations, I could name names of some very big 

chain stores today, which I don’t want to do, that have been involved in counterfeiting unknowingly. 

Senator LIEBERMAN. Unknowingly? 

Mr. BUCKNER. Yes, sir. 

Senator LIEBERMAN. So let us now go to the subject of terrorist 

links. Let me ask the question simplistically. If you are in 

Hezbollah’s cell in Los Angeles or Charlotte and you are looking to 

make some money to send back to finance terrorist activities, 

where do you go to begin to connect to the counterfeit ring? How 

do you do that? How would they do that? 

Lieutenant STEDMAN. It is very simple. Like I said, this group 

down in the Santee Alley—like Kris was talking about—they have 

been there for years and years. The counterfeiting has been going 

on for years and years. You could go down there, start as just a 

part-time employee, and before you know it, you have people driving up to your door with vans loaded full of counterfeit stuff. You 

don’t even have to go search it out. They are going to bring it right 

to you and you can start business that day. 

Senator LIEBERMAN. Well, that is very interesting. So if you are 

Hezbollah and you are trying to raise money illegally, that is not 

very complicated to get into the distribution network to get the 

stuff. 

Lieutenant STEDMAN. It is an easy business, not like the drug 

business, where you would have to be introduced and vetted out 

and be trusted before you would be able to operate. It is just so 

rampant that you can set up today and get started. 

Senator LIEBERMAN. Let me ask this question. Is there any evidence of direct connections between organized criminal families, let 

us say, operations, and terrorism? In other words, I don’t mean the 

organized criminal families are involved in terrorism, but is there 

any evidence of joint activities between, let us say, Hezbollah and 

organized criminal gangs or organized crime operations? 

Mr. BUCKNER. One thing that I can say, I don’t know the exact 

answer to that question, but groups down in Los Angeles who normally may be enemies in the real world will cooperate with the——

Senator LIEBERMAN. Such as? 

Mr. BUCKNER. Let us say Israelis, Jewish folks, along with these 

other groups of people that we are talking about. They will cooperate to make money. They will buy from each other, trade their 

goods. It is all about the money. 

Senator LIEBERMAN. No scruples of any kind. What I was thinking of, you know, there is some significant evidence, suggestion, 

that there may be cooperation between Latin American drug gangs 

and terrorists in limited areas, for instance, in helping to smuggle, 

bring terrorists into the United States. You don’t have any evidence of an organized connection between those two. 

23

We have focused on Hezbollah here. Is there any evidence of any 

of the other terrorist groups, Middle Eastern or otherwise, benefiting from the sale of counterfeit goods here in the United States? 

Mr. LEVITT. Certainly involving criminal enterprises. I don’t 

know the specifics about whether they are involved in counterfeit 

goods, but we do have evidence not only of cigarette smuggling, but 

of baby formula and credit card fraud——

Senator LIEBERMAN. By other terrorist groups? 

Mr. LEVITT. Yes, groups like Hamas and——

Senator LAUTENBERG. I wonder, Madam Chairman, are we going 

to have a second round, because then I could jump in here and be 

out. 

Senator LIEBERMAN. I am going to yield to you. I am sorry. I 

didn’t see the clock going. 

Chairman COLLINS. We will have a second round if you need additional time. 

Senator LAUTENBERG. Yes, and I can get my first one and go. 

Senator LIEBERMAN. OK. Very significant answers to the questions and a significant problem. I want to come back on my second 

round and talk a little bit more about what more we might do to 

focus attention and action on this problem. 

Thanks, Madam Chairman. 

Chairman COLLINS. Dr. Levitt, I want to give you a chance, however, to answer Senator Lieberman’s question. You started to and 

mentioned Hamas, I believe. 

Mr. LEVITT. Yes, just that we do know, and law enforcement officials tend not to speak open source in great specifics, but they have 

mentioned Hezbollah, Hamas, and others, is usually the way they 

put the package together, involved in this type of fraud activity, 

credit card fraud and all these other things we have discussed. I 

think it would be naive to assume that they are not involved in the 

kind of other criminal activity that we are looking at here at the 

table. 

Chairman COLLINS. Thank you. Senator Lautenberg. 

Senator LAUTENBERG. Thank you, Madam Chairman. 

The thing that occurs to me is that we permit a lot of this to go 

on by issuing licenses to street vendors who invariably, I think, do 

tend to carry counterfeit or knocked-off goods, as they call it. I 

don’t understand why the licenses are issued in the streets of New 

York or Boston or Newark in my State. If they don’t issue the licenses to these people, which are competitive with the regular merchants, and the regular manufacturers and merchants are much 

more able to determine whether or not they are getting counterfeit 

goods. And then they just do street sweeps. I mean, to me, it is 

kind of cozying up to the idea and permitting discounted merchandise to be sold in front of very valuable leasehold properties that 

companies invest in. Do you have any idea on why these permits 

are issued? 

Lieutenant STEDMAN. Our experience is that once the permits 

are issued, if there is an enforcement action, whether it is a search 

warrant or maybe a civil action by someone like Kris, the permit 

may be revoked by the city, but then the next family owner will 

go get a new permit with a new name and continue business on. 

So there is——

24

Senator LAUTENBERG. There ought to be a look at that. 

Mr. Levitt, I want to ask you, how much damage do you think 

Iran does by its interference in our activities in Iraq? Are they a 

significant factor, do you know, in providing resources to Iraq, 

equipment, etc.? 

Mr. LEVITT. Officials do believe that Iran is engaged in disruptive activity in Iraq for certain, not only supporting some of the militias that are causing a great deal of damage and loss of life there, 

but also with reportedly a great number of intelligence operatives 

of their own. Hezbollah’s al Manar satellite television not only includes vitriolic messages of hate against Israel, but also very explicitly against the United States, and that doesn’t help, either. 

Senator LAUTENBERG. So we must do whatever we can to cut off 

resources for Iran. 

Mr. LEVITT. Yes. Easier said than done, in large part because the 

oil industry is such that while I certainly think there is an important moral statement to be made by our not participating in funding Iran, someone else is going to step in by the nature of the 

fundible oil industry and I don’t believe that is necessarily going 

to cause a loss of income to Iran unless it is extremely multi-lateral. And given the nature of international oil business and the 

price of oil today, there is, unfortunately, always going to be someone out there willing to buy that barrel. 

Senator LAUTENBERG. I don’t want to ask you to moralize here, 

but should American companies be particularly outside the circle—

I mean, competition for the business, that as an excuse can create 

all kinds of things. Why don’t we grow more opium here? Why 

don’t we get into the business if someone else is going to do it? I 

don’t buy that at all. To me, if help comes for an American company, I think it is treasonous if it goes to Iran and then helps to 

kill our troops. Every day, you hear the reports about two more, 

four more being killed, and the number of Iraqis being killed. To 

me, I think that we have to be—this is a very interesting hearing 

that we are having, Madam Chairman, and I think it is important. 

I think it is important from two standpoints. One is the fleecing 

of the customers, the penalty for business. But when those funds 

flow to enemies of our country, and you mentioned, I think, Dr. 

Levitt, that Hezbollah has surveillance routines existing in our 

country——

Mr. LEVITT. That is what the FBI says, yes. 

Senator LAUTENBERG. Now, are they surveying potential targets 

for violence against those individuals? Is that part of their scheme? 

Mr. LEVITT. The FBI has described it as basically training missions for new recruits, but we need to assume, because this is traditional terrorist modus operandi, that they don’t then throw out 

those reports. Those reports are available to be used as off-the-shelf 

operational menus should they decide to use them. I don’t know 

what types of targets specifically they are surveiling, but yes, we 

need to be concerned that there is that possibility. 

Senator LAUTENBERG. Well, everyone is very concerned with I.D. 

thefts. I mean, that then permits lots of funny things to go on. People hide their real identity and adopt those that would get them 

into places that we don’t want them to be. 

25

I thank you for your testimony, all three of you, but I really 

think that we have to kind of look inside and make sure that by 

accident or design, that no American companies are helping Iran, 

and I will be damned if the reason that we shouldn’t do it is because a competitor could come in there. We are either out to protect democracy and lives or we are not. And if we say, well, hey, 

listen, business comes first, then it is a kind of society I don’t think 

that is good for my family or my friends or my community. Thank 

you. 

Chairman COLLINS. Mr. Buckner, you have concentrated, as has 

Lieutenant Stedman, on the Los Angeles area and what is going 

on there with regard to counterfeit goods, but is this a problem 

throughout the United States? Does it affect smaller cities? Could 

you give us some idea of the scope of counterfeiting operations in 

this country? 

Mr. BUCKNER. Yes. The counterfeiting problem is widespread 

throughout the United States. Obviously, in your bigger metropolitan areas, it is more in your face, on the streets of New York, the 

streets of Los Angeles. But I have worked cases in probably 30 different States, and there are investigators just like me all over the 

country that do exactly what I do. It is amazing, the scope and the 

magnitude of the problem. 

Chairman COLLINS. Each of you has mentioned that the high 

profits involved and the ease of getting into counterfeiting makes 

this activity very attractive to criminals, including terrorists. Is another factor that it is unlikely to be prosecuted? Is there a low risk 

of these cases actually making their way to the courts? Lieutenant 

Stedman. 

Lieutenant STEDMAN. All of our cases are filed. The priority in 

Los Angeles is violent crime. There is a lot of violent crime going 

on, the robberies, rapes, and murders and all that kind of stuff. 

This, obviously, would take secondary interest to the District Attorneys’ Offices because of that. But we have actually had pretty good 

cooperation from the District Attorneys’ Offices. They see the problem. I think because there are units like mine out there starting 

to do more and more of it, they are realizing the scope of it and 

we are actually getting pretty good cooperation from the District 

Attorney’s Office. 

Chairman COLLINS. I think one of you may have mentioned that 

if you are a criminal who is dealing drugs, you have a far greater 

chance of going to prison than if you are selling counterfeit goods, 

and yet when you look at the implications of these sales for terrorist activities, you may, in fact, be doing more damage even than 

someone who is peddling drugs. 

Mr. Buckner, could you comment based on your experience, is 

there a low risk of going to prison, a low risk, in fact, of being prosecuted? 

Mr. BUCKNER. I have to compliment the L.A. County DA’s Office. 

They really proactively are looking at doing more and more of these 

cases, but unfortunately, for example, there is a subject that we arrested five different times. On his sixth arrest, he finally is going 

to State prison. The sixth time, he is now going to State prison. 

Unfortunately, what usually happens is guys get probation, and 

the problem is the profit margin is so huge on this, I don’t think 

26

anybody really realizes that it is worth the risk. If they get arrested one time, get probation, pay a fine, they look at it as a cost 

of doing business, and that is the unfortunate part. 

At the same time, the DA’s Office in L.A. County is taking these 

cases more seriously and filing more cases than they ever have. I 

think the problem is just really overwhelming. 

Chairman COLLINS. Dr. Levitt, do you have any comment on that 

based on your work? I realize it is a little bit outside of your area. 

Mr. LEVITT. Just I completely agree with what they said. We 

have a problem with being short-staffed, as Lieutenant Stedman 

said. We do need more resources. Law enforcement is doing a wonderful job, but the problems are immense and there are so many 

things on their plate. 

As Mr. Buckner said, not only terrorists, but criminals realize 

how profitable this is and many of them, certainly in the case of 

Hezbollah, they see how successfully they have been able to engage 

in these activities in other places, particularly in South America, 

where the laws are even more lax, and they take that assumption 

here, too. Frankly, they find it to be very similar, probation and a 

fine. The way Mr. Buckner put it, the cost of doing business, I 

couldn’t have put it better myself. That is exactly how they see it, 

and frankly, that is all it is. 

Chairman COLLINS. That is why I think that your suggestion 

that we take a look at the penalties and whether there should be 

an enhanced penalty is a very interesting suggestion and one that 

I am very interested in exploring further. 

Mr. LEVITT. Thank you, and I think that part of the problem is 

that we all agree that if there were a way to decrease demand, that 

would be wonderful. But, I don’t know, maybe it is the realist in 

me. There are people with low incomes, there are people who—everybody is looking—this is the United States of America. Everybody wants to get a deal. And so it is going to be very hard, even 

with great public education, to significantly decrease the demand. 

I think that is just the reality—which doesn’t mean we shouldn’t 

try, and it doesn’t mean there aren’t things we can do that would 

make a serious dent. 

But I think if we are really serious about this, we have to focus 

on the supply. Like Lieutenant Stedman said, we have to have the 

State Department and others focus on countries like China, where 

this is being done rampantly and being shipped here. We need to 

focus on vendors who may be doing this, and we need to focus on 

ways to decrease the supply. 

Chairman COLLINS. Thank you. Just one final question for Lieutenant Stedman. You have referred to a particular part of the Los 

Angeles that is known for this activity. Why not just shut it down? 

Am I missing something here? 

Lieutenant STEDMAN. There are many legitimate businesses 

down there, people trying to make a decent living, playing by the 

rules, obeying the laws. I don’t know what the percentage would 

be, but it wouldn’t be 20 or 30 percent of the area that is doing 

this. It is a huge draw for the city. It is huge tax revenue, legitimate tax revenue, but there is a significant counterfeit problem 

down there. We are doing the best we can, but I think it is—I just 

27

don’t want to shut down the whole area to get rid of a few bad apples. 

Chairman COLLINS. Thank you. Senator Lieberman. 

Senator LIEBERMAN. Thanks again, Madam Chairman. 

You know, it strikes me, as we talk about public education, I 

know we hear a lot about brand name—from brand name companies involved in a lot of this stuff about cutting back on intellectual 

property violations around the world, particularly in Asia, but 

around the world. Maybe I missed it, but—and American companies lose hundreds of—well, I may be overstating it, but a lot of 

billions of dollars, hundreds of billions, in this operation. 

I wonder if it would be worth it for them to launch an advertising campaign which basically says to people, when you buy 

something—when you buy a counterfeit good on the street, you 

may be saving a few bucks, but the dollars you are spending may 

well be going to terrorist groups that are going to use it to kill 

Americans. That is a strong message, but from all you have told 

us today, there is some truth to it. I don’t know, it is not within 

your—maybe the Chairman and I can think about how to call on 

some of the large companies that are really concerned about this 

problem and suffer from it to try the demand reduction part of it. 

Mostly up until now, as I understand it, they have tried the supply reduction, particularly in trade negotiations and diplomatic relations with some of the producer countries, and it obviously hasn’t 

worked very well. 

Mr. BUCKNER. One thing I can say about several of the brand 

owners, they have partnered up with several different magazines 

and they have put into print and sponsored articles regarding 

counterfeiting and where the proceeds go and the other implications. And more and more, since I started this business, more and 

more, I am seeing these companies do press releases and actually 

interact with the press, where they were scared to interact with the 

press before, to try to get the message out. But I definitely agree 

that more needs to be done on behalf of the private sector. 

Mr. LEVITT. If I could add——

Senator LIEBERMAN. Yes. 

Mr. LEVITT [continuing]. One concern, and that is, again, I think 

targeting demand is important, but you may recall that there were 

commercials years ago, post-September 11, about drugs and how 

purchasing drugs is not only an issue of drugs, it also can finance 

terrorism. 

Senator LIEBERMAN. Yes. 

Mr. LEVITT. They were so poorly received by the public and it became a joke, which is the last thing we would want to do. So I am 

not a marketing expert, but my concern would be that it has to be 

done, it has to be done properly. I am not sure what the right exact 

message is——

Senator LIEBERMAN. Because the public thought it was farfetched? 

Mr. LEVITT. Yes. 

Senator LIEBERMAN. OK. That is something that the marketing 

and advertising experts at the brand name companies can answer 

better than I can. 

28

Lieutenant Stedman, Senator Collins asked a question which 

raised an interesting point about this problem obviously doesn’t 

only exist in Los Angeles. It exists, I presume, anywhere there is 

a significant market for counterfeit goods, and that is a lot of 

places in the United States of America. What is your sense—a 

quick response, but what is your sense of to what extent others, 

particularly large urban police departments, or sheriff’s offices, 

have focused efforts on stopping counterfeit sales? 

Lieutenant STEDMAN. I know New York had a huge problem. I 

know they are trying to put a dent in it like we are. 

Senator LIEBERMAN. NYPD is on it. 

Lieutenant STEDMAN. That is correct. I was in New York over 

last summer and it was pretty rampant. I mean, my daughter tried 

to buy a purse and I dissuaded her, but——

Senator LIEBERMAN. Good work. [Laughter.] 

Lieutenant STEDMAN. Yes. It was worse than even Los Angeles. 

It was everywhere, everywhere I walked down the street. But I 

know in New York, we talk to them often——

Senator LIEBERMAN. That is what I was just going to ask. Do you 

all communicate on this problem? 

Lieutenant STEDMAN. We do. We have connections in most of the 

major metropolitan areas and we talk about people of interest, and 

we run across a lot of business records where different businesses 

are talking to each other, shipping back and forth. There is actually an overland trucking of this material from New York to California in some instances, or by train. So it doesn’t just come 

through the ports of Los Angeles and Long Beach. It comes overland, probably stops along the way. But between New York and 

Los Angeles, there is a huge transit. 

Senator LIEBERMAN. This is obviously a national problem. It is 

an international problem. So let me ask you now, to what extent 

in the work that you are doing in Los Angeles you have received 

cooperation from Federal agencies. 

Lieutenant STEDMAN. We receive actually outstanding cooperation from the Customs Service and from——

Senator LIEBERMAN. And this obviously has to do with——

Lieutenant STEDMAN. The ports. 

Senator LIEBERMAN [continuing]. The counterfeit goods coming 

in. 

Lieutenant STEDMAN. Yes. They do a great job down there, but 

I am sure you have been to the port. You know how many containers come in every day. It is really shoveling sand against the 

tide. We do get great cooperation when we try and backtrack some 

of the shipments that come in from Customs. We have a great relationship with ICE agents. A lot of these people’s immigration status is iffy. 

Senator LIEBERMAN. Right. 

Lieutenant STEDMAN. And we invite them along with us when we 

think that might be the case. 

Senator LIEBERMAN. So Customs and Immigration, good cooperation. How about Federal law enforcement, like FBI? 

Lieutenant STEDMAN. We speak to the FBI often. We deconflict 

every case that we do, because we never know where we are going 

or who we are going to be seeing that day. So we have five——

29

Senator LIEBERMAN. What does deconflict mean in this case, for 

the record? 

Lieutenant STEDMAN. Deconfliction means that we are not stepping on somebody else’s toes. 

Senator LIEBERMAN. Another agency that is investigating, you 

mean? 

Lieutenant STEDMAN. That is correct. We have five members of 

the Sheriff’s Department on the JTTF. We clear every investigation 

through them to make sure we are not stepping in the middle of 

an investigation that is already going on at the Federal level. 

Senator LIEBERMAN. So that, in other words, you may be pursuing a counterfeit goods ring, but somebody else will be pursuing 

those same people for a terrorist investigation? 

Lieutenant STEDMAN. Exactly right. I don’t get that information, 

but I make that attempt to make sure we don’t bungle somebody 

else’s investigation by either hitting the suspect too quick or not at 

all, so we do that on every case that we do. 

Senator LIEBERMAN. Dr. Levitt, with your experience at the FBI, 

can you comment on whether you think the efforts to enforce anticounterfeiting laws are getting enough attention and are sufficiently coordinated at the Federal level, particularly whether there 

is a clear sense of coordination between the FBI, Treasury, for instance? 

Mr. LEVITT. Well, unfortunately, I really can’t, only because I 

wasn’t involved in any of that at the FBI. I was on the counterterrorism and on the intelligence side——

Senator LIEBERMAN. Right. 

Mr. LEVITT [continuing]. And that would have primarily been run 

through the Criminal Division. But I do know from my interaction 

with FBI officials and Treasury officials now that there is a tremendous amount of attention being given not only to this issue 

substantively, but to the nature of the cooperation. I think there 

is still some ways to go, but I am actually very pleased at the kind 

of attention that people at very senior levels are giving to making 

sure that the interconnectivity and the cooperation is improving. 

Senator LIEBERMAN. That is encouraging. 

One last question. I am curious, a couple of times Paraguay has 

been mentioned. What is going on in Paraguay? 

Mr. LEVITT. Paraguay, Brazil, and Argentina, where those three 

countries meet is the triple border, or the tri-border area. Asuncion 

is a very big problem, and you can cross that border with great 

ease. It is beautiful. A very famous waterfall is there. 

Senator LIEBERMAN. Right. 

Mr. LEVITT. A great tourist attraction. And if there is ever any 

counterfeit good that you could ever imagine, it is there, and——

Senator LIEBERMAN. Manufacturing is going on there, or——

Mr. LEVITT. I don’t know that there is manufacturing going on 

there. 

Senator LIEBERMAN [continuing]. Or sales? 

Mr. LEVITT. My sense is that it is all sales and that it is—basically, imagine this neighborhood in Los Angeles times I don’t know 

how many——

Senator LIEBERMAN. So what you are saying is that there is reason to believe that there is at least a Hezbollah presence there——

30

Mr. LEVITT. We know there is a Hezbollah presence there. There 

is a Hamas presence there. It is a very serious problem. It is getting a lot of attention. 

Senator LIEBERMAN. Thank you. Thank you, all three of you. You 

have really been excellent, and I hope we can take it from here. 

Thanks, Madam Chairman. 

Chairman COLLINS. Thank you, Senator. 

I want to thank our witnesses today for their fascinating and 

well-informed testimony. It was very helpful. 

We have had success in this country in shutting down some of 

the formal mechanisms, the financial mechanisms that terrorist 

groups have been using as well as closing down certain Islamic 

charities that have been used as conduits for terrorists to finance 

their operations. But as today’s hearing shows, each time one avenue is closed down, another one is exploited by ever-resourceful terrorist groups, and counterfeiting, because it is extremely lucrative 

and easy to get into, is the mechanism that terrorist groups have 

discovered and are exploiting. 

I want to thank you for increasing our knowledge of this, and I 

hope this hearing will help promote better public awareness, as 

well, which I agree with Mr. Buckner is a key part of the solution 

in addition to looking at enhanced penalties, international efforts, 

and other means of cracking down on this problem. 

I want to thank the staff for their hard work on this hearing, and 

I particularly want to recognize the efforts of Bill Priestap, who is 

sitting quietly in the corner. He has worked for the Committee for 

the past 16 months as a detailee from the FBI. He was the one who 

suggested that we look into this area. He has worked very hard on 

a whole host of issues, but particularly the terrorism financing 

issues, and his work has been outstanding. 

I am very sad to have him go back to the FBI, but I do appreciate the Director allowing us to have him for more than a year’s 

time and we very much appreciate the new role that he is going 

to be taking on at the Bureau in the new Intelligence Office. I 

would note, he starts his new job next week, so he is not even taking any time off between assignments. 

So, Bill, thank you for all your hard work, and we wish you well 

and will miss working with you. 

The hearing record will remain open for 15 days. 

I do want to announce that the Committee will be having a very 

brief business meeting after the first vote to act on some pending 

nominations, including that of Phil Perry, who has been nominated 

to be the General Counsel of the Department of Homeland Security. 

This hearing is now adjourned. 

[Whereupon, at 11:14 a.m., the Committee was adjourned.] 

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