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INVESTIGATION INTO THE SALE OF SENSITIVE, INDEMAND MILITARY EQUIPMENT AND SUPPLIES

ON THE INTERNET

HEARING

BEFORE THE

SUBCOMMITTEE ON NATIONAL SECURITY

AND FOREIGN AFFAIRS

OF THE

COMMITTEE ON OVERSIGHT

AND GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED TENTH CONGRESS

SECOND SESSION

APRIL 10, 2008

Serial No. 110–178

Printed for the use of the Committee on Oversight and Government Reform

(

Available via the World Wide Web: http://www.gpoaccess.gov/congress/index.html

http://www.oversight.house.gov

(II)

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

HENRY A. WAXMAN, California, Chairman

EDOLPHUS TOWNS, New York

PAUL E. KANJORSKI, Pennsylvania

CAROLYN B. MALONEY, New York

ELIJAH E. CUMMINGS, Maryland

DENNIS J. KUCINICH, Ohio

DANNY K. DAVIS, Illinois

JOHN F. TIERNEY, Massachusetts

WM. LACY CLAY, Missouri

DIANE E. WATSON, California

STEPHEN F. LYNCH, Massachusetts

BRIAN HIGGINS, New York

JOHN A. YARMUTH, Kentucky

BRUCE L. BRALEY, Iowa

ELEANOR HOLMES NORTON, District of

Columbia

BETTY MCCOLLUM, Minnesota

JIM COOPER, Tennessee

CHRIS VAN HOLLEN, Maryland

PAUL W. HODES, New Hampshire

CHRISTOPHER S. MURPHY, Connecticut

JOHN P. SARBANES, Maryland

PETER WELCH, Vermont

——— ———

TOM DAVIS, Virginia

DAN BURTON, Indiana

CHRISTOPHER SHAYS, Connecticut

JOHN M. MCHUGH, New York

JOHN L. MICA, Florida

MARK E. SOUDER, Indiana

TODD RUSSELL PLATTS, Pennsylvania

CHRIS CANNON, Utah

JOHN J. DUNCAN, JR., Tennessee

MICHAEL R. TURNER, Ohio

DARRELL E. ISSA, California

KENNY MARCHANT, Texas

LYNN A. WESTMORELAND, Georgia

PATRICK T. MCHENRY, North Carolina

VIRGINIA FOXX, North Carolina

BRIAN P. BILBRAY, California

BILL SALI, Idaho

JIM JORDAN, Ohio

PHIL SCHILIRO, Chief of Staff

PHIL BARNETT, Staff Director

EARLEY GREEN, Chief Clerk

LAWRENCE HALLORAN, Minority Staff Director

SUBCOMMITTEE ON NATIONAL SECURITY AND FOREIGN AFFAIRS

JOHN F. TIERNEY, Massachusetts, Chairman

CAROLYN B. MALONEY, New York

STEPHEN F. LYNCH, Massachusetts

BRIAN HIGGINS, New York

CHRISTOPHER SHAYS, Connecticut

DAN BURTON, Indiana

JOHN M. MCHUGH, New York

TODD RUSSELL PLATTS, Pennsylvania

DAVE TURK, Staff Director

(III)

C O N T E N T S

Page

Hearing held on April 10, 2008 .............................................................................. 1

Statement of:

Estevez, Alan F., Principal Assistant Deputy Under Secretary of Defense,

Logistics and Materiel Readiness, U.S. Department of Defense; and

Sarah H. Finnecum, Director, Supply and Maintenance Directorate,

U.S. Army, G–4, Logistics ............................................................................ 83

Estevez, Alan F. ........................................................................................ 83

Finnecum, Sarah H. .................................................................................. 85

Kutz, Gregory D., Managing Director, Forensic Audits and Special Investigations, U.S. Government Accountability Office; Charles W. Beardall,

Deputy Inspector General for Investigations, U.S. Department of Defense; Tod Cohen, vice president, Government Relations, eBay Inc.;

and Jim Buckmaster, chief executive officer, Craigslist.org ..................... 9

Beardall, Charles W. ................................................................................. 45

Buckmaster, Jim ....................................................................................... 64

Cohen, Tod ................................................................................................. 58

Kutz, Gregory D. ....................................................................................... 9

Letters, statements, etc., submitted for the record by:

Beardall, Charles W., Deputy Inspector General for Investigations, U.S.

Department of Defense, prepared statement of ......................................... 47

Buckmaster, Jim, chief executive officer, Craigslist.org, prepared statement of ........................................................................................................... 66

Cohen, Tod, vice president, Government Relations, eBay Inc., prepared

statement of ................................................................................................... 60

Finnecum, Sarah H., Director, Supply and Maintenance Directorate, U.S.

Army, G–4, Logistics, prepared statement of ............................................. 87

Kutz, Gregory D., Managing Director, Forensic Audits and Special Investigations, U.S. Government Accountability Office, prepared statement

of ..................................................................................................................... 11

Tierney, Hon. John F., a Representative in Congress from the State

of Massachusetts, prepared statement of ................................................... 4

(1)

INVESTIGATION INTO THE SALE OF SENSITIVE, IN-DEMAND MILITARY EQUIPMENT

AND SUPPLIES ON THE INTERNET

THURSDAY, APRIL 10, 2008

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON NATIONAL SECURITY AND FOREIGN

AFFAIRS,

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM,

Washington, DC.

The subcommittee met, pursuant to notice, at 10 a.m. in room

2154, Rayburn House Office Building, Hon. John F. Tierney (chairman of the subcommittee) presiding.

Present: Representatives Tierney, McCollum, Hodes, Welch, and

Shays.

Staff present: Dave Turk, staff director; Andrew Su, professional

staff member; Davis Hake, clerk; Andrew Howell, intern; A. Brooke

Bennett, minority counsel; Nick Palarino, minority senior investigator and policy advisor; Chris Espinoza, minority professional

staff member; and Mark Lavin, minority Army fellow.

Mr. TIERNEY. Good morning, and thank you for being here.

Most Members, as you know, have multiple conflicting items on

their schedule, and they will be in and out as the morning goes on.

Mr. Shays is on his way over, but you folks are kind enough to be

here in a timely fashion and we want to get started so that your

day is put to good use.

The Subcommittee on National Security and Foreign Affairs

hearing entitled, ‘‘Investigation into the Sale of Sensitive, In-Demand Military Equipment and Supplies on the Internet,’’ will come

to order.

There is unanimous consent that only the chairman and ranking

member will be allowed to make opening statements. Mr. Shays

will be allowed to make his when he arrives.

There is unanimous consent that the hearing record will be kept

open for five business days so that all members of the subcommittee will be allowed to submit a written statement for the record.

Last summer the subcommittee, on a bipartisan basis, asked the

special investigators at the Government Accountability Office to

begin an undercover operation into whether sensitive and stolen

military equipment and supplies were being sold on the Internet on

such sites as eBay and Craigslist—obviously, not exclusively those

sites. We also asked GAO to investigate how such items were acquired and able to be put for sale online.

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We were concerned, first, about the possibility that sensitive

military equipment was being sold to would-be terrorists or criminals or hostile nations to the harm of our troops abroad, as well

as the rest of us here in the United States.

Second, we were concerned about taxpayer-funded equipment

being stolen or otherwise accounted for and sold for profit, especially with respect to any items currently in demand by our service

members fighting abroad.

Today we will hear and we will see with our own eyes what the

GAO was able to buy online. Unfortunately, the undercover investigators found not only significant amounts of stolen goods being

sold for profit; they also were able to buy sensitive technology and

equipment we wouldn’t want to fall into the hands of our enemies.

GAO was able to buy, for example, F–14 aircraft parts; sophisticated night vision goggles; infrared tabs worn by our troops to differentiate friend from foe; a complete current issue of a U.S. military uniform; nuclear, biological, and chemical protective gear; and

body armor currently worn by our troops—just to name a few

items.

It doesn’t take a whole lot of imagination to understand the troubling nature of some of these items being sold online. For instance,

Iran is the only country currently operating F–14s.

The type of night vision goggles purchased on eBay, because of

its ability to read infrared tabs worn by our soldiers, could be used

by our enemies to easily locate U.S. troops on the battlefield. A

leading manufacturer was previously fined $100 million for selling

sensitive technologies found in night vision goggles to China.

Just over a year ago, insurgents dressed in American combat

uniforms raided a security post in Karbala, Iraq, killing five American soldiers.

And what are the ramifications of having for sale online body

armor and nuclear, biological, and chemical protective gear our

troops are currently using? What are the homeland security concerns? Could an enemy who buys these items probe them for weaknesses and countermeasures?

What the undercover GAO special investigator found, and the

ease by which they were able to buy these items caused us to call

this hearing today. We wanted to bring everyone together in the

same room who has a role to play, all in the spirit of constructive

oversight, to focus on what we can all do to fix the problem going

forward.

We will soon hear from the head of the GAO special investigations unit about the undercover efforts here and their followup investigatory work. We will also get an update from the law enforcement arm of the Department of Defense on their own investigations.

We will then hear from eBay and Craigslist about their respective current efforts to prevent and detect the sale of sensitive stolen

military equipment on their Web sites. eBay and Craigslist are certainly different types of organizations. eBay is a for-profit company

with thousands of employees and serves as an international marketplace. Craigslist, on the other hand, has a self-described public

service mission, with only 25 employees, and maintains city-specific

sites.

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The subcommittee also, of course, understands that eBay and

Craigslist are only part of the e-marketplace, and that there are

thousands of other sites out there, many of which operate in the

shadows.

We will also hear from the logistics and supply chain experts

within the Defense Department and the U.S. Army. The very nature of our global marketplace underscores the vital importance of

keeping a very close hold on sensitive military technologies and

equipment in the first place.

In other words, we need to ensure that we have robust controls

in place, as robust as possible, to minimize the opportunities for

items to be siphoned off beyond our control, whether by negligence

or by criminal activity.

Of course, if an item does slip through the cracks, we need to

have swift and rigorous response to recapture the materiel and

punish the wrongdoers.

We also want to make sure that the Defense Department and

companies like eBay and Craigslist coordinate as much as possible.

We will be asking if there are ways to improve our public/private

partnerships with the companies who want to do the right thing to

better differentiate between sensitive or stolen items versus those

allowed to be sold.

Finally, I should add that today’s hearing builds off the oversight

work that Mr. Shays spearheaded during his time as chairman of

the subcommittee. Through the previous impressive work of the

GAO special investigative team, this subcommittee was able to

identify and play a helpful role in correcting weaknesses in Defense

Department controls regarding excess property.

I want to thank our ranking member for leading those past hearings and for working with me on this current bipartisan and constructive oversight.

We come to this hearing without attributing blame to any single

entity and without any cure-all fixes; rather, we felt it was important to bring all the relevant actors and stakeholders together to

discuss GAO’s investigation and, most importantly, to strategize on

what possible actions we can take individually and cooperatively

going forward to strengthen our controls.

[The prepared statement of Hon. John F. Tierney follows:]

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Mr. TIERNEY. I now turn to Mr. Shays for his opening remarks.

Mr. Shays.

Mr. SHAYS. Thank you, Mr. Chairman, for continuing the work

of this subcommittee concerning the Department of Defense’s controls on sensitive military equipment.

In 2002 our subcommittee discovered DOD had been selling topgrade chemical protective suits to the public, while military units

were waiting in line to acquire the same gear. In 2003 we determined DOD was selling items on the Internet that could be used

to make a biological warfare laboratory. The equipment was being

sold for pennies on the dollar.

At a June 2005 subcommittee hearing we learned DOD was

transferring, donating, or selling excess property in new or good

condition, while at the same time purchasing similar items for our

soldiers.

At a July 2006 subcommittee hearing we confirmed, through a

Government Accountability Office investigation, sensitive military

equipment was being sold or given to the public.

As a direct result of this subcommittee’s oversight, DOD has improved its procedures for processing and disposing of military

equipment. A July 2007 entitled Sales of Sensitive Military Property to the Public confirmed these improvements. However, a recent GAO investigation discovered night vision goggles, F–14 parts,

body armor, and infrared tape are being sold on the Internet.

Today’s hearing focuses on the actions needed to prevent sensitive military equipment from being sold to the public. These

items were not bought directly from DOD, as they had been in the

past; they were provided by private citizens in legal possession of

the equipment, by individuals who had stolen the equipment, or by

authorized vendors not following established industrial guidelines.

We are pleased to have representatives from eBay and Craigslist

at our hearing to help us better understand how we can prevent

sensitive items from being sold on the Internet in the future.

I will be interested in hearing how they have cooperated with

Government agencies and local law enforcement officials. For example, I am interested in learning how information channels can

be streamlined and how this can be incorporated into an industrial

standard. eBay and Craigslist are only two of many companies, but

all must cooperate.

The military newspaper, ‘‘Stars and Stripes,’’ published an article

detailing the court martial proceedings for a soldier who stole and

sold body armor, protective masks, and helmets on the Internet.

The soldier is serving a 30-month sentence for these actions. Hopefully this will be a deterrent to others thinking about stealing unauthorized military equipment.

At this point I am not sure if we have a supply accountability

problem, a law enforcement issue, or both. I look forward to the

witnesses to sort this out, as well.

The July 2007 GAO report describes the comprehensive changes

and programs implemented by the DOD, and they should be commended for these improvements. With this in mind, Mr. Chairman,

I look forward to the testimony of our distinguished witnesses and

thank each of them for being here today, and particularly thank

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you for conducting this hearing and continuing this investigation

on such a bipartisan basis.

Mr. TIERNEY. Thank you, Mr. Shays.

We will now receive testimony from our witnesses. I want to

begin by introducing the witnesses on our first panel.

Mr. Greg Kutz is the Managing Director of the Forensic Audits

and Special Investigations Team of the U.S. Government Accountability Office. Mr. Kutz joined GAO in 1991 and has served as

point for countless previous investigations, including Hurricane

Katrina fraud, waste, and abuse; military pay problems; credit card

and travel fraud and abuse; and security issues such as airport security, border security, and security over the purchase and transportation of radioactive materials.

Mr. Kutz, the subcommittee thanks you and Rick Nobold and everybody else on your team for the conscientious work done here.

Your efforts in helping to provide independent oversight are greatly

appreciated and extremely important.

We also welcome Mr. Charles W. Beardall, who is the Deputy Inspector General for Investigations at the Department of Defense

Office of the Inspector General. Prior to his appointment, Mr.

Beardall served as the Director of the Defense Criminal Investigative Service, the criminal investigative arm of the Defense Department Inspector General.

Mr. Todd Cohen is the vice president and deputy general counsel

for Government relations at eBay, Inc. Mr. Cohen joined eBay in

2000 as its first full-time public policy employee. Since 2004 he has

led eBay’s global government relations efforts.

And Mr. Jim Buckmaster is CEO of Craigslist.org. Mr.

Buckmaster has led Craigslist since 2000. He has also served as

chief technology officer and lead programmer.

Again, I want to welcome all of you and thank you for being here

today.

It is the policy of this subcommittee to swear in people before

they testify, so I would ask you to stand please and raise your right

arm. If there is anybody else that is going to be testifying with you,

I would ask them also to stand and be sworn.

[Witnesses sworn.]

Mr. TIERNEY. The record will please reflect that all of the witnesses answered in the affirmative.

Your full written statements will be placed on the record, so you

don’t have to feel compelled to be married to the written statement.

But we would like you to put it in about a 5-minute block so that

we can get some time to go back and forth with questions.

Mr. Kutz, we will begin with you. We are going to give you a little longer because, of course, your investigation is the subject of

this hearing and we want you to feel free to make a complete presentation.

Thank you.

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STATEMENTS OF GREGORY D. KUTZ, MANAGING DIRECTOR,

FORENSIC AUDITS AND SPECIAL INVESTIGATIONS, U.S. GOVERNMENT ACCOUNTABILITY OFFICE; CHARLES W.

BEARDALL, DEPUTY INSPECTOR GENERAL FOR INVESTIGATIONS, U.S. DEPARTMENT OF DEFENSE; TOD COHEN, VICE

PRESIDENT, GOVERNMENT RELATIONS, EBAY INC.; AND JIM

BUCKMASTER, CHIEF EXECUTIVE OFFICER,

CRAIGSLIST.ORG

STATEMENT OF GREGORY D. KUTZ

Mr. KUTZ. Mr. Chairman and members of the subcommittee,

thank you for the opportunity to discuss the sales of military property on eBay and Craigslist. Previously I testified before this subcommittee that DOD was selling sensitive military property

through its excess property system. Today’s testimony responds to

your request that we investigate the sales of military property on

eBay and Craigslist.

My testimony has two parts. First, I will discuss what we did

and provide you with some background; second, I will discuss the

results of our investigation.

First, this investigation was done primarily as an undercover operation. For all of our purchases we posed as a bogus private citizen with only a credit card, mailbox, and a telephone necessary for

this operation. Most of the purchases we made were on eBay. We

appreciate the cooperation of eBay’s fraud investigation team

throughout this investigation.

Several of our purchases were also made on Craigslist, which

serves as an Internet version of the newspaper classified ads.

Major criminal cases in the last year highlight the importance of

protecting sensitive military property. For example, in April 2007

an individual pled guilty to selling night vision devices to a terrorist organization in Sri Lanka.

In May 2007 an individual was sentenced for illegally exporting

F–14 parts to Iran. A search of his home led to the seizure of over

13,000 aircraft parts and a shopping list provided to him by a military officer from Iran.

And in September 2007 an Air Force staff sergeant pled guilty

to charges of stealing military night vision goggles to sell overseas.

These are just a few of the hundreds of cases related to sales of

sensitive military property to places such as Iran and China.

I provide this background because our undercover operation

could have easily been financed by China, Iran, or a terrorist organization looking to acquire U.S. military property, which leads to

the second part of my testimony: the results of our investigation.

Overall our undercover investigators purchased a dozen sensitive

military items to show just how easy it was for anybody to obtain

them. Once in possession of this property, we could have resold it

to an international broker or shipped it overseas.

According to DOD, the sensitive items that we purchased are

U.S. munitions list items. These items require Government approval before they can be exported. Some of these items could also

be reverse engineered to develop similar technology or used, as the

chairman said, to develop countermeasures. These items would also

be useful to terrorists or criminals right here in the United States.

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A recent Craigslist ad touted military body army as ‘‘a must-have

for gangsters.’’

The majority of the items that we purchased are displayed on the

table to my right. Let me discuss the items that are the most disturbing or troubling to me, which I will also show on the monitor

as I go through this discussion.

First, I have in my hand this new, unused F–14 antenna wave

guide. This item is part of the F–14 radar warning system. Iran is

the only country with operational F–14 fighter jets.

Second, I have in my hand these new and unused night vision

goggles. These goggles are a critical part of the U.S. night fighting

system because of an image intensifier tube. This tube allows U.S.

soldiers in Iraq and Afghanistan to distinguish friendly fighters

wearing infrared tabs from the enemy at night.

Third, we have on the hanger to my right an Army combat uniform [ACU], and associated gear on the table. Why is this troubling? Because, as the chairman said, in January 2007 insurgents

wearing U.S. military uniforms passed through security, entered a

compound in Karbala and killed five U.S. soldiers. In addition, this

ACU has the infrared tabs I mentioned, which would allow enemy

fighters to pose as friendlies at night.

Fourth, we have the body armor on the table. The enhanced

small arm protective inserts [ESAPIs], are currently used in body

armor worn by our troops in Iraq and Afghanistan.

In addition to these purchases, we identified other sensitive military property that was also sold to the highest bidder. Examples

include hundreds of sets of military body armor, dozens of aircraft

and helicopter parts, additional night vision goggles, and ACUs.

High bidders on some of these items were from places such as

Hong Kong, Russia, Thailand, Costa Rica, Hungary, and Singapore.

Most of the military property that we purchased was stolen. For

example, two sellers with eBay storefronts bought stolen property

from service members and resold it on eBay. Examples of this property include kevlar helmets, gas masks, and additional ACUs.

I have in my hand this military meal ready to eat [MRE]. We

identified a robust Internet market for the sales of these stolen

MREs. For example, we identified two individuals that each sold

over $50,000 of MREs stolen from nearby military bases.

We also identified a soldier at Camp Casey in South Korea who

sold us MREs on eBay. After we referred him to the Army Criminal Investigative Division, they determined that he was responsible

for numerous thefts at the camp. This eBay seller is now serving

a 31⁄2 year sentence in prison.

In conclusion, we believe that the technology used by our soldiers

on the battlefield today should not be available to the highest bidder. Ironically, eBay prohibits the sales of used cosmetics, while at

the same time the latest in military body armor is available to anybody with a credit card.

Our soldiers deserve better than to have our own technology used

against them on the battlefield.

Mr. Chairman, that ends my statement. I look forward to your

questions.

[The prepared statement of Mr. Kutz follows:]

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Mr. TIERNEY. Again, thank you, Mr. Kutz, and your staff, as

well, for that investigation and for the report.

Mr. Beardall.

STATEMENT OF CHARLES W. BEARDALL

Mr. BEARDALL. Chairman Tierney, Chairman Shays, distinguished members of the Subcommittee on National Security and

Foreign Affairs, thank you for the opportunity to appear before you

to discuss the DOD Office of the Inspector General’s role in stemming the theft, diversion, and sale of sensitive military materiel,

especially on the Internet.

Consistent with our mission of protecting America’s war fighters,

the Defense Criminal Investigative Service, the law enforcement

arm of the DOD Inspector General, has been actively engaged in

investigating the theft, diversion, and sale of sensitive military

technologies since the early 1990’s. These investigations joined terrorism, major procurement fraud, corruption, and the protection of

the global information grid as DCIS’ top five priorities.

DCIS technology protection investigations now comprise 20 percent of our caseload. Also, 90 percent of DCIS undercover operations focus on technology protection. DCIS comprises 340 of America’s finest, most dedicated special agents. They are assigned to offices nationwide and in Europe and Southwest Asia. DCIS has

broad investigative jurisdiction over DOD programs and operations,

including technology protection. We are recognized as a major partner in the battle against proliferation and illicit technology transfers. Yet, despite broad commitment, manpower limitations restrict

DCIS from becoming involved in all investigations involving theft

and sale of DOD equipment; therefore, we focus on the most serious or threatening offenses.

Most investigations involve foreign nationals contacting Defense

contractors to obtain control of technologies and U.S. munitions list

items for export to proscribed nations. Popular items are missiles,

UAVs, M–16 and M–4 rifles, night vision goggles, aircraft parts,

and components for weapons of mass destruction.

DCIS also investigates disposal of military equipment that is not

properly demilitarized, particularly items that threaten the U.S.’s

interests or our export control.

A few example provide a vivid illustration of the investigation

DCIS conducts in technology protection. In July 2005 an Iranian

citizen was sentenced to 57 months confinement for attempting to

export aircraft component parts for F–4 and F–14 fighters to Iran.

One component the individual attempted to export was a Vulcan

six-barrel drum which feeds ammunition into a Gatling gun used

in military aircraft. The weapon can fire 6,000 rounds of ammunition per minute.

Also, over a 2-year period DCIS and the Immigration and Customs Enforcement agents investigated a covert agent of the People’s Republic of China who was seeking to procure up to 70 Black

Hawk helicopter engines, several F–16 engines, and air-to-air and

air-to-ground missiles. The subject was induced to travel to the

United States, where undercover agents showed him an F–16 engine. He wired $140,000 to an undercover bank account and was

arrested. He was convicted of export violations, bribery of a public

46

official, and being a covert agent of the PRC. In July 2006 he was

sentenced to 61⁄2 years confinement and fined $1 million.

DCIS and partner agencies regularly use undercover operations

to stop illegal technology transactions, including searching Internet

Web sites for controlled military items. One significant undercover

operation targeting illegal sales on the Internet was DCIS’ Operation High Bidder, initiated in 2003, and, frankly, continuing today

with other efforts. The operation identified numerous sales of military grade body armor on eBay. High Bidder resulted in 183 investigative reports, from which 139 cases were opened, 51 criminal

charges were filed, that resulted in 44 persons being convicted and

sentenced to a total of 48 years confinement and over $400,000 in

fines.

The unquantifiable benefits of High Bidder are reduced number

of sales of certain controlled items and greater public confidence

that DOD is policing these illegal sales.

A DCIS High Bidder vulnerability report was provided to Defense Logistics Agency and the DOD Office of Supply Chain Integration. DCIS also prepared a criminal intelligence report warning

military and law enforcement organizations of the availability of

stolen body armor and other military equipment to potential terrorists and criminals.

We note that eBay supported High Bidder and the operation resulted in the installation of filters to identify body armor and related items, and we keep on trying to refine those filters.

I conclude by emphasizing that to protect America’s war fighters,

allies, and our citizens, the DOD Office of Inspector General remains steadfastly committed to aggressively countering the illegal

sales of sensitive DOD equipment and technology, including those

on the Internet. We will continue to keep Congress and the DOD

leadership fully and promptly informed regarding our efforts.

I look forward to your questions.

[The prepared statement of Mr. Beardall follows:]

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Mr. TIERNEY. Thank you, sir.

Mr. Cohen.

STATEMENT OF TOD COHEN

Mr. COHEN. Chairman Tierney, Ranking Member Shays, members of the committee, my name is Tod Cohen, and I am vice president and deputy Government counsel for Government relations at

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

opportunity to discuss the sale of military items on our site, and

I ask that my full statement be entered into the record.

Mr. TIERNEY. It will be entered in, as I said.

Mr. COHEN. One of my focuses in my 8-year career at eBay has

been to make sure that we work closely with governments around

the world to keep our site as safe as possible for our community

of users and for our communities, in general. We seek to achieve

this goal by working with government experts to create clear, effective rules regarding what can and cannot be listed for sale on our

site, and then aggressively enforce those rules.

We partner with law enforcement agencies proactively and reactively to make sure that sellers who break the law get prosecuted.

Since 1995, eBay has created prohibited and restricted item policies covering over 60 classifications of items, including firearms,

prescription drugs, counterfeit goods, and drug paraphernalia, to

name just a few. We have developed industry-leading advanced

programs to identify suspicious items and user behaviors. We have

teams of people in place around the world and around the clock to

review and remove items that are flagged by our systems. We sanction and remove members who engage in harmful practices and we

have, as mentioned, a global fraud investigations team that partners with law enforcement to make sure that criminals get prosecuted to the fullest extent of the law.

Let me provide some sense of scale to our efforts and our challenges. We have trading platforms in 39 markets, with over 82 million active users worldwide. At any one time, around 113 million

items are listed for sale, with more than 6 to 7 million new items

listed 24 hours a day, 7 days a week, 365 days a year. With such

high volumes, we must work closely with regulatory and law enforcement agencies to police against abuses, both intentional and

unintentional. We work with them to determine the key words and

phrases that are commonly used to describe the goods that we

would want to prevent from being available for sale.

One of our 60 prohibited item policies concerns the sale of military items. It essentially prohibits the sale of military items that

have not been disposed in accordance with Department of Defense

regulations. We have worked on these policies with national security experts at the Defense Criminal Investigative Service, the Government Accountability Office, the Department of Defense, the

Naval Criminal Investigative Service, and the Air Force Office of

Special Investigations, among others. We work with Government

experts to build detection tools to flag listings for items such as

body armor and MREs.

The goal is to identify items that cannot be sold commercially.

We build the technology filters, test them, get extensive input and

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followup from Defense agencies, and then use them to flag suspicious listings.

To give you just one example, in 2007 we reviewed 4,273 listings

flagged by our body armor filters we developed with the help of

DCIS and removed 1,278 listings from eBay. The nearly threequarters that were not removed were deemed to be false positive,

and the listings were allowed to remain active.

Our fraud investigative team has also assisted in a number of

cases involving the illegal sale of body armor by providing seller information to DCIS and other enforcement agencies. When we receive a request for member records from GAO or one of the military

investigative services, we respond quickly.

Our goal is to make it as easy as possible for these agencies to

prosecute criminals, and we work tirelessly to attain this goal, including having investigators appear as witnesses to support prosecutions.

To sum up, we believe that eBay has the most proactive policies

and tools to combat fraud and illegal activity of all the major Internet commerce companies. There are over 2,000 eBay, Inc. employees around the world working to combat all forms of harmful behaviors on our site, including the sale of illegal or stolen items.

As we have grown in business over the last 12 years, we have

dedicated more and more resources to this fight. We believe our

programs are not only best in class on the Internet; we also believe

that they match up and surpass offline retailers and marketplace

efforts.

Simply put, eBay is no place for the sale of stolen or illegal military goods. The transparency of our site, our rules, our enforcement

tools, and our commitment to working with law enforcement makes

it an unwelcome venue for criminals seeking to fence these goods.

We look forward to working with this committee and our partners in the military and Federal Government agencies on ways to

more effectively prevent stolen or illegal military items from being

listed on our site.

We very much appreciate the opportunity to participate in this

important hearing, and thank you for your time and consideration.

[The prepared statement of Mr. Cohen follows:]

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Mr. TIERNEY. Thank you, Mr. Cohen.

Mr. Buckmaster, we appreciate that one-twentyfifth of your company is sitting before us and that you have made the time for us

today. Please feel free to take your time.

STATEMENT OF JIM BUCKMASTER

Mr. BUCKMASTER. Chairman Tierney, Congressman Shays, good

morning. As introduced, my name is Jim Buckmaster, and I am the

CEO of Craigslist.

I would like to thank the subcommittee for inviting me here to

participate in today’s hearing, and look forward to working together with all of the organizations represented here to solve the

problems identified in the GAO report.

Founded in 1995, Craigslist operates local community Web sites

for 450 cities featuring classified ad services used by over 25 million Americans each month to find jobs, housing, for sale items,

services, friendship, romance, and community information, generating almost 10 billion page views per month.

Nearly all Craigslist services are offered free of charge and without banner ads or text ads or other commercial impediments. Of

our revenue, 100 percent comes from fees for job listings in 10 cities and a fee for brokered apartment listings in New York.

I would like to congratulate and thank the authors of the GAO

report for their excellent work, but with all due respect I do feel

some corrections and amplifications are in order regarding

Craigslist, and will mention three of those here.

First, describing Craigslist as ‘‘a global marketplace with international reach’’ is somewhat misleading. Craigslist is a collection of

separate, strictly local marketplaces. The for sale section of each

local Craigslist site is used nearly exclusively to facilitate in-person, face-to-face transactions. Sales involving shipping are rare and

are strongly discouraged by Craigslist, and international sales are

extremely rare.

I should hasten to add that, although Craigslist is not close to

being a go-to site for international trade in military items, we do

not accept any misuse of Craigslist, and are determined to do our

very best to eliminate it.

Contrary to what the GAO report implies, Craigslist actually has

more people actively engaged in its anti-fraud efforts than any Web

site on Earth. In addition to our in-house anti-fraud team numbering a dozen or more staff members and the automated blocking and

screening routines we have developed, Craigslist benefits from tens

of millions of passionate users diligently reviewing every ad on the

site, with each user having the power to delete inappropriate ads,

which they do to the tune of several million ads each month.

On the plus side, the GAO investigators did notice that ads were

being actively removed from Craigslist as they were searching the

site, an observation that they did not make about any other site

in their report.

I was surprised that the GAO did not highlight in the report the

fact that, unlike every other party cited, Craigslist uniquely earns

absolutely nothing from the sale of military items. Military personnel, shopkeepers, online storefronts, Web sites large and small, as

cited in the report, all are earning money from each sale of senVerDate 11-MAY-2000 15:06 Jul 20, 2009 Jkt 000000 PO 00000 Frm 00068 Fmt 6633 Sfmt 6633 U:\DOCS\50350.TXT KATIE PsN: KATIE
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sitive military equipment, with the largest players undoubtedly

reaping many millions of dollars per year from such sales.

It should be noted that, with the exception of Craigslist, each of

these parties has a strong financial incentive for failing, or at least

delaying, putting an end to this trade. Craigslist has no such incentive, and we are eager to solve this problem.

My humble request to those assembled here is for clear and concise guidelines as to which items are allowed to be sold and which

are not. With clear and concise guidelines available, very few of our

users will violate them, and those few who do will quickly find

themselves blocked, screened, and flagged off of our site.

Without clear and concise guidelines, though, I fear that even the

most conscientious efforts to eliminate this trade will struggle.

Armed with clear and concise guidelines which we will use to educate our users, our staff, and our blocking and screening software,

I am extremely confident that we can quickly reduce the volume

of such ads on Craigslist by more than 90 percent.

By the way, I do have an idea for removing all financial disincentives that may delay a solution to this problem. I would like to

challenge each party cited in the GAO report to make a commitment to donate 100 percent of any revenue they may have earned

in connection with the sale of sensitive and/or stolen military items

to charity, preferably one that provides aid to our military veterans.

Although Craigslist has collected no revenue from such sales, as

a show of good faith, if each of the other parties is willing to commit to donating all such revenue to charity, past, present, and future, Craigslist would be proud to make a very sizable donation, as

well.

I think my 5 minutes are up. Thank you, Mr. Chairman and

members of the subcommittee, for inviting me to speak. I look forward to your questions.

[The prepared statement of Mr. Buckmaster follows:]

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Mr. TIERNEY. Thank you very much.

We are going to start with some questions and answers here.

Some of the Members have left to go vote, so as it gets closer to

that we will probably take a brief break and go back and then ask

you folks to rejoin us at the end of that. I apologize for that, but

it is something beyond the control of this subcommittee.

Let me start with the last suggestion that was made by Mr.

Buckmaster. Is the financial gain by not just eBay but any company that might be being used as a conduit by bad actors, is that

perceived to be the driving force here, Mr. Kutz?

Mr. KUTZ. I can’t discuss intent of people, but certainly it is a

fact. I mean, if eBay sells something that is stolen from the Government, the taxpayers paid for it and eBay would make a small

profit on that, and whoever sold it and got it for zero dollars or

whatever.

One of our eBay sellers was buying them from soldiers for $20

and selling them for $55, so they were making $35. There is profit

for the seller.

Mr. TIERNEY. That was a seller, but not an Internet company.

Mr. KUTZ. As a seller, but eBay would get some sort of commission on that, I would assume, and so would other sites. I am not

pointing to them only, but others are doing for-profit.

And I agree with Craigslist, they are not making any money on

those sales. I believe that is factually accurate.

Mr. TIERNEY. Mr. Beardall.

Mr. BEARDALL. I think so as well, sir, that for the Internet sales,

that is the main motivator. Now, the cases that we get involved in

in our undercover operations, then it usually involved nationalistic

interests as well as big dealers making big bucks, which are the

arms dealers who we ferret out by a number of means, including

undercover operations setting up storefronts for them to come in

and try to buy items from us.

Mr. TIERNEY. Mr. Beardall, it seems to me from your testimony

that you are, in a sense, trying to do what Mr. Kutz’ group did as

an enforcement mechanism. You are trying to do the same kind of

things from time to time. Is that the best way for us to approach

it? Is that the best we can do, is after the horse is out of the barn,

sort of go around and collect it? I am sure we have a lot of questions for our next panel as to what are policies going on here and

how do these things hit the place in the first instance.

Mr. BEARDALL. Sure, preventive measures would be much preferable to us devoting the amount of time that we do, and with the

small force I have, that is why we have to prioritize, as well, and

cannot spend a lot of time on the Internet, but are going after more

serious things that Iranians and the Chinese want.

Mr. TIERNEY. From the standpoint of Mr. Kutz, Mr. Beardall,

and your respective agencies, is there anything more that private

or not-for-profit Web sites that these two witnesses represent, but

are certainly not exclusive just those, is there anything they can

do?

Mr. BEARDALL. Sir, I think one of the great examples of what we

can do is what was referred to by Mr. Cohen, regarding our cooperation. As you noticed, he mentioned the DCIS continues to

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work with eBay to try to find ways that we can stop this stuff and,

if we discover it, then go after it.

Now, in a lot of cases, because of our small number of agents,

we also get the assistance of Army CID, of OSI—Office of Special

Investigations—for the Air Force, and Naval Criminal Investigative

Service. Unfortunately, those folks are also tied up with major missions in Southwest Asia, which reduces the amount of agents they

can provide to this effort.

Mr. TIERNEY. So assuming we have all these different people

doing investigations, trying to get people that have sort of breached

the gap here and gotten on some site at some point in time, and

that is not drying up what is going on, because apparently the incentive is too high, either nationalism or some other driving forces

like the money, itself, for these people, we are going to continue to

find them trying to do this. You are going to continue to clean up,

unless we take care of those policies that allow for these types of

things to get out into the marketplace to begin with. Is that a fair

assessment?

Mr. BEARDALL. Correct. And one of the other things is sometimes

the sellers don’t even know what they have. This stuff is picked up

at garage sales and other things and it comes on the Internet and

it raises our antenna up, but it is just an inadvertent sale. That

is the trouble with prosecutions, as well. You understand that most

of these cases—you have a couple of cases of MREs, night vision

goggles here and there—are not going to get prosecuted because,

again, the amount of work that the U.S. Attorney’s Office has to

prosecute this. That is why at times I think we have been lucky

to have some UCMJ results.

I smiled today when Mr. Kutz talked about the soldier who got

30 months. He’s lucky he wasn’t a marine, because one marine

staff sergeant was sentenced to 10 years and a dishonorable discharge by the marines for the theft and sale of body armor. I think

that made a point in Camp Pendelton and other areas of the Marine Corps.

Mr. TIERNEY. How extensive is this situation? How many Web

sites might we be talking about?

Mr. BEARDALL. Well, there are two that are the main Web sites,

High Bidder and Inventory Locator Service, which actually is a

compendium of a number of links where you can try to get stuff

from legitimate dealers in military equipment and all the rest, but,

again, if somebody is looking for that odd item—and, again, the

trouble with Defense contractors, we have tons of them doing a

small part here, a big part there, and, again, we are looking for

bulk and stuff that will harm our soldiers, sailors, airmen, and marines, and have them lose the advantage on the battlefield.

Mr. TIERNEY. How real is the prospect that somebody would

move some of these very sensitive materials internationally? Are

there a lot of barriers for people to break to get that done successfully, or is it something that we know happens more frequently

than we like, and on a large scale?

Mr. BEARDALL. I am really not the right person. Perhaps the FBI

has a better handle on that. But I do at times feel like the Dutch

boy in trying to stop the flow of the dam. And it is all kinds of

stuff. I just got a report this week about one of our investigations

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resulting in an 11-year sentence and a 9-year sentence from two

Americans who were sending weapons to Canada, and it was a

large shipment of sensitive items, and Canada is recognized as one

of the trans-shipment areas for Iraq. Again, we were pleased to be

able to get these two guys off the street.

It takes a lot of work. The problem with it is that undercover operations are very agent intensive. If I have an agent or two working an undercover operation, they are no use to me in any of the

other stuff we do with fraud and all the rest, and so we have a

small force. You have to really pick and choose and try to get your

biggest bang for the buck.

Mr. TIERNEY. Mr. Cohen, something that Mr. Kutz said grabbed

my attention, and I want to ask you to respond to it. We talk about

enforcement maybe not being adequate, there are no resources that

it ties up in the cost/benefit of that, but there was a comment made

that eBay is able to keep used cosmetic sales or ban used cosmetics

from being sold on eBay. If that is the case and you are successful

in doing that, where is the breakdown in our apparent inability to

keep sensitive military equipment off of eBay?

Mr. COHEN. There are a lot of categories like the used cosmetic

category in which we have a prohibition on, and we rely on the

community to help us to enforce those tools. Where we think we

should be spending our time and effort, obviously, is on sensitive

military equipment. That is where we devote our energy, so that

a listing of different standards of what is allowed and what is not

allowed does not reflect where we are going to place our efforts

against that.

Mr. TIERNEY. So for all you know the ban on used cosmetics may

not be any more successful than your attempts to keep off the sensitive military equipment?

Mr. COHEN. No. I would say just that it is more in the line of

where is the greater risk to the public.

Mr. KUTZ. And that is based on an FDA regulation that they do

that.

Mr. TIERNEY. I guess what I am trying to say is if you are successful at keeping the used cosmetics off, then what are we doing

with respect to used cosmetics that we are not doing and should

be doing with respect to sensitive equipment?

Mr. COHEN. I do think that it is fair to say that, because the regulation is in place—and I can’t quote specifically as to what our effectiveness is on the used cosmetic categories, so I can’t necessarily

say that we have a large problem or a small problem in that area,

so I don’t want to suggest that we have absolutely eliminated the

sale of all used cosmetics, but I wanted to suggest more so that it

is where we are going to place our resources to where the greater

risk is to the public, and obviously it is going to be in this other

area.

We also prohibit other items that are prohibited that may be

found in lots of different locations, and yet we don’t invest energy

to try to eliminate that category.

Mr. TIERNEY. Right. So are we fair in saying that there is at

least as strong a regulation prohibiting the sale of sensitive military equipment as some of these other products?

Mr. COHEN. Yes.

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Mr. TIERNEY. All right. We are all comfortable with that.

I will stop for a second and yield to Mr. Shays.

Mr. SHAYS. Thank you, Mr. Chairman, again for holding this

hearing.

In 2002 the subcommittee basically was made aware of top-grade

chemical suits that were being sold to the public when we had the

military waiting in line, and then in 2003 we saw biological warfare laboratory that was basically sold for pennies on the dollar. In

2005 we learned DOD was transferring, donating, and selling excess property in near or good condition, while at the same time

purchasing similar items for a soldier. In 2006 we learned from the

GAO that sensitive military equipment was being sold or given to

the public.

I want to first know, are those problems still occurring, or do we

not know because we haven’t looked at that again? Has there been

improvement in those areas?

Mr. KUTZ. There is definitely improvement, and only a couple of

these cases could potentially have come from Government liquidation, which is the one that sells the excess property for DOD. Both

of the individuals we bought the F–14 parts from also were buyers

from Government liquidation, as was one of the individuals that

said they bought their kevlar helmets from Government liquidation. So there is potentially two or three of the buys we made that

may have come from Government liquidation; otherwise, these are

other sources feeding the secondary market for military property.

Mr. SHAYS. But, bottom line, this committee has continued to

look at this. The GAO has determined that you all have determined

that things have gotten noticeably better. So now what we are looking at is something different. We are looking at theft.

My first question is: should we have been aware of the theft

without seeing it being sold on eBay, but just seeing that our inventory didn’t match, that there was tampering with the record or

there was an imbalance, there were things not there that should

have been? Should that have been what told us that there was

some stolen items taken, whether they were sold or just kept for

that person’s use?

Mr. KUTZ. Yes, most of the items that we identified were, in fact,

stolen, we believe. Other ones we are not sure of.

Mr. SHAYS. You are not hearing my question. The issue is: how

did we learn they were stolen? If you have a system that works

properly, if Sam’s Club can tell us in 15 minutes where everything

is stored and what sold in the last half hour or earlier, why do we

still not have the ability? Do we have leakage, stolen items that we

would never know about because we don’t have systems in place?

Or do we now start to have systems in place to know when we have

this problem?

In other words, we found out this was stolen, I think, Mr.

Beardall, because you noticed it on eBay, correct?

Mr. BEARDALL. EBay and other things, as well. Our undercover

operations are the most successful in finding people who are stealing and selling or people who are wanting to buy. But eBay items

is another place that we keep looking.

Again, a lot of the sellers on eBay are, frankly, one or two items.

Mr. SHAYS. I understand that.

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Mr. BEARDALL. We are concerned more with the bulk items, and

I have not seen a lot of that, and perhaps——

Mr. SHAYS. Do we have a serious theft problem, or do we not

even have the ability to know we have a serious theft problem?

Mr. BEARDALL. I might say the latter might be more accurate.

Mr. SHAYS. OK.

Mr. BEARDALL. And I would defer to the witnesses on the next

panel who manage the distribution centers and know more.

Mr. SHAYS. Really, what I am asking you, Mr. Kutz, is, if we did

the same operations that you did in 2002, 2003, and so on, would

we encounter the same abuses that I just read off, or would it be

likely that DOD is in a better position to prevent that?

Mr. KUTZ. I believe there are fundamental DOD property management issues that resulted in the stolen property, yes. But I don’t

think they are excess property; I think they are the rest of the supply chain. You are talking about items distributed to the Army

from DLA that the Army loses control of, either through soldiers

or a warehouse or something like that. So it is a little different

problem. I think you said at the beginning, it is stolen property,

but the source of it is not the stuff that is going through the excess

property system. Now you are talking about supply warehouses,

like the Korea case, where soldiers are stealing body armor. This

didn’t come from a soldier, this came from a contractor, and the

contractor sold it to us.

Mr. SHAYS. When I see that, what I wrote down, you know, night

vision goggles, F–14 parts, body armor, infrared tape are being stolen, you know, and then it is either a private citizen’s illegal possession, maybe something that was stolen or not stolen, but equipment that has been stolen by individuals or unauthorized vendors,

to me that is what we are looking at today. To me that is basically

treason.

I mean, the fact that someone can get a uniform and basically

get in our base using that uniform—now, admittedly, that may

have been items that were stolen in Iraq, but, in particular, the

night vision goggles, we go out at night in Iraq every night with

Special Forces. We go out at night instead of the daytime because

we have that advantage. If we lose that advantage, we are going

to have many of our soldiers killed and marines killed. That is the

thing that I find most outrageous.

I am going to end my question by saying progress has been

made. It appears that stolen items is an issue. It appears that it

is small items so far. You have prosecuted some when you should.

We are always going to have a stolen item issue, it seems to me.

We want to catch them quick and go after them.

Thank you.

Mr. TIERNEY. Thank you.

Mr. Welch.

Mr. WELCH. Thank you, Mr. Chairman.

Mr. Kutz and Mr. Beardall, are there any things that you would

recommend that could be done in what I understand is a positive

relationship with eBay and Craigslist that would improve it so that

we could diminish the illicit sale?

Mr. BEARDALL. Yes, sir. I think one of the things that is obvious

is that the DCIS—Defense Criminal Investigative Service—and

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eBay have a long-term relationship after our original operation was

completed, and we continue to try to refine ways to identify those

items on eBay. They have been very cooperative and helpful, and

we are trying to work through them because they, of course, are

the biggest online seller where these things are showing up.

Mr. WELCH. But then there are other locations like, I guess,

Craigslist and all kinds of entities out there that can sell on the

Internet. Are there any things that you would recommend to us

legislatively or rulemaking that might provide better protection?

Mr. BEARDALL. I think the emphasis is obviously on keeping the

stuff from getting stolen. Again, in comment to Mr. Shays’ questions, if there are going to be large, bulk thefts of items from the

Department of Defense, we are not going to see those on eBay.

Those are going to be sold another way, which is what DCIS is trying to really home in on. I think that is the area where you try to

stop it later on. We are just cleaning up the mess.

Mr. WELCH. Sure.

Mr. Cohen, I understand eBay gets millions of for-sale opportunities a day from participants, so obviously it is a huge management

issue. I understand you have testified about your fraud investigation teams. Do you have any recommendations on what the Government and Department of Defense could do that would facilitate

your efforts to keep improper military and other things offline?

Mr. COHEN. I think the most important thing was what Jim alluded to with regard to clear rules. One of the dilemmas we face

is, because we are visible and the Internet is more visible, there

sometimes is the tendency to try to impose restrictions on the

Internet that would not apply to an off-line world. Our goal is to

say that if we want to prohibit the sale of night vision goggles, then

it should be a technology neutral decision to make it illegal across

the board, and especially in the area of export control.

For us, the most difficult issue of all is that you can buy an item

that is limited for export control at a store and then walk out the

store and ship it overseas for individuals to do that, and yet the

complaint has been raised that we aren’t able to do that because

individuals are able to look at our items from around the world.

So if there is a decision made by the Congress to say that these

are export controls, then we probably should try to have that consistent across all the different platforms, rather than just picking

one platform. That would be our request from the Congress.

Mr. WELCH. OK. How about just in the day-to-day interaction

that you have with the Government about trying to monitor and

sty on top of what should not be sold?

Mr. COHEN. We receive remarkable cooperation from law enforcement and a desire for people to help solve the problems, and that

is why we spend so much time and effort on it. I mean, it is important. I think it is important for there to be always an open level

of cooperation, and from our perspective one of the things that we

and others in all industry should do is, wherever possible, not

make our law enforcement officials jump through hoops, like subpoenas, on areas of important national security. That is why we

have always had a much more open and active policy to cooperate,

work with DCIS and others, before making them have to jump

through the hoops.

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I will mention one other thing. We many times get requests from

DCIS and others to leave items up for sale that may be sensitive

military equipment, and that may then end up in the press, and

that is at a direct request from the investigators to say leave that

up so we can help track down both who are the buyers or potential

buyers, and who the seller is. That is why you may see stories in

which items would be inappropriate but have been left up.

Mr. WELCH. OK. Thank you.

I yield back.

Mr. TIERNEY. Thank you. While Mr. Hodes is getting situated, I

just want to ask one question. Mr. Kutz and Mr. Buckmaster, I noticed that some items were body armor vests, and were purchased

from eBay and Craigslist sellers. Am I right in assuming that

Craigslist is like a newspaper, but online, and it could have also

been that somebody went to a newspaper and saw a listing for this

and made the same kind of transaction? Is that right?

Mr. KUTZ. That is correct, yes.

Mr. TIERNEY. And Mr. Buckmaster, that fits?

Mr. BUCKMASTER. Yes, I think that is correct, and I would just

quickly say that I think the problem from our perspective is that

our otherwise well-intentioned users are somewhat ignorant about

what they are allowed to sell and what they are not. From our perspective, it would simplify things greatly if a law were passed banning the sale of any U.S. military issued item, say, that is less than

50 years old, and our users would understand that.

If we, absent such a law, try to make such a blanket rule on our

site, our users would rightfully chaff. Why are we not allowed to

do this when it is legal?

If we are going to end up with a 50-page long description of items

that can and cannot be sold, our users, if we are lucky, will read

half a page of items.

Mr. TIERNEY. Lucky if they read half a page is right. Well, what

about that, Mr. Kutz and Mr. Beardall? Would you recommend legislation that just banned the sale of military equipment beyond a

certain vintage date?

Mr. BEARDALL. That could potentially work. Yes, sir.

Mr. KUTZ. Certain items, possibly, yes.

Mr. TIERNEY. Why just certain items?

Mr. KUTZ. Well, it depends. Meals ready to eat, all of these are

potentially stolen. Stolen ones should not be sold, certainly, but

there is a whole bunch of other types of meals ready to eat out

there. But certainly things like the night vision goggles, these are

the ones that are used by hundreds of thousands of troops today.

That doesn’t seem like something that——

Mr. TIERNEY. It is sort of amazing to me that we haven’t had a

law to ban the sale of that, or the units and all that. It certainly

would make things easier on this end, and it would make the prosecution easier on your end.

Mr. KUTZ. Yes, for certain.

Mr. BEARDALL. But, again, you have to react to the most sensitive and the most controlled and, for example, night vision goggles in versions one and two are now sold commercially. Three,

four, and five are still controlled.

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Mr. TIERNEY. I mean, it would let you prioritize what you need

to do, but, on the other hand, it would help these gentlemen out

in terms of just saying to all of their users it is just not allowed.

Mr. BEARDALL. Roger.

Mr. TIERNEY. Now you know that if they put it on there they are

at risk, or whatever, and you go after it, it simplifies it a little bit

on that basis.

Mr. BEARDALL. And there are some other little things that we

can talk to your staff about that we would like to discuss. One of

the things if I don’t mention my agents will really get mad, and

that is demilitarized items. If somebody is in possession of an item

that has not been demilitarized, agents do not have the authority

to seize that item if we can’t tie another offense to it, as in it was

stolen.

Mr. TIERNEY. So possession of a demilitarized item is not yet an

offense?

Mr. BEARDALL. If it was improperly demilitarized and somebody

has it, we usually have to say, couldn’t we have it back? We can’t

seize it because we don’t have that authority.

Mr. TIERNEY. I do think we need to hear those kinds of recommendations. I think that was well put, Mr. Buckmaster, and

that is something for us seriously to consider yours, as well, and

if you have others I am not averse to hearing them publicly so that

people know that you have some ideas here and things we do.

Mr. BEARDALL. Yes, sir.

Mr. TIERNEY. So you think of those while we go to Mr. Hodes,

and then before we close out I would like to hear what other things

you think we might do legislatively.

Mr. BEARDALL. That is a big one, because when we try to take

it they also say, well, are you going to reimburse me for it, and we

can’t do that, either.

Mr. TIERNEY. Exactly. Thank you.

Mr. Hodes, you are recognized for 5 minutes.

Mr. HODES. Thank you, Mr. Tierney.

I just want to followup on the discussion you have just been having so I am clear. Mr. Beardall, you amplified your written testimony, in which you said, ‘‘One limitation to our efforts is that

DCIS agents have no statutory authority to seize items that were

legally sold but were not appropriately demilitarized.’’

Mr. BEARDALL. Yes, sir.

Mr. HODES. How do you think, exactly, we need to expand legislation to address that concern?

Mr. BEARDALL. Right. Particularly authorize us to seize items

that were not properly demilitarized and that are in the possession

of the public when they should not be.

And we had that issue a lot in our Operation High Bidder, where

we were going after the vests, and unfortunately a lot of times it

was moms and pops who were distressed because they heard from

their soldier in Iraq that they weren’t getting the best vests or

didn’t have enough vests to distribute, and there was that initial

surge and concern that raised the public concern, and we went out

and, of course, at times there were people who had items that were

military items and we couldn’t seize them from them, we had to

give them back. That was a little tough.

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Mr. HODES. I note that eBay lists numbers of items that it says

are prohibited or restricted from being sold online because of Federal or State regs. The list includes prescription medications, pesticides, firearms, ammunition, lock-picking devices. And eBay also

says that many restrictions may involve the sale of dangerous or

sensitive items not necessarily prohibited by law. So both seem to

list prohibited or restricted items and provide links to State and

Federal agencies Web sites.

To Mr. Cohen and Mr. Buckmaster, what are some examples of

dangerous or sensitive items prohibited on eBay and Craigslist that

are not specifically restricted by Federal or State regulation?

Mr. COHEN. I can give you one example, the meals ready to eat.

We prohibit the sale of any of the MREs that have the internal

heating device in it, which, because of safety reasons, we decided

to prohibit those from being transferred and sold on our site, even

though it is not illegal to do that. So it is a safety issue in which

we made a decision that we would prohibit those from being sold.

Mr. HODES. But there is no current legislation prohibiting it;

that was your own decision?

Mr. COHEN. That was our own decision. That is correct.

Mr. HODES. And what factors do eBay and Craigslist use to decide to prohibit the sale of items that are not restricted by law,

other than safety? Are there other factors that you have taken it

upon yourself to say we won’t sell because we just don’t think it

is a good idea?

Mr. COHEN. Certainly. There are lots of different areas in which,

for taste reasons, for community acceptance, I can think of many

different areas in which it would make sense for us to work, as any

other industry does with any other community of interest. There

are certain areas where you are going to say this is something that

we would like to be available, and this is something we wouldn’t

like to be available.

Mr. KUTZ. Congressman, could I use an example of that is particularly relevant here?

Mr. HODES. Sure.

Mr. KUTZ. They did prohibit the sales of police officer uniforms,

I guess working with local law enforcement, etc. But these Army

combat uniforms are not specifically prohibited, so hopefully something like today’s hearing can bring DOD together with eBay to

consider do we want to have Army combat uniforms that are used

by our soldiers today, especially with infrared tabs on them, available for sale on eBay? That would be an example of something that

isn’t illegal at this point, I don’t believe, but that would hopefully

be something eBay and DOD could work on together to improve

after today.

Mr. HODES. I guess for the folks from eBay and Craigslist, what

I am getting at is not generally community taste factors, but more

specifically dealing with the military issues that we are dealing

with today. What factors are you currently using to decide whether

or not to allow the sales of arguably military equipment. It may not

be illegal, but what factors are you using there? And is this a protocol or policy that your companies have written out? Is it a written

policy?

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Mr. BUCKMASTER. We do have written policies. Postings that our

staff remove are mostly illegal postings or sale of illegal items, although we do have a blanket ban on the sale of all weapons,

whether they are legal or not, and a ban on the sale of pet animals.

Our users, on the other hand, are empowered to remove any ad

for any reason.

Mr. HODES. I know my time is up, but let me just ask both eBay

and Craigslist if you would be willing to provide this committee

with a copy of your written policies as they may relate to the subjects of today’s hearing, which will help us understand how you are

currently self-limiting, if you will, the legal but items of concern

that are at issue here today.

Mr. COHEN. Yes, we will be absolutely responding in writing, Mr.

Chairman.

Mr. HODES. That would be very helpful.

Mr. BUCKMASTER. We will do so, as well.

Mr. HODES. Thank you, Mr. Chairman.

Mr. TIERNEY. Thank you.

I guess part of the issue is you probably feel constrained about

not selling anything that hasn’t been made illegal to sell. Other

than self-constraint, otherwise kind of what maybe controls is it is

not illegal, where you jump in is not pulling people back. My question I guess is what is the driving, overwhelming need for people

to be able to purchase this type of thing unless they are up to no

good. That is part of the problem. So I think the idea of us defining

what should and should not be made available for public sale and

consumption is probably a large part of this, and I am just sort of

stunned that nobody stumbled across that before. We will talk to

the next panel about that.

I want to thank all of you that have shown up here this morning.

Mr. Buckmaster, I know you came all the way from California, and

I greatly appreciate that. I know that both eBay and Craigslist

stood the list of looking like they were somehow complicit or involved in this, or whatever, as opposed to what really is the fact

here, that they have tried to be cooperative and they have tried

very hard on their own, as well as in cooperation with the Government agencies, to work with us on this, and I thank both of you

for that.

There are many, many other companies out there on the Internet

that are part of this discussion.

Mr. Beardall, thank you for the good work that you and your

agency do every day. It is hard to chase it down on the other end

after it is out of the box, and we realize that.

Mr. Kutz, thank you and your organization and staff for providing us the information that we needed to be able to have this hearing and try to root out some solutions. We always appreciate the

good investigations that you do.

I am going to let this panel go, rather than retain you during the

vote. We are going to suspend until after the next votes, and then

ask the second panel to come back at that time. I apologize for any

inconvenience that causes.

Thank you once again.

[Recess.]

Mr. TIERNEY. The hearing will reconvene.

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I want to thank our witnesses for waiting. It was a little bit

longer than we anticipated. There was a new Member being sworn

in, as you may know, to fill Mr. Lantos’ seat, who used to be a

member of this subcommittee, in fact.

The subcommittee will now receive testimony from our second

panel of witnesses. Before us we have Mr. Alan Estevez, who is the

Principal Assistant Deputy Under Secretary of Defense for Logistics and Materiel Readiness. From 2002 to 2006 Mr. Estevez served

as Assistant Deputy Under Secretary of Defense for Supply Chain

Integrations.

And we have Ms. Sarah Finnecum, Director of the Supply and

Maintenance Directorate within the U.S. Army. Ms. Finnecum was

an Army civilian for over 25 years of Federal service.

I also want to just note for the record that we had asked Mr.

Estevez and Ms. Finnecum to testify and appear on the first panel

with the other witnesses, and we thought that if everybody who

had a stake in the process was on the same panel, that this would

be the best way to comprehensively explore all the links of the

chain from these materials being in the Defense Department’s control and ending up for sale on the Internet. In the spirit of constructive oversight, we thought having everybody on the same

panel would facilitate a free exchange of ideas and communications

between all the actors and the stakeholders on how best to work

together to clamp down on theft and sale of sensitive military

items.

However, the Defense Department insisted on appearing separately from our private sector witnesses, and therefore you had to

wait during that period of time and we had to break up the discussion that we were on.

The reasoning apparently given doesn’t appear clear to me, but

it was not clear to anybody, I don’t think, especially as the focus

of the hearing is how we can all do our part to fix this situation

going forward.

You can rest assured, I don’t think we will have that problem

again, because if we have to use a subpoena next time to make

sure that we bring them in, we will do it, if we can’t get the cooperation of the Department of Defense to come in and work with

Congress on these issues without looking for some special dispensation. I don’t know what the concern was, whether people thought

that they were going to be held accountable and didn’t want to be

held accountable or what the problem was, but I have now talked

to the chairman and the ranking member and we won’t have that

issue again. Next time we ask somebody to come in and cooperate

with us, I expect that they will come in and cooperate with us.

But we got notice too late that kind of pettiness was going to be

going on, and so we didn’t have a chance to issue a subpoena or

whatever. And so we have a second panel and you are on it and

I hope we now can go forward and try to at least look at this part

of the picture.

Given the nature of the ubiquitous marketplace here, we want to

find out what is the best line of defense for keeping track of this

materiel in the first place. Once body armor or night vision goggles

or F–14 parts leave our control, as you heard from the first panel,

we seem to have already lost a good part of the battle.

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So we are not going to waste any more time on ceremony or playing games. We have a panel going in. It is the policy of this subcommittee to swear you in before you testify. I ask you to please

stand and raise your right hands.

If there are any other persons who are going to testify or assist

in your testimony, I would ask that they stand to be sworn, as well.

[Witnesses sworn.]

Mr. TIERNEY. The record will please reflect that both witnesses

answered in the affirmative.

I understand, Ms. Finnecum, that you did provide testimony. I

would like to thank you for that. Mr. Estevez, you did not, so we

would ask you to give a brief oral statement to fill the subcommittee in on policies and procedures in place across the Department

of Defense to keep a tight hold on sensitive and expensive military

technology and equipment. Please keep your oral statements as

close to 5 minutes as you can, and then we will allow for some

questions and answers.

Mr. Estevez, you are recognized.

STATEMENTS OF ALAN F. ESTEVEZ, PRINCIPAL ASSISTANT

DEPUTY UNDER SECRETARY OF DEFENSE, LOGISTICS AND

MATERIEL READINESS, U.S. DEPARTMENT OF DEFENSE; AND

SARAH H. FINNECUM, DIRECTOR, SUPPLY AND MAINTENANCE DIRECTORATE, U.S. ARMY, G–4, LOGISTICS

STATEMENT OF ALAN F. ESTEVEZ

Mr. ESTEVEZ. Thank you, Chairman Tierney, and thank you for

the opportunity to appear before you to discuss the issue of Internet sales of sensitive Defense-related items.

As you note, I am Alan Estevez, Principal Assistant Deputy

Under Secretary of Defense for Logistics and Materiel Readiness.

In my position I am responsible for developing over-arching logistics policy for the Department of Defense, which includes policies

related to how our Department ensures our soldiers, sailors, airmen, and marines are supplied with materiel needed to fulfill their

missions.

Our focus is to ensure that policies and procedures are in place

to effectively provide that materiel, including food, fuel, munitions,

protective equipment, and repair parts to our globally deployed

forces when and where they need it, as cost effectively as possible

to meet mission requirements.

Before focusing on the specific issues of this hearing, I believe it

would be useful to put those issues within the context of the broader DOD logistics enterprise, a $178 billion operation in fiscal year

2007, including supplemental funding.

We feed and clothe over 2 million fighting men and women and

support weapons systems engaged in air, land, sea, space, and

cyberspace programs around the world daily.

Today more than 2.4 million American men and women are in

uniform, including active, reserve, and National Guard components.

Over the last 5 years, approximately 1.7 million American military forces have deployed to the U.S. Central Command area of operations.

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In support of our global operations, the DOD manages more than

4.4 million types of items, we process over 82,000 requisitions for

that materiel daily. DOD issued 31.6 million cases of meals ready

to eat [MREs], over the last 5 years, both in support of our forces

and for humanitarian assistance, to include providing MREs to

other Federal agencies and to international partners in support of

Hurricanes Katrina and Rita, for the Indian Ocean tsunami, and

Pakistani earthquake relief.

Over that same period, over 1.6 million small arms protective inserts and 846,000 enhanced small arms protective inserts were

issued in support of current military operations.

With the assistance from this Congress, DOD maintains a world

class military logistics system.

That said, the Department is always concerned about ensuring

the security of our forces. In past hearings before this committee,

the focus has been on our reutilization and disposal process. The

Department has made significant strides over the past few years

based on our own internal transformation, with some guidance and

support from the U.S. Government Accountability Office and this

committee to significantly tighten procedures associated with those

operations.

As Congressman Shays noted, in a July 6, 2007, letter to the

committee GAO noted DOD’s significant progress in this area.

Even with that progress, we continue to reassess our policies and

tighten our procedures related to realization and disposal.

The focus of the GAO investigation that prompted this hearing

is not to be the Department’s internal materiel disposition processes, but rather on the criminal activity of a few members or

former members of our armed forces, as well as the sale of Defenserelated materiel from commercial sources.

The Department obviously deplores criminal activity, especially

when committed by members or former members of the armed

forces, and supports law enforcement efforts to prosecute such malfeasance.

With regards to sales of materiel over Internet sites, I want to

emphasize that the DOD does not set nor enforce export control

policy. In addition, the Department does not manage commercial

entities nor determine what they are allowed to legally sell domestically or internationally when the associated technology is not

owned by the Government, nor can we prevent legal sales of that

materiel.

Responsibility for export control of military unique items is assigned to the Department of State, for dual use items to the Department of Congress [sic]. Enforcement resides with the Departments of Homeland Security and Justice. DOD complies with the

controls for that materiel within our passenger after the controls

are set by those agencies.

With regard to DOD’s internal inventory management practices,

my office is responsible for establishing the policies for an integrated DOD supply chain process that fully supports military operational requirements. In this capacity, DOD prescribes policies for

the management and control of the materiel from its initial entry

into the Department of Defense to disposal, when the materiel becomes excess to the needs of our war fighters and military services.

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My office establishes Department-level policies, while the military components are charged with establishing their own processes

and procedures to execute those policies within the guidelines provided.

In closing, Mr. Chairman, thank you for the opportunity to testify before the committee. As the DOD continues to provide support

to our military forces at the scale referenced above, the Department also continues to monitor and adjust our policies, as required,

to continue to better support our American men and women in

harm’s way and to do justice to the American taxpayer.

I would be happy to answer any questions you or the committee

may have.

Mr. TIERNEY. Thank you, Mr. Estevez.

Ms. Finnecum, you are recognized.

STATEMENT OF SARAH H. FINNECUM

Ms. FINNECUM. Chairman Tierney, on behalf of the Army we

thank you for the opportunity to appear before you today to discuss

the sale of sensitive, in-demand Army equipment and supplies on

the Internet, specifically the two Web sites eBay and Craigslist.

Mr. Chairman, I have submitted a written statement that I ask

be made part of the official record.

Mr. TIERNEY. It is done, without objection.

Ms. FINNECUM. I want to assure you that the Army has both law

and policy that prohibits the sale of Government property by private individuals. We also have processes and systems to account for

our materiel and prevent such abuses. Having said that, there is

a fine balance between providing our fighting forces the equipment

they need as expeditiously as possible, while also maintaining accountability of that equipment.

In the early stage of OIF and OEF, we recognized the obstacles

that field commanders faced in conducting combat operations while

carrying out the property accountability responsibilities. Therefore,

in May 2003 the Army developed a limited wartime accountability

policy to relieve commanders of the administrative burden that impeded the rapid re-supply and refit of our forces; however, we found

our aggressive efforts to ensure deploying and deployed units had

the best equipment possible also created challenges to account and

track equipment.

In November 2005 we rescinded the limited wartime accountability policy. We followed with additional guidance on accountability

requirements to include safekeeping and disposition of Government

property entrusted to units and individuals.

The Army’s bottom line is that soldiers and civilians are responsible for maintaining and properly accounting for materiel in their

possession. The Uniform Code of Military Justice authorizes punitive action to be taken against soldiers for the following: Article 92,

failure to obey an order or regulation; Article 108, military property

of the United States lost, damaged, destruction, or wrongful disposition of property; and Article 134, stolen property, knowingly receiving, buying, or concealing.

Additionally, the Army has two specific regulations that address

accounting for Army property. The principal regulation is AR735–

5, policies and procedures for property accountability. This regulaVerDate 11-MAY-2000 15:06 Jul 20, 2009 Jkt 000000 PO 00000 Frm 00089 Fmt 6633 Sfmt 6633 U:\DOCS\50350.TXT KATIE PsN: KATIE
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tion establishes the basic policies and procedures to account for

Army property. It also prescribes the accounting procedures to be

used when Army property is discovered lost, damaged, or destroyed

through causes other than fair wear and tear.

AR735–5 clearly states that no Government property will be sold,

given as a gift, loaned, exchanged, or otherwise disposed of unless

specifically authorized by law.

The second regulation is AR710–2, supply policy below the national level. It provides policy for the accountability and responsibility of property issued to a unit or an individual. The key provision of this regulation requires employees of the Army, be that a

civilian or a soldier, to turn in to the supply system all Government

property that has been found, and to place that property under the

control of an accountable property officer.

I would also like to quickly provide you a summary of some of

the other initiatives we have put in place to prevent improper use

of our Government materiel.

We implemented Operation Total Recall in September 2006 to

improve accountability of Army assets. All Army units were directed to conduct focused inventories, training, and emphasize the

command supply discipline program. To date, the Army has returned to property book accountable records over 20,000 items

worth more than $135 million.

Two, revitalization of the command supply discipline program.

This is a commander’s program that standardizes supply discipline

requirements across the Army. Each commander is required to provide the personal interest and direction necessary to establish and

ensure the success of his or her unit is stewardship of resources

and property.

We have also fielded a new Web-based system called the property

book unit supply enhanced system. We did that in 2001 and completed fielding of it in 2007. This system significantly improves accountability at the local level—and by that I mean unit—and allows asset visibility of unit property across the Army.

We have also implemented the central issue facility integrative

system management in 2006. That system captures organizational

clothing and individual equipment issued to soldiers and civilians.

We are constantly putting articles in soldier magazines, on the

Internet so that soldiers are aware of the proper procedures for accounting for equipment.

We have ongoing and constant review and analysis of property

accountability.

Mr. Chairman, I will save any further comments on Army property accountability for the question and answer session. Thank you

for your time today.

[The prepared statement of Ms. Finnecum follows:]

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Mr. TIERNEY. Thank you for your testimony.

Mr. Shays gives his apologies. He has been called away. He had

wanted to ask questions, and unfortunately the delay has prohibited that.

Let me ask each of you, do you think that our systems in place

are working?

Mr. ESTEVEZ. Let me answer that first, Chairman Tierney. I

think yes, on the macro scale. Obviously, there are some cases up

in front of us of theft on the part of some individuals.

Let me start off by saying of those 2 million American men and

women under uniform, most of those, the vast, vast majority of

those are heroes who deserve our gratitude. Within that small

group that have committed some crimes, as I stated in my statement, we support prosecuting them to the fullest extent of the law.

To the greater extent, I would put our processes for maintaining

accountability and control of materiel up against the retail sector,

for example.

Mr. TIERNEY. Well, at what point do you think you reach the capacity of the retail center, because it doesn’t appear that is the case

for some time. I notice that Ms. Finnecum indicated she put some

things into effect in 2006 on that basis. It seems to me a little bit

late. Did we learn nothing from prior engagements or missions?

Mr. ESTEVEZ. I think, Congressman, we have to separate stolen

from our warehouses and from our controls versus stolen by individual soldiers or sailors, airmen, and marines that may have been

issued that equipment and, in the combat operation where things

are not quite as stable as they are inside a Wal-Mart store, for example. But the retail sector gets about 11⁄2 to 2 percent material

that they own percent of sales is lost, shrinkage.

Mr. TIERNEY. You are not making the assertion that all of the

stolen materials are stolen on the battlefield?

Mr. ESTEVEZ. No, I am not, but I am saying that it is not stolen

from our wholesale national inventory for the most part. Obviously,

there are always cases, and we put processes and procedures to

mitigate those possibilities as best we can. If we find a hole in that,

we go back and we close that hole, as well.

Mr. TIERNEY. Where do you suppose things like complete uniforms are stolen from?

Mr. ESTEVEZ. Well, I can’t say that was stolen, that one in particular. We issue uniforms and soldiers buy their own uniforms.

They are allowed to sell them. American companies are allowed to

sell those uniforms. They are legal for sale worldwide, frankly.

Mr. TIERNEY. Toward what end? I mean, other than issuing uniforms to people that are in the service going to use them in their

military duty, why are people selling military uniforms?

Mr. ESTEVEZ. Our soldiers, sailors, and marines buy their uniforms at the officer level. They buy them direct from some of these

companies, first.

Second, there is an industrial base issue at large. If we are going

to discuss shutting down uniform sales, I think that raises a broader issue. I am probably not the person from a force protection perspective to have that discussion. My focus is on providing materiel

to our folks inside the Department of Defense. But there are cerVerDate 11-MAY-2000 15:06 Jul 20, 2009 Jkt 000000 PO 00000 Frm 00099 Fmt 6633 Sfmt 6633 U:\DOCS\50350.TXT KATIE PsN: KATIE
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tainly industrial base issues on precluding some of those companies

from selling materiel that is legal.

Mr. TIERNEY. Well, at least directly. You would think that if you

wanted to keep some control on your inventory you wouldn’t have

the people sell directly, you would have them sell them through the

military to their members and you could keep track of it.

Mr. ESTEVEZ. A uniform is not in DOD inventory. That is owned

by the individual soldier.

Mr. TIERNEY. I understand that. My question is whether or not

that is a good idea; whether, if we are worried about uniforms ending up on eBay and Craigslist and other places, whether it is a

great idea to allow them to be sold outside of the chain that you

can keep some monitoring on.

Mr. ESTEVEZ. Again, Congressman, that is a force protection

issue regarding whether we want people that are not members of

the military to be wearing our uniform, and I understand that. I

am not the person to be having that discussion with.

As far as controlling our own inventory inside the Department,

the uniform is not an item that we manage. We do issue uniforms

and we manage those due to folks going off into battle, but once

they are issued they are owned by those folks.

Mr. TIERNEY. So lets just drill down a little bit, the problem is

the uniform with the infrared identifier that was purchased and

sold, either as a composite or individual parts and then put together. I think that would be a problem. We don’t disagree about

that, or do we?

Mr. ESTEVEZ. I certainly agree that having someone dress themselves up as a U.S. military member is an issue that we need to

control, from a force protection perspective. Again, I am not the

force protection person. You would have to have someone in here

to discuss that.

Mr. TIERNEY. That is the beauty of bureaucracy.

Mr. ESTEVEZ. But a uniform, in and of itself, does not gain access

to anywhere. It is a uniform, it is procedures, it is a TAC card, your

entry card. So a uniform in and of itself does not gain entrance to

an facility.

Mr. TIERNEY. It certainly helps, doesn’t it?

Mr. ESTEVEZ. It lowers the threshold.

Mr. TIERNEY. As in that incident in January where somebody put

one on and ended up killing five of our people. They certainly lowered the threshold enough to cause some damage there.

Mr. ESTEVEZ. I am not the person to discuss that particular incident, but there is more to that incident than just a uniform. And

there is tactics, techniques, and procedures that mitigate those

risks out in the field.

Mr. TIERNEY. So you have identified two possible ways of this

equipment or supplies getting into control. One is that they are stolen directly from the warehouse or in your control. Each of you contested you have that perfectly under control, as best we can possibly do; there is nothing else we can do to improve those system?

Mr. ESTEVEZ. We are always looking at other ways to control our

inventory. Like our counterparts in the commercial sector, we have

a viable program to introduce things like radio frequency identification technology to help us manage our inventory. We are one of the

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leaders of pushing that technology across the globe right now, quite

frankly. We are moving toward more serial numbered tracking of

our materiel so you can get down to each part versus the gross

level of parts. Again, we are leading the world in that push.

But those are things that are out there in the commercial sector,

so we are constantly assessing how things are done to better control our inventory and better account for that inventory.

Mr. TIERNEY. What would you do or what do you recommend be

done to stop this type of thing? The vests, for instance, where do

you suspect they came from? Was it the warehouse? Was it some

place else in your custody? Or was it a member of the forces selling

it later on, or was it somebody that stole it from somewhere else?

Mr. ESTEVEZ. The outer tactical vest, I am not sure. I would have

to go back to the GAO report. I can’t say whether that was stolen

or whether that was an individual soldier. That is an accountable

item that the soldier should have turned in, whether that was from

an individual soldier.

Mr. TIERNEY. Does seeing any of this displayed and listening to

the testimony earlier and reading the Government Accountability

Office’s report strike the notion in you that we ought to change our

policies in any way?

Ms. FINNECUM. Sir, I don’t believe we need to change our policies. I think we need, in some instances, to do a better job of enforcing our policies and procedures.

Mr. TIERNEY. Speak to me specifically, if you would, please,

about what better enforcement would look like, in your estimation.

Ms. FINNECUM. I would tell you, sir, if you take the outer tactical

vest that you are looking at, when we were pushing so desperately

to get those fielded, we did not put them on the individual clothing

records. We issued it to a soldier, and so when he came out of the

war zone, redeployed back to home station, we did not have on his

record whether he had been issued that outer tactical vest or not.

Mr. TIERNEY. It strikes me, this is not the first time we have deployed soldiers in this country.

Ms. FINNECUM. No, sir.

Mr. TIERNEY. And given them equipment that we have had to

track. I mean, we have had a number of other missions. My earlier

question, did we learn nothing from those occasions so that when

we have to deploy people we were ready to ramp up and do it with

these precautions in place.

Ms. FINNECUM. Well, what I would tell you, Mr. Chairman, is

that if you take Operation Desert Storm, that only lasted for such

a short amount of time, we were not rapidly fielding new technology like we have done here.

Mr. TIERNEY. And nobody anticipated it?

Ms. FINNECUM. No, sir. If you look at our budget, we certainly

didn’t anticipate fielding all of this new gear in such a short span

of time.

Mr. TIERNEY. This is stunning that nobody in that whole outfit

thought that there might be an occasion where this has to be done

and we would better put it in place. You don’t need the money to

actually conceptualize a plan. You don’t need that much imagination, I don’t think, to think that you would be in a situation like

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this some day. I just think it is sort of stunning that nobody was

ready for it.

Ms. FINNECUM. Well, again, sir, we have gone from a flack vest,

which you have up there, to an outer tactical vest, to a new IOTV.

We have gone through three iterations in 5 years. I will tell you,

as we fielded the IOTV we can account for the issue of every IOTV.

We know which soldier has it and when it got issued to him, and

when he comes out of the war zone we will collect it.

Mr. TIERNEY. And why is that not the case in the other items?

Ms. FINNECUM. Sir, because as we were fielding them so rapidly

and trying to get them out there because of the pressure—they had

nothing that would give them the protection that they needed. Now

we continue to improve.

Mr. TIERNEY. So you developed the system after the fact, and

now you are applying the system?

Ms. FINNECUM. No, sir, we had the system; we didn’t enforce the

system. We have always required soldiers to carry this gear on

their clothing records. In our effort to push it out there, we took

the gear to Iraq and issued it to soldiers, in many cases on the

FOBs. We did not capture it because of doing it in the environment. We have changed that. We know that we made mistakes in

that. That is why we rescinded our policy.

Mr. TIERNEY. That is a little bit more direct. It could have been

done; it just wasn’t done.

Ms. FINNECUM. It was not done.

Mr. TIERNEY. That is at least an acknowledgement of making

sure that looking forward we will know what we didn’t do.

Ms. FINNECUM. Yes.

Mr. TIERNEY. We realize what could have been done, and we just

messed up and didn’t do it.

Ms. FINNECUM. Yes.

Mr. TIERNEY. Somebody hopefully was held accountable for that,

and now we will move forward and hopefully keep improving on

the system that we have. That is at least a start.

Ms. FINNECUM. Yes, sir. I have to tell you, if I am still in charge

of supply policy and we get back into this, wartime accountability

procedures will not be put in place. We thought we were doing

something that would be of benefit, and instead it has caused us

some problems, and we have taken corrective action.

Mr. TIERNEY. OK. The other military items, like the night vision

goggles, Mr. Estevez, you said that they were probably stolen from

a manufacturer or something like that. How do you think they got

into play?

Mr. ESTEVEZ. Those were legally sold by manufacturer.

Mr. TIERNEY. With the insert for infrared reading?

Mr. ESTEVEZ. Yes, sir.

Mr. TIERNEY. The sensitive information?

Mr. ESTEVEZ. Yes, sir. There is an export control on that item,

but it is legal to sell that item in the United States.

Mr. TIERNEY. Do you think that is wise? Some of the earlier witnesses today made a recommendation that some of that equipment

just be banned and not allowed to be sold. Would that be a way

of solving some of our issues here?

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Mr. ESTEVEZ. Yes, but there are issues on the industrial base

that we need to concern ourselves with. We have to deal with the

fact that this is technology that is not owned by the Department

of Defense; it is owned by companies who are subject to the export

control laws of the United States in moving that technology.

Mr. TIERNEY. Are there other uses for that particular technology

that the public may not be aware of?

Mr. ESTEVEZ. Hunting.

Mr. TIERNEY. Are there other uses that would be more compelling in protecting our troops other than sports?

Mr. ESTEVEZ. Night vision goggles are all over the world.

Mr. TIERNEY. Not with the special insert, though.

Mr. ESTEVEZ. I am not even sure what the special insert does.

Mr. TIERNEY. The infrared item on our particular troops——

Mr. ESTEVEZ. Well, actually, any night vision goggle will read

that tab. That is also a legal technology that is sold worldwide,

though we restrict it from export with an export control.

Mr. TIERNEY. So it is sold worldwide.

Mr. ESTEVEZ. Well, we are not the only——

Mr. TIERNEY. They can get it someplace else?

Mr. ESTEVEZ. Congressman Tierney, we are not the only country

that makes that IR technology.

Mr. TIERNEY. That particular one?

Mr. ESTEVEZ. That particular one.

Mr. TIERNEY. So that we have more than just a problem with

controlling its export from this country; we have a problem with it

getting used because they bought it somewhere else.

Mr. ESTEVEZ. That technology is worldwide, global technology.

That is not the only method that we would identify friend or foe

in the battlefield.

Mr. TIERNEY. OK. Having heard the testimony earlier, and one

of the individuals indicating that eBay already bans the sale of police uniforms on its system, do either of you think that it makes

sense to talk or think about banning the sale of military items and

prohibiting their sale on the Internet, period, or at least some of

them?

Mr. ESTEVEZ. I certainly think we need to have that dialog with

eBay. But, again, because most of these items that are up here are

legal, unless they were stolen, it becomes hard to control that because you can sell night vision goggles legally in the United States.

Maybe not the night vision goggles, the latest advancement of

those, but if I was going to sell something on eBay I wouldn’t say

night vision goggle with special U.S. military insert; I would just

say night vision goggles. You can sell body armor legally in the

United States. So in order to control that with eBay, we would

have to go through some other rigor on how to control items that

are legally sold by domestic——

Mr. TIERNEY. Does anybody at DOD ever have that discussion or

ever sit down and start thinking about whether there ought to be

some recommendations made in that regard?

Mr. ESTEVEZ. DOD is a large place, Congressman.

Mr. TIERNEY. In your outfit?

Mr. ESTEVEZ. From a logistics standpoint, sir, that is not a logistics management issue. Again, we are focused on maintaining our

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inventory and ensuring we have that inventory for the support of

our forces.

Mr. TIERNEY. Within the constraints of what it is each of you do,

what assurance can you give the public that items like this will not

come from any lapse in what it is you are doing in tracking this

equipment?

Ms. FINNECUM. I would say to you that most of that gear would

be a result of a criminal activity occurring, somebody stealing the

property. I can’t give you that assurance with regards to the Army

combat uniform or boots or berets. If you don’t mind, I would take

just a moment. The Army combat uniform and the boots, the berets, those are considered personal items of clothing. The rest of

the gear up there, the plates, the mask, the vest, those are considered organizational items. The Army pays for those and the Army

tracks the accountability of those. When a soldier either PCSes,

leaves the Army, retires, his clothing record is reviewed and he is

responsible to turn that gear in. He has to pay for it if he does not

have it in his possession when it is time to clear. If he has wilfully

disposed of it inappropriately, the military can take corrective action against it plus collect the dollars.

For the Army combat uniform, many of our soldiers pay for that

out of their own pocket. Officers have to buy that uniform. It would

be very hard, I think, to tell them you can’t resell that item, when

they have purchased it with their own resources.

That is my personal opinion, sir.

Mr. TIERNEY. I guess the question would be whether or not they

should be purchasing it or the Army ought to be purchasing it and

issuing it, one or the other. That would be a policy approach to

that.

Ms. FINNECUM. Yes, sir, that is a policy and a resource issue.

Mr. TIERNEY. You also indicated that the Army’s total recall op- eration yielded 20,000 items returned with $135 million value in

less than 2 years.

Ms. FINNECUM. Yes, sir.

Mr. TIERNEY. That is pretty big leakage.

Ms. FINNECUM. I think it goes directly back in many cases to

when we had that wartime accountability and we fielded items that

we did not pick up to the appropriate accountable record.

Mr. TIERNEY. Well, the recall only went into effect, when, in

2006?

Ms. FINNECUM. Yes, sir.

Mr. TIERNEY. So you are saying all of that 20,000 items and $135

million in value is all from pre-2006 disposition?

Ms. FINNECUM. I think there is a strong possibility that is where

it came from.

Mr. TIERNEY. OK. Do you have any numbers from more recently

to show that there has been a decline, then, that this thing is winding up?

Ms. FINNECUM. What I can talk to you about is just overall inventory accuracy rates. We require literally everything in the Army

inventory to be inventoried—sorry for the duplication of words.

Mr. TIERNEY. That is all right.

Ms. FINNECUM. For weapons, they are inventoried quarterly. For

going out and just checking on a warehouse of materiel that beVerDate 11-MAY-2000 15:06 Jul 20, 2009 Jkt 000000 PO 00000 Frm 00104 Fmt 6633 Sfmt 6633 U:\DOCS\50350.TXT KATIE PsN: KATIE
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longs to a specific unit, that is done on an annual recurring basis.

Clothing items are either you do a lay-down where we say we want

to make sure you have your gear and the first sergeant says bring

it in, and you look at it, and you make sure he has what is on his

clothing record.

Our inventory rates are in the 98 percentile in terms of accuracy.

And, as Mr. Estevez——

Mr. TIERNEY. That is since 2006?

Ms. FINNECUM. No, sir. That is in terms of what is on the accountable record. Found on installation or things that we pick up,

we track that.

Mr. TIERNEY. I guess one question, if you don’t mind me interrupting, would be this: you started this total recall operation in

2006?

Ms. FINNECUM. Yes, sir.

Mr. TIERNEY. All right. And that deals with equipment that you

issued as of that date?

Ms. FINNECUM. Yes, sir.

Mr. TIERNEY. OK. So are we able to track what kind of leakage

we have with respect to that equipment over these last couple of

years and see if it is better than the 20,000 items and $135 million

of value from what you say was previous issuance?

Ms. FINNECUM. I would have to take that for the record and get

back to you, sir.

Mr. TIERNEY. All right. I would at least like to know if you have

a system to track that so we can determine whether or not your

new system is working better than your old system.

Ms. FINNECUM. No. We do have records of our inventory accuracy. When we go and do it, we know whether we have found 100

percent of what we have on our accountable record or if there is

a shortfall.

Mr. TIERNEY. OK. That would be good to know for us, and know

how it measures up against past records, whether or not you have

a handle on this thing now going forward.

Ms. FINNECUM. Yes, sir.

Mr. TIERNEY. I don’t want to beat this thing to death. I appreciate your both being here. But let me ask each of you to give me

your thoughts generally on this. You have heard the testimony this

morning. You have read the GAO report. You know what we are

concerned about here. What recommendations do you have to make

in terms of moving forward and trying to stop those kinds of purchases with those kinds of serious implications from being made.

Mr. ESTEVEZ. Thank you, Mr. Chairman. Let me start off.

Again, any assistance we have in looking at our inventory systems and processes, frankly, is beneficial to the Department, because it is always good to help tighten up your procedures and

processes. We have worked with GAO before and we have worked

with this committee before to do that very thing, and we will continue to do so.

Individual theft is a hard thing to stop, and we are working to

do that and identifying that, as Mr. Beardall and Mr. Kutz alluded

to earlier.

Mr. TIERNEY. Won’t that new system Ms. Finnecum talks about

address that pretty starkly, if somebody is responsible for their

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items and you know whether or not they turn it in when they are

discharged?

Mr. ESTEVEZ. That is the process the Army has put in place, to

do exactly that.

Mr. TIERNEY. And does that go across all the services now, or is

the Army the only service?

Mr. ESTEVEZ. No. Each service manages how the individual

issue, certain gear that they expect back to the Government.

Mr. TIERNEY. And are they all on the same page on this, or are

there different levels of success with their programs, running various programs and having different results?

Mr. ESTEVEZ. I would have to take that for the record. But let

me just say that there are different degrees of vulnerability in a

ground combat situation that the Army and the Marine Corps find

themselves in in Iraq versus a more or less fixed even though expeditionary installation that the Air Force may be working out of or

on a vessel that the Navy may be working out of.

Mr. TIERNEY. I understand.

Mr. ESTEVEZ. So there are different degrees across the services.

Mr. TIERNEY. Sure.

Mr. ESTEVEZ. But we obviously need to tighten down what happens with an individual.

As I said, on the wholesale level I think we are pretty good, but

we are always looking at that, too.

I think the larger question is: what do we allow for sale to the

general public and to the American people, quite frankly, and what

are our expectations there and what are the implications for the industrial base? Frankly, that is something that you, as a Congressman, and we as the Department and Commerce and other folks at

Justice, Homeland Security, should be having that dialog at large,

because some of these items are, as I pointed out, quite legal, and

some of the technology is not just a motion technology, it is global

technology, and we need to deal with the implications of that.

Mr. TIERNEY. It seems to make sense that an interagency group

might be put together to have just that discussion and make recommendations, I would think, on that, and that might be one of the

things that results from this hearing.

Ms. Finnecum.

Ms. FINNECUM. Sir, what I would offer to you is it is very distressing to see SAPI plates available for sale. I mean, the Army finally has turned the corner on our protective gear where every soldier going into Afghanistan and Iraq gets what he needs before he

enters the theater. But 5 years ago that wasn’t the case. It is very

disturbing for anybody to see something available commercially

that you can’t get to give to your own soldiers.

I like the idea of trying to identify things that shouldn’t be sold

and that there is an immediate flag that says don’t even think

about trying to put this on eBay.

I know that there is a challenge with that, because many of these

things are commercial products, but I would think body armor, tactical vests, we could figure out a way to crack the code on that.

Mr. TIERNEY. Would it be too much to ask for you to go back and

talk to your folks, your superiors, whoever you have to talk to,

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about starting to put a list of those things together that they think

would be appropriate for that?

Ms. FINNECUM. Sure.

Mr. TIERNEY. To the extent that involves you, Mr. Estevez, I

would appreciate you doing that, as well.

Mr. ESTEVEZ. Certainly, sir.

Mr. TIERNEY. Thank you.

I was just going to note here it indicates the Department of Defense recently discovered a lost nuclear missile component that was

shipped to Taiwan. It is that kind of thing that sort of gets everybody unnerved, so that there are obviously issues out there that we

have to have some level of confidence that this kind of stuff is

under control and moving forward on that.

I think we have taken some lessons out of this hearing. I appreciate your willingness to cooperate on some of those lists. On that,

I think we still have some things to do with the manufacturing

companies and, as you call them, the industrial base that will have

to be included on that discussion, and the determination of just

what makes sense to have the public use and then what doesn’t

make sense in terms of trying to balance safety of our troops

against some other commercial or private use that people may

have.

Do either of you have any final comment that you would like to

make?

[No response.]

Mr. TIERNEY. Thank you for your testimony. This meeting is adjourned. Thank you.

[Whereupon, at 12:45 p.m., the subcommittee was adjourned.]

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