U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

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

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

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

44–610 PDF 2009

E-FENCING ENFORCEMENT ACT OF 2008, THE 

ORGANIZED RETAIL CRIME ACT OF 2008, AND 

THE COMBATING ORGANIZED RETAIL CRIME 

ACT OF 2008 

HEARING 

BEFORE THE

SUBCOMMITTEE ON CRIME, TERRORISM, 

AND HOMELAND SECURITY 

OF THE

COMMITTEE ON THE JUDICIARY 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED TENTH CONGRESS 

SECOND SESSION 

ON

H.R. 6713, H.R. 6491 and S. 3434 

SEPTEMBER 22, 2008 

Serial No. 110–210 

Printed for the use of the Committee on the Judiciary 

( 

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

(II) 

COMMITTEE ON THE JUDICIARY 

JOHN CONYERS, JR., Michigan, Chairman 

HOWARD L. BERMAN, California 

RICK BOUCHER, Virginia 

JERROLD NADLER, New York 

ROBERT C. ‘‘BOBBY’’ SCOTT, Virginia 

MELVIN L. WATT, North Carolina 

ZOE LOFGREN, California 

SHEILA JACKSON LEE, Texas 

MAXINE WATERS, California 

WILLIAM D. DELAHUNT, Massachusetts 

ROBERT WEXLER, Florida 

LINDA T. SA ́ NCHEZ, California 

STEVE COHEN, Tennessee 

HANK JOHNSON, Georgia 

BETTY SUTTON, Ohio 

LUIS V. GUTIERREZ, Illinois 

BRAD SHERMAN, California 

TAMMY BALDWIN, Wisconsin 

ANTHONY D. WEINER, New York 

ADAM B. SCHIFF, California 

ARTUR DAVIS, Alabama 

DEBBIE WASSERMAN SCHULTZ, Florida 

KEITH ELLISON, Minnesota 

LAMAR SMITH, Texas 

F. JAMES SENSENBRENNER, JR., 

Wisconsin 

HOWARD COBLE, North Carolina 

ELTON GALLEGLY, California 

BOB GOODLATTE, Virginia 

STEVE CHABOT, Ohio 

DANIEL E. LUNGREN, California 

CHRIS CANNON, Utah 

RIC KELLER, Florida 

DARRELL ISSA, California 

MIKE PENCE, Indiana 

J. RANDY FORBES, Virginia 

STEVE KING, Iowa 

TOM FEENEY, Florida 

TRENT FRANKS, Arizona 

LOUIE GOHMERT, Texas 

JIM JORDAN, Ohio 

PERRY APELBAUM, Staff Director and Chief Counsel 

SEAN MCLAUGHLIN, Minority Chief of Staff and General Counsel 

SUBCOMMITTEE ON CRIME, TERRORISM, AND HOMELAND SECURITY

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

MAXINE WATERS, California 

WILLIAM D. DELAHUNT, Massachusetts 

JERROLD NADLER, New York 

HANK JOHNSON, Georgia 

ANTHONY D. WEINER, New York 

SHEILA JACKSON LEE, Texas 

ARTUR DAVIS, Alabama 

TAMMY BALDWIN, Wisconsin 

BETTY SUTTON, Ohio 

LOUIE GOHMERT, Texas 

J. RANDY FORBES, Virginia 

F. JAMES SENSENBRENNER, JR., 

Wisconsin 

HOWARD COBLE, North Carolina 

STEVE CHABOT, Ohio 

DANIEL E. LUNGREN, California 

BOBBY VASSAR, Chief Counsel 

CAROLINE LYNCH, Minority Counsel 

(III) 

C O N T E N T S 

SEPTEMBER 22, 2008 

Page 

THE BILLS 

H.R. 6713, the ‘‘E-fencing Enforcement Act of 2008’’ ........................................... 64 

H.R. 6491, the ‘‘Organized Retail Crime Act of 2008’’ .......................................... 68 

S. 3434, the ‘‘Combating Organized Retail Crime Act of 2008’’ ........................... 83 

OPENING STATEMENTS 

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

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

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

The Honorable Louie Gohmert, a Representative in Congress from the State 

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

Homeland Security ............................................................................................... 3 

WITNESSES 

The Honorable Brad Ellsworth, a Representative in Congress from the State 

of Indiana 

Oral Testimony ..................................................................................................... 5 

Prepared Statement ............................................................................................. 8 

Mr. Frank Muscato, Organized Retail Crime Field Investigator, Walgreens, 

Deerfield, IL 

Oral Testimony ..................................................................................................... 11 

Prepared Statement ............................................................................................. 13 

Mr. Grady Judd, Sheriff, Polk County Sheriff’s Office, Bartow, FL 

Oral Testimony ..................................................................................................... 16 

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

Mr. Steve DelBianco, Executive Director, NetCHOICE, Washington, DC 

Oral Testimony ..................................................................................................... 22 

Prepared Statement ............................................................................................. 24 

Mr. Edward Torpoco, Senior Regulatory Counsel, eBAY, Inc., Washington, 

DC 

Oral Testimony ..................................................................................................... 27 

Prepared Statement ............................................................................................. 29 

Mr. Joseph J. LaRocca, Vice President, Loss Prevention, National Retail 

Federation, Washington, DC 

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

Prepared Statement ............................................................................................. 35 

APPENDIX 

Material Submitted for the Hearing Record .......................................................... 53 

(1) 

E-FENCING ENFORCEMENT ACT OF 2008, THE 

ORGANIZED RETAIL CRIME ACT OF 2008, 

AND THE COMBATING ORGANIZED RETAIL 

CRIME ACT OF 2008 

MONDAY, SEPTEMBER 22, 2008 

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON CRIME, TERRORISM,

AND HOMELAND SECURITY

COMMITTEE ON THE JUDICIARY, 

Washington, DC. 

The Subcommittee met, pursuant to notice, at 4:03 p.m., in room 

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

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

Present: Representatives Scott, Gohmert, Coble, Chabot, and 

Lungren. 

Also Present: Representative Putnam. 

Staff Present: Bobby Vassar, Majority Chief Counsel; Ameer 

Gopalani, Majority Counsel; Mario Dispenza, Fellow, BATFE 

Detailee; Karen Wilkinson, Fellow, Federal Public Office Detailee; 

Veronica Eligan, Majority Professional Staff Member; Caroline 

Lynch, Minority Counsel; and Kelsey Whitlock, Minority Staff Assistant. 

Mr. SCOTT. The Subcommittee will now come to order. 

I am pleased to welcome you to today’s hearing on legislative 

proposals in the 110th Congress for curbing organized retail theft, 

which by some estimates has become a $30 billion illicit industry 

that not only affects legitimate interstate commerce, but poses a 

significant public safety risk to consumers. 

Theft of merchandise is nothing new and has traditionally been 

handled effectively through State criminal laws. In my home State 

of Virginia, for example, any theft in excess of $200 is grand larceny with a maximum penalty of 20 years. A third offense of petty 

larceny is, by law, treated the same as grand larceny. 

With diligent enforcement activities, such measures are ordinarily adequate to keep the problem of merchandise theft sufficiently in check. However, organized theft rings, or OTRs, have become more sophisticated, learning to reduce their risks of penalty 

and capture. For example, to avoid the grand larceny threshold, 

they operate across the State lines, and using this tactic, they can 

shoplift with acceptable risk by remaining under the grand larceny 

threshold for each incident while stealing thousands of dollars 

worth of merchandise. 

2 

OTRs have reduced their risk of capture by exploiting the—being 

anonymous on the Internet. Traditionally, thieves who dispose of 

stolen goods locally through flea markets, pawnshops, swap meets 

or shady storefront operations where State and local police can investigate and make arrests, as the thieves have to physically stand 

behind the stolen goods. But without having to identify themselves 

or their contact information to consumers or others who seek information about them, OTRs that operate online evade identification 

much easier than traditional thieves, and they put themselves beyond the reach of local law enforcement. 

In fact, OTRs now use the Internet to fence stolen goods to such 

a large extent that a new term has been coined for it. They call 

it ‘‘e-fencing.’’ 

But the volume of organized theft and its impact on commerce 

is not the only problem prompting congressional action. Purchasing 

stolen, consumable products online or in the physical world exposes 

consumers, often unwittingly, to serious safety and health risks. 

The products most frequently targeted by theft—by OTRs include 

FDA-regulated items like over-the-counter drug products or infant 

formula. Once stolen, these products are not kept under appropriate storage conditions, and we have reports that OTRs actually 

may be changing expiration dates on their labels. 

These practices not only threaten the integrity of the products, 

but endanger the safety of consumers. They may believe that the 

vendor is selling products in conformance with consumer safety 

guidelines when, in fact, the products may actually be dangerous 

or even deadly. 

Having risen to the point of affecting interstate commerce and 

safety, we have three legislative proposals addressing organized retail theft that will be discussed today. 

H.R. 6713, the ‘‘E-fencing Enforcement Act of 2008,’’ which I introduced, places requirements on online market providers. The providers would identify high-volume sellers, those who sell more than 

$12,000 of merchandise in 1 year or more than $5,000 in a single 

transaction. Information regarding the identity of such sellers and 

the transaction would be required to be retained by the online market and made available to aggrieved parties with specified standing 

to obtain the information. The bill would also require the provider 

to investigate an allegation of stolen property upon the request of 

a person with such standing and to deny access to the marketplace 

to the seller if the provider has good reason to believe that the seller is using the market to sell stolen goods. 

H.R. 6491, introduced by the Representative Brad Ellsworth of 

Indiana, who is with us as a witness today, and Representative Jim 

Jordan of Ohio’s Fourth District, defines organized retail crime and 

provides for Federal criminal penalties. The definition under the 

bill is illegally obtaining merchandise in quantities beyond what 

would be normal for personal consumption or recruiting persons to 

participate in such activity. 

The bill also defines online marketplace as an Internet site 

where someone other than the site operator can enter into transactions to sell goods or services. There is a search engine on the 

site for the buyer to use to identify the seller’s goods, and the site 

3 

operator has the right to supervise the seller’s activities or has a 

financial interest in the goods sold. 

That bill also criminalizes the failure of an online market to investigate when credible evidence exists that a seller is using the 

marketplace for selling stolen goods, to require a merchant to post 

certain information about his product or to keep identifying information about merchants who sell more than $12,000 of merchandise in any given year. 

S. 3434 is wider in scope than H.R. 6713 and 6491 in that it addresses organized theft in physical as well as online markets. The 

bill has similar provisions to 6491 in its definitions and criminal 

penalties. However, the bill also requires operators of physical retail locations to notify the Attorney General if the operator reasonably determines that a vendor is using that operator’s space in selling stolen goods. 

This is the second hearing we have had on organized retail theft 

that the Subcommittee has held during this Congress. In October 

2007, we heard testimony from representatives from the convenience retail industry, law enforcement and representatives from the 

online retail industry hoping to stimulate a discussion that would 

assist in developing mutually agreed solutions among the retail 

and online industries to the growing problem of organized retail 

theft. While there have been some efforts to do so by affected parties, they have not come to a final workable agreement, prompting 

the legislative proposals before us in today’s hearing. The size and 

complexity of this problem clearly suggests the need for some congressional attention but exactly what form any assistance would 

take is what we are here to discuss. 

It is now my pleasure to recognize the esteemed Ranking Member of the Subcommittee, the gentleman from Texas, Judge 

Gohmert. 

Mr. GOHMERT. Thank you, Mr. Chairman. I do also thank you for 

holding this hearing. This is a very serious issue. I first became 

aware of it back as a judge when we started hearing about massive 

amounts of baby formula being stolen. 

The problem of organized retail theft is not only growing, but it 

involves the theft of large quantities of retail merchandise. Organized retail theft is not a high-profile crime—and that is one of the 

problems—but it certainly is costly. Unlike shoplifters or smalltime thieves who steal for their own personal use, organized retail 

thieves steal merchandise in order to sell it back into the marketplace. These criminals typically target merchandise that can be 

easily concealed and easily resold. The stolen items range from lowcost products such as razor blades—baby formula is not so low cost 

for those that have bought any lately—but also things like batteries, as well as expensive items like electronics or appliances. 

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

sell the stolen merchandise at flea markets, pawnshops, swap 

meets and increasingly on the Internet. According to the FBI, organized retail theft accounts for between $30 and $37 billion in losses 

annually. The Coalition Against Organized Retail Crime estimates 

that States with sales tax annually suffer over $1.5 billion in lost 

tax revenue due to organized retail theft. 

4 

In 2005, Congress directed the Attorney General and the FBI in 

consultation with the retail community to establish a task force to 

combat organized retail theft and create a national database or 

clearinghouse to track and identify organized retail thefts across 

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

Retail Partnership Network, which was launched in 2006. This national database allows retailers to share information about suspected theft with each other and with law enforcement officials. 

In addition, the FBI has created the major Theft Task Forces to 

identify and target multijurisdictional organized retail theft rings. 

There are currently nine FBI-led major Theft Task Forces staffed 

by FBI agents and State and local law enforcement officers, located 

in FBI field offices across the country. 

Although Federal agencies work to investigate the criminals that 

engage in this conduct, retail organizations argue that there is still 

too little prosecution of this crime. They would seem to be right in 

their assertions. They argue that State felony thresholds that stolen goods must amount to $500 or, in some cases, $1,000 or $2,500 

in order to be a felony are too high to provide for prosecution of 

organized retail theft. The Federal threshold for prosecution of a 

crime of transportation of stolen goods and interstate commerce is 

also high, as the amount of stolen goods must be in excess of 

$5,000 to trigger Federal criminal liability. 

Several bills have been introduced in this Congress to prohibit 

organized retail theft and, in particular, e-fencing. Auction sites 

such as eBay and other online marketplaces, such as Amazon.com, 

have expressed concerns about the bills. 

I have met with representatives from both industries and on all 

sides. And I, like the Chairman, was hoping the groups could come 

together to find a solution without congressional action. 

Several merchants have used the comparison of pawnshops when 

discussing e-fencing with me. And I do think that there are certain 

parallels that are worth noting. Pawnshops are generally required 

to keep records of the merchandise available for sale because it is 

known that they are frequently used by criminals who have stolen 

merchandise. It seems reasonable to ask online marketplaces to do 

the same. Pawnshop records, on the other hand, are kept for law 

enforcement officials and not made available to private third parties. 

I would like to hear from witnesses during the course of this 

hearing on their thoughts about imposing a duty to maintain 

records on merchandise on the Web sites that are not required of 

pawnshops, and whether this should be made available just for law 

enforcement and not anyone else. 

One bill before the Subcommittee would create a new Federal 

crime of facilitation of organized retail theft. This provision exposes 

online marketplaces to incarceration based on a lower mental state 

than is traditionally required for criminal penalties. 

I very much appreciate a desire to craft legislation that addresses innovative criminal conduct, but I am also wary of legislation 

that deviates from the mens rea, or mental states, of knowing or 

intentional that are commonly used in criminal offenses. That is 

important because criminal offenses, which lock people up in prison 

and take away so many of their constitutional rights just to walk 

5 

around, are intended to impose penalties on those normally who 

consciously act to commit a crime and consciously act in furtherance of a crime. 

In fact, we have a group currently meeting to rein in some of the 

overzealous laws that have been crafted and passed in the past 

that have caused the incarceration of people for very unreasonable 

reasons when they had no idea that they were committing a crime 

as the law was later interpreted. 

I also think it is helpful to note that civil penalties are also a 

possibility when it comes to crafting legislation. It doesn’t require 

anybody to be locked up, and therefore, the mental state can sometimes be much lower and the penalties be career-ending for a business, so they do have a strong effect. 

But I am very interested in hearing the testimony of our witnesses on this legislation. I am still trying to come to grips with 

what would be the best solution. And I am glad to see my office 

neighbor, Congressman Ellsworth, here and look forward to hearing him. 

And I yield back the balance of my time. 

Mr. SCOTT. Thank you. 

We have been joined by the gentleman from North Carolina, Mr. 

Coble. 

Good to see you. 

Our first panelist will be the Honorable Brad Ellsworth who represents Indiana’s Eighth District. He is serving his first term in the 

United States Congress after serving 24 years as the Vanderburgh 

County sheriff in the county sheriff’s office, serving two terms as 

the Vanderburgh sheriff. 

He was twice decorated for heroism in the line of duty and graduated from the FBI Academy. He also has a bachelor’s degree in 

sociology and a master’s degree in criminology from Indiana State 

University. 

Mr. Brad Ellsworth, you are familiar with the lights. We have 

your entire statement for the record. So if you would like to summarize your testimony in 5 minutes or less, we would be happy to 

hear from you. 

Mr. ELLSWORTH. Thank you. 

TESTIMONY OF THE HONORABLE BRAD ELLSWORTH, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF INDIANA 

Mr. ELLSWORTH. Thank you. 

Thank you, Mr. Chairman, Ranking Member Gohmert and the 

rest of the Committee. I appreciate you letting me come and testify 

in front of the Committee today about this bill that—again, as Mr. 

Gohmert said, our purpose here is not to penalize entrepreneurs 

and online sites or—it is to take criminals off the streets and stop 

crime. That is my sole purpose here. 

I appreciate this opportunity to testify before your Committee in 

support of my bill, knowing that as we work together, we can craft 

good legislation that gets to the bottom of this problem, the Organized Retail Crime Act of 2008. 

I also want to thank you for your leadership in the area of e-fencing and organized retail crime. To both of you and this entire ComVerDate Aug 31 2005 14:18 Feb 04, 2009 Jkt 000000 PO 00000 Frm 00009 Fmt 6633 Sfmt 6601 H:\WORK\CRIME\092208\44610.000 HJUD1 PsN: 44610
6 

mittee, I look forward to working with you to craft legislation that 

gets to the problem. 

As the Chairman said, before I came to Congress, I spent nearly 

25 years in law enforcement with the Vanderburgh County sheriff’s 

office. I can remember, when I was talking about this legislation, 

a particular incident. We made what we thought was a routine 

shoplifting run until we opened this gentleman’s trunk, and in the 

trunk was a copy machine that had been rewired to 12 volt and 

was full of electric drills, the same particular electric drill out of 

this store. 

What we found out through our investigation was that these gentlemen would go in and buy one drill, go out, take the legitimate 

receipt, go out to the trunk, turn on the car, run copies of that, go 

in and steal more drills. And they would actually have receipts for 

those drills, for as many as they wanted, on that particular day 

and have legitimate receipts. 

That was one of my first real brushes with what I thought was 

organized retail crime, when someone puts a copy machine in their 

trunk and rewires that. Using fraudulent copied receipts, the 

thieves would then return that, like I said. 

I share this story as an example of the length that these thieves 

will go to. And like Ranking Member Gohmert said, they are hijacking trucks of baby formula out of the Bristol-Myers, 

MeadJohnson Enfamil—it happens quite often—to take advantage 

and to make a quick profit. 

Today, criminals with the same motives are using the Internet 

with increasing frequency to sell stolen merchandise. It is taking 

a heavy toll on our communities throughout the country. According 

to the Food Marketing Institute, a study in 2006 alone, retailers in 

my State of Indiana lost $662 million in stolen merchandise. Indiana has a 6 percent sales tax, so these stolen goods account for 

close to $40 million in lost sales tax to the revenue of my State. 

This is a major problem, as you know. 

Not only does organized retail crime result in substantial losses 

for retailers, it also has significant negative consequences for consumers. As you said, they steal baby formula, diabetic test strips, 

over-the-counter drugs from retailers. Needless to say, criminals 

are not interested in the proper storage of these sensitive health 

products, and as a result, the health and safety of consumers who 

unknowingly purchase these stolen products is often jeopardized. 

ORC rings also negatively impact the bottom line for consumers 

because leading American retailers are forced to spend millions of 

dollars each year conducting loss prevention efforts. Organized retail crime currently accounts for tens of billions of dollars in retail 

loss annually. 

The criminals who operate these organized crime rings are becoming more sophisticated in the ways they sell their goods to an 

often-unsuspecting public. ORC rings have expanded their base of 

operation from the streets—like you said, flea markets, pawnshops—to the online marketplace where they can break the law 

with anonymity. 

For these reasons, I felt compelled to introduce H.R. 6491, the 

Organized Retail Crime Act of 2008. This legislation cracks down 

on ORC by amending the Federal Criminal Code to include activiVerDate Aug 31 2005 14:18 Feb 04, 2009 Jkt 000000 PO 00000 Frm 00010 Fmt 6633 Sfmt 6601 H:\WORK\CRIME\092208\44610.000 HJUD1 PsN: 44610
7 

ties such as stealing, embezzlement, obtaining by fraud or false 

pretenses retail merchandise in quantities that are not purchased 

for personal use or consumption for the purpose of reselling such 

retail merchandise in commerce. 

By criminalizing facilitation, organized retail crime, Federal, 

State and local law enforcement will be better equipped to crack 

down on illegal activity as this takes place offline at pawnshops, 

flea markets. And, Judge, like you said, the definition of facilitation 

will be defined as we move down the road with this. 

In addition to amending the Federal Criminal Code, H.R. 6491 

requires specific and narrow obligations for the online marketplace 

used by high-volume dollars, $12,000 or more. Specifically, H.R. 

6491 requires online auction sites to expeditiously assist with an 

investigation of the sale of stolen goods on its site where incredible 

evidence comes to its attention and remove or disable access to the 

material when there is reasonable cause to believe the goods or 

services were acquired through organized retail crime. These sites 

are also to maintain a record of all investigations for a minimum 

of 3 years. 

The legislation also requires the online auction site to maintain 

the name, telephone number, e-mail address and a legitimate physical address of any user identification company name and transactions conducted by these high-volume sellers. And as I said, highvolume is someone selling more than $12,000 in merchandise annually. 

Opponents to this legislation might say it unfairly targets online 

auction sites. I would like to reiterate the fact that the legislation 

criminalizes facilitation of organized retail crime. Facilitation includes criminal activity that takes place offline as well as online. 

The proposed record-keeping obligation for online marketplaces is 

far less burdensome than regulations in place for pawnshop brokers, for example. In the pawnbroker industry, many States require that these records are kept and provided to law enforcement. 

Some require fingerprinting and the presentation of valid government-issued IDs before any transaction is approved. 

I want to acknowledge the efforts by some in the online marketplaces to police their own sites for criminal activity. These efforts 

are certainly beneficial toward deterring the resale of stolen merchandise. But I firmly believe these efforts do not go far enough. 

ORC is a growing problem that must be addressed through a robust effort of cooperation between retailers, the online marketplace 

and law enforcement. I believe we can put in place a legal framework to make this happen. My goal is very simple: The online marketplace should be fair and protect consumers, producers and a free 

market when goods are traded. 

I want online auction sites to prosper in a marketplace that has 

rules that are enforceable. It is important that the State and local 

law enforcement retailers have the tools necessary to pursue and 

stop crime where it exists. This legislation is important, and it defines organized retail crime in the Federal Criminal Code and requires online auction sites to perform the necessary record keeping 

of high-volume sellers so that criminals are prevented from exploiting the online marketplace. 

8 

I would also like to note that this legislation will not place an 

undue burden on users who play by the rules. The obligation is on 

the online marketplace to keep transparent records and assist with 

law enforcement when criminal activity is suspected. 

Mr. Chairman, H.R. 6491, the Organized Retail Crime Act of 

2008, is not intrusive. It is a commonsense bill that aims to dry up 

avenues for the organized retail crime criminals to sell their stolen 

merchandise at the expense of retailers and consumers. 

I look forward to hearing the expert testimony today, and I urge 

colleagues to join Congressman Jim Jordan and myself in supporting this important legislation as a first step toward cracking 

down on ORC. 

And just in closing, Mr. Chairman, I agree with Ranking Member Gohmert in that with—how much Federal law enforcement FBI 

has committed to this; but obviously, in just my State alone, with 

the tens of billions that are being lost in my State alone, the millions that are being lost, obviously the job is not getting done with 

law enforcement alone. 

So I appreciate any questions. I would be willing to answer any 

questions, and I will offer this for the record. Thank you. 

[The prepared statement of Mr. Ellsworth follows:] 

PREPARED STATEMENT OF THE HONORABLE BRAD ELLSWORTH, A REPRESENTATIVE IN

CONGRESS FROM THE STATE OF INDIANA

Mr. Chairman, I appreciate the opportunity to testify before your committee in 

support of my bill—the Organized Retail Crime Act of 2008. I also want to thank 

you for your leadership in the area of e-fencing and organized retail crime. I look 

forward to working with you and our colleagues on this committee in the coming 

days and weeks on legislation that will address the emerging issue of e-fencing. Together, we can craft legislation that cracks down on organized retail crime and protects consumers. 

Before I came to Congress, I spent a career fighting crime in the Vanderburgh 

County Sheriff’s Department. I remember a particular instance where we arrested 

two thieves who were running a sophisticated criminal enterprise from the trunk 

of their car. At a hardware retailer that had several Evansville locations, these two 

thieves would pay cash for one drill, make copies of the receipt using a copier that 

they had in the trunk of their car, and then shoplift the same drills in bulk. Using 

the fraudulent copied receipts, the thieves would then return the stolen merchandise and receive cash back multiple times over. I share this story as an example 

of the lengths criminals will go to fraudulently take advantage of businesses to 

make a quick profit. 

Today, criminals with the same motives are using the internet with increasing 

frequency to sell stolen merchandise, and it’s taking a heavy toll on retailers 

throughout the country. According to a Food Marketing Institute study, in 2006 

alone, retailers in my state, Indiana, lost $662 million in stolen merchandise. Indiana has a six percentage sales tax so these stolen goods account for close to $40 

million in lost sales tax revenue to the state. This is a major problem. 

Not only does organized retail crime result in substantial losses for retailers, it 

also has significant, negative consequences for consumers. These criminals often 

steal products like baby formula, diabetic test strips, and over-the-counter drugs 

from retailers. Needless to say, criminals are not interested in properly storing these 

sensitive health products, and as a result, the health and safety of consumers, who 

unknowingly purchase these stolen products, is often jeopardized. ORC rings also 

negatively impact the bottom line for consumers because leading American retailers 

are forced to spend millions of dollars each year conducting loss prevention efforts. 

The Federal Bureau of Investigation estimates that organized retail crime currently accounts for $30 billion in retail losses annually. The criminals who form and 

operate these organized crime rings are becoming more sophisticated in the ways 

they sell their stolen goods to an often unsuspecting public. ORC rings have expanded their base of operation from the streets, flea markets, and pawn shops to 

the online marketplace where they can break the law with anonymity. 

9 

For these reasons I felt compelled to introduced H.R. 6491, the Organized Retail 

Crime Act of 2008. This legislation cracks down on ORC by amending the federal 

criminal code to include activities such as the stealing, embezzlement, obtaining by 

fraud or false pretenses retail merchandise in quantities that are not purchased for 

personal use or consumption for the purpose of reselling such retail merchandise in 

commerce. By criminalizing the facilitation of organized retail crime, federal, state, 

and local law enforcement will be better equipped to crack down on illegal activity 

that takes place offline—at pawnshops and flea markets—as well as online. 

In addition to amending the federal criminal code, H.R. 6491 requires specific and 

narrow obligations for the online marketplace used by high-volume sellers. Specifically, H.R. 6491 requires online auction sites to expeditiously assist with an investigation of the sale of stolen goods on its site when credible evidence comes to its 

attention, and remove or disable access to the material when there is reasonable 

cause to believe the goods or services were acquired through organized retail crime. 

These sites are to maintain a record of all investigations for a minimum of three 

years. 

The legislation also requires the online auction site to maintain the name, telephone number, email address, legitimate physical address, any user identification, 

company name, and transactions conducted of each high-volume seller. A high-volume seller is defined as someone selling more than $12,000 in merchandise annually. 

Opponents of this legislation say it unfairly targets online auction sites. I would 

like to reiterate the fact that this legislation criminalizes the facilitation of organized retail crime. Facilitation includes criminal activity that takes place offline as 

well as online. 

The proposed recordkeeping obligation for online marketplaces is far less burdensome than regulations in place for pawnshop owners, for example. In the pawnbroker industry, many states require fingerprinting and the presentation of valid 

government issued IDs before a transaction. 

I want to acknowledge efforts by some online marketplaces to police their own 

sites for criminal activity. These efforts are certainly beneficial towards deterring 

the resale of stolen merchandise but I firmly believe these efforts do not go far 

enough. ORC is a growing problem that must be addressed through a robust effort 

of cooperation between retailers, the online marketplace, and law enforcement. I believe we can put in place a legal framework to make this happen. 

My goal is simple. The online marketplace should be fair and protect consumers, 

producers, and the free market where goods are traded. I want online auction sites 

to prosper in a marketplace that has rules that are enforceable. It is important that 

state and local law enforcement have the tools necessary to pursue and stop crime 

where it exists. This legislation is important in that it defines organized retail crime 

in the federal criminal code and requires online auction sites to perform the necessary recordkeeping of high-volume sellers so that criminals are prevented from exploiting the online marketplace. I’d also like to note that this legislation will not 

place an undue burden on users who play by the rules. The obligation is on the online marketplace to keep transparent records and assist with law enforcement when 

criminal activity is suspected. 

Mr. Chairman, H.R. 6491, the Organized Retail Crime Act of 2008, is a non-intrusive, common sense bill that aims to dry up avenues for organized retail criminals 

to sell their stolen merchandise at the expense of retailers and consumers. I look 

forward to hearing the expert testimony today and I urge my colleagues to join Congressman Jim Jordan and me in supporting this important legislation as a first step 

toward cracking down on organized retail crime. 

Mr. SCOTT. Thank you very much. I have no questions. 

The gentleman from Texas, the gentleman from North Carolina, 

and the gentleman from Ohio; we have been joined by Mr. Chabot. 

Thank you. 

Mr. ELLSWORTH. Thank you very much. 

Mr. SCOTT. If the next panel will come forward. 

As you are being seated, I will begin to introduce the witnesses. 

Our first witness will be Frank Muscato, Organized Retail Crime 

Field Investigator for Walgreens pharmacies. In addition to investigating retail crime, his duties include assisting in legislative 

issues that pertain to loss prevention; and he has helped draft 

more than 17 loss prevention proposals for State legislatures. 

10 

Before joining Walgreens, he spent 25 years at the Dallas Police 

Department’s Intelligence Division as a Case Supervisor. Upon his 

retirement in 1994, he was recruited by Walgreens to assist in creating the first Organized Retail Crime Investigative Division and 

supervise its loss prevention team. 

Our second witness will be introduced by the distinguished gentleman from Florida, Mr. Putnam. 

Mr. PUTNAM. Thank you, Mr. Chairman. And I want to thank 

the Ranking Member, Mr. Gohmert, for the privilege of temporarily 

joining the Judiciary Committee’s Subcommittee on Crime long 

enough to introduce a terrific witness. 

As a Representative of Florida’s 12th District, I am honored to 

introduce my sheriff, Sheriff Grady Judd, to your Subcommittee. 

Sheriff Judd is a leading force in the Nation when it comes to combating organized retail crime. In the past year, he added to his long 

record of accomplishment one of the largest organized retail crime 

busts to date. 

In January this year, after months of working across a number 

of jurisdictions, partnering with the private sector and tracking the 

perpetrators, the Polk County sheriff’s office arrested 18 people 

with ties to a crime ring that was responsible for an estimated loss 

of $100 million to retailers. That is just in Polk County, Florida. 

He was joined in that effort by Detective Ostojic, who was just recognized as Law Enforcement Officer of the Year by the Florida Retail Federation. 

Organized retail crime threatens the very soundness of commerce 

in our communities. The criminals and the tactics they use to steal 

consumer products generally fly under the radar of law enforcement at a significant cost to retailers and, therefore, to consumers. 

The FBI has reported that such organized crime costs retailers $30 

billion every year. You don’t have to be in law enforcement to know 

that the funds generated from these crimes are used to proliferate 

additional criminal activity, possibly gang related. 

Law enforcement and retailers need the support of Congress to 

pursue organized retail criminals with the proper tools to close 

down their operations. I am pleased to join Mr. Ellsworth as a cosponsor of his Organized Retail Crime Act, and I support my sheriff’s efforts to go after these illusive criminals and to make the public more aware about the pervasive effects of organized retail crime. 

Our sheriff is a dynamic leader in central Florida, and his efforts 

and his accomplishments are a testament to his commitment to the 

safety and security of our community. I know that his testimony 

would be enlightening to your Subcommittee as you attempt to prepare the best possible legislative remedy to this problem. 

I applaud you, Mr. Chairman, for bringing in our local experts 

who are on the front lines of this battle. And I thank you for the 

privilege of introducing him. 

Mr. SCOTT. Well, thank you. 

And welcome, Sheriff. 

Our next witness will be Steve DelBianco, the Executive Director 

for NetChoice, a coalition of trade associations and e-commerce 

leaders. He is a well-known expert on Internet governance, online 

consumer protection and Internet taxation. He has testified several 

times before the United States Congress and is a frequent witness 

11 

in State legislatures and represents NetChoice in Internet governance meetings around the world. 

Before joining NetChoice, he founded and was President of Financial Dynamics, an information technology consulting firm delivering financial and marketing solutions. He has degrees in engineering and economics from the University of Pennsylvania, and an 

MBA from the Wharton School of Business. 

Our next witness will be Ed Torpoco, a Senior Regulatory Counsel for eBay. He provides legal counsel to eBay’s policymakers regarding the company’s efforts to keep the eBay marketplace a safe 

place for consumers. 

Prior to joining eBay in 2006, he was a State and Federal prosecutor for 7 years, having worked in the Los Angeles District Attorney’s Office, U.S. Department of Justice and U.S. Attorney’s Office 

in northern California. He has a bachelor’s degree from Georgetown University and Juris Doctorate from Harvard Law School. 

Our final witness will be Joseph LaRocca, Vice President of the 

National Retail Federation. He has over 20 years of retail loss prevention security and operations experience. In January 2005, he 

joined the National Retail Federation as Vice President for Loss 

Prevention, working with retailers, small developers and government agencies to develop programs and content. 

He serves on several U.S. Department of Homeland Security 

committees, is a member of the International Association of Chiefs 

of Police and works closely with Federal, State and local law enforcement agencies. 

Mr. SCOTT. Each of our witnesses’ written statements will be 

made a part of the record in its entirety. 

I would ask each of our witnesses to summarize your testimony 

in 5 minutes or less. And to help you stay within that time, there 

is a timing device that is right behind your display on that side. 

It is back there. The timing light will start off green, will go to yellow when 1 minute is remaining, and to red when 5 minutes are 

up. 

We begin with Mr. Muscato. 

TESTIMONY OF FRANK MUSCATO, ORGANIZED RETAIL CRIME 

FIELD INVESTIGATOR, WALGREENS, DEERFIELD, IL 

Mr. MUSCATO. Good afternoon, Chairman Scott and Ranking 

Member Gohmert and Members of the Subcommittee. My name is 

Frank Muscato. I am an Organized Retail Crime Investigations Supervisor with Walgreens, and I thank you for the opportunity to 

appear here at the Subcommittee as it examines the significant 

problem of organized retail crime, we refer to as ORC. 

Walgreens operates over 6,300 drugstores in 49 States, the District of Columbia and Puerto Rico and serves 1.8 billion customers 

nationwide annually. I am here today to testify on behalf of 

Walgreens and the Coalition Against Organized Retail Crime. I 

thank you for your interest in this issue and for introducing H.R. 

6713. I would also like to thank Congressmen Ellsworth and Jordan for their work on H.R. 6491. 

I realize my time is limited so I will refer you to my written testimony for a more detailed discussion. 

12 

ORC is a significant problem that victimizes diverse segments of 

the retail community from supermarkets to drugstores to department stores and specialty shops. Unlike shoplifters, ORC gangs are 

sophisticated criminal enterprises that steal large quantities of 

merchandise with the intent of reselling those goods for profit. 

ORC is not what is commonly known as shoplifting. It is not an 

opportunistic theft where merchandise like food and clothing are 

stolen for personal use. Rather, ORC is an extremely sophisticated 

and coordinated crime. It involves highly structured organizations 

and gangs that hire and control teams of thieves to steal merchandise in large quantities. These teams move from store to store, city 

to city and State to State, employing sophisticated tactics and 

methods to allude store security, fraud prevention tools and law enforcement. This is a Federal problem with all the multijurisdictional law enforcement challenges that come with it. 

Walgreens has been a leader in advocating ORC legislation in 

States and supports making ORC a Federal criminal offense. We 

understand the first line of defense against ORC is in our stores 

and within our distribution channels. For this reason, Walgreens in 

2003 created an Organized Retail Crime Division that is devoted 

to working both State and Federal ORC cases in collaboration with 

law enforcement. Our 6,300 stores operate under a comprehensive 

loss prevention program. 

I would like to briefly outline one example where the Federal law 

would have helped in the prosecution of a case. It involves a grocery store up in Chicago. In collaboration with the Cook County 

Sheriff’s Department, we observed more than 52 boosters in a 2- 

hour period enter the grocery store, carrying what appeared to be 

stolen property and many leaving, counting money as they walked 

out. We discovered the store owner was selling these stolen goods 

to other businesses there in Chicago and out of State. 

Because of the limited resources and jurisdictional issues, the 

out-of-State case were not pursued. If ORC was identified as a specific crime in Title 18 of the Criminal Code, a Federal agency may 

have been more inclined to pursue that case. H.R. 6491 focuses the 

theft and sale of stolen goods obtained through ORC. 

There are several provisions Walgreens believes would be particularly impactful on combating this crime. The bill would explicitly criminalize the transportation, sale and receipt of stolen goods 

through ORC for the first time under Title 18. The bill would also 

criminalize its facilitation of ORC, including the facilitation 

through the operation of an online marketplace. 

Additionally, as I understand it, the bill will impose stronger 

criminal penalties and sentences for ORC. It is organized crime 

and should be treated as such with stronger penalties and enforcement. 

H.R. 6713 focuses on the serious problem of e-fencing. This bill 

requires certain information about high-volume sellers to be available for criminal investigations. Similarly, the online marketplace 

would be required to take down items where there is good—that 

they know were obtained unlawfully. 

In summary, ORC poses harm to consumers, retailers of every 

kind and deprives local and State governments of valuable and 

needed tax revenue. Walgreens supports legislation that makes 

13 

ORC a Federal crime and targets the facilitator and the tools used 

to conduct these unlawful activities. Walgreens supports efforts to 

reduce ORC and all the various channels used to dispose of this illegally acquired merchandise. 

I thank you for the time, the opportunity to speak before your 

Subcommittee; and I look forward to your questions and working 

with the Subcommittee on this legislation. Thank you. 

Mr. SCOTT. Thank you. 

[The prepared statement of Mr. Muscato follows:] 

PREPARED STATEMENT OF FRANK MUSCATO

I. INTRODUCTION

Good afternoon Chairman Scott and members of the Subcommittee. I am Frank 

Muscato, Organized Retail Crime Field Investigator with Walgreens, and I thank 

you for the opportunity to appear before the Subcommittee as it examines the significant problem of organized retail crime (‘‘ORC’’). Walgreens operates over 6,300 

drugstores in 49 states, the District of Columbia and Puerto Rico and serves 1.8 billion customers nationwide annually. I have spent the last 15 years working ORC 

cases after retiring from a major metropolitan police department following 25 years 

of service. I am here today testifying on behalf of Walgreens, and the Coalition 

Against Organized Retail Crime. Mr. Chairman, I thank you for your interest in 

this issue, for convening this hearing to explore legislative means of addressing this 

growing problem, and for introducing your bill, H.R. 6713, the ‘‘E-fencing Enforcement Act.’’ I would also like to take this opportunity to commend Congressmen Ellsworth and Jordan for their work on H.R. 6491, the ‘‘Organized Retail Crime Act.’’ 

My testimony today will cover three issues: 

• First, I will describe the nature and scope of the problem of ORC; 

• Second, I will describe more specifically ORC’s impact on Walgreens and our 

customers, as well as set forth the broad fraud prevention efforts we undertake; and 

• Finally, I will provide specific comments on the proposed legislation. 

II. NATURE OF ORGANIZED RETAIL CRIME

ORC is a significant problem that is victimizing diverse segments of the retail 

community from supermarkets and drug stores to department stores and specialty 

shops. Unlike shoplifters, ORC gangs are sophisticated criminal enterprises that 

steal large quantities of merchandise from retail stores with the intent to resell the 

goods for a profit. Products most often stolen by professional rings include: infant 

formula, over-the-counter medications, razor blades, batteries, DVDs, and CDs. 

These criminals also target other retailers for higher-end items such as designer 

clothes and accessories, household appliances, and consumer electronics. The more 

sophisticated rings often engage in identity theft, credit card fraud, gift card fraud, 

and returns fraud that amount to millions in lost revenue. Equally alarming are the 

possible health and safety consequences for consumers who unknowingly purchase 

merchandise acquired through illegal means—particularly over-the-counter medications and other consumables. 

ORC rings frequently travel to a designated area and methodically steal merchandise from a number of stores over a short period of time. The stolen merchandise 

is then moved and sold through fencing operations, flea markets, pawnshops, Internet auction sites and swap meets. Merchandise also may be fed back through the 

supply chain by re-packagers and illegitimate wholesalers who move the products 

into the distribution system, rerouting the items to unsuspecting retailers and consumers. 

As you can see, ORC is not what is commonly known as shoplifting. It is not opportunistic theft where merchandise like food, clothing, sundries or music are stolen 

for personal use. Rather, ORC is an extremely sophisticated and coordinated crime. 

It involves highly structured organizations and gangs that hire and control teams 

of thieves to steal merchandise in large quantities. These teams move from storeto-store, city-to-city, and state-to-state employing sophisticated tactics and methods 

to elude store security, fraud prevention tools, and law enforcement. Make no mistake about it, ORC rings have networks throughout the United States, and they distribute their stolen goods through interstate commerce. This is a Federal problem 

with all the multijurisdictional law enforcement challenges that come with it. 

14 

The FBI estimates that ORC costs retailers $30 billion annually. This type of 

crime also deprives state and local governments of hundreds of millions in lost sales 

tax revenues. Losses resulting from ORC also increase costs to consumers—every 

time a truckload worth of over-the-counter medication or baby formula is stolen, our 

customers ultimately incur the cost of products that must be replaced. Proceeds 

from ORC are often used to finance other criminal enterprises such as drug trafficking, terrorism, and gang activity. In fact, the low risk—high return nature of 

this crime is attractive to street gangs. Many gangs even finance the travel and expenses for illegal immigrants and put them to work stealing from retailers. Some 

crime rings, in an attempt to protect their interests, have resorted to murdering witnesses and plotting to murder law enforcement agents and federal prosecutors. ORC 

has evolved into serious, organized criminal activity that impacts consumer welfare 

and our national economy as a whole. 

Retailers have identified the hierarchy consisting of ‘‘boosters’’ and ‘‘fences’’ within 

the ORC rings. ‘‘Boosters’’ are those individuals who actually steal the merchandise. 

There are three levels of boosters: ‘‘level 1’’ is a person who steals close to home, 

is typically dependent on drugs or alcohol, and sells the goods the day they are stolen to support a habit; ‘‘level 2’’ boosters are persons that work with accomplices 

who travel to nearby states to steal and there is usually a leader of the group who 

sells the goods to a ‘‘fence’’; ‘‘level 3’’ boosters travel in organized groups, cover large 

geographical areas and can be on the road for weeks at a time—these groups are 

often organized by a ‘‘fence’’. A ‘‘fence’’ buys stolen goods from the boosters and is 

also identified in three distinct levels. A ‘‘level 1’’ fence often controls the three levels of boosters, they purchase goods for 20–30 percent of retail value and often have 

small retail businesses where boosters brings the merchandise; a ‘‘level 2’’ fence 

typically controls 10–20 different ‘‘level 1’’ fences and many ‘‘level 2 and 3’’ boosters—they often work out of small warehouses where product is cleaned, stored and 

sold to ‘‘level 3’’ fences for 50–60 percent of the retail value; ‘‘level 3’’ fences redistribute stolen retail goods, they have several ‘‘level 2’’ fences working for them and 

buy millions of dollars worth of stolen property every month—they operate large 

warehouses where stolen goods are mixed with legitimate product and sold back to 

some retailers through the supply chain. 

I would like to share a few examples of recent large-scale ORC cases reported in 

the press to illustrate the nature of this crime. As you heard from Sherriff Grady 

Judd, in early 2008 authorities broke up an enormous ORC ring in Polk County, 

Florida. What started as a single shoplifting investigation led to an 18-member organized enterprise that stole up to $100 million in over-the-counter medications and 

health and beauty aids. This criminal enterprise operated for at least five years 

under the control of ringleaders, which directed a sophisticated theft ring that stole 

from convenience and grocery stores statewide. Unfortunately, such incidents are all 

too common and not isolated. In June of this year, state and federal law enforcement broke up two ORC rings in the San Jose / San Francisco Bay area, arresting 

17 members and on the day of the bust, recovered over $5.5 million dollars worth 

of stolen property. These rings employed hundreds of shoplifters to steal razor 

blades, baby formula, tooth whitening strips, and over-the-counter medications for 

sale through storefronts, flea markets, and the Internet. 

In Texas, Walgreens and other retailers collaborated with law enforcement on a 

case that involved a fence who was buying $50,000 to $100,000 worth of stolen baby 

formula, diabetic test strips and other over-the-counter medications every single 

day. The stolen product was being stored in a mini warehouse with no temperature 

controls in an area where temperatures routinely exceed 100 degrees during the 

summer months. The merchandise was being sold back to unsuspecting retailers 

and fenced over the internet. This type of activity puts the public’s health and safety 

at risk as merchandise like baby formula and OTC medications can easily degrade. 

The fence was selling this product to an out of state fence that operated a distribution warehouse. 

In 2002, Walgreens and other retailers were instrumental in investigating one of 

the first groups identified by law enforcement as an ORC ring, in this case members 

of the same family. They were operating a large network of ORC repack and redistribution warehouses. Members of this crime ring fenced more than $78 million dollars worth of stolen property to and from Kentucky through Ohio, Texas, Utah, California, Florida, New York, New Jersey and North Carolina. This investigation led 

to a conviction. In 2004, the FBI investigated and charged other members of the 

same family who continued to conduct the same type of business. 

Law enforcement was ultimately successful in these cases, but this is the exception not the rule. Too often, cases are abandoned due to lack of resources and jurisdictional challenges. The legislation currently being considered would make ORC a 

15 

federal criminal offense which would be extremely helpful in prosecuting more of 

these large, mulitjurisdictional cases. 

III. IMPACT OF ORGANIZED RETAIL CRIME

As previously mentioned, Walgreens operates over 6,300 community pharmacies 

in 49 states, the District of Columbia and Puerto Rico. ORC impacts us throughout 

the country and costs Walgreens in excess of $300 million dollars a year. Walgreens 

has been a leader in advocating for ORC legislation in the states and supports making ORC a federal criminal offense, including criminalizing those activities that 

clearly facilitate the furtherance of ORC. 

We understand the first line of defense against ORC is in our stores and within 

our distribution channels. For this reason, in 2003 Walgreens created an Organized 

Retail Crime Division that currently consists of six experienced investigators solely 

devoted to working both state and federal ORC cases in collaboration with law enforcement. We have a robust fraud prevention program that includes upgrading the 

cameras in our stores to ‘‘state of the art’’ digital systems, in-store security, antitheft tagging, retail secure devices and employee training. We developed a sophisticated ‘‘computer dashboard’’ which helps our loss prevention personnel track stolen 

property using the ‘‘top 25 stolen items list.’’ This list is continually updated using 

our perpetual inventory system. Although our fraud prevention program has proven 

successful and effective, legislation is necessary to supplement our efforts and target 

facets of the criminal activity beyond our reach. Without this legislation, cases involving multiple jurisdictions and facilitators will continue to be a challenge to prosecute. 

I would like to briefly outline two examples where this federal law would have 

helped in the prosecution of the cases. The first involves a small grocery store in 

Chicago. In collaboration with the Cook County Sheriff’s Department we observed 

more than 52 boosters enter the grocery store with what appeared to be stolen property and leave counting money as they walked out. An informant admitted on tape 

that he would travel to Wisconsin, Indiana, Michigan, and Iowa to steal property 

and sell thousands of dollars worth of goods to this grocery store every day. We discovered the store owner was selling stolen goods to other business in Chicago and 

out of state. Because of limited resources and jurisdictional issues the out of state 

cases were not pursued. If ORC was identified as a specific crime in Title 18 of the 

criminal code, we could have taken the case to a federal agency to pursue further 

investigation and/or prosecution. 

The second case occurred this year in New York City. Three small ‘‘mom & pop’’ 

stores were identified by an informant as buying stolen retail property. NYPD 

worked this case and was able to infiltrate the businesses. After several months of 

investigation and surveillance the stores were busted and proprietors arrested. At 

one of the stores, police recovered more than $600,000 in stolen property that was 

boxed up and ready for shipment to out of state locations. The Queens County Attorney working this case said the department could not pursue the case further because of budget and jurisdictional issues. Again, if ORC was identified as a specific 

crime in the criminal code we could have pursued the case federally. 

IV. SPECIFIC COMMENTS ON PROPOSED LEGISLATION

Mr. Chairman, as you know, there is no federal statute on the books to specifically address ORC. We are hopeful that legislation in this area will result in greater 

awareness of this crime by both law enforcement and prosecutors alike. Today, 

ORC, like many property crimes, goes unrecognized and unpunished. Those who are 

caught often get away with only a ‘‘slap on the wrist’’ due to lagging investigative 

resources and federal prosecutors who may be unwilling to take complicated cases 

if high-dollar thresholds are not met. We are hopeful provisions in the law will serve 

to reduce the transfer and sale of stolen goods obtained through ORC by applying 

more scrutiny to those who may facilitate this crime. 

As you know, two bills, H.R. 6491 and H.R. 6713, are now pending before this 

Subcommittee. H.R. 6491, the ‘‘Organized Retail Crime Act,’’ focuses on ORC itself 

and the sale of stolen goods obtained through ORC. There are several provisions 

Walgreens believes will be particularly impactful on combating this crime. First, the 

bill would explicitly criminalize the transportation, sale, and receipt of goods and 

services through ORC for the fist time under Title 18. The bill would also criminalize the facilitation of ORC, including facilitation through the operation of an online marketplace. It is our strong belief the facilitation provisions will help ensure 

both individuals and entities are held accountable for perpetuating this criminal activity. In the case of online marketplaces, this provision will require them to take 

16 

reasonable steps to gather information about sellers, assist retailers in investigations, and affirmatively limit the sale of stolen goods. 

We also strongly support the provision in H.R. 6491 that amends the existing ‘‘access device’’ fraud statute to include devices commonly used to commit retail fraud 

such as gift cards, universal product codes and radio frequency identification transponders. By specifically enumerating these devices in the code, law enforcement 

will be able to more efficiently prosecute crimes involving the unlawful production 

and use of these devices. Additionally, as I understand it, the bill will impose 

stronger criminal penalties and sentences for ORC. As indicated earlier in my testimony, ORC is not garden variety shoplifting. It is organized crime and should be 

treated as such with stronger penalties and enforcement. 

The second of the two bills, H.R. 6713, the ‘‘E-fencing Enforcement Act,’’ focuses 

on the serious problem of ‘‘e-fencing.’’ We thank the Chairman for his recognition 

that the problem of ‘‘e-fencing’’ is getting worse, not better. We believe status quo 

will not solve the problem and this bill takes the appropriate approach to limiting 

‘‘e-fencing.’’ Like H.R. 6491, this bill would require certain information about high 

volume sellers be available to retailers for criminal investigations. Similarly, an online marketplace would be required to take down items where there is good reason 

to know they were not acquired lawfully. 

V. CONCLUSION

In summary, ORC poses harm to consumers, retailers of every kind, and deprives 

local and state governments of valuable and needed tax revenue. Walgreens supports legislation that makes ORC a federal crime and targets the facilitator and 

tools used to perpetrate these unlawful activities. Walgreens supports efforts to reduce ORC in all of the various channels used to dispose of the illegally acquired 

merchandise. A significant portion of ORC continues to be furthered through physical markets, such as flea markets, pawnshops, swap meets, and other large-scale 

distribution networks. For this reason, we hope legislation ultimately enacted by 

Congress includes provisions that go after all the channels used to dispose of stolen 

merchandise, and addresses the unique challenges of conducting investigations related to ‘‘e-fencing.’’ 

I thank you for your time and the opportunity to speak before your Subcommittee. 

I look forward to your questions and working with the Subcommittee on this legislation. 

Mr. SCOTT. Sheriff Judd. 

TESTIMONY OF GRADY JUDD, SHERIFF, POLK COUNTY 

SHERIFF’S OFFICE, BARTOW, FL 

Sheriff JUDD. Good afternoon, Mr. Chairman and Members of the 

Subcommittee. It is my pleasure to be with you today to talk about 

the very serious and far-reaching ramifications of organized retail 

crime. 

I appreciate my Representative, Adam Putnam, introducing me 

today. 

As Sheriff of Polk County, my agency learned of a so-called ‘‘simple shoplifting incident’’ that occurred on June 22, 2007. When the 

incident crossed Detective Jim Ostojic’s desk, he didn’t dismiss it 

as just another retail theft, but took the time to investigate. 

Seven months, a task force involving over 100 local and statewide law enforcement officers and retail loss crime prevention specialists, multiple old-fashioned stakeouts, several undercover purchases, numerous tracking devices, two storage warehouses, four 

flea markets, two Internet sites, five search warrants and one consent to search later, detectives uncovered a 5-year-old organized 

crime ring which resulted in approximately $100 million worth of 

stolen property. 

17 

Operation Beauty Stop culminated in the arrest of 18 individuals. For these criminals, the profits were high and the risks were 

very low. 

Retailers suffer hefty losses as a result of organized retail crime. 

However, this crime does not affect retailers alone. It has a major 

impact on consumers, our governments and our society’s quality of 

life. The quality of life we, as Americans, enjoy is compromised by 

this alleged simple act of theft because, you see, these insignificant 

shoplifters are all too often connected to other crimes. 

Fourteen of the 18 subjects charged in our recent operation had 

extensive criminal histories. Along with their shoplifting charges, 

their past charges included felony burglary, hit and run, drug possession, carrying a concealed weapon, domestic violence, aggravated battery with a deadly weapon, robbery, lewd and lascivious 

conduct, resisting arrest with violence, and battery on a law enforcement officer, just to name a few. These are people who constantly live outside of society’s rules. 

Progressive law enforcement agencies have experienced a paradigm shift from the traditional reactive focus on crime. Years ago 

the New York City Transit Police began to place the focus on toll 

jumpers. At the time, some postulated it was unconscionable that 

resources were going to be wasted on such insignificant violations. 

However, this new focus proved very beneficial and crime decreased considerably. You see, the murders, the robbers, the 

thieves, the other violent criminals haunting the subway systems 

were the very same ones committing the minor violation of jumping 

the toll booths. 

My agency is progressive in following a similar process called 

ProCap, proactive community attacking problems, based on zero 

tolerance for crime, even insignificant crime. Our philosophy is to 

arrest all on arrestable offenses. We dig into cases in order to prevent further crime and not enable it. As a result to our paradigm 

shift, major crime has decreased 37 percent in unincorporated Polk 

County. 

Operation Beauty Stop was so intensive it was a multiple jurisdictional effort that even needed the Federal agencies to become involved. As a matter of fact, the illicit criminal organization uncovered during this investigation had tentacles throughout other 

States to include North Carolina, South Carolina and New York. 

These criminals operate secure in the knowledge that local and 

State law enforcement agencies have neither the resources nor the 

jurisdiction to expose the full extent of their operations. Criminals 

do not limit themselves to jurisdictional lines for the convenience 

of law enforcement. Crimes perpetrated in this operation crossed 

all city, county and State lines. 

This proposed legislation would assist with the ease of prosecution for crimes that occur across jurisdictional lines and ensure the 

significance of these crimes is realized through standardized 

charges and sentencing across our great country. For these reasons, 

I am in full support of the Organized Retail Crime Act of 2008. 

Those involved in organized retail crime use every means to support their low-risk, high-profit criminal activity. The Internet has 

helped facilitate this illegal activity. The Internet adds a new dynamic to law enforcement; I liken it to the Wild West with very litVerDate Aug 31 2005 14:18 Feb 04, 2009 Jkt 000000 PO 00000 Frm 00021 Fmt 6633 Sfmt 6601 H:\WORK\CRIME\092208\44610.000 HJUD1 PsN: 44610
18 

tle regulation or enforcement and many prospects. Along with the 

vast benefits and endless opportunities derived from the Internet 

come the endless opportunities to perpetuate crimes and victimize 

our constituents in new ways. 

The Internet has indeed become the new frontier for crime. As 

a result, we must be prepared with resources to combat the new 

criminal tactics. I am in full support of the E-fencing Enforcement 

Act of 2008, not for the sake of regulation, but to require responsible business practices that protects consumers and our governments. 

I must tell you as I close today that organized retail crime is a 

sinister crime, negatively impacting our economy and directly tied 

to more violent and dangerous crimes. There is every indication 

that some of these criminal groups are even involved in funding 

terrorism. Please look beyond the tentacles to the monster to which 

they are attached. 

Thank you. 

Mr. SCOTT. Thank you. 

[The prepared statement of Sheriff Judd follows:] 

19 

PREPARED STATEMENT OF GRADY JUDD


Judd-1.eps
20 


Judd-2.eps
21 


Judd-3.eps
22 

Mr. SCOTT. Mr. DelBianco. 

TESTIMONY OF STEVE DelBIANCO, EXECUTIVE DIRECTOR, 

NetCHOICE, WASHINGTON, DC 

Mr. DELBIANCO. Thank you, Chairman Scott, Ranking Member 

Gohmert and distinguished Members of the Subcommittee. And 

thank you for holding this hearing on this important issue today. 

NetChoice, as was described earlier, is a coalition of e-commerce 

leaders and includes the Electronic Retailing Association, AOL, 

eBay, Overstock.com, Yahoo! and about 18,000 small retailers who 

use the Internet to reach customers; and at State and Federal levels and at international venues NetChoice advocates for the integrity in expansion of e-commerce. That is why it is a NetChoice priority to improve consumer trust and confidence in the online space; 

and we vigorously support efforts to pursue and control and punish 

criminals who pollute our online markets by selling stolen or counterfeit goods. 

We fully support tougher Federal penalties and increased resources and authority for law enforcement. The hearings held and 

the record that has been built by this Subcommittee since last October, I think they support exactly these kinds of measures. As Detective David Hill said in October, quote, ‘‘Professional thieves are 

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

jurisdictions are still treating ORC crimes like shoplifting.’’ 

But compare the committee’s record with the rhetoric that you 

hear from retailers today, particularly that from the National Retail Federation. Their own data show that two-thirds of the stuff 

that is stolen is stolen by a store’s own employees and their own 

suppliers. 

We have heard so much—and you will hear it in the testimony 

today—about the retailers’ trouble with retail theft. But it reminds 

me of the saying that when someone talks so openly about their 

problems, they are fixing to blame somebody else. And who do they 

want to blame? They like to blame the Internet. 

NRF’s written testimony includes this: That selling online has, 

quote, ‘‘addictive qualities,’’ and that the Internet is causing people 

who have never stolen before to take up retail theft. Mr. Chairman, 

that is like saying the back seat of cars causes teenage sex. Retailers are using this extreme rhetoric to justify what they really want 

in legislation, which we have heard repeatedly over the last 3 years 

in States and even on the Hill. 

The retailers have one course of action and that is to take law 

enforcement out of the loop by granting retailers their own power 

to demand investigations and takedowns on the Web sites of businesses they compete with; then, of course, to sue the marketplace 

if they are not happy with the investigation that occurred. 

Now you know how it works today. EBay, Overstock and other 

markets earn great marks from law enforcement for their quick 

and thorough attention when law enforcement is involved in asking 

for an investigation. Therefore, if a retailer has a good reason to 

suspect that a listing includes a stolen item, he need only get a law 

enforcement official to get on the phone, send a fax, push ‘‘send’’ 

on their button, and eBay and Overstock cooperate fully. 

23 

But all three of these bills would give retailers unique new power 

to force an online marketplace to interrogate their own customers 

about how they obtained the item they are listing for sale. This has 

the effect of presuming that their customers and sellers are selling 

stolen items unless they can prove their ownership. How could a 

seller prove ownership of something they have received as a gift, 

in a trade for cash or something for which they have lost the receipts a long time ago? The vast majority of online sellers are honest people trying to find the highest bidder for something they have 

and don’t need or something they have acquired legally at a discounted price. 

Honest citizens are understandably going to resent having to provide receipts and personal information to prove that they are not 

involved in organized criminal activity. They will protest, and it 

could be your in-boxes that get flooded with angry complaints if 

this becomes law. 

Now, to avoid this potential abuse that I am speaking of, Congress should preserve the role of law enforcement in the investigations that a retailer might demand from businesses that they compete with. And it is frankly not quite enough police involvement to 

just let a retailer use a police report that they filed as much as a 

year ago and then use that over and over again any time they see 

a listing for something of a similar description. That leaves law enforcement out of the loop between competitors. I think that someone from law enforcement must review a listing and ask the marketplace to investigate the way it works today. 

Now, the retailers are understandably frustrated by their ORC 

problems, but that is no reason to cut police out of the loop when 

we are investigating criminal activity. So I have tried here and in 

my written testimony to alert the Subcommittee to the risks in this 

legislation, that is, the risk of abuse and harassment of e-markets 

by competing retailers. 

And I guess I don’t worry so much about loss prevention professionals like Mr. Muscato here at the table. I don’t think he would 

abuse the law. But think for a moment about a small retail store 

manager who is trying to maintain margins in a declining economy, 

and he has got to be incredibly frustrated about losses that are due 

to theft, in most cases by his own employees and suppliers. So if 

a batch of items are stolen from his store and he later sees the 

same items, similar items, online, he is going to pull the trigger on 

the bill that you are giving him and he is going to use that power 

to force the online marketplace to interrogate its seller. And the retailer has no cost, he has no downside at all, and he can actually 

reuse the same investigation notice over and over again for every 

listing he sees on the Internet. 

The legislation could escalate the conflict—in closing here, it 

could escalate the conflict between retailers and online marketplaces. What is really needed right now is cooperation, because 

these parties all want to reduce the amount of crime and increase 

the integrity of what happens online. 

In your hearing last October Safeway’s Karl Langhorst said that 

Safeway was forming, quote, ‘‘unprecedented alliances’’ with other 

retailers to combat ORC. Well, Safeway should build unprecedented alliances with online markets, too, instead of blaming and 

24 

battling them. I understand the frustrations the retailers have but 

that doesn’t justify the soliciting of blame. These bills were designed for loss prevention, but they include dangerous tools for 

competition prevention. 

I close by thanking the Committee for considering alternative 

views and I look forward to your questions. 

Mr. SCOTT. Thank you. 

[The prepared statement of Mr. DelBianco follows:] 

PREPARED STATEMENT OF STEVE DELBIANCO

Chairman Scott, Ranking Member Gohmert, and distinguished members of the 

Subcommittee: My name is Steve DelBianco, and I would like to thank you for holding this important hearing on the e-Fencing Enforcement Act and related legislation. 

I serve as Executive Director of NetChoice, a coalition of trade associations and 

e-commerce leaders such as AOL, eBay, IAC, Overstock.com, and Yahoo!, plus 

18,000 small online retailers. At the state and federal level and in international 

venues, NetChoice advocates against regulatory barriers to the expansion and integrity of e-commerce. 

It’s a NetChoice priority to improve consumer trust and confidence in e-commerce, 

so we naturally support efforts to pursue and punish criminals who pollute online 

marketplaces by selling stolen or counterfeit goods. Unfortunately, the measures 

proposed in HR 6491, HR 6713 and S 3434 go too far in two ways: imposing unprecedented liability and unworkable burdens upon online marketplaces. 

THE HEARING RECORD DOES NOT JUSTIFY IMPOSING HARSH LIABILITIES AND BURDENS

ON ONLINE MARKETPLACES. 

We appreciate the chairman’s efforts to gather substantial data and testimony on 

the issue of organized retail crime (ORC). However, nothing in the record thus far 

would justify imposing criminal liability, civil lawsuits, and new burdens on online 

marketplaces, especially when these impacts could be triggered by complaints from 

competing retailers. 

In October 2007, this subcommittee heard testimony on ORC, and all witnesses 

made the case for enacting tougher federal penalties and additional law enforcement 

attention. As Maryland Police Detective David Hill told this subcommittee, ‘‘professional thieves are getting off with little more than a slap on the wrist because many 

jurisdictions are still treating ORC crimes as shoplifting cases.’’ 

In that same hearing, loss prevention officials from Safeway and Target said they 

needed more information about sellers and listings so they could convince law enforcement officials to investigate. During Q&A, Target’s Brad Brekke summed up 

with, ‘‘We’re just looking for transparency.’’ And Safeways’s Mr. Langhorst said, ‘‘We 

want eBay to tell us who the seller is.’’ 

It’s therefore understandable why ORC legislation would include tougher penalties for those convicted of crimes, and better transparency and information exchange between retailers and online marketplaces. However, these bills go much 

further, handing competing retailers a blunt instrument to harass online marketplaces they compete with. A stereo retailer, for instance, could tell Amazon or eBay, 

‘‘Those speakers are listed so cheap that I just KNOW they are stolen.’’ Never mind 

that big-box retailers fill our weekend newspapers with ads offering deep discounts 

to draw shoppers into their stores, too. 

These bills threaten online marketplaces with criminal penalties and even forfeiture of assets if they fail to interrogate people about how they acquired an item 

they want to list for sale. Imposing criminal penalties and asset seizure on an online 

marketplace is unprecedented at the federal or state level, and would be the 

harshest anti e-commerce law of any major industrialized country. 

Specifically, HR 6713, the E-Fencing Enforcement Act, would require marketplaces to conduct investigations if a retailer provides a police report—dated anytime 

in the last year—claiming theft of goods matching the description of items offered 

in an online listing. A big-box chain could file a single police report for theft of an 

item, then use this report all year long to force any online marketplace to investigate every listing of similar items—without any involvement of law enforcement 

officials. 

All three ORC bills would give retailers the power to force online marketplaces 

to interrogate sellers about where and how they obtained an item they’re listing for 

sale. This would have the effect of presuming that sellers are listing stolen items— 

25 

unless they can prove their ownership. But how would a seller prove ownership of 

items received as gifts, or something received in a trade? What about cash transactions, or purchases where original receipts were lost long ago? 

The vast majority of online sellers are honest people trying to find the highest 

bidder for something they have legitimately acquired. Honest citizens and businesses will naturally resent the presumption that they acquired their goods through 

organized criminal activity. When sellers protest about having to prove their innocence, online marketplaces would surely reply that Congress passed a new law requiring this unprecedented interrogation. Your inboxes could be flooded with constituent complaints. 

THE CURE FOR ORC SHOULD NOT BECOME A TOOL FOR AUTHORIZED RETAIL

HARASSMENT OF ONLINE MARKETPLACES. 

Forcing online marketplace operators to interrogate innocent sellers is just one aspect of what could become ‘‘authorized retail harassment.’’ A flood of new lawsuits 

is another potential for abuse by retailers. 

Specifically, HR 6491 grants retailers the ability to sue online marketplaces in 

any district court for failing to ‘‘expeditiously investigate’’ a listing based on a retailer notification, even if no law enforcement official ever reviewed the actual listing. After challenging a seller’s honesty and reviewing his reply, a marketplace 

might reasonably conclude that the seller’s listing has no connection to organized 

retail crime. However, a retailer could still sue the marketplace for failing to remove 

a listing, based only on the retailer’s belief that the marketplace had ‘‘reasonable 

cause to know’’ that an item involved organized retail crime. 

These ORC bills contain a ‘‘notice and take down’’ regime that’s markedly different from what Congress included in another law designed to help property owners stop online theft. The Digital Millennium Copyright Act (DMCA) includes safeguards to prevent abuse of the powers granted to content owners. DMCA notices are 

submitted under penalty of perjury and must specifically identify the location of allegedly illegal items. Neither of the two House ORC bills include any sanction whatsoever on retailers who could ’game the system’ by providing incorrect notices. 

The DMCA also includes a mechanism to contest incorrect allegations. Again, 

these ORC bills provide no such mechanism for online marketplaces to push-back 

on retailers who repeatedly use a single police report to harass multiple sellers of 

similar goods. Retailers can harass marketplaces with information requests about 

sellers—based on undocumented suspicion or a year-old theft of similar items. 

The combined threat of legal action combined with customer data and interrogation requirements are burdensome enough on large marketplaces, but would effectively strangle small businesses. NetChoice member Dawdle.com is a small online 

marketplace for new and used videogames, with 5 employees operating out of Chicago. According to founder Sachin Agarwal, ‘‘I can’t imagine how I could afford to 

stay in this business if overzealous retailers swamped me with investigation and 

take-down requests.’’ Smaller companies simply do not have in-house attorneys or 

financial resources to conduct legal investigations and answer to multiple lawsuits. 

Simply put, these ORC bills create too many opportunities for abuse by retailers 

who compete with online marketplaces. 

STATES HAVE REJECTED LEGISLATION THAT WOULD BLAME E-COMMERCE FOR

RETAILERS’ ORC PROBLEMS. 

Legislation imposing these kinds of obligations on online marketplaces has been 

introduced in several state legislatures. Colorado, Maryland, New Jersey, New York 

and Wisconsin have seen retailer-backed bills targeting online resale of merchandise 

such as baby food, cosmetics, drugs, infant formula and batteries. In spite of intense 

lobbying by big-box chains, none of these states has passed any version of the retailers’ preferred legislation. 

In addition, the bi-partisan National Conference of State Legislatures (NCSL) has 

soundly rejected this approach. At its annual meeting in August 2007, the National 

Retail Federation (NRF) attempted to modify NCSL policy by adding language that 

effectively blamed online markets for theft by suppliers, employees, and shoplifters: 

‘‘the Internet also has become a tool of Organized Retail Crime gangs that may sell 

stolen merchandise and gift cards online.’’ The retailers’ attempt to blame e-commerce for their theft problems was overwhelmingly rejected by state legislators at 

NCSL, by a vote of 45–0. 

26 

DOES CONGRESS REALLY WANT TO MAKE WEBSITES LIABLE FOR CONTENT AND CONDUCT

PROVIDED BY THIRD PARTIES?

A law that creates legal liability for online marketplaces for the wrongdoings of 

others violates the intent—if not the letter—of an existing federal law, Section 230 

of the Communications Decency Act. Section 230(c) explicitly protects interactive 

computer services from liability for content provided by third parties. 

When Congress passed Section 230, it decided to promote the continued development of the Internet and online services. Congress also sought to ‘‘preserve the vibrant and competitive free market that presently exists for the Internet and other 

interactive computer services, unfettered by Federal or State regulation.’’ [47 U.S.C. 

Sect. 230(b)]. 

Legislation that creates new liabilities on Internet marketplaces for the bad actions of third parties chips away at the goals expressed by Congress in Section 230. 

The continued development of a competitive marketplace for online commerce would 

be at risk, as would long-established protections for ISPs, online services, and the 

entire Internet community. The combined effect of new liabilities and affirmative obligations would result in an unacceptable chilling of online innovation and competition. 

THE HOUSE BILLS UNFAIRLY DISCRIMINATE AGAINST ONLINE MARKETPLACES. 

Nobody doubts that shoplifting is a serious problem for retailers. And nobody 

faults retailers for doing whatever they can to deal with inventory losses. But trying 

to shift blame and burdens to online marketplaces is the wrong approach. It may 

be true that thieves are tempted to fence their stolen goods online, but shoplifting 

was a big problem for retailers long before the Internet ever appeared on the scene. 

A witness in your October 2007 hearing quoted a 2005 report from this Committee, finding that stolen goods are fenced through multiple channels, including 

beauty shops, gas stations, flea markets, pawn shops, truck stops, newspaper classified ads, overseas buyers, plus several kinds of Internet sites. While the Senate bill 

applies to both online and offline resellers, both House bills impose obligations and 

liability only upon online marketplaces. Newspaper classifieds and the many off-line 

resale marketplaces are not covered by the two House bills. 

While the two House bills discriminate against the online channel, all three ORC 

bills would foster state laws that could create compliance burdens on online businesses that usually serve customers in all 50 states. Different—potentially conflicting—new state laws could create impossibly complex investigation requests and 

a flood of retailer lawsuits. In last October’s hearing, several witnesses called for 

a federal solution to the ORC problem, yet none of these bills would preempt states 

from quilting a patchwork of different state laws. 

THERE ARE BETTER, LESS RESTRICTIVE WAYS TO STOP ONLINE RETAIL CRIME. 

The National Retail Federation’s own commissioned surveys, conducted annually 

by the University of Florida, consistently show that two-thirds of retailer inventory 

losses are directly attributable to internal causes, including theft by their own employees and suppliers. Year after year, about half of all retail inventory losses are 

the result of employee theft. To put this in a national context, the retailers’ own 

study concluded that ‘‘. . . there is no other form of larceny that annually costs 

American citizens more money than employee theft.’’ 

These are the retailers’ own employees, people who are hired, managed, and paid 

by the retailers. With that kind of direct control, retailers are in the position to stop 

employee theft where it starts. 

In last October’s hearing, Rep. Forbes asked Safeway what they doing to prevent 

in-store theft, and Mr. Langhorst answered, ‘‘our associates are there to sell groceries, not to be police officers.’’ Yet witnesses from both Target and Safeway 

stressed the importance of limiting and deterring theft ‘‘in the first place.’’ The first 

place that theft occurs is in their own stores, most often by their own employees 

and suppliers. Rather than shifting blame and burdens to online marketplaces, retailers should improve their employee screening, inventory control measures, and 

store security systems. 

Another essential step to combat ORC is to create better working relationship between crime prevention professionals at retailers and online marketplaces. In your 

hearing last October, Safeway’s Karl Langhorst said, ‘‘In spite of Safeway’s best efforts and unprecedented alliances with other retailers to combat ORC, we continue 

to suffer significant losses.’’ Rather than continue to battle with eBay and others, 

Safeway should build ’unprecedented alliances’ with online marketplaces, too. WorkVerDate Aug 31 2005 14:18 Feb 04, 2009 Jkt 000000 PO 00000 Frm 00030 Fmt 6633 Sfmt 6621 H:\WORK\CRIME\092208\44610.000 HJUD1 PsN: 44610
27 

ing together, retailers and online marketplaces can raise the effectiveness of the 

‘‘best efforts’’ they are now making individually. 

CONCLUSION

These three ORC bills would impose extraordinary and discriminatory restrictions 

on Internet marketplaces that help millions of people to legitimately buy and sell 

products every day. 

I understand that retailers feel frustrated about their efforts to stop ORC, but 

that does not justify shifting blame and burdens to online marketplaces. These ORC 

bills are intended for loss prevention, but they include dangerous tools for competition prevention—preventing online marketplaces from competing with big retailers. 

I close by thanking the Committee for considering alternative views in this hearing, and I look forward to your questions. 

Mr. SCOTT. Mr. Torpoco. 

TESTIMONY OF EDWARD TORPOCO, SENIOR REGULATORY 

COUNSEL, eBAY, INC., WASHINGTON, DC 

Mr. TORPOCO. Mr. Chairman, Ranking Member Gohmert and 

Members of the Committee, I would like to thank the Committee 

for giving eBay this opportunity to discuss the importance of fostering real and effective solutions to the problem of organized retail 

theft. 

Prior to joining eBay in 2006, I was a State and Federal prosecutor for 7 years. At eBay I work with the law enforcement community, government regulators, private sector companies and 

eBay’s own policymakers to help keep the eBay marketplace a safe 

site for eBay’s community of consumers and small businesses. 

EBay recognizes that organized retail theft is a serious challenge 

facing many retailers. When we appeared before this Committee 

last year we made it clear that eBay does more than any other 

Internet company to make sure that online consumers have a safe 

and well-lit place to buy and sell goods, and that includes stopping 

the sale of stolen goods. 

EBay has strong policies in place that specifically prohibit the 

sale of stolen and illegal items. We employ more than 2,000 employees worldwide to enforce those policies, and we work closely 

with law enforcement officials at all levels to help them prosecute 

criminals. More than any other Internet company, we work to put 

criminals and thieves behind bars. 

But that is not all. In response to this Committee’s calls last year 

for greater cooperation in the fight against stolen goods, we stepped 

up and we created a new program called the PROACT program to 

foster evidence-sharing among victimized parties. Retailers that 

have joined this voluntary program now have an easy, streamlined 

mechanism to submit reports on eBay’s hotline, showing that an 

eBay member has sold or is attempting to sell stolen items. 

We investigate all evidence-based reports, and when we find 

proof of wrongdoing, we restrict or suspend the account and we will 

forward proof of criminality to law enforcement for prosecution. We 

want criminals arrested and prosecuted because criminal behavior 

on eBay undermines trust in the eBay brand. 

So with all eBay has done to combat nefarious activity on our 

platform, why are we here today to debate legislative proposals 

that almost exclusively target one Internet business model, that of 

online marketplaces like eBay, for liability in the context of organized retail theft? 

28 

Our site is the most transparent. Our antifraud teams are the 

biggest and most active and we work most closely with law enforcement. Rather than work with us to prosecute criminals, some retail 

giants are actively promoting proposals to restrict online marketplaces that primarily serve small retail competitors and provide 

consumers low prices. To be honest, we believe that the focus of 

some giant retailers on large and popular Internet marketplaces is 

colored by competition. 

The Internet, including eBay, has empowered consumers and 

small businesses. It is a revolutionary tool that drives down prices 

by increasing competition, including through a completely legal 

gray market, closeout and end-of-cycle goods. Many big brick-andmortar retailers who are themselves online want to dominate Internet retail the same way they dominate in store retail. They like the 

Internet, but they don’t like Internet-based competition from small 

sellers who drive down prices and give consumers more choices. 

One way to attack pesky secondary market competitors that sell at 

low prices is to suggest that there is something shady about them. 

By our estimates, there are roughly 750,000 honest, hardworking 

Americans who make all or a significant share of their income actively selling items on eBay. They will be directly impacted by the 

legislative proposals that the big retailers are asking you to consider. 

If this Committee is going to legislate on the issue of organized 

retail theft, we believe such legislation should recognize that efforts 

to stop organized retail theft must be built on deterring criminals 

from stealing in the first place, through adequate investment in inventory control and antitheft technologies. Recognize that any solutions must be technology neutral and business model neutral. 

Impose tougher penalties, including mandatory sentences, on the 

actual criminals who are selling stolen goods rather than scapegoat 

the Internet service provider for such conduct in a way that would 

undermine Internet growth. Protect the privacy interests of consumers and small businesses who provide their personal data to 

Internet service providers and trust that their personal data won’t 

be disclosed to retailers or government agencies based on unsupported accusations of wrongdoing. Protect legitimate gray markets 

that expand consumer choice and purchasing power. 

In conclusion, we continue to be committed to working with this 

Committee on ways to effectively empower law enforcement to fight 

the problem of retail theft. We stand ready to work on balanced 

and responsible solutions. We are committed to protecting the privacy and rights of law-abiding Americans and small business people. And we hope that this Committee will work with us to ensure 

that the Internet continues to thrive as a place that benefits consumers, especially in these challenging economic times, and allow 

small businesses to compete on a level playing field with even the 

biggest retail giants. 

Thank you. And I am happy to answer questions. 

Mr. SCOTT. Thank you. 

[The prepared statement of Mr. Torpoco follows:] 

29 

PREPARED STATEMENT OF EDWARD TORPOCO


ET-1.eps
30 


ET-2.eps
31 


ET-3.eps
32 


ET-4.eps
33 


ET-5.eps
34 

Mr. SCOTT. Mr. LaRocca. 

TESTIMONY OF JOSEPH J. LaROCCA, VICE PRESIDENT, LOSS 

PREVENTION, NATIONAL RETAIL FEDERATION, WASHINGTON, DC 

Mr. LAROCCA. Thank you, Mr. Chairman, Ranking Member 

Gohmert, Members of the Subcommittee. Good afternoon. Thank 

you for the opportunity to testify before you on organized retail 

crime. 

My name is Joseph LaRocca, and I am the Vice President of Loss 

Prevention with the National Retail Federation. Today, we are testifying on behalf of the larger Coalition Against Organized Retail 

Crime in support of H.R. 6713 and H.R. 6491. 

As we have heard, organized retail crime refers to professional 

shoplifters who engage in illegally obtaining substantial quantities 

of retail merchandise and gift cards as part of a criminal enterprise. Stolen merchandise is then resold through illegal street vendors, pawnshops, flea markets and large-scale distribution networks and the Internet. Due to these black market operations, 

State and local sales tax is not collected, and in the case of returns 

fraud, actually takes money out of State funds. This type of criminal activity can even put consumers’ health and safety at risk, particularly when items such as infant formula and over-the-counter 

medications are mislabeled and stored improperly. 

According to the NRF’s 2008 ORC survey, 85 percent of retailers 

nationwide reported being a victim of organized retail crime. Precise measurements and the true scope of this problem are difficult 

to determine given the inherent secretive nature of these criminal 

operators. However, according to one prominent study, retail losses 

amount to over $30 billion a year. 

FBI Director Mueller also testified before Congress that ORC losses are estimated between $15 and $30 billion annually. When 

compared to other retail crimes across the country, retail losses are 

double those of property crimes nationwide, robbery, burglary, larceny and auto thefts combined, as reported in the FBI’s 2006 Uniform Crime Report. 

People have quickly learned that the Internet presents a low-risk 

way to sell stolen goods, primarily due to its anonymous nature. 

More disturbing, however, is, the Internet seems to be contributing 

to the creation of a brand-new retail thief, people who have never 

stolen before but are lured by the convenience and anonymity of 

the Internet. Internet auction sites have been blaming retailers for 

security lapses in order to justify the conduct of some of the biggest 

sellers on their site. 

Mr. Chairman, retailers take this issue very, very seriously and 

spend an estimated $11 billion each year on loss prevention. Our 

industry relies heavily on external theft controls such as electronic 

article surveillance, external theft training and closed circuit television systems in many stores. You may have noticed that more 

and more product is being placed under lock and key in your neighborhood pharmacy and other retailers. This comes at great inconvenience to honest customers. But these controls are no match for 

professional shoplifters determined to steal. Criminals will always 

find a way to get the product out of our stores. 

35 

One of the biggest obstacles in apprehending thieves who sell 

and resell through online marketplaces is the lack of resources 

available to law enforcement and the lack of cooperation offered by 

Internet providers. EBay, for example, will only provide assistance 

on a case-by-case basis and only to law enforcement. 

Due to the lack of manpower and resources, law enforcement will 

typically not undertake a suspected Internet fraud case unless 

there is irrefutable evidence or a written statement of theft. Then 

most State and local police departments run into jurisdictional 

issues since most online cases encompass multiple stores in multiple jurisdictions in multiple States. 

Recently eBay unveiled a new program called PROACT. Although, on the surface, it may seem like a good start, the burden 

is still on retailers. It requires retailers to investigate, identify and 

determine that the product online may be stolen. This is why a 

vast majority of retailers eBay approached have declined to participate. 

With over a million auctions on any given day, we need to 

proactively change criminal behavior, Mr. Chairman; we cannot 

keep addressing this issue by investigating and apprehending one 

seller at a time. We need a new approach to this problem. We need 

responsible Internet auction sites to make modest changes to help 

reduce the sale of stolen property in the first place, and thieves 

need to know when they try and fence their wares on a site like 

eBay, for example, they will be taking a huge risk and likely be 

caught. 

Organized retail crime is a serious issue affecting retailers, consumers and law enforcement officials nationwide. This criminal activity can put consumers’ health and safety at risk, particularly 

when items such as infant formula and over-the-counter medicines 

are mislabeled and stored improperly. ORC creates enormous financial losses and negatively impacts revenue for businesses and 

States. 

I wish to commend you, Chairman Scott and Ranking Member 

Gohmert, for today’s hearing. The focus on this very serious issue 

is a timely and appropriate response to a problem that is victimizing practically every segment of the retail industry. 

Thank you for your time and attention. 

Mr. SCOTT. Thank you. 

[The prepared statement of Mr. LaRocca follows:] 

PREPARED STATEMENT OF JOSEPH L. LAROCCA

INTRODUCTION

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

good afternoon. Thank you for the opportunity to testify before you today on the 

growing problem of organized retail crime. My name is Joseph LaRocca and I am 

the Vice President of Loss Prevention with the National Retail Federation. Based 

in Washington D.C., our membership comprises all retail formats and channels of 

distribution. As the industry umbrella group, NRF also represents more than 100 

state, national and international retail associations. I work closely with retail organizations, as well federal, state, and local law enforcement officials across the country. Prior to joining the Federation in 2005, I spent 18 years working in retail loss 

prevention witnessing these crimes and their impact first hand. I am here today testifying on behalf of the National Retail Federation and the larger Coalition Against 

Organized Retail Crime in support of H.R. 6713, the ‘‘E-fencing Enforcement Act of 

2008’’ and H.R. 6491, the ‘‘Organized Retail Crime Act of 2008.’’ 

36 

As we have heard, Organized Retail Crime refers to the growing problem of professional shoplifters who engage in illegally obtaining retail merchandise or gift 

cards through both theft and fraud in substantial quantities and as part of a criminal commercial enterprise. Some of the more sophisticated criminals even engage 

in changing the UPC bar codes on merchandise so they ring up differently at checkout. This is commonly called ‘‘ticket switching.’’ Others use stolen or cloned credit 

cards and gift cards to obtain merchandise. Yet others steal merchandise with the 

express intent of returning it to stores for cash or credit (most often in the form 

of gift cards). Stolen merchandise is resold through illegal street vendors, pawn 

shops, flea markets, the Internet, and even large scale distribution networks. Due 

to these black-market operations, state and local sales tax is not collected and, in 

the case of returns fraud, can actually diminish general fund holdings. 

HIGH-PROFILE CASES ILLUSTRATE THE SERIOUS NATURE OF ORC

In 2005, Operation Blackbird, as Texas investigators dubbed their multi-state 

baby-formula investigation, led to felony charges against more than 40 suspects; 

about half of those were illegal immigrants. Authorities seized some $2.7 million in 

stolen assets, including $1 million worth of formula. 

Sherriff Grady Judd from Polk County Florida will discuss his case, announced in January, in which $60–100 million in product was stolen from retailers and resold, primarily through the Internet. 

This May (2008) in New Jersey, one of the highest-ranking officers in the 

Gambino crime family was arrested and indicted along with 23 reputed crime family 

members and associates. A 30-count indictment that was unsealed in Newark alleges a variety of schemes, including forging bar codes to obtain electronics equipment from big box stores at extremely low prices, and making those purchases with 

credit cards obtained using stolen identities. 

In June, a joint task force of federal agents and the San Jose Police Department 

conducted a series of raids and arrested 17 members of two crime families they say 

employed hundreds of shoplifters to steal from stores, including Safeway, Wal-Mart, 

Walgreens, Longs Drugs, Save-Mart and Target. The stolen loot was resold for millions of dollars from homes, store fronts and flea markets, authorities said. 

These important investigations rely upon the ongoing partnership between law 

enforcement and the retail sector. The successful take down and prosecution of 

these theft rings is a positive development, but more needs to be done on the federal 

level because the problem is growing and these theft rings are becoming more aggressive and violent in their behavior. In fact, in the Texas case, hits were put out 

on the federal investigators involved in the infiltration of that gang. To bring it to 

an even more troubling conclusion, the proceeds from the crime were eventually 

traced back to the terrorist group Hamas. To put it succinctly, baby formula theft 

was funding assassination plots and international terrorism. 

These are just a few extreme examples. However according to NRF’s National 

ORC Survey released on June 4, 85 percent of retailers surveyed report being victims of ORC and 66 percent saw increases in ORC activity last year. Precise measurements of the true scope of this problem are difficult to determine given the inherently secretive nature of these criminal operators. However, according to one prominent study, industry-wide retail fraud and theft losses amount to over $30 billion 

a year. When compared to other property crimes across the country, according to 

the FBI’s Uniform Crime Report in 2006, retail losses are double those from robbery, burglary, larceny, and auto thefts combined ($16.9 billion) nationwide. 

Most disturbing is the fact this type of criminal activity can put consumer’s health 

and safety at risk. For example, consumers are potentially at risk when professional 

shoplifting rings steal consumable products, such as over-the-counter medications 

and infant formula. Pilfered products may not be kept under ideal or required storage conditions which can threaten the product’s integrity. And often times these organized thieves will repackage and re-label stolen products to falsely extend the 

product’s expiration date or to disguise the fact that the merchandise has been stolen. 

THE INCREASED USE OF INTERNET AUCTIONS TO DISPOSE OF STOLEN GOODS

Dishonest people have quickly learned the Internet presents a low risk way to sell 

stolen goods, primarily due to its anonymous nature. They are surfing the web and 

learning about the limitless opportunities offered by auction sites. Criminals are 

even setting up their own sites and enabling ‘‘secure’’ customer payments through 

tools offered by companies such as PayPal and Yahoo! Checkout. In the past, these 

same people were selling at flea markets and pawnshops, but not in 2008. Online 

marketplaces are being used as the Internet equivalent of pawnshops, but, unlike 

37 

pawnshops, they are largely unregulated. More disturbing, however, is the fact that 

the Internet seems to be contributing to the creation of a brand new type of retail 

thief—people who have never stolen before, but are lured in by the convenience and 

anonymity of the Internet. 

Sophisticated ‘‘professionals’’ or not, what all of these thieves have in common is 

that they often are—or become—career criminals. They have ‘‘shopping lists,’’ if you 

will. Some target luxury clothing, accessories, and perfume, while others focus on 

baby formula and expensive over-the-counter medications or beauty aids. Gift cards 

and electronics are other popular targets. Believe it or not, these criminals are even 

stealing vacuum cleaners and power tools. Whatever is new; whatever is hot; that’s 

what the criminals want. The Internet not only makes it easier for ORC ‘‘rings’’ to 

unload merchandise at near retail prices, it also enables sophisticated single-operators to realize a huge profit off of their crimes as well. 

In videotaped admissions of people who have stolen from retail stores and resold 

the product on e-Bay, for example, thieves often tell the same disturbing story: they 

begin legitimately selling product on e-Bay and then become ‘‘hooked’’ by its addictive qualities, the anonymity it provides, and the ease with which they gain exposure 

to millions of customers. When they run out of ‘‘legitimate merchandise,’’ they begin 

to steal intermittently, many times for the first time in their life, so they can continue selling online. The thefts then begin to spiral out of control and, before they 

know it, they quit their jobs, are recruiting accomplices (some are even hiring 

‘‘boosters’’), and are crossing state lines to steal—all so they can support and perpetuate their online selling habit. At least one major retailer has reported that 80 percent of thieves interviewed in their e-Bay theft cases admit that selling stolen property on e-Bay is their sole source of income. In fact, many of the e-Bay sellers have 

used those proceeds to obtain mortgages, new cars, and even boats. 

To give you a clear example of the high-dollar figures involved, in February of this 

year the Kansas City Police Department, FBI and U.S. Postal Inspection Service, 

charged 7 suspects with $1.2 million of theft and resale of stolen items online. According to court records, boosters were hired to steal merchandise and then paid a 

percentage of the booty and given gas cards for their expenses. The ring leader sold 

the product on e-Bay and used part of the money to bail the boosters out of jail 

when they were arrested! 

As a Loss Prevention professional a question I am often asked is why we don’t 

just catch the thieves in stores before the thieves have the opportunity to sell the 

product online. In meetings, we have also heard from folks representing the Internet 

auction sites who have taken the tack here on Capitol Hill to blame retailers for 

security lapses in order to justify, or obviate scrutiny of, the conduct of the sellers 

on their site. Mr. Chairman, retailers take loss prevention very, very seriously. Our 

industry relies heavily on external theft controls such electronic article surveillance 

(EAS), external theft training, and closed circuit television systems (CCTV) in many 

stores. You may also have noticed that more and more retail product is being placed 

under lock and key in your neighborhood pharmacy, department stores and other 

specialty retailers—at great inconvenience to honest customers. But, as we have 

learned, these controls are no match for professional or habitual shoplifters determined to steal. As you have heard today and in previous hearings, committed criminals will always find a way to get the product out of retail stores. Some of these 

thieves are masters at fraud or concealment, others are bold and brazen and potentially put employees and consumers at risk. 

THE CHALLENGES OF LAW ENFORCEMENT AND FAILURE OF ONLINE MARKETPLACES TO

ADEQUATELY ASSIST RETAILERS

One of the biggest obstacles in investigating and apprehending the thieves who 

steal and resell through online marketplaces is the lack of resources available to 

local, state, and even federal law enforcement to investigate these crimes and the 

lack of cooperation offered by Internet auction providers themselves. 

e-Bay, for example, will only provide assistance and information on a case-by-case 

basis, and only when requested by law enforcement. However, law enforcement, due 

to lack of manpower and resources, will typically not undertake a suspected Internet 

fraud case unless there is irrefutable evidence or a written statement of theft. Even 

then, most state and local police departments run into ‘‘jurisdictional’’ issues since, 

in most online cases, the thefts encompass multiple stores, in multiple states, in 

multiple jurisdictions. Further, even when retailers provide law enforcement with 

a written statement and videotaped admission, they are reluctant to take the case 

because the company investigator did not observe the actual theft, nor provide proof 

that a specific item came from a unique store. 

38 

Recently, e-Bay unveiled a new program called PROACT. Although on the surface 

it may seem like a good start, it still requires retailers to investigate, identify, and 

determine that the product being sold online may be stolen. Thus the burden is still 

placed on retailers to identify each discrete seller that may be selling stolen product 

on their site. That is why the vast majority of retailers that they approached with 

the program declined to participate. With over a million auctions on any given day, 

we need to proactively try to change criminal behavior in partnership with the 

Internet auction companies. Mr. Chairman, we can’t keep addressing this issue by 

investigating and apprehending one seller at a time; we need a new approach to this 

problem. 

Mr. Chairman, we need to have responsible Internet auction sites make modest 

changes to their businesses to help reduce the sale of stolen property in the first 

place. In other words, we need to create affirmative deterrents to this illicit behavior. Thieves need to know that if they try to fence their wares on a site like e-Bay, 

for example, they will be taking a huge risk and will likely be caught. We can do 

this by applying traditional models of stolen property regulation to the Internet and 

inject some much-needed transparency to these transactions. These are the type of 

approaches taken in the bills we are discussing today. 

H.R. 6491 imposes specific obligations on online marketplaces. Specifically, the requirement that an online marketplace investigate certain goods when a retailer provides ‘‘credible evidence’’ that the goods are stolen is essential. Such an obligation 

does not exist today. Similarly, if after investigation the online marketplace determines that in fact the goods are stolen, the marketplace would be required to remove them from sale from the marketplace. This is common sense. Goods that are 

known by an online marketplace to be stolen should no longer be sold on the site 

and, if they are, the marketplace should be liable for such behavior. 

The bill would also require that information about merchandise that is otherwise 

only offered for sale exclusively by a retail source be posted conspicuously. There 

are many instances where goods that are known to only be sold by a particular retailer are available for sale by third parties in large quantities on an online marketplace. Many times these sales warrant additional investigation by retailers due to 

the exclusive nature of the product. Finally, we strongly support the provision that 

would require high-volume sellers to make contact information available online. Retailers have difficulty obtaining seller contact information from the online marketplaces even though that information is vital to conduct a preliminary investigation. 

Oftentimes, the identity of the seller leads to a quick confirmation that the sales 

are in fact legitimate and the investigation can be closed. 

The second of the two bills, H.R. 6713, the ‘‘E-fencing Enforcement Act,’’ focuses 

exclusively on the E-fencing problem just described. We thank the Chairman for his 

recognition that this is a problem that is getting worse, not better. We believe that 

the status quo will not solve the problem and that this bill takes the appropriate 

approach to limiting e-fencing. Like H.R. 6491, this bill would require that certain 

information about high volume sellers be available to retailers. Similarly, an online 

marketplace would be required to take down goods where there is good reason to 

know that they were not acquired lawfully. 

NRF feels strongly that companies like e-Bay should also no longer be able to hide 

behind the assertion that they are ‘‘merely a platform’’ with little responsibility to 

supervise sellers on their site when they earn listing fees and commissions from 

each and every sale on their site. That is a fee for both stolen and legitimate goods. 

In the case of e-Bay these fees and commissions have earned them billions of dollars 

in profits and made them one of the fastest growing companies in American history. 

Isn’t there some greater responsibility here to take some simple, and quite frankly, 

commonsense steps like those outlined in H.R. 6713, H.R. 6491, and S. 3434? It 

seems like a no-brainer to me. 

CONCLUSION

While retailers will continue to invest billions of dollars in trying to prevent organized retail crime and apprehend and prosecute the perpetrators, it is clear that the 

problem cannot be solved by fighting these cases one-by-one and only in the shopping aisles. Without new Federal laws in place, such crimes are far too often treated 

as petty theft or a misdemeanor. As a result, organized retail crime cases are rarely 

appropriately prosecuted, and when they are, individuals who are convicted usually 

see limited jail time or are placed on probation if they have no prior arrests. 

Organized Retail Crime is a serious priority for large and small retailers nationwide. Locking everything behind glass may reduce sales, dramatically impacting the 

revenue for businesses and tax revenues for states. Expenditures against retail theft 

have become part of construction budgets, merchandising budgets and information 

39 

technology and staffing budgets. This is an enormously important and expensive effort for the retail industry. The continuing growth of retail crime and the damage 

it causes to communities dictates something needs to be done to control the theft 

and resale market for stolen goods. Further, at the rate the Internet is growing and 

the constantly and rapidly escalating scale at which any criminal is now able to operate, it is clear that there is an immediate need to update the law to cover these 

21st century criminal operations. 

I wish to commend Chairman Scott and Ranking Member Gohmert for scheduling 

today’s hearing. The focus on this very serious issue is a timely and appropriate response to the problem of organized retail crime and Internet auction fraud that is 

victimizing practically every segment of the retail community. Thank you for your 

time and attention. 

Mr. SCOTT. And we thank all of our witnesses for your testimony. 

We will now direct questions to you under the 5-minute rule. 

And I will recognize myself to begin with for 5 minutes. 

Mr. DelBianco and Mr. Torpoco, we know that some of the stuff 

online is stolen. What chance is there that there would be legal 

sales of consumer products in the amount of $5,000 in one sale or 

$12,000 over the course of a year? How often would that be actually legal? 

Mr. TORPOCO. Mr. Chairman, on eBay it is quite common for a 

seller to sell, for example, an automobile. And so the language is 

currently drafted to define ‘‘small seller’’ as somebody, for example, 

who has over $5,000 in sale, which would sweep in a large number 

of individuals who are not selling very frequently, but who are selling items that are high-ticket, big-priced items. And that is one of 

the concerns that we have with the legislation as drafted, that in 

reality there are actually many, many thousands, if not tens of 

thousands, of sellers on eBay who don’t sell all that frequently, but 

sell big-ticket items. 

Mr. SCOTT. How often does somebody sell small-ticket items in 

the $5,000 to $12,000 level that would be actually legal, that could 

not immediately produce some records to show where they got the 

product from? 

Mr. TORPOCO. I imagine, Mr. Chairman, that there are thousands of small retailers that are using eBay that probably exceed 

the $5,000 level threshold and which are selling commonly marketed goods, such as the goods that you would find in a brick-andmortar retailer or a pharmacy. 

What we see on eBay is that a lot of small businesses have used 

eBay to sell perfectly legitimate and legal gray-market goods that 

are the result of exceptions in the supply chain, as well as out of 

season, oversupplied, liquidated sorts of goods that are looking for 

a secondary market to be sold; and there is nothing illegitimate 

with that conduct. 

But unfortunately, some of the legislative proposals that we are 

hearing really assume that anybody who is selling goods at a substantial discount and in a large quantity on an online marketplace 

must be a thief. And the presumption is, let’s put the blame and 

burden on the seller that is using the eBay marketplace to prove 

that they are innocent by providing records before there is actually 

any specific evidence indicating that they have done anything 

wrong. 

Mr. SCOTT. Mr. Muscato, what happens when you make a complaint to police if you notice some suspicious activity. 

40 

Mr. MUSCATO. When we contact the police on these cases, they 

will get the information that we need, if that is what they are 

going to do. The problem is when we take cases to the police, we 

need to take the case to the police, not just suspicion. They have 

a thousand things to do—been there, done that—thousand things 

to do, and if we go and say, ‘‘Would you call eBay to find out why 

this guy is selling these test strips for $50 when they are $100 in 

the store, you just can’t do it unless there is something wrong with 

this,’’ they are going to say, ‘‘Frank, put it together for me and 

bring it to me.’’ They are not going to just call out. 

Now, I am lucky enough that I have friends that I can call and 

ask to do that because I work with. But I won’t do that; I wouldn’t 

take advantage of them like that. But that is what makes it difficult to do that. 

And to call eBay, even under PROACT, the program they had, 

was too hard for us to do, because by giving them the information 

and giving that, we are giving the case away. We have no control 

in what they do with it. So we are not going to reach out and give 

them that information without some kind of guarantee on the side. 

And when they talk about working together, gosh, there is no 

two bigger competitors in the Nation than Walgreens and CVS. 

Stand at almost any Walgreens in the Nation and look across the 

street and you will see a CVS. But we work side by side. We purchase radios with the same channels, so when we do surveillance 

together we can talk to each other. And other retailers are doing 

that. 

And if eBay would come over here with us or open their doors 

and let us go over there with them and work together on these 

cases—I don’t know, them send us stuff or we send them stuff— 

work together on these cases, wow, there would be giant steps 

ahead. We wouldn’t need legislation. 

Mr. SCOTT. Well, Mr. Torpoco, you have indicated that you have 

been working. What have you offered to do? 

Mr. TORPOCO. Well, Mr. Chairman, under the PROACT program, 

what eBay intended to do and what eBay has done in response to 

the Committee’s statements last year was to create an easy mechanism for retail partners to send us any evidence or intelligence 

they have of wrongdoing by an eBay member. And, frankly, I am 

stunned by the notion that a company would not join that program 

because they are concerned about losing control. I mean, the pledge 

that we have made under the PROACT program is, if you have evidence, provide it to eBay. We will do the right thing. We want to 

suspend individuals who are violating our user agreement by selling stolen goods. 

And if you have trouble getting law enforcement involved on your 

end, well, eBay is going to leverage its connections to call up the 

detective and say, ‘‘There is a case of somebody who is selling goods 

stolen goods on eBay, and we want you to prosecute them.’’ It is 

absolutely in eBay’s business interest to make sure that there are 

not individuals on eBay who are breaking the law and undermining the integrity of the eBay brand. 

And I am certainly surprised to hear that a retailer would not 

join in eBay’s efforts to prosecute an individual out of concern 

about losing control. I think this issue is serious enough that we 

41 

need to put aside such irrational fears and really work in a spirit 

of partnership and cooperation to make sure that the right thing 

is done. 

Mr. SCOTT. Now, what does eBay—I understand that, in Great 

Britain, eBay has an agreement that puts most of the burden of 

this problem on the seller so that eBay is not burdened by cooperating; is that right? 

Mr. TORPOCO. That is not correct, Mr. Chairman. Under the 

PROACT program, what we want to do is create an invitation for 

the retailers who have well-established loss-prevention teams to 

share their evidence that somebody is misbehaving or to share 

their intelligence with us so that we can, in turn, look at the data 

that eBay and PayPal retain and see if there is anything there that 

would cause us suspicion. 

And what we have pledged to do is, once we marry that sort of 

intelligence both in the retail end and within eBay, and if we find 

something wrong, we have absolutely no hesitancy about taking action against a member’s account and, if necessary, if there is evidence of criminality, referring that case out to law enforcement. 

So the intent behind the PROACT program is not to put a burden on any retailer to actually invest in the area. What we want 

to do is create an invitation for partnership. And of course that is 

going to require some investment on the retail end, not just eBay’s 

end, to make sure that the right thing is done to further an investigation. 

Mr. SCOTT. Now, how is what you do in retail theft different from 

what you do in trademark and copyright suspicious cases? 

Mr. TORPOCO. Mr. Chairman, the liability regimes are vastly different. And what we need to do in the copyright and counterfeiting 

context is we rely on the expertise that brand owners and right 

owners have about whether or not a product is genuine and invite 

them to submit sworn affidavits to us letting us know that something that they see, for example on the eBay marketplace, is not 

a genuine product. And that sort of regime certainly makes sense 

when you are talking about the authenticity of goods. 

But our concern in this particular context is we are not talking 

about whether or not an item is authentic on eBay. The issue that 

is presented to us in any reporting regime where a retailer could 

submit a report to eBay and demand that it be taken down is a 

question of where that item came from, I mean, what was the ownership history. And whereas in the motor vehicle context we have 

a very well-developed program under the VIN number system to be 

able to track the ownership of an item through its life, in the retail 

context we don’t have that for things like razor blades or baby formula or Crest White Strips. 

The reality is there is no adequate inventory tracking of those 

sorts of items that would enable a police officer, for example, who 

finds a suspicious amount of quantity of these goods in the back 

of a van to look at item by looking at the box or the code on it or 

the SKU number and say, ‘‘Aha, that is an item that came from 

Target and was stolen.’’ That sort of tracking does not exist in the 

retail system for commonly shoplifted goods. 

The only effective tracking system that exists for goods is really 

in the motor vehicle context. And that is why, in the motor vehicle 

42 

context, we require of all eBay members who are listing an item 

for sale, an automobile, to list the VIN number on the listing. If 

we had any such sort of airtight tracking system for commonly 

shoplifted goods, such a regime might make sense. But that sort of 

regime has not been developed by the retail industry. It certainly 

does not exist to the extent that having that sort of information 

would enable us to know the history of the item, where it was purchased, was it given as a gift, was there a receipt for it. I mean, 

that sort of tracking just does not exist. 

Mr. SCOTT. My time has expired. 

Mr. DelBianco, did you want to comment? 

Mr. DELBIANCO. Thank you, Mr. Chairman. 

In response to your question, Mr. Muscato said that there are 

times it is difficult to get law enforcement to pay enough attention 

to the cases. And I would point out that two of the three bills here 

actually dramatically increase the penalties and minimum sentencing guidelines that explicitly spell out what is the ORC crime. 

And the hope of all of us would be that that will increase the attention that law enforcement will pay to an interstate crime. 

But at the same time we have this notion of a PROACT program, 

it is a voluntary program of cooperation between the parties along 

here. And retailers would understandably say, we are not ready to 

sign up for a voluntary program if someone is dangling in front of 

us legislation that creates a club, a club they can use against their 

competing retailers and online marketplaces. And that club comes 

in the form of being able to demand the interrogation of customers 

without any law enforcement being involved. 

Mr. SCOTT. Thank you. 

Mr. Gohmert? 

Mr. GOHMERT. Thank you, Mr. Chairman. 

And I do appreciate all of your testimony. 

Mr. SCOTT. I recognize, in fact, the gentleman from California, 

Mr. Lungren, has joined us. Thank you. 

Mr. Gohmert? 

Mr. GOHMERT. Okay, thank you. 

First of all, Mr. Muscato, I see you have some Rogaine. Why 

would anybody ever want Rogaine? [Laughter.] 

But there are a number of problems, and you all do a good job 

of pointing out the various difficulties here. 

But, Mr. DelBianco, you mentioned the backseat of the car. I actually heard a similar reference from a pawn shop owner about, 

‘‘Hey, why should we be responsible for theft of things? We are just 

a legitimate business.’’ So it does go deeper than that. 

And, again, as I mentioned previously, there are some parallels. 

There are pawn shop owners that are completely—I think the vast 

majority are legitimate businesses, and it is a great source for people to come in, get money, get rid of things they don’t need and get 

some cash back from it. But it does facilitate some theft. So the 

issue is, how do we go about merging these different interests? 

Mr. LaRocca, you mentioned that putting products under lock 

and key comes at great inconvenience to customers. You are talking to Congress. As I have seen in my 31⁄2 years here, not a lot of 

people care about great inconvenience. While we were in the majority, my friends passed a bill that makes it extremely difficult for 

43 

me to just go get Sudafed. It is the only thing that clears up my 

head. So I couldn’t convince my friends not to make my life more 

difficult and at great inconvenience to me. So sometimes those 

things are going to happen if it is for the greater good. 

But, Sheriff Judd, you know, Mr. DelBianco, Mr. Torpoco—is 

that how you pronounce it? 

Mr. TORPOCO. That is right. 

Mr. GOHMERT. Okay. They bring up a point, you know, whether 

it is blades or some of those things, how do you identify if those 

items are stolen? If you went in a pawn shop and saw a bunch of 

new things like this, is there any way you can identify if they are 

stolen? 

Sheriff JUDD. He brings up a good point. It is a challenge. In fact, 

we have gone to the industry and suggested to them that there 

needs to be a way to identify those, because once it comes out of 

whatever industry—it may go to South Florida, and then that lot 

number is divided up from there. 

But in addition to that, which would be a wonderful help for us, 

we need to understand that the criminal justice system was not 

created and currently doesn’t have the infrastructure to deal with 

the speed and the quantity of people we are having to deal with 

that are into crime on the Internet. We are back riding horses, and 

the Internet is jet planes. And that is the problem. 

So we all need to work together for this to be proactive systems 

and a proactive approach, so that we can let our colleagues that are 

doing organized retail theft investigations for eBay, for big industry, to come together and do some of this work for us. And if they 

will be proactive with that approach, then they can certainly make 

this a manageable problem. 

As I testified to a minute ago, the problem is this is extremely 

low-risk and extremely high-profit, and the system we have in 

place today doesn’t allow us to change that. 

Mr. GOHMERT. Yeah, that is what we are trying to figure out. 

And my friends in law enforcement that I came to know so well as 

a judge, they told me that they also started having lots and lots 

of juveniles that are actually hired to go in and do the theft, because they know, if they are caught, they are probably going to go 

to a juvenile procedure and it is going to be very easy and they are 

going to get a wrist slap. So these are very sophisticated people, 

and they are finding ways to beat the system all the time. 

One of them I was wondering about, Mr. Torpoco, is the value of $12,000. How difficult would it be for people to change their email address or change the address and just keep skirting under 

the $12,000 limit? 

Mr. TORPOCO. Sir, on eBay we actually retain detailed records of 

membership information. So when somebody registers on eBay or 

changes their e-mail address or changes their physical address—— 

Mr. GOHMERT. No, but I mean would register with a different email address, the same person. I mean, are you able to track to the 

same computer or laptop and say, uh oh, this is the same guy that 

used these four other e-mail addresses? 

Mr. TORPOCO. Yes, we are, absolutely. And we have a powerful 

incentive to do so, because we want to make sure that individuals 

who are selling on the eBay marketplace are not bad actors. And 

44 

if we suspend them, we want to make sure that they don’t come 

back to eBay. 

So, in addition to tracking the sort of information that you noted, 

we actually have internal risk models that predict or note when an 

individual is trying to change their registration information or 

other individual account information in a way that would cause us 

suspicion. That would include, for example, having their account 

suspended and coming back trying to register with a different telephone number or with maybe the same IP address, which is a good 

telltale sign that the individual we kicked off previously is trying 

to come back. 

So those sorts of internal safeguards to make sure that bad actors are not trying to game the system by changing their contact 

information is something we have invested heavily in as a company, because we want to make sure that we know the—— 

Mr. GOHMERT. When you see those indicators, who do you tell? 

Mr. TORPOCO. In addition to taking action on those accounts, for 

example, if somebody tries—— 

Mr. GOHMERT. I understand you would take action, but do you 

know anyone else that—— 

Mr. TORPOCO. Certainly. If it is a criminal actor, we would notify 

law enforcement. But obviously—— 

Mr. GOHMERT. And who with the law enforcement would you notify, local or fed or who? 

Mr. TORPOCO. All of them. As a company, we like to say we have 

a Rolodex full of tens of thousands of law enforcement officials that 

not only have we trained across the country in how to do eBay investigations but with whom we have worked actual cases. 

So I oftentimes hear from the retail industry that they, in an individual case, might have a hard time getting law enforcement interested to take the case. We, as a company, have a really good 

track record of picking up the phone and calling the detective or 

somebody with the FBI with whom we have worked a prior case 

and saying, ‘‘Hey, we have a good case for you.’’ And, by and large, 

if it is a sizable case, law enforcement has been really receptive to 

our call. 

Mr. GOHMERT. So you don’t notify them unless you have a good 

case? 

Mr. TORPOCO. As a former prosecutor, I recognize that there are 

certain thresholds that have to be met before, for example, a Federal agency is going to institute criminal proceedings against somebody. 

So what we try to do is try to tailor the loss or the fraud in a 

particular case to the appropriate jurisdiction. If it is a small petty 

loss, we might refer it to a local DA’s office or a local police department. If it is a massive fraud that we are investigating, we would 

probably go with a Federal agency. But what we want to do is thoroughly investigate the case and then decide how big is it and who 

is the appropriate law enforcement agency to refer it to. 

And we have a great track within the Internet industry of being 

one of the most proactive companies in actually making those sorts 

of referrals to law enforcement. Because we, as a company, decided 

early on that if the eBay marketplace is going to be a safe place 

45 

for consumers to shop with confidence, we need to make law enforcement our allies in going after the criminals. 

And that is why, I think, when you compare us with the other 

companies that have invested in this area, you will see that eBay 

really has an unmatched track record in working in a spirit of cooperation and partnership with law enforcement. Which is why it 

is so surprising to us that the regulation that has been proposed 

targets the player in the industry that is actually doing the most 

to work with law enforcement in a proactive and cooperative posture. 

Mr. GOHMERT. Well, I guess that was my point. Sometimes it 

helps to get outside looks. You are talking about basically getting 

a case put together yourselves, and sometimes maybe you miss an 

indicator. I mean, as a judge, I have had psychiatrists say, if you 

hear somebody say the words, as you did earlier, ‘‘to be honest,’’ 

then it may mean that you were not honest up to that point, and 

so you need to watch that witness. And I am sure that is not the 

case in your situation. 

Mr. TORPOCO. Maybe I should have said ‘‘to be direct.’’ 

Mr. GOHMERT. All right. Anyway, well, thank you for your testimony. 

Mr. TORPOCO. Thank you. 

Mr. SCOTT. The gentleman from California? 

Mr. LUNGREN. We have to watch our language around Judge 

Gohmert here. 

This is one of those interesting things where we all know there 

is a problem; the question is, how do you solve it? 

I remember when I was Attorney General of California, even 

though eBay existed, we didn’t have this as the means by which 

these goods would be fenced. We had problems basically with swap 

meets, which we still have. And we used to have task forces that 

worked with local law enforcement to attempt to try and identify 

counterfeit and stolen property. But it was very difficult and very 

time-consuming, and it was really sort of a rifle-shot approach. You 

would try and have enough presence there that you would have the 

bad guys worried about what you were doing, but you knew you 

really couldn’t cover the waterfront here. 

Mr. Torpoco—Torpoco? 

Mr. TORPOCO. That is close enough. 

Mr. LUNGREN. What is it? 

Mr. TORPOCO. ‘‘Torpoco.’’ 

Mr. LAROCCA. To be honest. 

Mr. LUNGREN. Honestly speaking. 

Mr. Torpoco, you have talked about everything that eBay does, 

and it is very impressive. Can you tell me how many cases you 

have referred to law enforcement for prosecution over the last year 

or so? 

Mr. TORPOCO. By my understanding, in 2007, for example, we assisted law enforcement in roughly 7,800 cases, criminal cases. And 

I don’t know—— 

Mr. LUNGREN. In the United States? 

Mr. TORPOCO. That is in North America, so that would include 

the United States and Canada. 

46 

Now, I don’t know the specific breakdown of how many cases involved reactive responses to requests for information versus 

proactive responses. But I do know that we have assisted in approximately 7,800 stolen property cases specifically. 

And we believe that that sort of figure demonstrates the extent 

of not only the transparency on eBay, which enables these individuals who misbehave on the eBay Web site to get caught and prosecuted, but the level of our commitment to make sure that individuals who abuse our marketplace are prosecuted to the fullest extent of the law. 

Mr. LUNGREN. Mr. LaRocca, that sounds like a pretty impressive 

record from eBay. Why is that insufficient? 

Mr. LAROCCA. Well, Mr. Lungren, as a resident of California, 

thank you for representing our great State. 

And let me say that we are not impressed by that number. Retailers have consistently tried to work with the online marketplaces 

like eBay on theft cases taking place across the country and in the 

State of California. And, unfortunately, these terms, PROACT and 

proactive, when you really cut through all of the fluff, what we are 

looking at are programs that, if the retailer conducts the investigation and if the retailer contacts eBay and if eBay in their opinion 

believes that a theft or a crime has taken place, they will contact 

law enforcement on your behalf. 

Retailers, if they can go that far in the investigative process, are 

perfectly capable of making that call directly. And that is why a 

majority of retailers have said PROACT for eBay is a good first 

step, but it doesn’t go nearly far enough to prevent or put an affirmative responsibility on eBay to do the work. 

And in listening to Mr. Torpoco’s answer, he said that they have 

assisted law enforcement in 7,800 cases. Well, ‘‘assisted law enforcement’’ doesn’t recognize the work that went into the sting operations, the surveillance by detectives, and all of the calls that 

were originated by retailers and law enforcement to eBay for the 

purpose of assisting in those investigations. 

So the number really does need to be parsed out in what is truly 

assisting versus eBay, with all of these tools that they have available in tracking identification and tracing e-mail addresses and 

monitoring sellers through eBay and PayPal, taking that information and then using that information to conduct the investigation 

and coming back to retailers with a notification that a crime has 

been committed, to file a police report, et cetera. 

Mr. LUNGREN. Well, let me ask it this way then: We have noted 

in this Subcommittee and full Committee that the Federal Justice 

Department has a lot on its plate. After 9/11, we saw the FBI turning to counterterrorism as its major objective. And there are a 

number of other things that have been within their bailiwick that 

they are still responsible for, but, admittedly, they don’t have as 

much time and attention there. The same thing with U.S. attorneys 

and so forth. 

So we can pass Federal legislation which would make the assumption that the obligations we place on eBay and the Federal 

penalties and the Federal laws would be enhanced over what the 

situation is today, but I am not certain that, in fact, you would 

have the attention of the Justice Department in many of these 

47 

matters of U.S. attorneys. So I am trying to figure out how to get 

better cooperation among all of you here. 

So here is my question. You say eBay should be doing more. And 

eBay turns around and says, look, the retailers don’t have a tracking system for some of the goods that they are complaining that 

you can find available on eBay. So it is almost as if I am hearing 

both sides. And you are all trying to make jobs for people and make 

some money and enhance commerce in the United States, and you 

are the victims of the bad guys here. 

So the question is, how do you say that eBay ought to do more 

when eBay turns around and says you guys ought to do more? And 

I assume your answer to me would be, well, it costs too much for 

us to have a tracking system for all of our blades and baby formula 

and other things. And eBay says, well, wait a second, it costs us 

too much to do these additional things you are asking for, which 

suggests to me that what I am hearing is it is an acceptable level 

of loss that we take because it would be too expensive for us to go 

further. 

And if that is the case, we are not going to have additional information, additional evidence being brought forward to law enforcement to prosecute the cases that would be allowed under the laws 

you wish us to pass. 

So I wish both of the two of you at the end would comment on 

the fact that you both seem to be saying, ‘‘Yes, we are doing something, but for us to do more would be too costly for our enterprise.’’ 

And I am hearing it from both sides. How do you respond to that? 

Mr. TORPOCO. If I may, Mr. Chairman, eBay absolutely agrees 

that that one prong to the solution in this situation has to be to 

get law enforcement involved, to get them adequate funding, to get 

them enhanced prosecutorial powers, to elevate the priority of 

these prosecutions, and, frankly, to increase the cost for the criminal, from a deterrent perspective, by raising the sentencing exposure that these criminals face for abusing online marketplaces and 

selling stolen goods. 

But that is not enough. And that is why eBay, in response to this 

Committee’s hearing back in October of 2007, stepped up and created a specific program specifically designed to get retailers involved in sharing evidence of theft with eBay’s investigators on a 

team-level basis, so that not only could we refer cases to law enforcement, so that as an internal matter eBay could shut off accounts when there was evidence of their misbehavior, irrespective 

of whatever happens in terms of referrals to law enforcement. 

And on that point, I have to correct the record on one important 

point, and that is something that Mr. LaRocca has represented to 

the Committee in his written activity and verbally before you 

today. And he has suggested that the overwhelming majority of retailers that we have approached to join in this PROACT program 

have rejected eBay’s invitation, and that is flatly false—flatly false. 

I know that it is false, because I am the individual within eBay 

who has, kind of, overseen our enrollment efforts, trying to reach 

out to retailers to work with us in a cooperative spirit. 

And we have approached roughly, I would say, 30 retailers in the 

pilot phase of this program to enlist with us in a cooperative basis. 

And of those 30, roughly six retailers have rejected that invitation, 

48 

choosing to pursue politics or whatever else rather than work with 

us on a case-by-case basis. To this day—— 

Mr. LUNGREN. Does that mean 24 cooperated, or you just haven’t 

heard from the rest of them? 

Mr. TORPOCO. No. As a matter of fact, our goal was to enroll during the pilot phase of this program only six to 12 retailers until we 

could assess the cost and effectiveness of the program. But to date, 

we have roughly 21 or 22 retailers that have said yes to us, that 

they want to work cases with us. 

And, unfortunately, what we have seen in this debate is that, 

say, the six hardest critics have hijacked the debate and accused 

eBay of being unwilling to work with the retail community, when 

the reality is that most retailers recognize that it is an insufficient 

approach to combating organized retail theft to just scapegoat the 

marketplace and refuse to work us with on a cooperative basis. 

So, actually, I want to make clear to this Committee that many 

retailers, in fact, have been willing to put aside politics and work 

with us since this Committee last heard testimony on this subject 

back in 2007. 

Mr. LUNGREN. Mr. Chairman, with your indulgence, could I hear 

from Mr. LaRocca? 

Mr. LAROCCA. Thank you for the question, Mr. Lungren. 

To answer your question, about Federal legislation wholistically, 

the first goal, obviously, for us, is to prevent these losses from occurring in the first place. Retailers spent $11 billion last year in 

loss prevention. So, ideally, we would like to prevent these losses 

from occurring. And if we send a strong message to criminals and 

tell them this is a Federal offense, there are stiffer penalties, we 

believe that will happen. 

The second part is that, by defining organized retail crime specifically, we believe that we can get Federal investigators and assistant U.S. Attorneys more interested in this topic. It is not just 

a property crime, but it is a serious Federal offense called out to 

them to investigate. 

And you made a point about terrorism and linking that in, and 

let me just say that in several of the very large cases around the 

country now there have been illegal immigrants involved in those 

cases. In one case several years ago, there were funds that were 

shipped overseas to groups like Hamas and involved some very bad 

people that put out hits on Federal agents involved in that investigation. So this is absolutely, in some ways, linked to terrorism. 

And a very big concern for retailers, but we should be concerned 

as U.S. citizens. 

And let me just—I just should ask this question, because I did 

make the comment about PROACT. With the retailers that have 

responded, what have the results been? Because we—and we have 

asked this question of our coalition members—have heard nothing 

about the results of PROACT, and it has been in operation now for 

several months. 

Thank you. 

Mr. SCOTT. Let me ask one additional question to Mr. Torpoco. 

One of the things that the retailers are looking for is information 

on the seller. Does the seller on eBay have an expectation of privacy for their name and address? 

49 

Mr. TORPOCO. Yes, absolutely. Most Americans are perfectly lawabiding. We have millions that are using eBay, and most of them 

absolutely have a privacy interest in making sure that their personal member data that they provided to eBay isn’t provided to our 

competitors, the retailers. 

We obviously don’t have any problem disclosing information to 

law enforcement, to the government, in connection with a criminal 

investigation, which is why eBay took, really, the unique step of 

creating a privacy policy that is posted on the eBay Web site which 

says that eBay will provide certain member data to law enforcement and government entities in connection with a criminal investigation, not with the need for a subpoena, not with the need for 

a court order, but based on a simple letterhead request stating that 

the agency is investigating criminal conduct. 

Very few companies can say that, but we took that extraordinary 

step because our members expect the eBay marketplace to be a 

safe place, and they understand that we need to do something like 

that to make sure that we are not standing in the way of law enforcement investing a case but we are actually viewing them as an 

ally. 

But that is a very different situation than creating a regime 

where a competitor, like another retailer, can submit some sort of 

report to eBay and all of a sudden demand, under the threat of liability, that eBay hand over that member data to the competitor. 

And I think most Americans when confronted with that situation 

would say, hold on, we are not talking about giving my personal 

data, on the basis of this suspicion, to the government in connection with a criminal case; you are talking about handing over my 

personal member information to a competitor that could potentially 

use that information to harass and try to curtail the business of a 

small retailer that is using the eBay marketplace to compete with 

the big-time retailers. 

Mr. SCOTT. You don’t make that information available in the 

United Kingdom? 

Mr. TORPOCO. I don’t counsel the United Kingdom, so I don’t 

know their specific policies. 

But one thing I would also note is that any party on eBay, using 

the contact eBay member functionality, anybody who is a party to 

a transaction on eBay like somebody who is a bidder or who has 

bought an item—and that would include a retailer who creates an 

undercover account—can actually swap member contact information using the eBay service. It is an automatic swap if you are a 

party to a transaction. 

So oftentimes, you know, eBay is asked to go talk to retail lossprevention teams or criminal investigators in law enforcement 

about using the eBay tools that exist on the eBay Web site to facilitate a criminal investigation. And we talk about this functionality 

that exists that is available to anybody—— 

Mr. SCOTT. Are you saying that if Walgreens wanted the information, all they would have to do would be to buy one of those 

razer blades—— 

Mr. TORPOCO. To do a controlled purchase, for example, or—— 

Mr. SCOTT.—and they could get that information? 

50 

Mr. TORPOCO. Yes, they could use that functionality. If they created an undercover account and they bid on an item or purchased 

an item, using that functionality they could swap member information with that other member. And it is an automatic swap. 

Mr. SCOTT. Thank you. 

Mr. LaRocca, do you have a final comment? 

Mr. LAROCCA. Thank you, Mr. Chairman. Two very quick comments. 

One, eBay does currently release that information to the private 

sector upon request under a program for intellectual property 

rights violation called VeRO, the Verified Rights Owner program. 

So there is also a precedent established by their organization to do 

exactly what we are asking for. Today it just applies to the intellectual-property-rights side versus stolen or fraudulently obtained 

merchandise. 

And one other quick comment. You asked about the United Kingdom, posting the seller information when a company lists themselves as a business, and this information is required if they are 

a business seller and it is posted up on their site for consumers to 

authenticate or to verify who they are and conduct business with 

them. 

Thank you. 

Mr. SCOTT. Thank you. 

My time has expired. There are a couple who want to make their 

final comments, but I will recognize the gentleman from Texas. 

Mr. GOHMERT. Just a follow-up. In response to Mr. LaRocca’s 

question, do we have results on PROACT? 

Mr. TORPOCO. We don’t have any systematic results that I could 

report to the Committee. 

Mr. GOHMERT. How about any nonsystematic results? 

Mr. TORPOCO. Honestly, the program was launched in April, and 

I would say that it has been within the past 8 weeks or so that 

we have actually reached a critical mass of participation to actually 

make the tracking of reports possible. 

What our intent has been all along, after the 6-month trial period, which would be roughly in October, to actually look back at 

the program, see where it is working, where it is not working, what 

kind of reports we are getting, how many accounts we suspended, 

how many referrals we made to law enforcement. But that sort of 

examination hasn’t taken place because—— 

Mr. GOHMERT. Could you provide those results to our Committee 

when you get them? 

Mr. TORPOCO. Yes. 

Mr. GOHMERT. Thank you. 

Mr. SCOTT. Mr. Muscato? 

Mr. MUSCATO. Thank you, Mr. Chairman. I just wanted to make 

a comment. And I have heard Mr. Torpoco say this several times, 

about the competition, that we think they are competing with us. 

We are a neighborhood drug store. We don’t compete with eBay. If 

someone has eaten a big ol’ bowl of chili, they are not going to get 

on eBay to order some Pepcid AC. They are going to go to our store 

and get it. We don’t compete with them. 

The only thing we are trying to do is to keep our property from 

leaving our stores illegally and being sold on those e-commerce. 

51 

That is all we are trying to do. That is why we want to work as 

partners with them, but not by sending them information to see 

what they do with it. Let’s work together. 

Mr. TORPOCO. Mr. Chairman, may I comment on that? 

Mr. SCOTT. Wait a minute. 

Mr. DelBianco? 

Mr. DELBIANCO. Thank you, Mr. Chairman. 

I just wanted to mention that, in your opening statement, you 

talked about the anonymity issue, and then Ranking Member 

Gohmert talked about the comparison with pawn shops. And I 

think it is relevant to, sort of, bridge that right now. 

And one has to remember that Amazon, eBay, Overstock, they all 

know exactly who the sellers are behind those user names that 

show up on the Internet. It is only anonymous to the folks who 

might want to invade the privacy of that seller. 

However, the men at law enforcement, so much as phone call, 

fax, or e-mail, asks them eBay, Amazon, Overstock always reveal 

that information to law enforcement. They have all that information in there. 

And I would contrast that with a pawn shop, where somebody 

walks in the door and walks out with a fist full of cash. Their identity then has to be captured, whether it is a fingerprint or a photocopy of a license. It is a fundamentally different transaction than 

the marketplaces which actually know the identity and the location 

of the individuals that list long after the sale was closed. 

And on the table in front of you, drawing a parallel to pawn 

shops, none of these items that you see on this table are going to 

wind up in a pawn shop. Pawn shops are used items that are 

hocked or sold. These are new items, and they are precisely the 

kind of new items that legitimate small businesses can get hold of 

at discount prices through freight liquidators, through businesses 

that are going out of business, through overstock, hence the name 

Overstock.com. These are legitimate owners who seek to sell it at 

big discounts. 

And I know, as Mr. Muscato says, that when I have an emergency, I am unlikely to buy it. But if I have to take this stuff every 

day for the rest of my life, you bet I will go online to try to buy 

these items at the lowest price I can get from a legitimate source. 

Thank you. 

Mr. SCOTT. Thank you. 

And final comment, Mr. Torpoco? 

Mr. TORPOCO. Yes, Mr. Chairman. I have to reiterate what Mr. 

DelBianco said. I mean, eBay as a marketplace is just so vast that 

we have moved on from the days of being the site where people 

could find and collect Beanie Babies, for example, to a site where 

you can find just about anything. And our policies allow just about 

anything to be sold, provided that it is legal. 

So I would hazard a guess to say that, of the sorts of items that 

you see displayed on this table, you could probably find all or most 

of them on this site, provided it is not, like, a prescription item that 

we don’t allow. 

So it is not the case to say that a company like Walgreens doesn’t 

compete with the small retailers that are on eBay. You bet 

Walgreens does compete with them, because those small retailers, 

52 

as Mr. DelBianco indicated, have obtained a lot of this perfectly legitimate product and are selling it at deeply discounted prices. 

The other thing I would just briefly note is, since we do have a 

sheriff here who did a massive takedown of a big case, is to kind 

of put some perspective on what we are talking about when we talk 

about organized retail theft and the significant—or the share of the 

loss that is actually attributable to eBay, for example, as a fencing 

site as opposed to other channels. 

Now, one thing that I did prior to coming to this Committee 

hearing was actually having one of our senior fraud investigators 

pull up the account record of the account that was used in that big 

Florida case to actually fence stolen goods. And I wasn’t surprised 

to see that, of the one account that was used in that case, it had 

approximately $100,000 in sales, $180,000. And we are talking 

about a takedown that involved, according to the press that I have 

seen in the case, between $60 million and $100 million of losses to 

the retail industry. 

So it is simply not fair to somehow equate eBay with the Internet and suggest that somehow taking punitive or regulatory actions 

against eBay is really going to get at the meat of curtailing the 

problem of organized retail theft, when, in this particular case, for 

example, the eBay account at issue constituted maybe one-third of 

1 percent of the goods that were actually fenced in that case. 

So we obviously want to see comprehensive approaches to this 

problem, not approaches that just scapegoat online marketplaces. 

Mr. SCOTT. Well, we are going to try to get something done, because obviously, with the amounts of money that are being stolen, 

something has to be done. 

But I would like to thank our witnesses for being with us today. 

I would like to thank Mr. Putnam and Mr. Ellsworth for their participation. 

Members may have additional written questions for our witnesses that we will forward to you and ask you to respond as 

quickly as you can so it can be made part of the record. 

Without objection, the statement from the senior Senator from Illinois, Senator Durbin, will be made part of the record. 

And, without objection, the hearing record will remain open for 

1 week for the submission of additional materials. 

And, without objection, the Subcommittee stands adjourned. 

[Whereupon, at 5:40 p.m., the Subcommittee was adjourned.] 

53 

A P P E N D I X 

MATERIAL SUBMITTED FOR THE HEARING RECORD

PREPARED STATEMENT OF THE HONORABLE JOHN CONYERS, JR., A REPRESENTATIVE

IN CONGRESS FROM THE STATE OF MICHIGAN, AND CHAIRMAN, COMMITTEE ON THE

JUDICIARY

We all agree that our Nation’s economy thrives on strong markets that in a perfect world would operate with no need for oversight and regulation. But, as was 

made painfully obvious to all of us over the past week through our continuing financial crisis, our economy does not operate in a perfect world and in the absence of 

appropriate oversight, greed leads to dishonesty and even further to criminal activity. Unregulated financial industries have brought us to the brink of disaster and 

like banking and the financial markets, retailers whether they be traditional brick 

and mortar stores or operating online must have appropriate regulation. 

The goal of the legislation before the subcommittee today, namely to curb organized retail theft, is very important for three overall reasons. First, organized retail 

theft costs retailers over $30 billion dollars each year according to the FBI and this 

financial pinch is not simply shouldered by the retailer. The costs to the retailer are 

sometimes passed along to the honest consumer in higher prices that the retailer 

must set to cover losses due to theft and in some instances the retailer must lay 

off employees to cover costs. 

Second, the $30 billion in losses each year translate in to $1.6 billion in lost tax 

revenue to state and local governments making it increasingly difficult to provide 

necessary services. Salaries for police officers, firefighters, teachers, sanitation workers, and many others become stagnant as governments cannot raise their salaries 

even to meet inflation. These workers are already underpaid and overworked and 

their departments’ budgets are stretched beyond their limits hindering their ability 

to protect us, teach our children and to provide basic quality of life services. 

Third, consumer safety is compromised when thieves steal and to not properly 

store products that are date sensitive or sensitive to elements such as temperature 

and light and then sell those items to unsuspecting consumers. Over the counter 

drugs are a favorite target of organized retail thieves because they are easy to steal 

and easy to sell. We have reports of thieves changing expiration dates on these 

products and storing them in facilities that are not temperature controlled. They sell 

these dangerous products with no notice to the consumer and for over the counter 

medications, this is dangerous enough but we even have evidence of thieves stealing 

baby formula and selling it beyond its expiration date and not storing it appropriately. This is particularly unconscionable. 

Underlying all of these problems is that the poor and minorities are most affected 

by the higher prices and lay offs more than any other segment of society. Most of 

the retail stores that thieves target are in less economically developed areas. Consequently, the higher prices that the retailer must charge are passed on directly to 

that community and any layoffs fuel the chronic unemployment in these areas. And 

the reduced city services from the reduced revenue of course also hit the poor areas 

the hardest. Moreover, the organized retail thief’s target market is the consumer 

having difficulty meeting retail prices making the likely purchaser of the outdated 

medicine or tainted baby formula someone who is poor, trying to find a way to make 

ends meet and is trying thinks that he or she has simply found a bargain. How tragic would it be for that purchase to be poisonous? 

Whether we adopt one or a hybrid of all of these proposals, we must fully address 

and do our best to curb organized retail theft. Our economy depends on it, our wellfunctioning governments depend on it, and the safety of our citizens depend on it. 

I thank the Chairman and I yield back 

f 

54 

PREPARED STATEMENT OF THE HONORABLE LOUIE GOHMERT, A REPRESENTATIVE IN

CONGRESS FROM THE STATE OF TEXAS, AND RANKING MEMBER, SUBCOMMITTEE ON

CRIME, TERRORISM, AND HOMELAND SECURITY

Thank you, Mr. Chairman. 

I would like to thank you for holding this hearing on the very important issue 

of organized retail theft. As you know, this is the second hearing the Crime Subcommittee has had on this topic during this Congress. 

The problem of organized retail theft is growing and involves the theft of large 

quantities of retail merchandise. Organized retail theft is not a high-profile crime 

but it is a costly one. Unlike shoplifters or small-time thieves, who steal for their 

own personal use, organized retail thieves steal merchandise in order to sell it back 

into the marketplace. 

These criminals typically target merchandise that can be easily concealed and easily resold. The stolen items range from low-cost products such as razor blades, baby 

formula or batteries to expensive products such as electronics or appliances. 

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

merchandise at flea markets, pawn shops, swap meets and increasingly on Internet 

websites. 

According to the FBI, organized retail theft accounts for between $30 and $37 billion in losses annually. The Coalition Against Organized Retail Crime estimates 

that states with sales tax annually suffer over $1.5 billion in lost tax revenue due 

to organized retail theft. 

In 2005, Congress directed the Attorney General and FBI, in consultation with 

the retail community, to establish a task force to combat organized retail theft and 

create a national database or clearinghouse to track and identify organized retail 

thefts across the country. 

The result of this legislation is the Law Enforcement Retail Partnership Network 

(LERPnet), which was launched in 2006. This national database allows retailers to 

share information about suspected theft with each other and law enforcement officials. 

In addition, the FBI has created Major Theft Task Forces to identify and target 

multi-jurisdictional organized retail theft rings. There are currently 9 FBI-led Major 

Theft Task Forces, staffed by FBI agents and state and local law enforcement officers, located in FBI field offices across the country. 

Although federal agencies work to investigate the criminals that engage in this 

conduct, retail organizations argue that there is too little prosecution of this crime. 

They argue that state felony thresholds—that stolen goods must amount to $500, 

or in some states $1000 for the offense to be a felony—are too high to provide for 

prosecution of organized retail theft. The federal threshold for prosecution for the 

crime of transportation of stolen goods in interstate commerce is also high as the 

amount of stolen goods must be in excess of $5000 to trigger federal criminal liability. 

Several bills have been introduced this Congress to prohibit organized retail theft 

and, in particular, ‘‘e-fencing’’—the sale of stolen goods on online auction sites. Auction sites such as eBay and other online marketplaces such as Amazon.com have 

expressed concerns about these bills. 

I’ve met with representatives from both industries and I would hope that these 

groups could come together to find a solution without Congressional action. 

Several merchants have used the comparison of pawnshops when discussing ‘‘efencing’’ with me. Pawnshops generally are required to keep records of the merchandise available for sale. It seems reasonable to ask online marketplaces to do the 

same. However, pawnshop records are kept for law enforcement officials, not private 

third parties. With that in mind, I would like to hear from our witnesses their 

thoughts on imposing a limited duty to maintain records of merchandise on the 

websites. 

Further, one bill before this subcommittee would create a new federal crime of facilitation of organized retail theft. This provision exposes online marketplaces to incarceration based on a lower mental state than is traditionally required for criminal 

penalties. Although I appreciate a desire to craft legislation that addresses innovative criminal conduct, I am wary of any legislation that deviates from using the 

‘‘knowing’’ or ‘‘intentional’’ mental states that are commonly used in criminal offenses. That is important because criminal offenses are intended to impose penalties 

against those who consciously act to commit a crime or consciously act in furtherance of a crime. 

I look forward to hearing the testimony of our witnesses on the legislation before 

the subcommittee. I yield back the balance of my time. 

f 

55 

PREPARED STATEMENT OF THE HONORABLE SHEILA JACKSON LEE, A REPRESENTATIVE

IN CONGRESS FROM THE STATE OF TEXAS, AND MEMBER, SUBCOMMITTEE ON CRIME, 

TERRORISM, AND HOMELAND SECURITY

Thank you, Mr. Chairman, for convening today’s very important hearing addressing organized retail crime. Organized Retail Crime (ORC) has gown in dimension 

and scope in recent years. It is contended that the amount of ORC exceeds $38 billion per year. At today’s hearing, we will explore the problem and consider three 

bills that present markedly different legislative approaches aimed at addressing the 

problem. I look forward to hearing from and questioning Representative Brad Ellsworth, the sponsor of HR 6491; Mr. Frank Muscato, an investigator at Walgreens; 

Sheriff Judd; Mr. Steve DelBianco, Executive Director, Net Choice; Mr. Edward 

Torpoco, Senior Regulatory Counsel of eBay; and Mr. Joseph LaRocca, Vice President, Loss Prevention of the National Retail Federation. I welcome these distinguished witnesses. 

Organized retail crime is not new. Stolen goods have been sold at swap meets, 

flea markets, pawn shops, and a myriad of other venues for many years. Recently, 

organized retail crime has found a home on the internet, and on-line marketplaces 

have provided a haven for individuals to trade and sell in stolen goods. This practicing of selling and trading in stolen goods is known as ‘‘E-fencing.’’ By some estimates, the loses suffered by these retail industries and governments is in the billions of dollars. The products stolen and sold on the internet range from items stolen from stores and includes such products as sensitive U.S. military items, babyformula, and over-the-counter medicines, etc. 

The problem of stolen goods has historically been addressed at both the State and 

Federal level. Existing Federal laws that criminalize the transportation, sale and receipt of stolen goods transported in interstate or foreign commerce have been used 

to convict organized retail criminals, including those that have turned to the internet. Because of increasing demands on the existing limited resources, very few organized retail crime cases have been brought by the FBI, DOJ, etc. 

eBay contends that the laws that we are discussing today will disproportionately 

affect it and its business. eBay claims that it already has internal controls and regulations that address this issue. We will explore these issues further in this hearing 

and consider three bills aimed at addressing this practice: HR 6713, the ‘‘E-fencing 

Enforcement Act of 2008’’, HR 6491, the ‘‘Organized Retail Crime Act of 2008’’, and 

S. 3434, the ‘‘Combating Organized Retail Crime Act of 2008’’. Each is discussed 

briefly below. 

A. H.R. 6713, THE ‘‘E-FENCING ENFORCEMENT ACT OF 2008’’ 

H.R. 6713 recognizes that knowing participation in passing stolen property by online marketplace providers is already a crime under 18 U.S.C. ? 2314. H.R. 6713, 

however, imposes new duties on online marketplace providers with respect to high 

volume sellers, defined as those who sell or offer goods or items of a value of $5,000 

or more in a single offering, or a value of $12,000 or more in one or more offerings 

in the last year. Those duties include a duty to retain contact information about 

high volume sellers and to disclose that information to certain persons with standing when a report has been made by or to law enforcement regarding theft by that 

seller. It also imposes a duty to initiate an internal investigation, based on available 

or easily obtained information, and to take-down a site when there is good reason 

to believe the goods or items offered for sale were unlawfully acquired. The Department of Justice should normally consider compliance with these duties as a negation 

of culpability under section 2314. The bill also creates a civil cause of action for persons aggrieved by a provider’s failure to comply with these duties. 

B. H.R. 6491, THE ‘‘ORGANIZED RETAIL CRIME ACT OF 2008’’ 

H.R. 6491 amends existing federal code by expressly including organized retail 

crime and the facilitation of organized retail crime in existing criminal felony statutes. H.R. 6491 also makes it unlawful for online marketplace operators to facilitate 

organized retail crime by failing to conduct internal investigations and ‘‘take-down’’ 

suspected sites; by failing to maintain certain records; by failing to require high volume sellers to publicly disclose certain identifying information on the Internet; and 

by failing to provide certain contact information to businesses who have a reasonable suspicion that online products offered for sale were obtained by ORC. 

The bill provides for civil forfeiture of property used or intended to be used to 

commit or facilitate ORC or constituting proceeds of ORC. It also provides a civil 

56 

cause of action for injunctive relief or damages against online marketplace operators. Finally, H.R. 5391 directs the United States Sentencing Commission to review 

and, if appropriate, amend the sentencing 

C. S. 3434, THE ‘‘COMBATING ORGANIZED RETAIL CRIME ACT OF 2008’’ 

S. 3434 expands the reach of existing Federal crimes on stolen goods by decreas- ing the value of goods that would trigger federal jurisdiction from $5,000 to an aggregate value of $5,000 within any 12 month period. It directs the United States 

Sentencing Commission to review and, if appropriate, amend the Federal sentencing 

guidelines as they apply to ORC. It defines ‘‘high volume seller’’ as any user of an 

online retail marketplace who, in any continuous 12-month period during the previous 24 months, has entered into multiple discrete sales with an aggregate total 

of $20,000 or more in gross revenues, or 200 discrete sales resulting in an aggregate 

total of $10,000 or more in gross revenues. 

S. 3434 imposes duties on both online retail marketplace operators and operators 

of physical marketplaces. Upon presentation of documentary evidence that a transient vendor at a physical marketplace or a user on an online marketplace has used 

the marketplace to sell stolen items, the operators must file a suspicious activity 

report to the Attorney General. Upon clear and convincing evidence that a vendor 

or user has used or is using the marketplace to sell stolen goods, the operator must 

terminate the vendor or user’s sales activities. In the alternative, the operator may 

ask the vendor or user for evidence showing that it is not engaging in illegal activity. Upon a clear and convincing showing that the vendor or user is not engaging 

in illegal conduct, the operator need not shut down the vendor or user. The operator 

shall notify the Attorney General of its decision to shut-down or allow the vendor 

or user to continue to sell. 

Online marketplace operators must maintain, for three years, contact information 

for all high volume sellers. They must require such seller to display its contact information along with product information. If the seller fails to do so, the operator must 

contact the Attorney General, and file a suspicious activity report to the Attorney 

General. 

Any operator who knowingly fails to comply with these duties is liable for a civil penalty of up to $10,000 for each violation. Any person who knowingly makes a material false statement with the intent to influence an operator to file a suspicious 

activity report is subject to a civil penalty of not more than $10,000 per violation. 

The bill grants a State Attorney General the authority to bring a civil action on behalf of citizens of its State for injunctive relief, damages, or civil penalties. 

Thank you, Mr. Chairman. I welcome today’s witnesses. I yield back the balance 

of my time. 

f 

PREPARED STATEMENT OF THE HONORABLE RICHARD J. DURBIN, A U.S. SENATOR

FROM THE STATE OF ILLINOIS

Chairman Scott and Ranking Member Gohmert, thank you for holding this hearing and thank you for the opportunity to address the issue of organized retail crime 

and to discuss the Combating Organized Retail Crime Act of 2008, which I introduced in the Senate on August 1, 2008. 

Organized retail crime is a persistent and growing problem that costs retailers billions of dollars and poses serious health and safety risks for consumers. It involves 

the coordinated theft of large numbers of items from retail stores with the intent 

to resell those items. Typically, crime organizations hire teams of professional 

shoplifters to steal over-the-counter drugs, health and beauty aids, designer clothing, razor blades, baby formula, electronic devices and other items from retail stores. 

Using sophisticated means for evading anti-theft measures, and often the assistance 

of employees at stores, the thieves target 10–15 stores per day. They steal thousands of dollars worth of items from each store and deliver the items to a processing 

and storage location. There, teams of workers sort the items, remove anti-theft 

tracking devices, and remove labels that identify the items with a particular store. 

In some instances, they change the expiration date, replace the label with that of 

a more expensive product, or dilute the product and repackage the modified contents 

in seemingly-authentic packaging. The items are then stored in a warehouse, often 

under poor conditions that result in the deterioration of the contents. 

Organized retail crime rings typically sell their stolen merchandise in different 

markets, including flea markets, swap-meets, and online auction sites. Online sales 

are of particular concern, since the internet reaches a worldwide market and allows 

sellers to operate anonymously and maximize return. A growing number of multiVerDate Aug 31 2005 14:18 Feb 04, 2009 Jkt 000000 PO 00000 Frm 00060 Fmt 6602 Sfmt 6621 H:\WORK\CRIME\092208\44610.000 HJUD1 PsN: 44610
57 

million dollar organized retail crime cases involve internet sales. For example, in 

Florida recently, law enforcement agents arrested 20 people in a $100 million case 

involving the sale of stolen health and beauty aids on an online auction site and 

at flea markets. 

Organized retail crime has a variety of harmful effects. Retailers and the FBI estimate that it costs retailers billions of dollars in revenues and costs states hundreds 

of millions of dollars in sales tax revenues. With respect to certain products, such 

as baby formula and diabetic test strips, improper storage and handling by thieves 

creates a serious public safety risk when the products are resold. And, the proceeds 

of organized retail crime are often used to finance other forms of criminal behavior, 

including gang activity and drug trafficking. 

The Combating Organized Retail Crime Act would address this problem in several 

ways. First, it would toughen the criminal code’s treatment of organized retail crime 

by refining certain offenses to capture conduct that is currently being committed by 

individuals engaged in organized retail crime, and by requiring the U.S. Sentencing 

Commission to consider relevant sentencing guideline enhancements. 

Second, the bill would require physical retail marketplaces, such as flea markets, 

and online retail marketplaces, such as auction websites, to review the account of 

a seller and file a suspicious activity report with the Justice Department when presented with documentary evidence showing that the seller is selling items that were 

illegally obtained. If the physical or online retail marketplace were presented with 

clear and convincing evidence that the seller is engaged in such illegal activity, it 

would be required to terminate the activities of the seller. This requirement will 

lead to greater cooperation between retail marketplaces, retailers and law enforcement, and will result in an increased number of organized retail crime prosecutions. 

Third, the bill would require high-volume sellers on online auction sites (meaning 

sellers that have obtained at least $10,000 in annual gross revenues on the site) to 

display a physical address, post office box, or private mail box registered with a 

commercial mail receiving agency. This requirement will help online buyers get in 

touch with sellers, and assist law enforcement agents who wish to identify people 

who may be selling stolen goods online. It is analogous to a provision in the federal 

CAN-SPAM Act, which also requires persons who send mass emails to disclose their 

physical addresses. 

This legislation has broad support in the retail industry in my home state of Illinois and nationwide. It is supported by the Illinois Retail Merchants Association, 

the National Retail Federation, the Retail Industry Leaders Association, the Food 

Marketing Institute, the National Association of Chain Drug Stores, and the Coalition to Stop Organized Retail Crime, whose members include such retail giants as 

Home Depot, Target, Wal-Mart, Safeway, Walgreens, and Macy’s. 

In summary, the Combating Organized Retail Crime Act addresses a serious problem that hurts businesses that are struggling to survive in a weak economy, and 

that harms consumers who unknowingly purchase stolen items that have been subjected to tampering. It would heighten the penalties for organized retail crime, shut 

down criminals who are selling stolen goods, and place valuable information about 

illegal activity into the hands of law enforcement. This bill is a big step forward in 

the fight against a nationwide problem. 

Thank you again for holding this hearing and for the opportunity to submit this 

testimony. I look forward to working with you to enact legislation to crack down on 

the growing problem of organized retail crime. 

f 

58 


A-1.eps
59 

f 


A-2.eps
60 


B-1.eps
61 

f 


B-2.eps
62 


C-1.eps
63 

f 


C-2.eps
64 


HR6713-1.eps
65 


HR6713-2.eps
66 


HR6713-3.eps
67 

f 


HR6713-4.eps
68 


HR6491-1.eps
69 


HR6491-2.eps
70 


HR6491-3.eps
71 


HR6491-4.eps
72 


HR6491-5.eps
73 


HR6491-6.eps
74 


HR6491-7.eps
75 


HR6491-8.eps
76 


HR6491-9.eps
77 


HR6491-10.eps
78 


HR6491-11.eps
79 


HR6491-12.eps
80 


HR6491-13.eps
81 


HR6491-14.eps
82 

f 


HR6491-15.eps
83 


S3434-1.eps
84 


S3434-2.eps
85 


S3434-3.eps
86 


S3434-4.eps
87 


S3434-5.eps
88 


S3434-6.eps
89 


S3434-7.eps
90 


S3434-8.eps
91 


S3434-9.eps
92 


S3434-10.eps
93 


S3434-11.eps
94 


S3434-12.eps
95 


S3434-13.eps
96 


S3434-14.eps
97 


S3434-15.eps
98 


S3434-16.eps
99 


S3434-17.eps
100 


S3434-18.eps
101 


S3434-19.eps
102 


S3434-20.eps
103 


S3434-21.eps
104 


S3434-22.eps
105 


S3434-23.eps
106 


S3434-24.eps
107 

Æ 


S3434-25.eps