tv E- Commerce Counterfeit Goods CSPAN March 9, 2018 3:53am-5:14am EST
everything fell into place. >> picking was difficult. 26 amendments to look at, evaluate, there's a lot of controversy going on right now in the public. so we kind of sat down and found something that related to us, our age what really affected us as we're heading into college next year. the 26th amendment, we were able to get in contact with some important people here in iowa and around the country, so it really clicked for us. >> the top 22 winning entries will air on c-span in april. every student cam documentary online at studentcam.org. now a senate hearing on the problem of counterfeit problems sold on the internet. a report detailing the prevalence of counterfeit goods in e-commerce. we'll hear testimony from federal officials representing the gao, customs and border protection, senator orrin hatch
chairs the finance committee. this is an hour and 20 minutes. >> we'll come to order. i'd like to welcome everyone here today. during this hearing we will discuss counterfeiting and e-commerce and what steps we can take to protect consumers. i'd like to make a point about the president's proposed tariffs on steel and aluminum. let's set aside all of the legitimate concerns about trade wars, the failure to target the source of steel and aluminum overcapacity, and the disproportionate effects on our
major trading partners and allies. in the end these tariffs are not a tax on foreign steel and aluminum producers, but rather, a tax on american citizens and businesses. who, if this action is finalized, will be forced to pay an additional 25% on steel and 10% on aluminum. those effects would blunt the benefits of tax reform for all americans, including the reduced impact of billions of dollars that many companies recently pledged to invest here in america. and those billions would not be as valuable. truly, there is a better way to address china's actions than to impose a new, across-the-board tax on u.s. consumers and businesses just three short months after we pass comprehensive tax reform. we can and we should do better. and i will be sending the president a letter later today emphasizing just that. now i'd like to turn to the important issues we want to
address in this hearing. it is no secret i have felt and i think others feel the same way that strong protections for intellectual property rights protect consumers. who made a product, where to go for information about it. we were all encouraged by the new authorities the trade facilitation and trade enforcement act of 2015 granted, the u.s. customs and border protection, as well as immigration and customs enforcement. those authorities, along with the new national and intellectual property center, were designed to help agencies collaborate, coordinate, and take down perpetrators. and because there are frequently hiccups with the implementation of new laws, the committee asks the government accountability fs to conduct broad -- a broad investigation about how the trade facilitation and trade
enforcement act was being implemented. as they started their investigation, gao quickly began to realize that e-commerce generally was causing major issues for cpb and i.c.e. due to advancements in online purchasing. the agencies were being forced to adopt new tactics, work more closely together, and build up their public-private partnerships. those have all been changes for the good. however, we asked gao to continue their investigation and look specifically at the problem of counterfeits on some of the most prominent e-commerce platforms. as part of this process, gao made purchases from five major e-commerce platforms. and after using relatively narrow criteria, gao received at least one counterfeit and one legitimate good from each of the platforms. in the end, 20 of the 47
individual items they purchased were counterfeit. while the sample size was small, the results are still telling. on the whole, this investigation started us down a path of discovery. and on that path we noticed that there are far more issues than we had initially anticipated. today's hearing represents a combination of those initial findings. while we are not going to be able to fix this all at once, i'm hoping to at least discuss some of the meaningful steps that we could take in the near future or near term. before we get to that, i want to talk a little bit more about what we found as part of this research. as part of this research, gao found that many counterfeit products create a hazard to consumers, children, and our economy. through seizures and later investigation, cpb, i.c.e., and
cvsp have found major incidents of counterfeit products with major health and safety issues including contact lenses that contain dangerous bacteria, cosmetics that have chemicals that can cause harmful health effects when applied, phone chargers with faulty wiring, batteries with thermal runoff issues, and even defective air bags. gao has found that with the rise of popular online marketplaces, counterfeiters have greater access to the market and can easily sell their phoney products directly to producers. because the counterfeiters frequently use stock photos or simply join in on a prelisted product, the goods are sold as genuine. and so long as counterfeiters can make the products indistinguishable on the outside, most consumers have noticed a difference -- never notice a difference, excuse me. this is because typical red
flags for consumers are difficult to notice. this is even true when the counterfeiters create new colors or designs of more famous products. in one recent instance, the u.s. attorney's office in the northern district of mississippi successfully prosecuted a case against bobby rogers jr. mr. rogers had a fairly elaborate scheme in place. first he would order counterfeit merchandise from china and facilitate delivery by using alternate addresses. then he would powder coat the counterfeit items he received and is elthem as a third-party retailer online. as he did this, he would represent the goods as authentic, sometimes even with licensed modifications. the sheer volume of his scams was staggering. just one of the two major platforms that he used, mr. rogers has sold over $300,000 in counterfeit goods. when his complex was raided,
authorities seized another 2,200 pieces of counterfeit drink water. but it doesn't end there. later as the cpsc lab reports came back, several of the colors tested positively for lead, competing the amount legally allowed by more than 20 times. and for all we know, there are currently children around the country sipping water with dangerously high levels of lead because of mr. rogers. sadly, he is just one among many, many perpetrators buying counterfeits and facilitating sales events to e-commerce platforms. we've heard from some rights holders like yeti whose products have been counterfeited in these schemes who have responded strongly to address these problems. yeti issued a statement making it clear that they were expanding "significant resources
to protect their consumers." i ask unanimous consent that the full yeti statement, as well as similar statements made by other rights holders, be entered into the appropriate place in this hearing record. now i don't want to steal too much of their thunder. but one of the reasons we've invited underwriters laboratories, ul, here today is to let them give us a broader perfespective on the seriousnes of these issues. as just one example in a public report, ul recently tested 400 counterfeit apple phone adapters. out of those 400, they found that only three of the 400 chargers passed electrically -- electricity strength tests. and that is just one of the many studies ul has performed. i think everyone here, both members and the audience, will be stunned by not only the
breadth of products being counterfeited, also by the incredible volume. this goes beyond the dollars and cents these companies have investmented to develop and market their products, which let's be clear, is enormously important to our economy, not to mention the well-being of american consumers. we're not just talking about devalued investments, we're talking about lead on children's drinkware, phones catching fire, homes burning down, consumers being injured from hygiene and cosmetic productions, air bags not inflating properly, and who knows what else. it is my hope that we all can agree that today the counterfeit products pose an immediate and significant risk to americans' health and safety. and i hope that we can take gao's recommendation seriously to improve information-sharing and better track cvps,
intellectual property enforcement methods. personally i'm interested in talking specifically about sharing e-commerce platform data contained in invoices and on packages with rights owners, as well as learning from and improving cvp's voluntary abandonment program. american consumers are relying on us to get this right. and we need to work together and with the appropriate officers of cpb, i.c.e., and other agencies to make sure we do. with that, i'm very happy to turn to my colleague and partner, senator wyden, for his opening remarks. >> thank you very much, mr. chairman. mr. chairman, you commented on the steel and aluminum issue. and i'd like to start with some brief comments on that as well. the fact is, on the steel and aluminum issue, the president has inflicted a punishing year of uncertainty on the american
economy. and this uncertainty has harmed our workers, american workers who need and deserve good-paying jobs. moreover, even as of this morning, it is still not clear that the president understands the central problem, which is dealing with chinese overcapacity of steel. so he has had practically one salvo a day with respect to trade, one day he's looking at tariffs, the next day he's looking at in some way intertwining his steel policy with the north american free trade agreement. i just want it understood that this year of uncertainty, which already caused an import surge when the president basically dawdled right out of the gate,
has real consequences for american workers and american families, and they deserve better. now with respect to this hearing, committee will be discussing the challenge of protecting consumers from counterfeit goods. and i am glad that this discussion is taking place. it is long overdue. i also hope this committee will soon hold hearings on the trump administration's varied and sun tree trade activities, including the steel and aluminum investigations and potential tariffs, the north america free trade act renegotiations, and the investigation of china under section 301. on counterfeit imports, any discussion of this issue has to begin by recognizing that over the last few decades, the internet has transformed
virtually every corner of the american economy. i stated some time ago, in this room, that the internet is now the shipping lane of the 21st century. and that is a far cry from the kind of trade discussions that took place for decades in this room. people now take it for granted. but it is, in effect, a miracle of modern commerce that a small business in my home state of oregon, 3,000 miles from washington, d.c., can reach consumers essentially anywhere at any time. no longer does expanding your customer base mean investing solely in bricks and mortar. socially conscious portland clothing companies founded by women, run by women, they have two stores in portland. but what's really driving sales is online opportunities. online sales.
a full 70% of their business happens online. and that's where we're seeing the growth. this is a company that has seized the opportunity to sell around the world via the internet, and it now has 25 employees. but the fact is, any time there's significant economic change, let alone the kind of transformative activity that the internet has brought, you get some new challenges with the upside. that includes the chance that when you buy something online, there's a chance it could be a fake. it's up to the federal government to make sure our approach to combating counterfeits isn't stuck in the 20th century. these days when you talk about cracking down on counterfeit goods, you're no longer talking about stopping the person selling fake purses out of their trunk. you're talking about illegitimate products passed on
even the most savvy, streetwise consumers. and often they're mixed right in with the genuine products that our people want. many of those fakes pose serious dangers. makeup and food and beverage containers can be made with dangerous chemicals. electronics can pose a fire hazard. there can be toys that are unsafe for kids. the number of small packages coming into america has surged. and the fact is, customs and border protection have to step up and play a major role in identifying counterfeits and stopping them before they enter the marketplace. unfortunately, so far, we get a sense that customs and border protection is just too often playing catch-up tracking these fake products down.
after conducting a recent study of this exact issue, the government accountability office recommended a set of policy you dates to have customs and border patrol work more closely with the private sector. those recommendations include expanding customs and border protection authority to notify online sales platforms when they have products on their hands that might be fake. now you may hope that that would just set the wheels in motion, and this would result in the policies being in place. but customs and border patrol has responded to this audit by claiming it would take until this upcoming september to determine if additional authority was actually necessary. over the last few years, the committee has put a lot of sweat equity into the policy that has strengthened the enforcement of our trade laws and have done more to protect the american consumer and the american worker. the chairman and i authored this
trade facilitation and trade enforcement act of 2015 to put in place important new tools for xhums and border protection to detect and prevent counterfeits. including sharing information about counterfeit imports with the rights holders. so in preparation for the hearing, committee, staff from both sides, sat down with customs to dig into the issue. my staff asked, and i quote here, "does customs and border protection need more authority to crack down on the rip-off artists and the counterfeiters?" the agency said they don't know. when asked when they would know, they said they didn't know when they might know. so as we begin this hearing, it certainly is unsettling that it has not been possible for the finance committee, on a
bipartisan basis, to get a straight answer on a matter like this from the agency that is central to america's effort to protect our consumers from counterfeit goods. so this morning i'm going to give the agency one more try to answer those questions. let me close by saying, getting this right isn't going to be as simple as just putting a few more policy tools in the agency's kit. year after year, administrations have fallen short in hiring enough officers, blue uniforms, to fulfill the critical need of protecting our consumers and businesses from illegal and unfairly traded goods. this agency's got a tough job working with other law enforcement agencies and foreign governments to go after the source of the problem. if the administration is focused solely on hiring an army of border patrol agents, i don't see how that is going to help
them build their capacity to deal with the counterfeit challenges. so the congress and the administration need to ensure that the agency has the resources it needs to combat counterfeiters, and there is actual follow-up. this is simply a matter of protecting american families from harmful products and making sure that we are fully mobilized to stop these rip-off artists from undercutting the american brand. that's really their objective, to undercut the american brand. so getting this right to reflect the realities of the modern economy is, in my view, what this hearing is all about. mr. chairman, as usual, i look forward to working with you. >> thank you, senator. i would like to extend -- both of us would like to extend a warm welcome to each of our four witnesses today. i want to thank you all for
coming. first we will hear from miss kimberly jean nap loss, director for the international affairs and trade team at the government accountability office. mrs. giannapolis has received the meritorious service award, client service award, assistant controller general's award, and several results through teamwork awards. she is also a certified government financial manager. miss jiannapolis earned a bachelor's degree and master's degree in public analysis and administration from the state university of new york at binghamton. the second witness on our panel is miss brenda smith. executive assistant commissioner, office of trade, u.s. xhu u.s. customs xhums and border protection. she has been with cbp since
1994. prior to joining customs, miss smith worked at the department of the treasury and on capitol hill. she was honored in 2017 with the distinguished executive presidential rank award, the highest award in civil service. miss smith holds bachelor and master's degrees in economics from rutgers university, and is also a graduate of the customs leadership institute and the federal executive institute. next to speak will be mr. jim jaholski, director for the office of import surveillance at the u.s. consumer product safety commission. he started his career at cpsc in july 2000 with the agency's office of compliance and field operations. at that time, he focused primarily on enforcement of regulations regarding fireworks
and cigarette lighters. jim later joined import surveillance in 2008 and served as deputy director prior to assuming the role of director in march 2017. finally, mr. terrence r. brady, the president of underwriters laboratories, inc., will testify. mr. brady was appointed to his new position just last week but was just recently serving ul as the vice president and chief commercial and legal officer. prior to joining ul, mr. brady was an associate and partner for 27 years in the chicago office of winston and strong, llp. mr. brady graduated from dartmouth college with his undergraduate degree, then received his law degree from notre dame law school. i want to thank you for being here today and testifying today. miss giannapolis, we'll begin
with your opening remarks. >> thank you, mr. chairman. chairman hatch, ranking member widen, and members of the question, thank you for the opportunity to be here today to discuss our recent work on intellectual property rights. the united states is a global leader in the creation of intellectual property. companies that illegally import and distribute counterfeit goods can cause a number of harmful effects on the u.s. economy, such as slowing economic growth and threatening american jobs. what's more, the counterfeit goods could threaten the health and safety of the american people. my testimony today summarizes the findings from our recent reports and covers three main areas. first, i'll talk about some of the difficulties that are presented by counterfeit goods in e-commerce, using information from our investigations, to illustrate just how challenging that problem is. second, i'll discuss the nature of efforts that customs and border protection and
immigration and customs enforcement have undertaken to enhance ipr enforcement. and finally, i'll cover some of the ways in which cbp and i.c.e. coordinate with the private sector in enforcing ipr. the rise of e-commerce has contributed to a fundamental change in the market for counterfeit goods. in the past, you may have expected to find counterfeit purses or watches on a street corner or in a flea market. these goods may have been shipped to the united states on a cargo ship in bulk and were priced significantly below retail. now many people shop online, where sellers of counterfeit goods engage in a number of practices to make their goods look authentic. numerous everyday items can be counterfeit. this practice is no longer limited to high-end goods. these online purchases are sent to buyers in individual express packages, rather than shipped in bulk to u.s.-based distributors. this makes it very challenging
for consumers, as well as cbp, to identify counterfeit goods. as part of our review, we purchase the 47 items covering four different types of consumer goods, including nike air jordan shoes, yeti travel mugs, urban decay cosmetics, and ul-certified phone chargers from five different popular e-commerce websites. we looked for items that were advertised as new, brand-name items, sold by highly rated third-party sellers. of the 47 items, 20 were counterfeit. as determined by the rights holders themselves. it can be difficult to tell if an item is counterfeit. for example, these are three of the yeti mugs that we purchased online. these two silver mugs look identical, feel the same, same weights. but if you look at the bottoms, you'll see that one of them has misspellings on the words. for example, austin, texas, as
the source is a-u-s-i-n, and it says mead in china instead of made in china. this hot pink mug also seems to be authentic, except yeti doesn't make hot pink mugs. you wouldn't know that unless you are aware of that issue with regard to yeti. in our full report, we include a one-page appendix that lists a number of ways for consumers that they can take steps to avoid purchasing counterfeits online. to enhance ipr enforcement, we found that cbp and i.c.e. engaged in a number of activities. they conduct special operations at u.s. ports, engage with international partners, and undertake localized programs or port initiatives. however, cbp has conducted a limited amount of evaluations of its efforts and may therefore not have the information it needs to be as effective and as efficient as possible, given our
current resource-constrained environment. we recommended that cbp take steps to evaluate the effectiveness of its ipr enforcement efforts and the agency agreed with our recommendations. with regard to the private sector, we found that cbp is restricted on the amount and type of information about seized items that it can share. this restriction limits the ability of rights holders and e-commerce websites to protect ipr. in the trade facilitation and trade enforcement act of 2015, congress gave cbp authority to share certain information with trademark and copyright owners before completing a seizure. however, cbp officials told us that this are legal limitations to this sharing. for example, cbp cannot share information from the exterior of seized packages. this could help websites identify groups of counterfeit merchandise from the same seller. we recommended that cbp assess what information would be helpful to share with the private sector and take
appropriate action to enhance information-sharing where possible. and cbp agreed with this recommendation. this concludes my opening remarks. thank you for your time, and i'm happy to answer any questions you might have. >> thank you very much, miss smith, we'll turn to you. >> chairman hatch, ranking member riden, and distinguished members of the committee, it is an honor to appear today to discuss cbp's enforcement of intellectual property rights and our efforts to keep counterfeit goods that pose a threat to the health and safety of american consumers from entering u.s. commerce. as america's unified border agency, cbp enforces nearly 500 u.s. trade laws and regulations on behalf of 49 federal agencies. this morning, i would like to give you my perspective of the opportunities and challenges we see in the current trade environment. thanks to this committee's support and commitment, the trade facilitation and trade enforcement act of 2015
strengthened and expanded cbp's authority to enforce our nation's trade laws while facilitating lawful international trade. among its many provisions, the trade facilitation and trade enforcement act provided significant cost-savings opportunities for u.s. businesses and consumers by raising the de minimis threshold from $200 to $800, which allows relatively low-value goods to be able to brought into the united states free of duty and with reduced information requirements. the combination of growing online purchases and the higher threshold has resulted in increasing u.s. imports of small, just in time packages. many arriving via international mail and express consignment carriers. over the past five and express consignment carriers. the volume of air shipments has increased 50% and in the postal
environment, small packages have increased by over 200%. this rise in small packages has altered the trade environment and cbp's ability to enforce sblek yule rights. cbp takes action when it find a problem. in 2017, cbp seized over 34,000 shipments of counter fit good, very consistent with the trend we have seen over the last ten years. approximately 16% of these seized goods, such as cosmetics, electronics and toys, contain serious threats to consumer safety. we are currently enforcing more than 18,000 copyrights and trademark records. right holder recognition is essential sofying counter fit
products. cbp also regularly discloses information to the rights holders to verify a product's validi validity. if we suspect imported merchandise contains a mark. with the recent announcement of the first arrangement under the enforce. 's donor program in which proctor and gamble has donated. commercial targeting and analysis center or c takk which combines the trade enforcement of cbp and other agencies to protect the american public from unsafe products. efforts led to 243 seizures of unsafe products in to 17.
two months ago, cbp and cse led to targeting of a large shipment of toy building blocks for trademark enfringementment they were as found to violate if act for sleed in small parts. have been working with interagency and private sector partners to assess those risks. building on your experience in the c tack two develop a critical interagency approach, we have developed a rapid response plan. we will use this plan and follow on interagency exercises to coordinate the safety incident
that is pose a risk. in anticipation to a commerce growth and to imagine threats in this environment. cpb is releasing a strategy, krit dal to guarding copy rights while supporting a vibrant and competitive sector of u.s. and international tradele we will work close by will all segments to identify information sharing and other opportunities and purr shoe any necessary policy, regulatory, or statutory changes. chairman hatch, ranking member wyden and distinguished members, thank you for the opportunity to testify today. i'm happy to take any questions that you might have. >> well thank you so much. mr. joholski we'll turn to you.
>> thank you. thank you for inviting me to discuss the u.s. consumer product safety commissions important role in protecting consumers from the health and safety hazzards from unsafe goods. these comments are those of the cpsc staff and may not necessarily reflect the views of the commission. i especially appreciate to opportunity to appear before you today as this year marks the tenth anniversary of cpsc's import surveillance program. the cpsc was established by congress in 1982 charged with protecting the public from the unreasonable risk of beth of consumer products. we have a $125 million annual budget, but we have jurisdiction
over vast consumer products. since the 2008, cpsc strengthened its relationship with customs and predicts noncompliant nonborder safe products. we have been placed side by side to work with cpsc staff. we have 30 investigators at the largest ports in the countriment cpsc investigators screen more than 38,000 distinct products arriving in the united states and stopped for than 4 million units from reaching consumers. to prioritize and target we have developed ram or risk assessment
data. we also have cpsc staff stationed at cpb commercial targeting center to coordinate with cpb and other government agencies to address import hazza hazzards. we exchange information with 22 partner agency that is may help us target noncomply being hazardous products. we would not be able to out the support of dhs and cpb. also cpsc's primary focus is targeting those that violate requirements we do potentially
encounter intellectual copyright issues. cpsc staff is often tofy possible rpi violations in the course of their normal duties. when wefy an issue we refer to c prk b because they have the authority to efficiently seize the products. on a case by case basis, we will also test that an ipr violative product for cpsc standards or to determine if they are otherwise hazardous. we have collaborated where a safety violation was potentially found. this includes holiday lights, chargers, children's backpacks
and numerous toys. although cpsc assist import authorities have prioritized like many agencies we are facing challenges imported through direct to consumer sales through a commercing platforms. volume and the omit of data required makes targeting difficult. with cpsc assist small size and resources we don't have investigators stationed where these packages arrive, other than jfk airport. cpsc will continue to evaluate its model. thank you for the opportunity to share my remarks i'm happy to answer any questions you may have. >> thank you so much. mr. brady, we'll conclude with you. >> good morning, chairman hatch,
ranking member wyden. i'm terrence brady at as the newly apointed president of underwriters laboratories i'm here to share our experience combatting counter fit goods and on the challenges facing i.p. rights holders in this global market. u. luchld is a safety company that has championed safety for a number of years. we are guided by our mission to promote safe living and working conditions and environments for people everywhere. we meet ever evolving safety standardle we partner with manufactures, retailers, trade associations and regulatory committees internationally to provide solutions to the rescue of increasingly complex global supply changes. u.l. takes counter fitting
seriously. we don't make our sell goods. our product is your brand, our mark, builten a foundation of trust. when u.s. consumers see our u.l. mark they know a third party has demonstrated compliance with safety, standards or other compliance, unfortunately, counter fitters know the safety our mark brings. victims may suspect the cheap hand watch or bag they're buying is a knockoff, but many are unaware other important categories are frequently counter fitted. as the chairman note in the 2016, we partnered with apple to evaluate the dangers of counter fit iphone chargers. in a controlled test program,
your engineers tested 400 counter fitters bearing ul marks be the results were shocking. all but three adapters prevented fire and shock risks. 12 for so poorly made that they pose a direct risk owe electrocution. we conducted 1,200 investigations around the globe, resulting in the seizure of 100 million products. in terms of a commercie, the motion of this hearing we -- we were able to identify more than 130 unique sellers with over 500 listings of ul counter fit products. we work to remoe the listings and take action against the sellers. as a result, law enforcement seized $166,000 of counter fit
smartphones, hard drives, flashlights, head lamps and hover boards. based on information ul provided, the dhs seized approxima approximately 2,300. we joined with the sheriff's department to seize hover boards and loose labels they can stek on other hover boards. they are shipped in the united states marked wheel barrows. finally, ul cooperated with authorities on many other investigations resulting in seizure of lithium ion batteries, fire sprinklers in buildings in india, household fans in panama and life jackets in peru.
my written testimony includes much more written statistics than here. in our 22 year history in this fight, we have deployed a comprehensive strategy based on four different tenets. education, enforcement and public/private relationships. we work with others to stem counter fits. online ships has become an online direct to consumer sales has made it much harder for brands, law enforcement, and customs officials to fight because the counter fit permanents for $1 million of counter fit goods are far less $1 million of goods. as shippers go direct to consumers rather than risks an entire cargo container, this becomes very, very difficult.
this is a challenge legitimate platform and right holders have to work on today. i welcome any questions the committee may have. >> thanks to the four of you. your testimony is really riveting. it's got concern every american citizen. so we appreciate you taking the time to be here with us today. and we appreciate the work that you're doing and hope that you step it up even more. in your report, you discuss two recommendations to cbp. can you explain what factors make it difficult for cpb and private sector actors such as websites and rights holders to address the problem of counter fits and reiterate why you feel the suggested changes will help address those concerns? >> thank you, mr. chairman.
there are a number of things that are changing the a commerce today. you could probably boil it down three "v"s. there's the volume, the number of ship. s has exploded over the past several years so it's difficult to focus in and find counter fit goods on an individual by individual shipment bases. there's also the value of those goods. the value has tremendously increased. i belief smith talked a little bit about the seizure rate that has taken place. that's just one factor you can look at to determine how well seizures or enforcement is taking place. finally, there's a variety. the variety has exploded. it's everything from yeti tumblers to duck decoys to kitchen sinks so it's not something that a consumer or cpb
or anyone that that matter can target as they have in the past. our recommendations focus in on two of the things that the agencies can do try to improve their processes. first of all, in works with the private sector, while tiff tia did allow to share information, there are some restrictions on that sharing. while we spoke with folks from the private sector, they addressed concerns about their evidents to try to shut down the counter fitters information they needed to target them as well. secondly, looking at the evaluation that could be done for cpb and i.c.e.'s activities. certainly we as federal agencies we all want to put our money in the right places where it can do the most good. an encourage cbp to take additional steps in order to address some of these counter
fitting agencies so they can put their money in the best places. >> thank you, ms. smith. as we heard, gao is on the front lines of this problem. your written response is you agreed with gao's recommendations to better evaluate and information sharing with the private sector. what plans do you plan to take to implement these recommendations? >> senator, we think both of the recommendations were very productive for us to focus our efforts. the scope of the challenge, as the other witnesses have laid out, is tremendous. and one of the things that we have done to address gao's recommendations is to charge our
coac a commercing group to evaluate which noef share and who it should be shared with. tifftia gives us who to share if promulgated situations, our intent tos to pride further sharing. the other thing we have done the address some of the challenges the gao identified is to develop and release today an e-commerce strategy. we look forward to working with you and our colleagues here today to understand where we can make the biggest impact. >> mr. brady, ul has a vested interest in millions of products that are bought and sold each year. as such you have a very valuable perspective in all of this. what steps do you z the a company take to protect your
intellectual rights and what can u.s. agencies do bet tore assist you? >> as i noted earlier and as most people in the room know, our only product is trust. it's the trust the consumers place when they see our mark. it's consistent with our 125-year-old mission to create safe working environments for everyone everywhere. our team is small but mighty. what we need is realtime and transparent intelligence because we rely on civil and criminal enforcement procedures. beyond seizure and destruction we pursue civil and criminal cases against the counter fitters. if we bring stale data, they can't do anything with it.
we need real-time intelligence sharing. we always share what we find. we would like to reciprocate and keep the data fresh. intelligence goes stale very quickly. the criminals quickly change their websites, e-mail addresses, physical locations. they move fast and we together with government need to move faster. thank you. >> thank you. senator wyden. >> thank you very much. i want to thank the panel. let me start with you, ms. smith. as i indicated, to me what's going on is the ripoff artists the counter fitters are trying to undercut the american brand. this is really high stakes stuff. i want to ask you the two questions that our staff asked your staff. the first one is a yes or no answer so that we are clear on this -- does the agency need more authority to crack down on
the counter fitters the ripoff artists. that's just yes or no -- do you need more authority because the staff asked it and you all couldn't give us a direct answer, soy want to give you the chance. yes or no. do you need more authority? thank you. so that is good to finally have that on the record. when will you be able to give us the details with respect to exactly what it is you need? because as you know, the staff asked you, do you need more authority? couldn't get an answer then. you have now given us an answer, to your credit. then they asked, can you tell us when we will get the details of what you need in this area and how you would like to proceed so we can up our game to be tougher
on these counter fitters? when will we get that? >> senator, i think we should start the conversation now, but what i would recommend is that we gather the information about what data is available and who it should come from and who it should be provided to, from our private sector participants in the coac e-commerce working group. i think it's important to have the private sector point reflected. i would like to suggest that they work for several months so that we can come back to you as they are working and walk through what the private recommendations are from the private sector. >> you said we need time to have this conversation. we have been having this conversation for what feels like
longer and longer running battle than the trojan war. it has gone on a long, long time. we know who the people are. the platforms, we know about the rights holders. i would like a date. i think you moved again in an encouraging way. can we say within 60 days -- you said you want to have this discussion with a relevant private sector parties. all for it. can we have a commitment today that you will lay out for us what it is you're prepared do in terms of this authority? and you'll talk with the private parties within 60 days today? >> sir, i will do my best to meet that 60-day benchmark. >> okay, good. let me turn now to the question of priorities. and get your thoughts on this. i understand that the agency is
moving to hire 5,000 border patrol agents here in the next five years and 2,000 officers. i have supported billions of dollars in terms of security at the borders and i'm prepared do what it is going take to ensure that we protect the american people. as you know, illegal acrocrossi are at a historic low. how are we going to do it if we are putting twice as many people on this question of more ain'ts at the border? how are we going do it when that balance seems so out of whack? >> senator, i think as you have worked with us over many years
to look at the very diverse portfolio of cbp's mission, so make sure we have the right people on the border, whether they're wearing green uniforms, blue uniforms or tan uniforms. you have also been very supportive of us making sure we have the expertise on the trade side. as you know, the president's budget in fiscal year 2018 asked for new position for tifftia. i think hiring those with trade expertise and border spoents is a big challenge for cbp. >> you're being very diplomatic. i'm going let you off the hook. i think you get my sense. i think the priorities are way off whack when you have twice as many people in this area where the evidence shows illegal
activity is going down as opposed to what we are dealing with here. you are going to have a real -- you described it as a challenge. i think the priorities are out of whack. one last question for -- i believe this will be for mr. brady. what i think you basically said -- i'm going direct the staff to look into it. you said the ripoff artists, given the penalties may in effect say, hey, this is just the cost of doing business. let's rip people off. the penalties aren't that meaningful compared to the a amount of business that we can rack up by doing all this counter fitting and ripping people off. that's pretty much what you're saying right? >> that is correct. >> would you recommend to the chairman and i that as part of the effort we beef up the penalties given what you said
that it may be treated as just part of the cost of business. >> yeah, senator, we would recommend that as a fertile and important area to look into. we see evidence from the l.a. prosecutors that counter fiters get out really quickly and go back to it the next day. the jailhouse lawyers they can get themselves out with a slap on the wrist today. >> i'm way over time. could you furnish in writing your thoughts of what might be a set of penalties that would ensure this is not just the chaos of doing busine-- cost of business? >> would be my pleasure. >> i was in the real estate business for a long time, did a lot of retail shobipping center.
i think now 20% to 22% of sales are made via the internet, which has pokexto nenchly grown. >> we didn't take a look at the growth of e-commerce. we were focused on the challenges of e-commerce as it relates to counter. weight or color or something like that, but what some counter fiters do is put a photo of something online.
>> they produce a knockoff and sell it to you. >> absolutely. what they sometimes do is import the counter fit items without the if i believes and put them on in the united states. >> yes, sir, it is. >> that's less than 1% of the executives in the federal government receive that award and it's recognizing your achievement in cpb's enforce zblmt yes, sir. >> you thought write the program. >> we are working on it. >> in that particular situation, you did respond to the question
that you need more authority. what authority do you need specifically to do your job? >> the authority request would touch on several things. the data and who we can share it with. the penalties and the actions we can take in this area are also an important thing fortous consider and talk about. the specifics i would lake to consult with our other partners and the private sector to make sure we are hitting the mark with it, but we will do that quickly. >> are part of problems anti-trust rules and regulations? >> that has not been raised to us as an issue. >> but it's a big enough problem in our country that we ought the wave barriers we can for enforcement. >> we will do that. >> we appreciate all of you for being here today. thank you for the good work you
do. >> thank you. senator from louisiana. >> ms. smith, when a vendor is flagged as a possible seller of counterfeit goods, does that trigger something for their entire business like trade-based money laundering? >> senator, once we have identified a particular entity as a risk we take a broad approach to looking at all of aur activity. we have some challenges because they'll disappear be we need to find them through corporate offices and other information. we are also looking to make sure when we see a pattern of construct from one entity we look for the same pattern with similar types of businesses. >> now, that lead to my next question. data an lit ins is being used by
many in an attempt to winnow out. starts off, is it from china or hong kong. then you whittle down system that being donesome. >> yes, senator, it is, but i think we can do more. there's amazing technology in the space of an lit you cans. cbp has used a number of tools to find risk, but the next accept is applying innovative technologies to find the needle in the hay stack. >> our office has been trying to find out how well our agencies work together on trade based money laundering. i always point out it's estimated the cartels move $110 billion a year buck we only
confiscate $7 billion. senator wyden spoke of the cost of doing business. we are only getting $5 billion or $7 billion. what would you say is the state of cooperation with the different agencies tasks with tracking trade-based money laundering and the other issues related to that in this panel? >> senator, i think it's good. >> i've heard from others off the record that it's very, very bad. that it's siloed and there's in the the cooperation between agencies required for it to be effective. i'm not accusing you. if we are moving $110 billion a year and we are am getting $7 billion, it begs the question. >> i think this area is a very complex area. trade-based money laundering is not -- is a fairly sophisticated version of trade violation. i think it behooves us to take a
whole of government approach both from a criminal perspective and a civil perspective and applying the information that we can get from our intelligence agencies, to both recognize and share that information to ensure that we are going after in realtime -- >> i accept all of that concept yulely. i guess what i'm probing for is -- what i'm hearing off the record is if it's not occurring now, how do we make that occur? >> i think by your message today, your question today, to identify that as a high risk area that congress is interested in, and then i think what we do is pull together these key agencies, whether it be i.c.e., the department of the treasury, to focus on trade-based money
laundering to share information. >> does anything else in the panel have anything to offer on the topic? i think i saw mr. brady nodding. i thought he may have a thought on it. >> senator, no, nothing to offer at this time. >> let's see, what else do my interests lie in? using your current data analytics are you able to identify small shipments occurring through the mail, through the united states postal service as well as larger shipments going through fedex, dhl, ups, et cetera? >> yes, sir, we are. we get very good electronic data. >> what about usps? >> we are getting better. i think the advanced electronic data we are seeing is not what
weld like. >> when you say better, it's a very elastic term. 1% to 2% is 100%, but it's pretty lousy. for usps, what percentage of goods do you feel your a debiting is this. >> we are getting advanced electronic data on aapproximate patly 50% of small packages in the postal department now. which is significantly up -- it represents data from -- >> sounds like hong kong and china are the one that is really matter. to what degree are you getting that from hong kong and china? >> we are getting all the advan advanced electronic information from china and hong kong -- give me js a second -- yes, hong kong
as well. >> so are we seizing counter fit electronic goods from that area? >> yes, and we are focused on things like fentanyl. >> what% of the counter fit illegal elicit goods coming through the usps good do you feel you're confiscating? >> i don't have an answer for that. that's what gao has asked us to look at. we'll get that. >> i yield back. >> chairman from new jersey. >> thank you for holding today's hearing. the u.s. is known to have the most vulnerable products to knock off. that's why protecting the
investments we have put into it. four years ago, a new jersey family asked me to look at fake products purchased alone line. this recent gao report confirms what i have been hearing from so many of my constituents. now, the trade facilitation and trade enforcement act in 2016 contained report language that i authored with the chairman to raise the enforcement priority for fake products, particularly those shipped as gifts to avoid customs, duties and inspection. ms. smit. does a product package marked as a gift, documented by cbp and other sources as being a major source of counter fits triggered? as the screens process changed
since the enforcement of trade enforcingment act? >> senator, i think what we have done is to focus our targeting efforts in this area with specific targeting rules around gifts, as you know, which are identified as small packages or other areas like household goods. that can be a generic drips but may contain counterfeit good as we have seen in the past. in this instance, it's important that the representatives of the fashion industry and the folks that your constituents are looking to buy safe legitimate goods from is to work with customs and border protection to record their marks so ensure we know exactly what a legitimate product looks like and we are working with the company to provide training to our office
offices. >> my question is are you using a algorithm? what are you using to flag something that is quote, unquote, a gift and the perfect preferred vehicle by which these counterfeiters come to the united states? >> we do have allege riches, we call them rules which nit together a variety of risk factors. the description of the goods, along with the high risk countries they may come from -- china, hong kong, and any additional information we have about specific business entities. manufactures, shippers, carriers, that may have brought previously counter fit goods into the country will also be reflected in that targeting rhythm. >> did the gao examine these screening for counter fit goods as opposed to larger shipments? if you did, what did you find?
>> while we did purchase 47 items and found 27 of them counterfeit, we also put out a report last year where we looked at international mail facilities and looked at some of the different -- the amount of information that cbp received was significantly less was they are not required to put as much information that would be sent ahead of time to cbp so cbp is limited in its ability to respond, as opposed to the express mail carriers where they're required to submit information ahead of time. >> is there a recommendation by the gao. >> cbp and i.c.e. should work more closely in the private
sector and the cpb to share some of the could wanter fitting shipments. some of the shipments are coming from the united states. all 47 of the products we purchased were coming from the u.s. addresses. they wouldn't have been able to use the chinas or hong kong has a flag. >> one last question -- >> senator, i'm going to interrupt. he'll be the last questioner. i want to thank everyone for being here. it's been an informative years. >> one last question -- on search engines, it seems to me that some online search engines aid and abet the counterfeiters by failing the produce the effect of copyrighted imagery in add. they may bear some responsibility. seems like the companies have
the capacity to screen advertisements and reject those to be promoting a illegal or immoral product. i've heard some search engines will reject results but display the advertisements. in other words, sellers of online adds may continue to receive advertising fees from companies they know to be breaking the law. so search engines like google and other online engines -- i hope when i work with the committee to explore policy options. i wrote google a letter last year asking them to address the issue and kpan their policies but i still haven't had a response. so the question for any of your witnesses, in what ways should we look to cooperate with search engines and those who sell
online advertising for counter fitters to reach their target audiences? are there ways to crack down? >> senator from you alls perspective and given the shift from joefrs directly to home, we think the important thing is to prevent the shipment, prevent the purchase in the first place. we think it's critical to work with platforms and search engines to shut down the people offering fake goods so the purchase never happens in the beginning. once the little envelope leaves it's hard for the authorities to intercept it. stops the purchase in the first place by shutting down the bad websites is important. >> look forward to it. ms. smith? >> i want to support what mr. brady said and also reiterate
that we think the platforms the marketplaces have to be part of the solution. they are part of a new business intenty for us that's popped up over the last couple of years and i think we as a government community need to consider what their role, their information is and what the expectations for them should be. >> we look forward to following up on those. >> i'll address it from the other end of the spectrum. if a consumer receives a counter fit product, those websites are anxious to here back about it. if they don't know customers are purchasing counter fit products it's hard for them do anything about it. we suggest they report the counter fit. why is properly. >> then they take it out of the organic search buck they keep
>> they were drinking filthy water from cattle tanks. they made it tee village and the border patrol got called. i was the agent who was supposed to take them in. i started talking with them, and it turned out that this pregnant woman had grown up in iowa and spoke effort english and she was a schoolteacher in iowa. and and you know i think her husband saw we were talking and had a connection. he leaned over at one point and said, hey, man, can we kip the whole, you know, arrest and deportation thing. can you just drive us back to the border and let us cross back into mexico? you know, be a brother? you know, and i didn't hesitate. i said, no, this is my job. you know, i can't do that. i took them in. but what i remember about that encounter is asking their names
i remember introducing myself to them and i remember wanting to remember them because we had this connection. i wanted to hold them in my mind. i wanted that william to be safe and for their child to be safe. a couple of hours later i went back on control, was sitting in my car and forgotten their names. the reason that sticks we me so much is because i think that's the first step in dehumanization is forgetting what makes someone an individual. >> sunday night at 8:00 eastern on c-span's "q&a." our podcast takes you beyond the headlines to explain one significant news story that's shaping the conversation in washington and around the country. you'll hear from leading annists, policy makers and