[Senate Hearing 109-202]
[From the U.S. Government Publishing Office]
S. Hrg. 109-202
COUNTERFEIT GOODS: EASY CASH FOR CRIMINALS AND TERRORISTS
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HEARING
before the
COMMITTEE ON
HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
UNITED STATES SENATE
ONE HUNDRED NINTH CONGRESS
FIRST SESSION
__________
MAY 25, 2005
__________
Printed for the use of the
Committee on Homeland Security and Governmental Affairs
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COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
SUSAN M. COLLINS, Maine, Chairman
TED STEVENS, Alaska JOSEPH I. LIEBERMAN, Connecticut
GEORGE V. VOINOVICH, Ohio CARL LEVIN, Michigan
NORM COLEMAN, Minnesota DANIEL K. AKAKA, Hawaii
TOM COBURN, Oklahoma THOMAS R. CARPER, Delaware
LINCOLN D. CHAFEE, Rhode Island MARK DAYTON, Minnesota
ROBERT F. BENNETT, Utah FRANK LAUTENBERG, New Jersey
PETE V. DOMENICI, New Mexico MARK PRYOR, Arkansas
JOHN W. WARNER, Virginia
Michael D. Bopp, Staff Director and Chief Counsel
Thomas R. Eldridge, Senior Counsel
Joyce A. Rechtschaffen, Minority Staff Director and Counsel
Rajesh De, Minority Professional Staff Member
Trina D. Tyrer, Chief Clerk
C O N T E N T S
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Opening statements:
Page
Senator Collins.............................................. 1
Senator Lieberman............................................ 3
Senator Akaka................................................ 5
Senator Lautenberg........................................... 6
WITNESSES
Wednesday, May 25, 2005
John C. Stedman, Lieutenant, Sheriff's Department, County of Los
Angeles........................................................ 7
Kris Buckner, President, Investigative Consultants............... 10
Matthew Levitt, Senior Fellow and Director of Terrorism Studies,
The Washington Institute for Near East Policy.................. 14
Alphabetical List of Witnesses
Buckner, Kris:
Testimony.................................................... 10
Prepared statement........................................... 35
Levitt, Matthew:
Testimony.................................................... 14
Prepared statement........................................... 41
Stedman, John C.:
Testimony.................................................... 7
Prepared statement........................................... 31
Appendix
Timothy P. Trainer, President, Global Intellectual Property
Strategy Center, P.C., prepared statement...................... 55
COUNTERFEIT GOODS: EASY CASH FOR CRIMINALS AND TERRORISTS
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WEDNESDAY, MAY 25, 2005
U.S. Senate,
Committee on Homeland Security
and Governmental Affairs,
Washington, DC.
The Committee met, pursuant to notice, at 9:35 a.m., in
room SD-562, Dirksen Senate Office Building, Hon. Susan M.
Collins, Chairman of the Committee, presiding.
Present: Senators Collins, Lieberman, Akaka, and
Lautenberg.
OPENING STATEMENT OF CHAIRMAN COLLINS
Chairman Collins. The Committee will come to order.
Good morning. During the past 2 years, this Committee has
held three hearings to investigate terrorism financing. From
the flow of money through certain Islamic charities in this
country to terrorist organizations around the world, to the
role played by Saudi Arabia, described to this Committee as the
epicenter of terrorism financing, we have learned much about
this complex and murky subject.
Today, we explore another aspect of the shadowy world of
terrorism financing. The theft of intellectual property rights
through counterfeiting and pirating of consumer goods is a huge
and growing criminal enterprise. It is estimated that
counterfeit merchandise accounts for between 5 and 7 percent of
all the goods moved in world trade. According to Interpol, this
counterfeit merchandise is worth approximately $450 billion
annually. According to the U.S. Trade Representative, American
businesses lose as much as $250 billion each year to
counterfeiters.
The U.S. Bureau of Customs and Border Protection seized
about $138 million in fake goods in 2004, compared with $94
million in 2003. Compact disks, computer software, sneakers,
golf clubs, perfume, soft drinks, baby food, electronics, auto
parts, name the product and someone is selling a bogus or
pirated version on a street corner in some American city, and
as you can see, we have an array of counterfeit merchandise
that has been seized in various raids that is displayed on the
table.
For those unfamiliar with the terminology, counterfeit
goods are knock-offs or look-alikes of brand-name products,
such as this counterfeit Gucci watch. Goods are referred to as
pirated when criminals steal and sell the content of a
legitimate product, such as the latest Star Wars movie, already
out in pirated version, and copy it illegally without the
permission of its owner. Both kinds of illegal goods are often
referred to as counterfeit.
Combine counterfeiting's high profits with the uninformed
notion that the purchase of a knockoff designer handbag, a fake
wristwatch, or a pirated DVD is a victimless crime and it is no
surprise that the trade in counterfeit goods is extremely
lucrative. This criminal activity has damaging consequences for
our economy and for honest businesses and their employees.
Moreover, given the evidence that terrorists are engaging in
counterfeiting to secure money to support their operations, the
potential consequences are far more dire than economic damage.
The unclassified evidence linking terrorism and
counterfeiting is compelling and it spans several agencies and
years. For example, in a 2002 advisory entitled, ``Financing
Terror: Profits from Counterfeit Goods Pay for Attacks,'' the
Customs Service warned of an increasingly close connection
between transnational crime and terrorism with the profits from
counterfeit and pirated goods being the strongest link.
In 2003, the Secretary General of Interpol testified before
Congress that intellectual property crime, the pirating of such
products as software, CDs, and DVDs, is becoming the preferred
method of funding for a number of terrorist organizations. He
cited direct and indirect connections between counterfeiting
and Hezbollah, the Chechen rebels, extremist groups in Kosovo,
and al Qaeda, among others.
Also in 2003, the Terrorist Financing Operations Section of
the FBI provided a document to the Committee stating that the
sale of counterfeit goods is among the ways in which Hezbollah
finances its terrorist activities, and we have a graphic that
takes information from this FBI report.
In its 2004 report, ``Patterns of Global Terrorism,'' the
State Department wrote that the tri-border region of South
America, Argentina, Brazil, and Paraguay, is a regional hub for
Hezbollah and Hamas fundraising activities, including the
manufacture and movement of pirated goods.
In January of this year, the International Anti-
Counterfeiting Coalition stated that there is ample evidence to
confirm that terrorist organizations are profiting from the
manufacture and sale of counterfeit and pirated goods.
In addition to the high profits, there is another reason
that terrorists have turned to this method of financing. The
United States and our allies around the world have made some
significant progress in shutting off the flow of terrorist
money through established mechanisms and institutions. These
concerted efforts are making a difference. But we know that
terrorists are nothing if not resourceful and determined. When
we shut off one avenue of financing, they find another.
This point was made well recently by Treasury's Under
Secretary Stuart Levy when he said, ``We have indications that
terrorist groups like al Qaeda and Hamas are feeling the
pressure and are hurting for money. We are also seeing
terrorist groups avoiding formal financing channels and instead
resorting to riskier and more cumbersome financial conduits,
like bulk cash smuggling. One rich source of bulk cash is the
sale of counterfeit consumer products.''
Finally, I would note that the focus to date by this
Committee on its hearings, as well as by our government and our
allies, has been on high-level terrorist financing, for
example, by multi-million-dollar charities and foundations, by
entities linked to Saudi Arabia, and by Iran. That certainly is
appropriate and it is where the primary focus should be. But we
know that terrorism is also funded by street crime. There are
many examples of this.
Ahmed Ressam, the Millennium bomber, funded his activities
by stealing tourists' suitcases in hotels and by credit card
fraud. In testimony before this Committee last June, the former
general counsel at the Department of Treasury noted that the
Madrid train bombers were financed through criminal activity,
including drug dealing.
We also know that it does not take a large sum of money to
commit a devastating terrorist attack. After all, the
organizing, planning, and training for September 11 cost only
an estimated $500,000, a sum easily generated by criminal
activity such as counterfeiting.
The purpose of this hearing is to focus much-needed
attention on what appears to be a fertile and growing source of
financing for terrorists. It is my hope that this attention
will lead consumers to reject these low-cost street corner
bargains because, in fact, they carry a terrible price. It is
my expectation that this attention will lead to increased
efforts by our government and our allies to close off this rich
avenue of terrorist financing.
Senator Lieberman.
OPENING STATEMENT OF SENATOR LIEBERMAN
Senator Lieberman. Thank you very much, Madam Chairman.
Thanks so much for calling this hearing today on a problem that
deserves far greater recognition than it has yet received.
Over the years, we have obviously heard much and tried to
do much about the counterfeiting of consumer goods and the
economic losses suffered by manufacturers whose popular CDs or
designer jeans are counterfeited for mass sale around the
globe. I want to compliment you, Madam Chairman. I just heard
yesterday that ``Return of the Sith'' was already selling on
the streets of Beijing, and here you have already got one, I
see. Very impressive. [Laughter.]
But today, obviously, we are going to look at counterfeit
goods from a different perspective, from a national security
perspective, which adds, of course, a new and critical
dimension to the urgency of curtailing this illicit activity,
counterfeiting.
The experts estimate that as much as 7 percent of world
trade is involved with the sale of counterfeit goods. That
amounts to hundreds of billions of dollars a year that eat away
at the income of American manufacturers and workers, but
counterfeiting is obviously more than just a bunch of people
hustling for a few extra bucks, a victimless crime. It has
become a major source of income for organized crime and, as we
shall hear today, for terrorists because of its low risks and
high rewards. In other words, the risk of getting caught and
the penalties if you are caught are minimal, while the
potential for making money is maximal.
There is a recently published book which was called
Lightning Out of Lebanon, which details a notorious North
Carolina case a few years ago that implicated Hezbollah, the
terrorist organization, in counterfeiting here in the United
States to support their activities in the Middle East. One of
our witnesses here today, former FBI analyst Matthew Levitt,
worked with the authors of the book and I look forward to
hearing about his work in that area.
Madam Chairman, as you well know, 3 years ago, in the
context of another investigation by this Committee, the
Terrorist Financing Operations Section of the FBI provided an
unclassified document to the Committee that listed the sale of
counterfeited goods among various criminal activities the
terrorist organization Hezbollah uses to raise cash in the
United States. This evidence puts the lie to what I think is
that commonly held belief that trade of counterfeit goods is a
victimless crime. If anybody suffers, it is only a couple of
big people at the top of the corporations.
That is not true. Certainly, it has never been true. But as
the evidence strongly suggests that we will hear today, profits
from counterfeit sales are used to finance terrorist
activities, and this is anything but a victimless crime. This
is a crime that finances random murder around the world,
including, needless to say, the murder of Americans.
We are very fortunate today, in addition to Mr. Levitt, to
have two witnesses from Los Angeles who will testify to what
they have done and discovered about the counterfeit trade and
its connection to terrorism. All three witnesses, I hope, will
help us understand the nexus between terrorism and
counterfeiting, and also help us to evaluate whether the
Federal Government, State, and local governments, and law
enforcement generally are receiving the resources and are
coordinating their investigatory and prosecutorial activities
to meet this challenge.
Local leads regarding counterfeit goods and possible
terrorist connections are extremely valuable, particularly
since the Federal Government has strong financial tracking
capabilities with regard to terrorist financing that have been
developed in recent years and were further improved by the
intelligence reform legislation signed into law last year by
the President, which came out of this Committee. That
legislation authorized additional funding for the Treasury
Department's Financial Crimes Enforcement Network and its
technical tracking capabilities to strengthen the Department's
anti-money laundering and anti-terrorist financing efforts.
So we know that Federal agencies track and investigate
terrorist financing. What we want to find out today from the
witnesses is whether those agencies are doing enough to track
and investigate and prosecute those who are using the sale of
counterfeit consumer goods to finance terrorist activities.
This is a very important hearing today and one in which, Madam
Chairman, I think we are playing another appropriate role of
oversight, which may lead to legislation--perhaps we will
decide that there ought to be stiffer penalties for
counterfeiting--but hopefully, we will focus attention on this
problem that it hasn't received before, and that attention, in
turn, will engender the kind of prosecutorial activity that I
believe this problem merits.
Thank you very much.
Chairman Collins. Thank you, Senator. Senator Akaka.
OPENING STATEMENT OF SENATOR AKAKA
Senator Akaka. Thank you very much, Madam Chairman, for
calling this hearing to learn more about a developing and
growing problem not only in our country, but in the rest of the
world, as well.
Today's hearing provides us, and I join Senator Lieberman
in saying that this provides us with two opportunities. One
opportunity is to understand the connection that may exist and
is developing between organized crime and terrorism. The other
opportunity is to, as was mentioned, evaluate the level of
cooperation between the Federal level and the local level of
law officials.
I want to thank our witnesses for being here to provide us
with their testimony. Thank you, Lieutenant Stedman from the
Los Angeles County Sheriff's Department, also Kris Buckner and
Dr. Matthew Levitt for your expert testimony.
The selling of counterfeit goods pervades every major area
of the United States. According to recent estimates, $286
billion in counterfeit goods are sold in the United States
every year. The problem is not just large companies protecting
their intellectual property and their profits. It is also
consumers paying for goods they believe are of a certain
quality, only to receive fake goods. It is about people buying
dangerous counterfeit pharmaceuticals over the Internet, as we
heard at several hearings last year before the Permanent
Subcommittee on Investigations.
Interpol recently reported a tragic case of counterfeit
baby formula sold in China which resulted in the deaths of 13
babies and serious illness to another 171 babies. Counterfeit
goods is not a victimless crime.
Of those organized criminal enterprises that are involved
in the profitable business of counterfeit goods, there is a
small number who directly threaten our national security by
providing financial support to terrorists.
In July 2003, the House Committee on International
Relations held a hearing entitled, ``Intellectual Property
Crimes: Are Proceeds from Counterfeited Goods Funding
Terrorism?'' At that hearing, the Secretary General of
Interpol, Mr. Ronald K. Noble, sounded the alarm that, and I
quote him, ``Intellectual property crime is becoming the
preferred method of funding for a number of terrorist groups.''
Department of Homeland Security Under Secretary Hutchinson
said, ``Terrorist organizations worldwide are looking for a
variety of illegal activities to fund their efforts. They have
looked at contraband and counterfeiting and piracy, all as
means of illegal activity to fund their organizations.''
One well-known case involving counterfeit and pirated goods
was reported in the joint Departments of Justice and Treasury
in 2003 National Money Laundering Strategy, working with
Canadian law enforcement. U.S. officials obtained 18
convictions of members of a Charlotte, North Carolina-based
Hezbollah cell which had smuggled untaxed cigarettes into North
Carolina and Michigan and used the proceeds to provide
financial support to terrorists in Beirut.
There is a danger that, over time, terrorist cells and
criminal gangs could forge mutually beneficial financial links
that will facilitate terrorist infiltration into the United
States. It is one short step from smuggling narcotics to
smuggling terrorists and explosives. Once this link is made,
that challenge to our domestic security will have exponentially
increased.
Some concern has already been reported about possible
connections between al Qaeda and the street gang known as MS-
13. While these connections appear now not to have been made,
our vigilance must be strict. It illustrates the important need
for cooperation between criminal intelligence divisions in the
local law enforcement field and terrorist intelligence agencies
at the Federal level.
Madam Chairman, I hope today's witnesses will address some
of these issues, and I hope, Madam Chairman, that the Committee
will continue to look into these issues. I ask to be excused
for another important Committee statement that I have to make
elsewhere. Thank you very much.
Chairman Collins. Thank you, Senator. You are a very
dedicated Member of this Committee, and I appreciate your
coming by this morning.
Senator Akaka. Well, it is no secret. I enjoy working with
you.
Chairman Collins. Thank you. Senator Lautenberg.
OPENING STATEMENT OF SENATOR LAUTENBERG
Senator Lautenberg. Thank you, Madam Chairman. It is pretty
obvious that we must do whatever we can to interrupt funds that
might go to terrorist organizations or countries that support
terrorism, and today, we are looking at one way that funds are
developed to support these enemies of the United States.
We have all had the experience, as we talk about
counterfeit goods, we have all had the experience of walking
down streets in cities like Newark, New York, Philadelphia, or
any other major city and see people selling items like
handbags, clothing, and the miscellaneous replications that we
see here on this table and that we are all aware of. At first
glance, these items might appear to be a great bargain.
But most of us have learned that when a deal seems too good
to be true, it usually is, and that is certainly the case with
counterfeit consumer goods. They are a bad deal for consumers
because they don't really receive what they think they are
buying. And counterfeit goods are certainly a bad deal for the
companies whose goods they mimic.
That is one part of the thing. The result is, as we look at
today, is not only does it hurt the economy, hurt the
companies, and hurt the buyers, but it appears that trade in
counterfeit merchandise might even damage our national security
by funneling money into the hands of terrorists.
President Bush has said it, that money is the lifeblood of
terrorists, and that is certainly true. We have learned that.
But there are other larger sources of income to terrorists that
are also not being shut down, and one that I have focused on in
the past is American companies that do business with terrorist
States.
That is why I have introduced a bill that would close the
loophole in our current law that allows U.S. companies to do
business with nations like Iran, simply by going through
offshore subsidiaries. Now, we need to close this loophole and
cut off the flow of dollars to terrorists, people who want to
destroy our lives and our Nation.
I look forward to hearing more about the issue of
counterfeit goods from our witnesses. It is my hope that my
colleagues will join with me to stop U.S. companies from doing
business with terrorists once and for all. We have got to do
whatever we can to make sure that no help goes from any
American company by any device or ruse to countries like Iran,
where funds travel to terrorist organizations, wind up killing
or injuring Americans, whether or not they are in or out of
uniform, and I commend you, Madam Chairman, for calling this
hearing and focusing on this issue of funds to terrorists.
Chairman Collins. I would now like to welcome our first
panel--our only panel this morning, of witnesses. Each is truly
an expert in his field. Lieutenant John Stedman is a 24-year
veteran of the Los Angeles County Sheriff's Department and is
currently a supervisor in the Criminal Investigative Section of
the Department.
Kris Buckner is President of Investigative Consultants, a
private investigation firm specializing in intellectual
property crime investigations.
And Dr. Matthew Levitt is an expert on the subject of
Hezbollah. He is also the Director of the Washington
Institute's Terrorism Studies Program.
We are very pleased to have you here with us this morning.
We appreciate all of the prior assistance you have given the
Committee as we have investigated this issue.
Lieutenant, we are going to start with you. Thank you.
TESTIMONY OF JOHN C. STEDMAN,\1\ LIEUTENANT, SHERIFF'S
DEPARTMENT, COUNTY OF LOS ANGELES
Lieutenant Stedman. Thank you, Chairman Collins and Senator
Lieberman, for the opportunity to testify today. My name is
John Stedman. I am a lieutenant with the Los Angeles County
Sheriff's Department in California. My testimony today will
address the enforcement efforts of the Sheriff's Department
regarding intellectual property rights crimes and the
involvement of organized crime groups operating in Los Angeles
county.
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\1\ The prepared statement of Lieutenant Stedman appears in the
Appendix on page 31.
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My experience with IPR crimes dates to the late 1980s, when
my unit was approached by members of the Latin American Music
Association. They were experiencing large revenue losses due to
proliferation of unauthorized and illegal duplication of music
onto cassette tapes. The Music Association was seeking
cooperation from local law enforcement to enforce a State of
California statute that makes it a crime to illegally duplicate
copyrighted or trademarked materials. Over the next 2 years, my
unit investigated dozens of these cases, resulting in the
seizure of hundreds of thousands of cassette tapes and the
incarceration of many suspects.
During the 1990s, the Motion Picture Association of America
also requested the services of local law enforcement to enforce
the same copyright or trademark statutes of California.
Detectives under my supervision completed many of these
investigations, seizing thousands of illegally duplicated
motion pictures. Many of these videos were of films not yet
released to the theaters.
In 2003, I was assigned to supervise the Criminal
Investigations Section of the Emergency Operations Bureau. It
was at this time that I gained a full realization of the
pervasiveness of IPR crimes in Los Angeles County. We
concentrated our investigative resources on IPR crimes and have
uncovered significant organized criminal enterprises operating
within Los Angeles County. Victims of the organized criminal
groups include the tobacco industry, luxury goods
manufacturers, clothing companies, and the music and motion
picture industries. Information in open sources indicates that
across the globe, anything that has a decent profit margin is
being counterfeited.
While there are no local statistics on the magnitude of the
problem, I can relate what my small team of one sergeant and
six investigators has accomplished in a little more than a
year. We have served 60 search warrants, which have yielded 125
arrests and $16 million in seized counterfeit products. An
additional $3.5 million in cash has been seized and is
currently in forfeiture proceedings. With your permission,
Madam Chairman, I would like to show a short video which
illustrates one of our warrant operations.
Chairman Collins. Please do.
[A videotape was played.]
Lieutenant Stedman. Within the Sheriff's Department, there
are units designated to combat organized criminal enterprises,
such as the one you just saw, and we are represented on nearly
every task force created to investigate these groups.
These units have similar experiences with IPR
investigations, noting that the profits are enormous with
minimal criminal exposure. Russian organized crime, Eurasian
organized crime, Asian organized crime, and Lebanese organized
crime groups all profit from IPR crimes.
Additionally, we believe that there may be a trend
developing for local gang involvement in IPR criminal activity.
Recently, we have investigated several individuals with strong
gang ties and extensive criminal records. During interviews,
these suspects have admitted that IPR crime is attractive
because of the high profit and minimal jail sentences. In the
parlance of one suspect, it is better than the dope business.
No one is going to prison for DVDs.
There are also indicators that some associates of terrorist
groups may be involved in IPR crime. During the course of our
investigations, we have encountered suspects who have shown
great affinity for Hezbollah and its leadership. The following
are just two examples.
During the service of a search warrant in which thousands
of dollars in counterfeit clothing was seized, I saw small
Hezbollah flags displayed in the suspect's bedroom. Next to the
flags was a photograph of Hassan Nasrallah, whom I recognized
as the leader of Hezbollah. The suspect's wife asked me if I
knew the subject of the photograph. I identified Nasrallah and
the wife said, ``We love him because he protects us from the
Jews.'' Also in the home were dozens of audio tapes of
Nasrallah's speeches. During the search, one of my detectives
also found a locket which contained a picture of the male
suspect on one side and Sheik Nasrallah on the other.
In 2004, detectives served an IPR search warrant at a
clothing store in Los Angeles County. During the course of the
search, thousands of dollars in counterfeit clothing was
recovered, as were two unregistered firearms. During the
booking process, the suspect was found to have a tattoo of the
Hezbollah flag on his arm. To my left is a photo of that
tattoo.
Again in 2004, detectives served a multi-location IPR-
related search warrant involving a large-scale counterfeit
blanket operation. During the course of the investigation,
detectives located a photo album. Within the photo album were
dozens of pictures of attendees at a fundraising event for the
Holy Land Foundation. When questioned about the album, the
suspect said that the Holy Land Foundation was not a terrorist
funding operation. When I informed the suspect that the U.S.
Government had shut down the charity because of its alleged
support of Hezbollah, the suspect replied that the U.S.
Government was stupid and would do anything that the Jews told
them.
When confronted with these indicators, we passed the
information immediately to the Los Angeles Joint Terrorism Task
Force for further review. As a result of this kind of
information sharing, we enjoy an outstanding relationship with
the JTTF as well as with the other three FBI offices located in
Los Angeles County.
As I have stated, the financial rewards of IPR crimes are
immense. Many times, the biggest issue for the criminal or his
group is how to disperse the money generated from the crimes
committed. It is difficult to use traditional banking practices
to account for the huge profits generated. In one of our cases
involving counterfeit baby blankets, we discovered over
$800,000 in cash located throughout the suspect's residence,
hidden in trash bags, under beds, stuffed in trash cans, and
stashed in the attic. In fact, more than $10,000 was found in a
child's piggybank.
On other occasions, we have seen activity consistent with
money laundering and structuring occurring between similar
businesses.
Another of our cases began with the stop of a suspect at
Los Angeles International Airport by U.S. Customs officers.
Strapped to the suspect's body was more than $230,000 in cash.
The suspect told the Customs officers that she was en route to
Lebanon for a vacation. Information was developed that the
suspect owned a chain of cigarette shops. Service of search
warrants led to the seizure of more than 1,000 cartons of
counterfeit cigarettes, an additional $70,000 in cash, as well
as wire transfers to banks throughout the world.
The financial cost of IPR-related crimes to the State of
California is significant. As an example, my small team has
seized about 40,000 cartons of counterfeit, untaxed cigarettes.
The California State tax on cigarettes is $8.70 per carton,
representing a loss to the State of $348,000.
It should also not be a surprise to anyone that suspects
involved in IPR crime do not concern themselves with paying
appropriate taxes, whether Federal, State, or local. Our
experience has been that suspects claiming $20,000 or $30,000
on their yearly income tax forms routinely keep tens of
thousands of dollars in cash at their homes.
The Los Angeles County Sheriff's Department has, like most
local agencies, suffered cutbacks in personnel over the past
several years due to severe budget curtailments. There has not
been a mechanism to address IPR crimes other than that based on
interest from small units or individual investigators. We
believe that there is a critical void in personnel to mount an
effective campaign against the criminal enterprises that
utilize IPR as a revenue stream. It is well-documented that
organized criminal enterprises engage in IPR crimes. There are
mounting indicators of the involvement of terrorist groups and
their supporters.
In Los Angeles County, we believe there should be a task
force commitment in order to combat the problem. Members of the
Sheriff's Department have begun to explore different sources of
revenue to fund such a task force in our region. The private
sector has shown interest in contributing to such an effort. In
fact, the private sector, comprised of manufacturers and
companies such as Investigative Consultants, whose President,
Kris Buckner, is speaking today, plays a vital role in our
enforcement efforts. Without this cooperative public-private
sector relationship, the Sheriff's Department, because of
limited personnel resources, would quickly be overwhelmed and
would not be able to maintain our current investigative pace.
We also believe that there should be legislation to enact
or increase the levy on containers shipped through the ports of
Los Angeles and Long Beach. These levies would fund intensified
IPR enforcement efforts. It is my hope that by drawing more
attention to this crime, we can reinforce the American dream of
having an idea, bringing it to market, and profiting from its
success without interference from the criminal element.
On behalf of Los Angeles County Sheriff Leroy D. Baca, I
wish to thank the Committee for this opportunity to represent
our county in discussing this important topic. Thank you, and I
look forward to any questions you might have of me.
Chairman Collins. Thank you, Lieutenant. Mr. Buckner.
TESTIMONY OF KRIS BUCKNER,\1\ PRESIDENT, INVESTIGATIVE
CONSULTANTS
Mr. Buckner. Thank you. I would like to thank Chairman
Collins, Senator Lieberman, and all of the Members of the
Committee for the opportunity to appear before you today.
Intellectual property crime is an important topic, and I am
very pleased that the Committee is holding this hearing to
discuss how intellectual property crime affects our country,
including the possibility that proceeds from counterfeiting
fund terrorism.
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\1\ The prepared statement of Mr. Buckner appears in the Appendix
on page 35.
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For the record, my name is Kris Buckner. I am the President
of Investigative Consultants, a licensed private investigative
firm based in Southern California. I have been a private
investigator for over 10 years and specialize in investigations
involving manufacture, distribution, and sale of counterfeit
goods.
Investigative Consultants began as a single-person
operation in 1994. The company now employs 14 full-time
employees and several part-time and contract employees. Ninety-
five percent of the company's time is spent investigating
intellectual property matters, and we currently represent over
80 different brand owners.
The job of our company is to work on behalf of brand owners
to uncover evidence of counterfeiting activities. When we find
concrete evidence that some person or group is substantially
engaged in counterfeit goods marketing, we contact the
appropriate law enforcement agency and provide them with the
evidence and assist them on behalf of the brand owners in the
identification, inventory, and storage of the counterfeit items
to ensure that the counterfeiters are brought to justice.
How big is the problem of counterfeit goods? Let me answer
that in three words. Out of control. In only 10 years, my
company has conducted over 9,000 intellectual property
investigations that have resulted in the recovery and seizure
of over $1 billion worth of counterfeit and pirated
merchandise.
Over the past 10 years, our investigations have helped law
enforcement arrest over 3,000 people for counterfeiting and
piracy. There is no end in sight. My business continues to
grow.
I would like to show a short video that illustrates the
problem, with your permission.
[A videotape was played.]
Mr. Buckner. What you are looking at here is a search
warrant getting served at an embroidery factory that contained
two sophisticated embroidering machines that were embroidering
counterfeit clothing. Each of those machines is worth about
$250,000.
What you are looking at now is video footage of an LAPD
search warrant of a warehouse that contained counterfeit
handbags. The operator, who was subsequently convicted of
trademark counterfeiting, advised law enforcement that he was
making $30,000 cash per week in this business and had retired
from a nine-to-five job at Northrup because this was so
lucrative.
What you are looking at now is a DVD lab that is
manufacturing counterfeit and pirated movies. Those are
finished movies there that you are looking at. This lab has the
capability of manufacturing tens of thousands of counterfeit
movies per week, and those are the computer tower burners that
are used to manufacture the movies themselves.
The counterfeiting problem is not just limited to handbags,
watches, and other luxury goods. I have been involved in cases
involving DVD movies, music CDs, glue, children's toys,
sunglasses, food items, computer equipment, toner products, and
numerous other items. I have also seen cases where brake pads,
aircraft parts, baby formula, and even cough syrup have been
counterfeited. You name it and criminals can and will
counterfeit it. As long as counterfeiters are making money,
they do not care who they hurt or kill.
Most brand owners go to great lengths to combat the
problem. One of the ways in which they do this is hire people
like me to serve cease and desist notices on people we know are
engaging in the sale of counterfeit merchandise. I have served
thousands of these notices.
In my hand is what we call our subject book. This is just
one of five such binders, all of which are as big or bigger
than this one, that are kept in my office. These binders all
contain photographs of people that we have served with the
cease and desist notices. Ninety percent of these vendors
continue to sell counterfeit merchandise, even after we advise
them what they were doing was illegal. They continue their
operations because of the large amount of money that they make.
And make no mistake about it, counterfeiting is profitable.
I have participated in multiple law enforcement operations in
which huge sums of cash have been recovered. During one such
raid, officers found over $370,000 in cash in a decrepit
warehouse. That money was just some of the profits enjoyed by a
subject who had merely been selling counterfeit blankets.
Some counterfeit goods are manufactured in the United
States. While assisting law enforcement, I have seen California
factories involved in the large-scale manufacture of
counterfeit merchandise. I have been involved in cases in which
owners of factories routinely locked employees inside the
manufacturing facilities. Law enforcement had to call the fire
department, which used the Jaws of Life to cut open the doors
and free the employees. If there had been a fire, the employees
would have died. Counterfeiters valued cash more than human
life.
The vast majority of counterfeit merchandise is
manufactured outside the United States in countries like China,
South Korea, Taiwan, and Mexico. The merchandise is often
manufactured under unsafe conditions, and there have been cases
where counterfeiters used child labor to make products.
Counterfeiters often smuggle goods into the United States.
Several times, I have come across brand-name counterfeit
handbags sewn inside the linings of generic handbags. Once the
generic handbags pass Customs, counterfeiters cut open the
generic handbags and remove the counterfeit ones.
Lieutenant Stedman is going to show us a perfect example of
one of these bags I just spoke about, where you look at the
outside and it looks like a generic, non-descript handbag. But
you cut open the lining of the bag and you will see what is
inside. And inside, you have the counterfeit. It may seem like
a lot of work to smuggle counterfeit handbags, but keep in mind
that a counterfeiter can make approximately $500,000 in cash
per container.
It is wrong to think that counterfeit merchandise is only
sold on the street corners. Counterfeit merchandise regularly
ends up in all types of stores, including large chain
department stores, hotel gift shops, upscale boutiques, swap
meets, flea markets, and other retail locations.
There is a shopping district in Los Angeles called Santee
Alley, where counterfeit merchandise is openly sold. On any
given day, there are over 75 vendors in Santee Alley selling
all kinds of counterfeit merchandise.
I am frequently asked whether I believe organized criminal
groups engage in the sale of counterfeit and pirated
merchandise, and my answer is yes. Sometimes, an organized
counterfeiting operation profits primarily from the sale of
counterfeit goods, whereas in other instances, counterfeiting
is just another revenue stream for the criminal syndicate.
In Los Angeles, the various criminal groups profiting from
the sale of counterfeit goods are extremely well organized.
They hire lookouts, utilize countersurveillance techniques to
track my employees' activities and the activities of law
enforcement. The groups use two-way radios and have also
developed an elaborate warning system to alert vendors of
impending enforcement actions.
During heavy enforcement periods, counterfeiters have
placed lookouts near the Los Angeles Police Department's
Central Division to monitor the movements of law enforcement.
Counterfeiters have surveiled my team of investigators. They
have also been spotted surveiling our office location. During
counterfeit goods raids, I found lists containing the names of
my employees, their physical descriptions, descriptions of our
company vehicles, and license plate numbers.
Counterfeiters are making so much money that they will do
anything to disrupt our efforts. My investigators have been
assaulted by counterfeiters. Counterfeiters have slashed the
tires of our vehicles. A counterfeiter injured one of my
investigators when he broke out the window of the
investigator's vehicle while the investigator was driving it.
There is clear and convincing evidence that street gangs
have begun to profit from the sale of counterfeit merchandise
on the streets of Los Angeles. Not only do the gangs place
their soldiers on the street to sell pirated movies and music,
they attack other street vendors who want to sell counterfeit
merchandise on their turf. It only stands to reason, then, that
the proceeds from the sale of counterfeit goods are used to buy
guns and drugs.
More and more organized criminal groups are engaging in the
sale of counterfeit merchandise to raise money. The great
profits and the limited risk of prosecution make it an
extremely attractive enterprise. For these criminals, it is
simply a matter of business. They get caught selling drugs,
they go to prison. They get caught selling counterfeit goods,
they get probation.
I am also frequently asked if terrorist groups profit from
the sale of counterfeit goods. I do not know the answer to that
question. What I do know is that while working with law
enforcement to conduct counterfeit goods raids, I have been in
homes and businesses in which photos of Hezbollah Sheik
Nasrallah have been prominently displayed. On several occasions
during these same raids, I have heard subjects make anti-
Israeli and anti-Jewish statements. I have also observed
evidence indicating that counterfeiters send large amounts of
money to places such as Lebanon and Paraguay.
My company is hired by major corporations, and I know that
many people don't have any sympathy for big businesses.
However, the public needs to understand that they are forced to
pay higher prices for brand-name products because of
counterfeiters. It has been estimated that counterfeiting costs
brand owners billions of dollars a year in lost revenue. Brand
owners must raise their prices to recoup those losses.
In my opinion, the general public has no appreciation for
how many mom-and-pop retail establishments are driven out of
business every year by counterfeiters. As everyone knows, there
is great demand for brand-name products. How can a legitimate
small retailer compete when consumers have the option of buying
a $20 pair of generic sunglasses in their store or a $20 pair
of brand-name counterfeit sunglasses in the store next door?
Far too many consumers buy the counterfeit brand-name
sunglasses.
Time and again, I receive calls from legitimate small
business owners begging me to investigate their counterfeit
competitors. These people know that they will quickly be driven
out of business if the seller of the counterfeit goods is
allowed to continue to operate next door to them. There is
nothing more rewarding than receiving a congratulatory phone
call from these same small business owners after participating
in a counterfeit goods raid with law enforcement.
In closing, I would like to say that although I am not an
expert on organized crime and terrorism, I do know how the
counterfeit goods operations work, and every day in the course
of my investigations, I see things that strongly suggest that
terrorist groups are raising funds through the sale of
counterfeit goods. The opportunity is there and the indicators
are there. The sale of counterfeit goods is not a victimless
crime.
I again want to thank the Committee for holding this
hearing, and I would like to acknowledge the outstanding
efforts of the law enforcement agencies in California,
especially the Criminal Investigations Section of the Los
Angeles County Sheriff's Department and the Los Angeles Police
Department. They understand the importance of aggressively
pursuing counterfeiters.
Thank you, and I look forward to your questions.
Chairman Collins. Thank you. Dr. Levitt.
TESTIMONY OF MATTHEW LEVITT,\1\ SENIOR FELLOW AND DIRECTOR OF
TERRORISM STUDIES, THE WASHINGTON INSTITUTE FOR NEAR EAST
POLICY
Mr. Levitt. Thank you, Madam Chairman, Senator Lieberman,
and Members of the Committee. I am grateful for having the
opportunity to testify before you today.
---------------------------------------------------------------------------
\1\ The prepared statement of Mr. Levitt appears in the Appendix on
page 41.
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What I would like to do is to put Lieutenant Stedman's and
Mr. Buckner's testimony into context in terms of what
Hezbollah's modus operandi is. First, let us understand what
Hezbollah is all about. Aside from suicide truck bombings
targeting U.S. and French soldiers in Beirut in 1983 and 1984,
Hezbollah is also behind the Khobar Towers bombing in Saudi
Arabia in 1986, two sets of bombings in Argentina in 1992 and
1994, attempted bombings in Thailand in 1994, attempted attacks
in the streets of Singapore, and many other attacks
internationally targeting American, French, German, British,
Kuwaiti, Bahraini, and other interests worldwide.
According to U.S. authorities, concern over the threat
posed by Hezbollah is very well placed. FBI officials have
testified that Hezbollah continues to have subjects based in
the United States and have the capability to attempt terrorist
attacks here should this be the desired objective of the group.
Hezbollah continues to surveil U.S. interests internationally
and in the United States. Former CIA Director George Tenet
testified in 2003 that Hezbollah, as an organization with
capability and worldwide presence, is al Qaeda's equal, if not
a far more capable organization. Therefore, anything it is
doing to fund its activities should be our concern, and I
commend the Committee for holding this hearing in the context
of its national security implications.
Iran is believed to fund Hezbollah to the tune of at least
$100 million a year. But the group is also believed to engage
in all kinds of other fundraising techniques through charities,
but perhaps most importantly and most successfully through
criminal enterprises, and I would like to focus on that
criminal enterprise aspect.
Consider just a few examples, because in the open source
world, there is only so much detailed information available to
us. But in the Charlotte case that Senator Lieberman mentioned
earlier, of which I was the government's expert witness, law
enforcement authorities were able to trace half-a-million
dollars through various accounts tied to the cell members. They
believe most of the funds, however, remained in cash. There was
approximately $1.5 million to $2.5 million in profit made on $8
million of cigarettes that were smuggled. Of this, tens of
thousands of dollars--some investigators still maintain it may
be closer to hundreds of thousands of dollars--were never found
and are suspected of going to Hezbollah beyond the funds that
they can demonstrate went to Hezbollah.
U.S. officials believe a substantial portion of the
estimated millions of dollars raised by Middle Eastern
terrorist groups in the United States comes from the $20
million to $30 million annually brought in by the illicit scam
industry here in the United States. Of the Middle Eastern
terrorist groups present in the United States, Hezbollah is far
and away the most criminally oriented, and so we need to assume
that the vast majority of that activity is being carried out by
Hezbollah cells in this country, and there are several.
In South America in the tri-border area, it is especially
important to Hezbollah. There are criminal enterprises. The
group there raises close to $10 million a year, according to a
study by the U.S. Naval War College. According to that report,
U.S. Southern Command estimates that the Islamist terrorist
groups, including Hezbollah, raised between $300 million and
$500 million per year in the Triple Frontier and the duty-free
zones of the Iquique, Colon, Maicao, and Margarita Islands.
Hezbollah also raises tremendous amounts of money through
foreign expatriate remittances, and this is also tied to
criminal activity. For example, in 1988, Lebanese expatriots in
Senegal attempted to smuggle approximately $1.7 million to
Lebanon. At the time, the local community claimed that the
smuggling operation was not intended to fund Hezbollah but
merely to evade Senegalese law. It appears that it was intended
to both evade Senegalese law and finance Hezbollah. Israeli
intelligence, according to one Israeli report, ranks Senegal as
the second most important center in Africa for Hezbollah
financing after the Ivory Coast.
Similar activity has been documented in South America,
where Hezbollah funds are raised through criminal enterprises
and then sent back to Lebanon as foreign remittances, or under
the cover of foreign remittances.
A senior U.S. law enforcement official noted that, ``there
is a significant amount of money moved out of the United States
attributed to fraud that goes to terrorism.'' The most
outstanding case that we know about is the case in Charlotte,
North Carolina, where two brothers, Mohammed and Chawki Hamoud,
led a cell in Charlotte, North Carolina, with a parallel part
of the network in Canada. Investigators reviewed over 500 bank,
credit card, and other financial accounts.
Some members used multiple identities. For example, they
would simply buy-out the identity of Middle Eastern students
who had been studying at the University of North Carolina-
Charlotte and use those legal identities under the names like
Ali Abu Sala or Hassan Shavski. They had several legitimate
driver's licenses, INS work authorization cards, Social
Security numbers. Each of these individuals had multiple
identities. Said Harub, one of the cell members who turned
evidence against his fellow cell members, had three legitimate
driver's licenses, over a dozen other I.D.'s with which he
established credit and busted out that credit at the $150,000
limit and then did it over and over again.
The bottom line is that every member of this cell, this
network, entered the country illegally, stayed here illegally,
committed crimes while they were here, and sent the proceeds
back to Hezbollah.
In Canada, where the network procured dual-use
technologies, like night-vision goggles, for Hezbollah, some of
the material was bought with funds that were sent from Lebanon.
Some of the material, however, was bought through credit card
scams. And to make matters worse, Hezbollah would still pay the
cell members 50 cents on the dollar so that they made profit on
the material that they were procuring for Hezbollah. It is a
typical modus operandi for Hezbollah, where individual cell
members are often out for the money, which is one of the
reasons they are so interested in criminal activity.
In a particularly disturbing case, the Canadian part of the
network talked about--there is no evidence that it actually
did--taking out life insurance policies for suicide bombers in
Southern Lebanon--this was just before the Israeli withdrawal
in 2000--taking out life insurance policies for suicide bombers
who would then attack Israelis and then cashing in those life
insurance policies in Canada.
Hezbollah and other terrorist groups also traffic narcotics
in North America. A DEA investigation into a pseudoephedrine
smuggling scam in the American Midwest led investigators as far
as Jordan, Yemen, Lebanon, and other Middle Eastern countries,
including bank accounts tied to Hezbollah and Hamas. Then-DEA
Chief Asa Hutchinson confirmed that a significant portion of
some of the sales are sent to the Middle East and used to
benefit terrorist organizations.
In South America, Hezbollah operatives engage in a wide
range of criminal enterprises to raise, transfer, and launder
funds in support of their terrorist activities. In one case,
Paraguayan officials arrested Ali Khalil Mehri, a Hezbollah
operative, for selling millions of dollars in pirated software
and funding Hezbollah with some of the profits.
Assad Barakat, one of the most important Hezbollah
operatives in South America, not only served as a treasurer for
Hezbollah, but was also involved, according to their
investigation, in a counterfeiting ring that distributed fake
U.S. dollars and generates cash to fund Hezbollah operations.
He personally cleared contributions to Lebanon for Hezbollah.
Hezbollah operatives also run otherwise legitimate business
enterprises that function as shell companies or fronts for
raising, laundering, and transferring large sums of money. For
example, the Charlotte cell members used some of the money they
raised to buy a BP gas station, funded in part with a loan from
the Small Business Administration. Mohammed Hamoud, the cell
leader, wondered to his wife at the time what kind of
background investigation would be required, and when she asked
why he was so concerned, he said, ``There are some things about
me you are better off not knowing.''
According to Israeli officials, Hezbollah operatives run
several Western Union offices in Lebanon and use the co-opted
services of others worldwide. In some cases, they actually run
the offices and skim some of the 7 percent service fee charge,
which they split between themselves as profit and for
Hezbollah.
In at least one case in the United States involving Western
Union, in January 2002, a case in Burbank, Illinois, three
Middle Eastern men sent hundreds of thousands of dollars to
Turkey, Germany, and the United Arab Emirates. There is no
known terrorist link to that investigation, though it was never
fully investigated and it remains an open question.
According to a former senior law enforcement official, and
I quote, ``Hezbollah is very criminally oriented for its
fundraising in the United States, including legitimate and
illegitimate business activities.'' Despite all the money the
group receives from Iran, Hezbollah activists in the United
States are believed to be self-funding, mostly through criminal
enterprises, including counterfeit goods.
The extent of Hezbollah counterfeit activity in South
America, of which we know a great deal, combined with the
group's known presence in this country and its predilection for
engaging in fraud and other criminal activity in this country,
point to the group's likely deep involvement in counterfeit
activity in the United States.
I thank you for having me here to testify and I look
forward to answering any questions you may have.
Chairman Collins. Thank you for an excellent statement.
I want to thank all of you for adding to our knowledge of
this important subject. When most consumers look at counterfeit
goods, such as those displayed on the table, I think they
believe, oh, it doesn't matter if it is fake. It is kind of fun
to have one and I am going to buy it. I hope through this
hearing today that we can help increase public awareness of
just what the consequences are of buying counterfeited goods,
that it isn't some kind of lark, but rather that the proceeds
not only harm legitimate businesses and their workers, but even
more troubling, are being used for criminal and terrorist
activities. So one of the reasons I wanted to hold this hearing
is to try to get consumers to think twice before purchasing
counterfeited or pirated goods.
Dr. Levitt's statement talked about Hezbollah targeting
Americans around the world, and indeed, the 9/11 Commission
found that prior to the attacks on our country by al Qaeda on
September 11, that Hezbollah was responsible for killing more
Americans than any other terrorist group.
Lieutenant Stedman, you noted in your opening statement
that one of the individuals you arrested for the sale of
counterfeit goods had a Hezbollah logo tattooed on his arm, and
you pointed to the picture, which we have blown up. Could you
walk us through what is on the tattoo, since many of us are not
familiar with the symbols and the Arabic script?
Lieutenant Stedman. I had the Arabic examiner for the
Sheriff's Department take a good look at it and this is what he
interpreted to me. The bottom script, underneath the green, in
the Arabic writing would be translated as ``The Islamic
Revolution of Lebanon,'' and you have the upraised arm, fist,
holding the assault weapon. The script above that was
translated as saying ``Hezbollah are the Winners,'' and then
the dome you see at the top is a temple mount or--the disputed
dome in Jerusalem. Pretty much, that is the same picture,
Hezbollah logo that you see on the flags and all the other
paraphernalia that we run across.
Chairman Collins. And you have also found, I understand,
audio tapes that contain the speeches of Hezbollah's leader. Is
this an isolated occurrence, or have you seen this evidence and
audiotapes during other raids on counterfeit operations?
Lieutenant Stedman. We have seen those on numerous
occasions, both in the residences that we go to and the
businesses. I have seen thousands of those tapes all over.
Chairman Collins. You have seen thousands of those tapes?
Lieutenant Stedman. Yes, ma'am.
Chairman Collins. Dr. Levitt, you mentioned that Hezbollah
is operating in the United States in cells. What do you think
are Hezbollah's objectives in the United States?
Mr. Levitt. Hezbollah, like Hamas and most other groups in
this country, with extended continued presence in this country,
take advantage of the freedoms in this country and use the
United States primarily as a cash cow to engage in fundraising
through charities and, of course, as we have discussed today,
through criminal activities.
I should note that in the Charlotte case, it was the same
exact thing, tremendous amounts of Hezbollah material were
found all over the place.
The FBI has testified before Congress in the past, however,
that Hezbollah operatives are also known to surveil potential
targets in this country. The FBI has assessed that those
activities are primarily used to vet new recruits, but the fact
is that they then have that surveillance report available for
off-the-shelf use, and the FBI has also testified, as I
mentioned earlier, that Hezbollah has the capability to conduct
attacks, should it be their desire to do so. So it is a
tremendous concern to us.
We know that Richard Reid, for example, the infamous shoe
bomber, was sent on a similar vetting mission, including going
to Israel and other places, and that his report was found in
Afghanistan. That report was available to al Qaeda later should
they want to use it for attacks, as Hezbollah would be able to
use vetting reports, reports from vetting operations where new
recruits are asked to surveil targets here.
Chairman Collins. Mr. Buckner, you have mentioned that you
have an excellent partnership with law enforcement, and that is
obviously critical. Have you learned during the course of your
investigations whether individuals that you are looking at for
intellectual property crimes are also the subject of
investigations by other law enforcement groups, particularly
the FBI?
Mr. Buckner. Yes, ma'am. On numerous occasions when we have
conducted even civil enforcement actions at a location, I have
received several calls from the FBI asking me about our
activities and what we were doing at locations, and this has
happened to us numerous different times.
Chairman Collins. Have you seen any evidence of wire
transfers to Lebanon?
Mr. Buckner. Yes. During my 10 years of doing this, I have
seen tremendous amounts of wire transfers going to both Lebanon
and Paraguay, it seems like is one of the countries of choice.
Chairman Collins. Lieutenant Stedman, what about you? Have
you seen evidence of wire transfers and other ways to get funds
from the United States from these counterfeit goods to Lebanon
and the three-state area in South America?
Lieutenant Stedman. My experience has been that--I don't
have a lot of experience in the three-state area, but we do see
wire transfers, both Western Union and bank transfers, from the
States to--I have seen them to Jordan, Lebanon, Syria. They are
very common. As Kris said, we see them almost everywhere we go.
Chairman Collins. And one final question for the three of
you before I yield to my colleague. In addition to educating
consumers that by their purchases of counterfeited or pirated
goods, they may well be supporting terrorist activities, what
more do you think we should be doing to assist law enforcement
in cracking down in this area, or beyond law enforcement? What
steps would you recommend that this Committee encourage? I will
start with Dr. Levitt.
Mr. Levitt. Perhaps one of the most useful discussions
could be about potential punishment for this type of activity.
As my colleagues have discussed, there basically is none. In
other areas, I know, and there may be in this already, I am not
an expert on the legal side, but terrorism enhancements, and if
there are not terrorism enhancements for this type of activity,
that is something we should definitely consider. It should be.
Senator Lieberman. You mean enhanced penalties?
Mr. Levitt. Yes, sir. It should be considered a worse crime
if you are doing something that is not only illegal but is also
supporting terrorism, even if we can't meet the threshold of
the material support statute, which has very technical
thresholds that need to be met.
The other thing I think we are already well along in doing,
and both my colleagues have highlighted this, and in Los
Angeles, it certainly sounds like it is working very well, and
that is the local law enforcement and FBI JTTF cooperation.
Again in the Charlotte case, this started with an off-duty
sheriff who came across a case. In that case, however, there
was not direct communication with the FBI at that time. It is
only when they went to the U.S. Attorney's Office with their
case. Then the FBI came to the U.S. Attorney's Office and said,
do you see this slide? They said, yes, that is our cigarette
smuggling ring. And then they showed them another slide of
identical people and said, well, this is our Charlotte
Hezbollah cell, and they decided at the U.S. Attorney's Office
level to make this much more than just a smuggling fraud case.
If we can get the cooperation at a much lower level, like
Lieutenant Stedman said is common in his jurisdiction, I think
we can do a lot more to prevent this activity.
Chairman Collins. Thank you. Those are very helpful
suggestions.
Mr. Buckner.
Mr. Buckner. I think public education is the most important
key, as you stated previously. We have to kill the demand for
the counterfeit goods, and we really do have to educate the
public on where the proceeds go and that it is not a victimless
crime. Though I represent the brand owners and that is how I
make my living, there are a lot of mom-and-pop retail folks out
there that are trying to make a living that get killed by the
counterfeiters out there.
Chairman Collins. Thank you. Lieutenant Stedman.
Lieutenant Stedman. I agree with what both of my colleagues
have said. I would only add that we have had some contact with
the Department of State, and this is way out of my realm of
expertise, but some pressure put on the countries that are
manufacturing all these goods, specifically in my experience
China, would be helpful, to stem the flow at the other end.
Chairman Collins. That is another good suggestion. Thank
you very much. Senator Lieberman.
Senator Lieberman. Thanks, Madam Chairman. Thanks to the
witnesses. Your testimony has been excellent, I think.
Let me ask you a few factual questions just to make sure I
am clear of how this is happening, and to go really to the
beginning of the counterfeiting operations themselves. This is
not the kind of stuff that you can do in your living room or
your basement. I mean, I suppose if you had enough
sophisticated equipment, you could, but what I am saying is it
is real manufacturing. You have got to have the semblance of a
business.
So my question is, who is doing it at that level? Are these
just entrepreneurs here in the United States or Asia or other
parts of the world, or is there organized criminal involvement
at the level of the counterfeiting itself? I will start with
anybody. Mr. Buckner.
Mr. Buckner. In regards to certain different types of
counterfeit goods, whereas DVDs and CDs can be mass produced in
a small apartment--in fact, in my experience in Los Angeles,
most of the labs that we come across are based out of small
apartments.
Senator Lieberman. Right. Though as you said, or somebody
did, you still have to have a pretty expensive set of equipment
to do it.
Mr. Buckner. Yes, sir. You are probably looking at about
$10,000 worth of computer towers, printers, things of that
nature, and you can really set up a nice operation that can----
Senator Lieberman. Actually, that is relatively inexpensive
compared to the profit. I guess I was thinking about the
quarter-of-a-million dollars that was the other video.
Mr. Buckner. Yes, the different goods will dictate how your
operation needs to be set up. An embroidery factory, as we saw
in the videotape, you do need a warehouse-type facility to
house those machines and it takes a large-scale operation.
Senator Lieberman. So my question really is, who are those
people here and other places around the world? Are they just
unethical business people, or does organized crime get in at
that level, at the manufacturing level?
Lieutenant Stedman. Our experience has been that the people
that are involved in importing these goods, which is most of my
business, the importation, they have been doing this for a lot
of years. The community in Los Angeles has been around for
probably 20 or 30 years in the garment district. My grandmother
and my mother used to shop down there. These people have been
importing textiles for years and years, and from the same
companies that are dealing the counterfeits and the same
countries.
Senator Lieberman. So it is not clear whether there is
organized crime involved in the manufacturing.
Lieutenant Stedman. That is outside my realm of expertise.
I know there is once it gets here.
Senator Lieberman. Dr. Levitt, do you have any information
on that?
Mr. Levitt. I don't have any information on the extent of
it in this country. My sense is that it is likely, coming from
production in China or elsewhere, and if there are then, as you
saw in the videos, selling it here. What we do know, there is a
lot more information on what goes on in South America and the
likely trends may be parallel. In South America, Hezbollah
operatives are deeply involved in import-export companies.
Senator Lieberman. Right.
Mr. Levitt. They are deeply imbedded in the free trade
zones in Iquique and Maicao----
Senator Lieberman. Where there is manufacturing going on,
or is that more the export-import?
Mr. Levitt. I don't know if there is manufacturing going on
there, but they are then at that level involved in the import-
export themselves as opposed to someone else importing it and
them just taking and running with it here.
Senator Lieberman. Got it.
Mr. Levitt. But the software side of it is extremely
inexpensive.
Senator Lieberman. Inexpensive?
Mr. Levitt. Inexpensive.
Senator Lieberman. Right.
Mr. Levitt. In our think tank, after we have an event, we
put it on CD. We send it out to our trustees. We have a tower.
It doesn't cost a lot of money. We do it in a couple hours. We
produce a whole bunch of these CDs to send out to people who
couldn't make the event.
Senator Lieberman. Right. I mean, another question I raise,
and I want to pursue it on my time, I want to get on to the
subject, is whether legitimate businesses who happen to
manufacture pocketbooks or hats are doing this as a sideline.
Mr. Buckner. I have had cases where there have been
legitimate businesses that have also turned after hours into
counterfeiting operations, double-dipping, is what we will say.
Senator Lieberman. Let me ask you about the distribution
chain. You said that these counterfeit goods are not only sold
on street corners, etc., but often in stores. Is it your
presumption that the merchants who are selling counterfeit
goods know that they are counterfeit, or are they being duped?
Mr. Buckner. Well, I think your street corner vendors do,
but your fixed retail locations, I could name names of some
very big chain stores today, which I don't want to do, that
have been involved in counterfeiting unknowingly.
Senator Lieberman. Unknowingly?
Mr. Buckner. Yes, sir.
Senator Lieberman. So let us now go to the subject of
terrorist links. Let me ask the question simplistically. If you
are in Hezbollah's cell in Los Angeles or Charlotte and you are
looking to make some money to send back to finance terrorist
activities, where do you go to begin to connect to the
counterfeit ring? How do you do that? How would they do that?
Lieutenant Stedman. It is very simple. Like I said, this
group down in the Santee Alley--like Kris was talking about--
they have been there for years and years. The counterfeiting
has been going on for years and years. You could go down there,
start as just a part-time employee, and before you know it, you
have people driving up to your door with vans loaded full of
counterfeit stuff. You don't even have to go search it out.
They are going to bring it right to you and you can start
business that day.
Senator Lieberman. Well, that is very interesting. So if
you are Hezbollah and you are trying to raise money illegally,
that is not very complicated to get into the distribution
network to get the stuff.
Lieutenant Stedman. It is an easy business, not like the
drug business, where you would have to be introduced and vetted
out and be trusted before you would be able to operate. It is
just so rampant that you can set up today and get started.
Senator Lieberman. Let me ask this question. Is there any
evidence of direct connections between organized criminal
families, let us say, operations, and terrorism? In other
words, I don't mean the organized criminal families are
involved in terrorism, but is there any evidence of joint
activities between, let us say, Hezbollah and organized
criminal gangs or organized crime operations?
Mr. Buckner. One thing that I can say, I don't know the
exact answer to that question, but groups down in Los Angeles
who normally may be enemies in the real world will cooperate
with the----
Senator Lieberman. Such as?
Mr. Buckner. Let us say Israelis, Jewish folks, along with
these other groups of people that we are talking about. They
will cooperate to make money. They will buy from each other,
trade their goods. It is all about the money.
Senator Lieberman. No scruples of any kind. What I was
thinking of, you know, there is some significant evidence,
suggestion, that there may be cooperation between Latin
American drug gangs and terrorists in limited areas, for
instance, in helping to smuggle, bring terrorists into the
United States. You don't have any evidence of an organized
connection between those two.
We have focused on Hezbollah here. Is there any evidence of
any of the other terrorist groups, Middle Eastern or otherwise,
benefiting from the sale of counterfeit goods here in the
United States?
Mr. Levitt. Certainly involving criminal enterprises. I
don't know the specifics about whether they are involved in
counterfeit goods, but we do have evidence not only of
cigarette smuggling, but of baby formula and credit card
fraud----
Senator Lieberman. By other terrorist groups?
Mr. Levitt. Yes, groups like Hamas and----
Senator Lautenberg. I wonder, Madam Chairman, are we going
to have a second round, because then I could jump in here and
be out.
Senator Lieberman. I am going to yield to you. I am sorry.
I didn't see the clock going.
Chairman Collins. We will have a second round if you need
additional time.
Senator Lautenberg. Yes, and I can get my first one and go.
Senator Lieberman. OK. Very significant answers to the
questions and a significant problem. I want to come back on my
second round and talk a little bit more about what more we
might do to focus attention and action on this problem.
Thanks, Madam Chairman.
Chairman Collins. Dr. Levitt, I want to give you a chance,
however, to answer Senator Lieberman's question. You started to
and mentioned Hamas, I believe.
Mr. Levitt. Yes, just that we do know, and law enforcement
officials tend not to speak open source in great specifics, but
they have mentioned Hezbollah, Hamas, and others, is usually
the way they put the package together, involved in this type of
fraud activity, credit card fraud and all these other things we
have discussed. I think it would be naive to assume that they
are not involved in the kind of other criminal activity that we
are looking at here at the table.
Chairman Collins. Thank you. Senator Lautenberg.
Senator Lautenberg. Thank you, Madam Chairman.
The thing that occurs to me is that we permit a lot of this
to go on by issuing licenses to street vendors who invariably,
I think, do tend to carry counterfeit or knocked-off goods, as
they call it. I don't understand why the licenses are issued in
the streets of New York or Boston or Newark in my State. If
they don't issue the licenses to these people, which are
competitive with the regular merchants, and the regular
manufacturers and merchants are much more able to determine
whether or not they are getting counterfeit goods. And then
they just do street sweeps. I mean, to me, it is kind of
cozying up to the idea and permitting discounted merchandise to
be sold in front of very valuable leasehold properties that
companies invest in. Do you have any idea on why these permits
are issued?
Lieutenant Stedman. Our experience is that once the permits
are issued, if there is an enforcement action, whether it is a
search warrant or maybe a civil action by someone like Kris,
the permit may be revoked by the city, but then the next family
owner will go get a new permit with a new name and continue
business on. So there is----
Senator Lautenberg. There ought to be a look at that.
Mr. Levitt, I want to ask you, how much damage do you think
Iran does by its interference in our activities in Iraq? Are
they a significant factor, do you know, in providing resources
to Iraq, equipment, etc.?
Mr. Levitt. Officials do believe that Iran is engaged in
disruptive activity in Iraq for certain, not only supporting
some of the militias that are causing a great deal of damage
and loss of life there, but also with reportedly a great number
of intelligence operatives of their own. Hezbollah's al Manar
satellite television not only includes vitriolic messages of
hate against Israel, but also very explicitly against the
United States, and that doesn't help, either.
Senator Lautenberg. So we must do whatever we can to cut
off resources for Iran.
Mr. Levitt. Yes. Easier said than done, in large part
because the oil industry is such that while I certainly think
there is an important moral statement to be made by our not
participating in funding Iran, someone else is going to step in
by the nature of the fundible oil industry and I don't believe
that is necessarily going to cause a loss of income to Iran
unless it is extremely multi-lateral. And given the nature of
international oil business and the price of oil today, there
is, unfortunately, always going to be someone out there willing
to buy that barrel.
Senator Lautenberg. I don't want to ask you to moralize
here, but should American companies be particularly outside the
circle--I mean, competition for the business, that as an excuse
can create all kinds of things. Why don't we grow more opium
here? Why don't we get into the business if someone else is
going to do it? I don't buy that at all. To me, if help comes
for an American company, I think it is treasonous if it goes to
Iran and then helps to kill our troops. Every day, you hear the
reports about two more, four more being killed, and the number
of Iraqis being killed. To me, I think that we have to be--this
is a very interesting hearing that we are having, Madam
Chairman, and I think it is important.
I think it is important from two standpoints. One is the
fleecing of the customers, the penalty for business. But when
those funds flow to enemies of our country, and you mentioned,
I think, Dr. Levitt, that Hezbollah has surveillance routines
existing in our country----
Mr. Levitt. That is what the FBI says, yes.
Senator Lautenberg. Now, are they surveying potential
targets for violence against those individuals? Is that part of
their scheme?
Mr. Levitt. The FBI has described it as basically training
missions for new recruits, but we need to assume, because this
is traditional terrorist modus operandi, that they don't then
throw out those reports. Those reports are available to be used
as off-the-shelf operational menus should they decide to use
them. I don't know what types of targets specifically they are
surveiling, but yes, we need to be concerned that there is that
possibility.
Senator Lautenberg. Well, everyone is very concerned with
I.D. thefts. I mean, that then permits lots of funny things to
go on. People hide their real identity and adopt those that
would get them into places that we don't want them to be.
I thank you for your testimony, all three of you, but I
really think that we have to kind of look inside and make sure
that by accident or design, that no American companies are
helping Iran, and I will be damned if the reason that we
shouldn't do it is because a competitor could come in there. We
are either out to protect democracy and lives or we are not.
And if we say, well, hey, listen, business comes first, then it
is a kind of society I don't think that is good for my family
or my friends or my community. Thank you.
Chairman Collins. Mr. Buckner, you have concentrated, as
has Lieutenant Stedman, on the Los Angeles area and what is
going on there with regard to counterfeit goods, but is this a
problem throughout the United States? Does it affect smaller
cities? Could you give us some idea of the scope of
counterfeiting operations in this country?
Mr. Buckner. Yes. The counterfeiting problem is widespread
throughout the United States. Obviously, in your bigger
metropolitan areas, it is more in your face, on the streets of
New York, the streets of Los Angeles. But I have worked cases
in probably 30 different States, and there are investigators
just like me all over the country that do exactly what I do. It
is amazing, the scope and the magnitude of the problem.
Chairman Collins. Each of you has mentioned that the high
profits involved and the ease of getting into counterfeiting
makes this activity very attractive to criminals, including
terrorists. Is another factor that it is unlikely to be
prosecuted? Is there a low risk of these cases actually making
their way to the courts? Lieutenant Stedman.
Lieutenant Stedman. All of our cases are filed. The
priority in Los Angeles is violent crime. There is a lot of
violent crime going on, the robberies, rapes, and murders and
all that kind of stuff. This, obviously, would take secondary
interest to the District Attorneys' Offices because of that.
But we have actually had pretty good cooperation from the
District Attorneys' Offices. They see the problem. I think
because there are units like mine out there starting to do more
and more of it, they are realizing the scope of it and we are
actually getting pretty good cooperation from the District
Attorney's Office.
Chairman Collins. I think one of you may have mentioned
that if you are a criminal who is dealing drugs, you have a far
greater chance of going to prison than if you are selling
counterfeit goods, and yet when you look at the implications of
these sales for terrorist activities, you may, in fact, be
doing more damage even than someone who is peddling drugs.
Mr. Buckner, could you comment based on your experience, is
there a low risk of going to prison, a low risk, in fact, of
being prosecuted?
Mr. Buckner. I have to compliment the L.A. County DA's
Office. They really proactively are looking at doing more and
more of these cases, but unfortunately, for example, there is a
subject that we arrested five different times. On his sixth
arrest, he finally is going to State prison. The sixth time, he
is now going to State prison.
Unfortunately, what usually happens is guys get probation,
and the problem is the profit margin is so huge on this, I
don't think anybody really realizes that it is worth the risk.
If they get arrested one time, get probation, pay a fine, they
look at it as a cost of doing business, and that is the
unfortunate part.
At the same time, the DA's Office in L.A. County is taking
these cases more seriously and filing more cases than they ever
have. I think the problem is just really overwhelming.
Chairman Collins. Dr. Levitt, do you have any comment on
that based on your work? I realize it is a little bit outside
of your area.
Mr. Levitt. Just I completely agree with what they said. We
have a problem with being short-staffed, as Lieutenant Stedman
said. We do need more resources. Law enforcement is doing a
wonderful job, but the problems are immense and there are so
many things on their plate.
As Mr. Buckner said, not only terrorists, but criminals
realize how profitable this is and many of them, certainly in
the case of Hezbollah, they see how successfully they have been
able to engage in these activities in other places,
particularly in South America, where the laws are even more
lax, and they take that assumption here, too. Frankly, they
find it to be very similar, probation and a fine. The way Mr.
Buckner put it, the cost of doing business, I couldn't have put
it better myself. That is exactly how they see it, and frankly,
that is all it is.
Chairman Collins. That is why I think that your suggestion
that we take a look at the penalties and whether there should
be an enhanced penalty is a very interesting suggestion and one
that I am very interested in exploring further.
Mr. Levitt. Thank you, and I think that part of the problem
is that we all agree that if there were a way to decrease
demand, that would be wonderful. But, I don't know, maybe it is
the realist in me. There are people with low incomes, there are
people who--everybody is looking--this is the United States of
America. Everybody wants to get a deal. And so it is going to
be very hard, even with great public education, to
significantly decrease the demand. I think that is just the
reality--which doesn't mean we shouldn't try, and it doesn't
mean there aren't things we can do that would make a serious
dent.
But I think if we are really serious about this, we have to
focus on the supply. Like Lieutenant Stedman said, we have to
have the State Department and others focus on countries like
China, where this is being done rampantly and being shipped
here. We need to focus on vendors who may be doing this, and we
need to focus on ways to decrease the supply.
Chairman Collins. Thank you. Just one final question for
Lieutenant Stedman. You have referred to a particular part of
the Los Angeles that is known for this activity. Why not just
shut it down? Am I missing something here?
Lieutenant Stedman. There are many legitimate businesses
down there, people trying to make a decent living, playing by
the rules, obeying the laws. I don't know what the percentage
would be, but it wouldn't be 20 or 30 percent of the area that
is doing this. It is a huge draw for the city. It is huge tax
revenue, legitimate tax revenue, but there is a significant
counterfeit problem down there. We are doing the best we can,
but I think it is--I just don't want to shut down the whole
area to get rid of a few bad apples.
Chairman Collins. Thank you. Senator Lieberman.
Senator Lieberman. Thanks again, Madam Chairman.
You know, it strikes me, as we talk about public education,
I know we hear a lot about brand name--from brand name
companies involved in a lot of this stuff about cutting back on
intellectual property violations around the world, particularly
in Asia, but around the world. Maybe I missed it, but--and
American companies lose hundreds of--well, I may be overstating
it, but a lot of billions of dollars, hundreds of billions, in
this operation.
I wonder if it would be worth it for them to launch an
advertising campaign which basically says to people, when you
buy something--when you buy a counterfeit good on the street,
you may be saving a few bucks, but the dollars you are spending
may well be going to terrorist groups that are going to use it
to kill Americans. That is a strong message, but from all you
have told us today, there is some truth to it. I don't know, it
is not within your--maybe the Chairman and I can think about
how to call on some of the large companies that are really
concerned about this problem and suffer from it to try the
demand reduction part of it.
Mostly up until now, as I understand it, they have tried
the supply reduction, particularly in trade negotiations and
diplomatic relations with some of the producer countries, and
it obviously hasn't worked very well.
Mr. Buckner. One thing I can say about several of the brand
owners, they have partnered up with several different magazines
and they have put into print and sponsored articles regarding
counterfeiting and where the proceeds go and the other
implications. And more and more, since I started this business,
more and more, I am seeing these companies do press releases
and actually interact with the press, where they were scared to
interact with the press before, to try to get the message out.
But I definitely agree that more needs to be done on behalf of
the private sector.
Mr. Levitt. If I could add----
Senator Lieberman. Yes.
Mr. Levitt [continuing]. One concern, and that is, again, I
think targeting demand is important, but you may recall that
there were commercials years ago, post-September 11, about
drugs and how purchasing drugs is not only an issue of drugs,
it also can finance terrorism.
Senator Lieberman. Yes.
Mr. Levitt. They were so poorly received by the public and
it became a joke, which is the last thing we would want to do.
So I am not a marketing expert, but my concern would be that it
has to be done, it has to be done properly. I am not sure what
the right exact message is----
Senator Lieberman. Because the public thought it was far-
fetched?
Mr. Levitt. Yes.
Senator Lieberman. OK. That is something that the marketing
and advertising experts at the brand name companies can answer
better than I can.
Lieutenant Stedman, Senator Collins asked a question which
raised an interesting point about this problem obviously
doesn't only exist in Los Angeles. It exists, I presume,
anywhere there is a significant market for counterfeit goods,
and that is a lot of places in the United States of America.
What is your sense--a quick response, but what is your sense of
to what extent others, particularly large urban police
departments, or sheriff's offices, have focused efforts on
stopping counterfeit sales?
Lieutenant Stedman. I know New York had a huge problem. I
know they are trying to put a dent in it like we are.
Senator Lieberman. NYPD is on it.
Lieutenant Stedman. That is correct. I was in New York over
last summer and it was pretty rampant. I mean, my daughter
tried to buy a purse and I dissuaded her, but----
Senator Lieberman. Good work. [Laughter.]
Lieutenant Stedman. Yes. It was worse than even Los
Angeles. It was everywhere, everywhere I walked down the
street. But I know in New York, we talk to them often----
Senator Lieberman. That is what I was just going to ask. Do
you all communicate on this problem?
Lieutenant Stedman. We do. We have connections in most of
the major metropolitan areas and we talk about people of
interest, and we run across a lot of business records where
different businesses are talking to each other, shipping back
and forth. There is actually an overland trucking of this
material from New York to California in some instances, or by
train. So it doesn't just come through the ports of Los Angeles
and Long Beach. It comes overland, probably stops along the
way. But between New York and Los Angeles, there is a huge
transit.
Senator Lieberman. This is obviously a national problem. It
is an international problem. So let me ask you now, to what
extent in the work that you are doing in Los Angeles you have
received cooperation from Federal agencies.
Lieutenant Stedman. We receive actually outstanding
cooperation from the Customs Service and from----
Senator Lieberman. And this obviously has to do with----
Lieutenant Stedman. The ports.
Senator Lieberman [continuing]. The counterfeit goods
coming in.
Lieutenant Stedman. Yes. They do a great job down there,
but I am sure you have been to the port. You know how many
containers come in every day. It is really shoveling sand
against the tide. We do get great cooperation when we try and
backtrack some of the shipments that come in from Customs. We
have a great relationship with ICE agents. A lot of these
people's immigration status is iffy.
Senator Lieberman. Right.
Lieutenant Stedman. And we invite them along with us when
we think that might be the case.
Senator Lieberman. So Customs and Immigration, good
cooperation. How about Federal law enforcement, like FBI?
Lieutenant Stedman. We speak to the FBI often. We
deconflict every case that we do, because we never know where
we are going or who we are going to be seeing that day. So we
have five----
Senator Lieberman. What does deconflict mean in this case,
for the record?
Lieutenant Stedman. Deconfliction means that we are not
stepping on somebody else's toes.
Senator Lieberman. Another agency that is investigating,
you mean?
Lieutenant Stedman. That is correct. We have five members
of the Sheriff's Department on the JTTF. We clear every
investigation through them to make sure we are not stepping in
the middle of an investigation that is already going on at the
Federal level.
Senator Lieberman. So that, in other words, you may be
pursuing a counterfeit goods ring, but somebody else will be
pursuing those same people for a terrorist investigation?
Lieutenant Stedman. Exactly right. I don't get that
information, but I make that attempt to make sure we don't
bungle somebody else's investigation by either hitting the
suspect too quick or not at all, so we do that on every case
that we do.
Senator Lieberman. Dr. Levitt, with your experience at the
FBI, can you comment on whether you think the efforts to
enforce anti-counterfeiting laws are getting enough attention
and are sufficiently coordinated at the Federal level,
particularly whether there is a clear sense of coordination
between the FBI, Treasury, for instance?
Mr. Levitt. Well, unfortunately, I really can't, only
because I wasn't involved in any of that at the FBI. I was on
the counterterrorism and on the intelligence side----
Senator Lieberman. Right.
Mr. Levitt [continuing]. And that would have primarily been
run through the Criminal Division. But I do know from my
interaction with FBI officials and Treasury officials now that
there is a tremendous amount of attention being given not only
to this issue substantively, but to the nature of the
cooperation. I think there is still some ways to go, but I am
actually very pleased at the kind of attention that people at
very senior levels are giving to making sure that the
interconnectivity and the cooperation is improving.
Senator Lieberman. That is encouraging.
One last question. I am curious, a couple of times Paraguay
has been mentioned. What is going on in Paraguay?
Mr. Levitt. Paraguay, Brazil, and Argentina, where those
three countries meet is the triple border, or the tri-border
area. Asuncion is a very big problem, and you can cross that
border with great ease. It is beautiful. A very famous
waterfall is there.
Senator Lieberman. Right.
Mr. Levitt. A great tourist attraction. And if there is
ever any counterfeit good that you could ever imagine, it is
there, and----
Senator Lieberman. Manufacturing is going on there, or----
Mr. Levitt. I don't know that there is manufacturing going
on there.
Senator Lieberman [continuing]. Or sales?
Mr. Levitt. My sense is that it is all sales and that it
is--basically, imagine this neighborhood in Los Angeles times I
don't know how many----
Senator Lieberman. So what you are saying is that there is
reason to believe that there is at least a Hezbollah presence
there----
Mr. Levitt. We know there is a Hezbollah presence there.
There is a Hamas presence there. It is a very serious problem.
It is getting a lot of attention.
Senator Lieberman. Thank you. Thank you, all three of you.
You have really been excellent, and I hope we can take it from
here.
Thanks, Madam Chairman.
Chairman Collins. Thank you, Senator.
I want to thank our witnesses today for their fascinating
and well-informed testimony. It was very helpful.
We have had success in this country in shutting down some
of the formal mechanisms, the financial mechanisms that
terrorist groups have been using as well as closing down
certain Islamic charities that have been used as conduits for
terrorists to finance their operations. But as today's hearing
shows, each time one avenue is closed down, another one is
exploited by ever-resourceful terrorist groups, and
counterfeiting, because it is extremely lucrative and easy to
get into, is the mechanism that terrorist groups have
discovered and are exploiting.
I want to thank you for increasing our knowledge of this,
and I hope this hearing will help promote better public
awareness, as well, which I agree with Mr. Buckner is a key
part of the solution in addition to looking at enhanced
penalties, international efforts, and other means of cracking
down on this problem.
I want to thank the staff for their hard work on this
hearing, and I particularly want to recognize the efforts of
Bill Priestap, who is sitting quietly in the corner. He has
worked for the Committee for the past 16 months as a detailee
from the FBI. He was the one who suggested that we look into
this area. He has worked very hard on a whole host of issues,
but particularly the terrorism financing issues, and his work
has been outstanding.
I am very sad to have him go back to the FBI, but I do
appreciate the Director allowing us to have him for more than a
year's time and we very much appreciate the new role that he is
going to be taking on at the Bureau in the new Intelligence
Office. I would note, he starts his new job next week, so he is
not even taking any time off between assignments.
So, Bill, thank you for all your hard work, and we wish you
well and will miss working with you.
The hearing record will remain open for 15 days.
I do want to announce that the Committee will be having a
very brief business meeting after the first vote to act on some
pending nominations, including that of Phil Perry, who has been
nominated to be the General Counsel of the Department of
Homeland Security.
This hearing is now adjourned.
[Whereupon, at 11:14 a.m., the Committee was adjourned.]
A P P E N D I X
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