sen. hatch: the senate will come to order. i would like to welcome everyone today. before we get to that, i would like to make an important point about the president's proposed caps on steel and aluminum. let's set aside for a moment all of the legitimate concerns about trade wars, the failure to target the source of steel overcapacity and the disproportionate effects on our major trading partners and allies. in the end, these tariffs are not a tax on foreign steel that a tax on american citizens. who is this action is finalized, will be forced to pay an additional 25% on steel and 10% on aluminum. those effects would blunt the benefits of tax reform for all americans including the reduced impact of billions of dollars that many companies pledged to invest in america.

those billions would not be as valuable. truly there is a better way to address china's actions then to impose a new across-the-board tax on u.s. consumers and businesses three short months after we passed copperheads of -- comprehensive tax reform. we can and we should do better. i will be sending the president a letter later today emphasizing just that. now, i would like to turn to the important issues we want to address in this hearing. it is no secret that i have long felt, and i think others feel the same way, a strong protection for intellectual property rights to protect consumers. a properly enforced trademark let's the customer know who made a product and where to go for information. we were all encouraged by the new authorities that 2015 granted border protection and

customs. as well as immigration and customs enforcement. those authorities, along with a new national intellectual property center were designed to help agencies collaborate, coordinate, and take down perpetrators. because there are frequently iccups with the implementation of new laws, the committee asked the government accountability office to conduct a broad investigation into how it was being implemented. as they started their investigation, gao quickly began to realize that e-commerce generally was causing major issues for cvp and ice due to advancements in online purchasing, the agency's work -- the agencies were being forced to adopt new tactics. those have all been changes for the good.

we asked gao to continue their investigation and to look specifically at the problem of counterfeits on some of the most prominent e-commerce platforms. as far as this process, gao made purchases from five major e-commerce platforms. after using relatively narrow criteria, gao received at least one counterfeit and one legitimate good from each of the platforms. in the end, 20 of the 47 individual items they purchase were counterfeit. the sample size was small, the results are still telling. on the whole, this investigation has started down a path of discovery. on that path, we noticed there are far more issues than we had initially anticipated. today's hearing represents a combination of the initial findings. while we will not be able to fix

this at once, i am hoping to discuss some of the meaningful steps that we could take in the near future or near term. before we get to that, i want to talk about what we found as part of this research. as part of this research, gao found that many counterfeit products create a hazard to's -- create a hazard to consumers, children and our economy. cvp, ice and cpsc have found numerous instances of counterfeit products with major health and safety issues. these issues have included contact lenses that contain dangerous bacteria, cosmetics that have chemicals that can cause harmful health effects, phone chargers with faulty wiring, batteries with thermal runoff issues, and even defective airbags. gao has found with the rise of online marketplaces,

counterfeiters have greater access to the market and can ll their phony products directly to consumers. because the counterfeiters frequently use stock photos or simply join in on a pre-listed product come the goods are sold as genuine. so long as counterfeiters can make the products indistinguishable on the outside, most consumers have not noticed a difference. this is because typical red flags for consumers are difficult to notice. this is even true when the counterfeiters create new colors or designs of more famous products. in one recent instance, the u.s. attorney's office in the northern district of mississippi successfully prosecuted a case against bobby rogers junior. mr. rogers had a fairly elaborate scheme in place. first he would order counterfeit merchandise from china and

facilitate delivery by alternate addresses. then he would powder coat the counterfeit items and sell them as a third-party retailer online. as he did this, he would represent the goods as authentic, sometimes even with licensed modifications. the sheer volume of his scams was staggering. just one of the two major platforms that he used, mr. rogers has sold over $300,000 in counterfeit goods. when his complex was rated, authorities seized more drink ware. later, as laboratories came back, several of the colors tested positively for lead, exceeding the amount legally allowed by more than 20 times and for all we know, there are currently children around the country sipping water with dangerously high levels of blood -- dangerously high levels of l

ead because of mr. rogers. sadly, he is just one among many many perpetrators buying counterfeits and facilitating sales of them to e-commerce platforms. we have heard from some rights holders like yeti whose products have been counterfeited in the schemes who have responded strongly to address these problems. they issued a statement, making it clear that they were expanding significant resources to protect their consumers. i ask unanimous consent that the full statement, as similar statements by other rights holders be entered into the appropriate place in the record. i don't want to still too much of their thunder, but one of the reasons we have invited underwriters laboratories is to get a broader perspective on the

seriousness of these issues. that is just one example in a public report, ul tested 400 counterfeit apple phone adapters. out of the 400, only three past -- passed electricity strength tests and that is just one of the many studies they have performed. i think everyone here, members and the audience will be stunned by the breadth of products being counterfeited, but also by the incredible volume. this goes beyond the dollars and cents that companies have invested to market their products. which is enormously important to our economy, not to mention the well-being of american consumers. but we are not just talking about devalued investments, we are talking about lead on children's drinkware, phones catching fire, homes burning

down, consumers being injured from hygiene and cosmetic products, airbags not deflating properly, and who knows what else. it is my hope that we can all agree that today counterfeits products pose an immediate and significant risk to american's health and safety. i hope that we can take the recommendation seriously to improve information sharing and better track cvp's and enforcement methods. i am interested in talking specifically about sharing e-commerce platform data contained in invoices and on packages with rights owners, as well as learning from and improving the program. american consumers are relying on us to get this right. we need to work together and with it appropriate officers at

cbp, ice, and other agencies to make sure we do. with that, i'm happy to turn to my colleague, senator wyden or his opening remarks. : mr. chairman, you commented on the steel and aluminum issue. i would like to start with brief comments on that as well. the fact is, on the steel and aluminum issue, the president has inflicted a punishing year of uncertainty on the american economy. and this uncertainty has harmed our workers. american workers. they need and deserve good paying jobs. moreover, even as of this morning, it is still not clear that the president understands the central problem which is dealing with chinese

overcapacity of steel. salvo had practically one a day with respect to trade, one day he is looking at tariffs, at inxt day he is looking some way intertwining his steel policy with the north american free trade agreement. i want it understood that this year of uncertainty, which already caused and import surge when the president basically dawdled right out of the gate, has a real consequences for american workers and american families, and they deserve better. hearing,ect to this committee will be discussing the challenge of protecting consumers from counterfeit goods. i am glad that this discussion is taking place. it is long overdue. i also hope this committee will hold hearings on the trump

administration's buried trade activities, including the steel and aluminum investigation for potential tariffs, the north american free trade act renegotiations, and the investigation of china under section 301. on counterfeit imports, any discussion of this issue has to begin by recognizing that over the last few decades, the internet has transformed virtually every corner of the american economy. i stated some time ago in this rim that the internet -- in this room that the internet is the shipping lane of the 21st century. that is a far cry from the kind of trade discussions that took place for decades in this room. people take it for granted. it is in effect, a miracle of modern commerce that a small

business in my home state of oregon, 3000 miles from washington dc, can reach consumers anywhere at anytime. no longer does expanding your customer base mean investing solely in bricks and mortar. a portland clothing company founded by women is run by women. they have two stores in portland. online driving sales is opportunities, online sales. 70% of their business happens online. that is where we are seeing the growth. has is a company that seized the opportunity to sell around the world via the internet, and it 25 employees. theree fact is, any time is significant economic change, let alone the kind of transformative activity that the internet has brought, you get

some new challenges with the upside. that includes the chance that when you buy something online, there is a chance it could be a fake. it is up to the federal government to make sure our approach to combating counterfeits is not stuck in the 20th century. these days when you talk about cracking down on counterfeit goods, you are no longer talking about stopping the person out of theirpurses trunk. you are talking about illegitimate rocks passed on even the most savvy streetwise consumers. and often they are mixed right in with the genuine products that our people want. many of those posts serious dangerous. makeup, beverage containers, can be made with dangerous chemicals. electronics can pose a fire hazard. there are toys that can be unsafe for kids.

the number of small packages coming into america has surged, and the fact is, customs and border protection has to step up and play a major role in identifying counterfeits and stopping them before they enter the marketplace. unfortunately, so far, we get a sense that customs and border protection's is just too often playing catch-up tracking these fake products down. conducting a recent study of this issue, the government accountability office recommended policy updates at customs and border patrol work more closely with the private sector. those recommendations include expanding customs and border detection authorities to notify online sales platforms when they have products on their hands that might be fake. setmay hope that that would

wheels in motion, and this would inult in the policy put place. customs and border patrol has responded to this audit by claiming it would take until this upcoming september to determine if additional authority was necessary. over the last few years, the committee has put sweat equity into the policies that have strengthened the enforcement of our trade laws, and have done more to protect the american consumer and the american worker. the chairman and i offer the trade enforcement act of 2015 that put in place important new tools for customs and border protection's to be taxed and prevent counterfeits. including sharing information about counterfeit imports with the right holders. in preparation for the hearing, committee staff from both sides set down with customs to dig into the issue.

my staff asked, and i quote here, customs and border protection need more authority to crackdown on the ripoff artists and the counterfeiters. the agency said they don't know. when asked when they would know, they said they did not know when they might know. as we begin this hearing, it ittainly is unsettling that has not been possible for the finance committee on a bipartisan basis to get a straight answer on a matter like that are the agencies central to america's effort to protect our consumers from counterfeit goods. so, this morning i am going to give the agency one more try to answer those questions. let me close by saying, getting this right is not going to be a simple as putting a few more policy tools in the agencies

kit. -- in the agency's kit. we need the officers to fulfill has got a tough job working with other law enforcement agencies and foreign governments to go after the source of the problems. the administration has spoken solely on hiring an army of border patrol agents. i do not see how that is going to help them build their capacity to deal with the counterfeit challenges. the congress and the administration need to ensure that the agency has the resources it needs to combat counterfeiters, and there is actual follow-up. this is simply a matter of rejecting american families from harmful products, and making mobilizedwe are fully

to stop these ripoff artists from undercutting the american brand. that is their objective, to undercut the american brand. right to reflect the realities of the modern economy is in my view what this hearing is all about. stir chairman, as usual, i look forward to working with you. chairman, as usual, i look forward to working with you. ch: i want to extend a warm welcome to those coming today. first we will hear from the director of international trade issues at the government accountability office. she has received a number of awards, including the meritorious service award, a client service award, and several results through teamwork towards. she is also a certified government financial manager.

-- a master street in public analysis from the state university of new york. the second witness on our panel executivenda smith, in the office of trade and customs and border protection. ms. smith has overseen her office since 2014, and has been since 1994. to joining customs, ms. smith worked at the department of treasury and on capitol hill. she was honored in 2017 with the distinguish executive rank award , the highest award in civil service. bachelors ands a masters degree from rutgers university, and is also a

graduate of the customs leadership institute, and the federal executive institute. jxt to speak will be mr. jim the officerector of of import at the u.s. consumer product safety commission. e started his career with the agencies office of compliance and field operations. he focusede, primarily on enforcement of regulations regarding fireworks and cigarette lighters. jim later joined import 12 2000 -- 2008. mr. terrence brady, the president of underwater -- underwriters laboratories in. c.

he was appointed to his position last week. he was serving as the chief commercial officer. prior to joining ul he was an associate at the chicago office. graduated from dartmouth college with his undergraduate degree, and received his law degree from notre dame law school. thank you all for coming and being with us today. gianopoulos: chairman hatch, ranking member widen, and members of the committee, thank you the opportunity to be here today to discuss our work on intellectual property rights. united states is a global leader in the creation of intellectual property. companies that illegally import and distribute counterfeit goods can cause a number of harmful effects on the u.s. economy,

such as slowing economic growth, and threatening american jobs the counterfeit goods could threaten that health and safety of the american people. my testimony today summarizes the findings from our recent reports and covers three main areas. first, i will talk about the difficulties that are presented by counterfeit goods in e-commerce am information from our investigation to illustrate just how challenging the problem is. second, i will discuss the nature of efforts that customs and border protection and immigration and customs enforcement has taken to enforce . finally, i will cover the ways -- the rise of e-commerce has contributed to a fundamental change in the market for counterfeit goods. in the past you may have expected counterfeit purses or watches on a street corner or

fleamarket. these goods may have been shipped to the united states on a cargo ship in bulk and were priced significant below retail. now, many people shop online, where sellers engage in practices to make their goods look authentic. can bes every day items counterfeit. this practice is no longer limited to high-end goods. these online purchases are sent to buyers in express packages rather than ship in bulk to distributors. this makes it very challenging for consumers as well as cvp to identify counterfeit goods. as part of our review, we purchased 47 items covering for different types of consumer goods, including nike air jordan --es, giddy travel mugs, yeti travel mugs. from five popular e-commerce websites. we look for items that were

advertised as new brand-name items and work soul by highly rated third party sellers. of the 47 items, 20 were counterfeit. as determined by the rights holders themselves. it can be difficult to tell if it item is counterfeit. these are three of the mugs we purchased online. silver mugs look identical, feel the same, same weight. but if you look at the bottom, you'll see that one of them has itspellings on the words, says mede in china instead of made in china. this hot pink mug looks doesntic except that yeti not make hot pink mugs. in our full report, we include a one page appendix that lists a

number of ways for consumers that they can take steps to avoid purchasing counterfeits online. enforcements, we, cbp and ice engaged in a number of activities that conduct special operations at u.s. ports , engage with international partners, and undertake .ocalized programs however, cdp has conducted a limited amount of evaluation of its efforts, and may therefore not have the information it needs to be as effective and efficient as possible, given our current resource string environment. we recommend that cbp take steps to evaluate the effectiveness of its ipra enforcement efforts. ipr enforcement efforts. cbp is restricted on the information on seized items that it can share. this restriction limits the ability of rights holders and e-commerce websites to protect

ipr. congress gave cvp authority to share certain information with trademark and copyright owners before completing a seizure. however, cbp officials told us that there are legal limitations to the sharing. example, cbp cannot share information from the exterior of seized packages. this could help websites identify groups of counterfeit merchandise from the same seller. we recommend cbp assess what information would be held to share with the private sector, and take appropriate action to enhance information sharing where possible. cvp agreed with this recommendation. thank you for your time. i am happy to answer any questions you might have. much,atch: thank you very ms. smith we will turn to you. it is an honor to appear today to discuss cvp's

property rights, and our efforts to keep counterfeit goods that pose a threat to the health and safety of american consumers from entering u.s. commerce. as america's unified border agency, cvp and forces 500 trade laws and regulations on behalf of 49 agencies. this morning i would like to give you my perspective of the opportunities and challenges we see in the current trade environment. thanks to this committee's support and commitment, the trade facilitation and enforcement act of 2015 strengthened and expanded cvp's ability to enforce our trade laws while facilitating lawful international trade. among its many provisions, trade facilitation act, provided significant cost savings opportunities for u.s. businesses and consumers by raising the threshold from $200 to $800, which allows relatively

low value goods to be brought into the united states free of duty, and with reduced information requirements. the combination of growing online purchases, and the higher threshold, has resulted in increasing u.s. imports of small just in time packages. many arrive via international mail. years, thest five volume of international air express shipments has increased nearly 50%. and in the postal environment, small packages have increased by over 200%. this rise in small packages has altered the dynamic of the trade environment, and cvp ability to enforce intellectual property rights. cvp targets for a variety of risks, and takes action when it finds a problem. year 2017, cvp seized over 34,000 shipments of counterfeit goods.

a percent over the previous year, and consistent with the trend we have seen over the last 10 years. 60% of these seized goods, including cosmetics and toys, contain serious potential threats to consumer health and safety. we are currently in forcing more than 18,000 copyright and trademark records. right holder collaboration through training and the information sharing is essential to identify counterfeit products. cvp regularly discloses information to the rights holders to verify a products validity. if we suspect imported merchandise is counterfeit. this private sector partnership toenvisioned is continuing expand with the recent announcement of the first partnership arrangement under enforcement.

proctor and gamble has donated testing devices to help cbp identify the uptick -- authenticity of a product. ctac combines the trade enforcement and abilities of cvp and 12 other agencies to protect the american public from unsafe imported products. ctac's enforcement efforts led to 240 seizures of unsafe products in 2017. two months ago, cvp targeting resulted in officers at the port of los angeles seizing a large angeles seizing a large incoming shipment of toy building blocks for trade mark infringement. these counterfeit toys were also found to violate the federal .azard act for excessive lead we are concerned about the risk we find in small shipments, where 90% of seizures were made

last year, and have been working with interagency and private sector partners to address those risks. building on our experience in mandate byclear congress to develop interagency approach towards enforcement, we have developed a joint response plan. we will use this plan and follow interagency exercises to coordinate that management of incidents that present a safety risk to u.s. consumers and businesses. in anticipation of future e-commerce growth, and to manage threats in this environment, cvp is releasing a strategy. guiding oural for approach to enforcing intellectual property rights, and enforcing import safety, while supporting a vibrant and competitive sector of u.s. international trade. we will work closely with all segments of the e-commerce community, and our partner government agencies to identify

information sharing and other opportunities, and pursue any necessary policy regulatory, or statutory changes. chairman hatch, ranking member wyden, and established members of the committee, i look forward to working with you to build on these efforts, and thank you the to testify today. i'm happy to answer any questions you have. sen. hatch: thank you so much. mr. joholske, we turn to you. andjoholske: chairman hatch members of the committee, thank you for inviting me. in the important role in protecting consumers from counterfeit goods. before i begin, i should note these comments are those of cvp staff, and they have not been approved by, and may not reflect the views of the commission. i appreciate the opportunity to appear before you today, as this

year marks the 10th anniversary of that creation of the import surveillance program. it was established by congress in 1972, and is that the guilt -- federal revelatory body charged with protecting the public from the unreasonable risk of injuries or death associated with consumer products. we are a relatively small agency employees, and a 125 dollars million budget. we have overseen thousands of consumer products the vast majority of which are imported into the united states. since the passage of the act in 2008, we have strengthened our relationship with u.s. border protection, and closely correlates with cvp. effort, we have placed investigators at the largest ports of entry to work side-by-side cvp staff.

currently, have 30 investigators stationed at 20 of the largest ports in the country. despite our relatively small size, in fiscal year 2017, investigators at the port 38 thousande than distinct products arriving in the united states, and stopped 4 million noncompliant or hazardous units from reaching consumers. two prioritized, we have developed our own targeting system, risk assessment methodology. receives data from cvp, which is combined. cbp's --ave staff at cvp, to coordinate with other agencies. we also have a presence at the national property rights

coronation center, where we exchange information with 22 partner agencies that may help us target resources, we would not be able to do the critical work of intercepting high-risk products before they reach consumers without the assistance in support of d.h.s. and c.b.p. although cpse's primary focus is targeting products that violate the requirements. many of the investigators are former c.p.b. officers and specialists and they have been trained to identify i.p.r. issues. as a result the staff is often able to identify possible i.p.r. violations in the course of their normal duties. when cpse identifies an issue, we refer the shipment to c.b.p. because they have the authority to efficiently seize the products. on a case buy case basis, we'll

also test that a product for compliance with cpse mandatory standards or to determine whether they are otherwise hazardous. cpse and c.b.p. have clap brown-waited on many shipments where a potential violation and safety violation were found. examples include holiday lights, cell phone wall chargers, lithium ion batteries. children's backpacks and numerous toys. although cpse's import surveillance activities have prioritized large ports of entry, like many agencies we're facing challenges and regulating products imported through direct to consumer sales over e-commerce platforms. the volume of these shipments in the limited amount of data required when the shipment arrives in the united states makes targeting difficult. with cpse's small size and limited resources, we currently do not have investigators

stationed at locations where these small packages arrive other than j.f.k. airport. however they will continue to evaluate its staffing model to identify efficient ways to target and example potentially unsafe products shipped directly to e-commerce consumers. thank you for the opportunity to share my remarks. i am happy to answer any questions you may have. >> thank you so much. mr. brady, we conclude with you. mr. brady: good morning, chairman hatch, ranking member widen, distinguished members of the committee. my name is terence brady, as the newly appointed president of the underwriters laboratories, i'm honored to appear before you today to share u.l.'s experience at getting the rise of counterfeit goods in e-commerce and offer our perspectives on the challenges face facing the right holders in this evolving global market. u.l. is a global independent safety science company that has championed safety for nearly 125 years. our 14,000 professionals around

the globe are guided by our mission, to promote safe, living and working environments for people everywhere. we use research, standards, and conformity assessments to meet ever evolving safety challenges. we partner with manufacturers, retailers, trade associations, and regulatory authorities internationally to provide solutions to address the risks of increasingly complex global supply chains. u.l. takes counterfeiting very seriously and devote significant resources to fight t we do this because we don't make or sell foods. our product is our brand, our mark. which are built on a foundation of trust. when u.s. consumers see our u.l. mark, they know that an independent, third party has determined that the manufacture has demonstrated compliance with safety performance or other standards. unfortunately, counterfeiters also recognize that value and misappropriate our name and marks to try to legitimatize the goods they sell.

too often consumers are unwilling victims of counterfeiting. they may suspect that the cheap handbag or watch they are buying is a knockoff, but many are entirely unaware that important other product categories are frequently counterfeited. as the chairman noted in 2016 we partnered with apple to evaluate the dangers of counterfeit i-phone chargers like this small device. in a controlled test program, as the chairman stated, our device. engineers tested 400 counterfeit adapters bearing our u.l. marks and the results were literally shocking. the overall failure rate exceeded 99%. and all but three adapters prevented fire and shock risks. 12 were so poorly made that they pose a direct risk of electrocution. in 2017, we conducted over 1,200 investigations around the globe resulting in the seizure of 1.5 million individual products.

let me give you a couple highlights. in terms of e-commerce the focus of this hearing, we selected intelligence on more than 5,000 online listings across multiple platforms. we were able to identify more than 130 unique sellers with over 500 listings of u.l. counterfeit products. we worked with the online platforms to remove the listings and take appropriate actions against the sellers. as a result, law enforcement seized an estimated 660,000 worth of counterfeit smart phones, hard drives, flashlights, head lamps, and hover boards. based on information u.l. provided, the d.h.s. seized approximately 3,200 counterfeit u.l. safety labels and power adapters valued in excess of $200,000. we partnered with the los angeles county sheriff's department to seize 2,500 counterfeit whoever boards, an

goods. these were shipped in the united states marked as wheelbarrows. finally u.l. cooperated with authorities on many other investigations resulting in seizure of lithium ion batteries, fire sprinklers in buildings in india, household fans in panama, and fake life jackets in peru, including for children. my written testimony contains much more statistics and numbers than time permits here, but they underscore the issue of counterfeiting extends in many product categories and countries. in our 22-year history in this fight, we deployed a comprehensive, multidimensional strategy based on three essential tenets e. education, enforcement, and partnerships, public-private partnerships. we work with our clients, law enforcement, custom officials, and others to stem the proliferation of counter fits. the issues we see in the traditional marketplaces are amplified in this world of

e-commerce. as was noted that online shipping has become an online direct consumer sales made it much harder for brands, law enforcements, and customs officials to fight because the counterfeit penalties for a million dollars of counterfeit goods are far less than a million dollars worth of drugs. as shippers go direct to consumers rather than risking entire cargo container, this becomes very, very difficult. this is a challenge that legitimate platforms and i.p. rights holders have to work on together. thank you for the opportunity to testify today u.l. welcomes the opportunity to work with you in the fight against counter fits. i welcome any questions the committee may v thank you. chairman hatch: thanks. your testimony is riveting and it's got to concern every american citizen. we appreciate you taking the time to be here with us today and appreciate the work you are

doing. and hope that you step it up even more. ms. gianopoulos, you discussed two recommendations to c.b.p., can you explain what factors make it difficult for c.p.b., i.c.e., and private sector actors to address the problem of counterfeits, then reiterate why you feel the changes will help address those concerns. ms. gianopoulos: thank you, mr. chairman. there are a number of things that are changing the e-commerce environment today. you could probably go down into three v's. the volume of goods each of us has talked about where the number of shipments is just tremendously exploded over the past several years. it's very difficult to focus in and find counterfeit foods on an individual by individual shipment basis. there's also the value of those goods. the value has tremendously

increased. i believe talked a little bit about the seizure rates that has taken place. that's one factor you can look at to determine how well seizures or how well enforcement is taking place. and then finally a variety. the variety of goods that are being counterfeited these days has just tremendously exploded. everything from yeti tumblers, to duck decoys, to kitchen sinks. it's not something that a consumer or c.b.p. or anyone for that matter can target as easily as they could in the past. our recommendations focus in on two of the things that the agencies can do to try to improve their processes. first of all, in working with the private sector, they allowed c.b.p. to share more information, there are some restrictions on that sharing. when we spoke with folks from the private sector, they expressed some concerns about their efforts to try to shut down these counterfeiters and the amount of information that they needed in order to target

their efforts as well. they thought that could be improved. then secondly in looking at the evaluation that could be done for c.b.p. and i.c.e.'s activities, certainly in a legitimated budget environment, we all want -- federal agencies, we all want to put our money in the right places where it can do the most good. we encourage c.b.p. to take additional steps to evaluate the activities it has under way in order to address some of these counterfeiting activities so they can put their money in the best places. chairman hatch: ms. smith, c.b.p. is on the frontlines of this quickly evolving problem or set of problems. in your written responses you agreed with g.a.o.'s recommendations to better evaluate i.p.r. enforcement efforts and explore opportunities for better information sharing with the private sector. what steps do you plan to take to implement these recommendations?

ms. smith: senator, we think both of the recommendations were very productive for us to focus our efforts. the scope of the challenges, as the other witnesses have laid out, is tremendous. one of the things we have done to address g.a.o.'s recommendations is to charge our e-commerce working group to work with us, to work through which information would be valuable to share and who it should be shared with. as you pointed out, they provide us good authority to share through properly promulgated regulations. and our intent is to address the issue of information sharing through additional regulatory framework. the other thing that we have done to address some of the challenges the g.a.o. identified is to develop and release today an e-commerce strategy to help

us focus our efforts. we look forward to working with you and our colleagues here at the table to understand exactly where we can mange the greatest impact. chairman hatch: thank you so much. mr. brady, u.l. has a vested interest in billions of individual products bought and sold each year. as such you have an important and valuable perspective as i see it in all of this. what steps do you as the company take to protect your intellectual property rights? what can u.s. agencies do better to assist you in your efforts? mr. brady: thank you, mr. chairman. as i noted earlier and most of the people in the room know, our only product is trust. it's the trust that consumers place when they see our mark. we fight very hard to protect that trust because it's consistent with our 125-year-old mission of helping to create safe living and working environments for people everywhere. our team is small but mighty. therefore we depend heavily on private-public partnerships to help us continue this fight

against counter fits. what we need is real time and transparent intelligence because we rely on civil and criminal enforcement procedures beyond seizure and destruction, we pursue civil and criminal cases against the counterfeiters. if we bring stale data to f.b.i. or l.a. county sheriff, then they can't do anything with it. we need ream time intelligence sharing. we're happy and always share transparently with law enforcement, with government agencies what we find. we would like to reciprocate in that transparency and keep the data fresh. intelligence goes stale very quickly and these criminals quickly change their websites, their email addresses, their physical locations, their methods of shipment. they move fast and we together with government need to move faster. senator wyden: thank you very much, mr. chairman. i want to thank the panel.

let me start with you, ms. smith. as i indicated to me what's going on is the rip-off artist, the counterfeiters, are trying to undercut the american brand. so this is really high stakes stuff. i want to ask you the two questions that our staff asked your staff. the first one is a yes or no answer. so that we're clear on this. does the agency need more authority to crack down on the counterfeiters, the rip-off artists? yes or no. do you need more authority because the fed asked it and you-all wouldn't give us a direct answer. i want to give you a chance, yes or no. do you need more authority? ms. smith: yes. senator wyden: thank you. that is good to finally have that on the record. when will you be able to give us the details with respect to

exactly what it is you need? as you know, the staff asked you do you need more authority, couldn't get an answer then. you now have given us an answer, to your credit. and then they asked, can you tell us when we will get the details of what you need in this area and how you would like to proceed so we can up our game to be tougher on these counterfeiters. when will we get that? ms. smith: senator, i think we should start the conversation now. but what i would recommend is that we gather the information about what data is available and who it should come from and who it should be provided to from our private sector participants in the e-commerce working group. it's important to have the

private sector reflected. as you know coac important intermediary, provided for, and i would like to suggest that they work for several months so that we can come back to you as they are working and walkthrough what the recommendations are from the private sector. senator wyden: you said we need time to have this conversation. we have been having this conversation for what feels like longer running battle than the trojan war. it has gone on a long, long time. we know who the people r the platform. the right holders. i would like a date. and i think you moved again in an encouraging way. can we say within 60 days, you said you want to have this discuss the relevant private sector parties. all for it. can we have a commitment today

that you will lay out for us what it is you're prepared to do in terms of the authority and you'll talk with the private parties within 60 days from today? ms. smith: sir, i will do my best to meet that 60-day benchmark. senator wyden: let me turn now to the question of priorities. get your thoughts on this. i understand that the agency is moving to hire 5,000 border patrol agents here in the next five years, 2,000 officers. i have supported billions of dollars in terms of security at the borders. and i'm prepared to do what it is going to take to ensure that we protect the american people. as you know, illegal crossings are now at a historic low. how are we going to do it if

we're putting twice as many people on this question of yet more agents at the border as we're in terms of getting the people we need to up our game in terms of the counterfeiters. how are we going to do it when that balance seems so out of whack? ms. smith: senator, i think as you have worked with us over many years to look at the very diverse portfolio of c.b.p.'s mission, to make sure that we have the right people on the border, whether they are wearing green uniforms, blue uniforms, or tan uniforms, you have also been very supportive of us in terms of making sure we have the expertise on the trade side. as you know, the president's budget in fiscal year 2018 asks for 140 new positions to

implement tftea, i think that the combination of hiring those with trade expertise as well as those with border security responsibilities is a big challenge for c.b.p. senator wyden: you're being very diplomatic. i'm going to let you off the hook. i think you get my sense. i think the priorities are way out of whack when you have twice as many people in this area where the evidence shows that illegal activity is going down as opposed to what we're dealing with here. you're going to have a real -- you described it as a challenge. i think the priorities are out of whack and we need to get them straightened out. one last question for i believe this will be for mr. brady. mr. brady, what you think you basically said, i'm going to direct the staff to look into it. you basically said that the rip-off artist, given the penalties, may in effect just

say, hey, this is just the cost of doing business. let's rip people off. the penalties aren't that meaningful compared to the amount of business that we can rack up by doing all this counterfeiting and just moving online quickly and ripping people off. that's pretty much what you're saying, right? mr. brady: that's correct. senator wyden: would you recommend to the chairman and i as part of this effort we beef up the penalties given what you have said that it may in effect be treated, part of the cost of doing business? mr. brady: we would recommend that's something very fertile and important area to look into. we see evidence from, for example, the l.a. prosecutors that counterfeiters get out very quickly and go right back to business the same day. they are actually trying civil suits against these people because they don't know how to manage the civil suit, burr their jailhouse lawyers they can get themselves out on the slap

on the wrist today. senator wyden: could you furnish in write to the chairman and i your thoughts of what might be a set of penalties that would ensure that this would not just in effect cost of doing business? can you furnish that? senator hatch: thank you. senator isakson. ms. gianopoulos, i was in the real estate business before coming to congress and did a lot of shopping centers and watched the increase of sales over the internet at christmastime. i think 20% to 22% of sales at christmas are made by the internet and not going to the store and shopping and buying which is exponentially grown retail sales over the internet. is a growing in comparable rate other products other times of the year? ms. gianopoulos: you know, senator, we didn't take a look at the growth of ecommerce per se.

we were focused on the challenges that were associated with ecommerce as it relates to counterfeits. as i said in my statement, it's very difficult when you're going online and just looking at a photo of an item to determine whether or not it's real. you may go into a store and be able to pick it up and see if it's a different weight or color or something like that. what some counterfeiters do, they take a photo of an actual item and put it online even though they're giving you something that's counterfeit and may not resemble the photo you see online. senator isakson: and give you a knockoff? ms. gianopoulos: they import the labels separately and put the labels on in the united states. senator isakson: both ways are a problem for them. ms. gianopoulos: absolutely. senator isakson: i have a habit of reading the resumes. you may be the person we need to answer the question. chairman hatch asked and senator wyden did too.

you received the 2017 distinguished presidential rank award, is that correct? ms. gianopoulos: yes. senator isakson: less than 1% of the executives receive it in the federal government. and protect the american consumers. ms. gianopoulos: yes. senator isakson: you should go through the blueprint. ms. smith: we are working on it, sir. you did say you need more authority. what authorities specifically do you need more of to do your job? ms. smith: sir, i believe the authority request will touch on several things. the data we can share and who we can share it with. i think as mr. brady noted, the penalties and the other civil enforcement actions we can take in this area are also an important thing for us to consider and talk about. the specifics i'd like to consult with both our other government agency partners and with the private sector to make

sure that we're hitting the mark with it but we will do that fairly quickly. senator isakson: are part of the problems antitrust rules and regulations? just out of curiosity. ms. smith: that has not been raised to us as an issue. senator isakson: it's a big enough issue we need to have enforcement, not allow people to abuse it but allow people to enforce it? ms. smith: we will do it. senator isakson: we appreciate you all being here today and the good work you do. senator hatch: thank you. the senator from louisiana. >> sms smith, when a vendor is flagged as a possible seller of counterfeit goods, does that trigger an examination of their entire business? for example, with other possible offenses like trade-based money laundering? ms. smith: senator, we do -- once we have identified a particular business entity as a risk we do try to take a broad-based approach to looking

at all of their business activity. we have some challenges because oftentimes they will disappear and we need to find them through either corporate officers or other targeting information. we are also looking to make sure that when we see a pattern of conduct from one business entity that we look for that some pattern of conduct with similar types of businesses. >> now, that leads to my next question. data analytics are being used by many to find that needle. it sounds like you would start off, is it from china or is it from hong kong? senator cassidy: is that being done? ms. smith: yes, senator, it is but i think we can do more. there are -- there are amazing developments in the technology space around analytics. c.b.p. have used a number of tools over the years to determine risk but i think the

next frontier for us is applying some of these innovative technologies to find that needle in a haystack. senator cassidy: our office has been trying to figure out how well our agencies work together on trade-based money laundering. and i always point out it's estimated cartels move $110 billion a year from the united states to mexico but we can confiscate about $7 billion. now, senator wyden spoke about the cost of doing business. we're getting 5% of $110 billion. what would you say is the state of cooperation between the different agencies tasked with tracking trade-based money laundering and the other issues related to that in this panel? ms. smith: senator, i think it's good. the cooperation -- senator cassidy: i heard from others off the record that it's bad, that it's siloed and it is not the cooperation between

agencies required for it to be effective and i am not accusing you but if we're moving $110 billion a year and only getting $7 billion it begs the question. ms. smith: i think this area is a very -- it's a very complex area. trade-based money laundering is not -- is a fairly sophisticated version of trade violation. i think it behooves us to take a whole of government approach, both from a criminal perspective and a civil perspective and applying the information that we can get from our intelligence agencies to both recognize and share that information to ensure we're going after in real time. senator cassidy: i guess what i'm probing for is if what i'm hearing off the record it's not occurring now, how do we make that occur?

ms. smith: i think by your message today, your question today to identify that as a high-risk area that the congress is interested in and then i think what we do is pull together those key agencies, whether it be i.c.e., whether it be the department of treasury to focus on trade-based money laundering with the mandate to share information and take aggressive action. senator cassidy: does anybody on the panel have anything to offer on this particular topic? ok. i think i saw mr. brady nodding. even though he's from u.l. i thought he would have anything to offer on it. mr. brady: senator, not at this time. senator cassidy: let's see where my other interests lie in.

using your current data analytics, are you able to identify small shipments through the mail through the united states postal service as well as larger shipments or shipments going through fedex or d.h.l., u.p.s., etc.? ms. smith: yes, sir, we are. we get very advanced electronic data in the express courier data. senator cassidy: what about usps? ms. smith: we are getting better. the advanced electronic data -- senator cassidy: it can be from 1% to 2% which will be 100% improvement but the percentage is lousy. so usps, what percent of illicit our counterfeit goods do you feel you're detecting when it comes to usps? ms. smith: we are getting advanced electronic data on approximately 50% of small packages in the postal environment now. which is significantly up. it represents data from 30

countries. which is significantly up from what we got five years ago. senator cassidy: it sounds like hong kong and china matters. what percentage are you getting from hong kong and china? ms. smith: we are getting all the advanced electronic data from china. and hong kong -- if you'll give me just a moment. yes. hong kong as well. senator cassidy: are we seizing illicit counterfeit goods from those areas? ms. smith: yes, we are seizing

counterfeit goods. we are also focused on things like fentanyl. senator cassidy: what percent of the -- thank you, mr. chair. what percent of the counterfeit illegal, illicit goods coming through the usps do you feel you're compensating, 5%, 10%, 100%? ms. smith: sir, i don't have an answer to that i think that's what g.a.o. has asked us to look at. we will look at that going forward and try to get that estimate. senator cassidy: ok. thank you. i yield back. senator hatch: the senator from new jersey. >> thank you, senator, for holding today's hearing. the united states is the world's leader in trust and recognized brands, the ones most in demand, the ones that command the best prices and therefore the must vulnerable to knockoffs. that's why protecting our reputation and the investments we have put into it is so important. four years ago families and businesses in new jersey began contacting me about the increasing prevalence of counterfeit goods available for purchase online. particularly fake prom and wedding dresses. it's a significant industry in new jersey but also significant to the people who wind up at their wedding with something they totally didn't expect. senator menendez: this recent g.a.o. confirms what i have been hearing from my constituents. now the enforcement act congress passed in 2016 contained report

language that i authored with the chairman to raise the enforcement priorities for fake products, specifically those shipped as gifts to avoid customs, duties and detection. ms. smith, i know there has been a line of questioning on this. i'm still unclear as to how the agency has implemented that language? does a package marked as a gift that originates from a business address in a country like china, which is one of the worst offenders, which is documented by c.b.p. and other forces as being a major source of counterfeit trigger any red . . . . . . . flags for our agents? has the screening process change since the passage of the trade

enforcement and facilitation act? ms. smith: senator, i think what we have done is focus our targeting efforts in this area with specific targeting rules around gifts, as you note, which are identified as small packages or other areas like household goods that can be a generic description but may contain counterfeit goods as we've seen in the past. i think the other important area in this instance is to ensure that the representatives of the fashion industry and the folks that your constituents are looking to buy safe, legitimate goods from is to work with customs and border protection to record their marks, to ensure we know exactly what a legitimate product looks like and we are working with that company to provide training to our officers and product information. we will be happy to work with you and your staff. senator menendez: are you using an algorithm? what are you using to actually flag something that is quote-unquote a gift and is the preferred vehicle by which these counterfeit goods come to the united states? ms. smith: so we do have targeting algorithms.

we call them rules which knit together a variety of risk factors, both the description of the goods as gifts along with the high risk countries they may come from -- china, hong kong -- and then any additional information we have about specific business entities -- manufacturers, shippers, carriers that may have brought previously counterfeit goods into the country will also be reflected in that targeting algorithm. senator menendez: mr. -- ms. gianopoulos, what did you find? ms. gianopoulos: well, our work, while we did purchase 27 items and found 20 of them counterfeit we did speak to c.b.p. and i.c.e. as far as their

enforcement efforts. we also put out a report last year where we looked at international mail facilities and looked at some of the differences between the information that c.b.p. receives from those usps facilities as opposed to express mail and found the amount of information they received from usps is significantly less because they are not required to put as much information that would be sent ahead of time to c.b.p. so c.b.p. is limited in its ability to respond as opposed to, say, the express mail carriers where they are required to submit more information ahead of time. senator menendez: is there a suggestion by the g.a.o. how to meet that challenge? ms. gianopoulos: one of the things recommended in this report was for c.b.p. and i.c.e. to work more closely with the private sector to see what information would be most helpful for the private sector and c.b.p. to share in order to address some of these counterfeiting shipments. because some of the shipments are coming from within the united states. in fact, all 47 of the items we purchased were shipped from u.s. addresses. so they wouldn't have been able to use that chinese or hong kong address as a flag because that's not where it was sent from to the consumer.

senator menendez: one last question -- senator hatch: i am going to go vote so he'll be the last questioner. i just want to thank everybody for being here. it's been a very informative hearing and we will see what we can do to back you up and help you. ms. gianopoulos: thank you. senator menendez: thank you, mr. chairman. one last question. on search engines, it seems to me that some online search engines and other websites aid and abet these counterfeiters by failing to police the use of copyrighted product imagery on online ads. they may bear some responsibility. it seems the companies that sell online advertising have some capacity to prescreen advertisements and reflect those that are found in a more legal product. i heard some search engines will remove counterfeit websites from their organic search results but continue to display those same companies' advertisements.

in other words, some sellers of online ads may be continuing to receive advertising fees from companies they know to be breaking the law. so a search engines like google and social networks and other sellers of online ads are unable to filter these types of illegal advertisements i hope forward we look forward to working with the committee to explore policy options. i wrote google a letter last year asking them to address this issue and explain their policies on cracking down on advertisers of counterfeit goods but i still haven't had a response. so the question for any of our witnesses. in what way can we look to cooperate with search engines and those who sell online advertising to make it more difficult for counterfeiters to reach their targeted audiences? are there ways to share additional information to crack down on counterfeit ads? anybody have any insight into that? >> senator. from yalls perspective and particularly given the shift to individual shifments from

overseas directly to a u.s. home, we think the most important thing is to prevent that shipment in the first place, prevent the purchase in the first place. therefore, we think it's critical to work with the platforms and the search engines to shut down these people offering fake goods so the purchase never happens in the beginning. mr. brady: once that little envelopes leaves and heads to constituent in your state it's hard for the authorities to intercept it. i think stopping the purchase in the first place by shutting down these bad websites is very important. senator menendez: look forward. ms. smith. ms. smith: i just wanted to support what mr. brady said and also reiterate we think that the platforms, the marketplaces have to be part of the solution. they are sort of a new business entity for us that's popped up over the last couple of years and i think we as a government community need to consider what their role, what their

information is and what the expectation for them should be. senator menendez: we look forward to following up on those. ms. gianopoulos: i'll address it from the other end of the spectrum as far as the consumers. if a consumer receives a product that's counterfeit, the websites that we spoke with were anxious for those consumers to report it back to the website. if they don't know the consumers are purchasing counterfeit items on their websites it's difficult for them to do something about it. as part of our recommendations in the appendix for consumers suggestions we received, we suggest consumers report those counterfeit items promptly. senator menendez: i appreciate them doing it and they take it out of the organic search but they keep the advertisements on. you're drawing revenue from the counterfeit sites. if we take out the organic search you should take out the advertisements as well. on behalf of the chairman we thank you all for being here and answering questions today. colleagues who have written questions are asked to submit them by the close of business next friday, march 16. and with that this hearing is adjourned.

thank you very much. [indiscernible]

i'd like to thank you all for coming and attending our press conference. very excited today to announce bold, new initiative and a partnership with the department of veterans affairs to address the veterans mental health crisis. in just a moment, i will bring up to the podium amvets national commander marion polk, but before i do, i would just like to ask you guys that when we get