>> many white house staff members have not yet received permanent security clearances. they are investigating the security clearance policies and we will have live coverage on c-span three. it was announced that gary: will resign his condition -- his position in the afternoon. he testifies. he is expected to face questions about president trump's tariff proposal. life coverage at 2 p.m. eastern on c-span three. follow both hearings online or with the free c-span radio app.

next, a senate panel examines some of the challenges facing consumers and businesses on counterfeit goods or did will hear from officials at the customs and border protection office and the computer -- consumer product safety. sen. hatch: 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. action is finalized, will be forced to pay an additional 25% on steel and 10% on aluminum. those effects would blunt the and of its 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 tax reform. we can come and we should do better. i will be sending the president a p 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 sacred that i have long

felt, and i think others feel the same way, a strong protection for intellectual property rights to protect consumers. a proper trademark let the customer know who made a product and where to go for information. we were all encouraged by the new authorities that 2015 protection and customs. those authorities, along with a new national intellectual toperty center were designed help agencies collaborate, coordinate, and take down perpetrators. because there are frequently take ups with the implementation of new laws, the committee asked the government accountability office to conduct brought -- 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 due tofor cvp and ice advancements in online purchasing, the agency's work been forced to adopt new tactics. those have all been changes for the good. we asked gao to continued 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 of 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. investigationthis has started down a path of discovery. on the past, 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 to'scts create a hazard consumers, children and our economy. 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 easily cell phone eight products directly to consumers. 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 and 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 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 , mr.orms that he used rogers has sold over $300,000 in counterfeit goods. rated,s complex was

authorities found more drink ware. later, as laboratories came back, several of the colors tested positively for it led. exceeding the amount legally allowed by more than 20 times and for all we know, there are currently children around the withry sipping water dangerously high levels of blood 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 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. that thenimous consent

, as similarnt statements 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 tested 400rt, ul counterfeit apple phone adapters. out of the 400, only three past electric 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 notlem -- projects, airbags 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 personally, i am interested in

talking about sharing e-commerce platform data. contained invoices and in packages which rights owners as well as learning from cbp's management program. american consumers are relying on us to get this right, and we need to work together and with the appropriate officers to make sure we do. that, i am very happy to turn to my colleague for his opening remarks. chairman.ou very much you commented on the steel and aluminum issue, and i would like to start with some brief comments on that as well. issue, the, on this president has inflicted a punishing year of uncertainty on the american economy.

this uncertainty has harmed our workers. workers, who need and deserve good paying jobs. moreover, even as of this it is still unclear that the president understands which isal problem dealing with chinese overcapacity of steel. he has had practically one salvo a day, with respect to trade. one day he is looking at tariffs. in next day he is looking at some way intertwining his steel policy with the north american free trade agreement. i just want it understood that whichear of uncertainty, already caused an import surge when the president donald right out of the gate, has real

consequences for american workers and family and they deserve better. hearing,ect to this the 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. this committee will soon hold hearings on the trump administration varied and trade.the --thundery the nafta renegotiations and investigations of china under section 301. , anyunterfeit imports 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 is nowhat the internet the shipping lane of the 21st is a far crythat from the kind of trade discussions that took place for decades in this room. ,eople now take it for granted but it is in effect a miracle of modern commerce that a small business in my home state of oregon can reach consumers essentially anywhere at anytime. no longer does expanding your customer base mean expanding solely in bricks and mortar. i speak of a socially conscious clothing company that is found and run by women. they had two stores, but what is driving sales is online opportunity. 70% of their business happens

online, and that is where we are seeing the growth. this is a company that has seized the opportunity to sell around the world and now has 25 employees. , any there is significant economic change, let alone the kind of transformative activity that the internet has brought, you get new challenges with the upside. that includes the chance that when you buy something online, there is a chance it could be a fake. government toe make sure our approach to combating counterfeit is not stuck in the 20th century. when you talk about talking about cracking down on counterfeit goods, you are no longer stopping the person selling fake purses out of their truck. you are talking about passedimate projects

upon even the most savvy , and oftenconsumer they are mixed right in with the genuine projects that people want. many of those fakes posed makeup, food,s and beverages can be made with dangerous cap. electronic can be a fire hazard. toys can be unsafe for kids. the number of small packages coming into america has searched. custom and that border protection has to step up and play a major role in andtifying counterfeits stopping them before they enter the marketplace. unfortunately, we get a sense that customs and border protection's is just too often playing catch-up tracking these products down. ,fter conducting a recent study

the guru said they would set a policy update that they would work more closely with the private sector. this includes expanding border authorities and notifying online sales platforms when they have products on their hands that might be fake. you may hope that that would put the wheels in motion that this would result in the policies in place. and border things control responded to this on to say it would take until this upcoming september to determine if additional authority was actually messes. theythe past few years, have put a lot of equity into the policies that have strengthened the enforcement of and have done more to a protect the american consumer and worker. the chairman and i offered this trade information that put in

fore important new tools customs and border protection's to protect against counterfeits, including sharing information about counterfeit imports with the right voters. who in preparation for the preparation staff from both sides dug into the issue. "does customs and border protection need more authority to crack down on the ripoff artists and counterfeiters." the agency said they do not know. when asked when they would know, a said they did not know when they might know. year, itin this certainly is unsettling that it has not been possible for the finance committee on a bipartisan basis to get a straight answer on a matter like

the agency that is central to america's efforts to protect our consumers from american goods. morning, i going to give the agency one more try to answer these questions. let me close by saying getting this right is not going to be as simple as just putting a few more tool in the agency kit. year after year, they have fallen short in not hired by not officers to fulfill the critical need from the a legal and unfairly traded goods. tough joby has a working with other agencies and foreign government to go after the sort of problem. the administration is focused solely on hired. border patrol agent's. don't see how that is going to

help them build their capacity to deal with the challenge. so the congress and the administration need to ensure that the agency has the resources it needs to combat counterfeiters and that there is actual follow-up. this is simply a matter of protecting american families from harmful product and making sure that we are fully mobilized to stop these ripoff artists from undercutting the american brand. that is their objective. to undercut the american brand. rights, to reflect the realities of the modern economy, is in my view what this hearing is all about. -- as usual, chairman, i look forward to working with you. both of us would like to extend a warm welcome to our

friends here today. first movie or from kimberly g at the government accountability of this. she has received a number of awards including the meritorious service award, a client service award, and a comptroller general's award and several results through teamwork award. she is also a certified government financial manager. bachelor's degree in mathematics and a masters in public analysis from the state university of new york. panelcond witness on our is miss smith. executive commissioner of the office of trade u.s. customs and border protection. mrs. smith has overseen her and has been2014 with cbp since 1994.

customs, missng smith worked with the department of the treasury and a capitol hill. she was honored in 2017 with the distinguished executive presidential rank award, the highest award in civil service. she holds a bachelors and masters degree in economics rutgers university, and is a graduate of the customs leadership institute and the federal executive institute. next to speak will be jim the jiholski cap the u.s. consumer product safety commission commission. career at cpsc. primarilyme, he focus on regulations involving fireworks and cigarette lighters.

jim later joined import surveillance in 2008, and served as deputy director prior to assuming the role of director in march of 2017. finally, mr. terrence brady, the president of underwriters laboratory will testify. finally, mr. terrence bradyhe ww position just last week, but was as vice searching ul president and chief commercial and legal officer. , he was anining ul associate partner for 27 years in the office of winston and straw llp. he graduated from dartmouth college with his undergraduate and received his law graduate from notre dame law school. i want to thank you all for coming and for being today and for testify. >> thank you mr. chairman.

chairman hatch, ranking member wyden.-- ranking member the united states is a global leader in the creation of intellectual property. companies that illegally import and distribute counterfeit goods can cause a number of harmful affects, such as slowing economic growth and threatening american jobs. what is more, the counterfeit goods to threaten the health and safety of the american people. my testimony today summarizes the findings from our recent reports, and covers three main areas. first, i will talk about some of the difficulties that are goods andby e-commerce, using information from our investigation to illustrate how challenging the problem is. second, i will discuss the nature of efforts that customs

and authorities have taken to enhance ipra enforcement. finally, i will underline the ways that cpsc is an ice work with the private sector. rise of e-commerce has contributed to a fundamental change in the market for counterfeit. past, you may have expected to find counterfeit purses or watches on a street corner or flamer. these goods may have been shipped to united states in bulk , and were priced significantly below retail. now, many people shop online, where sellers of counterfeit goods engage in practices to make their goods look authentic. numerous items can be counterfeit. his product is no longer limited to high-end goods. these online purchases are sent to buyers in individual express packages, rather than shipped in bulk. this makes it very challenging for consumers, as well as cbp,

to identify counterfeit goods. as part of our review, we purchased 47 items covering consumer goods. box,ding nike shoes, get a urban decay cosmetics, and certified for -- phone chargers. we look for items that were advertised as new brand named items and were sold by highly rated third-party sellers. of the 47 items, 20 were counterfeit. it can be difficult to tell if an item is counterfeit. for example, here are three of the yeti monthly purchase online. these two silver mugs look identical. they feel the same and are the same weight. ,ut if you look at the bottom you can see that one of them has miss spelling on the words. texas isle, austin,

misspelled. it says need in china instead of made in time. mug,hen, this hot pink also seems to be authentic. except, yet he does not make hot pink months. so you would not know that unless you were aware of that issue. in our full report, we include a one-page appendix that lists a number of ways for consumers to take steps they could to avoid purchasing counterfeits online. enforcement's, we found that cpe that cpb and ice and a special operations. we hope they conduct special investigations, engage with consumers, and take special initiatives. however, they have conducted a limited evaluation of their effort and therefore do not has -- have the information it needs to be as effective and

informative as possible given our current resource rate environment. we recommend that cpb take steps to evaluate the effectiveness of its enforcement efforts, and the agency agreed with our recommendation. with regards to the private sector, we found that cpb is restricted on the amount of information they can gather and share. this restricts the ability of rights holders. in the trade facilitation and trade enforcement act of 2014, congress gave authority to share certain information with trademark and copyright owners before a seizure. however, cbp officials told us there are limitations to the sharing. for example, they cannot share information from the x theory -- exterior of seized packages which could help groups recognize counterfeit merchandise. we ask that they reevaluate which information would be helpful to share and take

appropriate action to enhance information shared, and cbp agreed with this recommendation. this concludes my opening remarks. and iyou for your time happy to answer any questions you may have. thank you, miss smith returned to you. and his thing members, it is my honor to appear today and discuss our enforcement of intellectual property rights and to keep counterfeit goods that keep products that endanger american consumers. agency, we enforce nearly 500 trade laws and regulations on behalf of 49 federally. this morning, i would like to give you my perspective of the opportunities and challenges in the current environment. thanks to this committee support and commitment, the trade facilitation and enforcement act strengthened and expanded cbp's

authority to enforce our nations trade laws while facilitating lawful international trade. provisions, the trade facilitation and trade also providedt significant cost saving opportunities for u.s. businesses and consumers by raising the them and mrs. threshold from 200 to $800, which allows relatively low bow goods to be brought into the united states free of duty and with reduced information requirements. the combination of growing online purposes and the higher threshold has resulted in increasing u.s. imports of small packages. via of them are arriving international mail and express carriers. over the past five years, the volume of international air express shipments has increased nearly 50%. environment, small

packages have increased by over 200%. this rise in small packages has of the tradeynamic environment and the cvg's ability to enforce international property rights. a variety ofor risk and takes action when it find the problem. in the fiscal year 2017, cpb sees thousands of shipments of counterfeit goods. a percent over the previous year, and consistent with the trend we have seen over the past 10 years. goodsimately 16% of these contained serious potential threats to consumer health and safety. we are currently enforcing more than 18,000 copyright and trademark records. thets holder collaboration recordation, trade, and the information shared is a social to a character for critics.

also regularly disclose information to the rights holders to verify a product validity if we expect that imported merchandise bears a counterfeit mark. this private sector partnership, as envisioned is continuing to expand with the recent announcement of the first partnership arrangement under the ivr enforcement donation acceptance program, under which procter & gamble has donated testing devices to help us quickly determine the authenticity of its product. our agency product leadership is committed to the commercial analysis targeting center, which provide straight enforcement and intelligence capabilities of cbp and 12 other federal agencies to protect the federal -- the american public. andjoint targeting enforcement efforts led to 200 and 43 seizures of unsafe in 2017. two months ago, this targeting

resulted in officers in a court of los angeles seizing a large incoming shipment of toy building blocks for trademark infringement. these counterfeit toys were also found to violate the federal hazardous substance act for excessive ballpark. about the small risk we find in rising volumes of small shipment, when 90% of our seizures were made last year. we have been working with interagency and private sector partners to engage those risks. building on our experience and the clear mandate provided by congress to develop a interagency approach to this critical type of enforcement, we have developed a draft joint safety rapid response plan. we will use this plan and follow on agency exercises to coordinate the management of in since that provide a safety risk to consumers and businesses. in anticipation of future growth cbp ismanage threats,

releasing a comprehensive e-commerce strategy, which is critical for writing that guiding our approach to intellectual property rights and guaranteeing safety, while supporting a private -- vibrant sector. we'll work with our partner agencies to identify information sharing and other opportunities and pursue any necessary policies or changes. wairman hatch, ranking member forward took working with you on building these parts -- efforts. i'm happy to take any questions. thank you, good morning. chairman hatch, ranking member wyden, thank you for inviting

me to discuss our important role in protecting consumers from the health and safety hazards. should notein, i that these are the comments of cps e staff and have not been reproved -- approved or reviewed. i especially appreciate the opportunity to appear before you today, as this year marks the 10th anniversary of the creation import surveillance program. there established in 1972, and as a federal regulatory body, they were charged with protecting the public from the unreasonable risk of injury or death associated with consumer products. we were a relatively small agency with around 500 people at a smaller budget. however, we had jurisdiction over a wide array of products.

since the passage of the consumer product safety act of 20 -- 2008, we have strengthened our relationship with u.s. customer and border protection, and closely work with cpsc to inhibit unsafe products. we haveof our efforts, placed investigators at the largest ports of entry to work side-by-side with that. we have 30 investigators stationed at 20 of the largest ports in the country. 2017,e our small size, in investigators screened more than 38,000 distinct products arriving in the united states, and stopped approximately 4 million noncompliant hazardous units from reaching consumers. to prioritize and target high-risk shipments, cpsc has gritted our target groups are go .n to your

tois combined with cpsc data enforce shipments under our jurisdiction. we also have staff stationed at cp estes analysis center to coordinate with them and other agencies to address safety hazards. has a part-time presence at the national intellectual property ordination where we exchange information with 22 partner agencies that may help us eventually target noncompliant and hazardous products. as an agency with limited resources, we would not be able to do the critical work of accepting these products before they reach consumers, without the assistance of -- and support of dhs. although the primary focus is targeting products that violates the sd requirements, we do encounter intellectual property rights violations. many of cps e's investigators are former investigation

officers or import specialists and have been trained to identify ipra should. a result, staff is also able to identify possible violations in the course of their duties. when they identified a possible issue, we are currently issued because they have the potential to investigate these products. we will also test if a product or compliance with mandatory standards, or to determine whether there are other guys -- otherwise hazardous. cpb and cpsc have collaborated on many shipments where a potential violation was found. examples include all the lights, wall chargers, lithium ion batteries used in hoverboards, laptops, and cell phones, and children's backpacks and numerous toys.

although the import surveillance activities have prioritize large ports of entry, like many agencies where facing challenges regulating projects just that it directly through conserver sales. the volume of these shipments and the limited amount of data required when the shipment arrived in the united states make starting. with cpsc's small size and limited resources, we do not have investigators at these locations were small packages arrive. however, cpsc will continue to a value its staffing model to identify efficient ways to target and examine potentially unsafe products shipped directly to consumers. toy do for the opportunity share my remarks. i'm happy to answer any questions. 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

goods. 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 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 loose labels the counterfeiters could stick on other goods. these were shipped in the united states marked as wheelbarrows. the little seizure was valued at over $1.5 million 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 have. 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 real-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 what are you using flag a "gift" and is the preferred vehicle by which these counterfeit goods come to the united states? ms. smith: we do have targeting out of, called rules, which nick together a variety of risk yours, both the description of highoods as gifts and the risk countries they may come from and then any additional information that we have about specific is this entities, manufacturers, shippers, carriers that may have brought previously counterfeit goods into the country. they will be reflected in that algorithm. sen. menendez: did the gao examine efforts to screen these consumer packages for

counterfeit goods as opposed to larger shipments? if so, what did you find? we smith: our work, while did purchase 47 items and found 20 counterfeits, we spoke to the 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 information that is received from the usps facilities as opposed to express mail. we found the amount of information received was significantly less because they are not required to put as much information that would be sent ahead of time. limited in its ability to respond as opposed to the express mail carriers where more information is required ahead of time. >> is there an adjustment of how to meet that challenge? the things we recommended in this report was

for them to move -- work more closely with the private sector to see what information would be most helpful for the private totor to share in order address these counterfeiting shipments, because some shipments are coming from within the united states. all 47 of the items we purchased were shipped from u.s. addresses. he wouldn't have been able to use the hong kong or chinese address as a flag because that is not where it was sent from to the consumer. can interrupt.i i am going to go vote so he will be the last questioner. i want to thank everybody for being here, it has been informative and we will see what we can do to back it up. sen. menendez: thank you, mr. chairman. one last question. on search engines, it appears to me that some online search engines aid and abet these counterfeiters by failing to police the use of copyrighted imagery in online ads.

they may bear some responsibility. thatems the companies sell online advertising have some opportunity to prescreen advertisements and reject those that are illegal. some research -- search engines will remove counterfeit from their websites, but display those same companies advertisements. some sellers online ads may be continuing to receive advertising fees from companies they know to be breaking the law. with search engines like google and social networks and other sellers are unable to filter i lookdvertisements, forward to working with the committee to explore policy actions to discuss this threat to american businesses. i will ask google to explain the policies on cracking down on counterfeit goods but still haven't had a response. my question for our witnesses,

in what way should we look to cooperate with search engines and those who sell online advertising to make it more difficult for counterfeiters to reach their target audience? shareere ways to additional information with these companies to make it easier to crack down on counterfeit ads? senator, from your perspective, given the shift and individual shipments overseas to a u.s. home, we think the most important thing is to prevent that shipment in the first place. we think it is critical to work with the platforms and search down theseshut people offering fake goods so the purchase never happens in the beginning. once that envelope leaves and heads to a constituent in your state comic it is hard for authorities to intercept it. i think stopping it in the first place by shutting down these bad websites is very important. support whatted to

mr. brady said and also reiterate that we think the platform has to be part of the solution. they are a new is this entity for us that has popped up over the years and we as a government community need to consider what their role and information is and what the expectation for them should be. i'll address it from the other end of the spectrum as far as the consumers. if a consumer receives a product that is counterfeit, the websites we spoke with were anxious for those consumers to report it back so they can take action. if they don't know in sumer's are purchasing counterfeit items, it is difficult to do something about it. as part of our recommendation, suggestions from others, we suggest consumers report those counterfeit items properly. >> and then they take it out of

their organic search, which is good, but they keep the advertisers on. money fromwing advertisers -- it seems like if you take out the organic search, you should take it out of the advertisement as well. we thank you for answering questions today. colleagues with written questions are asked to submit them by march the -- much 16th. with that, this hearing is adjourned. >> wednesday morning, we are live in phoenix arizona for the next stop on the c-span bus 50 capitals tour. secretary of state michelle reg and will be our guest on the bus during washington journal starting at 9:30 a.m. eastern.