For Release: September 17, 2003
Cross-border fraud is a growing problem that needs greater attention, according to Federal Trade Commission Chairman Timothy J. Muris, who today delivered testimony before the Subcommittee on Commerce, Trade, and Consumer Protection of the House Committee on Energy and Commerce. The Subcommittee held today’s hearing to discuss the International Consumer Protection Act of 2003, proposed legislation to improve the FTC’s authority to combat cross-border fraud. The testimony first describes the growing problem of cross-border fraud and the law enforcement challenges associated with its growth, and then discusses the FTC’s efforts within the existing legislative framework to combat the problem. Finally, the testimony proposes legislative recommendations to help the FTC fight cross-border fraud.
Muris began by stating that cross-border fraud is clearly on the rise, with an increasing number of FTC cases containing a foreign component. The testimony indicates that the FTC’s Consumer Sentinel database contains more than 24,000 complaints by U.S. consumers against foreign companies, regarding transactions involving more than $72 million. According to Muris, the growing problem can be attributed partly to globalization of trade, improvements in the international telephone system, and the growing influence of the Internet in business transactions. “Consumers cannot assess the credibility of many merchants located across the globe as easily as they could with local vendors, and law enforcement cannot protect consumers as easily from fraud operators who, effectively, may be out of reach,” Muris said. The testimony states that this, in turn, affects consumer confidence and can limit markets for legitimate businesses.
Muris next described some recent FTC cross-border cases, explaining that many recent cases have involved asset transfers to offshore locations, and that a growing number of cases concern deceptive spam. “The path from a fraudulent spammer to a consumer’s in-box typically crosses at least one international border and usually several,” he said. The testimony then explains the problems law enforcement bodies face in cracking down on cross-border fraud. “Those engaged in cross-border fraud enjoy more attractive revenue prospects and face a lower likelihood of prosecution than domestic scam artists,” Muris said. He outlined five challenges facing law enforcement agents: cross-border fraud enables scammers to target a larger market; evidence of the scam often is spread out in different jurisdictions, making evidence-sharing among law enforcement partners more difficult; it is sometimes unclear which countries have legal jurisdiction to act; most courts will not enforce injunctive orders issued in other countries; and offshore accounting necessitates a foreign action to enforce a U.S. court judgment, which often is time-consuming and expensive. Muris noted that many U.S. scammers utilize foreign accounts or partners to evade domestic law enforcers.
Muris emphasized that it is important to pursue cross-border fraudsters aggressively, even in the face of these challenges. He then described the FTC’s recent work to combat cross-border fraud. He noted that in 2002, the FTC brought approximately 20 lawsuits involving one or more foreign defendant, and stated that the agency had made significant progress on four of the five initiatives outlined in the FTC’s “Five-Point Plan for Fighting Cross-Border Fraud,” unveiled in October 2002. First, under the leadership of FTC Commissioner Mozelle W. Thompson, the agency has assisted the Organisation for Economic Cooperation and Development (OECD) in developing the “Guidelines for Protecting Consumers Across Borders from Fraudulent and Deceptive Commercial Practices,” issued in June 2003. The Guidelines provide recommendations to combat cross-border fraud in the 30 OECD countries.
Second, the FTC has issued a call to legitimate industry to help fight cross-border fraud. In February 2003, the FTC held a public workshop to discuss ways to improve public- and private-sector cooperation, including better sharing of information. Third, the FTC, in cooperation with the U.S. Agency for International Development, is conducting training sessions in developing countries to ensure that these countries have the tools they need to prevent becoming “havens” for fraud. Finally, Muris said that the FTC is working to develop and strengthen bilateral and multilateral relationships with international law enforcement partners, including agreements with Canada, the United Kingdom, and Australia, as well as the FTC’s membership in the International Consumer Protection Enforcement Network (ICPEN).
Muris stated that the fifth section of the FTC’s Five Point Plan addresses the necessity of new legislation. The third part of the testimony details the FTC’s legislative recommendations, urging Congress to grant the agency more authority to fight cross-border fraud. “Many of the challenges we face in the battle against cross-border fraud reflect the shortcomings of a legal framework developed when consumer protection was almost purely a domestic concern,” Muris said. “In the emerging global marketplace, that framework must be expanded to allow the FTC to act with effectiveness and dispatch to protect American consumers.” He noted that the OECD’s Guidelines specifically state that member countries should adopt or amend national legislation to overcome barriers to combating cross-border fraud, and that the FTC’s legislative proposals would implement this provision.
The testimony explains four areas in which the FTC recommends legislation:
Muris concluded by stating that Congress has already granted other federal agencies, such as the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), similar authority to address issues with an international focus. He also stated that the FTC has worked closely with other federal agencies, private companies, and public interest groups in drafting its legislative proposals. Granting the Commission greater authority to combat cross-border fraud would increase the efficiency with which this problem is addressed, thus protecting U.S. and foreign consumers and increasing consumer confidence in the global marketplace.
The Commission vote to approve the testimony was 5-0.
Copies of the testimony are available from the FTC's Web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, DC 20580. The FTC works for the consumer to prevent fraudulent, deceptive, and unfair business practices in the marketplace and to provide information to help consumers spot, stop, and avoid them. To file a complaint, or to get free information on any of 150 consumer topics, call toll-free, 1-877-FTC-HELP (1-877-382-4357), or use the complaint form at http://www.ftc.gov. The FTC enters Internet, telemarketing, identity theft, and other fraud-related complaints into Consumer Sentinel, a secure, online database available to hundreds of civil and criminal law enforcement agencies in the U.S. and abroad.
Cathy MacFarlane or Jen Schwartzman
Office of Public Affairs