June 11, 2003

Good morning Mr. Chairman and members of the Committee, and thank you for the opportunity to appear before you and to offer testimony in support of the FTC's reauthorization. In recent years, the FTC has been doing significant work in the area of international consumer protection. Improvements in communication and technology have created a global marketplace in which American consumers and American businesses play an important and active role. But these same improvements have left American consumers open to new types of harm in numbers that are growing at an exponential rate.

Today, I would like to talk about one of the most significant consumer protection problems in the last several years - the globalization of fraud and deception - and the FTC's response. Because not only has the consumer marketplace become global, so have the purveyors of fraud and deception. (Exhibit 1). The same technological tools that have expanded markets across international boundaries have also allowed fraudsters to act more quickly and efficiently - and to extend their reach beyond their domestic markets. The FTC needs new tools to effectively combat cross border fraud and deception, and we ask you for them today.

There was a time when the biggest challenge to American consumers was whether they wanted to do business with a mail order company on the other side of the country. Most of our consumer protection laws are based on what we knew then, and they have served us well. Today, however, America represents the largest and richest consumer marketplace in the world. Improved technologies have opened world markets to American consumers and vice versa. So, it is not surprising that American consumers are bombarded with new opportunities to spend their money. These opportunities arrive from around the world via mail, telephone, television, and even spam. While many of these opportunities may be legitimate, a rapidly growing number are fraudulent or deceptive. (Exhibit 2).

In response to this dramatic increase, the FTC has taken a leadership role in reaching a mutual understanding with our international colleagues that we have to bring down barriers to prosecuting fraudsters who prey on victims across borders. Consumer protection law enforcers around the world now agree that this problem is serious and that international cooperation is the key to any effort to combat cross border fraud and deception.

We work in a variety of international fora to address the problems posed by cross border fraud.

Our efforts have resulted in bilateral memoranda of understanding, and include our participation in the International Consumer Protection and Enforcement Network (ICPEN), a group of consumer protection law enforcement agencies from around the world.

The issue of cross-border fraud and deception is also at the forefront of our discussions at the Organization for Economic Cooperation and Development (OECD) Committee on Consumer Policy (CCP). The CCP has worked to develop guidelines that provide the thirty OECD governments with a blueprint for cooperation in combating cross-border fraud. We hope that the guidelines will be finalized and approved later this month.

But participation in international fora is not enough.

Criminal law enforcers saw the need for international cooperation many years ago. They found ways to permit government authorities to share investigatory information and to engage in cooperative law enforcement. Later, the Federal government recognized the negative market impact of such activities as securities and commodities fraud. Consequently, agencies such as the SEC and CFTC were given certain powers enabling them to better prosecute such fraud across national borders.

Unlike our sister agencies, the FTC's tools to combat fraud and deception have not kept up with the times. In many instances the statutes under which we operate do not address the increasingly cross-border nature of fraud and deception and sometimes even hinder our ability to engage in strong enforcement activity against those who use international borders to the detriment of consumers.

The growth of cross-border consumer fraud demonstrates the pressing need for new tools to protect consumers. Our statistics show a sharp increase in the number of cross-border complaints from American consumers about foreign companies, from 7,609 in calendar year 1998 to 24,213 in calendar year 2002. (Exhibit 3). In fact, from 2001 to 2002, the number of complaints almost doubled. Even at our recent Spam Forum, participants noted that unsolicited e-mail increasingly crosses borders to subject consumers to fraudulent and deceptive offers.

The legislative proposal that we have presented to you is intended to address some of these problems and improve the FTC's ability to protect consumers in such cases. Quite simply, we are asking for the tools to make us more effective in meeting the challenges posed by cross-border fraud.

I would be happy to answer any questions that you have on this subject or any other part of the FTC's activities.