Testimony of Ari Schwartz
Associate Director, Center for Democracy & Technology
Subcommittee on Commerce, Trade, and Consumer Protection
House Committee on Energy and Commerce
September 17, 2003
Chairman Stearns, Ranking Member Schakowsky, and Members of the Subcommittee, the Center for Democracy and Technology (CDT) is pleased to have this opportunity to testify today on the cross-border fraud proposals of the Federal Trade Commission (FTC).
The draft bill before the Subcommittee, the International Consumer Protection Act, is landmark legislation, reflecting a major expansion in the scope of the enforcement activity of the FTC. The problems to which this bill responds are certainly deserving of attention. As the number of consumers online continues to grow, and as we see significant increases in Internet usage by businesses and individuals in countries around the world, e-commerce has become global in nature. Not surprisingly, global consumer fraud has been an undesirable side effect, threatening the trust that is an element of e-commerce. As the FTC steps up its efforts to prevent Internet fraud, to curb deceptive spam, and to address other obstacles to Internet commerce, there is no question that it needs authority to work with its counterparts overseas to more effectively protect consumers. The International Consumer Protection Act transforms the FTC into a regulatory agency of truly international reach.
Yet, while CDT supports the overall intent of the Act, and while we highly respect the work of the Commission and its staff, and commend especially Commissioner Thompson and Chairman Muris for their leadership in this area, we would be concerned with any authorities that would infringe on the privacy and due process rights of individuals or diminish accountability of government agencies.
For the most part, the International Consumer Protection Act achieves the right balance. CDT has worked with the Commission to address several of our areas of concern either through text changes or through a better understanding of how the FTC operates.
However, CDT still has concerns with the bill that have not been addressed. In particular:
dual criminality) opens the potential for diversion of scarce resources. At this phase in the development of the FTC's cross-border activity, it should focus on conduct that that is serious enough so that it would be illegal under US law.
We urge the Committee to amend the bill accordingly.
CDT is a non-profit, public interest organization dedicated to developing and implementing public policies to protect and advance civil liberties and democratic values on the Internet. One of our core goals is to enhance privacy protections for individuals in the development and use of new communications technologies.
Section 8 of the International Consumer Protection Act concerns the question of notice to the subjects of investigations that their records are being disclosed to the FTC. Notice of disclosure is a central element of fair information practices. Notice has become increasingly controversial as more and more records about individuals and companies are held by third parties. Obviously, if the government wants records from you that are relevant to an authorized investigation, it can force you to disclose them with a subpoena or other process, and it gives you notice when it serves the subpoena on you. This is the normal Fourth Amendment model and is the way that investigations were traditionally conducted. The recipient of the subpoena has the opportunity to contest the subpoena, to protect against fishing expeditions. But more and more records about individuals and companies are held by third parties Ð including banks, merchants, insurance companies, credit card companies, and online service providers Ð who may have no interest in seeking to ensure that a subpoena is narrowly focused, since the records do not pertain to them. Increasingly, the government is seeking to prohibit holders of data from disclosing to their customers the fact that the government has sought their records. This means that the person whose privacy is being breached has essentially no opportunity to challenge the subpoena.
It is in this context that we are concerned about the delayed notice provision of the International Consumer Protection Act. Section 8 would grant the Commission power to access data about someone without providing notice to the individual and allowing the individual to challenge the subpoena. The delayed notice provision is not limited to cross-border investigations, but applies as well to purely domestic activity of the FTC. The fact that delayed notice might be used in the international consumer protection context heightens our concern, for it means that records will be disclosed to foreign governments, against whom redress may be extremely difficult if the records are misused.
We would prefer to see the entire delayed notice section removed to clearly ensure due process rights for individuals and set a strong example for consumer protection agencies around the world that notice is an important element of fair investigations. At the very least, the definition of
adverse result should be more narrowly drawn so that the powers cannot be abused. We recognize that there are various definitions of
adverse result on the books. The definition used by the FTC should be keyed to the specific and documented needs of the Commission. In particular, CDT recommends that subparagraph (2) (
impeding the ability of the Commission to identify or trace funds) and subparagraph (8) (
otherwise seriously jeopardizing an investigation or unduly delaying a trial) be removed from the definition of
adverse result. These two criteria seem so broad that they could apply to every investigation. (Every case involving fraud is likely to involve difficulty in identifying or tracing funds.) The serious problems faced by the Commission would be covered by the other components of the definition.
The bill contains two different Freedom of Information Act (FOIA) exemptions. CDT believes that all FOIA exemptions should be approached with caution, since transparency is an essential value for a functioning democracy. Specifically, FOIA is often the only means to ensure government accountability. Moreover,
so-called (b)(3) exemptions not only prevent individuals from obtaining information, but also are sometimes mis-interpreted by agencies as broad prohibitions against proactively disclosing information they would otherwise deem necessary to distribute to the public.
Section 7 of the International Consumer Protection Act would grant an exemption for foreign investigative materials given to the FTC. It is CDT's understanding that this provision is intended to parallel the existing exemption from FOIA in the Federal Trade Commission Act for materials acquired by the Commission by subpoena or voluntarily disclosure in lieu of subpoena in the course of an investigation. We understand the basis for this exemption, but recommend that it be narrowly drafted. For example, we recommend that the withholding be limited to circumstances where the foreign government agency has
requested confidential treatment as a condition of providing the material. In addition, CDT notes that Congress is still given the authority to gain access to these materials. Therefore, we encourage this Subcommittee to diligently pursue oversight of international consumer investigations to ensure effectiveness, since the public will not be able to scrutinize these activities through FOIA.
The second FOIA exemption, Section 9 of the Act, would exempt material voluntarily submitted to the FTC,
to the extent such disclosure could reasonably be expected to reveal either the identity of a person, partnership, or corporation that is the subject of such a disclosure, or the identification of a particular financial account, its ownership, or a confidential record of account activity. The original version of the bill had a particularly broad exemption that could have permitted the FTC to withhold, in a wide range of circumstances, information about fraud schemes targeting large numbers of individuals.
CDT worked with the FTC staff to develop the current language, to ensure that the name of the corporation or entity disclosing the information is exempt without removing from public view the fact or nature of the complaint itself. This language is an attempt to achieve a balance that will encourage companies to share information with the FTC and still require disclosure under the FOIA of adequate information to inform and protect the public. As this provision is intended to encourage the sharing of information, CDT urges the Subcommittee to monitor its implementation. If companies are still not sharing information with the FTC as intended, this exemption should be revisited.
As a general rule, US law enforcement agencies should cooperate with foreign governments only in the investigation of conduct that would be illegal under US law if it were occurring here. This is the concept of
dual criminality. It does not require that the laws of other countries use the same or similar words as ours as a pre-condition of cooperation. Rather, it is a principle that protects US citizens and ensures a prioritization of US law enforcement resources by focusing cooperation on those circumstances where is illegal under US law or would be illegal if occurring in the US. We are concerned that the draft bill rejects the principle of dual criminality, and would thereby authorize the FTC to spend taxpayer resources aiding foreign governments in investigating conduct that the US Congress has not deemed worthy of attention in the US. Dual criminality is especially important in the context of competitive practices and advertising, for some countries have very different definitions than we do of what is legal in terms of price comparison advertising and other competitive practices.
The International Consumer Protection Act represents the first major legislative expansion of the FTC's authority in cross-border fraud enforcement. We recommend a more incremental approach Ð extend cooperation to things that would be illegal under US law, before stretching resources and procedures to cover conduct that would not be illegal in the US. We recommend, therefore, in Section 5 of the bill, that the new subsection 6(j)(1) be revised to refer to
possible violations of laws prohibiting fraudulent, unfair, or deceptive commercial practices that are prohibited or, if committed in the United States, would be prohibited by any provision of the laws administered by the Commission, and that the proposed subsection 6(j)(2) be dropped. A similar change would be necessary in Section 7.
We have a few other suggestions:
foreign law enforcement agencyis over-broad, and includes agencies that are really not law enforcement. It seems, for example, that the bill's definition of
foreign law enforcement agencywould be broader than the term
law enforcement agencywhen used in reference to a State or local agency in the US.
CDT commends the FTC for its initiative in the area of cross-border-fraud - a problem particularly important in the age of the Internet. We believe that a balance can be achieved to both protect consumers and protect the privacy and due process rights of individuals. The FTC should be given reasonable authority to cooperate cross-border, so long as any new powers are narrowly defined, are subject to checks and balances, and their impact on privacy and due process is limited.
We stress the important role that this Subcommittee has in overseeing the implementation of this Act. We urge the Subcommittee to hold hearings in the coming years on the effectiveness of this legislation and to especially monitor the accountability, privacy and due process concerns that we have raised today.