FTC Consumer Protection Director Howard Beales Testifies on Increased Efforts to Monitor September 11 Charity Fraud

Directly following the terrorist attacks on the World Trade Center and the Pentagon, the Federal Trade Commission stepped up its efforts to detect and deter fraudulent charitable fund-raising schemes related to the tragedy, according to Congressional testimony given today by FTC Bureau of Consumer Protection Director J. Howard Beales, III. Testifying before the Subcommittee on Oversight and Investigations of the House Committee on Energy and Commerce, Beales detailed the Commission's efforts - launched shortly after the September 11th events - to systematically review consumer complaints, tips from other law enforcers and watch-dog groups, and media reports about possible charity fraud related to the attacks.

"The Commission has examined every complaint, inquiry, and press report raising any suggestion of such fraud," Beales testified. "To date, the findings of fraud are few and far between, and the Commission continues to monitor this situation as aggressively as any the Commission has ever pursued." Beales also said the FTC stands ready "to act quickly and effectively if someone violates the law," and he discussed FTC programs "to educate consumers and businesses about how to spot potentially fraudulent solicitations."

Central to the monitoring effort, Beales said, is the FTC's Consumer Sentinel, a web-based consumer complaint database and law enforcement investigative tool that receives complaints and inquiries about all sorts of transactions, including charitable solicitations. "Between September 12, 2001, and October 25, 2001, Consumer Sentinel received 193 disaster-related complaints, 24 percent of which related to charitable solicitations," according to the testimony. The vast majority of complaints has been from consumers alerting the FTC to potential deceptive schemes, not complaints from consumers who felt they were defrauded. The FTC has worked with other agencies, such as the Secret Service, FEMA and the Red Cross, to follow up on likely scams, according to the testimony. Beales encouraged consumers with information about possible fraud of any type to contact the FTC's complaint hotline, 1-877-FTC-HELP.

In addition to complaints about the fraudulent fundraising, the FTC is reviewing reports of other disaster-related scams. Closely monitoring the Internet, the FTC is investigating an increase in the number of entities marketing bioterrorism-related products - everything from dietary supplements sold as effective treatments against anthrax or small pox to home testing kits for anthrax, gas masks, and water filters. The FTC, the FDA, the EPA, and over 30 states, are making a concerted effort to search the Internet for deceptive claims about these products, according to Beales' testimony. "Based on the results of this effort, the FTC will take follow-up law enforcement action as appropriate."

The Federal Trade Commission Act (FTC Act) gives the agency authority to take action against "unfair or deceptive acts or practices in or affecting commerce." The Commission is barred from suing any truly non-profit organizations, thereby removing many charitable organizations from its scope of authority. However, the Commission does have jurisdiction over a non-profit organization that is merely an instrumentality or a shell used to seek direct monetary gain, either for itself or for its members. These entities include for-profit telemarketers, sometimes referred to as "telefunders," that contract with non-profit organizations to perform the non-profits' fund-raising activities. The Commission has used this jurisdiction aggressively to attack instances of fraud, according to the testimony.

Acting within the parameters of its authority, Beales said, the Commission has asserted a strong enforcement presence in the fraudulent fundraising arena backed by coordinated law enforcement with other state and federal agencies. The FTC has organized two "sweeps" of multi-state, multi-agency law enforcement actions targeting fraudulent charitable solicitations. In the past decade, the Commission has filed more than 25 cases in federal district courts, challenging deceptive fundraising practices by for-profit solicitors.

The testimony also highlighted the FTC's consumer and business education program, which communicates anti-fraud and educational messages to vast numbers of people in creative and novel ways quickly, simply, and at low cost. In the wake of the September 11th terrorist attacks, the FTC has issued warnings to consumers about potential charity frauds and how to avoid them.

On September 20th, for example, the Commission's Northeast Regional Office held a press conference in New York City with city, state, and federal agencies and nonprofit organizations to announce a coalition to protect New York consumers and provide essential information during this time of crisis. The Northeast Region staff distributed a new Consumer Alert, "Helping Victims of the Terrorist Attacks: Your Guide to Giving Wisely," which was posted to the FTC Web site, www.consumer.gov. In a little over a month, this single publication was accessed more than 9,400 times. The Commission also developed a dedicated Web page that provides consumers and businesses with additional information about donating wisely and filing a complaint. A banner ad promotes the site.

In conclusion, Beales testified that it appears that consumers have generally shown themselves to be both generous to real charities and aware of the potential for con artists posing as fundraisers. "The Commission will continue to monitor developments closely, we stand ready to take appropriate law enforcement action, and we will continue to educate consumers about how to avoid deceptive solicitations and to inform businesses how to comply with the laws," the testimony concluded.

The Commission vote to approve the testimony was 5-0.

Copies of the testimony, information about the FTC's law enforcement actions, and consumer and business education materials, 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, D.C. 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 https://www.ftc.gov/ftc/complaint.htm. 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.