Federal Trade Commission Testifies On Actions to Combat Cross-border Telemarketing Fraud

Focusing on the prevalence and prevention of Canadian telemarketing scams affecting U.S. consumers, Hugh G. Stevenson of the Federal Trade Commission's Bureau of Consumer Protection presented testimony today before the U.S. Senate Committee on Governmental Affairs' Permanent Subcommittee on Investigations, stressing that "cross-border fraud is a serious problem and appears to be growing." According to the FTC's consumer complaint database - Consumer Sentinel - U.S. consumers reported $19.5 million in losses in 2000 due to fraudulent cross-border telemarketing. That amount expected to increase to $36.5 million in 2001.

To combat such fraud, "law enforcement must look for more effective cross-border legal remedies, and must work cooperatively with law enforcement and consumer protection officials from other countries," according to the testimony. Although Canadian law enforcement agencies "share with their U.S. counterparts a commitment to address fraud problems in which most of the victims are Americans...cross-border telemarketing fraud continues to be a significant problem." This problem is magnified by the fact that "even if the Commission were to bring an action and obtain a judgment against a foreign firm that has defrauded U.S. consumers, the judgment might be challenged in the firm's home country, and the ability to collect any consumer redress might be frustrated."

Complaints about fraudulent telemarketing, and a wide range of other potentially fraudulent or deceptive acts, are compiled in the Commission's Consumer Sentinel database, a "cornerstone of the FTC's ability to act quickly and effectively against telemarketing fraud," both within the United States and from abroad. According to the testimony, Consumer Sentinel currently contains more than 300,000 consumer complaints about telemarketing, direct mail, and Internet fraud, all of which are available to more than 320 registered law enforcement partners in the United States, Canada, and Australia. These authorities can also enter information into the secure, password-encrypted database, facilitating information sharing and rapid responses to new fraud schemes.

According to the Commission, information tools such as Consumer Sentinel are essential in identifying and combating cross-border telemarketing fraud. Last year, Consumer Sentinel data show, 71 percent of all cross-border complaints (more than 8,300) were made by U.S. consumers against Canadian companies. Most of the complaints were generated by companies operating in Toronto (Ontario), Montreal (Quebec), and Vancouver (British Columbia), the Commission found, with the three provinces accounting for 92 percent of all U.S. consumer complaints against Canadian companies in 2000. Conversely, about 12 percent of the cross-border complaints in the database were made against U.S. companies by Canadian consumers.

The testimony also details the subject matter of complaints by U.S. consumers against Canadian outfits, with the majority concerning sweepstakes, advance-fee loans, lotteries and Internet auctions. Sweepstakes and related prize promotion telemarketing alone accounted for more than half of all these complaints in 2000.

The testimony then discusses obstacles to cross-border enforcement, contending that the main problems in combating cross-border telemarketing fraud include "the difficulties of obtaining information about foreign targets and enforcing domestic remedies in foreign jurisdictions." Fraudulent Canadian telemarketers may target U.S. consumers and take advantage of these difficulties to shield themselves from law enforcement.

Significant FTC initiatives to combat cross-border telemarketing fraud in each of the main complaint categories are then presented, along with additional information on conferences and workshops focusing on cross-border fraud, regional strategic partnerships such as the Ontario Strategic Partnership and Project Emptor with the Canadian government, cooperation agreements, the use of Consumer Sentinel data, and consumer education initiatives being conducted by the Commission.

The testimony further suggests ways in which the United States and Canada can "move ahead to improve law enforcement against cross-border fraud," including improving information sharing and working for more effective cross-border legal remedies. Enhanced cooperative efforts with the Commission's Canadian law enforcement counterparts is also key, and advances in each of these areas "will help...more quickly halt ongoing fraud and recover money for consumers."

Finally, the Commission suggests that new methods be explored to modify the existing legal framework to facilitate information sharing and cooperation in cross-border cases. While no specific legislative recommendations are made, several issues worthy of consideration are noted, including what additional types of information might be shared under what circumstances, and the potential use of existing international treaties to provide an alternative vehicle for information sharing. It also is suggested that methods of making U.S. civil remedies more effective across borders should be examined, as should ways that U.S. and foreign courts might better enforce the monetary relief judgments issued by courts of other nations against cross-border scams.

The Commission vote to approve the testimony and provide a copy for inclusion in the formal record 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, 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 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.

Hugh G. Stevenson
Bureau of Consumer Protection
202-326-3511

(FTC File No. P014306)