SPEAKERS CONTENTS INSERTS
Page 1 TOP OF DOC47046CC
ISSUES RELATED TO STOLEN AIRLINE TICKET STOCKS FROM TRAVEL AGENTS
PLEASE NOTE: The following transcript is a portion of the official hearing record of the Committee on Transportation and Infrastructure. Additional material pertinent to this transcript may be found on the web site of the Committee at [http://www.house.gov/transportation]. Complete hearing records are available for review at the Committee offices and also may be purchased at the U.S. Government Printing Office.
Page 2 PREV PAGE TOP OF DOC
TRANSPORTATION AND INFRASTRUCTURE
HOUSE OF REPRESENTATIVES
ONE HUNDRED FIFTH CONGRESS
FEBRUARY 26, 1998
Printed for the use of the
Committee on Transportation and Infrastructure
COMMITTEE ON TRANSPORTATION AND INFRASTUCTURE
BUD SHUSTER, Pennsylvania, Chairman
DON YOUNG, Alaska
THOMAS E. PETRI, Wisconsin
SHERWOOD L. BOEHLERT, New York
HERBERT H. BATEMAN, Virginia
Page 3 PREV PAGE TOP OF DOCHOWARD COBLE, North Carolina
JOHN J. DUNCAN, Jr., Tennessee
THOMAS W. EWING, Illinois
WAYNE T. GILCHREST, Maryland
JAY KIM, California
STEPHEN HORN, California
BOB FRANKS, New Jersey
JOHN L. MICA, Florida
JACK QUINN, New York
TILLIE K. FOWLER, Florida
VERNON J. EHLERS, Michigan
SPENCER BACHUS, Alabama
STEVEN C. LaTOURETTE, Ohio
SUE W. KELLY, New York
RAY LaHOOD, Illinois
RICHARD H. BAKER, Louisiana
FRANK RIGGS, California
CHARLES F. BASS, New Hampshire
ROBERT W. NEY, Ohio
JACK METCALF, Washington
JO ANN EMERSON, Missouri
EDWARD A. PEASE, Indiana
ROY BLUNT, Missouri
JOSEPH R. PITTS, Pennsylvania
ASA HUTCHINSON, Arkansas
Page 4 PREV PAGE TOP OF DOCMERRILL COOK, Utah
JOHN COOKSEY, Louisiana
JOHN R. THUNE, South Dakota
CHARLES W. ''CHIP'' PICKERING, Jr., Mississippi
KAY GRANGER, Texas
JON D. FOX, Pennsylvania
THOMAS M. DAVIS, Virginia
FRANK A. LoBIONDO, New Jersey
J.C. WATTS, Jr., Oklahoma
JERRY MORAN, Kansas
VITO FOSSELLA, New York
JAMES L. OBERSTAR, Minnesota
NICK J. RAHALL II, West Virginia
ROBERT A. BORSKI, Pennsylvania
WILLIAM O. LIPINSKI, Illinois
ROBERT E. WISE, Jr., West Virginia
JAMES A. TRAFICANT, Jr., Ohio
PETER A. DeFAZIO, Oregon
BOB CLEMENT, Tennessee
JERRY F. COSTELLO, Illinois
GLENN POSHARD, Illinois
ELEANOR HOLMES NORTON, District of Columbia
JERROLD NADLER, New York
PAT DANNER, Missouri
Page 5 PREV PAGE TOP OF DOCROBERT MENENDEZ, New Jersey
JAMES E. CLYBURN, South Carolina
CORRINE BROWN, Florida
JAMES A. BARCIA, Michigan
BOB FILNER, California
EDDIE BERNICE JOHNSON, Texas
FRANK MASCARA, Pennsylvania
GENE TAYLOR, Mississippi
JUANITA MILLENDER-McDONALD, California
ELIJAH E. CUMMINGS, Maryland
EARL BLUMENAUER, Oregon
MAX SANDLIN, Texas
ELLEN O. TAUSCHER, California
BILL PASCRELL, Jr., New Jersey
JAY W. JOHNSON, Wisconsin
LEONARD L. BOSWELL, Iowa
JAMES P. McGOVERN, Massachusetts
TIM HOLDEN, Pennsylvania
NICK LAMPSON, Texas
JOHN ELIAS BALDACCI, Maine
MARION BERRY, Arkansas
Subcommittee on Aviation
JOHN J. DUNCAN, Jr., Tennessee, Chairman
Page 6 PREV PAGE TOP OF DOC
ROY BLUNT, Missouri Vice Chairman
THOMAS W. EWING, Illinois
VERNON J. EHLERS, Michigan
RAY LaHOOD, Illinois
CHARLES F. BASS, New Hampshire
JACK METCALF, Washington
EDWARD A. PEASE, Indiana
JOSEPH R. PITTS, Pennsylvania
ASA HUTCHINSON, Arkansas
MERRILL COOK, Utah
JOHN COOKSEY, Louisiana
CHARLES W. ''CHIP'' PICKERING, Jr., Mississippi
KAY GRANGER, Texas
JON D. FOX, Pennsylvania
THOMAS M. DAVIS, Virginia
J.C. WATTS, Jr., Oklahoma
JERRY MORAN, Kansas
VITO FOSSELLA, New York
BUD SHUSTER, Pennsylvania
WILLIAM O. LIPINSKI, Illinois
LEONARD L. BOSWELL, Iowa
GLENN POSHARD, Illinois
Page 7 PREV PAGE TOP OF DOCNICK J. RAHALL II, West Virginia
JAMES A. TRAFICANT, Jr., Ohio
PETER A. DeFAZIO, Oregon
JERRY F. COSTELLO, Illinois
PAT DANNER, Missouri
JAMES E. CLYBURN, South Carolina
CORRINE BROWN, Florida
EDDIE BERNICE JOHNSON, Texas
JUANITA MILLENDER-McDONALD, California
ELIJAH E. CUMMINGS, Maryland
JOHN ELIAS BALDACCI, Maine
MARION BERRY, Arkansas
JAMES L. OBERSTAR, Minnesota
Collins, David R.B., President, Airlines Reporting Corporation, Arlington, VA, accompanied by James Manning, Director of Field Investigations and Fraud Prevention, and Kathleen Argiropoulos, Vice President and General Counsel
Page 8 PREV PAGE TOP OF DOC
Gallagher, Neil J., Deputy Assistant Director, Criminal Investigation Division, Federal Bureau of Investigation
Gregorian, Geraldine, Former Owner, G.A.P. Travel, Inc., Port St. Lucie, FL
Hudson, George, Vice President, Hudson Holidays, Elmwood Park, IL
Linares, Nancy, CTC, Member, National Board of Directors, Association of Retail Travel Agents, Austin TX
Pisa, Barbara J., President and Former Owner, Classic Travel Agency, Inc., Naperville, IL
Schmidt, William, Director, Corporate Security, American Airlines, Dallas, TX
Yallelus, Gary L., Detective, Metro-Dade Police Department, Miami, FL
PREPARED STATEMENTS SUBMITTED BY MEMBERS OF CONGRESS
Costello, Hon. Jerry F., of Illinois
Oberstar, Hon. James L., of Minnesota
Page 9 PREV PAGE TOP OF DOC
PREPARED STATEMENTS SUBMITTED BY WITNESSES
Collins, David R.B
Gallagher, Neil J
Pisa, Barbara J
Schmidt, William R
Yallelus, Gary L
SUBMISSIONS FOR THE RECORD
Gregorian, Geraldine, Former Owner, G.A.P. Travel, Inc., Port St. Lucie, FL, billings for stolen tickets
Hudson, George, Vice President, Hudson Holidays, Elmwood Park, IL:
Page 10 PREV PAGE TOP OF DOCAirlines Reporting Corporation, James M. Manning, Director, Official Lost/Stolen Ticket Bulletin, December 21, 1996, April 10, 1997, July 10, 1997, and October 9, 1997
Rebuttal to American Airlines testimony, March 21, 1998
Pisa, Barbara J., President and Former Owner, Classic Travel Agency, Inc., Naperville, IL:
Rebuttal the testimony of American Airlines, April 27, 1998
Rebuttal the testimony of American Airlines, March 9, 1998
Letter from United Airlines, December 9, 1997
Letter from The Royal Mercantile Trust Corp. of America, November 25, 1996
Yallelus, Gary L., Detective, Metro-Dade Police Department, Miami, FL, chart of the activities of Organized Travel Agency Thieves
ADDITIONS TO THE RECORD
Page 11 PREV PAGE TOP OF DOC
Fawell, Hon. Harris W., a Representative in Congress from Illinois
Newspaper articles concerning ticket thefts
Example of a stolen ticket made on a home computer
Airlines Reporting Corporation, press release, ARC to Distribute Video on New Ticket Security Rules; Expresses Appreciation to Trade for Assistance With Production, April 24, 1996
Industry Agents' Handbook, Agent Reporting Agreement, Security Rules for ARC Traffic Documents and Airline Identification Plates
Boulard, Georgette, Former Owner, Travel Incentives, Libertyville, IL:
Court Case Deciding Value of Blank Airline Tickets, U.S. vs. Todd Kevin Wallace, U.S. Court of Appeals Ninth Circuit
Airlines Reporting Corporation, press release, Conspiracy Distraction Thefts/Burglaries Against Travel Agencies, June 6, 1997
Report made to the Tampa Airport Police Department, May 13, 1997
Page 12 PREV PAGE TOP OF DOC
Press Release, Illegal Aliens and Stolen Airline Tickets
Bennison, John C., Vice President, Government Affairs, American Society of Travel Agents, letter, February 25, 1998
Newspaper articles concerning ticket thefts
Hinchman, James, Acting Comptroller General, U.S. General Accounting Office, letter, June 24, 1998
ISSUES RELATED TO STOLEN AIRLINE TICKET STOCKS FROM TRAVEL AGENTS
THURSDAY, FEBRUARY 26, 1998
U.S. House of Representatives,
Subcommittee on Aviation,
Page 13 PREV PAGE TOP OF DOCCommittee on Transportation and Infrastructure,
The subcommittee met, pursuant to notice, at 9:35 a.m., in Room 2167, Rayburn House Office Building, Hon. John J. Duncan, Jr. (chairman of the subcommittee) presiding.
Mr. DUNCAN. We will go ahead and call the subcommittee meeting to order at this time. Let me first say good morning and welcome everyone to what is the first hearing of the second session of the 105th Congress for this subcommittee. While this is our first hearing, we already have scheduled a very busy and full agenda for the coming year. In fact, starting with today's hearing we have a hearing scheduled each week up to the April recess and I feel very certain that we will continue at the same or an even faster pace through the summer months, as well.
The programs administered by the FAA, including the Airport Improvement Program, expire later this year, on September 30, so our primary legislative initiative will be reauthorizing these programs.
I do want the members to know that it is our intention to hold a subcommittee mark-up next Thursday, March 5, on our Medical Equipment Bill or what we have also called the Good Samaritan Law for the Skies. Many members of this subcommittee are cosponsors of this very important bill and so I look forward to the mark-up next Thursday.
We have a very large number of additional requests for hearings, both here and field hearings outside of Washington, and we are trying to sort through those now and we will certainly inform members when we have further details about this upcoming agenda.
Page 14 PREV PAGE TOP OF DOC
Let me thank the witnesses for being here today on what I believe will be a very interesting hearing on an important issue, that of stolen airline ticket stock from travel agents. One newspaper described what is happening as ''a story that could come straight from the silver screen.''
This issue was first brought to my attention last fall by a very distinguished colleague and good friend, Representative Harris Fawell from Illinois, and he asked that we hold a hearing to look into this further. I have also had discussions on this issue with my good friend former Congressman Toby Roth, who was certainly one of the most respected members of this body and a man with whom I voted almost identically.
Apparently a number of travel agents in Congressman Fawell's district and throughout Illinois and indeed throughout the nation have been victims of burglaries and thefts of ticket stocks. Travel agents in the United States receive blank tickets that they issue to consumers from primarily one source, the Airlines Reporting Corporation, ARC, which has shareholders from all the major U.S. airlines. The ARC has warned that there is a national counterfeit ticket ring, and that's what we're interested in looking into today. Some articles also say that this is a major way that illegal aliens are coming into this country.
There are approximately 23,000 ARC-approved travel agents in the United States operating through nearly 47,000 locations. Last year, the total dollar volume of transactions processed by ARC from these agencies exceeded $70 billion. ARC distributed approximately 1.2 billion blank tickets to travel agents last year and reported that about 212,000 tickets were stolen, lost or misplaced.
Page 15 PREV PAGE TOP OF DOC
Now, while that percentage is very small because the numbers are so high, that is an amazing figure to think 212,000 tickets were stolen, lost or misplaced. Such a theft can be catastrophic to an individual travel agent, sometimes causing a small business to fail.
So what we would like to do here today is to listen and learn from travel agents, law enforcement, the airlines and the ARC on exactly what kind of problem we have and what each of these groups is doing or can do to eliminate or further curtail this problem.
We look forward to hearing from our witnesses today and let me again thank many of them for traveling such great distances to be here with us for this hearing today.
I now yield to my good friend and very distinguished ranking member of the subcommittee, Mr. Lipinski.
Mr. LIPINSKI. I thank my good friend, Chairman Duncan, for yielding to me. I also thank him very much for holding this hearing today. This is a $4 million problem in the aviation industry. I think it is a problem particularly for the travel agents.
People say it is a problem for the airlines but the airlines don't seem to be overly aggressive in trying to resolve this particular problem because they don't want to apparently slow down their boarding process. And with the money that the aviation industry, particularly the carriers, are making nowadays, I guess they feel that they can handle the loss that they incur because of these tickets.
Page 16 PREV PAGE TOP OF DOC But in regards to travel agents, it is an entirely different story. I don't think that they can handle this at all and there have been a number of bankruptcies because this problem has not really been addressed by the air carriers and in some cases also the travel agents, I guess, have been remiss in not really protecting the ticket stock the way they should protect it.
This hearing is particularly interesting to me because it is my colleague from Illinois, Harris Fawell, who has really vigorously pursued this particular issue and brought it to our attention. For most of the western boundary of my district in Illinois I run along with Harris Fawell. So I am quite sure that many of the travel agents that have spoken to him may be located in his district but they are probably serving many of my constituents, also. So I have a unique and special interest in this problem.
We have a lot of witnesses today. I look forward to hearing their testimony. I hope that at the end of the day we will all be better informed on the situation and we might all have some ideas on how to correct it because I think this is a situation where it could be very difficult to do anything by law. It is going to have to be the air carriers becoming more involved and perhaps the travel agents becoming a little bit more diligent in protecting this ticket stock.
Thank you, Mr. Chairman.
Mr. DUNCAN. Thank you, Mr. Lipinski.
Does any other member wish to make an opening statement? Mr. Metcalf? Mr. Davis? Mr. Boswell?
Page 17 PREV PAGE TOP OF DOC
Mr. BOSWELL. Thank you, Mr. Chairman. I will just make a very brief statement. I know that travel agents perform a very important role for many of us in our communities. Certainly in a very rural area they certainly do and even though a lot of people are getting on the computer and doing some of their own arrangements, it is a very good service to have those travel agents to work a customer through that process.
So this is an enormous figure that you are talking about here and I, too, commend you for putting this hearing together to see if we can't help get to the bottom of this because this is a very serious matter. I hope we can do something to help.
[The prepared statement of Mr. Costello follows:]
Mr. DUNCAN. Thank you very much, Mr. Boswell.
We will call forward at this time the first panel of witnesses and if you will please take the seats there.
Miss Nancy Linares, who is a member of the National Board of Directors of the Association of Retail Travel Agents. Miss Linares is from Austin, Texas.
Miss Barbara Pisa, who is president and former owner of the Classic Travel Agency of Naperville, Illinois.
Page 18 PREV PAGE TOP OF DOC
Mr. George Hudson, who is with Hudson Holidays from Elmwood Park, Illinois.
And Miss Geraldine Gregorian, who is a former owner of the GAP Travel, Incorporated from Port St. Luce, Florida.
We are certainly pleased to have all of you with us today. Before we begin the testimony I would like to see if any of the other members who have just come in have any opening statement or anything they wish to say.
Mr. Ewing? Miss Johnson?
All right. We will go ahead, then. We generally proceed in the order in which the witnesses are listed on the agenda so that means Miss Linares, you will testify first. Please proceed.
TESTIMONY OF NANCY LINARES, CTC, MEMBER, NATIONAL BOARD OF DIRECTORS, ASSOCIATION OF RETAIL TRAVEL AGENTS, AUSTIN TX; BARBARA J. PISA, PRESIDENT AND FORMER OWNER, CLASSIC TRAVEL AGENCY, INC., NAPERVILLE, IL; GEORGE HUDSON, VICE PRESIDENT, HUDSON HOLIDAYS, ELMWOOD PARK, IL; AND GERALDINE GREGORIAN, FORMER OWNER, G.A.P. TRAVEL, INC., PORT ST. LUCE, FL
Ms. LINARES. To the honorable Chairman and esteemed members of the House Subcommittee on Aviation and to the distinguished guests assembled for this important hearing, I offer the thanks of more than 4,000 small, independent retail travel agents around the United States for the invitation to speak today.
Page 19 PREV PAGE TOP OF DOC
My name is Nancy Linares. I write and review airline tickets every day as president of Holidays 'N Travel. We are a full service travel agency in Austin, Texas. For several years, I have volunteered my time and energy to serve as a member of the National Board of Directors of the Association of Retail Travel Agents, the nation's largest nonprofit trade association that admits only travel agents as members.
I come to you today in both capacities to discuss a growing concern among my fellow professional travel agents. You will hear from other working agents today about the heavy and unfair burdens placed upon them by the airlines when ticket stock, the paper forms on which the airline tickets are written, is stolen from a travel agency. I will let those anecdotes stand on their own.
What I want the address quickly are two key points that ARTS believes have a tremendous dangerous for travel agents and, more importantly, the consumers who place their trust in us for travel plans.
First, the current airline rules governing ticket thefts place an unlimited liability upon travel agents. When the ticket stock is stolen from an agency, current U.S. laws do not place any limits on the liability represented by the stolen tickets. If someone picks your pocket after the hearing today and goes on about spending spree with your credit cards, generally accepted standards in the credit card industry limit your liability for those illegal purchases to $50 or, in many cases now, zero.
However, the airlines currently have free rein to charge whatever they feel they can get away with as the value for each stolen ticket, with no regard to a thief's actual usage. A carrier may charge the agent $350 for the perceived value of a flight from Washington's Ronald Reagan Airport to New York City or $1,800 for a first class flight from Dulles International Airport to London's Gatwick Airport.
Page 20 PREV PAGE TOP OF DOC
No U.S. controlling laws or regulations protect the travel agencymany of which are very small businesses that traditionally have meant economic survival for women and minority owners and employeesfrom the egregious or capricious values placed on stolen tickets by airline officials. These damages are subject to no one's review. No requirements exist to link these damages to any actual usage of the stolen ticket stock. Whether the stock is discarded in a trash can or every single ticket is fenced to an unsuspecting passenger, the agent may end up paying the same damages.
Second, the airlines themselves make no effort to track these stolen tickets. ARTA's discussions with law enforcement officials in Miami, Chicago and other major U.S. cities have turned up mounting concerns that these stolen tickets are laundered to criminal elements who use them as free passes to travel, sight unseen, on U.S. airlines. However, the airlines make no real effort to track these tickets.
Each piece of ticket stock bears the unique ticket stock identifier number found at the bottom of the ticket. When stock is stolen, travel agents generally report the theft to the headquarters of the Airlines Reporting Corporation, which is ARC, the ticket clearinghouse owned by the airlines. ARC staffers, in turn, send the runs of ticket stock numbers, for example, ticket 1234567 to number 2345678, to individual airlines as a warning that these numbers belong to stolen ticket stock.
At the current time it is ARTA's contention, backed by conversations with ARC officials and numerous other airline executives and managers, that the airlines do next to nothing to track those numbers. The common excuses? The technology does not exist to track the numbers and the effort to track numbers at the ticket gate or airport counter would take too long.
Page 21 PREV PAGE TOP OF DOC
We contend that if the airlines possess the technology to track a passenger's frequent flyer number, federal taxes and passenger facility charges and other numerical data, they can also take a few extra seconds to scan the stock number on any ticket to match against a database of stolen ticket numbers. What's that extra time at the gate or counter weighed against a chance to catch thieves using stolen tickets or, worse yet, a terrorist or criminal using the ticket for illicit purposes?
Through airline industry initiatives such as ARINC, we believe that the technology to conduct high-speed ticket number searches have existed for years and is, in fact, already being used for less important purposes, such as frequent flyer credits.
While I would be honored to discuss these points in more detail, ARTA urges the subcommittee today to take two steps in this congressional session. Limit the liability for travel agents on stolen ticket stock to actual ticket usage, supported by the airline's documentation; and require the U.S. carriers to take all available steps to screen for stolen tickets at the airport counter or ticket gate as a means of improving safety for America's consumers who travel by air.
Again, thank you very much for your time this morning.
Mr. DUNCAN. Thank you very much.
Page 22 PREV PAGE TOP OF DOC Ms. PISA. Good morning, Mr. Chairman and committee members. My name is Barbara Pisa and I am the former owner of Classic Travel in Naperville, Illinois. I am a 25-year veteran in the industry and for the whole 25 years I owned and operated a mid-sized agency handling day-to-day operations in every aspect of the travel business.
It was on the night of February 22, 1996 that I became a victim of organized crime. Two Hispanic males cased my office earlier that afternoon and, that night, crow-barred the front door and stole nothing but blank airline coupons. ARC deemed me liable. After a 13-month protracted battle with ARC they reversed their decision. My life was given back to me.
During my 13-month battle with ARC I was harassed by several of the airlines, threatened, blackmailed and turned over to collection agencies, who told my employees that if I didn't pay for the mounting stolen forged tickets that had come through, that I would be put out of business and my employees would lose their jobs.
Right after my burglary, I organized a meeting of 19 agency owners in the Chicagoland area, all who were a victim of a burglary over a 1-month period during January and February of '96. We all met and I was designated to be the spokesperson. I began to research the problems.
After 2 years of investigating the black market stolen forged airline ticket ring, the same question kept coming up. Why? Why? Why? Why would the airlines continue to accept forged airline tickets every day? Most travel agencies they bill for the stolen forged ticket usage would rather go out of business than pay for tickets they did not sell. The agencies that do pay never pay for the full usage. They negotiate the cost down to as low as 10 percent.
Page 23 PREV PAGE TOP OF DOC
The criminal who flies on a stolen forged ticket does not pay the airlines for it, even though they sometimes get upgraded and sometimes get frequent flyer miles. The victimized agencies' insurance carriers will not pay. They all say the stolen tickets are worthless until they are forged and then accepted.
Who does pay, then? The answer is the taxpayers. That's who pays, you and me, all of us who pay taxes. You see, every single forged airline ticket that they accept is actual a sale to them, a full fare back-door sale. They simply write off as a loss the inflated erroneous price the forgers have printed on the ticket. It's far more profitable than them selling a ticket themselves. A full fare with no employee time involved. A whole illegal black market underground sales force generating billions of dollars in revenue with no expense to themselves. That is why they don't want this to stop.
It is funny how they separate the stolen forgeries from the real tickets every single week so they can bill victimized travel agencies that are deemed liable for a burglary or a distraction theft. But what happens to the other stolen forgeries that are used from travel agencies that were not liable or from the airline's own ticket stock? Why would they honor those tickets if there is no one liable to bill for them? The write-offs; that's why.
The airlines and ARC are very quick to shift all the blame to the victimized agencies. The fact is the airlines aid and abet the stolen forged ticket ring every day by continually accepted forged tickets. We estimate that over 2 million airline tickets are stolen, forged and accepted by the airlines each year. We average the stolen forged tickets to be worth approximately $2,000 each. That comes to approximately $4 billion of stolen forgeries a year. Don't forget most of these tickets are high-turf fares to points all over the world.
Page 24 PREV PAGE TOP OF DOC
The users of the forged tickets usually pay 25 to 50 percent of the face value. That could be up to $2 billion a year untaxed, and most of it leaving our economy and our country, not to mention all the other monies this black market ring is costing our country.
Seventy-five percent of the victimized travel agencies that are burglarized go out of business. That means thousands of people collecting unemployment instead of collecting a paycheck and paying taxes. This is a double-edged sword.
Not all these criminal fly coach. Most of them fly business class and first class. Some even get upgraded, and a lot of them are getting frequent flyer miles. Can you imagine using a stolen forged ticket and getting frequent flyer miles, too? I was shocked when this was uncovered.
So don't let the airlines and ARC shift the blame to the victimized agencies. These agencies are mostly female-owned. They are the victims here. They made only one mistake, by having too many tickets on hand. The airlines compound this mistake daily as they continue to accept stolen forged tickets so they can reap a better bottom line. As always, he who laughs last laughs the loudest.
The airlines are laughing louder than anyone. They are laughing at the victimized agencies, at the U.S. taxpayers, at the IRS. They are laughing all the way to the bank, to the tune of $2 to 4 billion a year.
Imagine if you or your wife lost your checkbook. You got carried away and careless and somehow it got stolen or lost. You report this to your bank right away. Imagine them telling you, ''Too bad. It was your fault and now you're liable. You are liable forever or until all the checks are used, whichever comes first. You're liable no matter how bad the forgeries are, liable forever.'' That is what it is like when you are deemed liable for a burglary.
Page 25 PREV PAGE TOP OF DOC
Remember those words, ''deemed liable.'' Please, those words are the smoke screen the airlines and ARC use to keep this on-going criminal activity afloat. Every single airline ticket has a control number on it. That is how they weed out the forgeries from the real tickets at the ARC clearinghouse every week. So if they can weed out the forgeries at ARC, why not weed them out at the airport counters?
They are going to tell you they don't have time. Please don't be misled. It takes only 3 seconds to check to see if a ticket is a forgery or real. They don't check because they don't want to. It would disrupt their cushy flow of extra revenue that they don't have to work for.
As soon as you make the airlines check every ticket for forgeries, these crimes will all stop dead in their tracks. Whenever there is a loophole in a system, criminal and profiteers will take advantage of it. Until the loopholes are closed, let's close these loopholes and make the skies safe and friendly again. With your help, I know we can do it. Thank you.
Mr. DUNCAN. Thank you, Miss Pisa.
Before we go to Mr. Hudson, Mr. Lipinski has one question he wants to ask that there is some confusion on about your testimony.
Mr. LIPINSKI. Yes, I appreciate your testimony very much but it sounded to several of us as though you said that the airlines are making money off of these stolen tickets.
Page 26 PREV PAGE TOP OF DOC
Ms. PISA. Yes, that is a very strong possibility.
Mr. LIPINSKI. Would you explain that to us? Would you amplify that statement?
Ms. PISA. Yes, sir. All of the travel agencies that are deemed liable, all of the tickets are not processed through the Airlines Reporting Corporation, so the statistics are very well hidden. The travel agencies get what they call bills for unreported sales because all the stolen tickets are separate at the ARC clearinghouse each weekgood tickets from stolen tickets. Then they go to each individual airline and they try to collect the money from us.
And there are many agencies that opt to pay and settle with the airlines for these bogus prices the thieves wrote on the tickets and I believe that it is not funneled through Airlines Reporting Corporation and none of the taxes on these tickets are being paid to the government and also for the stolen tickets that the agencies are forced out of business on.
They do this as unreported sales. They don't show them as stolen tickets. So consequently, I feel that the IRS is not picking this up. When they're looking, they're looking for stolen tickets. The wording is wrong and when the wording is wrong, I believe that in my opinion, the word ''unreported sales'' somehow fits in with the income tax where they report it as the agency failed to pay them this bill, instead of it being put down as a stolen ticket. It is a little confusing.
Page 27 PREV PAGE TOP OF DOC Mr. LIPINSKI. Let me see. Let me put it in my words and see if I am understanding what you are saying. You are saying that the air carrier, if they collect from the travel agent for this bogus ticket, it is still put down that this was a stolen ticket and they don't report that revenue? Are you saying that?
Ms. PISA. No, I am saying that they put it down as an unreported sale.
Mr. LIPINSKI. An unreported sale?
Ms. PISA. Right. It is not listed as a burglary or a stolen ticket. It is listedevery documentation never says the words ''stolen ticket'' on it. The terminology they use is ''unreported sales.'' I was told they are not allowed to write off stolen tickets, so they flip and do it in another way. They do it by unreported sales. Then they can say the travel agency owed them this money; we failed to pay, so we forfeited on a bill and they can write it off in that respect.
Plus the taxes. There's 10 percent government taxes on all airline tickets. There also are airport facility charges. When the agencies settle with the airlines, which are very few, maybe 20 percent settle with the airlines, that money is supposed to go to pay the federal government for the tax on those tickets, but it is not being paid.
Mr. LIPINSKI. You are saying that the carrier, if he does collect from the travel agent, does not report that revenue and by report that revenue I mean they are not paying the passenger facility charge on it, they are not paying the aviation tax on it?
Page 28 PREV PAGE TOP OF DOC
Ms. PISA. That is correct. That is my opinion.
Mr. DUNCAN. Let us go ahead with Mr. Hudson. We will come back to you in a few minutes, Miss Pisa, with some more questions. We will hear from Mr. Hudson at this time.
Mr. HUDSON. Good morning, Mr. Chairman and honorable members. Thank you for the opportunity to expose a serious flaw in the day-to-day activities of America's major airlines and also the Airlines Reporting Corporation.
My name is George Hudson and I am one of many hundreds of travel agents who have been put out of business because airlines have intentionally or negligently accepted stolen and forged ATB tickets.
I would like to take a moment, if I may, to respond to Congressman Lipinski's remarks about security. ATB tickets are the tickets mostly stolen. ATB stands for automated ticket and boarding pass. This type of ticket was supposedly foolproof and tamper-proof. Travel agents were oblged to lease a special printer in order to print the tickets. And although they did have stock control numbers, the actual ticket numbers cannot be imprinted until the time the agent obtains that number from ARC, and this is done at the time of the sale when the ticket is issued. ATB coupons have to be printed in 24 different areas on the ticket at the time of issue.
All of these conditions would give the agent the impression that ATB tickets truly were tamper-proof and not necessary to have the type of security that Mr. Lipinski suggested they should have.
Page 29 PREV PAGE TOP OF DOC
To strengthen this belief, ARC shipped ticket stock to the travel agents uninsured by a common carrier. If the agent was off his premises, the tickets were often left with a friendly neighbor. In one instance a box of airline tickets laid on the floor of a Chinese laundry for almost a week.
And ARC shipped as many ATB tickets as any agent cared to order. My agency ordered in lots of 20,000 to 30,000. A travel agent by the name of A1 Travel in Springfield, Illinois ordered and received 30,000 ATB coupons after having owned the business for less than 3 months. 30,000 tickets, Your Honor.
Agents were led to believe that this new ticket stock was absolutely infallible; therefore, unlike normal tickets, did not require the type of stringent security that Mr. Lipinski referred to.
Immediately after my burglary, Mr. Manning of ARC sent every airline a warning bulletin, number 17296. He provided the stock control numbers of all of the stolen tickets, advised each airline that those numbers had been entered in their own computer system. Most of the airlines ignored the warning.
My office contacted Mr. Manning again and on April 10 Mr. Manning of ARC sent a second written warning notice to every airlines. Once again he pointed out the ticket numbers. Once again he explained to the airlines those ticket numbers were in the computer, accessible with a 3-second delay.
Page 30 PREV PAGE TOP OF DOC The airlines continued accepting forgeries and continued demanding payment from my company. Every time I received a demand, a letter was mailed to that particular airline bringing all of the previous warning bulletins to their attention, but this was to no avail. By mid-summer, airline collection agencies and very aggressive attorneys were demanding almost $1 million from me.
Another appeal to Mr. Manning. This resulted in a third warning notice. Mr. Manning sent bulletin number 17296 on the 10th of July. You will be surprised to know that once again there was no response. The airlines continued to accept stolen and forged tickets.
Each time the three official bulletins from ARC plus the numerous reminders I sent meant that each and every airline received anywhere from 10 to 20 notices regarding the stolen tickets. Again no one paid any attention. They continued to accept them.
This was followed on the 29th of May by U.S. Airlines shutting down our ability to issue tickets on their airline. This was done by inhibiting our access to their airline stock in our computer. This was followed by United Airlines, our very good friends at American Airlines, Northwest, Lufthansa, Air France, Alaskan Airlines.
When it got to August, we had lost so many airlines and we were unable to pay the $2 million, so they very kindly shut us down and said we couldn't do business anymore.
Three generations of Hudsons. Thirty years of loyal service to the airlines. Never once a late payment in 31 years to any of those airlines. They shut us down.
Page 31 PREV PAGE TOP OF DOC
I have an extremely friendly relationship with all of the local people in every airline in the Chicago area but the people in the head offices have a policy and they are sticking with it.
So the victims became victimized. As of yesterday, gentlemen, the demands from airlines who accepted forgeries is in excess of $2.5 million. Constant demands from airlines,attorneys, and collection agencies.
If you take the problem experienced by the Hudson family and multiply it hundreds of time over, the same scenario has taken place and continues to take place all over the country. Burglaries are escalating because the criminals know which airlines accept stolen and forged tickets.
And as they increase, so too does the danger to the traveling public. ARINC, a company owned by the airlines, has perfected a computer program which is installed in most airlines' databases. They will identify stolen or forged tickets in 3 seconds. Airlines refuse to check the tickets.
The dangerous and unfair practice of accepting forged and stolen tickets should be stopped as quickly as possible. The traveling public deserves safety in the sky and this can be achieved if airlines are required to scan every ticket prior to boarding.
I would also like to request that consideration be given to requiring the airlines to compensate those agents who have been treated unfairly and driven out of business without reasonable provocation. For years agents have been required to arbitrarily agree to every demand, adjustment, amendment that ARC gave you on pain of immediate closure.
Page 32 PREV PAGE TOP OF DOC
I would like to add, from the point of view of illegal immigrants, that I can show you 348 mostly one-way tickets from Phoenix to various parts of the United States which to me would appear to be strictly used by illegal immigrants.
Thank you gentlemen and ladies for your kind attention.
[The information follow:]
Mr. DUNCAN. Thank you very much, Mr. Hudson, and we will have some questions for you in a moment.
Miss Gregorian, we will go to you at this time.
Ms. GREGORIAN. My name is Geraldine Gregorian. I am the former owner of G.A.P. Travel in Port St. Luce, Florida. I am part of the one-third of the travel agencies in our small town that were put out of business by these burglars.
I decided I was not going to roll over and play dead because I was getting no cooperation from law enforcement, who consider this crime a misdemeanor. The local authorities consider it a misdemeanor and nobody was about to help in solving this crime.
So I thought if I get these debit memos from the airlines, I can track some of the people who flew on these tickets that I was liable for, and so I did. I went after one in North Carolina. I tracked down the person who used the ticket. I tracked down the person who sold her the ticket. He admits to selling airline tickets at very reduced rates. He gets the tickets to order. They place the order, he gets the tickets and he sells them.
Page 33 PREV PAGE TOP OF DOC
The passenger that I brought to court got a $6,000 ticket for $1,200 and she did not know this ticket was stolen. The judge dismissed the case because the man who sells the tickets does not know he's selling stolen tickets. So I wasted my time and effort going to North Carolina, but I did continue.
I tracked another man who flew on Alaska Airlines and he told me that was a vacation trip, but he flies twice a month on Delta cross-country. I called Delta security. I called Delta frequent flyer information and I said, ''This man has used a stolen ticket of mine. I would appreciate that you would possibly watch when he files his frequent flyer information and maybe, just maybe, he might be using a stolen ticket.'' Nothing happened.
Two months later, I got a bill from Delta Airlines from my tickets, tickets that were stolen from my office. And only last night I became extremely upset when I checked with Barbara Pisa and found that this man is on so many travel agents' lists as using stolen tickets. And besides that, he's gathering frequent flyer miles for him and his wife on Delta Airlines. And nobody but nobody is stopping it. I just don't know what else to do.
In another case we've got these foreigners who travel sometimes one way on one airline and another way on the other to avoid detection, but they're not stopped at all. These numbers are given to the airlines and they do nothing about stopping it.
The third case I just want to mention briefly is about a man who was on a flight coming in from the Orient and in tracking down his flight information I found that his return flight was taking place that day. I called Northwest security and I told them, ''This man is on your flight with one of my stolen tickets.'' They took the matter supposedly into advisement.
Page 34 PREV PAGE TOP OF DOC
I also called the local FBI agent who was supposed to be handling our case. I called the FBI in Miami, and the next morning that man got off the plane; Northwest did nothing about it. FBI said they didn't have an agent available, so they could do nothing about it. And I was billed $6,500 for the ticket.
This has to be an outrage because if I lose my credit card, even if it's my own careless, I'm protected. I had a security system in my office. I had an alarm system, but I was insulted by one of the airlines when I explained that I had a security system. I was told by this person from American Airlines, ''It's your fault. You shouldn't be in the travel business.''
Well, I put 23 years of my life in the travel business and I told her, ''With an alarm system with a motion detector, what else can I do? Should I sit there with a shotgun?'' She said, ''Well, if that's what it takes, then do it.'' So I just don't know what else to do.
And another thing, if you're not really concerned about the travel agents going out of business, you might be concerned as a taxpayer because no tax is being paid on these stolen tickets. $7,000 tickets, no tax being paid. No tax is being paid by the agencies who are out of business. Our employees are collecting unemployment because we're not employing them anymore.
When I make a profit, I gladly pay my tax. I've always paid my tax. So you're not collecting that from me anymore. You're not collecting tax on to profit that the airlines would make on these tickets had they sold them. People are being put out of work, probably at the airlines and other sources, because the people are not buying tickets from them; they're buying them from the illegal sources.
Page 35 PREV PAGE TOP OF DOC
And most of all, these people who are selling the tickets are selling them and they are not declaring it and they are making thousands of dollars a day, not paying any taxes, and 90 percent of these are foreigners and that money is leaving the country and none of us is seeing it.
So it is a terrible, terrible problem and what I want is just some kind of security system where these people can be stopped at the airport and maybe the buyers of these tickets, if they had to pay the face value of the ticket and they already paid for the stolen ticket, it would be costing them more than the ticket was worth and maybe they wouldn't buy them because then it would no longer be profitable to buy a stolen ticket.
I thank you very much for your time.
Mr. DUNCAN. Thank you, Miss Gregorian. That was very interesting testimony. Two of our four witnesses are from Illinois. I am going to go first to Mr. Ewing and then to Mr. Lipinski.
Mr. EWING. Thank you, Mr. Chairman. I think it is very good that you are having this hearing today.
Welcome to all the witnesses and the two from suburban Chicago area, I live down at Pontiac, Illinois. To the best of my knowledge, my travel agent hasn't had the same problem you have. Maybe they have but certainly all of us here that fly back and forth receive excellent service from our travel agents and we think you are doing a good job for us and we appreciate it.
Page 36 PREV PAGE TOP OF DOC
To any of you, can you get insurance to cover your loss?
Mr. HUDSON. May I respond to that? I do have insurance, normal insurance on my business, including theft. When I consulted with my insurance company, they advised me that the tickets were blank; consequently, they were worth no value at the time of the theft. They said, ''However, for insurance purposes, we'll very kindly assess a value,'' and they did. Just like a supermarket grocery coupon, they assessed the value of each ticket at one-eighth of one cent.
I think most of the agents involved have also been told that at the time of the theft, tickets are blank, like a blank check. In fact, Mr. Manning of ARC also pointed this out to me. An airline ticket of the ATB type is only worth one-eighth of a cent maximum at the time of the theft.
Mr. EWING. But you can buy insurance, can't you, on your credit card to cover theft losses?
Mr. HUDSON. I would presume to be a minimum. Congressman Ewing, my bills from the airlines are presently $2,480,000. I understand there are more debit memos in the mail which will bring them up over $3 million. I don't know of an insurance company that would provide insurance for that, an unlimited sum. An insurance for $3 million would have to be excessively expensive, I presume.
Mr. EWING. Miss Pisa, I think you were saying to us about the airlines, the tax angle, is that when the airlines add up the value of these tickets that weren't paid for, that they didn't sort out, then they deduct that as a loss.
Page 37 PREV PAGE TOP OF DOC
Ms. PISA. Correct.
Mr. EWING. Service is given but no income received. Is that correct?
Ms. PISA. That is correct. That is my contention.
After I was the victim of a burglary, I contacted travel agencies across the United States, began to research the problem and these agencies started to send me thousands and thousands of forged tickets after they were used. I started to look at the prices on the tickets and I saw that the thief was allowed to write any price that he wanted on the tickets. And since most of these people are flying business class and first class, they are very high-turf tickets.
And I would think, and maybe I am wrong but I would think that if the thief wrote $8,000 price on the ticket and the real price of the ticket should only be $2,000, that when the airlines get the debit memo, they would adjust that to send us the correct price. After all, we are not to be expected to pay whatever the thief wrote. If you are going to buy a ticket from Los Angeles to London and the airline sells it for $2,000, we sell it for $2,000, the thief puts a very high face value so they make the buyers think they are getting a deal.
Mr. EWING. Well, I don't know and I think the airlines are going to testify, but it would appear to me that in my business, I can't write off what I don't collect. If I bill a client for legal services and they don't pay me, I can't write that off as a loss.
Page 38 PREV PAGE TOP OF DOC
Now, I can write off my rent and my secretarial help and my equipment and all of my costs, which I am sure the airlines do, but I don't think they can write off money that they don't collect, because it is an income, so they can't write it off. Now, maybe they have a different accounting process than the small-town lawyer might have.
Ms. PISA. Excuse me. I have spoken to an IRS investigator and I have spoken and met with them several times. As a matter of fact, for the past year I have met with IRS people concerning this and he said he was not at liberty to discuss all the details with me but he did give me somewhat of a green light as to there are some tax infractions
Mr. EWING. My time is just about up. I guess what I would say as more of a comment than as a question is that I think you have brought to our attention a very real problem and that the solution here deals with travel agents taking that extra security to try and protect themselves.
I realize you are shaking your head but part of the responsibility is there. I think part of the responsibility is on those people who buy stolen tickets. Probably responsibility with the federal government for the National Immigration Service, that they watch it as a way that people are coming into the country that are not legally allowed in. And finally, the airlines have a responsibility.
So it would appear, Mr. Chairman, that this is a problem that many people have a part to play in and one that we should be addressing. And I again congratulate you for those actions.
Page 39 PREV PAGE TOP OF DOC
Mr. DUNCAN. Well, thank you very much.
Mr. LIPINSKI. Thank you, Mr. Chairman.
Does anyone else on this panel feel the same way about the potential situation with the airlines and their revenue and their not paying taxes as Mrs. Pisa does? Does there anybody else on this panel have any knowledge of that situation?
Mr. HUDSON. I believe that I can confirm the fact that many of the airline tickets are written for amounts in excess of the normal published fare, and I believe this is probably done by the thieves, the criminals, in order to enhance the value of the ticket and consequently up the value when they sell the stolen ticket.
Mr. LIPINSKI. I understand that and appreciate it. The question I was really asking was about the revenue that the airlines may wind up getting from these stolen tickets, the lack of taxes that they pay on it. I mean, I think this is a very serious issue, as Mr. Ewing made mention of, and something that we really have to follow up on, but I am trying to solicit if there is anyone else who has any knowledge along these lines that Mrs. Pisa does in regard to this particular situation.
Now, we will have a representative later on from American Airlines and we will certainly discuss the situation with him but I think it is very serious if airlines are actually getting some revenue off of these stolen tickets and they are not reporting that revenue and, on top of that, they are not paying the various taxes that go along with it.
Page 40 PREV PAGE TOP OF DOC
Mr. HUDSON. Well, Mrs. Pisa has spent a great deal of time talking to the airlines and to the tax people about this and I do not think it would be proper for 10, 20, even 200 or 300 agents to try to follow up in the same way. So we have to depend on Mrs. Pisa have discussed this and gotten to the bottom of the matter.
Mr. LIPINSKI. I was just wondering if anybody else had gone along those same lines.
You called Northwest and you had called the FBI in regard to the one that you had tracked down. What explanation did they give to you for not pursuing this? The FBI said to you that they didn't have anyone available?
Ms. GREGORIAN. That is right. They were landing in San Francisco and the FBI had no one available, and I can buy that, but Northwest knew this person was on the plane and I could see no reason why they wouldn't try to collect.
I have pursued and I have documented for somebody in the media 50 names, addresses and telephone numbers that were confirmed users of the stolen airline tickets. They admit they traveled. I have spoken with them. Some have given me the source of their tickets.
Now, if I can find that, surely the airlines can do it. I have done it with no information. American Airlines sends us a bill for the use of stolen tickets and refuses to give us information. They tell us that we have no right to this information. Well, if you are billing me, I think I have a right to know what I am being billed for.
Page 41 PREV PAGE TOP OF DOC
Some airlines are a lot more cooperative and will share information they have with us, but nobody from the airlines goes after the passenger. They come after us. They have all of this information and then not only do they not go after the passenger but they reward them with frequent flyer miles. I just don't know the solution.
Mr. LIPINSKI. Northwest gave you no reason?
Ms. GREGORIAN. They gave us no reason.
Mr. LIPINSKI. In the testimony here this morning we have been asked to pass some legislation that would cap the loss that you could incur. Do any of you have a figure in mind of what that cap should be?
Ms. PISA. I would say that the responsibility would be 10 percent ours, at a maximum, because we are victims of organized crime. We can't fight organized crime. The airlines have the technology already in all of their computers at every airport across the world and it takes 3 seconds to type in a ticket number. Boom, it pops out stolen. This would virtually stop all the crime dead in its heels because if the criminals know they can't use the tickets, they are not going to go burglarize the travel agencies.
Another thing I would like to mention is that the statistics that you have are not really real.
Mr. LIPINSKI. What statistics are those?
Page 42 PREV PAGE TOP OF DOC
Ms. PISA. Mr. Duncan said something about 200,000 tickets being stolen for the year that you received from ARC. I would like you to be aware of the fact that the airlines have hundreds of thousands of their own ticket stock stolen each year from every airport across the country and their ticket stock is not reported through ARC. So you are not getting real statistics.
There is also an association called the International Air Transport Association and those tickets are for tickets that are printed throughout the worldEurope and South America, Central America. That ticket stock is not printed here in the United States. So consequently, all those tickets stolen are not in what they are giving you as a figure. That is a bogus figure and I apologize for saying that but it is true.
Mr. LIPINSKI. Mr. Hudson?
Mr. HUDSON. May I please add to Mrs. Pisa's remarks? The 212,000 that the Airlines Reporting Corporation mentioned, it doesn't come anywhere near the actual figure. My agency alone in 1996 had 24,000 stolen. The agent that I referred to earlier, A1 Travel, who had been in business only 3 months, had 31,000. So with those two agencies alone, that is 50,000 or 60,000.
So the 212,000 is certainly nowhere near the figure and probably would only cover the number stolen in Illinois for that year.
Mr. LIPINSKI. I would assume also that the figure that I relayed in my opening statement of about $4 million problem, based upon what you are telling us here, that that $4 million is an extremely low figure?
Page 43 PREV PAGE TOP OF DOC
Mr. HUDSON. I would suggest closer to $2 billion rather than $4 million.
Mr. LIPINSKI. Thank you. Thank you, Mr. Chairman.
Mr. DUNCAN. Well, thank you, Mr. Lipinski.
Mr. Hudson, you say in your testimony that you were actually run out of business because of this problem after 31 years as a travel agent.
Mr. HUDSON. Yes, Mr. Chairman.
Mr. DUNCAN. Did you hear Miss Gregorian and did I understand, Miss Gregorian, did I understand you correctly? Did you hear her say that one third of the travel agencies in the country have been
Ms. GREGORIAN. No, no, in my little city one third of us are out because of that, not the country.
Mr. DUNCAN. Oh, one third where you are located.
Ms. GREGORIAN. It is a small town but still a third of us are gone.
Page 44 PREV PAGE TOP OF DOC Mr. DUNCAN. Now, we were given a figure by ARC of 212,000 tickets but what you are saying is that your agency alone lost 24,000
Mr. HUDSON. 24,000.
Mr. DUNCAN. And another agency that you know of lost 31,000?
Mr. HUDSON. 31,000. That was two agencies in the State of Illinois.
Mr. DUNCAN. Two agencies. And you are saying that there probably were several hundred thousand stolen tickets just in Illinois.
Mr. HUDSON. Absolutely.
Mr. DUNCAN. So you estimate that this problem is at leastI think you said at one point $2.5 billion?
Mr. HUDSON. Absolutely. It is a gigantic problem. Might I add, as Mrs. Pisa said
Mr. DUNCAN. Do all of the rest of you agree with that?
Ms. GREGORIAN. Absolutely.
Page 45 PREV PAGE TOP OF DOC Ms. PISA. Yes.
Mr. HUDSON. Might I add that there is an unproven allegation that one airline, who is not in attendance today, had in one theft 150,000 tickets stolen at O'Hare Airport. It is fairly well established that each month at O'Hare Airport there is at least 2,000 to 3,000 airline tickets stolen from various agencies, and the police source that advised that suggested that that same amount could be projected over all the major airports in the United States.
So if only 2,000 are being stolen on an average, then we have to talk about 200,000 a month from the 10 major airports in the United States.
So the thing is a gigantic, humongous problem but the airlines don't want the general public to know about it because the public won't come to a travel agent to buy the ticket; they will go to the street corner.
Mr. DUNCAN. Miss Gregorian, you said you called the FBI repeatedly but they wouldn't respond or wouldn't do anything to help you?
Ms. GREGORIAN. Well, I called the FBI. I am in Port St. Luce, Florida. There is an FBI agent stationed in Fort Pierce, Florida, which is like a 5- to 10-minute drive, depending on traffic from me. He made numerous appointments to come to my office requesting all sort of information, but he never showed up.
Mr. DUNCAN. Who was that FBI agent?
Page 46 PREV PAGE TOP OF DOC
Ms. GREGORIAN. I don't have his name handy but he is an agent in Fort Pierce, Florida.
Mr. DUNCAN. You should give his name out.
Ms. GREGORIAN. I didn't bring it with me.
Mr. DUNCAN. If you have some FBI agent who's just lazily sitting around and making appointments and not showing up, that should be reported.
Then did you say you called other times?
Ms. GREGORIAN. I called Miami the time that the man was still on the plane, just as a back-up. It was the people down in Miami who said unfortunately there was nobody available in San Francisco. In fact, I believe his name is Serna. S-e-r-n-a is his last name and I am trying to think of his first name.
Mr. DUNCAN. I do know from long experience with this that it is very difficult to get the FBI to get involved in a case unless it is a real high profile, high publicity-type case. Maybe with this hearing today calling attention to this problem and the serious nature of this, maybe we can get some more interest in this.
Miss Pisa, you said in your testimony that you are convinced that organized crime is behind this. Why do you say that? And you said you can't fight organized crime. How do you know that organized crime is behind this?
Page 47 PREV PAGE TOP OF DOC
Ms. PISA. Because I worked very closely with several policing departments to help me gather my information before I presented it to Congressman Fawell and these are Colombian-backed organized criminals that steal these airline tickets.
If you look at the thousands and thousands of them that I have in my possession, by the names on the tickets you could just about tell, so they are selling them primarily to their underground channels. And I believe that Gary Yallelus from the Miami Police will tell you that it is organized crime when he testifies.
Mr. DUNCAN. You said that at one point you had also been harassed or intimidated by the airlines. What were you talking about?
Ms. PISA. I received letters stating, for humongous amounts of money, depending that I pay and if I didn't pay, they put in the letters that I would be put out of business or I would be sued. It was just a magnificent amount of harassing and threatening on their parts to pay these bills, when they wouldn't even justify them.
Mr. DUNCAN. Mr. Hudson testified that his was a $3 million problem for his agency. Is that correct, Mr. Hudson?
Mr. HUDSON. At the moment I already have invoices and demands for $2.5 million but I have been advised that there is another almost half a million already in the mail or coming. So it is $2.5 million now. The prospects in the next few weeks is $3 million and over the next several years, the next 10 or 15 years, it could be $10 or 15 million because there is no statute of limitations. As long as I live, I can be demanded for payment of this money.
Page 48 PREV PAGE TOP OF DOC
Mr. DUNCAN. Did you have a huge travel agency with hundreds of employees?
Mr. HUDSON. I had a very, very good business. I had eight reservationists. I had myself. I had my son and my grandson, three generations. When things were awfully busy, like a good family business, my wife came in and helped and my son's wife came in and helped.
Excellent relationship with the airlines. Everything was wonderful. I am a true picture of the American dream and I am a very good picture of the American nightmare, too.
Mr. DUNCAN. You come from Scotland originally?
Mr. HUDSON. Scotland. Yes, Mr. Chairman.
Mr. DUNCAN. When did you come to this country?
Mr. HUDSON. I came here in 1956, drove a taxicab and I delivered orange juice and I did anything that I could for the first 2 years until I found the amount of travel I had done in my youth was valuable and could help me with a travel business, because I am extremely interested in business and travel. Consequently I was very successful in my business.
Mr. DUNCAN. Miss Gregorian, have you added up what this is for you?
Page 49 PREV PAGE TOP OF DOC
Ms. GREGORIAN. It has reached $1 million already and it was only three boxes. That's myself. They will keep coming because we are looking at tickets with $5,000, $6,000, $7,000 face value, so that adds up in a hurry.
Mr. DUNCAN. It was $1 million for you and
Ms. GREGORIAN. A small amount compared to his.
Mr. DUNCAN. You just operated basically on your own or
Ms. GREGORIAN. I had three employees.
Mr. DUNCAN. And have you added up what this problem was to you, Miss Pisa?
Ms. PISA. I was exonerated from liability by ARC. At the time of exoneration, which took 13 months after my burglary, I had $300,000 in debit memos.
However, I think the thing that upset me the most is they fly in groups on airplanes. They five six, eight of them, ten of them boarding a plane all at once. This is no security. We have no security on these airlines. I had eight of my tickets used for some Nigerians who flew one way from Nigeria to London to Atlanta and into Memphis, Tennessee on Delta.
Page 50 PREV PAGE TOP OF DOC Mr. DUNCAN. Have any of you had any contact with the Immigration and Naturalization Service?
Ms. PISA. I have and they refuse to get involved in it.
Mr. DUNCAN. They refuse to get involved?
Ms. PISA. Yes. I have tried to speak to them on several occasions. As a matter of fact, I have spoken to everybody that could possibly help with the situation.
Mr. DUNCAN. There are some reports here that this is primarily an illegal immigration-type problem.
Ms. PISA. That is correct. I believe that. I was told by a fraud analyst at Northwest Orient Airlines whose name is Jerry Strong that this problem starts in Tijuana, Mexico. What is happening down there is that anybody from Central America, South America, all of the Hispanic culture, finds their way of Tijuana, Mexico. There, if they have money, they get a job. They tell them we have an opening for a gardener in New York, a crop-sharer in Georgia, a waiter in Illinois or whatever. And they said, ''This job is going to cost you $500.''
So they pay for the job. Then they go to the next person, who gives them a Social Security number and a fake driver's license. And then they go to the person who sells the stolen tickets. They give them their stolen tickets to go wherever they have been able to get the job. They have an identity, they have a job and they use the stolen tickets.
Page 51 PREV PAGE TOP OF DOC
Mr. Strong at Northwest Orient said to me that the Mexican government will not cooperate with the FBI, so therefore their interest in this crime is very low because they can't go into Mexico and grab these people.
Now, this is what I was told. I don't know if this is true or not but he seemed to be quite emphatic about the information he gave me.
Mr. DUNCAN. Well, we have given whopping increases in funding in recent years to the Immigration and Naturalization Service. I remember last year, I think saw where we had given them a 72 percent increase over the previous 3 years. That is about 24 percent a year and I know of no other agency in the whole federal government that has gotten those kinds of increases. It looks to me like they should be interested in this, as well.
Miss Linares, let me ask you this. The Airlines Reporting Corporation tells us that in 58 percent of these stolen ticket cases the travel agents did not comply with the rules and that if travel agencies had complied with the ARC security rules, that we would not have anywhere close to the problem that we have with stolen airline tickets today. What do you say about that?
Ms. LINARES. The airline security rules, they are very definite and very emphatic. If it is true that they have complied with every single rule, they are absolved of liability. That is the major pretense that most of the agents operate under. I don't know if it is 100 percent. If that is the case
Page 52 PREV PAGE TOP OF DOC Mr. DUNCAN. I don't understand what you are saying. It sounds to me that you are saying this is the fault of lax travel agents.
Ms. LINARES. No, what I am saying is if in every case this is only because they were lax in their security, from what I have heard, that is not the case. We are all under the impression that if we comply with every single security rule, then we are not liable for the stolen tickets.
Mr. DUNCAN. Do you all agree? Do you think that you were lax in your security about these tickets?
Mr. HUDSON. Well, Mr. Chairman, I tried to stress in my testimony the fact that the airlines and ARC have convinced us that the ATB type of ticket, which is the one that has been stolen in most cases, was not subject to the stringent security regulations that normal airline tickets were subject to.
In my case, for instance, every airline ticket that I had, a normal airline ticket, was locked up in the safe. The only thing that was not in the safe were these ATB tickets, which we had been convinced were totally fool-proof. Each of us had to lease a special printer in order to issue these tickets. They were semi-blank and had to be printed in 24 different areas. They had no ticket numbers on them as such. The ticket numbers were printed on at the time that Barbara Pisa and the other agents issued the airline ticket, at the point of sale. We were convinced these things were safe.
ARC, when they shipped the tickets to us, never even insured them. And, as I mentioned before, in one case tickets were delivered to a Chinese laundry because the agent wasn't in. They laid in the Chinese laundry for a week.
Page 53 PREV PAGE TOP OF DOC
So ARC convinced us and the airlines convinced us that ATB ticket stock were totally foolproof. Otherwise why would they insist we purchase and lease a particular printer? So consequently, we never treated them with the same seriousness that we treated everything else. And all of our other stock was locked up safe in a safe. Plus we are talking about bulky stuff. 24,000 couldn't go in a safe.
Mr. DUNCAN. All right, Mr. Blunt?
Mr. BLUNT. Thank you, Mr. Chairman.
Just to follow up on that a little bit, Miss Pisa, you said that you were not found liable ultimately by ARC after review. What had you done that they decided made you not liable? Did you have your ticket stock locked up and the safe was broken? What happened there?
Ms. PISA. I did, sir. On the night of my burglary there were nine travel agencies hit in one night. They were all in the immediate area. I wasn't there when the burglary took place and my daughter reported to ARC and you have to fill out this little form and fax it to them and my daughter didn't fax the right thing that happened.
In other words, we have two printers. Both printers were loaded with ticket stock and the extra box of tickets was in a locked steel cabinet. My daughter didn't write all this on the diagram. They failed to send out an inspector because they had so many burglaries and they said that she had forgotten about my company. So they deemed me liable.
Page 54 PREV PAGE TOP OF DOC I only had 437 tickets stolen but mine were the old paper type, capable of printing four coupons at once. His type only prints one coupon. That is the newer ones. So I was allowed to have 600 on the premises, based on the ARC rules. I only had 437 stolen. I had to prove to them that I had two printers. They wouldn't believe that I had two printers at the time of the burglary because an ARC inspector never came in to see that I had two printers, and it came down to the detective that did my investigation being willing to testify that I was the only agency out of the four in Naperville that were hit in one night that had two printers. So therefore I was then exonerated.
Mr. BLUNT. And so you were not held liable because they said you were meeting the regulations?
Ms. PISA. Correct. During this whole 13 months that they tortured me I began to investigate this and I began to accumulate thousands and thousands of stolen airline tickets from across the United States and I have seen that these were not what looked like to be Americans. I have seen how many were boarding aircrafts all at once.
On my particular tickets I had six people board an aircraft in New York City that only had eight first class seats and these criminalsthieves or whatever they arewere sitting in six of them. Six of the seats were filled with stolen tickets.
There is no excuse. Even if the airlines just scanned the first class and business class section of the plane, they would get about 80 percent of these people out of the way.
Page 55 PREV PAGE TOP OF DOC And in answer to one of the other gentleman's question, if every travel agency today, right now today, went into full compliance with the ARC rules that you are only allowed to have X amount of tickets on your premises, it is my opinion the only thing that would happen is more travel agencies would get burglarized because the commodity is so hot. It is the hottest commodity in our country. It is better than dealing drugs. You do no time. They don't do any prison time. They deport them. They are all foreigners stealing these tickets.
Mr. BLUNT. But these ticket thieves do travel first class with these stolen tickets?
Mr. HUDSON. And their relatives.
Mr. BLUNT. If you are going to go, you might as well go first class is the theory there?
Do you have any idea on the domestic versus the international point of origin, what percentage of these tickets are used where they start in foreign countries, as opposed to domestically, Mr. Hudson?
Mr. HUDSON. Could I pleaseI don't want to take over the hearings but I would like to mention that we have many, many tickets valued at $7,000, $8,000, $9,000 per tickets and we can well understand why people would like to make that kind of money. Burglary in a travel agency is more rewarding than burglary in a jewelry store nowadays.
Page 56 PREV PAGE TOP OF DOC
But one of the things that confuses and confounds me is the fact that we are getting tickets for $83. Why would a criminal take a chance on the FBI chasing them up for at least four federal violations, because I understand that each one of these tickets contains at least four federal violations, for $83? The bulk of the tickets are first class and business class but I can't understand taking a chance for just $83. What can you sell it for? $40? $50?
Mr. BLUNT. I guess if they are $83 tickets, back to my question, that means a number of tickets must be domestically used. Do you have any idea what percentage would divide up?
Mr. HUDSON. I would say at least 75 percent of my tickets are international and I would say at least 80 percent of my overall tickets are in first class or business class.
The bulk of the tickets are issued one or two days prior to departure, which has to be a big giveaway for people at the airline check-in counter.
Many, many of the tickets are written incorrectly. One agent received tickets for Tokyo spelled T-o-k-i-o. As an immigrant, I know we don't spell it that way and they should know it, too. I have had Washington spelled with an ''M'' in the middle.
So the airlines are not making very much of an effort when they are allowing tickets like that to be accepted.
Page 57 PREV PAGE TOP OF DOC Mr. BLUNT. And on this new ticket that you talked about, is there bar coding on that ticket? I think we are going to hear later that the bar coding really don't
Mr. HUDSON. Not yet. Not yet.
Mr. BLUNT. And there is no bar coding on the new ticket but apparently bar coding even on the old ticket doesn't help? You can't identify these tickets?
Mr. HUDSON. There are no tickets that I know of yet with bar coding, but presumably that will come.
Mr. BLUNT. Thank you, Mr. Chairman.
Mr. DUNCAN. Thank you, Mr. Blunt.
Mr. CUMMINGS. No questions, Mr. Chairman.
Mr. DUNCAN. Mr. Lipinski.
Mr. LIPINSKI. Thank you, Mr. Chairman.
Mrs. Pisa, during that 13-month period that you were being harassed and asked to pay and before you were exonerated, were you still doing business at that time?
Page 58 PREV PAGE TOP OF DOC
Ms. PISA. Yes, sir, I was. I was doing business.
Mr. LIPINSKI. Could you turn over to the committee here these letters that you received from the various airlines or a copy of those letters that you received from the various airlines and the collection agencies in that period of time?
Ms. PISA. Yes.
Mr. LIPINSKI. We would be very interested in seeing what type of tactics and communications were being sent out to you.
Ms. PISA. I also have, as I was chosen to be the spokesperson for this, to do the investigations, I have agencies all over the United States. As a matter of fact, American Airlines just cut a so-called deal with an agency in Plano, Texas that was the victim of a burglary. They shut her off from selling American Airlines tickets and she cut a deal with them where she's going to be paying them $3,000 a month for the next 10 months and they refused to absolve her from all future usage because not hardly any of her tickets have come through so far. They said she would still be liable for another 3 months of usage.
She was deathly afraid of losing her business so she signed this agreement, to pay them $3,000 a month for 10 months. And as soon as she made her very first payment, she told me that she received another $200,000 in debt memos from them.
Now, to me, that is collusion. You get somebody to sign a contract and what they were doing was stockpiling these debit memos. Then she starts to make her payments and boom, they hit her up with just a tremendous amount of airline tickets that they had been holding just to get her to sign this agreement, in my opinion.
Page 59 PREV PAGE TOP OF DOC
There are so many things that are going on here that it probably will take me an awful long time to tell you. I have spoken to hundreds of agencies across the United States, agencies in tears telling me they don't understand how they could be losing their businesses after 20 years.
Mr. LIPINSKI. Are you in Naperville?
Ms. PISA. Yes.
Mr. LIPINSKI. It is just a little west of my district. Maybe we can get together back in Chicago.
Ms. PISA. But they got some people in your district, too.
Mr. LIPINSKI. I am sure they did. My point was that since you are from Naperville and I am not too far from there, perhaps we don't have to take up all the time talking over here. Perhaps we can get together and go into a little more detail about this.
Ms. PISA. I would be happy to.
Mr. LIPINSKI. You were also talking about having a lot of stolen tickets that you have accumulated, a lot of stolen tickets?
Ms. PISA. Yes, I have. What I would like to tell you gentlemen is that I can just about tell you, by the amount of tickets that I have in my possession, what flights these people are boarding on a daily basis. And if I can tell you by the amount of stolen and auditor's coupons that I am looking at, I am sure the airlines know which flights are being breached on a daily basis.
Page 60 PREV PAGE TOP OF DOC
I would also like to tell you something else that is very important. This concerns a Mexican. His name was Miguel N. Yanez, which I am told is not a real common Mexican name. This incident took place in Sacramento, California.
What these criminals do is they keep calling the airlines and making a reservation. Then the airlines gives them a reservation number and then they print the stolen ticket with the res. number the airlines gave them.
Now, this Mr. Yanez bought five tickets and Mr. Yanez went to the Sacramento, California airport and he checked in with ticket number 1 with an identification for that name. Then he got a boarding pass. Now, he was ultimately going to Guadalajara, Mexico and he had to change planes in Dallas. This gentleman got out of linethis is my contentiongot back in another line with another ticket with the same name on it and did this five times.
Now, being as that he was given his boarding passes all the way to Guadalajara, which meant he didn't have to check in in Dallas, I don't know if you can realize how dangerous this is. We have a guy that checked in once, that probably went into the bathroom and passed out four sets of boarding passes to four other people, God knows who, boarding these aircrafts in small groups, all with the same name. And they have clearance all the way to Guadalajara.
I mean, it is so easy to do things, it is unbelievable. There is no security. And being as that these people buying these stolen tickets have questionable character, this leaves the door wide open for terrorism. And, as you all well know, we are right there with the terrorism.
Page 61 PREV PAGE TOP OF DOC
Mr. LIPINSKI. Well, I think the testimony from all of you has been very, very interesting, very enlightening and in some cases rather alarming. And I look forward to hearing from other witnesses but I certainly appreciate your participation.
Miss Pisa, I intend to get in touch with you and we can sit down and go into some of this stuff in a little more detail when both of us are back in the Land of Lincoln. Thank you.
Ms. PISA. Thank you.
Mr. DUNCAN. I have already asked, I guess, far more questions than I should have and I ran way over my time but let me just ask you this. The ARC has given us information to indicate that this problem is decreasing.
Mr. HUDSON. Did you say decreasing?
Mr. DUNCAN. Decreasing. They say the number of criminal incidents has gone down from '93 to '97, that it has decreased slightly each year and that there were 154 incidents or thefts or whatever of travel agencies in '97.
But you said a while ago that the 212,000 tickets stolen or whatever was a bogus figureyou used those wordsand that that was way low and so forth. And what I am wondering about, you seem to laugh at their contention that this is a problem that is decreasing.
Page 62 PREV PAGE TOP OF DOC Mr. HUDSON. I think if you check with ARC and then some of the police authorities you'll find that not only is it increasing but we're now getting armed robberies. Detective Yallelus will be talking to you soon and I think he will confirm for you the fact that that armed robberies for airline tickets are on the increase.
So this belies the contention of ARC that crime is down.
Mr. DUNCAN. Well, I noticed in his testimony he has some information about links to terrorist organizations and rings and so forth but I just wondered what your reaction to that was.
But let me ask you this. You said a while ago and everybody agreed that this was probably a $2.5 billion problem. How do you come up with that?
Mr. HUDSON. Again, Mrs. Pisa has done extensive investigations. She has collated tickets from almost every agency who has been burglarized or every one who had the nerve to try to cooperate. I would like to point out that there are a number of agencies who would not talk to you today, who would not talk to Mrs. Pisa, wouldn't talk with anyone because they are afraid of the stigma of being put out of business.
I could tell you the A1 travel agency with the 30,000 tickets is not prepared to talk to anyone.
Mr. DUNCAN. Miss Pisa, did you contact every travel agency in the whole country?
Page 63 PREV PAGE TOP OF DOC
Ms. PISA. No, sir, I did not.
Mr. DUNCAN. That would be a monumental task.
Ms. PISA. First of all, ARC will not give me the names of these agencies, so I had to read about them in our trade magazines or pull them off of a SABRE bulletin, which is one of the computers, and then start to call. Like Milwaukee, they had like six of them hitting the Milwaukee area but the report said no stock taken from any of these agencies.
I keep calling and calling until somebody feeds me the information I need and find out which agency was hit. There were just two agencies hit in Chicago the other day again, one in Winfield, Illinois and one in Chicago.
Mr. DUNCAN. Well, have you contacted travel agencies, I assume, all over the country?
Ms. PISA. Yes, I have been in contact with them.
Mr. DUNCAN. And is this problem just greatly distorted in Illinois or is this happening to a large degree all over the country? And is this $2.5 billion figure, you might explain to me how you came up with that. Do you feel that is a conservative figure or a realistic estimate or will we hear later that that is a greatly exaggerated figure from some other witness?
Page 64 PREV PAGE TOP OF DOC Ms. PISA. No. First of all, each box of 1,000 tickets is worth, on the streets, about $2 million. That is what we are going to get in debit memos. Each box of tickets is about $2 million.
On the streets they are going to sell them for about a half a million to a million, depending on where they are flying to. But each boxI have proof from all these agencies that have sent me all their used tickets. Like Gerry Gregorian, she can tell you right nowyou got a million dollars in debt memos. How many tickets of yours were used?
Ms. GREGORIAN. Not even a quarter of them. I had three boxes taken and not even a quarter of them have been used and I'm at a million already, so definitely it is going to beif they are all used, I would say $67 million easy.
I have one agency friend who is also out of business who had just one box taken and she closed up at $1.5 million, one box. And they are not all in but she just couldn't handle the harassment, the constant calls.
And the terrible thing they do to us is they lock us out of our computer system. So what happens is we can't even service the clients that we already sold tickets to.
I have an American Airline SABRE system. Delta locked me out of there. I had clients who had tickets already on Delta that I tried to change reservations for, and I was locked. I couldn't even work with clients that I already took care of. I know I couldn't sell Delta tickets but I could at least try to service my clients.
Page 65 PREV PAGE TOP OF DOC On that basis I even think they violated my computer contract because my computer contract is supposed to give me access to all the airlines. Even if I don't sell it, I should be able to help my clients that I already booked, and I couldn't do that.
So with that harassment, she just shut down at $1.5 million and said, ''I can't handle any more.'' That is what she did.
Mr. DUNCAN. Well, I will tell you this. I spent seven and a half years as a criminal court judge trying felony cases and I read constantly on all these national issues but until Congressman Fawell called me, I had no idea that this was going on nearly to this extent. It wouldn't have surprised me to hear of an occasional burglary at a travel agency but I had no idea that this problem was nearly to the extent that you all have testified to here today, to talk about a $2.5 billion problem involving illegal immigration and organized crime from foreign countries and links to terrorist organizations. I am amazed.
To think that you have come up with this information when you have had such limited ways that you could obtain this information, many travel agencies being afraid to cooperate with you and having to sort of just go it alone here, so to speak. I am very, very impressed with your testimony and I hope that this hearing this morning will at least begin to call some attention to this problem so that maybe something can be done about it.
But I thank you very much. We need to move on to other witnesses. Thank you very much for coming and being with us this morning.
Ms. GREGORIAN. Thank you for having us.
Page 66 PREV PAGE TOP OF DOC
Mr. DUNCAN. Our second panel consists of Mr. Gary Yallelus, who is a detective with the Metro-Dade Police Department from Miami, Florida and Mr. Neil J. Gallagher, who is deputy assistant director of the Criminal Investigation Division of the Federal Bureau of Investigation.
Gentlemen, thank you very much for being with us. As I have stated before, we always proceed in the order in which the witnesses are listed on the call for the hearing and that means that Mr. Yallelus is listed first. I apologize. I have a little trouble pronouncing your name. We certainly are pleased to have both of you here and thank you very much and you may proceed with your testimony.
TESTIMONY OF GARY L. YALLELUS, DETECTIVE, METRO-DADE POLICE DEPARTMENT, MIAMI, FL; AND NEIL J. GALLAGHER, DEPUTY ASSISTANT DIRECTOR, CRIMINAL INVESTIGATION DIVISION, FEDERAL BUREAU OF INVESTIGATION
Mr. YALLELUS. I appreciate being invited before this panel and before this subcommittee. I am bringing you information about a problem that has been going on for a significant period of time and is still going on as we speak today.
I have been a police officer for the Metro-Dade Police Department in excess of 25 years now. I have approximately 19 years of investigative experience with them. For the last 6 1/2 years I have been assigned to Miami International Airport and my sole function has been to investigate airline ticket fraud involving either tickets that were stolen from travel agents or tickets that were stolen from the air carriers themselves and various other kinds of frauds.
Page 67 PREV PAGE TOP OF DOC
Approximately 2 1/2 years ago we started seeing a trend that a group had formed. The group formed in an organized fashion and what they did is they started setting little segments, one group to go out and do burglaries, another part of the same organization setting up salespeople. There were people that were set up as the people that would do the computer printing.
These tickets are being printed on home computers, on everyday printers, home PCs and everyday printers. There is no specific great, expensive equipment needed to print these tickets up. Strictly over-the-counter type of stuff. They use word processing programs such as Word Perfect in a lot of them.
The organization basically was centered out of South America. South Americans were doing itI'm sorry. It really was centered in the California area, Southern California. We had people from Colombia, Peru, Argentina and Pakistan in this group. Like I said, they would send out thieves to hit travel agents.
I know one question was does Illinois have a specific problem? We don't really know why. Illinois has had more burglaries than other states in the last 2 years. We don't really know the reason why that has happened.
There is ex-law enforcement from Peru and Colombia involved in this group or gang or whatever you want to title it. They have put together little scenarios such asMrs. Pisa was from Naperville; they also hit other travel agencies in adjoining municipalities that had their own police departments. This is so you don't have a big crime wave on a single weekend in Naperville or in the city of Chicago. You have one burglary in Naperville, one burglary in Libertyville, and so on. All separate police departments are investigating this and it doesn't show as a crime wave at any given point, even if there were six within 15 miles of each other on the same night. There is a great lack of communication. These thieves are sophisticated enough to have already set this kind of program up.
Page 68 PREV PAGE TOP OF DOC
The thieves that go out have extensive criminal histories. They use multiple different aliases, which makes law enforcement very difficult to find out who you are really dealing with. They are professional thieves.
We recently had one in our office, 53 years old. He said he had been a thief since he was 6 years old, never held a legitimate job in his entire life.
Armed robberies are occurring, which show that the commodity of the airline ticket, the blank coupons, are a great value. They really have the ability to be written almost like a cashier's check, depending on what price they want to put on them in their printer. Then they do discount them out.
They set up a group that fences the boxes. When these boxes are taken from a travel agency they are usually overnighted out to the Los Angeles area. There they are resold to people with printers that are all within the same organization.
All the destinations, a lot of the tickets leave from the United States; they go international but the originating point of leaving is the United States.
We have conducted an investigation for approximately, like I said, 2 1/2 years of just this one group. We have brought it to the FBI in Los Angeles. We have brought it to the U.S. Attorney's Office out there. We have brought witnesses out there. In meetings that I attended out there the U.S. Attorney agreed to take the case and agreed that the witnesses would be good enough. We did numerous undercover buys involving the FBI, to their standards. All the evidence went to the L.A. office.
Page 69 PREV PAGE TOP OF DOC
For reasons unknown, the case quit being worked on in the Los Angeles area.
There are a lot of places that the FBI has become involved but the criminals and the tickets have left the jurisdiction of those field offices so quick that it is very difficult to coordinate all the different field offices, because it is happening all over the country.
Some of the problems we have with this is again it is a paper crime. If it is handled on a state level, the state time is very low. A lot of these criminals have been deported physically to the wrong country. They have been deported to Mexico because it is so easy to re-enter. So when they are arrested they say they are Mexican and they re-enter.
There are several on-going criminal investigations with U.S. Immigration currently dealing with these stolen tickets. There are some current on-going investigations right now. So they are aware of the problem.
We have a big problem in front of us. Most of it is law enforcement-wise; it is coordinating the tasks that are at hand. We have done that from Miami the best we can as a local agency. The solution I see for law enforcement right now is to put together some kind of coordinated effort into a task force, keep it up and running for a significant period of time.
These tickets, when they are stolen, do have a number on them. It is not the ticket number. It is what they call stock control number. That is what is put into the computer. Again the air carriers do have this in their computers and do have the absolute capability to check each and every one of these tickets at their counters and have trained their ticket agents at the counters how to do so. It is done on a very limited basis, very, very limited basis.
Page 70 PREV PAGE TOP OF DOC
I would urge Congress and I would urge the subcommittee to look at mandating the checks of these airline tickets. It takes a very few seconds. Ticket agents at the counters have been mandated to ask the questions, ''Have you packed your own bags?'' It would take about the same amount of time to punch in a 10-digit number, and it would stop it.
There are a lot of people that we have stopped. The passengers themselves are using stolen and forged identification, which are putting them on the aircraft, which I look at as they have a hidden agenda. There are many different crimes they can be committing but they are all on the airplanes under false names, which means the air carriers don't know who is sitting in their seats.
We have directly linked the use of stolen tickets to money-laundering, drug-smuggling, alien-smuggling, and I have one documented case where a terrorist has come into the U.S. and he has used stolen tickets for money-laundering purposes. Again I would request that airlines be mandated to check the tickets. I also would like to see a task force set up that can coordinate this thing across the country. It would need involvement of the air carriers, ARC, the FBI, Immigration. It would need a great number of people to investigate everything the right way. And I thank you.
Mr. DUNCAN. Thank you very much, Mr. Yallelus.
Mr. GALLAGHER. Good morning, Mr. Chairman and members of the committee. I have submitted a statement for the record and I will just make a few brief comments.
Page 71 PREV PAGE TOP OF DOC
In 1992 the FBI initiated a major investigation concerning the theft of airline ticket coupon stock. The investigators' strategy used an undercover operation that targeted individuals in New York and Los Angeles. This and other FBI investigations have shown that criminals view the airline industry as a vulnerable and easy target for theft and fraud schemes.
It is important to note and it has already been established here this morning that the revenue lost from ticket coupon stock thefts cannot be computed until the tickets are actually used. At the time of the theft the stock is blank. While no real money is lost until the ticket is tendered, the potential loss is most significant.
Some FBI investigations have been initiated based upon travel agencies' burglaries. One of the most common methods of operation has associates of the criminals simply visiting and surveying the target during the day. That night the theft ring members come back and burglarize the travel agency.
Some individuals use a distraction scheme in their efforts to steal airline ticket stock. Usually two or more members of the group enter a travel agency. One or more of the individuals distract or gain the attention of the employees while the other group members simply steal the stock.
Another method used by the thieves is referred to as a bust-out scheme. The bust-out scheme occurs when a travel agency is set up and sells airline tickets with no intention of paying ARC. Criminals have established travel agencies specifically to facilitate this scheme.
Page 72 PREV PAGE TOP OF DOC
Several different fraud schemes have been utilized. A common scheme involves the purchase of a low fare ticket from a travel agency. A personal computer is then used to duplicate the ticket for travel to various destinations. In most frauds, as you have heard this morning, the travel agency will not know that they have been defrauded until they receive the bill for the tickets.
The FBI investigates the theft of airline ticket coupon stock utilizing its jurisdiction for a number of violations of federal statutes, including interstate transportation of stolen property, referred to as ITSP. It is important to note that the FBI's threshold requirements for investigating ITSP cases is based upon the prosecutive guidelines in each judicial district.
In many districts, the U.S. Attorney's Office threshold for prosecuting ITSP cases requires that at least $50,000 in property is stolen or aggregate losses of two or more connected cases totalling at least $50,000. The fact that at the time of the theft it may not be possible to establish a value is a factor which makes for some difficulty in developing an investigative strategy.
Currently there are 10 separate FBI field divisions coordinating pending investigations involving stolen airline ticket stock. As I mentioned earlier, the New York FBI office conducted a 2 1/2-year undercover operation which involved airline ticket fraud bust-out schemes and airline ticket theft.
Prior to New York's undercover operation, ARC had estimated that approximately 25 percent of their losses occurred within New York, New Jersey and Connecticut metropolitan areas. Historically, New York area travel agencies have supplied airline tickets to more than one million travelers each year. This high volume of air travel created a rich environment for the sale or bust-out of stolen airline tickets.
Page 73 PREV PAGE TOP OF DOC
The New York undercover operation was initiated to address this crime problem. The operation identified a Dominican ring responsible for the bust-out of approximately 30 travel agencies in the New York area and the loss of several million dollars by the airline industry. This investigation resulted in the arrest of more than 60 individuals and the recovery of 29,000 tickets.
At the same time, an investigation by our FBI office in Los Angeles resulted in the arrest and prosecution of six individuals. They paid an airline ticket agent $60,000 for more than $8,000 blank airline boarding passes and access to the agents' ticket-printing computer and other equipment. The blank boarding passes and printing equipment were used to issue 95 validated airline tickets with a total face value of approximately $300,000.
An analysis of airline ticket theft and fraud reveals a wide ranging crime problem. Information obtained from investigations suggests that this crime problem is not limited to any specific geographical area. Airline ticket theft and fraud occur throughout the United States in cities ranging in size from large metropolitan areas to small cities and towns. FBI investigations have shown that the nature of the crime committed can also be very diverse. The crime can be as simple as the mere theft of ticket stock from a travel agent's desk to a sophisticated counterfeiting or fraud scheme. The criminals range from business executives to small-time burglars and thieves.
FBI investigations have not identified a formal, organized criminal organization participating in airline ticket stock thefts. However, these subjects do belong to loosely-knit groups with common bonds that rely on each other to conduct their illegal activity.
Page 74 PREV PAGE TOP OF DOC
Although the FBI has made some inroads in combatting this crime problem in the airline industry, efforts should be intensified to minimize its impact. The FBI should enhance its coordination with ARC to monitor and address the crime problems. Investigations should be coordinated with other law enforcement agencies to augment resources, minimize duplication of efforts and maximize law enforcement's impact on the crime problem. Thank you.
Mr. DUNCAN. Well, thank you very much, Mr. Gallagher. We do have a vote going on and the subcommittee is going to be in a very brief recess. In fact, I think our vice-chairman, Mr. Blunt, is going to start back with the hearing as soon as he returns, and others will be returning shortly.
We will be in a very brief recess at this point.
Mr. BLUNT [presiding.] I think we will go ahead and start again. The Chairman will be returning shortly. I have some questions that I want to ask and we can go ahead and get that done.
I apologize that I had to leave for the vote, so I missed most of the testimony. I may ask things that you have already covered but it will be helpful to me to hear your response and I would like to do that.
First of all, going back to the previous panel and the Chairman's question about which way the trend is changing here, Mr. Gallagher, do you have any information that indicates that these thefts of airline ticket stock are going down? And I guess the second question would be also do you see an increase in the direct armed robbery kind of confrontation that we heard about earlier?
Page 75 PREV PAGE TOP OF DOC
Mr. GALLAGHER. With respect to the statistics, we have read the same report by ARC that was referred to, where they note the number of incidents have gone down from 1993 to 1997 and in 1997 there were 104 incidents. At the same time, there are 212,000 blank stock that were stolen, so the number is still most significant.
I wouldn't be fooled into just looking at the number of individual incidents. You have to also look at the number. Just looking at that for 1997, that is 1,376 blank stock tickets per incidents, so it is still a very significant number and the potential, based upon each coupon, again makes it a most significant potential economic loss.
With respect to the armed robberies involved, the investigations that the FBI is involved with, and again we are involved with investigations in 10 separate FBI field divisions around the country, all of the investigations that we are currently involved with are involved in either straight burglaries, simple diversion thefts or fraud schemes. To my knowledge, I have not seen an investigation that the FBI is involved with where it has been an armed robbery. They have been very successful in the less violent techniques.
Mr. BLUNT. What about ticket theft at airports? Is that increasing?
Mr. GALLAGHER. That was an interesting comment. I am going to admit to you and I will get back and submit it for the record; I have not seen a significant amount of reporting by the airline industry with respect to direct losses of their own coupon stock to the FBI. I may be wrong but I have not seen any significant amount of reporting, and I question in my own mind what happens within the airline industry, whether that loss is just absorbed and not reported or if there is some breakdown in the reporting process. But it is something I will pursue.
Page 76 PREV PAGE TOP OF DOC
Mr. BLUNT. Any information you could provide us on that would be helpful and I am sure we will be talking to the airlines themselves to see if they are just absorbing a certain amount of loss with thefts at their ticket counters or if, in fact, that is not a problem. Anything you could give us on that would be helpful.
Mr. Yallelus, you mentioned that you had information that individuals using these stolen tickets have been linked to terrorist groups. Do you want to tell me a little more about that? And then do you have any information on what has happened to these individuals? Have you been able to track them further? Have any of them been tried? Give me some background on that.
Mr. YALLELUS. There is one specific incident that came through Miami International Airport and that is the reason that I do have it documented. He was holding a Jordanian passport, came into the United States. When he came into the United States it was checked by U.S. Customs. He was found to have some out-of-country warrants for his arrest in some other Middle East countries. When they did an NCIC check, a criminal background check, they got an Interpol look-up on him that indicated he was wanted in other countries. Interpol wanted to move him back over to the countries where he was wanted.
He was directly linked to gun-smuggling and narcotics-smuggling in other countries. As I was told by the people from Interpol when I had their print-out, he was physically linked to two terrorist groups.
He did get brought into custody. The last I heard, he was in jail in Belgium. When Belgium got done with him he was going to go to Turkey. When Turkey got done with him, he was going to Austria, all to face charges stemming out of those countries.
Page 77 PREV PAGE TOP OF DOC
He specifically, when we went through his briefcase, specifically had numerous documents or airline tickets that showed that he had exchanged and/or refunded numerous stolen airline coupons that had been stolen out of travel agencies. These things were taken over into Europe and printed. We don't know where they were printed but they were exchanged and refunded in Europe for money. So he was funding whatever he was doing. He was using it for money-laundering.
Mr. BLUNT. Do you have any indication of how big a problem refunding is, how often these tickets are used, what percentage of the use may not actually be used to sit in an airline seat but to create a refundable document? And I am coming to you with that same question, Mr. Gallagher.
Mr. YALLELUS. I don't believe I have any specific numbers on that. We do see, on occasions, we see that the tickets are exchanged. When a ticket is exchanged, you get rid of the one bad piece of paper and you exchange it for a good piece of paper that comes back to you. So you have basically gotten rid of the bad piece of paper and gotten another good one in your hand. It is then when they try to exchange the good ones that the money-laundering type of stuff comes in.
I don't see that
Mr. BLUNT. So you haven't been able to check it to that third level, which is where you actually get money for the second ticket, is what you are telling us?
Page 78 PREV PAGE TOP OF DOC Mr. YALLELUS. Right. We normally only see the usage as it is reported by both the carriers and ARC, the physical tickets that are used and been flown on.
Mr. BLUNT. Mr. Gallagher?
Mr. GALLAGHER. I can't give any statistical response to that. We have seen instances where they have turned in a ticket, actually gotten some money back on the return and then had a second ticket utilized and issued.
Mr. BLUNT. And then you don't know whether that second ticket wasoh, they got some money back in exchange?
Mr. GALLAGHER. They got money back in exchange and then got a legitimate ticket that is provided to them. So not only do they get to fly for free, but they get some money paid to them.
Mr. BLUNT. Not only do you get first class tickets, but you don't get nonfundable tickets, either, when you are issuing these tickets to yourself. So they are a ready way to cash.
Mr. GALLAGHER. Correct.
Mr. BLUNT. I think that is significant. I am interested to have that as part of the record and part of the discussion.
Page 79 PREV PAGE TOP OF DOC I see the Chairman is back and I am going to let him back over here in a second but I have one other question.
You mentioned before I left in your testimony that your questions about why the airlines don't simply check that number. I mean, certainly all over the country, at millions of locations, folks are able to check your credit card, if there is anything wrong with it.
In fact, I can remember one day that my wife and I could do all our Christmas shopping in half a day and I think it was one of those situations where I was paying the bill in one store while she was going and finding things in the next store and about an hour into that, the credit card company even caught that and questioned whether somebody was using our cardI might have been better off if somebody else besides me had my card that day. They even questioned that.
Do you have any idea why the airlines aren't able to put this ticket number in and stop this?
Mr. YALLELUS. They are able to put the ticket number in.
Mr. BLUNT. Do you have any idea why they don't do it?
Mr. YALLELUS. I think it is based on the percentages of what they accept on a daily basis. If you look at the numbers of physical tickets that are used in this country every single day and then use the percentage of the stolen tickets, it is a small percentage. It is a very significant problem but on an overall basis, it is a very small percentage of what they actually get that is legitimate. The bad ones still are a significant problem, though.
Page 80 PREV PAGE TOP OF DOC
Mr. BLUNT. You know, one of the questions I am going to have later of airlines is what percentage of this they are absorbing and what percentage that they are in some way getting reimbursed from someone else, which could be part of the solution to that possibly. I don't know.
Mr. Chairman, thank you for giving me the time to ask questions and I will let you come back here where you belong.
Mr. DUNCAN [presiding.] I want to thank our vice-chairman, Mr. Blunt, for carrying on the hearing and we will go now to Mr. Lipinski.
Mr. LIPINSKI. Thank you, Mr. Chairman. Unfortunately, I missed some of Mr. Blunt's questions and I really don't want to go over ground that he has plowed. But based upon the testimony of the first panel, it seems that this situation is much more significant than we were originally led to believe that it was. By that I mean you mention that it is a small percentage of the tickets that are utilized every day but it is still a significant problem.
Based upon the testimony of the first panel, is there anything that either one of you two gentlemen might disagree with that was said by the first panel? Either one of you can go first.
Mr. YALLELUS. Well, a lot of the statistics that I use, I work very closely with the fraud part of the Airlines Reporting Corporation. We do use their numbers of burglaries. They do not list the burglaries where no stock was taken. They only list the burglaries where they have to put numbers into the computer.
Page 81 PREV PAGE TOP OF DOC
So there are burglaries where people are breaking in at night and going for ticket stock but are not able to get some due to being secured in safes or whatever reason they could not get it.
So the numbers are somewhat higher, but they are not extravagantly higher, I don't believe, than what ARC has provided, and I believe those are the numbers you have. We use those numbers.
Mr. LIPINSKI. Now, those are just tickets that are stolen out of travel agencies, correct? Those are not tickets that would be stolen from the airlines themselves at various airports?
Mr. YALLELUS. That is correct. There is no statistics on what is stolen from the carriers. We have worked a few investigations involving that. It looks like it might be increasing just a little bit because the airlines don't keep inventory of their own tickets constantly and therefore if 500 is taken out of a printer after hours at the airline counter, those tickets never get entered, and they do absorb those.
So far, the investigations have not been wide-scale or real organized, as what we have seen for the carriers. But yes, they do have their own problems.
Mr. LIPINSKI. Mr. Gallagher, I understand that before I came back you had testified that this was the first time that you had heard of the airlines themselves at airports having tickets stolen?
Page 82 PREV PAGE TOP OF DOC
Mr. GALLAGHER. To a significant degree. It is not a constant referral to either the FBI or to local law enforcement of significant thefts of airline ticket stock directly from the airlines, but I am going to check that a little further and ask some questions within the FBI and get back to the committee with a response on that issue.
Mr. LIPINSKI. Do either of you gentlemen quarrel with the figure of $2.5 billion?
Mr. GALLAGHER. I don't quarrel with the figure put out by ARC but I think you have to put it in perspective that
Mr. LIPINSKI. ARC put out the figure of about $4 million.
Mr. GALLAGHER. I thought it was $3 million annual, from their report. But regardless, the most significant aspect of it is there is a lot of ticket stock that has been burglarized that has not yet been utilized. So the potential of the loss is still far more significant than has already been reported.
Mr. LIPINSKI. ARC said, I believe, it was $4 million a year. That is the figure that I had from them. But to go from $4 million to $2.5 billion is an enormous jump and I am just trying to get from you two gentlemen in law enforcement your evaluation of the possibilities of that being correct. $4 million is a lot of money to every individual but to big entities, it is not that much money, but $2.5 billion is another story.
Page 83 PREV PAGE TOP OF DOC Mr. YALLELUS. They have done some studies to get different values of how these things should be priced out and basically the federal court system, all the way through the appellate system, has basically said that if it is filled out, you use the face value to figure the dollar amount. That, of course, would be for your interstate transportation and so on.
There is an appeal decision in the Southern District of California that shows that blank airline coupons are valued at $500 per coupon in the blank form. So for every box of 1,000, you have a potential loss of $500,000. So for every box that is taken, the potential loss that has already been accepted by the federal court system for strictly the purpose of valuing something for interstate transportation is $500 per coupon, and that was a 1986 dollar figure, from back then.
Mr. LIPINSKI. Mr. Gallagher, do you want to challenge that or do you agree with that or do you have any comment on that at all?
Mr. GALLAGHER. Well, the difficulty, in part, comes from an example that Mr. Hudson showed us in the first panel because prior to his testimony he had shown me the receipt. In that one instance the thief had utilized a ticket for the value of $74. The potential value is left up to the imagination of the criminals, whether they want to purchase a ticket from here to New York or want to fly over to London. They have the ability to affect that. They have the ability to affect the potential loss.
There have been some studies by ARC on the average total but again we are at the hands of the criminals because it is their utilization of these ticket stocks that will determine the loss to the airline industry.
Page 84 PREV PAGE TOP OF DOC
Mr. LIPINSKI. One of you gentlemen, before we went over to vote, made mention of criminals setting up travel agencies.
Mr. GALLAGHER. Bust-out schemes.
Mr. LIPINSKI. Is that what it is called, bust-out schemes? They actually set up a travel agency so they get hold of all these tickets and then they just walk away with them and close down their operation? Is that it?
Mr. GALLAGHER. Correct. In some instances they will even go as far as to make a payment with a fraudulent check or insufficient funds check, which gives them an extra couple of weeks before the system catches up to them.
The undercover operation I talked about in New York, the FBI set up its own travel agency and engaged a Dominican criminal group in that type of activity, and that is how we were successful in bringing down that one investigation.
Mr. LIPINSKI. How many bust-out scams have you detected?
Mr. GALLAGHER. I would have to check for the record and report back. In New York there were 30 separate bust-out schemes that were in operation just in the New York City area at the same time, but I will find out the total number and report back to the committee.
Page 85 PREV PAGE TOP OF DOC Mr. LIPINSKI. Have you had any down in your area at all that you are familiar with?
Mr. YALLELUS. We had one back in 1994 that we worked. As a matter of fact, when was the New York one?
Mr. GALLAGHER. '92 to '96.
Mr. YALLELUS. In '92 we had one and it was also part of the overall investigation. It was also Dominicans, which we worked in the Miami area.
There are still some. I believe the ARC has numbers on how many bust-outs a year there are on that, that they specifically have. The numbers you have on the thefts and stuff like that do not include bust-outs.
Mr. LIPINSKI. Do not include bust-outs.
Mr. YALLELUS. The total number of coupons taken for the year does but the number of thefts or the number of burglaries, of course the bust-outs are left out of that number.
Mr. LIPINSKI. Thank you.
My time is up, I see, Mr. Chairman. Thank you.
Page 86 PREV PAGE TOP OF DOC Mr. DUNCAN. Well, thank you, Mr. Lipinski.
Mr. Gallagher, after hearing the testimony of the first panel, do you think this is a more serious problem than you realized before you came here this morning? Were you surprised by any of their testimony?
Mr. GALLAGHER. I wasn't surprised by the testimony. In preparation for this testimony I talked last night with agents from Los Angeles, Chicago and Louisville, all of which are involved in on-going investigation.
The potential loss, we are acutely aware, is significant. I don't want to minimize the loss, but taken in context with some of the other crime problems that the FBI is charged with, out in Los Angeles on a given day, cargo theft, of which this committee would have concern for, out of the Port of Los Angeles is $1 million a day.
But regardless of that, the economic loss to the first panel is a real loss. These are real people who have lost their livelihood, and law enforcement has a responsibility to attempt to address that.
There are definite steps that the FBI should take, in addition to what we have already done. We have had somewhat of an impact but clearly, having listened to the first panel, there are additional steps which the FBI will take on to attempt to enhance law enforcement's capability to stop this crime problem.
Mr. DUNCAN. Well, you say a million-dollar-a-day problem at the Port of Los Angeles is a very serious thing and I would certainly agree with that. But if their figure of this being a $2.5 billion-a-year problem is anywhere close to being correct, that is about seven times the problem at the Port of Los Angeles, and I am not trying in any way to say that that is not very serious at the Port of Los Angeles.
Page 87 PREV PAGE TOP OF DOC
Mr. Yallelus, you have in your testimony some information about a man named Fernandez. You say that ''In 1994 Mr. Fernandez flew to Miami to sell stolen airline tickets to me during an undercover operation. When he landed in Miami he was arrested and had property in his possession from six different travel agency burglaries in three different states.'' You said you knew him from a previous arrest and conviction in Miami in 1994. Then you talk about a decision was made to prosecute this man in Los Angeles and you made two trips to meet with the FBI in Los Angeles and so forth.
But then what happened?
Mr. YALLELUS. Mr. Fernandez is serving time in the Florida state prison system. We brought him to the State of Florida and charged him with organized fraud and charged him in the State of Florida. We extradited him to Florida when we could not get results from California.
Mr. DUNCAN. So nothing happened in California. Do you know why?
Mr. YALLELUS. My personal opinion of that is that enough manpower had not been dedicated to the specific problem. If you take this case and the organizational factor of this case, between the thieves and the sellers and the printers and all the people involved in this one organized group, a single or even two agents handling this with their normal caseload from the Bureau cannot handle it. It has to be dedicated manpower. That is why an actual group has to be formed to do this. It is not the investigate skills by any means at all. It is a manpower commitment.
Page 88 PREV PAGE TOP OF DOC
Mr. DUNCAN. Well, I am told that we had several other travel agents from around the country who wanted to come and testify. Of course, we cannot allowin almost all of our hearings we have far more witnesses who want to testify than we can have testify.
From your experience with this, do you feel this is a nationwide problem? And second, we seem to have almost laughter or shock or whatever from the first panel when I was told that we had been given figures to show that this problem was greatly decreasing, was not even half of what it was in 1993. Do you think this is a problem that is growing in scope or has it been cut in half since 1993?
Mr. YALLELUS. The number of burglaries may have gone down overall. I think the number of ticket stock, the number of coupons has come up or remained the same over the last couple of years.
Going back to '93, there was a significant number of bust-outs. That seemed to be the trend. This group particularly seemed to have formed in early 1994. We didn't realize it was an organized group until about 2 years ago. It was based out of Southern California.
So the numbers, it is very difficult. The ticket stock became more valuablenot more valuable per se but more that the thieves have viewed the value and now see it as a potential cashier's check or whatever amount they want to put on them. I saw several airline tickets very recently that were face-valued at $17,000 each, a group of five tickets. That was $17,000 and it said that they were paid for in cash. I don't know if five people have ever walked into any given place and put down $17,000 for a ticket in cash. That just shows the kind of things they put on the front of these tickets.
Page 89 PREV PAGE TOP OF DOC
Mr. DUNCAN. I mentioned in my opening statement that we were doing this hearing primarily at the request of our colleague Mr. Fawell and he has joined us now.
Mr. Fawell, we heard some very interesting testimony from the first panel, the panel of travel agents, some of whom I think you have some connection with. I would just like to offer you a moment to make any statement that you wish to make and, if you wish, to ask these gentlemen from the FBI and the Miami Dade department if you have any questions.
Mr. FAWELL. Basically I would like to extend my deep appreciation to you, Mr. Chairman, for taking an interest in this. I know my constituent, Barbara Pisa, has been a one-person gang to try to bring out the deep concerns that she has. And you have heard the testimony now or are in the process of hearing it.
My concern has always been air safety. All of usI see my friend from Illinois, Mr. Lipinskiwe all travel a great deal. And it concerns me that there are people who are able to rather easily, without much effort at all, through forged tickets, to be able to be on those airlines and, for all I gather, it would appear that these tickets are sold to people in other countries. So we have a concern, a deep concern, about air safety.
I am concerned, too, about constituents and others who are not my constituents, like Mr. Hudson, who is hit by a charge of close to $2 million, as I understand it, from various airlines, when he had supposedly tickets that were tamper-proof. Something is really wrong.
Page 90 PREV PAGE TOP OF DOC Inasmuch as I am concerned about the economic impact upon travel agencies, my chief concern, as I have indicated, is air safety. And I am so grateful to you, Mr. Chairman, for taking an interest. That is the message I want to deliver here, that I deeply appreciate that and I know the travel agents who have been subjected to all of these highly organized burglaries are appreciative.
I also would say I appreciate very much Mr. Yallelus, who has been a stalwart in the area of investigation. Nowhere else in the nation do we have a person who has really studied the situation and is able to bring a lot to light, but I think there is a lot more that will come to light about this practice.
So again, Mr. Chairman, I thank you very much for your conscientious work in bringing this hearing into being. I thank you.
Mr. DUNCAN. Well, thank you. We have had several members here today earlier and I said in a statement at the close of the first panel that I have been amazed. I did not realize that the first panel testified that this is conservatively a $2.5 billion-a-year problem and I didn't realize that this was the problem that apparently it has become, although we are going to have further testimony about that. But thank you for bringing it to our attention.
We have the ranking member, Mr. Oberstar, back with us. Mr. Oberstar, do you have any questions or comments at this time?
Mr. OBERSTAR. Thank you very much, Mr. Chairman. I am sorry I was not here at the outset of the hearing. I was attending to other committee business at the time and I ask unanimous consent that my remarks that I would have delivered be included in the record at the appropriate place.
Page 91 PREV PAGE TOP OF DOC
[The prepared statement of Mr. Oberstar follows:]
Mr. OBERSTAR. I want to thank you for holding this hearing and shedding light on a matter of very great concern to travel agents and presumably to airlines. Obviously it is of concern to law enforcement agencies.
Mr. Gallagher, I want to thank you for your splendid work and the contributions you have made to our committee in years past on aviation security matters, where you have been a font of good counsel and solid information and guidance as we formulated aviation security legislation in the aftermath of tragedies.
Mr. GALLAGHER. Thank you, Congressman.
Mr. OBERSTAR. There is a great disparity between the figure cited in your statement as provided by the Airlines Reporting Corporation that since 1990 the industry lost more than $9.7 million in stolen tickets and the travel agent testimony of 2.1, 2.4, 2.5 billion dollars a year. That is a great disparity. Has there been any attempt to reconcile those two numbers?
Mr. GALLAGHER. I think I would have to defer to ARC and the airlines industry on that. My understanding of the first panel is they are looking at the loss that they have realized based upon the tickets that have been cashed in to date and look at the tickets that remain outstanding, yet to be gone through the system. It is based upon that that they have come up with a much more significant figure than ARC produces.
Page 92 PREV PAGE TOP OF DOC
Unfortunately, I think only time will tell the accurate number. Once we get to that accurate number, the damage will already have been done.
So regardless of whether the number is $3 million, $4 million or $2.5 billion, there are individuals who run travel agencies who are losing money. Whether it is a combination of enhanced security at the travel agencies, improved law enforcement response to the crimes and more effective law enforcement response and action by the airline industry itself, the combination of all of that should result in the decrease in the economic loss and this crime problem.
Mr. OBERSTAR. The ARC number is not a speculate number. That is based on actual experience over a 7-year period, '90 through the beginning of this year.
Mr. GALLAGHER. Correct.
Mr. OBERSTAR. That can be documented and the other is a projection, if you will. I think it is important that we have a resolution of the facts so that we understand the magnitude of the problem facing the industry, facing the committee.
The subsequent testimony by the Airlines Reporting Corporation will say that ''ARC has been unable to enlist effective support from the FBI and the U.S. Attorney's Office in Los Angeles.''
You said there are 10 FBI offices involved in the response to this concern and that you have been in touch with them prior to coming to this hearing. Are you aware of any contacts made by ARC to the Los Angles FBI office?
Page 93 PREV PAGE TOP OF DOC
Mr. GALLAGHER. Congressman, I am aware not only of the contacts with the ARC; in fact, the FBI agent who is primarily assigned to these investigations works almost on a daily basis with the ARC investigator in Los Angeles.
I am also aware of the incidents that were mentioned which resulted in some form of criticism of the FBI. However, that is a pending investigation. It is certainly not complete. I will take that criticism, smile and continue with the investigation. The FBI knows where it is going in Los Angeles and we will conduct a thorough investigation and try to get to the bottom of it.
The FBI role, given our structure and our assignment, is not to get an individual necessarily who utilizes one ticket. What we are concerned with is to try to get to the heart of the problem and take out the organization that is responsible for it. That is where we can have the long-term impact.
Mr. OBERSTAR. Certainly you are looking for patterns of conduct more than individual action.
Mr. GALLAGHER. We are. And we will look at
Mr. OBERSTAR. Wide area applications.
Mr. GALLAGHER. Just a few days ago there was an individual arrested over in Europe with a number of tickets in his possession. That person was interviewed by the FBI in cooperation with that foreign government.
Page 94 PREV PAGE TOP OF DOC
We do respond. We are trying to get to the bottom of the problem but again, our goal and our focus is to try to get to the organizational structure that is behind this entire crime problem.
Mr. OBERSTAR. If I may proceed for just a moment further, Mr. Chairman, electronic ticketing is now engaged in by virtually all of the airlines. The move to electronic ticketing means closing the gap, closing the loopholes and reducing the magnitude of crime?
Mr. GALLAGHER. It can but we could be back here next yearwith all the various different types of crime that are currently being perpetrated over the Internet, we could be back here next year talking about electronic ticketing and groups that have utilized this as a form to advance another type of crime activity that we have not yet realized.
Mr. OBERSTAR. And might that be more difficult to track?
Mr. GALLAGHER. When we are dealing with the coupon stock right now, we have a physical item that we can look at. If we start to get into computer crime, which is a major advancement of the FBI's investigative focus we are looking at, the aspect of computer crime in things like electronic ticketing as a new wave of crime for the future, that will present new difficulties for law enforcement because, you are right, you are not going to have the physical evidence that you would have in 1,000 stolen blank ticket stock.
Page 95 PREV PAGE TOP OF DOC Mr. OBERSTAR. Final question. You and the other law enforcement agencies are really not in the business of telling folks how to be more secure, but in your investigative experience you and Mr. Yallelus would have some ideas about how the ARC, how travel agents, how airlines themselves can make their business more secure.
And I am not asking you to respond to that here, but that is something that I think would be a useful contribution. If we are going to close the gaps here, travel agents need to have some guidance on how to make their operations more secure and you are certainly in a position to give that kind of advice.
Mr. GALLAGHER. Certainly.
Mr. OBERSTAR. Thank you, Mr. Chairman.
Mr. DUNCAN. Thank you.
Mr. Gallagher, let me ask you this. Do you think that the airlines are doing enough to combat this problem? Did you hear the travel agents who said that the airlines could take 3 seconds to type the ticket number into their computer system and it would come up stolen? Do you think it would be that easy to stop this?
Mr. GALLAGHER. I heard that and my initial reaction is that that is a very simple, direct solution to it, but I would have to defer to the airline industry because I don't know what the cost ramifications would be at the ticket desk to do that. Is it simple?
Page 96 PREV PAGE TOP OF DOC
I have been in the same situation as you have where you try to charge too many things on a credit card in too short a period of time and the credit card electronically picks up on it. Is it just as simple to scan it in? Is the equipment at the airlines prepared to do that? What would be the dollar cost to the airlines that would be probably passed on to the airline customer to effect that type of additional security?
I would have to defer to ARC and the airlines in that because from a very simplistic sense, in my mind it makes a lot of sense and it could be done, but recognizing that there are other factors that I may not be aware of, I would hesitate to suggest that as an all-inclusive solution to the problem.
Mr. DUNCAN. And then going from that question to try to be fair about this, do you think that this problem could be solved if the travel agents were more careful or used greater security precautions, like putting these tickets into some type of safe?
Mr. GALLAGHER. Again with some hesitation, I don't want to criticize the travel agents because they were just trying to make a living. They were not operating illegally.
I have read the guidelines by ARC that puts limits on the number of tickets that can be in the travel agency on a given day and that just adds to the vulnerability. If you exceed that violation you have a potential more significant loss.
But I would have to defer to ARC to let them respond to that question because they are the agency that developed the restrictions. They are the agency that has the dialogue with the travel agents that establish that.
Page 97 PREV PAGE TOP OF DOC
If there is a breakdown in communication, if people truly believe that this is a safe coupon and doesn't need additional security, something wrong has happened.
Mr. DUNCAN. Of course, that is what Mr. Hudson testified, that he was assured that these ATB tickets were tamper-proof or that there was not a potential security problem there.
Well, thank you very much. The testimony of both of you has been very, very helpful.
We will move on to the final panel now, panel number three. The final panel, panel number three, is Mr. David R.B. Collins, who is president of Airlines Reporting Corporation from Arlington, Virginia; and Mr. William Schmidt, who is director of corporate security for American Airlines. Mr. Schmidt is from Dallas, Texas. We certainly appreciate both Mr. Collins and Mr. Schmidt being here today.
As I have stated several times, we always proceed in the order in which the witnesses are listed on the official call of the hearing, and that means that Mr. Collins will go first and then we will hear from Mr. Schmidt.
So Mr. Collins, you may proceed with your testimony. Thank you for being here with us.
TESTIMONY OF DAVID R.B. COLLINS, PRESIDENT, AIRLINES REPORTING CORPORATION, ARLINGTON, VA, ACCOMPANIED BY JAMES MANNING, DIRECTOR OF FIELD INVESTIGATIONS AND FRAUD PREVENTION, AND KATHLEEN ARGIROPOULOS, VICE PRESIDENT AND GENERAL COUNSEL; AND WILLIAM SCHMIDT, DIRECTOR, CORPORATE SECURITY, AMERICAN AIRLINES, DALLAS, TX
Page 98 PREV PAGE TOP OF DOC
Mr. COLLINS. Good morning, Mr. Chairman. As you have indicated, my name is David Collins. I am president of the Airlines Reporting Corporation, ARC, and I am pleased to be here with you to discuss the issue of stolen tickets.
I am accompanied here today by Kathleen Argiropoulos, our vice president and general counsel, and by James Manning, ARC's director of field investigations and fraud prevention. Jim Manning is a 25-year veteran at the FBI and was hired by ARC just under 4 years ago with the full support of our airline shareholders as part of an overall program to drive down crimes against our system and against our industry. And by industry, I mean the two customer groups we serve: the airlines and the travel agents.
ARC performs a number of key services for the airlines and the travel agents. Most important of these in today's context is the provision of blank tickets to travel agents. We also provide the central mechanism for settlement of the sales of those tickets. Our huge volumes bring economies of scale to what you might call the back office operation, and thereby help keep down the cost of the product to the consumer.
In the time I have available I would like to highlight certain key points. First, to all of us, the consumer is the most important person. We don't deny that some of our tickets are stolen and that some of these may end up in the hands of a consumer. We are no different from any other industry. Criminal minds are constantly trying to find ways to beat our system. The key question is what are the chances of a U.S. consumer buying a stolen ticket?
We distribute approximately 1.2 billion blank ticket coupons to travel agents each year. Last year just over 200,000 of these were stolen. That is two-hundredths of 1 percent. We know that not all of these find their way to the U.S. market. Some are shipped to other countries. Some, the criminals sit on for several years. So we have implemented procedures to obsolete tickets and render those valueless. Some are taken in burglaries where cash was the prime goal.
Page 99 PREV PAGE TOP OF DOC
So the market for stolen tickets represents far less than that two-hundredths of 1 percent of total tickets in the marketplace.
The travel agency distribution system is designed to facilitate the distribution of airline tickets. We have over 33,000 approved travel agency locations to whom we distribute tickets. To the consumer, this means that there is an ARC travel agent in your locality. If you buy a ticket from the travel agent in your locality, I would submit that the chances of purchasing a stolen ticket are zero, particularly if you have selected the services of your professional travel agent in the same way that you would select the services of other professionals, such as doctors and dentistson the recommendations of others.
Stolen tickets are marketed through bucket shop outlets, primarily in two major cities, New York and Miami, or through the columns of major newspapers. They are sold at large discounts and marketed only for cash. It is in this market that the consumer may be at risk, but I would submit that the principle of caveat emptor governs when you are purchasing a product from an unknown entity, where you are offered a product at a far lower price than you have been quoted anywhere else and the vendors ask you to send cash and will not accept credit cards.
My second point concerns the position of travel agents. They are responsible for all tickets issued to them and for the payment of all those tickets that are issued and sold, less the commission they earn on the sale.
The airlines have, however, made clear through ARC that in the event of a criminal act other than by their own employees, such as burglary or theft, the travel agent will not be responsible for the stolen ticket stock, provided that the travel agent has followed ARC's ticket security rules.
Page 100 PREV PAGE TOP OF DOC
Effectively, the airlines have said that if all travel agents follow the ticket security rules, the airlines will swallow all losses from stolen tickets. This regime has been in place for over 25 years.
The rules themselves have not been static during that time. We have mechanisms in ARC where travel agents, through their associations, can enter into dialogue with us regarding our procedures and our rules. These procedures were used a few years ago when, in conjunction with the travel agency leadership, the ticket security rules were completely overhauled. We then produced a video that was distributed to every travel agent location, educating them on the rules and on the type of criminal act that can take place in a travel agency, so that they have the tools to protect themselves.
My third point is that ARC, as an organization, is committed to fighting crime against our industry. Integrity is our number one value. In 1992, with the full support of the airlines, we launched a stepped-up program to improve the overall integrity of our system. The subsequent hiring of Mr. Manning and the increase of our fraud staff was part of that effort.
I would submit that the fall in the number of criminal incidents involving travel agents from 350 annually in 1993 to 154 in 1997 is not an accident but results at least in part from a committed and focussed effort on our part.
The fourth point is an important philosophical one. If we are going to be successful in fighting crime, every party in the transaction chain must participate in the effort. You cannot conclude that the solution lies entirely in the hands of one party. That means that you leave weak links in other parts of the chain that will be exploited by criminals and the problem will increase, not diminish.
Page 101 PREV PAGE TOP OF DOC
In my view, the key parties to the subject matter you are addressing today are the travel agents, ARC, the airlines and law enforcement. In our testimony we have covered how we are working with all these parties to step up the fight against crime.
The final point has to do with the events that led to these hearings. We have had a disproportionate series of thefts in the Chicago area. We believe that most, if not all of these thefts have been masterminded by an organized crime group in the Los Angeles area. This information has been developed by the Metro-Dade Police, working very closely with us. This information has been delivered to the FBI in California sometime ago and to our knowledge, nothing further has happened.
It appears to me that the criminals in California know that we and law enforcement know who they are, but they see nothing happening. The message to them, therefore, is that they can continue their activities with impunity.
ARC believes that if these California-based criminals can be put out of business, the number of crimes against travel agents will fall significantly. I would pledge to this committee our full cooperation to federal law enforcement to achieve this result. Thank you for the time to address the committee.
Mr. DUNCAN. Thank you very much, Mr. Collins.
Page 102 PREV PAGE TOP OF DOC Mr. SCHMIDT. Good afternoon. Mr. Chairman and members of the subcommittee, my name is Bill Schmidt and I am the manager of American Airlines corporate security in Dallas. American Airlines welcomes this opportunity to present our views on issues related to stolen tickets from the travel agencies.
Stolen ticket usage is an industry problem, not only the agencies, but it is the airline problem, also, and American has had its share of losses. American Airlines personnel, our loss prevention unit and our agents, have detected and confiscated almost $600,000 worth of stolen tickets last year, $600,000 worth. Unfortunately, another $844,000 worth were not caught by our security measures, about $1.4 or 1.5 million worth of tickets in total.
I am here today for three reasons: to assure that American Airlines is doing everything we can do to stop the stolen ticket stock from being used, to explain why we cannot catch every fraudulent ticket entering the system, and to tell you, in our view, what measures can be taken to reduce incidence of stolen ticket usage.
Today American Airlines has many procedures and systems in place to minimize stolen ticket usage. We have a comprehensive training program developed over 20 years and continuously being revised, including computer-assisted instructions and reference systems. It is provided to all airport service personnel to aid in the detection of these tickets.
Our agents are encouraged to perform the stock control number check when a ticket meets the stolen ticket profile.
When a ticket is exchanged or reissued, the stock control number, when entered, is systematically checked against the stolen ticket database.
Page 103 PREV PAGE TOP OF DOC
Check digit verification is available for agent use when a suspicious ticket is not identified as stolenif a ticket looks suspicious and it is not identified as stolen. This procedure assists in the detection of stolen tickets with altered stock control numbers.
American Airlines, our loss prevention unit, maintains a database of travel agencies which have reported stolen ticket usage. All reservations from these agencies are analyzed by our loss prevention unit and stolen ticket confiscation messages are generated to the field locations on a daily basis.
We offer monetary rewards to our ticket agents for confiscating fraudulent stolen tickets. Agents receive up to $50 for each valid ticket which is intercepted. In 1997 our agents confiscated 692 tickets, of which 423 were reported as stolen. The value of the confiscated stolen tickets was approximately $600,000. We, in turn, distributed $18,275 to our ticket agents for taking on the task of checking these tickets and removing them from losses that we or the agency would have incurred.
Many people ask why, with all these procedures in place, it is impossible to catch every fraudulent ticket entering the system. There are many reasons.
Since 1994, we at American Airlines have conducted systems tests with optical character recognition equipment, bar code and magnetic stripe readers, all in an effort to find a way that would provide the accuracy and reliability needed to effectively stop stolen ticket usage. To date in our testing, no system was found to be totally reliable for use even in selected markets.
Page 104 PREV PAGE TOP OF DOC
American Airlines currently handles approximately 400,000 ticket coupons each day. Of that number, an average of about nine coupons per day are stolennine versus 400,000. I'm speaking about American Airlines. Using currently available systems, it is unrealistic to expect that we can provide the staffing required to manually check all 400,000 coupons while still providing the high level of service that our customers expect and the added security for the FAA procedures.
The stock control numbers on approximately 40 percent of all stolen tickets have been skillfully altered. These are the tickets that we recover and analyze. We found that 40 percent of those, the stock control numbers were skillfully altered. When these tickets in our testing were checked against the blacklist on the optical reader, they did not read as stolen. So even if we had it in place, at least our tests indicate that 40 percent would not have been detected.
The modular structure of the SABRE computer reservation software currently provides no single location which houses all the components needed to perform a complete stolen ticket verification. A sophisticated series of interfaces would be required to provide the necessary links, and the cost of developing and implementing such a system is prohibitive when measured against the expected results of the additional one to three stolen ticket coupons daily.
Electronic tickets will ultimately eliminate the problem of stolen ticket documents and American Airlines is working aggressively to increase electronic ticket usage. By the end of this year it is estimated that 20 percent of all American Airline ticketing transactions will be electronic. System developments currently under way will increase that percentage even further. Very soon we will implement our first electronic ticket interline agreement and we will also soon be able to offer electronic ticketing of itineraries containing more than four flight segments.
Page 105 PREV PAGE TOP OF DOC
American Airlines would like to see an increase in federal law enforcement involvement in the battle against the stolen ticket usage. Distribution of stolen and counterfeit tickets is not the business of casual criminals. And we have not even spoken about counterfeits. Counterfeits are a major problem that are coming into the industry.
Unfortunately, federal law enforcement cooperation has been sorely lacking in many of the stolen ticket investigations simply because the U.S. Attorneys will not take the cases. Until federal law enforcement takes a more aggressive stance toward this type of criminal activity, stolen and counterfeit ticket distributors will continue to produce fraudulent tickets without fear of prosecution. We need more support from the criminal justice system if we harbor any hope of eliminating the production and distribution of fraudulent tickets.
In conclusion, I would like to reemphasize American Airlines' strong commitment in reducing incidence of stolen ticket usage. A travel agency is only responsible for the losses when it is determined that they have not complied with ARC's established ticket security guidelines. Most of the losses from the more than 600 stolen tickets accepted by American Airlines last year were not charged to the agencies reporting the theft. I will explain.
Last year we accepted 1,000 tickets, stolen tickets, ballpark. From that 1,000, we had 400 that we detected, over 400 we detected, so we avoided the loss either to the agencies or to American Airlines. 400 of the remaining 600 were charged back to the agencies and 200 others were absorbed by American Airlines. That is the latest figure that I have.
With the help of ARC, conscientious travel agencies and federal law enforcement officials, we will continue to attack the problem. Our current detection procedures, while not foolproof, do catch approximately 40 percent of all stolen tickets presented at American Airlines gates. We are determined to detect even a greater percentage. And I thank you.
Page 106 PREV PAGE TOP OF DOC
Mr. DUNCAN. Thank you very much, Mr. Schmidt. I am going to go first for questions to Mr. Oberstar.
Mr. OBERSTAR. Thank you very much, Mr. Chairman. This testimony has been very enlightening and very helpful.
Mr. Collins, I asked earlier the question of the FBI witness about the disparity between the number provided by ARC over the period '90 through '97 of $9.6 million compared to an estimate of $2.5 billion.
Presumably that number that you have provided to the FBI is factual, based on actual experience and not a projection of what might happen if all the unaccounted-for tickets turned out to be fraudulent. Is that correct?
Mr. COLLINS. Yes, sir. I do not agree with the $2.4 billion number. The number, in my opinion, is not anywhere near that number. That number, as you heard this morning, was extrapolated from certain incidents.
I would just like to observe, in the case of Mr. Hudson, where he lost 20,000 tickets, that was a unique incident. He went on to say that because of his 20,000, he disputes our 212,000. Our 212,000 is an accurate number of the number of tickets reported stolen to us.
Mr. Hudson is extrapolating based on his own experience, but in the particular year, his was the only agency that experienced a theft of that magnitude. Most of the thefts are of much smaller numbers. You heard Barbara Pisa say that she had approximately 400 tickets stolen. So many of the other burglaries are closer to the number of 400 or 1,000.
Page 107 PREV PAGE TOP OF DOC
So I dispute the $2.4 billion because I think it is extrapolated from numbers that are not typical of what is going on in the marketplace and I would stand by the numbers that we are reporting. I think the problem is far, far smaller. It is not a multi-billion-dollar number.
Mr. OBERSTAR. Thank you.
Following up on the question I asked about electronic ticketing, do you see ticketless travel preventing new crime areas or does that open some additional concerns that might require new protective measures?
Mr. COLLINS. Let me answer that question from the context of the way these hearings started today, and that is from the perspective of the travel agent.
I would say from the perspective of the travel agent, the fact that we are moving away from paper tickets into an electronic system is probably a good thing for them because they are no longer handling and holding and storing valuable documents which the thieves are seeking. Therefore moving to electronic ticketing is certainly going to help this problem from a travel agency perspective.
What will happen from an industry perspective, I don't know. As I mentioned earlier, the criminal mind will always be seeking ways to beat our system. As I have witnessed through the years I have been in the industry, the criminals have become more sophisticated as our system gets more sophisticated. So as we move into new systems, I am sure they will be testing our systems to see what opportunities there are in the future.
Page 108 PREV PAGE TOP OF DOC
So will electronic ticketing solve all crime? I doubt it, but I think it will make the life of the travel agent easier.
Mr. OBERSTAR. Thank you.
Mr. Schmidt, your figures were very revealing. I have been to the American Airlines SABRE system underground computer operation some years ago and was very impressed with the extensive security installed at that center in Tulsa, as I recall.
Mr. SCHMIDT. Tulsa, yes, sir.
Mr. OBERSTAR. Fort SABRE. And that you have only nine unaccounted-for tickets in the course of a day, when there were over 100,000 transactions calculated by your computers a day and that has probably doubled since the time I have been there. That number goes up exponentially.
Let me just ask from the security standpoint, are the security measures that ARC has insisted upon with travel agents sufficient? That is, if complied with by travel agents, as prescribed by ARC, would those measures be successful in minimizing ticket theft?
Mr. SCHMIDT. Well, I believe so because the agreement, I think the airlines probably side up with ARC on a standard of protecting the documents, and we do give relief. We have given relief, and some of that has been negotiated. Unfortunately, I am not the person that handles our revenue accounting and the direct dealing with the debt memo, so I think I would probably have to defer that to some other member of our organization.
Page 109 PREV PAGE TOP OF DOC
Mr. OBERSTAR. It was suggested in testimony or in material received by the committee that airlines should shoulder a greater amount of the burden by checking tickets, presumably at the ticket check-in counter. If you had to run an electronic check of each ticket presented by each traveler, how much time would that add to boarding time and how much additional burden would that place upon each airline?
Mr. SCHMIDT. Well, of course, I am from the security side. I would love to see everything checked 100 percent. However, to say that it takes only 3 seconds to run a series of number accurately, wait for the response, I think that is going to add some time3 seconds, 10 seconds.
We have now added to our ticket agents, and if you have been to the airports, we never used to have to show identification. We were never asked if that was our luggage. Did we pack the luggage? Has it been in our custody? We have added a lot of steps to the agent check-in.
Mr. OBERSTAR. And you are going to have passenger bag match electronic check.
Mr. SCHMIDT. And we have the profiling that is going on and that is the real safety factor. If a person uses someone's ticket, someone's wrong-named ticket, and that used to be a big problem, wrong-named tickets. They were buying them cheap and then distributing them amongst their friends because they could buy them ahead and anybody use the ticket. It has been a great boom for fraud prevention by demanding identification. It has helped the whole industry, I think, as far as detecting and deterring.
Page 110 PREV PAGE TOP OF DOC
So to get back to your original question, it drives time. I had 1,000 tickets last year that we accepted in total. 400 we detected, and we do 400,000 passengers a day, at how many airports?
So if you multiply 5 seconds, 5 seconds, it adds up to real time and money.
Mr. OBERSTAR. Mr. Manning, do you go out to travel agencies and physically, on-premise, inspect their operations to determine that they are holding tickets in safe deposit boxes, that they lock their places at the end of the day, that they are not storing tickets in a garage or in some other inappropriate place? Do you do field checks?
Mr. MANNING. Sir, I don't do that personally but we have a field integrity staff.
First of all, in the process of getting approval as a travel agent and getting accreditation, those items are taken into account in getting approval, to make sure they have the right security. But as far as a compliance monitoring, we basically do not do it except in exceptional situations.
Any time an auditor goes into a travel agency, part of their responsibility is to do a checklist of ticket security. And if there is obsolete stock, they destroy the obsolete stock right there in the agency. And if there is a security violation, the travel agent is informed of that violation, but there is no penalty against the travel agent for that security violation at that time.
Page 111 PREV PAGE TOP OF DOC
Mr. OBERSTAR. Well, while the problem is severe for each travel agent or agency that has been afflicted, in the large scheme of things, $1.5 or 2 million worth of tickets against $70 plus billion worth of tickets sold in a year is not an overwhelming problem. It seems to me that ARC needs to do more of the field checks that you have just described, tightening up your own oversight. And as the airlines continue with the passenger profiling and passenger bag match electronic systems, you could consider adding to it an additional step and also consider what the cost of the time would be compared to the magnitude of the problem faced.
Thank you very much for very useful testimony.
Mr. DUNCAN. Thank you very much, Mr. Oberstar.
Mr. LIPINSKI. Thank you, Mr. Chairman.
One of the law enforcement members on the previous panel mentioned that he has seen a ticket for $17,500 that went through without being detected. It is a little bit hard for me to believe that someone along the line there at the airport working for the airline wouldn't have looked at a ticket for $17,500 and thought that there was something bogus about that ticket.
Do either one of you gentlemen know of any fare that might be written for $17,500?
Page 112 PREV PAGE TOP OF DOC
Mr. HUDSON. Cash.
Mr. COLLINS. One thing I would like to observe. People mentioned cash and somebody speculated and I think the implication of the testimony was that somebody actually paid cash in dollars.
Form of payment in cash on a ticket can also mean that the passenger has provided a check. On our tickets we have either form of payment cash or form of payment credit card. So it could well have been a legitimate ticket paid for by a check.
Mr. LIPINSKI. I will get back to that in a moment. Just $17,500, do you have any idea how many tickets American Airlines writes a year for $17,500?
Mr. SCHMIDT. I looked at all of the losses, I think, for last year and I thought the largest I saw was a coupon for $1,700.
One of the profiling factors obviouslyyou know, there is a whole profile that we use. A cash $17,000 ticket would raise most of our eyebrows, I am sure.
Mr. LIPINSKI. Perhaps it was not American. I don't know what airline it was on. I am going to find out, though, afterwards.
Now, you were saying that if you used a credit card it would show up as being possibly cash, also? Is that what you are saying?
Page 113 PREV PAGE TOP OF DOC
Mr. COLLINS. No, sir. I think the implication of previous comments was that it would be impossible for a high value ticket to be written by cash. People don't walk into the travel agency with mounds of cash.
And the point I wanted to make was when an ARC ticket shows form of payment, cash, it could also have been written against a check. Cash on our tickets means either cash or check. So it is possible that somebody could walk in for a high-dollar ticket and write a check, as well.
Mr. LIPINSKI. Mr. Schmidt, you are saying that American Airlines there are only nine bogus tickets a day?
Mr. SCHMIDT. That is an average. I took an average from the total amount that we accepted for 1997 and that would have been couponswe had 1,000 presented to us, 1,000 tickets. So that averages out actually to three tickets a day. However, there are multiple coupons usually to those tickets so if you were to take three coupons and average out to a round-trip ticket maybe, that is where I came up with the nine coupons per day.
Mr. LIPINSKI. So you are saying that actually it was even less tickets.
Mr. SCHMIDT. It was 1,000 tickets and we detected, in our loss prevention, over 400 of them, of all the tickets that we have identified as being stolen by the agencies.
Page 114 PREV PAGE TOP OF DOC
Mr. LIPINSKI. Just so that I am clear on this, there were 1,000 fraudulent tickets used on American Airlines?
Mr. SCHMIDT. Presented to us. About 600 were actually used. We missed 600.
Mr. LIPINSKI. The other 400 you detected?
Mr. SCHMIDT. The other 400 we detected.
Mr. LIPINSKI. How did you detect those?
Mr. SCHMIDT. Well, number one, all of our agents are trained in the profile and when you see a ticket that meets a profile, they will utilize that triggering mechanism to check the stock control number.
Now, some of the problems that we are running into is the skillful or the type of equipment now that is being used to imprint ticket information on the ATB stock. It used to be much easier with handwritten stock. They were obvious errors. The tickets are very skillfully prepared. And to the naked eye, it is getting more and more difficult to detect them.
The stock control number, which is the control item, is being very skillfully changed and erased. A 3 is made to a 5. If you change that one digit, to the naked eye you cannot see it. If you try to enter that number, it is going to come back not stolen. Forty percent of the tickets have that stock control number altered. It minimizes the amount of tickets that we would even detect if we had the magnetic stripe or a bar code or the optical reader.
Page 115 PREV PAGE TOP OF DOC
But our experiencewe have a very comprehensive program. We started out with two agents addressing this in '92 and '93. Right now I have a loss prevention unit of six people and I have three people in the field that are specifically trained to support the ticket agents at our high-risk locations. What we are trying to do is focus in on where the greatest risk is, identify the usage and then check all further reservation records and have each of those tickets, as they are presented, have an agent check that ticket against the database.
It has worked very well. The criminals seem to know how to come around and come up with new and innovative approaches.
Mr. LIPINSKI. If you had an unlimited amount of time before that airplane had to take off, what other procedures might you recommend from a security standpoint to try to detect these bogus tickets?
Mr. SCHMIDT. Well, I think the document itself, that tells you a lot of the profiling factors: misspelling, names are misspelled, cities are misspelled. When you look at these tickets after you have analyzed them you can say, ''Gee, why didn't our agent catch it?'' It looked good and it passed the first look test and we accepted it.
Mr. LIPINSKI. I was thinking that I can understand how it is very critical to get the plane off on time and on-time performance and so forth, and I understand that, and time is money. But it would seem to me that perhaps with the financial risk to the airlines because of the tremendous volume of money they deal with, it isn't that deleterious to the airlines. It still is to the travel agent.
Page 116 PREV PAGE TOP OF DOC
But after the plane took off, if you could have someone go over those tickets once again, they would have more time. Perhaps something could be phoned ahead and you discover three or four people or one person on that plane who had a bogus ticket and that person could be detained. That person could be questioned.
Mr. SCHMIDT. That, we do.
Mr. LIPINSKI. I would think that that is something you could possibly do.
Mr. SCHMIDT. We do when the agent has time because they will go through their ticket lift. Realize that the agent is looking for the 50 bucks. They are looking for the reward. If you are at a high-risk airport, Los Angeles does a tremendous job of detecting stolen tickets. There are a lot of tickets going through there and there is an incentive and they do. And if they call ahead to Miami, we will split the reward for them. If the agent in Miami is able to intercept him, if that is the last leg of the ticket, probably we won't have collected any money because it is going to be very difficult to force them to pay you after they have done the travel, but we do it. We have done it.
And we have done back room checks, where we will hire people just to go into the back room, if you have a hot market, and a hot market would have been Miami 3 and 4 years ago when we would have accepted 150 tickets in a year. Last year Miami was our hottest market. We had 50 stolen tickets for the whole year, 50 tickets.
Page 117 PREV PAGE TOP OF DOC Now, I don't know how many passengers we handled but when you look atit is a big number if it is out of your pocket but really it is a very small number.
Mr. LIPINSKI. I realize it is a very small number to the air carrier; it is a very big number to the poor travel agent who has had the ticket stock stolen from them. Maybe the airlines should be more generous in their dealings with these travel agents as far as going after them to recover this because it would seem to me that a travel agent is a person who is well known in the community, well respected in the community, wouldn't have much of a business unless they had those attributes and had been around for a while, and I would think that the airlines could be a little bit lessthese aren't really the guilty parties in most cases and I think the airlines could be a little bit more generous to them.
I have a question. Mr. Collins, do you have any idea of what Mr. Schmidt is talking about, 1,000 a year for American Airlines? How does that average out? American is probably 20 percent of the market. How does United average out? Do you have any idea? They are about the same percentage of the market probably. Or how do some of the other airlines average out?
Mr. COLLINS. I don't know that I can tell you that. I can see if I can obtain the information for you, but I don't know that I can speak for United.
Mr. LIPINSKI. Well, I won't ask you to speak for United but I mean you are involved with the process with all the airlines, correct?
Mr. COLLINS. Yes.
Page 118 PREV PAGE TOP OF DOC
Mr. LIPINSKI. In fact, it is owned by all the airlines, correct?
Mr. COLLINS. That is right.
Mr. LIPINSKI. All the American airlines. Are there any foreign airlines that are involved?
Mr. COLLINS. Are you asking about their volume, market share?
Mr. LIPINSKI. Right now I am just asking about who owns the company. That's all.
Mr. COLLINS. Yes, the U.S. airlines own ARC.
Mr. LIPINSKI. And I was saying there aren't any foreign airlines in there, right?
Mr. COLLINS. Not in the ownership, no.
Mr. LIPINSKI. What I was asking about prior to that was in regard to how many stolen tickets had been used on the various air carriers. We have 1,000 here for American. I was wondering what United had, Delta, right on down the line.
Page 119 PREV PAGE TOP OF DOC Mr. COLLINS. I would speculate that the experience on the big three is similarUnited, Delta and American.
Mr. LIPINSKI. But you can get that information for us, correct?
Mr. COLLINS. I can try to get that information for you.
Mr. LIPINSKI. I would certainly appreciate that.
Thank you, Mr. Chairman.
Mr. DUNCAN. Thank you, Mr. Lipinski.
Mr. Schmidt, you said that you caught about 40 percent of your stolen tickets and that you caught $600,000 worth. If that 40 percent and $600,000 was typical, this would extrapolate out to about a $1.5 million-a-year problem for American Airlines. Would that be somewhere close to accurate?
Mr. SCHMIDT. Yes, sir.
Mr. DUNCAN. And you are one of the larger airlines and you say you had 1,000 stolen tickets, but we have heard from these travel agents and based on what they have said, Mr. Hudson is saying that he had 24,000 stolen tickets. Another travel agency that he knows of had 31,000. That is 55,000 stolen tickets just out of those two agencies.
Page 120 PREV PAGE TOP OF DOC
Then Miss Gregorian said she had three or four boxes stolen and it is 1,000 tickets per box. Then she had a friend who had another box that was stolen, and we had several other travel agents from around the country who wanted to come testify.
And we heard Miss Pisa say that the airlines havewe had a little trouble understanding this part of her testimony but she said that the airlines were making money by not reporting all of these, through getting to write off things and so forth. Did you hear her testimony?
Mr. SCHMIDT. Yes, and I don't understand it. I am not in the finance or the revenue accounting area, so I really am not in a position to comment on it. We know of the losses that we have. We document them. How we report them, what we do with them, I don't know.
Mr. DUNCAN. Well, I will say that I think one of the best ways to catch things like this is to give some economic incentive to people to catch them, and I think that is good.
We had a couple of the final panel who said that they thought that if the airlines would just take 3 seconds and type in the number of the tickets into the computer, that this whole thing could be stopped.
Page 121 PREV PAGE TOP OF DOC One of my favorite sayings is that everything looks easy from a distance, and I know that things are very seldom as easy as they look, but do you think we could solve this problem in that way?
Mr. SCHMIDT. I don't think I can sell to American Airlines or any airline to be doing a manual check. I think that if we were to do anything, it has to be an automated check, something that takes away from keystrokes and takes away from looking at the customer, because there are so many obligations that we have put upon the ticket agent right now. He or she goes through 150 passengers loading in 20 minutes, 30 minutes. You have been around the airports. I have been around the airports. It is pretty hectic.
When we identify one stolen ticket, that agent's heart is really pumping because they are not a policeman, they are not a fraud person. They are a person that really are used to dealing with the customer. That throws the whole operation out of kilter. We need an extra person to just devote our attention to the stolen tickets, in my opinion.
Mr. DUNCAN. Mr. Collins, it has been interesting to sit up here because when the travel agents were testifying I saw you a few times shaking your head no, in disagreement with what they were saying. Now you have been sitting up here and I have been seeing some of the travel agents sitting behind you and shaking their head no.
You say or you have given us information that your company had 212,000 tickets and based on what you have told us, not all of those are stolen tickets. That was stolen, lost and misplaced. But as somebody said earlier, there is a real disconnect here, not only between the dollar figures but the tickets, the stolen tickets, because if we got 55,000 stolen tickets out of just two travel agencies in Illinois and then we have a few thousand more out of a couple of Florida, and everybody says this is happening all over the country, how can you take that 60,000 tickets out of four agencies and make that jive with the 212,000?
Page 122 PREV PAGE TOP OF DOC
Are you saying that is just all that you know about? Would you then say that there may be many thousands more stolen tickets that you don't know about?
Mr. COLLINS. If I could answer the question?
Mr. DUNCAN. Yes, sir.
Mr. COLLINS. We stand by the number that we have submitted to the committee. I heard in earlier testimony somebody talk about 2 million tickets. That is just not correct. We accurately record the numbers of tickets. I think the numbers you have heard this morning are based on extrapolation.
And several statements were made that I totally disagree with. Number one
Mr. DUNCAN. Well now, the $2.5 billion may have been an extrapolation but the 24,000 stolen tickets from Mr. Hudson was a specific number and the 31,000 from the other agency was a specific number and that is 55,000 tickets from just two agencies.
Mr. COLLINS. Yes, I was going to come to that.
Mr. DUNCAN. Sure.
Mr. COLLINS. What I would like to say about that is first of all, the 200,000, 212,000 figure we are using, that is an annual figure for 1997. The two events that you heard about, one of 20,000 and one of 35,000, each took place in an individual year, a different year. So they are not both in the same year. So we take Mr. Hudson, his 20,000 is in 1 year.
Page 123 PREV PAGE TOP OF DOC
Mr. Hudson's experience was a unique experience. I don't think we have had any other agency who has lost anywhere near that number of tickets.
So the problem with some of the numbers that are being quoted, they are extrapolations from a single event and they are taking that single event and saying this is happening nationwide. It is not correct because these events we are talking about were taking place primarily in Chicago. They are disproportionate to the rest of the country, so you cannot take Chicago numbers and just extrapolate them across the whole country.
Mr. DUNCAN. Well, the 212,000 number, is that typical? Was that higher or lower than the year before?
Mr. MANNING. The 212,000
Mr. DUNCAN. I'm sorry, Mr. Manning. You will have to state your name for the record, since I did not have you on the witness list and I didn't introduce you.
Mr. MANNING. I am James M. Manning. I am the Director of Field Investigations and Fraud Prevention for ARC.
Mr. DUNCAN. Okay. Thank you very much.
Mr. MANNING. It is my group to which all the travel agencies report their stolen tickets.
Page 124 PREV PAGE TOP OF DOC
The 212,000 ATB coupons which we speak of is a 1997 figure. In 1996 it was 239,000. In 1995 it was 390,000. In 1994 it was 286,000 and then it basically goes down from there. There is no doubt about it. The ATB has become the ticket of choice for the burglars.
But just to try to deal with the numbers, what I am reporting right now is a loss figure on tickets reported to ARC that have a validation date in the year 1997, and that figure will continue to rise because we get delayed reporting anywhere up to 6 months and sometimes a year.
But the figure that I ran last night and the database that we started inputting into after Mr. Hudson's burglary, because it was unique. And I would just like to add there was one other large theft and that was in October in Springfield, Illinois. It was about 31,000. That, too, was really unique.
I can basically open my accounting to anybody from the committee here to look at those numbers and how they are reported. But let's just assume for 1 year the 212,000 coupons. Now, for a travel agency to legitimately issue a ticket, it takes anywhere from four to seven coupons to issue a ticket based on how many legs are in the trip, whether a credit card is used, so on and so forth.
The bad guys don't have to issue seven coupons for a ticket. They can basically get away with two coupons, one for the passenger receipt and one for the flight coupon.
Now, let's assume, and this is an assumption, that that is what it takes the bad guys to issue a ticket. So therefore they have 212,000 coupons. That gives them the ability to write about 106,000 tickets.
Page 125 PREV PAGE TOP OF DOC
Now, in the database that I said was created since Mr. Hudson's burglary, I have 6,534 tickets in that database, and that is as of 2/18. The average loss per ticket in that database is $1,522 per ticket.
Now, if you take 106,000 times $1,600 per ticket, you are talking about a potential loss of $170 million, if you want to extrapolate numbers out. It doesn't in any way equate to the $2.4 billion. And that is dealing with the statistics, the data that is being put into this database.
I, at a later date, can provide to you frequency distributions for every day of the year, again based on what the bad guys put on the ticket. I can provide that from the 6,500 tickets. I can tell you how many tickets. I can tell you how many tickets a day, of those tickets that are reported to ARC.
Now, not all tickets are being reported to ARC. Each carrier, it is at their choice whether they want to report these tickets to ARC or not. We have basically worked hard with especially our stockholders, but we are also working hard with the foreign carriers to try to get them to report tickets.
These numbers, what I have here, of course, the $5 million for 1997, that will go up. If I were to take a wild guess, I would say if it reaches $10 million in 6 months, I might be close, but I don't know because we just started putting that in the database over the last year.
Page 126 PREV PAGE TOP OF DOC I would also like to say that as far as the numbers are concerned, we have the crimes happening; we have a concentration of the crimes in Illinois, outside the Chicago area going down to Springfield. I can show you a frequency distribution of those crimes.
We believe that these tickets are being, within 24 to 48 hours, shipped to the Los Angeles area to the fences that Mr. Yallelus described. And from these fences they are being subdistributed throughout the United States in bulk, by box or maybe by ticket, to a Hispanic distribution and subdistribution network. They are also going into an Indian subcontinent distribution network.
They are also doing to South America. We have had a lot of reporting from Peru where these tickets are being used to transport, as it has been described to me, ladies of the night from Peru to Africa and on up into the Mediterranean.
Mr. Gallagher testified about some of the good cases that the FBI has worked. What he spoke about in New York City was a fantastic case and that was due to the dynamic personality of one and two agents in that area, an SA Rodney Davis and a Steve Coco.
ARC supported that case to the tune of about a quarter of a million dollars, supplying the buy money. American Airlines supplied their technical expertise in teaching the undercover agents how to run a travel agency.
And Mr. Gallagher mentioned a case in Los Angeles, but I would like to say that that case went down in 1989 and 1990. The prosecution of that case was adjudicated in 1995 and again it was about a bust-out. It wasn't about these stolen tickets.
Page 127 PREV PAGE TOP OF DOC
We had 56 burglaries in 1996. I don't know the number of tickets. I didn't get that number. We had 62 burglaries in 1997, but the number of tickets was down; the burglaries did go up. But again there is a concentration in the State of Illinois.
We are starting to believe that one of the thieves, who we know, he has been recognized in these agencies, casing the agency during the day; we know who he is. He has been arrested on prior occasions for travel agency theft in the State of Ohio and recently in the State of Georgia. We know who he is. We now believe he is resident up in the Midwest area. We just don't know where.
And that information has been supplied to the FBI. I met with the INS in Minneapolis here recently and they have two alien registration files on this gentleman. He has an extensive criminal history but yet he is loose. You cannot prosecute somebody for being in an agency the day of a theft. That is one of our problems. These thefts take probably 1 or 2 minutes because they have been properly cased.
I have met with the case agents in Los Angeles. I have met with two rounds of the case agent supervisor. I have met with the assistant director, pleading for some sort of activity.
Now yes, the FBI does work differently than local authorities. They want to get the organized groups. They are not in for the fast arrest, the quick collar. But this has been going on for 4 years, 34 years, in that area. And I am personally frustrated that this has been allowed to proceed.
Page 128 PREV PAGE TOP OF DOC
Private industry can only do so much. The airlines can only do so much. Metro-Dade Police Department has done a fantastic job and there are various elements in the FBI that have done a fantastic job over the last 4 or 5 years, but in different places. In Los Angeles, California we need help and we need it desperately.
Mr. DUNCAN. Well, thank you very much. Unfortunately, we have to conclude this hearing. I don't know. I hope that we have helped by calling some attention to this problem. We have heard figures that go all over the map here, from $34 million to $170 million now from Mr. Manning to $2.5 billion.
I think that the most serious thing is what Mr. Collins said in his testimony. He said that he has reported these problems to theyou say in here, ''As I mentioned, ARC has reason to believe that an organized criminal group operating out of California is responsible for these thefts. If the FBI and the U.S. Attorney's Office were to take action, it is ARC's belief that a significant drop in stolen tickets would result. The leaders of this organization know that we and law enforcement know who they are, and that nothing is being done. They act, therefore, with impunity.''
That is a very serious charge. And it is very unfortunate because over the last several years, we have givenI mentioned INS but we have also given huge increases in funding to the FBI and to the U.S. Attorneys and to the various law enforcement agencies. And if they are just letting people get away with this, then that is a very serious charge. I hope that is not true. And if it is true, then I hope that somebody takes every step possible to make sure that it stops being true.
Page 129 PREV PAGE TOP OF DOC
But I thank you very much for being with us today and that will conclude our hearing.
[Whereupon, at 1:00 p.m., the subcommittee was adjourned.]