SPEAKERS CONTENTS INSERTS
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47–046CC
1998
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.
(105–53)
HEARING
BEFORE THE
SUBCOMMITTEE ON
AVIATION
OF THE
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COMMITTEE ON
TRANSPORTATION AND INFRASTRUCTURE
HOUSE OF REPRESENTATIVES
ONE HUNDRED FIFTH CONGRESS
SECOND SESSION
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
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HOWARD 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
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MERRILL 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
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ROBERT 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
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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
(Ex Officio)
WILLIAM O. LIPINSKI, Illinois
LEONARD L. BOSWELL, Iowa
GLENN POSHARD, Illinois
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NICK 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
(Ex Officio)
(ii)
CONTENTS
TESTIMONY
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
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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
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PREPARED STATEMENTS SUBMITTED BY WITNESSES
Collins, David R.B
Gallagher, Neil J
Gregorian, Geraldine
Hudson, George
Linares, Nancy
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:
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Airlines Reporting Corporation, James M. Manning, Director, Official Lost/Stolen Ticket Bulletin, December 21, 1996, April 10, 1997, July 10, 1997, and October 9, 1997
Debit Memos
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
(iii)
Yallelus, Gary L., Detective, Metro-Dade Police Department, Miami, FL, chart of the activities of Organized Travel Agency Thieves
ADDITIONS TO THE RECORD
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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:
Letter
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
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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
(iv)
ISSUES RELATED TO STOLEN AIRLINE TICKET STOCKS FROM TRAVEL AGENTS
THURSDAY, FEBRUARY 26, 1998
U.S. House of Representatives,
Subcommittee on Aviation,
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Committee on Transportation and Infrastructure,
Washington, DC.
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.
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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.
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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.
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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?
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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:]
[Insert here.]
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.
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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.
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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.
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No U.S. controlling laws or regulations protect the travel agency—many of which are very small businesses that traditionally have meant economic survival for women and minority owners and employees—from 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.
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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.
Miss Pisa?
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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.
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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.
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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.
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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.
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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 week—good 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.
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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 listed—every 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?
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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.
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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 A–1 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 172–96. 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.
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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 172–96 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.
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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.
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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:]
[Insert here.]
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.
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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.
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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.
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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?
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.
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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.
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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.
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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.
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Mr. DUNCAN. Well, thank you very much.
Mr. Lipinski.
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.
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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.
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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?
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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 world—Europe 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, A–1 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?
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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.
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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 least—I 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.
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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?
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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?
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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.
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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?
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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.
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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.
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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——
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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.
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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.
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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 criminals—thieves or whatever they are—were 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.
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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?
Ms. PISA.
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 please—I 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.
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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.
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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.
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?
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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.
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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.
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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 line—this is my contention—got 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.
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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 figure—you used those words—and 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.
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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 A–1 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?
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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?
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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 box—I have proof from all these agencies that have sent me all their used tickets. Like Gerry Gregorian, she can tell you right now—you 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 be—if they are all used, I would say $6–7 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.
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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.
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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.
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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 it—I'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 as—Mrs. 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.
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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.
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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.
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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.
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.
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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.
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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.
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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.
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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.
[Recess.]
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?
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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.
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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.
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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 th