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Statement of Robert Chesnut, VP and Deputy General Counsel

Before the House Subcommittee on Crime

Committee on the Judiciary

Regarding Fighting Cyber Crime - Efforts of Private Businesses

June 14, 2001



Mr. Chairman and members of the Subcommittee:


My name is Robert Chesnut, Vice President and Deputy General Counsel of eBay, Inc. ("eBay").  eBay is the world=s first and largest online trading community.  It was founded in September 1995 and currently has over 29 million registered users.  Essentially, eBay=s business is to bring together buyers and sellers from across the United States, and the world, to facilitate trading of goods and services. 


I appreciate the opportunity to testify today about some of the creative steps being taken by private industry to fight crime online and the cooperative approach that we at eBay have found with federal and state law enforcement officials. Finally, I will conclude my testimony with a brief discussion of one problem that eBay believes needs new federal legislation - a criminal prohibition against email address harvesting for the purpose of sending illegal spam.  Such a prohibition, will eliminate another area of cybercrime and make the Internet safer. 

eBay=s Efforts to Eliminate Online Crime


When I first came to eBay two and one-half years ago, I heard many people marvel at what a tough task it must be to fight crime on the Internet, and how the Internet presented so many challenges to lawful business activity.  But what I have come away with from my work at eBay is that the Internet provides law enforcement and private businesses so many opportunities to fight crime with creative solutions, many of which could exist only because of the Internet.  Let me highlight some of the creative measures we  use at eBay that have had a significant  impact in combating unlawful activity on our website.


1.   Our AFeedback Forum@ gives users the opportunity to share  their experiences with other users - every user of our service has a numerical feedback profile available for all to see so that good sellers and buyers are rewarded for fair dealing and bad ones are weeded out for failing to do the right thing. 


2.   Our Verified Rights Owners= Program (VeRO) protects intellectual property owners - it is a highly successful joint effort between eBay and private rightsowners (more than 2,000) as diverse as Adobe, the MPAA, Muhammad Ali and Bruce Springsteen to identify pirated goods, take them off our site and report repeat infringers to law enforcement. 



3.   Our education program teaches users about the law, and explains in plain English why certain items (like prescription drugs, alcohol and tobacco, items made from endangered species) cannot be sold on eBay.  This is a permanent part of our site devoted solely to the law, and we have built it by creating partnerships with state and federal agencies.  We provide free web space to government agencies right on our site to teach users about key laws that might affect their ability to trade, and many agencies, including the Customs Service, the Environmental Protection Agency (EPA) and the Food and Drug Administration (FDA) are using our services.


For example: in early 2000, eBay approached the Consumer Product Safety Commission (CPSC) and proposed a joint project to prevent users from trading recalled goods on the Internet.  Within weeks, the CPSC had a free web page within the eBay site that linked to the CPSC records on recalled products, and users in key categories like baby items, power tools and sporting goods were encouraged to check out their items on the CPSC website before buying or listing them for sale on eBay. 


The result? Amazing -- In the first month, queries to the CPSC recall database tripled, requiring the agency to add new servers to handle the loadYand many consumers were educated about recalled products, a positive outcome for the agency and eBay users.


4.   We have made large strides in improving methods of safe payment for goods and services traded on our site.  We encourage and support third-party escrow services that allow buyers to send money to the service receive the goods from the seller and then release the funds to the seller.   Escrow protects both parties to the transaction.   We have partnered with Wells Fargo Bank in a service known as Billpoint.  Billpointallows users to pay for items with a credit card, even when the are buying items from ordinary people who are not merchants and that could otherwise not accept credit card payments.  This brings the protection of credit cards into person-to-person trading on the Internet. Consumers who pay with a credit card have nearly complete protection against fraud through charge back rights provided by credit card issuers.  Billpoint has already paid significant dividends in the fight to protect consumers on the Internet.


5.   And when things do go wrong (and unfortunately they will go wrong whenever ordinary people do business directly with each other from remote points around the globe), we have devised additional new strategies to assist them.  One important element is online mediation.  eBay played a key role in the formation of the online mediation  industry and its leader Square Trade. Square Trade helps consumers resolve disputes with each other (even in different language from all over the world) with the help of professional mediators online.  This program is subsidized by eBay so that users never have to pay more than $15 to have a case mediated online.  The response has been overwhelmingly positive.  It is cost efficient even for small disputes between users anywhere,  the legal system is not  clogged with these small matters, and users love an independent voice of reason that is often crucial to resolving online disputes.  Square Trade handled over 60,000 disputes in 2000 and nearly 90% were concluded with positive results for both parties.


6.   Similar to the offline world, we have witnessed larger fraud cases involving a number of victims.  eBay has attacked the problem with the creation of our Fraud Assistance Team.  The Teamdevotes themselves full-time to putting victims in touch with the right law enforcement agency who can help them, from Hong Kong to London to New York and California.  We work with law enforcement to get them key records in a matter of hours, not days. We have created electronic victim=s complaint forms that can be filled out online and emailed directly to an investigative agent in a matter of hours.  This is crucial to gathering evidence from many victims around the globe.  Law enforcement is so impressed with the tools we place at their disposal that in the last month, one federal prosecutor in Illinois stated that eBay=s cooperation was Aphenomenal.@ The best he had ever seen from a private company. Another federal prosecutor in Alabama told us last week that without our work in putting a case together, the case would have never been prosecuted.    Most importantly, cases are getting prosecutedYdozens of Internet criminals are going to jail, paying fines and returning money to victims in state and federal cases across the country and around the world.  Each successful prosecution sends an important message that the law does apply on the Internet and particularly on eBay.


7.   And when all else fails, eBay provides a free insurance to all its users through Lloyd=s of London  - if a transaction goes bad, eBay makes good on it, up to $200.  It is  automatic -- no premiums or pre-registration.  For eBay, it is a cost of doing business and takes a lot of the sting out of bad experiences.  How many bad experiences occur on eBay?  Less than 1/100th of 1 percent of all listings on eBay result in an insurance claim payment,. a record we would match with any other retailer anywhere in the world any day of the week.


The Results


Are these creative strategies working?  The latest statistics suggest that these strategies are making a significant difference.  In 1999, the FTC received 13,091 complaints about online auction fraud.  Remember that not all of these complaints are actual fraudYmany of these complaints were resolved by the users after the complaint was filed, or were never fraud in the first place... and not all involved eBay.  During 1999, eBay alone hosted 125 million listings of goods and services.


In 2000, eBay grew at a dramatic pace, hosting more than twice as many listings - approximately 265 million.   But the number of FTC fraud complaints?  They went down, to 10,872Ya remarkable drop, almost 20%, particularly when compared with the growth of the industry.   We are proud of these numbers, and we are committed to introducing new measures to continue these positive trends in 2001 and beyond.

The Need for Anti-Harvesting Legislation


It is worth noting that some forms of cybercrime could be reduced if Congress were to adopt a criminal prohibition against the automate harvesting of email address for the purpose of sending illegal Spam.  eBay users are increasingly receiving illegal Spam, from people who obtained their email addresses illegitimately from the eBay web site. These harvesters are building a growing and lucrative business by attacking popular websites with automated tools that suck in millions of e-mail addresses and spew them out again for use by Spammers.  This parasitic process undermines public confidence in e-commerce, feeds public fears about threats to privacy on the Internet and becomes a breeding ground for fraudulent conduct. 


All of eBay=s anti-fraud activities, outlined above, are undermined when Spammers convince eBay users to engage in transactions off the eBay site. We believe that a cybercrime bill should include a provision, amending the Computer Fraud and Abuse Act, 18 U.S.C. Section 1030, to outlaw the automated bulk harvesting of e-mail addresses for the purpose of sending illegal spam.  Such a provision will guarantee additional protection to America=s online consumers.


Thank you. I am available to answer any questions you may have.