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Document 6 of 162.

July 25, 2000, Tuesday

SECTION: CAPITOL HILL HEARING

LENGTH: 14266 words

HEADLINE: HEARING OF THE POSTAL SERVICE SUBCOMMITTEE OF THE HOUSE GOVERNMENT REFORM COMMITTEE

SUBJECT: THE POSTAL INSPECTION SERVICE

CHAIRED BY: REPRESENTATIVE JOHN MCHUGH (R-NY)

WITNESSES:

JOHN NOLAN, DEPUTY POSTMASTER GENERAL, US POSTAL SERVICE;

JAMES I. CAMPBELL JR., ATTORNEY AND POSTAL POLICY SCHOLAR, US POSTAL SERVICE;

RICHARD J. GALLO, NATIONAL PRESIDENT, FEDERAL LAW ENFORCEMENT OFFICERS ASSOCIATION;

LOCATION: 2247 RAYBURN HOUSE OFFICE BUILDING, WASHINGTON, D.C.

TIME: 1:00 PM. EDT DATE: TUESDAY, JULY 25, 2000

BODY:
REP. JOHN M. McHUGH (R-NY): Good afternoon, the hearing will come to order.

On behalf of all of us here in the subcommittee I want to welcome you and thank you for being here as we consider our agenda of the 106th Congress.

In 1970 the Postal Reorganization Act redefined the postal service as an independent, self-sufficient establishment of the executive branch. Under this new regime the postal service has become more businesslike in its structure and operations. Although I happen to believe, as most of you I'm sure are aware, that after 30 years the time has come for additional reforms of the 1970 Act. I think by most reasonable measures it has been and remains a success. The postal service has improved its service and efficiency. It is no longer supported by the taxpayer, and it has diversified its operations.

However, the postal service is not a private corporation. It's still very much a part of the federal government, and as it continues its competitive mission questions arise as to how much of its federal power should be employed in market competition.

Of all the trappings of government still held by the postal service perhaps one of the most potent is its authority over the postal inspection service. For over 200 years postal inspectors have insured the sanctity of the seal and have done so incredibly well by enforcing federal statutes that protect the mail, postal employees, customers and assets.

In this capacity the inspection service plays a major role in a wide range of law enforcement activities. The inspection service does a fine job, but there is a potential for conflict of interest between postal management's need to generate revenue and the inspection service's mission to enforce the law.

I first raised these concerns to the Justice Department in 1998 when it was proposed that the attorney general delegate authority to the postal service to investigate violations of various wire and electronic communications laws. I questioned that perhaps this constituted an unfair competitive advantage in the area of electronic commerce.

The department's response on December 3, 1999 contained some interesting observations and raised even more questions. The letter states that although the department believes the attorney general's delegation of the authority was appropriate, some basic questions about the relationship of the inspection service to the postal service remain.

We have made the letter available today for inclusion in the hearing record, but I would like to quote just one section this afternoon. I would ask unanimous consent to include the entire correspondence as part of the record, and without objection that will be done.

Quoting now, "Fundamental questions about the federal identity of the postal service need to be addressed if there is to be any reconciliation of law and policy. Drafters of the Postal Reorganization Act of 1971 apparently did not contemplate the postal service's emergence as a profit-motivated business and did not provide safeguards against the possibility of conflicts between the postal service's goals in managing the inspection service and the law enforcement goals of the federal government.

"Current law also does not address problems of disparity in the federal criminal justice system's handling of crimes against the postal service and crimes against its private sector competitors."

Since the date of this letter the postal service has stepped up its e-commerce initiatives and has touted the security of the inspection service as a feature that sets its products apart from those of its private competitors. It is no doubt true that the inspection service supports valuable protection for consumers, but this sort of marketing raises concerns among private competitors who do not enjoy the luxury of an in-house federal law enforcement agency.

We would never imagine giving Microsoft law enforcement authority over their e-commerce products, for example. Some also suggest we should question the wisdom of giving the postal service that same power.

Control over the inspection service also raises questions about the continued effectiveness of law enforcement. The inspection service is directed by postal management and reliant upon postal revenue. Although the postal services is financially secure today, the postmaster general has warned us in this subcommittee that lean times will soon arrive. If this comes to pass the postal service may not be able to adequately fund the inspection service. And even when funds are available, the very fact that the postal service has a financial interest in the priorities of the inspection service can raise the perception that such priorities are not driven solely by law enforcement concerns.

A conflict of interest exists, and we must decide what if anything should be done about it.

Some solutions have already been proposed. For instance, Congress could enact legislation transferring the inspection service to another executive agency with law enforcement responsibility. Others suggest that the inspection service jurisdiction shall either be great expanded to equally protect private postal delivery and express services or radically reduced to cover those laws directly related to the postal monopoly.

I want to emphasize that the purpose of today's hearing is not to take the inspection service away from the postal service, although that is an option that has been proposed. Our objective today is simply to explore in the light of day the relationship between the postal service's competitive agenda and the inspection service's law enforcement mission. It is my hope that this will be the first step in an open policy discussion on what I believe is a very serious issue.

I thank you all for being here today.

With that, I'd be happy to yield to the distinguished gentleman from the great state of Philadelphia -- a place I'm looking toward visiting in the next several days. The ranking member, Mr. Fattah.

REP. CHAKA FATTAH (D-PA): The location of our first postmaster general of the first post office of the country -- Philadelphia.

Let me welcome our panelists and I'd particularly like to welcome both the deputy postmaster general and Kenneth Weaver who has recently been appointed as the chief postal inspector.

This hearing is an important one. I think the subject matter as outlined by the chairman is one appropriately ripe for comment. It is true that there are competitive features to the postal service of today.

I would also say, however, there are many areas in which the postal service does not have competition and as it's responsibility to provide universal service and to have over 40,000 post offices around the country, in those areas it is not a matter of competition that drives the postal service, but public service.

I want to just welcome you all here today. I look forward to your comments.

Thank you.

REP. McHUGH: I thank the gentleman, as always, for his participation and his support and leadership.

We're also pleased to be joined today by the gentleman from the great state of Ohio who's been a very active, one of the more active members of the subcommittee on these issues, and we're pleased he's hear, and I'd be happy to yield to Mr. LaTourette if he has any opening comments.

REP. STEVEN C. LaTOURETTE (R-OH): I don't have any opening comments. I'm looking forward to the hearing and I appreciate the opportunity to speak.

REP. McHUGH: I thank the gentleman.

Most of you are aware that the full committee procedure and rules requires all witnesses to be administered an oath, so if you gentlemen would be so kind as to stand and raise your right hand.

(Witnesses sworn)

REP. McHUGH: The record will show that all members of the front table, all five, answered the oath in the affirmative.

With that, let me formally introduce and welcome our panel members today. Reading, I guess, from left to right, I'm hoping that's how they're lined up here.

We're honored and pleased to have Mr. John Nolan who is deputy postmaster general, and who is accompanied by Mr. Kenneth Weaver who is the chief postal inspector. Gentlemen, welcome. Thank you for being here.

Next we have Mr. James Campbell, Jr., an attorney, a scholar, a postal policy scholar particularly, and if any of you doubt that, I suggest you may want to pick up his testimony and read it in its entirety as I did. I think you will agree that he's fully deserving of that title.

We're also honored to be joined today by Mr. Richard Gallo who is national president of FLEOA, the Federal Law Enforcement Officer Association. He is accompanied by Mr. Gary Eager, the FLEOA agency president of the U.S. Postal Inspection Service.

Gentlemen, thank you. Mr. Eager, particularly, we appreciate all the effort and cooperation you have given to this subcommittee on a wide range of issues, this one included. We're looking forward to all of your testimony.

I have, as I mentioned, read the testimony. As you know, we do try to ask the witnesses, to the best of their ability, to summarize that for presentation here. Without objection all of your testimony will be entered into the record in its entirety, and we look forward to your comments.

With that, perhaps we should proceed as we introduce Mr. Nolan. Thank you again for being here.

MR. JOHN NOLAN: Thank you, Mr. Chairman.

The postal service and the mail system have been important to the growth and prosperity of this country. The growth and development of a nation's mail system is inextricably interwoven with that of the postal inspection service. As such, it's difficult to envision a postal service that does not include the fundamental inspection service function as it's existed in one or more forms for most of our history.

We find ourselves to a certain extent the victims of our own success in carrying out the legal mandate to maintain an inspection service to ensure the sanctity of the mail and the security of our employees. We believe that success is in sizeable part a direct result of the historic integration of inspection service operations into the fabric of the postal service.

Trust in the USPS and the inspection service was created as part of a law. It occurred over time as a result of a lot of hard work. Inspectors live and breathe the mail. They understand the workings of the mail system and the interplay of its parts as no other security or law enforcement agency could. Yet they maintain an independence of operation that is essential to carry out its mission.

Some feel the success of the American people and our employees have benefited from causes the postal service to have an unfair advantage in the commercial marketplace. We believe the major benefit of the inspection service lies not in the marketplace but in its support of congressional oversight for the mail and universal service. From consumer fraud to child pornography to physical security of property, personnel and the mail. The inspection service has been an effective agent for ensuring that the will of the Congress and the American people is reflected in the conduct of the nation's mail service. And mailers pay all the costs to maintain this function.

As communications in this country expanded to a new medium called the internet, the postal inspection service is ensuring that the same protection of postal property and operations and the same trust and the sanctity of information and trust that the postal service has maintained. To do less would be a disservice to the people of this country, in our opinion.

The issue of most importance is not competition. It's the privacy, security and trust in the way Americans are able to communicate through their postal system. The current structure and operation of the postal inspection service helps make that requirement a reality.

REP. McHUGH: Thank you very much. We appreciate that and appreciate your comments.

Mr. Weaver, the agenda does not call for you to make a formal statement, I think you're aware of that, but we appreciate your being here, and I'm sure there will be questions that we would want you to respond to, and even if we don't, you should.

MR. KENNETH WEAVER: Thank you.

REP. McHUGH: Great. We'll get back to you.

I think it would be wisest to just proceed through all of the opening statements and then we can just open to general questions.

With that, Jim Campbell would be next, sir.

MR. CAMPBELL: Thank you, Mr. Chairman, and members of the subcommittee. Thank you for your kind remarks, Mr. Chairman. Probably uncalled for, but anyone who goes through the footnotes is entitled to say his piece.

As you know, I've been counsel to the private express companies for about 25 years, almost since they first started. In my statement I tried to give you a sense of how, from a private express standpoint, we have looked at the activities of the inspection service as they affect us.

I say in my statement a couple of introductory comments which I'd like to emphasize.

To the extent that there are any problems identified, I don't feel that the problems lies in the administration of the inspection service itself. In my personal experience, I've never had an instance in which I felt the inspectors were acting in an unreasonable or unfair or improper manner.

I think the problem lies more within the institutional framework in which they operate, as I've tried to make clear in my statement.

Secondly, I am very well aware that the enforcement of the monopoly is not the main task of the inspection service. The inspection service has maintained the security of the mails for, as you say 200 years, and this is a public service that we've all benefited from, and I wouldn't want my statement to suggest otherwise.

What I've tried to do in our statement is to give you some of the details of the history of our relationship with the inspection service over the last 25 years, but also the benefit of the legal research that we've necessarily done to try to understand what's going on. So that's why all the footnotes.

As nearly as I can tell, the search and seizure power, and that's what we're talking about. We're talking about the use of government power here against private competitors. That power was given to the postal service first, the post office department, in 1872 -- almost, certainly without debate and without any clear intent.

As nearly as I can tell, the administration of this power vis-a- vis private competitors was not a major issue, was not a controversial issue all the way through the life of the post office department through 1970. There are very, very few cases, very little controversy that I've discovered.

The real problem arises in the 1974 postal monopoly regulations which were adopted by the postal service and which really were different in kind from anything the post office department had done.

As I was writing this statement I did not really intend to focus on these regulations, but the more I got into it and the more I thought about all this past history that I remember, the more I realized that really it was those regulations that put the inspection service in the business of harassing customers of private express companies. For two reasons.

First, those regulations take such a complicated view of the monopoly that the regulations depend upon administrative enforcement for their effectiveness, and hence the inspection service has to enforce.

Secondly, the regulations by their nature are very intimidating, very coercive. They basically tell mailers you have to cooperate with the inspection service regardless of what you think is reasonable, regardless of what you think the law is, or you may face some serious consequences. So mailers have cooperated much more, perhaps, than they wanted to.

I think that if you look -- and I certainly won't go through it, but if you look back at the history of what's gone on, and I can give you much more documentation if you've a mind to, but if you look at the history of the last 25 years I think it's fair to say that the, not the inspection service, I don't want to say that, but the investigative powers of the postal service have been used in a manner which intrudes upon the mailers and the customers of private express companies to a greater degree than Congress envisioned or probably authorized.

I think it's fair to say that the effect of this has been to work against what at least in retrospect was sound public policy, a certain desirable level of competition.

I think that there is, nonetheless, some merit in the position argued by the postal service, that after all, the postal service is only using the tools given them by Congress to do the job that Congress has mandated -- protective revenue, universal services.

I think really what's implied here is a need for Congress to clarify some of the aspects of the institutional framework, and I have four suggestions that at least I've come to in thinking about this.

One is the monopoly is far too complicated today. It would be highly desirable to simplify the monopoly so it does not depend upon so much administrative enforcement. This is not so complicated. Many other countries have done so. H.R. 22 has a proposal along these lines that would pretty much do it.

Secondly, I think the enforcement of the monopoly ought not to be committed to somebody that has a commercial interest. This is just fundamental fairness. I think that enforcement of the monopoly could be committed to the Department of Justice; I know Treasury is another possibility, but somebody other than the postal service itself.

This could be done either by taking this small function out of the postal service or by moving the inspector's office. I have no particular opinion on that, but I think the postal service ought not to be enforcing a monopoly.

Thirdly, I think the administration of the monopoly, that is to say the rulemaking power, ought not to be handled by the postal service either. I think that with a simplification of the monopoly you have much less need for rulemaking, for administration. But nonetheless, the residual function ought to be handled by somebody impartial. The Rate Commission is the obvious candidate; Justice is another possibility; FTC is even a possibility. But somebody other than an interested commercial body.

Lastly, you raised a point in your opening statement which is a problem that has emerged over the last couple of years. To some degree there seems to be a potential for the postal service to say our exclusive access to the inspection service, to the police power of the United States, gives us a commercial advantage. We have the only really secure e-mail because our e-mail is protected by the inspection service; or we have the only really secure parcel service, or whatever it might be. That would seem to be obviously inappropriate.

The enforcement authority of the United States should not be a commercial chip [ph].

Resolving that problem is not so easy. I have no simple answers to that. As you mention in your statement, you might commit the inspection service to the job of watching all letters and parcels and moving them to another agency; you might limit the authority of the inspection service to just deal with the non-competitive aspects of the postal service's business.

I think this is a matter that does deserve some attention. It is a matter that is of some concern to private express companies. But as I say, I have no simple, ready solution.

Thank you, sir.

REP. McHUGH: Thank you very much, Mr. Campbell.

We next have Mr. Richard Gallo, the president of FLEOA.

MR. RICHARD GALLO: Gary Eager will be reading our statement.

REP. McHUGH: Oh, whose statement will be ready by Mr. Eager.

MR. GARY EAGER: Thank you, Mr. Chairman, and distinguished members of the subcommittee. We appreciate being invited here to discuss the various aspects if the postal inspection service and the direction we feel it's taking, discussing the potential of moving the inspection service to another branch of, the executive branch of government.

We believe if there's any type of move to the executive branch of government we should factor in the direction the service is taking today and the competitive aspect of complaints that are generated by other companies that we're in an unfair advantage.

We believe that right now in terms of where we're headed, that the inspection service is having some difficulty in obtaining the resources -- both fiscal and personnel resources -- to accomplish our mission. And of course our membership is very sensitive to the, I would refer to them as allegations of unfair competition which FLEOA would see as crime prevention and doing out job which is invested with us.

Since the Postal Reorganization Act, technology and competition has advanced such that the postal service is changing. They're in a quasi-business environment which is requiring them to deal with monetary issues. And based on statements made recently by our postmaster general, we're having projections of reduced revenue. As such, the postal service is having to look at areas, like any business, to cut overhead.

FLEOA feels that sometimes it appears that the inspection service is being seen as overhead. Examples of that would be our lab personnel. Our lab personnel have been trying to get pay comparability since I believe 1995. It was recently denied by the postal service. As you can imagine, our crime labs are the very foundation of some of our investigative efforts.

Prosecutors don't care about the internal politics within the postal service and the competition. They want lab results to proceed with a prosecution.

In addition to that, our allocation of resources has come into question in that we have not had a significant increase in resources since 1975. I believe we had 1700 inspectors in 1975, and today we have an authorized complement I believe of approximately 1900.

When you look at our complement and the way they're allocated it creates some concern for FLEOA in that we don't know, there's not been a level of service study done since 1994. The only thing we can say about our complement is it's merely a historical number. That is a great concern.

When the OIG was established, some of those resources were actually pushed over to the IG, but this was done, again, without a level of service review to see what was needed.

I wrote the chairman of the board of governors a letter back in March of '99 expressing our concern that resources would be diverted to the IG at the detriment of our public service obligations and I received a response back that this was not going to happen when in fact we believe it did happen. Those were concerns with regard to resources, and the perception that we feel like sometimes we're being dealt with as overhead, and it's at the detriment of the public.

The inspection service exists, goes back to our very history, for the sanctity of the mail. That is our primary task. When we question how resources are being allocated or do we have enough to do our jobs, it becomes questionable when we haven't had a level of service review for that many years.

An example of that would be our mail fraud program where we've had a reduction of approximately 25 percent commitment from 1992 to 1999. There are other agencies working mail fraud, as well they should. But that doesn't diminish our responsibility to be aggressive in that area.

Last I'd like to say that when discussing moving us to the executive branch of government, FLEOA believes this issue obviously should be debated, but that privatization or moving us to the executive branch of government with the postal service moving towards privatization -- Every time I read the paper, I read where they say we're having a reform, privatization, but there's no mention of the future of the inspection service. I submit that the inspection service has a role, has always had a role, and will have a law enforcement role in the future.

Sanctity of the mail and an individual's privacy should not be done away with because of privatization. We can maintain a mail stream and enforce the laws that we currently have. If anything, we should expand our jurisdiction to incorporate that possibly with other carriers in the postal service in the future. It's a concern. We don't have all the answers, but we see ourselves going down a road and our future looks questionable.

I have no answers with regard to competitors. We as postal inspectors have no competitors. We're just simply cops trying to do our job and our public service role.

Thank you.

REP. McHUGH: Thank you, Mr. Eager.

Rather than start a line of questioning, as I predicted, the votes have been called. We have one 15 minute and two five minute votes. If you can bear with us we'll try to return as quickly as possible.

So we'll stand in adjournment until we return.

(Recess taken)

REP. McHUGH: With the permission of the minority, we will begin to get into the question period.

I appreciate all of your patience.

When I first looked at this issue, I kind of felt like the Sunday night dinners where I'd look down at my plate and there would be a nice helping of mashed potatoes and next to it would be harvard beets. Some of it seems very palatable and others of it less so.

But I think we need to talk about the framework that exists today, and I would start with Mr. Eager.

To what extent does the administrative side of the postal service work with you folks to define where you ought to be directing your objectives?

You mentioned in your testimony a 25 percent cut since I believe you said '92 on the allocations directed towards mail fraud. To some of us, that seems like an ill-advised or perhaps inappropriate reallocation of resources.

Do you get to discuss that with Mr. Nolan and others as to how you can best allocate what's -- in a government setting there's always going to be limited resources.

MR. EAGER: I would think that would be more appropriate for Chief Weaver to answer.

REP. McHUGH: I'll get to him.

MR. EAGER: We don't, as FLEOA, we don't discuss resources at all with management in terms of what's needed.

REP. McHUGH: If I may, I don't mean to interrupt you, but let's take away the resource question, the dollars. That's a budgetary activity. That's an administrative function.

But do you talk about the categories of your oversight responsibilities? We ought to be looking more over here than over here, and that kind of thing?

MR. EAGER: It appears, like I said, that our history instead of an allocation of resources -- We had a level of service review in 1994, and to look at the placement of postal inspectors throughout the country and basically what they would work. But in essence, this was merely a reallocation of resources. It was a very closed universe as to applying resources to where they should go.

What we believe is sorely needed is a current level of service review to take in demographics, crime rates, volume of mail, number of employees, and examine that to determine a baseline for the number of people we need in certain cities.

REP. McHUGH: Did you feel the '94 review, forgetting the limited resources. I understand your point there, but given the available resources, was it a fair review and an effective one?

MR. EAGER: It was, based on the tools they were given. I believe, this is my opinion, they went into it knowing this was merely a reallocation. It was just -- And there had been a trend of a lot of the hours going towards revenue protection during that period of time under the previous administration.

REP. McHUGH: Mr. Weaver, at the suggestion of Mr. Eager, which I think was a sound one.

To what extent are you provided the opportunity to work with Mr. Nolan and others to talk about that allocation of resources and where you're directing your attention?

MR. WEAVER: I thank Mr. Eager.

But we have ongoing discussions about where we are directing our resources, but for the most part, once we have an established budget, we determine where to prioritize our work and where to allocate those resources. It's true that between the years of 1992 and 1999 there was a reduction of hours devoted to our fraud work, but I think you need to take a look at more than just the raw numbers to determine what happened. It did not mean that we deemphasized our fraud work, and it certainly didn't mean that we did not accomplish the work that we set out to do because I think our results are pretty impressive in the fraud area.

What it did mean was that each year we have to prioritize our work and devote our resources where the action is. That could change from year to year.

During that span of time, as you're probably well aware, Mr. Chairman, we had some situations happen in the postal service where we had to divert resources maybe from our fraud work to things like assaults and violence in the postal service, which was very important.

So there's elements like that that come into play. There's also elements like working on interagency task forces where we find it is more beneficial to work with other agencies than merely taking out on our own and working certain investigations. That may result in a reduction of hours, too.

The fact of the matter is that during that timeframe our work hours have increased over that time period from about five million work hours to 5.2 million. So there's been a shift in hours from within our work.

REP. McHUGH: Fair enough.

The case has been made by those who feel very strongly that the services is being inappropriately directed, that in fact more and more of the inspection service work has been directed, and I suspect if it's true, not by the service itself, but directed toward revenue assurance. In fact I believe I just heard Mr. Eager say that one of the outcomes of the '94 review was to emphasize that. There may be good reason for that.

Do you agree with that assessment that that has happened factually, number one? And number two, if it has, doesn't that call into question the utilization of the service for the number one priority in terms of preserving the field, as we say?

MR. WEAVER: As far as whether I agree that there was a shift, there was a redistribution toward revenue protection. To some degree, that is valid, to where we look at the protection of the revenue and the assets of the organization. I think that's what we're entrusted to do. So to that extent, there was.

You also have to look at the time period that we're talking about.

During that time period the inspection service was also performing the role of the inspector general and was performing audits and audit-related activity. So I think some of the work that was done in the revenue assurance area was a mere extension of that audit work that we performed.

Since then, at least since I've taken over the organization, I'm dedicated to refocusing our mission and refocusing our efforts to what our mission is, and that's the protection of employees, our assets, and ensuring that the American people have confidence in using the mail system.

REP. McHUGH: And I appreciate that. I want to underscore right here nothing in this hearing is in any way intended to call into question our abilities, and in fact I would note that in the full testimony of FLEOA they very appropriately and right at the onset of their testimony, their full written testimony, attest to your professionalism and your approach. So I commend you for that.

Mr. Nolan, I obviously I'd like to have you respond to the conversation we just had. But If you look at the budget allocations for the inspection service since that review in '94 in its entirety, I think it's fair to say the budget increases have been incremental. I suspect mostly a reflection of pay adjustments.

You heard the comment from Mr. Eager that he has concerns that the administration views the inspection service, I think the phrase used, was overhead. Would you care to respond to that? And why, in an era when you definitely have the postal service into new endeavors like e-commerce that I don't happen to personally believe is in any way inappropriate, why we haven't seen a commensurate expansion of the inspection service? In fact, the current plan calls for a diminution of another 125 agents and such. what's the rationale behind all of that?

MR. NOLAN: There's a couple of things that come together here. Number one, the 125 agents deals with audit work, which has now been transferred to the inspector general's function. So that work that was done by the inspection service now will be done by the inspector general. So that's really a separate issue.

I think when it comes to resources in the inspection service, the postal service has had lean times before. When you're structured to break even, almost every year is a lean year. And we feel very strongly that the mission of the postal service and the need to maintain security is paramount.

As Ken Weaver said, we don't control what the inspection service works on. They do what they feel they need to do to accomplish that mission.

I think some of the numbers that were raised before are a little bit off. In the '70s it was said there were 1700 postal inspectors, now there's about 2100 postal inspectors. So that growth of 20 percent is certainly a reasonable growth given the fact that the number of employees that we've got has certainly not grown that much during that period.

I think that from the standpoint of management, the inspection service needs to be independent in the way it operates, meaning that it needs to make its decisions about where it needs to put its emphasis. That shouldn't be done by management dictating, and is not done that way.

I think the key thing, though, is their involvement in every aspect of the postal service to know where to place their emphasis to be most successful is the key thing, and that's where the current structure I think serves us so well.

REP. McHUGH: Thank you.

Jim Campbell. The point I'm trying to explore here is that any time you've got an activity like the postal service it seems not just logical, absolutely essential, that there be a level of coordination between the administrative function and what they perceive to be the shortcomings, the challenges, and the direction of, in this case, the inspection service.

To what extent do you think that's important, number one? Number two, when you have a proposal, as we do several, to move it to another agency whether it be Treasury or wherever, Justice, is that coordinated effort not lost, and is that a problem?

MR. CAMPBELL: From the standpoint of the private companies, we don't want to see, of course, the inspection service being used as a commercial tool, that is as part of commercial policy. We don't want to see coordination for commercial ends.

As I say in the statement, we did notice, and we didn't know why, but we did notice in '92 and '93 an increase in visits by postal inspectors to competitors of, to the private express companies. So I just, now maybe this in fact was a result of the '92 review. I don't know.

REP. McHUGH: It was a' 94 review, though. Maybe they were getting ready for it. (Laughter)

MR. CAMPBELL: I certainly -- You're talking about larger issues that I certainly can't comment on in terms of commercial policy. Certainly we would not like to see such coordination.

REP. McHUGH: You say for commercial interests. When you say that to me I'm thinking the ad that was used that in fact very directly touted the fact that the postal service's e-commerce initiative does have the inspection service guarantee, if you will, behind it. That's one thing.

Are there other phases of that that concern you for commercial purposes?

MR. CAMPBELL: People forget what happened not too long ago, but in the mid '70s, I remember it very well, the express companies were just struggling entities. They were just starting out. There was no question that the postal service was afraid of the express companies and tried to stop them from developing. The inspection service was very active. It was presumably coordinated all the way up to Mr. Bolger. But I don't know the details of internal postal management meetings. I just don't know. But that doesn't really matter now.

The express companies are today being successful and it's not so much of a threat. But e-commerce is another new developing area. You certainly would not want to see that sort of use of the police power to stop a new industry.

REP. McHUGH: Mr. Nolan, do you want to respond to that?

MR. NOLAN: I find it very hard for anyone to believe that the postal service was highly successful in killing the industry that we're supposed to have been attacking. United Parcel Service made $700 million last quarter. So if we set out to do it, we did a very poor job of it.

I think the fact is that in conjunction with audits in the past, there were identifications of areas where, whether it's in revenue protection or monopoly that the inspection service emphasizes. That is not part of their role at this point in time. It has been shifted, the audit function has been shifted to the IG.

At its peak we had two people in the country that were involved in monopoly-related issues.

The fact is that we did not have an appreciable impact on that industry. The fact is we are not trying to kill the internet industry for the competition. This is not about competition. This is about effective law enforcement.

When we, in our ads for e-commerce, what we will be touting, what we are touting, is the fact that the same trust and security that you have with mail, you would have with the postal service on the internet. We're not touting federal agency, we're not touting the inspection service. To the extent that people feel strongly that by doing business with us they're dealing with a secure agency, I think we ought to be congratulated for that. But we're not touting the fact that it's the inspection service.

We don't feel -- We feel there are a lot of technical issues involved in security. We also feel there are laws and policies that we have that private companies don't have that are as important in some respects as the inspection service role in those areas. Frankly, we don't sell lists. We've been maintaining for this nation names and addresses of people who move forever. People know they can trust us in that space.

I think the issue here really, though, for us and the inspection service is not competition. It's effective law enforcement.

MR. CAMPBELL: I just want to clarify one point. I certainly did not mean to imply that I was suggesting the postal service is doing to anybody what they were trying to do to us in the late '70s. I have no reason to think so. It's simply a danger that we should learn from history, that's all.

REP. McHUGH: I understand. Thank you.

The gentleman from Ohio, Mr. LaTourette?

REP. LaTOURETTE: Thank you, Mr. Chairman.

Mr. Nolan, just to follow up on your last answer. Isn't it implicit, though, in that kind of advertisement that you're almost saying that your stuff is safe? That's what you want people to believe, that your stuff is safe, and you don't say necessarily that others aren't safe, but implicit in that statement is why is your stuff safe, and isn't it safe because of the ability of the postal service to rely on federal law enforcement powers to ensure its safety. Which you don't have to say inspection service, but isn't that implicit in that observation?

MR. NOLAN: I think what I hope is implicit in that whole thing is a range of things. Part of it is that people know we're not going to sell lists, unlike other companies that are doing this for profit; or when they go out of business the last thing they do is to sell the list to someone else. So I think we imply a lot of things by those ads, but basically what we're saying is whatever causes you as an individual to feel good about dealing with the postal service, you can continue to feel good about the postal service because we're there.

REP. LaTOURETTE: Mr. Campbell, in his opening statement Chairman McHugh reference a letter that was written by a deputy attorney general, Mr. Rabin, who is well known to the full committee because of his work on other matters recently.

But the second page of that letter, I just want to read you an observation that he makes and invite your comment on it.

Relative to your written testimony that talks about maybe some of the competitive problems, and the specific quote is "Current law also does not address problems of disparity in the federal criminal justice system's handling of crimes against the postal service and crimes against its private sector competitors."

That's the one argument I suppose that he's making. Others make the argument that well, if a crime is committed via a private parcel service you have access to police officers, you have access to internal security measures, you have access to the courts.

Is there any observation that you would like to make relative to Mr. Rabin's comment?

MR. CAMPBELL: I think that the Department of Justice has put their finger on the problem, but I don't know how big the problem is.

I do think it's true if you read through Title 18 of the U.S. Code, you'll see there are lots of laws that protect the postal service, the property of the postal service, the employees of the postal service, that don't apply to private companies.

The position of the private companies certainly would be that where the postal service competes with private companies, the laws should apply equally to everybody. It's just a simple matter of principle. It's not that the postal service should be less protected, but the safety of a FedEx or UPS driver is no less important than the safety of a postal service worker. That's simply their position.

So H.R. 22, as you know, provided for an overall review by I think it was BFPC in the last version, of the laws to just identify these differences for Congress to make a judgment on it. I think it's a good idea.

REP. LaTOURETTE: Thank you.

Mr. Nolan, I have a couple of questions that don't relate to the specific topic of this hearing, but they're a concern to some of the folks in Ohio relative to our state law relative to charitable mail versus the postal service's rules and regulations. Specifically, Ohio's one of I think 12, 13 states that has a requirement that people involved in mail solicitations for charity one, we require you to have a professional fundraiser; and two, there needs to be a contract in place between the charity that seeks to do it saying they're going to give some money back. The fear is that these solicitations go out and none of the dough comes back to the charity. So we have the particular problem with everybody likes police work and police athletic leagues, for instance, but when you peel back the onion we find out none of the money goes to any kids or police agencies.

Is that a problem that you're familiar with, the disparity between the postal service regulations in that regard and a potential conflict with state laws?

MR. NOLAN: I personally am not, I'm sorry. But we can certainly research that and get back to you on it.

REP. LaTOURETTE: That's what I was going to ask you, to not hog up the purpose of this hearing. If I gave you a couple of questions in writing, can you get back to me on that?

MR. NOLAN: Immediately.

REP. LaTOURETTE: Thank you.

Thank you, Mr. Chairman.

REP. McHUGH: Thank the gentleman.

REP. McHUGH: Inappropriate, the word is in the eye of the beholder oftentimes, kind of like beauty. And we've heard that word quite often here today.

Let me ask Jim Campbell, in your opinion, do you believe that the postal service has the legal authority to regulate in areas in which it also competes?

MR. CAMPBELL: No.

REP. McHUGH: You do not?

MR. CAMPBELL: But they exercise that authority.

REP. McHUGH: Pardon me?

MR. CAMPBELL: But they exercise that authority, nonetheless.

REP. McHUGH: Obviously.

MR. CAMPBELL: The postal service, monopoly regulations tell the private express companies you have to charge at least so much. They have a certain set of rules about how you conduct a business. There are provisions about how you have to open your books to inspectors. There are provisions that provide that if you do not abide by the regulations they can in essence suspend your right to operate -- that is withdraw the administrative suspension with respect to a given private express company or a given customer.

So in essence it's pricing entry regulation.

Do I think that Congress ever gave them that authority? No, I don't. The postal service's basis, their claim to that authority, the suspension power, on a 1864 law which is now 39 USC 601(b). I think if you go back and look at the history of that law, I think it's perfectly clear that they do not have such authority.

Now this has never been tested in court so it's a difference of opinion, but that's certainly my opinion.

REP. McHUGH: That's what we asked for.

Let me ask you another opinion. Given what you've just said, do you think there's any legal validation in their activities on e- commerce and on a competitive product, as represented in the MOU that was executed between the inspection service, the FBI and the Secret Service? Does that fill the gap, in your opinion? At least in that area?

MR. CAMPBELL: Mr. Chairman, I've spent -- When I say -- What I have to say about 601(b) and the suspension power is a result of a lot of time at the library, and some of it in the archives of the United States.

I have not spent so much time on the e-commerce memo of the attorney general. I know what you're talking about, but I just don't know enough about it to really make a comment.

REP. McHUGH: Fair enough.

Mr. Nolan, do you want to respond to your illegal behavior? (Laughter) Alleged.

MR. NOLAN: I think we're very legal.

Obviously I think what Jim Campbell said is right, there's a difference of opinion there.

I do think that we're focusing on an area where the postal service, as I said, spends typically less than one person a year working on. It is not a major activity that we undertake, monitoring the private express statutes.

The private express statutes do not pertain to the internet, so I don't think that's particularly relevant.

I do think that what we're trying to do on the internet is offer choice. In that choice, a lot of features. We're not trying to set standards, we're not trying to preclude competition, we're trying to satisfy customers and maintain the viability so we can maintain our universal service.

I think it's, some of the issues that related to private express statutes and hard copy mail and the couriers, we could probably debate forever but I don't think it's relevant to the issue that we're facing with e-commerce, and I don't think it's an issue that's an ongoing issue for the postal service and any industry right now because we're not actively enforcing it. We don't have problems in that area.

MR. CAMPBELL: Mr. Chairman, excuse me, but I really have to comment on that one point.

So far as I can determine, and I certainly have not made a systematic study. It's true that the postal service has not been spending a lot of resources enforcing the postal monopoly regulations, since '94, since the postmaster general made that statement to the Senate committee.

However, that is not what's going on in real life. What's going on in real life is that the regulations are federal regulations that are embodied in the code of federal regulations, and that has a real effect on people.

If you go to a business and say I have a very good service and I would like to offer you this delivery service, they look it up in the code of federal regulations, and it says you can't do this. That chills the business significantly.

Very large businesses are affected by that.

The fact that they do not make a lot of calls on customers doesn't change the fact that those regulations affect the business. And if the regulations are not meant to be enforced, they should be withdrawn. If they're not legal, they should be withdrawn. Those regulations are a serious problem.

MR. NOLAN: And I think that the chairman knows our feelings, as are his, that the laws governing the postal service need to be changed. We need postal reform. I don't think that anyone in their wildest dreams would say that the postal service is on the advantageous end of a level playing field given the restrictions that we have. I don't think anyone would trade places with us with the restrictions that we have.

I think to remain viable and to maintain universal service at reasonable prices and recognizing what's going on in the industry and throughout the country and the world, change needs to occur. I think it's dangerous, though, to start picking out individual bits and pieces of that and I think it makes more sense to do the kind of thing that you have undertaken, which is to look at the whole system and try and see what changes need to occur.

So we're not protesters for no change. In fact we want change. But in this particular issue I think picking out one individual piece of that is just not an acceptable way of approaching it.

REP. McHUGH: And I fully understand that. In fact we could win if we had a vote on the broader issue today, if I can still count.

MR. NOLAN: You get the yellow jersey.

REP. McHUGH: Yeah.

But nevertheless, with full respect of what you say about picking, the purpose of the hearing is to do just that, and we're going to continue a little bit further, if we may.

Jim Campbell made a series of suggestions, some of which have been supported in stance by others. For example, narrowing of the monopoly to serve as a way by which to take care of some of these competitive concerns.

Mr. Eager, how would FLEOA respond to a suggestion, a proposal to narrow the monopoly and contain yourselves to that function?

MR. EAGER: Mr. Chairman, we sit back and we hear everyone talking about privatization and the future. We're a law enforcement agency and our memberships are federal agents, and the very root of what we do is arrest people and pursue prosecution for people that violate statutes on the postal laws.

When we hear talk of monopoly or this and that, what our concern really goes back to is the sanctity of the mail, the very root of the reason we exist.

We're attached to a quasi-business, quasi-government entity. The inspection service is government, was meant to be government, yet when I hear the conversation from the business aspect of it, it has very little law enforcement meaning to me.

But I do know what the intent was when we were formed by our forefathers, and if they were here today they would tell all of us that anyone should be able to mail something and there should be a expectation of privacy, and if it's taken, someone should get them.

REP. McHUGH: How would you react to the polar opposite of that proposal, and instead see your jurisdiction expanded to cover the private side of the equation as well?

MR. EAGER: I think time is going to take care of that. I think Congress, I think the way the postal service moves in the future, the technology, competition, I think it's going to move us in that area. At some point there will probably have to be consideration to move us under the executive branch of government. Again, taking the route back that people have an expectation of privacy in their mail. And I believe I said earlier, if it does move towards privatization reform, that shouldn't negate our responsibility to the public to make sure that privatization doesn't interfere with their expectation of privacy.

MR. GALLO: Mr. Chairman, if I could just mention --

REP. McHUGH: Mr. Gallo.

MR. GALLO: The deputy postmaster general has mentioned how they have to break even at the end of the year. Federal law enforcement sometimes doesn't break even. We're not a profit making organization. If it takes several million dollars to track someone down, that's what it takes, that's what's done. Postal inspectors are fed by cops, and sometimes law enforcement is not a profit making industry. It's not meant to be.

REP. McHUGH: Uh huh.

MR. EAGER: And Mr. Chairman, we're concerned about the nuts and bolts of things such as our labs. They're a very integral part of the inspection service, and the fact that we have been trying to achieve pay comparability for them since 1995, and that was denied -- I understand there was an OIG report came out, I haven't read the report, but that it recommended it, and it was denied without what I believe to be consideration of that report.

What we're talking about here are forensic people that are instrumental in some of our investigations. We could potentially lose a lot of people from this and they're hard to replace. That's a nuts and bolts law enforcement decision. It's not overhead. When we cut that, it hurts our agency. FLEOA feels that way very strongly.

REP. McHUGH: I believe you also make the claim that the pay disparity severely restricts your ability to both attract and retain those positions.

MR. EAGER: Yes, sir.

REP. McHUGH: Mr. Nolan, do you want to respond to that? If you choose not to --

MR. NOLAN: No, that's fine. Both the chief inspector and I agree that the inability to make a final decision on that has gone on too long. There has been no denial of, in a final form, of that request for modification to the party structure. There are still meetings taking place. The next meeting is scheduled for August 9th. It needs to be resolved.

There are some knotty, technical problems that we've been trying to work through. We need to do that. We need to work through them and we're going to make sure that that happens.

But there has been no final denial. The labs are a very important part of our operation, and sometimes people with best intentions get involved in nitty-gritty details and fail to see the big picture. I think we need to get to that big picture and solve it.

REP. McHUGH: Let me return to my original question to Mr. Eager.

How would you respond to an action that would either limit the postal inspection service to investigations by narrowing the monopoly, or secondly, to take the opposite track, and that is to expand their jurisdiction to include the private sector companies?

MR. NOLAN: The inspection service needs to make sure that people follow the law. If the law changes, then the work that the inspection service would do would change. So to the extent that there's a law on the books, we need to enforce the law. The fact is that attacking the monopoly issue has not been a major emphasis for the inspection service. How that monopoly law might change and therefore what the inspection service might do, I can't say.

When it comes to expanding the inspection service to cover private enterprises, my concern with that is one of scale and one of familiarity. Part of the reason why the inspection service is so successful is that they live and breathe the stuff every day. They're part of everything we do, they're in every meeting that we hold, they understand what's going on. We don't direct their activities, but knowing what's going on in our organization makes them a lot more effective.

To now increase that span of control over areas where we are not as familiar I think does nothing to enhance our abilities to do our current job, and could undermine that, and may not make us the best people in the world to take on that new responsibility.

Again, we fund our own security inspection service activities. Those are not funded in the private sector. With increased law enforcement activities of some nature, and again, I don't recommend it be ours, would there come some increased regulation of those private companies who can say, and I'm not sure they would be particularly thrilled with that. So I think the whole thing would need to be examined.

But for us to expand our role I don't think would enhance our current success and our current mission, and I'm not sure that we would be the best people in that other space.

REP. McHUGH: Mr. Weaver, do you agree with that?

MR. WEAVER: Yes, Mr. Chairman, I do agree with it.

As far as our role goes, you go back to the law and the fact that under Title 39 we have been charged with a mission, and that mission has been unswerving.

To expand our authority, again, I agree with the deputy postmaster general, that we would lose focus, we would lose what our intended goal and mission was, and I just don't think it would be good for the postal service or it would be in the best interest of the American people to do that.

REP. McHUGH: Mr. Nolan, just one quick question. I'm detecting a lack of enticement on your part that to move the postal inspection service to the Treasury Department or Justice would produce almost half a billion in budgetary savings for you. This is so important that that's not an issue?

MR. NOLAN: First of all, I think it is so important that it is absolutely a completely small issue for us compared to the importance of maintaining the trust and carrying out the mission that we have, so I do think it's a very small issue.

I also don't think it's a good idea to throw additional costs on the taxpayers. The Treasury or the Federal Trade Commission or whoever is going to want money to support those activities of an inspection service, and I think the current model that says that you've got to pay for what you get is not a bad one.

But I do think for us it is a completely secondary issue and second is way out of the ball park compared to the first one, and that's the sanctity of mails, the protection of our employees. It's not a budgetary issue to us.

REP. McHUGH: What about containing the inspection service to pursuing questions that are related only to non-competitive products. After all the core of this discussion and those who seem to be concerned about it focuses on the issue of the ability to market the inspection service in the competitive area as a value-added kind of asset.

MR. NOLAN: Again, I am being very careful to make sure that our organization does not market the inspection service as the reason why we have trust.

REP. McHUGH: But if I may, but you did make a suggestion in an ad -- that was there. And I'm not necessarily criticizing the intent. I understand the role of advertising. But the suggestion was certainly there that that makes your product better than a private company.

MR. NOLAN: No ad that we've put out has indicated that the inspection service is part of our security, and --

REP. McHUGH: I don't mean to keep interrupting you, but back to Mr. LaTourette's point, you didn't use the words but you made the suggestion. You don't agree?

MR. NOLAN: I know what you're saying. To some people the fact that we have an inspection service is important, and would we do anything to tell them no, it's not important? The answer to that is no.

I think that from a practical standpoint if you say that all we would work on is the non-competitive things, the only thing that we have that's non-competitive, in a sense, is first class mail. Advertising mail certainly has competition. Parcels have competition.

When you're looking at investigating crime, crime doesn't know classes of mail. We travel from one class of mail to another when we're investigating certain aspects of crime. Whether it's pornography or child abuse, whether it's fraud. It travels across all classes of mail, so I don't know how you do that. I really don't know how you do that.

REP. McHUGH: How do you do that?

MR. CAMPBELL: (Laughter) I think Mr. Nolan has a good point. I'm not suggesting that it's a very simple matter.

A lot of H.R. 22 deals with exactly these kinds of problems. There's a certain unity of operation in the transport and collection and delivery of the mail. Some is competitive and some is not. That provision about allocating overhead, the cost coverage provision, is an attempt to deal with that. I think you have to think in somewhat creative terms when you have joint operations.

Obviously if the postal inspectors find a truck of stolen first class mail, they're not going to give the mail to the postal service and give the parcels back to the thieves. Nobody's advocating something silly like that. But perhaps with accounting procedures you can take care of it.

Certainly as is implied by your questions you want to draw the line at this use of the inspection service, you want to draw the line at activities that are not bound up with monopoly mail. You get into the e-commerce, that's probably operationally separate, the solution in H.R. 22 was to create a separate corporation which presumably would have taken care of the problem.

But you want to first try to keep this only as a matter of joint operations. You can't avoid protecting X as long as you're protecting Y, first class mail. But in addition, you want to not expand it beyond those activities. And you have to deal with some good will and some creativity, that's all.

REP. McHUGH: It sounds like a damn good bill. I'll have to look at it. (Laughter)

MR. CAMPBELL: Go back and look at it again and see if you don't like it.

REP. McHUGH: And I appreciate the accolades. The purpose of the hearing is really not on that focus, but it does provide one approach.

Jim Campbell, you mentioned in your comments that there was the phrase used "a coercive nature" with respect to the postal inspection service and its power. Don't you find that in any law enforcement organization? Doesn't the FBI have the coercive power of federal law behind it? Does not the local police department have the coercive power of the municipal code? Isn't that kind of part and parcel with having a police agency overseeing anything?

MR. CAMPBELL: Sure it is. Nobody can reasonably object to the fact that a law enforcement agency uses coercive powers. The problem in the past has been that the monopoly regulations create some of this coercion apparently out of thin air as predicates for using these suspension, taking advantage of the suspension; and because the coercion is coming from a competitor in the field which has the commercial incentive in how the power of the government's being used.

As I suggested in the testimony, you can certainly imagine, at least, redefining the monopoly in terms that are much more self- executing, so you don't need so much administration. You don't need so much coercion. But furthermore, the coercion that is being used, the judgment that goes into shall we push this guy or not, that judgment ought to be rendered by somebody who's impartial, not by somebody with a commercial interest. That's all I'm saying.

I'm certainly not suggesting that in the end whatever the monopoly is and whatever the laws are to enforce it will not be coercive. Obviously, they're going to be coercive.

REP. McHUGH: So your concern is either, number one, your last point that when you have a competitive interest it causes difficulties in terms of a truly unbiased enforcement of provisions; or number two, that as a follow up to your earlier comment, in your opinion you have a nexus here between the natural and probably unavoidable course of power of any police agency and what you feel are, if not inappropriate, perhaps illegal or excessive assumption of power. I believe you said they didn't, in your opinion, have the authority under law to do some of the things they're doing. True?

MR. CAMPBELL: Yes. I don't want to, really, I do not want to be too accusatory here. But I do think that even veterans of the postal service looking back over the last 25 years would say that probably they've done a bit too much in pushing on the private express laws.

I think that you can well imagine if we could all rewrite history, you could imagine a much more objective, fairer approach to defining and enforcing a monopoly.

My suggestion is simply that if you look back at the 25 years, clarify the mission of everybody so that the next 25 years are better. That's all.

REP. McHUGH: Mr. Nolan?

MR. NOLAN: I thought I had heard earlier that there wasn't any inference that the postal inspection service had operated inappropriately, it was the way the law was written that was the real problem. Now apparently that's, I'm either hearing it differently or maybe there is some other coercion taking place.

My sense was that what Jim Campbell had a problem with was the way the law was written that made that monopoly statute something that people didn't even have to walk in the room and talk about, someone reading it would be uncomfortable. I think there's a big difference.

When it comes to the postal service and how we reacted, how we reacted back in 1970 to competition that we never had before, I think is an interesting discussion, but I don't think it's particularly relevant to where we are today.

REP. McHUGH: I thought I heard Mr. Campbell respond to my question that he believed that precisely, I didn't mention it, Section 1341 permits the postal service to regulate an area in which it also competes, but in his opinion they did not. What did we hear?

MR. CAMPBELL: I think the heart of the postal monopoly regulations of 1974 which are the current regulations, is the suspension power. The power that the postal service exercises purportedly under 601(b) of Federal 39. I think the postal service has misinterpreted that provision. I'm not the only one who thinks so. I have good reason for thinking so. I think those regulations, the heart of those regulations represents a misinterpretation of the law.

That's not to say that there is no postal monopoly. Obviously there's a postal monopoly.

REP. McHUGH: I was specifically talking about competitive products.

MR. CAMPBELL: I'm sorry.

REP. McHUGH: So am I.

MR. CAMPBELL: No, the -- With the monopoly regulations what the postal service is doing is defining the line between competitive and non-competitive. It's not that they're, exactly that they're regulating competitive products, but they are defining that line in a rather creative manner, let's say.

REP. McHUGH: Speaking of creativity. Mr. Nolan, hypothetically, if we were to move the postal inspection service en masse, just pick it up as it exists today and imbued with all of the authority and all of the responsibilities it has and plop it into Treasury, for example, wouldn't your creativity still allow you to suggest that you as the United States Postal Service have a certain assurance of sanctity that others do not? Because indeed, a postal inspection service located in Treasury or within the postal service would still have the responsibility of doing what it has today. Not that you would ever inappropriately advertise, but if you were just sitting around thinking about it.

MR. NOLAN: I don't think it would be as effective. I think we've got a focus with the inspection service right now that couldn't be guaranteed if the agency was picked up en masse and moved to another location. I think we have a, I think the nation benefits from the fact that we maintain that focus and cover all activities that we undertake.

REP. McHUGH: Yes, sir. I understand that, and that really wasn't the point of my question. My question was more a truth in advertising question.

One of the major concerns that we've heard repeatedly is that the postal service right now is using the existence of the postal inspection service as a reason why your e-commerce product is more secure than perhaps some other one.

My question is, if you did that, an I understand you would say you have not, but if you were to do that today and tomorrow the postal inspection service were part of Treasury, the same assurance is there. I understand your concern about diminution of effectiveness. I'm talking more about the advertising kind of --

MR. NOLAN: Again, I continue to believe that the reasons why people trust us are varied, and I think that the inspection service doing its job to some people indicates there should be trust. I think to some people the fact that we've handled addresses a certain way and can't sell things and have certain mandates that we have to live by and certain policies that we adhere to, and the way we've done business over the years indicates that we should be trusted.

I think you are not going to see from us an emphasis on the inspection service as the reason why people should do business with us.

If we had an inspection service that was constantly monitoring our products and services and reported to someone else would we still have that same benefit as effective? The answer is probably yes. We would still emphasize the fact that this is an organization that can be trusted. We think from a technology standpoint and from a practice standpoint. The investigatory aspect of it is really just one leg of a stool and can't stand without the others.

REP. McHUGH: Because your announcement -- yours being the USPS announcement that post acts would be the first commercial provider of the electronic postmark speaks very specifically about affording the sender legal protections and remedies from illegal interception and tampering. If that were an inspection service, I assume that's who you meant, and if you didn't, I think one can reasonably conclude that, that an inspection service in Treasury would still provide those legal protections and remedies for illegal interception.

MR. NOLAN: We believe it's against the law to intercept and modify, steal, et cetera, communications whether you're dealing with the postal service or anybody. The fact is, we just happen to use the inspection service to do that investigation. But I think that statement could be made by our competitors, too. How they would --

REP. McHUGH: -- FedEx to tout the FBI, for example?

MR. NOLAN: Sure. It's free.

REP. McHUGH: Okay.

Jim Campbell, is it not true that many of the concerns you voice are not in and of themselves remedied by just a transfer of location out of the -- I think you'd make the argument -- Many have said that would do it. I don't see that that does. I don't see that without, if you're going to transfer the same problematic circumstances exist across a wide range, unless you also take the next step of doing some type of jurisdictional amendment. True?

MR. CAMPBELL: I think you're right.

As I said in the beginning, I think the inspection service by and large in my experience has been attempting to enforce the legal framework that they're given by others -- by the law department or by Congress or whatever. The fault lies not so much with the inspection service and how it's administered, but with the overall legal framework. I think you have to look at those.

REP. McHUGH: Mr. Weaver, did you want to say something?

MR. WEAVER: I think, once again we've got -- and I agree with Mr. Campbell. I think we perform the role that we're given by law and will continue to perform that. I've always said that these hypothetical situations, although we need to consider them and we need to think about them, from our perspective it's very important for the organization to determine where they're going before you extract the inspection service from the organization.

We have been charged with the mission of protecting the mails, protecting the employees of the postal service and we're going to continue to do that and continue to enforce the laws. That's our primary mission. I can't see a changing unless there is a major change in the organization.

Then we have to look at it.

REP. McHUGH: Mr. Eager and Mr. Gallo, if you've ever read a budget bill in Congress you know we spend a lot of time dealing in fantasy so let's spend a little time here right now.

If you have, if not unlimited, a significant opportunity for added resources and you either, or both of you together, could direct those resources, what would you like to see the inspection service doing beyond what they are budgetarily capable of doing today?

MR. EAGER: It would be again based on a review of what's needed, but prohibited mails, narcotics interdiction. We do a lot of good work in that area, but I believe we could do more. I believe we could do more in the area of child pornography. But those are just guesses without an assessment by each division as to what the complaints are, what the needs are. Discussions with the U.S. Attorney. And of course mail fraud, health care fraud. Again, it would be consultation with the U.S. Attorney's office in conjunction with their priorities as a law enforcement agency that we would consider.

REP. McHUGH: Mr. Gallo?

MR. GALLO: The devil's in the details -- how much staffing, funded by corporate taxes, user fees for the service? For the expansion of the inspection service's jurisdiction to ensure the sanctity of all communications, given that to the professional men and women, these criminal investigators within the inspection service expand their jurisdiction to other areas of communication, they would handle the job and they would handle it professionally, just as professionally as they're handling it now. But as you said, with the budget bills, the devil would be in the details. How would they be funded, how much staffing.

REP. McHUGH: Mr. Eager?

MR. EAGER: Our concern, of course, is the future. Every time we pick up, like we said before, the paper, we read of privatization, of reform, and I'll be retired, but I wonder what about the sanctity of my mail when I'm 70 years old? If it's privatized, what happens? If it's reformed to the extent -- where does privacy, where does the sanctity issue go?

The inspection service has done a -- for 200 years we've done this, and we should have a place in the future of doing this. That's why I think maybe it should be debated. I think the future will take care of itself, again, with technology. We may very well get to that point of needing to move under the executive branch of government depending on what happens to the postal service.

REP. McHUGH: So you would share Mr. Weaver's opinion that in terms of a logical sequence you have to position the postal service in whatever way you're going to, and there's a variety of thoughts as to what should occur there, before you can make a rational judgment on the --

MR. EAGER: Absolutely. If you just pick us up and put us under the executive branch of government right now at this time with our current jurisdiction, we're still going to have the perception of unfair competition because we're enforcing the same statutes. The only way it would be conceivable is if it's expanded to other postal carriers in the postal system.

REP. McHUGH: You mentioned your review in 1974 of the inspection service, the evaluation. '94. As the last time that was conducted.

MR. EAGER: Yes, sir.

REP. McHUGH: I get the impression that you feel another one is due. Is that a correct impression?

MR. EAGER: Yes, sir. I do. I strongly do.

REP. McHUGH: Mr. Nolan, Mr. Weaver, do you want to --

MR. WEAVER: Yes, Mr. Chairman, I am very familiar with the review that was conducted in 1994. It was a level of service review which attempts to --

THE REPORTER: Mr. Chairman, excuse me. If you could move your mike --

REP. McHUGH: Sorry. Mr. Weaver?

MR. WEAVER: I was commenting on the 1994 level of service review, and I recall that review vividly. And what it attempts to do is evaluate the workload and then allocate the resources to that workload in an equitable manner.

It was not implemented. It was not carried out, and it's my decision at this point that we will not conduct another one in that same fashion.

My concerns are to take a look at where the priority work is and make sure that we are allocating the resources to address the problem areas around the country. We're going to do that.

We have a new team in place. We're reevaluating our strategic plan as we speak, and that's a vital part of it.

REP. McHUGH: Why was it not implemented, and why would you do it differently? What were the concerns?

MR. WEAVER: I think there was a lot of territorial concerns, and if I can use an example. If you have 200 people within a division and you only need 150 and you need 50 more somewhere else, I think we had a difficult time in just moving those resources to the other location. I'm not saying it didn't need to be done, but it was not fully implemented probably the way it should have been.

But it's a valid concern. But I think the way we have managed recently in addressing the high crime areas and the priorities of the organization as we see them, we've been very effective at it.

REP. McHUGH: Do you feel better, Mr. Eager?

MR. EAGER: I've known Chief Weaver for over 20 years and he's very capable, a man of integrity and a leaders. FLEOA is well pleased that he's our chief. We just hope he's afforded the tools to take our agency in the direction that we need to go.

REP. McHUGH: Are you going to do that, Mr. Nolan?

MR. NOLAN: Absolutely.

REP. McHUGH: Feel better, Mr. Eager? (Laughter)

I'm glad we settled that point, anyway.

The ranking member had other business, and he has been tremendous, as all of you are aware on all of this and continues to take an active interest in this particular hearing, but we haven't yet figured out how to be two places at once. But he has submitted a number of questions for the record that we will submit to you gentlemen. We very much appreciate your responses at your earliest convenience.

And as is the custom, we also ask your indulgence in other follow up questions from the committee, if you could provide those for the record.

I yield to Mr. LaTourette if he has any concluding or additional comments or questions.

REP. LaTOURETTE: I do have one question. I'll try to be speedy.

It's based upon some comments that I wrote down as you all were answering the chairman's question, and it began with you, Mr. Gallo, when you were talking about the ability of law enforcement to do its job, it costs what it costs. And you can't look at a crime and say we're going to spend ten grand on this crime if you follow the crime through to completion.

That combined with, and I don't know whether it was Chief Weaver or Mr. Nolan, made the observation that there had been a shift that was noticeable to revenue protection. Then Mr. Eager's observation that there was a 25 percent decrease in mail fraud activities within the department.

It comes from -- before I did this, I was a county prosecutor. We changed a lot of laws relative to drug enforcement.

We had forfeiture laws. And the deal was that if you went out and busted a guy who had a nice car, if you were the police agency you got to keep the car. Well, you didn't get to keep it yourself, but you got to take the assets and plow it into new stuff for the department or extra hires or things of that nature.

There was some criticism that resources -- not intentional. Nobody was doing anything to be funny, but any time there was a chance to get more stuff or more officers, that we would take our resources and funnel them into chasing these guys with the nice cars and not necessarily the guy that broke into the house or the guy that stole the ice cream from the convenience store, sort of got lower priority.

This whole discussion that you were having with the chairman about moving these guys from the postal service over to Treasury Department, and I understand completely that you'd have to change the statutes or you'd just be doing the same thing in a different place.

But I'm wondering if the fact that again, it takes as much as it takes, a shift in direction to protect revenue, and the 25 percent reduction in mail fraud activities, is there a danger here that the postal inspection office is compromised as a law enforcement agency because of its reliance on postal service revenues as opposed to the ability to take as much as it takes?

Mr. Eager, let me throw that up to you, and I'd invite anybody that has a comment.

MR. EAGER: I think just because of our structure that we're a law enforcement agency attached to a quasi-business, quasi-government agency, that it gives that perception, whether it's true or not.

We can go out and conduct crime prevention. Competitors to the postal service might say that we're taking an unfair advantage and we're marketing when in fact the field postal inspector is simply trying to reduce theft. But the perception I guess is what we're dealing with in that area.

I don't know of too many agencies, federal law enforcement agencies, that are structured like we are. The more business oriented the postal service gets, the more probably the level of accusations will proportionally go up.

REP. LaTOURETTE: But specifically in response to my query and wonderment, that may be the perception but there's no truth behind it. Is that --

MR. EAGER: Mr. Campbell uses the term of inspectors going out and coercing. Inspectors don't have a monetary -- We go where the complaints go, we go to investigate what we're sent to investigate.

If I was someone out there in the private sector and someone was coercing me, I'd take issue with it.

REP. LaTOURETTE: But I think I was more, going back to the drug dealer situation. I wasn't talking about agents running rogue and then deciding to bother people. What I was talking about is a decision somewhere within the postal service that we're going to focus on things that protect the revenue of the postal service, and therefore, because we don't have enough guys and gals or because of resources or whatever, you're going to have a corresponding drop in other things such as going out and taking a look at mail fraud, just because there aren't enough hours in the day and enough people to do it.

My question is, is that just a potential perception, or is there some truth to that?

MR. EAGER: That's FLEOA's perception in the past, as I stated earlier, that resources in the '90s were diverted to revenue protection and they came from somewhere. We assume they came from the mail fraud program. We're dealing with a closed universe, relatively speaking. We can quibble over number of how many inspectors in 1975 as opposed to the authorized complement, but we're not talking about thousands of people here. We're just talking about a couple of hundred here and there.

We've always dealt within a closed universe of personnel and our priorities do change. But a reduction in mail fraud of 25 percent over that period of time I would think is significant.

REP. LaTOURETTE: Chief Weaver or Mr. Nolan?

MR. NOLAN: I would say one thing that we may not have made clear is that the revenue protection responsibilities have now been removed from the inspection service. It's in the revenue assurance or revenue protection unit within our administrative functional area.

In part, it was because we think it's a more productive way of dealing with our customers and solving the problems, and in part because the inspection service now is focusing on criminal activities and not on some of those audit-related things that out of which grew the attempts to protect revenues when we saw deficiencies.

So I think what may have been a potential diversion at times has cleared up significantly because it doesn't exist anymore as a possible area of emphasis for the inspection service.

REP. LaTOURETTE: Mr. Weaver?

MR. WEAVER: Yes, if I can just clarify a point here. And make no mistake about it, if there is a violation of the law involving our revenue systems, or our revenue stream, we will conduct the investigation. That is where there is criminal intent and intent to defraud.

So what Mr. Nolan is talking about is the shift and moving out of the revenue assurance business to where we used to go out and identify revenue deficiencies and refer those to management. I know there's some question on whether we acted as a collection agency in that regard, and we did not . We would refer that to management for collection, but we're out of that business altogether now, and strictly focused on upholding the laws that we're supposed to.

Your other point as far as being compromised and directing your resources to one area or another, that's a valid concern. And we watch that very closely and make sure that we are addressing problems that have a serious impact on the operations of the organization and where we see problems occurring.

We utilize the forfeiture statute, and it's a valuable tool. If we can hurt the bad guys, as you've seen many times, by taking their resources and their assets, we're going to do it. We're going to put that money to good use as far as helping the organization move forward.

REP. LaTOURETTE: I appreciate that. My experience was, and I happen to be a fan of the forfeiture statutes, but just because they brought in extra dollars that you wouldn't get through a tax revenue or when your budget allocation came from the county commissioner's or the manager's office, that sometimes you'd move it -- If you would look at two drug dealers and one guy had a Corvette and the other guy was driving a 1974 Olds Cutlass, we'd probably spend a little bit more time on the Corvette guy.

But I thank you, Mr. Chairman, and yield back.

REP. McHUGH: Thank the gentleman.

With that, and a final thanks to you all, Mr. Deputy Postmaster General, Chief Weaver, Mr. Campbell, Mr. President and Mr. President both, thank you for your presence here today, your patience and your input.

The hearing is adjourned.

END

LOAD-DATE: August 1, 2000

Document 6 of 162.


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