BILL ANALYSIS                                                                                                                                                                                                    Ó






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          |SENATE RULES COMMITTEE            |                        AB 160|
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                                   THIRD READING 


          Bill No:  AB 160
          Author:   Dababneh (D), et al.
          Amended:  6/16/15 in Senate
          Vote:     27  

           SENATE PUBLIC SAFETY COMMITTEE:  7-0, 6/30/15
           AYES:  Hancock, Anderson, Glazer, Leno, Liu, Monning, Stone

           SENATE GOVERNANCE & FIN. COMMITTEE:  6-0, 7/15/15
           AYES:  Hertzberg, Beall, Hernandez, Lara, Moorlach, Pavley
           NO VOTE RECORDED:  Nguyen

           SENATE APPROPRIATIONS COMMITTEE:  Senate Rule 28.8

           ASSEMBLY FLOOR:  77-0, 5/28/15 - See last page for vote

           SUBJECT:   Criminal profiteering: counterfeit labels: sales and  
                     use taxes


          SOURCE:    Author
          
          DIGEST:   This bill 1) adds piracy of musical or audiovisual  
          works, and unemployment insurance fraud to the list of crimes  
          for which criminal asset forfeiture is authorized; 2)  expands  
          the definition of "organized crime" for purposes of criminal  
          asset forfeiture to include pimping and pandering,  
          loan-sharking, trademark counterfeiting, the piracy of a  
          recording or audiovisual work, embezzlement, securities fraud,  
          unemployment insurance fraud, grand theft, money laundering, and  
          forgery; 3) defines a "retail sale" or "sale at retail" to  
          include any sale by a convicted seller of tangible personal  
          property with a counterfeit label or an illicit label; 4)  








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          provides that "storage" and "use" include a purchase by a  
          convicted purchaser of tangible personal property with a  
          counterfeit label or an illicit label; and 5) defines  
          "counterfeit label" and "illicit label" as those terms are  
          defined in federal law - a label that appears to be genuine but  
          is not, and a genuine label that a person uses without  
          authorization respectively.
          ANALYSIS:   


          Existing law:

          1)Includes the criminal profiteering asset forfeiture law, which  
            applies where the defendant is convicted of a specified  
            offense and the defendant has engaged in a pattern of criminal  
            profiteering activity, as specified.  (Pen. Code § 186.3.)   
            The following assets or property are subject to forfeiture:

        a)Any property interest whether tangible or intangible, acquired  
          through a pattern of criminal profiteering activity.

        b)All proceeds of a pattern of criminal profiteering activity,  
          which property shall include all things of value that may have  
          been received in exchange for the proceeds immediately derived  
          from the pattern of criminal profiteering activity.

          2)States that forfeited cash and proceeds of the sale of  
            forfeited property shall be distributed as follows: 

        a)To the bona fide or innocent purchaser, conditional sales  
          vendor, or holder of a valid lien, mortgage, or security  
          interest, up to the amount of his or her interest in the  
          property or proceeds, as specified.

        b)To the Department of General Services or local governmental  
          entity for all expenditures incurred in connection with the sale  
          of the forfeited property.

        c)To the State General Fund or the general fund of the local  
          governmental entity, whichever prosecutes.  (Pen. Code § 186.8),  
          except in the child pornography or recycling fraud cases.

        d)In a case of fraud involving the state recycling program, to a  
          special fund designated in the Public Resources Code.







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        e)In the case of child pornography crimes, to the county  
          children's trust fund or State Children's Trust Fund.

        f)In a case involving human trafficking of minors for purposes of  
          prostitution or lewd conduct, or a case of procurement of a  
          minor, to the Victim-Witness Assistance Fund for child sexual  
          exploitation and abuse counseling and prevention programs.   
          Fifty percent of the funds shall be granted to community-based  
          organizations that serve minor victims of human trafficking.

          3)States that any person who willfully manufactures,  
            intentionally sells, or knowingly possesses for sale any  
            counterfeit of a mark registered with the California Secretary  
            of State or registered on the United States Patent and  
            Trademark Office shall be punishable as follows:

             a)   If the offense involves less than 1,000 of the  
               articles with a total retail value less than the  
               standard for grand theft (over $400 - $487), the  
               defendant is guilty of a misdemeanor, punishable by  
               a fine of not more than $5,000, imprisonment in a  
               county jail for up to one year, or by both.  If the  
               defendant is a corporation, by a fine of not more  
               than $100,000.

             b)   When the crime involves 1,000 or more articles,  
               or has a total retail value that meets the standard  
               for grand theft (over $400 - $487), the crime is an  
               alternate felony-misdemeanor, punishable by  
               imprisonment in a county jail for up to one year, or  
               in the state prison for 16 months, two years or  
               three years, by a fine not to exceed $250,000, or  
               both.  If the defendant is a corporation, the  
               maximum fine is $500,000.  (Pen. Code § 350, subd.  
               (a).)

          4)Provides that a repeated violation of the counterfeit  
            trademark statute is an alternate felony-misdemeanor,  
            punishable by a fine of not more than $50,000, imprisonment in  
            a county jail for not more than one year, or in the state  
            prison for 16 months, or two or three years, or both.  If the  
            defendant is a corporation, the maximum fine is $200,000.   
            (Pen. Code § 350, subd. (b).)







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          5)Provides that where a defendant is convicted of a trademark  
            counterfeiting, the court shall order the forfeiture and  
            destruction of all of counterfeit marks and all counterfeit  
            items.  The court, with specified exceptions for community  
            property vehicles, shall also order forfeiture and destruction  
            or other disposition of all means of making the marks, and all  
            other devices for making or transporting the marks used in  
            connection with the violation.  

          6)Describes "fair use" of a trademark, which is not subject to  
            prosecution or a civil action, as any of the following:

             a)   Advertising or promotion that permits consumers to  
               compare goods or services;

             b)   Identifying and parodying, criticizing, or commenting  
               upon the famous mark owner or the goods or services of the  
               famous mark owner; noncommercial use of the mark; and

             c)   All forms of news reporting and news commentary.  (Bus.  
               & Prof. Code § 14247.)
           
           7)Provides, in federal statutes, that it is a crime to "traffic"  
            or "attempt to traffic" in counterfeit goods.  The crime is  
            punishable by a fine of up to $2,000,000, imprisonment for up  
            to 10 years, or both.  The maximum fine for a corporation or  
            an entity other than an individual is $5,000,000.  Repeated  
            convictions are punishable by imprisonment for up to 20 years,  
            a fine of up to $5,000,000, or both.  Where the convicted  
            defendant of repeated violations is other than an individual  
            the maximum fine is $15,000,000.  (18 U.S.C. § 2320.)

          8)Provides the following property is subject to forfeiture under  
            federal law following a defendant's conviction for trafficking  
            in counterfeit goods:  the proceeds of the crime; any of the  
            defendant's property used or intended to be used in the crime;  
            any article bearing a counterfeit mark.  (18 U.S.C. § 2320  
            (b).)

          This bill:

          1)Expands the list of offenses that can serve as a basis for  







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            criminal profiteering asset forfeiture - employed against  
            organized crime - to include piracy of audio or audiovisual  
            works and unemployment insurance fraud.   

          2)Expands provisions from the "organized crime" element as it  
            pertains to criminal profiteering by the provisions that  
            require that the nature of the conspiratorial action be of an  
            organized nature to include such examples as: 

        a)pimping and pandering;
        b)counterfeiting of any registered trademark; 
        c)illegal piracy of recordings or audiovisual works; 
        d)embezzlement;
        e)securities fraud;
        f)state tax fraud;
        g)unemployment insurance fraud;
        h)grand theft;
        i)money laundering; and
        j)forgery.

          3)Adds, to the definition of a "retail sale" or "sale at  
            retail," the sale of tangible personal property (TPP) with a  
            counterfeit or illicit label regardless of whether the sale is  
            for resale in the regular course of business.

          4)Adds, to the definition of "storage" or "use," a purchase by a  
            convicted purchaser of TPP in connection with a counterfeit  
            label or illicit label, regardless of whether the purchase is  
            for resale in the regular course of business. 

          5)Defines "counterfeit label" as having the same meaning as  
            U.S.C., Title 18, Section 2318 - a label that appears to be  
            genuine, but is not.

          6)Defines "illicit label" as having the same meaning as U.S.C.,  
            Title 18, Section 2318 - a genuine label that is used without  
            authorization.
          
          Background


          In 1982, the California Legislature passed the California  
          Control of Profits of Organized Crime Act, authorizing  
          forfeiture of profits acquired through criminal profiteering by  







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          organized crime.  (Pen. Code §§ 186 and 186.1.)  Criminal  
          profiteering asset forfeiture is a criminal proceeding held in  
          conjunction with the trial of the underlying criminal offense.  

          Criminal asset forfeiture is allowed upon conviction of more  
          than 30 crimes, including extortion, pimping and pandering,  
          robbery, grand theft, trafficking in controlled substances,  
          money laundering, and offenses related to counterfeiting.   
          Proceeds can be forfeited if the assets or profits of organized  
          criminal entities were obtained through a "pattern of criminal  
          profiteering activity."  This bill adds offenses related to  
          music and video piracy and unemployment insurance fraud to the  
          list of "criminal profiteering activity." This bill also matches  
          the definition of "organized crime" - to the list of specific  
          crimes for which criminal asset forfeiture is authorized.  That  
          is, this bill essentially what members of criminal organizations  
          do match what how criminal organizations are defined.  

          The underground economy is thriving in California.  The Board of  
          Equalization has estimated that $8 billion in corporate,  
          personal, and sales and use tax revenues go uncollected in each  
          year, placing a burden on state and local governments and  
          legitimate businesses.  In 1993, the Joint Enforcement Strike  
          Force was created to combat the underground economy by the  
          sharing of information, coordinating enforcement efforts, and  
          developing methods for using enforcement resources.   
          Additionally, the Labor Task Force has also been launched to  
          help ensure that employees receive proper payments and that  
          California receives all employment taxes and fees owed

          AB 2681 (Dababneh), Chapter 477, Statutes of 2014, expanded the  
          definition of "retail sale" or "sale at retail" to include any  
          sale by a convicted seller of TPP with a counterfeit mark  
          regardless of whether the sale is for resale in the regular  
          course of business.  This bill again expands the definition to  
          further include "counterfeit label" and "illicit label."

          However, it is not clear that imposing a tax on counterfeit  
          items would discourage criminals from selling counterfeit items.  
           A seller of counterfeit goods makes a profit if sales revenues  
          exceed costs.  However, unlike legitimate businesses, sellers of  
          counterfeit goods must additionally take into account the  
          potential costs of government prosecution and civil lawsuits  
          from genuine producers.  These considerations may largely  







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          control a seller's decision to carry counterfeit items,  
          especially if the government has improved enforcement or  
          increased sentences.  The more active the government becomes in  
          enforcing laws, the more likely sellers will choose not to carry  
          counterfeit products.  Requiring payment of sales tax would  
          appear to be a relatively minor consideration for sellers of  
          counterfeit goods.  Imposition of sales tax would essentially be  
          an additional penalty upon conviction. 
           
           FISCAL EFFECT:   Appropriation:    No          Fiscal  
          Com.:YesLocal:   Yes


          SUPPORT:   (Verified 8/18/15)


          American Federation of State, County and Municipal Employees
          California Chamber of Commerce
          California College and University Police Chiefs
          California District Attorneys Association
          California Police Chiefs Association
          California Retailers Association 
          California State Sheriffs' Association
          California Statewide Law Enforcement Coalition
          California State Lodge, Fraternal Order of Police
          Independent Insurance Agents and Brokers of California
          Liberty Mutual Insurance
          Long Beach Police Officers Association
          Los Angeles Area Chamber of Commerce
          Los Angeles County Professional Peace Officers Association
          Motion Picture Association of America, Inc
          Sacramento County Deputy Sheriffs' Association
          Valley Industry and Commerce Association


          OPPOSITION:   (Verified 8/18/15)


          None received

          ASSEMBLY FLOOR:  77-0, 5/28/15
          AYES:  Achadjian, Alejo, Travis Allen, Baker, Bigelow, Bonilla,  
            Bonta, Brough, Brown, Burke, Calderon, Campos, Chang, Chau,  
            Chávez, Chiu, Chu, Cooley, Cooper, Dababneh, Dahle, Daly,  







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            Dodd, Eggman, Frazier, Beth Gaines, Gallagher, Cristina  
            Garcia, Eduardo Garcia, Gatto, Gipson, Gomez, Gonzalez, Gray,  
            Hadley, Harper, Roger Hernández, Holden, Irwin, Jones,  
            Jones-Sawyer, Kim, Lackey, Levine, Linder, Lopez, Low,  
            Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Mullin,  
            Nazarian, Obernolte, O'Donnell, Olsen, Patterson, Perea,  
            Quirk, Rendon, Ridley-Thomas, Rodriguez, Salas, Santiago,  
            Steinorth, Mark Stone, Thurmond, Ting, Wagner, Waldron, Weber,  
            Wilk, Williams, Wood, Atkins
          NO VOTE RECORDED:  Bloom, Gordon, Grove

          Prepared by:Jerome McGuire / PUB. S. / 
          8/19/15 20:23:20


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