BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | AB 160| |Office of Senate Floor Analyses | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- 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) AB 160 Page 2 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. AB 160 Page 3 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).) AB 160 Page 4 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 AB 160 Page 5 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 AB 160 Page 6 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 AB 160 Page 7 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, AB 160 Page 8 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 **** END ****