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The Texas Senate Committee on State Affairs met on May 25, 2022, to hear invited and public testimony regarding multiple interim charges assigned by Lt. Governor Patrick. Specifically, the Committee investigated the issues of human trafficking, privacy and transparency crimes, and the investment practices of certain financial firms.

 

This report is intended to give you an overview and highlight of the various topics taken up. It is not a verbatim transcript of the discussions but is based upon what was audible or understandable to the observer and the desire to get details out as quickly as possible with few errors or omissions.

 

Opening Comments

  • Chair Hughes – TX has increased penalties for traffickers, increased training & resources

 

Human Trafficking: Examine opportunities and make recommendations to reduce the profitability of and demand for human trafficking in Texas.  Determine ways to increase public awareness of the proliferation of human trafficking, as well as resources for victims and survivors.  Monitor the implementation of House Bill 1540 (87th Legislature) and examine changes in arrest rates, judicial dispositions, and sentencing amongst offenders due to provisions of the legislation.  Examine opportunities for attorneys to combat human trafficking in their local communities, including use of the Deceptive Trade Practices Act, to generate revenue for local law enforcement officials combating human trafficking.  Make any other recommendations to prevent human trafficking.

Mary Winston, TDLR Anti-Trafficking Unit

  • Provides overview of regulation of massage therapy, as TDLR looked into it, began discovering links to human trafficking
  • Several bills were passed in the 86th Session & TDLR Anti-Trafficking Unit (ATU) was created; ATU engaged in trauma training and field enforcement
  • Highlights chart on number of reports/allegations of human trafficking
  • ATU has been conducting site visits, and also working with licensing division to identify license and diploma mills
  • TDLR is not law enforcement, but submitted 140 reports to enforcement division, AG, and LEOs where trafficking indicators are shown
  • Trying to utilize HB 2803, giving landlords ability to evict tenants using property for trafficking
  • Have conducted training with LEOs, incl. Houston Police Department
  • Highlights actions taken by ATU, continuing to partner with local communities and LEOs; target keeps moving, ATU authority is limited in some areas and some areas do not need oversight
  • Solo practitioners are difficult to reach

 

Mike Arismendez, TDLR Executive Director

  • Combatting this issue on multiple fronts, human trafficking, labor trafficking, etc.
  • Establishing MOU with AG’s Office to share data
  • Work with LEOs has been stellar
  • Recently had reports that there where 11k illicit massage establishments in the US
  • Campbell – Looking for solutions or how to support what you’re doing; aside from permanent funding, what can the legislature do?
    • Arismendez, TDLR – appropriations is a key point, important o be able to staff team and target hotspots, e.g. Houston
  • Campbell – What is preventing us from seeing more than 11 outcries?
    • Winston, TDLR – Agreed, deep psychological impact surrounding organized crime, victims often afraid of police
    • Try to build trust, with the 11 outcries ATU is learning how to approach victims
  • Campbell – Short of it is you cant get between victims and those controlling them?
    • We’re learning about the transport portion, ATU needs to dispel the fear
    • Outcries we’ve received are starting to spur more contact with victims
  • Campbell – I just don’t see how you can break through that and reach them
    • Arismendez, TDLR – This is the issue we’re running into, psychological and cultural barrier
  • Campbell – How do we get what we need to tell them out there?
    • Winston, TDLR – Trying to reach out through social media, etc., trying to let them know they wont be deported if they talk to us
  • Campbell – How do they talk to you?
    • They talk to us through phone numbers, NGOs, social media
  • Hughes – TDLR has jurisdiction over licensed agencies, you mentioned some areas you don’t have jurisdiction over; if you get a call that isn’t licensed by you, what happens?
    • Arismendez, TDLR – Also if they are advertising massages, this allows TDLR to go in
  • Hughes – In addition to inspections and outreach, if you get inquiry or outcry from an individual at a non-licensed establishment, what happens?
    • Work with LEOs and connect dots for the agencies
    • We’ve found they can close shop and move elsewhere easily

 

Cara Pierce, Office of the Attorney General

  • Speaks on the implementation of HB 1540 (87R), which created a human trafficking prevention taskforce, made Texas the first state to punish sex buyers with felony
  • Human trafficking is a business, there will always be greater demand than supply
  • Texas is the 2nd worst state for human trafficking, determined off the number of calls to the human trafficking hotline
  • Sex traffickers flourished during the pandemic, 1.7 million ads for sex in March 2020
  • Today, there are 1.5 million ads, still not great but number of ads are going down, shows HB 1540 is working
  • Florida and Mississippi are seeking to replicate legislation
  • After HB 1540 went into effect, enforcement has arrested sex sellers at a much higher rate than sex buyers
  • Campbell – So this same bill also affected pimps and human traffickers, the middleman? Are the DAs prosecuting?
    • Yes, the arrest number for middlemen was already high, DAs are prosecuting, and the AGs office helps smaller counties by sending staff and handling those cases
  • Campbell – How has illegal immigration at border affected sex trafficking?
    • When you do not have legal status, it is easier for sex traffickers to take advantage of you and easier to be trafficked; Do not have numbers regarding immigration
  • Campbell – Emphasizes that these statistics can be used to help pass strict immigration restrictions at the federal level
  • Campbell – What is your group doing to help prevent migrants from being trafficked?
    • Complicated issue, they could have been sexually abused before crossing border
    • Need to separate them from whoever brought them here, many smugglers have ties to sex trafficking rings
  • Campbell – Are we tagging migrants as they come across the border?
    • Yes, we are separating them from whoever brought them over the border
  • Campbell – As our foster children age out, many go into sex trafficking, what are we doing?
    • Working with DFPS, providing training about human trafficking at DFPS summit, need to coordinate and work with them more
  • Campbell – Encourages Pierce to work on intervention and prevention, not just training; States that more work needs to be done

 

Steven Robertson, Office of the Attorney General

  • Will provide background on tools to prevent human trafficking used by AG Office
  • Cracking down on massage establishments that are not licensed
  • Therapists must also be licensed and display their licenses
  • Occupations Code gives authority to law enforcement to enter massage establishments, check for licenses and other rules
  • Law enforcement can also ask establishment for records, illicit businesses would not have customer records unlike legitimate ones

 

Questions

  • Zaffirini – Have all relevant state agencies be involved? Or have some been overlooked?
    • Pierce – Hoping to add TEA to the Texas Human Trafficking Coordinating Council
  • Zaffirini – What about higher education?
    • Pierce – We were recently contacted by students at UT wanting to get involved, looking for more ways to reach that demographic
  • Zaffirini – Based on our funding, are we properly focusing on prevention, intervention, and punishment?
    • Pierce – Speaking on punishment, I feel there is proper funding
    • Robertson – AGs office is focusing on education of landlords to help with prevention and intervention, helping them learn signs of human trafficking
  • Zaffirini – To what extent are you holding social media accountable? What can we do better?
    • Pierce – We have passed laws to hold online sites accountable; We also have a lot of civil remedies; AGs office can launch civil investigations into social media companies
  • Campbell – What percentage of trafficked persons are in massage salons?
    • We do not have a quantifiable amount
  • Campbell – We only heard about massage parlors in your testimony today, but you didn’t mention anything else, what are we doing outside of the massage parlors?
    • A lot of labor trafficking that occurs, focus on prevention
    • Focused on training hotel employees to see signs of human trafficking and to know what to do
  • Campbell – Do we need to enhance the penalties that counties and cities can apply?
    • Robertson – Cities and counties might not know all the support they can get from the state, need better communication
  • Campbell – What is the biggest obstacle we need to address?
    • Robertson – ATU only has 6 people for the whole state, need more funding to hire more staff
  • Lucio – What does your statistics show with the crossover with sex trafficking in agriculture industries?
    • Pierce – Texas Workforce Commission is hoping to set up trainings with large agriculture employers on sex trafficking and labor trafficking, no specific statistics
  • Lucio – Are there any coordination efforts being made between agencies before they appear between Senate Finance or House Appropriations? Would help with appropriating funds
    • Pierce – Will take suggestion back to bosses
  • Zaffirini – How are we using data available to us?
    • Pierce – HB 3800 (86R) – data collection bill, arrest data and prosecution data reported to AG office, getting good reports on this so far from counties
  • Zaffirini – Is there a solid plan Infront of you though, relating to data?
    • We are still finalizing something, going to take more coordination and planning
  • Zaffirini – Encourages agencies to come up with specific proposals and a solid plan, states that we must act to address this issue

 

Hillary England, Office of the Governor

  • Public awareness essential to fight, but there are many misconceptions in public on sex trafficking
  • Focusing on education and capacity building at the local level
  • Public safety office has awarded $85 million in grants, relating to sex trafficking
  • Grants focus on training and support towards victim services
  • Governors’ office is developing a system prioritizing CCTs, Care Coordination Team

 

Justin Wood, Children’s Advocacy Center of Texas

  • Centers serving 206 counties of Texas, 98% of population, 68,000 kids served in 2021
  • MDT (multidisciplinary team) – Brings together officials at the local level to provide collaborative and coordinated response, leads to better outcomes for kids
  • Care coordination – ensuring child receives support within first 24-72 hours, currently reaches about half the state
  • CACs have received additional funding from HHSC due to legislation passed during 87th session, grateful for this funding
  • Zaffirini – For active care coordination, only 16 counties are involved and none in South Texas, why?
    • Efforts with care coordination was focused in main urban counties, has been difficult to get off the ground due to implementation difficulties
  • Zaffirini – Is there anything you heard from previous testimony that you would disagree with?
    • Nothing I would disagree with, still working to expand CACs across the state
    • Should prioritize male survivors, not enough resources or attention being provided
  • Zaffirini – What about the previous thoughts about the use of data?
    • Statewide database system has helped, always cautious to take statistics for face value, must look behind the numbers to see the true story
  • Zaffirini – Specifically in human trafficking, what is the age and gender breakdown?
    • Much larger population of female survivors reporting, resources for male victims need to be improved across the board
  • Zaffirini – How important is it to you to use the language “survivor” instead of “victim”?
    • Very important

 

Michael Sweeney, Texas Association Against Sexual Assault

  • Recommends increasing public awareness of an accurate shared message regarding human trafficking
    • Trafficking often occurs in our communities with people we know involved, need accurate training and message to recognize this
  • Confusion between language “smuggling” and “trafficking”, smuggling is trying to get across the border, trafficking is a crime against a person
    • Confusion of this language leads to underreporting
  • Must provide education to children about dangers of predators online
  • Provide protective planning, treat victims like victims and not like criminals
  • Implement high risk models, runaways are most likely victims for trafficking
  • Campbell – The saliva and fingerprinting bill from last session, what are the impacts of that?
    • Have helped a lot, parent has access to child’s DNA and information immediately if they are abducted or runaway

 

Caroline Roberts, Children at Risk

  • Illicit massage business owners often get away with crimes, while victims are punished or arrested
  • Legislation passed during 85th and 87th Legislative Session have helped a lot with the issue of illicit massage parlors
  • Traffickers must not be able to profit from these crimes, that is main driver for them
  • Recommends that local city attorneys and district attorneys are able to collect penalty fees against the Texas Trade Deception Act and against privately owned ATMs

 

Ronald Swenson, TABC

  • Serves as agency representative on Texas Human Trafficking Coordinating Council
  • TABC has closed several establishments with ties to human trafficking, $40.5 million in revenue
  • Advocates for cooperation between law enforcement and government agencies
  • Birdwell – Over half of the businesses TABC closed were located on the border, is that correct? What affect on human trafficking does your agency have on the border?
    • Believes that is correct, working with other border authorities to disrupt and dismantle cartels and groups on the border
    • Regarding businesses, if appropriate, TABC will seize assets, will use every tool in the toolbox
  • Campbell – Do you only arrest the owner or all employees?
    • Bound by the elements of the offense and what we can prove, depends on the situation

 

Investment Practices: Study the investment practices of financial services firms and how those practices affect the state’s public pensions.  Make recommendations to ensure the state’s public pension funds are not being invested to further political or social causes.

  • Hughes – Investment standards have changed; index funds have allowed regular people to hold a diversified portfolio
  • These companies have aggregated immense power with constituents’ money and corporations
  • 20-25% of shareholder votes on all public boards are controlled by these 3 firms: BlackRock, State Street, Vanguard
  • “Firms are beginning to weaponize power for political ends”
  • ESG – environmental social governance, promote climate change activism at the cost of the shareholder
  • BlackRock – voted on 50 or so company boards for climate activism
  • Evidence that many of these ESG holding funds are underperforming 3-4%, stockholders and employees are paying the price

 

Porter Wilson, Executive Director at ERS

  • ERS manages $34 billion in trust fund assets, 136,000 active contributing members, 120,000 retirees, average annuitant makes $21,000 a year
  • Fiduciary oversight of the trust starts and ends with Board of Trustees
    • What assets ERS will invest in
    • Adopt an investment policy that governs everything else

 

David Veal, Chief Investment Officer at ERS

  • More than half of the trust is allocated to public and private equity
  • ERS staff is intimately involved in investment of any holdings
  • ERS staff retains the responsibility for proxy voting, works with the ISS (vendor) to process those votes
  • Centerpiece of governance at ERS and proxy voting is that all votes must be cast in the best economic interest of the trust
  • Guidelines provide 266 separate instructions on how to best vote for the trust
  • Guidelines updated every fall so they can stay up to date with current developments
  • ERS votes on more than 30,000 items a year, more than 90% of the time ERS votes with management of the company
  • ISS is relied on to cast most votes in a consistent
  • Hughes – So ISS was the one that cast the vote in favor of fossil fuel divestment?
    • Yes, the SEC changed their guidelines in November of 2021 to where some social issue votes could be cast by ISS, ISS was unprepared to handle the flood of votes with little instruction and voted yes
    • We have provided new guidance and ISS will not be voting in this position moving forward
  • Schwertner – You said ISS was unprepared?
    • Yes
  • Birdwell – So ERS is doing the same environment and social issue investments that BlackRock is?
    • We are not the initiator of these issues; We are only casting votes on them because they are in our holdings
  • Campbell – You have a responsibility to watch these proxy votes, correct? What do you have in place to stop activism like this?
    • In this case, ISS did not have a fine enough view on fossil fuel financing and that was the reason for voting in favor
    • Several things we have initiated, including an internal stewardship committee that will engage with ISS and the guidelines
  • Bettencourt – Why was ISS not fired?
    • ISS was the only bidder for this contract which was issued last year
  • Bettencourt – Encourages ERS to find another bidder and start a new contract, the people of Texas are for fossil fuel financing
    • There was a disconnect between our guidelines and what ISS did, we do need to be doing better because our voting guidelines were not prepared
    • States ERS will be more actively involved to deal with these issues when they come up in the future

 

Hughes Pauses Testimony for Vote to Authorize Subpoena

  • Hughes – Will invite BlackRock to testify in front of Committee, states that hopefully they will show up voluntarily
  • Will hold a vote for the Committee to be able to authorize a subpoena in case BlackRock does not voluntarily testify
  • Authority of the Committee to issue a subpoena is given to BlackRock, State Street, Vanguard, Institution Shareholders Inc, any other financial services company whose investments affect this State
  • 9-0, motion in writing is adopted

 

Brain Guthrie, Executive Director of TRS

  • TRS manages a $200 billion fund, 1.6 million members in Texas, retirement and healthcare benefits for those individuals
  • Also use ISS, did not vote in favor for that proposal like they did for ERS
  • TRS board adopted a clear policy in December that made it clear what TRS’s stance was on these issues
  • Campbell – You had a policy in place, and you were proactive? What made you do this?
    • It was apart of our review process, proxy process came up, so the timing was beneficial for us

 

Dale West, Managing Director of Public Markets at TRS

  • TRS is mostly actively managed, Treasury Portfolio is an index fund
  • Proxy voting is a key fiduciary duty, must serve in the best interests of Texas, not social causes
  • Board reviews guidelines for proxy voting, ISS updates guidelines based on review
  • Last December, guidelines were updated to address position on climate issues, causing ISS to vote no on the vote in question
  • Nothing related to climate change is in our guidelines, if there is a climate issue with management in favor, we will vote in favor with management
  • But any issue with fossil fuel divestment will be voted against by ISS
  • Bettencourt – You say you support management because they have a fiduciary responsibility, what if they promote fossil fuel divestment and it is not in the best interests?
    • Our first approach then would be to sell the stock, we would not want to interact with a company that acts not in the best interest of shareholders
  • Lucio – Can you speak on your agency’s office space issues?
    • Currently in process of selling current office space and moving into a new development in the Mueller area, reduced footprint needs by 25% due to work from home
  • Schwertner – You said the governmental bonds portion is passively managed? What is the YTM?
    • Yes, 2.8-3.1%
    • Slide 3 of the presentation shows our asset allocation, Board reviews every few years, will be reviewed, goal is to provide an overall risk profile for the fund

 

Privacy and Transparency: Review the current state laws that protect and secure individuals’ biometric identifiers.  Explore ways to protect against the use of biometric identifiers for unintended purposes without an individual’s consent and make recommendations to the Senate.  Study websites that closely resemble government websites or fraudulently represent companies that they are not, including websites that use names of state agencies or licenses.  Make recommendations to ensure that Texans are not mislead, taken advantage, or defrauded, especially when they try to seek assistance from a state website.

  • Hughes – Texas is a handful of states that prohibits the collection of biometric data for a commercial purpose without consent
    • AG recently filed suit against Meta for this reason
    • SB 475 (87R) – prohibits state agencies from collecting biometric data
  • Hughes – Impersonating of government websites is also prevalent issue

 

Matthew Kelly, Texas Department of Information Resources

  • Cybercriminals are known to impersonate government websites, called spoofing
  • During 2020, impersonating government election websites and COVID-19 government websites was prevalent
  • Goal is to trick people to hand over personal information
  • “.gov” domain name costs about $400 a year, only available to official government websites, CISA is not charging for the domain right now, “.texas.gov” domain is free
  • Recommends keeping domain in Texas free

 

Michelle Farris, Texas Department of Public Safety

  • Fingerprints, palmprints, photos (mugshots), and iris scans – currently submitted from county and state agencies to DPS
  • Data is transmitted to any law enforcement agency that requests that data

 

Questions

  • Bettencourt – Out of the 4 biometrics you are working with, do you know what the numbers are of fraud?
    • Farris – Don’t have specific data, we vet every request to make sure they are legitimate, DPS has a 0% chance of submitting data to a fraudulent source
  • Bettencourt – Do you have specific numbers on how many people are being defrauded with online scams in the state?
    • Kelly – Have not seen a lot of biometric data and online fraud, online fraud has grown consistently, FBI reported 847,000 complaints last year in the US
  • Bettencourt – What was the growth curve?
    • Kelly – 850,000 complaints in 2021, 720,000 complaints in 2020
    • 6.9 billion total cases in 2022, 4.2 billion total cases in 2021
  • Lucio – What is the prosecution rate? How much money is recovered for victims?
    • Kelly – Our agency is not a criminal justice agency, can help you retrieve this information
  • Birdwell – Do you have a patrolling function, where you are actively seeking on a day to day basis?
    • Kelly – There are some threat intelligence services, very difficult due to the unpredictable nature and how quickly websites are being removed
  • Birdwell – If you find a website in your patrolling, does your agency have authority or do you pass it off to DPS or another agency?
    • Kelly – Typically, entity being impersonated spearheads the effort to take down, providing cease and desist letters, contacting domain providers and server hosts, contact Google to get it removed from search, prosecution is an agency decision
  • Birdwell – Does DLR provide some sort of support to victims who have been defrauded? Do you aid Texas citizens?
    • Kelly – We do not, would direct victim to FTC or other agency with identity theft resources

 

Public Testimony

John Pew, Fraud Investigator

  • Had been working with Rep. Parker, Rep. Capriglione, Sen. Paxton
  • Top two issues he is concerned with are privacy of biometrics and the defrauding of Texas websites
  • Applytexas.gov has been compromised, losing billions of dollars
  • State college and university websites are number one targets, California and Texas are top two
  • Recommends getting an audit to investigate and putting in controls to prevent this going forward
  • Kolkhorst – Tell me a simple example of how the Texas Higher Education Coordinating Board is compromised
    • These entities target community colleges with bots, fraudulently claims Pell grants and scholarships in a student’s name, lose about $6 billion a year (pre-COVID)
    • Gov. Stint of Oklahoma ordered an audit of private and public schools in the entire state of Oklahoma
  • Campbell – Why are you concerned for the Texas Higher Education Coordinating Board?
    • It is a centralized application to enroll and receive money, overseen by the Texas Higher Education Coordinating Board
  • Campbell – And there are biometrics involved?
    • No, we are recommending passwords based on handwriting, so impersonation is more difficult
  • Campbell – Is the Texas Higher Education Coordinating Board aware?
    • No, we wanted to go to Committees first
  • Campbell – Does the federal Department of Education and OIG know about this?
    • Yes, they are investigating

 

Jeff Maynard, CEO & Founder Biometric Signature ID

  • Negotiated deal with TX about 11-12 years ago urging the Technology Fund
  • Company has taken a slightly different approach to biometrics, highlights 25 different types of biometrics, incl. physical aspects and behavioral/dynamic biometrics
  • Behavioral/dynamic biometrics rely on detecting specifics of actions by individuals
  • This is privacy-sparing and indigestible to hackers, should put it in front of state systems to help protect
  • TX law should have a right to action so you can go after companies going after citizen’s biometrics to use for untoward purposes
  • Hughes – So in TX the AG needs to bring the action, in Illinois an individual can, is that the difference?
    • That’s right, companies are collecting biometrics from citizens, physical biometrics are easy to collect
  • Campbell – Asks for a written summary
  • Hughes – Was going to ask for the same thing, details on incentives, audits, and controls

 

Shaniqua Lewis, Lancaster Parent Support

  • Daughter was kidnapped and trafficked; red tape gets in the way of reports and alerts, had to wait 10 days before a missing persons alert was issued
  • Hughes and Lewis discuss the case, victim was initially labeled as a runaway which slowed things down, was told victim was in the system but victim was not
  • Kolkhorst – Relates story of case where the trafficking was reported as kidnapped and wasn’t addressed quickly
  • Kolkhorst and Lewis discuss grooming in the case, offender in the case was no billed by Grand Jury and released
    • Lewis – You guys work hard, but there’s no effectiveness in local community
  • Campbell and Lewis discuss the case, victims initially reported as runaway and put into missing database

 

Linda Litzinger, Texas Parent to Parent

  • Speaks on Lewis’ case, behavioral health flags led to lack of action on the case
  • Law for disabilities should be changed to specify between functional issues, loss of one of 5 senses, etc.
  • Hughes – Sounds like definition is too narrow to accomplish what its intended to do
    • Would be a nice baby step
  • Campbell – Law enforcement representatives need to be responsive to all complaints, all parental reports should be taken seriously
  • Hall – Thought problem was solved with the Amber Alert, but obviously didn’t; trying to distinguish between runaway and kidnapping is a gaping hole
  • Kolkhorst – Agrees, struggling between runaway v. kidnapping, nothing good is happening to a child when they’ve run away
  • Hall – Need to be careful in implementation, some runaways are running away from domestic abuse & need to make sure we aren’t pushing these kids back into those homes
  • Kolkhorst – This is where Child Advocacy Systems enter in, great parts of system interview children and gather this info
  • Hall – Just need to be cautious in covering all circumstances

 

Larry Linenschmidt, Hill Country Institute, Citizens Climate Lobby

  • Should engage fund managers for pension funds based on performance, not on whether they invest in O&G; pension funds are underperforming and should be based on performance, not whether it’s invested in O&G
  • Future is decarbonization, could be a boost to TX economy & investments should be focused on innovation and reducing reliance on O&G in pension funds
  • Global warming is a scientific reality, Texans are already paying severe price and climate change is a financial risk
  • Hughes – Can you tell us about Hill Country Institute?
    • Christian institution, founded to put on CS Lewis conferences and works on Christian social issues
    • Concerned now about climate stewardship
    • Highlights drought, power of Hurricane Harvey, plastic ingestion, etc.
    • Important to care for creation