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Mr. Chairman, members of the Subcommittee, thank
you for the opportunity to address the Subcommittee on the subject of on-line
fraud and associated crimes and the Secret Service's efforts to combat this
problem.
In addition to providing the highest level of
physical protection to our nation's leaders, the Secret Service exercises broad
investigative jurisdiction over a variety of financial crimes. As the original
guardian of our Nation's financial payment systems, the Secret Service has a
long history of pursuing those who would victimize our financial institutions
and law abiding citizens. In recent years, the combination of the information
technology revolution and the effects of globalization have caused the
investigative mission of the Secret Service to evolve in a manner that cannot be
overstated.
Mr. Chairman, we in the Secret Service applaud
your efforts in convening this hearing today. We stand ready to work with you
and all the members of the subcommittee in addressing this issue. It is our
belief that hearings such as this will be the catalyst to bring together the
resources of the state and Federal Governments, and the private sector in a
unified response to this issue.
Burgeoning use of the Internet and advanced
technologies has promoted greater competition within the financial sector.
Although this provides benefits to the consumer through readily available
credit, and consumer oriented financial services, it also creates a rich
environment for today’s sophisticated criminals, many of whom are organized
and operate across international borders.
Information collection has become a common
byproduct of the newly emerging e-commerce. Internet purchases, credit card
sales, and other forms of electronic transactions are being captured, stored,
and analyzed by entrepreneurs intent on increasing their market share. The
result is a growing business sector for promoting the buying and selling of
personal information.
With the advent of the Internet, companies have
been created for the sole purpose of data mining, data warehousing, and
brokering of this information. These companies collect a wealth of information
about consumers, including information as confidential as their medical
histories.
Consumers routinely provide personal, financial,
and health information to companies engaged in business on the Internet.
Consumers may not realize that the information they provide in credit card
applications, loan applications, or with merchants they patronize, is a valuable
commodity in this new age of information trading.
The Internet provides the anonymity all criminals
desire. In the past, fraud schemes required false identification documents, and
necessitated a "face to face" exchange of information and identity
verification. Now with just a laptop and a modem, criminals are capable of
perpetrating a variety of financial crimes without identity documents through
the use of stolen personal information.
The Secret Service has investigated several cases
where cyber criminals have hacked into Internet merchants’ sites and stolen
the personal information and credit card account numbers of their customers.
These account numbers are then used with supporting personal information to
order merchandise that is then shipped throughout the world. Most account
holders are not aware that their credit card accounts have been compromised
until they receive their billing statement.
In an investigation conducted in April 2001,
Secret Service Agents from the Lexington, Kentucky, Resident Office, along with
their local law enforcement partners from the Richmond, Kentucky, Police
Department, arrested a suspect who was operating an on-line auction selling
counterfeit sports memorabilia. During this investigation it was learned that
the suspect had fraudulently opened a number of credit card accounts utilizing
the personal information of individuals with whom he had dealt over the
Internet.
Cyber criminals are also using information hacked
from sites on the Internet to extort money from companies. It is not
unprecedented for international hackers to hack into business accounts, steal
thousands of credit card account numbers along with the accompanying personal
identifiers, then threaten the companies with exposure unless the hackers are
paid a substantial amount of money.
Today we are faced with another new
challenge--that of identity theft. Time and time again, criminals have
demonstrated the ability to obtain information from businesses conducting
commerce on the Internet. This information has been used to facilitate account
takeover schemes and other similar frauds. It has become a frightening reality
that one individual can literally take over another individual's financial
identity without the victim’s knowledge.
We in the Secret Service view identity theft as a
disturbing combination of old schemes and abuse of emerging technologies.
However, it should be clear--this crime is about more than the theft of money or
property. This crime is about the theft of something that cannot be so easily
replaced--a person's good name, a reputation in the community--years of hard
work and commitment to goals. Make no mistake about it, this crime is a
particularly invasive crime that can leave victims picking up the pieces of
their lives for months or years afterward.
In an investigation that illustrates the
potential for significant losses to the public, agents of the Secret Service Los
Angeles International Fraud Task Force recently arrested four suspects for their
role in a scheme that involved fraudulently opening lines of credit for six
different businesses. Further investigation revealed that the businesses were
fictitious, and the individual identities associated with them had been
fraudulently taken over by the suspects. It was also discovered that the
suspects had used the personal identifiers of these supposed company officers to
obtain auto and business loans, student loans, and open credit card accounts,
resulting in an actual loss of more than $1.4 million. Pursuant to the execution
of several seizure warrants, more than $360,000 cash and three luxury vehicles
were seized from the suspects for forfeiture. A fifth suspect could not be
located, and it has since been determined that he has fled to Nigeria.
Congress has already taken an important step in
providing increased protection for the victims of identity theft through the
enhancements made to Title 18, United States Code, Section 1028 by the Identity
Theft and Assumption Deterrence Act, which was signed into law in October of
1998.
This law accomplished four things
simultaneously. First, it identified people whose credit had been compromised as
true victims. Historically with financial crimes such as bank fraud or credit
card fraud, the victim identified by statute, was the person, business or
financial institution that lost the money. All too often the victims of identity
theft whose credit was destroyed, were not recognized as victims. This is no
longer the case.
Second, this law established the Federal Trade
Commission (FTC) as the one central point of contact for these victims to report
all instances of identity theft. This collection of data on all ID theft cases
allows for the identification of systemic weaknesses and the ability of law
enforcement to retrieve investigative data from one central location. It further
allows the FTC to provide people with the information and assistance they need
in order to take the steps necessary to correct their credit records.
Third, this law provided increased sentencing
potential and enhanced asset forfeiture provisions. These enhancements help to
reach prosecutorial thresholds and allow for the return of funds to victims.
Lastly, this law closed a loophole in Title 18,
United States Code, Section 1028 by making it illegal to steal another person's
personal identification information with the intent to commit a violation.
Previously, under Section 1028 only the production or possession of false
identity documents was prohibited. With advances in technology such as
E-Commerce and the Internet, criminals today do not need actual documents to
assume an identity.
We believe this legislation is an important
factor in bringing together the Federal and state governments in a focused and
unified response to the identity theft problem. Today, law enforcement,
regulatory and community assistance organizations have joined forces through a
variety of working groups, task forces, and information sharing initiatives to
assist victims of identity theft. Victims no longer have to feel abandoned, with
no where to turn.
A case in point concerns the
investigation recently conducted by our New York Field Office's Electronic
Crimes Task Force and the New York City Police Department concerning the
compromised credit accounts of high profile businessmen. The investigation
originated in December of 2000, when the office was notified that an Assistant
United States Attorney for the Southern District of New York had a personal
credit card account compromised. In February, the office was contacted again by
a private party investigating the identity takeover and attempted brokerage
account theft of a prominent corporate CEO in California. A subsequent joint
investigation by the Secret Service Field Office and the New York Police
Department determined that the credit card accounts of many of America's
wealthiest Chief Executive Officers, as well as many other citizens, had also
been compromised. This investigation determined that by utilizing the Internet
and cellular telephones, the perpetrators were able to obtain the account
numbers and had then established fictitious addresses for the corporations in
order to conduct fraudulent transactions. Furthermore, attempts were also made
to transfer approximately $22 million from legitimate brokerage and corporate
accounts belonging to the victims, into fraudulently established accounts for
conversion to the perpetrators' own use.
The Secret Service continues to attack identity
theft by aggressively pursuing core violations. It is by the successful
investigation of criminals involved in financial and computer fraud that we are
able to identify and suppress identity theft.
Using compromised financial identities of people
from all walks of life, criminals purchase everything from cars to computers to
homes. Agents in our Birmingham Field Office are working an identity theft case
involving $40,000 in fraudulent credit card purchases. During this
investigation, agents have determined that the suspects used the stolen identity
of an innocent party to obtain a $400,000 mortgage to purchase a home in the
Birmingham area. Further investigation has determined that the suspects were in
the process of obtaining seven additional home loans using other identities,
with an aggregate value of $2.1 million.
As stated earlier, identity theft, and the use of
false identification has become an integral component of most financial criminal
activity. In order to be successful in suppressing identity theft, we believe
law enforcement agencies should continue to focus their energy and available
resources on the criminal activities that incorporate the misuse or theft of
identification information. The Secret Service has achieved success through a
consistent three -tiered process of aggressive pro-active investigations,
identification of systemic weaknesses, and partnerships with the financial
sector.
Our investigative program focuses on three areas
of criminal schemes within our core expertise. First, the Secret Service
emphasizes the investigation of counterfeit instruments. By counterfeit
instruments, I am referring to counterfeit currency, counterfeit checks--both
commercial and government--counterfeit credit cards, counterfeit stocks or
bonds, and virtually any negotiable instrument that can be counterfeited. Many
counterfeiting schemes would not be possible without the compromise of the
financial identities of innocent victims. Second, the Secret Service targets
organized criminal groups that are engaged in financial crimes on both a
national and international scale. Again we see many of these groups, most
notably the Nigerian and Asian organized criminal groups, prolific in their use
of stolen financial and personal information to further their financial crime
activity.
Finally, we focus our resources on community
impact cases. The Secret Service works in concert with the state, county, and
local police departments to ensure our resources are being targeted to those
criminal areas that are of a high concern to the local citizenry. Further, we
work very closely with both federal and local prosecutors to ensure that our
investigations are relevant, topical and prosecutable under existing guidelines.
No area today is more relevant or topical than that of identity theft.
It has been our experience that the criminal
groups involved in these types of crimes routinely operate in a
multi-jurisdictional environment. This has created problems for local law
enforcement who generally respond first to criminal activities. By working
closely with other federal, state, and local law enforcement, as well as
international police agencies, we are able to provide a comprehensive network of
intelligence sharing, resource sharing, and technical expertise that bridges
jurisdictional boundaries.
This partnership approach to law enforcement is
exemplified by our financial crimes task forces located throughout the country.
Each of these task forces pools the personnel and technical resources to
maximize the expertise of each participating law enforcement agency.
In addition to our interdependent working
relationship with law enforcement on all levels, our partnership with the
private sector has proved invaluable. Representatives from numerous commercial
sectors, including the financial, telecommunications, and computer industries,
have all pledged their support for finding ways to ensure consumer protection
while minimizing corporate losses. The Secret Service has entered into several
cooperative efforts with representatives of the financial sector to address
challenges posed by new and emerging technologies.
In conjunction with these technological advances,
the Secret Service is actively involved in a number of government sponsored
initiatives. At the request of the Attorney General, the Secret Service joined
an Identity Theft Subcommittee of the Attorney General’s White Collar Crime
Council.
This group, which is made up of federal and state
law enforcement, regulatory, and professional agencies, meets regularly to
discuss and coordinate investigative and prosecutorial strategies as well as
consumer education programs.
The Secret Service has a long history of
conducting investigations into hi-tech crimes. From "hackers," "freakers,"
and "carders," in the mid 1980s to the "Masters of
Deception" group in the early 1990s, to the New York "Busboy" CEO
identity theft case described above, the Secret Service has been among those at
the forefront of cybercrime investigations.
We in the Secret Service pledge to continue to
work with the Congress, with our domestic and global law enforcement partners,
and with the private sector, to stay abreast of emerging hi-tech threats to the
citizens we serve.
Mr. Chairman, this concludes my prepared
statement. I would be happy to answer any questions that you or any other member
of the subcommittee may have. Thank you.
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