Mr. Chairman and members of the Committee, I am pleased to be here today. Since its inception in 1865 the Secret Service has been involved in the investigation of counterfeit monetary instruments which affect the integrity and well being of this nation's monetary and economic systems.

As a law enforcement Bureau within the Department of the Treasury, the Secret Service is mandated to conduct investigations of criminal activities when our Nation's financial systems are compromised and the economy of the United States is impacted.

On November 5, 1990, pursuant to Public Law 101-529, Section 528, the Secret Service received concurrent jurisdiction with the Department of Justice law enforcement personnel "to conduct or perform any kind of investigation, civil or criminal, related to fraud or other criminal or unlawful activity in or against any federally insured financial institution..."

During the past several years the Secret Service has seen a dramatic increase in the number of investigations specifically relating to the counterfeiting of checks or other related instruments. The suspects in these investigations range from the lone individual to highly organized groups who target financial institutions and businesses nationwide.

As one would expect, the motivation behind these schemes is greed - the goal is always money. Financial systems are studied by the criminal and weaknesses are exploited. While arrests and convictions are a central component to any enforcement strategy, the Secret Service has always sought to identify and correct systemic weaknesses thus combining prevention with enforcement for a comprehensive, cost effective strategy.

While the suspects in these investigations have been traditionally thought of as white collar criminals we have recently witnessed the emergence of violent criminals engaging in these unlawful schemes. The proceeds of these criminal activities are not only used to support the lifestyles of the suspects, but also to fund other types of criminal activities, including the sale and distribution of narcotics and other violent crimes.

The use of computers and desktop publishing programs has made this crime attractive to a wide variety of criminal elements.

The crime is low cost as is the risk of being apprehended (as compared to other types of criminal activity), while the potential for economic gain is high.

In 1995, the Federal Reserve Board reported overall check fraud losses to United States' financial institutions at $615 million. A similar report in Business Week reported overall losses to customers for the same time period to be approximately $12 billion. The industry noted "this is ....400 times more than 1995 bank robberies."

Secret Service investigations have uncovered a wide range of methods by which various checks and financial instruments are counterfeited. These methods range from the unsophisticated cut and paste method to sophisticated desktop publishing techniques.

Today many businesses produce their own checks using computers, graphics software, and laser printers. Unfortunately, as this occurs with many positive technological advancements, there are those who will use an otherwise useful tool to perpetrate crimes. In this case, these same desktop software publishing programs legally used by businesses are illegally used to counterfeit various financial instruments. Criminals simply obtain a genuine check and scan this check into a computer. They can then change the date, the payee, the dollar value of the check, corporate logos, or any other feature. They then print the check on a printer loaded with check paper which can be purchased in most business supply stores. The result is a high quality counterfeit check which is indistinguishable from the genuine check. Since there is no standard check design (each business issues their own checks) a genuine check is no longer a necessity. Armed with relatively inexpensive technology and genuine account numbers a counterfeit check can be created. The mobility of these "printing plants" makes these types of crimes difficult to investigate. When conducting searches of residences, motel rooms, or vehicles, the Secret Service has discovered an alarming trend which we refer to as "one stop shopping" for financial fraud. The seizure of computers that were used to generate counterfeit checks, counterfeit traveler's checks, counterfeit credit cards, or counterfeit U.S. currency has become commonplace. These computers also generate counterfeit identification needed to negotiate these counterfeit instruments and breeder documents (birth certificates or social security cards) which are used to obtain other forms of genuine identification for criminal use.

Frequently counterfeit checks, used in concert with false identification, are cashed at small businesses or are used to purchase items from small businesses through classified advertisements. The Secret Service is still in the process of completing its investigation of a large counterfeit check operation which originated in Southern California and involved an Asian criminal group. The "leaders" of this group were obtaining copies of genuine checks from a source inside a financial institution. Checking account information was targeted and compromised from large corporations based on the number of employees, the geographic location of the corporation, and the account balance. These "leaders" would direct the activity of the counterfeit check "manufacturers" and "organizers". The "organizers" would coordinate the travel of the "recruiters" and "drivers". Upon arrival in a city the "recruiters" would recruit persons to cash these counterfeit checks. Banks and financial institutions that had a business relationship with the corporation whose checks had been counterfeited were targeted. A cell of six to ten persons directed by the "organizers" would cash checks at several branches of the same bank over a two to three day period. The counterfeited checks were generally under $1,000.00. Genuine identification was usually obtained by the "recruits". Counterfeit corporate identification was sometimes provided as well. Banks would cash these counterfeit checks for non-account holders because of the business relationship they have with the corporation. Losses over this period would average between $20,000 to $40,0000 per city. Losses in this particular investigation stand at approximately $25 million to date.

Computers and desktop publishing programs have also been used to create fictitious financial instruments. These are not counterfeits because they have not been copied from an original. They have been created to resemble a legitimate financial instrument. Some of these fictitious instruments have been labeled Certified Bankers Checks, Comptroller Warrants, Lien Drafts, and Republic of Texas Warrants. Hundreds of millions of dollars of these fictitious instruments have been submitted for payment to financial institutions and government agencies.

Combating these systemic attacks against financial systems and institutions requires a comprehensive approach. Partnerships and cooperation is essential amongst Federal, State and local law enforcement, banks, credit card companies, non-banking financial systems, bank regulators and customers of these entities. Through these partnerships a multi-faceted strategy can effectively combat the problem.

An integral part of this strategy is a "proactive risk analysis" of our financial systems. This is accomplished through regular interaction between law enforcement officials and individuals in the financial system and industry. This interaction, we believe, must occur on a local, national and international basis. There are a multitude of organizations which have been active in this arena. Groups such as the International Association of Financial Crime Investigators (IAFCI), American Bankers Association (ABA), the Bank Fraud Working Group (comprised of representatives from all federal bank regulatory offices and related federal law enforcement agencies), local and state bank security working groups (comprised of federal, state and local law enforcement and banks within those regions), just to name a few.

Security procedures and enhancements, such as security check stock; biometrics; and holograms are but a few of the proposals which law enforcement agencies have supported and proposed. Security enhancement proposals made through a similar public/private working group have proven successful in combating credit card fraud. We should build upon that success by following a similar strategy.

Security features are only one of the methods that will deter criminal activity in desktop publishing of counterfeit financial instruments. Financial institutions and businesses must apply the same principles which the Secret Service has been advocating for years. The "know your customer" philosophy will go a long way in reducing fraud associated with counterfeit checks. Training of bank and business personnel to recognize unusual patterns, such as recently issued driver's licenses or identification cards, and characteristics of counterfeited identification will greatly enhance the probability of detection.

A diverse, professional working group allows for the exchange of information concerning criminal activities and trends as well as on-going problems affecting financial institutions. Many of these joint groups will establish communication links through the use of E-mail and fax, enabling the identification of a current problem or emerging trend, thus allowing law enforcement officials to respond in a timely and efficient manner.

In conjunction with the working groups that are exchanging information and recommending security enhancements it is essential to create investigative task forces. This is truly a partnership approach to combat these types of crimes. The implementation of task forces allows for a combination of federal, state, and local law enforcement officials and prosecutors to pool resources and draw upon the individual expertise that each agency brings to the table. These task forces can maintain routine contact with the industry working group thus creating a complementary dynamic in uncovering criminal activity.

Because computers are used as a repository of recorded information, such as the counterfeit documents and proceeds of these crimes, the retrieval of this data as evidence for prosecution is essential and requires highly trained personnel and state of the art equipment.

Secret Service Agents, highly trained in the forensic examination of computers and related equipment, are a major component of both the task force and unilateral Secret Service investigative efforts. These agents are part of the Electronic Crimes Special Agent Program (ECSAP) and are strategically placed throughout the country, to provide technical assistance to investigators and prosecutors when needed to retrieve evidence or provide additional technical services. The Secret Service Electronic Crimes Laboratory possesses state of the art equipment which is used for the forensic examination of computers and related investigations.

The Secret Service has also established the Counterfeit Instrument Database. This database obtains specimens of counterfeit instruments, including payroll checks, bank checks, traveler's checks, and other financial instruments, which enable the Secret Service to associate and link investigations based on common characteristics unique to each instrument. This tool has enabled us to identify specific equipment used to counterfeit these financial instruments and greatly enhances our ability to investigate these crimes.

Legislation has also served to combat these criminal schemes. The establishment of Title 18 U.S.C. 514 (Fictitious Instruments) serves as a prime example. Prior to this legislative initiative, it was not a crime to produce or possess a false or fictitious financial instrument. Effective September 30, 1996, this law was added to Title 18 of the United States Federal Criminal Code.

Training of the law enforcement community and the public is always a crucial element to any comprehensive enforcement strategy. The Secret Service believes that law enforcement officials must be kept abreast of the ever-changing technology that enables criminals to commit financial crimes. Police officers should be able to recognize potential evidence, such as computers, software, and related equipment, which is easily transportable in a vehicle. Routine traffic stops have led to the suppression of counterfeit check printing operations and are directly attributable to the police officer's awareness of the tools of the crime.

The public, especially businesses, must be made aware of how counterfeit check schemes operate. The ability of individual bank tellers and support personnel to recognize the counterfeit check schemes is vital. These individuals are law enforcement's first line of defense. Banks should ensure that they have established policies and procedures to prevent check fraud and that these policies draw from the experiences in the banking and law enforcement communities. Financial institutions should insure that bank employees are required to adhere to all internal policies which are in place to prevent financial instrument fraud. We believe that the financial community and law enforcement are committed to enhance these efforts, and many of these types of deterrent measures are available to banks through the FDIC and ABA.

We must face the reality that no one system will prevent the financial crimes involving the counterfeiting of checks and other financial instruments. The Secret Service encourages and supports a comprehensive effort by financial institutions, the private sector, and the law enforcement community to develop and implement security enhancements, explore the use of biometrics, investigate through task forces, and provide necessary training and education to the public. This partnership strategy has proven successful in combating credit card fraud, and we believe it will succeed in combating the counterfeiting of checks and other financial instruments. I thank the members for their time and letting me express our views and concerns. I will be happy to answer any questions which you may have.