Testimony of Mr. Bruce A. Townsend
Special Agent in Charge – Financial Crimes Division

For Presentation to the Committee on
Banking and Financial Services
U.S. House of Representatives

September 13, 2000

Mr. Chairman, members of the Committee, thank you for the opportunity to address the Committee on the subject of identity theft and the Secret Service's efforts to combat this problem. I have prepared a comprehensive statement that will be submitted for the record, and with the Committee's permission, I will summarize my statement at this time.

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.

Today we are faced with a new challenge--that of identity theft. The Secret Service views 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 things 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 even years afterward.

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 committee in attacking the crime of identity theft. It is our belief that hearings such as this will be the catalyst to bring together the resources of both state and Federal Governments in a unified response to the identity theft problem.

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 even 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 all information involving ID theft cases allows us to identify systemic weaknesses and enables law enforcement to retrieve all 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 repatriation 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 the enactment of this legislation is an important component in bringing together both the federal and state government, in a focused and unified response to the identity theft problem. Today, law enforcement and regulatory and community assistance organizations have joined forces through a variety of working groups, task forces, and information sharing initiatives to assist the victims of identity theft. Victims no longer have to feel abandoned, with no where to turn.

Policies and procedures are being initiated to expedite the reporting of this crime. Civil remedies are also being created allowing for victims to seek restitution. The Secret Service "Victim Witness Assistance Program" aids identity theft victims by providing resources and contact information for credit bureaus and service programs. The financial community continues to design and implement security measures that minimize the exploitation of true persons names and identification information.

The Secret Service has broad investigative responsibilities relating to financial crimes. Today, some type of false identification is a prerequisite for nearly all financial fraud crimes. False ID's provide anonymity to criminals and allow for repeat victimization of the same individual while perpetrating a variety of fraud schemes. Often, in their attempt to remain anonymous, criminals may randomly assume the identity of another individual through the creation of false identification documents. In these cases, the goal may not be to target an individual for the purposes of stealing his or her identity. Yet, by coincidence, that individual's identity has been compromised through the criminal's use of their personal identifiers.

False identification documents, either altered, counterfeited, or fraudulently obtained, are routinely used with loan and check fraud schemes, and almost all credit card fraud schemes. Ironically, the credit industry through capital investments over the past 10 years has strengthened the integrity of the system through security measures, which effectively thwart some types of direct counterfeiting. Subsequently, criminals no longer simply create names and identities; they must more often rely on the identifiers of real people.

As we enter the next century, the strength of the financial industry has never been greater. A strong economy, burgeoning use of the Internet and advanced technology, coupled with increased spending has led to fierce 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.

In addition, 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. This has led to an entirely new business sector being created which promotes 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, are valuable commodities in this new age of information trading.

Data collection companies like all businesses are profit motivated, and as such, may be more concerned with generating potential customers rather than the misuse of this information by unscrupulous individuals. This readily available personal information in conjunction with the customer friendly marketing environment has presented ample opportunities for criminals intent on exploiting the situation for economic gain.

The Secret Service has investigated numerous cases where criminals have used other people' s identities to purchase everything from computers to houses. Financial institutions must continually practice due diligence or they will fall victim to the criminal who attempts to obtain a loan or cash a counterfeit check using someone else's identity.

As financial institutions and merchants become more cautious in their approach to "hand to hand" transactions the criminals are looking for other venues to compromise. Today, criminals need look no further than the Internet.

For example, an Internet fraud investigation conducted by the secret service, Department of Defense, Postal Inspection Service, and the Social Security Administration Inspector General's Office highlighted the ease with which criminals can obtain personal information through public sources. These defendants accessed a web site that published the promotion list of high ranking military officers. This site further documented personal information on these officers that was used to fraudulently obtain credit, merchandise, and other services.

In this particular case the financial institution, in an effort to operate in a consumer friendly manner issued credit over the Internet in less than a minute. Approval for credit was granted after conducting a credit check for the applicant who provided a "true name" and matching "true Social Security Number." All other information provided such as the date of birth, address and telephone number, that could have been used for further verification, was fraudulent. The failure of this bank to conduct a more comprehensive verification process resulted in substantial losses and more importantly a long list of high-ranking military officers who became victims of identity fraud.

The Internet provides the anonymity 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 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 merchant 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 to be mailed throughout the world. Most account holders are not aware that their credit card account has been compromised until they receive their billing statement.

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 true victim’s knowledge.

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, and then threaten the companies with exposure unless the hackers are paid a substantial amount of money.

The Secret Service continues to attack identity theft by aggressively pursuing our 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.

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 to adopt fixes to these weaknesses.

The Secret Service's 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 refer 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 of these schemes would not be possible without the compromise of innocent victim's financial identities. 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 that generally act as the first responders to their 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 which 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 and to maximize the expertise of each participating law enforcement agency. A number of these task forces are focused on the Nigerian criminal element operating in this country. As mentioned earlier, this particular ethnic criminal group has historically been involved in a myriad of financial crimes, which incorporate false identification and identity theft.

In addition to our inter-dependant working relationship with law enforcement on all levels, our partnership with the private sector has proved invaluable. Representatives from numerous commercial sectors to include the financial, telecommunications, and computer industries have all pledged their support in finding ways to ensure consumer protection while minimizing corporate losses. The secret service has entered into several cooperative efforts with members of the financial sector to address challenges posed by new and emerging technologies. These initiatives have created some new and innovative approaches to identification verification in business.

Automated teller machines, E-Commerce, online banking, online trading, smart cards, all once considered futuristic concepts, are now a reality. Each of these technologies lends themselves to creating a "faceless society". In order for businesses to be successful, they can no longer rely upon personal contact as a means of identity verification.

One innovative approach that appears to address the problems of identity verification for Internet commerce has been developed and introduced by a member of the financial community. This new product is the first commercial venture by the credit card industry to provide the public with an on line authentication process using chip technology and encryption. Although this product may not end credit card fraud on the Internet, it is the first step in providing a more secure environment in which to conduct Internet commerce.

Efforts such as these provide a foundation by which law enforcement and the private sector can build upon. By applying the technologies used in this product and others being developed for the same purpose, we can systemically eliminate the weaknesses in our economic infrastructure, which allow for the misuse of personal information.

In conjunction with these technological advances, the Secret Service is actively involved with a number of government sponsored initiatives. At the request of the Attorney General, the Secret Service joined an interagency identity theft subcommittee that was established by the Department of Justice.

This group, which is made up of federal and state law enforcement, regulatory agencies, and professional agencies meets regularly to discuss and coordinate investigative and prosecutive strategies as well as consumer education programs.

In addition, under the direction of the President, the Treasury Department, with the assistance of the Secret Service, convened a national summit on the subject of identity theft. This summit brought together various federal, state, and private sector entities to discuss and develop policies that will help to prevent identity theft crimes. Follow-up workshops are scheduled for October of this year to focus on ways of assisting consumers and preventing identity theft.

As you have heard in this testimony some very positive steps are being taken to address and combat identity theft. The Secret Service will always encourage both business and law enforcement to work together to develop an environment in which personal information is securely guarded. In this age of instant access, knowledge is power. We cannot allow today’s criminals to abuse the very systems that were created for the betterment of society. The emotional toll on the lives of those whose identities have been compromised cannot be fully accounted for in dollars and cents. It is all of our responsibilities to protect personal information.

The Secret Service acknowledges that identity theft is a very real problem and pledges its support in the Federal Government's efforts to eliminate it.

This concludes my prepared statement. I would be happy to answer any questions that you or any other member of the committee may have. Thank you.