1998 Congressional Hearings
Intelligence and Security

                                    

TESTIMONY OF RICHARD A. ROHDE

DEPUTY ASSISTANT DIRECTOR-OFFICE OF INVESTIGATIONS

U.S. SECRET SERVICE

BEFORE THE SUBCOMMITTEE ON TECHNOLOGY,

TERRORISM AND GOVERNMENT INFORMATION OF THE

SENATE COMMITTEE ON THE JUDICIARY

FEBRUARY 24, 1998

GOOD MORNING MR. CHAIRMAN. I WOULD LIKE TO THANK YOU, THE OTHER
MEMBERS OF THE COMMITTEE, AND YOUR STAFFS, FOR PROVIDING THIS
FORUM. WE AT THE SECRET SERVICE APPROACH THE ISSUE OF TERRORISM
FROM TWO ANGLES: FIRST, AS PART OF OUR PROTECTIVE MISSION, WE ARE
INTIMATELY INVOLVED IN PREVENTING TERRORIST ATTACKS; SECOND, AS
PART OF OUR TRADITIONAL LAW ENFORCEMENT ROLE, WE BECOME
INVOLVED IN INVESTIGATING TERRORISM WHEN IT INVOLVES FINANCIAL,
TELECOMMUNICATIONS, OR COMPUTER CRIMES.

I HOPE MY TESTIMONY TODAY WILL GIVE THIS SUBCOMMITTEE AND THE
PUBLIC AT LARGE, A NEW PERSPECTIVE ON THE INTERRELATIONSHIP
BETWEEN FINANCIAL CRIMES AND TERRORISM, AND AS A RESULT, PROVIDE
A BETTER UNDERSTANDING OF THE SECRET SERVICE'S CONTRIBUTION TO
THE FIGHT AGAINST TERRORISM THROUGH OUR INVESTIGATIVE MISSION.

THROUGHOUT ITS HISTORY, THE SECRET SERVICE HAS BEEN TASKED WITH
MAINTAINING THE INTEGRITY OF THE UNITED STATES FINANCIAL SYSTEMS.
PAYMENT SYSTEMS HAVE EVOLVED TO INCORPORATE NEW TECHNOLOGIES SUCH
AS PLASTIC AND ELECTRONIC PAYMENT SYSTEMS.

AS A RESULT, THESE PAYMENT SYSTEMS HAVE BECOME MUCH MORE GLOBAL
IN NATURE, RESULTING IN THE SECRET SERVICE EXPANDING ITS
EXPERTISE IN THE AREA OF FINANCIAL CRIMES INVESTIGATIONS. TODAY,
THE SECRET SERVICE IS RESPECTED THROUGHOUT THE WORLD FOR ITS
EXPERTISE IN THE INVESTIGATION OF THESE TYPES OF CRIMES.

MUCH OF OUR SUCCESS IN THE INVESTIGATION OF FINANCIAL CRIMES IS
DIRECTLY ATTRIBUTABLE TO OUR PARTNERSHIP APPROACH TO
INVESTIGATIONS. THE SECRET SERVICE HAS BEEN AND CONTINUES TO BE
AN ADVOCATE FOR DEVELOPING AND MAINTAINING PARTNERSHIPS WITH THE
WORLDWIDE FINANCIAL AND LAW ENFORCEMENT COMMUNITIES. WE BELIEVE
THESE PARTNERSHIPS ARE THE MOST EFFECTIVE TOOL IN SAFEGUARDING
THE WORLD'S FINANCIAL SYSTEMS AGAINST ORGANIZED ATTACKS.

THE SUCCESS OF THESE PARTNERSHIPS CAN BEST BE ILLUSTRATED BY THE
FOLLOWING EXAMPLES:

RECENTLY, THE SECRET SERVICE WAS CALLED UPON BY THE IMMIGRATION
AND NATURALIZATION SERVICE (INS) TO ASSIST IN THE INVESTIGATION
OF TWO MIDDLE EASTERN MEN ATTEMPTING TO ENTER THE UNITED STATES.
DURING A SEARCH OF THE SUSPECTS' VEHICLE, COUNTERFEIT CREDIT
CARDS, COUNTERFEIT RESIDENT ALIEN CARDS, AND NARCOTICS WERE
FOUND. WHEN A THIRD SUSPECT WAS LOCATED AND ARRESTED, TWO
COUNTERFEIT CREDIT CARDS AND ONE COUNTERFEIT DRIVER'S LICENSE
WERE FOUND IN HIS POSSESSION.

SUBSEQUENT INVESTIGATION DETERMINED THAT THE ACCOUNT NUMBERS
EMBOSSED ON THE COUNTERFEIT CARDS WERE ISSUED BY A CREDIT CARD
ISSUER LOCATED IN BRAZIL. CREDIT CARD FRAUD INVESTIGATORS WORKING
CLOSELY WITH AGENTS FROM OUR MIAMI FIELD OFFICE, HAVE LEARNED
THAT AN ORGANIZED GROUP OF LEBANESE NATIONALS ARE RESPONSIBLE FOR
COUNTERFEITING THESE CREDIT CARDS. SOURCES CLOSE TO THE
INVESTIGATION HAVE INDICATED THAT THIS GROUP IS AFFILIATED WITH A
MIDDLE EASTERN TERRORIST ORGANIZATION.

FURTHERMORE AN INQUIRY WITH OUR INTELLIGENCE DIVISION REVEALED
THAT THE SUSPECTS DETAINED BY INS ARE "OF RECORD" AS HAVING TIES
TO A MIDDLE EASTERN TERRORIST ORGANIZATION.

LOSSES TO DATE FROM THE MISUSE OF THESE COUNTERFEIT CREDIT CARDS
ARE IN EXCESS OF SEVENTEEN MILLION DOLLARS. THE INVESTIGATION
INTO THE SOURCE OF THE COUNTERFEIT CARD MANUFACTURING PLANT
CONTINUES.

ANOTHER NOTEWORTHY INVESTIGATION OCCURRED WHEN THE SECRET SERVICE
WAS CONTACTED WITH INFORMATION PERTAINING TO A CREDIT CARD FRAUD
SCHEME BEING PERPETRATED BY A GROUP OF MIDDLE-EASTERNERS WITH
AFFILIATIONS TO KNOWN MIDDLE EASTERN TERRORIST GROUPS.

THIS TYPE OF SCHEME IN QUESTION, IS OFTEN REFERRED TO AS THE
"REGULATION Z" FRAUD, OR "BOOSTER CHECK/BUST OUT SCHEME." BECAUSE
OF OUR EXPERTISE IN THESE TYPES OF INVESTIGATIONS, WE WERE ASKED
FOR OUR ASSISTANCE. IN ADDITION, DUE TO THE VARIETY AND
SOPHISTICATION OF THE CRIMINAL ACTIVITIES OF THIS GROUP IT WAS
DECIDED THAT THE BEST APPROACH FOR A SUCCESSFUL INVESTIGATION
WOULD BE TO CREATE A TASK FORCE. THIS TASK FORCE ULTIMATELY
INVOLVED MANY FEDERAL LAW ENFORCEMENT AGENCIES, AS WELL AS
MEMBERS OF THE FINANCIAL COMMUNITY.

THE INVESTIGATION REVEALED THAT A GROUP OF MIDDLE EASTERNERS
ORGANIZED INTO "CELLS" LOCATED THROUGHOUT THE UNITED STATES HAD
APPLIED FOR AND RECEIVED NUMEROUS CREDIT CARDS. SOME MEMBERS HAD
RECEIVED IN EXCESS OF FORTY CREDIT CARDS. THESE CARD HOLDERS
SYSTEMATICALLY "BOOSTED" THE CREDIT LIMITS TO THE MAXIMUM AMOUNT
AVAILABLE. ONCE THEY ESTABLISHED THEIR PORTFOLIO OF UNSECURED
CREDIT CARD DEBT, THEY SUBMITTED WORTHLESS CHECKS AS PAYMENT FOR
THESE ACCOUNTS IN ADVANCE OF PURCHASES BEING MADE. IN MOST CASES
THESE CHECKS WERE IN AMOUNTS EXCEEDING THE CARD HOLDER!S CREDIT
LIMIT, AND IN SOME INSTANCES TWICE THAT AMOUNT.

THE CHECK AMOUNTS WERE POSTED TO THE ACCOUNTS PRIOR TO THE CHECKS
CLEARING THE BANK. THIS RESULTED FROM THE BANKS'
MISINTERPRETATION OF REGULATION "Z" REGULATION "Z" IS A BANKING
REGULATION WHICH STATES, "A CREDITOR SHALL CREDIT A PAYMENT TO
THE CONSUMER'S ACCOUNT AS OF THE DATE OF RECEIPT, EXCEPT WHEN A
DELAY IN CREDITING DOES NOT RESULT IN A FINANCE OR OTHER CHARGE."
CRIMINALS EXPLOITING THE BANKS' MISINTERPRETATION OF THIS
REGULATION HAS SUBSEQUENTLY GIVEN RISE TO THE TERM REGULATION "Z"
FRAUD.

BEFORE THE CHECK'S WERE RETURNED AS WORTHLESS, THE CARD HOLDERS
PURCHASED MERCHANDISE AND OR OBTAINED CASH ADVANCES, UP TO, AND
IN MOST CASES, IN EXCESS OF THE LIMIT ON THE ACCOUNTS THEREBY
"BUSTING OUT" THE ACCOUNTS.

THE INDIVIDUALS IN THESE CELLS HAVE BEEN IDENTIFIED AS OPERATING
AND TRAVELING THROUGHOUT THE UNITED STATES, AS WELL AS THE MIDDLE
EAST. TO DATE, THIRTY-ONE SUSPECTS HAVE BEEN IDENTIFIED. SEVERAL
DEFENDANTS HAVE BEEN CONVICTED. ADDITIONAL DEFENDANTS HAVE FLED
THE UNITED STATES AND ARE CURRENTLY INTERNATIONAL FUGITIVES.
EFFORTS TO LOCATE AND ARREST THESE INDIVIDUALS CONTINUE. LOSSES
TO FINANCIAL INSTITUTIONS HAVE BEEN IN EXCESS OF $4.5 MILLION
DOLLARS.

SINCE 1991, FRAUDULENT ACTIVITY ON TELECOMMUNICATIONS SYSTEMS HAS
GROWN SIGNIFICANTLY IN ALL TYPES OF ACTIVITY, INCLUDING STOLEN
ACCOUNT NUMBERS, SUBSCRIBER FRAUD AND WIRELESS CLONING FRAUD.
REFLECTING THIS GROWTH, THE SECRET SERVICE HAS DOUBLED THE NUMBER
OF ARRESTS BROUGHT FOR FEDERAL PROSECUTION FOR THESE VIOLATIONS
EVERY YEAR SINCE 1991.

THE ABILITY TO OBTAIN ANONYMOUS PHONE SERVICE HAS BECOME BOTH AN
ASSET TO THE CRIMINAL AND AN OBSTACLE TO LAW ENFORCEMENT. IN OUR
EXPERIENCE, THE SUSPECTS UNDER INVESTIGATION FOR THE FRAUDULENT
USE OF TELECOMMUNICATIONS SYSTEMS ARE RARELY COMMITTING THIS
CRIME EXCLUSIVELY. NUMEROUS INVESTIGATIONS WERE INITIATED AS
SIGNIFICANT FRAUD INVESTIGATIONS AND EVOLVED INTO MULTI- AGENCY
INVESTIGATIONS INVOLVING NARCOTICS TRAFFICKING, WEAPONS DEALING,
AND VIOLENT CRIMES IN WHICH FRAUDULENT ACCESS TO
TELECOMMUNICATIONS SYSTEMS FACILITATED THE ACTIVITY.

ONE EXAMPLE OF THIS TYPE OF ACTIVITY IS THE INVESTIGATION OF A
CALL-SELL OPERATION IN THE SOUTHEASTERN AREA OF THE UNITED
STATES. THE TERM "CALL-SELL" IS DERIVED FROM AN ORGANIZED EFFORT
BY SUSPECTS TO SELL LONG-DISTANCE TELEPHONE ACCESS TO CALLERS
USING FRAUDULENTLY-OBTAINED SERVICE. THESE OPERATIONS TYPICALLY
ARE USED TO COMPLETE CALLS TO AND FROM INTERNATIONAL LOCATIONS.
IN THE CASE FROM THE SOUTHEASTERN AREA, TRACING OF INTERNATIONAL
CALLS PLACED WITH CLONED CELLULAR TELEPHONES TO LOCATIONS IN THE
MIDDLE FAST, LED TO THE ARREST OF TWO INDIVIDUALS. THESE
INDIVIDUALS WERE IDENTIFIED AS THE' SUBJECTS OF A NATIONAL
SECURITY INVESTIGATION. THIS CASE ILLUSTRATES THE RELATIONSHIP
BETWEEN CRIMES TYPICALLY REFERRED TO AS "WHITE-COLLAR" AND OTHER
TYPES OF CRIMINAL ACTIVITY. THE ABILITY OF CRIMINAL ENTERPRISES
TO UTILIZE THE PROCEEDS OF FRAUD SCHEMES TO FURTHER OTHER CRIMES
CANNOT BE UNDERESTIMATED. IT IS VIRTUALLY IMPOSSIBLE FOR LAW
ENFORCEMENT TO COMPLETELY IDENTIFY THE MOTIVES OF A CRIMINAL AT
THE OUTSET OF ANY INVESTIGATION. LAW ENFORCEMENT MUST CONTINUE TO
UTILIZE ITS SPECIALIZED EXPERTISE COUPLED WITH A STRONG
COOPERATIVE EFFORT TO MAXIMIZE ITS EFFECTIVENESS.

THE SECRET SERVICE IS CURRENTLY IN THE MIDST OF A MAJOR
INTERNATIONAL TRAINING INITIATIVE IN WHICH WE ARE TRAINING AND
INTERACTING WITH INDUSTRY AND OTHER LAW ENFORCEMENT AGENCIES
REGARDING THE GLOBAL IMPLICATIONS OF FINANCIAL SYSTEMS AND
TELECOMMUNICATIONS INFRASTRUCTURE VULNERABILITIES. OUR STRATEGY
IS TO KNOW THE PARTICIPANTS AND THEIR CURRENT CONCERNS,
UNDERSTAND THE TECHNOLOGY, AND RECOGNIZING APPROPRIATE AREAS FOR
INPUT.

AS THE SECRET SERVICE CONTINUES TO INVESTIGATE FINANCIAL CRIMES,
IT HAS BECOME EVIDENT THAT ORGANIZED CRIMINAL GROUPS ARE
UTILIZING NUMEROUS SYSTEMIC WEAKNESSES IN THE GLOBAL FINANCIAL
SYSTEM TO UNDERWRITE AN ARRAY OF CRIMINAL ACTIVITIES.

ALTHOUGH THE SECRET SERVICE IS NOT TASKED WITH THE DIRECT
INVESTIGATION OF TERRORISM, THE CONSTANT INTERMINGLING OF THESE
CRIMINAL ACTIVITIES DEMANDS THAT THE SECRET SERVICE CONTINUE TO
PLAY AN IMPORTANT ROLE IN THE FIGHT AGAINST THOSE FINANCING
TERRORISM THROUGH FINANCIAL CRIMES. AS STATED PREVIOUSLY, THE
SECRET SERVICE WILL ALWAYS ADVOCATE AND PRACTICE ITS PARTNERSHIP
APPROACH IN ITS ROLE AS THE VANGUARD OF THE AMERICAN ECONOMY.

THIS CONCLUDES MY PREPARED REMARKS, MR. CHAIRMAN, BUT I WOULD
WELCOME ANY QUESTIONS THAT YOU OR THE OTHER MEMBERS MIGHT HAVE.