tv Officials Testify on Digital Financing of Terrorism - Part 1 CSPAN July 22, 2021 9:11pm-10:40pm EDT
>> >> the subcommittee on intelligence and counterterrorism will come to order. subcommittee is meeting today on terrorism and digital financing, how technology is changing the threat. without objection, the chair is authorized to declare the subcommittee in recess at any point. good morning, everyone. i want to thank our witnesses from the department of homeland security for being here today to discuss a topic that is really timely and really interesting, which is how digital financial tools can be exploited by terrorist actors to funnel support for their activities. over the past several months the
, abuse of digital finance platforms and technologies has jumped into the public view as a result of the burst of ransomware attacks that struck the heart of day-to-day life in america, from gas pipelines and meat processing plants to schools and hospitals. last month just as an anecdote, i held an event in my district with the secretary of agriculture. this was days after the ransomware attack on the world's largest meat processerer. i'm in a room full of farmers, in a barn with the tractors behind us. when with opened it up to q&a, the first question from the farmers was about cyber attacks, crypto currency and asking what their government was doing to protect them. there's nothing inherently illicit or illegal about crypto currencies or other digital finance technologies. they are used by millions of law-abiding people ever single -- every single day. nor is there anything suspect about using technologies that aim to protect the privacy of
users. but it's our responsibility to also understand how these tools can enable malicious activity that threatens our homeland security. whether it's a ransomware attack like the one i discussed with those farmers or our topic today, funding for terrorism. detecting and preventing terrorist funding has been a cat and mouse game for the intelligence community. just like cyber criminals, terrorists seek legal loopholes, illegal pathways and new tech to stay one step ahead of governments, especially when it comes to funding their operations. as a former cia analyst, i know this is far from a new challenge. we have been tracking terrorist financing for decades. and i know first hand how difficult it can be. while the technology has changed, today's terrorists benefit from using many of the same tools that so many of us rely on for our daily, honest activities. just as they exploited commonly
used financial systems in the past. some of the online platforms and tech allow easy access for thousands, if not millions of users to donate money through online campaigns. for example, crowd funding through paypal, gofundme and amazon have become populist ways for extremist groups to raise money. bitcoin has been the currency of choice for ransomware and terrorist actors. to put this in context according to the global project against hate, from 2005 to 2015, just about every extremist group featured a paypal biden on their website. even though processing platforms became aware of the issue, began to ban extremists, these groups have persevered and maintained a strong online presence. so beyond social media
platforms, new tech like crypto currencies, which are decentralized, largely anonymous forms of digital money, have enabled terrorists to further expand and disguise funding efforts. think about for many of us who are sort of in the 9/11 era, after 9/11, expect now the currency is virtual instead of filtered through couriers. we have seen a number of incidents in the past year that highlight the need for the federal government to understand these technologies to the degree to which they pose a threat and their impact on terrorist financing. just as nefarious groups have changed their fundraising tactics after crackdowns by payment processors, when law enforcement begins following and cracking down on illicit bitcoin use, they advise supporters to use other crypto currencies to avoid detection.
this was the case of a pro isis website that requested its supporters send money through another crypto currency instead of bitcoin because of itself privacy and safety features. we need to properly understand and combat this threat and we know that it requires a lot of partnership between the private sector, allies and partners and a task the department of homeland security is positioned to lead. i'm hoping our witnesses will help us understand the actual scope and scale of this challenge. how much my are we talking about? how does it compare to terrorist financing as a whole? and who is taking advantage of this new tool? is it domestic or foreign groups? help us contextualize a little bit. we know we have an uphill battle. our subcommittee stands ready to help the department with what you need. if you need changes to legislation, if you need
resources, we want to hear more from you, not less. so we're pleased to welcome our witnesses today. i will just note that as i mentioned to the witnesses, we expect votes to be called probably in the next ten minutes. we will try and keep the hearing going as long as possible. there will probably be a short gap when i and myself are voting. but we will try to tag team to make it as minimal as possible. i now recognize the ranking member of the subcommittee, mr. pfluger, for an opening statement. >> i appreciate you holding this hearing. i would like to thank the witnesses as well. i appreciate your expertise and your willingness to speak with us today on this very important subject. i'm looking forward to an informative discussion on this very important topic.
reportedly occupying about a third of the country and including the keyboarder crossing areas. afghan security forces are surrendering. the taliban is gunning to fight -- beginning to fight for some of the provincial cities. they are reporting afghan government could collapse at some point, as soon as maybe even six months. but i think the point is, all that to say that foreign terrorist organizations are alive and well. they are growing. as we know, afghanistan is only a portion of the widespread and diverse terror threat landscape that with face around the world. -- that we face around the world. if they are given then opportunity to submit their presence overseas, i have no doubt their next goal is and will continue to be to launch an attack on u.s. soil or on those
of our partners and allies. those who served in afghanistan saw the death and destruction terrorist organizations can cause and have caused. it's absolutely imperative that the war on terror be fought abroad on foreign soil. we must guarantee that foreign terrorist organizations do not have the resources to expand operations and bring the fight to the united states. cutting off their access to financing is critical. it's paramount in this fight. terrorist financing is not a new issue. there are transnational criminal organization, foreign terrorist organization, or money launder, we have been confronting this problem for decades. but crypto currency is becoming a new tool that other criminal enterprises have at their disposal. unfortunately, congress has not always been known for our ability to stay one step ahead
when it comes to the latest technological advances. when we are confronting the issue of terrorism and financing playing catch-up is not an , option for us. during a conversation i had earlier this week, with the assistant director, they mentioned that relative to terrorist financing world that crypto currency and the transactions account for maybe 1% of all cases. i think this tells me right now that we are having this hearing at exactly the right time. that we might have a chance to stay one step ahead of what the issues and the problems would be before this becomes a systemic issue worldwide. we're now in a position to provide our agency partners with the resources and the authorities that they need to confront this proactively instead of reacting to it.
that's why i'm most looking forward to the hearing today and ensure that crypto currency transactions continue to be 1% or maybe even less of the problem. what does dhs need from us in congress to best situate themselves to combat this threat? coming out of this hearing, i also hope to understand what we should expect going forward although this is a small portion of the problem now, do we foresee that change? -- changing? if it is suspected to grow, how much will it grow and how can we minimize that growth? it's been almost 20 years since 19 al qaeda terrorists coordinated the hijacking of four commercial airlines. flying them into buildings which were recognized as symbols of american strength, freedom, accomplishment and taking 2,977 innocent lives. thus far, we have successfully
prevented an attack of that magnitude that we experienced on september 11th. as long as i serve my country, and i think the chairwoman would also agree, whether it's in uniform overseas or in the capacity that with now serve here in congress, i will do everything, and think i can say we will do everything in our power to ensure that what happened on 9/11 does not happen again. i'm confident that my fellow members on the homeland security committee also feel the same way in a very bipartisan manner. i'm looking forward to working with the chairwoman and the other members of this committee to ensure we are providing the department with all the tools necessary to minimize the threat caused by terrorist financing and to successfully protect our homeland. once again, i'd like to thank our witnesses for joining us for your expertise, for your service to this country. and for looking at a threat in a proactive way that we can combat now so it doesn't continue to
become a problem of larger magnitude. >> i now welcome our panel of witnesses. our first witness is ms. stephanie dobitsch. our second witness is mr. john eisert, the assistant director of investigative programs at u.s. immigration and customs enforcement. and our third and final witness is jeremy sheridan, assistant director of the office of investigations at the u.s. secret service. the witnesses full statements will be inserted into the record. i now ask each witness to summarize his or her statement for five minutes. >> good morning, chairwoman, members of the subcommittee. thank you for the opportunity to appear before you today to represent the office of intelligence and analysis and to discuss the malicious use of crypto and other digital currencies.
over the last several years, i observed a growing trend of a wide range of malicious actors seeking to use access to digital and crypto currencies to facilitate activities. this includes domestic and international terrorists, nationstate adversaries transnational and other criminal , organizations and cyber criminals. while the intent and capabilities of these actors very -- vary widely, all of them using crypto and other digital currencies as an effective means to fund their operations. including against the united states. crypto currencies are a digital or virtual currency that is secured by sophisticated coding. they are not issued by any central authority and they offer users a high degree of anonymity, complicating intelligence community efforts to identify and disrupt threatening activity. bitcoin is the market leader, but there are thousands of other
crypto currencies including privacy koins, which provide a greater level of obscurity. this means that users can easily hide who is sending or receiving a transaction, transaction amounts and individual units of currency. since at least 2015, we have observed terrorists seeking to use crypto currencies to procure materials and solicit funding for their operations. most of this activity has occurred by terrorist groups and associates overseas spanning the spectrum. for example, supporters of isis and al qaeda have solicited donations. a media group offered a reward of 1 bitcoin worth $60,000 at the time to the first person to kill a police officer in a western country. we have also seen foreign motivated extremists claim they were sported by the use of crypto currencies.
in 2019 the perpetrator of the mosque attacks in new zealand claimed in his manifesto to have made money dealing in crypto currency. later that same year, a violent extremist who attempted an attack in germany claimed he received financial support for his operation via crypto currency. beyond terrorism, the use of crypto currency has become more common among cyber actors and criminal organizations. north korean cyber actors affiliated with the regime have executed thefts valued at hundreds of millions of dollars. crypto currencies increasingly is being used to buy and sell drugs on the dark web and by drug cartels seeking to launder drug profits. and it's becoming the payment of choice for criminals conducting ransomware attacks or services online. it is important to remember that the house of crypto currency is
-- the use of cryptocurrency is a small fraction of the transactions that occur daily, and many malicious actors are still relining on traditional means of funding. however, as this technology becomes more accessible and more scrutiny is applied to traditional banking systems, we expect to see more activity and our ability to detect and disrupt these threat actors will be even more difficult. the mandate and court mission is to provide federal, state, local and private sector partners with the intelligence and information necessary. i want to underscore ina is committed to identify and communicate plans and intentions of malicious actors seeking to exploit emerging technologies like crypto currency. just this week we hosted partners from the state and local intelligence community council for this topic was discussed as a significant gap in our intelligence. like with any threat to the
homeland, ina will ensure that policy and operational decision makers have the most robust understanding of this threat that the intelligence community can provide. thank you again for the opportunity to appear before you today to discuss this issue and for your continued support to the office of intelligence and analysis. >> thank you. i now recognize the assistant director to summarize his statement. my sense is we may break for a few moments while we go and vote. asst. director eisert: thank you . thank you for the opportunity to appear before you end discuss the critical investigative role homeland security plays in the fight to protect the homeland from transnational security threats. i will focus on efforts to investigate criminal organizations and terror
networks whose use of cryptocurrency jeopardizes national security and public safety. as a principal investigative come moment -- component of dhs, hsi is responsible for conducting liminal -- criminal investigation into the illicit move goods, people, money, contraband and technology into and out of the united states. into and throughout the united states. hsi strives to protect the borders and pursue cyber actors with the same dedication that we safeguard our physical, land and sea borders. hsi applies capabiliies to conduct investigations which include combatting the financial crime, investigating cyber crime and protecting national security. the use by nefarious actors leads to each of these priorities.
it power which is aed items such as drug or guns on the marketplaces to launder proceeds or the means to provide material support to terrorist organizations. traditional money laundering methods reare main, but crypto currency can be used to facilitate any type of illicit activity. given it's utilized across the spectrum, hsi plays a critical role to prevent the use. hsi investigations relate to crypto currency have risen from ab investigation in 2011 to over 604 active criminal investigations and dplr 80 million in seizures in this year alone. this mark increased signifies growing confidence in by bad actors and the technical performing these complex investigations. to be successful, hsi recognizes the importance of enhanced
public and private partnerships. we continue to be forward leaning in our approach to operation cornerstone, our outreach efforts. since 2019 hsi provided 660 presentations to over 61,000 attendees with the primary focus of deteching and closing vulnerabilities in the financial, trade and transportation sectors with the rapid growth of crypto currency, we expanded outreach to include private industries. the relationship we build in the private sector correlates to our investigative success. they are not mutually, collusive. last year they led a global operation with the fbi related to 24 crypto currency accounts, all of which were identified as sources of influence for al qaeda. the hsi undercover operation was initiated to investigate the unlawful use to support terrorism. the result of the investigation hsi seized 60 wallets worth $80
million. in another case, hsi initiated another cyber undercover operation that resulted in the seizure of 150 crypto currency accounts worth $2 million into taking over a hamas website. hsi operated the site embedding the undercover wallet and e-mailed the track funds and communications. the as a results of these cases and ohs illustrates how law enforcement can disrupt terrorist groups through the use of hsi authorities. technical aptitude and the ability to use private sector as a force multiplier to dismantle the control structure of these criminal organizations. in closing, i appreciate your interest in this rapidly growing field. thank you again for the opportunity to be before you today. and your continued support of homeland security investigations. >> thank you for your testimony. pursuant to today's order, the
subcommittee stands in recess subject to the kl of the chair. we will be back shortly. i'll flag we have a couple members who are online. you can't see them, but when they are called for questions, they will come up and you'll be aware of them. so give us just a few minutes. we'll be right back to you. go .
call on the line that best reflects your poiblt of view. >> chair slotkin: if staff can't here, let us know. but i can hear you well. >> good morning. thank you for inviting me to testify on how cryptocurrency, virtual currency and forms of tittle money are being used to advance criminal activity, including terrorism and violent extremism. my name is jeremy sheridan, assistant director of the secret service office of investigations. i lead over 160 field offices and direct our global network of cyber taskforces to investigate and arrest those in investigations we are authorized to investigate while protecting our acquirements around the
world. the secret service has conducted investigations to protect the american public, companies, financial institutions and critical infrastructure from criminal exploitation. companies, financial institutions, krit ta infrastructure from exploitation. to safe forward fungal meningitis and payment systems from criminal misuse, even as the activities are increasingly transnational and ebb abled by digital money. the secret service has a distinctive record of success related to new technologies. we have successfully investigated and dismantled some of the most notorious virtual money platforms and brought to justice some of the most infamous money launders and cyber criminals in u.s. history. today we remain committed to keeping pace with innovation and the evolving strategies. our perspective is based on our unique role. we're not a financial regulator
or a member of the intelligence community. we are a law enforcement agency focused on accomplishing our integrated mission of protecting dez ugh nated persons and events and vgting crimes that jushd mine the integrity of payment systems. this unified mission is that we understand how digital money may present risks to the financial system as well as to our money protectees. consequently, today i will aim to address the broad criminal risks of digital money as well as the work of the secret service and our partners to mitigate those risks. i do the measures to address these risks apply equally to violent extremism and motivated crime as they do to other forms of criminality. i wish to stress stres it is being ar abused by purposes. for money laundering and ransomware to financing of terrorism and violent extreextr. over the past decade, law enforcement has made great
strides in the yugs of tij tall money. we anticipate that the ongoing growth in criminality will continue over the coming years. organized crime groups, terrorists and other bad actors will continue to view digital money as a means to transfer value globally. and as a means of evading the anti-money laundering controls. as the crypto currency industry improves, the secret service is focused on staying one step ahead of our adversaries by building the capabilities and per view to meet the evoling threats, we can arrest those that enfwaj in criminality using digital money. we must not be come play sit set. it requires technology, training and most importantly people. the investigation of cyber crime is complex, demanding work. we need a steadty stream of bright professionals equipped with the training and expertise if we hope to continue to be
successful in the future as we have in the past. allow me to reiterate when many of my predecessors emphasized. those that seek to further illegal activities through the internet more broadly should have no illusions they are on the beyond the reach of law. even those digital assets that claim to be anonymous can be tracked. as the investigative work of the secret service and our partners has demonstrated over the decades, we in law enforcement whether it be the secret service, fbi, hsi, irs or any of the other investigative agent is sits of the dpoft are relentless in enforcing the law. we will not stop until those we seek to harm are arrested, convicted and punished. chairman woman and ranking member, members of the subcommittee, thank you again for the opportunity to appear before you today and for your continued support of the u.s. secret service. i look forward to working close ly with this committee and other members of congress on our shared priorities and welcome your questions.
>> i thank all the witnesses for their testimony. i are reminds the subcommittee we have five minutes to question the panel. the clock is under the screens. and that is fife minutes total so i'll give you a gentle tap of the gavel if you're going strong. i'll now recognize myself for questions. so can you help us contextual liez the threat? we know that there is a number of -- there's a bunch of terrorist organizations, there's a bunch of domestic extremist organizations that threaten americans in different ways. how significant is the use of crypto currency versus other types of currencies, versus traditional types of currecies? i know it's hard to put an exact percentage, but give us a sense of the scale, if you would. >> thank you, chairwoman. in terms of the scale, i think
from a terrorist perspective, we're really in the stages as we look at foreign terrorist groups overseas. they remain reliant on those traditional sources of funding. but we are seeing increasing use of crypto currency, particularly regarding soliciting to nations and fundraising. so early on in the stages, i think from a criminal perspective, it's becoming more mainstream. obviously, we're seeing more activity from transnational criminal organizations. obviously from cyber criminals and nation states that are using it more frequently than they are the traditional sources. i think as the technology becomes more accessible and easier for the user, it's going to be more common among terrorist groups. it's largely limited. we have seen several cases, but again, i think the concern for us is that as the technology advances and becomes more user friendly, that we're going to see more activity.
>> and can you help us understand the use of sites that americans are really used to like gofundme, amazon, to raise money for charity. most americans have seen someone at least advertise those kinds of campaigns. can you talk to us about what, if any, abuse you see of those sites. >> sure. luckily for us, a lot of the mainstream payment systems they have due diligence systems in place and checks and balances. so a lot of the social media sites and those main line payment systems have identified criminal activity and pushed them off the networks. but that's why that is one of the reasons we're starting to see an increase into these alternate forms of payment systems like virtual currency. >> and then i think for both of you, just tell us about -- i assume from a law enforcement perspective, it's just harder to go after groups that are using
crypto currency opposed to traditional currents. what are the tools or legal authorities that are either you don't have that you want to have, that would make your life easier, what are blocking that are holding you back. >> that's a really important question, ma'am. thank you. in regards to your first question about tools, we in the secret service rely on our psycher fraud task forces stationed globally in order to combat this threat. what we need in order to expand is to increase our presence in the international setting as mentioned earlier. this is ab international, transnational crime situation that we're facing. we need to increase our presence there. we need to get better at our processes in order to ensure that we are aggregating data appropriately and conducting the necessary data link analysis for atricks. we need to continue to
modernize. we appreciate congress's' help in the modernization that they have assisted us with, but we need to continue to grow in those areas. as it relates to authorities, similarly, there are areas for growth as it relates to our investigative authorities related to money laundering, structured payments and unlicensed money transmitters that would make us stronger in this fight. >> i'm sure we would love to hear more about some of the details. and then, we know that intelligence is an important part of understanding these organizations and how they finance themselves. talk to us about what is the interagency structure look like in the government? who is working on this? who do you talk to every day? is there actually coordination between different actors? >> yes, ma'am, certainly an interagency problem. the difficulty is thinking about that end user. we're seeing the activity occurring, but often times, we have significant information and
intelligence gaps about where that money is going and how it's ultimately used. it serves as that bridge between law enforcement and the intelligence community. and in addition to that, it really takes not just an individual or an intelligence officer that it kind of understands the intent and i want caught blts of the actor, but also has that deep understanding and knowledge of the technology itself. if you look at a group like isis in terms of their use of drones, really since 2014, they rapidly expanded their capability to leverage drones first for recognizance and attacks on the battlefield overseas. it really takes a whole of government effort and connecting that law enforcement information with the intelligence to get the fullest picture of the threat. >> great. i now recognize ranking member mr. floouger for questions. >> thank you, chairwoman. i'm glad you brought up the use of drones. the key here is that they are using an innovative approach.
the nature of warfare is constantly changing. we have to stay one step ahead. i appreciate your testimony so far and wantedthe use of drone, and i wanted to get into the questions of the bad actors of the pseudoanonymity and the ease of transfer and i wanted to focus on the cartels and have you seen the cartels using the cryptocurrencies with the use of cryptocurrencies? >> yes, we have seen cartels using money laundering with professional money launderers. and we do target them with the undercover activities with them. specific to the cartels, we have found ourselves in the middle of the investigations pick up the cartel level street proceeds and converting to cryptocurrency through peer-to-peer platforms.
>> how easy is that for them to translate that to into either leverage for what they want to get out of it for the use of, you know, into and out of the united states? >> once it is in the virtual currency formatformat, it can bd around the world hundreds of times in a matter of minutes, and so where we can have a chance is uploading or downloading the cryptocurrency. and that is where we can have the success in the traditional money laundering investigations. this has pushed a loft the elicit activity to unregulated peer-to-peer atmosphere, and that is where we primarily target the cartel in the work. >> thank you very much for that. for mr. sheridan, how does the
secret service's approach differ from the other colleagues? what makes the secret service's investigations unique? >> we all bring our capabilities that are unique to the fight. we are unique in that we are smaller and more agile for case coordination within our own agency. that small size also requires us to rely on the partnerships. partnerships are the lifeblood of the secret service, and we develop partnerships with the government and international partners, and we have a unique methodology in that we have been doing this for 150 years. we have over the past several decades created a database of information related to the cyber actors and many of whom have graduated up to the most complex
cyber enabled fraud schemes. and we have followed them from when they started and now a more online presence to being so noticeable. i think that our perspective. our perspective is based on our focused statutory authority which is to protect the nation's financial payment systems and financial infrastructure which allows us to be specialists as opposed to generalists, and create subject matter that is expert within our criminal investigations. >> let me talk about the whole government approach, and i appreciate those comments, and for me representing a university that is the cyber center of excellence, a talk to me about the private/public partnerships that you have all mentioned and how we can leverage a university like angelo state university who focuses on this, and by a way, a minority servicing institution, and doing wonderful things, and
how we can focus the students on their learning to enter your organizations and combat this. >> yes, sir. absolutely. as i stated earlier, having a sophisticated understanding of the technology itself is the first step, and that often comes from the private business and academia and understanding the trends that exist in cryptocurrency and other digital currencies is the first step, and also learning more about the vulnerabilities of each of those currencies from the classified intelligence perspective, we have the intent and the capability of the actors, but we can only understand the threat if we know what the technology is able to do and what security mechanisms are in use to prevent the use of that currency or the technology, so it is a really a partnership. it is not just intelligence, but that why we are saying information and intelligence and the law enforcement data and the
private academia, and really all sources of information, because this is a global trend, and it is a global technology, and all types of actors are really seeking to exploit the technology for their own benefit. >> thank you for that. we need to know the resources that you need. we need to know the things that you identify what we are talking about here, and if there is more comprehensive lists, we need to know that, and we have seen it in the ransomware attacks recently, and you have mentioned it in many of the examples that you have given us, but it is the purpose of the hearing and the committee is to give you the resources if we can to make sure that we can combat that. i yield. >> thank you, what i wish to ask the witnesses as outlind in the 3rd guidelines by the minority. the chair recognizes for five
minutes chairman from new jersey mr. malinowski. >> thank you. thank you, madam chair. as all of you have testified cryptocurrencies are being use right now for purchasing nefarious purposes for purchasing guns and drugs and ransom payments that are fueling one of the biggest threats are americans are facing in the daily lives today. mr. eizert, you said that they enable bad actors to behave with minimal effort. so can you expand on that, and
what it allowing someone to engage in bad acting with minimal effort? >> it transcends all industries, because once you can get your money into the crypto world with an unregulated exchanger, it is the push of the button. i can tell you about the old days from following the money launders bank to bank and hit 20 in a day, and now sit on couch and move it 20 times aday, and now there was a day when it was moved 20,000 times before it came out, and that simple. once it is in the system, it is moving. tracing it within the system is challenging, but not unbelievable. and it is identifying who is attached to the transaction that is the challenge.
>> here's what troubles me, and chairwoman slotkin in her opening statement said that there is nothing inherently wrong with the digital cryptocurrency, and i could be convinced of that, but i am not convinced of that. we know that drones can be used for nefarious deadly purposes, and some that we have not seen, and yet we could all list dozens of positive uses for consumers and companies, and maybe you are not the right people to ask this question to, but can you think of any socially beneficial uses of cryptocurrencies beyond providing some people something to speculate in and make money off of? >> coming from law enforcement side, we are always looking at
the elicit side, and looking at the web, and most of the focus is the underbanked, and opportunity for underbanked areas and countries to engage in worldwide transactions. >> i hear things like well, it provides privacy. that didn't stop us from, and i'm deeply committed to privacy, but it did not stop us from banning the use of the anonymous shell companies for similar reasons, because they are used to cover up elicit activity. i hear the phrase that it is enables the democratizing currency. and any time we democratize something, it is enabling the end of the good. so i think it is a distraction, and whereas it is not a distraction, but hurting people every single day. so i am not sure what it is, but
i want to ask this fundamental question of whether the challenges that you are facing that we are asking to deal with in protecting us against all of these social ills are challenges that are necessary, escapable and inevitable, and we have to ask what is the good, and the social value of this phenomenon that is creating all of this harm? i think that when you are looking at the history of how we built modern economies and we looked at currencies that were not regulated, but in every modern economy, we were built when every government said, one currency regulated by government. so i could ask you, and we don't have time, how we can better regulate cryptocurrency, but if we recognized it, it would not
be crypto anymore, and so what is the point? so i come back to the question, should this be allowed and i yield back. >> the chair is recognizing for five minutes the gentleman from mississippi, mr. guest. >> thank you, madam chairman. mr. sheridan, you said for cryptocurrency and other commodities must be backed by the u.s. commerce, and it ser serves as on ramps, and off ramps for brokers and money laundering and could you expand on that briefly? >> yes, sir. thank you for the question. what my written testimony was meant to encapsulate is ecosystem of what we refer to as digital money. we are seeing in a lot of the conversations that the terms related to the different
platforms are used interchangeable, and virtual currency, and digital cryptocurrency, and we in the secret service use cryptocurrency, because it includes ethereum, and tether and so forth, and the two-term definition is to apply whether it is legal tender, but for us, it is how it is used. so the written testimony is meant to describe, in a more detail how it is used as my colleague has used to on ramp from the legal tender to digital money, and how it is used laterally for the legal and illicit means and off ramped and converted away from the digital platform to legal tender, and the exchanges referenced are integral to that, and these are the ways in which we in law enforcement find our primary
means to engage for further identification, and the digital money being used. >> switching gears in back in april that there is an announcement that they were going to partner with the mississippi general office and other local law enforcement agencies to establish a mississippi cyber fraud task force, and my question is twofold. one, can you talk a little bit about the importance of these task forces, and how that surge has a force multiplier of what you are trying to do in the secret service, and another thing they want to follow up on is that it is my understanding that the agents will be trained at the national computer forensic institute at hoover, alabama, and i'm familiar with the institute, but can you talk about the mission of the institute, and the important role that organization serves? >> yes, sir. the cyber force task force is the investigative task force for
our personnel, and the subject matter goes to investigative services and the intrusion to the forensic analysts, and these are the touchpoints to the local community and the constituents to bring the information back to the global center to make the investigations. and sir, on the local level, what we do is through the national computer forensics institute, and the only center to train and equip state, tribal, officers and prosecutorial centers. they are the first responders and the front line, and the surge capacity in this fight against the cyberen abled fraud. grateful to congress for the growth of the facility, and we have trained the 64,000 of those
officials, but as you know it is to sunset in 2022, and we would appreciate the expansion of that program to take this fight global, and to have that surge capacity on a global scale. >> as it relates to the national forensic institute, do you feel it serves as a key component to fight cyber crime. >> sir, i could not agree more on that statement. it trains and equips local officers to be the first line of defense, and the person that your constituents are who are going to call, and the support of the secret service, and in the area to beat this adversary, and combat these fraud schemes. >> as i understand the
testimony, deputy sheridan, that it is crucial that congress reauthorize this program, and support the work that is done at the global fund? >> yes, it is paramount to fight this effort. >> i recognize congressman swalwell. >> as the bell is beginning to chime, this feels like you have all of the pre-pandemic businesses, that we are going to continue to have businesses that will shutdown for a matter of time, and critical infrastructure, and attacks lawnped from foreign counties that are not our allies and not
ur clear if they are state sponsored by state enabled, because other states are not cooperating with us in interpol or to stop the hackers, and so i wanted to impose a bay area leader who is the ceo at cisco who recently said that over 60,000 ransomware attacks will happen this year at an average cost of small- and medium-sized businesses. and also said that there is a correlation of ransomware and anonymity. while i am a supporter of cryptocurrency, and blockchain technology, i want to make sure they are not contributing or the enabling the attacks. so the question first, is anonymous cryptocurrency hindering your officer's ability
-- your office's ability to respond to cyber attacks? >> yes, to get to your question, the biggest hurdles have been taken into account, and the payer is where we have the greatest success. as for the fight against the network intrusion, we have a crime -- cyber crimes center, and we have a also a cyber centurian center, and we scan the vulnerabilities, and so what we do is to scan the
vulnerabilities, and we will reach tout the organizations. hey, you have a gap here, or you have a gap inside of one of the systems and then a proactive investigation there. >> mr. eisert, to follow up on that, how much does it help that the business report that they have been attacked and how does that factor into whether or not we should have mandatory reporting, and whether it is critical infrastructure space or nationwide in america, and what information do you yield when you learn about the ransom ware attack. >> the more dots out there, the more connections that we could make. so the increased reporting whether from just the financial arena and the trend of money laundering or private industry of how they have been hacked and the more bits of information, we can connect to bigger networks,
so extreme help to have that information. >> i know a lot that we can do left of the boom and the high green requirements, particularly the vendors, and the contracts, but on the right of boom's side, how are you making sure that businesses are comfortable working with the cfo, and we don't want to open up the books to the dhs or others, and so we don't want them to think that way. we want them to understand that the government can understand the attack, and have the capability of shutting it undo. what are you going to earn the trust of those who are victims? >> thank you for the question. we partner with our brothers and sisters and the fbi and other
brothers and sisters in the world. and with outreach, i partner with the other systems, and who we are, and how we can help. that helps with credibility. i can't speak for other agencies, but we work together to show that we are all in this fight. i yield. >> and now i yield to the greatest state in the union, michigan. >> thank you, chair. thank you to the witnesses testifying today, and sharing the knowledge, and experience and understanding on the critical issue that has been in the news for ransomware, and a ranking member of the cyberware and so we can be mos effective in combatting terrorism, and we have three subcomponents, and i
will allow those who are most equipped to answer that question to do so. i want to understand with all of the different federal government entities countering terrorism, and can you tell us which agencies are to track the engagement, and how you work with the other broader intelligence to engage against these efforts. >> if i can start broadly with these efforts. we recognize that there are overlapping authorities to some extent and we in law enforcement do it as a team support, and it is important to have that level of partnership and collaboration due to the complexity and the
scope and scale of the collaboration. if we have the mechanisms in place to ensure that we are not being wasteful in anyway, and good stewards of the american tax dollar to your concern. more on the tactical approach, i will speak for the secret service in that our role is focused on protecting the nation's financial structure and nation's financial payment system, and so we will concentrate on the u.s. law relating to those, and because of the sharing mechanisms through the task forces and my colleagues here at the table as well as all federal and state and local law enforcement we can share information and case coordination as an investigation comes up that may not focus on the paymen systems. >> if i may add to that. the primacy always lands on the
fbi. but like my colleague said, a lot of us bring unique authorities to the table. hsi is the largest federal contributor to fbi's joint terrorism task force and speaks specifically about those, and 50% of the disruptions in the task force falls with hsi to the table. for instance, the uc activities, and the full secrecy that we have, and so each agency is going to bring in their full skillset. >> so i want to add as well, nia is serving as the bridge between the local and state and national data to make sure that everybody in the fight has access to the data and integrated to quickly identify the threats. we believe it is critical talking about how big
cryptocurrency is and the use of the digital cryptocurrencies, and it requires a fist kated understanding, and expertise, but the technology to quickly comb through the data to be sure what we should be looking at, and so it is the access, and the integration that is critical. oftentimes, we will have local law enforcement that is filling in the gaps, and other information to help the local law enforcement to better understand what the information is that is helpful. >> i am constantly sharing on the financial side that it is adequately addressed. my time is running short, but are there any concerns that there are gaps in enforcement or gaps in collection or gaps in capabilities that we should be working to address?
>> specific to the cryptocurrency set, it does encapsulate virtual cryptocurrency, and aml does not mirror the traditional banking industry aml. >> with that, my time has expire and i yield back. >> i will note for the members with will do a quick second round here, but the chair recognizes for five minutes the gent manl from new jersey member gottheimer. >> i would like to thank you for your work against foreign organizations like hezbollah and isis and the use against the white supremists like the proud boys and other violent extremist
groups involved in the attack on the capitol january 6th. i would like to start with you, ms. dovich. how easy it too bring down these foreign organizations compared to domestic organizations? >> i would say it is complex from both perspectives and part of it because of the anonymity of an organization.
and certainly from the domestic area, we are seeing a increase in the call of raises of donations using cryptocurrency, but a we have a difficult time to translate it to violence and understanding how that resource is being translated into a operation or plot here in the homeland. >> thank you. compared to cash, easier the track or still more difficult, because you can't understand the purpose of it? >> i would defer to my law enforcement colleagues as to who is more or less difficult. >> i will turn to mr. sheridan or mr. eisert. >> is the question tracking? >> by nature the digital money is easier to track, the because there is a digital trail, and actual evidence related to its use, and each step it takes along the blockchain as it
moves. >> if i can stick with you, if that is okay, and how can we remove the barriers and friction for law enforcement to keep up with the ever evoling changes? >> we need to increase the workforce not only in volume, but capabilities. on the law enforce. side, and the professional work staff that we hire, and we have a great team of computer scientists, and others to adopt the crypto currency and grow into the international currencies because we don't have a strong transnational presence, and we need more increased presence because of the volume of day that we are seeing, and
significant trading and movement related to the currencies, and we need to modernize the task forces throughout the globe. >> thank you, sir. mr. eisert, would you describe the assets that were seized by al qaeda, hamas, and others, if you don't mind? >> absolutely. if i stay vague, there is a lot of uncovered and classified activities that i will be happy to stay or have a separate meeting, but the leads, if i can put them together, they are parallel, and the initial leads came through the intelligence committee, as well as some reporting from the watchdog organizations, and upon identifying the elizabeth intend of the people on the activity, and there were multiple personas and activity, and we engaged
them what the purpose of to money was, and it was the bitcoin wallace they asked for, and throughout the course, they tried to identify a new branch of chasing it to the seizure of over $10 million in both cases. >> i would enjoy a classified briefing. >> thank you. >> and now, a second round. i will recognize myself for some questions. two very different questions. one is on the idea that our companies, our organizations and even local governments are not mandated reporters when it is coming to the attacks that they withstand. so for instance a big box store could be hacked and have a ton of all of our personal data taken and then pay a ransom for that money, potentially through
cryptocurrency, and not have to report it to the very individuals who had their information stolen and not report it for the law enforcement, and we have seen six months to a year later that they have had to come forward to say something about this, and for you folks in law enforcement, what it does to your ability to help go after these guys? do you believe that companies should be mandated reported, companies or organizations should be mandated reporters when they are hacked or attacked? >> yes, we believe that reporting to all law enforcement regardless of to agencies or the law enforcement entity it is reported to. >> there are some misconceptions to the law enforcement's role there, and they create some
intrusion to some vulnerability to some systems, and we review the prevention process, and work with the organizations and whatever third party they have is some part of security team in a collaborate sense, and make it stronger and weaknesses, and the attack factors will be areas of organization, and not only to that organization or similar vulnerabilities. >> okay. so i guess that i talked to people in my direct, and they feel like their information, and they, they are on the front lines of a cyber war. are we doing something about this? is my government going to stop the attacks? a lot of people took notice when the pipeline was attacked and ransomed, and we got money back
through the fbi acting to grab some of the money back, and it felt like the first time we were punching back in a public way, and there were things that you cannot talk about, and we are glad not to discuss them, but explain to the farmer in the middle of my district asking about cybersecurity, but convince him about something that the government is constantly being cyber attacked. >> well, it is starting with the national computer iinstitute, ad we have trained over 10,000 people. it starts with them. there are tools starting with the partners to interdict to stop the funds that are taken by the elicit actors. within the secret service, we
have the global rapid response team to stop wire transfers if notified within a certain amount of time -- >> if notified. >> yes, if notified since 2019, we have stopped over $280 million to stop it from elicit actors. and within the department of treasury, they have a rapid response program that is similarly more globally focused, and we have a 90% success rate within 12-hour window, and within 24-hour window, it will be lower. and so within the secret service, we have a asset forfeiture branch to return the funds to victims if we are able to participate and find the
illicit funds in question. >> so that is two answer, you can do some real things if notified, but the current laws do not require you to notify anyone if you have data that has been taken ransom. so i would like a little bit more public talk and discussion about what you have all been doing, because it is more than average citizen knows, and they want to make sure that the government is doing something. i yield to you chairman plueger. >> so whether it is mandatory or private/public partnership is encouraging people because the assets they have potentially lost will be returned will
motivate them to be report. we have applications, and also, your agencies are offering them to prevent this activity from happening. let me tell you why this is valuable to the secret service in the investigations, and what more it can be doing, and how we can in congress can support you, mr. chairman. >> yes, sir. thank you for the question. we are very, very grateful to congress for the question to date, and involving the cfi and it is very phenomenal to see the growth of the program, and the number of people, and officers and judges have been trained there to over 16,000 per day, and currently training 3,000 per year, and the projected questions are twice that, and not only the authorization that is pending from '22 to the
sunset, but the current resourcing to that facility. and we feel that we can double the capacity as well as expanding to other areas, and we need to be participaing globally to combat this. >> okay. a question for any of you who want to comment on this, how closely linked are terrorist attacks that are not new, but the ones publicize and the ones that are happening towards critical infrastructure whether it is the food supply or the energy supply, and what is the projected or estimated threat that you can see through your crystal ball? >> today, we have not seen any threats through the terrorist or associated groups, but what we are seeing is the rapid ability to adapt that we have seen
through the broad range of terrorist groups. in addition to that, we call it the copycat trend, because terrorist groups will adopt techniques from other militia actors that are beneficial to them. so as they are looking at the digital currencies are more commonplace, certainly, ransomware would be a means to fund their operations. in addition to that, we are seeing the cyber criminals offering ran someware as a service, and they can buy the service on the dark web, and we don't know who is paying for that, and so they can have ransomware to support that. >> in your role of the cfi, i think that based on your response, our position doesn't have to be incredibly wrong, because we as a maligning actors
anywhere, state or nonstate, it is not to be just in industries, but across the board, and the reaction has to be across the board. with that, i yield back. >> the chair recognizes gentleman from new jersey, mr. malinowski. >> thank you, madam. so, i am not convinced that the market in cryptocurrency should exist, but let's talk about regulation for a moment. the treasury department said it would allow transactions of over $10,000 to be reported to the irs. >> that is proposed.
>> it does require action by us? >> i would have to defer to treasury. >> does that at least help us in the challenge that representative slotkin referred to that presumably a company making a ransom payment of over $10,000 would have to report it to the irs? >> i would say depending how the regulations are written. mainstream regulations and how they are written now, there is a requirement. but right now, the mainstream regulations is around cash. if it mirrored it with the virtual currency, that would be yes. >> that would be helpful to you all? >> yes. extremely. >> and so, most ransomware payments would be over 10,000? in the current scheme of things?
>> yes. >> so we would capture a significant share of the ransomware payments. other ideas? should the s.e.c. be given the authority to regulate cryptocurrency exchanges? is that something that the administration is considering opposing? >> sir, the challenge with regulation is that because the digital money is used in so many different capacities, depending upon the technology used to create it, and essentially how it is impl -- employed, there i no one department who has oversight. sometimes it is a currency, and sometimes it is a tender, and as my colleague has said, know your customer, and the financing of the counter terrorism, and any money laundering law has been helpful in tamping down the
money laundering, but we are not regulatory of nature, and the regulatory investigative and statutory and regulatory capabilities. there is concern as referenced about the dual-edged regulation that may push elicit actors and methods into the corners of the internet that would make it more difficult for law enforcementch >> we would very much value your guidance in finding the sweet spot if the answer is going to be greater regulation. i presume that you would agree that whatever rules we come up would be broadly harmonized across the 50 states, and i
wondered if you knew of any steps across the united states have taken that you think that might be helpful to emulate or not to emulate. >> in this group where we discussed those exact things to be going, and in many of the regulations proposed to come through are a result of the combatives. and in the know your customer, they are to root out the bad actors and at no point did they restrict the legal transfer of these currencies, so no matter what is proposed, nothing is restricting the use of cryptocurrency, but it is creating obtainable records to root out the bad actors.
>> thank you. i yield back. >> the gentleman recognizing the gentleman. >> i would like to follow up. i think that you mentioned that one of the gaps that you identified when it came to specific, and virtual cryptocurrency problemsets, and i wanted to drill down on that, because many who are watching or listening here today are familiar with bitcoin, and they have heard of it if they are not aware of blockchain and crypto, but bitcoin though it is the most well known, and one of the largest by the market capitalization, it is 1 of 5,000 cryptocurrencies and so you have not only some others that people may have heard of doge, ethereum, and other alt coins and stable coins as well.
and so if your testimony, you said that in newer and less popular cryptocurrencies are attractive to the militia actors, because of the stringent resources. how do you feel equipped to deal with the others and not just those in the top five or ten of the market cap, but for the potential of the microcapped cryptocurrencies? >> the privacy coins create a challenge because of the hidden blockchain or the obscured blockchain, and lot of the datalytics are not thorough enough for us to bring into the courtroom. sometimes the market cap, and the total volume of coin, the userability is not there.
if you are looking at manero, if you are looking to move 3 million in mannero, then it is easy to move, and a lot of the u.s. exchanges will not accept it, because it does not meet the know your customer recommendations or policies. >> i wanted to follow up on that. when terrorists were monitoring, and they knew to go around the traffic, and two parties have traffic, and what about the scenarios having a micro, mini cap, and it was a scenario to have a company invest $10 million into it, and prior to that, a ransom wearer drives up
the mini function of it. and once the money is in there, and then all of the losses are born by the company paying that ran some. and so that is where as mr. malinowski said, as far as the treasury department said, that it is the assets of the balloon deflating, and all of the air is captured on the outside. is that a scenario that you could see happening? >> i am trying to track most of it. some of the regulations being proposed and i would like to yield to treasury on something like that. if an unhosted wallet has an exchange with hosted wallet, there would be a reporting
mechanism, but with a unhosted wallet with another unhosted wallet, they could off load it, and that is where we would have to capture it. >> any more questions? >> we have seen the terror groups using privacy coins, and so the increased anonymity of these occurs with the creation of every new bitcoin, and so it is certainly a challenge, and first to understand what they are using, and then to have greater insight in how they are using currency. >> i appreciate the question. in the broad cryptocurrencies, and we get into the
opportunities of the exploitation are nearly limitless. with that, chairman, my time has expired. >> i thank the witnesses for the testimony, and the members for the questions. the questions of the subcommittee will remain open for ten business days and you can submit [captions copyright national cable satellite corp. 2021] [captioning performed by the national captioning institute, which is responsible for its caption content and accuracy. visit ncicap.org]
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