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[] The FBI's Cyber Division,

May 15, 2003

Testimony of James E. Farnan
Deputy Assistant Director
Cyber Division
Federal Bureau of Investigation

The FBI's Cyber Division

Before the
House Committee on Government Reform
Washington, D.C.

Thank you for inviting me here today to testify in this hearing at which the
Committee is examining privacy and security issues associated with the use
of peer-to-peer file sharing programs. This hearing and the Committee's Web
page, in which you provide a link to: "Parental Tips for Internet
File-Sharing Programs," demonstrate your commitment to improving the
abilities of our Nation's families and businesses to be safe, secure, and
crime-free while using the Internet as a tool for research, entertainment
and commerce. Our work here is vitally important because Internet use grows
each day, and each day there are thousands of new victims. My testimony
today will address the activities of the FBI's Cyber Division as they relate
to a broad spectrum of criminal acts involving identity theft, fraud,
information security and computer intrusions.

A May 8th cover story in the Washington Post is nothing new to Americans
today. Another gang of thieves was discovered in possession of a "veritable
factory for counterfeit credit cards," including "600 pages containing more
than 40,000 allegedly stolen names and credit card numbers; more than 100
newly minted cards under 100 different names, featuring the trademark Visa
logo." The police also found "stacks of plastic cards, software to create
identity cards, laptop computers, machinery to encode magnetic strips, and a
'skimmer' that captures a facsimile of credit card information and stores
it...(and) 16-digit credit card numbers, with their expiration dates, that
had been downloaded from one major retail store in the area." As the
investigation continues, we will probably find that these criminals have
affected the lives of hundreds of victims, perhaps destroying their credit
ratings and creating hardships that will take years to abate. These thefts
could be the result of computer hacking, insider theft and/or social
engineering. The FBI treats each of these techniques as criminal acts, and
we continue to seek out those who would use them to illegally enrich
themselves. Stolen information can also be sold and used to establish new
identities for fugitives or terrorists. In these cases, identity theft can
have much more serious consequences.

The Federal Trade Commission's annual report lists identity theft as it's
most substantial category of reported crime, at 43% of the total. Its impact
on citizens and businesses both domestically and abroad, as well as the
growing number of ways that such schemes can be initiated or advanced,
primarily through the Internet, is a priority interest for the FBI. An
understanding of the scope of the problem can only be gained by identifying
the variety of acts related to identity theft, including insider theft,
hacking, spam, spoofing, account hijacking, auction fraud and peer to peer
(P2P) sharing. Below are some examples and definitions:

Identity Theft

Identity theft is the fraudulent use of an individual's personal identifying
information, such as a social security number, mother's maiden name, date of
birth or bank account number. Identity theft includes alias identity crimes
in which an individual's true identity is completely fabricated and not
identified with a real person, whether living or deceased. Identity theft is
normally a preliminary step toward committing other crimes. Some will engage
in identity theft for financial gain, others to avoid arrest or detection,
attain legal immigrations status, or obtain government benefits. Victims of
identity theft may not realize that someone has stolen their identity until
they are denied credit or until a creditor attempts to collect an unpaid
bill. Identity theft can be a component of many crimes, including bank
fraud, telemarketing fraud, Ponzi schemes, credit card fraud, bankruptcy
fraud, money laundering, insurance fraud, cyber crimes and unlawful flight
to avoid prosecution (fugitives). The FBI's Criminal Investigative Division
has recently begun to track identity theft as a component of other criminal
activities. Their efforts will statistically measure the increase in crimes
involving identity theft.


Spam generally refers to unsolicited incoming messages inviting an
individual to buy, sell, invest or join a certain club. Significantly, The
Internet Fraud Complaint Center (IFCC) is seeing more and more spam
referrals in which individuals are being directed to provide certain
personal, including financial and password information, to remedy a credit
problem, update their account information, or to avoid being part of an
undesirable mailing list.


In one investigation, subjects collected individual e-mail addresses from
Internet chat rooms and other Internet sources. The subjects then sent
e-mail to individuals requesting credit card and personal information. The
e-mail appeared to be from the victims' Internet service provider (ISP)
(spoofed e-mail) claiming that the victims needed to provide current billing
information. Victims would respond and provide their credit card and
personal information, believing the information was going to their ISP. The
subjects used credit card and personal information to obtain cash advances
and purchase items utilizing the Internet.

In another investigation, subjects established a spoofed web-site, which was
made to appear to be a U.S financial institution. This site was used to lure
victims into providing personal financial information, including credit card
and debit card numbers, which were than transmitted abroad to criminals who
used the stolen cards at automatic teller machines throughout Europe.

Auction Fraud and Account Hijacking

Over the past year, the IFCC has received many complaints regarding auction
sites wherein a customer's account was hijacked. In such cases the
perpetrator gains unauthorized access (via computer intrusion) to customer
accounts, determines which accounts have a good reference/feedback history,
and represent themselves as that individual, selling merchandise, which is
ultimately never delivered. Losses in such schemes range from hundreds of
dollars to upwards of $100K with numerous victims. These types of schemes
can also result in identity theft when unsuspecting customers provide credit
card information to the criminal.

Computer Intrusion/Hacking

Computer intrusions are a different category from most fraud schemes. Many
intrusions are never reported because companies fear a loss of business from
reduced consumer confidence in their security measures or from a fear of
lawsuits. Most of the outsider-intrusions cases opened today are the result
of a failure to patch a known vulnerability for which a patch has been
issued. Theft of consumer information from a computer system can only be
facilitated two ways: by insiders or by outside hackers. Insiders have
various motivations, including retribution and money. Outsiders are usually
motivated by challenge and/or greed.

The IFCC recently received a referral through its website, in which the
computer system of a small business that sold certain pharmaceutical
products online was compromised by a hacker, who acquired credit card
numbers, and the names and addresses of approximately 200 customers. This
information was then posted on an Internet message board, where access to
this personal data could be gained by anyone with an computer and an
Internet account.

The FBI has seen a steady increase in computer intrusion/hacking cases. With
the proliferation of "turn key" ("turn key" in that no special knowledge is
needed to apply the tool - you only need to download the tool and apply it)
hacking tools/utilities available on the Internet, this trend is not
surprising. In many cases, computer intrusion incidents may represent the
front end of a criminal matter, where credit card fraud, economic espionage,
and/or identity theft represent the final result, and the intended purpose
of the scheme. In some cases, a computer intrusion may also have been for
the purpose of installing a Trojan, or back door that the hacker can later
access. The hacker may want to launch a denial of service (DOS) attack, or
to access personal financial, or other sensitive data contained on that

P2P Sharing

P2P networks primarily serve as a "come and get it" resource on the
Internet. In using such a utility, the user specifically searches for the
item they want, e.g. music, images, or software. The most significant
criminal activity involving P2P sharing centers largely on intellectual
property rights (music and software piracy) matters, an area in which the
FBI has been working closely with private industry. The FBI has also seen an
increase in P2P sharing of child pornography files.

Although no instances of identity theft have been reported to be associated
with P2P networks, there are several dynamics that should also be

The FBI has seen an increasing number of instances where a victim has
determined that a Trojan/back door was installed on their computer during a
download from a P2P network. In some cases, the victim also learned that
personal, financial information had also been removed from their computer
via the back door.

In addition to traditional Trojans/back doors, The FBI has seen an increase
in matters where certain "bots" (active Trojans) have been installed
inadvertently via a P2P download. In these instances, the victim computer,
via the bot, essentially reports to a designated Internet relay chat (IRC)
site, awaiting further instructions from its creator. The creator of the bot
will often use the compromised computers to launch coordinated denial of
service attacks against a targeted site or sites. These bots could also be
used to retrieve sensitive information from victim computers in furtherance
of an identity theft scheme.

A person using P2P utilities for unauthorized or illegal purposes is not as
likely to tell the FBI that an exploit (back door) was found on their
system, or that as a result, certain personal or financial information may
have been taken. The FBI has been made aware of instances where Trojans or
bots have been found on computer systems where P2P programs are present, and
where certain personal, financial or other sensitive information has been

The FBI is in a unique position to respond to most cyber crimes, because it
is the only Federal agency that has the statutory authority, expertise, and
ability to combine the counterterrorism, counterintelligence, and criminal
resources needed to effectively neutralize, mitigate, and disrupt illegal
computer-supported operations.

The FBI's Cyber Division

The FBI's reorganization of the last two years included the goal of making
our cyber investigative resources more effective. In July 2002, the
reorganization resulted in the creation of the FBI's Cyber Division. In
prioritizing Cyber Crime, the FBI recognizes that all types of on-line crime
are on the rise.

The Cyber Division addresses cyber threats in a coordinated manner, allowing
the FBI to stay technologically one step ahead of the cyber adversaries
threatening the United States. The Cyber Division addresses all violations
with a cyber nexus, which often have international facets and national
economic implications. The Cyber Division also simultaneously supports FBI
priorities across program lines, assisting counterterrorism,
counterintelligence, and other criminal investigations when aggressive
technological investigative assistance is required. The Cyber Division will
ensure that agents with specialized technology skills are focused on cyber
related matters.

At the Cyber Division we are taking a two-tracked approach to the problem.
One avenue is identified as traditional criminal activity that has migrated
to the Internet, such as Internet fraud, on-line identity theft, Internet
child pornography, theft of trade secrets, and other similar crimes. The
other, non-traditional approach consists of Internet-facilitated activity
that did not exist prior to the establishment of computers, networks, and
the World Wide Web. This encompasses "cyber terrorism," terrorist threats,
foreign intelligence operations, and criminal activity precipitated by
illegal computer intrusions into U.S. computer networks, including the
disruption of computer supported operations and the theft of sensitive data
via the Internet. The FBI assesses the cyber-threat to the U.S. to be
rapidly expanding, as the number of actors with the ability to utilize
computers for illegal, harmful, and possibly devastating purposes is on the

The mission of the Cyber Division is to: (1) coordinate, supervise and
facilitate the FBI's investigation of those federal violations in which the
Internet, computer systems, or networks are exploited as the principal
instruments or targets of terrorist organizations, foreign government
sponsored intelligence operations, or criminal activity and for which the
use of such systems is essential to that activity; (2) form and maintain
public/private alliances in conjunction with enhanced education and training
to maximize counterterrorism, counterintelligence, and law enforcement cyber
response capabilities, and (3) place the FBI at the forefront of cyber
investigations through awareness and exploitation of emerging technology.

To support this mission we are dramatically increasing our cyber training
program and international investigative efforts. Consequently, specialized
units are now being created at FBI Headquarters to provide training not only
to the 60 FBI cyber squads, but also to the other agencies participating in
existing or new cyber-related task forces in which the FBI is a participant.
This training will largely be provided to investigators in the field. A
number of courses will be provided at the FBI Academy at Quantico.

The importance of partnerships like law enforcement cyber task forces and
alliances with industry can not be overstated. Those partnerships help
develop early awareness of, and a coordinated, proactive response to, the
crime problem. The cyber crime problem is constantly changing, requiring law
enforcement to develop a flexible and dynamically evolving approach as well.
Critical infrastructures and e-commerce are truly on the "front lines" and
most often better positioned to identify new trends in cyber crime.
Similarly, because of the actual and potential economic impact of cyber
criminals, private industry has a vested interest in working with law
enforcement to effectively detect, deter and investigate such activity.

The Cyber Division is also embarking on a significant effort to improve our
overseas investigative capabilities. We will be training more foreign police
officers, and sending FBI personnel throughout the world to help investigate
cyber crimes when invited or allowed by a host country. We believe this
dramatic increase in high tech training and overseas investigations is
justified by the increasing internationalization of on-line crime and
terrorist threats.

Through the Internet Fraud Complaint Center (IFCC), established in 1999 in
partnership with the National White Collar Crime Center (NW3C), the FBI has
appropriately positioned itself at the gateway of incoming intelligence
regarding cyber crime matters. The IFCC receives complaints regarding a vast
array of cyber crime matters, including: computer intrusions, identity
theft, economic espionage, credit card fraud, child pornography, on-line
extortion and a growing list of internationally spawned Internet fraud
matters. The IFCC received 75,000 complaints in 2002, and is now receiving
more than 9000 complaints per month. We expect that number to increase
significantly as the American and international communities become more
aware of our mission and capabilities. Later this year, the IFCC will be
renamed as the Internet Crime Complaint Center (IC3) to more accurately
reflect its mission.

If the IFCC received an intrusion report from a company in Birmingham,
Alabama, we would first attempt to locate where the intrusion took place.
That same company may have its servers in Minneapolis, while the intruder is
routing attacks through Internet providers in California and Europe. If the
servers in Minneapolis were hacked, the Minneapolis Cyber Crime Task Force
would be assigned the lead on the case. The leads could start in California,
but end up in Eastern Europe, Nigeria or even back to Birmingham, if an
insider was involved. One of the FBI's Computer Analysis Response Teams
(CART) would be called upon to preserve computer forensic evidence, and that
evidence could be forwarded to one of our new Regional Crime Forensic Labs,
now located in Chicago, Dallas and San Diego. The Lab would determine the
extent and duration of the intrusion, and whether the attacker came from
inside or outside the company. Depending on the sophistication of the
intruder, the case can be cracked in a few days or take years. It is
important to note again that an intrusion may only be the first indication
of another crime. An intrusion could finally result in anything from
identity theft, terrorism, or espionage. Cases are routinely complex, and
often involve international connections. The following cases serve as
examples of typical cyber crimes:

Raymond Torricelli, aka "rolex"

Raymond Torricelli, aka "rolex," the head of a hacker group known as
"#conflict," was convicted for, among other things, breaking into two
computers owned and maintained by the National Aeronautics and Space
Administration's Jet Propulsion Laboratory ("JPL"), located in Pasadena,
California, and using one of those computers to host an Internet chat-room
devoted to hacking.

Torricelli admitted that, in 1998, he was a computer hacker, and a member of
a hacking organization known as "#conflict." Torricelli admitted that he
used his personal computer to run programs designed to search the Internet,
and seek out computers which were vulnerable to intrusion. Once such
computers were located, Torricelli's computer obtained unauthorized access
to the computers by uploading a program known as "rootkit." The file,
"rootkit," is a program which, when run on computer, allows a hacker to gain
complete access to all of a computer's functions without having been granted
these privileges by the authorized users of that computer.

One of the computers Torricelli accessed was used by NASA to perform
satellite design and mission analysis concerning future space missions,
another was used by JPL's Communications Ground Systems Section as an e-mail
and internal web server. After gaining this unauthorized access to computers
and loading "rootkit," Torricelli, under his alias "rolex," used many of the
computers to host chat-room discussions.

Torricelli admitted that, in these discussions, he invited other chat
participants to visit a website which enabled them to view pornographic
images and that he earned 18 cents for each visit a person made to that
website. Torricelli earned approximately $300-400 from per week from this
activity. Torricelli also pled guilty to intercepting user names and
passwords traversing the computer networks of a computer owned by San Jose
State University. In addition, Torricelli pled guilty to possession of
stolen passwords and user names which he used to gain free Internet access,
or to gain unauthorized access to still more computers. Torricelli admitted
that when he obtained passwords which were encrypted, he would use a
password cracking program known as"John-the-Ripper" to decrypt the
passwords. He also pled guilty to possessing stolen credit card numbers that
he obtained from other individuals and stored on his computer. Torricelli
admitted that he used one such credit card number to purchase long distance
telephone service.

Much of the evidence obtained against Torricelli was obtained through a
search of his personal computer. In addition to thousands of stolen
passwords and numerous credit card numbers, investigators found transcripts
of chat-room discussions in which Torricelli and members of "#conflict"
discussed, among other things, (1) breaking into other computers; (2)
obtaining credit card numbers belonging to other persons and using those
numbers to make unauthorized purchases; and (3) using their computers to
electronically alter the results of the annual MTV Movie Awards. This case
illustrates the wide variety of criminal acts which can result from security

Raphael Gray, aka "Curador"

On March 1, 2000, a computer hacker using the name "Curador" compromised
several e-commerce websites in the U.S., Canada, Thailand, Japan and the
United Kingdom, and stole as many as 28,000 credit card numbers with losses
estimated to be at least $3.5 million. Thousands of credit card numbers and
expiration dates were posted to various Internet websites.. After an
extensive investigation, on March 23, 2000, the FBI assisted the Dyfed Powys
(Wales, UK) Police Service in a search at the residence of "Curador,"
Raphael Gray. Mr. Gray, age 18, was arrested and charged in the UK along
with a co-conspirator under the UK's Computer Misuse Act of 1990. This case
illustrates the benefits of law enforcement and private industry around the
world working together in partnership on computer crime investigations.

Cyber crime continues to grow at an alarming rate, and identity theft is a
major part of the increase. Criminals are only beginning to explore the
potential of crime via peer-to-peer networks while they continue to steal
information by hacking, insider exploitation and social engineering. The FBI
is grateful for the efforts of your Committee and others dedicated to the
safety and security of our Nation's families and businesses. The FBI will
continue to work with your Committee and aggressively pursue cyber criminals
as we strive to stay one step ahead of them in the cyber crime technology

I thank you for your invitation to speak to you today and on behalf of the
FBI look forward to working with you on this very important topic.

| 2003 Congressional Statement | FBI Home Page |

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