COMMITTEE ON FINANCIAL SERVICES

Hon. RICHARD K. ARMEY

HOUSE OF REPRESENTATIVES, COMMITTEE ON FINANCIAL SERVICES, Washington, DC, July 11, 2002.

Chairman, House Select Committee on Homeland Security, The Capitol, Washington, D.C.

DEAR CHAIRMAN ARMEY: The terrorist attacks of September 11th demonstrated the need for improved security and prevention measures to combat acts of violence against U.S. citizens. The Financial Services Committee has contributed to the fight against terrorism by cutting off funding for organizations that finance terrorist activities and strengthening existing money laundering laws through the USA PATRIOT Act (P.L. 107-56). Additionally, the Committee has sought to prevent catastrophic economic losses from such attacks through the passage of the Terrorist Risk Protection Act (H.R. 3210).

The Financial Services Committee has done an extensive review of its jurisdiction as it relates to the President's proposal to create a Department of Homeland Security (H.R. 5005). The Committee strongly supports the efforts of the President and the Select Committee on Homeland Security to create a new executive department that will coordinate resources in an effort to prevent attacks on the United States.

While the Committee will not mark up H.R. 5005, it would like to identify its jurisdiction over this legislation and reserve its right to consider the issues within our jurisdiction in the future. The Committee believes that it is in the best position to continue oversight of these programs, regardless of what executive department they are located.

The following represents our views about how the programs within our jurisdiction will integrate into the new Department of Homeland Security:

FEDERAL EMERGENCY MANAGEMENT AGENCY

The Committee has jurisdiction over three programs within the Federal Emergency Management Agency (FEMA) that would become the responsibility of the new department created through H.R. 5005. These programs are: the National Flood Insurance Programs, the Defense Production Act and the Emergency Food and Shelter Program. FEMA's mission is to prevent, prepare for, respond to, and recover from disasters of all types. The Committee believes that the expertise of FEMA in consequence management is critical to the function of the proposed Office of Homeland Security.

National Flood Insurance Program-The National Flood Insurance Act of 1968 (42 USC 4001 et seq.) created the National Flood Insurance Program (NFIP) and authorized the Director of FEMA to administer the Federal Insurance Administration (FIA). The FIA provided insurance protection for properties which are vulnerable to floods, but not insured by the private sector. Prior to passage of this act, insurance companies generally did not offer coverage for flood disasters because of the high risks involved. The legislation as amended in 1973 and 1994 authorized the FIA and Mitigation Directorate to administer the NFIP. In 2001, the FIA and the Mitigation Directorate were brought together into a single organization, the Federal Insurance and Mitigation Administration (FIMA).

FIMA has expertise in risk assessment, mitigation or loss prevention and insurance. Efforts such as resident education and flood mapping enable FEMA to reach out to residents in flood prone regions and protect against preventable losses. These services work in conjunction with the NFIP and have proven successful in building relationships in regions where floods are a threat to property and lives. The Committee understands that FIMA's risk assessment programs are now being designed to assist local communities to identify and address their vulnerabilities from natural and manmade disasters.

The Committee views FEMA's efforts to prevent and mitigate damage from floods as critical to the protection of lives and property. The Committee further believes that it is important that the NFIP and the FIMA to work together efficiently in the prevention of losses from floods and from other disasters and for that reason should for the time being remain within FEMA as it is transferred to the Department of Homeland Security. FEMA's programs may be reviewed by the Committee in the future in an effort to improve their operation and to ensure that users are properly served.

The Defense Production Act-The goal of the Defense Production Act of 1950 (50 USC App. 2062) (DPA) is to ensure that the United States has the ability to mobilize industrial and other civilian resources in support of national defense an civil emergency preparedness maintain military readiness when there is a threat to national security. The DPA is essential to the protection of the United States in so far as it uses economic tools to provide uninterrupted supplies of industrial resources in times of military crisis and civil emergency.

The DPA authorizes FEMA to coordinate Federal agencies' decisions concerning the provision of transportation services, the priority availability of civil defense resources, materials, services and facilities to ensure the dispersal of such resources in the interest of national defense. The DPA was reauthorized by the Financial Services Committee in 2001 for two years (P.L. 107-47).

The Committee believes the DPA is an important mechanism for the protection of the United States and should be located in the new Department of Homeland Security. Through the President's proposal, the DPA will be very important to mobilize national defense and civil emergency preparedness resources in the event of a terrorist attack or in an effort to ensure that there is adequate preparation to prevent such an attack.

The Emergency Food and Shelter Program-The Emergency Food and Shelter Program (EFSP) (P.L. 100-77) is governed by a national board consisting of several charitable organizations and is chaired by FEMA. The goal of this program is to allocate Federal funds for the provision of food and shelter. The national board awards funds to jurisdictions based upon a formula. Further, a small portion of the overall award is allocated by formula to state set-aside committees which then allocate funds to jurisdictions based upon the criteria they feel is most appropriate. The EFSP seeks to ensure that allocations are quickly made to neediest areas of the country, that the public and private sectors cooperate, and that decisions are made at the local level. In 2001, $140 million in aid was distributed through this program.

It can be argued that the operation of food and shelter programs has little to do with the protection of the United States from terrorist activities. However, the EFSP is a critical program which supplies food and shelter to needy people in emergency situations, and to ensure that the program remains effective and functional, the Committee recommends that it remain within FEMA at this time. The President's 2003 budget proposal calls for the EFSP to be moved from FEMA to the Department of Housing and Urban Development. This could be an effective allocation of Federal resources to aid those in need, and the Committee may examine the viability of such a move in the future.

UNITED STATES SECRET SERVICE

The Committee commends the President for his proposal to move the United States Secret Service (USSS) to the new Department and maintain it as a "distinct entity" outside the four major jurisdictional cylinders established under the new Secretary. The Committee believes that the long dual-role history of the Service-investigative and protective combined with its more recently developed expertise in preventing and investigating cyber crimes and its core mission of protecting the financial system of the United States, make the USSS uniquely suited to draw from and augment the work of the other component agencies of the new Department. Since its founding in 1865 as the first investigative arm of the United States government and the protector of the integrity of U.S. currency, the Service has been the primary guardian of the country's financial services-banks, currency and payment systems. The added mission of personal protection, dating to 1901 following the assassination of President William McKinley, built on the Service's expertise at preventing crimes. That mission statement was expanded again in 1984 with passage of the Omnibus Crime Control Act (P.L. 98-473), adding jurisdiction over new crimes involving identity theft, access devices such as credit cards, and computer crimes. In 1994, further jurisdiction was added, recognizing ÛSSS expertise investigating fraud against financial institutions. Today, the Secret Service has over 6,000 employees, an annual budget of just over $1 billion and 125 field offices across the United States and around the world.

Infrastructure Protection-Springing from the Service's personalprotection role is the unique and important duty to protect critical infrastructures of the United States. The Committee believes this

role should become an enhanced portion of the Service's duties at the new Department.

The events of September 11 reinforce lessons the Committee learned in efforts to protect against financial-system and infrastructure failures due to the Year 2000 problem: that in an increasingly computerized and inter-connected world, the failure of a seemingly innocuous system can cause panic, deaths or economic calamity. Recent news stories indicating that Al Qaeda operatives have been probing the cyber security of U.S. power systems and dams as well as banks and defense systems show that the lesson has not been lost on terrorists, either. A serious compromise of these electronic networks could wreak havoc on our economy, law enforcement, military, health care, transportation and emergency services.

Cyber Crime-Cyber criminals have devised sophisticated programs and techniques to defraud both consumers and private industry through electronic means. In response, the Secret Service has developed new tools to combat the growing areas of cyber terrorism, financial crime and computer fraud. These techniques inIclude the widely respected Electronic Crimes Special Agent Program and the series of task forces modeled on the New York Electronic Crimes Task Force that are now under development. The former program provides specialized training to select agents in all areas of electronic crimes, qualifying those personnel as experts in the forensic examination of electronic evidence. The USA PATRIOT Act, to which the Committee contributed a major title, authorized the Secret Service to establish a nationwide network of cyber crime task forces, based on the New York model that uses an innovative approach allowing local, state and national law enforcement agencies to combine their resources and experience with those of prosecutors, the private sector and academic institutions to deter electronic crimes of all sorts. In recent months, the Service has launched similar task forces across the country. The Committee strongly supports these efforts and believes they can be instrumental in preventing crimes that could disrupt the financial systems of the United States.

Anti-Counterfeiting-The Service's original mission in 1865 was to block the counterfeiting of the newly issued national currency, and while the mission does not today have the profile of protecting the President, it remains a core function. Indeed, the USSS anticounterfeiting efforts may be even more important today than they were a century ago, as the U.S. dollar is the reserve currency of the world, is the official currency of a number of countries, and is the default currency of many more. The public's faith in the integrity of the dollar is at the heart of the stability of the U.S. econ

omy.

Thus, the Committee believes that the Service's efforts to combat counterfeiting deserve continued and enhanced emphasis. Recent discoveries in Colombia of credible counterfeits of the new U.S. onedollar coin and in both Colombia and in areas of Eastern Europe of counterfeit plants producing or ready to produce both U.S. banknotes and the new Euro banknotes indicate the magnitude of the problem. The Committee believes that the continued growth of counterfeiting by personal computer in the U.S. eventually will be

mirrored overseas, where counterfeiting still mostly is done on presses and is thus somewhat easier to interdict. Also, the Committee believes that the establishment of more overseas field offices so that agents can gather and act on information first-hand—rather than relying on other Federal law agencies or other countries' law-enforcement-will increase the ability to stop counterfeiting.

Given the demonstrated nexus between counterfeiting, drug-running, arms-smuggling and terrorism, the Committee strongly believes that trying to staff anti-counterfeiting and other anti-crime and threat-assessment efforts for all of Central and South America and the Caribbean (except Colombia) from a single office in Miami is simply not practical anymore. The Committee further believes that the Service's recent agreement with Europol to jointly police against counterfeiting is an important move and a model for other law enforcement that should be encouraged. The Committee stands ready to enhance other anti-counterfeiting law, as appropriate.

Financial Crimes-The Service's pedigree as the only Federal investigative unit until some of its agents were detailed to help form the Federal Bureau of Investigation in 1907, and its position within the Department of the Treasury, naturally led to a good relationship with the financial services industry and successes in stopping financial crimes. In the 1980s, with the advent of relatively new technologies such as computers and credit cards came a wave of an entirely new sort of bank and financial fraud, and the 1984 Act created three new criminal statutes-Title 18, Sections 1028, 1029 and 1030-to deal with fraud in conjunction with identity documents, access device fraud and computer crimes, giving the Service major new authorities and clear jurisdiction. The USA PATRIOT Act cemented the Service's jurisdiction over Sections 1030 and 1344. The Committee believes that the Service's role in these areas, as well as the assessment of threats against financial services companies and the protection of that infrastructure-communications, power, etc.-vital to those companies, is invaluable and should be emphasized.

Monetary Security-While the President's legislative proposal for the new Department does not suggest consolidating the Treasury Department's monetary security forces into the new Department, the Committee believes that this could be an important step that should be closely examined. Currently the United States Mint and the Bureau of Engraving and Printing (BEP) maintain separate security forces that over the years have had varying degrees of success. The Committee feels that transferring this mission to the Secret Service in the new Department would have important benefits both to the security of the facilities that produce the country's currency and coins, and also to the security of U.S. gold reserves held at Fort Knox, currently under the supervision of the Mint. Noting that the BEP currently relies on the USSS heavily for consultations on its security arrangements, the Committee further believes that moving this mission to the Service may allow the currencyproduction arms of the Treasury to concentrate on what they do best and allow the Service to train its newest agents in a different form of protection detail, ultimately enhancing their abilities.

The Financial Services Committee strongly supports the efforts of the President and the Select Committee on Homeland Security