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PROTECTING YOUR PERSONAL DATA: HOW LAW 

ENFORCEMENT WORKS WITH THE PRIVATE 

SECTOR TO PREVENT CYBERCRIME 

FIELD HEARING 

BEFORE THE

SUBCOMMITTEE ON CYBERSECURITY, 

INFRASTRUCTURE PROTECTION, 

AND SECURITY TECHNOLOGIES 

OF THE

COMMITTEE ON HOMELAND SECURITY 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED THIRTEENTH CONGRESS 

SECOND SESSION 

APRIL 16, 2014 

Serial No. 113–65 

Printed for the use of the Committee on Homeland Security 

Available via the World Wide Web: http://www.gpo.gov/fdsys/ 
(II) 

COMMITTEE ON HOMELAND SECURITY 

MICHAEL T. MCCAUL, Texas, Chairman 

LAMAR SMITH, Texas 

PETER T. KING, New York 

MIKE ROGERS, Alabama 

PAUL C. BROUN, Georgia 

CANDICE S. MILLER, Michigan, Vice Chair 

PATRICK MEEHAN, Pennsylvania 

JEFF DUNCAN, South Carolina 

TOM MARINO, Pennsylvania 

JASON CHAFFETZ, Utah 

STEVEN M. PALAZZO, Mississippi 

LOU BARLETTA, Pennsylvania 

RICHARD HUDSON, North Carolina 

STEVE DAINES, Montana 

SUSAN W. BROOKS, Indiana 

SCOTT PERRY, Pennsylvania 

MARK SANFORD, South Carolina 

VACANCY

BENNIE G. THOMPSON, Mississippi 

LORETTA SANCHEZ, California 

SHEILA JACKSON LEE, Texas 

YVETTE D. CLARKE, New York 

BRIAN HIGGINS, New York 

CEDRIC L. RICHMOND, Louisiana 

WILLIAM R. KEATING, Massachusetts 

RON BARBER, Arizona 

DONDALD M. PAYNE, JR., New Jersey 

BETO O’ROURKE, Texas 

FILEMON VELA, Texas 

ERIC SWALWELL, California 

VACANCY

VACANCY

BRENDAN P. SHIELDS, Staff Director 

MICHAEL GEFFROY, Deputy Staff Director/Chief Counsel 

MICHAEL S. TWINCHEK, Chief Clerk 

I. LANIER AVANT, Minority Staff Director 

SUBCOMMITTEE ON CYBERSECURITY, INFRASTRUCTURE PROTECTION, 

AND SECURITY TECHNOLOGIES 

PATRICK MEEHAN, Pennsylvania, Chairman 

MIKE ROGERS, Alabama 

TOM MARINO, Pennsylvania 

JASON CHAFFETZ, Utah 

STEVE DAINES, Montana 

SCOTT PERRY, Pennsylvania, Vice Chair 

MICHAEL T. MCCAUL, Texas (ex officio) 

YVETTE D. CLARKE, New York 

WILLIAM R. KEATING, Massachusetts 

FILEMON VELA, Texas 

VACANCY

BENNIE G. THOMPSON, Mississippi (ex officio) 

ALEX MANNING, Subcommittee Staff Director 

DENNIS TERRY, Subcommittee Clerk 
(III) 

C O N T E N T S 

Page 

STATEMENTS 

The Honorable Patrick Meehan, a Representative in Congress From the State 

of Pennsylvania, and Chairman, Subcommittee on Cybersecurity, Infrastructure Protection, and Security Technologies ............................................... 1 

The Honorable Yvette D. Clarke, a Representative in Congress From the 

State of New York, and Ranking Member, Subcommittee on Cybersecurity, 

Infrastructure Protection, and Security Technologies ....................................... 4 

The Honorable Mike Fitzpatrick, a Representative in Congress From the 

State of Pennsylvania .......................................................................................... 5 

WITNESSES 

PANEL I 

Mr. Ari Baranoff, Assistant Special Agent In Charge, Criminal Investigative 

Division, United States Secret Service: 

Oral Statement ..................................................................................................... 7 

Prepared Statement ............................................................................................. 9 

Mr. Richard P. Quinn, Assistant Special Agent In Charge, Philadelphia Field 

Office, Federal Bureau of Investigation: 

Oral Statement ..................................................................................................... 16 

Prepared Statement ............................................................................................. 18 

Mr. John J. ‘‘Jack’’ Whelan, District Attorney, Delaware County, Pennsylvania: 

Oral Statement ..................................................................................................... 21 

Prepared Statement ............................................................................................. 23 

PANEL II 

Mr. Frederick ‘‘Ted’’ Peters, Chairman and CEO, Bryn Mawr Trust: 

Oral Statement ..................................................................................................... 37 

Prepared Statement ............................................................................................. 39 

Mr. Thomas Litchford, Vice President of Retail Technology, National Retail 

Federation: 

Oral Statement ..................................................................................................... 40 

Prepared Statement ............................................................................................. 42 

Mr. Matthew Rhoades, Director, Cyberspace and Security Program, Truman 

National Security Project and Center for National Policy: 

Oral Statement ..................................................................................................... 45 

Prepared Statement ............................................................................................. 47 

(1) 

PROTECTING YOUR PERSONAL DATA: HOW 

LAW ENFORCEMENT WORKS WITH THE 

PRIVATE SECTOR TO PREVENT 

CYBERCRIME 

Wednesday, April 16, 2014 

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON HOMELAND SECURITY, 

SUBCOMMITTEE ON CYBERSECURITY, INFRASTRUCTURE

PROTECTION, AND SECURITY TECHNOLOGIES, 

Philadelphia, PA. 

The subcommittee met, pursuant to call, at 10:18 a.m., at the 

Paul Peck Alumni Center, Drexel University, 3142 Market Street, 

Philadelphia, PA, Hon. Patrick Meehan [Chairman of the subcommittee] presiding. 

Members present: Representatives Meehan, Fitzpatrick, and 

Clarke. 

Mr. MEEHAN. The Committee on Homeland Security, Subcommittee on Cybersecurity, Infrastructure Protection, and Security Technologies will come to order. We are waiting for a moment, 

although we will begin, because by the time I am concluded with 

our opening statements and other things—my partner, Ms. Clarke, 

the Ranking Member from New York, had a little bit of trouble 

with the trains this morning, but she is, I know, out of the train 

and on her way up, so I think we will try to get the hearing started, and I will look forward to having her make her opening statement as soon as we begin. 

I am—want to first express my deep appreciation to Drexel University for allowing us to use this beautiful venue for this hearing, 

and to also take a moment to plug the tremendous work that 

Drexel University is doing with the creation of their new cyber institute, which is not only using research and development to work 

with—the educational sector to work with the private sector and 

the Government sector in identifying the newest and best ways to 

deal with the threat of cyber—with cybersecurity, and dealing with 

the threats to information, but they are also going to be training 

the next generation of participants in the process of helping us to 

create better protections. I think it is a remarkable new area, and 

we are very grateful to have that kind of a commitment here in 

this region. I know it is something shared with other universities 

as well, but particularly what Drexel is doing is noteworthy around 

the country. 

I also have to make note of this, guys, and it is not customary, 

because of the angles of the sun, it is generally law enforcement 
2 

that has people locked in rooms with lights shining in their faces. 

Then they, you know, then they ask the tough questions. So this 

is kind of turnabout. We will have to see how you enjoy that aspect 

of it. 

At this moment I am going to ask unanimous consent for Congressman Mike Fitzpatrick to participate in the hearing. Hearing 

no objection, so ordered. I want to express my deep appreciation to 

Congressman Fitzpatrick, not only for the work that he does in the 

broad spectrum of issues for our region, but because Congressman 

Fitzpatrick is growing in his importance on the Financial Services 

Committee. This is an area in which he has been spending time as 

well, and I am very grateful for his participation. When my colleague, Ms. Clarke, arrives, I will take a moment to comment on 

our relationship. But allow me to begin by doing an opening statement. 

I want to welcome all of the witnesses, and extend my thanks for 

participating in today’s hearing, and I appreciate the effort taken 

on behalf of all of those involved in this important field hearing. 

This is an official Congressional hearing, as opposed to a town hall 

meeting, or something else that we would traditionally do, so we 

have to abide by certain rules of the Committee on Homeland Security, and the House of Representatives. This is as if we are sitting 

in the House today, so photography, and cameras and other things 

are limited to accredited press, and we want to make sure that we 

respect the decorum and the rules of the committee. 

I am going to give my colleague a moment to collect herself as 

I do my opening statement, but I would also—I did want to take 

a moment while Congresswoman Clarke was here to share with 

you—we have had the great fortune to be working together for 

much of the last term on this important committee. While, certainly, there are a few occasions where we have to zealously argue 

for our philosophical positions, the fact of the matter is it has been 

a remarkable working relationship. We have had the ability to collectively identify and work on a number of issues with respect to 

cybersecurity, including some very substantial legislation that has 

passed the committee unanimously, and in a bipartisan fashion, 

and has been a real joy to be able to work with Congresswoman 

Clarke in this capacity. I want to express my deep appreciation for 

you taking the time to come down from New York to join with us 

today at this field hearing. So I will recognize myself for an opening statement. 

Recent cyber breaches at retailers, including Target, Nieman 

Marcus, and Michael’s, have once again brought the public’s attention to the threat of criminals accessing their personal information. 

Unfortunately, such data breaches are neither new nor rare. The 

Target attack alone comprised the information of approximately 

110 million consumers, and it could be months, or even years, before we know how many of those customers will eventually be victims of fraud. In 2012, an estimated 16.6 million Americans experienced identity theft, costing consumers nearly $25 billion, so this 

problem is not going away. Just last week many people learned 

about the so-called Heartbleed vulnerability that affects the 

encryption software used in many e-commerce sites. 
3 

While fraud is nothing new, the techniques and scope have risen 

to a new level. Our increasingly interconnected world, and the advancement of on-line shopping and banking, has made our lives 

much more convenient, but it has also meant that a sophisticated 

criminal can steal your account information without ever being in 

the country. In fact, the biggest hotbed of hackers is in Eastern Europe, where criminals can buy, sell, and trade various pieces of 

software used to attack systems and steal information. 

The question then becomes: What is being done about it? From 

the retailers responsible for protecting the information in their systems, to the banks who are liable for fraudulent charges, to law enforcement at every level, and that means local, State, and Federal, 

who are charged with going after the criminals, all of the stakeholders here play a role, and are working hard to counter cyber 

fraud and identity theft. I add that this is an issue that is well 

within the boundaries of our committee, and I am pleased to be 

able to work with Congresswoman Clarke as we engage in a series 

of hearings that will unfold in dealing with this important question. 

Consumers must also do their part to protect themselves. Simple 

steps to increase cyber hygiene including creating strong passwords 

and changing them regularly, using anti-virus software, and keeping it updated, and most importantly, keeping an eye out for suspicious activity on your computer, and in bank accounts. So I am 

looking forward to hearing from all of our witnesses about the outreach they do to inform consumers to better protect themselves. 

Our first panel of witnesses is directly responsible for investigating cyber crimes at the Federal and local level. In addition to 

its role as the lead agency investigating the recent retail breaches, 

we will hear from the Secret Service about the tools at their disposal, including the National Cyber Forensics Institute, which 

trains local law enforcement officials to investigate and prosecute 

cyber crimes, the Cyber Intelligence Section that collects, analyzes, 

and disseminates data, and the Electronic Crimes Task Force, that 

brings together law enforcement, academia, and the private sector 

to combat computer-based threats to our financial systems and critical infrastructure. 

Similarly, I am pleased to have the Federal Bureau of Investigation, who will testify about their role in investigating cyber-related 

crimes, and about the National Cyber Investigative Joint Task 

Force, which was created in partnership with the Department of 

Defense and the intelligence community, also including law enforcement and the private sector, to coordinate and share information. That is critical as we deal with real-time transactions. 

We are also going to hear from the local level, which is vitally 

important, and I am pleased that District Attorney Jack Whelan of 

Delaware County is able to be here, and he has a criminal investigation division which leads local efforts to fight cyber crime. District Attorney Whelan will share with us thoughts on how he uses 

his resources to deal with the investigations which have an effect 

on the community, and then, in addition, how we are doing at the 

Federal level in coordinating and helping to engage those resources 

at the local level. 
4 

Our second panel will discuss efforts in the private sector to prevent and respond to cyber attacks. They are the ones on the front 

lines, fighting the problem, and continue to suffer significant financial losses. I know we will likely hear, 85 percent of the assets that 

are engaged in the world of cyber are in the hands of private entities. This partnership is more critical than perhaps any other area. 

I am particularly interested in hearing from them about how they 

interact with law enforcement, and how we can help protect their 

customers. I look forward to hearing from all of our witnesses 

today, and want to thank everybody for their attendance. 

Let me just conclude by saying one last thing. There are so many 

different aspects of cyber. You know, we deal with the threat of terrorism on a regular basis. We have State-sponsored activities, 

which is quite sophisticated, and often deals with the question of 

cyber espionage, and other kinds of things. There is the reality that 

the cyber world is a new dimension for warfare. In fact, there is 

a great deal of activity that takes place with the Department of Defense, the intelligence community, and others that operate in that 

domain. 

But today we are focused on, how does this question come back 

to the local level, to the local consumer, to the person out there, 

to the small businessman, to the community banker? Because in 

the aftermath of the major issues that we have recently seen, such 

as Target, we realize that real lives are affected, and so our purpose today is to focus in that unique area, and I am grateful for 

the tremendous witnesses we have. 

So I now recognize the Ranking Minority Member of the subcommittee, the gentlelady from New York, Ms. Clarke, for any 

statement she may have. 

Ms. CLARKE. I want to thank you, Mr. Chairman, for holding this 

field hearing in Philadelphia today, a place I know that is close to 

your heart, and I might say the City of Brotherly, and I might add 

‘‘Sisterly’’, Love, here on the campus of Drexel University. It is certainly my honor and privilege to come, and to hear from the witnesses today, and to thank you for taking us into the field, where 

we will have an opportunity to really reflect on how this type of 

cyber activity impacts on our local communities. 

Modern-day criminals increasingly rely on the internet and advanced technologies to spread their criminal operations. I think everyone would agree that the internet technology has now emerged 

as a key factor for the majority of organized crime activity. For instance, criminals can leverage the properties of the internet to 

carry out traditional street crime, such as distributing illicit drugs 

and sex trafficking. But what we are here to talk about today is 

how criminals exploit the digital world to assist crimes that are 

often technology-driven, including identity theft, payment card 

fraud, and intellectual property theft. 

As we will hear today, the FBI considers high-tech crimes to be 

the most significant crimes confronting the United States as a Nation, and we, on the subcommittee, have shown an increasing interest in guaranteeing the Federal Government has the tools and capabilities to combat modern-day crime, particularly those with 

cyber components, while safeguarding privacy rights. 
5 

Today’s cyber criminals make their crimes more profitable by 

choosing specialties, and creating cyber networks of colleagues. 

These types of criminals can victimize individuals and organizations alike. They generally are motivated by self-interest and profit, 

but cyber crimes can have public health and National security consequences, especially when cyber crimes are directed towards critical infrastructure, such as our hospitals, water systems, Governmental entities, or our Nation’s financial systems. 

U.S. officials face the challenging task of identifying the perpetrators of malicious cyber incidents, in which victim and criminal 

can be far removed from one another. The person or persons behind 

an incident can range from lone actors to expansive criminal networks, or even nation-states. This challenge of attribution is further compounded by the anonymity afforded by the digital realm. 

It can sometimes be difficult to determine the actor’s motivation. 

Is the criminal driven by greed or glory, in the forms of recognition 

among fellow criminals in the cyber world, or does the criminal 

have broader ideological motives? Finding the answers to these 

questions is key to distinguishing between cyber crimes and other 

cyber threats, such as cyber attacks, cyber espionage, and cyber 

warfare. Relevant distinctions exist between these various malicious activities in the cyber domain, just as lines have been drawn 

between their real-world counterparts, and today’s hearing will 

help us understand those distinctions. 

In July 2011 the Obama administration released a strategy to 

combat transnational organized crime, addressing converging 

threats to National security. This strategy provides the Federal 

Government’s first broad conceptualization of transnational organized crime, highlighting it as a National security concern. It highlights 10 primary threat categories posed by transnational organized cyber crime, penetration of state institutions, corruption, and 

the threats to governance, threats to the economy, threats to U.S. 

competitiveness in strategic markets, the nexus between criminals, 

terrorists, and insurgents, expansion of drug trafficking, human 

smuggling, trafficking in persons, weapons trafficking, intellectual 

property theft, and finally, cyber crime. 

The President’s strategy outlies, excuse me, outlines key actions 

to counter the range of threats posed by building international capacity, cooperation, and partnerships, and taking shared responsibility to identify what actions Federal, State, and local entities can 

take to protect against the threat, and impact on transnational 

cyber crime. 

We are here today to discuss complex prosecutorial and investigative problems that face law enforcement officials and companies 

when dealing with cyber crime, and I look forward to your testimony. With that, Mr. Chairman, I yield back. 

Mr. MEEHAN. I want to thank the Ranking Member for her opening statement, and I want to express now my deep appreciation to 

my colleague from Bucks County, Congressman Fitzpatrick, for 

joining us today, and I recognize him for any opening statement he 

may like to make. 

Mr. FITZPATRICK. This is an issue that affects just about every 

sector of our lives, sector of our industry. As the Chairman did 

thank Drexel University, not only for hosting us, but for your inter-
6 

est in the issue of cyber terrorism, for what you have done so far 

in teaching students, and being involved in the community, and 

what we know you will continue to do in the future. 

The committee on which I serve, which is Financial Services, 

held a subcommittee hearing on this exact subject just last month, 

and we were also joined at the subcommittee hearing by law enforcement and financial service industry representatives, and it 

was a really informative hearing. 

The subject of this morning’s hearing is an important subject 

that we cannot spend enough time on. Cybersecurity has privacy, 

financial, law enforcement, and, quite frankly, National defense implications. This is a critical issue that is not only—that is only 

going to grow in importance as we come to rely even more on digital and cyber infrastructure, and cyber transactions. 

During the Financial Services hearing I mentioned, the feedback 

that I was hearing, and from small community financial institutions back home in my district in Bucks County, Pennsylvania, was 

how they and their customers are increasingly concerned about cybersecurity. For them, the cost is not just the money that is stolen, 

but they are also responsible for notifying customers and for replacing credit cards and debit cards after the incident occurs. That 

takes manpower. That has material costs. These costs are borne by 

financial institutions of all sizes, but are disproportionately burdensome to community banks and small financial institutions, and 

credit unions as well. 

Protecting personal information and financial data is a shared 

responsibility. It is going to take collaboration and cooperation 

among retailers, private institutions, and financial service providers. As this hearing will explore, the Government has an important role to play not only in law enforcement, but ensuring that individuals, businesses, and public property are protected. After all 

these are homeland security issues. It is not just criminals who are 

seeking to exploit security lapses, but also nation-states, and nonstate enemies of the United States who could, and have, attacked 

our banking sectors, as well as other critical infrastructure areas. 

So, again, I am very interested in this topic. I appreciate the 

Chairman calling the hearing here in the City of Brotherly Love, 

the city of Philadelphia. We are all looking forward to the testimony of the two panels today, and I appreciate the chance to participate. 

Mr. MEEHAN. I thank the Congressman for being here. We are 

pleased as well to have two distinguished panels of witnesses before us today on this important topic. I am going to introduce the 

first panel, and then recognize each of you for your testimony. 

First, to my left, is Mr. Ari Baranoff. He is an assistant special 

agent in charge of the criminal investigative division with the 

United States Secret Service. Mr. Baranoff has had over 19 years 

of Federal law enforcement experience, the majority of which has 

been with the Secret Service. He is currently assigned to the Secret 

Service headquarters in Washington, DC, and is the manager of 

the cyber investigations branch, where he has overseen the investigation and capture of the Secret Service’s most wanted financial 

criminals. 
7 

Prior to assuming command of the cyber investigations branch, 

Mr. Baranoff led the New York Electronic Crimes Task Force, and 

it is a—I am greatly appreciative that you would travel from Washington to be with us here today. All of our witnesses are among the 

Nation’s top experts in these areas. 

Richard Quinn, from the Federal Bureau of Investigation, is an 

assistant special agent in charge here in the Philadelphia field office. He focuses on National security issues. Prior to his work in 

the Philadelphia field office, Mr. Quinn was an FBI counterterrorism agent in New York. Mr. Quinn witnessed the horrific attacks on the World Trade Center on September 11, 2011, and was 

one of five agents assigned to the primary team to investigate the 

aftermath. That is the kind of an incident that always lingers in 

our minds, and I think one day after the first anniversary of the 

Boston bombings as well, we still live with a very real recognition 

that—a lot of why we are here today, and the great work you are 

doing protecting our homeland from the threat of terror, in addition 

to things like the cyber threat. 

Here from the local law enforcement community, representing 

his colleagues from across the region, is district attorney for Delaware County, Pennsylvania, Jack Whelan. Jack was elected in November 2011. As a district attorney, DA Whelan’s responsible for 

the prosecution of criminal offenses within the jurisdiction of Delaware County, including homicides and drug enforcement, as well as 

cyber crime. Before becoming district attorney, Mr. Whelan served 

as the chairman of the Delaware County Council, where he took a 

lead on many public safety issues that focused on homeland security. I might add, the Internet Crimes Against Children Task Force 

is housed in the District Attorney’s Office for the State-wide region 

in Delaware County, and it has been a mechanism by which that 

office, working with a consortium, has been at the cutting edge of 

cyber investigations across the board. 

So I want to thank all of you for being here. The full written 

statements of the witnesses will appear in the record. So we don’t 

have the usual demands that we might customarily have because 

of the size of our committee here this morning, but I will still ask 

you to do your best to stay within the time frames, to the extent 

that you can. So, at this point, I will recognize Mr. Baranoff for 

your opening statement. 

STATEMENT OF ARI BARANOFF, ASSISTANT SPECIAL AGENT 

IN CHARGE, CRIMINAL INVESTIGATIVE DIVISION, UNITED 

STATES SECRET SERVICE 

Mr. BARANOFF. Thank you, sir. Good morning, Chairman Meehan, Ranking Member Clarke, and distinguished Members of the 

subcommittee. Thank you for the opportunity to testify here at 

Drexel University on behalf of the Department of Homeland Security regarding the cyber crime threats our Nation faces, and how 

law enforcement works with the private sector to prevent cyber 

crime. 

Our modern financial system depends on information technology 

for convenience and efficiency. Accordingly, criminals motivated by 

greed have adapted their methods, and are increasingly using 

cyber space to exploit our Nation’s financial payment systems to 
8 

engage in fraud and other illicit activities. The widely-reported payment card data breaches of Target, Nieman Marcus, White Lodging, and other retailers are just recent examples of this trend. The 

U.S. Secret Service is investigating these recent data breaches, and 

we are confident that we will bring the criminals responsible to justice. 

However, what you don’t hear in the news coverage is the numerous data breaches the Secret Service prevents by discreetly 

working with businesses to disrupt and thwart the plans of cyber 

criminals. This year is the 30th anniversary of when Congress first 

defined as specific Federal crimes both unauthorized access to computers and access device fraud, while explicitly assigning the Secret 

Service authority to investigate these crimes. Over the past 3 decades the Secret Service has continuously innovated in how we investigate these crimes to defeat the criminal organizations responsible for major data breaches. 

In support of the Department of Homeland Security’s mission to 

safeguard and secure cyber space, the Secret Service uses a variety 

of investigative methods to develop information regarding the most 

capable cyber threat actors. To prevent losses, we share information with victim companies of on-going or planned network intrusions to prevent any financial losses. 

To accomplish this mission, the Secret Service currently operates 

a network of 35 electronic crimes task forces, which in 2001 Congress assigned the mission of preventing, detecting, and investigating various forms of electronic crimes, including potential terrorist attacks against critical infrastructure and financial payment 

systems. In addition, through our department’s National Cybersecurity and Communications Integration Center, the NCCIC, the Secret Service also widely shares technical cybersecurity information, 

while protecting civil rights and civil liberties in order to enable 

other organizations to reduce their cyber risks by mitigating technical vulnerabilities. As a result of our cyber crime investigations 

over the past 4 years, the Secret Service has arrested nearly 5,000 

cyber criminals. In total, these criminals were responsible for over 

a billion dollars in fraud losses. We estimate our investigations prevented over $11 billion in fraud losses. 

Secret Service is committed to building the cybersecurity capacity of our Nation, and developing a greater understanding of cybersecurity threats. Universities and research institutions like Drexel, 

and its recently-opened cybersecurity institute, are critical partners 

of the Secret Service in these efforts. Drexel University continues 

to be a valued member of our Philadelphia Electronic Crimes Task 

Force, and this highly-productive partnership is an excellent example of the sort of relationships the Secret Service has developed 

with over 200 academic institutions Nation-wide to our electronic 

crimes task forces. The Secret Service also partners with the private sector and academia to research cyber threats, and publish information on cyber crime trends, through reports like the CarnegieMellon CERT Insider Threat Study, the Verizon Data Breach Investigations Report, and the Trustwave Global Security Report. 

Secret Service develops the capability of State and local law enforcement to investigate cyber crime. At our National Computer 

Forensics Institute in Hoover, Alabama, the Secret Service trains 
9 

1 Beginning in 1970, and over the course of 3 years, the chief teller at the Park Avenue branch 

of New York’s Union Dime Savings Bank manipulated the account information on the bank’s 

computer system to embezzle over $1.5 million from hundreds of customer accounts. This early 

example of cyber crime not only illustrates the long history of cyber crime, but the difficulty 

companies have in identifying and stopping cyber criminals in a timely manner—a trend that 

continues today. 2See 18 USC §§ 1029(d) & 1030(d)(1). 3See 18 USC § 1030. 4See 18 USC § 1029. 5See 18 USC § 1029(e)(1). 

hundreds of State and local law enforcement in methods for investigating cyber crime. Since opening in 2008, the institute has held 

over 150 cyber and digital forensics courses in 16 separate subjects, 

and trained and equipped more than 3,000 police investigators, 

prosecutors, and judges from all 50 States, and three U.S. territories. These graduates represent more than 1,000 agencies Nationwide, and include 52 law enforcement officials right here in the 

Philadelphia Metropolitan area. 

Secret Service has a long history of protecting our Nation’s financial system from threats. In 1865 the threat we were founded to 

address was that of counterfeit currency. As our financial payment 

system has evolved from paper, to plastic, to now digital information, so too has our investigative mission. The Secret Service is 

committed to continuing to protect our Nation, even as criminals 

increasingly use cyber space to engage in criminal activity. 

Thank you for the opportunity to testify on this important topic, 

and I look forward to your questions. 

[The prepared statement of Mr. Baranoff follows:] 

PREPARED STATEMENT OF ARI BARANOFF

APRIL 16, 2014 

Good morning Chairman Meehan, Ranking Member Clarke, and distinguished 

Members of the subcommittee. Thank you for the opportunity to testify here at 

Drexel University on the risks and challenges the Nation faces from cyber crime and 

the importance of partnering with the private sector to address these challenges. 

Based on the United States Secret Service’s (Secret Service) 3 decades of experience 

investigating cyber crime and the understanding we have developed regarding the 

modern transnational organized cyber crime threat to our Nation, I hope to provide 

this subcommittee useful insight into these issue from a Federal law enforcement 

perspective. 

THE ROLE OF THE SECRET SERVICE

The Secret Service was founded in 1865 to protect the U.S. financial system from 

the counterfeiting of our National currency. As the Nation’s financial system evolved 

from paper to plastic to electronic transactions, so too has the Secret Service’s investigative mission. Today, our modern financial system depends heavily on information technology for convenience and efficiency. Accordingly, criminals have adapted 

their methods and are increasingly using cyber space to exploit our Nation’s financial payment system by engaging in fraud and other illicit activities. This is not a 

new trend; criminals have been committing cyber financial crimes since at least 

1970.1

Congress promulgated 18 USC §§ 1029–1030 as part of enacting the Comprehensive Crime Control Act of 1984. Those subsections explicitly assigned the Secret 

Service authority to investigate these criminal violations.2 They first established as 

specific Federal crimes unauthorized access to computers 3 and the fraudulent use, 

or trafficking of, access devices 4—defined as any piece of information or tangible 

item that is a means of account access that can be used to obtain money, goods, 

services, or other thing of value.5

Secret Service investigations have resulted in the arrest and successful prosecution of cyber criminals involved in the largest known data breaches, including those 

of TJ Maxx, Dave & Buster’s, Heartland Payment Systems, and others. Over the 
10 

6Sniffers are programs that detect particular information transiting computer networks, and 

can be used by criminals to acquire sensitive information from computer systems. 7 Additional information on the criminal use of digital currencies can be referenced in testimony provided by U.S. Secret Service Special Agent in Charge Edward Lowery before the Senate Homeland Security and Governmental Affairs Committee in a hearing titled, ‘‘Beyond Silk 

Road: Potential Risks, Threats, and Promises of Virtual Currencies’’ (November 18, 2013). 

past 4 years Secret Service cyber crime investigations have resulted in over 4,900 

arrests, associated with approximately $1.37 billion in fraud losses and the prevention of over $11.24 billion in potential fraud losses, with a 99.5% conviction rate in 

cases that go to trial. Through our work with our partners at the Department of 

Justice (DOJ), in particular the local U.S. Attorney Offices, the Computer Crime 

and Intellectual Property Section (CCIPS), the International Organized Crime Intelligence and Operations Center (IOC–2), and others, we are confident we will continue to bring the cyber criminals that perpetrate major data breaches to justice. 

THE TRANSNATIONAL CYBER CRIME THREAT

Advances in computer technology and greater access to personally identifiable information (PII) via the internet have created on-line marketplaces for transnational 

cyber criminals to share stolen information and criminal methodologies. As a result, 

the Secret Service has observed a marked increase in the quality, quantity, and 

complexity of cyber crimes targeting private industry and critical infrastructure. 

These crimes include network intrusions, hacking attacks, malicious software, and 

account takeovers leading to significant data breaches affecting every sector of the 

world economy. The recently reported data breaches of Target and Neiman Marcus 

are just the most recent, well-publicized examples of this decade-long trend of major 

data breaches perpetrated by cyber criminals who are intent on targeting our Nation’s retailers and financial payment systems. 

The increasing level of collaboration among cyber criminals allows them to compartmentalize their operations, greatly increasing the sophistication of their criminal endeavors as they develop expert specialization. These specialties raise both the 

complexity of investigating these cases, as well as the level of potential harm to 

companies and individuals. For example, illicit underground cyber crime marketplaces allow criminals to buy, sell, and trade malicious software, access to sensitive 

networks, spamming services, payment card data, PII, bank account information, 

brokerage account information, hacking services, and counterfeit identity documents. These illicit digital marketplaces vary in size, with some of the more popular 

sites boasting membership of approximately 80,000 users. These digital marketplaces often use various digital currencies, and cyber criminals have made extensive 

use of digital currencies to pay for criminal goods and services or launder illicit proceeds. 

The Secret Service has successfully investigated many underground cyber criminal marketplaces. In one such infiltration, the Secret Service initiated and conducted a 3-year investigation that led to the indictment of 11 perpetrators allegedly 

involved in hacking nine major U.S. retailers and the theft and sale of more than 

40 million credit and debit card numbers. The investigation revealed that defendants from the United States, Estonia, China, and Belarus successfully obtained 

credit and debit card numbers by hacking into the wireless computer networks of 

major retailers—including TJ Maxx, BJ’s Wholesale Club, Office Max, Boston Market, Barnes & Noble, Sports Authority, and Dave & Buster’s. Once inside the networks, these cyber criminals installed ‘‘sniffer’’ programs 6 that would capture card 

numbers, as well as password and account information, as they moved through the 

retailers’ credit and debit processing networks. After the data was collected, the conspirators concealed the information in encrypted computer servers that they controlled in the United States and Eastern Europe. The credit and debit card numbers 

were then sold through on-line transactions to other criminals in the United States 

and Eastern Europe. The stolen numbers were ‘‘cashed out’’ by encoding card numbers on the magnetic strips of blank cards. The defendants then used these fraudulent cards to withdraw tens of thousands of dollars at a time from ATMs. The defendants were able to conceal and launder their illegal proceeds by using anonymous internet-based digital currencies within the United States and abroad, and by 

channeling funds through bank accounts in Eastern Europe.7

In data breaches like these the effects of the criminal acts extended well beyond 

the companies compromised, potentially affecting millions of individual card holders. 

Proactive and swift law enforcement action protects consumers by preventing and 

limiting the fraudulent use of payment card data, identity theft, or both. Cyber 

crime directly impacts the U.S. economy by requiring additional investment in implementing enhanced security measures, inflicting reputational damage on U.S. 
11 

firms, and direct financial losses from fraud—all costs that are ultimately passed 

on to consumers. 

SECRET SERVICE STRATEGY FOR COMBATING THIS THREAT

The Secret Service proactively investigates cyber crime using a variety of investigative means to infiltrate these transnational cyber criminal groups. As a result 

of these proactive investigations, the Secret Service is often the first to learn of 

planned or on-going data breaches and is quick to notify financial institutions and 

the victim companies with actionable information to mitigate the damage from the 

data breach and terminate the criminal’s unauthorized access to their networks. 

One of the most poorly understood facts regarding data breaches is that it is rarely 

the victim company that first discovers the criminal’s unauthorized access to their 

network; rather it is law enforcement, financial institutions, or other third parties 

that identify and notify the likely victim company of the data breach by identifying 

the common point of origin of the sensitive data being trafficked in cyber crime marketplaces. 

A trusted relationship with the victim is essential for confirming the crime, remediating the situation, beginning a criminal investigation, and collecting evidence. 

The Secret Service’s global network of field offices, including our 35 Electronic 

Crimes Task Forces (ECTFs), are essential for building and maintaining these trusted relationships, along with the Secret Service’s commitment to protecting victims’ 

privacy and the confidentiality of their information. 

When the Secret Service identifies a potential network intrusion, the Secret Service contacts the owner of the suspected compromised computer systems in order to 

assess the data breach and to stop the continued theft of sensitive information and 

the exploitation of a network. Once the victim of a data breach confirms that unauthorized access to their networks has occurred, the Secret Service works with the 

local U.S. Attorney’s office, or appropriate State and local officials, to begin a criminal investigation of the potential violation of 18 USC § 1030. During the course of 

this criminal investigation, the Secret Service identifies the malware and means of 

access used to acquire data from the victim’s computer network. In order to enable 

other companies to mitigate their cyber risk based on current cyber crime methods, 

we quickly share information concerning the cybersecurity incident with the widest 

audience possible, while protecting grand jury information, the integrity of on-going 

criminal investigations, and the victims’ privacy and confidentiality. We share this 

cybersecurity information through: 

• Our Department’s National Cybersecurity & Communications Integration Center (NCCIC); 

• The Information Sharing and Analysis Centers (ISAC); 

• Our ECTFs; 

• The publication of joint industry notices; 

• Our numerous partnerships developed over the past 3 decades in investigating 

cyber crimes; and, 

• Contributions to leading industry and academic reports like the Verizon Data 

Breach Investigations Report, the Trustwave Global Security Report, and the 

Carnegie Mellon CERT Insider Threat Study. 

As we share cybersecurity information discovered in the course of our criminal investigation, we also continue our investigation in order to apprehend and bring to 

justice those involved. Due to the inherent challenges in investigating transnational 

crime, particularly the lack of cooperation of some countries with law enforcement 

investigations, occasionally it takes years to finally apprehend the top tier criminals 

responsible. For example, Dmitriy Smilianets and Vladimir Drinkman were arrested 

in June 2012, as part of a multi-year investigation by the Secret Service, while they 

were traveling in the Netherlands thanks to the assistance of Dutch law enforcement. The alleged total fraud loss from their cyber crimes exceeds $105 million. 

As a part of our cyber crime investigations, the Secret Service also targets individuals who operate illicit infrastructure that supports the transnational organized 

cyber criminal. For example, in May 2013 the Secret Service, as part of a joint investigation through the Global Illicit Financial Team, shut down the digital currency provider Liberty Reserve. Liberty Reserve is alleged to have had more than 

1 million users worldwide and to have laundered more than $6 billion in criminal 

proceeds. This case is believed to be the largest money laundering case ever prosecuted in the United States and is being jointly prosecuted by the U.S. Attorney’s 

Office for the Southern District of New York and DOJ’s Asset Forfeiture and Money 

Laundering Section. In a coordinated action with the Department of the Treasury, 

Liberty Reserve was identified as a financial institution of primary money laun-
12 

8 U.S. Department of Justice. (n.d.). Computer Crime & Intellectual Property Section: About 

CCIPS. Retrieved from http://www.justice.gov/criminal/cybercrime/. 

dering concern under Section 311 of the USA PATRIOT Act, effectively cutting it 

off from the U.S. financial system. 

COLLABORATION WITH OTHER FEDERAL AGENCIES AND INTERNATIONAL LAW

ENFORCEMENT

While cyber criminals operate in a world without borders, the law enforcement 

community does not. The increasingly multi-national, multi-jurisdictional nature of 

cyber crime cases has increased the time and resources needed for successful investigation and adjudication. The partnerships developed through our ECTFs, the support provided by our Criminal Investigative Division, the liaison established by our 

overseas offices, and the training provided to our special agents via Electronic 

Crimes Special Agent Program are all instrumental to the Secret Service’s successful network intrusion investigations. 

One example of the Secret Service’s success in these investigations is the case involving Heartland Payment Systems. As described in the August 2009 indictment, 

a transnational organized criminal group allegedly used various network intrusion 

techniques to breach security and navigate the credit card processing environment. 

Once inside the networks, they installed ‘‘sniffer’’ programs to capture card numbers, as well as password and account information. The Secret Service investigation, 

the largest and most complex data breach investigation ever prosecuted in the 

United States, revealed that data from more than 130 million credit card accounts 

were at risk of being compromised and exfiltrated to a command-and-control server 

operated by an international group directly related to other on-going Secret Service 

investigations. During the course of the investigation, the Secret Service uncovered 

that this international group committed other intrusions into multiple corporate 

networks to steal credit and debit card data. The Secret Service relied on various 

investigative methods, including subpoenas, search warrants, and Mutual Legal Assistance Treaty (MLAT) requests to identify three main suspects. As a result of the 

investigation, these primary suspects were indicted for various computer-related 

crimes. The lead defendant in the indictment pled guilty and was sentenced to 20 

years in Federal prison. This investigation is on-going with over 100 additional victim companies identified. 

Recognizing these complexities, several Federal agencies are collaborating to investigate cases and identify proactive strategies. Greater collaboration within the 

Federal, State, and local law enforcement community enhances information sharing, 

promotes efficiency in investigations, and facilitates efforts to de-conflict in cases of 

concurrent jurisdiction. For example, the Secret Service has collaborated extensively 

with DOJ’s CCIPS, which ‘‘prevents, investigates, and prosecutes computer crimes 

by working with other government agencies, the private sector, academic institutions, and foreign counterparts.’’8 The Secret Service’s ECTFs are a natural complement to CCIPS, resulting in an excellent partnership over the years. In the last 

decade, nearly every major cyber investigation conducted by the Secret Service has 

benefited from CCIPS contributions. 

The Secret Service also partners with numerous international law enforcement 

agencies, including the FBI. For example, in August 2010, a joint operation yielded 

the seizure of 143 computer systems—one of the largest international seizures of 

digital media obtained by U.S. law enforcement—consisting of 85 terabytes of data, 

which was transferred to law enforcement authorities in the United States. The 

data was seized from a criminal internet service provider located in Odessa, 

Ukraine, also referred to as a ‘‘Bullet Proof Hoster.’’ 

The case of Vladislav Horohorin is another example of successful cooperation between the Secret Service and its law enforcement partners around the world. Mr. 

Horohorin, one of the world’s most notorious traffickers of stolen financial information, was arrested while traveling in France on August 25, 2010, pursuant to a request for his provisional arrest with a view toward extradition to the United States. 

Mr. Horohorin created the first fully-automated on-line store which held stolen credit card data for sale. Both CCIPS and the Office of International Affairs at DOJ 

played critical roles in this apprehension. 

Apprehending transnational cyber criminals like these is made possible by the Secret Service’s 24 international field offices developing close partnerships with numerous foreign law enforcement agencies in order to combat transnational crime. To 

strengthen our ability to investigate transnational cyber crime, the Secret Service 

maintains ECTFs in London and Rome, has assigned agents to INTERPOL and 

EUROPOL, and operates cyber crime working groups in the Netherlands, Estonia, 
13 

9See Public Law 107–56 Section 105 (appears as note following 18 U.S.C. § 3056). 

Lithuania, Latvia, Ukraine, and Germany. The Secret Service also trains numerous 

international partners on investigating cyber crime; in the past 3 years the Secret 

Service has trained over 500 law enforcement officials representing over 90 countries in investigating cyber crimes. 

The Secret Service investigations of transnational crime are facilitated by the 

dedicated efforts of both the Department of State and the DOJ’s Office of International Affairs to execute MLATs and other forms of international law enforcement 

cooperation, in addition to the personal relationships that develop between Secret 

Service agents and their foreign counterparts through these working groups and 

training efforts. 

Within DHS, the Secret Service benefits from a close relationship with Immigration and Customs Enforcement’s Homeland Security Investigations (ICE–HSI). 

Since 1997, the Secret Service, ICE–HSI, and IRS–CI have jointly trained on computer investigations through the Electronic Crimes Special Agent Program (ECSAP). 

ICE–HSI is also a member of Secret Service ECTFs, and ICE–HSI and the Secret 

Service have partnered on numerous cyber crime investigations including the recent 

take-down of the digital currency Liberty Reserve. 

To further its cybersecurity information-sharing efforts, the Secret Service has 

strengthened its relationship with the National Protection and Programs Directorate (NPPD), including the NCCIC. As the Secret Service identifies malware, suspicious IPs, and other information through its criminal investigations, it shares information with our Department’s NCCIC. The Secret Service continues to build 

upon its full-time presence at NCCIC to coordinate its cyber programs with other 

Federal agencies. 

As a part of these efforts, and to ensure that information is shared in a timely 

and effective manner, the Secret Service has personnel assigned to the following 

DHS and non-DHS entities: 

• NPPD’s National Cybersecurity & Communications Integration Center 

(NCCIC); 

• NPPD’s Office of Infrastructure Protection; 

• DHS’s Science and Technology Directorate (S&T); 

• The National Cyber Investigative Joint Task Force (NCIJTF); 

• Each FBI Joint Terrorism Task Force (JTTF), including the National JTTF; 

• Department of the Treasury—Office of Terrorist Financing and Financial 

Crimes (TFFC); 

• Department of the Treasury—Financial Crimes Enforcement Network 

(FinCEN); 

• Central Intelligence Agency; 

• DOJ’s International Organized Crime and Intelligence Operations Center (IOC– 

2); 

• Drug Enforcement Administration’s Special Operations Division; 

• EUROPOL; and 

• INTERPOL. 

The Secret Service is committed to ensuring that all its information-sharing activities comply with applicable laws, regulations, and policies, including those that 

pertain to privacy, confidentiality, and civil liberties. 

SECRET SERVICE FRAMEWORK

To protect our financial infrastructure, industry, and the American public, the Secret Service has adopted a multi-faceted approach to aggressively combat cyber and 

computer-related crimes. 

Electronic Crimes Task Forces 

In 1995, the Secret Service New York Field Office established the New York Electronic Crimes Task Force (ECTF) to combine the resources of academia, the private 

sector, and local, State, and Federal law enforcement agencies to combat computerbased threats to our financial payment systems and critical infrastructures. In 2001, 

Congress directed the Secret Service to establish a Nation-wide network of ECTFs 

to ‘‘prevent, detect, and investigate various forms of electronic crimes, including potential terrorist attacks against critical infrastructure and financial payment systems.’’9

Secret Service field offices currently operate 35 ECTFs, including two based overseas in Rome, Italy, and London, England. Membership in our ECTFs includes: 

Over 4,000 private-sector partners; over 2,500 international, Federal, State, and 

local law enforcement partners; and over 350 academic partners. By joining our 
14 

ECTFs, our partners benefit from the resources, information, expertise, and advanced research provided by our international network of members while focusing 

on issues with significant regional impact. 

Cyber Intelligence Section 

Another example of our partnership approach with private industry is our Cyber 

Intelligence Section (CIS) which analyzes evidence collected as a part of Secret Service investigations and disseminates information in support of Secret Service investigations world-wide and generates new investigative leads based upon its findings. 

CIS leverages technology and information obtained through private-sector partnerships to monitor developing technologies and trends in the financial payments industry for information that may be used to enhance the Secret Service’s capabilities 

to prevent and mitigate attacks against the financial and critical infrastructures. 

CIS also has an operational unit that investigates international cyber criminals involved in cyber intrusions, identity theft, credit card fraud, bank fraud, and other 

computer-related crimes. The information and coordination provided by CIS is a crucial element to successfully investigating, prosecuting, and dismantling international criminal organizations. 

Electronic Crimes Special Agent Program 

A central component of the Secret Service’s cyber crime investigations is its Electronic Crimes Special Agent Program (ECSAP), which is comprised of nearly 1,400 

Secret Service special agents who have received at least one of three levels of computer crimes-related training. 

Level I—Basic Investigation of Computers and Electronic Crimes (BICEP).—The 

BICEP training program focuses on the investigation of electronic crimes and provides a brief overview of several aspects involved with electronic crimes investigations. This program provides Secret Service agents and our State and local law enforcement partners with a basic understanding of computers and electronic crime 

investigations and is now part of our core curriculum for newly-hired special agents. 

Level II—Network Intrusion Responder (ECSAP–NI).—ECSAP–NI training provides special agents with specialized training and equipment that allows them to 

respond to and investigate network intrusions. These may include intrusions into 

financial sector computer systems, corporate storage servers, or various other targeted platforms. The Level II trained agent will be able to identify critical artifacts 

that will allow for effective investigation of identity theft, malicious hacking, unauthorized access, and various other related electronic crimes. 

Level III—Computer Forensics (ECSAP–CF).—ECSAP–CF training provides special agents with specialized training and equipment that allows them to investigate 

and forensically obtain digital evidence to be utilized in the prosecution of various 

electronic crimes cases, as well as criminally-focused protective intelligence cases. 

These agents are deployed in Secret Service field offices throughout the world and 

have received extensive training in forensic identification, as well as the preservation and retrieval of electronically-stored evidence. ECSAP-trained agents are computer investigative specialists, qualified to conduct examinations on all types of electronic evidence. These special agents are equipped to investigate the continually 

evolving arena of electronic crimes and have proven invaluable in the successful 

prosecution of criminal groups involved in computer fraud, bank fraud, identity 

theft, access device fraud, and various other electronic crimes targeting our financial 

institutions and private sector. 

National Computer Forensics Institute 

The National Computer Forensics Institute (NCFI), located in Hoover, AL, is the 

result of a partnership between the Secret Service, NPPD, the State of Alabama, 

and the Alabama District Attorney’s Association. The goal of this facility is to provide a National standard of training for a variety of electronic crimes investigations. 

The program offers State and local law enforcement officers and prosecutors the 

training necessary to perform computer forensics examinations, respond to network 

intrusion incidents, and to conduct electronic crimes investigations, while judges receive general education in these areas. Since opening in 2008, the institute has held 

over 150 cyber and digital forensics courses in 16 separate subjects and trained and 

equipped more than 3,000 State and local officials, including more than 2,300 police 

investigators, 840 prosecutors, and 230 judges from all 50 States and three U.S. territories. These NCFI graduates represent more than 1,000 agencies Nation-wide. 

State and local agencies greatly benefit from this Secret Service-provided education on investigating cyber crime. In some of the advanced forensics and network 

intrusion courses, students are issued all of the hardware, software, and licenses 

necessary to conduct investigations. NCFI students receive the same equipment and 
15 

10 CERT—not an acronym—conducts empirical research and analysis to develop and transition 

socio-technical solutions to combat insider cyber threats. 

advanced software as U.S. Secret Service special agents—a considerable benefit as 

it allows both the local officer and the Federal agent to operate on common systems. 

Graduates of the NCFI return to their respective agencies and apply their newlyacquired skills and equipment to investigating computer-based crimes. Additionally, 

these graduates are offered the chance to participate in the Secret Service’s Electronic Crimes Task Force (ECTF) program. State and local ECTF members work 

alongside other Federal agencies and private-sector entities to combat the systemic 

flood of cyber-related crimes targeting both private citizens and our Nation’s financial infrastructure. These ECTF members also serve as force multiplier for the U.S. 

Secret Service ECSAP program. 

Partnerships with Academia 

The Secret Service has a long history of closely partnering with academia as a 

part of our mission. For example, Drexel University is a valued member of our 

Philadelphia ECTF, and this highly productive partnership to address the challenges of cyber crime is an excellent example of the sort of partnerships the Secret 

Service has developed with over 200 academic institutions Nation-wide through our 

ECTFs. The Secret Service is continually expanding its partnerships with academia 

through its 35 Electronic Crimes Task Forces. In addition to the numerous universities that are ECTF members, the Secret Service has a close, collaborative relationship with both Carnegie Mellon and the University of Tulsa. 

In August 2000, the Secret Service and Carnegie Mellon University Software Engineering Institute (SEI) established the Secret Service CERT10 Liaison Program to 

provide technical support, opportunities for research and development, as well as 

public outreach and education to more than 150 scientists and researchers in the 

fields of computer and network security, malware analysis, forensic development, 

training, and education. Supplementing this effort is research into emerging technologies being used by cyber-criminals and development of technologies and techniques to combat them. 

The primary goals of the program are: To broaden the Secret Service’s knowledge 

of software engineering and networked systems security; to expand and strengthen 

partnerships and relationships with the technical and academic communities; partner with CERT–SEI and Carnegie Mellon University to support research and development to improve the security of cyberspace and improve the ability of law enforcement to investigate crimes in a digital age; and to present the results of this partnership at the quarterly meetings of our ECTFs. 

In August 2004, the Secret Service partnered with CERT–SEI to publish the first 

‘‘Insider Threat Study’’ examining the illicit cyber activity and insider fraud in the 

banking and finance sector. Due to the overwhelming response to this initial study, 

the Secret Service and CERT–SEI, in partnership with DHS Science & Technology 

(S&T), updated the study and released the most recent version just last year, which 

is published at http://www.cert.org/insiderlthreat/. 

To improve law enforcement’s ability to investigate crimes involving mobile devices, the Secret Service opened the Cell Phone Forensic Facility at the University 

of Tulsa in 2008. This facility has a three-pronged mission: (1) Training Federal, 

State, and local law enforcement agents in embedded device forensics; (2) developing 

novel hardware and software solutions for extracting and analyzing digital evidence 

from embedded devices; and (3) applying the hardware and software solutions to 

support criminal investigations conducted by the Secret Service and its partner 

agencies. To date, investigators trained at the Cell Phone Forensic Facility have 

completed more than 6,500 examinations on cell phone and embedded devices Nation-wide. Secret Service agents assigned to the Tulsa facility have contributed to 

over 300 complex cases that have required the development of sophisticated techniques and tools to extract critical evidence. 

These collaborations with academia, among others, have produced valuable innovations that have helped strengthen the cyber ecosystem and improved law enforcement’s ability to investigate cyber crime. The Secret Service will continue to partner 

closely with academia and DHS S&T, particularly the Cyber Forensics Working 

Group, to support research and development of innovative tools and methods to support criminal investigations. 

LEGISLATIVE ACTION TO COMBAT DATA BREACHES

While there is no single solution to prevent data breaches of U.S. customer information, legislative action could help to improve the Nation’s cybersecurity, reduce 
16 

regulatory costs on U.S. companies, and strengthen law enforcement’s ability to conduct effective investigations. The administration previously proposed law enforcement provisions related to computer security through a letter from OMB Director 

Lew to Congress on May 12, 2011, highlighting the importance of additional tools 

to combat emerging criminal practices. We continue to support changes like these 

that will keep pace with rapidly-evolving use of information technology and associated cybersecurity risks. 

CONCLUSION

The Secret Service is committed to safeguarding the Nation’s financial payment 

systems by investigating and dismantling criminal organizations involved in cyber 

crime. Responding to the growth in these types of crimes and the level of sophistication these criminals employ requires significant resources and greater collaboration 

among law enforcement and its public and private-sector partners. Accordingly, the 

Secret Service dedicates significant resources to improving investigative techniques, 

providing training for law enforcement partners, and raising public awareness. The 

Secret Service will continue to be innovative in its approach to cyber crime and cybersecurity and is pleased that the subcommittee recognizes the magnitude of these 

issues, the evolving nature of these crimes, and the importance of academic institutions, like Drexel University, in addressing these issues. 

Mr. MEEHAN. I want to thank Mr. Baranoff for his testimony, 

and the Chairman now recognizes Mr. Quinn for your testimony. 

STATEMENT OF RICHARD P. QUINN, ASSISTANT SPECIAL 

AGENT IN CHARGE, PHILADELPHIA FIELD OFFICE, FEDERAL 

BUREAU OF INVESTIGATION 

Mr. QUINN. Good morning, Chairman Meehan, Ranking Member 

Clarke. Thank you for inviting me here today to discuss the FBI’s 

role in cybersecurity, and for your on-going support—— 

Mr. MEEHAN. Special Agent, is—would you check to see if your 

mike is pushed on? 

Mr. QUINN. Test. 

Mr. MEEHAN. Just pull it closer to you, then, please. 

Mr. QUINN. Got it. Very good. How is this? Very good. Well, good 

morning, Chairman Meehan, and Ranking Member Clarke, and 

Congressman Fitzpatrick. Thank you for inviting me here today to 

discuss the FBI’s role in cybersecurity, and for your on-going support of the Bureau. 

The purpose of this hearing is to discuss Federal, State, and local 

partnerships with private industry as it relates to cybersecurity. To 

that end, it is important to note that the FBI recognizes that in 

order to effectively combat the cyber threat, it is imperative we significantly enhance our collaboration not only with other Government entities, but with the private sector. On one hand, our Nation’s companies are the primary victims of cyber intrusions, and 

their networks contain the evidence of countless attacks. On the 

other hand, the private sector is the key to defeating this threat. 

The private sector possesses the information, expertise, and knowledge to be a crucial partner in this endeavor. 

One of the challenges in the past has been that, while private industry has provided us information about the attacks, we have not 

always provided information in return. It is in establishing and refining an exchange of valuable information about cybersecurity 

issues that will allow us to leverage the capabilities of both public 

and private sector in defeating cyber threats. The FBI’s newly established Key Partnership Engagement Unit manages a targeted 
17 

outreach program focused on building relationships with senior executives of key private-sector corporations. 

Through utilizing a tiered approach, the FBI is able to prioritize 

our efforts to better correlate potential National security threat levels with specific critical infrastructure sectors. The Key Partnership team promotes the FBI’s whole-of-Government and industry 

approach to cybersecurity in investigations by developing a robust 

information exchange platform with corporate partners. Through 

the FBI’s Infraguard program, the FBI develops partnerships and 

working relationships with private sector, academic, and other public/private entity subject-matter experts. Primarily geared towards 

the protection of critical National infrastructure, Infraguard promotes on-going dialogue and timely communication between a current active membership base of approximately 26,000. 

Infraguard members are encouraged to share information with 

Government that enhances its mission to prevent and address 

criminal and National security issues, and, through the utilization 

of the Guardian for Cyber program, active members are able to report cyber intrusion incidents in real time to the FBI. Infraguard 

members also benefit from access to robust on- and off-line learning 

courses, connectivity with other members and special interest 

groups, and relevant Government intelligence and updates that enable them to broaden threat awareness, and protect their assets. 

The FBI’s Cyber Initiative and Resource Fusion Unit maximizes 

and develops intelligence and analytical resources received from 

law enforcement, academia, international and critical corporate private-sector subject-matter experts to identify and combat significant actors involved in current and emerging cyber-related criminal 

and National security threats. CIRFU’s core capabilities include a 

partnership with the National Cyber Forensics and Training Alliance in Pittsburgh, Pennsylvania, where the unit is co-located. 

NCFTA acts as a neutral platform through which the unit develops 

and maintains a liaison with hundreds of formal and informal 

working partners who share real-time threat information, best 

practices, and collaborate on initiatives to target and mitigate 

cyber threats domestically and abroad. 

The FBI recognizes that industry collaboration and coordination 

is critical in combating cyber threats effectively. As part of our enhanced private-sector outreach, we have begun to provide partners 

with Classified threat briefings and other information, and tools to 

better help them repel intruders. Earlier this year, in coordination 

with the Treasury Department, we provided a Classified briefing 

on threats to the financial services industry to executives of more 

than 40 banks, who participated via secured video teleconferences 

in FBI offices across the country. We provided yet another Classified briefing on threats to the financial services industry in April 

2014, with 100 banks participating via secure video teleconference 

in those FBI field offices. 

Another illustration of the FBI’s commitment to private-sector 

outreach is our increase in production of our external use products, 

such as the FBI liaison alert system, and private industry notification. We continue to counter the threats we face in engaging in an 

unprecedented level of collaboration with the United States Government, the private sector, and we are grateful for the commit-
18 

tee’s support, and look forward to continuing to work with you, and 

expand our partnerships, as we determine a successful course forward for the Nation to defeat our cyber adversaries. Thank you. 

[The prepared statement of Mr. Quinn follows:] 

PREPARED STATEMENT OF RICHARD P. QUINN

APRIL 16, 2014 

Good morning Chairman Meehan and Ranking Member Clarke. I thank you for 

holding this hearing today and I look forward to discussing the FBI’s role in cybersecurity. On behalf of the men and women of the FBI, let me begin by thanking 

you for your on-going support of the Bureau. 

Today’s FBI is a threat-focused, intelligence-driven organization. Each employee 

of the FBI understands that to mitigate the key threats facing our Nation, we must 

constantly strive to be more efficient and more effective. Just as our adversaries 

continue to evolve, so, too, must the FBI. We live in a time of acute and persistent 

terrorist, state-sponsored, and criminal threats to our National security, our economy, and our communities. These diverse threats facing our Nation and our neighborhoods underscore the complexity and breadth of the FBI’s mission. 

We remain focused on defending the United States against terrorism, foreign intelligence, and cyber threats; upholding and enforcing the criminal laws of the 

United States; protecting civil rights and civil liberties; and providing leadership 

and criminal justice services to Federal, State, local, and international agencies and 

partners. 

THE CYBER THREAT & FBI RESPONSE

We face cyber threats from state-sponsored hackers, hackers for hire, global cyber 

syndicates, and terrorists. They seek our state secrets, our trade secrets, our technology, and our ideas—things of incredible value to all of us. They may seek to 

strike our critical infrastructure and our economy. 

Given the scope of the cyber threat, agencies across the Federal Government are 

making cybersecurity a top priority. Within the FBI, we are prioritizing high-level 

intrusions—the biggest and most dangerous botnets, state-sponsored hackers, and 

global cyber syndicates. We want to predict and prevent attacks, rather than simply 

react after the fact. 

FBI agents, analysts, and computer scientists are using technical capabilities and 

traditional investigative techniques—such as sources and wiretaps, surveillance, 

and forensics—to fight cyber crime. We are working side-by-side with our Federal, 

State, and local partners on Cyber Task Forces in each of our 56 field offices and 

through the National Cyber Investigative Joint Task Force (NCIJTF). Through our 

24-hour cyber command center, CyWatch, we combine the resources of the FBI and 

NCIJTF, allowing us to provide connectivity to Federal cyber centers, Government 

agencies, FBI field offices and legal attache ́s, and the private sector in the event 

of a cyber intrusion. 

We also work with the private sector through partnerships such as the Domestic 

Security Alliance Council, InfraGard, and the National Cyber Forensics and Training Alliance. And we are training our State and local counterparts to triage local 

cyber matters, so that we can focus on National security issues. 

In addition, our legal attache ́ offices overseas work to coordinate cyber investigations and address jurisdictional hurdles and differences in the law from country to 

country. We are supporting partners at Interpol and The Hague as they work to establish international cyber crime centers. We continue to assess other locations to 

ensure that our cyber personnel are in the most appropriate locations across the 

globe. 

We know that to be successful in the fight against cyber crime, we must continue 

to recruit, develop, and retain a highly-skilled workforce. To that end, we have developed a number of creative staffing programs and collaborative private-industry 

partnerships to ensure that over the long term we remain focused on our most vital 

resource—our people. 

As the committee is well aware, the frequency and impact of cyber attacks on our 

Nation’s private sector and Government networks have increased dramatically in 

the past decade, and are expected to continue to grow. Since 2002, the FBI has seen 

an 82 percent increase in the number of computer intrusion investigations. 
19 

RECENT SUCCESSES

While the FBI and our partners have had multiple recent investigative successes 

against the threat, we are continuing to push ourselves to respond more rapidly and 

prevent attacks before they occur. 

One area in which we recently have had great success with our overseas partners 

is in targeting infrastructure we believe has been used in Distributed Denial of 

Service (DDOS) attacks, and preventing that infrastructure from being used for future attacks. A DDOS attack is an attack on a computer system or network that 

causes a loss of service to users, typically the loss of network connectivity and services by consuming the bandwidth of the victim network. Since October 2012, the 

FBI and the Department of Homeland Security (DHS) have released nearly 168,000 

Internet Protocol addresses of computers that were believed to be infected with 

DDOS malware. We have released this information through Joint Indicator Bulletins (JIBs) to more than 130 countries via DHS’s National Cybersecurity and Communications Integration Center (NCCIC), where our liaisons provide expert and 

technical advice for increased coordination and collaboration, as well as our Legal 

Attache ́s overseas. 

These actions have enabled our foreign partners to take action and reduced the 

effectiveness of the botnets and the DDOS attacks. We are continuing to target 

botnets through this strategy and others. 

In April 2013, the FBI Cyber Division initiated an aggressive approach to disrupt 

and dismantle the most significant botnets threatening the economy and National 

security of the United States. This initiative, named Operation Clean Slate, is the 

FBI’s broad campaign to implement appropriate threat neutralization actions 

through collaboration with the private sector, DHS, and other United States Government partners, and our foreign partners. This includes law enforcement action 

against those responsible for the creation and use of the illegal botnets, mitigation 

of the botnet itself, assistance to victims, public-service announcements, and longterm efforts to improve awareness of the botnet threat through community outreach. 

Although each botnet is unique, Operation Clean Slate’s strategic approach to this 

significant threat ensures a comprehensive neutralization strategy, incorporating a 

unified public/private response and a whole-of-Government approach to protect U.S. 

interests. 

The impact botnets has been significant. Botnets have caused over $113 billion 

in losses globally, with approximately 378 million computers infected each year, 

equaling more than 1 million victims per day, translating to 12 victims per second. 

To date, Operation Clean Slate has resulted in several successes. Working with 

our partners, we disrupted the Citadel Botnet. This botnet was designed to facilitate 

unauthorized access to computers of individuals and financial institutions to steal 

on-line banking credentials, credit card information, and other personally identifiable information. Citadel was responsible for the loss of over a half billion dollars. 

As a result of our actions, over 1,000 Citadel domains were seized, accounting for 

more than 11 million victim computers worldwide. In addition, working with foreign 

law enforcement, we arrested a major user of the malware. 

Building on the success of the disruption of Citadel, in December 2013, the FBI, 

Europol, together with Microsoft and other industry partners, disrupted the 

ZeroAccess Botnet. ZeroAccess was responsible for infecting more than 2 million 

computers, specifically targeting search results on Google, Bing, and Yahoo search 

engines, and is estimated to have cost on-line advertisers $2.7 million each month. 

In January 2014, Aleksandry Andreevich Panin, a Russian national, pled guilty 

to conspiracy to commit wire and bank fraud for his role as the primary developer 

and distributer of the malicious software known as ‘‘Spyeye’’ which infected over 1.4 

million computers in the United States and abroad. Based on information received 

from the financial services industry, over 10,000 bank accounts have been compromised by Spyeye infections in 2013 alone. Panin’s co-conspirator, Hamza 

Bendelladj, an Algerian national who helped Panin develop and distribute the 

malware, was also arrested in January 2013 in Bangkok, Thailand. 

NEXT GENERATION CYBER INITIATIVE

The need to prevent attacks is a key reason the FBI has redoubled our efforts 

to strengthen our cyber capabilities while protecting privacy, confidentiality, and 

civil liberties. The FBI’s Next Generation Cyber Initiative, which we launched in 

2012, entails a wide range of measures, including focusing the Cyber Division on 

intrusions into computers and networks—as opposed to crimes committed with a 

computer as a modality; establishing Cyber Task Forces in each of our 56 field offices to conduct cyber intrusion investigations and respond to significant cyber inci-
20 

dents; hiring additional computer scientists to assist with technical investigations 

in the field; and expanding partnerships and collaboration at the NCIJTF. 

At the NCIJTF—which serves as a coordination, integration, and information 

sharing center among 19 U.S. agencies and our Five Eyes partners for cyber threat 

investigations—we are coordinating at an unprecedented level. This coordination involves senior personnel at key agencies. NCIJTF, which is led by the FBI, now has 

deputy directors from the NSA, DHS, the Central Intelligence Agency, U.S. Secret 

Service, and U.S. Cyber Command. In the past year we have had our Five Eyes 

partners join us at the NCIJTF. Australia embedded a liaison officer in May 2013, 

the United Kingdom in July 2013, and Canada in January 2014. By developing 

partnerships with these and other nations, NCIJTF is working to become the international leader in synchronizing and maximizing investigations of cyber adversaries. 

While we are primarily focused with our Federal partners on cyber intrusions, we 

are also working with our State and local law enforcement partners to identify and 

address gaps in the investigation and prosecution of internet fraud crimes. 

Currently, the FBI’s Internet Crime Complaint Center (IC3) collects reports from 

private industry and citizens about on-line fraud schemes, identifies emerging 

trends, and produces reports about them. The FBI investigates fraud schemes that 

are appropriate for Federal prosecution (based on factors like the amount of loss). 

Others are packaged together and referred to State and local law enforcement. 

The FBI is also working to develop the Wellspring program in collaboration with 

the International Association of Chiefs of Police, the Major City Chiefs Association, 

and the National Sheriff’s Association to enhance the internet fraud targeting packages IC3 provides to State and local law enforcement for investigation and potential 

prosecution. During the first phase of this program’s development, IC3 worked with 

the Utah Department of Public Safety to develop better investigative leads for direct 

dissemination to State and local agencies. 

Through IC3, Operation Wellspring provided Utah police 22 referral packages involving over 800 victims, from which the FBI opened 14 investigations. Additionally, 

another 9 investigations were opened and developed from the information provided. 

The following are reported loss totals: 

• IC3-referred investigations = $2,135,264; 

• Cyber Task Force initiated investigations = $385,630; 

• Operation Wellspring/Utah Total = $2,520,894. 

The FBI’s newly-established Guardian for Cyber application, being developed for 

Cyber use by the Guardian Victim Analysis Unit (GVAU), provides a comprehensive 

platform that coordinates and tracks U.S. Government efforts to notify victims or 

targets of malicious cyber activity. 

The FBI is working toward the full utilization of Guardian for Cyber across FBI, 

OGA’s, State, local, Tribal and territorial governments (SLTT’s) as well as industry 

partners, in order to increase awareness of vulnerabilities in infrastructure, forward 

understanding of cyber-related threats and facilitate a coordinated overall cyber incident response by the U.S. Government. 

PRIVATE SECTOR OUTREACH

In addition to strengthening our partnerships in Government and law enforcement, we recognize that to effectively combat the cyber threat, we must significantly 

enhance our collaboration with the private sector. Our Nation’s companies are the 

primary victims of cyber intrusions and their networks contain the evidence of 

countless attacks. In the past, industry has provided us information about attacks 

that have occurred, and we have investigated the attacks, but we have not always 

provided information back. 

The FBI’s newly-established Key Partnership Engagement Unit (KPEU) manages 

a targeted outreach program focused on building relationships with senior executives of key private-sector corporations. Through utilizing a tiered approach the FBI 

is able to prioritize our efforts to better correlate potential National security threat 

levels with specific critical infrastructure sectors. 

The KPEU team promotes the FBI’s Government and industry collaborative approach to cybersecurity and investigations by developing a robust information exchange platform with its corporate partners. 

Through the FBI’s InfraGard program, the FBI develops partnerships and working relationships with private sector, academic, and other public-private entity subject-matter experts. Primarily geared toward the protection of critical, National infrastructure, InfraGard promotes on-going dialogue and timely communication between a current active membership base of 25,863 (as of April 2014). 

Members are encouraged to share information with Government that better allows Government to prevent and address criminal and National security issues. 
21 

Through the utilization of the Guardian for Cyber program, active members are able 

to report cyber intrusion incidents in real time to the FBI. InfraGard members also 

benefit from access to robust on- and off-line learning resources, connectivity with 

other members and special interest groups, and relevant Government intelligence 

and updates that enable them to broaden threat awareness and protect their assets. 

The FBI’s Cyber Initiative & Resource Fusion Unit (CIRFU) maximizes and develops intelligence and analytical resources received from law enforcement, academia, 

international, and critical corporate private-sector subject-matter experts to identify 

and combat significant actors involved in current and emerging cyber-related criminal and National security threats. CIRFU’s core capabilities include a partnership 

with the National Cyber Forensics and Training Alliance (NCFTA) in Pittsburgh, 

Pennsylvania, where the unit is collocated. NCFTA acts as a neutral platform 

through which the unit develops and maintains liaison with hundreds of formal and 

informal working partners who share real-time threat information, best practices, 

and collaborate on initiatives to target and mitigate cyber threats domestically and 

abroad. In addition, the FBI, Small Business Administration and the National Institute of Standards and Technology (NIST) partner together to provide cybersecurity 

training and awareness to small business as well as citizens leveraging the FBI 

InfraGuard program. 

The FBI recognizes that industry collaboration and coordination is critical in our 

combating the cyber threat effectively. As part of our enhanced private-sector outreach, we have begun to provide industry partners with Classified threat briefings 

and other information and tools to better help them repel intruders. Earlier this 

year, in coordination with the Treasury Department, we provided a Classified briefing on threats to the financial services industry to executives of more than 40 banks 

who participated via secure video teleconference in FBI field offices. We provided 

another Classified briefing on threats to the financial services industry in April 

2014, with 100 banks participating. Another illustration of the FBI’s commitment 

to private-sector outreach is our increase in production of our external use products 

such as the FBI Liaison Alert System (FLASH) reports and Private Industry Notifications (PINs). 

CONCLUSION

In conclusion Chairman Meehan, to counter the threats we face we are engaging 

in an unprecedented level of collaboration within the U.S. Government, with the private sector, and with international law enforcement. 

We are grateful for the committee’s support and look forward to continuing to 

work with you and expand our partnerships as we determine a successful course 

forward for the Nation to defeat our cyber adversaries. 

Mr. MEEHAN. Thank you, Special Agent Quinn. The Chairman 

now recognizes the district attorney of Delaware County, Jack 

Whelan. 

STATEMENT OF JOHN J. ‘‘JACK’’ WHELAN, DISTRICT 

ATTORNEY, DELAWARE COUNTY, PENNSYLVANIA 

Mr. WHELAN. Thank you, Chairman Meehan, Congresswoman 

Clarke, Congressman Fitzpatrick. Good morning. I would like to 

thank you for the opportunity to discuss cybersecurity, and how we 

can work together to better protect the identities of our Delaware 

County residents. It is a great opportunity for me to share a local 

perspective. 

As the committee is well aware, identity theft is the Nation’s 

fastest-growing crime. In law enforcement, we define cyber crime 

as any crime where a computer or the internet is used to commit 

or to conceal a crime. In Delaware County our detectives seen cyber 

crime first-hand in cases where identity thieves steal personal information and use it to gain access to a victim’s financial resources. 

These thieves may steal mail, hack into computers, or even enlist 

employees at companies that have legitimate access to personal information. They also use e-mail or telephone scams to commit the 
22 

crime, which is most often seen here in Delaware County, and it 

affects our most vulnerable population, our senior citizens. 

With relatively little information, even low-tech, inexperienced 

criminals can begin opening accounts in another person’s name and 

run up substantial charges. In one case we arrested Dorothy J. Miller of Haverford Township for stealing more than $150,000 from 

her employee—employer, Summers Hardwood Floors, located in 

Sharon Hill. After she assumed the identity of the company’s 

owner, John Summers, who had passed away, Miller opened a credit card in his name and forged numerous checks, using his and his 

wife’s signature. Through handwriting analysis, our detectives 

were able to charge Miller with multiple felony counts of theft, forgery, identity theft, and conspiracy. 

In Delaware County we also see criminals using the internet to 

trick people into giving them money or merchandise. These scams 

run from the small-time bait-and-switch schemes that you might 

see on Craigslist to more sophisticated false websites that are set 

up to look like genuine websites, such as major banks. 

Computers can also be used as instruments of stalking, or harassment via e-mail, or social networking sites. Targeting another 

vulnerable population, computers are used in crimes against our 

children, where the internet is used to traffic child pornography, 

and by predators who entice our children to meet them for sexual 

purposes. Dramatic increases in technology and its availability on 

the consumer level, coupled with a decline in cost, have given those 

who would exploit children a remarkable, effective, and far-reaching ability with which to do so. 

To combat these crimes, detectives with the Delaware County 

Criminal Investigation Division, Economic Crime Unit, and the office’s forensic crime lab, they investigate financial crime. The unit 

receives complaints from our local law enforcement agencies, the 

private sector, as well as the public. Financial crimes can refer to 

any number of nonviolent criminal offenses that involve obtaining 

financial gain through fraud, deceit, misrepresentation, or other 

forms of deception. 

Financial crime is constantly evolving with the times, and is hitting new frontiers with the age of the internet. Identity theft can 

be committed against a single individual, corporation, or multiple 

victims. It may even be more complex because there can be more 

than one victim. Frequently the crime may not be discovered until 

long after it was committed. Perpetrators may not live in the same 

jurisdiction as the victim, and may commit the crime in several jurisdictions simultaneously, making it difficult for law enforcement 

to detect patterns, and the actual extent of the crime. For example, 

identity theft could be committed against a Delaware County resident by a perpetrator in Florida who has committed the same 

crime against several other victims across the State. Given all of 

the above, it is clear that identity theft is a crime that presents 

unique challenges to law enforcement to investigate and to prosecute. 

The complexities of identity theft cases can slow down, or even 

hinder investigation because of the lack of resources available to 

conduct a cross-jurisdictional investigation. Evidence needed by police to solve a cyber crime is often held by the private industry, out-
23 

side of the police’s jurisdiction. For this reason, strong partnerships 

are essential to making cross-jurisdictional cooperation work. Investigation and prosecution can be very time-consuming, due to the 

volumes of records required to be examined, and the time required 

to obtain documents from banks and other financial institutions. 

The unit collaborates with and assists Federal, State, and local law 

enforcement in enforcing State, Federal, and local criminal laws relating to computer-related crime through forensic collection, recovery, processing, preservation, analysis, storage, maintenance, and 

the presentation of digital evidence. 

As more and more people engage in on-line financial activities, 

such as shopping, banking, investing, bill-paying, our residents are 

becoming more vulnerable to sophisticated on-line identity thieves 

who target personal identification information. Identity theft can 

happen off-line too. In Delaware County we have seen low-tech, inexperienced criminals successfully open credit cards, and other financial accounts in another’s name by stealing mail, personal 

items from a wallet, or even rummaging through trash for personal 

identification information. 

In closing, no one, no individual, and no institution is immune 

from these type of crimes, and so increasing our awareness of the 

issue is one important function of our Economics Crime Unit. We 

alert the public to steps that must be taken to ensure their computers are secure, and their personal information is safe by sharing 

information through public service announcement videos, brochures, along with public presentations and seminars held in partnership with our financial institution, local businesses, and community partnerships. Thank you. 

[The prepared statement of Mr. Whelan follows:] 

PREPARED STATEMENT OF JOHN J. ‘‘JACK’’ WHELAN

APRIL 16, 2014 

Good morning Chairman Meehan and Members of the House committee. I would 

like to thank you for the opportunity to discuss cybersecurity and how we can work 

together to better protect the identities of Delaware County residents. 

As the committee is well aware, identity theft is the Nation’s fastest-growing 

crime. In law enforcement, we define cyber crime as any crime where a computer 

or the internet is used to commit or conceal a crime. 

In Delaware County, our detectives see cyber crime first-hand in cases when identity thieves steal personal information and use it to gain access to a victim’s financial resources. These thieves may steal mail, hack into computers, or enlist employees at companies that have legitimate access to personal information. They also use 

e-mail or telephone scams to commit a crime, which is most often seen in crimes 

committed against Delaware County’s most vulnerable population, our senior citizens. With relatively little information, even low-tech, inexperienced criminals can 

begin opening accounts in another person’s name and run up substantial charges. 

In one case, we arrested Dorothy J. Miller of Havertown for stealing more than 

$150,000 from her employer, Summers Hardwood Floors, Inc. located in Sharon Hill, 

PA. After assuming the identity of the company owner John Summers, who had 

passed away, Miller opened a credit card in his name and forged numerous checks 

using his and his wife’s signature. Through handwriting analysis, our detectives 

were able to charge Miller with multiple felony counts of theft, forgery, identity 

theft, and conspiracy. 

In Delaware County, we also see criminals using the internet to trick people into 

giving them money or merchandise. These scams run from the small-time bait-andswitch schemes as you might see on Craigslist, to sophisticated false websites that 

are set up to look like genuine websites, such as major banks. Computers can also 

be used as instruments of stalking or harassment via e-mail or social networking 

sites. Targeting another vulnerable population, computers are also used in crimes 
24 

against children where the internet is used to traffic child pornography and by predators to entice our children to meet them for sexual purposes. Dramatic increases 

in technology and its availability on the consumer level, coupled with a decline in 

cost, have given those who would exploit children a remarkably effective and farreaching ability with which to do so. 

To combat these crimes, detectives with the Delaware County District Attorney’s 

Criminal Investigation Division (CID) Economic Crime Unit and the office’s forensic 

crime lab investigate financial crimes. The Unit receives complaints from our local 

law enforcement agencies, the private sector as well as the public. Financial crimes 

can refer to any number of nonviolent criminal offenses that involve obtaining financial gain through fraud, deceit, misrepresentation, or other forms of deception. Financial crime is constantly evolving with the times, and is hitting new frontiers 

with the age of the internet. 

Identity theft can be committed against a single individual, corporation, or multiple victims. It may be even more complex because there can be more than one victim. Frequently, the crime may not be discovered until long after it was committed. 

Perpetrators may not live in the same jurisdiction as the victim and may commit 

the crime in several jurisdictions simultaneously, making it difficult for law enforcement to detect patterns and the actual extent of the crime. For example, identity 

theft could be committed against a Delaware County resident by a perpetrator in 

Florida who has committed the same crime against several other victims across the 

State. Given all of the above, it is clear that identity theft is a crime that presents 

unique challenges to law enforcement to investigate and prosecute. 

The complexities of identity theft cases can slow down or hinder investigations because of the lack of resources available to conduct the cross-jurisdictional investigation. 

Evidence needed by police to solve a cyber crime is often held by private industry 

outside of police’s jurisdiction. For this reason, strong partnerships are essential to 

making cross-jurisdiction cooperation work. Investigation and prosecution can be 

time-consuming due to the volume of records required to be examined and the time 

required to obtain documents from banks and other financial institutions. The unit 

collaborates with and assists Federal, State, and local law enforcement in enforcing 

Federal, State, and local criminal laws relating to computer-related crime through 

forensic collection, recovery, processing, preservation, analysis, storage, maintenance, and presentation of digital evidence. 

As more and more people engage in on-line financial activities such as shopping, 

banking, investing, and bill paying, our residents become more vulnerable to sophisticated on-line identity thieves who target personal identification information. Identity theft can happen off-line too. In Delaware County, we have seen low-tech, inexperienced criminals successfully open credit cards and other financial accounts in 

another’s name by stealing mail, personal items such as a wallet, or even rummaging through trash for personal identification information. 

In closing, no one, no individual, and no institution, is immune from these kinds 

of crimes. And so, increasing awareness of the issue is one important function of 

our Economic Crimes Unit. We alert the public to the steps they must take to ensure that their computers are secure and their personal information is safe by sharing information through PSA videos, brochures, along with public presentations and 

seminars held in partnership with financial institutions, local businesses, and our 

community partnerships. 

Thank you. 

Mr. MEEHAN. I want to thank the District Attorney. I thank each 

of the witnesses for their testimony. So I now recognize myself for 

5 minutes of questions. 

I am grateful for your oversight, and we are here talking today 

about how law enforcement can work together at the Federal and 

local level as well. I started by saying that we have issues with terrorism, nation-states who are using the internet as a method for, 

you know, global reach, but our focus here today is on the criminal 

side of this activity, because that is what most directly affects our 

communities, especially communities here, the individual who has 

had their identities taken, the small banker who has to deal with 

the implications of a fraud, like Target. 

So that is where people are beginning, for the first time, to see 

how they are actually affected by the kinds of sophisticated 
25 

schemes that we see. We have looked at four different kinds of examples that have just come to mind, most significantly the Target 

breach, about 110 million identities, 40 million actual identities 

stolen through the point of service that was—well, the service 

mechanisms. The key thing being there that they were able to access this entire system by going through a heating and air conditioning contract that had access to the major system. Nieman 

Marcus, some 350,000 victims, the University of Maryland, 300,000 

alumni, and students, having significant identification taken. It is 

not just the, you know, the private sector, or large universities, or 

others. The Government itself, the South Carolina Department of 

Revenue, 40 million identities that have been taken. 

Now, I am struck by two things, and I would like to ask you guys 

to talk about this. As I look back, I see, first, particularly with respect to the Nieman Marcus, some of these viruses, or other kinds 

of malware, had been in the systems for months before detected— 

before activity takes place. In fact, they suggested at Nieman 

Marcus for 8 months it had been in there. In addition, we have 

seen this with Target, that there were numerous times in which 

there were signs, or other kinds of things, in which there could 

have been opportunities to catch some of this activity before it either manifested itself, or at least manifested itself to the degree 

that it did. There is a suggestion that as many as 300,000 pings, 

so to speak, in the Nieman Marcus should have tipped somebody 

off to look better. 

In light of that, what do we need to be doing better to be able 

to identify those kinds of malware and other things that are living 

within systems for long periods of time before they are identified, 

and what do we need to be doing better, along the kill chain or otherwise, to be taking advantage of the signals that do arise to be 

able to impact these kinds of threats before they reach the scope 

that they are? I conclude by saying I do appreciate that many 

times what we don’t hear about is when you have successfully prevented some kind of remarkable thing, but I am asking you to give 

me your insights on that particular question. What do we need to 

be doing better, both with the time in there, as well as taking better advantage of the signals that are given? Mr. Baranoff. 

Mr. BARANOFF. I will get it started. First I will say that we are 

dealing with a very—— 

Mr. MEEHAN. Once again, would you make sure that your microphone is on? 

Mr. BARANOFF. Is that better? 

Mr. MEEHAN. Yeah. 

Mr. BARANOFF. Okay. We are dealing with a very sophisticated 

actor, organized actor. We are able to defeat very sophisticated, organized systems. That is why we encourage business to really reverse the model, in terms of where investment is. First and foremost, to response and recovery, as well as a relationship with a law 

enforcement agency with jurisdiction. It is extremely important 

that we are getting a full breadth of the landscape of what is taking place. If companies aren’t reporting to us, that limits us as to 

the picture, threat picture. 

Second, the one thing that we have found in almost every 

breach—actually, in every single major breach that we have inves-
26 

tigated, there has been pre-attack behavior that has taken place. 

If you are able to identify those pre-attack anomalies, that will also 

help in the success of containing the issue. Then, obviously, continued investment and prevention, such as traditional prevention, like 

firewalls, proper segmentation, those help as well. But, again, 

the—probably the most critical element is the first piece, because 

it is not a matter of if, it is a matter of when you will suffer some 

type of breach. 

Mr. MEEHAN. Yeah, I think you identified that—when we are 

talking about entrance into the systems, it requires, as you said, 

to reverse the process, to go almost down to the front end, to see 

the signals that are coming in, and to have some sort of shared responsibility in here. I noted at the outset this came in through a 

contractor, a subcontractor, that had access to a system. 

But are we doing enough to make available to the small 

businessperson, to the local District Attorney’s office, you know, to 

the small financial services organization who holds these, are we 

doing enough to both get them the kind of information that allows 

them to see the signal that is being shared so that they can react 

in time? I mean, one of the criticisms that we are hearing is this 

most recent act, Heartbleed. I am informed that there may have 

been knowledge of that for months before anybody shared that with 

a broader spectrum of people. 

Mr. BARANOFF. There are many more—there are many 

vulnerabilities that exist beyond the Heartbleed Secure Socket 

Layer vulnerability. I think that, really, there are two parts here. 

First, the consumer has to take it upon themselves—the end result 

of a lot of these breaches is identity theft, and, unfortunately, the 

consumer needs to take it upon themselves to be viewing their 

credit reports, and to use cyber hygiene, as you mentioned in your 

opening statement. So I think that is of utmost importance. 

Mr. MEEHAN. Now, Mr. Quinn, you see these from the global perspective. Again, as I said, oftentimes these are going back to Eastern European organizations. Certainly that is the suspicion with 

regard to the, you know, the—Target. What is your perspective on 

those questions about how we can—— 

Mr. QUINN. Well, Chairman, first and foremost, I concur with 

ASAC Baranoff on some of his suggestions. You had alluded to terrorism before, and I approach things mostly from a terrorism background. One of the things—the analogous things that we need to 

do is institute trip wires within the company. There are a couple 

of things that I see from a local level that happened. First and foremost, the consumer, or the potential victims, aren’t necessarily 

educated about what the consequences are for some of these things. 

September 11 is often attributed to a failure of imagination. If I 

look at the cyber threat, and we haven’t had a cyber equivalent of 

9/11, and I hope we don’t, but if I were to look at our 

vulnerabilities, it is a failure of imagination, but it is also a failure 

of appreciation, and perhaps recognition of the consequences. 

I think some of the larger institutions do recognize the dangers 

and the consequences, but what you are talking about is what we 

anecdotally refer to as mom-and-pop operations. So it really breaks 

down at the local level to making sure that you have instituted trip 

wires, which is nothing more than effective outreach to them to 
27 

educate them not only on the consequences and the threat itself, 

but prophylactic measures that they can take to guard against this. 

So for them, it won’t become a catastrophic event. 

Mr. MEEHAN. I see. When you use trip wires, now, I mean—but 

clearly we saw a contractor, and by all analysis this contractor 

was—even though there were standards within the industry, they 

may have not been as up-to-date in terms of practicing those standards. So that becomes sort of the Trojan horse way into the kingdom. But once in there, there were signals that were sent, both 

with respect to trip wires that were set off—— 

Mr. QUINN. Yes. 

Mr. MEEHAN [continuing]. At Target that were not followed up 

on appropriately as they set the malware that went through all the 

point-of-service, you know, transactions. Then also, with knowledge 

that they were inside the system, to some extent, the exfiltration 

was a second time in which there were a number of opportunities 

to prevent the scope of information escaping. So where is the responsibility, not just on the local level, but are we getting too many 

circumstances in which, you know, people—well, there is another, 

you know, that is just another alarm going off. It almost sounds 

like false alarms, and people are not following up on them. 

Mr. QUINN. It is a fair point. I can’t necessarily speak to the Target investigation intimately because I am not involved in that at 

the National level, but what I can tell you is one of the challenges, 

when it comes to dealing with companies, is getting them to take— 

when the trip wires are tripped, to take that seriously. There has 

to be a shared responsibility. We in the Government do have a responsibility not only to investigate, but to the extent—try to mitigate ahead of time any of the consequences. 

That said, once we do that, the potential victims share a responsibility in making sure that their security protocols are not only upto-date, but adhered to. Because, quite frankly, from a risk management perspective, if you don’t adhere to your own security protocols, or if you don’t even have them in place to begin with, that 

is a liability. You create your own vulnerability. So I don’t want to 

minimize what we in the Government have to do. We definitely 

have to educate the private sector, but we also have to convey the 

message to them to take this seriously, because if you don’t, the 

consequences are catastrophic. The old saying about a stitch in 

time saves nine, it applies 100 percent to cybersecurity. 

Mr. MEEHAN. My time has expired, and I will have some followup questions in what will be a second round, but at this point in 

time I want to turn to the Ranking Member for questions that she 

may have. 

Ms. CLARKE. Thank you once again, Mr. Chairman, and to our 

expert panelists who have come today. Just wanted to sort-of backpedal just a little to break this thing down as fundamentally as we 

can. Because, again, we are here at the local level, and when you 

look at the case scenario that the Target incident provides for us, 

it is a layered process that got us to that massive breach, and it 

didn’t take all week to accomplish that. 

I think that part of the challenge for a modern-day society is, 

how do we address it categorically? How does everyone see their responsibility, their obligations? How do we kind of connect the dots 
28 

for each individual and/or entity in their particular space to be able 

to recognize what needs to be done to either mitigate a situation 

once it has occurred, or prevent it, ideally, from occurring? 

I think that is part of the challenge for our society right now. 

You know, I—you talked about imagination, Mr. Quinn. The thing 

about technology is you don’t have to have a whole lot of imagination. It will help you to facilitate whatever it is that you want to 

do, and people don’t see imagination necessarily juxtaposed with 

intuition, right? So you intuitively—we use technology to a certain 

degree. You know you want to—you start here, and you know you 

want to go there, and you just figure out the tools for doing that. 

But most people don’t go beyond, to use the imagination to say, 

well, what if? Except the bad actors, right? 

So the question becomes, for the innocent one, how do we sound 

the alarm for them? That is part of the challenge in the physical 

world, as well as in the world of technology, and the use of the 

internet. Then we talked about there were trip wires, and there 

were indicators, but, you know, I have been in buildings where you 

will hear the emergency alarm go off, and no one budges. Particularly people who are used to being in an environment where perhaps the emergency alarm goes off, and everyone knows it just goes 

off. However, the practice of actually responding is where the failure comes in. 

So the question becomes, from your point of view, how do we develop, and this is for the entire panel, a clearer understanding of 

exactly what constitutes cyber crime? You know, is there a categorical difference in what we are dealing with? It is prevalence, the 

levels of harm to consumers and companies, I mean, we have kind 

of got to get into the weeds. Because—think about just the layers 

in the Target scenario alone. That small contractor, who—how 

many people worked for that contractor, and who was the person, 

ultimately, you know, that slipped up, in terms of the cyber hygiene? 

You know, and what are the implications for that? What are the 

implications for the consumer that didn’t respond, though they 

know they shopped at Target, you know, and now, you know, they 

are in financial distress. How do we break this down categorically, 

and how can we better equip policymakers to debate this, the adequacy of Federal law? I joke about this a lot. I don’t do it to demean it, but I still have colleagues with flip phones, you know, so 

just dealing with the ideas involved in cyber becomes almost a foreign concept. How do we break it down for people? How do we 

make it real, and how do we strip away these layers and make it 

categorical? That is my question. 

Mr. BARANOFF. Should I get it started? 

Ms. CLARKE. Yes. 

Mr. BARANOFF. Okay. Let me just say this, just in the first quarter of this year, the Secret Service has responded Nation-wide to 

over 100 data breaches. Most of those companies are small and medium-sized businesses. They are not the large retailers that you 

hear about in the news. I read a recent statistic that stated that 

the average small to medium-sized business, when they suffer a 

data breach, will lose about $200,000. Eighty percent of those companies, within 6 months, will go out of business. Well, mitigating 
29 

that statistic is extremely important to the Secret Service, which 

is why, as we collect cybersecurity information, we push it through 

our Department’s NCCIC to get it out to the greater industry. 

Ms. CLARKE. So, I mean, it is one thing being informed, it is one 

thing to find a way to get people to put this—put your recommendations into practice. Because, you know, that is a $200,000 

hit, and you are not aware of what to do, or how to prevent it from 

happening in the future, becomes the challenge in the environment 

that we are talking about. 

Mr. BARANOFF. Well, I think a lot of that work is done at the 

State and local level, quite frankly, which is why we train State 

and local police officers, prosecutors, and judges at our National 

Cyber Forensic Institute in Hoover, Alabama. A lot of those frontline officers, and judges, and prosecutors are handling the multitude and the lion’s share of this work. That is what I would say 

on that. 

Mr. QUINN. Well, in addition to what Mr. Baranoff had said, I 

think the key is making the consequences viscerally compelling. 

With other crimes, such as terrorism, you know immediately what 

the impact is. Had a Target store been blown up, and it was an 

act of terrorism, immediately people would have acted. It is making 

the abstract, the terabytes, and things of that sort, tangible. 

So the way we approach it, and, again, I am speaking from a 

local level, at the Philadelphia level, is we have two mechanisms 

by which we do this. We have our cyber task forces, which are comprised of agents, analysts, and computer scientists, as well as other 

members of the Federal, State, and local law enforcement community. That in and of itself is an educational process. We take that 

expertise, and we try to leverage it through our Infraguard program. For instance, in Philadelphia we have roughly 1,500 members of Infraguard. In Harrisburg it is about 650. They are the 

gateways to both the significant and the more mom-and-pop operations, because the way we are evolving that is we are trying to 

break it down by sector. If we can communicate within the 

Infraguard program to all of the entities that potentially could be 

impacted, we take care of the educational component. 

Now, how you—now, we are always going to be seeking to prevent, first and foremost. Mitigation is a different story, and that is 

something that we share across the board as a Government, and 

with the private sector. So that is—my answer to your question is 

making the abstract tangible, letting people know where it hurts 

them, potentially. 

Mr. WHELAN. From a prosecutor’s standpoint, in the local level, 

unfortunately, we get into situations, and I agree with Mr. Quinn, 

where economic crime, cyber crime, is dealt with on the court level 

more leniently, and I agree that we need to educate our judges as 

to the devastating impact of cyber crime. We typically are dealing 

with some serious violent cases, and judges treat those violent 

cases accordingly. However, in economic crime cases, they may not 

be as aggressively prosecuted or treated only because of the ramifications, compared to the violent crime aspect. So we are encouraging our judges—I have instructed our prosecutors in cases of this 

nature, to make sure that they are aggressively prosecuting, but 

we also deal with sentencing guidelines, which sets a standard 
30 

range, a mitigated range, and an aggravated range, as to where the 

court should sentence in these type of cases. 

We also—in addition to aggressively prosecuting the crime, we 

deal proactively with many of these situations by engaging in prevention, by going out to our senior citizen communities, going out 

to our parents, our PTAs, our Rotary clubs, and explaining to them 

how to be proactive in preventing themselves from being victims of 

identity theft, which is very important. 

We periodically go to our business community and have forums 

in the business community. We invite guest speakers, such as our 

FBI—our local FBI office to come in and talk about cyber crime, 

and how they can better protect their business as a result of what 

we are seeing occurring on a National level, as well as a local level. 

So I think we need to continue with both the aggressive prosecution, as well as the prevention efforts. 

Mr. MEEHAN. I thank the—and the Chairman now recognizes the 

gentleman from Bucks County, Mr. Fitzpatrick. 

Mr. FITZPATRICK. I thank the Chairman again, and we really appreciate the testimony of the law enforcement, and the law enforcement perspective of the witnesses here today. 

I wanted to follow up on, Agent Baranoff, something you stated, 

that, you know, a great majority of the security breaches, the victims are small and medium-sized businesses. We hear in the news 

about the significant security breaches, the retailer—Target organization, we have all heard about that. We have come to understand 

from news reports that many times when—could be an educational 

institution, or a retailer, or a merchant, is a victim of a security 

breach, of a cyber attack, that there is a lag time, that there is a 

lapse, if you will, between when that organization becomes the victim, when the incident occurs, and when they understood that it 

occurred. 

Many times they are informed of the attack, of the victimization, 

by a third party. You know, could be their bank, credit institution, 

a financial services institution. Many times it is law enforcement 

informing the victim that they are, in fact, a victim. I was wondering if each of you, from your different perspectives, could comment on why you think there is that lapse. Is it that we are not 

identifying the security breach? What is it that Congress can do to 

help law enforcement, or help, perhaps, these institutions or merchants to understand quicker? Because it is one thing to become, 

you know, as a small business, to become a victim of a $200,000 

hit, and the victims, you know, Chairman Meehan wanted to bring 

this down to a local perspective, is that small business in our community, the customers that rely on that business, the families, you 

know, of the employees who rely on that paycheck, they all become 

victims of that particular attack. 

It is one thing that—to have that attack occur, but then to not 

recognize it, and have it occur perhaps many times, until somebody 

actually informs them. So I was wondering if you could just comment on why is it the lapse occurs, and what can we do better to 

speed up that realization? 

Mr. BARANOFF. Well, some of the lapse may be resulting from investment by the companies. The small or medium-sized companies, 

it is very expensive to have the proper cyber mitigation in place. 
31 

I agree with what you stated earlier, that both the Trustwave and 

Verizon reports that we participate in, the most—they are two of 

the most widely-read data breach reports that exist today, they 

both have found in their studies, along with us, that a majority of 

the notification is made by an outside party, so the victim isn’t 

knowing that they are being victimized as the event is taking 

place. 

I think, again, the notification to law enforcement is paramount. 

We don’t hear from a lot of folks, and I think that, you know, aside 

from the larger retailers, and the larger companies, the smaller 

ones are just as important. Again, it will give us a breadth of what 

is taking place. It also will help us empower the NCCIC, in pushing out its information to the broader industry, to include the financial services information sharing and analysis centers, as well 

as the multi-State ISACS. So I think that notification to law enforcement is extremely important. 

In terms of deterrent, if we were to go down to the road of deterrent, we would certainly support legislation that strengthens 18 

U.S. Code 1030, which is the Computer Data Breach statute, perhaps having it as a predicate to a RICO charge, which is a much 

stronger charge. So that type of legislation would be helpful as 

well. 

Mr. QUINN. Thank you, Congressman. I echo my colleague’s 

statements, but I also would point out that the delay sometimes 

could be a result of the companies themselves not being state-ofthe-art when it comes to training, or even identify vulnerabilities 

or malware that is in their system. But I also think it would be, 

you know, disingenuous of me to say that—or to not acknowledge 

that some companies may be reluctant to notify law enforcement. 

It is that—that is where we kind of have—it is incumbent upon us, 

and the Federal, State, and local systems, to disabuse them of the 

notion that, when we come in, we are going to throw their operations into chaos, and that it is going to be a chaotic atmosphere, 

or something that is overly intrusive to them. 

It is cliche ́ to say that the Federal Government is here, we are 

here to help you, but we really do have to market ourselves in that 

respect, is that we are here to help you prevent, we are here to 

help you mitigate. We will maintain as small of a footprint as possible, and try to minimize the impact on your operations, and that 

is the investment that will keep you from losing out long-term. 

Mr. WHELAN. Certainly, from our perspective, it is devastating to 

our local businesses when this occurs. We do see individuals that 

affects. Recently, over the last year-and-a-half, two of the three detectives that we have hired were hired as experts in computer 

forensics, and we are now looking at hiring more analysts, lay individuals, not sworn officers, that can assist us in dealing with the 

issue of cyber crime, so that when a business reacts, and when an 

individual is affected, we have the necessary tools to go out and address it. So it is becoming very expensive, from our level, to continue to fight, but the good news is that we have a great relationship with the FBI, and—in cases that are cross-jurisdictional, and 

in cases where we just need the assistance of the FBI, where—we 

reach out to our local Newtown Square office, and they have been 

very helpful for us. 
32 

Mr. FITZPATRICK. So what is your experience in Delaware County? Is it that, in most cases, law enforcement is notifying the victim, or the victim is contacting the District Attorney’s office? Now, 

you mentioned in your testimony that many of these cases of identity theft and cyber terrorism, it is occurring in not just two jurisdictions, but across several jurisdictions, so you are dealing with 

many, many different law enforcement agencies. Does that add to 

the lag time and notification? 

Mr. WHELAN. Absolutely, and that poses problems from an investigation, as well as a prosecutorial standpoint, so that does become 

a factor. For the most part, we are being notified, and hopefully as 

early as possible. Then we send our team of forensic experts in to 

look at the situation, make a determination as to where it originates, how it is affecting the company or the individual, and then 

act accordingly whether we are going to ask for additional help either on the State or Federal level, or can we locally handle it, prosecute it, investigate it to our fullest extent? 

Mr. FITZPATRICK. I appreciate what you are doing. Thank you. 

Mr. MEEHAN. I thank the gentleman from Bucks County. I have 

some follow-up—a follow-up question related to the discussion that 

we just had. That is a staggering statistic there that was just mentioned, that there is—$200,000 is a loss, and that oftentimes we see 

within months that company goes out of business. To me, that really recognizes the impact of this on a local level. We are talking 

about the social costs of cyber crime. We often discuss on the macro 

level, you never know when you didn’t get the project because 

somebody stole your bid information before it was placed. The 

cyber espionage can be real, but this statistic where, you know, we 

have a local company, and the margins are so thin. So in addition 

to the financial crime, we are losing jobs associated with this. This 

is having a real impact. 

I met yesterday with a local 501(c)(3) organization, you know, a non-profit entity, with a staggering $650,000 hit that came through 

a network in which their network was compromised without their 

knowledge. Now, insurance is going to carry about a third of that, 

and they may be able to litigate, but it is going to take them years 

to get a resolution. Meanwhile, they are on the hook for $400,000, 

and this is a non-profit entity. So how do we deal with financial 

institutions, small businesses? Where is this sweet spot? Because 

we are asking them to engage more in their home cyber protection, 

but how do they know what is the right amount? Because you 

could—it could be an endless process of trying to protect the fortress, so to speak. 

So in line with this dynamic process, in which we pick up information at different points in time, how are we getting to the people 

that we know are impacted, because we know there is information 

from their systems, and giving them real-time information that allows them to catch up with everybody else in a timely fashion before they find themselves victimized? 

Mr. BARANOFF. Well, the sharing of that cybersecurity information is probably one of the most paramount preventative methods 

that you can have. That is why we encourage folks to join our electronic crimes task forces, to attend our meetings. We push out cybersecurity information through our electronic crimes task forces 
33 

just as quickly as we do through the FSISAC, through the Departments, NCCIC, and so on. 

Mr. MEEHAN. So is the key, I mean, to work through—again, because, while you may have a local—I keep going back to banks. 

You know, you may have a local bank that is sizeable that, on a 

monthly basis, attends your meetings there, or Infraguard, but, you 

know, you have small community-based organizations that may 

have four or five branches, and how do they find the time to take 

somebody out once a month to, you know, spend the better part of 

a day getting that? Where—how do we get down—through what 

mechanisms do we get down to the local level to get to the people 

who need the information? 

Mr. BARANOFF. Well, in terms of our task forces, they are regionally-based, so the issues that are affecting the Southwest are different than the issues affecting the Northeast. Those particular 

issues, related to the region that they are in, are addressed by that 

particular task force. So whether it is cybersecurity information related to the banking industry, or cybersecurity information related 

to the oil and gas industry, that information is shared in real time 

with those particular partnerships. 

Mr. MEEHAN. Do we reach out to people, or do we compile lists 

so that we know somebody has likely had their system impacted, 

and do we go out, even if they are not part of an association, or 

part of an ISAC, or part of even a Chamber of Commerce or something? Do we go—get down to trying to let victims know that they 

have been victimized? 

Mr. BARANOFF. We absolutely do, and one thing that we take 

pride in at the Secret Service is that when we call you, we have 

information that is actionable. We have information, you know, we 

know where the needle is, and what haystack to look under. That 

is based on the proactive nature of our investigations. We are willing to burn a source, for example, to maintain the resiliency of an 

organization. Prosecution for us, quite frankly, is secondary. So we 

do get out to the industry, and we do provide that information in 

real time to save that company. I can tell you last year alone we 

saved several small or medium-sized banks from going under because of the information that we provided. 

Mr. MEEHAN. Special Agent Quinn, do you have some thoughts 

on that? 

Mr. QUINN. I concur wholeheartedly. I mean, our mechanism is 

a little bit different, but it is the same principle. We utilize the 

Cyber Task Force and the Infraguard chapters that are within, 

and, quite frankly, we outsource messaging to them. We identify 

sector chiefs—we’re in the process of identifying sector chiefs because what can happen is, and it is alluded to already, a lot of 

these small to medium-sized businesses may not ever know. If we 

get a tip, it is incumbent upon us to get out there to notify them 

to—important to mitigate, but also prepare them, to prevent something like that from happening again. Also share it among—across 

sectors in the event that it might be a continuing threat against 

other sectors. 

Mr. MEEHAN. DA, do you—how do you perceive information 

being taken down to your level, with your colleagues in law en-
34 

forcement, or the entities that come to you with concerns or complaints? 

Mr. WHELAN. Well, certainly we have come across situations 

where individuals will approach us and ask us as to how they can 

be better protected, and what issues can they take? We certainly 

refer them to the resources that are available for that particular 

information, whether it be through the State level, or through the 

Bureau level, with the FBI and the Secret Service. 

However, many times what we are dealing with is going out into 

the community through our white collar crime unit. In addition to 

investigating the crime, we will go out there and meet with various 

business entities. We will also meet with various individuals that 

may be vulnerable to crime, and address some of the concerns that 

they have, and they will relate information to them. So, from that 

perspective, we are proactive, but, for the most part, unfortunately, 

from our perspective in the prosecutor’s office, we are reacting 

when a person already becomes a victim to a crime. But we have 

developed over the years many proactive programs. 

Mr. MEEHAN. Thank you. I turn to the gentlelady from New 

York. 

Ms. CLARKE. I thank you, Mr. Chairman, and, you know, we 

know that private-sector companies, individuals, and law enforcement efforts are complicated by the borderless nature of cyber 

crime. It is like—it is insidious when there is the ability to be able 

to tamper with the systems that exist, that are all connected to the 

internet. It is almost like quicksilver, because we all know that 

cyber criminals are not hampered by physical proximity. There can 

be regional, national, international borders involved. We know that 

they can be physically located in one nation or state, and direct 

their crime through computers in multiple nations or states, and 

store evidence of crime on computers in yet another nation or state. 

So my question to you is a couple of things. No. 1: Does this beg 

for us to develop a new level of law enforcement and jurisprudence 

to address just the nature of how this operates? Is there a particular stratification that needs to develop to—so that, you know, 

it doesn’t take the DA, you know, 2 weeks before he is able to begin 

an investigation, trying to capture forensic evidence that may be in 

his jurisdiction, but could easily be shifted? I want us to think 

about that picture, because I have a hard time viewing what we 

are dealing with right now as a society under the current boundaries of the laws that exist. 

I mean, crime is crime, yes, but the nature of this one, the ability 

to do things so quickly, is not something that we are all accustomed to. I want to raise that with you and get your—— 

Mr. BARANOFF. I would agree. The international component is essential. The vast majority of our greatest threat actors in cyber are 

located overseas. The most sophisticated actors are overseas, attacking our infrastructure. Fortunately, the Secret Service has an 

outstanding relationship with some of the best cyber units located 

abroad, to include the Dutch National High Tech Crime Unit, the 

German BK, and the like. We rely on them to work with us to both 

capture these individuals, as well as collect evidence. A lot of the 

evidence ends up in overseas countries. So that international component is essential, and we need to continue to grow and expand 
35 

that international presence to bring these cases to a good conclusion. 

Mr. QUINN. Ranking Member, law will always lag behind technology. We see it across all programs, all investigative programs. 

I see it most significantly on the National security side, when it 

comes to new techniques, and how to accommodate—things of that 

sort. But like Mr. Baranoff had said, what we do—and because of 

that, it is—it is paramount that the relationships that you have 

overseas, both through—within the FBI, our FBI legal attache ́ network—we have roughly 64 legal attache ́s across the world, with 

200 sub-offices. 

They are crucial, because it is their relationships with their foreign government counterparts that enable us to dual—accomplish 

the dual objectives of attribution, which is important, but when you 

think about it, what is the value of attribution if you can’t do anything against them? We rely heavily upon our foreign service partners to execute some type of law enforcement action against them. 

So until the law captures or catches up to that, we have to rely 

upon the personal relationships. 

Mr. WHELAN. Once our cyber detectives make a determination 

that a crime is committed, what they will do first is try to preserve 

that evidence, collect it, investigate it, preserve it. Once we recognize that it has crossed jurisdictional lines, we will contact the FBI, 

give them the information that we have, and cooperate with the 

FBI with everything we can do from the local level, and work with 

them as a—on the National issues, based on the evidence we have 

already presented to them. 

Ms. CLARKE. So I guess I am hearing from everyone that our current laws are sufficient for us to be able to do what we need to do 

in order to protect our citizenry, and address actors that may be 

seeking to do us harm, that we are in a place where we are not 

yet ready to approach these concerns in a way in which—the one 

thing about laws is they serve a lot of purposes. One, it is to help 

redress the harm that may have been done to someone, but oftentimes people see them as a deterrent to types of behaviors that, if 

you know what the consequences are, you know, because it is in 

statute or law, you are going to think twice, or you are going to 

understand what the implications are. 

My concern is that I don’t know that people actually understand 

the implications of a lot of what is taking place on the internet, in 

terms of law, and I don’t know where we are going to catch up with 

it. In the interim, there are just some legal breaches that are happening along the way to individuals that are just using this technology, some meaning to do harm, others sort of stuck in the gray 

area, some kids, you know, that get on the internet and act stupid. 

How do we approach this now, if what we are saying is, ‘‘Well, the 

laws are always going to lag behind the technology’’? Any ideas? 

Mr. QUINN. Well, I can venture just—you—because that is—I am 

the one that said that the laws will always lag behind technology. 

Keep in mind that the value of a law is only as good as your ability 

to enforce it. So I think that it is going to be a whole Government 

approach. Our ability to enforce either our own laws, or perhaps leverage the laws of, for instance, a foreign country, where an actor 

is committing these type of cyber crimes, there may be a political 
36 

and a—there may need to be political and diplomatic leveraging 

mechanisms, and so I don’t want to create the impression that reliance upon the law is going to be an end-all, be-all to that. 

Mr. MEEHAN. I thank the gentlelady. Before I let you go, let me 

just ask one other question as we are going through this, because 

we are talking about systems that are, you know, the systems 

aren’t static, and how are we dealing with the changing technology? I mean now, rather than—protecting something used to be 

the computer system within a business. You know, we are seeing 

cell phones, we are seeing GPS, we are seeing skimmers that can 

be used, or iPads. I mean, people now have in their hand the full 

computing power they used to have in the heart of a business. It 

seems like it is getting tougher. 

Mr. BARANOFF. I would say that, you know, when I first started 

in cyber about 7 years ago, the technology changed probably every 

18 months. Today I would say it is a third of that, probably every 

6 months. It is challenging for us, in that environment, to stay up 

with technology, certainly with the training that is needed to investigate a lot of these crimes. 

Mr. QUINN. For us, you are absolutely right, it is probably one 

of the bigger challenges that we face. What we have to do in order 

to stay on the cutting edge is recruit computer scientists to come 

in, and that in and of itself can be a challenge, because they have 

opportunities that are unique, and, quite frankly, more lucrative 

out in the private sector. But in addition to training our own workforce, and taking responsibility for it within, we have to bring others in who have the expertise, and at the same time leverage partners in the private sector who can help us do the same things. 

Mr. WHELAN. We are constantly updating, and having our detectives, our computer forensic detectives, in new trainings, new 

courses, new certifications. It seems like every couple months the 

detectives are away from the investigation, or at schools, to update 

themselves on the new technology. Now we are looking at hiring 

new analysts, and looking at new technology to bring them in so 

that they are coming in at a level with the current technology, as 

opposed to someone that has been out there that may not have 

been updated. So it is a constant battle, and it is a constant expense for us. 

Mr. MEEHAN. Well, I thank the entire panel for your presence 

here today, but not just your testimony, but for your good work in 

these areas. As I said at the outset, we don’t hear about the crimes 

that aren’t committed, and so there are some remarkable things 

that are being done. I—the takeaway I get from this is the responsibility that we have to encourage businesses that aren’t coming 

forward, those who are part of your Infraguard, to report in, those 

that are part of your Electronic Crimes Task Force. The—people 

that are coming in to your, you know, they may be dealing with 

you in the form of reporting something that is a local crime, but 

not taking the time to make sure that they share that with a—with 

the National matrix, because you never know where the weakest 

link is, and where something is coming in. 

So thank you for the good work that you are doing, and I am particularly appreciative of your being here today. We will take a moment for the second panel to organize itself. 
37 

Let me thank our second panel for your patience in being with 

us today, and again for your testimony, or your prepared testimony. I am very grateful. You tell, and are an important voice in 

this dynamic. While we have spoken to law enforcement about the 

procedures, you are the ones on the front lines, in terms of dealing 

with the implications of this, or looking at the issues with respect 

to the totality, but particularly as it affects the victims that ultimately work through some of the entities in commerce. 

So we have—we are pleased to be joined by three more panelists 

to conclude our hearing. The first is Mr. Ted Peters. He is the 

chairman and CEO of Bryn Mawr Trust. That is a company that 

provides personal and business banking throughout the State of 

Pennsylvania. Mr. Peters has more than 30 years’ experience in the 

banking industry, including many successful entrepreneurial endeavors. He has been at the helm of Bryn Mawr Trust since 2001, 

and certainly has seen the growth in this area. In addition, Mr. 

Peters was elected to serve a 3-year term on the Federal Reserve 

Board, Bank of Philadelphia Board of Directors. 

Joining Mr. Peters is Mr. Tom Litchford. He is the vice president 

of retail technologies at the National Retail Federation, and the 

National Retail Federation is the world’s largest retail trade association, representing all varieties of retail stores across more than 

45 countries, and including the Targets of the world. As vice president, he leads and manages the NRF’s IT leadership community, 

including its Chief Information Officer Council. He also oversees 

the Federation’s Association for Retail Technology Standards as its 

executive director, where he develops and enhances domestic and 

international relationships between retail and technology companies. Mr. Litchford, thank you for being with us. 

Last, we are joined by Matthew Rhoades, who is the Director of 

Cyberspace and Security Programs with the Truman National Security Project, and the Center for National Policy. In this role, he 

leads the program’s Steering Committee, and directs the organization’s cybersecurity policy initiatives. Previously he served as the 

director of legislative affairs at the Truman National Security 

Project, and in that capacity he ran the Congressional Security 

Scholars Program, and was the principal author of the Truman Security Briefing Book. I know you enjoy an overall perspective on 

this, and we are looking forward to your thoughts. 

So I thank you all for being here. Your written statements will 

appear in the record, so I look forward to your verbal testimony. 

Mr. Peters, the Chairman now recognizes you for your opening 

statement. 

STATEMENT OF FREDERICK ‘‘TED’’ PETERS, CHAIRMAN AND 

CEO, BRYN MAWR TRUST 

Mr. PETERS. Yes. Chairman Meehan, Chairperson, or Chairwoman Clarke, and—excuse me, Chair—Congress—Congresswoman Clarke, and Congressman Fitzpatrick, thank you for having 

me as a witness in this area of critical importance to our country. 

As a banker for almost 40 years, I will try to focus my comments 

and testimony on issues relating to the financial services industry 

and its clients. Some quick background on Bryn Mawr Trust, 

where we recently celebrated our 125th anniversary as a Philadel-
38 

phia area institution, we are a $9.5 billion organization, with over 

$2 million of banking assets, and $71⁄2 million—excuse me, $71⁄2

billion of trust and investment assets, and we serve primarily individuals and closely-held businesses which operate in this region. 

All banks and financial institutions are extremely alarmed at the 

actual potential threats of cyber crime. At our bank we have devoted extraordinary amounts of time, man- and women-power, and 

money to protect our bank, all of our clients, from this growing 

problem. In fact, it is approximately $1 million a year we spend on 

this. 

In the United States and world-wide, cyber crime and cyber 

threats are multiplying at an alarming rate. These threats come in 

the form of hacking, phishing, its more sophisticated derivative 

spear phishing, malware intrusion, and the well-publicized DDOS, 

or Distributed Denial of Service, attacks, which have been perpetrated on many larger U.S. financial institutions. 

Who are the bad guys? They are no longer precocious teenagers 

operating at 3:00 in the morning in their parents’ rec rooms. Today’s perpetrators are high-level professionals who fall into a number of categories. Organized crime rings are responsible for over 

half of all attacks. These are well-organized groups which occupy 

in a structured and efficient manner, with profit and loss statements much like legitimate businesses. Their sophistication is extremely high, and improving almost daily. 

Next are the State-supported enterprises, which comprise about 

a quarter of all attacks. These enterprises have different motives 

than organized crimes—crime, and are usually looking for intelligence information that would give a nation-state some political or 

military advantage. Primary offenders here are China, and the 

former satellite countries of the Soviet Union. 

A third group would be the hacktivists, and you have probably 

heard of some of these groups, such as Anonymous, or the Tunisian 

Hackers Team, and these organizations are usually not seeking financial gain, but are more interested in making headlines. Although hacktivists only account for a small percentage of attacks, 

they have very—been very successful in creating a series of highprofile DDOS attacks against financial institutions in the United 

States. 

Last, current and former employees and vendors also provide a 

serious threat. I think we have all heard of a gentleman named Edward Snowden. 

One of the biggest threats to banks around the country are corporate and individual account takeovers, initiated by malware 

being secretly installed on a business or person’s computer. Again, 

you will recognize some of the names of his malware, Citadel, Trojan, Zeus. Once inside, the perpetrator will then move money 

around, and eventually try to clean out the accounts. 

Point-of-sale payment systems are another favorite target of 

malware criminals. Once the malware is secretly installed on a 

merchant’s computer, the malware allows cyber criminals to access 

all the unencrypted credit card and debit card information, and at 

times the encrypted data as well. 

What is the solution? Unfortunately, there is no 100 percent solution. The cyber criminals who are out there always try to stay 
39 

one head—one step ahead of the financial services industry. The 

following, however, are considered best practices to reduce the possibility of any attack being successful. First, businesses, and individuals, and financial institutions, need to use a multi-layered approach. This means a combination of many risk-based, predictive, 

and behavioral technologies which are out there. Companies, and 

consumers, and financial institutions who provide a hardened target will find the cyber criminal moving on to new and an easier victim. Next, financial institutions must build a strong feedback loop 

so that any intrusion can be identified, and defended accordingly. 

Last, we must continue to perform on-going assessments of risk, 

and improving our defenses. 

With that, Mr. Chairman, my testimony is concluded. 

[The prepared statement of Mr. Peters follows:] 

PREPARED STATEMENT OF FREDERICK (TED) PETERS

APRIL 16, 2014 

Thank you for having me as a witness in this area of critical importance to our 

country. As a banker for almost 40 years, I will try to focus my comments and testimony on issues relating to the financial services industry and its clients. 

Some quick background information on the Bryn Mawr Trust Company, where I 

currently serve as chairman and CEO. At Bryn Mawr Trust we recently celebrated 

our 125th anniversary as a Philadelphia area financial institution. We are a $9.5 

billion organization, with over $2 billion of banking assets and $7.5 billion of trust 

and investment assets under management or administration in the States of Pennsylvania and Delaware. We serve primarily individuals and closely-held businesses 

which operate in this region. Not only have we survived numerous wars, recessions, 

and depressions, but have thrived and are one of the highest-performing banks in 

the Nation. 

All banks and financial institutions are extremely alarmed at the actual and potential threats of cyber crime. At our bank we have devoted extraordinary amounts 

of time, man-, and woman-power, and money to protect our bank and all of our clients from this growing problem. 

In the United States and world-wide, cyber crime and cyber threats are multiplying at an alarming rate. These threats come in the form of hacking, phishing, 

its more sophisticated derivative spear-fishing, malware intrusion, and the well-publicized DDoS or ‘‘Distributed Denial of Service’’ attacks on larger U.S. financial institutions. 

Who are the ‘‘bad guys’’? 

They are no longer precocious teenagers operating at 3 in the morning in their 

parents’ rec rooms. Today’s perpetrators are high-level professionals and fall into a 

number of categories. 

Organized crimes-rings are responsible for over half of all attacks. These are wellorganized groups which operate in a structured and efficient manner with profitand-loss statements much like a legitimate business. Their sophistication is extremely high and improving almost daily. 

Next are state-supported enterprises which comprise about a quarter of all attacks. These enterprises have different motives than organized crime and are usually looking for intelligence information that would give a nation-state some political 

or military advantage. Primary offenders here are China and former satellite countries of the Soviet Union such as Bulgaria, Romania, and the Ukraine. 

A third group would be the ‘‘hacktivists’’ and you have probably heard of some 

of these groups such as ‘‘Anonymous’’ or the ‘‘Tunsian Hackers Team’’. These organizations are usually not seeking financial gain, but are more interested in making 

headlines. Although ‘‘hacktivists’’ only account for a small percent of attacks, they 

have been very successful in creating a series of high-profile DDoS against financial 

institutions in the United States. 

And lastly, current and former employees and vendors also provide a serious 

threat. I think we have all heard of a gentleman named Edward Snowden. 

One of the biggest threats to banks around the country are ‘‘corporate and individual account takeovers’’ initiated by malware being secretly installed on a business or person’s computer. Again you will recognize some of the names of this 
40 

malware—Citadel, Trojan, and Zeus. Once inside, the perpetrator will then move 

money around and eventually try to clean out the accounts. 

‘‘Point of Sale’’ payment systems are another target of malware criminals. Once 

the malware is secretly installed on a merchant’s computer, the malware allows 

cyber criminals to access all of the unencrypted credit card and debit card information, and at times the encrypted data as well. 

What is the solution? Unfortunately there is no 100% solution. The cyber criminals are out there always trying to stay one step ahead of the ‘‘good guys’’. The following, however, are considered ‘‘best practices;’’ to reduce the possibility of any attack being successful. 

First, businesses and individuals need to use a multi-layered approach. This 

means a combination of many risk-based, predictive, and behavioral technologies 

which are out there. Companies and consumers who provide a ‘‘hardened target’’ 

will find the cyber criminal moving on to a new and easier possible victim. 

Next, build a strong ‘‘feedback loop’’ so that any intrusion can be identified and 

defended accordingly. 

And lastly, continue to perform on-going assessments of risk and improving one’s 

defenses. 

With that, Mr Chairman, my testimony is concluded. 

Mr. MEEHAN. I thank you, Mr. Peters. 

The Chairman now recognizes Mr. Litchford. 

STATEMENT OF THOMAS LITCHFORD, VICE PRESIDENT OF 

RETAIL TECHNOLOGY, NATIONAL RETAIL FEDERATION 

Mr. LITCHFORD. Thank you, Chairman Meehan, Ranking Member Clarke, and Representative Fitzpatrick. Thank you for giving 

me this opportunity to provide you with my thoughts on safeguarding consumer information from cyber attacks. Again, my 

name is Tom Litchford, and I am vice president for retail technologies at the NRF. In that role, I manage the CIO Council, the 

IT Security Council, and the Association for Retail Technology 

Standards, and we serve over 12,000 members around the world in 

the retail industry. 

Regarding the recent cyber attacks, I would first like to comment 

on the often-forgotten fact that these breaches are perpetrated by 

criminals, and often they are very sophisticated criminals that are 

breaking the law. The targeted retailers are victims in these situations, and these victims care deeply about maintaining the confidentiality of their customer information, because if they lose that 

data, they lose their customers’ trust, and ultimately they lose 

business. 

The retail industry makes significant investments every year in 

order to protect confidential customer information. Collectively, retailers spend billions of dollars annually to safeguard data and 

fight fraud. But the NRF also understands that preventing cyber 

crime is a complex endeavor, that no single solution or silver bullet 

exists. Breaches still occur, and not just in the retail industry. Indeed, in 2013 more breaches happened at financial institutions 

than at retails stores and websites, and no industry is immune 

from this. 

Regarding the problem here, in retail breaches, the criminal 

hackers want to steal consumers’ payment card data, which they 

can easily then monetize by fencing the stolen numbers on black 

market websites. U.S. retailers are targeted because we not only 

see the greatest number of cardholders, but our merchants have to 

accept 50-year-old, fraud-prone payment card technology. In the 

United States, a signature, and a magnetic stripe with unencrypted 
41 

card numbers are all that is needed to authenticate a customer and 

receive payment authorization. NRF supports an immediate move 

to replace the virtually worthless signature authentication with 

much more secure personal identification numbers, or PINs, as is 

used most everywhere else in the world. If marginally more security is needed, then a computer chip technology could be added to 

cards and card readers, but with significant to cost to our—all participants in the payments systems. 

It is important to point out that our members’, or our retailers’, 

support for PIN and chip technology does not mean that we should 

be forced to adopt what is called EMV technology. EMV is a proprietary chip technology controlled by the major card brands. Indeed, 

EMV stands for Europay MasterCard and Visa. Worse, in the U.S. 

market, the EMV standard does not require a use of a PIN. The 

card companies require PINs in Canada, the United Kingdom, Europe, and other countries, but seek to do chips without PINs in the 

United States. While EMV chip without PIN certainly protects the 

banks, the card companies’ current proposal to continue with signatures in the United States leaves the fraud door open. Before the retail industry is expected to spend an estimated $30 

billion for stores to upgrade their readers to accept partially-protected EMV cards, the NRF has urged the card networks to incorporate PINs now that focus on addressing security now so that retailers are protected, and then focus on addressing security across 

the entire payment ecosystem, meaning not only stores, but on-line 

and mobile. 

In addition to addressing the problems with the current payment 

systems, a critical step forward is the need to foster greater collaboration. With that, the NRF believes that a heightened and 

well-coordinated information-sharing platform, such as a retail 

ISAC, is a vital component for helping retailers in their fight 

against cyber attacks. NRF is moving forward with the creation of 

such a program, that will provide retailers access to information on 

cybersecurity threats identified by retailers, Government, and law 

enforcement agencies, and partners in the financial services sector. 

The program, developed in consultation with the Financial Services 

Information Sharing and Analysis Center, the FSISAC, will launch 

with the establishment of an information-sharing platform for retail industry information security specialists, and plans call for a 

retail ISAC to be established this summer. 

Recently representatives from the NRF held in-depth discussions 

with the United States Secret Service, and with the NCCIC, the 

National Cybersecurity and Communications Integration Center, 

and the U.S. CERC, the Computer Emergency Readiness Center, 

with the idea to get insight and guidance on how to improve communication, identify available resources, and collaborate more effectively to help retailers combat criminal cyber activity. NRF and 

its membership recognize that full robust information sharing is 

sometimes hampered by restrictions—legal restrictions. Accordingly, we support passage of H.R. 624, the Cyber Intelligence Sharing and Protection Act. 

In conclusion, by creating a robust information-sharing platform 

through which retailers can better prepare themselves to defend 

against cyber crime, NRF is actively engaged in protecting con-
42 

sumer data. In supporting improved payment card technology, we 

seek to move the industry beyond the 50-year-old technology that 

makes the U.S. retail industry a prime target for these breaches. 

With efforts—with these efforts, as well as Congress’s continued actions to encourage information sharing, we believe we can make 

the payment system more secure for everyone involved. 

With that, thank you, and I will be happy to answer any of your 

questions. 

[The prepared statement of Mr. Litchford follows:] 

PREPARED STATEMENT OF THOMAS LITCHFORD

APRIL 16, 2014 

Chairman Meehan, Ranking Member Clarke, and Members of the subcommittee, 

thank you for giving me this opportunity to provide you with my thoughts on safeguarding consumer information from cyber attacks. My name is Tom Litchford, and 

I am vice president of Retail Technologies at the National Retail Federation (NRF). 

In my role at the NRF, I manage the CIO Council, the IT Security Council, and 

the Association for Retail Technology Standards. 

NRF is the world’s largest retail trade association, representing discount and department stores, home goods and specialty stores, Main Street merchants, grocers, 

wholesalers, chain restaurants and internet retailers from the United States and 

more than 45 countries. Retail is the Nation’s largest private-sector employer, supporting 1 in 4 U.S. jobs—42 million working Americans. Contributing $2.5 trillion 

to annual GDP, retail is a daily barometer for the Nation’s economy. 

With respect to consumer data breaches I’d first like to comment on an often forgotten fact—that these incidents have been perpetrated by criminals—and often 

very sophisticated criminals—that are breaking the law. The targeted retailers are 

victims in these situations—victims that care very deeply about maintaining the 

confidentiality of their customer information because if they lose that data, they lose 

their customers’ trust, and they lose business. 

Accordingly, retailers make significant investments every year in order to protect 

this data. Collectively, retailers spend billions of dollars annually to safeguard data 

and fight fraud, as well as hundreds of millions annually on PCI compliance. And 

yet, breaches still occur. And not just in the retail industry. You may be surprised 

to learn that in 2013 more breaches happened at financial institutions than at retail 

stores and websites. Manufacturing, transportation, and utility companies, and even 

professional services firms were targeted. No industry is immune. 

In retail breaches, the bad actors are primarily after payment data—i.e., credit 

or debit card numbers—and they particularly like to target U.S. cards. Why? Because of the volume of credit and debit card numbers, and the fact that merchants 

must accept from customers 50-year-old payment card technology—a magnetic 

stripe and a signature are all that is needed to ‘‘authenticate’’ the customer and receive payment authorization. The bottom line is that signature and mag-stripe 

based cards are inherently fraud-prone products. Unfortunately, retailers and our 

customers are largely at the mercy of the dominant credit card companies when it 

comes to reducing card fraud. 

So, how can we move forward? What types of solutions would reduce or eliminate 

the crimes of data theft and fraud? 

THE WAY FORWARD TO PROTECT THE RETAIL INDUSTRY

One solution would be to replace signature authentication with an encrypted Personal Identification Number (PIN). This would greatly reduce the utility of counterfeited cards and go a long way toward reducing fraud. 

Another solution that is currently receiving some attention would be to add a computer chip to the PIN and transition to the more secure ‘‘Chip and PIN’’ payment 

card technology. This technology employs a small computer chip to validate the card 

to the bank (i.e., confirm that it is not a counterfeit) at the Point-of-Sale (POS) terminal, in addition to requiring the cardholder to enter a PIN to prove he is the person authorized to use the bank-issued card. Chip and PIN technology dramatically 

reduces the value of any stolen ‘‘breached’’ data for in-store purchases because the 

payment card data is essentially rendered worthless to criminals. In addition, the 

PIN helps ensure that a customer and a merchant won’t be defrauded even if someone steals the customer’s card. This combination serves as a deterrent to breaches. 

The failure of U.S. card networks and banks to adopt such a system in the United 
43 

1Testimony of Criminal Investigative Division Deputy Special Agent in Charge William 

Noonan, available at: https://www.dhs.gov/news/2014/02/04/written-testimony-us-secret-service-senate-committeejudiciary-hearing-titled. 

States is one reason why cyber attacks on brick-and-mortar retailers have increased 

domestically even as they have dropped overseas where the majority of the countries 

have adopted Chip and PIN payment cards. 

Despite the technology’s potential benefits, the Chip and PIN technology that is 

currently widely deployed in Europe and other developed countries, sometimes 

called ‘‘EMV technology,’’ would not provide the same level of protection in the 

United States because, as mandated by the card brands for the U.S. market, it does 

not require the use of a PIN. EMV—an acronym for Europay, Mastercard and 

Visa—is a proprietary technology controlled by the major card brands. Further, 

EMV, while not necessarily violating the Durbin Amendment, currently violates the 

spirit of that amendment by potentially stifling the competition in the debit routing 

market. 

No technology (and especially not EMV), is a panacea, and there is no ‘‘silver bullet’’ to preventing cyber crime. EMV, in particular, would take years to realize the 

benefit in fraud reduction. As a result, our members are exploring other means of 

securing data, such as encryption and tokenization. Equally important, in addition 

to technological changes, our members are developing measures, such as establishing information-sharing mechanisms, to address the advanced threats of the 

evolving cybercrime landscape. 

THE VALUE OF INFORMATION SHARING

One critical aspect of next generation information security is the ability to share 

and receive actionable threat intelligence in a timely manner. Information sharing 

allows companies to better detect and defend against sophisticated cyber attacks 

and data security breaches. By working together and with Government to disseminate and receive cyber threat information, companies can learn where to look for 

signs of an attack and how to alter their security systems to ‘‘plug holes’’ and block 

attempted intrusions carried out using techniques that were effective in earlier attacks. 

Importantly, third parties often possess information that can help us mitigate the 

risks of an attack. As the United States Secret Service (USSS) recently acknowledged in testimony before the Senate, ‘‘one of the most poorly understood facts regarding data breaches is that it is rarely the victim company that first discovers 

the criminal’s unauthorized access to their network; rather it is law enforcement, 

financial institutions, or other third parties that identify and notify the likely victim 

company of the data breach by identifying the common point of origin of the sensitive data being trafficked in cybercrime marketplaces.’’1 Victims of cyber crime can 

then begin to extricate fraudsters from their system and prevent further data loss 

when they know that an attack has taken place. Creating structures where information regarding critical threats—and certainly actual breaches—is shared swiftly can 

be critical in preventing and minimizing losses from data breaches. 

The retail industry is in a particularly good position to both benefit from and 

bring value to information sharing with outside organizations and entities. Indeed, 

the history of data breaches affecting the retail industry indicates a pattern of increasingly sophisticated cyber attacks using similar tactics, techniques, and protocols (TTPs). During the recent spate of data breaches targeting the retail industry, 

the sector learned the value of such information sharing by receiving various reports 

and alerts from the USSS and FBI, as well as other Federal agencies (e.g., US– 

CERT and NCCIC) that highlighted cutting-edge TTPs. The retail industry also received valuable information from security research companies; for example, the 

iSightPartners report, which was disseminated through the National Cybersecurity 

and Communications Integration Center (NCCIC) in the wake of the Target breach, 

was of such particular value that NRF subsequently held a webinar for its membership where an iSightPartners’ representative presented on the report’s findings. In 

addition, in January 2014, the FBI shared a confidential report with the retail industry titled ‘‘Recent Cyber Intrusion Events Directed Toward Retail Firms’’ that 

was designed to warn the industry regarding ‘‘memory-parsing’’ malware that can 

infect POS systems. While the warnings in the report—and the findings of the 

iSightReport—were useful to the retail sector, NRF realized that its members would 

have derived significant additional benefits had they been shared sooner. It would 

have been more helpful had an established, trusted entity representing the retail 

sector existed, at the time, to receive such information in real time and disseminate 

it to credentialed retail business security officers. 
44 

One effective mechanism for sharing information, with a proven track record, is 

sector-specific Information Sharing and Analysis Centers (ISACs). In 2006, the Department of Homeland Security recommended that the Nation’s critical infrastructure sectors develop ISACs to more effectively share threat intelligence. Today, the 

National Council of ISACs has 15 member ISACs, including 13 representing or related to critical infrastructure sectors. While the retail industry is not critical infrastructure, NRF believes that the sector could benefit from taking a similar approach 

to information sharing. ISACs provide a trusted source and repository for critical 

threat information, whether provided by outside organizations or internal members. 

The Financial Services Information Sharing and Analysis Center (FS–ISAC) has 

been a leading example of a model that has assisted one sector in preparing for and 

defending against cybercrime. The FS–ISAC established various forums and tools to 

encourage and support information sharing among its members. Those include email alerts that provide timely and actionable cyber threat intelligence, bi-weekly 

threat information sharing calls with security or risk management experts, as well 

as emergency conference calls to share particularly urgent threat intelligence. The 

FS–ISAC also conducts on-line webinar presentations for its members so they can 

share threat information and best practices. Using those tools, the financial services 

industry as a whole can remain aware of the most up-to-date attack prevention 

measures. As outlined in the next sections, NRF has already taken steps to create, 

or is in the planning stages of developing, similar mechanisms to encourage information sharing within the retail industry. The ultimate goal of these endeavors is 

to establish a robust ISAC equivalent for the retail industry. (Retail ISAC) 

STEPS NRF HAS TAKEN TO CREATE A TRUSTED INFORMATION-SHARING PLATFORM

NRF already brings together senior business, technology, and loss-prevention 

leaders through its Chief Information Officer (CIO) Council. One subcommittee 

within this Council, the IT Security Council, connects information security professionals and focuses on, among other goals, promoting information sharing within the 

retail sector. NRF is currently using its authenticated IT Security Council email distribution list (and expanding it to also include business leaders from the CIO Council) to push out actionable threat intelligence to the retail industry. While this list 

currently includes only NRF members, the intention is to broaden the list, and 

forthcoming Retail ISAC membership, to non-NRF members as well (meaning all retailers). 

Another step NRF has taken on the road to creating a Retail ISAC is to collaborate with, and learn from, the FS–ISAC. NRF has held several meetings with the 

FS–ISAC regarding its structure, communication methods, and policies. These meetings have allowed NRF to gain insight into how to operate an effective ISAC and 

avoid some of the growing pains that come with the creation of any new entity. As 

a result of these initial discussions, the FS–ISAC and NRF have taken steps to establish a mechanism to push out relevant critical threat information from the FS– 

ISAC to NRF for further distribution to its authenticated IT Security Council members. The practical experience of receiving information through an ISAC will allow 

NRF to better understand how information is shared in an ISAC, and what filtering 

is necessary to ensure that useful information is reaching the right parties. 

NRF is also establishing relationships with key Government agencies. The Government collects valuable information regarding security incidents through its cyber 

crime investigations and broad information sharing activities. NRF has held meetings with the United States Secret Service to discuss the methods the agency currently uses to distribute critical threat information, and how the Retail ISAC could 

become a valued partner. Establishing a Retail ISAC will offer a quicker avenue for 

the USSS (and other law enforcement agencies) to share valuable information with 

the retail industry. 

NRF has also met recently with the National Cybersecurity and Communications 

Integration Center to discuss how the Retail ISAC could receive actionable intelligence for its members as quickly as possible. The NCCIC is a central communications point for critical infrastructure entities, various Government agencies and 

international investigators where cybersecurity information is sent, analyzed, and 

shared with relevant parties in real time. NCCIC consists of four branches, including the U.S. Computer Emergency Readiness Team (US–CERT). These connections 

with the USSS and NCCIC are helping to establish an information-sharing bridge 

to the retail industry even as the Retail ISAC is under development. 

Working with trusted advisors, NRF is currently in the planning stages with respect to a final step in the development of the Retail ISAC: The establishment of 

the technological and operational infrastructure to support a secure portal through 

which members can share information. NRF’s goal is to allow credentialed members 
45 

to share information of varying levels of sensitivity anonymously, thus allowing the 

Retail ISAC to act as a repository of critical threat, vulnerability, and incident information that is sourced from various members and outside organizations, and to facilitate peer-to-peer collaboration with the sharing of risk mitigation best practices 

and cybersecurity research papers. As this final step is resource-intensive and requires the active participation of its membership, NRF anticipates that it may take 

several months before the Retail ISAC is fully operational. In the mean time, NRF 

has, and will continue to, provide mechanisms and tools for information sharing 

among the retail industry, as outlined above. 

As a final note on information sharing, NRF and its membership recognize that 

full, robust information sharing is sometimes hampered by legal restrictions. Accordingly, NRF supports the passage by Congress of the bipartisan ‘‘Cyber Intelligence Sharing and Protection Act’’ (H.R. 624) so that the commercial sector can 

lawfully share information about cyber threats in real time, thereby enabling companies to defend their own networks as quickly as possible from cyber attacks that 

are detected by other businesses. 

CONCLUSION

In closing, there are three important policies that NRF supports. 

First, the members of NRF support replacing today’s fraud-prone mag-stripe and 

signature cards with cards using PINs or open-standard ‘‘Chip and PIN’’ technology. 

NRF also supports efforts to develop and deploy end-to-end encryption or 

tokenization, but is opposed to the adoption of ‘‘EMV’’ technology as mandated for 

the U.S. market, as it presently would not require PIN-authentication of card-holders and rely instead on simply a signature to authenticate the consumer. 

Second, NRF supports information sharing within its membership and the retail 

industry about cyber threats and has already taken several steps to create a Retail 

ISAC, and continues to actively engage in making that goal a reality. A retail-focused ISAC will allow the industry as a whole to benefit from the information sharing that is so critical to effectively combat today’s evolving cyber threat. 

Third, we support passage by Congress of the bipartisan ‘‘Cyber Intelligence Sharing and Protection Act’’ (H.R. 624) legislation that will facilitate the sharing of cyber 

threat information in real time, thereby enabling companies to better defend their 

own networks based on critical information about attacks on other businesses. 

Thank you for your time today. I’d welcome your questions. 

Mr. MEEHAN. Thank you, Mr. Litchford. 

The Chairman now recognizes Mr. Rhoades for his testimony. 

STATEMENT OF MATTHEW RHOADES, DIRECTOR, CYBERSPACE AND SECURITY PROGRAM, TRUMAN NATIONAL SECURITY PROJECT AND CENTER FOR NATIONAL POLICY 

Mr. RHOADES. Chairman Meehan, Ranking Member Clarke, Congressman Fitzpatrick, thank you for having me here today. Information networks provide hope to millions of people around the 

world by creating the conditions for innovation and human prosperity to flourish, while enabling America’s mutually-supportive 

ideals of human rights, freedom, and opportunity. Unfortunately, 

they are also exploited by a variety of actors to further nefarious 

national, criminal, and ideological objectives. 

Frequently these groups, hacktivists, terrorists, criminals, and 

nation-states also overlap, working together towards complimentary interests, while utilizing the inherent anonymity of cyberspace. In short, today’s technologies provide an unprecedented opportunity for humans to reach their full potential, while simultaneously increasing individual and collective security risks. These 

are facts that the Members of this committee know well, but they 

are worth mentioning here today because in cyber space, the difference between espionage, crime, and attacks can be as simple as 

intent, or just a few keystrokes. 
46 

Gaining and maintaining access to a network are the most difficult phases of a cyber incident, but once you are in a network, 

whether you spy, steal, or destroy is often a matter of choice. 

Criminals are developing new tools that are more sophisticated and 

more intuitive than previous generations, and then selling them in 

on-line marketplaces. This is lowering the barrier to entry, and giving more actors the capability to threaten critical systems. Cyber 

crime, in this way, is connected to both National security, and the 

protection of private information, and no single entity, whether 

Government or business, can secure a domain that extends beyond 

traditional geographic boundaries. Cybersecurity is a shared responsibility. 

To ensure our Nation is safe, the Government must coordinate 

the protection of our country’s most critical assets, while law enforcement agencies impose the criminal laws of the United States. 

Governments must also find ways to cooperate with one another on 

investigations. Cyber crimes are often intentionally routed through 

multiple countries, particularly those who provide sanctuaries 

against international investigations. More must be done in the 

international arena to build the capacity of sanctuary states, and 

to discourage others that are complicit in criminal activities. 

Private companies must do their part as well. But in sectors 

where there is no choice in the consumer market, the Government 

should play a larger role in ensuring the security of critical networks. Many companies are collecting, storing, and analyzing information on U.S. citizens. Securing those networks, protecting our information, both require the private sector to take better responsibility for their own security. 

While information-sharing programs do not offer a cybersecurity 

panacea, they can contribute to collective security by creating a 

fuller picture of the threat environment. That said, there is a right 

way to share information, and a wrong way to share information. 

All irrelevant personally identifiable information should be removed before the information is given to the Federal Government, 

or to other private actors. Information coming into the Federal 

Government should have previously-defined acceptable uses, and 

be given to a civilian agency, and those who participate in information-sharing programs and exhibit negligent behavior should be 

held responsible. Getting this right matters. The way we build our 

domestic programs will have privacy and civil liberties implications 

for Americans here at home, but also for human rights activists 

and dissidents abroad. 

The unfortunate reality of cyber is that, given enough time, resources, sophistication, and motivation, an attacker will gain access 

to a network. As people become more dependent upon technology, 

the opportunities for crime, espionage, and physical disruption will 

increase. But by implementing commonly-held best practices, we 

can protect the great majority of our networks, secure our personal 

information, and allow our security agencies to focus on preventing 

attacks to critical systems. 

Thank you for the opportunity to join you today, and I look forward to your questions. 

[The prepared statement of Mr. Rhoades follows:] 
47 

1Science Daily, ‘‘Big Data, for better or worse: 90% of world’s data generated over last two 

years,’’ 22 May 2013, http://www.sciencedaily.com/releases/2013/05/130522085217.htm. 2Symantec Corporation, Internet Security Threat Report 2014; Volume 19, p. 5. 3 Ibid, p. 5 & p. 18. 

4 Chris Smith, ‘‘Expert who first revealed massive Target breach tells us how it happened,’’ 

16 January 2004, http://bgr.com/2014/01/16/how-was-target-hacked/. 5Mandiant, MTrends: Beyond the Breach, p.1. 

PREPARED STATEMENT OF MATTHEW RHOADES

APRIL 16, 2014 

Chairman Meehan, Ranking Member Clarke, Members of the committee: Thank 

you for inviting me to appear today to discuss how the public and private sectors 

can work together to increase cybersecurity. 

Currently, I serve as the director of the Cyberspace and Security Program at the 

Truman National Security Project and Center for National Policy. Together, these 

two organizations represent more than 1,300 members with an expertise in numerous security issues—including cybersecurity—and a dedication to forging strong, 

smart, and principled National security policy for America. 

The rapid development of information networks over the past 30 years has allowed individuals and nations to grow and prosper. Today, our small businesses are 

global enterprises—reaching markets and customers on the other side of the world 

with the click of a mouse. The internet invigorates economic progress and helps people rise out of a cycle of poverty in the developing world. 

These tools also enable the expansion of America’s mutually supportive ideals: 

Human rights, freedom, and opportunity. Using the internet, democracy activists in 

nations ruled by oppressive regimes can organize to petition for their fundamental 

rights; vulnerable populations in conflict-ravaged areas can show the world the brutality of their own governments; and individuals can seek out new ideas to challenge 

their own beliefs. 

New technologies are providing hope to millions by creating the conditions for innovation and human prosperity to flourish. Unfortunately, they are also being exploited by a variety of actors to further nefarious national, criminal, and ideological 

objectives. 

Hacktivists—or on-line demonstrators—use information networks to target opponents and draw attention to a political cause. Terrorists use information networks 

to spread their propaganda and recruit others to help commit acts of violence. 

Criminal organizations use the internet to steal from individuals and organizations 

all over the world and turn another’s loss into their financial gain. Finally, nationstates leverage these capabilities to spy on, steal from, and potentially attack their 

adversaries. 

Frequently, these groups—hacktivists, terrorists, criminal organizations, and nation-states—also overlap, working together towards complimentary interests while 

utilizing the inherent anonymity of cyber space to make attribution even more difficult. 

With each new day, the number of actors with access to these tools increases and, 

as a result, so does the number of potential victims. Roughly 90% of the world’s data 

has been generated in the last 2 years.1 As more information is generated, confidentiality and privacy grow more vulnerable. Governments are losing once closely-held 

state secrets; companies are finding their intellectual property suddenly in the 

hands of competitors on the other side of the world; and individuals are losing control over their private information. 

According to Symantec’s ‘‘Internet Security Threat Report 2014,’’ the number of 

breaches increased by 62% in 2013 with a total of over 552 million identities compromised.2 Additionally, targeted attacks grew by 91% and are increasingly aimed 

at small businesses.3

And as we are all aware, the recent, highly-publicized breach at Target—the second-largest retailer in the United States—compromised personal information on 70 

million customers by using software that may have cost less than $2,500 at an online marketplace.4 Today, cyber criminals can use relatively easy-to-find software to 

make outsized gains. 

The Target example shows that even the largest companies with vast resources 

are vulnerable. Frequently, they are unaware that a breach has even occurred. One 

security provider recently announced that in 2013 the median number of days 

attackers were present in a network prior to discovery was 229 days. That is actually 14 days less than the 2012 median.5
48 

6 Richard A. Clarke, Securing Cyberspace Through International Norms: Recommendations for 

Policymakers and the Private Sector, Good Harbor Risk Management, LLC, p. 23. 

In short, today’s technologies provide an unprecedented opportunity for humans 

to reach their full potential while simultaneously increasing individual and collective security risks. 

These are facts that the Members of this committee know well, and they are 

broader than the scope of this hearing. But they are worth mentioning in this context because in cyber space, the difference between espionage, crime, and attack can 

be as simple as intent, or just a few keystrokes. 

Gaining and maintaining access to a network are the most difficult phases of a 

cyber incident. Adversaries spend a great amount of time, energy, and resources to 

seek out and secure vulnerabilities that provide access. But once they are in the network, whether they spy, steal, or destroy is a matter of choice. 

Furthermore, criminals are developing new tools that are more sophisticated and 

more intuitive than previous generations, and then selling them in on-line marketplaces. This reality is lowering the barriers to network entry and giving more malicious actors the capability to threaten critical systems, in both the private and public sectors. 

Cyber crime, therefore, is linked to National security and the protection of private 

information. All of the actors using cyber space for illegitimate means need 

vulnerabilities to exploit, and no single entity—whether Government or business— 

can secure a domain that extends beyond traditional geographic boundaries. In 

cyber space, one weak link can compromise the security of the entire system. Cybersecurity is a shared responsibility. 

To ensure our Nation is safe, the Government must coordinate the protection of 

our country’s most critical assets against sophisticated, destructive attacks while 

law enforcement agencies impose the criminal laws of the United States in the cyber 

domain. Through the development of new tools and the continued maturation of the 

National Cybersecurity and Communications Integration Center (NCCIC), the Department of Homeland Security (DHS) is addressing this responsibility. 

But more can be done. For example, the effectiveness of the NCCIC is directly 

tied to the level of participation by other Federal agencies. Yet, those agencies are 

not currently required to share information with DHS. If we are going to task DHS 

with the responsibility for leading the protection of Federal civilian agencies, then 

we must give them the authorities required to be successful. 

Governments must also find ways to cooperate with one another on investigations. 

Cyber crimes are often intentionally routed through multiple countries, particularly 

those who provide sanctuaries against international investigations. When an investigation leads to a new jurisdiction, the investigators are suddenly at the mercy of 

another government. More must be done in the international arena to build the capacity of nations that do not want to be criminal sanctuaries and to discourage others that are complicit in criminal activities originating in their territory.6

Private companies must do their part as well. Most of this country’s critical infrastructure is privately-owned and operated, but market forces alone have yet to 

incentivize broad-scale use of cyber risk management strategies. Many companies 

are working to protect their networks, but too many are not doing enough. And in 

sectors where there is no choice in the consumer market—where a public good is 

being provided by a private actor—the Government should play a larger role in ensuring the security of critical networks. 

Additionally, many companies are collecting, storing, and analyzing information 

on U.S. citizens. This information deciphers everything from our travel habits to our 

personal interests. Securing our most important networks and protecting our personal information requires the private sector to take better responsibility for their 

own security. 

Finally, individuals have to take responsibility for our on-line behavior as well. 

Although there are sophisticated hackers at work, most compromises take advantage of existing vulnerabilities that have not been patched but could have been. The 

more hardened a target becomes, the more likely a hacker will look for a less secure, 

peripheral target as a means to get in. This is likely the reason that targeted attacks are increasingly focused on small businesses. We must contribute to a culture 

of security that is respectful of the rights of others, while contributing to the security of the whole system. 

Universities across the country, including Drexel University here in Philadelphia, 

are developing educational programs to ensure the next generation is prepared to 

combat cybersecurity threats. These are important initiatives that warrant support. 

However, it will take a generation for them to fully bear fruit. More also needs to 
49 

be done to make today’s users aware of the risks associated with their on-line behavior. 

Getting this model of collaborative security correct is dependent upon trust. Governments and private entities must work together to mitigate threats. Both, however, are collecting vast quantities of information on individuals. The more information they store in their databases, the more attractive those databases become to 

criminals. What they share and how they share has serious privacy and civil liberties consequences for individual consumers. 

While information-sharing programs do not offer a cybersecurity panacea, they 

can contribute to collective security by creating a fuller picture of the threat landscape. That said, there is a right way to share information and a wrong way to 

share information. All irrelevant personally identifiable information should be removed before the information is given to the Federal Government or another private 

actor. Information coming into the Federal Government should have previously-defined acceptable uses and be given to a civilian agency. And those who participate 

in the program and exhibit negligent behavior should be held responsible. Getting 

this right matters: The way we build our domestic programs will have privacy and 

civil liberties consequences for Americans and for human rights activists and dissidents overseas. 

The reality is that given enough time, resources, sophistication, and motivation, 

an attacker will gain access to a network. And as people become more dependent 

upon technology, the opportunities for crime, espionage, and physical disruption will 

only increase. But with collaboration built upon trust, I believe we can reduce our 

vulnerabilities. By implementing commonly-held best practices, we can protect the 

great majority of our networks, secure our personal information, and allow our security agencies to focus on preventing sophisticated attacks against our most critical 

networks. And, in the end, we can more fully realize the potential of new technologies to expand freedom and opportunity at home and abroad. 

Thank you for the opportunity to join you today, I look forward to answering any 

of your questions. 

Mr. MEEHAN. I thank each of the panelists for your testimony, 

and your full written statements will become part of the record, so 

I now recognize myself for 5 minutes of questioning. 

Mr. Peters, thank you for taking the time to be here with us 

today, representing not only your bank, but many smaller to midsized institutions as well. I was struck by the figure that you gave 

me, a million dollars that you are spending at a relatively sophisticated bank in and of itself, but relatively, you know, smaller, compared to the big New Yorks, or—that is a million dollars off the 

bottom line. That is a lot of investment. Can you tell me how you 

are using that kind of an investment, and how you make the 

choices about where to, you know, put those kinds of decisions 

about what you use, and what you rely on to come from other 

places? 

Mr. PETERS. Well, a lot of it, Mr. Meehan, is a risk-reward type 

thing. We spend a million dollars. We could probably spend two or 

three if we wanted to. It goes really basically for software. I mentioned multi-level protection. That is the most important thing, is 

you have three or four different layers, and they all look at things 

differently, and that will kind-of catch things. We use a lot of outside vendors who come in and do intrusion tests on us. We have 

19 people in our IT department, whatever—and it sort of points up 

a point which Mr. Fitzpatrick brought up a second ago, about—how 

about small banks, or how about small businesses? That is really, 

you know, we are fortunate we are large enough—we spend a million dollars, and we can afford to spend it. But you get a bank that 

is a $3- or $400 million bank, or you get a small business with 25 

or 50 employees, they have a lot of trouble spending that type of 

money for this, and I think that is really one of the real challenges 

which we have going forward. 
50 

We do not see, by the way, that decreasing going forward. If we 

are—we spent a million dollars last year. We probably spent 

$800,000 the year before, and I think this year the budget is a $1.2 

million or $1.3 million. So we are going to see this continue to escalate. 

Mr. MEEHAN. Now, do you issue credit cards and other things out 

of your institution? 

Mr. PETERS. We do not issue a credit card. Banks our size usually don’t. There are usually five or six large banks in the country 

that issue them. However, we do issue debit cards, and, of course, 

they get compromised. On the Target situation that happened, we 

had to replace over 1,000 cards, and to, once again, Mr. 

Fitzpatrick—accommodation cost us $5 or $6 to replace that card. 

Everybody has to be personally called. They have to come into the 

bank personally to replace it, and there is a lot of inconvenience 

and time. We get no—absolutely no compensation for that at all, 

and this happens many, many times during the year. 

But we see—very frequently we see compromised debit cards. It 

could—Target is obviously the most visible one, but there have 

been lots of other little ones around that we get reports on once a 

month. You know, your—at least 50 cards have been compromised. 

Mr. MEEHAN. I think that is one of the points that is made, is, 

notwithstanding that sometimes a lot of identities are taken, that 

the—turning that into some sort of a compromised situation still 

takes a few more steps. So a lot of names are sold, but then we 

see phishing, and other kinds of things that take place to try to get 

that identity to themselves do something that allows them to be 

further compromised. Isn’t that right, Mr. Litchford? 

Mr. LITCHFORD. Right. Well, I—and I think the previous panel 

addressed the fact that consumers need to be educated too, and to 

protect their sensitive data. But, at the same time, in terms of the 

retail breaches, the data that they are getting alone is not enough 

for identity theft. It is primarily the card numbers that they are 

after. What the bad actors do is then, in turn, sell those numbers 

in bulk. As you know, with the current technology of those cards, 

it is very easy to then go make a counterfeit card. Because we are 

using signature as the second form of authentication, it is very 

easy for them then to go commit fraud with those numbers. 

So the costs here are on the banks and the retailer side. At most, 

the consumers are probably inconvenienced. I mean, I, for one, was 

part of the Target breach, and Chase replaced my card, and I had 

to go through and update my auto payments, and things like that. 

So it was more of an inconvenience at the consumer level, but the 

cost of that fraud is being borne by the commercial businesses, 

such as banks and retailers. 

Mr. MEEHAN. Now, you have also mentioned the idea of the technology, 50-year-old technology. What is the solution with respect to 

the cards? You mentioned what is happening in Europe, but that 

isn’t a preferred solution for you. What is the—— 

Mr. LITCHFORD. Right. 

Mr. MEEHAN [continuing]. Solution? 

Mr. LITCHFORD. I think there are a couple things. I mean, first, 

you know, just back to EMV, to understand, EMV was created over 

20 years ago to address a problem outside of the United States that 
51 

was not a particular issue in the United States. When that technology was developed, it had no inkling of this thing called the 

internet, or e-commerce, or now what is called emerging mobile 

commerce, with mobile payments. So that technology is designed to 

only stop counterfeit cards predominantly. Or if I were to lose the 

card, and you were to pick that card up and try to use it, it would 

stop that, because it has a PIN on it, right? 

So with that, if the cost to implement that type of technology in 

the United States, which we anticipate on the retailer side alone 

is over $30 billion—— 

Mr. MEEHAN. Why so much? 

Mr. LITCHFORD. Because of the cost of replacing the equipment 

and software, and training at the stores. There is—again, the cost 

is anticipated to be anywhere from, I think, $500 to $1,500 per 

lane. So when you are in a retailer, they are having to replace not 

just the hardware, but train their people how to use it, replace the 

software that handle the systems, and things like that. 

So, again, we just believe that that money could be better spent 

addressing the entire ecosystem, not just part—present situations, 

such as in stores, but also to start looking at—— 

Mr. MEEHAN. Well, what is the entire situation? Because as you 

are speaking, I am considering the idea. I am thinking—— 

Mr. LITCHFORD. Yeah. 

Mr. MEEHAN [continuing]. In the one sense, why wouldn’t we be 

moving forward into newer technology? But, at the same time, if 

you are spending $30 billion to do this, the dynamic nature of—are 

they going to find some other way to get into the middle of that 

transaction, so it is not done at the counter, but it is done some 

other—— 

Mr. LITCHFORD. Right. 

Mr. MEEHAN [continuing]. Part—— 

Mr. LITCHFORD. So EMV, as a technology, the card number is 

still in the clear, just so you know. The encrypted portion of EMV 

is just to validate that the card is the real deal, this is not a counterfeit card. So we could still potentially see those—they are called 

PANs, or personal account numbers, exposed, and then used to do 

transactions in other environments, such as on-line or mobile. 

Which is where, frankly, the industry or—and consumers are 

going. 

So, you know, even where EMV has been deployed, you know, we 

are quick to tout, yes, we have stopped all this fraud in our stores, 

but we have moved the equal percentage to on-line environments, 

so the fraudsters will go to where they can easily monetize the 

data. So, from a retailer’s perspective, what we want to do is—we 

know this cyber war we are in is a war that is going to be a continual war. The goal is not necessarily to stop breaches, but to stop 

their ability to monetize any data that they would get from that 

breach. 

So retailers are already taking steps now to try to eliminate any 

of that sensitive data within their systems. As an example, I am 

already seeing many retailers start to invest in significant cost into 

something called encryption and tokenization. So once I swipe my 

card at the retailer’s terminals, it is immediately encrypted, so that 

that number is no longer in the clear. Of course, we have to work 
52 

with financial institutions to handle things like that, as well as 

tokenization. 

So, again, you know, I think the money—another thing you can 

do, by the way, is, on your current mag stripe card, is you could 

simply put a PIN on that today, and that would have probably 

stopped most of the fraud that is occurring in the United States. 

So, again, our position is we would like to see the entire payment 

ecosystem addressed, not just focus on a particular piece of that. 

Even then the focus is on—at least what the cards are pushing 

down on retailers is not even to have PINs. They want to just put 

a chipped card out there, and still allow you to use your signature 

for that. So we think that is not a full solution. 

Mr. MEEHAN. Well, I thank you. My time is expired, and I will 

turn to the gentlelady from New York. 

Ms. CLARKE. I thank you, Mr. Chairman. I want to also thank 

our expert panelists, and say—and respond to Mr. Peters, and your 

earliest salutation to me, that hope springs eternal. 

Mr. PETERS. Right. 

Ms. CLARKE. The private sector’s focus is on the development and 

implementation of technology systems to protect computer intrusions and malicious code, internet fraud, spam, and if a crime does 

occur, to detect it, and gather admissible evidence for an investigation. The private entities that focus on these technological efforts 

include internet service providers, security vendors, software developers, and computer forensic vendors. 

Internet service providers offer businesses and home users various levels of access to the internet, and other internet-related services, such as customer support, and spam and virus protection. Providers also assist law enforcement by monitoring and providing information on selected internet activities, and provide technical expertise. 

How does a company who employs the services of security vendors decide when to report a cyber crime, and when to allow or encourage its security vendors to cooperate with law enforcement in 

the investigation and prosecution of a cyber crime? Can you give 

a sense of, you know, how does it all come together, and, you know, 

what is that moment where it sort of says, eureka, let us move in 

this immediately, because it is me now, it could be someone else 

in the next—— 

Mr. PETERS. If I could start? Yeah, first of all, we report everything. We are required, as a financial institution, to file something 

called suspicious activity reports, SARs, with the Federal Government anytime anything happens. It could be somebody who is trying to launder cash through a teller, but in many cases now, actually, it is computer fraud. There is identity theft. I think last year 

we stopped 14 cases of identity theft at our bank. Unfortunately, 

one did get through. On the other hand, we get 30 attacks a night, 

30 attacks in our computer system a night. Most of them are from 

China. 

So we actually report everything to the Federal Government. We 

are required to do that, and we do that, and to local law enforcement. If something has identity theft, we will go to the local authorities, usually our township folks, and report that to the police 

department. 
53 

Mr. LITCHFORD. Yes. So, again, in retail, the predominant data 

that these bad actors are going after is credit card information, and 

many times it is not the retailer that knows that the—that a crime 

is occurring. It is typically, for example, our financial institution 

friends that have pretty decent algorithms for what is going on 

with fraud, that they are able to then, for example, call a retailer 

and say, we suspect something is going on. Then at that time—I 

am—can’t speak for all retailers, but I assume that the law enforcement is then engaged. 

One of the problems that we have in retail is the myriad of laws 

that they have to abide by, not only in the United States. I believe 

it, and I hope I get the numbers right, I think it is 47 States, plus 

the District of Columbia, have different uniform breach notification 

laws. So one of the—so you can imagine now what a retailer is trying to go through to figure out, you know, how do I respond to this 

State versus that State. Then—so part of the thing—things our 

members, and NRF, is for is a uniform breach notification law. 

Ms. CLARKE. That is interesting. I had no idea that it was based 

on the States how you go about reporting. Very well. 

Mr. LITCHFORD. Right. 

Ms. CLARKE. Then, when you think about the fact that many retailers are also international now, it adds another layer of—— 

Mr. LITCHFORD. Yes. 

Ms. CLARKE. Challenge. 

Mr. LITCHFORD. Yes. 

Ms. CLARKE. I wanted to just revisit with you a moment the 

whole idea of chip and PIN. 

Mr. LITCHFORD. Um-hum. 

Ms. CLARKE. It is a global standard, and we seem to be the 

outlier, as the United States. As you have spoken about your thinking around it, you talked about the idea of the mobile and the online—— 

Mr. LITCHFORD. Um-hum. 

Ms. CLARKE [continuing]. Purchasing, particularly when it comes 

to retail items. How does that impact on our industry, the fact that 

we are outliers with the swipe and signature, versus the chip and 

PIN? 

Mr. LITCHFORD. Right. 

Ms. CLARKE [continuing]. You give us a better sense of that? 

Mr. LITCHFORD. Well, I think the obvious impact is the bad actors have come to the United States to get that data now, because 

it is a place that is green pastures for them, and then they can 

breach systems, get the data, and then easily monetize it. So, 

again, the challenge here is what can we do with the current mag 

stripe technology to try to reduce some of the fraud that does occur 

when the data is breached? So I could simply put a PIN on a mag 

stripe today, and pretty much stop a lot of the fraud that is going 

on, because even if they made a counterfeit card, they would not 

necessarily have the PIN that goes with that card. 

The other issues, you know, with EMV, again, is they are proposing in the United States not to—they are calling it chip and signature, or chip and choice, which everywhere else in the world is 

chip and PIN. So we are wondering what—why do you not want 
54 

a PIN? What is the problem here? We know PINs are the way to 

safeguard things, whether it is on a mag stripe or a chip card. 

Then a further potential issue we have with EMV is it is a proprietary standard, meaning it was developed by the cards themselves. With that, today, retailers, there are two rails, so to speak, 

that you go over for your authentication, or your authorization. 

One would be—what—you might think is the credit rail, and the 

other is the debit rail. What is really going on behind the scenes 

is you have a signature authorization, or a PIN authorization. 

When that transaction is a PIN authorization, retailers today have 

choice of about 18 different providers that they can go to, based on 

the fees that are going to be charged to them for that authorization. EMV does away with that. The debit routing is determined by 

the card itself, therefore, by the issuer, not the retailers. 

Ms. CLARKE. That is interesting. Is there an advantage to being 

in a separate system all to ourselves, in terms of these retail transactions? In other words, that is driven by the card, versus, I don’t 

know, the public, or the—— 

Mr. LITCHFORD. Right. 

Ms. CLARKE [continuing]. Retailers, or—I mean, when you think 

about the fact that everywhere else, you know, for the most part, 

we are dealing with chip and PIN. Is there an advantage to us 

maintaining our own uniqueness, if you—— 

Mr. LITCHFORD. Right. Well, and keep in mind, at the time of 

EMV, the United States was far along, and well ahead, in the sophistication of our payment networks, versus the rest of the world. 

Today, keep in mind, if you see an EMV card from somewhere else 

in the world, or even many U.S. cardholders have EMV cards because they travel internationally, if you look on the back, it still 

has a mag stripe on it, right? 

Going forward, even if we were to pursue that technology in the 

United States for at least 5 years or so, those cards are still going 

to have mag stripes on the back of them for transitional purposes. 

So I am not going to see benefit from Day 1 of deploying EMV technology. That is why I made the comment that you could put PINs 

on credit—on mag stripe cards today and pretty much immediately 

see an impact, not having to wait for this transitional period, and 

then use those investment dollars to address the entire payment 

ecosystem, not just what we call a card present, or in-store transaction. 

Ms. CLARKE. Thank you. Mr. Chairman, I thank you for your indulgence, and yield back. 

Mr. MEEHAN. I thank the gentlelady. Turn to Mr. Fitzpatrick, 

from Bucks County. 

Mr. FITZPATRICK. Mr. Litchford, isn’t one of the issues with this 

chip and PIN, or chip and choice, the—in terms of economies and 

scale, and smaller merchants, the cost of new technology requirements and terminals? 

Mr. LITCHFORD. Um-hum. 

Mr. FITZPATRICK. Can you elaborate on that? 

Mr. LITCHFORD. Well, again, we have estimated the cost to be, 

you know, somewhere in the lines of $600 to $1,500 per terminal 

on the retailer side to deploy the ability to accept EMV cards. Is 

that the question? Again, that is just in retailers, right? So keep 
55 

in mind, if we deploy EMV technology, there are many, many other 

types of businesses that take credit cards that will also have to upgrade their infrastructures, as well as the financial institutions 

themselves. They have all the ATMs out there that they need to 

replace. So there are just huge and significant costs involved. 

Mr. FITZPATRICK. So retailers just consider it cost of doing business, part of the security costs going forward? But should there be 

a recognition on the difference between a large-scale retailer, like 

Target, versus a smaller mom-and-pop operation? 

Mr. LITCHFORD. I am not sure what you are asking there. I 

mean, the cost is the cost. I think when you look at the retailers, 

the larger ones, like Walmart, for example, are already ready for 

EMV, predominantly because they are a global retailer, and they 

use standardized deployment of POS systems. So whatever they deploy to the United Kingdom gets deployed to the United States, so 

therefore they are already ready for EMV. 

Mr. FITZPATRICK. Back to your previous testimony, I think what 

you said is that we need to recognize that, in the future, there will 

be cyber attacks, and some of those attacks will be successful, but 

the real key is trying to determine the best way to minimize the 

damage, and precluding any monetizing of that information in the 

future. 

Mr. LITCHFORD. Right. 

Mr. FITZPATRICK. It has now been 5 months since the successful 

attacks on the Target operation. What have we learned, and what 

have we changed, as a Nation, in those 5 months? 

Mr. LITCHFORD. Um-hum. Well, again, I think one of the biggest 

things that, from the retail perspective, we are calling for is the 

lack of information, and the lack of critical information getting to 

us relatively speedy. As an example, from the Target breach itself, 

the first data that we had that we could disseminate to our members was January 16. In the mean time, we know, through these 

ISACs, that data was being exchanged. But my members were calling, you know, what can I do? How do I know that I have not got 

the same malware problem? 

As soon as we got that data, NRF did a webinar with Eyesight 

Partners, who was one of the publishers of the paper, to our members, and walked them through. This was a very technical call. 

These are the signatures you need to look for, these are the DLLs 

you need to look for. But, again, that was a month after Target was 

announced, right? So one of the things, based on that learning, that 

we are moving forward with is this establishment of a retail ISAC. 

So even though retail is not identified as a critical infrastructure, 

we are going to go ahead and develop this ISAC. We are working 

with financial services ISAC, the Secret Service, NCCICS, and U.S. 

CERC to make sure that we get this up and running. In the mean 

time, we are establishing a listserv to push data out one way. As 

soon as that is up, which we expect to be in the next week or so, 

that will then be immediately fed with TLP White and TLP Green 

alerts. Are you familiar with the traffic light protocol? So green is 

information that is shareable to the public—or white is to the public, green is to the community. But the amber and red alerts I am 

not able to push out yet. So as NCCICS is pushing out these alerts 

in real time, I cannot share those until I get to a full-blown ISAC. 
56 

But this whole concept of sharing and collaboration is just huge, 

and getting as near-real-time as we can, because the goal is we 

don’t want to be reactive. We want to get proactive, so we want to 

know everything we can coming from all the services that provide 

this type of information, so that we can then take a proactive 

stance to protect our systems. 

Mr. FITZPATRICK. Special Agent Quinn from the FBI indicated in 

his testimony that some institutions would be reluctant from reporting. Now, Mr. Peters, you talked about, in your industry, you 

are required to report. 

Mr. PETERS. Yes. 

Mr. FITZPATRICK. The FBI—he indicated some might be reluctant 

to support, I suspect because competitors would take advantage of 

that lapse in security. Is that your understanding? 

Mr. PETERS. I don’t know that I can speak to the reluctance. I 

mean, one of the things, from working with the Secret Service, is 

these Electronic Crimes Task Force, and getting that information 

out to the retailers so that they establish a relationship with that 

organization, so that, when they do get the call, it is not necessarily, you know, hello, this is the Secret Service calling you. It 

is, hello, this is Ari calling you, yeah, what is up? We have that 

ability, and that relationship, so that we are comfortable now working with law enforcement and moving forward. 

Again, from the breach notification perspective, it is the problem 

of all the different laws in the States that we have, that we are 

trying to now figure out, what do I have to do? 

Mr. FITZPATRICK. Thank you. 

Mr. MEEHAN. I thank Mr. Fitzpatrick. Let me just ask a followup question. Mr. Rhoades, you—your testimony speaks to an issue 

which, as I alluded to in my first line of questioning with the earlier panel, but it is still—again, it is very, very disconcerting that 

the median time—— 

Mr. RHOADES. Um-hum. 

Mr. MEEHAN [continuing]. That—days before someone appreciates businesses or otherwise that there is, you know, there is activity within—inside their networks is 229 days, median, before it 

is recognized. In addition, we are seeing, particularly from the 

Eastern European, that, once in the system, they are using that 

window to create software that mimics the actual operation of the 

entity—— 

Mr. RHOADES. Um-hum. 

Mr. MEEHAN [continuing]. Which makes it even more difficult. So 

are we walking into a period here where detection is going to become increasingly more difficult, and longer, and therefore a greater opportunity for compromise? 

Mr. RHOADES. I don’t know if detection will become longer. The 

report that I cited in my written testimony, the 229 days, while 

staggering and very long, was actually an improvement over what 

that security provider had found in the previous year by about 2 

weeks. The adversaries are becoming more sophisticated, though, 

so it may be more difficult to notice them. This is especially true 

for—you mentioned earlier a non-profit. There has been some conversation around small businesses. One of the things—the previous 
57 

panel was enlightening. I thought one of the things that was missing was the human power that is required to do these things. 

So, technology is nice. Technology really, in this space, only enables policies and processes for an individual, business, or entity to 

protect itself. Cybersecurity, at its core, eventually comes down to 

people. So, to have trained people to understand when they receive 

information from others, how they can actually incorporate that 

and protect their networks, to have people that are trained to use 

the technologies that they have so that they can detect anomalies 

in their networks, I think that is the fundamental challenge, especially with small businesses and non-profits. That is the biggest 

challenge for these actors getting more sophisticated. 

I think the technologies will advance to be able to pick up some 

of these network anomalies, but do you have an individual on the 

other side watching that that can sort of understand what to do 

with that information? 

Mr. MEEHAN. Let me take it from the other side, which is the 

information that is collected. I mean, we are now dealing collectively in Washington with an issue regarding personal information, 

the recognition that the Government, in certain capacities, may be 

tracking if you made a phone call. 

Mr. RHOADES. Um-hum. 

Mr. MEEHAN. Yet what strikes me is, while that is an important 

privacy question that we have to deal with, the wealth of information that is being collected about our activities out there in the 

cyber world, consumer world, or wherever, is overwhelming—— 

Mr. RHOADES. Um-hum. 

Mr. MEEHAN [continuing]. So much so that people are looking at 

tendencies, they are looking at the ability to know a great deal 

more about us than ever before. So where is the boundary with respect to what is appropriate to collect about individuals without a 

corresponding obligation—— 

Mr. RHOADES. Right. 

Mr. MEEHAN [continuing]. For security? Looking at the University of Maryland situation, where, you know, they kept legacy information for some 300,000 people, where is there some cyber hygiene going where people are determining that, you know, a certain 

amount of information is all that is needed, and we are going to 

excise all the unnecessary information? Seems we are going in opposite directions. 

Mr. RHOADES. Yeah, I think certainly the individual is losing 

control over our private information going forward. I can remember 

the first time I was at a particular retailer, and I purchased a bottle of wine, and they scanned my driver’s license. That was without 

asking. That was just part of their policy. I wasn’t given the opportunity to necessarily agree or disagree with it, or to question what 

information was being collected. I still, to this day, am not quite 

sure what they store for how long, and how it is used. That is a— 

that is not to pick on a particular retailer. I think that is now a 

common case, that there are entities, some legitimate, some illegitimate, that are taking this information and using it to monetize. 

So I think this is—there is a new emphasis, particularly over the 

course of the past 12 months, in the American public dialogue on 

privacy and civil liberties. I think, as these technologies advance, 
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we need a broader National conversation about what we feel is appropriate, and we feel is maybe too much, and to find a way for 

individuals to somehow gain a little bit, or feel they have gained 

a little bit more control over their private information. 

Mr. MEEHAN. Who controls that? Who becomes the arbiter of 

that, and how is that enforced? 

Mr. RHOADES. Well, the overall arbiter, ideally, would be the 

American people. Having this conversation, particularly through 

you all, our representatives, and deciding what is appropriate, and 

what is not. That often does not—is not the way things work, I understand that, but I think that this is where we, as average citizens, particularly look to you to represent our best interests. 

Mr. MEEHAN. Well, I thank you. Do any of my colleagues have 

any follow-up questions? Chairman recognizes Ms. Clarke. 

Ms. CLARKE. Thank you, Mr. Chairman, and I want to agree 

with you on the need to have this conversation. I wonder how much 

of this debate is generational—— 

Mr. RHOADES. Um-hum. 

Ms. CLARKE [continuing]. Simply because younger people live 

their lives through this medium—— 

Mr. RHOADES. Um-hum. 

Ms. CLARKE [continuing]. In a way that perhaps my parents, and 

even me, to a certain degree, don’t. You know, I am a hybrid. My 

mom is all-in now, she is texting. But, you know, there is a conversation that needs to be had, because things that we believe are 

private, young people don’t necessarily believe the same thing. So 

when you transfer that into the final arbiter, which in—oftentimes 

are the courts now, the application of current day law to what they 

are actually doing, there is a disconnect. You know, because—there 

is almost a voluntary surrender of privacy through this medium in 

certain parts of the internet, social networking, for instance, and 

so that conversation needs to happen, because I am just concerned 

that we establish a standard so that people can then gauge themselves accordingly. I think at a certain point it is going to become 

almost moot, because everyone’s information is going to be out 

there, so it is going to cancel out. 

But, having said that, data breaches involve personally identifiable information, as the Chairman has stated, and under many circumstances, and for many reasons, they can be inadvertent, such 

as from the loss of an electronic device, or deliberate, such as from 

a theft of a device, or a cyber-based attack by a malicious individual or group for a nation, a terrorist, or the adversary. Incidents 

have been reported at a wide range of public-private sector institutions, including Federal, State, local government agencies, educational institutions, hospitals, other medical facilities, financial institutions, retailers, et cetera. 

The loss or unauthorized disclosure or alteration of the information residing in private and public systems, which include this PII, 

can lead to serious consequences and substantial harm to individuals in the Nation. It is critical that not only Federal agencies, but 

privately-owned companies also protect their systems, and the information on them, and to respond to data breaches and cyber incidents when they occur. The President asked, in his cybersecurity 

Executive Order, 136–36, that there be a separate section on pri-
59 

vacy, civil liberty protections, and PII. It contains a new subsection, 

entitled, ‘‘Methodology To Protect Privacy and Civil Liberties’’, and 

is Appendix B of the primary framework. 

Could you give us an update—— 

Mr. RHOADES. Um-hum. 

Ms. CLARKE. You know, I threw out sort-of my thinking, and, you 

know, I am left-handed. But, you know, what do you think the update on the discussion is, and the collaboration among public and 

private entities regarding privacy and civil liberty concerns? 

Mr. RHOADES. Sure. So, as you mentioned, in the Executive 

Order the President asked, through the programs that are implemented under that Order, for the senior privacy and civil liberties 

officers at each of the agencies involved to look at those programs 

and do a risk-based assessment, in terms of privacy and civil liberties, and to offer some strategies going forward to mitigate some 

of those risks. 

I believe earlier this week, or it may have been last week, the 

Department of Homeland Security released its first assessment of 

that, which, to me, it—I think that is an important point for two 

reasons. No. 1, it gives, for those of you who do oversight over the 

administration, the opportunity to sort of baseline these things, 

look at some of their recommendations that are in-house, and then 

follow those as we go forward to ensure they have been implemented. 

But I also think that is an important document strictly from an 

emphasis on privacy and civil liberties. The specific recommendations didn’t necessarily stand out to me as game changers, but in 

terms of getting overall cybersecurity right, this is a real challenge, 

in that it requires trust at every level. 

I think, through both panels of this hearing, we have heard there 

are multiple levers of—level of users, from nation-states, to big corporations, to small corporations, to non-profits, to individual endusers. I agree with the Chairman when he said that this is a 

shared responsibility, so all of these levels must work together. 

Frankly, here we have seen less trust from the average American 

citizen to the Federal Government. So I think it is important domestically to start to rebuild some of that trust, particularly in 

light of the National conversation over the last year. 

I also think it is really important internationally, because, as I 

said, we are the first generation to sort of try to develop the doctrines and the concepts around these new technologies. The fact is 

the rest of the world is watching us as we struggle to come up with 

those ideas. How we do things here in the United States is going 

to greatly affect the next Green Movement in Iran, the next Tahrir 

Square, so we need to be very cognizant of those as well if we do 

still want to stand for some of those fundamental American rights 

of individual opportunity, of individual freedom, of free speech. 

So I think, for those reasons, that emphasis in the E.O., and then 

the most recent report is important. But then I would also encourage you all to look at some of the recommendations, and to ensure 

that the Executive follows up on their own assessments. 

Ms. CLARKE. Thank you, Mr. Chairman. I yield back. 

Mr. MEEHAN. Well, I want to express my deep appreciation to 

each of you, not just for your preparation for your testimony today, 
60 

and the work, and—you have put into those thoughtful comments, 

but for your on-going work in this area in each of your respective 

venues. It is a debate—not a debate, it is a dialogue that we are 

going to have to be continuing well into the future. I want to express my appreciation to our colleagues, and particularly my—the 

Ranking Member for taking the time to travel here from New York. 

I want to close by thanking our hosts here at Drexel, and for the 

tremendous work that they are doing in being on the vanguard in 

both—not just education, but research and development in this important area of cybersecurity. I am grateful for their efforts. 

So, on behalf of the committee, the subcommittee stands adjourned. 

[Whereupon, at 12:49 p.m., the subcommittee was adjourned.] 

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