[Senate Hearing 107-139]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 107-139

  TREASURY AND GENERAL GOVERNMENT APPROPRIATIONS FOR FISCAL YEAR 2002

=======================================================================

                                HEARINGS

                                before a

                          SUBCOMMITTEE OF THE

            COMMITTEE ON APPROPRIATIONS UNITED STATES SENATE

                      ONE HUNDRED SEVENTH CONGRESS

                             FIRST SESSION

                                   on

                           H.R. 2590/S. 1398

 AN ACT MAKING APPROPRIATIONS FOR THE TREASURY DEPARTMENT, THE UNITED 
   STATES POSTAL SERVICE, THE EXECUTIVE OFFICE OF THE PRESIDENT, AND 
 CERTAIN INDEPENDENT AGENCIES FOR THE FISCAL YEAR ENDING SEPTEMBER 30, 
                      2002, AND FOR OTHER PURPOSES

                               __________

                       Department of the Treasury
                   Executive Office of the President
                       Nondepartmental witnesses

                               __________

         Printed for the use of the Committee on Appropriations


 Available via the World Wide Web: http://www.access.gpo.gov/congress/
                                 senate

                                 ______

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                      COMMITTEE ON APPROPRIATIONS

                     TED STEVENS, Alaska, Chairman
THAD COCHRAN, Mississippi            ROBERT C. BYRD, West Virginia
ARLEN SPECTER, Pennsylvania          DANIEL K. INOUYE, Hawaii
PETE V. DOMENICI, New Mexico         ERNEST F. HOLLINGS, South Carolina
CHRISTOPHER S. BOND, Missouri        PATRICK J. LEAHY, Vermont
MITCH McCONNELL, Kentucky            TOM HARKIN, Iowa
CONRAD BURNS, Montana                BARBARA A. MIKULSKI, Maryland
RICHARD C. SHELBY, Alabama           HARRY REID, Nevada
JUDD GREGG, New Hampshire            HERB KOHL, Wisconsin
ROBERT F. BENNETT, Utah              PATTY MURRAY, Washington
BEN NIGHTHORSE CAMPBELL, Colorado    BYRON L. DORGAN, North Dakota
LARRY CRAIG, Idaho                   DIANNE FEINSTEIN, California
KAY BAILEY HUTCHISON, Texas          RICHARD J. DURBIN, Illinois
MIKE DeWINE, Ohio                    TIM JOHNSON, South Dakota
                                     MARY L. LANDRIEU, Louisiana
                   Steven J. Cortese, Staff Director
                 Lisa Sutherland, Deputy Staff Director
                 Terry Sauvain, Minority Staff Director
                                 ------                                

            Subcommittee on Treasury and General Government

              BEN NIGHTHORSE CAMPBELL, Colorado, Chairman
RICHARD C. SHELBY, Alabama
MIKE DeWINE, Ohio                    BYRON L. DORGAN, North Dakota
TED STEVENS, Alaska                  BARBARA A. MIKULSKI, Maryland
  (ex officio)                       MARY L. LANDRIEU, Louisiana
                                     ROBERT C. BYRD, West Virginia
                                       (ex officio)

                           Professional Staff

                          Patricia A. Raymond
                              Lula Edwards
                        Chip Walgren (Minority)
                       Nicole Rutberg (Minority)

                         Administrative Support

                       Nancy Olkewicz (Minority)




                            C O N T E N T S

                              ----------                              

                        Thursday, April 26, 2001

                                                                   Page

Department of the Treasury: Office of the Secretary..............     1

                         Thursday, May 3, 2001

Executive Office of the President: Office of National Drug 
  Control Policy.................................................    37

                         Thursday, May 10, 2001

Department of the Treasury.......................................    83
    Bureau of Alcohol, Tobacco and Firearms......................    97
    U.S. Customs Service.........................................   109
    U.S. Secret Service..........................................   123
    Federal Law Enforcement Training Center......................   149
    Financial Crimes Enforcement Network.........................   157
    Office of Foreign Assets Control.............................   165

                         Thursday, May 17, 2001

Department of the Treasury: Internal Revenue Service.............   203
Material submitted subsequent to the hearings:
    Office of Personnel Management...............................   247
    Merit Systems Protection Board...............................   248
    Nondepartmental witnesses....................................   251

 
  TREASURY AND GENERAL GOVERNMENT APPROPRIATIONS FOR FISCAL YEAR 2002

                              ----------                              


                        THURSDAY, APRIL 26, 2001

                                       U.S. Senate,
           Subcommittee of the Committee on Appropriations,
                                                    Washington, DC.
    The subcommittee met at 10 a.m., in room SR-485, Russell 
Senate Office Building, Hon. Ben Nighthorse Campbell (chairman) 
presiding.
    Present: Senators Campbell, DeWine, and Dorgan.

                       DEPARTMENT OF THE TREASURY

                        Office of the Secretary

STATEMENT OF HON. PAUL H. O'NEILL, SECRETARY
ACCOMPANIED BY JAMES J. FLYZIK, ACTING ASSISTANT SECRETARY FOR 
            MANAGEMENT AND CHIEF INFORMATION OFFICER


                            OPENING REMARKS


    Senator Campbell. Good morning. The committee will come to 
order. I would like to welcome everyone to the first hearing on 
the fiscal year 2002 budget request. This morning, I am pleased 
to welcome the Secretary of the Treasury, the Honorable Paul 
O'Neill, as well as Brad Buckles, the Director of the ATF, and 
James Sloan, the Acting Under Secretary for Enforcement. 
Welcome. We are looking forward to your comments.
    I would also like to acknowledge the two new members of our 
subcommittee, Senator DeWine, who is on my right, and Senator 
Landrieu, who hopefully will be arriving shortly. Senator 
Dorgan, the ranking member of the committee, will also be just 
a little bit late.
    We look forward to learning about the new leadership at the 
Treasury Department as well as the resources necessary to carry 
out the Department's responsibilities. The Department of the 
Treasury has four main missions, as articulated by their 
strategic plan: To promote prosperous and stable American and 
world economies; to manage the government's finances; to 
safeguard our financial systems, protect our nation's leaders, 
and secure a safe drug-free America; and fourth, to continue to 
build a strong institution. These are obviously very broad 
areas of jurisdiction, some of which are carried out by various 
bureaus within the Department. However, the policy and the 
oversight responsibilities still rest within the Departmental 
offices.
    The Under Secretary for Domestic Finance is responsible for 
the development of domestic economic finance and fiscal policy, 
making sure that Social Security and Medicare are solvent, that 
consumers are protected from financial deception, and a number 
of other things.
    The Under Secretary for International Affairs is 
responsible for international financial policy, as well as 
trade and investment policy, such as monitoring the global 
economy, facilitating legitimate trade, and promoting stable 
international financial systems, to mention a few.
    The Department's Federal law enforcement responsibilities 
are overseen by the Office of the Under Secretary for 
Enforcement. Reducing counterfeiting and money laundering are 
probably the most important issues they deal with, but also 
stopping drug smuggling, denying criminals access to firearms, 
and the anti-terrorism efforts, to name just a few.
    Mr. Secretary, I want to take a minute to express my 
appreciation to you for your continued support for something 
that is very important to me and that is the GREAT program. I 
have a very strong feeling about our youngsters and I think 
GREAT has been a program that they have benefitted from a great 
deal, if I can use that term. I have also been a strong 
supporter of a number of other programs that deal with 
youngsters, but that one is of particular interest to me.
    Everyone knows that the Internal Revenue Service implements 
and enforces tax laws, but the developments of the policies 
underlying those laws takes place at the Departmental level and 
the Secretary of the Treasury is ultimately responsible for 
everything. The buck stops on your desk, Mr. Secretary. I look 
forward to hearing how you plan to lead the Department into the 
21st century.
    We have been joined by our ranking member, Senator Dorgan. 
I would like to now recognize him.


                  STATEMENT OF SENATOR BYRON L. DORGAN


    Senator Dorgan. Mr. Chairman, thank you very much. Mr. 
Secretary, welcome today. I have been at an Energy Committee 
hearing and I was delayed arriving, but thank you very much for 
being here today.


                           PREPARED STATEMENT


    I think what I will do is put my statement in the record 
and I will be here to ask a number of questions of Secretary 
O'Neill. I am anxious to hear his testimony.
    Senator Campbell. Without objection, the complete comments 
of all members will be put into the record.
    [The statement follows:]

             Prepared Statement of Senator Byron L. Dorgan

    Thank you Mr. Chairman: Mr. Secretary, I also want to welcome you 
for your first appearance before this Subcommittee. I commend you for 
your willingness to re-enter public service at a time in your life when 
others might be looking forward to a much more hassle-free existence. 
As you well know, you can do a great deal of good in your new position, 
but there is also a great deal of heartburn which comes with the job.
    You have only been in your current position for just over three 
months and you have many things to learn and see. For instance, you 
probably have not yet been to the Northern Border. I hope you will go--
North Dakota has a great border with Canada and we'd love to host you. 
Your Department plays a major role in border issues. The Customs 
Service both facilitates trade while at the same time attempts to 
interdict drugs and terrorists. For instance, you may not know that at 
dozens of ports of entry along the Northern Border orange cones such as 
this are the only nighttime protection from drug runners and 
terrorists.
    I use this to illustrate that while trade under NAFTA and other 
trade agreements has risen 75 percent since the mid-90s, and while 
drugs continue to stream across our borders--north as well as south--in 
many cases we are not making the necessary investments to meet the 
fast-growing needs; either in infrastructure at our 192 border ports of 
entry, nor in the manpower to adequately staff those ports.
    For instance, your second important area of focus in your prepared 
statement is ``continuing efforts to fight drugs and crime.'' Yet, this 
budget requests no funds for hiring additional Customs agents and 
inspectors who are this nation's front line in protecting our borders. 
This budget does not request a dime to alleviate the over-worked men 
and women on the border despite the growing threat of transnational 
crime. Nor does it adequately address the burgeoning trade expected to 
double over the next five years.
    This budget is a straight-line, no-frills, ``maintain current 
levels'' budget, designed--I imagine--not to meet the needs of the 
agencies under your jurisdiction, but instead, adjusted to meet the 
trade-offs required by a too-large tax cut.
    I say this not so much as a criticism but as more of a cautionary 
note for future consideration and debate. And drugs and trade are just 
a portion of this larger debate.
    The 800 pound gorilla for your Department and this Subcommittee is 
the Internal Revenue Service. It consumes nearly 65 percent of your 
Department's budget. The President's budget calls for an increase for 
the IRS of between 3.4 percent and 6.6 percent depending on how you 
count the numbers. We both want to see the IRS succeed--to see 
Commissioner Rossotti and his team turn the IRS around and really 
return ``Service'' to the IRS.
    Yet the independent, congressionally mandated IRS Oversight Board 
recently submitted a budget request which is over $800 MILLION above 
President Bush's budget. A great deal of thought went into the 
Oversight Board's budget submission and the bulk of their suggested 
additional resources would go to increase technology enhancements. 
While we all may have a different opinion about what the ``right'' 
number for the IRS should be, the Board notes further deficiencies or, 
at a minimum, issues which warrant further discussion.
    I look forward to your testimony and your responses to our 
questions. More importantly, I look forward to exploring these and many 
other issues during the months and years ahead.

    Senator Campbell. Senator DeWine, do you have a statement?
    Senator DeWine. Mr. Chairman, thank you very much. Mr. 
Secretary, thank you very much for being with us here today. 
Mr. Chairman, I am delighted to join the committee today.
    As one of the newest members of the committee, let me 
welcome you, Mr. Secretary, to this hearing and thank you for 
your hard work on the Department's budget proposal for fiscal 
year 2002. There are a number of programs of particular 
interest to me in this budget, mainly law enforcement and 
counterdrug activities. Let me commend you and commend 
President Bush for addressing these very important law 
enforcement related issues and I look forward to working with 
you and my colleagues to ensure that programs in these areas 
are adequately funded.
    I also commend our chairman, Senator Campbell, for 
scheduling a separate law enforcement hearing next month. I 
look forward to that hearing. This recognizes the importance of 
law enforcement activities and the need to provide appropriate 
resources.
    Today, though, for a moment, I would like to discuss a 
specific matter of importance to my home State of Ohio and to 
this entire nation, and that is the implementation of the 
Continued Dumping and Subsidy Offset Act. As you know, I wrote 
this Act, and thanks to the help of my good friend and the 
ranking member on the full committee, Senator Byrd, that 
measure is now the law of the land.
    We need this law, Mr. Secretary and Mr. Chairman, because 
some of our trading partners are simply not playing by the 
rules. What I mean is that there are many foreign producers 
who, in hopes of securing a greater share of the U.S. market or 
eliminating their U.S. competitors altogether or selling their 
products in the United States at or below production costs. 
This practice, as we all know, is commonly referred to as 
dumping.
    Alone or coupled with other unfair and illegal practices 
like subsidization, dumping hurts a number of our nation's 
vital industries, such as agriculture, textiles, and steel. 
Despite the imposition of duty orders in a number of cases, 
these practices continue. In certain cases, these unfair trade 
practices have been going on for more than 25 years.
    Dumping has been particularly hard on America's steel 
industry, an industry that has long been vital to our nation's 
economic well-being and our national security. Because of the 
worldwide overproduction of steel, our domestic industry has 
been forced to withstand an onslaught of cheap foreign steel 
imports. Our steel producers here at home are suffering as a 
result and we must come to their aid.
    The Tariff Act of 1930 gives the President the authority to 
impose duties on imports being dumped in U.S. markets or 
subsidized by foreign governments. Our new continued dumping 
and subsidy offset law takes that 1930 Act one step further by 
imposing a heavier price for dumping and subsidization. As you 
know, revenues raised through import duties currently go 
directly to the U.S. Treasury. But under our new law, the 
duties collected would be redirected to eligible injured U.S. 
businesses, mills, farms, and ranches with qualified 
expenditures, such as modernizing manufacturing facilities, 
providing worker training and health care, and purchasing of 
safety and environmental equipment. The funds cannot be used to 
cover any legal fees associated with the anti-dumping or 
countervailing case.
    Mr. Secretary, free and fair trade cannot flourish unless 
we use our trade laws to encourage all competitors to play by 
the rules. We must do all that we can to make this a reality. 
The Continued Dumping and Subsidy Act is a critical first step. 
Currently, Customs is writing the implementation regulations, 
which were expected to be forwarded to the Treasury Department 
several months ago. It is my hope that your Department will 
take the necessary action to ensure that the proposed 
implementation regulations are published in the very near 
future. It is also my hope that the Department, once the 
regulations are in place, will meet all the statutory deadlines 
for distribution of duties and full implementation of the Act 
in a timely manner.
    In conclusion, Mr. Chairman, when the Department reaches 
that point, Mr. Secretary, I would like to sit down with you 
and personally discuss this matter and the state of our 
nation's steel industry. Again, thank you for joining us today. 
I have enjoyed talking with you in the past about the steel 
problems. I have appreciated those conversations very much and 
look forward to working with you. Thank you very much, Mr. 
Chairman.
    Senator Campbell. I hope our colleagues and people in the 
audience heard you, Senator DeWine. I understand your 
microphone is not working and they need to switch it off.
    Senator DeWine. I think the Secretary did.
    Senator Campbell. The Secretary, I am sure, did hear you.
    Secretary O'Neill. I did. Thank you.
    Senator Campbell. While we are doing that, I might mention, 
Mr. Secretary, while Senator DeWine was making his statement, I 
was reviewing your biographical sketch, which is a lifetime of 
accomplishments and awards and I certainly commend you for the 
many accomplishments you have made. I noted with interest that 
even now, as busy as you are, you have time to work with some 
of the students at your old alma mater, the University of 
Maryland, and still teach on a part-time basis. I think that is 
wonderful, because rarely do kids in school get a chance to 
interact with government officials and I think that is a 
terrific thing that you are doing.
    I think we are hooked up now, Mr. Secretary, if you would 
like to proceed. By the way, your complete written testimony 
will be included. If you want to stray from that and make 
comments or abbreviate, you are welcome to do so.

                      Statement of Paul H. O'Neill

    Secretary O'Neill. Mr. Chairman, it is a pleasure to be 
here. Senator DeWine and Senator Dorgan, I am glad to have the 
opportunity to meet with you today. I will take advantage of 
the opportunity to simply put my prepared statement into the 
record and perhaps summarize a few key points.
    The Treasury Department request, I think, is clearly 
consistent with the principles that President Bush has 
suggested to the Congress, that we should be very prudent in 
the amounts of money that we claim and ask for from the 
American people to discharge our responsibilities, and I think 
this budget bears witness to those principles in a good way.
    Mr. Chairman, you have summarized very clearly what the 
responsibilities are of the Treasury, and in the few months 
that I have been here, I have been on a part-time quest. I must 
say, there are an awful lot of things to do in this position, 
but I have been on a part-time quest to better understand the 
details of what the Department management activities are and 
how well we work to discharge in the most responsible and 
fiscally cautious way the things that the Congress has 
entrusted to the Treasury as responsibilities, including making 
some field trips to look at our manufacturing operations last 
week or the week before in Philadelphia at the Mint.
    I am particularly interested in knowing more about the 
specific aspects of the Treasury Department's activities and 
operations that the members of this Congress are interested in 
so that I can become as knowledgeable as you are about these 
activities and, hopefully, bring greater satisfaction to your 
expectations for how the Treasury will do its work.
    As I have indicated at the end of my statement, I do take 
seriously the leadership and management and administrative 
responsibilities of this job and I bring with me some fairly 
deep knowledge of how these leadership, management, and 
administrative things are done in the very best organizations 
outside of the Federal Government. It does seem to me that it 
is appropriate to work toward the same levels of achievement in 
the prosecution of Federal work activity as one could find in 
the private sector. I must say, I think we have some ways to go 
in rising to that level, but you have my commitment that I will 
bring every day to the questions that I ask and to the 
expectations that I create within the Treasury Department the 
very highest standards and expectations.
    I have to say that this budget as proposed to you does not 
yet reflect my own deep involvement in creating measurements of 
what we should expect and follow through on what we should 
expect. But when I come before you in the fall, or when we put 
together our proposals in the fall for next year's budget, you 
can be assured that I will have spent my own time in becoming 
an expert about these things so that I can answer any questions 
you may have in detail and be prepared to say to the American 
people, it cannot be done better than we are doing it, with 
fewer resources than we are doing it.
    And I might say, I have some expectation that it may be 
useful to suggest levels of resources for some of our 
activities that have not been proposed in the past because, as 
an example, it does seem to me, as one would find in the 
private sector, for example, an expectation that when a private 
citizen, for example, calls the Internal Revenue Service, that 
the service expectations would not be different from what one 
would expect in calling an airline to make a reservation, which 
is to say calls must be answered in a reasonable period of time 
and the answers received ought to always be correct. From the 
reports that we have all seen from both the internal auditors 
and from the GAO, our response times are not adequate, and so I 
think there is truly an important question to ask about how we 
square ourselves with the standards that one should expect from 
government performance of duties.
    And I want to hasten to add, as I did in my prepared 
statement, that I think Federal employees are every bit as 
good, if not better, than what one could find on average in the 
private sector. And so none of what I would suggest to you has 
anything to do with finding fault with Federal employees to the 
degree our organizations do not perform at levels one would 
expect to find in the private sector.
    I guess, rather than characterize the administrations of 
the past, I would say to you I will propose the resources I 
think are necessary to meet what the law says we should do and 
work to bring innovation and ideas to bear on responsibilities 
we are supposed to discharge and make it possible for Federal 
employees to hold their head high, that they are associated 
with the very best organization, public or private, and that 
they have the resources and ideas that are necessary to be a 
singularly impressive organization.

                           Prepared Statement

    With that, Mr. Chairman and members of the committee, I 
would be very happy to respond to whatever questions you may 
have.
    [The statement follows:]

                 Prepared Statement of Paul H. O'Neill

    Chairman Campbell, Senator Dorgan, and Members of this 
Subcommittee, I appreciate this opportunity to discuss Treasury's 
fiscal year 2002 budget request. With me today is Jim Flyzik, the 
Acting Assistant Secretary for Management.
    This is my first time before this Subcommittee. I look forward to 
continuing the tradition of cooperation between the Treasury and 
Members of this Subcommittee and to working with Senators DeWine and 
Landrieu, the new Members of the Subcommittee.
    The Treasury Department's fiscal year 2002 budget supports the 
Administration's major goals: providing tax relief, moderating recent 
rapid growth in spending, while funding national priorities, paying 
down the debt, and protecting Social Security surpluses. Our budget 
request for fiscal year 2002 totals $14.631 billion and balances fiscal 
accountability with the need for the resources required to maintain 
Treasury's operations and implement the President's priorities.
    We have provided the Committee with a detailed breakdown of 
Treasury's entire fiscal year 2002 budget request. Let me highlight 
three important areas of focus.
  --First, improving service to taxpayers and ensuring compliance with 
        the tax laws.
  --Second, continuing our efforts to fight drugs and crime.
  --And third, improving management and performance.
    I will address each of these items in turn.
First, Improving Service to Taxpayers and Ensuring Compliance with the 
        Tax Laws
    In its mission statement, the IRS has pledged to focus on two core 
priorities: ``Provide America's taxpayers top quality service by 
helping them understand and meet their tax responsibilities, and apply 
the tax law with integrity and fairness to all.''
    Like President Bush, I believe strongly that the IRS should enforce 
the tax code fairly and evenly with the least imposition on the 
taxpayer. And consistent with that goal, the President has requested 
adequate resources to fund necessary IRS improvements. This budget 
represents a 6.7 percent increase over the 2001 budget, and recognizes 
the investments needed to modernize the IRS.
    Commissioner Rossotti and the IRS have made progress implementing 
the 1998 reforms mandated by Congress, and the IRS has a plan to 
improve service and enforcement, while protecting taxpayer rights. But 
clearly there is much more to accomplish.
    The Administration's budget request includes close to $400 million 
in investments to modernize the IRS' outdated computer systems. This 
multi-year project will help provide the IRS with better tools to 
improve both customer service to America's taxpayers and compliance 
programs designed to administer the tax code in a fair manner. The 
Committee has shown its support for this program in past years by 
making available needed funds, and we ask you to continue to support 
this critical program.
    The President's budget also includes follow-on funding for the 
STABLE initiative to complete the hiring of almost 4,000 staff to 
address these same issues. This investment is important for the 
integrity of the tax system, which depends heavily on maintaining 
voluntary compliance, and to provide the service the American taxpayers 
deserve.
    The amount in the President's budget will allow the IRS to provide 
America's taxpayers better quality service and help to enforce the tax 
laws with integrity and fairness.
Second, Continuing Our Efforts to Fight Drugs and Crime
    Treasury's law enforcement bureaus perform critical roles in 
implementing the Administration's anti-drug and anti-crime policies. 
Treasury's budget request continues to support our responsibilities in 
law enforcement and oversight, including efforts: (1) to reduce the 
smuggling and trafficking of drugs while facilitating lawful trade; (2) 
to deter firearms violence; (3) to combat financial crimes and money 
laundering; (4) to protect our nation's leaders; and (5) to provide 
quality law enforcement training. Although the range of involvement in 
law enforcement issues across the Department is broad, I want to 
highlight some specific examples of Treasury efforts that support the 
President's priorities of combating crime and drug abuse and that 
emphasize improved public safety and enhanced security for our 
citizens.
    In recognition of the President's promise to increase spending to 
implement the Western Hemisphere Drug Elimination Act, the Customs 
Service, in coordination with the United States Coast Guard, requests 
$35 million for acquisition of selected air and water craft and 
surveillance and safety equipment to improve interdiction efforts 
against illegal drugs.
    The budget recognizes the need for Customs to modernize its 
automated systems. Continued rapid growth in trade transactions has 
magnified both the urgency of proceeding with the overall modernization 
effort and the critical need to maintain viability of the existing 
Automated Commercial System, which, until recently, had been subject to 
an increasing number of system outages.
    Therefore, the budget seeks (1) additional investments in the 
Customs automation modernization program to facilitate and manage its 
trade operations ($130 million) through the Automated Commercial 
Environment and to provide for a government-wide trade data interface 
through the International Trade Data System ($5.4 million); and (2) 
sufficient funding to maintain the existing Automated Commercial System 
while the modernization effort is underway.
    This budget provides for the Bureau of Alcohol, Tobacco and 
Firearms to continue its ongoing efforts in the following programs: the 
Integrated Violence Reduction Strategy, the Youth Crime Gun 
Interdiction Initiative, nationwide crime gun tracing, and the National 
Integrated Ballistics Information Network.
    Enforcement of money laundering laws also contributes to stemming 
the flow of drugs, weapons and other contraband. This budget request 
maintains support for the Financial Crimes Enforcement Network to 
strengthen anti-money laundering efforts and enforce regulatory 
compliance of the Money Services Business industry, as required under 
the Money Laundering Suppression Act.
    The threat of global terrorism, whether conventional or cyber, has 
intensified the demands on Treasury's enforcement bureaus to formulate 
innovative protective strategies that seek to integrate cyber security 
with traditional physical security. The budget request maintains 
support for the Secret Service to continue to address their complex 
workload and multiple mission requirements. This includes protecting 
our nation's leaders and our financial payment infrastructures, 
protecting the integrity of our currency in light of global 
dollarization, and safeguarding the public against terrorist acts, both 
conventional and cyber in nature.
    Ensuring the physical protection of our nation's leaders and 
visiting world leaders in an environment of increased threats to 
political leaders remains one of Treasury's top priorities. We are 
requesting funding for pay reform for the U.S. Secret Service Uniformed 
Division (authorized in December 2000) to provide adequate incentive to 
attract highly qualified recruits and retain skilled and seasoned 
personnel.
    The Department will ensure that specialized funding sources to 
support unique programmatic requirements are spent wisely. The 
Department will continue the practice of supplementing selected 
Treasury law enforcement bureaus' non-recurring operations and 
investments through the Treasury Forfeiture Fund. Another fund, the 
Counterterrorism Fund, supports emergency efforts across the 
Department. Treasury will rely on this fund to assist in covering of 
costs associated with, among other priorities, Treasury's role in the 
upcoming Salt Lake City Winter Olympics.
Third, Improving Management and Performance
    This budget request also provides resources to sustain the 
programmatic oversight and technical support provided by Treasury 
Departmental Offices. This oversight and support is essential to our 
overall leadership role in law enforcement, tax administration, 
international and domestic economic and tax policy, and financial 
management. The request includes funding required to sustain previously 
approved staffing levels, with no increase in staffing levels being 
proposed in this request.
    Throughout the Department, I am taking a keen interest in 
performance and the budget, viewing them as integral to our efforts to 
establish goals and measure results. Part of this process will require 
us to improve our performance measures to make them more useful in and 
relevant to the decision-making process, as well as the improving the 
timeliness and accuracy of the information systems that capture and 
report performance data. This is an opportunity to fundamentally review 
what we do and why we do it. Therefore, the fiscal year 2001 and fiscal 
year 2002 Performance Plans presented in the budget may be revised 
pending completion of this review. Treasury will notify Congress of any 
such revisions in a timely manner.
    Good stewardship of taxpayer resources is a responsibility I take 
seriously. We must provide the taxpayers with real value for the hard-
earned tax dollars they entrust to the Treasury.
    Treasury has a rich reputation for leadership and quality and I 
want to be a part of continuing that tradition. My notion of leadership 
centers on excellence.
    I am thoroughly convinced that if your organization is not striving 
to be the best in the world at everything you do, then you are unlikely 
to be truly excellent as an organization. Let me take this down from 
the lofty to the concrete. In the organization that I left in December, 
it took us 2\1/2\ days to close our financial books at more than 300 
locations in 36 countries. It takes the Federal Government five months 
to close our books; and then the auditors give us a qualified opinion. 
This is not the stuff of excellence.
    Let me hasten to add, this is not the fault of the workforce. They 
can deliver what the leadership asks for. I proved in my previous work 
life that it is possible to build an organization that is known for 
excellence, based on a foundation of dignity and respect for every 
individual. Caring about the health and safety of the 150,000 people in 
Treasury who depend on me for leadership is important, and it will 
continue to be important as I lead a Department with such a rich 
heritage

                               CONCLUSION
    In summary, Mr. Chairman, I believe that Treasury's $14.6 billion 
request for Fiscal 2002 will enable us to continue the important 
initiatives underway throughout the Department, as well as advance 
those key priorities set out by the President. I ask for your support 
of our fiscal year 2002 budget request so that the Treasury Department 
can fulfill its wide range of responsibilities in serving the American 
people.
    Thank you very much.

    Senator Campbell. Thank you. I will tell you that in the 
years I have been with this committee, I have enjoyed working 
with Treasury and you have inherited some very, very fine 
people on the staff, as you probably know. I might tell you, 
they sure know how to put a positive influence on this 
committee, particularly Art Cameron. He knows that the chairman 
is a licorice freak, and look what I found next to my 
microphone when I showed up.

                Western Hemisphere Drug Elimination Act

    Do not blush, Art.
    Let me start by asking a couple of questions, because it 
has recently been in the headlines a lot, and you may or may 
not know the answer, but at least you can give us your 
perspective on it. The only major initiative for the Department 
is to provide funding for the enhanced implementation of the 
Western Hemisphere Drug Elimination Act by the Customs Service. 
That includes funding for interception boats, maritime patrol, 
upgrade to the P-3 airplane program, and so on, as you probably 
know.
    I was wondering, will the recent shooting-down incident in 
Peru and the President's decision to suspend U.S. surveillance 
flights have any impact for the need for your budget requests?
    Secretary O'Neill. No, I do not see this incident having an 
effect on our budget request at all.
    Senator Campbell. Do you see that as a temporary decision 
by the President or do you have any information on that?
    Secretary O'Neill. There is an ongoing investigation. I 
think we need to be careful not to get in the way of that 
investigation. But it does seem very clear in reviewing the 
history of the work with countries in Latin America that there 
has been a very beneficial effect in the surveillance and 
interdiction process that has been put in place by the 
Congress, or put in legislative intent by the Congress and put 
in place by the operational organizations in the Federal 
Government.
    This incident is certainly an unfortunate incident, but I 
think from the Treasury Department's point of view and 
particularly from the Customs Department point of view, the 
idea of helping other countries to reduce the production and 
transportation of illegal and harmful drugs into our own 
society is a useful and beneficial thing to do and I think the 
record clearly shows that.
    Senator Campbell. I do not want you to say anything in the 
committee that would jeopardize any kind of investigation, so 
that is an adequate answer. Thank you. I appreciate that.

                   IRS Computer Modernization Program

    Mr. Secretary, your budget is pretty lean this year. Its 
increase over the current fiscal year is only about 5 percent, 
which is enough to maintain current levels and pay for the 
automatic employee pay raises, which are certainly important. 
Yet, there are a few big-ticket items. One of them is $397 
million for the next phase of the IRS computer modernization 
program, and as you know, we put a ton of money into the IRS 
the last few years to have them upgrade their systems.
    How is the Treasury Department keeping tabs on the progress 
of that project, to make sure that we do not make the same 
mistakes we made in the past in funding big-ticket items for 
IRS that were not compatible with the ongoing systems?
    Secretary O'Neill. Mr. Chairman, as you know, there is a 
process in place with an independent outside review group 
headed by Larry Levitan, and the Secretary of the Treasury by 
statute is a member of this group. I have had an opportunity 
now to attend two of their oversight meetings and to personally 
ask questions about the milepost for implementation of systems 
improvements that Charles Rossotti has designed in concert with 
the people in the IRS.
    So I personally had an opportunity to look at this on an 
ongoing basis. As recently as Monday of this week, I spent an 
hour and a half with Charles Rossotti to talk with him about 
the progress and, in fact, to push hard on the question of 
whether there is not a way that we can move even more quickly 
than what has been in the plan and what has been discussed to 
achieve higher levels of performance in executing IRS 
responsibilities, and in addition to that, there is an ongoing 
administrative process and review process inside the IRS and 
inside the Treasury to keep track of this.
    I am aware that large amounts of money were provided over 
the last ten years, apparently not to good effect, supposedly 
for achieving some of these same purposes. And so I would say 
to you there is a great sensitivity in the Treasury and in the 
IRS and personally in Charles Rossotti to using the taxpayers' 
money wisely and to actually producing the foundation systems 
capability to discharge these duties, which involve, in one way 
or another, every American citizen.
    So I feel good about the review process and as I have sat 
for several hours and listened to the technical experts talk 
about what they are doing, I guess I find some comfort in the 
news not always being good, because when the news is always 
good, sometimes you are very disappointed when you get to the 
end of the process and find out you have got interim reports 
that are too good to be true. I am not finding that in the work 
that we are doing with this review committee.
    There are acknowledgements of delays of a month or 6 weeks 
in the pieces coming together, which means that there is 
pursuit of inadequate performance and working with the 
contractors as the pieces are coming along. And at least for 
me, with some expertise in matters of systems and computer 
programming, this is developing in a way that I think will 
provide satisfaction to the Congress that the funds are being 
used wisely and in an intelligent way.
    And again, I would say to you my intervention and 
involvement with Charles and the people at the IRS so far has 
been to question whether there is not a way that we can advance 
the state of activity so that we can more quickly get to a 
point that we can say, we have a perfect administration of the 
Internal Revenue Service laws and the code and that we are 
collecting every penny that people are supposed to owe, but we 
are doing it respectfully. But nevertheless, we are doing it 
and we are operating at a service delivery level that would be 
agreed is the highest service delivery one could find in public 
or private service. I think we are not there yet, and frankly, 
we are not moving fast enough for my taste. It is an ongoing 
conversation with Chairman Rossotti.
    I must say one other thing. I think the country is very 
lucky to have a person of Charles Rossotti's stature and 
intelligence doing this work, a person such as Charles who has 
a profound understanding of U.S. Government processes from the 
days when he was a whiz kid at the Defense Department in the 
late 1960s and then to become the organizer and the creator of 
American Management Systems, a corporation of over $1 billion 
worth of annual revenue, and doing exactly the kind of work he 
is doing as a Commissioner of IRS is a wonderful testimony to 
the good spiritedness of American systems, particularly in this 
case Charles Rossotti, and to his personal commitment to make a 
difference for the country.
    Senator Campbell. That question was prompted by a press 
report I read the other day, saying how much money the IRS will 
not be able to collect this year because of inadequate funding 
for the manpower. I view Mr. Rossotti as you do. I think they 
have had a major transformation since he has taken over and I 
am very proud of the work he is doing. I think he is doing a 
fine job, considering he would be somewhere else making a lot 
more money in the private sector. To give up that time to do 
public service, I think was just terrific and we are lucky to 
have him in government service.
    What I want to do is try and limit maybe each of us to 5 
minutes and go back and forth so everybody has a chance before 
we have to run off. Senator Dorgan, did you have some 
questions?
    Senator Dorgan. I do.
    Senator Campbell. Go ahead. We will just switch off every 
few minutes.
    Senator Dorgan. Mr. Secretary, again, I indicated to you 
previously, thanks for offering yourself to serve this country. 
You have a very distinguished background and we appreciate your 
service.
    I want to ask a series of questions, and this is an 
opportunity for us to talk not just about money but about 
policy and so I will ask about both.
    First, let me say I share your feelings about Commissioner 
Rossotti. I think he is a very talented fellow. We are lucky to 
have him. Having said that, of course, the term IRS 
modernization is almost an oxymoron, almost a contradiction. We 
have been talking about IRS modernization forever and it just 
never seems to happen. It is nowhere close to being able to do 
what a credit card company can do when you call up and they go 
into the file and tell you what the answer is. The IRS does not 
seem to have that capability.
    But recent stories, Washington Post article dated April 4, 
2001, says that Treasury investigators posing as taxpayers--you 
are familiar with this, I am sure--over a 4-day period made 368 
random test calls of the IRS toll-free number and gained access 
only 37 percent of the time and received incorrect answers 47 
percent of the time. Clearly, that is unacceptable, to you, to 
me, to Congress, I assume to Commissioner Rossotti. What is 
being done to respond to that?
    Secretary O'Neill. Well, as you know, I believe, from the 
Treasury Department budget request this year, we are asking for 
the next block of money to continue with what has been an 
agreed and, I think, program worked out with the Congress, in 
fact, to tend to the continuing modernization of the IRS, and I 
think that is all well and good. At the moment, I do not have 
personally a better idea about specifically what we should do 
with modernization in the sense that Charles Rossotti has 
developed it now over the last few years. But I do have 
continuing engagement and conversation with Charles and with 
other people in the Treasury and with some of you, which I 
would like to do more of, around this proposition.
    I believe, as I have been saying frequently, that every 
word in the 9,500 pages of the tax code has some justification 
and sponsor behind it. Otherwise, it would not be there. 
Ninety-five hundred pages of very fine print. But having said 
that, I believe when you take the whole 9,500 pages and put it 
together, it is an abomination. It is the equivalent of asking 
people in the IRS to execute this 9,500 pages, it is the 
equivalent to giving people a glass wall that is 40 feet high 
and telling them, whatever their human limitations are, they 
should climb up it every day, maybe 10 or 15 times, just for 
the exercise.
    It is an awful thing, I believe, to ask human beings to do 
an impossible thing, and I think, in fact, administering the 
9,500 pages in the IRS code on a failsafe basis, which you 
would do in a private sector activity so that you never, ever 
make a mistake, I would submit to you is impossible. I do not 
care how much money we spend in educating IRS people on the 
other end of a telephone. If you can imagine being the subject 
of a random telephone call from any one of more than 200 
million adult Americans with that person being able to ask the 
most complicated question out of a tax return that is maybe 700 
pages long and expecting an IRS person on the other end to be 
able to immediately zero in on your answer, I think is clearly 
an impossibility. It screams out for rationalization.
    I am sure you have the same experience I do. If I go out to 
any audience in the country and talk about tax code 
simplification, you are guaranteed that people will stand up 
and applaud long and loud about the idea that we are finally 
going to give the American people back a tax code that most of 
them can understand and do not need expert financial assistance 
to help them respond to the most consistent interaction they 
have as citizens with the Federal Government.
    Now, I have started a conversation inside the Treasury 
about what it is that we could recommend to the Congress to 
change the administrative tasks that exist in the IRS so that 
it is more likely that we can always answer the phone on time 
and we can always provide the correct response. Simplification 
is part of the answer. Training of people is also part of the 
answer. And it may very well be that in order to rise to the 
level of 100 percent performance, that more people are 
required.
    And I have said to Charles Rossotti, I would like to know, 
if we set a standard of 100 percent performance, how many more 
people do we need in the IRS to meet that outside standard, and 
frankly, he has been a little shocked that I would even ask the 
question, because it seems that we have had a tradition in this 
process of accepting the notion that the performance levels 
that you report to me are okay.
    I must say to you, I would like for--once I am satisfied 
myself that there is not something else we can do, I would like 
to put the burden on the Congress to say, we are not prepared 
to provide the resources that are necessary to discharge the 
laws of the United States as they have been written, rather 
than be engaged in a process that, it seems to me, is demeaning 
to the people who have been asked to do the work because it is 
impossible for them to do the work. I would like to very 
clearly center this question so that we are not just going 
along as though this is government work and whatever we do is 
good enough for government work.
    I, frankly, do not want to be part of that. I suspect most 
of you do not want to be part of that. And so I am going to see 
if I cannot, over the next several months, get these issues 
centered up so that, once and for all, we can be clear about 
what it is we are doing and what it is we expect of one another 
in discharging the laws of the United States.
    Senator Dorgan. Mr. Secretary, I appreciate that, but I 
frankly would think, and I do not know this to be a fact, but I 
would think it to be the case, that your investigators would 
not have gone to a telephone to phone the IRS to create a 
complicated question for them. I mean, you are not going to 
call the IRS and say, all right, I am doing a test here and I 
want to have your evaluation of how passive loss relates to 
foreign tax credits in a tax haven for a company that is doing 
the following. That is not exactly what you present to somebody 
on the telephone.
    You construct a series of questions that they should easily 
be able to answer and then evaluate whether you get different 
answers or the correct answers from different respondents. 
Apparently, the test showed about two-thirds of the time, they 
could not get through on the phone, and half the time, they got 
the wrong answer.
    So I do not want you to just lay it off on 9,500 pages, 
because that is not what your investigators would be testing 
telephone IRS service for. People with more complicated systems 
are going to accountants and others to have their taxes 
prepared.
    But I think what we should do is have a benchmark goal 
here. Put somebody in charge and say, look, you tell us what we 
need to do to get to 80 percent response when you are calling, 
so that you are getting through at least 80 percent of the 
time, and you ought to be able to expect 80 to 90 percent 
accuracy if you are calling the people that are administering 
the law. So we ought to find a benchmark that we want to meet 
and then put the resources and people in place to meet it, and 
if they do not do it, say we will find some new people that 
will, and----
    Secretary O'Neill. Senator, I would stipulate that except 
for one thing. I do not know why we want anything less than 100 
percent.
    Senator Dorgan. Well, I am for 100 percent, but if we are 
only half right and we only get there a third of the time, we 
are so far away from our goal, we need to at least start 
somewhere. I guess I would just encourage Treasury and the IRS 
to report to us on what are the objectives in the next few 
years. This is not a problem that has arisen under your watch. 
This is a problem that has occurred for 10 and 20 years and we 
need to fix it and I think you are the kind of person that 
comes from a background that can fix this.
    Let me ask you briefly about, first, the Olympics. I have 
four or five questions to ask and I will not spend a great deal 
of time. I know that my colleague has questions, as well.

                          2002 Winter Olympics

    A recent compilation of appropriations for Federal support, 
U.S. Federal support for the Olympics, says that we are going 
to spend somewhere around $360 million in support of the 
Olympics, including, for example, $1.2 million for the National 
Weather Service for improved predictions. I am going to ask the 
Weather Service about that. They need a million dollars to 
improve predictions during the 2 weeks these athletes are 
meeting in Utah? I want to understand what that million dollars 
is going for and how they can improve them during those two 
weeks but cannot seem to do it the rest of the year, or is 
there an enhanced service that they are going to make available 
for athletic events and it only costs a million dollars for 2 
weeks? That is strange.
    But in your agency, we have, I believe, $45 million for a 
counterterrorism fund, and I would be the first to admit that 
when we have Olympic games on our soil, we want to make 
certain--and that would be the case anywhere in the world, but 
we want to make certain that we are not going to have a 
terrorist act that is going to threaten the lives of people and 
so we need to be prepared for that.
    On the other hand, the counterterrorism fund was created to 
respond to unanticipated events and we have put money in that 
fund. The Olympics are not unanticipated, and so it appears to 
me that we are spending money out of a fund that was to be set 
up primarily for unanticipated events for something that we 
well know is going to happen and probably ought to be funded in 
the regular course. Can you give me your thoughts about the 
amount of money we are spending in public support of the 
Olympics through the Federal Treasury and especially that 
particular issue?
    Secretary O'Neill. Senator, I understand that this 
designation of the Secret Service as the lead agency for the 
Winter Olympics was done, I do not know, a couple of years ago. 
Frankly, I am mystified why, at the time it was done, that the 
funds were not provided to take care of this responsibility.
    What we have done in this budget is say that there are 
funds in the fund that you have indicated that we believe under 
a reasonable interpretation of the law could be used for this 
purpose, and rather than be hog-tied, because a good part of 
this money is necessary for preparation and we are running up 
to those Winter Olympics already, we have suggested to the 
committee and more broadly to the Congress that we should use 
these funds and we should do what is necessary through the 
Secret Service and the allied activities in the Treasury 
Department to ensure that we do not have an incident in the 
United States that is a blemish on these Olympic games. How we 
got here, why the Congress did what it did a few years ago when 
we saw these Winter Olympics coming, I frankly do not 
understand.
    Senator Dorgan. Why do you not go ahead, Mr. Chairman.
    Senator Campbell. Along that line, I have a particular 
interest in it, since I am the only Member of the Senate that 
was on an Olympic team. Under the provisions of the Directive 
62, it was called, the Presidential Directive 62, the Secret 
Service is the lead agency and a number of other agencies also 
have some responsibilities. It is my understanding that the 
2002 Olympics costs, the Department estimated would be in the 
range of a little over $51 million, but the budget request for 
the Secret Service, the Customs Bureau, ATF, and so on, do not 
include any additional funding. So perhaps you could give us an 
idea of how the Department plans to handle those costs.
    And clearly, we know that since Munich, in which the 
members of the Jewish wrestling team were murdered by 
terrorists, that the Olympic games have become a focal point 
for terrorism because they get international publicity from 
acts of terrorism. So we have to be involved. I think most of 
us know that. But how are we going to cover that?
    Secretary O'Neill. It is our intent to use the 
counterterrorism fund and it was my impression that there has 
been some conversation with committee staff about using this 
approach to make sure that we do have the funds and they are 
available in that fund.
    Senator Campbell. You may have the funds in some other part 
of the budget that is going to be transferred, but as I 
understand the request, there was not a request for that $51 
million.
    Secretary O'Neill. There is not a line item, but my 
understanding is there is enough flexibility in the 
appropriating language of the counterterrorism fund that we can 
use those funds for this purpose.
    Senator Campbell. All right.
    Senator Dorgan. But I think that is the point I was making, 
that that counterterrorism fund is for unanticipated needs----
    Senator Campbell. This is not.
    Senator Dorgan [continuing]. And incidentally, my staff 
advises me that particular approach was not established by 
Congress but by the National Security Council when they met and 
decided how they wanted to do this. It seems like an odd way to 
do it to me. It seems to me it would be more appropriate and 
straightforward simply to say, here is what we propose to 
contribute to meet our responsibilities with respect to the 
Olympics.
    Secretary O'Neill. Excuse me, Senator. This is an action by 
the past administration----
    Senator Dorgan. Right.
    Secretary O'Neill [continuing]. And frankly, I do not 
understand why they did it this way.

                       Use of Government Vehicles

    Senator Campbell. Let me just switch to something else, and 
that is the use of government vehicles. In the past, the 
subcommittee has been concerned for some time about the 
increasing number of vehicles that we are asked to provide or 
money to provide for the vehicles. We have been somewhat 
successful in getting the Department to take the initial step 
to establish a centralized motor pool, as you probably know, 
Mr. Secretary. I suppose that is working pretty well, but I 
noticed that additional funding is being requested to enhance 
that system. Have you had a chance to review that system and 
can you tell the committee what you intend to do, how those 
vehicles will be handled?
    Secretary O'Neill. You know, it is an area that I kind of 
stumbled into inadvertently because I had a request----
    Senator Campbell. So did we.
    Secretary O'Neill. I had a request come to me to--as I 
understand it, I have the sole authorizing capability for 
people, for example, to use government vehicles for home-to-
work transportation, and I had a request saying, will you 
please give us this kind of an authorization, and it tumbled me 
into this whole area of how many cars and vehicles do we have 
and what are their character and what are their appropriate 
uses and what are their special characteristics.
    I was amazed to find how much of this there is, and it 
caused me to write a note on a memo that I had saying, as I 
establish my residence here, I am providing my own home-to-work 
transportation, and it seems to me that is not a bad model for 
everyone. I understand that there are so-called call-out 
requirements when law enforcement people really do have a need 
to have a specially equipped government vehicle to go directly 
from their home to the scene of an emergency, and it seems to 
me those are very appropriate circumstances.
    But it also seems to me that the prejudice ought to be that 
government vehicles are used for directly and clearly 
identified work activities and not home-to-work activities 
related to hierarchical status in an organization or tradition 
or anything else, and so I am pressing on these issues, 
frankly, with a prejudice that says less is more from a 
taxpayer's point of view, and that prestige and the rest of 
those things should not play in the question of how we use 
vehicles that are provided for official government business.
    I am not prepared to tell you yet that we should have less, 
but I suspect I will be able to do that in a while.
    Senator Campbell. I might tell you, I drive a 1980 Plymouth 
with a cracked windshield and a dented fender to work and I 
have always had some concern about the amount we spend on some 
of the vehicles.
    Senator Dorgan. Mr. Chairman, you might want to confess, 
however, that you have a brand new motorcycle.
    Senator Campbell. I am not talking about the motorcycle. I 
knew you would bring that up.
    Senator Dorgan. And I see it parked in front of the Capitol 
with the red, white, and blue----
    Senator Campbell. I should have kept quiet.
    Senator Dorgan [continuing]. And it is not inexpensive.
    Senator Campbell. I know. The bank and I like it very well.
    Senator Dorgan. That is a gorgeous piece of equipment.
    Senator Campbell. Let me say, there are different kinds of 
vehicles, obviously, in the Federal inventory, and I think that 
the automobile, the use of automobiles is one thing, and I know 
you are on top of that, but there are other kinds, emergency 
vehicles. I remember a couple of years ago that we even had a 
request from one of the Federal agencies for a kind of a 
private war wagon, you know, one of the armored, bulletproof 
kind of vehicle for his personal use. Some of those vehicles, 
you do not just park them on the street. I mean, they have to 
have a supporting staff, they have to have a secure garage, 
they have to have a whole bunch of other things that go with 
that type of vehicle. So I would hope you would be particularly 
careful and interested in how those vehicles are used.
    Your turn or my turn? You got me distracted on the 
motorcycle.
    Senator Dorgan. Mr. Chairman, let me apologize for 
disclosing that you had purchased a new motorcycle, but----
    Senator Campbell. It was for a good cause.
    Senator Dorgan [continuing]. It actually was for the 
inaugural parade, was it not?
    Senator Campbell. Yes, and it was for a good cause, my 
personal happiness.

                       Trade Policy and Sanctions

    Senator Dorgan. Mr. Secretary, let me ask you about a trade 
policy issue. You have a responsibility to publish regulations 
to implement legislation that I authored last year on the issue 
of sanctions. As you know, I feel very strongly that I want to 
lift sanctions with respect to food and medicine applying to 
every country in the world. I think it is immoral for this 
country to use food and medicine as part of any sanctions 
anywhere. You take aim at dictators and hit poor people, hungry 
people, and sick people. It is a thoughtless thing to do and we 
ought to remove the sanctions.
    So I am trying very hard, and have met with some success. 
We passed an empty shell of a bill last year dealing especially 
with Cuba. It has grip and will eliminate the use of food and 
medicine as part of sanctions with respect to most other 
countries, and that is progress. But with respect to Cuba, it 
is kind of an empty shell because of the restrictions on 
financing and so on.
    I want to ask you a policy question on that, because I am 
going to try again this year in the Appropriations Committee to 
remove the restrictions with respect to Cuba so that it is 
treated like all other countries, able to purchase from us or 
receive from us shipments of food. Can I ask how you feel about 
the issue of using food and medicine as part of sanctions?
    Secretary O'Neill. I think, philosophically, it should not 
be the intent of the United States to punish innocent people. 
And at the same time, I think it is true that the Congress of 
the United States has passed some laws that identify certain 
nations as, in effect, outlaw nations, and in that context has 
decided that we should have, in effect, no regular interaction 
with some of those designated places. I, frankly, do not 
understand what created that context, and so I guess I would 
not judge those who put those things in place. But it does seem 
to me philosophically that innocent people should not be hurt 
as a consequence of arguments or disputes or dislikes that 
exist between sovereign nations.
    Senator Dorgan. Well, I support the use of sanctions. I 
just believe we ought not ever include food and medicine as a 
part of the sanctions, and I think the wide majority of the 
American people believe the same. We are struggling to change 
that here. I would hope that as you think through that, you 
might give us your support. It just makes sense and we ought to 
decide we will never use food as a weapon.

                  IRS Income Tax Filing Simplification

    I want to talk about the issue of the cost of the Internal 
Revenue Service and propose to you a way to save money and hope 
that you might engage with me to do so. Previous secretaries 
have not seemed very interested in this.
    About 30 other countries that have income taxes allow 
return-free filing. We do not, by and large. And they do that 
by having an employee, whose sole income is the salary at that 
workplace file a W-4 form that has maybe a couple of extra 
boxes on it and the W-4 then determines what the withholding is 
and the withholding becomes the actual tax liability. No return 
needs to be filed on April 15, no long line at the post office, 
no extra paper for the Internal Revenue Service to have to file 
and process. It is a remarkably effective way to allow a choice 
for probably 70 million people in this country to not have to 
file an income tax return and still meet their tax obligation 
by having their withholding adjusted by a W-4 adjustment so 
that it becomes the actual tax liability.
    In order to do that, you have to have a threshold of de 
minimis interest and capital gains. I would propose in the 
neighborhood of $2,500 single, $5,000 married. It provides an 
incentive for savings and investment at that level. And you 
can, up to about $100,000 married, filing jointly, have a plan, 
an optional plan by which taxpayers, up to 70 million of them, 
can use what I call a fast and simple tax plan using a single 
rate up to that level, $50,000 single, $100,000 married, filing 
jointly, and save a great deal of money for the Internal 
Revenue Service, a great deal of headache for the American 
taxpayer, and dramatically simplify the income tax compliance 
for a lot of Americans.
    I have a plan that I have introduced here in Congress with 
Senator Judd Gregg and Senator Dick Durbin. We have not been 
able to get much interest from Treasury because Treasury is, 
with all due respect to all the great people that work there, 
kind of institutionally muscle bound on these things. There is 
a way of doing things, and by God, that is the way we have 
always done them and that is the way we always want to do them.
    Would you, because you have, I think, a kind of fresh 
perspective about a lot of these things, would you take a close 
look at this plan with us and see if you would not agree that 
it makes a lot of sense to save time and effort by the American 
people and save money by the Treasury and IRS and simplify this 
system at least for perhaps 50 to 70 million Americans? Would 
you be interested in that?
    Secretary O'Neill. Senator, in getting ready for this 
hearing, I had an opportunity to look through lots of 
background material and I saw this idea. I guess I should tell 
you parenthetically about experience that I have over the last 
40 years or so where it seemed to me there is such a clear need 
for the kind of change that you are proposing, and I am a 
maverick kind of person, so I have lots of these kind of ideas 
and I have too frequently experienced people saying, that is a 
really brilliant idea, but here are the 40 reasons why we 
cannot do it.
    So I will commit to you that I will find out, what are the 
reasons why we should not do this, because on the face of it, 
it seems at least directionally correct and consistent with 
what I said to you myself earlier about the need to press on 
simplification so the tax code, in fact, can be administered. 
We will have to find out, what are the fiscal consequences that 
we might suffer as a consequence of going in this 
simplification.
    When I hear bypassing $2,500 or $5,000 worth of income and 
we are not going to tax that, it, frankly, makes me worry a 
little bit because I want to make sure that we have enough 
money to pay for all the things that members of Congress would 
like to have as program activities.
    But, you bet, I will commit to you I will get deeply into 
what this idea is about and with a prejudice of saying, I would 
like to do this. Tell me why it is not a brilliant idea that we 
should pursue.
    Senator Dorgan. I hope that we could meet on it at some 
point. I would like to call and meet with you. I will just say 
that when you talk about a de minimis on interest and capital 
gains in order to allow this to happen, that is simply part of 
a tax cut. You decide how you want to cut taxes. This is 
another way to do it.
    And when you talk about making room for other expenditure 
needs, that is something we have been debating here for the 
last month or two and will until we finish the budget and 
decide what kind of a tax cut we are going to have. This ought 
to be part of that discussion, because it is the only idea here 
on Capitol Hill that really addresses simplification. Everyone 
wants it. Everybody talks about it. No one does anything about 
it.
    I want to ask you about trade in just a moment, one 
additional point, but I want to certainly have the chairman 
continue his questioning.

                       Trade Policy and Sanctions

    Senator Campbell. Let me say that I agree with Senator 
Dorgan about the use of the sanctions. They are okay when they 
work. Unfortunately, we do not have a way of monitoring many of 
our sanctions or enforcing them. If we try to do something good 
for children or sick people in the countries that we have 
sanctions against, we do not have a way of distributing the 
things that we want to give them, and so we end up sending 
medicine to the children of Iraq and they end up being used for 
the Red Guard or something and I think that is the weakness.
    In the meantime, it sometimes hurts our manufacturers and 
farmers more than it hurts the people we are putting the 
sanctions on, so they have proven to not work very well unless 
you have some international compliance, and what happens is we 
put sanctions on them and the country with the sanctions, they 
simply buy Canadian wheat and they buy manufactured goods from 
somebody else and it collapses. It does not work well.

                   Treasury Incident Reporting System

    But let me get back to a couple more questions. In your 
budget, there has been $400,000 requested to develop an 
information system that will track and maintain records of 
occupational injuries and illnesses. I guess there has been 
some action taken to resolve them, but do you now have in place 
some kind of procedure to track conditions that are associated 
with an unsafe environment? I can believe ATF and some agencies 
have an unsafe environment out in the field, but would you 
expand a little bit on that?
    Secretary O'Neill. Yes. Thank you, Mr. Chairman. Indeed, we 
do have a process that has been put in place. In fact, there is 
now a computerized capability to keep track of incidents that 
occur to Treasury employees around the world and it was 
instituted for the first time, I think, on the 26th or 27th of 
February.
    Frankly, it comes from my experience where I was before 
that if leadership pays attention to the health and the well-
being of the employees and puts in place a data capturing and 
monitoring system and information sharing process with all the 
employees, that it is possible to, over time, achieve a 
workplace where people do not get hurt at work.
    And to give you some contrast from real life facts, last 
year, the place that I was before, where there were 140,000 
employees, nearly the same amount as the Treasury but in 36 
countries and 350 locations, there were 207 individuals out of 
a population of 140,000 who had a safety incident at work that 
caused them not to be able to come to work the next day. The 
Treasury Department last year, with nearly the same number of 
employees, had something over 2,700 people, more than ten times 
more people, hurt at work, in spite of the fact that in the 
benchmark place, there is metal at 2,000 degrees and huge 
moving machinery. While we do have some manufacturing exposure 
at the Treasury, it is nothing like that, and this is not a 
record in the private sector that everyone has. In fact, it 
took 13 years to get from where that previous organization was 
to where it is today.
    But I have no doubt that we at the Treasury can accomplish 
the same thing, and an important part of being able to 
accomplish an effective safety--an incident-free workplace is 
the necessity of information on a real-time basis that is 
shared with every employee so that we can learn from each 
other.
    And I would further say to you, it is my hope and 
expectation that we can do this for less than $400,000. Four-
hundred-thousand is what I hope to be an outer limit on what is 
required to produce this result.
    Senator Campbell. I laud the efforts. I guess I was just a 
little bit puzzled, because the range in your Department of 
potential workplace injuries is so darn broad that I do not 
know how you get a handle on that. It is one thing to get an 
injury from operating a computer at the IRS. It is a whole lot 
different than being an ATF agent trying to arrest some 
subversive drug dealer or something. I did not know if that all 
comes under one heading when you are trying to compile 
statistics and make a safer environment or not, but I will move 
on to something else, also dealing with your budget.
    I might mention, I was just reminded by staff and I want to 
interject this, that today is ``Bring Your Daughter to Work 
Day'' and my daughter is clear out in Colorado, but I note with 
interest that Senator Dorgan's daughter is here to witness our 
proceedings, so let us not disappoint her.
    Senator Dorgan. Thank you.

                          Labor Infrastructure

    Senator Campbell. Let me ask you, you have requested $5.659 
million for labor infrastructure. What does that mean?
    Secretary O'Neill. What that means is that, again, this is 
part of, conceptually, the same thing I was saying to you about 
IRS. The Department has had authorized positions and it has not 
requested the amount of money that is required to fill the 
authorized positions. I would say to you, for me, this is a 
placeholder.
    Senator Campbell. It is a placeholder?
    Secretary O'Neill. It is a placeholder, because I want to, 
frankly, satisfy myself that every one of the existing filled 
positions is necessary and has a good rationale, and I am told 
that these resources are required to fulfill our statutory 
responsibilities. I will make sure that, in fact, that is my 
judgment, as well, one by one. But it does seem to me 
consistent for us to say, we are going to ask for the amounts 
of money and positions that we believe are necessary to 
completely fulfill the statutory responsibilities and this 
money would permit us to do that.
    Senator Campbell. I see. Every year, we are going to have 
to look at every single dollar we spend and we will probably 
need a real strong definition of what placeholder means when we 
have to start lopping some things off that we do not 
necessarily want to lop off.

                   National Threat Assessment Center

    In fiscal year 2001 Congress provided $6.4 million for the 
establishment of the National Terrorist Asset Tracking Center, 
which will be housed in the Office of Foreign Assets Control. 
Can you tell us what progress has been made on that effort?
    Secretary O'Neill. As I understand it, the pieces are being 
put in place and we are operating against a plan that would 
incrementally bring this up to a full state of operation. But 
again, if you do not mind, I would say I have been struck as I 
have worked my way through the budget to find what I would 
consider to be a relatively low expectation level for 
implementing things or for responding to requests for reports 
from the Congress or implementing regulations for laws that you 
all have authored and expected, I think in good faith, to be 
implemented fairly quickly.
    I was astounded, for example, to read that we agreed to do 
a report 6 years ago and we are now saying that we are rounding 
the corner on finally being able to provide a report that we 
agreed to do 6 years ago. I just do not understand that.
    Senator Campbell. Welcome to Washington.
    Secretary O'Neill. I would like to change the idea that 
that is the way we do business here. And so even in this 
particular area that you have asked about, I would like to see 
us have an expectation that if there is serious public work 
that needs to be done, we do it against a standard that says we 
do not know why we did not get it all done yesterday and not 
forgive ourselves with slow implementations. If there is an 
important public purpose to be served, we ought to provide the 
money and get at it.

            ATF National Lab Center and Fire Research Center

    Senator Campbell. One last question and I will submit the 
rest of my questions in writing to you, and that is, Congress 
has provided a total of $83.9 million for the construction of 
the ATF National Lab Center and Fire Research Center, as you 
probably know. But there is going to be apparently a 
significant funding shortfall. How do you plan to deal with 
that?
    Secretary O'Neill. I think there is three-part financing 
for that and it is going to come out of flexible funds. I think 
there is a $6 million request in this year's budget and there 
is some money coming out of the counterterrorism fund so that 
it is going to be taken care of.
    But again, the thing that is striking to me about this is, 
in my previous incarnation, if I had a $60 million project and 
it turned out to have a $25 million overrun, I would shoot 
somebody, and so----
    Senator Campbell. You cannot do that around here.
    Secretary O'Neill. Well, I think maybe we ought to 
institute a tradition that says we expect to get what we 
bargained for, almost without fail, and I, frankly, do not 
understand how we could be that far off unless there were major 
changes in the specifications of what it was agreed we were 
going to try to do. I, frankly, do not understand that level of 
performance.
    And again, I will commit to you, for things that we have 
undertaken, that we say we are going to build a major building 
or training facility or something, we will bring it in on 
budget, and we will tell you at the outset how much it costs in 
fact, not some starry-eyed estimate, knowing full well that we 
are going to have to come back to you for more, because I would 
like for our word to be our bond, and when we tell you we can 
do something for an amount of money, we should do it.

                        New Buffalo Nickel Coins

    Senator Campbell. We should. That is the last question I 
will ask. I might just tell you that, not allied directly with 
your job, but certainly since the Mint is part of it, we are 
going to be stamping the new buffalo nickels next week in 
Denver, Colorado, as you probably know, which was a 5-year 
effort to raise money for the Museum of the American Indian and 
they estimate it might raise between a half and three-quarters 
of a million dollars for the construction of that building. The 
new buffalo nickel, as you might guess, is not the size of a 
nickel, but I guess it will still be worth a nickel.
    I had no idea that it could be so doggone complicated just 
to restamp some old coins, but boy, did we go through a bunch 
of hassles with that because the law has changed. Now, for 
instance, it has to have ``In God We Trust'' on all the coins. 
The original one did not. To make matters worse, the Mint lost 
the dyes of the original one, and so they did not have the 
original pattern to go by and it was a five-year job.
    I know your schedule is such that you will not be able to 
come out to it, but we will be thinking of you, and thanks to 
all the Treasury people that helped us put that together and 
get it through Congress.
    Senator Dorgan, did you have a few wrap-up questions?
    Senator Dorgan. I do, just a couple of additional areas.

                            Sacajawea Dollar

    Mr. Secretary, have you ever been shopping and been given 
in change a Sacajawea dollar?
    Secretary O'Neill. No. I had to ask for one.
    Senator Dorgan. I have the same experience. I wonder if the 
chairman has received in change a Sacajawea dollar.
    Senator Campbell. The only ones I have are the ones I 
pressed the button to stamp in Denver as the chairman of the 
subcommittee. I have not seen any since in the marketplace at 
all.
    Senator Dorgan. I was not going to ask you about that, but 
because the chairman mentioned the buffalo nickel, I am kind of 
distressed about that. We spent a lot of time on that. We 
created the so-called Golden Dollar, produced a lot of them, 
and they are nowhere to be seen. Frankly, I think vending 
machine operators, consumers, and others would like to have 
them in circulation.
    Some say that they are being hoarded in one place or 
another, but could you take a look at that with the Mint and 
report to us what is happening and what can we do to see if we 
cannot put finally a dollar coin in circulation that works. 
This coin is the one to make work. It is one that people find 
appealing, but you cannot find it anywhere. Since we spent the 
money to produce it, why don't we find a way to see if we 
cannot make it usable and make them available in this country.
    Senator Campbell. Are there any regulations or anything 
dealing with how many you can buy or how many you can have? I 
mean, I think a lot of these are picked up by collectors. You 
can call them whatever name you want, but I think they are 
bought up in bundles and then resold at a later date for a 
profit, but there is nothing that prevents people from doing 
that, I guess, is there?
    Secretary O'Neill. No.
    Senator Dorgan. But the more we make, the less valuable 
they will be to those who collected them. My point is, at some 
point, you make enough so that they will be widely available in 
circulation, but I have never seen them.
    Secretary O'Neill. I will push on this issue. In fact, 
there really is a strange phenomenon, I think, because on the 
one hand, just as you say, the coins that have gone out there 
in the first round of circulation, people apparently loved 
having the uniqueness of that coin and so they take it home and 
put it on the shelf or they carry it in their pocket as a good 
luck piece or something. And so all the coins that have been 
shipped out there have disappeared into the hands of people who 
loved having the coin.
    At the same time, I am told, much to my surprise, in the 
background briefing material I was reading last night that 
there is a substantial inventory of these coins at the Federal 
Reserve distribution centers. I do not understand why it is 
that the Federal Reserve distribution centers are not pushing 
these out into the commercial bank distribution process, but I 
will find out and we will give the committee an answer.
    Senator Dorgan. While I am on the subject, just in one 
sentence, almost everyone has a huge jar of coins at home and 
we take them----
    Secretary O'Neill. I do.
    Senator Dorgan. You do and I do, and do you?
    Senator Campbell. I do not have one yet, but----
    Senator Dorgan. I hope you have got one.
    Senator Campbell. I am going to start one.
    Senator Dorgan. Would you? And you take them to a bank and 
they will not accept them, they will not wrap them----
    Senator Campbell. Do you not count them into rolls?
    Senator Dorgan. Why do you not find a way to get the banks 
to be required to accept coins and collect them and wrap them 
like they used to. If you will do that, I would certainly 
appreciate it.
    Senator Campbell. Have you had a chance to visit----
    Secretary O'Neill. Maybe it is a project we could enlist 
the Boy Scouts and the Girl Scouts of America in wrapping the 
coins and we give them something for helping to be an 
intermediary. We need some innovation here.
    Senator Campbell. It sure beats selling cookies.

            International Terrorism and Our Nation's Borders

    Senator Dorgan. Let me just mention two additional areas. 
We talked about terrorism and counterterrorism this morning. 
We, as you know, leading up to Y2K and all the great concerns 
about that, we arrested at a northern border, I believe in the 
State of Washington, some suspected terrorists, who I believe 
are still awaiting trial. With Mr. Bin Laden and others who 
would like to wreak havoc on the world, we need to be very 
concerned and careful about terrorism.
    We have all of this apparatus at our border concerned about 
terrorism and I want to show you the barrier that exists at 
most of my border ports. We have a lot of border crossings in 
North Dakota, and here is the barrier that exists in Noonan, 
North Dakota, for example, or Dunseith, North Dakota. At 9 or 
10 o'clock at night when they close, someone puts this cone in 
the middle of the road, they turn off the lights, and they go 
home.
    Senator Campbell. Very secure.
    Senator Dorgan. And that is our barrier at most of the 
northern ports. We have people who are polite enough when they 
come through and break the barrier to actually get out of their 
car, remove the cone, drive into the country, and then they 
stop and put the cone back, and good for them, except they are 
entering illegally. We have port after port after port after 
port at the northern border that is protected by an orange 
cone, and we are all concerned about terrorists and drug 
smuggling and all that sort.
    I would just ask you, as I have asked the Customs Service, 
to think through with us how we respond to this growing 
international terrorism threat and this problem, a fully 
inadequate barrier system made up of rubber cones. I will not 
ask for a response to that, but if you would just be aware of 
it, I would appreciate that.
    Senator Campbell. If you would yield for a moment, even if 
we did have some secure methods in the normal roads that come 
in, my gosh, that is such a long border, what would prevent 
them from just not using the road, coming in on sleds or 
snowmobiles or something else right through the woods?
    Senator Dorgan. Well, I am asking the questions at the 
moment.
    Senator Campbell. Oh, okay, I am sorry.
    Senator Campbell. I did not mean to distract you there.
    Senator Dorgan. That is a tough one to answer, Mr. 
Chairman.
    Senator Campbell. One thing at a time, right.
    Senator Dorgan. You are absolutely right about that, but 
because it is tougher in other areas ought not persuade us not 
to have appropriate surveillance and barriers in the ports 
where you do have authorized entry. The point you raise is 
another issue, as well, that we need to deal with.

                             Trade Deficit

    Let me just mention one final issue, and that is the issue 
of trade. As Treasury Secretary, you have to be very concerned 
about the strength of the dollar, what is happening in our 
current accounts deficit, and so on. There are only a few of us 
in Congress who routinely go to the floor of the Senate and 
talk about trade deficits. We have a serious, growing, 
mushrooming trade deficit. The merchandise trade deficit is 
around $450 billion a year. Our current accounts deficit is 
swelling.
    I am sure you read ``The Lexis and the Olive Tree'' by Tom 
Friedman in which he describes the electronic herd. If I had 
your job, I would sit on pins and needles worrying that, one 
day, someone will make a judgment in the electronic herd that 
the current account deficit in this country is a serious 
problem and start moving investment away and weakening the 
dollar and causing all kinds of chaos in this country's 
economic system.
    No one seems to care much. We muscled our way through this 
issue on the fiscal policy budget deficit, spent a lot of time, 
gnashed our teeth and had a lot of anguish about it, and 
finally got through it, and now we have this mushrooming trade 
deficit and nobody seems to give a damn.
    Do you worry about it? Do you worry about its consequences, 
because it is getting worse, not better? I know last month it 
was marginally better, but I am telling you, it is historically 
getting worse, worse, and worse, not better. Can you give me 
some description of that? That is not a money issue----
    Secretary O'Neill. It is a very complicated question. Let 
me tell you how I think about it. First of all, I think we 
should be very glad that our economy is so admired by people 
around the world that this is where people want to send their 
investment capital because we treat it better than anyplace 
else in the world, which means on a risk-adjusted basis, 
investors around the world believe that they can get a better 
return on their capital at the same risk level than any other 
place in the world. This is a much to be desired condition for 
the United States.
    Now, how do we get there? The answer is, we are very good 
at what we do in this country in terms of producing value, and 
over the last 15 years, I would say especially over the last 15 
years, we have opened up an appreciable gap between ourselves 
and the other nations of the world in terms of our ability to 
produce high productivity, high value creation as compared to 
other places around the world.
    And so, frankly, I am not concerned about the current 
account deficit so long as it is based on the United States' 
relative competitive economic position. But it does make a 
singularly important point, which is this. We must keep racing 
ahead quickly with productivity improvement in this country at 
a rate faster than what one can find in other places in the 
world in order for those holders of capital not to decide to go 
somewhere else.
    Senator Dorgan. But is this not like a bank perception is 
reality? If people perceive a bank is in trouble, they run on 
the bank, and the electronic herd description is one that 
applies the same approach, it seems to me, to economies. I 
agree with everything you have said except that I think we need 
to be very concerned about the growing trade deficit.
    Secretary O'Neill. I will tell you another question that I 
have, and it is a question about the way that we think about 
these issues and problems. If you look for the parentage of the 
idea of the current account deficit, you will find it in work 
that was done in the late 1930s and early 1940s by an economist 
named Simon Kuznets and his associates, which was the creation 
of the whole set of ideas of national income accounts and gross 
domestic product and the national product and current account 
deficits and national income accounts, the subsets of the 
national income accounts.
    In the days when the United States was an, if I can say it 
this way, an isolated, nationalistic, kind of self-contained 
economy, I think these ideas or ways of keeping score were 
appropriate. But I would submit to you, in the world that we 
live in now, I am not so sure that the devices and measures 
that we use to think about these things are any longer 
appropriate, and let me deconstruct the current account deficit 
idea in this way.
    If you took those same set of ideas and applied them on an 
internal basis to the United States and looked at where the 
current account deficits are among and between the 50 States, 
you would be horrified to find that there are enormous current 
account deficits between and among the 50 States and we do not 
worry about that.
    Now, there is an article which you may have seen 2 weeks or 
so ago by Bob Solow, the noted Nobel economist, and Franco 
Modigliani, another noted Nobel economist, raising concern 
about the current account deficit and about the implication of 
the proposed tax changes and fiscal policy on the current 
account deficit. Since Bob is an old friend of mine, I called 
him up and said, Bob, I care a lot about what you think and I 
am calling to find out if this is political economics that you 
wrote in the New York Times or if you really think I should be 
more concerned than I am about the current account deficit. And 
at the end of the day, he chuckled a little bit and said, 
``Well, maybe a little bit more concerned than you are.''
    But there is a school of thought out there that thinks we 
do not pay enough attention to the current account deficit. I 
think we are paying an appropriate amount. But I would say if 
we need an emphasis, we need an emphasis on sustained real 
growth of economic activity in this country at the 3 or maybe 
even 4 percent real level and we need productivity improvement 
at the 3 or 4 percent level on an ongoing, sustained basis, 
which I think we can do.
    And then the current account deficit will sort itself out, 
and frankly, maybe we can get our friends like Bob Solow and 
Franco Modigliani and the other noted economists in the country 
to reinvent the way we keep score and think about these things 
in a way that is consistent with economic ownership and 
movement of assets around the world, and then I think maybe we 
would not be quite as fearful as some are about this issue.
    Senator Dorgan. I will tax the chairman's patience if I go 
further. Let me just say that I have studied and taught 
economics, but I certainly have not won a Nobel prize. I, 
however, think that we are headed towards very serious trouble. 
I think our trade policies are disastrous, just disastrous, and 
I think the growing, mushrooming trade deficit will come to 
haunt this country unless we decide to do something about it.
    You and I need to have longer discussions. I want to talk 
to you about Canada, Mexico, Japan, China, and the European 
Union, and it will take a lot longer time than this to do it.
    Let me make one final comment. I recognize this budget is 
really not yours. You have not in just several months been able 
to put all of your fingerprints on what you want your agency to 
be, and I recognize that and I look forward to working with 
you. We want the same thing for our country. We want this 
country to do well and succeed. I want your agencies to do well 
and succeed and I look forward to working with you.
    Secretary O'Neill. Thank you very much.
    Senator Campbell. Senator, you are closer to getting a 
Nobel prize in economics than I am. I majored in P.E.

                            Energy Problems

    But let me also make a comment. This is off the subject a 
little bit, but we are talking about the deficit, and I agree 
with Senator Dorgan. I think we are heading for some deep 
trouble because it keeps going up. But I also note with great 
interest some of the numbers we are getting in the Energy 
Committee, that we are spending $300 million a day on foreign 
oil and that one-third of our deficit is related to oil 
imports. I will tell you, unless we get more energy 
independent, I do not know how you turn that deficit around. 
You simply cannot use more and more energy, as California is, 
and not have more production of energy. I mean, it is bound to 
collapse. Sooner or later, it is going to collapse.
    We were down in the production of oil last year by 14 
percent and our use went up by 17 percent. That simply is not 
sustainable. It is not sustainable. And so what happens is we 
get more and more dependent on foreign oil, which tends to 
drive that trade deficit worse and worse every year.
    I do not know how to turn that around. There has to be 
somebody smarter than me, and perhaps smarter than you, and 
certainly it is not in your purview to fix the whole thing, 
either, but clearly, productivity is related to energy and if 
we do not find some way to increase the energy, we are not 
going to increase productivity.
    I mean, you see blackouts and brownouts in California. We 
have energy-related companies, they just simply have to shut 
them down. They cannot operate them. They say that the computer 
industry alone is in deep trouble in California because of 
that. We have been able to buoy that up a little bit because 
they have been able to purchase, with emergency appropriations 
through the legislature, they have been able to purchase some 
power from the rest of the States that are in the same grid, 
including Colorado and Washington, Oregon, and so on, but that 
will not last forever, either. The day will come when they 
simply have to produce more energy and not just simply be 
reliant more and more on foreign energy if we want to turn that 
deficit around.
    Mr. Secretary, we thank you very much for appearing.
    Secretary O'Neill. Thank you.

                     Additional Committee Questions

    Senator Campbell. We will be looking forward to working 
with you. I might say that we will submit some questions. Other 
members have some and I have some. If you could promptly answer 
them, we would appreciate it.
    [The following questions were not asked at the hearing, but 
were submitted to the Department for response subsequent to the 
hearing:]

         Questions Submitted by Senator Ben Nighthorse Campbell

                               YEAR 2000
    Question. You were recently quoted as saying that this 
Administration will focus on changes to the Social Security System as 
soon as tax relief is enacted. I am also told that you indicated the 
Administration will push for voluntary personal accounts. Would you 
care to expand upon that proposal?
    Answer. I share President Bush's goal of making Social Security 
stronger and more secure for this generation and for future 
generations. We must take action now to enhance personal retirement 
security by putting Social Security on a firm financial footing so we 
can keep our commitment to current seniors and also meet the needs of 
our children and grandchildren. Ownership, access to wealth and 
independence should not be the privilege of the few. They are the hope 
of every American, and we must make them the foundation of Social 
Security. Modernizing Social Security with voluntary personal 
retirement accounts will enable individuals to build financial wealth 
and retirement security in a way that the current Social Security 
system does not. Personal accounts invested in safe private financial 
markets will earn higher rates of return than the traditional system 
and help workers enhance their personal savings and their freedom to 
retire. Individual ownership of a real financial asset will protect 
against political risk over retirement investment decisions, providing 
more security for working Americans. Since at least 1926, the real 
return on a portfolio of equities held for 40 years has always exceeded 
the real return on a portfolio of government bonds held for 40 years. 
It's time to put the miracle of compound interest to work for all 
Americans.

                  TREASURY SECURE DATA NETWORK (TSDN)
    Question. Every establishment today is looking for a technology-
driven process to transfer information through a secure data network. 
You have requested $3 million to enhance security of critical 
information systems. Will these funds be used for equipment?
    Answer. The $3 million provides the recurring costs under the SEAT 
management contract for operating and maintaining the system for 400 
users at a cost of $7,500 per user including the desktop equipment and 
much of the standard network components.
    Question. Will this upgrade be done in-house or will it be out-
sourced?
    Answer. The management, design and security functions will be 
supported in-house. The majority of the standard equipment will be 
installed and maintained by contractors.
    Question. What are the out-year costs to maintain this system?
    Answer. The out-year costs are $3 million each year to support 400 
users. Under the SEAT management contract, the costs of operating and 
maintaining the system is approximately $7,500 per year per user 
including the desktop equipment and much of the standard network 
components. The SEAT operations and maintenance cost also pays for 
ongoing system maintenance, training, software upgrades, security, etc.

                   OUTSOURCING INFORMATION TECHNOLOGY
    Question. The cost for outsourcing information technology (IT) 
services has continued to soar over the years. Do you expect that this 
reliance on outsourcing will continue?
    Answer. Outsourcing is an effective and necessary response to 
address the relatively rapid growth and evolution of IT. Acquiring and 
retaining skilled information technology workers in the current labor 
market is a challenge that extends across all sectors of the economy. 
The shortage of skilled IT workers will likely increase, particularly 
with strong global and national economies and the relatively low 
unemployment rate. All of these challenges contribute to both the 
reliance and cost of outsourcing IT services.
    To meet these challenges, the Department recognizes that workforce-
planning issues, particularly for IT, must be addressed. For example, 
the Department's CIO organization has undertaken initiatives to build a 
compelling retention program for its existing IT labor force. Some of 
these initiatives include a commitment to professional development 
through the CIO's Executive Potential Program, training opportunities, 
flexible work schedules, and telecommuting. The CIO organization has 
also conducted focus group interviews with IT staff members to identify 
factors that motivate retention. Additionally, through the CIO's 
Information Technology Workforce Improvement Program (ITWIP), the 
Department continually strives to develop comprehensive strategies for 
the recruitment, retention and development of Treasury's IT workforce.
    Question. Is it more cost effective to out-source rather than hire 
qualified ``IT'' staff?
    Answer. Outsourcing is expanding in both private and public sectors 
and is recognized as a necessity to keep pace with the constantly 
evolving IT environment. In many cases, outsourcing is beneficial in 
augmenting experienced in-house IT staff who have extensive knowledge 
of the organization and its processes. Outsourcing provides the 
Department with IT professionals and fosters a collaborative work 
environment with existing staff. The monetary benefits of outsourcing 
typically include reduced workload in the areas of human resources 
since the contractor hires, trains, and provides benefits for the 
employee. However, outsourcing should not be viewed as an alternative 
to hiring qualified IT staff but instead viewed as a necessary tool in 
providing access to a variety of technical candidates to address 
project workflow demands or procure specific technical skills.
    I noted that the request for the Bureau of Alcohol, Tobacco and 
Firearms contains sufficient funding to continue the operations of the 
50 Youth Crime Gun Interdiction Initiative cities. As you are aware, 
there have been concerns expressed about the management of these 
programs. Because they will not be working to expand into additional 
locations, ATF and the Department should have time to really 
concentrate on making the existing programs as effective as possible.
    Question. What steps is the Department taking to make sure that 
this $85 million effort is managed effectively?
    Answer: The Youth Crime Gun Interdiction Initiative (YCGII) is a 
focused component of ATF's firearms enforcement effort. In 1996, ATF 
created YCGII to develop better information about how youthful 
offenders obtain firearms and to use that information to arrest illegal 
gun traffickers and reduce youth gun violence. The initiative, which 
consists of partnerships with State and local law enforcement agencies 
in 50 metropolitan areas, involves the tracing of every crime gun 
recovered in those localities.
    To ensure effective investment of the program dollars associated 
with YCGII, we will continue the innovative use of technology to 
utilize the information cornerstone of crime gun data and to advance a 
collaborative enforcement effort. ATF will expand our collection of 
crime gun data gathered from YCGII cities. ATF will share these crime 
gun data with State and local law enforcement partners to assist them 
in their fight against firearms-related crime. ATF will use the crime 
gun information to focus investigative and enforcement activity on 
trafficking channels identified through analysis of the data obtained 
from YCGII cities. ATF will focus annual regulatory inspections of 
Federal firearms licensees tailored to subvert illegal channels of 
firearms trade.
    Finally, ATF will monitor and evaluate the results of firearms 
trafficking investigations to determine the magnitude of our impact on 
firearms-related violence. Such monitoring will be accomplished with 
assistance from the academic community. With several years of data 
collection now under our belts for many cities, and our increasing 
quality of information collected, we feel that trends and changes in 
these fields can be an indicator of our impact in this unique area of 
law enforcement. These include, but will not be limited to:
  --Reduction in the ``time to crime'' of firearms possessed by these 
        violators, as this can tell us if we are forcing the illegal 
        market buyers further away from legal commerce.
  --Reduction in the average number of guns trafficked per 
        investigation, as this is indicative of ATF's ability to 
        interdict trafficking schemes early on in their development, 
        mainly through our advances in information technology.
  --Reduction in the percentage of persons under the age of 24 
        illegally possessing guns of the total persons illegally 
        possessing guns in a YCGII city.
          funding for customs automated commercial environment
    Question. The previous Administration consistently proposed funding 
for the Customs automation modernization project by establishing a user 
fee. That proposal was consistently rejected by Congress. This budget 
instead proposes direct appropriations for this effort. Thank you.
    Is a second installment of $130 million enough to keep this project 
moving forward?
    Answer. With the fiscal year 2002 President's Budget of $130 
million, the project will move forward. Customs will be able to finish 
increment one. Because the $130 million requested is less than planned, 
the modernization initiative cost will increase and the schedule will 
be extended. The cost increases are caused by several sources:
  --Increased development costs for prolonged software development 
        activities resulting from software integration, testing, 
        configuration management, and revisions to address operating 
        system changes.
  --Hardware and software license and maintenance costs are covered as 
        development costs until development is complete. Delaying 
        development increases these costs.
  --Inflation costs.
  --Extended operation of Modernization office.
  --Extended operation of Prime integration contractor's management 
        office.
                                 ______
                                 

               Questions Submitted by Senator Mike DeWine

                CONTINUED DUMPING AND SUBSIDY OFFSET ACT
    Question. Promulgation of the implementing regulations is a major 
concern for those seeking the speedy and full implementation of the 
Continued Dumping and Subsidy Offset Act.
    Can the Secretary identify whether the proposed regulations have 
been forward from Customs to Treasury?
    Answer. The draft Notice of Proposed Rulemaking (NPRM) just arrived 
at the Treasury and we are expediting internal review.
    Question. If yes, when such forwarding occurred and if not, when 
the draft will be forwarded?
    Answer. The forwarding of the draft proposed regulations from 
Customs to Treasury occurred on May 21, 2001.
    Question. What steps Customs taking to expedite forwarding to 
Treasury?
    Answer. Not applicable.
    Question. Which offices within Treasury will be reviewing the draft 
regulations?
    Answer. The draft regulations will be reviewed within Treasury at 
least by the Offices of General Counsel and Enforcement at Treasury. 
The Office of Enforcement will be responsible for coordination of the 
review of the regulations by other offices within Treasury. Customs 
review was coordinated by the Chief Counsel.
    Question. What steps have been taken to see that the review and 
clearance of the draft regulations for publication receives priority 
attention?
    Answer. The Offices of General Counsel and Enforcement are aware of 
the importance of promptly implementing this legislation.
    Question. Can the Secretary confirm that the regulations will be 
published for comment by July 6, 2001? If this cannot be confirmed, the 
Secretary is asked to establish a Treasury taskforce to expedite 
completion of the proposed regulations as quickly as possible and to 
provide a monthly report to this Subcommittee, and to be available for 
monthly meetings to identify problems with completing the process in a 
timely manner.
    Answer. Treasury will expeditiously review the regulations. If 
problems are found which could delay publication, the Subcommittee will 
be advised.
    Question. How long will the public be provided to comment on the 
proposed regulations?
    Answer. At least 30 days.
    Question. What is the target date for publishing the final 
regulations?
    Answer. The target date for publishing the final regulations is 
September 1, 2001.
    Question. If it is later than August 31, 2001, can the Secretary 
indicate how Customs will be able to comply with the statutory mandate 
of distributing all funds by a date ``not later than 60 days after the 
first day of a fiscal year from duties assessed during the preceding 
fiscal year''--i.e., not later than November 30, 2001?
    Answer. We believe that Customs will comply with all the statutory 
requirements of the bill.
    Question. What steps if any has Treasury or Customs taken to see 
that between the U.S. International Trade Commission and Customs, 
domestic producers are able to get clarification of what companies 
qualify and do not qualify as ``affected domestic producers'' ahead of 
the Commissioner of Customs publishing in the Federal Register the 
``list'' referenced in 754(d)(2) of the Tariff Act of 1930, as amended.
    Answer. We have been in regular contact with the International 
Trade Commission (ITC) regarding their list of domestic producers. We 
have posted their original list on the Customs web site and will 
publish future additions to or clarifications of the list by the ITC on 
the web site.
    Question. If the answer is none, will Treasury include within its 
regulations prepublication process to permit clarification of the list 
where parties believe statutory criteria are not satisfied?
    Answer. Under the legislation, we believe it the ITC's 
responsibility to compile the list and transmit it to Customs.
    Question. If not, what steps are envisioned to permit an early 
resolution of this type of this issue?
    Answer. I am sure that, if necessary, we would alert the 
International Trade Commission or the Department of Commerce, as 
appropriate. The decision would be that of the other agencies, not 
Customs, which normally has no responsibility for antidumping or 
countervailing duty substantive matters. Customs performs a ministerial 
act by providing information to the responsible agencies, obtaining 
security, requiring deposits and collecting the AD/CVD duties that are 
assessed. As written, the Continued Dumping and Subsidy Offset Act 
(CDO) envisions that ``affected domestic producers'' with ``qualifying 
expenditures'' will submit evidence of such expenditures and that 
Customs will make ``pro rata'' distributions based on ``new and 
remaining qualifying expenditures.'' Since it is anticipated that 
generally there will be much larger qualifying expenditures than there 
are monies assessed, the term ``pro rata'' was included to provide 
guidance on how Customs would distribute amongst competing requests.
    As written, the CDO Act envisions that ``affected domestic 
producers'' with ``qualifying expenditures'' will submit evidence of 
such expenditures and that Customs will make ``pro rata'' distributions 
based on ``new and remaining qualifying expenditures. Since it is 
anticipated that generally there will be much larger qualifying 
expenditures that there are moneys assessed, the term ``pro rata'' was 
included to provide guidance on how Customs would distribute amongst 
competing requests.
    Question. Can the Secretary confirm that the proposed regulations 
will identify how Customs would intend for this language to work both 
with regard to situations where there are more qualifying expenditures 
than monies assessed and in the converse situation?
    Answer. The Notice of Proposed Rulemaking (NPRM) will address these 
issues.
    Question. Will the Secretary provide this Subcommittee with a 
letter by the end of May outlining how the Treasury sees challenges to 
decisions of the Customs Service being handled (e.g., statutory basis, 
court of jurisdiction, etc.)? Can the Secretary confirm that Treasury 
and Customs will take steps to minimize the need for litigation in the 
regulatory drafting process? If not, why not?
    Answer. Customs advises it has taken appropriate steps in an effort 
to minimize the need for litigation in the drafting of the Notice of 
Proposed Rulemaking (NPRM). It would be inappropriate for Treasury to 
comment on the question of court jurisdiction, as this is an issue for 
the Department of Justice, Civil Division. As issues surface, or are 
raised by public comment, we anticipate discussing them in a timely 
manner with the appropriate Congressional committees.
                                 ______
                                 

             Questions Submitted by Senator Byron L. Dorgan

               NEW CURRENCY GUARDS AGAINST COUNTERFEITING
    Question. The time line currently laid out for redoing the U.S. 
currency sets 2003 for the new rollout. Do you think that this time 
line and the suggested changes will keep us ahead of the game of 
counterfeiters or are there additional resources that need to be 
devoted to this effort?
    Answer. The time line currently in place and changes being 
evaluated for the next generation (NexGen) of currency should keep us 
ahead of the counterfeiters. The goal of staying ahead of the 
technological threat requires the U.S. government to plan ahead and 
have a new series in development several years before the threat is 
projected to materialize. Accordingly, research and development in this 
area is an ongoing process. Planning and development work for the next 
generation of notes began long before all denominations of the 1996 
redesigned series were introduced to the public. Treasury continues to 
devote the necessary resources needed in developing the technological 
expertise necessary to ensure the security and integrity of our 
Nation's money supply. Treasury coordinates counterfeit deterrence 
strategy with the Federal Reserve through the Advanced Counterfeit 
Deterrence Steering Committee (ACD) that includes representatives from 
the Bureau of Engraving and Printing and the United States Secret 
Service. We are also involved in a 24 country international effort to 
implement a system, which would deter counterfeiting using personal 
computers. In addition, the Bureau of Engraving and Printing 
established the Securities Technology Institute (STI), which has 
engaged the Johns Hopkins Applied Physics Laboratory to conduct long-
range research and development of new and effective counterfeit 
deterrent techniques.

                             IDENTITY THEFT
    Question. Identify theft is an enormous concern to the average 
person and most people aren't aware just how easy it is to accomplish. 
Given the expertise of the Secret Service in this area, where do you 
think our State and local law enforcement agencies are on countering 
these crimes?
    Answer. Numerous metropolitan police departments are taking a 
proactive approach to the problem of identity theft. One example is the 
Los Angeles County Sheriff's Department, which initiated a multi-agency 
identity theft task force to combat identity theft in the Los Angeles 
metropolitan area. Additionally, the Los Angeles County Sheriff's 
Department was exclusively responsible for designing, producing and 
distributing a pocket guide on identity theft to all of its deputies. 
This guide ensures that deputies deal appropriately and uniformly with 
victims, and provide them with information on resources they will need 
in their efforts to restore their credit history, and rectify any 
damage done to their existing accounts.
    However, not all police departments and sheriff's offices are this 
aggressive concerning these types of crimes. Many do not have 
sufficient resources to thoroughly investigate identity theft crimes, 
and jurisdictional issues often hamper the efforts of those that do. In 
order for law enforcement to properly combat identity theft, steps must 
be taken to ensure that local, State and Federal agencies are 
addressing victim concerns in a consistent manner. All levels of law 
enforcement need to be familiar with the resources available to combat 
identity theft and to assist victims in rectifying damage done to their 
credit. It is essential that law enforcement recognize that identity 
theft must be combated on all fronts, from the officer who receives a 
victim's complaint, to the detective or special agent investigating an 
organized identity theft ring. The Secret Service has already 
undertaken a number of initiatives aimed at increasing awareness and 
providing the training necessary to address these issues, but other 
similar steps could be taken to try to reach a still larger audience.
    Question. What resources are being devoted to training and 
providing support to them?
    Answer. The Secret Service has tried to increase awareness and 
provide training on the relevant issues to state and local law 
enforcement agencies through a variety of partnerships and initiatives:
    Criminals increasingly employ technology as a means of 
communication, a tool for theft and extortion, and a repository for 
incriminating information. As a result, the investigation of all types 
of criminal activity, including identity theft, now routinely involve 
the seizure and analysis of electronic evidence. In response to this 
trend, the Secret Service developed, in conjunction with the 
International Association of Chiefs of Police (IACP), the ``Best 
Practices for Seizing Electronic Evidence Manual'', to assist law 
enforcement officers in recognizing, protecting, seizing and searching 
electronic devices in accordance with applicable statutes and policies.
    As a follow-up to the ``Best Practices'' guide, the Secret Service 
and the IACP developed ``Forward Edge'', a computer-based training 
application (CBT) designed to allow officers to seize in a virtual 
environment different types of evidence, including electronic evidence, 
at various crime scenes.
    In December of 2000, the Secret Service coordinated an Identity 
Theft Workshop in Washington, DC. This workshop was designed for the 
criminal investigator and was attended by investigators from agencies 
throughout the nation. The workshop provided investigators with a 
detailed explanation of how identity theft can occur, as well as an 
explanation of what tools are available to investigators.
    In May of 2001, the Secret Service made an identity theft 
presentation to the International Chiefs of Police, Advisory Committee 
for Police Investigation Operations. During this presentation, the 
Secret Service proposed the production of an identity theft video 
geared toward police officers throughout the nation. The purpose of 
this video will be to emphasize the need for police to document a 
citizen's complaint of identity theft, regardless of the location of 
the suspects (if any). In addition, the video and its companion 
reference card will provide officers with phone numbers that will 
assist victims with remediation efforts. The Advisory Committee is 
supportive of this effort, and is considering providing funding for it, 
and pursuing it jointly with the Secret Service, as was done with the 
``Best Practices'' initiative.
    Also in May of 2001, the Secret Service detailed a Special Agent to 
the Federal Trade Commission (FTC) to assist them in funneling 
information developed through their database of victim complaints to 
the appropriate law enforcement entities. This agent is also involved 
in supporting ongoing FTC initiatives aimed at educating state and 
local law enforcement agencies concerning identity theft issues.
    The Secret Service is also actively involved with a number of 
government-sponsored initiatives. At the request of the Attorney 
General, the Secret Service joined an inter-agency identity theft 
subcommittee that was established by the Department of Justice. This 
group which is made up of Federal, State, and local law enforcement 
agencies, regulatory agencies, and professional agencies meets 
regularly to discuss and coordinate strategies for investigation and 
prosecution, as well as consumer education programs.
    Question. What additional Federal resources may be needed to move 
these agencies along with the ever increasing technology available for 
these types of crimes?
    Answer. It is the responsibility of government regulators, law 
enforcement agencies, financial institutions, and other private sector 
entities to work together to identify, investigate, and prosecute those 
individuals responsible for perpetrating identity theft schemes. It is 
the belief of the Secret Service that the successful investigation of 
identity theft and identity fraud, including the compromise of 
consumers' identities through electronic means, can best be 
accomplished through a task force approach. Accordingly, the Secret 
Service would like to implement five Financial Crimes Task Forces, and 
five Electronic Crimes Cooperatives, in major cities to decrease the 
incidence of identity theft and other financial and electronic crimes. 
Through the strategic placement of these specialized task forces, the 
Secret Service, working in conjunction with other Federal, State and 
local law enforcement entities, would decrease the incidence of 
identity theft and other financial and electronic crimes in the 
targeted cities through the arrest and prosecution of individuals and 
organized criminal enterprises involved in the commission of financial 
crimes.
    Question. What can we do to further educate American citizens to 
protect themselves against these crimes?
    Answer. The Identity Theft and Assumption Deterrence Act 
established the Federal Trade Commission (FTC) as the central point of 
contact for identity theft victims to report all instances of identity 
theft. The FTC has done an excellent job of providing people with the 
information and assistance they need in order to take the steps 
necessary to correct their credit records, as well as undertaking a 
variety of ``consumer awareness'' initiatives regarding identity theft. 
As mentioned previously, the Secret Service has detailed a special 
agent to the FTC on a permanent basis to support their public education 
and liaison initiatives.
    The Secret Service also continues to be involved in a variety of 
public education efforts:
  --The Secret Service, in conjunction with the U.S. Postal Inspection 
        Service, and the Federal Reserve Bank System, produced an 
        identity theft awareness video. The video, which explains how 
        easily one can become a victim and what steps should be taken 
        to minimize damage, has been made available to Secret Service 
        offices for use in public education efforts.
    In April of 2001, the Secret Service designed an identity theft 
brochure, containing information to assist victims on how to restore 
their ``good name'', as well as how to prevent becoming a victim. Upon 
its completion, the brochure will be shipped to Secret Service offices 
for distribution in public education efforts.
    However, it is important to recognize that public education efforts 
can only go so far in combating the problem of identity theft. Because 
Social Security numbers, in conjunction with other personal 
identifiers, are used for such a wide variety of record keeping and 
credit-related applications, even a consumer who takes appropriate 
precautions to safeguard such information is not immune from becoming a 
victim.

                              TAX REBATES
    Question. The Senate-passed budget resolution assumes a tax rebate. 
The Financial Management Service will be responsible for processing the 
estimated 130 million individual check payments and would cost FMS an 
additional $49 million which is not included in the fiscal year 2002 
budget. How is the department planning on absorbing these costs if and 
when a tax rebate package is passed?
    Answer. The Financial Management Service would be unable to absorb 
within the fiscal year 2002 President's Budget the costs of a tax 
rebate program. The $49 million estimate is composed primarily of 
postage costs related to the mailing of the estimated 130 million 
refund checks. If the tax rebate is enacted into law, the Department 
would seek a supplemental to cover the costs associated with 
implementing the program.

                OFFICE OF FOREIGN ASSETS CONTROL (OFAC)
    Question. The Office of Foreign Assets Control is under your 
management. While the office provides a valuable program to protect 
U.S. security interests, it has a problematic customer service record. 
Are there any plans under consideration to streamline and clarify the 
process for U.S. exporters looking for clearance from OFAC?
    Answer. Treasury's OFAC is acutely conscious of the legitimate 
expectations of U.S. exporters for an expeditious and simple process to 
obtain export licenses. In most instances, exports are authorized by 
specific licenses, and are subject to an interagency review process of 
which OFAC is only one of the agencies, and it is a process which OFAC 
is without an option to follow.
    OFAC has received over 20,000 applications for specific licenses 
over the past year and responded to over 18,500 applications. This is 
handled by a licensing staff of 18 individuals. In addition, OFAC's 
licensing staff has responded to approximately 44,000 telephone 
inquiries in a year's time. We are looking for more resources so we 
have what is needed to meet our goal of 2-week response time for most 
applications.
    OFAC administers some twenty-one separate sanctions programs. Many 
have been added in the past few years, dramatically increasing the 
Office's workload and the demand for information and services from 
OFAC. For its own part, OFAC has done much to streamline its procedures 
and to become a part of the solution, rather than an impediment, to the 
legitimate needs of the exporting community.
    Improved customer service is an OFAC program goal and we have 
undertaken measures or identified several areas addressing this issue. 
These include:
  --A commitment to process licenses within two weeks absent the need 
        for interagency consultation
  --Hiring additional personnel to respond to phone inquiries to 
        increase the timeliness and quality of information provided to 
        the public
  --Promoting transparency of agency action by publishing interpretive 
        rulings on OFAC's website
  --Issuing implementing regulations within sixty days of the issuance 
        of an Executive order or enactment of legislation with an 
        opportunity for public comment
  --Promulgating regulations to reflect internal policies regarding 
        civil penalties
  --Adding a section of frequently asked questions (FAQ's) to the 
        website.

                      ATF STAFF HIRING SUSTAINMENT
    Question. The fiscal year 2001 appropriations bill provided for the 
hiring of 300 ATF special agents and 200 inspectors to enforce existing 
firearms laws. Does the fiscal year 2002 request provide the resources 
necessary to sustain this increase in personnel, or will erosion occur, 
making it difficult for ATF to meet the enforcement expectation set by 
Congress? The Secret Service and Customs Service face the same issue.
    Answer. The fiscal year 2002 request allows ATF to sustain the 
increase in personnel as provided for in the fiscal year 2001 
appropriations bill.

                         U.S. CUSTOMS STAFFING
    Question. We understand from the hearing held yesterday by this 
subcommittee's counterpart, that Customs originally requested 1,000 new 
agents and inspectors to better manage their dual responsibility of 
protecting our nation's borders from transnational crime, while at the 
same time facilitating trade and trade compliance. However, this 
increase was denied. Concurrently, however the Administration chose to 
request funds for the Department of Justice bureaus, (specifically the 
Border Patrol and INS) to hire 1,140 additional agents over the next 
two years, so as to bring them to the authorized level of 5,000 new 
agents. If indeed there is a critical need for staffing in the Customs 
Service--and I believe there is--why was their request denied while 
others granted?
    Answer. Under the current Administration, there was no fiscal year 
2002 budget request process from bureau to Department, or from 
Department to OMB. The current Administration has not validated the 
previous Administration's estimate.

                          PROGRAM ABSORPTIONS
    Question. During the budget briefings provided by your agencies in 
the two weeks since the budget request was released, we received 
information that they will have to find significant savings via 
programmatic absorptions (reductions). These absorptions would offset 
projected inflation for non-pay expenditures, as well as a variety of 
other mandated costs increases. For instance, Customs must find 
approximately $35 million in savings and the Secret Service 
approximately $14 million. The agencies suggested that they will 
realize these absorptions through improved resource management and 
exploration of potential efficiencies.
    What if the required absorptions cannot be realized through these 
methods?
    Answer. These management efficiencies will not compromise the 
security of the United States.
    Question. Can you guarantee that the critical missions performed by 
these agencies for the country's security will not be denigrated?
    Answer. These management efficiencies will not compromise the 
security of the United States.

                  BORDER PORTS OF ENTRY INFRASTRUCTURE
    Question. Customs, GSA, and INS severally own 192 Ports of Entry 
(POEs) on the Northern and Southern Borders. A recent joint 
infrastructure study identified 822 projects with an estimated gross 
cost of $784 million. The budget request for design or construction is 
only $11 million for six projects. While this is not directly a 
Treasury Department funding issue, there is a growing backlog that 
needs to be addressed. We were only able to provide funds for two 
border projects in fiscal year 2001. Although NAFTA has enabled trade 
to grow by 75 percent between the U.S., Canada, and Mexico, the 
capacities and capabilities of our Nation's POEs have not kept pace.
    How can we call for more trade agreements and Fast Track when our 
infrastructure can't support it?
    Answer. The joint study was a preliminary one in determining the 
border's infrastructure needs. Therefore, as noted in the study, GSA is 
performing a more detailed analysis of the situation based upon the 
preliminary information found in the study. This follow-up information 
then will be presented to the Border Station Partnership Council (BSPC) 
for review. The Council is comprised of FIS Agencies. The BSPC will 
make recommendations to the Administration and based upon these 
recommendations the Administration will determine the best course of 
action. Until the BSPC recommendations are complete, the GSA is 
proceeding with its priority list of Border Station projects. There is 
currently $17.3 million for six border stations requested in the fiscal 
year 2002 President's Budget.

            U.S. CUSTOMS AIR AND MARINE INTERDICTION (AMID)
    Question. Customs AMID has continually expressed a need for 
equipment, training and infrastructure to meet the growing narcotics 
threat and mission requirement at U.S. borders and at sea. Recent 
budget allocations have been insufficient to do all but maintain the 
existing, inadequate and aging fleet of aircraft and vessels. Based on 
a recent report provided to the Appropriations Committees, Customs has 
identified requirements totaling $187 million in fiscal year 2002 alone 
to upgrade their fleets. Yet the budget only seeks $35 million for 
counterdrug efforts in Latin America--which only scratches the surface 
of the growing needs. Similarly, there appears to be an effort by the 
Air Force to transfer to Customs operation of the aerostats (anti-drug 
radar balloons) along the Southern border, which currently track 
potential drug-smuggling aircraft. This fits the Customs counter-drug 
mission, but there is no guarantee the resources would transfer with 
the mission from DOD.
    If we are serious about interdicting drugs, we need adequate 
resources to do so. Why were not more funds requested for these 
interdiction activities?
    Answer. Customs planning is guided by the AMID Modernization Plan. 
The $35 million Western Hemisphere initiative starts Customs down the 
path to fund its most critical and highest priority needs as detailed 
in the AMID Modernization Plan: safety, maintenance enhancements, a new 
maritime patrol aircraft (MPA), vessel replacements and communications. 
Options for transfer of the aerostat program, which originally surfaced 
as an issue during the final months of the previous Administration, is 
under thorough review for consistency with the current Administration's 
drug control policy direction.

                          Subcommittee Recess

    Senator Campbell. This subcommittee hearing is recessed.
    [Whereupon, at 11:19 a.m., Thursday, April 26, the 
subcommittee was recessed, to reconvene subject to the call of 
the Chair.]


  TREASURY AND GENERAL GOVERNMENT APPROPRIATIONS FOR FISCAL YEAR 2002

                              ----------                              


                         THURSDAY, MAY 3, 2001

                                       U.S. Senate,
           Subcommittee of the Committee on Appropriations,
                                                    Washington, DC.
    The subcommittee met at 9:30 a.m., in room SR-485, Russell 
Senate Office Building, Hon. Ben Nighthorse Campbell (chairman) 
presiding.
    Present: Senators Campbell and Dorgan.

                   EXECUTIVE OFFICE OF THE PRESIDENT

                 Office of National Drug Control Policy

STATEMENT OF EDWARD H. JURITH, ACTING DIRECTOR
    Senator Campbell. The Subcommittee on Treasury and General 
Government will be in session. Good morning.
    This is the second of a series of budget hearings before 
the Subcommittee on Treasury and General Government. The Office 
of the National Drug Control Policy, called the ONDCP, advises 
the President on the national drug enforcement strategy. 
However, the purpose of this hearing is to discuss the fiscal 
year 2002 request for the ONDCP. This includes the Counter-drug 
Technology Assessment Center, called the CTAC, the High 
Intensity Drug Trafficking Areas, called HIDTA, the anti-drug 
media campaign and grants authorized by the Drug Free 
Communities Act.
    This morning we welcome Edward H. Jurith, the acting 
director, of the ONDCP. The national youth anti-drug media 
campaign initiative was described in 1997 as a 5-year project 
to reduce drug use by the young people of our country. Congress 
has provided a total of $750 million for this effort so far, 
and another $185 million is being requested for the fiscal year 
2002. That is getting pretty close to $1 billion, and I am 
looking forward to learning whether this ad campaign has had an 
effect on the use of drugs by America's youth.
    I am particularly impressed by the technology transfer 
program administered by CTAC. I might tell you, Mr. Jurith, 
that I have gone to several of the forums where these wonderful 
Buck Rogers apparatus has been shown to local law enforcement 
agencies, and they are thrilled with the opportunity to be able 
to access some of those materials.
    Hopefully we will learn more about plans for the increased 
funding that has been requested. And finally we will talk about 
the HIDTA program and how additional funding provided last year 
has been allocated. Along that line, I constantly talk to local 
law enforcement officials, county sheriffs, State police and so 
on, who believe the HIDTA is a very good program. It is in fact 
helping them do some of their coordinating.
    It should be an interesting morning and I look forward to 
your testimony.
    Senator Dorgan, did you have an opening statement?
    Senator Dorgan. Mr. Chairman, I will put the opening 
statement in the record. But I do want to say that I agree with 
you, as we prepare to spend additional money on the national 
media campaign I think it is critically important to understand 
the effectiveness of that campaign. What are we doing with it, 
is this money well spent, and exactly how do we evaluate the 
effectiveness? I think those are some questions that we ought 
to deal with.
    I have two other hearings, one is a markup going on 
concurrently, so I am going to be in and out of this 
discussion. But there are a lot of important issues. I know 
this is not the area where we do primary work on drug 
treatment, but one of my major concerns for a long while has 
been that we spend a great deal on the issue of interdiction, 
and now we are doing some work on education. We need to be as 
committed to providing drug treatment opportunities for those 
that want to shed themselves of their drug addiction. We have 
not been nearly as attentive to that as we should be. So I want 
to talk a little about that today as well.
    There are a number of issues that I think we should 
evaluate with respect to how we spend money in ONDCP, and I 
want to raise some questions about that. President Bush has 
requested a new initiative, parents for a drug-free future, and 
they have requested $5 million for that program. But we have 
been able to get very little information about how that money 
would be spent. While it sounds like a good idea, I am not 
interested in just having an idea without a framework of 
understanding how this money would be committed, and giving me 
the opportunity to evaluate whether I think it is worthy given 
the other needs that we have.

                           PREPARED STATEMENT

    So Mr. Chairman, thank you, and I look forward to hearing 
from Mr. Jurith.
    [The statement follows:]

             Prepared Statement of Senator Bryon L. Dorgan

    Thank you Mr. Chairman. Mr. Jurith, thank you for taking the time 
to testify before the subcommittee and for your valuable service with 
the Office of National Drug Control Policy. I look forward to 
continuing our working relationship and creating one with the Director 
once he is appointed. You have an enormous responsibility in overseeing 
our entire drug control policy and I want to work with you to ensure 
that we are targeting and affecting the appropriate people.
    First I would like to mention the issue of drug treatment. I have 
been focused on this for quite some time and it is one I believe which 
does not get the resources and attention it so desperately deserves. 
Drug treatment is a necessary and vital component of our drug control 
strategy yet in recent years, the lack of facilities and options have 
left 57 percent of people who needed treatment out in the cold.\1\ We 
need to make sure that there is a proper balance of resources for 
interdiction, prevention, and treatment when formulating the overall 
drug control policy. Since that is the direct jurisdiction of ONDCP, 
that responsibility falls on you.
---------------------------------------------------------------------------
    \1\ Provided by 1998 Data from Substance Abuse and Mental Health 
Services Administration.
---------------------------------------------------------------------------
    There will always be demand for drugs when you are not countering 
both the supply and its patrons equally and efficiently. It is clear to 
me that the United States drug policy is not adequately addressing this 
correlation. In my role as the Ranking Democrat on this subcommittee, I 
will make it a priority to see that these limited resources are 
adjusted to reflect the increasing need for treatment.
    Another area on which I plan to focus my attention and scrutiny is 
the National Media Campaign. To date, over $700 million has been spent 
on this campaign, but is it working? The only supportive data to its 
effect comes from government funded research. I have yet to see 
qualitative data that reflects the fruits of this program from an 
independent source.
    The statistics you have provided on this program detail how many 
kids have seen the advertisements and messages. But when you dig a 
little deeper, the data also shows that these advertisements are 
helping increase the anti-drug sentiment in non-drug users. I agree 
that this is a crucial group of people which needs reinforcement and 
support through their tough decisions and ongoing peer pressure, but it 
is the marginal kids that I believe are not affected by these messages. 
Are we really doing everything we can with our scarce resources to 
reach these borderline kids?
    The July 2000 GAO report entitled ``ANTI-DRUG MEDIA CAMPAIGN ONDCP 
Met Most Mandates, but Evaluations of Impact are Inconclusive'' pointed 
out a number of concerns and made recommendations to ONDCP on how to 
improve upon them. The most alarming of its findings is on the review 
of the media campaigns' effect. ``First, ONDCP stated that indications 
from the NCADI (National Clearinghouse for Alcohol and Drug 
Information) and focus groups `support that the Campaign has positive 
effects on changing you attitudes toward drug use.' As discussed in 
this chapter we found that information from NCADI and focus groups 
provided indications that the Campaign may have had some positive 
effects on anti-drug awareness. We did not find, however, that these 
sources provided indications of the Campaign having positive effects 
specifically on youth attitudes toward drug use.'' We are being asked 
to appropriate $1 billion for a media campaign that we don't know is 
having any effect in changing attitudes.
    I would also like to take a moment to focus on the chosen mediums 
for delivering these communications and how these messages are tailored 
and chosen. The purpose of this campaign is to target our youth and the 
parents; however, I don't know many kids, let alone parents, who read 
Education World, Atlantic Monthly, and literature handed out in malls. 
I know this campaign is hitting the mainstream literature like Time, 
Newsweek, and People, but you are expending limited resources on other 
sources that deserve some scrutiny.
    One final point about the media campaign concerns the designated 
drug targets. Since its inception, the targets have been mostly the 
mainstream drugs, such as marijuana. Data that you are presenting to us 
today in your testimony show that there is a notable increase in MDMA/
Ecstasy use among 8th, 10th, and 12th graders, yet your budget 
eliminates the $5 million Ecstacy initiative in the media campaign.
    My final area of interest is President Bush' new initiative--
Parents for a Drug Free Future. You request $5 million for this 
program, but you have provided my staff with little information on how 
you plan to spend the money. It appears to be an attitude of ``Give us 
the money, then we'll get back to you on how we plan to spend it.'' Now 
the idea behind this program may have merit, but I am concerned when 
the Administration is requesting funding for a program that they will 
figure out the details without Congressional directive.
    Before you get too far along in this initiative, I want to take 
this opportunity to prevail upon you to investigate the opportunities a 
program like this might have being directed at young children and their 
parents. There is an increasing number of statistics correlating time 
children spend with their parents at the dinner table with how well 
they do in school, youth violence, etc . . . This isn't the kind of 
activity parents can start when their kids are 13 and 15. I have young 
children myself and we already designate times during the week devoted 
to family activities, which is something that would be increasingly 
difficult to start when they are 15 years old. They need the guidance 
and support to know that it is never too early to talk to their kids 
about drugs and to initiate an open dialogue.
    Your job goes beyond changing drug use on the streets and attempts 
to venture into the American home. It is a daunting task to reach out 
and try to alter the behavior of our younger generations. I look 
forward to your testimony and your responses to our questions. More 
importantly, I look forward to exploring these and many other issues 
during the months and years ahead.
    Thank you Mr. Chairman.

    Senator Campbell. By the way, Mr. Jurith, how long have you 
been with the agency?
    Mr. Jurith. I have been with the agency since August of 
1993.
    Senator Campbell. So you were with the agency when we did a 
couple of oversight hearings about how the money was being 
spent on the media campaign?
    Mr. Jurith. Correct. Yes, sir.
    Senator Campbell. And you knew that we were not totally 
thrilled because we were out of the loop on some of the 
negotiated deals that were made on how that money was spent.
    Mr. Jurith. Yes, sir. That is correct.
    Senator Campbell. Thank you. Why don't you go ahead and 
proceed. And your complete written testimony will be included 
in the record if you would like to depart from that.

                     Statement of Edward H. Jurith

    Mr. Jurith. Thank you. Chairman Campbell, Ranking Member 
Dorgan, my name is Edward Jurith. I have the honor of coming 
before the subcommittee today as the acting director of the 
Office of National Drug Control Policy. My official capacity in 
the office is that of general counsel, but I am serving in an 
acting capacity pending the designation by President Bush and 
confirmation by the Senate of a director of the office.
    Prior to coming to ONDCP I served on the staff of the old 
House Select Committee on Narcotics Abuse and Control for about 
12 years, so I bring to my position as acting director about 20 
years of drug policy experience in Washington. It is indeed an 
honor to be able to head up the agency for this interim period.
    I want to thank the subcommittee for the opportunity to 
testify before you on ONDCP's fiscal year 2002 budget request. 
All of us at ONDCP greatly appreciate the bipartisan efforts of 
this subcommittee to support not only ONDCP but our overall 
national counter-drug efforts. I would also like to thank your 
subcommittee staff, Pat Raymond, Chip Walgren, Lula Edwards, 
and Nicole Rutberg for the excellent assistance they have given 
my staff in preparation for this hearing. I realize my time is 
limited so I will keep my remarks brief and directed at ONDCP's 
2002 budget request. As the Chairman indicated, I request that 
my full statement be entered into the record.

                                Overview

    In fiscal year 2002, ONDCP is requesting $519.1 million in 
budget authority, and that is an increase of $19.24 million, or 
3.8 percent over the 2001 enacted level. As the chart details, 
the budget request reflects four program accounts: Salary and 
Expenses, CTAC, the Special Forfeiture Fund, out of which the 
Media Campaign and other programs are funded, and the High 
Intensity Drug Trafficking Area program, HIDTA.

                         Salaries and Expenses

    In terms of salaries and expenses our request provides 
$25.1 million to support 116 FTEs and 30 non-reimbursable 
detailees. The S&E account also supports ONDCP conferences, the 
drug policy information clearinghouse, policy research, and 
support for the National Alliance for Model State Drug Laws. As 
you know, the Administration is preparing a budget amendment 
that will propose consolidating all S&E accounts in the 
Executive Office of the President into a single appropriation.

                        Special Forfeiture Fund

    Our Special Forfeiture Request is for $247.6 million. This 
request supports a diverse group of ongoing programs, the media 
campaign, the Drug-Free Communities program, the counter-drug 
intelligence executive secretariat, CDX, the National Drug 
Court Institute, and our support of U.S. Olympic anti-doping 
efforts.
    Furthermore, the Special Forfeiture Fund supports the 
President's request for a Parents for a Drug-Free Future 
Program to create a Parent Drug Corps. Of course, we understand 
the subcommittee's longstanding interest in this program.
    We are, again, requesting $185 million in fiscal year 2002 
for the Media Campaign, to use paid media and messages to 
change youth attitudes about drug use and its consequences. 
Strategic targeted, high impact, paid media messages are the 
most cost-effective, quickest means of altering drug use 
behavior through changes in adolescent perceptions of the 
dangers and social disapproval of drugs.
    During past years the Campaign has reached 90 percent of 
America's youth four times a week through our targeted 
advertising. The Campaign is the largest multicultural 
advertising and communication effort ever undertaken by the 
Federal Government with messages and delivery tailored to 
target audiences in nine languages.
    Overall, the Campaign has generated a 108 percent pro bono 
match in advertising dollars. As you know, when Congress 
established the program it required ONDCP to obtain a dollar 
for dollar match of public funds that we expended on the 
Campaign. We have gone beyond that 100 percent match. The 
Campaign has also generated more than $544 million in private 
sector matches, buttressing and leveraging the public 
contribution.
    The non-advertising portion of the Campaign delivers anti-
drug messages from public affairs coverage in radio and 
television broadcasts as well the print media, the Internet, as 
well as working with community organizations and coalitions. 
For example, we recently published with the American Bar 
Association a pamphlet on how the legal community can not only 
discourage drug use within their profession, but also work 
within their communities in effective drug prevention efforts.
    The Campaign's Internet activities include two web sites, 
Freevibe.com and The AntiDrug.com that appeal to our target 
audiences of youth, parents, and other adult influences. 
Highlights include nearly 24 million page views on our Media 
Campaign web sites and more than 287 million pro bono Internet 
match impressions. In addition, we have web-based programming 
for parents in Spanish and four Asian languages.
    The Campaign's presence has served as a catalyst for an 
increased demand for anti-drug information. For example, 
inquiries received by the National Clearinghouse for Drug and 
Alcohol Information, NCADI, have increased dramatically.
    The branding component of the Campaign was launched in 
September 1999 to unite the Campaign message themes. For young 
people the brand, My Anti-Drug, is a call to action for every 
youth to help them think about and consider what is important 
in their lives and serves as their motivation for rejecting 
drug use. In response to that national outreach, the Campaign 
has received from young people more than 75,000 submissions 
about what their personal anti-drug is.
    We take great pride in the fact that our Campaign is the 
subject of a multifaceted evaluation effort that is coordinated 
and contracted out to the National Institute on Drug Abuse, the 
Nation and the world's leading drug abuse research center. The 
phase three evaluation managed by NIDA is a comprehensive 
system developed to gauge the extent to which drug use, 
knowledge, attitudes, beliefs, and behavior can be attributed 
to the Campaign.
    Findings from the second phase three evaluation report were 
shared with the subcommittee last week and they indicate high 
levels of awareness of anti-drug ads among our target audiences 
of youth and parents. Subsequent reports will continue to track 
changes in anti-drug attitudes and behavior and provide more 
conclusive evidence of whether these changes in attitude can be 
directly attributed to the Media Campaign.
    With the subcommittee's permission, I would like to show a 
brief video with examples of new research-based parent ads, 
followed by two ads that are based upon the anti-drug branding.
    Senator Campbell. Go ahead. I saw that ad on television 
last night.
    Mr. Jurith. With regard to the Drug-Free Communities 
Program, the President is requesting an increase to $50.6 
million to expand the program. This program provides matching 
Federal grants to local community anti-drug coalitions to 
improve and expand their ongoing efforts. We are proud that the 
program currently supports 307 communities in 49 States, Puerto 
Rico, the Virgin Islands, and the District of Columbia. 
Furthermore, 25 grants have been awarded to communities with 
predominantly Native American and Native Alaska populations.
    As you know, ONDCP and the Office of Juvenile Justice and 
Delinquency Prevention in Justice, our grants management agency 
for this program, have conducted a comprehensive study of the 
administrative costs connected with the program and produced a 
report on the findings which we submitted back to the 
subcommittee in January.
    The report concluded that amending the administrative cost 
limitation in the program's authorization from not more than 3 
percent to not more than 8 percent per fiscal year is necessary 
for ONDCP and OJJDP to continuing managing the program 
effectively, to include program oversight, training and 
technical assistance, and program evaluation.
    However, notwithstanding the requested increase in the 
administrative cap, of the $50.6 million ONDCP is requesting 
for this program in 2002, $46.6 million will be granted 
directly to coalitions. We anticipate awarding 145 new 
coalitions in fiscal year 2001, and an additional 150 in fiscal 
year 2002, bringing the total coalitions under the initial 
five-year authorization of this program to over 600.
    Under the proposed 8 percent cap, only $4 million is for 
purposes other than providing grants directly to communities. 
ONDCP will allocate these funds as follows: for grant 
administration by OJJDP, $2.35 million; technical assistance to 
the coalitions, $750,000; evaluation of the program, $750,000; 
and for program administration at ONDCP, not only to support 
the program but the Drug-Free Communities Advisory commission 
that meets approximately three times a year, $200,000.
    So we believe the 8 percent cap represents a modest 
increase in administrative funding for this program to enable 
both ONDCP and OJJDP to better manage this effort.
    In response to your concern, as you know the President has 
proposed a new initiative, Parents for a Drug-Free Future. The 
Administration is requesting $5 million to create a parent drug 
corps to support and encourage parents to help children stay 
drug-free. This new program will provide matching grants to 
national parent organizations for the following purposes: 
assisting training of parents to help anti-drug efforts among 
young people, promote cooperation among the various national 
anti-drug parent efforts, as well as local community coalitions 
to increase their overall impact, and to provide science-based 
prevention strategies, information, and materials to parents 
and parent organizations.
    I believe Senator Dorgan is correct, OMB requested ONDCP to 
prepare authorizing language for this program and provide it to 
OMB by March 1. We have done that. The Administration has made 
the determination to await the nomination and confirmation of 
an ONDCP director before submitting that language to the 
subcommittee. I will certainly report back to them the 
legitimate concern of the subcommittee that you see the 
authorizing language for this effort as soon as possible as you 
go about developing ONDCP's appropriation.
    ONDCP is requesting $1 million for the National Drug Court 
Institute. These funds will enable the Institute to expand 
their training programs for drug court practitioners, convene 
special advisory groups on practices, and develop a national 
community probation initiative.
    We are very proud of what the drug courts have done around 
this country. There are almost 1,000 drug courts in operation 
or in planning around the Nation. They serve a critical 
catalyst, Senator Dorgan, to steer more drug-addicted 
defendants into treatment. That is the whole aim of a drug 
court, to get non-violent drug offenders out of the criminal 
justice system and into treatment diversionary programs.
    ONDCP is requesting $3 million for the counter-drug 
intelligence executive secretariat, or CDX. Since its inception 
in July 2000, CDX has worked to implement many of the 73 
priority action items in the General Counter-Drug Intelligence 
Plan, as well additional taskings on new agency counter-drug 
issues. CDX continues to improve our Nation's counter-drug 
intelligence architecture by enhancing information sharing, 
operational coordination, and technical connectivity between 
Federal, State, and local anti-drug efforts.
    The U.S. Olympic Committee has done yeoman's work in 
bringing attention to the problem of doping in sports. ONDCP is 
requesting $3 million to support the U.S. Olympic Committee's 
anti-doping efforts. These funds will assist the USADA, the 
U.S. Anti-Doping Agency, to administer an independent, 
transparent, and effective anti-doping effort for the Olympics 
as well as out-of-competition testing within the United States. 
These funds will support research, administrative initiatives, 
and education programs among the athletes.

                 High Intensity Drug Trafficking Areas

    ONDCP is requesting $206.35 million for HIDTA program. This 
will enable the current 28 HIDTA's to coordinate efforts to 
reduce the production, manufacture, distribution, and 
transportation of illegal drugs as well as anti-money 
laundering efforts.
    Intelligence sharing will continue to improve as we expect 
all 28 HIDTAs to be connected via the regional information 
sharing systems network, the RISS.net, by the end of the 
calendar year. This will allow the HIDTAs to instantaneously 
share criminal intelligence information in a responsible 
manner. Maintaining regional flexibility while demanding 
accountability is an essential part of our HIDTA oversight 
efforts.
    The budget request includes $2.1 million to continue 
conducting internal reviews and external financial audits of 
individual HIDTA's effectiveness and their budgetary 
compliance. Internally, ONDCP has begun its own review process 
that includes on-site visits to the HIDTA by an interagency 
review team. These reviews strengthen the management at the 
individual HIDTAs as well as at ONDCP. To date we have 
completed six reviews of the 28 HIDTAs and we will continue 
that effort.
    HIDTA recently contracted with a leading accounting firm, 
KPMG, to perform external financial audits. While we are 
pleased that these reviews have not discovered any major fiscal 
problems, the audits and program reviews have resulted in ONDCP 
providing some HIDTAs with conditional grant language to bring 
outstanding financial efforts into compliance.

                Counterdrug Technology Assessment Center

    Lastly, the CTAC program. ONDCP is requesting $40 million 
for CTAC; $18 millions for the research and development 
program, and $22 million for the Technology Transfer Program. 
The counter-drug R&D program addresses scientific and 
technological needs of the drug control agencies related to 
both demand and supply efforts.
    Demand reduction components support projects in brain 
imaging technology, therapeutic medications, and the assessment 
of treatment programs. Supply reduction projects including 
cargo inspection, counter-drug smuggling, drug crime 
information, handling communication and surveillance 
capabilities.
    CTAC will also support the U.S. Anti-Doping Agency by 
investigating innovative drug-testing protocols to further 
enhance their anti-doping efforts for the Salt Lake City Winter 
Olympics and developing test protocols for the blood endurance 
boosting hormone, Epo. Finally, CTAC will complete a 
communications interoperability testbed statewide in Colorado 
by May 2002.
    The Technology Transfer Program provides technologies 
developed with Federal funding directly to State and local law 
enforcement agencies. We are quite proud of this program 
because since its inception in fiscal year 1998, the Technology 
Transfer Program has delivered over 1,800 pieces of equipment, 
new technology, to over 1,300 State and local law enforcement 
agencies. CTAC provided hands-on training and maintenance 
support to all of these recipients.
    During fiscal year 2002, the request will allow CTAC to 
transfer technology to more than 1,500 State and local 
enforcement agencies around the country. It is an important 
program and one that we need to expand and keep going.

                           PREPARED STATEMENT

    In conclusion, Mr. Chairman, Senator Dorgan, I want to 
thank the subcommittee for its continued support of ONDCP, for 
its bipartisan leadership on counter-drug efforts, and I would 
be pleased to answer any questions that you have. Thank you so 
much.
    [The statement follows:]

                 Prepared Statement of Edward H. Jurith

                              INTRODUCTION
    On behalf of the Office of National Drug Control Policy (ONDCP), I 
want to thank the Subcommittee for the opportunity to testify before 
you on ONDCP's fiscal year 2002 budget request. Chairman Campbell, 
Ranking Member Dorgan, distinguished members of the Subcommittee, we 
greatly appreciate your continuing bipartisan commitment to, and 
support of, our counter-drug efforts. The funding this Subcommittee 
provides enables ONDCP to ensure continuity and consistency in our 
efforts to provide a comprehensive response to our nation's drug use 
problem. This comprehensive response is essential to our success, as we 
know that no single solution can effectively address this multifaceted 
challenge. Drug prevention, treatment, research, law enforcement, 
protection of our borders, drug supply reduction, and international 
cooperation remain necessary components of our efforts. In addition to 
setting forth in detail ONDCP's fiscal year 2002 Budget Request, this 
statement provides a brief update on the consolidated Federal drug 
control budget request and current drug use trends which will 
underscore the need for continued policy coordination and programmatic 
focus on this devastating threat facing our nation.
    Although ONDCP's $519.1 million budget request comprises only a 
small percentage of the $19.2 billion consolidated national drug 
control budget, these funds are critical to our nation's efforts to 
reduce drug use and its consequences in America. Your support of 
ONDCP's budget request will enable us to continue fulfilling our unique 
dual mission of serving as the President's primary Executive Branch 
support for counter-drug policy and program oversight while effectively 
managing our own diverse programmatic responsibilities. ONDCP's policy 
role consists primarily of developing national drug control policy, 
coordinating and overseeing the implementation of that policy, and 
evaluating drug control programs to ensure that Federal departments and 
agencies remain focused and coordinated for maximum efficiency and 
effectiveness. Equally important to ONDCP's policy role is our 
responsibility to manage and evaluate our four key existing programs: 
the National Youth Anti-Drug Media Campaign, the Drug-Free Communities 
Program, the High Intensity Drug Trafficking Areas Program (HIDTA), and 
the Counterdrug Technology Assessment Center (CTAC). Furthermore, ONDCP 
is committed to developing and implementing the President's ``Parents 
for a Drug-Free Future'' initiative, which is proposed in this request.
    ONDCP is proud of the complementary efforts of the Legislative and 
Executive branches to achieve our shared goal of reducing drug use and 
its consequences in our nation, especially as it impacts our youth, and 
looks forward to achieving even greater success in the future. To 
maximize the potential for greater success, we look forward to 
supporting the new ONDCP Director in his or her review of the existing 
National Drug Control Strategy and promulgating a new Strategy to 
implement the President's counter-drug policies and programs.

                        CURRENT DRUG USE TRENDS
Long-Term Overall Trend is Going In the Right Direction
    Overall illicit drug use rates, according to data compiled annually 
from the National Household Survey on Drug Abuse (NHSDA), have gone 
down substantially over the past 20 years. Since 1979, the rate of 
current users of any illicit drug has dropped from 14.1 percent to 7.0 
percent in 1999.
    Drug use in the U.S. reached peak levels in 1979 and then declined 
significantly through 1991, from 14.1 percent to 6.6 percent. Since 
1991, the percentage of the household population twelve and older who 
are current users of any illicit drug has remained relatively steady, 
with no statistically significant changes.
    However, it is clear that our nation still faces a serious problem 
with illicit drug use, especially among our youth and among chronic, 
hardcore drug users. There are currently more than 3.3 million chronic 
cocaine users and almost 1 million chronic heroin users in the United 
States. These users consume the bulk of the cocaine and heroin; and are 
responsible for a disproportionate amount of the crime, health, and 
social consequences attributed to drug use.
Youth Drug Use is Declining
    The 1999 NHSDA (the most recent available), provides some good news 
about youth drug use. After a five-year period of rising drug use, the 
rate of current use of any illicit drug among 12-17 year olds declined 
for the second straight year, dropping from 11.4 percent in 1997 to 9.0 
percent in 1999 (returning to the 1996 level). This may indicate that 
the increases that began in 1993 finally have been reversed.
    However, not all of the news is positive. For those aged 18-25 
years, the current rate of use of any illicit drug has risen--up from 
13.1 percent in 1992 to 18.8 percent in 1999. Without appropriate 
treatment, this 18-25 age cohort, which includes many of those who 
started using drugs in the early 1990s, is expected to continue to 
relatively higher rates of drug use as they age.
    A second key source of data on youth drug use comes from the 
Monitoring the Future Study (MTF), a yearly survey of 8th, 10th, and 
12th graders. The latest MTF data, for 2000, provides additional 
support for the good news in youth drug use--2000 is the fourth year in 
a row that drug use rates have leveled or declined since their rapid 
rise in the early 1990s. Use of most illicit drugs in all three grades 
remained unchanged from 1998 and 1999. As reported by the NHSDA, 
marijuana use dominates youth drug use and the situation is serious, 
with more than one in twenty high school seniors reporting daily use of 
marijuana.
    The data from the Monitoring the Future Survey (MTF), as with the 
NHSDA, clearly shows that not all the news is good. All three grades 
showed notable increases in MDMA/Ectasy use. Specifically, MTF data 
shows past year use for 8th graders increased from 1.7 percent in 1999 
to 3.1 percent in 2000; past month use for 10th graders increased from 
1.8 percent in 1999 to 2.6 percent in 2000; and past year use for 12th 
graders increased from 5.6 percent in 1999 to 8.2 percent in 2000. 
Furthermore, among 12th graders, the perceived availability of MDMA 
rose from 40.1 percent in 1999 to 51.4 percent in 2000 (not measured 
for 8th or 10th graders). The movement of MDMA from the club or rave 
scene into schools, neighborhoods, and other venues is especially 
troublesome. Special emphasis on prevention and enforcement efforts 
must be developed and implemented immediately to reverse this trend.
Social Costs Associated With Drug Use Remain Unacceptably High
    To fully comprehend the size and scope of the domestic drug 
situation, one must understand the consequences of drug use and its 
impact on society. The following consequences are particularly worth 
noting:
  --The social costs of illicit drug abuse total $110 billion each 
        year. Major contributing costs include those associated with 
        crime and incarceration ($59 billion) and health care 
        (approximately $20 billion).
  --U.S. drug users spend more than $62 billion annually to purchase 
        drugs.
  --The number of emergency department drug episodes has been 
        increasing over the 1990s. According to 1999 Drug-Abuse Warning 
        Network data, there were an estimated 554,932 drug-related 
        emergency department episodes in the United States in 1999, 
        compared to 371,208 in 1990.
  --Drug users are often carriers of infectious diseases including HIV/
        AIDS, hepatitis, tuberculosis, and sexually transmitted 
        diseases.
  --There were more than 1.5 million drug arrests in 1999.
  --Approximately half of all adult male arrestees covered by the 
        Arrestee Drug Abuse Monitoring (ADAM) program test positive for 
        illicit drug use.
  --There is a high correlation between frequency of marijuana use, 
        especially among youth, and aggressive and antisocial behavior. 
        An increasing number of state and Federal prisoners are 
        incarcerated for drug crimes. An estimated 33 percent of state 
        prison inmates and 22 percent of Federal prison inmates 
        reported they were under the influence of illicit drugs when 
        they committed the offense that led to their incarceration.
  --According to NHSDA data, drug dependence as an adult is clearly 
        related to the age at which a person starts using marijuana; 
        the younger the age at first use, the higher the rate of adult 
        drug dependency.
     the consolidated fiscal year 2002 federal drug control budget
    As reflected in the table below, total drug control funding 
recommended for fiscal year 2002 is an estimated $19.2 billion, an 
increase of $1.1billion (+6.2 percent) over the fiscal year 2001 
enacted level of $18.1 billion.
<GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT>

    The President's request focuses on reducing drug use by young 
people, making treatment more available to chronic users, targeting 
sources of illegal drugs and crime associated with criminal 
enterprises, and interdicting the flow of drugs at our borders. The 
President's Budget includes $2.2 billion for programs that educate and 
enable America's youth to reject illegal drugs as well as alcohol and 
tobacco, including close to $52 million in additional prevention 
research funding through the National Institutes of Health. In 
addition, for reducing the health and social costs of illegal drug use, 
including activities targeting drug treatment programs, the President's 
fiscal year 2002 Budget includes an estimated $3.3 billion, an increase 
of 6.5 percent over fiscal year 2001.
    Projected resources devoted to breaking foreign and domestic drug 
sources of supply will reach $2.6 billion in fiscal year 2002, an 
increase of 28.1 percent. This increase includes proposed funding of 
$731 million in fiscal year 2002 to support drug control activities in 
the Andean region. Further, multi-agency efforts, which target ports-
of-entry, the Southwest Border, and implementation of the Western 
Hemisphere Drug Elimination Act, will expand funding for shielding 
America's air, land, and sea frontiers from the drug threat to an 
estimated $2.8 billion in fiscal year 2002, an increase of 8.5 percent. 
Finally, funding requested for increasing the safety of America's 
citizens by substantially reducing drug-related crime and violence is 
$8.3 billion in fiscal year 2002, an increase of 2.5 percent.

                       ONDCP'S COORDINATING ROLE
    The Office of National Drug Control Policy's legal responsibilities 
are established in the following laws and executive orders:
    The Anti-Drug Abuse Act of 1988.--Requires ONDCP to set priorities, 
implement a national strategy, and certify Federal drug control 
budgets.
    The Violent Crime Control and Law Enforcement Act of 1994.--Extends 
ONDCP's mission to assessing budgets and resources related to the 
National Drug Control Strategy.
    Executive Order No. 12880 (1993) and Executive Order Nos. 12992 and 
13023 (1996).--Assigns ONDCP responsibility within the executive branch 
of government for leading drug control policy and developing an 
outcome-measurement system.
    The Office of National Drug Control Policy Reauthorization Act of 
1998.--Expands ONDCP's mandate and authority and sets forth additional 
reporting requirements and expectations, including: Development of a 
long-term national drug strategy; Implementation of a robust 
performance-measurement system; Commitment to a five-year national drug 
control program budget; Permanent authority granted to the High 
Intensity Drug Trafficking Areas (HIDTA) program along with 
improvements in HIDTA management; Greater demand-reduction 
responsibilities given to the Counter-Drug Technology Assessment Center 
(CTAC); Statutory authority for the President's Council on Counter-
Narcotics; Increased reporting to Congress on drug control activities; 
Reorganization of ONDCP to allow more effective national leadership; 
Improved coordination among national drug control program agencies; and 
Establishment of a Parents Advisory Council on Drug Abuse.
    Executive Order No. 13165 (2000).--Creates the White House Task 
Force on Drug Use in Sports and authorizes the ONDCP Director to serve 
as the United States Government's representative on the Board of the 
World Anti-Doping Agency.

                ONDCP'S FISCAL YEAR 2002 BUDGET REQUEST
    ONDCP's fiscal year 2002 request for $519.1 million in budget 
authority represents an increase of $19.24 million (+3.8 percent) over 
the fiscal year 2001 enacted level. Although this request represents 
less than three percent of the consolidated national drug control 
budget, these critical funds enable ONDCP to leverage all dollars 
appropriated to Federal departments and agencies in a coordinated 
fashion to achieve desired policy and programmatic outcomes. The budget 
request reflects four program accounts: Salaries and Expenses; the 
Counterdrug Technology Assessment Center (CTAC); the Special Forfeiture 
Fund; and the High Intensity Drug Trafficking Areas (HIDTA) program. 
The Subcommittee's investment in this agency will continue to serve the 
American people through achieving our mission of reducing drug use and 
its consequences.
    Salaries and Expenses: $25.1 million.--ONDCP's budget request 
provides $25.1 million for salaries and expenses to support ONDCP's 
requested 116 Full Time Equivalents (FTEs), which includes one 
reimbursable FTE, and 30 non-reimbursable detailees--an increase of 
$395 thousand over the fiscal year 2001 enacted level. This reflects a 
reduction in personnel positions by 10 FTEs, but a realistic dollar 
value to fund fully our authorized strength. The amount of funds 
requested aligns with the revised FTE level and is essential to carry 
out our policy and programmatic responsibilities to the degree that 
Congress and the American people demand. Major expenses include:
  --$11.889 million to provide compensation for 115 FTEs. The 10 FTE 
        reduction is based on several factors: first, this 
        realistically reflects the staffing level--115 FTE--at which 
        ONDCP has operated in recent years; second, this request aligns 
        the FTE with the amount of personnel compensation provided by 
        Congress over the past few years.
  --$5.342 million for professional service contracts, maintenance 
        services, guard services, and related costs. Included in this 
        amount is funding to support conferences (including HIDTA, 
        CTAC, and demand reduction) and to operate the Drug Policy 
        Information Clearinghouse.
  --$2.432 million for rental payments to the General Services 
        Administration (GSA).
  --$776,000 for travel and transportation costs.
  --$701,000 for communications, utilities, and miscellaneous costs. 
        This amount will fund telephone and telecommunications costs, 
        postage, and translation equipment.
  --$860,000 for equipment. This amount provides for the purchase of 
        required office equipment (including replacement equipment), 
        such as personal computer systems, automated data processing 
        equipment and secure communications equipment.
  --$1.35 million for research to develop and assess drug policy; 
        identify and detail changing trends in the supply of and demand 
        for illegal drugs; monitor trends in drug use and identify 
        emerging drug problems; assess program effectiveness; and 
        improve data sources.
  --$1.0 million for the National Alliance for Model State Drug Laws 
        (NAMSDL) to encourage states to adopt and implement laws, 
        policies, and regulations to reduce drug use and its adverse 
        consequences. In the past, ONDCP has utilized an Interagency 
        Agreement with the Department of Justice's Bureau of Justice 
        Assistance (BJA) for BJA to provide program and grant 
        management oversight for the NAMSDL program. As ONDCP has 
        developed the requisite expertise to guide this program, ONDCP 
        will assume direct program management, leaving BJA with 
        responsibility only for grant management.
    As you know, the Administration is preparing a budget amendment 
that will propose consolidating all S&E accounts in the Executive 
Office of the President (EOP) into a single appropriation. This 
consolidation would give the President greater flexibility to allocate 
resources among the EOP Offices, create economies of scale and 
efficiencies in purchasing, and permit the newly-established position 
of EOP Chief Financial Officer (CFO) greater oversight of financial 
transactions and closer monitoring of expenditures. The ONDCP S&E 
request I have just described will be incorporated, without change, 
into the budget amendment that is expected to be transmitted next week.
    Special Forfeiture Fund: $247.6 million.--ONDCP's budget request 
provides $247.6 million for the Special Forfeiture Fund, an increase of 
$14.5 million over the fiscal year 2001 enacted level. This request 
funds a diverse group of critical, ongoing programs: the National Youth 
Anti-Drug Media Campaign, the Drug-Free Communities Program, the 
Counterdrug Intelligence Executive Secretariat, the National Drug Court 
Institute, and the U.S. Olympic Anti-doping Program. Furthermore, this 
request will support fully the development and implementation of the 
Parents for a Drug-Free Future Program, a new presidential initiative.
The National Youth Anti-Drug Media Campaign
    In fiscal year 2002, ONDCP is requesting $185 million for the 
National Youth Anti-Drug Media Campaign, the same amount enacted for 
fiscal year 2001. ONDCP will continue this initiative that began in 
fiscal year 1998, and was expanded in fiscal year 1999, to use paid 
media messages to change youth attitudes about drug use and its 
consequences. Strategically targeted, high impact, paid media 
messages--at both the national and local levels--are the most cost 
effective, quickest means of altering drug use behavior through changes 
in adolescent perceptions of the danger and social disapproval of 
drugs.
    Although public service messages (PSAs) are part of this campaign, 
they alone cannot reach the specific audiences at the times and with 
the frequencies that are required to move youth drug use attitudes in 
the right direction.
    The non-advertising component of Campaign delivers anti-drug 
messages through news and public affairs coverage in radio and 
television broadcasts, as well as print media, the Internet, faith 
communities, health professionals, community organizations and 
coalitions, schools, parents, coaches, and organized sports. The drug 
prevention campaign also includes an entertainment industry component 
to provide accurate information about drug use and encourage its 
accurate depiction on television, film, and in music and to engage 
celebrities to communicate positive anti-drug messages to youth.
    The Campaign utilizes strategic partnerships to increase the number 
of organizations and businesses through which accurate anti-drug 
messages reach their target audiences. These alliances are extending 
and enhancing Campaign messages to reach youth and parents in the 
communities where they live and in places where they spend most of 
their time--including schools, on-line, at work and at play--helping to 
build long-term substance abuse prevention activities. Media and 
advertising partnerships bring expertise to every aspect of the 
Campaign. ONDCP is particularly proud that since the inception of the 
Campaign all major television networks have donated airtime, special 
programming, and production of celebrity PSAs.
    ONDCP especially is proud of our long-standing relationship with 
the Partnership for a Drug-Free America. Additional significant 
partners playing critical roles in the Campaign include The Ad Council 
and the American Advertising Federation. Other Campaign partners 
include organizations that have focused historically on young people, 
parents and substance abuse issues, education, and other fields with 
broad reach into target audiences. These include the Campaign's newest 
entertainment industry partner, the Hollywood Reporter, youth 
development partners such as YMCA of the USA, National FFA Organization 
(formerly the Future Farmers of America), and the Girl Scouts of the 
USA. Education partners helping to communicate anti-drug messages 
include the National Middle School Association, the National 
Association of Student Assistance Professionals, and the National 
Education Association. Media partners include Oxygen Media, USA Today, 
Channel One, Cable in the Classroom and the New York Times Newspapers 
in Education program.
    The Media Campaign is also partnering with interfaith organizations 
to develop, test, produce and distribute research-based, substance 
abuse prevention materials to help elevate drug prevention within the 
faith-based community.
    The Campaign's Internet initiatives combine web sites that appeal 
to our critical audiences of youth, parents, educators and other adult 
influencers with online banner ads, online sponsorships, promotions and 
interactive outreach. The Campaign's primary web sites are Freevibe.com 
and TheAntiDrug.com. Freevibe encourages young people to make positive, 
well-informed, life-style decisions. TheAntiDrug.com provides parents 
and other adult caregivers with strategies and tips on raising healthy, 
drug-free children. Web-based information for parents is also in 
Spanish, as well as four Asian languages.
    In addition, the Campaign developed Internet sites with industry 
leaders such as America Online (AOL) for parents and youth. These 
activities, combined with a rich multimedia advertising program, have 
created an unprecedented social marketing effort on the Web. Highlights 
include:
  --Nearly 24 million page views on Media Campaign websites.
  --More than 287 million pro-bono Internet match impressions attained.
    Online outreach and partnerships have distributed our Campaign 
messages throughout the Web. Critical partners in this effort have been 
a diverse set of media companies--such as Oxygen Media, Lycos.com, 
About.com, Education World, The Atlantic Monthly, Reprise Records and 
The Mills Malls--that carry anti-drug content or provide promotion back 
to Campaign sites.
    During the past year, the Campaign reached 90 percent of America's 
youth at least four times a week in nine languages to various ethnic 
groups. The Campaign represents the largest multicultural advertising 
and communications effort ever undertaken by the Federal government, 
with messages and delivery tailored to ethnic audiences. To ensure the 
credibility of the messages and to enhance their impact, the Campaign 
combines culturally appropriate and relevant messages designed by 
African American, Hispanic, and Asian-owned advertising and 
communications companies.
    The Campaign's pervasive presence has served as a catalyst for an 
increased demand for anti-drug information. For example, since the 
national launch of the Campaign in July of 1998, inquiries received by 
the National Clearinghouse for Alcohol and Drug Information (NCADI) 
have increased dramatically. Specifically, during the first three 
months of this year, NCADI saw an increase of 25 percent in inquiries 
over a year ago. Furthermore, the number of inquiries NCADI received in 
calendar year 2000 increased by 178 percent percent over the 12 months 
before the Campaign. On peak days, which corresponded with specific 
anti-drug Campaign events (e.g., an article in Parade magazine) 
requests to NCADI for anti-drug information surged by 367 percent over 
pre-Campaign levels. Finally, per month Internet requests for substance 
abuse information to NCADI have more than quadrupled since the 
inception of the Campaign.
    The ``branding'' component of the Campaign began in September 1999 
to unite message themes, create synergy between advertising and non-
advertising programs, and maximize Campaign awareness and impact. For 
youth, the Campaign launched the brand ``My anti-drug'' in September 
2000, to coincide with kids going back to school. The launch of ``My 
anti-drug'' represented a call to action to every youth to consider 
what it is in his or her own life that is their motivation for 
rejecting drugs, to express themselves, and to be heard. In response to 
national outreach, more than 75,000 young people submitted their own 
personal ``anti-drugs.'' A special supplement in USAToday featured 
selected examples of the kids and their submissions. It is worth noting 
that individual anti-drug submissions continue to be received and 
posted through our youth Web site, Freevibe.com.
    ONDCP takes great pride in our multi-faceted methods for 
ascertaining the impact of the Campaign. Through constant evaluation, 
ONDCP is able to manage the Media Campaign to achieve the desired 
outcomes and provide progress reports to Congress and the American 
people.
    The Phase III evaluation design is a comprehensive system developed 
to gauge the effectiveness of the National Youth Anti-Drug Media 
Campaign. This evaluation, which is managed by the National Institute 
on Drug Abuse, is designed to determine the extent to which changes in 
drug abuse-related knowledge, attitudes, beliefs, and behaviors can be 
attributed to exposure to the Campaign. The evaluation is measuring and 
assessing:
  -- Changes in drug-related knowledge, beliefs, attitudes, and 
        behaviors in children and parents of children;
  --Relationships between changes in drug-related knowledge, beliefs, 
        attitudes, and behaviors and their associations with self-
        reported measures of media exposure;
  --Associations between parents' drug-related knowledge, beliefs, 
        attitudes and behaviors and those of their children;
  --Associations between parents' drug-related knowledge, beliefs, 
        attitudes and behaviors and those of their children that may be 
        related to the media campaign; and
  --Changes in community-based drug prevention activities in response 
        to the campaign.
    The first Phase III evaluation report, released in November 2000, 
provides data awareness, key baseline attitudes, beliefs and behavior 
and indices of exposure to the Campaign messages over the period of 
November 1999 through May 2000. The second Phase III evaluation report 
provides initial evidence of the Campaign's impact-on average, Wave I 
respondents (a Wave refers to a six month continuous data collection 
period) were interviewed 6 months before Wave II respondents, so the 
time period for change is brief. Key findings include evidence of 
increased anti-drug sentiment among older non-drug using teens (aged 14 
to 18) with regard to trying marijuana between the first and second 
data collection periods. Six outcomes related to anti-drug attitudes 
showed significant change in the desired direction. Regarding the 
Campaign's effects on parents, there was a consistent pattern of 
association between exposure to the Media Campaign messages and 
outcomes, such as talking with their children about the dangers of 
drugs and monitoring their children.
    The analysis of change for the Wave II report is not definitive; 
Wave I was collected during the early months of Phase III, and there 
was relatively little time for additional change to occur, given only 6 
months between Waves I and II. While over the course of the evaluation, 
change in a desirable direction for outcomes is strongly expected, 
change between Waves I and II is less definitive. Research indicates 
that it will take one to two years to affect attitudes and two to three 
years from the launch of the fully integrated Campaign (i.e., mid-2002) 
to demonstrate reductions in youth drug use that can be attributed to 
the Campaign. Subsequent reports, which will be provided every six 
months, will provide more definitive information on the extent to which 
changes in attitudes and behavior can be attributed to the Campaign.
    Findings from the second Phase III evaluation report indicate high 
levels of awareness of anti-drug ads among both youth and parents 
across all media. There is good evidence of increased anti-drug 
sentiment among older non-drug-using teens (aged 14 to 18) with regard 
to marijuana trial between Waves 1 and 2, which may signal subsequent 
declines in marijuana use in future waves of the evaluation-with 87 
percent of teens reporting that they did not intend to try marijuana 
even once or twice in the next year. For youth aged 12 to 13 years of 
age, all of the questions on regular use of marijuana also appeared to 
move in an anti-drug use direction, although there was not a consistent 
pattern of change nor consistent evidence of an association between 
exposure to anti-drug messages and outcomes. For parents, the NIDA 
evaluation indicates a consistent pattern of association between 
exposure to anti-drug messages and three key outcomes (talking with, 
monitoring, and engaging in fun activities with youth), meaning that 
parents who reported high levels of exposure to anti-drug messages were 
more likely to have engaged in the three activities with their 
children, but no change over time. There was a statistically 
significant increase in the percentage of parents reporting hearing a 
lot about anti-drug programs in the community in the past year from 32 
percent in Wave 1 to 36 percent in Wave 2. Subsequent waves of data 
collection will continue to track changes in anti-drug attitudes and 
behavior and provide more conclusive evidence of whether these changes 
in attitudes and behavior can be attributed to the Media Campaign.
    In addition to the NIDA evaluation, ONDCP utilizes data from other 
research to manage the Campaign for results. Several other studies have 
reported the positive impact the Campaign is having on youth awareness 
and behavior. For example, results from the Campaign's tracking study, 
which is being conducted by Millward Brown, show that as of mid-
February 2001, 52 percent of youth reported seeing ``anti-drug'' 
advertising, and 69 percent of those report having considered their own 
``anti-drug.'' Visual recognition of the anti-drug logo more than 
quadrupled from 10 percent to 46 percent in nearly half the time 
expected in an average new product launch.
    The Partnership for a Drug Free America (PDFA) reported in its 2000 
Parent Attitude Tracking Survey (PATS) that anti-drug advertising 
resulted in significant increased teen awareness of anti-drug ads--with 
more than half of teens now claiming daily anti-drug ad exposure. The 
proportion of youth reporting that anti-drug ads made them less likely 
to try or use drugs increased overall, from 30 percent to 37 percent 
from 1998 to 2000.
    PATS data also shows that the earlier upward trend in teen 
marijuana use has been reversed since its peak in 1997 and since the 
Campaign began in 1998. Concurrent with reduced youth marijuana use, 
PATS findings indicate that youth intent not to use marijuana increased 
from 1998 levels in 1999, and 2000.
The Drug-Free Communities Program
    In fiscal year 2002, ONDCP is requesting $50.6 million to expand 
the Drug-Free Communities Program, an increase of $10.7 million over 
the fiscal year 2001 enacted level. This program utilizes a 
straightforward mechanism whereby matching Federal grants are provided 
directly to local community anti-drug coalitions for the purpose of 
improving or expanding their efforts to prevent substance use and abuse 
among children and youth (including the underage use of alcohol and 
tobacco). We are proud that the program currently supports 307 
communities located in forty-nine states, Puerto Rico, the U.S. Virgin 
Islands, and the District of Columbia. Furthermore, twenty-five of the 
grants have been awarded to communities with predominately Native 
American and Native Alaskan populations. We anticipate awarding 
approximately 145 additional grants during the fiscal year 2001 grant 
cycle (September, 2001).
    ONDCP and the Office of Juvenile Justice and Delinquency 
Prevention, Department of Justice (OJJDP) conducted a comprehensive 
study of the administrative costs associated with the Drug-Free 
Communities Program and produced a report on the findings. The report 
concluded that amending the administrative cost limitation from ``not 
more than three percent'' to ``not more than eight percent'' per fiscal 
year would maintain thorough competitive peer review of all 
applications, enhance grantee access to valuable technical assistance 
about science-based prevention practices and training in those 
practices, improve ONDCP's and OJJDP's ability to maintain an outcome-
focused program through a comprehensive evaluation, and allow for 
greater promotion of the program to coalitions across the United 
States. This increase will ensure that the grants awarded directly to 
community anti-drug coalitions will be used in the most effective 
manner possible. ONDCP remains optimistic that the cap will be 
increased during fiscal year 2001 to alleviate the grant management 
difficulties incurred by OJJDP, and respectfully requests the 
Subcommittee's support on this issue. Pursuant to Senate Appropriations 
Committee Report 106-500 (accompanying S. 2900), ONDCP submitted this 
report for the Subcommittee's consideration on January 18, 2001.
    Of the total $50.6 million ONDCP is requesting for this program, 
$46.6 million will be granted directly to community anti-drug 
coalitions (assuming an increase in the administrative cap to not more 
than eight percent). We anticipate being able to award approximately 
150 new grants in fiscal year 2002, bringing the cumulative five-year 
total of grantees to over 600. The Drug- Free Communities Act of 1997 
(the program authorization) ensures that these grant dollars leverage 
additional funding for community coalitions by requiring all grantees 
to match their Federal grant funds with other non-Federal sources of 
support, including both cash and in-kind contributions. ONDCP policy 
provides that grantees may receive a maximum amount of $100,000 for 
years one and two, up to $75,000 for year three, and no more than 
$50,000 for years four and five. However, based on recommendations from 
the Program Administrator and the statutorily-created Advisory 
Commission, we approved a one-year waiver of this policy for fiscal 
year 2001 funding to permit coalitions in their fourth year of funding 
to receive up to $75,000.
    Of the total $50.6 million ONDCP is requesting for this program, 
only $4 million would be allocated for purposes other than providing 
grants directly to communities. These funds would be allocated in the 
following manner:
  --Grants Administration--$2.35 million. This amount is sufficient for 
        OJJDP to ensure continuity in its grants management function 
        through an Interagency Agreement with ONDCP.
  --Training and Technical Assistance--$0.75 million. This amount will 
        permit high-quality, low-cost training and technical assistance 
        via each of the six regional Centers for the Application of 
        Prevention Technology (CAPTs), managed by the Center for 
        Substance Abuse Prevention (CSAP). This is an especially 
        important function, considering the tremendous response ONDCP 
        has received from coalitions in rural or other traditionally 
        under-served areas which do not have experience in successfully 
        applying for Federal grant funds. ONDCP will continue to 
        utilize the resources of The Community Anti-Drug Coalitions of 
        America (CADCA) to provide a wide array of technical support, 
        program ideas, and advocacy to community coalitions.
  --Evaluation--$0.75 million. ONDCP agrees with the strong 
        recommendations of the Congress and the Advisory Commission 
        that an empirically sound evaluation is of paramount importance 
        to maintain the integrity of this program. These funds will 
        permit a modest, but effective evaluation focused on outcome 
        measures of effectiveness.
  --Program Administration--$0.2 million. These funds are used to 
        support the Program Administrator and the statutory Advisory 
        Commission. The Program Administrator serves a critical 
        function by ensuring a high level of responsiveness to the 
        grantees and applicants, as well as enhancing interagency 
        collaboration. This amount remains constant and is unaffected 
        by our request to increase the cap on administrative costs.
Parents For a Drug-Free Future
    In fiscal year 2002, ONDCP is requesting $5 million to support and 
encourage parents to help children stay drug-free. This program will 
provide matching funds to national parents' organizations for the 
following purposes:
  --Assist training thousands of parents in communities nationwide in 
        skills, methods, and information that help prevent drug abuse 
        by young people;
  --Promote cooperation among national parent efforts and increase 
        their impact through fostering partnership with the network of 
        parent organization affiliates and chapters, regional and 
        state-level entities that involve parents, and local community 
        anti-drug coalitions; and
  --Provide science-based prevention strategies, information, and 
        materials to parents and parent-serving organizations, thereby 
        strengthening their ability to protect their children from the 
        risks of drug use.
National Drug Court Institute
    In fiscal year 2002, ONDCP is requesting $1.0 million for the 
National Drug Court Institute (NDCI). The NDCI will use these funds to 
continue expanding their drug court training program for practitioners, 
convene special advisory groups to develop curricula in new 
disciplines, develop a national community probation initiative, and 
expand and update the Institute's video instruction library.
    Drug courts were developed in response to the costly and time 
consuming approach to dealing with non-violent, substance abusing 
offenders that were overwhelming the criminal justice system. 
Traditionally, drug use, criminal behavior, and recidivism are reduced 
substantially for drug court participants. In contrast to the 
traditional ``revolving door'' approach, drug courts provide an 
effective solution to drug addiction and drug-related crime through the 
innovative use of and sanctions and incentives, comprehensive 
supervision, drug testing, and judicial monitoring. Defendants who 
complete the program either have their charges dismissed (in a 
diversion or pre-plea model) or have their probation sentences reduced 
(in a post-plea model). Drug courts provide closer, more comprehensive 
supervision and much more frequent drug testing and monitoring during 
the program than other forms of community supervision.
    Currently, there are almost 1,000 drug courts in existence or being 
planned across the nation. These include approximately 175 juvenile 
courts, 55 Tribal courts and 50 family courts. Since their inception, 
almost 300,000 people have enrolled in drug court programs and almost 
180,000 have graduated or remain active in their programs. The 
Department of Justice's fiscal year 2002 request for the Drug Court 
Program maintains the program at the all-time high, fiscal year 2001 
enacted level of $50 million.
Counterdrug Intelligence Architecture
    In fiscal year 2002, ONDCP is requesting $3 million for the 
Counterdrug Intelligence Executive Secretariat (CDX). The fiscal year 
1998 Treasury and General Government Appropriations Act required ONDCP 
to improve counterdrug intelligence coordination and eliminate 
unnecessary duplication. As a result of this congressional directive, 
an interagency group created the General Counterdrug Intelligence Plan 
(GCIP). This unclassified plan was signed by eight department and 
agency principals, approved by the President, and released in February 
2000.
    The cornerstone action initiative of the GCIP establishes a senior 
interagency working group (The Counterdrug Intelligence Coordinating 
Group--CDICG) and its permanent support staff (The Counterdrug 
Intelligence Executive Secretariat--CDX). Since its inception in July, 
2000, the CDX staff has supported the CDICG in implementing many of the 
73 priority action items in the GCIP as well as additional taskings on 
new interagency counterdrug issues. ONDCP is confident that the work of 
this small but dedicated staff will continue to improve our nation's 
counterdrug intelligence architecture by enhancing information sharing, 
operational coordination, and technical connectivity among Federal 
counterdrug components and their state and local law enforcement 
counterparts.
United States Olympic Committee Anti-Doping Effort
    In fiscal year 2002, ONDCP is requesting $3 million to support the 
United States Olympic Committee Anti-Doping Effort, a decrease of $0.3 
million below the fiscal year 2001 enacted level. This request proposes 
to provide these funds to the United States Anti-Doping Agency (USADA) 
via a ``grant or other appropriate transfer'' instead of a ``direct 
payment.'' This will ensure the Federal government can provide 
financial oversight and accountability for these funds.
    These funds will provide much needed assistance to the USADA (the 
independent drug testing agency for U.S. Olympic sports) in achieving 
their mission of administering an independent, transparent, and 
effective anti-doping program for the Olympic, Pan American, and 
Paralympic games. Specifically, these funds would support research and 
administrative initiatives, educational programs, and efforts to inform 
athletes of the rules governing the use of performance enhancing 
substances, the ethics of doping, and the adverse health consequences 
associated with doping. These funds are critical if we are to strive 
for a drug-free Winter Olympics in Salt Lake City, Utah, and provide 
continuity of effort for future competition. To achieve that 
continuity, USADA is developing an out-of-competition testing program 
that will occur during the off-years of the Olympic and PanAm games.
            High Intensity Drug Trafficking Areas (HIDTA): $206.35 
                    million
    In fiscal year 2002, ONDCP is requesting $206.35 million for 
necessary expenses of the HIDTA program, an increase of more than $0.3 
million above the fiscal year 2001 enacted level. The ONDCP Director, 
in consultation with the Attorney General, Secretary of Treasury, heads 
of National Drug-Control Program agencies, and appropriate governors, 
designates these regions to enhance and coordinate America's drug-
control efforts among local, state and Federal law enforcement 
agencies. Each HIDTA has an Executive Committee (EXCOM) which serves as 
the governing body for the individual HIDTA. The EXCOM consists of an 
equal number of representatives from local/state and Federal law 
enforcement agencies. The EXCOM is responsible for the development and 
implementation of the HIDTA Strategy and the attendant initiatives and 
budgets, as well as for the fiscal operations of the HIDTA. The EXCOM 
hires a HIDTA Director to assist with the day-to-day administration of 
the HIDTA, implement appropriate oversight controls per the EXCOM, and 
liaison with ONDCP. Operational control of initiatives is the sole 
purview of the participating law enforcement agencies.
    The HIDTA mission includes coordination efforts to reduce the 
production, manufacturing, distribution, transportation and chronic use 
of illegal drugs, as well as the attendant money laundering of drug 
proceeds. In addition, HIDTAs assess regional drug threats, develop 
strategies to address the threats, integrate initiatives, and provide 
Federal resources to implement initiatives. These resources are 
allocated to link local, state, and Federal drug enforcement efforts 
and to optimize the investigative return on limited fiscal and 
personnel resources. Properly targeted, HIDTAs offer greater efficiency 
in countering illegal drug trade in local areas by facilitating 
cooperative investigations, intelligence sharing (coordinated at HIDTA 
Investigative Support Centers), and joint operations against drug-
trafficking organizations.
    Intelligence sharing will continue to improve, as we expect all 28 
HIDTAs will be connected via the Regional Information Sharing System 
Network (RISS.net) by the end of this calendar year. Connecting the 
HIDTAs via RISS.net, a Department of Justice program, instead of 
creating a new HIDTA-specific infrastructure, clearly demonstrates the 
HIDTA program's dedication to avoiding duplication of effort. Since 
1974, when Congress established the RISS.net program, law enforcement 
and criminal justice agencies in various regions of the country have 
been able to instantaneously share criminal intelligence information in 
a responsible manner. HIDTA looks forward to enhancing communication, 
as well as officer and public safety, through this state-of-the-art 
Web-based technology for years to come.
    HIDTAs are based on a logical, comprehensive methodology for 
prioritizing needs and working with other initiatives. This 
prioritization fosters a strategy-driven, systems approach to integrate 
and synchronize efforts as well as to maintain a focus on achieving 
measurable outcomes. Each HIDTA reviews annually their strategy and 
initiatives to improve effectiveness and to respond to changes in the 
threat. This ensures that participating agencies have a mechanism to 
quickly adapt to fluctuating drug trafficking patterns. This ability 
becomes increasingly important as drug traffickers use more and more 
complicated schemes and methods to bring illicit drugs to consumers in 
the United States.
    The ability to maintain regional flexibility while demanding 
accountability is essential to the HIDTA Program's success. Of the 
total amount requested, ONDCP's budget includes $2.1 million to conduct 
internal reviews and external financial audits of individual HIDTA 
program effectiveness and budgetary compliance. Internally, ONDCP has 
begun a review process that includes on-site visits to HIDTAs by ONDCP 
staff, as well as members from the Departments of Justice and Treasury. 
The on-site reviews help strengthen management at the individual HIDTAs 
and at ONDCP. To date, we have completed six reviews. ONDCP contracted 
with Klynveld, Peat, Marwick, Goerdeler (KPMG) to perform external 
financial audits. In order to maximize the impact of these limited 
audit resources, KPMG is currently conducting audits based on a risk-
assessment model. While we are pleased that these reviews/audits have 
not discovered any major problems, the audits and program/budget 
reviews have provided the impetus for ONDCP to provide some HIDTAs with 
conditional grant language to bring minor issues into compliance.
    Since January 1990, counties in the following 28 areas have been 
designated as HIDTAs: Houston; Los Angeles; South Florida; New York; 
and the Southwest Border, which includes South Texas, West Texas, New 
Mexico, Arizona and Southern California (in 1990); Baltimore/
Washington, DC; and Puerto Rico/U.S. Virgin Islands (in 1994); Atlanta; 
Chicago; and Philadelphia/Camden (in 1995); Gulf Coast (Alabama, 
Louisiana, and Mississippi); Lake County (Indiana); the Midwest (Iowa, 
Kansas, Missouri, Nebraska, North Dakota, and South Dakota); Northwest 
(Washington); and Rocky Mountains (Colorado, Utah, and Wyoming) (in 
1996); Northern California (San Francisco Bay Area); and Southeastern 
Michigan (in 1997); Appalachia (Kentucky, Tennessee, and West 
Virginia); Central Florida; Milwaukee; and North Texas (in 1998); 
Central Valley California; Hawaii; New England (Connecticut, Maine, 
Massachusetts, New Hampshire, Rhode Island, and Vermont); Ohio; and 
Oregon (in 1999); and Northern Florida; and Nevada (in 2001). 
Currently, 949 local, 172 state, and 35 Federal law-enforcement 
agencies and 86 other organizations participate in 452 HIDTA-funded 
initiatives in 41 states, the District of Columbia, Puerto Rico, and 
the U.S. Virgin Islands.
            Counterdrug Technology Assessment Center (CTAC): $40 
                    million
    The Counterdrug Technology Assessment Center's fiscal year 2002 
budget request of $40 million represents an increase of $4 million 
above the fiscal year 2001 enacted level. It includes requests for: 
Research and Development ($18 million) and the Technology Transfer 
program ($22 million).
    The counterdrug research and development (R&D) program addresses 
the scientific and technological needs of the National Drug Control 
Program agencies and supports improvements to counterdrug capabilities 
that transcend the need of any single Federal agency. It includes a 
demand reduction request to support projects in brain imaging 
technology, therapeutic medications, and assessment of treatment 
programs.
    Brain Imaging Technology projects have been particularly 
successful. New CTAC-sponsored neuroimaging facilities were completed 
this year at the University of Pennsylvania, Massachusetts General 
Hospital, and Emory University. Research scientists working on grants 
from the National Institute on Drug Abuse are using this equipment to 
further their knowledge of the underlying causes and consequences of 
substance addiction and abuse. These institutions are processing new 
images of the human brain to dramatically improve the quality of 
research they are capable of performing. In fiscal year 2002, positron 
emission tomography (PET) equipment will be completed at UCLA and 
NIDA's intramural research program located in Baltimore, Maryland. This 
equipment will support research using highly resolved images of non-
human primates. A high field functional magnetic resonance imaging 
scanner will also be completed in fiscal year 2002 at McLean Hospital 
in Boston, Massachusetts, in support of Harvard University research 
programs. New projects are planned in fiscal year 2002 with the 
University of Colorado and the Oregon Health Sciences Center to 
complement existing brain imaging technology with new four-Tesla 
functional magnetic resonance imaging systems.
    In fiscal year 2000, Congress provided ONDCP with funding for a 
research grant to the U.S. Anti-Doping Agency (USADA) to learn more 
about anabolic steroids, androgens, human growth hormones, and 
addiction. USADA held its first Anti-Doping Research Summit in October 
2000 to develop an aggressive, comprehensive research agenda. CTAC 
plans to support their research agenda by investigating innovative 
testing protocols for the Salt Lake City Winter Olympics and developing 
test protocols for the endurance-boosting hormone erythropoietin (EPO).
    The R&D program supports supply reduction projects to improve cargo 
inspection, countering drug smuggling, drug crime information handling, 
communications, and surveillance capabilities. Last year, CTAC 
conducted R&D projects for non-intrusive inspection capabilities in the 
areas of enhanced gamma ray detectors, surface acoustic wave sensors, 
selective breeding of detector dogs, and portable capabilities to 
detect drugs and contraband in sea vessels, compartments and containers 
of all sizes. In fiscal year 2002, research will continue on canine 
olfaction for detecting drugs and on exploring the phenomenology of 
illicit crops to improve the detection and identification of marijuana 
growth areas.
    CTAC uses technology testbeds to introduce emerging technologies 
and prototype systems into the operational environment and to determine 
user-related limitations and benefits of the systems from those 
agencies that ultimately use the equipment. In fiscal year 2000, a 
communications interoperability testbed was established with the 
Lakewood Police Department (Colorado) to assess off-the-shelf 
communications interoperability systems in the typical multiple agency 
drug task force environments. Based on this assessment and 
demonstration, Congress provided funding in fiscal year 2001 to 
continue this testbed in two phases: (1) a system configuration for the 
Denver metropolitan area, and (2) a state-wide configuration 
encompassing urban and rural populations that optimized the current 
communications infrastructure. The Denver phase will be completed in 
August 2001; the statewide phase will run through May 2002.
    The Technology Transfer Program (TTP) provides technologies 
developed with Federal funding ``directly to state and local law 
enforcement agencies that may otherwise be unable to benefit from the 
developments due to limited budgets or lack of technological 
expertise.'' The $39,052,000 appropriated over the past three years 
(fiscal year 1998-fiscal year 2000) for the TTP has made possible the 
delivery of 1,808 pieces of equipment to 1,325 state and local law 
enforcement agencies. CTAC provided hands-on training and limited 
maintenance support to all recipients. CTAC submitted to this 
Subcommittee performance evaluation reports on the program in September 
1999 and March 2000. During fiscal year 2002, the requested 
appropriation will allow transfer of much-needed technology to more 
than 2,400 state and local law enforcement agencies across the country.

                               CONCLUSION
    Developing policy and implementing programs to combat the threat of 
illicit drugs requires a holistic, long-term, and research-based 
approach. While we cannot expect to eliminate illegal drugs and the 
harm they inflict upon our society overnight, we can and will continue 
to make steady and significant progress on all fronts. We look to this 
Subcommittee, and indeed the entire Congress, to provide bipartisan 
leadership in this effort. ONDCP is committed to working within the 
Executive Branch, as well as with Congress, state and local 
governments, international actors, and private citizens to reduce drug 
use and its consequences in our nation. We owe our children nothing 
less.

    Senator Campbell. Thank you. I have some questions dealing 
with youngsters and use of drug, but Senator Dorgan has a 
little tighter morning than I do so I am going to yield to him 
first.
    Senator Dorgan. Mr. Chairman, thank you very much. The 
Commerce Committee is marking up a fairly controversial bill 
right now downstairs and I must go down. I appreciate your 
courtesy.
    Let me ask about the issue of drug treatment. I know that 
ONDCP is not the primary source of drug treatment initiatives, 
and yet ONDCP has been involved in virtually everything dealing 
with drugs. Your former director was down in Colombia a good 
number of times and was involved in those initiatives.
    If one is going to try to interdict and restrict the supply 
of drugs, and a country has several million drug addicts, and 
you have got a fair number of them that would like to shed the 
addiction but there are not treatment availabilities for that. 
In other words, the slots available for getting treatment to 
shed yourself of a drug addiction are not sufficient in order 
to meet the needs. Does ONDCP talk with other agencies or talk 
internally about what we need to do to meet certain targets 
with respect to drug treatment availability?
    Mr. Jurith. Senator Dorgan, you are absolutely right. We 
estimate there are about 5 million chronic addicts in the 
country, a mixture of cocaine addicts, heroin addicts, and 
polydrug using addicts. We find it is rare nowadays that you 
find an addicted person who is only abusing one substance. Many 
of these combined with alcohol abuse as well.
    You are right, we need to do a better job. Because out of 
that 5 million figure, we estimate we have treatment capacity 
for a little over 2 million of them. So that leaves a 
substantial portion of that population that is in need of 
treatment and cannot access it.
    Senator Dorgan. You are saying we have 2 million slots for 
drug addiction treatment?
    Mr. Jurith. That is correct. For about 5 million addicts, 
that is correct, sir.
    Senator Dorgan. That is much, much more than I was told we 
had. But nonetheless----
    Mr. Jurith. We have a significant treatment gap that we 
need to address. I think efforts over the last few years and 
efforts in the President's budget attempt to address that. For 
example, in the President's 2002 budget he proposes an increase 
in drug treatment funding, including research to $3.4 billion. 
That is an increase of $245 million over the fiscal year 2001 
level, and we have been steadily increasing our treatment 
budget over the last 5 years. I think it is over a 30 percent 
increase since fiscal year 1996.
    Senator Dorgan. Let me follow this because I want to try to 
understand what you are saying. We have 5 million people who 
are drug addicts, who are chronic severe drug addicts.
    Mr. Jurith. Correct, sir.
    Senator Dorgan. A number of those are not interested in 
getting treatment. A number of them are. A number of them have 
an addiction that is a desperate problem for them. They go out 
and they prostitute themselves, they steal, they commit massive 
amounts of crime in order to buy the drugs to deal with their 
addiction. We agree on that.
    Mr. Jurith. Absolutely.
    Senator Dorgan. So that number of addicts who want to shed 
themselves of their addiction, if they show up at a treatment 
center in one city or another, the latest data for which I have 
information, 1998, 57 percent of the drug users in the more 
severe categories of abuse were unable to receive treatment. So 
we know that there are people showing up with a severe drug 
abuse problem and unable to get treatment for it.
    Mr. Jurith. That is correct.
    Senator Dorgan. Now do we have a goal or an objective, with 
ONDCP playing a role in that. Do we have an objective by which 
this country will be able to say at some point, anyone who is 
addicted to drugs who shows up at a treatment center, we have 
enough capability in this country in treatment centers to help 
them shed their addiction?
    Mr. Jurith. We need to increase our treatment capacity 
expansion. There is no question about it. The Center for the 
Substance Abuse Treatment has developed the National Treatment 
Plan. I would be happy to share a copy of that with Senator 
Dorgan and your staff.
    We are expanding treatment capacity in the President's 
budget by $40 million, including $8 million for competitive 
grants to provide residential treatment to young people. There 
is a real problem out there. Too many young people develop an 
early addiction and need residential treatment. Outpatient 
therapies are not going to work for that population because you 
need to get them out of that environment where they got their 
addiction to begin with. But many private insurers are 
reluctant to pay for that type of residential treatment, so we 
need to expand that capacity.
    The Substance Abuse Block Grant----
    Senator Dorgan. My question is whether we have targets to 
do that. Are we just saying we need to, or are we establishing 
targets? Let me tell you why I am asking the question. I was on 
an Indian reservation a while back where they have a substance 
abuse problem particularly dealing with alcoholism, but chronic 
alcoholism, and they had, I believe, 18 in-resident treatment 
slots available. Hundreds and hundreds of people who have a 
chronic alcohol problem and they had just a minuscule amount of 
in-resident treatment capability to help them.
    So I walked away from that thinking, my God, we are really 
missing the boat here. And you extrapolate that to the issue of 
chronic drug abuse with hard drugs and then realize there are 
people walking around who desperately want to shed themselves 
of this addiction and we do not have enough treatment slots 
available.
    So the question I am asking is, do we have a target in 
mind? Are we going to try to, in 2 years or 3 years--we know 
what the target is on advertising. We know how much we are 
going spend, we know the target audiences. Do we have a target 
in mind anywhere, in your agency or others, by which we are 
deciding that we are going to try to help these people who want 
to shed themselves of their addiction, to be able to do so?
    Mr. Jurith. Senator, I will have to get back to you on the 
issue of specific targets. But I do know we do have the 
National Treatment Plan developed by CSAT, and there is 
increased money in the budget to close the treatment gap. Part 
of the problem is we need to be more creative in our outreach 
efforts. As you indicated, many of these folks are in hard to 
reach communities. It is difficult to draw them out into 
treatment.
    One of the things I think we need to do and one of the 
things that we have discussed at ONDCP is, how can we be more 
creative in reaching out to these hardcore using communities 
who very often are beyond the reach of the criminal justice 
system. We have expanded drug courts and we are picking up a 
fair number of chronically-addicted folks that way. But many of 
these individuals do not come into daily or regular contact 
with the criminal justice system.
    I think one of the efforts that the President's faith-based 
initiative can do is just that--because the churches are out 
there in these communities. Not that we want them necessarily 
on the front line of providing treatment, but I think one of 
the things that faith-based organizations can do is serve as a 
lever to draw these people in and get them into treatment. 
Because it is costing us billions of dollars by having that 
untreated population out there.
    I will get back to you on the target issue and----
    Senator Dorgan. I would appreciate it if you would do that. 
I do not want to ask the chairman for indulgence much further 
except for one additional point. I am going to submit some 
questions that I have dealing with the money side of things.
    Mr. Jurith. Fine, sir.
    Senator Dorgan. But with the killing of the woman and her 
child in Peru, the shooting of that airplane by the Peruvian 
military, I must say that I am becoming less and less 
comfortable with what we are doing in that region of the world, 
Colombia, Peru and elsewhere.
    I know that we are doing that in order to shut down the 
supply of drugs. But the supply of drugs would largely be 
irrelevant if the demand did not exist. So that is why I have 
supported, and the chairman has supported, the media campaign 
and a range of other things that you have described in your 
testimony, to try to see if we cannot do something about 
demand. That is why I care so much about this issue of 
treatment.
    But I did want to say for you, for your benefit and others 
that I am becoming increasingly concerned about what we are 
doing with respect to the situation in Colombia, Peru and the 
region, and wondering if we are not getting deeper than we 
might want to get in that region in a range of very troublesome 
circumstances.
    That is not to suggest we should not care about supply. We 
should. It is not to suggest we should not attempt to 
interdict. We should. But we need a balanced program here, and 
it includes treatment and a range of other things including the 
media campaign.
    Now some of the questions I am going to submit to you deal 
with the media campaign. I am also very anxious to get someone 
outside of Government, that has a vested interest in evaluating 
the campaign, to tell us what has this done, what are we 
accomplishing with it? You have a vested interest, and we 
perhaps do as well because we have authorized the campaign. You 
have requested the money. So we all have an interest in saying, 
gosh, haven't we done a great here?
    Well, I do not have the foggiest idea whether we have done 
a great job. We are going to end up spending close to $1 
billion of the taxpayers' money. I hope it proves to be highly 
effective. But along the way, let us make sure that we are 
making some progress. I hope we can perhaps find a mechanism by 
which someone outside of the circumstances of vested interests 
can give us that evaluation as well.
    Mr. Chairman, thank you. I will submit a series of 
questions for the record. We appreciate your testimony today, 
and look forward to working with you and others in the agency 
as you pursue your mission.
    Mr. Jurith. Thank you, Senator Dorgan. We will be happy to 
bring you up to date fully on the evaluation, which is being 
conducted by an independent contractor under a contract with 
NIDA. So it is not fully a Government-run evaluation. But we 
clearly share your concerns about the efficacy of the Campaign.
    Senator Dorgan. My only point is, I assume you are paying 
the contractor.
    Mr. Jurith. I understand. Well taken.
    Senator Dorgan. I used to teach economics and have been 
around economists enough to know that whomever pays economists 
have a lot to do with the reports the economists produce, and 
the same is true with most contractors. I do not mean to be 
pejorative about whatever you are doing there----
    Mr. Jurith. I understand, sir.
    Senator Dorgan [continuing]. But I think it is something 
that we also want to discuss in more depth at some point.
    Mr. Jurith. Yes, sir.
    Senator Dorgan. Thank you very much.
    Senator Campbell. Mr. Jurith, Senator Dorgan and I have a 
lot of the same ideas about the tenets of fighting a drug war 
which is based on incarceration, education, rehabilitation, and 
interdiction. Of course, this committee deals more with 
interdiction and education, and to a lesser degree with 
incarceration. Most of the money goes through CGIS, as you 
know.
    But I have to tell you that I agree with him that I am not 
sure we are winning the war from the standpoint of 
incarceration, as I see the numbers of inmates going up in 
American prisons and something like 70 percent or more are 
somehow related to drug use, or habituate drug use. A lot of 
them are repeat offenders.
    In some cases, these towns that used to say, you are not 
going to build one of those prisons in my backyard are now 
saying, gee, I hope we will get one too because we will ensure 
jobs literally forever. There does not seem to be any end in 
sight for the number of people we are putting in prison. We 
have some towns where over half of the population base is 
employed somehow in the prison industry. To me, there is 
something wrong with a country that finds as its only recourse 
to put more of their fellow countrymen in prison instead of 
trying to help them recover.
    I have always been a big supporter of the campaign too. 
These ads that you have shown us today are pretty graphic, and 
frankly I like those.
    Mr. Jurith. Thank you, sir.
    Senator Campbell. One of the reasons we got cross-ways with 
your predecessor, General McCaffrey, was that we were out of 
the loop when the negotiations were done about how to spend 
those millions and millions of dollars. We found that, after 
some investigations, that the networks, as you remember, were 
putting subliminal messages into the text of the programs and 
that was being considered sufficient for ONDCP to pay them the 
money, and then that would free up time for the networks to go 
ahead and resell that space to other advertisers. So the 
networks really got a windfall.
    When we put this program in place 5 years ago, that was one 
of our big concerns. We created some kind of a cash flow of 
money, easy money from the Congress, that ended up having some 
detrimental effect. I did not think that was right and we 
talked to the General about the way in which it was handled.
    I also questioned some of the ads that were in magazines 
that youngsters never read. It does not do any good to put ads 
on drugs in The Economist for youngsters, or Forbes, some 
magazine like that because teenagers rarely read those 
magazines. We had a little go-around about that too, I have 
always been a steadfast supporter of the money that goes into 
the media campaign.
    I know that it is not a popular thing for elected officials 
to talk about rehabilitation because you look like you are weak 
on crime. When it comes times for reelection, you would be 
surprised at the accusations that are made at you if you talk 
about trying to help somebody recover as a drug addict rather 
than just locking them up and throwing away the key. That seems 
to sell. It gets you lots of votes. But it is penny-wise and 
pound-foolish. It is dumb not to put more into education and 
rehabilitation.
    I used to be a volunteer prison counselor years ago and I 
think I can speak from a direct relationship with some of the 
people that were in prison with drug abuse.
    You mentioned Native American and Alaskan youngsters, and 
Senator Dorgan did too. I can tell you, some of our campaigns 
might not work with them because it is a different kind of a 
drug. You go on the Indian reservations, I will tell you what 
they are using. They are using paint, spray paint, and oven 
cleaner, and canned heat, and shaving lotion mixed with orange 
juice to drink, and things of that nature. If you gear a drug 
campaign dealing with sophisticated drugs like cocaine or 
something, I think it goes right on by them. I do not think it 
does any good at all.
    But clearly Senator Dorgan is right, it is supply and 
demand. I think we need to continue in our efforts for 
interdiction. Certainly you have to incarcerate some people 
that are incorrigible or you cannot help. But as long as the 
supply is there, you have to lay that at the doorstep of 
Americans themselves that are demanding it. The supply will 
always be there as long as they demand it.
    Until we can get Americans to realize they do not need it, 
should not have it, ought to discourage their youngsters from 
using it, the supply is always going to be there. I do not care 
how many people we send to South America or how much money we 
put into South and Central America where most of the drug flow 
is coming from it is going to keep coming, I think, unless we 
do something else.
    But in any event, I want to ask you about one drug. It 
seems like every 4 or 5 years we have a new drug of choice or a 
new drug that seems to be popular. It was marijuana years ago, 
then it was something else, and then it was cocaine, and then 
the last few years we have heard so much about crack. Now we 
are hearing more and more about a drug that youngsters seem to 
be fooling with and it is killing some of them called Ecstasy.
    I would like to ask you a little bit about the findings. 
What findings has the ONDCP come across regarding the 
manufacturing and distribution of this drug called Ecstasy?
    Mr. Jurith. Very good, sir. MDMA, Ecstasy, it is a mind-
altering synthetic drug that is both a stimulant and has mild 
hallucinogenic properties.
    Senator Campbell. Where does it come from? What is it made 
from?
    Mr. Jurith. It is basically made out of various chemicals. 
It is made primarily in Belgium, the Netherlands, and 
Luxembourg.
    It is a two-pronged effort. It is basically manufactured in 
Europe, so one of the things that we are doing very intensively 
in the last few months is trying to work very closely with our 
European allies and the European Union to get a handle on the 
reduction in trafficking out of Europe.
    We have gotten a lot of support from our European allies, 
including the Dutch, in controlling this manufacture and 
production. Recently I met with representatives from Great 
Britain, Germany, Sweden, Ireland, as well as the Netherlands, 
in terms of what we can do together, what the EU can do to 
control the production and trafficking.
    We are seeing a steady increase, you are right, Mr. 
Chairman. Since 1995 we have seen a steady increase in Ecstasy 
use by our young people. In fact last year in the Monitoring 
the Future Survey, among all age groups we saw an increased use 
of this drug by 8th, 10th, and 12th graders. So that is on the 
prevention side. We need to be more aggressive in terms of----
    Senator Campbell. Is it a vegetable or organic base?
    Mr. Jurith. No, it is chemical.
    Senator Campbell. It is chemical-based. You know the last 
couple years we have had a horrible rise in the manufacture and 
use of methamphetamines.
    Mr. Jurith. Correct.
    Senator Campbell. Is it like meth in that it is explosive, 
contaminative, flammable or something of that nature?
    Mr. Jurith. No, I do not believe it causes those 
environmental damages. There is a perception out there, 
unfortunately, that somehow casual Ecstasy use is safe. That 
has unfortunately been brought, transported to this country 
from Europe, the whole rave club scene. That somehow you can 
take this drug, dance all night, feel good, feel happy, and 
have no adverse effects.
    Senator Campbell. Yes, die later.
    Mr. Jurith. Our research at the National Institute of Drug 
Abuse shows otherwise. That there are some significant long 
term neurological effects from the use of Ecstasy. So I think 
we have a two-pronged approach here.
    On one hand we are trying to work with our European allies 
to control the production and trafficking of Ecstasy. We are 
working domestically through our own enforcement agencies to be 
more aggressive in seizing Ecstasy.
    For example, in 1999 we seized worldwide about 10 million 
Ecstasy tablets around the world. So we need to be more 
aggressive. Our Customs and DEA work together to seize these 
shipments as they are coming into the country.
    Lastly, we need to intensify our prevention efforts. 
Getting the message out to young people that Ecstasy use is not 
safe. The Media Campaign, for example, in August 2000 launched 
a special $5 million Ecstasy initiative that included Internet 
advertising and national radio ads, along with the limited use 
of print ads.
    Later in May, the Media Campaign and the American Academy 
of Pediatrics is going to conduct a background seminar for 
writers in the creative community to look at Ecstasy use to 
ensure that in our popular culture we are not borrowing this 
mistaken belief that somehow this is a safe drug to use.
    Senator Campbell. Are you familiar with fetal alcohol 
syndrome?
    Mr. Jurith. Yes, sir.
    Senator Campbell. It is as if the mother uses too much 
alcohol the baby is born with certain disabilities that are 
never--they never get well. They are never correctable. It is a 
preventable thing but not correctable. I understand from 
Senator Dorgan's staff that this Ecstasy may have somewhat the 
same effect. If pregnant women use it there is pretty good 
chance that there will be an effect, a permanent effect on the 
unborn child. Is that true?
    Mr. Jurith. There is a significant amount of ongoing 
research being done at the National Institute of Drug Abuse on 
the long term effects of Ecstasy use. I would be happy to share 
the results of all that research with the subcommittee.
    Senator Campbell. I wish you would. You mentioned that you 
are trying to work with the countries where most of it seems to 
be manufactured, if that is the proper word for how it is put 
together. What are we doing in this country to try to stem the 
rising tide of it? Are we going through the normal process that 
we do with all of our other programs to prevent drug use?
    Mr. Jurith. Correct. Also what we are trying to do on the 
enforcement end is to collect the appropriate data to see what 
locations around the country are having significant problems 
with Ecstasy use, trying to deal with the rave club scene, 
because that is where apparently the popularity of this drug 
exists, along with other club drugs. To work with rave 
operators to remind them of their obligations that in addition 
to having their raves alcohol free, they also must be drug 
free.
    We are also working with our Customs Service to seize this 
stuff before it comes into the country. And again, intensifying 
our prevention efforts not only through the Media Campaign but 
other prevention efforts as well.
    Senator Campbell. It is also my understanding that a lot of 
it is used at teenage group things rather than as an 
individual, like some of the drugs that are taken 
intravenously, and it is done at some youth nightclubs, rave 
groups they are called, and so on.
    Mr. Jurith. Yes.
    Senator Campbell. You are in charge of your own department, 
but I would encourage you to take a look at where it is being 
used in these groups and try and have some input into those 
too.
    Mr. Jurith. Yes, we are doing that. Again, by gathering 
data through our Pulse Check, for example. As you know, Pulse 
Check is a report we do every 6 months looking at drug trends 
around the country from an epidemiological point of view, from 
a basically anecdotal evidence point of view. The last Pulse 
Check report had a special section in it dealing with Ecstasy, 
and this has been supplied to the subcommittee.
    We are tracking this very closely. Working with DEA and 
Customs on the enforcement side, looking at our prevention 
efforts, including the Media Campaign, to see how we can get 
the message out to young people. Again, the National Institute 
on Drug Abuse has done very effective research in this area. 
Getting that research out that this is not a safe drug, 
contrary to an earlier European view on the subject.
    Senator Campbell. I think those ads are on the right track, 
with youngsters doing the talking, because youngsters tend to 
listen to youngsters more than they do adults. When you have 
real graphic illustrations of youngsters talking, I think that 
could be very effective.
    Mr. Jurith. Senator Campbell, the great thing about it, 
those are two of the 75,000 young people that submitted their 
anti-drug suggestion to the Campaign. Those are real kids, kids 
that reached out. We are reaching out and touching our kids 
through this Campaign, and there is good evidence how we are 
drawing young people into the Campaign. So you are right, those 
are real kids expressing their real, true anti-drug beliefs 
about whether it is drawing or cartooning or listening to 
music.

                     Additional committee questions

    Senator Campbell. I thank you. I have no further questions, 
but if I do in the next day or two I will submit them to you in 
writing.
    Mr. Jurith. Very good, sir.
    Senator Campbell. We will be looking forward to working 
with you. I might tell you, we are not sure yet how much money 
we are going to have to be able to spend----
    Mr. Jurith. I understand.
    Senator Campbell [continuing]. But we will do everything we 
can for you.
    Mr. Jurith. Thank you, sir.
    [The following questions were not asked at the hearing, but 
were submitted to the Office for response subsequent to the 
hearing:]

         Questions Submitted by Senator Ben Nighthorse Campbell

    Question. So far, Congress has provided $750 million for the 
National Youth Anti-Drug Media Campaign. And, you are requesting an 
additional $185 million for fiscal year 2002--the fifth year of what 
was described to us back in 1997 as a five-year program. Although many 
people have seen the ads and have had favorable reactions to them, 
there appears to be little information on whether the ads themselves 
have had any impact on drug use. When will we be able to get some 
measurable results from our investment?
    Answer. ONDCP is proud to report that the National Youth Anti-Drug 
Media Campaign is undergoing a rigorous and extensive evaluation. The 
National Institute on Drug Abuse (NIDA), the world's leading drug 
research organization, is evaluating the Campaign for ONDCP. The 
National Survey of Parents and Youth-NIDA's evaluation survey--is a 
nationally representative longitudinal (i.e., the same parents and 
youth will be interviewed up to 3 times) survey of parent and child 
attitudes, beliefs, and behavior with regard to drugs. More than 34,000 
interviews will be conducted in households in 6-month waves. Reports 
detailing the findings from each of the Waves are issued every 6 
months; the second report was released in April 2001 and the final 
report is due in Spring 2004.
    The Wave 2 report presents findings from the first two waves of 
data collection (November 1999-May 2000 and July 2000-December 2000), 
focusing on evidence of change between the first two waves of data 
collection. There was a relatively short period of time for change in 
the outcome measures to occur; thus, the second evaluation report's 
analysis is not definitive. The analysis involves two complementary 
tests: (1) establishing that change has occurred, and (2) that the 
change is associated with exposure to the Campaign's messages. The Wave 
2 report shows some positive and encouraging changes that suggest the 
Campaign is having an impact, but we cannot yet definitively attribute 
these to the Campaign. Findings include:
  --There is good evidence of increased anti-drug sentiment among older 
        non-drug-using teens (aged 14 to 18) with regard to their 
        intentions to not try marijuana in the next year, which may 
        signal subsequent declines in marijuana use in the near future.
  --The parent data indicate a consistent pattern of association 
        between exposure to anti-drug messages and three key outcomes 
        (talking with, monitoring, and engaging in fun activities with 
        youth), meaning that parents who reported high levels of 
        exposure to anti-drug messages were more likely to have engaged 
        in the three activities with their children--but, there were no 
        changes in the measures between Waves 1 and 2.
    Over time, because of the evaluation's longitudinal design and 
extensive set of questions measuring exposure to the Campaign and 
outcomes related to the Campaign's messages, it will be able to assess 
whether the Campaign is having an impact on drug-related attitudes, 
beliefs, and behaviors over time. The Wave 4 report (due 1 year from 
now) will include data for the first 2 years of Phase III and will be 
the first to include follow up data on the parents and youth first 
interviewed in Wave 1. The Wave 4 report will provide a more conclusive 
assessment of the extent to which any changes in beliefs, attitudes, 
and behaviors can be attributed to the Campaign.
    The National Household Survey on Drug Abuse (NHSDA) and the 
Monitoring the Future Survey (MTF) indicate that youth drug use, 
particularly marijuana use, rose in the early 1990's but has leveled 
off, and even declined, in the past 2 to 3 years. It is during this 
period of time that the Campaign was launched, with full implementation 
in mid-1999. These surveys were not designed to evaluate the Campaign 
and include no questions about target audience exposure to anti-drug 
ads and response to the campaign; consequently, any changes in 
attitudes and behavior regarding drug use reported by these surveys 
cannot be proven to be as a direct result of the Campaign. NIDA's 
independent evaluation of the Campaign, in conjunction with continued 
monitoring of drug use rates by NHSDA and MTF, will provide an 
assessment of the Campaign's impact over the next 3 years as the series 
of reports is released. Release of the 2000 NHSDA is expected in August 
2001; the 2001 MTF in December 2001; and the next evaluation report 
(Wave 3) in Fall 2001.
    Question. In addition to maintaining funding for 26 HIDTA programs, 
the fiscal year 2001 appropriations bill provided additional 
discretionary funding. I expect that every one of those 26 HIDTAs can 
justify significant increases in their budgets. I know that the Rocky 
Mountain HIDTA can always use more, especially for efforts to address 
the ever increasing methamphetamine problem. What criteria did you use 
to decide how to allocate the additional funding provided?
    Answer. ONDCP takes seriously its responsibility to allocate 
discretionary HIDTA dollars in an objective and transparent manner. Our 
first priority was to provide basic funding to establish the recently 
designated Nevada and Northern Florida HIDTAs. This funding will enable 
the HIDTAs to begin focusing on HIDTA Program priorities related to 
combating their regional threat, including intelligence/information 
sharing, training, and communications interoperability.
    The second priority was to provide funding to bring the HIDTAs 
designated in 1999 (Central Valley California, Hawaii, New England, 
Ohio and Oregon) up to the minimum $2.5 million level necessary to 
provide effective support. In order to become fully operational and 
fund a new fugitive apprehension initiative, the six-state New England 
HIDTA will receive a total of $2.85 million.
    The third priority was to establish electronic connectivity among 
the HIDTAs via the Regional Information Sharing System (RISS.net). This 
initiative will significantly enhance intelligence/information sharing, 
communication and coordination among the HIDTAs. Establishing 
connectivity between the HIDTAs also will fulfill a major requirement 
of the General Counterdrug Intelligence Plan (GCIP). This connectivity 
will also provide the network upon which the HIDTA Program fiscal 
database currently under development will operate. Connectivity costs 
between HIDTAs vary because the 11 HIDTAs identified as RISS.net node 
sites must take on the responsibility and added cost of user 
authentication for the non-node HIDTAs. HIDTAs receiving base costs of 
$22,000 will supply connectivity and allow them to operate as ``RISS 
HIDTA Client Sites'' and fund costs associated with the lines, Internet 
Sites, Internet firewalls, and routers. HIDTAs selected as RISS.net 
node sites receive $150,500. This increased funding will provide for a 
network person to assist clients, authenticate/manage users, administer 
security system(s), man help desk, etc., connection costs, and 
equipment costs (firewall, computers, smart cards and readers, etc.).
    The final priority was to carefully evaluate supplemental requests 
received from 23 HIDTAs, which totaled $48 million. Decisions to 
allocate funding for new or expanded initiatives were based, in large 
part, on HIDTA Program priorities (intelligence/information sharing 
infrastructure), and the content and composition of the supplementary 
funding requests.
    Question. Speaking of methamphetamine, we have a real problem in 
the West, as you know, and in the Denver area in particular. Now we're 
reading about folks cooking methamphetamine in pots in apartments! And, 
a recent article in the Rocky Mountain News stated that 83 
methamphetamine sites have been discovered in three months. What are 
you doing to try to educate people about the dangers of methamphetamine 
use?
    Answer. ONDCP recognizes the threat posed by this emerging drug. 
Clandestine laboratories in California continue to produce more 
methamphetamine than any other region, but the smaller ``mom and pop'' 
laboratories, operated by thousands of independent U.S. traffickers, 
are found in large numbers in the Midwest and growing numbers in the 
southeast United States. The growing popularity of methamphetamine has 
led to an alarmingly high number of clandestine laboratory seizures 
across the country. According to the National Clandestine Laboratory 
Database (NCLD) at EPIC, as of March 2001 there have been 533 reports 
of clandestine laboratory seizures nationwide (there were 6,480 in CY 
2000). In CY 2000, 23 percent (1,469) of these 6,480 clandestine labs 
were seized in California. Arrests in DEA methamphetamine 
investigations increased in fiscal year 2000, to 7,519, a 22 percent 
increase over the 6,145 arrests in fiscal year 1997, and a significant 
85 percent increase over the 4,069 arrests in fiscal year 1996.
    The average purity of methamphetamine discovered in DEA 
investigations declined from 71.9 percent in 1994 to 35.3 percent in 
2000. Subsequent control measures by the US and other countries have 
reduced availability and contributed to the decrease in amphetamine 
purity since 1997. Nationally, the average purity for amphetamine has 
dropped from 56.9 percent in 1997 to 20.1 percent in 2000.
    The HIDTAs employ a comprehensive approach that includes 
specialized training and equipment for law enforcement personnel 
responding to methamphetamine labs, a plan to better coordinate 
intelligence initiatives regarding super methamphetamine labs as well 
as mom and pop labs, and the establishment of additional 
methamphetamine task forces in high risk areas and regions. 
Investigative initiatives aimed at penetrating the communications and 
dismantling the command and control elements of Mexican-based 
methamphetamine trafficking organizations are included in the strategy. 
To combat the environmental hazardous from clandestine lab waste, 
investigative efforts aimed at mom and pop labs will be expanded and 
intensified. The strategy calls for additional treatment, prevention, 
and awareness programs targeted at high-risk youths. The considerable 
resources of Federal State and local law enforcement and public service 
institutions will be orchestrated to bring about a measurable change in 
the methamphetamine situation.
    The Midwest, Central Valley California, Rocky Mountain, Northwest 
and Oregon HIDTA's focus the majority of their enforcement efforts 
towards methamphetamine enforcement. The Southwest Border HIDTA 
sponsored National Methamphetamine Chemical Initiative (NMCI) is a 
nationwide initiative that seeks to control and subsequently reduce the 
availability of precursors and chemicals to illicit manufacturers 
through education and regulation of chemical sources and through a 
unified law enforcement and prosecutorial effort. The total fiscal year 
2000 funding for methamphetamine-specific HIDTA initiatives was 
$21,033,676.
    Question. I noted that you have requested $50.6 million for grants 
under the Drug-Free Communities Act. The currently authorized level for 
that program in fiscal year 2002 is $43 million. Do you believe that 
there will be enough new communities seeking grants to justify that 
significantly increased funding? How many grants do you expect to make 
in fiscal year 2002? How does ONDCP handle the management of this 
program?
    Answer. Yes. Over the last few years we have seen growing interest 
in the Drug-Free Communities Program by state prevention network 
directors and state alcohol and drug directors. We have presented 
workshops on the Drug-Free Communities Program Application process at 
several state coalition meetings, and we have held a series of regional 
workshops for potential applicants in Mississippi, Illinois, and New 
York. Four workshops are planned in May in Georgia, Texas, Connecticut, 
and California.
    The Ad Council, working with ONDCP's National Youth Anti-Drug Media 
Campaign, is planning to launch a major public service campaign this 
fall to feature what coalitions do and the successes they have 
achieved. We believe this campaign will further stimulate increased 
interest in forming eligible coalitions around the country. Requests 
for the grant application for this year's solicitation greatly 
increased. The ONDCP Clearinghouse sent out 7,200 applications for 
fiscal year 2002 funding, double the number of applications sent for 
fiscal year 2001.
    ONDCP is proud to report that the program currently supports 307 
communities located in forty-nine states, Puerto Rico, the U.S. Virgin 
Islands, and the District of Columbia. Furthermore, twenty-five of the 
grants have been awarded to communities with predominately Native 
American and Native Alaskan populations. We anticipate awarding 140-150 
additional grants during the fiscal year 2001 grant cycle (September, 
2001).
    Of the total $50.6 million ONDCP is requesting for this program, 
$46.6 million will be granted directly to community anti-drug 
coalitions (assuming an increase in the administrative cap to not more 
than eight percent). We anticipate being able to award approximately 
150 new grants in fiscal year 2002, bringing the cumulative five-year 
total of grantees to over 600.
    The implementation of the DFCA involves the awarding of grant 
monies, through competitive peer-reviewed procedures, directly to 
community anti-drug coalitions in the United States and its 
territories. Non-Federal matching funds equal to the amount of each 
grant are required for all projects. ONDCP understands and appreciates 
the intent of Congress to ensure that the maximum amounts possible go 
directly to enhancing, expanding, and improving existing community 
coalitions. ONDCP shares this goal and has engaged the assistance of 
key Federal and private sector partners to provide low-cost, high 
quality technical training and administrative support to the grantees.
    Through a Memorandum of Understanding with ONDCP, OJJDP is 
administering the Drug-Free Communities through its Special Emphasis 
Division (SED). SED is the OJJDP division responsible for administering 
all OJJDP demonstration and replication programs. SED is comprised of 
22 professional staff, 3 administrative support staff, a deputy 
director and a director. Currently, SED staff members are responsible 
for monitoring approximately 630 local programs (307 of which are Drug-
Free Communities grants). The seven Drug-Free Communities program 
managers are currently responsible for monitoring almost 50 percent of 
the Special Emphasis Division's workload. OJJDP collaborates with the 
Office of National Drug Control Policy, the Center for Substance Abuse 
Prevention and the CSAP funded Centers for the Application of 
Prevention Technologies.
    All of the grant awards to date have been with the assistance and 
cooperation of a small team coordinated by ONDCP. At ONDCP, the 
administrator and a program support specialist oversee the entire 
project and coordinate the work of the Advisory Commission. The 
Commission has met in formal session on six occasions and their 
recommendations and observations have guided the implementation of all 
aspects of the program. Commission members are consulted regularly by 
the administrator and kept informed about key decisions, problems, and 
issues facing the program. The Department of Justice, Office of 
Juvenile Justice and Delinquency Prevention (OJJDP), has a team of 
seven program managers and two support personnel dedicated to the day-
to-day aspects of grants management. Each of the 307 grantees has a 
specific program manager with whom they consult on matters relating to 
their strategic plans, budgets, and reporting. At the Center for 
Substance Abuse Prevention (CSAP), there are no agency administrative 
costs supported by DFCA funds. Nevertheless, CSAP staff members assist 
the program in numerous ways. Chief among these is assisting applicant 
community leaders in the development of appropriate logic models for 
their proposals and further helping local communities select specific 
prevention strategies that have amassed better evidence for 
effectiveness through scientific study.
    As the number of grantees has increased from 93 in fiscal year 1998 
to 213 in fiscal year 1999 to 307 in fiscal year 2000 the 
administrative challenge has grown proportionally. We expect that this 
challenge will become nearly unworkable with the 150 new grants ONDCP 
expects to award in both fiscal year 2001 and fiscal year 2002, 
bringing the cumulative number of DFC coalitions to over 600. However, 
the declining administrative cap has kept constant the actual amount 
available for administration at $1.2 million annually. As a result, 
whether OJJDP has 91 grants or 300 grants, the legislation does not 
anticipate or permit the increase in costs commensurate with the growth 
of the program. OJJDP Drug-Free Communities program managers are 
currently carrying caseloads that limit their ability to monitor 
effectively the existing 307 anti-drug coalitions. The Special Emphasis 
Division of OJJDP utilizes 15 staff to manage almost the same number of 
grants in other programs as the 9 Drug-Free Communities program 
managers currently manage. In other programs, OJJDP usually assigns one 
program manager to every 25 grantees. During early 2001, OJJDP has only 
7 program managers for 307 grantees, a ratio of nearly 44 grantees to 1 
program manager. By Oct. 1 of 2001 there will be more than 450 grantees 
and OJJDP will not be able to operate the program without additional 
staff.
    If the cap on administrative costs is raised in fiscal year 2002 
ONDCP and OJJDP anticipate awarding approximately 150 new community 
coalition grants which will bring the cumulative number of grants to a 
projected estimate of more than 600. This figure assumes an 8 percent 
limit on all administrative costs, full funding of the continuation 
budgets for 447 previously awarded grants, and full funding at $100,000 
per year of 140 new projects.
    An increase in Drug-Free Communities administrative funds will 
allow ONDCP and OJJDP to administer the program and monitor the DFC 
grants in a manner intended by Congress and as necessary to comply with 
all applicable Federal regulations and policies.
    Question. I'd like to talk a bit about the anti-drug media 
campaign. As I understand it, the intent of the program is to ``educate 
and enable America's youth to reject illegal drugs''. The most visible 
of that effort is the TV ads we've all seen, followed closely by the 
print media ads. How do you determine how to place your ads?
    Answer. The Campaign purchases ad space and time using widely 
accepted standards and practices of the advertising industry, as well 
as the judgment and expertise of our advertising contractor, Ogilvy & 
Mather. The first consideration is the appropriateness of the media 
outlet for the target audience. The objective is to deliver drug 
prevention messages to the people we intend and need to reach.
    Media are generally subjected to a rigorous analysis process as 
follows:
  --Step One: Preliminary Screening.--The goal of our overall screening 
        and planning process is to explore all media and narrow the 
        field of consideration down to a smaller more relevant list of 
        potential outlets.
  --Step Two: Quantitative Analysis.--Using syndicated research (MRI/
        Nielsen) or other studies as well as negotiated pricing, each 
        medium's coverage, composition of the target audience (youth, 
        parents, ethnic, etc) and Cost-Per-Thousand (CPM) is 
        considered.
  --Step Three: Pro Bono Match Participation.--We conduct an evaluation 
        of the ability/willingness of the particular media outlet to 
        participate with the Congressionally-mandated match process, 
        whereby each Federal dollar of advertising is matched by the 
        vendor with a 100 percent public service contribution.
    Ogilvy & Mather uses additional leading-edge media research, 
tracking econometric analysis, and measurement tools to provide 
accountability and highly sophisticated media delivery data and 
analysis to ensure the effort delivers as planned.
    Question. Mr. Jurith, since the beginning of this program I have 
been urging ONDCP to aggressively encourage pro bono matches from media 
organizations. This is a particularly important component to this five-
year pilot project. How successful has the pro-bono match been?
    Answer. Last year, the National Youth Anti-Drug Campaign generated 
a 102 percent pro bono match for advertising dollars. Since the 
campaign began, more than $507 million in pro bono advertising time and 
space has been received in addition to the time and space purchased by 
the campaign. An additional $37 million in donated media time has been 
received through our collaboration with the Advertising Council 
(totaling $544 million). This level of pro-bono matching is 
unprecedented and underscores the support given to the Campaign by the 
media, particularly television and radio.
    Because of the Campaign, 58 national organizations have benefited 
from 400,000 TV and radio time slots. America's Promise, Boys and Girls 
Clubs, Mothers Against Drunk Driving, National Youth Symphony League, 
and many other organizations supporting anti-drug activities have 
achieved tangible results. For example, Save the Children, USA garnered 
8,000 new mentors; National Fatherhood Initiative received three times 
as many calls to its hotline; and the Benton Foundation/Connect for 
Kids has had a 600 percent increase in user sessions for its web site 
that provides information and resources for parents to help kids.
    The Campaign has also launched, in conjunction with the Ad Council, 
the first PSA campaign to support local anti-drug coalitions. These 
PSAs have received over $33 million in donated media since August 
2000--more than an average Ad Council campaign receives in a year.
    Question. Mr. Jurith, I have been a long supporter of the CTAC 
technology transfer program. I've seen first-hand how excited State and 
local law enforcement officers have been when they see what is 
available through this program. What has the technology transfer 
program been able to deliver to State and Local law enforcement 
entities? What kinds of new technology are under development?
    Answer. The Technology Transfer Program (TTP) provides technologies 
developed with Federal funding ``directly to state and local law 
enforcement agencies that may otherwise be unable to benefit from the 
developments due to limited budgets or lack of technological 
expertise.'' Strong bipartisan congressional support has resulted in 
$39,052,000 being appropriated to the TPP over the past three years 
(fiscal year 1998-fiscal year 2000). These funds have made possible the 
delivery of 1,808 pieces of equipment to 1,325 state and local law 
enforcement agencies. CTAC provided hands-on training and limited 
maintenance support to all recipients.
    In fiscal year 2000, 1,055 agencies applied to the TTP with their 
three priority requests. Congress appropriated $13,052,000 to the TPP, 
which enabled CTAC to deliver 827 pieces of equipment to 666 agencies. 
An additional 469 agency requests, valued at $10,494,000, could not be 
delivered in fiscal year 2000. Of those 469 requests, 389 agencies 
received no items. In fiscal year 2001, Congress appropriated 
$18,209,850 to the TTP. CTAC plans to prioritize these funds to ensure 
that all 1,055 agencies that applied to the TTP during fiscal year 2000 
will receive a technology (other than only Drugwipes) by the end of 
fiscal year 2001.
    The President's fiscal year 2002 Budget Request for the TTP will 
allow CTAC to transfer much-needed technology to more than 1,500 state 
and local law enforcement agencies across the country. ONDCP submitted 
evaluation reports to Congress in September 1999, March 2000, and 
February 2001 and will continue to submit annual reports on this 
program.
    There are a number of current CTAC-sponsored R&D projects that will 
provide improved capabilities or additional options to systems 
currently available through the TTP:
  --A communications interoperability system will be demonstrated in 
        Denver in August 2001. This system provides a cost effective 
        option to enable the smaller state and local agencies to 
        continue to use their existing radios and still be able to 
        communicate with other agencies using different communications 
        systems.
  --The video stabilization system has been miniaturized and made less 
        expensive with improved functionality (it now uses a PC card 
        for processing rather than an entire CPU).
  --Additional functionality, called CRYSTAL, will be available for the 
        AG-SMS tracking system. This system links criminal and 
        background information derived from drug-related investigations 
        to geo-positional information in real-time.
    In addition, there are a number of CTAC-sponsored R&D projects that 
soon will be completed and considered for transition to the TTP:
  --Several case management tools are in the final evaluation stages. 
        These systems, such as CrimNET, allow investigators to access 
        and link data on phone records, financial information, utility 
        bills, and ownership information to specific drug-related 
        crimes on a scale suitable for use by smaller sheriffs offices 
        and police departments.
  --Two hand-held non-intrusive inspection systems, one to identify 
        drugs in the field and the other to find anomalies in storage 
        tanks and hidden compartments in bulkheads are currently being 
        tested and evaluated by the Federal user agencies.
    Question. I am pleased with the progress on the wireless 
interoperability pilot project in Colorado, and I am looking forward to 
a demonstration of Phase I, the Denver metro area testbed, later this 
year. When do you expect that this technology will be available on a 
state-wide basis? How long after that will other areas be able to take 
advantage of this capability?
    Answer. CTAC continues to make progress on this wireless 
interoperability project to identify and evaluate those radio 
interoperability systems that allow state and local agencies to retain 
and use their existing radios to communicate with other agencies using 
different communications systems. The following is the timeline of 
major events:
  --By September 2001: Initial installation among five drug task forces 
        in the Denver area (Metro Gang, North Metro, South Metro, West 
        Metro, and Boulder County), U.S. Customs Service, FBI, DEA, 
        Colorado National Guard, Denver Police Department, Aurora 
        Police Department, and Jefferson and Douglas counties on the 
        state's Digital Trunked Radio System (DTRS).
  --By May 2002: Statewide implementation, demonstration for all LEA's, 
        transition to Technology Transfer Program.
  --This technology will be available for transition to the TTP by May 
        2002.
    Question. Mr. Jurith, I noted that ONDCP is requesting $5 million 
for a new program to encourage parents to help kids stay drug-free--
Parents For a Drug-Free Future. When can we expect to receive detailed 
information on this new initiative?
    Answer. ONDCP greatly appreciates the Committee's interest in the 
details of this $5 million Presidential initiative to support and 
encourage parents to help children stay drug-free. This program will 
create a ``Parent Drug Corps'' by providing matching funds to national 
parents' organizations for the following purposes:
  --Assist training thousands of parents in communities nationwide in 
        skills, methods, and information that help prevent drug abuse 
        by young people;
  --Promote cooperation among national parent efforts and increase 
        their impact through fostering partnership with the network of 
        parent organization affiliates and chapters, regional and 
        state-level entities that involve parents, and local community 
        anti-drug coalitions; and
  --Provide science-based prevention strategies, information, and 
        materials to parents and parent-serving organizations, thereby 
        strengthening their ability to protect their children from the 
        risks of drug use.
    ONDCP staff have been working diligently to develop the details of 
this proposal in consultation with anti-drug parent groups and other 
Federal agencies. We plan to have a recommendation for the next ONDCP 
Director to forward to the Committee upon confirmation.
                                 ______
                                 

            Questions Submitted by Senator Richard C. Shelby

    Question. You note in your written testimony that the ``Campaign 
reached 90 percent of America's youth at least four times a week in 
nine languages . . .'' Please specify how your office determined this 
level and frequency of saturation.
    Answer. ONDCP derived the 90/4.0 weekly reach/frequency goal in 
order to achieve the ultimate goal of reaching all of America's youth 
on a near-daily basis throughout the year in order to change attitudes 
and behaviors concerning drug use. Given that a daily rate (90/7.0) is 
cost prohibitive, ONDCP established a more attainable goal of reaching 
teens nearly every day (4 times per week). ONDCP is confident that this 
level of saturation is sufficient to achieve the goal of reducing drug 
use among youth. As a point of reference, the 90/4.0 is equivalent to 
an aggressive effort during a promotional period by a private sector 
client. The 90/4.0 is calculated by combining the delivery of all media 
combined. (i.e., television, radio, print, Internet, out of home), 
including the ``spill'' from the Parents media, to arrive at one total 
communications figure.
    Question. You also note in your testimony that the Campaign relies 
on strategic partnerships to extend and enhance the Campaign's message 
to parents and youth. Specifically, you mention the Partnership for a 
Drug-Free America, the Ad Council and the American Advertising 
Federation as well as industry, education and media partners. Please 
detail the nature of each of these relationships, including the terms 
of any contracts/agreements entered into with them and the amount of 
Federal funding associated with these partnerships.
    Answer. The National Youth Anti-Drug Media Campaign established 
over the last three years more than 150 partners from major media, 
education, industry, and other areas of the private sector. These 
partnerships include both contractual and non-contractual 
relationships. Further, the nature and cost of each of these 
partnerships varies from year to year, to accommodate changes in the 
campaign and take advantage of new opportunities. Virtually all of 
these partnerships are developed and implemented through our 
contractors. Some of the more significant partners are noted below. In 
many instances, only the labor of our contractor was paid for by 
Campaign funds:
    Partnership for a Drug Free America.--This is our key partner. 
There is a written agreement between our two organizations and a 
Congressional mandate to work with them. The Campaign relies on PDFA to 
produce a majority of our paid ads on a pro-bono creative basis. ONDCP 
pays for production of these ads, which averages about $5 million per 
year. PDFA also assists ONDCP in a wide range of strategic and media-
related activities including assistance with our entertainment industry 
and media outreach. PDFA receives no Federal funds from the Media 
Campaign.
    Advertising Council.--The Advertising Council performs three 
functions for ONDCP. Through a subcontractor, it reviews the production 
estimates and costs for all paid advertising used in the Campaign. It 
develops and implements a specific campaign to promote the value of 
community anti-drug coalitions. It also administers the Media Match 
Task Force, which has helped to allocate more than $211 million worth 
of pro bono TV and radio time (more than 400,000 time slots) to the 
drug-related messages of 60 national organizations including the Boys 
and Girls Clubs, MADD, America's Promise, Center for Substance Abuse 
Treatment, etc. The Ad Council also provides strategic media advice to 
our campaign, and identifies potential partners for collaboration. Ad 
Council is a contractor costing approximately $2 million per year from 
Campaign funds.
    American Advertising Federation.--The AAF is a sub-contractor to 
Fleishman Hillard, our primary non-advertising contractor. It has more 
than 200 local Ad Clubs throughout the nation and they have been 
helpful in establishing local level task forces to review public 
service ads submitted by community organizations seeking free air time 
from our pro-bono match (the Ad Council does this for national 
organizations) where local media time is purchased. This costs 
approximately $200,000 per year in Campaign funds.
    American Bar Association.--Created first ever substance abuse 
prevention brochure tailored to the needs and interest of lawyers. 
Wrote copy, secured content reviews and approvals and managed design 
and layout for the brochure, and assisted in distribution of 50,000 
copies (at no cost to ONDCP).
    Boy Scouts of America (BSA).--The Campaign has partnered with BSA 
to disseminate drug prevention information to their vast network 
nationwide. The Campaign will have a major presence at the Boy Scout 
Jamboree scheduled for July 23-August 1, 2001. About 40,000 Scouts 
attend the Jamboree, which attracts an additional quarter-million 
visitors during a two-week period every four years. Activities under 
development include: a ``My Anti-Drug'' on-site activity board where 
scouts declare their anti-drugs; youth-oriented information to engage 
scouts at on-site computers; and distribution of Campaign literature 
and information.
    Girl Scouts of the USA (GSUSA).--Developed a new ``High on Life'' 
badge for Junior Scouts (ages 8-11), which may be earned upon 
satisfactory completion of drug-prevention exercises; planning a 
satellite program targeting Girl Scout troops across the country 
focusing on the myths and realities faced by girls today; creating a 
series of drug-prevention materials called ``Issues for Girls,'' 
customized for all five age levels of Girl Scouts, which will reach the 
more than 2 million GSUSA members. This activity will cost $40,000 in 
Campaign funds.
    YMCA of the USA.--Creating a substance-abuse prevention handbook 
for the Y's middle school after-school program (the Y is one of the 
nation's largest providers of after-school care for the Campaign's 
tween [children 9-12 years old] audience); disseminated substance-abuse 
prevention messages via various Y communications channels which reach 
nearly 21 million people; enrolled YMCA of the USA in the ``What's Your 
Anti-Drug?'' youth branding initiative; facilitated creation of 
customized Web content focusing on drug prevention and the Campaign for 
the Y's site.
    Community Anti-Drug Coalitions of America (CADCA).--The Campaign 
has partnered with local CADCA chapters to promote youth outreach 
activities at their ``Race Against Drugs'' events with Kmart; enrolled 
CADCA in the ``What's Your Anti-Drug?'' youth branding initiative to 
engage kids in considering what are the things that stand between them 
and drugs.
    Congress of National Black Churches.--In 1999, the Congress of 
National Black Churches entered into a strategic alliance with the 
Campaign to promote and assess a pilot program to incorporate substance 
abuse prevention programs into the youth programming. As a result of 
the pilot, the Campaign is developing an activity guide that will 
assist youth ministries to incorporate substance abuse prevention 
activities into their existing youth programs. This activity will cost 
$10,000 in Campaign funds.
    U.S. Hispanic Leadership Institute.--In partnership with the 
Campaign in 2000, the U.S. Hispanic Leadership Institute engaged 
Hispanic youth in the ``What's Your Anti-Drug?'' initiative and 
Hispanic leaders through programming at the U.S. Hispanic Leadership 
Conference. This activity cost $7,500 in Campaign funds.
    National Asian Pacific American Families Against Substance Abuse 
(NAPAFASA).--A key Media Campaign partner in reaching the Asian 
community is the NAPAFASA organization. NAPAFASA has assisted the 
Campaign in developing resources tailored to Asian parents and youth 
and distributing campaign resources through their network, newsletters, 
informational materials and national conferences.
    National Education Association (NEA)/Health Information Network 
(HIN).--Partnering with the nation's largest multidisciplinary 
education organization to reach 2.5 million educators and school 
personnel through multifaceted initiatives; integrating Campaign 
messages and materials into the full range of NEA's print, satellite 
and online communication channels; collaborating with NEA to enhance 
the Campaign's educator Web site www.teachersguide.org; produced 
``Safer Schools: Helping Students Resist Drugs,'' a free national 
satellite telecast focusing on successful school-based programs that 
help students resist peer pressure to engage in drug use. This activity 
cost $50,000 in Campaign funds.
    New York Times Newspaper in Education.--Revised, edited and 
promoted ``Anti-Drug Education with The New York Times,'' a standards-
based anti-drug classroom guide for middle-school teachers that 
demonstrates how to incorporate the daily newspaper into classroom 
lessons to help youth develop skills to resist the use of illicit 
drugs, alcohol, and tobacco; collaborated to create an online version 
of the guide. This activity cost $40,000 in Campaign funds.
    Associated Church Press (ACP).--Working with ACP on the creation 
and placement of feature articles on youth substance-abuse prevention. 
With nearly 160 member publications, ranging in circulation from a few 
hundred to 650,000, the ACP is a unique resource for the faith press 
and can provide the Campaign with access to denominational and 
ecumenical media that reach 28 million people.
    The Hollywood Reporter.--The Hollywood Reporter is one of two trade 
publications in Hollywood that is read by everyone in the industry and 
is very influential in the entertainment community. The Reporter is 
partnering with the Campaign by co-hosting a series of roundtable 
discussions for writers and industry executives in the Hollywood 
community. They have co-hosted two events so far, a session on Ecstasy 
and a session on steroid use among teens. They have committed to 
hosting a number of future sessions.
    Oxygen Media.--Oxygen Media, a multimedia company that includes 
Websites and cable broadcasting disseminates Campaign parenting and 
youth drug-prevention messages via their Websites (momsonline.com) and 
television programs. They have also co-hosted two roundtables in New 
York for NY-based television and feature writers on the topics of 
Ecstasy and Inhalants. In addition, Oxygen Media publishes and promotes 
drug prevention articles written for the Campaign's Web site for 
parents, TheAntiDrug.com. In turn, TheAntiDrug.com features parent-
focused content provided by Moms Online.
    USA TODAY.--Partnered with USA TODAY (circulation 2.2 million; 
readership 4 million plus) to develop a special ``by kids, for kids'' 
anti-drug print insert. The insert, included in the November 27, 2000 
edition of USA TODAY, showcased young people's personal ``anti-
drugs''--those things that stand between them and drugs--through 
stories, prose, photography and artwork. An additional 500,000 copies 
are being disseminated through youth-serving organizations including 
the National Association of Student Assistance Professionals (NASAP), 
schools, and drug-prevention coalitions throughout the country. This 
activity cost $200,000 in Campaign funds.
    National Newspaper Publishers Association (NNPA).--In 2000, the 
Campaign, in collaboration with NNPA and Howard University, established 
The Charles Drew Center for Public Health Reporting Seminar Series. The 
seminars, and supporting Web site of resources, will train community 
journalists to report on substance abuse and related public health 
issues affecting the African American community. This activity will 
cost $40,000 in Campaign funds.
    Society for Human Resource Management (SHRM).--Created the first-
ever substance-abuse prevention brochure tailored to the needs and 
interests of human resource officers and employee assistance 
professionals to facilitate distribution of drug-prevention resources 
and information in the work place.
    National Association for Children of Alcoholics (NACoA).--Developed 
and disseminated information for youth and adult influencers in daily 
contact with tween and teen children of alcoholics. Developing posters 
for distribution in local schools and libraries nationwide.
                                 ______
                                 

             Questions Submitted by Senator Byron L. Dorgan

                             DRUG TREATMENT
    Question. Is it your opinion that the proper balance between 
interdiction, prevention, and treatment is being struck in the overall 
drug control policy of this Country?
    Answer. Yes. Drug prevention, treatment, research, law enforcement, 
protection of our borders, drug supply reduction, and international 
cooperation are necessary components of our efforts to reduce drug use 
in our nation. The Administration is outlining a new approach to 
reducing illegal drug use that focuses on reducing the demand for drugs 
through effective education, prevention, and treatment.
    The President's fiscal year 2002 Budget Request focuses on reducing 
drug use by young people, making treatment more available to chronic 
users, targeting sources of illegal drugs and crime associated with 
criminal enterprises, and interdicting the flow of drugs at our 
borders. The President's Budget includes $2.2 billion for programs that 
educate and enable America's youth to reject illegal drugs as well as 
alcohol and tobacco, including approximately $52 million in additional 
prevention research funding through the National Institutes of Health. 
In addition, for reducing the health and social costs of illegal drug 
use, including activities targeting drug treatment programs, the 
President's fiscal year 2002 Budget includes an estimated $3.3 billion, 
an increase of 6.5 percent over fiscal year 2001.
    Projected resources devoted to breaking foreign and domestic drug 
sources of supply will reach $2.6 billion in fiscal year 2002, an 
increase of 28.1 percent. This increase includes proposed funding of 
$731 million in fiscal year 2002 to support drug control activities in 
the Andean region. Further, multi-agency efforts, which target ports-
of-entry, the Southwest Border, and implementation of the Western 
Hemisphere Drug Elimination Act, will expand funding for shielding 
America's air, land, and sea frontiers from the drug threat to an 
estimated $2.8 billion in fiscal year 2002, an increase of 8.5 percent. 
Finally, funding requested for increasing the safety of America's 
citizens by substantially reducing drug-related crime and violence is 
$8.3 billion in fiscal year 2002, an increase of 2.5 percent.
    Question. According to data provided by SAMHSA, there is an 
enormous gap in the number of people who need treatment and can't get 
it. The most recent data shows that in 1998, 57 percent of drug users 
in the more severe categories of abuse were unable to receive 
treatment. From 1991 through 1998 that percentage has shifted between 
54 percent to 68 percent which should be unacceptable in our effort to 
curtail drugs in our country. Is there a ceiling we are trying to reach 
as a goal? Are we doing enough to decrease this gap?
    Answer. Nationwide, there continues to be a great need for 
additional capacity for effective drug treatment. The largest problem 
in treatment (the ``gap'') revolves around three issues: Accessibility, 
Affordability, and Availability. These three issues effect both private 
and public funding streams. In addition to the Federal responsibility 
to close the public system treatment gap, the National Drug Control 
Strategy also addresses private sector treatment issues through its 
efforts to ensure parity for substance abuse treatment.
    Current estimates of the treatment gap are based on methodology 
developed by the Substance Abuse and Mental Health Services 
Administration (SAMHSA) using data from the National Household Survey 
on Drug Abuse (NHSDA) and other sources. This methodology, while 
useful, has not proven sufficient to meet policy and budget needs. 
Using this methodology, SAMHSA estimated that in 1998 there were 
5,031,000 people in need of treatment and that 2,137,000 received 
treatment. The resulting difference produced a treatment gap of 
2,894,000 people.
    The Performance Measures of Effectiveness Volume of the 2000 Annual 
Report on the National Drug Control Strategy sets forth the target 
concerning reducing the treatment gap. This target is, ``[b]y 2002, 
reduce the treatment gap by at least 20 percent as compared to the base 
year. By 2007, reduce the gap by at least 50 percent compared to the 
base year.''
    Yes. The Administration is committed to reducing the treatment gap. 
On May 10th President Bush announced that his budget will provide $1.6 
billion over the next five years to close the treatment gap. The 
President also directed Department of Health and Human Services 
Secretary Tommy Thompson to conduct a state-by-state inventory of 
treatment needs and capacity, and report back within 120 days on how to 
most effectively close the treatment gap in this country.
    Specifically, the President's Budget provides an additional $60 
million ($42.6 million drug-related attribution) for the Substance 
Abuse Prevention and Treatment (SAPT) Block Grant. This increase for 
the SAPT Block Grant will provide additional funding to states for 
treatment and prevention services. This program is the backbone of 
Federal efforts to reduce the treatment gap. The President's Budget 
also provides an additional $40 million for the Targeted Capacity 
Expansion (TCE) program. This funding will support Substance Abuse and 
Mental Health Services Administration's (SAMHSA) TCE program to respond 
to emerging trends in substance abuse. The Budget proposes an 
additional $17 million for national data collection to support the 
evaluation of what works, examine what makes quality care, and 
determine whether needs and services are a good fit.
    Question. We spend almost 2\1/2\ times as much for the anti-drug 
ads than we do for drug treatment in Federal prisons ($185 million vs. 
$74 million) and we have substantive data on the effectiveness of drug 
treatment in prisons. What more could you do if additional resources or 
funding could be provided?
    Answer. A balanced approach, including both prevention and 
treatment is critical if we are to succeed in reducing drug use in 
America. The $185 million ONDCP is requesting for the National Youth 
Anti-Drug Media Campaign will enable ONDCP to continue using 
strategically targeted, high impact, paid media ads to change drug use 
behavior through changes in adolescent perceptions of the danger and 
social disapproval of drugs.
    The coercive power of the criminal justice system to provide drug 
treatment to persons under its supervision is an effective tool to 
reducing drug use and recidivism. The Administration is committed to 
criminal justice diversion programs to help more Americans break the 
vicious cycle of addiction and incarceration. Specifically, the 
President's Budget is requesting $50 million, an all-time high, for the 
Drug Court Program. This program provides alternatives to incarceration 
through using the coercive power of the court to force abstinence and 
alter behavior with a combination of escalating sanctions, mandatory 
drug testing, treatment, and strong aftercare programs. Furthermore, 
the Budget proposes an $11 million increase for the Residential 
Substance Abuse Treatment (RSAT) program. This formula grant program 
distributes funds to states to help them develop and implement 
residential substance abuse treatment programs that provide individual 
and group treatment activities for offenders in residential facilities 
operated by state correctional agencies.
    Clearly, the Campaign and programs providing treatment in the 
criminal justice system are critical to reducing drug use in America. 
It is important to note, however, that the Media Campaign is attempting 
to impact all youth and their adult influencers across the nation, 
while the programs providing treatment to those under the jurisdiction 
of the Federal prison system are targeting a significantly smaller 
population.
    Question. The Drug Court Institute has provided invaluable training 
and resources to the judicial system in almost every state. They have 
spent their appropriations wisely and have received high marks across 
the board. If they could receive more funding, what additional missions 
and goals would you like them to achieve?
    Answer. In fiscal year 2002, ONDCP is requesting $1.0 million for 
the National Drug Court Institute (NDCI). The NDCI provides valuable 
leadership to the almost 1,000 drug courts in existence or being 
planned across the nation. These include approximately 175 juvenile 
courts, 55 Tribal courts and 50 family courts. Continued support of the 
NDCI is imperative in light of the Department of Justice's fiscal year 
2002 request for the Drug Court Program which maintains the program at 
the all-time high level of $50 million.
    These funds will enable the NDCI to continue fulfilling its mission 
of promoting education, research and scholarship for drug court and 
other court-based intervention programs. With regard to education 
efforts, the NDCI provides a comprehensive drug court training series 
for practitioners. The research component will support investigative 
projects aimed at developing more effective drug court policies and 
procedures. Furthermore, the NDCI serves as an information 
clearinghouse to the drug court field professionals by disseminating 
important drug court specific research, evaluations and relevant 
commentary. Specifically the NDCI will use these funds to continue 
expanding their drug court training program for practitioners, convene 
special advisory groups to develop curricula in new disciplines, 
develop a national community probation initiative, and expand and 
update the Institute's video instruction library.

                NATIONAL YOUTH ANTI-DRUG MEDIA CAMPAIGN
    Question. With drug trends shifting towards more illicit drugs such 
as methamphetamine and Ecstacy, why is the media campaign not depicting 
it? Specifically, why did you cut the $5 million portion of the 
campaign that focused on Ecstacy?
    Answer. The Media Campaign is a primary prevention effort. It's 
strategy is based on reaching ``tween'' youth to prevent use of entry 
level drugs--principally marijuana, which research shows is the 
preponderant drug of first initiation among youth. Until early this 
year, the Campaign had been supporting anti-methamphetamine and heroin 
advertising through spot television ads. However, advertising 
specifically against methamphetamine and heroin was eliminated to 
maximize the funds targeted to the core strategy of the Campaign--
preventing youth from beginning drug use.
    Recognizing the rapid rise in the incidence of Ecstasy and its 
false billing as a ``safe'' drug, ONDCP used funds from the primary 
prevention campaign to launch a special, $5 million Ecstasy initiative 
within the Campaign in August 2000. The initiative consisted of 
Internet advertising and national radio ads, along with a limited use 
of print ads in some newspapers and magazines. Because of advertising 
rate inflation affecting the Campaign ONDCP made the decision not to 
renew the initiative.
    For issues such as ecstasy, a drug surging in popularity and 
affecting several age groups, we have convened a series of background 
briefings in Hollywood and New York City for writers and producers of 
television shows and feature stories. These events have been among the 
most successful of the Campaign's efforts.

                NATIONAL YOUTH ANTI-DRUG MEDIA CAMPAIGN
    Question. With the July 2000 GAO report entitled ``ANTI-DRUG MEDIA 
CAMPAIGN: ONDCP Met Most Mandates, but Evaluations of Impact are 
Inconclusive,'' shows that these advertisements have increased 
awareness, yet there is little evidence to show attitude changes among 
our youth. Let me read you a quote from the report ``First, ONDCP 
stated that indications from NCADI (National Clearinghouse/or Alcohol 
and Drug Information) and focus groups `support that the Campaign has 
positive effects on changing you attitudes toward drug use.' As 
discussed in this chapter we found that information from NCADI and 
focus groups provided indications that the Campaign may have had some 
positive effects on anti-drug awareness. We did not find, however, that 
these sources provided indications of the Campaign having positive 
effects specifically on youth attitudes toward drug use.'' How are you 
addressing this serious concern?
    Answer. ONDCP is proud to report that the National Youth Anti-Drug 
Media Campaign is undergoing a rigorous and extensive evaluation. The 
National Institute on Drug Abuse (NIDA), the world's leading drug 
research organization, is evaluating the Campaign for ONDCP. The 
National Survey of Parents and Youth--NIDA's evaluation survey--is a 
nationally representative longitudinal (i.e., the same parents and 
youth will be interviewed up to 3 times) survey of parent and child 
attitudes, beliefs, and behavior with regard to drugs. More than 34,000 
interviews will be conducted in households in 6-month waves. Reports 
detailing the findings from each of the Waves are issued every 6 
months; the second report was released in April 2001 and the final 
report is due in Spring 2004.
    The Wave 2 report presents findings from the first two waves of 
data collection (November 1999-May 2000 and July 2000-December 2000), 
focusing on evidence of change between the first two waves of data 
collection. There was a relatively short period of time for change in 
the outcome measures to occur; thus, the second evaluation report's 
analysis is not definitive. The analysis involves two complementary 
tests: (1) establishing that change has occurred, and (2) that the 
change is associated with exposure to the Campaign's messages. The Wave 
2 report shows some positive and encouraging changes that suggest the 
Campaign is having an impact, but we cannot yet definitively attribute 
these to the Campaign. Findings include:
  --There is good evidence of increased anti-drug sentiment among older 
        non-drug-using teens (aged 14 to 18) with regard to their 
        intentions to not try marijuana in the next year, which may 
        signal subsequent declines in marijuana use in the near future.
  --The parent data indicate a consistent pattern of association 
        between exposure to anti-drug messages and three key outcomes 
        (talking with, monitoring, and engaging in fun activities with 
        youth), meaning that parents who reported high levels of 
        exposure to anti-drug messages were more likely to have engaged 
        in the three activities with their children-but, there were no 
        changes in the measures between Waves 1 and 2.
    Over time, because of the evaluation's longitudinal design and 
extensive set of questions measuring exposure to the Campaign and 
outcomes related to the Campaign's messages, it will be able to assess 
whether the Campaign is having an impact on drug-related attitudes, 
beliefs, and behaviors over time. The Wave 4 report (due 1 year from 
now) will include data for the first 2 years of Phase III and will be 
the first to include follow up data on the parents and youth first 
interviewed in Wave 1. The Wave 4 report will provide a more conclusive 
assessment of the extent to which any changes in beliefs, attitudes, 
and behaviors can be attributed to the Campaign.
    The National Household Survey on Drug Abuse (NHSDA) and the 
Monitoring the Future Survey (MTF) indicate that youth drug use, 
particularly marijuana use, rose in the early 1990's but has leveled 
off, and even declined, in the past 2 to 3 years. It is during this 
period of time that the Campaign was launched, with full implementation 
in mid-1999. These surveys were not designed to evaluate the Campaign 
and include no questions about target audience exposure to anti-drug 
ads and response to the campaign; consequently, any changes in 
attitudes and behavior regarding drug use reported by these surveys 
cannot be associated directly with the Campaign. NIDA's independent 
evaluation of the Campaign, in conjunction with continued monitoring of 
drug use rates by NHSDA and MTF, will provide an assessment of the 
Campaign's impact over the next 3 years as the series of reports is 
released. Release of the 2000 NHSDA is expected in August 2001; the 
2001 MTF in December 2001; and the next evaluation report (Wave 3) in 
Fall 2001.

                NATIONAL YOUTH ANTI-DRUG MEDIA CAMPAIGN
    Question. The GAO report also details faults in the data collected 
by ONDCP in Phase I and II. What documentation, independent of 
government funds, do you have that shows the effect of this $750 
million media campaign?
    Answer. The National Youth Anti-Drug Media Campaign is undergoing a 
rigorous and extensive evaluation by the National Institute on Drug 
Abuse (NIDA). NIDA is the world's leading drug research organization 
and has an unassailable reputation for objective research. While it's 
too early to detect many statistically significant changes between the 
benchmark first wave (November 2000) of the NIDA evaluation and the 
most recent report, we believe the major measures of trial usage, and 
the leading edge indicators of attitude and belief, are moving in the 
directions we want.
    NIDA/WESTAT says, ``There is credible evidence of an increase in 
desirable beliefs and attitudes between Waves 1 and 2.'' For example, 
it indicates the following in the areas of trying and using marijuana:
  --Statistically significant higher non-intention to try marijuana 
        among 14 to 18 year-old nonusers, particularly high sensation-
        seekers (+4.3 percent);
  --Directional decrease in perceptions of friends' usage among 12 to 
        18 year-old non-users.
    We are seeing good results in the area of attitudes and beliefs, 
which are precursors to behavior change. Although most increases are 
not statistically significant, they are moving in the right direction. 
For example, there are clear increases in anti-drug attitudes among 12 
to 13 year-old non-users, in terms of perceptions that using marijuana 
regularly will:
  --Make you lose your ambition;
  --Cause you to lose your friends' respect;
  --Not make you have a good time with your friends;
  --Act against your moral beliefs; and
  --Mess up your life.
    Significant increases in anti-drug attitudes among 14 to 18 year-
old non-users, in terms of perceptions that using marijuana even once 
or twice will:
  --Make you lose control of yourself;
  --Get you in trouble with the law;
  --Not make you feel better about yourself; and
  --Not make you have a good time with friends.
    A 4.4 percent increase (not statistically significant) in anti-drug 
attitudes among 12 to 13 year-old non-users, in terms of perceptions 
that using marijuana even once or twice will not make you like the 
coolest kids. Among Hispanic youth we have seen some indications of 
increases in advertising exposure and ad recall and decreases in 
several measures of marijuana use, including ``ever used'' (-6.3 
percent) and ``past year use'' (-8.0 percent). With respect to parents, 
NIDA/WESTAT says, ``There is impressive and consistent evidence for 
associations between parental exposure and reported behavior and 
cognitions related to several Campaign objectives in the desired 
direction.''
    In addition to the NIDA evaluation, ONDCP studies other national 
monitors such as PDFA's PATS Study (which is funded independently of 
the Campaign), University of Michigan's Monitoring the Future, and our 
Ogilvy & Mather ad tracking surveys. These reviews provide additional 
indicators which lead us to believe strongly that the Campaign is 
working. In addition, the 2000 Monitoring the Future Study shows 
positive movement in anti-drug attitudes, increased perceptions of 
marijuana risk and a directional decline in use among the nation's 8th 
graders:
  --``More recent classes of eighth-graders have begun to see marijuana 
        as dangerous to the user, and to become more disapproving of 
        its use, which probably helps to explain the recent decline in 
        use.''
    The work of the Partnership for a Drug Free America gives us 
further reason to be optimistic. Their Partnership Attitude Tracking 
Study (PATS):
  --Indicates that youth who reported seeing anti-drug ads on a daily 
        basis increased overall, from 32 percent to 49 percent (a 
        relative increase of 53 percent) from 1998 to 2000.
  --Specifically, Federal anti-drug media purchases resulted in 
        significantly increasing teen awareness of anti-drug 
        advertising: PATS shows half of teens now claiming daily anti-
        drug ad exposure.
  --Youth's perceived risk of negative consequences associated with 
        marijuana use increased significantly from 1998 to 2000.
  --There was an approximate increase of 6 percent in youth's 
        perception of losing friends (from 47 percent to 50 percent), 
        or missing out on good things (from 53 percent to 56 percent).
  --Linking this finding to advertising, data indicates that youth who 
        saw anti-drug ads more frequently were more likely to be aware 
        of the risks of using drugs.
  --Youth's perception of difficulty to say no to marijuana decreased 
        in 1999 & 2000.
  --Youth intent not to use marijuana increased in 1999 and 2000.
  --The proportion of youth who report that anti-drug ads made them 
        less likely to try or use drugs increased overall, from 30 
        percent to 37 percent (a relative increase of 23 percent) from 
        1998 to 2000.
    PATS data shows that the upward trend in teen marijuana usage is 
now being reversed since it's peak in 1997:
  --Lifetime use of marijuana is down from 44 percent to 40 percent (a 
        relative decrease of 9 percent)
  --Use in the past year has decreased from 36 percent to 33 percent (a 
        relative decrease of 8 percent)
  --Use in the past month has decreased from 24 percent to 21 percent 
        (a relative decrease of 3 percent)
    Ad Tracking and Copy Testing. Further audience survey work within 
the advertising campaign itself provides additional indicators of 
effectiveness:
  --Data indicates that advertising levels are directly related to 
        agreement with anti-drug belief statements.
  --Data shows that as anti-drug beliefs increase, intent to use 
        marijuana decreases.
  --Many of the commercials created for the campaign significantly 
        strengthen anti-drug beliefs and/or reduce intent to use.
  --Visual recognition of the anti-drug logo more than tripled from 10 
        percent to 46 percent in nearly half the time of what is 
        expected in the average new product launch.
    Taken collectively, this information paints a clear picture of the 
campaign's growing impact.
    Question. When will you have data from your review of Phase III?
    Answer. The National Survey of Parents and Youth--NIDA's evaluation 
survey--is a nationally representative longitudinal (i.e., the same 
parents and youth will be interviewed up to 3 times) survey of parent 
and child attitudes, beliefs, and behavior with regard to drugs. More 
than 34,000 interviews will be conducted in households in 6-month 
waves. Reports detailing the findings of each Wave are issued every 6 
months; the second report was released in April 2001 and the final 
report is due in Spring 2004.
    Over time, because of the evaluation's longitudinal design and 
extensive set of questions measuring exposure to the Campaign and 
outcomes related to the Campaign's messages, it will be able to assess 
whether the Campaign is having an impact on drug-related attitudes, 
beliefs, and behaviors over time. The Wave 4 report (due 1 year from 
now) will include data for the first 2 years of Phase III and will be 
the first to include follow up data on the parents and youth first 
interviewed in Wave 1. The Wave 4 report will provide a more conclusive 
assessment of the extent to which any changes in beliefs, attitudes, 
and behaviors can be attributed to the Campaign.
    Question. Your statistics show different trends among different 
teenage age groups (12-17 and 18-25 year olds). How does your campaign 
reach these groups individually or are the same messages being sent to 
both?
    Answer. The Primary objective of the National Youth Anti-Drug Media 
Campaign is to reach tween and teen youth, and their parents with an 
education message that will help them stay free of drug use. Young 
adults are not part of our target audience set and would require a 
different strategy if they were. Media time/space is purchased 
targeting teens 12-17 and their parents. The 18-25 year old segment was 
not the original focus of the Campaign, which reinforced the idea that 
this is an inoculation effort targeted primarily at non-users, with a 
secondary emphasis on occasional users. Research data, including from 
Westat, confirm that occasional usage rises with age, and the idea of 
reaching tweens as the primary focus of a prevention effort continues 
to be a sound strategy.
    However, given the mix of media utilized for teens 12-17, which 
includes a significant television and radio presence, and the nature of 
how media is consumed, the Campaign also has a significant presence 
among 18-25 year olds. The extensive use of television on networks such 
as the WB, UPN and cable channels MTV and ESPN provides strong delivery 
to both teens and young adults 18-25. Other media also work this way. 
For example, a recent analysis of our Ecstasy radio effort revealed 
that many of the top radio stations targeting teens are also the lead 
stations for adults 18-25. Given the recent reported rise in Ecstasy 
trial and usage among the 12-34 segment, the Campaign has been flexible 
and accommodated this dynamic via an anti-Ecstasy effort on radio 
stations appealing to teens and young adults.
    The creative message aired for these groups is the same, focusing 
on prevention, delivered through strategic messaging platforms such as 
Negative Consequences and Resistance Skills.
    Question. News reports claim that teen drug use is going up and 
that the drug of choice is getting more dangerous and experimental. 
Your evidence shows the trend decreasing, but you usually compare it 
with 1970's data. Where is your data that compares it to a similar 
generation (early vs. late 90's)?
    Answer. Drug use in the U.S. reached peak levels in 1979 and then 
declined significantly through 1991, from 14.1 percent to 6.6 percent. 
Since 1991, the percentage of the household population twelve and older 
who are current users of any illicit drug has remained relatively 
steady, with no statistically significant changes. However, it is clear 
that our nation still faces a serious problem with illicit drug use, 
especially among our youth and among chronic, hardcore drug users. 
There are currently more than 3.3 million chronic cocaine users and 
almost 1 million chronic heroin users in the United States. These users 
consume the bulk of the cocaine and heroin; and are responsible for a 
disproportionate amount of the crime, health, and social consequences 
attributed to drug use.
    The 1999 NHSDA (the most recent available), provides some good news 
about youth drug use. After a five-year period of rising drug use, the 
rate of current use of any illicit drug among 12-17 year olds declined 
for the second straight year, dropping from 11.4 percent in 1997 to 9.0 
percent in 1999 (returning to the 1996 level). This may indicate that 
the increases that began in 1993 finally have been reversed. However, 
not all of the news is positive. For those aged 18-25 years, the 
current rate of use of any illicit drug has risen--up from 13.1 percent 
in 1992 to 18.8 percent in 1999. Without appropriate treatment, this 
18-25 age cohort, which includes many of those who started using drugs 
in the early 1990s, is expected to continue to relatively higher rates 
of drug use as they age.
    A second key source of data on youth drug use comes from the 
Monitoring the Future Study (MTF), a yearly survey of 8th, 10th, and 
12th graders. The latest MTF data, for 2000, provides additional 
support for the good news in youth drug use--2000 is the fourth year in 
a row that drug use rates have leveled or declined since their rapid 
rise in the early 1990s. Use of most illicit drugs in all three grades 
remained unchanged from 1998 and 1999. As reported by the NHSDA, 
marijuana use dominates youth drug use and the situation is serious, 
with more than one in twenty high school seniors reporting daily use of 
marijuana.
    The data from the Monitoring the Future Survey (MTF), as with the 
NHSDA, clearly shows that not all the news is good. All three grades 
showed notable increases in MDMA/Ectasy use. Specifically, MTF data 
shows past year use for 8th graders increased from 1.7 percent in 1999 
to 3.1 percent in 2000; past month use for 10th graders increased from 
1.8 percent in 1999 to 2.6 percent in 2000; and past year use for 12th 
graders increased from 5.6 percent in 1999 to 8.2 percent in 2000. 
Furthermore, among 12th graders, the perceived availability of MDMA 
rose from 40.1 percent in 1999 to 51.4 percent in 2000 (not measured 
for 8th or 10th graders). The movement of MDMA from the club or rave 
scene into schools, neighborhoods, and other venues is especially 
troublesome. Special emphasis on prevention and enforcement efforts 
must be developed and implemented immediately to reverse this trend.
    While we remain optimistic that the recent trends are moving in the 
right direction, we clearly must continue our efforts to ensure the 
trends remain positive, especially with regard to new and emerging drug 
threats.
    Question. Do you have any evidence that your branding campaign is 
having an effect on ``drug users?''
    Answer. The central objective of the Campaign is to prevent youth 
9-18 from ever using illicit drugs, not to convince users to stop using 
highly addictive drugs. The drug prevention and communication experts 
who helped to shape the strategy for the Campaign believe our focus has 
to be on prevention, which discourages or delays early experimentation. 
Once drug users have progressed beyond abstinence to initial 
experimentation to regular substance abuse, treatment and finally 
criminal penalties (combined with treatment) much better address the 
users' ingrained behavior.
    Rather than hoping to cure an addict's recurring disease with media 
messages, ONDCP hopes to use persuasive social marketing communication 
to intervene with sensation seekers and others before they have a drug 
problem--not after.
    The brand awareness is quite high overall for the campaign. Based 
on Partnership for A Drug Free America's PATS Study, ONDCP's 
Advertising Tracking Study, and Copy Testing Analyses, we believe our 
advertising is also related to changes in beliefs and decreases in 
intentions to use drugs. PATS data show awareness of ads has increased 
for non-users and users of Marijuana, and some positive directional 
movement in risk awareness. As with our other findings, we find the 
trends moving in the right direction.
    The following PATs data support this contention:

                                                  [In Percent]
----------------------------------------------------------------------------------------------------------------
                                                                                     Past Year      Past Month
                                                                   Non-Marijuana     Marijuana       Marijuana
                                                                      Triers           Users           Users
----------------------------------------------------------------------------------------------------------------
1998:
    See or hear commercials telling you about the risks of drugs            33.3            29.7            29.2
     everyday or more...........................................
    Agree a lot that commercials made you more aware of the                 38.8            19.1            17.1
     risks of using drugs.......................................
    Agree a lot that commercials made you less likely to try or             40.8            13.3              10
     use drugs..................................................
    Agree a lot that commercials gave you new information about             36.6              21              19
     drugs......................................................
1999:
    See or hear commercials telling you about the risks of drugs            46.9            40.4            37.4
     everyday or more...........................................
    Agree a lot that commercials made you more aware of the                 43.7            21.3            19.2
     risks of using drugs.......................................
    Agree a lot that commercials made you less likely to try or             45.8            14.7            12.5
     use drugs..................................................
    Agree a lot that commercials gave you new information about             40.6            19.9            18.7
     drugs......................................................
2000:
    See or hear commercials telling you about the risks of drugs            51.3            46.8            46.6
     everyday or more...........................................
    Agree a lot that commercials made you more aware of the                 47.1            23.4            20.2
     risks of using drugs.......................................
    Agree a lot that commercials made you less likely to try or             50.3            14.6            10.3
     use drugs..................................................
    Agree a lot that commercials gave you new information about             45.2            21.4            18.2
     drugs......................................................
                                                                 ===============================================
Base sizes 1998.................................................           3,872           2,384           1,572
Base sizes 1999.................................................           3,939           2,001           1,251
Base sizes 2000.................................................           4,428           2,209           1,397
----------------------------------------------------------------------------------------------------------------

           PARENTS FOR A DRUG-FREE FUTURE (PARENT DRUG CORPS)
     Question. This is President Bush's new initiative to provide 
grants to parent organizations for training programs to reduce drug use 
in our children. It is proposed to be a 5 year program totaling $25 
million with $5 million annual allocations. There are very few 
additional details available on this program. What age group of 
children are you planning on targeting with this program?
    Answer. The Parent Drug Corps program will target parents and not 
their children. This effort will focus on making parents more cognizant 
of their critical role in educating their children about the dangers of 
drug use. The program will seek to ensure better and more effective 
involvement of parents with their children, as well as empowering 
parents as members of the community to take on a more visible 
leadership role in drug-control and other important issues facing their 
community.
    The Administration is confident that this is an effective approach 
because parents have a special stake in the health and safety of their 
neighborhoods and communities. In the past, parents have played key 
leadership roles in organizations like the PTSA, in faith-based 
organizations, and in social and service clubs. They can and should 
expand these roles into other organizations and coalitions. Parents are 
a critical source for informing state and local governments about 
problem areas, issues, and needs, as well as for assistance in forming 
effective responses to these identified problems and measuring their 
success or impact. The Parent Drug Corps will enable parents to assume 
stronger roles in the lives of their children and the communities where 
they live.
     Question. What research indicates that this is the right approach 
to take in reaching parents?
    Answer. The Prevention Research Branch at NIDA has greatly changed 
the nature of its research portfolio in the last several years, 
resulting in an increased emphasis on the family with regards to drug 
abuse prevention. This emphasis on the family includes:
     Primary Prevention Programs.--This involves working with families 
through an entire population, such as a school system. These types of 
programs involve prevention activities with the school, family, and the 
community.
     Selective Prevention Programs.--These are prevention programs that 
include a family focus conducted with children who are considered at 
larger risk for drug abuse. Examples include young children who are: 
highly aggressive, experiencing academic and behavior problems in 
school, or born to substance abusing parents or are living in homes 
where substance abuse occurs.
    Indicated Prevention Programs.--These family-focused prevention 
programs consist of children who are already beginning to experience 
problems with substance use, but not yet at a clinically significant 
level. Examples include adolescents who are experiencing difficulties 
in a number of areas, including school, behavior, and drug use.
    Developmentally Appropriate Prevention Programs.--The portfolio 
contains prevention programs that are targeted towards different 
developmental levels (e.g., preschool, elementary, middle and high 
school) and target transitional periods that are difficult for children 
(e.g., transition from elementary to middle school and from middle 
school to high school).
    Culturally Appropriate Prevention Programs.--The portfolio contains 
prevention programs with a family focus that focus on children and 
families from different cultures (e.g., American Indian, African 
American, Hispanic, and Asian).
    Urban/Rural Populations.--Because of the different needs of these 
populations, some of the family-focused programs in the portfolio focus 
on urban populations and others focus on rural populations.
     Gender.--There is an increasing emphasis in the portfolio for 
examining developing programs that are gender and culturally 
appropriate.
    HIV Prevention.--More recently there has been an emphasis in the 
portfolio for research grants that focus on HIV prevention in the 
context of drug abuse prevention.
     Question. What will be the breakdown of grants? How much for 
administrative/overhead costs?
    Answer. ONDCP intends to minimize administrative costs but 
recognizes that an empirically sound evaluation is of paramount 
importance to ensure the integrity of the program. This evaluation will 
guide ONDCP's management of the program as it will be focused on 
outcome measures of effectiveness. Based on our experience with other 
programs, including the Drug-Free Communities Program, we believe that 
non-grant costs are unlikely to exceed eight percent of the amount 
appropriated for the program.
     Question. What programs will parent organizations fund through 
this program? What groups will be targeted with this program?
    Answer. This program will provide matching funds to national 
parents' organizations for the following purposes:
  --Assist training thousands of parents in communities nationwide in 
        skills, methods, and information that help prevent drug abuse 
        by young people;
  --Promote cooperation among national parent efforts and increase 
        their impact through fostering partnership with the network of 
        parent organization affiliates and chapters, regional and 
        state-level entities that involve parents, and local community 
        anti-drug coalitions; and
  --Provide science-based prevention strategies, information, and 
        materials to parents and parent-serving organizations, thereby 
        strengthening their ability to protect their children from the 
        risks of drug use.
    The program will target parent groups with experience in drug 
prevention efforts.
     Question. Will groups submit grant requests to ONDCP? Who will 
administer the program? Who will decide on the awards?
    Answer. Although ONDCP is a unique Executive Office of the 
President agency with both policy and programmatic responsibilities, it 
does not have the personnel to staff the specialized grants 
administration apparatus necessary to administer the Parent Drug Corps 
Program on its own. Therefore, ONDCP will maximize efficiency and 
ensure accountability through entering into an agreement with another 
Federal agency with the capacity to provide efficient grant 
administration.
    ONDCP maintaining an oversight function over this drug prevention 
program creates numerous benefits to the parent groups applying for 
grants and those who are eventually awarded funds. For example, ONDCP 
will be responsible for overseeing the work of the grant management 
agency throughout the entire grant process, including competition, 
award, disbursement, and monitoring through normal Federal grant-making 
mechanisms.
    ONDCP recognizes that local coalitions require immediate access to 
leadership development, strategic planning assistance, field-tested 
initiatives, distance-learning opportunities for staff and community 
volunteers, media and public affairs guidance, and other services which 
may not be readily available at the local level. The ONDCP-grant 
management agency partnership will serve those needs as ONDCP is able 
to utilize its role in shaping national drug control policy to better 
serve the grantees through increased outreach and responsiveness 
without sacrificing the traditional grant management functions to 
ensure accountability of these drug prevention funds.
     Question. At what age does research indicate parents will have an 
effect of initiating a dialogue on drugs with their children?
    Answer. The educational responsibilities of a parent are not so 
specific as to allow for dialogue on any specific issue to wait for 
``the right time.'' Parents who form close and responsive relationships 
with their children from the beginning and who use the parental 
dialogue to properly socialize and educate their children on all those 
issues important to the family will know when the time has come to talk 
about drugs. An open and effective parental dialogue is two-way and 
informs both the child and the parent. This is not done in isolation, 
but rather as part of a long-term dialogue initiated and intended to 
move the child along a continuum of learning, decision-making, and 
empowerment that will, in the end, prepare another generation of 
parents to do the same with their children.

                                 HIDTA
     Question. Since it was created in 1988, the High Intensity Drug 
Trafficking Area program has been very successful in providing Federal 
assistance to better coordinate and enhance counterdrug law enforcement 
efforts of local, state, and Federal law enforcement agencies in areas 
where major drug production, importation and distribution flourish.
    A good example is the Midwest HIDTA, which includes my state of 
North Dakota. In fact, I believe the Midwest HIDTA serves as a model 
for its work to coordinate area law enforcement in the fight against 
methamphetamine.
    Today, there are 33 HIDTAs across the nation--each trying to deal 
with their own special needs to reduce the supply and demand of the 
illegal drug of choice in their areas.
    Last year, Congress approved a $14 million increase for existing 
HIDTAs and to create two more. For fiscal year 2002--with two 
additional HIDTAS to fund, the Administration has requested level 
funding from fiscal year 2001.
    What is your office's vision for these HIDTAs and the Federal 
government's role in providing the resources they need to continue 
providing this critically needed assistance to our states?
    Answer. ONDCP greatly appreciates the bipartisan support the HIDTA 
program has enjoyed since the program's inception in 1988. There 
currently are 28 HIDTAs across the nation. This number includes the 
Southwest Border HIDTA (which encompasses five regional partnerships) 
and the two newly designated Nevada and North Florida HIDTAs. HIDTA-
designated counties comprise approximately 10 percent of U.S. counties 
and are present in 41 states, Puerto Rico, the U.S. Virgin Islands, and 
the District of Columbia.
    The Anti-Drug Abuse Act of 1988 authorized the Director of The 
Office of National Drug Control Policy (ONDCP) to designate areas 
within the United States which exhibit serious drug trafficking 
problems and harmfully impact other areas of the country as High 
Intensity Drug Trafficking Areas (HIDTA). The HIDTA Program provides 
additional Federal resources to those areas to help eliminate or reduce 
drug trafficking and its harmful consequences. Law enforcement 
organizations within HIDTAs assess drug trafficking problems and design 
specific initiatives to reduce or eliminate the production, 
manufacture, transportation, distribution and chronic use of illegal 
drugs and money laundering.
    The HIDTA Program helps improve the effectiveness and efficiency of 
drug control efforts by facilitating cooperation between drug control 
organizations through resource and information sharing, collocating and 
pooling resources, coordinating and focusing efforts, and implementing 
joint initiatives. HIDTA funds help Federal, state and local law 
enforcement organizations invest in infrastructure and joint 
initiatives to confront drug-trafficking organizations. HIDTA's also 
help facilitate treatment and prevention in the communities they serve.
    ONDCP will continue to utilize the funds Congress appropriates for 
the key priorities of the HIDTA Program:
  --Assess regional drug threats;
  --Design strategies to focus efforts that combat drug trafficking 
        threats;
  --Develop and fund initiatives to implement strategies;
  --Facilitate coordination between Federal, State and local efforts; 
        and
  --Improve the effectiveness and efficiency of drug control efforts to 
        reduce or eliminate the harmful impact of drug trafficking.
    The ability to maintain regional flexibility while demanding 
accountability is essential to the HIDTA Program's success. ONDCP 
formalized its HIDTA Program Review Process during 2000 to ensure that 
the overall HIDTA Program addresses the goals and objectives of the 
National Drug Control Strategy in an effective, efficient, and fiscally 
responsible manner. ONDCP must be continuously aware of the management, 
operation, and performance of the individual HIDTAs so that it can 
fulfill its oversight and support responsibilities in managing the 
HIDTA Program and provide recommendations to the Director of ONDCP 
regarding the Program.
    The individual HIDTAs are required to assess the drug-related 
threats in their areas and establish effective strategies and 
appropriate initiatives to address the threats. Performance must be 
measurable and in accordance with the Performance Measures of 
Effectiveness and the Government Performance and Results Act. HIDTA 
resources must be used efficiently with a high degree of fiscal 
accountability. Compliance with ONDCP/HIDTA policies and procedures is 
required.
    In order to monitor the HIDTAs and to provide the oversight 
required by ONDCP, a HIDTA Program Review Process for review of the 
individual HIDTAs has been established. The HIDTA Program Review 
Process addresses the following areas with regard to the individual 
HIDTAs:
  --Support of the National Drug Control Strategy by the strategies and 
        initiatives of the individual HIDTAs;
  --Effectiveness of the HIDTAs' efforts in accomplishing their 
        missions;
  --Efficiency in the use of HIDTA resources;
  --Accountability in the use of HIDTA resources; and
  --Compliance with ONDCP policies, program guidance, and directives.
    Furthermore, ONDCP contracted with Klynveld, Peat, Marwick, 
Goerdeler (KPMG) to perform external financial audits. In order to 
maximize the impact of these limited audit resources, KPMG is currently 
conducting audits based on a risk-assessment model. While we are 
pleased that these reviews/audits have not discovered any major 
problems, the program/budget reviews have provided the impetus for 
ONDCP to provide some HIDTAs with conditional grant language to bring 
minor issues into compliance.
    ONDCP is preparing to obligate the $14.5 million in discretionary 
funding Congress provided in fiscal year 2001. Supplemental budget 
requests for the discretionary funds from 23 of the 26 HIDTAs (now 28) 
totaled in excess of $48 million. The requests were thoroughly reviewed 
and ONDCP will soon begin obligating these funds in the following 
manner:
  --Provide basic funding to establish the recently designated Nevada 
        and Northern Florida HIDTAs. This funding will enable the 
        HIDTAs to begin focusing on HIDTA Program priorities related to 
        combating their regional threat, including intelligence/
        information sharing, training, and communications 
        interoperability. These funds are incorporated as base funding 
        in ONDCP's fiscal year 2002 Budget Request.
  --Provide funding to bring the HIDTAs designated in 1999 (Central 
        Valley California, Hawaii, New England, Ohio and Oregon) up to 
        the minimum $2.5 million level necessary to provide effective 
        support. In order to become fully operational and fund a new 
        fugitive apprehension initiative, the six-state New England 
        HIDTA will receive a total of $2.85 million.
  --Provide connectivity via the Regional Information sharing System 
        network (RISS.net) to all HIDTAs. This will bring the HIDTA 
        Program into compliance with a requirement of the 
        Presidentially directed General Counterdrug Intelligence Plan 
        (GCIP).
  --Enhance Several HIDTA intelligence centers.
  --Enhance existing and create new HIDTA law enforcement initiatives.

                          Subcommittee Recess

    Senator Campbell. Thank you very much for appearing. This 
hearing is recessed.
    [Whereupon, at 10:18 a.m., Thursday May 3, the subcommittee 
was recessed, to reconvene subject to the call of the Chair.]


  TREASURY AND GENERAL GOVERNMENT APPROPRIATIONS FOR FISCAL YEAR 2002

                              ----------                              


                         THURSDAY, MAY 10, 2001

                                       U.S. Senate,
           Subcommittee of the Committee on Appropriations,
                                                    Washington, DC.
    The subcommittee met at 9:38 a.m., in room SD-124, Dirksen 
Senate Office Building, Hon. Ben Nighthorse Campbell (chairman) 
presiding.
    Present: Senators Campbell, DeWine, and Dorgan.

                       DEPARTMENT OF THE TREASURY

STATEMENT OF JAMES SLOAN, ACTING UNDER SECRETARY, LAW 
            ENFORCEMENT DIVISION

                            Opening Remarks

    Senator Campbell. Good morning. The committee will be in 
order. I apologize for being a little late. It is one of those 
morning.
    We are here today to talk about the fiscal year 2002 budget 
request for the Treasury law enforcement agencies. The mission 
of the Bureau of Alcohol, Tobacco and Firearms can be summed up 
in three major strategic goals: To reduce violent crime, to 
collect the revenue, and to protect the public. In order to 
accomplish these goals, the ATF is requesting a total of 
$803.521 million for the fiscal year 2002. We will be talking 
about some of their responsibilities this morning.
    Similarly, the Secret Service goals speak of their wide-
ranging duties to protect our Nation's leaders and visiting 
world leaders, to reduce threats posed by global terrorists, to 
reduce crimes against our Nation's currency and financial 
system. The Secret Service is requesting a total of $860.469 
million in fiscal year 2002. We will be getting some 
information on that as well.
    The Treasury law enforcement agency with probably the most 
diverse jurisdiction is the United States Customs Service. 
Their responsibilities include stimulating and protecting trade 
and economic growth, border security, reducing narcotics 
trafficking, to disrupt criminal finance and public protection. 
The Customs Service believes they need a total of 
$2,385,226,000 next year to carry out their mission. That 
sounds like a lot of money but it should be noted that over 
$250 million of that is for their automation modernization 
project.
    The fourth agency before us this morning is the Federal Law 
Enforcement Center known as FLETC. They provide comprehensive 
training to Federal law enforcement officers, establish 
partnerships with client agencies, they work with agencies to 
evaluate and adjust training schedules and availability. It is 
estimated that the consolidated training provided by FLETC 
saves the Federal Government about $175 million per year. The 
FLETC funding request is $122.602 million.
    Probably the least visible Treasury law enforcement agency 
is the Financial Crimes Enforcement Network. FinCEN, as it is 
called, supports a major Treasury goal by working with Federal, 
State and local law enforcement agencies to dismantle domestic 
and international money laundering networks. Included in this 
responsibility is the management of the program to register 
check cashing and similar businesses, as well as the 
administration of the Bank Secrecy Act. To accomplish this 
goal, FinCEN is requesting $45.155 million.
    For the first time this morning, we will also hear from the 
Director of the Office of Foreign Assets Control. Although this 
is a small office, it has a very significant impact. It is 
responsible for enforcing economic and trade sanctions against 
some foreign countries based upon policy decisions made by the 
President of the United States. The Department estimates that 
the funding necessary for this effort is at least $19.732 
million.
    So we have a full plate of requests of money this morning. 
I might mention to the witnesses that we are going to have a 
vote at 11:30, so I would appreciate it if you would make your 
comments relatively brief. We will go over them, and as in the 
past, we will do the very best we can for you.
    I am going to chair part of the hearing and I have one of 
those murderous mornings, as Senator Dorgan does, and he will 
also be chairing part of the hearing.

                  Statement of Senator Byron L. Dorgan

    Senator Dorgan, if I could ask for comments.
    Senator Dorgan. Mr. Chairman, thank you very much. I have a 
Commerce and Energy Committee hearing occurring at the moment, 
as well, so I think what we will do is switch off, and I 
appreciate that. We appreciate the witnesses and appreciate the 
work they do for the law enforcement agencies in the Federal 
service.
    Let me just say that your remarks, I think, pretty much 
cover my feelings about what we are doing. I have great 
admiration for the service of the men and women who work in 
these agencies. They do a lot of important work, some of it not 
well recognized at times, but we need to be very supportive of 
their efforts. We spend a great deal of money in these areas. 
We also need to be attentive to that, to make sure it is spent 
in a wise and appropriate way.
    But I have read the testimony that will be presented this 
morning by the agencies and by Mr. Sloan and we appreciate your 
being here. I will not cover the same ground that the chairman 
did, only to say that we appreciate the service of the men and 
women who work in your agencies.
    [The statement follows:]

             Prepared Statement of Senator Byron L. Dorgan

    Mr. Chairman, I join you in welcoming these gentlemen here today. 
Other than the IRS, the agencies these men represent have the most 
direct impact on the lives of our constituents than any other agencies 
which we fund in this Subcommittee. They protect our borders and our 
currency. They facilitate trade and save lives. They do their duty to 
uphold and enforce our laws. We appreciate the hard work they do for us 
and we need to ensure that we provide them with the resources to do 
their jobs.
    The budget that has been presented to us--in my view--fails the men 
and women who serve on the frontlines. While ostensibly providing 
nominal increases for each agency, this budget will force each agency 
to absorb cuts in programs which support their missions.
    I am deeply troubled by this budget and the difficult choices all 
of your agencies will have to make in the coming year if we are 
constrained by this budget. While the budget may be sufficient to avoid 
letting people go, it does so just barely. Instead of just limping 
along, we should be formulating a multi-year hiring plan to bring 
skilled and motivated men and women into the Customs Service, Secret 
Service, ATF and the other law enforcement agencies.
    The Department of Justice has requested funds to hire an additional 
1,100 new Border Patrol agents. Why is not the Department of the 
Treasury seeking a similar level of new staff for its agencies? The 
burdens we are placing on these agencies is increasing and the 
resources they need to do their jobs deserves to increase as well. 
Otherwise we will continue to face recruiting and retention problems.
    I look forward to your testimony and to working with you in the 
coming months. Thank you.

    Senator Campbell. Senator DeWine, do you have a statement?
    Senator DeWine. Mr. Chairman, I am glad to be a member of 
the committee. Thank you very much. I am looking forward to the 
testimony today. I have a written statement which I would like 
to make a part of the record.
    Senator Campbell. Without objection, it will be included in 
the record.
    Senator DeWine. Thank you.
    [The statement follows:]

               Prepared Statement of Senator Mike DeWine

    Thank you Chairman Campbell and Ranking Member Dorgan for holding 
this important hearing today. As one of the newest members of the 
subcommittee, I am glad to be here and ready to get down to business.
    Today's hearing is a great opportunity to discuss and examine many 
of the varied issues facing our nation's law enforcement agencies. 
Given the vastness of the issues we could talk about, I intend to focus 
my attention on three areas of particular interest to me and to my home 
state of Ohio. These areas include drug interdiction; the 
implementation of the Continued Dumping and Subsidy Offset Act, which 
is the law that Senator Byrd and I wrote to fight unfair trading 
practices; and the Bureau of Alcohol, Tobacco and Firearms' (ATF) 
efforts to keep guns out of the wrong hands.
    I am pleased that the Acting Commissioner of our U.S. Customs 
Service, Charles Winwood, is here today and am interested in getting 
his input on the state of our current international counter-narcotics 
operations. I hope to receive an update on the delivery status of the 
P-3 aircrafts provided in the Western Hemisphere Drug Elimination Act, 
as well as information regarding the need for additional resources to 
stop drugs from entering our borders.
    The Custom's Service is also playing a direct role in the 
implementation of the Continued Dumping and Subsidy Offset Act. We need 
this law because there are many foreign producers, who--in hopes of 
securing a greater share of the U.S. market or eliminating their U.S. 
competitors, altogether--are selling their products in the United 
States at or below production costs. Currently, Customs is writing 
implementation regulations for our Continued Dumping law. It is my hope 
that Customs and Treasury--and I have already raised this issue with 
Secretary O'Neill--will take the necessary action to ensure that the 
proposed implementation regulations are published very soon.
    Finally, I am pleased that Director Bradley is here today to 
discuss ATF priorities. As my colleagues are well aware, ATF is an 
integral federal law enforcement agency. Clearly, Treasury's role in 
the investigation and enforcement of our nation's gun laws is critical.
    Again, I thank all of our panelists for being here today. I look 
forward to discussing these issues and others during the question 
period.

    Senator Campbell. We will start with our first panel, which 
is James Sloan, the Acting Under Secretary of the Treasury for 
Enforcement; Brad Buckles, the Director of the BATF; Charles 
Winwood, the Acting Commissioner of the United States Customs 
Service; and Brian Stafford, the Director of the United States 
Secret Service.
    We will start in that order. Why do you not go ahead, Mr. 
Sloan.
    Mr. Sloan. Thank you, Mr. Chairman, Mr. Dorgan, Mr. DeWine. 
It is truly a privilege and an honor for me to be able to 
introduce to you today the Treasury law enforcement community. 
Rather than take away any of their time, because I think that 
they will need and require ample opportunity to present their 
statements and respond to your concerns, I would ask that my 
full testimony be included in the record of the proceedings.
    Senator Campbell. It will be included in the record. In 
fact, all of your full statements will be in the record.

                           Prepared Statement

    Mr. Sloan. Having said that, sir, and acknowledging the 
privilege and the honor it is to introduce them, I would like 
to present Director Buckles, Commissioner Winwood, and Director 
Stafford, and later today, Directors Newcomb and Basham and 
Deputy Director Baity.
    With that, I will move on to Director Buckles. Thank you, 
sir.
    [The statement follows:]

                  Prepared Statement of James F. Sloan

    Chairman Campbell, Senator Dorgan, and Members of the Subcommittee, 
I am pleased to be here today on behalf of Secretary O'Neill to 
introduce the fiscal year 2002 budget request for the Department of the 
Treasury's law enforcement bureaus and offices.
    Testifying with me today are the heads of each Treasury law 
enforcement bureau: Charles W. Winwood, Acting Commissioner of the 
United States Customs Service (Customs), Bradley A. Buckles, Director 
of the Bureau of Alcohol, Tobacco and Firearms (ATF), Brian L. 
Stafford, Director of the United States Secret Service (USSS), W. Ralph 
Basham, Director of the Federal Law Enforcement Training Center 
(FLETC), William F. Baity, Deputy Director of the Financial Crimes 
Enforcement Network FinCEN) and R. Richard Newcomb, Director of the 
Office of Foreign Asset Control (OFAC).
    In addition to presenting the fiscal year 2002 budget request, I am 
also here today to discuss the most significant challenges we face in 
Treasury law enforcement. However, at the outset of my testimony, I 
want to thank the Members of this Subcommittee for their strong and 
continuing support for Treasury law enforcement. Because of your 
support in fiscal year 2001, we experienced the largest increase in 
Treasury law enforcement staffing in over a decade.
    This Subcommittee is aware of the fiscal challenges we continue to 
face. The fiscal year 2002 budget request for $4.3 billion and roughly 
30,000 FTE provides our Treasury law enforcement bureaus and offices 
the support needed to carry forward our challenging missions. Overall, 
the President's fiscal year 2002 budget proposal would add roughly 900 
full-time equivalent positions to Treasury enforcement above the fiscal 
year 2001 total enacted level. For example, this budget will provide 
the ATF with an overall increase of 340 full-time equivalent agents, 
inspectors and other staff, and will be used to enhance our explosives, 
arson, and firearms enforcement efforts. For Customs, the fiscal year 
2002 budget request includes necessary funds to annualize the costs of 
370 full-time equivalent positions associated with the fiscal year 2001 
enactment. These positions will further aid Customs in carrying out its 
very important drug and law enforcement missions.
    All of our bureau heads will address their programs in greater 
detail today. I would now like to touch on a few of the highlights 
involving Treasury Enforcement.
  treasury strategic goal: support the achievement of business results
Departmental Oversight
    In addition to funding, it is important that our law enforcement 
bureaus have clear policies and priorities. The Office of Enforcement 
continues to focus on providing support, oversight, and policy guidance 
to enhance the performance of our enforcement bureaus and provide 
strong leadership in the enforcement community.
            Performance Results
    As the Acting Under Secretary for Enforcement, along with my staff, 
I am working to ensure that the Treasury law enforcement bureaus' 
performance goals and measures conform to policy and that the bureaus 
strive to reach their identified targets. To that end, Treasury law 
enforcement bureaus are working hard to achieve the strategic goals and 
objectives identified in the Department's fiscal year 2000 through 
fiscal year 2005 strategic plan. Our law enforcement bureaus have 
improved in their overall performance as indicated by a comparison of 
our fiscal year 1999 and fiscal year 2000 results of the percentage of 
performance targets met by Treasury law enforcement bureaus and major 
offices.

        Fiscal year                                              Percent

1999 actual.......................................................    64
2000 actual.......................................................    77
2001 Plan.........................................................    82
2002 Plan.........................................................    85

    We will continue to strive to improve as we work toward the 
achievement of our fiscal year 2001 and fiscal year 2002 performance 
measure targets. It is important, however, that we not set goals that 
we are sure to reach. Instead, even though we may not achieve all of 
our goals, we must set targets that challenge us. If the performance 
measure targets do not ``stretch'' our bureaus, we will not improve.
    It is my view that the performance measures contained in our fiscal 
year 2002 bureau performance plans will appropriately challenge us. 
However, I also recognize that we still have a long way to go in 
developing the best set of performance measures for our law enforcement 
bureaus. While this is true for all of our mission areas, such as 
protection, trade facilitation, and passenger processing, it is 
especially true for our traditional law enforcement mission. We will 
work within Treasury, with other Federal law enforcement agencies, and 
with the Office of Management and Budget (OMB) to develop the law 
enforcement measures to accomplish our operational priorities and 
achieve our agency goals more effectively.
Infrastructure
    For our bureaus to accomplish their missions successfully, they 
need facilities that are safe and secure. They also need equipment that 
is up-to-date and reliable. We are working to meet these needs and 
thereby better serve the American people.
    An example of this is the updated Customs Air and Marine 
Modernization Plan. This Plan is being cleared through the Department 
and will be forwarded to OMB and this Committee very soon. This Plan 
was prepared in response to a request by this Committee which, in 
noting the successes of the Customs Air and Marine Interdiction 
program, expressed its serious concerns surrounding the growing 
operational commitments associated with that success. Among other 
things, the Plan specifically addresses the Committee's concerns 
regarding the high cost of maintaining the fleet due to aircraft age 
and operational usage. The Air and Marine Modernization Plan includes a 
current description and status of air and marine assets and a strategic 
plan for replacing assets that have exceeded their useful life. To 
support this effort, the fiscal year 2002 budget request includes a $35 
million initiative for air and marine enhancements consistent with the 
Western Hemisphere Drug Elimination Act.
National Laboratory Center
    The ATF National Laboratory Center (NLC) currently is located in a 
less than satisfactory commercial building in Rockville, Maryland, and 
a new government owned facility is being built as a replacement. In 
addition to the existing Forensic Science and Alcohol and Tobacco 
Laboratories, a new Fire Research Laboratory (FRL) will be part of the 
facility. In December 1999, ATF broke ground for its new NLC in 
Beltsville, Maryland. Once constructed, the new NLC will give ATF the 
kind of forensic and analytical science facility it needs to support 
firearms, explosives, and fire investigations, as well as to conduct 
testing that insures the integrity of regulated alcohol and tobacco 
products.
    The FRL is a new addition to ATF's technical expertise that will 
directly support fire/arson investigations and complement ATF's on-
going fire/arson investigation initiatives such as the InterFIRE Fire 
Investigation Training, the Certified Fire Investigator Program, and 
the Accelerant Detection Canine Program. It will be the only laboratory 
in the world solely dedicated to supporting fire/arson investigations 
and the resolution of arson related crimes and advancing the science of 
fire evidence analysis. For the first time, investigators will have a 
resource that can help them unravel the difficult problems associated 
with fire ignition and spread. ATF has established a memorandum of 
understanding with the National Institute of Standards and Technology 
to join forces on research into the measurement and prediction of fire 
and its effects, to share training and technology, and to conduct joint 
research and technical assistance tasks on matters of fire science.
ATF Headquarters
    ATF Headquarters currently is located in a portion of a privately 
owned office building. In response to increasing safety concerns and 
capacity limitations, construction funds were provided for a new ATF 
Headquarters Building. The new building also will be the cornerstone of 
the redevelopment of the New York and Florida Avenue corridors in 
Northeast Washington, DC. We anticipate project completion in the 
spring of 2005. Due to the importance of this project, including the 
need to ensure the safety of our employees, senior policy officials are 
monitoring this project closely to ensure appropriate funding, and that 
it adheres to the original completion schedule.
FLETC Master Plan
    The expansion in recent years in the number of employees hired by 
the 73 law enforcement agencies that participate in FLETC has stressed 
FLETC's ability to meet all the requests for training. Although FLETC 
continues to be able to provide all the basic training needed, by using 
a temporary facility in Charleston, South Carolina, increases in bureau 
hiring require coordinated increases in funding for FLETC.
    Consistent with past practice, FLETC has submitted its five-year 
construction plan and updates to Congress. This so-called Master Plan 
captures how FLETC proposes to expand its Glynco, Georgia and Artesia, 
New Mexico facilities to ensure that long range demands for training 
can be met. Currently, FLETC is being challenged to expand facility 
capacities at its Glynco and Artesia centers to meet expressed U.S. 
Border Patrol training requirements. A temporary site is now being used 
in Charleston to provide a portion of basic training due to predicted 
Glynco capacity limitation. As you know, the Congress has requested 
that FLETC's expansion be completed in fiscal year 2004, to eliminate 
the need for Charleston's use. FLETC's current Master Plan, identifies 
$83.2 million in construction requirements ($54.9 million over five 
years for Artesia and $28.3 million over five years for Glynco). To 
date, FLETC has received $39 million in appropriations and most of 
which has been, or will be, obligated by the end of fiscal year 2001. 
Initially, the Border Patrol's training facility in Charleston was 
scheduled to close in fiscal year 2004, with subsequent consolidation 
of all Border Patrol basic training at FLETC. Such a consolidation 
would generate $55 million in cost avoidance for new construction, and 
another $8 to $12 million annually would be saved by the Border Patrol 
in per diem cost, above original projected costs. FLETC and Border 
Patrol have forged a partnership to continue to make prudent decisions 
to achieve the consolidation as close to the original target date as 
possible.
FLETC's Cheltenham Facility
    As part of its efforts to support Treasury's law enforcement 
bureaus, the Office of Enforcement identified a need for a firearms 
requalification range facility in the greater Washington, D.C. area for 
Treasury and other law enforcement personnel. To address this need, in 
March 2000, an interagency working group was formed to conduct a 
feasibility study to determine the possibility of establishing a 
consolidated training facility in the Washington metropolitan area. The 
study attempted to find an available location that would meet the 
following criteria: (1) government owned property, (2) sufficient acres 
to allow growth, (3) within the D.C. metropolitan area, and (4) 
suitable buffer areas between neighboring residential or commercial 
property. We have identified a site in Cheltenham, Maryland, that meets 
these criteria, and thanks to the support of this Committee and 
Congress, we have $30 million to build the facility. Although there is 
ongoing litigation about the site, we hope to be able to move forward 
soon.
    The availability of a FLETC operated dedicated firearms and a 
vehicle operations requalification facility will promote optimum 
quality, quantity, and cost effectiveness for all law enforcement 
agencies in the greater Washington, D.C. area. While the original 
working group consisted of six Treasury law enforcement agencies--ATF, 
USSS, Internal Revenue Service-Criminal Investigations (IRS-CI), 
FinCEN, Customs, and FLETC--we now have over 29 agencies interested in 
using Cheltenham, including the U.S. Capitol Police.

                            HUMAN RESOURCES
    We recognize, however, that the most modern facilities using the 
latest technology are useless if we are not able to recruit and retain 
high caliber personnel. We have taken a number of important steps to 
strengthen our workforce.
Treasury Law Enforcement Study
    The fiscal year 2000 and fiscal year 2001 House Appropriations 
Committee Reports expressed concern about available Treasury law 
enforcement resources and infrastructure issues. In response, the 
Department of the Treasury, in coordination with the Office of 
Personnel Management, engaged a human resources management/consulting 
firm to prepare a series of issue papers. The issue papers involve 
senior executive service staffing; economy of scale/technology; human 
resource planning and workforce productivity; quality of work life; 
external funding; and training. In addition, I am pleased to inform the 
Committee that, as identified below, Treasury also conducted a series 
of complementary studies. Together, these efforts outlined the issues 
and challenges facing Treasury's law enforcement bureaus. More 
importantly, the contractor has proposed strategies and next steps to 
help ensure that they will have the human and technical resources 
necessary to meet mission demands now and in the future. For certain, 
additional work will be needed to address the overall aspects of this 
endeavor.
    There are many challenges that compel us to focus on these issues 
including an increasingly more demanding and complex operating 
environment, highly sophisticated and complex criminal activities, 
growing use of the internet, globalization, and the requirements to do 
more and having to do it with less.
    The contractor's report contains recommendations for next steps in 
a number of areas, some of which are listed here. However, it is 
important to note that this report does note connote Administration 
policy.

------------------------------------------------------------------------
             Topics                     Issues            Next Steps
------------------------------------------------------------------------
Senior Executive Service          SES slot            Develop proposal
 Staffing Levels.                  allocation;         for achieving
                                   actual number of    additional SES
                                   SES slots needed    slots.
                                   to carry out the
                                   law enforcement
                                   mission.
Technology and Economy of Scale.  Importance of       Review technology
                                   technology in       needs in the
                                   Treasury Law        context of the
                                   Enforcement         new
                                   Bureau's work;      administration's
                                   use of complex      goals and bureau
                                   technology by       strategic plans.
                                   criminals.          Develop plans for
                                                       dealing with the
                                                       insertion of new
                                                       technologies.
Optimizing Staffing in Field      Staffing of core     Develop pilot
 Offices.                          occupations;        offices;
                                   reviewed each       determine needed
                                   bureau's            workforce
                                   organization,       profiles; and
                                   workforce,          assess the costs.
                                   workload, and
                                   work processes.
Workforce Competencies and        Focus on workforce  Determine
 Compensation.                     competencies and    competitive
                                   compensation.       levels of
                                                       compensation and
                                                       benefits.
Quality of Work-Life............  Issues that         Invest further
                                   positively and      study and
                                   negatively affect   attention into
                                   employment (e.g.    critical quality
                                   assignment to       of work-life
                                   hardship posts).    issues.
External Funding and              How the Bureaus     To further develop
 Partnerships.                     can partner with    the best ideas
                                   external            through a multi
                                   organizations,      level review
                                   such as             process.
                                   commercial
                                   industry or trade
                                   associations, to
                                   help meet
                                   anticipated
                                   resource
                                   requirements.
Training........................  Identification of   Enhance current
                                   training needs      efforts to
                                   that cut across     facilitate inter-
                                   bureaus; process    bureau training
                                   for development     and the use of
                                   of joint            technology.
                                   training;
                                   strategies for
                                   integration of
                                   programs into
                                   bureau specific
                                   curricula.
------------------------------------------------------------------------

    Further investments may be warranted to capitalize on many of the 
ideas and strategies proposed from both the external and internal 
efforts from this project.
Hiring and Agent Staffing
    Retention of employees who have years of experience and in whom we 
have invested long hours of training is critical. In that regard, the 
Department has made progress toward meeting the challenges of improving 
our capacity to develop and retain high-caliber employees. 
Specifically, we have worked to address workforce retention and 
workload balancing issues with the aforementioned comprehensive 
studies. The analysis confirmed that agents and other core occupations 
are experiencing increased travel, longer working hours, and shortages 
in technologically current equipment. However, I am pleased to note 
that several fiscal year 2001 initiatives are being continued in fiscal 
year 2002, and with the Committee's support this will enable us to 
respond to these challenges effectively.
Senior Executive Service (SES) Allocations
    Allocation of SES positions within Treasury law enforcement bureaus 
is of vital concern to our present and future leadership planning. This 
represents one of our highest cross-cutting human resource priorities. 
This is one of the topics addressed in the contractor's report, as 
noted above.
Demonstration Pay Project
    The Demonstration Project was established to enhance the Department 
of the Treasury's ability to recruit, develop, and retain highly 
qualified non-agent scientific and technical law enforcement personnel. 
It seeks to do so by implementing changes in personnel management 
practices for designated occupations. ATF recently launched its pay 
demonstration project for scientific and technical positions. The 
Demonstration Project emphasizes flexibility in approaches to 
recruitment, and establishes a pay-for-performance system designed to 
provide incentives to compete with state and local government and the 
private sector. ATF's Demonstration Project consists of more than 250 
employees within 13 divisions and includes occupations such as computer 
science, fingerprint analysis, firearms enforcement, document analysis, 
engineering, integrated ballistic information system specialist, 
firearms and tool making. Paybands, a performance appraisal system, 
performance-based bonuses and pay increases, and certification and 
licensure bonuses are some of the interventions being used to develop a 
higher performing workforce. By all counts, I am confident that this 
effort is a good barometer of the future for all of the Federal 
government.
    As required by law, we recently provided the Congress with the 
Demonstration Project Interim Evaluation Report. It provides an 
assessment of the effectiveness of the project. The interim findings 
and conclusions state that participating employees are paid more and 
that they want to continue with the Project. They recognize the link 
between pay and individual performance. The Report also notes that 
management needs to make improvements to the performance appraisal 
system and improve communication to achieve Treasury objectives. 
Because the interim recommendations were made after just one year's 
experience with the human resources interventions, this project needs 
to be extended to fully assess its effectiveness. Our extension request 
is included in the President's April 9, 2001 budget. We thank the 
Subcommittee for its support on this project, as we look forward to 
completing the research and making this capacity permanent.
Improving the Office of Enforcement
    We also are working to improve the Office of Enforcement. In March, 
the General Accounting Office completed its report on the Office of 
Enforcement, entitled Department of the Treasury: Information on the 
Office of Enforcement. In addition to making a number of constructive 
observations, the report recommended that the Under Secretary for 
Enforcement ``strengthen internal control by developing a policies and 
procedures manual to ensure that the policies and procedures on the 
circumstances under which the bureaus interact with Enforcement are 
clearly defined, documented and readily available for examination by 
bureau officials and others.'' I want to assure you that we have begun 
to review our policies and procedures and develop a plan to comply with 
this recommendation.

                               TECHNOLOGY
    It is especially important for Treasury law enforcement to define 
and pursue strategies that ensure adequate technological resources are 
available to support our law enforcement missions and bureaus. 
Computers and the Internet are an integral part of an ever-increasing 
number of criminal activities investigated by Treasury bureaus. We have 
seen computer-generated and computer-assisted fraud dramatically 
increase. Criminals, in the furtherance of their illegal schemes, 
frequently utilize hardware and software tools developed for the 
benefit of businesses and consumers.
    Because of the competitive nature of Internet-based financial 
services, the focus is on speed, ``24/7'' access, and ease of use; all 
of which make the job of the ``cyber criminal'' a little easier. The 
Internet also provides the anonymity that criminals desire. Alarmingly, 
the Internet contains thousands of sites dedicated to all types of 
criminal activity. ``Hacking'' sites describe the methods for making 
intrusions into financial, telecommunications, and government systems, 
and allow the necessary ``tools'' to be downloaded directly to the 
perpetrator.
    For just about every new technology that is found to be useful in 
the conduct of criminal endeavors Treasury law enforcement will have to 
make a decision on countering these technology related thrusts and find 
ways to master the relevant technologies. Without continuous technical 
upgrading and training, the criminal element may acquire an advantage 
over law enforcement in the fast growing areas of cyber-crime and 
communications countermeasures. We must meet this threat with 
technology, knowledge, and law enforcement personnel who have true 
mastery of these offensive or defensive tools to thwart, control, or 
reduce crime. Technology infusion and managing technology obsolescence, 
though at times resource draining, are essential tools for maintaining 
the decisive edge for the enforcement and protection mission. As noted 
earlier, we are planning to conduct a follow-on review of law 
enforcement technology needs and technology strategies to support the 
new administration's goals.

                      MEETING OUR STRATEGIC GOALS
    Of course, the purpose of focusing on our infrastructure, human 
resource and technology needs is to enhance our abilities to meet our 
law enforcement missions. Treasury's law enforcement bureaus have a 
distinguished record of service. We are committed to building on this 
record and achieving even greater performance.

 TREASURY STRATEGIC GOAL: COMBAT MONEY LAUNDERING AND OTHER FINANCIAL 
                                 CRIMES
Money Laundering and Financial Crimes
    The Office of Enforcement and the Treasury enforcement bureaus 
continue to lead the U.S. government's efforts in the domestic and 
global fight against money laundering and related financial crimes. 
Treasury continues to author the National Money Laundering Strategy in 
conjunction with the Department of Justice. This strategy aims to 
attack not only the proceeds of narcotics trafficking, laundered, for 
example, through the Black Market Peso Exchange system, but also the 
illicit proceeds generated by child pornographers, trade fraud, 
terrorists, arms traffickers, and those who defraud the elderly.
    FinCEN and the Treasury enforcement bureaus continue to work to 
improve feedback to the industry regarding the utility of the 
Suspicious Activity Reports (SARs) filed by financial institutions. 
SARs are a critical component of law enforcement's ability to detect 
and combat money laundering. Many investigations are made or enhanced 
through the use of a SAR, and we are working with industry to help them 
understand better how law enforcement uses SARs through ``The SAR 
Activity Review,'' published under the auspices of the Bank Secrecy Act 
Advisory Group. SAR review committee groups are being established in 
the major metropolitan areas to prevent duplication of investigative 
efforts.
    Treasury Enforcement leads the U.S. delegation to the Financial 
Action Task Force (FATF) and its project to identify Non-Cooperative 
Countries and Territories (NCCTs). In addition to contributing actively 
to the FATF NCCT effort, Treasury has informed our domestic financial 
institutions about the risks posed by the 15 NCCT jurisdictions 
identified by FATF last June. FinCEN has issued formal advisories to 
alert U.S. financial institutions to specific deficiencies in the 
counter money laundering regimes in these 15 jurisdictions and to 
encourage our institutions to apply enhanced scrutiny to transactions 
involving them. Treasury has worked both with our allies and with 
officials from the NCCTs themselves to correct the shortcomings in law, 
regulation, and practice that elevate the risk of money laundering 
activity in these locales. We are pleased with the progress being made 
in many of these named jurisdictions and feel that it is directly 
attributable to this FATF exercise. We believe that the second round of 
NCCT reviews, scheduled to be completed by June, will have a similarly 
beneficial result.
Money Service Business (MSB) Regulatory Program
    In the United States we are continuing to move forward on several 
fronts to strengthen the nation's anti-money laundering program. A 
little more than a year ago, FinCEN issued a final rule requiring 
registration of money services businesses--money transmitters, check 
cashers, money order and traveler's check businesses, and currency 
exchangers. The new rules will allow law enforcement authorities for 
the first time to have a firm idea of the size and location of the 
200,000 or so entry points into the financial system that those 
businesses can represent. FinCEN has also issued a final rule requiring 
suspicious transaction reporting by money transmitters and money order 
and traveler's check businesses; that rule is also currently scheduled 
to take effect at the beginning of next year.
    Our priority is ensuring a smooth and effective implementation of 
both the registration and suspicious activity reporting rules, taking 
into account what we learn during this critical implementation period. 
A delay in the effective date of suspicious transaction reporting might 
be helpful to assure smooth sequencing of the new obligations, but no 
final decision has been made on this point.
    During this implementation period, FinCEN is conducting an 
extensive outreach program to educate the MSB community about their 
registration and reporting obligations. On-going consultations are 
taking place with MSB industry representatives and a series of focus 
group meetings have been held in Chicago, Los Angeles, and New York. In 
addition, FinCEN is working closely with the Internal Revenue Service, 
a key partner with respect to oversight compliance by the MSB industry, 
to ensure that an enforcement and compliance infrastructure is in place 
by the time the SAR regulation takes effect.
White Collar/High Tech Crime
    Treasury's enforcement bureaus also protect our children from on-
line pornographers, enhance the safety of worldwide e-commerce, and 
enforce the intellectual property rights of U.S. industry from 
unscrupulous pirates. Treasury's law enforcement agents are recognized 
leaders internationally in the fight against high-tech crime in all of 
its manifestations; routinely provide important investigative and 
forensic assistance to their state and local law enforcement 
colleagues; and have earned the respect of the private sector industry 
through their effective handling of cases. Treasury agents have, for 
example, prevented a computer hacker from shutting down an on-line 
stock trading service and tracked and captured a hacker who caused the 
catastrophic shutdown of a medical diagnostic facility's computer 
network and communication system. Treasury maintains a Department-wide 
initiative to ensure that all of its law enforcement bureaus have a 
technically skilled and highly equipped set of agents to investigate 
these type of cases, and has deployed nearly 200 Computer Investigative 
Specialists (CISs) throughout the nation. The CIS program ensures that 
Treasury agents can handle evidence in whatever media it is stored. 
Treasury's enforcement jurisdiction in an increasingly high-tech and 
wired world.
Black Market Peso Exchange (BMPE)
    Treasury's counter-narcotic efforts have both a domestic and 
international dimension. Our initiatives to combat the BMPE, the 
largest money laundering system in the Western Hemisphere and the 
primary conduit for Colombian drug cartels, are a good example of this 
approach. Anecdotal law enforcement evidence, informant statements, and 
other evidence suggests that between $3-$6 billion is laundered 
annually using the BMPE system.
    Three years ago we established a multi-agency BMPE Working Group 
which has developed and implemented an aggressive strategic plan to 
combat this form of money laundering. The Money Laundering Coordination 
Center ([MLCC] created and operated by the Customs Service has proven 
instrumental in fighting the BMPE), is designed to synthesize 
intelligence from investigations targeting the BMPE. Housed at FinCEN, 
the MLCC has proven instrumental in fighting the BMPE. Combating the 
BMPE is a law enforcement priority.
    In addition to these law enforcement efforts, the Department of the 
Treasury and the Department of Justice have developed and implemented 
an aggressive outreach program to make the U.S. business community 
knowledgeable of the operations of, and their vulnerability to, the 
BMPE system. Treasury and Justice are working with business leaders in 
their efforts to develop, adopt, and implement money laundering 
compliance programs and best practices guidelines that will aid their 
companies in avoiding BMPE transactions.
    To promote awareness of the BMPE process and its detrimental 
effects on the global economy, Treasury has created the International 
BMPE Exchange Task Force. This Task Force is comprised of experts from 
Aruba, Colombia, Panama, United States, and Venezuela who will examine 
the operations of the BMPE as a money laundering system and will 
recommend policy options and actions that can be taken to effectively 
detect, deter, and prosecute BMPE money laundering.

    TREASURY STRATEGIC GOAL: PROTECT OUR NATION'S BORDERS AND MAJOR 
 INTERNATIONAL TRANSPORTATION TERMINALS FROM TRAFFICKERS AND SMUGGLERS 
                            OF ILLICIT DRUGS
Counter-Narcotics
    The Southwest Border (SWB) between the U.S. and Mexico continues to 
provide a significant challenge to Treasury's law enforcement 
operational mission. In fiscal year 2000, 293 million people, 89 
million cars and 4.5 million trucks entered the United States from 
Mexico. This immense and growing volume of traffic represents an 
opportunity for those who would violate U.S. law, making control of our 
borders and ports of entry essential. Government estimates continue to 
indicate that nearly two-thirds of the cocaine entering the U.S. comes 
across the SWB.
    Multiple government agencies are tasked with maintaining the flow 
of legal migration and trade while protecting the United States from 
the smuggling of drugs, illegal aliens, and other contraband. Customs 
has primary responsibility for ensuring that all movements of cargo and 
passengers that enter the United States comply with Federal law. 
Customs is also the lead agency for investigating and preventing drug 
smuggling into the U.S.
    The challenges we face are significant and complex, but not 
insurmountable. Working through the Border Coordination Initiative, we 
have improved our law enforcement capabilities along the SWB. Under 
Treasury and Justice enforcement guidance, and with significant 
emphasis on interagency cooperation and locally developed innovation, 
we have improved port coordination, intelligence gathering and 
enforcement. We have also enhanced communication, coordination, and 
operational effectiveness of Federal law enforcement while still 
facilitating the movement of legitimate commerce across the SWB.
Plan Colombia
    Since mid-1999, Treasury Enforcement has participated in efforts to 
assist the Government of Colombia in efforts to stop narcotics 
production and trafficking in that country. The $1.3 billion ``Plan 
Colombia'' was passed by Congress to assist that. The Office of 
Enforcement has played a major role in the development of the 
components of that Plan and the contributions in support of its 
implementation. The Plan Colombia legislation included funding for 
Treasury programs, including $68 million for upgrading the radar in the 
Customs P-3 fleet, $2 million for OFAC sanctions activities, $1 million 
for banking supervision assistance, and $500 thousand for tax revenue 
enhancement. Funds provided to the State Department for assistance and 
training programs are also being used by Treasury bureaus to train the 
newly-formed Colombian Customs police force, to support Customs 
Americas Counter Smuggling Initiative and to provide maritime 
enforcement and port security assistance. In addition Treasury's 
enforcement bureaus--ATF, Customs, IRS-CID, USSS, and FinCEN--under the 
Office of Enforcement's lead, have developed plans to participate in a 
variety of law enforcement efforts such as enhancing the Colombian 
financial intelligence unit and thwarting the BMPE and other money 
laundering, smuggling, and counterfeiting activities.

    TREASURY STRATEGIC GOAL: REDUCE VIOLENT CRIME AND THE THREAT OF 
                               TERRORISM
Firearms Violence
    We remain dedicated to reducing firearms violence through ATF's 
enforcement of the firearms laws. The President's budget permits ATF to 
maintain this enhanced level of effort and move forward with its 
comprehensive strategy to reduce violent crime.
    As Director Buckles' will discuss in more detail during his 
testimony, the IVRS sets forth an aggressive three-part plan to reduce 
gun violence by coordinating ATF's firearms enforcement efforts to: (1) 
identify, investigate, and recommend prosecution of violent criminals 
and others who illegally use, possess, or attempt to acquire firearms; 
(2) deny access to firearms for criminals and others who cannot legally 
possess them through fair and careful regulation of the firearms 
industry and proactive investigation of illegal traffickers of 
firearms; and (3) break the cycle of violence and prevent firearms 
crimes through community outreach. ATF has enjoyed significant success 
in implementing this strategy. For example, in fiscal year 2000, ATF's 
efforts led to the conviction of 1,595 armed career criminals, armed 
drug traffickers, and other violent or prohibited persons who used, 
possessed, or attempted to acquire firearms. The President's budget 
request for ATF will enable us to build on this success.
Counter-Terrorism
    The President's fiscal year 2002 budget seeks resources that will 
enable Treasury to continue to apply its unique expertise and assets to 
the Federal government's efforts to combat terrorism. Treasury's wide-
ranging counter-terrorism responsibilities include preventing the 
unlawful traffic in firearms and explosives, protecting the President 
and other officials, enforcing the laws controlling the movement of 
assets, and enforcing the laws relating to exports from or imports into 
the United States of goods and services. In short, Treasury enforcement 
bureaus have the legal authority and the essential expertise to perform 
missions that are critical to the security of the United States, 
including:
  --ATF has primary jurisdiction for the prevention of unlawful 
        trafficking in firearms and explosives. ATF conducts over 90 
        percent of all Federal bombing investigations and maintains the 
        Federal National Repository on Bombing Incidents.
  --Customs is the guardian of our nation's borders. It's counter-
        terrorism mission is twofold: protect our nation from the 
        introduction of Weapons of Mass Destruction (WMD) and prevent 
        international terrorists from obtaining WMD materials, 
        technologies, arms, funds to support their activities. Customs 
        enforces the laws and regulations that directly relate to the 
        responsibilities entrusted to the Department of the Treasury 
        under Presidential Decision Directive 39. These violations 
        include the smuggling of contraband into the United States; the 
        illegal export of licensable technologies and arms; violations 
        of international sanctions, embargoes and related money 
        laundering statutes. Customs places special emphasis on 
        violations that involve international terrorists, rogue regimes 
        pursuing WMD development programs, and countries which support 
        international terrorism.
  --The FLETC offers a variety of programs aimed at assisting Federal, 
        State and local authorities in their efforts to combat 
        terrorism.
  --FinCEN unique ability to ``follow the money'' strikes at the very 
        heart of terrorist organizations. Through the use of a wide 
        array of databases, FinCEN is able to reveal complex financial 
        networks supporting terrorist activities.
  --IRS-CI provides the expertise to deter one of the primary means of 
        funding for terrorist organizations--tax fraud. The financial 
        expertise of IRS-CI is best utilized in the investigation of 
        various tax schemes, money laundering and the creation/use of 
        illegal tax-exempt organizations.
  --OFAC administers United States economic sanctions against foreign 
        governments and organizations that support terrorism. OFAC's 
        sanctions prohibit any financial transactions or dealings with 
        terrorist sponsoring countries and foreign terrorist 
        organizations and provide the blocking of assets of terrorist 
        countries and entities by Treasury.
  --The United States Secret Service (USSS) protects our nation's 
        leaders, the White House complex and certain foreign 
        dignitaries. In addition, the USSS is now the lead agency for 
        the design, planning and implementation of security for events 
        that have a high potential for attracting terrorist activity. 
        The National Security Council proposes to the Attorney General 
        and Secretary of the Treasury events to be designated National 
        Special Security Events. Additionally, the USSS protects our 
        financial infrastructure through its investigations of 
        counterfeiting, forgery, bank fraud, access device fraud 
        computer intrusion, telecommunications fraud, false identities 
        and fictitious instruments.
National Threat Assessment Center (NTAC)
    The Secret Service NTAC develops and provides threat assessment 
training and conducts operational research relevant to public official, 
workplace, stalking/domestic, and school-based violence. The NTAC 
provides assistance to other Federal agencies, as well as other state, 
local agencies and organizations interested in developing threat 
assessment programs.
Foreign Terrorist Asset Tracking
    Congress provided funding in fiscal year 2001 for OFAC to develop a 
Foreign Terrorist Asset Tracking (FTAT) Center. The FTAT Center will be 
responsible for developing government-wide strategies to counter 
terrorist fundraising and to incapacitate their financial holdings 
within the United States, and to assist other countries to employ 
similar strategies. Such strategies will bring to bear the full weight, 
influence, and authority of the Federal government--regulatory, 
diplomatic, defense, intelligence, and enforcement communities. Several 
agencies with counter-terrorism responsibilities have committed to 
participate in the FTAT Center--by providing the FTAT Center with all 
relevant information, by detailing specialists to analyze the data, and 
by appointing special liaisons to cement the constant interaction of 
the member organizations. OFAC is now hiring the FTAT Center's 
permanent staff and is working with participating agencies to identify 
detailees and liaisons.

  TREASURY STRATEGIC GOAL: PROTECT OUR NATION'S LEADERS AND VISITING 
                              DIGNITARIES
Winter Olympics
    The President's fiscal year 2002 budget identified a $51.6 million 
resource need to support the fiscal year 2002 Olympic requirements for 
Treasury law enforcement bureaus. This assumes 1,681 law enforcement 
officers will be needed to carry out the security plan. An additional, 
300 support personnel will be provided. Most of the costs incurred 
during fiscal year 2002 will be for travel and overtime directly 
related to the games. However, costs will also be incurred to continue 
the operation of several coordinating centers, to conduct additional 
contracted training, for miscellaneous contractual service, to purchase 
cold weather clothing and to move employees out of Salt Lake City at 
the conclusion of the Olympics. The number of law enforcement officers 
from Treasury bureaus is projected at 1,075, with the remainder of 606 
to come from outside of Treasury.
    The Secret Service is the lead Federal agency for designing, 
planning, and implementing security for designated National Special 
Security Events (NSSE). The 2002 Winter Olympics has been designated an 
NSSE and will occur February 8-24, 2002, in 15 major sporting event 
venues in and around Salt Lake City. In addition to providing a secure 
environment for the Olympic athletes and for spectators from all over 
the world, the Secret Service will also be responsible for providing 
security for numerous foreign heads-of-state/government, who attend 
Olympic events. The Secret Service will also provide security for the 
President and Vice President of the United States while they 
participate in the opening and closing ceremonies, as well as, any 
Olympic competitions they may decide to attend.
    In addition to NSSE requirements, Treasury enforcement is a member 
of the Public Safety Utah Command. ATF has the responsibility to assist 
in the following activities: (1) prevent, detect and respond to arson 
and explosives activities; (2) provide bomb ``render safe'' 
technicians, explosives detecting canines, tactical special response 
teams, and tactical emergency medical technicians; and (3) provide 
intelligence analysis of threat data, as well as firearms and 
explosives tracing.
    The Customs core mission responsibilities focus on the entry of 
equipment, cargo, and individuals participating or attending the games. 
The primary emphasis will be on the enforcement of intellectual 
property right violations of Olympic merchandise and antiterrorism 
efforts on the Northern Border.

    TREASURY STRATEGIC GOAL: PROVIDE HIGH QUALITY TRAINING FOR LAW 
                         ENFORCEMENT PERSONNEL
    To address some of the strain from increased demand for training, 
we have been exploring ways to use the latest technology to provide 
alternative means of delivering training courses. Recognizing that the 
FLETC facilities cannot accommodate all of the requests for training 
that are likely to arise in the future, we are searching for ways to 
use the Internet and video conferencing to provide needed training.
    Likewise, the need for advanced training to keep law enforcement 
officers abreast of the latest trends in fighting crime is critical. We 
have been working closely with FLETC to explore ways to enhance 
training to address high-tech crime. One example of this approach is 
Computer Investigative Specialist (CIS) 2000 training. This course, 
which includes agents from the Secret Service, Customs, the IRS-CI, and 
ATF, uses state-of-the-art training and equipment to teach agents how 
to deal with the latest computer and encryption technology that they 
may encounter in conducting an investigation. The CIS 2000 agents have 
achieved many notable successes in their investigations of 
counterfeiting, money laundering and various types of fraud as a result 
of this course.

 TREASURY STRATEGIC GOAL: MAINTAIN U.S. LEADERSHIP ON GLOBAL ECONOMIC 
                                 ISSUES
Trade Enforcement and Facilitation
    In the area of Regulatory and Trade Enforcement our goals have been 
to ensure that laws affecting trade and regulated industries are 
effectively enforced without unnecessarily burdening legitimate 
commerce. An effective means of realizing both goals is through 
targeting enforcement actions and extending the capabilities of our 
finite manpower with automated information management systems. We have 
also pursued international standardization of trade regulation as a 
means of enhancing enforcement cooperation while reducing the burden on 
business. The fiscal year 2002 budget request includes $130 million for 
continued work on the Customs Automated Commercial Environment (ACE) 
and $123 million for life support for the antiquated Automated 
Commercial System (ACS). Developing the ACE system is vital to Customs 
ability to effectively carry out its trade and other enforcement 
missions.

                               CONCLUSION
    In this statement I have been able to touch on only some of the 
important programs of Treasury's enforcement bureaus. Each bureau head 
will address our programs in greater detail. And, of course, I shall be 
pleased to respond in writing to any questions you want to direct to me 
about any of our programs.
    In conclusion, Mr. Chairman, again I would like to thank you, 
Senator Dorgan, and the other Members of this Subcommittee for your 
support of Treasury's law enforcement programs. Our law enforcement 
bureaus have grown, they are better equipped, and they have become more 
professional as a result of your oversight and support.
    I also would like to thank the staff of this Subcommittee for its 
professionalism and patience not only this year, but also in past 
years. We have wrestled with the problems that inevitably accompany 
growth and a rapidly changing set of challenges. I do not want to miss 
this opportunity to express my appreciation and gratitude.
                Bureau of Alcohol, Tobacco and Firearms

STATEMENT OF BRADLEY A. BUCKLES, DIRECTOR
    Mr. Buckles. Mr. Chairman, Senator Dorgan, Senator DeWine, 
thank you for this opportunity to appear here this morning to 
testify in support of ATF's fiscal year 2002 budget request and 
to report on results from your past investments.
    As you noted, our budget request this year is for $803.5 
million and almost 5,000 full-time equivalent positions. This 
represents essentially a maintain current services budget with 
no new initiatives.
    Over the past several years, this committee has secured 
additional resources for ATF related in large part to our 
firearms mission, and I am happy to report that your 
investments are paying off. Numbers of investigations, 
referrals for prosecutions, and convictions are all up 
dramatically. Since our cases focus on armed, violent, and 
often repeat offenders and those who knowingly supply firearms 
to them, removing these individuals from our streets produces a 
very direct and tangible benefit to the communities they 
threaten. At the same time, we remain committed to the 
prevention efforts, like the Gang Resistance Education and 
Training (GREAT) program, which is designed to prevent the next 
generation from starting down the road to gangs and violence.
    Recent reports show that violent crime is at its lowest 
level in decades, and these statistics are encouraging, but 
they are still not acceptable. There is much work to be done 
and it is clear that this is no time to let up. Around the 
country, ATF is working with State, local, and other Federal 
enforcement authorities to develop coordinated strategies to 
address gun violence, and these united efforts are making a 
difference. This budget is essential if ATF is to meet its part 
of the bargain in these joint efforts. Our collective goal is 
to turn the tables and make the criminal with the gun the one 
who feels unsafe on our streets.
    Another important investment of this committee, however, is 
proving to be somewhat problematic. The construction costs for 
our new laboratory and fire science facilities have escalated 
beyond original estimates. I am currently working closely with 
the Department to arrive at a solution that both funds the 
necessary construction and meets the approval of this 
committee. When this process is completed, I will be prepared 
to give you a full briefing and offer our solution to the 
problem.
    Our important work in the alcohol, tobacco, explosives, and 
arson arenas will also be funded by this budget, and our work 
in each of these areas is vital, as well. ATF's annual revenue 
collections are now over $14 billion. We protect millions of 
dollars in State revenues by preventing interstate smuggling of 
alcohol and tobacco products, and ATF is the source of leading-
edge technology and unique capabilities in addressing bombings 
and arson crime.

                           Prepared Statement

    With your support, the men and women of ATF are determined 
to make this bureau a great value to the American public as we 
pursue our goal for a sound and safer America. Thank you for 
this opportunity to appear before the committee, and I will be 
happy to answer questions.
    Senator Campbell. Thank you. In my view, the ATF is already 
a great value to the American public, by the way, Mr. Sloan.
    [The statement follows:]

                Prepared Statement of Bradley A. Buckles

    Thank you Mr. Chairman, Senator Dorgan, and members of the 
subcommittee. I welcome this opportunity to appear before the 
subcommittee and present to you ATF's goals for fiscal year 2002 and to 
report on the results of your previous investments in ATF.
    I look forward to working with this subcommittee toward 
strengthening ATF's infrastructure, which is essential for ATF to 
continue to function as a highly professional and effective law 
enforcement organization. In my 27 years of service to the Bureau, I 
have had the opportunity to participate in the formulation of our 
strategic vision, and I am eager to assist in moving the Bureau forward 
in the new century.
    The foresight of this subcommittee to provide fiscally sound 
investments has allowed the Bureau to strengthen its infrastructure to 
adequately support all program activities. Through calculated 
investments in investigative equipment, training, information 
technology, and personnel, ATF is in a balanced and stable position. I 
am pleased to report to you that your investments have been prudently 
spent. For the sixth consecutive year, the Office of the Inspector 
General's independent contractor (PricewaterhouseCoopers LLP) has 
issued ATF its highest audit opinion of ``unqualified,'' with no 
material weaknesses. A copy of our Accountability Report will be 
delivered to each of your offices in the next few weeks.
    As ATF's Director, I present to you a requested level of resources 
that maintains the strong foundation you have established. This level 
of resources focuses on the personnel and technology needed to address 
the varied and critically important responsibilities that have 
increased over the past decade. Challenges such as the investigation of 
cases resulting from the background check required by the Brady Act, 
expansion of focused enforcement programs, such as Project Exile and 
the Youth Crime Gun Interdiction Initiative (YCGII), and a continued 
leadership role on the Federal level in arson and bombing incidents 
require these resources.

                    FISCAL YEAR 2002 BUDGET REQUEST
    ATF's fiscal year 2002 Salary and Expense (S&E) request is 
$803,521,000 in direct budget authority and 4,982 full-time equivalent 
(FTE). Our request represents an increase of $32,378,000, or 4.2 
percent over the total fiscal year 2001 enacted level of $771,143,000.
    This increase will maintain the current services program level of 
mandatory payroll costs and growth through inflation for existing 
programs. No new initiatives are included; however, this request will 
allow us to continue to build the foundation of critical initiatives 
funded in fiscal year 2001.
    ATF has a unique combination of law enforcement and regulatory 
responsibilities. As Director, I will continue to focus on our core 
mission and vision of ``Working for a Sound and Safer America . . . 
Through Innovation and Partnership,'' through our three principal 
strategic goals: (1) reducing violent crime; (2) collecting all revenue 
due to the United States; and (3) protecting the public. ATF has 
developed sound programmatic initiatives, based on existing laws and 
regulations, targeting resources to respond to crime and violent acts 
that threaten public safety and instill fear in all Americans. Our 
vision helps us chart the course to best serve the public and achieve 
new levels of effectiveness and teamwork.

                  FISCAL YEAR 2000 ATF ACCOMPLISHMENTS
Reduce Violent Crime
    As the Director of ATF, I am proud to appear before the 
subcommittee today to highlight some of ATF's accomplishments during 
the previous fiscal year. We have been able to perform at a high level 
because of dedicated ATF personnel and this subcommittee's support and 
guidance. Violent crime continues to plague America despite the recent 
declines documented in Uniform Crime Report and Centers for Disease 
Control data. As a result, much of our efforts and resources have been 
devoted to reducing violent crime. We are reducing violent crime 
through multiple programs that use both our criminal and regulatory 
authorities.
    Your investments are having an impact. In fiscal year 2000, ATF 
initiated 16,604 criminal investigations, an increase of 26 percent 
over the previous year. During this same period, 6,938 cases were 
referred for prosecution involving 8,737 defendants. This represents an 
increase over the previous fiscal year of 35 and 28 percent 
respectively. Indictments for criminal offenses more than doubled.
    Effective enforcement of existing firearms laws has and continues 
to be a top priority of ATF. With the support and resources provided 
under the guidance of this Committee, in fiscal year 2000, 6,330 
firearms cases were referred for prosecution involving 7,822 
defendants. Again this represents a dramatic increase over the previous 
year of 36 and 29 percent respectively.
    I would now like to present the primary programs in our efforts to 
combat violent crime.
            Integrated Violence Reduction Strategy (IVRS)
    In fiscal years 2000 and 2001, ATF received a combined increase in 
funding of $62.2 million and 305 FTE to augment its Integrated Violence 
Reduction Strategy. We will be providing the subcommittee with a 
separate report on the accomplishments of the strategy. Today, I will 
provide you with a brief summary of how the various facets of the 
strategy interrelate.
    Violent crime, specifically firearms violence, continues to be a 
grave public concern in America. ATF addresses this concern through 
IVRS with a multi-pronged approach: (1) investigating and arresting 
armed career and violent criminals and other prohibited firearms 
possessors, (2) denying criminals access to firearms through effective 
regulatory and enforcement efforts, and (3) providing outreach to 
youths to teach about the dangers of gangs and violence.
    It is essential that ATF combine these elements to attack the 
violent crime problem. Thorough and consistent enforcement of the law 
is a crucial step in reducing violent crime, and will result in the 
prosecution and incarceration of armed offenders, removing certain 
criminals from society. Law enforcement must also address the continued 
flow of crime guns from illegal sources. Frequently, crime guns 
recovered in high-crime areas, where drug distribution fuels the need 
for firearms, are unlawfully obtained in other jurisdictions. The 
jurisdictions where the crime guns are being used may be unable to 
prosecute or even prevent the systemic diversion of guns to their city. 
Because of jurisdictional boundaries and limited resources, police 
departments often face barriers that prevent them from identifying the 
source of their crime guns. ATF has the unique ability to trace crime 
guns and provide analyses of tracing trends to assist these State and 
local agencies. Furthermore, the Bureau uses intelligence gathered from 
defendant debriefings to detect, investigate, and recommend prosecution 
of traffickers who illegally divert firearms into the hands of career 
criminals, gang offenders, and juveniles.
    ATF's regulatory efforts augment its enforcement strategies by 
working to ensure that firearms dealers are in compliance with Federal 
law and that illegal diversions are not occurring. The Bureau strives 
to educate licensed dealers so that they do not sell firearms to 
individuals known as ``straw purchasers,'' who then illegally traffic 
them to those persons prohibited from owning them. Seminars are 
conducted to not only clarify ATF regulatory requirements, but to 
promote best business practices for both compliance and security of 
merchandise. For example, ATF entered into a partnership with the 
National Shooting Sports Foundation to promote the ``Don't Lie for the 
Other Guy'' campaign that points out the penalties associated with 
purchasing a firearm for a prohibited person.
    ATF administers the Gang Resistance Education and Training (GREAT) 
program, a community-based curriculum designed to instill basic life 
skills in children aged 8-14 (grades 3-8). GREAT addresses real-life 
issues, such as positive decision making, goal setting, conflict 
resolution and responsibility, and anger management, to name a few. The 
vision of the GREAT program is to prevent youth crime, violence, and 
gang involvement while developing positive relationships among law 
enforcement, families, and youth. The program offers children of all 
backgrounds the building blocks for personal empowerment to create 
safer communities.
            National Integrated Ballistics Identification Network 
                    (NIBIN)
    In addition to the firearms tracing process, which helps law 
enforcement officials identify the perpetrators of violent crime, ATF 
provides investigative support through its leadership role in the 
National Integrated Ballistic Identification Network (NIBIN), a 
contributing program of the IVRS initiative. NIBIN provides for the 
nationwide installation and networking of automated ballistic imaging 
equipment in partnership with State and local law enforcement agencies. 
Because thousands more pieces of recovered ballistic evidence can be 
compared using automation than would be possible using only manual 
comparisons, links between otherwise seemingly unrelated crimes are 
discovered, and investigative leads are generated for police follow-up. 
In addition, the system makes it possible to share intelligence across 
jurisdictional boundaries, enabling State and local law enforcement 
agencies to work together to stop violent criminals. To date, a 
cumulative total of 684,344 images have been entered into the NIBIN 
network, consisting of the IBIS and DRUGFIRE technologies. These 
entries have resulted in 8,826 ballistic matches, and numerous shooting 
crimes have been solved as a result, many of which could not have been 
completed without the use of the system.
            Youth Crime Gun Interdiction Initiative (YCGII)
    YCGII is an integral part of ATF's Integrated Violence Reduction 
Strategy that focuses agent and inspector resources on interdicting the 
supply of firearms to two key age groups, juveniles (ages 0-17) and 
youths (ages 18-24), using the unique assets of crime gun tracing. 
During the 1990's, ATF developed new information systems to reinforce 
our firearms enforcement efforts. We can now use the crime gun itself 
as a vital investigative and evidentiary tool by tracing it back to its 
criminal user or its illegal supplier. In doing so, we are able to 
identify, arrest, and refer for prosecution both armed violent felons 
and those who are illegally supplying criminals and juveniles with 
guns. YCGII has been the platform for systematically developing, 
managing and analyzing crime gun tracing information.
    ATF began the establishment of Regional Crime Gun Centers (RCGC) 
located in YCGII cities during fiscal year 1999. The RCGCs are an 
expansion of the National Tracing Center's Crime Gun Analysis Branch 
efforts. The RCGCs are located in major cities and supported by local 
special agents, police officers and civilians. Local law enforcement 
agencies can contact personnel at these centers for investigative 
assistance, queries, mapping of crime gun recoveries, full 
identification of possible suspects, and various other technological 
tools available from personnel who know the local jurisdiction and 
suspects.
    During fiscal year 2000, ATF provided Youth Crime Gun Interdiction 
Initiative (YCGII) training to 1,678 ATF, Federal, State, and local law 
enforcement officers. ATF's 23 Field Divisions initiated YCGII 
investigations that resulted in 535 defendants, of which 345 have been 
convicted, 36 were found guilty on other charges and the remainder are 
awaiting further judicial action.
            Comprehensive Crime Gun Tracing
    The Comprehensive Crime Gun Tracing Initiative begun in fiscal year 
2001 will expand comprehensive tracing capability as well as provide 
faster trace results. As a result, there has been an increase of 
approximately five percent of trace requests thus far in fiscal year 
2001. The National Tracing Center (NTC) provides State and local 
agencies with information on crime guns to support their law 
enforcement efforts. The NTC provides valuable investigative leads to 
assist in solving crimes committed with firearms, and identifies those 
persons responsible for supplying crime guns to criminals. The NTC 
maintains the record of all crime guns traced by ATF, firearms stolen 
from firearms dealers and multiple sales of handguns. The Firearms 
Tracing System (FTS) provides data on firearms that is used by ATF 
special agents and inspectors to identify illegal firearms trafficking. 
The funds available in the fiscal year 2001 budget are assisting 250 
State and local agencies in building tracing capability, and will allow 
ATF to complete traces and respond to requests more rapidly, making 
information available in real time for criminal investigations.
    Currently 10 percent of traces are completed through Out of 
Business Records and in fiscal year 2001 over 50 percent of all traces 
have utilized these records in at least some part of the overall 
process. Consistent with Congressional restrictions relating to the 
centralization and computerization of firearms records, the NTC is also 
currently in the process of indexing Out of Business Records by a 
firearms serial number. This effort will dramatically reduce the 
average time to trace a firearm.
            Firearms Training
    ATF conducted 11 Serial Number Restoration courses in police 
laboratories across the United States. One hundred and forty-five law 
enforcement personnel were trained in the latest techniques for 
recovering obliterated or damaged serial numbers from crime guns.
    Aimed at combating the firearms trafficking problem, a joint ATF 
and Department of Justice Firearms Trafficking Seminar was provided to 
approximately 150 U.S. attorneys and State and local law enforcement 
officers.
    Through the National Firearms Examiner Academy (NFEA), ATF has 
developed a unique and innovative training program that has received 
much acclaim and recognition. This successful program represents a firm 
partnership between ATF, State and local police departments, and the 
firearms and ammunition industry. Designed to provide comprehensive 
training to entry level firearms examiners from State and local crime 
labs, the NFEA has developed a yearlong training curriculum that has 
become an all-inclusive benchmark for education in this field. The 
selection process is highly competitive and the course work demanding; 
to date, ATF has graduated 18 examiners. These examiners are trained in 
NIBIN technology, thus expediting State and local ballistics evidence 
examination on current and cold shooting cases.
            Arson and Explosives Enforcement
    ATF has had equally significant success addressing violent crime in 
the area of arson and explosives through enforcement and training. 
ATF's focus on violent crime involving acts of arson and with 
explosives continues to be a major initiative in the Bureau.
    In fiscal year 2000, ATF certified fire investigators (CFIs) 
responded to an estimated 2,250 fires across the country. These highly 
trained special agents respond to incidents at all times of the day and 
night to make the initial determination wherever there is evidence of 
potential criminal acts warranting further investigation.
    The Arson and Explosives National Repository Branch supports 
investigators from all levels of Government with the analysis of 
detailed incident information and the status of explosives thefts. It 
has over 95,000 incidents maintained in its state-of-the-art database. 
The Repository's tracing of recovered explosive material and military 
ordnances provides a vital investigative service to law enforcement 
personnel nationwide.
    To prevent the criminal misuse of explosives, ATF is strengthening 
its cadre of explosives enforcement officers (bomb technicians), who 
possess unique capabilities in explosives and bomb disposal. Currently 
there are 23 explosives enforcement officers on board.
    ATF's Explosives Study Group (ESG) is examining the tagging of 
explosive materials for purposes of detection and identification; the 
rendering of common chemicals used to manufacture explosive materials 
inert; the imposing of controls on certain precursor chemicals used to 
manufacture explosives; State licensing requirements for the purchase 
and use of commercial high explosives; and the possible use of 
prevention (explosives detection) technologies, as directed by Section 
732 of the Antiterrorism and Effective Death Penalty Act of 1996, as 
amended by the Omnibus Consolidated Appropriations Act for fiscal year 
1997.
    In early 2000, the ESG completed its analysis of an ATF 
commissioned study by the International Fertilizer Development Center 
(IFDC) on whether different ammonium nitrate (AN) products manufactured 
and imported into the United States can be identified by their 
existing, unique crystallographic or other properties. We have endorsed 
IFDC's findings, which are encouraging about the possibility of using 
the unique signature of each product as a forensic tool in the event of 
a criminal incident involving AN fertilizer.
    The ESG has also compiled a comprehensive list of State Licensing 
Requirements for the purchase and use of commercial high explosives, 
and is currently consulting with State regulators and industry members 
to develop recommendations for consideration by Congress that would 
advance public safety.
    The ESG is working with The Fertilizer Institute (TFI) to expand 
the ``Be Aware for America Program'' to address areas of vulnerability 
for distributors of ammonium nitrate fertilizer and agricultural 
chemicals.
    Additionally, the ESG is funding promising research at the Oak 
Ridge National Laboratory, including prototype development, 
engineering, and training on advanced sensing technologies for 
explosives detection. The ultimate objective is the development of a 
portable explosives detector that will function with a short, real-time 
response rate for trace amounts of explosives.
    The ESG has continued to communicate and work with other Federal 
agencies such as the Federal Aviation Administration, the U.S. Customs 
Service, the Department of Justice, and the Department of Energy. The 
goal is to achieve a coordinated effort to identify and direct 
resources toward the most promising technologies, for both the 
detection of additives and the detection of explosives and explosive 
materials themselves.
    It is our intention to provide briefings to interested Members of 
Congress on our findings and ongoing research.
            National Response Teams
    Our National Response Teams (NRTs) are comprised of highly trained 
and well-equipped individuals and related support functions that can be 
deployed within 24 hours to major bombing and fire scenes anywhere in 
the United States. The NRTs were activated 27 times in fiscal year 2000 
to investigate major fire and explosives incidents. Of these 27 
activations, 13 were determined to be arsons, 3 were accidental fires, 
10 were undetermined fires, and 1 was an accidental explosion. Our NRTs 
had a fire cause/determination ratio of 61 percent within the fiscal 
year, a rate approximately three times higher than the national 
average. To date, of the incidents that occurred in fiscal year 2000, 
half have been resolved by arrest, and we expect this percentage to 
increase as ongoing investigations continue. Because of the complexity 
of arson investigations, it often takes several years to complete an 
investigation from the time of incident to determining the cause of the 
fire, and, if an arson, to arresting the arsonist. In fiscal year 2000 
customer surveys completed by State and local users of the ATF NRT gave 
it a satisfaction rating of 97 percent.
    In addition to investigating fire and explosives incidents, the 
NRTs provide assistance to other Federal, State, and local law 
enforcement agencies during special events. In fiscal year 2000, the 
NRT provided support at the World Trade Organization Meeting in 
Seattle, Washington; the U.S. Olympic Trials in Sacramento, California; 
the Republican National Convention in Philadelphia, Pennsylvania; and 
the Democratic National Convention in Los Angeles, California.
            Arson Training
    ATF and the U.S. Fire Administration (USFA) are teaming up to 
redesign and deploy a web-based system managed by the USFA, entitled 
``Fire and Explosion Investigation Management System.'' This system 
will include information on fires and fire-related explosives incidents 
that occur nationwide for use by the fire/explosion investigation 
community. In partnership with the insurance industry, we have 
finalized the development and begun the distribution of InterFIRE, a 
virtual reality, CD-ROM-based training tool that is intended to 
establish ``best practices'' in fire investigation and bring fire 
investigators to a base level of knowledge.
    To strengthen cooperation between investigators and prosecutors, 
and to encourage prosecution of cases, ATF provided four Advanced Arson 
for Prosecutors classes in fiscal year 2000, training 211 prosecutors 
from across the country.
    Two classes were delivered in Advanced Cause and Origin/Courtroom 
Techniques. This highly advanced and technical program was attended by 
32 students. These individuals are full-time public service employees 
whose workloads are focused primarily upon the investigation or 
management of arson-related crimes.
            Explosives Training
    ATF has produced and distributed numerous sets of explosive 
training materials, including Power Point presentations, videotapes, 
and lesson plans, to ATF field offices and State and local officers. 
These materials have included ``A Deadly Mix,'' ``When Danger Calls,'' 
``Tools of Terror,'' and ``A Mother's Tears.'' These materials, along 
with numerous additional Bomb Threat Management programs, have been 
used extensively to train State and local law enforcement officers and 
to provide explosive awareness training to public and private agencies.
    To protect the nation's largest airports, the Federal Aviation 
Administration (FAA) and ATF have teamed together to conduct national 
seminars on terrorism and explosives (SEMTEX) and field training 
exercises that better prepare and train aviation, security, and law 
enforcement personnel in explosive countermeasure techniques. In fiscal 
year 2000, ATF trained 500 personnel.
    During fiscal year 2000, we delivered the Advanced Explosives 
Destruction Techniques (AEDT) course. The audience for this training is 
State and local bomb technicians. ATF explosives experts developed this 
course because more bomb technicians are injured during disposal 
operations than while performing any other activity, including render 
safe operations. It is the only training of its kind in the country. As 
one would expect, the demand to attend this unique and important 
training has been considerable. To meet the large demand we have 
doubled the number of courses to be offered this fiscal year.
    Through its explosives and accelerant detection canine training 
program, ATF provides an investigative tool for use in explosives, 
firearms, and fire investigations, National Response Team 
investigations, public security, and the investigative needs of outside 
agencies. The canine training facility in Front Royal, Virginia, is now 
open and the kennels have been completed. Under a training arrangement 
with the U.S. Department of State, ATF also trains explosives detection 
canines for foreign countries to be used overseas in the war against 
terrorism, and to protect American travelers abroad against terrorism. 
Through fiscal year 2000, ATF has trained and certified 80 accelerant-
detecting canines for State and local agencies, and has trained and 
certified 183 explosives detection canine teams for deployment in 10 
countries worldwide. Additionally, since 1998, ATF has trained 35 
explosives detection canine teams for other Federal, State, and local 
agencies including the FBI, the Central Intelligence Agency, and the 
Internal Revenue Service.
            Counter-Terrorism
    ATF Special Agents, Inspectors and professional support personnel 
stand in the front ranks of the nation's battle against terrorism. ATF 
is charged with the responsibility of preventing terrorists from 
acquiring firearms and explosives, the principal instruments by which 
they carry out their terrorist acts. In part, to fulfill that 
responsibility, ATF staffs each Joint Terrorism Task Force with its 
most experienced criminal investigators to deter and prevent terrorist 
activity. The criminal enforcement and regulatory nature of ATF's 
unique areas of firearms, explosives, arson, alcohol, and tobacco have 
contributed to our working relationship with other State, local and 
Federal agencies in combating terrorism. Recent ATF investigations have 
prevented weapons and money from reaching the international terrorist 
groups for which they were intended. ATF's enhanced communication with 
the Intelligence Community has opened access to training, information, 
and analytic judgements on general and specific national security 
threats from domestic and international terrorists. To complement its 
investigative and regulatory efforts, ATF deploys the National Response 
Teams to every National Security Special Event, providing unparalleled 
expertise in the areas of post-blast and arson investigation.
            National Laboratory Center
    In December 1999, ATF broke ground for its new National Laboratory 
Center in Beltsville, Maryland. The building is now under construction 
with a projected completion date of December 2002. The new National 
Laboratory Center will give ATF the kind of forensic and analytical 
science facility it needs to support firearms, explosives, and fire 
investigations, as well as to conduct testing that insures the 
integrity of regulated alcohol and tobacco products.
    Also at the new facility is a one-of-a-kind fire research center 
located alongside the Forensic Science Laboratory and the Alcohol & 
Tobacco Laboratory. The Fire Research Laboratory is a new addition to 
ATF's technical expertise that will directly support fire/arson 
investigations and complement ATF's on-going fire/arson investigation 
initiatives such as the InterFIRE Fire Investigation Training CD-ROM, 
the Certified Fire Investigator Program and the Accelerant Detection 
Canine Program. It is the first laboratory in the world solely 
dedicated to supporting fire/arson investigations and the resolution of 
arson related crimes and advancing the science of fire evidence 
analysis. For the first time, investigators will have a resource that 
can help them unravel the difficult problems associated with fire 
ignition and spread. ATF has established a memorandum of understanding 
with the National Institute of Standards and Technology (NIST) to join 
forces on research into the measurement and prediction of fire and its 
effects, to share training and technology, and to conduct joint 
research and technical assistance tasks on matters of fire science. 
Information Technology
    We are placing the best available technology into the hands of 
every ATF employee, enabling us to work better and smarter. In the 
summer of 2001 we will begin the refresh cycle to replace all desktop 
and laptop computers throughout ATF under our enterprise-wide seat 
management contract. We were the first Federal agency to implement a 
seat management contract, which outsources end-user-computing support 
to private industry. This approach frees up our people for other 
important agency functions and guarantees a refresh of technology at 
specified intervals with a flat budget.
    The National Field Office Case Information System (N-FOCIS) is 
comprised of a suite of custom-built case management applications: N-
Force, N-Spect and N-Quire. N-FOCIS, built specifically for ATF Special 
Agents and Inspectors, assists in the collection, dissemination, 
management and analysis of investigative and inspection information. 
The secure centralized information repository fed by the N-FOCIS 
applications streamlines antiquated business processes and provides an 
analytical component for managing complex case and inspection 
information. Through the automation of many of the reporting 
requirements, ATF has increased the efficiency and effectiveness of its 
field work force by eliminating redundancy and providing a powerful 
analytical tool to sift through large amounts of information.
    N-FOCIS technology continues to be refined and expanded. The multi-
phased development plan is flexible and allows for changes in 
information needs and advances in new technology. As we continue our 
operational missions into fiscal year 2002, ATF's N-FOCIS programs will 
be the ``information'' heart and collection point for all information 
that supports all of our outlined enforcement and regulatory programs.
            Management and Administrative Efforts
    During fiscal year 2000 ATF continued to focus on improving our 
administrative systems and addressing quality of worklife issues so 
that the Bureau as a whole can continue to function as a streamlined 
and efficient tool for government service. Our systems goal continues 
to address an integrated, strategic approach to all administrative 
systems to streamline operations, realize cost efficiencies, and create 
a paperless environment. To this end, ATF implemented its integrated 
financial management information system and acquisitions system in 
fiscal year 2000. This new system automated and linked the budgeting, 
requisitioning, acquisition, receiving and payment processes. We are 
pleased to report another unqualified audit opinion using the system in 
its first year of implementation.
    We are also proud to report that we successfully deployed the 
second phase of the Treasury-wide Human Resources information system, 
now designated as HR Connect. With this deployment, the Bureau is 
electronically processing virtually all of its personnel actions 
through HR Connect.
    ATF completed the first year of a pilot Treasury Demonstration 
Project for Designated Critical Positions that addressed a major 
quality of worklife issue. The pilot program, authorized by Congress in 
1998, allowed ATF to test new management practices designed to improve 
our capacity to recruit, develop and retain a workforce of the highest 
caliber. Unlike other demonstration projects, ATF employees were given 
the option of participating. Approximately 90 percent of the eligible 
employees (primarily in our scientific and technical occupations) 
elected to participate in the Project. Authority for this project is 
slated to end on October 19, 2001; it has only been implemented for one 
year. Since Congress intended the authority to be based on three years, 
ATF is requesting an extension to continue the project. This will allow 
us the opportunity to better gauge its impact and effectiveness in 
meeting the project's goals and its potential for other Treasury 
Bureaus' participation. Congress will be briefed on its progress in the 
near future.
    During this past fiscal year, we also established a pilot flexi-
place program for inspectors as directed by a congressional mandate on 
telecommuting. Moreover, we hired 519 employees in fiscal year 2000. In 
the hiring period from October 1, 2000, through April 2, 2001, we have 
hired 109 special agents and 99 inspectors. This demonstrates our 
commitment to the congressional mandate to hire more special agents and 
inspectors. Of the 96 special agents hired from October 1, 2000, 
through March 14, 2001, 21 percent are minorities, an increase over 
fiscal year 2000, when 8.4 percent of 202 new agents hired were 
minorities. These numbers reflect a vast improvement in our goal to 
diversify our workforce. Our current level of hiring puts the Bureau in 
a good position to continue hiring additional personnel approved in our 
fiscal year 2001 budget. By the end of fiscal year 2001 we anticipate 
having 2,288 special agents and 953 inspectors on board. We believe 
this staffing level will provide ATF with the necessary resources to 
better accomplish our various anti-violent crime, public safety, and 
revenue protection missions.
    At the heart of these initiatives are integrity and internal 
controls considerations. With this in mind, we have issued new policy 
guidance to our managers and simplified the reporting process for 
management control reviews to ensure proper and effective use of Bureau 
assets. We are also in compliance with the Civil Asset Forfeiture 
Reform Act of 2000 which took effect in August 2000. Training was 
provided to all field divisions, special agents and attorneys prior to 
the effective date of the law change. We believe that we have created a 
solid foundation to support the Bureau's mission requirements.
            Internal Training Activities
    Excellence in performance and programs requires continuous training 
and development, and the Bureau is committed to fully developing the 
individual and collective skills of its employees. ATF provides high 
quality, innovative training programs, thus improving individual and 
organization performance in support of ATF's Strategic Plan.
    In fiscal year 2000, ATF provided nearly 10,000 instances of 
training for ATF personnel. ATF provided basic training to 155 agents, 
63 inspectors, and 18 specialists through the New Professional Training 
program (NPT). The New Professional Training Program is designed to 
provide a uniform approach to the training and development of new ATF 
employees. Training initiatives enhance employee development and 
performance in a variety of technical training programs, which seek to 
expand the base of employee knowledge and improve skills regarding 
ATF's roles, missions, and capabilities. In much of the technical 
training provided, there are either pre-tests for admission or academic 
requirements for graduation. In addition, lessons on ethics and 
integrity, customer service, teamwork, and accountability to the 
American public are woven into many of the training programs.
    In fiscal year 2000, ATF focused on leadership development programs 
for all ATF supervisors and managers with an emphasis on core 
competencies, ethics, integrity, and teamwork, to include: 23 new 
Directors of Industry Operations (DIOs) attended a training conference 
this fiscal year; the goal of the training was to assist the DIOs in 
adapting to their new roles; training of 60 managers through the 
Institute for Management Studies; formulation of University 
partnerships to provide standardized leadership training; design of a 
formal, comprehensive, Bureau-wide succession plan program and 
sponsorship of the Women in Federal Law Enforcement annual conference. 
And, in conjunction with the conference, produced the video, ``Women in 
Federal Law Enforcement: Pioneers in Valor and Vision.'' The video will 
be used for future ATF and other agency law enforcement recruitment 
efforts.
    ATF also is a leader in Federal law enforcement in training 
thousands of other Federal, State, local, and international law 
enforcement officers. Training areas include arson investigation, 
explosive identification and regulation, firearms trafficking, and 
post-blast investigations.
Collect the Revenue Due
    For fiscal year 2000, ATF continued to honor its obligation to 
fairly and efficiently collect approximately $14.1 billion in revenue 
in accordance with current laws. In fiscal year 2000, ATF collected the 
following revenue: $13,500,000,000 in alcohol and tobacco excise taxes; 
$197,800,000 in firearms and ammunition excise taxes; $103,000,000 in 
special occupational taxes; $262,000,000 in tobacco floor stocks taxes; 
and $6,300,000 in licensing and transfer fees, for a total of 
approximately $14,100,000,000.
    The Balanced Budget Act of 1997 contained excise tax increases on 
tobacco products as of January 1, 2000 and January 1, 2002. Also, a 
floor stocks tax was to be paid by industry members with inventory on 
hand on each of these days. In fiscal year 2000, ATF collected $262 
million in tobacco floor stocks taxes. Tobacco importers were required 
to obtain ATF permits for the first time when this legislation became 
effective. We also issued regulations relating to the tobacco tax 
increase and to the restrictions on previously exported tobacco 
products and cigarette paper and tubes.
    ATF works with Federal, State, local and Foreign Governments in an 
effort to effectively collect revenue and to regulate the industries 
subject to the Bureau's authority.
    ATF pursues tax assessments against domestic producers and 
individuals for several reasons, one being when ATF determines that 
documentation supporting the tax-free exportation of these products is 
counterfeit, inaccurate, or non-existent. For example, during fiscal 
year 2000, ATF discovered a United States distiller smuggling distilled 
spirits disguised as windshield washer fluid and other solvents into 
the Ukrainian Republic and the Russian Federation. This distiller made 
restitution of $1 million to the Ukrainian Republic, had its U.S. 
operating permit suspended for 7 days and submitted a $1 million offer-
in-compromise for record keeping violations.
    In fiscal year 2000, ATF continued to redirect its approach to 
revenue collection through a program that uses a factoring system to 
identify taxpayers who pose high risk to the revenue due. In addition, 
a statistical sampling process was established to identify taxpayers 
for inspection in order to validate the criteria of the program and 
determine whether other industry activities pose jeopardy to the 
revenue. For these programs, new internal control documents were 
developed to pinpoint high-risk activities and weaknesses for 
inspection. These programs were developed for the distilled spirits, 
wine, malt beverage, tobacco, and firearms manufacturing industries. 
ATF collected an additional $4 million due to excise tax examinations.
    In fiscal year 2001, we have entered a partnership with the 
Financial Management Service to pilot an electronic filing system 
(Pay.gov) for the industries ATF regulates. To date, we have 6 tobacco 
companies using this system which represents approximately 21 percent 
of the taxes ATF collects.
    In fiscal year 2000, ATF opened 125 alcohol and tobacco diversion 
investigations. Seizures of alcohol and tobacco monies and real 
property totaled over $2 million. Diversion investigations in fiscal 
year 2000 also resulted in 70 defendants being recommended for 
prosecution and several members of organized crime groups being 
successfully prosecuted for alcohol and tobacco related criminal 
activity. Diversion of alcohol and tobacco products is a growing 
international problem and ATF is taking the lead in investigating these 
crimes.
Protect the Public
            Firearms Regulation
    As of March 30, 2001, there are 103,934 Federal firearms licensees 
in this Nation authorized to conduct commerce in firearms. In an effort 
to ensure firearms industry members fully understand the regulatory 
requirements of maintaining their license, we conducted 77 seminars for 
licensees in fiscal year 2000. Our National Licensing Center screens 
all firearms license applicants for proper qualification to engage in 
business.
    ATF's National Firearms Act Branch maintains the National Firearms 
Registration and Transfer Record (NFRTR), which is the central registry 
of NFA firearms, such as machineguns, short-barreled rifles, short-
barreled shotguns, silencers, and destructive devices. In fiscal year 
2000, the NFA Branch processed 309,006 registrations and transfers of 
NFA firearms. ATF searches the NFRTR in support of criminal 
investigations and regulatory enforcement inspections. The NFA Branch 
is in the process of imaging and indexing all NFA records back to 1934 
to afford ATF the highest possible accuracy of the NFRTR.
    Our Firearms and Explosives Imports Branch (FEIB) is responsible 
for processing all applications for permits to import firearms, 
ammunition, and other defense articles into the United States, and for 
maintaining the registry of commercial importers of such articles. In 
fiscal year 2000, FEIB processed 12,135 import permit applications, and 
300 registration applications.
    With the firearms licensee population over 100,000, it is not 
practical to perform a regular cycle of inspections of the entire 
licensee population. Fortunately, the majority of dealers rarely have 
guns they sold end up at a crime scene, and only a small percentage of 
the population is involved in criminal activity. In fiscal year 2000, 
ATF conducted full compliance inspections of 3,620 licensees, resulting 
in the detection of 5,934 violations and 1,214 referrals to law 
enforcement. ATF also inspected 3,938 FFL applicants, resulting in the 
detection of 181 violations and 97 referrals to law enforcement.
    ATF implemented a ``focused'' inspection policy in October 1998, 
that directs field division personnel to select Federal firearms 
licensees (FFLs) for inspection based on information developed by the 
Crime Gun Analysis Branch of the NTC. This valuable information 
provides indicators of possible illegal firearms trafficking. These 
include such things as the number of crime guns traced to an FFL in a 
1-year timeframe, time to crime, number of firearms reported stolen, 
and number of unsuccessful traces associated with a particular FFL. ATF 
then selects for inspection the FFLs that have a high rate of the 
indicators associated with their businesses. The focused inspections 
help direct ATF inspectors to the most potentially problematic FFLs.
    In fiscal year 2000, ATF conducted 1,012 focused, more intensive, 
compliance inspections. These included inspections of over 900 dealers 
who had 10 or more crime guns traced to their businesses in 1999 and 30 
dealers who were uncooperative in responding to trace requests. As a 
result of these focused inspections, 45 percent of the licensed dealers 
inspected were recommended for follow-up actions ranging from a re-
inspection to license revocation proceedings. Inspectors also 
recommended 20 revocations and 33 denials of licenses.
    Based on what we have learned from this project, we have further 
refined our focused inspection program to inspect those licensees whose 
traces establish a short time to crime (within 3 years of the retail 
purchase) and those who have been uncooperative in responding to 
traces.
            Alcohol Regulation
    ATF receives approximately 70,000 alcohol beverage label 
applications each year, of which 20 percent were denied approval due to 
non-compliance with regulatory requirements. For 80 percent of these 
applications, the turnaround time to approve the applications was 9 
days, which is the customer service standard.
    ATF remains committed to improving customer service for label and 
formula approvals. In fiscal year 2000, ATF implemented the methods 
identified by the Beverage Alcohol Streamlining Team (BAST) with the 
goal of improving ATF business processes, thereby improving customer 
service. In fiscal year 2001, ATF initiated a customer service survey, 
and these results will be available for the first time this fiscal 
year. ATF created the Alcohol Labeling and Formulation Division as a 
``customer service center'' in response to concerns of regulated 
industry members. It is now on a par with the National Revenue Center, 
Cincinnati, Ohio; the National Tracing Center, Falling Water, West 
Virginia; and the National Licensing Center, Atlanta, Georgia.
    During fiscal year 2000, the National Revenue Center, Cincinnati 
processed approximately 3,500 applications and issued approximately 
2,400 permits for the industries that ATF regulates.
    We have a very strong dialogue with members of the regulated 
industries, State authorities, advocacy groups, and public health 
organizations. ATF processed petitions and issued notices of proposed 
rulemaking resulting in the establishment of three new viticultural 
area and changes to a fourth area.
            Explosives Regulation
    ATF inspectors carried a considerable workload in helping to ensure 
the lawful use and storage of explosives materials. In fiscal year 
2000, inspectors completed 4,983 inspections of the 9,436 explosives 
licensees and permittees. They identified and corrected 1,119 
violations that jeopardized the safety of the general public and 
required immediate attention. Although the number of inspections 
declined because of the loss of experienced inspectors and the 
challenge of meeting additional demands for firearms inspections, we 
have seen an increase in the identification of public safety violations 
because of ATF's emphasis on advanced explosives training for 
inspectors. We recognized that our inspector staffing would not allow 
for 100 percent coverage and prioritized our resources. Prioritization 
allowed us to inspect those licensees and permittees who had a history 
of storage problems, and others where the threat to public safety, in 
the event of an accidental explosion, would be the greatest.

                               CONCLUSION
    As you can see, ATF continues to contribute to making America 
sounder and safer though its efforts in reducing violent crime, 
collecting revenue, and protecting the public. Along with the men and 
women at ATF, I am prepared to rise to the challenge of meeting all of 
our responsibilities under the laws that we enforce. I would be pleased 
to answer any questions you may have and I would like to express my 
sincere appreciation for the support that the Committee has provided 
us. I look forward to working with the Committee to further our mutual 
goals of safeguarding the public and reducing violent crime.
                          U.S. Customs Service

STATEMENT OF CHARLES W. WINWOOD, ACTING COMMISSIONER
    Senator Campbell. Mr. Winwood.
    Mr. Winwood. Chairman Campbell, Senator Dorgan, Senator 
DeWine, thank you very much for allowing me to be here today to 
talk about the Customs 2002 budget request. I have also 
submitted a comprehensive statement for the record that I will 
just try to briefly summarize this morning.

                    Fiscal Year 2000 Accomplishments

    Last year, the Customs Service processed a record 22.5 
million trade entries. This represents a 150 percent increase 
from ten years ago. We have also processed 489 million 
pedestrians and passengers in 2000 and 140 million conveyances 
at our ports of entry, also record levels.
    While the increase in border flow is a bellwether of a 
strong America, it also demands that we maintain a heightened 
vigilance against new opportunities for crime and drug 
smuggling. The men and women in the Customs Service continue to 
demonstrate their resolve in this fight by seizing 1.5 million 
pounds of illegal narcotics in fiscal year 2000. They also 
seized an unprecedented 9.4 million tablets of Ecstasy.
    Yet narcotics were not their only priority. The successes 
of the past year speak not only to Customs' mission to 
facilitate trade and defend America from contraband, but to our 
increasing role in fighting the spread of Internet crime, 
combatting global money laundering, defending U.S. businesses 
from copyright infringement and fraud, stopping the smuggling 
of weapons of mass destruction, and preventing the importation 
of goods made with child and prison labor. Mr. Chairman, the 
list could go on.

                             Staffing Needs

    At Customs, we are busy addressing these future challenges 
in a very systematic way, beginning with our people. Staffing 
in general will continue to be a critical issue for our agency. 
With the help of a leading consultant, we built a resource 
allocation model to help us project future staffing needs at 
all our Customs locations. The model was designed as a planning 
tool for management. It can be programmed to take into account 
changing scenarios that impact our mission, such as expanded 
volume in trade or a shift in threat.

                             NII Technology

    Thanks in large part to the resources provided by the 
Congress, we are also requiring the technology needed to 
supplement the skills of our people. We are currently working 
towards completion of a five-year drug technology plan. Under 
that plan, we have obtained the range of non-intrusive 
inspection technology for our busy Southern Tier. The use of 
these tools have cut down our processing times and enabled us 
to seize more illegal drugs.
    Last month, Mr. Chairman, Customs inspectors at Otay Mesa, 
California, found 15,000 pounds of marijuana concealed in a 
tractor trailer with the help of one of our new truck x-ray 
systems. It was believed to be the single largest shipment of 
narcotics ever seized at a land border crossing.

                           Counter-Terrorism

    With funding in our 2001 budget, we were also able to 
implement a counter-terrorism plan that includes upgrades to 
Northern border infrastructure, such as improved security and 
lighting, the acquisition of non-intrusive inspection systems, 
and the posting of additional Customs agents to the national 
anti-terrorism task force.

                   Border Infrastructure Requirements

    The rapid increase in border traffic has major implications 
for ports of entry all along our Northern and Southern tiers. 
At the request of Congress, we just completed a port 
infrastructure assessment study to identify our most important 
challenges. That study, conducted with the GSA and our partner 
Federal inspection service agencies, includes a look at health 
and safety and occupational initiatives to increase the traffic 
and processing capacity of our ports. Modernization of our air 
and marine assets is also essential to keeping up with an ever 
flexible smuggling threat.

                      Air and Marine Interdiction

    Again, at the request of Congress, we completed an air and 
marine interdiction modernization plan in fiscal year 2000. We 
are very pleased that the President's 2002 budget includes $35 
million for the Customs air and marine interdiction division in 
support of the Western Hemisphere Drug Elimination Act. We have 
identified the priority areas to be addressed with this funding 
consistent with our modernization plan.

                    Customs Automation Modernization

    Of all the modernization efforts being undertaken at 
Customs, Mr. Chairman, perhaps none will benefit the American 
public in more ways than our new automated system for trade. 
Customs' ability to contend with a spiraling workload hinges 
largely on the development of the Automated Commercial 
Environment, or ACE. ACE will not only help Customs to move 
imports across our borders more efficiently, it will enable us 
to do a better job of protecting America from contraband and 
other threats.
    Last year, we received the first downpayment on ACE with 
the $130 million for new automation this subcommittee provided 
in our 2001 budget. Part of that funding was designated for the 
hiring of a prime contractor to help build our new system. On 
April 27, I was extremely privileged to announce the team of 
companies to whom that contract was awarded, the e-business 
partnership led by IBM. Mr. Chairman, this was indeed a very 
proud day for the Customs Service, a milestone event in our 
efforts to prepare the agency for the challenging new era of 
global trade and enforcement ahead.

                           Prepared Statement

    I want to thank the subcommittee once again for this 
steadfast support of Customs modernization. We ask for your 
continued support in our fiscal year 2002 budget request. At 
the appropriate time, Mr. Chairman, I will be able to answer 
any questions.
    Senator Campbell. Thank you.
    [The statement follows:]

                Prepared Statement of Charles W. Winwood

                              INTRODUCTION
    Good morning, Mr. Chairman and Members of the Subcommittee. It is a 
privilege to appear before you today to present U.S. Customs' fiscal 
year 2002 budget request, and to share with you some of our recent 
accomplishments and ongoing activities. Before I begin, I would like to 
thank you, Mr. Chairman, Senator Dorgan, and the Subcommittee members 
for your constant support of Customs and our vital mission.
    The Customs Service is an agency with a long and rich history, and 
a proud record of success. Our mission as America's front line is not 
an easy one, yet we continue to find ways to rise to the challenges we 
face.
    As you know, the United States faces a continuing threat of 
terrorism and increasingly sophisticated tactics by narcotics smugglers 
to move contraband across our borders. A spiraling volume of trade and 
new avenues for criminal activity will continue to test our abilities 
as never before. Our successes in intercepting terrorists, seizing 
narcotics, dismantling smuggling organizations, exposing Internet crime 
cases and targeting violators of intellectual property rights indicate 
how intelligence and technology, together with alert and well-trained 
inspectors and agents can have a major impact in deterring the threats 
we face. Customs will increasingly rely on automation to take advantage 
of increased efficiencies. Our future success depends directly on the 
continued, skilled deployment of training and technology to meet the 
challenges we face.
    In order to meet its core mission requirements, Customs has focused 
significant attention on the following key challenges:

                               TECHNOLOGY
The Automated Commercial Environment (ACE)
    The fiscal year 2002 President's budget requests $130 million to 
continue work on modernizing Customs antiquated automated systems. The 
Automated Commercial Environment, otherwise known as ACE, will enable 
the Customs Service to utilize technological advances to meet the 
challenges of a rapidly growing international economy. Customs is the 
Federal government's second largest source of revenue, collecting $24 
billion in fiscal year 2000. Every year since 1993, Customs import 
workload has been at least double that of ten years earlier, and this 
trend is expected to continue through 2007. By 2004, Customs will be 
processing over 30 million commercial entries a year compared to over 
23 million in fiscal year 2000. It is essential that we modernize our 
automated systems to improve response to the explosion in international 
trade and travel.
    Customs current automated trade system is the 17-year-old Automated 
Commercial System (ACS). Until a new system is deployed, Customs will 
continue to rely on ACS. As trade volumes continue to grow dramatically 
each year, the ability of ACS to manage increased demand will decline. 
Using the $123 million in ACS ``life support'' funding provided in the 
fiscal year 2001 appropriation, we have taken steps to improve 
processing time and storage capacity for the trade, and have improved 
the commercial interface with ACS. There is, however, more work to be 
done. Customs internal needs must also be addressed. With the 
additional $123 million requested for fiscal year 2002, Customs will 
continue to improve the system's and infrastructure's capacity and 
accessibility.
    The Modernization Act requires new account based import transaction 
processing that cannot be accommodated through ACS. On the other hand, 
ACE will address trade compliance and Mod Act requirements. ACE is 
being developed in four increments-each increment delivers benefits to 
both the trade community and to Customs operations. The consolidated 
appropriations of $130 million provided for ACE in fiscal year 2001 
enables us to begin our first phase work on ACE. We are pleased that 
funding was provided last month to allow us to award our Prime contract 
to the e-Customs Partnership, led by IBM. The ``e-Customs Partnership'' 
is a team of top-notch companies and highly qualified professionals who 
have successfully executed large information systems projects similar 
to this one in the past. In addition to the IBM Corporation, key team 
members include Lockheed Martin Corporation, KPMG Consulting, Computer 
Sciences Corporation, and Sandler & Travis Trade Advisory Services. The 
team also includes BoozAllen & Hamilton, ITS Services, and over 40 
small businesses.
    The President's fiscal year 2002 budget builds on this effort by 
requesting an additional $130 million to expand the capabilities of the 
ACE software and to deliver ACE capability to more service ports and 
sites. Specifically, with the additional fiscal year 2002 funding, we 
will extend the capability developed with the fiscal year 2001 funding 
to air, sea, and rail imports; build an interface to the Automated 
Manifest System; and provide the trade with a common interface to ACE. 
We will also refine ACE requirements once our prime integration 
contractor is brought on board.
Non-Intrusive Inspection Technology
    The use of non-intrusive inspection (NII) technology (e.g. truck, 
rail, sea container, vehicle, and mobile x-ray/gamma-ray systems) is 
crucial to maintaining the success of our interdiction efforts. Customs 
has in place a 5-year technology plan that calls for the deployment of 
NII technology to blanket the Southern Tier and other high-risk 
locations. At the end of fiscal year 1999, there were a total of 14 NII 
systems in place. During fiscal year 2000, 23 additional NII systems 
were deployed throughout the Nation. Currently, 50 systems are in 
operation, with an additional 45 systems funded and scheduled for 
delivery by the end of fiscal year 2002. NII systems, in many cases, 
give Customs the capability to perform thorough examinations of cargo 
without having to resort to the costly, time-consuming process of 
unloading cargo for manual searches, or intrusive examinations of 
conveyances by methods such as drilling and dismantling.
    In fiscal year 1999, a total of 100,000 NII examinations were 
performed. For fiscal year 2001, we have already performed over 260,000 
NII examinations. These figures will continue to increase as Customs 
deploys additional systems.
    Since the deployment of the first truck x-ray at Otay Mesa, 
California, in 1996, these systems have contributed to over 400 
seizures totaling over 300,000 pounds of illegal drugs in commercial 
and passenger vehicles. Recently, in a single week, our NII systems 
contributed to the seizure of almost 9,000 pounds of illegal drugs.
    In addition, on April 4, 2001, a Customs canine at the Otay Mesa 
port of entry alerted to a tractor-trailer alleged to be carrying 
televisions from Mexico. The vehicle was subsequently scanned by a 
gamma-ray imaging system that led to the discovery of more than 15,000 
pounds of marijuana. We believe that this is the largest single-seizure 
ever made at a border station.
    NII technology has also benefited the passenger environment. We 
have deployed 15 body imagers at major land and airports to offer 
travelers selected for personal searches an option to a physical 
inspection. These systems are capable of detecting smuggled objects 
concealed under clothing.
    Customs has also contracted for a service at nine international 
airports that enables us to determine in approximately 30 minutes if a 
passenger is carrying drugs internally. This process used to require 
several hours and the participation of at least two Customs officers. 
The contracted service provides a mobile x-ray van and a licensed x-ray 
technician at the international arrival terminal for the screening of 
passengers suspected of concealing drugs or currency in or on their 
bodies. The x-ray technician performs the x-ray that is then digitally 
transmitted to a licensed radiologist for interpretation. Based on that 
determination, Customs may either release the passenger, or hold him or 
her for further investigation. Of course both the Body Imagers and the 
Mobile x-ray service examination are only used once all the 
requirements of Customs personal search policies are met.
Laboratories and Scientific Services
    I am proud to announce that all eight laboratories of the United 
States Customs Laboratory System have received their International 
Standards Organization (ISO) Guide 25 Accreditation. The Customs Labs 
are the first Federal laboratory system to receive this professional 
accreditation, and have set a benchmark which other Federal 
laboratories, including the FBI and FDA, are striving to attain.
    I am also pleased to announce that twelve of our scientists have 
received board certification in criminology from the American Board of 
Criminologists. No other crime laboratory can boast this number of 
board certified criminologists. With this certification our scientists 
can now be considered true expert witnesses for Customs and the 
American criminal justice system.
    Customs has embarked upon a laboratory construction plan that is 
scheduled to improve and update our aging laboratory facilities. The 
construction of the Los Angeles Laboratory and Research Laboratory in 
Virginia have been completed. The New York Laboratory is currently 
under construction, with plans underway to improve the facilities in 
New Orleans and San Francisco.

                        TRAINING AND DEVELOPMENT
    The Office of Training and Development (OTD) was established to 
ensure that Customs employees receive quality and effective training. 
During its first year, OTD has built centralized training programs and 
systems, created a direct link between training and operational 
success, enhanced career development, expanded course offerings, and 
strengthened leadership development and professionalism.
    One of the fundamental elements in Customs future training success 
is the development of The National Training Plan (NTP) which 
establishes core occupational instruction designed to keep our 
employees on the cutting edge of new skills and technologies. The NTP 
was developed to identify the core, standardized, and recurring 
training requirements for employees at the entry, mid and advanced 
career levels. The NTP targets training areas with the greatest need to 
reach the maximum number of employees in the most cost-effective 
manner. Some of the key areas of training cover passenger and cargo 
drug interdiction, strategies targeting money laundering, stolen 
vehicle exporting, and anti-terrorism tailored to the Customs 
environment. Customs has developed training profiles for its mission-
critical occupations, as well as rigorous training and tracking 
procedures. These procedures were designed to maximize the use of 
scarce training resources and deliver useful, real-time training to all 
of our employees.
    In addition to the NTP, Customs has created the Customs Tuition 
Program, which last year provided over 600 employees nationwide with 
tuition assistance for job-related courses. This program supports the 
national strategy of raising the level of professionalism and education 
in the Customs workforce.
    OTD has also played an integral role in addressing personal search 
policies and procedures, introducing change in national policy 
regarding the 24-hour carrying of firearms by Customs law enforcement 
personnel, and expanding the national strategy of risk management 
throughout all levels of Customs.
    Through centralized planning and tracking, Customs delivered a 
record 100,731 instances of training in fiscal year 2000. Since its 
inception, OTD has developed over 20 new training courses to address 
mission-critical priority needs. The measurement of OTD's success is 
seen throughout the Customs workforce. Customs dedicated training 
efforts increased morale and commitment to the Customs mission. Our 
training is continuously measured through an evaluation of training by 
students and supervisors to determine if students are applying newly 
learned skills on the job. It is imperative that we maintain a well 
educated, customer-oriented workforce, which protects our officers and 
the traveling public we serve.

                       RISK MANAGEMENT STRATEGIES
    As global trade has expanded, Customs' commercial workload has 
escalated dramatically. In fiscal year 2000 the agency processed over 
23 million trade entries--an increase of almost 10 percent from fiscal 
year 1999.
    Customs strategy to ensure greater compliance among importers with 
our trade requirements is focused around risk management. At its core, 
risk management involves the constant analysis of information to 
determine what areas merit our attention and our resources the most.
    For the first time, that analysis is being built uniformly into the 
way Customs ports are managed. The Trade Compliance Enforcement Plan, 
which makes each Customs Management Center accountable for implementing 
Risk Management in all port operations, ensures that the relationship 
of resources to risk can be monitored on a Service-wide basis.
    In addition, we have initiated monthly Management Accountability 
Reports from the field that provide immediate feedback on the 
effectiveness of our enforcement activities.
    One of the goals of risk management is to ease the movement of 
goods for law-abiding members of the trade community. By implementing a 
data-driven focus on the most serious compliance problems, Customs will 
lessen its oversight of compliant companies. In fact, participants in 
the innovative Low Risk Importer Initiative can expect fewer cargo 
exams, document reviews and requests by Customs for more information. 
To qualify for this program, importers must undergo compliance 
assessments and pass a thorough evaluation process involving compliance 
measurement, account manager evaluations, and other reviews.
    Customs is using a systematic process to identify those importers 
whose transactions represent the highest risk of non-compliance. Again, 
Customs will use this data to make informed judgements about the best 
use of its limited resources.
    Another element in the Risk Management approach has been Customs 
increased use of account managers to focus on major importers. Since a 
relatively small number of large importers account for the lion's share 
of total imports, account managers provide even more leverage in 
elevating overall compliance with Customs commercial requirements.
    In fiscal year 2000, only 392 consignees were responsible for half 
of the total value of all the imports into the United States. The top 
1,000 consignees imported 61 percent, by value, of all imports. Customs 
has responded to this trend by increasing the number of managed 
accounts in fiscal year 2001 to more than 1,100.

                       HUMAN RESOURCES MANAGEMENT
    As we continue to build a Customs workforce worthy of the highest 
public trust, our Human Resources Management programs have continued to 
emphasize recruitment of the most qualified candidates for employment.
    Our Quality Recruitment program has proven to be a success in 
filling our core occupations. Through this program we have hired 565 
new inspectors and canine enforcement officers, and we have 
approximately 750 candidates in our hiring pool. We believe that we 
have attracted some of our Nation's best and brightest. This has been 
evidenced by the test scores from the basic training our new recruits 
go through as well as reports of their successes on the job.
    We were pleased to obtain a new hiring authority, Schedule B, for 
special agents. Quality Recruitment has been expanded for filling 
special agent positions with monthly tests and structured interviews to 
build our pool of candidates. Through this program, our objective is to 
have a supply of candidates ready to hire for our front-line 
occupations when they are needed.
    Our marketing and recruitment efforts have been a success as we 
continue to attract quality candidates. Our recent announcement for 
inspectors and canine enforcement officers was open for 5 days and 
resulted in more than 5,500 applications. More than 1,500 of those 
applicants passed the test and structured interview. In the past 3 
months 1,184 applicants have been tested for special agent positions.
    Through our National Recruitment Program we are able to emphasize 
the importance of attracting a diverse pool of highly qualified 
applicants for our frontline positions. A recruitment plan is issued 
each year to ensure a national direction, professional advertising, and 
recruitment of a diverse applicant pool. We have installed 6 kiosks in 
selected universities to provide information about Customs occupations 
and job opportunities. Local recruiters represent Customs in 
conferences, job fairs, colleges, and general applicant inquiries. Our 
Office of Investigations recruiters recently held 9 open houses for 
universities in their geographic areas. In addition, we established a 
National Intern Program last year and hired 21 interns. Other student 
programs are also used throughout Customs to provide additional 
opportunities.
    While we are actively filling our entry-level positions, we are 
also very aware of our aging workforce. Within the next 5 years 34 
percent of our current employees will be eligible for retirement. The 
retirement bubble is particularly significant for our law enforcement 
employees as they face mandatory retirement. In addition, we anticipate 
losses in our supervisory and management positions. We have 
sophisticated data systems that allow us to predict our attrition by 
occupation, grade, and geographic area. Human Resources Management and 
the Office of Training and Development are building a succession 
planning model to prepare for our future losses.
    Defending our borders presents many challenges to Customs 
employees. Through our Employee Support and Assistance Unit we have an 
immediate response for employees and their families who experience 
serious injuries, illnesses or other crises. More than 120 collateral 
duty Family Liaison Officers were recently selected. After completing 
comprehensive training they will serve as the first line of counseling 
and advisory support for employees in need.
    In addition, we have placed a heavy emphasis on our safety 
programs. We recently hired 5 additional safety and occupational health 
specialists and are actively recruiting several others. We can not 
protect our employees and do our jobs effectively for the American 
public without first ensuring that we follow the highest safety 
standards in the workplace. We have expanded our radiation safety 
program. As a result of our radiation safety committee's efforts, 
Customs has the most stringent radiation exposure standard of any 
Federal agency. We are also expanding our environmental management and 
hazardous material safety programs. In addition, we have placed greater 
emphasis on our tuberculosis, hepatitis B, and hearing conservation 
programs for our employees.

                               INTEGRITY
    Customs core law enforcement responsibilities demand an unyielding 
commitment to the highest standards of ethical and professional conduct 
by our employees. For the past several years, the agency has been 
instituting a comprehensive series of reforms aimed at bolstering 
integrity within the agency. These include a renewed emphasis on our 
Office of Internal Affairs (IA), the lead office for integrity at 
Customs.
    Internal Affairs has focused more on the Southwest Border. 
Additionally, Internal Affairs has reinvigorated its ranks by 
transferring 131 criminal investigators between Internal Affairs and 
the Office of Investigations since 1999.
    The office is presently in the process of reassigning additional 
investigators; closing smaller, dispersed offices; establishing a 
larger office in San Antonio; and expanding other offices to 
concentrate investigative resources. It has also activated a fully 
operational Special Investigations Unit comprised of senior 
investigators who conduct investigations into critical and sensitive 
incidents. In its first six months since activation, the unit completed 
21 investigations, seven of which were presented for criminal 
prosecution.
    IA recently revised and published its investigative guidebook to 
provide special agents with clear, applicable policy regarding nearly 
every aspect of investigations. Investigative policy is now 
disseminated using electronic publishing so as to provide instant 
access to updates.
    IA Regional Operations Managers and specialized experts with legal 
and law enforcement experience now provide on-call guidance to special 
agents. These personnel provide constant oversight of all aspects of 
investigations to ensure the resulting investigative reports are 
accurate, timely, and comprehensive.
    A new automated Case Management System is being developed that will 
more efficiently integrate with other Customs human resource and 
investigative systems. This system will capitalize upon Web-based 
technology to provide Internal Affairs with accurate data capture and 
retrieval, improved accessibility, overall systems durability, and 
less-costly maintenance. All allegations are tracked from initial 
receipt to final disposition through the Customs Service's allegation 
and intake process. This process is continually refined to ensure 
allegations are handled efficiently and correctly. The process features 
a combined effort among the IA, the Office of Human Resources 
Management, and the respective Assistant Commissioners.
    In addition, Customs recently published the first annual ``Report 
on Conduct and Discipline.'' The report provides a summary and overview 
of discipline cases resolved within Customs for fiscal year 1999. The 
report emphasizes our primary goal to bring greater fairness, 
objectivity and consistency to the discipline process. It is another 
tool to keep employees informed about conduct and discipline matters. 
It also provides them with an opportunity to learn from others and to 
gain a clearer sense of what types of behavior can result in 
disciplinary action.

          CUSTOMS CORE MISSION ACTIVITIES AND ACCOMPLISHMENTS
    Customs core mission has evolved significantly over its two 
hundred-year history to meet the nation's changing needs. Once 
concerned primarily with the collection of tariff duties, Customs now 
serves as one of the Federal government's leading drug interdiction 
agencies. In addition, it is involved in a wide range of trade and 
enforcement activities related to the flow of people and goods across 
borders. Balancing the needs for efficiency in trade facilitation with 
effective enforcement of U.S. laws is the agency's most fundamental 
challenge.
    Over the last ten years, trade entries (the number of individual 
shipments of goods processed) have more than doubled, jumping from 9.2 
million to over 23 million. By the year 2004, Customs will be 
processing over 30 million entries.
    On a typical day, Customs officers process 1.3 million passengers 
and nearly 350,000 vehicles at ports and border crossings around the 
country. They seize over 4,000 pounds of narcotics and upwards of $1 
million in monetary instruments and goods generated from criminal 
activities. Yet drug smuggling organizations continually to demonstrate 
flexibility in response to our interdiction efforts. We must constantly 
adapt to their changing methods.
    Customs is responsible for enforcing hundreds of Federal statutes 
on behalf of dozens of Federal agencies. In addition to seizing 
narcotics and dismantling smuggling organizations, Customs enforcement 
actions protect domestic manufacturing industries from unfair foreign 
competition, and help ensure the health and safety of the American 
public. Through our Strategic Investigations and Antiterrorism 
initiatives, Customs continuously fights the battle to prevent 
sanctioned countries, terrorist groups, and criminal organizations from 
obtaining sensitive and controlled commodities, such as weapons of mass 
destruction. Customs is also a recognized leader in the investigation 
of cyberspace-related violations, including child pornography, stolen 
art and artifacts, and intellectual property rights violations.
Narcotics Smuggling
    In fiscal year 2000, Customs seized approximately 1.5 million 
pounds of illegal narcotics, conducted 39,000 investigations, effected 
more than 24,765 arrests, and seized over $587 million in currency and 
ill-gotten assets.
    Customs approach to fighting narcotics smuggling is multifaceted. 
It includes traditional searches by our Inspectors and Canine 
Enforcement teams; partnerships with industry to prevent drugs from 
being imported in their merchandise or conveyances; air and marine 
interdiction; and the work of our Special Agents in dismantling and 
disrupting drug trafficking and money laundering organizations.
    The Southwest Border (SWB) continues to be a major crossing area 
for illegal drugs of all types, including cocaine, marijuana, heroin, 
and methamphetamine. Customs enforcement records indicate that 79 
percent of all Customs narcotics seized in fiscal year 2000 occurred at 
the SWB. From October 2000 to February 2001, Customs made 323 seizures 
totaling $6.8 million in undeclared currency bound for Mexico. In 
fiscal year 2000, approximately 293 million travelers, 89 million 
vehicles and 4.5 million trucks entered the United States through the 
SWB. In fiscal year 2000, Customs seized nearly 1.1 million pounds of 
narcotics, including heroin, cocaine, marijuana, and methamphetamine, 
along the SWB.
    In addition to the drug threats coming from our Southern 
Hemisphere, Customs has proactively redirected resources to address the 
growing threat of Ecstasy. Western Europe now serves as the main source 
for Ecstasy smuggling. In February 2000, Customs created the Ecstasy 
Task Force. The mission of the Task Force is to act as a command and 
control center to maximize the level of interdiction and case 
exploitation relative to Ecstasy investigations. Customs currently has 
94 Canine Enforcement teams trained to detect Ecstasy and is in the 
process of deploying additional teams. In fiscal year 2000, Customs 
seized approximately 9.3 million Ecstasy tablets. That is more than a 
2,300 percent increase from the 400,000 tablets seized in fiscal year 
1997.
    Customs actively participated in the recent Presidential Commission 
on Seaport Security. Customs has always recognized the ever-increasing 
threat that internal conspiracies pose at our land, sea, and air ports 
of entry. To combat this risk, Customs has successfully deployed 
several investigative initiatives that have had a positive impact on 
this challenge. Operation River Blue and Riversweep are among the 
successful initiatives that have targeted drug smuggling organizations 
operating in port environments in the South Florida area.
    In addition, Customs is one of the key agencies in a joint 
operation made up of Federal, State, and local agencies to stop 
narcotics smuggling on the Miami River, a key drug trafficking route. 
Florida Governor Jeb Bush announced a 2-year initiative known as 
Operation River Walk on February 7, 2001, in Miami. Operation River 
Walk began on February 15, 2001. Customs plays the chief coordinating 
role for boardings and searches of vessels arriving and departing by 
the Miami River.
    At a national level, a total of 82 additional Special Agents are 
being strategically deployed at both border and inland command and 
control cities to conduct long-term, complex investigations that focus 
on the most significant drug smuggling organizations. These 
investigations are designed to increase the risk borne by drug 
traffickers and impede their trafficking operations.
    Customs Air and Marine Interdiction Division (AMID) plays an 
instrumental role in implementing the National Drug Control Strategy. 
AMID's mission is to protect the Nation's borders and the American 
people from the smuggling of narcotics and other contraband with an 
integrated and coordinated air and marine interdiction force. This 
strategy impacts drug smuggling organizations because it denies drug 
traffickers the use of aircraft and vessels to smuggle drugs into the 
United States, thus forcing them to choose other modes of 
transportation or geographic locations that are less profitable or 
riskier.
    In the arrival zone, Air and Marine assets are strategically 
located along the Southern Border of the United States and in Puerto 
Rico and the Virgin Islands. The primary focus of these Branches is to 
detect, sort, and intercept suspect air and marine targets. The AMID 
also provides assistance to the enforcement efforts of Customs and 
other Federal, State, and local law enforcement agencies to stop the 
flow of money and equipment back to those drug smuggling organizations.
    In the transit and source zones, AMID crews work in conjunction 
with the law enforcement agencies and military forces of our partner 
nations in support of counterdrug programs. AMID supports other Western 
Hemisphere nations with airborne detection and monitoring, interceptor 
support, and coordinated training with military and law enforcement 
agencies. Customs P-3 airborne early warning (AEW) aircraft provide 
radar coverage over the jungles and mountainous regions of Central and 
South America. They also patrol the international waters of the transit 
zone to monitor shipping lanes and air routes in search of smuggling 
activities.
    AMID aviation assets include jet interceptors and long-range 
trackers equipped with radar and infrared detection sensors, high 
performance helicopters, single and multiengine support aircraft, and 
sensor-equipped marine search and detection platforms. AMID maritime 
assets include interceptor go-fast boats with a complement of utility 
and blue-water support vessels that are equipped with marine radar 
systems, radios, and other sensors.
    Coordinated air and marine interdiction operations have been highly 
successful, particularly in Southeast Florida and the Caribbean. 
Customs air and marine interdiction efforts during fiscal year 2000 
resulted in the seizure of more than 187,000 pounds of marijuana and 
close to 44,000 pounds of cocaine. Air and marine personnel also 
supported law enforcement efforts that resulted in the seizure of over 
$17 million and 760 arrests.
    As smugglers change their patterns of behavior, AMID must be 
flexible to meet new threats. A fleet modernization program 
incorporating innovative technology and multi-mission equipment has 
been developed by the AMID to combat the current threat and meet future 
needs. Modernization reduces crew requirements and increases mission 
effectiveness, which saves money for operations and maintenance.
    Since signing the Memorandum of Understanding with the Drug 
Enforcement Administration (DEA) in August 1999, Customs has been 
working with DEA to coordinate the process to place permanent 
intelligence teams in selected drug source and transit countries. 
Customs sent teams on two 30-day trips to Mexico, and one team each to 
Ecuador, the Netherlands, and Thailand. These trips were designed as 
surveys to determine whether a permanent team should be placed in each 
of these countries, and were found to be very successful. The teams 
gathered valuable information and made helpful contacts. In 
coordination with DEA, Customs has held discussions with the Ambassador 
to Mexico and obtained his approval of the concept. Currently, we are 
proceeding with the official request to get the proper Department of 
State approvals for the placement of a permanent team in Mexico. Other 
countries being considered for placement are Colombia, Venezuela, 
Panama, Hong Kong, and Brazil.
Personal Search
    As the Committee is aware, the Customs Service has been faced in 
recent years with allegations that the agency was engaged in racial 
bias in the selection of certain members of the travelling public for 
personal searches at our nation's airports. Under no circumstance does 
Customs tolerate race-based and gender bias discriminatory treatment of 
individuals. Nonetheless, we have taken these allegations very 
seriously and implemented a series of reforms to ensure that the rights 
of the travelling public are protected.
    We appointed a Personal Search Review Commission (PSRC) in April 
1999 which reviewed the policies and procedures used by Customs to 
process passengers at our major international airports, including our 
personal search procedures. The PSRC made several recommendations. In 
order to address these recommendations, Customs convened the Assessment 
Implementation and Monitoring (AIM) Committee in July 2000. Significant 
progress has been made towards implementing actions based on the PSRC 
recommendations.
    Customs also established the Passenger Data Analysis Team (PDAT) to 
review and analyze personal search data. In addition, Customs has 
improved the personal search data collection process by making specific 
input of data mandatory. Additional data is now collected from 
travelers subjected to a personal search. This data is reviewed daily 
by management to ensure its integrity.
    In November 1999, the new Personal Search Handbook was issued and 
training was provided to over 8,000 Customs Officers. In an effort to 
provide continued training, a Personal Search Computer Based Training 
course was developed. All Customs officers who perform personal 
searches are required to take this course annually.
    Additional training is being provided to all Customs Inspectors, to 
be completed by December 31, 2001. This Inspection and Interaction 
Skills Workshop provides 16 hours of refresher training in the areas of 
interpersonal communications, cultural sensitivity, verbal judo, 
passenger enforcement selectivity and personal search.
    I am pleased to report that these combined reforms have helped 
Customs to reduce its searches of law-abiding passengers dramatically, 
while maintaining our overall levels of narcotics seizures. To provide 
you an example, Customs reduced searches from 23,108 passengers in 
fiscal year 1999 to 9,008 in fiscal year 2000. Yet our seizures of 
illegal narcotics from passengers in the air environment was relatively 
the same. That trend continues for 2001.
Combating Terrorism
    Customs' mission in combating international terrorism is two-fold: 
protect the American public from Weapons of Mass Destruction (WMD) and 
other instruments of terror and prevent international terrorists from 
obtaining WMD materials and technologies, arms, funds, and other 
material support from United States and foreign sources.
    Customs plays a central role in preventing the smuggling of 
nuclear, radiological, chemical, and biological weapons, arms, and 
other instruments of terror into the United States for use in terrorist 
attacks against our citizens. The increasing terrorist threat has led 
to the development and implementation of an alert plan that outlines 
four alert levels, each with a very specific set of actions designed to 
ensure an appropriate response to the threat at hand, while ensuring 
minimal disruption to normal border traffic flows. Trained volunteers 
and specialized equipment are at the ready to respond to a heightened 
alert, when initiated by the Commissioner of Customs. Customs has also 
established an external and internal antiterrorism intelligence 
communications infrastructure that enables the agency to obtain threat 
information on foreign terrorism and disseminate it to field positions.
    Customs conducts investigations into violations of United States 
laws by terrorist groups, and participates in interagency intelligence 
groups, and shares in joint international investigations with foreign 
customs and law enforcement counterparts through our Customs Attache 
offices abroad. Additionally, Customs is an active participant in FBI-
sponsored Joint Terrorism Task Forces located throughout the United 
States that are designated to conduct investigations involving outbound 
counter-terrorism.
    Public Law 106-346 and Public Law 106-554 provided additional 
resources to increase Customs Counter-Terrorism activities. Funding was 
provided for 48 additional Special Agents to increase Customs ability 
to counter the threat along the Northern Border and 17 additional 
Special Agents to participate in Joint Terrorism Task Forces. Resources 
were also obtained to fix and replace aging Northern Border security 
infrastructure, including NII technology, gates, signage, and video 
security systems. A plan for deployment of these resources has been 
submitted to the Subcommittee for comment.
CyberSmuggling Center Activities
    Customs has assumed a leading role in the fight against various 
forms of Internet crime, thanks to the funding provided for the 
agency's Cybersmuggling Center. One of the Cybersmuggling Center's most 
critical areas of activity is the investigation of the transmission of 
child pornography via the Internet. We have had numerous successes in 
this area and continue to monitor this growing enforcement concern. In 
addition, Customs has tackled other forms of Internet crime, including 
the illegal on-line sale of pharmaceuticals, controlled substances, 
pirated software, music and movies, counterfeit watches, clothing, and 
other goods. In addition, we are actively pursuing cases involving the 
use of the Internet for financial crime and fraud. The number of ``on-
line'' criminal cases has risen dramatically, from approximately 40 
investigations in 1999 to 190 in 2000. Over the first 6 months of 
fiscal year 2001, Customs has initiated 160 Internet investigations 
unrelated to child pornography.
Stolen Vehicles
    Customs has expanded its partnership with the National Insurance 
Crime Bureau (NICB) in its efforts to identify possible stolen 
automobiles presented for export. NICB VIN examiners and Customs 
Inspectors review vehicle identification numbers (VINs) and associated 
ownership documentation for authenticity at the 28 busiest vehicle 
export locations across the country. Vehicle identification data is 
transmitted, via FBI's ``VINNY'' system, for query against FBI and NICB 
databases. ``VINNY'' is an electronic reporting system targeting 
possible stolen or altered VIN vehicles. Vehicles identified as being 
stolen, salvaged, or plated with fictitious VIN numbers are flagged for 
intensive examination and possible seizure by field personnel. Further 
investigation is conducted by Customs Special Agents working 
cooperatively with State and local law enforcement stolen vehicle task 
forces.
Forced Child Labor
    The investigation of imports alleged to have been manufactured with 
convict or indentured child labor is among the most difficult aspects 
of our mission. These investigations demand a unique balance of 
investigative and diplomatic skill due to their highly sensitive 
nature.
    As a result of funding provided by Congress in fiscal years 1999, 
2000, and 2001, Customs has begun to formulate a better understanding 
of the extent to which products manufactured or produced with some form 
of proscribed labor are imported into the United States Additionally, 
Customs has sought to create bilateral relationships with foreign 
governments' labor and law enforcement officials, who recognize the 
importance of working together to dismantle the organizations that 
recruit and utilize these labor tactics.
    Customs has issued 32 detention orders against foreign 
manufacturers that utilize prison/forced labor to assemble or cultivate 
their goods for export to the United States. U.S. Customs, at the 
request of the Mongolian Government, conducted an investigation and 
substantiated forced labor allegations against a Chinese-owned textile 
manufacturer in that country. The Mongolian Government requested 
Customs assistance because their labor system would not take action 
against the manufacturers unless the violators came under scrutiny by 
the importing countries.
    Customs is also in the process of opening two Foreign Attache 
Offices in the Philippines and Brazil to assist in these types of 
investigations. We anticipate opening an office in India, pending the 
authorization of the Government of India.
Tobacco Smuggling
    Customs has experienced a dramatic increase in international 
tobacco smuggling investigations in the past year. This includes 
smuggling both into and out of the United States. In addition, Customs 
is conducting joint investigations with foreign law enforcement 
agencies, primarily in Europe, to combat international tobacco 
smuggling. International organized crime groups continue to expand 
their tobacco smuggling ventures.
    Importations of paper wrapped cigarettes reached an all time high 
in calendar year 2000, with a total value of $265 million. This figure 
surpassed the previous high of $153.7 million in 1993, which was 
predominantly comprised of Canadian brand name cigarettes imported into 
the United States to be smuggled back into Canada. As a result of a 
recent amendment to the Tariff Act of 1930 that became effective in 
December 2000, importations of cigarettes with brand names registered 
by the U.S. Patent and Trademark Office will require the permission of 
the trademark holder to be imported into the U.S. Enforcement of this 
new statute is likely to become a considerable challenge, as smugglers 
may seek to skirt the new requirement. In an effort to cope with the 
increase in international cigarette smuggling, Customs has formed a 
multi-disciplined task force to coordinate all tobacco-related 
investigations. The coordination includes intelligence collection and 
analysis, liaison with domestic and foreign law enforcement agencies, 
and liaison with tobacco manufacturers and importers.
Intellectual Property Rights
    The enforcement of Intellectual Property Rights (IPR) continues to 
be a top priority mission for Customs. In order to accomplish this 
mission, Customs concentrates its efforts in three principal areas: 
trademarks, copyrights, and patents. Customs routinely pursues 
criminal, civil, and administrative investigations of individuals, 
companies, and organizations that utilize illicit trade practices to 
circumvent and unlawfully exploit Intellectual Property. The goal of 
Customs in its IPR enforcement effort is to allow for the successful 
prosecution of violators and to diminish their economic base through 
the seizure of all prohibited items and merchandise, the assessment of 
penalties and sanctions, and the collection of lost revenue.
    Customs unique border enforcement authority places it at the 
forefront of IPR investigations. In fiscal year 2000, Customs effected 
approximately 3,357 IPR seizures valued at an estimated $60.3 million. 
These enforcement efforts resulted in a dramatic increase in IPR and 
Internet-related investigations.
    Customs latest IPR initiative is the formulation of the National 
Intellectual Property Rights Coordination Center (IPR Center). Located 
at Customs Headquarters in Washington, D.C., the IPR Center is a joint 
Customs/FBI center responsible for the coordination of a unified 
Federal response to IPR enforcement issues. Particular emphasis is 
given to investigating major criminal organizations and those utilizing 
the Internet to facilitate IPR crime. The IPR Center's positive 
influence on IPR enforcement worldwide has already been realized. The 
IPR Center is currently coordinating a transnational IPR investigation 
involving specific strains of counterfeit computer software. This 
coordination involves the direct oversight and analysis of intelligence 
and information from over 80 related investigations currently being 
pursued by Customs and the FBI.
Textile Smuggling
    Customs continues to increase its efforts in combating the 
smuggling and illegal transshipment of falsely declared textiles and 
wearing apparel. Violators utilize illegal schemes to circumvent United 
States quota and visa restrictions to gain unfair trade advantages over 
United States manufacturers. It is anticipated that, with the 
elimination of the current quota system in 2005 and the implementation 
of a new system/rules, illegal textile transshipments to the United 
States will increase. Customs has developed a strategic plan to address 
the issue of illegal textile transshipments and smuggling utilizing the 
coordinated efforts of Textile Production Verification Teams and 
domestic investigations.
    In fiscal year 2000, Textile Production Verification Teams were 
deployed to 7 foreign countries and conducted visits to over 450 
foreign textile factories to verify production capabilities and 
identify illegal transshipment schemes. The Office of Investigations, 
through the use of undercover and special operations, successfully 
identified transnational criminal organizations responsible for 
smuggling millions of dollars worth of textiles and merchandise into 
the United States. In one such investigation, Customs identified an 
organization responsible for smuggling in excess of $2.3 million of 
trademarked and quota/visa restricted merchandise into the commerce of 
the U.S. The head of the organization was convicted of smuggling and 
faces 20 years incarceration in addition to payment of criminal fines 
and restitution to Customs of approximately $700,000.
Financial Investigations
    Customs and the Department of the Treasury are the leaders in the 
Federal Government's efforts to combat money laundering. Customs 
provides key support to the National Money Laundering Strategy. Customs 
has been given a broad grant of authority to conduct international 
financial crime and money laundering investigations. This authority is 
primarily derived from the Bank Secrecy Act and Money Laundering 
Control Acts of 1986 and 1988. Customs has implemented an aggressive 
strategy to combat money laundering and now dedicates in excess of 400 
full time equivalent (FTE) positions worldwide to money laundering 
investigations. These efforts against money laundering are not limited 
to drug related money laundering, but to proceeds of all crime 
laundered in a variety of ways. During fiscal years 1998, 1999, and 
2000, money laundering investigations conducted by Customs resulted in 
the arrest of over 3,100 violators and the seizure of more than $625 
million.
    Funding was provided in fiscal year 2001 for the creation of 
multidisciplinary teams which will give Customs the organizational 
capacity to identify important patterns of noncompliance with the Bank 
Secrecy Act, identify and establish an expertise in money laundering 
systems that impact Customs jurisdiction, and equip Customs with the 
ability to address patterns and trends effectively.
Bulk Cash Smuggling
    We have seen a growing problem in the bulk smuggling of cash. 
Because U.S. banks have become more vigilant about reporting large cash 
deposits, many traffickers opt to avoid U.S. banks altogether. They 
smuggle their drug cash out of the country and deposit it into foreign 
locations where few questions are asked. U.S. Customs has permanent 
full-time inspectors assigned to outbound programs, and in part they 
conduct examinations to search for bulk cash shipments. Additionally, 
Customs is in the process of deploying new technology in an effort to 
conduct less intrusive and more effective outbound searches. Seizures 
of outbound currency rose from $49 million in fiscal year 1996 to $62 
million in fiscal year 2000.
Intelligence Collection and Analysis Teams
    Customs has begun implementation of a plan for establishing field 
intelligence units for the collection and dissemination of tactical 
intelligence in support of the Customs mission. Two of these units, 
called Intelligence Collection Analysis Teams (ICATs), were established 
in fiscal year 2000: one in Blaine, Washington, and one in Los Angeles, 
California. Customs has begun a programmatic review of the ICATs along 
the southern tier to ensure compliance with the national standard 
operating procedure. Any issues identified through this review are 
being immediately addressed to ensure that the ICATs continue to 
provide intelligence support in the port environs.
Tactical Communications
    Tactical communications and investigative information support is 
administered to field law enforcement staff on a 24 by 7 basis by the 
Tactical Communications Division, which delivers services through its 
principal field entity, the National Law Enforcement Communications 
Center (NLECC). This activity directly affects officer safety and the 
successful accomplishment of the tactical enforcement operations. There 
are some significant challenges facing this program in the near term. 
User training on network capabilities and operation is an increasing 
requirement due to a dispersed user population, added network 
complexities, and increased functionality. Establishment of a tactical 
communications training element focused on delivering regular user 
training through various methods to field enforcement staff is a high 
priority.
Trade Outreach
    The Customs Service continues to work collaboratively with the 
trade community to achieve greater streamlining and uniformity of cargo 
entry processes. The highly successful Customs Trade Symposium 2000, an 
all-day conference hosted by Customs for business and industry, 
highlighted agency trade priorities including the Entry Revision 
Project and the Low Risk Importer Initiative.
    The Entry Revision Project is a proposal to develop consensus 
between Customs and the trade community on a legislative framework to 
extend modernization to the import entry process. This is second only 
to the Automated Commercial Environment as a top Customs trade 
priority. We have met frequently with trade consortia to help build a 
new entry system that will better meet government and business needs.
    Along with risk management and improved oversight, our efforts to 
enhance compliance have emphasized the need for uniformity. Customs 
must provide the international trade and travel communities with 
consistent handling of their transactions at all locations. To help 
ensure this, we established a new and ongoing process at Headquarters 
to identify, address and monitor uniformity problem areas. We met with 
the trade at many outreach events around the country, and used risk 
management tools to target major areas of need. We have already 
achieved notable progress with what were once viewed as intractable 
problems, and we are also giving uniformity top priority in our written 
directives. Over 5,000 Customs Management Center and port standard 
operating procedures (SOPs) have been reviewed to ensure alignment with 
national policies, and we will continue to treat uniformity as a 
minimum standard of excellence for our Service.
    In addition to day-to-day interactions, Customs has also engaged 
the trade community in numerous fora, including a series of high-level 
roundtables held around the country where we discussed specific trade 
concerns. We have also increased our network of Customs account 
managers, whose outreach efforts identify and help resolve systemic 
issues. We are fully committed to continuing and expanding our trade 
outreach efforts to further improve all areas of our commercial 
operations.
International Affairs
    In the international arena we continue to see an expanding role for 
Customs in the trade facilitation and law enforcement areas. As the 
primary border enforcement agency for the world's largest economy, the 
Customs Service sets the global standard for effective and transparent 
customs operations. Our international efforts focus on streamlining the 
flow of global trade, increasing compliance, building effective 
alliances to combat transnational crime, reducing corruption, 
strengthening border controls, promoting the rule of law and enhancing 
economic stability throughout the world. Customs enlists the support of 
foreign governments to further those objectives and to support the 
foreign policy goals of the United States.
    Customs Attaches represent the Customs Service in foreign 
countries. They are responsible for investigations, liaison, training 
coordination, infrastructure building and regulatory and compliance 
functions. They employ an integrated strategy to deliver law 
enforcement expertise, training and technical assistance and effective 
partnerships to combat transnational crime, money laundering and trade 
fraud. This integrated strategy provides Customs with unique access and 
influence abroad, which contributes to better outcomes in foreign 
legislation, trade practices and international law enforcement.
    Customs has played a critical role in a number of important 
international investigations such as operations Blue Orchid (child 
pornography), Multi-core (illegal export of arms), and Journey (drug 
smuggling), as well as counterfeit software and tobacco smuggling 
cases. Collectively, these investigations have resulted in the seizure 
of over 2,600 videotapes containing child pornography; the indictments 
of individuals involved in the illegal export of military aircraft and 
missile parts from the U.S. to Iran; the arrest of a foreign national 
who headed a major distribution network of counterfeit software; the 
seizure of 22,489 kilograms of cocaine, 43 arrests, and multiple 
convictions.
    At the Headquarters level, we support the United States Trade 
Representative and other organizations in bilateral and multilateral 
negotiations concerning deregulation, protection of intellectual 
property rights and harmonized Customs procedures. We also service U.S. 
travelers, the international trade community and the expatriate 
community by responding to numerous inquiries regarding U.S. import and 
export laws and procedures.
    Customs has also established partnerships with the private sector 
in order to promote U.S. business interests in foreign countries. The 
business community frequently cites foreign customs procedures and 
regulations as one of the most significant obstacles to the efficient, 
cost-effective movement of goods across international borders. Through 
our global network of contacts, we provide an important entree for U.S. 
business to negotiate foreign regulations.
    Customs is proud of its work with the private sector through our 
Industry Partnership Programs (IPP). Currently, over 4,800 air, sea, 
trucking, and railroad carriers have signed Carrier Initiative 
Agreements with Customs. In fiscal year 2000, these carriers provided 
information to Customs that resulted in 82 domestic seizures totaling 
27,014 pounds of narcotics. During the same period, these carriers 
helped intercept 44,122 pounds of narcotics from conveyances or freight 
destined for the U.S. from abroad.
    Over the last 6 fiscal years (1995-2000), participants in IPP 
programs have provided information to Customs that has resulted in 
domestic seizures totaling over 91,823 pounds of narcotics. During the 
same 6 fiscal years, IPP participants helped intercept over 195,306 
pounds of narcotics destined for the United States from abroad.
    In addition to our Carrier Initiative programs, Customs is actively 
working with foreign business communities through the Business Anti-
Smuggling Coalition (BASC). BASC is an industry-led, Customs supported 
program. BASC attempts to enhance security from the point of 
manufacture in foreign countries, through the distribution of goods 
throughout the United States. There are currently 17 BASC chapters 
established by foreign business communities and Customs throughout 
Colombia, Ecuador, Venezuela, Panama, Peru, Costa Rica, and Mexico.

                    FISCAL YEAR 2002 BUDGET REQUEST
    For fiscal year 2002, the Customs Service proposes a total program 
level of $2,385,226,000 and 17,849 Full Time Equivalents (FTEs), all of 
which will be directly appropriated. The fiscal year 2002 budget 
represents an increase of 4.6 percent above the fiscal year 2001 
enacted level.
    The explosive growth in the volume of trade will place an even 
greater demand on Customs to address pressing trade and enforcement 
issues with limited staffing and resources. The fiscal year 2002 budget 
includes $130 million in base funding to continue development of the 
Automated Commercial Environment (ACE). ACE is designed to replace our 
current antiquated commercial processing system, and help Customs 
manage its expanding workload.
    As part of the fiscal year 2002 President's Budget submission, $35 
million is requested in the Air and Marine Program to support the 
Western Hemisphere Drug Elimination Act. These funds will be used 
towards Customs interdiction efforts primarily in the source and 
transit zones. Specifically, the resources will support: acquisition of 
maritime patrol aircraft; implementation of various safety enhancements 
for flight crews; replacement of aging P-3 Forward Looking Infrared 
sensors (FLIR); replacement and modernization of current marine 
vessels; and replacement of deteriorating and obsolete equipment 
associated with the Customs Air and Marine Interdiction Coordination 
Center.
    This concludes my statement for the record. I appreciate the 
opportunity to appear before you today. Again, I want to express my 
thanks to the Subcommittee for its tremendous support of Customs in the 
past. We look forward to your continued support as we strive to meet 
the dramatic challenges faced by the Customs Service in this dynamic 
era of global trade and enforcement.

                          U.S. Secret Service

STATEMENT OF BRIAN L. STAFFORD, DIRECTOR
    Senator Campbell. Mr. Stafford.
    Mr. Stafford. Mr. Chairman, Ranking Member Dorgan, Senator 
DeWine, it is a pleasure to be here today to testify on behalf 
of the Secret Service fiscal year 2002 budget request. With me 
today are Deputy Director Kevin Foley and the seven Assistant 
Directors and Chief Counsel of the Secret Service.
    Senator Campbell. Seven?
    Mr. Stafford. Seven.
    Senator Campbell. Where are they, all in the audience?
    Mr. Stafford. All in the audience. Would you like them to 
be recognized?
    Senator Campbell. Yes, I would like to at least have them 
raise their hands.
    Mr. Stafford. Please, would you do that.
    Senator Campbell. Welcome.
    Mr. Stafford. Kevin Foley, the Deputy Director of the 
Secret Service, sitting behind me, I would like to recognize 
him today. He is retiring at the end of the month after a 21-
year career in the Secret Service and 5 years before that in 
the DEA. I would like to publicly acknowledge not only his 
service to the Secret Service, but also to our country, and we 
will miss him.
    Senator Campbell. Which gentleman is that? Congratulations 
on a well-deserved retirement. I know Brian pretty well, and he 
has told me a number of times about the 24-hour-a-day on call 
impromptu things. You put something in place where you want to 
be with your family and you get a phone call and away you go on 
the next plane. I understand the difficulty of that job.
    Go ahead, please.

             Secret Service Fiscal Year 2002 Budget Request

    Mr. Stafford. Mr. Chairman, the Secret Service's fiscal 
year 2002 funding request will advance our primary goals of 
protecting our leaders and reducing crimes against our nation's 
currency and financial systems. We currently have more 
permanent protectees than at any time in our 136-year history 
and their travel has been unprecedented, putting considerable 
demands on the Secret Service resources.

                           Protective Program

    Furthermore, the threats and risks to our protectees exist 
in an increasingly sophisticated and mobile and violence-prone 
world. The existence of these threats of terrorism prompted 
Congress to enact legislation designating the Secret Service as 
the Federal Government's lead agency for the design, planning, 
and implementation for security for national special security 
events.
    Our preparation for the Salt Lake City 2002 Winter Olympics 
are ongoing. We are developing a comprehensive counter-
terrorism security plan for all official venues of the 
Olympics. In conjunction with the security for the Olympic 
games, the Secret Service is also responsible for the safety of 
all visiting foreign heads of state. The Winter Olympics 
present a unique challenge for us and we are working very hard 
to ensure that the games are not marred by a terrorist attack 
or other security-related incident.

                         Investigative Program

    Despite the heavy protection workload, the past year was 
also very productive for the Secret Service's investigative 
program. In fiscal year 2000, we closed over 18,000 criminal 
cases and made almost 8,000 arrests. In the past 5 years, the 
Secret Service has made over 50,000 arrests related to our core 
investigative responsibilities.

                Electronic Crimes Special Agent Program

    The Secret Service is confronting a technological 
transformation in criminal methodology and has adapted 
investigative methods to meet this new challenge. Our first 
line of defense in this effort is the Electronic Crimes Special 
Agent program. These agents are highly trained and are 
qualified as experts in the preservation and analysis of 
electronic evidence. They also provide expertise in the 
investigation of network intrusions and database thefts.
    The Secret Service has forged strong alliances with our 
private industry partners and promotes the task force approach 
in our field offices worldwide. This method allows us to tailor 
our investigative programs to the local community, thus 
maximizing favorable economic impact.
    An example, the New York Electronic Crimes Task Force, 
formed by the Secret Service in 1995, represents an 
unprecedented regional confederation of law enforcement 
agencies, prosecutors, academia, and private industry. This is 
a strategic alliance designed to pool competencies and 
resources to address electronic crimes. With over 250 members, 
this task force is the largest in the world and has had 
positive impact on the local community. Given the extraordinary 
success and effectiveness of this task force, it is not 
surprising that some of its most avid supporters come from 
private industry.

                         Globalization of Crime

    The Secret Service is also responding to the globalization 
of crime. Since the early 1980s, we have seen a sizeable 
increase in the foreign production and distribution of 
counterfeit United States currency. Much of this activity has 
been linked to organized crime syndicates. In the past 5 years, 
the Secret Service, in cooperation with foreign law enforcement 
agencies, has recorded over 2,400 foreign counterfeit arrests 
and suppressed 141 counterfeit plant operations.
    In addition, a number of countries have recently adopted 
the U.S. dollar as their unit of currency. While dollarization 
does offer economic and political benefits, it also makes these 
countries vulnerable to the importation and distribution of 
counterfeit currency. In light of the proliferation of the U.S. 
dollar as the international currency of choice, the Secret 
Service will work to expand its reach throughout the world to 
guarantee the integrity of the currency of the United States.

           National Center for Missing and Exploited Children

    The Secret Service is very proud of its continuing 
commitment to the National Center for Missing and Exploited 
Children and will continue to provide technical and forensic 
support to further improve on the current 93 percent recovery 
rate of our Nation's children.

                   National Threat Assessment Center

    In furtherance of our protective intelligence mission and 
as a direct result of this subcommittee's support, our National 
Threat Assessment Center continues to expand its capabilities 
to provide consultation, training, and research in areas of 
targeted violence. The Center's mission focuses on a broad 
spectrum of threat assessment and targeted violence pertinent 
to the protective mission of the Secret Service as well as the 
public safety interests associated with social problems, such 
as school violence, workplace violence, and threats to public 
figures.
    Mr. Chairman, I am extremely proud to represent an 
organization comprised of some of the most talented and 
dedicated men and women in all of government. In both the 
protection and investigative arenas, the successes we have 
achieved should be credited to the personnel that we are so 
fortunate to attract and retain. Since becoming Director, I 
have made it my priority to improve the quality of life of our 
personnel. To that end, for the past two years, you have 
supported us in reversing a critical personnel shortage within 
the Secret Service resulting from mandatory workload increases. 
I am pleased to report we are in the process of adding about 
two-thirds of the additional staffing identified by the 
interagency working group.

                           Prepared Statement

    Mr. Chairman, on behalf of the men and women of the Secret 
Service, I want to thank you and the subcommittee and staff for 
its ongoing support and I am willing to answer any questions 
you may have.
    Senator Campbell. Thank you.
    [The statement follows:]

                Prepared Statement of Brian L. Stafford

    Mr. Chairman and members of the Subcommittee, I am pleased to be 
here today, and to be afforded the opportunity to testify on the Secret 
Service's fiscal year 2002 Budget Request.
    With me today, Mr. Chairman, are Kevin T. Foley, Deputy Director; 
Dana A. Brown, Assistant Director for Administration; C. Danny Spriggs, 
Assistant Director for Protective Operations; Barbara S. Riggs, 
Assistant Director for Protective Research; James E. Bauer, Assistant 
Director for Investigations; Larry L. Cockell, Assistant Director for 
Human Resources and Training; George D. Rogers, Assistant Director for 
Inspection; H. Terrence Samway, Assistant Director for Government 
Liaison and Public Affairs; and John J. Kelleher, Chief Counsel.

                 FISCAL YEAR 2002 APPROPRIATION REQUEST
    The Service's fiscal year 2002 funding request totals $860.5 
million and 5,730 FTE, and includes funding from two sources: the 
Salaries and Expenses appropriation, and the Acquisition, Construction, 
Improvements and Related Expenses appropriation. The budget request for 
fiscal year 2002 is $26.7 million above the level of funding that the 
Service has been appropriated this fiscal year.
Salaries and Expenses (S&E)
    The Service's Salaries and Expenses appropriation request for 
fiscal year 2002 totals $857,117,000 and 5,730 full-time equivalents 
(FTE). This is an increase of $32,232,000 and 173 FTE over the fiscal 
year 2001 appropriated level of $824,885,000 and 5,557 FTE. This 
request includes: $48,026,000 in upward adjustments necessary to 
maintain current program performance levels, $6,553,000 and 173 FTE to 
annualize program changes implemented in fiscal year 2001, and 
$1,649,000 in base funding that was previously funded under the 
Acquisition, Construction, Improvements, and other Related Expenses 
account. These increases are partially offset by $10,372,000 in non-
recurring costs, and $13,624,000 in savings which the Service expects 
to realize through improved resource management.
    There are no programmatic changes or initiatives proposed for the 
Service's Salaries and Expenses account in the fiscal year 2002 budget. 
However, the funding needed to annualize the costs of program 
initiatives begun or continued in fiscal year 2001 is included.
    In addition, the fiscal year 2002 budget proposes moving funding 
currently contained in the Service's Acquisition, Construction, 
Improvements, and Related Expenses account to the Salaries and Expenses 
account. A total of $1,649,000 has been moved. This amount partially 
covers the Service's shared costs for its use of the Department's 
Digital Telecommunications System, as well as expenses related to 
fixed-site security. These expenses are more properly budgeted under 
the Salaries and Expenses appropriation.
Acquisition, Construction, Improvements, and Related Expenses (ACIRE)
    The Service's fiscal year 2002 request for its Acquisition, 
Construction, Improvements, and Related Expenses (ACIRE) account totals 
$3,352,000, a decrease of $5,569,000 from the fiscal year 2001 
appropriated level of $8,921,000. This total includes $3,920,000 in 
non-recurring costs, and a reallocation of base funding of $1,649,000 
from this account to the Service's Salaries and Expenses account. There 
are no programmatic changes or initiatives proposed for this account.

                           PROTECTIVE PROGRAM
    The Secret Service's protective operations programs provide 
comprehensive protection for persons and facilities as mandated by law 
and executive order, and strive to reduce threats posed by global 
terrorists and other adversaries. Secret Service protectees include: 
the President, the Vice President, their families, former Presidents, 
visiting foreign heads of state and government, as well as major 
Presidential and Vice Presidential candidates and their spouses. This 
program also provides security for the White House complex, the Vice 
President's residence, and 463 foreign missions within the Washington, 
D.C., area.
    Fiscal year 2000 was an extremely active year for the Secret 
Service protection program due to the 2000 Presidential Campaign, the 
Republican and Democratic conventions, and the Presidential 
Inauguration. Additionally, the Secret Service provided protection at 
the World Economic Conference, the United Nation's General Assembly, 
and other designated ``National Special Security Events''. Travel of 
Secret Service protectees was unprecedented during fiscal year 2000, 
and put considerable demands on Secret Service resources. During fiscal 
year 2000, the Secret service provided physical protection at 7,358 
travel stops, a 29 percent increase over fiscal year 1999, and a 43 
percent increase over fiscal year 1998. The 7,358 travel stops 
represent an all-time high in our protection workload. The 7,358 travel 
stops also represent an exhaustive effort by the entire organization in 
terms of commitment to the achievement of the Secret Service's ultimate 
protection goal of the safety of our protectees.
    During fiscal year 2000, the Secret Service's Office of Protective 
Operations successfully designed, planned, and implemented four 
National Special Security Events, including: the January 2000 State of 
the Union address; the July 2000 OPSAIL and International Naval Review 
in New York City; the Republican National Convention in Philadelphia, 
Pennsylvania; and the Democratic Convention in Los Angeles, California. 
In addition to these events, the Secret Service also provided 
significant resources--including manpower, material and technical--for 
the April 2000 International Monetary Fund and World Bank Meeting in 
Washington, D.C., and the September 2000 United Nations General 
Assembly meeting in New York City.
    Our protective workload was further compounded by the 2000 
Presidential Campaign. During this election cycle, we were charged with 
protecting three Presidential candidates and implementing security 
measures for six debate sites and two political conventions. Due to the 
uncertainty of the ultimate outcome of the election, the post-election 
period was extended, which resulted in the continuation of protective 
details beyond Election Day.
    Preparations for the Salt Lake City 2002 Winter Olympics are 
continuing. Since August, 1998, the Secret Service, as the lead Federal 
agency for operational security, has been developing a comprehensive 
counter-terrorism security plan for all official venues of the 2002 
Winter Olympics. In conjunction with the security for the Olympic 
Games, the Secret Service is also responsible for the safety of all 
visiting foreign heads of state or government who will be in 
attendance. The 2002 Winter Olympics presents a unique challenge for 
the Secret Service, and we will work to ensure that the Olympic Games 
are not marred by a terrorist attack or other security-related 
incident.
    The threats and risks to our protectees exist in an increasingly 
sophisticated, mobile, and violence-prone world. In recent years, the 
individuals the Secret Service protects have become targets of 
ideological and fanatical hatred that often manifests itself in 
attempts to inflict harm through terrorism or by employing the use of 
weapons of mass destruction. The existence of this type of threat 
prompted the enactment of Presidential Decision Directive 62--later 
codified in 18 USC 3056--which designated the U.S. Secret Service as 
the Federal Government's lead agency for the design, planning, and 
implementation of security for National Special Security Events.
    The mandate of our protective mission has historically been defined 
by threat assessment and risk analysis in anticipation of selective 
adverse actions directed at one of our protectees. Our hallmark has 
been the development and implementation of comprehensive security plans 
to mitigate the potential threat.
    Our valuable human resources provide the key to the successes we 
have enjoyed in our protective mission. This is accomplished by 
strategically placing field agents throughout the United States and 
abroad to routinely perform core criminal investigative and protective 
intelligence activities. Our protective function depends on the support 
of permanently assigned field personnel to assist with and, in many 
cases, conduct protective advances, security post-standing and other 
ancillary protective functions. It is because of their outstanding day-
to-day working relationship with other Federal, State, and local law 
enforcement agencies, the mental health community, and other local 
community organizations, that the Secret Service succeeds in meeting 
its protective mission.

                         INVESTIGATIVE PROGRAM
    Fiscal year 2000 was also a very productive year for the Secret 
Service investigative program, despite the heavy protection workload 
associated with Presidential Campaign 2000, and the unprecedented 
demands of our permanent protectees. During fiscal year 2000, the 
Secret Service closed a total of 18,611 criminal cases, made 7,843 
arrests, and received 7,520 indictments.
    The Secret Service achieved all of its counterfeit-related 
performance goals for fiscal year 2000. During fiscal year 2000, there 
was $76 of counterfeit U.S. currency passed for every $1 million of 
genuine currency in circulation. This represents a $2 decrease 
(improvement) compared to the fiscal year 1999 rate and a $19 decrease 
(improvement) compared to the fiscal year 2000 goal. There were $39.7 
million in counterfeit notes passed domestically in fiscal year 2000, 
12 percent less than originally projected.
Computer Crime
    Computers and the Internet are an integral part of a rapidly 
growing number of criminal activities investigated by the Secret 
Service. We have seen the proliferation of computer-generated and 
computer-assisted fraud dramatically increase. Criminals frequently 
utilize hardware and software tools developed for the benefit of 
businesses and consumers. Because of the competitive nature of 
Internet-based financial services, the focus is on speed, ``24/7'' 
access, and ease of use--all of which make the job of the ``cyber 
criminal'' a little easier. The Internet also provides the anonymity 
that criminals desire. In the past, most fraudulent schemes required at 
least some ``face to face'' exchange of information, and allowed some 
of the information being provided to be verified, and later traced, 
relatively easily.
    The Internet has evolved from an information-sharing network into 
an electronic commerce payment network. Last year there were 3.5 
billion financial transactions completed on-line. It is estimated that 
over 144 million Americans are ``plugged into'' cyberspace. By 2005, it 
is predicted that there will be over one billion Internet users 
worldwide. The rapid migration to E-Commerce is a forerunner to the 
advent of a truly global economy. In the wrong hands, the computers, 
Internet connections, and wireless communication devices, which have 
saturated our global society, can become weapons capable of wreaking 
havoc on our financial infrastructures.
    The Internet contains thousands of sites dedicated to all types of 
criminal activity. ``Hacking'' sites describe the methods for making 
intrusions into financial, telecommunications, and government systems, 
and allow the necessary ``tools'' to be downloaded directly to the 
perpetrator. The demand on the Secret Service to conduct intrusion 
investigations continues to escalate.
    The Secret Service is confronting a technological transformation in 
criminal methodology and must adapt our methods of investigation to 
meet this new challenge. The first line of defense in this effort is 
the Electronic Crimes Special Agent Program (ECSAP). ECSAP agents are 
highly trained and are qualified as experts in the preservation and 
analysis of electronic evidence, including computers, 
telecommunications devices, electronic organizers, scanners, and other 
electronic paraphernalia. They can also provide expertise in the 
investigation of network intrusions and database thefts.
    The Secret Service mission in the arena of criminal investigations 
has been historically characterized by its preventive and proactive 
nature. The focus of this investigative program is the protection of 
our nation's payment systems and financial infrastructure and is not 
redundant with the investigative programs of other Federal law 
enforcement agencies. Our unique core criminal violations concern the 
counterfeiting of United States currency (and other nations), and fraud 
perpetrated against the U.S. Government, the citizens of the United 
States, and American business operations.
    In cases involving the manufacture of fictitious financial 
instruments, false identification documents, identity theft, or the 
counterfeiting of currency or corporate and bank checks, the 
investigation usually reveals that they were most likely produced using 
a computer and desktop publishing software. Experience indicates the 
majority of Secret Service investigations involve a computer, whether 
as the target of the crime, a tool used to commit the crime, or as a 
repository of evidence.
    The highlights of our comprehensive investigative program include 
an aggressive public education and awareness campaign and a proactive 
approach to criminal investigations in general, focusing our resources 
on investigations of significant economic and community impact. The 
Secret Service has forged strong alliances with private industry 
partners and promotes the ``task force'' approach in field offices 
throughout the United States and in offices abroad. This method allows 
us to tailor our investigative programs to the local community, thus 
maximizing favorable public and economic impact, while strengthening 
the financial infrastructures of our nation at every level.
    The Secret Service has also developed working partnerships with 
members of the financial services and telecommunications industries as 
they pertain to our payment systems. These partnerships foster the 
sharing of information and permit the Secret Service necessary access 
to provide risk assessments in the identification of systemic 
weaknesses in financial institution infrastructures. These partnerships 
also assist in preventing future compromise, reduce financial losses to 
the public, respond to our customers' needs, enable the Secret Service 
to provide quality investigations, and overall, make our nation's 
financial systems more secure.
    The New York Electronic Crimes Task Force (NYECTF), formed by the 
Secret Service in 1995, represents an unprecedented, regional 
confederation of law enforcement agencies, public prosecutors, 
academia, and private industry institutions in a strategic alliance 
designed to pool core competencies and resources to address electronic 
crimes. With more than 250 members, this task force has led a 
successful effort to heighten public awareness and have a positive 
impact on the local community. They have trained over 10,000 law 
enforcement personnel, prosecutors, and private industry 
representatives in the criminal abuses of technology. Given the 
extraordinary success and effectiveness of this task force, it is not 
surprising that some of its most avid supporters come from private 
industry.
    The NYECTF serves as a model for increasing public awareness and 
cultivating community partnerships. Led by a state agency, a similar 
version of the NYECTF model was recently implemented in North Carolina, 
and there has also been significant interest from other states and 
countries in adopting this systemic approach.
    Our experience in the investigation of computer crimes has had an 
added benefit for the Secret Service in the area of our protective 
responsibilities. We acknowledge the difficulty in separating the cyber 
dimension from the physical dimension in the area of security today. 
Consequently, we are developing a plan that addresses the integration 
of a secure infrastructure and cyber environment with a secure (in the 
traditional sense) physical environment for our protectees.
    In order to meet the challenges of the 21st century, the Secret 
Service has initiated a new case prioritization policy to focus our 
resources on emerging technological schemes and crimes that are 
transnational in scope. Secret Service field offices allocate their 
resources to the most significant cases based on whether one or more of 
the following case prioritization criteria is met: involves 
transnational or multi-district investigations; schemes involving 
multiple defendants participating in organized groups; schemes 
involving computers or exploiting emerging technologies; or 
investigations that will significantly impact the local community. The 
use of these criteria in case screening and initiation enhances our 
investigative effectiveness and allows for the optimum utilization of 
our resources.
Identity Theft
    The responsibilities of the Secret Service in criminal 
investigations have increased significantly as a result of the 
proliferation of computer technology and the public's access to the 
Internet. Advances in technology have changed the nature of financial 
transactions from paper currency and coins to today's use of electronic 
payment systems. New criminal schemes are constantly being developed 
utilizing emerging technologies. Identity theft has become a tool of 
the criminal element and is usually used to commit several different 
types of fraud such as: bank fraud; credit card and access device 
fraud; and other computer-generated and computer-assisted crimes. The 
Secret Service continues to diligently attack identity theft and other 
diverse criminal strategies by aggressively pursuing our core 
violations of counterfeiting and financial crimes.
    Identity theft is best described as the illegal use of another 
person's financial identity to commit fraud. It is not typically a 
``stand alone'' crime; it is almost always a component of one or more 
crimes, such as bank fraud, credit card or access device fraud, or the 
utterance of counterfeit financial instruments.
    Unfortunately, consumers have little control over who has access to 
their personal identifiers. Social security numbers, in conjunction 
with other personal identifiers, are used for the granting of credit 
(auto loans, home mortgages, small business loans, apartment leases) 
and when obtaining banking and investing services. They are requested 
by government agencies on applications for licenses, permits, and 
benefits, and are required by most health care providers for the 
maintenance of medical records.
    Today, it is a relatively simple task for criminals to obtain 
personal information on a variety of individuals through public 
sources, particularly the Internet. Many government and private sector 
entities have web sites with promotion lists, financial disclosure 
forms, and biographies of their executives posted on them.
    Cyber criminals have also ``hacked'' into Internet merchant sites 
and made copies of the proprietary customer lists, which contain 
personal information and credit card account numbers. These account 
numbers are then used in conjunction with other personal identifiers to 
order merchandise that criminals have delivered throughout the world. 
Most account holders are not aware that their credit card account has 
been compromised until they receive their billing statement.
    In many cases, the hacking attempts on corporate and government web 
sites, are successful not due to the expertise of the cyber criminals, 
whose attempts are often quite technologically crude, but because of 
the failure of some business and government entities to take basic 
computer security precautions. It is not unreasonable for consumers to 
expect that they will have to provide personal identifiers when 
obtaining credit or other services, but it is reasonable for them to 
expect that basic security measures will be taken to prevent these 
identifiers from being compromised and/or misused. The Secret Service 
is addressing this issue through a proactive public education campaign 
being conducted through our private industry partnerships. This 
approach, coupled with the successful investigation of criminals 
involved in financial and computer fraud, has significantly enhanced 
our ability to detect and suppress identity theft.
    We also make it a priority to investigate counterfeit instruments--
counterfeit currency, counterfeit checks, counterfeit credit cards, 
counterfeit stocks and bonds, etc. Many of these schemes would not be 
possible without the compromise of an innocent victim's financial 
identity. The Secret Service aggressively targets organized criminal 
groups that are engaged in financial crimes on both a national and 
international scale. Many of these groups are prolific in their use of 
stolen financial and personal information to further their financial 
crime activity.
    The Secret Service also continues to work in concert with state, 
county, and local police departments to ensure that our resources are 
being targeted at those criminal enterprises that are of a high concern 
to local communities. This partnership approach to law enforcement is 
exemplified by our financial crimes task forces located throughout the 
country. Each of these task forces pools the personnel and technical 
resources needed to maximize the effectiveness of each participating 
law enforcement agency.
Globalization of Crime
    Since the early 1980's, the U.S. Secret Service has seen a sizeable 
increase in the foreign production and distribution of counterfeit U.S. 
currency. Much of this activity has been linked to organized crime 
syndicates through forensic and investigative techniques. The lowering 
of barriers to international travel, trade, and capital transfers has 
contributed to the complexity of the issue of the international 
counterfeiting of U.S. currency. In the past 5 years, the Secret 
Service, in cooperation with foreign law enforcement agencies, has 
recorded more than 2,411 counterfeit arrests and suppressed 141 
counterfeit plant operations outside the United States.
    The objective of the U.S. Secret Service abroad is to continue to 
improve and expand bilateral cooperation regarding the investigation, 
timely reporting, and suppression of counterfeit U.S. currency and a 
wide array of financial crimes. This includes proactive partnerships 
with law enforcement authorities and financial industry officials, and 
maintaining a comprehensive international training program. Training 
seminars and information exchange sessions can provide much needed 
awareness and expertise and a stronger joint working relationship.
    The strategic placement of overseas personnel promotes more 
effective police operations because our agents are able to respond more 
promptly and more consistently. In an effort to combat international 
crime, the U.S. Secret Service currently has eighteen offices in 
foreign countries and a permanent assignment at Interpol, as well as 
several overseas initiatives. Recently, new offices have been opened in 
Moscow, Pretoria, Lagos, and Frankfurt, with an office soon to open as 
well in Mexico City. Requests to open offices in Beijing and New Delhi 
are pending approval, and should be opened within the next 6-9 months. 
This expansion will enhance our ability to become involved in foreign 
investigations, which ultimately affect the United States, directly or 
indirectly.
    In light of the proliferation of the U.S. dollar as the 
international currency of choice, the Secret Service will be playing an 
expanded role throughout the world to guarantee the integrity of the 
currency of the United States. Several nations have recently adopted, 
or have moved to adopt, the U.S. dollar as their base unit of currency. 
While ``dollarization'' does offer many economic and political benefits 
to the United States, it also makes these countries vulnerable to the 
importation, distribution, and passing of counterfeit currency. To 
ensure that the manpower and resources are available, without drawing 
from existing commitments and fiscal considerations, the Secret Service 
is prepared to explore all available options so that we may continue to 
perform our investigative mission in these emerging dollar-based 
economies.
Cyberterrorism
    The Secret Service continues to utilize its core of computer 
investigative specialists (CIS) and ECSAP agents to conduct 
investigations into ``Cybercrime'' and ``Cyberterrorism.'' Most forms 
of cyberterrorism, as with any other cybercrime, are detected as a 
simple cyber incident (for example, during routine system testing, or 
during intrusion detection). The Secret Service program therefore 
emphasizes initial response and follow-up investigation, to determine 
if the nature of the incident rises to the threshold of cyberterrorism. 
Suspects in financial crimes investigations have traditionally been 
thought of as white-collar criminals. Today we see many criminals for 
whom financial crime is just one component in a diversified criminal 
portfolio. The proceeds of the criminal activities are not only used to 
support the lifestyle of the suspect, but frequently to finance other 
types of criminal enterprises, including terrorism.
    The threat that computer crime represents in our society today is 
also acutely recognized by the Secret Service in the area of our 
protective responsibilities. In the cyber context, a small adversary 
may compete with, and defeat, a larger more powerful entity by deftly 
exploiting an electronic vulnerability with a minimum amount of 
resources. A well-placed cyber attack against a weak technology or 
support infrastructure system can render an otherwise sound physical 
security plan vulnerable and inadequate. Often, in our networked 
society, systems that we have come to assume are reliable are often 
viewed as being susceptible and therefore targeted as easy prey by 
individuals or groups with malicious intent. For example, a hotel today 
routinely has its telephone network tied into the same local 
infrastructure as its elevators, water and electric supply, and fire 
suppression system.
    To be sure, technology will continue to evolve at a rapid rate and 
play a vital role in our society and daily lives. Our mandate is to 
leverage its enhancements but also to recognize its shortcomings and 
ensure that the secure environment which the Service seeks to provide 
contemplates not only an adversary with conventional weaponry, but the 
computer-based threat as well.
National Center for Missing and Exploited Children
    With the passage of the Violent Crime Control and Law Enforcement 
Act of 1994, the U.S. Secret Service was authorized to provide forensic 
and technical support to the National Center for Missing and Exploited 
Children (NCMEC). This support includes, but is not limited to: the use 
of the Automated Fingerprint Identification System (AFIS); the Forensic 
Information System for Handwriting (FISH); ink analysis and comparison; 
traditional handwriting and fingerprint comparison; polygraph 
examination and consultation; visual information services such as image 
enhancement, suspect drawings and video and audio enhancement; graphic 
and photographic support; and age regression/progression drawings.
    The Secret Service's Forensic Services Division (FSD) has been 
aggressive in providing specific law enforcement groups with 
information about our services. Recipients of such presentations 
include the International Association of Chiefs of Police, the INTERPOL 
Standing Working Party on Offences against Minors, and the Federal Law 
Enforcement Training Center. Various publications and brochures have 
also aided in promoting FSD's ability to provide critical forensic 
support in these cases. FSD has provided the National Center for 
Missing and Exploited Children with an icon and a web page of 
information, which has been included on the desktops of more than 1,500 
computers belonging to state and local law enforcement agencies 
nationwide. The Secret Service will continue its efforts to promote our 
services and the assistance we can provide to local law enforcement 
agencies through the Center, through our field offices, and through 
competent and timely responses to existing case submissions.
Boys and Girls Clubs of America
    Computers and the Internet have revolutionized the way that we 
communicate, entertain and learn. They have forever changed the way 
that we conduct business and interact socially. The significance of 
this has been recognized by the Secret Service and recently applied to 
our partnership with the Boys and Girls Clubs of America (BGCA). The 
partnership was created to enrich the lives of our nation's youth by 
supporting programs that stress the prevention and reduction of youth 
violence within our communities. That organization plans to open a 
Cyber Learning Center in every one of its more than 2,000 clubs 
nationwide. This presents an excellent opportunity for us to share our 
knowledge and expertise in this area. In support of this partnership, 
our New York Field Office and the New York area chapters of the Boys 
and Girls Clubs of America conducted the first Cyber Safety for Kids 
seminar on January 30, 2001, at John Jay College in New York City.
    The seminar was attended by over 500 children aged 6 to 16. The 
theme of the seminar focused on the prevention of online victimization, 
exposure to unwanted sexual material such as pornography via the 
Internet, and instructions on where to go to for help when confronted 
with these issues. The children received cyber-etiquette training 
through the use of hands-on activities and exercises and certificates 
of participation were provided to all the children in attendance. By 
December 2001, the Secret Service anticipates reaching thousands of 
children and their parents in the New York City metropolitan area 
through this model program.

                     OFFICE OF PROTECTIVE RESEARCH
Intelligence Division
    The Secret Service's protective research and protective 
intelligence programs continue to serve a critical role in support of 
the protective mission. Within the Office of Protective Research, the 
Intelligence Division oversees the identification, assessment, and 
management of threatening communications and incidents directed toward 
Secret Service protectees. Specifically, the division develops threat 
assessments in support of domestic and foreign protectee visits; 
conducts evaluations of risk potential associated with specific and 
generalized threats; prepares analyses of protectee-specific threats; 
maintains liaison with other law enforcement, mental health, and 
intelligence agencies; plans and reviews the case management for high 
risk subjects; and, collaborates in the design and conduct of program 
evaluation studies and other risk assessment research to improve our 
understanding about violence directed toward public officials.
    Among key initiatives in fiscal year 2000 was the extensive support 
provided by the Intelligence Division for the Presidential Campaign in 
the form of candidate assessments, training for campaign protective 
details, and trip assessments associated with unprecedented amounts of 
campaign travel. Similarly, the division coordinated complex protective 
intelligence activities related to the Inauguration for President Bush 
and Vice President Cheney.
    In addition to directing and performing such operational 
activities, the Intelligence Division provides leadership for the 
Protective Detail Intelligence Network (PDIN), a consortium of 
Washington, D.C., area law enforcement, security, and public safety 
agencies with protective and security related functions. Initiated in 
1999 by the Secret Service, the PDIN has emerged as an important forum 
for sharing intelligence information that affects security planning 
issues across agencies in the metropolitan area. Hosted on a regular 
basis by the Intelligence Division, PDIN meetings include briefings and 
training concerning significant and designated major security events 
coordinated by the Secret Service, and they facilitate cooperative 
partnerships among agencies who share protective and security 
responsibilities. Through the PDIN, the Secret Service has offered 
assistance in the preparation of security assessments for incoming 
Cabinet members and senior officials of the new administration.
National Threat Assessment Center
    In furtherance of our protective intelligence mission, the National 
Threat Assessment Center (NTAC) continues to expand its capabilities to 
provide consultation, training, and research in areas of targeted 
violence. NTAC's mission focuses on the broad spectrum of threat 
assessment and targeted violence, pertinent to the protective mission 
of the Secret Service as well as the public safety interests associated 
with such social problems as school violence, workplace violence, and 
threats to public figures. NTAC also works to promote information 
sharing among all agencies with public safety responsibilities. To that 
end, NTAC has offered a series of week-long Threat Assessment Seminars 
attended by law enforcement and public safety officials from across the 
country to receive training on the Secret Service's approach to threat 
assessment, including the identification and management of persons at 
risk for targeted violence. These seminars represent one of the 
initiatives by which NTAC will continue to share Secret Service 
expertise with those who may benefit from our specialized research and 
experience.
    In 2000, the National Threat Assessment Center completed data 
collection and data analysis on the Safe School Initiative, a 
collaborative venture with the Department of Education and supported by 
the National Institute of Justice. The Safe School Initiative is an 
operational study of 37 U.S. school shootings involving 41 perpetrators 
that have occurred over the past 25 years. Through this incident-
focused, behavior-based analysis, NTAC researchers hope to increase 
understanding the patterns of communication, planning, and preparation 
that precede these incidents. The goal of the Safe School Initiative is 
to provide accurate and useful information to school administrators, 
educators, law enforcement professionals, and others who have 
protective and safety responsibilities in schools, and to help prevent 
incidents of school-based targeted violence.
    The National Threat Assessment Center also provided extensive 
research support during this past year to examining and analyzing 
campaign-related threats and incidents. This research was conducted in 
collaboration with the Office of Protective Operations' Major Events 
Division to assist with the operational planning and training 
associated with Campaign 2000. Presently, NTAC is developing its long 
range agenda for research, training, and consultation activities as 
part of its mission to enhance and facilitate understanding about the 
prevention of forms of targeted violence affecting a variety of public 
settings.
Technical Security Division
    In order to remain on the leading edge of physical security 
technology, the Secret Service's technical security program maintains a 
robust research and development capability. Our staff of engineers and 
chemists serve on several committees within the Technical Support 
Working Group (TSWG), a multi-agency research consortium, to research 
innovative technology that is applicable to our mission. For example, 
the development and deployment of state-of-the-art armored limousines 
directly resulted from research conducted by the Personal Protection 
Subgroup of TSWG, chaired by engineers from the Secret Service. Other 
projects under research by TSWG on behalf of the Secret Service, 
include development of a lighter and stronger ballistic glass, 
concealable body armor that meets higher standard performance 
requirements, and blast mitigation research. We are also conducting on-
site biometrics testing in the form of facial recognition technology 
and fingerprint scanning. Promising new developments in this area will 
one day enable us to enhance our abilities to identify persons known to 
be a threat to our protectees, and they will increase the performance 
and reliability of our access systems.
    Currently, the Technical Security Division of the Secret Service is 
playing a major role in the security planning for the 2002 Olympic 
Games in Salt Lake City. Extensive use of protective technology will 
serve to reduce the manpower requirements while, at the same time, 
enhance the overall security of the event.
Information Resources Management Division
    In fiscal year 2000, the Information Resources Management Division 
(IRMD) completed an internal reorganization to better provide support 
to Secret Service headquarters and field offices. Through this effort, 
several major activities were initiated, including the ``Customer 
Touch'' program which placed information technology (IT) personnel in 
our largest field offices and major headquarters customer offices. IRMD 
also established an Information Assurance staff component to focus 
greater attention on information assurance and Cyber Critical 
Infrastructure Protection (CIP). In addition, the division implemented 
efforts to modernize the Secret Service IT hardware and software 
infrastructures, and they developed and published a Secret Service 
Information Technology (IT) Strategic Plan for 2001 to 2005. IRMD has 
also undertaken partnering efforts with other Treasury bureaus, 
particularly in the area of SmartCard and Public Key Infrastructure.
Emergency Preparedness Program
    Within the Office of Protective Research, the Emergency 
Preparedness Program (EPP) became fully operational this past year. The 
Emergency Preparedness Program was established in 1999 to oversee the 
Secret Service's emergency preparedness planning efforts. As such, EPP 
manages four interrelated program areas, evolving from Presidential 
Decision Directives 63 and 67: (1) Critical Infrastructure Protection 
(CIP); (2) Continuity of Operations (COOP); (3) Presidential Successor 
Program; and, (4) Operations Security (OPSEC) program. Specifically, 
the Critical Infrastructure Program involves the identification of 
existing or potential vulnerabilities--including physical and computer-
related--associated with the Secret Service's critical assets. The 
Continuity of Operations plan sets forth a strategy for maintaining the 
capability to perform essential mission elements with minimal or no 
interruption during national or other emergencies. The Secret Service's 
role in the Presidential Successor Program includes transporting 
presidential successors to a secure relocation facility in the event of 
an emergency. Also, the OPSEC program protects the sensitivity of 
employee and mission-related information, with a goal of denying 
adversaries access to critical information that could compromise the 
Secret Service mission.

                      HUMAN RESOURCES AND TRAINING
    On September 29, 1998, a groundbreaking ceremony took place at the 
James J. Rowley Training Center (JJRTC). This date marked the 
initiation of an unprecedented construction and consolidation project 
on the part of the Secret Service and the Department of the Treasury as 
it pertains to training facilities. The construction of a new classroom 
building and a new administration building were the major components of 
this initiative. With the completion of the Administration Building 
(17,000 square feet--January 2000) and the Classroom Building (50,000 
square feet--April 2000), another Secret Service milestone was 
achieved. For the first time in Secret Service history, all training 
personnel and facilities were consolidated at one location, creating a 
more effective and efficient training environment. All instructors and 
support staff members, including those formerly assigned to the 1310 L 
Street location, were assigned to the JJRTC. The majority of the 
personnel assigned to the JJRTC now occupy the new Administration 
Building and the new Classroom Building. Additionally, the Classroom 
Building contains 11 new classrooms with two computer labs.
    Included in the new building construction was the installation of 
computer-based training equipment in nine of the new classrooms in the 
Classroom Building. Prior to the acquisition of this equipment, JJRTC 
instructors had limited access to computer-based training equipment. 
Additionally, the installation of this new equipment standardized the 
amount and type of equipment available for use by the instructors in 
these classrooms. The remaining two classrooms, which are designated as 
computer labs, have been outfitted with 12 new computers for use during 
various aspects of training.
    In June of 2000, work on the Wilkie Firearms Building, including 
the indoor ranges, armory, and classrooms, was completed. Additionally, 
this building now contains a mat room, counterfeit laboratory, and 
office/storage space for firearms, emergency medical equipment, and 
maintenance personnel. The JJRTC Supply Section has also been relocated 
to this building. Renovation of the JJRTC outdoor ranges was also 
completed this past fiscal year. This renovation occurred during the 
months of March and April of 2000, and included an upgrade of the 
electrical, mechanical, structural, and target systems. The ranges 
located at the Post Office in the District of Columbia were also 
renovated with the installation of the new electronic tracking target 
systems, ballistic traps, and linatex curtains. Since 1997, 
construction has been completed on the Drummond Building (Protective 
Detail Training) and the Magaw Building (Counter Assault Team Training, 
Protective Detail Training).
    Last year, the JJRTC provided training for an unprecedented number 
of personnel. During fiscal year 2000, 432 new Special Agents and 120 
new Uniformed Division Officers received their training at the JJRTC. 
In addition, 11,486 training opportunities were provided to special 
agents in the form of the Special Agent Basic Training Course, In-
Service Training, and Firearms Re-qualifications. 13,304 training 
opportunities were also provided to Uniformed Division Officers, in the 
form of the Uniformed Division Officer Basic Training Course, In-
Service Training, and Firearms Re-qualifications. Finally, 2,562 
training opportunities were provided to other Secret Service personnel, 
and 1,651 training opportunities were provided to individuals from 
outside agencies.
    A significant challenge for the Secret Service in fiscal year 2001 
will be our recruitment and retention efforts. By the end of fiscal 
year 2002, 379 Special Agents and 190 Uniformed Division members will 
be eligible for retirement. Further, many eligible Uniformed Division 
members are likely to retire in fiscal year 2002, as a result of the 
recently enacted retirement enhancements. The Secret Service's ability 
to accomplish its mission requires that it recruit and retain well-
qualified candidates to replace these retiring employees.

                               CONCLUSION
    Mr. Chairman, the Secret Service is committed to its dual mission 
of protecting our nation's leaders, as well as this country's critical 
financial infrastructures and payment systems. We will continue to 
develop our aggressive and innovative approach to combating emerging 
forms of computer crime, and continue to foster our effective 
partnerships with local law enforcement agencies, private industry, and 
community organizations.
    This concludes my statement. I would be pleased to answer any 
questions that you or other members of the Subcommittee may have.

    Senator Campbell. When the Secret Service first started, 
was the mission pretty much totally to protect the President?
    Mr. Stafford. No, it was not. We were created actually on 
April 14, 1865, by Abraham Lincoln, and the day he created us, 
he was assassinated. But he did not create us for protection 
purposes. We were created for investigative reasons, 
specifically to suppress counterfeit money. After the Civil 
War, about a third of all our currency in circulation was 
counterfeit. There was economic chaos in our country and there 
was no Federal investigative law enforcement agency that 
existed at the time to suppress it. We never started protecting 
Presidents until after Lincoln, Garfield, and McKinley were all 
assassinated, in the early 1900s.
    Senator Campbell. Well, your mission has certainly grown 
and now you have to protect athletes, as well. I was on an 
Olympic team a long time ago, and if anybody would have told us 
in 1964 when I was on the team that we would have to worry 
about terrorists killing the young athletes, I never would have 
believed it. And yet within 8 years, in Munich, that was the 
loss of innocence when the Israeli team was murdered right in 
the Olympic camp, and I understand the importance of it now. 
Whenever you have a high-profile event with cameras from all 
over the world, it seems to attract the whackos and that is 
where they can really make a statement because they know that 
everybody in the world will see it. So your mission has grown 
considerably, as other agencies have, too.
    Let me ask a few questions of each of you. Mr. Sloan, in 
fiscal year 1999, Congress gave the Department the authority to 
establish a three-year pay demonstration project for critical 
operations. I think you mentioned that. It took a while to get 
the project off the ground, but there have been some good 
results, as I understand it. What plans does the Department 
have for continuing that project, Mr. Sloan?
    Mr. Sloan. Mr. Chairman, you are absolutely correct. The 
demonstration project was established to enhance Treasury's 
ability to effectively recruit and retain highly qualified 
employees. It did take a little time before it got off the 
ground and I think it is safe to say that ATF has been involved 
with this project for about a year now and has, in fact, 
completed its first cycle in January of this year and has 
prepared a report relative to that evaluation of the project.
    I might also note that in the President's budget, I believe 
we are asking, because of the short time that we have had for 
the project itself, for an extension to the demonstration 
project's authority in the 2002 budget. But it may be 
appropriate if Director Buckles comments a little further on 
the project.
    Senator Campbell. So far as I understand it, through 
January 31, as you mentioned, of this year, the total cost has 
been $3.4 million. How do you plan to continue that funding. 
That is in the President's budget?
    Mr. Buckles. Yes, that would be covered in our budget, in 
our salary and expenses, yes, sir.

                       ATF Supervisory Structure

    Senator Campbell. Okay. Mr. Buckles, many of your law 
enforcement officers are still concerned about the supervisory 
structure in the ATF offices. As I understand it, law 
enforcement personnel are being supervised in some cases by 
non-law enforcement personnel. I used to be a cop, among many 
other things. In fact, I was a police training officer, and 
based on my own experience, it would be hard for me to remember 
going through any classes where you are trained for some 
specialty activity in law enforcement by somebody that was 
never in it or does not have a background in it. I was 
wondering if they have the sufficient background or training or 
experience to be able to do that. How do you justify that 
structure?
    Mr. Buckles. The structure is such that we do not have non-
law enforcement personnel, first of all, in the field who are 
supervising any law enforcement activities. Where we do, it is 
in management functions. Within division offices, there may be 
agents and other people assigned to those offices. Any time we 
have any kind of law enforcement activity going on, that is 
supervised exclusively by law enforcement personnel.
    In terms of our training, the training and the type of 
training we put on is based upon the needs of the law 
enforcement personnel within the agency. Again, it is 
supervised in some cases by individuals for management purposes 
on scheduling classes and maintaining the budget and getting 
the bills paid and that sort of thing, making sure that we have 
professional standards, and developing and maintaining 
curriculums that are proper. But they do not address the law 
enforcement policy.
    Senator Campbell. All right. Well, you are the Director. 
How many assistant directors are there in the ATF?
    Mr. Buckles. I think there are seven.
    Senator Campbell. Seven? And how many of those have law 
enforcement background?
    Mr. Buckles. Well, we can go back through it. I think I 
just saw a letter, that maybe you have received where it 
suggested that two-thirds of them do not have law enforcement 
background. If we go through it, our head of Field Operations 
that is in charge of all law enforcement activities is a 
special agent. The head of our Firearms, Explosives and Arson 
Division is a special agent. The head of our Inspection 
Division is a former special agent with the Secret Service, so 
that we have got three. The head of our Training Office is non-
law enforcement. Our Chief Information Officer (CIO) over our 
laboratory and technology is a non-agent. And our Chief 
Financial Officer (CFO), is a non-agent.
    Senator Campbell. Do the assistant directors also make 
policy decisions?
    Mr. Buckles. Yes. We operate in an environment where we 
have something called a Strategic Leadership Team that all of 
the assistant directors are involved in making policy decisions 
and strategic settings, and strategic direction for the Bureau.
    Senator Campbell. Thanks. That is good.

         Funding for Management and Technological Improvements

    Director Buckles, as a result of some complaints of 
legitimate firearms importers, you remember last year $2 
million was provided for management and technological 
enhancements to assist law-abiding firearms dealers and 
collectors as they work through the regulatory process with the 
ATF. The ATF has developed a plan to use that money for 
information technology to streamline the process. I am told 
that you are also planning to implement management process 
changes that should have a more positive impact. Could you 
outline what steps you are taking to make the firearms 
regulatory process more customer friendly?
    Mr. Buckles. The principal areas of concern, I believe, 
with the funding from last year dealt with our Importation 
Branch and what is called our National Firearms Act Branch, 
which handles certain special types of weapons that are 
registered. What we have done in each of those areas is spent 
money on advancing computer technology. Frankly, when you are 
processing, for example, in the National Firearms Act Branch 
some 300,000-and-some-odd requests for transfers or making of 
these weapons, if you do not have----
    Senator Campbell. In what time frame do you get the 
300,000?
    Mr. Buckles. That is in a year.
    Senator Campbell. In 1 year?
    Mr. Buckles. In 1 year, and we do approximately 14,000 
importation permits. So, attempting to manage that level of 
activity without proper computer technology has been one of the 
problems that we have had in this area. We have also been able 
to add additional staff to those offices so that we have 
computer data input specialists, so that the examiners we have 
who are the specialists in the subject matter are able to focus 
their attention on getting the job done and dealing with the 
customers, and are not using all their time putting the 
information into the system.
    Senator Campbell. Thank you.

                    Automated Commercial Environment

    Commissioner Winwood, on April 25, Congress approved the 
release of funds for the Automated Commercial Environment, 
called the ACE project. You mentioned that a little bit, I 
think, in your testimony. On April 27, the Customs Service 
announced that a partnership led by IBM was their choice as the 
prime contractor for the ACE contract. I know that you have 
been instrumental in this ACE process, this project, and I want 
to commend you for that because I think it is very good. But 
you have been involved with it for many years. What is the next 
step? Now that the prime contractor is on board, where does it 
go from here?
    Mr. Winwood. Mr. Chairman, it was a great day when we were 
able to announce the hiring of the prime contractor to get the 
process started, to actually start building the future for the 
Customs Service in international trade. We are negotiating 
right now with that prime contractor to lay out the 
requirements and the deliverables in the first phase of the 
development of the ACE program. They probably will be starting 
their work in approximately 2 to 3 weeks. The prime contractor 
will take our initial plan and review it from top to bottom to 
make sure that all the steps we have taken, how we have laid 
out the initiative and where we need to go, and we are able to 
do it. They will start forming their office, getting in the 
proper experts from the subcontractors. They have to form the 
first group.
    Senator Campbell. They pick their own subcontractors, or do 
they do that in conjunction with your direction, or how is that 
done?
    Mr. Winwood. They pick their own subcontractors, Mr. 
Chairman, and they brought them on board as a part of the bid. 
The company has approximately 5 major partners plus probably 
close to 40 subcontractors from different parts of the country 
and with different expertise that they will bring on board as 
necessary as we go through the different development stages. So 
we are ready to start the process. They are laying out what 
steps they need to take. They are reviewing the entire project 
in the next 2 to 3 weeks and then they will start setting up 
their development office.
    Senator Campbell. And it will be in operation by when?
    Mr. Winwood. Well, if we have continuing funding, our hope 
was to have the project completed in four to maybe a maximum of 
5 years. Right now, we have to readjust the schedule based on 
the funding. It is looking right now, that it will take 
approximately 7 years.
    Senator Campbell. Seven years from now?
    Mr. Winwood. Yes, sir.

                                Ecstasy

    Senator Campbell. Let me ask--in fact, I do not even know 
actually who to direct this to, but I have been increasingly 
aware and interested in a drug that youngsters seem to be 
taking as a matter of choice these days. You know, we go 
through a cycle. It was marijuana, then it was something else, 
and then it was cocaine, then it was crack and something else, 
and now there seems to be a club drug called Ecstasy. Would any 
of you know something about that and can tell me and the 
committee something about that?
    Mr. Winwood. Yes, sir.
    Senator Campbell. Go ahead.
    Mr. Winwood. There has been an explosion of the importation 
of this so-called club drug since 1997. It was very popular in 
Europe prior to that, and I think they decided that there was a 
mass market here, that they could exploit the children in the 
United States. In 1997, the Customs Service seized 
approximately 400,000 tablets of Ecstasy.
    Senator Campbell. So it is taken in tablet form?
    Mr. Winwood. Tablet form, yes, sir.
    Senator Campbell. Not smoked or----
    Mr. Winwood. No, sir. It is taken in tablet form, about the 
size of a small aspirin. In the year 2000, we seized over 9.3 
million units, which is a tremendous increase. It is very 
worrisome, because, first of all, people have associated--they 
call it the ``love drug'' or the ``friendly drug'' and it is 
not. It is very harmful to people. It is harmful to children.
    Senator Campbell. What is it a derivative from? What does 
it come from, a plant?
    Mr. Winwood. No, sir. They make it into tablet form. At one 
time, when it first started, it was used as an appetite 
suppressant. One of the base elements was used as an appetite 
suppressant back in the, probably the early 1950s and the 
1960s. You add a few more ingredients to it and it gives you 
this so-called euphoric feeling, lets people's guard down, 
makes them relax. So it is very dangerous because it increases 
the heart beat, it dehydrates people, it overheats them, and it 
is very dangerous to young people.
    Senator Campbell. Does it have the explosive or 
inflammatory effect that, say, methamphetamines does when this 
stuff is being made, or contaminative effect?
    Mr. Winwood. I do not believe so. I am not the expert on 
the chemical analysis, but it has the same basic elements as 
some methamphetamines. It is not as dangerous as 
methamphetamines, but it is certainly not just something that 
you would want to have lying around for people to use.
    Senator Campbell. I see. Senator DeWine, would you like to 
ask some questions, and I will maybe get back to a few.
    Senator DeWine. Thank you, Mr. Chairman.

                   Continued Dumping and Subsidy Act

    Commissioner Winwood, let me discuss a specific matter of 
importance to my home State and to the entire country, and that 
is the implementation of the Continued Dumping and Subsidy Act. 
As you know, I wrote this bill, and thanks to the help of a 
friend, Senator Byrd, the measure is now law.
    I understand that Customs has been working on 
implementation regulations for almost 7 months now. I just 
wondered when we could expect to see these regulations actually 
issued.
    Mr. Winwood. Well, we hope to get them out soon, Senator. 
There were a couple of issues that we are faced with. It was a 
challenge to devise the proper regulations to make sure that we 
met all the requirements of the law to protect not only the 
revenue, but also the claimants. There are some administrative 
matters that we had to address, and some accounting issues that 
we had to address. We also had to make sure that from the 
standpoint of the payouts for those who are part of the claim 
or could have been harmed by the claim, that we had the 
opportunity to make sure that the proper amount of money was 
redressed to those individuals.
    The regulations are presently in draft form and they are 
going through final review in Customs right now. We hope to get 
them out in the very near future for Treasury review so that we 
can get them published as a proposed rule. Then they can be 
commented on by the public at large.
    Senator DeWine. How long do you think?
    Mr. Winwood. I hope to have them over at Treasury this 
month, the month of May.
    Senator DeWine. Well, it is important that it gets done. I 
understand you are doing things you have not done before, and 
whenever you are faced with the job of doing something you have 
not done before, it takes a little time, but we will anxiously 
await these regulations.

                                 NIBIN

    Director Buckles, for the last several years, I have been 
involved in efforts to combine the FBI's Drug Fire System and 
ATF's Cease Fire System. This has been something that we all 
know about and we have watched for some time, and I commend 
everyone for moving forward on this, this new system, this 
National Integrated Ballistic Information System, this NIBIN 
system.
    In addition, I have supported appropriations for NIBIN. In 
fact, my Crime Identification and Technology Act of 1998 was 
the first Justice grant program to help State and local law 
enforcement obtain NIBIN. Currently, though, I understand that 
there are 75 NIBIN units deployed and another 150 units 
scheduled for deployment by the end of next year.
    Earlier this year, both the ATF and FBI expressed concern 
that fiscal year 2001 NIBIN implementation might slip into the 
next fiscal year because of problems obtaining communication 
lines. Do you see any impediments to fully implementing phase 
one of NIBIN this fiscal year, such as may be caused by the 
blackouts in California, and if so, if you do see a problem, 
what alternative plan has the Bureau made to assure that we 
meet the NIBIN distribution time table?
    Mr. Buckles. Senator, I think that we have solved the 
problem with the communications. It was an issue at first. In 
fact, in California, we are trying an alternative form of 
networking the machines together so that we will actually have 
a comparison between using the Criminal Justice Information 
System (CJIS) which was what we anticipated to use as a 
network, with one alternative so we can compare the performance 
and costs of those two systems. But we have been working 
carefully with the FBI and have been able to turn around some 
of the issues. It was their vendor who was not able to bring 
the lines up in time, and I think we have those issues solved.
    So we believe that we are going to be able to stay on track 
here. There are some----
    Senator DeWine. On schedule?
    Mr. Buckles. Yes, at least because of the communications 
issues. There may be some other matters that would come up in 
terms of how we roll things out and what type of equipment is 
used, but we intend to try to stay on budget here, or on track 
here.
    Now, in next year's budget, part of the absorption that we 
have been asked to take in non-discretionary costs, we have 
identified some portion that would come out of the NIBIN 
program, as well. What we are trying to do in those situations 
is rather than----
    Senator DeWine. How much out of NIBIN?
    Mr. Buckles. I believe $2 million out of about $24 million.
    Senator DeWine. And what impact is that going to have?
    Mr. Buckles. Well, what we are trying to do is manage 
around that impact. We are finding some ways in which we can 
lower the cost of this program. As with a lot of computer 
technology, sometimes costs go down as they find new kinds of 
equipment, and we have found we can use these, rather than the 
very expensive hubs. In many cases, when we go lay out the 
equipment, we are able to get by with, and meet everybody's 
needs, by using less expensive hubs and then networking and 
pulling people together. So, we are looking for ways like that 
to make sure we can stay on schedule.
    Senator DeWine. But you do not see any geographical problem 
anyplace? In other words, uniformity and you are going to stay 
on schedule?
    Mr. Buckles. We have got a schedule that goes through next 
year that we are marching to right now, and unless something 
happens in the future, we have everything in plans and all of 
the schedules, now that we have the communications problems out 
of the way, we would be able to be carried out. Regarding the 
impact of $2 million absorption next year, we think that we can 
probably manage around that.
    Senator DeWine. I appreciate knowing this. As you know, 
this is a program that I am a big-time supporter of, because I 
think one of the things that the Federal Government can do for 
law enforcement and the most effective use of the money is in 
good technology and good integration nationwide. This system 
solves crimes every single day, and there are not a lot of 
headlines about it, but people in law enforcement, I think, 
appreciate it and understand it and know that it solves crimes 
and saves lives.

                Western Hemisphere Drug Elimination Act

    Mr. Chairman, I have one additional question, if I could, 
for Mr. Winwood. As you know, I have been a supporter of the 
Customs air interdiction mission. In fact, a couple of years 
ago, I was one of the lead sponsors in the Senate of the 
Western Hemisphere Drug Elimination Act, which included 
authorization for the procurement of P-3 slicks and other 
aircraft for detection and monitoring.
    I wonder if you could tell us, what is the status of the 
six aircraft appropriated under that bill and how will these 
assets contribute to your detection and monitoring mission in 
the arrival and the transit and the source zones, and an 
additional question. Are additional P-3 aircraft needed to meet 
your increasing detection and monitoring mission?
    Mr. Winwood. First of all, thank you, Senator, for the 
tremendous support, because it has been very well received, 
very much appreciated.
    As far as the money that was appropriated, I would say, 
using an average, about 98 percent of the money has been 
obligated that was authorized and appropriated. Of that money, 
six additional aircraft are being brought online in the Customs 
Service, two additional AEWs, which is the domed aircraft, and 
four of what we call the slick, without the dome.
    Starting this summer, we will receive an aircraft 
approximately every 4 to 6 weeks through January of 2002. So 
the money has been obligated. The aircraft have been ordered 
and the delivery schedule is set up and it will start the 
delivery this summer.
    Senator DeWine. And then how long after delivery will they 
be put in use?
    Mr. Winwood. As soon as we can get the pilots up and 
running and checked out on the aircraft.
    Senator DeWine. How big of a challenge is that? Is that a 
problem for you?
    Mr. Winwood. Well, one of the issues with the pilots, 
Senator, is a tremendous amount of competition right now, as 
you probably know, for pilots. It is very difficult for the 
Federal Government to compete with some of the other sources 
who are competing for these types of personnel. However, we 
have a very aggressive hiring program going on right now and 
additional money was supplied through that appropriation and we 
have hired over 80 pilots so far, both P-3 and fixed-wing and 
other types. We are on a very aggressive hiring program right 
now to bring the rest on board. But we should have the 
equipment up and running within a very short time once it is 
delivered.
    Senator DeWine. Good. Thank you. Thank you, Mr. Chairman.

                    Mad Cow--Foot and Mouth Disease

    Senator Campbell. Thank you.
    To Mr. Winwood, let me just change gears just for a minute. 
As the Acting Commissioner of Customs, perhaps you noticed that 
2 months ago, I introduced, along with Senator Dorgan, S. 700, 
what is called the Mad Cow-Foot and Mouth Disease Bill. That 
bill passed by the Senate is now over on the House side. It was 
passed with a Harkin-Hatch amendment. But that bill primarily 
sets up a coordinated effort in case we have to face the 
devastating effects that is happening in Europe right now.
    Could you tell me, perhaps, some of the safeguards that the 
Customs Service is implementing now to help protect the 
livestock industry from what may appear here?
    Mr. Winwood. Mr. Chairman, working in conjunction with the 
Department of Agriculture and the Food and Drug Administration, 
which are the two primary agencies responsible for monitoring 
and responding to mad cow and also for the foot and mouth 
disease epidemic out of Europe, we have done a tremendous 
amount of coordination with those two agencies. They have 
supplied to us their list of critical elements, critical items, 
and the information associated with them that we can put into 
our automated lookout systems, presently in our ACS, or 
Automated Commercial System.
    We meet with them regularly to make sure that, one, the 
list is updated; two, that we are following through all the 
requirements; and three, that we are diligent in not only 
targeting items that could be addressed but that it is done 
thoroughly. Nothing gets released if it is on the critical list 
or on the lookout list until we have coordinated and contacted 
these two principal agencies to make sure it is a product that 
they are interested in, something they need to examine, and 
something they need to approve for release.
    Senator Campbell. Well, you lost me a little bit. Does that 
lookout, include feeds, byproducts----
    Mr. Winwood. Yes, sir.
    Senator Campbell [continuing]. All kinds of stuff, not just 
livestock?
    Mr. Winwood. Yes, sir.
    Senator Campbell. It is anything that might be a carrier of 
either one of those?
    Mr. Winwood. Yes, sir. The two agencies met with us and 
laid out every item that would be of potential concern, whether 
it be feed or any type of other product that is brought in, and 
we have put that by nomenclature into our automated lookout 
system. So, every time there is information arriving about an 
importation of such a product, an alert comes up, our officers 
put it on hold, they get the proper paperwork, and then they 
notify the appropriate agency for review and examination, as 
necessary.
    Senator Campbell. A lookout system, of course, requires 
that people are looking out, and I am kind of concerned about 
what might be slipping in because you do not inspect every case 
of every cargo on every ship that comes in, do you?
    Mr. Winwood. No, sir. No, we cannot. Container-wise, we 
have probably examined by container probably 10 percent of the 
shipping containers that come into the United States. But I do 
believe, Mr. Chairman, with the risk analysis approach we use, 
the risk management, and with the lookout systems, the 
automated profiling systems, with their automated targeting 
systems, the lookout for anomalies in shipping, with the random 
inspections and with the random generated inspections, where 
nobody knows when it is going to happen except the computer, I 
think these combination of factors gives us a pretty good 
handle on looking at the right items, and I think that is what 
we will continue to do.
    Senator Campbell. I see. Thank you. I appreciate it.
    I have several more questions that I would like to submit 
in writing to all four of you, if it is okay, if you could get 
those back to me. I already have a tight morning and Senator 
Dorgan has consented to chair the second half of this committee 
hearing, Senator Dorgan, if you could take over, I would 
appreciate it. And with that, thank you for being here.
    Senator Dorgan [presiding]. I have a couple of questions. I 
was over at the Energy Committee and I regret having to be 
absent for a bit of your testimony. Let me just ask a couple of 
questions of several members of the panel.
    First, Mr. Sloan, my understanding is the request by 
Customs and some of the other agencies in the Treasury 
Department was for increased levels of staffing. Something over 
1,000 FTEs were requested. None were granted. In the law 
enforcement functions over in Justice, we have a request for 
something over 1,000 new positions. Can you tell me, from your 
perspective, why granting the one and not the other was 
appropriate?
    Mr. Sloan. Sir, I cannot speak for the Justice side of the 
equation, but I can tell you that there is a constant concern 
about disparity between the law enforcement entities in both of 
the Departments. It is true that there are not additional 
positions for Treasury law enforcement other than the 
annualized positions that, I think, amount to 700 in the 2002 
budget.
    But I can say that in order to address the disparity, which 
is more than just a perceived disparity, I think one of the 
important things that the Treasury Department is engaged in as 
a result of the requirements of the Appropriations Committees 
is an examination of the law enforcement assets, resources, 
talents, and requirements of the Treasury law enforcement 
community across the board. This is a project that has been 
ongoing for some time. In fact, it is my understanding that the 
results of this examination have now been concluded, at least 
the first phase, and I think it is going to provide us with 
some ammunition that we definitely need to present to decision 
makers the case necessary for trying to close that disparity 
gap.
    Senator Dorgan. Let me ask about the use of the Counter-
Terrorism Fund in the Department of Treasury. That was 
established for unanticipated contingencies. Obviously, 
counter-terrorism work is very important. All of us understand 
this is an unsafe world with terrorists being trained in 
training camps around the world. They would love nothing better 
than to commit an act of terrorism in this country. I 
understand why we would need to be vigilant and concerned about 
an act of terrorism that would be directed at the Olympic 
Games.
    And yet the Counter-Terrorism Fund was really established 
for unanticipated contingencies, for unanticipated emergencies 
of sorts, and yet it is being tapped for the Olympics. I wonder 
if that is the correct approach. Would it not be a better 
approach for us to simply provide in the regular appropriations 
process for those needs that exist to deal with Olympic issues?
    Mr. Sloan. First, you are absolutely correct, and I am very 
pleased to hear the recognition of Treasury's role in counter-
terrorism and anti-terrorism activity. In fact, the Secretary 
addressed this exact issue, as you may know, on Tuesday in a 
hearing relative to counter-terrorism activity throughout 
government. I think his testimony also underscored Treasury's 
role in these activities.
    As far as the Counter-Terrorism Fund is concerned and the 
fact that there is discussion in the budget of the use of the 
Counter-Terrorism Fund for the Olympics, which are considered, 
as you may know, a national special security event, I think 
that it is safe to say that, and I am quoting, not quoting, but 
I am sort of paraphrasing the Secretary in this regard, as 
well, it is his opinion that such events, national special 
security events, the responsibility that Treasury has through 
the Secret Service now do need to have a funding mechanism in 
the future that avoids trying to find the money in a mechanism 
such as the Counter-Terrorism Fund. So you are absolutely 
correct in that regard.

                               G.R.E.A.T.

    Senator Dorgan. Mr. Buckles, you and I visited earlier this 
week about the Gang Resistance Education and Training (GREAT) 
program, which I think is a very important program, and an 
attempt to make sure that program is available on Indian 
reservations. Could you tell me, is your agency looking closely 
at that and working on trying to do the outreach with respect 
to Native Americans?
    Mr. Buckles. Yes, Senator, we have. We have had a very 
aggressive effort on the part of expanding GREAT into the 
Native American community. We have done it in a number of ways. 
First of all, one of our special agents in charge of our Dallas 
office who sits on the board of the Native American Law 
Enforcement Officers Association, so we have someone who can 
participate at that level and make sure everyone knows what is 
available.
    In addition, during this last year, we trained officers 
from 60 different law enforcement agencies, Native American law 
enforcement agencies, 136 officers, and that has addressed over 
18,000 students.
    Senator Dorgan. I appreciate that, and let me again say I 
think it is an important program and I want to work with you on 
it.

               Workforce Retention and Workload Balancing

    Mr. Stafford, over the years, you have indicated to me and 
to others that the number of people that need or are required 
to have Secret Service protection has grown rather 
substantially and the mission of the Secret Service has grown. 
Have you been able to keep pace with the number of agents and 
the FTEs that are needed for in your agency?
    Mr. Stafford. Senator, as you are aware, we have talked 
about this a number of times, and since becoming Director about 
2 years ago, that has been one of our highest priorities. We 
are trying to bring on more agents to help with the expanded 
workload, and particularly to reduce the amount of overtime 
that our agents are now being required to work and thus improve 
their quality of life.
    I think it is best for me to describe to you the amount of 
overtime they are working and continue to work. The agents in 
our field offices continue to work, on average, 90 hours of 
overtime per month. The agents on our Protective Division work 
more than that. It is far too much.
    For the past 2 years, we have had a very aggressive hiring 
scheme. We brought on about 70 percent of the numbers that we 
need to bring on to meet our goal. We went back to 1994, when 
our agents were working 62 hours of overtime per month, and we 
think that is reasonable. That is our goal. To do that, we will 
need a minimum of another 200 agents, which is the third phase 
of our hiring program.
    Senator Dorgan. And what was your request in the budget 
submission from the agency with respect to agents? Did you 
request additional FTEs?
    Mr. Stafford. Specifically that. It was a 3-year program of 
which we are through 2 of the 3 years. The request was for 
another 204 agents. We have hired about 478 so far. We need in 
excess of 200 additional, for about $32 million. That was the 
request. We are continuing to----
    Senator Dorgan. That is not in this budget submission?
    Mr. Stafford. It is not.
    Senator Dorgan. It seems to me that if you have the 
requirements--I do not think there is a disagreement about 
that--if you have the requirement, it makes much more sense for 
the taxpayer and the government to hire the personnel and pay 
less in overtime. Overtime pay is a fairly expensive component 
of your budget, is it not?
    Mr. Stafford. It is, but the problem is also compounded 
because of the amount we are requiring people to work, and our 
people, our culture is that we work very hard, but we are 
losing a lot of them.
    Senator Dorgan. I was not ignoring the quality of life 
issue. I understand that. When you are forcing people to work 
an enormous amount of overtime, it is difficult on family life 
and a range of other things. I was not dismissing that, but I 
was only saying that on the other side of the issue, with 
respect to the taxpayer and with respect to trying to get the 
most value for our investment here, it makes a lot more sense 
to pay less overtime, which is the highest component of 
compensation, and to hire the people we need.

               Workforce Retention and Workload Balancing

    Mr. Stafford. Well, you are exactly right, but what I was 
moving towards is that the people that we are losing. Our 
attrition rate used to be nothing. Now, we lose on average 55 
agents a year because of the quality of life issues. It costs 
us about $240,000 to hire those agents and to train them, so it 
is not a very efficient or fiscally responsible way of doing 
business. So no, I think we can improve on that and we can 
improve on the attrition rates if we can continue this hiring 
that we need to do.
    Senator Dorgan. Right. No, I respect the investment needed 
to hire and train and bring someone up to a level that you want 
them to. I mean, that is a significant investment, and to lose 
them because overtime requirements just destroy the quality of 
life makes no sense at all. It makes a lot more sense for us to 
increase the FTEs to the level that is necessary.

                            Risk Management

    Mr. Winwood, finally, on the issue of the 10 percent that 
you just described, I have told this story before, but I was in 
Seattle at the docks one day and your agency was good enough to 
give me a tour, and because I come from North Dakota, we do not 
have a lot of docks, as you know.
    I mean, we have never actually seen a container ship pull 
up in North Dakota and begin off-loading, so it was a real 
education for me. But what I discovered is that we look at just 
a minuscule percentage of what is coming into this country.
    They showed me a container that came off a container ship. 
They had opened the back door and they had some, I believe, 
100-pound bags of frozen broccoli, and they cut one open for me 
to show me that this indeed was frozen broccoli. It was in a 
refrigerated container. And so I said, well, where does this 
come from? They said, Poland. I said, well, how was this 
produced? Do you have any notion of what chemicals might have 
been used, or do we have any notion about whether this broccoli 
is safe to put in somebody's mouth? It was the kind of broccoli 
that was cut up and going to go to a restaurant someplace or a 
series of restaurants.
    But the fact is, we do not have many answers about any of 
those things, do we? We have a massive amount of product coming 
into this country. We look at a very small percentage of that 
product and probably know very little about that which we look 
at.
    Mr. Winwood. The first statement, Senator, about that we do 
not look at everything, that is correct. And as I mentioned 
earlier, we examine approximately 10 percent, on average, of 
all shipping containers, and that is including vessels, and 
truck. In my view, a 40-foot container, whether it has a truck 
in front of it or it is being hoisted off a ship, is an 
importation. We look at about 10 percent.
    I think there is a combination of factors that have to be 
taken into consideration when we do that. First of all, we do 
know a lot about most of those products based on working with 
other agencies. For instance, with food, the Department of 
Agriculture and sometimes the Food and Drug Administration have 
a pretty good network of international cooperation as to the 
types of product, et cetera, that keep us informed. They share 
the information with us, which we put in an automated system 
for targeting. If we have any question at all, we notify the 
agency to come in and to take a look at it.
    The other issue, I think, is that we try very hard, and I 
think we have a very good, sound basis of a program we call 
risk management. It would be impossible to look at everything. 
We would shut down the commerce of the United States. We would 
get in the way of the businesses of this country.
    But by using risk analysis and risk management and tying 
that, Senator, with the support we get from the Congress with 
the right technology, with the proper automation, with well-
trained people, I submit that you do not have to look at 
everything, you just have to look diligently at the right 
things. It is how you sort, the knowledge that you have, and 
how you use that knowledge, and share it through the 
infrastructure, throughout your agency. You target based on the 
knowns or the anomalies and the unknowns. And pulling those 
three things together, I think, gives us a pretty good 
likelihood of discovering problems that are being shipped in.
    Senator Dorgan. That is what they told me in Seattle. You 
have got that Customs line down pretty well.
    Mr. Winwood. Consistent message, Senator.
    Senator Dorgan. That is right. And I appreciate that and 
understand it and think that it makes a lot of sense. In fact, 
they described to me the risk management approach. I mean, you 
are dealing with certain importers and other things. I 
understand that. My only point is that with increasing 
globalization, this galloping globalization, we just have 
massive quantities of goods moving back and forth----
    Mr. Winwood. Yes, sir.
    Senator Dorgan [continuing]. Some food, some hardware and 
other things, and it requires us to be very vigilant, to have 
the manpower and the technical capability to do what we need to 
do to safeguard the American people, to make sure that what is 
coming in is what ought to be allowed in, and so on.
    Listen, you all are good to come today. We appreciate the 
work your agencies do. We will look carefully at the 
appropriations requests that we have received from the 
administration for your agencies and we will be submitting 
additional questions to you. Thank you very much.
                Federal Law Enforcement Training Center

STATEMENT OF W. RALPH BASHAM, DIRECTOR
    Senator Dorgan. Next, I would like to call to the table the 
Director of the Federal Law Enforcement Training Center, Mr. W. 
Ralph Basham; the Deputy Director of the Financial Crimes 
Enforcement Network, FinCEN, William F. Baity; and the Director 
of the Office of Foreign Assets Control, R. Richard Newcomb. 
Please take your seats at the table, and if others would be 
willing to leave the room if you are not intending to stay.
    We would like to proceed, if we might. If you would clear 
the room if you do not intend to stay.
    We have the Director of FLETC, Mr. W. Ralph Basham, the 
Deputy Director of Financial Crimes Enforcement, William Baity; 
and the Director of the Office of Foreign Assets Control, Mr. 
Newcomb. We would also ask that you summarize your remarks in 5 
minutes and we will make your full statement a part of the 
permanent record.
    Why do we not proceed with Mr. Basham.
    Mr. Basham. Thank you, Senator. I am pleased to be here 
today to present our fiscal year 2002 budget request. As you 
know, the Department of the Treasury has been the lead agency 
for the United States Government in providing the 
administrative oversight and day-to-day direction for the FLETC 
since its creation. Under the leadership of the Secretary of 
the Treasury and the Under Secretary for Enforcement, we have 
received strong support and active assistance for carrying out 
our responsibilities. I would like to especially thank this 
committee. Throughout our 31 years of service to Federal law 
enforcement, this committee has been very supportive and most 
generous in the funding of consolidated training.
    The consolidation concept of law enforcement training at 
the Center continues to be the most efficient and economical 
means for delivering essential service to the law enforcement 
community and the nation. Because of the cooperation of its 
many partners, we believe the FLETC is achieving fully the 
vision of its founders in this remarkable undertaking.
    The Center provides two essential levels of training for 
Federal law enforcement organizations from all three branches 
of government. There are entry-level programs and basic law 
enforcement training for police officers and criminal 
investigators, along with advanced training programs in areas 
such as marine law enforcement, anti-terrorism, computer 
forensics, health care fraud, and international banking and 
money laundering.
    Training is conducted at our Glynco, Georgia, site, as well 
as in Artesia, New Mexico, and a temporary site in Charleston, 
South Carolina. In addition to the training conducted at our 
on-site resident facilities, some advanced training, 
particularly that for State, local, and international, is done 
through export regional sites. In all, we offer approximately 
200 separate training programs at the Center.
    Last year, Congress provided $30 million and designated 
FLETC as the lead for the development of a requalification 
training site in the metropolitan Washington, DC, area. We are 
very grateful to this committee and to others in Congress who 
acted to make this appropriation available to provide mandated 
short-term requalification training in firearms and driver 
training. The Washington area has one of the highest 
concentrations of law enforcement officers and agents in the 
United States. However, there is a serious shortfall in 
adequate, environmentally safe facilities to conduct this 
important training.
    FLETC has reviewed a number of surplus properties in this 
region and determined the former Navy base in Cheltenham, 
Maryland, is the most suitable location. FLETC has requested 
that this property be transferred from GSA's to FLETC's 
inventory, and I am happy to report that we are now moving 
forward to develop this much-needed facility.
    The Center's fiscal year 2002 request is for a total of 
$122.6 million. With this funding, we anticipate the training 
objectives of our partner agencies, as projected, can be 
completely accomplished.
    Our request contains two very important initiatives. One is 
a port-of-entry training facility in Glynco, which will service 
our Customs and Immigration Officers' training needs, as well 
as an accreditation process which will benefit all of Federal 
law enforcement. The requested funding for the accreditation 
project is for the development of government-wide training 
standards and an accreditation process to be used for 
certification of Federal law enforcement training programs in 
instructional delivery and academy operations. The FLETC is 
working cooperatively with other Federal law enforcement 
agencies to conduct research and establish a training 
accreditation model, organizational structure, and process.
    In previous years' appropriations testimony, Congress 
requested, and we submitted, a 5-year construction plan to 
increase facility capabilities at our permanent centers in 
Glynco, Georgia, and Artesia, New Mexico. Upon completion of 
this plan, sufficient capacity was projected to meet the fiscal 
year 2004 date set by Congress for the cessation of that part 
of the U.S. Border Patrol training being conducted at a 
temporary site in Charleston, South Carolina.
    However, to stay within the administration's efforts to 
hold down government-wide spending in 2002, the full amount of 
funding for capital expenditures identified in the original 
plan for fiscal year 2002 is not being requested. The 
construction plan will now have to be extended through 2005 or 
beyond because of the funding and time line changes. However, 
we will make every effort to minimize any adverse impact this 
construction delay may cause.

                           Prepared Statement

    In closing, Mr. Chairman, I would just again like to thank 
this committee for all of your interest and long-time support 
for Federal law enforcement training and the Federal Law 
Enforcement Training Center's mission. Thank you very much.
    Senator Dorgan. Thank you very much.
    [The statement follows:]

                 Prepared Statement of W. Ralph Basham

    Mr. Chairman, Senator Dorgan, and Members of the Subcommittee, I am 
pleased to be here today to report on the current operations and 
performance of the Federal Law Enforcement Training Center (FLETC) and 
to support our appropriations request for fiscal year 2002.

                            OPENING REMARKS
    The Center has experienced tremendous growth since its 
establishment in 1970, when a handful of agencies partnered together 
and established the Consolidated Federal Law Enforcement Training 
Center. We expect further growth as more agencies recognize the many 
benefits of consolidated training both from a cost standpoint and the 
level of quality of training provided.
    The Department of the Treasury has been the lead agency for the 
United States Government in providing the administrative oversight and 
day-to-day direction for the FLETC since its creation. Under the 
leadership of Secretary of the Treasury and the Under Secretary for 
Enforcement, the FLETC has received strong support and active 
assistance for carrying out its responsibilities. I want to especially 
thank this Committee for the trust it has continued to place in the 
FLETC. Throughout our 31 years of service to Federal law enforcement, 
this Committee has been especially supportive and most generous in its 
funding of consolidated training. We extend our appreciation and look 
forward to working with you in the coming years.
    The Administration and Congress can be proud of the quality of 
training being provided at the FLETC and the savings realized through 
consolidation. The consolidated concept for law enforcement training at 
the FLETC continues to be the most efficient and economical means for 
delivering this essential service to the law enforcement community and 
the nation. Because of the excellent cooperation of its many partners, 
we believe the FLETC is achieving fully the vision of its founders in 
this remarkable undertaking.

                        FISCAL YEAR 2002 REQUEST
    Today, I am prepared to discuss several initiatives in the 
President's fiscal year 2002 budget. The Center's fiscal year 2002 
request is for a Salaries & Expenses (S&E) appropriation of 
$100,707,000 and 654 FTE, an increase of $1,224,000 and 5 FTE above the 
fiscal year 2001 level. Our request for the Acquisition, Construction, 
Improvements & Related Expense (ACI&RE) appropriation is for 
$21,895,000, a decrease of $32,310,000 below the fiscal year 2001 
appropriation. Most of this decrease relates to one-time construction 
appropriations, which do not recur in fiscal year 2002. FLETC supports 
the President's fiscal year 2002 request and we anticipate that the 
training objectives of our partner agencies, as projected, can be 
completely accomplished. The funding and FTE requested in this budget 
proposal will support two important initiatives: $2,000,000 will be 
used to construct a ``Port of Entry'' training facility at Glynco and 
$650,000 and 3 FTE to establish a training accreditation process to 
benefit all Federal law enforcement.
    Together, the S&E and ACI&RE request totals of $122,602,000 for 
fiscal year 2002. Coupled with an estimated $37,000,000 in funds to be 
reimbursed to the FLETC for training related services by our partner 
agencies, the total budget for fiscal year 2002 is $159,602,000.

             GOVERNMENT PERFORMANCE AND RESULTS ACT (GPRA)
    Before providing this Committee with an overview of our operations 
and discussing each of the initiatives in more detail, I would like to 
take a moment to address the progress being made in complying with the 
requirements of the Government Performance and Results Act (GPRA). As 
you know, the GPRA requires agencies to publish annual performance 
plans that are tied to their strategic plans. Performance plans are to 
include measurable goals which agencies are required to report after 
the year is completed. These performance plans are now an integral part 
of the budget documents sent to you each year.
    There are a total of seven performance measures to report on in our 
budget request for this year. The performance measures used for the Law 
Enforcement Training activity in fiscal year 2000 included: (1) results 
of the student quality of training survey, (2) actual percentage of 
basic training requested that was delivered, (3) variable unit cost per 
basic student-week of training funded, (4) number of personnel input 
forums conducted, and (5) number of training partnership organization 
meetings. The performance measures for the Plant Operations activity 
included: (1) student quality of services survey and (2) finalizing the 
comprehensive development plan.
    The student quality of services survey and student quality of 
training survey performance measures are outcome measures. The student 
quality of training survey and the student quality of services survey 
are based on a percentage of students who answer satisfactory or better 
to the questions presented in the survey. Both were computed using 
evaluations completed by students attending FLETC programs. The 
percentage of basic training actually conducted is based on whether the 
FLETC conducts 100 percent of the basic training requested by its 
partner agencies. The variable unit cost per basic student-week of 
training funded is also an efficiency measure and is based on training 
dollars divided by funded student-weeks of training. Finally, the plan 
called for the FLETC to conduct four personnel input forums and 10 
partnership organization meetings per year.
    I am pleased to report that the Center's overall performance 
against established target goals for fiscal year 2000 was very good. 
The most critical performance measure in our plan, the student quality 
of training survey measure, was 99.2 percent. This exceeded the 
Center's performance plan target goal of 80 percent. The Center 
conducted 100 percent of the actual basic training requested. The 
FLETC's training costs were below the cost figure established for the 
variable unit cost per basic student-week of training. The plan 
projected a per week cost of $149 and the actual cost was $146. All 
other measures in the Law Enforcement Training activity were either met 
or exceeded. In the Plant Operations activity, all performance measures 
were either met or exceeded.
    As stated in the FLETC's testimony last fiscal year, we have 
revised our strategic plan and performance measures in an effort to 
more accurately reflect performance indicators and to better align them 
with the organization's mission. The revision is now complete and the 
plan has been provided to this Committee and to our other stakeholders.

                     FISCAL YEAR 2001 ACHIEVEMENTS
    Finally, before I discuss operational areas, I would like also to 
report on some of the Center's other specific achievements.
    In fiscal year 2001, the Center had a complete audit of its 
financial records and systems for the first time in its history and 
received an ``unqualified opinion'' for its operations. Also, FLETC has 
completely revised one of its flagship basic programs, The Criminal 
Investigator Training Program. This was the first significant major 
revision to this program, which has over 45 agency customers, in over 
two decades. The revised program involves more student centered 
learning and is oriented toward practical exercises and problem 
solving.
    At the request of the Department of the Treasury, FLETC has assumed 
the lead for the establishment of a United States International Law 
Enforcement Academy (ILEA) operation in Gaborone, Botswana, the first 
of its kind on the African continent. The academy under the joint 
direction of the Departments of State, Justice and Treasury, will 
provide training to law enforcement officers from nations throughout 
that region. Finally, I want to mention that the FLETC also has been 
proactive in the use of non-toxic ammunition for its firing ranges. 
Over 13.2 million rounds of ammunition are now fired annually on 
FLETC's ranges. Significant progress has been made and FLETC is 
encouraged by this development, which could result in eliminating or 
reducing lead hazards and other environmental concerns.

                         OVERVIEW OF OPERATIONS
    Now Mr. Chairman, I would like to provide the Committee with a 
brief overview of the operations of the Federal Law Enforcement 
Training Center.
    The FLETC has experienced tremendous growth over the years. With 
few exceptions, the FLETC conducts basic and advanced training for the 
vast majority of the Federal government's law enforcement personnel. We 
also provide training for state, local and international law 
enforcement personnel in specialized areas and support the training 
provided by our partner agencies that is specific to their individual 
mission needs. In all, there are now more than 200 separate training 
programs offered through the FLETC and its partners.
    There are entry level programs in basic law enforcement for police 
officers and criminal investigators along with advanced training 
programs in areas such as marine law enforcement, anti-terrorism, 
computer forensics and health care fraud, and international banking and 
money laundering. Training is conducted at the Glynco, Georgia center, 
the Artesia, New Mexico center, and at a temporary training site in 
Charleston, South Carolina.
    The temporary training site in Charleston was established in fiscal 
year 1996 to accommodate an unprecedented increase in the demand for 
basic training by our partner agencies, particularly, the Immigration 
and Naturalization Service (INS) and U.S. Border Patrol (USBP). The 
training workload increase is the direct result of prior Administration 
and Congressional initiatives to control illegal immigration along the 
United States borders.
     In addition to the training conducted on-site at one of the 
FLETC's residential facilities, some advanced training, particularly 
that for state, local and international law enforcement, is exported to 
regional sites to make it more convenient and/or affordable for our 
customers. At a time when the FLETC residential sites have been 
stretched to capacity limits to meet increased Federal training 
requirements, the use of export sites for other types of training has 
proved highly successful. In utilizing export sites, most of which are 
local police academies, the FLETC does not incur any capital 
expenditure obligations.

                   WASHINGTON, DC AREA SITE PROGRESS
    Public Law 106-346 enacted by Congress in fiscal year 2001 provides 
$30,000,000 for the development of a firearms and driver training 
requalification site in the metropolitan Washington, DC area. This 
project came about as a result of a serious shortfall in adequate 
firearms and driver skills training capabilities in this region, which 
has one of the highest concentrations of Federal law enforcement 
officers in the United States. These officers have mandated short-term 
requalification training on a periodic basis to refresh perishable 
skill areas that left unaddressed can lead to liability issues. The 
initial working group established by the Under Secretary for 
Enforcement to review available options included the Treasury 
Enforcement bureaus--Internal Revenue Service, Criminal Investigation 
Division; U.S. Secret Service; U.S. Customs Service; Alcohol, Tobacco 
and Firearms; Financial Crimes Enforcement Network, and FLETC. This 
later was expanded to include the U.S. Capitol Police; U.S. Park Police 
and the Washington, DC Metropolitan Police Department. FLETC was 
designated as the lead for this endeavor and, after consideration of 
several surplused Federal properties, determined that a former Naval 
communications site in Cheltenham, Maryland was the most suitable 
location. FLETC has requested that this property be transferred by GSA 
to the FLETC's inventory, but a protracted legal suit filed prior to 
the requested transfer is still under review by a U.S. District Court. 
Due to this pending legal action, FLETC has not pursued any 
construction or developmental activity. However, FLETC has taken a 
number of measures to expedite the site conversion to a requalification 
training site should the legal suit be resolved favorably for the 
government. We are deeply indebted to this Committee and to others in 
the Congress who acted to make this appropriation available and we will 
keep the Congress apprised of developments. Over the years, the FLETC 
has acquired a reputation as an organization with a ``can do'' attitude 
that provides high quality, cost efficient training and state-of-the-
art programs and facilities. I have come to realize and have seen 
first-hand the many advantages of consolidated training for Federal law 
enforcement personnel, not the least of which is an enormous cost 
savings to the government. Consolidated training avoids the duplication 
of overhead costs that would be incurred by the simultaneous operation 
of multiple agency training sites. Consolidation also ensures 
consistent high quality training and fosters interagency cooperation 
and camaraderie in Federal law enforcement.
    Quality, standardized, cost-effective training in state-of-the-art 
facilities, interagency cooperation, and networking are indisputable 
positive results of consolidation. However, the concept of consolidated 
training is fragile and must be constantly nourished, supported and 
protected, if it is to remain viable.

                                WORKLOAD
    During fiscal year 2000, the Center graduated 23,326 students, 
representing 97,336 student-weeks of training. This total included 
16,635 students who were trained at Glynco, GA; 2,553 students trained 
at Artesia, NM; 639 students trained at the temporary training site in 
Charleston, SC; and 3,499 students trained in export programs. There 
were 8,635 basic students; 10,985 advanced students; 3,383 state and 
local students, and 323 international students trained providing for an 
average resident student population (ARSP) of 1,872. The April 2000 
partner agency workload projections, upon which our fiscal year 2002 
budget requests are based, indicate that during fiscal year 2002, the 
Center will train 32,973 students representing 145,463 student-weeks of 
training. This total includes 22,448 students to be trained at Glynco; 
5,412 students at Artesia; 1,350 students at the temporary site in 
Charleston; and 3,763 students in export programs. A total of 12,536 
basic students; 13,897 advanced students; 6,303 state and local 
students; and 237 international students are projected for a total ARSP 
of 2,797.

                             GROWTH TRENDS
    The Center has experienced sustained growth in the training 
demanded by its partner agencies and we have been able to accommodate 
many of these increased training requirements by being innovative and 
undertaking extraordinary measures.
    To accommodate substantial training increases during fiscal year 
1985 and again in fiscal year 1989, the Center had to temporarily 
expand its capacity for housing, dining, classroom, office space, 
storage, and special training facilities by using temporary buildings 
and contracted or licensed short-term facilities for peak periods. 
Further too, the Center has not always had sufficient dormitories to 
accommodate all of our students in on-Center housing and has used 
contractual arrangements with local motels. While necessary, many of 
the temporary measures taken to meet these training demands were costly 
and disruptive to the on-going training operations and efficiencies.

           TEMPORARY SITE FOR THE U.S. BORDER PATROL TRAINING
    Beginning in 1996, the Center again had to resort to using a 
temporary accommodation to meet the extraordinary training needs of one 
of our partner agencies, the U.S. Border Patrol. As I mentioned 
earlier, a temporary training site was established in Charleston, South 
Carolina during 1996 because our existing FLETC facilities did not have 
sufficient, sustained capacity to accommodate all of the training being 
requested. This site is a FLETC-U.S. Border Patrol collaborative 
effort, but facility operations are being funded through the U.S. 
Border Patrol's appropriations.
    In previous fiscal year appropriations testimony, the FLETC 
submitted a five-year construction plan to increase capabilities at our 
permanent centers in Glynco, GA and Artesia, NM. Upon completion of 
this plan, sufficient capacity was projected to meet the fiscal year 
2004 date set by Congress for the cessation of U.S. Border Patrol 
training at the Charleston site. In order to stay within the 
Administration's efforts to hold down government-wide spending in 
fiscal year 2002, the full amount of funding for capital expenditures, 
as identified in the original plan for fiscal year 2002, is not being 
requested. The FLETC construction plan now will have to be extended to 
fiscal year 2005 because of funding and time-line changes. We support 
the Administration's goals and FLETC will make every effort to minimize 
any adverse impact this construction delay may cause. The FLETC is 
actively pursuing discussions with appropriate Department of Justice 
and INS officials on feasible options to bring about the relocation of 
U.S. Border Patrol training as quickly as possible. We will continue to 
keep this Committee apprised of developments.

           FACILITIES MASTER PLAN/FIVE YEAR CONSTRUCTION PLAN
    Now, Mr. Chairman, I would like to brief you and the Committee on 
the sufficient progress that has been made in expanding the FLETC's 
facilities. The Master Plan, first presented to Congress in June 1989, 
was intended to provide for efficient and orderly development of the 
Center's land and facility resources to meet anticipated workload needs 
through fiscal year 1998. It was a comprehensive blueprint and orderly 
guide for expansion of the Center's capacities to meet all of 
requirements justified to accomplish multi-agency law enforcement 
training.
    Over the years, the original Master Plan was updated to refine 
earlier estimates and incorporate changes necessary to meet the 
evolving training needs of our customers.
    In fiscal year 1999, due to the U.S. Border Patrol and INS 
projected multi-year hiring and advanced training buildup, the FLETC 
Master Plan was changed to a five-year plan to focus exclusively on 
addressing the FLETC facility capacity constraints to allow for the 
closure of the Charleston site. In fiscal year 2000, the five-year 
planning estimates for new construction were reduced from $128,000,000 
to $83,000,000. A study developed by FLETC and submitted to the 
Congress in May 2000 reflected that significant cost avoidance in new 
construction could be achieved by realigning all U.S. Border Patrol 
training to the Artesia, NM center and consolidating other training 
into the Glynco, GA center. As mentioned earlier, assuming there is 
fiscal year 2003 funding approval, this plan will be delayed one year.
    Since 1999, Congress has appropriated approximately $40,000,000 of 
the current $83,000,000 five-year plan. Of this amount, $10,000,000 was 
for Glynco projects, and $30,000,000 was for Artesia projects. I am 
pleased to report that we have obligated approximately $32,000,000 
through September 30, 2000. By the end of this fiscal year we expect to 
obligate most of the remaining funds. Also, since the beginning of 
fiscal year 1999 we have been partnering with the General Services 
Administration on the assignment of construction projects and, thus 
far, this is proving to work exceedingly well.

                          CONSTRUCTION REQUEST
    The FLETC's fiscal year 2002 ACI&RE request of $21,895,000 will 
provide funding for all of the cyclical maintenance and up-keep of our 
two permanent sites. The fiscal year 2002 request also includes 
$2,000,000 for partial funding for construction of a ``Port of Entry'' 
training facility in Glynco to accommodate the training provided to 
U.S. Customs Service, INS and Department of Agriculture personnel. The 
remaining funding to construct this facility will be reallocated from 
other available resources. This construction initiative supports goal 
two in FLETC's strategic plan to significantly expand the access to, 
and availability of, quality law enforcement training. The Center 
continues to coordinate closely with its partner agencies so that the 
design features of each training construction project will meet current 
and future needs. This close consultation sometimes prolongs the period 
it takes to design and construct facilities; however, the time and 
effort are well spent because this ensures that the funds are more 
efficiently and wisely used.
    Mr. Chairman, I now would like to take this opportunity to briefly 
discuss our funding request for the remaining initiative in the FLETC's 
fiscal year 2002 budget request that I referred to earlier in my 
testimony.

                         ACCREDITATION PROJECT
    The fiscal year 2002 S&E request is for an increase of $650,000 and 
3 FTE to support the development of government-wide training standards 
and an accreditation process to be used for certification of Federal 
law enforcement training programs, instructional delivery, and academy 
operations. For many years the challenges for advancement of law 
enforcement have been reviewed and discussed in numerous forums and 
reports. The establishment, publication, and adherence to 
professionally developed, recognized, and coordinated training 
standards for Federal law enforcement will assist in maintaining public 
confidence in the integrity, professionalism, and accountability of law 
enforcement agencies.
    The FLETC is working cooperatively with other Federal law 
enforcement agencies to conduct research and establish a training 
accreditation model, organizational structure, and processes. The model 
would be used to establish Federal law enforcement training standards 
and evaluate the facilities, associated policies, and procedures by 
which these standards are met.

                 FIREARMS RANGES/ENVIRONMENTAL CLEANUP
    Finally, I want to note that great progress in the construction of 
new firearms ranges has been made over the last couple of years to 
permit the closing and environmental clean up required for several 
ranges acquired, and in use, since FLETC relocated to Glynco in 1975. 
However, the requirements for intensive firearms and tactical training 
for our customer agencies has continued to grow. Indications are that 
one additional multi-purpose firearms range will be needed prior to our 
closing the last existing earth berm firearms range. The FLETC plans to 
use existing funding this Committee has been providing for this purpose 
over the past several years. Both the additional range and the cleanup 
of the old ranges can be accomplished without any increases in the 
current annual appropriation.

                                CLOSING
    Mr. Chairman, I am committed to the mission of the Center to 
provide the highest quality law enforcement training at the lowest 
possible cost. Substantial savings are being realized through the 
operation of the Center as a consolidated training facility. I look 
forward to your continued support as the FLETC strives to remain a 
partnership committed to excellence. I am available to answer any 
questions you may have concerning this appropriation request.
                  Financial Crimes Enforcement Network

STATEMENT OF WILLIAM F. BAITY, DEPUTY DIRECTOR
    Senator Dorgan. Mr. Baity, you may proceed.
    Mr. Baity. Mr. Chairman, thank you very much for the 
opportunity today to discuss FinCEN's fiscal year 2002 
appropriation request of $45.1 million.
    Last year, this committee was critical in helping FinCEN 
meet the growing demands for its services. This year, we seek 
your support for a budget increase of $7.7 million. This 
increase includes $2.2 million to annualize our core programs 
and $5.5 million toward the successful implementation of our 
regulatory programs relating to a core group of financial 
service providers, over 160,000 strong, that are known as money 
service businesses, or MSBs.
    Through innovative use of technology and analytical 
expertise, FinCEN helps law enforcement build its 
investigations and plan new strategies to combat financial 
crimes. Our request is premised in three areas of priority for 
fiscal year 2002. They are, first, to enhance the quality and 
the delivery of information to our customers; second, to assess 
our current and future administration of the Bank Secrecy Act, 
or BSA; and third, to strengthen FinCEN's infrastructure.
    FinCEN's flagship program is its direct support for 
investigations carried out by law enforcement agencies. Each 
year, FinCEN works with over 165 different agencies on about 
6,500 cases that involve well over 32,000 subjects of inquiry. 
The experience we have gained in adding value through 
analytical techniques to support these criminal investigations, 
combined with improved outreach efforts, have resulted in even 
greater demands for our support services. We look forward to 
demonstrating one of these analytical case support processes at 
the law enforcement trade show on May 24.
    To improve the quality of delivery of information to our 
customers, we are using technology such as secure connectivity 
to enable customers to more efficiently access our data. In our 
Gateway system, we have made a number of technological upgrades 
which are now allowing customers at the Federal level, such as 
the FBI and the DEA, to use this particular system. Moreover, 
we are improving our customers' investigative efforts by 
providing strategic analysis, such as trends and patterns, as a 
complementary service to our case support.
    A second priority is our complete assessment of how we are 
administering the provisions of the Bank Secrecy Act, both 
currently and prospectively. Effective administration of the 
BSA is at the core of our mission to support law enforcement. 
We realize that our ability to support law enforcement is 
directly related to the quality of the information reported by 
the financial community. Our challenge is to ensure that this 
information provides law enforcement the highest quality of 
data possible, but in proper balance with the burdens that 
recordkeeping and reporting place on financial institutions. In 
that regard, the implementation of the MSB program represents 
one of our greatest challenges over the next several years.
    Unlike depository institutions or banks that have financial 
regulators overseeing their operations, MSBs constitute a 
multi-billion-dollar collection of businesses that have been 
largely unregulated at the Federal level and previously 
uncatalogued. Our request will provide funding to continue the 
efforts that began in fiscal year 2001 to develop and implement 
a national education campaign to ensure that MSBs clearly 
understand their registration and reporting requirements.
    Since last year's hearing, we have awarded a multi-year 
contract to a public relations firm to help us shape this 
campaign. Through the contractor, we have conducted focus 
groups around the country which are proving to be of great 
value in understanding the needs of these MSBs. And, of course, 
we are consulting extensively with industry representatives in 
this process.
    Also, this year's request would enable us to provide 
funding to the IRS to begin the process of building the human 
resources needed for effective examination and enforcement once 
the regulations are implemented. Our partnership and reliance 
on the IRS is a critical component of our MSB program. Further, 
because the success of the MSB program overall is so heavily 
dependent upon our education and outreach efforts now, we are 
continually reassessing those efforts to help guide us as we 
move beyond registration to the requirement that MSBs report 
suspicious activity or SARs.
    In addition to the December 31 registration requirements, 
MSBs are scheduled to begin filing suspicious activity reports, 
or SARs, at the beginning of 2002. We believe it is vital, 
however, to review all of the SAR protocols. With that in mind, 
we are reexamining the MSB implementation schedule for SAR 
reporting.
    Our third priority, which I know is not unique to FinCEN, 
involves obtaining and maintaining the human talent and skills 
in conjunction with the cutting-edge information technology 
that will allow our networking capabilities to grow. In that 
regard, we are exploring creative ways to leverage these 
talents.

                           Prepared Statement

    In closing, let me reiterate that we regard this 
subcommittee as one of the most valued partners in our efforts 
to achieve our objectives. Again, thank you for your guidance 
and support to FinCEN, and I look forward to answering any 
questions you may have. Thank you.
    Senator Dorgan. Mr. Baity, thank you very much.
    [The statement follows:]

                 Prepared Statement of William F. Baity

    Mr. Chairman, Senator Dorgan, and members of the Subcommittee, 
thank you for this opportunity to discuss with you our fiscal year 2002 
appropriation request of $45.1 million for the Financial Crimes 
Enforcement Network (FinCEN). I am Bill Baity, Deputy Director of 
FinCEN, and I am testifying today on behalf of our Director, Mr. Sloan, 
who is the Acting Under Secretary for Enforcement.
    We appreciate your ongoing responsiveness to our needs. Last year, 
you provided funding to help us meet the growing demands for our 
services. This year, we are asking for your support for a budget 
increase of $7.7 million. It includes $5.5 million for the Money 
Services Businesses (MSB) Regulatory Program and $2.2 million for 
FinCEN's core programs that are essential in America's fight against 
money laundering and financial crime.
    FinCEN was created in 1990 to support law enforcement by analyzing 
the information required by the Bank Secrecy Act (BSA), one of the 
nation's most important tools in the fight against money laundering. 
The BSA's recordkeeping and reporting requirements establish a 
financial trail for investigators to follow as they track criminals, 
their activities, and their assets. Over the years, FinCEN has 
developed its expertise in adding value to the information collected 
under the BSA by uncovering leads and exposing unknown pieces of 
information contained in the complexities of money laundering schemes. 
This information also is invaluable to investigations of terrorist 
fundraising--by tracking terrorists through their financial 
transactions and their assets.
    We effectively link law enforcement, regulatory and financial 
communities together for the common purpose of preventing and detecting 
financial crimes. Because of this subcommittee's past support, we have 
been able to construct a cost-effective technological infrastructure. 
This fact, coupled with a continual refinement of the network concept, 
allows the agency to remain modest in size and budget while increasing 
the services we provide to our many customers.
    Your support of our appropriation request is essential to FinCEN's 
ability to succeed in our three areas of priority for fiscal year 2002. 
They are:
  --Enhancing the quality and delivery of information to our customers;
  --Assessing our administration of the BSA; and
  --Strengthening FinCEN's administrative infrastructure.
   enhancing the quality and delivery of information to our customers
Providing Investigative Case Support
            Direct Case Support
    FinCEN's flagship program is its direct case support to Federal law 
enforcement agencies. Each year, FinCEN works with approximately 150 
different agencies and state and local law enforcement investigators in 
all 50 states. We answer an average of 6,800 requests for investigative 
information. To respond to these requests, FinCEN intelligence analysts 
use advanced technology and countless data sources to link together 
various aspects of a case and add value to what is already known by 
investigators. The experience we have gained in analyzing and 
disseminating financial and other data to support criminal 
investigations, combined with improved outreach efforts, have resulted 
in greater demands for our case support services. I'd like to mention 
several of our efforts during this past year to enhance the quality and 
delivery of information to our customers.
            Analytical System for Investigative Support (ASIS)
    ASIS is a case management software system developed by FinCEN that 
gives Federal, State and local law enforcement officials the ability to 
make sense of the information they gather through their investigations. 
This application helps those in law enforcement unravel the web of 
deception woven by criminals. It provides a user-friendly tool to 
organize and link their complex investigations, greatly advancing their 
ability to bring successful prosecutions.
    In the past year, we began a new partnership with the National Drug 
Intelligence Center (NDIC) combining their data with our software 
resulting in improved and more complete pictures of criminal 
organizational activities and ties. The software enhancements are quick 
and convenient. FinCEN's ASIS converts large volumes of data from 
NDIC's Real-time Analytical Intelligence Database (RAID) for processing 
and presentation in ways that are useful to investigators in the field. 
For example, ASIS enables our analysts to create link charts and 
geographical mapping as visual representations of the RAID data. The 
charts and maps show subjects, places and activities. Additionally, 
ASIS enables the analysts to link FinCEN's other databases to RAID 
data. This linkage reveals connections to other information from 
financial records, such as suspicious activity reports (SARs).
    ASIS can convert data quickly into usable bits. For example, in two 
hours and 40 minutes, ASIS converted the data of a large RAID case 
involving over 6,800 subjects. Analysis of the converted data revealed 
links to 4,700 activities; 5,200 addresses; 5,700 associations; and 
5,200 subject activities. Also, ASIS enabled our analysts to provide 
new information for the case through its links to BSA data. The new 
information included 680 currency transaction reports (CTRs), 59 SARs, 
and one Currency or Monetary Instrument Report (CMIR). Additionally, 
using ASIS, our analysts linked information from RAID to 110 rows of 
records in FinCEN's database. In a smaller case, with only 38 subjects 
in RAID, our analysts used ASIS to expand the number of subjects to 
over 70 through analysis and linking. The conversion took one minute 
and 20 seconds.
    The ASIS program is also portable--it can be loaded onto a lap-top 
thus allowing our analysts to use it to provide on-site support to 
multi-agency task forces, High Intensity Financial Crime Areas 
(HIFCAs), and High Intensity Drug Trafficking Areas (HIDTAs).
            Gateway Process
    We are also using technology to provide our customers with direct 
electronic access to the BSA information. Using the Gateway process, 
state, local, and, more recently, Federal law enforcement agencies can 
directly access BSA information. This year, we made technological 
upgrades to Gateway, enhancing security and monitoring processes. The 
upgrades have attracted new users such as the Federal Bureau of 
Investigation and the Drug Enforcement Administration. The information 
is delivered through a secure and carefully monitored system. FinCEN's 
managers audit the Gateway process through both record reviews and on-
site visits to ensure that all inquiries are connected to actual or 
potential criminal violations.
    One of the most outstanding and useful features of this system is 
its ``alert'' mechanism that automatically alerts FinCEN that two 
agencies have an interest in the same subject. In this way, FinCEN is 
able to assist Federal, State, and local law enforcement agencies in 
coordinating their investigations among themselves.
            Secure Communications
    FinCEN's secure communications program is the key to its long-range 
objective to offer secure direct access through the Gateway process. 
With more of our customers able to access our databases directly, our 
analysts will have more time to spend on supporting complex case 
analysis. We are customizing on-line protected access to information at 
FinCEN according to clients' needs and in keeping with applicable law 
and our internal data protection policies regarding information sharing 
and e-government security standards. FinCEN has worked, since its 
beginning, to protect access to the information it holds, to oversee 
the activities of its employees and, above all, to prevent misuse of 
the information with which it is entrusted.
Identifying Financial Crime Trends and Patterns
    One of the critical ways of adding value to the information we 
provide to our law enforcement customers is strategic analysis. As you 
know, we have been engaged in an effort to build up our Office of 
Strategic Analysis in order to improve our capacity to identify trends 
and patterns in financial crime. We believe the products FinCEN has 
produced over the past year illustrate the progress we are making. For 
example, our strategic analysts have produced threat assessment 
products to assist the Departments of Treasury and Justice in making 
designations of High Intensity Financial Crimes Areas (HIFCAs). As you 
are aware, the HIFCA Program focuses Federal, State, and local law 
enforcement efforts on areas in which money laundering and related 
financial crimes are extensive or present a substantial risk. The areas 
at risk may be actual locations, industries, sectors, or institutions. 
FinCEN conducts analyses and assists in coordinating efforts to provide 
Treasury and Justice with geographic and systemic assessments for 
designating high-risk areas.
    Another product, which has proven to be helpful to both law 
enforcement and financial institutions is FinCEN's published reviews of 
Suspicious Activity Reports (SARs). Over the past three years, as 
directed by Congress, FinCEN has published reviews of SARs in order to 
demonstrate their value to law enforcement and provide feedback to 
financial institutions. The most recent review, The SAR Activity 
Review, was released in October 2000. FinCEN is committed to providing 
this publication semi-annually. Our analysts, in conjunction with 
representatives of the financial services industry and the regulatory 
and law enforcement communities, are preparing to publish the second 
issue in May. Also, FinCEN produces the SAR Bulletin, a series of 
bulletins containing information and guidance for the financial 
industry and law enforcement. The bulletins cover money laundering 
methodologies identified through analysis of SAR information.
    Additionally, FinCEN employees worked on two initiatives critical 
to the nation's efforts to combat money laundering and financial crime. 
They are the U.S. Department of State's International Narcotics Control 
Strategy Report and the 15 FinCEN advisories issued against non-
cooperative jurisdictions in conjunction with the Financial Action Task 
Force and the G-7. Both initiatives required meticulous research and 
involved highly technical and legal information. Our reports had to be 
thorough and accurate because they have significant United States 
policy implications, as well as consequences for the countries 
involved. Also, this year FinCEN has published a number of reports, 
some of which are law enforcement sensitive, and specific to law 
enforcement investigative concerns.
            High Intensity Financial Crimes Areas (HIFCAs)
    Earlier in my testimony, I mentioned how FinCEN provided expert 
analyses to help Treasury and Justice make HIFCA designations and how 
we use our software program, ASIS, to assist law enforcement efforts in 
the HIFCAs. But our support for HIFCAs extends beyond our analytic 
capabilities and our software. FinCEN is committed to providing the 
HIFCAs with on-site analysts and, if needed, other analytical research 
support from our office in Vienna, Virginia. The HIFCAs have been 
established in the four regions designated in the National Money 
Laundering Strategy of 2000. The four regions are three geographical 
areas, New York/Northern New Jersey, Los Angeles, and San Juan, and one 
money laundering system, bulk cash smuggling across the Southwest 
border. FinCEN already has one on-site analyst in place and the 
remaining analysts are coming on-board in the near future. Our analysts 
will focus on collaborative investigative techniques, both within the 
HIFCA and between the HIFCA and other areas. We will also facilitate a 
more systemic exchange of information on money laundering between HIFCA 
participants.
Fostering International Cooperation
    The growing sophistication and expertise of money launderers, 
coupled with the tremendous increase in the volume and scale of 
international trade and business transactions, has made international 
cooperation essential. No nation, acting alone, can address the 
transnational crime and money-laundering problem. Recognizing the 
global nature of financial crimes, FinCEN has been a key player in 
encouraging and working with other governments to develop effective 
standards and build the necessary institutions in the fight against 
money laundering. FinCEN's efforts to build effective international 
cooperation encompass two major areas of activity: (1) establishing or 
strengthening our Financial Intelligence Unit (FIU) counterparts, and 
(2) facilitating the exchange of information among these institutions 
in support of anti-money laundering investigations. The network of FIUs 
we have promoted has caught on dramatically. Just six years ago, there 
were less than a handful of FIUs. Today there are over 53 such units 
with additional units anticipated. Additionally, FinCEN administers a 
common web system for the FIUs, which provides a way for them to 
communicate in a secure manner. With the hook-up of Luxembourg, Belgium 
to the common secure web system, the number of FIUs participating now 
totals 36. Also, with this secure international network, FinCEN is 
better able to assist domestic law enforcement in acquiring critical 
information to help in U.S. anti-money laundering investigations.
Magnitude of Money Laundering
    The activities I've just described are key to FinCEN's goal of 
leveraging its resources to create a network for prompt and efficient 
delivery of information to its customers. But as we have discussed 
before, it is difficult to gauge the success in the nation's battle 
against financial crime until we can estimate the magnitude of money 
laundering. We recognize the great support you have provided in the 
past for this study. It is a difficult tasking, but we are confident 
that in the end it will help our customers and us direct resources in 
the most efficient way.
    Since we came before the committee last year, we have awarded a 
contract to a vendor to develop our methodology. The analytic approach 
proposed by the vendor will use multiple methods, including direct 
estimates for money laundering (drug trafficking and bank fraud), 
indirect estimates for other predicate crimes, trend indicators and 
economic modeling. In addition to examining the proceeds of crime from 
a microeconomic approach, we will also develop a macroeconomic approach 
based on analysis of underground economic activity. In its Phase I 
Stage, the contractor is seeking to identify data sources in select 
Federal agencies to examine a representative sample of ``cleansed'' 
data (i.e., containing no sensitive identifiers) so that parameters can 
be identified to develop an estimation model. Extraction of a fuller 
data set will not be necessary until Phase II. While FinCEN has 
provided a sample of sanitized SARs for examination, other targeted law 
enforcement agencies have not yet provided access. This is delaying 
progress at this time. We believe that our contract provides sufficient 
protection for sensitive law enforcement information and have also 
adapted strict contract requirements for the protection of information.

                ASSESSING OUR ADMINISTRATION OF THE BSA
    Another priority for fiscal year 2002 is our assessment of how we 
administer the BSA. FinCEN's regulatory program--which stresses the 
effective administration of the Bank Secrecy Act (BSA)--is at the core 
of our mission to support law enforcement investigations. FinCEN's 
ability to support law enforcement is directly dependent on the quality 
of the information we receive from industry under the BSA regulatory 
structure. Our continuing challenge is to ensure that this information 
provides law enforcement with the highest quality of data possible 
without placing undue burden on the financial industry.
    To achieve these dual objectives, FinCEN continues to reassess its 
administration of the BSA. We work in partnership with the regulatory 
and law enforcement communities to recommend and implement policies 
designed to effectively administer the BSA. For example, in 1996, SAR 
reporting was required of depository institutions and we are working to 
extend this reporting requirement to the Money Services Businesses 
(MSBs) industry. Currently, FinCEN is developing proposed rules 
requiring SAR reporting for the casino industry and the security 
broker/dealer industry.
    The passage of the Financial Services Modernization Act has changed 
the structure of financial regulation in the United States by providing 
for functional regulation of financial conglomerates and has impacted 
the additional development of rules within the regulatory structure of 
the BSA. Because of the authority granted by the Act, the traditional 
lines of distinction among the financial service providers is 
disappearing, requiring FinCEN to take into account the ability to 
conduct disparate financial transactions within the same institution. 
At the same time, FinCEN will continue to improve the timeliness of 
processing cases of non-compliance for monetary penalties and other 
regulatory sanctions and also provide guidance to improve and 
facilitate BSA compliance.
Money Services Business (MSB) Program
    The term ``MSB'' is used to define over 160,000 businesses that 
provide a spectrum of products and services including money 
transmissions, issue, sale and redemption of money orders and 
traveler's checks, check cashing and currency exchange. Unlike banks 
and similar depository institutions that have five Federal financial 
regulators overseeing their operations, MSBs constitute a multi-billion 
industry that has been largely unregulated at the Federal level. FinCEN 
and the Internal Revenue Service (IRS) will fill that role. As you 
know, by December 31, 2001, MSBs are required to register with the 
Department of Treasury. Also, they are required to maintain a current 
list of their agents for examination, on request, by any appropriate 
law enforcement agency.
    Our fiscal year 2002 budget request continues the efforts that 
began in fiscal year 2001, providing a comprehensive national education 
campaign geared to this industry by assuring that MSBs clearly 
understand their registration and reporting requirements. Since we came 
before this subcommittee last year, we have awarded a multi-year 
contract to a public relations firm to help us shape our campaign. 
Through the contractor, we have already conducted a number of focus 
groups around the country, which are proving to be of great value to us 
in understanding the needs of the MSBs. Additionally, we have consulted 
extensively with industry representatives.
    Our budget request would enable FinCEN to provide funding to the 
IRS to hire personnel to extend outreach to the MSBs and respond to 
public inquiries about the new requirements. Our partnership with the 
IRS is a major component of our effort to administer the MSB program in 
an effective and efficient manner.
Extending Suspicious Activity Reporting (SAR)
    In addition to the new registration requirements, MSBs are 
scheduled to begin filing suspicious activity reports in 2002. 
Suspicious activity reporting by all classes of financial institutions 
covered by the Bank Secrecy Act is an essential part of the 
government's counter-money laundering efforts. Law enforcement 
investigations have shown that money launderers move their illicit 
proceeds into financial institutions where they believe they will more 
easily be able to evade enforcement and regulatory efforts to detect 
and deter money laundering.
    It is vital, however, that we first ensure that the MSBs are 
knowledgeable about these new requirements. FinCEN is committed to 
producing the most cost-effective reporting regime, for both law 
enforcement and the industries involved. We want to make sure we have 
covered the needs of the MSBs first with registration, then with SARs. 
For these reasons, we are extending the effective date of the SAR rule 
to allow additional time to identify and educate this diverse business 
community.

          STRENGTHENING FINCEN'S ADMINISTRATIVE INFRASTRUCTURE
Leveraging Resources
    FinCEN's effectiveness is based on our emphasis on networking. We 
combine talents and abilities, information and technology, government 
agencies and financial institutions to form a united force against 
financial crime. But in spite of our flexibility to leverage talents 
from a variety of sources, we, like other government agencies, are 
struggling to recruit and retain specialized personnel. This fact, 
coupled with the intensely competitive nature of today's information 
technology marketplace, could impact the timely completion of planned 
technology innovations.
    To help obtain the skills we need, FinCEN is beginning new 
endeavors to further leverage resources. We have begun a partnership 
with Mercyhurst College in Erie, Pennsylvania, to both encourage and 
benefit from the college's pioneering efforts in establishing a degree 
program in intelligence analysis.
    For example, our partnership with the college includes mentoring 
seniors in the completion of their Senior Research Papers on money 
laundering/financial crime topics, which have been identified by 
FinCEN. The finished papers will fulfill a graduation requirement and 
be useful to us in expanding our knowledge base. Also, FinCEN is 
actively involved in recruiting degree program participants and 
graduates through summer internships and permanent employment. Two 
graduates from this degree program are currently applicants for 
analytical positions at FinCEN.
    Finally, FinCEN is an active participant in the Partnership in 
Education initiative, which is a U.S. Treasury organization that has 
partnered with public schools to assist in preparing high-school 
students in the transition to college and career. Clearly, we have a 
vital stake in the economic future of our youth in encouraging public 
service.
Lease Renewal
    FinCEN is also facing facility issues in the near future. We have 
advised both the Subcommittee staff and the Department that our lease 
expires in 2003, and have been engaged in discussions with the General 
Services Administration (GSA) to move through the lengthy process of 
lease renewal or relocating to a new facility. GSA will have the 
solicitation by fall of this year with the award expected sometime in 
early 2002. We will continue to keep you apprised of the developments 
as they occur.

                               CONCLUSION
    In summary, FinCEN's primary functions are to support law 
enforcement efforts that counter money laundering and other financial 
crimes, and maintain an effective regulatory program for that purpose. 
We regard this subcommittee as one of the most valued partners in our 
network. Thank you for your support of FinCEN.
                    Office of Foreign Assets Control

STATEMENT OF R. RICHARD NEWCOMB, DIRECTOR
    Senator Dorgan. Next, we will hear from Mr. Newcomb.
    Mr. Newcomb. Thank you, Senator Dorgan. I am particularly 
pleased to have the opportunity to be with you today to talk 
about Treasury's Office of Foreign Assets Control, or OFAC, as 
we are commonly called.
    OFAC administers economic sanctions programs against 
foreign countries, entities, and individuals to further U.S. 
foreign policy and national security objectives. These 
sanctions programs are normally imposed pursuant to a 
declaration of national emergency by the President under 
specific statutory authority, but may also be imposed directly 
by the Congress, as in the case of legislation pertaining to 
foreign terrorist organizations and narcotics kingpins.
    I would like to focus my oral remarks today on these last 
two items, particularly the establishment of the Foreign 
Terrorist Asset Tracking Center and the implementation of the 
Foreign Narcotics Kingpin Designation Act, or what we refer to 
as the Kingpin Act.
    OFAC has historically been responsible for compiling 
available evidence establishing that certain foreign entities 
or individuals are owned or controlled or acting for or on 
behalf of foreign governments subject to an economic sanctions 
program. These entities and individuals have become so-called 
specially designated nationals and are subject to the same 
sanctions as the foreign government to which they are related.
    In 1995, the President used his authority under the 
International Emergency Economic Powers Act to declare national 
emergencies with respect to both terrorists who threaten to 
disrupt the Middle East peace process and significant narcotics 
traffickers centered in Colombia. These declarations of 
national emergency marked the first occasion that this 
statutory authority had been invoked to directly target 
organizations and individuals rather than hostile foreign 
regimes.
    In December 1999, the Congress passed the Kingpin Act, 
which is modeled after OFAC's Colombian Narcotics Traffickers 
program. The Kingpin Act provides a statutory framework for the 
President to impose sanctions against foreign drug kingpins and 
their organizations on a worldwide scale. Like the Colombia 
program, the Kingpin Act is designed to deny those significant 
foreign narcotics traffickers and their organizations, 
including their related businesses and operatives, access to 
the U.S. financial system and to all trade and transactions 
involving U.S. companies and individuals.
    The President named the first 12 kingpins, the so-called 
tier one designations, on June 1, 2000. That was the first such 
designation under the Act. The President plans to take the next 
list of kingpins public by June 1 of 2001. OFAC also has 
authority under the Kingpin Act to make derivative, or so-
called tier two designations, of the kingpin businesses and 
agents. These tier two designations are very important to the 
long-term practical impact and effectiveness of the Kingpin 
Act, since they target entities through which kingpins 
penetrate legitimate commerce.
    OFAC sanctions programs against foreign narcotics 
traffickers and foreign terrorists expose and impede money 
laundering activities, terrorist fundraising and financial 
flows. While these activities continue to be coordinated with 
traditional law enforcement agencies, we believe that counter-
terrorism activities against foreign terrorists will be greatly 
enhanced by the establishment of the new Foreign Terrorist 
Asset Tracking Center.
    Last year, the report from the National Commission on 
Terrorism, the so-called Bremer report, recognized the 
potential for more effectively employing the broad sanctions 
authorities delegated to the Office of Foreign Assets Control 
and recommended development of a joint task force of relevant 
U.S. Government agencies to develop strategies to counter-
terrorist fundraising. This report also recommended that the 
Secretary of Treasury create a unit within the Office of 
Foreign Assets Control dedicated to the issue of terrorist 
fundraising. The Congress subsequently provided funding to 
Treasury for fiscal year 2001 to develop this center in 
coordination with other relevant U.S. Government agencies.
    The Center's mission is to gather information from all 
sources relating to terrorist groups, organizations, 
affiliations, and sources and methods of fundraising and funds 
movement. The Center will use this information to 
conceptualize, coordinate, and implement strategies within the 
U.S. Government that ultimately could lead to denying these 
target groups access to the international financial system, 
impair their fundraising abilities, expose, isolate, and where 
appropriate, block their financial transactions, and work with 
other friendly governments to take similar measures.
    OFAC is currently in the process of establishing this 
Center, and other U.S. Government agencies with counter-
terrorism responsibilities have committed to participate in 
this center by, for example, providing the Center with all 
relevant information, detailing specialists to analyze the data 
and appointing special liaisons to cement the constant 
interaction of the member organizations.
    It is currently anticipated that the departments and 
agencies that will participate in or work with the Center are 
the Department of Treasury--of course, us--the Customs Service, 
the Internal Revenue Service, the Secret Service, Alcohol, 
Tobacco and Firearms, and, of course, FinCEN; the Department of 
Justice in the form of the FBI, the INS; the CIA, the Office of 
Transnational Issues and the DCI's Counter-Terrorism Center; 
the National Security Agency; and the Department of State's 
Office of Counter-Terrorism Coordinator, also called SCT.
    The role of each agency would, of course, depend on the 
target and the circumstances of each target's fundraising, 
money movements, and modus operandi. Some terrorist groups are 
involved in multiple activities to produce income. These 
activities would also be covered under the Center's mission.
    OFAC is currently hiring staff to implement the Kingpin 
Act, establish the Terrorist Asset Tracking Center, and make 
certain other improvements to our other sanctions programs. We 
currently have 77 staff members on board, 21 position offers 
outstanding, and expect to hire an additional 36 positions, 8 
of which are reimbursable from those agencies I mentioned, by 
the end of fiscal year 2001.
    Crucial to the successful administration of these 
priorities, of course, is enhanced customer service, 
particularly with regard to the pending implementation of the 
Trade Reform and Export Enhancement Act of 2000. Your 
continuing support of our mission is crucial.
    Thank you very much for the opportunity to discuss these 
matters of concern to the Congress as well as the executive 
branch. I look forward to working with you and your staff and 
in keeping you posted on our progress. Thank you, Mr. Chairman.

                           Prepared Statement

    Senator Dorgan. Mr. Newcomb, thank you very much.
    [The statement follows:]

                Prepared Statement of R. Richard Newcomb

    Chairman Campbell, Senator Dorgan, and Members of the Subcommittee, 
I am pleased to have the opportunity to speak to you today about the 
work of the Treasury Department's Office of Foreign Assets Control, or 
``OFAC,'' as we are commonly called. OFAC administers economic 
sanctions against foreign countries, entities and individuals to 
further U.S. foreign policy and national security objectives. These 
sanctions programs are normally imposed pursuant to a declaration of 
national emergency by the President under specific statutory authority, 
but may also be imposed directly by the Congress, as in the case of 
legislation pertaining to foreign terrorist organizations and narcotics 
kingpins.
    OFAC currently administers twenty-one economic sanctions programs 
involving assets freezes and/or trade embargoes, including programs 
directed against Angola (UNITA), Burma, Cuba, Iran, Iraq, Libya, North 
Korea, Sierra Leone, Sudan, the Taliban in Afghanistan, foreign 
terrorists and foreign narcotics traffickers. (See the attached chart 
for a complete list of OFAC programs.) In performing its mission, OFAC 
relies principally on the President's broad powers under the Trading 
With the Enemy Act (``TWEA''), the International Emergency Economic 
Powers Act (``IEEPA''), and on occasion, the United Nations 
Participation Act (``UNPA''), to prohibit or regulate commercial or 
financial transactions involving specific foreign countries, entities 
and individuals. These powers are employed to freeze, or block, foreign 
assets by prohibiting transfers of those assets which are located in 
the United States or in the possession or control of U.S. persons, as 
well as to prohibit financial transactions (such as bank lending), 
imports, exports and related transactions. These sanctions programs may 
be either selective, prohibiting a specific class of economic 
transactions (such as transactions with the government of the target 
country), or comprehensive, prohibiting all unlicensed economic 
transactions involving the designated country or its nationals. OFAC's 
blocking authority has also been employed to protect classes of assets, 
as in the case of the 1990 freeze of Kuwaiti assets after Iraq's 
invasion of Kuwait, or in the case of assets pertaining to the 
implementation of agreements between the United States and the Russian 
Federation relating to the disposition of highly enriched uranium.
    Organizationally, OFAC is composed of the following components:
     Licensing Division.--Makes determinations on requests for specific 
licenses--processing more than 18,000 such requests during the past 
twelve-month period--and provides guidance to the public with respect 
to interpretive rulings and transactions authorized by general license. 
The influx of requests for licenses and interpretive rulings under the 
twenty-one separate programs OFAC administers has increased 
dramatically. In an effort to meet this demand and provide responsive 
and thorough customer service, OFAC is instituting measures to: process 
licenses within two weeks absent the need for interagency consultation; 
hire additional personnel to respond to phone inquiries; promote 
transparency of agency action by publishing interpretive rulings on its 
website; and issue implementing regulations within sixty days of the 
issuance of an Executive order or enactment of legislation with an 
opportunity for public comment.
    Compliance Division.--Serves as the primary point of contact for 
the financial community, fielding more than 45,000 ``hotline'' calls 
per year to provide guidance on in-process transactions. Last year, the 
calls resulted in denying access to the U.S. banking system to more 
than 5,500 items that were contrary to U.S. sanctions and the blocking 
of more than 2,000 transactions. As a result of regulatory audits which 
it conducts, the Compliance Division opened 1,000 cases in fiscal year 
2000 and issued more than 1,000 ``administrative demands for 
information,'' culminating in 205 referrals to either the Civil 
Penalties or Enforcement Divisions and the issuance of more than 500 
Warning Letters. This OFAC Division also monitors adherence to the 
terms of licenses and requirements regarding blocked property; conducts 
public and private sector awareness programs to assure familiarity with 
requirements for compliance with regulations; and maintains and updates 
OFAC's public informational material, website, and fax-on-demand 
service.
    Blocked Assets/Information Technology Division.--Maintains OFAC's 
aggregate database of blocked assets; coordinates multilateral 
sanctions implementation with foreign governments; and develops and 
implements information technology systems in OFAC.
    International Programs Division.--Administers the Specially 
Designated National, Specially Designated Terrorist, Specially 
Designated Narcotics Trafficker, and Foreign Terrorist Organization 
programs, as well as designations under the Foreign Narcotics Kingpin 
Designation Act, including the preparation of two annual Presidential 
reports to the Congress and an annual report to the Congress on blocked 
terrorist assets; and coordinates certain multilateral enforcement 
matters with foreign governments.
    Enforcement Division.--Coordinates overall enforcement of sanctions 
programs by making referrals to Customs and other law enforcement 
agencies for criminal investigations, opening sixty investigations 
during 2000; provides technical advice and assistance to Customs agents 
and inspectors and Assistant U.S. Attorneys concerning suspected 
violations, with six criminal prosecutions brought in 2000; and 
administratively pursues non-criminal cases for civil penalty 
consideration, opening 1,544 new civil cases for investigation with 515 
referrals for civil penalty consideration during 2000 (see attached 
chart).
     Civil Penalties Division.--Administers the civil penalties program 
for violation of sanctions laws administered by OFAC, processing more 
than 2,000 cases and collecting more than $3.2 million in fines over 
the course of the past year (see attached chart).
    Policy Planning and Program Management Division.--Performs policy 
analysis; coordinates interoffice and interagency program 
implementation and regulatory issues; and currently prepares thirty-
five statutorily required Presidential reports and fourteen Notices of 
Continuation of emergency authorities per year to the Congress.
    Other components of OFAC include the Miami Office, which 
coordinates certain Cuba licensing, compliance and enforcement matters, 
and the Bogota Office, which coordinates the Colombian narcotics 
traffickers program and conducts research on specially designated 
narcotics traffickers. Offices are also being established in Mexico 
City and Bangkok in support of OFAC's implementation of the Foreign 
Narcotics Kingpin Designation Act. A ninth division within OFAC is also 
being organized to establish the Foreign Terrorist Assets Tracking 
Center. In addition, while not organizationally part of OFAC, 
Treasury's Office of the General Counsel devotes a complement of 
attorneys to providing OFAC legal support in the administration of its 
programs.
    I would like to focus the remainder of my remarks today on OFAC's 
increasing responsibilities to administer economic sanctions with 
respect to foreign terrorists, particularly with regard to the 
establishment of the Foreign Terrorist Asset Tracking Center, as well 
as economic sanctions programs targeting foreign narcotics traffickers.
    OFAC's International Programs Division has historically been 
responsible for compiling available evidence establishing that certain 
foreign entities or individuals are owned or controlled by or acting 
for or on behalf of a foreign government subject to an economic 
sanctions program. These entities and individuals then become 
``specially designated nationals,'' and are subject to the same 
sanctions as the foreign government to which they are related. In 1995, 
the President used his authority under IEEPA to declare national 
emergencies with respect both to terrorists who threaten to disrupt the 
Middle East Peace Process and significant narcotics traffickers 
centered in Colombia. These declarations of national emergency marked 
the first occasion that this statutory authority had been invoked to 
directly target organizations and individuals, rather than hostile 
foreign regimes.
    Since the inception of the Colombia program in 1995, OFAC has 
identified 578 businesses and individuals as specially designated 
narcotics traffickers (``SDNTs''), consisting of ten cartel leaders of 
the Cali, North Valle, and North Coast drug cartels, 231 of their 
businesses and 337 other individuals. Four of the most notorious 
Colombian drug kingpins were identified in the Executive order itself. 
OFAC has added six more Colombian drug cartel leaders since 1998, 
including four leaders of Colombia's powerful North Valle drug cartel 
named in 2000 and 2001. United States persons are prohibited from 
engaging in financial or business dealings with the ten drug kingpins 
and the 568 other SDNTs.
    As a result of the SDNT program against Colombian drug cartels, 
traffickers' companies have been forced out of business, are suffering 
financially, and have been isolated both financially and commercially. 
By May 2001, more than sixty SDNT companies, with an estimated annual 
aggregate income of more than U.S. $230 million, have been liquidated 
or are in the process of liquidation. SDNTs are denied access to 
banking services in the United States and Colombia and have been denied 
access to the benefits of trade and transactions involving U.S. 
businesses. SDNT individuals have been denied U.S. visas or had their 
visas revoked. OFAC will continue to identify businesses of the 
Colombian drug cartels and to expand the SDNT list to include 
additional drug traffickers and their organizations.
    Economic sanctions were imposed by the President pursuant to IEEPA 
in 1995 against terrorists who threaten to disrupt the Middle East 
Peace Process. This action was taken to combat fundraising in the 
United States on behalf of foreign terrorist organizations identified 
in an annex to the implementing Executive order. In August 1998, a 
second Executive order was issued expanding the list of foreign 
terrorists to include Usama bin Ladin, his organization (Al-Qaeda), and 
two other individuals. In addition to the thirteen terrorists and 
terrorist entities identified by Executive order, OFAC has authority to 
designate organizations or individuals, known as ``specially designated 
terrorists'' or ``SDTs,'' that are owned or controlled by, act for or 
on behalf of, or that provide material or financial support to these 
terrorists. As a result of these sanctions, a number of individuals 
acting on behalf of the Middle East terrorists have been subjected to 
sanctions, and financial assets of some of these groups have been 
blocked.
    We believe that the sanctions have had a deterrent effect on 
fundraising in the United States and have impeded terrorists' use of 
the U.S. financial system. OFAC continues to work closely with Justice, 
State, the FBI, and other Federal agencies in implementing the two 
Middle East terrorist Executive orders against identified or potential 
SDTs.
    In April 1996, Congress passed the Antiterrorism and Effective 
Death Penalty Act (``Antiterrorism Act''), in part to prevent U.S 
persons from providing material support or resources to Foreign 
Terrorist Organizations (``FTOs'') throughout the world. Currently, 
twenty-nine FTOs are subject to OFAC-administered sanctions, having 
been designated by the Secretary of State in consultation with the 
Secretary of the Treasury and the Attorney General. Under the 
Antiterrorism Act and OFAC's implementing regulations, U.S. financial 
institutions must maintain control over all funds in which an FTO has 
an interest, block financial transactions involving FTO assets, and 
report those actions to OFAC. OFAC is the coordination point with State 
and Justice on FTO designations and also has responsibility for 
coordinating with the financial community, the FBI, State, and other 
Federal agencies in implementing the prohibitions of the Antiterrorism 
Act.
    In December 1999, the Congress also passed the Foreign Narcotics 
Kingpin Designation Act (the ``Kingpin Act''), which is modeled after 
OFAC's Colombia narcotics traffickers program. The Kingpin Act provides 
a statutory framework for the President to impose sanctions against 
foreign drug kingpins and their organizations on a worldwide scale. 
Like the Colombia program, the Kingpin Act is designed to deny these 
significant foreign narcotics traffickers and their organizations, 
including their related businesses and operatives, access to the U.S. 
financial system and to all trade and transactions involving U.S. 
companies and individuals. The President named the first twelve 
kingpins (``tier one designations'') on June 1, 2000. The President 
plans to make the next list of kingpins public by June 1, 2001. OFAC 
also has authority under the Kingpin Act to make derivative (``tier 
two'') designations of the kingpins' businesses and agents. These tier 
two designations are very important to the long-term practical impact 
and effectiveness of the Kingpin Act, since they target entities 
through which the kingpins penetrate legitimate commerce.
    OFAC's sanctions programs against foreign narcotics traffickers and 
foreign terrorists expose and impede money laundering activities, 
terrorist fundraising and financial flows. While these activities 
continue to be coordinated with traditional law enforcement agencies, 
we believe that counter-terrorism activities against foreign terrorists 
will be greatly enhanced by the establishment of the Foreign Terrorist 
Asset Tracking Center (the ``Center''). Last year, the Report from the 
National Commission on Terrorism (the ``Bremer Report'') recognized the 
potential for more effectively employing the broad sanctions 
authorities delegated to OFAC and recommended the development of a 
joint task force of relevant U.S. government agencies to develop 
strategies to counter terrorist fundraising. The Bremer Report also 
recommended that the Secretary of the Treasury create a unit within 
OFAC, dedicated to the issue of terrorist fundraising. The Congress 
subsequently provided funding to Treasury for fiscal year 2001 to 
develop the Center, in coordination with the relevant USG agencies.
    The Center's mission is to gather information from all sources 
relating to terrorist groups' sources and methods of fundraising and 
funds movement. The Center will use this information to conceptualize, 
coordinate, and implement strategies within the US government that 
could ultimately lead to denying these target groups access to the 
international financial system; impair their fund-raising abilities; 
expose, isolate, and, where appropriate, block their financial 
transactions; and work with other friendly governments to take similar 
measures. The Center will accomplish this mission by:
  --gathering information from all sources relating to terrorist 
        groups' sources and methods of fundraising and funds movement;
  --reviewing data regarding the fundraising activities and funds of 
        terrorist groups thatthreaten the US national security;
  --assessing the sources and methods of fundraising and funds movement 
        of each targeted foreign terrorist group, and of their 
        operatives and terrorist-owned entities;
  --tracking all information about the nature, operations, goals, and 
        methods of each terrorist group, related especially to the 
        movement and placement of their assets;
  --sharing all relevant information and analysis, as appropriate, with 
        U.S. regulatory, diplomatic, defense, intelligence and 
        enforcement communities;
  --conceptualizing and developing implementation strategies to deny 
        targeted terrorist groups access to the international financial 
        system, and whenever possible, to expose, isolate and 
        incapacitate their financial holdings within the United States 
        and in other countries;
  --developing strategies to deny these targets the ability to conduct 
        financial transactions with U.S. entities and individuals and 
        impair their fundraising abilities; and
  --persuading foreign governments to take similar measures.
    Such strategies would bring to bear the full weight and influence 
of the Federal government relating to financial matters--regulatory, 
diplomatic, defense, intelligence and enforcement communities--and 
involve foreign and domestic actions.
    OFAC is currently in the process of establishing the Center and USG 
agencies with counter-terrorism responsibilities have committed to 
participate in the Center by: (1) providing the Center with all 
relevant information; (2) detailing specialists to analyze the data; 
and (3) appointing special liaisons to cement the constant interaction 
of the member organizations. It is anticipated that the departments and 
agencies that will participate in or work with the Center are: (1) the 
Department of Treasury--OFAC, Customs, IRS, USSS, ATF, and FinCEN; (2) 
the Department of Justice, FBI, INS; (3) the CIA--Office of 
Transnational Issues and the DCI's Counter-Terrorism Center; (4) the 
National Security Agency; (5) the Department of State--Office of the 
Counter-Terrorism Coordinator (S/CT); and (6) the Department of 
Defense.
    The role of each agency would depend upon the target, and the 
circumstances of each target's fundraising, money movements, and 
placements modus operandi. Some terrorist groups are involved in 
multiple activities to produce income. These activities would also be 
covered under the Center's mission.
    OFAC is currently hiring staff to implement the Kingpin Act, 
establish the Foreign Terrorist Assets Tracking Center and make the 
other improvements I've discussed. We currently have seventy-seven 
staff members on board, twenty-one position offers outstanding, and 
expect to hire an additional thirty-six positions--eight of which 
involve reimbursable agreements with other agencies--by the end of 
fiscal year 2001. Crucial to the successful administration of these 
priorities is enhanced customer service, particularly with regard to 
the pending implementation of the Trade Reform and Export Enhancement 
Act of 2000. Your continuing support of our mission is critical.
    Thank you very much for the opportunity to discuss these matters of 
grave concern to the Congress as well as the Executive Branch. I look 
forward to keeping you posted of our progress. 
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<GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT>

    Senator Dorgan. Just a couple of questions. First, to Mr. 
Newcomb and Mr. Baity, there are a number of very complicated 
areas in government, but the areas in which you work and your 
employees work are extraordinarily complicated and I know that 
you work in consultation and cooperation with a wide range of 
other agencies, and for that we are appreciative. I think a 
number of circumstances would require other agencies to reach 
out for the kind of expertise only you have in dealing with 
white collar financial crime and other related issues, so we 
appreciate your work.

                        Construction Cost Delays

    I do want to ask a couple of questions of Mr. Sloan and Mr. 
Basham. Mr. Basham, you have indicated that this budget, in 
order to save some money, is causing you to push back the 
construction schedule on the consolidation of the FLETC 
facility. What will that end up costing us? I assume it is 
going to cost us extra money by not proceeding with the intent 
we had previously expressed.
    Mr. Basham. Well, the ongoing cost of running the 
Charleston facility, of course, is going to be a factor, as 
well as when the time lines slide, it is obviously going to 
create additional cost just from inflation alone in 
construction of the facilities that will have to be put in 
place. Depending on how long that time line is pushed back will 
determine--it could be several millions of dollars that is 
going to be an additional cost in order for us to provide those 
facilities.
    Senator Dorgan. I am going to ask if you would send me some 
information telling me what we would save if we just proceed to 
do what we have been planning to do regarding the 
consolidation, do the construction, and close the facility, as 
opposed to this approach, where we push it back and end up 
costing more money to do the same thing. If you would give me 
some estimate of that in writing, I would appreciate that.
    Mr. Basham. I will provide that to you, sir.

                       Trade Policy and Sanctions

    Senator Dorgan. This would probably be a question for Mr. 
Sloan and Mr. Newcomb. We have been scrapping here in Congress 
for some while about the sale of food and medicine to Cuba, 
changing the regulations that have previously prohibited that. 
I have introduced legislation on appropriations bills the last 
2 years, actually got them passed, went to conference. In the 
first case, it got dropped. The second year, it got mangled 
some, but nonetheless, it is now the law in kind of a perverted 
form.
    But it is the law that we are attempting to change and 
Congress, by a wide vote, expressed an intention to attempt to 
relax the circumstances under which we might do business with 
Cuba dealing with food and medicine. The administration has yet 
to publish regulations to implement the legislation that was 
passed last year, and I do not know whether Mr. Sloan or Mr. 
Newcomb would be the appropriate one to answer when we might 
see those regulations.
    Mr. Newcomb. Mr. Chairman, we have been working since the 
passage of that legislation, along with the Commerce 
Department, the State Department, and the White House to get 
these regulations issued. I can tell you, I believe it is 
imminent. I received a call just yesterday that a meeting would 
be held again this week to coordinate those activities.
    By way of clarification, the way this seems to be going at 
this time is that Commerce has, by delegation going back some 
30 years or so from the Office of Foreign Assets Control, 
exports from the United States directly to Cuba have 
traditionally been the jurisdiction of the Commerce Department, 
and it has been the current intention up until this time that 
that should remain. So with regard to implementation of this 
Act, Commerce will issue those regulations.
    We plan on issuing regulations affecting Iran, Libya, and 
Sudan, which are the three countries currently where exports 
are permitted, and in doing so anticipate an enhanced, 
expedited export licensing regime.
    Senator Dorgan. Let me just say that this is an important 
area. We are not yet finished legislating on this. We will 
legislate again this year and we will straighten out the bend 
that occurred last year in a kind of a surreptitious way at the 
end of the last session. So as you consider these regulations, 
understand there is a desire for many of us in Congress to see 
that you do this as quickly as possible and be prepared to redo 
it at the end of this legislative session, because we will have 
more to say on it.

                     Additional Committee Questions

    Mr. Sloan, thank you for being here with the agencies that 
are involved in these issues. They are, as I indicated, in many 
areas complex, in virtually all areas vitally important, and we 
on the subcommittee want to provide appropriate and adequate 
funding to make sure that we meet our obligations, and Senator 
Campbell and I and the other subcommittee colleagues will work 
diligently to try to do that.
    [The following questions were not asked at the hearing, but 
were submitted to the Department for response subsequent to the 
hearing:]

         Questions Submitted to the Department of the Treasury

         Question Submitted by Senator Ben Nighthorse Campbell

            southeast european cooperative initiative (seci)
    Question. Please describe some of Treasury's ongoing work within 
the Southeast European Cooperative Initiative (SECI) framework and the 
potential benefits derived from U.S. participation.
    Answer. SECI is an important initiative to Treasury law enforcement 
due to the alarming increase in crime throughout the Balkan Peninsula. 
The U.S. Secret Service and the U.S. Customs Service are the lead 
agencies for Treasury involvement. The Secret Service is focused on 
financial crime where American financial and Internet companies are, by 
far, the largest percentage of victims. Customs work is related to 
border control, international trade, and trans-border crime.
    The physical location of the SECI in Bucharest and its regional 
structure allows us to maintain convenient contact with the eleven 
member country representatives. The Secret Service has observer status 
through the Rome Field Office. The Special Agent in Charge has frequent 
and personal contact with SECI management in Bucharest. The Secret 
Service has now received approval for an office in Bucharest, which 
will allow even closer contact.
    The Secret Service partnerships with the credit card industry have 
contributed to the development of training and other initiatives to 
support the SECI member nations. In March 2001, the Secret Service 
hosted SECI staff executives at a seminar in Washington, D.C. The 
seminar focused on Secret Service investigative responsibilities with 
an emphasis on financial crimes in Eastern Europe. Additionally, the 
Secret Service and the credit card industry will conduct a six-day 
seminar in June 2001. Specialized training in financial fraud will be 
provided to SECI officials. Also addressed will be specific trends in 
their region and suggested cooperative solutions.
    SECI officials are examining the concept of a financial fraud task 
force in which the Secret Service would act in an observer and advisory 
capacity. This is an important initiative as we believe that most of 
the financial fraud in this region has a strong connection to the 
United States.
    The U.S. Customs Service operates Border Advisory Teams in five 
SECI countries (Bulgaria, Croatia, Macedonia, Moldova, and Romania) 
with a total of 12 advisors. The teams focus on improved border 
operations and increased effectiveness in enforcement through risk 
management and selectivity. The teams also assist the host countries 
with complying with the requirements of a World Bank Loan Program, the 
Trade and Transportation Facilitation in Southeast Europe (TTFSE). This 
leverages approximately $3 million in USG funding for over $68 Million 
in World Bank Loans for the countries. The loans will be used to repair 
border sites, purchase inspection equipment and update automation. In 
turn, the countries are required to streamline their customs and border 
operations, reduce wait times and most importantly, increase 
enforcement.
    These operations bring twofold benefits for the United States. 
First, improving border operations promotes foreign investment in the 
local economy. Secondly, improving enforcement effectiveness reduces 
smuggling and revenue loss and helps to stabilize the local government 
for which customs duties are a major source of revenues. The reduction 
of smuggling also helps to cut off the flow of illicit drugs and 
weapons and promotes stability, economic growth and democratization.
    Secondly, Customs has supported the SECI Anti-Crime Center in 
Bucharest since its inception. In fact, a Customs advisory team helped 
to draft the Center's original charter and international Memorandum of 
Understanding. Customs has personnel permanently detailed to the Center 
and other SECI member countries. At this time, the region is not a 
major source for narcotics. However, the growing strength of organized 
crime in the area needs to be addressed or it will become a threat to 
U.S. interests.
    In addition to Customs and Secret Service involvement, FinCEN 
supports SECI related requests for training, technical assistance and/
or requests for information through established law enforcement 
channels, as well as the Egmont System of financial intelligence units 
existing in SECI countries. Treasury Department law enforcement plans 
to continue its support and assistance to the SECI.
                                 ______
                                 

             Questions Submitted by Senator Byron L. Dorgan

                         U.S. CUSTOMS STAFFING
    Question. We understand from testimony at the House hearing last 
week, that Customs originally requested 1,000 new agents and inspectors 
to better manage its awesome dual responsibility of protecting the 
Nations borders from transnational crime, while at the same time 
fostering trade and trade compliance. Yet the Administration denied the 
request for funding. Concurrently, the Administration chose to fund the 
Department of Justice bureaus, specifically INS and the Border Patrol 
to obtain 1,140 additional agents over the next two years, bringing 
them to the authorized level of 5,000 new agents.
    Did Customs originally request new Agents and Inspectors for fiscal 
year 2002? Was this request denied? If there is a critical need for 
staffing in the Customs Service, why was this request denied? Does the 
need still exist?
    Answer. Under the current Administration, there was no fiscal year 
2002 budget request process from bureau to Department, or from 
Department to OMB. The current Administration has not validated the 
previous Administration's estimate.

                 ROLE OF TREASURY IN COUNTER-TERRORISM
    Question. The Administration announced that Vice President Cheney 
will oversee development of a plan for responding to terrorist attacks 
in the United States. As a part of that plan, a new office within FEMA 
will coordinate the terrorist response efforts by more than 40 
agencies. Treasury Secretary O'Neill testified on May 8, 2001, that the 
Customs Service is the Nation's ``first line of border defense but he 
failed to mention that the Secret Service is the lead agency for 
National Special Security Events under PDD-62, and only briefly 
mentioned ATF and your other law enforcement agencies.
    What is Treasury's role in Counter-Terrorism?
    Answer. In his brief oral statement, Secretary O'Neill was able to 
provide only highlights of Treasury's counter-terrorism efforts. His 
statement for the record more fully outlined the roles each of 
Treasury's enforcement bureaus play in combating terrorism. Briefly, 
those roles are as follows.
    Bureau of Alcohol, Tobacco and Firearms (ATF).--ATF enforces 
Federal laws relating to firearms, explosives, and arson, and regulates 
the firearms and explosives industries. Its resources include personnel 
specializing in responding to explosives and arson incidents, 
specialized data resources, including an Arson and Explosives National 
Repository database, and the only Federally trained and certified fire 
investigators.
    U.S. Customs Service.--With its unique border search authority, 
Customs investigates a range of crimes linked to terrorism, including 
smuggling, illegal exports of licensable technologies and arms, 
violations of international sanctions, and money laundering. Its 
mission includes preventing the importation of weapons of mass 
destruction (WMD) and investigating the exportation of WMD materials 
and technologies, arms, funds and other support to terrorists abroad.
    U.S. Secret Service.--The Secret Service protects the President and 
first family, the Vice President, former Presidents, visiting foreign 
heads of state, the White House complex, and foreign embassies in the 
United States. It coordinates security at designated National Special 
Security Events. It also conducts financial crimes investigations 
designed to ensure the integrity of the critical financial, payment, 
and telecommunications infrastructures.
    Internal Revenue Service--Criminal Investigation (IRS-CI).--IRS-CI 
investigates domestic extremist groups using tax fraud and money 
laundering as a funding mechanism. Also targeted are international 
terrorist financing activities, particularly if tax exempt 
organizations are involved.
    Federal Law Enforcement Training Center (FLETC).--FLETC offers a 
number of training programs for Federal, State, local and foreign law 
enforcement personnel from over fifty countries. FLETC also provides 
training to our foreign law enforcement partners on both an ongoing 
basis as well as in response to emerging high threat areas.
    Financial Crimes Enforcement Network (FinCEN).--FinCEN is charged 
with administering the Bank Secrecy Act (BSA), which imposes certain 
transaction reporting and record-keeping requirements on financial 
institutions that are designed to protect those institutions from money 
laundering and to provide a paper trail for investigators. As the 
central point for collection and analysis of BSA data, FinCEN provides 
case support to law enforcement investigations, including terrorism 
investigations.
    Office of Foreign Assets Control (OFAC).--OFAC administers 
Presidentially imposed economic sanctions against terrorist sponsoring 
countries and Middle East terrorist organizations. It also administers 
the sanctions program established by the Antiterrorism and Effective 
Death Penalty Act to prevent persons within the United States or under 
U.S. jurisdiction from providing material support or resources to 
Foreign Terrorist Organizations (``FTOs'') throughout the world. In 
addition, OFAC is in the process of establishing a Foreign Terrorist 
Asset Tracking Center (FTAT).
    During recent Hearings on U.S. efforts in counter-terrorism, a 
``top off'' exercise was ordered by Congress to demonstrate U.S. 
capabilities in a domestic terrorist event. The last exercise occurred 
last Summer, and the next is planned in 2002. Secretary Thompson stated 
that this is predominantly a Department of Justice Exercise.
    Question. What role do the Treasury Law Enforcement agencies have 
in the next topoff exercise?
    Answer. In Topoff 2000, Treasury's law enforcement bureaus attended 
pre-exercise briefings and were prepared to respond/assist within the 
scope of our respective missions. The Bureau of Alcohol, Tobacco and 
Firearms (ATF), assumed a major role in the Portsmouth, NH scenario, 
which involved a car bomb and chemical agent. ATF also provided 
investigative assistance in the Denver scenario and simulated a 
response to the nuclear, chemical, radiological (NCR) scenarios in 
Washington D.C. Like Topoff 2000, Treasury's law enforcement bureau 
will be ready to respond within the scope of their respective missions. 
Treasury law enforcement's participation in future Topoff exercises 
will be dependent upon the exercise scenarios chosen by the co-
sponsors.

                         COUNTER-TERRORISM FUND
    Question. The Counter-Terrorism Fund was established to address the 
Department of the Treasury's needs for unanticipated contingencies. The 
Office of Management and Budget wants to tap into this to pay ``other 
agencies.''
    Which Treasury agencies will be reimbursed from the fund in support 
of the Winter Olympics in Salt Lake City?
    Answer. The fiscal year 2002 Budget submitted by the President adds 
$45 million to the Treasury Counter-Terrorism Fund. This fund is set up 
to reimburse Treasury bureaus for costs incurred in fulfilling 
important counter-terrorism related responsibilities.
  --Treasury is planning to reimburse the following agencies from the 
        Counter-Terrorism Fund:
    Bureau of Alcohol, Tobacco and Firearms; United States Customs 
Service; United States Secret Service; Financial Crimes Enforcement 
Network; Internal Revenue Service; United States Mint; and Treasury 
Inspector General for Tax Administration.
    Question. Are there non-Treasury agencies being reimbursed from the 
fund?
    Answer. No. There are no current plans to reimburse the non-
Treasury agencies from this fund.
    Question. What is your position on this?
    Answer. The Treasury Counter-Terrorism Fund was created to 
reimburse Treasury agencies for counter-terrorism activities. We 
believe that non-Treasury agencies need to explore a separate and 
distinct funding mechanism to ensure proper agency funding in support 
of the fiscal year 2002 Winter Olympics, that does not include the 
Treasury Counter-Terrorism Fund.
    Question. Why are we using this fund for a NSSE that we know about 
years in advance?
    Answer. The use of the Counter-Terrorism Fund is consistent with 
what has been done in the recent past; the budget assumes that Treasury 
bureaus will be reimbursed for Olympics-related costs from the Counter-
Terrorism Fund.
    Question. Will this be the future avenue for funding for NSSEs?
    Answer. There are no existing plans to use the Counter-Terrorism 
Fund to fund Treasury bureaus for future NSSEs. The Administration is 
currently reviewing alternative funding mechanisms for National Special 
Security Events. We support this effort.
    Question. The fund was also established for unanticipated 
emergencies, but you are tapping it for Olympics. What of actual 
terrorist incidents?
    Answer. Yes, we concur that the fund was established for 
unanticipated emergencies and we believe there will still be sufficient 
money in the fund to reimburse Treasury agencies in the tragic event a 
terrorist incident occurs.
    Question. What justification?
    Answer. Justification is that these funds will reimburse Treasury 
bureaus for counter-terrorism activities, i.e., designing and 
implementing security at NSSEs, such as the 2002 Winter Olympics. This 
specific purpose is expressly stated in the fiscal year 2001 
appropriation for the Treasury Counter-Terrorism Fund.

                          PROGRAM ABSORPTIONS
    Question. We received information from the various agencies under 
your aegis, particularly the Secret Service and U.S. Customs, that they 
will have to find significant savings for program absorption. The 
amounts offset projected inflation for non-pay expenditures, as well as 
a variety of other non-discretionary cost increases. Customs must find 
approximately $35 million in savings, and the Secret Service must find 
approximately $14 million. Both agencies have suggested that they will 
realize these absorption's through improved resource management and by 
exploring potential efficiencies.
    What if the required absorptions cannot be realized through these 
methods?
    Answer. It is our view that the absorption's can and will be 
realized through the proposed efficiencies.
    Question. Can you guarantee that the critical missions performed by 
this agency for the health and security of the United States will not 
be denigrated?
    Answer. We do not believe the absorptions will cause any 
denigration to the critical missions of Treasury's law enforcement 
bureaus.

                              TREASURY IG
    Question. We have been briefed that the Treasury IG is conducting 
more investigations than audits, and that it wants to charge agencies 
for those audits. For example, the Customs Service recently had an 
audit for which Treasury IG wants to charge them $1.5 million in costs. 
Yet the Treasury IG was funded $33 million for these audits.
    What is the current status?
    Answer. In addressing this question, we wish to clarify two points. 
First, the $33 million represents our fiscal year 2001 appropriation to 
fund the entire Treasury Office of Inspector General (OIG) including 
both our investigative and audit operations.
    Secondly, with regard to the recently completed audit of the U.S. 
Customs Services (Customs) fiscal year 2000 financial statements, we 
are not attempting to charge Customs $1.5 million for the cost of this 
audit. This audit is final and we issued an unqualified opinion on 
Customs fiscal year 2000 financial statements on February 23, 2001. The 
only cost to Customs was $180,000 for a contract to perform Electronic 
Data Processing (EDP) general control work and approximately $95,000 to 
reimburse the OIG for travel costs related directly to the conduct of 
this audit.
    We have advised Customs, however, that we will no longer be able to 
perform the financial statement audit of Customs with OIG staff and 
that the estimated cost to use a contractor will be $1.5 million for 
the fiscal year 2001 audit.
    As a matter of background, the Office of Management and Budget 
designated Customs for annual entity financial statement audits 
pursuant to the Government Management Reform Act (GMRA) of 1994. OIG 
auditors have performed this annual audit since fiscal year 1994 with 
limited contractor support for things like EDP general and application 
control reviews and statistical analyses. While Customs has funded the 
costs of contractor support and travel by OIG staff, OIG has absorbed 
all other costs of the audit over the last seven years.
    During this time, we have dedicated significant staff, to meet the 
statutory requirements for financial statement audits. We have worked 
extensively with Customs during the conduct of these audits to help 
them overcome the serious weaknesses in their financial controls that 
prevented them from receiving an unqualified opinion. As a result 
Customs has received an unqualified opinion on their financial 
statement for the third consecutive year.
    Question. Also, why are there more investigations than audits?
    Answer. There has not been a significant increase in investigations 
relative to audits. During fiscal years 1999 and 2000, the total number 
of investigative cases closed by our office was 156 and 104, 
respectively. The numbers of audits completed during these fiscal years 
totaled 134 and 125, respectively.
    Two things should be noted, however, that make comparisons between 
numbers of investigations and audits difficult. First, investigations 
are typically of short duration and are conducted by an individual 
investigator. On the other hand, audits are typically conducted by a 
team of three auditors over a longer period of time and are oftentimes 
nationwide in scope to determine whether a particular Treasury program 
or activity is being operated in an economical, efficient, and 
effective manner.
    Secondly, since fiscal year 1998 we have significantly increased 
the size of our investigative staff relative to the audit staff 
primarily in response to concerns by the Senate Finance Committee as 
well as other congressional committees that we needed to provide more 
oversight over the Office of Internal Affairs at Customs and Offices of 
Inspection at the Bureau of Alcohol, Tobacco and Firearms and the 
United States Secret Service. For example, in fiscal year 1999 we 
reviewed a total of 510 closed cases in the three law enforcement 
bureau's internal affairs units. In fiscal year 2000, we reviewed an 
additional 438 closed cases. The increase in our investigative 
operations has also permitted our office to conduct investigations into 
matters that we would have previously turned over to the bureau Offices 
of Internal Affairs and Inspection due to the lack of staff.
    Question. What do you see as the primary function of the OIG?
    Answer. As prescribed in the Inspector General Act of 1978, as 
amended, the primary function of the OIG is to: (1) conduct and 
supervise audits and investigations relating to programs and operations 
of the Department of the Treasury except for the Internal Revenue 
Service which is the responsibility of the Treasury Inspector General 
for Tax Administration; (2) provide leadership and coordination and 
recommend policies for activities designed to promote economy, 
efficiency, and effectiveness in the administration of, and to prevent 
and detect fraud and abuse in such programs and operations; and (3) 
keep the Secretary of the Treasury and the Congress fully and currently 
informed about problems and deficiencies relating to the administration 
of such programs and operations and the necessity for and progress of 
corrective action.
    We have focused on these core mission activities since we became a 
statutory Inspector General with the passage of the 1988 amendments. 
The only things that vary are the activities that we audit and 
investigate. A number of factors can drive this including risk, new 
legislative requirements, and new areas of emphasis by the Congress and 
the Administration. For example, the passage of the CFO Act in 1990 and 
subsequently the GMRA in 1994 resulted in us shifting a significant 
portion of our audit resources from program audits to financial audits. 
Likewise, based on Congressional committee concerns, we have 
reallocated OIG resources to increase our oversight of the internal 
affairs functions in the law enforcement bureaus.
                                 ______
                                 

   Questions Submitted to the Bureau of Alcohol, Tobacco and Firearms

         Question Submitted by Senator Ben Nighthorse Campbell

                  firearms technological enhancements
    Question. As a direct result of complaints from legitimate firearms 
importers, $2 million was provided last year for management and 
technological enhancements to assist these law-abiding firearms dealers 
and collectors as they work through the regulatory process at ATF. ATF 
has developed a plan to use that money for information technology to 
streamline the process at ATF. I am told that you are also planning to 
implement management process changes which should have a more immediate 
positive impact.
    I would appreciate it if you could outline exactly what steps you 
are taking on the management side to make the firearms regulatory 
process more customer friendly.
    Answer. A number of significant management initiatives are being 
implemented, along with technological enhancements, to improve service 
to our customers. Specifically, we have signed a contract to hire two 
contract employees to perform data entry for the Firearms and 
Explosives Imports Branch. This will have an immediate impact on the 
length of time it takes to process an Import permit. By removing data 
entry responsibilities from the examiners, they can dedicate their time 
to researching and identifying the articles to be imported, and more 
quickly make a decision on the importability of goods. The contract has 
been signed, application packets for the contract employees have been 
submitted, and background investigations on the applicants are being 
conducted. In addition, we have forwarded to the FBI a request to 
electronically transmit fingerprints to the FBI. Currently, both the 
National Licensing Center (NLC) and the National Firearms Act (NFA) 
Branch submit fingerprint cards to the FBI. Paper submission of 
fingerprints results in a delay of over two weeks before a response is 
received. Electronic submission will decrease the time to a matter of 
days, thus greatly decreasing the time it takes to process a firearms 
license application or an NFA registration. Further, we are making 
improvements to the Imports, Licensing and NFA websites, providing 
greater access to forms, frequently asked questions, and links to other 
ATF sites.
    A significant management initiative is the inclusion of performance 
measures and customer service standards in every employee's performance 
critical elements. By identifying customer service standards and 
defining performance measures, management will have the ability to 
analyze performance, provide additional training where necessary, and 
ensure management and employees alike meet the standards we will have 
communicated to our customers. These are the significant management 
initiatives, along with others, that coupled with technological 
enhancements, will provide our customers with a more streamlined 
processing system, assuring their permits and applications will be 
processed not only timely, but inquiries will be handled by a 
professional and courteous staff.

                    FISCAL YEAR 2002 BUDGET REQUEST
    Question. Congress provided significant funds in fiscal year 2001 
for expansion of several programs within ATF such as the Youth Crime 
Gun Interdiction Initiative and the Integrated Violence Reduction 
Strategy. Does the proposed fiscal year 2002 budget request allow you 
to continue those initiatives?
    Answer. The fiscal year 2002 President's budget request contains 
sufficient funds to allow for annualization of the previous year's 
initiatives.

                            WINTER OLYMPICS
    Question. I noted that ATF has certain responsibilities for the 
2002 Winter Olympic Games, as well as providing staffing support for 
the Secret Service's security plan. However, there does not appear to 
be additional funding requested in the ATF budget for this purpose.
    How do you plan to pay for your Olympic Games responsibilities?
    Answer. ATF is working with Treasury to identify funding sources to 
fulfill ATF's responsibilities at the Olympics. Currently, the Treasury 
Counter-Terrorism Fund is being considered as potential source of 
funding.
    Question. Will this hurt ongoing programs?
    Answer. As noted above, a potential funding source has been 
identified and ongoing programs should not be adversely affected. 
However, should circumstances change, we will promptly inform the 
Committee.
                                 ______
                                 

             Questions Submitted by Senator Byron L. Dorgan

         gang resistance education and training program (great)
    Question. In my meeting with you this week, you stated that ATF has 
received $20 million in requests from law enforcement agencies through 
the GREAT program, yet the fiscal year 2002 budget only provides $13 
million.
    Can you absorb the difference, and if not how will you determine 
who receives funding?
    Answer. ATF employs a rigorous and systemic approach to determining 
the distribution of GREAT cooperative agreement funds. As noted in your 
question, we routinely receive requests for funding that exceed the 
amount available in our appropriation. Since we are not able to offset 
these additional requirements from within our existing funding, we 
utilize a balanced distribution approach to ensure that all localities 
that request and qualify for funding receive some level of funding. 
However, this approach does result in localities receiving less funding 
than they request.
    The distribution methodology has been published in the Federal 
Register, and copies will be provided if requested. It essentially 
divides the requesting localities into five categories based on 
population, so that their requests are evaluated against other 
localities of similar size. The available funding is segmented by 
population category, with a maximum award amount established within 
each category for a single locality.
    A rating system is employed which assigns points to each locality 
based on how they score in a number of different areas. Based upon the 
scores, the funding available for that population category is 
distributed among the localities.
    As noted, this process allows us to provide funding to all 
localities that request and qualify for it. However, we are not able to 
fully fund each localities' request.

                            WINTER OLYMPICS
    Question. The projected costs for ATF's support of the 2002 Winter 
Olympics in Salt Lake City is projected to be $10.523 million.
    Where will this funding come from and how will it affect your 
current program and staffing obligations?
    Answer. ATF is working with Treasury to identify funding sources to 
fulfill ATF's responsibilities at the Olympics. Currently, the Treasury 
Counter-Terrorism Fund is being considered as potential source of 
funding. Therefore, current program and staffing obligations should not 
be affected.
                    cost of personnel annualizations
    Question. According to the fiscal year 2002 budget, ATF could be 
directed to absorb funding for the Olympics, construction projects, and 
a number of other programs.
    How will this affect funding and support for the new hires and the 
annualization of the new initiatives?
    Answer. As mentioned above, there should be no affect on 
annualizations or hiring. Should circumstances change, the Committee 
will be promptly notified.
                                 ______
                                 

            Questions Submitted to the U.S. Customs Service

         Questions Submitted by Senator Ben Nighthorse Campbell

                     AUTOMATION MODERNIZATION--ACE
    Question. Some concern has been expressed about the current rate of 
appropriations for the ACE project and the ongoing maintenance of the 
existing ACS system. I am told that the original plan was to develop 
and implement ACE within four years with increasing amounts of 
appropriated funds each year. Last year Congress was able to provide 
$130 million, and that same amount has been requested for fiscal year 
2002.
    If the Customs Service were to receive $130 million each year for 
the ACE project, how long would it take to complete?
    Answer. If Customs continues to receive $130 million each year, the 
ACE Trade Modernization initiative will take 14 years to complete.
    Question. How much funding is required once the service and its 
prime contractor are in a position to actually start building this new 
system?
    Answer. The prime contract was awarded on April 27, 2001. In fiscal 
year 2001, Customs received $130 million to begin work on ACE; to date, 
$50 million of this $130 million has been released. In January 2002, we 
plan to begin building ACE based upon the requirements work we complete 
this year (contingent on $80 million being approved for release in the 
fall of 2001). The funding provided and requested, and the schedule 
defined in fiscal year 2001 and fiscal year 2002, will provide the 
foundation for a development effort in the future.

             AIR AND MARINE PROGRAM STRATEGIC PLAN/SPENDING
    Question. Members of the Senate are becoming increasingly concerned 
about the age of the existing aircraft and vessel fleets. Buying new 
planes and boats is an expensive proposition.
    Does the Customs Service plan to develop a multi-year plan for the 
systematic replacement of its aging fleets?
    Answer. Customs has a 5-year Air and Marine Modernization Plan that 
outlines systematic replacement of the fleet. It provides a current 
description, status of assets, and identifies the mission requirements 
of a consolidated Air and Marine interdiction program.
    The first publication of the Customs Air and Marine Interdiction 
Division Modernization Plan was released in August 2000. The second 
publication is currently being reviewed within the Administration.
    Priorities for the plan begin with safety but also look at 
overcoming obsolescence to improve operational effectiveness and reduce 
operations and maintenance costs.
    Priorities for the plan focus on providing safe, effective air and 
marine operations and reduced operating and maintenance costs.
    The technological improvements will pay for themselves within 3-5 
years through reduced operations and maintenance costs.
    Under the nation's drug strategy, the Customs Service has 
responsibility in all three interdiction zones--the source zone, the 
transit zone, and the arrival zone. It is an understatement to say that 
this is a huge task.
    Question. Can Customs do it all?
    Answer. Customs has the core competencies to accomplish its 
currently assigned missions in accordance with the National Drug 
Control Strategy.
    Customs core competencies include conducting detection and 
monitoring operations as well as interception and apprehension 
missions.
    The depth and breadth to which Customs can perform these missions 
is commensurate with the resources available.
    Question. What resources are necessary for this responsibility?
    Answer. For increased effectiveness and long-term sustainability of 
assigned missions, the Customs air and marine fleet requires 
modernization.
    The Air and Marine Modernization Plan (January 22, 2001) provides a 
``blue print'' to effectively accomplish currently assigned missions in 
accordance with the National Drug Strategy.
    Customs believes that the Department of Defense's unique expertise 
in providing logistical, intelligence, and communication infrastructure 
remains critical to the overall effort.

                         INVESTIGATIVE EFFORTS
    Question. On March 26, the Customs Service announced the take-down 
of a global child pornography web site based in Russia which resulted 
in arrests and search warrants in this country. This case is a prime 
example of the need for international cooperation among law enforcement 
entities. It also shows the insidious side of the Internet.
    What is the current Customs Service budget for child pornography 
investigations?
    Answer. Operations like the one in Russia highlight the success 
achieved by our CyberSmuggling Center in targeting international child 
pornography traffickers and individuals who exploit children in the 
cyber environment. These operations are made possible by the work 
performed at the Customs CyberSmuggling Center, which coordinates 
Customs efforts against child pornography.
    The Center's budget is approximately $5 million. About 65 percent 
of work performed at the Center is directed toward combating the 
exploitation of children.
    Violations identified and developed at the Center are then referred 
to field offices for further investigation and law enforcement action. 
Therefore, about $3.25 million is used to combat child pornography and 
other child exploitation at the Center.

             AIR AND MARINE PROGRAM STRATEGIC PLAN/SPENDING
    Question. The only new fiscal year 2002 initiative for Customs is 
funding to support the Western Hemisphere Drug Elimination Act. I note 
that $35 million has been requested for a new airplane, several boats, 
infrared sensors, as well as safety enhancements for flight crews. 
There has been a tremendous amount of public criticism of U.S. anti-
drug activities in other regions as a result of the shoot-down in Peru.
    What exactly is the Customs responsibility under the Western 
Hemisphere Drug Elimination Act?
    Answer. Customs will increase Detection and Monitoring mission 
support in the Source and Transit Zones.
    Under the Western Hemisphere Drug Elimination Act, Customs P-3 
fleet will grow to 16 aircraft (8 airborne early warning and 8 tracker/
interceptor aircraft).
    This increased operational support will provide: 8 hours per day of 
airborne early warning (AEW) and 8 hours per day of tracker/interceptor 
(slick) aircraft coverage in the source zone, for a total of 16 hours 
of flight time per day. 8 hours per day of AEW and 8 hours per day of 
slick aircraft coverage in the transit zone, for a total of 16 hours of 
flight time per day.
    Customs will keep operational a minimum of three AEW and two slick 
aircraft at forward operating locations.
                                 ______
                                 

               Questions Submitted by Senator Mike DeWine

                         AIR AND MARINE PROGRAM
    Question. Before the recent accidental shoot down in Peru, how many 
P-3 aircraft were assigned specifically for the source zone?
    Answer. Since January 7, 2001, Customs has provided a minimum of 
one airborne early warning P-3 mission per day in the source zone. We 
have met this commitment by providing enough back-up P-3 aircraft to 
ensure one would be available every day. The exact number of aircraft 
dedicated to this mission varies based upon the maintenance 
requirements.
    Question. In the 6 months prior to the Manta forward operating 
location in Ecuador closing down for runway upgrades, how many total P-
3 flights did Customs fly?
    Answer. One deployment occurred in the 6 months prior to Manta's 
closure. Due to maintenance complications, only one mission was flown 
during this deployment.
    Question. With the expected closure of Manta, what alternative 
locations were developed to sustain source zone flights? Have you flown 
from any of those locations prior to the shoot down in Peru?
    Answer. Alternative operational locations for Manta, Ecuador are as 
follows:
    Piura, Peru--Missions flown prior to Peru incident; Panama City, 
Panama--Missions flown prior to Peru incident; Apiay, Colombia--
Missions flown prior to Peru incident; Barranquilla, Colombia--Missions 
flown prior to Peru incident; Cartagena, Colombia--Not used for 
missions prior to Peru incident; Palanquero, Colombia--Not used for 
missions prior to Peru incident.
    Question. Finally, how many counter-drug end game operations have 
Customs P-3 aircraft been involved in during the past 3 years in the 
source zone?
    Answer. Customs assets normally perform as a team with other law 
enforcement entities. The below successes are overall results from this 
team effort. P-3 aircraft were involved in the majority of these 
events.

------------------------------------------------------------------------
                                      Noncommercial
                                    maritime movement  Noncommercial air
                                          events        movement events
                                       interdicted        interdicted
------------------------------------------------------------------------
1999 Overall Total................                118                 48
1999 USCS Participation...........                 19                 32
2000 Overall Total................                 80                 28
2000 USCS Participation...........                 19                 21
2001 Overall Total \1\............                 38                 15
2001 USCS Participation \1\.......                  9                14
------------------------------------------------------------------------
\1\ Data through 1st Quarter 2001.


    Question. With the implementation of Plan Colombia and a greater 
emphasis on the source zone, do you expect the number of P-3 aircraft 
allocated flight hours to increase?
    Answer. Joint Interagency Task Force (JIATF)--EAST schedules 
Customs assets according to mission priorities and asset availability.
    Plan Colombia directs resources and priorities to the source zone, 
and Customs expects JIATF--EAST to schedule our assets accordingly.
    In accordance with the Interagency Planning Guide and U.S. 
Interdiction Coordinator guidance, Customs will continue to increase 
coverage of source zone as we bring on board two more P-3 airborne 
early warning aircraft and four P-3 ``slicks.''

                         RECRUITMENT/RETAINING
    Question. I understand that like the military services, Customs has 
experienced problems retaining and recruiting pilots? What is the 
status of this situation? What steps have you took to address this 
problem?
    Answer. As of May 14, 2001, Customs has 26 Branch Fixed/Rotary Wing 
Pilot vacancies; 24 offers were extended to pilot applicants, and 24 
applicants accepted these offers. All are in the various stages of the 
pre-employment process. Recently approved retention initiatives such as 
the 10 percent group retention bonus, as well as a streamlined 
recruitment and selection process, have been designed to maximize pilot 
hiring. These changes have been initiated to ensure that the pilot 
``pipe-line'' consists of a well-qualified pool of applicants and is 
adequate to fill the remaining 2 vacancies. Further, these changes will 
also ensure that there is an ample number of qualified applicants to 
accommodate vacancies as they occur in the future.
    As of May 14, 2001, Customs has 18 P-3 pilot vacancies; 3 offers 
were extended to pilot applicants, and 3 have accepted these offers. 
All are in the various stages of the pre-employment process. Five 
additional pilot recommendations have been forwarded for management 
review and approval. We anticipate filling the remaining positions, as 
well as establishing a ``pipe-line'' for future vacancies, by issuing a 
merit promotion vacancy announcement to entice current Customs pilots 
to ``crossover'' to become P-3 pilots. The inducement to these pilots 
is the accretion of the grade from its current GS-13 to a GS-13/14. 
Additionally, a new public notice vacancy announcement has been 
prepared with entry grade increase from GS-13 to GS-13/14. Customs has 
implemented the following recruitment and retention incentives:
    Increase of P-3 pilot career ladder to GS-14.
    Identification of non-P-3 Customs pilots who can be trained to fly 
P-3s.
    Continuation of retention pay at the rate of 10 percent for all 
pilots through fiscal year 2002.
    Streamlining of the recruitment, selection, and background 
investigation clearance processes.

                         AIR AND MARINE PROGRAM
    Question. I understand that Customs has developed a modernization 
plan for its air and marine resources to improve its ability to stem 
the flow of illicit drugs into the United States now and in the future?
    Answer. Customs has developed a 5-year fleet modernization plan, 
incorporating innovative technology and multi-mission equipment, to 
improve its ability to stem the current flow of illicit drugs into the 
U.S. and enable the flexibility to respond to future threats.
    Question. How important is the modernization plan to your long-term 
efforts and how do you foresee the plan enhancing your counter drug 
efforts?
    Answer. The Customs Air and Marine Modernization Plan is extremely 
important to its long-term efforts because it establishes a baseline 
for over $2 billion in assets and develops a business plan that 
includes the following enhancements:
  --Improved safety, standardization and interoperability
  --Maintained base mission capabilities
  --Increased mission effectiveness by infusing new equipment and 
        technology into the fleet
  --Reduced operations, crew training costs, and maintenance costs
  --Improved program efficiency by consolidating a fleet of diversified 
        mission-specific platforms into a standardized fleet of a 
        select number of multi-mission platforms
  --Replacement of obsolete equipment
                                 ______
                                 

             Questions Submitted by Senator Byron L. Dorgan

                                STAFFING
    Question. House testimony reflects you requested 1000 additional 
agents/inspectors, which OMB denied.
    Can you accomplish your enforcement and trade facilitation goals 
without these additional hires?
    Answer. The fiscal year 2002 staffing level will provide sufficient 
resources to allow Customs to meet its highest priority mission 
requirements.
    The fiscal year 2002 President's Budget limited overall Federal 
spending increases to four percent over fiscal year 2001 enactment 
levels. Increases to Customs staffing as might be indicated by the 
Resource Allocation Model could not be accommodated within this 
constraint.
    Question. What part of your mission is compromised without these 
added personnel?
    Answer. Customs received a level of resources that will allow it to 
meet its highest priority mission requirements.

                     AUTOMATION MODERNIZATION--ACE
    Question. With the $130 million Administration request this year in 
the fiscal year 2002 budget, how long will it be until ACE becomes 
operational?
    Answer. ACE development will be modular, and the first module will 
be operational in late fiscal year 2002 (dependent on the release of 
$80 million appropriated in fiscal year 2001). If Customs continues to 
receive $130 million each year, the ACE Trade Modernization initiative 
will take 14 years to complete.
    Question. With further delays in the program, is there concern that 
the system will become obsolete before it becomes operational?
    Answer. We plan to build ACE in a modular fashion allowing 
technology insertion and refresh to occur throughout the development 
life cycle.
    Further delays will increase the cost due to prolonged software 
development activities, increased hardware and software license costs 
while the system is being developed, extended operation of the 
Modernization office, and extended operation of the Prime integration 
contractor's management office.
    In addition, the Prime integration contractor team, as well as 
Customs, will have difficulty maintaining continuity of staff during 
the development process and staff turnover will increase the time spent 
understanding the import problems and will reduce the time spent 
developing solutions. In addition, the number of task orders will 
increase, causing an increase in the cost of oversight and integration.
    Question. What would the funding be for fiscal year 2002 to stay on 
track ($308 million)?
    Answer. All funding scenarios will be revised to reflect the Prime 
contractor's input. The Prime will assess reallocation and sequencing 
of the software development increments, and the overall enterprise 
system architecture for implementing ACE, in concert with other 
enterprise IT requirements. Initial Prime replanning results are 
expected at the end of the summer.

                              TRADE ISSUES
    Question. What are the current wait times at the Southwest Border 
(SWB)?
    Answer. Currently, SWB wait times vary, and Customs is committed to 
reducing excessive wait times.
    Recent data reveal that the overall average wait time for passenger 
vehicles is less than 20 minutes. However, at some of the busier ports 
of entry such as El Paso, Texas, and San Ysidro, California, wait times 
can be one hour or more during peak periods such as rush hour, weekends 
and holidays. However, no wait periods frequently occur during off peak 
hours.
    The average wait time for commercial traffic is normally less than 
30 minutes. This can also increase to over one hour during peak, rush 
periods at some of the busier and more congested facilities, including 
Otay Mesa, California. However, at the new World Trade Bridge in 
Laredo, Texas commercial traffic seldom experiences wait times in 
excess of 30 minutes.
    Question. Are the wait times a function of staffing shortfalls or 
infrastructure or both?
    Answer. As stated above, current SWB wait times vary, and Customs 
is committed to reducing excessive wait times. We are aligning the 
staff to address peak periods of traffic when wait times increase. 
There are some infrastructure limitations that hamper our efforts, for 
instance the need for a new commercial crossing at San Luis, Arizona to 
separate the commercial vehicles from the passenger vehicles; thereby, 
avoiding the gridlock situation that currently exists.
    Through recent Congressional funding we are in the process of 
hiring 228 Inspectors and Canine Enforcement Handlers at SWB ports of 
entry. These officers are being deployed at key locations to address 
the workload demands and enforcement threat.
    Customs is also committed to addressing the workload and 
enforcement threat at the Northern Border ports of entry. We are 
continuing to monitor the traffic patterns to determine appropriate 
staffing levels. Furthermore, as a result of recent appropriation of 
over $28 million, we are in the process of protecting and enhancing the 
security of the Northern Border ports of entry with additional Agents, 
deployment of technology, and infrastructure improvements.
    My staff has been to the SWB and notes it was chaotic even on a 
weekend. They have also been to the Northern Border, which is grossly 
understaffed. We need to do more and this budget does not do it.
    Question. With spiraling trade increases and shortfalls in 
staffing, can you adequately maintain your trade facilitation mission?
    Answer. The tremendous growth in international trade places great 
demands upon the Customs Service to facilitate legitimate trade while 
protecting the public and industry from unsafe and illegal goods, and 
unfair trade practices. In the past four years alone, Customs workload 
has increased 46 percent as measured by the number of entries processed 
and by 35 percent as measured by the value of U.S. imports for 
consumption. In the same time period, commercial staffing levels have 
remained stagnant.
    To manage trade in this environment, Customs is utilizing risk 
management, a data driven process that identifies and defines levels of 
risk for non-compliance associated with specific importers and 
industries. By prioritizing these levels of risk by importer and 
industry, Customs is able to direct its limited resources accordingly, 
while facilitating the transit of goods posing a low risk for non-
compliance.

                        FOREIGN OFFICES/ATTACHE
    Question. The U.S. Customs Service Office of International Affairs 
has numerous overseas offices which play a critical role in trade 
compliance, trade enforcement, and international training.
    How does this mission foster U.S. Trade programs?
    Answer. The Office of International Affairs has become a leader in 
developing more efficient and transparent import and export procedures 
throughout the world. Streamlining procedures and making customs 
operations more predictable in other countries is a primary focus in 
supporting U.S. trade policy and opening markets to U.S. exporters. 
Training and technical assistance provided by the Office of 
International Affairs addresses the implementation of international 
conventions and agreements, including the World Trade Organization 
Valuation Agreement, the Harmonized System Convention for 
classification of goods, the WTO Trade-Related Aspects of Intellectual 
Property Rights (TRIPS) and the revised International Convention on the 
Simplification and Harmonization of Customs Procedures (Kyoto 
Convention).
    In addition, the Office of International Affairs provides technical 
support to U.S. negotiators on customs-related issues during trade 
negotiations to ensure that such arrangements facilitate the flow of 
legitimate trade and provide preferential treatment to goods qualifying 
under the terms of the agreement while maintaining the appropriate 
level of enforcement. The office participates in the Free Trade Area of 
the Americas negotiations, as well as the development of arrangements 
with Chile and Singapore.
    Question. How do they support your international law enforcement 
mission?
    Answer. The U.S. Customs Service currently has 25 offices located 
at strategic locations around the world. Customs investigative 
priorities are aligned with the International Crime Control Strategy. 
Customs foreign offices conduct complex criminal investigations in the 
following priority enforcement program areas:
  --Trade Fraud (intellectual property, forced labor, revenue 
        protection, etc.)
  --Smuggling (narcotics, merchandise, cargo theft, cultural property, 
        etc.)
  --Financial (international money laundering)
  --Strategic (export violations, weapons & related dual-use 
        technology)
  --Cybersmuggling (child pornography/sexual exploitation, computer 
        forensics)
    Attache offices are comprised primarily of special agents. They 
support the investigations of domestic offices and initiate 
investigations from foreign sources. The investigators work with 
foreign law enforcement counterparts to obtain information, evidence 
and testimony for presentation in U.S. Federal courts.
    The U.S. Customs Service has foreign offices at the following 
locations:
    Americas.--Bogota, Colombia; Caracas, Venezuela; Mexico City, 
Mexico; Hermosillo, Mexico; Monterrey, Mexico; Tijuana, Mexico; 
Montevideo, Uruguay; Ottawa, Canada; Panama City, Panama.
    Asia.--Bangkok, Thailand; Beijing, China; Hong Kong, China; Seoul, 
Korea; Singapore; Tokyo, Japan.
    Europe/Africa.--Berlin, Germany; Frankfurt, Germany; Brussels, 
Belgium (WCO); London, England; Moscow, Russia; Paris, France; Lyon, 
France (Interpol); Pretoria, South Africa; Rome, Italy; Vienna, 
Austria.
    Offices to be Opened in 2001.--Manila, Philippines; Sao Paulo, 
Brazil; Toronto, Canada; Vancouver, Canada.
    Proposed Office.--New Delhi, India (pending Government of India 
approval).
    Question. Are you focusing enough attention on your overseas 
mission?
    Answer. Customs does the best job possible, given the always 
competing demands for available resources.
    Question. Given staffing constraints, is one part of your mission 
neglected vis-a-vis the other?
    Answer. The Office of International Affairs employs an integrated 
strategy to deliver law enforcement expertise, training and 
modernization to our trading partners. Through these efforts, the 
foreign offices develop effective partnerships to combat transnational 
crime, money laundering and trade fraud while facilitating 
international trade. The integrated strategy provides Customs with 
unique access and influence with our foreign partners, which leads to a 
positive impact on foreign legislation, trade practices and 
international law enforcement.

                          PROGRAM ABSORPTIONS
    Question. You recently briefed the Treasury Appropriations staff 
that you plan to realize $35 million in program absorptions in your 
fiscal year 2002 budget.
    Can you state that savings realized through management efficiencies 
will not effect service to the Nation?
    Answer. The absorption of $35 million in inflationary cost 
increases will be accomplished through an enterprise approach toward 
administrative services and functions. For example, Customs will work 
with main Treasury and our sister bureaus to identify areas where 
economies of scale can produce cost savings. These areas include, but 
are not limited to, national contracts for a variety of communications 
and business travel services. In addition, Customs will take a very 
hard look at ``mission critical'' requirements and meet only those that 
are truly critical.
    Question. What if you can not achieve $35 million in savings 
through program absorptions?
    Answer. Regardless of the types of management efficiencies and how 
they are achieved, Customs will not compromise the security of the 
United States.

                        NATIVE AMERICAN TRACKERS
    Question. Native American Patrol Officers (CPOs) from the Tohono 
O'odham reservation are being used to track and apprehend drug 
smugglers in Arizona. The program is a resounding success. Last year 
the CPOs were responsible for interdicting 58,000 pounds of narcotics, 
almost a third of the drugs seized in Arizona. They have seized 40,000 
pounds in the last six months alone. We learned that via section 
213.3105(b)(9) of Schedule A, the SecTreas limits the number of CPOs to 
a certain number (25). That sections reads, ``(9) Not to exceed 25 
positions of Customs Patrol Officers in the Papago Indian Agency in the 
State of Arizona when filled by the appointment of persons of one-
fourth or more Indian blood,''. . .
    Why is there a limit on the positions?
    Answer. Schedule A authority for CPOs in the Tohono O'odham Nation 
is currently limited to 25 positions, to be filled by persons with one-
fourth or more Indian blood. The original Schedule A authority was 
granted in 1974 and authorized 7 CPOs. In order to maintain an 
effective operation on the reservation territory, in 1975 the Customs 
Service requested an additional 18 positions. OPM granted our request 
and increased our authorized Schedule A positions to 25.
    Question. If you were authorized to expand the program, would you 
try?
    Answer. Yes. An expanded number of CPOs would provide an increased 
enforcement presence along the border.
    Expansion of the program would also depend upon our ability to 
recruit a sufficient number of applicants who are qualified and 
certified as persons of one-fourth or more Indian blood.
               san ysidro outbound license plate readers
    Question. The layout of the Southbound lanes of I-5 into Mexico 
have little capacity to slow traffic as vehicles depart the United 
States. The license plate readers are technically capable of 
identifying stolen vehicles, but it is virtually impossible to identify 
or stop the actual vehicle before it departs the United States. There 
was an April 19, 2001 meeting with CALTRANS, Sen. Feinstein, Customs, 
FBI and CHP.
    What was the outcome of that meeting?
    Answer. Attendees at the April 19, 2001 meeting were apprised that 
Customs was initiating operation ``Hot Wheels'' to address the issue of 
outbound stolen vehicles and the effectiveness of outbound License 
Plate Readers (LPRs) along the Southwest border. The operation was held 
April 24-May 8, 2001, at San Ysidro and Otay Mesa, California. 
Operation ``Hot Wheels'' allowed Customs to:
  --Validate outbound License Plate Reader information;
  --Validate the effectiveness of using the ``pulse and surge'' 
        enforcement method to interdict stolen vehicles;
  --Determine minimum staffing levels needed to effectively interdict 
        stolen vehicles; and
  --Measure the impact of traffic flow when vehicle speeds are reduced 
        so that safe enforcement operations can be performed.
    Customs attended a meeting on May 16, 2001, with California, 
Arizona, New Mexico, and Texas law enforcement officials and explored 
enhanced interdiction methods for outbound stolen vehicles. 
Representatives from the National Insurance Crime Bureau (NICB) were 
also in attendance. Discussion included the possibility of establishing 
a committee to develop the intelligence gathering and enforcement 
capabilities associated with the LPRs. The proposed committee is 
tentatively scheduled to meet July 10, 2001. Senior Executives of U.S. 
Customs expect to meet with Mexican officials by the end of May to 
discuss various issues, one of which will be stolen vehicles. The 
feasibility of exchanging LPR data with Mexican Customs will be raised.

                       SAN YSIDRO DETENTION CELLS
    Question. A serious problem exists with the location of the 
detention cells used to detain, interview and process individuals 
apprehended at that border facility. As it stands, prisoners/suspects 
must be led through public space and use a public elevator to access 
the cells. This presents an obvious security risk to the public, as 
well as to Customs and INS employees.
    What is needed to remedy this dangerous situation?
    Answer. Currently, violators are led from the secure detention area 
through a public elevator to the designated interview, processing, and 
fingerprinting area. To remedy this situation, a project was developed 
with the General Services Administration (GSA) to construct a holding 
and processing area at an estimated cost of $1.3 million. This 
processing center would be located at the existing West Headhouse in 
the secondary area and would consist of 13 cells. The project is 
currently in the design phase. Customs and GSA are awaiting the final 
blueprints of a modified plan. The plan was modified to provide for 9 
holding cells and interview rooms based on available funding.

     CONSOLIDATED OMNIBUS BUDGET RECONCILIATION ACT OF 1985 (COBRA)
    Question. Customs is responsible for collecting nine different user 
fees covering various services to the traveling public and trade 
community. (They are collected in part from commercial vessels, 
vehicles, rail cars, private aircraft, brokers, air/sea passengers, 
etc). These fees are deposited into an account which is used to 
reimburse the Salaries and Expense account in the following order: 
Overtime, premium pay, benefits on overtime, and salaries for full time 
and part-time inspectors and equipment that enhance Customs services 
for those persons and entities required to pay fees. The authorization 
to collect COBRA user fees expires (sunsets) on September 30, 2003. 
Critically, COBRA enables Customs to pay for overtime and the funds 
were used to hire an additional 1,400 inspectors and K-9 officers. Due 
to the enormous growth in workload and service demands, combined with 
shrinking appropriated base budget, these 1,400 positions are in 
jeopardy, as is the $119 million in overtime needed each year resulting 
from staffing limits.
    How close is Customs to drying up the reserve fund?
    Answer. The COBRA reserve fund is available for unanticipated 
expenditures, this money is only used after all other funds have been 
exhausted. The COBRA statute requires that a $30 million contingency 
fund be maintained in addition to the $39 million carryover. The COBRA 
expenses have been increasing at a greater rate than collections. As a 
result, Customs has exhausted all but $39 million of the available 
COBRA balances accumulated from prior years and must now manage 
spending within estimated annual collections. Since 1995, the Customs 
Service has faced enormous growth in workload and service demands as 
well as higher position costs.
    Question. Are you actively pursuing extension of COBRA?
    Answer. Legislative proposals for extending the COBRA statute have 
been under consideration.
    Question. If COBRA sunsets in September 2003 without extension, 
what will happen to the 1,400 positions funded by those fees?
    Answer. If COBRA sunsets in September 2003 the 1,400 positions 
funded by COBRA fees would either be absorbed in the Salaries and 
Expenses Appropriation if there were additional appropriation resources 
or eliminated through attrition over a three-year span. In addition, 
COBRA funds the equivalent of more than 1,150 FTE through overtime.
                                 ______
                                 

             Questions Submitted to the U.S. Secret Service

         Questions Submitted by Senator Ben Nighthorse Campbell

               SECURITY FOR THE 2002 WINTER OLYMPIC GAMES
    Question. As you know, I am the only member of the Senate who was 
on an Olympic team so I have a personal interest in making sure that 
the 2002 Winter Olympic Games run smoothly. The Secret Service is 
responsible for site security--and it must be a huge undertaking to 
secure a ski mountain! Without going into any security-related details, 
do you believe you have the resources necessary to do the job properly?
    Answer. The Service has put together a security plan that it 
believes will prevent terrorist incidents at the 2002 Winter Olympic 
Games. The source of the funding needed in fiscal year 2002 to 
implement this security plan has not yet been identified; however, the 
Administration is currently reviewing various possible funding 
mechanisms.
    Question. During a recent staff oversight trip to Salt Lake City, 
your staff provided briefings on the extensive preparations your agency 
has made thus far. As a result of that trip, a number of issues came to 
my attention that I would like to address:
    What costs are the Secret Service contractually obligated to pay, 
and when must they be paid. Do you have the necessary funding?
    Answer. In order to secure hotel rooms for large protective events, 
where rooms will be in short supply and demand will be high, the 
Service must book hotel rooms months or even years in advance of the 
event.
    For the 2002 Olympics, the Service is under contract with the Salt 
Lake City Organizing Committee (SLOC) for rooms costing $4.1 million. 
The Service will be obligated to pay, subject to the availability of 
funds, for these rooms in fiscal year 2002. The Administration is 
currently reviewing various possible funding mechanisms to cover the 
costs associated with the protective security activities for the 
Olympics.
    Payments to SLOC are due in full by October 31, 2002. In the event 
the Service has not received its fiscal year 2002 appropriation by 
October 31, 2002, payment is due within 14 days of receipt of an 
invoice or the date the Service receives its fiscal year 2002 
appropriation, whichever is later.
    The Service has also contracted for rooms independently of the SLOC 
for a total of $6.8 million.
    Payments to these various lodging establishments follow a number of 
payment plans ranging from full payment within 10 days of receipt of 
our fiscal year 2002 appropriation, to full payment within 30 days 
after the event or receipt of a correct invoice whichever is later.
    For office space the Service has established leases with the 
General Services Administration (GSA) and the Veterans Administration 
(VA) in Salt Lake City for five (5) separate locations to support its 
operational requirements.
    The rent for the GSA leases will total approximately $214,000 over 
the entire period of use, and will be paid on a monthly basis.
    The Department of Veterans Affairs, VA Salt Lake City Healthcare 
System (VASLCHCS), Salt Lake City, Utah, and the Service have entered 
into an agreement for the temporary use of their Building 4, designated 
parking areas, and access to and use of selected VASLCHS facilities. 
The Service will use this facility as its Coordination Center for the 
2002 Winter Olympics.
    Usage of these facilities began March 1, 2001 and will continue 
through March 31, 2002. The Service will reimburse VASLCHCS a total of 
$136,000, and payments will be made on a quarterly basis.
    Through a joint effort with several Federal agencies, an Air Space 
Operations Center (``ASOC'') is being established at Hill Air Force 
Base, Salt Lake City, Utah. Renovations are required to accommodate the 
necessary equipment and personnel which will be installed at the 
location. The U.S. Secret Service has reimbursed the Utah Air National 
Guard for materials only for these renovations. Cost of materials for 
this project totaled $10,000.
    Question. We were informed that some 2,100 agents would be required 
to implement the security plan. Where will these agents come from? Are 
you ``borrowing'' personnel from other agencies?
    Answer. Yes, the personnel required to implement the Service's 
security plan will come from other agencies, both within and outside 
the Department of the Treasury. However, following additional review, 
the number of law enforcement personnel required to implement the 
security plan has been reduced to just under 1,700.
    Question. If so, from whom?
    Answer. We are currently engaged in discussions with several 
agencies and departments regarding support for the Olympics, to include 
the following:
    Department of the Treasury: Bureau of Alcohol, Tobacco and 
Firearms; U.S. Customs Service; Internal Revenue Service; U.S. Mint; 
Inspector General for Tax Administration.
    Department of Justice.
    Department of Agriculture: USDA Forest Service.
    Department of the Interior: National Park Service; U.S. Bureau of 
Land Management; U.S. Fish and Wildlife Service.
    Question. To your knowledge, have these agencies received funding 
for their participation?
    Answer. Currently, these agencies have not received funding for 
their support of the Secret Service Security plan, however, the 
Administration is currently reviewing various possible funding 
mechanisms to cover the costs associated with the protective security 
activities for the Olympics.
    Question. If not, how does that impact your security plan?
    Answer. The Administration is currently reviewing various possible 
funding mechanisms to cover the costs associated with the protective 
security activities for the Olympics.
    Question. How many military personnel will be utilized in your 
security plan?
    Answer. We respectfully suggest that information regarding the 
numbers and purpose of Military assets needed to implement our security 
plan be given in an executive session.
    Question. Has DOD committed the required resources?
    Answer. Again, the Service would prefer to discuss this in an 
executive session.
    Question. Besides funding, what else can Congress provide to assist 
your efforts regarding the Olympics?
    Answer. Aside from funding, at this time, we don't believe there is 
anything the Congress can provide to assist us.

                 WORKFORCE RETENTION/WORKLOAD BALANCING
    Question. In fiscal year 2000, Congress directed you to submit a 
summary of workload trends for field agents including average overtime 
and early separations. You were also directed to provide quarterly 
reports to the Committee on workforce retention and workload balance, 
including investigative and protection workloads, recruitment, and 
staffing by field offices. Have you seen a decrease in the amount of 
overtime worked by field agents since the beginning of the fiscal year?
    Answer. No. There has actually been a small increase in overtime 
during the first quarter of fiscal year 2001 compared to fiscal year 
2000. Average overtime per month increased from 80 hours in fiscal year 
2000 to 83 hours in fiscal year 2001(through December). This was to be 
expected given the Presidential Campaign.
    A considerable decline in overtime is expected to occur during the 
remaining months of fiscal year 2001 and carry over into fiscal year 
2002. Current projections for fiscal year 2001 put the average overtime 
estimate between 67 hours and 73 hours of overtime per month for field 
agents. The average number of hours of overtime per month is expected 
to move toward the lower number during the remaining months of fiscal 
year 2001, as the additional special agents hired to date through our 
Workforce Retention and Workload Balancing effort complete training and 
the first year of employment.
    Field agents should begin to approach the target overtime figure of 
62 hours per month during fiscal year 2002. Current projections put the 
average number of overtime hours per month for field special agents at 
between 64 and 69 hours by the end of fiscal year 2002.
    Question. Have you seen a decrease in the amount of early 
separations of special agents since the beginning of the fiscal year?
    Answer. During fiscal years 1999 and 2000, 52 and 53 special agents 
respectively, separated early. The Service expects this number to drop 
during fiscal years 2001 and 2002, as the additional special agent 
hiring accomplished during the past two years begins to significantly 
address the problems we believe have led to a higher than usual number 
of early separations.
    Question. Considerable funding increases have been provided to the 
Secret Service for the purpose of hiring more special agents in order 
to reduce the workload and decrease attrition. I know you are aware 
that some members of the Committee had some doubts that you would be 
able to hire the full number requested. What efforts have you made in 
hiring since the beginning of the fiscal year?
    Answer. In addition to our aggressive and innovative approach of 
sponsoring our own nationwide Secret Service specific recruitment 
events with diverse radio, newspaper and television advertising, we 
participate in a host of nationwide job fairs. The Secret Service 
advertises in culturally diverse magazines and publications, military 
publications and Internet law enforcement sites. The Secret Service 
also has its own web site at www.treas.gov/usss where our duties, 
positions, field offices and job fairs are outlined and updated on a 
monthly basis to keep interested applicants aware of new information.
    Every two years, we provide each of our employees with updated 
Employee Recruiter Handbooks outlining each position for which 
applicants are being sought. We ask each of our employees to actively 
recruit qualified applicants for the special agent, Uniformed Division 
and administrative, support and technical positions.
    The Secret Service keeps up with state of the art recruitment 
methods and means. As the sophistication of job seekers and our need 
for technological skills increase, technology has become an integral 
part of our overall recruitment strategy. Also, the Secret Service uses 
several special employment programs to bring well-educated graduates 
into its workforce. Efforts include:
  --Utilizing the Office of Personnel Management's USA Job Web site 
        ``What's Hot'' feature. This feature is a direct link to 
        targeted Secret Service vacancies.
  --Posting a national listing of Secret Service recruitment events on 
        the Secret Service web site
  --Making application forms accessible via the Internet
  --Participating in various career/job fairs nationwide
  --On a case-by-case basis, advertising in local newspapers to recruit 
        hard to fill positions
  --Maintaining an ongoing relationship with Historically Black 
        Colleges and Universities, Hispanic Serving Institutions, and 
        other minority organizations, to encourage the recruitment of a 
        diverse workforce
  --Hosting college groups at Secret Service Headquarters to provide 
        employment opportunity briefings
    Question. Are your hiring efforts meeting your goals? Will you hire 
the full number of full-time equivalents (FTE) you requested for fiscal 
years 2000 and 2001?
    Answer. Yes, these efforts are meeting our goals. During fiscal 
year 2000 the Service achieved 98 percent of its authorized FTE level, 
and it is currently estimated that we will achieve 99.6 percent of our 
authorized FTE in fiscal year 2001.
    Question. I would appreciate it if you could break down the total 
number of special agents, uniformed division, and administrative 
personnel for fiscal years 1999, 2000, and 2001.
    Answer. See below.

                              DETAIL OF FULL-TIME EQUIVALENT POSITIONS BY CATEGORY
----------------------------------------------------------------------------------------------------------------
                                                                                                     Estimated
                                                                    Fiscal year     Fiscal year     fiscal year
                                                                       1999            2000            2001
----------------------------------------------------------------------------------------------------------------
Special Agents..................................................           2,300           2,637           2,861
Uniformed Division Officers.....................................           1,039           1,009           1,044
Administrative Personnel........................................           1,602           1,599           1,652
                                                                 -----------------------------------------------
      Total.....................................................           4,941           5,245           5,557
----------------------------------------------------------------------------------------------------------------

    Question. What impact has the increase in personnel had on work 
space requirements?
    Answer. The infusion of additional staff into the Service's 
facilities infrastructure has caused some growing pains. The Service is 
incorporating the new personnel into its existing offices. While 
working toward these interim accommodations, the Service has computed 
the costs of necessary facilities, security, and information technology 
infrastructure needs to total $5.1 million. The effect has been a $6.1 
million increase in our annual costs for workspace rental. It should be 
noted that these increases in personnel often require the relocation of 
entire offices rather than adding space to existing office sites. The 
relocations are costly compared to the presumed costs of incremental 
increases to existing offices.
    Question. Your budget request does not include additional funding 
for the third year of the workforce re-balancing and workforce 
retention initiative which this Committee supported in the last two 
years. What will be the impact of delaying the third year of this 
initiative on quality of life, retention, and hiring issues?
    Answer. Following an interagency study involving the Department of 
the Treasury and the Secret Service, a Workforce Retention/Workload 
Balancing effort was undertaken. This effort has two main objectives. 
First is the objective of stemming the loss through resignation of 
young field special agents--special agents with less than 6-10 years on 
the job. To achieve this objective will require restoring the quality 
of work and personal life for the younger field special agent that 
existed during the early 1990's. Currently, field special agents are 
working approximately 83 hours of overtime per month (we expect 
overtime to drop to 67-73 hours by the end of fiscal year 2001). They 
are also spending over one-quarter of their time each month on the road 
and away from their families. The targeted level for overtime is 62 
hours per month, and for time out of district no more than 16 percent 
of the time. Longer hours, more time on the road, and less time with 
their families is causing increased numbers of younger special agents 
to reconsider their situations and conclude that there are more 
attractive law enforcement careers elsewhere.
    Second, the balance of work between the Service's protective and 
investigative missions has been shifted toward protection, to the point 
where it not only jeopardizes the success of the protective mission, 
but also lessens the overall attractiveness of working for the Secret 
Service. At the time of the study 53 percent of a field special agent's 
time was being devoted to the protective mission, and only 29 percent 
of his/her time was devoted to the investigative mission. A better 
balance, the balance sought with this Workforce Retention/Workload 
Balancing initiative, would reverse these percentages. However, not 
being able to complete the recommended staffing relative to this 
initiative will mean only an improvement toward an equal balance 
between protective and investigative work and could result in pressure 
to again increase overtime worked by field agents. The balance is 
improving and we will continue to strive towards our desired balance 
and to work at improving the quality of life for those in our 
workforce.
    The 1999 Working Group on U.S. Secret Service Workforce Retention 
and Workload Balancing reviewed an analysis of the Service's historical 
workload mix and supported a level of field investigative staff 
consistent with the workload mix ratio in fiscal year 1994. Further, 
the Working Group's report included a critical recommendation to 
increase field staffing to achieve an appropriate workload balance in 
the protective/investigative mix, as well as to reduce overtime and 
protection-related travel, in order to address agent retention and 
quality of life issues.

                             COUNTERFEITING
    Question. Although Colombia has been a major source of counterfeit 
U.S. currency, I understand that other countries are also involved. How 
extensive is the counterfeiting threat?
    Answer. Colombia produces approximately 33 percent of all 
counterfeit U.S. currency passed in the United States, and is the 
primary overseas producer of counterfeit. With the dollarization of 
many Latin American countries, the Secret Service is seeing an increase 
in counterfeiting activity. For example, after Ecuador and El Salvador 
chose the dollar as their currency, production of counterfeit U.S. 
currency in Colombia has grown. An increase is also being seen in the 
smuggling of counterfeit U.S. currency into these newly emerging 
markets. Recent printing plant seizures in Colombia have revealed that 
some Colombian counterfeiters are now producing lower denomination 
counterfeit U.S. currency for distribution in these new markets.
    The Secret Service believes the threat of counterfeiting activities 
will increase in Latin America as organized crime in Colombia and 
others take advantage of the opportunity presented by dollarization. 
The Secret Service is also seeing an increase in counterfeit U.S. 
currency being produced in Europe and Asia. Although the amount of 
counterfeit appears nominal, the counterfeit U.S. currency is of a very 
high quality. During previous years, a number of significant plants 
producing counterfeit U. S. currency have been suppressed throughout 
the world by local authorities assisted by the U.S. Secret Service. For 
example, in November 2000, local authorities in Holland seized one 
plant that was preparing to distribute approximately $100 million in 
counterfeit U.S. currency and 390 million in counterfeit Deutsche 
Marks. However, while a number of seizures are reported, the full 
extent of counterfeiting activity is difficult to ascertain due to 
various factors. Improved reporting from these countries and a 
permanent Secret Service presence could help us attain better estimates 
of counterfeiting activity.
    Question. What impact does this threat have on the U.S. economy?
    Answer. Counterfeit U.S. currency produced in foreign countries, 
including Colombia, had the potential to result in losses totaling $250 
million during fiscal year 2000. It is noted that accurate reporting of 
counterfeiting activities, from many overseas sources, is believed to 
be sporadic and not representative of the true counterfeit problem.
    During fiscal year 2000, over 13 million in counterfeit U.S. 
currency produced in Colombia was circulated in the United States, 
resulting in a direct loss to U.S. citizens. Citizens of Latin American 
countries were also victimized by counterfeit United States. currency 
distributed in their countries.
    For the past 10 years, U.S. citizens have incurred a loss of over 
$102 million due to Colombian produced counterfeit currency, alone. 
Over $67 million in counterfeit U.S. currency has been seized in 
Colombia prior to circulation.
    The above numbers are expected to increase with the dollarization 
of Latin America. This may result in a loss of faith in the U.S. dollar 
and diminish seigniorage payments to the U.S. Federal Reserve.
    Colombian counterfeiters are expanding their distribution networks 
of counterfeit U.S. currency to these impoverished countries, causing 
the further erosion of already substantially weakened economies.

                            OVERSEAS OFFICES
    Question. Does the Secret Service have adequate resources to police 
counterfeiting overseas?
    Answer. No. The Secret service does not have sufficient 
representation overseas. The Bogota Resident Office, for example, is 
responsible for the entire country of Colombia which produces over 60 
percent of all offset manufactured counterfeit U.S. currency. The 
Bogota resident special agent in charge is attempting to meet this 
challenge with limited resources, having only three agents permanently 
assigned to that office. The Secret Service has established task forces 
within the different Colombian law enforcement entities in an attempt 
to supplement and project Secret Service manpower.
    With the dollarization of Latin America, the U.S. Secret Service is 
receiving an overwhelming number of requests for investigative 
assistance and training. These countries are asking for investigative 
support as well as training in the detection and identification of 
counterfeit and genuine U.S. currency. The Secret Service is seeing an 
increased need to establish anti-counterfeiting task forces in these 
countries as well as others, possibly leading to the establishment of 
permanent offices where warranted. The establishment of anti-
counterfeiting task forces and a permanent presence in some of these 
countries will give the Secret Service first hand intelligence on these 
criminal activities and counterfeiting trends. This will also enable 
the Secret Service to establish a close working relationship with 
officials and further the Secret Service mission of protecting the 
integrity of our nation's currency.
    Question. Your budget request represents a 2.4 percent increase 
from fiscal year 2001, on target with the President's commitment to 
hold down spending government-wide. Although I am sure you would have 
liked to see more initiatives included in your request--everyone wants 
more money to do more things--I hope you would agree that this is a 
responsible budget submission. Does your fiscal year 2002 budget 
request allow the Secret Service to carry out its core mission?
    Answer. Yes, the fiscal year 2002 budget will be adequate to fund 
our mission-critical programs and obligations. We expect to attain our 
three mission goals: to reduce crimes against our nation's currency and 
financial systems; to protect our national's leaders, visiting world 
leaders, and other protectees, as well as, reduce threats posed by 
global terrorists and other adversaries; and to provide a responsive 
support infrastructure to meet the needs of both the protective and 
investigative mission. We will continue to develop our aggressive and 
innovative approach to combating emerging forms of computer crime, and 
continue to foster our effective partnerships with local law 
enforcement agencies, private industry, and community organizations.
    Question. During an overseas oversight trip with the Secret Service 
a couple of years ago, my staff noted that the Service is in need of 
more personnel overseas. We note that the establishment of a permanent 
post overseas is an expensive and laborious process. In many instances, 
with an immediate response and the use of recurring temporary 
assignments, the Service has rectified a fraud problem in the time it 
would have taken to administratively open a foreign post and get an 
agent on the ground to assess the problem. What were your costs in 
fiscal year 2000 for the numerous overseas temporary assignments?
    Answer. The USSS spent $438,000 in expenditures for three (3) 
Financial Crime-related overseas initiatives (City of London, England 
Initiative; the Lagos, Nigeria Task Force; and the Wiesbaden, Germany 
Initiative).
    There is no means to calculate additional expenditures related to 
overseas temporary investigative assignments such as the procurement of 
``assignment specific'' equipment. Also, this figure is specific to 
temporary investigative assignments, and does not include the 
expenditures related to overseas temporary protective assignments.
    Question. How may foreign offices does the Secret Service have now?
    Answer. The Secret Service currently has 18 foreign offices, plus a 
presence at INTERPOL--Lyon, France.
    Question. How many agents are assigned overseas?
    Answer. The Secret Service currently has 44 special agents assigned 
to our foreign offices and 2 agents to INTERPOL--Lyon, France.
    Question. Have you submitted a foreign office and staffing 
initiative? If so, what offices and FTE levels did you request?
    Answer. Our baseline request under the previous Administration was 
$888.4 million. Under the current Administration, there was no fiscal 
year 2002 budget request process from bureau to Department, or from 
Department to OMB, and the current Administration has not validated the 
previous Administration's baseline estimate.
    Question. What percentage of your investigative caseload involves 
interactions overseas?
    Answer. It is estimated that approximately one-third of all U.S. 
Secret Service investigative criminal cases have a foreign nexus.
                                 ______
                                 

             Questions Submitted by Senator Byron L. Dorgan

                            WINTER OLYMPICS
    Question. Pursuant to PDD-62 you have the lead for security at the 
2002 Winter Olympics at Salt Lake City. Are you having any difficulty 
in finding volunteers from your sister law enforcement agencies to 
assist in staffing for the games themselves?
    Answer. The planning process that the Secret Service currently has 
underway includes canvassing all appropriate Federal law enforcement 
agencies to determine their interest and availability in participating 
in the operational security portion of the Federal counter-terrorism 
plan. Presently, the Secret Service intends to use Federal law 
enforcement personnel from eleven other agencies to supplement its own 
personnel in effecting perimeter security at the 2002 Winter Olympics. 
Participating agencies have been supportive of this mission, but have 
concerns relative to the costs that they might have to bear if a 
funding source is not identified.
    Question. Additionally, the cost estimates for the games continues 
to be a moving target. At this point in time what is your best guess as 
to the total costs to be borne by your agency?
    Answer. For fiscal year 2002, the Service estimates that it will 
require $19,530,000 to implement its security plan.
    Question. By all participating agencies?
    Answer. To support the Secret Service's security plan, it is 
estimated that $33,068,000 will be required by other agencies within 
the Department of the Treasury, including $4,931,000 for air security, 
and an additional $8,003,000 is needed by agencies outside the 
Department of the Treasury.

                     STAFFING AND OVERTIME CONCERNS
    Question. In the 2001 cycle you testified that the average overtime 
worked per agent was approximately 85 hours per month in the protective 
divisions, and about 78 hours per month in the investigative divisions. 
This places an obvious burden on your agents and has led to retention 
and morale problems. Has the overtime burden been reduced with the 
additional FTEs you were able to hire from funds provided by this 
Subcommittee in Phase I and Phase II? Are more needed?
    Answer. As the additional special agents hired complete their 
training and are assigned to field offices, this overtime burden is 
expected to decline. Current projections for fiscal year 2001 put the 
average overtime estimate between 67 hours and 73 hours of overtime per 
month for field agents. The fiscal year 2001 projection is somewhat 
higher than that which would be expected due to the impact of the 
Presidential Campaign activities from October 2000 through January 
2001. A considerable decline in overtime is expected to occur during 
the remaining months of fiscal year 2001 and carry over into fiscal 
year 2002.
    Hiring 70 percent of the agents recommended by the Workforce 
Retention and Workload Balancing initiative will go a long way in 
reducing the extreme amounts of overtime worked by field agents. Field 
agents should begin to approach our target average overtime figure of 
62 hours per month during fiscal year 2002. Current projections put the 
average overtime per month for field agents between 64 and 69 hours by 
the end of fiscal year 2002. However, the impact of not funding the 
third year of this initiative will make it more difficult to reach the 
final target of 62 hours of overtime per month for field agents.

                             IDENTITY THEFT
    Question. Identify theft is the illegal use of another person's 
financial identity to commit fraud. It is usually one component of 
other financial crimes, such as bank fraud, credit card or access 
device fraud, or issuing counter financial instruments. Identity theft 
is an enormous concern to the average person and most people aren't 
aware just how easy it is to accomplish, as consumers have little 
control over who has access to their personal identifiers. It is 
relatively simple for criminals to obtain personal information on 
individuals through public sources, particularly the Internet. Given 
the expertise of the Secret Service in this area, where do you think 
our State and local law enforcement agencies are on countering these 
crimes?
    Answer. Numerous metropolitan police departments are taking a 
proactive approach to the problem of identity theft. One example is the 
Los Angeles County Sheriff's Department, which initiated a multi-agency 
identity theft task force to combat identity theft in the Los Angeles 
metropolitan area. Additionally, the Los Angeles County Sheriff's 
Department was exclusively responsible for designing, producing and 
distributing a pocket guide on identity theft to all of its deputies. 
This guide ensures that deputies deal appropriately and uniformly with 
victims, and provide them with information on resources they will need 
in their efforts to restore their credit history, and rectify any 
damage done to their existing accounts.
    However, not all police departments and sheriff's offices are this 
aggressive concerning these types of crimes. Many do not have 
sufficient resources to thoroughly investigate identity theft crimes, 
and jurisdictional issues often hamper the efforts of those that do.
    In order for law enforcement to properly combat identity theft, 
steps must be taken to ensure that local, State and Federal agencies 
are addressing victim concerns in a consistent manner. All levels of 
law enforcement need to be familiar with the resources available to 
combat identity theft and to assist victims in rectifying damage done 
to their credit. It is essential that law enforcement recognize that 
identity theft must be combated on all fronts, from the officer who 
receives a victim's complaint, to the detective or special agent 
investigating an organized identity theft ring. The Secret Service has 
already undertaken a number of initiatives aimed at increasing 
awareness and providing the training necessary to address these issues, 
but other similar steps could be taken to try to reach a still larger 
audience.
    Question. What resources are being devoted to training and 
providing support to them?
    Answer. The Secret Service has tried to increase awareness and 
provide training on the relevant issues to state and local law 
enforcement agencies through a variety of partnerships and initiatives:
  --Criminals increasingly employ technology as a means of 
        communication, a tool for theft and extortion, and a repository 
        for incriminating information. As a result, the investigation 
        of all types of criminal activity, including identity theft, 
        now routinely involve the seizure and analysis of electronic 
        evidence. In response to this trend, the Secret Service 
        developed, in conjunction with the International Association of 
        Chiefs of Police (IACP), the ``Best Practices for Seizing 
        Electronic Evidence Manual'', to assist law enforcement 
        officers in recognizing, protecting, seizing and searching 
        electronic devices in accordance with applicable statutes and 
        policies.
  --As a follow-up to the ``Best Practices'' guide, the Secret Service 
        and the IACP developed ``Forward Edge'', a computer-based 
        training application (CBT) designed to allow officers to seize 
        in a virtual environment different types of evidence, including 
        electronic evidence, at various crime scenes.
  --In December of 2000, the Secret Service coordinated an Identity 
        Theft Workshop in Washington, DC. This workshop was designed 
        for the criminal investigator and was attended by investigators 
        from agencies throughout the nation. The workshop provided 
        investigators with a detailed explanation of how identity theft 
        can occur, as well as an explanation of what tools are 
        available to investigators.
  --In May of 2001, the Secret Service made an identity theft 
        presentation to the International Chiefs of Police, Advisory 
        Committee for Police Investigation Operations. During this 
        presentation, the Secret Service proposed the production of an 
        identity theft video geared toward police officers throughout 
        the nation. The purpose of this video will be to emphasize the 
        need for police to document a citizen's complaint of identity 
        theft, regardless of the location of the suspects (if any). In 
        addition, the video and its companion reference card will 
        provide officers with phone numbers that will assist victims 
        with remediation efforts. The Advisory Committee is supportive 
        of this effort, and is considering providing funding for it, 
        and pursuing it jointly with the Secret Service, as was done 
        with the ``Best Practices'' initiative.
  --Also in May of 2001, the Secret Service detailed a Special Agent to 
        the Federal Trade Commission (FTC) to assist them in funneling 
        information developed through their database of victim 
        complaints to the appropriate law enforcement entities. This 
        agent is also involved in supporting ongoing FTC initiatives 
        aimed at educating state and local law enforcement agencies 
        concerning identity theft issues.
    The Secret Service is also actively involved with a number of 
government-sponsored initiatives. At the request of the Attorney 
General, the Secret Service joined an inter-agency identity theft 
subcommittee that was established by the Department of Justice. This 
group which is made up of Federal, State, and local law enforcement 
agencies, regulatory agencies, and professional agencies meets 
regularly to discuss and coordinate strategies for investigation and 
prosecution, as well as consumer education programs.
    Question. What additional Federal resources may be needed to move 
these agencies along with the ever increasing technology available for 
these types of crimes?
    Answer. It is the responsibility of government regulators, law 
enforcement agencies, financial institutions, and other private sector 
entities to work together to identify, investigate, and prosecute those 
individuals responsible for perpetrating identity theft schemes. It is 
the belief of the Secret Service that the successful investigation of 
identity theft and identity fraud, including the compromise of 
consumers' identities through electronic means, can best be 
accomplished through a task force approach. Accordingly, the Secret 
Service would like to implement five Financial Crimes Task Forces, and 
five Electronic Crimes Cooperatives, in major cities to decrease the 
incidence of identity theft and other financial and electronic crimes. 
Through the strategic placement of these specialized task forces, the 
Secret Service, working in conjunction with other Federal, State and 
local law enforcement entities, would decrease the incidence of 
identity theft and other financial and electronic crimes in the 
targeted cities through the arrest and prosecution of individuals and 
organized criminal enterprises involved in the commission of financial 
crimes.
    Question. What can we do to further educate American citizens to 
protect themselves against these crimes?
    Answer. The Identity Theft and Assumption Deterrence Act 
established the Federal Trade Commission (FTC) as the central point of 
contact for identity theft victims to report all instances of identity 
theft. The FTC has done an excellent job of providing people with the 
information and assistance they need in order to take the steps 
necessary to correct their credit records, as well as undertaking a 
variety of ``consumer awareness'' initiatives regarding identity theft. 
As mentioned previously, the Secret Service has detailed a special 
agent to the FTC on a permanent basis to support their public education 
and liaison initiatives. The Secret Service also continues to be 
involved in a variety of public education efforts:
  --The Secret Service, in conjunction with the U.S. Postal Inspection 
        Service, and the Federal Reserve Bank System, produced an 
        identity theft awareness video. The video, which explains how 
        easily one can become a victim and what steps should be taken 
        to minimize damage, has been made available to Secret Service 
        offices for use in public education efforts.
  --In April of 2001, the Secret Service designed an identity theft 
        brochure, containing information to assist victims on how to 
        restore their ``good name'', as well as how to prevent becoming 
        a victim. Upon its completion, the brochure will be shipped to 
        Secret Service offices for distribution in public education 
        efforts.
    However, it is important to recognize that public education efforts 
can only go so far in combating the problem of identity theft. Because 
Social Security numbers, in conjunction with other personal 
identifiers, are used for such a wide variety of record keeping and 
credit-related applications, even a consumer who takes appropriate 
precautions to safeguard such information is not immune from becoming a 
victim.
                                 ______
                                 

   Questions Submitted to the Federal Law Enforcement Training Center

         Questions Submitted by Senator Ben Nighthorse Campbell

                           WORKLOAD CAPACITY
    Question. I am told that you have agreed to take on the 
responsibility for training employees of the Air Force Office of 
Special Investigations. This will mean the integration of 25-30 
instructors and somewhere between 500 and 800 new students per year.
    Does FLETC have the capacity to handle this new workload and house 
these new students?
    Answer. Based on the current fiscal year 2003 workload projected by 
our partner organizations, the Center has the capability to meet the 
training requirements of the Air Force Office of Special Investigations 
(OSI) and house their students on Center or in Center contracted 
housing. OSI students will participate in the Center's Criminal 
Investigator Training Program (CITP). Following graduation from the 
CITP, they will participate in a three-week, OSI agency specific, 
follow-on basic program. Currently, there are five of these follow-on 
programs projected consisting of 48 students. These follow-on programs 
are not facility intensive, and will be primarily taught by OSI 
personnel. OSI currently projects that, beginning in fiscal year 2003, 
they will train 250 students annually. These same 250 students will 
attend the OSI follow-on program. OSI advanced programs have not been 
projected at this time, however, their advanced training requirements 
are not expected to be facility intensive.

                             BORDER PATROL
    Question. The Border Patrol currently maintains a temporary 
training facility in Charleston, South Carolina while FLETC builds up 
the necessary infrastructure to meet their training needs.
     What is the status of the Charleston facility?
    Answer. The Charleston site has been in operation since 1996. 
Facility infrastructure and operational costs are being borne by the 
U.S. Border Patrol. The FLETC is providing staff support, which 
includes an on-site program coordinator and instructor detailees for 
those portions of the U.S. Border Patrol basic training program that 
are FLETC's responsibility. FLETC also pays the direct costs of basic 
training from its appropriation in the same manner as if the training 
were incorporated into one of FLETC's permanent sites. The assignment 
of FLETC staff instructors, who regularly drive the six hours roundtrip 
from Glynco to Charleston to conduct their training responsibilities, 
is a strain on the FLETC and presents numerous scheduling difficulties 
for programs conducted at Glynco. FLETC has worked closely with the 
U.S. Border Patrol and its parent organization, the Immigration 
Naturalization Service (INS), to identify facility and related 
requirements and to reabsorb all the U.S. Border Patrol training into a 
FLETC permanent site.
    A multi-year construction plan has been developed and, to date, 
more than $39 million has been appropriated by Congress to expand FLETC 
facilities. A recently updated business case study completed by FLETC 
last fiscal year, suggests that millions of dollars in cost avoidance 
for new construction and per diem savings can be realized by 
consolidating all U.S. Border Patrol training, now conducted at three 
sites, into FLETC's Artesia center. INS officials have indicated that 
they are not supportive of this FLETC plan and they have commissioned 
an independent study to review it and other possible options. President 
Bush has announced that INS will undergo a significant reorganization, 
which may also impact the decision on the future siting of U.S. Border 
Patrol training. In the meantime, FLETC will continue to work with the 
INS and the U.S. Border Patrol to adopt a plan that can be jointly 
supported.
    Question. When will FLETC be able to integrate this training 
responsibility back into permanent facilities?
    Answer. The FLETC submitted a modified five-year construction plan 
to the Congress last fiscal year. It called for the expansion of 
facilities in Glynco, Georgia and Artesia, New Mexico, to be completed 
by fiscal year 2004, to reintegrate U.S. Border Patrol training. Only 
one new construction project is being requested for funding in the 
President's fiscal year 2002 budget. Other planned project funding is 
not being requested for fiscal year 2002 and there may be a delay in 
the construction completion timetable to fiscal year 2005. However, 
depending upon the expected U.S. Border Patrol training requirements, 
and their willingness to consolidate training into FLETC's Artesia 
center, the timeline to begin reabsorbing U.S. Border Patrol training 
into FLETC could be moved forward. We will continue to keep the 
Committee advised of developments on this matter.
                                 ______
                                 

             Questions Submitted by Senator Bryon L. Dorgan

                     RURAL LAW ENFORCEMENT TRAINING
    Question. FLETC and Minot State University jointly continue to work 
on research to determine which training, education and prevention 
strategies are required to best address problems specific to the 
Northern Plains states and rural areas. Minot is creating a 
clearinghouse for its research findings, and serves as a key export 
training site for FLETC. Minot also coordinates distance-learning 
telecasts and provides other services for the region. Minot State is 
interested in expanding its work with FLETC to deliver more needed 
training and to strengthen relationships with communities and schools 
in the region.
    What is the status of the FLETC/Minot State University 
relationship?
    Answer. The FLETC and Minot State University (MSU) relationship 
began in fiscal year 2000, when FLETC contracted with MSU to conduct a 
Northern Plains States (NPS) Law Enforcement Training Needs Assessment 
and measure the effect of the Drug Law Enforcement School for Patrol 
Officers (DLESP) on officers, supervisors, and their respective 
agencies. The MSU research methodologies, surveys, and reports have 
been professional, timely, relevant, and concise. The results of the 
research have been instrumental in developing and delivering training 
that meets the needs of the NPS officers and agencies. Through frequent 
and constant interaction, the staffs of MSU and FLETC have developed a 
professional and complementary relationship. MSU produces quality and 
useful research and data which FLETC uses to make sound and 
professional decisions that positively impact the Northern Plains 
States.
    In fiscal year 2001, the MSU/FLETC relationship expanded 
significantly. Several training programs will be delivered in fiscal 
year 2001 in the NPS region with each state receiving a fair 
distribution of training. The FLETC staff will coordinate the delivery 
of each program while MSU staff conduct surveys, pre- and post-tests, 
and longitudinal studies to measure the effect of classroom and 
distributed learning.
    Question. How well is it working?
    Answer. The FLETC/MSU relationship is working very well. It is an 
example of cooperation at its best. The balance between academia and 
law enforcement is helping FLETC to succinctly meet law enforcement 
training needs as a result of sound and professional research.

                    LAW ENFORCEMENT VEHICLE PURSUIT
    Question. FLETC led an Internet/satellite symposium in March that 
reached 14,000 participants. Topics included the future of technology 
in pursuits, the psychology of officers under stress, and the legal, 
moral, and ethical dynamics of law enforcement officers in ``hot 
pursuit'' situations. FLETC proposes to develop a multi-faceted 
approach, utilizing classroom training, Internet simulcasts and CD-Rom 
courses to raise awareness to alter current practices of conducting 
pursuits. They are developing curricula with the input from Federal, 
state, and local resources.
    What methods will be used to validate the effectiveness of the 
program?
    Answer. Training validation and measurment are important components 
of this effort. Through research and data, training programs are 
developed and modified to meet the changing and contemporary needs of 
law enforcement. The National Center for State and Local Law 
Enforcement Training (NC) intends to partner with academia to conduct 
professional research effectiveness.
    Question. What are the estimated costs for implementing and 
possibly expanding the program?
    Answer. To develop the pursuit driving related training, adequately 
deliver the training programs, and validate the effectiveness of the 
training, the National Center for State and Local Law Enforcement 
Training, Federal Law Enforcement Training Center would need 
approximately $3 million and three FTE. These positions should include 
two program specialists and one training technician. They will develop 
and review training programs and coordinate training delivery 
throughout the United States. The National Center for State and Local 
Law Enforcement Training will develop and deliver pursuit driving 
related training programs using a standard process and contracting the 
services of subject matter experts from state and local law enforcement 
around the country.

                        ACCREDITATION INITIATIVE
    Question. The Administration has requested $650,000 and 3 FTE for 
FLETC to lead a collaborative project with the DEA, FBI, and other 
Treasury Law Enforcement agencies to establish government-wide law 
enforcement training standards. It is anticipated this will be a two to 
three year project. When completed, FLETC's proposal will strengthen 
accountability in Federal agencies.
    How will these funds be used?
    Answer. A program manager with two support staff will manage and 
administer the funds to implement the accreditation process. These 
funds will be used to enhance the quality of Federal law enforcement by 
establishing and maintaining a body of standards for Federal law 
enforcement training, to administer an accreditation process based on 
those standards, and to ensure compliance with the process in order to 
maintain public confidence in Federal law enforcement. These standards 
will be developed under the oversight of a task force comprised of 
Federal law enforcement training officials by bringing together 
subject-matter experts to develop training standards, accreditation 
procedures, assessor criteria and training, accreditation manager 
guidelines, policies and directives, self assessment criteria, 
curriculum assessment criteria, instructor certification procedures and 
on-site assessment responsibilities
    In addition, an accreditation board will be formed to provide 
policy, direction, and oversight of the accreditation process. The 
board members will be a representative group of Federal law enforcement 
agencies. Members of the board will be Federal law enforcement 
officials at the policy level with senior oversight for training within 
their respective agencies. The board shall provide direction and 
oversight for all accreditation activities. It will have approval 
authority for policies of operation, training standards, procedures for 
accreditation of academies and programs having met the accreditation 
criteria and the certification of instructors.
    The training standards, approved by the Board, will serve as the 
measurement or model for all aspects of training at the Federal law 
enforcement level. The training standards will address training 
academies, training programs, both basic and advanced, and instructor 
certification requirements. Accreditation will be awarded in two 
areas--training academy accreditation and training program 
accreditation.

                FLETC GS-1811 POSITION RECLASSIFICATION
    Question. As a result of Congressional action, Federal employees 
with a GS-1811 (Criminal Investigator) position classification were 
granted Law Enforcement Availability Pay (LEAP) (a 25 percent premium 
over basic pay) was awarded to GS-1811s based on the expectation that 
they would work, or be able to work, an additional two hours per day on 
average during the year.
    FLETC employs GS-1811s, both temporary and permanent, who perform 
the same duties as non-criminal investigator instructors (GS-1712, 
Training Instructor, and GS-1801, Law Enforcement Specialist-
Instructor). After LEAP legislation was enacted, non-GS-1811 
instructors perceived that they were not receiving ``equal pay for 
equal work.'' After a number of instructors filed position 
classification appeals with the Office of Personnel Management (OPM), 
OPM directed a consistency review of all instructor positions. It was 
determined that all permanent FLETC instructors should be properly 
classified in the GS-1801 series (who do not receive the 25 percent 
premium). Director Basham announced this policy in a memorandum, dated 
October 27, 1998, to all FLETC personnel. Although the policy became 
effective January 1, 1999, permanent GS-1811 personnel already on 
faculty had a 3-year period to seed or convert to the GS-1801 series.
    FLETC expects to hire the necessary number of persons with GS-1811, 
Criminal Investigator, experience into FLETC GS-1801 positions. If 
unsuccessful, the Center will make arrangements to detail experienced 
GS-1811s from other agencies. Detailed Criminal Investigators from 
partner organizations will not be adversely impacted by FLETC's 
classification policy for permanent faculty. This policy was 
implemented with the concurrence of OPM and Treasury.
    What is the status of instructors with actual 1811 experience?
    Answer. FLETC's long established practice has been to maintain a 
50-50 ratio of permanent to detail faculty. The permanent staff 
provides continuity in program development and delivery methodology, 
while the agency detailees bring current field operations experience. 
We have been successful in continuing to attract experienced law 
enforcement personnel--both criminal investigator and police--through 
position advertisements in the 1801 classification series since this 
practice was initiated in 1999. About 20 percent of the 50 percent 
permanent faculty and supervisory staff currently have prior 1811 
criminal investigative experience. These personnel are principally 
assigned to subject matter areas requiring this background experience. 
FLETC does not expect to have difficulty in maintaining 1811 background 
experienced staff on its faculty. However, when there is a shortfall in 
permanent hires in this category, FLETC will increase its detailee 
strength with 1811 experience.
    Question. What is the number of detailees?
    Answer. Currently, FLETC has 49 1811 detailed investigators on its 
faculty. This represents about 30 percent of the 50 percent compliment 
of detail instructors. These personnel have been assigned by 12 
different agencies. Recently, too, three reemployed annuitants with 
1811 experience were hired to teach in areas requiring their expertise.
    Question. Does this not detract from the quality of the instruction 
for 1811 students, in that they are not receiving the practical 
experience if trained by other than actual 1811s who have been ``on the 
street?''
    Answer. There has been no perceived diminution in the quality of 
training provided to FLETC students. All of our agencies have supported 
our approach and both student and agency surveys on the quality of 
training conducted have been high. FLETC management understands and 
endorses the notion of maintaining field experienced criminal 
investigative personnel as a continuous requirement of conducting 
training for Federal investigative agencies.

                           CHARLESTON ISSUES
    Question. In your opening statement you refer to the number of 
Border Patrol trainees at the three location GLYNCO, 16,635; ARTESIA, 
2,553; and TEMP SITE CHARLESTON, 639. For fiscal year 2002 (projected) 
the Charleston numbers go to 1,350.
    Is this based on hypothetical projected numbers at 100 percent 
capacity, or on actual reserved slots for this coming year?
    Answer. The projection of 1,350 students for fiscal year 2002 at 
the temporary Charleston facility was provided by the U.S. Border 
Patrol. The current average student capacity of the Charleston facility 
is approximately 700 students. The annual projection of 1,350 students 
equates to an average student resident population of approximately 473 
students. Therefore, the projection is approximately 68 percent of 
capacity.
                                 ______
                                 

    Questions Submitted to the Financial Crimes Enforcement Network

         Questions Submitted by Senator Ben Nighthorse Campbell

    Question. Mr. Baity, FinCEN is responsible for the registration of 
about 160,000 money service businesses across the country, and 
explaining the requirement that they start filing suspicious activity 
reports and currency transaction reports--just like banks are required 
to do. These MSBs are supposed to register by the end of this year, and 
start filing these reports in January 2002.
    What are you doing to make these businesses aware of the 
requirement?
    Answer. FinCEN has undertaken a multi-year outreach and education 
campaign that is designed to reach across a set of diverse and 
expansive MSB industries in order to ensure a full understanding of 
their obligations under the new regulations. This campaign includes, 
among other aspects, a significant effort to prepare educational 
materials that will be made available to the industry for training 
purposes.
    In addition, FinCEN will design a website devoted to the MSBs by 
the end of this summer. The site will contain relevant information, 
including guidance and frequently asked questions and answers.
    Finally, FinCEN is working on creating a database of businesses, 
that will be used to make direct contact, beginning this fall. That 
database will also be used for a baseline survey of the state of 
knowledge of the industry. This is being done to test the effectiveness 
of our campaign and will be repeated at certain intervals to provide us 
with appropriate feedback.
    Question. How are you dealing with the language problems of 
businesses located in ethnic communities?
    Answer. In conducting the outreach campaign, FinCEN is very 
conscious of the potential language barriers. Initially, the education 
materials will be prepared and distributed in both English and Spanish. 
As the outreach campaign progresses, a further determination will be 
made as to the necessity for the translation of materials into other 
languages.
    Question. Do you think they will be ready to start reporting in 
January?
    Answer. FinCEN fully anticipates that the registration deadline of 
December 31, 2001 will be met. Our initial findings from the outreach 
campaign, suggest that the second portion of the rule requiring 
suspicious reporting by these businesses, will be an even greater 
challenge. As I mentioned during testimony, we want to make sure that 
MSBs are knowledgeable about these new requirements. For these reasons, 
we believe it will be more effective to extend the implementation date 
of the suspicious reporting requirements. We are currently reviewing an 
appropriate extension period and will keep the committee informed of 
our decision.
    Question. When the Bank Secrecy Act was made applicable to tribal 
gaming operations I understand that FinCEN did significant outreach to 
tribes to educate them on the compliance rules under the statute. 
First, I commend you on this outreach and urge you to ``keep it up'' to 
ensure tribal compliance with the Bank Secrecy Act.
    Can you explain to me what constitutes ``suspicious activities'' 
that would require filing under the Act?
    Answer. Treasury's suspicious activity reporting rules require the 
filing of a suspicious activity report (SAR) when a financial 
institution knows, suspects or has reason to suspect that financial 
activity occurring through the financial institution (a) involves funds 
that are derived from illegal activity or are to be used for illegal 
purposes; (b) is intended to evade Bank Secrecy Act requirements, such 
as the ``structuring'' of currency deposits to avoid the filing of a 
currency transaction report; or (c) serves no apparent lawful purpose 
and for which the financial institution cannot determine a legitimate 
reason for the financial activity to occur.
    Whether activity is suspicious activity depends upon a variety of 
factors. These include, most importantly, a financial institution's 
knowledge of its products, services, and expected transaction patterns 
and the degree to which a particular transaction or set of transactions 
is inconsistent with that knowledge in a way that can't be explained 
after inquiry. Thus, transaction activity that is not consistent with 
normal business activity or that is consistent with certain patterns of 
transactions that may be associated with money laundering activity, may 
be reportable, if the institution knows of no reason that would explain 
the transaction.
    In August 2000, FinCEN issued a SAR Bulletin (Issue 2) on patterns 
of suspicious activity reported by casinos. Over a one-year period, 
casinos located in five states filed more than 40 casino SARs 
indicating that wire transfers and cashier's checks were being used to 
deposit funds in casino accounts as ``front money'' for use by the 
customer for subsequent gaming activity at the casino. This Bulletin is 
available on FinCEN's website at www.treas.gov/fincen.
    Question. Mr. Baity, you have advised the Subcommittee staff that 
your building lease will expire in 2003.
    What steps are you taking to prepare for this matter?
    Answer. We have been engaged in discussions with GSA to move 
through the lengthy process of lease renewal or relocation to a new 
facility. GSA will have the solicitation by the fall of this year, with 
the award decision expected sometime in early 2002. We will continue to 
keep you apprised of the developments.
                                 ______
                                 

             Questions Submitted by Senator Byron L. Dorgan

                    MONEY SERVICES BUSINESSES (MSBS)
    Question. By December 31, 2001, MSBs are required to register with 
Treasury. FinCEN contemplates an outreach program as part of the public 
awareness campaign to educate both the public and the MSBs. The 
outreach program consists of, in part, informational forms, utilization 
of different languages, and data system requirements. Your new MSB 
Branch chief came on board April 23, and the IRS is scheduled to 
conduct regulatory oversight of the MSB compliance. In fiscal year 
2002, the Administration is asking for an added $5.5 million without 
FTE.
    How will you ensure compliance?
    Answer. FinCEN's first priority in our effort to promote compliance 
is to educate the MSB industry about the registration and suspicious 
activity reporting requirements. FinCEN has undertaken a multi-year 
outreach and education campaign designed to reach across the diverse 
and expansive MSB industries. We are creating training materials that 
will include posters, brochures, videos and possibly a CD-ROM. In 
addition, we are designing a website devoted to the MSB industry. The 
new website will ultimately contain all of our training materials and 
additional guidance, including frequently asked questions and answers.
    In conjunction with this outreach and education effort, we are 
working closely with the Internal Revenue Service (IRS) to expand and 
educate its examination and compliance resources, that will be 
primarily responsible for ongoing education and compliance 
examinations. Funding for these increased efforts will be reimbursed to 
the IRS from FinCEN, beginning in fiscal year 2002.
    Question. Is any of the $5.5 million for the increased IRS workload 
to enforce the MSB compliance?
    Answer. The $5.5 million increase to the MSB program in fiscal year 
2002 annualizes efforts to implement the MSB Regulatory Program. This 
increase provides funding for the next phase of the multi-year public 
education program and provides funding to begin efforts with the IRS 
and other service providers to extend field outreach, begin examination 
of MSB for compliance, respond to public inquiries, distribute forms 
and publications, and support information processing of the BSA data. 
These oversight and outreach activities are essential to promote 
compliance with national registration and other BSA requirements.
    Question. Is there any validation of the effectiveness of the 
outreach program?
    Answer. In order to gauge the effectiveness of the outreach and 
education program, we will be surveying the industry's knowledge and 
understanding of the new regulations at various stages of the campaign, 
beginning with a baseline survey. Additional surveys will be conducted 
at various stages of the outreach program.
    Question. What is the coordination with the High Intensity 
Financial Crimes Areas (HIFCAs)?
    Answer. We have closely coordinated with the HIFCAs through the 
HIFCA Working Group comprised of all law enforcement agencies assigned 
to the HIFCAs. In addition, we have prioritized our media campaign in 
areas where HIFCAs have been designated, including New York/New Jersey, 
Los Angeles, and along the Southwest Border. This coordination will 
continue as the regulations take effect.
    Question. Have there been any problems with the MSB outreach thus 
far?
    Answer. No. We are very pleased to report that there have been no 
problems to date. We expect the program to continue to go smoothly.
                                 ______
                                 

      Questions Submitted to the Office of Foreign Assets Control

         Questions Submitted by Senator Ben Nighthorse Campbell

  NATIONAL [FOREIGN] TERRORIST ASSET TRACKING CENTER (THE ``CENTER'')
    Question. Mr. Newcomb, Congress provided $6.4 million last year to 
establish the Foreign Terrorist Assets Tracking Center at OFAC. 
Additional funds have been requested in fiscal year 2002 for the 
continued development of this Center.
    I would appreciate it if you would give us an update on this 
effort, including a timeframe for when will the Center be up and 
running?
    Answer. OFAC is working to have the Foreign Terrorist Asset 
Tracking Center up and running by October 2001. Currently, OFAC is 
hiring staff for the Center and working to establish an appropriate 
workspace to house it.
    Question. What other agencies are actively participating in the 
planning of the Center?
    Answer. OFAC sent a questionnaire, on March 30, 2001, asking each 
of the prospective agencies to describe how they would see themselves 
participating in the mission of the Center. All except the Department 
of Defense anticipate having a role in the Center, either by detailing 
a specialist to analyze foreign terrorist data, or by appointing a 
special liaison to cement the constant interaction of the member 
organizations, or both. The departments and agencies pledged to 
participate in or work with the Center are:
  --The Department of Treasury--OFAC, Customs, IRS, USSS, and FinCEN.
  --The Department of Justice--FBI, INS.
  --The CIA--Office of Transnational Issues and the DCI's Counter-
        Terrorism Center.
  --The National Security Agency.
  --The Department of State--Office of the Counter-Terrorism 
        Coordinator (S/CT).
    Question. Once the center is operational, how will other Federal 
agencies participate in its activities?
    Answer. In response to the OFAC questionnaire respondents described 
their respective roles in the counter terrorism field, identified 
issues in which they would wish to be involved, offered to provide 
information related to the mission of the Center, suggested how they 
might coordinate efforts, and proposed the manner of agency 
representation with the Center.
    Analysts/specialists detailed from the participating agencies and 
OFAC Center analysts will work together in several teams--each team 
will study related terrorist groups--to evaluate terrorist fundraising, 
money movement, and funds placement. The teams will assist in the 
development of interagency strategies to impair and impede terrorist 
finances. Agency liaisons will coordinate with the Chief of the Center 
on activities and facilitate the flow of information among he 
participating agencies as appropriate.

                        KINGPIN DESIGNATION ACT
    Question. The Foreign Narcotics Kingpin Designation Act became law 
in late 1999. President Clinton named 12 significant foreign narcotics 
traffickers in June of last year. Under the provisions of the Kingpin 
Designation Act, President Bush is required to designate additional 
kingpins in June of this year. What is the process for making 
recommendations to the President for these designations?
    Answer. The Kingpin Designation Act requires that the Departments 
of Treasury, Justice, State, and the Central Intelligence Agency 
consult and provide the President with the appropriate and necessary 
information to designate significant foreign narcotics traffickers. To 
accomplish this requirement, Treasury leads an interagency group that 
meets to discuss potential names and information for later 
recommendation to the President. Justice and OFAC then coordinate to 
assess and compile information to support the recommendations, which 
the Secretary of the Treasury provides to the Attorney General, the 
Secretaries of Defense and State, and the Director of Central 
Intelligence for formal concurrence. Upon receipt of the concurrence of 
the agency heads, the Secretary of the Treasury submits to the 
President the necessary information for him to designate as significant 
foreign narcotics traffickers those persons appropriate for sanctions 
by June 1 of each year.
    Question. Under the Kingpin Designation Act, OFAC is responsible 
for naming the Tier Two individuals and entities. What is the 
difference between the Kingpin Designation and the Tier Two 
Designation?
    Answer. Specifically, Tier I, or ``Kingpin'', designations are made 
by the President and target significant foreign narcotics traffickers--
i.e., foreign drug kingpins--worldwide. Tier Two or ``derivative'' 
designations are made by OFAC and extend the sanctions under the 
Kingpin Designation Act to entities which are owned, controlled, or 
directed by designated Kingpins, or to individuals or entities which 
act for or on behalf of or which materially assist or support the 
international narcotics trafficking activities of designated Kingpins. 
Additionally, unlike the Tier One or Kingpin designation process, there 
is no statutory timetable for Tier Two designations. The timing for 
Tier Two designations is determined by the course of OFAC's 
investigations consultation with Justice, State, CIA, FBI, DEA, and 
Defense.
                                 ______
                                 

             Questions Submitted by Senator Byron L. Dorgan

                            CUSTOMER SERVICE
    Question. The Office of Foreign Assets Control provides a valuable 
tool to protect U.S. security interests. While it accomplishes this 
task it also has a problematic customer service record. Additionally, 
it should be noted that there are many agricultural interests looking 
to export to Cuba which have expressed significant concern that there 
is no transparency and no commitment to appropriate response time from 
OFAC. Often, exporters do not know how, when, or why requests are 
either granted or denied.
    Are there any plans under consideration to streamline and clarify 
the process for U.S. exporters looking for clearance from OFAC?
    Answer. First, we note that under a long-standing interagency 
arrangement the Department of Commerce's Bureau of Export 
Administration (``BXA'') administers licensing jurisdiction with 
respect to exports to Cuba.
    With respect to the broader question of customer service involving 
programs administered by OFAC, we are acutely conscious of the 
legitimate expectations of the U.S. business community for an 
expeditious and simple process to obtain licenses. In most instances, 
financial and trade transactions are authorized by specific licenses, 
and in many cases are subject to a mandatory interagency review 
process.
    OFAC responded to over 18,500 applications over the course of the 
past year. License applications are reviewed by a staff of only 18 
individuals. In addition, OFAC's licensing staff responded to 
approximately 44,000 telephone inquiries during the same time period. 
OFAC currently administers 21 sanctions programs. Many have been added 
in the past few years, dramatically increasing the Office's workload 
and the demand of the regulated community for information and services 
from OFAC. For its own part, OFAC has done much to streamline its 
procedures and to become a part of the solution, rather than an 
impediment, to the legitimate needs of the exporting community. 
Improved customer service is a primary program goal and OFAC has 
undertaken several measures to address this issue. These include:
  --Establishing a goal to process license applications not requiring 
        interagency review within two weeks;
  --Hiring additional personnel to respond to phone inquiries to 
        increase the timeliness and quality of information provided to 
        the public;
  --Promoting transparency of agency action by publishing interpretive 
        rulings on OFAC's website;
  --Issuing implementing regulations with an opportunity for public 
        comment within sixty days of the issuance of an Executive order 
        or enactment of legislation;
  --Promulgating regulations to reflect internal policies regarding 
        civil penalties; and
  --Adding a section of frequently asked questions (``FAQ's'') to the 
        website.
    In addition, many of the concerns raised by the U.S. business 
community often pertain to underlying policy issues and the different 
national security and foreign policy objectives of the various 
sanctions programs that must be vetted with other agencies.

                  CUBAN FOOD AND MEDICINE REGULATIONS
    Question. The Administration has yet to publish regulations to 
implement the legislation passed last year to allow food and medicine 
sales to Cuba. The intent of Congress--a large majority in Congress--
was to ease the restrictions on U.S. exporters.
    When can we expect implementation of that request?
    Answer. The implementation of the Trade Sanctions Reform and Export 
Enhancement Act of 2000 is being coordinated by the White House to 
ensure that the interagency review period, when required, is as brief 
as possible. Interagency review will be necessary in some cases as the 
legislation requires that one-year specific licenses be denied with 
respect to entities in Iran, Sudan, Libya, and Cuba determined to 
promote international terrorism.
    OFAC and Commerce have coordinated so that their own internal 
review processes can be completed within a matter of days. Time frames 
for coordination with the foreign policy community regarding the 
identity of the purchaser still needs to be worked out. Once 
interagency review periods are agreed upon, we anticipate a rapid 
turnaround of license applications to ship goods to qualified end-
users. This coordinated approach avoids creating confusion in the 
exporting community both with respect to review procedures and by 
maintaining existing agency jurisdiction.
    We anticipate that implementing regulations may be issued by both 
agencies within the next few weeks as interim final rules, with an 
opportunity for public comment.

                          Subcommittee Recess

    Senator Dorgan. I did want to mention that on May 24, we 
will have a law enforcement technology display from two to four 
on the afternoon of May 24 in 106 of the Dirksen Office 
Building, on this floor just down the hall. This is an event 
that Senator Campbell and I look forward to and we look forward 
to seeing all of you there.
    Thank you very much. This hearing is recessed.
    [Whereupon, at 11:02 a.m., Thursday, May 10, the 
subcommittee was recessed, to reconvene subject to the call of 
the Chair.]


  TREASURY AND GENERAL GOVERNMENT APPROPRIATIONS FOR FISCAL YEAR 2002

                              ----------                              


                         THURSDAY, MAY 17, 2001

                                       U.S. Senate,
           Subcommittee of the Committee on Appropriations,
                                                    Washington, DC.
    The subcommittee met at 9:50 a.m., in room SR-485, Russell 
Senate Office Building, Hon. Ben Nighthorse Campbell (chairman) 
presiding.
    Present: Senators Campbell, Dorgan, and Mikulski.

                       DEPARTMENT OF THE TREASURY

                        Internal Revenue Service

STATEMENT OF CHARLES O. ROSSOTTI, COMMISSIONER

                            Opening Remarks

    Senator Campbell. Good morning. The committee will be in 
order. I apologize for getting such a late start. We had two 
votes on the floor. Senator Dorgan will be along in just a 
minute; he was still voting.
    This morning we will be discussing the fiscal year 2002 
budget request for the Internal Revenue Service and the current 
status of changes occurring at the agency. Appearing before us 
will be Commissioner Rossotti. As usual, it is a pleasure and I 
hope we have not kept you too long, Commissioner.
    The overall mission of the IRS is to provide top quality 
service to America's taxpayers by helping them understand and 
meet their tax responsibilities, and by applying the tax law 
with integrity and fairness. The IRS should provide world class 
customer service to taxpayers who call or visit IRS offices for 
return preparation assistance. The IRS is requesting a total of 
$9.276 billion, which is an increase of $580 million, or 6.7 
percent over fiscal year 2001.
    The IRS is also requesting $146 million for earned income 
tax credits, or EITC, appropriations. That is about a $1 
million increase. We understand that we need to provide the IRS 
with the resources it needs to improve their ability to respond 
to various requests by taxpayers.
    Under your leadership, Commissioner Rossotti, which I am 
sure most of the committee members have been very happy with, 
the agency has made remarkable improvements even though there 
are still yet some things to be done. I commend you and your 
staff for doing such fine work, and I understand that it is a 
very labor intensive task.
    Additional funding in the budget request for fiscal year 
2002 is in two management categories. One is the business 
systems modernization, formerly called the information 
technology investment account, or the ITIA. They request an 
increase of $325 million for fiscal year 2001. And the second 
IRS request is for $88 million for Stable. Stable was designed 
to stabilize and strengthen tax compliance and customer service 
programs in the area where it was needed.
    I understand that this computer modernization project is a 
major undertaking. For the amount of tax dollars allocated to 
this project we expect the IRS will be as accurate as possible 
in making sure that all the equipment and changes that are 
being made will work properly. There is also a mandatory 
requirement that the different centers be able to communicate 
with each other. The final requirement is that taxpayers 
receive courteous, accurate, and expeditious service in the 
future. I know under your leadership there has been great 
improvements made and I wish you well in this coming year.
    Since we got such a late start I think what we will do is 
go ahead and start with your testimony, and if I can interrupt 
it for a minute when Senator Dorgan appears, we will do that, 
if that is okay with you.
    Mr. Rossotti. Certainly.
    Senator Campbell. So why don't you go ahead and start?

                     Statement of Charles Rossotti

    Mr. Rossotti. Certainly, Mr. Chairman. I would be happy to 
stop as soon as Senator Dorgan gets here.
    I thank you very much for your opening comments. I would 
also like to thank the President and Secretary O'Neill for 
their support of IRS since they have taken office.
    The fiscal year 2002 budget request of $9.28 billion will 
enable us to continue to improve operations and make critical 
investments in our long term modernization program. Most of the 
$325 million increase maintains the momentum that we need for 
business systems modernization and will be used to replenish 
that account, which we draw down as we begin to deliver on the 
program's milestones.
    Before the Restructuring Act of 1998 even became law it was 
clear, especially from the Presidential commission that studied 
the IRS, that a long term commitment was required to fix the 
IRS. Now that we are well into this program and have begun to 
implement some of the larger changes to our organization and 
our business systems, I think we can fully appreciate at this 
point the enormity of the challenge that has been set before 
us.
    Progress is hard won and we are just beginning to reap the 
benefits of some of the changes we have made, and especially 
the budget increases, Mr. Chairman, that you provided and the 
Congress provided in the current year budget.
    But just to recap a few things that have happened since the 
enactment of RRA 1998, we have a new mission, new strategic 
goals, and new measurement systems that allow us--that change 
the way that we value success in the agency. We have 
essentially invented a new means of quantifying success in a 
tax administration agency, without considering dollars 
collected as a measure. We have implemented and are 
administering 71 new taxpayer rights provisions, which 
represent a challenge in learning new ways of doing business 
for almost every one of our new employees.
    Should I stop, Mr. Chairman?
    Senator Campbell. Senator Dorgan, we were running so late I 
went ahead and started. Do you have an opening statement? I 
told the commissioner he might have to stop for a minute. Do 
you want him to go ahead?

                           Prepared Statement

    Senator Dorgan. Mr. Chairman, Commissioner, sorry for the 
delay. I have an Agriculture Appropriations Subcommittee that 
is happening that I have to go over to the Dirksen Building for 
in just a few moments. But welcome, Commissioner. Let me just 
add my statement to the record. We appreciate your being here.
    Mr. Rossotti. Thank you very much, Senator.
    [The statement follows:]

             Prepared Statement of Senator Byron L. Dorgan

    Mr. Chairman: I am pleased to join you in welcoming the 
Commissioner of the Internal Revenue Service, Charles Rossotti, before 
us today as we conclude our budget oversight hearings for fiscal year 
2002. It is fitting that the agency which comprises well over 50 
percent of this subcommittee's total budget be the ``clean-up'' hitter 
for this year's hearings.
    Commissioner Rossotti, over the years we have had many 
opportunities to discuss your on-going modernization and realignment of 
the IRS. I fully understand that it is a formidable and challenging 
task. When Treasury Secretary O'Neill testified before this 
Subcommittee last month--at the opening of this year's hearings--he 
praised the work you have done and are doing to drag the IRS--sometimes 
kicking and screaming--into the 21st Century. I joined him in 
recognizing your efforts and congratulating you for the job done so 
far.
    But I come back to the issue of ``service.'' You are requesting 
over $9 billion for the IRS next year and the American people need to 
begin seeing improved service from the IRS for that $9 Billion. That is 
why I am so troubled by reports in the Washington Post last month, and 
yet again this past Monday in the Wall Street Journal, about taxpayers 
being given ``inaccurate or insufficient answers 73 percent of the 
time.'' I understand that you have strongly questioned the inquiries 
and methodology used by the Treasury Inspector General for Tax 
Administration, or TIGTA, in conducting these surveys. However, the 
fact remains that taxpayers have yet to receive improved service for 
their tax dollars.
    For instance, the Wall Street Journal noted that while the IRS used 
to have a wait-time goal of 15 minutes for assistance at walk-in 
centers, that goal was abandoned this year on the grounds that it 
``contributed to the inefficient use of resources.'' It troubles me 
that the IRS would consider walk-in taxpayer assistance as an 
``inefficient use of resources.''
    Similarly, Secretary O'Neill stated that the IRS and the taxpayers 
should accept nothing short of 100 percent response and accuracy for 
phone inquiries to the IRS. I replied that if the IRS is not even close 
to approaching 50 percent response or accuracy, perhaps a more 
realistic goal would be 80-90 percent. I would like you to set a new 
goal today. Your job--and our job--is too important to fail the 
American taxpayers in accomplishing this task.
    Thank you.

                     Statement of Charles Rossotti

    Senator Campbell. Go ahead. Continue, Commissioner.
    Mr. Rossotti. I will try to finish up this opening 
statement. I am just noting some of the things that have 
happened and some of the things that we hope to have happen in 
the future.
    Just continuing the recap, we have now inaugurated a new 
customer-oriented organization structure and have eliminated 
the 50-year-old structure of district service centers, regions, 
and national office staff. This means that tens of thousands of 
IRS managers and employees have new jobs and many old jobs were 
abolished. We are now going about the process of redesigning 
our business systems, everything from the way examinations are 
conducted to the way phone calls are answered.
    We are doing this while we also achieved our first clean 
opinion on our financial statements from GAO. While we still 
have significant problems in the compliance area, we did 
succeed in fiscal 2000 in stopping the decline in enforcement 
revenue.
    Finally, I should note that our recently completed filing 
season in fiscal 2001 was one of the best ever presented by the 
IRS. Our electronic filing set new records with 30 percent of 
taxpayers now e-filing. All of our records were shattered on 
our web site: 100 percent increase in forms downloaded, 50 
percent increase in hits.
    Our phone service, which is a very important area of 
service during the filing season, succeeded in answering 16 
percent more calls than last year. While it is far from where 
we want it to be, taxpayers were able to get through in person 
when they wanted to about two-thirds of the time, compared to 
62 percent last year. And in terms of accuracy of response, it 
was about 78 percent on tax law calls and about 88 percent on 
account calls.
    So these are all steps that are important, but we still 
know that we have a long way to go to reach our goal of top 
quality service for every taxpayer. We intend to accomplish 
this by making year by year improvements in performance, all of 
which are mapped out in our strategic plan, which was approved 
by the Oversight Board in January.
    I think all of this makes one very important difference 
between the IRS situation today and even a year ago when I came 
before this committee, and that is that I think the uncertainty 
about the future is reduced. We still have a great deal to do, 
but we think we have a better handle on how to do it and we 
have put in place the foundation for doing it.
    Turning to the budget request of $9.28 billion for fiscal 
year 2002, we will use these funds to address the highest 
priority gaps in our accomplishment of mission and goals, and 
put them in areas that we know we will need operational 
resources even while modernization continues. We know that 
taxpayers who are seeking to comply with the tax laws should 
receive the assistance they expect.
    Unpaid tax debts should be collected, and known areas of 
non-filing and under-reporting must be addressed and corrected. 
We are falling short in all of these areas in part, but not 
completely, because of resources. Of course, we also have to 
continue to support the key programs mandated by RRA 1998, 
including such areas as increasing electronic tax 
administration and compliance areas such as offers in 
compromise, collection, due process, innocent spouse, and 
others.
    Let me finish up a little bit on the business systems 
modernization program, because this is the biggest request for 
budget increase. For 2002, we did request an increase of $325 
million in appropriated funds for the information technology 
account. I should point out, however, compared to 2001, this 
really represents a net increase in funds available to us of 
$20 million because in 2001 we had carryover funds from prior 
year appropriations of about $300 million. So those $300 
million were available to us in 2001. They will be used up, and 
that is a major reason why we need this $325 million in 2002.
    Over the next 18 months in business systems modernization, 
we will begin to deliver projects that will help us to improve 
the quality of phone service, to provide some limited Internet 
services to taxpayers and practitioners, and to provide some 
better tools for our employees.
    In the following years, and accelerating particularly in 
2003, we will, I think, be able through business systems 
modernization to dramatically speed up the issuance of refunds, 
increase the quality and timeliness of our responses to 
taxpayer inquiries, and begin to provide much better tools to 
our employees who are collecting overdue accounts and examining 
returns. Overall, long term, through modernization we will 
dramatically improve quality, speed, and effectiveness, as well 
as protect taxpayer rights.

                           Prepared Statement

    So, in conclusion, Mr. Chairman, I believe that we know now 
in some detail what the path is. I think the path is the right 
path. It was laid out by Congress for us in the Restructuring 
Act, and we will be delivering through that path both short 
term and immediate improvements in service and compliance, as 
well as putting the foundation in place for longer term 
improvements.
    Thank you very much, Mr. Chairman.
    [The statement follows:]

               Prepared Statement of Charles O. Rossotti

                             budget summary
    Mr. Chairman, I want to take this opportunity to thank the 
President, and in particular, Treasury Secretary O'Neill, for their 
support of the IRS and its critical mission. I am especially grateful 
that the 6.7 percent increase contained in the IRS budget request is 
above what many other Agencies are proposed to receive for the coming 
fiscal year. The President's fiscal year 2002 budget request of $9.28 
billion for the IRS will enable us to continue to maintain current 
operations and provide the crucial investments needed for our longer-
term Business Systems Modernization program.
    The budget includes close to $400 million in investments to 
modernize the IRS' outdated computer systems. This multi-year project 
will provide the IRS with the modern tools needed both to deliver first 
class customer service to America's taxpayers and to ensure that 
compliance programs are administered efficiently.
    In addition to our Congressional Justification, we have also 
provided the subcommittee our Annual Performance Plan. It is a direct 
result of the new IRS Strategic Planning process and complements our 
budget submission and supports the fiscal year 2000-2005 Strategic 
Plan.

                              INTRODUCTION
    Mr. Chairman, even before the IRS Restructuring and Reform Act of 
1998 (RRA 98) became law, it was clear that a long-term commitment was 
required to fix the IRS. The barriers to better taxpayer service, fair 
and uniform administration of the tax law and greater productivity 
would not yield to short term fixes. Progress would be hard won and the 
victories would be small at first. In fact, we are just beginning to 
reap the benefits of budget increases that were provided more than two 
years ago.
    Mr. Chairman, the changes triggered by the passage of RRA 98, 
together with the need to modernize IRS's archaic computer systems, are 
all encompassing and probably unprecedented in magnitude for any 
government agency. It is perhaps only now that we have begun to 
implement some of the larger changes to our organization and business 
systems that we all fully appreciate the enormity of the challenge we 
have undertaken in partnership with Congress, the Administration and 
America's taxpayers. And that challenge is modernizing the IRS while 
still administering the largest tax administration system in the world.
    From my own perspective, I have tried to describe this process in a 
number of different ways, such as overhauling a passenger plane in mid-
flight. I have also likened our Business Systems Modernization plan to 
reconstructing New York City from the bottom up without disturbing 
anyone and still accommodating growth and change. The mathematician 
Alfred North Whitehead once wrote that, ``the art of progress is to 
preserve order amid change and to preserve change amid order.'' And 
that sums up both the promise and challenge of making progress on 
modernization.
    But any metaphor I could suggest would not do justice to the 
magnitude and pervasiveness of the change that has occurred at the IRS 
and will take place for the rest of this decade. This is by no means a 
comprehensive list, but let me provide the Subcommittee a 
representative sample of some of these changes.
    Since the enactment of RRA 98, the IRS has a new mission and 
strategic goals. We changed the entire way we value success at the 
Agency, both individually and collectively. We invented a means to 
quantitatively measure success in a tax administration agency without 
considering dollars collected. We implemented and are administering the 
71 new taxpayer rights provisions. Many of these taxpayer rights 
provisions, such as innocent spouse protection, due process in 
collections and offers in compromise, would individually be considered 
major change projects. Collectively, they represent a challenge of 
learning new ways of doing business for nearly every one of our 100,000 
employees.
    We also inaugurated the new customer-focused organization structure 
in October 2000, eliminating a 50-year old structure of districts, 
service centers, regions and national office staffs. We are redesigning 
nearly every business process and system in the Agency, from the way 
examinations are planned and conducted, to the way phone calls are 
answered and the way facilities repairs are ordered. Tens of thousands 
of IRS managers and employees have new jobs and many old jobs were 
abolished.
    Just as importantly, we are making these changes while carrying out 
increasingly successful filing seasons for three straight years, 
achieving our first clean financial opinion from the GAO, and managing 
an extremely difficult and complex Y2K program. In fiscal year 2000, we 
were also able to stop the drop in enforcement revenue.
    These changes set the stage for year-by-year improvements in 
performance and for implementation of even more fundamental 
improvements that will be enabled by the Business Systems Modernization 
program. These improvements are carefully mapped out in a new Strategic 
plan that spells out what the Agency must do as an organization to 
improve taxpayer service and meet compliance goals while shrinking in 
size relative to the economy.
    This strategic plan, together with the implementation of the major 
parts of the reorganization and of other RRA provisions, means that 
there is one very important difference between the IRS situation today 
and the IRS situation even a year ago: namely, that the level of 
uncertainty about the future is greatly reduced. We still have much to 
do, but we know more clearly how to do it and have put in place the 
foundation for doing it.

                          FOUNDATION AND PLANS
    On January 30, 2001, the IRS Oversight Board approved the IRS 
Strategic Plan. It follows closely the letter and spirit of RRA 98 and 
reflects the new and modernized IRS. The strategic plan shows how the 
IRS can dramatically improve service to taxpayers and ensure fairness 
and compliance with our tax laws. Moreover, the Agency will meet these 
goals while continuing to shrink in size relative to the economy.
    The greatest challenge presented by the IRS strategic plan is that 
we must continue to administer the world's largest and most complex tax 
system while simultaneously reengineering and improving how the Agency 
works at its most basic level. In other words, we must operate 
effectively and modernize at the same time.
    I want to emphasize the importance of this two-pronged or dual 
approach of strategies to improve performance over the next two years 
while modernizing the Agency in the longer term. Let me illustrate how 
this approach is now working.
    In conjunction with our mission and goals, the IRS Senior 
Management Team developed 10 major strategies. For each of these major 
strategies, such as meeting the needs of taxpayers, reducing taxpayer 
burden and stabilizing traditional non-compliance areas, the Team 
defined Operational Priorities and Improvement Projects for fiscal year 
2001 and 2002. Responsibilities were then assigned for carrying out the 
projects.
    Operational Priorities are the basis for IRS staffing needs. They 
provide direction for conducting both new and current operations to 
ensure the achievement of our strategic goals. These priorities may 
change from year to year depending on changes in tax laws, the effects 
of business systems modernization and improvement projects or the 
redirection of program management.
    Improvement Projects are the basis for information systems project 
funding; they also generate savings in staffing. The projects represent 
opportunities to improve the ways that we work and involve both 
business changes and information systems improvements. These projects 
are smaller and more focused than those stemming from the Business 
System Modernization program and are selected through an agency-wide 
prioritization process.
    Let me stress, Mr. Chairman, that when making these decisions, 
senior management considered internal research and analysis, 
stakeholder input, Treasury Inspector General for Tax Administration 
and General Accounting Office recommendations and employee input on the 
key trends, issues and problems that most affect the IRS.
    This dual approach will require sustained support from the Congress 
and the public, as the change will take time and will inevitably 
include setbacks along the way. It will also require investments, 
especially for business systems modernization, and adequate funding for 
current operations, such as customer service and compliance.
   organizational modernization, strategies and program plan delivery
    Following RRA 98's directions, the IRS designed and has made 
substantial progress in implementing a new organizational structure. It 
closely resembles the private sector model of organizing around 
customers with similar needs.
    The IRS created four customer-focused operating divisions to best 
serve taxpayers: Wage and Investment, Small Business and Self-Employed, 
Large and Mid-Size Business, and Tax Exempt and Government Entities. 
There are also a number of functional units, including Appeals, the 
Taxpayer Advocate Service, Criminal Investigation, and Communications 
and Liaison. Internally, the Information Systems organization, 
including the Business Systems Modernization Office and the Agency-Wide 
Shared Service unit provide information technology and administrative 
support, respectively, to all divisions.
    The new organization focuses on providing service in three key 
program areas: pre-filing, filing, and compliance. And to succeed 
individually and collectively, all programs and organizational units 
must deliver top quality services to taxpayers through these three 
programs.
    There is also a much greater emphasis on pre-filing. We want to 
shift from addressing taxpayer problems well after returns are filed to 
addressing them earlier in the process, and in fact preventing problems 
wherever possible. This approach is also much more cost-effective and 
goes hand-in-hand with improving our program delivery in filing and 
account assistance and compliance services.
    The organizational structure is the vehicle through which decisions 
are made and actions are carried out. The modernized organization was 
specifically designed to support the new IRS' major strategies and 
programs or services. These organizational units can assess the impact 
of the strategies and programs on long-term strategic goals and 
objectives.
    The modernized organization also sets forth clear, end-to-end 
responsibility and gives a top official, supported by a small top-
management team, the authority to serve a taxpayer segment. It is 
specifically designed to facilitate direct and meaningful two-way 
communication, both vertically and horizontally within the organization 
and with the particular taxpayer segment. The top management of each 
major division consists of a set of teams, each of which will be linked 
to the next level. In order to focus the operating units on delivering 
pre-filing services, new front-line organization structures were 
created in the each of the four operating divisions. The following are 
some examples of this new focus.
  --In the Wage and Investment Division (W&I), the Office of Field 
        Assistance will provide comprehensive, person-to-person 
        taxpayer assistance. To fulfill this role, a new Tax Resolution 
        Representative position (TRR) was created to institutionalize 
        the success of IRS ``Problem Solving Days'' into our day-to-day 
        interaction with customers.
  --In W&I, the Stakeholder, Partnership, Education and Communication 
        Office (SPEC) assists taxpayers by working with stakeholders to 
        deliver products and services tailored to customers needing 
        assistance. SPEC will deploy Account Managers and Marketing 
        Specialists to cover every state and major metropolitan area in 
        the United States during fiscal year 2001 and fiscal year 2002.
  --In the Small Business/Self-Employed Division (SB/SE), the Taxpayer 
        Education and Communication Office (TEC) will provide tailored 
        information to these taxpayers. It will conduct research and 
        then develop and deliver products and services to meet their 
        needs. The TEC Office will also be established during fiscal 
        year 2001 and fiscal year 2002.
  --There are small pre-filing units in both Tax Exempt/Government 
        Entities (TEGE) and the Large and Mid-Size Business (LMSB) 
        Divisions. By using web sites, conferences, workshops and 
        newsletters, the TEGE unit will reach its taxpayers and help 
        them understand their tax responsibilities. In LMSB, the Pre-
        Filing and Technical Guidance Office will provide guidance on 
        domestic and international tax issues, clarify core issues with 
        industry experts and support industry components by identifying 
        trends in tax issues.
  --The Government Entities part of TEGE is made up of three distinct 
        sub-segments: Tax-Exempt Bonds; Federal, State and Local 
        Governments; and Indian Tribal Governments. During fiscal year 
        2001 and fiscal year 2002, TEGE will establish from the ground 
        up a cohesive education, outreach and compliance program for 
        these customers.
  --The Taxpayer Advocate Service has multiple missions: 1) assist 
        taxpayers to resolve long-standing problems with the IRS; 2) 
        solicit feedback from taxpayers about IRS problems; and 3) 
        identify systemic problems and propose legislative changes.
  --Criminal Investigation's Lead Development Center will work with 
        interagency task forces, the Financial Crimes Enforcement 
        Network and the operating divisions to select, develop and 
        assign leads.
  --Business Systems Planning is a functional group included in all 
        business units. This group will plan and analyze business needs 
        for new projects, develop business cases, formulate Information 
        Technology plans and budgets, develop and test projects, and 
        implement and oversee modernization projects for its business 
        unit.
  --The Information Technology Services organization has been 
        established to manage the operations, maintenance and 
        enhancement of IRS installed systems. Previously dispersed into 
        more than 15 different information systems support 
        organizations, this new ITS organization is aimed at providing 
        high quality, professionally managed services to the other IRS 
        operating and functional divisions. It will also work in 
        partnership with the Business Systems Modernization office to 
        reengineer and replace IRS basic business systems and 
        supporting technology.
  --Finally, Agency-Wide Shared Services was established to support the 
        operating divisions by providing world class administrative 
        service to all the operating units nationwide.
Business Systems Modernization
    For an organization so critically dependent on technology, IRS' 
systems are woefully obsolete and inefficient. The facts cannot be 
disputed. The IRS is saddled with a collection of computer systems 
developed over a 35-year period. The most important systems that 
maintain all taxpayer records were developed in the 1960s and 1970s.
    In an age of faster and more powerful computers, taxpayers are 
shocked to hear that their most important personal financial data is 
stored and updated once a week on magnetic tape. Overlaying new 
software onto old has created a set of disparate data bases, many of 
which do not talk to one another. Until our consolidation as part of 
the Y2K program, there were 147 mainframes and 8,700 software products.
    The effect of this obsolete technology on service to taxpayers and 
productivity also cannot be disputed. As compared to what the private 
sector can offer, the IRS' services are wholly unsatisfactory.
    Many credit card companies and banks provide their customers with 
real-time account information; their phone representatives can often 
make adjustments on the spot. However, due to our archaic technology, 
IRS employees often do not have access to current taxpayer account 
information. Adjustments to a taxpayer's account may not take effect 
for up to 16 days because of delays in updating files and data among 
different systems. Payments and notices cross in the mail, often 
generating more notices and frustration. Our overall account quality 
for taxpayers requesting information on their accounts over the 
telephone is improving but this filing season is still only 70 percent.
    While the IRS Web site has proven to be an extraordinarily valuable 
source of information for taxpayers, we cannot yet use the Internet to 
provide taxpayers information about their returns or their tax 
accounts, or to exchange messages to resolve account issues. This is 
because we have not yet solved the difficult security problems required 
to provide this service while protecting taxpayer data.
    Inadequate technology and the concomitant lack of accurate data 
also seriously hamper our ability to identify and collect unreported or 
unpaid taxes. Generally, individual audits are not started until 6-18 
months after a return is filed. When they are started, the information 
available to our auditors is limited, extending the time to complete 
the audits and increasing the burden on the taxpayer. Collection of 
outstanding balances of individual and business taxes is extremely 
slow, usually taking years rather than months as is done in the 
commercial world. When cases are appealed, as is provided for in RRA 
98, the transfer of case materials is slow and cumbersome.
    The Business Systems Modernization (BSM) program was established to 
take the IRS to the next level and make longer term, fundamental 
changes to our business processes and practices while managing the 
inherent risks of the process. Over the remainder of this decade, it 
will deliver the major benefits to taxpayers and our tax administration 
system that modernization and RRA 98 are all about. And that process 
has already begun.
    Earlier this fiscal year, the IRS Executive Steering Committee 
approved the Enterprise Architecture. It is the roadmap for modernizing 
the Agency's business systems and supporting information technology 
networks. The Enterprise Architecture (Version 1.0) will guide the 
agency's business and technology improvements in the coming years. The 
approval of the architecture marks a major milestone in our progress 
towards the goals of Business Systems Modernization and will enable us 
to design and build new business and technology projects that will be 
the backbone of the modernized IRS.
    The IRS previously published a blueprint in 1997. It was the first 
comprehensive view of modernized tax systems and guided the IRS efforts 
to update technology. The new Enterprise Architecture reflects the 
lessons learned since 1997 and incorporates elements of the IRS 
reorganization into the four new customer-oriented operating divisions. 
It is an evolving document designed for constant use, with updates 
scheduled for spring and fall 2001 and regular updates thereafter. This 
new blueprint will ensure that IRS business systems' technology is 
compatible. And it will enable IRS employees to do their jobs better 
and provide taxpayers better service.
    Because of the scale, complexity and risk of BSM, we can only carry 
out the plan by defining manageable projects, which are subject to a 
disciplined methodology. Each of these projects will be carried out 
through a step-by-step ``enterprise life-cycle'' in which successively 
greater amounts of detail are defined. The process requires that a 
vision and strategy phase be completed as a first step, prior to 
commencing tasks such as infrastructure development, information 
systems delivery, or process-reengineering. The final milestone in the 
cycle is an initial ``deployment'' of a project as an operational 
system. The IRS' Enterprise Program Management Office manages this 
process.
    Also key to BSM's success is the Tax Administration/Internal 
Management Vision and Strategy Project. Through the project, we have 
instituted a practice that ensures the Operating Division Commissioners 
and staff develop and take ownership of a process and systems 
modernization approach that is consistent and integrated with the 
overall vision of the future IRS. The project's ultimate goal is to 
create an enterprise-wide view of tax administration that is reflected 
in BSM.
    The Business Systems Modernization Organization (BSMO) has now 
identified all the major initiatives for the next several years that 
link directly to our major strategies. Moreover, BSMO defined the major 
dependencies between and among projects and created a sequencing plan 
for their initiation, development, and deployment. It has also made 
rough estimates at a high level of the costs associated with each 
initiative and developed multi-year spending estimates consistent with 
this program.
    This high-level cost and schedule estimates serve as general guide 
for planning and setting overall priorities, but are not intended to be 
used to make specific spending or schedule commitments. No spending is 
actually authorized except with respect to specific milestones in which 
more reliable cost and schedule estimates are made. In short, the IRS 
now has a strategy for achieving the major goals of business systems 
modernization.
    In addition to the strategy and planning for business systems 
modernization, much emphasis has been placed on building an adequate 
program management and product acquisition capacity for this huge 
program. In the 21 months that this program has been underway, 
considerable progress has been made in building this capacity. However, 
management capacity can only mature with experience, and much more can 
and will be done to improve it.
    The risks of business systems modernization are undeniably 
substantial. Any large and complex modernization program involves 
substantial risk, and by any measure, the IRS program is large and 
complex. However, the unique aspect of this program, as compared with 
any other business systems modernization program in the public or 
private sectors, is the exceptionally old and fragile base of existing 
installed systems on which the IRS totally depends for current 
operations.
    Virtually every one of the IRS' 100,000 employees depends on these 
old, inefficient, inconsistent systems to perform their everyday job. 
There is little, if any, precedent for making a transition of an entire 
base of such large-scale installed systems on an enterprise-wide basis 
for an organization the size of the IRS. This unique situation, as 
undesirable as it is, also creates the necessity for the modernization 
program. There is no practical alternative to total replacement of this 
base of installed systems.
    Although the risks of modernization are high, this does not mean 
that the program is destined to fail. With intense and effective 
management, the risks can be identified and addressed and appropriate 
corrections made. However, the nature of this risk means that it is to 
be expected that frequent adjustments to plans and schedules will be 
made to reflect experience. Delays and even failures of some 
initiatives and projects will occur, but if properly managed these 
problems can be identified early enough to correct them with reasonable 
adjustments in costs and schedules and without undermining the overall 
success of the program.

           KEY DRIVERS OF THE FISCAL YEAR 2002 BUDGET REQUEST
    The resources provided by the fiscal year 2002 budget request will 
be used to address the highest priority gaps in our ability to meet our 
mission and goals and will be focused on areas that we know will need 
more resources even while modernization continues. Taxpayers seeking to 
comply with tax laws must receive the assistance they expect; unpaid 
tax debts should be collected; and non-filing and underreporting must 
be addressed and corrected. The IRS is falling seriously short in all 
these areas, in part because of resource limitations.
    In addition, we must continue to support key programs mandated by 
RRA 98, including Electronic Tax Administration, and must reduce the 
case backlog in programs such as Offers In Compromise, Innocent Spouse 
and Collection Due Process. Information services delivery must improve 
toward established benchmark levels, thereby boosting productivity 
throughout the organization, including the service and compliance 
programs. Progress on correcting security and financial control 
weaknesses must be made and we must fully implement some of the 
technical training programs, including those for essential occupations 
such as exam and customer service.
    Finally, modernization itself places major demands on the IRS 
operating organizations. The Business Systems Modernization Program, 
which is funded by the Business Systems Modernization Account (formerly 
the Information Technology Investment Account), provides only for 
outside contract services, not for internal IRS staff required for 
these programs. These internal demands are increasing rapidly.
    Our plan to meet the demands of these key drivers will not be 
accomplished in fiscal year 2002; however, we will make a significant 
start to meeting those goals. We will address the following strategies 
as one of the significant steps on the road to IRS modernization.
Fill New Front-line Pre-Filing and Taxpayer Assistance Positions in the 
        Organizational Design
    In order to provide better service to compliant taxpayers, we must 
complete the staffing of our pre-filing organization that aids 
taxpayers in filing correct returns, as well as resolving issues with 
payments and correction of tax returns. The need for this service was 
highlighted during Congressional hearings and through the success of 
our ``Problem Solving Days.'' Once our in-person taxpayer assistance 
offices are adequately staffed, we will be also able to reduce our 
reliance on work details from the compliance function during the filing 
season--a necessary, but inefficient practice. This will enable us to 
provide more effective compliance coverage.
Increase the Level of Service (LOS) Access for Telephone Service
    The strategy for increasing LOS for toll-free telephone is two-
fold: (1) increase staffing slightly and (2) install management, 
process and technology changes to increase the effectiveness and 
efficiency of telephone operations; these changes include both 
technology changes and improved management specialization and training 
of assistors. With these changes, the IRS has set an aggressive goal to 
improve the level of service--the success rate for callers connecting 
to an IRS representative--to 71 percent. System and productivity 
improvements will raise Toll-Free Level-Of-Service the equivalent of 
hiring 1,474 additional live assistors.
Replace Attrition in Front-line Compliance Positions
    External factors, however, are affecting our ability to meet this 
plan. In fiscal year 2001, the IRS is experiencing a higher than normal 
attrition rate of 6.05 percent versus the 4.5 percent average annual 
rate. This rise is due to a number of factors, including an aging 
workforce. Since much of this attrition is among our senior front-line 
staff, our productivity measures in fiscal year 2001 and 2002 may be 
affected. Replacement of staff lost to attrition with qualified 
personnel will be a major challenge over the next several years.
Increase Front-Line Compliance Services Staffing for Document Matching 
        and Telephone Collections
    In fiscal year 2001, sixteen Electronic Collection sites will be 
divided between W&I and SBSE. At those sites, Customer Service 
Representatives (CSR) will answer specific calls based on the 
taxpayer's needs. In fiscal year 2002, calls will be routed to CSRs 
based on additional characteristics. For example, a specialty site will 
be in place for taxpayers who have defaulted on installment agreements. 
These and other service improvement efforts will be enhanced with the 
addition of staff from the STABLE (Staffing Tax Administration for 
Balance and Equity) initiative.
    Also, in fiscal year 2001, six Automated Underreporter (AUR) sites 
will be divided between W&I and SBSE. In fiscal year 2002, specialized 
service will be provided to target groups identified through feedback 
from compliance audits. Through both of these approaches, taxpayers 
will receive better service that addresses their specific tax problems 
and provides a basis for more efficient tax administration.
Reduce the Number of Compliance FTE Diverted to Filing Season Details, 
        Thereby Increasing Net FTE for Compliance
    In recent years, the IRS has detailed approximately 1,200 FTE from 
Examination and Collection duties to Customer Service to meet filing 
season workload peaks in the Toll-Free Telephone and Walk-In assistance 
programs. The STABLE initiative was designed, in part, to reduce by 50 
percent the Customer Service reliance on short-term details of 
compliance staff. By reducing the diversion of revenue agents, tax 
auditors and revenue officers from enforcement casework, audit coverage 
and collection effectiveness are expected to increase.
Centralize Processing of Most Offers in Compromise (OIC) to Reduce the 
        Drain on Front-Line Collections Staff
    Over the past several years, the Offer in Compromise program 
continued to show an increase in its over-age inventory even while 
resources used have continued to increase. Recent tests proved that 
using a bulk processing methodology to process low-dollar cases 
resulted in productivity gains. OIC Centralized processing will be 
divided between two SB/SE sites responsible for processing 
determinations and case building. This centralization will allow 
Revenue Officers to concentrate on collecting overdue accounts while 
improving the timeliness of processing OICs.
Move Most Innocent Spouse Cases to W&I to Reduce the Drain on Front-
        Line SB/SE Exam Staff
    To improve efficiency, the ``Innocent Spouse'' program has been 
centralized at one W&I service center location. SB/SE field staff will 
continue to work through their current inventory, but most new cases 
will be resolved in the W&I service center or taxpayer assistance 
centers. New cases forwarded to field compliance staff are expected to 
decline in fiscal year 2001. With the shift of work to W&I, there will 
be a reduction of Field Compliance resources in SB/SE dedicated to 
Innocent Spouse activity allowing a redirection of these resources to 
compliance activities.
Fill Out the TEGE Government Entities Organizational Design
    TEGE designed its Government Entities (GE) organization to reach 
taxpayer segments that have been historically underserved: Tax-Exempt 
Bond-Issuers, Federal, State and Local Governments (FSLG) and Indian 
Tribal Governments. The size and complexity of the tax-exempt bond 
market requires ongoing attention to address emerging economic issues. 
Indian Tribal government gaming and related economic development are 
expanding rapidly nationwide. For FSLG, the objective is to identify 
emerging employment tax issues and provide guidance.
Initiate Document Matching for K-1s
    Trust and partnership return filings have steadily grown since 
1995, increasing 7.4 percent and 26.2 percent respectively. Trust 
return filings constitute the largest business filing population at 3.5 
million filers, while partnerships surpassed two million filers in 
fiscal year 2000. Research suggests that up to 20 percent of pass-
through income is not being reported. And it is further estimated that 
unmatched K-1s equate to up to $500 billion in pass-through income. 
These pass-throughs are not being identified by IRS and therefore are 
not available for compliance reviews. Abusive tax shelters are taking 
advantage of IRS' inability to match, regulate or analyze this 
information. Over 350 FTE are to be hired from the STABLE initiative in 
fiscal year 2001 to ensure that greater effort is placed on this 
problem. These FTE will provide for the essential data entry, not the 
actual casework to follow up on matches.
Improve Operational Efficiency Through Modernized Business Systems 
        Coming On Line
    In its fiscal year 2001 budget request, the IRS stated: ``Our 
modernization program relies on improved management, business practices 
and technology. Because the basic IRS strategy is to meet increased 
workload and service demands by reengineering business practices and 
technology, freeing up positions through business systems investment is 
a critical requirement. By investing in technology and improved 
business practices, the fiscal year 2001 budget request avoids the 
traditional staff increases that would otherwise be required.'' And in 
fiscal year 2002, we will begin to deliver on that promise.
    Operational efficiencies and improved customer service will be 
evident as early as fiscal year 2002 in two programs. The first, 
Electronic Tax Administration, will make submission processing more 
efficient through electronic filing. The second program, Customer 
Communications 2001, will provide increased toll-free telephone service 
to taxpayers. Let me describe these initiatives in greater detail.
  --The e-Services project will foster easy-to-use electronic products 
        and services. It is targeted at specific practitioner segments 
        that inform, educate, and provide service to taxpayers. In 
        addition, e-Services will provide the foundation for providing 
        safe and secure electronic customer account management 
        capabilities to all businesses, individuals, and other 
        customers. This project will help the IRS meet the 
        congressionally-mandated goal of 80 percent of tax returns and 
        information filed by electronic means by 2007, while achieving 
        a 90 percent customer and employee satisfaction rate.
      --Research has shown that third party preparers filing complex 
        returns have been slower to adopt electronic filing. In 
        conjunction with our efforts to allow all forms and schedules 
        to be filed electronically, the e-Services 2002 release is 
        designed primarily to encourage paid preparers to e-file on 
        behalf of their clients.
  --The Customer Communications 2001 project will improve the 
        efficiency and effectiveness of IRS' systems for responding to 
        taxpayer calls on our toll free lines. Hardware and software 
        improvements will be made to the telephone system that is used 
        to receive, route, and answer more than 95 million taxpayer 
        telephone calls each year. The efficiencies derived through 
        modernizing will allow the IRS to improve its level of service 
        without commensurate increases in the number of FTE handling 
        calls. This project will not only deliver direct benefits by 
        increasing the number of calls that can be answered with 
        available staff, but will also be a critical foundation element 
        for subsequent projects, since virtually all major systems 
        require communication with taxpayers.
Plan for Normal Workload Increases
    In fiscal year 2001, the IRS will handle a total workload--greatly 
increased by an expanding economy--with 15,000 fewer FTE than in fiscal 
year 1993. Staff reductions since fiscal year 1993 are due to 
downsizing efforts and internal reprogramming to meet essential non-
labor needs. We estimate that the IRS overall workload increases at the 
rate of approximately 1.8 percent per year, slightly greater than the 
rate of growth of returns filed. At the same time, RRA 98 created very 
significant additional resource demands. Expanded programs such as the 
innocent spouse provisions, offers in compromise and due process in 
collection required more than 4,200 IRS staff annually to administer.

            FISCAL YEAR 2002 RESOURCE REQUEST AND OBJECTIVES
    To ensure that we meet these requirements, the IRS requires a 
minimal increase in funding in fiscal year 2002, as set forth in the 
President's budget. With the new organization in place, new technology 
improvements beginning to come on line, and the staffing provided by 
the STABLE initiative, the declines in compliance activities, such 
audit and collection actions, will stabilize while customer service 
indicators will continue to improve.
    In fact, as demonstrated in the performance and workload measures 
included throughout our Congressional Justification document, we expect 
some improvement in performance over fiscal year 2000. For example, 
service improvements can be seen in the expected level of service 
increase to 71 percent. In addition, while still low by historical 
standards, the number of returns audited is projected to rise by 28 
percent. Equally important, key areas of non-compliance, such as trusts 
and passthroughs, higher income returns, corporate returns and 
employment tax collections will receive more focus.
    The fiscal year 2002 request is $9.276 billion (without the Earned 
Income Tax Credit Account), $580 million more that the fiscal year 2001 
appropriated level of $8.696 billion. Most of this increase, $325 
million, maintains the momentum needed for the Business Systems 
Modernization technology effort underway at IRS.
    Let me stress Mr. Chairman, that the $325 million increase will be 
used to replenish the Information Technology Investment Account (ITIA) 
which has been drawn down as the IRS begins to deliver on the BSM 
program benefits. In fiscal year 2001, in addition to the $72 million 
in the fiscal year 2001 appropriation, the IRS had use of $305 million 
in ITIA funds carried over from prior years' appropriations. Thus, the 
total ITIA funds requested for fiscal year 2002 of approximately $397 
million represent a net increase in actual funds available to the 
program of $26 million or 6.5 percent even though the requested 
increase in appropriations is $325 million. Apart from this technology 
investment, the remaining increase is only 2.9 percent greater than 
fiscal year 2001 and is necessary to maintain current operations.
Program Changes
    Our budget request has two broad categories: Maintaining Current 
Operations and Modernization. Program increases to maintain current 
operational levels include FTE for the STABLE initiative and the 
Counter Terrorism Initiative. Decreases in our operational levels 
include program offsets in costs for non-labor resources that support 
activities of the IRS. Modernization includes increases for our 
investments in new technology to continue the momentum of business 
systems modernization and decreases in funds for organization 
modernization that are no longer needed.
Maintaining Current Operations
    Modernization of the IRS includes modernizing the organization 
structure as well as the technological base. On October 1, 2000, the 
structural reorganization of the IRS was completed with the standup of 
the final operating units. However, there will be a period of 
adjustment over the next two years as the new business units assume 
their new roles and responsibilities. In particular, the service 
improvements in telephone operations and compliance depend on further 
workload redistribution, increased specialization and retraining of 
approximately 4,000 to 6,000 employees in Accounts Management and 
Compliance Services programs.
    The IRS is also requesting $325 million to fund the estimated cost 
of non-pay inflation and statutory pay and benefit increases. The IRS 
is a labor-intensive organization. Our mission is accomplished through 
people, and stabilization of the workforce is critical. To maintain 
current operations, protect the integrity of the filing season, oversee 
tax administration programs and implemented organization modernization, 
the IRS must have the resources to pay for the increased costs 
associated with statutory pay increases.
    Congress provided funding in fiscal year 2001 for the STABLE and 
Counter Terrorism Initiatives. The STABLE initiative was designed to 
stabilize and strengthen tax compliance and customer service programs. 
In addition, the annualization of the Counter Terrorism Initiative will 
complete funding for the IRS Criminal Investigation portion of the 
National Counter Terrorism Initiative.
    There are program offsets too--$57 million in projected inflation 
for non-pay expenditures. It is believed that such costs can be offset 
through improved resource management.
Modernization
    Most of the costs to America's taxpayers of administering our tax 
system are not in the IRS budget. Each taxpayer must invest time and 
money in preparing a return and must bear the intangible cost of 
dealing with an agency that attempts to help using extraordinarily old 
and poorly integrated systems. The IRS has been endeavoring to 
reengineer the entire way it does business to ensure that its customer, 
the American taxpayer, receives world class service.
Business Systems Modernization
    For fiscal year 2002, we are requesting $397 million to continue to 
invest in the modern technology necessary to improve customer service 
delivery. Compared to fiscal year 2001, this represents a net increase 
in available funds of $26 million, taking into account funds available 
in fiscal year 2001 that were carried over from prior years. A specific 
list and description of the projects to be funded from this request are 
contained in our Congressional Justification; a summary of these can be 
found in the Appendix to our testimony. Funding to improve these Core 
Business Systems is necessary for full compliance with RRA 98 mandates. 
Full funding will allow for the following benefits:
  --Short Term.--Improved access to IRS support, information and tax 
        data through multiple, easy-to-use channels; more accurate 
        information provided by IRS; greater speed of response to 
        taxpayers; and improved timeliness of IRS-initiated actions;
  --Mid-Term.--A set of business systems and practices more nearly on a 
        par with the private sector, and that provides a single point 
        of access to all information relating to taxpayer account 
        information for both taxpayers and IRS employees;
  --Long-Term.--A flexible and adaptable environment that meets the 
        Nation's tax administration requirements and taxpayer needs in 
        the ever-changing technological landscape of the future.
Organization Modernization Non-Recur
    Funds have been requested in the past three years to cover special 
costs that are related to IRS modernization. Some of these resources 
were for design work, space alterations and contract movers to 
physically realign employees with their new operating divisions. The 
remaining funds were for employee buyouts, recruitment, relocations, 
employee training, equipment, services and supplies, telecommunication 
moves and installations, and modification of information systems to the 
new organizational structure. Costs for organizational modernization 
are peaking in fiscal year 2001, and will decline by $101 million in 
fiscal year 2002 and end in fiscal year 2003. In fiscal year 2002, the 
$101 million non-recur reflects reduced costs for modification of 
information systems, employee buyouts and moving expenses, and some 
contracts, training and operating travel.

                               CONCLUSION
    Mr. Chairman, in conclusion, I believe that the IRS is on the right 
track. We have demonstrated both the ability to make some short-term 
improvements in service, and more importantly, the ability to produce a 
viable and cogent strategic plan that will guide our efforts to make 
changes in the entire way we do business and provide service to 
taxpayers. With your continued support and the support of the American 
people, I am convinced more than ever that we can succeed.

                               APPENDIX A
    The Business Systems Modernization Organization (BSMO) has now 
identified all the major initiatives for the next several years that 
link directly to our major strategies. Moreover, BSMO defined the major 
dependencies between and among projects and created a sequencing plan 
for their initiation, development, and deployment. It has also 
estimated the costs associated with each initiative and developed 
multi-year spending estimates consistent with this program. It now has 
a strategy for achieving the major goals of business systems 
modernization. The following are some of the key projects we will be 
working on during the next three years and beyond.
  --Deployment of the Customer Communications 2001 Project.--The 
        Customer Communications Project is the first deployment of a 
        business capability under the BSM effort. It is now in final 
        testing before deployment in the third fiscal quarter. The IRS 
        will greatly improve the efficiency and effectiveness of IRS' 
        Automated Call Distributors (ACDs) and provide customer service 
        levels on a par with the private sector. Hardware and software 
        improvements will be made to the telephone system that is used 
        to receive, route and answer more than 150 million taxpayer 
        telephone calls each year. At a later date, Internet access 
        capabilities will be added. This project will deliver direct 
        benefits by increasing the number of calls that can be answered 
        with available staff and will be a critical foundation element 
        for subsequent projects, since virtually all major systems 
        require communication with taxpayers.
  --Development of the Customer Relationship Management Exam (CRM Exam) 
        Project.--Development has already begun. Through CRM, the IRS 
        tackles some of the most complex tax calculations, including 
        carryback/carryforward, the Alternative Minimum Tax, and 
        Foreign Tax Credit. This initiative will enhance the revenue 
        agent's capabilities, reduce exam time, produce consistent 
        results and reduce the burden on taxpayers who must deal with 
        the IRS on these complex tax issues.
  --Development of the Security and Technology Infrastructure Releases 
        (STIR).--The design for STIR was approved and development was 
        initiated. This project provides the essential underlying 
        security infrastructure for the planned project deployments of 
        the Customer Account Data Engine (CADE), Customer 
        Communications (2002), and e-Services and Customer Account 
        Management System. Development, testing and first release are 
        expected by 2001.
  --The Customer Account Data Engine.--(CADE) is the cornerstone of the 
        data infrastructure. It is designed to provide a modern system 
        for storing, managing, and accessing records of taxpayer 
        accounts. CADE will create applications for daily posting, 
        settlement, maintenance, refunds processing, and issue 
        detection for taxpayer accounts and return data. The database 
        and applications developed by CADE will also enable the 
        development of subsequent modernized systems.
      --CADE is scheduled to be released in stages, beginning first 
        with simple tax returns being moved into the new CADE system, 
        followed by increasingly complex taxpayer returns. As more 
        taxpayer account information is moved into the new CADE system 
        through these staggered releases, other modernized applications 
        will be put in place to provide the interfaces necessary for 
        IRS employees, and affected taxpayers, to access and carry out 
        transactions. System development, testing and initial 
        deployment of some returns is expected to be completed during 
        2002.
  --Development of the Enterprise Data Warehouse/Custodial Accounting 
        Project (EDW/CAP).--Today, the IRS has a variety of dedicated 
        research databases, and also uses its operational databases for 
        operations research/analysis. The timeliness, consistency and 
        standardization of the data in these separate systems do not 
        support integrated analysis and corporate-wide decision making. 
        The inconsistent and redundant data in stovepipe systems can 
        result in inconsistent management and reporting data.
      --Through EDW/CAP project, the IRS will develop an integrated 
        enterprise data warehouse to support organizational data needs, 
        such as those that are critical to managing our new compliance 
        initiatives. For example, it will provide a single integrated 
        data repository of taxpayer account and payment/deposit 
        information, fully integrated with the general ledger. And it 
        will identify payment and deposit information at the point of 
        receipt. The operating divisions will be given access to 
        pertinent revenue, assessment, disbursement, and seized asset 
        information. In addition, it will provide the IRS with the 
        capability to maintain financial controls over the $2 trillion 
        of tax revenue received annually.
  --The e-Services project will support our ability to meet the overall 
        goal of conducting most transactions with taxpayers and their 
        representatives in electronic format, as required by RRA 98. By 
        2002, the e-Services will: (1) provide the capability to 
        register new electronic return originators over the Internet; 
        (2) permit delivery of transcripts to authorized parties 
        electronically; and (3) allow third parties who are required to 
        provide certain forms 1099 and information returns to check the 
        taxpayer identification numbers for accuracy before submission.
      --An important aspect of e-Services project is that it will be 
        one of the first projects to provide a practical and limited 
        application to define and test the design of our critical 
        security infrastructure for sending and receiving taxpayer data 
        internally and externally.
  --Customer Account Management (Individual Assistance and Self-
        Assistance Operating Models).--In today's environment, 
        taxpayers are often unable to receive timely and accurate 
        responses to requests and inquiries. These operating models 
        will provide improved technology and business processes that 
        will enable the IRS to: better manage customer service 
        functions; maintain and utilize customer data to improve 
        taxpayer interactions with the IRS; provide comprehensive 
        account and tax law assistance to taxpayers and practitioners; 
        and manage the case work flow of customer inquiries. There is a 
        separate release strategy for each of the operating models 
        based on the customer segment that benefits the most from the 
        new capabilities.
  --Tax Education (Direct and Indirect) Operating Models.--These models 
        address improving business processes and operational systems 
        within the pre-filing business area (i.e. before a return is 
        filed). In the past, there has been minimal investment in pre-
        filing activities, such as making educational materials, 
        information and forms more readily available. With the 
        organizational modernization, pre-filing activities will become 
        more prominent. The Tax Education Operating Models will help 
        taxpayers reduce or eliminate errors before they become 
        compliance problems by developing proactive and targeted 
        educational materials that are available 24/7 in various 
        formats from web-based products to published documents. 
        Utilizing third-party partnerships, the IRS will develop and 
        make available in plain language reliable educational 
        information, guidance and advice.
  --Individual Assistance Operating Model for Reporting Compliance.--
        The current compliance environment has produced a number of 
        problems, such as extended cycle times, reduced coverage and 
        decreased customer and employee satisfaction. This project will 
        have a significant impact on the present Reporting Compliance 
        operational environment by providing: (1) robust, issue driven 
        compliance planning that utilizes outcome-based improvement to 
        ensure fair and effective selection of cases; (2) highly 
        automated decision engines for risk-based case selection, 
        treatment assignment and resource allocation to decrease cycle 
        time; (3) electronic case files with pre-identified issues to 
        support productivity gains and increased coverage; (4) case 
        working tools, workflow management and remote access to 
        critical data; and (5) new technology and processes to 
        establish collectability, secure payments and facilitate 
        payment agreements at the closure of cases.
  --Filing and Payment Compliance Operating Model.--This is an end-to-
        end strategy to resolve collection issues quickly and fairly. 
        It augments, refines and replaces existing processes and 
        technology to enable the IRS to interact with taxpayers in a 
        seamless and efficient manner. Protection of taxpayer rights at 
        all times is an important component of this strategy. Taxpayers 
        who are able to resolve their cases with no direct IRS contact 
        are provided various self-correct options. Field or Collection 
        Call center staff will assist taxpayers who need help to 
        resolve their delinquent tax cases. They will have access to 
        real-time data to ensure that appropriate actions are taken and 
        taxpayer rights are protected. The operating model will 
        decrease cycle time to approximately six months.

                GAO Clean Audit of IRS for the Year 2000

    Senator Campbell. Thank you, Commissioner. I do not have a 
conflict for about an hour and-a-half and Senator Dorgan does, 
so I think I will yield to him, if you have some questions you 
would like to ask before you go?
    Senator Dorgan. Mr. Chairman, thank you very much. Again, 
Commissioner, thank you for being here. Without belaboring the 
point, all of us serve on many committees. I think I am in four 
committees and I think 12 subcommittees, and 3 of them are 
meeting right now. One of them I have to stop at quickly and I 
do not know that I will get back in time. So what I would like 
to do is submit a list of questions to you, and just mention 
two areas.
    I understand that in fiscal year 2000, for the first time 
the GAO gave the IRS an unqualified or clean audit opinion for 
the year 2000. Congratulations.
    Mr. Rossotti. Thank you.
    Senator Dorgan. That obviously suggests that the financial 
management systems have been improving and you have been taking 
the right kind of steps and providing the right kind of 
leadership. I congratulate you for that.

                       IRS Modernization Program

    I do want to ask a question about the Washington Post 
report that I think I had mailed to you and certainly you have 
seen, and also a report in the Wall Street Journal. It is a 
problem that has existed prior to your coming to the IRS, but 
continues, and I suspect it is a vexing problem for the 
Service. That is, people calling in to get taxpayer assistance 
and getting the wrong advice. And at least in one in five 
circumstances, in addition to the wrong advice, getting 
somebody who is not very friendly or not treating them 
properly.
    I assume that you are treating this as a priority and 
struggling to try to deal with it. Could you give me your 
reaction to both of the reports?
    Mr. Rossotti. Yes. First of all, it absolutely is a 
priority to provide first quality service to taxpayers who 
either call in or actually come and visit, and let me take them 
separately because they are similar in some ways, but they are 
actually distinct.
    Most taxpayers that contact the IRS do so by phone. We are 
getting about 100 million calls now across the whole year. 
About 30 percent of them are tax law calls, where people call 
in to ask information about tax law. This is a very, very high 
priority for us to improve. It is also a very difficult one 
because of the wide range of things that people can call in and 
ask about, so we are tracking this very carefully.
    In the phone service area, but not yet in the in-person 
service, we do have a quality measurement system that we began 
to put in about a year and-a-half ago, which actually monitors 
real taxpayer calls and scores every call both in terms of 
accuracy of answer, as well as the more soft variables of how 
well they were treated. We have improved, and I cited some of 
the statistics. But it is still well below what we need to do.
    The things that we are doing to fix this and to improve 
this have partly to do with training of employees, and that is 
probably the main thing that we have done to improve so far. 
But frankly, if you look at the things that people can call in 
about about tax laws and accounts, it is an enormously wide 
range of subject matter.
    So one of the most important things that we are doing 
longer term is reorganizing--we have about 9,000 full-time-
equivalent employees that answer phones, but in the filing 
season it goes up to maybe 13,000. Obviously, what we have to 
do is we have to divide them into specialized subsegments, so 
that an employee can reasonably be expected to learn about a 
particular area of tax law, and then we have to use technology 
to direct the calls to the people who have that particular 
expertise. That is the basic strategy.
    We began to implement some of it even last year. We will be 
implementing considerably more of it next year. That is 
actually the very first project that is coming out of business 
systems modernization--call service that will direct those 
calls. We are also doing some other things in terms of the way 
that the place is organized, so that we can train people in 
these specialized subjects.
    The net effect of this is that I really believe that--as we 
have already done and we have made some progress, over the next 
two years we will see continued improvement in both the 
accessibility and the quality of phone service for taxpayers.
    On the other side of it--and we have spoken about this in 
person, is the in-person service. Some people just cannot cope 
over the phone or do not want to cope. They want to come in and 
deal with an IRS person face-to-face. This kind of service, 
this in-office service was treated very ambiguously by the IRS 
for many, many years. It was never clear whether it was really 
a priority or it was not a priority, and as budgets were cut, 
the staff was cut. We have talked about North Dakota. As of 
about 18 months ago, there were only five full-time employees 
in the entire State of North Dakota that were assigned to 
specific offices so that people could come in and get service.
    We made a determination as part of our strategic plan in 
our reorganization that, unambiguously, we do need to provide 
that kind of service for those taxpayers who need it. We have 
reorganized so that now that is all under one management 
structure. As part of the STABLE initiative we will be, and are 
at the present time, right as we speak, recruiting higher 
graded and additional employees. When it is fully effective, we 
will have 17 permanent employees in four different locations in 
the State of North Dakota.
    I am using this because I know this will mean more to you 
than the thousands across the country. I am sorry, Mr. 
Chairman, I should have gotten the ones for Colorado too, but I 
will get them for you. It just occurred to me that I should not 
neglect Colorado in this discussion.
    But I figured just using it to illustrate the fact that we 
are going to have a professional set of people managing it, 
they will be assigned full-time, and then they will be trained 
to offer reasonable services.
    I will also say that we have further to go, I believe, in 
measuring the quality of service in our in-person sites than we 
do in the phone service because in the phone service, we have 
been at this for a couple years and it is easier to monitor 
traffic because you can do it electronically. We are still 
working on how to get our quality measurement system for the 
walk-in sites. That is one of our top priorities for this year 
and we will be, we hope, by the end of this year, putting in 
place some sort of a quality measurement system.
    So I think you can see that we are putting a high priority 
on this. It is not a simple task, nor is it a low cost task, 
but it is one that I think the taxpayers need.
    [The information follows:]

                 COLORADO TAX ASSISTANCE CENTER STAFFING
                             [Filing Season]
------------------------------------------------------------------------
                                           2000    2001    2002    2003
------------------------------------------------------------------------
Denver:
    Full time...........................       4       9
    Seasonal............................  ......       1
    Details-in..........................   \1\ 3       2
    P/T details-in......................   \2\ 2       2
                                         -------------------------------
      Total.............................       9      14      14      14
                                         ===============================
Colorado Springs:
    Full time...........................       2       3
    Seasonal............................       1       2
    Detail-in...........................       1  ......
    P/T detail-in.......................       1  ......
                                         -------------------------------
      Total.............................       5       5       5       5
                                         ===============================
Ft. Collins:
    Full time...........................       2       2
    P/T details-in......................       2  ......
    Seasonal............................  ......       1
                                         -------------------------------
      Total.............................       4       3       3       3
                                         ===============================
Grand Junction:
    Full time...........................       1       1       2
    Detail-in...........................       1  ......
    P/T detail-in.......................       1       1
                                         -------------------------------
      Total.............................       3       2       2       2
                                         ===============================
      Colorado: Total...................      21      24      24      24
------------------------------------------------------------------------
\1\ Details in are from Compliance.
\2\ Part time details-in are for periods of peak demand only.


    Senator Dorgan. Commissioner, thank you. Would you submit 
to the committee your benchmarks of expectations with respect 
to busy signals, quality and so on?
    Mr. Rossotti. Yes.
    [The information follows:]
                      Telephone Service Benchmarks
    IRS establishes goals and expectations for a number of discrete 
aspects of its telephone operations. For fiscal year 2001, the key 
objectives included an Assistor Level of Service (the percent of 
customer calls answered by our major nonautomated telephone services) 
of 63.4 percent, a Tax Law quality rate of 74 percent, and an Accounts 
quality rate of 63 percent. Actual performance for January 1, 2001 
through May 18, 2001, for Level of Service is 64.91 percent (an 
increase of 5.2 percent from the same period in the prior year), Tax 
Law quality of 73.83 percent (an increase of 2.73 percent), and 
Accounts quality of 69.77 percent (an increase of 18.03 percent).

    Senator Dorgan. Again, largely because the issues raised in 
the two news stories describing the studies raise questions 
that you are concerned about I am concerned about, and I would 
like to get a sense of what you aspire to achieve in terms of 
your goals.
    Mr. Rossotti. I would be pleased to do that.
    Senator Dorgan. Again, Mr. Chairman, let me, submit my 
questions for the record, and thank the Commissioner. We can 
have opportunities to visit outside of this hearing if other 
issues arise. Mr. Chairman, I am going to run over then to the 
Agriculture Appropriations Subcommittee. Thank you very much.
    Senator Campbell. Along that same line, Commissioner 
Rossotti, I think one of the complaints was also about 
preprogrammed messages and not being able to talk to a live, 
human being. You said you get 100 million calls a year, 9,000 
people answer those calls, but it goes up to 13,000 during the 
busy season, spring filing season. Here on the Hill when we 
hire people, usually the one that comes in the door last is the 
one that has to answer the phones, because we know a lot of the 
calls are going to be just very simple they will not be asking 
a lot of technical questions, and half of them are just going 
to be venting at us about something anyway and anybody can 
record that.
    What are the qualifications of the people that answer those 
phones?
    Mr. Rossotti. We do not treat it that way, as just taking 
the first person that comes in, because these are very 
professional jobs that are very important. We do have a grade 
structure. The top grade for the phone assisters is currently a 
GS-8, which is certainly, I think, reasonably competitive with 
what the private sector is. Of course, they come in at a lower 
level to start and work their way up. They are trained to 
answer calls of particular kinds.
    So they are full-time. They are there to answer people in 
person, and they answer very technical tax law questions, as 
well as deal with taxpayer accounts.
    The difficulty is that there is such a large variety of 
questions that can come in, given the breadth of the tax law. 
And not just the tax law, but all the different accounting 
things that can happen, when somebody sends in a payment and it 
does not get credited to the right account, or they want to 
maybe have an installment agreement.
    So the real challenge that we have is how to group these 
assisters and line up what specialized subject matter they 
should be trained in. You cannot train 9,000 people in 
everything.
    Senator Campbell. Sure.
    Mr. Rossotti. What we are really going to have with the 
technology is for people to be able to be directed through the 
phone prompting so that they get to the right person. So that, 
for example, if you want to ask a question about your 
dependent, whether you can take your son as a qualifying child 
as a dependent, you can push a button and it will give you to a 
person who is trained in that particular subject. That is 
really the critical thing that we have to do to make this work.
    Senator Campbell. If I ever call, I am going to call you. I 
just want you to know that.
    Mr. Rossotti. Yes, sir.
    Senator Campbell. If I have a problem, I will call you.
    Mr. Rossotti. And you will not be routed. I can promise 
you, you will not be routed through a routing system. You will 
come to me directly.
    Senator Campbell. That is good. We are joined by Senator 
Mikulski. Senator Mikulski, did you have an opening statement? 
We were asking some questions here.
    Senator Mikulski. Thank you very much, Mr. Chairman. I will 
put my opening statement in the record, because I know we were 
delayed because of the votes. I want to welcome Mr. Rossotti to 
the committee. As you know, IRS is headquartered in Maryland. I 
think we are very blessed to have someone of his competence 
really trying to reform IRS while we formulate tax policy.

                           Prepared Statement

    I will be asking questions about the pace of modernization, 
particularly technological, to really enhance consumer service 
and the collection of our taxes. So I will just put this in the 
record and come in after you, sir. Thank you very much.
    [The statement follows:]

           Prepared Statement of Senator Barbara A. Mikulski

    Thank you Chairman Campbell, Senator Dorgan. Welcome Commissioner 
Rossotti. It's a pleasure to be here today to discuss the 
Administration's Internal Revenue Service budget request for fiscal 
year 2002.
    Just a few weeks ago, you and I attended a groundbreaking ceremony 
in New Carrollton, Maryland for a new facility being built by the 
Computer Science Corporation. This building will house the private 
sector employees that will support the IRS' Business Systems 
Modernization project. I am so pleased that you joined us for this 
event because it signals your commitment to the success of modernizing 
IRS' outdated computer systems.
    We are all familiar with the failed efforts to modernize technology 
at the IRS prior to your arrival. Billions of dollars were wasted. 
Dozens of outmoded computer systems were built. Little of which helped 
the IRS achieve the two objectives it must accomplish--improved 
customer service and fair and accurate tax compliance. This failure 
frustrated Congress, but even worse, it frustrated the front line IRS 
workers on the front lines. They work hard trying to help taxpayers get 
accurate and timely information but did not have they tools they need 
to do their jobs.
    This legacy has also made the Congress skeptical the success of the 
current modernization effort. I am concerned that funding for this 
modernization has been inconsistent. Once we have appropriated funds, I 
know there is beauracracy before the funds can be released. I know that 
the 4 layers of review contributed to program's shutdown last year. I 
also know that it has made it difficult to attract and retain the best 
and the brightest to help solve one of the most significant information 
technology challenges in the Federal government
    I hope that this year we can work together--the House, Senate and 
the Administration, to stabilize this program. I know that the computer 
infrastructure must work for IRS to move forward with other taxpayer 
services. The two are indelibly linked. So we must be reliable 
partners. We must ensure that IRS has the resources it needs to 
complete their mission. And, that the money gets to the contractors on 
time, so they can complete theirs.
    Why is the IRS in such desperate need of new technology? The 
current database of tax files used by the IRS was created in 1962. 
We've come a long way since 1962. Americans have come to expect the 
highest level of customer service from VISA or MasterCard or American 
Express. They should expect no less as taxpayers from the IRS: getting 
questions answered quickly and accurately; receiving refund checks in 
two days instead of a month or six weeks; and having a system that 
eases the audit burden on our agents and allows them to pursue the 
billions of dollars lost each year to tax cheats. Taxpayers who pay by 
the rules should have safe, secure, and reliable customer service when 
they have questions about their tax returns
    Building new computers from the group up is not an easy task. It 
requires the IRS to fundamentally change its organizational structure, 
its business practices, and its information systems. I commend you for 
your efforts to date to change the way the IRS does business. I look 
forward to the continued progress of the Modernization hope you know 
you can count on me to be an ally in this transformation effort.
    Thank you Mr. Chairman.

                     Innocent Spouse Relief Program

    Senator Campbell. All right. Let me ask a couple of 
questions we will just go back and forth here, Commissioner.
    The innocent spouse relief as it is called, that provision 
was enacted in 1998. Have the claims for the innocent spouse 
relief decreased or increased since 1998?
    Mr. Rossotti. They have increased very substantially, Mr. 
Chairman.
    Senator Campbell. And we are keeping up with those?
    Mr. Rossotti. Well, we are now. It took us a while to get 
caught up. And really more than getting caught up, to learn how 
to adjudicate them. There are four different subsections of the 
law, Section 6015. I know these because this is a very 
important section. We had to really determine how we could 
train our employees and how we could set forth policy to 
determine, for example, which spouse knew what about a tax 
return when they filed it so we could separate these 
liabilities.
    We have set up a special center, based in the Cincinnati 
area, that adjudicates most of these claims, except for the 
more complex ones. We are, I think, doing much better in the 
innocent spouse area. This was one of our priorities. I think 
by the end of this fiscal year we will be able to claim that we 
are caught up on a reasonably current basis, and are reaching 
some reasonable goals. So that is one area that was definitely 
a difficult one, but one that I think we have made some very 
good progress in. I feel very confident about that one now.
    Senator Campbell. When you came to Denver we had an 
opportunity to visit and listen to some innocent spouses and 
they had some really heart-rending stories about what had 
happened to them.
    Mr. Rossotti. They did, and I would like to believe that--
even though I am sure not everyone will be satisfied--that if 
you were to ask today about people that have that particular 
problem, they would be getting a lot better treatment and a lot 
better service in that area.

                       Taxpayers Advocate Office

    Senator Campbell. Thank you. What is the overall progress 
of the Taxpayers Advocate Office? Do taxpayers appear to be 
satisfied with that?
    Mr. Rossotti. I think that probably most of the Members of 
Congress would be our best source of that evaluation. I have 
talked to many of them and I would have to say that I believe 
that they are satisfied, or at least a lot more satisfied.
    We have an outstanding person that has recently come in to 
be the National Taxpayer Advocate, Nina Olson. If she has not 
already been over, I would be glad to bring her over to meet 
you, Mr. Chairman. She has long experience, not only as a 
practitioner, but in dealing with low income taxpayers and 
testifying before Congress.
    Prior to her arrival, we had already reorganized the 
Taxpayer Advocate service into a distinct organization as 
called for by RRA. That is now operational. We have recently 
completed some additional delegations of authority for that 
service, and I think it is fair to say that they are operating 
very effectively in dealing with difficult cases that are not 
otherwise handled.
    Now, the other role of the Taxpayer Advocate is to come up 
with legislative and other administrative proposals to make it 
easier for taxpayers in the longer term, and Ms. Olson has 
already testified this year before Congress. I think you will 
find that she has many valuable suggestions on how to make life 
easier for the average individual or small business taxpayer.
    Senator Campbell. The IRS, I guess is a different kind of 
an agency because if you are making progress, I guess you 
cannot measure it by the number of calls that are increasing by 
people that say they love you, because you will not get many of 
those. But you have to measure it by the decrease of the people 
that are not as angry as they were.
    Mr. Rossotti. That is part of it. I think that measuring 
dissatisfied taxpayers is part of what we try to track. We 
would like to reduce them as much as possible. But I think more 
qualitatively or anecdotally, which is not unimportant, I have 
talked to many Members of Congress and members of their staff, 
and most of them report to me that the number of really bad 
cases that they run into that cause them a great deal of pain, 
such as the ones that you identified in your hearing, have 
decreased substantially. Of course, they have not decreased 
completely, but they have decreased substantially.
    Senator Campbell. Good. I understand also the audits and 
collections have decreased. In fact I read something in the 
newspaper about that about a month ago. How do you explain 
that, that there has been a decrease in audits since 1998, and 
as I understand that news article I read, a decrease in 
collections, too?

                   Decrease in Audits and Collections

    Mr. Rossotti. There has indeed been a decrease, not just 
since 1998, but going back to the early 1990s, in the 
percentage of audits. As a matter of fact, last year compared 
to 5 years earlier, the percentage of people audited of all 
types had gone down about two-thirds. So it is a very 
substantial decrease. A lot of that is traced simply to 
resources because there have been a continuing decrease in the 
number of staff in the IRS since the early 1990s.
    Senator Campbell. So you have fewer staff in auditing and 
collections both?
    Mr. Rossotti. Fewer staff, yes, we do. We provided some of 
those numbers in our answers to your questions, but we can 
provide more of them. I do not want to say it is all resources 
though, because the other thing that has happened is that 
demand for services has been up.

                     Innocent Spouse Relief Program

    Let's take innocent spouse, which we just discussed. A very 
important program, very important to do, and was a focus of 
RRA. But in order to administer that program, we have had to 
add hundreds of staff years, and they have all been taken out 
of our exam function, for the most part, and allocated to 
adjudicating these claims. So as a result of the Restructuring 
Act there were additional responsibilities that were added on 
top of other ones, and therefore, the number that were 
available to do exams has gone down.
    Now in the budget for 2001, which you passed and gave us 
for this year, we did, for the first time in 6 years, get some 
additional money to add staff to be able to do some of these 
things. That is the short term approach that we are taking to 
turn it around.
    Also, as a result of our reorganization and some of our 
management improvements, we hope that we will be able to 
somewhat improve productivity in those functions to get more 
quality work, as well as more exams out, as well as in the 
collection area.

                       IRS Modernization Program

    Finally, of course, modernization is very important. In the 
long term, there is a lot of time that our examiners and our 
collectors spend that could be relieved by modernization. In 
other words, the amount of time they spend just handling paper, 
and closing and opening cases, looking up information, that 
kind of function can be off-loaded, to some degree, through 
modernization, and that is part of our strategy.
    So we have had a definite problem in the decline in audits 
and collection activity over an extended period of time. We 
think it will begin to level off this year, partly as a result 
of the resources we were given. We hope it will not continue to 
go down as it has, but it will take some years to get it back 
up again.
    Senator Campbell. The IRS used to be accused of being too 
punitive, I know for years and year. I wonder now if some of 
that decline is because they are being too nice.
    Mr. Rossotti. I do not think it is a question of--my view 
is it is not a question of being--I really do not accept the 
idea that we need to be nasty to people in order to collect 
money. I think that we can do it professionally and effectively 
and protect taxpayers' rights, and yet still be effective. That 
is the essence of our challenge, but it is part of our entire 
approach.
    I think with the right training, with the right resources, 
with the right tools, with the right management we can be very 
effective as a collection organization and still provide good 
service. After all, most taxpayers are compliant anyhow. Most 
people are calling us and they are willing to comply if we give 
them a little assistance.
    The others that do not want to comply, we need to use 
enforcement means. But even that can be done in an appropriate 
way.
    Senator Campbell. Tell the committee something about the 
electronic filing that is projected to start in the year 2007. 
What steps are being taken by the IRS to meet that 80 percent 
projection by 2007, and what types of security measures are in 
place to make sure that personal information is protected by 
the e-filers?

                    IRS Electronic Tax Return Filing

    Mr. Rossotti. That is also another very important program 
that was laid out in RRA. This year we are going to get about 
40 million out of about 125 million returns electronically, so 
we are on the road. That is about 30 percent.
    Senator Campbell. Forty million?
    Mr. Rossotti. Yes, 40 million. We have gotten almost 40 
million already. We are still getting a few more through 
extensions and so forth. So that is up significantly from last 
year and the year before.
    We know that we have to do a lot more to get from 40 
million, which is a little more than 30 percent of the returns, 
to 80 percent, which is the goal that the Congress set for us. 
Some of those things have to do with technology.
    For example, right now, one of the impediments is we cannot 
accept all the different kinds of forms and schedules that can 
be filed on paper. So by next year we intend to solve that 
problem; we will have an ability to accept them all.
    The second thing is we have to make it simpler and easier 
for people, and make it more attractive. Not only for 
individuals, but especially for practitioners, because 
practitioners file about 55 percent of the returns. So one of 
the things we are doing is we are trying to work with them. We 
had some progress this year, we will make more next year, to 
eliminate some of the ancillary paperwork that is associated 
even when you file electronically and pay electronically. There 
was still some ancillary paperwork and we are trying to 
eliminate that.
    Finally, I think some of it is what, in the private sector, 
we would call good old-fashioned marketing. We have to go out 
and explain to people why this is better. It is better for the 
taxpayer, but people have habits. They have certain things that 
they do the way that they have always done them, and the way 
that you file your tax return traditionally is you put a stamp 
on it and you send it in.
    We have to explain to people that they can get their 
refunds faster, that they can get their acknowledgements so 
they know that we have got it. There are fewer mistakes, so 
they do not get follow-up letters from us, which nobody likes 
to get follow-up letters from the IRS.
    So we have to communicate those things effectively, and 
those are some of the steps that we are taking.
    There are also some longer-term things that the business 
systems modernization will provide. With the eventual advent of 
a new taxpayer database we will be getting refunds out to 
taxpayers who file electronically within a matter of days, 
rather than a matter of weeks. We think that will be extremely 
attractive as an incentive for people to file.
    Senator Campbell. I am sure it will be. Let me yield to 
Senator Mikulski for a few questions and then we will get back 
to some of mine.
    Senator Mikulski. Thank you very much for the courtesy, Mr. 
Chairman. We are also holding a hearing on the nursing shortage 
which I would like to be able to get up to.
    First, I would like to compliment you on holding it in this 
room. What a beautiful room.
    Senator Campbell. Most of the Indian Affairs hearings are 
in this room.
    Senator Mikulski. The sculpture and so on is quite 
stunning, and inspirational.
    Senator Campbell. If you had to buy that sculpture now you 
would need the personal support of Commissioner Rossotti and 
the IRS because that was an expensive one.
    Senator Mikulski. I bet. Mr. Rossotti, as you know, we have 
been through many failed efforts to modernize the technology at 
IRS and there were a variety of reasons, but now we are on 
track. Could you tell me, do you feel that you have sufficient 
funds in this appropriations request to really complete or to 
continue a timely, well-paced effort on the technological 
modernization, which of course, is crucial to both collection 
and customer service?

                       IRS Modernization Program

    Mr. Rossotti. First, Senator, I appreciate your comment 
about it being on track. I believe that we have made a great 
deal of progress and put in a forthright management approach to 
make this successful, although it is a very challenging 
program.
    With respect to funding, as I mentioned in my opening, the 
request is for $325 million additional funding over the 2001 
appropriation. That is very, very important to get because that 
will give us----
    Senator Mikulski. But is it in your request?
    Mr. Rossotti. The $325 million is in our request, and 
Secretary O'Neill went to bat for us to get that money in the 
request. That is really the minimum that we need, because we 
had $300 million of carryover funds--in the current fiscal year 
we had available to us $300 million that the Congress had 
appropriated from prior years. That money is no longer 
available because it was used, will be used this fiscal year. 
That is why we need the additional $325 million.
    If we get that money, that will keep us on an up trend. 
Obviously, I think any agency head would like to move faster 
and to get more funds, but getting $325 million increase is 
really a very, very important thing in order to keep this 
program on track.
    Senator Mikulski. Mr. Rossotti, I understand that in order 
for you to have the approval process for the release of funds 
you have got to go through four layers of bureaucracy: your 
own, Treasury oversight board, OMB, and GAO, before the 
approval process is sent to the House and the Senate. Now do 
you have any suggestions on how we can either streamline this 
process or are these really not the barriers to modernization? 
It seems like, one, there is the need for money. But then there 
is a need for you to be able to get the approval to spend the 
money.

               Approval Process for the Release of Funds

    Mr. Rossotti. There indeed is, and that is indeed a rather 
complicated process.
    Senator Mikulski. Did you know that, Mr. Chairman, four 
bureaucracies?
    Senator Campbell. No.
    Senator Mikulski. Your staff will be able to brief you 
after the hearing.
    Senator Campbell. I knew there were several.
    Mr. Rossotti. I do not have any specific proposals right 
now to change that process. It is imbedded in the law and in 
the statute. I think that in the immediate future what we would 
like to do is to work with all those groups to figure out how 
we can overlap some of these things. Not necessarily 
eliminating them, but if we could overlap them so they were not 
all in sequence, this would be very helpful and it would cut 
down some of the time.
    Senator Mikulski. Would you consider some management ways 
of dealing with this, meeting statutory requirements? We are 
not going to change the statute. We need to address tax policy 
now rather than IRS structure and organization. But perhaps you 
can make some recommendations to the chairman and the ranking 
and myself to reduce the length of time it takes to release the 
appropriation.
    I agree that oversight is necessary because there has been 
a tendency to buy gizmos, gadgets, and a lot of other stuff 
that just did not work. I think we have got the right plan, the 
right contractor, and the right commissioner. So we look 
forward to working with you on this.
    Mr. Chairman, I just wanted to bring that to your 
attention, and Mr. Rossotti, because we want you to be able to, 
if you will pardon the expression, just move it.
    Mr. Rossotti. Senator, I appreciate that a lot, and I 
understand. We fully understand the need for oversight, and I 
have to say that GAO, which is a key agency for Congress, in 
particular really worked very constructively on this. They have 
been critical and pointed out areas, but constructively.
    I think that the biggest thing right now would be to just 
shorten the time. Even if we have the same oversight, if we 
could shorten the time so that it did not have to go all 
through these steps in such a sequential fashion.
    Senator Mikulski. Either doing some together, or even in 
report language perhaps we could give them some deadlines.
    Mr. Rossotti. That would be helpful.
    Senator Mikulski. Thank you very much, Mr. Chairman. You 
have been most generous.
    Senator Campbell. Thank you. Commissioner Rossotti, let me 
ask something about tax fraud. That has always been a problem, 
but as we move more and more to the high tech fields some have 
said that the Internet has really elevated the problem of tax 
fraud to a new level. Do you have a procedure in place to 
detect tax fraud on the Internet?

                       Tax Fraud and the Internet

    Mr. Rossotti. I think, Senator, you put your finger on 
something. In fact there was a recent Senate hearing that 
focused on this and identified the fact that the Internet 
provides a vehicle to promote schemes, actually, is primarily 
what it does. It is not so much that fraud is on the Internet, 
although there is some of that, but it is just to promote. In 
other words, to try to entice taxpayers into believing that 
there are easy ways to put your money into some kind of a trust 
or some kind of a device, in some cases offshore.
    So we have been working on that for a number of years. A 
couple of years, ago, actually we started to focus on this. We 
call it abusive trusts and abusive schemes. A lot of our 
strategy is aimed at promoters there, Mr. Chairman. We have had 
some success in putting some of these promoters in jail and 
getting--in fact recently we got another injunction against one 
set of these promoters to shut them down.
    Senator Campbell. Do people within the IRS do the 
investigations or are they just turned over to the FBI or some 
other agency?
    Mr. Rossotti. No, we have a very effective internal 
criminal investigation organization. That is another thing that 
we have reorganized and refocused on this area. They have been 
the ones that have done these investigations. We do go to the 
Justice Department to actually prosecute the cases, but we do 
the investigations and we have, in the last two years, begun to 
refocus them on these particular areas.
    The one that you noted, these abusive schemes that are 
promoted through the Internet. Not exclusively through the 
Internet. They have a whole variety of promotional ways. That 
is a top priority for our criminal investigators as well as our 
civil enforcement people.

                         IRS E-Learning Method

    Senator Campbell. Tell me a little bit about the e-learning 
method the IRS plans to use to train new employees. I 
understand there are about 3,000 employees in accounting 
courses over the next 18 months that will be trained that way?
    Mr. Rossotti. Yes.
    Senator Campbell. Is that the training of new employees or 
does that include those already employed by the IRS?
    Mr. Rossotti. It is both, but it is largely for existing 
employees. We have put in place some opportunities for 
employees to advance but with a requirement that they obtain 
some additional accounting credits. So we think this is a way 
to make them more effective. You talked about quality of 
answers to tax code----
    Senator Campbell. Do you have a method of tracking if they 
are becoming more successful with that training?
    Mr. Rossotti. There are going to be assessments when they 
complete these courses. So they are going to have a variety of 
ways to take these kinds of accounting credits and to obtain 
the additional accounting education that they need. That 
includes the e-learning method.
    Senator Campbell. Is that a less expensive way of training 
them than the old-fashioned method of a class?
    Mr. Rossotti. Certainly, yes, it is.

                        Earned Income Tax Credit

    Senator Campbell. The earned income tax credit which is 
designed to help working families has turned out to be a real 
success. I understand there is a 54-page booklet explaining how 
it works, but the booklet is pretty complex, and some eligible 
families do not apply because they do not understand the 
booklet. Do you have a method of simplifying that or is there 
anything in progress to try to simplify it?
    Mr. Rossotti. I think the difficulty, we are constantly 
working on the EITC to help people understand it better, and we 
have simplified some forms and so forth. But I think we do have 
to acknowledge, as the Joint Committee on Taxation here in the 
Congress recently reported, that the underlying tax law is 
surprisingly complex in this area because there have been many 
tests applied as to what determines a qualifying child and who 
supplies the support for that child.
    For example, there is a test in there that if there are two 
earners in the household, only the higher earning income one 
can be the custodian of the child and things of that kind. So 
these get to be rather--there are income limits, and they 
depend on certain things. So there is some complexity there.
    I must say that the Joint Committee that recently reported 
for the Senate Finance Committee had some interesting 
suggestions as to how some of this could be simplified. So we 
can do some on our end, but I think we are up against the stops 
as to the fundamental constraints of the tax law in this area.

                       IRS Modernization Program

    Senator Campbell. We have appropriated so far $578 million 
for the business systems modernization. How is that coming 
along? Do you have a completion date?
    Mr. Rossotti. This is a program, Mr. Chairman, that will be 
going on for many years, so we have a lot of interim dates, but 
the program will go on. We have recently come out with a 
multiyear program that lays out what we are going to be doing 
for the next several years, subject to funding availability.
    Just to note a few of the things that are underway now. The 
funds that you noted would include all the funds for the 
remainder of this fiscal year, including $128 million that we 
now have before the Committee that we are waiting to get 
released. With that money we have basically addressed three 
major areas.
    One is laying the foundation, in terms of management, to 
manage this whole program because Senator Mikulski noted, as 
you have noted, as others noted, these have not always been 
successful, these programs, in the past. Having the right 
management process in place is important, and that has to be 
done over a period of time and become mature as we get 
experience with it. But we have made significant progress in 
that area with more still to come.
    Secondly, we did have to lay out the plan, or the 
architecture as it is called, so that these pieces fit 
together. We completed the first version of that recently. We 
will be coming up with a second version later this year. That 
is very important.
    And finally, of course, the real payoff is actually 
delivering individual specific projects. Those things that will 
improve our productivity and our efficiency. Because of the 
scale of this it is not one project, Mr. Chairman. It is 
divided up into individual projects that will be delivered 
every year. It is much too big to do it all at once.
    We have two projects that will be coming out this year--
really over the next few months. One of them to improve phone 
service, as I was discussing with Senator Dorgan. The other 
one, giving some better tools to our examiners that examine 
corporate tax returns so they will be more efficient in looking 
at corporate tax returns. Those are the first two coming out.
    Then next year, in 2002, we will get significantly more 
additional features to direct calls on the phone service, some 
initial Internet capability so that taxpayers and practitioners 
will be able to deal with us in a secure way over the Internet, 
which so far we have not done because of security issues.
    And most importantly, most critically, the first update of 
our taxpayer database since the 1960s. We still are using a 
1960s technology, believe it or not, to maintain our taxpayer 
records. This is the key foundation element of the whole thing. 
We hope that in 2002 we will deliver the first increment of 
taxpayers converted over to a new taxpayer database. Those are 
some of the highlights.
    As each of those projects is implemented, we have a 
business case, as we call it, that shows----
    Senator Campbell. Is that what is called the customer 
account data engine?
    Mr. Rossotti. Yes, it is.
    Senator Campbell. What is the schedule for that? I know you 
have some different milestones. I understand it is behind 
schedule however.
    Mr. Rossotti. We have delayed slightly, a few months, the 
completion of a key milestone to make sure that we have all of 
the issues resolved here. That is the piece of this entire 
structure, if you will. If you thought about it as a building, 
this is the piece that holds up the whole building. We want to 
make sure that we get that absolutely right. It has defied 
solution for 30 years. We are still using a tape system that 
was built in the 1960s. So we need to make sure we get this 
right.
    We hope to complete that milestone over the next few 
months. Then, once we do that, that will give us the design 
that we need, and the modeling that we need to lay out the 
precise dates that we will begin to implement. We still believe 
that we will begin to implement the first segment of taxpayers 
over to the new database in 2002, but we are being a little 
cautious about what the precise date is until we finish this 
design.
    Senator Campbell. 2002. Okay, Commissioner, I have no 
further questions. I want to thank you for being here. I am 
sure you have met both Pat and Lula who are sitting over here, 
haven't you, on different occasions?
    Mr. Rossotti. I certainly have, and I want to express my 
appreciation----
    Senator Campbell. They work very hard. Lula in fact set up 
this hearing. And I know, as you do, that if it was not for 
staff we would not be doing very much that is effective around 
here.

                     Additional Committee Questions

    Mr. Rossotti. I just want to express my appreciation to 
both Pat and Lula as well as Chip, Nicole and Matt. They have 
all been fantastic to work with. They make it easy for us by 
letting us know what is expected and being very cooperative, 
and they are just great.
    [The following questions were not asked at the hearing, but 
were submitted to the Department for response subsequent to the 
hearing:]

         Questions Submitted by Senator Ben Nighthorse Campbell

                             BUDGET REQUEST
    Question. To date, we have appropriated and released a total of 
$578 million for the Business Systems Modernization.
    How is the IRS doing in modernizing its computer systems?
    Answer. We established the Business Systems Modernization (BSM) 
program to manage our longer term, fundamental changes to business 
processes and minimize the inherent risks of the process. Over the 
remainder of this decade, BSM will deliver major benefits to taxpayers 
and our tax administration system. To date, the IRS has made the 
following significant accomplishments:
  --Approved the Enterprise Architecture. The architecture is the 
        roadmap for modernizing the Agency's business systems and 
        supporting information technology networks. It will guide the 
        agency's business and technology improvements in the coming 
        years and is a major milestone in our progress towards the 
        goals of Business Systems Modernization. It will enable us to 
        design and build new business and technology projects that will 
        be the backbone of the modernized IRS and will ensure that IRS 
        business systems' technology is compatible.
  --Established a Systems Engineering Board run jointly by the IRS and 
        PRIME. This board provides additional and ongoing engineering 
        guidance to the enterprise architecture effort.
  --Created the 2002 Release Architecture that identifies the 
        configuration items that we can trace to the Enterprise 
        Architecture and allocate to specific modernization projects.
  --Required architectural certification for every project before 
        exiting Milestone 3, which is before the systems development 
        phase. Through these reviews, compliance with the Enterprise 
        Architecture is ensured. These reviews evaluate each project 
        on:
    --Design consistency with the technical reference model in the 
            Enterprise Architecture
    --Compliance with architectural standards
    --Systems interfaces as defined in the Enterprise Architecture
    --Compliance with meeting architectural security and privacy 
            requirements
    --Systems Design alignment with the transition strategy
  --Defined manageable projects, which are subject to a disciplined 
        methodology, and are carried out through a step-by-step 
        ``enterprise life-cycle'' in which successively greater amounts 
        of detail are defined. The process requires that a vision and 
        strategy phase be completed as a first step, prior to 
        commencing tasks such as infrastructure development, 
        information systems delivery, or process reengineering. The 
        final milestone is an initial ``deployment'' of a project as an 
        operational system.
  --Completed the Tax Administration/Internal Management Vision and 
        Strategy Project. This project instituted a practice to ensure 
        the Operating Division Commissioners and staff develop and take 
        ownership of a process and systems modernization approach 
        consistent and integrated with the overall vision of the future 
        IRS.
  --Identified all the major initiatives for the next several years 
        that link directly to our major strategies.
  --Identified major dependencies between and among projects and 
        created a sequencing plan for their initiation, development, 
        and deployment.
  --Estimated, at a high level, the costs associated with each 
        initiative, and developed multi-year spending estimates 
        consistent with this program. This estimate serves as a general 
        guide for planning and setting overall priorities, but is not 
        intended to be used to make specific spending or schedule 
        commitments.
  --Placed more emphasis on building an adequate program management and 
        product acquisition capacity for this huge program. In the 21 
        months that this program has been underway, considerable 
        progress has been made in building this capacity. However, 
        management capacity can only mature with experience, and much 
        more can and will be done to improve it.
  --Made significant progress implementing rigorous configuration 
        management practices across the portfolio of modernization 
        projects. In early July, we will complete a detailed report 
        summarizing the development of the configuration management 
        processes, the identification of the configuration items, and 
        the establishment of the configuration baselines.
  --Implemented the IRS Enterprise Lifecycle (ELC) which guides systems 
        through five phases of conceptual development, technical 
        development, and deployment.
  --Partnered with the IRS' Business Operating Divisions to ensure 
        modernized systems deliver needed business results.
  --Scheduled multiple projects for near term delivery.
    Although the risks of modernization are high, this does not mean 
that the program is destined to fail. With intense and effective 
management, the risks can be identified and addressed and appropriate 
corrections made. However, the nature of this risk means that it is to 
be expected that frequent adjustments to plans and schedules will be 
made to reflect experience. Delays and even failures of some 
initiatives and projects will occur, but if properly managed these 
problems can be identified early enough to correct them with reasonable 
adjustments in costs and schedules and without undermining the overall 
success of the program.
    Question. How much has it cost to date?
    Answer. To date, the Business Systems Modernization Program has 
committed $31,234,563, and obligated $334,139,235, for a total of 
$365,373,798 of the $577,263,148 appropriated. You are requesting $86 
million to annualize the STABLE initiative.
    Question. How do you plan to distribute these funds?
    Answer. The table below identifies the distribution of resources 
for STABLE in fiscal year 2002.

                                     FISCAL YEAR 2002 STABLE INITIATIVE FTE
----------------------------------------------------------------------------------------------------------------
                                                                      Service
                        Type Description                          Centers & Call       Field           Total
                                                                       Sites
----------------------------------------------------------------------------------------------------------------
Pre-Filing Services:
    Taxpayer Education and Assistance...........................  ..............           1,039           1,039
    Rulings and Agreements......................................  ..............              26              26
                                                                 -----------------------------------------------
      Subtotal..................................................  ..............           1,065           1,065
                                                                 ===============================================
Filing and Account Assistance Programs:
    Accounts Management--Telephone Assistance...................             768  ..............             768
    Accounts Management--Field Assistance.......................  ..............             727             727
                                                                 -----------------------------------------------
      Subtotal..................................................             768             727           1,495
                                                                 ===============================================
Post-Filing Compliance:
    Payment Compliance--Telephone Collection....................             504  ..............             504
    Tax Reporting Compliance--Document Matching.................  ..............             288             288
    Field Examination--Revenue Agent............................  ..............             128             128
                                                                 -----------------------------------------------
      Subtotal..................................................             792             128             920
                                                                 ===============================================
Submissions Processing and Information Reporting: Information                378  ..............             378
 Reporting......................................................
                                                                 -----------------------------------------------
      Subtotal..................................................             378  ..............             378
                                                                 ===============================================
      Total.....................................................           1,938           1,920           3,858
----------------------------------------------------------------------------------------------------------------

                         SYSTEMS MODERNIZATION
    Question. Modernization is one of the main objectives of the 
Internal Revenue Service. There are several milestones that will have 
to be completed and the Customer Account Data Engine (CADE) is one.
    Will CADE be able to get back on schedule or will there just 
continue to be a slippage? Question. What are we talking about in time, 
3 months or longer?
    Answer. Although we will not meet the January 2002 date for CADE, 
it will deploy during the summer of 2002. This delay is necessary to 
ensure CADE's logical design is complete, traceable to the current 
Enterprise Architecture, and under configuration management control. We 
are progressing in a prudent manner to ensure that future releases are 
not impacted. After the deployment of Release 3, and based on the 
experience gained, we will evaluate whether we can accelerate the 
remaining releases while limiting the risk to ongoing tax processing. 
Question. Will the modernization project be able to move ahead at this 
particular juncture or will it be delayed?
    Answer. IRS is continuing to work on CADE. We are putting all the 
modernization projects under configuration control. We will baseline 
the technical solutions, the schedules, and the budget. We are in the 
process of baselining the projects that are in the 2002 release now. By 
July 15, we plan to have all projects under configuration control. At 
that time, we will be able to identify any delays.

                         AUDITS AND COLLECTIONS
    Question. How do you respond to the sharp decline in tax collection 
enforcement taken by the IRS the past year?
    Answer. In comparison with fiscal year 2000 results, the IRS is 
experiencing both positive and negative trends in Collection activity 
during fiscal year 2001. Enforcement actions are increasing in fiscal 
year 2001, with positive trends in the number of liens filed and levies 
issued in both Automatic Collection Systems (ACS) and Field Collection. 
Through March 2001, both delinquent notice yield and Taxpayer 
Delinquent Account (TDA) dollars collected have increased. However, the 
number of TDA dispositions has decreased slightly in fiscal year 2001. 
This decline is due to the need to redirect resources from TDA work to 
handle the dramatic increase in the numbers of Offers in Compromise.
    The IRS is taking several steps to increase resources applied to 
collection compliance activities. First, through the IRS Strategic 
Planning and Budgeting process, we are focusing our enforcement 
resources on those areas most in need of attention. In addition, we are 
reengineering and realigning work processes, with the goal of improving 
the effectiveness of our compliance activities. Finally, a new 
recruiting and hiring strategy will assure a more constant and stable 
workforce.
    In the Strategic Planning and Budgeting process, new compliance 
strategies are being developed and current strategies are being updated 
to better focus collection compliance resources on those areas most in 
need of attention. For example:
  --The National Nonfiler Strategy is a broad-reaching, multifunctional 
        effort to bring nonfilers back into the system and to keep them 
        there. It is supported by a continuing research effort aimed at 
        identifying the most egregious taxpayer groups and determining 
        causes of the noncompliance. By using information from State 
        and private sector data sources, we expect to improve our case 
        selection criteria and provide useful case file information to 
        our Collection employees. In addition to direct enforcement 
        efforts, we will develop education, outreach, and alternative 
        treatment programs to address noncompliance of those taxpayer 
        groups likely to respond to such programs.
  --We are also developing a strategy to reduce Accounts Receivable. As 
        part of that strategy, we are piloting an effort to address 
        trust fund pyramiding problems with in-business taxpayers 
        through the use of the general civil injunction provision. 
        Through the IRS Office of Government Liaison and Disclosure, 
        and in partnership with the Federation of Tax Administrators 
        (FTA), we are seeking 100 percent participation in the State 
        Income Tax Levy Program (SITLP) with the 41 States that have an 
        income tax. We also are working with the Financial Management 
        Service (FMS) and other Federal agencies to expand and enhance 
        the Federal Payment Levy Program (FPLP). IRS has instituted a 
        number of reengineering and redesign projects designed to 
        improve the efficiency of its operations and to provide a 
        higher level of consistency in its treatments.
  --The Collection Reengineering project will address a number of 
        mainline collection functions. For example, we will examine the 
        assignment of trust fund cases from the Collection notice 
        stream to Collection field enforcement to minimize delays 
        between assessment and compliance contact. We will seek to 
        simplify our policy and procedures for referrals to Appeals, 
        the pyramiding of trust fund liabilities, and case 
        documentation and managerial review requirements. In the long 
        term, we will be examining and rethinking all of our 
        fundamental collection processes with the goal of improving 
        efficiency and consistency in our treatment of taxpayers.
  --To address the growing number of Offer in Compromise cases, we are 
        reviewing and reengineering our work processes and centralizing 
        those cases most effectively worked in a service center 
        environment. As part of that effort, we will be addressing the 
        backlog in inventory and implementing actions to improve 
        efficiency.
  --A project to enhance the Automated Collection System (ACS) will 
        explore the use of the predictive dialer technology to commence 
        outcall campaigns to targeted inventories. This improvement 
        will allow the ACS outcall process to route answered calls back 
        to employees dedicated to answering calls. It will also route 
        no answer and busy calls to a research function designed to 
        determine suspended or deferred status.
  --The Compliance Risk project will identify and assign those cases 
        that have the greatest impact on compliance. Through behavioral 
        and application scoring of cases, high-risk cases will be 
        identified and assigned earlier in the collection process.
  --Our Vision Migration Strategy will centralize and consolidate the 
        support services associated with case processing, workload 
        delivery, and technical support. This will streamline support 
        services, resulting in efficiencies and the potential for 
        reassigning enforcement personnel to front line activities.
    We are also trying to address continuing concerns expressed by 
compliance personnel on their exposure to taxpayer complaints even when 
they exercise their enforcement responsibilities appropriately. The 
approval process in place for seizure action, in particular, has been 
emphasized as a protection against unfounded allegations of 
impropriety. Appropriate case direction by managers is an issue we are 
trying to address as well.
    To assure a constant and stable workforce, we have developed a 
recruiting and hiring program that will result in hiring approximately 
550 new Revenue Officers this fiscal year. In addition to increasing 
our Revenue Officer staffing levels, the IRS is decreasing the amount 
of Revenue Officer time applied to filing season activities. The 
institution of the Staffing Tax Administration for Balance and Equity 
(STABLE) initiative will serve to replenish the Customer Service 
workforce and allow Compliance enforcement staff to again focus on 
appropriate collection enforcement activities.
    Question. Are you at a full staff in the auditing and collection 
departments?
    Answer. Since our last hiring initiative, we have experienced a 
steady decline in the number of field audit and collection staff 
available to examine returns, collect delinquent taxes, and secure 
delinquent tax returns. Hiring an additional 100 Tax Compliance 
Officers (formerly known as Tax Auditors), 558 Revenue Agents, and 550 
Revenue Officers this fiscal year will allow IRS to stabilize its 
workforce and to assign resources to the areas of concentrated 
workload. Additional hiring of Customer Service staff through the 
Staffing Tax Administration for Balance and Equity (STABLE) initiative 
also will allow us to utilize more appropriately our audit and 
collection employees.
    A key objective of the fiscal year 2001/2002 STABLE budget 
initiative is to reduce reliance on compliance and enforcement staff 
for taxpayer assistance. In fiscal year 2001, 40 percent fewer 
Compliance FTE will be diverted to assistance programs. A second 
reduction of nearly 50 percent will occur in fiscal year 2002, and by 
fiscal year 2003, we expect that detailees from Examination and 
Collection will be nearly eliminated.
    Question. There have been growing concerns over the past several 
years that the IRS audit coverage rate is declining and that higher 
percentage of low-income taxpayers are being audited.
    What is your view on this?
    Answer. Rather than rely strictly on the traditional audit to 
assure reporting compliance, the IRS has for many years relied on a 
range of techniques to verify certain items on tax returns. These 
include correcting math errors on tax returns, matching tax return data 
to information obtained from third party reporting, and corresponding 
with taxpayers by mail to verify questionable items reported. These 
efforts, taken in conjunction with the traditional face-to-face audit, 
comprise the IRS strategy for assuring that taxpayers file accurate tax 
returns.
    With the use of document matching, as well as other return 
verification techniques that new technology will eventually enable, it 
is our view that there is no need to return to the levels of individual 
audit coverage that existed even five years ago, which was three times 
the fiscal year 2000 level. The IRS strategic plan does not call for 
this approach. In the long run, we will rely on our business systems 
modernization program to increase the effectiveness and efficiency of 
these activities.
    One of the real concerns about the decline in audits is fairness to 
the majority of taxpayers, whose income is reported and can be readily 
verified. It is relatively easy for the IRS to verify the returns and 
reported income of the majority of taxpayers, whose income results from 
wages, interest ,and dividends, and who take the standard deduction. It 
is harder, and often requires audits, to verify the income of taxpayers 
with other forms of income and deductions or more complex returns, who 
are often higher income taxpayers. To the extent that the IRS uses more 
and more document matching and less and less auditing, the effect may 
be perceived as, and will in fact be, unfair because higher-income 
taxpayers will not have their returns verified to the same degree as 
middle-income taxpayers.
    Hence, we are taking steps to use our traditional audit resources 
more efficiently and effectively. The IRS Strategic Plan sets forth an 
approach, in the short run, to stabilize our level of traditional 
compliance activities, such as individual audits, at or slightly above 
current levels and to focus them on the areas where they are most 
required. Efforts to free up Examination resources, which can be 
redirected to increasing the audit coverage of higher income taxpayers, 
include:
  --Reducing Examination resources applied to customer service work 
        over the next two years.
  --Making third party matching data available earlier. Assembling all 
        available data about a taxpayer case for our employees will 
        avoid the need to get duplicate data from taxpayers.
  --Selecting most individual tax returns for audit within the same 
        year they are filed and completing those audits more rapidly 
        through Business Systems Modernization improvements.
  --Reengineering the examination and administrative support processes.
  --Centralizing the ``Innocent Spouse'' program to improve efficiency 
        and allow the redirection of front-line Examination resources 
        to audit activities.
    Question. Offer in Compromise is a way to make it easier for 
taxpayers to settle their tax liabilities for less than the amount owed 
to the IRS. This has become a lengthy process and in some cases it is 
taking up to a year or longer to settle.
    How does the IRS plan to reduce the time it takes to resolve these 
cases?
    Answer. To shorten the time frames for processing offers in 
compromise (OIC), the IRS will realign field resources to increase the 
number of staff assigned. In fiscal year 2000, we increased the revenue 
officer, paraprofessional, and clerical staff assigned to OIC from 762 
to 1,230 FTEs, and we project an increase to 1,267 by the end of fiscal 
2001. We also reviewed our processes and procedures in an effort to 
shorten processing timeframes. As part of that effort, we will be 
addressing the backlog in inventory and providing additional 
recommendations to redesign the Offers in Compromise (OIC) process.
    To address the increasing workload in the OIC program, we conducted 
a pilot project in two service centers to test the feasibility of 
processing offer in compromise cases of less than $50,000 in a 
centralized environment. Based on the results of the test, we expect 
centralized bulk processing of OICs to produce gains in both staffing 
and time per case closure. Beginning in July 2001, all new OIC receipts 
will be sent to one of two service centers, depending on where the 
taxpayer resides. A staged implementation is planned between July and 
November, with actual casework beginning in August 2001.
    Question. Let's say a taxpayer dispute has been resolved and the 
taxpayer has agreed to pay the tax liability, but requests that the 
penalties be waived. How does the IRS determine whether to waive 
payment of the accrued penalties?
    Answer. Employees are required to follow specific internal 
procedures regarding penalty relief. As a general rule, the Service's 
policy does not provide abatement for taxpayers who agree to pay their 
tax liabilities on the condition that penalties are removed.
    While different rules apply to different penalties, certain 
penalties can be abated for reasonable cause--for example, the 
penalties associated with failure to pay tax and failure to file a 
timely return. In order to minimize subjectively diverse judgment calls 
in the determination of reasonable cause, and to help ensure that 
taxpayers in roughly identical situations are given consistent 
treatment, the Service is currently phasing in use of the Reasonable 
Cause Assistor (RCA). The RCA is a computer program that guides the 
penalty examiner through a system of rules assuring a consistent 
application of reasonable cause provisions.

                           ELECTRONIC FILING
    Question. Electronic Filing is projected to be the method of choice 
by year 2007.
    What type of security measures do you have in place to protect 
personal information of e-filers?
    Answer. During the last year, the IRS initiated timely actions to 
strengthen important e-filing security controls, including completing 
actions to improve critical access controls and to complete the 
systems' security certification. The electronic filing systems meet 
critical Federal information security requirements to provide strong 
controls to protect taxpayer data. We have strengthened our systems' 
security, and we will remain vigilant to keep our e-fling process the 
safest possible. As the General Accounting Office (GAO) has previously 
noted, the IRS does have an aggressive and effective security program. 
This program--along with our privacy program--is actively focused on 
safeguarding the confidentiality of taxpayer records. Since 1997, we 
have implemented many corrective actions to improve our computer 
security infrastructure since, and we are placing a strong emphasis on 
designing security safeguards into new systems.
    The IRS has further enhanced its security program by focusing on 
mission assurance, risk management, and measurable corrective actions. 
The program continues to improve the Service's security infrastructure, 
approaches and processes--while overseeing and managing risks. Of 
special note, the IRS has been focused on enhancing its computer 
security incident reporting and analysis capability for the last few 
years to better detect system and network intrusions. In this regard, 
the IRS is continuing to shift considerable resources to support its 
security program approach. Many planned and needed improvements are 
highly dependent on continuing our systems modernization efforts to 
adequately mitigate the risks and weaknesses associated with our 
existing systems infrastructure. These weaknesses are consistent with 
many of those that continue to be reported by GAO and the Treasury 
Inspector General for Tax Administration (TIGTA).
    Because e-file transmitters, along with Electronic Return 
Originators (ERO), are considered trusted partners, if tax return 
information is misused, the transmitter may be subject to criminal 
penalties under Sec. 301.7216-1(a), or civil penalties under Sec. 6713 
for unauthorized disclosure or use of tax return information. 
Additionally, they undergo an annual suitability check, which includes 
a review of tax returns filed, and tax liabilities.
    The IRS also monitors authorized e-file providers for compliance 
with the revenue procedure and program requirements. Monitoring may 
include reviewing IRS e-file submissions, investigating complaints, 
scrutinizing advertising material, checking Form 8453 submissions, 
visiting offices, examining files, observing office procedures, and 
conducting annual suitability checks. Violations may result in warnings 
or sanctions for the authorized e-file provider. Sanctioning may be a 
written reprimand, suspension or expulsion from the program, or other 
sanctions depending on the seriousness of the infraction. Because EROs 
and transmitters have access to taxpayer data, stringent suitability 
requirements are monitored and enforced for the duration of their 
participation in the e-file program. In the processing year 2000, 224 
new applications to participate in the program have been rejected and 
703 program participants have been suspended based on these screenings. 
Because of these controls, we believe the risk of taxpayer data coming 
through transmitters is no greater than that of the risk of taxpayer 
data coming through the mail in paper format.

                               E-LEARNING
    Question. E-learning is the method IRS plans to use to train about 
3,000 employees in accounting courses over the next 18 months. This 
massive number of employees is the first step in a comprehensive effort 
to use technology by way of the Internet and e-mail to train employees. 
This method is supposed to hold done the cost of employee education.
    What do you estimate the cost per student enrollment to be through 
e-learning?
    Answer. We estimate the costs to be $1,500 for a 3 semester hour 
course from a major University under the IRS consortium.
    Question. Is there a procedure in place to track the success or 
failure of this training?
    Answer. The IRS tracks the success or failure of its training on 
three levels:
  --Level 1.--learner reaction--determines how the trainee feels about 
        the training;
  --Level 2.--learner achievement--determines whether or not the 
        trainee learned the skills and acquired the knowledge that 
        formed the learning objectives of the course, and;
  --Level 3.--job performance--determines whether or not the trainee 
        used, on the job, the skills and knowledge presented in 
        training. A Level 3 evaluation consists of on-the-job 
        instructor (OJI) or coach and/or manager assessment of trainee 
        performance of job tasks during on-the-job training (OJT) and 
        trainee self-assessment at the end of OJT.

                 LIFE INSURANCE COMPLIANCE VERIFICATION
    Question. Does the IRS audit life insurance contracts to determine 
if they meet the requirements of the rules Section 7702, which was 
enacted in 1984, or whether they constitute modified endowment 
contracts under section 7702A, which was enacted in 1988?
    (In general, it should be noted that extensive guidance on the 
examination of Life Insurance Companies is contained in the Internal 
Revenue Manual (IRM 4.4.2 (May 19, 1999)). This particular section is 
known as the ``Insurance Industry Handbook''. An Industry Guide on the 
Life Insurance Industry (July 2000) further supplements this manual 
section).
    Answer. During an examination, IRS Agents ask questions related to 
IRC Sec. Sec. 7702 and 7702A compliance. These sections contain 
specific rules for determining the amount of cash that is able to 
accumulate tax-free (``inside build up''). In the event the 
accumulation exceeds the allowable amount, a taxable distribution is 
deemed to occur to the policyholder/recipient.
    When an excess accumulation occurs, either the IRS and/or the 
taxpayer will usually seek to enter into a closing agreement at the 
National Office level. Any amounts at issue are usually assessed 
against the insurance company rather than the individual policyholders. 
This is accomplished by entering into a closing agreement in which the 
insurance company agrees to pay taxes and interest due to the excess 
accumulation. Penalties may be assessed based on the particular 
circumstances.
    Closing agreements are executed through the Office of Chief Counsel 
in Washington. This process saves resources by avoiding the time and 
cost of separately contacting each policyholder individually. Although 
the agreements usually result in an assessment against a party that is 
technically not liable for the tax (insurance companies), they are 
designed to insure that the proper amount of tax due is, in fact, 
ultimately paid to the IRS. This closing agreement process reduces 
burden on the individual taxpayers and allows for early resolution of 
the issue.
    Violations of Sec. Sec. 7702 and 7702A do not directly affect the 
1120L Life Insurance tax return. The only area of concern that would 
directly relate to the insurance company's 1120L tax return is the 
claimed deduction for life insurance reserves. Since the excess cash 
accumulation generally remains in the policy as a result of the closing 
agreement, the value of the policy increases and the related reserves 
remain unchanged. Policies are generally not disallowed under Sec. 7702 
since exiting mechanisms exist that would permit the reinstatement of 
policies. The Modified Endowment Contract rules codify this practice.
    Question. Does the IRS audit annuity contracts to determine whether 
they contain the distribution on death language that Congress mandated 
in section 72(s)?
    Answer. Yes. The IRS examines annuity contracts to determine 
whether the proper amount of premium income has been recognized, and 
whether the reserves are properly computed in accordance with 
provisions of the Internal Revenue Code. In general, due to the 
voluminous number of contracts sold, individual annuity contracts are 
sorted into groups with similar characteristics. An analysis of 
individual contracts is then conducted on a test sample basis.
    Question. Does the IRS audit annuity and life insurance contracts 
to determine whether they comply with the diversification rules in 
section 817(h) and the investor control rules?
    Answer. Yes. In general, the examination of a large life insurance 
company will consider the formation of a separate account, which must 
meet the adequate diversification requirements of IRC Sec. 817(h).
    In addition, before being permitted to engage in the sale of units 
in a separate account, a life insurer must seek approval from the 
Securities and Exchange Commission. The SEC imposes a set of similar 
diversification rules on a life insurer seeking approval. As an 
examination tool, Revenue Agents examine the application of the 
Sec. 817(h) diversity rules and also consider any SEC requirements.
    With respect to the investor control rules, the IRS is currently 
conducting a study to determine how a violation of Rev. Proc. 99-44 may 
be occurring through the sale of life insurance products. The Service 
is also examining issues involving Bank Owned Life Insurance (BOLI) and 
Trust Owned Life Insurance (TOLI) and other offshore insurance 
opportunities. It should be noted that certain sections of the Code 
dealing with pension plan contracts are considered exempt under Rev. 
Proc. 99-44.
    Question. Which department within the IRS is responsible for 
conducting such audits?
    Answer. The Large and Mid-Size Business Operating Division 
(``LMSB'') is currently responsible for conducting these audits. LMSB 
is further aligned by industries, in order to provide an industry-
focused organization that will improve business practices, processes, 
and training. The Financial Services and Healthcare Industry of LMSB 
serves taxpayers related to commercial banking, savings and loans, 
securities, healthcare, insurance, and other financial services.
    Since the taxation of insurance companies is a highly specialized 
field, LMSB has trained specific employees within the Financial 
Services and Healthcare Industry to work exclusively on insurance 
cases. These specially trained employees are primarily responsible for 
the examination of taxpayers in the insurance industry.
    Question. Does the IRS have the actuarial expertise and technical 
systems to conduct such audits?
    Answer. In the past, the Service has generally conducted such 
audits internally without the use of outside experts or systems. 
However, from time to time, the IRS has hired outside actuaries to aid 
in the examination of large life insurance reserves claimed by 
taxpayers. As a result, substantial adjustments have been made 
resulting in increased tax liability.
    Although actuaries are part of the examination team, they do not 
generally work directly with the taxpayer. The outside actuary helps in 
the development of Information Document Requests. Any questions or 
requests for documents from the actuary are submitted to the IRS Team 
Manager or Team Leader for formal issuance by the examination team. Any 
information received by the Team Leader is reviewed with the outside 
actuary. The Team Manager and/or Team Leader propose any changes to the 
tax return. The Revenue Agents apply any actuarially developed data in 
accordance with the requirements of IRC Sec. 807.
    Outside Experts are only used in special situations such as cases 
involving high impact precedent setting issues, high dollar unagreed 
issues, high impact compliance issues, and significant issues where in-
house expertise is limited or not available.
    The Service does not currently employ a professionally qualified 
actuary. However, the Service is currently in the process of attempting 
to hire several professionally qualified actuaries. A job announcement 
has been placed both internally and externally in industry 
publications.
    Question. Has the IRS estimated the potential tax revenues that 
would be raised if these audits were conducted, and compared that 
estimate to the cost of conducting those audits?
    Answer. The IRS does currently conduct examinations of the above 
issues and, when necessary, uses outside experts to enhance the quality 
of any resulting adjustments. However, specific estimates of potential 
revenue or costs relating to these issues are not available.
    During an examination of a large insurance company, the Service 
also considers other important issues including issues involving whole 
life, permanent life, industrial life, pensions, accident and death, 
disability (active--retired lives), or Guaranteed Investment Contracts 
(GICs) with permanent purchase rate guarantees. In addition, the Office 
of Tax Shelter Analysis (OTSA) is currently developing issues involving 
Bank Owned Life Insurance (BOLI) and private placement insurance.
                                 ______
                                 

            Question Submitted by Senator Richard C. Shelby

    Question. In the report to accompany last year's Treasury and 
General Government Appropriations bill (S. Rept. 106-500), the 
Committee raised concerns about Technical Advice Memorandum 199918001 
and directed Treasury to reconsider the TAM in view of its impact on 
recycling and report back to Congress. Please provide the Committee 
with the status of that review and the timeline for providing the 
Committee your report.
    Answer. Technical Advice Memorandum (TAM) 199918001 concluded that 
bonds issued to finance the facility under examination did not satisfy 
Code section 142(a)(6), which permits tax-exempt financing for solid 
waste disposal facilities. The TAM applied Income Tax Regulations 
section 1.103-8(f)(2)(ii)(b), which defines solid waste as waste 
material that has no market value at the place where the waste is 
located. The facts of this case indicated that on the relevant dates, 
the waste being processed in the bond-financed facility had a market 
value at the place where the waste was located. This TAM applied only 
to the facts under examination. Since the issuance of this TAM, other 
waste recycling facilities have been examined and found to comply with 
the Code and regulations.
    The Senate Report noted that the Committee was concerned with the 
apparent direction that the IRS is taking with respect to the use of 
tax-exempt bonds for recycling as evidenced in Technical Advice 
Memorandum 199918001. The Committee believed the position in the TAM 
was inconsistent with the Administration's Executive Orders and with 
the nation's effort to promote recycling. The Committee was concerned 
further that the TAM will act to chill recycling efforts and increase 
the amount of materials going to landfill or to waste incineration. 
Accordingly, the Committee directed the Treasury Department to 
reconsider the TAM in light of the Administration's and Congress' 
policy to increase recycling and report to the Committee on its 
findings.
    We have not yet completed our review of the TAM in question. Our 
initial review indicates that the TAM is consistent with existing rules 
and regulations, and is based on the application of those rules and 
regulations to facts that show the waste material in question had value 
on the relevant dates.
    We are, however, aware of Congress' interest in this issue. 
Moreover, in late March, we received a letter from the National 
Association of Bond Lawyers, which included a comprehensive ``Report on 
Solid Waste Regulations.'' We are in the process of reviewing this 
report and arranging a meeting with industry representatives to discuss 
their concerns. We hope to have the meeting in late June. Once we have 
completed this task, we will report back to the Congress.
                                 ______
                                 

             Questions Submitted by Senator Byron L. Dorgan

                             BUDGET REQUEST
    Question. Regarding the overall IRS budget request, the Oversight 
Board recommends $800 million more for the IRS for fiscal year 2002 
than requested in President Bush's budget.
    What was the total IRS budget request to OMB for fiscal year 2002? 
How does it compare with President Bush's request?
    Answer. While a formal budget process was started between the 
Department and bureaus under the previous Administration, there was not 
a formal Department to Administration fiscal year 2002 budget call. 
Regardless of what may have been requested within the Treasury 
Department, there was not an opportunity to transmit these requests to 
OMB due to the nature of the fiscal year 2002 budget process. The 
current Administration has not validated the previous Administration's 
estimate.
    Question. As part of the budget request, the IRS is expected to 
cover the costs of non-pay inflation ($56.7 million) through ``improved 
resource management.''
    What types of improved resource management will allow the IRS to 
achieve this level of savings? Question. If you can achieve these 
savings, would you not already be doing so in the current fiscal year?
    Answer. Improved resource management is an ongoing process in the 
IRS that began with the inauguration of the customer-focused 
organization structure in fiscal year 2000. Business processes and 
systems have been redesigned and the old structure of districts, 
service centers, regions, and national office staffs has been 
restructured and streamlined.
    The proposed plan to absorb the non-funding of non-labor 
inflationary costs is for organizations to leverage the newly 
streamlined IRS organizational structure, as well as business systems 
improvement projects, to realize efficiencies in managing travel, 
contracting, and procurement.
    Though appearing to be a simplistic solution, the Service expects 
sufficient offset in these discretionary spending areas so as not to 
decrease program levels of effort (i.e. FTE).
    Since the reorganization process continues through fiscal year 
2001, these resource management efforts are still being implemented in 
the current fiscal year, so savings are not yet realized.

                              IRS STAFFING
    Question. For the IRS staffing plan known as STABLE (Staffing Tax 
Administration for Balance and Equity) for which Congress initially 
provided funds in the fiscal year 2001 bill, your budget claims that 
STABLE is fully funded at $227 million and will allow for the hiring of 
approximately 3,800 new employees to improve service and enforcement. 
However, the Oversight Board notes that as a result of reductions and 
existing cost absorptions mandated elsewhere in the IRS budget, the IRS 
will hire 1,300 fewer new employees than claimed in your budget.
    How can IRS provide the ``service'' to taxpayers that they expect 
and deserve if there are not enough employees to correctly answer the 
questions, process the claims and enforce the laws?
    Answer. The President's fiscal year 2002 Budget Request of $9.28 
billion for the IRS will enable us to continue to maintain current 
operations and provide the crucial investments needed for our longer-
term Business Systems Modernization program. With the new organization 
in place, new technology improvements beginning to come on line, and 
the staffing provided by the STABLE initiative, the declines in 
compliance activities, such as audit and collection actions, will 
stabilize while customer service indicators will continue to improve.

                         SYSTEMS MODERNIZATION
    Question. Your budget requests $297 million as the next 
replenishment of the systems modernization account known as ITIA 
(Information Technology Investment Account). This account is critically 
important for the IRS to be able to accurately and efficiently access 
customer tax records and provide them with timely and valid information 
about their accounts.
    Because of past failures by the IRS in upgrading their information 
systems, Congress and the General Accounting Office have closely 
monitored the IRS planning and expenditures. Things seem to be on 
track--although there have been a number of required delays in 
implementing critical parts of the system. As previously appropriated 
funds are released from this account, a number of stakeholders are 
concerned that the account will be drawn down to zero this fall--likely 
before the fiscal year 2002 budget has been signed into law.
    Indeed, the Oversight Board has recommended that $1 billion be 
infused into the account and made available over the coming two fiscal 
years. They argue that it makes good business sense to have a 
significant reserve of funds from which to draw--under the current 
management and congressional oversight and conditions--so that there 
can be some continuity to the program and an avoidance of wasteful and 
costly ``stops and starts.''
     Leaving aside the specific amount of funding, as a businessman who 
had to manage large sums of funds in an earlier life, don't you think 
this makes good business sense?
    Answer. With a program of Business Systems Modernization's (BSM) 
magnitude and complexity, any ``stops and starts'' due to a lack of 
funding, could cause serious delays and likely cause a ripple effect on 
progress in other ongoing, interdependent projects. Prudent planning 
for major capital investments through fully funding projects or 
``useful segments'' of projects makes good business sense and is 
required by the Office of Management and Budget.

                        IRS HARDWARE REPLACEMENT
    Question. The Oversight Board notes that the Administration's 
budget request makes no accommodations to begin replacing out-of-date 
laptop and desktop computers. It makes no sense to spend hundreds of 
millions of dollars to develop much needed new software and then not 
provide the hardware to the IRS employees who operate the software. The 
Board recommends initiating an annual program, funded at approximately 
$54 million, to begin replacing computers on a rotational basis. Most 
private companies regularly upgrade their computers every three years 
or so as new generations are developed.
     Doesn't it make good business sense for one of the Federal 
government's most business intense agencies to do likewise?
    Answer. The timely replacement of hardware is needed to capitalize 
on the efficiencies that can be derived from a modernized environment. 
However, older hardware is currently operating newer software. Given 
the competing demands on resources, the Administration's budget 
proposes a balanced approach to addressing this issue.
    The Administration's budget contains funding for hardware 
replacement, which will allow the IRS users to capitalize on new, more 
effective software, heightened security, and dramatically more 
efficient end-user support. It also allows the IRS to move its older 
machines to volunteer centers where taxpayer assistance can be 
enhanced. The IRS recognizes that the Administration's budget attempts 
to balance multiple demands and will distribute replacement equipment 
to IRS employees in areas that would get the most benefit from the 
replacement.

                          TELEPHONE ASSISTANCE
    Question. Last year, you agreed with me that a 65 percent telephone 
assistance rate--the rate of people trying to get through on the phones 
in order to obtain an answer to their tax questions--was ``short'' of 
the optimal goal. In fact, you testified that a 90-95 percent rate was 
what was needed. Setting aside the surveys performed by TIGTA and 
others, your press release of April 26 states that taxpayers who wished 
to speak with an IRS assistor got through on the phones 66.5 percent of 
the time--a 4.3 percent increase over last year.
    Clearly, telephone assistance continues to be ``short.'' Why?
    Answer. There are a number of factors that contribute to the 
telephone assistance rate, including staffing, work processes and 
technology. We are working to improve all three. We allocated a staff 
of approximately 8700 FTE to respond to a projected 85 million 
telephone calls on the IRS' principal toll-free lines during fiscal 
year 2001. Additional staffing will come in fiscal year 2002 from 
STABLE. Two additional factors make it especially challenging to 
provide service at a world-class rate:
    1. The highly peaked seasonal nature of customer demand, requiring 
us to answer just as many calls during the filing season as we answer 
in total for the rest of the year; and,
    2. The wide and complex range and changing scope of the subject 
matter. For example, between January and April, tax law calls, which 
can be extremely complex, comprise 52 percent of the calls, while the 
rest of the year tax law calls comprise only 29 percent.
    To address these factors, the IRS is taking the following steps:
  --increasing FTE from STABLE;
  --focusing on improving resource utilization;
  --shifting significant volumes of refund status callers to automated 
        services;
  --improving and expanding the scope of current automated self-service 
        applications for account service and refund status callers;
  --redirecting FTE savings realized through use of enhanced automated 
        services to account services and tax law services; and,
  --continuously identifying initiatives to further reduce telephone 
        demand.

                           WALK-IN ASSISTANCE
    Question. According to the recent Treasury Inspector General for 
Tax Administration (TIGTA) report, taxpayers seeking assistance at IRS 
walk-in sites often had to wait for long periods of time to get help, 
and in some instances these taxpayers were given insufficient answers 
to their questions.
    Why? What is needed to resolve this issue? Is more staffing and 
training the answer?
    Answer. There were very few TIGTA reviewers posing as taxpayers who 
were required to wait more than 30 minutes. In 83 percent of their 
contacts, the reviewer was assisted in 30 minutes or less. Since these 
reviews were conducted during the period of peak filing season demand, 
we are confident that in the post-filing season, the percentage of 
people who are assisted in 30 minutes or less is even higher.
    With regard to the quality of answers provided, we began this 
fiscal year with about 1000 technical employees and recruited an 
additional 504 by mid-March. The new hires started too late in the 
filing season to receive more than minimal tax law training. However, 
during the post-filing season we have a very aggressive training plan 
to ensure that all of our technical employees receive appropriate 
training. In addition to the increased emphasis on training, we have 
collaborated with the National Treasury Employees Union (NTEU) to 
identify another means to improve the quality of tax law service. We 
intend to integrate the methodology utilized in the Probe and Response 
guide into IRS publications and, make their use the standard tool for 
all Field Assistance technical employees. We also plan to include 
Integrated Case Processing (ICP) terminals for every Tax Resolution 
Representative (TRR). ICP is an automated system that significantly 
enhances employee research tools to improve the quality and timeliness 
of account assistance.
    Question. What are the most common errors that IRS employees make 
regarding tax law assistance at these walk-in sites?
    Answer. From our observations, most occur when employees answer 
technical tax law questions that are beyond the scope of their training 
level. Often employees were reluctant to refer those questions to other 
employees with more experience or a higher level of training. The need 
for employees to seek assistance or refer questions beyond their skill 
level will be emphasized in our training for filing season 2002. 
However, it is important to note that technical tax law questions, such 
as the questions asked by the TIGTA reviewers, represent a small 
portion of the total workload, which also includes return preparation, 
account assistance, and forms distribution.

                         ENHANCING PRODUCTIVITY
    Question. One of your strategic goals is to increase productivity 
by providing a quality work environment.
    From the perspective of a front-line employee who deals with 
taxpayers, what near-term and longer-term changes do you plan that will 
directly affect the productivity of front-line employees?
    Answer. The single most important factor affecting our ability to 
provide the quality of services that taxpayers expect in the most 
effective and efficient manner is our ability to recruit, retain, and 
develop talented personnel. Replacing the significant number of 
employees who will retire over the next five years is just one of the 
challenges that make it crucial for us to improve our ability to 
attract new and retain essential employees who have the right skills. 
Although organizational units needs may vary, similar strategies can be 
applied to ensure a fully qualified staff to efficiently accomplish the 
IRS mission. Some of the ways we are addressing this in both the short 
and longer term include:
  --a customer-focused organizational structure and increased 
        specialization for our employees
  --improved front-line employee training
  --enhanced managerial and leadership training
  --implementation of a strategy to stabilize and improve our 
        traditional compliance programs in the near term, while working 
        through the business systems modernization program to use 
        information and computer assisted tools more effectively to 
        manage our compliance activities for longer term and more 
        fundamental improvements
  --targeted skills assessments to determine the current skills of our 
        workforce and what will be needed for the future
  --support for advanced degree and education programs
  --quality of worklife policies, such as consistent and appropriate 
        compensation, reasonable accommodation, adequate space and 
        equipment, clear career paths, and consistent and clear lines 
        of authority and responsibility
  --a nationally coordinated program to hire, and train highly 
        qualified people for STABLE positions, including an aggressive 
        college recruiting campaign, and
  --implementation of new Senior Executive and senior manager 
        performance appraisal systems driven by individual commitments 
        directly tied to our strategic and program plans.

                       LADUCER CONTRACT WITH IRS
    Question. Two months ago you traveled to North Dakota for the 
ribbon-cutting ceremony at Laducer Associates in Mandan. We were 
pleased you were able to join us as they launched their work on a major 
five-year contract with the IRS. Just last year, Laducer--which is an 
8(a) firm--was named the IRS Small Business of the Year.
    As you know, they process about 20,000 cash transaction receipts 
each day for the IRS. This amounts to about 9 million key strokes at an 
accuracy rate of 99.5 percent. Their workforce is nearly 40 percent 
American Indian and 22 percent of their employees are single mothers. 
Most of the data entry staff came from jobs where they earned, at most, 
$6 an hour. Under this contract, depending on their ability and 
seniority, they can earn up to $18 an hour.
    I commend you and your agency for the partnership you have 
established with Laducer Associates. In addition to providing an 
excellent work product for the IRS, Laducer has been able to make a 
real difference in the lives of many North Dakotans.
     Would you provide us with a status report on this particular 
contract?
    Answer. IRS is pleased to have established such a positive and 
productive partnership with Laducer Associates. The IRS Director of the 
Detroit Computing Center visits the Laducer facilities regularly and is 
quite impressed with the quality of the work environment. We are 
currently in the fourth year of a five-year contract and are very 
pleased with the quality service Laducer provides. The contract with 
Laducer is worth $5.3 million for 2001. The IRS was able to offer a 
cost of living increase to Laducer Associates, which increased the 
contract by approximately $300,000 this year. Laducer has grown their 
business significantly during the four years they have been working 
with IRS. They have been able to skillfully use the experience they 
gained with IRS to expand their business with other Federal agencies.

                           ELECTRONIC FILING
    Question. You have testified that it will be difficult for the IRS 
to meet the 80 percent electronic filing goal it has been required to 
achieve by 2007 under the IRS Reform Act of 1998.
    What are the consequences of not meeting that goal? What are the 
budget implications?
    Answer. The primary consequences and budget implications of not 
meeting the 80 percent goal by 2007 are: (1) the IRS would not achieve 
the efficiencies inherent in a predominantly electronic environment as 
quickly as envisioned, and (2) the IRS would have to be prepared and 
funded to process a paper return volume in excess of 20 percent of all 
returns filed in 2007. However, it is important to understand that the 
IRS plans for our campuses, formerly known as service centers, and our 
plans for increasing resource availability in critical program areas, 
are based upon continuing growth of electronic filing and ultimately 
achieving the 80 percent goal.
    Question. What steps is the IRS taking to expand electronic filing 
for business taxpayers?
    Answer. The IRS has made significant strides over the last couple 
of years toward expanding electronic filing for business taxpayers. In 
2000, the Electronic Federal Tax Payment System (EFTPS) processed more 
than 63 million Federal tax payments, totaling more that $1.5 trillion.
    The IRS also introduced new business e-file options for Forms 941, 
940 and 1065. Employers can file their quarterly employment tax 
returns, Form 941, electronically either through a payroll service 
provider or on-line from their home or office computer. Selected small 
businesses can use the 941TeleFile system to file over the telephone. 
Employers can also file their Annual Unemployment Tax Return, Form 940, 
electronically. In 2001, Congress mandated and IRS implemented the 
electronic filing of Form 1065, Partnership Returns, for Partnerships 
with 100 partners or more.
    In 2002, the IRS will continue to expand electronic filing for 
business taxpayers by allowing them to pay their tax obligation with 
Forms 941, 940 and 1065.
    Question. Telephone tax return filing, or TeleFile, has decreased 
by 14 percent from last season. Why?
    Answer. Over the past several years, the TeleFile program has 
experienced an overall decline in receipts. This year, TeleFile 
receipts decreased by approximately 14 percent from the prior year. The 
IRS is currently analyzing the reasons for the decrease. Initial 
findings indicate that the redesign of the TeleFile tax package, a 
reduction in the number of packages issued, a system problem in the 
TeleFile script, and taxpayer eligibility contributed to the overall 
decrease.
    As part of our ongoing initiative to reduce taxpayer burden, the 
IRS redesigned the TeleFile tax package to condense the number of pages 
from 20 to 12 this year. Unfortunately, the booklets were folded in 
half for mailing purposes, which gave the appearance of junk mail. This 
was confirmed by participants in a TeleFile focus group held this 
spring. Further, IRS received twice as many taxpayer inquiries this 
year as compared to past years, stating that they did not get their 
booklet or that they had misplaced it. For next year, the booklet will 
continue to be folded. However, in the focus group, the IRS tested a 
new cover that clearly indicates that the booklet is a TeleFile tax 
package. The revised cover received positive feedback from the focus 
group participants.
    Also, the IRS restructured the criteria for issuing the TeleFile 
package to those filers who were more likely to use TeleFile versus a 
practitioner. This modification resulted in removing approximately 6.8 
million taxpayers from our TeleFile database that qualified to use 
TeleFile, but used a practitioner in previous years.
    Another contributing factor was that for 2 days (January 31st and 
February 1st) during the TeleFile peak, taxpayers calling TeleFile 
received an erroneous message that they were filing their return late. 
Many of the taxpayers attempting to use TeleFile called Customer 
Service concerned about the message. It is believed that many of the 
taxpayers that heard this message used an alternative method of filing 
for fear of their return being considered late. This problem was 
corrected immediately and the system worked well for the balance of the 
filing season.
    Finally, the IRS's greatest obstacle with TeleFile is user 
eligibility. Research has indicated that approximately one-third or 
more of TeleFile eligible taxpayers in one year become ineligible to 
use it in the following year because they move or their filing 
requirement changes (e.g., single to married, etc.). The IRS is 
currently exploring methods on how this can be rectified.

                          COST OF A TAX REBATE
    Question. As part of the tax cut discussion, the option of a 2001 
tax rebate remains a real possibility. However, there have been 
concerns expressed that this will result in increased, and un-budgeted-
for, costs to the IRS as well as the Financial Management Service.
    Given the current state of affairs, what do you estimate will be 
the additional costs to the IRS associated with a tax rebate?
    Answer. The President has submitted a $115.8 million supplemental 
Appropriations request to Congress to cover the costs associated with 
administering the rebate.
    Question. Is there a preferred method to provide the rebate--if the 
Congress and the President decide to go down this path?
    Answer. The IRS will be able to administer the law as passed by 
Congress.

                               GAO AUDIT
    Question. For the first time, the General Accounting Office gave 
the IRS an ``unqualified,'' or clean, audit opinion for fiscal year 
2000.
    What is the significance of this? Do managers now routinely have 
the financial data they need?
    Answer. The accounting systems at the IRS are divided between the 
systems that record tax revenue activity (collections and 
disbursements) of the IRS for the Federal government and the system 
that accounts for the funds appropriated by Congress each year to 
perform tax administration within the IRS.
    The IRS first received an unqualified opinion on its reporting of 
tax revenue activity from the GAO in fiscal year 1997. Each year since, 
IRS has had a clean opinion on this part of its financial statement 
reporting. For appropriated funds, IRS received its first unqualified 
opinion from GAO on all of its financial statements in fiscal year 
2000. This means that for the beginning of the year until the end, at a 
summary level, IRS was able to fairly and accurately present its 
financial condition and the changes that occurred during the year.
    In GAO's audit report on the fiscal year 2000 financial statements 
of IRS, the GAO audit team noted that while the year-end summary 
information was fairly presented and the IRS made notable progress in 
both revenue and administrative activity, there were still deficiencies 
in the systems that needed to be corrected.
    In relation to tax revenue activity, the current system uses 
technology from the late 1960's, it does not produce information that 
will satisfy the requirements of a Standard General Ledger established 
by statute and OMB, and has limitations on the extent of financial 
management information that is available.
    For administrative accounting, GAO noted the delays in processing 
financial data which prevented providing managers with timely 
information. However, the GAO also noted significant progress in fiscal 
year 2000.
    In both revenue and administrative accounting, we are working to 
make our financial systems better each year. At the outset of fiscal 
year 2004, we plan to have a new administrative accounting system that 
will correct most of the deficiencies noted by GAO. Due to the 
uniqueness of revenue systems, the current plan to modernize the 
accounting systems for tax revenue will take up to 10 years to 
complete. Both of these efforts are contingent upon IRS continuing to 
receive Information Technology Investment Account funding.

                         Conclusion of Hearings

    Senator Campbell. They usually make it easy for me too. 
Thanks for appearing. The subcommittee is recessed.
    [Whereupon, at 10:36 a.m., Thursday, May 17, the hearings 
were concluded, and the subcommittee was recessed, to reconvene 
subject to the call of the Chair.]


             MATERIAL SUBMITTED SUBSEQUENT TO THE HEARINGS

    [Clerk's Note.--The following testimonies were received by 
the Subcommittee on the Treasury and General Government for 
inclusion in the record.
    The subcommittee requested that Agencies and public 
witnesses provide written testimony because, given the Senate 
schedule and the number of subcommittee hearings with 
Department witnesses, there was not enough time to schedule 
separate hearings for these witnesses.]

                            RELATED AGENCIES

 Prepared Statement of Patrick E. McFarland, Inspector General, Office 
                        of Personnel Management
    Mr. Chairman and members of the subcommittee: Thank you for 
providing me with this opportunity to discuss the President's fiscal 
year 2002 request for appropriations for the Office of the Inspector 
General. The total request for the Office of the Inspector General is 
$11,414,000, which is an increase of $333,000 above the amount 
appropriated in fiscal year 2001. Of this amount, $1,398,000 is from 
the salaries and expenses/general fund and $10,016,000 is from the 
trust funds. In addition, we plan for $150,000 in advances and 
reimbursements.
    The Office of the Inspector General recognizes that oversight of 
the retirement and insurance trust funds administered by the Office of 
Personnel Management (OPM) is, and will remain, its most significant 
challenge. These trust funds are among the largest held by the United 
States Government. Their assets totaled $551.9 billion in fiscal year 
2000, and their annual program and operating expenses were $127.9 
billion. The amounts of their balances are material to the integrity of 
the government's financial position. I continue to allocate the vast 
majority of the Office of the Inspector General's efforts and resources 
to trust fund oversight, and I believe that we remain as fully 
committed to trust fund activities as is possible within the context of 
our current resource structure.
    Outlays from the OPM Retirement Trust Funds are made in the form of 
payments to millions of annuity recipients. The health insurance trust 
fund provides payments to approximately 291 health insurance plans 
nationwide. In turn, the health insurance carriers pay millions of 
claims for services filed by their enrollees and health care providers. 
Our experience shows that such health insurance payments are at risk 
for being improper, inaccurate or fraudulent. We are obligated to 
Federal employees and annuitants to protect the integrity of their 
earned benefits. We accomplish this though our investigative and audit 
work, thereby reducing losses due to fraud and impropriety and 
recovering misspent funds whenever possible. We owe this especially to 
the Federal agencies and American taxpayers who provide the majority of 
the funding.
    Working with the level of resources provided, the Office of the 
Inspector General has achieved an impressive record of cost 
effectiveness. Audits and investigations of the OPM administered trust 
fund programs have resulted in significant financial recoveries to the 
trust funds and commitments by program management to recover additional 
amounts. In fiscal year 2000, these recoveries and commitments totaled 
approximately $105.2 million. This equates to approximately $11 of 
positive financial impact for each direct program dollar spent. In 
addition, Office of the Inspector General audits and investigations 
provide a significant deterrent against future instances of fraud, 
waste, and abuse.
    The Office of the Inspector General's fiscal year 2002 request 
includes additional resources totaling $333,000. Specifically, this 
increase will be used to off-set the impact of the anticipated January 
2002 pay raise and inflation.
    The Office of the Inspector General continues to seek inclusion of 
the FEHBP as a full participant in the Health Insurance Portability and 
Accountability Act of 1996 (HIPAA). The Federal employees health 
benefits program (FEHBP) was excluded from remedial and civil 
enforcement authorities for health care fraud which were made 
applicable to all other Federal health care programs. With support from 
the Department of Justice in the last administration and the Inspector 
General at the Department of Health and Human Services, we have been 
working to amend HIPAA to Include the FEHBP in its definition of the 
Federal health benefits program. As a result of this exclusion, the 
FEHBP is the only Federal health program without benefit of most of 
HIPAA's anti-fraud provisions, despite its standing as the third 
largest Federal health insurance program. Removal of the FEHBP's 
specific exclusion from this definition would enable OPM to take 
advantage of enhanced sanctions, such as mandatory exclusion of 
individuals and entities that have been convicted of a felony relating 
to health care fraud or controlled substances, and mandatory minimum 
duration of certain discretionary exclusions. We could also take 
advantage of HIPAA's revised standard of proof in civil monetary 
penalty cases, increasing penalties per false claim from $2,000 to 
$10,000, and new administrative penalties for incorrect coding, 
medically unnecessary service, and anti-kickback provisions. This 
legislation would enable the Inspector General to work more effectively 
and on an equal footing with other Federal agencies in fighting fraud 
against the nation's largest employer-sponsored health insurance 
program.
    Thank you for this opportunity to state once more my resource 
request for fiscal year 2002.
                                 ______
                                 

     Prepared Statement of Beth S. Slavet, Chairman, Merit Systems 
                            Protection Board

    Chairman Istook, Ranking Member Hoyer and Members of the 
Subcommittee: I am pleased, on behalf of the U.S. Merit Systems 
Protection Board, to submit to the Subcommittee our fiscal year 2002 
appropriations request and this statement explaining its importance in 
permitting the Board to fulfill its statutory missions.

                        OVERVIEW OF THE REQUEST
    The President's fiscal year 2002 request for the MSPB is 
$30,375,000 plus a $2,520,000 limitation on reimbursements from the 
Civil Service Retirement and Disability Trust Fund. It is a lean budget 
request; all amounts requested are essential to enable the Board to 
fulfill its statutory mission. The increases of $1,002,000 over the 
fiscal year 2001 appropriation, adjustment for the rescission, and 
$96,000 in the Trust Fund limitation cover only the mandatory pay 
increases of January 2001 and January 2002 along with the higher space 
rental charges that will be incurred in fiscal year 2002. Focussing our 
efforts on fulfilling the Board's adjudicatory and merit studies 
functions, we have not included a request to fund any new initiatives 
during this budget cycle.

                              ADJUDICATORY
    The Merit Systems Protection Board has a record of excellence in 
deciding 9,000 to 10,000 cases per year, involving serious personnel 
actions taken by Federal agencies. Approximately half of the appeals 
are adverse actions, including removals; and just over 25 percent 
involve retirement matters. More than half of our initial appeals not 
dismissed are resolved through settlement techniques, saving resources 
for all of the parties and producing a negotiated, rather than a 
mandated disposition of the case. Our decision-making pace stands out 
among adjudicatory agencies. In fiscal year 2000, the MSPB moved cases 
through two stages of processing in just under nine months, on average.
    Rather than resting on our laurels, we are constantly striving to 
enhance the efficiency of the agency in order to better serve our 
customers. In this regard, we have raised the bar by which we evaluate 
our timeliness in processing cases at headquarters. In the past, we 
emphasized resolving or reaching a final disposition on cases that have 
been pending in headquarters for over 365 days. We now place special 
emphasis on cases that have been pending in headquarters for more than 
240 days in an effort to prevent them from reaching the 300-day mark.
    This past year, the Merit Systems Protection Board has taken a 
proactive stance in improving the effectiveness of our compliance 
program. We have met with representatives of the Defense Finance 
Accounting Service (DFAS), the National Finance Center (NFC) and the 
U.S. Postal Service (USPS) to develop mutually beneficial systems for 
achieving full compliance with Board orders in a timely manner. As a 
result of those meetings, the agencies have developed checklists and 
other tools that advise agencies and appellants of the information 
required in order to process payments agreed upon in settlement cases 
or as ordered by the Merit Systems Protection Board. The DFAS and NFC 
Checklists are now posted on the Board's website. The USPS is 
developing a handbook for this purpose. When it is completed, we will 
work with the Postal Service to make it accessible to our customers.
    In June 2000, the Board expanded our pilot program at headquarters 
to expedite the processing of certain petitions for review (PFRs) of 
administrative judges' initial decisions. Its purpose is to identify 
non-meritorious PFRs that can be disposed of quickly so that the Board 
can then focus its resources on more complex and precedential cases. An 
experienced attorney from the Board's Office of Appeals Counsel 
conducts these initial reviews. During the first 6 months of this 
program, approximately 8 percent of the 724 PFRs processed under this 
procedure resulted in expedited decisions. The average time for 
processing the expedited cases--from receipt of the PFR to issuance of 
the decision--was 60 days. Unquestionably, this initiative has been a 
significant factor in the Board's ability to meet key case processing 
targets. This pilot program is being evaluated during fiscal year 2001.
    The Suspended Case Pilot Program, initiated in November 1999, has 
allowed the Board to be more responsive to the needs of our customers 
who are attempting to settle cases outside of the litigation arena. 
Under this program, the administrative judge will grant a joint request 
from the parties for a 30-day suspension in the processing of a case in 
order to permit them to pursue settlement efforts or engage in 
additional discovery. Additionally, the administrative judge may grant 
a joint request for a 30-day extension of the case suspension. We 
believe the ``Suspended Case'' pilot program has been a success. As of 
early April 2001, the Board's administrative judges have granted 457 
case suspensions at the parties' request. Additionally, the Board's 
administrative judges settled 197 of the 362 ``closed'' appeals where 
they had granted suspensions. This rate of settlement, 54.5 percent, is 
consistent with the 55 percent overall average rate of settlement in 
the regions. Initial feedback from the Board's administrative judges 
indicates that the appeals involved in the pilot program are generally 
more complex than most appeals filed with the Board. Consequently, we 
believe that the pilot program has led to a significant optimization of 
the Board's limited resources by facilitating settlements in the type 
of complex appeals that cause our administrative judges and 
headquarters attorneys to expend the most time and effort. We intend to 
continue implementation of this program in the next year. However, we 
would like to first formally seek feedback from our constituents.
    The Board encourages the use of alternative dispute resolution 
techniques at all levels of its adjudicatory process. Two years ago, 
the Board implemented a new regulation under which employees may be 
granted an extension of time to file an appeal with the Board if the 
employee and the agency are attempting to resolve the issue through 
ADR. This has encouraged parties to engage in settlement discussions 
before they get to the Board.
    During fiscal year 2000, the settlement rate for initial appeals 
not dismissed was 55 percent. The Board also enjoys a respectable 
settlement rate for cases before it on Petition for Review. During the 
preceding 5 years, the settlement rate for those cases in which 
settlement was attempted has ranged from 21 percent to 29 percent. 
These rates are impressive given the fact that the initial decision has 
already been issued in these cases, resulting in a disincentive for the 
prevailing party to engage in settlement negotiations.
    The Board plans to continue the use of ADR techniques to resolve 
cases at the earliest possible stage. Additionally, the Board expects 
to conduct outreach efforts targeted at agency decision-makers to 
encourage them to make greater use of ADR at the early stages of an 
employment dispute. Finally, the Board anticipates training more of its 
employees within this fiscal year and fiscal year 2002 on the broad 
range of alternative dispute resolution techniques available to 
facilitate case settlements. Our objective is to incorporate these 
techniques into existing settlement programs. If this effort is 
successful, we will require additional funding in future years to train 
more of our staff in ADR techniques and to expand the use of ADR within 
the Board's adjudicatory and case management processes.

                  MERIT SYSTEMS STUDIES AND OVERSIGHT
    Building on research efforts that yielded two major study reports 
and five editions of the ``Issues of Merit'' publication in fiscal year 
2000, the Board expects to complete work on five additional studies 
during fiscal year 2001 \1\ and publish four new editions of the 
``Issues of Merit.'' The Board's studies and newsletters present new 
data and analyses as well as recapping and updating MSPB positions on 
critical issues that are still pertinent in the current Federal 
environment.
---------------------------------------------------------------------------
    \1\ This includes the triennial Merit Principles Survey 
administered to a representative sample of over 17,000 Federal 
employees government-wide, and studies of the Presidential Management 
Intern Program, the variety of employee selection methods used by 
Federal agencies in making new hires, the Federal merit promotion 
program, and a 20-year retrospective review of the U.S. Office of 
Personnel Management.
---------------------------------------------------------------------------
    The Board also supports an active outreach program to increase the 
constructive impact of its work products. During the last 12 months, 
over 100,000 copies of the Board's reports and newsletters were 
downloaded from the MSPB web site and other web sites that make copies 
available as a service to their users. The Board's studies staff 
responded to almost 250 requests for additional studies-related 
information, data, advice, or public presentations. These requests came 
from other Federal agencies, Congressional staff, academicians, and 
others seeking objective and authoritative information and analyses on 
Federal sector human resources management. For example, in fiscal year 
2001, at the request of the Department of Justice and as a follow-up to 
earlier MSPB studies, we agreed to conduct a survey of over 17,000 
employees throughout the Department on the issue of sexual harassment. 
Additionally, the results of the Board's recent survey of applicants 
for Federal employment served as the basis for a request from the 
Senate Committee on Governmental Affairs that the General Accounting 
Office conduct a study of the hiring processes of selected Federal 
departments and agencies. During fiscal year 2002, the Board will 
continue to add new and relevant information and analyses to the 
ongoing public dialogue and growing concern regarding the perceived and 
very real ``human capital'' crisis in the Federal government. This will 
include a review of the degree to which Federal contracting officers' 
technical representatives (COTRs) have the experience and competencies 
needed to adequately oversee the work of Federal contractors and a 
study of the impact of the major downsizing in the Federal human 
resources profession on the delivery of human resources management 
services--including the ability to maintain a merit-based hiring 
system.

                           MANAGEMENT SUPPORT
    The MSPB has implemented major organizational changes during the 
past several years to save resources and to directly focus them on 
mission-critical objectives. At 228 FTE, the MSPB is 30 percent smaller 
than it was in 1993,\2\ has fewer management layers, and has made 
innovative use of technology in adjudication and administrative 
matters.
---------------------------------------------------------------------------
    \2\ The reduction in staff is not without some downside. For 
example, the decrease in adjudicatory staff impacts the number and 
speed of our case processing in headquarters. Additionally, agency 
headquarters, in particular, was left with virtually no clerical 
support staff. Consequently, time that the attorneys could be devoting 
to research, analysis and other substantive case processing activities 
is being diverted to the accomplishment of necessary clerical tasks.
---------------------------------------------------------------------------
    The Board is committed to strengthening the agency's internal 
systems and processes to support continuous improvements and the 
achievement of the highest degree of efficiency while maintaining the 
flexibility necessary to meet program needs. For the first time in the 
Board's history, each office head was required to submit business plans 
during fiscal year 2000, and to update those plans as warranted. 
Managers are being held accountable for obtaining results as specified 
in the plans.
    The Board has also begun to place great emphasis on the 
professional development of its employees. To this end, the Board seeks 
to promote efficient and effective accomplishment of its statutory 
mission by providing a work environment with workplace policies and 
programs that enable its employees to excel. During fiscal year 2001, 
each employee will be required to conduct a self-assessment to identify 
strengths, weaknesses, experience, training and education. Each 
employee, together with his or her supervisor, will then design an 
Individual Development Plan which will include short- and long-term 
goals and the training and additional work experience necessary to help 
the employee to achieve his or her career objectives. We would like to 
make these opportunities available to a greater percentage of the 
staff, however, to do so would require additional funding.
    fiscal year 2002 will be the fourth year of our 5-year information 
technology (IT) initiative, which is aimed at increasing our use of 
information technology to enable us to continue processing cases 
efficiently despite the reduction in staff resources the agency has 
experienced in the past 8 years. The Board adopted ambitious goals at 
the inception of this initiative. As implementation of the initiative 
has evolved, we have learned that to be successful in this effort, we 
must take a more systematic approach to integration of the new 
technologies into current processes and that integration of the new 
technologies much be accomplished at a more gradual pace. Because 
electronic filing of appeals with MSPB offices and electronic 
distribution of Board decisions are key components of the IT 
initiative, its completion on schedule will support the Board's 
compliance with the Government Paperwork Elimination Act of 1998 
(GPEA), which mandates that agencies provide their customers the option 
of submitting and receiving information electronically by October 2003.

                               CONCLUSION
    It has been my distinct honor and pleasure to serve the Board, 
first as Vice Chairman, now as Chairman. I want to extend my 
appreciation to you and your staff for the support and courtesies you 
have accorded us during my tenure. Your guidance and assistance have 
been invaluable as we worked to perform the critical functions of the 
agency.
    The information contained in this statement provides a mere 
snapshot of the Board's success in carrying out its mission of 
safeguarding the Federal merit employment system. The Board is a small 
but precious jewel amongst Federal agencies. The agency has maintained 
an enviable record of effective management but, suffering from a lack 
of a clear constituency and political interest, it has been hampered 
with limited resources. Our limited budget has made it difficult for 
the Board to implement new initiatives such as ADR and enhanced 
outreach efforts. While we have been largely successful in meeting our 
goals and operating efficiently within the parameters of our 
appropriations, we could enhance our adjudicatory and merit studies 
functions with additional funding.
    I want to stress that this budget request reflects the minimum 
level of funding necessary to enable the Board to perform all of its 
mission-related functions. With your continued support, the Board can 
build upon its record of excellence in service to the Federal 
government and to the American public. The MSPB staff and I are 
available to provide you with any additional information or assistance. 
Thank you.
                                 ______
                                 
                       NONDEPARTMENTAL WITNESSES

      Prepared Statement of the National Treasury Employees Union

    Chairman Campbell, Ranking Member Dorgan, and other distinguished 
Members of this subcommittee, my name is Colleen Kelley and I am the 
National President of the National Treasury Employees Union. As you 
know, NTEU represents more than 155,000 Federal employees across the 
Federal government, including most of the employees who work at the 
Department of Treasury. I want to thank you for giving me the 
opportunity to present testimony on behalf of these dedicated men and 
women who keep our democratic government running.
    I would like to highlight some of NTEU's priorities and concerns 
contained in President Bush's fiscal year 2002 budget request for the 
Department of Treasury and other agencies under this Subcommittee's 
jurisdiction. Too many times, our nation takes for granted the work 
performed by the men and women at the U.S. Treasury Department. It is 
these dedicated individuals who work to ensure that the taxes and 
tariffs due to the Treasury are paid; they are the ones standing on the 
front lines of our borders and ports in keeping illegal drugs out of 
our country; they ensure the integrity of our government's revenue 
payment and collection systems; they work with local law enforcement 
agencies to protect the public from dangerous explosives and illegal 
trafficking of alcohol and firearms; they print and distribute Social 
Security checks that are so important to so many of our families. Every 
day, the men and women who work for the Federal government make 
countless contributions to our nation's stability, security, and 
prosperity.
    That is why it is incumbent upon Congress and President Bush to 
ensure that these dedicated employees have the tools and resources they 
need to do their jobs. And it is incumbent upon Congress and President 
Bush to provide these employees--who selflessly provide for our nation 
day in and day out--with the pay and benefits that are, at a bare 
minimum, on par with those in the private sector. Below I have 
highlighted NTEU's views on some of the most important issues facing 
the Treasury Agencies' workforce. I would welcome the opportunity to 
provide additional views at a later date.

                        INTERNAL REVENUE SERVICE
    Total staffing levels at the IRS decreased by 18,000 between 1992 
and last year and the number of revenue agents declined by more than 
twenty percent between 1995 and 2000. Notwithstanding these staffing 
decreases, during the past decade, Congress made hundreds of changes to 
the tax code (801 changes in the Taxpayer Relief Act of 1997 alone), 
our nation experienced unprecedented economic growth, which led to the 
filing of more complex tax returns, and the total number of tax returns 
processed by the IRS increased by nearly 10 percent. Simultaneously, 
IRS toll free phone services and web-based services for taxpayers were 
expanded and improved, taxpayers can visit IRS officials at more 
convenient locations during longer hours of operation, and taxpayers 
have more options for filing their returns. IRS employees have 
successfully done more with less over the last decade.
    Unfortunately, NTEU does not believe that President Bush's budget 
for fiscal year 2002 provides the IRS with the resources necessary for 
the Service to continue to perform current operations, while 
simultaneously meeting its modernization goals. The budget does not 
adequately take into account tax compliance staffing shortfalls due to 
the shifting of many IRS examination staff, revenue agents, compliance 
officers, auditors and others to help improve customer service, answer 
taxpayers' questions, and provide walk-in assistance to taxpayers. And 
the Bush budget does not recognize the requirements necessary to bring 
IRS information technology systems into the 21st century. In fact, the 
newly created independent IRS Oversight Board pointed out that the 
budget fails to provide funding for an additional 1,300 employees 
needed to stop the decline in staffing levels which has led to a drop 
in audits and enforcement activities. And the Oversight Board, in its 
report on President Bush's 2002 budget for the IRS, points out that the 
budget fails to provide funding for new laptop and desktop computers to 
accommodate new computer programs, even though the IRS has spent 
millions of dollars developing new software.
    President Bush's budget proposal for the IRS indicates that this 
Administration is not willing to make the long-term commitment 
necessary to modernize the IRS, and is not willing to provide the 
Service with even a reasonable fraction of what is required to carry 
out its mission.
    The Bush Administration and Congress need to do more than merely 
fund band-aid repairs to address immediate needs at the IRS. The IRS 
needs adequate funding for day-to-day operations and maintenance, but 
it also needs a commitment from President Bush and Congress to invest 
in long-term improvements that will modernize tax compliance and 
customer service to meet the demands of the American taxpayers. 
Improving customer service, enhancing tax return processing, and 
increasing tax compliance can only happen if President Bush and 
Congress support increased funding for staffing, more advanced 
technology and equipment, training and innovation. Employees at the IRS 
have responded to the mandates from Congress contained in the IRS 
Restructuring and Reform Act and are making tremendous progress. 
However, the current IRS workforce can only do so much with its limited 
resources. Further progress in making the IRS more efficient and more 
effective will only be achieved if President Bush and Congress provide 
more funding.
    The IRS needs to maintain current staffing levels, be able to hire 
new staff and retain them for longer than one year, and completely 
modernize outdated IRS technology and equipment. Without a long-term 
commitment to provide adequate funding, the IRS will be forced to 
shuffle resources from one account to another, with the end result 
being an IRS less responsive to the needs of the American taxpayers.
    For example, the President's budget does include funding for the 
IRS Staffing Tax Administration for Balance and Equity (STABLE) 
initiative. The STABLE initiative was first proposed by the previous 
Administration and funded in the current year's budget. If fully 
implemented, the original initiative would enable the IRS to hire 
nearly 4,000 new employees to help increase compliance and improve 
customer service.
    Unfortunately, the amount of funding in President Bush's budget 
would only allow the IRS to ``complete'' the hiring of roughly two-
thirds of the required 4,000 new employees. Because the Bush budget 
fails to provide funding to account for inflation and routine pay 
increases for the IRS to maintain its current workforce, the IRS will 
be forced to cut back on its plans to hire additional employees. This 
is simple math: if we want to maintain the current levels of staffing 
and hire additional employees, the IRS needs enough money to pay those 
currently working at the IRS and the IRS needs enough money to recruit 
additional qualified individuals. Both cannot be funded under the 
proposed budget.
    The President's budget will provide $400 million in investments to 
modernize IRS's outdated computer systems. This is less than half of 
the Oversight Board's recommendation of $1 billion for systems 
modernization. NTEU supports the Board's recommended funding allocation 
so that IRS employees will have the systems infrastructure they need to 
more efficiently process, store, analyze, and manage taxpayer records, 
and so that taxpayers can be assured that their taxpayer information is 
secure and kept confidential.
    While NTEU supports an increased budget for more advanced 
information technology systems and better equipment, we do not believe 
that these improvements have to come at the expense of reduced funding 
for staffing.
    As you know, audit rates are down. One reason is the lack of staff; 
another is an issue which has had a chilling effect on employees, and I 
believe has contributed to the declining rates of audits and tax 
compliance. IRS employees continue to work in fear of section 1203 of 
the IRS Restructuring and Reform Act, which sets out ten infractions, 
known as the ``Ten Deadly Sins,'' for which IRS employees face 
mandatory dismissal. One of those infractions is the untimely filing of 
Federal income taxes.
    IRS employees violating the IRS Rules of Conduct have always been 
subjected to discipline, including dismissal, and rightly so. However, 
RRA's requirement for mandatory dismissal of employees who violate 
these infractions, is unduly harsh, especially in light of the fact 
that many IRS employees are being terminated for filing returns late, 
even when they have refunds due. Section 1203 is having a negative 
effect on collections and morale at the IRS, and must be repealed or 
modified.

                          U.S. CUSTOMS SERVICE
    The President's fiscal year 2002 budget requests a funding level of 
$1.96 billion for salaries and expenses and 17,849 FTEs for the United 
States Customs Service. This represents an additional $97 million and 
370 additional FTEs from last year's appropriations. NTEU feels that 
this budget is woefully inadequate to meet the needs of this country's 
oldest law enforcement agency.
    The workload of the Customs Service employees has dramatically 
increased every year including more commercial entries that must be 
processed, more trucks that must be cleared and more passengers that 
must be inspected at the 301 ports of entry. There has been a 
relatively small increase in personnel worldwide, despite the dramatic 
increases in trade resulting from NAFTA, the increased threat of drug 
smuggling and the opening of new ports and land border crossings each 
year. In 2000, Customs Service employees seized over 1.5 million pounds 
of cocaine, heroin, marijuana and other illegal narcotics--as well as 
over 9 million tablets of Ecstasy, triple the amount seized in 1999. 
Customs also processed nearly 500 million travelers last year, 
including 140 million cars and trucks and over $1 trillion worth of 
trade. This number continues to grow annually, and statistics show that 
over the last decade trade has increased by 135 percent.
    In addition, Customs employees have become responsible for 
preventing international money-laundering and arms smuggling. Yet, the 
Customs Service has confronted its rapidly increasing workload with 
relatively static staffing levels and resources. In the last ten years, 
there have not been adequate increases in staffing levels for 
inspectional personnel and import specialists--the employees who 
process the legitimate trade and thwart illegal imports.
    It's very clear that funding must be increased to allow Customs to 
meet the challenges of the future. In recent years Customs has seen a 
decrease in the level of funding, relative to other Federal law 
enforcement agencies, even while having significantly higher workloads 
and threats along America's borders. Customs' recent internal review of 
staffing, known as the Resource Allocation Model or R.A.M., shows that 
Customs needs over 14,776 new hires just to fulfill its basic mission 
for the future. Congress must lead by example in showing the men and 
women of the Customs Service they respect and support the difficult and 
dangerous work these officers do 365 days a year by providing increased 
funding for the Customs Service.
    NTEU recommends deploying the new hires to our nation's ports of 
entry along the busy Southwest land border where wait times hinder 
trade facilitation and drug smuggling is at its peak, and in the busy 
area ports on the Northern Border where ports are unmanned, while the 
trafficking of ``B.C. Bud'' marijuana and the threat of international 
terrorism has changed the landscape. In addition to the busy land 
borders, NTEU recommends focusing attention on the bustling seaports 
and airports across the country. The understaffed and overworked 
inspectors at the U.S. seaports and airports currently contend with 
corruption, theft and safety issues that are a direct result of the 
lack of staffing. As one Southwest Border Senator aptly phrased it: 
``U.S. seaports and airports are under siege by smugglers, drug 
traffickers and other criminals, yet law enforcement agencies that 
regulate them are understaffed and outgunned.''
    Last year, Congress acknowledged the shortage of staffing and 
resources by appropriating $13.7 million for staffing and other 
resources for the Southwest Border. We hope that this Congress will 
again increase the funds available for additional inspectors and 
equipment in all areas around the country that are experiencing the 
most severe shortages.
    Another issue, which is of extreme importance to the front line 
employees of the U.S. Customs Service, is the COBRA account. This user 
fee account funds all inspectors and canine enforcement officers' 
overtime pay as well as approximately 1,400 Customs positions across 
the country. This account is funded with user fees collected from Air/
Sea Passengers except from the Caribbean and Mexico, Commercial 
Vehicles, Commercial Vessels/Barges and Rail Cars.
    The history of collections and obligations for COBRA over the last 
5 years shows a significant drawing down of reserve money available in 
the COBRA fund for overtime and additional positions, to the point 
where a significant ($40 to $60 million) shortfall is expected in 2001. 
Customs anticipates collecting $300 million in COBRA fees during fiscal 
year 2001, well below the $350 million they project in COBRA 
obligations during fiscal year 2001.
    Based on the projected shortfall in the COBRA funding account, 
Customs has cut back on overtime and held off filling hundreds of new 
positions, thereby decreasing services to all taxpayers and 
exacerbating the long delays at many border crossings. It is imperative 
that the COBRA fund be reauthorized. It is currently set to expire in 
September 2003. Along with the reauthorization of COBRA there must be 
significant increases in appropriated funds to enable Customs to 
properly staff all ports of entry across the United States, and to 
ensure that shortfalls in the COBRA account prevent undue reliance on 
the unpredictable COBRA account.
    It has become increasingly more difficult to recruit the best and 
the brightest into the ranks of Customs Service employees including 
inspectional personnel and import specialists. Import specialists have 
yet to be recognized for their increased responsibility for determining 
the classification, appraisal value and admissibility of products 
coming into the United States. In response to the recent explosive 
growth in trade, and the enactment of the Customs Modernization Act in 
1994, the responsibilities and necessary technical abilities of 
Customs' import specialists have increased tremendously, yet their 
salary structure and position description have not reflected the GS-12 
graded workload they must perform regularly. Customs conducted a pilot 
audit of import specialists' work that showed the higher graded work 
that they perform, yet Customs has not provided the resources to effect 
these upgrades. NTEU will continue to pressure legislators and the 
agency to comply with the classification standards and provide GS-12 
journeyman levels for the Customs Service's import specialists.
    The Customs Service employees assigned to the Customhouse at the 
Los Angeles Seaport (Terminal Island, CA) have endured years of 
environmentally unsafe working conditions, including exposure to 
particulate matter from the nearby petroleum coke facility, asbestos, 
noxious fumes and other air pollutants. The current health and safety 
conditions are absolutely intolerable, and I urge the appropriators to 
ensure that the General Services Administration (GSA) permanently moves 
these employees as quickly and efficiently as possible. NTEU will 
continue to work with Customs and Members of Congress on a permanent 
solution, but immediate interim steps are also needed. The Customs 
Service should be provided the resources to move the remaining 150 
employees to temporary work sites pending the final permanent move.
    NTEU believes that it is also important for Congress to focus its 
attention on the failing computer system currently operated by the 
Customs Service--the Automated Commercial System (ACS). Last Year 
Customs received $130 million towards its modernization effort but 
President Bush's Fiscal 2002 budget keeps funding at the same level. At 
this current funding pace it will take 14 years to install the new ACE 
(Automated Commercial Environment). The current ACS is a 17 year old, 
outdated system that is subject to brown outs and freezes that wreak 
havoc on trade facilitation and employees' ability to do their jobs. 
Although a system upgrade is necessary for Customs to meet its 
modernization efforts, NTEU would oppose funding a new system by 
shifting funds away from the front line employees who currently 
facilitate the volumes of trade growth and enforce our laws at the 
borders.
    Quite simply, the resources have not been provided in the 
President's fiscal year 2002 for Customs Inspectors, Canine Enforcement 
Officers and Import Specialists to adequately do their jobs. These are 
dedicated, professional individuals and I urge Congress to appropriate 
more funding to increase staffing levels for Customs and to provide 
them with the resources they need to do their jobs.

                OTHER CRITICAL AGENCY FUNDING PRIORITIES
    In addition to the work at the IRS and Customs Service, the 
Treasury Department performs many more critical functions that also 
need to be adequately funded. For example, NTEU is hopeful that 
Congress will provide funding for BATF's request for 340 new hires. 
This will enable the bureau to better prevent violent crimes and 
protect the public, while continuing to collect billions of dollars 
from license fees and tariffs. The Financial Management Service and the 
Bureau of Public Debt need at least what President Bush has proposed so 
that our government can continue to operate the Federal government's 
payment, collection, accounting services, and when necessary, borrow 
money and account for the resulting debt. And with modern technology in 
the hands of sophisticated criminals, the Bureau of Engraving and 
Printing faces great challenges in designing and printing counterfeit-
proof currency, stamps, and other government-issued financial 
documents. Like the budget recommendations for all Treasury bureaus, 
the President's budget request for BEP should be viewed as a floor not 
a ceiling.
    Finally, with the increase in money being spent on elections by 
candidates and campaign committees, and complex problems with our 
entire election process, it is critical that the Federal Election 
Commission sees a significant increase in funding over previous years' 
budgets. FEC employees cannot possibly keep up with its increasing 
workload and ensure the integrity of our democratic voting system with 
the limited resources they have been given over the years.

                   FEDERAL EMPLOYEE PAY AND BENEFITS
    The human capital crisis facing the Federal government is an issue 
that Congress can help solve. It is no secret that the Federal civil 
service system needs fundamental changes to address retention and 
recruitment problems. The primary obstacle to retaining highly 
qualified individuals working for the government today and recruiting 
the Federal workforce of tomorrow is inadequate pay and benefits. There 
was once a time when it was the steady pay and good health care and 
retirement benefits offered by the Federal government that encouraged 
young individuals to dedicate their careers to working for the 
government. However, with the widening of the pay gap between the 
public and private sectors, and the skyrocketing costs of health care 
premiums paid by Federal employees, more and more individuals who would 
like to work for the government instead are opting for careers in the 
private sector where the pay and health care coverage are now much 
better.
    Unfortunately, the proposals in President Bush's budget will only 
make the human capital crisis worse. NTEU believes that, at a minimum, 
Federal employees should get a 4.6 percent pay raise, identical to the 
amount President Bush proposed for the military. President Bush's 
budget recommends a 3.6 percent pay increase for civilian employees. 
However, the final budget resolution approved by the House and Senate 
call for pay parity between civilians and military personnel, and we 
hope the final appropriations bill fully funds at least a 4.6 percent 
pay raise for all Federal employees. No single issue is more important 
to Federal employees than bringing the pay of Federal employees more in 
line with individuals working in the private sector.
    NTEU also was very disappointed that the Bush budget fails to 
provide additional funding to assist Federal employees afford the 
skyrocketing costs of health care coverage. In recent years, the rising 
costs of the Federal Employees Health Benefits Program (FEHBP) have put 
health care coverage out of reach for many lower paid Federal employees 
and retirees. Premiums for Federal employees went up 10.5 percent this 
year, 9.3 percent last year, and another 9.5 percent the year before 
that. Additionally, the Bush budget would drop the requirement that 
Federal health plans must pay for contraceptive health coverage if they 
pay for other prescription drugs, which will lead to further health 
care cost increases for many Federal employees. NTEU urges this 
Subcommittee to help reduce the health care costs paid by Federal 
employees.
    NTEU was very pleased that last year this Subcommittee extended the 
child care subsidy program for lower graded employees for another year. 
However, not all agencies are taking full advantage of this program due 
to a shortage of money and uncertainty regarding the program's future. 
This was confirmed recently by a report done by the Office of Personnel 
Management. The OPM report also found that employees expressed concern 
about the possible need to change child care arrangements in order to 
qualify for the subsidies without being assured that the program would 
be permanent. With additional funding and a longer-term commitment from 
Congress and President Bush, more agencies will be able to operate and 
expand this cost-effective and family-friendly program.
    The President and Congress cannot expect the Federal government to 
deliver the services and perform the necessary tasks the American 
taxpayers expect if adequate funding is not provided to retain the 
current workforce, recruit additional employees, and give these 
employees the equipment and training they need to improve the 
efficiency of their work. Day in and day out, Federal employees are 
working to improve the quality of life for all Americans. If we want 
our nation to have confidence in the Federal government, then we need 
to make sure the employees receive adequate pay and recognition for 
their work, and that they have the tools they need to have confidence 
in the work they're doing.
    Thank you for this opportunity to provide you with NTEU's views on 
the important issues under this subcommittee's jurisdiction.
                                 ______
                                 

      Prepared Statement of the Institute of Makers of Explosives

    Dear Mr. Chairman: On behalf of the Institute of Makers of 
Explosives (IME), I am submitting a statement for inclusion in the 
Subcommittee's hearing record regarding the proposed fiscal year 2002 
budget for the Bureau of Alcohol, Tobacco & Firearms (BATF).

                          INTEREST OF THE IME
    The IME is the safety association of the commercial explosives 
industry. Our mission is to promote safety and the protection of 
employees, users, the public and the environment; and to encourage the 
adoption of uniform rules and regulations in the manufacture, 
transportation, storage, handling, use and disposal of explosive 
materials used in blasting and other essential operations.
    Commercial explosives are key to the recovery from the earth of all 
raw materials that are not grown. IME member companies produce over 95 
percent of the commercial explosives consumed in the United States. 
Additionally, our products are distributed worldwide.
    The production, distribution, storage and use of explosives are 
highly regulated. BATF is one of the agencies that plays a primary role 
in assuring that explosives are identified, tracked, and stored only to 
and by authorized persons. The ability to manufacture, distribute and 
use these products safely and securely is critical to this industry. 
With this perspective, we have carefully reviewed the Administration's 
fiscal year 2002 budget request and have the following comments.

             BUDGETARY ACCOUNTABILITY NEEDS TO BE IMPROVED
    Our industry relies on BATF to efficiently and effectively perform 
a number of functions to ensure that the legitimate commerce of high 
explosives can go forward unimpeded. Additionally, when explosives are 
stolen, lost, or used for illegal purposes, we rely on the BATF to 
recover products and investigate incidents as necessary. In this 
regard, we support all necessary resources for these essential 
services. However, the BATF budget request does not break down its 
budget authority or staffing by its programs, with the possible 
exception of firearms. Rather, the budget is broken down by the 
Bureau's strategic goals--reduce violent crime, collect revenue, and 
protect the public. While laudable, without detail on the amount of 
resources available for the Bureau's various programmatic missions, it 
is not possible to determine if adequate resources are being dedicated 
to all functions. BATF staff recently admitted that, with the attention 
to firearms issues during the last Congress, the Bureau's explosives 
program was not adequately covered as evidenced by the proportional 
number of inspections BATF was able to perform on explosives licensees 
and permittees. To BATF's credit, we are told that effort is being made 
to better balance the Bureau's responsibilities. We support resources 
necessary for this task.

                            STRATEGIC GOALS
    A key to rebalancing the Bureau's statutory responsibilities is the 
identification of performance standards that can measure BATF's 
progress or areas needing attention. In fact, such performance measures 
are demanded by the Government Results and Performance Act. Currently, 
BATF has identified six customer service standards to measure its 
delivery of services to its regulated community. None of these 
standards address the needs or concerns of the explosives industry. 
Last year, we approached BATF with suggestions of measures appropriate 
for our industry.\1\ While an interim reply acknowledged receipt of our 
suggestions, we have yet to hear from the Bureau whether our 
suggestions are appropriate, could be modified, or if other standards 
would better measure service to the explosives industry. In the 
meantime, measurable indices remain unavailable to assess Bureau's 
service to the explosives industry.
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    \1\ Letter to Wayne Miller, BATF, from Cynthia Hilton, IME, July 
19, 2000.
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                          RULEMAKING CONCERNS
    Currently, BATF regulations rules require domestic manufacturers to 
mark all explosive materials they manufacture for sale or 
distribution.\2\  These marks consist of the manufacturer identity and 
the location, date, and shift of manufacture, commonly referred to in 
the industry as the ``date-shift code.'' These marks are necessary for 
reasons of security and safety. The BATF has emphasized that the 
failure to apply these markings inhibits law enforcement from tracking 
explosives to the source, and proving criminal activity. The date-shift 
code enhances safety because some explosives deteriorate over time and 
the code allows users to keep inventory fresh. Additionally, the date-
plant-shift code is the industry's ``QA/QC'' tool, allowing the 
manufacturer the ability to trace product quality problems back to the 
point of manufacture and distribution.
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    \2\ 27 CFR 55.109(a).
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    These marking rules, however, do not apply to licensed importers or 
their foreign manufacturers. During the last two years, we became aware 
of unusually large imports of unmarked explosives being shipped to the 
United States from China.\3\ This development prompted IME to petition 
BATF for a rulemaking to close this loophole as it applies to high 
explosives and blasting agents. Our petition would make it unlawful for 
any licensee to import such explosive materials without legibly 
identifying by marking all explosives materials in the same manner 
prescribed by the BATF for domestic manufacturers.
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    \3\ Regrettably, not all countries that manufacture explosives 
maintain the same high standards for stewardship and security that 
underpin the BATF's marking requirements for domestic manufacturers. 
This disparate regulation gives rise to concerns about trade practices. 
In terms of high explosives, the United States has already lost its 
ability to domestically manufacture TNT, and only one company still 
makes dynamite. We do not think it is in the national interest to lose 
more of our high explosive domestic manufacturing capability to unfair 
trade requirements.
---------------------------------------------------------------------------
    While stating general agreement with our concern, BATF express 
doubt that they could go forward with our proposal without more 
information about the economic consequences to the explosives industry 
irrespective of whether or not the product was a ``high'' or ``low'' 
explosive. Nevertheless, to the Bureau's credit, an advanced notice of 
proposed rulemaking (ANPRM) was issued.\4\ Although all comments to the 
ANPRM supported the need to close this loophole, the Bureau remains 
reluctant to go forward with a rulemaking because it did not receive a 
greater number of comments. It is unclear to us what additional ``me 
to'' comments would substantively add to the Bureau's understanding of 
this issue as it relates to the problem at hand, namely unmarked 
imports of high explosives and blasting agents from China. We are 
concerned about the status of this rulemaking and ask that you also 
join in asking the Bureau to close this security and safety loophole.
---------------------------------------------------------------------------
    \4\ 65 FR 67669 (November 13, 2000).
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                                RESEARCH
    As manufacturers of explosive materials, we have a special interest 
in doing everything possible to prevent the misuse of our products. We 
are interested in the development of new technologies to safeguard the 
public, and support efforts to develop detection and prevention 
technologies that will enhance our national security. Nevertheless, 
from time to time efforts are made to mandate technologies that are 
unproven or unsupported by sound science and cost-benefit analyses. 
Efforts to mandate identification taggants in explosives are a case in 
point. In 1996, Congress refused to bend to such demands and enacted, 
with IME support, anti-terrorism legislation that instead directed BATF 
to study the feasibility of placing identification taggants in 
explosives. BATF has informed us that the study will be completed for 
submission to Congress by the end of fiscal year 2001. IME has worked 
with BATF to ensure that they have the industry data that they require, 
and has appreciated BATF's efforts to keep us informed of the work on 
the study and preliminary findings. While we cannot believe that BATF 
will reach conclusions different from contemporary assessments by the 
National Academy of Sciences about the inappropriateness of 
identification taggants, we believe the research capabilities the 
Bureau has developed in explosives should not be disbanded when the 
congressionally-mandated study is released. Thus, we support the fiscal 
year 2002 budget request to consolidate these research assets in BATF's 
new National Laboratory center in Maryland, and will continue to 
provide industry expertise and technical information to make the 
science of solving criminal acts with explosives even more effective.

                  NEED FOR FEDERAL AGENCY COORDINATION
    According to a recently released GAO report, several Federal 
agencies, including BATF, that oversee the production, use, storage, or 
disposal of hazardous materials should better coordinate their 
requirements for worker protection and accident investigation.\5\ While 
these agencies have distinct roles for worker safety, the roles partly 
overlap, placing duplicative burdens on the regulated community. These 
duplicative rules cover substances regulated, response plans, training, 
and accident investigations. Regulatory overlap leads to confusion and 
non-compliance. To enhance worker protection and reduce the compliance 
burden associated with the hazardous material statutes and associated 
regulations, the GAO recommended that the Occupational Safety and 
Health Administration, the Environmental Protection Agency, the 
Chemical Safety and Hazard Investigation Board, and BATF work to 
establish a general protocol that sets forth the framework under which 
multi-agency incident investigations are conducted with the goal to 
minimize regulatory overlaps. We share the GAO's concern about 
redundant regulatory schemes, especially when the result is reduced 
worker safety. When we last checked, none of the affected Federal 
agencies had responded to this GAO recommendation. We believe Congress 
should insist that these agencies show progress in addressing GAO's 
findings and recommendations.
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    \5\ Worker Protection: Better Coordination Can Improve Safety at 
Hazardous Materials Facilities, GAO-01-02, October 26, 2000.
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                               CONCLUSION
    The manufacture and distribution of explosives is accomplished with 
a remarkable degree of safety. We recognize the important role played 
by BATF in helping our industry achieve and maintain safe and secure 
workplaces. We, therefore, strongly recommend full funding for BATF.
    Thank you for your attention to these issues.
                                 ______
                                 

 Prepared Statement of the National Coalition Against Domestic Violence

    The National Coalition Against Domestic Violence (NCADV), which 
represents a network of approximately 2,000 battered women's shelters 
and community-based programs, as well as individual battered and 
formerly battered women throughout the nation, submits this testimony 
in support of full-funding for Violence Against Women Act programs.
    Domestic violence is an epidemic. The Department of Justice 
estimates that intimate partners commit, on average, 960,000 violent 
crimes against women every year,\1\ while another source puts the 
number as high as 3.9 million.\2\ Nearly one in every three adult women 
experiences at least one physical assault by a partner during 
adulthood.\3\ At least 3.3 million children are at risk of exposure to 
parental violence every year,\4\ and between 50 and 70 percent of men 
who abuse their female partners also abuse their children.\5\ Children 
of battered women are 12 to 14 times more likely to be sexually abused 
by their mother's partner.\6\ 1,218 women were killed in 1999 by their 
current or former partners.\7\
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    \1\ Lawrence A. Greenfeld, et al., Violence By Intimates: Analysis 
of Data on Crimes By Current or Former Spouses, Boyfriends and 
Girlfriends 3 (Bureau of Justice Statistics, 1998).
    \2\ The Commonwealth Fund, First Comprehensive National Health 
Survey of American Women (July, 1993).
    \3\ American Psychological Association, Violence and the Family: 
Report of the American Psychological Association Presidential Task 
Force on Violence and the Family 10 (1996).
    \4\ Jaffe, Wolfe & Wilson, Children of Battered Women, Sage 
Publications 19 (1990).
    \5\ Lee H. Bowker, Michelle Arbitell & Richard McFerron, ``On the 
Relationship Between Wife Beating and Child Abuse,'' in Kersti Yillo & 
Michele Bograd, Eds., Feminist Perspectives on Wife Abuse 158, 162 
(1988); M.A. Strauss and R.J. Gelles, Physical Violence in America 
Families (1990).
    \6\ L.A. McCloskey, A.J. Figueredo, & M.P. Koss, ``The Effects of 
Systemic Family Violence on Children's Mental Health.'' 1239-1261, 
Child Development 66 (1995).
    \7\ Bureau of Justice Statistics, Homicide Trends in the US: 
Intimate Partner Violence 1 (2001).
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    Though these numbers are profound and disturbing, NCADV recognizes 
that other issues must be weighed by Congress in prioritizing and 
determining appropriations. We are in a time of strong but uncertain 
economy, of conservative fiscal policy, of a desire to cut taxes, and 
of a need to stimulate business in order to grow economically. We seek 
to save money for companies and investors so that our country will 
bloom rather than wither with recession.
    NCADV agrees that this is important, and maintains that one of the 
best ways to save money for employers and taxpayers is to prevent 
domestic violence. Adult victims of domestic violence annually incur 
$67 billion in court, medical and other expenses.\8\ Child abuse costs 
an estimated $56 billion.\9\ It is conservatively estimated that 
employers pay between $3 and $5 billion annually to cover the cost of 
crimes against employees and their families.\10\ 94 percent of 
corporate security and safety directors and companies nationwide rank 
domestic violence as a high-risk security problem.\11\
---------------------------------------------------------------------------
    \8\ Ted R. Miller et al., Victim Costs and Consequences: A New 
Look, National Institute of Justice Research Report (January, 1996).
    \9\ Ibid.
    \10\ Bureau of National Affairs, Violence and Stress: The Work/
Family Connection 2, Special Report No. 32 (1990).
    \11\ Joseph A. Kinney, National Safe Workplace Institute, Domestic 
Violence Moves Into Workplace 2 (1994).
---------------------------------------------------------------------------
    Economic experts such as Alan Greenspan have recognized the 
importance of worker productivity in maintaining healthy economic 
growth and preventing inflation. In a recent survey, 49 percent of 
senior executives said domestic violence has a harmful effect on their 
company's productivity, 47 percent said domestic violence negatively 
affects attendance, 44 percent said domestic violence increases health 
care costs, and one-third said domestic violence has a negative impact 
on their bottom lines.\12\ Over 50 percent of abused women lost at 
least 3 days of work due to abuse, and 70 percent reported difficulty 
in performing their jobs because of abuse.\13\ National Coalition 
Against Domestic Violence of Congress made great strides in addressing 
domestic violence by passing the Violence Against Women Act (VAWA) in 
1994 and reauthorizing it in 2000. The funds appropriated to VAWA 
programs have made a difference. In fact, after holding steady for 20 
years, the number of domestic homicides decreased from 1,581 in 1993 to 
a near-record low 1,281 in 1999.\14\ This is a positive start, and we 
must continue to fund VAWA programs in order to see greater reductions 
in the scale of domestic violence. VAWA 2000, and the funding levels 
authorized within, was passed last year with overwhelming, bipartisan, 
nearly unanimous support. However, in the fiscal year 2001 budget, 
Congress appropriated only $468 million of the $677 million that had 
been authorized for VAWA programs that year. The Bush Administration's 
recently-released fiscal year 2002 Presidential Budget requests full-
funding for most VAWA programs administered by the U.S. Department of 
Justice. However, the President's fiscal year 2002 Budget leaves 
programs administered by the U.S. Department of Health and Human 
Services funded at fiscal year 2001 levels--$108 million lower than 
authorized levels. NCADV asks that Congress live up to the promise it 
made to constituents in passing VAWA 2000 by fully-funding all VAWA 
programs.
---------------------------------------------------------------------------
    \12\ Roper Starch, Liz Claiborne, Inc. Addressing Domestic 
Violence: A Corporate Response 2-3 (1994).
    \13\ Connie Stanley, Domestic Violence: An Occupational Impact 
Study 17 (Tulsa, Oklahoma, July 27, 1992); Louise Laurence & Roberta 
Spalter-Roth, Measuring the Costs of Domestic Violence Against Women 
and the Cost Effectiveness of Interventions 25 (IWPR, Victims' Services 
& the Domestic Violence Training Project, May 1996).
    \14\ See Bureau of Justice Statistics, supra note 7.
---------------------------------------------------------------------------

              FAMILY VIOLENCE PREVENTION AND SERVICES ACT
    Domestic violence shelters provide essential services to millions 
of women, men and children across the United States. Over the past 20 
years, shelters have evolved to provide a wide spectrum of services. 
When a woman enters a shelter she often receives individual and group 
counseling, parenting classes, tutoring and therapy for her children, 
help getting a protective order against her batterer, and case 
management to help her meet her goals and find safe housing. Most 
shelters also provide a hotline, crisis counseling, and help for 
victims of rape and sexual assault. Shelters cannot succeed in their 
goal of providing safety if they do not help women in a myriad of ways, 
from helping a woman start a savings account to arranging 
transportation for her to get to work, from providing food, clothing 
and toiletries to offering intervention for batterers.
    In a recent mini-survey of 32 shelters for battered women, the 
National Coalition Against Domestic Violence found that in fiscal year 
2000, more than 11,740 women and children had been housed by these 32 
shelters alone. There are more than 2000 shelters in the United States, 
serving an estimated 240,000 adults and children.
    But shelters provide so much more than just an emergency place to 
stay. By far the majority of clients served are not living in the 
shelter. These same 32 shelters provided non-residential services to an 
additional 920,551 adults and children. The non-residential services 
offered by shelters included more than 50 different programs. Some of 
the most frequently provided programs included legal advocacy, 
counseling, children's programs, rape and sexual assault crisis 
intervention, substance abuse treatment, job training, transportation, 
child care, 24-hour hotlines, training for professionals, batterers' 
intervention programs, transitional housing, and preventative outreach 
in schools and communities.
    Despite the huge numbers of women being served by shelters for 
battered women, the need for shelter still exceeds the capacity of most 
programs. At least 4,743 women and children were turned away in fiscal 
year 2000 for lack of space by the 32 shelters surveyed. Considering 
that there are about 2,000 emergency shelters for battered women in the 
country, approximately 296,440 women and children were unable to access 
essential residential services last year. Here are some startling 
details:
  --In fiscal year 2000, a Winchester, Virginia program turned away as 
        many people as it was able to house. Statewide, 25 percent of 
        women and children seeking shelter in Virginia were turned 
        away;
  --In White Plains, New York, a shelter housed 246 individuals in 
        fiscal year 2000, while turning away 763. In 1998, 23,160 women 
        and children across New York state were denied shelter due to 
        lack of space;
  --A staff person at a shelter in San Francisco stated that 80 percent 
        of women and children are turned away in that city because 
        shelters are full;
  --In suburban Clearwater, Florida, a shelter turned away \2/3\ as 
        many people as it was able to house in fiscal year 2000;
  --33 families were housed in fiscal year 2000 in a shelter in the 
        small-town of Mount Vernon, Ohio, while 35 families were turned 
        away; and
  --In a separate survey, Missouri reported that in fiscal year 2000, 
        4,907 individuals were turned away statewide.
    The need for emergency shelters for battered women has increased 
over time. Though VAWA programs have done much to reduce the impact of 
domestic violence, one of the positive effects has been the increasing 
number of victims of domestic violence who now have the courage to ask 
for help and end the cycle of violence. As the need for service 
increases, so does the need for funding. For example:
  --Calls to a New York City domestic violence hotline increased 23 
        percent from 1999 to 2000--from 95,000 to 117,000;
  --A Webster, Texas shelter also saw calls to their hotline increase 
        20 percent in the last year;
  --In the past six months, a shelter in Chattanooga, Tennessee has 
        already served as many individuals as were served in the whole 
        of the 2000 fiscal year;
  --In 1999, shelters across Arizona turned away 19,775 women and 
        children--nearly 3,000 more than in 1998;
  --The Rhode Island Coalition Against Domestic Violence found shelter 
        programs statewide serving 13 percent more non-residential and 
        12 percent more residential clients in fiscal year 2000 than in 
        fiscal year 1999;
  --Total bed nights have doubled in 2 years at a Waldorf, Maryland 
        shelter, indicating that they are both serving more people and 
        serving them for longer periods of time;
  --The Colorado Coalition Against Domestic Violence reported a 12 
        percent increase in hotline calls from fiscal year 1998 to 
        fiscal year 1999, while the New Mexico Coalition Against 
        Domestic Violence reported a 20 percent increase in such calls 
        from fiscal year 1999 to fiscal year 2000;
  --In Chicago, Illinois, at a shelter where twice as many people were 
        turned away as were housed, the number of individuals served 
        through non-residential programs increased 19 percent over the 
        past 2 years, from 1,612 to 1,912;
  --The Alabama Coalition Against Domestic Violence reported a 60.33 
        percent increase statewide in provision of non-residential 
        services from fiscal year 1999 to fiscal year 2000. Over the 
        same time period, the Maine Coalition to End Domestic Violence 
        saw a 20 percent increase in such services; and
  --562 women and children were turned away from a shelter in 
        Louisville, Kentucky in fiscal year 2000, whereas fewer than 
        100 were turned away the year before.
    Battered women's shelters overwhelming responded that they need 
more funding to be able to serve the large numbers of women, men and 
children in need of domestic violence services. In a national survey of 
221 shelters and domestic violence programs, funding was listed as the 
primary concern.\15\ Women are at the greatest risk of being injured 
shortly after separating from their abusive partners;\16\ if the local 
shelters are already full, a woman may have nowhere safe to stay.
---------------------------------------------------------------------------
    \15\ National Coalition Against Domestic Violence, Public Policy 
Poll (January 2001).
    \16\ Ronet Bachman and Linda Salzman, Bureau of Justice Statistics, 
Violence Against Women: Estimates From the Redesigned Survey 1 (1995).
---------------------------------------------------------------------------
    Increasing appropriations for shelters for battered women through 
the Family Violence Prevention and Services Act (FVPSA) portion of the 
Violence Against Women Act of 2000 (VAWA 2000) will allow these 
shelters to provide critical assistance to families in desperate need.
    FVPSA was authorized under VAWA 2000 to be funded at $175 million 
each year. Despite the broad support for shelters for battered women 
and for VAWA 2000, FVPSA was appropriated at only $117 million for 
fiscal year 2001--a loss of $58 million. The President's fiscal year 
2002 Budget also neglects FVPSA, requesting funding at last year's $117 
million level. We ask that Congress follow through on its commitment to 
battered women by funding FVPSA at the authorized level for the fiscal 
year 2002.

                   NATIONAL DOMESTIC VIOLENCE HOTLINE
    The National Domestic Violence Hotline has received more than 
500,000 calls since it began in 1994. Housed in Texas, this 24-hour, 
national toll-free hotline has received calls from increasing numbers 
of victims of domestic violence. The Hotline averages 13,000 calls each 
month, and provides services in 139 languages. A sophisticated system 
allows the Hotline operator to patch the caller in to a service 
provider located in the area nearest to the caller. The Hotline also 
provides information, referrals, and crisis counseling to its thousands 
of callers.
    The Hotline serves as a lifeline to women, children, and families 
across the country, and their goal is to ensure that when calling the 
Hotline, each of these individuals in crisis has access to an advocate 
who can effectively assist in ensuring their safety. Without crucial 
continued funding, thousands of battered women and their children will 
not receive assistance and will continue to live in fear for their 
lives.
    Between October 1, 1999, and September 30, 2000, the Hotline 
responded to 147,852 calls for help. In the last 6 months of fiscal 
year 2000, the Hotline was able to answer 64,770 calls. When its 
funding was increased from $1.2 million to $2 million in fiscal year 
2001, the number of calls answered increased to 80,620 for the first 
six months of fiscal year 2001. Unfortunately in the same six-month 
period in fiscal year 2001, 20,483 calls went unanswered for lack of 
resources. Continuing funding for the Hotline with at least $2 million 
for fiscal year 2002 will allow Hotline staff to continue to answer the 
thousands of calls for help they receive each month.
    The Hotline staff tell a story about a woman who called from a bus 
station. A small suitcase of clothing and $32 were the total sum of her 
personal resources. She had just fled for her life from her batterer, 
who was hot on her trail. She couldn't use family or friends as a 
haven, because he had repeatedly threatened their lives as well as her 
own. She had consulted with the bus station attendant to purchase a 
ticket for the location that was as far from her batterer as $32 would 
take her. She would have no money for food or phone calls during the 
trip, and her only resource was the toll free number of the National 
Domestic Violence Hotline. The bus was leaving in minutes, and she 
would arrive in a strange city later that night where she knew no one. 
The Hotline advocate handling the call calmed her fears and initiated a 
three-way call to the domestic violence shelter located near her 
destination. After some discussion and problem solving, all was well. 
She would be picked up from the bus station upon arrival and given safe 
haven and assistance as she made the first steps in her new life, free 
of violence and abuse.
    Congress recognized the valuable service provided by the Hotline 
and fully-funded it in fiscal year 2001. We ask Congress to continue 
this support and maintain full funding, $2 million, for the Hotline in 
fiscal year 2002.

                          TRANSITIONAL HOUSING
    Transitional housing is a critical need for battered women. Of all 
homeless women and children, 50 percent are fleeing domestic 
violence.\17\ 56 percent of cities identified domestic violence as a 
primary cause of homelessness.\18\ To help meet this need, emergency 
shelters for battered women provide a host of essential services. 
Unfortunately, most battered women's shelters can only accommodate 
residents for a month or two. The demand for shelter space is high, 
with thousands of women being turned away in each state.
---------------------------------------------------------------------------
    \17\ The Women and Housing Task Force, Unlocking the Door III: A 
Call to Action, Battered Women, September 1996 (citing Schneider, 
Elizabeth, Legal Reform Efforts for Battered women: Past, Present and 
Future (prepared for the Ford Foundation, July 1990)).
    \18\ U.S. Conference of Mayors, A Status Report on Hunger and 
Homelessness in America's Cities: 2000.
---------------------------------------------------------------------------
    In an ideal world, women would move directly from emergency shelter 
into stable, permanent housing. However, the housing crisis in America 
means there is little to no affordable housing, and women in most areas 
must wait for years to participate in Section 8 voucher programs. 
Moreover, victims of domestic violence frequently require supportive 
services including counseling for themselves and their children, case 
management, job and financial skills training, and legal assistance. 
Without those support services, many victims are unable to remain safe 
and independent and therefore return to their abusive partners.
    In a recent poll of 221 battered women's shelters and domestic 
violence programs, transitional housing was listed as the number one 
funding priority.\19\ In a separate mini-survey of shelter programs, 
shelter directors estimated that on average at least 50 percent of 
battered women in their shelters required, but usually could not find 
space in, transitional housing.
---------------------------------------------------------------------------
    \19\ See National Coalition Against Domestic Violence, supra note 
15.
---------------------------------------------------------------------------
    Transitional housing for battered women allows women to spend less 
time in emergency shelters, and thus allow emergency shelters to take 
in larger numbers of residents. The support services that accompany 
transitional housing provide victims with the practical assistance they 
need to rebuild their lives. Transitional housing programs help victims 
move beyond emergency shelter and work toward securing permanent 
housing. A St. Petersburg, Florida battered women's shelter that 
provides transitional housing said that the program is ``critical [in] 
enabling women to become independent'' and preventing them from 
returning to violent situations. Further south in Bradenton, Florida, a 
shelter director in an area with no transitional housing stated that 
abuse and problems with welfare have ``created a class of working poor 
who cannot afford housing and must remain with their abusers'' in order 
to have anywhere to live.
    Transitional housing programs around the country offer many success 
stories and demonstrate the multifaceted approach required to assist 
domestic violence victims. For example, a program in Louisville, 
Kentucky noted that transitional housing allows women to become self-
sufficient before finding permanent housing. Many women have fled 
violent situations and arrive at the shelter in complete poverty. The 
Louisville program offers a broad spectrum of follow-up and support 
services, including a financial skills building course and an 
Individual Development Account (IDA) 2-1 matched savings plan. Without 
these continuing services, the director stated that ``women would cycle 
in and out of homelessness.''
    In Alliance, Ohio, where there is no transitional housing for 
battered women, women in the emergency domestic violence shelter must 
wait one to two years for any housing assistance. The emergency 
battered women's shelter stated that their top priority was to build 
transitional housing. The assistant director noted that transitional 
housing ``would enable [battered women] to stabilize their families, 
have hope, and break the cycle of violence.'' A Mount Vernon, Ohio 
shelter said that if they could do anything, they would build 
transitional housing. There is none in their community, and they 
estimate that at least 50 percent of their shelter residents need 
transitional housing.
    Where transitional housing is available, it is usually in such high 
demand that only a small percentage of needy applicants can be housed. 
In San Francisco only one transitional housing program is available for 
the entire city. The program can house 15 women and 15 children and 
must turn 75 percent of applicants away. Many transitional housing 
programs are extremely small, such as one in Leesburg, Virginia that 
can house only two families. Though transitional housing is available 
in Wooster, Ohio, there is a shortage of affordable housing, and an 
estimated 50-70 percent of shelter residents require transitional 
services.
    Transitional housing programs for battered women are in desperate 
need of funding. One program from Waldorf, Maryland described the lack 
of security cameras or other safety features. Despite this, the program 
is able to assist residents across Maryland, DC and Northern Virginia, 
providing 14,434 bed nights in 2000. The transitional housing director 
described a young woman whose abuser had destroyed her credit, isolated 
her from all friends and family, and repeatedly suffocated her child 
near to the point of death. The woman and her child were so traumatized 
that they required counseling and other supportive services along with 
the longer stay of a transitional housing program. Fortunately, the 
Maryland program was able to make space for them and the family is now 
established both financially and emotionally.
    Transitional housing is an essential component of the fight to end 
domestic violence. As the McAuley Institute, a faith-based housing 
organization, stated, ``short-term housing aid and targeted supportive 
services can help survivors bridge the gap between financial and 
emotional dependency and productive, healthy and life-sustaining 
environments for themselves and their children.'' Congress responded to 
the urgent need for transitional housing by providing a modest $25 
million for temporary housing assistance in VAWA 2000. Unfortunately, 
no money was appropriated for this vital service, and the President's 
Budget continues this travesty by requesting no funding for 
transitional housing in fiscal year 2002. Though the $25 million was 
initially authorized only for fiscal year 2001, we fully anticipate it 
will be reauthorized as part of the Child Abuse Prevention and 
Treatment Act (CAPTA). We ask that Congress now appropriate the needed 
funds for fiscal year 2002.

                              STOP GRANTS
    In order to eradicate domestic violence, abusers must be held 
accountable for their actions and victims given appropriate legal 
assistance. The STOP (Services, Training, Officers and Prosecution) 
Grant program provides funding directly to states, territories and 
Indian Country to create a coordinated, community response to domestic 
violence and sexual assault. Police, district attorneys, shelters for 
battered women, rape crisis centers, and outreach organizations work 
together to combat domestic violence from an interdisciplinary 
approach. According to Nancy O'Malley, Chief Assistant District 
Attorney in Alameda County California, because of the STOP program, 
``victims and abusers are no longer falling through the cracks. We are 
everywhere.'' \20\
---------------------------------------------------------------------------
    \20\ Muskie School of Public Service, State Profiles: Communities 
Respond to Domestic Violence, U.S. Department of Justice, Office of 
Justice Programs, Violence Against Women Office (2001).
---------------------------------------------------------------------------
    Before VAWA was originally passed in 1994, most police officers 
were not well-trained about domestic violence and sexual assault, and 
often made no arrests or did not collect appropriate evidence. When 
arrests were made, many victims of domestic violence dropped the 
charges, in large part because they were not adequately protected by 
the judicial and law enforcement systems and feared reprisals by their 
abusers. Programs funded by STOP have trained police, judges, 
prosecutors and court personnel to assist battered women and children 
as well as victims of rape and sexual assault.
    According to the Muskie School for Public Service's 2001 report for 
the U.S. Department of Justice Violence Against Women Office, STOP 
grants have been extremely effective in assisting victims and 
prosecuting batterers and rapists:
  --In Largo, Florida, the rate of domestic violence arrests that 
        resulted in charges filed increased from 16 percent in 1997 to 
        55 percent in 1999;
  --23,546 victims in Ohio were served through STOP grants from 1997 to 
        1999;
  --From 1994-1999, there was a 275 percent increase in the number of 
        felony stalking cases filed by the Los Angeles, California 
        District Attorney's Office Stalking and Threat Assessment Team;
  --Counties in Iowa with established Domestic Abuse Response Teams 
        (DARTs, created with STOP grant funding) have a conviction rate 
        nearly 20 percent higher than counties without DARTs;
  --The Louisville, Kentucky Police Department saw its domestic 
        violence arrest rate increase by 42 percent from 1998 to 1999;
  --Charleston, West Virginia saw a 73 percent increase in the number 
        of arrests for violation of domestic violence protection orders 
        from 1998 to 1999. A STOP funded prosecuting attorney in Wood 
        County increased the number of domestic violence convictions 
        from fiscal year 1998 to fiscal year 1999 by 143 percent;
  --In-person contacts made with victims by the Colorado Springs 
        Domestic Violence Enhanced Response Team increased by 60 
        percent from 1998 to 1999;
  --In Gresham, Oregon, the percentage of domestic violence police 
        reports has increased 129 percent, from 383 reports in 1996 to 
        876 in 1999;
  --In South Carolina, the number of criminal court hearings that 
        domestic violence advocates have been able to attend has 
        increased from 62 in 1996 to 1,511 in 1999, an increase of 
        2,337 percent;
  --From 1996-1999, the New Day Shelter in Ashland County, Wisconsin, 
        saw a 44 percent increase in client services. They responded to 
        approximately 4,000 crisis calls in 1999, a 124 percent 
        increase from 1,787 calls in 1996. Services to Native Americans 
        increased 84 percent from 1996 to 1999.
    Though STOP-funded programs have made a significant impact, the 
need for them continually increases. In fact, the need for services in 
many areas has increased because of the efficacy of STOP programs. Many 
victims of domestic violence believed they had no choice but to stay 
with their abusers. Thanks to increased outreach, successful 
prosecution, and responsive police officers, thousands of battered 
women now have the knowledge and the courage to find safety for 
themselves and their children.
  --By 1999, The Los Angeles, California Commission on Assaults Against 
        Women had seen a 64 percent increase in the number of victims 
        served since the STOP grant funding was received in 1997. Rape 
        Prevention Education program services in LA doubled from 1996 
        to 1999;
  --Education and prevention efforts funded by STOP led to a 358 
        percent increase in calls to the Columbus, Ohio 24-hour rape 
        helpline--from 361 in 1996 to 1,654 in 1999;
  --From fiscal year 1995 to fiscal year 1999, there was a 473 percent 
        increase in law enforcement referrals to the Women's Resource 
        Center of West Virginia after STOP grants funded domestic 
        violence advocates and law enforcement in Nicholas, Raleigh, 
        Fayette and Summers Counties;
  --After receiving STOP funding for a community outreach coordinator, 
        the Wintergarden Women's Shelter served 66 percent more women 
        in crisis from 4 rural counties in Southeast Texas. Maverick 
        County alone saw an 88 percent increase, and the number of 
        women seeking services in Dimmit County tripled.
  --In the Bristol Bay region of Alaska, a rural area the size of Ohio 
        where victims of domestic violence must be flown to safety, the 
        only battered women's shelter saw its shelter nights double 
        from fiscal year 1999 to fiscal year 2000. Another critical 
        aspect of the STOP Grant program is a set-aside to combat 
        violence in Indian Country. The violent crime rate among Native 
        American females during the period of 1992-1996 was 98 per 
        1,000 females. This is more than double the rate among white 
        females (40 per 1,000) and almost twice the rate among black 
        women (56 per 1,000).\21\ Approximately 75 percent of Native 
        American female homicide victims are killed by someone they 
        knew--a rate significantly higher than the national 
        average.\22\ American Indian victims of intimate and family 
        violence are more likely than others to be injured and a 
        greater number of their injuries will require hospital 
        care.\23\
---------------------------------------------------------------------------
    \21\ Lawrence A. Greenfeld and Steven K. Smith, Bureau of Justice 
Statistics, American Indians and Crime (1999).
    \22\ National Center for Injury Prevention and Control, Homicide 
Surveillance: 1979-1988, Centers for Disease Control. Atlanta, Georgia 
(1992).
    \23\ See Lawrence A. Greenfeld and Steven K. Smith, supra note 21.
---------------------------------------------------------------------------
    In order to meet the increasing demand for services as well as to 
reach out to underserved populations, Indian country, and rural 
communities, funding for STOP grants must increase. Unfortunately, 
appropriations for STOP grants were actually reduced in the fiscal year 
2001 Congressional Budget. Authorized by VAWA 2000 at $185 million, 
STOP grants were appropriated at only $152.02 million for fiscal year 
2001 once major earmarks, including Safe Start, Campus Violence Grants, 
and Civil Legal Assistance, were deducted. This amount, slightly less 
than had been appropriated for the previous 3 years, was further 
reduced by appropriation increases for smaller earmarks, which were 
deducted from the STOP grant funding stream.
    Subtracting money earmarked or set aside for various programs, the 
money left for grants to states was only $113.118 million--the lowest 
since 1996. Due to changes in the authorizing statute, many states 
received a substantial cut in funding this year. Large states were hit 
hardest by these cuts:
  --Texas lost $1.604 million;
  --Florida lost $1.194 million;
  --California lost $2.701 million;
  --North Carolina lost $.547 million;
  --Virginia lost $.491 million;
  --Pennsylvania lost $.991 million;
  --Ohio lost $.902 million.
  --New York lost $1.538 million.
    In all, 42 states and Puerto Rico lost money, with only 8 small 
states and 5 territories gaining money, usually less than $100,000.
    The President's fiscal year 2002 Budget makes great strides in 
redressing this grievance. His budget requests $184.5 million for STOP 
grants while simultaneously removing all but one of the earmarked 
programs from the Grants to Combat Violence Against Women section of 
the budget. This gives the earmarked programs, important in their own 
right, their own line-item appropriations, and leaves $173.3 million in 
STOP grants. We urge Congress to support both full funding for STOP 
grants and the removal of all earmarked programs from the Grants to 
Combat Violence Against Women portion of the fiscal year 2002 
Congressional Budget to bring the STOP Grants amount up to the full 
$185 million authorized.

                              SAFE HAVENS
    Children are often the forgotten victims of domestic violence. 
Children who witness domestic violence are at a high risk of anxiety 
and depression, and exhibit more aggressive, antisocial, inhibited and 
fearful behaviors.\24\ It is estimated that between 3 and 10 million 
children witness acts of domestic violence, typically the father of the 
child or partner of the mother abusing the mother.\25\
---------------------------------------------------------------------------
    \24\ E. Peled, P.G. Jaffe, and J.L. Edelson, Ending the Cycle of 
Violence: Community Responses to Battered Women 4-5 (1995); M. Kenning, 
A. Merchant, and A. Thompkins, ``Research on the Effects of Witnessing 
Parental Battering: Clinical and Legal Policy Responses.'' 238-39, in 
Woman Battering: Policy Responses (37) (Michael Steinmen, ed.) (1991).
    \25\ J. Edelson, ``Mothers and Children: Understanding the Links 
Between Woman Battering and Child Abuse.'' Synergy 1(3) (1995).
---------------------------------------------------------------------------
    Safe Havens, or supervised visitation centers, play an essential 
role in breaking the cycle of domestic violence and child abuse. 
Supervised visitation centers allow non-custodial parents to meet with 
their children in a protected and neutral environment. In cases of 
domestic violence, the abusive partner is prevented from making contact 
with the custodial parent, while still having a safe and positive 
interaction with the children. Supervised visitation programs provide 
services including:
  --One-on-one supervision (one supervisor assigned to a single 
        family);
  --Monitored exchanges (supervision of a child's movement between the 
        residential and the nonresidential parent immediately before 
        and after unsupervised visitation);
  --Group supervision (supervision of several families at a time);
  --Telephone monitoring (monitoring phone calls from the 
        nonresidential parent to the child); and
  --Therapeutic supervision (mental health professionals providing 
        therapy/counseling to the family during the visit).
    The services provided by supervised visitation centers are 
essential. Maureen Sheeran of the National Council of Juvenile and 
Family Court Judges states that, ``many battered women report threats 
against their lives during visitation and exchanges, and some, in fact, 
are killed in those contexts'' \26\. Supervised visitation centers 
minimize this risk by facilitating safe contact between perpetrators of 
domestic violence and their children.
---------------------------------------------------------------------------
    \26\ M. Sheeran, and S. Hampton, ``Supervised Visitation in Cases 
of Domestic Violence.'' 13-25, Juvenile and Family Court Journal 
(Spring) (1999).
---------------------------------------------------------------------------
    Many families are benefitting from supervised visitation centers. 
One program in Brockton, Massachusetts served 102 families, 141 
children and 205 adults in the fiscal year 2001. Florida supervised 
visitation centers reported over 30,000 scheduled visits in 1999. A 
Leesburg, Virginia program reported that 100 percent of participant 
evaluations indicated that participants were glad that the supervised 
visitation center was available and that the children had been able to 
feel safe with the non-custodial parent.
    Unfortunately, supervised visitation centers are woefully 
underfunded. Lack of funding was cited as a ``major problem'' by 67 
percent of surveyed administrators \27\. The Clearinghouse on 
Supervised Visitation estimates that programs need a minimum of $90,000 
per year to operate, but notes that many programs operate on smaller 
budgets and cannot afford adequate security--often placing the women 
and children they serve at great risk. ``Visitation services are not 
available in many communities, and in communities where they are 
available, the demand for service far outstrips the capacity,'' says 
Sheeran.\28\ Though Congress authorized $15 million for supervised 
visitation centers through the Violence Against Women Act of 2000, no 
money was appropriated for them in the fiscal year 2001 Congressional 
budget. VAWA 2000, and the authorized funding levels contained within, 
was passed with overwhelming, bipartisan support. The President's 
fiscal year 2002 Budget requests $15 million for the Safe Haven 
program. We urge Congress to live up to its promise by fully funding 
supervised visitation centers in the fiscal year 2002 Congressional 
budget.
---------------------------------------------------------------------------
    \27\ J. Pearson and N. Thoennes, Supervised Visitation: A Portrait 
of Programs and Clients (1997).
    \28\ See M. Sheeran, and S. Hampton, supra note 26.
---------------------------------------------------------------------------

                         CIVIL LEGAL ASSISTANCE
    In order to provide lasting safety for themselves and their 
children, victims of domestic violence and sexual assault must seek 
help from the legal system. Tragically, many battered women are 
revictimized by the judicial process. Usually, battered women cannot 
afford the retainers or hourly fees needed to hire private legal 
representation. Without any legal representation, many victims of 
domestic violence are unable to get needed protective orders or custody 
of their children.
    The Legal Assistance Program for Victims funds grassroots efforts 
to meet the broad civil legal assistance needs of victims of domestic 
violence and sexual assault. Civil legal representation for battered 
women in family law, immigration, housing and public benefits matters; 
training to improve the delivery of civil legal services; collaboration 
between domestic violence services and legal assistance programs; and 
the improvement of pro bono civil legal assistance are funded through 
the Legal Assistance Program. This program is the only Federal funding 
designed to meet the many legal needs of victims of domestic violence. 
The Violence Against Women Office has received an overwhelming number 
of requests for funding; in the first year alone, more than 400 
applications were received, but only 57 grants could be approved.\29\
---------------------------------------------------------------------------
    \29\ Roberta Valente, Campaign for Full Funding of the Violence 
Against Women Act Fiscal Year 2002 Budget Briefing Book (2001).
---------------------------------------------------------------------------
    Bay Area Legal Services of Tampa, Florida used their civil legal 
assistance grant to meet the needs of women in urban Tampa as well as 
rural Plant City and Dade City, fund Spanish-speaking attorneys and 
staff to work with the Hispanic community, and train more than 50 
domestic violence programs in their area. Demand for services is 
continually high, and if funding does not continue, Bay Area Legal 
Services will be forced to turn away many impoverished women. Another 
legal services program in Hammond, Louisiana served 710 women between 
October 1998 and March 2000. Three-quarters of those women had children 
who had been exposed to domestic violence in the home. The Hammond 
program also uses VAWA funding to collaborate with two domestic 
violence service providers. Since receiving that VAWA funding, those 
programs have seen 26-27 percent increases in the numbers of clients 
served.
    A VAWA-funded legal services provider in Los Angeles, California 
provides legal representation and language access to hundreds of local 
battered women. One of their clients had been married for 4 years to an 
extremely abusive man, who was also molesting their children. The woman 
could not afford legal services and went to a local ``notario'' service 
which advertises the provision of legal services but in fact only 
provides poor quality paralegal work. The notario service did not 
respond to the allegations of molestation and arranged joint custody 
for the woman and her husband. The victim was left to choose between 
allowing her husband to molest the children when he had custody of them 
or keeping the children with her exclusively and thus violating the 
court order. Fortunately, the Los Angeles program was able to provide 
quality pro bono legal services to the victim, who was granted sole 
custody of her children. She and her children are now able to live 
violence-free lives.
    The Legal Assistance Program was authorized in VAWA 2000 for $40 
million per year. Last year, Congress appropriated only $31.56 million 
for legal assistance in the fiscal year 2001 Congressional Budget. The 
President's recently-released Budget requests the full $40 million for 
this critical program. It is imperative that Congress also include $40 
million for the Legal Assistance Program in the fiscal year 2002 
Congressional Budget.

  EDUCATION/TRAINING TO END VIOLENCE AGAINST AND ABUSE OF WOMEN WITH 
        DISABILITIES AND PROTECTION FOR OLDER AND DISABLED WOMEN
    Domestic violence is often portrayed as a crime which affects 
primarily younger women. However, according to the National Center on 
Elder Abuse more than two-thirds of all abusers, neglectors, and 
exploiters of older women are family members.\30\ A study on sexual 
abuse of elders found that 78 percent of suspected offenders were 
family members.\31\ Reports of domestic abuse against the elderly rose 
from 117,000 in 1986 \32\ to 293,000 total reports in 1996.\33\ After 
taking the rates of reporting into account, the National Center for 
Elder Abuse extrapolates that there were 818,000 total elderly domestic 
abuse victims in 1994.\34\
---------------------------------------------------------------------------
    \30\ Toshio Tatara, Summaries of the Statistical Data on Elder 
Abuse for Domestic Settings for Fiscal Year 1995 and Fiscal Year 1996, 
p. ix, National Center on Elder Abuse (November 1997).
    \31\ H. Ramsey-Klawsnik, Elder Sexual Abuse: Preliminary Findings, 
3(3) Journal of Elder Abuse and Neglect (1991).
    \32\ Toshio Tatara, Elder Abuse in Domestic Settings: Series#2, 
National Center on Elder Abuse (1996).
    \33\ See Toshio Tatara, supra note 30, at vii.
    \34\ See Toshio Tatara, supra note 32.
---------------------------------------------------------------------------
    Disabled women comprise another vulnerable population with unmet 
needs. Women with disabilities are more likely to be the victims of 
abuse and violence than women without disabilities because of their 
increased physical, economic, social, or psychological dependence on 
others.\35\ In cases of domestic violence, women with disabilities stay 
with their batterers almost twice as long as do women without 
disabilities.\36\ Like other victims of domestic violence, they are 
often unable to leave the abusive relationship because of the 
inaccessibility of services or the fear of abandoning dependent 
children.\37\ Many women with disabilities also fail to report the 
abuse, as they are dependent on their abusers and they fear being 
abandoned or institutionalized.\38\
---------------------------------------------------------------------------
    \35\ Nosek, Howland, and Young, Abuse of Women with Disabilities: 
Policy Implications, The Center for Research on Women with 
Disabilities, Department of Physical Medicine and Rehabilitation, 
Baylor College of Medicine (1996).
    \36\ Margaret Nosek, Principal Investigator for Findings on Abuse, 
for the Center for Research on Women with Disabilities, Department of 
Physical Medicine and Rehabilitation, Baylor College of Medicine 
(1999).
    \37\ See Nosek, Howland and Young, supra note 35.
    \38\ Ibid.
---------------------------------------------------------------------------
    These elderly and disabled victims often fall through the cracks of 
traditional services. Many emergency shelters for battered women, 
operating on shoestring budgets and often located in older buildings, 
are not handicapped accessible or not designed to meet the special 
mobility needs of elderly and disabled women. For example, until the 
city donated a new building, the emergency domestic violence shelter in 
Greensboro, North Carolina was located in a 3-story house with narrow 
stairs and no elevator. Bedrooms and bathrooms were all on the top 
floor, with food storage in the basement. When elderly and handicapped 
women fled to the shelter, they had to be relocated to the neighboring 
city of High Point--away from their support systems, their doctors, and 
their children's schools. A study in Florida, a state with a high 
percentage of elderly residents, found that fewer than 2 percent of the 
women using shelters in that state were older women.\39\ Law 
enforcement, the criminal justice system, legal services, health-care 
providers and victim services are often not equipped or trained to 
effectively identify and respond to abuse or violence against women 
with disabilities,\40\ and most crimes against the disabled go 
unreported.\41\
---------------------------------------------------------------------------
    \39\ L. Vinton, Abused Older Women: Battered Women or Abused 
Elders, 3(3) Journal of Women and Aging (1991).
    \40\ See Nosek, Howland and Young, supra note 35.
    \41\ D. Sobsey, Violence and Abuse in the Lives of People with 
Disabilities: The End of Silent Acceptance?, Baltimore, MD: Paul H. 
Brookes Publishing Co.
---------------------------------------------------------------------------
    Through VAWA 2000, Congress sought to address the needs of elderly 
and disabled women. $5 million per year was authorized for Protection 
for Older and Disabled Women (PODW), and $7.5 million per year was 
authorized for Education and Training to End Violence Against and Abuse 
of Women with Disabilities (VAAWD). The PODW program provides grants 
for training programs to assist law enforcement officers, prosecutors 
and other court officers in recognizing, addressing, investigating, and 
prosecuting instances of elder abuse, neglect and exploitation, and 
violence, including domestic violence and sexual assault, against older 
or disabled individuals. VAAWD established a new grant program to 
provide education and technical assistance to service providers to 
better meet the needs of disabled individuals who are victims of 
domestic violence, sexual assault and stalking. Regrettably, no money 
was appropriated in the fiscal year 2001 Congressional Budget for 
either program. President Bush has recognized the urgent need to fund 
this underserved population by requesting full funding for both 
programs in his fiscal year 2002 Budget. NCADV asks Congress to follow 
the President's lead and appropriate $5 million for PODW and $7.5 
million for VAAWD in its fiscal year 2002 Congressional Budget.

                            CAMPUS VIOLENCE
    While many girls endure sexual violence, battering, and harassment, 
violence against women is typically cast as a problem facing adults. 
However, sexual assault, dating and domestic violence, and stalking are 
serious and widespread problems on college and university campuses. 
More than half of all stalking victims are between 18-29 years old \42\ 
and the highest rate of intimate partner violence is among women ages 
16-24.\43\ Sexual assault is the second most common violent crime 
committed on college campuses, with most perpetrators being students 
known to the victim. Half of all these sexual assaults occur in the 
victim's residence, with an additional one-third taking place in off-
campus student housing, such as fraternities.\44\ According to the 
Bureau of Justice Statistics, 15.5 percent of college women were 
sexually victimized during the 1996-1997 academic year.\45\ Another 13 
percent were stalked during the same time period.\46\ A study in 
Jamaica Plain, Massachusetts, found that 41 percent of surveyed 
students in the Boston area during the 1998-1999 school year had 
experienced dating violence.\47\
---------------------------------------------------------------------------
    \42\  Stalking and Domestic Violence: Attorney General's Third 
Annual Report to Congress under the Violence Against Women Act, U.S. 
Department of Justice, Office of Justice Programs (1998).
    \43\ ``Violence by Intimates: Analysis of Data on Crimes by Current 
or Former Spouses, Boyfriends, and Girlfriends.'' Bureau of Justice 
Statistics Factbook. U.S. Department of Justice, Office of Justice 
Programs (1998).
    \44\ B. Fisher, J.J. Sloan, III, and F.T. Cullen, Final Report: 
Understanding Crime Victimization Among College Students: Implications 
for Crime Prevention, U.S. Department of Justice, Office of Justice 
Programs (1995).
    \45\ Bonnie S. Fisher, Francis T. Cullen, and Michael G. Turner, 
The Sexual Victimization of College Women, U.S. Department of Justice, 
National Institute of Justice, Bureau of Justice Statistics (December 
2000).
    \46\ Ibid.
    \47\ National Coalition Against Domestic Violence, Stories and 
Statistics: The Importance of Including Teen Dating Violence in the 
Current Federal Definition of Domestic Violence (May 2000).
---------------------------------------------------------------------------
    VAWA funding has enabled colleges and universities to respond to 
domestic violence and sexual assault on campus. For instance, the Oasis 
Center at the University of Arizona in Tucson has seen a 45 percent 
increase in the number of college students served since receiving VAWA 
funding. In the 1998 calendar year, 128 students were served. The 
Center received VAWA funding in fiscal year 1999, and by fiscal year 
2000, the number had increased to 186. Demand for domestic violence and 
sexual assault services on campus continues to rise. The Oasis Center 
estimates that approximately 200 students will be served in the first 
six months of 2001. The Women's Resource Center at the University of 
Alabama in Tuscaloosa has served nearly as many people in the first 
quarter of fiscal year 2001 (82) as it did in all of fiscal year 2000 
(94).
    VAWA 2000 authorized $10 million for Grants to Combat Violent 
Crimes Against Women on Campuses. In its fiscal year 2001 Congressional 
Budget, Congress appropriated nearly $11 million for this important 
program. The President's Budget requests $10 million for Campus 
Violence programs. NCADV also requests that Congress appropriate at 
least $10 million for Grants to Combat Violent Crimes Against Women on 
Campuses.
            rural domestic violence and child victimization
    Victims of domestic violence in rural and remote communities face 
unique obstacles in their efforts to escape abusive and dangerous 
relationships. Rural communities often lack the basic infrastructure 
needed to assist victims. Social and cultural pressures are strong, and 
the dynamics of small communities present challenges in the provision 
of confidential and safe services.\48\
---------------------------------------------------------------------------
    \48\ Lynn Rosenthal, Campaign for Full Funding of the Violence 
Against Women Act Fiscal Year 2002 Budget Briefing Book (2001).
---------------------------------------------------------------------------
    Women in rural areas are often forced to travel over 100 miles to 
reach safety. For example, the towns of Milford, Tunkhannock and 
Honesdale, located in rural Northeastern Pennsylvania, all lack 
emergency shelters for battered women. Resident's must travel 45 
minutes to an hour to another county in order to be safe. This 
dislocation requires that a battered woman's children must change 
schools, the battered woman must either commute or leave her job, and 
she must return for court hearings to the county she fled. As there is 
no public transportation in the area, this is very difficult for a 
woman with little or no money. Marlene Woods of the Tunkhannock Victims 
Resource Center said that many women choose to stay with their abusers 
because they know housing is extremely difficult to find in their rural 
community.
    With a VAWA Rural Domestic Violence and Child Victimization Grant, 
the New Hampshire Coalition Against Domestic and Sexual Violence 
(NHCADSV) increased contacts with the Division of Children, Youth and 
Families from 686 cases in calendar year 1998 to 906 cases in calendar 
year 1999--a 32 percent increase. They were also able to train more 
members of the community. In calendar year 1998, the NHCADSV trained 
2,458 individuals. In calendar year 1999 that number increased 55 
percent to 3,820 individuals. Prior to receiving VAWA funding, the 
Arkansas Valley Resource Center served only 12 percent of the domestic 
violence victims in Brent and Crowley counties in rural southeastern 
Colorado. With VAWA funding, they are now able to reach 50 percent of 
victims in these counties through the establishment of satellite 
offices. Victims seeking services in rural Colorado's La Plata, 
Archuleta and San Juan counties increased during the same time period; 
local domestic violence service provider Alternative Horizons received 
872 hotline calls in 1996 and 1,410 calls in 1999, a 62 percent 
increase.\49\
---------------------------------------------------------------------------
    \49\ See Muskie School of Public Service, supra note 20.
---------------------------------------------------------------------------
    According to Debbie Bresette, Executive Director of the Bastrop 
County Women's Center (BCWC) in Bastrop, Texas, the Rural Domestic 
Violence and Child Victimization funds have greatly impacted victims in 
her community. The Family Crisis Center, part of (BCWC) provides 
services for a 4,000 square mile area in Central Texas with a 
population of 100,000. During fiscal year 2000, the Center reported a 
66 percent increase in the number of people requesting services. Ms. 
Bresette stated that, ``this increase directly relates to the funding 
from the Rural Domestic Violence and Child Victimization program. With 
the wide breath of services we are able to provide through these funds 
we are able to touch the lives of a large number of people.'' The 
Center provides child abuse prevention programs to 52 rural campuses in 
a 4 county area in Texas, parent education in English and Spanish, and 
counseling for children and youth who have been victims of violence.
    In Ohio's 29 rural, Appalachian counties, a VAWA-funded program is 
working to connect law enforcement, prosecution and victim services to 
combat violence against women and children through three Crisis 
Response Teams (CRTs). In fiscal year 2000, these CRTs were able to 
serve 342 individuals. 70 percent of domestic violence providers 
working with the CRTs stated that the Teams had increased knowledge of 
domestic violence among criminal justice personal. Unfortunately, a 
Bowling Green State University review found that the CRTs still lacked 
the funds to adequately serve their rural region.\50\
---------------------------------------------------------------------------
    \50\ Ohio Office of Criminal Justice Services, Rural Domestic 
Violence and Child Victimization Evaluation Summary (2000).
---------------------------------------------------------------------------
    This lack of funding was addressed by Congress in passing VAWA 
2000. VAWA 2000 authorized $40 million annually for grants to serve 
victims of domestic violence in rural areas. Despite this clear mandate 
to increase funding for rural programs, Congress only appropriated 
$24.38 million to the Rural Domestic Violence and Child Victimization 
program in its fiscal year 2001 Congressional Budget. The President has 
recognized this problem by requesting full funding for the Rural 
program in his fiscal year 2002 Presidential Budget. NCADV urges 
Members of Congress to appropriate the promised $40 million for Rural 
Domestic Violence and Child Victimization in the fiscal year 2002 
Congressional Budget.

                               CONCLUSION
    The investment of $677.3 million, which represents an additional 
$208.87 million over the fiscal year 2001 budget (a small amount 
compared to the billions spent coping with the effects of domestic 
violence), in the Congressional Budget for VAWA programs would save 
untold dollars for businesses of all types and sizes, the government, 
and taxpayers by working to reduce, and ultimately end, domestic 
violence. Currently in the United States, there is no group, race, 
religion, class, age or ethnicity that is free of domestic violence--it 
occurs nearly equally through all strata of our society. The money 
spent reducing domestic violence is significantly less than the money 
this nation will have to spend to pick up the pieces of shattered 
lives. In appropriating these funds, you will save money overall for 
business and taxpayers, you will save lives, and you will be heroes in 
your communities. We urge you to support full funding of all VAWA 
programs for the fiscal year 2002.
    Attached you will find a copy of the Campaign for Full Funding of 
the Violence Against Women Act fiscal year 2002 Appropriations Chart. 
<GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT>

                                 ______
                                 

          Prepared Statement of Bernard H. Berne, M.D., PH.D.

    I am a resident of Arlington, Virginia. I serve the Food and Drug 
Administration (FDA) as a Medical Officer and as a reviewer medical 
device approval applications. I am testifying as a private individual.
    I ask your Subcommittee to deny the Administration's request to 
provide $9,060,000 to the General Services Administration's (GSA's) 
Federal Buildings Fund for the construction of a FDA Consolidation in 
Montgomery County, Maryland. This request appears on p. 983 of the 
President's Budget for Fiscal Year 2002.
    The General Services Administration (GSA) is now starting to design 
and construct this facility. GSA would use the additional funds to 
design the next phase of this wasteful project in suburban White Oak, 
Maryland. Please deny these funds for the following reasons:
Economic Considerations
    FDA will need to pay rent to GSA if it occupies this facility. The 
rents would likely be higher than rents that GSA and FDA pay to private 
property owners, since GSA would not need to enter into competitive 
bidding processes.
    Congressional authorizing committees need to evaluate the current 
costs of the consolidation and compare them to the costs of maintaining 
FDA's current facilities. No Congressional committee has done this 
during the past ten years.
    All or nearly all of FDA's offices that would move to White Oak are 
presently located in satisfactory leased facilities. Some, such as my 
own, are now in excellent buildings. There is no clear need or economic 
reason to relocate these offices to White Oak or to consolidate any 
part of FDA at this location.
Location
    White Oak is an unsatisfactory location for FDA's headquarters 
consolidation. The project would promote urban sprawl.
    FDA's White Oak facility would occupy 125 acres next to a golf 
course in a suburban residential neighborhood in Montgomery County, 
Maryland. The FDA site is outside of the Capital Beltway on a largely 
forested 750-acre property surrounded by heavily congested roads and 
highways. The site is three miles from the nearest Metro station, and 
has only infrequent bus service.
    An FDA consolidation at White Oak would bring 6,000 FDA employees 
to this Washington area suburb. Most would need to commute for much 
longer times and distances than they presently do. White Oak is more 
than 20 miles from most present FDA facilities.
    I and thousands of other FDA employees presently commute to work by 
Metro, as our workplaces are near Metro stations. This will be 
impossible at White Oak.
    FDA employees driving to White Oak will add traffic congestion and 
air pollution to the Washington Metropolitan Area. This is especially 
unfortunate because the Washington Metropolitan Area already has the 
second worst traffic congestion of all urban areas in the United 
States. The federal government will need to subsidize many improvements 
to roads and public transit to accommodate the many FDA employees and 
associated businesses that would relocate from better locations to this 
distant suburb.
    FDA employee surveys have revealed widespread opposition to this 
relocation. Last July, a survey of those employees who would relocate 
first to White Oak showed that 70 percent opposed the move. Many stated 
that the relocation would impair FDA's ability to regulate drugs and 
medical devices. It is clear that the location of this facility will 
have long-lasting adverse effects on FDA's ability to recruit and 
retain qualified employees.
    The Washington Metropolitan area has a number of better sites at 
which FDA can consolidate. Among these is the Southeast Federal Center 
in downtown Washington, D.C. This underutilized 50-acre federally-owned 
property is adjacent to the Navy Yard Metro Station. It is only one 
mile from the U.S. Capitol and the headquarters of the U.S. Department 
of Health and Human Services (HHS).
Legal Issues
    On February 23, 2001, I and a number of other FDA employees joined 
the Sierra Club and the Forest Conservation Council in a law suit that 
is intended to stop the White Oak project. For a number of reasons, 
FDA's occupancy of any buildings at White Oak would be illegal. The 
U.S. District Court for the District of Columbia is presently 
considering this suit.
    The White Oak facility would house the Office of the Commissioner 
of Food and Drugs, as well as most other FDA headquarters offices. This 
would violate 4 U.S.C Sec. 72, which states:
    ``All offices attached to the seat of government shall be exercised 
in the District of Columbia, and not elsewhere, except as otherwise 
expressly provided in law.''
    4 U.S.C. Sec. 72 is derived from the 1790 Act that established the 
District of Columbia as the Nation's capital. The first Congress 
enacted this law, which President George Washington signed.
    There is no law that expressly provides that FDA's headquarters 
offices shall be exercised outside of the District of Columbia.
    The FDA Revitalization Act (Public Law 101-635; 21 U.S.C. 
Sec. 369b), authorizes the Secretary of HHS to enter into contracts to 
acquire property and to construct and operate a consolidated FDA 
headquarters facility. This Act does not provide the location of the 
consolidated facility.
    I ask Congress not to appropriate funds to support an illegal 
activity. The 1790 Act had the worthy purpose of ensuring that all 
central offices of the federal government would consolidate in the 
federal capital District, and not elsewhere. The consolidated FDA 
facility would be one such office that is ``attached to the seat of 
government''.
    Article 1, Section 8, of the Constitution gives Congress exclusive 
jurisdiction over the District of Columbia. Your Committee should take 
no action to support the location of FDA's headquarters at a location 
that is outside of the District. Any such action would tend to vitiate 
this section of the Constitution, which 4 U.S.C. Sec. 72 is intended to 
support.
    Executive Order 12072, Aug. 16, 1978, (40 U.S.C. Sec. 490 note) 
states in Section 1-1, Subsection 101:
    ``Federal facilities and Federal use of space in urban areas shall 
serve to strengthen the nation's cities and to make them attractive 
places to live and work. Such Federal space shall conserve existing 
urban resources and encourage the development and redevelopment of 
cities.''
    White Oak is not in or near any city. An FDA consolidation at White 
Oak (which is in an ``urban area'', the Washington Metropolitan Area) 
would not strengthen any cities. The FDA facility would not encourage 
the development or redevelopment of any cities.
    Executive Order 12072, Section 1-1, Subsection 101, contains the 
word ``shall'' in several locations. FDA therefore can not legally 
locate its headquarters in suburban White Oak.
    Executive Order 12072 and several federal statutes require that 
heads of federal agencies consult with local city officials to obtain 
their recommendations for and objections to all proposed new federal 
facilities. Neither GSA nor FDA officials ever consulted with officials 
of the District of Columbia or of the City of Rockville in Montgomery 
County, Maryland, concerning the White Oak facility.
    This lack of consultation violated Executive Order 12072 and 
several laws. It prevented District and Rockville officials from 
recommending alternative sites for the consolidated facility within 
their own jurisdictions and from objecting to the selection of the 
White Oak site.
    The Public Buildings Act of 1959, as amended, requires that the 
Committee on Environment and Public Works of the U.S. Senate approve 
prospectuses that describe the location and maximum costs of any large 
buildings that GSA may wish to construct before Congress can 
appropriate funds to design and construct such buildings. That 
Committee has never approved a prospectus that describes FDA's White 
Oak facility.
    Paragraph 7 of Senate Rule XVI requires that Committee reports on 
general appropriations bills identify each provision ``which proposes 
an item of appropriation which is not made to carry out the provisions 
of an existing law, a treaty stipulation, or an act or resolution 
previously passed by the Senate during that session.'' If your 
Committee proposes any appropriation of funds for an FDA consolidation, 
your Committee Report needs to identify this appropriation as being one 
that is not made to carry out the provisions of any existing law, 
treaty, or act or resolution that the Senate has previously passed 
during this session.
    The Treasury and General Government Appropriations Act, 2000 
(Public Law 101-58) and the Consolidated Appropriations Act, 2001 
(Public Law 106-544), appropriated funds to GSA that could support the 
first two phases of FDA's consolidation in Montgomery County, Maryland. 
However, both Appropriations Acts contain provisions that state:
    ``Provided further, That funds available to the General Services 
Administration shall not be available for expenses in connection with 
any construction, repair, alteration, or acquisition project for which 
a prospectus, if required by the Public Buildings Act of 1959, as 
amended, has not been approved, except that necessary funds may be 
expended for each project for required expenses in connection with the 
development of a proposed prospectus.''
    The Public Buildings Act of 1959, as amended, requires a prospectus 
that describes FDA's White Oak facility because the project's cost 
exceeds $1,500,000. No prospectus that described this facility had been 
approved before Public Law 101-58 was enacted into law. Therefore, GSA 
may only legally use the funds appropriated in these Acts for 
``required expenses in connection with the development of a proposed 
prospectus''. GSA cannot legally use the funds to design and construct 
any buildings.
    Despite this prohibition, GSA is presently designing and starting 
to construct the first phase of the FDA consolidation without an 
approved prospectus. This is illegal.
    Some GSA officials claim that the FDA Revitalization Act (Public 
Law 101-635) authorizes appropriations to GSA without the need for 
prospectus approvals. This claim is incorrect. Public Law 101-635, 
which amended the Federal Food, Drug and Cosmetic Act, authorized 
appropriations that permit the Secretary of HHS to enter into contracts 
to construct and operate a consolidated FDA facility.
    Public Law 101-635 specifically limits the role of the 
Administrator of General Services in the FDA consolidation to 
consultation with the Secretary of HHS. Public Law 101-635 does not 
authorize any appropriations that can permit GSA to conduct any such 
activities, nor does it authorize any appropriations to GSA's Federal 
Buildings Fund.
    Your Subcommittee should not initiate the appropriation of any new 
funds for this facility. GSA has no intention of submitting a 
prospectus for Congressional approval. GSA will use any new funds 
illegally, just as it is using the previously appropriated funds.
    The National Environmental Policy Act (NEPA) of 1969 requires that 
federal agencies compare in an Environmental Impact Statement (EIS) 
alternative locations for any large new federal facility. However, the 
EIS for the White Oak FDA facility did not make any such comparisons.
    The EIS only compared the environmental impacts of an FDA 
consolidation at White Oak with the ``no action'' alternative. 
Following this legally inadequate comparison, GSA and FDA officials 
selected White Oak as the location for the facility.
    GSA and FDA officials therefore violated NEPA when they selected 
the White Oak site. Congress should not appropriate funds to support 
this illegal selection.
    A federal court may prevent FDA from consolidating its facilities 
at White Oak for one or more of the above reasons. Congress should not 
provide funds for FDA to occupy the White Oak facility until the 
federal courts decide whether the project can proceed.
    I therefore ask that your Subcommittee not provide the requested 
$9,060,000 to GSA in this legislation. Thank you.


       LIST OF WITNESSES, COMMUNICATIONS, AND PREPARED STATEMENTS

                              ----------                              
                                                                   Page
Baity, William F., Deputy Director, Financial Crimes Enforcement 
  Network, Department of the Treasury............................   157
    Prepared statement...........................................   158
Basham, Ralph W., Director, Federal Law Enforcement Training 
  Center, Department of the Treasury.............................   149
    Prepared statement...........................................   151
Berne, Bernard H., M.D., PhD., prepared statement................   270
Buckles, Bradley A., Director, Bureau of Alcohol, Tobacco and 
  Firearms, Department of the Treasury...........................    97
    Prepared statement...........................................    98

Campbell, Hon. Ben Nighthorse, U.S. Senator from Colorado, 
  questions submitted by.28, 64, 173, 177, 179, 187, 194, 198, 200, 232

DeWine, Hon. Mike, U.S. Senator from Ohio:
    Prepared statement...........................................    85
    Questions submitted by......................................30, 181
Dorgan, Hon. Byron L., U.S. Senator from North Dakota:
    Prepared statements..................................2, 38, 85, 205
    Questions submitted by...32, 174, 178, 182, 192, 196, 199, 201, 240
    Statement of.................................................    84

Flyzik, James J., Acting Assistant Secretary for Management and 
  Chief Information Officer, Office of the Secretary, Department 
  of the Treasury................................................     1

Institute of Makers of Explosives, prepared statement............   256

Jurith, Edward H., Acting Director, Office of National Drug 
  Control Policy, Executive Office of the President..............37, 40
    Prepared statement...........................................    45

McFarland, Patrick E., Inspector General, Office of Personnel 
  Management, prepared statement.................................   247
Mikulski, Hon. Barbara A., U.S. Senator of Maryland, prepared 
  statement......................................................   223

National Coalition Against Domestic Violence, prepared statement.   258
National Treasury Employees Union, prepared statement............   251
Newcomb, R. Richard, Director, Office of Foreign Assets Control, 
  Department of the Treasury.....................................   165
    Prepared statement...........................................   167

O'Neill, Paul H., Secretary, Office of the Secretary, Department 
  of the Treasury................................................  1, 5
    Prepared statement...........................................     7

Rossotti, Charles O., Commissioner, Internal Revenue Service, 
  Department of the Treasury..............................203, 204, 205
    Prepared statement...........................................   207

Shelby, Hon. Richard C., U.S. Senator from Alabama, question 
  submitted by...................................................   240
Slavet, Beth S., Chairman, Merit Systems Protection Board, 
  prepared statement.............................................   248
Sloan, James F., Acting Under Secretary, Law Enforcement 
  Division, Department of the Treasury...........................    83
    Prepared statement...........................................    86
Stafford, Brian L., Director, U.S. Secret Service, Department of 
  the Treas- 
  ury............................................................   123
    Prepared statement...........................................   125

Winwood, Charles W., Acting Commissioner, U.S. Customs Service, 
  Department of the Treasury.....................................   109
    Prepared statement...........................................   111


                             SUBJECT INDEX

                              ----------                              

                       DEPARTMENT OF THE TREASURY

                                                                   Page
Additional committee questions...................................   173
Counter-terrorism:
    Fund.........................................................   175
    Role of Treasury in..........................................   174
Human resources..................................................    89
Program absorptions..............................................   176
Southeast European Cooperative Initiative (SECI).................   173
Strategic goals, meeting our.....................................    91
Technology.......................................................    91
Treasury IG......................................................   176
Treasury strategic goal:
    Combat money laundering and other financial crimes...........    91
    Maintain U.S. leadership on global economic issues...........    96
    Protect our Nation's borders and illicit drugs, major 
      international transportation terminals from traffickers and 
      smugglers of...............................................    93
    Protect our Nation's leaders and visiting dignitaries........    95
    Provide high quality training for law enforcement personnel..    95
    Reduce violent crime and the terrorism, threat of............    94
    Support the achievement of business results..................    87
U.S. Customs staffing............................................   174

                Bureau of Alcohol, Tobacco and Firearms

Additional committee questions...................................   177
ATF:
    Accomplishments, fiscal year 2000............................    98
    Supervisory structure........................................   135
Budget request, fiscal year 2002................................98, 178
Firearms technological enhancements..............................   177
Gang resistance education and training program (GREAT)...........   178
G.R.E.A.T........................................................   144
Management and technological improvements, funding for...........   136
NIBIN............................................................   139
Personnel annualizations, cost of................................   179
Winter Olympics................................................178, 179

                Federal Law Enforcement Training Center

Accreditation:
    Initiative...................................................   196
    Project......................................................   155
Additional committee questions...................................   194
Area site progress, Washington, DC...............................   153
Border patrol....................................................   195
Charleston issues................................................   198
Construction:
    Request......................................................   155
    Cost delays..................................................   171
Facilities master plan/five year construction plan...............   154
Firearms ranges/environmental cleanup............................   155
Fiscal year:
    2001 achievements............................................   152
    2002 request.................................................   151
FLETC GS-1811 position reclassification..........................   197
Government Performance and Results Act (GPRA)....................   151
Growth trends....................................................   154
Law enforcement vehicle pursuit..................................   196
Operations, overview of..........................................   152
Rural law enforcement training...................................   196
U.S. border patrol training, temporary site for the..............   154
Workload.........................................................   153
    Capacity.....................................................   194

                  Financial Crimes Enforcement Network

Additional committee questions...................................   198
BSA, assessing our administration of the.........................   161
FinCEN's administrative infrastructure, strengthening............   162
Information to our customers, enhancing the quality and delivery 
  of.............................................................   159
Money services businesses (MSBs).................................   199

                        Internal Revenue Service

Additional committee questions...................................   232
Audits and collections...........................................   234
    Decrease in..................................................   225
Benchmarks, telephone service....................................   221
Budget:
    Request....................................................232, 240
    Summary......................................................   207
E-learning.......................................................   238
Earned income tax credit.........................................   230
Electronic filing..............................................237, 244
Enhancing productivity...........................................   243
Fiscal year 2002:
    Budget request, key drivers of the...........................   212
    Resource request and objectives..............................   214
Foundation and plans.............................................   208
Funds, approval process for the release of.......................   228
GAO:
    Audit........................................................   245
    Clean audit of IRS for the year 2000.........................   218
Innocent Spouse Relief Program.................................223, 225
IRS:
    E-learning method............................................   230
    Electronic tax return filing.................................   226
    Hardware replacement.........................................   242
    Laducer contract with........................................   244
    Modernization program............................218, 226, 228, 231
    Staffing.....................................................   241
Life insurance compliance verification...........................   238
Organizational modernization, strategies and program plan 
  delivery.......................................................   209
Systems modernization..........................................234, 241
Tax:
    Fraud and the Internet.......................................   229
    Rebate, cost of a............................................   245
Taxpayers advocate office........................................   224
Telephone assistance.............................................   242
Walk-in assistance...............................................   242

                    Office of Foreign Assets Control

Additional committee questions...................................   200
Cuban food and medicine regulations..............................   202
Customer service.................................................   201
Kingpin Designation Act..........................................   201
National [Foreign] Terrorist Asset Tracking Center (the 
  ``Center'')....................................................   200
Network..........................................................   198
Trade policy and sanctions.......................................   172

                        Office of the Secretary

Additional committee questions...................................    28
ATF:
    National Lab Center and Fire Research Center.................    22
    Staff hiring sustainment.....................................    35
Border ports of entry infrastructure.............................    35
Continued Dumping and Subsidy Offset Act.........................    30
Counterfeiting, new currency guards against......................    32
Customs automated commercial environment, funding for............    30
Energy problems..................................................    27
Government vehicles, use of......................................    16
Identity theft...................................................    32
International terrorism and our Nation's borders.................    24
IRS:
    Computer modernization program...............................    10
    Income tax filing simplification.............................    18
Labor infrastructure.............................................    21
National Threat Assessment Center................................    21
New buffalo nickel coins.........................................    22
Office of Foreign Assets Control (OFAC)..........................    34
Outsourcing information technology...............................    29
Program absorptions..............................................    35
Sacajawea dollar.................................................    23
Tax rebates......................................................    34
Trade:
    Deficit......................................................    25
    Policy and sanctions.........................................17, 19
Treasury:
    Incident reporting system....................................    20
    Secure data network (TSDN)...................................    29
2002 Winter Olympics.............................................    14
U.S. Customs:
    Air and marine interdiction (AMID)...........................    36
    Staffing.....................................................    35
Western Hemisphere Drug Elimination Act..........................     9
Year 2000........................................................    28

                          U.S. Customs Service

Additional committee questions...................................   179
Air and Marine:
    Interdiction.................................................   110
    Program....................................................181, 182
        Strategic plan/spending................................179, 180
Automated commercial environment.................................   137
Automation modernization--ACE..................................179, 183
Border infrastructure requirements...............................   110
Budget request, fiscal year 2002.................................   122
Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA)...   186
Continued Dumping and Subsidy Act................................   138
Counter-terrorism................................................   110
Customs:
    Automation modernization.....................................   110
    Core mission activities and accomplishments..................   115
Ecstasy..........................................................   138
Fiscal year 2000 accomplishments.................................   109
Foreign offices/attache..........................................   184
Human resources management.......................................   114
Integrity........................................................   115
Investigative efforts............................................   180
Mad cow--foot and mouth disease..................................   141
Native American trackers.........................................   185
NII technology...................................................   109
Program absorptions..............................................   185
Recruitment/retaining............................................   181
Risk management..................................................   145
    Strategies...................................................   113
San Ysidro:
    Detention cells..............................................   186
    Outbound license plate readers...............................   185
Staffing.........................................................   182
    Needs........................................................   109
Technology.......................................................   111
Trade issues.....................................................   183
Training and development.........................................   113
Western Hemisphere Drug Elimination Act..........................   140

                          U.S. Secret Service

Counterfeiting...................................................   190
Crime, globalization of..........................................   124
Electronic crimes special agent program..........................   124
Fiscal year 2002 appropriation request...........................   126
Human resources and training.....................................   133
Identity theft...................................................   193
Investigative program..........................................124, 127
National Center for Missing and Exploited Children...............   125
National Threat Assessment Center................................   125
Office of Protective Research....................................   131
Overseas offices.................................................   191
Protective program.............................................123, 126
Secret Service fiscal year 2002 budget request...................   123
Staffing and overtime concerns...................................   192
2002 Olympic Games, security for the.............................   187
Winter Olympics..................................................   192
Workforce retention and workload balancing................144, 145, 188

                   EXECUTIVE OFFICE OF THE PRESIDENT

                 Office of National Drug Control Policy

Additional committee questions...................................    64
Counterdrug Technology Assessment Center.........................    44
Drug:
    Trafficking areas, high intensity............................    44
    Use trends, current..........................................    46
Fiscal year 2002 Federal drug control budget, the consolidated...    47
ONDCP's:
    Coordinating role............................................    48
    Fiscal year 2002 budget request..............................    48
Salaries and expenses............................................    40
Special forfeiture fund..........................................    41