    [House Hearing, 115 Congress]
    [From the U.S. Government Publishing Office]

                        ILLICIT USE OF VIRTUAL CURRENCY
                        AND THE LAW ENFORCEMENT RESPONSE

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

                                    HEARING

                                   BEFORE THE

                           SUBCOMMITTEE ON TERRORISM

                              AND ILLICIT FINANCE

                                     OF THE

                        COMMITTEE ON FINANCIAL SERVICES

                         U.S. HOUSE OF REPRESENTATIVES

                         ONE HUNDRED FIFTEENTH CONGRESS

                                 SECOND SESSION

                                   __________

                                 JUNE 20, 2018

                                   __________

          Printed for the use of the Committee on Financial Services

                               Serial No. 115-102

                   [GRAPHIC(S) NOT AVAILABLE TIFF FORMAT]

                                     ________

                       U.S. GOVERNMENT PUBLISHING OFFICE

    31-491PDF                     WASHINGTON: 2019

                    HOUSE COMMITTEE ON FINANCIAL SERVICES

                        JEB HENSARLING, Texas, Chairman

    PATRICK T. McHENRY, North Carolina,  MAXINE WATERS, California, Ranking
        Vice Chairman                        Member
    PETER T. KING, New York              CAROLYN B. MALONEY, New York
    EDWARD R. ROYCE, California          NYDIA M. VELAZQUEZ, New York
    FRANK D. LUCAS, Oklahoma             BRAD SHERMAN, California
    STEVAN PEARCE, New Mexico            GREGORY W. MEEKS, New York
    BILL POSEY, Florida                  MICHAEL E. CAPUANO, Massachusetts
    BLAINE LUETKEMEYER, Missouri         WM. LACY CLAY, Missouri
    BILL HUIZENGA, Michigan              STEPHEN F. LYNCH, Massachusetts
    SEAN P. DUFFY, Wisconsin             DAVID SCOTT, Georgia
    STEVE STIVERS, Ohio                  AL GREEN, Texas
    RANDY HULTGREN, Illinois             EMANUEL CLEAVER, Missouri
    DENNIS A. ROSS, Florida              GWEN MOORE, Wisconsin
    ROBERT PITTENGER, North Carolina     KEITH ELLISON, Minnesota
    ANN WAGNER, Missouri                 ED PERLMUTTER, Colorado
    ANDY BARR, Kentucky                  JAMES A. HIMES, Connecticut
    KEITH J. ROTHFUS, Pennsylvania       BILL FOSTER, Illinois
    LUKE MESSER, Indiana                 DANIEL T. KILDEE, Michigan
    SCOTT TIPTON, Colorado               JOHN K. DELANEY, Maryland
    ROGER WILLIAMS, Texas                KYRSTEN SINEMA, Arizona
    BRUCE POLIQUIN, Maine                JOYCE BEATTY, Ohio
    MIA LOVE, Utah                       DENNY HECK, Washington
    FRENCH HILL, Arkansas                JUAN VARGAS, California
    TOM EMMER, Minnesota                 JOSH GOTTHEIMER, New Jersey
    LEE M. ZELDIN, New York              VICENTE GONZALEZ, Texas
    DAVID A. TROTT, Michigan             CHARLIE CRIST, Florida
    BARRY LOUDERMILK, Georgia            RUBEN KIHUEN, Nevada
    ALEXANDER X. MOONEY, West Virginia
    THOMAS MacARTHUR, New Jersey
    WARREN DAVIDSON, Ohio
    TED BUDD, North Carolina
    DAVID KUSTOFF, Tennessee
    CLAUDIA TENNEY, New York
    TREY HOLLINGSWORTH, Indiana

                         Shannon McGahn, Staff Director
                 Subcommittee on Terrorism and Illicit Finance

                       STEVAN PEARCE, New Mexico Chairman

    ROBERT PITTENGER, North Carolina,    ED PERLMUTTER, Colorado, Ranking
        Vice Chairman                        Member
    KEITH J. ROTHFUS, Pennsylvania       CAROLYN B. MALONEY, New York
    LUKE MESSER, Indiana                 JAMES A. HIMES, Connecticut
    SCOTT TIPTON, Colorado               BILL FOSTER, Illinois
    ROGER WILLIAMS, Texas                DANIEL T. KILDEE, Michigan
    BRUCE POLIQUIN, Maine                JOHN K. DELANEY, Maryland
    MIA LOVE, Utah                       KYRSTEN SINEMA, Arizona
    FRENCH HILL, Arkansas                JUAN VARGAS, California
    TOM EMMER, Minnesota                 JOSH GOTTHEIMER, New Jersey
    LEE M. ZELDIN, New York              RUBEN KIHUEN, Nevada
    WARREN DAVIDSON, Ohio                STEPHEN F. LYNCH, Massachusetts
    TED BUDD, North Carolina
    DAVID KUSTOFF, Tennessee

                                C O N T E N T S

                                  ----------
                                                                       Page
    Hearing held on:
        June 20, 2018................................................     1
    Appendix:
        June 20, 2018................................................    33

                                   WITNESSES
                            Wednesday, June 20, 2018

    Nevano, Gregory, Deputy Assistant Director, Illicit Trade,
      Travel, and Finance Division, Homeland Security Investigations.     5
    Novy, Robert, Deputy Assistant Director, Office of
      Investigations, United States Secret Service...................     7
    Ott, Thomas, Associate Director, Enforcement Division, Financial
      Crimes Enforcement Network.....................................     9

                                    APPENDIX

    Prepared statements:
        Nevano, Gregory..............................................    34
        Novy, Robert.................................................    41
        Ott, Thomas..................................................    48

                  Additional Material Submitted for the Record

    Pearce, Hon. Stevan:
        Written statement from Steven D'Antuono......................    55
    Ott, Thomas:
        Written responses to questions for the record from
          Representative Sinema......................................    63

                        ILLICIT USE OF VIRTUAL CURRENCY
                       AND THE LAW ENFORCEMENT RESPONSE

                                  ----------

                            Wednesday, June 20, 2018

                         U.S. House of Representatives,
                                      Subcommittee on Terrorism
                                           and Illicit Finance,
                               Committee on Financial Services,
                                                       Washington, D.C.
        The subcommittee met, pursuant to notice, at 2:04 p.m., in
    room 2128, Rayburn House Office Building, Hon. Stevan Pearce
    [chairman of the subcommittee] presiding.
        Present: Representatives Pearce, Pittenger, Tipton,
    Poliquin, Zeldin, Davidson, Budd, Maloney, Himes, Foster,
    Delaney, Sinema, Vargas, Gottheimer, and Waters.
        Also present: Representatives Scott, Velazquez, Crist,
    Heck, and Capuano.
        Chairman Pearce. The subcommittee will come to order.
    Without objection, the Chair is authorized to declare a recess
    with the subcommittee at any time. Members of the full
    committee who are not Members of the Subcommittee on Terrorism
    and Illicit Finance may participate in today's hearing. All
    Members will have 5 legislative days within which to submit
    extraneous materials to the Chair for inclusion in the record.
        This hearing is entitled, ``Illicit Use of Virtual Currency
    and the Law Enforcement Response.'' I now recognize myself for
    3 minutes to give an opening statement.
        I want to thank everyone for joining us today. Today's
    hearing is going to examine the exploitation of virtual
    currencies and how law enforcement is working to identify and
    disrupt their use to fund illicit activities through both
    mainstream and dark Web marketplaces. With today's advancements
    in the evolving world of financial technology, the ability to
    deposit, transfer, and raise money is at our fingertips. While
    this is a significant improvement for those who struggle to
    access the financial system, the ease of transacting also opens
    the doorway for abuse by bad actors.
        The appeal of virtual currencies to criminals is their
    ability to transact across the globe and the low cost of
    resolution. Virtual currencies are also well known for being
    the preferred means to purchase drugs, illicit goods, and
    criminal services from online forums on the dark Web, including
    places like the Silk Road and AlphaBay. There is also anecdotal
    evidence of terrorist groups transferring money and attempting
    to raise funds using virtual currencies.
        Moving forward, as this technology becomes cheaper and more
    prevalent globally, we must be aware of the risks, the abuse of
    the virtual currencies can pose to our financial system,
    criminal groups infect computers and networks with ransomware
    and ask for payments in virtual currency or use online
    marketplaces to buy, sell, and advertise illicit goods and
    services.
        As Members of Congress, we should work to remain as
    informed as possible about the current and emerging risks
    around us. And in fact, Members of this subcommittee have
    already been active in this arena. Last week, I was happy to
    speak in support of the FIND Trafficking Act, a bill that would
    require the Government Accountability Office to study and
    report how virtual currencies in online marketplaces can be
    used for illicit means. This bill is a first step in defining
    the issues surrounding virtual currency exploitation, as well
    as creating solutions to help law enforcement and protect our
    citizens.
        I also applaud Congressman Ted Budd for introducing the
    Financial Technology Protection Act earlier this year, which
    would bring industry insiders and Federal regulators together
    to find best practices and solutions to help our law
    enforcement solve this problem.
        Today's hearing is an opportunity to learn more about law
    enforcement's investigations and responses to the illicit use
    of virtual currencies. I hope our Members will take this chance
    to learn from our witnesses about the current issues facing law
    enforcement in the detection of criminal activity in this area
    and explore what additional tools may be necessary to combat
    threats to the U.S. financial system. We would also like to
    thank our witnesses for being here today. I look forward to
    your testimony.
        I would now recognize Mr. Foster for 5 minutes.
        Mr. Foster. Thank you, Chairman Pearce and thank you to our
    witnesses here.
        The illicit use of virtual currency is a very important
    topic. And under normal circumstances, I would say that it
    deserves our full attention. However, there are extraordinary
    circumstances today. Hundreds of children are sitting in cages
    who have been forcibly separated from their families. And so, I
    think this is really the issue that is more pressing to
    discuss.
        Mr. Nevano, as the highest ranking ICE (U.S. Immigration
    and Customs Enforcement) official who is being allowed to
    testify before Congress, we Democrats have some questions that
    we will be asking you. Just last month, ICE agents rounded up
    and incarcerated immigrants, as well as people who simply
    appeared to look like immigrants to them, in and around my
    district in Illinois and without any apparent cause or reason
    and uncertain attention paid to adequate rules and procedures.
        On our southern border, ICE agents are ripping children out
    of their parents' arms. We don't need a new law to put an end
    to this trauma and the President could very easily have put a
    stop to any of these policies with one phone call a week ago or
    simply never have put these policies in place at all. Instead,
    he chose to manufacture a humanitarian crisis that was
    unnecessary and easily preventable.
        The United States has served as a beacon of hope and
    freedom since its founding. We are watching that hope and
    freedom erode right before our eyes as thousands of these
    children spend another night in a metal cage.
        Mr. Nevano, history does not look kindly on our government
    when we do not uphold our commitment to human rights and basic
    morality. I strongly believe that the American people deserve a
    government that embodies the values on which it was founded. We
    look forward to your testimony and the answers that you will be
    providing to this committee.
        Thank you. I yield back.
        Chairman Pearce. I now recognize the gentleman from North
    Carolina, Mr. Pittenger, for 2-1/2 minutes.
        Mr. Pittenger. Thank you, Mr. Chairman and Ranking Member
    Perlmutter for your leadership and holding this hearing today.
        Additionally, I would also like to thank our distinguished
    panelists for lending their expertise to our subcommittee this
    afternoon. Of special note is Financial Services intern and UVA
    student, Hugo Bonilla, for his exceptional research on virtual
    currencies.
        One of the greatest emerging threats to U.S. national
    security is illicit use of virtual or cryptocurrencies.
    Domestic and international law enforcement agencies have begun
    taking the steps necessary to combat this new model of criminal
    transactions. It is our duty to provide the tools and the
    oversight of said tools required to maintain our edge over our
    adversaries.
        Virtual currency, due to its higher degree of anonymity, is
    seen as a very lucrative opportunity for those with nefarious
    intentions. The risk that arises from this anonymity is that
    criminals can use virtual currencies to store and transmit
    their financial gains from illegal practices such as drug
    dealing or human trafficking. Under the guidance of the
    Department of Homeland Security (DHS), the Secret Service, and
    the National Computer Forensics Institute, they provided our
    State and local law enforcement personnel with the training
    necessary to investigate and combat cyber crime, including the
    illicit use of virtual currency. And issues like these must be
    continued and expanded by Congress to combat this emerging
    threat.
        I have hosted a dozen parliamentary intelligence security
    forums over the last 5 years in which delegates from 68 nations
    have met to address issues such as this. The United States must
    continue acting as a global leader in the realm of
    cybersecurity. It is my hope that today we can thoroughly
    examine this threat to determine what additional tools and
    resources we need to combat it.
        Thank you, Mr. Chairman. I yield back the balance of my
    time.
        Chairman Pearce. The gentleman yields back.
        The Chair would now recognize the gentlelady from
    California, Ms. Waters, for 3 minutes.
        Ms. Waters. Thank you very much. Thank you for scheduling
    today's hearing to examine the illicit uses of virtual currency
    and the law enforcement response. It is alarming how virtual
    currencies, especially newer ones, are being used to finance
    terrorism, launder money, and purchase drugs and weapons on the
    dark Web.
        This is an important topic. However, it is not the only
    topic that we must discuss today. Despite the fact that the
    witness from the Department of Homeland Security works for U.S.
    Immigration and Customs Enforcement, commonly known as ICE, and
    is not the agency tasked with working on the border, it would
    be a dereliction of duty if I did not share my concerns about
    the human rights abuses occurring on our border at President
    Trump's direction and at least find out what ICE's role is in
    this issue.
        The world has watched and listened in horror and with
    overwhelming sadness as children have been ripped from their
    parents and separated from their families. They are young,
    alone, and terrified without their families and made to live in
    literal cages. It is not clear when this child abuse will end.
        The White House has made every argument it can to deflect
    the blame for their zero tolerance policy that led to the
    forcible separation of over 2,000 children from their parents
    in just 6 weeks. They have quoted the Bible, denied the policy,
    and begrudgingly acknowledged it. The President, in an attempt
    to convince the American public that up is down and down is up,
    even tried to blame Democrats for his own policy.
        This is Donald Trump's abhorrent policy. This is child
    abuse. Neither of those statements is refutable. It is time for
    the President, Department of Homeland Security Secretary
    Nielsen, and Department of Justice Attorney General Sessions to
    admit that their actions were not thought out and that the
    consequences of those actions are inhumane and completely
    inconsistent with the values of this country.
        And I am hoping that during the period where we can raise
    some questions that you will be able to help us understand what
    your role is. And with that, I yield back the balance of my
    time.
        Chairman Pearce. The gentlelady yields back.
        The Chair now welcomes the testimony of our two witnesses.
    The third is stuck in traffic reportedly somewhere on New York.
    I am assuming that is the avenue, not the city. But we will
    introduce Mr. Ott when he comes. He is representing FinCEN here
    today.
        Mr. Robert Novy is a Deputy Assistant Director of the
    United States Secret Service Office of Investigations with
    oversight of criminal investigations, operations, strategy, and
    policy related to cyber and financial crimes. Mr. Novy was
    detailed with the staff of the National Security Council at the
    White House as the Director for Cyber Security Incident
    Response, Intelligence, and Defense Policy and was the deputy
    assistant director for the Congressional Affairs and special
    agent in charge for public affairs.
        Mr. Novy has previously served as the supervisor of the
    Electronic Crimes Task Force in the New York Field Office and
    was a member of the Washington Field Office's Electronic Crimes
    Special Agent Program. In addition to his expertise on cyber
    crime, Mr. Novy served on the Presidential Protective Division
    during both the Clinton and Bush Administrations. Prior to his
    Secret Service career, Mr. Novy was an assistant branch chief
    for the U.S. Securities and Exchange Commission (SEC), also
    served in the U.S. Navy.
        Mr. Novy received his Masters of Public Administration from
    Troy State University and serves on the Board of Advisers for
    the University of Texas in Austin.
        Mr. Gregory Nevano is a Deputy Assistant Director at
    Homeland Security Investigations Illicit Trade, Travel, and
    Finance Division with oversight of all financial, narcotics,
    document and benefit fraud, criminal gang exploitation, and
    several targeting infusion centers. Previously, Mr. Nevano
    served as the chief of staff to the deputy director of the U.S.
    Immigration Customs and Enforcement, ICE, as the associate
    deputy assistant director for the Investigative Services
    Division and is the unit chief for the Asset Forfeiture Unit.
        Mr. Nevano's long career also included assignments as an
    assistant special agent in charge in the ICE Boston Field
    Office, the group supervisor of the Narcotics and Violent Gang
    Group--or group supervisor of the Operational Support Group as
    a detailee to the FBI's Joint Terrorism Task Force. Mr. Nevano
    received his Bachelors of Science in political science from
    Boston College.
        We will go ahead and introduce Mr. Ott and we will then
    just move into his testimony when he comes. But he is the
    Associate Director for the Financial Crimes Enforcement Network
    or FinCEN's Enforcement Division with oversight of the FinCEN
    Bank Secrecy Act (BSA) Compliance and Enforcement Program. Mr.
    Ott joined FinCEN in 2014 as a senior adviser to the director
    and was responsible for providing guidance on various matters
    regarding law enforcement and transnational crime.
        Prior to joining FinCEN, Mr. Ott was a prosecutor for over
    25 years with both the Tax and Criminal Divisions of the United
    States Department of Justice, most recently serving for 8 years
    as deputy chief of the Organized Crime and Racketeering
    Section. Throughout Mr. Ott's career with the DOJ, he
    prosecuted and supervised prosecutions of cases involving RICO,
    public corruption, national security, tax evasion, financial
    fraud, and money laundering. Mr. Ott received his juris
    doctorate degree from the University of Baltimore School of
    Law.
        Each of you will now be recognized for 5 minutes to give an
    oral presentation of your testimony. Without objection, each of
    your written statements will be made part of the record.
        Mr. Nevano, you are recognized for 5 minutes.

                       STATEMENT OF GREGORY NEVANO

        Mr. Nevano. Chairman Pearce, Ranking Member Perlmutter,
    distinguished Members, and my fellow law enforcement
    colleagues, thank you for the opportunity to appear before you
    today to discuss the use of virtual currency and the efforts of
    U.S. Immigration and Customs Enforcement to target and
    investigate those who exploit virtual currency to carry out
    nefarious activity.
        ICE's Homeland Security Investigations (HSI) has long stood
    at the forefront of combating transnational criminal activity
    that seeks to exploit our trade, travel, and financial systems
    for illicit purposes. HSI is the largest investigative agency
    within the U.S. Department of Homeland Security with more than
    6,000 special agents assigned to more than 200 domestic offices
    and 67 international offices in 50 countries. HSI has the
    authority to enforce more than 400 U.S. Federal statutes to
    include financial crimes and the use of virtual currency.
        Virtual currency is not a new phenomenon. Virtual currency,
    in the form of airline mileage reward programs, has been in
    existence since the early 1980's. The challenge for law
    enforcement; however, began in 2009, when Bitcoin was
    introduced as the first decentralized virtual currency. With
    its introduction, an entirely new world was created in relation
    to money laundering and financial investigations. Following its
    introduction, Bitcoin quickly became the currency of choice on
    the dark Net as buyers and sellers enjoyed the pseudo-anonymity
    it provided.
        The good news for law enforcement; however, is that despite
    the pseudo-anonymity exploited by the use of Bitcoin and other
    virtual currencies, as well as their ease to transfer at some
    point, criminals need to convert their cash into virtual
    currency or their virtual currency into cash. Whenever monetary
    exchanges are made, a choke point is created. This is the time
    when criminals are most vulnerable and can be identified by law
    enforcement means and methods.
        Utilizing the traditional investigative methods coupled
    with financial and blockchain analysis, HSI is able to disrupt
    and dismantle the criminals and the TCOs utilizing virtual
    currencies. Legitimate users of virtual currencies are more
    than willing to conduct business with a legitimate virtual
    currency exchange. Legitimate exchanges are registered with the
    U.S. Department of Treasury's Finance Crimes Enforcement
    Network also known as FinCEN.
        FinCEN issued guidance in 2013 identifying persons or
    companies involved in the exchange of virtual currency as money
    service businesses, requiring them to follow regulatory and
    reporting protocols. Those who use virtual currency for illegal
    purposes; however, more often than not stay away from
    registered exchanges in an attempt to conceal their own
    identities. Instead, these criminals look to illicit or
    unregistered peer-to-peer exchanges that don't require or ask
    for personal identifying information. They illegally generate
    revenue by charging a premium for allowing their customers to
    remain anonymous. They will sell cryptocurrencies above market
    value and buy below market value from those customers who wish
    to remain anonymous.
        As part of the commitment to combating the opioid crisis in
    the United States, HSI has engaged in a multiyear effort to
    increase its cyber-enabled workforce by training employees to
    conduct online investigations. Additionally, HSI has conducted
    virtual currency and dark Net training for Federal, State,
    local, tribal, and international partners. In Fiscal Year 2018,
    HSI has conducted more than 50 outreach and training sessions
    both nationally and internationally reaching over 4,000 law
    enforcement partners.
        HSI not only collaborates with fellow law enforcement
    agencies, we also understand the importance of partnering with
    the private industry. We expanded the focus of Operation
    Cornerstone which was created in 2003, with a primary focus and
    goal of detecting and closing vulnerabilities within the U.S.
    financial, trade, and transportation sectors. With the rapid
    growth of virtual currency and with the expansion of private
    companies involved in virtual currency, HSI has expanded
    Operation Cornerstone to include private industry involved in
    the virtual currency space.
        HSI's increased commitment to conducting virtual currency
    investigations has steadily increased as evidenced by our
    increase in training and collaboration. In Fiscal Year 2011,
    HSI initiated only one investigation of virtual currency.
    However, by 2017, we initiated 203. As of May 2018, HSI has
    already initiated 144 virtual currency investigations. With the
    increase in our investigations, HSI has also seen a large
    increase in our seizures.
        For example, in FY 2014, HSI seized 150,000 in virtual
    currency. However, by the end of Fiscal Year 2017, we seized
    nearly 7 million in virtual currency. And right now, in this
    Fiscal Year through April 2018, HSI has already seized more
    than 25 million in virtual currency. Technology will inevitably
    continue to evolve and law enforcement agencies everywhere must
    continue to adapt and evolve as well. HSI will continue to
    partner with all law enforcement agencies along with cutting-
    edge technology partners.
        In closing, I appreciate your interest in the bourgeoning
    field of virtual currency and thank you again for the
    opportunity to appear before you today. I look forward to
    answering any of your questions.
        [The prepared statement of Mr. Nevano can be found on page
    34 of the Appendix.]
        Chairman Pearce. Thank you.
        Mr. Novy, you are recognized for 5 minutes.

                        STATEMENT OF ROBERT NOVY

        Mr. Novy. Chairman Pearce, Ranking Member Perlmutter, and
    Members of the subcommittee, thank you for allowing me to
    testify today.
        The challenge of the illicit use of digital currency spans
    across sectors of industry and areas of criminal law. As such,
    the response necessarily requires a whole of government
    approach. That is why I am so pleased to be here today with two
    of our partners from FinCEN and ICE. I would like to commend
    them for their important work and for continuing their
    productive partnership with us at the United States Secret
    Service.
        At its most basic level, the challenge of digital
    currencies mirror those challenges faced by the broader
    financial system. The key to success in countering crime is to
    identify the beneficiary of the crime. So, that is why we
    follow the money. This rule has held true for thousands of
    years and continues for crimes in cyberspace and crimes
    involving digital currencies.
        As one of the Nation's original investigative agencies, the
    United States Secret Service has, for over 150 years, conducted
    criminal investigations to protect the American public,
    financial institutions, and critical infrastructure from
    criminal exploitation. In 1982, the Secretary of Treasury
    directed us to investigate crimes related to electronic funds
    transfer. Two years later in 1984, Congress passed legislation
    to expand the Secret Service's responsibilities to include
    investigating a range of computer hacking and access device
    violations. And today, we have extensive authorities to
    safeguard financial and payment systems from criminal
    exploitation, especially from those enabled by the Internet.
        To perform our mission, the United States Secret Service
    has long kept pace with new technologies used by the financial
    sector. Accordingly, over the past 30 years, we have
    successfully investigated and arrested some of the world's most
    significant and most sophisticated cyber criminals. Today, with
    respect to digital currencies, our primary focus is around
    three core areas: No. 1, criminal schemes that undermine the
    integrity of the financial systems; No. 2, money laundering;
    and, No. 3, fraud schemes that include computer access device,
    identity theft, and other forms of fraud.
        Over the past decade, working with our law enforcement
    partners here and around the world, we have investigated and
    shut down two major centralized digital currencies, both of
    which supported extensive criminal activity: eGold in 2007 and
    Liberty Reserve in 2013. The Secret Service continues to work
    on a range of investigations involving digital currencies. A
    few of these cases are referenced in my written testimony.
        Let me stress, there are real and legitimate commercial
    applications for digital currencies. That said, in recent
    years, some digital currencies have been widely adopted for
    illicit purposes. For example, eGold and Liberty Reserve, two
    centralized digital currencies, were used: a) to purchase
    illicit goods and services such as drugs, credit card
    information, personally identifiable information, child
    pornography, and a range of criminal services; and, b) to
    launder illicit proceeds particularly as a means of
    facilitating overseas money transfers.
        More recently, the growing use of decentralized digital
    currencies such as Bitcoin has enabled additional criminal
    activities. These include: Cryptojacking, which is the use of
    malware or compromised websites to hijack the computing power
    of others to obtain cryptocurrencies through mining; the theft
    of crypto assets directly, generally by targeting the private
    encryption keys of users; ransomware in which digital
    currencies are demanded as part of an extortion scheme; and
    attacks on the blockchain networks themselves.
        As these decentralized currencies proliferate and evolve,
    new risks are emerging. Criminals are increasingly leveraging
    anonymity-enhanced currencies and services such as
    cryptocurrency tumblers and mixers to obscure transactions on
    the blockchain. In order to counter all these diverse illicit
    activities, effective law enforcement requires robust
    cooperation, both domestically and internationally, between law
    enforcement and regulatory agencies as well as thoughtful
    partnerships with industry.
        Consequently, the Secret Service remains squarely focused
    on hiring, developing, and retaining a skilled and experienced
    investigative workforce. We are committed to working with
    partners across the law enforcement community to jointly train
    and develop shared technical solutions. The constant
    development of investigative capabilities is how we maintain
    our ability to effectively respond to innovations of technology
    now and into the future. Lastly, continued attention is needed
    to ensure that law enforcement agencies maintain lawful access
    to critical sources of evidence regardless of where or in what
    form that information is stored.
        In closing, let me speak directly to those who seek to
    further the illicit activities through the use of digital
    currencies. As the investigative work of the United States
    Secret Service and our law enforcement partners continues to
    demonstrate, we are relentless in enforcing the law, and we
    will not be stopped by the perceived anonymity of digital
    currencies or the broader Internet.
        Thank you again for your opportunity to testify and I look
    forward to your questions.
        [The prepared statement of Mr. Novy can be found on page 41
    of the Appendix.]
        Chairman Pearce. Thank you.
        Mr. Ott, we have introduced you previously and I recognize
    that your just in time manufacturing has walked in just in
    time. If you are settled, we will recognize you for 5 minutes.

                         STATEMENT OF THOMAS OTT

        Mr. Ott. Chairman Pearce, Ranking Member Perlmutter, and
    Members of the subcommittee, thank you for inviting me to speak
    today on behalf of the Financial Crimes Enforcement Network
    commonly known as FinCEN.
        FinCEN has a leading role in the regulation of virtual
    currency activity and supports law enforcement investigations
    involving virtual currency and related financial crimes. So, I
    appreciate the opportunity to discuss our work in this space
    and the national security implications and illicit finance
    risks presented by virtual currency. FinCEN also works to
    combat the threats presented by both traditional and emerging
    payment systems while promoting responsible technological
    innovation throughout the financial sector.
        In 2011, FinCEN issued a regulation that defined money
    transmissions services as the acceptance and transmission of
    currency, funds, and other value that substitutes for currency
    by any means. The 2011 rule serves as the foundation of our
    regulation of certain virtual currency activity. In March 2013,
    FinCEN issued guidance to clarify that virtual currency
    exchangers and administrators generally qualify as money
    transmitters under the Bank Secrecy Act.
        Virtual currency payments pose illicit financing risk and
    necessitate careful assessment and mitigation. In particular,
    we are concerned about the growing use of decentralized
    convertible virtual currency to facilitate cybercrime, fraud,
    extortion, drug trafficking, money laundering, and other
    transnational crimes. FinCEN estimates that at least 4 billion
    in virtual currency has moved through the dark Net marketplaces
    since 2011. While traditional financial methods remain the
    primary vehicle for illicit activity, FinCEN believes virtual
    currency presents specific illicit finance risks and that
    without vigilance and targeted action, the scale of this
    activity could grow.
        FinCEN has increasingly prioritized identifying, tracing,
    and disrupting the flow of illicit virtual currency activity.
    To that end, FinCEN examines financial institutions for
    compliance with their regulatory obligations to prevent money
    laundering and terrorist financing. In 2014, FinCEN together
    with its delegated examiners at the IRS have conducted
    examinations at more than one-third of all registered virtual
    currency money transmitters in the United States.
        FinCEN has also taken significant enforcement actions. In
    July 2017, acting in coordination with our law enforcement
    partners, FinCEN assessed a penalty of over $110 million
    against BTC-e, an Internet-based foreign located money
    transmitter for various BSA violations. As part of this action,
    FinCEN also assessed a $12 million penalty against one of BTC-
    e's operators, the highest penalty we have ever assessed
    against an individual.
        Collaboration is critical to combat the growing threats
    presented by virtual currency. Just last month, I met with my
    enforcement counterparts at the CFTC (Commodity Futures Trading
    Commission) and the SEC. My staff and others at FinCEN
    carefully and closely coordinate with these agencies on an
    ongoing basis.
        One area where we continue to work together is on the
    illicit finance risk surrounding the recent growth of the
    initial coin offerings or ICOs. While ICO arrangements vary
    and, depending on their structure, may be subject to different
    authorities, one fact remains clear: FinCEN along with our
    partners at the SEC and CFTC expect businesses involved in ICOs
    to meet all of their AML (anti-money laundering) CFT (combating
    the financing of terrorism) obligations.
        As both a former police officer and a former Federal
    prosecutor, I also want to highlight the important
    collaborations FinCEN has with our partners in law enforcement.
    FinCEN has provided support in over 100 cases since 2016.
    FinCEN's experts trace different types of virtual currency
    activities, identify suspicious sources of funds, target
    unregistered MSBs that do business in whole or in substantial
    part within the United States, and help disrupt transnational
    criminal networks operating in virtual currency.
        Foremost, among our challenges in combating this activity,
    is the lack of consistent AML CFT regulations and supervision
    of virtual currency activity in most jurisdictions around the
    world. FinCEN and other Treasury components are working with
    the Financial Action Task Force or FATF and the Egmont Group to
    engage key jurisdictions directly to address these
    vulnerabilities. FinCEN looks forward to working with the
    committee, the law enforcement partners, the public sector, and
    our regulatory partners to identify strategies to help the
    United States remain both a global hub for innovation and a
    safe and secure financial system.
        Thank you again for having me here today. I am happy to
    answer any of the questions you may have.
        [The prepared statement of Mr. Ott can be found on page 48
    of the Appendix.]
        Chairman Pearce. Thank you, Mr. Ott.
        I now recognize myself for 5 minutes for questions. Mr.
    Novy, you quote on page four of your document about the
    different cryptocurrencies, the different exchanges that exist,
    how do you--many times these are very dark--how do you go about
    establishing those? How easy is it to find out about them?
        Mr. Novy. Thank you, Mr. Chairman. So, in the Secret
    Service when we conduct our investigations, we target any and
    all technologies or currencies that can be used for illicit
    activity. And so, therefore, digital currencies or virtual
    currencies are one of those types of technologies or means of
    transacting. So, what we do is in our undercover operations or
    through our operations in our criminal investigations, we
    investigate and look for different currencies, different
    transactions, different ways that crimes are committed and then
    we look to see how they are doing it.
        We also do that through criminal informants. Criminal
    informants introduce us to those different areas as well. And
    so, that is how we learn these things.
        Chairman Pearce. I guess my question is, do you know what
    you don't know? Do you know how many currencies are out there
    that have not yet surfaced? Do you have a good feeling for that
    and how do you go about identifying them?
        Mr. Novy. That is a very good question, Mr. Chairman. The
    answer is we have an understanding that there are a lot of
    digital currencies out there. We don't know every single one of
    them. We understand a majority of the major ones, but
    currencies and coins can be created through technology. So, we
    don't know every single one of them. But through our partners
    of our Electronic Crimes Task Forces, which are both members of
    academia, of the private sector as well as other law
    enforcement, we collaborate together to learn and teach each
    other what each of us learns and that is how we keep up with
    it.
        But the answer is I couldn't tell you how many digital
    currencies or virtual currencies are out there, but as they
    come up and they are used by--
        Chairman Pearce. Yes, sure. You also quote fairly
    significant numbers of transactions and are you pretty
    comfortable that those are accurate?
        Mr. Ott, let me ask you that because I think, don't you
    have an intersection of responsibility right here at this
    point, aren't you both looking at the same issues?
        Mr. Ott. Yes, Chairman. We have, through our intelligence
    division, we regularly track the incoming BSA filings, analyze
    those based on our business rules and be able to analyze that,
    put together a piece that would disseminate that to--
        Chairman Pearce. Are you pretty comfortable that you know
    what is going on?
        Mr. Ott. The financial institutions are a very great
    partner and the best resource for that type of information.
    Yes, sir.
        Chairman Pearce. I guess one of my deeper concerns is--
    well, let me switch over to a different question. Not all the
    transactions are illicit with the digital currency. Is that
    correct?
        Mr. Ott. That is correct.
        Chairman Pearce. And so, if digital currencies are used for
    legitimate transactions, how does say the IRS identify tax
    liabilities for legitimate operations if you have a digital
    currency?
        Mr. Ott. Well, again, that would be--I am not familiar with
    the IRS procedures as it responds to virtual currency. FinCEN
    focuses on money transmissions. I know that we certainly work
    very closely with all law enforcement agencies as well as--
        Chairman Pearce. OK. If I could interrupt, I am running out
    of time here. I want to drill down on this a bit. If any of you
    have an idea because this to me is one of the biggest exposures
    that we have is legitimate goods and services being bought by
    very difficult-to-track transaction methods, and, at some
    point, you undermine the entire stability of society because
    society does work with its safety nets, with government
    spending off of taxation.
        And if that becomes more difficult to pursue, if it is more
    difficult to identify what those transactions are, then, I am
    just wondering is anybody thinking about this aspect, maybe
    right now the digital currencies are not that prevalent, but in
    a matter of time, they will be unless we understand what we are
    dealing with. So, if somebody wants to wrap up in a 30-second
    answer here.
        Mr. Nevano. Chairman, I will take that question. It is my
    understanding that the IRS treats virtual currency as property
    and therefore, the sale of virtual currency actually is subject
    to capital gains tax.
        Chairman Pearce. OK. But that is assuming they can see it.
    And all of you are talking in your testimony about many of them
    are invisible. And so, how are they going to identify it as a
    property if it is not too visible. That is my question and I
    will leave it dangling in the air here.
        We go to Mr. Foster now for 5 minutes.
        Mr. Foster. Thank you, Mr. Chairman.
        Deputy Assistant Director Nevano, are you aware of any
    higher-ranking ICE officials who will be testifying before
    Congress who might address the crisis being caused by this
    Administration's polices of children being deliberately
    separated from their parents?
        Mr. Nevano. Congressman, at this time, I am not aware of
    any--
        Mr. Foster. So, you are all we have. OK.
        Now, first on the issue of family separation, I understand
    the Administration has announced plans to expand its capacity
    for holding children who have been separated from their parents
    in facilities sometimes known as ``baby jails''. And I was
    wondering if you can give this committee any further
    information about what this expanded capacity will look like.
    Specifically, will ICE be constructing more cages to separate
    children from their parents? Will this expanded capacity be in
    the same location as the children's parents where they are
    being held or elsewhere?
        And what sort of childcare training are the personnel
    running these facilities being given? And are the background
    checks for these personnel up to the standards that we expect
    for childcare in the United States?
        Mr. Nevano. Chairman, thank you for your--Congressman,
    thank you for your question. I am here to testify today
    regarding virtual currency. I work for the director within the
    Department of Homeland Security. That is Homeland Security
    Investigations and our mission is basically to combat
    transnational criminal organizations that seek to basically
    exploit our immigration customs laws.
        I do not work for the director within the Department of
    Homeland Security that handles the matters that you have
    addressed. I would be happy to take your questions back and
    have someone appropriately answer those questions, but that
    would not be me sitting in my position with Homeland Security
    Investigations.
        Mr. Foster. Yes. So, I will be submitting those for the
    record and look forward to your responses on them because this
    is just a crucial issue.
        Now, more locally in my district, ICE in the last month or
    so has executed a number of raids. ICE conducted a 6-day
    enforcement action in and around my district. I was told from
    advocates on the ground, which were later confirmed by the
    Chicago Tribune and others, that ICE agents pulled over and
    detained one Victor Cortez, a Mexican national who is here
    legally, visiting a friend in Joliet, Illinois in my district.
    Mr. Cortez was in the country legally with a valid visa and Mr.
    Cortez produced this visa for ICE agents and yet despite this,
    he was still detained for several hours.
        And so, my first question is, is it a common practice for
    ICE to pull over and detain anyone simply because they look
    Hispanic or speak with an accent?
        Mr. Nevano. Again, Congressman, I appreciate your concerns
    and your questions. I am not familiar with the situation that
    you are describing. Again, I work for the Homeland Security
    Investigations Directorate and that does not sound like
    something that HSI would have been involved in. I am happy to
    take the questions back for the record and provide you the
    answers that you require, sir.
        Mr. Foster. OK. So, this issue of pulling people over where
    they actually--there is an illegal--they are here legally and
    are being pulled over, it is a little bit personal to me. My
    wife is an immigrant from Korea, but here obviously legally.
    Can she expect also to be pulled over because someone thinks
    that she doesn't look like an American?
        Mr. Nevano. Again, Congressman, I am not familiar with the
    situation. I will tell you that all HSI agents go through
    specific training, are trained not to profile and to conduct
    targeted law enforcement investigations. Again, specific
    circumstances you are talking about, I am not prepared to
    testify here today with those circumstances, but I would be
    happy to take those questions back and provide you a response.
        Mr. Foster. Yes. I would be interested specifically on the
    profiling of Mr. Cortez. Is it a common practice for ICE to
    impersonate police officers and conduct traffic stops or is
    that part of your training as standard operating procedure?
        Mr. Nevano. Well, ICE deportation officers as well as
    special agents are considered, in our view, police officers. We
    are law enforcement officers, but to deal with the specific
    questions that you are talking about, I don't know the
    specifics. So, it is hard for me to provide you an answer
    without knowing those specifics. Again, I am happy to take
    those questions back and respond appropriately once those
    questions are submitted for the record.
        Mr. Foster. Thank you. And I also think all of Congress
    looks forward to your superiors having the courage to appear
    before Congress to answer for the outrage that is happening in
    our southern border. Thank you.
        Chairman Pearce. The gentleman yields back.
        And the Chair would now recognize the gentleman from North
    Carolina, Mr. Pittenger, for 5 minutes.
        Mr. Pittenger. Thank you, Mr. Chairman.
        Again, thank each of you for your statements today and your
    insights on these critical issues. I would ask you in these
    illicit cases that you have identified, are the perpetrators
    that you have previously flagged, are they suspicious? Are they
    regarded as being engaged in other activities outside of
    cryptocurrency, or is this a traditional group of people, the
    same plot of actors or is this a new breed?
        Mr. Novy. Congressman, I could take that. So, a majority of
    the cyber criminals that we go after, a majority of them are
    using some type of virtual currency to move their money, to
    launder their money, to either make sales or purchases of
    illicit items or to further their crimes. We are actually going
    after the criminals. And then, as we are going after the
    criminals, we come across the ways that they are moving money
    and the ways that they are laundering money.
        And so, as Secret Service agents, we are financial crimes
    investigators as we have been since 1865, and so, like I said
    in my testimony, we follow the money.
        Mr. Pittenger. So, these are traditional criminals that
    have been involved in previous criminality.
        Mr. Novy. They could be. They could be. But the thing is,
    sir, they are pretty sophisticated these days. These days, the
    cyber criminals of today are a little bit different than the
    bank robbers of yesterday, but they are still doing the same
    thing, trying to steal the money.
        Mr. Pittenger. Yes, sir. There is also evidence suggesting
    that cryptocurrencies are increasingly used in money laundering
    schemes by organized criminal groups. But does U.S. law
    enforcement see any trends in the use of cryptocurrencies for
    money laundering related to drug traffickers, human
    traffickers, or the trade-based money laundering?
        Mr. Nevano. As my colleague from the Secret Service stated,
    we investigate all crimes, all crimes in the dark Net. So, yes,
    we would be concerned with drug traffickers, human traffickers,
    all individuals who are involved in nefarious activity. I think
    the goal of using these cryptocurrencies is the anonymity that
    they believe it provides.
        So, we in law enforcement obviously face challenges at
    times to determine who they are. Some of these individuals
    still use traditional means such as third-party money
    laundering, trade-based money laundering. But those who want to
    be pseudo-anonymous actually use these decentralized
    cryptocurrencies to conduct their businesses on the dark Net.
        Mr. Pittenger. Do we have any estimates in terms of
    percentage, the amount of these crimes that are conducted cyber
    or otherwise with just the illicit use of cryptocurrencies? How
    much of a factor is it?
        Mr. Novy. Congressman, I can't come up with an exact
    percentage right now, but I can tell you that a good majority
    of the crimes that the Secret Service investigates, virtual
    currencies are used in those transactions, primarily because
    when they are transacting online in the dark Web or using
    criminal forums, that is how they can easily move money without
    having to talk to each other or communicate but also use
    anonymity.
        Mr. Pittenger. Do you have the legal latitude to perform
    your duties? Are there any legislative interests that you have
    that will give you greater capability to be successful in your
    duties in stopping illicit finance?
        Mr. Novy. For the Secret Service, I think I am not
    comfortable with the Secret Service suggesting that, but I will
    tell you that as technology increases, we use the laws and
    authorities that we have today. But, with that being said, we
    always have to look to see what is going to be the next crime,
    what is going to be the next step.
        And so, we would say that we are always looking to make
    sure that laws and statutes are always kept up-to-date so that
    we can maintain and keep active what we can get.
        Mr. Pittenger. Is there anything that you see now, are
    there any impediments now legally that impede your ability to
    perform?
        Mr. Novy. I would say currently--currently, I would say the
    CLOUD Act was a very good step in moving forward for us to be
    able to get access to evidence, digital evidence in such an
    area. I would say as we use that and as we move forward, I
    would look to make sure that we still maintain access to lawful
    access to digital evidence that we can get from--when we serve
    subpoenas and court orders.
        Mr. Pittenger. Yes, sir. Anybody else want to comment on
    that point?
        Well, my last question would be related to just--do you
    believe that there are additional factors that would limit
    terrorist exploitation of virtual currencies and how could they
    impact the domestic or international counterterrorism community
    focus on this front?
        Mr. Nevano. I think as we stated, all transnational
    criminal organizations, people involved in nefarious
    activities, there is obviously a desire to be anonymous and the
    use of cryptocurrencies would be one. So, I think it is
    definitely a possibility that we all need to be concerned
    about.
        Mr. Pittenger. Yes, sir. Thank you. My time is expired.
        Chairman Pearce. The gentleman's time is expired.
        The Chair would now recognize the Ranking Member of the
    full committee, Ms. Waters, for 5 minutes.
        Ms. Waters. Thank you very much.
        Mr. Nevano, I know that you are here to testify about the
    illicit use of virtual currency, but that is only one aspect of
    your job. As I see it, you are responsible--you are the Deputy
    Assistant Director responsible for the Illicit Trade, Travel,
    and Finance Division of Homeland Security Investigations and
    U.S. Immigration and Customs Enforcement. Is that right?
        Mr. Nevano. That is correct.
        Ms. Waters. OK. Can you tell me what you do with that
    aspect of your job that is described as U.S. Immigration and
    Customs Enforcement?
        Mr. Nevano. So, I work for the Department of Homeland
    Security which Immigration and Customs Enforcement is a
    directorate under the Department of Homeland Security. Within
    Immigration and Customs Enforcement, there are several
    components: Homeland Security Investigations being one,
    Enforcement Removal Operations being another. I do not work for
    Enforcement Removal Operations. I work for the criminal
    investigations side, which is Homeland Security Investigations.
        Ms. Waters. Are you familiar with the zero tolerance policy
    of the agency?
        Mr. Nevano. Yes. I have heard of it. I know it is all over
    the news.
        Ms. Waters. Well, I need you to help me understand a few
    things. If a mother and child or children go to what is known
    as a port of entry to claim amnesty, do you have anything to do
    with that at all or your department, under Immigration and
    Customs Enforcement, have anything to do with that aspect of
    the agency?
        Mr. Nevano. So, if an individual shows up at a port of
    entry and claims asylum, they would be dealt with by our
    Customs and Border Patrol, which is basically under the
    Department of Homeland Security. How my directorate would be
    involved in individuals who are claiming asylum is more from
    the fraud standpoint. If there were facilitators who are
    actually organizing frivolous claims of asylum here in the
    United States, it would be my directorate that would actually
    look into those frivolous claims, but we are not the frontline
    who are dealing with these individuals when they come--
        Ms. Waters. So, explain to me how it works. So, a mother
    and children show up at the port of entry claiming amnesty and
    as I understand zero tolerance policy, they are not facilitated
    in the way that we thought the law works. They could be subject
    to detention at that point. What happens to the child at that
    point?
        Mr. Nevano. Again, Congressman, I am not familiar with the
    current practices along the border because I do not work for
    that directorate. So, I cannot comment, but I would be happy to
    take those questions back for the record.
        Ms. Waters. You are the Deputy Assistant Director and U.S.
    Immigration and Customs Enforcement is part of your
    responsibility or oversight. Do you supervise anybody in that
    division?
        Mr. Nevano. So, again, I do work for Immigration and
    Customs Enforcement, but specifically for Homeland Security
    Investigations and we do not have people on the frontline who
    are making those determinations of admissibility when an
    individual enters the United States.
        Ms. Waters. What and how do you investigate someone who is
    claiming amnesty who is thought not to be eligible for amnesty?
    What happens to them at that point?
        Mr. Nevano. We don't investigate every single person who
    claims--
        Ms. Waters. But the ones that you do investigate, what
    happens? How do you do that?
        Mr. Nevano. We are looking more to the facilitators, the
    organizations who are exploiting these individuals who are
    claiming asylum, taking their money, filing frivolous claims.
    That is more what Homeland Security Investigations does. We are
    not looking at every single person who files an application.
        Ms. Waters. I know that you may not be looking at every
    single individual, but those that you do look at, maybe it is a
    mother with children who you think may be part of a ring where
    they are trying to get folks into the United States at the port
    of entry, you have to investigate them. You don't investigate
    all of them, but when you do, how does it work?
        What do you do from that point? And if you want to continue
    the investigation because you are suspicious, you have enough
    information that would lead you to believe that something is
    going on, what happens to the child? Who has the responsibility
    for taking the child if you are going to retain the woman or
    the family? What happens at that point?
        Mr. Nevano. Again, Congressman, I do not deal with the
    detention of individuals. Those decisions are made by another
    directorate. We are on the backend. We are investigating when
    people have already made an entry into the United States. They
    may have a hearing before an immigration judge here in the
    United States. We are not involved in that.
        Ms. Waters. So, you are not involved in the supervision of
    that aspect of your job at all. Is that right?
        Mr. Nevano. That is correct.
        Ms. Waters. Thank you very much. I yield back the balance
    of my time.
        Chairman Pearce. The gentlelady yields back.
        The Chair now recognizes the main man from Maine, Mr.
    Poliquin, for 5 minutes.
        Mr. Poliquin. Thank you very much, Mr. Chairman. Thank you,
    gentlemen, for being here very much. I appreciate it.
        You folks deal with criminal activity at the Federal level
    or from a Federal standpoint and you have a lot of tools
    available to you that we don't have up in Bangor, Maine or
    Lewiston, Maine, both of which I represent. I represent the
    rural part of Maine and Bangor and Lewiston are part of my
    district.
        Tell me a little bit about the type of training that you
    folks might extend to law enforcement officials on the ground
    at the local level in our great State and other parts of our
    country. Mr. Nevano, who wants to take a shot at that?
        Mr. Novy. I will take that one.
        Mr. Poliquin. Yes.
        Mr. Novy. So, the Secret Service, we actually have
    partnered with the State of Alabama and we have the National
    Computer Forensics Institute in Alabama.
        Mr. Poliquin. Right.
        Mr. Novy. Fantastic operation, fantastic organization and
    what we do there is we train solely State and local law
    enforcement, prosecutors, and judges. The Secret Service, we
    focus on the law enforcement portion of it while the State of
    Alabama District Attorney Association focuses on the
    prosecutors and judges.
        And what we do is we take the same level of training that
    we give our Secret Service agents and we provide that to State
    and locals especially for someone like your folks in Maine,
    upstate, downstate, wherever you are going to go. The idea is
    we are looking to train the cyber supply chain if you want to
    call it, all the way from law enforcement all the way up to
    judges so that they completely understand and we don't leave
    them alone.
        The main thing is after they get their training, they
    actually leave with the equipment that they are trained on
    because many times, they can't afford a digital forensic lab of
    their own. So, when they leave there, whatever equipment they
    are trained on, they actually get that equipment. They take it
    back to their police department and use that at their police
    department to work on any investigation. It doesn't have to be
    a cyber crime. It could be a rape. It could be a murder. It
    could be a bank robbery. It could be any type of crime.
        The main thing, though, is when it deals with cyber, cyber
    is really difficult technology and sometimes it takes a little
    bit more. And so, we don't leave people hanging out there as
    well. What we do is we connect them to our electronic crimes
    task forces. By doing that, let us say an officer in Maine has
    a hard time trying to figure out a forensic tool or something
    along those lines, we will work with them through our
    Electronic Crimes Task Force primarily in Boston, but we will
    actually send agents up to Maine if we need to, to help them
    understand. We will work whatever they need to work on.
        Mr. Poliquin. My primary constitutional responsibility, Mr.
    Novy, is to protect our families and there is no one who is
    more pro jobs, pro business, pro national security, pro
    protecting our families than I am. So, I really appreciate you
    giving me that information because it is all hands on deck. We
    have to make sure that the folks at the local level who are the
    frontline, that thin blue line, have the tools they need to do
    all of this work. And this whole cryptocurrency and everything
    else is new to a lot of folks and very complicated.
        Let me morph a little bit and maybe, Mr. Nevano, this would
    be for you, but if not, someone else jump in, ransomware where
    bad actors are able to put a virus or something else on your
    system whether it be personally or at a business and
    effectively contact you and say, ``Unless you pay us X amount
    of money, we will let this virus run rampant and destroy your
    system and interrupt your workflow'' and which could kill jobs
    and so forth and so on.
        What about the use of cryptocurrency to pay that
    ransomware--excuse me, that ransom, if you will, to remove that
    problem from your network? Do you folks run into that and how
    in the heck do you fight that? How do our folks at the local
    level fight that?
        Mr. Novy. I will take that one as well, Congressman.
        Mr. Poliquin. Thank you.
        Mr. Novy. So, ransomware, actually we believe at the Secret
    Service, has proliferated from the use of digital currencies
    because it is used in just about every payment that you can
    imagine for ransomware, and because of the anonymity and the
    quickness that you could make a transaction, that is why people
    use virtual currencies for ransomware.
        The tough thing about ransomware is it does take
    preparation. People should take into consideration basic
    cybersecurity and basic cyber practices. People should have
    backups to their systems. In the Secret Service, we have
    actually gone out and done a whole bunch of workshops all
    around the Nation with us as well as with the Financial
    Services Information Sharing Analysis Center as well as the FBI
    where we have gone and we have taught different courses and
    classes of how to defeat or how to get prepared for ransomware.
        But to answer your question, virtual currency has actually
    been the propagator for ransomware we believe.
        Mr. Poliquin. If I call Bill O'Malley who is the Chief of
    Police in Bangor or Phil Kroll who is the Chief of Police in
    Auburn, Maine, would they know who to call at your shop to get
    help for any of these issues? Are you folks pretty good as far
    as outreach to our local folks in the ground?
        Mr. Novy. Yes, absolutely. So, we have an office in
    Portland, Maine and that office in Portland, Maine is actually
    there to go and liaison with all law enforcement agencies no
    matter how big or small they are in your State.
        Mr. Poliquin. OK.
        Yes, sir.
        Mr. Nevano. I am familiar with your AOR being from New
    England and I know that we have multiple task forces. We have
    an office in Portland, Maine; Bangor, Maine; as well as
    Houlton, Maine. And I know that we have several task forces in
    those areas where we work every day and collaborate with State
    and local law enforcement officers in your district.
        Mr. Poliquin. Great. Well, thank you very much, and I do
    want to--
        Chairman Pearce. The gentleman's time is expired.
        Mr. Poliquin. How do you divide your loyalties between the
    Red Sox and the Nationals if you are from New England? It is
    not easy.
        Thank you, Mr. Chairman. I yield back my time. The witness
    does not have to answer that question.
        Chairman Pearce. It was not the lapse of time. It was your
    problem with the last statement. Thank you.
        But now, I recognize the gentlelady from New York, Mrs.
    Maloney, for 5 minutes.
        Mrs. Maloney. Thank you. I thank the Chairman for yielding.
        Mr. Nevano, first of all, I would like to thank all of the
    panelists for being here. But, Mr. Nevano, I am sure you are
    aware of what is happening at our southern border. Children
    including babies are being ripped out of their parents' arms
    and these people were just merely looking for a better life for
    their families here in the United States. It is nothing short
    of government-sanctioned child abuse and runs counter to
    everything that we stand for as a Nation.
        I have seen photos of children in cages, heard recordings
    of children crying, and spoken with fathers at a detention
    center this past weekend in New Jersey where they came legally
    seeking asylum and were put into detention prisons. And one
    father said, at three o'clock in the morning, they came and
    tore his daughter from his arms. And just last night, the
    Associated Press reported that babies and toddlers are being
    shipped literally hundreds of miles away from their parents to
    be housed in so-called tender age facilities.
        Make no mistake. I don't care what they are called. These
    are prisons--prisons for babies. And has this Administration no
    soul? Have they no basic human empathy? This is not governance.
    This is not enforcing existing law. This is law that was made
    up by this Administration. And it is stone cold evil and is
    entirely the choice of this Administration and a reflection of
    a heartless ideology.
        So, my question, Mr. Nevano, is that surely many ICE agents
    are mothers and fathers in addition to their role with the
    agency. Is there any concern among your colleagues about the
    irreparable damage this policy of separation will have on these
    children?
        Mr. Nevano. Congressman, thank you for your question.
    Again, working for Homeland Security Investigations, we are not
    involved in that aspect of what you are speaking about. I am a
    parent and of course I understand exactly what you are saying.
    I have been doing this job for 27 years. I am a law enforcement
    officer and I certainly understand what you are saying.
        But I am not here to comment on that because I am here to
    testify on virtual currency. I would be happy to take any
    specific questions you have back for the record.
        Mrs. Maloney. Well, this Administration has deliberately
    chosen this path and would you agree that the Administration
    has the authority to change this policy? But now I know you are
    not going to answer, but I do believe they could change it.
        But before I close, I would like to play a very troubling
    recording that has been widely circulated in the news this
    week.
        [Audio recording played.]
        Mrs. Maloney. Well, I just want to close by saying as a
    mother of two children, I find this policy absolutely
    unconscionable. I cannot imagine what it is like to have your
    children torn from your arms and these are people that are just
    seeking a better life for their families. They are coming here
    seeking asylum. We have always been a beacon of hope to the
    world, and persecuting and separating children from their
    families is just un-American and just plain wrong.
        And it is an outrageous policy. It needs to end and we need
    to make sure the Administration absolutely never does it again.
    I thank you very much and I yield back.
        Chairman Pearce. The gentlelady yields back.
        The Chair would now recognize the gentleman from Ohio, Mr.
    Davidson, for 5 minutes.
        Mr. Davidson. Thank you, Mr. Chairman, and thank you to our
    witnesses, I appreciate your expertise on financial crimes
    enforcement, illicit finance, and particularly related to
    cryptocurrencies today. Hopefully, we can stay on topic during
    my 5 minutes, I will try to stay focused on the topic at hand.
    Because it is hard to get these hearings scheduled, so thank
    you, we can't change course on hearings all the time because of
    the news of the day, pressing as it is, I trust that we are on
    a path to a better policy in all sorts of arenas, including
    this one which we are here to work on.
        So, the past several years I have been watching the growth
    of digital assets and cryptocurrencies and I am excited about
    the opportunities they create. And I am curious just in terms
    of framing this issue, it is very important that your tools in
    your kit bag stay in compliance with current laws. And we have
    illicit finance denominated in U.S. dollars, correct? Correct?
        Mr. Novy. So, Congressman, it could be denominated in a
    number of things, the cost or the value of digital currency--
        Mr. Davidson. No, no. I am not talking about
    cryptocurrencies, I am just--the cash, cash in bags, duffel
    bags of cash, hay bales full of cash, ship containers full of
    cash, rail cars full of cash, suitcases full of cash, we
    transact in cash, right?
        There is also illicit finance in hawala networks, right?
    These things aren't illegal, we are looking for ways to be able
    to--U.S. dollars aren't illegal, carrying cash in a satchel is
    not illegal. Though we have set trip wires in place like
    crossing a border with too much cash without reporting that
    they are crossing a border with too much cash. These are the
    things that help you catch that.
        Still struggling last I heard about hawala networks and
    things like that. Though operating a hawala network isn't
    illegal, operating one to do illicit things is. And I guess,
    how do we apply those sort of kit bag things to
    cryptocurrencies so that we protect the use of
    cryptocurrencies, yet have the trip wires that help us detect
    illegal activity with the cryptocurrencies?
        Mr. Nevano. So, when we conduct our investigations, as you
    are mentioning all tools in our tool bag are used, whether it
    is traditional schemes to attack money laundering, which would
    be as you are mentioning: Bulk cash smuggling, third-party
    money laundering, trade-based money laundering, we also--as my
    colleague from Secret Service mentioned, use of confidential
    informants, use of undercover operations, whatever we can do to
    basically detect, disrupt, and dismantle those organizations,
    whether they are using the traditional methods that you are
    speaking about, or cryptocurrencies, we are trained to actually
    attack the problem as it exists.
        Mr. Davidson. In general, when something moves across an
    electronic format, is it easier to have record keeping on that
    than say hawala or cash? Even cryptocurrencies? There is a
    record, right? A searchable record or queriable record?
        Mr. Novy. So, Congressman, the answer is usually yes.
    Usually when it creates a record there is an electronic record
    that can be followed. However, in virtual currencies sometimes
    it can be obscured through tumblers or mixers, or something
    along those lines as well. So, there is a record if you can
    find it, but sometimes it is a little bit harder to find.
        Mr. Davidson. OK. And so, additional guidance has been
    given to provide compliance as money service businesses for
    people that are doing these transactions in the U.S. We have
    places that don't comply with those laws just like we have it
    for people who don't comply with it for wires and other ways
    that we do it with cash.
        I am concerned about, in the States, we have all sorts of
    regs that are duplicative. Wyoming has some laws related to
    crypto, but so does New York. I am not sure why New York needs
    such a heavy-handed AML provision, do you view the duplication
    as counterproductive, would it be easier to have a uniform reg
    across the country or is it easier to have State-based systems
    as well?
        Mr. Ott. Well, Congressman, for FinCEN's perspective, of
    course we are on the Federal level, but many we recognize that
    we work very closely with some of our State regulators as well,
    they adopt many of the similar provisions as are found in the
    Bank Secrecy Act, and what we find in terms of the biggest
    challenge that we have in regulating virtual currency is in
    fact, an inconsistent or lack of consistent AML CFT regulations
    internationally that open up vulnerabilities within the United
    States. And I believe, while we are working with our foreign
    counterparts to try to correct that situation, feel that there
    will still be a vulnerability until we have that international
    cooperation.
        Mr. Davidson. Thank you, my time has expired.
        Chairman Pearce. The gentleman's time is expired, the Chair
    will now recognize Mr. Vargas for 5 minutes.
        Mr. Vargas. Thank you very much, Mr. Chairman, I appreciate
    the opportunity. Again, I want to thank the three witnesses
    here today, as I especially want to thank them for your
    diligent work against illicit use of cryptocurrency, especially
    in sex trafficking and drug trafficking. Again, thank you very
    much. I do, however, want to ask some questions to Mr. Nevano,
    I am taking a look here at the information that you sent to us
    and it does say, U.S. Immigration and Customs Enforcement right
    at the top.
        And I think when you were introduced, we heard that you had
    more experience than your present job. Could you repeat again,
    your career has been long, it has been 27 years in law
    enforcement and we appreciate that, what other experiences,
    what other jobs did you have with ICE?
        Mr. Nevano. Congressman, I started my career as an
    immigration inspector. That is where I started my career. I
    became a special agent. I worked my way up to be a group
    supervisor. Assistant special agent in charge. As you are
    probably aware, in 2003, Immigration Naturalization Service and
    Customs actually merged to form Immigration and Customs
    Enforcement, Homeland Security Investigations. Since my time in
    headquarters, I have worked as a unit chief in asset
    forfeiture, I was the chief of staff for the deputy director of
    Immigration and Customs Enforcement. And I was also now in my
    position, I am the Deputy Assistant Director for Illicit Trade,
    Travel, and Finance.
        Mr. Vargas. So, you do have quite a bit of experience
    beyond simply working in the position that you have today, I
    think some of the questions that we were asking of you were
    questions maybe that you do have some experience on. I do want
    to ask some myself, are you familiar with the family--the
    Family Case Management program?
        Mr. Nevano. I have heard of it, sir. I know it is part of
    the enforcement removal operations portfolio; I am not
    intimately, though, knowledgeable about it.
        Mr. Vargas. OK. It had an almost 100 percent court
    appearance rate, so this is where the families were not
    separated instead they were able to stay together, and then
    they had to come back for court appearances, it almost had a
    100 percent rate of people coming back for their court
    appearance, it was very, very successful.
        It didn't--they did this for families that weren't flight
    risks and they weren't dangerous, it was quite successful, I
    don't know why we stopped it. But that is one of the reasons
    why there has to be the separation of families the President
    says, there does not have to be, when, in fact, the President
    claims the DHS is required to separate families under current
    law, I don't understand, maybe you could explain that to me.
        Contrary to claims by the Attorney General, the Bible in
    Romans 13, which I know well, I studied to be a priest for a
    number of years, it is not statutory authority. It doesn't
    justify this horrific and unconscionable policy. But can you
    point to any statutory authority mandating that families be
    separated because, I can point you to these--the Family Case
    Manager program that didn't do this, didn't separate the
    families?
        Mr. Nevano. I am not familiar with any statutes that
    require that, Congressman.
        Mr. Vargas. I can tell you this and I think you would agree
    with this, I represent the border in California, and I do go
    and visit not only with ICE but the CBP and BP, Border Patrol,
    I can tell you this what they are doing today, your agents,
    they are bringing diapers that they are paying for themselves,
    milk for kids, other things that these children need, because
    they know they are going to be separated, and they think
    because like you, they are parents, they think they need these
    things.
        If you ask your own agents out there, you will tell--they
    will tell you, they do not like what they are doing, they are
    not happy about it, they are spending their own money trying to
    help these kids, are you familiar with any of that?
        Mr. Nevano. Congressman, again, I think you are speaking
    about Border Patrol agents--
        Mr. Vargas. No, no. I am also speaking about the CBP, and I
    am also speaking about ICE.
        Mr. Nevano. CBP is not under my directorate, so again, our
    special agents more than likely, unless they are investigating
    some type of transnational criminal organization entering the
    border, would not be involved in some of the circumstances you
    are speaking about.
        Mr. Vargas. But I think you are being very technical,
    because you do have experience within all of the range there,
    if you--as you would under--as you described to me earlier, you
    were in fact the line officer, you did in fact have--
        So, what I would tell you is this, this policy that you
    have now, I wish you would go back and look at those and talk
    to your agents on the look--on the ground, they don't like it,
    they know it is not their values. When you go and you see like
    I had the opportunity to see on Monday these children, they
    just want their moms, they just want their dads. What we are
    doing is wrong. Certainly not based on Christianity or any type
    of religion that I am aware of, and it has to be reversed.
        Your own agents, if you talk to them, they will tell you,
    and you can go there and see the diapers that they buy, the
    food that they buy for these children, because they are
    concerned about their own safety, the safety and the wellbeing
    of these kids when they are separated from their moms, they are
    parents too. If you would like to answer the questions.
        Mr. Nevano. Congressman, in my 27 years career, I have
    worked under several different Administrations, and during
    those Administrations with the change, laws continually change,
    the way we are enforcing laws. And, again, what you are
    speaking about now in the current environment I am not involved
    with what you are speaking about. We are involved in the
    aftermath, if there are individuals who are being so exploited,
    who are victims who are being supported by organizations, that
    is where we will come in to try to look at the facilitate--the
    people who are facilitating this activity.
        Mr. Vargas. Thank you, I yield back. Thank you.
        Chairman Pearce. The gentleman's time has expired. The
    Chair would now recognize Mr. Budd for 5 minutes.
        Mr. Budd. Thank you, Mr. Chairman. And again, thanks to the
    witnesses for your time today, for your expertise, all you do
    for security for our country. And I want to shift a bit to the
    topic, the original topic at hand, terror financing and virtual
    currencies. So, the Foundation for Defense of Democracies or
    FDD, they have been a great resource to me and staff on issues
    like this. And they recently reported the first publicly
    verifiable instance of an online propaganda unit, it was based
    in Gaza, in the Gaza Strip, calling for Muslims worldwide to
    donate funds for terrorist purposes. They only raised a few
    hundred dollars, but even this is an early sign, I am thinking,
    and it is disturbing that terrorist financing mechanisms are
    evolving using this technology.
        I have also seen evidence of Hamas groups embracing the
    technology and promoting Wallet apps like Telegram. So the
    question is, what is the likelihood that we see more propaganda
    or terrorist campaigns from groups like this in the future? And
    what can be done to prevent it from happening?
        Mr. Nevano. I am familiar with the article that you
    mentioned and I would agree with you that I believe there were
    only two individuals that actually volunteered to donate, it
    was somewhere in the vicinity of $500 that was--that was
    received, so although it was a low turnout as far as
    volunteers, it did something that law enforcement would be
    concerned about, because as virtual currency continues to grow,
    it is certainly an avenue that could be used for those types of
    propaganda situations to collect money in support of terrorist
    organizations.
        Mr. Budd. So even at a few hundred dollars, we still
    shouldn't dismiss something like this?
        Mr. Nevano. Absolutely not.
        Mr. Budd. OK. Thank you. Can you tell me what factors are
    limiting terrorist exploitation of the virtual currencies,
    basically what is working, and how that should impact the
    counterterrorism community, and Congress' focus on this front?
        Mr. Nevano. So one of the challenges I think is terrorist
    organizations are used to the traditional money laundering/bulk
    cash smuggling, hawala situations. I think one of the
    challenges that we may be facing for the traditional terrorist
    organizations that we are speaking about, is maybe some of the
    resources logistics, some of the locations that they are
    involved, and that they don't have the technology right now,
    but, over time with, as technology advances, et cetera, that
    certainly would be a concern.
        In lone wolf terrorist type of situations where you may
    have a domestic terrorism situation, that, to me, would be a
    concern, because they would have the technology, they would
    have the access to the internet, et cetera, working right at
    home from their computers, and that certainly would be a
    concern.
        Mr. Budd. Thank you. Gentlemen, do you care to comment on
    what is working and how you would ask Congress to focus on this
    front?
        Mr. Novy. From the Secret Service standpoint, we are--our
    area is not terrorism or counterterrorism, but the--what we see
    is though, is that on the criminal side with the exploitation
    of digital currency to move forward their crimes, we know that
    terrorists look to gain education from how other criminals are
    doing things. And so, how other criminals are moving money, and
    then they can learn from that. So from my expertise, I see it
    going, as I see it rising in criminal activity, I would assume,
    that, at some point, the terrorists will start learning from
    the criminals.
        Mr. Budd. Good.
        Mr. Ott. From FinCEN's perspective, I would just mention
    that we work very closely in partnership with the financial
    institutions in terms of our outreach and we see, have seen
    from 2016 to 2017, a 90 percent increase in the BSA filings
    involving some type of cryptocurrency across the variety of
    criminal activities, whether that is terrorist financing,
    narcotics trafficking, money laundering, or other illicit
    activities. So to that extent, we are very pleased with the
    increase of the type of law enforcement intelligence that we
    can share with our counterparts.
        Mr. Budd. Thank you all for this, a little bit different
    type of a question, but I would like to get law enforcement's
    perspective on this, and it is a hot topic right now especially
    here in D.C. as we look at this as legislators, but how should
    we classify virtual currencies? Is it a security, is a
    commodity, another form of property? And what is the
    appropriate framework for us to use to work on legislation
    addressing virtual currencies?
        Mr. Ott. Thank you, Congressman. I think--from again, from
    FinCEN's perspective, we certainly recognize that this is a
    complex area, we focus on money transmissions, specifically. So
    our concern is the transmission of either currency, finds, or
    what we say is a subset--of other value that substitutes for
    currency. And we have said that in our guidance and in our
    legislation that the current virtual currency is also included
    in that definition of other value, that substitutes for
    currency.
        So we feel that certain regulatory regime right now, that
    we have in place, is sufficient to cover virtual currency, and
    to be--provide the correct reporting. And I would also say that
    that applies to whether or not an MSP or a money transmitter is
    located within the continental United States or outside the
    United States, but does substantial, either substantial
    business within the United States or other.
        Mr. Budd. My time has expired, I yield back.
        Chairman Pearce. The Chair would now recognize the
    gentleman from Georgia. Mr. Scott for 5 minutes.
        Mr. Scott. Thank you, Mr. Chairman. I am sitting here and I
    am absolutely amazed. You all are sitting here and just
    seemingly unknowledgeable about one of the greatest tragedies
    that we are faced with, with the treatment of these little
    children at the borders.
        Now, Mr. Nevano, several Members have asked you, and
    questioned you, and reminded you that you do have
    responsibility here, you keep saying, you don't. Your entity
    deals with MS-13s, the gangs, the drug cartels, all of the very
    reasons that we got in this situation today. These people are
    putting their children first. I looked up there, I saw this
    picture of this little girl, I wish they would put it back up
    there at the truck and she is looking up, and you know what I
    saw from that?
        I said what the Lord said, ``Suffer the little children to
    come unto me: for of such is the kingdom of God.'' If you
    really understand that scripture is it because people were
    trying to push this one up to see, that one up, but He said no,
    it is the children who come first, that is why this Nation is
    crying out to stop this meanness.
        There is the picture right there, look at it, Mr. Nevano,
    there it is right there, would you mind? That is the image of
    the United States of America, we have to stop it now. If you
    can't give information to us, you are the representatives of
    this Administration, that ain't the Democrats causing this, it
    is President Trump, and take a message back to him. That the
    Lord said, ``First, suffer the children to come unto me: for of
    such is the kingdom of God.''
        That is the scripture that they should be admonishing. Tell
    me, Mr. Nevano, when was the first tolerance, the zero
    tolerance policy first put into place?
        Mr. Nevano. Congressman, I am not specifically aware of
    when it was put in place, my recollection from hearing it in
    the news was maybe sometime around April.
        Mr. Scott. How many children have been reunited since the
    zero policy has been put in place?
        Mr. Nevano. Again, I do not work in that directorate, so I
    do not have that information.
        Mr. Scott. And you can see from the pictures there, that
    most have not been reunited. What is going to happen to these
    children? How many people who legally entered this country to
    seek asylum have been detained as a result of this policy?
        Mr. Nevano. Again, I do not have those numbers with me.
        Mr. Scott. How many children separated from their families
    on the U.S.-Mexican border have had to enter the foster homes?
    The foster care as a result of this Administration's decision?
        Mr. Nevano. I do not have that information.
        Mr. Scott. Yes. How many children may never see their
    mothers or their families again because of what this
    Administration has decided to do on the borders? Think about
    it.
        I am telling you, man. We have to stop this. If there's any
    message to take back to the White House, tell them to stop it.
    This country has been blessed by God. Divine intervention is
    throughout our history, from the soldiers at Valley Forge, to
    those who went to Montezuma fighting. We are the beacon of
    hope, liberty, freedom of the world. The little girl on these
    pictures looking up, that ain't America. Please, will you take
    that message back to the President?
        Chairman Pearce. The gentleman's time has expired. The
    Chair would now recognize Mr. Crist for 5 minutes.
        Mr. Crist. Thank you, Mr. Chairman. I just have a few
    questions for you, Mr. Nevano. How many children have been
    separated from their families since the Trump Administration
    announced the zero tolerance policy on April 6, 2018?
        Mr. Nevano. I don't have that information. I am happy to
    take it back for the record, and see if our enforcement removal
    or our other component within DHS can get that information for
    you.
        Mr. Crist. Thank you. And I will provide these for you
    before you leave. What is the plan to reunite the children with
    their parents?
        Mr. Nevano. Again, I don't--I am not involved in the
    policymaking on that side of the enforcement house, I don't
    have that information, but, again, I am happy to take that back
    for the record.
        Mr. Crist. Physically, where is your office?
        Mr. Nevano. It is located at 12th & D Streets, sir.
        Mr. Crist. And your colleagues there, have you had any
    conversations about what is all over the news for the past 72
    or so hours? Any concern about it?
        Mr. Nevano. I watch the news every morning like everyone
    else, and obviously see what is going on, but it is not a topic
    of conversation within my directorate, because, again, we are
    not involved in that activity.
        Mr. Crist. Nobody there has talked about this?
        Mr. Nevano. Absolutely, it is on the news, everyone is
    watching it, but it is not a conversation that I have. I was
    here to prepare for virtual currency and that is how I spent my
    past week or so preparing for this hearing on virtual currency.
        Mr. Crist. You have dedicated your life, it sounds like to
    appropriate law enforcement?
        Mr. Nevano. Twenty-seven years, I have.
        Mr. Crist. Do you think this is the right kind of law
    enforcement for the United States of America?
        Mr. Nevano. Again, I am not here to give my opinion, I am a
    sworn law enforcement officer, that I was sworn to defend the
    laws of the United States, but I am not here to comment on my
    personal situations, I am happy to take any questions you may
    have, but--
        Mr. Crist. I am not asking about your personal situation, I
    am just asking your opinion, sir.
        Mr. Nevano. I don't have an opinion on that, sir.
        Mr. Crist. OK, that is interesting. You have no opinion on
    this?
        Mr. Nevano. I have an opinion on what my job is and what I
    am required to do and--
        Mr. Crist. No, I am talking about what we are talking
    about.
        Mr. Nevano. Congressman, anyone who looks at that picture
    obviously would have concerns looking at that picture. I faced
    several of these situations in my career as an immigration
    inspector, and what I--what I have done is if I was directed to
    do something, I would do what the direction of the--my
    superiors in my Administration told me what to do.
        Mr. Crist. Even if you felt it was wrong?
        Mr. Nevano. That is my job, I swore on the oath to uphold
    the Constitution of the United States.
        Mr. Crist. But what if it is not a constitutional act they
    are asking you to do?
        Mr. Nevano. It may be a directive that we are following
    that is from our leadership, and that is what I do on a day-to-
    day basis, if I get direction from my leadership, I follow what
    my leadership's directives are.
        Mr. Crist. Follow right or wrong?
        Mr. Nevano. It is not my decision to make, Congressman.
        Mr. Crist. Yes, it is. Yes, you are a citizen of this
    country, you don't have to do everything you are told to do if
    you think it is wrong and immoral.
        Mr. Nevano. If there was something that was immorally
    correct or is not legal, then obviously I would not do that.
    But--
        Mr. Crist. I am glad to hear that.
        Mr. Nevano. Yes, absolutely. I have 27 years, and I have
    been doing my job for 27 years, I am a family member,
    obviously, situations like that when you see that, touch
    everyone's heart, but, again, we are not the ones to blame for
    this situation, meaning me as a special agent within my
    Homeland Security directorate, if laws need to be changed, they
    need to be changed, but it is not me to make the change in the
    law.
        Mr. Crist. I am not blaming you. I didn't say that. Who do
    you think is to blame for this?
        Mr. Nevano. I think obviously the laws need to be changed,
    I am not here to say who is responsible for it, but if the laws
    need to be changed, it is not for me as a deputy assistant
    director, at my level, to be making those changes.
        Mr. Crist. Do you know if any children have been physically
    harmed or died while in this custody since April?
        Mr. Nevano. That I am not sure about.
        Mr. Crist. Can you find out?
        Mr. Nevano. I am happy to take any questions you have and
    get it to the appropriate locations within the Department of
    Homeland Security.
        Mr. Crist. Thank you for your help.
        Chairman Pearce. The Chair would now recognize Mr. Heck for
    5 minutes.
        Mr. Heck. Thank you, Mr. Chairman, thanks to all the
    witnesses for being here today. I am not sure who can answer
    this question, anybody that has the answer I would appreciate.
    How long is the list of mothers with young children who have
    been detained at the border are suspected or known to have used
    cryptocurrency for illicit purposes?
        Mr. Nevano. I am not aware of that.
        Mr. Heck. Any? So we can at least eliminate that category
    of reason to be afraid of young mothers with young children?
    Mr. Nevano, you have had a distinguished career, and I
    sincerely thank you for that at ICE. I would like to ask you if
    you believe that the current resources provided ICE and the
    staffing levels that result therefrom are 100 percent
    sufficient for the agency to fulfill its mission in a robust
    fashion?
        Mr. Nevano. Congressman, we have plus or minus 6,500
    special agents within the Homeland Security Investigations, we
    could obviously use more--
        Mr. Heck. No, sir. I asked about agency overall, drawing
    upon your 27 years, the question is very straightforward, does
    the agency overall, from where you sit, based on your 27 years
    of experience, have 100 percent of the resources and staffing
    it needs in order to fulfill its mission in a robust fashion?
        Mr. Nevano. Again, I am familiar with my directorate which
    is Homeland Security Investigations, I am not familiar with the
    other components within DHS, there are over 22 components
    within DHS, I am not familiar with every other component.
        Mr. Heck. Is it your impression you have all the staffing
    and resources you need?
        Mr. Nevano. Within Homeland Security Investigations, we
    could certainly use more.
        Mr. Heck. So, if that is also true, if the other divisions
    at ICE, we can reasonably and logically conclude that if they
    were asked to do anything additional, it would only come of the
    compromise or result in a compromise of their effort to fulfill
    their mission?
        There is a Federal prison, Mr. Nevano, in Victorville,
    California where we now have about a thousand ICE detainees. Do
    you know whether or not the guards there have been trained to
    deal with the non-criminal occupants and immigrants at that
    facility?
        Mr. Nevano. No, I am not, Congressman, I am not aware.
        Mr. Heck. Do you know whether or not the immigrant
    detainees are being accorded the same rights and privileges as
    the prisoners, violators of crimes, such as visitation and
    access to counsel and recreational opportunities?
        Mr. Nevano. I am not familiar with the situation in that
    facility.
        Mr. Heck. I have a facility in my district that is called
    the Selma Carson Home which 16- and 17-year-old unaccompanied
    boys are kept, do you know if the current population includes
    anyone that has been separated from their parent?
        Mr. Nevano. I do not.
        Mr. Heck. I guess I would like to make an observation if I
    may about this overall issue, because the truth of the matter
    is, I completely understand somebody that is deeply concerned
    about our Nation's security in general, and as it even relates
    to some degree with respect to borders.
        What is difficult for me to understand is the obsession on
    just one border, and the obsession on only one fix to the issue
    there. I guess I can't forget the fact that a goodly number of
    the people who helped plot and implement the 9/11 attack on our
    soil, the deadliest in our Nation's history, came in through
    the northern border, not a lot of talk about enhanced northern
    border security. And I am very mindful of the fact that nearly
    50 percent of the people who are here without the appropriate
    documents came in legally and just stayed.
        And yet, all the focus seems to be on one of our four
    borders, the water on our east and west take care of that,
    nothing on the north for all practical purposes, nothing on the
    way the people who come here legally but stay.
        I guess, in simpler terms, this strikes me as if somebody
    owned a home and they felt that they had a security risk of
    being robbed, they decide to build two walls, not four, two, in
    order to protect themselves, or even one wall, leaving the
    other two or three open. I guess that would be one way to try
    to protect themselves, not very effective, or they could buy an
    alarm system, or they could put up increase lighting, or they
    could trim the bushes that provide cover for people, or they
    could buy a dog, or, my point being, that the issue of security
    has to be solved intelligently. Not just with a half-baked,
    half idea on how to provide for our Nation's security. Thank
    you, Mr. Chairman, and I yield back.
        Chairman Pearce. The gentleman's time has expired. The
    Chair would now recognize Mr. Capuano for 5 minutes.
        Mr. Capuano. Thank you, Mr. Chairman. Thank you gentlemen
    for being here. And honestly, I was looking forward to having a
    hearing on the subject matter that was advertised, but with
    today's crisis I assume by now you have figured out we just
    can't do that. We can't remain silent.
        Mr. Nevano, I see you have an excellent education, I am a
    B.C. guy, too. My son as well. I don't remember being taught by
    any of the Jesuits it was OK to separate parents from children,
    and I want to be real clear, you have been incredibly
    professional under some tough questionings, and I respect your
    position, and I am not going to try to make you, put you in a
    tough position, because I think you have done a good job today
    defending the indefensible or actually avoiding defending the
    indefensible. And I really do, I appreciate what you are doing,
    and I don't want to put you in a tough position.
        But, you are the guy who is here, you are the guy we got,
    and I am sorry, but is there anybody behind you who can answer
    the questions that have been asked today? I don't know,
    something, anybody else from ICE who are here that can answer
    these questions?
        Mr. Nevano. I don't believe there is anybody with me here
    today from Customs and Border Protection Enforcement and
    Removal operations that may have some of those answers to your
    question.
        Mr. Capuano. OK. I expected that. I know you have heard the
    audio before, but I want to play that audio just one more time,
    because I do have a question related to it. I don't know
    exactly all this technology stuff, but there's a guy in the
    backroom doing some magic, so.
        [Audio recording played.]
        Mr. Capuano. I think that's enough, I think that is all we
    need. I don't know. I appreciate it, thank you. Did you hear
    any MS-13 members in that audio?
        Mr. Nevano. I did not.
        Mr. Capuano. I didn't either. Any other gang members that
    you could tell that secret code that we could tell that these
    children were somehow associated with an international gang
    that came here to terrorize us?
        Mr. Nevano. I did not.
        Mr. Capuano. No, I didn't either. So, it was interesting
    that the President was able to hear that. I don't know, I know
    you have been testifying for a while, I don't know if you are
    caught up on the news, you probably not, but if you--it has
    been announced the President has just signed an order reversing
    his previous order. So, do you--I assume your agency is going
    to get some new orders.
        But I am interested, I just heard the last 3 days, the
    President of the United States telling me repeatedly on the
    news, very publicly that he didn't have the authority to change
    his own zero tolerance policy, and now he has done it. Could
    you explain to me how the President could say on, for 3, 4, or
    5 days in a row we didn't have the authority, and now somehow
    have the authority?
        Is anybody at ICE going to ask questions as to who actually
    has the authority to make a determination whether children can
    be ripped from the arms of their mother?
        Mr. Nevano. I don't have that answer for you today, sir.
        Mr. Capuano. No, I am just--I am just curious, because it
    strikes me, if the President says for day, after day, after day
    on T.V. that he doesn't have the authority and then now he
    does. I don't know, but I am just guessing that if that was
    somebody else that he didn't like that the President would say
    that person was lying, and has been lying for day, after day,
    after day.
        I am just--I am just confused how the President can do
    that. And I know that, again, I know that you are going to
    carry out the orders, and I respect that, I really do, I
    respect that. But at some point, somebody at DHS, somebody at
    ICE is going to have to look in the mirror and ask themselves
    whether they want to keep doing this. Are you from Mass or just
    were lucky enough to go to B.C.?
        Mr. Nevano. No, I am from Massachusetts.
        Mr. Capuano. And you--do you remember the name Elliot
    Richardson? Our former State Attorney General who became the
    U.S. Attorney General?
        Mr. Nevano. I am familiar with that name.
        Mr. Capuano. Elliot Richardson quit. When the President of
    the United States ordered him to take action he found to be
    immoral, he quit his job. Now, I am not asking any line guy,
    27-year-career guy to do that. That is a little much. But
    somebody somewhere at DHS and ICE, at some point, is going to
    have to ask themselves, when is it too much? When are the
    orders too much? I can't do them.
        And, again, I am not suggesting it should be you or anybody
    in particular, and I really hate even putting that question to
    a career guy. I really would rather put that question to a
    political appointee, that would be people above your pay grade,
    and I get it, but again, and I apologize as I did earlier. I
    have to say some of these things to you, I don't really mean to
    direct them to you, you seem like a nice guy doing your job.
        But until and unless we have access during a public forum
    to the people that can answer these questions, and can make
    those decisions, unfortunately you are stuck in. And I actually
    feel bad that your superiors put you in this position today to
    have to take this abuse. And I--and again, it is not directed
    to you, but I would be very clear, it is unequivocally directed
    to your superiors who do have the authority to say no, and
    should have said no to this policy. Thank you, Mr. Chairman.
        Chairman Pearce. The gentleman's time has expired. I would
    like to thank our witnesses for your testimony today. The Chair
    notes that some Members may have additional questions for this
    panel, which they may wish to submit in writing. Without
    objection, the hearing record will remain open for 5
    legislative days for Members to submit written questions to
    these witnesses and to place their responses in the record.
    Also, without objection, Members will have 5 legislative days
    to submit extraneous materials to the Chair for inclusion in
    the record.
        This hearing is adjourned.
        [Whereupon, at 3:43 p.m., the subcommittee was adjourned.]

                                A P P E N D I X

                                 June 20, 2018

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