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Testimony

of

Timothy Coleman

Counsel to the Assistant Attorney General

Criminal Division

U.S. Department of Justice

            Mr. Chairman and distinguished Members of the Subcommittee, I am pleased to testify on behalf of the Department of Justice on the topic of identity theft. As Counsel to Assistant Attorney General (AAG) Christopher Wray in the Criminal Division at the Department of Justice, I advise the AAG on white collar crime issues, including identity theft. Previously, I worked for 6 years as an Assistant U.S. Attorney in the Southern District of New York, where I prosecuted dozens of cases of identity theft and other white collar crimes. As a federal prosecutor, I have had many opportunities to witness, first-hand, the damage that identity thieves wreak on their victims. Identity theft is one of the fastest growing crimes in the United States today. According to a survey conducted for the Federal Trade Commission (FTC) in 2003, nearly 10 million Americans had become victims of identity theft in the preceding year. Identity theft complaints to the FTC have nearly tripled in the past three years, from 86,212 complaints in 2001 to 214,905 complaints in 2003. Identity theft now accounts for 42 percent of all consumer complaints that the FTC receives – more than any other category of consumer fraud. I understand that as of December 2003, the FTC was receiving a weekly average of 5,200 calls on its identity theft telephone hotline, and another 800 complaints of identity theft over the Internet.

            Additional data gathered by the General Accounting Office (GAO) paint a similar picture. In March 2002, the Government Accounting Office completed a report in which it concluded that all available sources of information confirm that “the prevalence of identity theft is growing” and that the monetary losses to industry from identity theft continue to mount. Numbers, however, do not tell the whole story. Identity theft inflicts substantial damage, not only on the economy, but also on hardworking Americans, who must expend the effort to undo the damage done to their credit records and their good names.

H.R. 1731

            Let me first turn to H.R. 1731, the "Identity Theft Penalty Enhancement Act." I am pleased to testify in strong support of this important legislation. The Department first endorsed the approach of this legislation in 2002, as part of a two-pronged initiative to combat identity theft. The first prong was a coordinated, nationwide “sweep” to prosecute cases involving identity theft. This sweep resulted in 73 criminal prosecutions against 134 individuals in 24 judicial districts. The underlying criminal violations involved in these cases run the gamut from credit card fraud to theft of employee benefits to murder. These cases were the result of the close and ongoing cooperation among federal, state, and local law enforcement agencies, including the Federal Trade Commission (FTC), the Secret Service, the Postal Inspection Service, the FBI, the Office of the Inspector General of the Social Security Administration, the IRS’s Criminal Investigation Division, as well as a range of state and local agencies.

            Since that sweep, United States Attorneys’ Offices across the country have continued their aggressive pursuit of identity theft cases. Acting through an interagency working group on identity theft, the Department has worked hard to coordinate enforcement efforts in this area. The FTC, working with the Secret Service, has provided invaluable assistance in developing an identity theft case referral program that helps in identifying significant cases that warrant further investigation.

            At the same time, it is clear that the sentencing of identity theft offenders can be widely disparate. For example, one variety of identity theft that United States Attorneys’ Offices are actively prosecuting are so-called “phishing” schemes – the use of emails and websites designed to look like those of legitimate companies’ websites and emails in order to persuade people to disclose their personal or financial data. In some cases, where prosecutors can trace victim losses to the operation of the “phishing” scheme, they may be able to obtain more substantial sentences. If it is not possible to trace those losses, however, convicted defendants in phishing schemes may receive little or no imprisonment. In one case, which was prosecuted in the Western District of Washington, the defendant, despite having conducted a phishing scheme in which he masqueraded as the Microsoft Network (MSN), received only a sentence of probation.

            The second prong of the Department's initiative was to strongly endorse legislation to enhance substantially the penalties for identity theft. Accordingly, in 2002, the Attorney General and Senator Feinstein jointly announced the outline of the legislation that is before you today. H.R. 1731, would greatly help to ensure that the Department has the tools it needs to prosecute effectively, and punish appropriately, the most serious forms of identity theft.

            H.R. 1731 builds upon, and strengthens, the important identity theft legislation enacted by the Congress in 1998. The current federal identity theft statute is codified at 18 U.S.C.

§ 1028(a)(7). That provision makes it unlawful to “knowingly transfer[] or use[], without lawful authority, a means of identification of another person with the intent to commit, or to aid or abet, any unlawful activity that constitutes a violation of Federal law, or that constitutes a felony under any applicable State or local law,” provided that the identification document in question was, or appears to be, issued by the United States or that the offense involved the use of the mails or affected interstate or foreign commerce. The existing statute has a sweeping substantive breadth that reaches all identity thefts that have a federal interest – even those involving State law felonies. This breadth makes it an essential element of the federal criminal code and an important weapon in the arsenal of every federal prosecutor. However, and precisely because of its breadth, the existing statute groups a large and disparate variety of misconduct into a single category. For the same reason, it also imposes across-the-board proof requirements that may be unduly restrictive in certain serious cases of identity theft.

            Section 2 of H.R. 1731 addresses these concerns by proposing a new section 1028A to the criminal code. Section 1028A would define a class of “aggravated identity theft” that includes the most serious and harmful forms of this pernicious practice. The penalties for this newly defined crime of “aggravated identity theft” are significantly enhanced as compared to existing law, and the proof requirements are simplified.

            In defining “aggravated identity theft,” section 1028A – like the existing statute – uses the concept of predicate offenses. That is, identity theft generally is not committed for the sheer thrill of impersonation; it is almost always done for the purpose of committing another state or federal offense. Under H.R. 1731, the “aggravated” forms of identity theft are defined by the nature of the predicate offense, and include all of the most serious predicate offenses, as set forth in proposed section 1028A, subsections (a)(2) and (c). Thus, anyone who uses another person’s identity to commit one of the enumerated serious predicate offenses will be guilty of “aggravated identity theft.” Because virtually all of the most serious forms of identity theft involve predicate criminal activity that is covered by federal law -- for example, bank fraud, wire fraud and mail fraud -- H.R. 1731 does not include any State law predicate crimes in its definition of “aggravated identity theft.” Compared to the general federal identity theft statute, H.R. 1731 applies to a focused and narrower set of predicate offenses.

            In prescribing the penalties for this new offense, H.R. 1731 does not rely upon the Sentencing Commission or the Sentencing Guidelines. This approach is the most sensible one in light of the unusual nature of identity theft -- it is an entirely derivative offense, in that it is virtually always committed in connection with some other crime. The Sentencing Guidelines, however, are generally designed and intended to be “charge-neutral:” in other words, the sentence depends on the underlying “relevant conduct” and not on the particular offense charged in the indictment. Thus, the Guidelines will generally ignore the fact that two offenses have been charged (a derivative offense and a predicate offense); the same sentence would be imposed in such a case as would be imposed even if only the predicate offense had been charged. Consequently, application of the Guidelines would mean that there would be virtually no practical advantage to charging the derivative criminal offense. Prosecutors would have to charge more facts, and prove more facts, without obtaining any additional punishment.

            H.R. 1731 avoids this problem through the structure of its penalty scheme. That scheme is modeled on the one used in 18 U.S.C. Section 924(c). That provision prohibits another derivative offense, using or carrying a firearm during and in relation to a crime of violence or a drug trafficking crime. Because an underlying predicate crime must be proved – either a crime of violence or a drug trafficking crime – application of the Guidelines would have collapsed the sentencing for the § 924(c) offense together with the underlying predicate offense. Section 924(c) avoids this by instead providing for an additional prescribed term of imprisonment over and above that imposed on the underlying offense. Because “aggravated identity theft” is unusual in that it is a derivative offense, like the conduct prohibited by § 924(c), a similar approach makes eminent sense here.

            Accordingly, H.R. 1731 provides that, if a person commits aggravated identity theft by stealing someone’s identity in order to commit a serious federal predicate offense, that person will be sentenced to an additional two years’ imprisonment over and above the sentence for the underlying offense, as set forth in proposed section 1028A, subsections (a)(1) and (b)(2). If the predicate offense is a terrorism offense, the additional punishment is increased to five years, as set forth in the same proposed sections. H.R. 1731, however, properly departs from the § 924(c) model in one critical respect. In 1993, the Supreme Court held, in the case of Deal v. United States, 508 U.S. 129, that multiple counts under § 924(c) that are charged in the same indictment must run consecutively to each other. This mandatory, cumulative "stacking" of sentences, if applied here, could result in unduly severe and inflexible sentences. H.R. 1731 thus leaves it to the discretion of the sentencing judge whether to run consecutively or concurrently any multiple counts of aggravated identity theft that are sentenced at the same time, as set forth in proposed section 1028A, subsection (b)(4). In order to avoid unwarranted disparities in the exercise of this discretion, the Sentencing Commission is explicitly authorized to issue guidance concerning whether and to what extent such multiple sentences should be concurrent or consecutive. Id.

            H.R. 1731 would also substantially simplify the proof requirements for “aggravated identity theft” compared to the current identity theft statute, 18 U.S.C. § 1028(a)(7). Section 1028(a)(7) contains multiple mental-state elements. In addition to proving all of the elements of the predicate crime (including the scienter element), prosecutors also must establish that the defendant “knowingly” transferred or used the identification “with the intent to commit” a federal or state crime. H.R. 1731 would streamline the proof for “aggravated identity theft,” by requiring proof of only that level of scienter that is already required by the underlying predicate offense and the knowing use of another’s identity. Moreover, because “aggravated identity theft” is defined with reference only to federal predicate offenses, there is no need for any additional proof of a federal jurisdictional connection. Accordingly, the additional federal jurisdictional showing required under § 1028(a)(7) is properly not carried over into this new offense.

            This new offense defined by section 2, with its streamlined proof requirements and its enhanced penalty structure, will enable the Department to ensure significant identity theft crimes are effectively prosecuted and properly punished.

            In addition to enacting a new offense of “aggravated identity theft,” H.R. 1731 strengthens the existing 1998 identity theft law in multiple ways. Section 3 of the bill closes several gaps in the coverage of the existing identity theft prohibition (18 U.S.C. § 1028(a)(7)) and increases the penalties for certain violations of that section. As currently drafted, section 1028(a)(7) punishes anyone who “knowingly transfers or uses, without lawful authority, a means of identification of another person with the intent to commit, or to aid or abet” any violation of Federal law or any State or local felony. This bill would amend this provision to prohibit, not just the “transfer or use” of someone else’s identity information, but also the possession of such information with the requisite criminal intent.

            The bill would also add language to this provision that would extend its coverage to those criminals who steal someone’s identity “in connection with” another crime. The bill also amends section 1028(a)(7) to increase from three to five years the maximum term of imprisonment for ordinary identity theft and for possession of false identification documents. Lastly, section 3 of the bill would amend section 1028(b)(4) to impose a higher maximum penalty for identity theft used to facilitate acts of domestic terrorism. In doing so, section 3 builds upon the USA Patriot Act’s definition of “domestic terrorism” and authorizes a 25-year maximum penalty for identity theft committed to facilitate an act of domestic terrorism.

            I understand that the Subcommittee is reviewing proposed additions to H.R. 1731 that relate to issues raised by the Office of the Inspector General of the Social Security Administration. These proposals would add sections 371 and 641 of Title 18 and section 1011 of Title 42 to the list of predicate offenses for aggravated identity theft, and would clarify the definition of the term “value” in section 641 of Title 18. With only one exception, the Department has no objection to those proposals. With respect to the inclusion of 18 U.S.C.

§ 371, the Department believes that it would be more consistent with the intent of this legislation to limit the inclusion of section 371 to conspiracies to commit any of the other substantive offenses listed in section 2 of the bill. Without this limitation, the addition of section 371 would allow application of the aggravated identity theft offense to any conspiracy covered by section 371, including conspiracies to violate any offense against the United States (even misdemeanors). This, in our view, would expand the reach of the enhancement considerably beyond what the Attorney General and the Administration have endorsed, and what we believe necessary to address the most serious identity theft offenses.

            Let me extend the Department’s gratitude to you, Mr. Chairman, and Representative Carter for your leadership on this issue and for your prompt action on this legislation. We strongly support this bill and urge its swift enactment.

H.R. 3693

            I also want to address H.R. 3693, the “Identity Theft Investigation and Prosecution Act of 2003,” which would authorize the appropriation of $100,000,000 for the investigation and prosecution of identity theft and related credit card and other fraud cases. I want to express my appreciation to Representative Scott and the co-sponsors of this bill for their interest in ensuring that federal law enforcement can effectively pursue identity thieves. At the same time, I should note that we believe that the Administration’s budget request is sufficient for the Department and other law enforcement agencies to continue their vigorous pursuit of identity theft.

            That concludes my prepared remarks. At this time, I would be pleased to answer any questions you may have.

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