combat gang violence, illegal drug and gun smuggling, and at the same time, help us catch sexual predators. the president's budget request for the fbi is $8.2 billion. this request reflects the stringent budget reality in which we find ourselves. there are no new initiatives in the fbi's budget request this year and only one modest targeted increase, and that's the fbi's ability to fight mortgage fraud. in fact, the fbi will ask -- will be asked to do more with us in 2013. in order to afford to continue fbi's critical efforts, we will have the budget proposes $63 million in savings from lower fbi programs, and the fbi will also have a give-back provision. fbi is also tasked to become the

banker for all law enforcement, helping with interoperable communication purposes, not for just the fbi but dea, atf and u.s. marshals. we really counsel the fbi to really watch this very carefully, because as we look at our cousins in the department of homeland security communication, enter operable communications has been one of the biggest boondoggles i ever saw. everybody bought a gadget and gizmo and at the end of the day none of the gadgets and gizmos were talking to anybody. we're counting on the fbi to get it straight and at the same time we need to get an update on the sentinel program, our virtual case management file. also we want to be sure we take a look at the sequester consequences and what would be the impact on the fbi if there was an 8% cut. and we need to know how it will impact the fbi's ability to

carry out its mission. in the area of national security, the fbi was charged with protecting us from international terrorism. we disrupt terrorist plots before they happened by identifying tracking and defeating them and then also working to dismantle weapons of mass destruction. this definitely is not j. edgar hoover's fbi anymore. counterterrorism and counter intelligence make up a substantial part of the fbi budget. just weeks ago we saw the fbi's counterterrorism efforts up close when they arrested a man who wanted to blow up the u.s. capitol. our nation also faces a new kind of threat. that threat occurs in cyber space, so we have cyber spies, cyber terrorists, organized crime involved with cyber. cyber is the new area. and we look forward to getting ideas and a concrete budget from the fbi director on how we can keep us safe in that area and

how they work with other intel agencies. i also want to know how the fbi's protecting americans from violent crime and also fraud in their communities. the fbi targets sophisticated criminal organizations who prey on the vulnerable. the child pornographer, the trafficking of children in prostitution, the schemes and scams and bilking people either out of medicare or out of mortgage fraud, and i'm concerned that this budget is flat to fight violent crime and gangs. i know my very able and wonderful colleague senator hutchison is going to talk about the southwest border. she's jazzed about it and so am i because of the ongoing threat at our border. state and local budgets are under stress and we want to hear how you are meeting that. i'm going to conclude my remarks, though, by saying this budget is not about numbers and statistics. it's about people.

make sure that americans are not victimized by any bad person or anyone with a predatory intent toward them. but we couldn't do it without the people who work for the fbi. so director, before i turn to senator hutchison, i just want to thank you, and in thanking you not only for your service, but i'd like to thank you on behalf of all those wonderful people who work every single day for the fbi, those that are out there in the field offices, working on joint task forces, those that are around the world and at times in very rugged and very dangered positions. i know that the fbi works every day to protect us, that the people who work hard there every day are duty-driven and dedicated, and they are ways our boots on the ground in local communities and also working

with their intel and military agencies around the world. this is why i want them to know i respect them for the work they do, and i will fight for them in terms of their pay, benefits and pensions. so if we're going to say thank you, we want to say it not only with words but with deeds. thank you. i'll turn to senator kay bailey hutchison. >> thank you very much, mr. mueller, for coming before our committee. i'm happy to say that last year we thought it would be the last time you would appear before our committee, and i was very pleased that the president offered and you accepted an extension of your term, because i think what has happened at the fbi during your term is exponential. i think the changes that have taken place and the responsibilities that you have had have been more transformational than probably any time since the beginning of

the fbi. i do want to start my remarks just very briefly by recognizing also the chairwoman of this committee who will on saturday become the longest serving woman to serve in congress in the history of the united states congress, and we're going to make a big deal of that because we're really proud of this little pint-sized mighty mite who has outlasted them all. so mr. fbi director, let me just state a couple of points. think that senator mikulski has really outlined the big picture. there are a couple of areas of interest that i have and concern. certainly i think the southwest border has to be as much of a national security issue as any

place that we have. and yet this request cuts the southwest border funding. i would question the priority of the administration in increasing the financial fraud enforcement and decreasing border security. so i'm going to say that i'll be looking carefully at that and hoping to restore the -- at least the $5 million that was included to make it look like it was even funding, but it really -- that was just required to sustain the positions that had been added in the fy-10 border supplemental appropriations bill, so i'm hoping that we can add more where you think you need it the most because that would be 13 border corruption task force members located in field offices across the border

as i understand it, and these are kind of the backbone of the fbi's southwest border mission that provide intelligence and coordinate with the southwest intelligence group epic and the national border task force. so i'm going to be looking at that very carefully. i'm also concerned and am going to ask you about the $162 million recession, and what exactly that is going to impact. if it is as it appears that it would be the processing for fingerprinting and dna on ieds, that's an area where i think we could really link it to terrorists, and i wouldn't want to cut that unless you have other plans for using money to assure that that is able to be done.

so -- and then the other area is cutting the contractors of counterintelligence programs, which would be the informant validation, terrorist screening center and foreign terrorist task force. i will ask your opinion of those. and then the other area that i will ask you about is the fbi agents that were involved in the prosecution of ted stevens. we had a disturbing hearing with mr. holder last week in which we talked about the department of justice employees who apparently are still prosecuting at the department of justice even after the report was released and the attorney general himself dismissed the case against senator stevens because of misconduct on the part of the prosecutors.

so i want to know if there are people still at the fbi -- i think there were just two agents that were accused of being involved in it. so i'd like to know your opinion of that as well. so i thank you for all that you're doing in the other areas that the senator mentioned, but especially knowing the role of the fbi now and international intelligence and law enforcement. so that expansion has been on your watch, and i appreciate that you have been able to handle it and work with the intelligence agencies so well. thank you. >> director mueller, please proceed. >> thank you, madam chairwoman. let me also join others on the committee in congratulating you on the tenure. far longer than mine, i might add. also let me thank you for your comments with regard to the fbi

personnel. i'm reminded of that because recently i had an opportunity to talk to a number of agents, analysts, and others who worked 24 hours a day over the holidays in a case that we recently took down in tampa, which was indicative of the degree of sacrifice that you see from the personnel in the organization. so my thanks for commenting on that. let me start by saying the fbi continues to face unprecedented and increasingly complex challenges. as you know and pointed out we must identify and stop terrorists before they launch attacks against our citizens. we must protect our government, our businesses and our critical infrastructure from espionage and from the devastating impact of cyber-based attacks. we must rule out white collar and organized crime, stop child

predators and protect civil rights. and we must uphold civil liberties and the rule of law while carrying out this broad mission. and for fiscal year 2013 the fbi has questioned a budget of $8.2 billion to fund more than 13,000 special agents, more than 3,000 intelligence analysts an more than 18,000 professional staff. this funding level will allow the fbi to maintain, maintain, just maintain our base operations with a small increase, as you pointed out, for financial and mortgage fraud investigations. let me summarize the key national security threats that this funding will address. first the terrorist threat. while osama bin laden and others have been removed, al qaeda remains the top terrorist threat in the united states. core al qaeda operating out of pakistan remains committed to high-profile attacks against the west, and meanwhile al qaeda

affiliates here have attempted several attacks on the united states. such attacks include the failed christmas day airline bombing in 2009, the attempted truck bombing of times square in may, 2010, and the attempted bombing of u.s.-bound cargo planes in october of the same year. we're also concerned about the threat from home grown violent extremists. as you pointed out, madam chairwoman, last month the fbi arrested a 29-year-old moroccan immigrant. khalifi allegedly attempted to detonate a bomb in a suicide attack on the u.s. capitol building. over the past year we have seen similar attempts by homegrown extremists in florida, massachusetts, texas and washington state. these cases exemplify the need to continue to enhance our intelligence capabilities and to get the right information to the right people before any harm is done. turning to foreign intelligence,

while foreign intelligence services continue their traditional efforts to obtain military and state secrets, they also seek technology and intellectual property from companies and universities. for example, last year a long-time northrop grumman engineer was sentenced to 32 years in prison for selling secrets related to the b-2 stealth bomber to several nations, including china. last fall a former dow chemical scientist pled guilty to transferring stolen trade secrets to individuals in europe and in china. these are a few examples of the growing insider threat from employees who may use their access to commit economic espionage. turning to the cyber threat, this will be an area of particular focus for the fbi in the coming years as cyber crime cuts across all of our programs. terrorists are increasingly

cyber savvy and like every other multi national organization, they are using the internet to grow their business and to connect with like-minded individuals. and they are not hiding in the shadows of cyberspace. al qaeda has proud a full color, english language online magazine. extremists are not just using the internet for propaganda and recruitment. they're using cyber space to conduct operations. and while to date terrorists have not used the internet to launch a full-scale cyber attack, we cannot underestimate their intent. one hacker recruiting video, a terrorist proclaims that cyber warfare will be the war of the future. then you have state-sponsored computer hacking and economic espionage which poses significant challenges as well. just as traditional crime has migrated online, so, too, has espionage.

hostile foreign nations seek our intellectual report and trade secrets for military and competitive advantage. the results of these developments is that we are losing data, we're losing money, we're losing ideas, and we're losing innovation. as citizens we're increasingly vulnerable to losing our private information. the fbi has in the past several years built a substantial expertise in order to try to stay ahead of these threats, both at home and abroad. we now have cyber squads in every one of our 56 field offices with more than 1,000 specially trained agents, analysts and forensic specialists. borders and boundaries pose no obstacles for hackers so the fbi uses our 63 legal at shea offices around the world with collaborate with our international partners. we also have special agents embedded in romania, estonia,

ukraine and the netherlands, working to identify key players and here at home the national group which brings together 18 law enforcement and intelligence agencies in order to stop current and prevent future attacks. the task force operates through threat focused cells. special agents, officers and analysts who focus on particular threats such as botnets. together we are making progress. just last week the department of justice and the fbi along with our domestic and foreign partners announced charges against six hackers who aligned themself with a group known as anonymous. they were responsible for a broad range of intrusions targeting companies, the media and law enforcement since 2008. this case was successful because we worked extensively with our overseas partners and we use our traditional investigative and intelligence techniques in the

cyber arena. we must continue to push forward and enhance our collective capabilities to fight cyber crime, and we do need tougher penalties for cyber criminals to make the cost of doing business more than they are willing to bear. just as we did after september 11, we must break down walls to share information to succeed in combatting this cyber threat. and just as we do or did with terrorism, we must identify and stop cyber threats before they do harm. it is not enough to build our defenses and to investigate the harm after the fact. now let me spend a moment if i might to discuss some of the most significant threats in the criminal arena. from foreclosure frauds to sub prime scams, mortgage frauds remain a serious problem and in fiscal year 2011 the fbi had more than 3,000 pending mortgage fraud investigations, more than four times the number of cases

we had in 2005. nearly 70% of these investigations include losses of more than $1 million. and this budget year for fiscal year 2013, the fbi is requesting a program increase of $15 million and 44 new positions to further address the mortgage and financial fraud schemes at all levels. the focus on health care fraud is no less important. the federal government spends hundreds of billions every year to fund medicare and other health care programs and together with our partners at the department of health and human services the fbi has more than 2600 active health care fraud investigations. in fiscal year 2011 these efforts led to the recovery of more than $4 billion, taxpayer dollars. violent crimes and gang activities continue to exact a high toll on our communities. according to the national gang

intelligence center, there are more than 30,000 gangs with more than 1 million members active in the united states today. through safe streets and safe trails task forces, the fbi identifies and targets the most serious gangs operating, targets them as criminal enterprises. turning to the southwest border, i know a concern to senator hutchison. the continuing violence along the southwest border remains a significant threat. and we rely on our collaboration with the southwest intelligence group, the in fusion center and the el paso intelligence center to track and disrupt this threat. with regard to crimes against children, we remain vigilant in our efforts to remove predators from our communities and to keep our children safe. we have ready response teams stationed across the country to respond quickly to child abductions. and through our child abduction

rapid deployment teams, the innocent images national initiative, the fbi and its partners are continuing to make the nation safer for our children. lastly turning to the budget, we seek to maintain our current base resources and capabilities in a restrained fiscal environment. but these resources are critical for us to continue responding to the broad range of national security and criminal threats we face today. ranking member hutchinson, members of the committee, let me close by again thanking you for your leadership and support of the fbi and most particularly the men and women of the fbi in pursuit of its mission. your investments in our workforce, investments in our technology, in our infrastructure, have made a difference to the fbi every day. and the transformation of the fbi that has been undertaken over the last ten years would

not have been possible without the support of this committee. my thanks and i look forward to answering what questions you have. >> thank you very much, director mueller. and to my colleagues who've arrived, we're going to have one round of questions here, recognizing people in the order of arrival. when we've completed that, we will recess and then have moved to a classified hearing with the director, particularly on the sensitive matters, and we will do that in our classified center and we'll recess to room 217. director, i want to move right into my questions. first of all, in your testimony you showed the breadth of the work of the fbi from international terrorism to cyber threats to really working with our cops on the beat. and dealing also with where there is need, there is greed, like mortgage fraud and health care fraud.

let me get right to, i think -- we need to have for the record the major categories for the fbi, which is -- how much of your $8 billion, which is actually a modest request, held very tightly at pretty much last year's funding. how much goes into national security. then how much goes into traditional crime fighting. and then also where do they cross like in the area of cyber because i think many people don't realize that the fbi has such a substantial role in counterterrorism, counter intelligence. the fbi's transformed since 9/11. could you elaborate of the $8 billion what goes into what categories? >> under the budget, 60% of

approximately $5 billion is scored to national security, what i would call the national security programs. that would be counterterrorism, counter intelligence. weapons of mass destruction and then additional pieces of other programs, and that's about 60% of our programs, but for instance the cyber program is split between criminal and national security where 60% of the cyber program, that which is scored to national security, relates to sbrugsintrusions, wh the other 40% relates to programs such as innocent images which addresses child pornography on the internet and ipr, the intellectual property crimes that we also address. so 40% of it is cyber crime. the other 60% of it is perceived

and scored against the national security piece of the budget and that relates to computer intrusions. >> well, let's then go to threat of sequester. i'm concerned that the congress doesn't have the sense of urgency about cyber, but i'm concerned that they don't have a sense of urgency about the threat of sequester. given this $8.2 billion, when one looks at what all we spend on other security issues, this is really modest when you think of the scope, depth, technical expertise, personal integrity required of the agents and all who work there. what would happen to the fbi if sequestered were triggered? >> we tried to estimate what would happen in the event of sequestration, and the preliminary figures show we would face a cut of 650 to $800

million. that translates into a -- this would be of the $8 billion appropriation for 2012. that would translate into a 25 work-day furlough across the bureau. and a reduction by 3500 work years for special agents, gel jens analysts and professional staff. given what i've described in terms of the threats, we would have to do some very substantial prioritization. and we would have to -- and it would have a huge impact on our investigations, have an impact on our intelligence collection and most particularly and not to be underestimated, it would have a very large impact on the morale of the workforce. we would have to re-rotate the furloughs to lessen the impact. we would have to reprioritize. it would set us back to where we

were many years ago and the impact of that sequestration would be felt for many years in the future. >> i have a whole set of questions related to cyber, which i will defer to our classified meeting. but in terms of accountability, i want to ask you about sentinel, where you are in achieving the programatic goals and keeping it within a budgetary framework. as you know, we've been at the sentinel program, which was initiated a long time ago, to provide the fbi with essentially virtual case files to make them more effective, more productive in the old lingo of post-9/11, connect the dots. could you tell us are we getting sentinel connected while we're busy trying to figure out how to connect the dots? >> well, as you are aware, congress -- the contract was

entered into a number of years ago. we had phase one that was produced. phase 2 in our -- from our perspective was not adequate, so we restructured the contrast to bring inhouse much of the software development. we had anticipated that we hopefully would be through the test last fall and start sentinel. we had a test of the software as well as the infrastructure to support the software and the software worked well but the infrastructure needed updating. so since the fall, we have put in new servers and build up the infrastructure to be able to handle the software package that is in the last stages of being completed. there are three factors that go into sentinel. one is i want a product that people can use that will be embraced in the field that actually works and is helpful. secondly is the budget and staying under budget. and third was doing it in a

timely fashion. i have had to sacrifice the timely fashion in order to make certain that the product we put in the field will be embraced by the workforce and secondly to keep it under budget. currently we have built up the infrastructure as a result of the consequence of the test we put in in the fall. we are testing that, and the tests are positive. my expectation is that certainly by the end of this fiscal year, certainly by the fall, that we will have completed this, and the sentinel will be in the field and it will be under or just at budget. well, keep us posted on this. >> i will. i now want to turn to senator hutchison. >> madam chairman, i'm going to let senator graham have my time and i'll come back at the end because i'm going to stay anyway. i do have questions, but i'm going to defer it to senator graham. >> senator gm?