i would look to mr. putin to see how he will actually get himself out of this predicament where the russian economy is facing serious challenges as the result of sanctions and how the international community are united in pursuing this -- i think it is always in our interests to find a dramatic and peaceful way out of the problem. it is incumbent on the u.s. as the leader of the western and free world to help us shape this. the countries in that area who have very serious concerns about other types of russian activity in that region need to have a very strong voice. we see our partners, the germans and others, are taking a look at this as well. charlie: someone in the administration once said to me most of all the possibility of

some russian making a mistake, a loose nuke idea. do you lose sleep over that? director brennan: it has the potential for some type of cycle that was not the intention of either side. when there is a lot of violence going on that will provoke a reaction. and just a quick series of reactions to that. whether we are talking about ukraine or the situation between north and south korea, that spark has the potential. that is why it is important to call attention to these issues. this is the time to try and keep those a bay. charlie: how do you do that?

director brennan: very active diplomacy. sometimes you need to bring to bear various tools of power. the u.s. has a lot available to it. there are sanctions and other types of international activities. the u.s. recognizes rightly that there are not unilateral solutions. it is important for us to work with our partners and engage in those multinational countries. charlie: can we include in our partners china? director brennan: absolutely. china plays a very important role on the world stage. their economic powerr is critically important to a lot of countries in the world. we have regular interaction with the chinese. we are trying to make sure that as we engage with the chinese on these issues we are also cognizant of the fact that the chinese are playing a more increased role in other parts of the world.

they have strategic and political obligations as they continue to move forward. i think they see that china's capability and power is different than what it was a few years ago. that is why they are looking at the various superpower relationships and trying to define them in a way that will advantage china's interest in the coming decade. it's a careful, strategic approach trying to expand china. charlie: and consolidating power and increasing its military? director brennan: and keep the chinese economic engine going. he needs to be able to fuel his investment engine as well. charlie: you talk about security and you think about china in

terms of cyber espionage. some suggested the government acting on behalf of corporations. what is your thought on china in terms of cybersecurity? director brennan: if you look at nationstates across the world, engagement in that digital main, there is so much activity and information out there. some countries will believe that any activity in the digital domain is ok. i think this is where the norms and standards of behavior apply. there have been a number of discussions about what we think is inappropriate activity in that realm. it is not a question of many of these nations face. there is a lot of capability developing so that any country can tap into the capabilities of

these companies and utilize it for their security, political, business, what other interests. when you look at asia, there is one issue out there, which is north korea. that is a problem for the region. china, south korea, japan and and other states, with the unknown actions of kim jong-un about where to go next. there are issues that certainly divide south koreans, the japanese, and the chinese. what we would like to see is a greater dialogue. charlie: and we are committed to south korea and china having a dialogue? director brennan: it underscores how important our relationships are. charlie: when you went to the cia, you said we would like the

cia to do less paramilitary kinds of things. is that true, and do you still believe that? director brennan: the cia has played an important role throughout history. almost every president has utilized the cia's covert action authority. i believe the cia need to retain that paramilitary capability so that should the chief executive decide that we need to be able to apply it to protect an interest, the cia needs to be prepared to do that. my concern is that the cia has a lot of responsibilities worldwide. i want to make sure we address those responsibilities across the board and not swing too wildly one way or the other. when i look back over the last 15 years with the 9/11 situation

and iraq and afghanistan, we had to utilize a number of those paramilitary skills in order to address challenges. thankfully, the cia had that capability and experience. this is part of the motivation behind some of these reforms, to fulfill our responsibility across all of those areas. charlie: before i turn over to the audience, talk about the cia and how you see the challenge of the next 15 years and change and adjusting to that. director brennan: the world is becoming more and more challenging. nationstates are under increasing challenge and threat. more and more, we see individuals who are identifying with subnational groups and mobilizations.

just the authority of nation states and governments needs to be looked at in a different way than 20 years ago. this is one of the things we need to understand, participate, and work with in foreign governments. if you have dissolution of the nation state structure we have had for the past century, it will not work in practice. we have to not only inform policymakers about those trends worldwide, but and analysis for cia has taken on many dimensions than when i first came in 1980. at that time the cia's analytic work with limited to the finished products that we give the president and others. now it drives so much of our activity. different types of operational activities, covert action, that analytic insight, taking tactical advantage of the intelligence we get, as well as taking advantage of the increasingly rich, open-source environment so that we are

better able to inform our activities and policymakers. analysis is becoming more and more the driver. charlie: questions? >> thank you very much for a very informative session. given that terrorists are considered by many to be freedom fighters, how do you distinguish terrorist action from criminal action? director brennan: quite frankly, most often they fall into both categories. if someone is carrying out an act of violence, which a terrorist often does in the belief of a nationstate, that constitutes terrorism according to most.

carrying out that act of the violence would be a criminal activity in most parts of the world. they are both. what we need to do is uncover whatever terrorist activity is going on not only to protect our people but also to uphold the rule of law. we work closely with our partners, that even if a terrorist is not carrying out an attack on that country, whether it is their financial institutions or borders, this is something that should be illegal and uncovered, uprooted, and criminalized back here. charlie: i will try to get to as many people as possible. >> [inaudible]

this administration continues to identify islamic extremism. do you think it is a good idea to try and resist that? director brennan: you need to know what you are fighting. these people are doing it because they believe it is consistent with what their view of islam is. it is totally inconsistent with what the overwhelming majority of muslims of the wortld. describing it as islamic extremism really doesn't give it legitimacy.

they are terrorists, they are criminals, many of them are psychopathic thugs, murderers, who use a religious concept to masquerade and masking themselves in that religious construct. i think it does injustice to the tenants of religion when we attach a religious moniker to them. people i have spoke with throughout the middle east find it disgraceful that these individuals present themselves as muslims. i think we have to be very careful in our characterization, because the words that we use can have resonance. the things that we talk about publicly, islamic extremists, a lot of these individuals are proud of being referred to as islamic extremists. we don't want to give them any type of religious legitimacy, nothing they do has any basis in religion.

>> hi, deana temple, reston. we hear fighters joining every month with isil. can you give us a better assessment of what is going on? director brennan: it's neither black nor white here. i think we have a significant number of individuals who are traveling to iraq and syria trying to join up with forces with isil as well as attaching themselves to franchises across the world. at the same time, the great image of isil in terms of its success in syria is being pierced. we see that they are having

setbacks, we see there is dissension in the ranks. we see a lot of the requirements for having control of territory and having the responsibility to run it favorably is not really a strong suit of some of these thugs joining the bandwagon. we are seeing right now some very significant indicators that isil's engine is suffering. that does not mean it is out of steam. it means it is going through, i think, a phase of development, hopefully of its ultimate demise, that is consistent with other groups. charlie: what would you measure success? how would you measure success against isil? director brennan: i think the success has to be preventing further encroachment in iraq and syria as

well as training to work with our partners to identify those elements cropping up in the region. those are the milestones. success is going to take time, it's going to take years. in order to further diminish not just their capability, but also their attractiveness and appeal. we need to expose just how murderous and psychopathic these individuals are. charlie: let me get one in the back as well. >> [indiscernible]. director brennan: as we know the internet is a very large enterprise. trying to stop things from coming out, there are political

and leagal issues in the united states of concern. even giving that consideration doing it technically and preventing some things from servicing is quite challenging. we see a number of these organizations have been able to post what they are doing on twitter. the ability to stop these things from getting out is very quite challenging. in terms of investigation of these issues, there has been unfortunately a very long multi-year effort to try and pass cyber security legislation. there has been passage in the senate. i think it is overdue. we need to update our legal and policy structures. >> concerning the nuclear situation in iran --

[inaudible] director brennan: i will not get into specific details about the iranian nuclear program. what is taken into account in these negotiations is where this could take place and what are the procedures that will give us confidence that there is not going to be this type of production or capability outside of any type of inspection or regime. we need that verification. charlie: do you worry about a covert site you don't know about now? director brennan: i think we would always worry about that. yes. >> [indiscernible].

is now the time to bring some transparency to the system by saying that nontransparent systems and other institutions cannot have access to the american financial system? director brennan: there are a variety of reasons, some international financial activities that going on terrorism being one of them. terrorists are quite creative in terms of what they take advantage of. other sectors of the u.s. government have been very effective working with international partners to try and uncover this.

terrorists, cartels, and others. but absolutely we do need to do more. charlie: behind you, and then you. >> [indiscernible] director brennan: we have integrated a lot of the analytic elements. we have been able to bring to bear operational capabilities. we do it overseas a lot. we have individual, analysts and others who work on these issues. in the war zone, it is tremendously effective as far as

making sure that we have the experts that can work with the operators. i believe it is important for us to be able to migrate that model into other areas. so we do not just wait for a crisis. i think we have the ability to bring that expertise, that capability in a way that preserves the independent, objectivity, and integrity of analysis, because cia is the central point within the u.s. intelligence community to provide that objective analysis. from my experience, i headed up the analytic effort 20 years ago, we can maintain that objectivity and empower the other elements of the mission by bringing to bear that capability. charlie: i promise to get to the back. someone on the aisle, whoever can get closest to a microphone. [low audio] [indiscernible]

director brennan: i am not engaging. the head of the force of iran. no, i am not. i am engaged with a lot of different partners. some close ally countries as well as some that would be engaged adversaries. engaged with the russians. we did a great job on working with the russians on sochi. we are also looking at the threat that isil poses the united states as well as russia. i try to take advantage of all the different partners that are out there because there is an alignment on some issues. on proliferation as well as

on terrorism and others as well. charlie: yes, sir. here, then here. [low audio] [indiscernible] director brennan: i think you are referring to the drawdown of u.s. military forces at the end of 2012. a lot of times people think that when the u.s. military leaves -- a lot of times that is when the intelligence mission has to begin. because we have to offset some of those losses. but we rely heavily and a lot of parts of the world, including afghanistan, for a military footprint that allows us to nest within a security structure. so it is challenging, but the cia does not get to design all of our presence overseas. we have to take advantage of whatever opportunities we have and work in places where there

is not an official u.s. presence. charlie: here. we'll go back to the back as well. >> can you speak about the importance of capturing terrorists? are we doing that? where? we'll go back to the back as well. >> can you speak about the how are we interrogating them now in today's day and age? director brennan: i think it is important that terrorists be captured. a lot of times they are captured and arrested in the united states. the bureau and others do a great job. what we need to be able to do is to work with our partners again to identify individuals and to have them captured. so there are places throughout how are we interrogating them the world where cia has worked with other intelligence services and has an able to bring people into custody, and engaging debriefings. although there are not a lot of

public pieces on fox news. i know they'd like that. there are a lot of examples where we are getting some very good insight into what terrorist organizations are planning. a lot of times we rely on our partner services in order to have the understanding about what is going on in the country so they can elicit that information. charlie: here, and then it will go to the back there. you are all raising your hand, so i cannot distinguish between you. >> i will try to stand up. [indiscernible] [indiscernible]

[laughter] director brennan: it is tough sorting out the good guys and the bad guys, it is. human rights abuses, whether they take place on the part of isil or of militias or individuals who are working as part of security services needs to be exposed, needs to be stopped. in an area like iraq and syria there have been some horrific human rights abuses. this is something we need to be able to address. when we see it, we do bring it to the attention of authorities. we will not work with entities that are engaged in such activities. charlie: here. yes, sir. right there. right there. back to the back next. [low audio] [indiscernible]

director brennan: the pdb is doing very well. charlie: this is the president's daily briefing? director brennan: i was the president's daily briefer in the clinton administration. had the honor to bring to the president every day the intelligence jewels. the director of national intelligence is the president's primary advisor. so he will go to the oval office and present the president's daily brief as well as any additional information. cia basically provides most of the input into that pdb. we have responsibility for that pdb that continue to endure. it is a very, very impactful -- charlie: so what is the difference in briefing bill clinton and barack obama? who asks the better questions? [laughter] director brennan: oh, boy.

they're two of the most impressive individuals i've had the opportunity to engage with. charlie: having said that -- director brennan: they have tremendous ability to absorb information. i was briefing president clinton on something. i would brief him on something new and he would be able to bring it back up and i would have forgotten it. the same thing with president obama. they both have voracious appetite for information. charlie: president obama, have you seen an evolution of how he views national security? has there been an evolution in how he assesses threats to the united states, the tools he wants to use, his willingness to use force? director brennan: i certainly think there has been a natural evolution. any president who comes into office does not have any appreciation of what they are going to encounter. over six years, the president

has faced more of the strategic and significant national security challenges than a lot of his predecessors. so i think he has gone to school and understands the complexity. he also understands the interdependence of a number of issues as well as the importance and the imperative of working with a lot of our partners. the united ace does not have the unilateral ability to shape the course of world events. we have to work with our partners. i think the president, looking at whether it be terrorism or your or north korea or cyber issues, i think he recognizes just how complex the world is. what he has told me and the cia and the intelligence community is that we need to continue to evolve ourselves so we are better prepared to deal with the challenges ahead of us and not just dealing with the challenges of the 20th century. charlie: one more. back there in the middle. yes?

[low audio] [indiscernible] however -- [laughter] [indiscernible] do you really not believe that there is in the muslim community a worldwide caliphate group that has been operating -- [indiscernible] director brennan: i think within the muslim community over the

course of decades, centuries, millennia plus, there are elements that have a very extremist, radical, and i think warped perspective about what the role of their religion is and how it has to dominate. i think the same is true in a lot of other religions and cultures and societies. and i think those radicals and extremists find expression at different times throughout history and sometimes in a bloody fashion. but i would be very reluctant to try to interpret that then as something that is inherent to religion or culture of a society. sometimes individuals develop these warped views based on a variety of conditions. we look at the people that are joining isil now. they come from all different backgrounds. some are educated. some who are just attracted to a

war zone where they can carry out violence for whatever reason. so i think we have to be thinking more about what are the dynamics that contribute to this. we have been facing this for millennia. in terms of how people will use violence to pursue their objectives. and unfortunately, i think religion has been one of the most common bandwagons that some of these individuals have jumped onto. but it is not specific to one religion or one society, one people. charlie: one last question i'm going to ask. beyond weapons of mass destruction, some have argued that the cia did not see the arab spring coming. it did not see ukraine. it did not see the rise of isil. if those were mistakes, why? director brennan: you said, if those were mistakes. i -- charlie: a lot believe they were.

do you believe the cia saw the rise of those three things? director brennan: i think certainly we had identified a number of developments and trends that were leading in that direction. whether it be the arab spring, for years, the cia was pointing out how some of the authoritarian regimes in the middle east and the arab world were vulnerable to this type of popular reaction. were we able to determine and forecast that there was going to be a tunisian fruit salesman that was going to set tunisia on fire? no. but those conditions were something that was identified. i think it gets to the point that there have been so many developments recently. a lot of them are populous. the traditional ways of intelligence collection may not lend themselves to this. having somebody in a senior

government position might not give us the right perspective. we need to have a better sense of what is happening in the street. that is why looking to the social media and other things, we can maybe have a better sense of the condition of a country that would be more conducive to the forming of a storm. in ukraine, people say you did not just that putin was going to do this or that. we identified the pros and cons. quite frankly, putin as well as others have not determined their next chess move. so intelligence is not a panacea as far as having a crystal ball. what we need to be able to do is to help policymakers understand the forces at play and how certain development and actions may affect that calculus. that's what i think is

important in the cia where we have so many challenges across the board. we have not even talked about africa and south america. venezuela and nigeria. we have this global mission. it requires us to have all different types of access to information. human sources. having insights, having expertise, being able to work with individuals in the council and other parts of the private sector that we will be able to flesh out our appreciation of developments. charlie: john, thank you for coming. [captions copyright national cable satellite corp. 2015] [captioning performed by the national captioning institute, which is responsible for its caption content and accuracy. visit ncicap.org] announcer: on the next washington journal, a discussion

about states and the right to work law. and the executive director of the fraternity and sorority political action committee kevin o'neill, offers his reaction to the recent incident at the university of oklahoma. join the conversation on facebook and twitter. "washington journal," live at 7 a.m. eastern on c-span. announcer: here are some of our featured programs this weekend. saturday at 1 p.m. eastern c-span2 "book tv" is live from tucson arizona, featuring discussions about race and politics and the nation civil war. and sunday at 1:00, we continue live coverage of the festival with panels on the obama administration, the future of politics, and issue of concussions in football.

on "american history tv" on c-span3, we are live in farmville, virginia, for the 16th annual civil war seminar. and sunday morning at 9:00 we continue live coverage of the seminar with remarks on the surrender of the confederacy and the immigration of confederates to brazil. find the complete television schedule at c-span.org, and let us know about the programs you are watching. call us, e-mail or send us a tweet. join the c-span conversation, like us on facebook, follow us on twitter. announcer: defense secretary ashton carter addressed fort meade, maryland, thinking soldiers for their service and assimilating what he calls a new breed of worrier into the military.

he also answered questions about his priorities as secretary of defense. the commander of u.s. cyber, and nsa director admiral mike rogers introduced secretary carter. his remarks are about 25 minutes. >> ladies and gentlemen, the secretary of defense. we are blessed to be joined by the 25th secretary of defense, secretary ashton carter. he is uniquely positioned to build on the work he did in his previous time in the department to take cyber to a greater level of capability and service.

he is energized to see how his initial work has now become a reality. secretary, thank you for your time, sir. [applause] secretary carter: thank you all. thank you, admiral rogers. we are lucky to have you in charge here, and we count ourselves lucky to have each and every one of you i see front of me. i have been learning, then updated on the development of cybercon and nsa, the two biggest groups represented here. we are grateful that you serve. this is the first troop event i have done as secretary of defense in the united states.

there is a reason for that. that is the importance of what you are doing to our department and our country. that should tell you something about how vital this mission is that you will have taken on. how important it is for the security of our country, and for that matter, the security of our economy and our people in their individual lives. cyber touches all aspects of their lives. if you do nothing else and get nothing else out of this encounter, i want you to go home tonight or make a call or tweet at your family or do it every people do, but, in whatever medium you use, please tell them that you were thanked today by

the leadership of the department and, through us, the entire country for what you do. we do not take it for granted. you are what we wake up for every morning. your service, your sacrifice your professionalism, and your welfare and that of your you are what we wake up for every morning. families is all we care about. we are so, so grateful for it. with all that is going on, in iraq, ukraine, the asian pacific, the domain that you protect, cyberspace, is presenting us with some of the most profound challenges, both from a security perspective and an economic perspective. the president had a cyber security summit a few weeks ago and, as you can see, our

national leadership at every level is really seized with the need to get on top of this problem. cyber, which is what you do, is a marriage of the best people and the newest technology. that being the case, and it being the case that there is a high demand for both of those things, the best people and the newest technology across the country, means that we, and i know that we as a government and the department and military need to be open to those sources of good people and new technology. we need to be open in order to be good in this field.

that means we need to build bridges to society. bridges that are not as necessary in other fields of warfare that don't have a civilian or commercial counterpart. to the extent that this field does. we need to build bridges and rebuild bridges to the rest of our society. that means we need to be open. of course, we cannot be open with what you do in the traditional sense. to be open to new ideas, we need to be open to people we cannot always tell them what we are doing, but we need to be open enough with our government so that it knows what it is doing so that its officials can, in turn, turn to our people and say, i'm sorry, i cannot tell you everything, you would not want me to tell you everything that is being done to protect you because that would undermine

our ability to protect you but you should trust that your senior officials and elected officials and so forth are acting on your behalf. and i think we do have that trust. people do understand that what you are doing for them is necessary and being done in an appropriate manner. we need to be open generationally. we need to be open to a new generation. because we need the young and, uh, to be attracted to our mission. we need people who grew up with technology that was not available when i was growing up. that will be true with even those of you who are now the young people in front of me who your head -- [laughter] you too will be overcome by

new technology at one point. our institution in general needs to be an open one. in order to be really good at anything, especially good at what you do, we need to be open to a younger generation. your leaders know that, i have talked to them about that. we know that that is the only way we will continue to have any elite corps of people like the ones who are sitting in front of me right now. i actually think that, in that regard, the development of the cyber workforce, which we are working on now, can be a model for other things we do in the department. the freshness of approach, the constant effort to stay up and

reinvent that your field demands is something that we can use everywhere in the department. we are looking to you in a sense as a model and a trailblazer for many other things we do in the department. one of the things i have said, i'm determined to bring up to our department is openness to new ideas. the only way we will remain what we are today, which is the greatest fighting force the world has ever known, we will. for the institutions that you joined, be they military services or field agencies or new commands, they are trying to figure out how to welcome this

new breed of warrior to the ranks. what is the right day to do that? had you fit in? -- how do you fit in? i had lunch with some of you earlier, and we were talking about how this skill set and this professional orientation fits into the traditional armed services. it does not fit into the traditional armed services. we have to figure out how to get it to fit in so that you all have the full opportunity to bring to bear on your careers the expertise you gain here and sense of mission that you felt here and carry it into the future. i know that is a challenge in front of us. you all feel it in your individual careers. i am determined that we can create that fit, but that comes with doing something new and

different and exciting. you are going to be pathfinders but we will find a path together. you are, whether you are civilians, military, contractor, all parts of our workforce. we regard you as on the front lines in the same way that last week, i was in afghanistan, and we have people in the front lines there. it is the front line of today's effort to protect our country and while you may not be at risk in the way our forces in afghanistan are, we require if you the level of the

dedication, and i know you show that and we count on it. nsa and cybercom, one around for a long time, and one pretty brand-new. the honest truth is that it is a work in progress, we are working out that relationship. my view is that we are doing the right thing and having the leadership of those organizations be in the same place, and one way of thinking about that is we do not have enough good people like you to spread around. we need to cluster our hits as a country. that is one of the reasons why we will keep these two together, at least for now. i want you to know that in

addition to thinking about how you are organized, a big priority of mine is going to be to make sure you are getting the training and equipment and resources you need. this is a high-priority area. if you read about sequester, which is a terrible, stupid thing that we are doing to ourselves, i have nothing good to say about it, but i think that even in the era of ourselves, i have nothing good sequester, we understand that this mission is one we cannot afford not to keep investing in. that means that that fact, together with our determination to help you chart rewarding, lasting careers in this field -- those two things together ought to tell you also

how much we value what you do. let me make one last point, and this is something that you will know but it is important to remind our fellow citizens and for that matter the rest of the world. we build our cyber mission to defend the openness of cyberspace, to keep it free. we are the ones who stand with those who create and innovate. a gift those who would steal and destroy. that is the kind of country we are, that is the kind of cyber force we are. we are going to execute our mission while being as transparent as possible because that is also who we are. that is why i wanted my remarks

to you to be public, because we are being filmed here, that is an unusual thing for you, and i know some of you cannot be seen on television because of the nature of your work. it is rare that media come into the premises of this organization. but i not only wanted you to know how important what you do is for the country but for everybody else to get that, as well. what that means, i suppose, is that even if you forget or to lazy or for some other reason do not tell your family that you were thanked today, they will learn anyway. [laughter] so i suggest you beat the media to the punch and, once again, go home, call home, call a friend and say, today i was thanks by the leadership of my department

and, through them, by the country for what i do. tell them that. thank you very much. [applause] there are two microphones here which, in nsa fashion, are only connected by wires through the floor. have at it. any subject at all, any question or comment -- yes? >> in a budget constraint environment, what are your top priorities? secretary carter: first and foremost, people. that has got to be number one, because that is what makes our military the greatest in the world.

it is also technology and a lot of other things, but first and foremost it is people. that is something we need to keep investing in. i know that is not the only investment we make and we have to have a balanced approach to defense spending, because each of you wants not only to be adequately compensated but you want to have other people to your left and right, you want to have the best equipment, and you don't want to go into action without the best training. each of us wants to see some balance in how we spend the defense dollar. it is not just a matter of money. it's a matter of caring about our people, making sure each of

our people is respected, and all of those things. number one, for me, is people. the second thing i would say is we need to be an open institution. the way we are going to stay excellent is to be the most excellent part of society, and to do that you have to be pulling the best of society. you guys are superb. this is why people want to hire veterans so much, because you are all so good. i know that is another problem i don't want you being hired away. and i can't stop you. the reason people want to hire you is because you are so darn good. >> you spoke of military trying to fit in with respective branches. what are the possibilities of establishing a cyber branch of service? secretary carter: that is a very

good question and we have asked ourselves that over time. there may come a time when that makes sense. for now, we are trying to build upon our strengths. we are trying to draw from where we already are strong. and not to take too many jumps organizationally, at once. why is cybercon here? we didn't want to start over somewhere else. maybe there will come a day when these two things will be so strong and different that they will not need to be in the same place, but that is not now. there was a question about why we use so many uniformed people. we started we thought we had

strength. i think you have to look at this as the first step in a journey that may, over time, lead to the decision to break out cyber the way the army air corps became the u.s. air force. specials ops was created although that still has service parts to it. we are trying to get the best of both. our armed services give us years of proud tradition, a whole system of recruiting, training. it is not something you walk away from and say, you are going to start all over. it may come to that, and i think it is an excellent, thoughtful question. we have given some thought to that, and for right now we are walking before we run. that is one of the futures that cyber might have.

>> good afternoon. my question is in regard to cyber and authority. the vast amount of our work is done with network administrators. currently, most of what we report on is recommendations. what is your vision to make those recommendations a requirement for network administrators? secretary carter: that is also a very insightful question. it is a fundamental issue. let's put out on the table. the information networks that it is cybercom's first responsibility to protect -- dod -- there is no point in me buying all these ships and planes and tanks if none of them

are going to work and our kids aren't going to work unless there are networks that stitch the whole thing together. we have got to, got to, got to make our networks secure. if you fall in on a network, and say there are a whole bunch of people working on this, they are responding to people calling the help desk and driving them crazy with a problem they cannot figure out, people who want more and more and more, want faster and want to add to people, they are trying to juggle a lot -- many of them are administering networks that are outdated. and have been around for a long time. there is going to be a tension. we go into this with our eyes wide open.

i will stand with you on the side of requiring protection because it is not adequate network administration to downplay security. you are leaving it open to risk. we cannot have that. if all the network owners and operators were good at protecting themselves, we wouldn't have to -- right? we would not have to have these national force protectors. but they are not. we are counting upon extra-proficient people to help them. there will always be a little tension when you show up at the door and they have a problem but you got to do what you got to do

because they are no good to us if they are penetrated or vulnerable. i think that is all i can take for right now. let me once again thank you. and please pass that on. [applause] i would like to look each and every one of you in the eye and say thank you in a very personal way. you also get one of the new carter coins, which are hotly minted, and the price hasn't been run down on ebay yet. [laughter]

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>> the gridiron club hosted its annual dinner today. it was founded in 1895 by newspaper editors and it is the oldest organization in the capital city. the annual affair is close to cameras and features skits and songs from journalists and politicians. steven scully spoke to the historian george condon about the dinners history. steven scully: george condon white house correspondent we are here in your offices overlooking the potomac and the kennedy center. you also have another title -- historian for the gridiron club. let me ask you about the dinner itself. it is among one of the most formal in d.c. why? mr. condon: we consider it kind of casual. you don't spend a saturday at

home in white tie and tails? as is so much with the gridiron club, it is tradition. that is what they wore at the beginning and we've stuck to it. there has beeenn conversations about changing it. president roosevelt was a big lobbyist to try to get it changed. his final exchange with gridiron was a letter about a week before he died of inin 1945 where he explained he cannot come to the dinner and was going to be in georgia. he said he noticed ani in the invitation it was black tie. that speaks plain to him it was a wartime thing -- they had to explain to him it was a wartime thing. they were not going to do it during a war. steven scully: let's talk about

the presidents and the gridiron club. any president refused theo show up? mr. condon: the founding came at a time between real tension between the press and public officials. congress was furious with the press because stories were told about a scandal that was about an exchange of members of congress getting stock in railroad. the gridiron club had an effort to feelheal that rift. so, at the very beginning, you had president grover cleveland who just survived what is still probably our nastiest presidential election in 1884. he really hated the press. hatred which grew when he really really this liked how

the press covered his engagement and wedding at the white house and then his honeymoon. really hated how they covered his honeymoon. he is the only president -- after that benjamin harrison attended and every president since him has attended. steven scully: ronald reagan seemed to enjoy the dinners. mr. condon: he did. steven scully: he went to all eight? mr. condon: i believe -- yes because he had just gone to the one before he was shot. so yea, hes, he did go to all eight. but, -- he had some memorable lines. he had one line when farmers were complaining about his policy and sales to soviet union. he said, we should keep the grain and send the farmers.

that was supposed to be off the record but it got up. steven scully:out. steven scully: george w. bush, barack obama, bill clinton -- what is their attendance record like? mr. condon: president clinton was in the hospital during one of his. i think he went to six of the eight. george w. bush, i believe went to every one. in fact, both presidents clinton and bush participated in this show. in 1993, president clinton put on a sparkly costume. and played the saxophone. and, in his last year, president bush went on stage and sang a song that the lyrics were changed. it was a western song. steven scully: when the organization was formed, the

white house press corps was predominately white and male. mr. condon: you noticed? steven scully: when did the gridiron change when it came to the membership? mr. condon: i should have checked the exact year. kyle, the columnistf the columnist was the first african-american member and became president in 1988. it was in the 70's when he became a member. women also was in the 70's. there was a lot more focused in the change of women and a lot more opposition. there was not really a opposition to having a black membership. there were protest dinners gridiron dinners and they startedd attracting some of the big names -- george mcgovern made a point of going

to the progestin or instead of the actual dinner. the members pretty much caved finally. steven scully: over the years, has a dinner ever been canceled or postponed because of a natural disaster -- you mentioned war. mr. condon: it was canceled during war war world war i and world war ii. fdr said he was not going to be able to attend. he died the next week and the dinner was canceled. there have not been any recent cancellations. steven scully: what about demonstrations outside the hotel or protesters? mr. condon: it happened in the one i mentioned involving women. there were pickets and protest dinners. there really has not been much of anything other than that. steven scully: there were a couple of bucks behind you are going the history of the gridiron dinner. as a historian, what is your job and what are you looking for that has not already been reported? mr. condon: one thing i'm very

grateful for is i'm also a historian for the white house correspondents. the frustration is nothing was saved. we did not know which years we had dinners or where or who our entertainers were. the contrast with gridiron is sharp. this is a book that was written only 20 years after. one 265 years after. i'm new to the job as gridiron historian. i have not gone yet to the library of congress, but at the library of congress we have given all of our files. it is just a treasure trove. one member -- i saw this last week -- started maintaining a scrapbook in 1885 and kept it going until his death in 1920's.

justice scrapbooks filled -- just his scrapbooks filled large boxes. everything was save -- seating diagrams. in this book i can find minutes of meetings in 1897 and see who was late on their dues and who -- you had to pay one dollar a year and some people had not paid. they were kicked out. it is wonderful. i have only scratched the surface. steven scully: this year's dinner is at the renaissance hotel in d.c. ticket prices are $300 per person. for those who wonder what happens inside the room, explain. mr. condon: the whole point of the dinner and the club, unlike the white house correspondents association which has a real function of fighting for coverage issues. that is the main function. gridiron, the main function is the dinner. and, there is 600 people.

it is not 2600 people like the correspondents dinner. it is only 600 people. and, it is in between courses you have two skits. one skit about eight songs lampooning the democrats and one skit lampooning the republicans. and, after the democratic skit, you have a speaker representing the democratic party. this year it is virginia governor terry mcauliffe. he will speak and hopefully be humorous. after the republicans get, this year's republican speaker is wisconsin governor scott walker. at the end of the night, president obama will speak. different presidents and then different approaches. president clinton was the first president to bring videos and

some of them were hilarious. president obama, i think he did video one year. basically, they are funny speeches. steven scully: as you research andthe gridiron dinner and its history, what has surprised you the most in your early research? mr. condon: that is a good question. the biggest frustration is it because so much was off the record, i would love to know what was in some of those speeches by the yearly presidents. the most intriguing incident that i have come across was a president of the united states almost came to physical blows at one of the dinners with a u.s. senator. steven scully: explain. mr. condon: president theodore

roosevelt had in what historian c is a real blot on his record had basically fired without retirement benefits or anything 160 african american troops in texas. and, senator joseph forekeriker took up their cause and was really loud in protesting president roosevelt's treatment of them. they were sparked by a courta cartoon in the dinner program which looking at it today was pretty racist. but, they got -- president roosevelt said he was not waiting until 10:30 p.m. to give a speech. he wanted to give a speech now. he ripped into the senator and that it was unusual they let the senator respond.

he ripped back into the president. they ended up not even servin the coursesg all the courses of the meal and atthey canceled some of the presentations. because it was so ferocious, they realized they have tod to get off the record that year. that was the most surprising event of any dinner. steven scully: george condon white house correspondent and historian for the gridiron club. thank you for being with us. >> this week, c-span is in new hampshire for the road for the white house. today just before noon scott walker at a republican party grassroots workshop. sunday night, senator ted cruz at the annual lincoln reagan dinner. this sunday on q&a director of

the georgia university medical center watchdog project on how pharmaceutical companies lobby congress and influence doctors on what medications to prescribed. >> while it is illegal for companies to market a drug before it has been approved by the fda it is not illegal to market a disease. drug companies have sometimes invented diseases or exaggerated the importance of certain conditions or exaggerated the importance of a particular mechanism of a drug or example. and then blanketed medical journals and medical meetings and other venues with these messages that are meant to prepare the minds of clinicians to accept a particular drug. also, to prepare the minds of consumers to accept a particular

condition. >> sunday night at eight eastern and pacific. >> according to federal investigators, state irs agents have targeted more than 366,000 people with phone calls demanding payments and have cheated filers out of about $15.5 million. on thursday, the senate finance committee examined some of the latest fraudulent activities being used against taxpayers during the filing season. this hearing is 1.5 hours. >> welcome. the committee will come to order. the committee meets to talk about growing criminal activity that is threatening taxpayers across the country. these criminal acts are perpetrated by thieves hiding behind telephone lines and

computers, preying on honest taxpayers and robbing them of tens of billions of dollars a year. we are here to hear about federal and state officials on the fight to catch these crooks and protect taxpayers. first, i would you talk about one case in particular. one very large number, by the way. this is a hearing that is long overdue as far as i am concerned. on this committee, we often talk in terms of hundreds of millions, billions, or even trillions of dollars. some joke about a number being referred to as budget dust, even if that number has nine or 10 zeros behind it. let me tell you about a number that is stunning, $15,800. that $15,800 saves hard work sacrifice, and honest living. that is saved for the down payment of a new house for a growing family. that is $15,800 in savings that has been wiped away by criminals who use fear, confusion, and intimidation as their weapons.

this is a story of a family from taylorsville, utah. i would like to play a clip of a utah affiliate who tells their story. >> these crooks have gotten a lot more sophisticated and a lot more aggressive. this family learned that the hard way, one week ago. brenda and melissa dagen are excited for christmas but only have a few christmas presents under the tree. melissa got a phone call saying

she owed taxes from 2009 and was about to be arrested. melissa: i was like, what can i do to fix this? i can't be arrested. i have no one to watch my kids and they would not let me get off the phone. anchor: another scammer was calling her phone with the bogus caller id -- 911. melissa was convinced they were on the way and withdrew $15,800 which he used to pay prepaid cards and gave the code numbers to the thieves. that money was gone before she realized she had been victimized. melissa: i have not been able to stop crying. i cannot eat. i am sick to my stomach. embarrassed, just lost that all of this money we were trying to save for a down payment on a home -- because we need a bigger home to take care of three kids -- and my heart has been totally ripped open because of this. anchor: the story is too familiar to lieutenant doyle of the unified police department which is investigating dozens of

these cases. lieutenant: they are demanding people pay and get prepaid debit cards, and they are telling them they have outstanding warrants for the arrest. anchor: for the record, neither the irs or police collect payments over the phone. melissa wishes she had known that one week ago and has a message for the people who did this. alyssa: i forgive you, but it is sick and wrong and i do not have they can live with themselves. i do not know how they can make phone calls and hurt people. not any time of the year, but especially during christmas. anchor: melissa's cousin has started a go fund me page where they can recoup some of those losses. total strangers are giving whatever they can to melissa and brendan's fund to help the family recover. we have put a link to melissa and brendan's go find me page on

our website, goodforutah.com. >> that is one family out of millions of that have been targeted and thousands victimized. this is one scam. make no mistake, taxpayers across the country are facing identity theft in record numbers. once again, we have to stop this. taxpayers must be more aware of the risks and better protected from attack. these criminals must be found and brought to justice. we looked over to the testimony of eyewitnesses on today's panel. we will be hearing more about how to accomplish these goals. let me turn the time over to senator wyden. senator wyden: thank you chairman.

i appreciate the chance to talk and work on these issues in a bipartisan way. since the days irs opened their doors, scam artists have been hatching up slick new ways of stealing taxpayer dollars from the treasury. what is knew is that the ripoff artists are now stealing americans' identities and personally threatening them on an industrial scale while directly robbing them of their hard earned money. the fraudsters constantly dreaming up new tactics, and then they milk them for all they are worth before they start getting caught. then it is lather, rinse, and reapeat. onto the next scam and always one step ahead of the law. today, the committee will examine several of the fraudsters' latest strategies that are plaguing taxpayers. the one that is hitting oregonians hardest is the fake

phone call demanding money or personal information on behalf of the irs. in fact, these calls were the number one consumer complaint registered with the oregon department of justice just last year. not everybody knows that the irs simply does not cold call individuals making demands or threats. it is pretty clear from my vantage point, there is a lot more work to be done to defeat this scourge. given the sophistication of this criminal activity, and the fact that a lot of it comes from overseas, this sure looks to me like an emerging type of organized crime. so the real question is, what is it going to take to root it out and get the bad actors on the sidelines? what is the role for more prosecutions, stronger deterrence, more cops on the

beat? and what is the best way of getting the word out so taxpayers are not tricked into surrendering their life savings to some intimidating voice on the other end of the phone line? even if our people managed to avoid the phone calls, you can bet that the crooks find other ways to profit. tax preparation software has become the scammer's new fast lane. they acquire data from the black market or hack into commercial databases, and then they filed false returns electronically. the victims might not find out until too late. there have been reports of this in 2015. we will hear some software vendors are not doing enough to prevent fraud. in my view, part of the challenge is getting the state's internet tax services and irs on the same wavelength.

they have to work together to make sure the criminals cannot just in a nimble fashion slide from one jurisdiction to the next, as they rip off more unsuspecting americans. so taxpayers may choose to avoid the software, but not even a paid tax preparer is guaranteed to be safe. in fact, many of them do not meet any standards for competence. there are far too many of these con artists out there who are willing and able to pray on the people who come through their doors. in some of the most offensive cases, they secretly falsify their victims returns to boost the refunds and then they pocket the difference. once the tax season ends, the crooks disappear from storefronts they occupy, and there is no trace on where they have gone. a few states like mine have rules in place to help shield taxpayers from this kind of ripoff. most states do not.

senator cardin and i have introduced a taxpayer protection and prepare proficiency act at the beginning of this congress to give all americans the security they deserve. our colleague, senator nelson, is also a leader on this issue of keeping taxpayers save from identity that and fraud. all of us wish, as i indicated to chairman hatch, to work on this in a bipartisan way. the bottom line, there is no end to the ingenuity of the con artist, so my hope is that we will get some fresh ideas for catching up to this wave of fraud and stopping. obviously, it cannot come soon enough. we have a distinguished panel here today, especially pleased that the director of consumer outreach and education in the oregon attorneys general office is here. we look for to working with you on a bipartisan way. chairman: our first witness is attorney general caroline cirillo of the tax division of

the u.s. department of justice. she was appointed attorney general of planning and policy of the tax division in january of this year. prior to that, she was chair of the tax and litigation group in baltimore. we welcome you to the committee and look forward to hearing your testimony. cirillo: thank you. members of the committee, thank you for the opportunity to appear but are you to discuss the department of justice effort to combat identity that and tax refund fraud. the department greatly appreciate the commitment that the committee has brought to this very important issue. combating the theft of personal information to file fraudulent

tax refund claims is a problem across the country. your efforts to bring attention to this growing crime will help educate taxpayers about the importance of detecting and reporting identity theft and fraud. today's hearing also sends a strong message that the government is determined to identify and prosecute individuals behind these schemes and in doing so, will bring all its resources to bear. the department tax division, which i have the privilege of meeting as acting assistant attorney general, has one purpose. to enforce the nation's tax laws fully, fairly, and consistently through civil litigation and criminal prosecutions. our close working relationships with irs criminal investigation, tigda, the fbi, the u.s. postal service, and other federal state and local law enforcement continue to attend the government possibility to

respond quickly, efficiently and forcefully to changing patterns of criminal conduct. stolen identity, is an example of this type of challenge. in surf crimes, they filed a false refund claim and have the refunds of electronically deposited to a bank account or mailed to an address where the wrongdoer can access a check. sirf crimes involve multiple vendors who have large flames of information. sirf crimes hit vulnerable members of our society. these include, and are not limited to, the elderly, the hospitalized, students and members of our military deployed overseas. while the irs will make good on

any refund due to the taxpayer there are inevitable burdens and delays while the matter is addressed. the victims often experience a profound sense of violation. moreover, we are all victimized by loss in the u.s. treasury. to this end, the tax division expedites the review procedures in sirf cases. the authority to initiate tax related jury investigation and to charge those involved in complete without prior authorization. the collaborative efforts of the tax division and the law enforcement partners have strengthened the response to the crime. through december 31, 2014, they prosecuted over 1400 individuals and courts are imposing substantial sentences. to further leverage from its

investigation, in february, the assistant attorney general created a sirf advisory board. the board works to develop and implement a national strategy to ensure consistent and infected nationwide and prosecution of sirf crimes. for example, they conduct sessions for fraud analyst, they provide training and resources to prosecutors across the country. it works with u.s. attorney offices to develop local task forces. these initiatives enable prosecutors and law enforcement agencies to work together to identify schemes and to pursue the most culpable offenders. while providing the irs with real-time information that can be used to improve its filters and stopped the issuance of

fraudulent refunds. the prosecution of sirf crimes is a national priority, and together with our law enforcement partners, we will continue to look for the most effective ways to punish the offenders and bring this conduct to an end. thank you again for this opportunity to provide the department's perspective on this issue. i look forward to answering any questions. chairman: thank you so much. our next witness is timothy, the deputy inspector general at the treasury. camas has served at the inspection service for over 23 years. he has a long career of having successfully investigated cases of domestic terrorism, bribery and fraud. we certainly welcome you and we look forward to taking your testimony at this time. camas: thank you for the opportunity to testify on the topic of the tax schemes and scams during the 2015 filing

season. by raising public awareness about criminals efforts to swindle honest americans out of their money, we may provide the next person from becoming a victim, which is a very good thing. each year, the irs compiles what it sees as the dirty dozen tax scams on its website. many of these schemes take during the filing season as people repair returns or utilize the service of paid preparers. my statement today briefly outlines the top schemes and scams currently affecting taxpayers as they have proven to be surprisingly effective ways to steal money, in many cases before the victim realize they have been scammed. the first scams, the phone impersonation scam which landed on the top of the dirty dozen list. it is the largest and most recent impersonation scam we are aware of. it has claimed thousands of victims. here's how it works. the intended victim receives an unsolicited phone call from a

person claimed to be an irs agent. the caller uses a fake name and tells the victim a made up badge number. the callers may know the last four digits of the victim's social security number. they say that if they fail to pay, they could lose their drivers license, or be arrested. i received one of these calls at my home on a saturday. tigda has received many reports of these calls averaging between 9000 and 10,000 calls coming to my agency. as of march 9, two thousand 15 -- 2015, over 3000 individuals

have been victimized by this by paying a total of $15.5 million for an average of $5,000 per victim. the highest reported lost by one individual was a staggering $500,000. in one particularly sad story, a member of this committee forwarded a letter to us from a constituent whose close relatives suffered a tragic death after receiving harassing phone calls from this. we are reaching out to the media, irs, national trade commission, and providing testimony to this committee it helps to eliminate this type of abuse and to prevent vulnerable individuals from becoming victimized. another scam involves the story the victim has won the lottery. this is a continuation of an old scam and starts with an e-mail or telephone call out of the blue, declaring that the victim has want a lottery. in order to declare the winnings, they must first pay the tax to the irs. the lottery scam often, but not always, originates from outside of the united states. in the end, the victims pay the

money, but they never received any lottery winnings. just as serious as these scams the risk of taxpayer refund identity theft. the irs has made improvements in identification of identity theft returns before fraudulent tax refunds are released. continued attention is needed to effectively combat this crime. for example, the irs still does not have timely access to third-party income and withholding information. most of the third-party information is not received by the irs until well after the taxpayers begin filing returns. the deadline for most information returns with irs is march 31. yet, taxpayers begin filing returns, this year, on january 20. this gap in time prevents the irs from conducting validity

checks. legislation would be needed to accelerate the filing of the information returns. the irs has taken steps to effectively prevent the filing of identity theft tax returns by locking the tax accounts of deceased individuals to prevent others from filing returns using the departed's name social security number. for 2014, the irs rejected over 338,008 file returns and stopped paper returns through the use of these locks. just 11 days after the filing season began, the irs reported that it had prevented the issuance of more than $2 million in fraudulent refund -- refunds as a result of filters. other schemes, such as prisoner fraud, tax preparers, and phishing scams, are discussed in depth in my written testimony. much work is being done on multiple fronts to address real activities. we hope this work will reduce or eliminate their impact on taxpayers. chairman hatch, ranking member whited, thank you for the opportunity to share my views.

i look forward to questions. chairman: thank you so much. i will turn briefly to introduce our next one. >> thank you very much. thank you to the leadership of mike pence and our department of revenue commissioner. the department of revenue developed a plan that stopped $88 million in attempted identity theft in the last filing season. this involves 78,000 fraudulent returns in 12% of all the refund dollars that were requested. the cost to that, as mr. aly will explain, he cost the state $8 million. the return of the investment was $88 million. compared with some of the things we do around here, which is usually the opposite, spend 88

and got eight back. we are currently bringing the needed changes to our state. the commissioner brings a wealth of private commissioner experience and has worked for decades in the banking industry. he is a cpa, he has started businesses, so he understands firsthand how important customer service is for the department of revenue. chairman, i thank you for inviting him to testify and look forward to his testimony.

chairman: thank you for inviting me to discuss this important topic with you today. on behalf of governor pence and the citizens of indiana, it is our honor to be here and share our story. i would like to share three points with you today. first, the nature of the problem and overall breadth. steps indiana has taken, recommendations to fully and effectively address this epidemic problem. tax refund fraud is one of the most lucrative platforms for criminals to monetize the volume of stolen identity information. the advent of electronic filing and processing, that has only enhance the ability for us to file large volumes of fraudulent returns at nominal cost. as the senator indicated, in 2014, 12% of the total refund dollars that were requested from indiana were thought to be fraudulent. fortunately, we were able to stop them. it represented 78,000 fraudulent returns that we stopped that contained manufactured or stolen ids. again, we saved the state $88 million in the process. it is still early in the 2015 filing season. we are already seeing a dramatic increase in the use of valid ids, which have been stolen. with the increase of the reporting successful hacks across the united states of u.s.

companies, we believe the availability of valid stolen ids has never been greater. the fraudsters have clearly popped -- upped their game and we must do the same. in 2012, we realized we were suffering losses from refund fraud. accordingly, we worked with governor pence and his team to effectively identify a program that we could begin building. we knew that we needed to take significant, systemic modifications and we needed to do it before the next filing season. our staff reached out to states through the federation of tax administrators and also our partners at the irs, to see if there were some ideas we could borrow and implement rapidly. the response was very supportive and we noted partial solutions and fragmented efforts across the group. with strong support from

governor pence, we initiated a program to screen all returns for suspicious identities. this program used lexis-nexis, a third-party, to screen returns and note identity theft information such as name address, social security information, and other identifiers. we would tell the ones that proved to be suspicious and sent a confirmation letter to have them confirm identities. again, this had a dramatic impact in our ability to recognize fraudulent identities and stop those refunds. the identity confirmation quiz is only part of a larger process. it became very clear in the beginning that the department would need to make some systemic changes by making significant investment in both staff technology, and further, we needed to change our approach to

how we deal with fraud. for the 2015 filing season, we have implemented new pre-filter platforms that include decision-makers that will allow us to better identify those valid ids. we have also defined greater expectations from our certified software vendors as to the information they will provide to us and the level of fraud they send our way. we are still battling this problem, but a few key lessons have been learned. first, it must be a strategic priority. identity theft and refund fraud is here to stay away to address it. it requires leadership, staff, technology, and third-party resources. second, collaboration. no one has all the answers and we cannot solve this problem by ourselves. sharing data, best practices experiences, among all the revenue agencies across the states as well as the federal and software vendors, is going to be important. having access and ability to communicate on a timely basis is critical. we have got to develop targeted solutions. fraudsters will continue to change approaches and we have got to stay ahead. finally, note that prepaid debit cards is an issue that needs to be addressed. it is a preferred tool of

fraudsters in receiving refunds. we found that over 50% of those returns with prepaid of the cards are fraudulent. in terms of some recommendations on things we can do, we consider that the solution really encompasses a three legged stool. each has unique data perspectives, and capabilities that the system requires in order to make better decisions. the irs is in a great position to help us manage highly sophisticated fraud. states must work together. finally, software vendors also have the information and can be helpful in providing and sharing their intelligence. in conclusion, i just want to summarize that the problem is here to stay and we got to address it. secondly, collaboration and sharing of information among the irs and state, reducing some barriers. anonymous aggregate

information is critical. third, we have to make investments. we made an investment that yielded a 10 times return. i am confident that providing continuing investment is the only way to get out ahead of this and beat it. on behalf of the citizens of indiana, thank you for allowing us to share our story. thank you for allowing us to be here. >> thank you, we appreciate you making an effort to be here. our next witness is john valentine with the united states tax commission. he was a member of the state senate where he served with distinction until 1988 until his commission as the tax commission chair in 2014.

before that he was in the utah house of representatives and was an attorney in private practice. chairman valentine, we are grateful you have taken time out of your schedule to be with us today. and for joining the hearing this morning. >> thank you, chairman hatch. and member wyden, thank you very much. i'm here to discuss ways to reduce the tax frauds that we are seeing develop. there are issues you need to consider. first, strength and information sharing between the irs and states. second, stricter regulation of the financial prepaid debit cards. three, regulate the practice of applying refunds to payment of fees for filing services. a practice in the industry called refund transfers. four, a third-party funding services tightening front insecurity using multifactor authentication and other measures to secure data from

unauthorized disclosure and identity theft. prior to the commencement of the 2015 filing season, utah installed a state of the art software system to identify fraudulent returns. on january 20, tax commission open filing of tax returns deployed the system. as we processed returns, the system started sending out error notices saying these were fraudulent. we followed up with verification letters of the suspicious returns to the taxpayers. within 10 days of opening the filing season we received calls from taxpayers saying we have not filed returns yet. we initially thought these were

isolated incidences, but it was clear they were not. we found several factors that were common in all of the calls. one, the returns had direct deposit information from previous years bank accounts to a debit card. the returns contained routing numbers that were different from the federal and state returns. most of the returns appear to have the exact 2013 return data populated in the 2014 return. the next issue that was common with the address on the returns that was the same as the address on the 2013, even when there were errors in the address. finally, since most were made through one vendor, it appears something in their process was compromised. after communicating with that vendor, and notifying other states, we talked with the internal revenue service saying

we think there may be a compromise of the modernized electronic finance system. the accounts in question that we identified were sent to the service center. 31 returns in the first week were confirmed suspicious. we asked in a phone conversation to confirm on their side, we are waiting to hear from them. many have asked what actions were undertaken when we discovered the attack. we hurried. we stopped refunds until we could get our arms around it. during the first week we found 5 fraud schemes. four we had seen before. the institutions and preparers. one was new. someone had actual tax returns. not identity thefts, but tax returns from prior years. as we continue to prevent the outflow of fraudulent refunds, we found difficulty determining the nature of the financial

institution and account information. specifically, we found there was no uniformity in numbering to determine traditional debit cards from traditional bank accounts. we could not tell whether we were refunding to a prepaid debit card or funding to a legitimate bank account. there is an easy fix. it is to require the financial industries to have identifier numbers in the routing number or account number identifying this as a prepaid debit card. we do that with checking and savings accounts already, not with prepaid debit cards. in the investigation we found a practice perpetrating fraud without anything at risk to the refund transfer. the fraudster deducts the third-party funds from the refund. the third party gets paid, the fraudster gets the cash, the state is out the money.

third-party finance services lack front end security measures. quality firewalls need to be installed by third-party vendors. both for the irs and state tax commissions. thank you chairman and ranking member wyden. >> finally, i welcome ellen clem. she serves as a director of consumer education and outreach at the attorney general's office working to protect oregon residents from financial scams including the scams and schemes we are working on today. we welcome you here and look forward to taking your testimony. >> thank you, senator hatch and ranking member wyden. every day i hear stories from oregonians about a wide variety of frauds and scams.

these stories have focused exclusively on the irs impostor scam. that is because as senator wyden mentioned, in 2014, this scam topped oregon's list of consumer complaints. last year we received more than 1300, twice the number as the next highest category. what is worse, the victims reported losses more than $75,000. we know from testimony presented today that is the tip of the iceberg. that is why i hear today to tell you the story of two victims and to talk about what the oregon attorney general is doing to prevent this from happening to others. the first story is of a woman i will refer to as diane. in august she lost $15,000 to an irs imposter scam. this is the largest individual loss reported to the oregon department of justice in 2014.

like many victims she had a message on her answering machine from a man claiming to be from the irs directing her to call him back at a 202 area code. the person who answered let her an affidavit for her arrest, threatened her with a $25,000 fine, and 18 months in prison, and told her she would be arrested later that day. diane was terrified. the scammer said he could settle the matter for $15,000 on prepaid money cards. diane made the only choice she thought she had. she confide with the request and was out $15,000. individuals like diane, who send money to the scammers, i'm not the only victims.

in september of 2014, marissa phillips contacted me. her employee, linda, was victim to an imposter scam. after sending a small amount of money, linda realized she had been had and did not pick up the phone. when it was clear they would not get a hold of linda, they called marissa's small business that provides in-home care services for seniors and those with disabilities. they called at a rate of 100 phone calls per minute for 20 minutes. the calls prevented her from providing help to those who needed it. the seniors, their families, hospitals, and staff. marissa was forced to change her phone number, and all of the marketing materials.

thankfully, not everyone in oregon who receives a phone call from an irs imposter becomes a victim. i would like to think that is because we are working hard to educate oregon residents. the oregon attorney general has several educational tools aimed at scam prevention, because she and i know that well-informed oregon residents are more likely to recognize broad and less likely to become victims if they are educated. we know the scams can be hard to track and prosecute. the oregon attorney general has invested in strong partnerships with federal, state, government entities, community organizations, advocacy groups and members of the media. through these partnerships we share complaints, coordinate investigations, and disseminate investigation to the public.

our partners give us a stronger voice to share information and keep oregon residents like diane, linda, and marissa safe. thank you, chairman hatch and senator wyden for the opportunity to share the stories. >> we want to thank you and the witnesses. i think a lot of people will be surprised at how this is growing. let me turn to you, commissioner valentine. i want to thank you for coming back here to testify in the midst of filing season. i applaud the innovative approaches you are taking, you and other state commissioners like you and commissioner ally are taking. in your testimony you said you would like to strengthen information sharing between the irs and the states. i would appreciate it if you could elaborate to explain what

information would be useful, and what information you could provide the irs that would be of use to them. if you have suggestions about how the finance committee could facilitate that, i would also like to have your information on that. >> as a background, we have a great working relationship with the irs, especially the ones we deal with. we share information. the trouble is it is not being shared in real time. the information is very delayed. sometimes, we are not getting information we could use to look at the returns as they are coming. one thing that the finance committee may consider is the idea of moving up the filing deadline for the w-2s for employers. as senator wyden indicated, we have a problem.

as w-2s go out to the individuals on the 31st, we have a gap. employers do not have to have them out until march 31. there is pressure as is the federal government to make the refunds. yet, we cannot give them the refunds without knowing for certain that the right person is getting the refund. that gap is a big problem. that would help a lot. another is for the senate and house to encourage the irs to have a more formalized sharing of information. i gave you the example of the 31 returns six weeks ago. they should have a quick response. we have identified them as fraudulent, confirmed that they had not been filed by the taxpayers, yet we do not hear back in real time. those are things that could really help.

>> thank you very much. let me ask you this. i want to thank you and the inspector general for all of your efforts to catch the criminals and to educate the public about these scams. in my opening statement, i showed a video about a family. the same criminals are targeting other americans. is your office doing everything in their power to track them down and stop them? can i have that commitment? >> sir you more than have that commitment. they are working day and night on this crime and we are partnering with other law enforcement agencies as well. it hurts us when these victims are victimized as described here. we instruct our agents that when you run into a victim or you hear from a victim who has actually lost money, we spend

time with those victims, hear their stories, and we get as much information as you can. we have a very aggressive ongoing investigation at this time, and i would hope in the near future i can describe to the success of our investigations. chairman: another scam that worries me is the stolen identity refund fraud. they calculated that the irs paid at least 5.8 billion dollars of a fraudulent refunds to identify thieves in 2013. this type of fraud is usually not detected until a refund has argued been issued. as a result, the government must attempt to recover funds that have argued been dispersed to a criminal which is no easy task. it would be better if we could detect more this fraud before payment's made. do you have any suggestions on how tigta and the irs can detect this type of