Cybercrime may sound like a fancy or futuristic term to some. Like so much of the Internet, it is hard to quantify, to put in real world terms. But speaking from the customs perspective, I can tell you that it's out there, and it's growing. We need to talk about it, especially when some of the main victims of cybercrime are children. Law enforcement agencies around the world are describing cybercrime as a top priority heading into the 21st century.

Cyberspace has enabled the invention of entirely new categories of crime -- virtual schemes that defy our traditional enforcement remedies. The U.S. Customs Service - the nation's oldest border enforcement agency - first became a player in the borderless world of cyberspace because of its growing use as a medium for the exchange of child pornography.

It's estimated that 11-12 million children log on to the Internet each day. Pedophiles know this, and routinely stalk chat rooms looking for young people they can lure into conversations and, ultimately, face-to-face meetings. These predators exploit the Internet's anonymity, speed, and endless inter-connections to evade law enforcement.

In the mid 1980s, the U.S. Customs service formally established the child pornography and protection unit at headquarters to counter the then growing trade in magazine and photo child pornography. In late 1989, the unit encountered the first use of computer bulletin boards to transmit child pornography internationally. Over the course of that same year, these bulletin boards gave way to the use of the Internet for this purpose. Operation Long Arm, our first coordinated international investigation, began in 1988 with bulletin board leads. It closed in 1993, and was followed by such landmark cases as Operation Tholian Web. Tholian Web was run out of Customs' Buffalo office. Our agents there responded to an add a Swiss national had placed on the Internet stating his interest in trading child pornography. Investigations like Long arm and Tholian Web heightened our awareness that Internet child exploitation was here to stay, and that it was only likely to grow with the explosion of cyberspace.

In response, our agency put together a team of agents and computer experts to combat this threat: our Customs Cyber Smuggling Center, or C-3, located in Fairfax, Virginia. The center was instrumental in carrying off Operation Cheshire Cat, Customs most successful, and probably best-known cyber-crime operation to date.

Cheshire Cat, initiated in 1996, targeted a vile group of child pornographers known as the Wonderland Club, which traded pictures and films on the Internet. The investigation arose out of leads generated from a prior case that was directed at a similar group known as the Orchid Club. Clues from the orchid case pointed Customs towards London, where we commenced work with British law enforcement. London police executed search warrants and uncovered evidence of Wonderland's vast international connections composed of about 200 pedophiles.

Customs targeted the American members of the club. We initiated 39 raids in 32 U.S. cities, from Glen Carbon, Illinois, to Brooklyn, New York. The diversity of the places and the people involved was truly astonishing. In the end, we issued thirty-five search warrants, resulting in 13 arrests. More arrests are currently pending.

Two aspects of this case are particularly noteworthy. First, it was a coordinated, multi-national enforcement effort. Simultaneous raids were conducted on the same day at a precise hour in 12 countries, including the U.S., ten western European nations, and Australia. This had to be done so as to prevent members in one country from getting tipped off in advance by members in another country, and giving the perpetrators the time to erase their hard drives before the police could arrive.

The second notable feature of Cheshire Cat was the extreme technological hurdles faced by our cyber crime agents. Wonderland members were as clever as they were twisted. Like the disappearing cat in the Lewis Carroll fantasy Alice in Wonderland, they often vanished from one computer server, only to reappear on another server based somewhere else in the world.

Hence the origin of the name for our investigation.

Tracking them was made even more complicated by the encryption technology they used to hide their transmissions, a system we learned had been designed by the KGB during the cold war. I'm sure Georgetown professor Dorothy Denning, an expert on encryption who I believe is with us tonight, can tell you more about that.

Despite these obstacles, our agents prevailed. As pleased as we were by the results of these investigations, unqualified victories in cyberspace are still largely the exception, and not the rule. In fact, experts estimate that only 7 percent of crimes committed in cyberspace are reported. In some cases, commercial victims are unaware that information has been pilfered. The techniques used to steal proprietary information are very sophisticated. And experts estimate that computer crime is costing U.S. business some $10 billion dollars per year.

In the music industry alone, annual losses from cyber-piracy run about 300 million dollars. Digital transfers of music -- MP3 formatted sound recordings -- are the most prevalent form of music piracy on the Internet today. Our cybersmuggling center is working aggressively with the Recording Industry Association of America (RIAA). Together, we've located websites offering thousands of pirated musical works. As cyber criminals moved into these and other areas, so did we. Our Internet case load now spans a broad range of categories.

Other areas our cyber unit has been involved with include the illegal sale of prohibited weapons and weapons materials. These products are covered under the U.S. Arms Export Control Act, which Customs must also enforce in cyberspace. Just recently, Customs agents identified a U.S. business that had gone "on-line" to market the sale and exportation of pesticides and pesticide technology to countries in the Middle East. These are key ingredients in the production of poison gases like VX and Sarin. Agents also identified another U.S. company using the Web to sell restricted munitions -- including fighter aircraft. Smugglers break huge aircraft into pieces, move the pieces out of the country, and reassemble the aircraft.

They then advertise the planes for sale on the Internet, on sites accessible to terrorists and criminals all over the world.

As more and more financial transactions are carried out over the Internet, customs will have to keep a close watch on the potential for money laundering activities and financial fraud in cyberspace. Customs already has extensive expertise in money laundering schemes. Our agents have tackled complex investigations involving other electronic methods used by the drug cartels to move their proceeds.

But moving into the Internet will prove to be a whole new challenge for them.

Indeed, this challenge is even greater for law enforcement agencies with fewer resources than Customs. Investigators at the local level who do get involved in cybercrime still lack much of the skill and training needed to make a case. Individual states enforce different laws pertaining to cybercrime. Internationally, there is even less consensus about which activities can be deemed criminal and which cannot. Awareness, however, is growing. International entities -- the G-8 for example -- and the international chamber of commerce -- are coming together for the first time to address these problems.

And law enforcement agencies around the world are recognizing the need for better training, adding the growing cost of cybercrime into their already crowded budget requests . Governments, our Congress included, are also responding. As new as this territory may be in some respects, there are few today who haven't heard about the ways enterprising criminals are exploiting cyberspace. Customs is proud of the fact that its cybersmuggling center has served a model for law enforcement agencies all over the world.

Right now Customs -- through the C3 pilot project -- is providing international training to law enforcement organizations to conduct Internet investigations. We've already provided training to police in Switzerland, Austria, Denmark and Sweden, to name a few. Any knowledge we can share creates a force multiplier to counter this increasingly porous and global threat. Customs will remain a force for international criminals to contend with. Every day we gain more experience in the battle against child pornography, the illegal transfer of munitions and technology, and violations of intellectual property rights.

We have the resources, we have the people and we have the support of Congress. But we still need more. Even the combination of law enforcement and legislation won't be enough to eliminate cybercrime, especially when it comes to the exploitation of children. Community education and involvement is crucial if we are to successfully reduce the number of targets, and the number of victims, of cyber predators. Customs is working closely with organizations such as the National Center for Missing and Exploited Children to educate parents, kids, teachers, and others in ways to protect our young people from the dark side of the Internet.

Our agents have visited countless schools, police departments, libraries and social services in an effort to increase awareness of this issue. In addition, I believe some of our most valuable partners include the great universities of this country and their supporters.

The intellect that is focused here, combined with the energy and enthusiasm of youth for the Internet, create fertile ground for research and new ideas about cyberspace - ideas that law enforcement must keep informed about.

It makes perfect sense to match the leading minds of academia and the leading law enforcement agencies in this effort. I know we've already joined together on many initiatives. Several leading academics, including Dr. Denning, are actively advising Customs and other law enforcement agencies on technology issues. I hope my talk here tonight will further this dialogue. Working together we can help rid cyberspace of the criminals who pollute it, and reserve the Internet for the noble purposes for which it was designed.

Thank you.

If you have any questions, I'd be happy to take them now.