Good afternoon, Mr. Chairman, Chairman Young, Congressman Obey, Congressman Serrano, and the Members of the Subcommittee.

I appreciate this opportunity to be here and provide you with a progress report on our ongoing efforts to reorganize and refocus the FBI. The hearing you convened last June helped set a positive tone for our refocusing efforts. Continuation of this oversight speaks well of your commitment and interest in ensuring the success of the FBI and I congratulate you for doing so.

At the outset, I want to express my appreciation to David Walker and Dick Thornburgh for the efforts of their staffs in preparing the assessments and recommendations of the General Accounting Office and the National Academy of Public Administration that you will hear later this afternoon.

The GAO and NAPA assessments depict a fair characterization of our efforts over the past year to refocus the FBI. Both GAO and NAPA present valid, constructive criticisms of our performance - acknowledging where we have been successful and identifying where we have not progressed as far as we could have. It is my intent to follow up on those areas where GAO and NAPA believe our efforts need to be strengthened, particularly with respect to strategic planning, human resources, technology, management and performance metrics.

I also look forward to hearing the perspectives on the FBI that will be offered by Special Agent Nancy Savage, President of the FBI Agents Association.

Changes Over the Past Year

When I appeared before the Committee last June, I characterized our proposal for reorganizing and refocusing the FBI "an evolving road map" and stated that we would need to make adjustments along the way to meet changes in the world in which we must operate. Indeed, Mr. Chairman, the world in which the FBI operates remains uncertain and unpredictable. Just in the last year, we have:

• Continued to wage a world-wide war against terrorism and have taken that fight to our adversaries' own sanctuaries in the far corners of the world - Afghanistan, Pakistan, the Philippines, Europe, and Africa;
• Worked to uncover terrorist sleeper cells and supporters within the United States and disrupt terrorist financial, communications, and operational lifelines at home and abroad;
• Worked with our federal, state and local partners to stop a series of senseless shootings of innocent bystanders - including an FBI employee - that caused fear and tension throughout the Maryland, Virginia, and Washington, D.C. areas; and
• Investigated acts of corporate fraud that resulted in the bankruptcies of major U.S. corporations and the losses of thousands of jobs, and which threatened to undermine public confidence in the economy and business world.

The FBI in June 2003 is a changed organization from what it was a year ago when you convened that first oversight hearing on our revised strategic focus and reorganization proposal. Underlying that strategic focus were five inter-related elements that provided the framework for developing our proposed organizational changes: (1) refocusing FBI mission and priorities; (2) realigning the FBI workforce to address these priorities; (3) shifting FBI management and operational environment to enhance flexibility, agility, effectiveness, and accountability; (4) restructuring FBI Headquarters; and (5) re-engineering internal business practices and processes. I would like to highlight the activities and progress we have made in each of these areas.

Refocusing Mission and Priorities. Many aspects of the FBI reorganization proposal were based upon the announcement of revised priorities. These priorities recognized the need to refocus the FBI in light of the terrorist attacks of September 11, 2001, and the changing national security threats and crime problems facing the Nation.

I think I can state - and I believe GAO and NAPA can confirm this view - that these priorities have been embraced and adopted throughout the FBI, that our employees are aware of them, and that we are acting according to these priorities.

Realigning the Workforce to Address Priorities. Over the past year, the FBI has taken concrete steps to realign its workforce to address its new priorities.

First, in recognition of the continuing terrorist threat facing the United States from international terrorist networks and of the urgent need to continue building the FBI's capacity to prevent future terrorist acts, we permanently shifted over 500 field agents from criminal investigations to augment counterterrorism investigations and activities, implement critical security improvements, and support the training of new Special Agents at the FBI Academy.

Second, during 2002 we also permanently shifted another 167 agents from criminal investigations to counterintelligence to begin implementation of a comprehensive strategy to address the FBI's second priority.

Shifting FBI Management and Operating Environment to Enhance Flexibility, Agility, and Accountability. Implementing the revised FBI priorities and redirecting the FBI workforce toward these priorities required a concurrent shift in how the FBI manages certain of its cases from a national perspective.

Beginning in 2002, a series of changes was initiated to strengthen the FBI's national management and oversight of counterterrorism, counterintelligence, and cyber-crime investigations and programs. These cases and investigations are critical to the very foundation of the FBI's ability to protect national security. These cases often involve parallel efforts in multiple locations within the United States and foreign countries, and require extensive coordination and collaboration with other Intelligence Community, state, municipal and international partners. These cases also are complex in terms of inter-relationships among groups and individuals, a complexity that requires continuity and specialized expertise and skills. Most importantly, these cases require an organizational capacity to quickly respond and deploy personnel and technology to emerging and developing situations.

These changes are allowing us to create a centralized body of subject matter experts and historical case knowledge that, in the past, had been largely resident in a few FBI field offices and which is now more easily shared among FBI Field Offices and with our partners.

Of the many changes instituted over the past year, I believe this was one of the most significant in terms of changing the managerial environment within the FBI. This change moved the FBI away from its traditional "office of origin" case management concept. At this point, I think we have enjoyed considerable progress in demonstrating the benefits for this shift for nation-level operations and investigations. I think our Special Agents in Charge deserve credit for embracing this change, even though it may have diminished the roles of individual field offices in some cases.

Restructuring FBI Headquarters. Among the first steps taken toward refocusing the FBI was a review and restructuring of FBI Headquarters divisions and offices. The old FBI Headquarters structure was found ineffective by outside management consultants and oversight groups. All Headquarters divisions and offices, along with all field offices, reported through a single Deputy Director position. This situation resulted in an unwieldy span of control.

In December 2001, the first phase of the Headquarters restructuring was proposed. To mitigate management span of control issues within the Director's office, four new Executive Assistant Director positions were created to oversee counterterrorism and counterintelligence matters, criminal and cyber matters, law enforcement services, and administration. Additionally, under the first phase, five new divisions and offices were created: Cyber, Security, Records Management, Office of Intelligence, and Office of Law Enforcement Coordination. The first phase also realigned the reporting structure of other existing offices and dissolved the Investigative Services Division.

The second phase of the Headquarters restructuring, announced in May 2002, created a new Investigative Technologies Division and transferred various field technical investigative functions from the Laboratory Division to the new entity.

Most recently, I proposed the creation of a new Executive Assistant Director for Intelligence and the elevation of intelligence within the FBI to a program status comparable with that afforded national security and criminal investigative programs.

In terms of the new offices and divisions proposed, I believe NAPA and GAO will report that we have made substantial progress. In some areas, such as the Security and Investigative Technology Divisions, we have encountered some difficulties in terms of filling vacancies. We will, however, take steps to ensure these critical areas are staffed as soon as possible. The President's 2004 budget includes requests to continue the staffing of our Counterterrorism and Security Divisions and I am hopeful the Committee will be able to support those requests.

At the same time, I am continuing to examine our headquarters structure and will propose changes when such actions improve efficiency, better align common functions and activities, and result in better services to field offices.

Re-engineering Internal Business Practices and Processes. The new expectations facing the FBI in terms of its mission and priorities made it clear that the FBI must not only rethink its organizational structure, but also its basic business practices and processes. The Reengineering initiative that we began in 2002 is part of our commitment to creating an environment for change. Admittedly, change does not always come easily or quickly to large organizations and the FBI is no exception.

The Reengineering initiative began with 38 projects. This initial group of projects focused on a number of investigative, infrastructure, and management problems and situations that required near-term "triage" so that we could make improvements and address immediate gaps in our organizational capacity.
These initial projects fall into five major categories of emphasis: (1) building a workforce for the future; (2) modernizing FBI technology; (3) changing business processes; (4) restructuring the organization; and (5) refocusing operational priorities.

Building a workforce for the future includes initiatives aimed at such areas as: expanding the FBI applicant base for critical skills and diversity; streamlining the applicant process; reducing the amount of time needed to complete a background investigation without compromising standards; updating new agent training to reflect the new priorities of counterterrorism, counterintelligence, and cyber; establishing new career paths for counterterrorism, counterintelligence, cyber, security, and analysts; improving management and leadership development; and revitalizing succession planning.

Modernizing FBI technology encompasses the implementation of Trilogy and other information technology initiatives, such as data warehousing, future FBI information technology architecture, and strengthening in-house information technology competencies.

Changing business practices includes revitalizing the FBI strategic planning process and strategic plan; optimizing internal business processes; and empowering employees and executives by delegating decision-making authority and eliminating unnecessary layers of review.

Restructuring the organization includes ongoing efforts to examine the Headquarters structure for further improvements and changes to field office organizational structures to better deploy our workforce in light of the new priorities of the FBI.

Refocusing operational priorities is linked to ongoing efforts to build national management capacities for counterterrorism, counterintelligence, and cyber, improving analytical capabilities, shifting resources to priorities, information sharing, and focusing criminal investigations on the most significant crime problems and situations.

With respect to reengineering, we still have a ways to go but I believe we are on the right path. While our initial focus was, out of necessity, on achieving some immediate fixes, my intent is to build upon the groundwork of the past year and to better align and integrate our re-engineering focus with that of our forthcoming strategic plan.

Of these initial projects, I am proud of the progress we have achieved in modernizing the FBI's information technology infrastructure and in bringing new technology to bear in support of terrorism analysis, terrorist document and communications exploitation, and records management. Additional improvements that will be coming on line, such as the Virtual Case File segment of Trilogy, will continue the progress already realized.

I am also encouraged by the plans and ideas generated and being put in place with respect to training, succession planning, and specialized career paths. These are important first steps toward insuring the FBI's workforce is prepared to meet the challenges that face us today and tomorrow. As these efforts mature over the next several years, the changes will be profound and positive.

Part of the FBI's legacy of success has been its ability to adapt to changes in the world in which it operates. That ability is now being tested under extreme circumstances. Change is needed in many areas and needed quickly. The reengineering initiative serves as a platform for an evolving management strategy that will set a path for what needs to be done, puts a focused effort on these issues, and gets results.

Looking Forward - Next Steps

Before concluding my comments and taking your questions, I would like to spend a few minutes sharing some thoughts on the challenges that lie ahead and how I intend to continue moving the FBI forward and transforming the Bureau.

Operational challenges. The operational challenges facing the FBI over the next 5 to 10 years will be defined, in large part, by the threats posed to the national security of the United States. As the dominant world political, military, economic and technological power, the U.S. will continue to be targeted by terrorists seeking to diminish the United States in the world arena. As foreign countries seek to establish themselves as regional powers, the potential for the proliferation of weapons of mass destruction looms as a threat to all nations. Additionally, foreign intelligence agencies will continue to target U.S. defense and commercial industry in an effort to steal our secrets and diminish the technological and military advantage the United States enjoys over its adversaries. Foreign intelligence activity within the United States is at levels equal to, or in some instances above, that which occurred during the Cold War. Left unchecked, such a situation could greatly undermine U.S. national security and U.S. military and economic advantage.

Another trend that will define the future operational environment for the FBI will be continuing globalization and the expansion of the global economy. Globalization and the growing networked global economy will present new opportunities, targets, and environments for a full range of illicit activities. A global networked economy will present criminals in foreign countries with opportunities to commit crimes against U.S. companies and individuals without ever leaving their home countries. Increased reliance on global networks for commerce and business will make that environment a more attractive target for terrorists, foreign intelligence agents, criminals, and others. Terrorists and criminal enterprises will likely continue to look for and promote the destabilization of third-world governments in an effort to secure refuge and provide a haven for operations. Both terrorists and criminal organizations may foster alliances of convenience in such endeavors.

Globalization and networking of criminal enterprises, especially in activities considered threats to our homeland security, mandate greater collaboration between the FBI, the Intelligence Community and law enforcement. Among the significant law enforcement-related threats to our national security are the including:

• terrorism;
• illicit arms transactions, including trafficking in weapons of mass destruction;
• drug trafficking;
• human trafficking;
• increased collaboration among organized crime and the emergence of smaller, more powerful criminal entities;
• increased influence of international organized crime groups in world politics;
• money laundering;
• cyber crime/cyber warfare/information warfare; and
• economic espionage/intellectual property rights violations.

The international-nexus of these threats requires that the FBI continue to strengthen and build international partnerships with our foreign law enforcement counterparts. Such partnerships have proven their value time after time in the war against terrorism. Our success in preventing terrorism and other crimes depends upon having a presence in those foreign countries that are most likely to be viewed by terrorists and criminals as potential staging areas for their activities. Investments in improving foreign law enforcement capabilities through training and outreach will, in the long term, improve the quality and degree of cooperation we receive on matters of common interest.

Intelligence-driven operations. Given these challenges - both security and criminal -- to the Nation, I would like to suggest that the future success of the FBI depends our strengthening two key capacities. First, we must strengthen our ability to recognize and understand current and future national security and criminal threats. The FBI is recognized for its excellence in collecting information. Now, the FBI must achieve that same recognition for excellence in our ability to produce intelligence. We are taking the first step toward strengthening this capability by elevating intelligence collection, analysis, production, and dissemination to a level equal to that of our traditional investigative programs.

A robust FBI National Intelligence Program can help ensure that all critical information is identified, collected, evaluated, analyzed and disseminated to the widest extent possible. And, we must be able to do this collection and dissemination of information in a manner that is consistent with the preservation of the civil liberties and civil rights of all we serve.

In many respects, collecting and acting on intelligence in a time-sensitive timeframe is not a new challenge for the FBI. FBI Agents excel at working with criminal intelligence in very time-compressed situations at the case-level. What we have not done in a structured, consistent manner across all FBI programs is exploit case-specific information by placing it into a larger context an overall threat or crime problem assessment.

Transforming the FBI's intelligence effort from tactical to strategic is critical if the FBI is to be successful in preventing terrorism and more proactive in countering foreign intelligence adversaries and disrupting and dismantling significant criminal activity.

Within our Counterterrorism Program, we are starting to see the benefits of such an approach. Under the new Counterterrorism Division, our Watch Center, National Joint Terrorism Task Force, and expanded analytic staffs are assessing information constantly, looking tactically, first and foremost, for the indications and warnings of a terrorist attack, but also strategically at how that particular piece of information fits into the larger intelligence mosaic that we are building of our terrorist adversaries. We use that information to assess and rank the threat posed by various terrorist groups and to adjust and drive our operations accordingly.

We must achieve a similar capacity to understand the full range of threats that fall under the jurisdiction of the FBI. Achieving such a capacity depends upon the FBI expanding its intelligence field of vision - from tactical to strategic -- in our Counterintelligence, Cyber, and Criminal Investigative programs, just as we are doing in Counterterrorism.

And, second, the FBI must use its understanding of the threats and adversaries to develop, prioritize and carry out integrated intelligence-driven, operational strategies to eliminate or counter the most significant terrorist, foreign intelligence and criminal threats facing our country. These strategies, in turn, should drive how the FBI allocates and deploys its resources, identifies its future skill needs and recruitment and hiring plans, and plans its information technology investments.

Given the breadth of our jurisdiction, and recognizing that the FBI is a national law enforcement organization, we must become smarter in allocating and deploying our resources. As I stated earlier, addressing the most significant threats currently facing the country and within our jurisdiction - terrorism, foreign intelligence activities, and cyber crime - affects the levels of resources available for criminal investigations in virtually every FBI field office. Consequently, we must become better at targeting the most significant crime problems with threat-based, intelligence-driven operations. Such an approach will ensure that available FBI criminal investigative resources are being used most effectively and at the most significant targets.

The President's 2004 budget request recognizes the need for flexibility in dealing with our national security and criminal investigative missions by reducing the number of budget decision units from 10 to 4. The four proposed decision units reflect the FBI's core business functions of Counterterrorism, National Security, Criminal Enterprises and Federal Crime, and Criminal Justice Services. The proposed creation of a single criminal decision unit would provide me with the flexibility needed to refocus our criminal investigative efforts using the threat-based, intelligence-driven focus I have described as being critical for meeting the challenges facing the FBI. I am hopeful that the Congress will adopt this new structure when you mark up the FY 2004 appropriations bills.

Each Assistant Director of the FBI's four operational divisions at Headquarters - Counterterrorism, Counterintelligence, Cyber, and Criminal Investigative - have developed program plans based on our new priorities and focus and have briefed them to me and our Executive Assistant Directors. Additionally, our Office of Intelligence is undertaking an intensive effort that will result in the issuance of a comprehensive organization-wide intelligence concept of operations and an intelligence program plan. These various plans will serve as the basis for updating our FBI Strategic Plan.

The integration of intelligence and operations, along with improved analytical and case management capabilities resulting from investments in information technology, will enable the FBI to better deal with the threats and crime problems of today and in the future. The integration of intelligence and operations could very well impact the organizational structures and processes of our operational divisions at headquarters and in field offices. We have greatly changed the relationship between headquarters and field offices in the area of counterterrorism. Some of the Counterterrorism Division successes could also be applied to our other headquarters divisions.

The standup of the Office of Intelligence injects yet another variable since that office will share management responsibility for Intelligence Analysts, Reports Officers, and Operations Specialists with the divisions and field offices to which they are assigned. This relationship will require a more cross organization - or matrix - management approach than the traditional hierarchical approach within operational divisions.

Conclusion

In closing, Mr. Chairman, I would like to acknowledge the leadership and support that you and the Committee have provided to the FBI. The recognition by the Congress for the need to fund critical investments in people and technology are making a difference every day in FBI field offices around the country and at headquarters.

I welcome your comments, suggestions, and questions.