In this paper, we employ a variant of the communicating finite state machine (CFSM) model for networks to investigate fault detection and location using passive testing. First, we introduce the concept of passive testing, then we introduce the model with necessary assumptions and justification. Then, the model for the observer process is described and a 3-node case is studied to show how fault location information can be deduced. Extending this result, we propose a multiple node-cut approach for a general network, applying our technique for fault detection and location. An abstraction of a node-cut shows how the 3-node case can be used in the general case. We then illustrate our technique through a simulation of a practical X.25 example. Finally future extensions and potential trends are discussed.