The personal information of over 40 million people has been hacked. The hack occurred at CardSystems Solutions, a company that processes credit card transactions. The details are still unclear. The New York Times reports that "data from roughly 200,000 accounts from MasterCard, Visa and other card issuers are known to have been stolen in the breach," although 40 million were vulnerable. The theft was an intentional malicious computer hacking activity: the first in all these recent personal-information breaches, I think. The rest were accidental -- backup tapes gone walkabout, for example -- or social engineering hacks. Someone was after this data, which implies that's more likely to result in fraud than those peripatetic backup tapes.
CardSystems says that they found the problem, while MasterCard maintains that they did; the New York Times agrees with MasterCard. Microsoft software may be to blame. And in a weird twist, CardSystems admitted they weren't supposed to keep the data in the first place.
The official, John M. Perry, chief executive of CardSystems Solutions...said the data was in a file being stored for "research purposes" to determine why certain transactions had registered as unauthorized or uncompleted.
Yeah, right. Research = marketing, I'll bet.
This is exactly the sort of thing that Visa and MasterCard are trying very hard to prevent. They have imposed their own security requirements on companies -- merchants, processors, whoever -- that deal with credit card data. Visa has instituted a Cardholder Information Security Program (CISP). MasterCard calls its program Site Data Protection (SDP). These have been combined into a single joint security standard, PCI, which also includes Discover, American Express, JCB, and Diners Club. (More on Visa's PCI program.)
PCI requirements encompass network security, password management, stored-data encryption, access control, monitoring, testing, policies, etc. And the credit-card companies are backing these requirements up with stiff penalties: cash fines of up to $100,000, increased transaction fees, orand termination of the account. For a retailer that does most of its business via credit cards, this is an enormous incentive to comply.
These aren't laws, they're contractual business requirements. They're not imposed by government; the credit card companies are mandating them to protect their brand.
Every credit card company is terrified that people will reduce their credit card usage. They're worried that all of this press about stolen personal data, as well as actual identity theft and other types of credit card fraud, will scare shoppers off the Internet. They're worried about how their brands are perceived by the public. And they don't want some idiot company ruining their reputations by exposing 40 million cardholders to the risk of fraud. (Or, at least, by giving reporters the opportunity to write headlines like "CardSystems Solutions hands over 40M credit cards to hackers.")
So independent of any laws or government regulations, the credit card companies are forcing companies that process credit card data to increase their security. Companies have to comply with PCI or face serious consequences.
Was CardSystems in compliance? They should have been in compliance with Visa's CISP by 30 September 2004, and certainly they were in the highest service level. (PCI compliance isn't required until 30 June 2005 -- about a week from now.) The reality is more murky.
After the disclosure of the security breach at CardSystems, varying accounts were offered about the company's compliance with card association standards.
Jessica Antle, a MasterCard spokeswoman, said that CardSystems had never demonstrated compliance with MasterCard's standards. "They were in violation of our rules," she said.
It is not clear whether or when MasterCard intervened with the company in the past to insure compliance, but MasterCard said Friday that it had now given CardSystems "a limited amount of time" to do so.
Asked about compliance with Visa's standards, a Visa spokeswoman, Rosetta Jones, said, "This particular processor was not following Visa's security requirements when we found out there was a potential data compromise."
Earlier, Mr. Perry of CardSystems said his company had been audited in December 2003 by an unspecified independent assessor and had received a seal of approval from the Visa payment associations in June 2004.
All of this demonstrates some limitations of any certification system. One, companies can take advantage of interpersonal and intercompany politics to get themselves special treatment with respect to the policies. And two, all audits rely to a great extent on self-assessment and self-disclosure. If a company is willing to lie to an auditor, it's unlikely that it will get caught.
Unless they get really caught, like this incident.
Self-reporting only works if the punishment exceeds the crime. The reason people accurately declare what they bring into the country on their customs forms, for example, is because the penalties for lying are far more expensive than paying any duty owed.
If the credit card industry wants their PCI requirements taken seriously, they need to make an example out of CardSystems. They need to revoke whatever credit card processing license CardSystems has, to the maximum extent possible by whatever contracts they have in place. Only by making CardSystems a demonstration of what happens to someone who doesn't comply will everyone else realize that they had better comply.
(CardSystems should also face criminal prosecution, but that's unlikely in today's business-friendly political environment.)
I have great hopes for PCI. I like security solutions that involve contracts between companies more than I like government intervention. Often the latter is required, but the former is more effective. Here's PCI's chance to demonstrate their effectiveness.
Posted on June 23, 2005 at 8:55 AM