Entries Tagged "fraud"

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How Banks Profit from ID Theft

Wells Fargo is profiting because its customers are afraid of identity theft:

The San Francisco bank, in conjunction with marketing behemoth Trilegiant, is offering a new service called Wells Fargo Select Identity Theft Protection. For $12.99 a month, this includes daily monitoring of one’s credit files and assistance in dealing with cases of fraud.

It’s reprehensible that Wells Fargo doesn’t offer this service for free.

Actually, that’s not true. It’s smart business for Wells Fargo to charge for this service. It’s reprehensible that the regulatory landscape is such that Wells Fargo does not feel it’s in its best interest to offer this service for free. Wells Fargo is a for-profit enterprise, and they react to the realities of the market. We need those realities to better serve the people.

Posted on July 27, 2005 at 7:42 AM • View Comments

How to Not Fix the ID Problem

Several of the 9/11 terrorists had Virginia driver’s licenses in fake names. These were not forgeries; these were valid Virginia IDs that were illegally sold by Department of Motor Vehicle workers.

So what did Virginia do to correct the problem? They required more paperwork in order to get an ID.

But the problem wasn’t that it was too easy to get an ID. The problem was that insiders were selling them illegally. Which is why the Virginia “solution” didn’t help, and the problem remains:

The manager of the Virginia Department of Motor Vehicles office at Springfield Mall was charged yesterday with selling driver’s licenses to illegal immigrants and others for up to $3,500 apiece.

The arrest of Francisco J. Martinez marked the second time in two years that a Northern Virginia DMV employee was accused of fraudulently selling licenses for cash. A similar scheme two years ago at the DMV office in Tysons Corner led to the guilty pleas of two employees.

And after we spend billions on the REAL ID act, and require even more paperwork to get a state ID, the problem will still remain.

Posted on July 19, 2005 at 1:15 PM • View Comments

New York Times on Identity Theft

I got some really good quotes in this New York Times article on identity theft:

Which is why I wish William Proxmire were still on the case. What we need right now is someone in power who can put the burden for this problem right where it belongs: on the financial and other institutions who collect this data. Let’s face it: by the time even the most vigilant consumer discovers his information has been used fraudulently, it’s already too late. “When people ask me what can the average person do to stop identity theft, I say, ‘nothing,'” said Bruce Schneier, the chief technology officer of Counterpane Internet Security. “This data is held by third parties and they have no impetus to fix it.”

Mr. Schneier, though, has a solution that is positively Proxmirian in its elegance and simplicity. Most of the bills that have been filed in Congress to deal with identity fraud are filled with specific requirements for banks and other institutions: encrypt this; safeguard that; strengthen this firewall.

Mr. Schneier says forget about all that. Instead, do what Congress did in the 1970’s—just put the burden on the financial industry. “If we’re ever going to manage the risks and effects of electronic impersonation,” he wrote recently on CNET (and also in his blog), “we must concentrate on preventing and detecting fraudulent transactions.” And the only way to do that, he added, is by making the financial institutions liable for fraudulent transactions.

“I think business ingenuity is top notch,” Mr. Schneier said in an interview. “And I think if you make it their problem, they will solve it.”

Yes, he acknowledged, letting consumers off the hook might cause them to be less vigilant. But that is exactly what Senator Proxmire did and to great effect. Forcing the financial institutions to bear the entire burden will cause them to tighten up their procedures until the fraud is under control. Maybe they will invest in complex software. But maybe they’ll take simpler measures as well, like making it a little less easy than it is today to obtain a credit card. Best of all, once people see these measures take effect—and realize that someone else is responsible for fixing the problems—their fear will abate.

As Senator Proxmire understood a long time ago, fear is the great enemy of commerce. Maybe this time, the banks will finally understand that as well.

Posted on July 12, 2005 at 5:14 PM • View Comments

Noticing Data Misuse

Everyone seems to be looking at their databases for personal information leakages.

Tax liens, mortgage papers, deeds, and other real estate-related documents are publicly available in on-line databases run by registries of deeds across the state. The Globe found documents in free databases of all but three Massachusetts counties containing the names and Social Security numbers of Massachusetts residents….

Although registers of deeds said that they are unaware of cases in which criminals used information from their databases maliciously, the information contained in the documents would be more than enough to steal an identity and open new lines of credit….

Isn’t that part of the problem, though? It’s easy to say “we haven’t seen any cases of fraud using our information,” because there’s rarely a way to tell where information comes from. The recent epidemic of public leaks comes from people noticing the leak process, not the effects of the leaks. So everyone thinks their data practices are good, because there have never been any documented abuses stemming from leaks of their data, and everyone is fooling themselves.

Posted on July 5, 2005 at 8:47 AM • View Comments

Wired on Identity Theft

This is a good editorial from Wired on identity theft.

Following are the fixes we think Congress should make:

Require businesses to secure data and levy fines against those who don’t. Congress has mandated tough privacy and security standards for companies that handle health and financial data. But the rules for credit agencies are woefully inadequate. And they don’t cover other businesses and organizations that handle sensitive personal information, such as employers, academic institutions and data brokers. Congress should mandate strict privacy and security standards for anyone who handles sensitive information, and apply tough financial penalties against companies that fail to comply.

Require companies to encrypt all sensitive customer data. Any standard created to protect data should include technical requirements to scramble the data—both in storage and during transit when data is transferred from one place to another. Recent incidents involving unencrypted Bank of America and CitiFinancial data tapes that went missing while being transferred to backup centers make it clear that companies think encryption is necessary only in certain circumstances.

Keep the plan simple and provide authority and funds to the FTC to ensure legislation is enforced. Efforts to secure sensitive data in the health and financial industries led to laws so complicated and confusing that few have been able to follow them faithfully. And efforts to monitor compliance have been inadequate. Congress should develop simpler rules tailored to each specific industry segment, and give the FTC the necessary funding to enforce them.

Keep Social Security numbers for Social Security. Social Security numbers appear on medical and voter-registration forms as well as on public records that are available through a simple internet search. This makes it all too easy for a thief to obtain the single identifying number that can lead to financial ruin for victims. Americans need a different unique identifying number specifically for credit records, with guarantees that it will never be used for authentication purposes.

Force credit agencies to scrutinize credit-card applications and verify the identity of credit-card applicants. Giving Americans easy access to credit has superseded all other considerations in the cutthroat credit-card business, helping thieves open accounts in victims’ names. Congress needs to bring sane safeguards back into the process of approving credit—even if it means adding costs and inconveniencing powerful banking and financial interests.

Extend fraud alerts beyond 90 days. The Fair Credit Reporting Act allows anyone who suspects that their personal information has been stolen to place a fraud alert on their credit record. This currently requires a creditor to take “reasonable” steps to verify the identity of anyone who applies for credit in the individual’s name. It also requires the creditor to contact the individual who placed the fraud alert on the account if they’ve provided their phone number. Both conditions apply for 90 days. Of course, nothing prevents identity thieves from waiting until the short-lived alert period expires before taking advantage of stolen information. Congress should extend the default window for credit alerts to a minimum of one year.

Allow individuals to freeze their credit records so that no one can access the records without the individuals’ approval. The current credit system opens credit reports to almost anyone who requests them. Individuals should be able to “freeze” their records and have them opened to others only when the individual contacts a credit agency and requests that it release a report to a specific entity.

Require opt-in rather than opt-out permission before companies can share or sell data. Many businesses currently allow people to decline inclusion in marketing lists, but only if customers actively request it. This system, known as opt-out, inherently favors companies by making it more difficult for consumers to escape abusive data-sharing practices. In many cases, consumers need to wade through confusing instructions, and send a mail-in form in order to be removed from pre-established marketing lists. The United States should follow an opt-in model, where companies would be forced to collect permission from individuals before they can traffic in personal data.

Require companies to notify consumers of any privacy breaches, without preventing states from enacting even tougher local laws. Some 37 states have enacted or are considering legislation requiring businesses to notify consumers of data breaches that affect them. A similar federal measure has also been introduced in the Senate. These are steps in the right direction. But the federal bill has a major flaw: It gives companies an easy out in the case of massive data breaches, where the number of people affected exceeds 500,000, or the cost of notification would exceeds $250,000. In those cases, companies would not be required to notify individuals, but could comply simply by posting a notice on their websites. Congress should close these loopholes. In addition, any federal law should be written to ensure that it does not pre-empt state notification laws that take a tougher stance.

As I’ve written previously, this won’t solve identity theft. But it will make it harder and protect the privacy of everyone. These are good recommendations.

Posted on June 29, 2005 at 7:18 AM • View Comments

Indian Call Center Sells Personal Information

There was yet another incident where call center staffer was selling personal data. The data consisted of banking details of British customers, and was sold by people at an outsourced call center in India.

I predict a spate of essays warning us of the security risks of offshore outsourcing. That’s stupid; this has almost nothing to do with offshoring. It’s no different than the Lembo case, and that happened in the safe and secure United States.

There are security risks to outsourcing, and there are security risks to offshore outsourcing. But the risk illustrated in this story is the risk of malicious insiders, and that is mostly independent of outsourcing. Lousy wages, lack of ownership, a poor work environment, and so on can all increase the risk of malicious insiders, but that’s true regardless of who owns the call center or in what currency the salary is paid in. Yes, it’s harder to prosecute across national boundaries, but the deterrence here is more contractual than criminal.

The problem here is people, not corporate or national boundaries.

Posted on June 24, 2005 at 9:35 AM • View Comments

CardSystems Exposes 40 Million Identities

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 • View Comments

Public Disclosure of Personal Data Loss

Citigroup announced that it lost personal data on 3.9 million people. The data was on a set of backup tapes that were sent by UPS (a package delivery service) from point A and never arrived at point B.

This is a huge data loss, and even though it is unlikely that any bad guys got their hands on the data, it will have profound effects on the security of all our personal data.

It might seem that there has been an epidemic of personal-data losses recently, but that’s an illusion. What we’re seeing are the effects of a California law that requires companies to disclose losses of thefts of personal data. It’s always been happening, only now companies have to go public with it.

As a security expert, I like the California law for three reasons. One, data on actual intrusions is useful for research. Two, alerting individuals whose data is lost or stolen is a good idea. And three, increased public scrutiny leads companies to spend more effort protecting personal data.

Think of it as public shaming. Companies will spend money to avoid the PR cost of public shaming. Hence, security improves.

This works, but there’s an attenuation effect going on. As more of these events occur, the press is less likely to report them. When there’s less noise in the press, there’s less public shaming. And when there’s less public shaming, the amount of money companies are willing to spend to avoid it goes down.

This data loss has set a new bar for reporters. Data thefts affecting 50,000 individuals will no longer be news. They won’t be reported.

The notification of individuals also has an attenuation effect. I know people in California who have a dozen notices about the loss of their personal data. When no identity theft follows, people start believing that it isn’t really a problem. (In the large, they’re right. Most data losses don’t result in identity theft. But that doesn’t mean that it’s not a problem.)

Public disclosure is good. But it’s not enough.

Posted on June 8, 2005 at 4:45 PM • View Comments

U.S. Medical Privacy Law Gutted

In the U.S., medical privacy is largely governed by a 1996 law called HIPAA. Among many other provisions, HIPAA regulates the privacy and security surrounding electronic medical records. HIPAA specifies civil penalties against companies that don’t comply with the regulations, as well as criminal penalties against individuals and corporations who knowingly steal or misuse patient data.

The civil penalties have long been viewed as irrelevant by the health care industry. Now the criminal penalties have been gutted:

An authoritative new ruling by the Justice Department sharply limits the government’s ability to prosecute people for criminal violations of the law that protects the privacy of medical records.

The criminal penalties, the department said, apply to insurers, doctors, hospitals and other providers—but not necessarily their employees or outsiders who steal personal health data.

In short, the department said, people who work for an entity covered by the federal privacy law are not automatically covered by that law and may not be subject to its criminal penalties, which include a $250,000 fine and 10 years in prison for the most serious violations.

This is a complicated issue. Peter Swire worked extensively on this bill as the President’s Chief Counselor for Privacy, and I am going to quote him extensively. First, a story about someone who was convicted under the criminal part of this statute.

In 2004 the U.S. Attorney in Seattle announced that Richard Gibson was being indicted for violating the HIPAA privacy law. Gibson was a phlebotomist ­ a lab assistant ­ in a hospital. While at work he accessed the medical records of a person with a terminal cancer condition. Gibson then got credit cards in the patient’s name and ran up over $9,000 in charges, notably for video game purchases. In a statement to the court, the patient said he “lost a year of life both mentally and physically dealing with the stress” of dealing with collection agencies and other results of Gibson’s actions. Gibson signed a plea agreement and was sentenced to 16 months in jail.

According to this Justice Department ruling, Gibson was wrongly convicted. I presume his attorney is working on the matter, and I hope he can be re-tried under our identity theft laws. But because Gibson (or someone else like him) was working in his official capacity, he cannot be prosecuted under HIPAA. And because Gibson (or someone like him) was doing something not authorized by his employer, the hospital cannot be prosecuted under HIPAA.

The healthcare industry has been opposed to HIPAA from the beginning, because it puts constraints on their business in the name of security and privacy. This ruling comes after intense lobbying by the industry at the Department of Heath and Human Services and the Justice Department, and is the result of an HHS request for an opinion.

From Swire’s analysis the Justice Department ruling.

For a law professor who teaches statutory interpretation, the OLC opinion is terribly frustrating to read. The opinion reads like a brief for one side of an argument. Even worse, it reads like a brief that knows it has the losing side but has to come out with a predetermined answer.

I’ve been to my share of HIPAA security conferences. To the extent that big health is following the HIPAA law—and to a large extent, they’re waiting to see how it’s enforced—they are doing so because of the criminal penalties. They know that the civil penalties aren’t that large, and are a cost of doing business. But the criminal penalties were real. Now that they’re gone, the pressure on big health to protect patient privacy is greatly diminished.

Again Swire:

The simplest explanation for the bad OLC opinion is politics. Parts of the health care industry lobbied hard to cancel HIPAA in 2001. When President Bush decided to keep the privacy rule—quite possibly based on his sincere personal views—the industry efforts shifted direction. Industry pressure has stopped HHS from bringing a single civil case out of the 13,000 complaints. Now, after a U.S. Attorney’s office had the initiative to prosecute Mr. Gibson, senior officials in Washington have clamped down on criminal enforcement. The participation of senior political officials in the interpretation of a statute, rather than relying on staff attorneys, makes this political theory even more convincing.

This kind of thing is bigger than the security of the healthcare data of Americans. Our administration is trying to collect more data in its attempt to fight terrorism. Part of that is convincing people—both Americans and foreigners—that this data will be protected. When we gut privacy protections because they might inconvenience business, we’re telling the world that privacy isn’t one of our core concerns.

If the administration doesn’t believe that we need to follow its medical data privacy rules, what makes you think they’re following the FISA rules?

Posted on June 7, 2005 at 12:15 PM • View Comments

Stupid People Purchase Fake Concert Tickets

From the Boston Herald

Instead of rocking with Bono and The Edge, hundreds of U2 fans were forced to “walk away, walk away” from the sold-out FleetCenter show Tuesday night when their scalped tickets proved bogus.

Some heartbroken fans broke down in tears as they were turned away clutching worthless pieces of paper they shelled out as much as $2,000 for.

You might think this was some fancy counterfeiting scheme, but no.

It took Whelan and his staff a while to figure out what was going on, but a pattern soon emerged. The counterfeit tickets mostly were computer printouts bought online from cyberscalpers.

Online tickets are a great convenience. They contain a unique barcode. You can print as many as you like, but the barcode scanners at the concert door will only accept each barcode once.

Only an idiot would buy a printout from a scalper, because there’s no way to verify that he will only sell it once. This is probably obvious to anyone reading this, but it tuns out that it’s not obvious to everyone.

“On an average concert night we have zero, zilch, zip problems with counterfeit tickets,” Delaney said. “Apparently, U2 has whipped this city into such a frenzy that people are willing to take a risk.”

I find this fascinating. Online verification of authorization tokens is supposed to make counterfeiting more difficult, because it assumes the physical token can be copied. But it won’t work if people believe that the physical token is unique.

Note: Another write-up of the same story is here.

Posted on June 2, 2005 at 2:10 PM • View Comments

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Sidebar photo of Bruce Schneier by Joe MacInnis.