546 posts categorized "Federal / U.S. Government" Feed

FBI Seeks To Monitor Twitter, Facebook, Instagram, And Other Social Media Accounts For Violent Threats

Federal Bureau of Investigation logo The U.S. Federal Bureau of Investigation (FBI) issued on July 8th a Request For Proposals (RFP) seeking quotes from technology companies to build a "Social Media Alerting" tool, which would enable the FBI to monitor in real-time accounts in several social media services for violence threats. The RFP, which was amended on August 7th, stated:

"The purpose of this procurement is to acquire the services of a company to proactively identify and reactively monitor threats to the United States and its interests through a means of online sources. A subscription to this service shall grant the Federal Bureau of Investigation (FBI) access to tools that will allow for the exploitation of lawfully collected/acquired data from social media platforms that will be stored, vetted and formatted by a vendor... This synopsis and solicitation is being issued as Request for Proposal (RFP) number DJF194750PR0000369 and... This announcement is supplemented by a detailed RFP Notice, an SF-33 document, an accompanying Statement of Objectives (SOO) and associated FBI documents..."

"Proactively identify" suggests the usage of software algorithms or artificial intelligence (AI). And, the vendor selected will archive the collected data for an undisclosed period of time. The RFP also stated:

"Background: The use of social media platforms, by terrorist groups, domestic threats, foreign intelligence services, and criminal organizations to further their illegal activity creates a demonstrated need for tools to properly identify the activity and react appropriately. With increased use of social media platforms by subjects of current FBI investigations and individuals that pose a threat to the United States, it is critical to obtain a service which will allow the FBI to identify relevant information from Twitter, Facebook, Instagram, and other Social media platforms in a timely fashion. Consequently, the FBI needs near real time access to a full range of social media exchanges..."

For context, in 2016 the FBI attempted to force Apple Computer to build "backdoor software" to unclock an alleged terrorist's iPhone in California. The FBI later found an offshore technology company to build its backdoor.

The documents indicate that the FBI wants its staff to use the tool at both headquarters and field-office locations globally, and with mobile devices. The SOO document stated:

"FBI personnel are deployed internationally and sometimes in areas of press censorship. A social media exploitation tool with international reach and paired with a strong language translation capability, can become crucial to their operations and more importantly their safety. The functions of most value to these individuals is early notification, broad international reach, instant translation, and the mobility of the needed capability."

The SOO also explained the data elements too be collected:

"3.3.2.2.1 Obtain the full social media profile of persons-of-interest and their affiliation to any organization or groups through the corroboration of multiple social media sources... Items of interest in this context are social networks, user IDs, emails, IP addresses and telephone numbers, along with likely additional account with similar IDs or aliases... Any connectivity between aliases and their relationship must be identifiable through active link analysis mapping..."
"3.3.3.2.1 Online media is monitored based on location, determined by the users’ delineation or the import of overlays from existing maps (neighborhood, city, county, state or country). These must allow for customization as AOR sometimes cross state or county lines..."

While the document mentioned "user IDs" and didn't mention passwords, the implication seems clear that the FBI wants both in order to access and monitor in real-time social media accounts. And, the "other Social Media platforms" statement raises questions. What is the full list of specific services that refers to? Why list only the three largest platforms by name?

As this FBI project proceeds, let's hope that the full list of social sites includes 8Chan, Reddit, Stormfront, and similar others. Why? In a study released in November of 2018, the Center for Strategic and International Studies (CSIS) found:

"Right-wing extremism in the United States appears to be growing. The number of terrorist attacks by far-right perpetrators rose over the past decade, more than quadrupling between 2016 and 2017. The recent pipe bombs and the October 27, 2018, synagogue attack in Pittsburgh are symptomatic of this trend. U.S. federal and local agencies need to quickly double down to counter this threat. There has also been a rise in far-right attacks in Europe, jumping 43 percent between 2016 and 2017... Of particular concern are white supremacists and anti-government extremists, such as militia groups and so-called sovereign citizens interested in plotting attacks against government, racial, religious, and political targets in the United States... There also is a continuing threat from extremists inspired by the Islamic State and al-Qaeda. But the number of attacks from right-wing extremists since 2014 has been greater than attacks from Islamic extremists. With the rising trend in right-wing extremism, U.S. federal and local agencies need to shift some of their focus and intelligence resources to penetrating far-right networks and preventing future attacks. To be clear, the terms “right-wing extremists” and “left-wing extremists” do not correspond to political parties in the United States..."

The CSIS study also noted:

"... right-wing terrorism commonly refers to the use or threat of violence by sub-national or non-state entities whose goals may include racial, ethnic, or religious supremacy; opposition to government authority; and the end of practices like abortion... Left-wing terrorism, on the other hand, refers to the use or threat of violence by sub-national or non-state entities that oppose capitalism, imperialism, and colonialism; focus on environmental or animal rights issues; espouse pro-communist or pro-socialist beliefs; or support a decentralized sociopolitical system like anarchism."

Terrorism is terrorism. All of it needs to be prosecuted including left-, right-, domestic, and foreign. (This prosecutor is doing the right thing.) It seems wise to monitor the platform where suspects congregate.

This project also raises questions about the effectiveness of monitoring social media? Will this really works. Digital Trends reported:

"Companies like Google, Facebook, Twitter, and Amazon already use algorithms to predict your interests, your behaviors, and crucially, what you like to buy. Sometimes, an algorithm can get your personality right – like when Spotify somehow manages to put together a playlist full of new music you love. In theory, companies could use the same technology to flag potential shooters... But preventing mass shootings before they happen raises thorny legal questions: how do you determine if someone is just angry online rather than someone who could actually carry out a shooting? Can you arrest someone if a computer thinks they’ll eventually become a shooter?"

Some social media users have already experienced inaccuracies (failures?) when sites present irrelevant advertisements and/or political party messaging based upon supposedly accurate software algorithms. The Digital Trends article also dug deeper:

"A Twitter spokesperson wouldn’t say much directly about Trump’s proposal, but did tell Digital Trends that the company suspended 166,513 accounts connected to the promotion of terrorism during the second half of 2018... Twitter also frequently works to help facilitate investigations when authorities request information – but the company largely avoids proactively flagging banned accounts (or the people behind them) to those same authorities. Even if they did, that would mean flagging 166,513 people to the FBI – far more people than the agency could ever investigate."

Then, there is the problem of the content by users in social media posts:

"Even if someone does post to social media immediately before they decide to unleash violence, it’s often not something that would trip up either Twitter or Facebook’s policies. The man who killed three people at the Gilroy Garlic Festival in Northern California posted to Instagram from the event itself – once calling the food served there “overprices” and a second that told people to read a 19th-century pro-fascist book that’s popular with white nationalists."

Also, Amazon got caught up in the hosting mess with 8Chan. So, there is more news to come.

Last, this blog post explored the problems with emotion recognition by facial-recognition software. Let's hope this FBI project is not a waste of taxpayer's hard-earned money.


What Can Be Done Right Now to Stop a Basic Source of Health Care Fraud

[Editor's note: today's post, by reporters at ProPublica, discusses fixes for the security issues discussed in a prior post. It is reprinted with permission.]

By Marshall Allen, ProPublica

In our story about the convicted health care con man David Williams, we detailed how the Texas personal trainer made off with millions by billing some of the nation’s largest health insurers as if he were a doctor providing medical services.

Williams cannily exploited gaping loopholes in the health insurance system that allowed him almost unfettered entry. Taking commonsense steps to close those loopholes, experts say, could block other fraudsters from entry.

1. No one checks to see whether people getting federal ID numbers that allow them to bill insurers have valid licenses. They could.

Anyone billing an insurance company needs a National Provider Identifier, or NPI number. The number is obtained through Medicare, a federal agency that covers people over 65 as well as those with disabilities. But Medicare doesn’t verify that NPI applicants who claim to be licensed are, indeed, licensed by their state’s regulators. The agency could do a license check in less than a minute online or in milliseconds if the process is automated.

Medicare said federal regulations do not allow it to verify NPI applicants’ credentials, so the Department of Health and Human Services might need to revise the regulations. Congress could also order the reform.

2. Insurance companies don’t always verify that the people they are paying are licensed medical providers. They could.

Williams avoided scrutiny from insurers by billing as an out-of-network provider, so he didn’t have a contract with them and didn’t have his credentials verified before receiving payments. At Williams’ trial on federal fraud charges, representatives from the insurance companies testified that it’s not cost effective to review every claim. Almost all are automatically paid.

At a minimum, insurers could ensure that anyone billing them has the proper licensing before a payment is made. Again, this screening would take seconds or less.

Regulators could also require that insurers verify the licenses of those they pay. Some experts say it may take state and federal legislation to mandate it. Officials from America’s Health Insurance Plans, the trade group for the insurers, declined to comment on this suggestion.

3. Insurance companies aren’t reporting most cases of suspected fraud to state and federal regulators. They could.

Many states have a law in place that requires insurers to report suspected cases of fraud to state regulators. This allows regulators to spot serial fraudsters and trends, and it helps officials build criminal and civil cases. But the states have a mishmash of requirements, and many don’t do audits to make sure cases are being reported.

At least three insurance companies caught Williams committing fraud. But the Texas Department of Insurance only received one referral about the case, according to internal documents. If all three insurers that Williams defrauded had referred him, his case could have been prioritized and stopped sooner.

The existing state laws don’t apply to self-funded plans where employers pay for the health benefits. Those are overseen by the federal government. And no federal law requires insurers who administer self-funded plans to report suspected cases of fraud.

State and federal laws would need to be changed to require the consistent reporting of suspected fraud. Experts say audits, and the potential for fines, may also be needed to spur the insurers to file the reports.

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FTC Levies $5 Billion Fine, 'New Restrictions, And Modified Corporate Structure' To Hold Facebook Accountable. Will These Actions Prevent Future Privacy Abuses?

The U.S. Federal Trade Commission (FTC) announced on July 24th a record-breaking fine against Facebook, Inc., plus new limitations on the social networking service. The FTC announcement stated:

"Facebook, Inc. will pay a record-breaking $5 billion penalty, and submit to new restrictions and a modified corporate structure that will hold the company accountable for the decisions it makes about its users’ privacy, to settle Federal Trade Commission charges that the company violated a 2012 FTC order by deceiving users about their ability to control the privacy of their personal information... The settlement order announced [on July 24th] also imposes unprecedented new restrictions on Facebook’s business operations and creates multiple channels of compliance..."

During 2018, Facebook generated after-tax profits of $22.1 billion on sales of $55.84 billion. While a $5 billion fine is a lot of money, the company can easily afford the record-breaking fine. The fine equals about one month's revenues, or a little over 4 percent of its $117 billion in assets.

U.S. Federal Trade Commission. New compliance system for Facebook. Click to view larger version The FTC announcement explained several "unprecedented" restrictions in the settlement order. First, the restrictions are designed to:

"... prevent Facebook from deceiving its users about privacy in the future, the FTC’s new 20-year settlement order overhauls the way the company makes privacy decisions by boosting the transparency of decision making... It establishes an independent privacy committee of Facebook’s board of directors, removing unfettered control by Facebook’s CEO Mark Zuckerberg over decisions affecting user privacy. Members of the privacy committee must be independent and will be appointed by an independent nominating committee. Members can only be fired by a supermajority of the Facebook board of directors."

Facebook logo Second, the restrictions mandated compliance officers:

"Facebook will be required to designate compliance officers who will be responsible for Facebook’s privacy program. These compliance officers will be subject to the approval of the new board privacy committee and can be removed only by that committee—not by Facebook’s CEO or Facebook employees. Facebook CEO Mark Zuckerberg and designated compliance officers must independently submit to the FTC quarterly certifications that the company is in compliance with the privacy program mandated by the order, as well as an annual certification that the company is in overall compliance with the order. Any false certification will subject them to individual civil and criminal penalties."

Third, the new order strengthens oversight:

"... The order enhances the independent third-party assessor’s ability to evaluate the effectiveness of Facebook’s privacy program and identify any gaps. The assessor’s biennial assessments of Facebook’s privacy program must be based on the assessor’s independent fact-gathering, sampling, and testing, and must not rely primarily on assertions or attestations by Facebook management. The order prohibits the company from making any misrepresentations to the assessor, who can be approved or removed by the FTC. Importantly, the independent assessor will be required to report directly to the new privacy board committee on a quarterly basis. The order also authorizes the FTC to use the discovery tools provided by the Federal Rules of Civil Procedure to monitor Facebook’s compliance with the order."

Fourth, the order included six new privacy requirements:

"i) Facebook must exercise greater oversight over third-party apps, including by terminating app developers that fail to certify that they are in compliance with Facebook’s platform policies or fail to justify their need for specific user data; ii) Facebook is prohibited from using telephone numbers obtained to enable a security feature (e.g., two-factor authentication) for advertising; iii) Facebook must provide clear and conspicuous notice of its use of facial recognition technology, and obtain affirmative express user consent prior to any use that materially exceeds its prior disclosures to users; iv) Facebook must establish, implement, and maintain a comprehensive data security program; v) Facebook must encrypt user passwords and regularly scan to detect whether any passwords are stored in plaintext; and vi) Facebook is prohibited from asking for email passwords to other services when consumers sign up for its services."

Wow! Lots of consequences when a manager builds a corporation with a, "move fast and break things" culture, values, and ethics. Assistant Attorney General Jody Hunt for the Department of Justice’s Civil Division said:

"The Department of Justice is committed to protecting consumer data privacy and ensuring that social media companies like Facebook do not mislead individuals about the use of their personal information... This settlement’s historic penalty and compliance terms will benefit American consumers, and the Department expects Facebook to treat its privacy obligations with the utmost seriousness."

There is disagreement among the five FTC commissioners about the settlement, as the vote for the order was 3 - 2. FTC Commissioner Rebecca Kelly Slaughter stated in her dissent:

"My principal objections are: (1) The negotiated civil penalty is insufficient under the applicable statutory factors we are charged with weighing for order violators: injury to the public, ability to pay, eliminating the benefits derived from the violation, and vindicating the authority of the FTC; (2) While the order includes some encouraging injunctive relief, I am skeptical that its terms will have a meaningful disciplining effect on how Facebook treats data and privacy. Specifically, I cannot view the order as adequately deterrent without both meaningful limitations on how Facebook collects, uses, and shares data and public transparency regarding Facebook’s data use and order compliance; (3) Finally, my deepest concern with this order is that its release of Facebook and its officers from legal liability is far too broad..."

FTC Commissioners Noah Joshua Phillips and Christine S. Wilson stated on July 24th in an 8-page joint statement (Adobe PDF) with Chairman Joseph J. Simons of the U.S. District Court for the District of Columbia:

"In 2012, Facebook entered into a consent order with the FTC, resolving allegations that the company misrepresented to consumers the extent of data sharing with third-party applications and the control consumers had over that sharing. The 2012 order barred such misrepresentations... Our complaint announced today alleges that Facebook failed to live up to its commitments under that order. Facebook subsequently made similar misrepresentations about sharing consumer data with third-party apps and giving users control over that sharing, and misrepresented steps certain consumers needed to take to control [over] facial recognition technology. Facebook also allowed financial considerations to affect decisions about how it would enforce its platform policies against third-party users of data, in violation of its obligation under the 2012 order... The $5 billion penalty serves as an important deterrent to future order violations... For purposes of comparison, the EU’s General Data Protection Regulation (GDPR) is touted as the high-water mark for comprehensive privacy legislation, and the penalty the FTC has negotiated is over 20 times greater than the largest GDPR fine to date... IV. The Settlement Far Exceeds What Could be Achieved in Litigation and Gives Consumers Meaningful Protections Now... Even assuming the FTC would prevail in litigation, a court would not give the Commission carte blanche to reorganize Facebook’s governance structures and business operations as we deem fit. Instead, the court would impose the relief. Such relief would be limited to injunctive relief to remedy the specific proven violations... V. Mark Zuckerberg is Being Held Accountable and the Order Cabins His Authority Our dissenting colleagues argue that the Commission should not have settled because the Commission’s investigation provides an inadequate basis for the decision not to name Mark Zuckerberg personally as a defendant... The provisions of this Order extinguish the ability of Mr. Zuckerberg to make privacy decisions unilaterally by also vesting responsibility and accountability for those decisions within business units, DCOs, and the privacy committee... the Order significantly diminishes Mr. Zuckerberg’s power — something no government agency, anywhere in the world, has thus far accomplished. The Order requires multiple information flows and imposes a robust system of checks and balances..."

Time will tell how effective the order's restrictions and $5 billion are. That Facebook can easily afford the penalty suggests the amount is a weak deterrence. If all or part of the penalty is tax-deductible (yes, tax-deductible fines have happened before to directly reduce a company's taxes), then that would weaken the deterrence effectiveness. And, if all or part of the fine is tax-deductible, then we taxpayers just paid for part of Facebook's alleged wrongdoing. I'll bet most taxpayers wouldn't want that.

Facebook stated in a July 24th news release that its second-quarter 2019 earnings included:

"... an additional $2.0 billion legal expense related to the U.S. Federal Trade Commission (FTC) settlement and a $1.1 billion income tax expense due to the developments in Altera Corp. v. Commissioner, as discussed below. As the FTC expense is not expected to be tax-deductible, it had no effect on our provision for income taxes... In July 2019, we entered into a settlement and modified consent order to resolve the inquiry of the FTC into our platform and user data practices. Among other matters, our settlement with the FTC requires us to pay a penalty of $5.0 billion and to significantly enhance our practices and processes for privacy compliance and oversight. In particular, we have agreed to implement a comprehensive expansion of our privacy program, including substantial management and board of directors oversight, stringent operational requirements and reporting obligations, and a process to regularly certify our compliance with the privacy program to the FTC. In the second quarter of 2019, we recorded an additional $2.0 billion accrual in connection with our settlement with the FTC, which is included in accrued expenses and other current liabilities on our condensed consolidated balance sheet."

"Not expected to be" is not the same as definitely not. And, business expenses reduce a company's taxable net income.

A copy of the FTC settlement order with Facebook is also available here (Adobe PDF format; 920K bytes). Plus, there is more:

"... the FTC also announced today separate law enforcement actions against data analytics company Cambridge Analytica, its former Chief Executive Officer Alexander Nix, and Aleksandr Kogan, an app developer who worked with the company, alleging they used false and deceptive tactics to harvest personal information from millions of Facebook users. Kogan and Nix have agreed to a settlement with the FTC that will restrict how they conduct any business in the future."

Cambridge Analytica was involved in the massive Facebook data breach in 2018 when persons allegedly posed as academic researchers in order to download Facebook users' profile information they really weren't authorized to access.

What are your opinions? Hopefully, some tax experts will weigh in about the fine.


Equifax To Pay $575 Million To Settle Charges By U.S. Regulators About Massive 2017 Data Breach

U.S. Federal Trade Commission logo Yesterday, the U.S. Federal Trade Commission (FTC) announced a proposed settlement agreement with Equifax, a national credit reporting agency, which has agreed to pay $575 million to resolve charges about its massive data breach in 2017. That breach exposed the sensitive personal and financial information of about half of all citizens in the United States. The announcement stated:

"In its complaint, the FTC alleges that Equifax failed to secure the massive amount of personal information stored on its network, leading to a breach that exposed millions of names and dates of birth, Social Security numbers, physical addresses, and other personal information that could lead to identity theft and fraud..."

U.S. Consumer Financial Protection Bureau The global, proposed settlement agreement included the FTC, the Consumer Financial Protection Bureau (CFPB), and 50 U.S. states and territories. The FTC announcement described Equifax's data security failures (emphasis added):

"The FTC alleges that Equifax failed to patch its network after being alerted in March 2017 to a critical security vulnerability affecting its ACIS database, which handles inquiries from consumers about their personal credit data. Even though Equifax’s security team ordered that each of the company’s vulnerable systems be patched within 48 hours after receiving the alert, Equifax did not follow up to ensure the order was carried out... Equifax did not discover that its ACIS database was unpatched until July 2017... A company investigation revealed that multiple hackers were able to exploit the ACIS vulnerability to gain entry to Equifax’s network, where they accessed an unsecured file that included administrative credentials stored in plain text. These credentials allowed the hackers to gain access to vast amounts of consumers’ personally identifiable information... The hackers targeted Social Security numbers, dates of birth, and other sensitive information, mostly from consumers who had purchased products from Equifax such as credit scores, credit monitoring, or identity theft prevention services. For example, hackers stole at least 147 million names and dates of birth, 145.5 million Social Security numbers, and 209,000 payment card numbers and expiration dates. Hackers were able to access a staggering amount of data because Equifax failed to implement basic security measures... the FTC also alleges that Equifax stored network credentials and passwords, as well as Social Security numbers and other sensitive consumer information, in plain text."

A truly staggering amount. The most sensitive personal and financial information, indeed. Terms of the proposed settlement:

"... Equifax will pay $300 million to a fund that will provide affected consumers with credit monitoring services. The fund will also compensate consumers who bought credit or identity monitoring services from Equifax and paid other out-of-pocket expenses as a result of the 2017 data breach. Equifax will add up to $125 million to the fund if the initial payment is not enough to compensate consumers for their losses. In addition, beginning in January 2020, Equifax will provide all U.S. consumers with six free credit reports each year for seven years—in addition to the one free annual credit report that Equifax and the two other nationwide credit reporting agencies currently provide."

The settlement also requires Equifax implement a "comprehensive information security plan," and to pay $175 million to 48 states, the District of Columbia and Puerto Rico, as well as $100 million to the CFPB in civil penalties. The comprehensive information security plan will: a) designate an employee to oversee the program; b) include annual assessment of security risks and safeguards; c) obtain "annual certifications from the Equifax board of directors or relevant subcommittee attesting that the company has complied with the order;" d) monitor the effectiveness of security safeguards implemented; e) ensure service providers that access personal information stored by Equifax also implement adequate safeguards; and f) obtain third-party assessments every two years.

The CFPB also announced the proposed settlement on its website. CFPB Director Kathleen L. Kraninger said:

"Today’s announcement is not the end of our efforts to make sure consumers’ sensitive personal information is safe and secure. The incident at Equifax underscores the evolving cyber security threats confronting both private and government computer systems and actions they must take to shield the personal information of consumers. Too much is at stake for the financial security of the American people to make these protections anything less than a top priority."

Kraninger also encouraged consumers affected by the breach to submit their claims to receive free credit monitoring or cash reimbursements. Equifax Chief Executive Officer Mark W. Begor said:

"This comprehensive settlement is a positive step for U.S. consumers and Equifax as we move forward from the 2017 cybersecurity incident and focus on our transformation investments in technology and security as a leading data, analytics, and technology company. The consumer fund of up to $425 million that we are announcing today reinforces our commitment to putting consumers first and safeguarding their data... We have been committed to resolving this issue for consumers and have the financial capacity to manage the settlement while continuing our $1.25 billion EFX2020 technology and security investment program..."

Also, Equifax has set up a website about the settlement: www.equifaxbreachsettlement.com. However, the site says it won't be fully functional until after it receives the approved court order. So, it seems best for affected consumers to deal directly with the FTC.

And, several questions remain. The Identity Theft Resource Center (ITRC) discussed the proposed settlement:

"What victims will qualify for reimbursement? How will victims provide accurate evidence of their efforts and misfortunes? Is this fund only for victims who purchased identity theft services? What is the option for victims who did not have the resources then or now to purchase paid services or avail themselves of free services like those ITRC provides? If all victims filed claims and funds were distributed equally to all 148 million people, each would receive fewer than $3.00 in funds or cost of assistance. This does not accurately reflect the true value of the data that was compromised..."

Yep. More payments by Equifax may be required.

And, the ITRC article includes an important reminder. While the Equifax offer includes a long period of free credit monitoring services -- up to 10 versus the usual 2 years -- the risk to affected consumers never goes away:

"... identity theft has no expiration date. The threat of identity theft does not decrease as more time passes from the date of the breach."

This is why it is critical for companies to deploy the strongest data security measures possible. After data breaches, consumers bear the long-term risks.

Last, the FTC encourages Equifax employees who believe the company fails to comply with the settlement to contact the FTC at equifax@ftc.gov. Affected consumers should contact the FTC directly at the website below:

F.T.C. instructions for consumers affected by Equifax breach


FTC Urged To Rule On Legality Of 'Secret Surveillance Scores' Used To Vary Prices By Each Online Shopper

Nobody wants to pay too much for a product. If you like online shopping, you may have been charged higher prices than your neighbors. Gizmodo reported:

"... researchers have documented and studied the use of so-called "surveillance scoring," the shadowy, but widely adopted practice of using computer algorithms that, in commerce, result in customers automatically paying different prices for the same product. The term also encompasses tactics used by employers and landlords to deny applicants jobs and housing, respectively, based on suggestions an algorithm spits out. Now experts allege that much of this surveillance scoring behavior is illegal, and they’re are asking the Federal Trade Commission (FTC) to investigate."

"In a 38-page petition filed last week, the Consumer Education Foundation (CEF), a California nonprofit with close ties to the group Consumer Watchdog, asked the FTC to explore whether the use of surveillance scores constitute “unfair or deceptive practices” under the Federal Trade Commission Act..."

The petition is part of a "Represent Consumers" (RC) program.

Many travelers have experienced dynamic pricing, where airlines vary fares based upon market conditions: when demand increases, prices go up; when demand decreases, prices go down. Similarly, when there are many unsold seats (e.g., plenty of excess supply), prices go down. But that dynamic pricing does not vary for each traveler.

Pricing by each person raises concerns of price discrimination. The legal definition of price discrimination in the United States:

"A seller charging competing buyers different prices for the same "commodity" or discriminating in the provision of "allowances" — compensation for advertising and other services — may be violating the Robinson-Patman Act... Price discriminations are generally lawful, particularly if they reflect the different costs of dealing with different buyers or are the result of a seller's attempts to meet a competitor's offering... There are two legal defenses to these types of alleged Robinson-Patman violations: (1) the price difference is justified by different costs in manufacture, sale, or delivery (e.g., volume discounts), or (2) the price concession was given in good faith to meet a competitor's price."

Airlines have wanted to extend dynamic pricing to each person, and "surveillance scores" seem perfectly suited for the task. The RC petition is packed with information which is instructive for consumers to learn about the extent of the business practices. First, the petition described the industry involved:

"Surveillance scoring starts with "analytics companies," the true number of which is unknown... these firms amass thousands or even tens of thousands of demographic and lifestyle data points about consumers, with the help of an estimated 121 data brokers and aggregators... The analytics firms use algorithms to categorize, grade, or assign a numerical value to a consumer based on the consumer’s estimated predicted behavior. That score then dictates how a company will treat a consumer. Consumers deemed to be less valuable are treated poorly, while consumers with better “grades” get preferential treatment..."

Second, the RC petition cited a study which identified 44 different types of proprietary surveillance scores used by industry participants to predict consumer behavior. Some of the score types (emphasis added):

"The Medication Adherence Score, which predicts whether a consumer is likely to follow a medication regimen; The Health Risk Score, which predicts how much a specific patient will cost an insurance company; The Consumer Profitability Score, which predicts which households may be profitable for a company and hence desirable customers; The Job Security Score, which predicts a person’s future income and ability to pay for things; The Churn Score, which predicts whether a consumer is likely to move her business to another company; The Discretionary Spending Index, which scores how much extra cash a particular consumer might be able to spend on non-necessities; The Invitation to Apply Score, which predicts how likely a consumer is to respond to a sales offer; The Charitable Donor Score, which predicts how likely a household is to make significant charitable donations; and The Pregnancy Predictor Score, which predicts the likelihood of someone getting pregnant."

It is important to note that the RC petition does not call for a halt in the collection of personal data about consumers. Rather, it asks the FTC, "to investigate and prohibit the targeting of consumers’ private data against them after it has been collected." Clarity is needed about what is, and is not, legal when consumers' personal data is used against them.

Third, the RC petition also cited published studies about pricing discrimination:

"An early seminal study of price discrimination published by researchers at Northeastern University in 2014 (Northeastern Price Discrimination Study) examined the pricing practices of e-commerce websites. The researchers developed a software-based methodology for measuring price discrimination and tested it with 300 real-world users who shopped on 16 popular e-commerce websites.37 Of ten different general retailers tested in 2014, only one –- Home Depot –- was confirmed to be engaging in price discrimination. Home Depot quoted prices to mobile-device users that were approximately $100 more than those quoted to desktop users.39 The researchers were unable to ascertain why... The Northeastern Price Discrimination Study also found that “human shoppers got worse bargains on a number of websites,”compared to an automated shopping browser that did not have any personal data trail associated with it,42 validating that Home Depot was considering shoppers’ personal data when setting prices online."

So, concerns about price discrimination aren't simply theory. Related to that, the RC petition cited its own research:

"... researchers at Northeastern University developed an online tool to “expose how websites personalize prices.” The Price Discrimination Tool (PDT) is a plug-in extension used on the Google Chrome browser that allows any Internet user to perform searches on five websites to see if the user is being charged a different price based on whatever information the companies have about that particular user. The PDT uses a remote computer server that is anonymous –- it has no personal data profile... The PDT then displays the price results from the human shopper’s search and those obtained by the remote anonymous computer server. Our own testing using the PDT revealed that Home Depot continues to offer different prices to human shoppers. For example, a search on Home Depot’s website for “white paint” reveals price discrimination. Of the 24 search results on the first page, Home Depot quoted us higher prices for six tubs of white paint than it quoted the anonymous computer... Our testing also revealed similar price discrimination on Home Depot’s website for light bulbs, toilet paper, toilet paper holders, caulk guns, halogen floor lamps and screw drivers... We also detected price discrimination on Walmart’s website using the PDT. Our testing revealed price discrimination on Walmart’s website for items such as paper towels, highlighters, pens, paint and toilet paper roll holders."

The RC petition listed examples: the Home Depot site quoted $59.87 for a five-gallon bucket of paint to the anonymous user, and $62.96 for the same product to a researcher. Another example: the site quoted $10.26 for a toilet-paper holder to the anonymous user, and $20.89 for the same product to a researcher -- double the price. Prices differences per person ranged from small to huge.

Besides concerns about price discrimination, the RC petition discussed "discriminatory customer service," and the data analytics firms allegedly involved:

"Zeta Global sells customer value scores that will determine, among other things, the quality of customer service a consumer receives from one of Zeta’s corporate clients. Zeta Global “has a database of more than 700 million people, with an average of over 2,500 pieces of data per person,” from which it creates the scores. The scores are based on data “such as the number of times a customer has dialed a call center and whether that person has browsed a competitor’s website or searched certain keywords in the past few days.” Based on that score, Zeta will recommend to its clients, which include wireless carriers, whether to respond to one customer more quickly than to others.

"Kustomer Inc.: Customer-service platform Kustomer Inc. uses customer value scores to enable retailers and other businesses to treat customer service inquiries differently..."

"Opera Solutions: describes itself as a “a global provider of advanced analytics software solutions that address the persistent problem of scaling Big Data analytics.” Opera Solutions generates customer value scores for its clients (including airlines, retailers and banks)..."

The petition cited examples of "discriminatory customer service," which include denied product returns, or customers shunted to less helpful customer service options. Plus, there are accuracy concerns:

"Considering that credit scores – the existence of which has been public since 1970 – are routinely based on credit reports found to contain errors that harm consumers’ financial standing,31 it is highly likely that Secret Surveillance Scores are based on inaccurate or outdated information. Since the score and the erroneous data upon which it relies are secret, there is no way to correct an error,32 assuming the consumer was aware of it."

Regular readers of this blog are already aware of errors in reports from credit reporting agencies. A copy of the RC petition is also available here (Adobe PDF, 3.2 Mbytes).

What immediately becomes clear while reading the petition is that massive amount of personal data collected about consumers to create several proprietary scores. Consumers have no way of knowing nor challenging the accuracy of the scores when they are used against them. So, not only has an industry risen which profits by acquiring and then selling, trading, analyzing, and/or using consumers' data; there is little to no accountability.

In other words, the playing field is heavily tilted for corporations and against consumers.

This is also a reminder why telecommunications companies fought hard for the repeal of broadband privacy and repeal of net neutrality, both of which the U.S. Federal Communications Commission (FCC) provided in 2017 under the leadership of FCC Chairman Ajit Pai, a Trump appointee. Repeal of the former consumer protection allows unrestricted collection of consumers' data, plus new revenue streams to sell the data collected to analytics firms, data brokers, and business partners.

Repeal of the second consumer protection allows internet and cable providers to price content using whatever criteria they choose. You see a rudimentary version of this pricing in a business practice called "zero rating." An example: streaming a movie via a provider's internet service counts against a data cap while the same movie viewed through the same provider's cable subscription does not. Yet, the exact same movie is delivered through the exact same cable (or fiber) internet connection.

Smart readers immediately realize that a possible next step includes zero ratings per-person. Streaming a movie might count against your data cap but not for your neighbor. Who would know? Oversight and consumer protections are needed.

What are your opinions of secret surveillance scores?


Walmart To Pay $282 Million To Settle Bribery Charges By Regulators In The United States

Walmart logo The U.S. Securities And Exchange Commission (SEC) announced on June 20th a settlement agreement to resolve charges that Walmart violated:

"... the Foreign Corrupt Practices Act (FCPA) by failing to operate a sufficient anti-corruption compliance program for more than a decade as the retailer experienced rapid international growth... According to the SEC’s order, Walmart failed to sufficiently investigate or mitigate certain anti-corruption risks and allowed subsidiaries in Brazil, China, India, and Mexico to employ third-party intermediaries who made payments to foreign government officials without reasonable assurances that they complied with the FCPA. The SEC’s order details several instances when Walmart planned to implement proper compliance and training only to put those plans on hold or otherwise allow deficient internal accounting controls to persist even in the face of red flags and corruption allegations."

Walmart agreed to pay more than $144 million to settle the SEC’s charges and about $138 million to resolve parallel criminal charges by the U.S. Department of Justice (DOJ), for a combined total of more than $282 million. The settlements cover activities by the retailer's foreign subsidiaries in Brazil, China, India, and Mexico.

United States Department of Justice logo The DOJ announcement on June 20th stated:

"According to Walmart’s admissions, from 2000 until 2011, certain Walmart personnel responsible for implementing and maintaining the company’s internal accounting controls related to anti-corruption were aware of certain failures involving these controls, including relating to potentially improper payments to government officials in certain Walmart foreign subsidiaries, but nevertheless failed to implement sufficient controls that, among other things, would have ensured: (a) that sufficient anti-corruption-related due diligence was conducted on all third-party intermediaries (TPIs) who interacted with foreign officials; (b) that sufficient anti-corruption-related internal accounting controls concerning payments to TPIs existed; (c) that proof was required that TPIs had performed services before Walmart paid them; (d) that TPIs had written contracts that included anti-corruption clauses; (e) that donations ostensibly made to foreign government agencies were not converted to personal use by foreign officials; and (f) that policies covering gifts, travel and entertainment sufficiently addressed giving things of value to foreign officials and were implemented. Even though senior Walmart personnel responsible for implementing and maintaining the company’s internal accounting controls related to anti-corruption knew of these issues, Walmart did not begin to change its internal accounting controls related to anti-corruption to comply with U.S. criminal laws until 2011... In a number of instances, insufficiencies in Walmart’s anti-corruption-related internal accounting controls in these foreign subsidiaries were reported to senior Walmart employees and executives. The internal control failures allowed the foreign subsidiaries in Mexico, India, Brazil and China to open stores faster than they would have with sufficient internal accounting controls related to anti-corruption. Consequently, Walmart earned additional profits through these subsidiaries by opening some of its stores faster..."

So, to fast-track store openings company executives allegedly made secret payments to "third-party individuals" who passed the money on to specific government officials who approve permits. CBS News reported:

"... the payments to the intermediary were recorded as payments to a construction company, even though there were numerous "red flags" to indicate that the intermediary was actually a government official... The federal agreement does not identify the intermediary, but describes her in some detail: It says she became known inside Walmart Brazil as a "sorceress" or "genie" for her "ability to acquire permits quickly by 'sort(ing) things out like magic.' " The plea agreement also includes a provision barring the Brazilian subsidiary from making public claims or issuing press releases contradicting the facts outlined under the plea agreement."

United States Securities And Exchange Commission logo Walmart is not alone regarding FCPA violations. According to the SEC, several companies agreed to settlement agreements and payments during 2019:

Readers of this blog may remember, Fresenius paid $3.5 million last year to resolve HIPAA violations from 5 small data breaches during 2012. And, last week a whistleblower report discussed Cognizant's content moderation work as a Facebook subcontractor.

Notable companies with SEC settlement agreements and payments during 2018:


CBP Breach Disclosed Images Of Travelers' Faces And Vehicle License Plates. Many Unanswered Questions

United States Customs and Border Patrol logo A security breach at a vendor used by U.S. Customs & Border Patrol (CBP) has disclosed the images of both travelers and vehicles license plates. The Washington Post reported:

"Customs officials said in a statement Monday that the images, which included photos of people’s faces and license plates, had been compromised as part of an attack on a federal subcontractor. CBP makes extensive use of cameras and video recordings at airports and land border crossings, where images of vehicles are captured. Those images are used as part of a growing agency facial-recognition program designed to track the identity of people entering and exiting the United States. Fewer than 100,000 people were impacted, said CBP... Officials said the stolen information did not include other identifying information, and no passport or other travel document photos were compromised..."

Reportedly, CBP learned about the breach on May 31. The newspaper also reported:

"CBP said copies of “license plate images and traveler images collected by CBP” had been transferred to the subcontractor’s company network, violating the agency’s security and privacy rules. The subcontractor’s network was then attacked and breached. No CBP systems were compromised, the agency said."

A reporter posted on Twitter the brief statement by CBP, which was sent to selected news organizations:

"On May 31, 2009, CBP learned that a subcontractor, in violation of CBP policies and without CBP's authorization or knowledge, had transferred copies of license plate images and traveler images collected by CBP to the subcontractor's company network. The subcontractor's network was subsequently compromised by a malicious cyber-attack. No CBP systems were compromised.

Initial information indicates that the subcontractor violated mandatory security and privacy controls outlined in their contract. As of today, none of the image data has been identified on the Dark Web or internet. CBP has alerted Members of Congress and is working closely with other law enforcement agencies and cybersecurity entities, and its own Office of Professional Responsibility to actively investigate the incident. CBP will unwaveringly work with all partners to determine the extent of the breach and the appropriate response. CBP has removed from service all equipment related to the breach and is closely monitoring all CBP work by the contractor..."

Well, that brief statement is a start... a small start. This security breach is very troubling for several reasons.

First, it seems that CBP was unaware of the contractual violation (e.g., downloaded images) until it was informed of the data breach. That suggests an inadequate contractual agreement between the vendor and CBP; or failures by CBP to monitor and enforce its contracts. That also raises more questions:

  • When and which executives at the vendor will be reprimanded for this violation?
  • Why did CBP fail to identify the download violation?
  • What changes are underway to prevent future violations?
  • Why is CBP continuing to use a vendor known to have severely violated its contractual agreement?
  • What other vendors have violated CBP contracts?

Second, CBP refused to disclose the name of the vendor. Why? What would this accomplish? Its statement described the breach as a "malicious cyberattack." That seems to warrant disclosure. Were CBP executives caught unprepared?

Thankfully, reporters at the Washington Post continued investigating:

"... a Microsoft Word document of CBP’s public statement, sent Monday to Washington Post reporters, included the name “Perceptics” in the title: “CBP Perceptics Public Statement.” Perceptics representatives did not immediately respond to requests for comment... reporters at The Register, a British technology news site, reported late last month that a large haul of breached data from the firm Perceptics was being offered as a free download on the dark web."

So, we don't know for sure if Perceptics was the CBP vendor. However, the May 23rd article in The Register indicates that Perceptics executives were already aware of the breach. CBP executives should have known about the breach on May 23, too, since the article mentioned both entities. Then, why did the CBP statement say it learned of the breach on May 31st? Something here smells -- arrogance, incompetence, or both.

Third, a check at press time of the CBP website and newsroom failed to find any mentions of the security breach. CBP executives have had since May 31st (or since May 23rd), so why send a statement only to select news organizations? Why not publish that statement on its website, too? Were CBP executives caught unprepared and then rushed a haphazard response? When will the breach investigation report be released?

This is troubling. It suggests either arrogance or unpreparedness. As a taxpayer, my money funds CBP activities. I want to know that my money is being spent effectively.

Fourth, the lack of a detailed breach announcement means many related questions remain unanswered:

  • When will CBP notify affected persons? If the vendor will notify affected persons, then CBP must disclose the vendor's name in advance.
  • What assistance (e.g., free credit monitoring) will CBP provide affected persons?
  • What is the status of the post-breach investigation? It helps to know how attackers broke in so effective fixes can be implemented.
  • What other data elements were accessed/stolen? Metadata (e.g., image date and timestamp, border crossing GPS location, entering or exiting USA, vehicle brand and model, number and ages of any passengers in vehicles, etc.) attached to the images can be just as damaging.
  • Were any data elements encrypted? If not, why not?
  • Can facial images be matched to vehicle plate images, and/or to other data elements? If so, this creates more problems for impacted persons.
  • When will fixes be implemented so this doesn't happen again?
  • Exactly how many persons were affected, and in what states? Local states' breach notification laws may apply.
  • How many of the affected persons are U.S. citizens? If the 100,000 estimate applies to only affected U.S. citizens, then we need to know the true total number of persons impacted by the breach.
  • Does the 100,000 estimate refer to facial images only? If so, then exactly how many vehicle license plate images were disclosed?

The statement of "fewer than 100,000 persons impacted" seems vague. A breach investigation should determine two fairly precise items: the number of facial images accessed/stolen, and the number of license plate images accessed/stolen.

Plus, it seems wise to assume more data was stolen during the breach. Why? Consider this report by The Atlantic:

"I would be cautious about assuming this data breach contains only photo data," said Chad Loder, the CEO of Habitu8, a cybersecurity firm that trains other companies on security awareness. The full scope of the breach may be much larger than what CBP revealed in its original statement, he said. In recent years, CBP has asked travelers for fingerprints, facial data, and, recently, even social-media accounts. "If CBP’s contractor was targeted specifically, it’s unlikely that the attacker would have stopped with just photo data..."

If social media passwords were stolen, then affected persons need to know so they can change online passwords. And, elected officials are also asking questions. The Hill reported:

"House Homeland Security Committee Chairman Bennie Thompson (D-Miss.) announced on Monday that his committee would hold hearings next month to examine the collection of biometric information by the Department of Homeland Security (DHS), which includes CBP... Homeland Security Committee ranking member Mike Rogers (R-Ala.), used the breach to criticize DHS’s handling of cybersecurity challenges, saying in a statement to The Hill that "the agency is ill-equipped to handle emerging cyberthreats"... Representative Cedric Richmond (D-La.), the chairman of the House Homeland Security subcommittee on cybersecurity, also called for more answers about the breach, which he said would inform Congress's next steps... Senator Brian Schatz (D-Hawaii), the ranking member of the Senate Commerce Subcommittee on Communications, Technology, Innovation and the Internet, said he thinks the breach merits an investigation by the Office of the Inspector General."

Good suggestion by Senator Schatz. Clearly, there's plenty more news to come. Plenty.


After Pleading Guilty To Continued Pollution And Trying To Hide It, Carnival Corporation Fined An Additional $20 Million Fine

[Editor's note: I'm back from my break. Thanks to readers for your patience. That break included a vacation on a different cruise line sailing from New Zealand to Canada via Polynesia, Tasmania, southern Australia, French Polynesia, and the Hawaiian Islands. So, this news story caught my attention.]

On Monday, Carnival Corporation acknowledged violating its probation terms from a 2016 pollution case. Government prosecutors fined the company an additional $20 million for the continuing violations. The New York Times reported:

"In 2016, Princess Cruise Lines agreed to pay a $40 million penalty for illegally dumping oil-contaminated waste into the sea and acts by employees to try to cover it up. It was the largest criminal penalty ever imposed for intentional vessel pollution... The new violations included discharging plastic into waters in the Bahamas, falsifying records and interfering with court supervision of ships... Vessel pollution is just one of the many human-caused hazards facing ocean life today. Ship traffic and noise can cause the death of sea creatures; marine animals routinely turn up dead with plastic in their stomachs; and rising sea temperatures, stemming from climate change caused by human activity, are destroying the framework of many ocean ecosystems."

Based in Miami, Carnival Corporation operates several cruise lines including Princess Cruises, Carnival Cruise Line, Holland America Line, P&O Cruises (UK), Cunard, Seabourn, AIDA Cruises (Germany), and Costa Cruises (Italy). It's website states a combined fleet of 102 ships with 19 new ships to be delivered between 2017 and 2022. The company employs about 120,000 people worldwide, and 11.5 million guests sail in its ship each year. In 2018, Carnival Corporation generated after-tax profits of $3.15 billion on revenues of $18.88 billion.

Government regulators focused upon the company after:

"... Princess agreed, in 2016, to plead guilty to felony charges and pay the hefty $40 million penalty. In that case... the Caribbean Princess ship, had used several means, including a device called a magic pipe, to circumvent water-cleaning mechanisms... Officials said that four other Princess ships had also been found to have engaged in illegal practices to discharge waste. The discharged waste included gray water — water that has been contaminated with food particles, grease and fat — and water found in the ship’s bilge, the bottom part of the ship where oil waste from engines can accumulate. A whistleblower employee alerted the authorities and certain engineers ordered a coverup, including directing subordinates to lie, according to prosecutors."

In an announcement on Monday, the U.S. Department of Justice (DOJ) listed in detail the violations by Carnival Corporation and its executives:

"1. Failing to establish a senior corporate officer as a corporate compliance manager with responsibility and sufficient authority for implementing new environmental measures required during probation;
2. Contacting the Coast Guard seeking to re-define the definition of what constitutes a major non-conformity under the ECP without going through the required process and after the government had rejected the proposal and told the company to file a motion with the court if it wanted to pursue the issue;
3. Deliberately falsifying environmental training records aboard two cruise ships; and
4. Deliberately discharging plastic in Bahamian waters from the Carnival Elation and failing to accurately record the illegal discharges. Prosecutors advised the Court that this particular instance was an example of a more widespread problem, identified by the external audits, in failing to segregate plastic and non-food garbage from waste thrown overboard from numerous cruise ships."

The DOJ announcement also listed the terms of the settlement agreement, which requires Carnival Corporation:

"i) Pay a $20 million criminal penalty;
ii) Issue a statement to all employees in which Carnival’s CEO accepts management’s responsibility for the probation violations;
iii) Restructure the company’s corporate compliance efforts, including appointing a new chief Corporate Compliance Officer, creating an Executive Compliance Committee across all cruise lines, adding a new member to the Board of Directors with corporate compliance expertise, and train its Board of Directors;
iv) Pay up to $10 million per day if it does not meet deadlines for submitting and implementing needed changes to its corporate structure;
v) Pay for 15 additional independent audits per year conducted by the third-party auditor and Court Appointed Monitor (on top of approximately 31 ship audits and 6 shore-side audits currently performed annually);
vi) Comply with new reporting requirements, including notifying the government and court of all future violations, and specifically identifying foreign violations and the country impacted; and
vii) Make major changes in how the company uses and disposes of plastic and other non-food waste to urgently address a problem on multiple vessels concerning illegal discharges of plastic mixed with other garbage."

Plus, Princess Cruise Line will remain on probation for three more years. The third-party auditor suggests that the court doesn't trust the company and its executives to accurately report progress and corrective actions toward the deadlines. That's good given the light fines (as a percentage of the company's profits).

Cruise customers have already shared their views. According to the Cruise Critic website:

"... SO DISAPPOINTED IN Carnival/Princess... NOT acceptable!!! I just went on a 12 day cruise on the Star Princess last month. I feel betrayed reading this. I had such a great time too. To intentionally break pollution laws means no integrity and shoddy business practice. I want to slap someone."
-- Marykay8

" Well now we know why they have increased some pricing, including some drink packages by 40%. Got to get more from the passengers to pay their fine. The customer always pays more in these scenarios."
-- KYwildcatfanone

"Let's hope this will finally get Carnival Corp. to ensure all of its ships adhere to environmental regulations. But in the big scheme of things, $20 million is just a minuscule amount on a company that had $3.2 billion in net income."
-- GeoHerb

More discussion by customers is available here. Clearly, cruise customers want the pollution stopped, executives held accountable, and the company to change its behavior.

A search of both the Carnival Corporation and Princess Cruises websites at press time failed to find any press releases or mention of the latest fine. The Miami Herald published a brief statement by Arnold Donald, the company's Chief Executive Officer, who appeared in court:

"Donald spoke on behalf of Carnival Corp. "I sincerely regret this case," he said. "In my role as CEO I do take responsibility for the problems we have. I am extremely disappointed that we’ve had them. I know you have reservations about our commitment and who we are. I want you to know we are fully committed." Donald was the only executive who spoke at the hearing."

Fully committed? The proof will be in the company's future actions -- not words -- to fully, consistently, and faithfully comply with the latest settlement agreement and clean up its pollution mess. Will it? What action will the board of directors take? Which executives will be disciplined? Which senior executives will resign? Will more whistle blowers come forward? Lots more news to come.


Federal Reserve Enforcement Action Against Banking Executives

Last month, the Federal Reserve Board (FRB) announced several notable enforcement actions. A February 5th press release discussed a:

"Consent Notice of Suspension and Prohibition against Fred Daibes, former Chairman of Mariner's Bancorp, Edgewater, New Jersey, for perpetuating a fraudulent loan scheme, according to a federal indictment."

The order against Daibes described the violations:

"... on October 30, 2018, a federal grand jury in the United States District Court for the District of New Jersey charged [Diabes] and an accomplice by indictment with one count conspiracy to misapply bank funds and to make false entries to deceive a financial institution and the FDIC, five counts of misapplying bank funds, six counts of making false entries to decide a financial institution and the FDIC, and one count of causing reliance on a false document to influence the FDIC... During the relevant time period, Mariner’s was subject to federal banking regulations that placed limits on the amount of money that the Bank could lend to a single borrower... the Indictment charges that in about January 2008 to December 2013, Daibes and others orchestrated a nominee loan scheme designed to circumvent the Lending Limits by ensuring that millions of dollars in loans made by the Bank (the “Nominee Loans”) flowed from the nominees to Daibes, while concealing Daibes’ beneficial interests in those loans from both the Bank and the FDIC. Daibes recruited nominees to make materially false and misleading statements and material omissions..."

The FRB and the U.S. Federal Deposit Insurance Corporation (FDIC) are two of several federal agencies which oversee and regulate the banking industry within the United States. The order bars Daibes from working within the banking industry.

Then, a February 7th FRB press release discussed a:

"Consent Prohibition against Alison Keefe, former employee of SunTrust Bank, Atlanta, Georgia, for violating bank overdraft policies for her own benefit."

The order against Keefe described the violations:

"... between September 2017 and May 2018, while employed as the manager of the Bank’s Hilltop Branch in Virginia Beach, Virginia, Keefe repeatedly overdrew her personal checking account at the Bank and instructed Bank staff, without authorization and contrary to Bank policies, to honor the overdrafts... Keefe’s misconduct described above constituted unsafe or unsound banking practices and demonstrated a reckless disregard for the safety and soundness of the Bank..."

Keefe was fired by the bank on July 12, 2018, and has repaid the bank. The order bars Keefe from working within the banking industry.

A February 21st press release discussed the agency's enforcement action against a former manager at J.P. Morgan Chase bank. The FRB:

"... permanently barred from the banking industry Timothy Fletcher, a former managing director at a non-bank subsidiary of J.P. Morgan Chase & Co. Fletcher consented to the prohibition, which includes allegations that he improperly administered a referral hiring program at the firm by offering internships and other employment opportunities to individuals referred by foreign officials, clients, and prospective clients in order to obtain improper business advantages for the firm. The FRB is also requiring Fletcher to cooperate in any pending or prospective enforcement action against other individuals who are or were affiliated with the firm. The firm was previously fined $61.9 million by the Board relating to this program. In addition, the Department of Justice and the Securities and Exchange Commission have also fined the firm."

The $61.9 million fine was levied against J.P. Morgan Chase in November, 2016. Back then, the FRB found that the bank:

"... did not have adequate enterprise-wide controls to ensure that referred candidates were appropriately vetted and hired in accordance with applicable anti-bribery laws and firm policies. The Federal Reserve's order requires J.P. Morgan Chase to enhance the effectiveness of senior management oversight and controls relating to the firm's referral hiring practices and anti-bribery policies. The Federal Reserve is also requiring the firm to cooperate in its investigation of the individuals..."

Last month's order against Fletcher described the violations:

"... from at least 2008 until 2013 [Fletcher] engaged in unsafe and unsound practices, breaches of fiduciary duty, and violations of law related to his involvement in the Firm’s referral hiring program for the Asia-Pacific region investment bank, whereby candidates who were referred, directly or indirectly, by foreign government officials and existing or prospective commercial clients were offered internships, training, and other employment opportunities in order to obtain improper business advantages for the Firm... the Firm’s internal policies prohibited Firm employees from giving anything of value, including the offer of internships or training, to certain individuals, including relatives of public officials and relatives and associates of non-government corporate representatives, in order to obtain improper business advantages for the Firm..."

Kudos to the FRB for its enforcement action. Executives must suffer direct consequences for wrongdoing. After reading this, one wonders why direct consequences are not applied against executives within the social media industry. The behaviors there do just as much damage; and cross borders, too. What are your opinions?


Brave Alerts FTC On Threats From Business Practices With Big Data

The U.S. Federal Trade Commission (FTC) held a "Privacy, Big Data, And Competition" hearing on November 6-8, 2018 as part of its "Competition And Consumer Protection in the 21st Century" series of discussions. During that session, the FTC asked for input on several topics:

  1. "What is “big data”? Is there an important technical or policy distinction to be drawn between data and big data?
  2. How have developments involving data – data resources, analytic tools, technology, and business models – changed the understanding and use of personal or commercial information or sensitive data?
  3. Does the importance of data – or large, complex data sets comprising personal or commercial information – in a firm’s ordinary course operations change how the FTC should analyze mergers or firm conduct? If so, how? Does data differ in importance from other assets in assessing firm or industry conduct?
  4. What structural, behavioral or conduct remedies should the FTC consider when remedying antitrust harm in a market or industry where data or personal or commercial information are a significant product or a key competitive input?
  5. Are there policy recommendations that would facilitate competition in markets involving data or personal or commercial information that the FTC should consider?
  6. Do the presence of personal information or privacy concerns inform or change competition analysis?
  7. How do state, federal, and international privacy laws and regulations, adopted to protect data and consumers, affect competition, innovation, and product offerings in the United States and abroad?"

Brave, the developer of a web browser, submitted comments to the FTC which highlighted two concerns:

"First, big tech companies “cross-use” user data from one part of their business to prop up others. This stifles competition, and hurts innovation and consumer choice. Brave suggests that FTC should investigate. Second, the GDPR is emerging as a de facto international standard. Whether this helps or harms United States firms will be determined by whether the United States enacts and actively enforces robust federal privacy laws."

A letter by Dr. Johnny Ryan, the Chief Policy & Industry Relations Officer at Brave, described in detail the company's concerns:

"The cross-use and offensive leveraging of personal information from one line of business to another is likely to have anti-competitive effects. Indeed anti-competitive practices may be inevitable when companies with Google’s degree of market dominance update their privacy policies to include the cross-use of personal information. The result is that a company can leverage all the personal information accumulated from its users in one line of business to dominate other lines of business too. Rather than competing on the merits, the company can enjoy the unfair advantage of massive network effects... The result is that nascent and potential competitors will be stifled, and consumer choice will be limited... The cross-use of data between different lines of business is analogous to the tying of two products. Indeed, tying and cross-use of data can occur at the same time, as Google Chrome’s latest “auto sign in to everything” controversy illustrates..."

Historically, Google let Chrome web browser users decide whether or not to sign in for cross-device usage. The Chrome 69 update forced auto sign-in, but a Chrome 70 update restored users' choice after numerous complaints and criticism.

Regarding topic #7 by the FTC, Brave's response said:

"A de facto international standard appears to be emerging, based on the European Union’s General Data Protection Regulation (GDPR)... the application of GDPR-like laws for commercial use of consumers’ personal data in the EU, Britain (post EU), Japan, India, Brazil, South Korea, Malaysia, Argentina, and China bring more than half of global GDP under a common standard. Whether this emerging standard helps or harms United States firms will be determined by whether the United States enacts and actively enforces robust federal privacy laws. Unless there is a federal GDPR-like law in the United States, there may be a degree of friction and the potential of isolation for United States companies... there is an opportunity in this trend. The United States can assume the global lead by adopting the emerging GDPR standard, and by investing in world-leading regulation that pursues test cases, and defines practical standards..."

Currently, companies collect, archive, share, and sell consumers' personal information at will -- often without notice nor consent. While all 50 states and territories have breach notification laws, most states have not upgraded their breach notification laws to include biometric and passport data. While the Health Insurance Portability and Accountability Act (HIPAA) is the federal law which governs healthcare data and related breaches, many consumers share health data with social media sites -- robbing themselves of HIPAA protections.

Moreover, it's an unregulated free-for-all of data collection, archiving, and sharing by telecommunications companies after the revoking in 2017 of broadband privacy protections for consumers in the USA. Plus, laws have historically focused upon "declared data" (e.g., the data users upload or submit into websites or apps) while ignoring "inferred data" -- which is arguably just as sensitive and revealing.

Regarding future federal privacy legislation, Brave added:

"... The GDPR is compatible with a United States view of consumer protection and privacy principles. Indeed, the FTC has proposed important privacy protections to legislators in 2009, and again in 2012 and 2014, which ended up being incorporated in the GDPR. The high-level principles of the GDPR are closely aligned, and often identical to, the United States’ privacy principles... The GDPR also incorporates principles endorsed by the U.S. in the 1980 OECD Guidelines on the Protection of Privacy and Transborder Flows of Personal Data; and the principles endorsed by the United States this year, in Article 19.8 (3) of the new United States-Mexico-Canada Agreement."

"The GDPR differs from established United States privacy principles in its explicit reference to “proportionality” as a precondition of data use, and in its more robust approach to data minimization and to purpose specification. In our view, a federal law should incorporate these elements too. We also recommend that federal law should adopt the GDPR definitions of concepts such as “personal data”, “legal basis” including opt-in “consent”, “processing”, “special category personal data”, ”profiling”, “data controller”, “automated decision making”, “purpose limitation”, and so forth, and tools such as data protection impact assessments, breach notification, and records of processing activities."

"In keeping with the fair information practice principles (FIPPs) of the 1974 US Privacy Act, Brave recommends that a federal law should require that the collection of personal information is subject to purpose specification. This means that personal information shall only be collected for specific and explicit purposes. Personal information should not used beyond those purposes without consent, unless a further purpose is poses no risk of harm and is compatible with the initial purpose, in which case the data subject should have the opportunity to opt-out."

Submissions by Brave and others are available to the public at the FTC website in the "Public Comments" section.


Survey: People In Relationships Spy On Cheating Partners. FTC: Singles Looking For Love Are The Biggest Target Of Scammers

Happy Valentine's Day! First, BestVPN announced the results of a survey of 1,000 adults globally about relationships and trust in today's digital age where social media usage is very popular. Key findings:

"... nearly 30% of respondents admitted to using tracking apps to catch a partner [suspected of or cheating]. After all, over a quarter of those caught cheating were busted by modern technology... 85% of those caught out in the past now take additional steps to protect their privacy, including deleting their browsing data or using a private browsing mode."

Below is an infographic with more findings from the survey.

Valentines-day-infograph-bestvpn-feb2019

Second, the U.S. Federal Trade Commission (FTC) issued a warning earlier this week about fraud affecting single persons:

"... romance scams generated more reported losses than any other consumer fraud type reported to the agency... The number of romance scams reported to the FTC has grown from 8,500 in 2015 to more than 21,000 in 2018, while reported losses to these scams more than quadrupled in recent years—from $33 million in 2015 to $143 million last year. For those who said they lost money to a romance scam, the median reported loss was $2,600, with those 70 and over reporting the biggest median losses at $10,000."

"Romance scammers often find their victims online through a dating site or app or via social media. These scammers create phony profiles that often involve the use of a stranger’s photo they have found online. The goals of these scams are often the same: to gain the victim’s trust and love in order to get them to send money through a wire transfer, gift card, or other means."

So, be careful out there. Don't cheat, and beware of scammers and dating imposters. You have been warned.


Senators Demand Answers From Facebook And Google About Project Atlas And Screenwise Meter Programs

After news reports surfaced about Facebook's Project Atlas, a secret program where Facebook paid teenagers (and other users) for a research app installed on their phones to track and collect information about their mobile usage, several United States Senators have demanded explanations. Three Senators sent a join letter on February 7, 2019 to Mark Zuckerberg, Facebook's chief executive officer.

The joint letter to Facebook (Adobe PDF format) stated, in part:

"We write concerned about reports that Facebook is collecting highly-sensitive data on teenagers, including their web browsing, phone use, communications, and locations -- all to profile their behavior without adequate disclosure, consent, or oversight. These reports fit with Longstanding concerns that Facebook has used its products to deeply intrude into personal privacy... According to a journalist who attempted to register as a teen, the linked registration page failed to impose meaningful checks on parental consent. Facebook has more rigorous mechanism to obtain and verify parental consent, such as when it is required to sign up for Messenger Kids... Facebook's monitoring under Project Atlas is particularly concerning because the data data collection performed by the research app was deeply invasive. Facebook's registration process encouraged participants to "set it and forget it," warning that if a participant disconnected from the monitoring for more than ten minutes for a few days, that they could be disqualified. Behind the scenes, the app watched everything on the phone."

The letter included another example highlighting the alleged lack of meaningful disclosures:

"... the app added a VPN connection that would automatically route all of a participant's traffic through Facebook's servers. The app installed a SSL root certificate on the participant's phone, which would allow Facebook to intercept or modify data sent to encrypted websites. As a result, Facebook would have limitless access to monitor normally secure web traffic, even allowing Facebook to watch an individual log into their bank account or exchange pictures with their family. None of the disclosures provided at registration offer a meaningful explanation about how the sensitive data is used, how long it is kept, or who within Facebook has access to it..."

The letter was signed by Senators Richard Blumenthal (Democrat, Connecticut), Edward J. Markey (Democrat, Massachusetts), and Josh Hawley (Republican, Mississippi). Based upon news reports about how Facebook's Research App operated with similar functionality to the Onavo VPN app which was banned last year by Apple, the Senators concluded:

"Faced with that ban, Facebook appears to have circumvented Apple's attempts to protect consumers."

The joint letter also listed twelve questions the Senators want detailed answers about. Below are selected questions from that list:

"1. When did Project Atlas begin and how many individuals participated? How many participants were under age 18?"

"3. Why did Facebook use a less strict mechanism for verifying parental consent than is Required for Messenger Kids or Global Data Protection Requlation (GDPR) compliance?"

"4.What specific types of data was collected (e.g., device identifieers, usage of specific applications, content of messages, friends lists, locations, et al.)?"

"5. Did Facebook use the root certificate installed on a participant's device by the Project Atlas app to decrypt and inspect encrypted web traffic? Did this monitoring include analysis or retention of application-layer content?"

"7. Were app usage data or communications content collected by Project Atlas ever reviewed by or available to Facebook personnel or employees of Facebook partners?"

8." Given that Project Atlas acknowledged the collection of "data about [users'] activities and content within those apps," did Facebook ever collect or retain the private messages, photos, or other communications sent or received over non-Facebook products?"

"11. Why did Facebook bypass Apple's app review? Has Facebook bypassed the App Store aproval processing using enterprise certificates for any other app that was used for non-internal purposes? If so, please list and describe those apps."

Read the entire letter to Facebook (Adobe PDF format). Also on February 7th, the Senators sent a similar letter to Google (Adobe PDF format), addressed to Hiroshi Lockheimer, the Senior Vice President of Platforms & Ecosystems. It stated in part:

"TechCrunch has subsequently reported that Google maintained its own measurement program called "Screenwise Meter," which raises similar concerns as Project Atlas. The Screenwise Meter app also bypassed the App Store using an enterprise certificate and installed a VPN service in order to monitor phones... While Google has since removed the app, questions remain about why it had gone outside Apple's review process to run the monitoring program. Platforms must maintain and consistently enforce clear policies on the monitoring of teens and what constitutes meaningful parental consent..."

The letter to Google includes a similar list of eight questions the Senators seek detailed answers about. Some notable questions:

"5. Why did Google bypass App Store approval for Screenwise Meter app using enterprise certificates? Has Google bypassed the App Store approval processing using enterprise certificates for any other non-internal app? If so, please list and describe those apps."

"6. What measures did Google have in place to ensure that teenage participants in Screenwise Meter had authentic parental consent?"

"7. Given that Apple removed Onavoo protect from the App Store for violating its terms of service regarding privacy, why has Google continued to allow the Onavo Protect app to be available on the Play Store?"

The lawmakers have asked for responses by March 1st. Thanks to all three Senators for protecting consumers' -- and children's -- privacy... and for enforcing transparency and accountability.


Technology And Human Rights Organizations Sent Joint Letter Urging House Representatives Not To Fund 'Invasive Surveillance' Tech Instead of A Border Wall

More than two dozen technology and human rights organizations sent a joint letter Tuesday to representatives in the House of Representatives, urging them not to fund "invasive surveillance technologies" in replacement of a physical wall or barrier along the southern border of the United States. The joint letter cited five concerns:

"1. Risk-based targeting: The proposal calls for “an expansion of risk-based targeting of passengers and cargo entering the United States.” We are concerned that this includes the expansion of programs — proven to be ineffective and to exacerbate racial profiling — that use mathematical analytics to make targeting determinations. All too often, these systems replicate the biases of their programmers, burden vulnerable communities, lack democratic transparency, and encourage the collection and analysis of ever-increasing amounts of data... 3. Biometrics: The proposal calls for “new cutting edge technology” at the border. If that includes new face surveillance like that deployed at international airline departures, it should not. Senator Jeff Merkley and the Congressional Black Caucus have expressed serious concern that facial recognition technology would place “disproportionate burdens on communities of color and could stifle Americans’ willingness to exercise their first amendment rights in public.” In addition, use of other biometrics, including iris scans and voice recognition, also raise significant privacy concerns... 5. Biometric and DNA data: We oppose biometric screening at the border and the collection of immigrants’ DNA, and fear this may be another form of “new cutting edge technology” under consideration. We are concerned about the threat that any collected biometric data will be stolen or misused, as well as the potential for such programs to be expanded far beyond their original scope..."

The letter was sent to Speaker Nancy Pelosi, Minority Leader Kevin McCarthy, Minority Leader Steny Hoyer, Minority Whip Steve Scalise, Chair Nita Lowey a Ranking Member of House Appropriations, and Kay Granger of the House Appropriations committee.

27 organizations signed the joint letter, including Fight for the Future, the Electronic Frontier Foundation, the American Civil Liberties Union (ACLU), the American-Arab Anti-Discrimination Committee, the Center for Media Justice, the Project On Government Oversight, and others. Read the entire letter.

Earlier this month, a structural and civil engineer cited several reasons why a physical wall won't work and would be vastly more expensive than the $5.7 billion requested.

Clearly, the are distinct advantages and disadvantages for each and all border-protection solutions the House and President are considering. It is a complex problem. These advantages and disadvantages of all proposals need to be clear, transparent, and understood by taxpayers prior to any final decisions.


The Federal Reserve Introduced A New Publication For And About Consumers

The Federal Reserve Board (FRB) has introduced a new publication titled, "Consumer & Community Context." According to the FRB announcement, the new publication will feature:

"... original analyses about the financial conditions and experiences of consumers and communities, including traditionally under-served and economically vulnerable households and neighborhoods. The goal of the series is to increase public understanding of the financial conditions and concerns of consumers and communities... The inaugural issue covers the theme of student loans, and includes articles on the effect that rising student loan debt levels may have on home ownership rates among young adults; and the relationship between the amount of student loan debt and individuals' decisions to live in rural or urban areas."

Authors are employees of the FRB or the Federal Reserve System (FRS). As the central bank of the United States, the FRS performs five general functions to "promote the effective operation of the U.S. economy and, more generally, the public interest:" i) conducts the nation’s monetary policy to promote maximum employment, stable prices, and moderate long-term interest rates; ii) promotes the stability of the financial system and seeks to minimize and contain systemic risks; iii) promotes the safety and soundness of individual financial institutions; iv) fosters payment and settlement system safety and efficiency through services to the banking industry; and v) promotes consumer protection and community development through consumer-focused supervision, examination, and monitoring of the financial system. Learn more about the Federal Reserve.

The first issue of Consumer & Community Context is available, in Adobe PDF format, at the FRB site. Economists, bank executives, consumer advocates, researchers, teachers, and policy makers may be particularly interested. To better understand the publication's content, below is an excerpt.

In their analysis of student loan debt and home ownership among young adults, the researchers found:

"... home ownership rate in the United States fell approximately 4 percentage points in the wake of the financial crisis, from a peak of 69 percent in 2005 to 65 percent in 2014. The decline in home ownership was even more pronounced among young adults. Whereas 45 percent of household heads ages 24 to 32 in 2005 owned their own home, just 36 percent did in 2014 — a marked 9 percentage point drop... We found that a $1,000 increase in student loan debt (accumulated during the prime college-going years and measured in 2014 dollars) causes a 1 to 2 percentage point drop in the home ownership rate for student loan borrowers during their late 20s and early 30s... higher student loan debt early in life leads to a lower credit score later in life, all else equal. We also find that, all else equal, increased student loan debt causes borrowers to be more likely to default on their student loan debt, which has a major adverse effect on their credit scores, thereby impacting their ability to qualify for a mortgage..."

The FRB announcement described the publication schedule as, "periodically." Perhaps, this is due to the partial government shutdown. Hopefully, in the near future the FRB will commit to a more regular publication schedule.


Report: Navient Tops List Of Student Loan Complaints

The Consumer Financial Protection Bureau (CFPB), a federal government agency in the United States, collects complaints about banks and other financial institutions. That includes lenders of student loans.

The CFPB and private-sector firms analyze these complaints, looking for patterns. Forbes magazine reported:

"The team at Make Lemonade analyzed these complaints [submitted during 2018], and found that there were 8,752 related to student loans. About 64% were related to federal student loans and 36% were related to private student loans. Nearly 67% of complaints were related to an issue with a student loan lender or student loan servicer."

"Navient, one of the nation's largest student loan servicers, ranked highest in terms of student loan complaints. In 2018, student loan borrowers submitted 4,032 complaints about Navient to the CFPB, which represents 46% of all student loan complaints. AES/PHEAA and Nelnet, two other major student loan servicers, received approximately 20% and 7%, respectively."

When looking for a student loan, wise consumers shop around, do their research, and shop wisely. Some lenders are better than others. The Forbes article is very helpful as it contains links to additional resources and information for consumers.

Learn more about the CFPB and its complaints database designed to help consumers and regulators:


Federal Regulators Encourage Banks To Work With Borrowers Affected By Partial Government Shutdown

Six financial regulatory agencies issued a joint statement advising banks and financial institutions to be flexible with borrowers during the partial government shutdown in the United States. The January 11, 2019 statement said:

"While the effects of the federal government shutdown on individuals should be temporary, affected borrowers may face a temporary hardship in making payments on debts such as mortgages, student loans, car loans, business loans, or credit cards. As they have in prior shutdowns, the agencies encourage financial institutions to consider prudent efforts to modify terms on existing loans or extend new credit to help affected borrowers."

"Prudent workout arrangements that are consistent with safe-and-sound lending practices are generally in the long-term best interest of the financial institution, the borrower, and the economy. Such efforts should not be subject to examiner criticism. Consumers affected by the government shutdown are encouraged to contact their lenders immediately should they encounter financial strain."

The six agencies which signed the joint statement include the:

  • Board of Governors of the Federal Reserve System
  • Conference of State Bank Supervisors
  • Consumer Financial Protection Bureau
  • Federal Deposit Insurance Corporation
  • National Credit Union Administration
  • Office of the Comptroller of the Currency

Today is day 25 of the shutdown. Yesterday, President Trump rejected calls by Republicans to temporarily reopen several agencies to encourage negotiations with Democrats in the House of Representatives.

Reportedly, OceanFirst Bank has suspended fees for borrowers unable to make monthly payments on mortgage loans, home equity loans, and lines of credit. Provident Bank it would offer a limited number of refunds on late payment fees for mortgages, home equity loans, checking account overdraft fees, and late credit card payment fees.

Has your bank shown flexibility? Or has it refused your requests? Share your experiences and opinions below.


House Oversight Committee Report On The Equifax Data Breach. Did The Recommendations Go Far Enough?

On Monday, the U.S. House of Representatives Committee on Oversight and Government Reform released its report (Adobe PDF) on the massive Equifax data breach, where the most sensitive personal and payment information of more than 148 million consumers -- nearly half of the population -- was accessed and stolen. The report summary:

"In 2005, former Equifax Chief Executive Officer(CEO) Richard Smith embarked on an aggressive growth strategy, leading to the acquisition of multiple companies, information technology (IT) systems, and data. While the acquisition strategy was successful for Equifax’s bottom line and stock price, this growth brought increasing complexity to Equifax’s IT systems, and expanded data security risks... Equifax, however, failed to implement an adequate security program to protect this sensitive data. As a result, Equifax allowed one of the largest data breaches in U.S. history. Such a breach was entirely preventable."

The report cited several failures by Equifax. First:

"On March 7, 2017, a critical vulnerability in the Apache Struts software was publicly disclosed. Equifax used Apache Struts to run certain applications on legacy operating systems. The following day, the Department of Homeland Security alerted Equifax to this critical vulnerability. Equifax’s Global Threate and Vulnerability Management (GTVM) team emailed this alert to over 400 people on March 9, instructing anyone who had Apache Struts running on their system to apply the necessary patch within 48 hours. The Equifax GTVM team also held a March 16 meeting about this vulnerability. Equifax, however, did not fully patch its systems. Equifax’s Automated Consumer Interview System (ACIS), a custom-built internet-facing consumer dispute portal developed in the 1970s, was running a version of Apache Struts containing the vulnerability. Equifax did not patch the Apache Struts software located within ACIS, leaving its systems and data exposed."

As bad as that is, it gets worse:

"On May 13, 2017, attackers began a cyberattack on Equifax. The attack lasted for 76 days. The attackers dropped “web shells” (a web-based backdoor) to obtain remote control over Equifax’s network. They found a file containing unencrypted credentials (usernames and passwords), enabling the attackers to access sensitive data outside of the ACIS environment. The attackers were able to use these credentials to access 48 unrelated databases."

"Attackers sent 9,000 queries on these 48 databases, successfully locating unencrypted personally identifiable information (PII) data 265 times. The attackers transferred this data out of the Equifax environment, unbeknownst to Equifax. Equifax did not see the data exfiltration because the device used to monitor ACIS network traffic had been inactive for 19 months due to an expired security certificate. On July 29, 2017, Equifax updated the expired certificate and immediately noticed suspicious web traffic..."

Findings so far: 1) growth prioritized over security while archiving highly valuable data; 2) antiquated computer systems; 3) failed security patches; 4) unprotected user credentials; and 5) failed intrusion detection mechanism. Geez!

Only after updating its expired security certificate did Equifax notice the intrusion. After that, you'd think that Equifax would have implemented a strong post-breach response. You'd be wrong. More failures:

"When Equifax informed the public of the breach on September 7, the company was unprepared to support the large number of affected consumers. The dedicated breach website and call centers were immediately overwhelmed, and consumers were not able to obtain timely information about whether they were affected and how they could obtain identity protection services."

"Equifax should have addressed at least two points of failure to mitigate, or even prevent, this data breach. First, a lack of accountability and no clear lines of authority in Equifax’s IT management structure existed, leading to an execution gap between IT policy development and operation. This also restricted the company’s implementation of other security initiatives in a comprehensive and timely manner. As an example, Equifax had allowed over 300 security certificates to expire, including 79 certificates for monitoring business critical domains. "Second, Equifax’s aggressive growth strategy and accumulation of data resulted in a complex IT environment. Equifax ran a number of its most critical IT applications on custom-built legacy systems. Both the complexity and antiquated nature of Equifax’s IT systems made IT security especially challenging..."

Findings so far: 6) inadequate post-breach response; and 7) complicated IT structure making updates difficult. Geez!

The report listed the executives who retired and/or were fired. That's a small start for a company archiving the most sensitive personal and payment information of all USA citizens. The report included seven recommendations:

"1: Empower Consumers through Transparency. Consumer reporting agencies (CRAs) should provide more transparency to consumers on what data is collected and how it is used. A large amount of the public’s concern after Equifax’s data breach announcement stemmed from the lack of knowledge regarding the extensive data CRAs hold on individuals. CRAs must invest in and deploy additional tools to empower consumers to better control their own data..."

"2: Review Sufficiency of FTC Oversight and Enforcement Authorities. Currently, the FTC uses statutory authority under Section 5 of the Federal Trade Commission Act to hold businesses accountable for making false or misleading claims about their data security or failing to employ reasonable security measures. Additional oversight authorities and enforcement tools may be needed to enable the FTC to effectively monitor CRA data security practices..."

"3: Review Effectiveness of Identity Monitoring and Protection Services Offered to Breach Victims. The General Accounting Office (GAO) should examine the effectiveness of current identity monitoring and protection services and provide recommendations to Congress. In particular, GAO should review the length of time that credit monitoring and protection services are needed after a data breach to mitigate identity theft risks. Equifax offered free credit monitoring and protection services for one year to any consumer who requested it... This GAO study would help clarify the value of credit monitoring services and the length of time such services should be maintained. The GAO study should examine alternatives to credit monitoring services and identify addit ional or complimentary services..."

"4: Increase Transparency of Cyber Risk in Private Sector. Federal agencies and the private sector should work together to increase transparency of a company’s cybersecurity risks and steps taken to mitigate such risks. One example of how a private entity can increase transparency related to the company’s cyber risk is by making disclosures in its Securities and Exchange Commission (SEC) filings. In 2011, the SEC developed guidance to assist companies in disclosing cybersecurity risks and incidents. According to the SEC guidance, if cybersecurity risks or incidents are “sufficiently material to investors” a private company may be required to disclose the information... Equifax did not disclose any cybersecurity risks or cybers ecurity incidents in its SEC filings prior to the 2017 data breach..."

"5: Hold Federal Contractors Accountable for Cybersecurity with Clear Requirements. The Equifax data breach and federal customers’ use of Equifax identity validation services highlight the need for the federal government to be vigilant in mitigating cybersecurity risk in federal acquisition. The Office of Management and Budget (OMB) should continue efforts to develop a clear set of requirements for federal contractors to address increasing cybersecurity risks, particularly as it relates to handling of PII. There should be a government-wide framework of cybersecurity and data security risk-based requirements. In 2016, the Committee urged OMB to focus on improving and updating cybersecurity requirements for federal acquisition... The Committee again urges OMB to expedite development of a long-promised cybersecurity acquisition memorandum to provide guidance to federal agencies and acquisition professionals..."

"6: Reduce Use of Social Security Numbers as Personal Identifiers. The executive branch should work with the private sector to reduce reliance on Social Security numbers. Social Security numbers are widely used by the public and private sector to both identify and authenticate individuals. Authenticators are only useful if they are kept confidential. Attackers stole the Social Security numbers of an estimated 145 million consumers from Equifax. As a result of this breach, nearly half of the country’s Social Security numbers are no longer confidential. To better protect consumers from identity theft, OMB and other relevant federal agencies should pursue emerging technology solutions as an alternative to Social Security number use."

"7: Implement Modernized IT Solutions. Companies storing sensitive consumer data should transition away from legacy IT and implement modern IT security solutions. Equifax failed to modernize its IT environments in a timely manner. The complexity of the legacy IT environment hosting the ACIS application allowed the attackers to move throughout the Equifax network... Equifax’s legacy IT was difficult to scan, patch, and modify... Private sector companies, especially those holding sensitive consumer data like Equifax, must prioritize investment in modernized tools and technologies...."

The history of corporate data breaches and the above list of corporate failures by Equifax both should be warnings to anyone in government promoting the privatization of current government activities. Companies screw up stuff, too.

Recommendation #6 is frightening in that it hasn't been implemented. Yikes! No federal agency should do business with a private sector firm operating with antiquated computer systems. And, if Equifax can't protect the information it archives, it should cease to exist. While that sounds harsh, it ain't. Continual data breaches place risks and burdens upon already burdened consumers trying to control and protect their data.

What are your opinions of the report? Did it go far enough?


Massive Data Breach At U.S. Postal Service Affects 60 Million Users

United States Postal Service logo The United States Postal Service (USPS) experienced a massive data breach due to a vulnerable component at its website. The "application program interface" or API component allowed unauthorized users to access and download details about other users of the Informed Visibility service.

Security researcher Brian Krebs explained:

"In addition to exposing near real-time data about packages and mail being sent by USPS commercial customers, the flaw let any logged-in usps.com user query the system for account details belonging to any other users, such as email address, username, user ID, account number, street address, phone number, authorized users, mailing campaign data and other information.

Many of the API’s features accepted “wildcard” search parameters, meaning they could be made to return all records for a given data set without the need to search for specific terms. No special hacking tools were needed to pull this data, other than knowledge of how to view and modify data elements processed by a regular Web browser like Chrome or Firefox."

Geez! The USPS has since fixed the API vulnerability. Regardless, this is bad, very bad, for several reasons. Not only should the vulnerable API have prevented one user from viewing details about another, but it allowed changes to some data elements. Krebs added:

"A cursory review by KrebsOnSecurity indicates the promiscuous API let any user request account changes for any other user, such as email address, phone number or other key details. Fortunately, the USPS appears to have included a validation step to prevent unauthorized changes — at least with some data fields... The ability to modify database entries related to Informed Visibility user accounts could create problems for the USPS’s largest customers — think companies like Netflix and others that get discounted rates for high volumes. For instance, the API allowed any user to convert regular usps.com accounts to Informed Visibility business accounts, and vice versa."

About 13 million Informed Delivery users were also affected, since the vulnerable API component affected all USPS.com users. A vulnerability like this makes package theft easier since criminals could determine when certain types of mail (e.g., debit cards, credit cards, etc.) arrive at users' addresses. The vulnerable API probably existed for more than one year, when a security researcher first alerted the USPS about it.

While the USPS provided a response to Krebs on Security, a check at press time of the Newsroom and blog sections of About.USPS.com failed to find any mention of the data breach. Not good. Transparency matters.

If the USPS is serious about data security, then it should issue a public statement. When will users receive breach notification letters, if they haven't been sent? Who fixed the vulnerable API? How long was it broken? What post-breach investigation is underway? What types of changes (e.g., employee training, software testing, outsource vendor management, etc.) are being implement so this won't happen again?

Trust matters. The lack of a public statement makes it difficult for consumers to judge the seriousness of the breach and the seriousness of the fix by USPS. We probably will hear more about this breach.


Federal Reserve Released Its Non-cash Payments Fraud Report. Have Chip Cards Helped?

Many consumers prefer to pay for products and services using methods other than cash. How secure are these non-cash payment methods? The Federal Reserve Board (FRB) analyzed the payments landscape within the United States. Its October 2018 report found good and bad news. The good news: non-cash payments fraud is small. The bad news:

  • Overall, non-cash payments fraud is growing,
  • Card payments fraud drove the growth
Non-Cash Payment Activity And Fraud
Payment Type 2012 2015 Increase (Decrease)
Card payments & ATM withdrawal fraud $4 billion $6.5 billion 62.5 percent
Check fraud $1.1 billion $710 million (35) percent
Non-cash payments fraud $6.1 billion $8.3 billion 37 percent
Total Non-cash payments $161.2 trillion $180.3 trillion 12 percent

The FRB report included:

"... fraud totals and rates for payments processed over general-purpose credit and debit card networks, including non-prepaid and prepaid debit card networks, the automated clearinghouse (ACH) transfer system, and the check clearing system. These payment systems form the core of the noncash payment and settlement systems used to clear and settle everyday payments made by consumers and businesses in the United States. The fraud data were collected as part of Federal Reserve surveys of depository institutions in 2012 and 2015 and payment card networks in 2015 and 2016. The types of fraudulent payments covered in the study are those made by an unauthorized third party."

Data from the card network survey included general-purpose credit and debit (non-prepaid and prepaid) card payments, but did not include ATM withdrawals. The card networks include Visa, MasterCard, Discover and others. Additional findings:

"... the rate of card fraud, by value, was nearly flat from 2015 to 2016, with the rate of in-person card fraud decreasing notably and the rate of remote card fraud increasing significantly..."

The industry defines several categories of card fraud:

  1. "Counterfeit card. Fraud is perpetrated using an altered or cloned card;
  2. Lost or stolen card. Fraud is undertaken using a legitimate card, but without the cardholder’s consent;
  3. Card issued but not received. A newly issued card sent to a cardholder is intercepted and used to commit fraud;
  4. Fraudulent application. A new card is issued based on a fake identity or on someone else’s identity;
  5. Fraudulent use of account number. Fraud is perpetrated without using a physical card. This type of fraud is typically remote, with the card number being provided through an online web form or a mailed paper form, or given orally over the telephone; and
  6. Other. Fraud including fraud from account take-over and any other types of fraud not covered above."
Card Fraud By Category
Fraud Category 2015 2016 Increase/(Decrease)
Fraudulent use of account number $2.88 billion $3.46 billion 20 percent
Counterfeit card fraud $3.05 billion $2.62 billion (14) percent
Lost or stolen card fraud $730 million $810 million 11 percent
Fraudulent application $210 million $360 million 71 percent

The increase in fraudulent application suggests that criminals consider it easy to intercept pre-screened credit and card offers sent via postal mail. It is easy for consumers to opt out of pre-screened credit and card offers. There is also the National Do Not Call Registry. Do both today if you haven't.

The report also covered EMV chip cards, which were introduced to stop counterfeit card fraud. Card networks distributed both chip cards to consumers, and chip-reader terminals to retailers. The banking industry had set an October 1, 2015 deadline to switch to chip cards. The FRB report:

EMV Chip card fraud and payments. Federal Reserve Board. October 2018

The FRB concluded:

"Card systems brought EMV processing online, and a liability shift, beginning in October 2015, created an incentive for merchants to accept chip cards. By value, the share of non-fraudulent in-person payments made with [chip cards] shifted dramatically between 2015 and 2016, with chip-authenticated payments increasing from 3.2 percent to 26.4 percent. The share of fraudulent in-person payments made with [chip cards] also increased from 4.1 percent in 2015 to 22.8 percent in 2016. As [chip cards] are more secure, this growth in the share of fraudulent in-person chip payments may seem counter-intuitive; however, it reflects the overall increase in use. Note that in 2015, the share of fraudulent in-person payments with [chip cards] (4.1 percent) was greater than the share of non-fraudulent in-person payments with [chip cards] (3.2 percent), a relationship that reversed in 2016."


Senator Wyden Introduces Bill To Help Consumers Regain Online Privacy And Control Over Sensitive Data

Late last week, Senator Ron Wyden (Dem - Oregon) introduced a "discussion draft" of legislation to help consumers recover online privacy and control over their sensitive personal data. Senator Wyden said:

"Today’s economy is a giant vacuum for your personal information – Everything you read, everywhere you go, everything you buy and everyone you talk to is sucked up in a corporation’s database. But individual Americans know far too little about how their data is collected, how it’s used and how it’s shared... It’s time for some sunshine on this shadowy network of information sharing. My bill creates radical transparency for consumers, gives them new tools to control their information and backs it up with tough rules with real teeth to punish companies that abuse Americans’ most private information.”

The press release by Senator Wyden's office explained the need for new legislation:

"The government has failed to respond to these new threats: a) Information about consumers’ activities, including their location information and the websites they visit is tracked, sold and monetized without their knowledge by many entities; b) Corporations’ lax cybersecurity and poor oversight of commercial data-sharing partnerships has resulted in major data breaches and the misuse of Americans’ personal data; c) Consumers have no effective way to control companies’ use and sharing of their data."

Consumers in the United States lost both control and privacy protections when the U.S. Federal Communications Commission (FCC), led by President Trump appointee Ajit Pai, a former Verizon lawyer, repealed last year both broadband privacy and net neutrality protections for consumers. A December 2017 study of 1,077 voters found that most want net neutrality protections. President Trump signed the privacy-rollback legislation in April 2017. A prior blog post listed many historical abuses of consumers by some internet service providers (ISPs).

With the repealed broadband privacy, ISPs are free to collect and archive as much data about consumers as desired without having to notify and get consumers' approval of the collection nor of who they share archived data with. That's 100 percent freedom for ISPs and zero freedom for consumers.

By repealing online privacy and net neutrality protections for consumers, the FCC essentially punted responsibility to the U.S. Federal Trade Commission (FTC). According to Senator Wyden's press release:

"The FTC, the nation’s main privacy and data security regulator, currently lacks the authority and resources to address and prevent threats to consumers’ privacy: 1) The FTC cannot fine first-time corporate offenders. Fines for subsequent violations of the law are tiny, and not a credible deterrent; 2) The FTC does not have the power to punish companies unless they lie to consumers about how much they protect their privacy or the companies’ harmful behavior costs consumers money; 3) The FTC does not have the power to set minimum cybersecurity standards for products that process consumer data, nor does any federal regulator; and 4) The FTC does not have enough staff, especially skilled technology experts. Currently about 50 people at the FTC police the entire technology sector and credit agencies."

This means consumers have no protections nor legal options unless the company, or website, violates its published terms-of-conditions and privacy policies. To solves the above gaps, Senator Wyden's new legislation, titled the Consumer Data Privacy Act (CDPA), contains several new and stronger protections. It:

"... allows consumers to control the sale and sharing of their data, gives the FTC the authority to be an effective cop on the beat, and will spur a new market for privacy-protecting services. The bill empowers the FTC to: i) Establish minimum privacy and cybersecurity standards; ii) Issue steep fines (up to 4% of annual revenue), on the first offense for companies and 10-20 year criminal penalties for senior executives; iii) Create a national Do Not Track system that lets consumers stop third-party companies from tracking them on the web by sharing data, selling data, or targeting advertisements based on their personal information. It permits companies to charge consumers who want to use their products and services, but don’t want their information monetized; iv) Give consumers a way to review what personal information a company has about them, learn with whom it has been shared or sold, and to challenge inaccuracies in it; v) Hire 175 more staff to police the largely unregulated market for private data; and vi) Require companies to assess the algorithms that process consumer data to examine their impact on accuracy, fairness, bias, discrimination, privacy, and security."

Permitting companies to charge consumers who opt out of data collection and sharing is a good thing. Why? Monthly payments by consumers are leverage -- a strong incentive for companies to provide better cybersecurity.

Business as usual -- cybersecurity methods by corporate executives and government enforcement -- isn't enough. The tsunami of data breaches is an indication. During October alone:

A few notable breach events from earlier this year:

The status quo, or business as usual, is unacceptable. Executives' behavior won't change without stronger consequences like jail time, since companies perform cost-benefit analyses regarding how much to spend on cybersecurity versus the probability of breaches and fines. Opt-outs of data collection and sharing by consumers, steeper fines, and criminal penalties could change those cost-benefit calculations.

Four former chief technologists at the FCC support Senator Wyden's legislation. Gabriel Weinberg, the Chief Executive Officer of DuckDuckGo also supports it:

"Senator Wyden’s proposed consumer privacy bill creates needed privacy protections for consumers, mandating easy opt-outs from hidden tracking. By forcing companies that sell and monetize user data to be more transparent about their data practices, the bill will also empower consumers to make better-informed privacy decisions online, enabling companies like ours to compete on a more level playing field."

Regular readers of this blog know that the DuckDuckGo search engine (unlike Google, Bing and Yahoo search engines) doesn't track users, doesn't collect nor archive data about users and their devices, and doesn't collect nor store users' search criteria. So, DuckDuckGo users can search knowing their data isn't being sold to advertisers, data brokers, and others.

Lastly, Wyden's proposed legislation includes several key definitions (emphasis added):

"... The term "automated decision system" means a computational process, including one derived from machine learning, statistics, or other data processing or artificial intelligence techniques, that makes a decision or facilitates human decision making, that impacts consumers... The term "automated decision system impact assessment" means a study evaluating an automated decision system and the automated decision system’s development process, including the design and training data of the automated decision 14 system, for impacts on accuracy, fairness, bias, discrimination, privacy, and security that includes... The term "data protection impact assessment" means a study evaluating the extent to which an information system protects the privacy and security of personal information the system processes... "

The draft legislation requires companies to perform both automated data impact assessments and data protection impact assessments; and requires the FTC to set the frequency and conditions for both. A copy of the CDPA draft is also available here (Adobe PDF; 67.7 k bytes).

This is a good start. It is important... critical... to hold accountable both corporate executives and the automated decision systems their approve and deploy. Based upon history, outsourcing has been one corporate tactic to manage liability by shifting it to providers. Good to close any loopholes now where executives could abuse artificial intelligence and related technologies to avoid responsibility.

What are your thoughts, opinions of the proposed legislation?