Representatives from Target and Neiman Marcus appeared yesterday in front of the U.S. Senate Judiciary Committee to testify on the highly publicized breaches that hit each company in recent months and what can be done to bolster cybersecurity.

What was clear during testimony was the sophistication of the cyber-attacks on both companies, the complicated forensics investigations used to detect and contain the malware, the need for chip-and-PIN technology for card payments and the need for a concerted effort by public and private stakeholders to counter the growing, lucrative and sophisticated cybercriminal industry.

What remains unanswered, however, is whether government is ready for or should pass federal data security legislation to confront these issues.

“I want to say how deeply sorry we are for the impact this incident has had on our guests,” said Target Executive Vice President and Chief Financial Officer John Mulligan, who testified alongside Neiman Marcus Senior Vice President and Chief Information Officer Michael Kingston as well as representatives from Symantec and Consumers Union.

As has been reported elsewhere and confirmed in testimony from both retailers, the malware appears to have been written specifically for the point-of-sale systems within each company, and that sophistication made the forensics investigations time-consuming, effectively slowing down consumer notification. Neiman Marcus, for example, hired a second independent computer forensic investigation firm “to speed up the investigation.”

According to Kingston’s written testimony for Neiman Marcus, the malware discovered in its systems was not previously known to the anti-virus community. It also erased its digital tracks by removing the disc-file that caused it to run and wiped out other files that would give evidence to its existence, while encrypting all outbound files. Kingston also noted the malware had “features that were custom built as a result of reconnaissance efforts within our systems that appear to have been clandestinely conducted.”

Similarly, Target found that an intruder stole a vendor’s credentials for system access and point-of-sale malware implementation.

In a fairly detailed account, Kingston’s testimony provides a timeline of the events, beginning December 17, 2013. It wasn’t until January 2 that Neiman Marcus identified a problem in its system and January 10 that the company notified affected customers. Likewise, Target was first alerted of an issue on December 12, by the U.S. Department of Justice, and publicly alerted customers a week later on December 19. Neiman Marcus decided to contain the malware prior to notifying customers due to worries that if the thieves knew they’d been discovered, it “could accelerate the theft of more accounts.”

Each company took a different tack in notifying affected customers.

Neiman Marcus found that 77 out of 85 stores were compromised between July and October 2013, and approximately 1.1 million cards were used in those stores during that time, but the company found that the malware didn’t run every day. As a result, Neiman Marcus decided to notify a larger group of customers to “include anyone who had used a payment card over a much longer period of time (one year), and website customers (who do not appear to have been exposed to the malware).” Kingston said they “took these steps in an abundance of caution because of the ongoing nature of the investigation and because we want all of our customers to know that we place the highest priority on the security of their personal information.”

Target had to take a different approach because it did not have the contact information for everyone affected. Approximately 40 million cards were compromised and certain personal data of 70 million—including name, address, phone or e-mail—were affected as well. Instead of notifying customers specifically, Target used a mass-scale public announcement, e-mail, prominent notices on its website and social media channels.

And though both companies testified they were up-to-date on known security standards, the sophistication of the malware undermined their systems.

“We’ve taken a holistic view of data security,” Mulligan said, adding Target had spent millions of dollars on information security. Kingston also testified that Neiman Marcus has a multilayer information security infrastructure, including two-factor authentication, segmentation and network monitoring.

“Just having the tools and technology is not enough,” said Kingston. “It’s often how you deploy that technology and what else you’re doing.” Sharing threat data with others is also important, he said. Similarly, Mulligan noted that to implement a strong cybersecurity system, industry needs to communicate and cooperate to minimize such threats.

The hearing also focused on how quickly and expensive it would be for industry to implement chip-and-PIN technology for payment cards. Symantec Senior Vice President Fran Rosch said the technology is a good solution and highlighted a Symantec Special Report on Attacks on Point of Sale Systems.

Rosch also said data security standards are not enough. “Symantec supports a national standard for data breach notification,” he testified. “A layered security approach is important. Any legislation should support that.” In his written testimony, he said such legislation should be predicated on three principles: It should apply equally to all organizations, include implementation of pre-breach security measures and mandate the use of encryption.

Federal Trade Commission (FTC) Chairwoman Edith Ramirez also voiced her agency’s support for federal legislation, particularly one that would “strengthen (the FTC’s) existing authority governing data security standards on companies” as well as to “require companies, in appropriate circumstances, to provide notification to consumers when there is a security breach.” Ramirez said that legislation should also give the FTC “rulemaking authority under the Administrative Procedure Act, jurisdiction over nonprofits and the ability to seek civil penalties to help deter unlawful conduct.” Congress should also give the agency the ability to seek civil penalties against other companies to deter unreasonable data security practices.

Will there be federal data security legislation this year? It’s tough to tell, but there is plenty of motivation to attempt it. In addition to Sen. Patrick Leahy’s (D-VT) Data Privacy and Security Act, Sen. Feinstein (D-CA), along with three other senators, has introduced the Data Security and Breach Notification Act; Sen. Robert Menendez (D-NJ) has called for a Commercial Bill of Rights, and Sen. Richard Blumenthal (D-CT), said during yesterday’s hearing, that he has introduced a bill that would create a standard of care enforceable by a private right of action as well as the creation of a clearinghouse for industry and government to share information.

“Industry needs to do some soul-searching,” Blumenthal said during the hearing, “about whether they’ve done enough to secure consumer data.”

The Obama administration backs data security legislation as well. Assistant Attorney General Mythili Raman testified, "Businesses should be required to provide prompt notice to consumers in the wake of a breach," she said. "American consumers should know when they are at risk of identity theft or other harms because of a data security breach."

With complete security impossible and an apparent split between bankers and retailers about who should bear more responsibility with such a rise in sophisticated malware, Target’s words sounded a call to industry and government. “To prevent this from happening again,” Mulligan said, “none of us can go it alone. We need to work together.”

Written By

Jedidiah Bracy, CIPP/E, CIPP/US


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