Are E-Commerce Merchants at Risk in Mystery Data Breach?

Days before the Heartland Data Breach was announced, volunteer computer security experts at the Open Security Foundation had already figured out what had occurred. Many believe Heartland is going to become the largest data breach in history and will surpass the TJX caper. At this point, only time will tell.

Now the folks at the Open Security Foundation are predicting another data breach at a card processor/acquirer that hasn't been announced to the public yet. For over a week, they have been speculating about this mysterious data breach based on a tip, which was corroborated by other anonymous sources.

In their latest post, they state they knew it was a card not present breach at a processor/acquirer, but didn't initally report it. They are now reporting this development based on it being revealed by another source.

On February 21, 2009, databreaches.net revealed evidence of this data breach based on information sifted from two credit union sites (TVACU.com and Pennsylvania Credit Union Association CardNet).

The only data elements at risk are account numbers and expiration dates. No track data, PIN, CVV2/CVC2 data or cardholder-identifying information was captured. The period of exposure being reported is from February to August of 2008.

It has also been written that the exposure was enabled by malicious software that was placed on the unknown acquirer/processor's system. Both of the credit union sources also state that it is being left up to the card issuers, whether to issue new cards or monitor the accounts for fraud. Reissuing cards has become a major expense to the card issuers after a data breach is discovered.

This makes me wonder if we will discover that the acquirer/processor was PCI DSS (Payment Card Industry Data Security Standards) compliant? PCI DSS is the payment card industry's own set of standards to protect data. In many of the recent breaches, the "breached" met this standard, which has led to questions as to whether it is really effective or not.

Both articles also indicate that Visa/Mastercard are not revealing the source of this breach until the "mysterious source" of it makes their own announcement on the matter.

Given these reports, my speculation is that this information could be used in e-commerce type transactions. If only primary account information and expiration dates were exposed — counterfeiting it on cloned cards is unlikely. It simply wouldn't be feasible to do so by the criminals involved.

This doesn't mean that there are no financial risks involved to businesses in this data breach. E-commerce fraud is a big problem and its estimated impact on merchants last year was $4 billion. To fight this problem, most e-commerce merchants manually review orders to detect fraud, which can be a substantial payroll cost. The percentage loss to fraud in e-commerce has been stable for about three years, but since sales have increased, the dollars lost to it are growing.

Card-not-present chargebacks are frequently returned to merchants as chargebacks. The best way of avoiding these types of chargebacks is to verify transactions using the address verification service (AVS), the card verification value code 2 (CVV2), the card validation code 2 (CVC2), and the card identification (CID) when processing transactions. Smaller merchants — who ironically are charged the highest interchange fees for accepting card payments — are at the most risk because fraudsters count on the fact that they do not verify a lot of this data because of the associated costs and their ability to afford doing so.

Perhaps this one of the reasons why there is no rush to reissue cards. If the only information stolen can be used in card-not-present transactions, the card issuers are at little risk of suffering any financial losses. They will simply charge them back to the merchants, who failed to ensure the transaction wasn't fraudulent. It might be a good time for e-commerce merchants to be more cautious.

From what I can gather, this matter isn't exactly confidential; having said that, it appears that primarily financial institutions are being warned and not the e-commerce merchants who logically will be the primary target if this stolen information is used. The costs in the aftermath of data breaches are substantial and who bears the brunt of them is becoming a hot topic.

To close this post, I will refer to a good information source on preventing chargebacks from Wells Fargo. There are a lot of other sources, but a lot of them are selling something. If anyone has any other good sources, please feel free to leave a comment and share them with everyone!

RSA Report Points to an Increase in Cyber Crime

According to a recent report from RSA Security, phishing attacks increased 66 percent last year when compared to 2007. One reason cited for this are the increased availability of DIY (do-it-yourself) phishing kits, which are available for sale on the Internet.

Some of these kits even come with tech support. In the past few years, these kits have enabled a lot more people to get into the phishing game.

The statistics compiled in the Anti-Fraud Command Center Phishing Trends Report recorded 135,426 phishing attacks compared to 90,000 detected in 2007. Despite these ominous numbers, the report showed a marked decrease in the number of attacks between June and July. The amount of attacks then increased steadily until the end of the year and then dropped again in December. The RSA team attributed this to a drop in activity by a notorious gang of phishermen, known as the Rock Phish.

Although, no one seems to be exactly sure, the Rock Phish are a phishing gang that are allegedly of Romanian origin. Experts believe they are responsible for up to 50 percent of the phishing seen in the wild (on the Internet) today. To avoid detection, Rock Phishing attacks often update DNS records during an attack and change URLs, which confuse take-down efforts and allow them to bypass spam filters. They also use images in their spam e-mails, which make their work harder to be detected by spam filters. A lot of spam filters do not use OCR (optical character recognition) because it slows down the filtering process.

The (temporary?) reduction in attacks was attributed to the Rock Phish upgrading their infrastructure and switching to the use of a new botnet, called the "Asprox botnet."

A lot of the newer botnets — which spew out spam in the millions using zombies (compromised computers) — are using what is known are using fast flux technology. Fast flux is a DNS technique used to hide spam e-mails behind a constantly changing network of compromised computers (zombies), which have been taken over using malicious software to send out spam. Since these spam e-mails recruit new zombies all the time, it makes shutting down this type of activity pretty difficult. According to the report, fast flux attacks now comprise about half of all the activity out there.

From a global perspective, the United Kingdom (40 percent) was the most attacked country followed by the United States (37 percent). This was attributed to a focused attack on a number of financial institutions in the UK in 2008. The report also acknowledges increased activity in Latin America and the Pacific. A lot of experts believe we will see increased activity in other parts of the world as more people from these regions are introduced to the Internet. As this takes place, more computers will be compromised (become zombies) in these countries and the statistics will shift.

It should be noted that despite the increased activity in the United Kingdom, the United States still holds the dubious honor of being number one in hosting phishing attacks. They are also number one in brand names being attacked.

Of no surprise is the statistic that financial instituions are the favorite target in these attacks. It makes sense that the phishermen will continue to go where the money is and with the sour economy, there are a lot of social engineering lures that are ripe for exploitation. Fear is a time-honored social engineering lure, which gets people to click on links they should not have.

The conclusion of the report is that online crime continues to evolve, is becoming more dangerous, and new tools are being used to further the effort. My guess is that it will continue to grow as long as we focus on defending against it instead of going after the source of it! Of course, this is merely the opinion of this observer.

Sending Children to the Slammer for Profit

On February 12, 2009, two judges appeared in federal court to plead guilty to $2.6 million in income tax and wire fraud. The crimes they were charged with resulted from locking up teenagers for profit in Scranton, PA.

Judge Michael T. Conahan and Judge Mark A. Ciavarella Jr. were the two barristers, who received kickbacks to send teens to privately run detention centers. Apparently, Conahan secured the contracts and Civarella kept them filled with fresh prisoners (victims?) from his docket (court calendar). The privately run centers in questions were PA Childcare and its sister organization, Western PA Childcare.

A press release on January 28th from the Administrative Office of the Pennsylvania Courts announced the two judges' removal from the bench. The release goes into detail about the charges that were brought against them.

In one example cited by the NY Times, a teenager was given three months for setting up a MySpace page mocking her assistant principal at a Wilkes Barre, PA high school. The student in question, Hillary Transue, was a stellar student and had never been in trouble before. At the end of the hearing, with her parents watching, she was handcuffed and taken away. In another case, a teenager got three months for giving another teenager a black eye.

This is scary in a society where Paris Hilton and Lindsay Lohan get a few days for doing a lot more than putting up a MySpace page or giving someone a black eye!

Senior Judge Arthur Grim has been appointed by the State Supreme Court to figure out what to do with the estimated 5,000 juveniles who have been sentenced by Judge Ciavarelli since the scheme started in 2003. A lot of these children were first time offenders and some of them are still locked up.

The case has shocked local residents, already strained by recent losses of a lot of industrial jobs and the shutting down of coal mines. It has also brought up a debate about how children are represented in the legal system when they face charges.

Just last year, a motion was filed by the Philadelphia-based Juvenile Law Center in behalf of 500 juveniles who had appeared in front of Ciavarelli without representation. The motion was originally denied, but it has now been reopened. Statistics show that about 50 percent of the children who waived their right to counsel in front of Ciavarelli went to the slammer. The Supreme Court ruled in 1967 that juveniles have a right to counsel, but in some states, including Pennsylvania, they are allowed to waive it.

Given the reduced tax base in the area, the money stolen in this instance could certainly have been put to better use, too.

Even worse, although Judge Ciavarella admitted to the kickbacks, he is contending that the juveniles in question deserved what they got. This is pretty arrogant, especially considering that the facts show that he sentenced a lot more of his cases (25%) to these privately run detention facilities than the state average of of 1 in 10.

I'm frequently amazed how people who have obviously done something terribly wrong rationalize their behavior.

If Ciavarella and Conahan (Judge titles intentionally removed) accept the plea bargain being offered by the government, they will get 87 months in the slammer, lose their pensions, and be disbarred. The executives running the privately run detention centers haven't been charged yet, but are expected to be.

I first saw a mention of this story on Alex Eckelberry's Sunbelt blog. His comment was "how sick." In closing, "I second that motion."

Spammers Love to Hurt Internet Users

Love is a many splendored social engineering tool and spammers are busy sending out a whole lot of their particular brand of love across the electronic universe.

An interesting blog post (Love Hurts) by Kevin Haley at Symantec points out that malicious code writers are busy spreading their work in attachments hidden in the millions of spam messages being spewed out by zombies (compromised computers). If you click on one of these attachments — and your machine isn't bulletproof — it also can become a zombie and used as part of a botnet to send out more spam. Botnets are groups of compromised computers used to form a super computer. Of course, downloading malware can also mean that all your personal and financial information will be stolen, too. Please note (as you will see below) that some forms of malware currently being sent out can do both.

Kevin's blog post came out at almost the same time Symantec issued it's monthly Spam Landscape Report. With Valentine's Day coming up, love is a predictable lure and it's probably a good idea to make sure you know who loves you before clicking on any links in an e-mail.

Another predictable finding in the report is that spam levels are continuing to rise to normal levels after they fell when McColo was shut-down. McColo (a Web service hosting provider) was shut down in November after it was discovered they were the source of a large number of botnets, which are used to send out spam. Last month, 79 percent of all e-mail was spam. The report also notes that the point of origin for spam is shifting a little. Although the United States is still number one, the number of active zombies in other countries is rising. While some of this is being attributed to McColo, the report points out that this might point to the fact that some of these countries have an increasing number of users accessing the Internet.

From a spam-commerce point of view, the report indicates weight loss products, counterfeit drugs, cheap watches and porn top the list of items available at super-cheap prices as Valentine's Day approaches.

Besides Valentine's Day, President Obama also continues to be used as a spam lure, according to the report. A lot of this spam contains malware with files names such as usa.exe, obamanew.exe, statement.exe, barackblog.exe and barackspeech.exe. The malware being spread in these spam e-mails is called the W32.Waledac, which is capable of both stealing sensitive personal and financial information and turning a machine into a zombie. It also establishes a backdoor to a machine so it can be remotely accessed.

Current events (and holidays) have been and probably will continue to be used as social engineering lures to snare the unwary.

Also noted was a rise in Russian spam hawking goods and services. With cheap long distance services using VoIP, the Russians have actually set up telephone numbers for their intended victims to call. My guess is that they will entice someone to send money, which can't be recovered when the person sending it discovers they've been scammed.

Chinese gambling spam is also mentioned as a new phenomenon in the report. It appears to be patterned after English language gambling spam, but is written in Chinese.

Last, but not least, Nigerian spam is mentioned. Nigerian or 419 spam is named after the section of the Nigerian penal code dealing with fraud. It normally is a come-on for lost riches or winning a lottery and has a lot of spelling and grammatical errors. Typically known as advance fee fraud, the victim is enticed in sending money across a border (wire transfer is preferred) to secure their fortune. Of course in the end, the victim never receives anything and is often left in financial ruin.

There are many twists to advance fee and one of them is to send a bogus financial instrument to a person with instructions to cash it. If the person doesn't get arrested for presenting it, they are instructed to send the money back to the scammer. Of course, the cashing institution eventually figures out the instrument is bogus and the victim is held liable for it.

A lot of people think that advance fee all comes from Nigeria, which isn't true. I've personally traced it to a lot of other places and called some of the telephone numbers. The person answering didn't sound Nigerian and I've spoken to a few people from Nigeria in my time. Naturally, this doesn't mean that scam activity is not coming from Nigeria and just that not all of it does.

Pam Dixon, of the World Privacy Forum, went on record recently that the spelling and grammatical errors aren't being seen as much in advance fee lures anymore. Obviously, advance fee scammers, wherever they hail from, are being more careful and have discovered spell check?

To close, the Anti-Phishing Working Group's recent report on phishing, which is delivered via spam, has noted that the number of crimeware-spreading URLs out there has increased 258 percent versus the same time period last year. It also noted a record high in the amount of hijacked and victimized brand names. Last but not least, it noted another record in the amount of malicious application variants being seen in the wild (on the Internet).

This would suggest that spam is getting more dangerous and the people sending it are becoming more sophisticated. The smartest thing to do with all spam is to delete it. Making sure your computer's security is updated with a known and reliable vendor is also a smart thing to do. After all, as I've speculated many times before, most fraud, phishing and financial misdeeds on the Internet start with spam.