Lawmakers hear warnings of U.S. companies' lax data security

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Attorney General for the State of Illinois Lisa Madigan testifies before the House Energy and Commerce Subcommittee on protecting consumer information in Washington February 5, 2014.


(Reuters) - The Illinois official who is leading a multi-state probe into recent high-profile data breaches told U.S. lawmakers on Wednesday that companies whose systems have been hacked often have failed to take basic security precautions.

Lisa Madigan, the Illinois attorney general, spoke at a congressional hearing as lawmakers review whether retailers Target Corp and Neiman Marcus Group LLC properly protected their customers' information.

Top executives of Target and Neiman Marcus, which suffered major data breaches last year that exposed private information of millions of customers, testified in Congress for a second straight day, saying the attacks were so sophisticated that they evaded their best security practices.

Madigan warned, however, that past investigations of other data breaches turned up repeated instances in which companies allowed their systems to retain unencrypted data, failed to install software patches for known vulnerabilities and kept information longer than necessary.

"During prior breach investigations, we have found instances when companies failed to take basic steps to protect consumer data," Madigan told a House Energy and Commerce Committee panel. "So the notion that companies are already doing everything they can to prevent breaches is false."

The companies and federal investigators are still trying to figure out how hackers stole the data. Experts testified that the malware used in the massive thefts was so complex and customized that common network security systems could not detect it.

"I didn't hear a smoking gun," Representative Lee Terry, a Republican from Nebraska, told reporters after the hearing held by his commerce subcommittee. "But like (the retailers) said, their audits aren't complete. We knew that coming in here and we'll continue to have dialogue."

"It looked like it was a process failure," he said.

Target, the third-largest U.S. retailer, has said the theft of a vendor's credentials helped cyber criminals steal about 40 million credit and debit card records and 70 million other records with customer information such as addresses and telephone numbers.

Luxury retailer Neiman Marcus has said a maximum of 1.1 million accounts were exposed to malware during the breach of its computers last year.

"At Neiman Marcus, we felt and feel very good about the high standards of security that we had in place," Neiman's chief information officer, Michael Kingston, said on Wednesday. "Obviously, there will be lessons learned," he added

SOPHISTICATED CRIMINALS

Target announced this week it was speeding up a planned $100 million program for a new type of payment card known as "chip-and-PIN," which stores information on computer chips and requires users to type in personal identification numbers to make fraudulent use less likely.

But security experts and IT service providers say moves like Target's are a drop in the bucket as retailers defend against increasingly complex cyber attacks.

"As good as security factors are, these criminal organizations are looking for ways to go around whatever security (restrictions) have been set up," Secret Service agent William Noonan told Wednesday's hearing.

Noonan said the data breaches at Target and Neiman Marcus were separate, distinct attacks using different "criminal tools," but the investigation had not yet revealed whether they were carried out by the same group of hackers.

"These were very sophisticated, coordinated events and it was not necessarily a singular actor," he said. "When you bring together a coordinated group of sophisticated criminals, they will find" ways around defenses.

The Secret Service is the lead agency investigating the recent breaches.

NEXT STEPS

The companies, lawmakers and consumer advocates have suggested an accelerated move to chip-enabled cards, which are already used widely in Europe and Asia.

They have been met with much less enthusiasm in the United States, in part because losses to fraud - 5 cents for every $100 spent via plastic - have been manageable for merchants and their banks.

"Frankly, it is negligent of the United States to fall behind the rest of the world when it comes to security of our payment systems," Madigan told lawmakers.

Federal Trade Commission Chairwoman Edith Ramirez asked lawmakers to give the FTC, which investigates and enforces companies' privacy standards, civil penalty authority, jurisdiction over nonprofits and authority to set new rules "to enable us to deal with evolving risks and harms."

The high-profile breaches have revived efforts in Congress to pass legislation to regulate data breach responses, including potentially setting a federal standard for how and when companies have to notify consumers about a breach.

Currently, notification rules are set through a patchwork of state laws, and questions about federal rules pre-empting states' authority helped stall previous attempts to pass new data security bills in Congress.

Lawmakers hear warnings of U.S. companies' lax data security| Reuters