Tag: Cybersecurity

Three Important Considerations For All Businesses in Light of GDPR

Today, the European General Data Protection Regulation (“GDPR”) takes effect. The GDPR is the most comprehensive and complex privacy regulation currently enacted. The GDPR can apply to a business or organization (including a non-profit organization) anywhere in the world and its potential financial impact is huge; fines can reach up to € 20 million Euros (over $23 million USD) or 4% of an entity’s total revenue, whichever is greater. Not surprisingly, the potential for this type of penalty has caused concern and chaos leading up to the May 25, 2018 effective date. In light of this significant international development, all organizations should consider the following:

1. Does the GDPR Apply?

If your entity “processes” the “personal data” of anyone within the European Union, then the GDPR may apply. “Personal data” under the GDPR is any information that could identify an individual, directly or indirectly, like a name, email address or even an IP address. The GDPR also broadly defines “processing” to include activities such as collecting, storing or using the personal data. For more information on how to determine if the GDPR applies to your entity, watch our 3-minute video on the subject.

2. If the GDPR Does Apply, What is the Compliance Strategy?

You need a plan. Yes, it would have been ideal to have it in place by today but if the GDPR applies to your entity, do not delay any further in creating a GDPR compliance strategy. A GDPR compliance strategy starts with a detailed examination of your entity’s data collection and use practices. Those practices must comply with the GDPR requirements and your entity may need to implement new or revised policies to address specific compliance requirements. This process is specific to the particular practices of each entity – there is no one-size-fits-all GDPR compliance program. You can find the regulatory language here.

3. Even If the GDPR Does Not Apply, How Do You Handle the Data You Collect?

Even if the GDPR does not apply to your entity, there are significant risks and liability surrounding the data collection and processing practices of any business. Data breaches happen every day. No business is immune. Each organization should closely examine its data collection and use practices and determine if it absolutely needs all of the data it collects. Then, the organization must determine whether the steps it is taking to protect the data it collects are reasonable in today’s environment. In Massachusetts, businesses must undergo this process and create a written information security plan. In Connecticut, having such a plan may help avoid a government enforcement action if you experience a data breach. In addition, the Federal Trade Commission and states’ Attorneys General are actively pursuing companies with questionable privacy practices.

© Copyright 2018 Murtha Cullina.
This post was written by Dena M. Castricone and Daniel J. Kagan of Murtha Cullina.

White House Eliminates Top Cybersecurity Position

On May 15, the White House announced that it was eliminating the position of Cybersecurity Coordinator at the National Security Council, the highest position at the White House devoted to Cybersecurity. While not unexpected, this move is significant.

Symbolically, eliminating this senior position arguably send a signal that this Administration is less focused on cybersecurity as a priority.

Functionally, it means there will be no single person in the White House accountable to the President and the National Security Advisor on cyber issues.

Administratively, and perhaps most significantly, the White House’s ability to coordinate cybersecurity among the agencies, arbitrate disputes, and set direction for policy initiatives government-wide will likely be degraded.

While the White House is explaining the move by saying it will streamline management, increase efficiency, reduce bureaucracy and raise accountability, in the short run at least it seems likely to sow some confusion and increase the criticism of federal cybersecurity policy that has already gone on for several years.

Putting it Into Practice: Any hopes companies harbored for increased clarity and leadership from the Administration on cybersecurity seem to be fading. Companies will have to spend more time monitoring the cybersecurity initiatives and requirements of individual agencies, which will likely become less coordinated going forward.

Copyright © 2018, Sheppard Mullin Richter & Hampton LLP.

The Hacked & the Hacker-for-Hire: Lessons from the Yahoo Data Breaches (So Far)

The fallout from the Yahoo data breaches continues to illustrate how cyberattacks thrust companies into the competing roles of crime victim, regulatory enforcement target and civil litigant.

Yahoo, which is now known as Altaba, recently became the first public company to be fined ($35 million) by the Securities and Exchange Commission for filing statements that failed to disclose known data breaches. This is on top of the $80 million federal securities class action settlement that Yahoo reached in March 2018—the first of its kind based on a cyberattack. Shareholder derivative actions remain pending in state courts, and consumer data breach class actions have survived initial motions to dismiss and remain consolidated in California for pre-trial proceedings. At the other end of the spectrum, a federal judge has balked at the U.S. Department of Justice’s (DOJ) request that a hacker-for-hire indicted in the Yahoo attacks be sentenced to eight years in prison for a digital crime spree that dates back to 2010.

The Yahoo Data Breaches

In December 2014, Yahoo’s security team discovered that Russian hackers had obtained its “crown jewels”—the usernames, email addresses, phone numbers, birthdates, passwords and security questions/answers for at least 500 million Yahoo accounts. Within days of the discovery, according to the SEC, “members of Yahoo’s senior management and legal teams received various internal reports from Yahoo’s Chief Information Security Officer (CISO) stating that the theft of hundreds of millions of Yahoo users’ personal data had occurred.” Yahoo’s internal security team thereafter was aware that the same hackers were continuously targeting Yahoo’s user database throughout 2015 and early 2016, and also received reports that Yahoo user credentials were for sale on the dark web.

In the summer of 2016, Yahoo was in negotiations with Verizon to sell its operating business. In response to due diligence questions about its history of data breaches, Yahoo gave Verizon a spreadsheet falsely representing that it was aware of only four minor breaches involving users’ personal information.  In June 2016, a new Yahoo CISO (hired in October 2015) concluded that Yahoo’s entire database, including the personal data of its users, had likely been stolen by nation-state hackers and could be exposed on the dark web in the immediate future. At least one member of Yahoo’s senior management was informed of this conclusion. Yahoo nonetheless failed to disclose this information to Verizon or the investing public. It instead filed the Verizon stock purchase agreement—containing an affirmative misrepresentation as to the non-existence of such breaches—as an exhibit to a July 25, 2016, Form 8-K, announcing the transaction.

On September 22, 2016, Yahoo finally disclosed the 2014 data breach to Verizon and in a press release attached to a Form 8-K.  Yahoo’s disclosure pegged the number of affected Yahoo users at 500 million.

The following day, Yahoo’s stock price dropped by 3%, and it lost $1.3 billion in market capitalization. After Verizon declared the disclosure and data breach a “material adverse event” under the Stock Purchase Agreement, Yahoo agreed to reduce the purchase price by $350 million (a 7.25% reduction in price) and agreed to share liabilities and expenses relating to the breaches going forward.

Since September 2016, Yahoo has twice revised its data breach disclosure.  In December 2016, Yahoo disclosed that hackers had stolen data from 1 billion Yahoo users in August 2013, and had also forged cookies that would allow an intruder to access user accounts without supplying a valid password in 2015 and 2016. On March 1, 2017, Yahoo filed its 2016 Form 10-K, describing the 2014 hacking incident as having been committed by a “state-sponsored actor,” and the August 2013 hacking incident by an “unauthorized third party.”  As to the August 2013 incident, Yahoo stated that “we have not been able to identify the intrusion associated with this theft.” Yahoo disclosed security incident expenses of $16 million ($5 million for forensics and $11 million for lawyers), and flatly stated: “The Company does not have cybersecurity liability insurance.”

The same day, Yahoo’s general counsel resigned as an independent committee of the Yahoo Board received an internal investigation report concluding that “[t]he 2014 Security Incident was not properly investigated and analyzed at the time, and the Company was not adequately advised with respect to the legal and business risks associated with the 2014 Security Incident.” The internal investigation found that “senior executives and relevant legal staff were aware [in late 2014] that a state-sponsored actor had accessed certain user accounts by exploiting the Company’s account management tool.”

The report concluded that “failures in communication, management, inquiry and internal reporting contributed to the lack of proper comprehension and handling of the 2014 Security Incident.” Yahoo’s CEO, Marissa Mayer, also forfeited her annual bonus as a result of the report’s findings.

On September 1, 2017, a California federal judge partially denied Yahoo’s motion to dismiss the data breach class actions. Then, on October 3, 2017, Yahoo disclosed that all of its users (3 billion accounts) had likely been affected by the hacking activity that traces back to August 2013. During a subsequent hearing held in the consumer data breach class action, a Yahoo lawyer stated that the company had confirmed the new totals on October 2, 2017, based on further forensic investigation conducted in September 2017. That forensic investigation was prompted, Yahoo’s counsel said, by recent information obtained from a third party about the scope of the August 2013 breach. As a result of the new disclosures, the federal judge granted the plaintiffs’ request to amend their complaint to add new allegations and causes of action, potentially including fraud claims and requests for punitive damages.

The SEC Breaks New Cybersecurity Ground

Just a month after issuing new interpretive guidance about public company disclosures of cyberattacks (see our Post and Alert), the SEC has now issued its first cease-and-desist order and penalty against a public company for failing to disclose known cyber incidents in its public filings. The SEC’s administrative order alleges that Yahoo violated Sections 17(a)(2) & (3) of the Securities Act of 1933 and Section 13(a) of the Securities Exchange Act of 1934 and related rules when its senior executives discovered a massive data breach in December 2014, but failed to disclose it until after its July 2016 merger announcement with Verizon.

During that two-year window, Yahoo filed a number of reports and statements with the SEC that misled investors about Yahoo’s cybersecurity history. For instance, in its 2014-2016 annual and quarterly reports, the SEC found that Yahoo included risk factor disclosures stating that the company “faced the risk” of potential future data breaches, “without disclosing that a massive data breach had in fact already occurred.”

Yahoo management’s discussion and analysis of financial condition and results of operation (MD&A) was also misleading, because it “omitted known trends and uncertainties with regard to liquidity or net revenue presented by the 2014 breach.” Knowing full well of the massive breach, Yahoo nonetheless filed a July 2016 proxy statement relating to its proposed sale to Verizon that falsely denied knowledge of any such massive breach. It also filed a stock purchase agreement that it knew contained a material misrepresentation as to the non-existence of the data breaches.

Despite being informed of the data breach within days of its discovery, Yahoo’s legal and management team failed to properly investigate the breach and made no effort to disclose it to investors. As the SEC described the deficiency, “Yahoo senior management and relevant legal staff did not properly assess the scope, business impact, or legal implications of the breach, including how and where the breach should have been disclosed in Yahoo’s public filings or whether the fact of the breach rendered, or would render, any statements made by Yahoo in its public filings to be misleading.” Yahoo’s in-house lawyers and management also did not share information with its auditors or outside counsel to assess disclosure obligations in public filings.

In announcing the penalty, SEC officials noted that Yahoo left “its investors totally in the dark about a massive data breach” for two years, and that “public companies should have controls and procedures in place to properly evaluate cyber incidents and disclose material information to investors.” The SEC also noted that Yahoo must cooperate fully with its ongoing investigation, which may lead to penalties against individuals.

The First Hacker Faces Sentencing

Coincidentally, on the same day that the SEC announced its administrative order and penalty against Yahoo, one of the four hackers indicted for the Yahoo cyberattacks (and the only one in U.S. custody) appeared for sentencing before a U.S. District Judge in San Francisco. Karim Baratov, a 23-year-old hacker-for-hire, had been indicted in March 2017 for various computer hacking, economic espionage, and other offenses relating to the 2014 Yahoo intrusion.

His co-defendants, who remain in Russia, are two officers of the Russian Federal Security Service (FSB) and a Russian hacker who has been on the FBI’s Cyber Most Wanted list since November 2013. The indictment alleges that the Russian intelligence officers used criminal hackers to execute the hacks on Yahoo’s systems, and then to exploit some of that stolen information to hack into other accounts held by targeted individuals.

Baratov is the small fish in the group. His role in the hacking conspiracy focused on gaining unauthorized access to non-Yahoo email accounts of individuals of interest identified through the Yahoo data harvest.  Unbeknownst to Baratov, he was doing the bidding of Russian intelligence officers, who did not disclose their identities to the hacker-for-hire. Baratov asked no questions in return for commissions paid on each account he compromised.

In November 2017, Baratov pled guilty to conspiracy to commit computer fraud and aggravated identity theft. He admitted that, between 2010 and 2017, he hacked into the webmail accounts of more than 11,000 victims, stole and sold the information contained in their email accounts, and provided his customers with ongoing access to those accounts. Baratov was indiscriminate in his hacking for hire, even hacking for a customer who appeared to engage in violence against targeted individuals for money. Between 2014 and 2016, he was paid by one of the Russian intelligence officers to hack into at least 80 webmail accounts of individuals of interest to Russian intelligence identified through the 2014 Yahoo incident. Baratov provided his handler with the contents of each account, plus ongoing access to the account.

The government is seeking eight years of imprisonment, arguing that Baratov “stole and provided his customers the keys to break into the private lives of targeted victims.” In particular, the government cites the need to deter Baratov and other hackers from engaging in cybercrime-for-hire operations. The length of the sentence alone suggests that Baratov is not cooperating against other individuals. Baratov’s lawyers have requested a sentence of no more than 45 months, stressing Baratov’s unwitting involvement in the Yahoo attack as a proxy for Russian intelligence officers.

In a somewhat unusual move, the sentencing judge delayed sentencing and asked both parties to submit additional briefing discussing other hacking sentences. The judge expressed concern that the government’s sentencing request was severe and that an eight-year term could create an “unwarranted sentencing disparity” with sentences imposed on other hackers.

The government is going to the mat for Baratov’s victims.  On May 8, 2018, the government fired back in a supplemental sentencing memorandum that reaffirms its recommended sentence of 8 years of imprisonment. The memorandum contains an insightful summary of federal hacking sentences imposed on defendants, with similar records who engaged in similar conduct, between 2008 and 2018. The government surveys various types of hacking cases, from payment card breaches to botnets, banking Trojans and theft and exploitation of intimate images of victims.

The government points to U.S. Sentencing Guidelines Commission data showing that federal courts almost always have imposed sentences within the advisory Guidelines range on hackers who steal personal information and do not earn a government-sponsored sentence reduction (generally due to lack of cooperation in the government’s investigation). The government also expands on the distinctions between different types of hacking conduct and how each should be viewed at sentencing. It focuses on Baratov’s role as an indiscriminate hacker-for-hire, who targeted individuals chosen by his customers for comprehensive data theft and continuous surveillance. Considering all of the available data, the government presents a very persuasive argument that its recommended sentence of eight years of imprisonment is appropriate. Baratov’s lawyers may now respond in writing, and sentencing is scheduled for May 29, 2018.

Lessons from the Yahoo Hacking Incidents and Responses

There are many lessons to be learned from Yahoo’s cyber incident odyssey. Here are some of them:

The Criminal Conduct

  • Cybercrime as a service is growing substantially.

  • Nation-state cyber actors are using criminal hackers as proxies to attack private entities and individuals. In fact, the Yahoo fact pattern shows that the Russian intelligence services have been doing so since at least 2014.

  • Cyber threat actors—from nation-states to lone wolves – are targeting enormous populations of individuals for cyber intrusions, with goals ranging from espionage to data theft/sale, to extortion.

  • User credentials remain hacker gold, providing continued, unauthorized access to online accounts for virtually any targeted victim.

  • Compromises of one online account (such as a Yahoo account) often lead to compromises of other accounts tied to targeted individuals. Credential sharing between accounts and the failure to employ multi-factor authentication makes these compromises very easy to execute.

The Incident Responses

  • It’s not so much about the breach, as it is about the cover up. Yahoo ran into trouble with the SEC, other regulators and civil litigants because it failed to disclose its data breaches in a reasonable amount of time. Yahoo’s post-breach injuries were self-inflicted and could have been largely avoided if it had properly investigated, responded to, and disclosed the breaches in real time.

  • SEC disclosures in particular must account for known incidents that could be viewed as material for securities law purposes.  Speaking in the future tense about potential incidents will no longer be sufficient when a company has actual knowledge of significant cyber incidents.

  • Regulators are laying the foundation for ramped-up enforcement actions with real penalties. Like Uber with its recent FTC settlement, Yahoo received some leniency for being first in terms of the SEC’s administrative order and penalty. The stage is now set and everyone is on notice of the type of conduct that will trigger an enforcement action.

  • Yahoo was roundly applauded for its outstanding cooperation with law enforcement agencies investigating the attacks. These investigations go nowhere without extensive victim involvement. Yahoo stepped up in that regard, and that seems to have helped with the SEC, at least.

  • Lawyers must play a key role in the investigation and response to cyber incidents, and their jobs may depend on it. Cyber incident investigations are among the most complex types of investigations that exist. This is not an area for dabblers and rookies. Organizations need to hire in-house lawyers with actual experience and expertise in cybersecurity and cyber incident investigations.

  • Senior executives need to become competent in handling the crisis of cyber incident response. Yahoo’s senior executives knew of the breaches well before they were disclosed. Why the delay? And who made the decision not to disclose in a timely fashion?

  • The failures of Yahoo’s senior executives illustrate precisely why the board of directors now must play a critical role not just in proactive cybersecurity, but in overseeing the response to any major cyber incident. The board must check senior management when it makes the wrong call on incident disclosure.

The Litigation

  • Securities fraud class actions may fare much better than consumer data breach class actions. The significant stock drop coupled with the clear misrepresentations about the material fact of a massive data breach created a strong securities class action that led to an $80 million settlement.  The lack of financial harm to consumers whose accounts were breached is not a problem for securities fraud plaintiffs.

  • Consumer data breach class actions are more routinely going to reach the discovery phase. The days of early dismissals for lack of standing are disappearing quickly.  This change will make the proper internal investigation into incidents and each step of the response process much more critical.

  • Although the jury is still out on how any particular federal judge will sentence a particular hacker, the data is trending in a very positive direction for victims. At least at the federal level, hacks focused on the exploitation of personal information are being met with stiff sentences in many cases. A hacker’s best hope is to earn government-sponsored sentencing reductions due to extensive cooperation. This trend should encourage hacking victims (organizations and individuals alike) to report these crimes to federal law enforcement and to cooperate in the investigation and prosecution of the cybercriminals who attack them.

  • Even if a particular judge ultimately goes south on a government-requested hacking sentence, the DOJ’s willingness to fight hard for a substantial sentence in cases such as this one sends a strong signal to the private sector that victims will be taken seriously and protected if they work with the law enforcement community to combat significant cybercrime activity.

Copyright © by Ballard Spahr LLP
This post was written by Edward J. McAndrew of Ballard Spahr LLP.

Don’t Gamble with the GDPR

The European Union’s (EU) General Data Protection Regulation (GDPR) goes into effect on May 25, and so do the significant fines against businesses that are not in compliance. Failure to comply carries penalties of up to 4 percent of global annual revenue per violation or $20 million Euros – whichever is highest.

This regulatory rollout is notable for U.S.-based hospitality businesses because the GDPR is not just limited to the EU. Rather, the GDPR applies to any organization, no matter where it has operations, if it offers goods or services to, or monitors the behavior of, EU individuals. It also applies to organizations that process or hold the personal data of EU individuals regardless of the company’s location. In other words, if a hotel markets its goods or services to EU individuals, beyond merely having a website, the GDPR applies.

The personal data at issue includes an individual’s name, address, date of birth, identification number, billing information, and any information that can be used alone or with other data to identify a person.

The risks are particularly high for the U.S. hospitality industry, including casino-resorts, because their businesses trigger GDPR-compliance obligations on numerous fronts. Hotels collect personal data from their guests to reserve rooms, coordinate event tickets, and offer loyalty/reward programs and other targeted incentives. Hotels with onsite casinos also collect and use financial information to set up gaming accounts, to track player win/loss activity, and to comply with federal anti-money laundering “know your customer” regulations.

Privacy Law Lags in the U.S.

Before getting into the details of GDPR, it is important to understand that the concept of privacy in the United States is vastly different from the concept of privacy in the rest of the world. For example, while the United States does not even have a federal law standardizing data breach notification across the country, the EU has had a significant privacy directive, the Data Protection Directive, since 1995. The GDPR is replacing the Directive in an attempt to standardize and improve data protection across the EU member states.

Where’s the Data?

Probably the most difficult part of the GDPR is understanding what data a company has, where it got it, how it is getting it, where it is stored, and with whom it is sharing that data. Depending on the size and geographical sprawl of the company, the data identification and audit process can be quite mind-boggling.

A proper data mapping process will take a micro-approach in determining what information the company has, where the information is located, who has access to the information, how the information is used, and how the information is transferred to any third parties. Once a company fully understands what information it has, why it has it, and what it is doing with it, it can start preparing for the GDPR.

What Does the Compliance Requirement Look Like in Application?

One of the key issues for GDPR-compliance is data subject consent. The concept is easy enough to understand: if a company takes a person’s personal information, it has to fully inform the individual why it is taking the information; what it may do with that information; and, unless a legitimate basis exists, obtain express consent from the individual to collect and use that information.

In terms of what a company has to do to get express consent under the GDPR, it means that a company will have to review and revise (and possibly implement) its internal policies, privacy notices, and vendor contracts to do the following:

  • Inform individuals what data you are collecting and why;

  • Inform individuals how you may use their data;

  • Inform individuals how you may share their data and, in turn, what the entities you shared the data with may do with it; and

  • Provide the individual a clear and concise mechanism to provide express consent for allowing the collection, each use, and transfer of information.

At a functional level, this process entails modifying some internal processes regarding data collection that will allow for express consent. In other words, rather than language such as, “by continuing to stay at this hotel, you consent to the terms of our Privacy Policy,” or “by continuing to use this website, you consent to the terms of our Privacy Policy,” individuals must be given an opportunity not to consent to the collection of their information, e.g., a click-box consent versus an automatically checked box.

The more difficult part regarding consent is that there is no grandfather clause for personal information collected pre-GDPR. This means that companies with personal data subject to the GDPR will no longer be allowed to have or use that information unless the personal information was obtained in line with the consent requirements of the GDPR or the company obtains proper consent for use of the data prior to the GDPR’s effective date of May 25, 2018.

What Are the Other “Lawful Basis” to Collect Data Other Than Consent?

Although consent will provide hotels the largest green light to collect, process, and use personal data, there are other lawful basis that may exist that will allow a hotel the right to collect data. This may include when it is necessary to perform a contract, to comply with legal obligations (such as AML compliance), or when necessary to serve the hotel’s legitimate interests without overriding the interests of the individual. This means that during the internal audit process of a hotel’s personal information collection methods (e.g., online forms, guest check-in forms, loyalty/rewards programs registration form, etc.), each guest question asked should be reviewed to ensure the information requested is either not personal information or that there is a lawful reason for asking for the information. For example, a guest’s arrival and departure date is relevant data for purposes of scheduling; however, a guest’s birthday, other than ensuring the person is of the legal age to consent, is more difficult to justify.

What Other Data Subject Rights Must Be Communicated?

Another significant requirement is the GDPR’s requirement that guests be informed of various other rights they have and how they can exercise them including:

  • The right of access to their personal information;

  • The right to rectify their personal information;

  • The right to erase their personal information (the right to be forgotten);

  • The right to restrict processing of their personal information;

  • The right to object;

  • The right of portability, i.e., to have their data transferred to another entity; and

  • The right not to be included in automated marketing initiatives or profiling.

Not only should these data subject rights be spelled out clearly in all guest-facing privacy notices and consent forms, but those notices/forms should include instructions and contact information informing the individuals how to exercise their rights.

What Is Required with Vendor Contracts?

Third parties are given access to certain data for various reasons, including to process credit card payments, implement loyalty/rewards programs, etc. For a hotel to allow a third party to access personal data, it must enter into a GDPR-compliance Data Processing Agreement (DPA) or revise an existing one so that it is GDPR compliant. This is because downstream processors of information protected by the GDPR must also comply with the GDPR. These processor requirements combined with the controller requirements, i.e., those of the hotel that control the data, require that a controller and processor entered into a written agreement that expressly provides:

  • The subject matter and duration of processing;

  • The nature and purpose of the processing;

  • The type of personal data and categories of data subject;

  • The obligations and rights of the controller;

  • The processor will only act on the written instructions of the controller;

  • The processor will ensure that people processing the data are subject to duty of confidence;

  • That the processor will take appropriate measures to ensure the security of processing;

  • The processor will only engage sub-processors with the prior consent of the controller under a written contract;

  • The processor will assist the controller in providing subject access and allowing data subjects to exercise their rights under the GDPR;

  • The processor will assist the controller in meetings its GDPR obligations in relation to the security of processing, the notification of personal data breaches, and data protection impact assessments;

  • The processor will delete or return all personal data to the controller as required at the end of the contract; and that

  • The processor will submit to audits and inspections to provide the controller with whatever information it needs to ensure that they are both meeting the Article 28 obligations and tell the controller immediately if it is asked to do something infringing the GDPR or other data protection law of the EU or a member state.

Other GDPR Concerns and Key Features

Consent and data portability are not the only thing that hotels and gambling companies need to think about once GDPR becomes a reality. They also need to think about the following issues:

  • Demonstrating compliance. All companies will need to be able to prove they are complying with the GDPR. This means keeping records of issue such as consent.

  • Data protection officer. Most companies that deal with large-scale data processing will need to appoint a data protection officer.

  • Breach reporting. Breaches of data must be reported to authorities within 72 hours and to affected individuals “without undue delay.” This means that hotels will need to have policies and procedures in place to comply with this requirement and, where applicable, ensure that any processors are contractually required to cooperate with the breach-notification process.

© Copyright 2018 Dickinson Wright PLLC
This post was written by Sara H. Jodka of Dickinson Wright PLLC.

Fiat Chrysler Car Hacking Case Put In Neutral

Plaintiff lawyers’ continued search for damage theories to assert in claims arising from a data breach – or fear of a breach – received a potential setback this week when Chief Judge Michael Reagan of the United States District Court for the Southern District of Illinois permitted Fiat Chrysler and Harmon International to seek an interlocutory appeal of the court’s earlier ruling in Flynn v. Fiat Chrysler US that class plaintiffs had standing to bring their “car hacking” claims in federal court.  The ruling comes just one month before the scheduled start of trial. Fiat Chrysler and Harmon moved for an appeal after the Ninth Circuit ruled in a similar case, Cahen v. Toyota Motor Corp, that plaintiffs did not have standing to pursue diminution in value damages against Toyota based on a fear that the vehicles were susceptible to hacking.

 Both Flynn and Cahen were filed in 2015, following a series of well-publicized demonstrations by white hat hackers that certain Toyota and Fiat Chrysler cars could be hacked and remotely controlled by a third party, in potentially malicious ways. Plaintiffs in both lawsuits asserted that the cybersecurity vulnerabilities that gave rise to the potential for hacking constituted a design defect that reduced the value of their cars.

 The Ninth Circuit in Cahen previously rejected this diminution of value theory, agreeing with the District Court that “plaintiffs have not, for example, alleged a demonstrable effect on the market for their specific vehicles based on documented recalls or declining Kelley Bluebook values . . . nor have they alleged a risk so immediate that they were forced to replace or discontinue using their vehicles, thus incurring out-of-pocket damages.” In rejecting Fiat Chrysler’s motion to dismiss in the Flynn case, Judge Reagan reached a different conclusion, finding that plaintiffs had standing to seek diminution of value damages.  Key to the court’s decision was the fact that the cybersecurity defects in Chrysler cars that had been widely reported (originally in a Wired magazine article)  led to a nationwide recall. The recall itself gave rise to additional reports of car hacking involving Chrysler cars, which the plaintiffs argued provided a foundation for a jury to conclude that the market value of Fiat Chryslers had been reduced. Additionally, plaintiffs alleged that the recall had not fixed the cybersecurity vulnerabilities, which the court found could give rise to a conclusion that the market for Chryslers had been altered.

 In certifying the case for appeal, Judge Reagan explained that the initial finding of standing was debatable and noted that a ruling by the Seventh Circuit in favor of Fiat Chrysler would obviate the need for trial. The case remains stayed while the Seventh Circuit considers whether to agree to review the court’s standing ruling.

 A ruling by the Seventh Circuit rejecting the District Court’s standing analysis in Flynn would potentially close what had been a new front in data breach litigation. Flynn had been one of only a few data security cases in the country to proceed past the motion to dismiss stage on a diminution in value theory of damages. What made Flynn particularly remarkable is that there had not been an actual reported breach that resulted in physical or other damages.

 On the other hand, a ruling in favor of plaintiffs could have widespread ramifications and, in theory, could give rise to design defect claims against manufacturers of other connected products — such as refrigerators, medical devices, and smart televisions — based on data security vulnerabilities that increase the risk of hacking.

The Internet of Things is growing rapidly. According to Gartner, there are over 5 billion devices connected to the internet, and by 2020, there will be 25 billion, with revenues expected to exceed $300 billion. To be sure, there are important differences between the automobile market and the market for other consumer products that may limit the viability of overpayment damages claims for data security vulnerabilities outside of automobiles. Still, the potential that these IoT manufacturers could be subject to products liability claims stemming from cybersecurity vulnerabilities is an issue to watch carefully.

Copyright © by Ballard Spahr LLP
Philip N. Yannella of Ballard Spahr LLP

SEC Issues Updated Disclosure Guidance on Cybersecurity

On February 21, 2018, the U.S. Securities and Exchange Commission (“SEC”) issued updated interpretative guidance to assist public companies in preparing disclosures about cybersecurity risks and incidents. The updated guidance reinforces and expands upon the prior guidance on cybersecurity disclosures issued by the SEC’s Division of Corporation Finance in October 2011. In addition to highlighting the disclosure requirements under the federal securities laws that public companies must pay particular attention to when considering their disclosure obligations with respect to cybersecurity risks and incidents, the updated guidance (1) emphasizes the importance of maintaining comprehensive policies and procedures related to cybersecurity risks and incidents, and (2) discusses the application of insider trading prohibitions and Regulation FD and selective disclosure prohibitions in the cybersecurity context. The guidance specifically notes that the SEC continues to monitor cybersecurity disclosures carefully through its filing review process.

Cybersecurity-Related Disclosures

Timely Disclosure of Material Nonpublic Information

In determining disclosure obligations regarding cybersecurity risks and incidents, companies should analyze the potential materiality of any identified risk and, in the case of incidents, the importance of any compromised information and the impact of the incident on the company’s operations. When assessing the materiality of cybersecurity risks or incidents, the SEC notes that the following factors, among others, should be considered:

  • Nature, extent, and potential magnitude (particularly as it relates to any compromised information or the business and scope of company operations), and
  • Range of possible harm, including harm to the company’s reputation, financial performance, customer and vendor relationships, and possible litigation or regulatory investigations (both foreign and domestic).

When companies become aware of a cybersecurity incident or risk that would be material to investors, the SEC expects companies to disclose such information in a timely manner and sufficiently prior to the offer and sale of securities. In addition, steps should be taken to prevent directors and officers (and other corporate insiders aware of such information) from trading in the company’s securities until investors have been appropriately informed about the incident or risk. Importantly, the SEC states that an ongoing internal or external investigation regarding a cybersecurity incident “would not on its own provide a basis for avoiding disclosure of a material cybersecurity incident.”

Risk Factors

In evaluating cybersecurity risk factor disclosure, the guidance encourages companies to consider the following:

  • the occurrence of prior cybersecurity incidents, including severity and frequency;
  • the probability of the occurrence and potential magnitude of cybersecurity incidents;
  • the adequacy of preventative actions taken to reduce cybersecurity risks and the associated costs, including, if appropriate, discussing the limits of the company’s ability to prevent or mitigate certain cybersecurity risks;
  • the aspects of the company’s business and operations that give rise to material cybersecurity risks and the potential costs and consequences of such risks, including industry-specific risks and third party supplier and service provider risks;
  • the costs associated with maintaining cybersecurity protections, including, if applicable, insurance coverage relating to cybersecurity incidents or payments to service providers;
  • the potential for reputational harm;
  • existing or pending laws and regulations that may affect the requirements to which companies are subject relating to cybersecurity and the associated costs to companies; and
  • litigation, regulatory investigation, and remediation costs associated with cybersecurity incidents.

The guidance also notes that effective communication of cybersecurity risks may require disclosure of previous or ongoing cybersecurity incidents, including incidents involving suppliers, customers, competitors and others.

MD&A of Financial Condition and Results of Operations

The guidance reminds companies that MD&A disclosure of cybersecurity matters may be necessary if the costs or other consequences associated with such matters represent a material event, trend or uncertainty that is reasonably likely to have a material effect on the company’s operations, liquidity or financial condition or would cause reported financial information not to be necessarily indicative of future results. Among other matters, the cost of ongoing cybersecurity efforts (including enhancements to existing efforts), the costs and other consequences of cybersecurity incidents, and the risks of potential cybersecurity incidents could inform a company’s MD&A analysis. In addition to the immediate costs incurred in connection with a cybersecurity incident, companies should also consider costs associated with:

  • loss of intellectual property;
  • implementing preventative measures;
  • maintaining insurance;
  • responding to litigation and regulatory investigations;
  • preparing for and complying with proposed or current legislation;
  • remediation efforts; and
  • addressing harm to reputation and the loss of competitive advantage.

The guidance further notes that the impact of cybersecurity incidents on each reportable segment should also be considered.

Business and Legal Proceedings

Companies are reminded that disclosure may be called for in the (1) Business section of a company’s SEC filings if cybersecurity incidents or risks materially affect a company’s products, services, relationships with customers or suppliers, or competitive conditions, and (2) Legal Proceedings section if a cybersecurity incident results in material litigation against the company.

Financial Statement Disclosures

The SEC expects that a company’s financial reporting and control systems would be designed to provide reasonable assurance that information about the range and magnitude of the financial impacts of a cybersecurity incident would be incorporated into its financial statements on a timely basis as the information becomes available. The guidance provides the following examples of ways that cybersecurity incidents and risks may impact a company’s financial statements:

  • expenses related to investigation, breach notification, remediation and litigation, including the costs of legal and other professional services;
  • loss of revenue, providing customers with incentives or a loss of customer relationship assets value;
  • claims related to warranties, breach of contract, product recall/replacement, indemnification of counterparties, and insurance premium increases; and
  • diminished future cash flows, impairment of intellectual, intangible or other assets; recognition of liabilities; or increased financing costs.

Board Risk Oversight

The securities laws require a company to disclose the extent of its board of directors’ role in the risk oversight of the company, including how the board administers its oversight function and the effect this has on the board’s leadership structure. To the extent cybersecurity risks are material to a company’s business, the disclosure should include the nature of the board’s role in overseeing management of that risk.

Cybersecurity-Related Policies and Procedures

Disclosure Controls and Procedures

The guidance encourages companies to adopt comprehensive policies and procedures related to cybersecurity and to regularly assess their compliance. Companies should evaluate whether they have sufficient disclosure controls and procedures in place to ensure that relevant information about cybersecurity risks and incidents is processed and reported to the appropriate personnel to enable senior management to make disclosure decisions and certifications and to facilitate policies and procedures designed to prohibit directors, officers, and other corporate insiders from trading on the basis of material nonpublic information about cybersecurity risks and incidents. Controls and procedures should enable companies to identify cybersecurity risks and incidents, assess and analyze their impact on a company’s business, evaluate the significance associated with such risks and incidents, provide for open communications between technical experts and disclosure advisors, and make timely disclosures regarding such risks and incidents.

The certifications and disclosures regarding the design and effectiveness of a company’s disclosure controls and procedures should take into account the adequacy of controls and procedures for identifying cybersecurity risks and incidents and for assessing and analyzing their impact. In addition, to the extent cybersecurity risks or incidents pose a risk to a company’s ability to record, process, summarize, and report information that is required to be disclosed in filings, management should consider whether there are deficiencies in disclosure controls and procedures that would render them ineffective.

Insider Trading

Companies and their directors, officers, and other corporate insiders should be mindful of compliance with insider trading laws in connection with information about cybersecurity risks and incidents, including vulnerabilities and breaches. The guidance urges companies to consider how their code of ethics and insider trading policies take into account and prevent trading on the basis of material nonpublic information related to cybersecurity risks and incidents. Specifically, the guidance suggests that as part of the overall investigation and assessment during significant cybersecurity incidents, companies should consider whether and when it may be appropriate to implement restrictions on insiders trading in their securities to avoid the appearance of improper trading during the period following a cybersecurity incident and prior to the dissemination of disclosure.

Regulation FD and Selective Disclosure

Companies are expected to have policies and procedures in place to ensure that any disclosures of material nonpublic information related to cybersecurity risks and incidents are not made selectively, and that any Regulation FD required public disclosure is made simultaneously (in the case of an intentional disclosure) or promptly (in the case of a non-intentional disclosure) and is otherwise compliant with the requirements of Regulation FD.

 

© 2018 Jones Walker LLP
This post was written by Monique A. Cenac and Brett Beter of Jones Walker LLP.

GDPR May 25th Deadline Approaching – Businesses Globally Will Feel Impact

In less than four months, the General Data Protection Regulation (the “GDPR” or the “Regulation”) will take effect in the European Union/European Economic Area, giving individuals in the EU/EEA greater control over their personal data and imposing a sweeping set of privacy and data protection rules on data controllers and data processors alike. Failure to comply with the Regulation’s requirements could result in substantial fines of up to the greater of €20 million or 4% of a company’s annual worldwide gross revenues. Although many American companies that do not have a physical presence in the EU/EEA may have been ignoring GDPR compliance based on the mistaken belief that the Regulation’s burdens and obligations do not apply outside of the EU/EEA, they are doing so at their own peril.

A common misconception is that the Regulation only applies to EU/EEA-based corporations or multinational corporations with operations within the EU/EEA. However, the GDPR’s broad reach applies to any company that is offering goods or services to individuals located within the EU/EEA or monitoring the behavior of individuals in the EU/EEA, even if the company is located outside of the European territory. All companies within the GDPR’s ambit also must ensure that their data processors (i.e., vendors and other partners) process all personal data on the companies’ behalf in accordance with the Regulation, and are fully liable for any damage caused by their vendors’ non-compliant processing. Unsurprisingly, companies are using indemnity and insurance clauses in data processing agreements with their vendors to contractually shift any damages caused by non-compliant processing activities back onto the non-compliant processors, even if those vendors are not located in the EU/EEA. As a result, many American organizations that do not have direct operations in the EU/EEA nevertheless will need to comply with the GDPR because they are receiving, storing, using, or otherwise processing personal data on behalf of customers or business partners that are subject to the Regulation and its penalties. Indeed, all companies with a direct or indirect connection to the EU/EEA – including business relationships with entities that are covered by the Regulation – should be assessing the potential implications of the GDPR for their businesses.

Compliance with the Regulation is a substantial undertaking that, for most organizations, necessitates a wide range of changes, including:

  • Implementing “Privacy by Default” and “Privacy by Design”;
  • Maintaining appropriate data security;
  • Notifying European data protection agencies and consumers of data breaches on an expedited basis;
  • Taking responsibility for the security and processing of third-party vendors;
  • Conducting “Data Protection Impact Assessments” on new processing activities;
  • Instituting safeguards for cross-border transfers; and
  • Recordkeeping sufficient to demonstrate compliance on demand.

Failure to comply with the Regulation’s requirements carries significant risk. Most prominently, the GDPR empowers regulators to impose fines for non-compliance of up to the greater of €20 million or 4% of worldwide annual gross revenue. In addition to fines, regulators also may block non-compliant companies from accessing the EU/EEA marketplace through a variety of legal and technological methods. Even setting these potential penalties aside, simply being investigated for a potential GDPR violation will be costly, burdensome and disruptive, since during a pending investigation regulators have the authority to demand records demonstrating a company’s compliance, impose temporary data processing bans, and suspend cross-border data flows.

The impending May 25, 2018 deadline means that there are only a few months left for companies to get their compliance programs in place before regulators begin enforcement. In light of the substantial regulatory penalties and serious contractual implications of non-compliance, any company that could be required to meet the Regulation’s obligations should be assessing their current operations and implementing the necessary controls to ensure that they are processing personal data in a GDPR-compliant manner.

 

© 2018 Neal, Gerber & Eisenberg LLP.
More on the GDPR at the NLR European Union Jurisdiction Page.

New OCR Checklist Outlines How Health Care Facilities Can Fight Cyber Extortion

As technology has advanced, cyber extortion attacks have risen, and they will continue to be a major security issue for organizations. Cyber extortion can take many forms, but it typically involves cybercriminals demanding money to stop or delay their malicious activities, which include stealing sensitive data or disrupting computer services. Health care and public health sector organizations that maintain sensitive data are often targets for cyber extortion attacks.

Ransomware is a form of cyber extortion where attackers deploy malware targeting an organization’s data, rendering it inaccessible, typically by encryption. The attackers then demand money in exchange for an encryption key to decrypt the data. Even after payment is made, organizations may still lose some of their data.

Other forms of cyber extortion include Denial of Service (DoS) and Distributed Denial of Service (DDoS) attacks. These attacks normally direct a high volume of network traffic to targeted computers so the affected computers cannot respond and are otherwise inaccessible to legitimate users. Here, an attacker may initiate a DoS or DDoS attack against an organization and demand payment to stop the attack.

Additionally, cyber extortion can occur when an attacker gains access to an organization’s computer system, steals sensitive data from the organization and threatens to publish that data. The attacker threatens revealing sensitive data, including protected health information (PHI), to coerce payment.

On January 30, 2018, the HHS Office for Civil Rights (OCR) published a checklist to assist HIPAA covered entities and business associates on how to respond to a cyber extortion attack. Organizations can reduce the chances of a cyber extortion attack by:

  • Implementing a robust risk analysis and risk management program that identifies and addresses cyber risks holistically, throughout the entire organization;
  • Implementing robust inventory and vulnerability identification processes to ensure accuracy and thoroughness of the risk analysis;
  • Training employees to better identify suspicious emails and other messaging technologies that could introduce malicious software into the organization;
  • Deploying proactive anti-malware solutions to identify and prevent malicious software intrusions;
  • Patching systems to fix known vulnerabilities that could be exploited by attackers or malicious software;
  • Hardening internal network defenses and limiting internal network access to deny or slow the lateral movement of an attacker and/or propagation of malicious software;
  • Implementing and testing robust contingency and disaster recovery plans to ensure the organization is capable and ready to recover from a cyber-attack;
  • Encrypting and backing up sensitive data;
  • Implementing robust audit logs and reviewing such logs regularly for suspicious activity; and
  • Remaining vigilant for new and emerging cyber threats and vulnerabilities.

If a cyber extortion attack does happen, organizations should be prepared to take the necessary steps to prevent any more damage. In the event of a cyber-attack or similar emergency an entity:

  • Must execute its response and mitigation procedures and contingency plans;
  • Should report the crime to other law enforcement agencies, which may include state or local law enforcement, the Federal Bureau of Investigation (FBI) and/or the Secret Service. Any such reports should not include protected health information, unless otherwise permitted by the HIPAA Privacy Rule;
  • Should report all cyber threat indicators to federal and information-sharing and analysis organizations (ISAOs), including the Department of Homeland Security, the HHS Assistant Secretary for Preparedness and Response, and private-sector cyber-threat ISAOs.
  • Must report the breach to OCR as soon as possible, but no later than 60 days after the discovery of a breach affecting 500 or more individuals, and notify affected individuals and the media unless a law enforcement official has requested a delay in the reporting. An entity that discovers a breach affecting fewer than 500 individuals has an obligation to notify individuals without unreasonable delay, but no later than 60 days after discovery; and OCR within 60 days after the end of the calendar year in which the breach was discovered.
© 2018 Dinsmore & Shohl LLPDinsmore & Shohl LLP. All rights reserved.

NIST Releases Updated Draft of Cybersecurity Framework

On December 5, 2017, the National Institute of Standards and Technology (“NIST”) announced the publication of a second draft of a proposed update to the Framework for Improving Critical Infrastructure Cybersecurity (“Cybersecurity Framework”), Version 1.1, Draft 2. NIST has also published an updated draft Roadmap to the Cybersecurity Framework, which “details public and private sector efforts related to and supportive of [the] Framework.”

Updates to the Cybersecurity Framework

The second draft of Version 1.1 is largely consistent with Version 1.0. Indeed, the second draft was explicitly designed to maintain compatibility with Version 1.0 so that current users of the Cybersecurity Framework are able to implement the Version 1.1 “with minimal or no disruption.” Nevertheless, there are notable changes between the second draft of Version 1.1 and Version 1.0, which include:

Increased emphasis that the Cybersecurity Framework is intended for broad application across all industry sectors and types of organizations. Although the Cybersecurity Framework was originally developed to improve cybersecurity risk management in critical infrastructure sectors, the revisions note that the Cybersecurity Framework “can be used by organizations in any sector or community” and is intended to be useful to companies, government agencies, and nonprofits, “regardless of their focus or size.” As with Version 1.0, users of the Cybersecurity Framework Version 1.1 are “encouraged to customize the Framework to maximize individual organizational value.” This update is consistent with previous updatesto NIST’s other publications, which indicate that NIST is attempting to broaden the focus and encourage use of its cybersecurity guidelines by state, local, and tribal governments, as well as private sector organizations.

An explicit acknowledgement of a broader range of cybersecurity threats. As with Version 1.0, NIST intended the Cybersecurity Framework to be technology-neutral. This revision explicitly notes that the Cybersecurity Framework can be used by all organizations, “whether their cybersecurity focus is primarily on information technology (“IT”), cyber-physical systems (“CPS”) or connected devices more generally, including the Internet of Things (“IoT”). This change is also consistent with previous updates to NIST’s other publications, which have recently been amended to recognize that cybersecurity risk impacts many different types of systems.

Augmented focus on cybersecurity management of the supply chain. The revised draft expanded section 3.3 to emphasize the importance of assessing the cybersecurity risks up and down supply chains. NIST explains that cyber supply chain risk management (“SCRM”) should address both “the cybersecurity effect an organization has on external parties and the cybersecurity effect external parties have on an organization.” The revised draft incorporates these activities into the Cybersecurity Framework Implementation Tiers, which generally categorize organizations based on the maturity of their cybersecurity programs and awareness. For example, organizations in Tier 1, with the least mature or “partial” awareness, are “generally unaware” of the cyber supply chain risks of products and services, while organizations in Tier 4 use “real-time or near real-time information to understand and consistently act upon” cyber supply chain risks and communicate proactively “to develop and maintain strong supply chain relationships.” The revised draft emphasizes that all organizations should consider cyber SCRM when managing cybersecurity risks.

Increased emphasis on cybersecurity measures and metrics. NIST added a new section 4.0 to the Cybersecurity Framework that highlights the benefits of self-assessing cybersecurity risk based on meaningful measurement criteria, and emphasizes “the correlation of business results to cybersecurity risk management.” According to the draft, “metrics” can “facilitate decision making and improve performance and accountability.” For example, an organization can have standards for system availability and this measurement can be used at a metric for developing appropriate safeguards to evaluate delivery of services under the Framework’s Protect Function. This revision is consistent with the recently-released NIST Special Publication 800-171A, discussed in a previous blog post, which explains the types of cybersecurity assessments that can be used to evaluate compliance with the security controls of NIST Special Publication 800-171.

Future Developments to the Cybersecurity Framework

NIST is soliciting public comments on the draft Cybersecurity Framework and Roadmap no later than Friday, January 19, 2018. Comments can be emailed to cyberframework@nist.gov.

NIST intends to publish a final Cybersecurity Framework Version 1.1 in early calendar year 2018.

 

© 2017 Covington & Burling LLP
This post was written by Susan B. Cassidy and Moriah Daugherty of Covington & Burling LLP.
 

So…Everyone’s Been Compromised? What To Do In The Wake of the Equifax Breach

By now, you’ve probably heard that over 143 million records containing highly sensitive personal information have been compromised in the Equifax data breach. With numbers exceeding 40% of the population of the United States at risk, chances are good that you or someone you know – or more precisely, many people you know – will be affected. But until you know for certain, you are probably wondering what to do until you find out.

To be sure, there has been a lot of confusion. Many feel there was an unreasonable delay in reporting the breach. And now that it has been reported, some have suggested that people who sign up with the Equifax website to determine if they were in the breach might be bound to an arbitration clause and thereby waive their right to file suit if necessary later (although Equifax has since said that is not the case). Others have reported that the “personal identification number” (PIN) provided by Equifax for those who do register with the site is nothing more than a date and time stamp, which could be subject to a brute-force attack, which is not necessarily reassuring when dealing with personal information. Still others have reported that the site itself is subject to vulnerabilities such as cross-site scripting (XSS), which could give hackers another mechanism to steal personal information. And some have even questioned the validity of the responses provided by Equifax when people query to see if they might have been impacted.

In all the chaos, it’s hard to know how to best proceed. Fortunately, you have options other than using Equifax’s website.

1. Place a Credit Freeze

Know that if you are a victim of the breach, you will be notified by Equifax eventually. In the meantime, consider placing a credit freeze on your accounts with the three major credit reporting bureaus. All three major credit reporting bureaus allow consumers to freeze their credit reports for a small fee, and you will need to place a freeze with each credit bureau. If you are the victim of identity fraud, or if your state’s law mandates, a credit freeze can be implemented without charge. In some states, you may incur a small fee. Lists of fees for residents of various states can be found at the TransUnion, Experian, and Equifax websites. Placing a freeze on your credit reports will restrict access to your information and make it more difficult for identity thieves to open accounts in your name. This will not affect your credit score but there may be a second fee associated with lifting a credit freeze, so it is important to research your options before proceeding. Also, know that you will likely face a delay period before a freeze can be lifted, so spur-of-the-moment credit opportunities might suffer.

Here is information for freezing your credit with each credit bureau:

Equifax Credit Freeze

  • You may do a credit freeze online or by certified mail (return receipt requested) to:

            Equifax Security Freeze

            P.O. Box 105788

            Atlanta, GA 30348

  • To unfreeze, you must do a temporary thaw by regular mail, online or by calling 1-800-685-1111 (for New York residents call 1-800-349-9960).

Experian Credit Freeze

  • You may do a credit freeze online, by calling 1-888-EXPERIAN (1-888-397-3742) or by certified mail (return receipt requested) to:

            Experian

            P.O. Box 9554

            Allen, TX 75013

  • To unfreeze, you must do a temporary thaw online or by calling 1-888-397-3742.

TransUnion Credit Freeze

  • You may do a credit freeze online, by phone (1-888-909-8872) or by certified mail (return receipt requested) to:

            TransUnion LLC

            P.O. Box 2000

            Chester, PA 19016

  • To unfreeze, you must do a temporary thaw online or by calling 1-888-909-8872.

After you complete a freeze, make sure you have a pen and paper handy because you will be given a PIN code to keep in a safe place.

2. Obtain a Free Copy of Your Credit Report

Consider setting up a schedule to obtain a copy of your free annual credit report from each of the reporting bureaus on a staggered basis. By obtaining and reviewing a report from one of the credit reporting bureaus every three or four months, you can better position yourself to respond to unusual or fraudulent activity more frequently. Admittedly, there is a chance that one of the reporting bureaus might miss an account that is reported by the other two but the benefit offsets the risk.

3. Notify Law Enforcement and Obtain a Police Report

If you find you are the victim of identity fraud (that is, actual fraudulent activity – not just being a member of the class of affected persons), notify your local law enforcement agency to file a police report. Having a police report will help you to challenge fraudulent activity, will provide you with verification of the fraud to provide to credit companies’ fraud investigators, and will be beneficial if future fraud occurs. To that end, be aware that additional fraud may arise closer to the federal tax filing deadline and having a police report already on file can help you resolve identity fraud problems with the Internal Revenue Service if false tax returns are filed under your identity.

4. Obtain an IRS IP PIN

Given the nature of the information involved in the breach, an additional option for individuals residing in Florida, Georgia, and Washington, D.C. is to obtain an IRS IP PIN, which is a 6-digit number assigned to eligible taxpayers to help prevent the misuse of Social Security numbers in federal tax filings. An IP PIN helps the IRS verify a taxpayer’s identity and accept their electronic or paper tax return. When a taxpayer has an IP PIN, it prevents someone else from filing a tax return with the taxpayer’s SSN.

If a return is e-filed with a taxpayer’s SSN and an incorrect or missing IP PIN, the IRS’s system will reject it until the taxpayer submits it with the correct IP PIN or the taxpayer files on paper. If the same conditions occur on a paper filed return, the IRS will delay its processing and any refund the taxpayer may be due for the taxpayer’s protection while the IRS determines if it is truly the taxpayer’s.

Information regarding eligibility for an IRS IP PIN and instructions is available here and to access the IRS’s FAQs on the issue, please go here.

Conclusion

Clearly, the Equifax breach raises many issues about which many individuals need to be concerned – and the pathway forward is uncertain at the moment. But by being proactive, being cautious, and taking appropriate remedial measures available to everyone, you can better position yourself to avoid fraud, protect your rights, and mitigate future fraud that might arise.

 This post was written by Justin L. Root & Sara H. Jodka of Dickinson Wright PLLC © Copyright 2017
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