Increasing malware sophistication vexes lawmakers, industry

Senators also questioned notification procedures following recent high-profile breaches and whether federal law enforcement agencies are doing enough to go after cybercriminals. Lawmakers repeatedly noted the vulnerability of U.S. consumers, who make a quarter of all credit-card transactions globally, but half of all data breaches occur in the U.S.

Senator Richard Blumenthal, a Connecticut Democrat asked what seemed to be a rhetorical question given the discussion at the hearing. "Am I right in thinking that the U.S. is behind the rest of the world in its data-security safeguards"

Executives from Target and Neiman Marcus, which have recently revealed massive breaches of shoppers' data, were among the witnesses called before the committee, with some lawmakers expressing frustration at the laggardly pace in which industry is moving toward technology that provides additional layers of security. For instance, Visa and Mastercard have said they will implement the use of smart cards by October 2015, yet such technology is already widely used in other countries.

Lawmakers and witnesses also spoke of the lack of federal standards and legislation, including the need for stronger notification laws -- businesses currently have up to 60 days to notify customers when a breach has occurred -- at a time when cybercriminals are developing increasingly sophisticated malware capable of evading detection. For instance, the data breach at high-end retailer Neiman Marcus occurred between July and October of last year, with different stores in the retail chain affected at different times, but the intrusion was not detected until Jan. 2, according to testimony from Michael Kingston, senior vice president and CIO of The Neiman Marcus Group.

A Secret Service report regarding that breach concluded that malware "comparable and perhaps even less sophisticated to the one in our case had a zero-percent detection rate" using available security software, he said.

That means, witnesses agreed, that any standards or legislation implemented by the government must be flexible to adapt to the evolving threats. Legislation must be "multilayered," said Fran Rosch, a senior vice president at security-software vendor Symantec. Smart cards, with embedded chips and data that changes per transaction, are just one method of protecting consumers better from data theft, he said. Two-factor authentication and data encryption at all steps of a transaction are other mechanisms.

"We think any legislation should reflect that, [and impose] those layers," he said.

The need for such protection was evident well before the most recent data breaches, in which as many as 110 million shoppers were affected in the Target intrusion and 1.1 million in the Neiman Marcus attack. U.S. shoppers transact one-fourth of credit-card purchases globally but yet one-half of all data breaches occur in the U.S., noted Senator Al Franken, a Democrat from Minnesota.

Target had been implementing the use of chip-and-PIN cards in its stores before the breach occurred and had worked toward that implementation previously, but without other retailers joining in and financial institutions moving toward smart cards, such efforts fall short, noted Target Executive Vice President and CFO John Mulligan.

"To prevent this from happening again," he said of data breaches "none of us can go it alone. We need to do this together."

Senator Dianne Feinstein, a California Democrat, questioned the notification procedures of retailers, saying that for about 13 years she has been tracking data breaches and has been frustrated by how reluctant companies have been to come forward.

"Up until recently, companies would not step forward," she said. Directing her attention to Kingston, she added that she shops at Neiman Marcus, but "I don't recall getting any notice that my data had been breached. When would I have had notice I would have shopped during that period of time."

After Kingston laid out the time frame in which notifications were sent to shoppers and how the company has gone about dealing with the data breach, Feinstein said she would check to see if she did, in fact, receive notification about the breach.

As the hearing progressed, lawmakers asked officials from the Federal Trade Commission, the Department of Justice and the Secret Service to elaborate on the steps being taken to combat cybercrime, as well as specifics of how the criminals operate.

Organized cybercrime rings are large and widespread, with different people in charge of different aspects of the thievery, and the ability to hide their financial trail, said William Noonan, deputy special agent in charge of the Criminal Investigative Division of the U.S. Secret Service.

"They're moving their money back and forth with virtual currency," he said, adding that makes it all the more difficult to bust such rings.

The difficulties of investigating cybercrimes and making arrests didn't seem to sway Sheldon Whitehouse, a Democrat from Rhode Island and a former U.S. attorney, as he questioned Mythili Raman, acting assistant attorney general at the DOJ, regarding how many times cybercriminals have been indicted following data-breach cases. She provided information on previous cases, saying that the DOJ has "resolve" to hunt down cyberthieves and prosecute them, even when they are overseas, as has been the case in the past.

"Actually, the numbers involved show anything but resolve," Whitehouse replied, adding that he understand that it is "immensely difficult" to investigate and prosecute such cases but since cybercrime resulting in data breaches has been referred to as the "greatest illicit transfer of wealth in history" it is incumbent upon federal law enforcement to step up its game.