Wednesday, July 30, 2014

The Target Stores Data Breach Update

A Provocative View of the Event From an Industry Outsider

By Cesar Ortiz - (Article originally published on Yahoo! Contributors/ABC News). Many legal, commercial and social questions regarding the Target data breach will come to see the light after all the dust is settled. The answer to the technical side of one of the biggest security breaches in the United States history is as complex as these other questions. The breach, which was first reported Wednesday by Brian Krebs, a security blogger, began the day after Thanksgiving.The giant merchant said Thursday that about 40 million credit and debit card accounts may have been compromised in U.S. stores between Nov. 27 and Dec. 15, 2013. Included in the hack are Target's own credit and debit REDcards. One interesting note is that cards used for purchases made in the company web site were not affected.

Target advises at their web site in a page named; "Notice: unauthorized access to payment card data in U.S. stores" that "we began investigating the incident as soon as we learned of it. We have determined that the information involved in this incident included customer name, credit or debit card number, and the card's expiration date and CVV (the three-digit security code) ". This is what Target said originally. In reality, there are several "CVV's" and the one with the printed numbers on the card is called CVV2.

The industry regulates the use of credit cards by following several guidelines and standards. Everyone must follow the standards in order to maintain systems compliance. One standard is the PCI Data Security Standard Council (PCI DSS) that deals with security and operational payments handling methodology and the ISO/IEC standard 7811, which is used by banks. ISO/IEC 7811 specifies the hardware and methodology used to handle the transaction and specifies that the bank cards must have a magnetic stripe on the back of a credit/debit card, often called a "magstripe". This magnetic stripe must have three tracks. Your credit card normally uses only tracks one and two. Track three is a read/write track, which includes an encrypted PIN, country code, currency units and amount authorized, Use of track three is not mandatory and its contents is optional. The PIN is encrypted in a data base. It is never in clear text in the magnetic stripe. The Target stolen personal identifier information and financial data was taken from the magnetic strips read out.

The Card Verification Value CVV2 (a three or four digit) number is not included in the magnetic stripe because it will defeat its main purpose, that is, to validate the card manually when using on line, phone purchases and high value transactions. We know that some merchants in North America require the code at the POS to protect the customer by making sure the card is legitimate since it can be a fraudulent card made from information from some stolen data base that does not include the CVV2.

This is a professional well studied attack that must had taken many weeks of planning and careful design to the point that it started one day before the Black Friday major sale event. Breaking encrypted data is a very hard process that requires massive computing facilities and resources. By design, in all retail stores, all data flowing outside of the merchant's stores should be encrypted heavily and it is handled by an independent payment processor facility, a communications carrier(s) and marketing analysis facilities. The possibility of a remote access job to a weak point in the systems is very high.

According to NBC News, Target Spokeswoman, Molly Snyder, released a written statement on Friday that downplayed the initial impact from the event and advised that "To date, we are hearing very few reports of actual fraud, but are closely monitoring the situation,". "the stolen information was limited to data stored on the magnetic strip", "The hackers did not obtain PIN numbers used to access ATM's or the three or four digit that are printed on cards to verify online purchases", Snyder said. The fact is that reports of fraudulent usage of Target stolen cards sold in the Internet are showing up all over the nation, and in the world. JP Morgan Chase & Co is not downplaying the attack. On Saturday 12/21/2013 the bank sent an email to 2 million Chase debit card holders who used the Chase card at Target during the breach period limiting the bank debit card usage and will issue new debit cards, a costly measure. Chase also posted a notice in the bank web page.

If we take into account all the personal identifiers parameters that Target says was compromised, we must conclude that we have three possible alternatives where the hack took place (1) the Point of Sale Module (POS) card scanner (2) in a central card processor system at the merchant and (3) when it arrives at the authorization system processor for approval.

We are ruling out a job at the outside (external) payment processor because they all provide very secure modules, they will not accept unencrypted input from their merchants, that's their business after all, and they service many other merchants. This hack was to Target only. What probably most likely happen, is that the hackers were able to intercept, remotely, using malware scripts, the swipes of cards from the Target hardware card reader devices to the POS modules or from the credit cards in house gateways, specially if it was unencrypted (clear text) or poorly encrypted and the thieves had gotten the encryption key somewhere in the system, the later had happened before to other principals in other hacks. This is a very serious criminal monumental detrimental event, for the banking industry and the business society as a whole, taking into account that it was done to all the stores in the United States and possibly affecting in some way or another 40 million credit card holders, all at the same date time frame, nationwide.

In the original statement , Target's Molly Snyder said the breach had compromised the "CVV". Target has retracted now. Now they claim it was not compromised. Investigators are looking overseas for possible perpetrators. Stolen credit cards are showing up all over the world and many in the United States. Regardless of the downplay efforts by public relations people, this is a serious threat. If you used any debit/credit card at a Target store in the United States during the breach date time frame, including cards issued by non U.S. banks, don't take the matter lightly, act immediately and contact your bank first and then contact Target.

Comment by Cesar Ortiz, 7/30/2014: Looks it was right on the money when I categorized the Target Stores Data Breach as a “very serious criminal monumental detrimental event” in my article in Yahoo! above. Now, several weeks later after my article was published, we are finding out that the customer names, mailing address, phone numbers and email addresses were also compromised and that the impacted customers figure is now 70 million. Now more than ever contact your bank if you used any payment method other than cash at target during the date time frame and if you did, beware of postal letters, emails, phone calls  and IM’s, even if they don’t mention Target.