Dark Reading is part of the Informa Tech Division of Informa PLC

This site is operated by a business or businesses owned by Informa PLC and all copyright resides with them.Informa PLC's registered office is 5 Howick Place, London SW1P 1WG. Registered in England and Wales. Number 8860726.

Risk

6/24/2011
02:24 PM
50%
50%

Who Bears Online Fraud Burden: Bank Or Business?

Two recent court cases with very different outcomes call attention to the uncertain--and potentially expensive--regulatory and legal environment for small businesses and their online banking security.

10 Massive Security Breaches
(click image for larger view)
Slideshow: 10 Massive Security Breaches
Financial institutions have your back if hackers steal your business's money, right? Don't bank on it.

Two recent lawsuits highlight the murky online security waters that smaller businesses wade in with their banks, and show that SMBs can't rely too heavily on their banks for protection against account fraud.

Patco, a family-owned construction firm in southern Maine, fell prey to the ZeuS botnet in May 2009. Hackers bilked its account with Ocean Bank for more than $588,000 before the fraudulent activity was detected and stopped. The bank recovered roughly $243,000. Patco sued Ocean Bank for the balance, but it won't see a dime: A U.S. District Court magistrate in Maine recently recommended the case be dismissed, citing the bank's accordance with Federal Financial Institutions Examinations Council (FFIEC) security guidelines.

It's a case banking and security experts are calling a potential landmark. As a precedent, it means SMBs--not their banks--are on the hook if their online banking credentials are compromised by malware or other means.

"Most [SMBs] just assume they're OK, so if there's some kind of fraudulent activity the bank's going to take care of it," J.R. Smith, CEO of online security firm AVG, said in an interview. "This is one of those wake-up calls where people need to be put on notice: The bank isn't always going to be responsible."

A ruling in a similar case, however, followed closely on the Patco lawsuit's heels. Experi-Metal, a Michigan-based manufacturing firm, sued Comerica after it was robbed of more than $1.9 million by hackers in early 2009. At the surface, the case bears quite a bit in common with the Patco suit, yet it produced an entirely different outcome. U.S. District Court Judge Patrick J. Duggan ruled earlier this month in favor of Experi-Metal, requiring the bank to reimburse the company's losses.

Within the span of a month, two very different precedents were handed down. So who's ultimately responsible for online account security--bank or business?

"There's no regulation that manages this kind of scenario," Avivah Litan, an IT security analyst at Gartner and former banking executive, said in an interview. "The law hasn't kept up, the regulators haven't kept up, and you're going to get a different opinion from every judge."

Court documents reveal the details of each hack, and just how simple it is for an unsuspecting employee to give criminals carte blanche to the company's coffers with the click of a mouse and a few keystrokes.

In the Patco case, hackers used an employee's online banking credentials to initiate six Automated Clearing House (ACH) transactions totaling more than $588,000 during a one-week span in May 2009. According to the court ruling, indicators of the ZeuS trojan were found on the employee's computer, but it was later quarantined and deleted by an outside IT consultant who ran an anti-malware scan. "Without the configuration file, there is no way to tell whether the particular Zeus/Zbot malware version indicated by the remnant on Patco's computer was programmed to intercept online banking credentials," the ruling reads.

As a result, Ocean Bank contended that Patco couldn't prove that malware was to blame and not some other means, such as the employee sharing access credentials with a third party. The 72-page ruling centers largely on arguments between Patco and Ocean Bank as to whether the latter's security practices did enough to protect its customer; in granting the motion to dismiss, the court effectively said they had.

"I think in this case that the legal definition of 'reasonable security' was very tightly aligned with FFIEC guidance," said Tiffany Reilly, VP of marketing at Guardian Analytics, a company that makes security software for banks. Reilly said in an interview that the ruling, though favorable to Ocean Bank, wasn't exactly a resounding endorsement of its security practices. "If you read the judgment, the magistrate even says the bank could have, and probably should have, done more to enhance their protections to stop this type of fraud."

The ruling states, for example, that none of the unauthorized transactions were manually reviewed by bank personnel, even though the transfers were initiated from devices and IP addresses that no one at Patco had used before, and directed to accounts that Patco had never sent money to in the past. According to the ruling, one of the transactions, for $115,620.26, "was larger than any ACH transfer Patco had ever made to third parties. Despite these unusual characteristics, the Bank again batched and processed the transaction as usual."

Previous
1 of 2
Next
Comment  | 
Print  | 
More Insights
Comments
Newest First  |  Oldest First  |  Threaded View
Data Leak Week: Billions of Sensitive Files Exposed Online
Kelly Jackson Higgins, Executive Editor at Dark Reading,  12/10/2019
Intel Issues Fix for 'Plundervolt' SGX Flaw
Kelly Jackson Higgins, Executive Editor at Dark Reading,  12/11/2019
Register for Dark Reading Newsletters
White Papers
Video
Cartoon
Current Issue
The Year in Security: 2019
This Tech Digest provides a wrap up and overview of the year's top cybersecurity news stories. It was a year of new twists on old threats, with fears of another WannaCry-type worm and of a possible botnet army of Wi-Fi routers. But 2019 also underscored the risk of firmware and trusted security tools harboring dangerous holes that cybercriminals and nation-state hackers could readily abuse. Read more.
Flash Poll
Rethinking Enterprise Data Defense
Rethinking Enterprise Data Defense
Frustrated with recurring intrusions and breaches, cybersecurity professionals are questioning some of the industrys conventional wisdom. Heres a look at what theyre thinking about.
Twitter Feed
Dark Reading - Bug Report
Bug Report
Enterprise Vulnerabilities
From DHS/US-CERT's National Vulnerability Database
CVE-2019-5252
PUBLISHED: 2019-12-14
There is an improper authentication vulnerability in Huawei smartphones (Y9, Honor 8X, Honor 9 Lite, Honor 9i, Y6 Pro). The applock does not perform a sufficient authentication in a rare condition. Successful exploit could allow the attacker to use the application locked by applock in an instant.
CVE-2019-5235
PUBLISHED: 2019-12-14
Some Huawei smart phones have a null pointer dereference vulnerability. An attacker crafts specific packets and sends to the affected product to exploit this vulnerability. Successful exploitation may cause the affected phone to be abnormal.
CVE-2019-5264
PUBLISHED: 2019-12-13
There is an information disclosure vulnerability in certain Huawei smartphones (Mate 10;Mate 10 Pro;Honor V10;Changxiang 7S;P-smart;Changxiang 8 Plus;Y9 2018;Honor 9 Lite;Honor 9i;Mate 9). The software does not properly handle certain information of applications locked by applock in a rare condition...
CVE-2019-5277
PUBLISHED: 2019-12-13
Huawei CloudUSM-EUA V600R006C10;V600R019C00 have an information leak vulnerability. Due to improper configuration, the attacker may cause information leak by successful exploitation.
CVE-2019-5254
PUBLISHED: 2019-12-13
Certain Huawei products (AP2000;IPS Module;NGFW Module;NIP6300;NIP6600;NIP6800;S5700;SVN5600;SVN5800;SVN5800-C;SeMG9811;Secospace AntiDDoS8000;Secospace USG6300;Secospace USG6500;Secospace USG6600;USG6000V;eSpace U1981) have an out-of-bounds read vulnerability. An attacker who logs in to the board m...