Inside: - Media Communication Group

Cyber Crime and Cyber LiabilityIs Your BankProtected?BY PATRICK R. COREY, PRESIDENT IBIS INSURANCE SERVICES, INC.COMMUNITY BANKS ARE BEING HITPARTICULARLY HARD BY THESURGE IN DATA BREACHES ANDHACKING ATTACKS THAT LEAD TOlosses involving identity theft, debitcard fraud and other technology-basedcriminal activity. The percentage offinancial institutions under $5 billionin assets reporting losses jumped from61% in 2008 to 94% just three yearslater. In addition to hacking losses,community banks watched their fraudlosses on signature-debit sales skyrocketfrom 3.5 basis points to 11.9 basispoints during the same time period,and these numbers are still on the rise.Larger and more security-sophisticatedregional and national banks are seeingtheir losses decline, however, so theperpetrators appear to be focusingtheir criminal activity on smaller bankswhich lack the defensive technologyutilized by larger banks. Large banksare not immune, however, and manyhave been targeted successfully. As weoften find in criminal schemes againstfinancial institutions, the criminals areseeking the path of least resistance, soit makes sense that they would focuson smaller banks. Following are somerecent hacking events:• In February of this year theFederal Reserve Bank wastargeted by the infamous hackerorganization, Anonymous, anddetailed information on 4,000 bankexecutives was reportedly stolen.• In late 2012 our agency receivednotice of two hacks through twoseparate bank customers’ accountsthat resulted in financial losses tothe customers in the mid-six figurerange.• Also in late 2012 and early 2013 wereceived notice of a wire transferdiversion loss of nearly $1 million;and another bank reported a nearloss of several hundred thousanddue to a similar scheme. Bothof these events appear to be theresult of spyware/malware in theelectronic communications chain.Fortunately the bulk of the largeloss was recovered and the secondwire was ultimately not sent.• In October of 2012 Barnes & NobleBooksellers reported a breachthat struck 63 of its locationsnationwide. The breach wasdetermined to have been the resultof internal device tampering atseveral stores in 9 states.• In January, Zaxby’s restaurantsdiscovered a point-of-sale breachthat involved 108 stores in theEast and Southeast. The companysubsequently revealed thatcompromising malware had beendiscovered on computer systems atseveral locations.• A large Arizona grocery chain’spayment system recently suffered abreach tied to a worldwide criminalnetwork that appears to havebeen initiated as far back as late2012. Hundreds of compromisedpayment cards were reported as aresult of this hack and the affectedcards were undoubtedly sold to theworldwide marketplace. Bankinginstitutions tracking the suspiciousactivity on these cards eventuallytraced the breach back to theBasha’s Family of Stores, a popularArizona group of grocery outlets.Basha’s management indicatedmalware was behind the attack.These events are an ominous signthat our community banking systemis vulnerable to an ever moresophisticated worldwide network oftechnology-savvy criminals. Thesecrime syndicates are well-financed,20 www.azbankers.org