California disclosure law has national reach

[InfoSec News <isn () c4i org>]

Forwarded from: Elyn Wollensky <elyn () consect com>

http://online.securityfocus.com/news/1984

By Kevin Poulsen 
SecurityFocus
January 6, 2003

A new California law requiring companies to notify their customers of
computer security breaches applies to any online business that counts
Californians as customers, even if the company isn't based in the
Golden State.

So warned Scott Pink, deputy chair of the American Bar Association's
Cybersecurity Task Force, in a conference call Monday organized by an
industry trade group and attended by approximately 50 representatives
of technology companies and law firms concerned about the scope of the
new law, which will take effect on July 1st of this year.

"If you are selling products or providing services to residents of
California, it would probably be determined that you're conducting
business in California under this law," said Pink. "This is something
that has captured the attention of many corporate counsel and many IT
managers around the United States, as they try to understand what the
law requires and how it impacts them."

The law, called "SB 1386," is intended to combat identity theft. It
passed last September in the wake of a high-profile computer intrusion
into a California state government system that housed payroll
information on 200,000 state workers, in which the victim employees
were not warned that their personal information was stolen until weeks
after the incident. The law passed over strong objections from
industry groups.

To trigger the law, a breach must expose certain type of information:
specifically, customers' names in association with their social
security number, drivers license number, or a credit card or bank
account number. After such an intrusion, the company must notify the
effected customers in "the most expedient time possible and without
unreasonable delay."

Other types of information are not covered, and the disclosure only
needs to be made to California residents. But as a practical matter,
Pink said, online businesses may find it easier to notify everyone
impacted by a breach, rather than trying to cherry-pick Californians
for special treatment.

"Many, many companies outside California are likely to be governed by
this law," said Pink. "The question for them is to what extent do they
find it convenient to only notify California residents, and do they
find it easier to just notify everybody?"

Companies that ignore the law face potential exposure to class action
lawsuits.

The law addresses a chronic problem in e-commerce - companies that are
hacked are often reluctant to go public for fear of bad publicity or
civil liability. But in forcing companies to come clean, the
California law takes the opposite approach of the Bush
administration's emerging cyber security policies, which encourage
secret disclosure to government officials, rather than public
warnings.

In Monday's talk, organized by the Information Technology Association
Of America, Pink called the law "revolutionary," and said he believes
that other states will follow California's lead. But he also pointed
out some ambiguities in the law's language that are still waiting to
be resolved.:

* The ROT13 loophole? An exception in the law says companies don't 
  have to disclose a breach if the stolen data was stored in an 
  encrypted form. But it doesn't say the encryption has to be strong. 
  "If someone were to hack into the system... obtain the encrypted 
  contents, and are able to unencrypt them, does that trigger the 
  disclosure requirements?," asks Pink. "As I read the legislation, 
  that' s not entirely clear."

* Willful Ignorance. Disclosure isn't just triggered by drop-dead,
  caught-'em-red-handed intrusions, but by any incident in which 
  customer data is "reasonably believed" to have been compromised. 
  That's a vague term that leaves much room for legal wrangling, Pink 
  says. And what constitutes knowledge, anyway? "If a lower level IT 
  person notices some unauthorized activity... is that knowledge of 
  the company as a whole, and does that trigger disclosure?"

* Law enforcement investigations. Companies are permitted to delay 
  disclosure to meet "the legitimate needs of law enforcement," a 
  provision intended to keep the law from acting as an early warning 
  system for cyber crooks who've fallen under police scrutiny. But who 
  decides what a legitimate need is?

That last provision means that law enforcement officials effectively
hold the power to grant a stay of execution on disclosure, giving a
company time to examine its liability and plan a public relations
strategy. That could mean a boost in the number of intrusions
companies report to police, something the law enforcement community
has been trying to achieve for years. As one participant in Monday's
conference call -- an executive at a large Silicon Valley software
company -- put it, reporting the crime would be a way of "buying
time." ("I'm not trying to get around the law," the exec added).

Pink suggested that any company relying on the law enforcement
exception first get an explicit request from officials to delay
disclosure. And resist the temptation to notify a local traffic cop
and consider the matter closed. "The agency you're reporting it to
should at least have jurisdiction," said Pink.



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