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PCI Hypocrisy: Citi’s Data Breach

June 14th, 2011

Will Citigroup be ordered to conduct such an investigation? A second consequence if a retailer were involved is fines. If fines were only about covering replacement costs, a fine wouldn’t make much sense. The bank would, in effect, just be paying itself the card reissuing costs. If, however, the fines are designed to punish noncompliant behavior, it might be a different story.

Sadly, what I do see are newspaper articles advising consumers on what steps to take to protect themselves. Everyone is recommending consumers change (and strengthen) passwords, check their credit reports and watch out for phishing E-mails.

All these recommendations are good. But in light of this data breach, it looks too much like the old game of blame the victim. A merchant or a bank gets hacked, and the cardholders are told to check their credit scores (at all three agencies) and go buy a paper shredder. Granted, the cardholders’ liability is virtually zero (at least for a credit card; it may not be so for a debit card). But with Citi’s breach of additional personally identifiable information (PII), identity theft is a possibility.

I have a good friend who is a very successful attorney, and she once told me she has a simple rule: She will not take on a client who thinks the world either is or should be “fair.” I sometimes have to explain that approach to merchants who are just learning about PCI. I don’t expect the world, or even the PCI part of it, to be fair. I do, however, believe it is in issuers’ own best interest to validate their PCI compliance. Citigroup’s unfortunate experience makes that case better than I ever could.

When I wrote about issuers and PCI compliance validation last year, I took the position that card issuers should not be ordered to validate PCI compliance. Instead, I made the case that issuers should voluntarily validate their compliance for three reasons: It is smart; it probably won’t be that difficult; and, most importantly, it is the right thing to do.

Today, I still believe all those things. But I find myself questioning my conclusion. I would love for Citigroup to announce publicly that it had conducted an outside PCI assessment and that at that time it was compliant. Such an announcement would reinforce to every merchant the importance of PCI compliance everyday, not just when the QSA is looking over your shoulder. Then, if Citi had been breached while compliant, we might learn more about potential new attack vectors.

It is probably too much to ask, but I would also like to know a few more details on the breach, so every issuer and merchant could learn from Citi’s experience. For example, did it result from a phishing E-mail to a helpdesk staffer (think RSA), a cross-site scripting attack or even a malicious insider?

What do you think? As a retailer or payment processor or service provider, do you think it is appropriate that issuers do not report when they validate their own PCI compliance? I’d like to hear your thoughts. Either leave a comment or E-mail me at


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Most Recent Comments

Why Did Gonzales Hackers Like European Cards So Much Better?

I am still unclear about the core point here-- why higher value of European cards. Supply and demand, yes, makes sense. But the fact that the cards were chip and pin (EMV) should make them less valuable because that demonstrably reduces the ability to use them fraudulently. Did the author mean that the chip and pin cards could be used in a country where EMV is not implemented--the US--and this mis-match make it easier to us them since the issuing banks may not have as robust anti-fraud controls as non-EMV banks because they assumed EMV would do the fraud prevention for them Read more...
Two possible reasons that I can think of and have seen in the past - 1) Cards issued by European banks when used online cross border don't usually support AVS checks. So, when a European card is used with a billing address that's in the US, an ecom merchant wouldn't necessarily know that the shipping zip code doesn't match the billing code. 2) Also, in offline chip countries the card determines whether or not a transaction is approved, not the issuer. In my experience, European issuers haven't developed the same checks on authorization requests as US issuers. So, these cards might be more valuable because they are more likely to get approved. Read more...
A smart card slot in terminals doesn't mean there is a reader or that the reader is activated. Then, activated reader or not, the U.S. processors don't have apps certified or ready to load into those terminals to accept and process smart card transactions just yet. Don't get your card(t) before the terminal (horse). Read more...
The marketplace does speak. More fraud capacity translates to higher value for the stolen data. Because nearly 100% of all US transactions are authorized online in real time, we have less fraud regardless of whether the card is Magstripe only or chip and PIn. Hence, $10 prices for US cards vs $25 for the European counterparts. Read more...
@David True. The European cards have both an EMV chip AND a mag stripe. Europeans may generally use the chip for their transactions, but the insecure stripe remains vulnerable to skimming, whether it be from a false front on an ATM or a dishonest waiter with a handheld skimmer. If their stripe is skimmed, the track data can still be cloned and used fraudulently in the United States. If European banks only detect fraud from 9-5 GMT, that might explain why American criminals prefer them over American bank issued cards, who have fraud detection in place 24x7. Read more...

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