Risk Visualization: Enterprise Prevention...

When "Corporate Executives" start talking about how to reduce fraud and other critical Operational Risks across the institution, there is going to be plenty of debate.

Where do you focus your resources and investments in order to get the best ROI and economic value?

If you thought the pornographers were the leading ledge of innovation on the AI Internet, there is a new breed of international criminals and corporate attackers that have emerged at the top of the pyramid.

Financial services organizations are taking an enterprise view of global risk prevention to try and keep ahead of these increasingly clever and technology oriented crooks.

Having an enterprise view of holistic risk is the "Holy Grail" and some would say that focusing on the account and not more on the customer is the wrong approach.

What is clear about the online evolution of fraud activity is that social engineering is working in the exploitation game. Hardening all of the systems with two-factor authentication or even IP Geolocation is just part of a layered risk strategy.

Working from within the walls of your institution trying to figure out how to protect your assets and your customers is merely a myopic strategy.

The attackers are moving too fast and have access to the same tools in their labs where they utilize their own methods and processes for exploiting the vulnerabilities in your latest applications.

Now that you have spent millions on implementing that new AML or fraud detection system, are you sleeping any better at night?

"True strategic analysis of risk and the convergence of relevant data makes scenario development, proactive planning and open source intelligence an area that requires consistent attention."

Simulations and evaluation of possible physical and digital exploits that haven't even been detected yet could provide the proactive and preventive advantage you have been seeking.

What is your latest hypothesis?  Have you tested it effectively to determine the likelihood and impact of success? Training and practicing for the unknown and unthinkable puts you and your team in a more resilient mode to survive the next attack. Whether it's through the front door, the suppliers back door or through the copper wire into your customers home or business office, detection is critical.  

Anticipation and deterrence is imperative...

Insider Threat: Corporate Integrity Culture...

Does your organization have a culture of "Corporate Integrity?" One can only wonder how these findings have changed since these results.

The depth and breadth of Operational Risks were apparent over eight years ago in the 2011 CyberSecurity Watch Survey by CSO Magazine, USSS, CERT and Deloitte.

The most common insider e-crime at 63% is unauthorized access to / use of corporate information. Here are the others:

• 57% - Unintentional exposure of private or sensitive data
• 37% - Virus, worms or other malicious code
• 32% - Theft of intellectual property

When asked which electronic crimes were most costly or damaging the results were:

• 38% - Outsiders
• 33% - Insiders
• 29% - Unknown

Regarding the "Insiders" reasons were given for not referring for legal action, the one that stands out in our mind is this one. 40% could not identify the individual(s) responsible for committing the eCrime. And maybe even more astonishing is that 39% did not have enough information or a lack of evidence, to proceed with either civil or criminal litigation.

So what is really going on with these survey results presented so far? Even though the respondents say that 33% "Insiders", they have done little to collect enough evidence to identify who the responsible parties are to the incident. This may be for several reasons including the lack of internal expertise to preserve evidence and conduct timely investigations.

We have addressed the "Insiders" that make up one third of the digital incidents, yet what about the "Unknowns" who add an additional 29%. The combination of the two make up 62% of all the incidents in the study.

This is where Operational Risk professionals can have a significant impact within the enterprise.

The unauthorized access to information and use of that information is at the center of this issue. When an organization realizes that this "information" has impacted them, the funds have been stolen, the trades have been placed or the press has published a trade or national security secret.

Regardless of the high tech tools utilized or the systems and controls within the organization, there are always methods and processes that if properly implemented, will reduce the number of "Unknowns" and "Insider" threats.

In your particular case, it just may come down to developing more effective situational awareness with your employees.

Suppose you create a mandatory program for all employees that is focused on corporate integrity and each year the CEO kicks off the first session with their own attendance and their own direct reports, including the Board of Directors.

Next, all senior staff attend the program and posted on the corporate Intranet are webcast shows with several 5 minute clips of parts of the one day session.

Finally, the roll out for the remainder of the employees is tied to the annual 360 degree review, that each manager does with their subordinates in the company.

Employees must understand the ethical behavior expected of them. New employee orientation should detail the organization's mission, values and code of conduct, types of fraud, compliance, their responsibility to report violations of ethical behavior and impropriety, and details of the hotline or other ways to report incidents and other integrity concerns.

Periodic training throughout an employee's career reinforces awareness and the cost of internal incidents.

If your organization does not currently have a program as we have described earlier, then maybe it's time to start one.

If you already have one in place, how effective is it in detecting the "Insider Threat" and the spectrum of Operational Risks within your organization...

Information Threat: Battle for Superiority...

What continues to be the greatest economic threat to your organization? Is it "Internal" or "External" to your institution? Could it be both?

Insiders rarely work alone and therefore the nexus with some outside influence, whether it be a person, life factors or some other entity are typically in play.

Is an engineer in R&D copying precious intellectual property information from within the enterprise company, that could be worth hundreds of thousands or even millions to the highest competitive global bidder? Could your small business have an accounting supervisor that has been diverting funds to a private bank account for the past two years?

Would it be possible that a supplier or 3rd party partner is capable of inflating the number of billable hours on a project?

Whether it's IP Theft, Fraud or other white collar corporate malfeasance, these Operational Risks are real and growing at a double-digit percentage rate annually. The greatest economic threat to your organization could be complacency or an apathetic staff, who works without adequate resources and little communication with the Executive "Powerbase".

The compliance and oversight mechanism's are in full swing from the federal governments around the world as highly regulated critical infrastructure organizations are implicated in a myriad of corruption, scandal, ethics and criminal matters.

Litigation is an Operational Risk that many organizations have realized the necessity for more robust internal teams to address the continuous requests for information from the government.

There is one common denominator across all of the insider threats, external forces and other vectors that seem to be attacking our institutions night and day. That common denominator is "Information".

And underlying this is the data and meta data that all to often ends up being the key or clue to finding the "Smoking Gun" and the source or person(s) associated with the scheme or attack on the organization.

Managing information in a mobile and interconnected planet is a major issue in any global company. Providing the tools and the right information faster and more accurately than the competition can be the difference in your own survival on the corporate battlefield.

So how does the CxO suite even begin to address the risks, opportunities and resilience in our demanding "Information-centric" environment?

They believe in having a strong culture of ethics, training and continuous monitoring of employees, systems and their supply chain. They understand the importance of providing the vital resources to the people on the front line of risk management and to make sure that their early warning systems and methods are not compromised.

This breed of CxO's are the new breed of organizational management, that are leveraging information to their most significant advantage:

Whether you are trading in a marketplace, analyzing assets on a map or manufacturing widgets and selling them to qualified buyers, operational risk management begins and ends with information. Managing that information effectively and more accurately than your competition is the name of the game. What have you done today to insure your survivability in the face of the next crisis?

InTP: Insider Threat Via Critical Infrastructure...

The private sector organizations of the United States are vital to the protection and security of the Homeland.  The private sector owns a majority of our assets and Critical Infrastructure Protection (CIP) remains a priority as a result of the latest asymmetric threats.  Securing Critical Infrastructure sectors includes:

• Chemical:
• Commercial Facilities:
• Communications:
• Critical Manufacturing:
• Dams:
• Defense Industrial Base:
• Emergency Services:
• Energy:
• Financial Services:
• Food and Agriculture:
• Government Facilities:
• Healthcare and Public Health:
• Information Technology:
• Nuclear Reactors, Materials, and Waste:
• Transportation Systems:
• Water and Wastewater Systems:

The National Strategy to Secure Cyberspace, emphasizes the importance of public/private partnerships in securing these critical infrastructures and improving national cyber security.

Similarly, one focus of the Department of Homeland Security is enhancing protection for critical infrastructure and networks by promoting working relationships between the government and private industry.

The federal government has acknowledged that these relations are vital because most of America’s critical infrastructure is privately held.  Further, the networks of our global super-infrastructure are tightly “coupled”—so tightly interconnected, that is, that any change in one has a nearly instantaneous effect on the others.

Attacking one network is like knocking over the first domino in a series: it leads to cascades of failure through a variety of connected networks, faster than most human managers can respond.

We realize that there are many facets of CIP, yet where should we be allocating resources?  The vigilance within our organizations has not changed and is based upon previous studies done by CERT and the US Secret Service:

"A system administrator, angered by his diminished role in a thriving defense manufacturing firm whose computer network he alone had developed and managed, centralized the software that supported the company’s manufacturing processes on a single server, and then intimidated a coworker into giving him the only backup for that software. Following the system administrator’s termination for inappropriate and abusive treatment of his coworkers, a logic bomb previously planted by the insider detonated, deleting the only remaining copy of the critical software from the company’s server. The company estimated the cost of damage in excess of $10 million, which led to the layoff of some 80 employees." U.S Secret Service and CERT Coordination Center/SEI Insider Threat Study: Computer System Sabotage in Critical Infrastructure Sectors

Insider Characteristics

The majority of the insiders were former employees.

• At the time of the incident, 59% of the insiders were former employees or contractors of the affected organizations and 41% were current employees or contractors.

• The former employees or contractors left their positions for a variety of reasons. These included the insiders being fired (48%), resigning (38%), and being laid off (7%).

Most insiders were either previously or currently employed full-time in a technical position within the organization.

• Most of the insiders (77%) were full-time employees of the affected organizations, either before or during the incidents. Eight percent of the insiders worked part-time, and an additional 8% had been hired as contractors or consultants. Two (4%) of the insiders worked as temporary employees, and one (2%) was hired as a subcontractor.

• Eighty-six percent of the insiders were employed in technical positions, which included system administrators (38%), programmers (21%), engineers (14%), and IT specialists (14%). Of the insiders not holding technical positions, 10% were employed in a professional position, which included, among others, insiders employed as editors, managers, and auditors. An additional two insiders (4%) worked in service positions, both of whom worked as customer service representatives.

Making sure that you have a robust workplace awareness program is yet one key component in addressing the "Insider Threat" and our resilience.

More importantly, the timing may have been the perfect launch point for other malfeasance from non-state actors who lie in their "Lone Wolf" mode, waiting to strike.

And while the scenario could be well contained, the timing could create opportunities for the "Black Swan" outlier inside your enterprise.

It's never to early to plan for the unimaginable, all happening in the same geography and the same time frame.  Revisit your "Insider Threat Program" (InTP) and Critical Infrastructure Resilience today...

Unthinkable: Adapting in New World Disorder...

Will 2018 bring more data breaches, lost laptops and insider threats than 2017?  This is why CSO's, CPO's and corporate General Counsels have their teams working overtime.

When the enemy is increasing their attacks, utilizing new strategies and leveraging the existing base of compromised organizational intellectual and data assets, the future horizon becomes ever more clear. 

The statistics don't lie.  1579 documented Data Breaches occurred in 2017. Up 44.7% according to reports by the Identity Theft Resource Center (ITRC) compared to the previous year.  It is the new normal.

The Insider Threat Program (InTP) however, remains a key focus for Operational Risk Management (ORM) professionals because human behaviors are exaggerated during periods of stress, fear and uncertainty. This means that people who may have never considered doing something to jeopardize their reputations, may now be up against a wall.

When there is no obvious exit and no way out, people will do extraordinary things to get ahead, beat the odds and hedge their own risk portfolio of life.

In Joshua Cooper Ramo's book "The Age of the Unthinkable", "Why the New World Disorder Constantly Surprises Us and What We Can Do About It" the author discusses the concept of Deep Security. His analogy of how to think about "Deep Security" is the biological immune system:

"A reactive instinct for identifying dangers, adapting to deal with them, and then moving to control and contain the risk they present."

The key word in Ramo's writing is "Adapt".  Being Adaptive.  However, prior to this there are two other very vital words that we feel are even more imperative. Instinct. Identifying. In other words, Proactive Intuition.

Ask any savvy investigator on how she solved the case and you may hear just that, "I had a hunch."

Talk with a Chief Privacy Officer in any Global 500 company.  You might get them to admit they have a sense that their organization will be the target of an "Insider data breach" incident in the coming year or two.

Do you remember signing off on reading and your acceptance of the employee handbook?  When did your organization last make changes to the Corporate Employee policies?  We would start with the updates to the following sections:

• MEDIA CONTACT
• SOCIAL MEDIA POLICY
• REMOTE ACCESS POLICY
• E-MAIL, VOICE MAIL AND COMPUTER NETWORK SYSTEM PRIVACY
• (YOUR ORGANIZATION) RIGHT TO ACCESS INFORMATION
• SYSTEMS USE RESTRICTED TO COMPANY BUSINESS
• FORBIDDEN CONTENT
• PASSWORD SECURITY AND INTEGRITY
• INTERNET ACCEPTABLE USE POLICY
• POLICY ON USE OF SOFTWARE
• COMPANY PROPERTY
• PROTECTION OF TRADE SECRETS/NON-DISCLOSURE OF COMPANY INFORMATION 

Due to the increasing complexity of IT systems, cloud computing, data networks and the hundreds or thousands of laptops and mobile devices circling the globe with company executives and employees is enough to predict that a major breach will occur.

Being adaptive and having proactive intuition in the modern enterprise does not come natural. You have to work at it and it requires a substantial investment in time and resources to make it work effectively.  Proactive Intuition.

Once you realize that all of the controls, technology and physical security are not going to keep you out of harms way, you are well on your way to reaching the clairvoyance of "The Age of the Unthinkable."

OSAC: The Insider Threat...

In November 2007, the "Insider Threat" was on the minds of Global Security Executives that year as evidenced by a half day emphasis on the current trends and issues.  We wonder what will have changed over a decade later, at the 2017 OSAC Annual Briefing.

In any global enterprise doing business across multiple continents with a diversity of personnel comprised of expats and country nationals; you can bet on being consistently subjected to the operational risks instigated by people. Fraud, embezzlement, conflicts of interest, economic espionage, workplace violence and disruption of business schemes are the norm.

In a converging organization with outsourced services around every corner, the enterprise becomes more disjointed and incapable of a continuous level of readiness or preparedness to the next organized plot by the insider.

So back to square one. Keep an eye on your employees, contractors and suppliers. Run those new employee awareness sessions and lock down the access to sensitive corporate assets. Now do it again with the same budget we gave you last year!

You can just see these great patriots from all over the world searching for the answer to their continuous woes as a Global Security Director. It's a thankless position and severely underfunded in a time when the threats are increasing exponentially.

In evaluating the current information security, regulatory and legal environment, consider these five key flaws with today’s ORM solution programs:

1. Dependence on inadequate and incomplete technology-based point solutions;

2. Failure to integrate people, process and systems into an effective and comprehensive operational risk program;

3. Lack of adequate decision support and an actionable understanding of the threat to the entire spectrum of corporate assets;

4. Reactive response to perceived problems rather than proactive initiatives based on sound risk management principles; and

5. Cost and shortage of properly skilled IT personnel to support the programs.

The Gartner Group has identified three major questions that executives and boards of directors need to answer when confronting significant issues:

• Is your policy enforced fairly, consistently and legally across the enterprise. 

• Would our employees, contractors and partners know if a violation was being committed? 

• Would they know what to do about it if they did recognize a violation?

If you don't know the answers to these questions, then there is much more work to do and much more strategic planning necessary before any software or system is implemented for Operational Risk Management.

Perhaps it is time for the Private Sector to get serious about the "Insider Threat."  The U.S. Department of Defense has been on point with the issue now for years:

The Defense Department is preparing to add 500,000 employees to its continuous evaluation pilot by Jan. 1 as part of DoD’s effort to add rigor to the security clearance process.

Daniel Payne, the director of the Defense Security Services, said Sept. 20 that the additional half-million employees would bring the total uniformed and civilian employees enrolled in continuous evaluation to 1 million. There are more than 4.3 million cleared employees and service members across the government, including 1.3 million at the top-secret level, according to the Office of the Director of National Intelligence’s 2015 report.

Yet, in the back of everyone's mind is still the possibility of being connected with a significant terrorist incident. What these CxO's are looking for, are the means to gain a larger budget for their departments and to be able to invest in new "Insider Threat" technologies and tools.

Human behavior will always be the center of the controversy on whether these new systems will be able to mitigate the insider threat any more efficiently or effectively...

2016: A New Era of Operational Risk...

As we launch into 2016, Operational Risk Management (ORM) professionals are ready for another challenging year.  The current state of global events that includes uncertain political or economic behavior by nation states and the continuous barrage of certainty with "Internet Asymmetric Warfare," is the new normal.

Reflecting back on 2015, here are the top 5 blog posts by number of page views:

Insider Threat: Trusted Systems of the Future...

Trust Decisions: Beyond RSA and Our Digital Future...

Data Rupture: The Risk of Over-Classification...

Trust Decisions: The Extinction of Risk Management...

InTP: Quality of Design in a New Age of Terror...

There is now anticipation that the world economies are going to continue a meager growth rate, as we enter our 8th year since "The Big Short" in 2008:

When the crash of the U. S. stock market became public knowledge in the fall of 2008, it was already old news. The real crash, the silent crash, had taken place over the previous year, in bizarre feeder markets where the sun doesn’t shine, and the SEC doesn’t dare, or bother, to tread: the bond and real estate derivative markets where geeks invent impenetrable securities to profit from the misery of lower- and middle-class Americans who can’t pay their debts. The smart people who understood what was or might be happening were paralyzed by hope and fear; in any case, they weren’t talking.

From the analysts desktops at "Liberty Crossing" to the Cyber Security Operations Centers (SOC) of dozens of Global 500 private sectors companies, one thing remains certain.  The adversaries are too nimble, unpredictable and ever more so capable of operating on the front lines for months and years in plain sight or even for weeks and months totally undetected.

However, relying on certainty alone and not being simultaneously adaptive or innovative in an accelerating pace of business or Decision Advantage, can get your Board of Directors in real trouble.

In 2016, the dawn of a new Operational Risk Management era shall begin.  In a future state, where people and machines will operate making "Trust Decisions" with greater ease and increasing velocity.  Stay tuned...

Beware of the Cowboy: Risk Driven by Fear...

Beware of the cowboy.  Operational Risk Management (ORM) spans the hazards on the flight deck on the USS Ronald Reagan (CVN 76) or behind enemy lines or even to employee behavior on the front lines of the private sector on Wall Street:

"The recent conviction of Michael Coscia in the Federal District Court in Chicago in the first prosecution for “spoofing” provides more clarity to high-frequency trading firms about how they can operate. The message is to tread carefully when a strategy depends on using orders that will be quickly canceled because the government may claim they are an effort to manipulate the market by fooling others into trading.

Spoofing was made illegal in the Dodd-Frank Act, which prohibits “bidding or offering with the intent to cancel the bid or offer before execution.”

Believe it when we say that people who try to be cowboys in your organization are operating without regard to risk. Now multiply the number of cowboys by the number of people that they surround on their team, who think that this is the way to operate. It doesn't take long to find out that these are the root causes of many of the operational risks in your organization. And it starts out with the basics even in the vast private sector beyond Wall Street:

• Revenue is not booked according to the rules. Products sit in the warehouse yet revenue ends up on the sales reps commission report because (s)he had a signed order.
• Assets are not valued correctly. Bank accounts are not validated to make sure they actually exist and accounts receivables are inflated.

These are just two of the many facets of occupational fraud that starts with a few cowboys who have little regard for managing risk and all the incentives to line their pockets with new found cash or bonuses.

From Leadership Lessons of the Navy SEALS

The Cowboy

"Neither of us knows if such a thing has ever been tolerated in modern commando teams. Yes, sometimes you need to charge forward. But, there are simply too many potential casualties and too much political currency resting on commando missions to entrust one to a cowboy. Authorization for an operation depends on the accurate calculation of operational risk. This requires an assessment of proven forces ability to perform a task. All this is contrary to the cowboy philosophy of depending on experimentation, pluck, and luck in order to succeed."

"The problem with being a cowboy is that your bosses won't employ you if they can't trust you, and they can't trust you if they don't know what you'll do. And then you're stuck with the reputation."
        --LT. CMDR. Jon Cannon

You might think that the reason is ego or just plain greed. However, the real motive may not be so clear. More than likely, the motive is fear. And that fear is something that grows until it gets to the point of creating harm, loss and destruction. You have to find the cowboys in your organization and you have to follow the mantra of quality gurus from years past, "Drive out Fear".

Courage: Risk of Physical & Moral Fear...

The effective implementation of Operational Risk Management (ORM) requires two types of courage; both physical and moral.  What are some examples?  "Physical Courage" is the act by an individual to run into the burning building to save those caught on the upper floors.  "Moral Courage" is the decision to finally expose the multi-year fraud scheme executed by the company controller, who happens to be your boss and is a former college class mate.

The courage component is different, yet the same.  The existence of fear in a "physical sense" may be harder to overcome since it will expose you to bodily harm and potential death.  The fear associated in a "moral sense" will impact your reputation or standing in the community that you live in, or the profession you operate within.  This fear could be greater for some than even risking ones own life.

Is it possible to learn and improve your skills for both physical and moral courage?  The answer is yes and it has been a factor of education and training for hundreds of years.  The goal is to ensure that your organization, enterprise, team or community is learning both and creating effective habits.  The continuous and repetitive exercises to deal with the fear of bodily harm or blowing-the-whistle on your best friend is the bottom line here.

"What are you doing to overcome your fear to save a life?  What are you doing to overcome your fear of reputation loss?  The ratio of learning both and exercising them in the field or when needed inside the institution, enterprise or government is what is at stake."

Once the education and training programs are in place to learn new skills then the fear of action will diminish, when the time comes.  Who do you have coming to work each day who has the balanced ability to carry an adult out of the burning building or simultaneously detect a multi-layered accounts payable scheme?

Unfortunately, these are only two examples of a wide spectrum of courage that is required each day. In New York City or the Sahel, Board Room to the Break Room, from the Class Room to the Conference Room both physical and moral courage will be required.  In seconds.  The courageous decision you make may cause bodily harm or the end of a career.  What are you going to do to learn and train to deal with the fear that you will encounter?  What kind of courage will you be called upon to utilize in order to act, to behave correctly and expeditiously?

Operational Risk Management (ORM) is a vital factor in your city, your business and your virtual community.  It spans the spectrum of courage from physical to moral.  The question remains,  will you act when the time and moment arises?

ID Analytics: Risk of the Unknown...

Operational Risk Management (ORM) has been at the top of the news in the past few weeks.  Digital media and the metadata of "Big Data" is the topic of choice.  It is a revealing look behind the curtain of what is possible these days, with the tools and capabilities that exist for exploitation and analysis.  Is too much privacy an operational risk to your personal and professional well being?  What "Trust Decisions" did you make to arrive on this page in the universe of the Internet?

In the spirit of full disclosure, if you are reading this now, we tracked how you found this blog and perhaps what search terms you used to be referred here.  Some of you, revealed their company identity. So why do we do this?  The main reason is that we want to make sure that we understand what is on your mind these days, when it comes to the global Operational Risk Management (ORM) universe. Here are a few examples in the past day or so that caught our eye:

• management of operational risk - Latvia
• operational risk management - Nigeria, Illinois, South Dakota, The Vanguard Group
• common board of directors mistakes - Turkey
• lessons learning from fail in operational risk - Malaysia
• predictive intelligence - North America
• rogue trader operational risk - United Kingdom
• fund industry operation management discussion topic - Luxembourg
• operational risk management game - Unknown
• reputation risk management process - Unknown
• operational risks in bank call center - Qatar
• coso definition of operational risk - Unknown
• black swan incident that occurs once in a lifetime - Unknown
• ubs operational risk case analysis - Unknown
• business resiliency definition - JP Morgan Chase
• "operational risk" outliers - France
• a risk effect on a daily operation - DeVry
• examples of smart objectives risk - United Kingdom
• black swan incident\ - South Carolina
• black swan incident - Computer Sciences Corporation
• what is a black swan incident - South Carolina
• duty of care board of directors - United Kingdom

Collection of data is one thing.  Relevance and sense-making is another.  Can you imagine some of the search terms that are tracked just by Google or Bing?

What about the companies that know us the best?  Those marketing and personal data sites that keep track of where you live, how much you spend on your credit cards and where, or even the name of your pets.  How often do you give them your phone number or e-mail address at the point-of-sale (POS) to get a discount at the local retailer, gas station or pharmacy?  Believe us when we say that there are hundreds of organizations that know more about you in the private sector than some government across the world.

The trail of "digital finger prints" you leave behind everyday are vast.  A snap shot of your face at the local ATM or a snap shot of your desktop when you login to the online banking web site.  In either case, these examples are just a few of the ways that your habits, locations, preferences and lifestyle are profiled each and every day.  Where did all of this begin?  Fraud Management.  Not Homeland Security.

As a citizen traveling across the country or a consumer, you willingly give up these digital bread crumbs of your journey through life.  Your goal now, is to make sure that you are not mistaken for someone else.  After all, you or your organization have developed a profile and a reputation that is being recorded and therefore, it could be a prudent strategy to make sure that you are not mixed up with another person or organization with the same name or brand identity.

How can you do this?  Operational Risk Management (ORM) is about monitoring yourself and your organization to make sure you understand your competition (good or bad) for the same personal or business identity space.  Do you have Biometric and DNA samples of all of your key executives?  If you don't, then the question is why not?  You may have considered this in light of some of the places that your executives are traveling.  Cities and countries across the globe with the risk of kidnapping, improvised explosive devices (IED) and other risks to their lives.

As we look into the crystal ball of our digital futures, we see the scenes from movies past that have already captured our own human imagination.  A world where everyone is known and you may even choose to "opt-in" to be tracked.  After all, you are unique.  You make your own choices in life.  The risks that you face may very well be greater, for those who choose a life to remain private, anonymous and even unknown.

TOC: The Implications of Consumer Privacy...

Operational Risks are pervasive in most every business both large and small. A small business can learn a tremendous amount from those failures by large corporate enterprises. Privacy laws in the United States are for all business owners whether they be a sole practitioner or a soon to be corporation with a $100 Billion valuation.  Operational Risk Management (ORM) is present in any serious business that makes important "Trust Decisions" on a minute-by-minute basis.

Consumer privacy and the risks associated with the protection of personal identifiable information of clients, members and customers is at stake. Learning the lessons from the organizations who have made changes and are working on a daily basis to comply with the regulatory frameworks, can be a very beneficial lesson to all.

Beyond the cost of a breach of data, Operational Risk Management (ORM) professionals understand that human behavior is the reason behind many of these incidents. Employees and supply chain insiders not clandestine hackers or malicious code sent from afar can be the major threat. So what can a Chief Privacy Officer or CISO do to mitigate the risks of employees and their behavior? All of the education and awareness campaigns may help, but the "Trust Decision" process itself is the place to begin.

Information Governance and the steps that are utilized to ingest or acquire and process that information is also paramount.  Hayley Tsukayama from the Washington Post highlights part of the issue:

Facebook came under fire Thursday from privacy advocates who say that changes to its ad network mark an unprecedented expansion of its ability to collect users' personal data. The advocates are also criticizing the Federal Trade Commission for allowing Facebook to make the changes and argue that the network's size gives it too much knowledge about its users.

Whether you are in the business of "Social Networking" like Facebook or you are the regional health care system in your state, the privacy of information of the consumer is at stake. Where that stolen information ends up in many cases, is in the hands of "Transnational Criminal Organizations" where it becomes of the lifeblood of their business operations to perpetuate their fraud schemes. These schemes are impacting the economic security of major organizations in the private sector and so the U.S. government (USG) has ramped up in the past 3 years to address the threat. Combined with other factors associated with legitimate business operations, organized digital crime syndicates have infiltrated the country and is costing the United States billions of dollars per year.

Here are several actions USG will be taking as the TOC strategy continues to be enabled:

Action

• Implement a new Executive Order to prohibit the transactions and block the assets under U.S. jurisdiction of TOC networks and their associates that threaten critical U.S. interests.
• Prevent or disrupt criminal involvement in emerging and strategic markets.
• Increase awareness and provide incentives and alternatives for the private sector to reduce facilita- tion of TOC.
• Develop a mechanism that would make unclassified data on TOC available to private sector partners.
• Implement the Administration’s joint strategic plan on intellectual property enforcement to target, investigate, and prosecute intellectual property crimes committed by TOC.
• Enhance domestic and foreign capabilities to combat the increasing involvement of TOC networks in cybercrime and build international capacity to forensically exploit and judicially process digital evidence.
• Use authorities under the USA PATRIOT Act to designate foreign jurisdictions, institutions, or classes of transactions as ‘‘primary money-laundering concerns,” allowing for the introduction of various restrictive measures on financial dealings by U.S. persons with those entities.
• Identify foreign kleptocrats who have corrupt relationships with TOC networks and target their assets for freezing, forfeiture, and repatriation to victimized governments.
• Work with Congress to enact legislation to require disclosure of beneficial ownership information of legal entities at the time of company formation in order to enhance transparency for law enforce- ment and other purposes.
• Support the work of the Financial Action Task Force, which sets and enforces global standards to combat both money laundering and the financing of terrorism.

The FTC is continuously working with companies like Facebook. The White House NSC is working on strategies that have a nexus with stealing consumers information to exploit the financial system. Yet all of this will be for nothing, if the private sector does not work in concert with government. Public-Private partnerships are in full swing and are making some progress.

In addition, nation state industrial intellectual property theft and economic espionage has eroded our global competitive advantage in several industry segments.  Ellen Nakashima explains:

A Washington think tank has estimated the likely annual cost of cybercrime and economic espionage to the world economy at more than $445 billion — or almost 1 percent of global income. 

The estimate by the Center for Strategic and International Studies is lower than the eye-popping $1 trillion figure cited by President Obama, but it nonetheless puts cybercrime in the ranks of drug trafficking in terms of worldwide economic harm. 

“This is a global problem and we aren’t doing enough to manage risk,” said James A. Lewis, CSIS senior fellow and co-author of the report, released Monday.

Changing peoples behavior inside your own business will require substantial oversight and continuous education. Remain vigilant at the risk of your organizations own peril!

Fraud Trends: Hedging Transnational Organized Crime...

The facts and the results of forensic investigations across the cyber domain are telling a significant story.  The question remains, will CxO's take the time to digest and think about what is happening within their Enterprise Risk ecosystem?  Operational Risk Management (ORM) has four key dimensions:

• People
• Processes
• Systems
• External Events

Each of these dimensions must be looked upon in a holistic and interdependent manner, realizing that they are all indeed interconnected.  One may impact another or managing risk in some but not others could bring the entire enterprise to it's knees.  This is understood.

You are no doubt utilizing a myriad of strategies to deter, detect, defend and document the Operational Risks within your specific industry and associated with the adversaries and regulations pertinent to your business.  So why is this still the state-of-play?

Significant Uptick in Cybercrime

Companies are beginning to change how they think about cybersecurity – viewing it as a business issue, not just an IT issue. Forty-four percent of U.S. organizations that experienced fraud in the past 24 months suffered from cybercrime; and 44 percent of all U.S. respondents indicated they thought it was likely their organization would suffer from cybercrime within the next 24 months. 

Seventy-one percent of U.S. respondents indicated their perception of the risks of cybercrime increased over the past 24 months, rising 10 percent from 2011. U.S. respondents' perception of the risks of cybercrime exceeded the global average by 23 percent. Despite having more to lose, U.S. respondents were generally less aware of the cost of cybercrime: 42 percent of U.S. respondents were unaware of cybercrime's cost to their organizations, compared to 33 percent of global respondents.

Didier Lavion, PwC principal and lead author of the U.S. report, said, "U.S. corporations need to better leverage and implement the computational and analytical power of cybersecurity technologies to help combat the increasing global presence of cybercrime."  --Source:  PwC's Global Economic Crime Survey 2014

The reason that the state-of-play remains in turmoil, is the inverse of what the survey is reporting. 29% of U.S. respondents have no perception that the risks of cybercrime has increased over the past 24 months. The 29% who do not perceive this, must be in an industry group that is either not connected to the Internet, does not use mobile devices or are using paper and pencils to run their business.

So for the other 71%, the perception of the risks of cybercrime has increased.  Again, what are the business details of these respondents?  What would be interesting is to ask the question:  How many U.S. citizens have been issued a new credit or debit card last year due to fraudulent charges?  Perhaps the 29% are the unbanked population of the U.S. who are not issued cards because they do not participate in the formal banking system?  Unlikely.

Cybercrime analysis needs to go deeper.  As an example, it would be interesting to discover what percent of cyber fraud victims in 2013 currently run a Microsoft-based operating system on their computer? No doubt the highest, due to the vast installed base of Microsoft-based PC's over the years.

Executive Management of companies with over 1000 employees who do not perceive the risk of cybercrime on the rise, may have other more pressing issues.  Labor, raw materials, weather, or other factors that may be impacting their business.  It makes some sense.

Over the next decade, the tide will turn on the motivation to pursue petty cybercrime and fraud.  Not because the laws and enforcement are more effective.  Not necessarily because the fraud opportunity becomes too difficult because of the effectiveness of new technology. Not even because the Microsoft Operating System installed base, dwindles to a minority percentage.  Why?

It is because the best cyber Transnational Organized Crime (TOC) organizations will become allies with nation states or even terrorist non-state actors.  They will be paid much more handsomely and they may not even have to disclose their true identities.  The stakes and the fortunes to be made in TOC are rising.  The cyber domain is now a race for superiority.  The best of these skills and knowledge will come from the "dark side" to start, and at a high premium.  So what are you to do, if you are the CxO of a top Global 500 organization?

Pray longer.  Allocate a treasure chest to invest in your long digital war ahead.  Hedge the risk...

New threat actor: Spanish-speaking attackers targeting government institutions, energy, oil & gas companies and other high-profile victims via cross-platform malware toolkit 

Today Kaspersky Lab’s security research team announced the discovery of “The Mask” (aka Careto), an advanced Spanish-language speaking threat actor that has been involved in global cyber-espionage operations since at least 2007. What makes The Mask special is the complexity of the toolset used by the attackers. This includes an extremely sophisticated malware, a rootkit, a bootkit, Mac OS X and Linux versions and possibly versions for Android and iOS (iPad/iPhone). 

The primary targets are government institutions, diplomatic offices and embassies, energy, oil and gas companies, research organizations and activists. Victims of this targeted attack have been found in 31 countries around the world – from the Middle East and Europe to Africa and the Americas. The main objective of the attackers is to gather sensitive data from the infected systems. Several reasons make us believe this could be a nation-state sponsored campaign.

Insider Threat: Corporate Integrity Culture...

In August 2011, this Operational Risk Management (ORM) blog posted the following.  In light of the increasing impact of "Insider Incidents" in 2013, this is worth revisiting:

Does your organization have a culture of "Corporate Integrity?" The depth and breadth of Operational Risks are apparent in the 2011 CyberSecurity Watch Survey by CSO Magazine, USSS, CERT and Deloitte.

46% of the respondents said damage caused by "Insider Attacks" is more damaging than "Outsider Attacks". The most common insider e-crime at 63% is unauthorized access to / use of corporate information. Here are the others:

• 57% - Unintentional exposure of private or sensitive data
• 37% - Virus, worms or other malicious code
• 32% - Theft of intellectual property

When asked which electronic crimes were most costly or damaging the results were:

• 38% - Outsiders
• 33% - Insiders
• 29% - Unknown

Regarding the "Insiders," the reasons that were given for not referring for legal action, the one that stands out in our mind is this one:

40% could not identify the individual(s) responsible for committing the eCrime.  And maybe even more astonishing is that 39% did not have enough information or a lack of evidence to proceed with either civil or criminal litigation.

So what is really going on with the facts presented so far? Even though the respondents say that "Insiders" are the most damaging, they have done little to collect enough evidence to identify who the responsible parties are to the incident. This may be for several reasons including the lack of internal expertise to preserve evidence and conduct timely investigations.

We have addressed the "Insiders" that make up one third of the digital incidents but what about the "Unknowns," who add an additional 29%. The combination of the two make up 62% of all the incidents in the study. This is where Operational Risk professionals can have a significant impact within the enterprise.

The unauthorized access to information and use of that information is at the center of this issue. When an organization realizes that this "information" has impacted them, the funds have been stolen, the trades have been placed or the press has published a trade or national security secret. To narrow this down further, you might say the Fraudsters and the WikiLeakers are bringing the institution into a torrential storm of criminal activities.

Regardless of the high tech tools utilized or the systems and controls within the organization there are always methods and processes that if properly implemented, will reduce the number of "Unknowns" and "Insiders." In your particular case, it just may come down to developing more effective situational awareness with your employees. This particular educational and awareness building process may indeed also uncover the individuals within your company, who may be already down a path of fraud, embezzlement, insider trading or corporate espionage.

Suppose you create a mandatory program for all employees that is focused on corporate integrity and each year the CEO kicks off the first session with their own attendance and their own direct reports, including the Board of Directors. Next, all senior staff attend the program and posted on the corporate Intranet are webcast shows with several 5 minute clips of parts of the one day session. Finally, the roll out for the remainder of the employees is tied to the annual 360 degree review, that each manager does with their subordinates in the company. This top down process for injecting the situational awareness of Operational Risks, Insider e-crimes and Corporate Integrity is sure to flush out those who are the current suspects and others who will flee the company.

No one that we know of can explain the basis for this process better than Martin T. Biegelman:

"Obviously, a poor working environment provides a motive and rationalization to commit fraud. Here's a quick health check: does management appear not to care about their employees? Does it have unreasonable expectations or financial targets? Is the organization autocratic or participative? Is there a lack of training or promotion opportunities? Does management say one thing but do another? Are senior executives treated differently than rank and file employees when it comes to discipline?" 

Employees must understand the ethical behavior expected of them. New employee orientation should detail the organization's mission, values and code of conduct, types of fraud, compliance, their responsibility to report violations of ethical behavior and impropriety, and details of the hotline or other ways to report fraud and other integrity concerns. Periodic training throughout an employee's career reinforces fraud awareness and the cost of fraud to an entity.

So what?  What does this have to do with with Operational Risk and those who are experts at deception?  Believe us when we say, they may be standing right in front of you.  Anton R. Valukas has also provided more context on the mindset of insider(s), what may be the most relevant lesson, for early detection of "Insider Threat."  "Information in plain sight.  Information in plain sight for what reason?"  What is missing?  Anton Valukas and his team uncovered the context, on why and how Lehman brought the United States to it's break point:

On January 29, 2008, Lehman Brothers Holdings Inc. (“LBHI”1) reported record revenues of nearly $60 billion and record earnings in excess of $4 billion for its fiscal year ending November 30, 2007. During January 2008, Lehman’s stock traded as high as $65.73 per share and averaged in the high to mid‐fifties, implying a market capitalization of over $30 billion. Less than eight months later, on September 12, 2008, Lehman’s stock closed under $4, a decline of nearly 95% from its January 2008 value. On September 15, 2008, LBHI sought Chapter 11 protection, in the largest bankruptcy proceeding ever filed.

There are many reasons Lehman failed, and the responsibility is shared. Lehman was more the consequence than the cause of a deteriorating economic climate. Lehman’s financial plight, and the consequences to Lehman’s creditors and shareholders, was exacerbated by Lehman executives, whose conduct ranged from serious but non‐culpable errors of business judgment to actionable balance sheet manipulation; by the investment bank business model, which rewarded excessive risk taking and leverage; and by Government agencies, who by their own admission might better have anticipated or mitigated the outcome.

If your organization does not currently have a program as we have described earlier, then maybe it's time to start one. If you already have one in place, how effective is it in detecting the "Insider Threat" and the spectrum of Operational Risks within your organization?

4th Paradigm: Predictive Risk Innovation...

21st century innovation requires new thinking, new tools and the application of a creative mind.  When it comes to innovating Operational Risk Management (ORM), take a leap towards "Predictive Intelligence".  What has been holding you back?  Is it the right combination of new thinking, new tools and the applications you haven't even thought of yet?

How could we apply the use of a High Computing Cluster (HPC) using Amazons Elastic Compute Cloud (EC2) with the right haystack of data to get the answers we seek?  Without building a new data center and for under $5K.  Think about the possibility of 10,000 plus server instances running across five data centers, with the results we seek in hours.  Utility Super Computing is here today for white hats and also even the "Black Hats."

Predictive Analytics is an art and a science, that is thriving with the use of "Fusion Infrastructure" by the hour. Why do we need to spend tens of millions of dollars on our own data center anymore, to get the rapid answers we require to run our business or to defend our nation?

Now the debate has gone beyond the infrastructure, to look at the other bottle necks.  What about the database architecture itself?  Is the traditional implementation of the disk intensive real-time Relational Database Management System (RDBMS) paradigm over?  Hadoop is here, yet requires new language learning curves and is a batch solution.  This could be one of the answers to predictive risk innovation:

MemSQL is the distributed in-memory database that provides real-time analytics on Big Data, empowering organizations to make data-driven decisions, better engage customers, and discover competitive advantages. MemSQL was built from the ground up for modern hardware to leverage dozens of cores per machine and terabytes of memory. We are entering an era that will be defined by distributed systems that scale as you need capacity and compute, all on commodity hardware.

How long will it take you to stand-up your own "Operational Risk Intelligence Center"?  One or two days or a week, with the right people and skill-sets in place.  What kinds of questions and answers will allow you to predict the future, faster than your competitor or your latest cyber adversary?

At the Black Hat security conference in Las Vegas, a quartet of researchers, Alex Stamos, Tom Ritter, Thomas Ptacek, and Javed Samuel, implored everyone involved in cryptography, from software developers to certificate authorities to companies buying SSL certificates, to switch to newer algorithms and protocols, lest they wake up one day to find that all of their crypto infrastructure is rendered useless and insecure by mathematical advances.

We've written before about asymmetric encryption and its importance to secure communication. Asymmetric encryption algorithms have pairs of keys: one key can decrypt data encrypted with the other key, but cannot decrypt data encrypted with itself. 

The asymmetric algorithms are built on an underlying assumption that certain mathematical operations are "hard," which is to say, that the time it takes to do the operation increases proportional to some number raised to the power of the length of the key ("exponential time"). This assumption, however, is not actually proven, and nobody knows for certain if it is true. The risk exists that the problems are actually "easy," where "easy" means that there are algorithms that will run in a time proportional only to the key length raised to some constant power ("polynomial time").

Innovation in the Operational Risk Management spectrum is on the verge of massive change. Operations Security, Fraud Analytics and Supply Chain Management are just the beginning.  The Board of Directors of the commercial enterprise, Military Strategic Commands and virtual chat rooms on the deep web, are debating these very subjects.  Application of "Utility High Performance Computing" in combination with 4th Paradigm databases, puts innovation back at the forefront of the creative mind.

Workplace Trust: Integrity, Ethics & Legal Risk...

Operational Risk Management professionals wonder about the "Tone at the Top" and decisions at the latest Board of Directors meetings to ignore or investigate a whistleblowers claims of ethics or governance violations in the workplace.

The financial services companies have for years been the target of scrutiny for claims of fraud, mistreatment of consumers and violations of several U.S. federal regulations many under further examination by the SEC.  As time goes on in the evolution of maleficence you will find examples of wrong doing in other private sector areas, such as the Defense Industrial Base (DIB), Retail and Information Technology (IT).  Think about your own company and ask yourself how you treat and respond to the 800 number Ethics Line and those who staff the Internal Audit, Risk Management or Information Security departments.  Are these enablers or impediments to your future success?  Your answer may be a clue to the issue at hand.

The professionals in the Inspector Generals office, the Operational Risk Management department and the General Counsels office are also there for a good reason.  Think about them as the last "Thin Blue Line" between your company becoming a success or falling into a cultural abyss that will plague the institution for decades.  Steven Pearlstein explains from the Washington Post:

Steven Pearlstein: How could SAIC miss this? By Steven Pearlstein, 

Last week in these pages, The Post ran a profile of John Jumper, the straight arrow former Air Force general who was brought in as chief executive of local contracting giant SAIC in the wake of an embarrassing overbilling scandal involving bribery, kickbacks, foreign shell corporations and a safe deposit box stuffed with $850,000 in cash. 

A year ago company officials were publicly denying that there were any problems at all with its contract to build a new timecard system for New York City, which by then was so late and so over budget that “CityTime” had become a frequent target for the New York tabloids and political embarrassment for Mayor Michael Bloomberg. 

It was just last June that SAIC executives and directors first informed shareholders that there might be a little $2.5 million overbilling problem with the contract and that federal prosecutors had brought criminal charges against six employees of an SAIC subcontractor. Shareholders had to read deep into Note 9 of that quarterly report to learn that there might be “a reasonable possibility of additional exposure to loss that is not currently estimable” that “could have a material adverse impact” on the company’s finances.

This episode by one DIB contractor, was not the first nor will it be the last.  One has to ask whether the advice these companies are getting from their outside counsel is always the right course of action.  The government and the internal risk management departments are going to be continuously deluged with new whistleblower claims.  Not just because new laws are in place to protect them and to provide them with the incentives to come forward.  It is because good people are sick and tired of having their organizations reputation tarnished and their respective ethical practices being jeopardized by a few bad cowboys or rogue actors.  Yet now, the Retail sector is being taught a serious lesson regarding a potential FCPA violation by Wal-Mart.  David Barstow at the NYT has this to report:

By DAVID BARSTOW 

Published: April 21, 2012  MEXICO CITY — 

In September 2005, a senior Wal-Mart lawyer received an alarming e-mail from a former executive at the company’s largest foreign subsidiary, Wal-Mart de Mexico. In the e-mail and follow-up conversations, the former executive described how Wal-Mart de Mexico had orchestrated a campaign of bribery to win market dominance. In its rush to build stores, he said, the company had paid bribes to obtain permits in virtually every corner of the country. 

The former executive gave names, dates and bribe amounts. He knew so much, he explained, because for years he had been the lawyer in charge of obtaining construction permits for Wal-Mart de Mexico. 

Wal-Mart dispatched investigators to Mexico City, and within days they unearthed evidence of widespread bribery. They found a paper trail of hundreds of suspect payments totaling more than $24 million. They also found documents showing that Wal-Mart de Mexico’s top executives not only knew about the payments, but had taken steps to conceal them from Wal-Mart’s headquarters in Bentonville, Ark. In a confidential report to his superiors, Wal-Mart’s lead investigator, a former F.B.I. special agent, summed up their initial findings this way: “There is reasonable suspicion to believe that Mexican and USA laws have been violated.”

Mitigation of Operational Risks in the workplace, such as fraud and corruption is different than it is outside the enterprise.  The difference is, that corporate executives do not always believe that their own employees would behave this way.  They could be naive to the reasons why fraud finds its way into the psyche of some of the organizations must trusted officers.  Corruption and the signs that an organization has lost its way from a place of cultural integrity and one that condones others to look the other way or for many to help perpetuate schemes of wrong doing, requires a massive organizational transformation.  A transformation that is lead by focused and talented Operational Risk professionals.

But most of all, even if you have these professionals on your team already, there are still some important ingredients to achieving your own "Defensible Standard of Care":

1.  If you think you have funded the risk management department in your enterprise adequately, you haven't.  Do not confuse your outside audit function with your internal risk management function. 

2.  If you don't understand how your 800 number ethics line works and the outsourced organization that runs this, then you need to do so immediately. 

3.  If you have a favorite outside counsel to help you with investigations, it might be time for a check up.  Even more importantly, it might be time to get your outside counsel firms and your outside audit firms invited to a meeting of the minds on corporate integrity. 

4.  If you find any indications that 1 through 3 have been ignored, pushed aside or been giving you a false sense of security, then you might consider making a career change.

Tech Inc., a rapidly growing software company operating in 45 countries, learns that the U.S. Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) are investigating payments made by its subsidiaries in Brazil and China for possible violation of the Foreign Corrupt Practices Act (FCPA). Bob, the general counsel for Tech Inc., suspects that the source of the investigation is an employee who anonymously lodged a hotline complaint alleging that the company was 1) paying independent sales agents excessive commissions and 2) providing generous discounts and rebates to some of its channel customers and distributors. The complainant also said he believed the problem extended beyond Brazil and China based on discussions he had with other employees.

Too Big to Fail: Basel III to ID Theft...

Now that the Basel III wheels are in motion and the "Top 29" vital Global banking institutions have been identified, Operational Risk Management is on everyones mind. The capital reserves will continue to assist them in becoming more resilient to the systemic volatility ahead. Are you feeling the uncertainty starting to disappear? Not for a minute.

As these banking institutions try to withstand the economic impact of a nation state failure like Greece, the consumers who are the customers of the "Top 29" too big to fail, are being simultaneously barraged and systemically targeted by international crime rings. Identity thieves have set up transnational operations, that will continue to plague millions of consumers at these same banking institutions. Their own governments continue to try and deal with the nexus of criminal elements, consumer privacy and law enforcement. How bad is it for the U.S. Treasury, as one example:

Identity theft involving tax fraud is increasing faster than law enforcement and government officials can deal with it, according to testimony today before a House oversight subcommittee. Identity theft to scam fraudulent tax refunds from the government has increased 100 percent in just three years.

”As of Aug. 31 of this past year, IRS incident tracking reports indicated that the numbers of taxpayers affected by identity theft has more than doubled since 2008 to over 580,000 taxpayers this year alone,” said J. Russell George, Treasury Department inspector general for tax administration.

The crime has become too easy. It’s like a party, according to Rep. Richard Nugent, R-Fla., whose district has a problem with tax-related identity theft.

“Tampa Police Department has busted what the lawbreakers call ‘make it rain’ parties, where criminals get together in a hotel room with Internet access and file fake return after fake return,” Nugent told the committee.

How does paying out billions of dollars to these fraud crime rings using your social security number and date of birth increase the operational risks on our banking institutions? Everyone who is a consumer at one of these banks who is a victim of fraud, will one day deal with the aftermath. If the fraudsters are filing a fraudulent tax return that impacts you, then the odds are that you may end up paying a higher interest rate and this will not be the only place they are using your ID Theft misfortune for financial gains.

For the victims of tax fraud identity theft, the people who had fraudulent tax returns filed in their names, getting the problem fixed and their lawful refund paid could take a year and a half.

“A typical path for an identity theft refund case that is not complex may take as long as 18 months to resolve,” said J. Russell George, Treasury Department Inspector General for tax administration.

The cost of dealing with Identity Theft has so many dimensions. The protection of Personal Identifiable Information (PII). The fact that the IRS and law enforcement have difficulty sharing information on the consumers themselves due to privacy laws. The technology and online Internet forums for buying and selling fraudulent identities is prevalent. The continuous salvo of attacks on financial institutions to compromise the cyber defenses that they have established is a 24 x 7 battle.

To exacerbate the problem, the "Death Master File" (DMF) is the genesis for much of the Identity Theft and tax fraud when this information gets into the wrong hands. The U.S. Social Security Administration has been publishing this list of 90 million dead Americans since 1980 to help the "Top 29" fight fraud. At the same time, the Identify Theft fraudsters are using the same data to perpetuate their schemes:

Identity thieves are cashing in on dead children across the nation, stealing their Social Security numbers to collect fraudulent tax refunds from the Internal Revenue Service.

Grieving families — including the Watters family of Lake Forest — say their anguish is amplified by the realization that the crooks get help from an unexpected source: the Social Security Administration’s “Death Master File,” which records and lists information about everyone who dies in the United States.

Armed with the deceased child’s Social Security number and other personal information, crooks falsely claim them as dependents and have the refunds routed to them.

One reason that the financial institutions, government agencies and law enforcement are going in circles is because "Operational Risk Management" processes and tools are still not as robust as they could be. As the Basel III regulatory mandates kick in along with other new laws, methods and tools, all of the impacted parties will get better at deterring, detecting, defending and documenting in this complex information age.

In the mean time, consumer beware. Look long and hard at the "Top 29" list and decide if you need to move your funds to somewhere else. And before you do, look at the online banking login page for that institution. Are they still using only a single factor user name and password? Multi-factor authentication is not fool proof, yet it does tell us whether the institution is serious about Operational Risks in the area of Information Security. This is a key indicator of their ability and capability to try and keep your data out of the hands of the transnational eCrime rings.

Finally, you have to take the monitoring of your own Identity, and all of your family members identities seriously. It will be far more proactive, than anything else that will be done by governments or financial institutions alone. Regardless how fast they implement the latest tools and technology the fraudsters are moving just as fast. By adding your own diligence on top of the banking institution, government agency or other entity (Doctors / Lawyers / Dentists/ Insurers) that may have your Personal Identifiable information, you are decreasing your odds of becoming an Identity Theft and fraud victim.

Financial risks for the banks and the consumers will continue to be the current state-of-play. Basel III alone will not eliminate the threat of failure or the possibility of a serious bank fraud. Monitoring services or checking your credit report on a quarterly basis, will not keep the ID Theft criminals from stealing your PII. Implementing both on a proactive and pervasive basis will make a positive difference over time. This is what Operational Risk Management is all about, in the global institution board room and at your own home office.