The Marriott announcement of unauthorized access to the Starwood guest reservation database amounts to one of the largest historical breaches, in the ranks of Yahoo and Equifax. The exposed data includes personally identifiable information (PII) such as passport and credit card details, along with email and mailing addresses, which leaves Starwood customers exposed to years of potential identity theft and fraud. Credit card numbers were encrypted with Advanced Encryption Standard encryption (AES-128). According to the Marriott announcement, they are working with law enforcement and have begun notifying regulatory authorities. In quick response, the New York Attorney General this morning announced that their office is opening an investigation into the data breach.
Read the Marriott Announcement.
Shares of Marriott (NASDAQ: MAR) sank 5.6% in premarket trading. And the meter is running with ongoing investigation costs, notifications and call centres, and approaching credit protection for over 300 million customers will bite deeply into their coffers. And this doesn’t include operational disruption, long-term reputational damage, executive terminations, and the costs of correction actions designed to prevent a reoccurrence of similar events. One estimate based on the IBM study by Ponemon which calculated the cost of a large data breach, puts the tally as high as $3.5 billion assuming 500 million affected consumers or as low as $2.1 billion, assuming 300 million affected consumers.
Marriott is not alone. The Verizon Data Breach Investigation Report (DBIR) revealed nearly 300 breaches in the hospitality and restaurant industry, a 33% increase from the previous year. 90 percent of these attacks targeted their Point-of-Sale (PoS) systems. Like the Marriott breach, 93% of stolen information contain financial data and payment related information.
The unauthorized access was detected on September 8, 2018 by an undisclosed internal security tool that flagged attempted access to a monitored database. After consulting with security experts, Marriott confirmed that unauthorized parties had access to the Starwood reservation network going back to 2014 (two years prior to the acquisition of Starwood by Marriott). Further investigation discovered that the unauthorized actor had copied and encrypted information, containing guest details from reservations on or before September 10, 2018.
While the breach was detected in September, it was not reported until November 30, 2018. Many state-level breach notification laws, financial regulations, and privacy laws require notification within 72 hours, which means the world’s largest hotel chain could face significant penalties levied by the Office of Civil Rights in the United States, and privacy offices across Europe, under the General Data Protection Regulation (GDPR). A potential failure to notify GDPR and clients within 72 hours, exposes Marriott to the Tier 2 penalties of €20 million, or four percent of worldwide revenue (whichever is higher).
Ironically, at a recent GDPR conference hosted by Cohn Reznick in New York, industry observers and experts hypothesized that many businesses are sitting back and waiting for privacy offices in Europe to investigate and fine organizations before investing heavily in GDPR compliance. Moreover, the proposed sentiment is like the industry is almost taunting GDPR into making an example of a negligent business before industry will take them seriously. Perhaps Marriott just offered themselves up on a platter. One for the breadth of the exposure, and more importantly, for the month's delay in notification that violates Article 33 (notification to the appropriate authority) and Article 34 (notification to affected individuals) of GDPR.
It is incumbent upon these large organizations to put security first (similar to GDPR Article 25) and provide proactive and transparent support and outreach when a breach occurs. In response to the Equifax breach, the New York Department of Financial Services (DFS) pulled Equifax and its peers under their stringent NYCRR500 cybersecurity regulations. Retail and hospitality firms will likely come under similar controls given the massive volumes of data they curate and the potential financial damage as a consequence of a breach will likely find themselves regulated in the same way financial institutions and medical organizations are.
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