Government worries about smart card security

With the government looking into regulation of electronic commerce to avoid fraud, money laundering, and counterfeiting, Netizens may have to prepare for the next big privacy battle.

3 min read
With the use of smart cards imminent and consumers heading toward cashless transactions, the Justice Department is looking into regulation of electronic commerce to avoid fraud, money laundering, and counterfeiting. Once that happens, Netizens had better be prepared for the next big privacy battle.

In a speech to the American Bar Association and the American Bankers Association in Washington, D.C., U.S. Assistant Attorney General Robert Litt said that the government will be involved in e-commerce developments in order to prevent crime.

Smart cards, which resemble credit cards, have an embedded microprocessor that stores money, carries personal medical data, tracks usage of a vendor, and performs calculations. The market for smart cards is expected to boom from about 22 million cards in use today to more than 1.2 billion over the next five years, according to research firm Dataquest.

Consumers will be able to transfer money to a smart card and use it to pay for goods traditionally paid for with cash such as taxis, food, bridge tolls, and dry cleaning. The cards are expected to be tested by major U.S. banks later this year and in 1997.

But, according to Litt, it's not that easy. "History has taught us that as soon as any new technology arrives, some individuals will attempt to misuse and abuse it."

He cited some potential examples of abuse, including fraud, money laundering, and counterfeiting. "Certain types of electronic commerce systems permit virtually anonymous transactions and leave no paper trail," said Litt. "These systems could undo years of hard work in this area."

So what's the solution? One idea is to track all transfers and do away anonymity, according to Litt. But, he added, anonymity is important for consumers who, for example, want to obtain information on a product without ending up on hundreds of mailing lists.

Still, criminals also benefit from anonymity. "Every criminal wants to avoid getting caught," he said. "Anonymous remote communications can help them avoid detection and apprehension."

Some privacy advocates say smart cards can be double-edged. "This technology is designed on the one hand to provide total anonymity, but on the other hand, it can provide for more detailed record-keeping than we've ever seen before," said David Sobel, legal counsel with the Electronic Privacy Information Center.

Litt says he's not advocating that the government should have any more legal authority than it has now, but they do need to be prepared. The Justice Department, which in 1991 created a Computer Crime Unit, is "taking some steps to help us prepare for these challenges," and the FBI has created three computer crime squads.

A network of prosecutors nationwide has been trained to serve as computer telecommunications coordinators. The Secret Service also has trained agents to deal with electronic crimes against financial institutions, Litt said. "The expertise of these agents will be a crucial asset in fighting abuses of electronic commerce."

But Sobel says that the government will not only crack down on computer crime, but also "for the first time will have records of things they never before had."

Lori Fena, executive director of the Electronic Frontier Foundation agrees. "The wonderful thing about cash is that people aren't tracked when they use it," she said. "If the government knew everything we did, they could control everything, and I'm not sure that's the answer."