A targeted malware attack described as "new and sophisticated" is to be blamed for the data breach at Hannaford Bros. Co. that exposed more than four million credit and debit card numbers to identity thieves, the supermarket chain said in a letter to regulators in Massachusetts.
In the letter, which was sent by Hannaford general counsel Emily Dickinson, the company said an "illicit and unauthorized computer program" was secretly installed on servers at every one of its 300-plus grocery stores in Maine, Vermont, New Hampshire, Massachusetts and New York.
According to the Boston Globe, which first reported on Hannaford's explanations to Massachusetts Attorney General Martha Coakley and Governor Deval Patrick's Office of Consumer Affairs and Business Regulation, the malicious Trojan was programmed to hijack what is described as "Track 2" data from the magnetic stripe of credit and debit cards being swiped at Hannaford's checkout counters.
This track includes the card's number and expiration date, but not the customer's name, the letter said.
Hannaford did not say how the malware infection occurred.
However, the company said the attackers controlling the malware was able to intercept the credit and debit card numbers in batches before transmitting them to an unidentified offshore ISP (Internet Service Provider).
Hijacked on the Way to the Bank
Hannaford, headquartered in Scarborough, Maine, first became aware of the breach on Feb. 27, when Visa raised an alarm for suspicious credit card activity. The company said it launched an immediate comprehensive investigation but the first public disclosure did not occur until the middle of March.
The data was hijacked during the transaction-authorization process between December 2007 and March 2008, the company said, warning that about 1,800 known cases of fraud have resulted from the malware heist.
The Hannaford breach is the first publicly acknowledged theft of sensitive card authorization data in transit between a retailer and bank for authorization. It also confirms repeated theoretical warnings that malicious hackers can create custom remote-control Trojans for specific targets.
"Law enforcement officials and others report that the method of illicit acquisition is a new and sophisticated method in that it obtains data in transit during the course of the authorization process," according to the letter written by Hannaford's general counsel.
Gartner analyst John Pescatore says the shift to hijack credit card data while in transit is a tactic that results from a move by major U.S. merchants to move sensitive financial data out of their data stores.
"The [Hannaford] theft is likely to be particularly damaging for card-issuing banks. The theft of the security codes hidden in a card's magnetic stripe enables criminals to manufacture counterfeit cards, and any fraudulent charges made using the counterfeit cards must be borne by the issuing banks," Pescatore said in a research note.
Under Visa rules, if a merchant is identified as the source of the data breach, direct fraud costs initially borne by the bank can be charged back to the retailer. Without the security codes, criminals can use the card information only in card-not-present environments -- for example, to make online purchases -- in which case the retailer bears liability, he added.