-------- Original Message --------
Subject: FBI's Reliance on the Private Sector Has Raised Some
Date: Fri, 13 Apr 2001 11:31:23 -0400
From: "R. A. Hettinga" <email@example.com>
To: Digital Bearer Settlement List <firstname.lastname@example.org>
April 13, 2001
Major Business News
FBI's Reliance on the Private Sector
Has Raised Some Privacy Concerns
By GLENN R. SIMPSON
Staff Reporter of THE WALL STREET JOURNAL
WASHINGTON -- Big Brother isn't gone. He's just been outsourced.
After surveillance scandals in the 1960s and 1970s, the Federal Bureau
Investigation and other federal law-enforcement authorities curbed their
file-keeping on U.S. citizens. But in the past several years, the FBI,
Internal Revenue Service and other agencies have started buying troves
personal data from the private sector.
>From their desktop computers, 20,000 agents at the IRS have access to
outside data on taxpayers' assets, driving histories, phone numbers and
other personal statistics. Using a password, FBI agents can log on to a
custom Web page that links them with privately owned files on tens of
millions of Americans. And with just a few keystrokes, the U.S. Marshals
Service can find out if a fugitive has recently rented a mailbox or
acquired a new phone line.
'An End Run'
Behind such high-tech tools are ChoicePoint Inc., a publicly held
Alpharetta, Ga., company and other commercial "look-up" services.
ChoicePoint and its rivals specialize in doing what the law discourages
government from doing on its own -- culling, sorting and packaging data
individuals from scores of sources, including credit bureaus, marketers
Privacy activists say that by outsourcing these tasks, federal agencies
violating at least the spirit of the nation's major privacy law, which
admonishes the agencies to maintain only the data about a given
that they need to do their jobs. "It's simply an end run around the
Act" of 1974, says Marc Rotenberg a lawyer for the Electronic Privacy
Information Center, an advocacy group based here.
Back in the 1970s, critics say, lawmakers never imagined that technology
would place so much data within the government's reach but outside its
actual possession. They add that the government's alliances with
ChoicePoint and its peers have evolved largely without debate or
congressional oversight at a time of increasing public concern about
threats to privacy.
ChoicePoint and its federal clients say their use of the company's data
follows both the letter and spirit of the law. And, indeed, there has
little evidence so far of privacy violations arising from government
to the data. "We are only permitted to obtain evidence and information
consistent with applicable laws, including the Privacy Act, and rigorous
attorney general guidelines," says FBI spokesman John Collingwood. "A
vigorous inspection process, judicial oversight of prosecuted cases and
civil remedies are in place to enforce compliance by FBI employees."
ChoicePoint Chief Executive Derek Smith calls his company's dealings
the government "a natural extension" of its business of equipping
and other companies to check out prospective partners and clients.
Similarly, he says, the company helps the government find criminals and
uncover fraud that hurts taxpayers.
Mr. Smith says his company's contracts define appropriate uses of its
and that ChoicePoint audits them to make sure those conditions are met.
care very much about making sure the information is used to make a
more secure society," he says.
Federal agencies contract with several private-sector companies for data
and related services. Among them is Lexis-Nexis, a unit of Anglo-Dutch
publisher Reed-Elsevier PLC, whose databases include newspaper articles,
legal briefs and other public records. But ChoicePoint is the biggest
supplier to law enforcement.
The FBI's Investigative Information Services unit, which helps agents
obtain information on individuals for their investigations, relies
on ChoicePoint's services. On the Web, FBI agents also can go to
www.cpfbi.com1 -- "ChoicePoint Online for the FBI" -- for help in
conducting their own searches. On that Web page, the company's logo
alongside the FBI's official seal.
"The FBI has located nearly 1,300 subjects of criminal cases using these
kinds of searches," Mr. Collingwood says. The service "saves countless
hours of manual records checks, a process the FBI has relied on for
decades." Neither the FBI nor ChoicePoint would disclose how much the
agency pays the company.
The Justice Department's contract with ChoicePoint ballooned to $8
last year from $1 million in 1996. Treasury Department documents show
the exclusive multiyear deal the IRS signed with the company in August
worth a total of $8 million to $12 million. The company says its clients
include at least 35 federal agencies.
That business has contributed to ChoicePoint's impressive financial
performance. Since it became a standalone company four years ago,
ChoicePoint's stock price has more than doubled. Thursday in 4 p.m. New
York Stock Exchange composite trading, its shares rose 65 cents to
down from its 52-week high of $44.67 in December. Last year,
business and government division had revenue of $292.4 million, up 24%
1999, and its operating income more than tripled to $45.3 million. The
division now accounts for more than half the company's total revenue.
ChoicePoint says it buys its primary information for the data products
markets to the government, private detectives and the media from the
nation's three major credit bureaus. They are Equifax Credit Information
Services Inc., a unit of former ChoicePoint parent Equifax Inc.; Trans
Union LLC and Experian Information Solutions Inc. Each of the three
companies maintains credit histories on more than 180 million Americans.
The company takes these credit-bureau files and retains the portion that
lists the consumer's name, known aliases, birthdate, Social Security
number, current and prior addresses and phone number. The credit-bureaus
are valuable sources of such data because their records tend to be
date. That's because people typically tell their creditors when they
even if they fail to tell the Postal Service.
ChoicePoint indexes this data under the subject's Social Security number
and stirs in more information it gleans from other sources. These
including local, state and federal agencies, sell the company data
from motor-vehicle, driver and boat registrations, liens and deed
to phone listings, military personnel records and voter rolls.
By mixing and matching its databases, ChoicePoint can accumulate all
of information -- a speeding fine, a bankruptcy filing, a spouse's name
-- under a single Social Security number, tailoring the data and related software to a particular client. However, the company has warned investors that its ability to do business would suffer if Congress were to enact laws restricting the private use of Social Security numbers, as has been proposed in recent years.
The Health Care Financing Administration uses the company's Address Inspector software to help identify fraudulent Medicare claims. The product lets it check health-care providers' addresses against two million of what ChoicePoint calls "high-risk and fraudulent business addresses." They include private mailboxes and street addresses in high-crime areas. Thoughmany who rent private mailboxes do so out of concern for their privacy, those box numbers still can end up in ChoicePoint's hands if they are used in dealings with businesses or government.
Although ChoicePoint says it has records on nearly every American with a credit card, it doesn't always provide access to that data. The company's Autotrack service is popular with many agencies and businesses and is also used by reporters at The Wall Street Journal. But entering the name of FBI Director Louis Freeh into the Autotrack database produces an error message. A company spokesman says ChoicePoint intentionally blocks Mr. Freeh's records as an act of good corporate citizenship.
Among the tools ChoicePoint offers law-enforcement agencies is the ability to set up "alert" files that continuously scan databases for information on a suspect. So far, the U.S. Marshals Service, which has a $3.8 million contract with ChoicePoint, is the only agency that uses this feature. In 1999, one such alert showed that a woman wanted for mail fraud had rented a private mailbox. A follow-up investigation led to her arrest, according to agency records.
While they decline to discuss details of their relationship with ChoicePoint, the FBI and other agencies say they aren't doing anything new except retrieving data electronically instead of digging through various far-flung paper files. Before ChoicePoint, "We went all over the place going to the same sources of information as ChoicePoint is going to," says Greg Gagne, a spokesman for the Immigration and Naturalization Service, which paid the company $1.5 million last year.
Three decades ago, revelations about the FBI's history of compiling files on Vietnam War protesters, civil-rights activists, celebrities and thousands of other citizens seemingly picked at random set off a wave of public outrage. Among those with files were Albert Einstein, Rock Hudson, Cesar Chavez and Henry Ford.
Congress responded by passing the Privacy Act of 1974, which was designed to discourage such wholesale data gathering. While the law doesn't explicitly prohibit the government from compiling dossiers on presumably law-abiding private citizens, the FBI and other agencies in the past have generally interpreted it that way. Moreover, some of those agencies' own internal guidelines bar them from actively assembling such files themselves.
For instance, the FBI's "Manual of Investigations, Operations and Guidelines" says, "Only that information about an individual which is relevant and necessary to accomplish a purpose authorized by statute, executive order of the president, or by the Constitution is to be recorded in FBI files."
Scott Charney, former head prosecutor in the Justice Department's computer crime unit, says department guidelines prohibit the collection of public or other data on an individual unless the agency has reason to believe he may have committed a crime. "If the government can't go out and collect information on you absent predication, they shouldn't be able to go out" and buy it from an outside source, says Mr. Charney, now a lawyer for PricewaterhouseCoopers LLC.
Indeed, some attorneys think the government's reliance on outside data collectors may violate citizens' rights to protection against unreasonable searches. Gerry Goldstein, a criminal defense lawyer in San Antonio, says that, "When the government actively encourages and solicits individuals to act on their behalf, those individuals," in effect, become government agents.
Mr. Gagne of the INS dismisses that argument. The government, he says, didn't solicit ChoicePoint or other data providers to build their databases. "They were doing this for quite some time" before the government started buying the data, he says.
Another concern cited by critics is that Uncle Sam historically has proved to be an unreliable safekeeper of private information. In 1993, an inquiry by the General Accounting Office, Congress's investigative arm, found that the FBI's own audits had repeatedly reported misuse of the agency's biggest internal database, the National Crime Information Center. Last year, the GAO said the federal government wasn't complying with privacy standards the Federal Trade Commission had proposed for businesses. And a recent House investigation gave the government's computer-security efforts a "D-minus" grade.
Moreover, the public data ChoicePoint and its rivals use to build their databases aren't always accurate -- as ChoicePoint itself has found.
In January, the National Association for the Advancement of Colored People sued ChoicePoint and the state of Florida in federal court in Miami, accusing the company of supplying faulty data that led to thousands of citizens being wrongly purged from Florida voter rolls in the November election. ChoicePoint has admitted that some data it provided was inaccurate, but it says its DBT Online Inc. unit, which was hired by the state to compile lists of convicted felons still carried on the rolls, warned state officials that the data needed to be verified. Florida election officials have blamed their predecessors and county authorities for not following through.
In another incident, this time in the private sector, a Chicago-area woman was fired in 1998 from her technical job at a major computer maker after ChoicePoint told her employer that she was a convicted drug dealer and shoplifter. In fact, the woman had no criminal record. A ChoicePoint spokesman concedes the mistake. The woman's employer rehired her, but in a menial job. She sued both companies and reached a confidential settlement.
Until four years ago, ChoicePoint was part of Atlanta-based Equifax. Like other credit bureaus, Equifax's collection and sale of personal data on American consumers has been dogged by controversy over the years, leading regulators to put stricter rules on the companies' practices.
In 1993, Mr. Smith took the helm of Equifax's insurance-services division, which helped insurers evaluate the risks of taking on new policyholders. He says he quickly realized that the money-losing unit could serve another, potentially lucrative purpose. With society becoming more mobile, he says, he decided to pitch the division's database as a way for companies to feel more secure in dealing with relative strangers. The division's fortunes rebounded, with its operating income tripling in 1994. Equifax spun the division off in 1997, and Mr. Smith went along as CEO.
Meanwhile, the FBI and others started to appreciate the value of computerized databases and looking to the private sector for help in gathering records. Two companies, CDB Infotek and DBT, won much of this early business, because of their experience selling data to police departments.
ChoicePoint acquired CDB Infotek in 1996 and purchased DBT last year. It also bought up more than a dozen other firms that bought police reports and records relating to drug tests, physicians' backgrounds, insurance fraud, and litigation. DBT brought in the biggest haul. The data DBT had collected from insurers, private eyes, law firms and government doubled ChoicePoint's data bank to 10 billion records.
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