Security guru Bruce Schneier says that the only way to stop phishers and identity thieves is to make financial institutions solely responsible: “Push the responsibility — all of it — for identity theft onto the financial institutions, and phishing will go away.

Last week California became the first state to enact a law specifically addressing phishing. Phishing, for those of you who have been away from the internet for the past few years, is when an attacker sends you an e-mail falsely claiming to be a legitimate business in order to trick you into giving away your account info — passwords, mostly. When this is done by hacking DNS, it’s called pharming.

Financial companies have until now avoided taking on phishers in a serious way, because it’s cheaper and simpler to pay the costs of fraud. That’s unacceptable, however, because consumers who fall prey to these scams pay a price that goes beyond financial losses, in inconvenience, stress and, in some cases, blots on their credit reports that are hard to eradicate. As a result, lawmakers need to do more than create new punishments for wrongdoers — they need to create tough new incentives that will effectively force financial companies to change the status quo and improve the way they protect their customers’ assets. Unfortunately, the California law does nothing to address this.

Security MattersThe new legislation was enacted because phishing is a new crime. But the law won’t help, because phishing is just a tactic. Criminals phish in order to get your passwords, so they can make fraudulent transactions in your name. The real crime is an ancient one: financial fraud.

These attacks prey on the gullibility of people. This distinguishes them from worms and viruses, which exploit vulnerabilities in computer code. In the past, I’ve called these attacks examples of “semantic attacks” because they exploit human meaning rather than computer logic. The victims are people who get e-mails and visit websites, and generally believe that these e-mails and websites are legitimate.

These attacks take advantage of the inherent unverifiability of the internet. Phishing and pharming are easy because authenticating businesses on the internet is hard. While it might be possible for a criminal to build a fake bricks-and-mortar bank in order to scam people out of their signatures and bank details, it’s much easier for the same criminal to build a fake website or send a fake e-mail. And while it might be technically possible to build a security infrastructure to verify both websites and e-mail, both the cost and user unfriendliness means that it’d only be a solution for the geekiest of internet users.

These attacks also leverage the inherent scalability of computer systems. Scamming someone in person takes work. With e-mail, you can try to scam millions of people per hour. And a one-in-a-million success rate might be good enough for a viable criminal enterprise.

In general, two internet trends affect all forms of identity theft. The widespread availability of personal information has made it easier for a thief to get his hands on it. At the same time, the rise of electronic authentication and online transactions — you don’t have to walk into a bank, or even use a bank card, in order to withdraw money now — has made that personal information much more valuable.

The problem of phishing cannot be solved solely by focusing on the first trend: the availability of personal information. Criminals are clever people, and if you defend against a particular tactic such as phishing, they’ll find another. In the space of just a few years, we’ve seen phishing attacks get more sophisticated. The newest variant, called “spear phishing,” involves individually targeted and personalized e-mail messages that are even harder to detect. And there are other sorts of electronic fraud that aren’t technically phishing.

More here.