Cambridge Analytica Scandal – Is Data Privacy A Mirage?

The unauthorized “harvesting” of personal data of over fifty million Facebook users by Cambridge Analytica is the latest in a continuing saga of data related scandals. Breaking his long silence, Zuckerberg apologized to his billion plus users worldwide and called it a “breach of trust” and vowed to take steps to protect user data. But the damage has been done.

As many averred, Zuckerberg’s apology inherently assumes Facebook users will continue to trust it and that all will be forgiven and it will be business as usual. That may well turn out to be true. But given the seriousness of this “breach of trust”, this may have serious consequences on its fortunes. One immediate fallout is the #DeleteFacebook campaign that quickly went viral. Also Facebook stock lost almost 9% in value.

Facebook’s supreme success rests on a business model built on profiting from customer data and its priceless derivative – customer insights. Notwithstanding Zuckerberg’s apology and promises to clean up, it is anybody guess if he will really follow up or implement only cosmetic changes.

This brings into focus the importance of consumer data in today’s data driven economy. It is common knowledge that vast amounts of data are being generated every day, particularly by social media users. Using sophisticated analytics, this data can be mined to yield powerful insights about users. In fact it is a common practice for marketing companies to use these insights to create a full behavioral personality profile or characteristics of an individual.

Products and service or even a political ideology could then be effectively tailored or custom fitted for that profile in what is called micro targeting. This data driven super customization has wide applications – in retail marketing, business espionage, political campaigns etc. It is for this reason that today data is seen as the most important resource and companies would do anything to get their hands on it. 

Given the multiple use of this cutting edge knowledge resource born out of the confluence of technology and high end quantitative skills, it is indeed awing and worrisome at once. It is like a knife that can be used in the kitchen as well as to kill. The exploits of companies like Cambridge Analytica have justifiably caused disquiet among large sections of society.

Cambridge Analytica, like many other companies, are way ahead of the curve in using these precious insights in seeking to “change audience behavior”, or to generate a favorable outcomes in the targeted populations in a general election. Hence their popularity with political parties worldwide, including India.

As can be seen, there is nothing illegal per se in Cambridge Analytica’s business model. In fact all major corporations worldwide are engaged in exploiting data in one form or other for their bread and butter. But the illegal gathering of profile information of millions of users without their express consent is what is under scrutiny.

But what has been a rude wake up call for many is the fact that companies like Cambridge Analytica can potentially disrupt a democratic process like an election. Undercover videos shared by Britain’s Channel 4 News show how the company actively planted news – typically fake news in the “bloodstream of the internet and let it grow” to achieve desired social and electoral outcomes.

This it very much akin to what the Soviet Union was doing decades ago to brainwash its people. The distinctions between legal and illegal is often blurry and Cambridge Analytica and its ilk appear to have exploited it to the hilt. To confound the issue, in many countries, regulators have still not woken up to combat this malefic use of data.

The problem is indeed acute in countries like India where political parties have shrewdly worked off radar to use the services of Cambridge Analytica and its subsidiaries to “influence social behavior” in the election process. How far the election processes have been subverted is anybody’s guess. But it is equally futile to point fingers at the Congress party or the BJP since all of them have at some point in time used these services.  It is like the Democrats in the US blaming the Republicans because the Trump campaign used them in 2016. But it came back on the Democrats when it was revealed that they too - the Obama campaign in 2012 -had extensively used these services.

The scary part here is that the users whose data is being fought over, have practically no say in the matter because they have already shared their private information on the internet. It has left their hands and there is no way they can get it back. How this will be used and shared or who will use this is being decided by companies like Facebook who are primarily motivated by profits and not overly concerned about user privacy. That such breaches and data hacks occur regularly speak volumes of the gap between current laws and their rigorous enforcement.

And this will definitely not be the last of data breaches or breaches of trust. But the real problem is that we are confronted by an insurmountable issue here that threatens individual liberty and the inalienable right to lead a private, yet social life.

In the end, these social engineers who stole personal information of millions of unsuspecting users in reality turned out to be deadly data terrorists who deployed their stolen assets to disrupt cherished democratic processes and skewed election outcomes in so many countries at the bidding of their paymasters.

The bitter truth is that we live in a world where nothing is private.  Google, Facebook, Twitter, Amazon and any number of known and lesser known companies already know more about us than we can imagine. We have to reconcile ourselves to the fact that, however unpalatable it may be, data privacy is just a mirage.

The need for agile, yet draconian laws on data usage together with forensic monitoring of disposal of data has been repeatedly pointed out by experts in the field. Hopefully, the wait may not be long. Social media companies have long taken the naïve user for a ride. It is time they stepped off the roller coaster.

Is It time For Structural Realignment Of RBI?

The regularity of frauds at Indian banks has shaken the faith of the public in the banking system. The Reserve Bank of India (RBI) has attracted a lot of flak for the Punjab National Bank (PNB) fraud for the fact that it happened right under its nose and the fraudsters got away. Suggestions have poured in from well-meaning opinion makers and couch pundits – from replacing the RBI Board to privatizing the banks.

In this context, in what may be a rare occurrence, two governors of the RBI – one former and one current - hit the media spotlight and spoke about the issue.

Dr.Raghuram Rajan in an interview with a business news channel spoke more like a politician - all generalities and little or no specifics. He pointed fingers at the Prime Minister’s Office (PMO), conveniently forgetting that he was the governor when the fraud was being perpetrated.

On the other hand, Dr. Urjit Patel, the present governor, spoke of the need to privatize the public sector banks and appeared to deflect blame from the Central Bank. Many saw this as a response to Finance Minister Jaitley’s pointing fingers at the RBI for the scam.

RBI governors, in a time tested tradition, are known to be reticent and tend to shy away from media spotlight. But that may be in a bygone era and not in the new normal we all live in.

While there may be some truth in what Dr. Patel had said, the fact that he chose to speak at all on the topic and the timing were indeed bizarre. It is unclear why he chose to bring this up in public. Nor did Dr. Rajan cover himself in glory. The RBI and the Ministry of Finance, per an unwritten etiquette, never drop even the faintest hint of discord amongst them. This is because it has the potential to create turbulence downstream in the economy and could unsettle markets.

The RBI is a venerated institution that is deeply entrenched in the economy. In it’s over eight decades of existence it has requited itself extremely well. It has been at the forefront of expansion of bank branches and credit delivery. It had also played a pivotal role in the nationalization of banks in 1969 as well as in nurturing several developmental financial institutions.

To its credit, the central bank has embraced advances in technology to build a modern banking and supervisory infrastructure. It has adopted risk based supervisory model, a contemporary best practice in bank supervision worldwide. The key pillars of this model are a combination of onsite and offsite monitoring and greater reliance on backend data analytics to proactively gain insights into problem areas in the system. These early warning insights would enable the regulators to monitor banks better.

So, at least on paper, systems and processes were in place for effective supervision. Yet, the repeated occurrence of high profile frauds despite these innovations, only reinforce the common perception that the RBI and bank auditors have not lived up to the expectations of the country.

The real culprit here, of course, is the fact that India’s institutions and enforcement agencies, despite constitutional and legal guarantees, have long been rendered toothless paper tigers by vested interests. That was done deliberately so that scams like the ones at PNB could be committed with ease.

But the deliberate defanging of the watchdogs or the ownership of public sector banks by government raised by Dr. Patel, are secondary issues that need to be addressed separately. They should not obfuscate the principal responsibility of the RBI in securing the banking system. Given the stature and dignity of the institution and office, it does them no good to pass the buck.

Having said that, the truth however, is that the RBI carries an overload of functions and responsibilities that range from traditional central banking to other “developmental functions”. This was probably necessary in the early days after independence when the modern banking system was in its infancy. But today the situation is different.

Digital banking has rapidly taken root in every corner of the country today, thanks to technology and mobile phones. At the same time, it has also set the bar higher for customer expectations in convenient and secure delivery of banking services. This, in turn, has only accentuated the enormity of challenges in managing and regulating the burgeoning industry.

The fraud at PNB has exposed the vulnerability of the banks system in the new digital ecosystem. There are powerful lesson to be learnt here. Institutions that do not adapt and change with the speed of time risk becoming irrelevant.  Hence the need of the hour is a structural transformation of the Central Bank to meet the enhanced challenges in the new digital banking order.

It is certainly an opportune time to review and offload some of the regulator’s functions. One recommendation would be to carve out the Board for Financial Supervision (BFS) into a separate organization. The BFS was constituted 1994 as a committee of the Central Board of Directors of the RBI “..to undertake consolidated supervision of the financial sector comprising commercial banks, financial institutions and non-banking finance companies …”. It enjoys enormous powers under the Banking Regulation Act, 1949. In the light of repeated frauds, the BFS must be reincarnated as a more agile and results driven body.

An expert committee could help with the finer details and setting up of this new entity. Suffice it to mention here that this new institution must rise well above the turf battles between the RBI and the Ministry of Finance. It must be on par with other institutions like the Election Commission of Indian (ECI) and the Comptroller and Auditor General of India (CAG) to prevent the institution from being bludgeoned into submission by vested interests. 

But given the current preoccupations of the government, the much needed administrative reforms for governance may not happen in the current term of office. Many pundits and analysts believe that the Modi government may have already prepared a blueprint for comprehensive reforms that will radically change the civil, police and judicial services in India. Redefining the role and function of the RBI must find the pride of place in the administrative reforms that is long overdue.

Creating this new entity will show the government’s determination in delivering safe and secure banking services to all Indians.