Technology: Who Knows What About You?

Some state tax officials are now looking for tax cheats by digging for information on social networking Web sites. Police and the courts have used these sites to help solve crimes and even set sentences. Business competitors also look there. Meanwhile, some credit card companies are mining for information about where you spend in order to decide if you are a good risk. Ever wonder which organizations have information about you and what they know? Here are some ways that technology has resulted in more data being collected about certain people.

INFORMATION AND INSIGHT IN A FLASH

Internet Web sites and other technological advances have produced vast amounts of data about their users. Some of the information is used by organizations for marketing and customer support purposes. This is what most people generally think of when they hear the term “data mining.” They assume that if they buy something online, the site will keep track of the transaction and use the information to try to sell similar or complementary items.

But as the Internet and technology evolve, other uses have been discovered. Here’s a quick rundown of some data mining applications you might not know about.

Tax Agencies and Law Enforcement are Using Social Networking Sites. Users put a vast amount of information about themselves on social networking Web sites such as Facebook and MySpace. Some state tax officials are reportedly scanning the sites for tax dodgers they can’t find. In one case, Nebraska tax agents nabbed a deejay after he announced where he would be working on a certain day. In other cases, officials scour not only social Web sites, but chat rooms, blogs, online classified ads and search engines. There, they can quickly find address changes, employer information, telephone numbers and other data.

These days, police routinely contact social networking sites for access to information about suspects in major crimes and missing children. (Facebook’s head of security is a former FBI computer forensics analyst.)

Divorce lawyers preparing for litigation often look on social networking sites for information that illustrates one spouse is engaging in reckless behavior or extravagant spending. This can be especially damaging in cases involving child custody.

In court, judges have even taken online messages and pictures into account when handing down sentences because they can show whether defendants are remorseful. For example, a Rhode Island man received a two-year jail sentence after he drove drunk and caused an accident that injured another driver. The prosecutor entered into evidence pictures of the defendant posted on Facebook. They showed him at a Halloween party after the accident wearing a prison costume printed with the words “jail bird.” The judge called the pictures depraved.

Business Competitors Are Engaging in Online Intelligence Gathering. Years ago, businesses found out information about their competitors by reading print publications, going to trade shows and sending out “secret shoppers.” Today, they’re more likely to head to the Internet.

Social networking sites and other Web applications provide a wealth of information about competitors. By looking at sites like Twitter and Facebook, businesses might be able to find where the CEO of a competing company is traveling or what customers think about a rival service based on their comments. On these sites, businesses often post messages about upcoming new products and special promotions – giving competitors the opportunity to upstage them.

On LinkedIn, a networking site for professionals, individuals list their “connections,” which may include past or present customers, partners, colleagues, and personal acquaintances. Recommendations can be written about users. By looking at a business executive’s profile, competitors can gain a wealth of insight that can help them understand his or her company and better position their own firms.

Some Credit Companies Are Profiling Customers Based on their Purchases – The tough economy has led some credit card companies to scrutinize customers for financial stability. So by using electronic records and receipts, they examine consumers’ spending patterns and purchases to predict who is likely to pay off their balances.

“Certain types of purchases can be red flags to credit-card companies watching for signs of consumers with questionable finances,” according to Robert Manning, author of Credit Card Nation. These charges include paying for traffic tickets, shopping at low-cost retailers such as dollar stores, buying lottery tickets, taking cash advances and even retreading tires. When creditors see charges like this, it could indicate that a consumer is strapped for cash or trying to escape financial stress.

The Federal Trade Commission has filed a lawsuit against one credit card firm for a number of practices, including misrepresenting the amount of credit that would be available immediately to consumers. Specifically, after a card was issued and a credit limit up to a certain dollar limit was established, the company began to “monitor consumers’ purchases and might reduce their credit limit based on an undisclosed ‘behavioral’ scoring method,” according to an FTC press release.

Of course, credit card companies and other businesses have always analyzed data in order to gather information about their prospects, customers, partners and competitors. In the “old days,” among the tools that organizations painstakingly examined were phone books, newspapers, trade publications, press releases, court documents, annual reports and other SEC filings, credit reports, product catalogs and more. Today, the Internet and other new technologies allow organizations to quickly search most of these resources as well as new ones. Information gleaned from one Web site, when combined with data from another source, may result in secrets being revealed.

What can you do to protect your personal privacy as well as your company’s proprietary information? Some steps to consider:

Don’t post too much online. Keep in mind that nothing posted on a blog, social networking site or message board is really private.

Whenever possible on social networking sites, adjust your privacy settings so that only your “friends” or “fans” can see the information. Be selective about who has access. Don’t accept requests for “friendship” from people you don’t know. A fake profile could be created in an attempt to gain entry into your circle.

If you are a company owner or executive, keep in mind that competitors may be watching everything you do online. Be careful what you and other staff members post on the Internet.

Regularly monitor the information about your company. While you want to use Web sites and social networking tools to raise your visibility and improve relationships, you may be putting out information that results in unintended consequences.

INFORMATION SHARING BY THE IRS

Taxpayers should operate with the belief that almost nothing they do in their financial lives will remain a secret from tax collectors.

The IRS shares information with numerous federal, state, local, and foreign government agencies, as well as private entities. Technology makes it easy for two parties to quickly compare notes.

For example, a recent government report compared annual mortgage interest statements with federal tax returns. It found that a substantial number of homeowners may not be reporting all of their income on their tax returns or may not be filing at all. Reason: “Their mortgage interest and basic living expenses appear to exceed their income.” (Treasury Inspector General for Tax Administration, 2009-40-112)

Of course, there could be an explanation for a low income in any given year, such as a layoff, the economy or a drop in portfolio value. But by comparing data, the IRS can investigate potential audit targets who are making mortgage payments they can’t reasonably afford on the income reported on their tax returns.

Bottom line: If there is a record that you own or invest in an asset, assume the information is available on a computerized file that the IRS can access.

BUSINESS WISDOM FOR TODAY’S ECONOMY

“We may attack governments for the spread of surveillance culture, but users of social media Web sites make more information about themselves available than Big Brother could ever hope to obtain by covert means.”

– British newspaper the Telegraph’s article, “50 Things that Are Being Killed by the Internet.” This was number 31, Privacy