The Case of the Wrong ATM Photograph

It looked like a textbook case of how a bank's surveillance system could be used to thwart ATM crime and catch a dangerous criminal.

One hour after a woman was raped in her Manhattan apartment this month, the attacker used her ATM card at a branch of Apple Bank to withdraw about $200. As he inserted the card, the attacker's picture was taken by a camera built into the automated teller machine.

Neighbors Identified Photo

The police released a photo of the ATM user to the media, and the Daily News, the city's largest tabloid, ran it on page 1 with the headline "WANTED" across the top of the page. Within hours, neighbors had identified the man in the photo and the police promptly arrested him at his home.

There was only one problem: The wrong photo was given out.

Rather than serving as an example of how banks can cooperate with the authorities, the incident ended up underscoring the fact that institutions can find themselves publicly embarrassed - and financially liable - if errors occur.

The man in the photo - a father of four, with no criminal record - is is considering lawsuits against both the bank and the police, according to the office of his lawyer, C. Vernon Mason.

Litigation Held Likely

Who is at fault is being hotly debated. The police have said the bank's mechanism for matching ATM transactions to customer photographs malfunctioned. Officials at $4-billion asset Apple Bank Corp. have denied that any such malfunction occurred, but they declined to comment further.

"Someone's going to get sued here, that's for sure," said one official at the New York Police Department who requested anonymity. "This is one of those situations where everyone might get" sued.

Industry lawyers have estimated that a suit against Apple bank could run into the millions. The falsely accused man, James L. Hairston Jr., who would not comment on the case, was taken into custody and questioned for several hours before the police became aware of the error. A new suspect has been arrested. (It's not clear if the correct ATM photo was used in catching him.)

A Settlement Reached

Bankers noted that this is not the first instance in which bank cooperation with authorities has gone awry.

In a similar case in Georgia, a man was wrongly arrested on the basis of ATM transaction information that bank authorities provided to the police. The incident resulted in an out-of-court settlement between the bank and the wronged party, according to a bank security officer familiar with the case.

Many financial institutions, in an effort to protect themselves from exposure to such liabilities, issue disclaimers on the back of any photograph that is released to the police.

Disclaimers in Use

The disclaimers -- known as indemnification, hold harmless, and release agreements -- typically state that the pictures taken at the teller machines are for internal purposes by the financial institution, and that any other party that puts the photographs to use does so at its own risk.

"We need to take a lot of precautions to make sure the bank isn't compromising itself when it releases information to the public," said Boris F. Melnikoff, a senior vice president at Wachovia Corp. in Atlanta. "We're hanging out there if we don't."

Question of Security

Beyond the issue of liability, though, the New York incident raises questions about how well banks are monitoring their internal security measures.

According to a 1991 report on retail banking from the American Bankers Association, some 93% of financial institutions with more than $1 billion in assets reported losses from fraud at their automated teller machines last year. The median amount of loss was about $10,000 a year, the report said.

Officials at the ABA have commented that those losses might be reduced substantially with stricter security measures.

"There's no magic to this -- if the banks screw up, they are opening themselves to some losses," said Irving D. Warden, head counsel of the industry group.

To avoid the types of mixups that have occurred at Apple Bank and other institutions, most ATM vendors offer computerized interfaces that automatically emboss each customer photograph with the account number of the card used.

Manual Process

Without such interfaces, matching of the photo and transactions must be done manually, increasing the possibility of error. The interfaces, offered by NCR Corp., Dayton, Ohio, and InterBold in North Canton, Ohio, cost between $200 and $300 per machine.

It is estimated that 90% of banks operating ATMs have installed cameras to photograph the people using the machines. But according to figures from the leading vendors, only about 60% of new machines are purchased with automated camera interfaces. Apple Bank officials would not comment on whether they had such a device installed at the time of the incident.

"The technology is nothing spectacular, but I guess these incidents prove it could save a lot of headaches in the long run," said David Sacco, marketing director at NCR Corp., the leading worldwide shipper of ATMs.

PHOTO : OOPS: Police say photo glitch led to arrest of wrong man.

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