Federal Reserve Flags Possible Data Breaches by Retiring Employee

The Federal Reserve’s watchdog has raised concerns about a retiring employee who may have taken confidential information when leaving the central bank. This employee worked in the Division of International Finance and retired in July 2024.

During the months leading up to retirement, the employee triggered hundreds of alerts by actions like printing documents, copying data into a notepad app, emailing sensitive files to personal accounts, and transferring files onto an unencrypted USB device. Many of these alerts involved classified information from the Federal Open Market Committee (FOMC), which sets U.S. monetary policy.

Investigators found that some alerts were false alarms, and it was unclear exactly what information the employee removed. The employee had previous incidents in 2021 and 2023 involving similar issues, which they said were mistakes. Despite warnings and instructions on how to properly remove files before leaving, the employee did not follow the official procedures.

After retirement, the employee gave back a USB device for review, but it did not contain the data linked to the alerts. The employee did not provide requested emails or printed documents, and did not respond to follow-up questions. Because of unclear records and the possibility of false positives, the watchdog decided not to open a formal misconduct investigation.

However, the incident exposed weaknesses in how the Federal Reserve handles employee departures and protects sensitive information. The watchdog has issued nine recommendations to improve controls and procedures, including better monitoring and clearer steps for offboarding staff. The Federal Reserve Board agreed to these recommendations and plans to implement changes by 2027.

The report also noted that the employee was not required to report personal international travel under existing rules, even though such travel can pose security risks. The case highlights ongoing challenges the Federal Reserve faces in securing its confidential information and managing insider risks.