Bank of America, the world's second largest financial services institution, proved itself the undisputed No 1 in the realm of understatement late last week.

The North Carolina-based group admitted it had misplaced "a small number" of computer data tapes while shipping them to its data backup centre.

It soon emerged that the exact number of data tapes involved was beside the point. Each tape contained hundreds of thousands of sets of vital personal and financial information. Worse still, that data belonged to some of the most powerful people in the land, among them a far from happy group of US senators.

According to reports, the bank had lost data relating to no fewer than 1.2 million accounts linked to the American government's Federal SmartPay charge card programme.

Red-faced execs rushed to patch up the resulting holes. "We deeply regret this unfortunate incident," said Barbara Desoer, the bank's global technology, service and fulfilment executive.

"The privacy of customer information receives the highest priority at Bank of America, and we take our responsibilities for safeguarding it very seriously."

The corporation was clearly worried about any loss of customer confidence arising from the upset. But the case also highlighted another significant risk facing companies who fail to protect the valuable digital data flowing through their networks - the threat of extra red tape.

Privacy groups and politicians this week queued up to claim that the Bank of America case - alongside the theft of customer information from Atlanta data aggregation company ChoicePoint earlier this month - had made the case for a country-wide privacy law.

Gartner, the analyst group, added its voice to the clamour. "Regulation is an effective way to deal with data thefts of this type, since consumers have no market power to force the necessary changes," it said in a research note.

"Gartner recommends that the US Congress enact a law similar to California's privacy notification law, which requires companies to notify consumers whose data is accessed without authorisation."

The prospects of lost business, increased costs and extra legislation have encouraged many companies - particularly those in the sensitive online retail and financial services sectors - to make ever greater efforts to protect their networks against a range of threats from inside and outside their organisations.

Research into online retailing published this week showed that e-commerce was up by 88 per cent year-on-year over the Christmas holiday period.

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