Fed watchdog flags repeated data breaches by retiring staffer

The Federal Reserve's internal watchdog has flagged repeated information-handling lapses by a retiring staff member, saying the case exposes broader weaknesses in how the central bank manages employees who leave with access to confidential policymaking material.

The staffer, who worked in the Fed's Division of International Finance, retired in July 2024. The Inspector General's office did not disclose the person's identity, and the Fed's Board of Governors did not immediately respond to a request for comment.

According to the IG, the employee was flagged on multiple occasions. In 2021, the staffer copied confidential Federal Open Market Committee files to an unencrypted USB drive and said the transfer had been a mistake. In 2023, the same employee tried to send additional FOMC files to a personal email address, describing the action as inadvertent, and was again flagged for copying classified files to an unencrypted drive.

Before departing, the employee generated a fresh series of alerts through printing, copying data into a notepad application, emailing potentially sensitive material to several personal addresses, and moving files onto a Board-issued unencrypted USB device. The IG said the information was removed without approval, despite prior instruction on offboarding procedures and earlier counselling about bulk transfers and unencrypted storage.

The report also noted that alerts were raised three days before the employee took what was understood to be a personal trip to a restricted country, followed by a separate month-long personal international trip.

Despite the potential severity of the case, investigators concluded there was not enough basis to pursue a misconduct investigation. Records did not clearly show what information had been removed, and many of the alerts turned out to be false positives, the IG said.

The office said the specifics of the incident illustrate systemic concerns about the Fed's exit process for staff with access to confidential information, and that the breakdowns require the Board's immediate attention so corrective steps can be taken.

The IG, which examines internal matters at the central bank and has previously probed trading activity by Fed policymakers, warned in a June report that the Fed needed to do more to protect confidential information during staff international travel. It is also conducting a high-profile investigation into cost overruns in the renovation of the Fed's Washington headquarters.