Big Brother Inc.

By Elaine Shannon/Washington

Guy Scott nips into his cubby-hole lab in a far corner of Cross Match Technologies' headquarters--a reclaimed ice-skating rink in Palm Beach Gardens, Fla.--and proudly displays a postage-stamp-size bit of translucent gray film that looks like debris from a darkroom floor. It is the heart of a new machine that he says will revolutionize the global financial system, bring the multibillion identity-theft racket to a halt and make teenagers behave in cars.

The New Zealand--born engineer isn't known as the Mad Kiwi for nothing. But his colleagues and financial backers believe in him. Cross Match, a privately held company, plans to put Scott's device, called the Authorizer, into production sometime this fall, charging $10 or so a copy. The gray film, a piece of plastic-coated acoustic ceramic one-ten-thousandth of an inch thick, is for Authorizer's touch pad, to be embedded in a cell phone. To make a credit-card transaction, say, a buyer presses his finger to the touch pad, triggering an imperceptible pulse of energy that makes the film oscillate. The resulting ultrasound image is captured as a digital image file called a biometric identifier, which is a physical feature that has been measured and converted into computer language so it can be compared against a database. If his print matches, the credit-card charge goes through.

The Authorizer is among the first consumer gadgets to evolve from the biometrics industry, which, after years of promise, is on the verge of rapid growth as government-mandated security plans become operational. With the threat of terrorism now a long-term concern, biometric-identification systems are blossoming around the world. To stop bad guys at the border, for instance, the U.S. is embarking on a program called U.S.-VISIT, for U.S. Visitor and Immigrant Status Indicator Technology, which was mandated by Congress in 2002. Biometric technologies are the linchpins of the new system, expected to cost $10 billion over the next decade. The technology is not just to keep track of foreign visitors either. If you're leaving the country, get ready to be face printed. The U.S. State Department is retooling its passport production process and by the end of next year will issue new passports with an embedded chip containing a facial biometric and biographical data. This will enable the government to boost security without resorting to passport fingerprinting, which could incite fears of Big Brother.

With more and more applications coming online, the biometrics industry's global revenues, $719 million in 2003, should hit $4.6 billion by 2008, according to the International Biometric Group in New York City. "The U.S.-VISIT program is by far the most important national-security program in the world right now," says security-technology analyst Prianka Chopra of Frost & Sullivan, a New York City market-consulting firm. "Every country is looking to the U.S. to see what the program is doing and what technologies will be used." Chopra expects the global biometrics industry to grow at a compounded annual rate of 35%.

Some of that will come from agencies such as U.S. Customs and Border Protection (CBP), which recently began fingerprinting all visitors arriving at airports and seaports and traveling on visas--essentially, citizens of developing countries. CBP chose Cross Match fingerprint scanners for deployment at its checkpoints in 115 U.S. airports and 14 seaports, in a contract initially worth just $1.8 million.

Much bigger deals are in the works, and the competition will be fierce. Among the leading contenders: Lockheed Martin, Accenture and Computer Sciences Corp. By Dec. 31, CBP is required by law to fingerprint all visitors with visas at the 50 busiest land crossings along the Canadian and Mexican borders. The remaining 100 or so land-crossing points must be covered by the end of 2005. This year the State Department's 211 consular offices must be able to fingerprint all visa applicants and embed all U.S. visas with a bar code containing the traveler's digitized print, photo and biographical information.

Facial-recognition biometric technology will also come into the mix this year. From Oct. 26, visitors from the 27 so-called visa-waiver nations--most of Europe, plus Australia, Japan, Singapore and Brunei--will be required to present passports embedded with machine-readable bar codes containing a facial biometric, which a computer will compare with a digital photo taken upon entry. Some foreign governments have already made the transition. Italy has rolled out an identity card with a fingerprint and facial biometric. A number of countries, notably Saudi Arabia, are looking at biometrics for national-identity cards and border control. Britain's passport service is testing a facial-recognition and fingerprint-biometric program.

As other federal and local agencies and private corporations scale up, the field will be forced to do the same. The industry, which currently consists of a couple of hundred biometrics companies, will eventually consolidate into a handful, says Brian Ruttenbur, an equity research analyst for Morgan Keegan & Co., an investment firm based in Memphis, Tenn. "There's been a gold-rush mentality for years in the biometric space. The problem is, nobody's really found the gold yet." Three biometrics companies merged to form Identix, based in Minneapolis, Minn., which with $92 million in revenues is considered the world's leading biometric-security company. It is Cross Match's only U.S. rival for sales of the high-resolution, forensic-quality live-scan machines, which capture fingerprints with inkless optical-scanning technology and transmit them to central databases. While Identix's scanners are bigger and pricier than most of the smaller company's comparable products, the two firms compete directly for deals that require machines for a desktop or larger. Earlier this month Identix further expanded, acquiring DeLean Vision Worldwide, a developer of skin-texture biometrics.

Government contracts, as they have in the past, could promote consumer product development too, especially as people get more comfortable with the technology. And that means making them foolproof and fiendproof. Cross Match's fingerprint Authorizer, for instance, has inspired its designers to anticipate an underworld market in Authorizer-equipped cell phones being operated with lopped-off fingers. "No system would fly if part of your anatomy is threatened and is necessary to secure what could be substantial assets," says Scott. So the sensor in the phone doesn't merely read a static fingerprint. It also looks for proof of life--blood flow, tissue elasticity and capillary structure. It also uses an anxiety index being developed by the University of Michigan medical school to measure stress-induced, minute changes in capillaries and sweat glands. "If someone puts a gun to your head, the transaction won't occur, and people will not bother to put guns to people's heads because they won't get paid for it," says Scott.

Eventually, he believes, pocket biometric devices will replace credit and ATM cards and will even dispense with notaries public and those time-consuming face-to-face real-estate closings. Personal and biometric data, says Scott, would be transmitted via cell phone to a cybervault maintained by a financial-service company. If its computer decided everything was in order, the transaction would go through. Certainly the privacy issue will rear its head again, but, as has happened with Internet transactions, if consumers are confident in the system and it offers convenience, those fears won't be fatal to growth.

On a more down-to-earth level, the Authorizer is being considered as an optional feature by at least one car manufacturer, according to Cross Match officials. Besides thwarting thieves, it could be programmed to prevent your 17-year-old from going faster than, say, 55 m.p.h. by activating a speed limiter and to play dead if your 14-year-old had the bright idea to get behind the wheel.

The notion of a cashless economy facilitated by databanks of digitized body parts is still kind of far out. But then, so are most things about Cross Match. The company was founded in 1996 by Scott, a medical ultrasound specialist, and two fellow engineers turned garage inventors, Jim Davis, who worked on the engine of the SR-71 Blackbird at Lockheed, and Ellis Betensky, who improved Vivitar zoom lenses and pioneered computer-aided design for cameras.

At the time, the FBI's Criminal Justice Information System (CJIS) facility in Clarksburg, W.Va., was scanning its vast collection of ink-and-paper fingerprint cards into a digital database that could be searched by computer. The Cross Match founders spotted an empty niche for light, rugged, relatively inexpensive live-scan fingerprint machines. Borrowing $250,000 from relatives and friends, they came up with a 23-lb., $10,000 optical scanner that produced high-resolution, forensic-quality print images. It could fit in a backpack, and its calibration was not thrown off by jarring from a squad car or humvee. In 1997 the three partners brought in Ted Johnson, a retired Paine Webber executive, to be CEO and chief fund raiser. "They really took the industry by storm," says Brian Gesuale, vice president for technology research at Piper Jaffray, an investment-banking firm based in Minneapolis, Minn.

By 2002 Cross Match reported revenues of $25 million. It now employs 165 people to make print scanners of different sizes. Even Martha Stewart noticed. "It's a new machine," she told Barbara Walters in November. "You don't have to get that ink all over your fingers."

After 9/11, the FBI and the military snapped up Cross Match scanners for deployment in Afghanistan and at Guantanamo Bay to fingerprint al-Qaeda and Taliban fighters. Those prints, along with thousands of unidentified ones lifted from uncovered safe houses around the globe and from arrests made by allies, were fed into a classified terrorist-fingerprint database at the FBI's West Virginia fingerprinting facility. Cross Match scanners were sent to Iraq to book captured terrorists, insurgents and Saddam Hussein. (Saddam was annoyed, according to agents posted to Iraq. "This is how you treat criminals!" he is said to have protested between printing and mug shots. "That's right," an agent replied. "Now turn sideways.")

The FBI wants to use biometrics to fight the problem of anonymity among the men detained by the U.S. military. "The biometrics piece is critical," says Ed Worthington, recently the FBI's commander in Baghdad. "If they do try to come into this country at some point, we'll know instantaneously, and we'll be able to tell that the guy was detained for anticoalition activities. That's huge." FBI officials tell TIME that some insurgents have turned up with ordinary criminal records dating from their days as students or visitors. "That's good interrogation material, particularly if they claim they've never been in the States," says FBI assistant director Mike Kirkpatrick, head of the CJIS complex.

Identix is on the cutting edge of the field of facial-recognition software, a technology that will play an important role in biometric photos to be embedded in U.S. passports and those of other industrialized nations over the next few years. Mexico is using the technology in national elections. Colorado vets driver's license applicants using similar software made by Digimarc ID Systems.

Identix CEO Joseph Atick, a physicist who pioneered facial recognition in academia and then co-founded Visionics, which merged in 2002 with Identix, says the company's trademark software, FaceIt, is about to come out with a dramatic upgrade. Besides mapping the topography of the face, Atick says, the next-generation software will add a new dimension, skin texture, that will make the results far more accurate. "The canvas of the human skin is as unique as a fingerprint," he says. The software will map sectors of skin, noting the size and position of tiny features like pores. The result, he says, will produce an identification certainty that will be used to authenticate financial transactions in the global economy. In other words, it will be possible to know whether yours is a face that can be trusted.