What is the Chinese Wall?


The Chinese Wall is basically a barrier that separates two or more groups, generally as a way of restricting information flow and to protect confidential information. Usually, the wall is entirely conceptual. However, groups can be divided by physical barriers (building areas) as well as policies.

The concept of the Chinese Wall is incorporated in various environment situations, which includes journalism, law, network security, project management, software development, business, and the financial industry.

The term ‘Chinese Wall’ originated after the disastrous stock market crash in 1929, when the widely unregulated United States market suffered a 40% plunge between the months of September and October. According to a theory, the crash was a result of inflated stock values, which were created by insider trading and price manipulation. It was after the crash that Congress passed a law mandating separation of both investment and commercial banks, in an attempt to prevent a conflict of interest. Instead of enforcing corporate and physical separation, the law only stated that the policies need to be in place in order to create a logical partition between these divisions.

In theory, a Chinese Wall serves to restrict information flow to those individuals or groups who need it to perform their jobs. In practice, however, the Chinese Wall is highly dependable because it relies completely on the honor system. The information is restricted by the meticulousness and discretion of the parties involved. Regulations that identify the need for legal requirements for information security are incidentally more inclined towards improving compliance.

An example of the Chinese Wall is in software development, where the Chinese wall also referred to as the “clean room technique” is a reverse engineering approach by which programmers work on codes to separate groups. The first group will convert the program’s “machine code” into “source code” and then “document” the process, but will write no new code. The second group, however, will not be referring to the original code, but develops a new program based on the first group’s ‘documentation’.

The basic purpose of the exercise is to make sure that the new program’s code cannot be derived from the original program’s codes.

The Chinese Wall is typically an indication of the ‘Great Wall of China’, which had been built 2,000 years ago in order to protect its populace from invaders. However, there are other theories that exist such as in a Wikipedia entry, for instance, the author debates over the term being derived from a diplomatic machination during the Late Imperial Era in China, “…if a junior mandarin saw a senior mandarin on the road he was expected to bow and present his compliments. In Beijing this tended to happen quite a lot and so traffic was frequently blocked. Instead mandarins came up with a method of pretending they did not see each other on the road by the clever placing of a retainer with an umbrella. Because they did not “see” each other, they were not obliged to stop.”

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