Data Encryption Policy

Data Encryption Policy

Project / Organization: Bilko — Balkan Accounting SaaS Policy Number: POL-SEC-ENC-001 Version: 1.0 Date: 2026-02-23 Author: Compliance Architect Status: Draft Reviewers: CTO, DPO, Engineering Lead Next Review: 2026-08-23 Classification: Confidential

Document History

Version	Date	Author	Changes
0.1	2026-02-23	Compliance Architect	Initial draft — Bilko encryption standards

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1. Purpose & Scope

Purpose: This policy defines minimum encryption standards for all data at rest, in transit, and at the application level across all systems operated by Bilko.

Scope:

• All systems operated by Bilko (api.bilko.io, bilko.io, PostgreSQL, Cloudflare R2)
• All employees, contractors, and third parties with access to Bilko systems
• All data classified Internal, Confidential, or Restricted (see compliance-framework.md §6)
• Railway PostgreSQL (EU West), Vercel (frontend), Cloudflare R2 (file storage)

Regulatory basis:

• GDPR Art. 32 — Appropriate technical measures including encryption
• ZZPL Art. 50 (Serbia) — Security of personal data processing
• ZZLP Art. 14 (BiH) — Technical data protection measures
• Zakon o računovodstvu (RS/HR/BA) — Integrity of financial records

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2. Encryption Standards & Approved Algorithms

2.1 Approved Algorithms

Symmetric Encryption

Use Case	Algorithm	Key Size	Mode	Notes
Data at rest (general)	AES	256-bit	GCM	Authenticated encryption — default
Database disk encryption	AES	256-bit	XTS	Railway PostgreSQL default
File storage	AES	256-bit	GCM	Cloudflare R2 server-side
Backup encryption	AES	256-bit	GCM	Railway automatic backup encryption

Asymmetric Encryption

Use Case	Algorithm	Key Size	Notes
TLS key exchange	ECDHE	P-256 / P-384	Cloudflare + Railway TLS 1.3
JWT signing	HMAC-SHA-256 (HS256)	256-bit	JWT_SECRET (32+ chars, CSPRNG)
JWT refresh	HMAC-SHA-256 (HS256)	256-bit	JWT_REFRESH_SECRET (separate key)
Future: JWT asymmetric	Ed25519 (EdDSA)	256-bit	Planned Phase 2 migration

Hashing & Password Storage

Use Case	Algorithm	Parameters	Notes
Password hashing	bcrypt	cost factor = 12	bcrypt.hash(password, 12)
Token hashing (refresh tokens)	HMAC-SHA-256	—	Refresh tokens hashed before DB storage
Data integrity (general)	SHA-256	—	File checksums, non-security hashing

2.2 Prohibited Algorithms (NEVER USE)

Algorithm	Reason
MD5	Collision attacks (2004+) — completely broken
SHA-1	Collision attacks (2017+)
DES / 3DES	Key size insufficient
RC4	Statistical biases
ECB mode (any cipher)	Leaks data patterns — deterministic
RSA < 2048-bit	Insufficient key strength
AES-128 for Restricted data	Insufficient for financial/tax ID data
bcrypt < 12 rounds	Insufficient work factor
MD5 for password hashing	NEVER — use bcrypt

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3. Encryption at Rest

3.1 Database Encryption

Database	Method	Key Management	Coverage
PostgreSQL (Railway EU West)	AES-256 disk encryption (Railway TDE)	Railway-managed	All data classifications
PostgreSQL — tax IDs (PIB/JMBG/OIB/JIB)	AES-256-GCM application-layer field encryption	Environment variable (Railway secrets)	L4 Restricted
PostgreSQL — IBAN	AES-256-GCM application-layer field encryption	Environment variable (Railway secrets)	L4 Restricted
PostgreSQL backups	AES-256 (Railway automatic)	Railway-managed	All data

Field-level encryption for L4 Restricted data:

// Tax IDs and bank account numbers encrypted at application layer
// In addition to Railway disk encryption
import crypto from 'crypto';

async function encryptRestrictedField(plaintext: string): Promise<string> {
  const key = Buffer.from(process.env.FIELD_ENCRYPTION_KEY!, 'hex'); // 32 bytes
  const iv = crypto.randomBytes(12); // 96-bit IV for GCM
  const cipher = crypto.createCipheriv('aes-256-gcm', key, iv);
  const ciphertext = Buffer.concat([cipher.update(plaintext, 'utf8'), cipher.final()]);
  const tag = cipher.getAuthTag();
  // Store: base64(iv || tag || ciphertext)
  return Buffer.concat([iv, tag, ciphertext]).toString('base64');
}

async function decryptRestrictedField(stored: string): Promise<string> {
  const key = Buffer.from(process.env.FIELD_ENCRYPTION_KEY!, 'hex');
  const buf = Buffer.from(stored, 'base64');
  const iv = buf.subarray(0, 12);
  const tag = buf.subarray(12, 28);
  const ciphertext = buf.subarray(28);
  const decipher = crypto.createDecipheriv('aes-256-gcm', key, iv);
  decipher.setAuthTag(tag);
  return decipher.update(ciphertext) + decipher.final('utf8');
}

3.2 File Storage Encryption

Storage	Method	Key Management	Notes
Cloudflare R2 (receipts, invoice PDFs)	AES-256 server-side (Cloudflare default)	Cloudflare-managed	EU region bucket required

3.3 Backup Encryption

Railway provides automatic daily PostgreSQL backups, encrypted with AES-256. Backup retention: 30 days (Railway default). Custom backup strategy to be implemented in Phase 2 with separate backup encryption key stored in Railway environment secrets.

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4. Encryption in Transit

4.1 TLS Configuration

Minimum TLS version:

• External-facing (api.bilko.io, bilko.io): TLS 1.3 (enforced via Cloudflare)
• Railway internal: TLS 1.3

Approved cipher suites (TLS 1.3):

TLS_AES_256_GCM_SHA384
TLS_CHACHA20_POLY1305_SHA256
TLS_AES_128_GCM_SHA256 (minimum)

HSTS configuration:

Strict-Transport-Security: max-age=63072000; includeSubDomains; preload

HTTP redirect: All HTTP traffic redirected to HTTPS (301). No HTTP allowed in production.

Prohibited:

• TLS 1.0 and TLS 1.1 — prohibited
• SSL 2.0 / SSL 3.0 — prohibited
• RC4 cipher suites — prohibited

4.2 Cookie Security

All session cookies set with:

res.cookie('refreshToken', token, {
  httpOnly: true,    // Not accessible to JavaScript
  secure: true,      // HTTPS only
  sameSite: 'strict', // CSRF protection
  maxAge: 7 * 24 * 60 * 60 * 1000, // 7 days
});

4.3 API Security Headers (Helmet.js)

app.use(helmet({
  hsts: { maxAge: 63072000, includeSubDomains: true, preload: true },
  contentSecurityPolicy: {
    directives: {
      defaultSrc: ["'self'"],
      scriptSrc: ["'self'", "'unsafe-inline'"],
      styleSrc: ["'self'", "'unsafe-inline'"],
      imgSrc: ["'self'", "data:", "https:"],
    },
  },
}));

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5. Application-Level Encryption

5.1 Field-Level Encryption Requirements

Required for all L4 Restricted fields:

Field	Table	Reason
taxId (organization tax ID: PIB/JIB/OIB)	organizations	National business identifier
taxId (contact tax ID: PIB/JMBG/OIB/JIB)	contacts	National person/business identifier
iban	organizations, contacts, bankAccounts	Bank account number
totpSecret	users	2FA seed — must not be readable

5.2 JWT Token Encryption

JWTs signed with HMAC-SHA-256 (HS256) using JWT_SECRET:

• JWT_SECRET: 32+ character random string (CSPRNG), stored in Railway secrets
• JWT_REFRESH_SECRET: Separate 32+ character key — never same as JWT_SECRET
• Access token payload: { sub: userId, org: organizationId, role, iat, exp }
• NO PII in JWT payload — no email, name, tax ID

Refresh tokens stored as HMAC-SHA-256 hash in database — raw token never stored.

5.3 Password Hashing

import bcrypt from 'bcrypt';

// Registration
const hash = await bcrypt.hash(plainPassword, 12);

// Login verification
const isValid = await bcrypt.compare(plainPassword, storedHash);

bcrypt parameters: cost factor 12. Never downgrade below 12.

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6. Key Management Summary

Full policy: key-management-policy.md

Key Type	Storage	Rotation	Owner
JWT_SECRET	Railway environment secret	Quarterly	Security
JWT_REFRESH_SECRET	Railway environment secret	Quarterly	Security
FIELD_ENCRYPTION_KEY (tax IDs, IBAN)	Railway environment secret	Annual	Security
PostgreSQL disk encryption	Railway-managed (TDE)	Railway-managed	Railway
Cloudflare R2 encryption	Cloudflare-managed	Cloudflare-managed	Cloudflare
TLS certificates (Cloudflare)	Cloudflare Certificate Manager	90 days (automatic)	Cloudflare

Secrets never committed to git. .env files in .gitignore. All secrets managed via Railway environment variables (production) or .env.local (development, git-ignored).

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7. Cryptographic Inventory

System	Algorithm	Key Size	Mode	Key Location	Next Rotation
PostgreSQL disk (Railway)	AES-256	256-bit	XTS	Railway-managed	Railway-managed
Tax ID field encryption	AES-256-GCM	256-bit	GCM	Railway env secret	Annual
IBAN field encryption	AES-256-GCM	256-bit	GCM	Railway env secret	Annual
Cloudflare R2	AES-256	256-bit	—	Cloudflare-managed	Cloudflare-managed
External TLS (Cloudflare)	ECDSA P-256	256-bit	—	Cloudflare	90 days (auto)
JWT signing	HMAC-SHA-256	256-bit	—	Railway env secret	Quarterly
Refresh token signing	HMAC-SHA-256	256-bit	—	Railway env secret	Quarterly
Password hashing	bcrypt	cost=12	—	N/A	N/A

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8. Financial Data Integrity

Financial data requires not just confidentiality but also integrity. Bilko enforces:

1. NUMERIC(19,4) for all monetary amounts — never float or JavaScript number. Prevents rounding errors in VAT calculations.
2. Immutable LoggedAction table — all mutations append-only with old/new values. Enables financial audit.
3. Double-entry enforcement — debit = credit validated at backend. Prevents imbalanced entries.
4. Exchange rate locking — rates stored at transaction date. Historical accuracy preserved.

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9. Exception Process

Exceptions not permitted for: L4 Restricted data (tax IDs, IBAN, TOTP secrets, password hashes) — no exceptions.

Exception request process:

1. Submit to: [email protected]
2. Required: system affected, algorithm excepted from, business justification, risk assessment, compensating controls, proposed duration (max 12 months)
3. Approval: CTO
4. Log: /docs/security/exceptions.md
5. Review: Quarterly

Active exceptions: None at this time.

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Approval

Role	Name	Date	Signature
Author	Compliance Architect	2026-02-23
CTO
DPO
Engineering Lead