Emblems using holograms or other diffractive devices have long been used to mark cards and other objects as a means of authentication. The effectiveness of such emblems as security devices is ultimately determined by the inspection system. Due to the expense and highly variable performance of the human inspector, automated machine reading devices are an attractive alternative for performing the verification task. An additional advantage of the machine reader is that information regarding the card or its holder can be stored covertly. A security verification system is presented consisting of a holographic security emblem in which information is covertly stored and an automated reader based on a joint transform correlator (JTC). A holographic encoding method is used to produce an emblem that stores the required phase and/or amplitude information in the form of a complex, 3-D diffraction pattern that can be interpreted only through the use of a second "key" hologram. The reader incorporates the use of the nonlinear material, bacteriorhodopsin, as a means of miniaturizing the system, reducing system cost, and improving system performance. Experimental results are presented that demonstrate the feasibility of the approach for security applications.