Crime Is Soaring in Cyberspace

[InfoSec News <isn () c4i org>]

http://www.nytimes.com/2003/01/27/technology/27ECOM.html

By BOB TEDESCHI
January 27, 2003    
 
CYBERCRIME, long a painful side effect of the innovations of Internet
technology, is reaching new dimensions, security experts say. Spurred
by a tightening economy, the increasing riches flowing through
cyberspace and the relative ease of such crimes, technically skilled
thieves and rank-and-file employees are stealing millions if not
billions of dollars a year from businesses in the United States and
abroad, according to consultants who track cybercrime.

Thieves are not just diverting cash from company bank accounts, these
experts say. They are pilfering valuable information like business
development strategies, new product specifications or contract bidding
plans and selling the data to competitors.

"Criminal activity on the Internet is growing - not steadily, but
exponentially, both in frequency and complexity," said Larry Ponemon,
chairman of the Ponemon Institute, an information management group and
consultancy. "Criminals are getting smarter and figuring out ways to
beat the system."

The number of successful, and verifiable, worldwide hacker incidents
for the month of January is likely to surpass 20,000 - above the
previous record of 16,000 in October, as counted by mi2g, a computer
security firm based in London.

Others also offer dire estimates, although the dollar amounts are
difficult to verify or compare because the definitions of loss vary so
broadly. Part of the challenge in quantifying the problem is that
businesses are often reluctant to report and publicly discuss
electronic theft for fear of attracting other cyberattacks or at the
very least undermining the confidence of their customers, suppliers
and investors — or inviting the ridicule of their competitors.

In one survey of 500 computer security practitioners conducted last
year by the Federal Bureau of Investigation and the Computer Security
Institute, a trade group, 80 percent of those surveyed acknowledged
financial losses to computer breaches. The computer professionals took
part in the survey on the condition that they and their organizations
would not be identified. Of the 223 respondents who quantified the
damage, the average loss was $2 million. Those who had sustained
losses of proprietary company information said each incident cost an
average of $6.5 million, while financial fraud averaged $4.6 million
an incident.

One of the best known cases of corporate computer crime involved two
accountants at Cisco Systems, who after pleading guilty were each
sentenced in late 2001 to 34 months in prison for breaking into parts
of the company's computer system they were not authorized to enter and
issuing themselves nearly $8 million in company stock.

But it is nearly impossible to identify the companies that have
sustained the biggest losses, because of corporate reluctance to
discuss what anonymous surveys have found to be a growing problem.  
Computer security experts who help protect these companies say the
attacks are hitting major banks, telecommunications companies and
other Fortune 500 companies - with a great breadth of types of attack.

"If people found out how astoundingly large this problem is, they'd be
shocked," said James P. Hurley, an analyst with the Aberdeen Group, a
technology consulting firm. Mr. Hurley said one client, which he
declined to identify, endured an electronic theft worth $500 million
last year.

Other security consultants recently recounted numerous examples of
electronic thefts, but, like Mr. Hurley, they omitted company names
because of confidentiality clauses in their contracts. Some examples,
all provided by consultants who had seen the damage, include these:

* Last summer, someone hacked into the treasury system of an East
  Coast financial services company, and transferred more than $1
  million to what investigators presume to have been personal 
  accounts. The company suspects it was an employee because of the 
  inside knowledge required to gain access to the system. The 
  investigation is continuing, but the employee's identity is still 
  unknown.

* In November 2001, a New York brokerage house noticed an intruder
  in its network from overseas, but did not know the nature of the
  intrusion. When a security firm tracked him, they saw that he was
  removing trading information on euros and was using that data to
  compete with the firm while trading in markets in the Far East.
  The estimated damage was in the millions of dollars.

* Last spring, hackers broke into a publicly held bank based in the
  United States and gained access to the bank accounts of wealthy
  customers. Millions of dollars were transferred overseas. The bank
  managed to back out of most of the transfers, but total losses,
  including a security clean-up, were more than $1 million.

The weak economy is partly behind the rise in cybercrime, said Richard
Power, global manager of security intelligence for Deloitte Touche
Tohmatsu, a business consultancy. "In times of economic hardship,
crime always increases," he said. "The more that money flows into
cyberspace, the more criminal activity there'll be."

Corporations, meanwhile, are struggling to keep pace. With budgets and
personnel stretched thin, companies that added many new technologies
to their computer systems during the dot-com build-up now find
themselves lacking the resources to secure those systems against
break-ins.

Part of the problem is that cybercrime is much harder to detect than
crime in the actual world.

"The vast, vast majority of virtual crimes right now never get caught
or prosecuted, where you have some chance in the real world," said Dan
Farmer, chief technology officer of Elemental Security, a computer
security firm in Silicon Valley. "It is extraordinarily hard to prove
anything using digital evidence," Mr. Farmer said.

Law enforcement authorities acknowledge the difficulty of catching
electronic thieves. "The crime is much easier because you have
anonymity," said Tim Caddigan, deputy special agent in charge of the
Secret Service's financial crimes division. And often, he said, "It's
much more profitable for criminals to use the computer," than to steal
through more traditional means.

Adding to the difficulty of catching wired thieves is the fact that
the authorities are outnumbered and, in many cases, outsmarted by
criminals with better computing skills — although the F.B.I. and the
Secret Service are increasing their ranks of investigators with
sophisticated computer skills. The number of investigators in the
F.B.I.'s cyber division will roughly double in the coming months, to
700, for example, while Mr. Caddigan of the Secret Service said 200 of
the Service's 3,000 agents had completed training and more would
follow.

Electronic crime is also difficult to detect because it is so often an
inside job. Security experts say the fastest-growing type of
cybercrime involves the theft of intellectual property - the pilfering
of a company's plans for major projects, for instance, or marketing
schedules and budgets stolen by an employee and sold to a competitor.

John Pescatore, an analyst with Gartner, a technology consulting firm,
estimates that in 70 percent of computer systems intrusions that
resulted in a loss, an employee was the culprit. In many cases, he
said, those employees knew the company was headed for difficult times
and possible layoffs, and sold information to competitors "either to
make sure they got a good job at another place, or just to give
themselves a golden parachute."

In other industries, losses have become so widespread that accounting
experts are starting to call for fuller disclosure of cybercrimes by
corporate victims, saying that customers and shareholders should know
more about the losses and risks.

Mr. Ponemon, the consultant, said companies often conceal the losses
in their balance sheets. "It'll be recorded in different accounts that
wouldn't have the same level of scrutiny as a loss," he said. "It
could be classified as a cost of sale, or a product cost, or in
shipping or billing disputes and errors, and so on."

Such cover-ups, do not allow for "a clean picture about how expensive
it is to have to deal with fraudulent or criminal activities," Mr.  
Ponemon said. "This is becoming a very material part of the business
model, so it deserves its own disclosure. That way, people can make
better business decisions — whether to demand better controls or
better technology or different precautions."

Securities and Exchange Commission rules say companies must disclose
information that "a reasonable investor needs to know in order to make
an informed decision about an investment." Regulators and securities
lawyers interpret that rule using various thresholds, as when a loss
equals 2 cents a share or 5 percent of net income.

A securities lawyer cautioned against holding companies to a higher
standard for disclosing cybersecurity breaches in all cases, lest they
attract copycat attacks. "Sometimes it's more socially responsible not
to disclose, because it could multiply a company's losses by 20," he
said.

But Jay Ehrenreich, senior manager of the cybercrime prevention and
response group at PricewaterhouseCoopers, said requiring broader
disclosure of cybercrimes "makes a lot of sense, and is something
shareholders should demand."

But he does not expect corporations to easily give in to such demands.  
"A lot of times companies don't want to know what was taken," Mr.  
Ehrenreich said. "They just want us to find what the problem was and
close the door, because there's a cost to finding out what was
actually taken."



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