TK Data Privacy and Cybersecurity Blog

RANSOMWARE GETS EVEN MORE COMPLICATED: Hospitals Become Prime Targets as Government Warnings Highlight Legal Risks of Paying Ransom

Posted by Michael Titens

Ransomware attackers are concentrating their efforts on hospitals and other health care providers according to a warning issued by the FBI and other government agencies on October 28.  Attackers know that prolonged computer shutdowns in hospitals can be catastrophic and that hospital administrators may have few viable alternatives to making a ransom payment, making hospitals desirable targets.  Numerous hospitals have already been hit, leading to postponed procedures and at least one patient death reported by the Washington Post. 

Ransomware is not new but attackers have adapted their methods to increase the pressure on victims.  In addition to blocking access to computer system and encrypting data, modern ransomware attackers also attempt to encrypt data backups, making it far more difficult for a victim to recover its files without paying the ransom.  Furthermore, researchers have found that in nearly half of all ransomware attacks, attackers exfiltrate data from a victim’s network, including personal information of customers and employees.  The attackers then threaten to release the data publicly on “walls of shame” unless the ransom is paid.  Delays in payment result in partial data releases and threats to release more.  As a result, even when a victim can rebuild its network and recover its files without agreeing to attacker demands, the threat of public data disclosure often compels the victim to pay the ransom.

Ransomware responders have adapted to this new environment.  In addition to restoring a victim’s network, some forensics firms and cyber insurance providers assist with ransom negotiations and, if necessary, facilitate ransom payments. With more cyber insurance policies providing coverage for ransom payments, cost is less of an impediment to payment.  And as ransom payments become more routine, attackers expand their criminal activities.

Counteracting this trend, and increasing the risks for ransomware victims, U.S. government agencies issued advisories last month warning that ransomware payments to certain attackers could violate U.S. sanctions laws.  The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) issued its advisory “to highlight the sanctions risks associated with ransomware payments related to malicious cyber-enabled activities.”  OFAC has already imposed sanctions on organizations and individuals located in Russia, North Korea, and Iran and plans to continue adding other cyber actors to its list of specially designated nationals.  Under U.S. sanctions law, making or facilitating payments, directly or indirectly, with specially designated nationals is prohibited.  A party making such a payment, as well as others involved in the process such as forensics firms and insurance providers, can be held civilly liable even if they did not know they were dealing with a sanctioned group or individual at the time the payment was made.

As part of its strategy to deter ransom payments, the government is also targeting other potential participants in a ransomware transaction.  The OFAC warning specifically identifies financial institutions, cyber insurance carriers, and incident response firms that facilitate ransom payments as potential violators of U.S. sanctions laws.  Furthermore, at the same time OFAC issued its warning, the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) issued an advisory to banks and other financial intermediaries that they should file Suspicious Activity Reports and comply with related regulations whenever they participate in any aspect of a ransom transaction.  Not only ransomware victims, but also the firms they choose to assist them in responding to an attack, must now reevaluate the costs and benefits of making a ransom payment, particularly where the attacker’s identity is unknown or the attacker is suspected to have already been designated by OFAC for sanctions.

The new guidance bolsters law enforcement’s view that victims should promptly report cyber incidents to the proper authorities (typically the FBI or Secret Service) and should not make ransomware payments.  According to the OFAC advisory, “OFAC will also consider a company’s self-initiated, timely, and complete report of a ransomware attack to law enforcement to be a significant mitigating factor in determining an appropriate enforcement outcome if the situation is later determined to have a sanctions nexus.”

While we anticipate that victims will still give serious consideration to making ransom payments, reasonable compliance procedures of forensics firms and financial intermediaries, including a possible requirement to involve law enforcement, may complicate any response.  Furthermore, cyber insurance carriers may be reluctant to provide coverage for certain ransom payments.  We have even heard that some insurance carriers may attempt to deny coverage for notification, legal, and other expenses related to a ransomware attack perpetrated by a sanctioned group.

So what can a business do in light of these increasing costs and risks associated with ransomware?  Companies should take steps to minimize the likelihood and impact of any potential attack.  For example, phishing e-mails are one of the most common attack vectors for ransomware.  Network users should be trained to identify and avoid malicious e-mail and in particular, malicious e-mail attachments such as those masquerading as Google Docs or .pdf attachments.  Also, businesses should maintain off-line back-ups of their network data and should consider segmenting their networks to restrict the ability of an intruder to move laterally within the network.  Other suggestions can be found in the recent advisory from the Cybersecurity and Infrastructure Agency and in this update from our friends at Stroz Friedberg.

Ransomware remains a threat to businesses large and small.  Recent attacks in the healthcare industry illustrate the potentially dire consequences of a network disruption.  For advice and assistance preparing for, or responding to, a ransomware attack, please contact any member of the Thompson & Knight cybersecurity team.

California Adopts a New Privacy Rights Act

Posted by Stephen Stein

Proposition 24, the California Privacy Rights Act (or “CPRA”), was passed by California voters on November 3.

Both modifying and enhancing aspects of the California Consumer Privacy Protection Act (“CCPA”) which became effective January 1 of 2020, the CPRA provisions will go into effect on January 1, 2023.

Why a new Act passed so soon after CCPA? Proponents felt that in many respects CCPA did not go far enough toward protecting personal data.  Proponents successfully argued that the state should adopt privacy protections comparable to those found in the European General Data Protection Regulation (“GDPR”).

What’s New?  Key provisions of the CPRA include:

• New Enforcement Agency: CPRA creates the California Privacy Protection Agency (beginning July 2023) which will take over responsibility from the state attorney general for enforcement of privacy obligations. In theory, this will allow greater resources to be dedicated to privacy enforcement.
• Liability for Violations by Service Providers: Collectors of Data who share a resident’s data will be responsible for compliance by any service providers with whom they share data.
• CCPA Clarifications: CPRA would clarify some of the issues raised with CCPA, including, (i) confirming that loyalty and discount programs would not be prohibited under CPRA, (ii) extending the moratorium on B2B and employee data, and (iii) removing “devices” from the determination of the thresholds of when a business would be subject to CPRA.
• Sensitive Personal Information: Consistent with GDPR, sensitive personal information is now defined and subject to more rigorous security requirements.
• New Consumer Rights: Consumers will have the right to update personal information already collected by companies.

Why Should I Care?

• As with the CCPA, companies that collect data on California residents (including via a website accessible to a California resident) will be subject to the law.
• California has been the bellwether state for a number of laws in the past. California privacy law, including the CPRA, can be expected to influence other states considering privacy legislation.
• Texas is among those states considering consumer data privacy legislation (see the September 2020 Report of the Texas Privacy Protection Advisory Council here. While aiming to meet public expectations concerning data privacy, the Legislature is also likely to seek to avoid some of the costly results of the CCRA and the GDPR. Progress on these matters may, however, be delayed by limitations on the scope of what the Legislature will undertake in a session constrained by COVID-19.

Cyber Coverage Considerations

 

Posted by Shelley Glazer and Brandon King

Cyber attacks are on the rise; this is especially the case during the COVID-19 pandemic. And the stakes are high; Target’s 2013 data breach, for example, gave rise to $248 million in remediation expenses. Of course, Target’s breach isn’t an isolated incident, just ask Sony, Home Depot, Yahoo!, and the World Health Organization. See WHO reports fivefold increase in cyber attacks, urges vigilance, World Health Organization (“Since the start of the COVID-19 pandemic, WHO has seen a dramatic increase in the number of cyber attacks directed at its staff, and email scams targeting the public at large.”).

So, are you covered by insurance? CGL policies generally don’t cover damages arising from cyber attacks and related data breaches; those policies usually cover damage to tangible property, not intangible property, like electronic data. In fact, recent CGL policies contain exclusions for loss of or damage to electronic data. Business-interruption and E&O policies may provide coverage, and the same is true of commercial-crime policies. Of course, whether any particular policy provides coverage in the event of a cyber attack turns on the policy’s language. However, given the trend towards cyber-specific policies, coverage under traditional policies is becoming less common. See Jes Alexander, Anatomy of a Data Breach—What Cyber Policies Should Cover, 13 J. Tex. Ins. L. 5 (2015) (“Those companies that rely solely upon CGL or other general policies do so at great peril.”). Companies should, as a matter of prudence, engage counsel to ascertain whether and to what extent they are covered in the event of a data breach.

When evaluating a cyber-insurance policy, companies should pay particular attention to whether the policy’s coverage is first party, third party, or both. First-party coverage will deal with the insured’s own losses resulting from a cyber attack, while third-party coverage concerns the insured’s liability to others resulting from breach or cyber event. Given the complex nature of cyber breaches and the often sensitive nature of information at issue, companies should ensure their policies contain both coverage sections (and this is usually the case).

Additionally, many companies confident in the strength of their cybersecurity infrastructure might be unaware that an increasing number of cyber attacks are aimed at third-party vendors. For this reason, companies should engage in a thorough vetting of any particular vendor’s cybersecurity practices, consult with counsel to strength indemnity resulting from a vendor breach and, most importantly, ensure that both the company’s and the vendor’s insurance policies cover losses stemming from a cyber attack.

There are a variety of cyber-related coverages to choose from; some are broad, cyber-liability polices—which address harm resulting from cyber activities (e.g., unauthorized disclosure of private information), as well as cyber infringement, injury or damage to information systems, notification expenses, e-theft, and cyber extortion. Then there’s event-management or breach-remediation coverage, which may cover costs related to managing a data breach (sometimes including a breach of a cloud service or other third party storing your data), such as costs associated with providing notification to compromised individuals, restoring lost data, and hiring legal counsel, public-relations consultants and forensic investigators. Crime-specific policies are also helpful, as they provide coverage for a variety of theft-based cybercrimes that may not be covered by your cyber policy. And what about business-interruption losses caused by a hacker-driven network failure (which would probably not be covered in your typical business-interruption policy)? Consider network-interruption coverage, which covers losses stemming from disruption of business activities caused by cybercriminals; this is often the case with distributed denial-of-service (DDoS) attacks. In sum, there exist myriad coverage options for those looking to ensure protection in the event of a cyber attack.

The current increase in work-from-home practices poses even greater risks of cyber-related breaches. See Danny Palmer, Cybersecurity: Half of employees admit they are cutting corners when working from home, ZDNet, (May 28, 2020 6:41 PM). So, now is the time for companies to consult with their counsel to reevaluate existing policies to determine the extent of coverage arising from a cyber-related event. If they do not have coverage, companies should strongly consider acquiring a cyber-insurance policy.

U.S. Companies Lose Benefit of Popular EU-US Privacy Shield Program

Posted by Craig Carpenter

On July 16, 2020, Europe’s top court invalidated the EU-US Privacy Shield program, finding that it did not provide an “essential equivalence” with European data privacy laws (GDPR).

The EU-US Privacy Shield program was a popular way for U.S. companies to comply with the restrictions on cross-border data transfers set forth in GDPR (Article 44). Since the U.S. does not have an adequacy decision under European privacy laws, the Privacy Shield Program was the most efficient way for many U.S.-based companies to lawfully move data to the U.S. from Europe under GDPR.

This decision largely centered on European concerns for U.S. surveillance programs and the ability for private data to end up with public authorities. The Court found that “the requirements of US national security, public interest and law enforcement have primacy [over individual data rights], thus condoning interference with the fundamental rights of persons whose data are transferred to that third country.”[1]

The Court also called in to question the efficacy of the “standard data protection clauses” as a means of cross-border data transfer, particularly in countries like the Unites States where public authorities have significant data access. The court stopped short of invalidating the standard clauses as a lawful means of transfer altogether, but the court emphasized the need to consider the practices of the countries in which the standard clauses are used, seemingly inferring that they might not be appropriate in places like the United States.

We do not yet know the U.S. response to this decision; however, without Privacy Shield, U.S. companies will have to rely on a different means of lawful data transfer. Examples include Standard Contractual Clauses discussed in Article 46 (subject to the comments above), Binding Corporate Rules (Articles 46 and 47), explicit consent (Article 49), necessity for performance of a contract (Article 49), exercise or defense of legal claims (Article 49), or the other “derogations for specific situations” identified in Article 49 of GDPR.

 

[1] CJEU Press Release, available at https://curia.europa.eu/jcms/upload/docs/application/pdf/2020-07/cp200091en.pdf (July 16, 2020).

Cyber Criminals Work From Home Too

   

Posted by Michael Titens and Vlad Markovic - IS Security Manager

Over the last few months, many of us have been adapting to new work environments featuring less reliable wifi, videoconference cameos by our children and pets, and more casual dress codes.  At the same time, cyber criminals have been adapting their methods to target us in our new environs.  Here are a few of the latest threats:

Videoconference Vulnerabilities.

• There has been an increase in phishing e-mails and social engineering attacks, especially related to Zoom and other videoconference credentials.  Beware of any email containing links and stating you missed your meeting, need to activate your account again, or that your web conferencing software is vulnerable. 
• Malicious software can be sent using fake web conferencing invitations.  The emails may appear to be coming from a potential client or other contact claiming to be available for a call via one of the popular videoconference services.  In many cases, the invitation will contain a malicious Excel file supposedly containing the sender’s schedule.
• Cyber criminals are also registering look-alike domains to phish for videoconference credentials. Recommended precautions include only joining meetings from known contact, that you are expecting, and scrutinizing the videoconference link in your invitation – for example, a Zoom link should send you to zoom.us not zoom-meeting [dot] org or any other “strange” site.

Business Email Compromise (BEC) Scams

BEC scams include altering wire transfer and direct deposit instructions and efforts to divert escrow or other payments.  Recently, BEC Scams have been incorporating COVID-19 into their fraudulent appeals.  Some examples to look out for include:

• Using COVID-19 as an excuse to request a fraudulent switch or rescheduling of payments or a change to other business or government plans
  • Fraudsters posing as clients requesting that all invoices be changed to a different bank account due to “Corona Virus audits”
  • Attempts to exploit federal government stimulus plans and payment options
  • Posing as a CEO asking to switch payments “due to the Coronavirus outbreak and quarantine processes and precautions.”
• Scammers using claims of positive COVID-19 cases in their area to start an “urgent” email conversation

If you receive a payment or other request that appears to be out of the ordinary, take additional steps (including a confirmation phone call to a person you know on a number you have used before) before making any payment.  More generally, it is a good time to review existing relationships that provide for payment or receipt of funds by wire transfer to ensure multi-factor authentication is in place, identify which party is responsible for wire transfer fraud, and clarify insurance coverage for misdirected funds.

Other Malicious Activity

We have seen a spike in emails with malicious attachments that are disguised as invoices, purchase contracts, wire confirmations, and other documents that one would be inclined to open. One example of this type of a threat was a cleverly obfuscated document that stated it was a wire confirmation. In reality it was a new variant of a crypto-locker that at the time was undetectable by most antivirus tools.

The Weakest Link

Our home networks are only as strong as the weakest link.  Potential attack vectors include ancillary devices, such as printers, and other devices (like routers) that still use the manufacturer’s default login (e.g., “admin”) and password.  To strengthen cyber defense of routers, use strong passwords and select WPA-2 encryption.  Also, disable UPnP (universal plug and play) and keep your firmware up to date (some routers can be set to allow for automatic firmware updates).

Other computers on your home network might also be the weakest link.  All family members should be reminded to follow sound practices and view with suspicion any unexpected emails, attachments, or links.  Also, all computers should be updated with the latest security patches to protect against newly-discovered vulnerabilities.

Based on reports from some large employers, a full-time return to the office may be weeks or months away for many of us.  Maintaining good security practices and remaining vigilant will help protect our computers and networks from being compromised.

Reducing Cyber Risks Posed by Vendors

    

Posted by Justin Cohen, Craig Carpenter, and Vlad Markovic - IS Security Manager

When we think about cybersecurity, we often focus on our own people and systems. However, our vendors play a critical part of cybersecurity given how often we share data and integrate our IT systems with others. The 2018 Ponemon statistics estimated that over 50% of organizations have experienced a data breach due to a vendor’s security shortcomings. Here are some recent examples of breaches caused by third parties:

-        Hanna Anderson (over 10,000 California customers affected due to alleged malware in Salesforce Commerce Cloud’s e-commerce platform)(2019)

-         Quest Diagnostics (11.9M records via American Medial Collection Agency)(2019)

-         Target (at least 41M customer payment card accounts accessed via HVAC vendor; $18.5M settlement)(2013)

-         US Customs and Border Protection (Lost 100,000 records via a subcontractor network)(2019)

-         FBI (Lost 3 terabytes of confidential information – including FBI investigation records, millions of department files, personal data, system credentials, and even internal communication records)(2019)

So what should we do first?

Ensure you have a risk assessment and mitigation plan in place for managing vendors. Some may categorize vendors by risk and develop specific policies, procedures, and technical measures to reduce cyber risks for categories of vendors.

Then what?

Ensure proper vetting to understand the risk posed by new and existing vendors. Such vetting can be done in-house through cybersecurity and data privacy questionnaires, or via legal counsel and/or other third parties that assess cyber risks posed by vendors. While initial vetting is critical, routine vendor audits are recommended to ensure that each continues complying with your company’s policies, processes, procedures, and technical measures deployed for purposes of safeguarding their data.

What about their contracts?

Like anything else, if it’s important, put it in writing. Ensure that each vendor contract specifically addresses and allocates the costs and risks associated with that engagement. Common contractual provisions include representations and warranties to abide by your company’s cyber and data privacy policies and procedures. Depending on the circumstances, a warranty regarding compliance with industry standards (e.g. SOC2 or PCI-DSS) with data security audit rights and certifications may be appropriate. Depending on the circumstances, you should also consider including prompt notice provisions when a breach involving your company’s data is suspected. You may also want to allocate the costs of a data breach investigation and remediation in the agreement to avoid unknowns if an incident occurs, including which party should be responsible for the fees and costs associated incident investigation and remediation. If this engagement poses a significant data privacy risk (e.g., your company’s most sensitive data is involved), you should consider requiring that a vendor maintain a certain level of cyber insurance that covers your costs should a breach investigation take place. Finally, specifying the procedures for handling a suspected data privacy or cyber breach in your vendor contracts can save valuable time when an incident occurs.

Zoom Bombing: Steps to Prevent Disruption and Potential Data Security Breaches during WFH Virtual Meetings

Posted by Craig Carpenter

In the current environment where many employees are working from home under shelter-in-place or social distancing directives, virtual meetings and video conferencing services have become critical for continued operations. One video conferencing provider in particular, Zoom Video Communications, has become a popular platform for many businesses, schools, and individuals.

However, along with the increase in useful and productive video conferencing, there has also been in uptick in video conference hijacking—what is being referred to these days as “Zoom bombing.”

Zoom bombing occurs when unauthorized or uninvited individuals “gate-crash” Zoom video conferences, often sharing their screens to show disturbing imagery, playing loud and offensive sounds, or other general mayhem. This occurs most frequently due to publicly available Zoom (or other provider) meeting links. While the disruption caused by Zoom bombing can be embarrassing and disturbing, there are also concerns that video conference hijacking could be used for more sophisticated and nefarious purposes such as theft of intellectual property, misappropriation of sensitive or proprietary information, and/or personal data breach.

Fortunately, there are steps video conference users can take to help prevent Zoom bombing and video conference hijacking. Recently, Zoom Video Communications posted a blog post with helpful tips and best practices to secure your meetings on their platform. These tips include:

• Be careful when posting your meeting links in a public forum
• Avoid using your Personal Meeting ID (PMI) to host public events
• As the host, use the host tools to manage the meeting and participants:
  • Manage participant screen sharing
  • Lock the meeting
  • Consider using the virtual waiting room

Additionally, it is important to consider your legal and data security obligations when using Zoom or other video conferencing platforms, including:

• Use caution when discussing sensitive or privileged information in a video conference, especially a virtual meeting room that has been publicly posted;
• Consider whether the camera will display personal and confidential information on your desk or in the background;
• Consider whether you have closed out all screens so that others can’t see what is on your computer if you use screen sharing; and
• Consider your obligations regarding recording video conferences and where that recording will be stored. 

These tips and suggestions not only apply to Zoom, but could also apply to any video conference platform.

As we all adjust to increased use of video conferencing while working remotely, these guidelines, along with the helpful tips from Zoom, should help users take control of their meetings and prevent unauthorized access and disruption.

For more information from Zoom Video Communications, see: https://blog.zoom.us/wordpress/2020/03/20/keep-the-party-crashers-from-crashing-your-zoom-event/

FDA Releases Warning on Cybersecurity Threat to Connected Medical Devices and Healthcare Networks

     

Posted by Timothy E. Hudson and Madeline Tansey

In a recent press announcement, the U.S. Food and Drug Administration (FDA) released a statement informing healthcare providers, patients, and medical device manufacturers about a set of cybersecurity vulnerabilities that could expose medical devices and hospital networks to serious risks.^[1] This set of vulnerabilities, referred to as “URGENT/11,” consists of a set of 11 network flaws that researchers from the enterprise security firm Armis discovered.^[2] Though the FDA has not yet received any reports of hackers exploiting these vulnerabilities, it has begun efforts to proactively protect the public from the threats URGENT/11 poses to the healthcare system.

            The problem dates back to the early 2000s, when software firms began implementing transmission control protocols and internet protocols (“TCP/IPs”), which are sets of rules and procedures that allow devices to connect to wireless networks. Around this time, Interpeak, a Swedish software firm, created its own TCP/IP network protocol called “IPnet” and sold it to a variety of customers that manage operating systems. These customers then incorporated the IPnet software into their operating systems, which enabled them to link medical devices to the internet and central device networks. Unfortunately, this integration occurred years before anyone discovered the flaws within IPnet that leave billions of medical devices susceptible to hacking.^[3]

            The implications to the healthcare system of IPnet’s vulnerabilities are much broader—and more severe—than originally thought. According to Armis researchers, URGENT/11 can enable remote users to take down firewall protections and control devices connected to the internet or internal networks.^[4] Medical devices on an operating system that use IPnet are consequently vulnerable to these attacks, including MRI machines, patient monitors, anesthesia machines, and infusion pumps. For example, Becton Dickinson, a major medical device manufacturer, found its Alaris infusion pump was potentially vulnerable to hacker exploitation because it used the IPnet software.^[5] Researchers were able to exploit the infusion pump’s vulnerabilities, which caused it to crash and become unresponsive. This experiment demonstrated the critical nature of the URGENT/11 vulnerabilities and the direct impact on patient safety.

Though IPnet is an old protocol, many medical devices that still use the IPnet software “are critical devices, which go under a much longer period of development and approvals than consumer devices, and have significantly longer life cycles once in use,” said Ben Seri, Vice President of research at Armis. To combat this issue, the FDA has taken steps to disseminate information about which operating systems are affected and has made recommendations to ensure patient safety. Thus far, the agency has identified one or more versions of the following operating systems as vulnerable: VxWorks (by Wind River); Operating System Embedded (by ENEA); INTEGRITY (by GreenHills); ThreadX (by Microsoft); ITRON (by TRON); and ZebOS (by IP Infusion).^[6]

The FDA encourages medical device manufacturers to continue monitoring, reporting, and remediating the cybersecurity vulnerabilities. Medical device end users should contact manufacturers to determine whether their devices are impacted and whether those manufacturers have designed software patches to prevent device exploitation. For example, Armis and Wind River (a manufacturer for software used in medical devices) have worked to develop system patches for VxWorks versions that were released subsequent to version 6.5, such as VxWorks 653 and VxWorks Cert Edition.^[7] Additionally, device users can contact device manufacturers for mitigation techniques, such as the installation of a firewall recommended by Becton Dickinson to block remote attempts to exploit its devices.^[8]

While the FDA, Armis, and the Department of Homeland Security seek to resolve this issue, the FDA will continue to focus on informing those in the healthcare sphere about URGENT/11. As one FDA spokesperson noted, “Awareness is key because without it, industry cannot begin their risk assessment and mitigation activities.”

 

[1]See U.S. Food & Drug Admin., FDA informs patients, providers and manufacturers about potential cybersecurity vulnerabilities for connected medical devices and health care networks that use certain communication software (Oct. 1, 2019).

[2]Lily Hay Newman, Decades-Old Code Is Putting Millions of Critical Devices at Risk (Oct. 1, 2019).

[3]See Dennis Fisher, URGENT/11 flaws now affect broader range of medical, network devices (Oct. 3, 2019).

[4]See Armis, UPDATE: URGENT/11 affects additional RTOSs – Highlights Risks on Medical Devices (last visited Oct. 8, 2019).

[5]Fisher, supra.

[6]U.S. Food & Drug Admin., supra.

[7]Armis, supra.

[8]Newman, supra.

Protect Yourself From Wire Transfer Fraud

Posted by Justin S. Cohen

Cyber criminals are targeting U.S. companies on a daily basis—many seeking to steal funds through fraudulent funds transfers. While the hackers’ methods are technically sophisticated, the plan is simple: a hacker takes control of a business email account, learns how the company moves money (such as through wire transfers), then sends an email to initiate a fraudulent transfer. Trend Micro reported that the average business email compromise (“BEC”) attack in 2016 cost the victim approximately $140,000. The FBI reported that BEC scams accounted for more than $12.5 billion in losses for U.S. companies in 2018, exceeding all expectations. We here at Thompson & Knight have seen an uptick in these attacks and their sophistication and have some suggestions on how companies can protect themselves.

The Problem: Business Email Compromise

Cyber criminals use BECs to steal from companies using fraudulent funds transfers, such as by changing direct deposit instructions, wire transfer instructions, or requesting business checks. A BEC begins with hackers gaining full control of a person’s email account so they can read that person’s emails, delete emails, re-direct emails using rules, and send emails as if they were that person. The hackers focus on the email accounts of C-suite executives, controllers, and those involved in funds transfers (e.g., direct deposit instructions, wire transfers, check writing). The identities of the right people can usually be deduced from a few LinkedIn searches. Hackers track out-of-office message and social media to determine when executives may be away from the office.

Once hackers gain control over a particular email account, they will study the company’s procedures and email traffic, sometimes for months. After learning about the company and how it handles wire transfer requests, they will begin their attack. Typically, they will write emails from the executive’s account requesting rush wire transfers to offshore accounts. Most are careful to make requests that will be acted upon quickly without raising too much suspicion (e.g., by crafting the email with a sense of urgency). These criminals often start small and then increase their activity and the wire transfer amounts until someone spots the theft. Some of these attacks can go on for months. Many target a one-month window to avoid detection.

We have also seen schemes where criminals impersonate suppliers or business partners and send new wire transfer instructions for upcoming payments. In other cases, criminals impersonate employees and send emails requesting changes to payroll direct-deposit instructions. Such criminals may also watch emails during the run-up to a merger or acquisition, then send fraudulent wire transfer instructions near the closing.

Compounding the problem is that when a BEC occurs, (1) the funds are rarely recoverable and (2) many crime and cyber insurance policies do not cover these sorts of losses.

The Solution: Be Aware and Implement Layered Security

Here are a few suggestions to protect your company from these threats:

• Update your funds transfer policies to ensure that there are non-email confirmations/multi-factor authentication to confirm wiring/payment instructions for certain incoming and outgoing funds transfers. This can be as simple as requiring a phone call or video chat between people who know one another. Include a plan for handling suspicious funds transfer instructions.

• Meet with your financial institutions to ensure everyone has a clear understanding of the protocols in place to handle wire transfers. If the protocol is simply “wire based on email instructions” the financial institution typically will claim no liability.

• Review cyber insurance policies to ensure that these types of criminal events are covered, including coverage for the stolen funds.

• Implement periodic cybersecurity training for executives and employees, especially those involved in funds transfers. Such training should include periodic test “phishing” emails from your IT department or a security vendor so people become accustomed to spotting suspicious emails.

• Use multi-factor authentication for email accounts, especially email accounts like Office 365 that are accessible via the Internet.

Guarding against wire transfer fraud through business email compromise requires a layered approach. Companies should also prepare for a possible incident and ensure that their cybersecurity policy covers not only the cost of responding to an incident, but also the stolen funds.

Cybersecurity Training for Your Corporate Board

Posted by Alejandro A. Sánchez-Mújica A.

It seems that not a day goes by without news of significant cyberattacks or breaches. Cybersecurity failures and malware are no longer considered as something that might happen, but something that will happen. Businesses need to have the framework in place to act fast in a worst-case scenario to contain reputational and bottom-line damage.

Corporate boards have become integral to cyberdefense strategies. NYSE Governance Services^[1] recently surveyed nearly 200 directors of public companies representing a variety of industries to discover how they view cybersecurity in the boardroom. More than 80% of respondents said cybersecurity topics are discussed at nearly every meeting – although one in five indicated they are only discussed after an incident happens internally or in the same industry.

Directors are responsible for managing the business affairs of a corporation, and they are subject to fiduciary duties. In carrying out the responsibility of managing the corporation, directors owe fiduciary duties of care (care on an informed basis when taking actions) and loyalty (based on the best interests of the corporation and its stockholders, refraining from transactions motivated by personal interest).

Part of a director’s duty is to oversee the corporation’s operations. There must be procedures in place so that the appropriate information comes to the attention of the board in a timely manner as a matter of ordinary operations, which should include cybersecurity matters and breaches.

Directors should receive cybersecurity training on at least a yearly basis. This training should cover the measures necessary to maintain confidentiality of the matters placed before the board, cybersecurity matters related to the industry’s particular challenges, and best practices for the directors’ access and use of company networks and data.

Additionally, periodic presentations by the corporate executive in charge of information technology should be made before the board.  These presentations should at least touch upon:

• The latest developments in cybersecurity, including relevant breaches and practices;
• Cybersecurity governance policies put in place, including IT systems use, remote work, and employee/contractor training policies;
• Data privacy compliance;
• Inventory of information assets, including descriptions of areas of potential vulnerabilities (e.g., personal data management, infrastructure);
• The company’s cybersecurity insurance coverage; and
• Incidents and failures in continuity planning.

Boards should also take the opportunity to ask questions regarding the readiness of the company to mitigate a cyberattack or breach, and should review the steps put in place to mitigate an incident. They should consider:

• Who has access to the corporation’s information assets? How are privileges managed?
• Which information assets would most likely be a target?
• What type of damage would the company incur if the assets were targeted?
• Which systems are crucial for business continuity?
• What measures are in place to detect an incident?
• What incident reporting procedures are in place?
• Is there an effective hotline or emergency procedure in place in the event of a cyberattack or threat? Have these been communicated to employees, contractors, and service providers?
• What employee, contractor, and service provider training procedures are in place?
• What types of audits are run on the IT infrastructure?

Board members can play an instrumental role in monitoring and mitigating cybersecurity risks, serving as a conduit between all the different functions of the business and bringing a wealth of experience in crisis management.

 

^[1] https://www.nyse.com/publicdocs/VERACODE_Survey_Report.pdf