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." - ISN is currently hosted by Attrition.org To unsubscribe email majordomoat_private with 'unsubscribe isn' in the BODY of the mail.
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