Clapper Claptrap…Data Breach Class Actions are Alive and Kicking

data breach

While attending the recent ABA Internet of Things Institute, I heard something troubling from a particular panelist, a data breach class action defense attorney. This attorney, from a monolithic law firm, proclaimed that data breach class-actions were, essentially, on life support as result of the U.S. Supreme Court’s (“SCOTUS”) decision in Clapper v. Amnesty Int’l USA, 133 S. Ct. 1138 (2013). I was a bit astonished by the certainty of the panelist’s position. I would respectfully, and vigorously, disagree. Data breach class-actions are alive and well. Moreover, based on the latest case law and the uptick in security incidents every year, I posit that that data breach class-actions are coming to a courthouse near you. 

Clapper involved a lawsuit in which a group of attorneys and human rights, labor, legal, and media organizations alleged that the Federal Government had intercepted their private communications in conjunction with counterterrorism surveillance. SCOTUS correctly held that the alleged injury was too speculative to support legal standing to challenge the Foreign Intelligence Surveillance Act (“FISA”), because the plaintiffs possessed no actual evidence that their private communications were actually intercepted.

A handful of federal district courts around the country have applied Clapper to data breach class actions. These courts dismissed several of the cases, holding that in the absence of identity theft or other manifestation of damage, the plaintiff did not have standing. These cases have created a false sense of “security” amongst security front-liners, including, apparently, some defense attorneys.

Not. So. Fast. In back-to-back decisions, the Seventh Circuit turned the tables on SCOTUS and changed the fortunes of data breach litigants. First, In Remijas v. Neiman Marcus Grp., LLC, 794 F.3d 688 (7th Cir. 2015), the high–end department store Neiman Marcus experienced a data breach that potentially exposed payment–card data of all customers who paid with cards during the previous year. The plaintiff class consisted of customer who had shopped at Neiman Marcus during the time the information was exposed to the invader.

In Remijas, the court stated “there is ‘no need to speculate as to whether [the Neiman Marcus customers’] information has been stolen and what information was taken.’” The court concluded that the plaintiffs’ injuries were concrete and particularized enough to support Article III standing. The court identified two future injuries that were sufficiently imminent: (1) the increased risk of fraudulent credit or debit card charges; and (2) the increased risk of identity theft. The court further opined that such risks were not mere “allegations of possible future injury,” but instead were the type of “certainly impending” future harm that SCOTUS requires to establish standing.

Two weeks ago, the Seventh Circuit doubled down on its Remijas holding in Lewert v. P.F. Chang’s China Bistro, Inc., No. 14-3700, (7th Cir. 2016), a case involving data breaches at 33 P.F. Chang’s restaurant locations. In Lewert, the Seventh Circuit impliedly relaxed the standing requirements for data breach cases even further. P.F. Chang’s attempted to distinguish the case

from Remijas by arguing that the Lewert plaintiffs had dined at a Northbrook, Illinois, restaurant that was not among the 33 locations subject to the breach.

The Seventh Circuit rejected P.F. Chang’s argument and concluded that a lawsuit could compensate for the costs of purchasing credit-monitoring services, lost points on a debit card, or unreimbursed fraudulent charges (though the panel raised doubts about whether the costs of plaintiffs’ meals or the right to their identities constituted injuries). Citing Remijas, the court held that the plaintiffs were at risk for future fraudulent charges given that the breach had already occurred.

“They describe the same kind of future injuries as the Remijas plaintiffs did: the increased risk of fraudulent charges and identity theft they face because their data has already been stolen,” wrote Chief Judge Diane Wood. “These alleged injuries are concrete enough to support a lawsuit.”

So, in my opinion, Clapper does not constitute the death knell of data breach class action lawsuits.i In fact, Clapper is well reasoned, and ultimately, correctly decided. The Clapper Court held that plaintiffs’ injuries were too speculative because there was no evidence that a breach or disclosure (i.e. intercepted communications) had even occurred. This holding comports perfectly with traditional notions of subject matter jurisdiction and Article III standing. Conversely, in Remijas and Lewert, plaintiffs established that a breach or disclosure had actually occurred. Therefore, the court reasoned, plaintiffs’ had a substantive and concrete injury in the potential financial consequences of the breach.

Effectively, the Seventh Circuit has established that the mere occurrence of a data breach or disclosure constitutes actionable injury, regardless of whether identities are stolen or fraudulent charges are incurred. For once, it seems that the courts are actually in lockstep with the practical realities of law (albeit a little late to the party). The breach IS the injury. The breach is a bell that cannot be un-rung. In a climate where government officials have conceded to an inability to protect information, data collectors must be held accountable at the first instance where malefactors obtain personal information. We, as a government, society, and legal profession, cannot allow these entities to breathe a sigh of relief and go on their merry way just because a hacker does not use the stolen information. To do so allows a free pass and misses a chance to teach accountability and make information security a top priority.


i This article does not address the potential for state court actions in negligence and intentional tort. State court actions will be addressed in a future article.

Internet of Things Institute: Day One Takeaways

computer scientists

Day 1 of the ABA Internet of Things Institute:  So, come to find out, the Internet of Things (“IoT”) is not the precursor to SkyNet or a rampant abuse of power by Big Brother.  It is fascinating, and yes, slightly frightening.  The simple fact is, the IoT is just like any other rapid advance in technology – it is power that can be used for good or ill.  It provides safer cars, more productive businesses, and cleaner, more efficient energy grids.  It also provides more pervasive avenues for malefactors to hack into our daily lives.  But the bottom line is, the IoT is not going away, so it is imperative to understand it and implement sound security practices.

Some takeaways from Day 1: 

  • The IoT is a broad term for a world where everyday objects are connected, have software and are networked.
  • Computer scientists predicted the IoT in the 1980’s.
  • The most commonly known examples of the IoT are consumer goods like thermostats and light bulbs with sensors to monitor how many people are in a room at a given time and software to interpret that data to more efficiently allocate energy consumption.
  • Consumer products are just the beginning:  more necessary and beneficial uses include smart energy grids, smart water solutions, smart cities and infrastructure, autonomous cars, agricultural improvements, and medical products like medicine pumps, defribulators, and monitoring devices for the aged (which will double in population by 2050).
  • We need to understand that connected devices are nothing more than computers, and computers can be programmed to do whatever you want.  So yes, that smart refrigerator can be hacked to send out malicious emails.
  • Because of this threat, we need to rely on sound engineering principles and strong encryption when developing IoT devices.
  • Manufacturers of IoT devices need to remember that they are actually developing software and not just cool gadgets.
  • Consumer protection must always be at the forefront of development.
  • Computer scientists were able to convert first generation electronic voting machines into Pac-Man games.
  • Industry cannot rely on Congress to legislate IoT security.  We have to rely on Industry sector regulation and consumer protection laws.
  • You cannot regulate what you can’t define.  According to one U.S. Senator, the IoT is moving too fast, its too big, and it changes every day.
  • The IoT is currently a $2 Trillion economy and will grow to $11 Trillion by 2025.
  • Don’t fear autonomous cars – 95% of auto accidents are due to driver error.  Autonomous vehicles will make roads safer, including not only individual vehicles, but the trucking industry as well.
  • The IoT is expected to create a 10-25% savings in energy consumption and manufacturing processes for industry.  Business will have to implement IoT devices to remain competitive.
  • The IoT is the 4th industrial revolution and will fundamentally change organizational behavior, as well as perceptions of privacy, security, ownership and interpersonal relationships.
  • Good with the Bad:  the IoT will also unquestionably create difficult societal, business, and ethical problems, such as job loss or restructuring, privacy and security issues, cyber-terrorism threats, cross-border data flow issues, data ownership issues, and dangerous digital divides (access, literacy, and acceptance of IoT).
  • Abuses and abusers will evolve.  Bad actors will remain bad actors.  The IoT will not change human behavior, but will give bad actors new tools to be bad actors.
  • There will be an estimated 30 billion IoT devices by 2030.
  • The raw cost of utilizing encryption is approximately 2 cents per device.
  • HIPAA and HITECH require healthcare providers to encrypt patient personal health information.
  • Cloud computing raises significant legal and ethical issues for every organization that uses the Internet.
  • The key to safely navigating the IoT and protecting your organizational information and the information of those you serve is security by design and front end engineering.
  • Cyber liability insurance is a good idea, but not the cure – coverage is not always sufficient, insurance companies may seek to deny coverage, and insurance does not fix the problems caused by a breach or recover the information lost.
  • The value in the IoT is the aggregation of data that by itself is useless.
  • Privacy concern and policy discussions must be viewed in context with the beneficial uses of the IoT.
  • 42% of consumers believe that privacy concerns outweigh the benefits of the IoT because the focus is on the consumer products, not the societal benefits.
  • IoT devices are increasingly becoming threat vectors.
  • IoT devices and software that utilize the collected data could be protectable intellectual property even though the data itself is not.

One thing is certain.  The IoT presents the greatest potential for human connectedness and technological advances in history while simultaneously presenting the greatest potential for security and privacy abuses.  The idea of a global community where information flows freely for the betterment of humanity is an exciting one.  However, we must temper that laudable goal with the stark reality that the same technology that frees us can also be used by bad actors to compromise that freedom.

In the immortal words of Peter Parker’s Uncle Ben:  with great power comes great responsibility.  Attorneys and other professionals specializing in information security and privacy must be at the forefront of the IoT.  So too must others (traditional attorneys, healthcare providers, financial services professionals, business owners, and governmental leaders) understand the benefits and threats posed by the IoT and seek advice from people best equipped to shepherd them through this new age.

Ickes Holt is a full-service, team-driven, and client focused law firm in Northeast Ohio concentrating on information security and governance. Information is the DNA of modern organizations and Ickes Holt is dedicated to advising clients on how to protect its information. Please contact us to discuss establishing or improving the information governance policies for your organization.

Hungry, Hungry HIPAA

HIPAA compliance

One recent case that didn’t get much attention, but should have, clarifies Ohio health care providers’ potential exposure for the unauthorized disclosure of patient health information (“PHI”).  On August 14, 2015, the Second District Court of Appeals decided Sheldon v. Kettering Health Network. [i]   In Sheldon, the Second District addressed patients’ rights related to the unauthorized disclosure of PHI.  Although the plaintiff was ultimately unsuccessful, the court affirmatively held that the Health Information Portability and Accountability Act (“HIPAA”) does not prevent a patient for asserting a common law tort claim for unauthorized disclosure of medical information.  On February 10, 2016, the Ohio Supreme Court declined to review the correctness of the Second District’s decision.  At that point, Sheldon effectively removed more than fifteen (15) years of gray area on the matter.[ii]

Prior to Sheldon, the Ohio Supreme Court decided Biddle v. Warren Gen. Hosp.[iii]  In Biddle, the Court held that, in Ohio, a physician can be held liable under Ohio common law for unauthorized disclosures of medical information.  The cause of the “gray area” was that the Supreme Court decided Biddle before HIPAA’s privacy-rule regulations were published on December 28, 2000 and before its security-rule regulations took effect on April 21, 2003.[iv]   The Sheldon case provides considerable clarity on exactly how HIPAA and the HITECH Act coexist with Ohio common law tort claims.

One point verified by Sheldon is that, according to Ohio law,  HIPAA does not allow a private cause of action.[v]  However, the Second District then concluded that HIPAA does not preempt an Ohio state law claim for the independent tort recognized by the Ohio Supreme Court in Biddle:

“[T]he unauthorized, unprivileged disclosure to a third party of nonpublic medical information that a physician or hospital has learned within a physician-patient relationship.”

The Second District went on the refer to such actions as “Biddle claims.”   The Second District went a step further in addressing how the standards delineated in the HIPAA regulations interact with Biddle claims.

The Second District held that violation of HIPAA does not provide for negligence per se claims.  The Court reasoned that to allow such a claim would essentially override HIPAA’s explicit prohibition of private causes of action.[vi]   However, buried in the Sheldon decision is one sentence that should send a shiver down the spines of physicians and the attorneys who represent them:

“[T]he violation of an administrative rule does not constitute negligence per se; however such a violation may be admissible as evidence of negligence.”[vii]

Essentially, HIPAA may not allow for a private cause of action, but according to Sheldon, a health care provider’s HIPAA dirty laundry can still be heard by a jury in conjunction with a Biddle claim.

More troubling is that recent Federal case law, although only persuasive authority for Ohio state claims, will make it much easier to get these types of cases to a jury.

In  July 2015, the Federal Seventh Circuit Court of Appeals decided Remijas v. Nieman Marcus Group, LLC[viii]a case involving a massive data breach.  The Seventh Circuit overruled the trial court’s ruling in holding that “injuries [of customers] associated with resolving fraudulent charges and protecting oneself against future identity theft do” provide sufficient standing to maintain a cause of action for those affected by a data breach.[ix]  Thus, in situations where a data breach has occurred, but no actual identity theft has occurred, Remijas establishes the framework for plaintiffs’ lawyers to overcome the heretofore solid defense of lack of standing due to intangible and speculative damages.   Although no Ohio court has applied the reasoning of Remijas, there is now a viable legal argument to be made in Ohio state law negligence claims.

With the spate of data breaches in the health care industry occurring around the country (including several in the state of Ohio), HIPAA covered entities must take action to ensure that information security processes and procedures are in place. Not only because the impending threat of litigation or the fact that the Department of Heath and Human Services has announced that 200 new HIPAA audits are in the pipeline for 2016.[x]  It is simply the right thing to do.  Perhaps the Hippocratic oath, in our digital age, should extend to patients’ identity as well as their health and wellness.

Ickes Holt is a full-service, team-driven, and client focused law firm in Northeast Ohio concentrating on information security and governance. Information is the DNA of modern organizations and Ickes Holt is dedicated to advising clients on how to protect its information. Please contact us to discuss establishing or improving the information governance policies for your organization.

 

[i] Sheldon v. Kettering Health Network, 40 N.E.3d 661(App. 2d Dist. 2015)

[iii] Biddle v. Warren Gen. Hosp. , 86 Ohio St.3d 395, 401,1999-Ohio-115, 715 N.E.2d 518 (1999)

[iv]Sheldon at 671

[v] Id. at 670 citing Henry v. Ohio Victims of Crime Comp. Program, S.D.Ohio No. 2:07-cv-0052, 2007 WL 682427 (Feb. 28, 2007)

[vi] Id. at 674

[vii]Id. citing Chambers v. St. Mary’s School, 82 Ohio St.3d 563, 1998-Ohio-184, 697 N.E.2d 198 (1998)

[viii] Remijas v. Neiman Marcus Group, LLC, 794 F3d 688 (7th Cir. 2015)

[ix] Id.

[x] Raths, David, OCR’s Samuels Describes Launch of Phase 2 of HIPAA Audit Program, Health Care Infomatics, March 19, 2016

Information Security and Privacy Round-Up: Memphis Neurology & Fazio Mechanical

identity theft in memphis

Information security and privacy is an incredibly broad and pervasive topic.  It spans across industries, relates to private and public sectors, affects small business to publicly traded companies, is governed by federal and state legislation, is enforced by regulators and courts, and incorporates IT and legal solutions.  Information is the DNA of the modern world.  It is everywhere – our computers, our phones, our cars, our homes, our businesses, the cloud.  We have unprecedented access to each other, and as a result, other people have unprecedented access to our information. The boundaries of information security are continually being stretched by the dramatic leaps in technology and ever shifting societal norms.

Events in the information security realm occur so quickly that it is difficult, even for privacy professionals, to keep current.  This article will provide an overview of some recent information security cases, both which illustrate the concept that small to mid-sized business are the most vulnerable to, and least equipped to prevent, information security attacks.

Memphis Neurology Case:  In February, the U.S. Attorneys’ office indicted Jeremy Jones on charges of identity theft, fraud, and conspiracy.  Jones is accused of conspiring to steal the identities of more that 145 patients of Memphis Neurology, as well as customers of car dealerships and other people he knew.  Jones used the stolen identities to apply for loans and credit cards, and to open banks accounts in the victims’ names.   The estimated loss to the defrauded financial institutions is $1,660,587.30.

The Memphis Neurology case presents significant information security concerns, namely, insider threats and access controls.  Memphis Neurology is a regional, private neurological practice with five locations.[i]  The practice has been in business since the 1970’s.  Jones allegedly conspired with an employee of Memphis Neurology to steal patient information from the practice’s database.[ii]   The scheme allegedly began in 2011 and continued through 2015.[iii]

This case underscores the importance of: (1) training employees about information security: (2) clearly communicating to employees the consequences for intentional and unintentional security breaches; (3) properly screening potential employees during the hiring process; (4) conducting periodic audits of information security practices for efficacy and potential breaches; and (5) ensuring access to patient information is properly limited to authorized employees, including organizational and physical security.  These items are crucial components to an overall information security governance program, which is required by HIPAA and the FTC Act, as well as necessitated by the modern world in which small to mid-sized medical practices operate.

Jeremy Jones is facing criminal charges.  The financial institutions are facing the loss of $1,660,587.30.  But, what about Memphis Neurology?  What are the potential consequences to the practice?  First, they almost certainly lost existing and future customers.  Second, they face potential investigation and enforcement by the Federal Trade Commission and/or the Department of Health and Human Services.  An investigation and enforcement action will cost Memphis Neurology significantly in legal fees and lost productivity.  Further, the FTC and HHS are not averse to levying heavy financial penalties for violations.  Finally, while neither the FTC Act or HIPAA provide a private right of action, there is an increasing trend of state courts adopting federal statutory/regulatory frameworks as the “standard of care” in common law negligence actions.[iv]  This trend could expose Memphis Neurology to state court negligence lawsuits brought by the patient victims.

Target Breach-Fazio Mechanical.  Most people are aware of the Target breach in 2013.  In fact, most people probably held their breath waiting for notice from the retail giant that their information had been compromised.  The fallout from the Target breach has been staggering:

  • 110 million customers’ information exposed
  • Immediate 50% drop in profits at the time of the breach from the previous year
  • Consumer and media backlash
  • Approximately $252 million spent to manage the breach
  • An escrow account of $10 million set aside for compromised customers
  • Ongoing litigation and regulatory action
  • Target CEO ousted
  • Potential personal exposure to fines and monetary damages for Target executives[v]

What is not commonly known is the source of the hack leading to the Target breach.  According to Krebs on Security, hackers gained access to Target’s network via one of its vendors, Fazio Mechanical, a Pennsylvania based refrigeration company.[vi]  According to investigators, the Target breach “traces back to network credentials” issued to Fazio by Target.   Fazio has stated that its data connection to Target “was exclusively for electronic billing, contract submission and project management[.]”[vii]

It appears that Target’s network credentials were stolen by means of email “phishing” attack sent to employees at Fazio.  Facts indicate that one or more Fazio employees opened the phishing email, thus infecting Fazio’s system and delivering Target’s network credentials to the hackers.  The hackers then planted malware on Target’s system and began stealing credit card data from thousands of Target’s registers nationwide.

Target receives and retains an immense amount of customer information.  As the recipient of this information, Target had a duty to ensure that the third party vendors with which it works have adequate security controls.  There is no question that Target should have done a better job of auditing Fazio’s information security controls and ultimately bears responsibility for the breach.   However, while Target is certainly culpable for the breach (namely failing to timely act on the breach[viii] and sending out inadequate data breach notifications[ix]), it was undoubtedly prepared for the possibility of an attack.  Six months prior to the breach, the retailer had started installation of a $1.6 million malware detection tool designed by FireEye.  FireEye is a leading cyber security firm who provides services to the CIA and the Pentagon.  Target employed a security squad in Bangalore to monitor its system 24/7.[x]  Despite these measures and obscene financial resources, Target was hacked and is now facing reputational damage, lawsuits, and regulatory enforcement.

And it is, in large part, Fazio’s fault.

True, if it wasn’t Fazio, it likely would have been another vendor.  Or perhaps, malefactors could have penetrated Target’s system directly.  However, the facts surrounding the Target breach point blame directly to an unremarkable, “mom and pop” business lacking any information security policies and practices.  In stark contrast to Target’s measures, Fazio primarily relied on the free version of Malwarebytes Anti-Malware (“MBytes”) to detect malicious software on its systems.[xi]  It is unknown if Fazio employed any actual information security protocols, but based on their use of MBytes, it seems likely that they did not.

What is more inexplicable was Fazio’s response to its role in the Target breach.  In a press release, Fazio stated it was “the victim of a sophisticated cyber attack operation,” and further that its “IT system and security measures are in full compliance with industry practices.”[xii]  Clearly, Fazio was out of its depths concerning the technical aspects of information security as well as willfully or unintentionally ignorant of its duties under applicable state and federal law.

First, phishing attacks are not “sophisticated.” Phishing attacks are common.  They are not targeted, but instead use a “blast” approach to distribute the poison pill email as widely as possible.  In fact, email phishing attacks are so unsophisticated that they can be defeated by simply ignoring and deleting the email.[xiii]

Second, while MBytes is a reputable malware program, it is seriously limited.  The free version is an on-demand scan and kill program, which means a user must actually run the scanner or set it to run at scheduled times.  Also, the free version of Mbytes does not offer real-time protection against threats.  Real-time protection means that the software actually blocks or stops malware that is actively trying to infect a system.  Imagine a pop-up blocker, which is a real-time protector.  A pop-up blocker that did not protect in real-time would effectively allow the pop-up to appear, and then only remove the pop-up when the user prompts it to do so.  Essentially, a non-real time malware program is ineffective to prevent malware infections.

Third, Fazio clearly was not in compliance with industry practices.  We have already discussed the limited capabilities of free MBytes above.  Further, the free version of Mbytes is made explicitly for individual users and its license prohibits corporate use.[xiv]  Fazio violated this license, which is definitely not an industry standard. Finally, there is no evidence that Fazio employed any reasonable information security policies and procedures, let alone a written program including preventative measures, training, incident response strategy, and data breach notification plan.  Thus, Fazio quite literally failed to meet the requirements of state and federal information security laws, which ARE the industry standard.[xv]

Information security is not a problem for “big” companies.  Information security is not IT’s problem.  Information security is everyone’s problem.  Do you think your organization is somehow protected from phishing attacks?  It happened to Fazio Mechanical.  Fazio’s role in the Target breach proves that the “little guys” cannot ignore their place in the global marketplace.   According to the Privacy Rights Clearinghouse, 621,955,664 records have been breached in the U.S. since state data breach notifications laws went into effect in 2005.  Those are only the ones that have been reported—experts think the figure is actually much larger.[xvi]

In this modern age, it is best practice to assume that your organization has already been breached or will be breached in the future.  The only way to prevent a breach is to put solid information security policies and procedures into place, train your employees, and regularly test your network security.

Ickes Holt is a full-service, team-driven, and client focused law firm in Northeast Ohio concentrating on information security and governance. Information is the DNA of modern organizations and Ickes Holt is dedicated to advising clients on how to protect its information. Please contact us to discuss establishing or improving the information governance policies for your organization.


 

[i]       http://www.memphisneurology.com/

[ii]      http://www.commercialappeal.com/blogs/news/on-the-docket/Memphis-man-indicted-for-allegedly-using-stolen-identities–369166781.html

[iii]      http://www.hipaajournal.com/man-indicted-for-5-year-identity-theft-spree-used-memphis-neurology-data-8321/

[iv]      http://www.thompsonhine.com/publications/de-facto-private-right-of-action-under-hipaa-is-ohio-next

[v]      http://www.huffingtonpost.com/eric-dezenhall/a-look-back-at-the-target_b_7000816.htmlhttps://www.privacyandsecuritymatters.com/2015/02/target-data-breach-price-tag-252-million-and-counting/; http://www.usatoday.com/story/money/business/2014/05/05/target-ceo-steps-down/8713847/

[vi]      http://krebsonsecurity.com/tag/fazio-mechanical-services/

[vii]     https://ickesholt.com/old/wp-content/uploads/2016/03/Target-Breach-Statement.pdf

[viii]     http://www.bloomberg.com/news/articles/2014-03-13/target-missed-warnings-in-epic-hack-of-credit-card-datahttp://www.huffingtonpost.com/eric-dezenhall/a-look-back-at-the-target_b_7000816.html;

[ix]      http://www.pcworld.com/article/2089104/target-breach-notifications-are-a-perfect-example-of-what-not-to-do.html

[x]      http://www.bloomberg.com/news/articles/2014-03-13/target-missed-warnings-in-epic-hack-of-credit-card-data

[xi]      http://krebsonsecurity.com/tag/fazio-mechanical-services/

[xii]     https://ickesholt.com/old/wp-content/uploads/2016/03/Target-Breach-Statement.pdf;  http://krebsonsecurity.com/tag/fazio-mechanical-services/

[xiii]     http://krebsonsecurity.com/tag/fazio-mechanical-services/

[xiv]     http://krebsonsecurity.com/tag/fazio-mechanical-services/

[xv]     See http://krebsonsecurity.com/tag/fazio-mechanical-services/

[xvi]     http://www.cnbc.com/2013/12/19/why-did-target-take-so-long-to-report-the-breach.html

Budgeting for Information Security

Budgeting for Information Security

Creating a Budget and Optimizing the Money Spent

Traditionally, there has been a lack of organizational focus on information security (IS) as a strategic priority. Where companies have focused on IS, however, the goal is usually achieving compliance as opposed to weaving IS into the organization’s overall strategy. With that in mind, creating and managing an IS budget is not an easy task. Tight budget constraints, ever-evolving threat vectors, emerging technologies, and changing compliance requirements combine to create a natural reluctance to focusing on IS on an annual basis. Most IS managers or executives use peer data or threat versus risk models to determine their budgets instead of employing a set percentage of the organization’s revenue.

Peer data is frequently seen as the most trusted source of budget information but can be difficult to obtain as most enterprises consider such data confidential. And rightly so. However, if nothing else, peer data that is available can still be used to grab leadership’s attention and highlight IS as a budgetary necessity. Then, by using models to measure threats versus risks, organizations are more likely to allocate enough funds to mitigate those risks while ensuring the costs of the controls do not outweigh the costs of the risks.

According to a survey by Wisegate from 2013, the average organization allocated 7.5% of the overall information technology (IT) budget to IS. The average allocation fluctuated between industries, with the banking and financial services industry budgeting 10.4% and government entities budgeting 2.3%. This is likely due to regulation, as the banking and financial services industry is traditionally one of the more heavily regulated sectors.

According to a survey by the SANS Institute, the majority of enterprises are spending 4% to 6% of the IT budget on security, with those spending between 10% to 12% and 21% to 25% growing at an increasing rate. Further, the SANS Institute found that security budgets in 2016 are focusing on developing in-house skills to support application security, intelligence and analytics, and data security. Importantly, the surveys indicate that training and staffing are also among the top predicted spending areas. This data suggests that organizations are transitioning their focus from IS being merely an “IT problem” to an organizational imperative.

Over the last few years, it is clear that IS spending is on the rise. However, successful attacks are also on the rise. This implies, amongst other things, that: (1) malefactors and threat vectors continue to evolve faster than the means to stop them; and (2) the money being spent on IS is not being spent effectively. Many organizations make the mistake of simply buying the latest technology, whether or not it makes the most sense for their security initiatives. Organizational leadership, lacking the requisite legal and technical expertise, simply chooses to throw money at the problem, thinking that “something is better than nothing.” This mentality can be a critical error.

To optimize an IS budget, organizations should first focus on ensuring they have the right number of security personnel for the organization’s size and information profile. Simply, a large multi-national organization that transfers significant data between internal and external clients must have a larger cadre of security personnel than a regional mid-sized manufacturing company. Additionally, organizations must make certain that security personnel have the appropriate proficiency to accomplish the organization’s security goals. While hiring the right people seems easy enough, estimates demonstrate that there could be a 47% shortfall of qualified security professionals over the next few years. Thus, it is essential that enterprises focus on obtaining the right talent sooner rather than later.

To further optimize an IS budget, organizations should analyze potential hardware and software security solutions to verify whether the solutions meet the requirements for their particular security initiatives. Organizations need to assess whether mission-critical employees know how to use, maintain, and safeguard the current system, as well as any potential modifications or upgrades. If not, organizations must be able to identify the cost to appropriately train employees to do so. Also, despite the natural inclination to avoid allocating funds for something that may never occur, it is crucial that organizations budget for incident response. Despite spending money on preventative measures, even the best IS protocols are not foolproof. The probability of a successful attack is only increasing, so preparation for such an event cannot be overlooked or underestimated. Finally, employee training is vital across all departments within the organization. Training is often the most cost effective and practical countermeasure, as people are frequently exploited by malefactors to penetrate organizational defenses.

IS managers or executives need to have the right information in order to obtain buy-in for budgetary requests. They then must effectively communicate that information those holding the purse strings. According to a survey by the SANS Institute, the two most important business drivers behind security spending are: (1) protecting sensitive data; and (2) regulatory compliance. IS managers or executives should take a risk-based approach when addressing budget concerns. By focusing on the risks, organizations are forced to decide if they are willing to take or mitigate the risks. Without knowing and understanding the risks facing the organization, it is all too easy for bottom-line driven executives to ignore very real, and very serious, IS concerns.

If an organization chooses to not take a risk-based approach, then it is all the more important to accumulate correct data points to align the IS budget with the organization’s overall business needs. This can be accomplished by measuring the success of past improvement, ensuring compliance, enabling business objectives, and providing proof of improvements in incident counts and risk profile. IS managers or executives should also collaborate with other departments to ensure there is alignment between the various projects and resources throughout the organization.

Bad budgets happen to good people. However, it is important to remember that the IS threats to, and the legal requirements on, an organization do not disappear because the IS budget is not approved or is less than desired. Therefore, security personnel, including leadership, who are impacted by budgetary constraints must engage in creative and innovative thinking to make the most out of what is available for the organization’s IS concerns.

Resources:

1. Wisegate, CISOs Discuss Best Ways to Gain Budget and Buy-in for Security, 2013, http://www.wisegateit.com/resources/downloads/wisegate-strategic-budgeting-report.pdf.

2. George V. Hulme, How to optimize your security budget, CSO ONLINE, May 12, 2015, http://www.csoonline.com/article/2153713/security-leadership/how-to-optimize-your-security-budget.html. 

3. Joseph Granneman, What are the best approaches for security budgeting?, TECHTARGET, January 2015, http://searchsecurity.techtarget.com/answer/What-are-the-best-approaches-for-security-budgeting.

4. Joseph Steinberg, Are You Spending Your Information Security Budget On The Wrong Technology?, FORBES, May 3, 2015, http://www.forbes.com/sites/josephsteinberg/2015/05/03/are-you-spending-your-information-security-budget-on-the-wrong-technology/ – 5953b82532cd.

5. Barbara Filkins, IT Security Spending Trends, SANS INSTITUTE, February 2016, http://www.sans.org/reading-room/whitepapers/analyst/security-spending-trends-36697.

Events on Corroborate Experts’ Identification of Ransomware as 2016 Top Threat

ransomware hacker

On February 5, 2016, Hollywood Presbyterian Medical Center was the target of a ransomware attack, in which malefactors seized control of the hospital’s computer systems and demanded a ransom in exchange for returning control.[i]  Initial reports indicated that the malefactors demanded 9,000 bitcoin, or $3.6 million, to unlock the system.[ii]  On February 17, 2015, the hospital paid a ransom of 40 bitcoin, or $17,000, to the malefactor.  The hospital was locked out of their system for almost two weeks, with no access to patient records.[iii]  More importantly, during this time, the malefactor had complete access to the patient records and other non-public privacy information of both the hospital’s patients and employees.

Ransomware is malicious software that allows a malefactor to infiltrate an organization’s systems, access and encrypt the organization’s data, and demand payment from the organization to decrypt or otherwise release the data.  Ransomware effectively allows a malefactor to hold an organization’s data, or even it’s entire system, hostage.[iv]  Ransomware attacks grew 113% in 2014.[v]  There were a total of 8.8 million ransomware attacks in 2014, up from 4.1 million in 2013.[vi]   Most experts anticipate that ransomware attacks will be a leading threat vector in 2016.

The Online Trust Alliance reports that malefactors have begun to intentionally select targets based on a variety of factors, including the value of the data, the size of the company, market value, and much more.[vii]  While targeted ransomware attacks are increasing in frequency, many malefactors still automatically send ransomware to large numbers of people in hopes that they will open it.  Organizations must be cognizant of, and prepared to deal with, both targeted and spammed ransomware attacks.

Researchers continue to discover new ransomware variants in greater numbers than ever before.[viii]  Many of these variants have new stealth functionalities.  For example, certain ransomware will stealthily encrypt the organization’s data in anticipation of eventual system backups.  When the system backs up, the ransomware and encrypted data will then “infect” both the organization’s system and all backups, making it that much more challenging for an organization to avoid paying the ransom. [ix]  Other real world examples of ransomware include threats to release the organization’s information to the Internet if the ransom is not paid.  Finally, as with all ransom situations, there remains the possibility that a malefactor will not relinquish control of the organization’s data and/or systems, or will follow through on the threat to release the data to the Internet even after the ransom is paid.  In many instances, however, the FBI is advising victims to pay the ransom.  This fact is a telling indicator of the overall inability of organizations and government to effectively deal with ransomware attacks.[x]

Additionally, the “ransomware-as-a-service” business model will continue to grow.[xi]  Ransomware-as-a-service allows inexperienced cybercriminals to access ransomware for free or for a nominal fee.  Once the target pays the ransom, the original author of the ransomware receives a 5% to 20% fee.[xii]  The availability of ransomware to a segment of people who do not have the knowledge or experience to code it themselves realistically creates a whole new breed of “lay” cybercriminals.   Additionally, the proliferation of ransomware creates a layer of anonymity for the actual author, which in turn reduces the risk exposure because they are not the one “pulling the trigger.”  The reduced risk of selling ransomware to a third party may embolden more experienced and talented hackers to engage in increasingly more frequent and diverse attacks, and for little reason other than making a quick buck.  The commoditization of cybersecurity threats is a dangerous development to which all organizations should pay heed.

Ransomware is typically contained in an infected attachment or link, and, once downloaded or opened by any employee, it locks all files on the device until the target pays a ransom to unlock it.[xiii]  This can occur on any electronic device connected to a company’s systems, including computers, tablets, or smartphones.[xiv]  Therefore, it is essential for organizations to: (1) educate themselves and their employees on information security and awareness, including current and emerging threats; (2) provide consistent and frequent training on email and Internet usage protocols; (3) monitor all employees’ use of computers and company issued mobile devices; and (4) restrict or limit employees’ use of personal computers, mobile devices, and wearable devices, or implement a Bring Your Own Device (“BYOD”) policy.  These minimum steps should be an organization-wide priority for 2016.


[i] Richard Winton, Hollywood hospital pays $17,000 in bitcoin to hackers; FBI investigating, Los Angeles Times, February 18, 2016, http://www.latimes.com/local/lanow/la-me-ln-hollywood-hospital-bitcoin-20160217-story.html.

[ii] Darlene Storm, Hollywood hospital hit with ransomware: Hackers demand $3.6 million as ransom, ComputerWorld, February 15, 2016, http://www.computerworld.com/article/3032310/security/hollywood-hospital-hit-with-ransomware-hackers-demand-3-6-million-as-ransom.html

[iii] Richard Winton, Hollywood hospital pays $17,000 in bitcoin to hackers; FBI investigating, Los Angeles Times, February 18, 2016, http://www.latimes.com/local/lanow/la-me-ln-hollywood-hospital-bitcoin-20160217-story.html.

[iv] Security Magazine, Ransomware Attacks to Grow in 2016, November 23, 2015, http://www.securitymagazine.com/articles/86787-ransomware-attacks-to-grow-in-2016.

[v] Symantec, Internet Secuirty Threat Report, 2015, 7, https://www4.symantec.com/mktginfo/whitepaper/ISTR/21347932_GA-internet-security-threat-report-volume-20-2015-social_v2.pdf.

[vi] Symantec, Internet Security Threat Report, 2015, 17, https://www4.symantec.com/mktginfo/whitepaper/ISTR/21347932_GA-internet-security-threat-report-volume-20-2015-social_v2.pdf.

[vii] Darlene Storm, Hollywood hospital hit with ransomware: Hackers demand $3.6 million as ransom, ComputerWorld, February 15, 2016, http://www.computerworld.com/article/3032310/security/hollywood-hospital-hit-with-ransomware-hackers-demand-3-6-million-as-ransom.html.

[viii] Security Magazine, Ransomware Attacks to Grow in 2016, November 23, 2015, http://www.securitymagazine.com/articles/86787-ransomware-attacks-to-grow-in-2016.

[ix] McAfee Labs, 2016 Threats Predictions, 2015, 24, http://www.mcafee.com/us/resources/reports/rp-threats-predictions-2016.pdf.

[x] Steven Norton, ‘Ransomware’ Attacks to Grow in 2016, Says Intel’s McAfee Labs, The Wall Street Journal, November 10, 2015, http://blogs.wsj.com/cio/2015/11/10/ransomware-attacks-to-grow-in-2016-says-intels-mcafee-labs/.

[xi] McAfee Labs, 2016 Threats Predictions, 2015, 24, http://www.mcafee.com/us/resources/reports/rp-threats-predictions-2016.pdf.

[xii] Dan Turkel, There are now programs that anyone can use to extort money from you, Business Insider, http://www.businessinsider.com/ransomware-as-a-service-is-the-next-big-cyber-crime-2015-12.

[xiii] Stacy Collett, Five New Threats to Your Mobile Device Security, CSO Online (May 21, 2014), http://www.csoonline.com/article/2157785/data-protection/five-new-threats-to-your-mobile-device-security.html.

[xiv] Stacy Collett, Five New Threats to Your Mobile Device Security, CSO Online (May 21, 2014), http://www.csoonline.com/article/2157785/data-protection/five-new-threats-to-your-mobile-device-security.html.


 

[1] Richard Winton, Hollywood hospital pays $17,000 in bitcoin to hackers; FBI investigating, Los Angeles Times, February 18, 2016, http://www.latimes.com/local/lanow/la-me-ln-hollywood-hospital-bitcoin-20160217-story.html.

[1] Darlene Storm, Hollywood hospital hit with ransomware: Hackers demand $3.6 million as ransom, ComputerWorld, February 15, 2016, http://www.computerworld.com/article/3032310/security/hollywood-hospital-hit-with-ransomware-hackers-demand-3-6-million-as-ransom.html

[1] Richard Winton, Hollywood hospital pays $17,000 in bitcoin to hackers; FBI investigating, Los Angeles Times, February 18, 2016, http://www.latimes.com/local/lanow/la-me-ln-hollywood-hospital-bitcoin-20160217-story.html.

[1] Security Magazine, Ransomware Attacks to Grow in 2016, November 23, 2015, http://www.securitymagazine.com/articles/86787-ransomware-attacks-to-grow-in-2016.

[1] Symantec, Internet Secuirty Threat Report, 2015, 7, https://www4.symantec.com/mktginfo/whitepaper/ISTR/21347932_GA-internet-security-threat-report-volume-20-2015-social_v2.pdf.

[1] Symantec, Internet Security Threat Report, 2015, 17, https://www4.symantec.com/mktginfo/whitepaper/ISTR/21347932_GA-internet-security-threat-report-volume-20-2015-social_v2.pdf.

[1] Darlene Storm, Hollywood hospital hit with ransomware: Hackers demand $3.6 million as ransom, ComputerWorld, February 15, 2016, http://www.computerworld.com/article/3032310/security/hollywood-hospital-hit-with-ransomware-hackers-demand-3-6-million-as-ransom.html.

[1] Security Magazine, Ransomware Attacks to Grow in 2016, November 23, 2015, http://www.securitymagazine.com/articles/86787-ransomware-attacks-to-grow-in-2016.

[1] McAfee Labs, 2016 Threats Predictions, 2015, 24, http://www.mcafee.com/us/resources/reports/rp-threats-predictions-2016.pdf.

[1] Steven Norton, ‘Ransomware’ Attacks to Grow in 2016, Says Intel’s McAfee Labs, The Wall Street Journal, November 10, 2015, http://blogs.wsj.com/cio/2015/11/10/ransomware-attacks-to-grow-in-2016-says-intels-mcafee-labs/.

[1] McAfee Labs, 2016 Threats Predictions, 2015, 24, http://www.mcafee.com/us/resources/reports/rp-threats-predictions-2016.pdf.

[1] Dan Turkel, There are now programs that anyone can use to extort money from you, Business Insider, http://www.businessinsider.com/ransomware-as-a-service-is-the-next-big-cyber-crime-2015-12.

[1] Stacy Collett, Five New Threats to Your Mobile Device Security, CSO Online (May 21, 2014), http://www.csoonline.com/article/2157785/data-protection/five-new-threats-to-your-mobile-device-security.html.

[1] Stacy Collett, Five New Threats to Your Mobile Device Security, CSO Online (May 21, 2014), http://www.csoonline.com/article/2157785/data-protection/five-new-threats-to-your-mobile-device-security.html.

Information Governance: Culture of Security vs. Culture of Compliance

information security threats

Organizations can, and often do, make the mistake of classifying information security as only a compliance matter. Much like taxes, workplace safety, and human resources, information security is governed by a complex set of statutes and regulatory rules. However, unlike the aforementioned areas, information security cannot adequately be solely addressed as a compliance matter.

This is attributed to many factors, including: (1) the inherently valuable and essential nature of an organization’s information; (2) the ever-evolving nature of threats; (3) the relative lack of awareness of information security issues and overall inability of organizations to effectively control and protect its information; (4) the persistent existence of intentional or unintentional insider threats; and (5) the rapidly changing national and global legal and regulatory landscape. Information security cannot be relegated to IT or delegated to one specific person or department without oversight. Information security simply must be addressed from the executive level and must be a persistent, holistic, and synergistic aspect of an organization’s overall governance.

The best practice is to change the organizational mindset from a culture of compliance to a culture of security. The first step in changing the organizational mindset is to stop thinking of information security as an item to “check” to meet minimum compliance requirements and to start thinking of it as an overarching organizational governance goal. Information is the DNA of modern organizations, and information security must be thought in terms of how the organization is run. All of the organization’s departments and employees must fall under the umbrella of information governance and must work together to achieve the common goal. The organization’s leadership must deliver a clear and concise vision, communicate expectations, and expect results

Changing an organizational mindset requires executive level buy-in and a commitment to initiate, develop, and implement an information security program. It requires the bravery and dedication to allocate resources (financial and personnel) to pursuing a culture of security. It requires the fortitude to stick with a culture of security in the face of inevitable setbacks and recalibrations.

Ultimately, changing the organizational mindset to a culture of security is a simple matter of saying “yes.” In doing so, organization will reap the benefits of increased productivity, greater security, and the peace of mind of its employees, vendors, and customers. In doing so, the organization will also not only meet compliance standards, but will in all likelihood, exceed compliance standards.