This article was originally published by the Daily Journal.

In a recent panel discussion, one of the speakers was a so-called "ethical hacker" – a hacker-turned-protector of employers’ confidential information. As someone at the forefront of cyberattacks, the ethical hacker’s opinion was that there are two types of employers: those that know they have been hacked, and those that do not. And with all of the press coverage regarding recent hacks into U.S. confidential security information, it seems our ethical hacker may well be right. Indeed, in March, James Clapper, the director of National Intelligence to the U.S. Senate Intelligence Committee, suggested that cyberattacks now pose the most dangerous immediate threat to the U.S.

Although many employers think they are prepared for cyberattacks, according recent study, more than half of technology, media and telecommunications organizations experienced a security incident in the past year. "Blurring the Lines: 2013 TMT Global Security Study," Deloitte, 2013. Seven percent of these incidents were described as "high impact." The top three cybersecurity threats identified were security breaches at third parties, denial of service attacks, and employee errors and omissions. Such weaknesses in data security can severely damage brand and market value, leaving customers, employees and shareholders wanting to know what the company is doing to preempt these cybersecurity threats.

What is a Cyberattack?

Cyberattacks generally fall into three categories: infiltrating a secure computer network, Distributed Denial of Service Attacks (DDOS), and planting inaccurate information.

Perhaps the most well-known cyberattack is the traditional infiltration of a company’s computer system through Trojan viruses and malware. Generally, the objective is to extract confidential and/or proprietary information from the target company using specially tailored computer programs.

As someone at the forefront of cyberattacks, the ethical hacker’s opinion was that there are two types of employers: those that know they have been hacked, and those that do not.

Recently, however, DDOS attacks have become the most common known type of electronic cyberattack. A DDOS attack is coordinated by "botnets," in which a series of "zombie" computers belonging to unknowing users visit a company’s website at the same time, overwhelming the server and shutting it down. Such attacks are prevalent amongst "hacktivists," who attempt to shut down bank and financial websites in an act of activism, protest or civil disobedience.

The third type, planting inaccurate information, is exactly as it sounds: attackers covertly insert inaccurate information into a company’s computer system. These attacks confuse and mislead users, and can even cause the computer system to fail.

The Human Element

The most prevalent type of "cyberattack," however, remains the "inside job": both willing and unwilling. According to Diligence Information Security, about 70 percent of security breaches are committed by employees. Christ Nuttall, "Hacking Usually an ‘Inside Job,’" BBC. Generally, the intruder only needs physical access and a password. An employee attaches a thumb drive or other storage device to an employer’s network and downloads sensitive data. Case examples include an employee who used customer credit card information to go on elaborate spending sprees (United States v. John, 597 F.3d 263, (5th Cir. 2010)); a Social Security Administration employee who accessed former girlfriends’ addresses to solicit their affections (United States v. Rodriguez, 628 F.3d 1258, (11th Cir. 2010)); and a recruiter in California who downloaded customer lists to start a competing business (United States v. Nosal, 676 F.3d 854 (9th Cir. 2012)).

How is it happening?

Hackers are developing ever more inventive approaches to hacking. For example, in 2006, Secure Network Technologies, a security consulting firm, seeded USB drives throughout an employer’s parking lot. The thumb drives were equipped with Trojan malware that, when plugged into a computer, would collect personal information such as passwords and machine-specific information and email these findings back to the Trojan’s creator. The test revealed that employees picked up 15 of the 20 USB drives planted, and all 15 were plugged into the employer’s computers. Although this was a controlled simulation, this replicated real life attacks, which have included masked gunmen caught on CCTV using spud guns to fire thumb drives over security fences into a technology company’s parking lot.

Legal requirements

Although most employers are concerned about data security, many are unaware of the legal requirements. For example, financial institutions covered by the Gramm Leach Bliley Act (financial institutions that collect nonpublic, personal information about individuals who obtain a financial product or service) must establish appropriate standards of administrative, technical and physical safeguards to protect against unauthorized access to records or information which could substantially harm or inconvenience any customer. 15 U.S.C. Section 6801. Similarly, institutions with private health information must comply with HIPAA, which requires employers to create unique user identifications, an emergency access procedure, automatic logoff, and a mechanism for encryption and decryption of electronic protected health information. 45 C.F.R. Section 164.312(a)(2). In addition, HIPAA mandates standards for auditing policies and procedures, encrypting information, and guarding against unauthorized access. 45 C.F.R. Section 164.312.

This means implementing safeguards with respect to collection, storage and usage of information, conducting risk analysis, appointing an employee to manage these safeguards, and training employees on how to recognize and respond to a breach of security. Examples include frequent password changes; encryption of data; tracking network access; restricting employee access to sensitive information; maintaining firewall configuration and blocking access to file-sharing sites; and maintaining a policy that addresses information security. Another overlooked security risk is the use of third -party vendors that do not have secure networks and practices.

Notification duties

Employers also have affirmative duties to disclose information about a security breach to affected persons. Most state data security breach notification laws mirror California Civil Code Section 1798.82 – the first state law of its kind, and generally recognized as the most expansive. Under Section 1798.82, if a business owning or licensing computerized data discovers a breach of security including "personal information," it must notify any California resident whose unencrypted personal information it reasonably believes was acquired by an unauthorized person. Section 1798.82(a). A breach of security is any unauthorized acquisition of computerized data that compromises the security, confidentiality, or integrity of personal information. Section 1798.82(d). "Personal information" is defined as an individual’s first name or first initial and last name in combination with any of the following: (1) Social Security number; (2) driver’s license number or California Identification Card number; (3) account number, credit or debit card number, in combination with any required security code, access code or password that would permit access to an individual’s financial account; (4) medical information; or (5) health insurance information. Section 1798.82(e).

Why is a cybersecurity policy necessary?

Electronic communication and recordkeeping are here to stay. Employers must take electronic measures necessary to protect information. This requires a multi-faceted approach, including firewalls, data encryption and security software.

Cybersecurity policies are more important than ever in the battle to protect sensitive information. Such policies are important first to prevent a breach, and later for maximum legal protection in the event of a breach. The Computer Fraud and Abuse Act (CFAA) provides for criminal and civil penalties against an employee who "knowingly and with the intent to defraud, accesses, and by means of such conduct furthers the intended fraud and obtains anything of value." 18 U.S.C. Section 1030. The CFAA also allows employers to recover damages such as the cost of hiring a computer forensic firm to investigate the employee’s activities. Recently, employers have brought CFAA claims against former employees who take confidential information from company computers. U.S. Circuit Courts of Appeal are split as to whether the CFAA applies to an employee who has literal authorized access to documents, but uses that access for an unintended purpose. Several courts have held that the CFAA does apply if an employee violates an employer’s computer use or confidentiality policy. (The 1st, 5th, 8th and 11th circuits follow this view. The 9th Circuit does not. Nosal, 676 F.3d 854.)

Employers should implement robust confidential information, electronic communications and usage and access policies. Such policies should prohibit employees from accessing data that is not required as part of their job duties and spell out that violation may lead to termination. Best practice would be to physically limit access so as to prevent the possibility of such violation in the first place. Policies should also discuss the types of threats that businesses are facing and how employees can help to minimize such risks. While written policies are a good starting point, ensuring that they are followed in practice is most important. If implemented correctly, such policies can dramatically help reduce the risks posed by cyberattacks.

For further information, please contact Paul Cowie or Dorna Moini.