How Recent Data Breaches are Changing the Face of Cybersecurity for the Private Sector

Holland & Knight LLP

If "The Year of the Breach" and the rapid start to data breaches in 2015 have taught us anything, it is that any company is susceptible to a cyber attack; and, while data breaches are not a new concept, the way the private sector must start to think about them is. One of the more recent well-known breaches produced a vast array of non-traditional compromised information, ranging from valuable intellectual property (IP) to sensitive employee information to embarrassing emails from executives. The most recent large-scale, confirmed breach also involved compromised employment information, and while there is yet no indication that medical diagnosis or treatment information was exposed, it is safe to assume that attackers will attempt to go after such information in the near future, as the healthcare industry increasingly gets targeted. On the other hand, there are also other attackers out there who are solely focused on obtaining identity records (SSNs, dates of birth, first and last names, addresses, etc.) because of their value in hijacking accounts and perpetrating finely-tuned social engineering attacks. 

Since the large number of data breaches in 2013 made the headlines, many consumers—and possibly even the media outlets—may be numb to the news of yet another data breach, but we think the most recent breaches have changed the cybersecurity landscape for the private sector.

State-Sponsored Cyber Attacks Aren't Limited to Traditional Military Targets

Before the recent news reports, state-sponsored cyber attacks could traditionally be categorized as being matters of national security or defense and unrelated to the general business world. There certainly have been state-sponsored attacks on private and public companies, but none have gone as public as they have in late 2014 and early 2015; and, to the extent the private sector was targeted by state actors, the business sector generally contemplated this as involving critical infrastructure. However, recent breaches have blurred the line between traditional military targets and conventional criminal activity against the business sector. 

Early reports are pointing the finger at China for what may prove to be the largest breach in the history of the healthcare industry, and the Federal Bureau of Investigation (FBI) publicly confirmed that North Korea was responsible for a recent well-known cyber attack against the entertainment industry.  Before December 2014, a major entertainment corporation and the maker of the ever-popular game console might have considered themselves at risks of online hacking—after all, hackers often enjoy messing with millions of gamers and making systems "go dark" on Christmas morning—but this perception changed once North Korea launched its cyber attack.  In that moment, going to the movies was no longer thought of as a holiday family outing, as the hackers threatened 9/11-style attacks at the premiere of a U.S. film.  While a data breach was, by no means, a far-fetched concept for such an entity, surely most company executives—and the general public—did not envision that a cyber attack would devolve into terroristic threats. 

Consequently, when national actors are involved, there is an intermingling of state and private interests that is otherwise not present with the traditional private sector attack. This structure has the potential to change the dynamics of a data breach investigation:  with the latter, the company typically has the authority to decide whether to involve law enforcement; whereas, with the former, federal law enforcement will likely take the reins and insert itself into the matter.

Money Isn't Everything

Historically data breaches in the business world have been thought of as being financially motivated (e.g., credit card numbers, SSNs, bank account information, etc.). When discussing the "data breach" topic, financial institutions and the retail industry are the primary potential targets that come to mind. However, recent breaches demonstrate that cyber attacks on businesses can be politically motivated and, if nothing else, used as a method of inducing sheer embarrassment for the victims. Further, even where attacks are motivated by financial gain, the scope has extended beyond the customary monetary crimes directed at individuals to include economic advantages at the national level, with state actors targeting major U.S. businesses. As a result, companies can no longer think about and plan for data breaches solely in the context of credit card and bank account numbers; there may be other pieces of data of significant interest to the attackers, which the company has not taken into account in its breach preparedness program.

The Resulting Harm May Be Irreversible

When the impact of a cyber attack is limited to financial harm, such as a stolen credit card number, there is a strong possibility that the damage can (ultimately) be amended. Banks can reverse fraudulent charges, and consumers can enroll in credit protection services to prevent future malicious activity, such as a cyber criminal opening a new line of credit in the victim's name. However, when consumers experience invasions of privacy that go beyond monetary impacts, there is often no remedy for the impending harm. 

For example, with respect to health information, as soon as a patient's medical diagnosis has been released to the public, the information is out there forever, and there is no taking it back. Such harm extends well beyond the financial implications of what was once thought of as the traditional data breach. Family members could, for example, find out about a loved one's terminal illness before he or she was ready to share this information. 

Similarly, when employees' salary information is made publicly available, you cannot "erase" it from the memory of his or her colleagues, who are now negotiating for higher pay. And while one may ask for forgiveness, you certainly cannot expunge the stigma associated with salacious and inane comments made over email that have now come to the public light. Thus, risks to a company's brand and reputation are tremendously higher when the potential harm to the victims exceeds the parameters of financial impacts.

So What Does This Mean for the Business World? 

The recent breaches tell us that no matter who you are or what your organization does, your company could be the next data breach victim, and the new cyber landscape only reinforces the need to address these issues on the frontend. The bottom line is that affected customers are not going to care if the attacker is China or a teenage hacker in the basement; they will care that the attack happened in the first place. Thus, no matter the motivation driving the attack or the responsible party behind it, it is imperative that businesses exercise breach preparedness.

Have a Plan

If your business touches the Internet in any way (and all do) you have to be thinking about information security and incident response—and the time to do so is not after your first breach happens. Create policies and procedures to address potential cyber incidents, and ensure that these protocols encompass all relevant aspects of your organization (e.g., IT, legal, compliance, public relations, etc.).  Furthermore, as previously discussed, attackers are no longer focused solely on financial data; therefore, companies must be sure that relevant policies contemplate "non-traditional" data and incorporate procedures designed to address the protection and handling of such data accordingly.  Companies must also conduct regular reviews and periodic trainings to make certain that the policies are up-to-date and well understood across the organization.  

Regulators have repeatedly stated that there is no such thing as perfect security and that just because a breach happens does not mean that a company violated the law. What matters is that companies are making a substantial effort to address and prepare for the cyber threat and are taking matters like information security and privacy seriously. Testing, as will be touched on below, is one of the main things regulators want to see and have said that doing so will inform their prosecutorial discretion. Having a comprehensive cyber incident response plan is the first step in demonstrating a genuine concern for these matters.

Establish Relationships with Regulators, Law Enforcement and Other Necessary Vendors 

Just as with creating written policies, the time to establish relationships with law enforcement, regulators, and third-party vendors is not mid- or post-breach. Law enforcement has an interest in "catching the bad guys" just as much as the company who suffered the breach, and this is especially the case in instances where the culprit is a state actor. It is often forgotten that consumers, businesses, law enforcement and regulators alike all have a common interest in preventing data breaches and mitigating the impacts of malicious cyber activity. 

Similarly, it is critical that companies develop relationships and make arrangements with third-party vendors, such as credit monitoring companies, forensic firms, law firms, public relations firms, etc., in advance of a major incident. Attempting to coordinate mass mailings, manage the extremely high volume of inquiries that will be flowing into call centers, and articulate meaningful and sound public statements at the height of a crisis (all the while trying to determine what actually happened) only adds "fuel to the fire." Establishing relationships with these entities before you are obligated to engage them further substantiates that your organization is taking these matters seriously and will be beneficial if and when the time comes for their involvement down the road by facilitating a more streamlined and manageable incident response process.

Test, Test, Test

A company can have a seemingly perfect plan on paper, but it can be rendered meaningless if the policies are not effective and internalized by key players in the process. Companies who test their incident response policies have a significant advantage over those who first execute these procedures amidst a real life crisis, from both a practical as well as a liability standpoint. 

Responding quickly and accurately to the public is critical. Delay increases liability risk as well as costs.  For example, the California Attorney General (AG) took action against a company that had a security incident and waited approximately three months after completing forensics and one month after finishing its contents inventory to notify impacted customers. As a result, the company is now obligated to provide notification to affected consumers on a "rolling basis," must notify as soon as an impacted individual is identified, and must do so even if its investigation is ongoing.1 In addition, less than a week into the most recent major breach, at least six state AGs as well as state insurance commissioners have launched investigations into the incident. 

Cyber exercises allow organizations to identify gaps and rectify "problem areas" before an actual breach occurs and, ideally, avoid repeating past mistakes. Moreover, exercises further solidify that your company is taking privacy and security seriously and can help to inform prosecutorial discretion of regulators in the future (i.e., if regulators see that you are regularly testing your cybersecurity policies and programs, they may be less likely to launch an investigation or bring an action against you, as they will be more concerned with those companies who suffered a breach but were not testing). Finally, as prevalent as data breaches have become, consumers are expecting that companies address and prepare for these risks. 

It is important to note that cyber testing should be a continuous process. As new threats emerge and as the landscape continues to change, companies must continually test their programs to ensure that current vulnerabilities are adequately addressed. Beth Dugan, Deputy Comptroller for Market Risk at the Office of the Comptroller of the Currency, emphasizes that companies must establish "a tone at the top" with periodic risk assessments to develop "a sound security culture." Deputy Dugan went on to state:

Recovery and restoration plans need to be re-evaluated for technology environments that present different or new risks. Given the importance of the cyber threats and their potential impact, they must be a priority and addressed within a firm's risk governance framework and culture.

While the next target may be unknown, the next data breach is inevitable—and what that company is doing now to prepare for that event will dictate the severity and impending aftermath thereof.

1Stipulation for Entry of Final Judgment and Permanent Injunction, California v. Kaiser Found. Health Plan, Inc., Case No. RG14711370 (Cal. Super. Ct. Feb. 10, 2014), available at

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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