- Take the time to develop an understanding of the cyber threats that could affect your business.
- Work with your clients or board to create a solid cyber-security program that involves the board, management, IT team and employees. A holistic and inclusive approach is required to ensure that proper and functional policies are in place that can and will be complied with.
- Within this ever changing space, continued vigilance and attention to new and current methods, policies, systems and procedures is fundamental if organisations are to minimise the chance of a cyber-attack.
Recent high-profile data breaches by Sony Pictures, eBay and the dating website Ashley Madison highlight the increasing importance of hypervigilance in relation to cyber-security. The economic and reputational damage to businesses where poor or inadequate business practices are in place to protect data are self-evident, but legal ramifications are becoming more of an issue. Given the potential impact and frequency of cyber-attacks, it is increasingly obvious that businesses of all sizes and in all industries should allocate resources and tools to implement appropriate strategies. Failure to do so may have legal as well as business related consequences.
It is not just central systems that need to be considered. With the increased use of and access to laptops, mobile access devices and remote access computers, many attacks are directed towards these devices rather than to the central system itself. While many organisations implement security measures in relation to their central systems, hackers have found that peripheral devices are often far less protected, and once infiltrated, often provide a clear and open line to the business.
Cyber-security cannot now be limited to information, data and systems security. The growth of the Internet of Things (IoT), in which products ranging from entertainment systems to children’s toys and medical devices are increasingly connected to the internet, means businesses which engage in these areas need to consider cyber-security from yet another angle. A study released by Hewlett-Packard stated that 70 per cent of the most commonly used IoT devices contained serious vulnerabilities.[i] The impact of such a cyber-security breach was demonstrated on 24 July this year where the Fiat Chrysler Group issued a recall notice for 1.4 million vehicles[ii] as a result of the ability of two external cyber-security researchers to remotely control a Jeep over the internet and disable the engine and brakes.[iii]
Previous bulletins have provided high-level outlines of strategies that corporate legal counsel will need to consider to mitigate risk. This article will drill down further in the context of the Australian Signals Directorate and Office of the Australian Information Commissioner advice, as well as the recent Wyndham case arising in the United States to determine how these might impact on organisations and directors in the Australian cyber-security legal landscape.
Cyber-attacks: a distant threat for Australians?
While the cyber threat is not new and has received international media attention, its importance may not often be fully appreciated by Australian businesses. Material damage can be done by hackers and malicious software, but also by those much closer to home. As indicated in the Australian Government’s Computer Emergency Response Team (CERT) Cyber Crime & Security Report[iv] a large proportion of organisations surveyed indicated that many cyber-attacks are perpetrated by trusted insiders, ex-employees or business competitors seeking to do damage or to extract valuable information.
On 29 July 2015 the Australian Cyber Security Centre (ACSC) released its first unclassified Threat Report to assist businesses in understanding the types of cyber security threats, their impact and mitigation advice. The report aims to advise businesses of their responsibility to ensure adequate protection from cyber threats and to encourage reporting of cyber incidents to the ACSC. Businesses will need to be aware that such attacks can affect them, and additionally ensure that they meet not only their formal obligations under, for example, Australian privacy law, but also to enact baseline protocols and systems to meet the standards expected of their industry. For Australian businesses with international operations, there are also the requirements of the jurisdictions in which the business operates.
This has been brought home recently in the case of Adobe Systems Software Ireland Pty Ltd (Adobe). In late 2013 that there had been a major breach of information that affected more than 38 million Adobe customers globally. The compromised information included email addresses, encrypted passwords, encrypted payment card numbers and payment card expiration dates which were held on a backup system that was selected to be decommissioned. The breaches related to information contained in Adobe’s cloud. The United States, the United Kingdom, Australia and India all have laws that raise the prospects for multi-jurisdictional legal action.
In Australia, for example, the attack affected at least 1.7 million people. The Office of the Australian Information Commissioner (OAIC) conducted an investigation in cooperation with the Data Protection Commissioner of Ireland and the Office of the Privacy Commissioner of Canada pursuant to cross-border privacy and legal enforcement arrangements. On 9 June 2015 the Commissioner found that Adobe breached the Australian Privacy Act 1988 (Cth) (the Privacy Act) and failed to take reasonable steps to protect the personal information it held, stating that ‘The Privacy Act does not require an organisation to design impenetrable systems, however, this case demonstrates the importance of organisations applying sufficiently robust security measures consistently across systems’.[v] As the breach occurred before the new privacy regime changes were brought into effect on 12 March 2014, the Commissioner’s powers to resolve the investigation were limited to making recommendations and requesting Adobe to engage independent auditors to certify that it had implemented planned remediation, and to provide a copy of the certification and auditor’s report. If the breach occurred after 12 March 2014, Adobe could have been fined up to $1.7 million and had further onerous and binding orders placed upon it.
To give some idea of the Australian industries and organisations affected by cyber-attacks and the intersection of privacy law, it should be noted that the Commissioner has more recently finalised investigations into breach notifications by a number of Australian organisations, including Catch of the Day and Aussietravelcover, and is now conducting an own-motion investigation into a suspected data breach of iiNet subsidiary Westnet in which a cyber-attack had allegedly compromised the personal information of Westnet customers and which had been subsequently offered for sale online.
The Wyndham case
The US case of Federal Trade Commission v Wyndham Worldwide Corporation, et al.[vi] is one of the first to highlight the increasing emphasis on the requirement for certain baseline cyber-security practices to be implemented. The FTC has previously issued policy statements and guidance for business in relation to data security. In that case it was alleged that there were three breaches in which directors and officers of the Wyndham Worldwide Corporation (Wyndham) failed to implement reasonable and appropriate data security measures for consumers’ personal information, and therefore violated a legislative provision against acts or practices in or affecting commerce that are ‘unfair’ or ‘deceptive’.
In Australia that would seem to correlate with an allegation of breach of director’s duties under the Corporations Act 2001 (Cth), and also a misleading and deceptive conduct claim under the Competition and Consumer Act 2010 (Cth).
The Federal Trade Commission (FTC) in the Wyndham case alleged that Wyndham had privacy policies regarding the privacy and confidentiality of personal information on its website which represented that Wyndham safeguarded the information using industry standard practices. It was alleged that Wyndham had not actually implemented reasonable and appropriate measures, and that Wyndham’s representations were false or misleading and constituted deceptive acts or practices. A number of complaints included that Wyndham:
- allowed software at hotels to store payment card information in clear readable text;
- failed to monitor its network for malware used in a previous breach that was then reused by hackers to access the system;
- did not employ common methods to require user IDs and passwords that are difficult for hackers to guess, such as allowing remote access to a property management system that used default/factory setting passwords;
- did not readily available security measures, such as firewalls, to limit access; and
- failed to employ reasonable measures to detect and prevent unauthorized access to the network or to conduct security investigations.
The United States District Court of New Jersey confirmed that the FTC had the authority to pursue claims that companies failed data security requirements under the legislative provision and had sufficiently plead deception and unfairness claims under that provision. Wyndham attempted to have the matter struck out early, but was unsuccessful. The United States Court of Appeals for the Third Circuit has now issued a ruling in FTC’s favour, upholding the District Court’s ruling that the FTC, under the unfairness provision, has authority to bring enforcement actions against companies whose inadequate cybersecurity measures caused substantial injury to consumers.
The case highlights that:
Businesses are expected to have in place minimum standards and must ensure ongoing compliance with those data protection standards. Failure to do so could result in compensation or penalties being imposed, together with the potential for civil action.
Cooperation with industry regulators is key. Published guidance from regulators are a starting point for developing cybersecurity policies and practices.
Data breaches are expensive and the cost of regulatory investigation and litigation can be high. Businesses are better served by investing in upfront security measures.
Privacy policies and other public-facing documents may be cited in future cybersecurity litigation.
A solid cyber-security program is essential, and lawyers and boards should work holistically and seek assistance in understanding the company’s data security and compliance policies.
Businesses should reduce risk in relation to data security by implementing measures such as limiting data collection and retention and limiting third party access.
Businesses should review insurance policies as mentioned in previous bulletins.
Liability under the Australian regime
While the Wyndham case is still ongoing and can now move to the merits phase at the District Court, it provides an example of the types of actions that can be brought against companies, directors and officers as a result of cyber-attacks. Similar powers to that of the FTC are conferred on the OAIC under the Australian Privacy Principles which govern privacy and data protection in Australia. Shareholders and customers relying on privacy policies or statements that are subsequently found to be inadequate due to a successful cyber-attack may also find that they can resort to similar misleading and deceptive conduct legislation, including under the Australian Consumer Law.
Lawyers should be aware in advising clients on their corporate governance practices that, in addition to the above, cyber-security and security of data should be of key concern in the organisation’s risk management strategy. There is some potential for the development of tort liability for consequential damages caused by inadequate or negligent cybersecurity measures. Directors may be personally liable for misleading and deceptive conduct should shareholders or customers bring proceedings following a data breach where a director has either ‘aided and abetted’ or ‘been in any way, directly or indirectly, knowingly’ involved.
The duties of directors in relation to care and diligence and continuous disclosure are likely to include the requirement for directors to put themselves in an informed position as well as the responsibility for, and continuous monitoring and review of, policies relating to data and cyber-security. The United States National Association of Corporate Directors has published a number of guides including Cybersecurity: Boardroom Implications[vii] and Cyber-Risk Oversight: Director’s Handbook Series[viii] which encourages a top-down approach to encourage board cyber literacy.
It should be noted that cyber-security breaches may also have some bearing on the general obligations of publicly listed companies on the Australian Stock Exchange (ASX) to inform the ASX of any information that a reasonable person would expect to have a material effect on the company’s share price or value. Directors in that instance would need to consider whether disclosures should be made to avoid breaching the Corporations Act and limit the potential for class action.
A - Top four strategies to mitigate cyber attacks
Lawyers and particularly in-house counsel need to understand and be prepared to develop a culture of cybersecurity awareness in their own organisations as well as to assist clients in their own infrastructure and processes. While it is not possible to have an impenetrable system, the Australian Signals Directorate (ASD) has published a report on the security effectiveness of 35 strategies to mitigate cyber intrusions, measured against metrics including relative user resistance, upfront cost and maintenance cost.[ix] The ASD found that at least 85% of the intrusions responded to by the ASD in 2011 involved unsophisticated hackers that would have been mitigated by implementing the top four strategies as a package.
Accordingly, the ASD has listed the top four strategies as essential for overall security effectiveness to protect an organisation from low to moderately sophisticated intrusion attempts. The ASD’s report found that the remaining strategies can be selected for implementation in conjunction with a risk assessment, to plug security gaps until an acceptable level of residual risk is reached. The top four are:
- Whitelisting: Application whitelisting allows only specifically authorised applications to run on a system, to protect computers and networks from malicious or unapproved applications.
- Patching Operating System Vulnerabilities: A patch is a piece of software designed to update, add a new feature, fix a bug or add documentation to a computer program or its supporting data. Operating systems should be patched typically within two days of a vulnerability being made public.
- Patch Applications: Specific applications such as Java, Flash and Microsoft Office should also be patched within a two-day timeframe for serious vulnerabilities.
- Restrict Administrative Privileges: Administrators are often targeted due to the high level of access to an organisation’s ICT system. Minimising administrative privileges makes it more difficult for hackers to spread or hide their existence on a system. Additionally, separate accounts with IT administrator privileges but without internet access should be created.
B - US Framework
As a result of President Obama’s Executive Order 13636: ‘Improving Critical Infrastructure Cybersecurity, the US National Institute for Standards and Technology has published a comprehensive guide relating to the US’s Cybersecurity Framework. It is based upon a 5 tier approach of Identifying, Protecting, Detecting, Responding and Recovering. While now about 18 months old, and not directly referable to Australian standards, it outlines a useful approach that could be adapted for local purposes. [x]
C- What other reasonable steps should organisations take in the context of privacy?
The OAIC’s ‘Guide to securing personal information’[xi] (the Guide) provides further guidance on the reasonable steps organisations should take under the Privacy Act to protect personal information. While not legally binding, the OAIC has stated that it will refer to this guide when investigating whether entities have complied with personal information security obligations or when undertaking assessments.
Broadly, the Guide considers steps and strategies across the following non-exhaustive areas:
- Governance, culture and training;
- Internal practices, procedures and systems;
- ICT security;
- Access security;
- Third party providers, including cloud computing;
- Data breaches;
- Physical security;
- Destruction and de-identification; and
Lawyers will need to consider their client’s risk profile (such as the level of sensitivity of data held by a client) and response plans across these and other areas, including notification of affected individuals and the OAIC where there is a data breach. Cyber-security should be taken as a comprehensive holistic approach and not simply limited to the perimeter. Lawyers should understand what data is held on their client’s systems, including where the data is located (such as on the cloud), and understand the threat profile attached to the data.
Take for example the own-motion investigation of Cupid Media Pty Ltd (Cupid Media) by the OAIC.[xii] The outcome of that investigation illustrated that at a minimum, organisations that hold personal information should ensure that customer passwords are encrypted and that more stringent steps are required of organisations handling sensitive information. Lawyers should also ensure that clients have a system or procedure in place to audit, identify and destroy or permanently de-identify information that is no longer required or used.
While it is impossible for organisations to construct impenetrable defences across systems, peripheral devices and even IoT products without limitless resources, it is imperative for lawyers to work collaboratively with board members, IT professionals and all parties in the supply chain to drive a dedicated and fully considered approach to cyber-security. Appropriate data protection and risk management processes must be in place, audited and reviewed periodically. Attention must be paid to regulatory requirements and guidance to limit any potential damage should a cyber-attack occur. Within this ever changing space, continued vigilance and attention to new and current methods, policies, systems and procedures is fundamental if organisations are to minimise the chance of a cyber-attack.
Tal Williams, Partner and Joann Yap, Solicitor
This article was first published in Lexis Nexis (September Edition 2015).
[i] Hewlett-Packard, Internet of Things Security Study, 2014 Report, September 2014, go.saas.hp.com.
[ii] Fiat Chrysler Automobiles, Statement: Software Update, July 2015, www.media.chrysler.com.
[iii] Andy Greenberg, Hackers Remotely Kill a Jeep on the Highway – With Me In It, July 2015, www.wired.com.
[iv] Australian Government, CERT Australia, Cyber Crimes & Security Report 2013, www.cert.gov.au.
[v] Australian Government, Office of the Australian Information Commissioner, Office of the Australian Information Commissioner cooperates with international counterparts to finalise Adobe investigation, June 2015, www.oaic.gov.au.
[vi] FTC v Wyndham Worldwide Corporation, et al. See www.ftc.gov.
[vii] National Association of Corporate Directors, Cybersecurity: Boardroom Implications, January 2014, www.nacdonline.org.
[viii] National Association of Corporate Directors, Cyber-Risk Oversight Handbook, June 2014, www.nacdonline.org.
[ix] Australian Government, Defence Signals Directorate, Top four mitigation strategies to protect your ICT system, October 2012, www.asd.gov.au.
[x] National Institute of Standards Technology, Framework for Improving Critical Infrastructure Cybersecurity, February 12, 2014.
[xi] Australian Government, Office of the Australian Information Commissioner, Guide to securing personal information, www.oaic.gov.au.