Australia: Cyber – the year in review: crown jewels, selfies and the view on the horizon

Insurance Update
Last Updated: 27 July 2015
Article by John Moran and Reece Corbett-Wilkins


In this article, we give a global round-up of the highs and lows of the past year in the cyber and data breach space, together with our what-to-watch recommendations for the year ahead.

The US hotbed

Theft of 'crown jewels'

In November 2014, Sony found itself at the centre of what has since become one of the most highly publicised cyber-attacks to date. The external attack is said to have resulted in the exfiltration and leaking of over 47,000 files containing sensitive, personal and confidential information and intellectual property, business records, private emails, unreleased movies, and social security numbers of various celebrities. In addition to stealing large quantities of data, the alleged 'threat actors' (a term commonly used to describe those responsible for causing cyber-incidents) are said to have implanted a malicious software program known as 'Wiper' in Sony's network in an attempt to erase data from Sony's servers and render its network inoperable. Although unconfirmed, a group by the name of 'Guardians of the Peace' has claimed responsibility for the attack.

While not entirely clear, the intention of the perpetrators appears to have been, in part, to acquire and leak Sony's intellectual property in the form of unreleased movies and internal business documents. This was one of the first such large scale and public incidents that appears not to have been aimed directly at financial gain. Rather, the attack was directed towards causing massive reputational damage, disruption and inconvenience to Sony's operations, highlighting the varying modus operandi in cyber incidents.

Cyber coverage case – early interpretation of a cyber-policy

In May 2015, a Utah Court handed down its decision in Travelers Property Casualty Company v Federal Recovery Services,1 one of the first decisions in the US to interpret cyber-liability policy wording.

By way of background, a fitness company (Global Fitness Holdings) was being acquired by another fitness company (LA Fitness). As part of the deal, the insured, a third party data storage company (Federal Recovery Services) that held Global Fitness Holding's customer records (including credit card details) was to provide customer records to LA Fitness. Federal Recovery Services refused to provide the records and as a result was sued by Global Fitness Holdings for tortious interference, conversion, and breach of contract. Federal Recovery Services made a claim under a cyber-liability policy in relation to the proceedings. Federal Recovery Services' insurer (Travelers) sought a declaration from the Court that it did not have to provide cover and consequently did not have a duty to defend the proceeding.

The Court held that the policy did not respond and the insurer did not have a duty to defend the proceeding on the basis that the policy provided cover for 'errors, omissions and negligent acts'. In taking this narrow interpretation on the frequently considered issue of what constitutes an error or omission and whether non-negligent acts fall within this definition, the Court found that there was simply no allegation of any error, omission or negligent act on the part of Federal Recovery Services. To the contrary, the Court held that the wrongful conduct alleged (i.e. not providing the data) was deliberate, and that Federal Recovery Services had acted with 'knowledge', 'wilfulness' and 'malice'. The Court also held that the allegations would need to be grounded in negligence before it would trigger an obligation on insurers to defend the proceeding.

The case serves as a reminder that just because a claim involves electronic information, it does not mean that cyber policies will be the 'go-to' policy. It also highlights that international Court decisions on the operation of cyber-policy wordings are coming down the line, albeit slowly. It is also interesting to note that the dispute focusses on an issue (the meaning of Errors & Omission or 'E&O' as it is colloquially known) that is common to a wider group of policies, suggesting the coverage issues that arise from a cyber-breach may have implications for other classes of business.

The dark side of the internet – FBI's annual cyber report

In May 2015, the FBI's Internet Crime Complaint Centre (IC3) released its annual report detailing the most frequently received complaints in 2014, which included:

  1. Business email compromise – emails to an organisation, ostensibly from the organisation's suppliers or internal personnel, instructing the organisation to redirect payments to another bank account.
  2. Intimidation / Extortion scam – extortion through emails threatening physical harm, criminal prosecution, or public exposure.
  3. Government impersonation email scam – fake emails ostensibly from a government official seeking bank account details and other personal information.
  4. Confidence Fraud / Romance Scam – fake online dating profiles to solicit money from people who believe they are in an online relationship.
  5. Real Estate Fraud – fake websites inducing buyers / tenants into paying money to purchase or rent properties.
  6. Auto / car dealer fraud – fake online advertisements selling cars however, the vehicle which is purchased is not delivered.

The FBI also noted that social media is being increasingly used to obtain personal information and there is a rise in complaints about crypto-currency transactions.

'Cloud' servers not out of reach – the "selfie" shame of it all

In August 2014, a large number of images of high profile celebrities were obtained from Apple's iCloud servers and disseminated online through various social media outlets. The responsible threat actors are believed to be a ring of hackers, traders and sellers who potentially operated for months prior to the dissemination of the photos. The attack is said to have occurred through a process described as 'brute force' where threat actors, usually with the assistance of an automatic password cracking tool, guess the passwords or the answers to secret questions to the login credentials, thereby successfully gaining access to victims' information. Apple has denied that the attack was a result of a breach of its iCloud or 'Find my iPhone' systems.

This breach highlights that cloud (remote data storage) servers are a potential target for threat actors. As a result, organisations using remote data storage are in effect as cyber resilient as their third party service providers, highlighting the need to have effective monitoring of such systems or at the very least appropriate contractual indemnities in place in the event of a breach.

Major cyber-incidents in Australia

Optus – unintentional inadvertence

In July 2014, Optus voluntarily notified the Office of the Australian Information Commissioner (OAIC) of three separate cyber-incidents. The first and arguably most significant involved Optus publicly listing the personal contact details of about 122,000 of its customers on the White Pages online directory and in various print editions of the White Pages. The unauthorised disclosure is said to have arisen from a coding error on Optus' website, which erroneously recorded the affected customers as having provided consent to their personal details being publicly listed. The second incident involved 300,000 of Optus' modems being issued with 'factory default' settings intact, leaving the modems vulnerable to use by members of the general public. The third incident involved Optus' voicemail system being vulnerable to access by members of the general public.

Following an eight month investigation by the OAIC, Optus and the OAIC agreed to enter into an 'enforceable undertaking' under the Privacy Act 1988 (Cth) (Privacy Act), which requires Optus to take specified actions in response to the incidents.

This is the first time that the OAIC has exercised this power since various amendments to the Privacy Act came into force in March 2014. The Optus breach highlights that data breaches are often the result of unintentional inadvertence of an employee, or a system or process. Therefore, organisations should ensure that they develop internal detection and risk management procedures to detect such vulnerabilities.

Woolworths – gift card gaffe

In May 2015, Woolworths found itself at the centre of a data breach that is said to have resulted in the disclosure of the names and email addresses of over 1,000 customers. The breach occurred after customers who purchased Groupon gift vouchers redeemable at Woolworths received, in addition to their own vouchers, a spreadsheet containing the redeemable codes to almost 8,000 vouchers, that had been purchased by other customers. The total value of the vouchers are said to have been over $1m. The cause of the data breach is unclear. Woolworths subsequently issued a statement apologising for the 'technical fault'.

Adobe – a multi-jurisdictional response to a multi-jurisdictional breach

In June 2015, the OAIC finalised its investigation into a global data breach by Adobe that affected 38 million customers including over 1.7 million Australians. The OAIC found that Adobe had breached the Privacy Act. The finding is significant for two reasons:

  1. it provides clarity on what the OAIC considers are 'reasonable steps' to protect personal information from misuse, loss, unathorised access, modification or disclosure; and
  2. the OAIC worked with its overseas equivalent bodies such as the Data Protection Commissioner of Ireland and Office of the Privacy Commissioner of Canada in understanding the extent of the breach, demonstrating the cross-border regulatory approach to investigating multi-jurisdictional data breaches.

As the breach occurred before 12 March 2014 (being the date that the new Privacy regime came into force in Australia) the investigation took place under the old privacy regime and the OAIC's enforcement powers were limited to making recommendations. Under the new regime, the OAIC has expanded powers, including seeking that compensation be paid, remedial action be taken, or the order of a civil penalty up to $1.7m.

Regulatory and legislative developments in Australia

ASIC to play an increased regulatory role

In March 2015, the Australian Securities and Investments Commission (ASIC) released a copy of its 'Cyber Resilience Health Check' report, which is aimed at providing a helpful guide for businesses to measure their cyber resilience and ensure that they have taken steps to prevent a cyber-breach. Shortly following the release of the report, ASIC Chairman Greg Medcraft delivered a speech at the ASIC annual forum in which he outlined ASIC's willingness to assist companies reach their desired level of cyber resilience.

The report and the speech are strong indicators of ASIC's intention to play a key role in regulating organisations' compliance with their cyber related obligations, especially as cyber-breaches are a particularly high risk for ASIC regulated organisations because they tend to hold large amounts of personal information. ASIC's move into the information security territory, traditionally occupied by the OAIC, reinforces that cyber-security is the subject of an interconnected and often overlapping legal and regulatory framework therefore, organisations should be alive to the powers of these regulators, and the potential ambit of other regulators including the Australian Communications and Media Authority and the Australian Prudential Regulation Authority.

Data Retention Scheme – a hacker's honeypot

In April 2015, the Telecommunications (Interception and Access) Amendment (Data Retention) Act 2015 (Cth) (Data Retention Act) received assent. The Data Retention Act creates a scheme requiring telecommunications and internet service providers to retain metadata for two years (Data Retention Scheme). As a 'data 101' lesson, metadata can be described as 'data about data', whereas data is more commonly described as the substantive content of any communication. For example, in the case of a telephone call, the metadata would include details such as the date and time of the call, the phone numbers of the participants, and the location of the devices at the beginning and end of the phone call. The data would not include for example, the details of the conversation.

One concern voiced with the Data Retention Scheme is that it will result in relevant organisations likely storing large amounts of metadata for a longer period of time than they might have done so previously. This in and of itself may arguably create a potential honeypot for hackers. Importantly, metadata will be considered 'personal information', and so organisations regulated by the Privacy Act must take steps to ensure that they comply with their privacy obligations.

Mandatory Data Breach Notification Scheme – game changer on the horizon

In March 2014, a private members Bill (the Privacy Amendment (Privacy Alerts) Bill 2014 (Cth)) was introduced before the Senate, seeking to introduce a scheme whereby organisations are obligated to notify affected persons and the OAIC where there is an unathorised disclosure of personal information (Mandatory Data Breach Notification Scheme). Currently no such obligation exists.

It is unclear whether the Mandatory Data Breach Notification Scheme will be introduced through the passage of the above private member's Bill, or whether the Federal Government will introduce separate draft legislation, however, there appears to be an appetite to follow in the footsteps of the US, UK and other jurisdictions who have brought in such mandatory regimes. The question is when and how the obligations will be framed.

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John Moran
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