China: Ransomware Attack: The Corporate Liability Of Reporting In Mainland China

Last Updated: 7 January 2018
Article by Zhong Lin

Though ransomware made worldwide headlines twice this year through the Wannacry worm and the Petya/NotPetya attack, most companies are still hesitant on the proper steps to take following a ransomware attack. Still, companies following an attack would have to walk through the compliance path, both for the sake of business continuity, and to fulfill their reporting obligation set by law and contractual terms. This reporting obligation has been greatly discussed since the adoption on 7 November 2016 of the Cybersecurity Law (CSL), in particular its scope, what should be reported to the authorities and when such report should take place. As time flew after the adoption of the law and major cyber-incidents occurred in 2017, we will discuss the reporting obligation as per Article 25 of the CSL and provide companies with a clearer understanding of their legal and contractual reporting obligation.

To whom ransomware attack should be reported

Whilst Article 25 of the CSL clearly states that "when any incident endangering cybersecurity occurs, network operators shall immediately report the same to the relevant competent departments in accordance with the provisions", legal counsels still struggles with the interpretation the article in articulating what to report and to which "relevant competent departments".

It is to be understood in Article 8 of the CSL that the Cyberspace Administration of China is meant to be an overall planning and coordination entity, and as such not meant to supervise cybersecurity in China. It can also be read that "competent telecommunication department of the State Council, public security departments and other relevant authorities shall be responsible for protecting, supervising and administering cyber security within the scope of their respective responsibilities". We also know through relevant laws such as the 1994 Regulations on the People's Republic of China for Safety Protection of Computer Information Systems (the Regulations) in its Article 15 that the Ministry of Public Security is in charge of "the prevention, control and research work of computer viruses and other data harmful to the social public security". The function of the Public security organs is then further described in Article 17 of the Regulations, second item as "To investigate and handle crime and illegality cases of endangering the safety of computer information systems". Ransomware being a category of Trojan or Worm carried attacks harming social public security do fall within the function of the Public security organs, which should then be duly informed in addition to local competent telecommunication department of the State Council upon discovery of an attack as per Article 25 of the CSL and 15 of the Regulations.

However, Public security organs are not the only relevant competent departments that are meant as per Article 8 of the CSL. It must be noted that due to the sectorial approach toward cybersecurity of Chinese law, relevant authorities to report to will also be spread across diverse governmental bodies overseeing various industrial field. A good example is for the air transportation industry where the Ministry of Transport in the Circular of the Ministry of Transport on Seeking Public Comments on the Administrative Provisions on the Information Security of the Civil Aviation Network (for Trial Implementation) (Draft for Comment) (the Circular) of February 2017 aims to appoint the Civil Aviation Administration of China (CAAC) in Article 6 as the entity "responsible for organizing, guiding and coordinating the network information security work in the whole sector". A responsibility that include in Article 8, item 5 of the Circular, "To establish a reporting system on network information security information, to cooperate with the CA administration authorities in network information security checks and incident investigations, and to correct problems once found;" and will therefore place the CAAC as the relevant authority to go to when reporting cybersecurity incident, including ransomware attack, for companies belonging to the aviation sector supervised by the CAAC. We can determine that this reporting structure is to be replicated to each industry field. Thus, by observing each sector regulator, companies should be able to determine which one is their relevant authority to report to in addition to Public security organs.

In addition to compliance with Article 25 of the CSL, companies should make sure of their contractual obligations toward their corporate HQ if any, and toward any insurer would they have subscribed to an insurance plan including cybersecurity events. Such cases are to be covered by contractual clauses précising which entity should be contacted.

From discovery to reporting, the question of when

One of the crucial questions regarding ransomware response is the time of reporting. While Article 25 of the CSL remains silent on the length to be considerate as "immediate", it would be erroneous to believe that no clear timeline is present in Chinese law. One may look at Article 14 of the Regulations states that organizations which computer information systems have been impacted by a security breach should report to the relevant authorities within 24 hours. This 24 hours mark is also present in the draft of the non-mandatory Information security techniques - personal information security specification (the Specification) released on December 2016, Article 5.7.c.3. Whilst it aims at cyber-incidents impacting personal information, it could be relevant to ransomware attack would the forensic team discovers an underlying personal information data breach hidden prior or following the ransomware attack. For reporting to third parties, such as the company HQ or the insurance company, it should be done in accordance with contractual terms or internal policies. Regarding the starting period of the 24 hours, it can be hypothesized that it should run from the discovery of the ransomware, thus requiring proper internal reporting guidelines and channels to leave enough time for the company management to prepare the relevant documentation for the reporting phase.

With an increased impact over companies, ransomware attacks have turned into a complex organizational challenge for targets to comply with the law as well as with contractual terms. We recommend companies to audit their internal reporting processes in addition to updating them to recent threats if not done already. Companies should also review their current insurance program to assess whether cybersecurity incidents are covered and would they be, review claim conditions and ensure that those conditions are respected when discovering ransomware attack. 

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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