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In 2013, hackers attacked a venerable Swansea, Massachusetts institution via ransomware. Ransomware is software that locks users out of computers or specific files until the victim pays a “fee” to release the lock. Such attacks have become increasingly common in recent years, with hospitals and health systems being frequent targets. Typically, any institution reliant on real-time or near-real-time access to data can be subject to ransomware attacks. The twist in the Swansea incident was the victim: the Swansea Police Department.

In addition to targeting the occasional law enforcement agency, ransomware has had other interesting implications. When Medstar was infected, it reportedly developed a partial workaround by reverting to pen and paper files. This could be seen as the latest manifestation of cyber-defense measures which have ranged from the Kremlin’s rumored decision to revert back to typewriters to the U.S. Navy’s decision to reinstate training in celestial navigation as a backup to computer calculations. While a series of high profile ransomware attacks in 2016 have raised public awareness, the full legal and practical implications of the phenomenon are still being worked out. Here is what we know:

  1. Ransomware has a pedigree. The earliest known incident occurred at a 1989 World Health Conference. A conference attendee distributed 20,000 infected floppy disks to participants. Victims were instructed to mail payment to a postal box in Panama. The perpetrator was quickly apprehended, but variants of the scheme continue to evolve. In recent years, the advent and ubiquitous presence of the Internet has made it exponentially easier to distribute ransomware infections.
  2. The United States government’s position on ransomware payments is conflicted. Law enforcement frowns on payoffs, which inevitably breed the next generation of attacks. However, FBI officials have acknowledged that “we often advise people just to pay the ransom.” Queried by Senator Ron Wyden, the FBI clarified that it advised payment only if no mitigation steps were available, and as the sole alternative to permanent loss of the data. The government has had some success – it has stopped some platforms and botnets and seized others, but the magnitude and continuous evolution of the problem defies a ready solution.
  3. The Government itself is a target. In addition to the Swansea police, a number of other institutions have been attacked and paid ransoms, including the Lincoln County, Maine, Sheriff’s Office and the Midlothian, Illinois Police Department. Law enforcement willingness to pay is a tacit acknowledgement of both the intractability of the problem, and the legal appropriateness of making the otherwise unseemly payments.
  4. Victims’ willingness to pay ransoms is a function of the fact that most ransomware perpetrators keep their demands relatively low – around $300 is average. Moreover, while there is no guarantee that payment of the ransom will release the locked system, there appears to be an “honor among thieves” ethos whereby most attackers do appear to live up to their end of the bargain. Many go so far as to send “customer service surveys” to targets, seeking “feedback” on their “service.”
  5. Distinguishing ransomware from more reputable business practices is not always a clear cut exercise. Communications from self-designated “security firms” may identify specific security gaps on a company’s IT system and then seek payment for consulting services. Such a communication may or may not be a ransomware attack. The distinction hinges on many factors, including (1) whether data was accessed in violation of the federal Computer Fraud and Abuse Act, (2) whether failure to retain the security firm will result in the loss of data and (3) whether the communicator has barred the owner from accessing any part of its own system.
  6. On the other end of the spectrum, the ransomware demand is often cast as a legal notice from the FBI or other law enforcement agency. The recipient is warned that the computer has been electronically seized for illegal activity, often terrorism or pornography. Many recipients elect to pay a “fine” to release their equipment; the embarrassment and fear accompanying the taint of illegal activity makes such victims more willing to pay.
  7. Ransomware is becoming increasingly ominous with the advent of the Internet of Things. The FDA has recently advised medical manufacturers to evaluate and address cyber gaps in their products; even otherwise innocuous gaps provide a potential incursion route that leaves the entire product or connected system vulnerable to ransomware hijacking.
  8. The Department of Health and Human Services has recently issued guidance on ransomware. The current HHS view is that a ransomware attack is a “security incident” under HIPAA but may not amount to a full breach if certain onerous conditions are met. However, since the applicable HIPAA regulations define a breach as including unauthorized “access” to data, covered entities should treat each incident as a breach until proven otherwise.
  9. The term “cyber insurance” covers a wide range of potential risks. However, payments for cyber-extortion or ransomware are an increasingly popular component. While most ransomware payments fall below the typical self-insured retention, such insurance is an option worth considering. Insurance comes with considerable caveats, including the duty to cooperate with the insurer, obtaining consent, and non-disclosure. However, insurers frequently offer expert assistance which can make the coverage attractive even if the coverage is never triggered.
  10. Finally, like virtually all cyber scourges, while ransomware cannot be eradicated, a few simple preventative measures can pay disproportionate dividends. While ransomware can infiltrate systems remotely, the vast majority of incidents can be traced to human error – the clicking of links, the opening of emails, or the utilization of accessories such as jump drives that serve as Trojan horses for ransomware. Regular and consistent backups – preferably secured with an “air firewall” i.e. disconnected from networked systems – also go a long way in alleviating the threat. A recent FTC panel suggested that even a full backup was not required; merely backing up the most “system critical” components would go a long way toward defusing the threat. Exercises and contingency planning also serve to identify weaknesses and develop triage plans ahead of an actual emergency. In cyber planning, as in war, the company that sweats ahead of time can hope not to bleed come the crunch time.

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