Entries Tagged "economics of security"

Page 17 of 39

The Global Illicit Economy

Interesting video:

A new class of global actors is playing an increasingly important role in globalization: smugglers, warlords, guerrillas, terrorists, gangs, and bandits of all stripes. Since the end of the Cold War, the global illicit economy has consistently grown at twice the rate of the licit global economy. Increasingly, illicit actors will represent not just an economic but a political force. As globalization hollows out traditional nation-states, what will fill the power vacuum in slums and hinterlands will be informal non-state governance structures. These zones will be globally connected, effectively run by local gangs, religious leaders, or quasi-tribal organizations—organizations that will govern without aspiring to statehood.

Malware is one of Nils Gilman’s examples, at about the nine-minute mark.

The seven rules of the illicit global economy (he seems to use “illicit” and “deviant” interchangeably in the talk):

  1. Perfectly legitimate forms of demand can produce perfectly deviant forms of supply.
  2. Uneven global regulatory structures create arbitrage opportunities for deviant entrepreneurs.
  3. Pathways for legitimate globalization are always also pathways for deviant globalization.
  4. Once a deviant industry professionalizes, crackdowns merely promote innovation.
  5. States themselves undermine the distinction between legitimate and deviant economics.
  6. Unchecked, deviant entrepreneurs will overtake the legitimate economy.
  7. Deviant globalization presents an existential challenge to state legitimacy.

Posted on September 8, 2009 at 7:12 AM • View Comments

Small Business Identity Theft and Fraud

The sorts of crimes we’ve been seeing perpetrated against individuals are starting to be perpetrated against small businesses:

In July, a school district near Pittsburgh sued to recover $700,000 taken from it. In May, a Texas company was robbed of $1.2 million. An electronics testing firm in Baton Rouge, La., said it was bilked of nearly $100,000.

In many cases, the advisory warned, the scammers infiltrate companies in a similar fashion: They send a targeted e-mail to the company’s controller or treasurer, a message that contains either a virus-laden attachment or a link that—when opened—surreptitiously installs malicious software designed to steal passwords. Armed with those credentials, the crooks then initiate a series of wire transfers, usually in increments of less than $10,000 to avoid banks’ anti-money-laundering reporting requirements.

The alert states that these scams typically rely on help from “money mules”—willing or unwitting individuals in the United States—often hired by the criminals via popular Internet job boards. Once enlisted, the mules are instructed to set up bank accounts, withdraw the fraudulent deposits and then wire the money to fraudsters, the majority of which are in Eastern Europe, according to the advisory.

This has the potential to grow into a very big problem. Even worse:

Businesses do not enjoy the same legal protections as consumers when banking online. Consumers typically have up to 60 days from the receipt of a monthly statement to dispute any unauthorized charges.

In contrast, companies that bank online are regulated under the Uniform Commercial Code, which holds that commercial banking customers have roughly two business days to spot and dispute unauthorized activity if they want to hold out any hope of recovering unauthorized transfers from their accounts.

And, of course, the security externality means that the banks care much less:

“The banks spend a lot of money on protecting consumer customers because they owe money if the consumer loses money,” Litan said. “But the banks don’t spend the same resources on the corporate accounts because they don’t have to refund the corporate losses.”

Posted on August 26, 2009 at 5:46 AM • View Comments

Man-in-the-Middle Trucking Attack

Clever:

For over three years the pair hacked into a Department of Transportation website called Safersys.org, which maintains a list of licensed interstate-trucking companies and brokers, according to an affidavit (.pdf) filed by a DOT investigator. There, they would temporarily change the contact information for a legitimate trucking company to an address and phone number under their control.

The men then took to the web-based “load boards” where brokers advertise cargo in need of transportation. They’d negotiate a deal, for example, to transport cargo from American Canyon, California, to Jessup, Maryland, for $3,500.

But instead of transporting the load, Lakes and Berkovich would outsource the job to another trucking company, the feds say, posing as the legitimate company whose identity they’d hijacked. Once the cargo was delivered, the men invoiced their customer and pocketed the funds. But when the company that actually drove the truck tried to get paid, they’d eventually discover that the firm who’d supposedly hired them didn’t know anything about it.

Actually, not so clever. I’m amazed it went on for three years. You’d think that more than a few of the subcontracters would pick up the phone and call the original customers—and they’d figure out what happened. Maybe there are just so many trucking companies, and so many people who need cargo shipped places, that they were able to hide for three years.

But this scheme was bound to unravel sooner or later. If the criminal middlemen had legitimately subcontracted the work and just pocketed the difference, they might have remained undiscovered forever. But that’s much less profit per contract.

Posted on August 13, 2009 at 5:09 AM • View Comments

Self-Enforcing Protocols

There are several ways two people can divide a piece of cake in half. One way is to find someone impartial to do it for them. This works, but it requires another person. Another way is for one person to divide the piece, and the other person to complain (to the police, a judge, or his parents) if he doesn’t think it’s fair. This also works, but still requires another person—at least to resolve disputes. A third way is for one person to do the dividing, and for the other person to choose the half he wants.

That third way, known by kids, pot smokers, and everyone else who needs to divide something up quickly and fairly, is called cut-and-choose. People use it because it’s a self-enforcing protocol: a protocol designed so that neither party can cheat.

Self-enforcing protocols are useful because they don’t require trusted third parties. Modern systems for transferring money—checks, credit cards, PayPal—require trusted intermediaries like banks and credit card companies to facilitate the transfer. Even cash transfers require a trusted government to issue currency, and they take a cut in the form of seigniorage. Modern contract protocols require a legal system to resolve disputes. Modern commerce wasn’t possible until those systems were in place and generally trusted, and complex business contracts still aren’t possible in areas where there is no fair judicial system. Barter is a self-enforcing protocol: nobody needs to facilitate the transaction or resolve disputes. It just works.

Self-enforcing protocols are safer than other types because participants don’t gain an advantage from cheating. Modern voting systems are rife with the potential for cheating, but an open show of hands in a room—one that everyone in the room can count for himself—is self-enforcing. On the other hand, there’s no secret ballot, late voters are potentially subjected to coercion, and it doesn’t scale well to large elections. But there are mathematical election protocols that have self-enforcing properties, and some cryptographers have suggested their use in elections.

Here’s a self-enforcing protocol for determining property tax: the homeowner decides the value of the property and calculates the resultant tax, and the government can either accept the tax or buy the home for that price. Sounds unrealistic, but the Greek government implemented exactly that system for the taxation of antiquities. It was the easiest way to motivate people to accurately report the value of antiquities.

A VAT, or value-added tax, is a self-enforcing alternative to sales tax. Sales tax is collected on the entire value of the thing at the point of retail sale; both the customer and the storeowner want to cheat the government. But VAT is collected at every step between raw materials and that final customer; it’s the difference between the price of the materials sold and the materials bought. Buyers wants official receipts with as high a purchase price as possible, so each buyer along the chain keeps each seller honest. Yes, there’s still an incentive to cheat on the final sale to the customer, but the amount of tax collected at that point is much lower.

Of course, self-enforcing protocols aren’t perfect. For example, someone in a cut-and-choose can punch the other guy and run away with the entire piece of cake. But perfection isn’t the goal here; the goal is to reduce cheating by taking away potential avenues of cheating. Self-enforcing protocols improve security not by implementing countermeasures that prevent cheating, but by leveraging economic incentives so that the parties don’t want to cheat.

One more self-enforcing protocol. Imagine a pirate ship that encounters a storm. The pirates are all worried about their gold, so they put their personal bags of gold in the safe. During the storm, the safe cracks open, and all the gold mixes up and spills out on the floor. How do the pirates determine who owns what? They each announce to the group how much gold they had. If the total of all the announcements matches what’s in the pile, it’s divided as people announced. If it’s different, then the captain keeps it all. I can think of all kinds of ways this can go wrong—the captain and one pirate can collude to throw off the total, for example—but it is self-enforcing against individual misreporting.

This essay originally appeared on ThreatPost.

EDITED TO ADD (8/12): Shotgun clauses are an example of a self-enforcing protocol.

Posted on August 11, 2009 at 6:15 AM • View Comments

Regulating Chemical Plant Security

The New York Times has an editorial on regulating chemical plants:

Since Sept. 11, 2001, experts have warned that an attack on a chemical plant could produce hundreds of thousands of deaths and injuries. Public safety and environmental advocates have fought for strong safety rules, but the chemical industry used its clout in Congress in 2006 to ensure that only a weak law was enacted.

That law sunsets this fall, and the moment is right to move forward. For the first time in years, there is a real advocate for chemical plant security in the White House. As a senator, President Obama co-sponsored a strong bill, and he raised the issue repeatedly in last year’s campaign. Both chambers of Congress are controlled by Democrats who have been far more supportive than Republicans of tough safety rules.

A good bill is moving through the House. It would require the highest-risk chemical plants to switch to less dangerous chemicals only in limited circumstances, but Republicans have still been fighting it. In the House Homeland Security Committee, the Republicans recently succeeded in adding several weakening amendments, including one that could block implementation of safer-chemical rules if they cost jobs. Saving jobs is important, but not if it means putting large numbers of Americans at risk of a deadly attack.

The Obama administration needs to come out forcefully for a clean bill that contains strong safety rules without the Republican loopholes. Janet Napolitano, the secretary of homeland security, said last week that she considers chemical plants a major vulnerability and promised that the administration will be speaking out on the subject in the days ahead.

It is looking increasingly likely that Congress will extend the current inadequate law for another year to take more time to come up with an alternative. That would be regrettable. There is no excuse for continuing to expose the nation to attacks that could lead to mass casualties.

The problem is a classic security externality, which I wrote about in 2007:

Any rational chemical plant owner will only secure the plant up to its value to him. That is, if the plant is worth $100 million, then it makes no sense to spend $200 million on securing it. If the odds of it being attacked are less than 1 percent, it doesn’t even make sense to spend $1 million on securing it. The math is more complicated than this, because you have to factor in such things as the reputational cost of having your name splashed all over the media after an incident, but that’s the basic idea.

But to society, the cost of an actual attack can be much, much greater. If a terrorist blows up a particularly toxic plant in the middle of a densely populated area, deaths could be in the tens of thousands and damage could be in the hundreds of millions. Indirect economic damage could be in the billions. The owner of the chlorine plant would pay none of these potential costs.

Sure, the owner could be sued. But he’s not at risk for more than the value of his company, and—in any case—he’d probably be smarter to take the chance. Expensive lawyers can work wonders, courts can be fickle, and the government could step in and bail him out (as it did with airlines after Sept. 11). And a smart company can often protect itself by spinning off the risky asset in a subsidiary company, or selling it off completely. The overall result is that our nation’s chemical plants are secured to a much smaller degree than the risk warrants.

Posted on August 4, 2009 at 12:52 PM • View Comments

The "Hidden Cost" of Privacy

Forbes ran an article talking about the “hidden” cost of privacy. Basically, the point was that privacy regulations are expensive to comply with, and a lot of that expense gets eaten up by the mechanisms of compliance and doesn’t go toward improving anyone’s actual privacy. This is a valid point, and one that I make in talks about privacy all the time. It’s particularly bad in the United States, because we have a patchwork of different privacy laws covering different types of information and different situations and not a single comprehensive privacy law.

The meta-problem is simple to describe: those entrusted with our privacy often don’t have much incentive to respect it. Examples include: credit bureaus such as TransUnion and Experian, who don’t have any business relationship at all with the people whose data they collect and sell; companies such as Google who give away services—and collect personal data as a part of that—as an incentive to view ads, and make money by selling those ads to other companies; medical insurance companies, who are chosen by a person’s employer; and computer software vendors, who can have monopoly powers over the market. Even worse, it can be impossible to connect an effect of a privacy violation with the violation itself—if someone opens a bank account in your name, how do you know who was to blame for the privacy violation?—so even when there is a business relationship, there’s no clear cause-and-effect relationship.

What this all means is that protecting individual privacy remains an externality for many companies, and that basic market dynamics won’t work to solve the problem. Because the efficient market solution won’t work, we’re left with inefficient regulatory solutions. So now the question becomes: how do we make regulation as efficient as possible? I have some suggestions:

  1. Broad privacy regulations are better than narrow ones.
  2. Simple and clear regulations are better than complex and confusing ones.
  3. It’s far better to regulate results than methodology.
  4. Penalties for bad behavior need to be expensive enough to make good behavior the rational choice.

We’ll never get rid of the inefficiencies of regulation—that’s the nature of the beast, and why regulation only makes sense when the market fails—but we can reduce them.

Posted on June 15, 2009 at 6:45 AM • View Comments

Second SHB Workshop Liveblogging (4)

Session three was titled “Usability.” (For the record, the Stata Center is one ugly building.)

Andrew Patrick, NRC Canada until he was laid off four days ago (suggested reading: Fingerprint Concerns: Performance, Usability, and Acceptance of Fingerprint Biometric Systems), talked about biometric systems and human behavior. Biometrics are used everywhere: for gym membership, at Disneyworld, at international borders. The government of Canada is evaluating using iris recognition at a distance for events like the 2010 Olympics. There are two different usability issues: with respect to the end user, and with respect to the authenticator. People’s acceptance of biometrics is very much dependent on the context. And of course, biometrics are not secret. Patrick suggested that to defend ourselves against this proliferation of using biometrics for authentication, the individual should publish them. The rationale is that we’re publishing them anyway, so we might as well do it knowingly.

Luke Church, Cambridge University (suggested reading: SHB Position Paper; Usability and the Common Criteria), talked about what he called “user-centered design.” There’s a economy of usability: “in order to make some things easier, we have to make some things harder”—so it makes sense to make the commonly done things easier at the expense of the rarely done things. This has a lot of parallels with security. The result is “appliancisation” (with a prize for anyone who come up with a better name): the culmination of security behaviors and what the system can do embedded in a series of user choices. Basically, giving users meaningful control over their security. Luke discussed several benefits and problems with the approach.

Diana Smetters, Palo Alto Research Center (suggested reading: Breaking out of the browser to defend against phishing attacks; Building secure mashups; Ad-hoc guesting: when exceptions are the rule), started with these premises: you can teach users, but you can’t teach them very much, so you’d better carefully design systems so that you 1) minimize what they have to learn, 2) make it easier for them to learn it, and 3) maximize the benefit from what they learn. Too often, security is at odds with getting the job done. “As long as configuration errors (false alarms) are common, any technology that requires users to observe security indicators and react to them will fail as attacks can simply masquerade as errors, and users will rationally ignore them.” She recommends meeting the user halfway by building new security models that actually fit the users’ needs. (For example: Phishing is a mismatch problem, between what’s in the user’s head and where the URL is actually going. SSL doesn’t work, but how should websites authenticate themselves to users? Her solution is protected links: a set of secure bookmarks in protected browsers. She went on to describe a prototype and tests run with user subjects.

Jon Callas, PGP Corporation (suggested reading: Improving Message Security with a Self-Assembling PKI), used the metaphor of the “security cliff”: you have to keep climbing until you get to the top and that’s hard, so it’s easier to just stay at the bottom. He wants more of a “security ramp,” so people can reasonably stop somewhere in the middle. His idea is to have a few policies—e-mail encryption, rules about USB drives—and enforce them. This works well in organizations, where IT has dictatorial control over user configuration. If we can’t teach users much, we need to enforce policies on users.

Rob Reeder, Microsoft (suggested reading: Expanding Grids for Visualizing and Authoring Computer Security Policies), presented a possible solution to the secret questions problem: social authentication. The idea is to use people you know (trustees) to authenticate who you are, and have them attest to the fact that you lost your password. He went on to describe how the protocol works, as well as several potential attacks against the protocol and defenses, and experiments that tested the protocol. In the question session he talked about people designating themselves as trustees, and how that isn’t really a problem.

Lorrie Cranor, Carnegie Mellon University (suggested reading: A Framework for Reasoning about the Human in the Loop; Timing Is Everything? The Effects of Timing and Placement of Online Privacy Indicators; School of Phish: A Real-Word Evaluation of Anti-Phishing Training; You’ve Been Warned: An Empirical Study of the Effectiveness of Web Browser Phishing Warnings), talked about security warnings. The best option is to fix the hazard; the second best is to guard against it—but far too often we just warn people about it. But since hazards are generally not very hazardous, most people just ignore them. “Often, software asks the user and provides little or no information to help user make this decision.” Better is to use some sort of automated analysis to assist the user in responding to warnings. For websites, for example, the system should block sites with a high probability of danger, not bother users if there is a low probably of danger, and help the user make the decision in the grey area. She went on to describe a prototype and user studies done with the prototype; her paper will be presented at USENIX Security in August.

Much of the discussion centered on how bad the problem really is, and how much security is good enough. The group also talked about economic incentives companies have to either fix or ignore security problems, and whether market approaches (or, as Jean Camp called it, “the happy Libertarian market pony”) are sufficient. Some companies have incentives to convince users to do the wrong thing, or at the very least to do nothing. For example, social networking sites are more valuable if people share their information widely.

Further discussion was about whitelisting, and whether it worked or not. There’s the problem of the bad guys getting on the whitelist, and the risk that organizations like the RIAA will use the whitelist to enforce copyright, or that large banks will use the whitelist as a tool to block smaller start-up banks. Another problem is that the user might not understand what a whitelist signifies.

Dave Clark from the audience: “It’s not hard to put a seat belt on, and if you need a lesson, take a plane.”

Kind of a one-note session. We definitely need to invite more psych people.

Adam Shostack’s liveblogging is here. Ross Anderson’s liveblogging is in his blog post’s comments. Matt Blaze’s audio is here.

Posted on June 11, 2009 at 2:56 PM • View Comments

Cloud Computing

This year’s overhyped IT concept is cloud computing. Also called software as a service (Saas), cloud computing is when you run software over the internet and access it via a browser. The Salesforce.com customer management software is an example of this. So is Google Docs. If you believe the hype, cloud computing is the future.

But, hype aside, cloud computing is nothing new . It’s the modern version of the timesharing model from the 1960s, which was eventually killed by the rise of the personal computer. It’s what Hotmail and Gmail have been doing all these years, and it’s social networking sites, remote backup companies, and remote email filtering companies such as MessageLabs. Any IT outsourcing—network infrastructure, security monitoring, remote hosting—is a form of cloud computing.

The old timesharing model arose because computers were expensive and hard to maintain. Modern computers and networks are drastically cheaper, but they’re still hard to maintain. As networks have become faster, it is again easier to have someone else do the hard work. Computing has become more of a utility; users are more concerned with results than technical details, so the tech fades into the background.

But what about security? Isn’t it more dangerous to have your email on Hotmail’s servers, your spreadsheets on Google’s, your personal conversations on Facebook’s, and your company’s sales prospects on salesforce.com’s? Well, yes and no.

IT security is about trust. You have to trust your CPU manufacturer, your hardware, operating system and software vendors—and your ISP. Any one of these can undermine your security: crash your systems, corrupt data, allow an attacker to get access to systems. We’ve spent decades dealing with worms and rootkits that target software vulnerabilities. We’ve worried about infected chips. But in the end, we have no choice but to blindly trust the security of the IT providers we use.

Saas moves the trust boundary out one step further—you now have to also trust your software service vendors—but it doesn’t fundamentally change anything. It’s just another vendor we need to trust.

There is one critical difference. When a computer is within your network, you can protect it with other security systems such as firewalls and IDSs. You can build a resilient system that works even if those vendors you have to trust may not be as trustworthy as you like. With any outsourcing model, whether it be cloud computing or something else, you can’t. You have to trust your outsourcer completely. You not only have to trust the outsourcer’s security, but its reliability, its availability, and its business continuity.

You don’t want your critical data to be on some cloud computer that abruptly disappears because its owner goes bankrupt . You don’t want the company you’re using to be sold to your direct competitor. You don’t want the company to cut corners, without warning, because times are tight. Or raise its prices and then refuse to let you have your data back. These things can happen with software vendors, but the results aren’t as drastic.

There are two different types of cloud computing customers. The first only pays a nominal fee for these services—and uses them for free in exchange for ads: e.g., Gmail and Facebook. These customers have no leverage with their outsourcers. You can lose everything. Companies like Google and Amazon won’t spend a lot of time caring. The second type of customer pays considerably for these services: to Salesforce.com, MessageLabs, managed network companies, and so on. These customers have more leverage, providing they write their service contracts correctly. Still, nothing is guaranteed.

Trust is a concept as old as humanity, and the solutions are the same as they have always been. Be careful who you trust, be careful what you trust them with, and be careful how much you trust them. Outsourcing is the future of computing. Eventually we’ll get this right, but you don’t want to be a casualty along the way.

This essay originally appeared in The Guardian.

EDITED TO ADD (6/4): Another opinion.

EDITED TO ADD (6/5): A rebuttal. And an apology for the tone of the rebuttal. The reason I am talking so much about cloud computing is that reporters and inverviewers keep asking me about it. I feel kind of dragged into this whole thing.

EDITED TO ADD (6/6): At the Computers, Freedom, and Privacy conference last week, Bob Gellman said (this, by him, is worth reading) that the nine most important words in cloud computing are: “terms of service,” “location, location, location,” and “provider, provider, provider”—basically making the same point I did. You need to make sure the terms of service you sign up to are ones you can live with. You need to make sure the location of the provider doesn’t subject you to any laws that you can’t live with. And you need to make sure your provider is someone you’re willing to work with. Basically, if you’re going to give someone else your data, you need to trust them.

Posted on June 4, 2009 at 6:14 AM •

Me on Full-Body Scanners in Airports

I’m very happy with this quote in a CNN.com story on “whole-body imaging” at airports:

Bruce Schneier, an internationally recognized security technologist, said whole-body imaging technology “works pretty well,” privacy rights aside. But he thinks the financial investment was a mistake. In a post-9/11 world, he said, he knows his position isn’t “politically tenable,” but he believes money would be better spent on intelligence-gathering and investigations.

“It’s stupid to spend money so terrorists can change plans,” he said by phone from Poland, where he was speaking at a conference. If terrorists are swayed from going through airports, they’ll just target other locations, such as a hotel in Mumbai, India, he said.

“We’d be much better off going after bad guys … and back to pre-9/11 levels of airport security,” he said. “There’s a huge ‘cover your ass’ factor in politics, but unfortunately, it doesn’t make us safer.”

I’ve written about “cover your ass” security in the past, but it’s nice to see it in the press.

Posted on May 20, 2009 at 2:34 PM • View Comments

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Sidebar photo of Bruce Schneier by Joe MacInnis.