Economic Impact of Cybercrime: Why Cyber Espionage isn’t Just the Military’s Problem

In a technology-driven age, entrepreneurs, organizations, and nations succeed or fail in large part based on how effectively they develop, implement, and protect technology. One of the most notable aspects of “The Economic Impact of Cybercrime” report released recently is the prominence of cyber espionage, the cyber-theft of intellectual property (IP) and business confidential information. The report from the Center for Strategic and International Studies (CSIS) and McAfee estimates that the cost of cybercrime to the global economy is around $600 billion annually, or 0.8% of global GDP, and cyber espionage accounts for 25% of that damage, more than any other category of cybercrime. Furthermore, the report argues that “Internet connectivity has opened a vast terrain for cybercrime, and IP theft goes well beyond traditional areas of interest to governments, such as military technologies.”

When we think of cyber espionage, we tend to think of events such as the Chinese military’s theft of the F-35 joint strike fighter’s blueprints from U.S. corporations. Last month, the Associated Press reported a similar event where Russian hackers attacked several U.S. corporations attempting to steal drone technologies used by the U.S. military.

But there are also cases such as 2009 Operation Aurora attacks, in which nation-state hackers allegedly tied to the China’s People’s Liberation Army sought to steal IP and business confidential information from IT, chemical, web services, and manufacturing firms as well as military contractors. There is also the example from the 2004 Nortel Networks cyber-attacks that allegedly compromised IP later used to strengthen the market position of Chinese telecommunications giant Huawei.

Such examples suggest that nation states are seeking to steal IP not only to enhance their military strength, but also to achieve technological leadership throughout the rest of their economies without the investments, human talent, or other foundational elements associated with technical innovation.

Put simply, cyber espionage isn’t just the U.S. military’s problem. Organizations beyond military contractors should assume they could become targets of such cybercrimes.

If enough of a profit motive is there, it’s wise to assume that the hacking expertise and tools to steal IP are within your would-be attackers’ reach. Furthermore, it’s wise to assume that the beneficiaries of commercial cyber espionage are capable of copying your compromised product designs and building them into their own products, just as Chinese government engineers had integrated stolen F-35 design features into China’s J-20 stealth fighter.

The cyber theft of such IP could result in lost market share and revenues for corporations. Such theft could smother a nation’s most promising new startups in their Series A cradles, or drive its most innovative mid-sized companies out of business, erasing wealth and jobs in the process.

The CSIS report identified three key cyber espionage challenges facing organizations and nations today.

Challenges of Detection

 Cyber espionage maintains a lower profile than critical infrastructure attacks, ransomware, mega-consumer data hacks, and identity theft and fraud, and other threats in part because there’s no incentive to report cyber espionage incidents. Victimized companies don’t wish to report them, if indeed they ever become aware of them. The attackers don’t wish to alert their victims or the public to their crimes. Victim organizations still own the compromised IP or business confidential information and could easily attribute declines in market share and revenue to any number of tactical and strategic moves on the part of competitors. Unsurprisingly, such incidents go undiscovered and under reported.

Challenges of Attribution

As in every other area of cybersecurity, the difficulty of attribution makes the policing of cyber espionage complicated if not near impossible. Attacks of this nature are sophisticated and designed to obscure the identity of the actors behind them. Governments are in the best position to determine attribution because they can combine the analysis of technical cyber-attack forensics with analysis of traditional intelligence to identify actors. But holding adversaries accountable isn’t easy given the nature of the required inputs and analysis that enable attribution.

For instance, the U.S. government has accused Chinese hackers associated with the People’s Liberation Army (PLA) of being responsible for half of the cyberespionage activity targeting U.S. “IP and commercially valuable information,” and claimed that this activity had inflicted $20 billion in economic damage by 2014.

But the evidence used to make such attribution determinations is not easily exposed without revealing the means and methods by which cyber threat researchers and government agencies came by it.

Challenges of Definition

The CSIS report revisits the 2015 Barack Obama-Xi Jinping Summit, where the leaders of the U.S. and China agreed that their intelligence communities would cease to conduct “commercial espionage,” while allowing each nation to engage in military-related espionage appropriate to their respective national security interests. The nations comprising the world’s 20 largest economies agreed to a similar “no-commercial espionage” pledge later that year.

Any such agreement obviously requires accountability mechanisms to have an impact. But it also requires that the nations agree to specific and consistent definitions of what constitutes commercial versus military espionage.

CSIS notes that the evidence is mixed as to whether the Chinese government has slowed commercial espionage in accordance with the 2015 agreement.  But the think tank notes that despite high level dialogues and pledges between nations, officials from multiple countries maintain that commercial IP theft continues unabated.

Last month’s Worldwide Threat Assessment of the U.S. Intelligence Community confirmed that China and other nation-state actors are continuing to use cyber-attacks to “acquire U.S. intellectual property and proprietary information to advance their own economic and national security objectives.”

The assessment goes so far as to suggest that because the disruptive technologies of the 21st century are being developed by public and private competitors around the world, any significant loss of U.S. IP in pivotal areas—artificial intelligence, 5G networking, 3D printing, nano-materials, quantum computing, biotech, and advanced robotics—could ultimately weaken U.S. military and economic power, and result in a loss of national competitiveness in the global marketplace, as well as on the battlefield.

Preventing the Theft of our Future

 At its most basic level, the theft of IP and business confidential information is a theft of the future. It’s a theft of future national security, future business for companies, future wealth for a nation’s communities, and future high paying jobs and standards of living for a nation’s citizens.

Because technologies don’t fit neatly within civilian and military sector silos, particularly throughout their lifecycles, it’s important for organizations to take cyber espionage seriously. Even beyond technology providers, any organization producing anything of great value should take care to consider that that great value is valuable to others, and remember that anything of great value must be protected.

Please go here for more information on the report’s assessments.

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