Cyber-security legislation: a view from Silicon Valley

Rob Rachwald Contributor
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A new bill aimed at protecting citizens’ online personal information by holding companies accountable for protecting that information is making its way through the Senate. The Personal Data Protection and Breach Accountability Act, sponsored by Senator Richard Blumenthal, would enable the Justice Department to fine businesses with more than 10,000 customers $5,000 per violation per day, with a maximum of $20 million per violation. With all of the recent high-profile cyber-attacks, such a proposal is not only timely, but arguably overdue. Unfortunately, this fine-based, punitive approach will not succeed. To make a difference, legislation should also be prescriptive.

First, let’s recognize that cyber security is a different animal. To have an impact, any legislation needs to consider that hackers are well-financed, well-organized innovators. In fact, to fund their activities, hackers have created mature online exchanges that resemble eBay in structure, except their focus is selling personal and corporate data. Just a few months ago, a hacker offered to sell full administrative rights to government, military and educational websites for $499. So, for the price of an iPad, you could have purchased the ability to control a U.S. Army website.

And they’re remarkably well organized. Lulzsec, a hacker team comprised of about eight individuals, proved very effective, hacking the FBI, U.S. Senate and CIA websites. How did they learn the trade? Like many hackers, to stay well trained and organized, they leveraged online forums and chat rooms. These websites exemplify the spirit of web-based collaboration and education, offering a rich menu of tutorials, advice and technology designed to steal data. Analysis of one forum that has 250,000 registered users showed that approximately 25% of discussions were focused on hacking tutorials and techniques — indicating a consistent supply of expertise.

By contrast, the good guys are on a budget — often very tight ones. Whereas hackers live to hack, most companies are retailers, banks, whatever first and security experts a distant second, third or fourth. Slapping them with fines will only encourage gaming the system, like someone speeding on a highway and slowing down if they think the highway patrol is near. In the case of security, companies could evaluate the odds of a breach and the cost of security versus the cost of a fine. To avoid this dynamic requires a prescriptive approach.

The good news is that a template already exists: The credit card industry regulated itself and created the payment card industry data security standard (PCI-DSS). PCI forced companies transacting credit cards to implement the basic elements of data security that were summarized in 12 specific steps. The impact? A report from Verizon highlighted that 88% (!) of companies breached in 2010 were out of compliance with PCI. It’s a system that’s working.

To be effective, any legislation should be prescriptive and strongly consider the PCI model. PCI can also be a model for legislative innovation. Ohio and Minnesota have both adopted their versions of PCI as models to protect their citizens’ sensitive information. Another variation surfaced recently when the state of Nevada, beginning on January 1, 2010, became the first state to mandate PCI-DSS compliance for businesses that accept credit cards. In other words, any data collector doing business in Nevada must comply with the version of the PCI-DSS currently in force. The adoption of PCI-DSS by Nevada combines the best of what the private and public sector do well — the flexibility and innovation of a private-industry standard with the enforceability and visibility of state action.

When the California legislature attempted to pass sweeping new legislation placing a significant burden on retailers for the cost of data breaches, Governor Arnold Schwarzenegger vetoed the bill because of its high cost on small businesses, unclear language and potential conflicts with PCI-DSS. Future legislation risks creating similar problems and interfering with a private industry standard that rapidly adapts to the changing needs of data security.

But there’s more. Any legislation must also consider the role of law enforcement. Hackers are criminals who should be arrested. Stopping them requires deploying law enforcement in creative ways. For example, in the banking industry, financial institutions have pooled resources to track information on fraudsters. Their database is known as the Early Warning System. What if a similar database existed for cyber attacks that chronicled malicious IP addresses? A simple step like this could help bring down cyber crime dramatically. For example, when Microsoft shared information about known spam servers in 2010, spam volume dropped 30% overnight.

Security isn’t free and isn’t a profit center. However, many industries made the decision to digitize and transact assets with the objective to improve business. Now, legislators have the responsibility to protect data from hackers and insiders who threaten brand equity and shareholder value when data is compromised. This is merely the new business reality in the digital age and it requires a strong, focused and innovative approach.

Rob Rachwald is a data security expert. He is the director of security strategy at Imperva, a Silicon Valley-based company.