CRIMINAL JURISDICTION

Computer Crimes and Prosecutions on the Rise: Cyber Espionage, Theft of Corporate Trade Secrets and Identity Fraud Continue to Increase

By: Houston Criminal Lawyer John Floyd and Paralegal Billy Sinclair

Every human invention designed to benefit mankind has always been corrupted for illegal and immoral purposes. It’s a flaw inherent in the human soul. So it is with the computer—one of man’s most significant inventions and which someday may well be the cause of man’s downfall, at least according to some prophets of doom. While the computer is essentially a wonderful device that services billions of legitimate purposes, it is also an attractive vehicle for criminal pursuits.

From well financed foreign government intelligence operations to small-time identity thieves, the computer is being used to revolutionize crime.  The current boogie-man in the computer world is China.  From presidential wannabes like Donald Trump to global computer giants like Google and Microsoft, China is seen not only as a global business competitor but also as a communist spy and saboteur that sneaks into our country via the internet.

In 1998 when China had far more people than computers there were only 148 computer crime cases reported in that country. By 2009, that number had increased to 48,000. The crimes include distributing obscenity and child pornography, gambling, producing and spreading viruses, and computer and networking hacking, according to a white paper titled The Internet in Chinawhich was issued by China’s Office of the State Council. The report added that in 2009 more than one million IP addresses in China were controlled from overseas and that 42,000 websites were destroyed and another 18 million Chinese computers were infected by the Conflicker virus on a monthly basis—some 30 percent of the nation’s computers.

“China is one of the nation’s suffering the most from hacking,” the paper lamented.

The Chinese government apparently took notice from its own computer criminals as well as those from abroad. The government discovered that hacking and website invasion made for excellent military and technology information gathering.  A recent report by McAfee Inc. disclosed that hackers from China stole sensitive information from oil companies, adding to the growing prevalence of computer crimes being committed by the official Chinese government.

The same year (2009) that the county’s Office of State Council was whining about the cybercrimes being committed against its computer systems, Chinese computer experts operating under government control launched “coordinated, covert, and targeted” attacks on computer systems of oil companies in the U.S., Taiwan, Greece, and Kazakhstan, stealing information on oil field bidding, financing, and work operations, according to McAfee.

“We have identified the tools, techniques, and network activities used in these continuing attacks—which we have dubbed Night Dragon—as originating primarily from China,” the McAfee report said.

Just last year Google Inc. shut down its China-based search engine because of “cyber attacks” from China on its e-mail service. Joe McDonald, the Associated Press reporter who wrote the release about the McAfee report, said that cybercrime experts have concluded that China has become the world’s Walmart for Internet crimes, including industrial spying against major corporations and possibly using its own military to steal technology and trade secrets to help its own state-controlled companies, too many of which are rife with political corruption.

These charges against China are not new. In 2009 researchers from the Munk Center for International Studies at the University of Toronto issued a report that a “vast spy system” operating out of China infiltrated computers in 103 countries, stealing both government and private documents including some from the Dali Lama. The report, titled “Tracking ‘GhostNet’: Investigating a Cyber Espionage Network,” said the Chinese operation hacked into a total of 1295 computers in those 103 countries with many belonging to embassies, foreign ministries, and government offices.

While the New York Times reported that intelligence agencies in the United States and Russia, as well as China, use computers to “covertly gather information,” the newspaper noted that the Chinese spy operation revealed in GhostNet was by far the largest revealed thus far to the public. More significantly, the malware used by Chinese hackers allowed for Big Brother-type capacity—the ability to turn camera and audio-functions of infected computer to allow the hackers to see and record what is going on a room where the computer is located.

While Toronto researchers were reluctant to say the GhostNet spy operation was part of an official Chinese government operation, the recent McAfee report supports the notion that it probably was.  Wengi Gao, a spokesman for the Chinese consulate in New York, casually dismissed the significance of the GhostNet report, telling the Times at the time: “These are old stories and they are nonsense.  The Chinese government is opposed to and strictly forbids any cybercrime.”

One of the GhostNet researchers, Robert J.  Deibert, also cautioned the Times against undue speculation about Chinese government involvement: “We’re a bit more careful about [calling it a government operation], knowing the nuances of what happens in the subterranean realms. This could well be the CIA or the Russians. This is a murky realm that we’re lifting the lid on.”

But Cambridge University researchers in Britain at the time were no so circumspect. In a report titled “The Snooping Dragon: Social Malware Surveillance of the Tibetan Movement,” researchers Shishir Nagaraja and Ross Anderson said: “What Chinese spooks did in 2008, Russian crooks will do in 2010 and even low-budget criminals from less developed countries will follow in due course.”

The Chinese government and other governments understand there are a lot of “low-budget criminals” willing to sell company trade secrets for nominal amounts compared to the value of the information.  For example, the Department of Justice and the FBI in 2010, in the wake of all the Chinese hacking revelations, increased investigations and prosecutions in both “corporate and state-sponsored trade secret theft.” Just last July two defendants were indicted for stealing General Motors’ hybrid-vehicle technology trade secrets which cost the corporation more than $40 million in damages, while in November another defendant was convicted of stealing some of Ford’s trade secret that resulted in $50 to $100 million in harm to that corporation. And, more recently, the U.S. Patent and Trademark Office announced efforts this year to monitor China’s patent enforcement landscape and issue recommendations to the U.S. government about what improvements can be made to improve that country’s notoriously lax patent enforcement policies.

More than fifteen years ago David L. Carter, a Michigan State University computer crimes expert, identified four general categories of computer crimes:

• Computer as the target: theft of intellectual property, theft of marketing information (e.g., customer lists, pricing data, or marketing plans), and blackmail based on information gained from computerized files (e.g., medical information, personal history, or sexual preference).
• Computer as the instrumentality of the crime: fraudulent use of automated teller machine (ATM) cards and accounts; thefts of money from accrual conversion, or transfer accounts; credit card fraud; fraud from computer transactions (stock transfers, sales, or billings); and telecommunications fraud.
• Computer is incidental to other crimes: money laundering and unlawful banking transactions, Bulletin Board Systems supporting unlawful activity, organized crime records or books, and bookmaking.
• Crimes associated with the prevalence of computer software: piracy/counterfeiting, copyright violation of computer programs, counterfeit equipment, black market computer equipment and programs, and theft of technological equipment.

The one category not cited by David Carter is the new phenomenon of cyber attacks by foreign governments. The British newspaper the Guardian recently reported that last year a Chinese internet spy ring penetrated Britain’s government computer network, although British foreign secretary William Hague responded that his office repelled the attacks. While Hague did not specifically name China as the sponsor of the attacks, the Guardian reported that “intelligence sources familiar with the incidents made it clear he was referring to China.” In a speech to a Munich security conference, Hague admitted his government has become concerned with the “increasing threat posed by cyber espionage” which targets a nation’s defense diplomatic and commercial secrets.

“It is a new development,” Alexander Neill, head of the Asia Program at the Royal United Services Institute think tank, told the Guardian. “The UK is prepared to admit the attacks were state-based.”

These sorts of attacks are indeed sophisticated. Hague told the Munich conference that the attack on his office came in the form of an email sent to three of his staffers, claiming to be about a “forthcoming visit to the region and looked quite innocent. In fact it was from a hostile state intelligence agency and contained a computer code embedded in the attached document that would have attacked their machine. Luckily, our systems identified it and stopped it from ever reaching my staff.”

Hague added that an earlier attack was directed at the country’s defense industry. “A malicious file posing as a report on a nuclear Trident missile was sent to a defense contractor by someone masquerading as an employee of another defense contractor,” Hague said. “Security meant that the email was detected and blocked, but its purpose was undoubtedly to steal information relating to our most sensitive defense projects.”

Hague then described a third attack that used a Zeus malware designed to extract banking information and personal details from targeted computers. “In late December a spoof email purporting to be from the White House was sent to a large number of international recipients who were directed to click on a link that then downloaded a variant of Zeus,” the foreign secretary said. He added that while the nation’s computer experts were able to clear out the infection, “more sophisticated attacks such as these are becoming more common.”

The Chinese are certainly by no means the only country willing to corrupt other nations’ corporate and state secrets.  Y. C. Lin, a 71-year-old Fountain Valley, California resident, was given a 30-month prison sentence by New York U.S. District Court Judge Charles J. Saragusa for conspiracy to commit theft of trade secrets. The defendant was charged with taking trade secret information from Corning Inc. between 1999 and 2002 and selling it to a Taiwanese corporation. The information involved Corning’s specialized glass production process.

“As we go forward into the Twenty-First Century,” U.S. Attorney William J. Hochul said after sentencing, “the value of the unique and creative ideas of a person or a company will often times become the difference between those who succeed commercially, and those who fail. For these and other reasons, our office is committed to protecting the hard work and intellectual property of all who call our region home.”

The Lin case was a product of the U.S. Justice Department’s Task Force on Intellectual Property (IP Task Force) created by Attorney General Eric Holder created to combat increasing domestic and international intellectual property crimes, protect the health and safety of American consumers, and safeguard the nation’s economic security from those who seek to steal and profit from other people’s idea, work, and innovations.

With the increase in technology and our government’s resolve to prosecute computer crimes, this is certainly a ripening area of criminal defense work. While the nation’s street crime, particularly its violent crime, has been steadily declining for the past decade, more sophisticated computer crimes have been increasing.  Thus, given the public’s growing disdain for hackers, fear inspired paranoia about the Chinese and justifiable concern about identity theft, the number of computer crime investigations and prosecutions will continue to increase and could become the next area of potential government abuse. We must be vigilant to avoid the spread of racially inspired suspicion upon our own citizens who left China for a better life in this land of the free.  As we have seen from the shameful treatment that our Muslim neighbors have been forced to bear in this country since 911, persecution of those with Chinese heritage is another racist firestorm that could easily spread in our current climate of hate-based divisive politics.

By: Houston Criminal Attorney John Floyd and Paralegal Billy Sinclair