Abdullah Mutawi, partner at law firm Baker Botts LLP, breaks down the legal aspects businesses in the region should consider when it comes to cybersecurity
The internet, and the types of communication it facilitates, has brought about the biggest paradigm shift to business in decades by delivering unprecedented utility in communications.
This shift has led to huge benefits, but also some serious negatives – perhaps the most prominent of which is the threat to cybersecurity.
It is not difficult to recall a time when highly publicised cyber attacks were a relatively rare occurrence, but now barely a day goes by without news of a new high-profile incident. And whether we focus on the victims of such attacks, the people who perpetrate them or the motivations behind them, two common observations can be made.
Firstly, perfect security is not an achievable goal; there are virtually no safe havens. And secondly, this problem has no borders.
Clearly, securing systems and data is of critical importance, as recent high-profile examples in the US have demonstrated. Think of Yahoo having hundreds of millions or a billion customer accounts hacked, or 70 million customers of the retailer Target having their credit card details stolen. Most recently, it has become widely perceived that a state actor influenced the US presidential election by hacking and releasing sensitive private communications. In the private sector, it is widely accepted that most if not all of the Fortune 100 companies have suffered a cyber-attack despite having sophisticated cyber-risk management policies and practices.
The Middle East – especially the Gulf Cooperation Council – is a region adopting technologies at a fast pace and increasingly we see cities such as Dubai and Abu Dhabi positioning themselves as living research and development labs for new and innovative technologies such as autonomous vehicles and transportation systems.
The rate at which Internet of Things (IoT) devices are being deployed across the region in government, business and the private sphere is breathtaking. But the world has yet to come to terms with the new types of vulnerabilities IoT devices present through the inherent security weaknesses that are created by the way they are designed and brought to market.
Only a few weeks ago Dyn – a company that controls much of the Internet’s domain name system (DNS) infrastructure – was attacked by a botnet created by hijacking somewhere in the region of 100,000 IoT devices. These were in turn used to bombard Dyn’s system with a distributed denial of service (DDOS) attack at a then record-breaking strength of 1.2 terabits per second. The waves of attack on Dyn – which took its systems down for nearly an entire day – resulted in a massive blackout of services reliant on its systems, such as Twitter, Netflix, Reddit and Spotify.
Although the attack on Dyn may have predominantly affected entertainment and social media services, a similar attack could just as easily affect more critical systems.
Who is at risk?
The way to look at this is by way of ‘risk profile,’ and there are virtually no industry sectors that are free of risk from cyber-attacks. Broadly speaking there are three types of risk profiles that different government or industry sectors will fall into. In some cases they will fall into more than one:
Those who maintain, process, or use high volumes of PII data
Organisations such as banks, insurance companies, educational institutions, healthcare providers and online retailers are perpetually collecting and processing vast quantities of sensitive personal data. Credit card information by itself, if stolen, is enough to enable a bad actor to cause huge financial losses to banks and insurance companies. There are circumstances where individuals will be exposed to such losses as well, and it is not just credit card data that is vulnerable.
All forms of personally identifiable information (PII) are both highly sensitive and potentially valuable, and in the wrong hands can be used for numerous malicious acts. In addition, any company deploying IoT devices is at risk across several attack vectors.
The absence, with very limited exceptions, of serious information security or data protection legislation in the Middle East means that organisations falling into this category are likely to have paid less attention to adequate information security and data protection policies and procedures. Therefore, these companies are at risk of being more vulnerable than their counterparts in regions with more developed regulation.
Those who own or operate critical infrastructure
Virtually all organisations managing highly vulnerable and critical infrastructure such as power grid operators, utilities, transport networks, water treatment centres, factories and refineries now manage these assets using computerised systems. We have already seen major cyber-attacks on these systems in the Middle East and for any organisation where the ability to function safely depends on system integrity (i.e. not losing control over assets) there remains huge vulnerability to kinetic attacks, which could result in serious injury or loss of life in addition to economic losses.
With the rapid proliferation of the IoT, autonomous vehicles, and proven hackability of the systems controlling vehicles in-motion and aircraft in-flight, the potential for new forms of kinetic attacks cannot be discounted. Aside from these kinetic attacks, the business disruption caused by disabling an organisation’s ability to function (even if only for a few hours) can also be very expensive.
Those who hold confidential and sensitive enterprise data
Even when organisations hold little or no PII data and where a loss of control over assets caused by a cyber-attack would have little impact on the public, an organisation may still suffer serious economic and competitive loss from the theft of or interference with its ability to use its confidential information.
In sensitive sectors such as defence and security, heavy regulatory burdens can fall on those whose systems are not adequately protected. In addition, advisory firms such as accounting, legal and management consulting firms, as well as cloud-based business support services like virtual data room and litigation
support providers, all fall into this category due to the highly confidential client data involved.
The well-publicised theft and publication of vast quantities of client information from the systems of Panamanian law firm Mossack Fonseca provides a tiny glimpse into a vast universe of information that resides in a different location to its owners. This reminds us of course of the ‘cloud’ where so much of our data has slowly started to migrate.
What are the risks?
Regardless of which risk profile a government body or private sector institution sits in, cyber-penetration of systems exposes these organisations to any one of the following consequences:
• Loss of reputation or customer / stakeholder confidence as a result of data breaches.
• Loss of customers and revenue.
• Physical damage or injuries to
• Loss of proprietary data and IP.
• Business interruption.
• Damages and legal costs arising out of litigation, regulatory investigations and penalties.
•Diminution in share price or valuation as a result of the above.
Senior management, board members and their public sector equivalents are all at risk when it comes to the consequences of a cyber-attack – this is not simply ‘an IT problem’ anymore. It is evident from the litany of cyber attacks that ignoring the need to promote a top-down culture of security and training is inviting problems.
Many senior executives assume that taking out a cyber-insurance policy allows them to ‘outsource’ these legal risks. But using insurance as a tool to ‘deflect’ risk is a dangerous strategy because that market is in its infancy and subject to rapid change. Aside from often large deductibles, cyber policies have varying degrees of coverage conditions and exclusions. For example, some newer cyber policies do not cover social engineering attacks, which some insurers now offer as separate coverage. Moreover, applying for cyber insurance often requires an assessment of a company’s risk posture, and enhancing its risk management can result in a lower cost of insurance.
In the event of a serious cyber-attack, if the C-suite hasn’t worked together to assess and plug the gaps, someone’s head is going to roll when an expensive policy has been paid for but doesn’t pay out. Cyber insurance is in this way exactly like health insurance – best when you don’t even need to use it.
Looking to law enforcement agencies and courts to achieve redress in the wake of an incident is also a flawed strategy for two reasons.
Firstly, court action is painfully slow at the best of times. When measured against the speed of technological innovation and the fact that cyber-attacks are carried out without regard to geographic borders, these institutions have little hope of keeping up.
Secondly – assuming you can find the actor responsible and they aren’t effectively judgement-proof – by the time you look to a legal remedy for redress, the damage has already been done.
By contrast, legislators and regulators are likely to play a bigger role in imposing heavier duties and burdens of responsibility on businesses and institutions that operate critical services and infrastructure.
The European Network Information Security Directive is one such example of this and it complements the General Data Protection Regulation (GDPR). These laws are brand new but they have teeth and companies falling foul of them are potentially liable to pay massive fines. Aside from the fact that there will be Middle Eastern companies who are caught by foreign laws such as GDPR, it is only a matter of time before we see regional legislatures approach this subject with increased urgency because they simply cannot afford not to.
With that being said, companies should not rely on regulators to tell them what they need to do to safeguard their systems, because regulators are usually many years behind the pace of technological evolution. Companies should consider regulatory guidance a floor for best practices.
How much of a ‘legal’ issue is cyber security?
It is a sobering thought to consider the regularity and scale of attacks on large corporations and governments in areas where cyber-preparedness is more mature than the MENA region.
It is widely accepted among experts that systems can never be 100 per cent secure, so it is often a question of ‘when’ rather than ‘if’ security is breached. The legal ramifications of this are evident in numerous spheres.
Verizon’s $4.8bn acquisition of Yahoo Inc.’s core business illustrates this point. The deal could possibly collapse or be substantially renegotiated due to the hacking of possibly more than a billion user accounts – something that would be a seismic legal event.
As often follows in the US, there is a class-action lawsuit by Yahoo users seeking remedy for the breaches. The merger agreement’s MAC (material adverse change) clause may become especially relevant as lawyers address whether a data breach on that scale has had such a serious impact on the value of the target that the buyer can withdraw from or substantially renegotiate the deal.
Data security issues will become increasingly important areas of inquiry in the mergers and acquisitions area for two distinct reasons. Firstly, acquirers want to know that what they are buying doesn’t come with hidden costs. Secondly, acquirers want to be sure that in acquiring a company they aren’t exposing their own systems to risks from the acquired company’s systems.
For those governments and companies in the Middle East that are now beginning to take cybersecurity seriously, the focus still remains heavily on securing systems against attack. This is done predominantly with training and IT-driven solutions with insurance tools gaining traction slowly.
However, without a deep understanding of the relevant risks and the technical and legal strategies to manage risk, such organisations will remain vulnerable.
For governments and legislators in the region, there is simply no time to lose. Developing a serious and cohesive regulatory framework around information security and data protection is critical.
Legal strategies for managing
Aside from a company’s contractual duties to third parties and their general duties of care towards customers and those they come into contact with in the ordinary course of business, both C-Suite executives and directors need to be conscious of two main things.
1. Their legal duties to act in the best interests of the company, which includes:
a. Pro-active and demonstrable engagement at all levels of the organisation along the lines of the diagram above.
b. Holistic risk-assessment and risk-management.
i. Compliance with applicable laws and regulations.
ii. Development of robust information-security policies and protocols.
iii. Voluntary certification under international standards.
iv. Risk transfer in supplier and customer agreements.
v. Understanding the scope of insurance cover, identifying gaps and managing risks associated with coverage conditions and exclusions.
c. Preparedness for incident response.
i. Developing and testing appropriate incident response plans.
ii. Internal and external communications strategies.
iii. Strategies to manage and contain legal liability in post-incident scenarios such as actions to protect legal privileges.
2. The risks inherent in M&A
a. Sell-side data vulnerabilities – NDAs, data rooms, business secrets.
b. Buy-side cybersecurity due diligence – know what you are buying, dig deep into systems and historic cyber events, negotiate buyer protections.
c. Post-acquisition integration – understanding how to integrate systems and ensure that risk reallocation has been undertaken ahead of time.
Cybersecurity is one of the few areas where an organisation’s legal strategy is as important as its assets, its financial strategy, its technical infrastructure and its people. Our region is abundant in players who wish to hurt each other and cyberspace provides them with plenty of opportunity to employ new means to do so.
The bright side for those decision-makers who take a pro-active approach to managing cyber-risk and understanding the extent of associated legal issues is that the risks can be mitigated and hard lessons can be avoided.
Undoubtedly, IT professionals and insurance companies have a role to play but over-reliance on the ‘outsourcing’ of risk can be a risky strategy in itself.
© Gulf Business 2017