Guardians? What Guardians?

Yesterday, the New York Times covered the recent arrest of Bernard L. Madoff.

Madoff, a prominent Wall Street Hedge fund manager, has admitted to running a $50 Billion Ponzi scheme.

While law enforcement has been quick to react, the revelation came when Mr. Madoff confessed to an associate. While rival Hedge fund managers had been suspicious that Madoff's results were too good to be true, THE REGULATORS HAD NO CLUE.

Years ago, there were many warnings on and off the Hill. Regulators, economists and many others sounded the alarm that allowing an entire financial industry to exist without regulations was a bad idea. However, the standard responses were: regulations are bad, the market will police itself, we can trust our Hedge fund managers. Well, look at what has happened. AIG failed to accurately assess and hedge their risks. Dozens of financial institutions have gone under and hundreds more are at risk. Hedge fund managers have admitted to running a crooked game.

The lesson is clear, systems and the people who work within them are not self-policing. Shocker. I am sure Machiavelli and Juvenalis are laughing at the continuing naivete of the human race.

Now, right now, we have a very similar pattern emerging in information technology. Institutions around the world are virtualizing like crazy. IT is deploying the vast majority of these virtual infrastructures without any of the protections I recommend here. PCI, HIPAA, SOX, you name it, these IT Groups are putting sensitive data about you and me, valuable data worth billions of dollars is at risk.

Where are the Guardians?

The Guardians are out to lunch, they missed the memo, they drank the Kool-aid from the platform vendors.

People like myself, Chris Hoff, Greg Ness, Ian Pratt, Brandon Baker and many others are sounding the alarm.

It's time for the Guardians to get to work. It's time for the IT security team to get off their butts and start addressing this issue.

Michael

Registrar's are still a weak link

Very nice article on the hack against Check Free here.

Current theories center on the likelihood that a Check Free employee got suckered by a phishing or straight-up social engineering attack.

I'm going to hazard a guess that this was a spear-phish or more targeted form of attack. A quick search of Linkedin, Facebook and other social networking applications finds a treasure trove of CheckFree/Fiserv employees.

It's a small step to go from these links to a targeted attack against Fiserv IT staff.

However, as the article notes Fiserv was not the only target in this attack and Financial Institutions (FI) are dangerously reliant on a single registrar.

My recommendations:

1. FI's and others must monitor and protect themselves from domain hijack -- I recommend Pharming Shield.
2. Get social networking applications out of the data center, IT personnel must not use corporate resources (including email) to access these sites
3. The Financial Industry is at risk from a single-point of failure at Network Solutions. This must be addressed through community efforts and directly by the platform providers.

Happy Holidays!

Virtual Security and Compliance Webcast

Recorded last week, go here to register and listen (sorry, the sound is ahead of the slides, I am trying to get that fixed).

Shout out to Tarry and everyone else who participated.

Risk mitigation for virtual infrastructures

Virtualization in the Data Center introduces the following: (skip down below)

	EFFECT	RISK
1.	Flattens infrastructure and networks	Unauthorized network access or communication
2.	Adds new operating system and infrastructure layers	Denial of service and data security breach due to software defects
3.	Collapses roles and increases privilege of administrators	Escalation of privilege, abuse of privilege
4.	Increases transience, mobility and frequency of change within the data center	Misconfiguration, server sprawl and data security breach

1. Virtual machine (VM) hosts, clusters and data centers reduce the logical and physical segmentation of systems and networks. This flattening exacerbates the risk of unauthorized access due to reduced visibility of events on the virtualized network.



Mitigation: implement increased monitoring and access controls for each virtualized access layer and network. Monitoring must correlate virtual infrastructure management, network traffic, security events and validation of intra-VM access control policies.

2. The Hypervisor is a new operating system, which along with hypervisor and virtual infrastructure management tools increases the defect, vulnerability and attack threat surface of the data center.



Mitigation: incorporate all new software and management layers into your vulnerability management system (VMS). The VMS must be mandatory and integrated with automated discovery and validation of virtualized infrastructures.

3. Like the introduction of DBAs for SQL databases and Domain Administrators for Window’s systems, Virtual Administrators have privileges that allow them to bypass existing controls and effectively access underlying systems and data at the hardware layer.



Mitigation: implement compensating controls to log and audit all Virtual Administrator activities. Introduce dual controls and separation of duties for critical functions. You must deploy tools to perform continuous validation of these secondary controls to detect and prevent abuse of privilege. This will also reduce the risk from virtual machine breakout and hyperjacking.


4. Servers are now files. Virtual machine mobility, snapshots, roll-backs and other features of virtualization have magnified the rate of change within the data center. This increase in operational velocity leads to increased risk of configuration error, capacity failures and for a security breach due to incorrect configuration or a lapse of controls.



Mitigation: extend configuration and life-cycle management processes to track virtual machines. These processes must be effective regardless of the mobility and non-linear attributes of virtual machines. Configuration management tools must enforce mandatory controls and support correlation of virtual and physical infrastructure configuration attributes – extending from virtual machine internals to external network access layers. Monitor and audit direct access to virtual machines files at the operating system and storage access layers.

A few Podcasts with Dane Deutch

These were done with a Catbird partner DCS NetLink.

7 Years Later

Public release of PSA's WMD REPORT CARD

Focusing on efforts since 2005, our Report Card gives the government a "C".

"Moving from a D to a C in three years is progress, but not really acceptable progress," Hamilton said.

"What we need now is for the next Administration to commit itself to unwavering dedication to ensure that we capitalize on the progress we've made and push forward to improve and solidify our efforts on all fronts," Gorton said. "Now is the time to turn our resolve into action."

PDF for full report card here.

I've spent the last couple of weeks re-reading the full commission report, and I am struck by how few of their direct recommendations have been implemented. It's possible that the current administration has done more than I know, but here is the focus of the recommendations:

Chapter 13: HOW TO DO IT? A DIFFERENT WAY OF ORGANIZING THE GOVERNMENT

This chapter emphasizes 13 (see below) of the 41 recommendations made by the commission.
Of these 13, two may have been implemented, two others partially implemented, the remaining 9 are incomplete.

Failing on 9 out of 13, I give them an F!

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1. Recommendation: We recommend the establishment of a National Counterterrorism Center (NCTC), built on the foundation of the existing Terrorist Threat Integration Center (TTIC). Breaking the older mold of national government organization, this NCTC should be a center for joint operational planning and joint intelligence, staffed by personnel from the various agencies. The head of the NCTC should have authority to evaluate the performance of the people assigned to the Center.

NCTC was established in 2004. Does the head of the NCTC have the authority to evaluate the performance of their personnel?

2. Recommendation: The current position of Director of Central Intelligence should be replaced by a National Intelligence Director with two main areas of responsibility: (1) to oversee national intelligence centers on specific subjects of interest across the U.S. government and (2) to manage the national intelligence program and oversee the agencies that contribute to it.

ODNI established in 2005. Current report card indicates incomplete, why?

3. Recommendation: The CIA Director should emphasize (a) rebuilding the CIA's analytic capabilities; (b) transforming the clandestine service by building its human intelligence capabilities; (c) developing a stronger language program, with high standards and sufficient financial incentives; (d) renewing emphasis on recruiting diversity among operations officers so they can blend more easily in foreign cities; (e) ensuring a seamless relationship between human source collection and signals collection at the operational level; and (f) stressing a better balance between unilateral and liaison operations.

The President issued a memorandum on November 23, 2004. This report from October 2005, reported "some progress." Is there anything more current?

4. Recommendation: Lead responsibility for directing and executing paramilitary operations, whether clandestine or covert, should shift to the Defense Department. There it should be consolidated with the capabilities for training, direction, and execution of such operations already being developed in the Special Operations Command.

Incomplete, this consolidation has not occurred.

5. Recommendation: Finally, to combat the secrecy and complexity we have described, the overall amounts of money being appropriated for national intelligence and to its component agencies should no longer be kept secret. Congress should pass a separate appropriations act for intelligence, defending the broad allocation of how these tens of billions of dollars have been assigned among the varieties of intelligence work.

House Appropriations Select Intelligence Oversight Panel established January 9, 2007.

6. Recommendation: Information procedures should provide incentives for sharing, to restore a better balance between security and shared knowledge.

This is addressed by H.R. 6575, Over-Classification Reduction Act, adopted on September 9, 2008. Currently incomplete pending passage by the Senate and signature of the President.

7. Recommendation: The president should lead the government-wide effort to bring the major national security institutions into the information revolution. He should coordinate the resolution of the legal, policy, and technical issues across agencies to create a "trusted information network."

Incomplete, no indication of implementation beyond studies. Ironically, the Center for Strategic and International Studies may have done this for themselves without the participation of classified networks.

8. Recommendation: Congressional oversight for intelligence-and counterterrorism-is now dysfunctional. Congress should address this problem. We have considered various alternatives: A joint committee on the old model of the Joint Committee on Atomic Energy is one. A single committee in each house of Congress, combining authorizing and appropriating authorities, is another.

Incomplete, no Joint committee comprising members of both House and Senate.

9. Recommendation: Congress should create a single, principal point of oversight and review for homeland security. Congressional leaders are best able to judge what committee should have jurisdiction over this department and its duties. But we believe that Congress does have the obligation to choose one in the House and one in the Senate, and that this committee should be a permanent standing committee with a nonpartisan staff.

Incomplete, DHS still overburdened with too much oversight. This lack of focus wastes resources and probably still leaves oversight gaps.

10. Recommendation: Since a catastrophic attack could occur with little or no notice, we should minimize as much as possible the disruption of national security policymaking during the change of administrations by accelerating the process for national security appointments. We think the process could be improved significantly so transitions can work more effectively and allow new officials to assume their new responsibilities as quickly as possible.

Incomplete, no sign that these procedural recommendations have been implemented.

11. Recommendation: A specialized and integrated national security workforce should be established at the FBI consisting of agents, analysts, linguists, and surveillance specialists who are recruited, trained, rewarded, and retained to ensure the development of an institutional culture imbued with a deep expertise in intelligence and national security.

The President issued a memorandum on November 23, 2004. Has it been implemented?

12. Recommendation: The Department of Defense and its oversight committees should regularly assess the adequacy of Northern Command's strategies and planning to defend the United States against military threats to the homeland.

Incomplete, as of April, 2008 the "GAO making several recommendations to DOD to direct NORTHCOM to take actions to address the challenges it faces in its planning and interagency coordination efforts."

13. Recommendation: The Department of Homeland Security and its oversight committees should regularly assess the types of threats the country faces to determine (a) the adequacy of the government's plans-and the progress against those plans-to protect America's critical infrastructure and (b) the readiness of the government to respond to the threats that the United States might face.

Incomplete, as stated above too many committees is more likely to lead to a failure of oversight and assessment rather than to a successful assessment and response.

Flash parties, flash crowds, now we have "flash dump"

Panic ensued, as they say, and United Airlines stock price plummeted 75 percent (down from $12.30 to $3 a share) before someone realized it was an old news story and things righted themselves. The stock rebounded to $10.92 a share by Monday's closing. But not before United Airlines contacted the Sun Sentinel and demanded the newspaper retract its (6-year-old) story.

I wonder how long before we see the Google spider being intentionally manipulated?

With web 2.0 there wouldn't even be a human brain in the publishing loop.

PCI compliant but still hacked

The malware on the store servers stored up records of these purchases in batches, then transmitted them to an unnamed offshore Internet service provider, the letter states. Foreign crime rings have been blamed in a number of other payment card fraud cases.

Hannaford said in its letter that it was certified a year ago as meeting card security standards and was recertified on Feb. 27. Eleazer said that was the day Visa first notified Hannaford of unusual card activity and began its investigation. That the standards did not stop the thieves, she said, "speaks to the increasing sophistication of the criminal element that propagates these attacks," she said.

It looks to me like Hannaford made the mistake of allowing "multi-level access" in a "single level" network. Servers that handle payment card data must be prevented from access to an unauthorized network or end-point.

These servers and the processors they communicate with should have been in a "PCI trust zone." All other systems would have been in an "untrusted zone." Then it would be a simple matter for IDP/NAC appliance to detect and prevent this type of breach.

Virtualization Security Getting Some Attention

My response to "Who Owns Virtualization Security" blog:

Virtualization absolutely presents us with the possibility of avoiding past mistakes and making virtual infrastructure (VI) more secure than the physical infrastructure it replaces.

Why?

1. Virtual security appliances and hypervisor APIs have made it possible for us to build security into the VI fabric at all layers.
2. The virtualization platforms give us the tools to automate deployment of primary controls, secondary controls and separation of duties throughout the virtual data center.
3. Virtualization means we can simplify security management and make true defense-in-depth affordable for everyone.
4. Secure hypervisors, their APIs and the right application of security smarts means we can build agent-less security that protects against rootkits, spyware and almost all forms of malware.
5. Virtual security appliances allow us not only to write good security policy but also to automatically enforce policy and provide continuous compliance auditing for the VI.
6. All of the above means, we can create tools for secure life-cycle, trust zones, trusted data paths and secure management in ways never possible with physical infrastructure.

We (as vendors) have a responsibility to educate the IT community to the myths and realities of VI security. The platform OEMs must recognize that simply saying virtual is more secure than physical – is a disservice to all of their customers. Then, when the manufacturers provide the security community the tools and support we need _and_ intelligently inform the market about real risks, then, and only then can we make virtual more secure than physical.

(more to come)

French bank details $7.2 billion loss

This sort of thing makes me think that in some cases it is more than greed. It must also be the "thrill" of beating the system.

Being smarter -- thinking you can out-smart everyone else?

Michael
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French bank Societe Generale described Sunday how one of its traders allegedly carried out a $7.2 billion (€4.9 billion) fraud, how the loss came to light and what it is doing to ensure such a case does not recur.
The 31-year-old trader, Jerome Kerviel, started working at the bank in 2000 and spent his first five years there overseeing traders, the bank said in a five-page summary of events.

"Consequently, he had a very good understanding of all of Societe Generale's processing and control procedures," it said.

Kerviel apparently put that knowledge to use after he became a trader for the bank involved in arbitrage -- the practice of buying a portfolio of financial instruments in one market and selling a similar offsetting portfolio at the same time that had a slightly different value. The idea is that, in such trades, the risk of major loss would be minimized.

In fact, Kerviel's first portfolio of financial instruments -- in his case futures -- included genuine operations -- but the offsetting portfolio proved to be "fictitious," the bank said.

"As a result, the trader was able to hide a very sizable speculative position, which was neither consistent with nor related to his normal business activity for the bank," Societe Generale said.

French police questioned Kerviel on Friday and searched his apartment in a Paris suburb Friday night. Efforts to reach his attorneys for comment have been unsuccessful.

Finance Minister Christine Lagarde said Friday that she would meet with banking regulators Monday to establish a timeline of events that led to the massive trading loss.

According to Societe Generale, Kerviel used his early banking experience "to successfully circumvent all the controls which allow the bank to check the characteristics of the operations carried out by its traders, and consequently their real existence," it said.

For example, it said, Kerviel chose operations that had no cash movements or margin call and that did not require immediate confirmation and he canceled certain operations by using access codes assigned to other bank employees.

In addition, it said, he falsified documents and made sure that his fictitious operations involved different instruments from the ones he had just canceled, thereby reducing his chances of being controlled.

But about mid-January, bank officials detected "abnormal counterparty risk," and Kerviel's explanations led to additional controls being placed on his activities, the bank said.

Then, on Friday, January 18, Kerviel's bosses were informed and an investigation had begun.

The next day, after a large bank told Societe Generale that it did not recognize an operation, the trader "acknowledges committing unauthorized acts and, in particular, creating fictitious operations," his employer said.

By early afternoon on Sunday, January 20, the bank's fraudulent position had been calculated at approximately 50 billion euros ($73.6 billion), and "the unwinding of the fraudulent position begins in particularly unfavorable market conditions."

In fact, the timing was terrible. On Jan. 18, European markets had swooned and two days later, the Asian markets tumbled, too. By January 23, "the unwinding" was completed and the total loss calculated at 4.9 billion euros ($7.2 billion).
Since then, the bank said, it has tightened its controls to ensure such an operation cannot recur.