The announcement is of course Good News — because once the PCeU is up and running next Spring, it should plug (to the limited extent that £2 million a year can plug) the “level 2″ eCrime gap that I’ve written about before. viz: that SOCA tackles “serious and organised crime” (level 3), your local police force tackles local villains (level 1), but if criminals operate outside their force’s area — and on the Internet this is more likely than not — yet they don’t meet SOCA’s threshold, then who is there to deal with them?

In particular, the PCeU is envisaged to be the unit that deals with the intelligence packages coming from the City of London Fraud Squad’s new online Fraud Reporting website (once intended to launch in November 2008, now scheduled for Summer 2009).

Of course everyone expects the website to generate more reports of eCrime than could ever be dealt with (even with much more money), so the effectiveness of the PCeU in dealing with eCriminality will depend upon their prioritisation criteria, and how carefully they select the cases they tackle.

Nevertheless, although the news this week shows that the Home Office have finally understood the need to fund more ePolicing, I don’t think that they are thinking about the problem in a sufficiently global context.

A little history lesson might be in order to explain why.

Back in 1930’s, Bonnie and Clyde and other US bank robbers were using the new-fangled automobile to flee across state lines — creating jurisdictional problems as a result. The US solution was to make bank robbery (along with auto-theft and other related offences) into federal offences rather keeping them as state-specific infractions. In particular this meant that the FBI could provide federal level policing (tracking down and killing John Dillinger for example).

We have the same jurisdictional issues dealing with cyberspace, with criminals in one country fleecing consumers in another while using systems hosted in a third. The Convention on Cybercrime addresses part of the problem by trying to ensure international consistency where eLaws are specifically needed (which of course is only the case for small parts of eCriminality, fraud is fraud whether eEnabled or not). However, there is limited inter-jurisdictional co-ordination for eCrime investigations — for example Interpol (often incorrectly perceived to be international police force) merely keeps a large database and passes faxes from one place to another.

In practice, most cross-border investigations are done as “joint operations” and the jointness is usually very limited — one force does all the legwork and a liaison officer in the other country deals with local paperwork. There’s usually a quid pro quo element to these joint operations, for budgeting reasons if no other.

What isn’t happening, or at least only in a handful of very specialised areas, is any international co-operation in setting priorities or selecting cases to pursue. Every country is doing its own thing about eCrime, and there’s a widespread impression that any criminal who can operate from “across the state line” is essentially immune from serious investigation.

We identified this problem last year when we (Ross Anderson, Rainer Böhme, Tyler Moore and myself) wrote a report on Security Economics and the Internal Market for ENISA. It’s not an easy one to fix whilst politicians (and populaces) are unwilling to see “foreign” police officers operating in their country, and the establishment of a truly international “cyber police force” seems equally unlikely.

Our policy proposal to tackle the issue harks back to WWII’s SHAEF, which has morphed into similar arrangements within NATO. In essence liaison officers from multiple forces would sit around a single table, working with a central coordinator, to set policy and decide which investigations to pursue. They would then communicate back to their own countries, who have specifically budgeted to provide appropriate assistance. So it’s very like “joint operations”, but the scheme is multi-laterial, and has a true command and control function in the centre — who will quickly learn to shy away from politically sensitive topics and make a real impact on eCriminality.

To summarise then, a welcome to the Home Office for finally finding a small amount of funding for some country-wide ePolicing; but it’s well past time to be working on world-wide initiatives.

Why? Because renewable energy technologies — what I call “E.T.” — are going to constitute the next great global industry. They will rival and probably surpass “I.T.” — information technology. The country that spawns the most E.T. companies will enjoy more economic power, strategic advantage and rising standards of living. We need to make sure that is America. Big oil and OPEC want to make sure it is not.

Exactly who was behind the cyberattack is not known. The Georgian government blamed Russia for the attacks, but the Russian government said it was not involved. In the end, Georgia, with a population of just 4.6 million and a relative latecomer to the Internet, saw little effect beyond inaccessibility to many of its government Web sites, which limited the government's ability to spread its message online and to connect with sympathizers around the world during the fighting with Russia.

[...]

In Georgia, media, communications and transportation companies were also attacked, according to security researchers. Shadowserver saw the attack against Georgia spread to computers throughout the government after Russian troops entered the Georgian province of South Ossetia. The National Bank of Georgia's Web site was defaced at one point. Images of 20th-century dictators as well as an image of Georgia's president, Mr. Saakashvili, were placed on the site. "Could this somehow be indirect Russian action? Yes, but considering Russia is past playing nice and uses real bombs, they could have attacked more strategic targets or eliminated the infrastructure kinetically," said Gadi Evron, an Israeli network security expert. "The nature of what's going on isn't clear," he said.

[...]

In addition to D.D.O.S. attacks that crippled Georgia's limited Internet infrastructure, researchers said there was evidence of redirection of Internet traffic through Russian telecommunications firms beginning last weekend. The attacks continued on Tuesday, controlled by software programs that were located in hosting centers controlled by a Russian telecommunications firms. A Russian-language Web site, stopgeorgia.ru, also continued to operate and offer software for download used for D.D.O.S. attacks.

Welcome to 21st century warfare.

"It costs about 4 cents per machine," Mr. Woodcock said. "You could fund an entire cyberwarfare campaign for the cost of replacing a tank tread, so you would be foolish not to."

Corruption, intimidation, robbery, violent assault, forgery, large-scale fraud. No, not the subject of the latest John Grisham novel, but sensational allegations, made public Apr. 4 by Hermitage Capital Management -- until recently the largest foreign portfolio investor in Russia. In a detailed and damning report, titled Criminal Justice -- Russian-Style, Hermitage alleges the fund's Russian subsidiaries have fallen victim to an elaborate con designed to defraud the fund of hundreds of millions of dollars. 
  
The most sensational part of Hermitage's allegations is that the attempted larceny was carried out with the direct connivance of officials in the Russian police. Hermitage alleges the police seized documents and equipment that were instrumental to the attempted fraud, which involved bogus court cases based on forged documents, the aim of which was to sue Hermitage subsidiaries for hundreds of millions of dollars. "The most shocking thing is not that there are corporate raiders in Russia who attempt to steal your shares," says Jamison Firestone, managing partner of Firestone Duncan, Hermitage's law firm. "The shocking thing is that the police worked hand-in-hand with them, and actually performed the theft of the documents so that the corporate raiders could then do their work."

So the two-pronged scam worked in one area and failed in another. The perpetrators weren’t able to steal the assets from us based on the fake court claims, but they were able to steal $230 million from the Russian government by filing amended tax returns on behalf of our stolen companies. What makes this story even more shocking is that we filed six 255-page criminal complaints with the Russian authorities in December last year, one month before the tax fraud took place, and they did nothing to stop it. Two complaints were sent to the Russian General Prosecutor, two to the Russian State Investigative Committee and two to the Internal Affairs Department of the Interior Ministry. There was enough information to prevent the fraud and indict a number of people behind it if the government had acted. 

Instead of doing anything to save the Russian state from this highly sophisticated and organized looting, two of our complaints were thrown out immediately; two were returned to the same Interior Ministry official we were complaining about (essentially, he was being asked to “investigate himself”); and one was thrown out for “lack of any crime committed.” Only one complaint was taken seriously. It was taken up by the Russian State Investigative Committee in early February, but before it could get any traction, the case was lowered to the South region of the Moscow district of the State Investigative Committee (the lowest level of the Committee) and by June, another senior Interior Ministry official whom we had named in our complaint had joined the “investigation” team (again, to “investigate himself”). To this day there has been no serious response by the Russian authorities to this massive fraud against the Russian state. 

As we described in our April letter, the problem of corporate “raiding” is now so endemic in Russia that President Medvedev speaks about it as one of the biggest problems faced by Russian businesses. In this case, raiders have taken this problem to a new and absurd extreme by “raiding” the Russian state itself and so far getting away with it. Together with HSBC, we will shortly be filing new criminal complaints with the Russian General Prosecutor and Russian State Investigative Committee as well as with many law enforcement authorities outside of Russia. It is hard to predict what will happen next in this unfolding and unbelievable saga, but as always we will keep you updated on any further developments as they arise.

Of course we see individual identity theft on a regular basis (actually as Ross Anderson points out its not really identity theft but poor controls on the bank's parts using SSNs as secrets and so on), but you dont see a major corporation stolen every day.

In fact, it’s not just great artists like Mr. Lucas and I starting up old projects, our honourable colleagues wearing the black hats have got the same idea. We have new victims reporting in, rumours abound of an auth system compromise at Citi, the Ombudsman is backlogged with months of disputed withdrawal cases, and some like Alain Job are even going to court.

One original contributor to the phantom case histories has just been hit by a second phantom withdrawal five years on and is chalking up another case in the files. While her new phantom is a bread-and-butter skim incident (a magstripe clone used in the far east), amongst this mass, true phantoms — the real mystery cases — are on the rise too. Two new victims with whom I have been corresponding very kindly offered to fund the hosting for the revamped site.

Let’s consider one of these mysteries. The McGaughey case has been reported in the media in Northern Ireland: dozens of withdrawals taking place over four weeks, totaling almost five thousand pounds, all within a ten mile radius of the McGaughey’s home. Summarised that way it looks like a classic first party fraud (couple short on cash withdraw money, then deny it later). But no-one in the family is short on cash, the McGaugheys look after their card details carefully, and have solid alibis at the time of many of the withdrawals, and the interlocking pattern of real and disputed withdrawals is such that any third party would have a hard time taking and returning the card (whether covertly or in collusion with the McGaugheys). No-one appears to have either the means or the motive.

Unusually the bank has been very cooperative, providing logs from their authorisation system (BASE24), including all of the cryptograms, input data and transaction parameters covering the affected transactions. Everything turns on the Application Transaction Counter (ATC), an on-card counter which increments with every transaction initiated. If an EMV chip can be fully cloned (secret keys and all), then it will have to submit an ATC value when transacting, and if used in parallel with the real card, it won’t be long before the same number pops up twice in the auth system, or large gaps in the sequence appear. The McGaughey’s ATC sequence appears to interlock perfectly: clearly the original card was used?

Of course logs can be misinterpreted (Badger) or even faked, auth systems may not work as expected, and customers may lie and cheat following all sorts of agendas; just around the corner the missing piece of the jigsaw may lie, which reveals the truth behind the case. And there is the totally separate matter of who should suffer the loss in the interim, whilst the truth remains unclear. Liability for disputed withdrawals is the most hotly contested issue of all.

phantomwithdrawals.com can’t do much more for the McGaugheys, but it can bear witness. Documenting the incidence of phantoms and the experiences of customers disputing them adds much needed transparency to the process, and helps researchers and experts seek out the really interesting cases.

Maybe we can lift the lid and discover the truth behind the “phantom menace” — everyone is united in that goal at least — but let’s also hope that Episode 2: Attack of the Clones has not yet started shooting!

Mike.

New York City considers plan to bring fiber to public housing residents: Wireless networks are definitely out in the recommendations of a private consultant to the city's Broadband Advisory Committee, ComputerWorld reports. They may opt to use $4m in a fund from Verizon and a potential $8m from the two incumbent cable operators.