What an interesting time to hold a technology conference. The DLA Piper Global Technology Leaders Summit last week brought together CXOs from Amazon, Walmart.com, Stanford, Safeway, Microsoft, Sun, Cisco and others to discuss the state of IT in general and how the economy is impacting it. Some highlights:

“Cloud computing for large enterprises is a dead duck, in the opinion of several venture capital firms.”

“The current slowdown in the U.S. macroeconomy is definitely going to hurt the IT industry, as it will most of the nation’s businesses, for at least the next year and most likely into the next two years.”

NetApp cancelled its first user conference slated for 2009 citing economy-driven restrictions on business travel.

We recently wrote about the possible upside for MSPs in this economic downtown. A survey from EquaTerra of more than 200 outsourcing service suppliers announced that “more than 40 percent of those polled had seen increased demand levels, despite the economic downturn.” The survey suggests that outsourcing projects are changing, with a strong focus on quick return on investment replacing longer-term initiatives to improve end-to-end business processes, according to InfoWorld. So as we saw during our own surveys this year, it looks like IT will spend time and money against the practical projects that should and could get done and not taking on ITIL and CMDB projects.

Jonathan Schwartz as a puppet talking about open source and his ponytail. The driest Sesame Street take-off you’ll ever see. Check out the video here. For those of you playing a drinking game at home, “ponytail”.

Denise Dubie posted a follow up to her article Novell’s Managed Objects buy, and shared insights from different commenters, including yours truly.

One of our favorites, the IT Skeptic was featured on John Willis’ blog this week, answering some questions about CMDB, ITSMF and more. He also provided his insight into IBM Tivoli, although he “tries to stay non-partisan”.

Inexplicable. HP posted Halloween-themed videos about datacenters on YouTube this week. Unlike the great IBM videos about the mainframe, these videos speak techno-babble without tempering the lingo with being funny or tongue-in-cheek. Various frightening creatures share information on service management processes and discuss virtualization techniques to help consolidate hardware. Scary.

As part of our ongoing research into Cloud Computing, IDC recently conducted a survey of 244 IT executives/CIOs and their line-of-business (LOB) colleagues about their companies’ use of, and views about, IT Cloud Services. Successful suppliers will need to address both the biggest challenges of cloud services, and the biggest traditional IT user issues.In part 1, we looked at current and future adoption of IT cloud services. In part 2, we looked at users’ views about the key benefits and challenges of IT cloud services.

What is your Cloud Provider doing to address your security concerns?

The first UEPS transaction was performed on Sunday, August 3, 2008, in Baghdad, Iraq, during the official launch of the UEPS smart card technology with the two state banks namely, Rafidain Bank and Rasheed Bank.

The official launch, attended by invitees from Rafidain Bank, Rasheed Bank, the Iraqi Government, War Victim Ministry and Martyrdom Ministry, demonstrated smart card registration, biometric enrolment and issuing of UEPS cards, offline loading of wage payments and government grants to the UEPS cards and dispensing of cash.

The pilot project involving 100,000 beneficiaries is now ready for implementation across selected bank branches and will enable the distribution and payment of government grants to war victims and martyrdom beneficiaries, as well as salary and wage distribution and payment to employees of the two state banks.

Brenda Stewart, Net1 Senior Vice President Sales and Marketing, said, "From the entire team at Net1, we congratulate the Iraqi consortium on this historic achievement and look forward to the successful implementation of the various projects already identified for implementation, as well as the projects currently in business development. Net1 is proud that the development of its core technology, from which it creates end-user products that satisfy the requirements of its customers, can change the way business is conducted leading to the improvement of people's lives. We share the belief of our Iraqi partners that our technology can play a fundamental role in the upliftment of the economy. The success of any technology should be measured, not only by the profits it generates for its inventors, suppliers and users, but also by the difference that it makes to the lives of people," Stewart concluded.

Collaboration in the Cloud

Forward thinking companies use collaboration technologies to melt away the physical distance between disparate offices, remote workers and suppliers.  Investments in R&D projects to create the next generation of business collaboration technologies and starting to bear early fruits and are worth paying attention to - especially if you get paid to “do security”.  One major focus area is Virtual Worlds.

Teleporting Virgins

The big news in the Second Life research community is that avatars (”virtual people”) have successfully teleported between distinct virtual worlds.  The virgin teleporters went from a Second Life Preview Grid - an experimental grid completely disconnected from the Main Grid - to a virtual world running IBM OpenSIM.

At this stage there is intentionally no asset transfer going on at all - in other words, you can’t take your “stuff” from one world to another - but that will come in time as the Open Grid Protocol is extended.  Today just login and teleport are supported.  No stealing those trade secret “assets” yet ;-).

Linden Labs speaks to this issue:

Q: How will Linden Lab prevent property from being copied into other virtual worlds?
We’re paying extremely close attention to that question. We will be designing this with the Second Life community to ensure their needs are met. We want to stress that when it does become possible to move avatars between worlds, we will take the utmost care to protect the rights of Second Life property owners and creators. Linden Lab will not design a system that lets people openly violate the permissions of SL goods and take them to other worlds. We recognize that intellectual property is the engine that drives Second Life, and we are completely committed to preserving the qualities that make Second Life the unique, innovative and dynamic place that it is today.

With my “hacker-vision” ™ enabled I see *all kinds* of opportunities for mischief here.  I’m betting we’ll see imaginative attacks as the usual cat and mouse game of vulnerability research and vendor response plays out.  “Sorry boss, someone hijacked my avatar and now I’m stuck on this desert island for who knows how long!”.

Threat Profiling Second Life

Getting back to reality, people are already exploring Virtual World security.  Michael Thumann of ERNW in Germany is a pen-tester and security researcher and in this 10 minute video, Michael shares the result of his security research on Second Life.

He covers:

• In-game cheating
• Identity theft
• Attacking 3rd party servers using Linden Scripting Language (think about the liability issues and the providers ability to track abusers)

For those interested in more detail, the full presentation he gave at BlackHat Europe 2008 in Amsterdam is here (pdf).

Of particular note, Michael applied a formal threat model approach to the research - STRIDE from Microsoft.

In a future post I’ll talk more about threat profiling in the context of Cloud Computing vulnerability research and specific API security vulnerability classes we can expect to see exploited.

The Sopranokovs 

The Russian mob comes to town with a new scam—medical identity theft. 

When FBI special agent Ted Price peered through the window of a dingy brick storefront on Southwest Morrison Street in March, it was what he didn’t see that caught his attention. 

The business, called UnimedCorner, claimed to provide ailing seniors with orthotics—braces and other devices to correct foot, joint and back problems. 

Price and other federal investigators were skeptical. 

On Unimed’s showroom floor, Price saw wheelchairs, motorized scooters, a variety of canes and, on the walls, a selection of amateurish paintings and framed photographs. There was no evidence, however, of the kinds of equipment for which Unimed had billed Medicare nearly $2 million in the previous couple of months. 

“I observed wheelchairs and canes through the window but did not see any orthotics in the store,” Price later wrote in a search-warrant affidavit. “It is a sign of fraud that the store is not stocking the items [for which] it is billing.” 

By the time Price arrived on the scene, the company’s owner, a shadowy Russian immigrant named Alexandr Shcherbakov, was long gone. 

Today, Shcherbakov’s store sits undisturbed. The message light on the phone blinks, dead potted plants droop and a stuffed toy monkey slumps in a glass display case. 

And behind the cash register hangs a framed poster of television’s best-known mobsters, the Sopranos. 

From interviews and information presented in federal affidavits, it is clear Shcherbakov moved to Oregon to commit a crime elegant and lucrative enough to make Tony Soprano envious: medical identity theft. 

... 

“Medical identity theft is the new frontier for organized crime,” says Alex Johnson, a former FBI agent who investigates fraud for Regence BlueShield. “Pretty much anybody can set up a mom-and-pop operation and start cranking out claims.” Someday, most Americans will need a cane, wheelchair, home hospital bed or another of the items healthcare professionals call “durable medical equipment,” or DME. 

For those over 64 and without private insurance, there’s a good chance federally funded Medicare will pick up the tab for that equipment. Last year, according to federal statistics, Medicare spent $8.6 billion on DME. 

Here’s the way the system is supposed to work: A doctor prescribes a device such as a wheelchair for a patient, who presents his prescription to a DME supplier. The supplier provides the equipment and bills Medicare, which typically pays 80 percent of the cost. Unlike pharmacists, who fill prescriptions under strict scrutiny of state and federal watchdogs, DME suppliers are lightly regulated. “DME is very vulnerable to fraud,” says Consuelo Woodhead, the chief healthcare fraud prosecutor for the U.S. Attorney’s Office in Los Angeles. “It doesn’t require any background in medicine, any kind of professional licensure or appreciable capital. 

There are barriers of entry in other medical fields, but not in DME.” To operate, DME suppliers simply need a place of business, a business license and liability insurance. Unlike pharmacists, DME suppliers operate under an honor system: The feds count on them to supply the equipment they claim to provide to the beneficiaries who need it. 

That honor system is not working. 

The epicenter of DME fraud, according to the federal Department of Health and Human Services, is South Florida, where Medicare billing for DME quadrupled from 2002 to 2006 to $1.7 billion. Investigators found much of that increase was due to fraud. In 2006, federal inspectors revoked the licenses of 634 DME suppliers in South Florida, nearly half the DME dealers in the region. 

Later the same year, raids in Southern California yielded similar results: The feds shut down 95 DME suppliers. Many of the DME suppliers shut down around Los Angeles were run by immigrants from the former Soviet Union. It’s probably no coincidence that when the feds raided Los Angeles DME suppliers, some Angelenos fled to cities where there was less scrutiny—such as Portland.

The Scottish Ambulance Service confirmed today that a package containing contact information from its Paisley Emergency Medical Dispatch Centre (EMDC) has been lost by the courier, TNT, while in transit to one of its IT suppliers. The portable data disk contained a copy of records of 894,629 calls to the ambulance service's Paisley EMDC since February 2006. It was fully encrypted and password protected and includes the addresses of incidents, some phone numbers and some patient names. Given the security measures and the complex structure of the database it would be extremely difficult to gain access to any meaningful information.

Weldon, who is currently being investigated by the FBI over alleged corruption during his time in office, visited Libya in March to discuss a possible military deal, according to a letter describing the trip from Weldon to Defense Solutions CEO Timothy Ringgold. In May, Weldon, together with Ringgold and another company representative, traveled to Moscow to discuss working with Russia's weapons-export agency on arms sales to the Middle East.

Both trips were part of the company's effort to tap into the growing -- and often legally murky -- market for selling weapons from former Eastern Bloc countries to the Middle East and Afghanistan.

Ex-Rep. Curt Weldon, R-Penn., is helping broker deals between Russian weapons suppliers and the Iraqi and Libyan governments through his company, Defense Solutions.
Photo: H. Rumph Jr/AP

The Russians want to sell weapons to Iraq directly, but "must go slow on Iraq because of political reasons" and want to work with an "intermediary" like Defense Solutions, CEO Ringgold subsequently wrote to colleagues. "They have not spoken with any American company that can offer the quid pro quo that we can or that has the connections in Russia that we have," he boasted.

A few years ago, an American company proposing to sell weapons to Libya might have triggered a congressional hearing. So, too, would have a proposal to conduct arms deals with Russia, which the United States has accused of selling high-tech weapons to Syria and Iran.

However, U.S. government efforts to rapidly equip countries like Afghanistan and Iraq -- which have largely Soviet-origin weapons -- have created legal ambiguities and loopholes in export controls that didn't exist in years past and given rise to a new class of arms trade middlemen. So, even though both Libya and the Russian arms export agency are on official U.S. blacklists, government officials and analysts involved in weapons sales say the rules have become unclear as the push to equip allies in the global war on terror has blazed new but uncertain legal ground.

Eagerly stepping into that virgin territory is Defense Solutions, a Pennsylvania-based company that is carving out a small but lucrative niche in a new international arms bazaar. The firm boasts as its advisors a number of influential Washington insiders, such as retired General Barry McCaffrey, the former White House drug czar.

Helping the firm make key connections is Curt Weldon, a former Republican congressman from Pennsylvania at the center of an FBI investigation into alleged conflicts of interest during his time in office. Weldon, now a key executive at Defense Solutions, is working with the company to set up these weapons deals.

Defense Solutions has also proposed refurbishing Libya's BTR-60 armored personnel carriers, according to a sales proposal seen by Wired.com. Defense Solutions denies drafting a sales proposal to Libya.

It's an unusual, if not an entirely unexpected chapter for Weldon, whose time in office included frequent trips to Russia. As an influential member of the House Armed Services Committee, Weldon pushed for multibillion-dollar defense programs, like ballistic missile defense, and earned a reputation as a foreign policy gadfly, boasting of his contacts with officials in nations labeled by the administration as "rogue states" such as Libya and North Korea. Weldon's wild claims about a 9/11 cover-up and his sensationalist book warning of an Iranian terror plot, sometimes earned him official scorn and public ridicule, but it was accusations that he steered contracts to Eastern European businesses linked to his daughter's lobbying firm that drew the government's attention.

Weldon was voted out of office in 2006 just weeks after the FBI raided his daughter's home, and that of one of her associates.

Weldon did not respond to e-mails and phone requests to be interviewed or comment for this article. But in a 2006 interview, before the FBI probe was public, Weldon spoke enthusiastically about setting up a "front company" to work with the Russian arms agency, Rosoboronexport. Weldon hoped this company could sell weapons to the Middle East, and other regions, particularly to countries where the U.S. has strained relations. He claimed the director of Rosoboronexport approached him to work with "an American company that would act as a front for weapons these nations want to buy."

Weldon called the proposal an "unbelievable offer."

The administration, he acknowledged at the time, did not welcome the idea of an American company selling Russian weapons to potentially unfriendly countries. But two years later, Weldon, now a private citizen and chief strategic officer for Defense Solutions, appears to be working on precisely that sort of deal. And whether illegal or not, Defense Solutions' business represents a new phenomenon in the international arms trade business.

In years past arms brokers -- firms or individuals who serve as middlemen to facilitate weapons sales between countries -- were largely the stuff of spy thrillers. Unlike traditional American defense companies, like Lockheed Martin or Boeing, which typically sell weapons directly to NATO countries or other governments regarded as friendly to the United States, brokers are often small outfits run by people with sometimes questionable experience and reputations they will sell to anyone. One of the most infamous arms brokers, a Russian named Viktor Bout, is charged by the United States, United Nations, Interpol and others of funneling arms to terrorists and rebels around the world. He was recently arrested in Thailand. The United States is requesting his extradition on charges of supplying arms to a terrorist organization.

Two Marines lower the trim vane on the front of an Iraqi BMP-1 mechanized infantry combat vehicle that was captured during Operation Desert Storm. The American defense consulting firm Defense Solutions has proposed refurbishing Libya's aging fleet of BMP-1s. Defense Solutions denies drafting a sales proposal to Libya.

But ironically, Iraq has fueled a new market for these professional middlemen; the United States is funneling billions of dollars into modernizing Iraq's army so that the country's government can fend for itself after coalition troops withdraw. And Iraq's largely Soviet-equipped military is a natural market for Eastern European countries brimming with old or out-of-date equipment they would like to unload. The middlemen, in these cases, serve a key role by allowing the U.S. government to do business with an American company, which in turn buys equipment from Eastern Bloc countries in deals worth hundreds of millions of dollars, much of it financed with U.S. taxpayer dollars.

One of Defense Solutions' sales -- a deal to sell Hungarian-owed T-72 tanks to Iraq in 2005 -- was typical of these new foreign military sales. But on the more questionable side is the company's plans to work with Rosoboronexport, which is barred from doing business with the U.S. government, and Libya, which is still on the State Department's arms embargo list.

The Eastern European-Middle East arms-brokering business, while in some cases sanctioned by the U.S. government, has run into problems, including outright corruption and quality. Defense contractor Dale Stoffel, the president of Wye Oak Technology, and another American were gunned down in Iraq in December 2004 after Stoffel alleged that the Iraqi Ministry of Defense was involved in a kickback scheme. Like Defense Solutions, the company Stoffel worked for was refurbishing the Iraq's army Eastern Bloc equipment.

Another problem is quality. Weapons from the former Soviet Bloc, which the U.S. military euphemistically calls "nonstandard equipment," have been flagged as substandard, acknowledges Brigadier General Charles Luckey, who is in charge of security assistance at Multi-National Security Transition Command-Iraq. In an interview from Iraq, Brigadier General Luckey said: "One of the frustrating things about buying nonstandard [weapons], is that I'm the guy who has to deal with the fact that some broker I've never heard of allowed weapons to get to Iraq before they were inspected."

Defense Solutions is carving a new niche in the arms trade, selling Soviet-made weapons to Middle Eastern countries like Afghanistan and Iraq. Defense Solutions sold Hungarian-owed T-72 tanks to Iraq in 2005.

In one high-profile case, Iraqi officials alleged that a corrupt firm sold them $400 million in shoddy helicopters from Poland. More recently, a company led by a 21-year-old and a former masseur was offered a U.S. government contract worth nearly $300 million to sell ammunition to Afghanistan. The ammunition turned out to be outdated and of dubious origin and several people connected with the company have been indicted. A congressional investigation concluded that the company, which was on a State Department watch list, was able to take advantage of regulatory loopholes by using middlemen.

For those concerned about illicit arms trade, this new wave of weapons deals is rife with the potential for corruption and abuse, but for companies eager to pursue markets once regarded as dubious, it represents a lucrative business opportunity. The problem in these cases, according to those familiar with arms sales, is that it's no longer clear what's legal and what's not.

Rachel Stohl, an expert on international arms trade and a senior analyst at Center for Defense Information, says that in many ways, the rush to equip Iraq has led the United States to throw caution to the wind. She points to a report by the Government Accountability Office last year that found that some 190,000 weapons sold to Iraq have gone missing. "I think the reality is we won't know, until way after the fact, about all of these irregularities with the Iraq weapons provision program," she said. "We were providing them all these assault rifles that have gone missing. Why? They were not following the standard procedures that were in place."

But Iraq and Afghanistan aren't the only markets available to arms brokers like Defense Solutions. The gradual normalization of relations with Libya opens another door into a quasi-legal area of sales.

Like Iraq, Libya has a substantial arsenal of Soviet-origin military weapons, offering a potential market for brokers working with Russia and other former Soviet states. But even when there's not an outright ban, sales to the Middle East are often fraught with controversy, particularly to countries like Libya, which was under international sanction for more than a decade. Even as sanctions against it have been lifted, European companies proposing to sell arms to Libya have faced steep criticism, particularly since the country is still ruled by dictator Muammar Gaddafi, who took power in a military coup in 1969.

While the United States lifted Libya's "state sponsor of terrorism" designation in 2006, other restrictions, such as on the sale of arms, remain in place. A State Department spokesperson confirmed that exports of "lethal munitions" to Libya, such as tanks or related equipment, are still banned, although sales of nonlethal equipment are now allowed on a case-by-case basis.

In late March, Weldon traveled to Libya for a weeklong trip at the invitation of the Gaddafi Foundation, a group run by the son of Libya's leader, and the chairman of Libya's foreign affairs committee, according to the report he sent to Defense Solutions (.pdf), a copy of which was obtained by Wired.com. The trip reports states: "Agreement reached for Weldon to quickly return to Libya for meetings with son [of Libyan leader Gaddafi] Morti regarding defense and security cooperation."

A document dated April 16, just two weeks after Weldon's trip, outlines Defense Solutions' proposal to Libya to refurbish the country's fleet of armored vehicles, including its T-72 tanks, BMP-1 infantry fighting vehicles, and BTR-60 armored personnel carriers. A copy of the sales proposal, also provided to Wired.com, is on Defense Solutions' letterhead, appears to bear the signature of company CEO Timothy Ringgold, and is addressed to Libya's defense procurement council. "Defense Solutions is committed to delivering a full end-to-end solution to its clients," the proposal states. "Besides refurbishing these vehicles, we are capable of providing a full logistics support package, including a two year supply of spare parts, maintenance and repair services, and operator, maintenance, and repair training."

In an interview with Wired.com, Ringgold admitted that he's interested in doing business in Libya and confirms receiving Weldon's trip report from Libya, but denies drafting or signing an arms-sale proposal. "I've never made such a document to Libya," Ringgold insisted, after being read the proposal, and told that his signature is on it.

In addition to the Libyan arms-deal document, Wired.com has also reviewed copies of e-mails from Ringgold discussing the Libyan deal.

While Ringgold denies proposing an arms sale to Libya, he is open about speaking with Rosoboronexport, which has been on a U.S. government sanctions list since 2006, after the Russian state agency allegedly violated the Iran and Syria Nonproliferation Act. An April e-mail provided to Wired.com describes Ringgold, Weldon and Stephan Minikes, a senior advisor to Defense Solutions and a former ambassador, meeting with Rosoboronexport. The conversations included a number of potential deals, including supplying Mi-17 helicopters to Afghanistan and spare parts for Iraq's infantry fighting vehicles. Ringgold wrote to colleagues following the visit, describing the meetings as a "spectacular success," saying the Russian agency "has the ability to undercut all cost proposals from brokers."

Ringgold confirmed those discussions and said that his company has sought to do business with Rosoboronexport. Asked whether Ringgold considers his dealings with Russia to be legal, he argued that U.S. companies could work with Rosoboronexport on a "case-by-case" basis. "The particular purpose of the meeting we had -- and I want to be crystal clear -- was in response to a U.S. government requirement," he said.

A number of officials at the State Department and in the Pentagon, when contacted for this article, could not say whether working with Rosoboronexport is legal or not. A Pentagon spokeswoman said she was familiar with the issue, but deferred the question to the State Department. When asked about Rosoboronexport's status on the blacklist, John Herzberg, a State Department spokesman replied: "What's on there is on there."

Asked whether, given the ban, there was any way a company could legally work with Rosoboronexport, as Ringgold suggested, Herzberg provided an equivocal answer. "At the stage of the process we're at, I'm unable to give you an answer," he said. "You can try elsewhere in government, and maybe they'll be braver than me."

In an interview from Iraq, General Luckey conceded it was a murky area, but said, "My understanding is they are currently on our no-go list."

The confusion over debarred parties has even led the U.S. government into its own legal tangles, according to Jim McAleese, a Washington attorney who specializes in government contracting and foreign military sales. Because the Russian government violated U.S. nonproliferation laws, even NASA had to go to Congress to ensure it could work with Russia on Soyuz flights to the international space station. "What I'm warning you about is, don't be surprised by the confusion," McAleese said. "There are a whole bunch of different statutes that were adopted piecemeal and were never intended to be reconciled."

But it's the very ambiguity of the law that troubles those who monitor export control. "It's highly unusual to do anything with the Russians, particularly Rosoboronexport," said Scott Jones, director of Export Control Programs at the Center for International Trade and Security at the University of Georgia.

Legal or not, reputable American companies simply don't want to work with banned entities, Jones said, for fear of risking their reputations and business. "Even if it's not an outright prohibition, most companies don't want to put themselves in a liability situation that has really bad PR … and they stay away from it," Jones said. "But if that's your business, pimping out arms from the U.S. or Russia, that's the way it works, and you push as much as possible."

Finding any U.S. defense company working with the Russian government at this point would be "remarkable," Jones added.

In the meantime, the future for Weldon is unclear. The FBI investigation continues and Weldon's former chief of staff recently pleaded guilty to a conspiracy charge and is cooperating with the government, notes Melanie Sloan, the executive director of Citizens for Responsibility and Ethics in Washington, which filed a complaint against Weldon in 2004. Sloan speculated that Weldon may be charged with "honest service fraud" for misusing his office for personal gain. "It's an easier standard than bribery," she said. "I wouldn't be surprised [if he's charged] with bribery, but I think it will be honest services fraud."

Ringgold insists that he and Weldon are on the right side of the law. "Everything we do is in strict compliance with international and U.S. law and we operate only in the best interests of the U.S. government," he said. "I didn't serve 30 years in the United States Army to throw that away on a whim."

Asked if Weldon is still working for the company, Ringgold replied: "Absolutely, proudly so."