A Missouri court last week handed a legal defeat to a local escrow firm that sued its financial institution to recover $440,000 stolen in a 2009 cyberheist. The court ruled that the company assumed greater responsibility for the incident because it declined to use a basic security precaution recommended by the bank: requiring two employees to sign off on all transfers.
Springfield, Mo. based Choice Escrow and Land Title LLC sued Tupelo, Miss. based BancorpSouth Inc., after hackers who had stolen the firm’s online banking ID and password used the information to make a single unauthorized wire transfer of $440,000 to a corporate bank account in Cyprus.
Choice Escrow alleged that BancorpSouth’s security procedures were not commercially reasonable. Choice pointed out that the bank’s most secure option for Internet-based authentication relied principally on so-called “dual controls,” or requiring business customers to have one user ID and password to approve a wire transfer and another user ID and password to release the same wire transfer.
Choice Escrow’s lawyers argued that because BancorpSouth allowed wire or funds transfers using two options which were both password-based, its commercial online banking security procedures fell short of 2005 guidance from the Federal Financial Institutions Examination Council (FFIEC), which warned that single-factor authentication as the only control mechanism is inadequate for high-risk transactions involving the movement of funds to other parties.
But in a decision handed down on March 18, 2013, a judge with the U.S. District Court for the Western District of Missouri focused on the fact that Choice Escrow was offered and explicitly declined in writing the use of dual controls, thereby allowing the thieves to move money directly out their account using nothing more than a stolen username and password. The court noted that Choice also declined to set a limit on the amount or number of wire transfers allowed each day (another precaution urged by the bank), and that the transfer amount initiated by the thieves was not unusual for Choice, a company that routinely moved large sums of money.
A $170,000 cyberheist last month against an Illinois nursing home provider starkly illustrates how large financial institutions are being leveraged to target security weaknesses at small to regional banks and credit unions.
I have written about more than 80 organizations that were victims of cyberheists, and a few recurring themes have emerged from nearly all of these breaches. First, a majority of the victim organizations banked at smaller institutions. Second, virtually all of the money mules — willing or unwitting individuals recruited to help launder the stolen funds — used accounts at the top five largest U.S. banks.
The attack on Niles Nursing Inc. provides a textbook example. On Monday, Dec. 17, 2012, computer crooks logged into the company’s online banking accounts using the controller’s credentials and tunneling their connection through his hacked PC. At the beginning of the heist, the miscreants added 11 money mules to Niles’ payroll, sending them automated clearing house (ACH) payments totaling more than $58,000, asking each mule to withdraw their transfers in cash and wire the money to individuals in Ukraine and Russia.
Niles’ financial institution — Ft. Lauderdale, Fla. based Optimum Bank — evidently saw nothing suspicious about 11 new employees scattered across five states being added to its customer’s payroll overnight. From the bank’s perspective, the user submitting the payroll batch logged in to the account with the proper credentials and with the same PC that was typically used to administer the account. The thieves would put through another two fraudulent payment batches over next two days (the bank blocked the last batch on the 19th).
In total, the attackers appear to have recruited at least two dozen money mules to help haul the stolen loot. All but two of the mules used or opened accounts at four out of five of the nation’s top U.S. banks, including Bank of America, Chase, Citibank, and Wells Fargo. No doubt these institutions together account for a huge percentage of the retail banking accounts in America today, but interviews with mules recruited by this crime gang indicate that they were instructed to open accounts at these institutions if they did not already have them.
I’ve spoken at numerous financial industry conferences over the past three years to talk about these cyberheists, and one question I am almost always asked is, “Is it safer for businesses to bank at larger institutions?” This is a tricky question to answer because banking online remains a legally and financially risky affair for any business, regardless of which bank it uses. Businesses do not enjoy the same fraud protections as consumers; if a Trojan lets the bad guys siphon an organization’s online accounts, that victim organization is legally responsible for the loss. The financial institution may decide to reimburse the victim for some or all of the costs of the fraud, but that is entirely up to the bank.
What’s more, it is likely that fewer cyberheists involving customers of Top 5 banks ever see the light of day, principally because the larger banks are in a better financial position to assume responsibility for some or all of the loss (provided, of course, that the victim in return agrees not to sue the bank or disclose the breach publicly).
I prefer to answer the question as if I were a modern cyberthief in charge of selecting targets. The organized crooks behind these attacks blast out tens of millions of booby-trapped emails daily, and undoubtedly have thousands of stolen online banking credentials to use at any one time. There are more than 7,000 financial institutions in the United States…should I choose a target at one of the top 10 banks? These institutions hold a majority of the financial industry’s assets, and they’re accustomed to moving huge sums of money around each day.
On the other hand, their potential for fraud is almost certainly orders of magnitude greater than at smaller institutions. That would suggest that it may be easier for these larger institutions to justify antifraud expenditures. That incentive to enact antifraud protections is even greater because these institutions have huge numbers of retail customers, a channel in which they legally eat the loss from unauthorized account activity.
The $180,000 robbery took the building security and maintenance system installer Primary Systems Inc. by complete surprise. More than two-dozen people helped to steal funds from the company’s coffers in an overnight heist in May 2012, but none of the perpetrators were ever caught on video. Rather, a single virus-laden email that an employee clicked on let the attackers open a digital backdoor, exposing security weaknesses that unfortunately persist between many banks and their corporate customers.
The St. Louis, Missouri-based firm first learned that things weren’t quite right on Wednesday, May 30, 2012, when the company’s payroll manager logged into her account at the local bank and discovered that an oversized payroll batch for approximately $180,000 had been sent through late Tuesday evening.
The money had been pushed out of Primary Systems’ bank accounts in amounts between $5,000 and $9,000 to 26 individuals throughout the United States who had no prior interaction with the firm, and who had been added to the firm’s payroll that very same day. The 26 were “money mules,” willing or unwitting participants who are hired through work-at-home job schemes to help cyber thieves move money abroad. Most of the mules hired in this attack were instructed to send the company’s funds to recipients in Ukraine.
“The payroll manager contacted me at 8:00 a.m. that day to ask if I’d authorized the payroll batch, and I said no, it must have been a bank error,” said Jim Faber, Primary Systems’ chief financial officer. “I called the bank and said they said no, they did not make an error. That was a helluva wake-up call.”
The company’s financial institution, St. Louis-based Enterprise Bank & Trust, declined to comment. But of course, mistakes were made all around. Primary Systems’ employees failed to be wary of virus-laden email attachments, and relied too heavily on its firewalls and antivirus software to block attacks. The bank failed to bat an eyelash before processing a $180,000 transfer marked as “payroll” on a Tuesday, even though the company has always processed its payroll batch on Friday mornings. It also failed to flag as strange the overnight addition to Primary’s payroll of 26 new employees located in nearly as many states, even though almost all of the victim firm’s legitimate employees are based in Missouri.
The only parties to this crime who didn’t make missteps were the thieves. According to Faber, investigators believe the crooks cased the joint virtually before launching the heist, which came in just below the $200,000 threshold that would have prompted the bank to obtain verbal permission from Primary Systems for the transfer.
“If it was over $200k, [the bank] wouldn’t have allowed the transfer to happen without confirming it with us,” Faber said. “But this just flew right under that kickout. Our payroll is a lot less than that. This was six times our normal payroll and was in mid-week.”
Last week, security firm RSA detailed a new cybecriminal project aimed at recruiting 100 botmasters to help launch a series of lucrative online heists targeting 30 U.S. banks. RSA’s advisory focused primarily on helping financial institutions prepare for an onslaught of more sophisticated e-banking attacks, and has already received plenty of media attention. I’m weighing in on the topic because their analysis seemed to merely scratch the surface of a larger enterprise that speaks volumes about why online attacks are becoming bolder and more brash toward Western targets.
RSA wasn’t specific about where it got its intelligence, but the report’s finding appear tied to a series of communications posted to exclusive Underweb forums by a Russian hacker who uses the nickname “vorVzakone,” which translates to “thief in law.” This is an expression in Russia and Eastern Europe that refers to an entire subculture of elite criminal gangs that operate beyond the reach of traditional law enforcement. The term is sometimes also used to refer to a single criminal kingpin.
A screen shot posted by vorVzakone, showing his Project Blitzkrieg malware server listing the number of online victims by bank.
In early September, vorVzakone posted a lengthy message announcing the beginning stages of a campaign he dubbed “Project Blitzkrieg.” This was envisioned as a collaborative effort designed to exploit the U.S. banking industry’s lack of anti-fraud mechanisms relative to European financial institutions, which generally require two-factor authentication for all wire transfers.
The campaign, purportedly to be rolled out between now and the Spring of 2013, proposes organizing hacker cells throughout the cybercriminal community to collaborate in exploiting these authentication weaknesses before U.S. banks erect more stringent controls. “The goal – together, en-masse and simultaneously process large amount of the given material before anti-fraud measures are increased,” vorVzakon wrote. A professionally translated version of his entire post is available here.
RSA said the project is being powered by a version of the Gozi Trojan called “Gozi Prinimalka.” The company believes this Trojan is part of family of malware used by a tight-knit crime gang that has stolen at least $5 million from banks already. From its analysis:
“In a boot camp-style process, accomplice botmasters will be individually selected and trained, thereby becoming entitled to a percentage of the funds they will siphon from victims’ accounts into mule accounts controlled by the gang. To make sure everyone is working hard, each botmaster will select their own ‘investor,’ who will put down the money required to purchase equipment for the operation (servers, laptops) with the incentive of sharing in the illicit profits. The gang and a long list of other accomplices will also reap their share of the spoils, including the money-mule herder and malware developers.
While the campaign is not revolutionary in technical terms, it will supposedly sport several noteworthy features. A novel virtual-machine-synching module announced by the gang, installed on the botmaster’s machine, will purportedly duplicate the victim’s PC settings, including the victim’s time zone, screen resolution, cookies, browser type and version, and software product IDs. Impersonated victims’ accounts will thus be accessed via a SOCKS proxy connection installed on their infected PCs, enabling the cloned virtual system to take on the genuine IP address when accessing the bank’s website.”
vorVzakone also says the operation will flood cyberheist victim phone lines while the victims are being robbed, in a bid to prevent account holders from receiving confirmation calls or text messages from their banks (I’ve covered this diversionary tactic in at least a couple ofstories). Interestingly, this hacker started discussion threads on different forums in which he posts a video of this service in action. The video shows racks of centrally-managed notebook computers that are each running an installation of Skype. While there are simpler, cheaper and less resource-intensive ways of tying up a target’s phone line, causing all of these systems to call a single number simultaneously would probably achieve the same result. If you don’t see English subtitles when you play the video below, click the “cc” icon in the player to enable them:
THE FIRST RULE OF PROJECT BLITZKRIEG…
vorVzakone’s post has been met with a flurry of curiosity, enthusiasm and skepticism from members of the underground. The skepticism appears to stem from some related postings in which he brags about and calls attention to his credentials/criminal connections, an activity which tends to raise red flags in a community that generally prefers to keep a low profile.
In the following introductory snippet from a homemade movie he posted to youtube.com, vorVzakone introduces himself as “Sergey,” the stocky bald guy in the sunglasses. He also introduces a hacker who needs little introduction in the Russian underground — a well-known individual who used the nickname “NSD” [an abbreviation for the Russian term несанкционированный доступ, or "unauthorized access"] in the mid-2000s, when he claims to have exited the hacking scene.
“Good day to everybody, evening or night, depends on when you are watching me,” the hacker begins, standing in front of a Toyota Land Cruiser. “My name is Serega, you all know me by my nickname “vor v zakone” on the forum. This is my brother, my offline representative – Oleg ‘NSD’. So, what? I decided to meet you, let’s say ‘remotely.’ Without really meeting, right? Now you will see how I live. Let’s go, I will show you something.”
A still shot from a video posted by hacker “vorVzakone”, foreground.
And he proceeds to show viewers around what he claims is his home. But many in the underground community found it difficult to take seriously someone who would be so cavalier about his personal safety, anonymity and security. “This guy’s language and demeanor is that of street corner drug dealer or a night club bouncer, and not of someone who can comprehend what ‘backconnect socks’ or GeoIP is,” remarked one Russian expert who helped translate some of the documentation included in this blog post.
But soon enough, hackers on the forums in which vorVzakone had posted his videos began checking the story, digging up records from Russian motor vehicle agencies indicating that the license plates on the Toyota and other cars in video were registered to a 27-year-old Oleg Vsevolodovich Tolstykh from Moscow. Further, they pointed out, the videos were posted by a youtube user named 01NSD, who also had previously posted Finnish and Russian television interviews with NSD describing various facets of the hacker underground. Indeed, if you pause this 2007 video 22 seconds in, you can see on NSD’s screen that he’s in the midst of a chat conversation with a hacker named vorVzakone.
In response to taunts and ridicule from some in the underground, vorVzakone posted this message on Oct. 6 to a prominent crime forum explaining why he doesn’t worry about going public with his business. Continue reading →
An agency of the European Union created to improve network and data security is offering some blunt, timely and refreshing advice for financial institutions as they try to secure the online banking channel: “Assume all PCs are infected.”
The unusually frank perspective comes from the European Network and Information Security Agency, in response to a recent “High Roller” report (PDF) by McAfee and Guardian Analytics on sophisticated, automated malicious software strains that are increasingly targeting high-balance bank accounts. The report detailed how thieves using custom versions of the ZeuS and SpyEye Trojans have built automated, cloud-based systems capable of defeating multiple layers of security, including hardware tokens, one-time transaction codes, even smartcard readers. These malware variants can be set up to automatically initiate transfers to vetted money mule or prepaid accounts, just as soon as the victim logs in to his account.
“Many online banking systems….work based on the assumption that the customer’s PC is not infected,” ENISA wrote in an advisory issued on Thursday. “Given the current state of PC security, this assumption is dangerous. Banks should instead assume that PCs are infected, and still take steps to protect customers from fraudulent transactions.”
Recent ebanking heists — such as a $121,000 online robbery at a New York fuel supplier last month — suggest that cyber thieves increasingly are cashing out by sending victim funds to prepaid debit card accounts. The shift appears to be an effort to route around a major bottleneck for these crimes: Their dependency on unreliable money mules.
Mules traditionally have played a key role in helping thieves cash out hacked accounts and launder money. They are recruited through email-based work-at-home job scams, and are told they will be helping companies process payments. In a typical scheme, the mule provides her banking details to the recruiter, who eventually sends a fraudulent transfer and tells the mule to withdraw the funds in cash, keep a small percentage, and wire the remainder to co-conspirators abroad.
Some of the mule gangs I’ve identified.
But mules are hardly the most expedient method of extracting funds. To avoid arousing suspicion (and triggering anti-money laundering reporting requirements by the banks), cyber crooks usually send less than $10,000 to each mule. In other words, for every $100,000 that the thieves want to steal, they need to have at least 10 money mules at the ready.
In reality, though, that number is quite often closer to 15 mules per $100,000. That’s because the thieves may send much lower amounts to mules that bank at institutions which have low transfer limit triggers. For instance, they almost always limit transfers to less than $5,000 when dealing with Bank of America mules, because they know transfers for more than that amount to consumer accounts will raise fraud flags at BofA.
Thus, the average mule is worth up to $10,000 to a cybercrook. Unsurprisingly, there is much competition and demand for available money mules in the cybercriminal underground. I’ve identified close to two dozen distinct money mule recruitment networks, most of which demand between 40-50 percent of the fraudulent transfer amounts for their trouble. Not only are mule expensive to acquire, they often take weeks to groom before they’re trusted with transfers.
But these mules also come with their own, well, baggage. I’ve interviewed now more than 200 money mules, and it’s hard to escape the conclusion that many mules simply are not the sharpest crayons in the box. They often have trouble following simple instructions, and frequently screw up important details when it comes time to cash out (there are probably good reasons that a lot of these folks are unemployed). Common goofs include transposing digits in account and routing numbers, or failing to get to the bank to withdraw the cash shortly after the fraudulent transfer, giving the victim’s bank precious time to reverse the transaction. In isolated cases, the mules simply disappear with the money and stiff the cyber thieves.
In several recent ebanking heists, however, thieves appear to have sent at least half of the transfers to prepaid cards, potentially sidestepping the expense and hassle of hiring and using money mules. For example, last month cyber crooks struck Alta East, a wholesale gasoline dealer in Middletown, N.Y. According to the firm’s comptroller Debbie Weeden, the thieves initiated 30 separate fraudulent transfers totaling more than $121,000. Half of those transfers went to prepaid cards issued by Metabank, a large prepaid card provider.
Prepaid cards are ideal because they can be purchased anonymously for small amounts ($25-$100 values) from supermarkets and other stores. A majority of these low-value cards are not reloadable, unless the cardholder goes online and provides identity information that the prepaid card issuer can tie to a legitimate credit holder. After that card is activated, it can be reloaded remotely by transferring or depositing funds into the account, and it can be used like a debit, ATM or credit card.
“The information we gather in opening it is the same information you’d be asked if you were opening a credit card account online,” said Brad Hanson, president of Metabank’s payment systems division. “We do checks against different public resources like Experian and LexisNexis to verify that all the information matches and is accurate, and that we have a reasonable belief that you are the person applying for the card.”
The trouble is, the thieves pulling these ebanking heists have access to massive amounts of stolen data that can be used to fraudulently open up prepaid cards in the names of people whose identities and computers have already been hijacked. Once those cards are approved, the crooks can simply transfer funds to them from cyberheist victims, and extract the cash at ATMs. Alternatively, wire transfer locations like Western Union even allow senders to use their debit cards to execute a “debit spend,” thereby sending money overseas directly from the card.
A California escrow firm has been forced to take out a pricey loan to pay back $465,000 that was stolen when hackers hijacked the company’s online bank account earlier this year.
In March, computer criminals broke into the network of Redondo Beach based Village View Escrow Inc. and sent 26 consecutive wire transfers to 20 individuals around the world who had no legitimate business with the firm.
Owner Michelle Marisco said her financial institution at the time — Professional Business Bank of Pasadena, Calif. – normally notified her by e-mail each time a new wire was sent out of the company’s escrow account. But the attackers apparently disabled that feature before initiating the fraudulent wires.
The thieves also defeated another anti-fraud measure: A requirement that two employees sign off on any wire requests. Marisco said that a few days before the theft, she opened an e-mail informing her that a UPS package she had been sent was lost, and urging her to open the attached invoice. Nothing happened when she opened the attached file, so she forwarded it on to her assistant who also tried to view it. The invoice was in fact a Trojan horse program that let the thieves break in and set up shop and plant a password-stealing virus on both Marisco’s computer and the PC belonging to her assistant, the second person needed to approve transfers.
As a guarantor of payment for residential real estate transactions, Village View Escrow holds other peoples’ money until the sale of a property is complete. Failure to come up with the funds when a real estate deal is finalized can spell bankruptcy and possibly worse for an escrow provider. Since the incident, Marisco has had to take out a $395,000 loan at 12 percent to cover the loss (she managed to get $70,000 in wires reversed).
“I’m working for nothing right now, and can’t afford to pay myself,” Marisco said in a phone interview.
Officials from Professional Business Bank did not immediately return calls seeking comment.