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One Example of the Cyber Threat
In light of the Sony Pictures hacking debacle, I thought I’d take a look at a different, ongoing threat with major ramifications, most likely when we least expect it, for global financial markets...the cyberwar between China and Taiwan.
“For the past two weeks, entertainment giant Sony Pictures has had its computers paralyzed by a cyber attack that has resulted in unreleased movies and thousands of confidential documents being released. While there is widespread suspicion that North Korea is behind the attack, its unprecedented level of sophistication is a harbinger of cyber conflicts to come.
“Taiwan can claim the dubious honor of being one of the most hacked, if not the most hacked, places in the world. The computers of its government, businesses and research centers are bombarded by attempts to infiltrate them to steal sensitive information, probe defenses and explore their inner workings.
“So hacked is Taiwan that employees of some government ministries are issued with two sets of computers – one connected to the Internet, and a second that remains offline for security reasons.
“Eight out of ten top-tier government agencies ‘are either targeted for a long time or have been compromised,’ says Benson Wu, co-founder of Taipei-based analysis and security company Xecure Lab. Many bugs and tactics ‘are being exercised and verified in Taiwan before they are used in other countries.’ And where are those raids coming from? ‘The attack frequency and targets are highly related to the political situation’ between Taiwan and China. Taiwan’s Chinese-language networks make a perfect target for hackers from the People’s Republic, Wu says.
“Taiwanese cyber defense experts have even noticed correlations between attempts to intrude on Taiwan’s networks and office hours in China – activity drops off during mainland China’s national holidays, for example....
“Today, relations between Taiwan and Beijing are warmer. Taiwan has been expanding trade ties with China and since 2008 has signed more than 20 cross-strait agreements with the mainland. Taiwan has even marketed itself as a ‘springboard’ into China for foreign companies.
“None of this has slowed the onslaught on its computers. The executive branch of Taiwan’s government alone was hit by more than 1900 cyber attacks a week in 2013, and about 440 email attacks a month, according to Taiwanese government data.
“Taiwan estimates China has 100,000 people at work in a national cyber army today. And the types of digital threats to Taiwan from China keep expanding: in October, Taiwan’s National Communications Commission found that two models of mainland China-made smart phones were transmitting data to servers overseas ‘many of which are in China,’ creating what Taiwanese media described as a ‘security risk.’....
“Taiwanese security researcher Jim Liu, of California-based application security company LucentSky, says two types of viruses come from mainland China. ‘There is sophisticated malware that is likely developed by the state or state-sponsored organizations, which are almost always targeted,’ he said. ‘There is also a large amount of simpler malware that targets everyone (including people and organizations within China).’
“The targeted malware – known as advanced persistent threats, or APTs – are largely supported by nation states and are designed to steal trade secrets, listen in on government or undermine security.
“Last year, Taiwan ranked behind only Japan and South Korea in Asia for the number of APTs, according to one tally by network security firm FireEye. In terms of unique APT families – in other words, newly created computer bugs – Taiwan, a nation of 23 million, ranked No. 2 in Asia behind Japan, a country more than five times Taiwan’s size....
“Noted U.S. security expert Bruce Schneier writes: ‘We’re in the early years of a cyber war arms race. It’s expensive, it’s destabilizing, and it threatens the very fabric of the Internet we use every day.’
“He is one among many voices, including those in government, calling for treaties to cover behavior in cyberspace. The question is whether the cyber realm is a place where countries can come to agreement, or inevitably a scene of competition and a technological arms race built on faster computers and more devious coding.
“Whatever happens, Taiwan’s experience with China will likely prove one of the most telling cyber conflicts for the world to watch.”
Wall Street History will return Jan. 2 (or a day or two after) with all the yearend return figures.