Tracking the cost of cyber crime

Putting dollar figures on the effects of hacking, loss of intellectual property and deployment of preventive measures is harder than it seems.

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Putting a dollar figure on the costs associated with cyber crime might seem, on the surface, like a relatively easy task. If intellectual property was stolen, what was the value? If an attack brought down a network, how much productivity was lost? How much are organizations spending on their cybersecurity? As it turns out, there is quite a bit more to it.

Not surprisingly, there are disputes over how much malicious cyber activity is costing U.S. companies and the government. Estimates range from a few billion dollars to hundreds of billions, according to a new study from the Center for Strategic and International Studies and McAfee. That scope illustrates the complexities of pinning down price tags for crimes that are as ambiguous as the landscape in which they take place.

"Is cybercrime, cyber espionage, and other malicious cyber activities what some call 'the greatest transfer of wealth in human history,'" the report asks, "or is it what others say is a 'rounding error in a $14 trillion dollar economy?'"

Loss of intellectual property, productivity and opportunity interruptions, and the costs of network security are part of the equation, along with loss of sensitive business data, potential stock market manipulation and reputational damage, the report stated. Using those parameters, CSIS and McAfee sought to put a dollar figure on cyber crime.

"Where we came out is that reasonably an upper limit might be somewhere under 1 percent of the [gross domestic product]. That's a best guess," Jim Lewis, senior fellow and director of CSIS' technology and public policy program, said at a CSIS event in Washington on July 22.

The report pegs U.S. economic costs of cybercrime, including commercial espionage by China, at up to $140 billion annually -- with the caveat that ambiguities in the collection and accuracy of data "leave many estimates open to question."

In some aspects, cyber attacks on the government are difficult to quantify, the report noted. Job loss due to cyber crime is one area where figures are vague, the report noted, although this report appears to be the first time that benchmark has been assessed. Measuring damage to national security also is a particularly tough task.

The theft of military technology data is common and could reduce security by strengthening adversaries' capabilities, but can also affect export markets for defense technologies and products. Specific areas of concern include U.S. stealth, submarine, missile and nuclear capabilities, the report noted.

"There is a link between cyber espionage directed at commercial targets and cyber espionage targeted on military technology. It is often the same actors pursuing a collection plan that targets both military and commercial sources," the report stated. "We cannot accurately assess the dollar value of the loss in military technology but we can say that cyber espionage, including commercial espionage, shifts the terms of engagement in favor of foreign competitors."

On the other hand, some areas are easier to measure. The report points out that spending on security is part of cyber crime's cost, and that studies estimate companies and the government spend between 7 percent and 8 percent of their IT budgets there. In 2012, the Office of Management and Budget reported that federal agencies spent more than $15 billion on cybersecurity-related projects and activities, accounting for 20 percent of all federal IT spending.

Addressing the threat

So from where exactly are these attacks, costing the United States in the billions, coming? A new State of the Internet report from U.S. security firm Akamai confirms what is already widely known: China is responsible for more cyber attacks than any other country, although attacks from Indonesia skyrocketed in the past year.

"We find that nearly 68 percent originated in the Asia Pacific/Oceania region, up from 56 percent in the fourth quarter of 2012, likely due to the massive increase seen in Indonesia," said Akamai's Bill Brenner, according to an AFP report.

At a July 22 event in Washington, Rep. Mike Rogers (R-Mich.) declared China the biggest cyber threat, costing the U.S. economy as much as $2 trillion in lost and stolen property via hacking.

“We are in a cyber war today. Most Americans don't know it. They go about their lives happily. But we are in a cyber war today," Rogers said, according to the Washington Free Beacon. "There have been no consequences, and I mean no consequences, to their economic espionage. ... It's been a free rein and a free run."

At a House Foreign Affairs Committee hearing July 23, industry experts pointed to policy breakdowns as at least part of the problem. A lack of coordination between the United States and other countries -- Asian countries in particular -- mean that much cyber crime largely goes unchecked.

"Malicious actors are taking advantage of the lack of cooperation in this space," said Karl Frederick Rauscher, chief technology officer and distinguished fellow at the EastWest Institute. "We just don't have the tight coordination that we need, so there's a gap, and that's being taken advantage of."

Lewis said the United States must coordinate a response that contains four key elements: engagement with China to reduce cyber espionage and the risk of escalation into in armed conflict; modification of existing alliances with Australia, Japan and Korea to make collective cyber defense a reality; expanded formal cooperation with Asian countries and India; and designation of Asia as a central part of the global effort to build common understanding on a secure cyberspace.

Lawmakers, meanwhile, were less than optimistic that differences with China in particular will be resolved in the short term.

"Asia is a region beset by some of the world's most aggressive cyber actors. ... Asia has become the most economically dynamic region in the world, [and] it has also become the hub of cyber conflict," said Rep. Steve Chabot (R-Ohio). "While I think that opening dialogue with the Chinese about cyber crime, theft and espionage is good, establishing some sort of norms or principles to guide actions in cyberspace that the Chinese can agree to will be incredibly difficult."

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