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China-Based Hackers Target Law Firms to Get Secret Deal Data

China-based hackers looking to derail the $40 billion acquisition of the world’s largest potash producer by an Australian mining giant zeroed in on offices on Toronto’s Bay Street, home of the Canadian law firms handling the deal.

Over a few months beginning in September 2010, the hackers rifled one secure computer network after the next, eventually hitting seven different law firms as well as Canada’s Finance Ministry and the Treasury Board, according to Daniel Tobok, president of Toronto-based Digital Wyzdom. His cyber security company was hired by the law firms to assist in the probe.

The investigation linked the intrusions to a Chinese effort to scuttle the takeover of Potash Corp. of Saskatchewan Inc. by BHP Billiton Ltd. as part of the global competition for natural resources, Tobok said. Such stolen data can be worth tens of millions of dollars and give the party who possesses it an unfair advantage in deal negotiations, he said.

Though the deal eventually fell apart for unrelated reasons, the incident illustrates the vulnerability of law firms. They are increasingly threatened with a loss of client business if they can’t show improved security as such attacks continue to escalate.

Stephen Surdu, vice president of professional services at Mandiant Corp., a cybersecurity firm that tracks industrial espionage, compared the risk of hacking in the mergers and acquisition arena to gambling.

“You’re playing poker, and there’s a mirror over the other guy’s shoulder,” Surdu said.

Easier Quarry

“As financial institutions in New York City and the world become stronger, a hacker can hit a law firm and it’s a much, much easier quarry,” said Mary Galligan, head of the cyber division in the New York City office of the U.S. Federal Bureau of Investigation.

Galligan’s unit convened a meeting with the top 200 law firms in New York City last November to deal with the rising number of law firm intrusions. Over snacks in a large meeting room, the FBI issued a warning to the lawyers: Hackers see attorneys as a back door to the valuable data of their corporate clients.

“We told them they need a diagram of their network; they need to know how computer logs are kept,” Galligan said of the meeting. “Some were really well prepared; others didn’t know what we were talking about.”

The ability to keep client information confidential is a key principle of how law firms function. The attacks have created what Tony Cordeiro, chief information officer at White & Case LLP, termed a “healthy paranoia.”

80 Firms Hacked

Mandiant, which is based in Alexandria, Virginia, said it estimates that 80 major U.S. law firms were hacked last year.

More than a dozen law firms contacted about the New York City meeting, including Wilson Sonsini Goodrich & Rosati PC and Cadwalader Wickersham & Taft LLP, didn’t return telephone calls and e-mails seeking comment. Jennifer Becker, a spokeswoman for Skadden Arps Slate Meagher & Flom LLP and Kevin Blasko, a spokesman for Baker & McKenzie LLP, declined to comment.

Mark Hendrick, director of information technology for Baker Botts LLP, declined to comment beyond confirming the firm’s attendance at the November forum.

“Given the sensitive nature of the topics discussed, including possible threats to the safety of our IT network, I can only state that at Baker Botts we work diligently every day at maintaining the integrity of our systems,” Hendrick said in an e-mailed statement.

‘Up at Night’

Cordeiro said “protecting ourselves against threats keeps me up at night.”

Hackers could gain access to a firm’s networks through phishing or its use of cloud storage programs, which might allow information to be compromised during a seemingly routine transfer or sync, Cordeiro said.

“It’s a people door,” Cordeiro said. “It’s like having the door and allowing someone to walk through without having a key.”

To enhance New York-based White & Case’s data security, he said he requires the use of encrypted connections and restricts the use by attorneys of vulnerable file-hosting programs like Drop Box, a cloud-based system that allows users to save files including photos, documents and videos. White & Case is one of a handful of firms to receive an accreditation for information protection, which some law firms are now using as a selling point to clients.

Dedicated Terminal

Edward Stroz, a partner in the data security firm Stroz Friedberg LLC, said many more law firms have knocked on his door within the last 12 months than previously. They are driven there in many cases by clients, who are demanding greater protection of their confidential information, he said.

In some sensitive cases, Stroz has required lawyers to access highly sensitive client data directly in a secure location, banning e-mail or the digital transfer of documents.

“They have to go on site at the client company, use a dedicated terminal and review the data there so that the client knows it never left the building,” Stroz said.

The level of skill and seriousness of the attacks differs widely. Attackers include hackers looking for information they can sell quickly. Law firms representing celebrities, for example, are top targets, said Don Jackson, a researcher with Atlanta-based Dell SecureWorks, a cybersecurity firm.

The Canada case involving Potash Corp. of Saskatchewan Inc. by BHP Billiton Ltd. (BHP) shows just how serious the threat can be. The intruders were professionals potentially linked to the interests of a nation-state, with all its resources, said Anup Ghosh, chief scientist at the Fairfax, Virginia-based cyber security firm Invincea Inc.

New Spy Game

“This is the new way the spy game is played,” Ghosh said.

Chinese government officials have denied any involvement. Calls to the Chinese embassy in Ottawa weren’t immediately returned. Bill Johnson, a spokesman for Potash Corp., and Ruban Yogarajah, a spokesman for BHP, declined to comment.

At the time of the attacks, China was on the hunt for new sources of agrochemicals. Potash is a common name for compounds containing potassium used in the manufacture of fertilizer.

Sinochem Group, China’s formerly state-owned chemical giant, hired Deutsche Bank AG and Citigroup Inc. in September 2010 to evaluate moves to disrupt BHP’s bid for Potash Corp., a hostile tactic approved directly by the Chinese government, according to a report at the time by the Financial Times.

Tobok said a law firm involved in the deal detected signs of the intrusion the same month, including network disruptions. Analyzing the attack, investigators found that the spyware designed to capture confidential documents -- and sent via spoofed e-mails -- was compiled on a Chinese-language keyboard and China-based servers were involved in the attack, he said.

Aboriginal Ruse

Technical similarities connected those attacks with counterfeit e-mails sent to Finance Ministry officials supposedly from an aboriginal group opposed to the deal, according to Tobok. The e-mails directed the officials to a website which stealthily downloaded spyware through a vulnerability in web browsers onto state-owned computers, according to a Canadian government report cited by the Ottawa Citizen in October.

“It sounds like something out of Mission Impossible, but this is the sophistication of the stuff out there,” Tobok said.

Successful Attacks

It’s not known how successful the attacks were or how any data stolen was used by the intruders, investigators have said. The government report said the attack on the federal ministries was successful in stealing some data.

According to a person familiar with the case who asked not to be identified because of the criminal investigation, the hackers’ victims included Toronto-based law firms Blake, Cassels & Graydon LLP, which represented BHP, a company with primary offices in Melbourne, Australia, Singapore and London.

Also hit, the person said, was Stikeman Elliott LLP, which represented Saskatoon, Canada-based Potash Corp.

The law firms would have had detailed knowledge of the deal’s negotiations, including potential weak points, the person said. Diana Lawrence, a spokeswoman for Stikeman Elliott, said there was no evidence client information was compromised or that the firm’s networks were breached. Robert Granatstein, managing partner of Blake Cassels, said that the firm wasn’t aware that any client data was compromised.

Takeover Stopped

The Canadian government later killed the BHP takeover using federal powers to declare it wasn’t in the nation’s interest.

Similarities between the Canadian attack and other recent intrusions at U.S. law firms suggest that cyberattacks on attorneys are now part of the hacking playbook for gathering sensitive information on corporate clients, according to Ghosh.

In one recent case, a corporation was negotiating to open a major plant in China when the law firm helping with the deal was hacked, Surdu said.

“They were looking for what the company was willing to pay for that land, what were they willing to pay to bring roads to the facility,” he said. “This was a major deal with lots of zeros on the end.”

Other recent law firm hacks involved efforts to steal secret details about a merger and documents relating to an opponent’s strategy in a major litigation, Ghosh and Surdu said.

Galligan, the FBI agent, said that the culture of law firms and the significant sway of partners often make them a soft target.

‘It’s Trendy’

“Everybody wants network administrator rights,” Galligan said. “It’s trendy.” She said partners insist on mobility -- including the flexibility to review case documents at weekend homes or on the road -- which means highly sensitive documents are routinely transferred by e-mail.

At the November meeting, the FBI urged firms to review their mobility policies, including the security of e-mail linkups and mobile phones, Galligan said.

“If clients start thinking they can’t give private information to their lawyers because it might get out, it’s a huge problem for the profession,” said Richard Goldberg, a former software programmer and lawyer in Washington involved in the data security issue. “The whole system will start to fail.”

To contact the reporters on this story: Michael A. Riley in Washington at michaelriley@bloomberg.net; Sophia Pearson in Wilmington, Delaware, at spearson3@bloomberg.net.

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net.

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