Tag: IRS

Weekly Cyber Risk Roundup: More W-2 Breaches and Upcoming GDPR Challenges Organizations

Stolen W-2 information was back in the news this week due to reports of another W-2 breach as well as new data from IRS officials on the threat. The latest breach involves TALX, an Equifax subsidiary that provides online payroll, HR and tax services. KrebsOnSecurity reported that an undisclosed number of customers were affected when malicious actors were able to gain access to employee accounts containing sensitive data.

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“TALX believes that the unauthorized third-party(ies) gained access to the accounts primarily by successfully answering personal questions about the affected employees in order to reset the employees’ pins (the password to the online account portal),” wrote an attorney in one breach notification letter. “Because the accesses generally appear legitimate (e.g., successful use of login credentials), TALX cannot confirm forensically exactly which accounts were, in fact, accessed without authorization, although TALX believes that only a small percentage of these potentially affected accounts were actually affected.”

The extent of the fraud perpetrated with the help of hacked TALX accounts is unclear, but that at least five organizations have received letters from Equifax about a series of incidents over the past year, Krebs reported. Those included defense contractor giant Northrop Grumman, staffing firm Allegis Group, Saint-Gobain Corp., Erickson Living, and the University of Louisville. In addition to those companies, an IRS official said that 870 organizations reported receiving a W-2 phishing email over the first four months of 2017, and about 200 of those companies lost data as a result. That was a significant rise from 2016’s numbers, which included about 100 reports and 50 confirmed breaches. The official said that the increase was driven by progress made against identity theft, which has pushed cybercriminals to need more personal data to able to impersonate taxpayers. As a result, there has been a shift towards targeting those in the payroll industry.

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Other trending cybercrime events from the week include:

  • Men plead guilty to trade secret theft: A Chinese national has pleaded guilty to economic espionage and theft of a trade secret in relation to the theft of proprietary source code from his former employer, an unnamed U.S. company. As a developer, the man had access to a clustered file system developed and marketed by his employer as well as its underlying source code, the DOJ wrote. The man attempted to use the stolen source code to start a large-data storage technology company, according to communication he had with undercover officers. An engineer at a defense contractor has pleaded guilty to selling sensitive satellite information stolen from his employer to a person he believed to be an agent of a Russian intelligence service. In a series of meetings between February and July of 2016, the man sought and received thousands of dollars in cash payments for the trade secrets.
  • New data breaches announced: Williamson County Schools in Tennessee said that approximately 33,000 current and former WCS students had their usernames, encrypted passwords, and email addresses compromised due to a breach at third-party vendor Edmodo, a free classroom tool that allows students and teachers to share files and assignments. A data breach at the Florida Department of Agriculture and Consumer Services has exposed the names of 16,190 concealed weapon licensees as well as the Social Security numbers of 469 individuals. Approximately 3,000 individuals had their information compromised due to unauthorized access to a city computer in Stillwater, Oklahoma. UW Health said that 2,036 patients had their personal information compromised due to an unauthorized individual gaining access to an employee’s email account. The Canada Revenue Agency has fired an employee for improperly accessing the accounts of 1,302 taxpayers. A breach at Blackburn High School led to the theft of personal information of families, and that information was then used to send phishing emails to parents asking them to provide their payment card details.
  • Russia targeted Pentagon employees’ Twitter accounts: Russia sent more than 10,000 phishing messages to Defense Department officials with the goal of getting the officials to click a malicious link and, ultimately, gain control of their devices and Twitter accounts. The efforts took place after the 2016 presidential election and were disclosed in in a March report to U.S. counterintelligence officials investigating Russian interference efforts. The compromised accounts could have been used to spread false information, as has been done in the past by Russian hacking groups.
  • Hacking groups arrested: Twenty members of the Russian hacking group behind the Android Trojan “Cron” have been arrested. The group managed to infect over one million mobile devices and stole approximately $800,000 from Russian banks. Twenty-seven individuals tied to a series of ATM “Black Box” attacks across Europe have been arrested. A “Black Box” attack is a method of ATM jackpotting where criminals gain access to the ATM Top Box usually by drilling holes or melting in order to physically connect an unauthorized device that sends commands directly to the ATM cash dispenser in order to “cash-out” the ATM. Sixteen individuals have been arrested related to the theft of a copy of Baahubali 2 and subsequent ransom attempt from the movie’s producers, Arka Mediaworks Entertainment Ltd.

SurfWatch Labs collected data on many different companies tied to cybercrime over the past week. Some of those “newly seen” targets, meaning they either appeared in SurfWatch Labs’ data for the first time or else reappeared after being absent for several weeks, are shown in the chart below.

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Cyber Risk Trends From the Past Week

2017-05-26_RiskScoresIt is now less than one year until the EU General Data Protection Regulation (GDPR) goes into effect, yet some organizations are either unaware of the upcoming privacy changes or believe they will have issues meeting next year’s deadline, according to recent research.

The GDPR was approved by the EU parliament in April 2016, and the new regulation will be fully enforceable on May 25, 2018. Among the most talked about changes from the upcoming regulation is the increase in potential fines for data breaches. Breached organizations can be fined as much as 4% of their annual global turnover or €20 million, whichever is greater, when it comes to serious violations. Lesser violations are subject to half the maximum penalty — up to €10 million or 2% of turnover. As the NCC Group noted, those new numbers mean that last year’s ICO fines could have been 79 times higher: £69m rather than £880,500 in total.

“TalkTalk’s 2016 fine of £400,000 for security failings that allowed hackers to access customer data would rocket to £59m under GDPR,” The Register noted last month. “Fines given to small and medium-sized enterprises could have been catastrophic. For example, Pharmacy2U’s fine of £130,000 would balloon to £4.4m – a significant proportion of its revenues and potentially enough to put it out of business.”

It is important to note that the new regulations generally apply to any organization that offer of goods or services to individuals in the EU, so the GDPR has global implications. However, a recent study of 500 organizations in the UK, Germany, France, and the U.S. found that 75% of organizations indicated they will struggle to be ready for next year’s deadline. According to the Varonis survey, the top three challenges facing organizations around GDPR include:

  • Article 17 (“Right to be forgotten”), where they must discover and target specific data and automate removal when requested by the consumer
  • Article 30 (Records of processing activities), including identifying personal information on their systems, understanding who has access to it and who is accessing it, and knowing when this data can and should be deleted
  • Article 32 (Security of processing), which means ensuring least privilege access, implementing accountability via data owners, and providing reports that policies and processes

For organizations looking to learn more about preparing for GDPR, ICO has a 12-step guide available.

IRS and Cybercriminals Battle Over Billion Dollar Tax Fraud Industry

While new initiatives by the Internal Revenue Service (IRS) are making it harder for cybercriminals to successfully file fraudulent tax returns, those measures have not slowed down the theft of employee W-2 information this year.

The SurfWatch Labs analyst team has observed groups of malicious actors sharing concerns about government efforts to combat fraud, as well as tips on how those protections can be circumvented, in several discussion threads on popular dark web markets. Several of those actors suggested teaming up with other seasoned cybercriminals in order to share tactics and improve their success rates in the face of the new measures. “We’re gonna have to join forces if we are going to beat the odds this year,” wrote one actor on a now-deleted tax fraud discussion thread. Another actor in a separate thread echoed those sentiments: “The process has become much more difficult over the past couple of years, but [it’s] still doable to some extent. Not like in the good ‘ole days though.”

Another actor expressed concern over new verification codes to be included on 50 million W-2 forms during the 2017 tax season — up from two million forms using the codes last year. “My guess is if this is successful, then within 2 years it will be on every W2,” the actor wrote.

An actor in a tax fraud discussion thread speculating that the verification codes used on some W-2 forms may become more widespread in the future.

The IRS has partnered with certain Payroll Service Providers this tax season to provide a 16-digit code designed to help verify the accuracy of millions of W-2s. However, as the IRS noted in its announcement, the verification rollout is only a test and “omitted and incorrect W-2 Verification Codes will not delay the processing” of returns filed this year. Other more tangible efforts to combat tax fraud include the IRS holding any refunds claiming the Earned Income Tax Credit or the Additional Child Tax Credit until February 15 to provide more time to verify the accuracy of returns, and the requirement of an individual’s date of birth and previous-year’s adjusted gross income when using tax software for the first time. Some states also ask for additional identification information, such as driver’s license numbers, in order to file their returns.

Additional anti-fraud efforts have come largely because of the large volume of fraudulent tax returns filed each year. Over the first nine months of 2015, the IRS confirmed that 1.2 million fraudulent tax returns made it into the agency’s tax return processing systems. Attempts to combat the massive amount of fraud resulted in 787,000 fraudulent returns over the same period in 2016 — a nearly 50 percent drop. It’s too early to say how 2017 will fare in terms of the number of fraudulent returns and the total cost to the IRS. What is clear is that cybercriminals are continuing to target tax-related information such as W-2s despite those changes — and they’re having great success.

As I’ve noted in other articles, cybercriminals follow the path of of least resistance and most profit. While cybercriminals face more resistance than in the past, their motivation, opportunity and capability are clearly still there.

Tax-related cybercrime is cyclical, and cyber threat intelligence around the subject peaks around this time every year. However, this past February was the most active month in terms of the volume of data SurfWatch Labs has collected around tax fraud since May 2015, and that spike in 2015 was due to a large amount of threat intelligence data surrounding the theft of taxpayer information from the IRS’ “Get Transcript” service.

The amount of SurfWatch Labs’ tax-related cyber threat intelligence data peaked in February (data through March 6, 2017).

Much of the recent data directly relates to phishing incidents that have resulted in the theft of employee W-2 information. As we wrote in a blog early last month, malicious actors are using the same simple but effective phishing tactics that led to last year’s wave of successful W-2 thefts. This week we saw the number of organizations that have publicly confirmed breaches due to W-2 phishing surpass 100 for the year, and that number does not even include the numerous organizations that had W-2 information stolen through other means, such as data breaches or incidents at tax preparation firms or payroll providers.

That stolen W-2 information is then used to file fraudulent tax returns, commit other forms of identity theft, or sold on various dark web markets for around $10 each. That can translate into a decent profit for a cybercriminal actor who can successfully dupe a handful of payroll or human resource employees into handing over hundreds — or thousands — of W-2 forms at a time.

A vendor from AlphaBay says they have “tons” of stolen W-2 tax forms for sale for only $10 each.

But as we noted above, W-2 forms are now only part of the information needed to successfully dupe the IRS. Many returns will also need information such as the individual’s date of birth and previous year’s adjusted gross income. That information can be harder to come by, and how to best obtain that information is one of the key discussion points on the cybercriminal forums observed by our analysts.

“How do I get to know the AGI [Adjusted Gross Income]?” one actor asked the group in a discussion thread on a dark web forum. Another actor, who claims to have gone solo this year after previously being part of a group engaged in tax fraud, said information such as AGI generally requires other forms of data collection or social engineering. “You’ll have a tricky time getting it,” the actor warned. Later, the actor advised that AGI can often be found in an individual’s car note or home loan documentation.

An actor responding to previous posts about finding AGI figures, as well as the value of targeting 1120S corporate tax forms.

In a separate thread, the same actor wrote a long post that is part inspirational pep talk to wannabe fraudsters frustrated by the recent changes, part FAQ on how to best perform tax fraud. We won’t share the full details of that post here (including details such as which financial institutions and methods work best for receiving fraudulent tax return payments), as this post is meant to help illuminate the thought process of cybercriminals, not to serve as a walkthrough on how to successfully commit tax fraud. Nevertheless, the section on how to find an individual’s AGI is worth noting due to the lengths the actor claims to go — and may now need to go — in order to pull off a successful season of tax fraud.

The actor explained, “For everyone I targeted, I started researching them 6 months ago” by looking through public data for things like birth announcements (to “add that baby child credit”) or for minor offenses such as driving under the influence (to find people who have jobs “in the good bracket” that are also more likely to be “one of the last minute tax filers”).

“Lots of social engineering goes into this as well,” the actor wrote. “I have even been so bold to call some, pretending to solicit them into ‘free tax assistance’ [to] find out when they plan on filing.”

An actor offering advice on how to scout targets for tax fraud.

That extra legwork is why listings on dark web markets that include information such as AGI tend to sell at much higher prices than those without. For example, the listing below, which “contains all info needed for filing [a] tax refund,” was priced at $50, five times the price of a listing selling only stolen W-2 information.

A listing on the Hansa Market selling W-2 information along with the victim’s date of birth and the previous year’s adjusted gross income.

These discussions indicate that efforts made by the IRS, financial institutions, and others have made the practice of filing fraudulent tax returns more difficult for cybercriminal actors. Despite those efforts, a number of tax-related breaches continue to occur and a great deal of effort continues to be made by malicious actors to successfully bypass those protections and steal a slice of that lucrative tax pie.

As one actor reminded everyone: “Tax fraud is a billion dollar entity. Take your cut along with the others. Don’t be dissuaded.”