[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]



 
   CYBERSECURITY AND CONSUMER DATA: WHAT'S AT RISK FOR THE CONSUMER?

=======================================================================

                                HEARING

                               before the

                            SUBCOMMITTEE ON
                COMMERCE, TRADE, AND CONSUMER PROTECTION

                                 of the

                    COMMITTEE ON ENERGY AND COMMERCE
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                               __________

                           NOVEMBER 19, 2003

                               __________

                           Serial No. 108-52

                               __________

      Printed for the use of the Committee on Energy and Commerce


 Available via the World Wide Web: http://www.access.gpo.gov/congress/
                                 house

                               __________








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                    COMMITTEE ON ENERGY AND COMMERCE

               W.J. ``BILLY'' TAUZIN, Louisiana, Chairman

MICHAEL BILIRAKIS, Florida           JOHN D. DINGELL, Michigan
JOE BARTON, Texas                      Ranking Member
FRED UPTON, Michigan                 HENRY A. WAXMAN, California
CLIFF STEARNS, Florida               EDWARD J. MARKEY, Massachusetts
PAUL E. GILLMOR, Ohio                RALPH M. HALL, Texas
JAMES C. GREENWOOD, Pennsylvania     RICK BOUCHER, Virginia
CHRISTOPHER COX, California          EDOLPHUS TOWNS, New York
NATHAN DEAL, Georgia                 FRANK PALLONE, Jr., New Jersey
RICHARD BURR, North Carolina         SHERROD BROWN, Ohio
  Vice Chairman                      BART GORDON, Tennessee
ED WHITFIELD, Kentucky               PETER DEUTSCH, Florida
CHARLIE NORWOOD, Georgia             BOBBY L. RUSH, Illinois
BARBARA CUBIN, Wyoming               ANNA G. ESHOO, California
JOHN SHIMKUS, Illinois               BART STUPAK, Michigan
HEATHER WILSON, New Mexico           ELIOT L. ENGEL, New York
JOHN B. SHADEGG, Arizona             ALBERT R. WYNN, Maryland
CHARLES W. ``CHIP'' PICKERING,       GENE GREEN, Texas
Mississippi                          KAREN McCARTHY, Missouri
VITO FOSSELLA, New York              TED STRICKLAND, Ohio
ROY BLUNT, Missouri                  DIANA DeGETTE, Colorado
STEVE BUYER, Indiana                 LOIS CAPPS, California
GEORGE RADANOVICH, California        MICHAEL F. DOYLE, Pennsylvania
CHARLES F. BASS, New Hampshire       CHRISTOPHER JOHN, Louisiana
JOSEPH R. PITTS, Pennsylvania        TOM ALLEN, Maine
MARY BONO, California                JIM DAVIS, Florida
GREG WALDEN, Oregon                  JAN SCHAKOWSKY, Illinois
LEE TERRY, Nebraska                  HILDA L. SOLIS, California
ERNIE FLETCHER, Kentucky
MIKE FERGUSON, New Jersey
MIKE ROGERS, Michigan
DARRELL E. ISSA, California
C.L. ``BUTCH'' OTTER, Idaho

                   Dan R. Brouillette, Staff Director

                   James D. Barnette, General Counsel

      Reid P.F. Stuntz, Minority Staff Director and Chief Counsel

                                 ______

        Subcommittee on Commerce, Trade, and Consumer Protection

                    CLIFF STEARNS, Florida, Chairman

FRED UPTON, Michigan                 JAN SCHAKOWSKY, Illinois
BARBARA CUBIN, Wyoming                 Ranking Member
JOHN SHIMKUS, Illinois               HILDA L. SOLIS, California
JOHN B. SHADEGG, Arizona             EDWARD J. MARKEY, Massachusetts
  Vice Chairman                      EDOLPHUS TOWNS, New York
GEORGE RADANOVICH, California        SHERROD BROWN, Ohio
CHARLES F. BASS, New Hampshire       JIM DAVIS, Florida
JOSEPH R. PITTS, Pennsylvania        PETER DEUTSCH, Florida
MARY BONO, California                BART STUPAK, Michigan
LEE TERRY, Nebraska                  GENE GREEN, Texas
ERNIE FLETCHER, Kentucky             KAREN McCARTHY, Missouri
MIKE FERGUSON, New Jersey            TED STRICKLAND, Ohio
DARRELL E. ISSA, California          DIANA DeGETTE, Colorado
C.L. ``BUTCH'' OTTER, Idaho          JOHN D. DINGELL, Michigan,
W.J. ``BILLY'' TAUZIN, Louisiana       (Ex Officio)
  (Ex Officio)

                                  (ii)





                            C O N T E N T S

                               __________
                                                                   Page

Testimony of:
    Ansanelli, Joseph G., Chairman and CEO, Vontu, Inc...........    48
    Burton, Daniel, V.ice President, Governmental Affairs, 
      Entrust Technologies.......................................    52
    Charney, Scott, Chief Trustworthy Computing Strategist, 
      Microsoft Corporation......................................    30
    Davidson, Mary Ann, Chief Security Officer, Oracle 
      Corporation................................................    43
    Morrow, David B., Managing Principal, Global Security and 
      Privacy Services, EDS......................................    37
    Schmidt, Howard A., Vice President, Chief Information 
      Security Officer, eBay Inc.................................    23
    Swindle, Hon. Orson, Commissioner, Federal Trade Commission..    16
    Thompson, Roger, Vice President of Product Development, 
      PestPatrol, Inc............................................    58

                                 (iii)

  


   CYBERSECURITY AND CONSUMER DATA: WHAT'S AT RISK FOR THE CONSUMER?

                              ----------                              


                      WEDNESDAY, NOVEMBER 19, 2003

              House of Representatives,    
              Committee on Energy and Commerce,    
                       Subcommittee on Commerce, Trade,    
                                   and Consumer Protection,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 10:10 a.m., in 
room 2123, Rayburn House Office Building, Hon. Cliff Stearns 
(chairman) presiding.
    Members present: Representatives Stearns, Shimkus, Shadegg, 
Pitts, Bono, Issa, Schakowsky, Towns, Davis, Green, and 
McCarthy.
    Staff present: Ramsen Betfarhad, policy coordinator and 
majority counsel; Jill Latham, legislative clerk; Jon Tripp, 
deputy communications director; David Cavicke, majority 
counsel; and David Nelson, minority counsel.
    Mr. Stearns. Good morning. Welcome to the Subcommittee on 
Commerce, Trade, and Consumer Protection's hearing on 
cybersecurity and consumer data. I am pleased that we are 
joined this morning by a group of distinguished witnesses. And 
all of us look forward to your testimony.
    On November 15, 2001, nearly 2 years ago to the day, the 
subcommittee held a hearing entitled, ``Cybersecurity: Private 
Sector Efforts Addressing Cyber Threats.'' The focal point of 
that hearing, as it is with this hearing, was cybersecurity as 
it related to consumer data used in stream of commerce.
    We are fortunate that three of our witnesses, Ms. Davidson, 
Mr. Schmidt, and Mr. Morrow, all of whom testified at the 
hearing 2 years ago, have joined us today to reflect on what 
has transpired with regard to cybersecurity in the last 2 
years. Normally you don't have people back to give you a little 
post-analysis. So we are very fortunate to have that.I am 
confident their insights, along with the testimony of the other 
witnesses, will be particularly helpful to our better 
understanding the issue, its evolution, and what we believe is 
its increasing significance.
    The subcommittee's hearings 2 years ago was held in the 
shadow of the tragic events of September 11, when we as a 
Nation, it seemed, had become obsessed with security. Of 
course, that was and is understandable. Yet the problem that 
gave rise to cybersecurity concerns that predated September 11, 
in just the years 2000 and 2001, as a result of only three 
cyberattacks--the ``I Love You'' and ``Code Red'' viruses and 
the February 2000 denial-of-service attacks--the media reported 
losses in excess of $10 billion.
    The number of cyberattacks, as reported by the Computer 
Emergency Response Team, CERT, at the Carnegie Mellon 
University, was expected to nearly double in 2001 from 2,000 to 
40,000.
    Now, fast forward 2 years. In 2003, the ``SQL Slammer'' 
worm disrupted computers around the globe. And during the 
attack, half of all Internet traffic was being lost. The 
SoBig.F virus clogged e-mail boxes and networks around the 
world, and became the fastest spreading virus on record, 
infecting 1 in 17 e-mails at its peak.
    Showing a bit of humor, the creator of the Blaster worm, 
which caused some 500,000 computers running Windows to crash, 
targeted the Microsoft Web site from which users could download 
the program and the patch to protect their vulnerability with 
Microsoft Windows code, the very weakness in Windows that the 
worm itself was exploiting.
    The virus and worm attacks of 2003 did bring about 
disruptions, such as the SQL Slammer worm, knocking out Bank of 
America's ATM machines for a while, but overall they did little 
reported damage. Although the ultimate objective of the SoBig.F 
virus is not known, the 2003 vintage of viruses and worms, like 
most of the ones that preceded them, did not have a malicious 
or destructive payload. If they did, their impact would have 
been very, very different. These viruses and worm attacks are 
external attacks to the networks, and, as such, according to 
some estimates, only represent 30 percent of computer attacks. 
The remaining 70 percent of the attacks are carried out from 
within the corporate firewalls.
    Those attacks or security breaches taking place within the 
corporate firewalls, many argue, are the most costly and, of 
course, the least reported. I raise the issue of virus and worm 
payload within corporate firewall breaches, because one key 
question I want answered today is ``What are the real risks and 
costs to consumers from cybersecurity breaches, and what poses 
the most risk to cybersecurity?''
    One response to breaches in cybersecurity by industry and 
government alike has been increased spending on security 
technologies. UBS Warburg estimates that such spending will 
increase from $6 billion in 2001 to over $13 billion in the 
year 2003.
    Meanwhile, other data suggests that companies spend less 
than just 3 percent of their technology budget on security. The 
technology budgets tend to be around 3 percent of revenues. So 
why are these expenditures so low? Some argue because there is 
no real understanding of quantifiable cost associated with 
cybersecurity breaches, even among senior managers. Is this 
true? This is another question for the panel to consider.
    Finally, many argue that cybersecurity is not just a 
technological problem and thus can't be solved by adding new 
and improved technologies defending against cyberattacks, but, 
rather, they argue that it is as much a governance or 
management issue as it is a technological problem. Strategic 
decisions, such as deciding the appropriate balance between 
cost and risk, are ones that only senior managers can take. And 
without a clear mandate from the top management, cybersecurity 
measures will be disregarded as just simply nuisances by rank-
and-file employees.
    Moreover, it appears that there is increased management 
participation mostly when it is mandated either directly or 
indirectly by government regulations. For example, the Graham-
Leach-Bliley Act, the Sarbanes-Oxley Act, the Health Insurance 
Portability and Accountability Act, or enforcement actions by 
the Federal Trade Commission.
    I want to know, are these observations accurate? If so, is 
there an optimum role for the Federal Government to play when 
it comes to protecting consumers from cybersecurity threats?
    With that, I conclude my opening statement and welcome the 
ranking member for her opening statement.
    Ms. Schakowsky. Thank you, Mr. Chairman, for conveying this 
important hearing today. Cybersecurity is one of those words 
that have recently entered our lexicon. Most people are 
probably confused, as I was, the first time they hear or see it 
in print. There are no doubt several interpretations of the 
word. It is one of those things like electricity or television 
signals that we all hope someone else understands enough to 
assure its availability.
    Before widespread viruses and ID theft became somewhat of a 
norm, we were able to take cybersecurity for granted. Of 
course, it should be safe to operate a home computer or a Palm 
Pilot. Unfortunately more and more Americans, a 
disproportionate share in and around Chicago, by the way, have 
come to a very personal understanding of how vulnerable our 
information technology, storage, and transmittal systems are.
    No longer is cybersecurity something over which just 
government and corporate technicians fret. Life savings now 
disappear before victims are even aware that there is a threat 
to the security of their personal and financial information. 
Highly sensitive personal information is available for sale 
without the knowledge, much less the consent, of targeted 
individuals.
    Americans expect that their government and the private 
sector institutions they rely upon for financial and other 
services will protect their privacy, and that those they rely 
on for cybersecurity will do their job. It is becoming 
increasingly apparent that consumers are not being adequately 
protected.
    Estimates of the economic impact of cybercrimes on society 
vary widely. One of our witnesses will tell us that identify 
theft alone totaled $24 billion last year, and is expected to 
escalate to $73 billion by the end of this year. If he is 
correct, this means that identity theft will cost Americans 
more, perhaps much more, than the authorized cost of the war in 
Iraq.
    Another witness tells us that 1 in 10 Americans has been 
victimized by identify theft. Each of these heists is estimated 
to cost nearly $10,000; clearly this problem is reaching 
epidemic proportions.
    Added to the economic cost is the loss of our invaluable 
privacy. We are all aware of the Orwellian dangers that may 
flow from personal information that the government can tap, 
using sophisticated technology. What many of us do not 
adequately understand is the danger of intrusive prying by 
private interests. The expropriation of commercially useful 
data from each and every one of us that accesses the Internet 
from a computer where personal information is stored is a 
continuous process. And, of course, there is no reason to 
believe that firms interested in selling us something are the 
only ones looking.
    I look forward to the testimony of the Federal Trade 
Commission regarding what the Federal Government is doing to 
control this electronic crime spree. I hope in the future we 
can also hear from the Justice Department or the agencies that 
regulate financial institutions, because it is my understanding 
that much, if not most, of identify theft is perpetrated by 
employees of banks, insurance companies, and the like.
    I would have liked to hear directly from those private 
institutions as well. Nonetheless, Mr. Chairman, I am looking 
forward to hearing from the witnesses you have assembled. I am 
sure they will be able to give us a sufficiently comprehensive 
picture of the problems with our cybersecurity systems from 
which we can fashion whatever policy changes may be necessary 
to protect the privacy, pocketbook, and safety of our 
constituents.
    And, Mr. Chairman, I look forward to working with you, as 
always, to end this epidemic. I look forward hearing from each 
of our witnesses, and I thank them for taking time to share 
their expertise with us today.
    Mr. Stearns. I thank the gentlelady.
    The gentlelady from California, Ms. Bono.
    Mrs. Bono. Good morning, and thank you, Mr. Chairman. I 
look forward to hearing from your colleagues and the witnesses 
on the issue of cybersecurity as it relates to consumers.
    Cybersecurity and the protection of consumer data is a very 
real issue that the government, businesses, and consumers alike 
must acknowledge and respond to. Of course, there are many 
things that consumers can do to protect themselves.
    Antivirus software and patches are regularly available for 
downloading and updating. Moreover, one should always be 
cautious while downloading software. Consumers should avoid 
opening e-mails from strangers and should be hesitant to 
disclose personally identifiable information over nonsecure 
sites.
    However, the methods of hacking into computers and data 
bases are just as evolving as the technologies on which they 
reside and function. Recently I introduced H.R. 2929, also 
known as the Safeguards Against Privacy Invasions Act, or the 
Spy Act. This bill aims to put consumers in the loop. 
Unfortunately, consumers regularly and unknowingly download 
software programs that have the ability to track their every 
move.
    Consumers are sometimes informed when they download such 
software. However, the notice is buried deep inside multi-
thousand-word documents that are filled with technical terms 
and legalese that would confuse even a high-tech expert.
    Many spyware programs are purposefully designed to shut off 
any antivirus or firewall software program it detects. The Spy 
Act would help prevent Internet spying by requiring spyware 
entities to inform computer users of the presence of such 
software, the nature of spyware, and its intended function.
    Moreover, before downloading such software, spyware 
companies would first have to obtain permission from the 
computer user. This a very basic concept. The PC has become our 
new town square and global market as well as our private data 
base. If a consumer downloads software that can monitor the 
information shared during transactions for the sake of the 
consumer as well as e-commerce, it is imperative that the 
consumer be informed of whom he or she is inviting into their 
computer and what he or she is capable of. After being 
informed, the consumer should have the chance to decide whether 
to continue with that download.
    Since the introduction of H.R. 2929, I have had the 
opportunity to speak with many different sectors of the 
technology industry and retail businesses that operate on the 
Internet. Through these discussions I have received meaningful 
feedback, and I am currently working on refining H.R. 2929. 
Once installed on computers, some spyware programs--like 
viruses embedded among code for other programs--in effect how 
these programs function on the users computer.
    Additionally, spyware is becoming more and more difficult 
to detect and remove. Usually such programs are bundled with 
another unrelated application that cannot be easily removed, 
even after the unrelated application has been removed.
    According to a recent study, many problems with computer 
performance can be linked in some way to spyware and its 
applications. Additionally, some computers have several hundred 
spyware advertizing applications running, which inevitably slow 
down computers and can cause lockups. If you have spyware on 
your computer, you most likely are getting more pop-up 
advertisements than you would have if you have had no such 
software on your computer.
    Moreover, the advertisers may not always be forthcoming. 
Many times spyware entities contract with companies to post 
advertisements and, in turn, post such advertisements on the 
Web sites of competitors. The result is confusion. In other 
words, while visiting the Web site for Company A, you may be 
browsing to purchase a product. However, while browsing, a pop-
up link may appear, informing you of a great sale. Under the 
impression that you are looking at a link for Company A, you 
may purchase the product, all the while uninformed that the 
product was purchased via a pop-up link from Company B. I have 
often thought that this would be a very effective campaign 
tool, too, to put out a link and have someone go to my 
opponent's Web site and my Web site pops up.
    All of these consumer disadvantages can be decreased or 
eliminated if disclosures surrounding spyware are required and 
enforced. If consumers are informed about spyware, chances are 
they will not choose to download the software. Upon choosing 
not to download software, consumers' computers will run more 
efficiently, their antivirus programs and firewalls will 
function better, they can decide which information to share and 
not share, and consumers will not be deceived into buying a 
product or service from unknown entities or voting for our 
opponents.
    Thank you, and I look forward to hearing from the witnesses 
on the issue.
    Mr. Stearns. I thank the gentlelady.
    Mr. Green.
    Mr. Green. Thank you, Mr. Chairman. I thank you and our 
ranking member for holding this important hearing on 
cybersecurity and its impact on consumers.
    The proliferation of Internet-based services and commerce 
has dramatically changed the world we live in, and many of 
these changes have been for the better, with consumers able to 
make almost any purchase imaginable on line. Unfortunately, 
these computing advances also create a fertile ground for 
fraudulent activities and thus increase the pressing need for 
computer security.
    The problems are coming from all directions. We have 
viruses, computer worms that are attempting to swarm our 
networks and are causing terrible harm to computer users and 
billions in damages to U.S. Businesses. We have unsolicited e-
mails taking over our in-boxes, spam that at the very least is 
an annoyance and at worst is helping to transmit these computer 
viruses and deliver pornographic e-mails to our children.
    Mr. Chairman, if I could ask unanimous consent to put in an 
article from Business Week that was published on August 12 
about the unholy matrimony, spam versus virus.
    Mr. Stearns. By unanimous consent, so ordered.
    [The article referred to follows:]

                    [Business Week--August 12, 2003]

                    Unholy Matrimony: Spam and Virus
                             By Jane Black
    Their common goal is subterfuge, and by combining their strategies, 
they could make today's junk e-mail look like a mere nuisance
    In June, half of all e-mail was spam--those annoying unsolicited 
messages that hawk everything from porn and Viagra to mortgage-
refinancing deals and weight-loss patches. But if you think spam is out 
of control, prepare yourself. It could get a lot worse.
    Over the past few months, e-mail security companies have seen 
mounting evidence that spammers are using virus-writing techniques to 
assure that their sales pitches get through. At the same time, intrepid 
virus writers have latched onto spammers' trusty mass-mailing 
techniques in an effort to wreak widespread digital mayhem. ``What 
we're seeing is the convergence of the spammer and the malicious code 
writer,'' says David Perry, global director of education at antivirus 
company Trend Micro (TMIC).
    RELAY STATIONS. Witness the recent spread of a virus known as 
Webber, which was discovered on July 16. It carried the subject line 
``Re: Your credit application.'' Users who opened the attachment 
downloaded a malicious program that turned a home PC into a so-called 
open relay server, which allows a third party to send or receive e-
mail--including spam--remotely from that PC. Spammers are notorious for 
using open relays to hide their identities. According to British e-mail 
security company MessageLabs, 70% of spam comes through open relays.
    Then there's Sobig.E, a virus that grabs e-mail addresses from 
several different locations on a PC, including the Windows address book 
and Internet cache files. Sobig.E then tries to send a copy of itself 
to each address. It also uses one of the stolen addresses to forge the 
source of the message, so that it appears to come from someone else. 
MessageLabs believes Sobig.E is a spammers' virus designed to harvest 
legitimate e-mail addresses from users' computers.
    So far, no concrete evidence shows any home PCs that have been 
infected by either Webber or Sobig.E have been used to send spam. But 
experts fear that the two viruses could be ``spam zombies,'' programs 
that will lie in wait on a PC until called on by the spammer to send 
out millions of untraceable e-mails.
    ``I LOVE YOU'' MORE. The convergence of spam and malicious code 
makes sense, says Chris Miller, Symantec's (SMYC ) group product 
manager for enterprise e-mail security. ``They have a common goal--to 
do what they're doing without being seen,'' Miller says.
    Virus writers and spammers send out their messages from 
illegitimate e-mail accounts, never from the ISPs where they are 
registered. It isn't hard to see where the union of these two insidious 
groups' techniques might lead. Using such weapons as Sobig.E and 
Webber, spammers can hijack a user's address book, then use the PC to 
send out hundreds, even thousands, of junk messages.
    And virus writers can use mass-mailing techniques to spread 
malicious code even faster than before. The destructive ``I Love You'' 
virus of 2000 was originally sent to a small number of people. Within 
days it had affected tens of millions of computers and caused damage 
worth hundreds of millions of dollars. Imagine if, like spam, it had 
originally been mailed to a half-million computers.
    Security experts cite other recent examples of spam-virus 
convergence:
 Key-logger Trojans. In May, 2003, a major food-manufacturing company 
        received a spam e-mail that, when viewed in a preview pane in 
        Microsoft Outlook, showed a message that appeared to be an 
        opportunity to sign up for a newsletter. First, though, the 
        message asked the recipient to verify their e-mail log-on ID 
        and password. That information was collected by the key-logger 
        code and then sent to the spammer, who could then log into the 
        user's e-mail at any time and search for valuable information.
 Drive-by downloads. Recent spam sent to a major airline manufacturer 
        led unsuspecting users to Web pages where spying software was 
        secretly downloaded without the user's knowledge. So-called 
        spyware monitors a user's activity on the Internet and 
        transmits that information to someone else, usually an 
        advertiser or online marketer. Spyware can also gather 
        information about e-mail addresses, passwords, and credit-card 
        numbers. Drive-by downloads can be done without either 
        notifying the user or asking permission because many users 
        accept such a download without question, thinking it's a normal 
        function of the Web site.
    CALL IT ``MALWARE.'' According to the strictest definitions, key 
loggers and drive-by downloads aren't viruses, which are programs that 
replicate themselves. (If you've seen The Matrix Reloaded, think of the 
way Agent Smith makes infinite copies of himself to try to destroy 
Keanu Reeves' Neo.) A Trojan is a program that rolls into your computer 
unannounced, then persuades the computer to launch it through fraud.
    As spam and malicious code converge, however, such definitions are 
becoming less useful. That's why experts like Trend Micro's Perry are 
now looking at a broader term--``malware''--to describe any program 
with malicious intent. ``With traditional hackers, the motivation has 
always been to prove that you're a rad dude,'' Perry said in a phone 
interview from the Las Vegas hacker convention DefCon. ``But when we 
start seeing these techniques used for commercial gain like spam, it's 
going to get a whole lot more serious.'' Cybersurfers, beware.

    Mr. Green. Thank you, Mr. Chairman. We can all agree that 
spam is a serious problem that both Congress and the private 
sector should address quickly, and I hope that Congress will 
act before the end of the session to enact the Wilson-Green 
Antispam Act of 2003, which is the strongest antispam bill in 
Congress.
    And, Mr. Chairman, again, I would like to ask unanimous 
consent to place into the record a letter by the Internet 
Committee of the National Association of Attorney Generals that 
talks about the Senate bill that passed and the need for strong 
legislation.
    Mr. Stearns. By the unanimous consent, so ordered.
    [The letter follows:]
    [GRAPHIC] [TIFF OMITTED] 90728.001
    
    [GRAPHIC] [TIFF OMITTED] 90728.002
    
    [GRAPHIC] [TIFF OMITTED] 90728.003
    
    [GRAPHIC] [TIFF OMITTED] 90728.004
    
    [GRAPHIC] [TIFF OMITTED] 90728.005
    
    Mr. Green. Thank you, again, Mr. Chairman.
    When we investigate cybersecurity, however, we must also 
consider the increasing troubles and problem of identity theft. 
According to the Federal Trade Commission, identity theft is 
the most common complaint from consumers in all 50 States. With 
simple personal information such as name, Social Security 
number, or credit card number, identity thieves can commit 
fraud or other crimes in our name.
    The implications for victims of identify theft can't be 
overexaggerated. They can easily include damaged credit 
records, unauthorized credit card charges, and bank 
withdrawals, not to mention the months or even years that it 
takes for victims to restore their good names and credit 
records.
    The magic question remains, how can we prevent these 
computer-related security problems that seem to be spiraling 
out of control? With the increased organization, efficiency, 
and productivity that computer systems offer, it is safe to say 
that our dependence on computers will continue to rise; 
therefore, we must ensure that we take the appropriate 
precautions to ensure that any information stored in or 
transmitted through computers, be it personal, medical, or 
financial, is secure.
    We also need to examine the extent to which the Federal 
Government and other law enforcement mechanisms can help solve 
this problem. By some estimates, less than 30 percent of 
computer attacks come from outside of a company or computer 
system. That being said, I think we have to work with the 
private sector to take a hard look at the practices companies 
are putting in place to combat attacks within their own 
firewall.
    I am also interested to hear our witnesses' experience with 
cybersecurity and learn their opinions on how best we can go 
about solving these problems. And, again, I would like to thank 
our panel today, and look forward to their testimony.
    Thank you, Mr. Chairman and Ranking Member Schakowsky.
    Mr. Stearns. Thank you.
    Mr. Pitts.
    Mr. Pitts. Thank you, Mr. Chairman. And thank you for 
convening this important hearing on cybersecurity.
    Rapid advances in technology are greatly impacting the 
lives of every American. Computer software, information 
systems, and cybernetworks are revolutionizing the way that we 
communicate, and the way we conduct business and provide 
services. And while there is a lot of good in the advances, 
there is also great potential for harm.
    Technology is a cat-and-mouse game. Each advancement of 
technology leads to an exploitation that we must vigilantly 
guard against, and the hearing this morning takes a look at the 
myriad threats to cybersecurity. One area that I am greatly 
concerned about is the development of peer-to-peer software.
    Peer-to-peer software allows individuals to download and 
trade files, many of which are illegal, with one another. It 
has also become the latest vehicle that pedophiles use to 
exploit and abuse innocent children by distributing child 
pornography. And peer-to-peer software can cause any personal 
information stored in a computer, such as financial or medical 
records, to be inadvertently shared with anyone else with the 
same software.
    And that is why my colleague Chris John and I introduced 
H.R. 2885, ``The Protecting Children from Peer to Peer 
Pornography Act.''
    Mr. Chairman, I appreciate your interest in this issue. It 
is my hope that we can have a hearing in the near future 
dedicated to taking a closer look at this dangerous new 
software that threatens our children or a person's privacy and 
our cybersecurity in general.
    Thank you, Mr. Chairman.
    Mr. Stearns. Thank you.
    The gentleman from New York, Mr. Towns.
    Mr. Towns. Thank you very much, Mr. Chairman.
    The Internet will never reach its fullest potential unless 
consumers feel comfortable and confident while surfing the Web 
and partaking in e-commerce. How can we ask citizens to put 
personal information, such as credit cards, PIN numbers, onto 
the computer if they are worried about issues such as identity 
theft, spam, or other privacy protections?
    It seems that every time we turn around there is a new 
virus harming commerce on the Internet, and the most pressing 
of these data and privacy abuses is what has come to be known 
as spyware. Spyware is a particularly dangerous threat to the 
future of e-commerce and Internet consumer confidence.
    Many times consumers do not even know what this software--
which can track all movements on a computer, copy keystrokes, 
and open security holes in networks--is open on their system, 
much less have the knowledge it takes to get them removed.
    It should also be noted that many of the peer-to-peer 
programs suggested Kazaa and Morpheus are funded largely by 
allowing these spyware companies to piggyback on their network, 
allowing for corporate entities to gain information about our 
children and their on-line habits.
    I am proud upon the lead Democratic sponsor of H.R. 2929, 
the Safeguard Against Privacy Invasion Act, with my friend from 
California, Mrs. Bono. This bill will ban these programs from 
being downloaded from the Internet to unknowing consumers. It 
is a commonsense approach to privacy protection, and I would 
like to thank the many members on both sides of the aisle from 
this committee who have chosen to cosponsor the bill with us, 
and look forward to working closely with the leadership to 
ensure its passage through the committee.
    On that note, Mr. Chairman, I yield back the balance of my 
time.
    Mr. Stearns. I thank the gentleman.
    Mr. Shimkus.
    Mr. Shimkus. Thank you, Mr. Chairman, and I will be brief.
    I always want to take the opportunity to, especially in 
consumer protection that deals with the Internet and 
cybersecurity, to continue to mention .kids.us as a place safe 
for kids, that was passed into law, signed by the President, 
and now we have groups that are using it: Smithsonian.kids.us, 
it is safe, no hyperlinks, no chatrooms for kids under the age 
of 13.
    And so I use the bully pulpit here to continue to help 
build interest and movement for people to take use of .kids.us.
    Other than that, Mr. Chairman, I know we have got a great 
panel of people testifying. I want to get to that. Thank you 
for the time. And I yield back.
    Mr. Stearns.  I thank the gentleman.
    The gentlelady from Missouri.
    Ms. McCarthy. Mr. Chairman, I want to thank you for pulling 
together such a distinguished panel of experts for our work 
today. I am going to put my remarks in the record so that we 
can get on learning about the wisdom that is here to be shared.
    Mr. Stearns. I thank the gentlelady.
    And the vice chairman of the committee, Mr. Shadegg.
    Mr. Shadegg. Thank you, too, Mr. Chairman. I too want to 
thank you for holding this important hearing today and for 
putting together a tremendous panel for us to learn from.
    And I do want to mention that both as a member of this 
subcommittee, and as a member of the Select Homeland Security 
Committee, I worry deeply about these issues. I have devoted a 
great deal of time to them, having written in 1998 the Identity 
Theft and Assumption Deterrence Act, which made identity theft 
a Federal crime for the first time.
    We have already heard here this morning the degree to which 
millions of Americans are victimized by that crime, and that we 
are losing billions of dollars to it.
    The Fair Credit Reporting Act, which is now in conference, 
includes some important provisions to deal with that issue. But 
there is much more we can do. And I appreciate, Mr. Chairman, 
your holding this hearing, and I look forward to the testimony 
of the witnesses.
    Mr. Stearns. I thank my colleague.
    [Additional statement submitted for the record follows:]
 Prepared Statement of Hon. W.J. ``Billy'' Tauzin, Chairman, Committee 
                         on Energy and Commerce
    Mr. Chairman, Thank you for calling this important hearing today.
    Cyber security is a very serious concern in today's digital world, 
and as our global economy and all of our lives rely more and more on 
computers, it will become essential that we ensure that our nation's 
computers--corporate, government, and personal computers--are safe from 
the hackers and other malefactors in the digital environment. We've 
learned in the last few years how much damage viruses and worms, such 
as ``Sobig.F'' and ``Blaster,'' can do to our computer infrastructure. 
In fact, the New York Times estimated that the cost of the ``I Love 
you'' virus alone--which seriously affected this House and this 
Committee--may have reached as much as $15 Billion.
    Computers affect almost every aspect of our daily lives. From our 
computers at home and our personal e-mail accounts, to the daily work 
of the public and private sectors, the role of computers in our society 
is so ubiquitous as to go almost unnoticed at times. The security of 
these systems however cannot go unnoticed. Not only can the e-mail 
system of the House of Representatives be hindered or disabled, but one 
shudders to think of the damage that could be done to countless 
consumers if someone was able to infiltrate one of the many enormous 
databases in this country and steal the personal information--from 
credit card numbers to music preferences--of millions of Americans.
    This kind of theft and misuse of personal data is not yet a 
widespread problem, but unless we all facilitate and encourage open 
discussion about how we best combat the bad actors, we will only see 
these problems grow. Most computer scientists don't say ``if'' when 
discussing this possibility, they say ``when.'' They believe that a 
truly debilitating virus will inevitably make its way around the 
Internet sometime in the relatively near future. Companies must take a 
preventive approach when looking at solutions to security problems. 
They must realize that, as the old adage says, ``An ounce of prevention 
is worth a pound of cure.'' We must combat technology with technology. 
Investment must be made in the security of vital and sensitive systems, 
in order to ensure the confidence of the American people in the retail, 
banking, and health care computer systems they depend upon.
    But simply investing in technology to combat viruses is not enough. 
In the end, the private sector and the American people must work in 
concert to best protect the computers and networks we all use. The 
private sector needs to reevaluate its vulnerabilities as well as its 
current security priorities. The public needs to be better educated 
about anti-virus software and personal firewalls for their home 
computers, as well as the insidious ``SpyWare'' technology that can 
monitor individuals' computers and their actions on the Internet. I 
know the gentlelady from California, Ms. Bono, has introduced a bill--
H.R. 2929, ``The Safeguard Against Privacy Invasions Act''--that 
attempts to deal with this concern, and I look forward to working with 
her on the bill to try to prevent these intrusions.
    In the end, Mr. Chairman, it seems that the genie is out of the 
proverbial bottle, and this problem is not going to go away on its own. 
It is up to all of us to work together to safeguard our computer 
infrastructure to prevent the next serious virus from becoming a 
nationwide, indeed even a worldwide problem.
    Thank you, and I yield back the balance of my time.

    Mr. Stearns. And with that, we will start with the panel 
and welcome the Honorable Orson Swindle, the Commissioner of 
the Federal Trade Commission; Mr. Howard Schmidt, Vice 
President, Chief Information Security Officer of eBay; Mr. 
Scott Charney, Chief Trustworthy Computing Strategist from 
Microsoft Corporation; Mr. David Morrow, Managing Principal, 
Global Security and Privacy Services; Ms. Mary Ann Davidson, 
Chief Security Officer, Oracle Corporation; Mr. Joseph G. 
Ansanelli, Chairman and CEO of Vontu, Incorporated; Mr. Daniel 
Burton, Vice President of Government Affairs, Entrust 
Technologies; and Mr. Roger Thompson, Vice President of Product 
Development, PestPatrol, Incorporated.
    And we will let Commissioner Swindle start. We will go from 
my right to my left. I welcome you.

 STATEMENTS OF HON. ORSON SWINDLE, COMMISSIONER, FEDERAL TRADE 
     COMMISSION; HOWARD A. SCHMIDT, VICE PRESIDENT, CHIEF 
 INFORMATION SECURITY OFFICER, eBAY INC.; SCOTT CHARNEY, CHIEF 
TRUSTWORTHY COMPUTING STRATEGIST, MICROSOFT CORPORATION; DAVID 
  B. MORROW, MANAGING PRINCIPAL, GLOBAL SECURITY AND PRIVACY 
   SERVICES, EDS; MARY ANN DAVIDSON, CHIEF SECURITY OFFICER, 
  ORACLE CORPORATION; JOSEPH G. ANSANELLI, CHAIRMAN AND CEO, 
   VONTU, INC.; DANIEL BURTON, VICE PRESIDENT, GOVERNMENTAL 
    AFFAIRS, ENTRUST TECHNOLOGIES; AND ROGER THOMPSON, VICE 
       PRESIDENT OF PRODUCT DEVELOPMENT, PESTPATROL, INC.

    Mr. Swindle. Thank you, Mr. Chairman. Mr. Chairman, members 
of the subcommittee, I appreciate the opportunity to present 
the Commission's views on Cybersecurity and Consumer Data: What 
is at risk for the consumer?
    At the outset, I believe that it is important that we not 
lose sight of the forest for the trees. Cybersecurity is a vast 
issue that faces many threats, and the challenges that the 
Commission faces in protecting consumers in cyberspace are 
numerous. The Commission takes action to protect consumers from 
fraud, whether they are individuals or companies who engage in 
identity theft, use a pretext to obtain personal information, 
employ deceptive spam to trick consumers into providing 
personal and financial information (phishing), misrepresent the 
sender of spam to misdirect the ``remove me'' request to an 
innocent third party (spoofing), or exploit computer system 
vulnerabilities in order to extort money from consumers (D-
Square Solutions).
    Consumers are also placed at risk by their own conduct, 
such as through peer-to-peer file-sharing or failing to use 
firewalls and antivirus software. While there are many 
challenges to cybersecurity, I will focus my remarks on 
companies who obtain and control consumer information.
    The Commission addresses information security concerns 
through aggressive law enforcement actions, consumer and 
business education, and international cooperation. Through 
these efforts we strive to enhance the security of information 
systems and networks and bring attention to the fact that all 
users of information technology, that is, government, industry, 
and the general public, must play a role in this effort.
    If companies fail to keep their express and implied 
promises to protect sensitive information obtained from 
consumers, then those promises are deceptive. The Commission 
has brought enforcement actions against such companies for 
violating Section 5 of the Federal Trade Commission Act, which 
prohibits unfair and deceptive practices.
    Three of these Commission cases illustrate some important 
principles. The case against Eli Lilly demonstrates that a 
company's security procedures must be appropriate for the kind 
of information it collects and maintains. Despite promises to 
maintain security of sensitive information, Eli Lilly 
inadvertently disclosed the names of consumers who used a 
prescription drug.
    Our case against Microsoft illustrates that there can be 
law violations without a known or actual breach of security. 
Microsoft promised consumers that it would maintain a high 
level of security for its Passport and Passport Wallet system 
of accounts. Even though there was no actual security breach, 
after reviewing Microsoft's systems, the Commission alleged 
that Microsoft failed to take reasonably appropriate measures 
to maintain the security of consumers' personal information.
    The case against Guess, Inc. illustrates that good security 
depends upon an ongoing process of risk assessment, identifying 
vulnerabilities, and taking reasonable steps to minimize or 
eliminate those risks. We alleged that Guess stored consumers' 
information, including credit card numbers, in clear 
unencrypted text, despite claims to the contrary.
    Unencrypted information is vulnerable to attackers, 
something that is well known in the industry and can be 
corrected.
    The Commission's settlements in these three cases require 
the companies to implement comprehensive information security 
programs. In addition, Microsoft and Guess must obtain an 
independent security audit every 2 years.
    The Commission has engaged in a broad and continuing 
awareness and outreach campaign to educate businesses, 
consumers, and political leaders about the importance of 
cybersecurity. We work closely with industry, government 
agencies, and consumer groups to expand awareness. This is the 
single most essential element in creating a culture of security 
that is increasingly necessary for the protection of our 
critical infrastructure.
    We have a first-class Web site focusing on safe computing 
practices. Our site provides a wealth of information on 
cybersecurity and how each of us can and must contribute to the 
effort. Our Web site registered more than 400,000 visits in the 
first year of deployment, making it one of the most popular FTC 
Web pages. And, a Google search recently indicates that 445 
other Web sites link to our security site.
    Every House and Senate office has a copy of our safe 
computing disk. And I might add, I will hold this up, and I 
think there is a package on your desk with a lot of our 
information security material in the package.
    This CD disk was designed to assist each Member of Congress 
and staff in educating constituents on safe computing 
practices. Several Members of Congress have constructed 
excellent information security pages on their Web sites using 
information from the FTC. Each Member is an outstanding leader 
within his or her community and district. As the FTC's 
authorizing body and as the leaders in consumer protection, 
this committee in particular can partner with us effectively in 
our consumer awareness efforts on information security.
    Our staff and I personally are standing by to help you and 
join with you in leading.
    In addition to law enforcement and our awareness campaign, 
the Commission has taken an active leadership role in 
international efforts promoting cybersecurity. In 2002, the FTC 
led the U.S. Delegation, working with the OECD, to revise its 
security guidelines. The revised guidelines serve as an 
excellent, common sense starting point for government, 
business, and organizations to implement information security. 
They address accountability, awareness, and action by all 
participants and form the basis for international cooperation 
toward establishing a culture of security. The guidelines have 
been embraced by the United Nations, APEC, nongovernment 
organizations, and many international businesses and 
associations.
    In conclusion, attaining adequate information security will 
be a continuing journey; a long project, where complacency is 
not an option. I look forward to responding to your questions. 
Thank you.
    [The prepared statement of Hon. Orson Swindle follows:]
 Prepared Statement of Hon. Orson Swindel, Commissioner, Federal Trade 
                               Commission
                            i. introduction
    Mr. Chairman, and members of the subcommittee, I am Commissioner 
Orson Swindle.1 I appreciate the opportunity to appear 
before you today to discuss the Federal Trade Commission's role in 
protecting information security and its importance to both consumers 
and businesses.
    Today, maintaining the security of our computer-driven information 
systems is essential to every aspect of our lives. A secure information 
infrastructure is required for the operation of everything from our 
traffic lights to our credit and financial systems, including our 
nuclear and electrical power supplies, and our emergency medical 
service. We are all, therefore, directly or indirectly linked together 
by this infrastructure. Consumers rely on and use computers at work and 
at home; increasingly, more consumers are making purchases over the 
Internet and paying bills and banking online.
    These interconnected information systems provide enormous benefits 
to consumers, businesses, and government alike. At the same time, 
however, these systems can create serious vulnerabilities that threaten 
the security of the information stored and maintained in these systems 
as well as the continued viability of the systems themselves. Every 
day, security breaches cause real and tangible harms to businesses, 
other institutions, and consumers.2 These breaches and the 
harm they do shake consumer confidence in the companies and systems to 
which they have entrusted their personal information.
                ii. the federal trade commission's role
    The Federal Trade Commission has a broad mandate to protect 
consumers and the Commission's approach to information security is 
similar to the approaches taken in our other consumer protection 
efforts. As such, the Commission has sought to address concerns about 
the security of our nation's computer systems through a combined 
approach that stresses the education of businesses, consumers, and 
government agencies about the fundamental importance of good security 
practices; law enforcement actions; and international cooperation. Our 
program encompasses efforts to ensure the security of computer 
networks, an understanding that we all have a role to play, as well as 
efforts to ensure that companies keep the promises they make to 
consumers about information security and privacy. In the information 
security matters, our enforcement tools derive from Section 5 of the 
FTC Act,3 which prohibits unfair or deception acts or 
practices, and the Commission's Gramm-Leach-Bliley Safeguard Rule 
(``Safeguards Rule'' or ``Rule'').4 Our educational efforts 
include business education to promote compliance with the law, consumer 
and business education to help promote a ``Culture of Security,'' 
international collaboration, public workshops to highlight emerging 
issues, and outreach to political leaders.
A. Section 5
    The basic consumer protection statute enforced by the Commission is 
Section 5 of the FTC Act, which provides that ``unfair or deceptive 
acts or practices in or affecting commerce are declared unlawful.'' 
5 The statute defines ``unfair'' practices as those that 
``cause[] or [are] likely to cause substantial injury to consumers 
which is not reasonably avoidable by consumers themselves and not 
outweighed by countervailing benefits to consumers or to competition.'' 
6 To date, the Commission's security cases have been based 
on deception,7 which the Commission and the courts have 
defined as a material representation or omission that is likely to 
mislead consumers acting reasonably under the 
circumstances.8
    The companies that have been subject to enforcement actions have 
made explicit or implicit promises that they would take appropriate 
steps to protect sensitive information obtained from consumers. Their 
security measures, however, proved to be inadequate; their promises, 
therefore, deceptive.
    Through the information security enforcement actions, the 
Commission has come to recognize several principles that govern any 
information security program.
1. Security procedures should be appropriate under the circumstances
    First, a company's security procedures must be appropriate for the 
kind of information it collects and maintains. Different levels of 
sensitivity may dictate different types of security measures. It is 
highly problematic when a company inadvertently releases sensitive 
personal information due to inadequate security procedures.
    The Commission's first information security case, Eli 
Lilly,9 involved an alleged inadvertent disclosure of 
sensitive information despite the company's promises to maintain the 
security of that information. Specifically, Lilly put consumers' e-mail 
addresses in the ``To'' line of the e-mail that was sent to Prozac 
users who subscribed to a service on Lilly's website, essentially 
disclosing the identities of all of the Prozac user-subscribers.
    Given the sensitivity of the information involved, this disclosure 
was a serious breach. Nevertheless, the Commission recognized that 
there is no such thing as ``perfect'' security and that breaches can 
occur even when a company has taken all reasonable precautions. 
Therefore, the Commission construed statements in Lilly's privacy 
policy as a promise to take steps ``appropriate under the 
circumstances'' to protect personal information. Similarly, the 
complaint alleged that the breach resulted from Lilly's ``failure to 
maintain or implement internal measures appropriate under the 
circumstances to protect sensitive consumer information.'' 
10 The focus was on the reasonableness of the company's 
efforts.
    According to the complaint in the Lilly matter, the company failed, 
among other things, to provide appropriate training and oversight for 
the employee who sent the e-mail and to implement appropriate checks on 
the process of using sensitive customer data. The order contains strong 
relief that should provide significant protections for consumers, as 
well as ``instructions'' to companies. First, it prohibits the 
misrepresentations about the use of, and protection for, personal 
information. Second, it requires Lilly to implement a comprehensive 
information security program similar to the program required under the 
FTC's Gramm-Leach-Bliley Safeguards Rule, which is discussed below. 
Finally, to provide additional assurances that the information security 
program complies with the consent order, every year the company must 
have its program reviewed by a qualified person to ensure compliance.
2. Not All Security Breaches Are Violations of FTC Law
    The second principle that arises from the Commission's enforcement 
in the information security area is that not all breaches of 
information security are violations of FTC law--the Commission is not 
simply saying ``gotcha'' for security breaches. Although a breach may 
indicate a problem with a company's security, breaches can happen, as 
noted above, even when a company has taken every reasonable precaution. 
In such instances, the breach will not violate the laws that the FTC 
enforces. Instead, the Commission recognizes that security is an 
ongoing process of using reasonable and appropriate measures in light 
of the circumstances.
    When breaches occur, our staff reviews available information to 
determine whether the incident warrants further examination. If it 
does, the staff gathers information to enable us to assess the 
reasonableness of the company's procedures in light of the 
circumstances surrounding the breach. This allows the Commission to 
determine whether the breach resulted from the failure to have 
procedures in place that are reasonable in light of the sensitivity of 
the information. In many instances, we have concluded that FTC action 
is not warranted. When we find a failure to implement reasonable 
procedures, however, we act.
3. Law Violations Without a Known Breach of Security
    The Commission's case against Microsoft 11 illustrates a 
third principle--that there can be law violations without a known 
breach of security. Because appropriate information security practices 
are necessary to protect consumers' privacy, companies cannot simply 
wait for a breach to occur before they take action. Particularly when 
explicit promises are made, companies have a legal obligation to take 
reasonable steps to guard against reasonably anticipated 
vulnerabilities.
    Like Eli Lilly, Microsoft promised consumers that it would keep 
their information secure. Unlike Lilly, there was no specific security 
breach that triggered action by the Commission. The Commission's 
complaint alleged that there were significant security problems that, 
left uncorrected, could jeopardize the privacy of millions of 
consumers. In particular, the complaint alleged that Microsoft did not 
employ ``sufficient measures reasonable and appropriate under the 
circumstances to maintain and protect the privacy and confidentiality 
of personal information obtained through Passport and Passport 
Wallet.'' 12 The complaint further alleged that Microsoft 
failed to have systems in place to prevent unauthorized access; detect 
unauthorized access; monitor for potential vulnerabilities; and record 
and retain systems information sufficient to perform security audits 
and investigations. Again, sensitive information was at issue--
financial information including credit card numbers.
    Like the Commission's order against Eli Lilly, the Microsoft order 
prohibits any misrepresentations about the use of, and protection for, 
personal information and requires Microsoft to implement a 
comprehensive information security program. In addition, Microsoft must 
have an independent professional certify, every two years, that the 
company's information security program meets or exceeds the standards 
in the order and is operating effectively.
4. Good Security is an Ongoing Process of Assessing Risks and 
        Vulnerabilities
    The Commission's third case, against Guess, Inc.,13 
highlighted a fourth principle--that good security is an ongoing 
process of assessing and addressing risks and vulnerabilities. The 
risks companies and consumers confront change over time. Hackers and 
thieves will adapt to whatever measures are in place, and new 
technologies likely will have new vulnerabilities waiting to be 
discovered. As a result, companies need to assess the risks they face 
on an ongoing basis and make adjustments to reduce these risks.
    The Guess case highlighted this crucial aspect of information 
security in the context of web-based applications and the databases 
associated with them. Databases frequently house sensitive data such as 
credit card numbers, and Web-based applications are often the ``front 
door'' to these databases. It is critical that online companies take 
reasonable steps to secure these aspects of their systems, especially 
when they have made promises about the security they provide for 
consumer information.
    In Guess, the Commission alleged that the company broke such a 
promise concerning sensitive information collected through its website, 
www.guess.com. According to the Commission's complaint, by conducting a 
``web-based application'' attack on the Guess website, an attacker 
gained access to a database containing 191,000 credit card numbers. 
This particular type of attack was well known in the industry and 
appeared on a variety of lists of known vulnerabilities. The complaint 
alleged that, despite specific claims that it provided security for the 
information collected from consumers through its website, Guess did 
not: employ commonly known, relatively low-cost methods to block web-
application attacks; adopt policies and procedures to identify these 
and other vulnerabilities; or test its website and databases for known 
application vulnerabilities, which would have disclosed that the 
website and associated databases were at risk of attack. Essentially, 
the Commission alleged that the company had no system in place to test 
for known application vulnerabilities or to detect or to block attacks 
once they occurred.
    In addition, the complaint alleged that Guess misrepresented that 
the personal information it obtained from consumers through 
www.guess.com was stored in an unreadable, encrypted format at all 
times; but, in fact, after launching the attack, the attacker could 
read the personal information, including credit card numbers, stored on 
www.guess.com in clear, unencrypted text.
    As in its prior security cases, the Commission's emphasis in Guess 
was on reasonableness. When the information is sensitive, the 
vulnerabilities well known, and the fixes inexpensive and relatively 
easy to implement, it is unreasonable simply to ignore the problem. As 
in the prior orders, the Commission's order against Guess prohibits the 
misrepresentations, requires Guess to implement a comprehensive 
information security program, and, like Microsoft, requires an 
independent audit every two years.
B. GLB Safeguards Rule
    In addition to our enforcement authority under Section 5 of the FTC 
Act, the Commission also has responsibility for enforcing its Gramm-
Leach-Bliley Safeguards Rule, which requires financial institutions 
under the FTC's jurisdiction to develop and implement appropriate 
physical, technical, and procedural safeguards to protect customer 
information.14 The Rule became effective on May 23 of this 
year, and the Commission expects that it will quickly become an 
important enforcement and guidance tool to ensure greater security for 
consumers' sensitive financial information. The Safeguards Rule 
requires a wide variety of financial institutions to implement 
comprehensive protections for customer information--many of them for 
the first time. If fully implemented by companies, as required, the 
Rule could go a long way to reduce risks to this information, including 
identity theft.
    The Safeguards Rule requires financial institutions to develop a 
written information security plan that describes their program to 
protect customer information. Due to the wide variety of entities 
covered, the Rule requires a plan that accounts for each entity's 
particular circumstances--its size and complexity, the nature and scope 
of its activities, and the sensitivity of the customer information it 
handles.
    As part of its plan, each financial institution must: (1) designate 
one or more employees to coordinate the safeguards; (2) identify and 
assess the risks to customer information in each relevant area of the 
company's operation, and evaluate the effectiveness of the current 
safeguards for controlling these risks; (3) design and implement a 
safeguards program, and regularly monitor and test it; (4) hire 
appropriate service providers and contract with them to implement 
safeguards; and (5) evaluate and adjust the program in light of 
relevant circumstances, including changes in the firm's business 
arrangements or operations, or the results of testing and monitoring of 
safeguards. The Safeguards Rule requires businesses to consider all 
areas of their operation, but identifies three areas that are 
particularly important to information security: employee management and 
training; information systems; and management of system failures.
    Prior to the Rule's effective date, the Commission issued guidance 
to businesses covered by the Safeguards Rule to help them understand 
the Rule's requirements.15 Commission staff also met, and 
continues to meet, with a variety of trade associations and companies 
to alert them to the Rule's requirements and to gain a better 
understanding of how the Rule is affecting particular industry 
segments. Now that the Rule is effective, the Commission is 
investigating compliance by covered entities.
C. Education and workshops
    In addition to our law enforcement efforts and conducting outreach 
under the Commission's Safeguard's Rule, the Commission has engaged in 
a broad educational campaign to educate businesses and consumers about 
the importance of information security and the precautions they can 
take to protect or minimize risks to personal information. These 
efforts have included creation of an information security ``mascot,'' 
Dewie the e-Turtle, who hosts a portion of the FTC website devoted to 
educating businesses and consumers about security,16 
publication of business guidance regarding common vulnerabilities in 
computer systems,17 speeches by Commissioners and staff 
about the importance of this issue, and outreach to the international 
community. Many offices in the Commission including the Commission's 
Bureau of Consumer Protection, the Office of Public Affairs, and the 
Office of Congressional Relations, have participated in this effort to 
educate consumers and businesses.
    The Commission's outreach effort is centered on the Commission's 
information security website.18 The website registered more 
than 400,000 visits in its first year of deployment, making it one of 
the most popular FTC web pages. The site is now available in CD-ROM and 
PDF format and frequently updated with new information for consumers on 
cybersecurity issues. In addition, the Commission's Office of Consumer 
and Business Education has produced a video news release, which has 
been seen by an estimated 1.5 million consumers; distributed 160,000 
postcards featuring Dewie and his information security message to 
approximately 400 college campuses nationwide; and coordinated the 2003 
National Consumer Protection Week with a consortium of public- and 
private-sector organizations around the theme of information security.
    Finally, the Commission's Office of Congressional Relations has 
conducted outreach through constituent service representatives in each 
of the 535 House and Senate member offices by mailing ``Safe 
Computing'' CDs. We would like to thank Chairman Stearns for his 
leadership on the issue of cybersecurity, and for encouraging his 
colleagues, in his July 18, 2003 ``Dear Colleague'' letter announcing 
the delivery of the FTC's safe Internet practices outreach kit, to 
educate their constituents on safe computing practices.
    In addition, the Commission uses opportunities that arise in non-
security cases to educate the public about security issues. For 
example, in early November, the Commission announced that a district 
court issued a temporary restraining order in an action against D 
Squared Solutions, and its principals.19 The complaint 
alleged that the defendants operated a scam that barraged consumers' 
computers with repeated Windows Messenger Service pop up ads--most of 
which advertised software that consumers could purchase for about $25 
to block future pop ups. Part of what made the defendants' conduct so 
egregious is that consumers continued to be bombarded by pop-ups, even 
when they were off of the Internet and working in other applications 
such as word-processing or spreadsheet programs and that the defendants 
allegedly either sold or licensed their pop-up sending-software to 
other people allowing them to engage in the conduct. The defendants' 
website allegedly offered software that would allow buyers to send pop-
ups to 135,000 Internet addresses per hour, along with a database of 
more than two billion unique addresses. Contrary to the defendants' 
representations, consumers, when educated about how the Windows 
operating systems works, can actually stop pop-up spam at no cost by 
changing the Windows default system.
    In addition to bringing a law enforcement action to halt the 
defendants' conduct, the Commission issued an alert to consumers about 
the security issues raised in the case. The ``Consumer Alert'' provides 
instructions for consumers on how to disable the Windows Messenger 
Service in order to avoid other pop-up spam. The alert 20 
also discusses the use of firewalls to block hackers from accessing 
consumers' computers.
    Finally, the Commission continues, and will continue, to host 
workshops on information security issues when appropriate. Last summer, 
the Commission hosted two workshops focusing on the role technology 
plays in protecting personal information.21 The first 
workshop focused on the technologies available to consumers to protect 
themselves. Panelists generally agreed that, to succeed in the 
marketplace, these technologies must be easy to use and built into the 
basic hardware and software consumers purchase.
    The second workshop focused on the technologies available to 
businesses. We learned that businesses, like consumers, need technology 
that is easy to use and compatible with their other systems. 
Unfortunately, we also heard that too many technologies are sold before 
undergoing adequate testing and quality control, frustrating progress 
in this area.
    The Commission also held a workshop on unsolicited commercial e-
mail (``spam'') which was instructive about the security risks that 
spam poses. We learned that, in addition to other problems, spam can 
also serve as a vehicle for malicious and damaging code.
D. International Efforts
    In addition to our cases and domestic efforts, the Commission has 
taken an active international role in promoting cybersecurity. We 
recognize that American society and societies around the world need to 
think about security in a new way. The Internet and associated 
technology have literally made us a global community. We are joining 
with our neighbors in the global community in this enormous effort to 
educate and establish a culture of security.
    During the summer of 2002, the Organization for Economic 
Cooperation and Development (``OECD'') issued a set of principles for 
establishing a culture of security--principles that can assist us all 
in minimizing our vulnerabilities. Commissioner Swindle has had the 
opportunity to work with this organization and to head the U.S. 
Delegation to the Experts Group on the post-September 11 review of 
existing OECD Security Guidelines and to the Working Party on 
Information Security and Privacy.
    The OECD principles are contained in a document entitled 
``Guidelines for the Security of Information Systems and Networks: 
Towards a Culture of Security.'' 22 The nine principles are 
an excellent, common-sense starting point for formulating a workable 
approach to security. They address awareness, accountability, and 
action. They also reflect the principles that guide the FTC in its 
analysis of security-related cases, including that security 
architecture and procedures should be appropriate for the kind of 
information collected and maintained and that good security is an 
ongoing process of assessing and addressing risks and vulnerabilities. 
These principles can be incorporated at all levels of use among 
consumers, government policy makers, and industry. They already have 
been the model for more sector-specific guidance by industry groups and 
associations.
    Besides the OECD, the Commission also is involved in information 
privacy and cybersecurity work undertaken by the Asian Pacific Economic 
Cooperation (``APEC'') forum. APEC's Council of Ministers endorsed the 
OECD Security Guidelines in 2002. Promoting information system and 
network security is one of its chief priorities. The APEC Electronic 
Commerce Steering Group (``ECSG'') promotes awareness and 
responsibility for cybersecurity among small and medium-sized 
businesses that interact with consumers. Commission staff participated 
in APEC workshop and business education efforts this past year and is 
actively engaged in this work for the foreseeable future.
    Along with the OECD and APEC, in December 2002, the United Nations 
General Assembly unanimously adopted a resolution calling for the 
creation of a global culture of cybersecurity. Other UN groups, 
international organizations, and bilateral groups with whom the 
Commission has dialogues, including the TransAtlantic Business and 
Consumer Dialogues, the Global Business Dialogue on Electronic 
Commerce, and bilateral governmental partners in Asia and in the EU 
also are working on cybersecurity initiatives.
    Notwithstanding these global efforts, developing a ``Culture of 
Security'' is a daunting challenge. The FTC and other government 
agencies have a role to play, but the government cannot do this alone, 
nor should it try. The Commission is working with consumer groups, 
business, trade associations, and educators to instill this new way of 
thinking. We are encouraging our global partners to do the same and to 
share what is learned.
                            iii. conclusion
    The Commission, through law enforcement and consumer and business 
education, is committed to reducing the harm that occurs through 
information security breaches. Maintaining good security practices is a 
critical step in preventing these breaches and the resulting harms, 
which can range from major nuisance to major destruction. The critical 
lesson in this information-based economy is that we are all in this 
together: government, private industry, and consumers, and we must all 
take appropriate steps to create a culture of security.

                                ENDNOTES

    1 The views expressed in this statement represent the 
views of the Commission. My oral presentation and responses to 
questions are my own and do not necessarily represent the views of the 
Commission or any other Commissioner.
    2 For example, our recently released Identity Theft 
Report, available at http://www.ftc.gov/os/2003/09/synovatereport.pdf, 
showed that over 27 million individuals have been victims of identity 
theft, which may have occurred either offline or online, in the last 
five years, including almost 10 million individuals in the last year 
alone. The survey also showed that the average loss to businesses was 
$4800 per victim. Although various laws limit consumers' liability for 
identity theft, their average loss was still $500--and much higher in 
certain circumstances.
    3 15 U.S.C.  45.
    4 16 C.F.R. Part 314, available online at http://
www.ftc.gov/os/2002/05/67fr36585.pdf.
    5 15 U.S.C.  45 (a) (1).
    6 15 U.S.C.  45(n).
    7 Where appropriate, the Commission has also brought 
Internet cases using the unfairness doctrine. See FTC v. C.J., Civ. No. 
03-CV-5275-GHK (RZX) (Filed C.D. Cal. July 24 2003), http://
www.ftc.gov/os/2003/07/phishingcomp.pdf.
    8 Letter from FTC to Hon. John D. Dingell, Chairman, 
Subcommittee on Oversight and Investigations (Oct. 14, 1983), reprinted 
in appendix to Cliffdale Associates, Inc., 103 F.T.C. 110, 174 (1984) 
(setting forth the commission's Deception Policy Statement.).
    9 The Commission's final decision and order against Eli 
Lilly is available at www.ftc.gov/os/2002/05/elilillydo.htm. The 
complaint is available at www.ftc.gov/os/2002/05/elilillycmp.htm.
    10 Eli Lilly Complaint, paragraph 7.
    11 The Commission's final decision and order against 
Microsoft is available at http://www.ftc.gov/os/2002/12/
microsoftdecision.pdf. The complaint is available at http://
www.ftc.gov/os/2002/12/microsoftcomplaint.pdf.
    12 Microsoft Complaint, paragraph 7.
    13 The Commission's final decision and order against 
Guess, Inc. is available at http://www.ftc.gov/os/2003/06/
guessagree.htm. The complaint is available at http://www.ftc.gov/os/
2003/06/guesscmp.htm.
    14 16 C.F.R. Part 314, available online at http://
www.ftc.gov/os/2002/05/67fr36585.pdf.
    15 Financial Institutions and Customer Data: Complying 
with the Safeguards Rule, available at http://www.ftc.gove/bcp/conline/
pubs/buspubs/safeguards.htm.
    16 See http://www.ftc.gov/bcp/conline/edcams/
infosecurity/index.html.
    17 See http://www.ftc.gov/bcp/conline/pubs/buspubs/
security.htm.
    18 See http://www.ftc.gov/infosecurity.
    19 The Commission's press release announcing the case 
can be found at http://www.ftc.gov/opa/2003/11/dsquared.htm.
    20 The alert can be found at http://www.ftc.gov/bcp/
conline/pubs/alerts/popalrt.html.
    21 Additional information about the workshops are 
available at http://www.ftc.gov/bcp/workshops/technology/indes.html.
    22 http://www.oecd.org/dataoecd/16/22/15582260.pdf

    Mr. Stearns. I thank the Commissioner.
    Mr. Schmidt, welcome.

                 STATEMENT OF HOWARD A. SCHMIDT

    Mr. Schmidt. Thank you, Mr. Chairman.
    Chairman Stearns, distinguished members of the committee, 
my name is Howard Schmidt. I am the Vice President and Chief of 
Information Security for eBay, where I lead a team responsible 
for ensuring the trustworthiness and security of the services 
that bring so many global citizens together each day in this 
tremendous global marketplace.
    I would like to thank you again for the opportunity to come 
before the committee for the second time and your continued 
leadership in this very important issue. Prior to arriving at 
eBay a few months ago, I had the privilege of being appointed 
by President Bush to lead, with Richard Clarke, the President's 
Critical Infrastructure Protection Board, which represented one 
part of the overall government response to the threat of 
cybersecurity attacks in the wake of September 11; and after 31 
years retired, and we successfully published the National 
Strategy Defense for Cyberspace, working with a team of 
dedicated public servants, this body, and the American public.
    In addition to my day job, I continue to proudly serve at 
the U.S. Army Reserves, assigned to the 701st MP Group as a 
Special Agent with the computer crimes section, and also serve 
on the board of directors for ISC Squared, the body that 
oversees certification for security professionals through the 
CISSB certification.
    My remarks today will focus primarily on the changes that 
have taken place with both business and government to create 
the level of information-sharing and collaboration necessary to 
improve cybersecurity and to further improve security for 
consumers, as well as how the sharing and collaboration has 
indeed improved the level of information and protection of 
consumer data.
    I would like to provide my update in specific examples of 
improvement in four major areas. Those areas are awareness and 
education, product enhancement, government activities and 
private sector initiatives. While these examples will not be 
comprehensive, they will indeed be some representative efforts 
we have undergone.
    I would also state, even though my comments are very 
optimistic as where we have come from, I think we will also 
have a long way to go. I think under the block of awareness and 
education, one of the biggest visible changes that has taken 
place is the increase in dialog and training to better inform 
the end user and consumer on how to secure their computer 
systems and their information.
    One of the first consumer-targeted awareness programs was 
truly a joint public/private partnership between many of the 
companies, the FTC, NSA, as well as some other government 
agencies, and it took place in the formation of the 
Cybersecurity Alliance, and the creation of our Web site, 
staysafeonline.info, which we drove out of the efforts of the 
White House. This Web site has a wealth of information to help 
even the most inexperienced users understand cybersecurity, 
potential threats from on-line criminals, and steps they can 
take to protect themselves.
    In addition, we at the White House held a series of town 
hall meetings over the past 18 months to meet with private 
sector partners, individuals, parent-teacher organizations, 
with speakers ranging from CEOs of major financial 
institutions, to my distinguished colleague to my left, 
Commissioner Orson Swindle. Many of these town meetings were 
also Webcast to get the broadest audience to be able to see 
them and participate over the Internet.
    Private sector companies have also held free seminars 
around the country, providing awareness to citizens. Many of 
these sessions focused on informing the elderly, one of the 
segments of our society who has received great benefits in the 
on-line world and the resources that it can provide. Also, as 
we enter the holiday season, there will be mass media campaigns 
to educate consumers further on how to safely and securely 
enjoy the richness and robustness of the on-line e-commerce 
world.
    Under product enhancements, another major improvement we 
have seen over the past 2 years has been the way security is 
now offered as a standard within software and hardware. One 
very visible example is with the hardware provided to use 
wireless technology and broadband, we now see firewalls being 
built directly into these components as well as antivirus 
software being built into wireless modem operations.
    Major operating systems have now auto update features as 
antivirus functions. Many antivirus vendors have done an 
amazing job in speeding up the detection and analysis of many 
of the threats that you have mentioned in your opening comments 
of the viruses and trojans that are found in the wire. Many of 
them even provide free on-line services for consumers to be 
able to download and inspect their systems as a public service, 
and I noticed in the paper this morning, one of them is now 
offering free antivirus software for the next year.
    Under the heading of government activities, there have been 
a number of great activities beyond the creation of the 
National Strategy to Defend Cyberspace. Recently the Department 
of Homeland Security created the U.S. Computer Emergency 
Response Team at Carnegie Mellon as a focal point for building 
partnerships based on cybersecurity response networks and 
providing a notification network of threats and vulnerabilities 
as they are discovered.
    The Department of Justice, the U.S. Secret Service, and the 
FBI have significantly improved the response times and 
increased priorities around the investigation of cybercrimes. 
As a matter of fact, Director Mueller has placed cybercrime as 
one of the top five priorities within the FBI, and the Secret 
Service is growing a cadre of expert agents working with 
private sector called the Electronic Crime Task Force. 
Additionally, the Department of Defense continues to work in 
that area as well.
    On the government effort, since these things have no 
borders, the State Department has done a wonderful job in 
creating multilateral and bilateral discussions with 
international partners, many of which the industry colleagues, 
some of us sitting here today, have been a part of since the 
very beginning.
    Two quick examples in the private sector initiatives:
    We know that there will be no silver bullets in enhancing 
cybersecurity, but recently we created a coalition to address 
specifically the area of on-line identity theft. We have fully 
recognized that the vast majority of identity theft occurs in 
the off-line world through dumpster diving and other 
mechanisms, but we have seen, as many of you have, an increase 
in criminals attempting to do the same thing on line.
    The two recent methods are what we call phishing, with a p-
h, or spoofed e-mails, where criminals send out thousands of e-
mails telling people to update their information. We are 
working to address this in four areas: building new 
technologies to prevent this; second, to provide awareness and 
training to consumers so they are better informed to not fall 
victim to these scams; third, to share information amongst very 
competitive companies on protection of these things; and 
fourth, to work with the law enforcement community to prevent 
these people through deterrence of investigation.
    In closing, I want to cite three specific areas I think 
that we can look at because, despite the great security 
enhancements we have seen and will continue to see, there are 
clear challenges you must address.
    We must review our commitment to enhance consumer awareness 
of basic cybersecurity practices, and the recent attacks have 
once again demonstrated how home users are now becoming the 
target.
    Second, while we build an effective response network, we 
must not lose sight of the innovation frontier. Technologists 
on the horizon hold the potential to dramatically and 
potentially decisively transform our cybersecurity challenges. 
Self-healing computers, embedded technologies, can enable 
devices that recognize and defend against these attacks. We 
must not inhibit their ability to move forward in collaboration 
with our best universities.
    And, finally, we must recognize that cybersecurity is no 
longer merely about product services and strategies. What is at 
stake in the effective implementation of advanced cybersecurity 
technology is nothing less than the ability to unleash the next 
wave of IT-led growth in jobs and productivity. Cybersecurity 
is an essential enabler.
    In closing, I want to say that the next step of this will 
be on December 2 and 3. Homeland Security has invited a lot of 
the public service or private sector organizations to create a 
summit, creating a task force to move forward in a lot of those 
areas that we mentioned and we care very deeply about.
    This concludes my prepared remarks and I thank you for the 
opportunity to be here.
    [The prepared statement of Howard A. Schmidt follows:]
   Prepared Statement of Howard A. Schmidt, Vice President and Chief 
             Information Security Officer, eBay Corporation
                              introduction
    Chairman Stearns, distinguished members of the Committee, my name 
is Howard A. Schmidt. I am the Vice President and Chief Information 
Security Officer for eBay, where I lead a team responsible for ensuring 
the trustworthiness and security of the services that bring so many 
global citizens together in this tremendous global marketplace each 
day. I would like to thank you for the opportunity to come before this 
Committee again as well as your continued leadership on this very 
important issue. Prior to my current position at eBay and subsequent to 
my last appearance, I had the privilege of being appointed by President 
Bush to lead, with Richard Clarke, the President's Critical 
Infrastructure Protection Board, which represented one part of the 
overall governmental response to the threat of cyber security attacks 
in the wake of September 11. I retired from 31 years of public service 
after completing and publishing the ``National Strategy to Defend 
Cyberspace,'' working with a team of dedicated public servants, this 
body, and the American public.
    I have had the privilege of working with committed individuals in 
the private sector, law enforcement, and government to forge the 
collaboration and cooperation that is so essential to safeguard cyber 
space for everyone, from inexperienced home users to large well-run 
corporate enterprises. I assisted in the formation of some of the first 
collaborative efforts in the law enforcement community to address cyber 
crime in local law enforcement and the FBI. I also helped lead the 
creation of the Information Technology Information Sharing and Analysis 
Center (IT-ISAC) and had the honor of serving as its first president.
    I continue to proudly serve in the U.S. Army reserves, assigned to 
the 701st MP Group, (CID) as a Special Agent with the computer crime 
unit at CID headquarters. I also serve on the Board of Directors for 
ISC2, the body that oversees certification of security professionals 
through the CISSP certification. My remarks today will focus primarily 
on the changes that have taken place within both business and 
government to create the level of information sharing and collaboration 
necessary to improve Cybersecurity and further improve security for 
consumers, as well as how this sharing and collaboration has improved 
the level of information and protection of consumer computer data.
    Today, the Internet connects over 170 million computers and an 
estimated 680 million users, with an estimated growth to 904 million by 
the end of 2004. From major data operations conducting large-scale 
financial transactions, to wireless devices keeping families connected, 
the Internet touches virtually all aspects of our economy and quality 
of life. eBay is a prime example of how deeply ingrained the Internet 
is in American life. Every day on eBay, millions of Americans, along 
with millions of people in countries around the world, come together to 
buy and sell all types of goods and services. Business relationships 
and, often, deep friendships are formed on the basis of commerce and 
shared interests. The eBay marketplace reflects the enormous power of 
the Internet to unite humanity at a crucial moment in history.
    More pointedly, the Internet has become a fundamental component of 
business processes--enhancing productivity by speeding connectivity 
between remote locations or across functional operations. The Internet 
is deeply ingrained in managing power, producing chemicals, designing 
and manufacturing cars, managing money and delivering government 
services ranging from human services to environmental permitting. The 
flip side of these productivity-enhancing applications is an increase 
in attacks against the online community.
    Today the Internet is utilized by hundreds of millions of users all 
across the globe sending information ranging from homework assignments 
and simple greetings to the most sensitive financial and operational 
data of government and industry, all at the speed of light. The 
Internet landscape also includes a private sector security industry 
that has grown to an estimated $17 billion per year in goods and 
services. And, as we are all painfully aware, attack speeds today are 
measured in seconds, not days.
    I would like to provide my update in the format specific examples 
of improvement in four major areas. Those areas are: Awareness and 
education; product enhancements; government activities; and private 
sector initiatives. While we have made significant progress, I also 
want to stress that we still have much work to do and will continue to 
improve overall Cybersecurity by continued improvement in some of the 
examples I will mention today.
Awareness & Education:
    One of the biggest visible changes that has taken place is 
increased dialogue and training to better inform the end user on how to 
secure their computers and information. One of the first consumer-
targeted awareness programs was truly a joint private-public 
partnership. This partnership took place in the form of the Cyber 
Security Alliance. The alliance combined the expertise of a number of 
private sector entities with the efforts of government partners to 
create a comprehensive website for consumers. The website, 
www.staysafeonline.info has a wealth of information to help even the 
most inexperienced users understand cyber security, potential threats 
from online criminals, and steps they can take to protect themselves.
    In addition, the White House held a series of town hall meetings 
around the country with private sector partners. These town hall 
meetings were open to the public and well-attended, with speakers 
ranging from CEOs of major financial institutions and exchanges, to 
subject-matter experts in cyber security. Many of these town hall 
meetings were webcast so those that could not attend in person could 
participate over the Internet.
    Private sector companies have also held free seminars around the 
country to provide awareness to citizens. Many of the sessions focused 
on informing the elderly, one of the segments of our society that has 
received great benefit from the online world and the resources that it 
provides. As we enter the holiday shopping season, there will be mass 
media campaigns to educate consumers on how to safely and securely 
enjoy the richness and robustness of the online e-commerce world.
    In the category of formal education, the National Security Agency 
(NSA) has a program identifying universities that meet the criteria to 
be designated a center of academic excellence in information security. 
This NSA program not only ensures the education of the next generation 
of information security professionals, but also guarantees that the 
university has sound cyber security practices in place as well as 
awareness education for the students, who make up a large number of the 
online users and consumers. The NSA also administers the Cyber Corp 
program with NSF and OPM, providing scholarships for students in cyber 
security.
Product Enhancements:
    Another major improvement that we have seen in the past two years 
is the way security enhancements are now offered standard in software 
and hardware. One very visible example is the hardware provided to use 
wireless technology. Broadband technology (Cable modem, DSL, satellites 
etc.) has given us capabilities and speeds that were only available to 
corporations before. We now see firewalls and the ability to download 
anti-virus software being built into wireless modems.
    The major operating systems now have auto-update features included, 
and are now being turned on by default in more future versions. 
Products are now being shipped with many services turned off by 
default, thus making them more secure. Many of the online email 
services block potentially malicious code and do a much better job of 
blocking the Spam that often contains malicious functions.
    Anti-virus vendors have done an amazing job in speeding up the 
detection, analysis and updates for many of the viruses that are found 
in the wild. Many of them even provide free online virus scans as a 
public service to assist consumers.
Government Activities:
    There have been a number of government actions that have taken 
place since I last appeared before this committee--most notably the 
creation of the President's Critical Infrastructure Protection Board 
and the release of the National Strategy to Defend Cyberspace. This 
critical document set the framework for much of the private public 
partnerships, focusing a section on home users and small/medium 
enterprises.
    I would also argue that the consolidation of cyber security related 
organizations into the Department of Homeland Security in the 
Infrastructure Protection Director was a valuable reorganization. The 
bringing together of the NIPC (FBI), Fed-CIRC (GSA), CIAO (Commerce), 
Energy Information Assurance Division (DoE) and the National 
Communications System (DoD) created a center of excellence that, with 
the help of focused leadership, will move to implement the national 
strategy. This new organization is called the National Cyber Security 
Division.
    Recent action taken by the Department of Homeland Security (DHS) to 
create the US CERT at Carnegie Mellon University has the potential to 
significantly enhance security for all users. The US CERT is designed 
to serve as a focal point for building partnerships based cyber 
security response network and provide a notification network as threats 
and vulnerabilities are discovered.
    The goal for US CERT is to ensure that there is an average response 
time of no less than 30 minutes in the case of any attack. The very 
specific nature of this goal is designed to deliberately focus the US 
CERT on building broad participation by the private sector.
    The US CERT will undertake the following major initiatives:

 Develop common incident and vulnerability reporting protocols to 
        accelerate information sharing across the public and private 
        response communities;
 Develop initiatives to enhance and promote the development of 
        response and warning technologies; and
 Forge partnerships to improve incident prevention methods and 
        technologies;
    The Dept. of Justice, the U.S. Secret Service and the FBI have 
significantly decreased their response times and increased priorities 
around investigations of cyber crimes. Director Mueller has placed 
cyber crime in the top 5 priorities at the FBI, and the Secret Service 
has added a number of electronic crime task forces in order to 
successfully investigate and prosecute cyber criminals. All of the 
Defense Department's investigative organizations have led the way 
investigating cyber crimes and have some of the best investigators in 
the world. The Department of Justice, through its Computer Crime and 
Intellectual Property Section, has chaired the G-8 Subcommittee on 
cyber crime and has been a significant driving force in combating 
worldwide cyber crime.
    Since there are no borders when it comes to cyber space, and 
criminal attacks on consumers can come from all corners of the world, 
the State Department has conducted bilateral and multilateral 
discussions to ensure that there is international cooperation in the 
effort to protect cyber security.
    I have had the extreme pleasure of working with Commissioner 
Swindel of the Federal Trade Commission, who has been a beacon of light 
for the protection of consumers' privacy and security. With his help in 
the creation of the FTC's ``Dewey'' program and his tireless support 
for town hall meetings, he truly has created a ``culture of security'' 
globally.
Private Sector Initiatives:
    While there will be no silver bullets in enhancing cyber security, 
the private sector continues to grow its capabilities and make solid 
improvement in securing their part of cyberspace . Two of the earliest 
examples of private-public cooperation for ``Cyber Crime/Cyber 
Security'' were the the High Tech Crime Investigators Association 
(HTCIA) and the Information Systems Security Association (ISSA). Both 
organizations date back to the mid/late 80's and are dedicated to 
sharing nformation on cyber crime and information security. They still 
exist today and their membership and value have increased significantly 
over the years.
    Most recently, the private sector has created a coalition that I 
see as an excellent example of efforts to enhance consumer cyber 
security. As you are probably aware, identity theft is a major problem. 
While the vast majority of ID theft occurs in the physical world, we 
have seen an increase in the activities of criminals to commit the same 
types of crime online. The most recent method is by using what we call 
``phishing'' or ``spoofed'' emails. The criminals will send out 
thousands of emails telling people that there is an error with their 
online account and ask them to fill in an ``update form'' or their 
account will be closed. This form has the look and feel of major e-
commerce sites--there was even a fake email from someone pretendingto 
be the FBI and asking unsuspecting users to enter personal information 
into a fake web site.
    To combat this, many of the major players in the e-commerce space 
banded together to create an Anti-Online ID Theft Coalition. The 
Coalition boasts many private sector members, with the Information 
Technology Association of America providing support as the executive 
director. The Coalition has four major goals: 1) to build technology to 
reduce the likelihood of these mails even reaching their intended 
victim; 2) to provide awareness training to consumers so they can more 
readily identify these criminal acts; 3) to share information on new 
scams amongst the various security teams; and 4) to insure 
accountability by working with law enforcement to identify and 
prosecute these bad actors.
    In a larger perspective, Sector Coordinators representing each of 
the major sectors of our economy have been appointed to fight potential 
cyber attack. A sector coordinator is an individual in the private 
sector identified by the sector lead agency to coordinate their sector, 
acting as an honest broker to organize and bring the sector together to 
work cooperatively on sector cyber security protection issues. The 
sector coordinator can be an individual or an institution from a 
private entity.
    These private sector leaders provide the central conduit to the 
federal government for the information needed to develop an accurate 
understanding of what is going on throughout the nation's 
infrastructures on a strategic level with regards to critical 
infrastructure protection activities. The sector coordinators and the 
various sector members were key to the creation of the National 
Strategy to Defend Cyber Space.
    In addition, there has been a number of new private sector 
Information Sharing and Analysis Centers (ISACs). An ISAC is an 
operational mechanism to enable members to share information about 
vulnerabilities, threats, and incidents (cyber and physical). The 
sector coordinator develops these Centers with support from the sector 
liaison. In some cases, an ISAC Manager may be designated, who is 
responsible for the day-to-day operations of the ISAC, to work with the 
sector coordinator or the sector coordinating body with support from 
DHS and the lead federal agencies.
    Despite these security enhancements, we can be certain that as 
increased collaboration continues to enhance our protection and 
responsiveness, the nature and sophistication of attacks will certainly 
evolve. There are clear challenges we must continue to address.
    First, we must renew our commitment to enhance consumer awareness 
of basic cyber security practices. The recent attacks demonstrate that 
home users can be used as an effective pathway to launch attacks, or as 
a gateway into large enterprises. We need to build on the public/
private initiatives to promote cyber security with a focused and 
aggressive outreach effort to benefit all consumers.
    Second, while we build an effective response network we must not 
lose sight of the innovation frontier. Technologies on the horizon hold 
the potential to dramatically and potentially decisively transform our 
cyber security challenges. Self-healing computers, embedded 
technologies that enable devices to recognize and defend against 
attacks, and devices which enhance both security and privacy are within 
reach with an aggressive technology development agenda. This effort 
must be industry-led in collaboration with our best Universities. Most 
importantly, it must be synergistically linked with our response 
initiatives.
    Finally, we must recognize that cyber security is no longer merely 
about products, services and strategies to protect key operations. What 
is at stake in the effective implementation of advanced cyber security 
technologies and strategies is nothing less than the ability to unleash 
the next wave of information technology-led growth in jobs and 
productivity. Cyber security is an essential enabler to the advent of 
the next generation Internet and all it holds for how we work, live, 
and learn.
    I don't want to close without mentioning my expectation that many 
of these challenges will be addressed, and indeed met head-on, with 
tangible commitments and deliverables through the upcoming National 
Cyber Security Summit, to be held on December 2-3, 2003. This Summit 
will be co-hosted by the Information Technology Association of America, 
the U.S. Chamber of Commerce, TechNet and the Business Software 
Alliance, with the support of the Department of Homeland Security. I 
have the honor to serve at that summit, as will many of the brightest 
minds and most innovative companies across all sectors of the economy.
    The work of this summit will continue past December 2-3 through 
task force work programs that will drive toward solutions in intense 
work before, during, and beyond the Summit. We expect that many of 
these proposals will be forwarded to DHS early next year, after which 
we can measure progress on an ongoing basis. We expect this to be an 
all-hands-on-deck effort where we bring together, distill, and 
integrate many of the outstanding work products from many groups 
regarding cyber security metrics, software development and maintenance, 
public outreach initiatives, and, of course, public-private 
partnerships in information sharing and early warning systems.
    Chairman Stearns, this concludes my prepared remarks. I thank you 
for the opportunity to come before this Committee and welcome any 
questions that you and the Committee members may have.

    Mr. Stearns. Thank you.
    Mr. Charney.

                   STATEMENT OF SCOTT CHARNEY

    Mr. Charney. Thank you. Chairman Stearns, Ranking Member 
Schakowsky, and members of the subcommittee, my name is Scott 
Charney, and I am Microsoft's Chief Trustworthy Computing 
Strategist.
    I want to thank you for the opportunity to appear here 
today to provide our views on cybersecurity and what we are 
doing to secure consumer data. At Microsoft, security is our 
No. 1 priority. We are committed to continually improving the 
security of our software.
    As Howard Schmidt just said, there are no silver bullets in 
cybersecurity; there will always be vulnerabilities in complex 
software and systems. As was true when we testified before you 
in 2001, cybersecurity involves many layers and many 
collaborative partnerships. In other words, cybersecurity 
involves management of technologies, as much as the technology 
itself.
    Meanwhile, much has changed since we last testified before 
you. Consumer dependence on the Internet has grown. And as of 
March 2003, 30 million homes in America had a broadband 
connection to the Internet, double the number who had high-
speed connections at the end of 2001.
    Another key change over the past 2 years is that the time 
between the issuance of a patch and the time when we see a 
concrete exploit taking advantage of the underlying 
vulnerability has dramatically shortened. Therefore, once a 
patch is released, a race ensues between those installing the 
patch to eliminate the vulnerability and those developing code 
that exploits the vulnerability.
    Moreover, the sophistication and severity of cyberattacks 
are also increasing. In response to these threats, industry has 
increased tremendously the resources and priority it devotes to 
cybersecurity issues, and the government has also taken 
significant steps during this time period to address these 
heightened risks for on-line consumers, including creating the 
National Cybersecurity Division at the Department of Homeland 
Security and signing the Council of Europe's Cybercrime Treaty. 
We commend these actions as important steps and hope the Senate 
ratifies the treaty when it is received.
    Security is Microsoft's top priority, and we know that 
security is a journey rather than a destination. 2 years ago 
before this committee, my friend and co-panelists Howard 
Schmidt properly stated: We know there is no finish line for 
these efforts, but by working as we have with industry peers 
and with governments, we have a chance to keep one step ahead 
of cyber criminals.
    Shortly thereafter, Bill Gates had launched our trustworthy 
computing initiative, which involves every aspect of Microsoft 
and focuses on four key pillars: security, privacy, 
reliability, and business integrity. As part of this, we have 
enhanced the training of our developers to put security at the 
heart of software design and at the foundation of the 
development process.
    Through this effort we are seeing a quantifiable decrease 
in vulnerabilities. For example, if you compare Windows Server 
2000 and Windows Server 2003, for the last 6 months Windows 
Server 2003 has required fewer patches.
    Another part of trustworthy computing involves 
communicating with our customers. In the wake of Blaster, we 
launched the Protect Your PC campaign, urging commerce to take 
three steps to improve their security, all available through 
Microsoft.com/protect.
    Two years ago, we also spoke about the need of increased 
deterrence of criminal hacking. Although the Cybersecurity 
Enforcement Act passed last year, there is still much more that 
needs to be done. Despite the best and laudable efforts of 
dedicated law enforcement personnel, far too many hackers 
unleash their malicious code, commit crimes with no punishment. 
This is an untenable situation.
    Earlier this month, we took a significant step to support 
law enforcement by creating the Antivirus Reward Program to 
provide monetary rewards for information resulting in the 
arrest and conviction of hackers. The government continues to 
play a key role in efforts to secure consumers' software and 
data.
    I want to outline a few specific areas where government 
initiatives can be particularly helpful in promoting 
cybersecurity.
    First, the public sector should increase its support for 
basic research and security technology.
    Second, the government can lead by example by securing its 
own systems, buying software that is engineered for security, 
providing better training for government systems administrators 
and leading public awareness campaigns, such as the FTC's 
campaign featuring Dewey the Turtle.
    Third, government and industry should reduce barriers to 
exchanges of information.
    Fourth, law enforcement should receive additional 
resources. We also support the forfeiture of personal property 
used in committing these crimes.
    Fifth, greater cross-jurisdictional cooperation among law 
enforcement is needed for investigating cyberattacks.
    In conclusion, we will continue to pursue trustworthy 
computing and to work closely with our partners in the computer 
software and communications industries, the government and our 
commerce to enhance cybersecurity.
    Thank you, and I look forward to your questions.
    [The prepared statement of Scott Charney follows:]
   Prepared Statement of Scott Charney, Chief Trustworthy Computing 
                   Strategist, Microsoft Corporation
    Chairman Stearns, Ranking Member Schakowsky, and Members of the 
Subcommittee: My name is Scott Charney, and I am Microsoft's Chief 
Trustworthy Computing Strategist. I want to thank you for the 
opportunity to appear today to provide our views on cybersecurity and 
on what we are doing to secure consumer data. I oversee the development 
of strategies to create more secure software and services and to 
enhance consumer security and privacy through our long-term Trustworthy 
Computing initiative. My goal is to reduce the number of successful 
computer attacks and increase the confidence of all computer users. 
This is something I have worked toward throughout much of my career, 
including during my service as chief of the Computer Crime and 
Intellectual Property Section (CCIPS) in the Criminal Division of the 
U.S. Department of Justice. While at CCIPS, I helped prosecute nearly 
every major hacker case in the United States from 1991 to 1999.
    At Microsoft, security is our number one priority, and as an 
industry leader, we are committed to continually improving the 
capability of our software to protect the privacy of consumers and the 
security of their data. We are at the forefront of industry efforts to 
enhance the security of computer programs and networks and to educate 
consumers about good cybersecurity practices. We also work closely with 
our partners in industry and governments around the world to identify 
security threats to computer networks, share best practices, improve 
our coordinated responses to security breaches, and prevent computer 
attacks from happening in the first place.
    This hearing is exceptionally timely because of the rapid 
developments in cybersecurity over the past two years. We 
wholeheartedly agree with this Subcommittee that it is critical for all 
of us to address consumer concerns about the privacy and security of 
their online data in order to stimulate the further growth of e-
commerce and to help realize the Internet's full potential.
    Today, I want to describe the risks posed to consumers' 
cybersecurity, and the ways in which industry and government are 
working together to protect consumers' online data. First, I will 
discuss the general state of cybersecurity since November 2001, when we 
last appeared before this Subcommittee; I will touch both on what has 
stayed the same, and on what has changed. Second, I will discuss 
Microsoft's ongoing efforts to help secure consumers' computer data. 
Third, I will offer a few suggested steps that the government can take 
to enhance the security of consumer data.
                  i. cybersecurity since november 2001
    The pursuit of cybersecurity involves a daily and never-ending 
contest between industry, governments, and computer users, on the one 
hand, and cyber criminals, on the other. Hackers remain elusive, 
aggressive, and innovative. When we last testified before this 
Subcommittee on this topic, the ``ILOVEYOU,'' Code Red, Ramen, Li0n, 
and Trinoo worms and viruses had already struck a variety of operating 
systems. Since that time, criminal hackers have unleashed Slapper, 
Scalper, Slammer, Blaster, SoBig, and many other viruses and worms to 
infect computers, deny service, and impair recovery.
    There are no silver bullets in cybersecurity, and there will always 
be vulnerabilities in complex software and systems, as well as human 
errors made. As was true in 2001, cybersecurity involves many layers 
and many collaborative partnerships, including software design, 
software configuration, software patching, the sharing of threat and 
vulnerability information, user education, user practices, and the 
investigation and prosecution of cybercrime both within the United 
States and internationally. In other words, cybersecurity involves 
management of technology as much as the technology itself.
    Meanwhile, much has changed since we last testified before you. 
Consumer dependence on the Internet has grown, and consumers are more 
frequently sharing their personal information, including their 
identities, contact information, financial data, and health 
information, over the Internet. Moreover, as the personal computer 
becomes more central to the daily lives of many citizens and to the 
daily functions of the public and private sectors, the government, 
consumers, and business enterprises are storing more personal 
information on their Internet-connected computers and networks, thus 
potentially exposing their data to hackers even if that personal 
information is never transmitted over the Internet. In addition, 
consumers with broadband are, unlike those with a dial-up connection, 
connected to the Internet with unvarying IP addresses and at a high 
connection speed, and therefore place consumer data at greater risk. As 
of March 2003, 30 million homes in America had a broadband connection 
to the Internet, double the number who had a high-speed connection at 
home at the end of 2001 and a 50% increase from March 2002.
    Another key change over the past two years is that the time between 
the issuance of a patch and the time when we see a concrete exploit 
taking advantage of the underlying vulnerability has dramatically 
shortened. This time period is crucial because we have had very few 
attacks that actually precede the patch; more typically, once a patch 
is released, a race ensues between those installing the patch to 
eliminate the vulnerability and those developing code that exploits the 
vulnerability. When an exploit is developed faster, enterprises and 
individuals have that much less time to learn of, test, and install the 
patch before a hacker uses the exploit to inflict damage. That window 
for the NIMDA virus was 331 days between patch release and exploit; for 
Blaster, less than two years later, it was only 26 days.
    The chronology leading up to the criminal launch of the Blaster 
worm illustrates the complex interplay between software companies, 
security researchers, persons who publish exploit code, and hackers. On 
July 16, we delivered a patch for the vulnerability and a security 
bulletin to our customers. This was followed by ongoing outreach to 
consumers, analysts, the press, our industry partners, and the 
government. On July 25, nine days after we released the patch, a 
security research group called XFOCUS published a tool to exploit the 
vulnerability that the security bulletin and patch had highlighted. In 
essence, XFOCUS analyzed our patch by reverse engineering it to 
identify the vulnerability, then developed a means to attack the 
vulnerability, and finally offered that attack to the world so that any 
unsophisticated hacker could then unleash an attack by downloading 
XFOCUS's work and using launch tools freely available on the Internet.
    At this point, we heightened our efforts to inform our customers 
about the steps they should take to secure their computers. On August 
11, only 26 days after release of the patch, the Blaster worm was 
discovered as it spread through the Internet. This sequence of events 
underscores a dilemma: the same information that helps customers to 
secure their systems also enables self-identified security researchers 
and others to develop and publish exploit code, which hackers then use 
to launch damaging criminal attacks.
    The sophistication and severity of cyberattacks are also 
increasing. The Slammer worm in January 2003 did not attack the data of 
infected systems, but resulted in a dramatic increase in network 
traffic worldwide and in temporary loss of Internet access for some 
users. This past summer, criminal hackers released the Blaster worm, 
which spread by exploiting a security vulnerability for which we had 
released a patch. Machines infected by Blaster used the network 
connection to locate new, vulnerable machines, whereupon the worm would 
copy itself, infect the new machine, and continue the process. Blaster 
affected Windows NT4, Windows XP, Windows 2000, and Windows Server 2003 
systems, but could not reach those machines that were patched and 
defended by a properly configured firewall. The worm also tried to deny 
service to those users seeking to download the patch for Blaster.
    In addition, cybercriminals have been able to make viruses more 
prevalent and harder for consumers to detect by ``spoofing'' legitimate 
email addresses, which makes it more difficult to determine who the 
real sender is. In 2002, there were twice as many email viruses as 
there were in 2001. In January 2003, the SoBig virus spoofed email 
addresses and contained infectious .pif attachments, which if opened 
would infect the user's computer and search the infected user's hard 
drive for email addresses of possible further victims. Multiple 
variants of the SoBig virus surfaced during the year. It is important 
to note that SoBig did not exploit any software vulnerability; it was a 
social engineering attack based on users' willingness to trust email 
that appeared to be from individuals whom they knew.
    In response to these threats, industry has increased tremendously 
the resources and priority it devotes to cybersecurity issues. Many of 
those efforts continue today, and I will describe them in more detail 
in the next Section. Over the past two years, the government has also 
taken significant steps during this time period to address these 
heightened risks for online consumers. We commend these actions as 
important steps in our shared journey toward enhanced cybersecurity.
    First and foremost, the Department of Homeland Security created the 
National Cyber Security Division (NCSD) under the Department's 
Information Analysis and Infrastructure Protection Directorate. The 
NCSD is established to provide 24 x 7 functions, including cyberspace 
analysis, issuing alerts and warning, improving information sharing, 
responding to major incidents, and aiding in national-level recovery 
efforts. The Department created the NCSD as part of its implementation 
of the Homeland Security Act of 2002 and the National Strategy to 
Secure Cyberspace, which the White House released in February 2003 
after soliciting extensive comments from consumers, industry, and other 
government actors. We worked with government officials in all of these 
activities, and we are encouraged by the work DHS has done to date. 
Moreover, I personally look forward to co-chairing a task force at its 
December ``National Cyber Security Summit.''
    Second, the United States signed the Council of Europe Convention 
on Cybercrime in November 2001. The Convention requires parties to have 
minimum procedural tools to investigate such attacks, and to facilitate 
international cooperation in investigating those attacks. Because of 
the inherently international nature of cybercrime, the Council of 
Europe cybercrime treaty is an important step towards the transborder 
cooperation that is vital to combating cybercrime and protecting 
consumers. We look forward to the day when the treaty is sent to the 
Senate for its consideration.
            ii. our response to cybersecurity threats today
    Security is Microsoft's top priority. We have devoted and will 
continue to devote enormous resources to enhancing security. As we 
confront new challenges and develop new approaches and new 
partnerships, we continue to learn that perfect security in cyberspace 
is unattainable, just as it is in the physical world. Operating system 
software is one of the most complex items that humans have created, and 
it is impossible to eliminate all software vulnerabilities. Thus, we 
know that security is a journey rather than a destination, and it can 
only be improved by partnerships involving government, industry, 
responsible security researchers, and customers around the world 
including government agencies, enterprises, and individual users. Two 
years ago before this committee, my friend and co-panelist Howard 
Schmidt properly stated, ``We know that there is no finish line to 
these efforts, but by working as we have with industry peers--including 
some of these panelists--and with governments, we have a chance to keep 
one step ahead of cyber-criminals.''
A. Trustworthy Computing
    In January 2002, Bill Gates launched our Trustworthy Computing 
initiative, which involves every aspect of Microsoft and focuses on 
four key pillars: security, privacy, reliability, and business 
integrity. Security involves designing programs and systems that are 
resilient to attack so that the confidentiality, integrity, and 
availability of data and systems are protected. The goal of our privacy 
efforts is to give individual consumers greater control over their 
personal data and to ensure, as with the efforts against spam, their 
right to be left alone. Reliability means creating software and systems 
that are dependable, available when needed, and perform at expected 
levels. Finally business integrity means acting with honesty and 
integrity at all times, and engaging openly and transparently with 
customers.
    Under the security pillar, we are working to create software and 
services for all of our customers that are Secure by Design, Secure by 
Default, and Secure in Deployment, and to communicate openly about our 
efforts.

 ``Secure by Design'' means two things: writing more secure code and 
        architecting more secure software and services.
 ``Secure by Default'' means that computer software is more secure out 
        of the box, with features turned off until needed and turned on 
        by the users, whether it is in a home environment or an IT 
        department.
 ``Secure in Deployment'' means making it easier for consumers, 
        commercial and government users, and IT professionals to 
        maintain the security of their systems.
 ``Communications'' means sharing what we learn both within and 
        outside of Microsoft, providing clear channels for people to 
        talk with us about security issues, and addressing those issues 
        with governments, our industry counterparts, and the public.
    The Trustworthy Computing goals are real and specific, and this 
effort is now ingrained in our culture and is part of the way we value 
our work.
    We have enhanced the training of our developers to put security at 
the heart of software design and at the foundation of the development 
process. Security is and will continue to be our highest software 
development priority. All new software releases and service packs are 
now subject to an enhanced security release process which has already 
resulted in a notable decline of vulnerabilities in some of our server 
software. This effort, which can cost hundreds of millions of dollars 
and delay the software's release to the market, is a critical step in 
improving software security and reliability. We are seeing a 
quantifiable and dramatic decrease in vulnerabilities: for example, 
Windows Server 2003 followed this process and in the first ninety days, 
we reported and patched three critical or important security 
vulnerabilities and six total in the first 180 days. Whereas in Windows 
Server 2000, we found eight critical or important vulnerabilities in 
the first ninety days, and twenty one in the first 180 days.
    When an attack does occur, our Microsoft Security Response Center 
(MSRC) coordinates the investigation of reported vulnerabilities, the 
development of patches, and our customer outreach efforts. We are very 
proud of this organization and believe it represents the industry's 
state of the art response center.
    Although we have made major strides, much work on Trustworthy 
Computing remains ahead of us. One key piece of that work is the Next-
Generation Secure Computing Base (NGSCB). This is an on-going research 
and development effort to help create a safer computing environment for 
users by giving them access to four core hardware-based features 
missing in today's PCs: strong process isolation, sealed storage, a 
secure path to and from the user, and strong assurances of software 
identity. These changes, which require new PC hardware and software, 
can provide protection against malicious software and enhance user 
privacy, computer security, data protection and system integrity.
    Part of Trustworthy Computing involves communicating with our 
customers. In the wake of Blaster, we launched the Protect Your PC 
campaign, urging customers to take three steps to improve their 
security: install and/or activate an Internet firewall, stay up to date 
on security patches, and install an anti-virus solution and keep it up 
to date. The www.microsoft.com/protect web site serves as the focal 
point for the campaign. We also provide a wide range of free security 
tools and prescriptive guidance to make it easier for consumers to make 
their computers and their data more secure.
B. Streamlining the Patching Process
    Patch management is a significant issue. We recognize that the most 
important solution is to reduce the number of vulnerabilities in code, 
thus reducing the need for patching. This is why we are emphasizing 
secure by design. But no operating system--regardless of development 
model--will ever be free of all vulnerabilities. We must manage this 
risk by providing customers with simple and easy to use patches. To 
streamline those processes, we are taking the following steps:

 Improving our testing of patches to ensure patch quality.
 Reducing the number of patch installers to provide users with a 
        consistent patch experience, and make patching simpler.
 Working to ensure that each patch is reversible, so a rollback is 
        possible if deployment raises an unanticipated issue, such as 
        adversely affecting a legacy application.
 Ensuring that patches register their presence on the system--and 
        producing improved scanning tools--so a user can quickly 
        determine if his or her machine is patched appropriately.
 Making our security patch releases more predictable. We are now 
        providing security updates once a month, but we will still 
        provide patches outside this schedule when necessary, such as 
        when exploit code is publicly available.
 Avoiding reboot of the computer where practicable, as our customers 
        are more likely to apply a patch more quickly, if server 
        availability will not be interrupted.
 Producing specific technology, such as Software Update Services and 
        Systems Management Server, so enterprises can download patches, 
        test them in their unique environments, and then easily deploy 
        them.
 Informing customers about the AutoUpdate feature in recent Microsoft 
        operating systems, which can automatically download updates and 
        then either install them as scheduled or request permission 
        from the user to do so.
C. Securing Enterprises to Protect Consumers
    As noted, protecting consumer security depends, in part, on 
protecting the security of enterprise servers, which often hold 
valuable consumer data. Steve Ballmer, Microsoft's Chief Executive 
Officer, announced last month that we are working to secure these 
networks from the hazards that arise when users log into those networks 
from home or other remote locations. Those hazards include malicious e-
mails, viruses and worms, malicious web content, and buffer overruns.
    While patches remain part of the solution, we are developing what 
we call safety technology to secure these networks at the perimeter by:

 Reducing the risk from computers such as notebooks and portable 
        computers that are moved between an enterprise's network and 
        external networks.
 Improving browsing technologies to minimize the risk of hostile web 
        sites executing malicious code on visiting users' computers.
 Enhancing memory protection to help prevent successful buffer overrun 
        attacks.
 Improving the Internet Connection Firewall within Windows while also 
        working closely with partners in the software security 
        industry.
    Through these measures, we hope to help protect machines even when 
not patched, thus giving enterprises more time to test and deploy 
patches and enabling enterprises to patch on their schedule, not on a 
schedule determined by hackers.
    We are also providing new information and guidance on how 
enterprises can secure their computers to protect data, including the 
personal information of their customers.
D. Industry Partnerships
    We embrace our role in providing more secure computing for all our 
customers. Because security is an industry-wide issue, we participate 
actively in partnerships that span the industry, customers and both the 
public and private sectors to encourage customers to implement software 
in more secure ways.
    For example, we are a founding member of the Organization for 
Internet Safety (OIS), an alliance of leading technology vendors, 
security researchers, and consultancies that is dedicated to the 
principle that security researchers and vendors should follow common 
processes and best practices to efficiently resolve security issues and 
to ensure that Internet users are protected.
    We also work with the Virus Information Alliance (VIA), a 
centralized resource for Internet users seeking information about the 
latest virus threats. Through its member companies, Microsoft, Network 
Associates, Trend Micro, Computer Associates, Sybari, and Symantec, the 
VIA offers recommended best practices for preventing malicious attacks, 
information about specific viruses, how-to articles and links to other 
anti-virus resources on its web site.
    I am personally participating with some of my co-panelists in the 
Global Council of Chief Security Officers, a newly formed think tank 
that will share information with member companies and governments on 
cybersecurity issues and enhance the involvement of private sector 
officials in cybersecurity issues.
    We also helped found the Information Technology--Information 
Sharing and Analysis Center (IT--ISAC) and I serve on its board today. 
The IT-ISAC coordinates information-sharing on cyber-events among 
information technology companies and the government.
E. Anti-Virus Reward Program
    Two years ago we spoke about the need to increase deterrence of 
criminal hacking. Although the Cyber Security Enforcement Act passed 
this Congress last year, there is still much more that needs to be 
done. Despite the best and laudable efforts of dedicated law 
enforcement personnel, far too many hackers unleash their malicious 
code or commit crimes with no punishment, as evidenced by the fact that 
the authorities have yet to bring to justice the criminals who launched 
major attacks like Blaster, NIMDA and Slammer. This is an untenable 
situation, and it is one the nation allows to persist in no other area. 
We need a robust deterrent to criminal activity online.
    When criminal attacks are launched, we work with law enforcement 
officials to support their investigations. And earlier this month, we 
took a significant step to support them by creating the Anti-Virus 
Reward Program to provide monetary rewards for information resulting in 
the arrest and conviction of hackers. For example, we have announced a 
reward of $250,000 each for information leading to the arrest and 
conviction of those responsible for the SoBig virus and the Blaster 
worm.
    To use a medical analogy, we are strengthening the Internet's 
immune system through initiatives such as the anti-virus reward 
program, our technical and legal anti-spam efforts, consumer education, 
and efforts to secure existing systems and to make security integral to 
new systems and applications. In the meantime, interim treatment will 
be necessary.
                       iii. the government's role
    The government continues to play a key role in efforts to secure 
consumers' software and data. We have recently collaborated with the 
Department of Homeland Security to raise awareness of cyberthreats 
through release of security bulletins. Such partnering between industry 
and the government is a vital step toward additional cybersecurity for 
consumers. I want to outline a few specific areas where government 
initiatives can be particularly helpful in promoting cybersecurity.
    First, sustained public support of research and development 
continues to play a vital role in advancing the IT industry's efforts 
to secure consumers' software and data. A major portion of our $6.9 
billion annual R&D investment goes to security, and accordingly, we 
support additional federal funding for basic cybersecurity research and 
development (R&D), including university-driven research. The public 
sector should increase its support for basic research in technology and 
should maintain its traditional support for transferring the results of 
federally-funded R&D under permissive licenses to the private sector so 
that all industry participants can further develop the technology and 
commercialize it to help make all software more secure.
    Second, the government can lead by example by securing its own 
systems through the use of reasonable security practices, buying 
software that is engineered for security, and providing better training 
for government systems administrators. We also hope government will 
continue to promote security awareness among both home consumers and 
businesses--as the Federal Trade Commission did in its information 
campaign featuring Dewie the Turtle.
    Third, government and industry should continue to examine and 
reduce barriers to appropriate exchanges of information, and to build 
mechanisms and interfaces for such exchanges. One encouraging step in 
this direction is the NCSD's recent creation of the National Computer 
Emergency Response Team (US-CERT). This coordination center, for the 
first time, links public and private response capabilities to 
facilitate communication of critical security information throughout 
the Internet community.
    Fourth, it will take increased government commitment to root out 
those who hack into computers and propagate destructive worms and 
viruses that harm millions of computer users. Therefore, law 
enforcement should receive additional resources, personnel, and 
equipment in order to investigate and prosecute cyber crimes. We also 
support tough penalties on criminal hackers, such as forfeiture of 
personal property used in committing these crimes.
    Fifth, because cybersecurity is inherently an international problem 
with international solutions, greater cross-jurisdictional cooperation 
among law enforcement is needed for investigating cyber-attacks.
                               conclusion
    We will continue to pursue Trustworthy Computing and to work 
closely with our partners in the computer, software, and communications 
industries, the government, and our customers to enhance cybersecurity. 
In the end, a shared commitment to reducing cybersecurity risks and a 
coordinated response to cybersecurity threats of all kinds--one that is 
based on dialogue and cooperation between the public and private 
sectors--offer the greatest hope for protecting the privacy of consumer 
data, enhancing the confidence of consumers in the Internet, and 
fostering the growth of a vibrant, trustworthy online economy.

    Mr. Stearns. I thank the gentleman.
    Mr. Morrow, welcome.

                  STATEMENT OF DAVID B. MORROW

    Mr. Morrow. Thank you. Mr. Chairman and members of the 
subcommittee, thank you for the opportunity to testify before 
you today on Cybersecurity and Consumer Data: What is at risk 
for the consumer?
    My name is David Morrow and I am the Deputy Director of 
Global Security and Privacy Services at Electronic Data 
Systems, Incorporated. I have over 25 years of experience in 
the information technology field, with an emphasis on security. 
I am honored to join you today to present EDS's views on the 
state of information security or cybersecurity 2 years after my 
last appearance before the subcommittee.
    I will focus today my comments on what has changed in the 
last 2 years, what needs improvement, and what can be done by 
both industry and the government to further protect our 
information networks. I will provide an outline here and 
request that my written comments be entered into the record.
    So, what has changed? Thankfully, we have not seen another 
September 11. But as has been noted previously, we are still in 
a heightened threat environment. More recent attacks on our 
information networks, such as the DNS Root Server attacks in 
October 2002 and several high-profile virus and worm attacks, 
have not stopped us from relying on these networks to conduct 
business and live our lives.
    In that context, here are some of the things that we are 
seeing: We are seeing an increase in the tempo and severity of 
new viruses and other attacks on our information 
infrastructure. That makes what we call ``patch management'' a 
much larger issue.
    We are also seeing an alarming increase in the incidence of 
identity theft and criminal misuse of personal information that 
affects millions of Americans. Other changes are occurring in 
the regulatory environment. While regulations don't give 
detailed requirements for information security, and shouldn't 
in my opinion, they do have implications for improving the 
integrity of everyone's data. Due to the increasing number of 
attacks and some of the regulatory requirements, we are seeing 
an increased awareness of the problem. More clients are coming 
to us with questions about how to address their information and 
network security, but they are often still asking the wrong 
questions.
    There is not one solution that can address everything. 
Information security is a continual process that elevates 
security planning out of the traditional information technology 
silo. Companies and agencies need to look at information 
security in a holistic way to create and integrate what has 
been dubbed ``the culture of security'' into their entire 
enterprise.
    Despite this demonstrated critical importance and increased 
awareness, we have not seen a notable increase in the amount of 
investment that small and medium companies are making, and the 
government, are making in information security. There is cause 
for hope, however, because in a survey of corporate information 
officers released earlier this month by Forrester Research, 
increased funding for security and privacy efforts were at the 
top of the priority list for 2004.
    What companies have been doing is committing some resources 
and expertise to the greater dialog in information security. 
Importantly, efforts are extending beyond the so-called high-
technology sector into the greater business community, but more 
still needs to be done in that area.
    EDS recently led a project in Business Roundtable to 
develop a cybersecurity road map for large corporations in any 
sector. ``Building Security in the Digital Economy: An 
Executive Resource,'' was submitted as part of my written 
testimony.
    So what needs improvement? Based on the changes I have 
mentioned, I would like to make two points about areas where we 
can do more. First, while I appreciate the increased level of 
awareness about information security, we need to improve on the 
level of real investment. In order to do that, we need to 
incorporate the notion of security as a business enabler into 
all of our business models. Enterprises that do so are 
investing in more strategic ways and are better able to serve 
their clients, consumers, citizens and business partners.
    Second, we can improve upon the effectiveness of our 
information-sharing and public/private partnership efforts. We 
have made important strides in this area, but we need to do 
more to coordinate activities and results.
    In sum, I would characterize that our state of information 
security information is marginally better than it was 2 years 
ago, with the hope for greater improvement.
    So what can we do? I would like to make a few 
recommendations based on my comments today.
    First, we can continue our efforts for a more coordinated 
program of industry/government cooperation.
    Second, we can strive to improve information-sharing 
mechanisms and look for ways to collaborate across them as well 
as within them.
    Third, we still believe that there are areas where 
incentives are necessary for companies to upgrade their 
information security, especially for small- and medium-sized 
companies. This is also particularly true for functions that 
the U.S. Government deems to be of critical importance to our 
economic and, therefore, our national security.
    Fourth, we must continue to emphasize research and 
development for innovations in security.
    Fifth, I still remain a strong proponent of ways in which 
we can develop and professionalize the cadre of information 
security professionals practicing today, including the 
expansion of programs beyond purely technical disciplines and 
into the more general business and general curriculums.
    And finally, due to the interconnected networks that 
transcend traditional borders today, it is imperative that we 
engage in the overall global dialog on information security as 
well.
    In conclusion, I would like to emphasize that the 
improvements we have made over the last 2 years in information 
security have much to do with increased awareness, and I 
support efforts such as this hearing toward that objective. We 
are now better off and we are leaning in the right direction, 
but we can and need to do more now. I outlined some suggestions 
for future focus that I hope are helpful.
    Mr. Chairman, thank you for the opportunity to share my 
views and EDS's experience once again. I will be happy to 
answer questions you or members of the subcommittee may have.
    [The prepared statement of David B. Morrow follows:]
 Prepared Statement of David Morrow, Deputy Director, Global Security 
                       and Privacy Services, EDS
                              introduction
    Mr. Chairman and Members of the Subcommittee, thank you for the 
opportunity to testify before you today on Cybersecurity and Consumer 
Data: What's at Risk for the Consumer. My name is David Morrow, and I 
am the deputy director for global security and privacy services at EDS. 
I have over 25 years of experience in the information technology 
(``IT'') field as a computer programmer and analyst, operations chief, 
security officer, investigator, and consultant. Prior to joining EDS, I 
was a security consultant with Ernst and Young, LLP and Fiderus 
Strategic Security and Privacy Services, a small, start-up consulting 
firm. I also spent 13 years of a 22-year Air Force career as an 
investigator of computer crime for the Air Force Office of Special 
Investigations (AFOSI). When I retired in 1998, I was the Chief of the 
Computer Crime Investigations and Information Warfare Division for 
AFOSI. I am honored to join you today to present EDS' views on the 
state of information technology security, two years after my last 
appearance before the Subcommittee.
    In my testimony two years ago, I focused on the changes in our way 
of life after the tragedy of September 11, and the need to make 
investments to protect our information networks. I called upon 
government and industry to increase their collaboration, to focus not 
only on physical security but also information security, and to view 
cyber security as an essential capital investment rather than as an 
expense. I also noted a few ways that government can help industry bear 
the burden to protect our information economy and, therefore, our 
economic security. At the risk of repeating myself, I do want to 
emphasize that all those comments still hold true. Today, I will focus 
my comments on what has changed in the last two years, what needs 
improvement, and once again where I think both industry and government 
can make greater efforts.
What has changed?
    Thankfully, we have not seen another September 11. However, we are 
still in a heightened threat environment. More recent attacks on our 
information networks, such as the DNS root server attacks in October 
2002 and several high profile virus and worm attacks, have not stopped 
us from relying on them to conduct business and live our lives. In 
fact, we continue to look to information technology to drive 
innovation, efficiency, and productivity in our business operations. In 
addition, consumer use of the Internet for recreation and to conduct 
business continues to expand. And, our networks and the data on them 
are still vulnerable.
    At EDS, we are seeing an increase in the tempo and severity of new 
viruses and other attacks on our information infrastructure. As I 
believe many of us predicted here two years ago, the complexity and 
sophistication of such attacks has continued to increase, making the 
task of defending and repairing our networks and systems all the more 
difficult. Installing software ``patches'' to deflect intrusions has 
become the favored way of addressing impending attacks. But, our 
clients are concerned about the need to install patch after patch after 
patch in rapid succession, on thousands of servers and tens of 
thousands of desktops. As you can imagine, it is a daunting task to do 
three major patch updates in one week in a large company or government 
agency. As these attacks become more frequent, severe, and 
sophisticated in often incompatible environments, what we call patch 
management has become a larger issue.
    Unfortunately, another change we have seen is the increased 
incidence of identity theft and criminal misuse of personal information 
that affects millions of Americans at any given moment. While there are 
a variety of both high and low technology ways to obtain personal 
identity and credit information, the biggest ``bang'' for the criminal 
``buck'' is still to locate and steal such information from an insecure 
network. I am disturbed by the increasing number of identity theft 
victims, and I believe more effective practices in network security and 
protection of personal data would benefit us all, both individually and 
as a society. I am glad to see that the Administration and Congress 
took the opportunity of reauthorizing the Fair Credit Reporting Act to 
address this challenge in a positive way and look forward to the 
passage of that legislation very soon.
    Another change is the regulatory environment for us and for our 
clients. The Federal Trade Commission's new ``Do-Not-Call-List'', the 
Sarbanes-Oxley Act, and the pending FCRA reauthorization are the latest 
iterations. They follow the Gramm-Leach-Bliley Act and the Health 
Insurance Portability and Accountability Act. None of these regulatory 
frameworks give specific requirements for information security--and 
shouldn't, in my opinion. But in one way or another, either through 
greater corporate accountability, stronger privacy requirements, or new 
reporting obligations, each has direct or indirect implications for 
improving the integrity of data. As such, I would argue that each 
raises the level of awareness of information security in enterprises 
across the country.
    This increasing awareness is a key component in the changes that I 
have seen in the last two years. More and more companies are coming to 
us with questions about how to address their information and network 
security. The problem is, they are still often asking the wrong 
questions. There is not a silver bullet that can address everything 
that achieves a stronger security posture. You can't point and click 
and say ``done.'' There are no magic technologies or software. 
Information security is a continual process that elevates security 
planning out of the traditional information technology silo and 
involves the whole enterprise: IT, legal, regulatory, sales, marketing, 
and security, as well as each individual employee and business partner. 
It's hard work, but it's essential.
    Another concern is the lack of details or guidance on standards of 
acceptable security practices. There are many organizations that are 
putting forth standards that purport to drive best practices or 
interoperability, for example. But the proliferation of differing 
standards has caused some confusion among some of our clients that has 
prevented them from making important changes as they wait for further 
direction. We often use the ISO Standards because they are widely 
accepted, but there is room for improvement in developing standards for 
the future that are flexible enough to reflect changes in technology 
and business operations.
    As modern global businesses become increasingly intertwined through 
partnerships, consortia, and merger and acquisition activity, 
traditional network and security boundaries are, in many cases, no 
longer intact. The security problems of one member of a partnership 
arrangement or newly acquired company now quickly become the problems 
of the entire group as the insecure network or system becomes the weak 
link in the entire chain. In addition, information security entails 
many things that may not appear to be security issues at first glance, 
such as enterprise training, for example. Addressing these issues 
requires strategic thinking about:

 the way a company or agency uses information, both on the network and 
        off;
 what information is critical to the enterprise;
 what risk mitigation measures need to be put in place for what 
        functions, how your information security fits into an overall 
        business continuity plan; and
 how privacy and security policies and processes complement--or 
        contradict--each other in the business.
    Companies need to look at information security in a holistic way to 
create and integrate what has been dubbed a ``culture of security'' in 
to their enterprise. This may be a daunting task for those enterprises 
that are behind, but it is crucial to ensuring our economic security.
    Despite its demonstrated critical importance, we have not seen a 
universally overwhelming increase in the amount of investment that 
companies or the government are making in information security. Some of 
the early adopters are often driven by regulation or in response to an 
attack, but there are many more who have taken a wait-and-see approach 
and hope that the next incident does not affect them--at least not too 
much. Part of that is a response to the current economic situation, and 
part is still a lack of understanding of the loss implications from an 
attack or even a natural disaster.
    There is cause for hope, however. In a survey of corporate Chief 
Information Officers released earlier this month by Forrester Research, 
increased funding for security and privacy efforts were at the top of 
the list of priorities for 2004. I am hopeful that as the economy 
continues to recover, these plans will materialize into concrete 
actions and investment in the security and privacy of our national data 
resources.
    What companies have been doing since September 11, is committing 
some resources and expertise to the greater dialogue on information 
security. Trade associations and other industry groups are including 
information security in their work program, or beefing up existing 
programs. New information sharing mechanisms are developing, existing 
ones are working to improve their impact, and industry groups are 
putting forth best practices and other guidance for their industry. EDS 
was a founding member of the Information Technology Information Sharing 
Analysis Center, or ISAC, one of 13 that were set up as part of 
Presidential Decision Directive 63 for the designated critical 
infrastructures. We have also taken on a role in the National 
Infrastructure Advisory Council (NIAC) that was established after 
September 11.
    Importantly, efforts are also extending beyond the so-called high 
technology sector. EDS led an effort in the Business Roundtable, an 
association of Fortune 200 Chief Executive Officers, to develop a 
roadmap for large corporations in any sector to seriously consider 
their cyber security. The publication is called Building Security in 
the Digital Economy: An Executive Resource and is submitted as part of 
my written testimony.
What still needs improvement?
    While I appreciate the increased level of awareness, I still think 
we need to do more to increase the level of real investment and 
improvement in information security. I believe it requires a 
recognition that security is not merely good for its own sake. We need 
to incorporate the notion of security as a business enabler into our 
business models. Enterprises that are looking at security as an enabler 
to their business are investing in more strategic ways, and are, 
therefore, better able to serve their clients, consumers, citizens, and 
business partners. As I said earlier, it's not just a business expense 
. . . it's an essential element in today's strategic--and networked--
business model.
    I believe the jury is still out on the role of the Department of 
Homeland Security in information security. We do applaud the creation 
of the National Cyber Security Division (NCSD) as well as its initial 
efforts on establishing the U.S. Computer Emergency Response Team (US-
CERT) and collaborating with industry. EDS will be participating in the 
Cyber Security Summit scheduled for early December and the ongoing work 
of the summit's designated task forces. However, we hope that its 
placement in the new agency does not illustrate a lack of concern, 
authority, or funding for information security efforts in the US 
government. We all need to be diligent to make sure the NCSD's efforts 
are maintained and relevant.
    Virtually every one on this panel two years ago called for a 
public-private partnership and increased collaboration on cyber 
security. Arguably, we have made important strides in that direction as 
more companies, people, and agencies are talking about these issues in 
our associations and in government groups. These efforts are 
encouraging, but I argue we can do more, particularly by coordinating 
and learning from them, rather than duplicating them. In addition, once 
again we cannot look at individual aspects of security in isolation. As 
we consider our infrastructure protection, we have to look at the 
convergence of physical and cyber security because they can no longer 
be looked at independently.
    In sum, I would characterize our state of information security 
readiness as marginally better than it was two years ago, with hope for 
greater improvement. While more are concerned, many are not doing as 
little as possible to remedy the problems they have. While more are 
aware of the threat, they are not mitigating the corresponding risks 
with appropriate measures. And, while there is more activity and 
public-private collaboration on information security, it is not well 
coordinated across the spectrum of industries and issues that are 
impacted by security measures.
What can be done?
    First, we can continue our efforts for a more coordinated program 
of industry-government cooperation. The release of the Administration's 
National Strategy to Secure Cyberspace earlier this year provides a 
framework for continued work, and I urge both industry and government 
to take advantage of the upcoming Summit to solidify some of that work 
going forward. The Department of Homeland Security's National Cyber 
Security Division provides a focal point for monitoring industry 
efforts and participating as appropriate. As DHS solidifies its 
operations, we should ensure that the division has the appropriate 
mandate, funding, and industry coordination to support its activities.
    Second, we can strive to improve information sharing mechanisms 
that are an important component of the public-private partnership on 
cyber security. For example, the Information Sharing and Analysis 
Centers (ISACs) are still active and are looking for ways to be more 
effective for their industries. I would argue the ISACs should also 
look for ways to communicate and even collaborate with each other when 
appropriate. Just as we cannot put information security into one silo, 
we cannot look at each industry sector in isolation. We are all 
interconnected now and rely on not only the security of our own 
network, but that of our suppliers, customers, partners, and 
competitors. Industry was collectively pleased when Congress provided 
for Freedom of Information Act exemptions for information shared on 
cyber security in the Homeland Security Act. We urge Congress to 
preserve the integrity of that provision in any future reviews of the 
Act in order to allow continued information sharing about 
vulnerabilities, breaches, attacks, and other actual or anticipated 
cyber incidents. Our experience has repeatedly shown that effective and 
timely information sharing is one of the most effective ways to prevent 
widespread incidents and to combat them when they do occur.
    Third, we still believe there are areas where incentives are 
necessary for companies to allocate the necessary funds to upgrade 
their information security. This is particularly true for functions 
that the US Government deems to be of critical importance to our 
economic--and, therefore, our national security.
    Fourth, we must continue to emphasize research and development for 
innovations in information security and encourage Congress to keep 
these avenues open for resolution in the budget process.
    Fifth, I remain a strong proponent of ways in which we can continue 
to develop and professionalize the cadre of information security 
professionals practicing today. In the past two years we have seen a 
notable increase in the number of educational institutions offering 
courses and even advanced degrees in information security topics. While 
this is an encouraging sign, I still believe that there is great room 
for improvement in expanding the discussions beyond the purely 
technical disciplines and into the more general business curriculum.
    Finally, as stated earlier, our intertwined information networks 
are global in nature and transcend traditional borders. That directly 
impacts global companies such as ours as well as consumers. It is 
imperative that we engage in the global dialogue on information 
security as well. I commend the Organization for Economic Cooperation 
and Development and the Asia Pacific Economic Cooperation for their 
efforts to bring this issue to the international arena.
Conclusion
    In conclusion, I would just like to emphasize the fact that the 
improvements we have made over that last two years in information 
security have much to do with an increasing awareness of cyber security 
concerns for all of us. Increased awareness here at home and abroad 
will continue to be crucial for our security going forward, and I 
support efforts such as this hearing toward that objective. We are 
better off and heading in the right direction, but we can and need to 
do more--now. I have outlined some suggestions for future focus that I 
hope are helpful to the Committee.
    Mr. Chairman, thank you for the opportunity to share my views and 
EDS' experience once again. I will be happy to answer any questions you 
and the Members of the Subcommittee may have.

    Mr. Stearns. Thank you.
    Ms. Davidson, welcome.

                 STATEMENT OF MARY ANN DAVIDSON

    Ms. Davidson. Thank you, Mr. Chairman, Ranking Member 
Schakowsky, and members of the subcommittee. My name is Mary 
Ann Davidson and I am the Chief Security Officer of Oracle. 
Thank you for inviting me here again to talk about the efforts 
information technology consumers, producers, caretakers, and 
policymakers can take to advance information assurance.
    As you know, I appeared before the subcommittee just a few 
months after the events of September 11. In the shadow of one 
of the most tragic terrorist attacks in history, all of us 
contemplated the potential catastrophe caused by cyberterror on 
a massive scale.
    While we have yet to witness a point-and-click terrorist 
attack, we have experienced, through Code Red, Blaster and 
SoBig, its forbears, billions of dollars in damage and lost 
productivity. These attacks are a grim reminder that far too 
much commercial software is built without attention to 
information assurance principles, leaving many of our national 
cyberassets vulnerable to attack; and the vulnerability 
increases every day.
    Bounty money may nab us a few bad guys' scalps, but it 
won't slow the development of automated hacking tools. This is 
a cyber arms race and the bad guys are winning. For us at 
Oracle, the goal is clear: to achieve an industry culture where 
all commercial software is designed, developed, and deployed 
securely.
    It has been said twice there are no silver bullets, so I 
won't say that. I will say it is not going to be a slam dunk. 
And, in fact, good intentions can do more harm than good. In 
California, a breach of a major data center prompted the 
legislature to hastily impose reporting requirements on 
security breaches. However well intended, the law was passed 
without a fundamental understanding of the limits of current 
technology and arguably could make the consumer data more 
vulnerable to unauthorized access.
    We need sound ideas, not good intentions from government. 
Fortunately, the Federal Government can do good both as a 
software buyer and a policymaker to strengthen the culture of 
secure software.
    The Federal Government first of all can leverage its buying 
power by insisting on more secure software. And we know at 
Oracle how this works, because we built security for 25 years, 
because of one of our important customer bases, who I 
affectionately refer as the ``professional paranoids'' asked us 
for it.
    The Defense Department is setting an excellent example by 
enforcing a pro-security approach to procurement through NISSIP 
11, which says for national security systems an agency can 
purchase only that software which has been independently 
evaluated under the Common Criteria or the Federal Information 
Processing Standards Cryptomodule Validation Program. That is a 
mouthful.
    Since NSTISSP 11 went into effect 17 months ago, we have 
seen a number of positive developments. First, many firms are 
finally pursuing evaluations under FIPS of the Common Criteria 
for the first time, and it is high time.
    Second, several firms, including Oracle, are financing 
evaluations of open-source products.
    Third, many organizations, such as the financial services 
industry, are coming together to make security a purchasing 
criteria industrywide, and are using NSTISSP 11 as a model.
    Thanks to NSTISSP 11, security is now far more in the 
software development consciousness than it was 2 years ago. 
That is a victory for which a large part of the credit goes to 
Congress and to DOD and the intelligence agencies.
    There are other ways that the Federal Government can 
leverage its buying power. For example, the Federal Government 
could insist that the commercial software it buys is either 
defaulted to a secure setting ``out of the box'' or made easy 
for the customer to change security settings, such as through 
automated tools.
    As more private and public consumers seek Common Criteria 
and FIPS as potential security benchmarks, a go-to 
clearinghouse is needed to validate vendor security claims and 
compare them to evaluation results themselves; to make apples-
to-apples comparisons. For example, a couple of vendors can do 
common criteria evaluation and yet have far more stringent 
targets or less stringent targets. The clearinghouse would 
enable buyers to perform scorecarding and facilitate 
comparisons.
    Evaluations can cost a half million dollars under the 
Common Criteria, so it is clearly not for everyone and probably 
not for consumer software. A software equivalent of the 
Underwriters Laboratories could ensure that even this kind of 
software is secure by design, delivering deployment.
    Thanks to the UL, most consumer products are generally 
difficult to operate in an insecure fashion. We don't expect a 
consumer to do anything special to operate Cuisinarts securely; 
they just are secure. And, in fact, you have to make the 
product do something unnatural to hurt yourself while using it.
    Consumers should not be expected to be computer security 
experts. Industry needs to make it easy for them to be secure.
    Finally, a culture of security has to have an academic 
component for professional development and research in areas 
not addressed in the commercial marketplace. It is said, to err 
is human. A developer can check 20 of 21 conditions, and if 
failure to check the 21st causes a buffer overflow, the system 
is sometime vulnerable. Hackers only need to find one error, 
but developers have to close every one. It is an uneven battle. 
Federal support can help level the playing field.
    Research is needed on tools that can scan software and 
pinpoint irregularities or back doors in the code. This type of 
product is not seen as an attractive option among venture 
capitalists, because the dominant market mentality in 
information assurance is focused on developing a better Band-
Aid, rather than an effective vaccine.
    The recently enacted Cbersecurity Research and Development 
Act can be a useful resource for these types of challenges and 
Congress should make the highest possible investments to 
implement this legislation. If the medical community can 
eradicate smallpox with a strong investment in research, we 
should be able to eradicate buffer overflows. It is just code, 
after all.
    The R&D Act can also fund new and improved academic 
programs and research centers on computer security in order to 
increase the number of graduates with this specialty. And, in 
fact, we need to change the mentality around who we allow to 
work on critical cyberinfrastructure. We don't allow engineers 
to design buildings merely because they use the coolest 
materials; they have to be licensed professional engineers.
    A similar approach is needed in cybersecurity. Ignorance 
and hubris are the enemies of reliable cyberinfrastructure. 
Industry lacks for neither of these, unfortunately, so long as 
we hire based on knowledge of programming languages and not 
whether those employees understand the language of 
cybersecurity.
    We are at war and all of our foot soldiers must be armed 
with the knowledge of what the enemy can and will do to the 
careless or unprepared. A strong academic component can also 
foster a diverse culture. Diversity will prevent the TI 
equivalent of the Irish potato famine, where reliance on one 
strain of potatoes brought on mass starvation and emigration.
    Lack of biological diversity in many IT infrastructures has 
rendered them immensely susceptible to cyberplagues, and I 
daresay that far more than one-quarter of our population would 
be affected should the next cyberplague be more destructive 
than its predecessors.
    Biological diversity breeds resistance and the lack of it 
is deadly.
    Ultimately, any culture is as strong as the institutions it 
supported, so our hope is that government will work with us in 
an industry, in an academia to facilitate the institutions 
practices and mores necessary to build a vibrant strong culture 
and security. I believe we turned the corner and are making 
progress. We are extremely pleased to be a part of the next 
month's Cybersecurity Summit being planned by the Department of 
Homeland Security. That kind of dialog can ensure that we have 
turned the corner for the better.
    Mr. Stearns. I may need you to sum up.
    Ms. Davidson. Thank you, Mr. Chairman, and I thank you for 
the opportunity to appear before you today.
    [The prepared statement of Mary Ann Davidson follows:]
Prepared Statement of Mary Ann Davidson, Chief Security Officer, Oracle 
                              Corporation
    Mr. Chairman, Ranking Member Schakowsky, and members of the 
Subcommittee, my name is Mary Ann Davidson, Chief Security Officer of 
Oracle Corporation. Thank you for inviting me here again to talk about 
cybersecurity, and specifically, the efforts all of us can take--as 
information technology consumers, producers, caretakers and 
policymakers--to advance information assurance.
    As you know, I appeared before this subcommittee just a few months 
after the ghastly events of September 11th. In the shadow of one of the 
most tragic terrorist attacks in history, all of us contemplated the 
potential catastrophe caused by cyberterror on a massive scale, and the 
need for all of us to take far greater responsibility toward better 
information assurance.
    While we have yet to witness a point-and-click terrorist attack, we 
have experienced, through CodeRed, Blaster and Sobig.F, its forebears, 
with billions of dollars in damage and lost productivity. These attacks 
are a grim reminder of what I warned this subcommittee two years ago: 
Far too much commercial software is built without attention to 
information assurance principles, leaving many of our national 
cyberassets--most in private hands--vulnerable to attack.
    This vulnerability increases every day. Bounty money may result in 
the arrest of one or two of those responsible for cyberplagues, but it 
won't slow the development of advanced hacking tools, or change our 
increasing dependence on Internet-based platforms to administer public 
and private enterprises--two trends that are at the heart of our 
growing vulnerability. We are in our own version of an arms race, and 
the bad guys are winning.
    For the information technology industry, our contribution to 
cybersecurity is straightforward: to achieve a marketplace and an 
industry culture where all commercial software is designed, delivered 
and deployed securely. There are no ``silver bullets'' to get there. A 
culture of security will require years to achieve and decades to 
maintain. Good intentions are not good enough and frankly, can do more 
harm than good. We already have seen one instance, in California, where 
a cyber-related event triggered a rush by the legislature to impose 
reporting requirements on security breaches. This law was passed 
without a fundamental understanding of the limits of current 
technology, and arguably could make consumer data more vulnerable to 
unauthorized access. It's not good intentions, but sound ideas that we 
need from government, and fortunately, there are a number of 
constructive steps the federal government can take, as both a software 
buyer and policy-maker to move us toward a culture of secure software.
    Let the buyers be wary. Try as you might, Congress can't legislate 
good software. Those in a position to make a difference for the better 
are software consumers, from small business enterprises to big 
government agencies. All they have to do is make security a purchasing 
criterion. We at Oracle made the investments to integrate security 
throughout our development process because our customers asked for it. 
Our first customers, the intelligence community, who I affectionately 
call the ``professional paranoids,'' are some of the most security-
conscious people on the planet.
    After ten years of an on-again, off-again merry-go-round by the 
federal government to become a more responsible software buyer, we are 
seeing constructive action being taken by the Defense Department to 
enforce a pro-security approach to software procurement known as 
NSTISSP #11. Simply put, for national security systems, an agency can 
only purchase commercial software that has been independently evaluated 
under the international Common Criteria (ISO 15408) or the Federal 
Information Processing Standards (FIPS) Cryptomodule Validation Program 
(CMVP).
    Since NSTISSP #11 went into effect 14 months ago, we've seen 
several positive developments. First, a number of firms, including 
several of our competitors, are getting their products evaluated under 
FIPS or the Common Criteria for the first time. Second, we're seeing 
firms, including Oracle, financing evaluations of open source products. 
The security of open source versus proprietary software must not be a 
religious argument, as it so often is, but a business one. Open source, 
like proprietary software, is here to stay. We must all work to make it 
as secure as possible. Third, several industry organizations, such as 
the financial services industry, are coming together to make security a 
purchasing criterion industry-wide and are using NSTISSP #11 as a 
model.
    We're seeing all of this because the initial impression from an 
industry perspective is that the federal government--the largest single 
buyer of commercial software--means business this time. As a result, 
security is now more in the software development consciousness than it 
was two years ago, and all of us as information technology consumers 
stand to benefit. That, in and of itself, is a major victory, and 
credit goes to the people within the Defense Department and 
intelligence agencies, as well as Congress, who are making a concerted 
effort to make this process work.
    Secure ``out of the box.'' NSTISSP #11 is a strong lesson that the 
federal government, acting as a security conscious software buyer, can 
change the entire commercial software landscape for the better. That 
said, are there ways, other than NSTISSP #11, that can accomplish the 
same purpose? We believe one measure worth considering is for the 
federal government to insist that the commercial software it buys is 
either defaulted to a secure setting right out of the box, or made easy 
for the customer to change security settings, for example, through 
automated tools that enable customers to become, and remain, secure. 
For example, the Office of Management and Budget, working in 
conjunction with the federal agencies, the National Institute of 
Standards and Technology (NIST) and private industry, could specify 
what is the appropriate default security setting for the software it 
buys, or require appropriate and easy-to-use tools needed to change 
these settings.
    Software Underwriters Lab. Government can be a useful vehicle to 
promote voluntary cooperation in the name of better security. For 
example, the Federal Trade Commission could work with the software 
industry to establish the software equivalent of the Underwriters 
Laboratories (UL). Security evaluations under the Common Criteria, 
which can cost half a million dollars per evaluation, are not for 
everyone, especially for many forms of consumer software. A software 
version of the UL is a cost-effective vehicle to capture less complex, 
more consumer-oriented forms of software. Again, the fundamental goal 
is to make all commercial software secure by design, delivery and 
deployment. To get there, the federal government should work with 
private industry to establish a consumer software equivalent of the UL. 
Thanks to the UL, most consumer products are generally difficult to 
operate in an insecure fashion. For example, Cuisinarts are designed so 
that you can't lose a finger while the blades are whirling. We don't 
expect the consumer to do anything special to operate Cuisinarts 
securely; they just are secure. Similarly, consumers should not be 
expected to be rocket scientists or security experts. Industry needs to 
make it easy to be secure.
    Better Information for Buyers. There are already several good web 
sites to help private and public customers understand Common Criteria, 
FIPS and NSTISSP #11. However, particularly as more and more private 
customers see Common Criteria as a potential security benchmark, we are 
finding that what many of our customers need is a one stop, ``go to'' 
site in order to validate vendor security claims and compare them to 
the evaluation results themselves. It would be useful for a government 
procurement officer, or a private sector buyer, to be able to see all 
evaluations of any type, for a single vendor, at a single glance, from 
a single location, whether FIPS-140 or Common Criteria, whether 
evaluated here or abroad. This empowers them to make apples to apples 
comparisons. For example, two database vendors can both receive an EAL4 
certification, even though one database vendor made two functionality 
claims in a security target, while the other database vendor made forty 
security claims. A clearinghouse would enable buyers to perform 
security target ``scorecarding'' and facilitate this and other types of 
comparisons.
    Academic Research and Professional Development. As in many 
disciplines, the market alone cannot produce every security solution. A 
culture of security, like any professional culture, has to have an 
academic component for professional development, and to advance the 
field in areas not addressed in the commercial marketplace. For 
example, even with a good development process, ``to err is human.'' A 
developer can check 20 of 21 conditions, and if failure to check the 
21st causes a buffer overflow, the system is still potentially 
vulnerable. Keep in mind, hackers only need to find one error, while 
developers have to anticipate and close every one. It's an uneven 
battle. Federal government resources directed toward academic talent 
can work with industry and level the playing field.
    One area that deserves attention, especially as more and more US 
firms partner with foreign countries on software development, is 
research on effective tools that can scan software and pinpoint 
irregularities or backdoors in the code. Unfortunately, this type of 
product research and development is not seen as an attractive option 
among venture capitalists, who generally channel their funds toward 
products that are nothing more than techno-band-aids for security 
faults. In other words, the market mentality toward information 
assurance is focused on developing a better Band-Aid, rather than an 
effective vaccine.
    Congress last year took an important step in filling this void when 
it passed the Cyber Security Research and Development Act, which 
authorizes nearly a billion dollars over five years to invest in 
projects like code-scanning tools. We are about to enter the second 
year of this five-year program, and Congress is providing very limited 
assistance to pursue the goals of this legislation. We hope Congress 
will increase its investment.
    If the medical community could eradicate smallpox with a strong 
investment in research, we should be able to eradicate buffer 
overflows. It's just code, after all.
    A portion of the proposed investments under the Cyber Security R&D 
Act is authorized to create or improve academic programs and research 
centers on computer security in order to increase the number of 
graduates with this specialty. These kinds of investments are needed. 
The National Science Foundation reported earlier this year that only 
seven PhD's in cybersecurity are awarded each year. Research conducted 
more than two years ago found that while there were twenty-three 
schools identified as ``centers of excellence'' in information 
assurance, not one four-year university offered a bachelor's program in 
cybersecurity. Only one associate degree program was offered at two-
year institutions. We've seen some progress on this front, but much 
more can be done if the federal government invested more resources in 
this effort. The private sector can be a critical support component as 
well, especially given the current and growing demand for information 
security professionals among publicly held corporations.
    In the IT industry, no one should be able to work on software that 
becomes part of critical infrastructure without proving that they 
understand and can demonstrate sound software design, coding and 
engineering principles. We do not allow engineers to design buildings 
merely because they use ``the coolest materials.'' They must be 
licensed professional engineers. Why do we hire programmers to design 
critical IT infrastructure merely because they know the coolest 
programming languages? Ignorance and hubris are the enemies of reliable 
cyber infrastructure. Industry lacks for neither of these, 
unfortunately, so long as we hire based on what programming languages 
someone knows, and not whether they speak the language of 
cybersecurity. We are at war, and all our footsoldiers must be armed 
with the knowledge of what the enemy can and will do to the unprepared 
or careless.
    A strong academic component in our culture of security also fosters 
a competitive and diverse culture. Strong competition and diversity 
will prevent the IT equivalent of the Irish potato famine, where 
reliance on one strain of potatoes brought on mass starvation and 
emigration. Similarly, lack of ``biological'' diversity in many IT 
infrastructures renders them immensely susceptible to cyberplagues. I 
dare say that far more than one quarter of our population would be 
affected should the next cyberplague be more destructive than its 
predecessors. Biological diversity breeds resistance. Lack of it is 
deadly.
    As today's hackers and virus spreaders demonstrate every day, 
cybersecurity is an evolving discipline, one that combines art and 
science, and determination and passion. One cannot simply take a 
snapshot of a company's IT systems today and compare it to some 
preconceived list and say ``yes, you are secure,'' or ``yes, you are 
doing the right things toward better security.'' The state of the art 
is in a perpetual state of revolution.
    Ultimately, any culture is as good as the institutions that serve 
as the foundation of that culture. So, if there is an overarching 
recommendation for you and your congressional colleagues, it is to work 
with us in industry and in academia to facilitate the development of 
the institutions, practices and mores necessary to build a strong, 
vibrant and diverse culture of security. I believe we have turned a 
corner, and are making progress toward getting more and more of our 
customers to think about security. Further steps are needed, such as 
the ones outlined here. Again, these recommendations are no silver 
bullets, but what we at Oracle believe are the next appropriate steps 
up this ladder of better security. We are very pleased to be a part of 
next month's Cybersecurity Summit being planned by the Department of 
Homeland Security, and some of our leading trade associations. 
Establishing that kind of regular, continuing dialogue is yet another 
link toward making sure we have truly turned a corner for the better, 
rather than yet another trip on the merry-go-round of information 
assurance.
    Thank you again, Mr. Chairman, for the opportunity to appear before 
you today.

    Mr. Stearns. And I thank the gentlewoman.
    Mr. Ansanelli.

                STATEMENT OF JOSEPH G. ANSANELLI

    Mr. Ansanelli. Good morning. I am Joseph Ansanelli, CEO of 
Vontu. Our company provides information security software, 
specifically designed to help organizations protect consumer 
data by monitoring for the inappropriate distribution of non-
public information via the Internet.
    Mr. Chairman, members of the subcommittee, I commend your 
efforts in organizing this hearing.
    The FTC recently provided, I think, an excellent answer for 
what is at risk for the consumer. As many of you know, in 2002 
approximately 10,000,000 people were victims of identity theft. 
They reported $5 billion in out-of-pocket expenses and many 
hours repairing credit histories. In the last 5 years, almost 
30 million people were victims. Clearly, identity theft is a 
risk for consumers. There is also a risk for businesses, who 
last year suffered an estimated loss of nearly $48 billion. 
Additionally, businesses risk something even more important, 
the loss of consumer trust.
    Vontu recently commissioned a study of 1,000 consumers to 
understand the relationship between consumer data security 
trust and commerce. Three highlights from this study. No. 1, 
security drives purchasing decisions. More than 75 percent of 
consumers said security and privacy were important in their 
purchasing decisions.
    No. 2, consumer notification is important. About 80 percent 
of the consumers said that they wanted to be notified when 
companies are at least 75 percent sure that personal 
information has been compromised, and, three, all security 
violations are not the same. More than half of the respondents 
said they would be more concerned if their private information 
fell into the wrong hands due to an incident caused by an 
employee rather than a hacker.
    This third point is very important. While most security 
testimony has focused on the remarks related to hackers 
breaking into computer networks from the outside, our focus is 
on the new security threat, insiders. Every day we create and 
store records that contain credit card numbers, Social Security 
numbers, and other types of non-public personal information. 
The sad fact is that many identity thieves never have to break 
into a firewall to get to this data. Their employer has already 
issued them the password to access this information. As a 
result, last year, a customer service representative of 
TeleData Communications who had easy access to consumer credit 
reports allegedly stole 30,000 customer records using his 
legitimate access. TeleData is the single largest identity 
theft crime ever prosecuted.
    Also, the Secret Service has assembled teams to investigate 
fraud rings that enlist corporate employees to steal consumer 
information, and last consumer credit information provider 
Trans Union issued a report stating that the top cause of 
identity fraud today is now theft of records from employers or 
other businesses.
    The problem with better protecting consumer data is no 
longer just an issue of keeping up with the hacker, but also 
one of ensuring that those with access keep the information 
secure. It is clear to me that we need new efforts to minimize 
this growing risk of identity theft as well as the insider 
threat.
    However, I do not believe new government regulations alone 
can solve this problem. The right solution is a partnership 
with government and industry. To begin with, I suggest this 
committee consider developing a consumer data security 
standard, part of the Consumer Privacy Protection Act of 2003, 
H.R. 1636. This would ensure a nationally unified and standard 
approach to protecting consumer information. It should include 
a requirement for companies to do the basics in security, 
consider adding seat belts to automobiles. This requirement 
should include protecting and ensuring the confidentiality of 
non-public data, detecting potential misuse of consumer 
information, and correcting problems as they are discovered and 
notifying consumers when appropriate.
    These requirements are similar to those under Gramm-Leach-
Bliley and HIPAA. I ask you to consider if and why the 
industries covered by Gramm-Leach-Bliley and HIPAA are somehow 
unique in their need to protect the same personal data such as 
a credit card and Social Security numbers that many other 
industries also store. It seems that any business it manages 
exposes consumers to identity theft risk and should be held to 
a similar standard.
    Also, a national standard is important because confusion is 
the enemy of consumer protection. Unless a national standard 
emerges I fear that businesses will be forced to comply with a 
patchwork of 50 different State regulations.
    Last, it is important to have a carrot to ensure 
partnership. The risk of civil lawsuits or steep fines 
discourages some companies from going beyond the basic 
requirement. We strongly suggest any future legislation include 
a regulatory carrot through a safe harbor to encourage 
companies to go beyond any basic security requirements without 
fear of severe penalties.
    In closing, if not more is done to protect consumer 
information, especially in the electronic form, the cost of 
identity theft will continue to grow, causing a drag on this 
country to sustain its leading position in the global company.
    I welcome the opportunity to answer any additional 
questions.
    [The prepared statement of Joseph G. Ansanelli follows:]
Prepared Statement of Joseph Ansanelli, Chairman and CEO of Vontu, Inc.
    My name is Joseph Ansanelli and I am the CEO of Vontu, Inc. Our 
company provides information security software to help organizations 
protect consumer data by monitoring for the inappropriate distribution 
of non-public personal information via the internet. I am honored to 
provide testimony on information security, consumer data and the risks 
for consumers.
Identity Theft is the Risk for Consumers
    The FTC recently provided an excellent answer to the question 
``What's at Risk for the Consumer?'' They estimate that approximately 
10 million people in the last year alone were victims of Identity 
Theft. These victims reported $5 billion in out-of-pocket expenses and 
countless hours of lost time repairing their credit histories. In the 
last five years, almost 30 million people or 10 percent of the US 
population were victims of identity theft. Clearly, identity theft is 
what is at risk for consumers.
Losing Consumer Trust is the Risk for Business
    This is not only a risk for consumers, but is a risk for business 
as well. As part of the same FTC report, the losses to businesses 
totaled nearly $48 billion.
    Additionally, there is a risk that is not mitigated through 
insurance or other strategies--loss of consumer trust. Vontu recently 
commissioned a survey of 1000 consumers in the United States to better 
understand the effect that security of customer data has on consumer 
trust and commerce. Some of the findings include:

 Security drives purchasing decisions--More than 75 percent of 
        consumers said security and privacy were important in their 
        decisions from whom they purchase.
 Consumers will speak with their wallets--Fifty percent said that they 
        would move their business to another company if they did not 
        have confidence in a company's ability to protect their 
        personal data.
 Insider theft increases concerns about a company's data security 
        efforts--More than 50 percent of the consumers surveyed said an 
        insider breach would cause them to be more concerned about how 
        a company secures their information
    Clearly, financial costs and loss of consumer trust, as a result of 
identity theft, are what is at risk for business. The question is how 
does cybersecurity play into these risks?
The Insider--A Major Cause of Identity Theft
    While most security testimony has focused on the threats related to 
hackers breaking into computer networks from the outside, my remarks 
today will focus a new and growing security threat--insiders. The sad 
fact is that many identity thieves never have to break through a 
firewall. Their employer has issued them a username and password that 
gives them access to a virtual treasure trove of consumer data.
    Everyday, companies throughout this country create and store 
millions of records that contain social security numbers, credit card 
numbers and other types of non-public personal information. At most of 
those companies, a significant percentage of employees have legitimate 
access to this data. This has created a potentially explosive 
combination of companies storing more consumer information and at the 
same time providing insiders with more access to that data.
    Last year, the volatility of this combination made headlines. A 
customer service employee of Teledata Communications Inc. who had easy 
access to consumer credit reports allegedly stole 30,000 customer 
records. This theft caused millions of dollars in financial losses and 
demonstrates that even though any computer system can be hacked, it is 
much easier, and in many cases far more damaging, for information to be 
stolen from the inside.
    Teledata is the single largest identity theft crime ever 
prosecuted. However, I am convinced that this kind of crime continues 
today, yet it often goes unrecognized. Insiders use their legitimate 
access to copy sensitive information and with a few clicks of their 
mouse, send it outside the company.
    Law enforcement and regulators are also starting to raise the issue 
of the growing danger to consumers from insiders. Special Agent Tim 
Cadigan testified this summer that the Secret Service has assembled 
special teams to investigate the growing number of incidents where 
fraud rings enlist corporate employees in schemes to steal consumer 
information.
    Mr. Howard Beales, Director of the Federal Trade Commission's 
Bureau of Consumer Protection, said in January that the FTC continues 
to see evidence that insiders were stealing consumer data at an 
increasing rate and using it to commit identity crimes. In September, 
the FTC reported that about a quarter of all consumers who knew that 
their information had been stolen believed that insiders were 
responsible.
    Lastly, consumer credit information provider TransUnion recently 
issued a publicly available report stating that the top cause of 
identity fraud is now theft of records from employers or other 
businesses.
    The problem of better protecting consumer data is no longer just an 
issue of keeping out the hacker but also one of ensuring that those 
with access to the data keep the information secure.
Consumer Data Security Standard
    It is clear that we need new efforts to minimize this growing risk 
to consumers and businesses. However, I do not believe new government 
regulations alone can solve this problem. Instead, the right solution 
is to build a partnership of government and industry using both ``the 
carrot and the stick''.
    To begin with, I suggest this committee develop a Consumer Data 
Security standard--possibly as part of the proposed Consumer Privacy 
Protection Act of 2003 (HR 1636). This standard would ensure a 
national, unified and standard approach to protecting consumer 
information and thereby stop one of the primary sources of identity 
theft. It should be self-regulating with oversight from appropriate 
agencies when problems arise and include a requirement for companies 
to:

 Protect and ensure the confidentiality of all non-public personal 
        information;
 Detect potential misuse of consumer information;
 Ensure compliance by its workforce with their data security policies;
 Correct problems as they are discovered.
    These requirements are similar to those required under Gramm Leach 
Bliley and HIPAA. Are the industries covered by these regulations 
unique in their need to protect personal data? It seems that any 
business that manages sensitive financial or other non-public personal 
information exposes consumers to identity theft. Whether it is 
providing your social security number when purchasing a mobile phone or 
using your credit card to buy groceries, you are exposing your personal 
information to theft--a cross-industry, unified approach is needed.
    Additionally, this committee may want to make notification a part 
of this standard. In our survey, consumers said they wanted to be 
notified early and often when security and privacy violations occur. In 
fact, 80 percent said they want to be notified when companies are 75 
percent sure that a violation has occurred.
    This Consumer Data Security standard is the ``stick'' to ensure 
that there is a base level of responsibility for consumer data 
protection.
Safe Harbor
    As mentioned earlier, a partnership between government and business 
is required to better protect consumer information. Unfortunately, 
today many of the current and proposed Federal and State regulations 
serve as a disincentive to proactively search for insider breaches or 
inappropriate disclosures of consumer information. For example, the 
risk of civil lawsuits or regulatory censure discourages some companies 
from going beyond what is considered a base requirement. Future 
legislation should include a regulatory ``carrot'' through a ``safe 
harbor'' to encourage companies to go beyond basic security 
requirements and aggressively pursue potential leaks of data without 
fear of severe penalties.
    This approach of the ``carrot and stick'' would not only encourage 
most companies to adopt new consumer protections quickly, it would free 
limited government resources to concentrate on the most egregious 
violations of the standard itself. Additionally, this proposal would 
help to solve one of the unaddressed issues regarding Identity Theft in 
both of the current Fair Credit Reporting Act bills approved this year 
by the House and the Senate.
    In closing, the increasing costs of identity theft coupled with 
consumers' increased demands for security protection are driving these 
issues to the top of the agenda for consumers, business and government. 
If more is not done by all parties involved with respect to protecting 
electronic information, the costs will continue to grow, potentially 
affecting the country's ability to expand its leading position in the 
world economy.
    I hope these comments will prove helpful to the subcommittee as it 
continues its deliberations on improving consumer data security. I 
welcome the opportunity to continue working with you, and am happy to 
answer any questions you might have.
    Thank you.

    Mr. Stearns. Thank you.
    Mr. Burton.

                   STATEMENT OF DANIEL BURTON

    Mr. Burton. Good morning, and thank you for the opportunity 
to testify.
    My name is Dan Burton. I am Vice President of Government 
Affairs for Entrust, Inc., and as a world leader in securing 
digital identities and information, Entrust is driving the 
creation of a robust manageable business security environment 
through use of such technologies as encryption, digital 
signatures authentication and authorization.
    I want to be very clear in my message. The cybersecurity 
problem is not getting better. Since 2001, when this 
subcommittee held a hearing on this issue, CERT reports a 
tripling of breaches from 52,000 to a projected 150,000 by the 
end of 2003. Although awareness has increased, understanding 
has not. Most companies are still struggling with this issue.
    It is critical that this subcommittee provide the private 
sector with clear direction to protect sensitive consumer and 
business information. You can do so by strongly endorsing 
information and security governance programs that provide 
businesses risk assessment reporting and accountability. Let me 
give you some examples of the problem based on our market 
experience.
    The first example speaks to the fact that even if you 
understand the threat, it is hard for companies to justify more 
than just a limited response because of the complexity and the 
investment in people, time and resources that is required. Last 
year, a large consumer data company suffered a breach when one 
of its customer's employees used the company's server to hack 
the passwords of other customers. This company believed that it 
had taken reasonable precautions to protect its data, 
especially since the penalties for not taking action were 
vague.
    In this case, the seriousness of the breach and the new 
penalties created under California's SB 1386 forced the company 
to change the way it thought about protecting its information 
systems. This company has put in place a much more robust set 
of security measures.
    A second example speaks to the need to treat cybersecurity 
as a continuous process. A large financial institution 
implemented strong authentication digital signatures but year 
after year failed to upgrade its software, despite the fact 
that there was no cost to do so.
    The reason? It did not have the systems in place to treat 
cybersecurity as a continuous process. Only when the company 
failed an audit and was cutoff from outside software support 
did senior management get involved and put in place the 
necessary procedures.
    A final example shows how some companies are taking a more 
proactive approach. Several years ago, a major insurance 
company with a very large data base of confidential consumer 
records realized that it was a prime target for identity 
thieves and hackers. It couldn't simply lock up its records, 
since the field agents needed access to them, so it did a risk 
assessment and implemented a systemic information security 
governance plan. This program facilitated broad, highly secure 
access to data.
    These three charges paint very different responses to the 
cybersecurity threat, but they all underscore a similar theme 
and one that I want to highlight today.
    Companies need a clear understanding of cybersecurity 
costs, benefits, and penalties before they will make 
cybersecurity a priority.
    Where do we stand? The growing array of Federal legislation 
does not go far enough to ensure companies take sufficient 
action. Some major laws affecting cybersecurity have been in 
place and have been referred to today, Sarbanes-Oxley, Gramm-
Leach-Bliley, HIPAA. These laws tend to treat cybersecurity as 
a secondary issue. Two other cybersecurity laws are having a 
more immediate impact on market behavior, the California Breach 
Notification Act, SB 1386, and the Federal Information Security 
Management Act, FISMA.
    Like it or not, and many people do not like it, by creating 
a private right of action for failure to report the breach of 
unencrypted personal information, SB 1386 has had a stark 
impact on industry's cost-benefit analysis and by treating 
cybersecurity as a management responsibility and tying it to 
OMB funding decisions, FISMA has had an immediate impact on the 
behavior of Federal agencies.
    We think that there is an information security governance 
imperative. A governance's framework is important because it 
guides the implementation, evaluation and improvement of 
cybersecurity practices. A successful program requires three 
basic functions, risk assessment, reporting, accountability. It 
is our experience that in the absence of mandates for these 
activities, cybersecurity never receives the management 
attention and funding that are critical to succeed.
    Entrust developed just such a framework for cybersecurity 
and brought it to the Business Software Alliance, which created 
a task force co-chaired by our CEO, Bill Conner. The BSA report 
released last month entitled Information Security Governance 
Toward a Framework for Action highlights the fact that if we 
are to make real progress we must treat cybersecurity not only 
as a technical issue but as a management issue. We are also 
asked to co-chair the Governance Task Force at the upcoming DHS 
Cybersecurity Summit.
    In conclusion, some compare cybersecurity to Y2K and 
emphasize the need to require public companies to report on 
their cybersecurity governance programs and their SEC filings. 
We didn't solve the Y2K problem by holding seminars for Cobol 
code writers. We solved it by engaging senior management in the 
issue and structuring liability laws appropriately.
    Others have compared cybersecurity to on-line privacy and 
emphasize the need for voluntary reporting about risks, 
breaches and policies backed up by FTC enforcement. There is no 
privacy without security, and my favorite metaphor here is that 
of a canary in a glass cage in a room full of hungry cats. This 
canary has absolutely no privacy. However, it has perfect 
security. We have got to solve security first if in fact we 
want to have true on-line privacy.
    Perhaps the best analogy for the issue, however, is 
quality. Like quality, cybersecurity requires numerous 
itegrative steps that are part of a continuous process. 
Companies must complete one cycle of the program, measure their 
progress, report their performance to senior management, fine-
tune their efforts, and begin another cycle with slightly more 
rigor. Repeated cycles lead to improvements that will not only 
protect sensitive information but also enable productivity 
growth and new market opportunities.
    As a global leader in the field with the benefit of 
firsthand knowledge and the best practices implemented around 
the world, Entrust strongly urges this subcommittee to lead the 
effort to take cybersecurity out of esoteric, technical 
discussions and into mainstream business management. The goal 
should be to encourage companies to treat cybersecurity as a 
corporate governance issue, which includes business risk 
assessment and reporting with management accountability. A good 
governance framework will produce a transparent process that 
includes executive management as responsible and assigns the--
--
    Mr. Stearns. Mr. Burton, I just need you to summarize.
    Mr. Burton. The cybersecurity is real, this is not a case 
of crying wolf. The statistics detail the increased damage and 
increased threats that occur daily. There is no reason to wait 
for a major breach or attack that incapacitates the Nation 
before acting, especially when there is strong consensus around 
of the steps industry must take. We are now all burdened with 
the awareness of the threat and have the corresponding 
responsibility to act. Congress must do everything that it can 
to ensure effective programs are in place for the private and 
government sector.
    Thank you.
    [The prepared statement of Daniel Burton follows:]
   Prepared Statement of Daniel Burton, Vice President of Government 
                         Affairs, Entrust, Inc.
    Good Morning. Chairman Stearns and Members of the Subcommittee, 
thank you for the opportunity to provide testimony on this important 
and timely subject. My name is Daniel Burton, and I am Vice President 
of Government Affairs for Entrust, Inc. In my testimony today, I will 
address our view of where the private sector stands in its efforts to 
secure its information systems and what this Subcommittee can do to 
accelerate progress.
    I want to be very clear in my message. The cyber security problem 
is not getting better. Since 2001, when this committee held a hearing 
on this issue, CERT has reported a tripling of cyber security breaches, 
from 52,000 in 2001 to a projected 150,000 by the end of 2003. Although 
some companies have recognized the threat of cyber attacks to their 
business performance and their customers' personal information, most 
are struggling to deal with the issue. It is incumbent on this 
Subcommittee to galvanize industry efforts to protect sensitive 
consumer and business information. This can only be accomplished by 
securing the private sector IT systems that control the majority of the 
nation's critical infrastructure. You can do so by strongly endorsing 
information security governance programs that drive business risk 
assessment, reporting and accountability.
    Entrust is a world leader in securing digital identities and 
information. Over 1,200 enterprises and government agencies in more 
than 50 countries use our security software solutions, so we have a 
good perspective on today's cyber security reality. As a company, we 
are leading the evolution from defensive, perimeter-oriented technology 
approaches to a more proactive business security strategy that enables 
increased productivity. This strategy involves creating a more robust, 
manageable business security environment through the use of 
technologies such as encryption, digital signatures, authentication and 
authorization. We also work with customers to put in place the policies 
and procedures that protect digital identities and information. Our 
biggest competition comes not from other companies, but from the ``do 
nothing'' business mindset regarding cyber security.
                       i. examples of the problem
    A few examples based on Entrust's experience in the market show how 
enterprises are responding to cyber security today.
    Last year, a company that is a large collector and processor of 
consumer data suffered a breach when one of its customer's employees 
used the company's servers to hack the passwords of its other 
customers. The hacker then proceeded to access and copy databases 
containing highly personal consumer information. Because this company's 
clients include 14 of the top 15 credit card companies, 7 of the top 
ten automakers and 5 of the top 6 retail banks, in addition to other 
major consumer brands, the attack was not a trivial hack. Fortunately, 
no identity theft complaints have been traced directly to this breach. 
Despite the fact that many people focus on external threats, it is 
important to note that this breach, like most, was internal, meaning 
that it came from an insider. Moreover, it was discovered only by 
accident ten months after the incident occurred when law enforcement 
agents researching another breach discovered e-mails describing this 
one. As soon as the company learned of the attack, it informed its 
customers, as required by the California cyber security breach 
notification law (SB 1386), and implemented authentication and 
encryption systems to better protect its data.
    As a major database company with a pretty good security and privacy 
program, this company believed that it had taken reasonable precautions 
to protect its data, especially since it was doing as much as many 
other companies and the penalties for not taking action are vague. In 
this respect, it is typical of many companies. The reality facing 
business today is that even if you understand the threat, it is hard to 
justify more than limited cyber security measures because of the 
complexity involved and the investment in people, time and resources 
that is required. In this case, however, the seriousness of the breach 
and the new penalties created under California SB 1386 forced the 
company to change the way it thought about protecting its information 
systems. Today, this company is on the forefront of driving a higher 
standard and better understanding of cyber security reality.
    A second example speaks to the need to treat cyber security as a 
continuous process. Several years ago, a large financial institution 
implemented strong authentication and digital signatures on its cash 
management service offering for its business customers. I should note 
that billions of dollars traverse this network. Although there was no 
additional fee to upgrade this technology as new versions of the 
software were released, the company repeatedly failed to do so. The 
reason? It did not have the systems in place to treat cyber security as 
a continuous process. Only when the company failed an audit because it 
was cut off from software support did senior management become involved 
and take the necessary steps to upgrade the company's security systems.
    A third example shows that, despite the lip service they pay to the 
issue, some companies are unwilling to do anything about cyber security 
that will affect application performance. A major investment bank 
realized that it did not have adequate cyber security protections in 
place and undertook a review of solutions to securely authenticate its 
sensitive communications internally and with customers. As a condition 
of this review, however, it stated that it was not willing to sacrifice 
any application performance for better security. This meant that it 
would accept only a few milliseconds response time for authentication 
during fail over. Since no security products can meet this standard, 
now the company is deciding whether they will tolerate even a minimal 
performance compromise in order to include security.
    A fourth example involves Federal agencies, which in their size and 
complexity are similar to large enterprises. Until a few years ago, the 
Federal government did not have an adequate cyber security policy, 
despite the fact that year after year Congressional report cards gave 
most government agencies an ``F'' in information security. It was not 
until Congress passed the Government Information Security Reform Act 
(GISRA), later amended by the Federal Information Management Security 
Act (FISMA)--which coupled IT security performance with OMB budget 
controls--that Federal agencies began to change. By insisting that 
cyber security be treated as a governance and budget issue with risk 
assessment, reporting and senior management engagement, FISMA and OMB 
forced Federal agencies to begin to upgrade their cyber security 
programs.
    A final example shows that when companies view cyber security as a 
business enabler that improves productivity, they are more likely to be 
proactive. Several years ago, a major insurance company with a large 
database of confidential customer records realized that it was a prime 
target for identity thieves and hackers. The insurance company couldn't 
simply lock up its records since it had thousands of field agents that 
needed to access them to service customer needs. In order to solve this 
problem, the insurance company did a comprehensive risk assessment and, 
using digital signatures and authentication technology, implemented an 
information security governance plan that encompassed strategy, 
technology, people and process. By proactively securing its IT systems, 
the company not only protected confidential customer information, but 
also created the secure business operations necessary to increase the 
productivity of its agents.
    Although these examples paint different responses to the cyber 
security threat, they all underscore a similar theme--without a better 
business understanding of cyber security costs, benefits and penalties, 
most companies will take only limited cyber security measures.
                         ii. where do we stand?
    Regardless of how you grade industry's response, there is no doubt 
that the cyber security risk is increasing. Although some companies are 
responding, overall business progress has been slow. The current 
situation brings to mind the ``boiling frog'' metaphor. If you drop a 
frog in boiling water, it will jump out. However, if you put a frog in 
a pot of water and gradually raise the temperature, the frog will cook. 
I think many companies are being ``cooked'' when it comes to cyber 
security.
    Like quality improvement, cyber security is not a one-time event, 
but a continuous process. Just as few managers understood the quality 
movement when Deming first introduced it, few business leaders fully 
grasp the new and evolving discipline of cyber security today. We are 
at the beginning of this brave new digital frontier, and Congress must 
find ways to accelerate industry's understanding and progress. 
Companies make little distinction between cyber terrorism, cyber crime 
and cyber vandalism. The fact that different actors with different 
motives perpetrate these attacks may be significant to government 
enforcement agencies, but it is of little consequence to industry. As 
far as industry is concerned, the primary question is not, who was 
responsible for the attack? But, how much damage did it cause? What is 
the likelihood that it will happen again? And, what are the cost, 
liability and brand implications? Anything that Congress can do to 
bring incentives for constructive action and clarity to industry's 
assessment of costs and benefits will help in the effort to protect our 
critical infrastructure.
    The growing array of Federal legislation has not adequately 
addressed this issue. Some major laws affecting cyber security are 
already in place, such as the Sarbanes-Oxley Act, the Gramm-Leach-
Bliley Act and the Health Insurance Portability and Accountability Act. 
These laws, however, tend to treat cyber security as a secondary issue 
and cite requirements that are often so vague that they do little to 
improve focus or understanding of the issue or help industry better 
calculate costs and benefits. Faced with weighing ambiguous cyber 
security risks against other business and economic realities, companies 
have tended to follow one of three paths. Some have chosen to do 
nothing and wait until either the threat becomes more potent or 
regulatory requirements get clarified. Others--probably the majority--
have made some initial efforts, but have not really integrated cyber 
security into their core business operations. A third group--comprised 
of only a rare few exceptions--has embraced cyber security as a market 
differentiator, integrating it into their core operations and elevating 
it to an executive management concern.
    Two other cyber security laws, however, are having a more immediate 
and profound effect on market behavior: the California cyber security 
breach notification act (SB 1386) and the Federal Information Security 
Management Act (FISMA). These laws are specific about cyber security 
penalties and programs. By creating private rights of action and 
penalties for failure to report breaches of unencrypted personal 
information, SB 1386 has changed industry's cost-benefit analysis. And 
by treating cyber security as management responsibility that entails 
risk assessment and reporting, the Federal Information Security 
Management Act outlined a roadmap for Federal agencies that has enabled 
progress.
          iii. the information security governance imperative
    Given the increased awareness of the problem, the lack of 
understanding, and the legislative ambiguity, Entrust has moved 
proactively to foster collaboration between the public and private 
sectors on this topic. We first began working this issue inside our 
company, with the active engagement of our Board of Directors and 
executive management. At the direction of our CEO, Entrust began to 
develop and implement just such a cyber security governance program 
last year. As an information security software company, we felt it was 
our responsibility to help create a framework that would allow for 
appropriate risk assessments, performance measures, management 
guidelines and board audits. The program we developed is tailored to 
the business needs of Entrust and embodies our interpretation of ISO/
IEC 17799 and how the Federal Information Management Act (FISMA) can be 
applied to the private sector. We identified 141 elements that were 
important to measure progress. When we started, 25 of these elements 
were in the red, indicating the need for serious improvement; today, 
only two are. Our journey is off and running but not over.
    As an information security software company who lives in this 
space, our experience raises real concerns about the status of the 
average company and the country. As we discovered at the starting point 
of our cyber security review, we were not nearly as secure as we would 
have predicted. This discovery made us wonder whether other companies 
are are making real and ``measurable'' progress since many of them lack 
a framework.
    As a result of our experience, Entrust brought this framework to 
the Business Software Alliance (BSA) who created a cyber security task 
force co-chaired by Entrust's CEO, Bill Conner. The BSA report, 
entitled, Information Security Governance: Toward a Framework for 
Action, released in October 2003, found that information security is 
not only a technical issue, but also a corporate governance challenge. 
To quote that report,
        While there is broad consensus on the actions needed to create 
        strong security, too often responsibility is left to the chief 
        information officer or the chief information security officer. 
        In fact, strong security requires the active engagement of 
        executive management. By treating these challenges as a 
        governance issue and defining specific tasks that employees at 
        all levels of an organization can discharge, enterprises can 
        begin to create a management framework that will lead to 
        positive results.
    A governance framework is important because it guides the 
implementation, evaluation and improvement of cyber security practices. 
An organization that creates such a framework can use it to articulate 
goals and responsibilities and evaluate progress over time. One of the 
most important aspects of such a framework is that by defining business 
and cyber security responsibilities within an organization, it creates 
a roadmap for improvement. By specifying who does what and forcing 
companies to report on their results to their own boards, it allows 
companies to assign specific responsibilities and translate awareness 
into action.
    Effective cyber security governance programs usually have three 
basic functions: risk assessment, reporting and accountability. Their 
payoff comes from the fact that they insist on the systematic oversight 
and execution necessary to make cyber security part of a company's core 
business operations. Simply identifying best practices is not enough; 
they must be married with effective implementation at all levels of an 
organization. To be effective, each information security program must 
be tailored to the needs of the individual business and industry in 
which it operates. It must identify business drivers; clarify roles and 
responsibilities; recognize commonalities; define metrics; include 
periodic progress reports to executive management; and specify what 
corporate executives, business unit heads, senior managers, and CIOs 
should do.
    According to the BSA information security governance report, the 
board and the CEO has responsibility for overseeing policy 
coordination, business unit compliance and accountability. The business 
unit head has responsibility for providing information security 
protection commensurate with the company's risks and business needs, as 
well as training, controls, and reporting. The senior manager has 
responsibility for securing information and systems, assessing assets, 
determining appropriate levels of security, cost-effectively reducing 
risk, testing and controls. The CIO and CISO have responsibility for 
developing and maintaining compliance with the security program, 
designating a security officer, developing the required policies, 
assisting senior managers, and conducting a security awareness program.
                             iv. conclusion
    Congress should embrace requirements for information security 
governance and reporting. Citing the Y2K experience, some have 
emphasized the need for a ruling that would require public companies to 
report on cyber security governance programs in their SEC filings. In 
order for such a provision to be successful, it will be necessary to 
avoid esoteric requirements that increase the cost and complexity of 
implementing solutions but do little to increase cyber security and 
shareholder value. Others have cited the online privacy debate and 
emphasized the need for voluntary reporting about cyber security 
policies and breaches, backed up by FTC enforcement. For this approach 
to succeed, it must also encompass the need to secure business 
information systems. Still others have compared cyber security to the 
quality movement and insisted that government provide incentives for 
companies to undertake the training and process improvements necessary 
to secure their information systems.
    We would recommend the following lessons for companies intent on 
securing our critical infrastructure:

 A business information security governance framework for risk 
        assessment and reporting with executive management engagement 
        and board oversight is essential. A good governance framework 
        will produce a transparent process that allows management to 
        assign responsibility and make investment decisions to address 
        unacceptable risks.
 Businesses need to get on with it--just do it. Information security 
        is a very broad topic with seemingly endless detail. Companies 
        should not try to solve the problem all at once. Instead, they 
        should begin with the top-level policy issues. The important 
        thing is to get started. Too many programs never get off the 
        ground because the effort looks too daunting.
 Business information security governance is a continuous improvement 
        program. Like quality, cyber security improvement requires 
        numerous iterative exercises in a continuous journey. Companies 
        should complete one cycle of the program at a high level, 
        report to the Board on their performance, fine-tune their 
        program and begin another cycle with slightly more rigor. 
        Repeated cycles will lead to real improvements.
    Whatever course is taken, the objective should be to encourage 
companies to treat cyber security as a corporate governance issue that 
includes business risk assessment and reporting with management 
accountability. The cyber security threat is real, and there is strong 
consensus around the steps that industry must take. Congress needs to 
do everything it can to drive more effective programs in the private 
sector. This Subcommittee has extensive experience dealing with complex 
issues, and we are confident in your abilities to address this one. We 
are at an inflection point in the effort to strengthen cyber security 
and need your leadership.

    Mr. Stearns. I thank you, and, Mr. Thompson, thank you for 
your patience. We welcome your statement .

                   STATEMENT OF ROGER THOMPSON

    Mr. Thompson. Good morning. Thank you for allowing me to 
testify. My name is Roger Thompson.
    Mr. Stearns. Could you pull it a little closer to you, the 
mike?
    Mr. Thompson. There we go.
    Thank you for allowing me to testify. My name is Roger 
Thompson. I am the former Director of Malware Research at the 
TruSecure Corporation, and I am currently Vice President of 
Product Development at PestPatrol. PestPatrol was founded in 
May 2000 by a team of software professionals to encounter the 
growing threat of malicious non-viral software. Currently one 
of PestPatrol's greatest concerns is the threat of Spyware, so 
I would like to introduce you to the problem as our customers 
see it, being consumers, and give you an idea of how the 
software community's efforts to protect is developing.
    Spyware is silent. It is invisible to the consumer. It 
allows criminals to steal from them. It arrives uninvited and 
unwanted. It has not received the attention needed to warn the 
unsuspecting of these dangers to their personal confidential 
information, and perhaps worst of all spyware and similar 
malware problems rob consumers of the confidence needed to make 
commerce over the Internet inviting, safe and successful.
    Every day we hear horror stories from our customers that 
illustrate the very real and personal losses caused by the 
spyware problem. Wanda Gilman is a church secretary from 
Saginaw, Michigan. Like most people, she has received warnings 
from her anti-virus software about virus attacks and she 
thought she was pretty well protected on that front and 
unfortunately it became abundantly clear to Wanda that she 
needed something more after she experienced two instances of 
identity theft. Neither incident involved more than $1,000, but 
it was an uncomfortable feeling for her to have her identity 
hijacked and a long and complicated recovery each time around.
    Michelle Scalero from New Jersey has a home computer that 
her family shares for on-line banking and purchasing, as well 
as enjoying what the Web has to offer them and their young 
children. They were extremely alarmed when they found their PC 
flooded with explicit teen porn pop-ups, caused by a Trojan 
horse program that had been delivered by a piece of spyware 
they had unknowingly downloaded onto their computer.
    Barbara Wolski bought a brand new computer that was 
supposed to be very fast, 2.6 gigs, which included a special 
feature called hyperthread technology to make the processing 
speed even faster, and then she found that her old computer 
which was only 1 gig ran faster than the new one. She ran the 
anti-spyware program and found over 5,000 pieces of spyware 
factory-installed on the new machine, all busy ``phoning home'' 
information about her, causing the massive slowdown.
    None of this needs to happen. We hear thousands of similar 
sad stories all the time. A record number of incidents were 
reported this year, more than 60,000 at the end of last month 
and it keeps growing. $24 billion is the estimated identity 
theft losses in the United States from identity theft last 
year, $73 billion, estimated identity theft projected 
domestically by the end of this year, and $9,800 the average 
take from each identity robbery.
    These numbers come from the Aberdeen Group, an industry 
analyst firm that calls identity theft ``the crime that pays.'' 
Aberdeen also warns that profits from these crimes are so 
encouraging that organized crime has become a factor. It has 
been 20 years since the first virus was created and for much of 
my career I watched the damage that computers could cause from 
children at home to senior corporate executives.
    My computer career began in Australia in 1979, where I 
worked as a mainframe systems engineer. I co-founded the first 
Australian anti-virus software company, Leprechaun Software, 
and launched the Virus Buster product back in 1987. In 1991, I 
moved to the United States. I started Thompson Network 
Software, which produced The Doctor range of systems management 
and security products.
    When I became Director of Malware Research at TruSecure 
Corporation, I was able to focus more closely on the way that 
different kinds of malware were developing, and the sheer size 
of the problem was really brought home to me. Now, at my 
current company I am working with malware's faster-growing and 
most insidious incarnation yet, spyware.
    Here is the new stuff. The anti-spyware is still in its 
infancy, but it has proven to me every day from the prevalence 
data collected by my company that this type of secretive 
invasive software is a huge problem for computer users. Before 
we can address possible solutions, we need to define what the 
spyware problem actually is. For me spyware is any software 
that is intended to aid an unauthorized person or entity in 
causing a computer, without the knowledge of the computer's 
user or owner, to divulge private information.
    The industry has begun to make consumers more aware of this 
threat by banding together. To begin educating the public on 
spyware and its dangers, we recently co-founded along with 
several other anti-spyware companies the Consortium of Anti-
Spyware Technology, COAST. This nonprofit organization is a 
forum in which members cooperate to increase awareness of the 
growing problem. We reached agreement on the definition of 
spyware, which helps us technology vendors create products that 
address consumers' concerns. The dangers of spyware are not 
always known and are almost never obvious. Usually you know 
when you have a virus or worm. These problems are in your face. 
Spyware, on the other hand, silently installs itself on the PC, 
where it might take any number of different and unwanted 
actions; for example, phone home information about you, your 
computer and your surfing habits to a third party, to use to 
spam you or push pop-up ads to your screen, open up your 
computer to a remote attacker using a RAT, or Remote Access 
Trojan, to remotely control your computer, capture every key 
stroke you type, private or confidential e-mails, passwords, 
bank account information, and report it back to a thief or a 
blackmailer, allow your computer to be hijacked and attack a 
third party's computers in a denial of service attack that can 
cost companies millions and make you liable for damages. They 
can probe your system for vulnerability to otherwise exploit 
the system.
    If that does not make the computer users on the 
subcommittee nervous, consider that the on-line holiday season 
has already arrived. With more and more people shopping on-
line, the potential for identity theft is much greater. 
Shoppers are stressed and distracted and may not take their 
usual care in protecting themselves from electronic 
pickpockets.
    No one would allow a silent and hidden burglar into his or 
her home without a fight and, as you saw with the real world 
experience I described earlier, spyware has the ability to ruin 
someone's Christmas. Like having your wallet stolen, life 
becomes a bureaucratic nightmare of new identity cards and 
credit cards. And ultimately how do you retrieve your privacy 
from an unknown or uncaring prowler using the Internet as a 
hunting ground?
    These anti-virus companies were often accused of hyping 
gloom and doom to help increase their own sales and profits. 
That was long ago proven to be unfounded. Today, the billions 
of dollars lost, in identity theft, transaction hijacking, 
sensitive information, are compounded by the huge losses to 
credit card companies that must reissue cards whenever an 
account is compromised or even suspected of being compromised.
    The growing threat is no exaggeration. I think everyone on 
this panel would agree a huge portion of damages and tangential 
damages caused by spyware and malware goes unreported and is 
unknown. Something must be done to protect the Wanda Gilmans, 
the Michelle Scaleros, and the Barbara Wolskis, who only want 
to conduct their on-line activities and purchases with peace of 
mind, knowing they can do it safely.
    H.R. 2929, the Safeguards against Privacy Invasions Act, is 
a powerful step in this direction. In person, consumers have 
the choice not to answer questions when they go shopping. Why 
shouldn't on-line shoppers have the same choice to say no to 
spyware. As a representative of my company and as a person who 
has devoted my working life to malware eradication, I urge you 
to pass the SPI Act.
    [The prepared statement of Roger Thompson follows:]
     Prepared Statement of Roger Thompson, Vice President, Product 
 Development, PestPatrol, Inc. formerly Director of Malware Research, 
                         TruSecure Corporation
    Good morning.
    Spyware is silent. It's invisible to the consumer. It allows 
criminals to steal from them. It arrives uninvited and unwanted. It has 
not received the attention needed to warn the unsuspecting of these 
dangers to their personal and confidential information. And, perhaps 
worst of all, spyware and similar malware problems rob consumers of the 
confidence needed to make commerce over the Internet inviting, safe and 
successful.
    Every day, we hear horror stories from our customers that 
illustrate the very real and personal losses caused by the spyware 
problem. Listen for a moment to just three:

 Wanda Gilman is a church secretary from Saginaw, Michigan. Like most 
        people, she has received warnings from her anti-virus software 
        about virus attacks, and she thought she was pretty much 
        protected on that front. Unfortunately, it became abundantly 
        clear to Wanda that she needed something more than her anti-
        virus after she experienced not one but two incidences of 
        identity theft. While neither incident involved more than 
        $1000, it was an uncomfortable feeling for her to have her 
        identity hijacked, and a long and complicated recovery each 
        time around.
 Michelle Scalero from New Jersey has a home computer that her family 
        shares for online banking and purchasing, as well as enjoying 
        what the web has to offer them and their young children. They 
        were extremely alarmed when they found their PC flooded with 
        explicit teen porn pop-ups caused by a trojan horse program 
        that had been delivered by a piece of spyware they had 
        unknowingly downloaded onto their computer.
 Barbara Wolski bought a brand new computer that was supposed to be 
        very fast (2.6 GHz), which included a special feature called 
        hyperthread technology to make the processing speed even 
        faster. While her old computer was only 1.2 GHz, it ran faster 
        than the new one. Barbara ran our anti-spyware software on the 
        new machine and found over 5000 pieces of spyware factory-
        installed on the new machine, all busy ``phoning home'' 
        information about her--causing the massive slow-down.None of 
        this needed to happen. And we hear thousands of similarly sad 
        stories all the time. Our customers reported a record number of 
        such incidents this year--more than 60,000 as of the end of 
        last month--and the complaints keep growing.
    Here are some numbers to think about as we discuss protecting 
consumers from spyware:

 24 billion dollars . . . that's estimated identity theft losses in 
        the US from identity theft last year.
 73 billion dollars . . . that's estimated losses from identity theft 
        projected domestically by the end of this year.
 9,800 dollars . . . that's the estimated average ``take'' from each 
        identity robbery.
    These numbers come from the Aberdeen Group, an industry analyst 
firm that calls identity theft ``the crime that pays.'' Aberdeen also 
warns that the profits from these crimes are so encouraging that the 
organized crime is becoming a factor.
    You may have heard that last week was a dubious anniversary . . . 
it's been 20 years since the first virus was created. Through much of 
my career, I have watched the damage that computer intruders can 
cause--to every PC user from children at home to senior corporate 
executives.
    My computing career began in Australia (perhaps you recognize the 
accent) in 1979, where I worked as a mainframe systems engineer. I co-
founded the first Australian anti-virus software company, Leprechaun 
Software, and launched the Virus Buster product back in 1987. After 
moving to the United States, I started Thompson Network Software, which 
produced The Doctor range of systems management and security products.
    When I became Director of Malware Research at TruSecure 
Corporation, I was able to focus more closely on the way that different 
kinds of malware were developing, and the sheer size of the problem was 
really brought home to me. And now, at my current company, I am working 
with malware's fastest-growing and most insidious incarnation yet--
spyware.
    The anti-spyware industry is still in its infancy, but it's proven 
to me every day from the prevalence data collected by my company that 
this type of secretive, invasive software is a huge problem for 
computer users.
    Before we can address possible solutions to the problem, however, 
we need to define what the spyware problem actually is. For me, spyware 
is any software that is intended to aid an unauthorized person or 
entity in causing a computer, without the knowledge of the computer's 
user or owner, to divulge private information.
    The industry has begun to make consumers more aware of this threat 
by banding together. To begin educating the public on spyware and its 
dangers, we recently co-founded, along with several other anti-spyware 
software companies, the Consortium Of Anti-Spyware Technology (COAST) 
group. This non-profit organization is a forum in which members 
cooperate to increase awareness of the growing spyware problem. We've 
reached agreement on the definition of spyware, which helps us 
technology vendors create products that address consumers' concerns.
    The dangers of spyware are not always known and are almost never 
obvious. Usually, you know when you have a virus or worm--these 
problems are ``in your face''. Spyware, on the other hand, silently 
installs itself on a PC, where it might start to take any number of 
different and unwanted actions. For example:

 ``Phone home'' information about you, your computer and your surfing 
        habits to a third party to use to spam you or push pop-up ads 
        to your screen
 Open up your computer to a remote attacker using a RAT (Remote Access 
        Trojan) to remotely control your computer
 Capture every keystroke you type--private or confidential emails, 
        passwords, bank account information--and report it back to a 
        thief or blackmailer
 Allow your computer to be hijacked and used to attack a third party's 
        computers in a denial-of-service attack that can cost companies 
        millions and make you liable for damages
 Probe your system for vulnerabilities that can enable a hacker to 
        steal files or otherwise exploit your system.
    If that doesn't make the computer users on the subcommittee 
nervous, consider that the holiday online commerce season has already 
arrived.
    During the holiday shopping season, with more and more people 
shopping online, the potential for identity theft is much greater--
shoppers are stressed and distracted, and may not take their usual care 
in protecting themselves from electronic pickpockets.
    No one would allow a silent and hidden burglar into his or her home 
without a fight. As you saw with the real-world experiences I described 
earlier, spyware has the potential to ruin someone's Christmas. Like 
having your wallet stolen, life becomes a bureaucratic nightmare of new 
identity cards and credit cards. And, ultimately, how do you retrieve 
your privacy from an unknown and uncaring prowler or corporation using 
the Internet as a hunting ground?
    The anti-virus companies were often accused of hyping gloom and 
doom to help increase their own sales and profits--that was long ago 
proven to be unfounded. Today, the billions of dollars lost--in 
identity theft, transaction hijacking, sensitive information--are 
compounded by the huge losses to credit card companies that must 
reissue cards whenever any account has been compromised or even 
suspected of being compromised. The growing threat is no exaggeration. 
I think everyone on this panel would agree that a huge portion of 
damages and tangential damages caused by spyware and malware goes 
unreported and is unknown.
    Something must be done to protect the Wanda Gilmans's, Michelle 
Scaleros's and Barbara Wolskis's, who only want to conduct their online 
activities and purchases with the peace of mind of knowing they can do 
so safely. H.R. 2929, the Safeguards Against Privacy Invasions Act, is 
powerful step in this direction. In person, consumers have the choice 
not to answer address, phone and email address questions when they go 
shopping. Why shouldn't on-line shoppers have the same choice to say no 
to spyware?
    As a representative of my company and as a person who has devoted 
my working life to malware eradication, I urge you to pass the SPI Act.
    Thank you.

    Mr. Stearns. I thank the gentleman, and now I will start 
the questions, and I think I go back to my opening statement.
    What are the real risks and costs to consumers for 
cybersecurity breaches and what poses the most risk to 
cybersecurity, and then what is the optimum role for the 
Federal Government to play when it comes to protecting 
consumers from cybersecurity threats?
    I would start out with Commissioner Swindle. You point out 
in your opening statement that not all security breaches are 
violations of the Federal Trade Commission. In your opinion, is 
there a need for legislation in this area, giving the FTC 
additional authority? What is your feeling here?
    Mr. Swindle. Mr. Chairman, to the point of not all breaches 
are security violations or violations of the law, I think if we 
just think of it in the context of a couple of examples if the 
breach resulted in my name and address going out to the world--
--
    Mr. Stearns. That is a breach?
    Mr. Swindle. [continuing] that is not a problem.
    Mr. Stearns. That is a breach or not?
    Mr. Swindle. That can be a breach of the system because it 
is contained in the system, I think, but if along with that my 
credit card went, that is a serious problem and the 
consequences could be rather dire if somebody got hold of my 
financial information, my credit card. Just having my address, 
which is publicly known personal information, that does not 
necessarily constitute a violation of law, and I think we could 
look at it from the context of what harm has been done.
    Mr. Stearns. Do you have a data base in which you have 
actually collected this information that has internally 
affected employees or major companies? Do you have a data base 
at the Federal Trade Commission on this?
    Mr. Swindle. I am not aware of a data base of that nature.
    Mr. Stearns. Reliable data on harms to data infrastructures 
caused internally by employees of major data base companies? Do 
you have a reliable data base?
    Mr. Swindle. I have never thought of it in that context. I 
do not think we have a data base specifically designed as such.
    Mr. Stearns. Well, I guess.
    Mr. Swindle. And assembling that data base might even be 
setting up a target to be breached and causing a problem.
    Mr. Stearns. What about the Gramm-Leach-Bliley Act? Have 
you experienced any security problems or policies for financial 
institutions under the Gramm-Leach-Bliley Act we passed?
    Mr. Swindle. The problem with that act, the most obvious 
one, comes from the nature of the requirements for notice, and 
we have all received the copious quantities of papers that no 
one could understand. But, I think Gramm-Leach-Bliley has put a 
focus on institutions' obligation to security and privacy and, 
in a sense, I think that is good.
    Mr. Stearns. Okay. Mr. Charney, should there be common 
standards for independent security evaluations and why are such 
standards important and who should set those standards?
    Mr. Charney. For the most part, standards can be important. 
The risk is that if we set standards that fixate on a 
particular technology what we will end up doing is stifling 
innovation. So one of the things that we focus on more is best 
practices, so that we can develop methodologies in both product 
development and in management; that is, both at the same time, 
cutting edge but flexible enough to allow further innovation. 
So if you are talking about standards for security, for 
example, there is a risk. For example, the government had a 
standard for encryption called Data Encryption Standard, and 
when that standard was no longer viable the entire industry, 
including the government, moved away from that standard to 
something more secure, and it was 2 years later that the 
government finally promulgated a new standard, after everyone 
had already left the old one. So the challenge is to be able to 
provide prescriptive guidance to customers and consumers about 
how to protect themselves without locking in the technology.
    Mr. Stearns. I guess we would say security is a public 
good. Can markets alone be fully responsive to cybersecurity 
concerns, just the markets themselves, or----
    Mr. Charney. I think the markets have some limitation.
    Mr. Stearns. This best practices you talked about, in your 
opinion do you think the Federal Government--like Mr. Ansanelli 
had indicated, there might be a Federal role here?
    Mr. Charney. Oh, there is clearly a Federal role and there 
is a couple of them actually. The government can lead the way 
in the development of best practices. The General Accounting 
Office, for example, frequently looks at the security of 
government systems and issues government report cards which, to 
be honest, have not been very favorable.
    The second thing is there are constraints on the market, 
and for public safety and for national security purposes 
governments may need higher levels of security than markets 
normally provide. In those kinds of cases, the government 
should take steps, particularly in research and development and 
other areas, to make sure that the gap between what the 
governments need and what markets will provide are in fact 
closed.
    Mr. Stearns. Mr. Ansanelli, you mentioned something about a 
consumer data security standard that has got our staff's 
attention, to ensure that there is a base level of 
responsibility for consumer protection, consumer data 
protection.
    Do you see the need for this kind of baseline standard and 
what should the standard be?
    Mr. Ansanelli. The reason why it is helpful to have that 
standard is when you compare what has happened between Gramm-
Leach-Bliley and HIPAA, that those organizations tend to 
protect data more than other organizations, so you have seen 
improvements as a result of the security requirements and 
Grammm-Leach-Bliley, I think it is section 501(b), with respect 
to protecting consumer data. So there have been improvements in 
the protection of that data as a result, and I think that 
evidence indicates that it would be better to also then have 
other organizations that actually keep that same data, if a 
financial institution has my Social Security number, when I buy 
a phone if I have to give them my Social Security number 
because they do a credit check on me. So why is it that one 
industry might have to have a standard where another might not, 
and I think very importantly the risk that I think might happen 
is that the States will end up driving the requirements and the 
regulations, so that either companies will have to wind up 
dealing with a patchwork of lots of different regulations. 
There are about 200 different identity theft bills at the State 
level currently being discussed right now. I think it is 
important there is a uniform standard as opposed to 50 
different standards that has to emerge.
    Mr. Stearns. So what you are saying is you would like the 
Federal Government to come up with the consumer data security 
standard?
    Mr. Ansanelli. Yes, and it should be about what are the 
best practices and what are the requirements that every company 
who stores non-public personal information should have to live 
by and it should be something that----
    Mr. Stearns. Mr. Burton, would you like to comment and then 
I will close?
    Mr. Burton. Yes.
    Any of that is working on standards. I guess it is my 
concern that by treating it as a technical issue, which 
standards again puts you squarely back into a technical 
discussion, you are missing a huge motivator here, and that is 
that senior management is not making the decisions to invest, 
to train, to hold people accountable, because it is extremely 
complex and it is too often seen as a defensive technical 
issue.
    A porcupine if it rolls itself into a ball is perfectly 
protected. Its quills are everywhere, but they cannot move, 
they cannot eat, they cannot do anything productive, and I 
think so much of this discussion is on definitive technology 
issues that fail to address the management question and the 
issue that ultimately a lot of cybersecurity is enabling, just 
as quality is enabling, and I think you can make a huge 
contribution.
    Mr. Stearns. Thank you.
    Ms. Schakowsky.
    Ms. Schakowsky. Mr. Swindle, I wanted to get back to your 
comment that you made, regarding the fact that if my name and 
address went out that that is not a very serious breach of 
security, and so some things are serious and some things are 
not, and yet when you look at your testimony and you talk about 
the Commission's first information security case, the Eli Lilly 
case, which essentially was the name and address, in this case 
an e-mail address, but in any case it was consumers of Prozac--
was it? Yeah, Prozac, very sensitive information, and all that 
went out was a name and address. So I am disagreeing with you 
that name and address going out is not necessarily, or 
certainly can be an important breach of violation, I would 
think, since you treated it that way. But I also was concerned 
about the sanctions, which seem to me a very minor slap on the 
wrist, whereas the implications for consumers of that 
information, that very sensitive information going out, could 
be very serious. So I wanted you to just comment on this.
    Mr. Swindle. I would be happy to, Congresswoman.
    First off, I believe the question related to there could be 
a breach without a violation of the law. I believe that is the 
way I understood the question.
    The release of nothing more than my name and address, which 
is in the phone book, could hardly be construed as a violation 
of law.
    Now, in the case of Eli Lilly, it was a name and the 
address and the identification of a person who was using a 
medication. The use of that medication carries a connotation of 
health problems and all sorts of emotional problems perhaps and 
things of this nature, which could indeed be certainly a gross 
violation of personal information and privacy. So that can be 
construed, I think. They are entirely two different things if 
we take them in the context I gave them to you. But perhaps 
another way of looking at this: How can there can be a breach 
without a violation of the law?
    We are dealing, if I may describe this as an example, we 
are dealing with a machine with a million moving parts in it 
and to my mind nobody's perfected all one million parts, and 
companies can take every reasonable effort they know how to 
take, given the circumstances of the nature of the information 
and how it is stored and how it is used, and there might still 
be a breach in the security.
    Having taken every reasonable step they can take, then I 
think we would probably find it hard to say that is a violation 
of the law, when they did everything they possibly could. As 
technology evolves we will constantly be confronted with that 
problem. You know, the Defense Department has this problem, 
Congress has this problem, Microsoft has this problem, all 
companies have this problem because it is just a massive 
complex problem with which to deal. I do think there is a 
distinction there.
    Ms. Schakowsky. Are you talking about, what did you say, 
user error? Are you talking about perhaps issues of management, 
individual errors that are made? I mean, it would seem to me 
that a company would still or anybody would still have to take 
responsibility for that. I am trying to understand where you 
draw the line.
    Yes, we certainly expect that all possible measures are 
taken, and you are saying but if there is still a breach after 
that, then nobody is responsible for that?
    Mr. Swindle. No, I do not think I said that, Congresswoman.
    Ms. Schakowsky. Okay.
    Mr. Swindle. I did not address the accountability. We all 
have to be accountable. We are responsible for running the 
train, and I think industry does take that responsibility very 
seriously.
    In the case of Eli Lilly, we thought that the best possible 
solution. This is an incredibly fine company, as is Microsoft, 
as are the companies represented here on this panel. They are 
doing their utmost.
    In the case of Eli Lilly, there was negligence, not 
sufficient training, there were not sufficient technical 
safeguards put in. They are under scrutiny and have corrected 
those requirements, the deficiencies, and we are going to be 
monitoring them. As I think I indicated, they report to us with 
an audit system every 2 years.
    Ms. Schakowsky. Yeah, I would still think that it is more 
than a slight slap on the wrist.
    Mr. Swindle. And we were concerned with this, but what do 
we--what else perhaps--questionably, what else could we have 
done?
    Ms. Schakowsky. That is the question for us; is not it?
    Mr. Swindle. A huge penalty, would it accomplish that and 
correct the problem?
    The problem was mostly technical and training, I think. If 
they corrected the problem, we go on. They certainly can be 
subject to several penalty pursued by the people they harmed. 
That is always open to victims.
    Ms. Schakowsky. Well, I think much of the testimony here 
does say that there need to be appropriate sanctions, and that 
is certainly what we need to consider.
    I want, Mr. Chairman, to have your permission to leave the 
record open for further questions. I have a number of 
questions.
    Mr. Stearns. I think that is in order.
    Ms. Schakowsky. If I could put in?
    Mr. Stearns. Sure.
    Go ahead.
    Ms. Schakowsky. I wanted to ask--I wanted to submit this 
document, which is an e-mail from Bill Gates and addressed to 
Microsoft and subsidiaries. They are all FTE dated January 15, 
2002, for the record, and I have a number of questions around 
that that I hope that Mr. Swindle will answer, and also 
actually Mr. Charney, about that.
    Mr. Stearns. Would you like to submit that?
    Ms. Schakowsky. If I could.
    Mr. Stearns. By unanimous consent, so ordered.
    [The information referred to follows:]

From: Bill Gates
Sent: Tuesday, January 15, 2002 5:22 PM
To: Microsoft and Subsidiaries: All FTE
Subject: Trustworthy computing

    Every few years I have sent out a memo talking about the highest 
priority for Microsoft. Two years ago, it was the kickoff of our .NET 
strategy. Before that, it was several memos about the importance of the 
Internet to our future and the ways we could make the Internet truly 
useful for people. Over the last year it has become clear that ensuring 
.NET is a platform for Trustworthy Computing is more important than any 
other part of our work. If we don't do this, people simply won't be 
willing--or able--to take advantage of all the other great work we do. 
Trustworthy Computing is the highest priority for all the work we are 
doing. We must lead the industry to a whole new level of 
Trustworthiness in computing.
    When we started work on Microsoft .NET more than two years ago, we 
set a new direction for the company--and articulated a new way to think 
about our software. Rather than developing standalone applications and 
Web sites, today we're moving towards smart clients with rich user 
interfaces interacting with Web services. We're driving the XML Web 
services standards so that systems from all vendors can share 
information, while working to make Windows the best client and server 
for this new era.
    There is a lot of excitement about what this architecture makes 
possible. It allows the dreams about e-business that have been hyped 
over the last few years to become a reality. It enables people to 
collaborate in new ways, including how they read, communicate, share 
annotations, analyze information and meet.
    However, even more important than any of these new capabilities is 
the fact that it is designed from the ground up to deliver Trustworthy 
Computing. What I mean by this is that customers will always be able to 
rely on these systems to be available and to secure their information. 
Trustworthy Computing is computing that is as available, reliable and 
secure as electricity, water services and telephony.
    Today, in the developed world, we do not worry about electricity 
and water services being available. With telephony, we rely both on its 
availability and its security for conducting highly confidential 
business transactions without worrying that information about who we 
call or what we say will be compromised.--Computing falls well short of 
this, ranging from the individual user who isn't willing to add a new 
application because it might destabilize their system, to a corporation 
that moves slowly to embrace e-business because today's platforms don't 
make the grade.
    The events of last year--from September's terrorist attacks to a 
number of malicious and highly publicized computer viruses--reminded 
every one of us how important it is to ensure the integrity and 
security of our critical infrastructure, whether it's the airlines or 
computer systems.
    Computing is already an important part of many people's lives. 
Within ten years, it will be an integral and indispensable part of 
almost everything we do. Microsoft and the computer industry will only 
succeed in that world if CIOs, consumers and everyone else sees that 
Microsoft has created a platform for Trustworthy Computing.
    Every week there are reports of newly discovered security problems 
in all kinds of software, from individual applications and services to 
Windows, Linux, Unix and other platforms. We have done a great job of 
having teams work around the clock to deliver security fixes for any 
problems that arise. Our responsiveness has been unmatched--but as an 
industry leader we can and must do better. Our new design approaches 
need to dramatically reduce the number of such issues that come up in 
the software that Microsoft, its partners and its customers create. We 
need to make it automatic for customers to get the benefits of these 
fixes. Eventually, our software should be so fundamentally secure that 
customers never even worry about it.
    No Trustworthy Computing platform exists today. It is only in the 
context of the basic redesign we have done around .NET that we can 
achieve this. The key design decisions we made around .NET include the 
advances we need to deliver on this vision. Visual Studio .NET is the 
first multi-language tool that is optimized for the creation of secure 
code, so it is a key foundation element.
    I've spent the past few months working with Craig Mundie's group 
and others across the company to define what achieving Trustworthy 
Computing will entail, and to focus our efforts on building trust into 
every one of our products and services. Key aspects include:
    Availability: Our products should always be available when our 
customers need them. System outages should become a thing of the past 
because of a software architecture that supports redundancy and 
automatic recovery. Self-management should allow for service resumption 
without user intervention in almost every case.
    Security: The data our software and services store on behalf of our 
customers should be protected from harm and used or modified only in 
appropriate ways. Security models should be easy for developers to 
understand and build into their applications.
    Privacy: Users should be in control of how their data is used. 
Policies for information use should be clear to the user. Users should 
be in control of when and if they receive information to make best use 
of their time. It should be easy for users to specify appropriate use 
of their information including controlling the use of email they send.
    Trustworthiness is a much broader concept than security, and 
winning our customers' trust involves more than just fixing bugs and 
achieving ``five-nines'' availability. It's a fundamental challenge 
that spans the entire computing ecosystem, from individual chips all 
the way to global Internet services. It's about smart software, 
services and industry-wide cooperation.
    There are many changes Microsoft needs to make as a company to 
ensure and keep our customers' trust at every level--from the way we 
develop software, to our support efforts, to our operational and 
business practices. As software has become ever more complex, 
interdependent and interconnected, our reputation as a company has in 
turn become more vulnerable. Flaws in a single Microsoft product, 
service or policy not only affect the quality of our platform and 
services overall, but also our customers' view of us as a company.
    In recent months, we've stepped up programs and services that help 
us create better software and increase security for our customers. Last 
fall, we launched the Strategic Technology Protection Program, making 
software like IIS and Windows .NET Server secure by default, and 
educating our customers on how to get--and stay--secure. The error-
reporting features built into Office XP and Windows XP are giving us a 
clear view of how to raise the level of reliability. The Office team is 
focused on training and processes that will anticipate and prevent 
security problems. In December, the Visual Studio .NET team conducted a 
comprehensive review of every aspect of their product for potential 
security issues. We will be conducting similarly intensive reviews in 
the Windows division and throughout the company in the coming months.
    At the same time, we're in the process of training all our 
developers in the latest secure coding techniques. We've also published 
books like ``Writing Secure Code,'' by Michael Howard and David 
LeBlanc, which gives all developers the tools they need to build secure 
software from the ground up. In addition, we must have even more highly 
trained sales, service and support people, along with offerings such as 
security assessments and broad security solutions. I encourage everyone 
at Microsoft to look at what we've done so far and think about how they 
can contribute.
    But we need to go much further.
    In the past, we've made our software and services more compelling 
for users by adding new features and functionality, and by making our 
platform richly extensible. We've done a terrific job at that, but all 
those great features won't matter unless customers trust our software. 
So now, when we face a choice between adding features and resolving 
security issues, we need to choose security. Our products should 
emphasize security right out of the box, and we must constantly refine 
and improve that security as threats evolve.-- A good example of this 
is the changes we made in Outlook to avoid email borne viruses. If we 
discover a risk that a feature could compromise someone's privacy, that 
problem gets solved first. If there is any way we can better protect 
important data and minimize downtime, we should focus on this. These 
principles should apply at every stage of the development cycle of 
every kind of software we create, from operating systems and desktop 
applications to global Web services.
    Going forward, we must develop technologies and policies that help 
businesses better manage ever larger networks of PCs, servers and other 
intelligent devices, knowing that their critical business systems are 
safe from harm. Systems will have to become self-managing and 
inherently resilient. We need to prepare now for the kind of software 
that will make this happen, and we must be the kind of company that 
people can rely on to deliver it.
    This priority touches on all the software work we do. By delivering 
on Trustworthy Computing, customers will get dramatically more value 
out of our advances than they have in the past. The challenge here is 
one that Microsoft is uniquely suited to solve.
                                                       Bill

    Mr. Stearns. Let's see, the gentlelady from California is 
recognized.
    Ms. Bono. Thank you, Mr. Chairman, and I thank the 
panelists for sticking with us through all of this.
    I think the one theme that generally has come up for me in 
this testimony so far is that Ms. Davidson alluded to the fact 
that California did some knee-jerk reacting to the situation 
and came up with legislation that was not very good, and 
whether or not you know this, Congress is probably--in all of 
the issues we deal with we are technologically challenged, and 
we were all thrilled the day we got Blackberrys, but there is a 
funny story I remember of a Member of Congress who held up his 
Blackberry and said this is great, I do not know how to work 
it, and I said why don't you try turning it on first, and that 
is a true story.
    Now, these people might be experts in whatever field they 
are in, we have the CDC and the NIH, who do a lot of our great 
work in medicine, but in Congress do we have the governmental 
entity in place?
    I think, Mr. Swindle, I would ask you the question. We have 
got the FTC, the FBI, but do we have an entity that works 
specifically with Congress to move more swiftly in the case of 
these issues or is it sort of--are we a little bit lacking in 
that area?
    Mr. Swindle. I do not think we have a central agency that 
would combine the resources of all of us to work with Congress, 
but I think each of these agencies, in their own realm, work 
with Congress very closely. I know we try to work with Congress 
as closely as we can when Congress is considering drafting 
legislation to solve a problem. Often we propose suggestions as 
to how current laws might be modified, and I think we are often 
on the side of urging caution before we legislate to solve a 
problem where very likely the proposed solution will perhaps 
cause more harm than good. As one of the panelists said 
earlier, sometimes the process is so slow that we have gone 
well beyond that problem and already found a solution to it.
    In all honesty, I think it takes each one of these 
agencies. They have some responsibility and oversight of these 
issues, dealing with their expertise, working with Congress, 
and realizing that there is no simple solution to any of these 
problems.
    Legislation alone will not solve it, technology alone will 
not solve it, and in my mind the most important single factor 
when you think of the base of the triangle of people who are 
involved, the consumers across the bottom, 270 million. As we 
work on up to the triangle top we are worrying about nuclear 
attack, but that is only a handful. But down at the bottom of 
this triangle, every one of the people in the base, consumers, 
students, business people, small business people who are using 
computers and are connected on the Internet, they are all part 
of the problem and part of the solution.
    Ms. Bono. Right. I am sorry for cutting you off, but my 
spyware legislation, I think you have seen it or your staff has 
seen it, and I was wondering if you could comment because to me 
this seems to be a good solution. It seems to address the 
situation.
    There have been some, you know, tremendous media reports, 
and I thank the media actually. Even The Washington Post today 
has a great article and in it he quotes something that shocked 
me. I do not believe anybody brought this point up. I have it 
here, I promise you.
    Anyway, he talks about--here it is, Sharman Networks, that 
when you download KaZaA, that they install something called 
ALLNET and that this ALLNET actually harnesses unused 
processing power on your CPU and then sells that processing 
power. I have never heard of sharing hardware over this and I 
am wondering if perhaps, Mr. Charney, you could comment on the 
fact that they are not only using data but they are basically 
stealing a little bit of your processing capability.
    Mr. Charney. The key word there is stealing, so one of the 
things we need to be clear about is that peer-to-peer networks 
have some important societal advantages. You look at something 
like SETI, the Search for Extraterrestrial Intelligence, where 
a lot of independent researchers and individuals agree to share 
processing time because what happens is that computers have 
become far more powerful. Home users have a lot more power on 
the desktop than they actually use or need, and one of the 
issues is can we harness that process in some way and share 
that power.
    The key is that those things have to be done with full 
notice and consent and not done to someone without their 
knowledge, where someone else is either taking their 
information or processing power without telling them, without 
getting their consent. But it would be a mistake to think that 
peer-to-peer in and of itself is a bad thing.
    Ms. Bono. Right.
    Mr. Charney. Merely the technology that permits the use of 
distributed processing.
    Ms. Bono. Well, is Microsoft concerned about spyware? Other 
than pretty much endorsing my bill, thank you for that, if that 
is what he was doing, Mr. Chairman.
    Mr. Charney. We absolutely care about spyware, so one of 
our pillars of trustworthy computing is privacy, and our 
philosophy is that consumers have to make informed choices of 
how data is used and to be able to control the data about them, 
and to the extent people are taking their data without their 
notice and consent, that is a problem, and the solution, like 
most IT solutions, will be a combination of best practices, 
technology, and in some cases regulations.
    Ms. Bono. Could the ISPs do a better job? I know you all 
have MSN, but obviously they are not going to, but could not, 
for example, your competitor, AOL, who promotes McAfee daily, 
every time you log on you get this sales pitch from McAfee, 
could not they install that along with their software, AOL, and 
have it built into the firewall and the automatic patches that 
you say consumers do not do often enough?
    Mr. Charney. We have tried to make this easier for 
consumers. We have built the ICF firewall into Windows, and if 
you go to the Microsoft.com/protect, we have links to anti-
virus vendors, where people can easily get virus software. We 
have to make it much easier to manage.
    I would point out that you have to remember this technology 
was built by geeks for geeks. If you think about the telephone 
as phones ended up in every home in America, the phone company 
said if we are going to sell more services, we have to devise 
more complex software, call forwarding, caller ID, all those 
features. As they add all this complexity, the user interface 
remained the same, 12 buttons.
    My mother has a PC. She is 74 years old. She can go to a 
run command, write her own code and run it. She cannot, she is 
not technically capable of doing it, but we have given her the 
technology to do it. It is a completely different paradigm.
    Ms. Bono. Thank you. Mr. Chairman, I will yield back.
    Mr. Stearns. We are going to have a second round if you 
want to.
    Ms. Bono. Thank you.
    Mr. Stearns. I recognize the gentleman from Arizona.
    Mr. Shadegg. Mr. Ansanelli, you mentioned in your written 
testimony an unaddressed issue regarding identity theft in the 
Fair Credit Reporting Act, the legislation that is in 
conference that I referred to in my opening statement.
    Can you go into greater detail about that?
    Mr. Ansanelli. Sure. It has not been passed yet by the 
whole House and the Senate, but I think if you look at what the 
Fair Credit Reporting Act has in it, I think about the issue of 
identity theft as sort of three pillars.
    The first is protecting the data that is the consumer's 
identity to begin with. Second is detecting any problems that 
are occurring, either someone is trying to do fraud or, you 
know, trying to get a credit card as a result of fraud. And 
then the third thing is correcting the problem, primarily for 
consumers. How do consumers fix their credit? They have been a 
victim. How do they correct it?
    And as I look at the act there is quite a bit in correcting 
the problem for consumers, and that is good. There is a fair 
amount of detecting the problem with respect to address 
notifications and what not, but there is very little with 
regard to prescriptions for protecting information to begin 
with, and that goes again to the issue around consumer data 
standard, and if you do not protect the data you are only going 
to have to apply larger and larger BandAids in the future.
    Mr. Shadegg. I tried to amend that legislation to add 
further restrictions on the use of Social Security numbers. 
However, had we done that, it would have taken it out of the 
jurisdiction of the Financial Services Committee and put it in 
the jurisdiction of the Judiciary Committee and it would have 
caused the bill to require a second referral and we weren't 
able to do it, but would you agree that that is one of the most 
important things that needs to be done?
    Mr. Ansanelli. I agree that that is a glaring omission.
    Mr. Shadegg. The gentlelady sitting next to you, it seems 
you would like to make a comment on that point?
    Ms. Davidson. Hosanna. I was making a note to myself that 
no one--although you did ask the obvious question why is the 
Social Security number collected in so many nontaxable 
transactions. Having recently purchased a house in the great 
State of Idaho, I was astonished to find that every single 
entity in the city, whether it was sewage, power, trash pickup, 
required my Social Security number and I had to ask the 
question: Is sewage taxable, because it was a complete mystery 
to me why it was collected in the first place.
    The Social Security number, had it not become ubiquitous as 
a means to identify consumers, quite honestly, a lot of the 
identity theft problem would probably go away.
    Mr. Shadegg. My colleague, Clay Shaw, has a comprehensive 
bill addressing this issue, going right to the issue of Social 
Security numbers. That was the issue we would have tread on if 
we had been able to put further restrictions on Social Security 
numbers into the Fair Credit Reporting Act, and that is the 
reason we did not do it. You might want to contact his office 
and interject yourself into the debate on that bill because I 
think that is an important part of this discussion.
    We were able to require the truncation of Social Security 
numbers in the draft of the fair credit reporting bill that 
passed the House. We did that, so we have taken a minor step, 
but I think it is a serious problem.
    Mr. Ansanelli, Mr. Burton next to you says we shouldn't be 
looking at these technical issues and creating a standard. We 
ought to be instead creating incentives to do that.
    I am going to give him a chance to explain that, but how do 
you respond?
    Mr. Ansanelli. I agree. I am not proposing we have 
technical requirements or standards. I think the standards need 
to be around principles, and as I testified today, and I did 
testify in the House Financial Services Committee on FCRA, that 
it involves responsibility from everyone at the board level 
down to protect the data and you have to have those principles 
to make sure that everyone knows they are responsible for 
protecting the data, that they have an obligation to detect and 
enforce compliance by the people that have access to the data 
and you need to correct problems, and the correction of those 
problems includes things like training and education. It is 
definitely not proposing technical standards. It is having a 
clear understanding of the responsibility associated with the 
fact that you store and manage that consumer non-public, 
private information.
    Mr. Shadegg. With regard to the protection of information 
where you think we could have gone further in the Fair Credit 
Reporting Act, would you be willing to submit to my office your 
suggestions as to what we need to be doing to go beyond that?
    Mr. Ansanelli. More than willing.
    Mr. Shadegg. I have some doubts about the ability of 
Congress to micromanage this problem, legislative piece by 
legislative piece.
    We passed the Identity Theft Act a number of years ago, and 
it took a step in the right direction, but we are not there. It 
seems to me that crooks are always going to move faster than we 
are and we are not going to be able to achieve the kind of 
reform or the kind of protection we would like to just by 
legislating one bill at a time in this area. So your notion 
that business needs to take a completely different mindset 
seems to me a better solution.
    How do we go about creating the incentives or creating a 
dynamic in which business leaders will see it as in their 
interest to not act like the porcupine and roll up in a ball 
and defend itself, but rather aggressively go after this 
problem?
    Mr. Burton. That is a seminal question, I think, and I 
think that is a question that industry needs to ask itself, as 
well as this committee needs to reflect on, because to go back 
to Scott Charney, if the PC is something built by geeks for 
geeks, well, then cybersecurity is the pinnacle of the 
geekiness in the PC, and I think when this issue comes up, too 
often the reaction is oh, mine eyes glaze over. I will talk 
about privacy, that is a personal issue, that is a consumer 
issue, and I can understand it. Cybersecurity is a geek 
technical issue that I do not want to even open that book, and 
I think that if we somehow make the translation from a 
technical issue, and it is technical, I am not saying we should 
dismiss that, but it is often treated solely in those terms, 
and again the best paradigms that I have is quality, and 
quality awareness comes first, I think we have awareness with 
cybersecurity. Now we need to start building it systematically 
and to functions of our system, and I think anything this 
committee can do to clarify cost-benefits and perhaps penalties 
would be a big contribution, and again I think the levers are 
not that complex. I think it is risk assessment, it is 
reporting, it is accountability, and I think those three 
opinions can really drive huge, huge change in this field.
    So I do not have a specific answer for your question, but I 
do think that is the key question for this whole debate.
    Mr. Shadegg. Mr. Chairman, my time has expired. Thank you.
    Mr. Stearns. Thank you.
    Members, if you want to stay, we will have a second round.
    The gentlelady from Missouri.
    Mr. McCarthy. Mr. Chairman, let me apologize for having to 
leave. I had another hearing and of course when you do that, 
the question that you are going to ask might have been asked 
already. So, Mr. Chairman, please feel free to say read the 
record.
    Microsoft, let me just see. I think I want to give this to 
Ms. Davidson, I think might be in the best position to answer 
it.
    Microsoft Corporation made news when they announced a 
bounty program for information leading to the arrest and 
prosecution of hackers. Do you intend to launch a similar 
program for those hackers who attack your software?
    Ms. Davidson. That is a very interesting question. We have 
no immediate plans to do this, and I preface this statement by 
saying I have no wish to exceed Microsoft in this particular 
realm. Microsoft tends to be a very visible target for hackers, 
to be fair to them, because they are large, they have been very 
successful, and, quite honestly, there are more hackers gunning 
for them at this point than are gunning for Oracle, for which I 
am exceedingly grateful. I am happy to accede market leadership 
to you in that realm.
    At this point, I do agree with certainly Microsoft and 
others in the industry on one key point. We certainly welcome 
people who find faults in our software and bring it to our 
attention. We certainly do everything possible to avoid them 
the way that we build our product, and we are always happy to 
give recognition to those researchers who find fault and say 
thank you, we have fixed it, and we tell our customers.
    There are a group of researchers for whom thank you and 
potentially hiring them for bettering your software is not 
enough. They want your scalp, and one of the ways they get that 
is by releasing exploit code at forums such as Black Hat and 
other hacker conventions.
    No vendor will say that it is not their responsibility to 
build secure software. The buck definitely stops here, but 
those who trade in information about how to exploit 
vulnerabilities and give it to others are effectively arsonists 
swapping fire starting techniques, and they claim they want 
better building codes but try telling that to someone whose 
house has burned down.
    So at this point we have no plans to offer a bounty, but I 
do agree that the problem of irresponsible disclosure of 
detailed information about security faults, specifically 
creation of exploit code and releasing it into the wild, is in 
part responsible for a lot of the malicious and damaging 
behavior to our infrastructure.
    Mr. McCarthy. All right. Does open source software like 
Linux have vulnerabilities to worms and viruses?
    I have seen a recent report that an open source developer 
tried to insert a Trojan horse into Linux.
    First of all, could you explain what is a Trojan horse, and 
how do you ensure that your developers do not insert malicious 
codes like that into your data base?
    Ms. Davidson. A Trojan horse is--of course, goes all the 
way back to Greek literature in the Iliad, actually the 
Odyssey. The idea is to get something into your code base that 
does something malicious. For example, one could insert code 
that would capture a user's password and potentially mail it to 
a bad guy or capture a Social Security number or other 
sensitive piece of information. The premise is that someone has 
deliberately and willfully put code in that does something bad, 
unbeknownst to anyone else.
    This is something people spend a lot of time talking about 
and it is certainly not--it is a risk but, quite honestly, most 
of the problem in software that creates these viruses and worms 
is preventable, avoidable security faults.
    I mentioned, and I will not get all nerdy on you, but 
buffer overflows. That is about 70 percent of security faults, 
and it basically means that instead of--if a program is 
expecting 10 numbers and it does not handle gracefully if it 
receives 11 numbers, or letters or something else, it could 
create a buffer overflow and that is 70 percent approximately 
of security faults. It is just bad programming.
    So getting back to your question how do you prevent this--
--
    Mr. McCarthy. Yes.
    Ms. Davidson. [continuing] I believe you cannot absolutely 
prevent someone from willfully putting malicious code in your 
software because you cannot prevent them from making careless 
errors. Now what you can do is to have very good development 
processes, you can have code reviews, you separate your code so 
that not everyone gets access to everything to make changes, 
and the one piece that truly is missing right now is we do not 
have automated tools that can scan code and find, first of all, 
avoidable, preventable security faults, which is really most of 
the problem in that, much less look for things like malicious 
code or malware. The tools just do not exist in the market now.
    Mr. McCarthy. Thank you very much, Mr. Chairman. I see my 
time has expired.
    Mr. Stearns. I thank the gentleman.
    Mr. Morrow, you summed up your testimony by characterizing, 
``our state of information security readiness is marginally 
better than it was 2 years ago.''
    What can we as the U.S. Government do so that 2 years from 
now the improvement in our information security readiness would 
be more than marginal?
    Mr. Morrow. Well, sir, I believe I outlined a few things in 
my testimony. One of the things that we see a lot of is that a 
lot of effort has been spent by very large organizations, the 
financial industry, you know Fortune 500 companies, but a lot 
of the issues have trickled down and a lot of the 
vulnerabilities are still being addressed at the levels of the 
mid-range business and the small-range business, and that is 
for several reasons. One, these things cost money to fix. A lot 
of companies in the last few years due to the economic downturn 
haven't had the money to invest in these type things, and you 
have to understand and always keep aware of the interconnected 
nature of all these things, and just because the Fortune 500 
companies and the government may make great strides, if the 
smaller companies and smaller institutions, private 
organizations, et cetera, do not make similar strides, cannot 
make similar strides for economic reasons, then there is a 
problem because that opens up vulnerabilities to everyone.
    So I think one of the things personally that we can have a 
lot of bang for the buck, if you will, is to help figure out 
incentives for small and mid-size and smaller companies to--and 
organizations to address these problems.
    Mr. Stearns. Who would provide these incentives?
    Mr. Morrow. Well, I think it could be a couple of different 
ways. One could be financial incentives of some manner. That 
obviously is something in the purview of the Federal 
Government. Others might be the research and development, tax 
credits, things like that, and there may be an education or 
some sort of public service type of incentive where very small 
companies who offer--small tier companies and small businesses, 
privately owned businesses, who have one or two systems and 
have problems, they may require incentive from the government 
to provide them with basic tools, much like what Microsoft does 
in some of their software, for a very much reduced cost. I 
think that would go a long way.
    Mr. Stearns. Okay. Mr. Schmidt, to date how effective have 
cyberattacks been, and have you seen an increase in their 
effectiveness, and, if so, why do you think so?
    Mr. Schmidt. I think first and foremost we have to define 
what we mean by how effective they have been. For example, if 
the intent of some of these were to shut down major financial 
systems, shut down electrical power grids, no, they have not 
been successful on a universal basis. We have seen some spot 
outages. But, as we move forward, I think what we will see is 
the--as we referred to as the zero-day vulnerabilities and 
exploits. As both Ms. Davidson and Mr. Charney mentioned, the 
time between the identification of vulnerability and the time 
that it is exploited has been increasingly shorter.
    Now, you mentioned in your opening comments, Mr. Chairman, 
the SQL Slammer event back in January. That widespread event 
took place in less than 10 minutes, whereas some of the ones 
you mentioned earlier, the Code Red and Nimda, occurred over a 
matter of days to see maximum infection.
    The interesting piece of this is if you look at the ratio 
of computers affected versus the ratio of computers that are 
now currently employed, it was actually a smaller percentage of 
computers that were infected in a shorter period of time, but 
we have got a lot more computers out there. So we are doing a 
better job at it. So overall, the impact was probably less than 
it could have been had it been 2 years ago with that same 
number of computers.
    I think the fundamental issue is if we don't continue to 
improve these processes, reduce the vulnerabilities, make 
better tools available to prevent these things from even taking 
place, which, as the Department of Defense has shown, 98 
percent of the successful intrusions into those systems were 
the result of someone not installing a patch, so if we install 
the patches, their effectiveness would be much less than they 
are today.
    Mr. Stearns. Ms. Davidson, I think you recommended a 
government software underwriters lab. I think that intrigued 
all of us here and the staff, sort of the consumer equivalent 
of--software equivalent of the UL. I would like you maybe to 
elaborate and then have the Commissioner maybe just give his 
comments on it.
    Ms. Davidson. Thank you. I would be happy to do that.
    We do have mechanisms for large pieces of commercial 
software to go through an independent security evaluation. 
There is an ISO standard for that, 15408, which is a common 
criteria.
    As I mentioned earlier, the Defense Department requires 
products used in national security systems to go through common 
criteria evaluations. They are really good, and they help 
improve the security of software, because it forces developers 
to a secure software development process. That is a great 
thing, and we are a great proponent of that. But they are best 
suited--it is certainly not a cure-all for all cybersecurity 
ills, and they really are best suited to more mature products 
with a longer life cycle that are really sort of large pieces 
of software, like operating systems or data bases, firewalls. 
That is not--and they are quite expensive. They can cost 
between $500,000 and $1 million.
    That is obviously not well-suited for a small consumer 
products device, where the cost of the evaluation might 
actually dwarf your product sales. Usually something is better 
than nothing when you are talking about improvements. If you 
can have something that is a lighter weight form of that for 
commercial products, like a PDA or other types of small 
devices, that would be----
    Mr. Stearns. I talked to a president of a university, and 
he said he is going to have to spend $100,000 for software to 
protect his university from cyberattacks. So maybe that piece 
of software should go to a software underwriters lab. Is that 
what you are saying?
    Ms. Davidson. Well, I think you have to look at probably 
the complexity of the software, the target market, and what it 
is being used for.
    Mr. Stearns. So cost alone would not determine?
    Ms. Davidson. Cost alone doesn't. And as much as people 
complain about how expensive these are, I can tell you that it 
costs Oracle--if we have a security fault in our software that 
has been out there a few years, and we have to fix it on 20 
operating systems and four product versions, which we have done 
to protect all our customers, happily to do that, it costs us 
$1 million to fix that type of avoidable, preventable security 
fault.
    If you prevent one of those or find it before you ship the 
product, you pay for the cost of the evaluation.
    Mr. Stearns. Uh-huh.
    Ms. Davidson. So it is cost-effective. And risk management 
doesn't really work when you are talking about, well, I am 
going to let my customers hang in the wind because I didn't 
feel like doing a better quality job with my product. That is 
not acceptable.
    Mr. Stearns. Commissioner, what do you think of the idea of 
a software underwriters lab? I mean, it wouldn't necessarily be 
under the Federal Trade Commission, but you are the only person 
here from the government, so we will ask you.
    Mr. Swindle. In this entire world of information technology 
we live in, I think creative ideas are going to be the currency 
of making progress. And I think any idea of this nature 
deserves attention, as Ms. Davidson said.
    These remedies that we often aspire to are very expensive, 
not to mention the fact that they are very complex. I think we 
are always interested, the FTC, in exploring new ideas.
    Something that I would suggest that deals with most of the 
questions that have been asked, that is security, sort of 
mirrors the privacy debate that we have had over the last 5 or 
6 years that I have been at the Commission. If you go back 6 
years ago, very few companies had privacy policies. They didn't 
post them. They were not very effective or were too difficult 
to understand. Today that has changed appreciably. And I used 
to say that privacy had better become a part of the corporate 
culture of businesses or there would be an FTC in their future, 
probably.
    I think security is along the same track, just running a 
few years behind. Security has got to become an essential part 
of the management scheme of all companies, because we are 
becoming more and more reliant upon handling of data and 
information and the transmission of that data and information. 
Without security, we jeopardize the whole system. It becomes a 
matter of critical importance to one's own self-interest that 
we do this right. So I think security is going to have to 
become a part of the corporate culture as well as privacy.
    Mr. Stearns. Okay. Let me just conclude, Mr. Thompson. We 
want to make sure you are involved here. Maybe just you can 
give a general evaluation on cybersecurity relative to this 
spyware that Ms. Bono has mentioned, maybe just some general 
comments.
    Mr. Thompson. Sure. I think I have heard some great ideas 
and some great suggestions. The only thing is that it has 
really all been aimed at protecting the corporate end of 
things, and protecting the consumer from the corporate end of 
things.
    But there is more to it than that. There is a whole world 
of consumers out there, and there is no one standing up for 
them. That is really the intent of Ms. Bono's bill. Every month 
I see thousands of Remote Access Trojans posted to the Usenet 
in an attempt to catch some of these consumers, and there is 
no--they are catching people, and there is no one sticking up 
for them.
    Mr. Stearns. Every month you see thousands?
    Mr. Thompson. Thousands of Trojan horses are disguised as 
adult movies or----
    Mr. Stearns. Help aids?
    Mr. Thompson. Something. And they are posted to the Usenet. 
They are posted to the peer-to-peer networks.
    Mr. Stearns. So you download that, thinking this software 
is going to help you. Bingo, you are caught.
    Mr. Thompson. And are you caught. And these are the worst 
kind of spyware. These are the ones that do steal the 
keystrokes, these are the ones that do steal your credit cards, 
they do steal your identity. And no one is looking out for 
these people. Someone has to look out for them.
    Mr. Stearns. My time has expired.
    The gentlelady from California.
    Mrs. Bono. Thank you, Mr. Chairman. I want to piggyback on 
that for Mr. Thompson as well. If you installed something like 
Norton Utilities or an antivirus firewall, every time your 
computer transmits to the Internet, you can have a notification 
that tells you your computer is speaking to the Internet.
    Mr. Thompson. Sure.
    Mrs. Bono. Does that, in fact, notify you that spyware is 
transmitting data?
    Mr. Thompson. If everyone is playing by the rules. But 
sometimes they are subtle and they simply don't play by the 
rules, and they piggyback on something that has already been 
authorized. These things are tricky.
    Mrs. Bono. Some people have said that the problem with this 
legislation is companies would move offshore, similar to the 
antispam legislation. But, to me, this doesn't seem like a 
valid argument. Would you----
    Mr. Thompson. I think some of them are offshore already, 
and probably some more would move offshore. But it would be 
nice to cut down on the people that were actually doing it 
openly.
    Mrs. Bono. I agree. Thank you.
    Ms. Davidson, you briefly mentioned hacker conventions or 
conferences. Is there a room filled with people at a Hyatt 
doing this, or is this something that is all taking place 
online?
    Ms. Davidson. I think they are a little more upscale than 
the Hyatt, no disrespect to Hyatt.
    Yes, there are such things. I am sure that Mr. Charney has 
been to one as well to see the amount of collusion going on in 
the halls to try to exploit the latest vulnerability in vendor 
software.
    Quite honestly, some of the hackers spend more time in the 
hall devising viruses than I think they do at the actual 
sessions. There are such things. One of the problems in the 
industry really is that the hackers are very good at playing 
nicely with one another. They share information. They share 
exploit code.
    One of the reasons there is such a shortening of this 
window is in the past you could assume if there was a 
vulnerability in your software, and it was difficult to find or 
exploit, someone would have to spend a lot of time doing that. 
Then you only had to worry about the one bad guy or bad gal as 
the case may be. Now those people create automated ways of 
doing bad things, and they share it with other people, who may 
then improve upon it and find more destructive or virulent 
forms of viruses or worms. And they actually have conventions. 
That is a real problem.
    Mrs. Bono. That is amazing to me that we can have physical 
get-togethers of bad guys, and they are infiltrated by the FBI 
or whoever ought to be there. How do we not know about this but 
you guys do?
    Ms. Davidson. Well, I think--Scott, I am sure, will have 
some comments on this. Actually there are a number of people 
who go to these from industry, partly because that is where 
they learn about the latest techniques for breaking into 
things.
    I am not against general discussions of how to--how things 
are broken so that you can understand how to better defend 
against those attacks. I think we would be sticking our heads 
in the sand if we didn't participate in that. But when someone 
creates the exact--effectively leaves a Molotov cocktail on the 
front lawn of a building with a box of matches next to it, with 
a sign that says, have fun throwing this, they have some 
accountability. And many of them feel that they have no 
accountability; it is intellectual showing off.
    Mr. Charney. I want to add a couple of comments, because I 
think they are important. I spent 9 years as Chief of the 
Computer Crime and Intellectual Property Section at the Justice 
Department. Law enforcement agents do go to these conferences. 
They actually have a Spot-the-Fed event, which is quite common.
    But there is something else that is also important to note. 
I mean, I agree with all Mary Ann's comments, but after the 
Oklahoma City bombing, the Office of Legal Council gave a 
constitutional opinion, at Congress's request, that bomb-making 
information on the Internet was first-amendment-protected.
    Similarly, information about code vulnerabilities, exploit 
code, other kinds of information like that is constitutionally 
protected most likely. It is one thing to deploy the code and 
take action, but to go to a conference and talk about how you 
might exploit a system is probably a constitutionally protected 
activity.
    And so we always have to keep this in some context.
    Ms. Bono. Thank you.
    Is there any--changing the subject a little bit, 
recognizing that the minute that something is digitized, it is 
a 1 and a zero, but are there hardware answers here like 
biometric identifiers or credit card terminals that hardware 
manufacturers are looking at? And I am basically back to 
consumer protection solely, but is there a hardware answer on 
the horizon?
    Mr. Charney. Microsoft is investing about $6.9 million this 
year on research and development, and one of the more important 
projects we are working on is something called the next 
generation security computing base. It is moving security into 
the hardware, working with the major chip manufacturers to 
create a secure chip set on your computer. You will still have 
the general purpose computer that you have today, but you will 
have a second chip set that will control what runs on your 
machine with strong memory and process isolation.
    And the goal of this, if this works, is that when code 
tries to execute on your machine without your permission, if it 
is on that protected side of the machine, you will be notified 
that code is trying to run. You will be able to block it.
    But, this is, you know, very difficult research and 
development. And, I mean, we are shooting for, in the long-term 
timeframe, the next version of the operating system, which 
means roughly 2006, give or take.
    Mrs. Bono. Well, thank you.
    Mr. Chairman, I can go on and on, but I will stop. I just 
thank you all so much for your time today. It has been very 
informative.
    Mr. Stearns. And I thank the gentlelady for staying for the 
second round.
    We have concluded our subcommittee hearing.
    I would point out that the Federal Trade Commission has a 
complete set of documents talking about how to stay safe 
online. They have a little mascot who is promoting it. And so I 
call attention to Members, too, that part of these programs 
probably should be on their congressional Websites so people 
can go to use, whether you are sight-seeing on the Internet or 
whether you are talking about electronic theft, or how to stay 
safe. The Federal Trade Commission has done a great deal of 
work on this and are to be commended for all that they are 
doing.
    With that I want to thank the witnesses, and we will 
probably have some follow-up questions for you. And I will 
allow the members to offer that to you, give you 5 working days 
to answer them if you could.
    With that, the subcommittee is adjourned.
    [Whereupon, at 12:20 p.m., the subcommittee was adjourned.]

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