(IMF) International Monetary Fund Computer Systems Hacked

The International Monetary Fund (IMF) is the latest victim of cyber crime, as reported by Bloomberg. The report highlighted a series of attacks on companies such as EMC Corp. (EMC), Lockheed Martin Corp. (LMT), Google Inc. (GOOG), Sony Corp. (SNE) and Citigroup Inc. (C).

Bloomberg reported that the data theft at IMF has been linked to a foreign government. Although IMF did not quantify the amount and significance of data stolen, security analysts believe that the attackers had broad access to IMF systems, thereby providing them visibility into IMF plans.

The attack on the IMF led the World Bank to sever its network link with its sister organization, even though it was not used for confidential financial information or other sensitive data.

The alleged state-based intrusion is particularly alarming, as it may result in compromising national defense secrets. According to Akamai Technologies Inc. (AKAM), US companies need to prepare better against cyber attacks, which are increasingly emanating from outside the U.S.

Akamai cited that cyber attacks originated from 207 countries during the fourth quarter of 2010, with Russia leading the pack (accounting for 10% of the total attacks).

According to cyber security firm Invincea Inc., the hackers are adopting a sophisticated process known as “Spear Phishing,” which can be directly associated with espionage. Spear Phishing involves sending worm infected e-mails, which appear to come from colleagues or other officials.

Most recently, Internet search provider, Google’s computer network was compromised in order to gain access to the private Gmail accounts of senior U.S. officials. Google reportedly traced the incursion to hackers associated with the Chinese military. Google identified that the pattern of attack was similar to “Operation Aurora,” which broke into computer systems of at least 20 major U.S. companies in 2009.

Besides Google, Lockheed Martin suffered a cyber attack in May, when hackers used data stolen from EMC’s security division RSA to gain access to the defense contractor’s computer network. According to RSA, the pattern of attacks against Lockheed Martin shows that the hackers were seeking national security information.

The Oak Ridge National Laboratory, which works closely with the U.S. Energy Department, was also attacked this year. In February 2011, France’s finance ministry suffered a cyber attack, aimed at stealing files on the G-20 summit in Paris. The attack was traced to Internet addresses in China, although the direct involvement of the Chinese government was not found.

Preventive Measures

Countries and corporations are tightening Internet security to tackle cyber crime, developing strategies to upgrade government computer systems and expand cooperation with other countries. Efforts to improve coordination within the private sector are also increasing.

SecurID tokens provider, EMC Corp. is facing increased scrutiny from a U.S. Senate committee regarding the reliability of the widely used technology for authenticating the identity of people using the Internet. EMC has already started replacing the breached tokens for government and defense agencies.

While mere token replacement may not be the answer to the problem, it will serve as a stop-gap until a more comprehensive solution is available. At any rate, we do not see a conclusive solution to the problem any time in the near future. We think hacking activity will continue, as will security measures for its prevention.

We expect companies to spend a large portion of their information technology (IT) budgets on cyber security going forward. We also expect the governments to take preventive steps to restrict cyber crime going forward. This may include an increase in the cyber security budgets, formation of cyber crime units headed by experts from the information technology field and increasing co-operation with other countries.

Recently, the European Union (EU) decided to implement stricter punitive actions against hackers, which may result in sentences of up to 5 years on being found guilty. The EU’s 27 member states have also decided to boost their judicial and police cooperation by creating a cyber crime unit, which could be attached to Europol, the European police agency.

The US Federal Government has declared cyber security as a top priority and the Pentagon has set up a new Cyber Command division to deal with rising security threats. The fiscal 2012 budget has allocated $2.3 billion in new and ongoing spending on operational cyber security and cyber security research and development at the Department of Defense (DoD).

According to the US deputy defense secretary, US defense computer networks have thwarted intrusion from more than 100 foreign intelligence agencies since January 2011. Large corporations and enterprises that handle sensitive data are deploying intrusion software to expose any odd behavior on networks.

Conclusion

We believe cyber security is becoming the hottest and most debated topic in 2011, particularly as cloud computing adoption increases. The string of attacks on major corporations and government agencies has shown the vulnerability of the present security systems. A more vigilant approach from all sectors is the need of the hour, in our view.

Moreover, with increasing spending from government and large enterprises, we believe companies such as EMC will be encouraged to build new and innovative products. EMC recently announced its intention of spending $3.0 billion on acquisitions, with security to be the other priority besides storage. We believe this policy will boost EMC’s dominant position (70.0%) in the cyber security market over the long term.

We are Neutral on EMC over the long term (6-12 months). Currently, EMC has a Zacks #3 Rank, which implies a Hold rating on a short-term basis.

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