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Cybersecurity: Legal implications and risk management

What's inside

In an increasingly interconnected world, cyber risk is firmly at the top of the boardroom agenda, and having an effective data breach response programme is no longer optional.

Cybersecurity crisis management

The internet knows no borders, neither do we. Our global team of cybersecurity response experts work across borders, combining data protection, privacy, regulatory, white collar and litigation expertise in order to deliver seamless crisis management and legal advice, whenever and wherever needed.

The digitalization and free flow of information has transformed global business. However, with increased opportunities have come new and increased risks, together with complex legislative regimes that can vary significantly by jurisdiction, and are constantly evolving. Even the most conscientious company can become the victim of a cybersecurity incident, such as the stealing of client or company information, or a ransomware attack. We work with a wide range of multinational companies to manage their cybersecurity risks, developing rapid response plans, providing time-critical crisis management advice, and working with clients to manage any resulting legal issues that may arise. 

Key issues

Why?

  • Reputation
  • Fines
  • Breach of contract
  • M&A due diligence
  • Insurance
  • Proprietary information
  • Litigation
  • Criminal offences
  • Negligence

Be prepared

Risk Assessment

  • Key Information
  • Assets
  • Key Systems
  • Threat Analysis
  • Security Measures

Toolkit

  • Scripts
  • Internal and 
    External
  • Communications
  • Employee contacts
  • Response Plan
  • Live Training
  • Business Continuity Plan

Key considerations

Customer/individual rights

  • Requests for data
  • Data Protection Authority Complaints
  • Group litigation orders
  • Resolution mechanisms

B2B relationships

  • Contractual obligations
  • Contractual liability
  • Tort

Reputation management

  • Media strategy
  • Customer interaction
  • Employee engagement

Commercial

  • Proprietary
  • Information/Trade Secrets
  • System Disruption

Regulatory issues

  • Data Protection Authority
  • Financial Regulators
  • Market authorities
  • Other regulators

Privacy & data protection

  • Jurisdictions involved
  • Reporting obligations
    • individuals
    • authorities

Evidence

  • Law Enforcement Involvement
  • Legal Privilege
  • Preservation of Evidence

Response

Crisis Team

  • Legal (internal and external)
  • IT/IT Forensics
  • PR
  • Regulatory
  • DPO
  • Executive committee
  • HR
  • Vendor manager

Key Actions

  • Work with forensic investigators to:
    • Identify and contain breach
    • Gather/preserve evidence
    • Maximise legal privilege coverage
  • Contact crisis team
  • Bring in external partners
  • Identify key risks and priorities based on nature of breach
  • Assess notification requirements
  • Communications
  • Regulatory notifications

 

Articles

Directors face personal liability over cybersecurity failures

In an article for The Times, White & Case partner Lawson Caisley discusses why it could become increasingly common for UK directors to "face personal liability and regulatory censure as a result of their company suffering or mishandling a cyberbreach". 

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Director liability for cyber breaches: transatlantic warning signs?

Two legal cases in the US in the past month suggest that regulators and prosecutors are becoming more determined to take personal action against directors and senior executives who fail to deal adequately with cyber security breaches.  

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Legal 500's In-House Lawyer Magazine Autumn - Commercial Litigation Focus (Germany)

In The Legal500's newly released In-House Lawyer Magazine a group of White & Case lawyers has contributed a legal briefing on trends in German commercial litigation.

magazine pile

AAA plc & ors v Persons Unknown: Cyber Activism or Blackmail?

In recent years, demands for payments in cryptocurrencies have become the ransom of choice for cyber extortionists and other online frauds. As a result, the English Court's powers are increasingly being called upon.

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Time to Revisit Risk Factors in Periodic Reports

Ninth Circuit Decision Highlights Importance of Updating Risk Factors to Address Material Developments, including those relating to Cybersecurity Risks.

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Cybersecurity Enforcement: New York Department of Financial Services issues first penalty under Cybersecurity Regulation

Consistent with its increasing activity in the cybersecurity enforcement space, in March 2021, the NYDFS issued its first penalty under the Cybersecurity Regulation. This client alert explores the settlement and offers takeaways on the areas of focus by the NYDFS in enforcement actions under the Cybersecurity Regulation.

Compensating non-material damages based on Article 82 GDPR

Is a data subject entitled to compensation from a controller or processor if the data subject's GDPR rights have been infringed, even if they have not suffered any kind of material damage? 

Corporate Boards Must Ask Key Cybersecurity Questions

Cybersecurity has been a mainstay of quarterly board agendas for years.

Cybersecurity Risk: Top 5 strategies to build resilience

The fourth webinar in our 2020 Autumn Webinar Series covered crucial steps you should be taking to protect against cybersecurity threats and what you should do when disaster strikes.

Before the Dust Settles: The California Privacy Rights Act Ballot Initiative Modifies and Expands California Privacy Law

Hot on the heels of the California Attorney General's rulemaking process for the California Consumer Privacy Act ("CCPA"), California voters have passed a ballot initiative to expand and create new privacy rights for consumers.

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US Cybersecurity Standards to Get Tougher and More Specific

In the past few years, cybersecurity has taken on increasing importance in the eyes of lawmakers and regulators.

Data Sharing Without Borders

UK law enforcement can now obtain an order against a person in or operating in the US for the production of or access to electronic data under a new ‘landmark’ US-UK data sharing agreement.

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Responding to a cyber-incident

The COVID-19 crisis has exposed many companies to more cyber threats. Tim Hickman and John Timmons discuss what businesses need to do should a major incident occur.

Trending: Legal protection for cryptoasset stakeholders

Recent decisions in Singapore and New Zealand confirm that the courts are prepared to act to provide greater certainty and support to stakeholders in cryptoassets.

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Recovering the ransom: High Court confirms Bitcoin status as property

The High Court has determined that Bitcoin (and other similar cryptocurrencies) can be considered property under English law, and could be the subject of a proprietary injunction. The Court granted the injunction to assist an insurance company to recover Bitcoin that it had transferred in order to satisfy a malware ransom demand.

Navigating Privacy and Cyber Incident Notification and Disclosure Requirements

Organisations are facing increasing uncertainty in assessing global notification and disclosure obligations and making a determination of whether to notify or disclose a privacy violation or security incident in today's complex regulatory environment. This article offers six steps companies should consider when navigating this complex process.

Proposal on the Application of the NIS Regulations post-Brexit

This article examines the impact of the UK Network and Information Systems Regulations 2018 (SI 2018/506) (NIS Regulations) on organisations post Brexit and their obligations under applicable cybersecurity law.

Contacts

Director liability for cyber breaches: transatlantic warning signs?

Alert
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3 min read

Two legal cases in the US in the past month suggest that regulators and prosecutors are becoming more determined to take personal action against directors and senior executives who fail to deal adequately with cyber security breaches.  

At the beginning of October, Uber's former chief security officer was found guilty of criminal obstruction charges for failing to report a cyber breach to the authorities. This is believed to be the first time a US company executive has been criminally prosecuted over a cyber breach, and he now faces a prison sentence of up to eight years. Earlier this week, the Federal Trade Commission (FTC) announced that it had taken action against the CEO of Drizly (an online drinks delivery business) over the company’s security failures which led to a cyber breach that exposed the personal information of 2.5 million customers.

Given the global nature of regulatory trends and the fact that cyber breaches are increasingly a fact of business life, UK-based directors will be justifiably concerned at the prospect of a potential increase in the risk of personal liability arising from cyber breaches. However, a closer look at the facts of each of these cases suggests that aggravating factors prompted the authorities to target the individuals concerned.

In the first case, the criminal charges against Uber's former chief security office (James Sullivan) arose from the fact that, when the relevant cyber breach occurred in 2016, Uber was already under investigation by the FTC for an earlier cyber breach in 2014. The 2016 breach involved a hacker accessing customer records and demanding a US$100,000 payment, which was ultimately paid by Mr Sullivan's team. Mr Sullivan did not inform the FTC of the incident despite its ongoing investigation, and prosecutors alleged that he also took steps to conceal the incident within the company. Mr Sullivan's actions led to him being fired by Uber. 

In the second case, the FTC's decision to take action against the CEO as well as the company itself was driven by the fact that both were alerted to problems with the company's security procedures following a cyber attack two years earlier. Despite this, the company failed to implement basic cyber security measures while publicly claiming to have appropriate protections in place. The FTC's proposed order requires the company and the CEO to implement an information security programme to protect customer data. The FTC stated that this "ensures the CEO faces consequences for the company's carelessness".

Both these cases therefore involved aggravating factors that may place them outside of a 'typical' scenario where directors are faced with a cyber breach and try their best to deal with it honestly and reasonably. 

Turning to the UK, while it is the case that directors could face personal liability and regulatory censure as a result of their company suffering or mishandling a cyber breach, we have seen very few attempts to hold directors or senior managers personally liable in such circumstances. To date, legal claims and regulatory action have been mainly directed at the company suffering the breach. However, directors should not be complacent. UK regulators have long made clear their view that cyber security is a board level issue that requires serious and meaningful senior engagement. Directors must therefore assume that, like the FTC, UK regulators will be looking very closely at the conduct of individual directors in relation to any cyber breach suffered by their company and that, if similar aggravating factors were present, action against individual directors might be considered.

In addition, attempts to hold directors personally liable for negligence and breach of duty are becoming more common in the English courts, for example in relation to ESG-related issues. The fact that cyber security is now firmly established as a key business risk means that directors can increasingly expect a cyber breach suffered by their company to result in more pressure to demonstrate that they had taken reasonable steps both to prevent a breach and to prepare to handle any breach that occurred. 

Against that backdrop, UK boards would be well advised to heed the FTC's warning: "CEOs who take shortcuts on security should take note". 

 

White & Case means the international legal practice comprising White & Case LLP, a New York State registered limited liability partnership, White & Case LLP, a limited liability partnership incorporated under English law and all other affiliated partnerships, companies and entities.  

This article is prepared for the general information of interested persons. It is not, and does not attempt to be, comprehensive in nature. Due to the general nature of its content, it should not be regarded as legal advice.

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