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[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]

 
 EXAMINING THE HOMELAND SECURITY IMPACT OF THE OBAMA ADMINISTRATION'S 
                         CYBERSECURITY PROPOSAL

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

                                HEARING

                               before the

                     SUBCOMMITTEE ON CYBERSECURITY,

                       INFRASTRUCTURE PROTECTION,

                       AND SECURITY TECHNOLOGIES

                                 of the

                     COMMITTEE ON HOMELAND SECURITY

                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

                             JUNE 24, 2011

                               __________

                           Serial No. 112-33

                               __________

       Printed for the use of the Committee on Homeland Security
                                     

[GRAPHIC] [TIFF OMITTED] TONGRESS.#13

                                     

      Available via the World Wide Web: http://www.gpo.gov/fdsys/

                               __________

                  U.S. GOVERNMENT PRINTING OFFICE
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20402-0001

                     COMMITTEE ON HOMELAND SECURITY

                   Peter T. King, New York, Chairman
Lamar Smith, Texas                   Bennie G. Thompson, Mississippi
Daniel E. Lungren, California        Loretta Sanchez, California
Mike Rogers, Alabama                 Sheila Jackson Lee, Texas
Michael T. McCaul, Texas             Henry Cuellar, Texas
Gus M. Bilirakis, Florida            Yvette D. Clarke, New York
Paul C. Broun, Georgia               Laura Richardson, California
Candice S. Miller, Michigan          Danny K. Davis, Illinois
Tim Walberg, Michigan                Brian Higgins, New York
Chip Cravaack, Minnesota             Jackie Speier, California
Joe Walsh, Illinois                  Cedric L. Richmond, Louisiana
Patrick Meehan, Pennsylvania         Hansen Clarke, Michigan
Ben Quayle, Arizona                  William R. Keating, Massachusetts
Scott Rigell, Virginia               Kathleen C. Hochul, New York
Billy Long, Missouri                 Vacancy
Jeff Duncan, South Carolina
Tom Marino, Pennsylvania
Blake Farenthold, Texas
Mo Brooks, Alabama
            Michael J. Russell, Staff Director/Chief Counsel
               Kerry Ann Watkins, Senior Policy Director
                    Michael S. Twinchek, Chief Clerk
                I. Lanier Avant, Minority Staff Director

                                 ------                                

SUBCOMMITTEE ON CYBERSECURITY, INFRASTRUCTURE PROTECTION, AND SECURITY 
                              TECHNOLOGIES

                Daniel E. Lungren, California, Chairman
Michael T. McCaul, Texas             Yvette D. Clarke, New York
Tim Walberg, Michigan, Vice Chair    Laura Richardson, California
Patrick Meehan, Pennsylvania         Cedric L. Richmond, Louisiana
Billy Long, Missouri                 William R. Keating, Massachusetts
Tom Marino, Pennsylvania             Bennie G. Thompson, Mississippi 
Peter T. King, New York (Ex              (Ex Officio)
    Officio)
                    Coley C. O'Brien, Staff Director
                    Alan Carroll, Subcommittee Clerk
        Chris Schepis, Minority Senior Professional Staff Member

                            C O N T E N T S

                              ----------                              
                                                                   Page

                               Statements

The Honorable Daniel E. Lungren, a Representative in Congress 
  From the State of California, and Chairman, Subcommittee on 
  Cybersecurity, Infrastructure Protection, and Security 
  Technologies...................................................     1
The Honorable Yvette D. Clark, a Representative in Congress From 
  the State of New York, and Ranking Member, Subcommittee on 
  Cybersecurity, Infrastructure Protection, and Security 
  Technologies:
  Oral Statement.................................................     3
  Prepared Statement.............................................     4
The Honorable Bennie G. Thompson, a Representative in Congress 
  From the State of Mississippi, and Ranking Member, Committee on 
  Homeland Security:
  Oral Statement.................................................     4
  Prepared Statement.............................................     5

                               Witnesses

Ms. Melissa E. Hathaway, President, Hathaway Global Strategies, 
  LLC:
  Oral Statement.................................................     8
  Prepared Statement.............................................    10
Mr. Gregory E. Shannon, Chief Scientist for Computer Emergency 
  Readiness Team (Cert), Software Engineering Institute, Carnegie 
  Mellon University:
  Oral Statement.................................................    17
  Prepared Statement.............................................    18
Mr. Leigh Williams, President, BITS, The Financial Services 
  Roundtable:
  Oral Statement.................................................    21
  Prepared Statement.............................................    23
Mr. Larry Clinton, President, Internet Security Alliance:
  Oral Statement.................................................    28
  Prepared Statement.............................................    30

                             For the Record

The Honorable Daniel E. Lungren, a Representative in Congress 
  From the State of California, and Chairman, Subcommittee on 
  Cybersecurity, Infrastructure Protection, and Security 
  Technologies:
  Statement of the American Chemistry Council....................     6

                                Appendix

Questions From Chairman Daniel E. Lungren for Melissa Hathaway...    57
Questions From Chairman Daniel E. Lungren for Gregory E. Shannon.    61
Questions From Chairman Daniel E. Lungren for Leigh Williams.....    64
Questions From Chairman Daniel E. Lungren for Larry Clinton......    65

 EXAMINING THE HOMELAND SECURITY IMPACT OF THE OBAMA ADMINISTRATION'S 
                         CYBERSECURITY PROPOSAL

                              ----------                              

                         Friday, June 24, 2011

             U.S. House of Representatives,
                    Committee on Homeland Security,
 Subcommittee on Cybersecurity, Infrastructure Protection, 
                                 and Security Technologies,
                                                    Washington, DC.
    The subcommittee met, pursuant to call, at 10:05 a.m., in 
Room 311, Cannon House Office Building, Hon. Daniel E. Lungren 
[Chairman of the subcommittee] presiding.
    Present: Representatives Lungren, McCaul, Walberg, Long, 
Marino, Clarke, Richardson, Richmond, and Keating.
    Mr. Lungren. With the concurrence of the Ranking Member of 
the full committee, the Subcommittee on Cybersecurity, 
Infrastructure Protection, and Security Technology will come to 
order.
    The subcommittee is meeting today to examine the homeland 
security impact of the administration's cybersecurity proposal.
    I would just say at the outset, we have a vote, I guess a 
single vote, scheduled at about 10:15, so we will have to go 
over there and then come back. We are going to try and get our 
opening statements in so that we can proceed directly with our 
witnesses as soon as we get back from the vote.
    I recognize myself for an opening statement.
    We are meeting today to examine the impact of the 
administration's cybersecurity proposal on the Department of 
Homeland Security. The proposal touches on a number of issues, 
such as increasing the penalty for hacking, putting in place a 
comprehensive regime around the issue of large-scale breaches 
of personally identifiable information, regulating the 
cybersecurity of the private-sector critical infrastructure 
owners and operators, and providing needed clarity on the 
cybersecurity mission of the Department of Homeland Security.
    While I may differ on certain elements of their proposal, I 
am pleased the administration has provided thoughtful inputs to 
Congress to help us craft an effective National cybersecurity 
policy. That being said, I believe this proposal is not the end 
of our effort but the beginning of a much-needed debate on how 
we, as a Nation, will address these dynamic cybersecurity 
threats in the future.
    With the growing number of computer network cyber 
intrusions and attacks being reported in the media, the need 
for strengthening cybersecurity is obviously more evident every 
day. The status quo is not acceptable. The internet and our 
digital society provide our adversaries multiple attack 
avenues.
    We must continue to innovate and to build a culture of 
cybersecurity. We must also find a way to incentivize critical 
infrastructure owners and operators to build security into 
their business model. Although our Nation faces a difficult 
fiscal environment, securing our critical infrastructure assets 
cannot be ignored.
    We must be creative and develop ways to improve the return 
on our security investments. Developing the right liability 
safe harbors for growing a more robust and mature cyber 
insurance market won't happen by itself, particularly in this 
economic downturn. We must tap the talent of the private sector 
to develop the appropriate ways and means to improve the 
cybersecurity economic equation. The cost if we don't secure 
our critical infrastructure and our business networks and data 
will be far greater.
    I thank all of our witnesses for their appearances today. 
This is the third in our series of hearings on the cyber threat 
to critical infrastructure.
    The administration's proposal outlines their cybersecurity 
vision, and I, frankly, thank them for it. It will help inform 
our efforts to develop legislation to better secure our 
critical infrastructure and Government networks. I am eager to 
hear how the proposed language would impact those in the 
private sector, how it would increase the authority of the 
Department of Homeland Security, and how it positions the 
Department of Homeland Security to be the focal point of our 
cybersecurity in the civilian government.
    I believe the Department is the appropriate place within 
the Government to take responsibility for our cybersecurity 
operations and establish policies and priorities for protecting 
our civilian departments and agencies. I think having the 
Government lead by example is critically important.
    As Chairman of the House Committee on Administration, I 
have the cybersecurity responsibility for the House of 
Representatives. I take that responsibility very seriously and 
am proud of the job that the CIO and his team have done. Having 
DHS lead by example is critically important, as I mentioned.
    We are going to hear from Dr. Greg Shannon this morning 
about the future of incident response operations. Carnegie 
Mellon CERT has long been recognized for its excellence in 
computer emergency response, and I am hopeful that their 
experience will help DHS build a world-class computer instant 
response capability.
    I am also honored to have Melissa Hathaway, the former 
cybersecurity advisor to both President Bush and President 
Obama, here to discuss the administration's proposal. She was 
the director of President Bush's Comprehensive National 
Cybersecurity Initiative. Additionally, as primary author of 
this administration's 60-Day Cyberspace Policy Review, she is 
in a unique position to share with us her expertise and 
perspective on improving the overall cybersecurity enterprise 
across Government--in particular, how the Government can best 
interact with private-sector critical infrastructure owners and 
operators.
    I applaud the administration for coming forward with a 
proposal. They have, I think, some of the answers. I don't 
think they believe, nor do I believe, that any one of us has 
all of the answers. But, together, we can certainly forge ahead 
to improve from where we are now.
    As I mentioned, we have had a vote called. Interesting, we 
have a little TV screen up here which shows what is going on, 
but they have managed to put it in mirror fashion so it is 
reverse of what it says. But I do believe that means we have 11 
minutes left. Somebody has invaded our little system here.
    But I would like to recognize the Ranking Member from New 
York, Ms. Clarke, for her opening statement.
    Ms. Clarke. Thank you very much, Mr. Chairman, Ranking 
Member Thompson, my colleagues, and to the panelists this 
morning.
    We live in a world where it seems that everything relies on 
computers and the internet. The effective functioning of our 
critical infrastructure from airports, financial systems, to 
water systems, factories, the electric grid is highly dependent 
on computer-based systems called control systems that are used 
to monitor and control sensitive processes and physical 
functions.
    The danger of both unintentional and intentional cyber 
attack is real. The potential consequences for an attack on 
control systems vary widely, from the introduction of raw 
sewage into potable water systems to the catastrophic failure 
of critical electrical generators due to the change of a single 
line of code in the critical system.
    We have come to recognize that public-private partnerships 
are a key component of securing our Nation's computer-reliant 
critical infrastructure. Private-sector involvement is crucial, 
as it collectively owns the vast majority of the Nation's cyber 
infrastructure and is responsible for protecting its networks 
and systems from the growing threat of a cyber attack. 
Enhancing the public-private partnerships by developing an 
improved value proposition and implementing better incentives, 
among other measures, will be essential to encouraging greater 
private-sector involvement.
    Control systems are not the only computers subject to 
attack. Every day, thousands of attacks are launched against 
Federal and private networks by hackers, terrorist groups, 
nation-states attempting to access classified and unclassified 
information. The infiltration by foreign nationals of Federal 
Government networks is one of the most pressing issues 
confronting our National security. Federal networks have been 
under attack for years. These attacks have resulted in the loss 
of massive amounts of critical information, so many of these 
attacks are classified.
    We all know that cybersecurity is a critical National 
security issue, and this committee has taken the lead. My 
Ranking Member, Mr. Thompson, reintroduced his cybersecurity 
bill from last year, H.R. 174, in January of this year and made 
sure it was referred to this subcommittee. The need to improve 
America's cyber defense posture is clear, and the Homeland 
Security Committee has been arguing this point for a long time.
    Now the President has come forward with a comprehensive 
strategy and some legislative proposals about how it will 
prevent, detect, and respond to attacks on computer systems and 
infrastructure. There have been many cyber-related bills in the 
last session of Congress, and the Members of Congress wrote to 
the President and asked for his input on cybersecurity 
legislation. As part of the President's 2-year cyberspace 
policy review, the White House has put forth a detailed and 
determined cybersecurity legislative proposal. I look forward 
to examining that proposal today.
    I thank you for calling this hearing, Mr. Chairman, and I 
yield back the balance of my time.
    [The statement of Ranking Member Clarke follows:]
         Prepared Statement of Ranking Member Yvette D. Clarke
                             June 24, 2011
    We live in a world where it seems that everything relies on 
computers and the internet.
    The effective functioning of our critical infrastructure--from 
airports, financial systems, to water systems, factories, the electric 
grid--is highly dependent on computer-based systems called ``control 
systems'' that are used to monitor and control sensitive processes and 
physical functions.
    The danger of both unintentional and intentional cyber attack is 
real, and the potential consequences of an attack on control systems 
vary widely from the introduction of raw sewage into potable water 
systems to the catastrophic failure of critical electrical generators 
due to the change of a single line of code in a critical system.
    We've come to recognize that public/private partnerships are a key 
component of securing our Nation's computer-reliant critical 
infrastructure. Private sector involvement is crucial, as it 
collectively owns the vast majority of the Nation's cyber 
infrastructure and is responsible for protecting its networks and 
systems from the growing threat of a cyber attack.
    Enhancing the public/private partnerships by developing an improved 
value proposition and implementing better incentives, among other 
measures, will be essential to encouraging greater private sector 
involvement.
    Control systems are not the only computers subject to attack. Every 
day, thousands of attacks are launched against Federal and private 
networks by hackers, terrorist groups, and nation-states attempting to 
access classified and unclassified information, and the infiltration by 
foreign nationals of Federal Government networks is one of the most 
pressing issues confronting our National security.
    Federal networks have been under attack for years; these attacks 
have resulted in the loss of massive amounts of critical information, 
though many of these attacks are classified.
    We all know that cybersecurity is a critical National security 
issue, and this committee has taken the lead. My Ranking Member, Mr. 
Thompson re-introduced his cybersecurity bill from last year, H.R. 174, 
in January of this year, and made sure it was referred to this 
subcommittee. The need to improve America's cyber defense posture is 
clear, and the Homeland Security Committee has been arguing this point 
for a long time.
    Now, the President has come forward with a comprehensive strategy, 
and some legislative proposals, about how it will prevent, detect, and 
respond to attacks on computer systems and infrastructure.
    There have been many cyber-related bills in the last session of 
Congress, and Members of Congress wrote to the President and asked for 
his input on cybersecurity legislation.
    As part of the President's 2-year Cyberspace Policy Review, the 
White House has put forth a detailed and determined cybersecurity 
legislative proposal.
    I look forward to examining that proposal today, and thank you for 
calling this hearing Mr. Chairman.

    Mr. Lungren. I thank the gentlelady.
    I now recognize the Ranking Member of the full committee, 
the gentleman from Mississippi, Mr. Thompson, for any statement 
he may have.
    Mr. Thompson. Thank you very much, Mr. Chairman, for 
holding this hearing.
    I welcome our witnesses also.
    Being, as you have already indicated, that there is a vote 
on the way, I will submit my opening statement for the record.
    [The statement of Ranking Member Thompson follows:]
        Prepared Statement of Ranking Member Bennie G. Thompson
                             June 24, 2011
    When President Obama released his Cyberspace Policy Review almost 2 
years ago, he declared that the ``cyber threat is one of the most 
serious economic and National security challenges we face . . .''.
    I agree with him and I am pleased that his administration has taken 
significant steps to put forth a clear path to update our cybersecurity 
laws.
    I am also pleased we are examining the President's proposal here 
today.
    This committee is the lead on cybersecurity in the House, as it 
should be, and we have been examining this issue and calling for action 
since our formation.
    I re-introduced my cybersecurity bill, H.R. 174, in January of this 
year with the continuing hope that it might get a hearing in this 
committee.
    Frankly, the White House proposal we are examining today has used 
many of the concepts I suggest in my legislation.
    We are facing a National and global challenge on cybersecurity, and 
we must be internationally engaged to make improvements.
    Simply put, we must figure out how cyberspace is to be governed, 
and how it is to be secured. We know that decisions being made by 
international bodies that govern the internet do not necessarily 
reflect U.S. National interests.
    Major corporations, financial firms, Government agencies, and 
allies have all been victims of cybersecurity breaches, and these are 
just the events we know about.
    Classified military networks have been penetrated by foreign 
intelligence agencies, and from the perpetrators' perspective, no one 
has ever been punished for any of these actions. This is not a record 
of success.
    Since 1998, we have repeatedly tried a combination of information 
sharing, market-based approaches, public/private partnership, and self-
regulation in an effort to strengthen our cyber defenses.
    Hopefully, we are learning from the shortcomings of the past and 
preparing for future challenges.
    Mr. Chairman, I look forward to today's examination of the 
President's proposal, and thank you for calling this hearing.

    Mr. Lungren. I thank the gentleman for submitting his 
opening statement.
    We will recess until we vote and complete the vote. I 
believe we just have one vote. So we will return immediately 
and begin with our witnesses.
    With that, this subcommittee hearing is recessed.
    [Recess.]
    Mr. Lungren. The subcommittee will resume.
    Other Members of the subcommittee are reminded that opening 
statements may be submitted for the record.
    We are pleased to have a distinguished panel of witnesses 
before us today on this most important topic.
    Melissa Hathaway served in President Obama's 
administration, 2009, where she coordinated the 60-Day 
Cyberspace Policy Review. Following the report, she stood up 
the Cybersecurity Office within the National security staff to 
conduct work based on the blueprint. Previously, she served 
under President Bush as cyber coordinator executive and 
director of the Joint Interagency Cyber Task Force in the 
Office of the Director of National Intelligence. Ms. Hathaway 
previously worked as principal with Booz Allen & Hamilton; 
currently is a strategic consultant in the field of 
cybersecurity.
    Mr. Greg Shannon is the chief scientist for the CERT 
program at Carnegie Mellon University Software Engineering 
Institute, a Federally-funded research and development center. 
Mr. Shannon has previously led applied research and development 
efforts in cybersecurity and data analysis at a number of 
private companies as well as the Los Alamos National 
Laboratory.
    Leigh Williams has served as the president of BITS, the 
technical policy division of The Financial Services Roundtable, 
since 2007, focusing on improving operational practices and 
public policy in the financial sector. Previously, he was a 
senior fellow at Harvard's Kennedy School of Government, 
researching public- and private-sector collaboration in the 
governance of privacy and security. In addition, he has worked 
at Fidelity Investments, where he was the chief risk officer 
and chief privacy officer.
    Then we have Mr. Larry Clinton, president and CEO of the 
Internet Security Alliance, a multi-sector industry group which 
was created to integrate advanced technology with the needs of 
the business community, leading to a secure internet. During 
his tenure at the Internet Security Alliance, Mr. Clinton 
created the ``Cyber Security Social Contract.'' He has 
previously worked as vice president of the USTelecom 
Association and as legislative director for our former 
colleague Rick Boucher, who was the subcommittee chair on the 
Energy and Commerce Committee with jurisdiction over 
telecommunications and the internet.
    We welcome all of you. We would ask you to try and stay 
within the 5 minutes. Your prepared written text will be made a 
part of the record.
    Before you begin, I would just ask unanimous consent that a 
letter that we received from the American Chemistry Council in 
regard to the subject before this committee be made a part of 
the record.
    Without objection, it will be.
    [The information follows:]
              Statement of the American Chemistry Council
                             June 24, 2011
       acc members are a critical aspect of the nation's economy
    The American Chemistry Council (ACC) represents the leading 
companies in the United States who produce the chemical products 
essential for everyday life. And, the business of chemistry is a 
critical aspect of our Nation's economy employing more than 800,000 
Americans in good-paying, high-tech positions and produces 20% of the 
world's chemical products.
    More than 96% of all manufactured goods are directly touched by the 
business of chemistry. The chemical industry provides vital products 
and materials that help improve our standard of living, advance green 
energy objectives and protect the health and welfare of all Americans. 
Our industry produces critical components used in lifesaving 
medications, medical devices, body armor for our armed forces and law 
enforcement, energy-efficient light-weight components for vehicles that 
improve gas mileage, energy-saving building materials, and the durable, 
light-weight wind turbine blades that help generate green energy that 
creates jobs while protecting the environment.
   cybersecurity is a top priority for acc and the chemical industry
    Because of our critical role in the economy and our responsibility 
to our communities, security continues to be a top priority for ACC 
members. In 2001, our members voluntarily adopted an aggressive 
security program that became the Responsible Care Security Code 
(RCSC). Responsible Care implementation is mandatory for all members of 
the ACC and is regularly reviewed by independent, credentialed third-
party auditors. The RCSC is a comprehensive security program that 
addresses physical and cybersecurity risks. The Security Code requires 
a comprehensive assessment of its cybersecurity vulnerabilities and 
implementation of appropriate protective measures throughout a 
company's supply chain, The RCSC has been a model for State-level 
chemical security regulatory programs in New Jersey, New York, and 
Maryland and was deemed equivalent to the U.S. Coast Guard's Maritime 
Transportation Security Act (MTSA).
    The Security Code covers the crucial area of cyber and information 
security and we were gratified that in 2009 the Obama administration 
made cybersecurity a top priority. Along with physical security, ACC 
members began actively addressing cybersecurity issues before and after 
the attacks of September 11, 2001. Cyber experts from member companies 
also work closely with the DHS National Cyber Security Division (NCSD) 
in many areas including: National Cyber Storm exercises, information 
sharing programs, development of the Roadmap to Control Systems 
Security for the Chemical Sector, A 2009 Program Update can be found on 
the Obama administration's website--``Making Strides to Improve Cyber 
Security in the Chemical Sector.''
    Security in all its dimensions continues to be a top priority for 
the ACC and the chemical industry, and we're proud of our record of 
accomplishment and cooperation on cybersecurity with Congress, DHS, and 
others.
  the chemical industry complies with tough cybersecurity regulations
    On April 9, 2007 the U.S. Department of Homeland Security published 
the ``Chemical Facilities Anti-terrorism Standards'' (CFATS) regulatory 
program. This comprehensive Federal regulatory program requires high-
risk chemical facilities to register with DHS, conduct a thorough site 
security assessment and implement protective measures that comply with 
18 risk-based performance standards (RBPS).
    In particular, RBPS No. 8 establishes performance standards for 
cybersecurity that must be implemented by each covered facility. RBPS 
No. 8 requires facilities to deter cyber sabotage and prevent 
unauthorized access to critical process control systems including 
Supervisory Control and Data Acquisition (SCADA) systems, Distributed 
Control Systems (DCSs), Process Control Systems (PCSs), Industrial 
Control Systems (ICSs) and other sensitive computerized systems. To do 
this, RBPS No. 8 requires a combination of policies and practices that 
high-risk chemical facilities must address to effectively secure a 
facility's cyber systems from attack or manipulation including:
    (1) security policy,
    (2) access control,
    (3) personnel security,
    (4) awareness and training,
    (5) monitoring and incident response,
    (6) disaster recovery and business continuity,
    (7) system development and acquisition,
    (8) configuration management, and
    (9) audits.
    In addition, CFATS specifies critical cyber systems that may 
require certain enhanced security activities including those that 
monitor and/or control physical processes that contain a chemical of 
interest (COI); those that are connected to other systems that manage 
physical processes that contain a COI; or those that contain business 
or personal information that, if exploited, could result in the theft, 
diversion, or sabotage of a COI.
        acc recommendations for effective cybersecurity policies
    ACC and its members support comprehensive cybersecurity legislation 
that promotes effective collaboration between the chemical industry and 
the Department of Homeland Security and ensures that robust 
cybersecurity practices are implemented across the chemical supply 
chain, while maintaining the free flow of commerce.
    To do this ACC recommends the following:
   Create cybersecurity standards that are prioritized based on 
        risk and focused at protecting critical systems that if 
        compromised would truly pose a significant threat to National 
        security, public safety or the National economy. Cybersecurity 
        legislation should establish performance standards to allow for 
        flexibility in their application so that chemical industry 
        entities can use appropriate measures that fit their unique 
        circumstances while ensuring the security of their critical 
        systems. The standards should take advantage of the incredible 
        wealth of knowledge embodied in the international cybersecurity 
        standards community.
   Establish a public/private partnership to effectively share 
        information that is timely, specific, and actionable and is 
        properly protected from public disclosure. Such a partnership 
        will vastly improve the flow of information and ideas to help 
        quickly identify threats and vulnerabilities. Such an approach 
        will also generate flexible solutions that protect critical 
        cyber systems that operate complex process controls, contain 
        valuable intellectual property and trade secrets and personal 
        information on employees, customers, and suppliers. To help 
        promote the flow of information, information voluntarily 
        provided by the private sector should be adequately protected 
        from public disclosure including Freedom of Information Act 
        requests.
   Provide limited liability protection for the private sector 
        as a result of a cyber-attack, so long as recognized 
        technologies have been applied to address potential threats. In 
        order to promote the more rapid penetration of state-of-the-art 
        emerging technologies to protect against cyber threats, the 
        Government should hold technology users harmless from damages 
        resulting from cyber-attacks on their IT and control systems, 
        so long as recognized technologies have been applied to address 
        potential threats. For example, the liability protections 
        provided by the Safety Act are appropriate to consider. This 
        will in turn provide the private sector better access to more 
        advanced and affordable end products that are safe and secure 
        as possible.
   Strengthen U.S. laws against cybercrimes and aggressively 
        prosecute cyber criminals and promote international 
        cooperation, U.S. laws should be updated and strengthened to 
        protect critical infrastructure from cyber-attacks and hold 
        those accountable for perpetrating said acts that are intended 
        to cause harm to critical infrastructure operating systems, 
        steal intellectual property and trade secrets, or obtain 
        personal information for financial gain.
   Consider the borderless nature of the international cyber 
        community and the challenges that it presents. The U.S. Federal 
        Government should develop strong National and international 
        partnerships to work together in identifying international 
        threats, investigate cyber-crimes, and vigorously prosecute 
        cyber criminals. The American chemical industry is one of the 
        most creative and effective manufacturing enterprises in the 
        world. However, with the advent of the Advanced Persistent 
        Threat (APT), international cyber criminals are attempting to 
        steal our intellectual property with little risk of getting 
        caught. Successful APTs could compromise our industry's ability 
        to compete in the global market place. Without a focused 
        strategy to address this issue, the private sector will 
        continue to fight an uphill battle. ACC encourages the Federal 
        Government to include this issue as a central component of its 
        strategy and strengthen our fight against international cyber 
        theft of intellectual property.
                               conclusion
    We agree that our shared priority is to enhance cybersecurity 
across the chemical supply chain Nation-wide. ACC looks forward to a 
productive debate on cybersecurity legislation that protects our 
critical information infrastructure while promoting effective and 
efficient commerce that will continue to strengthen our economy.
    The members of ACC and the chemical industry are committed to 
safeguarding America's chemical facilities and the cyber systems that 
enable their efficient and effective operations. It is in this spirit, 
that we offer our assistance to work with the DHS and Members of 
Congress in support of this shared goal.

    Mr. Lungren. Ms. Hathaway.

 STATEMENT OF MELISSA E. HATHAWAY, PRESIDENT, HATHAWAY GLOBAL 
                        STRATEGIES, LLC

    Ms. Hathaway. Thank you, Chairman Lungren, Ranking Member 
Clarke, Members of the committee, for the opportunity to 
testify on cybersecurity and its importance to homeland 
security.
    I am appearing today solely in my individual capacity, and 
I am not representing any clients or other organizations. 
Please accept my testimony for the record.
    My testimony is divided into three sections: It is a review 
of the threat; it is an assessment of the current legislative 
docket and unaddressed needs; and a view of the need to clarify 
the role for the Department of Homeland Security.
    Target attacks are increasing, and our defensive posture 
remains weak. Our opponents harness precision-guided bits and 
bytes to deliver spam, cast phishing attacks, facilitate click 
fraud, and launch a distributed denial-of-service attack. The 
frequency of events and affected people and enterprises are 
alarming. Recent headlines will show that our money, our 
personal privacy, our infrastructure, and our children are at 
risk.
    The NASDAQ breach showed us that our investment plans and 
money are exposed. The Epsilon breach showed us that our 
personal credentials and privacy is at risk. The RSA SecureID 
breach showed us that our trusted transactions and 
authenticated transactions are at risk. The Sony PlayStation 
network showed that our children are at risk. Then, finally, 
the Stuxnet worm showed that our critical infrastructures are 
at risk.
    The cybersecurity problem is growing faster than the 
solution. The Comprehensive National Cybersecurity Initiative, 
as well as the Cyberspace Policy Review, highlighted the need 
to address the threat.
    Clearly, cybersecurity is a topic of interest, based on the 
sheer number of bills that were highlighted in the 111th 
Congress--over 55 bills--and now in the 112th Congress, showing 
that a legislative conversation needs to address the shortfalls 
in our current laws. As of June 2011, at least 10 pieces of 
cybersecurity legislation have been introduced in the U.S. 
Senate, and at least another 9 have been introduced in the U.S. 
House of Representatives. I have highlighted those in my 
testimony.
    The cybersecurity legislative proposals reflect different 
approaches and priorities. The 21st-Century digital environment 
requires new laws that, at a minimum, address: Data ownership, 
data handling, data protection and privacy, evidence gathering, 
incident handling, monitoring and traceability, rights and 
obligations related to data breach and data transfers, and 
access to data based on law enforcement and intelligence 
services.
    The administration outlines six proposals that anchor the 
priorities for debate here in Congress. As Congress considers 
these proposals, it will be important to gain industry's 
perspective and understand the second- and third-order effects 
of these proposals.
    For example, which sectors will be covered critical 
infrastructure and, therefore, be subject to regulation under 
the new rules? The President's international strategy for 
cyberspace implies that energy, finance, transportation, and 
the defense industrial base sectors will be named covered 
critical infrastructures.
    The proposal attempts to establish a minimum standard of 
care and an audit and certification function that would be 
similar in kind to the Securities and Exchange Commission 
requirement for attestation of material risk. In my view, 
inserting DHS into a regulatory role in this context could 
dilute its operational and policy responsibilities and likely 
distract from the Nation's security posture.
    Additionally, the administration is proposing new 
authorities for DHS by establishing a National Cybersecurity 
Protection Program, which authorizes the DHS to explore 
countermeasures for the overall infrastructure. The discussion 
will become even more important as Congress debates the merits 
of Government involvement in the protection of private-sector 
networks.
    As scary and as problematic as these threats are and the 
intrusions may be and as devastating as they may be, it is 
important that the defensive posture not overtake our core 
freedoms. We should also respect the longstanding limitations 
on the role of the military as it relates to public safety and 
our civilian activities.
    I think the most important thing that this committee can 
address is whether and how we clarify DHS's overall role. Are 
we going to ask them to be a policy-maker, are we going to be 
asked them to be a regulator, or are we going to ask them to be 
an operator?
    All of the legislative proposals reflect the dilemma of a 
codependent relationship between the private sector as it 
develops, owns, and operates the internet-based infrastructure 
for which the Government is responsible for delivering 
essential services of power, water, telephone, et cetera, and 
ultimately providing economic prosperity and security.
    Our response includes restructuring regulation and attempts 
to centralize decision-making, all with the intent to reduce 
vulnerabilities and minimize the damages of intrusion. My 
testimony reflects different ideas on each of the roles: 
Operational, regulatory, and policy.
    In conclusion, the 112th Congress has an opportunity to 
drive a new legislative conversation and address the shortfalls 
in current laws. The cybersecurity problem is growing faster 
than the solution, and we cannot afford to be faced with 
strategic surprise to address this problem. FISMA reform and a 
National data breach umbrella are needed.
    Additionally, modern-day criminals are using our legal 
system's speed and lack thereof to their advantage. We need to 
stiffen the penalties and modernize the laws that are not 
keeping pace with today's digital environment. We need to 
empower the National security community charged with protecting 
the Nation and its critical infrastructure from cyber 
exploitation or attack.
    The Computer Fraud and Abuse Act, the Electronic 
Communications and Privacy Act, the Stored Communications Act, 
the Telecommunications Act, and the Economic Espionage Act are 
among some of the laws that need to be reviewed and updated.
    Congress should seek industry's perspective and debate the 
advantages and challenges associated with fielding a robust and 
active defense capability, imposing standards and regulation on 
industry, and demanding more of DHS. An overly restrictive 
approach should be avoided. We cannot afford to pass 
legislation that would prove to be feckless.
    I thank you very much for the opportunity to testify, and I 
look forward to your questions.
    [The statement of Ms. Hathaway follows:]
               Prepared Statement of Melissa E. Hathaway
                             June 24, 2011
    Mr. Chairman and Members of the committee: Thank you for the 
opportunity to testify on the subject of cybersecurity and its 
importance to homeland security. I am appearing today solely in my 
individual capacity, and not on behalf of any clients or other 
organizations.
    My testimony is divided into three parts: (1) A review of the 
threat, (2) an assessment of the current legislative docket and the 
unaddressed needs, and (3) a view on the need to clarify the role of 
DHS.
    Targeted attacks are increasing and our defensive posture remains 
weak.--A sense of urgency is rising because the media reports how our 
insecure computers are being infected every day. Our opponents harness 
precision-guided bits and bytes to deliver spam, cast phishing attacks, 
facilitate click-fraud, and launch a distributed denial of service 
(DDoS). The frequency of events and affected people and enterprises are 
alarming. Recent headlines expose that our money, personal privacy, 
infrastructure, and even our children are at risk. These network 
intrusions include but are not limited to:
   NASDAQ.--The operator of the Nasdaq Stock Market said it 
        found ``suspicious files'' on its U.S. computer servers and 
        determined that hackers could have affected one of its 
        internet-based client applications.\1\ Investigators are 
        considering a range of possible motives, including unlawful 
        financial gain, theft of trade secrets, and a National-security 
        threat designed to damage the exchange.\2\ Impact: Our 
        investment plans and money are exposed.
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    \1\ Jonathan Spicer. UPDATE 2-Hackers breach Nasdaq's computers. 
Reuters On-line. 5 February 2011. http://www.reuters.com/article/2011/
02/05/nasdaq-hackers-idUSN05148621- 20110205.
    \2\ Devlin Barrett. ``Hackers Penetrate Nasdaq Computers.'' The 
Wall Street Journal. 5 February 2011. http://online.wsj.com/article/
SB10001424052748704709304576124502351- 634690.html.
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   Epsilon.--Epsilon, which sends 40 billion emails annually on 
        behalf of more than 2,500 clients, detected an incident on 30 
        March 2011. It determined that a subset of Epsilon clients' 
        customer data were exposed by an unauthorized entry into 
        Epsilon's email system. The information that was obtained was 
        limited to email addresses and/or customer names and 
        represented approximately 2% or 50 customers including 
        Walgreens, Disney destinations, Best Buy, and Citigroup.\3\ The 
        worry is that even months down the road, customers could get an 
        email impersonating their bank or credit-card issuer containing 
        poisonous web links. Once clicked, those links could install 
        malicious code on their computers or try to trick them into 
        giving up valuable information, such as credit card information 
        or log-in data to their banks or social media accounts.\4\ 
        Impact: Our personal credentials and privacy are at risk.
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    \3\ Epsilon. Public Statement by Epsilon. 1 April 2011.
    \4\ Ki Mae Heussner. Epsilon Email Breach: What You Should Know. 
ABC News Online. 4 April 2011. http://abcnews.go.com/Technology/
epsilon-email-breach/story?id=13291589.
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   RSA SecureID.--In March 2011, RSA informed its customers of 
        a breach of its corporate network which could reduce the 
        effectiveness of its SecureID two factor authentication token. 
        On 21 May 2011, a leading U.S. defense contractor, Lockheed 
        Martin, had its networks penetrated. The perpetrator(s) used 
        duplicates of RSA's SecureID tokens to gain access to 
        Lockheed's internal network.\5\ After this breach and several 
        others resulting from the SecureID issue, RSA Security says it 
        will replace tokens, upon customer request.\6\ Impact: Our 
        trusted transactions (authenticated transactions) are at risk.
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    \5\ Jeffrey Carr. ``An Open Source Analysis Of The Lockheed Martin 
Network Breach.'' Digital Dao Blog. 31 May 2011. http://
jeffreycarr.blogspot.com/2011/05/open-source-analysis-of-lockheed-
martin.html.
    \6\ http://www.wired.com/threatlevel/2011/06/rsa-replaces-securid-
tokens/.
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   Sony's PlayStation Network was taken down on 20 April 
        2011.--A forensics team investigated the scope of the breach 
        and by May 2, the breach reportedly had affected an estimated 
        100 million people and spread to Sony's Online Entertainment 
        division. In an effort to show how vulnerable Sony was to a 
        breach, the hacker group LulzSec exposed names, birth dates, 
        addresses, emails, passwords, etc. of Sony's customers.\7\ As 
        of the end of May, Sony has spent $171 million closing the 
        vulnerabilities on its network and informing its customers of 
        their exposure.\8\ Impact: Our children are at risk.
---------------------------------------------------------------------------
    \7\ Andy Bloxham. ``Sony hack: private details of million people 
posted online.'' The Telegraph. 3 June 2011. http://
www.telegraph.co.uk/technology/news/8553979/Sony-hack-private-details-
of-million-people-posted-online.html
    \8\ Robert Westervelt. ``Sony breach timeline shows missteps.'' 
Security Bytes on-line. http://itknowledgeexchange.techtarget.com/
security-bytes/sony-breach-timeline-shows-missteps-says-security-firm/ 
31 May 2011.
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   Citigroup.--In early June 2011, computer hackers breached 
        Citigroup's network and accessed the names, account numbers, 
        and contact data of hundreds of thousands of bankcard holders 
        in North America.\9\ This may be the largest breach of a 
        financial institution to date, arming criminals with victim 
        data. Impact: Our banks and money are at risk.
---------------------------------------------------------------------------
    \9\ Maria Aspan. ``Regulators pressure banks after Citi data 
breach.'' Reuters. 9 June 2011. http://news.yahoo.com/s/nm/20110609/
bs_nm/us_citi.
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   Stuxnet.--The Stuxnet worm that was used to shut down Iran's 
        nuclear program has been widely analyzed around the world. It 
        targets control system vulnerabilities and its source code has 
        been traded on the black market. Security officials worry that 
        this worm will be used again to attack other critical 
        infrastructures that rely on computers and have the same 
        security flaws.\10\ Impact: Our critical infrastructure is at 
        risk.
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    \10\ Stewart Meagher. ``Stuxnet worm hits the black market.'' 
THINQ. 25 November 2010. http://www.thinq.co.uk/2010/11/25/stuxnet-
worm-hits-black-market/.
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    The cybersecurity problem is growing faster than the solution.--
Upon review of these cases, it can be determined that it costs less to 
break into a system or enterprise than it does to defend it. An 
infected thumb drive (USB key) that costs less than $10 can undermine 
an enterprise's security in minutes and nullify years' worth of 
information technology (IT) investments. Organizations everywhere are 
being penetrated--from small businesses to the world's largest 
institutions. Policy makers, legislators, and businessmen are assessing 
the gap between their current defensive posture (the floor) and their 
needed front-line defense (ceiling) in the face of a growing 
sophisticated range of actors. All of these facts are exasperated by 
the prolonged economic recovery that has placed significant pressures 
on enterprise IT budgets and focused actions toward meeting the minimum 
regulatory requirements like compliance at the expense of broader 
information security initiatives.
    The Comprehensive National Cybersecurity Initiative (CNCI) outlined 
these multidimensional threats along four attack vectors: Insider 
access,\11\ proximity access;\12\ remote access;\13\ and supply chain 
access \14\ and it provided a framework for unifying investments to 
shore up the Government's defense. President Obama's Cyberspace Policy 
Review re-stated that the Nation must become more resilient to all 
types of cyber-based attacks. While there has been activity against 
many of the recommendations in the Cyberspace Policy Review, there is a 
lot more that needs to be done.
---------------------------------------------------------------------------
    \11\ Unauthorized use or access to information, systems, and 
networks by otherwise trusted agents (employees).
    \12\ Gaining access to information or systems via deployment of 
technology in proximity to the target.
    \13\ Accessing target information and/or systems through network-
based technical means (internet).
    \14\ Gaining advantage, control, and/or access to systems and the 
information they contain through manipulation by cooperative/witting 
vendors or unilaterally at any point in the supply chain between the 
manufacturer and end-user.
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             cybersecurity in the 111th and 112th congress
    The 111th Congress considered more than 50 pieces of cybersecurity 
legislation. The wide range of topics addressed in these bills included 
proposed changes to organizational responsibilities; instituting 
compliance and accountability mechanisms; implementing data 
accountability standards and reporting requirements for personal data 
privacy, data breach handling and identity theft; enhancing 
cybersecurity education; advancing research and development grants; 
evaluating critical electric infrastructure protection and conducting 
vulnerability analysis of other critical infrastructures; expanding 
international cooperation on cybercrime; and addressing procurement, 
acquisition, and supply-chain integrity.
    Clearly, cybersecurity is a topic of interest and the sheer number 
of bills highlights the cross-jurisdictional interest of the subject. 
The 112th Congress has an opportunity to drive a new legislative 
conversation and address the shortfalls in our current laws. As of June 
2011, at least ten pieces of cybersecurity legislation have been 
introduced in the United States Senate and at least another nine have 
been introduced in the United States House of Representatives. Appendix 
A contains a table that outlines some of the cybersecurity bills under 
consideration in the 112th Congress. Like many of the bills of the 
111th Congress, the bills in the 112th address niches of the 
cybersecurity problems facing the Nation; even if taken together, none 
of them address the situation in a comprehensive manner.
    Cybersecurity legislative proposals reflect different approaches 
and priorities.--The 21st Century digital environment requires new laws 
that at a minimum address: data ownership; data handling; data 
protection and privacy; evidence gathering; incident handling, 
monitoring and traceability; rights and obligations related to data 
breach and data transfers; access to data by law enforcement or 
intelligence services; and degree of Government assistance (e.g., 
subsidy, information, technology, liability relief) to close the gap 
between threat, innovation, and competitiveness. The Cyberspace Policy 
Review identified scores of laws that needed to be updated. In May 
2011, the administration put forward its cybersecurity legislative 
proposal. It reflects the efforts of an interagency, consensus-based 
system and a diversity of views across six proposals. Like Congress, it 
shows the jurisdictional focus by specific mission areas.
    Two specific areas of the administration's package have been 
debated in the last two sessions of Congress: (1) Amending the Federal 
Information Security Management Act (FISMA) from a static compliance-
based system to one of continuous monitoring; and (2) providing a 
Federal umbrella to unify guidance of the 47 disparate State data 
breach laws. The four remaining areas of the administration's package 
represent new legislative proposals. Briefly, they seek to: (1) Update 
the Computer Fraud and Abuse Act (CFAA) by stiffening penalties for 
breaches and theft of information; (2) grant new authorities for DHS--
enabling them to deploy Intrusion Prevention Systems (IPS) in the .gov 
domain and allow DHS to turn to Internet Service Providers (ISPs) to 
conduct that mission on behalf of the Government (with liability 
relief); (3) establish critical infrastructure regulation, set 
mandatory standards for ``covered'' critical infrastructures, and an 
audit and compliance regime that mandates private sector entities to 
attest to cybersecurity risk management plans; and (4) prevents 
restrictions on data center locations (i.e., States can't specify that 
a data center be located in a certain State).
    As Congress considers these proposals, it will be important to gain 
industry's perspective and understand the second- and third-order 
effects of the proposals. For example, which sectors will be considered 
``covered'' critical infrastructure, and therefore subject to 
regulation under the new rules? The President's International Strategy 
for Cyberspace implies that the Energy, Transportation, Financial 
Services, and Defense Industrial Base (DIB) sectors will be named the 
``covered'' critical infrastructures. The legislative proposal states, 
``the owners or operators of covered critical infrastructure shall 
develop cybersecurity plans that identify the measures selected by the 
covered critical infrastructure to address the cybersecurity risks in a 
manner that complies with the regulations promulgated, and are guided 
by an applicable framework designated.''\15\ This proposal attempts to 
establish a minimum standard of care and an audit and certification 
function that would be similar in kind to the Securities and Exchange 
Commission (SEC) requirement for attestation of material risks. In my 
view, inserting DHS into a regulator role in this context could dilute 
its operational and policy responsibilities and likely detract from the 
Nation's security posture. In May 2011, Senator Rockefeller asked the 
SEC to look into corporate accountability for risk management through 
the enforcement of material risk reporting.\16\ And in June 2011, 
Chairman Schapiro said that the SEC would look into the matter. If 
Congress believes corporations should meet such a reporting requirement 
then it should turn the Executive Branch Independent Agency that is 
responsible for this type of reporting and not add an additional 
mission responsibility to DHS. And while regulation may be necessary, 
Congress should also consider the use of other market levers (e.g., tax 
relief, research and development subsidy, etc.) to incentivize industry 
investment in information security.
---------------------------------------------------------------------------
    \15\ The White House. Cybersecurity Legislative Package: 
Cybersecurity Regulatory Framework For Covered Critical Infrastructure 
Act. Page 3.
    \16\ Senator Rockefeller letter to SEC Chairman Mary Schapiro. 11 
May 2011.
---------------------------------------------------------------------------
    Additionally, the administration is proposing new authorities for 
DHS by establishing a National Cybersecurity Protection Program 
(Section 244) that authorizes DHS to actively protect Federal systems. 
The package states, ``the Secretary is authorized, notwithstanding any 
other provision of law and consistent with section 248(a), to acquire, 
intercept, retain, use, and disclose communications and other system 
traffic that are transiting to or from or stored on Federal systems and 
to deploy countermeasures with regard to such communications and system 
traffic.''\17\ Of course more active measures must be taken to protect 
Federal systems from cybersecurity threats because passive defenses are 
simply not enough. The question that Congress needs to carefully 
consider is which entities in the Government (e.g., Federal Bureau of 
Investigation (FBI), National Security Agency (NSA), or DHS) are the 
appropriate entities to help secure the Federal Government systems? Are 
there appropriate checks and balances in place to oversee these new or 
extended authorities?
---------------------------------------------------------------------------
    \17\ The White House. Cybersecurity Legislative Package: Department 
of Homeland Security Cybersecurity Authority. Page 6.
---------------------------------------------------------------------------
    This discussion will become even more important as Congress debates 
the merits of Government involvement in the protection of private 
sector networks. The Washington Post reported last week that NSA ``is 
working with internet service providers to deploy a new generation of 
tools to scan e-mail and other digital traffic with the goal of 
thwarting cyber-attacks against defense firms by foreign 
adversaries.''\18\ Certainly other nations are turning to their ISPs as 
a front line of defense in protecting their Government and private 
sector networks. But, is this a mission that we want NSA to lead, or is 
it one that we expect DHS to undertake?
---------------------------------------------------------------------------
    \18\ Ellen Nakashima. ``NSA allies with internet carriers to thwart 
cyber attacks against defense firms'' The Washington Post. 7 June 2011.
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    As scary and as problematic as these threats are and intrusions may 
be (and as devastating as they may be), it is important that the 
defensive posture not overtake our core freedoms. We should also 
respect the long-standing limitations on the role of the military as it 
relates to public safety and civilian activities. This is why, in my 
opinion, the administration's legislative package proposes the section 
(245) for voluntary disclosure of cybersecurity information. It 
addresses shortfalls in the law and aims to extend the Provider 
Exception (i.e., 18 U.S.C.  2511(2)(a)(i)) to include protection 
against network attacks and prevention of delivery of malware to the 
end user and provides liability relief for the reporting mechanism back 
to the Government (currently not permitted under the law). One could 
argue that this is what is being mandated via the code of conduct in 
Australia and via the recent pan-European telecommunications reform 
that will be transposed into National laws in the coming months. The 
European mandate obliges the ISPs to take more responsibility for 
providing enhanced security services to their customers and report all 
security incidents to the European Network and Information Security 
Agency (ENISA).
       clarifying dhs's role: policy, operational, or regulatory
    All of the legislative proposals reflect the dilemma of a co-
dependent relationship between the private sector that develops, owns, 
and operates the internet-based infrastructure for which the Government 
is responsible for delivering essential services (e.g., power, water, 
telephone, etc.) and ultimately providing economic prosperity and 
security. Our responses include organizational restructuring, 
regulation, and attempts to centralize decisionmaking all with the 
intent to reduce the vulnerabilities and minimize the damages of 
intrusions. We appear to be asking DHS to take on new cybersecurity 
roles and missions while it is establishing its basic core 
competencies. Is this reasonable? Do we want DHS to become a first-
party regulator? Do we want DHS to assume an operational role that 
provides actionable information to the private sector and provides 
active defense of Federal systems? Or do we want DHS to assume a 
broader policy role and become the National architect for a more secure 
and resilient infrastructure? Perhaps it would be better to focus DHS 
on becoming a center of excellence in one or two areas.
           247 information security capability (operational)
    Becoming an operational center of excellence that disseminates 
timely and actionable cybersecurity threat, vulnerability, mitigation, 
and warning information, including alerts, advisories, indicators, 
signatures, and mitigation and response measures, to improve the 
security and protection of Federal systems and critical information 
infrastructure is necessary. To be successful requires DHS to adopt a 
247 ``customer service'' business model, where its customers are other 
Federal agencies; State, local, Tribal, and territorial governments; 
the private sector; academia; and international partners. It would need 
to learn from successful customer service industries and embed the 
necessary industry partners (like the member companies of the National 
Security Telecommunications Advisory Committee) within its operations. 
It would need to pass knowledge onto its customers that removes the 
sensitive sources and methods that make it classified and therefore 
make it more readily available and actionable.
    There are many other aspects of a 247 information security 
operation that DHS could take on. Some of these capabilities are 
outlined in the administration's legislative package and some 
additional capabilities are outlined in other pieces of pending 
legislation. Yet it is important to admit that establishing an 
effective 247 operation is no small task. It requires real 
specialization and technical expertise, a commitment to providing a 
100% up-time service, and if an incident occurs, an ability to turn to 
the private entities that will likely be called upon to operate in a 
degraded state and restore operations (and infrastructures) quickly. 
While it is possible that the National Cybersecurity and Communications 
Integration Center (NCCIC) could evolve and assume this role, it would 
require it to become an independent operational unit carved out of the 
headquarters entity of DHS--akin to United States Secret Service or the 
Drug Enforcement Agency.
    If we are truly interested in setting up a 247 operation 
immediately, then DHS in cooperation with the Department of Defense 
(DoD) could call up specialist cybersecurity units within the National 
Guard or DoD Reserve Forces. DHS could also turn to outside 
organizations, such as the Carnegie Mellon Computer Emergency Response 
Team (CERT-CC) to further augment its staff.
       national architect and advocate for secure and resilient 
                        infrastructures (policy)
    Congress and the administration also turn to DHS raise awareness, 
fund education initiatives, incubate technology, and broadly set 
cybersecurity policies for the critical infrastructures. At the 
forefront, DHS is responsible for increasing public awareness. It is 
currently sponsoring a competition to develop a public service 
announcement (PSA) on cybersecurity to augment the October 
Cybersecurity Awareness Month. It is also conducting a review of the 
university participation in the National Centers of Academic Excellence 
in Information Assurance to determine how it can increase the number of 
universities participating, obtain full 50-State participation, 
increase the output of students per program, and align more closely 
with the National Science Foundation's Scholarship for Service. Linking 
these programs to hands-on experiential learning like that of the high-
school, university, and professional competitions sponsored by the U.S. 
Cyber Challenge would be a natural next step.
    Moreover, DHS's recently released a paper entitled, ``Enabling 
Distributed Security in Cyberspace Building a Healthy and Resilient 
Cyber Ecosystem with Automated Collective Action'' that explores the 
idea of a healthy, resilient--and fundamentally more secure--cyber 
ecosystem of the future. It envisions an environment of cyber 
participants, including cyber devices, that are able to work together 
in near-real time to anticipate and prevent cyber attacks, limit the 
spread of attacks across participating devices, minimize the 
consequences of attacks, and recover to a trusted state.\19\ If DHS 
were to drive the implementation of this vision it will require DHS to 
modify its relationship with industry, consolidate the number of 
private-public partnerships, and drive the development of standards in 
partnership with the National Institute of Standards and Technology 
(NIST). It will also require DHS to lead the discussion on behalf of 
the Executive Branch for the following questions: ``What are the 
business drivers that will incentivize the necessary investments? What 
are the appropriate roles and responsibilities of the public and 
private sector in delivering the healthy ecosystem? Which elements 
should be prioritized for early realization? As a healthy cyber 
ecosystem emerges, governance questions become salient. Will system 
owners cede decisionmaking to the community? Who sets policy for inter-
enterprise information exchange and deployment of countermeasures? What 
liability regimes apply for collateral consequences of countermeasure 
deployment (or the failure to deploy known countermeasures)? What legal 
authorities should local and National governments, as well as 
international entities, have to compel action by devices owned by or 
serving private parties in order to secure the larger cyber 
commons?''\20\
---------------------------------------------------------------------------
    \19\ Department of Homeland Security. ``Enabling Distributed 
Security in Cyberspace Building a Healthy and Resilient Cyber Ecosystem 
with Automated Collective Action.'' 23 March 2011.
    \20\ Department of Homeland Security. ``Enabling Distributed 
Security in Cyberspace Building a Healthy and Resilient Cyber Ecosystem 
with Automated Collective Action.'' 23 March 2011. Page 27.
---------------------------------------------------------------------------
    Like the operational role, this policy-based role requires 
personnel who are steeped with background in policy development and the 
art of negotiation. It also requires understanding of the technical 
underpinnings of the next generation hardware and software and 
knowledge of the standards-setting processes. Raising awareness and 
advocating a new architecture of hardware and software products for 
industry to build toward is no small task. If Congress and the 
administration want DHS to be the National voice for cybersecurity, 
they cannot necessarily be saddled with all of the operational and 
regulatory missions that are recommended in the legislative proposals.
           first-party regulatory role vice-setting standards
    Is it possible for regulation to keep pace with technology 
development and adoption? Has the market failed to produce secure and 
resilient hardware and software products?
    Many of the critical infrastructures are already regulated (e.g., 
energy, finance, telecommunications) and NIST works with the Sector 
Agency and DHS to set the standards by which industry has to meet. But 
as evidenced by the three volume edition on Guidelines for Smart Grid 
Cybersecurity,\21\ the standards are not always published in time for 
market penetration and adoption. So, what is the role of the private 
sector in policing itself, adapting to new industry standards and 
upgrades, and coping with accelerating threats? The North America 
Electric Reliability Corporation (NERC) works across the electric power 
sector to set the standards and help ensure compliance. However, due to 
the intermingling of State and Federal regulation the industry usually 
adopts a lower standard leaving some vulnerabilities unaddressed. 
Existing standards will never be sufficient in light of a 
sophisticated, perhaps nation-state adversary, but they can be 
strengthened.
---------------------------------------------------------------------------
    \21\ Department of Commerce, National Institute of Standards and 
Technology. Guidelines for Smart Grid Cybersecurity (3 volumes). August 
2010.
---------------------------------------------------------------------------
    What may be more useful would be if DHS, supported by the FBI and 
intelligence community, were to inform industry of the threats they are 
facing and how they are being exploited or penetrated. A training 
program that educates corporate leadership on how to mitigate the risk 
of being a high-value target including providing them with briefings 
about the threat to their industry using specific case studies may go 
along way to reducing the number of incidents and loss of confidential 
information. Furthermore, as some companies are ``personally'' touched 
by the penetration of their networks (e.g., Sony and Citigroup), they 
may be extra motivated to invest in and promote stronger information 
security standards for their industry and customers alike.
    As Congress considers placing DHS into more of a regulatory role, 
it should consider the impact of the possible dilution of its 
operational and policy responsibilities. While some say DHS's input and 
support of streamlining CIP standards has had a positive affect, is it 
making enough of a difference? Is it best to educate the first-party 
regulators and help them improve the security posture of the Nation? 
How are the other existing regulatory bodies (SEC, FCC, FERC, or FTC) 
using their current authorities to address the situation? Would 
strengthening the regulatory oversight of the SEC, FCC, FERC, or FTC 
help or hurt the situation?
                               conclusion
    The 112th Congress has an opportunity to drive a new legislative 
conversation and address the shortfalls in our current laws. The 
cybersecurity problem is growing faster than the solution and we cannot 
afford to be faced with strategic surprise to address the problem. 
FISMA reform and a National data breach umbrella are needed. 
Additionally, modern-day criminals are using our legal systems' speed, 
or lack thereof, to their advantage. We need to stiffen penalties and 
modernize the laws that are not keeping pace with today's digital 
environment. We need to empower the National security community charged 
with protecting the Nation and its critical infrastructure from cyber 
exploitation or attack. The Computer Fraud and Abuse Act, Electronic 
Communications and Privacy Act, Stored Communications Act, 
Telecommunications Act, and Economic Espionage Act are among some of 
the laws that need to be reviewed and updated. Congress should seek 
industry's perspective and debate the advantages and challenges 
associated with fielding a robust active defense capability, imposing 
standards and regulation on industry, and demanding more of DHS. An 
overly restrictive approach should be avoided yet, we cannot afford to 
pass legislation that would prove to be feckless.
    I thank you very much for the opportunity to testify, and look 
forward to your questions.
                               Exhibit A

        REVIEW OF CYBERSECURITY LEGISLATION IN THE 112TH CONGRESS
------------------------------------------------------------------------
                                              United States House of
          United States Senate                   Representatives
------------------------------------------------------------------------
S. 8, Tough and Smart National Security  H.R. 76, Cybersecurity
 Act.                                     Education Enhancement Act of
                                          2011.
S. 21, Cyber Security and American       H.R. 96, Internet Freedom Act
 Cyber Competitiveness Act of 2011.       of 2011.
S. 28, Public Safety Spectrum and        H.R. 174, Homeland Security
 Wireless Innovation Act.                 Cyber and Physical
                                          Infrastructure Protection Act
                                          of 2011.
S. 372, Cybersecurity and Internet       H.R. 607, Broadband for First
 Safety Standards Act.                    Responders Act of 2011.
S. 413, The Cybersecurity and Internet   H.R. 668, Secure High-voltage
 Freedom Act of 2011.                     Infrastructure for Electricity
                                          from Lethal Damage Act (SHIELD
                                          Act).
S. 709, Secure Chemical Facilities Act.  H.R. 1136, Executive Cyberspace
                                          Coordination Act of 2011.
S. 813, Cyber Security Public Awareness  H.R. 1389, Global Online
 Act of 2011.                             Freedom Act of 2011.
S. 968, Preventing Real Online Threats   H.R. 1540, National Defense
 to Economic Creativity and Theft of      Authorization Act for Fiscal
 Intellectual Property Act of 2011        Year 2012.
 (PROTECT IP Act).
S. 1101, Electronic Communications and   ...............................
 Privacy Act--Amendments Act (Digital
 Privacy Bill).
S. 1151, Personal Data Privacy and       ...............................
 Security Act of 2011.
------------------------------------------------------------------------

    Mr. Lungren. Thank you very much for your testimony.
    Now Dr. Shannon.

 STATEMENT OF GREGORY E. SHANNON, CHIEF SCIENTIST FOR COMPUTER 
     EMERGENCY READINESS TEAM (CERT), SOFTWARE ENGINEERING 
             INSTITUTE, CARNEGIE MELLON UNIVERSITY

    Mr. Shannon. Thank you, Chairman Lungren, Ranking Member 
Clarke, and other Members of the subcommittee, for me to talk 
about, this morning, the future of cyber incident response. I 
applaud the current efforts of Congress to mitigate risks to 
our public and private critical information infrastructures.
    CERT, as you mentioned, is a Federally-funded Department of 
Defense research and development lab. We have over 250 staff 
that have been working on this challenge of incident response 
since 1988, when the Morris worm first was experienced. For 
example, we catalogue over a quarter-million malware artifacts 
each month. We assist in major, on-going cybersecurity 
incidents of National importance. We release security coding 
guidelines and technologies for the C, C++, and Java 
programming languages.
    While much is said about risk mitigation, incident response 
receives less focused attention as a strategic technical area, 
yet it is critically important. Vigorous attacks on our network 
environments will continue for the foreseeable future, failures 
will occur, and effective responses are required. The Federal 
Government must look at incident response as strategic, just as 
it looks at preventative efforts. The U.S. CERT and other 
capabilities are a part of this effort.
    Our country needs legislation that will facilitate capable, 
scalable, cost-effective cybersecurity incident response for 
critical Government infrastructure. Things will fail in 
unexpected ways, and our Nation must have the capacity to 
respond accordingly.
    I believe that the most difficult technical challenge to 
both effective risk mitigation and incident response is 
selecting practices that are scientifically sound and 
operationally proven. We do not want to be guessing. I 
encourage you to consider in the rulemaking language that valid 
approaches be considered. The complexity of practices and 
regimes being proposed will probably have unintended and 
unexpected consequences. Some approaches aren't fully proven, 
experimentally or operationally. Again, I encourage you to use 
language that calls that out in the rulemaking.
    I believe that the most difficult policy challenge for 
effective Government incident response is harmonizing the 
responsibilities, authorities, capabilities, and communication 
across the various agencies, as Ms. Hathaway has highlighted. 
At CERT, part of our value to the Government has been the 
ability to bridge these gaps and misalignments in the midst of 
the response to a critical cybersecurity incident. But we 
recognize that that is not the ideal way, going forward, to be 
ad hoc.
    Three areas that we highlight in the written testimony is: 
Data sharing, forensics, and training. I would encourage--I 
applaud the effort of safe harbors in Section 246 for 
organizations and individuals that are attempting to do the 
right thing. The notion of ``right thing'' in incident response 
is a well-founded principle that individuals, organizations 
often know what the right thing to do is, and it is important 
that the policies and such be aligned to support that.
    On the forensics side, what we are seeing is an excellent 
use of potential cloud-based computing, private clouds, to 
support a broad capability for the law enforcement community to 
do investigations at scale. As these incidents increase in 
scope and scale, the ability to respond quickly with 
appropriate forensics, to maintain the velocity of the 
investigation, as well as to collect the evidence that could be 
used in court, is important.
    Finally, on training, one of the key challenges is how to 
train as the technical people work, or, as the Department of 
Defense says, train as you fight. The environments that we are 
in are complex. The threats that are experienced are even more 
complex and less likely to be experienced. Part of the work we 
do is to encourage the ``train as you work'' mentality, to be 
realistic.
    We at CERT look forward to the day when our Nation's 
cybersecurity resiliency is founded on the effective mitigation 
of cyber risks and pervasive capabilities to respond to 
cybersecurity incidents. I see this legislation and the related 
modifications and efforts as an important step in the right 
direction.
    For your benefit, I would like to also submit an article 
from Nature. It talks about the Stuxnet. This was in the June 
issue. At the end of it, it highlights some of the technical 
challenges from a science-of-security point of view. I would 
like to also submit that into the written record.
    Mr. Lungren. Without objection, that shall be accepted.*
---------------------------------------------------------------------------
    * The information has been retained in committee files and is 
available at http://www.nature.com/news/2011/110608/full/474142a.html.
---------------------------------------------------------------------------
    Mr. Shannon. Okay. Thank you for your time.
    [The statement of Mr. Shannon follows:]
                Prepared Statement of Gregory E. Shannon
                             June 24, 2011
    Chairman Lungren, Ranking Member Clarke, and other distinguished 
Members of the subcommittee, thank you for the opportunity to testify, 
it is my pleasure to be here this morning to discuss cyber incident 
response.
                              about cert
    The CERT Program is part of Carnegie Mellon University's Software 
Engineering Institute, a Federally-funded research and development 
center, and is located on the Carnegie Mellon campus in Pittsburgh, 
Pennsylvania.
    The CERT program (http://www.cert.org/) was charged by DARPA in 
1988 to set up the first Computer Emergency Response Team (CERT) as a 
response to the Morris worm incident. We continue to develop and 
promote the use of appropriate technology and systems management 
practices to resist attacks on networked systems, limit damage, and 
restore continuity of critical services. CERT works both to mitigate 
cyber risks and coordinate cyber incident responses at local, National, 
and global levels. Over the last 23 years CERT has helped to establish 
over 200 CERT computer security incident response teams (CSIRTs) around 
the world--including the DHS US-CERT. We continue to have proven 
success transitioning research and technology to those who can 
implement it on a National scale.
    Dr. Greg Shannon is the Chief Scientist for the CERT Program, where 
he works to establish and enhance the program's research visibility, 
initiatives, strategies, and policies.
                               testimony
    Today's operational cyber environments are complex and dynamic. 
User needs and environmental factors are constantly changing, which 
leads to unanticipated usage, reconfiguration, and continuous evolution 
of practices and technologies. New defects and vulnerabilities in these 
environments are continually being discovered, and the means to exploit 
these environments continues to rise. The CERT Coordination Center 
cataloged 250,000 instances of malicious artifacts last month alone. 
From this milieu, public and private institutions respond daily to 
repeated attacks and also to the more serious previously un-experienced 
failures (but not necessarily unexpected); both demand rapid, capable, 
and agile responses.
    Incident response, as a discipline, is maturing. Over the last two 
decades, it has emerged from the shadows of IT and risk management, to 
achieve recognition as a robust and growing discipline.\1\ Signs of 
this progress include the emergence of process models, meta-models, 
bodies of knowledge, common data representations, and auditable 
standards. Further development, and continued funding, will enable 
faster and more efficient dissemination of information to trusted 
partners in larger trust networks.
---------------------------------------------------------------------------
    \1\ For example, this fall, CERT and the Institute for Information 
Infrastructure will hold a workshop on Coordinated Private-Sector 
Responses to Cyber Security Incidents. This is a follow on to I3P's 
2009 workshop on Protecting Critical Infrastructures: The National 
Capital Region as a Model for Cyber Preparedness.
---------------------------------------------------------------------------
    I applaud the current efforts of the Federal Government to mitigate 
risk to our public and private critical information infrastructures; 
CERT has worked tirelessly to improve cybersecurity in areas such as 
secure coding, insider threat, and vulnerability analysis. But, while 
much is said about risk mitigation, incident response is often not as 
thoroughly addressed, and is critically important. Networked 
environments will continue to be vigorously attacked for the 
foreseeable future. Failure will occur and effective responses are 
required. Incident response is not a single action but rather a complex 
function that includes containment, repair, and recovery.\2\ The 
Federal Government must look at incident response as strategic, just as 
it looks at preventative efforts. Our country needs legislation that 
will facilitate capable, scalable, and cost-effective cyber-incident 
response for critical and Government infrastructure. Things will fail 
in unexpected ways and our Nation must have the capacity to respond 
accordingly.
---------------------------------------------------------------------------
    \2\ Some contend that retaliation is part of incident response; I 
disagree. The response community does not consider it in scope for 
incident response as practiced today. Other organizations and 
disciplines are better suited to address this issue.
---------------------------------------------------------------------------
    I believe that the most difficult technical challenge to effective 
risk mitigation and incident response is selecting practices that are 
scientifically sound and operationally proven. The complexity of 
practices and regimes being proposed in legislation and elsewhere will 
probably have unintended and unexpected consequences. I encourage the 
subcommittee to use language in legislation that encourages practices 
that are both experimentally and operationally validated.
    I believe that the most difficult policy challenge for effective 
Government incident response is harmonizing the responsibilities, 
authorities, capabilities, and communication across the various 
agencies involved. I support the current efforts in this.
    In my remaining testimony I discuss three areas that we at CERT 
believe are key to the future of incident response.
                          information sharing
    We all realize how critical it is for stakeholders to share 
information, but good incident response is contingent upon sharing the 
right information, with the right people, at the right time. High-
quality and actionable information comes from superior situational 
awareness only possible with robust information sharing and sufficient 
visibility into one's own enterprise. Currently, our technical 
capabilities allow us to see and respond to variant indicators, but to 
better detect, share, and respond to incidents analysts need to be able 
to look past narrowly-focused indicators.
    Achieving this enhanced situational awareness will require 
continued research on network traffic and data. The ability to detect 
malicious markers that are invariant, such as behavioral-based 
indicators (e.g. insider threats) will enable a more proactive 
response. To facilitate innovation, richer data needs to be shared with 
the research community, not only incident data itself, but also data-
sets that will enable an understanding of what ``normal'' resembles. 
Currently, the community does not have a clear understanding of what 
this data set would look like. If situational awareness is to develop 
beyond simple indicators, regulatory frameworks must allow access to 
everyday data, so that investigators can begin to recognize what data-
set are important. This data sharing should start with limited access 
to high-fidelity data sets for researchers so that data with 
scientifically proven value is considered for sharing operationally. 
Otherwise, policymakers and experts are left to speculate what is the 
right data to share. To further improve the future efficiency and 
effectiveness of incident response, the community also needs to develop 
and use automated tools and techniques to analyze and correlate the 
vast amount of log files, artifacts, and other event information.
    Moreover, compliance-driven information sharing will only lead to 
the bare minimum disclosure of sensitive information related to 
problems, concerns, and vulnerabilities. Building trusted relationships 
with stakeholders becomes essential to avoiding such limited 
information exchange and is a fundamental ingredient to a successful 
response. We also have to trust the people in the field and those who 
first respond to incidents. I applaud the effort in this legislation to 
support actions to do the ``Right ThingTM''; this is an 
important principle in the response community and is the basis of 
successful responses in many highly stressful incidents. Safe harbor 
measures such as Sec. 246 in the administration's Cybersecurity 
Legislative Proposal work towards continued encouragement to share 
data; however in response scenarios it is worthwhile to consider 
including the actions of cyber ``first responders'' into good faith 
legislation as well.
                               forensics
    While gains have been made in the field of incident response the 
nature of the ever-evolving cyber threat poses a huge challenge and 
demand for incident response expertise that has far outstripped the 
supply.
    Computers are no longer just the targets of crime; our adversaries 
now use them to facilitate every aspect of their illicit activities and 
achieve effects at scale. Once an incident occurs Federal agencies are 
facing several hurdles to recover the needed data in order to locate 
the source of the incident and contain the problem. First, computer 
forensic labs are constrained by a lack of resources, creating an 
enormous backlog rendering them unable to handle the megafold increases 
in the volumes of data that need to be examined for evidence. While 
some agencies may have the qualified examiners, and many do not, they 
lack the funds to properly equip them for the mission. For example, 
current examination methods rely heavily on processor power, but due to 
dramatically increased computer memory, examination stations often 
cannot keep up. Finally, the current state of the practice does not 
allow examiners to easily access varied levels of expertise in a timely 
or cost-effective way; frequently people are sent Temporary Duty or 
images are shipped to higher level units, resulting in time delays and 
increased costs.
    To successfully respond to cyber incidents these obstacles must be 
overcome in a way that allows for high-quality collaborative 
examinations. For instance, what would happen if an adversary 
perpetrated an actual, severe cyber event with National consequences? 
Currently there is no one facility or lab that could support the volume 
of data these kinds of events would generate. Under current conditions, 
data would have to be distributed, adding to the time and complexity of 
conducting examinations. Agencies will need to augment scarce resources 
by having multiple users viewing the same data either remotely or 
locally, while maximizing the application of specialized computing 
resources, and allowing for massive, coordinated efforts. Analysts and 
investigators will need flexible, secure access to high-performance 
systems, to increase productivity and facilitate effective distributed 
collaboration in a scalable and cost-effective way.
                                training
    In order to rapidly handle cyber incidents the Federal Government 
needs a workforce educated and equipped to respond. However, the rapid 
changes and dynamic nature of cybersecurity make keeping the workforce 
up to date a very challenging problem. Responding to critical cyber 
events requires technical knowledge and skills, decision-making 
abilities, and effective coordination--all while moving rapidly. 
Moreover, a lack of preparation inhibits secondary incident-handling 
activities, such as: Evidence gathering, identifying the attacker, and 
reporting the incident to other affected organizations. The Federal 
Government must have an agile and prepared workforce to deal with cyber 
incidents, and should to be able to train them in a cost-effective and 
scalable manner.
    The most common workforce development training solution is the 
traditional classroom training model. While this training model is easy 
to implement and is widely used, there are a number of reasons why it 
is not adequate for providing effective, large-scale training to a 
technical workforce, including time, cost, and scalability. 
Furthermore, traditional classroom training is not optimal for rapidly-
changing fields such as cybersecurity.
    The best way to prepare the workforce is to have them practice 
under realistic conditions with interactive simulations, and the 
ability to interface with participants across multiple locations who 
can work together to analyze and respond to the latest threats and 
attacks. Individuals need to be trained on a platform that safely 
mimics how the internet would respond to stress and exposes them to 
real-world scenarios, events, and activities that are similar to those 
they will encounter in their jobs.
    In addition, there are two incident response domains where we see 
an immediate need for further training. The first is reverse 
engineering, to grow capacity in analyzing malware recovered from an 
incident. The second domain is embedded systems, which pose many unique 
challenges for incident response and which some experts believe will be 
a major cybersecurity problem area in the near future.
    The workforce needs to not only be trained, but also educated. For 
example, in the case of forensics, much of the training the workforce 
receives is how to use tools, but when those tools are not effective no 
one is educated on how to manage the situation or apply critical 
thinking to determine alternative approaches. What's more, to train the 
workforce to manage cyber incidents the Federal Government needs to 
expand the scope of computer or cybersecurity training to include first 
responder training and best practice guidance. Without proper education 
a first responder may unintentionally cause irrevocable damage by doing 
something as simple as turning off a computer. This will not only cause 
lost data, but can also result in severely slowing an investigation and 
compromise the potential prosecution of the perpetrator.
    In conclusion, I thank the subcommittee again for inviting me and 
considering my testimony. Our Nation will continue to see significant 
serious cyber incidents for the foreseeable future. CERT's mission is 
to help ensure that these incidents are not catastrophic and that we 
recover as quickly as possible. We at CERT look forward to the day when 
our Nation's cyber resiliency is founded on the effective mitigation of 
cybersecurity risks and pervasive capabilities to respond to 
cybersecurity incidents. I see this legislation and the related 
modifications and efforts as an important step in the right direction.

    Mr. Lungren. Mr. Williams.

  STATEMENT OF LEIGH WILLIAMS, PRESIDENT, BITS, THE FINANCIAL 
                      SERVICES ROUNDTABLE

    Mr. Williams. Thank you, Chairman Lungren, Ranking Member 
Clarke, and Members of the committee.
    My name is Leigh Williams, and I am president of BITS, the 
technology policy division of The Financial Services 
Roundtable, where we address security fraud and other 
technology issues on behalf of our 100 member institutions, 
their millions of customers, and all of the stakeholders in the 
U.S. financial system.
    In my remarks today, I will briefly describe cybersecurity 
in financial services, explain why The Roundtable supports the 
Obama administration's cybersecurity legislation, and comment 
on some of the strong provisions of H.R. 174.
    In my view, most cybersecurity protection arises from 
individual institutions investing literally tens of billions of 
dollars and tens of millions of hours in voluntary measures for 
business reasons. Up at the industry level, BITS and several 
other coalitions promote best practices for protecting customer 
information. For example, BITS is currently addressing security 
in mobile, cloud computing, social networking, protection from 
malicious software, and security training and awareness.
    Beyond these voluntary efforts, our members are also 
subject to a range of oversight mechanisms to ensure 
consistency throughout the industry. Just to take security and 
privacy provisions of Gramm-Leach-Bliley as an example, 
Congress enacted GLB; the banking regulators detailed it in Reg 
P; Reg P was translated into examination guidance; banks used 
that guidance to manage their risk and the risk of their 
service providers; examiners audit the banks against it; 
Treasury monitors their consistency; and then just to bring 
this whole process full circle, the Congress oversees Treasury 
and the agencies.
    Beyond this sector-specific work, we collaborate more and 
more with DHS, with law enforcement, with the intelligence 
community, and with other industries on a variety of projects, 
including one that we have launched recently with DHS, the 
Cyber Operational Resiliency Review, where institutions can 
invite DHS to review their control practices and their network 
traffic.
    As the committee considers action on cybersecurity, I would 
urge Members to appreciate these current safeguards and these 
existing collaborations so that we might leverage all of them 
for maximum benefit.
    Even given this headstart, we believe that comprehensive 
cybersecurity legislation is warranted. It can improve security 
throughout the cyber ecosystem, including in telecom networks, 
in software and hardware supply chains, in Federal systems, and 
in our sector.
    Specifically, The Roundtable supports the administration's 
legislative proposal. We support many of the provisions on 
their individual merits, and we see the overall proposal as an 
important first step in building a more integrated approach.
    We do believe that harmonizing the comprehensive approach 
and the sector-specific mechanisms will be a challenge. There 
are at least a couple of ways of bridging this ecosystem sector 
divide. First, Congress could establish uniform standard but 
with exceptions where substantially similar requirements 
already are in place, as in the banking regulators' breach 
notification rules. Or Congress could reserve more autonomy for 
the sectors. For example, it could be the sector-specific 
agencies, and not DHS, that designate the critical sector 
entities or systems or assets.
    In other specific provisions of the proposal, we support 
strengthening penalties for computer crime, including the theft 
of intellectual property. We support a uniform national 
standard for breach notification with strong preemption. And we 
support the Federal systems provisions, both to safeguard the 
data that we report and to the systems and because we believe, 
as the Chairman has suggested, that Government should use its 
procurement power to model good behavior.
    On H.R. 174, the Homeland Security Cyber and Physical 
Infrastructure Protection Act, we see two more promising 
options for harmonizing DHS and sector-level work. DHS can 
delegate authority to the sector, and DHS is instructed to use 
the primary regulators as conduits to the covered companies. 
With these options, delegation and conduit, and the options in 
the administration proposal already in place, and sector plus 
aggregation, we should be able to take full advantage of both 
the sector and DHS. Finally, we appreciate H.R. 174's focus on 
risk-based performance-based regulation, on R&D, and on 
information-sharing among the critical companies and key 
agencies.
    In conclusion, may I just say that at The Financial 
Services Roundtable we will continue to strengthen security 
around our customers' information, we will help answer the 
question of ecosystem sector balance, and we will support and 
we will work to implement the administration's cybersecurity 
proposal.
    Thank you very much for your time.
    [The statement of Mr. Williams follows:]
                  Prepared Statement of Leigh Williams
                             June 24, 2011
    Thank you Chairman Lungren, Ranking Member Clarke, and Members of 
the committee for the opportunity to testify before you today.
    My name is Leigh Williams and I am president of BITS, the 
technology policy division of The Financial Services Roundtable. BITS 
addresses issues at the intersection of financial services, technology, 
and public policy, on behalf of its 100 member institutions, their 
millions of customers, and all of the stakeholders in the U.S. 
financial system.
    From this perspective, I will briefly describe cybersecurity and 
data protection in financial services, including private sector 
efforts, sector-specific oversight and inter-sector interdependencies. 
I will explain why The Financial Services Roundtable supports the 
cybersecurity proposal delivered by the Obama administration to the 
Congress on May 12. Finally, I will comment on the key provisions of 
H.R. 174, which I understand is under active consideration by the 
committee.
        financial institutions' voluntary cybersecurity efforts
    Within the financial services sector, the greatest amount of 
cybersecurity protection arises from voluntary measures taken by 
individual institutions for business reasons. To protect their retail 
customers, commercial clients and their own franchises, industry 
professionals--from Chief Information Security Officers to CIOs to 
CEOs--are increasingly focused on safeguards, investing tens of 
billions of dollars in data protection. They recognize the criticality 
of confidentiality, reliability, and confidence to their success in the 
marketplace. This market-based discipline is enforced through an 
increasingly informed consumer base, and by a very active commercial 
clientele that often specifies security standards and negotiates for 
audit and notification rights.
    At the industry level, BITS and several other coalitions facilitate 
a continuous process of sharing expertise, identifying and promoting 
best practices, and making these best practices better, to keep pace in 
a dynamic environment. For example, as BITS and our members implement 
our 2011 business plan, we are addressing the following items 
associated with protecting customer data:
   Security standards in mobile financial services.
   Protection from malicious or vulnerable software.
   Security in social media.
   Cloud computing risks and controls.
   Email security and authentication.
   Prevention of retail and commercial account takeovers.
   Security training and awareness.
    While much of this institution-level and industry-level effort is 
voluntary--not driven primarily by regulation--it is not seen by 
industry executives as discretionary or optional. The market, good 
business practices and prudence all require it.
                               oversight
    To strengthen public confidence and to ensure consistency across a 
wide variety of institutions, Federal financial regulators codify and 
enforce an extensive system of requirements. Many of these represent 
the distillation of previously voluntary best practices into 
legislation introduced in Congress, enacted into law, detailed in 
regulation, enforced in the field, with feedback to the Congress in its 
oversight capacity.
    In addition to these Federal authorities, institutions are subject 
to self-regulatory organizations like the Financial Industry Regulatory 
Authority (FINRA), State regulators like the banking and insurance 
commissioners, independent auditors, outside Directors, and others.
    These various oversight bodies, for example, apply the Financial 
Services Modernization Act of 1999 (GLB), the Fair and Accurate Credit 
Transactions Act (FACTA), Electronic Funds Transfers (Regulation E), 
Suspicious Activity Reporting (SARs), the International Organization 
for Standardization criteria (ISO), the Payment Card Industry Data 
Security Standard (PCI), BITS' own Shared Assessments and many, many 
more regulations, rules, guidelines, and standards.
                       inter-sector collaboration
    Commensurate with the escalating cybersecurity challenges and 
increasing interconnectedness among sectors, more and more of our work 
entails public/private and financial/non-financial partnerships. Our 
Financial Services Sector Coordinating Council (FSSCC) of 52 
institutions, utilities, and associations actively partners with the 17 
agencies of the Finance and Banking Information Infrastructure 
Committee (FBIIC). [For additional detail on the FSSCC's perspective on 
cybersecurity, research and development, and international issues, 
please refer to the April 15, 2011 testimony of FSSCC Chair Jane Carlin 
before this subcommittee.] Our Financial Services Information Sharing 
and Analysis Center (FS-ISAC) is in constant communication with the 
Department of Homeland Security (DHS), law enforcement, the 
intelligence community and ISACs from the other critical infrastructure 
sectors, to address individual incidents and to coordinate broader 
efforts.
    Other examples of collaboration with non-financial partners, drawn 
just from BITS' 2011 agenda, include:
    The Cyber Operational Resiliency Review (CORR) pilot, in which 
        institutions may voluntarily request Federal reviews of their 
        systems, in advance of any known compromise--with DHS and the 
        Treasury.
    Multiple strategies for enhancing the security of financial 
        internet domains--with the Internet Corporation for Assigned 
        Names and Numbers (ICANN) and Verisign, in partnership with the 
        American Bankers Association (ABA) and in consultation with 
        members of the Federal Financial Institutions Examination 
        Council (FFIEC).
    A credential verification pilot--with DHS and the Department of 
        Commerce--building on private sector work that began in 2009, 
        was formalized in a FSSCC memorandum of understanding in 2010, 
        and was featured in the April 15, 2011 announcement of the 
        National Strategy for Trusted Identities in Cyberspace (NSTIC).
    Through the processes and initiatives above and in many other 
efforts, financial institutions, utilities, associations, service 
providers and regulators continue to demonstrate a serious, collective 
commitment to strengthening the security and resiliency of the overall 
financial infrastructure. As the committee considers action on 
cybersecurity, I urge Members to be conscious of the protections and 
supervisory structures already in place and the collaborations 
currently underway, and to leverage them for maximum benefit.
                          need for legislation
    Even given this headstart and substantial momentum, we believe that 
cybersecurity legislation is warranted. Strong legislation can catalyze 
systemic progress in ways that are well beyond the capacity of 
individual companies, coalitions, or even entire industries. For 
example, comprehensive legislation can:
    Raise the quality and consistency of security throughout the full 
        cyber ecosystem, including the telecommunications networks on 
        which financial institutions depend.
    Enhance confidence among U.S. citizens and throughout the global 
        community.
    Strengthen the security of Federal systems.
    Mobilize law enforcement and other Federal resources.
    Enable and incent voluntary action through safe harbors and 
        outcome-based metrics, rather than relying primarily on static 
        prescriptions.
    Attached are a list of 13 policy approaches that the FSSCC recently 
endorsed, along with three that it deemed problematic. We urge the 
committee to consider the FSSCC's input, particularly in light of the 
FSSCC's leadership of the financial services industry on this issue.
                        administration proposal
    On May 12, 2011, on behalf of the administration, the Office of 
Management and Budget transmitted to Congress a comprehensive 
legislative proposal to improve cybersecurity. The Financial Services 
Roundtable supports this proposal and looks forward to working for its 
passage. We support many of the provisions of this proposal on their 
individual merits, and we see the overall proposal as an important step 
toward building a more integrated approach to cybersecurity. Given that 
our member institutions operate Nationally, are highly interdependent 
with other industries, and are already closely supervised by multiple 
regulators, we appreciate that this proposal promotes uniform National 
standards, throughout the cyber ecosystem, with the active engagement 
of sector-specific agencies and sector regulators.
    Consistent with its comprehensive approach, the proposal strives to 
address cybersecurity both at the level of the entire ecosystem and 
also within specific sectors. For example:
    The DHS Cybersecurity Authority title naturally stresses DHS' role, 
        but it also mentions ``other relevant agencies'' and sector 
        coordinating councils.
    The Regulatory Framework title focuses largely on DHS leadership 
        and standardized evaluations, but it also mentions ISACs and 
        sector-specific regulatory agencies, and provides for sector-
        level exemptions.
    We believe that harmonizing the comprehensive approach with the 
need to incorporate sector-specific mechanisms will be one of the most 
important challenges as the Congress considers this proposal. As this 
committee considers DHS' role, and its relationship to the sector-
specific roles, we urge Members to leverage existing financial services 
protections and circumstances, and their analogs in other sectors, 
while preserving the inter-sector quality of the proposal. Below, we 
offer the committee two potential approaches and illustrations for 
addressing this DHS/sector nexus:
   Establish a uniform standard with specified exceptions.--In 
        the Data Breach Notification title, the Federal Trade 
        Commission (FTC) could enforce the requirements enacted under 
        this bill, but defer to sector-specific regulators where 
        substantially similar sector-specific rules and guidelines 
        already are in place (e.g. the FFIEC could continue to enforce 
        its 2005 interagency breach response guidance, and the 
        Department of Health and Human Services could continue to 
        enforce HITECH).
   Preserve sector autonomy with centralized information 
        aggregation and coordination.--In the Regulatory Framework 
        title, rather than requiring DHS to list critical 
        infrastructure entities for every sector, the sector-specific 
        agencies could make that determination, just as the Financial 
        Stability Oversight Council is responsible for designating 
        Systemically Important Financial Institutions.
    Given the likely fluidity of the overall solution, we cannot yet 
make a definitive recommendation for either approach. We do believe 
that this question of ecosystem/sector balance warrants careful 
deliberation.
Law Enforcement
    We support the proposal's clarification and strengthening of 
criminal penalties for damage to critical infrastructure computers, for 
committing computer fraud, and for the unauthorized trafficking in 
passwords and other means of access. We also urge similar treatment for 
any theft of proprietary business information. With this extension to 
intellectual property, the law enforcement provisions will improve 
protections for both consumers and institutions, particularly when 
paired with expanded law enforcement budgets and the recruitment of 
personnel authorized in later titles. For purposes of this title and 
others, we presume that many, but not all, financial services systems 
and entities will be designated as critical infrastructure vital to 
National economic security, and we look forward to further work on the 
associated criteria.
Data Breach Notification
    We support the migration to a uniform National standard for breach 
notification. Given existing State and financial services breach 
notification requirements, this migration will require both strong pre-
emption and reconciliation to existing regulations and definitions of 
covered data. [Please see the 2005 FFIEC Interagency Guidance on 
Response Programs for Unauthorized Access to Customer Information and 
Customer Notice.] We support the exemptions for data rendered 
unreadable, in breaches in which there is no reasonable risk of harm, 
and in situations in which financial fraud preventions are in place.
DHS Authority
    We support strengthening cybersecurity authorities within DHS--and 
the active collaboration of DHS with the National Institute of 
Standards and Technology (NIST), sector-specific agencies such as the 
Treasury Department, and sector regulators such as our banking, 
securities, and insurance supervisors. This title demonstrates both the 
administration's commitment to an integrated approach and the challenge 
of achieving it. Federal and commercial systems, financial and non-
financial information, DHS planning and sector coordinating council 
collaboration, are all addressed here and all will need to be very 
carefully integrated. Within financial services, we are conscious of 
the many current mechanisms for oversight, information-sharing and 
collaboration, but we are also conscious of the need for better 
alignment with our partners in other sectors. We look forward to 
further work in this area of integration and harmonization, at both the 
legislative and implementation stages.
    We also believe that two areas mentioned in this section--fostering 
the development of essential technologies, and cooperation with 
international partners--merit considerable investment. As DHS and NIST 
pursue their research and development agenda, and as the administration 
pursues its recently announced International Strategy for Cyberspace, 
we hope to see substantial resource commitments and advances in these 
areas.
Regulatory Framework
    We support all of the purposes of this section, including, 
especially: The consultation among sector-specific agencies, 
regulators, and infrastructure experts; and the balancing of 
efficiency, innovation, security, and privacy. We recognize that giving 
DHS a window into financial services' cybersecurity risks, plans, and 
incident-specific information is an important element of building a 
comprehensive solution. Reconciling all of these elements--Treasury and 
our regulators' sector-specific roles, DHS' integration role, and the 
dual objectives of flexibility and security--will be critically 
important if we are to capitalize on existing oversight, avoid 
duplication, and avoid the hazards of public disclosures of sensitive 
information.
Federal Information Security Policies
    We are encouraged by the proposal of a comprehensive framework for 
security within Federal systems. As institutions report more and more 
sensitive personal and financial data to regulators (and directly and 
indirectly to DHS), it is critically important that this data be 
appropriately safeguarded. Protecting this data, modeling best 
practices, and using Federal procurement policies to expand the market 
for secure products, are all good motivations for adopting these 
proposed mandates.
Personnel Authorities
    Because we recognize how difficult it is to recruit the most 
talented cybersecurity professionals, we support the expanded 
authorities articulated in this section. We particularly support 
reactivating and streamlining the program for exchanging public sector 
and private sector experts.
Data Center Locations
    Consistent with our view of financial services as a National 
market, we support the presumption that data centers should be allowed 
to serve multiple geographies. We encourage Congress to consider 
extending this logic for interstate data centers to the international 
level, while recognizing that the owners, operators, and clients of 
specific facilities and cloud networks must continue to be held 
accountable for their security, resiliency, and recoverability of 
customer data, regardless of the servers' geographic location or 
dispersion.
                                h.r. 174
    We share the overall objective of H.R. 174, the Homeland Security 
Cyber and Physical Infrastructure Protection Act of 2011, and we 
support many of its specific provisions. Listed below are a few 
comments and questions that we commend to the committee as it considers 
this bill and the overall issue of cybersecurity policy.
    By establishing an Office of Cybersecurity and Communications 
within DHS, and vesting it with the authority to establish and enforce 
requirements across sectors, the bill provides for the comprehensive 
treatment of cybersecurity that we have endorsed above. It offers two 
options for enlisting sector-specific agencies and primary regulatory 
authorities in the effort:
    Delegation of authorities and responsibilities.--The Director of 
        the Office is given the option to delegate authority to the 
        sector-specific agencies and authorities. We think it is 
        appropriate to invest the Director with this option, much as 
        the administration's proposal has invested it in the Secretary 
        of the Department of Homeland Security and the Director of the 
        Office of Management and Budget.
    However, given the inherent uncertainties in how this option might 
        be exercised, we do not believe this should be the sole 
        mechanism for employing sector-specific expertise and 
        authority.
    Oversight through sector-specific agencies and authorities.--
        Throughout the bill, DHS is instructed to consult with its 
        sector-specific partners, have private entities submit 
        information to them, and operate under their guidance. This 
        approach--with DHS setting ecosystem-level standards and sector 
        partners applying them as intermediaries--will reduce the 
        confusion and fragmentation that otherwise could occur in a 
        dual reporting system. We believe that financial institutions 
        will prefer to have their primary regulators continue to serve 
        as their direct supervisor on these issues, even if the 
        Congress determines that some requirements warrant 
        standardization. We believe that this approach merits 
        consideration, along with the standard-with-exceptions and 
        autonomy-with-aggregation approaches discussed in connection 
        with the administration's proposal.
    We appreciate the bill's focus on risk-based, performance-based 
regulations, rather than prescribed measures. As more detail is 
developed around this approach, at both the legislative and regulatory 
stages, we believe it may obviate any need for the more prescriptive 
International Organization for Standardization and the International 
Electrotechnical Commission standard 15408 (ISO/IEC 15408).
    We appreciate the bill's commitment to sharing relevant information 
to the maximum extent possible, and its designation of private-sector 
submissions as sensitive security information requiring commensurate 
safeguards. If other Federal Authorities are actively involved in this 
process--consulting on threats, vulnerabilities, and consequences, or 
as members of the interagency working group--we ask that the same 
information-sharing objectives and protections apply. As the central 
Department in this process, we see DHS as providing a very valuable 
contribution by aggregating, analyzing, and disseminating this cross-
sector information. We encourage the committee, and ultimately DHS, to 
leverage the ISACs as a key channel for these communications. We also 
view research and development as a high value-added opportunity, and 
appreciate the bill's attention to this function and enumeration of a 
potential research agenda.
    We think two of the definitions articulated in the bill are 
particularly important, and therefore warrant close consideration. 
First, the characterization of Covered Critical Infrastructure as 
systems and assets diverges from the entity-level approach historically 
applied in the financial services sector. Whether the systems-and-
assets or entity-level approach is selected, we urge the Congress to 
include in Covered Critical Infrastructure not only the core of the 
critical infrastructures, but also their mission-critical service 
providers. In financial services, both the operational reality and the 
regulatory approach require that oversight and other controls extend 
well beyond the institution.
    Second, because the definition of Cyber Incident drives reporting 
and response protocols, we see it as a key threshold. The current 
definition, as an occurrence that jeopardizes security, may be 
interpreted very broadly and, without further detail, may set reporting 
and response thresholds lower than necessary.
                               conclusion
    We very much appreciate the committee's interest in the important 
topic of cybersecurity, and particularly in the role DHS plays in this 
element of critical infrastructure protection. Because The Financial 
Services Roundtable is fully committed to enhancing cybersecurity:
   We will continue to strengthen security with our members and 
        partners,
   We will help answer this question of integrating DHS' 
        ecosystem-level program and the financial authorities' sector-
        specific efforts,
   And we will work to pass and implement the administration's 
        cybersecurity proposal.
    Thank you very much for your time. I would be happy to answer any 
questions you might have.
        Financial Services Cybersecurity Policy Recommendations
     financial services sector coordinating council--april 15, 2011
Policy Approaches the FSSCC Supports
    Federal leadership on a National cybersecurity framework, 
implemented with the active involvement, judgment, and discretion of 
Treasury and the other sector-specific agencies (SSAs).
    Commitment to two-way public/private information-sharing, 
leveraging the Information Sharing and Analysis Centers (ISACs), the 
US-CERT, safe harbors, clearances, and confidentiality guarantees. This 
must include sharing of actionable and timely information.
    Support focused efforts to address critical interdependencies such 
as our sector's reliance on telecommunications, information technology, 
energy, and transportation sectors. Continue to leverage and expand on 
existing mechanisms (e.g., NSTAC, NIAC, PCIS).
    Involvement of Treasury and other SSAs in cyber emergencies.
    Federal cybersecurity supply chain management and promotion of 
cybersecurity as a priority in Federal procurement.
    Public education and awareness campaigns to promote safe computing 
practices.
    Attention to international collaboration and accountability in law 
enforcement, standards, and regulation/supervision.
    Increased funding of applied research and collaboration with 
Government research agencies on authentication, access control, 
identity management, attribution, social engineering, data-centric 
solutions, and other cybersecurity issues.
    Increased funding for law enforcement at the international, 
National, State, and local levels and enhanced collaboration with 
financial institutions, service providers, and others that are critical 
to investigating cyber crimes and creating a better deterrent.
    Heightened attention to ICANN and other international internet 
governance bodies to enhance security and privacy protection.
    Strengthening of Government-issued credentials (e.g. birth 
certificates, driver's licenses, and passports) that serve as 
foundation documents for private sector identity management systems.
    Enhanced supervision of service providers on whom financial 
institutions depend (e.g. hardware and software providers, carriers, 
and internet service providers).
    Recognize the role of Federal financial regulators in issuing 
regulations and supervisory guidance on security, privacy protection, 
business continuity, and vendor management for financial institutions 
and for many of the largest service providers.
Policy Approaches the FSSCC Opposes
    Detailed, static cybersecurity standards defined and maintained by 
Federal agencies in competition with existing, private, standard-
setting organizations.
    Establishment of vulnerability, breach, and threat clearinghouses, 
unless security and confidentiality concerns can be definitively 
addressed.
    Sweeping new authority for Executive Branch to remove access to the 
internet and other telecommunications networks without clarifying how, 
when, and to what extent this would be applied to critical 
infrastructure.

    Mr. Lungren. I thank you, Mr. Williams.
    Now Mr. Clinton.

   STATEMENT OF LARRY CLINTON, PRESIDENT, INTERNET SECURITY 
                            ALLIANCE

    Mr. Clinton. Thank you, Mr. Chairman, Ms. Clarke, Members 
of the committee. I appreciate your inviting the Internet 
Security Alliance to this hearing to examine the 
administration's legislative proposal.
    Since ISA represents primarily companies that represent 
critical infrastructure, I am going to confine my remarks to 
the regulatory aspects and proposals in the administration's 
plan.
    The Internet Security Alliance is a multi-sector trade 
organization focused exclusively on cybersecurity. We were 
formed in 2000. That is nearly 2 years before the events of 9/
11, 4 years before DHS was created, 6 years before DHS created 
a cyber assistant secretary, 7 years before they filled that 
position, 9 years before the President appointed a cyber czar, 
and 11 years before the President sent a legislative proposal 
on cybersecurity to the Congress. For more than a decade, the 
private sector has been leading the fight to improve 
cyberspace.
    During this time, we have testified several times before 
Congress, constantly urging, even begging, Congress and the 
administration to take a more active role in addressing our 
cyber threat. There may be some in the private sector who think 
that the Government should take a hands-off role in this 
regard. ISA is not among them.
    As the Chairman pointed out, the ISA has proposed its own 
market-based system for improving our cybersecurity system, the 
``Cyber Security Social Contract,'' which was cited early and 
often in the President's Cyberspace Policy Review. We are not 
alone. Earlier this year, several of the major organizations 
that represent industry in this space--BSA, CDT, TechAmerica, 
Chamber of Commerce, and the ISA--banded together to present a 
detailed white paper of policy proposals for improving our 
Nation's cybersecurity.
    With regard to the administration's position, we find the 
proposal is both too broad and too Government-centric. Although 
it has been suggested that the intent of the administration's 
proposal is to cover core infrastructure, we find a reading of 
the legislative language rates it as far more extensive.
    While there are provisions in the proposal calling for 
collaboration with industry, we don't need an act of Congress 
for that sort of collaboration, and the collaboration always 
ends with Government fiat. For example, Section 7 requires CEOs 
to certify that they are in compliance with plans required 
under Section 8 and empowers the Secretary to review any 
entity's plan. If DHS finds the plan wanting for some reason, 
they are empowered to, ``take any action the Secretary deems 
appropriate.''
    In addition, paragraph 4 empowers the Secretary to evaluate 
the frameworks created through various discussions with the 
private sector. However, should DHS decide that the standard 
frameworks don't meet their own criteria, they are empowered to 
adopt their own criteria and force the companies to choose 
those.
    Government does not have all the answers, and it will not 
be the best judge of how to manage private systems. Altering 
our strategy of the public-private partnership to give the 
Federal Government final say over how private companies manage 
their systems will be costly, inefficient, and ineffectual.
    Moreover, creating this regulatory role for DHS will 
fundamentally alter the nature of the relationship between 
Government and the private sector by replacing a voluntary 
relationship built on collaboration with an adversarial 
relationship based on regulatory mandates, reports, and 
compliance. As the research I cite in my written testimony 
shows, a security system based on that reactive model will be 
less effective and sustainable.
    Now, there is a lot we can do to improve our cybersecurity. 
As the Chairman pointed out, we need to alter the economic 
balance with regard to the incentives dealing with 
cybersecurity. Our testimony, as well as the multi-trade 
association paper, points out that there is a great deal 
Congress could do to provide incentives at no cost to the 
Government which will lead to the adoption of best practices 
which a range of studies have indicated can stop between 80 and 
94 percent of cyber attacks.
    There is another area of cyber attack, many of which 
Melissa mentioned earlier on, known as the APT, ultra-
sophisticated sorts of attack, that are going to require an 
entirely different strategy. But we do have things in place to 
deal with that also.
    With regard to the administration's proposal, however, we 
find that the mandatory reporting that they use will diminish 
motivation for internal investigators, who may worry about 
finding out material that will be harmful to their company. It 
will add to the ultimate cost of detection tools and services, 
making companies more reluctant to spend money on them.
    Moreover, we find the evaluation program that is proposed 
by the administration's proposal to be anti-security. One of 
the things that everybody agrees on in this space is that we 
don't have enough cybersecurity professionals. This proposal 
requires virtually all entities that are covered--and that 
could be many, many entities--to have annual evaluations. So we 
are creating an army of insiders roaming throughout the 
security procedures of our most critical networks on an on-
going basis. The value that they would have in terms of 
providing actual, real security is far offset by the increased 
risk of having an army of poorly-trained insiders going through 
our security.
    We feel it will be far more preferable for Congress to work 
with DHS and the rest of the administration to create a system 
where there are market incentives so that organizations will 
seek to alter the balance with regard to security return on 
investment--invest appropriately so that they can have 
improvements in their own security and our Nation's security.
    Thank you.
    [The statement of Mr. Clinton follows:]
                  Prepared Statement of Larry Clinton
                             June 24, 2011
                            i. introduction
    Good morning Mr. Chairman, and thank you for inviting the Internet 
Security Alliance to testify before the Cybersecurity, Infrastructure 
Protection, and Security Technologies Subcommittee.
    The Internet Security Alliance is a multi-sector trade association 
that develops best practices and standards, along with technological, 
economic, and public policy services focused exclusively on 
cybersecurity.
    ISA was founded and fully funded by a group of private sector 
entities in 2000. That's nearly 2 years before the tragic events of 9
///11, 4 years before Congress created DHS, 6 years before DHS created its 
first cybersecurity assistant secretary, 7 years before they filled 
that position, 9 years before the President appointed his first ``cyber 
czar'' and 11 years before the President presented his first set of 
legislative proposals on cybersecurity to the Congress.
    For more than a decade, the private sector has been taking a 
leadership role in the fight to secure cyber space. That is one reason 
we were delighted when President Obama addressed this issue from the 
White House and published the Cyberspace Policy Review shortly after 
taking office--an enlightened document based on an extensive and wide-
ranging study by staff of the National Security Council.
ii. the private sector has been aggressively attempting to utilize the 
        public-private partnership to enhance our cybersecurity
    Over the past decade, ISA has testified approximately a dozen times 
before various Congressional committees constantly urging, even 
pleading, for the Government to take more aggressive steps to enhance 
our Nation's cybersecurity. There may be some in the private sector 
that have suggested a hands-off role for the Government in this space, 
but ISA is not one of them.
    And, we are not alone. When legislation began heating up in the 
last Congress we heard reports from policymakers that there were so 
many private-sector entities that were interested in the subject that 
is was becoming difficult for our Government partners to achieve 
clarity as to where the private sector stood on the issue.
    As a result, several of the major associations involved in this 
debate banded together and worked over a period of 6 months to create a 
detailed--26-page--white paper specifying our overall approach to 
cybersecurity and providing detailed policy recommendations.
    This unique coalition, which included the Internet Security 
Alliance, the Business Software Alliance, the Center for Democracy and 
Technology, Tech America and the U.S. Chamber of Commerce is noteworthy 
for several reasons.
    First, is the obvious size of the coalition, covering literally 
tens of thousands of companies. Second, is the breadth of the 
coalition. In the cybersecurity field, the ``partisan divide'' is 
generally between the providers of technology and the users of 
technology. This coalition included both. In addition, the civil 
liberties community is represented by the most active such organization 
in this space, CDT.
    Finally, there is the depth of the coalition. It is not uncommon to 
see a coalition of this size in the District of Columbia; however, they 
are usually brought together on a 1- or 2-page letter. In this case, we 
have produced an extended, and we think a cutting-edge, detailed policy 
paper that analyzes a wide range of issues in the cybersecurity space 
and proposes specific policies--not just broad principles.
    Moreover, we sought, as much as possible to be open with our 
Government partners. We took as our starting points the official 
publications produced by our Government partners: the National 
Infrastructure Protection Plan (NIPP) and the Cyberspace Policy Review 
released by President Obama in May of 2009. Central to both these 
documents is the need for the Government to work in partnership with 
the private sector.
    This realization has nothing to do with politics. It is based on 
the fact that in cyber conflicts, it is the private sector that is most 
likely to be on the front lines and it is the networks owned and 
operated by the private sector that provide the critical 
infrastructure--both the regulated and non-regulated ones--upon which 
any modern nation relies.
    Government does not have all the answers and often will not be the 
best judge of how to manage private systems. Altering our strategy to 
give the Federal Government final say over how private companies manage 
their systems will be costly, inefficient, and ineffectual. 
Cybersecurity must be achieved through a true partnership between the 
public and private sectors. We specifically endorsed this foundation as 
embraced in these documents:

``The current critical infrastructure protection partnership is sound, 
the framework is widely accepted, and the construct is one in which 
both Government and industry are heavily invested. The current 
partnership model has accomplished a great deal. However, an effective 
and sustainable system of cybersecurity requires a fuller 
implementation of the voluntary industry-government partnership 
originally described in the NIPP. Abandoning the core tenets of the 
model in favor of a more Government-centric set of mandates would be 
counterproductive to both our economic and National security. Rather 
than creating a new mechanism to accommodate the public-private 
partnership, Government and industry need to continue to develop and 
enhance the existing one.''\1\
---------------------------------------------------------------------------
    \1\ Business Software Alliance, Center for Democracy & Technology, 
U.S. Chamber of Commerce, Internet Security Alliance, TechAmerica; 
Improving our Nation's Cybersecurity through the Public-Private 
Partnership: A White Paper; March 2011.

    In an attempt to develop our own policy proposals via the 
established partnership model, we not only notified the White House of 
our intent to create the industry White Paper, but reached out to them 
on a regular basis to keep them informed of our progress. We discussed 
the work at the forums established under the NIPP, such as the IT 
Sector Coordinating Council meetings, which are regularly attended by 
DHS staff. When the paper was completed, well prior to release, we sent 
a full copy to the White House for their review and comment. We 
requested, and eventually received, a 1-hour meeting at the White House 
to brief them on our proposals and requested on-going interaction so 
that we could, as partners, come to a common ground on the way forward. 
Unfortunately, no subsequent meetings were scheduled and we were never 
briefed on the White House's own--substantially different--approach 
until it was released and sent to the Congress.
              iii. we have the tools to stop basic attacks
    The committee is aware of numerous and varied cyber attacks. Indeed 
the internet is under attack all day, every day, and while we 
successfully deal with the vast majority of the attacks, we also must 
aggressively improve our cybersecurity.
    However, not all attacks are the same. Cyber attacks can of course 
be segmented many ways, but given the shortage of time, we can create 
two broad categories; one of basic attacks (which can be extremely 
damaging) and one of very sophisticated attacks.
    Most cyber attacks fall into the first--the basic--category. 
Although these attacks can be devastating from many different 
perspectives, they also are largely preventable.
    Several different sources including Government, industry, and 
independent evaluators have concluded that the vast majority of these 
attacks--between 80% and 90%--could be prevented or successfully 
mitigated simply by adopting best practices and standards that already 
exist. Among the sources who have reported this finding we can list the 
CIA, the NSA, PricewaterhouseCoopers, and CIO Magazine.
    Most recently, a comprehensive study jointly conducted by the U.S. 
Secret Service and Verizon included a forensic analysis of hundreds of 
breaches and literally thousands of data points and concluded that 94% 
of these, otherwise successful, cyber attacks could have been 
successful managed simply by employing existing standards and 
practices.
             iv. why are we not stopping the basic attacks?
    Cost.
    Some have suggested that the market has failed to produce the 
needed technology to address the cyber threat. That is not the case.
    President Obama's own Cyberspace Policy Review documents the fact 
that the private sector has developed many adequate mechanisms to 
address our cyber insecurity but they are not being deployed: ``many 
technical and network management solutions that would greatly enhance 
security already exist in the marketplace but are not always used 
because of cost and complexity.''\2\
---------------------------------------------------------------------------
    \2\ Obama administration, Cyberspace Policy Review--Assuring a 
Trusted and Resilient Information and Communications Infrastructure at 
31.
---------------------------------------------------------------------------
    This finding is substantiated by multiple independent surveys that 
also identified cost as the biggest barrier to deploying effective 
cybersecurity solutions. This research shows that although many 
enterprises are investing heavily in cybersecurity, many others, 
largely due to the economic downturn, are reducing their cybersecurity 
investments.\3\
---------------------------------------------------------------------------
    \3\ PricewaterhouseCoopers, The Global State of Information 
Security, 2008. Center for Strategic & International Studies, In the 
Crossfire: Critical Infrastructure in the Age of Cyber War, 2010.
---------------------------------------------------------------------------
    The fact is that many companies don't see an adequate ROI to cyber 
investments. This real-world problem cannot be permanently wiped away 
by granting a Government department the power to mandate uneconomic 
expenditures as President Obama himself pointed out last year at the 
White House: ``Due to the interconnected nature of the system this lack 
of uniform implementation of sound security practices both undermines 
critical infrastructure and makes using traditional regulatory 
mechanisms difficult to achieve security.''\4\
---------------------------------------------------------------------------
    \4\ White House, Remarks by President Obama at White House Meeting 
on Cyber Security, July, 2010.
---------------------------------------------------------------------------
    Rather, we need to find ways to work within the partnership to 
encourage firms to make investments that may go beyond their own 
commercial risk management requirements for security, but might rise to 
the level of a broader National interest. This principle was recognized 
in the creation of the original NIPP:

``The success of the [public-private] partnership depends on 
articulating the mutual benefits to Government and private sector 
partners. While articulating the value proposition to the Government 
typically is clear, it is often more difficult to articulate the direct 
benefits of participation for the private sector . . . In assessing the 
value proposition for the private sector, there is a clear National 
security and homeland security interest in ensuring the collective 
protection of the Nation's [critical infrastructure and key resources] 
(CI/KR). Government can encourage industry to go beyond efforts already 
justified by their corporate business needs to assist in broad-scale 
CI/KR protection through activities such as:
   ``Providing owners and operators timely, analytical, 
        accurate, and useful information . . . 
   ``Ensuring industry is engaged as early as possible in the 
        development of initiatives and policies related to [the NIPP].
   ``Articulating to corporate leaders . . . both the business 
        and National security benefits of investing in security 
        measures that exceed their business case.
   ``Creating an environment that encourages and supports 
        incentives for companies to voluntarily adopt widely accepted, 
        sound security practices.
   ``Providing support for research needed to enhance future 
        CI/KR protection efforts.''\5\
---------------------------------------------------------------------------
    \5\ National Infrastructure Protection Plan, 2006 at 9.
---------------------------------------------------------------------------
    The Obama ``Cyberspace Policy Review'' went even further in 
suggesting this pathway by suggesting a mix of tailored incentives 
including liability incentives, procurement incentives, 
indemnification, and even tax incentives.
    The multi-trade association White Paper continued this chorus of 
support for this approach.
    ``One of the most immediate, pragmatic, and effective steps that 
the Government could take to improve our Nation's cybersecurity would 
be to implement the recommendations made in the CSPR to explore 
incentives, such as liability considerations, indemnification, and tax 
incentives. For example:
   ``Tax incentives that encourage establishing additional 
        cybersecurity investments, such as the R&D tax credit;
   ``Grant funding is used effectively in other homeland 
        security areas such as emergency preparedness and response. 
        Critical infrastructure industries can use grant funds for 
        research and development, to purchase equipment, and to train 
        personnel;
   ``Streamlining regulatory procedures, which would cut both 
        Government and industry costs;
   ``Updating the SAFETY Act to better appreciate the cyber 
        threat that has become more evident since its enactment. This 
        Act, which provides a mix of marketing, insurance, and 
        liability benefits for technologies designated or certified by 
        DHS, can be expanded to standards and practices as well as 
        technologies that protect against commercial as well as 
        terrorist threats;
   ``Liability protections or regulatory obligations (e.g., for 
        utilities) adjusting in numerous ways to provide incentives for 
        enhanced security practices, such as adoption of standards and 
        practices beyond what is required to meet commercial risks, or 
        enhanced information sharing. Liability benefits do not need to 
        be elevated to immunity to be attractive. Categories of 
        liability (e.g., punitive vs. actual damages) or burden of 
        proof levels (preponderance rather than clear and convincing 
        evidence) can be adjusted to motivate pro-security behavior 
        without costing taxpayer dollars; and
   ``Stimulating the growth of a private cyber insurance 
        industry that can both provide private economic incentives to 
        spur greater cybersecurity efforts while also creating a 
        private market mechanism that fosters adoption and compliance. 
        The Government should give consideration to implementing 
        reinsurance programs to help underwrite the development of 
        cybersecurity insurance programs. Over time, these reinsurance 
        programs could be phased out as insurance markets gain 
        experience with cybersecurity coverage.
    To accommodate the needs of a wide variety of critical 
infrastructures with different economic models, the public-private 
partnership should develop a menu of incentives that can be tied to 
voluntary adoption of widely-accepted and proven-successful security 
best practices, standards, and technologies. The R&D tax credit may be 
the most attractive option for an IT security vendor, while a defense 
firm may be more interested in procurement options, an electric utility 
in a streamlined regulatory environment, or an IT-user enterprise in an 
insurance discount and risk transfer. Many of these incentives are 
deployed successfully in other areas of the economy, but not yet to 
cybersecurity.''\6\
---------------------------------------------------------------------------
    \6\ Business Software Alliance, Center for Democracy & Technology, 
U.S. Chamber of Commerce, Internet Security Alliance, TechAmerica; 
Improving our Nation's Cybersecurity Through the Public-Private 
Partnership: A White Paper; March 2011 at 10-11.
---------------------------------------------------------------------------
                  v. addressing sophisticated attacks
    While most cyber attacks are fairly basic and can be stopped or 
mitigated with the deployment of existing standards, practices, and 
technologies which could be achieved through the use of a creative 
incentive system, there are still other much more insidious and 
sophisticated attacks that are not going to be stopped with best 
practices.
    Again, there are many ways to characterize these attacks but one 
common term that has come to be used somewhat generically in the field 
is the Advanced Persistent Threat (APT).
    Without getting into the academic debate over what constitutes the 
APT, it suffices to say these are sophisticated attacks. These are not 
``hacker kids'' or kids in basements. These attacks are formulated by 
highly sophisticated, well-organized, well-funded, often state-
sponsored attackers. These guys are pros. They are very good, and if 
they target you or your system you can be pretty sure they will succeed 
in penetrating, or ``breaching'' your system.
    However, this does not mean we have no defense. Indeed, many 
companies have been working for several years with some success on 
mitigating APT attacks although it necessitates altering our defensive 
posture from one of perimeter defense geared to stopping breaches to 
internal detection and mitigation.
    Again, the private sector White Paper identifies some of the 
current core strategies that the Government, in collaboration with the 
private sector ought to be deploying to address the APT style (ie. more 
sophisticated) attacks. However, it is important to note that there is 
no silver bullet to addressing these advanced threats.
    The core reason we have attacks, and they will likely continue, is 
that the economic incentives generally favor the attackers. Many 
attacks are cheap, easy, and profitable while on the other hand, an 
infinite perimeter needs defending, it is very hard to catch and 
prosecute cyber attackers and it is difficult to demonstrate ROI to 
things that you have prevented such as cyber attacks.
    So long as our economic equation for cybersecurity remains out of 
balance, we are going to continue to have attacks. This needs to be 
understood not as a discrete problem for which there will be a simple 
and unchanging security technology--like a seat belt or a set of gold 
standard Government metrics. Rather, this is an on-going and persistent 
threat that needs continuous deployment of creative strategies that 
evolve with the dynamic threat.
             vi. the administration's legislative proposal
    Unfortunately, after waiting 2 years for the administration to 
follow up on its CSPR, we received a legislative proposal produced 
without coordination with the private-sector partnership the 
administration itself had established for this purpose, and which:
   Fails to follow up on the promise of earlier work by this 
        and the previous administration;
   Does not address the core economics issues which drive our 
        lack of cyber insecurity;
   Would create an extensive new bureaucracy that will not 
        address the persistent cyber threats we face; and
   Could add significant new threats that are not justified by 
        the dubious benefits of the unbounded intrusions into our most 
        critical infrastructure.
    Since ISA works primarily with major entities from most for our 
Nation's critical infrastructure, we will focus our testimony to 
Section 3 of the President's proposal, which establishes a new and 
extensive regulatory structure over the private sector.
vii. the administration's legislative proposal fundamentally alters the 
                       public-private partnership
    When he released the Cyberspace Policy Review in 2009 President 
Obama himself said:
    ``Let me be very clear: My administration will not dictate security 
standards for private companies. On the contrary we will collaborate 
with industry to find technology solutions that ensure our security and 
promote prosperity.''\7\
---------------------------------------------------------------------------
    \7\ President Barack Obama, Release of the Cyberspace Policy 
Review, May 29, 2009.
---------------------------------------------------------------------------
    Unlike the rigorous and open process the Obama administration 
conducted in developing the Cyberspace Policy Review, the current 
legislative proposal was not developed in any way by ``collaboration 
with industry to find technology solutions.''
    ISA participates in numerous bodies set up under the NIPP to 
facilitate this sort of coordination including the Sector Coordinating 
Councils, the Cross Sector Cybersecurity Working Group, the Critical 
Infrastructure Partnership Advisory Council (CIPAC) and the Software 
Assurance Forum. Despite repeated requests for the administration to 
engage with these bodies, designated by them for collaboration to 
develop solutions, there were no discussions at even a conceptual level 
about this proposal which would, if enacted, fundamentally alter the 
long-standing relationship.
    Had the administration used the bodies designated for this sort of 
interaction, I believe the proposal would be both substantively 
stronger and politically more practical.
    Notwithstanding the process, the Centerpiece of the proposal--the 
establishment of an unbounded regulatory structured for the Department 
of Homeland Security--is obviously directly at odds with what the 
President pledged when he released the Cyberspace Policy Review 2 years 
ago.
    Obviously it will be the the committee and the Congress' decision 
whether to follow this new Government-centric approach, but there 
should be clarity at the very least that by establishing a broad 
regulatory framework, as this proposal does, it will fundamentally 
alter the nature of the relationship between the Government and private 
sector.
    It's often said that to a hammer, everything looks like a nail. And 
prisoners and prison guards do not have a partnership. One body is 
mandated to do what the other entity directs. While there is a fair 
amount of verbiage in the administration's proposal about working with 
the private sector, as we will discuss shortly, at the end of the day, 
this legislative proposal will allow DHS to regulate pretty much any 
entity it elects to regulate and mandate whatever DHS elects ought to 
be mandated.
    Some may argue that such a system of regulatory mandates will 
finally solve our cybersecurity problem; however, there is no evidence 
that this will be the case. Indeed, the academic research on motivating 
investment in information security specifically points in the opposite 
direction indicating that ``proactive'' investments motivated by market 
incentives are more effective than reactive (prompted by regulation) 
are.
    A new study released from Dartmouth College earlier this month 
documents this finding, ``Proactive investments are more effective at 
reducing security failures than reactive investments. When proactive 
investments are forced by an external requirement, the effect of the 
proactive investment is diminished . . . our results show that learning 
by doing through proactive security investments relies on economic 
incentives whereas unilaterally mandated procedures do not have any 
economic incentive . . . Government requirements simply focus attention 
on the problem area rather than discovery and learning by doing . . . 
external pressure does not have significant social incentives.''\8\
---------------------------------------------------------------------------
    \8\ Kwon, Juhee, and Johnson, Eric; An Organizational Learning 
Perspective on Proactive vs. Reactive Investment in Information 
Security. Dartmouth College, NH. June 2011 at 18.
---------------------------------------------------------------------------
  viii. the administration's legislative proposal is not supported by 
                         research or precedent
    Research \9\ has consistently shown that the single biggest barrier 
to enhancing the cybersecurity of our Nation's critical infrastructure 
is economic. As previously mentioned, the National Infrastructure 
Protection Plan (NIPP)\10\ identified the need for Government to create 
a value proposition for industry to make investments in cybersecurity 
that are not justified by their business needs, but may be required for 
overall National security. In fact, the Cyberspace Policy Review 
specifically advocated the development of proactive market incentives 
such as procurement, tax, and liability to incentivize additional 
cybersecurity investments.\11\
---------------------------------------------------------------------------
    \9\ PricewaterhouseCoopers, The Global State of Information 
Security, 2008. Center for Strategic & International Studies, In the 
Crossfire: Critical Infrastructure in the Age of Cyber War, 2010.
    \10\ The National Infrastructure Protection Plan (NIPP) is 
available at http://www.dhs.gov/files/programs/editorial_0827.shtm#0.
    \11\ Executive Office of the President, Cyberspace Policy Review--
Assuring a Trusted and Resilient Information and Communications 
Infrastructure, May 2009.
---------------------------------------------------------------------------
    However, the administration's legislative proposal does not follow 
through on any of these policy commitments.
    Instead the administration's current legislative proposal relies 
primarily on ``disclosure'' as a market incentive, to hoping that 
reaction to such a public disclosure will generate increased 
cybersecurity investment. While at one point this may have made sense, 
it is not likely to be helpful when addressing the current attacks we 
face.
          ix. the focus on disclosure of breaches is outdated
    Most cyber attack disclosure requirements are founded on 
misconceptions about what it is companies have available to disclose. 
Most successful modern cyber attacks go undetected. Furthermore, cyber 
intrusions and malware, as they become more sophisticated and more 
damaging, become increasingly difficult to detect. The tools and 
services for detecting them are very expensive, and the evidence for 
their presence is often very ambiguous.
    The fact that the proposed legislation and the discussions that 
surround it are constantly referring to ``breaches'' shows how rapidly 
policy in this field becomes dated. ``Breaches'' were the big 
cybersecurity concern of the last few years, but they are not the big 
cybersecurity concern of the era that began with Stuxnet. What's more, 
the very term ``breaches'' suggests that the remedy to cyber attacks is 
perimeter defense--guarding the organization's information border 
against forces attempting to penetrate, or ``breach'' it. This is a way 
of thinking about cybersecurity that many of the foremost cybersecurity 
experts have been arguing is obsolete for half-dozen years now. ISA 
presented this finding to the Obama administration which cited the 
study in their Cyberspace Policy Review and published it on the White 
House website, but did not reference it in their own legislative 
proposal.
    In fact, most companies are unable to tell whether they have been 
the victim of a successful cyber attack unless they make a special 
effort to investigate, spend additional resources on the effort, and 
have the necessary skills and tools already on hand. The initial signs 
that need to be pursued in order to discover a skilled cyber attack are 
hard to define, constantly changing, and often very subtle and thus 
unsuitable for the annual evaluation procedure the administration 
proposes to rely on. Uncovering a highly-skilled cyber attack is 
currently much more of an art than a science. It can require intuition, 
creativity, and a very high degree of motivation.
     x. the administration's proposal creates the wrong incentives
    Mandatory disclosure punishes companies that are good at detecting 
intrusions and malware. It creates an incentive not to know, so that 
there is no obligation to report. It diminishes the motivation of 
internal investigators, who may worry that finding out exactly what 
happened may do their company more harm than good. It adds to the 
ultimate costs of detection tools and services, making companies more 
reluctant to spend money on them.
    Requiring companies to disclose their cybersecurity plans and 
certifications is, if anything, even more likely to have unintended 
consequences than requiring disclosures of successful cyber attacks. 
The kinds of language and administrative formulas that would be adopted 
to comply with such requirements would almost certainly have little to 
do with real cybersecurity. This is partly because the field is 
developing so rapidly that by the time cybersecurity plans were 
recognized as fulfilling administrative expectations, they would 
already be obsolete. There is also no way to tell at the level of a 
``general plan'' whether the cybersecurity measures involved would be 
doing any good or not. The consequence of disclosing such plans would 
be another, costly level of administrative bureaucracy and auditors 
that would probably only be getting it the way of good security.
xi. administration's proposed language provides dhs with unfettered and 
               unjustified authority over private systems
    Although it has been suggested that the intent of this legislation 
is to cover only the most critical ``core'' infrastructure, a careful 
reading of the legislative language indicates that it provides 
essentially unfettered authority to DHS to mandate technical standards 
for almost any aspect of the private sector.
    Sec. 3 of the Regulatory Framework for Covered Critical 
Infrastructure lists a full page of requirements to be met before an 
entity is subject to these, as yet unspecified, Federal mandates.
    However, when reading through them, they don't provide any limit on 
the Secretary's authority to designate any enterprise as a so-called 
``covered critical infrastructure'' and thus subject to DHS mandates.
    It's easiest to analyze the impact of the sections if we review 
them in reverse order.
    Subsection D states that being named on the list as a covered 
critical infrastructure under this section ``shall be considered a 
final action for purposes of judicial review.''
    Subsection C lists a variety of criteria to be placed on a ``risk-
based tier,'' but criteria No. 4 is ``such other factors as the 
Secretary deems appropriate,'' which means the Secretary can place any 
entity on any tier for any reason he or she wants to.
    Subsection B, which lists only 2 criteria for inclusion. One 
criterion is that the entity or system ``is dependent on information 
infrastructure to operate.''
    Since virtually all modern systems that are reliant on some form of 
information infrastructure to operate, those criteria are all-
encompassing.
    That leaves us only with the criteria listed section B1, which is 
that incapacity or disruption of the reliable operation of the system 
would have a ``debilitating effect on National security, National 
economy, or National public health or safety.''
    We regard ``debilitating'' as a fairly loose, and frankly weak, 
criterion for conferring such broad authority to the Secretary. To 
``debilitate'' simply means to weaken--it doesn't necessarily mean to 
weaken a lot--just weaken. When I catch a cold I'm somewhat 
debilitated--but I wouldn't want the CDC to have the power to therefore 
regulate me.
    According to this legislative language, if the Secretary decides, 
for any reason, that the incapacity of a system might in some way 
weaken our economy, security, or safety, he or she has the authority to 
mandate--as a final action--whatever technical standards over their 
cyber systems the Secretary desires.
    For example, the recent SONY Play Station attacks reportedly will 
cost more than a billion dollars in damage, which one can argue weakens 
or ``debilitates'' the economy at least somewhat. Would that then make 
SONY Play Station's ``covered critical infrastructures'' under this 
definition? When asked that question at a recent Judiciary Committee 
hearing, an administrative witness replied that that determination 
would have to be made through rulemaking under the Act.
    In addition, the language does not state that the debilitating 
effect referred to in Sec. (b)(1) has to be from a cyber incident. 
According to this legislative language, the fact that the World Trade 
Center was attacked with airplanes, which obviously had a debilitating 
effect on our security and economy, would be justification for DHS to 
impose mandates on the cyber systems operating in the WTC, even though 
they had nothing to do with the attack.
    In addition, one criteria DHS will use in assigning an entity as a 
covered critical infrastructure is its interconnectedness with other 
infrastructures. That again allows for a tremendous expansion of 
potential DHS authority.
    For example, the supply chain for weapons systems can be thousands 
of companies long. Obviously, interruption of the operation of these 
systems for whatever reason--including non-cyber reasons--affect our 
National security. So under this language, all these thousands of other 
companies would be potentially subject to DHS regulation due to their 
interconnection to the main weapons system project.
    Moreover, under Sec. B1 of this provision, DHS will regulate 
``entities'' as opposed to systems or assets. This presumably means 
that an attack having a debilitating--however minor--effect on 
security, economy, or health would result in the regulation of the 
entire entity the system is interconnected with.
    The bottom line is that this legislative proposal provides almost 
unbounded discretion for DHS to classify an entity as covered critical 
infrastructure and subject the entire entity to unspecified regulation.
    Section 9 states specifically that ``the Secretary shall promulgate 
regulations . . . to carry out the provisions of the Title.''
    Section 2 states clearly that one of the purposes of the Act is to 
``establish workable frameworks for implementing cybersecurity minimum 
standards and practices.''
    Some may ask, ``what's wrong with DHS establishing minimum 
standards for industry through a rulemaking.'' The problem is it won't 
work and it is substantially counterproductive.
    Now, ISA is a big fan of standards and practices and we work with 
many entities, including NIST and other Federal Government agencies as 
well as private sector entities to create and constantly update them.
    However, there is a major difference between using the existing 
consensus process to develop international standards and practices and 
having a Government entity determine such standards and mandate them on 
the private sector.
    The multi-trade association White Paper addresses this argument in 
an entire section, concluding that:

``[w]e have already seen that attempts to impose Nation-specific 
requirements under the auspices of security are not embraced by the 
private sector or the civil liberties and human rights community for 
both public policy and economic reasons. A Government-controlled system 
of standards development that resides outside the existing global 
regime will not be accepted. If imposed, it would quickly become a 
second-tier system without widespread user or technology community 
adoption, thereby fracturing the global network of networks and 
weakening its security.''\12\
---------------------------------------------------------------------------
    \12\ Business Software Alliance, Center for Democracy & Technology, 
U.S. Chamber of Commerce, Internet Security Alliance, TechAmerica; 
Improving our Nation's Cybersecurity Through the Public-Private 
Partnership: A White Paper; March 2011 at p. 8.
---------------------------------------------------------------------------
    Again, although there is a great deal of verbiage discussing how 
the Government will work with the private sector, the bottom line is 
that this legislative proposal consistently gives DHS massive new 
regulatory authority.
    Section 7 requires CEOs to certify that they are in compliance with 
the plans required under the Act. Although there is substantial 
verbiage suggesting that DHS will work with the covered entities in 
creating these plans, Section 8 empowers the Secretary to review any 
entity's plan, and if DHS finds the plan wanting for some reason, they 
are empowered to ``take such action as the Secretary deems 
appropriate.'' In addition, paragraph 4 empowers the Secretary to 
evaluate the frameworks created through various discussions with the 
private sector. However, should DHS determine that the standardized 
frameworks don't meet their criteria, they are empowered to adopt their 
own framework to meet their criteria, and, thus, the DHS framework 
would be what a covered entity would be required to implement and 
certify.
   xii. the administration's proposal for evaluation is anti-security
    Under this proposal, an apparently enormous range of companies 
would be required to construct plans for cybersecurity and plans and be 
required to hire Federally-approved ``evaluators'' to review their 
internal security on an annual basis. There is little if any evidence 
that regulatory compliance is per se improved security. Indeed, many 
report that compliance requirements distract personnel from security 
work to attend to the compliance regime.
    Moreover, it is acknowledged on all sides that we face a critical 
shortage of qualified cybersecurity personnel and so the army of 
evaluators created under this proposal will almost by definition not be 
adequately trained.
    The single largest vulnerability of our cyber systems comes not 
from hackers using technology to break into systems but from 
``insiders'' with approved access to the systems. This proposal creates 
a virtual army of insiders crawling through our most critical 
infrastructure's security systems on an annual basis.
    The threat of introducing constant stream of new ``insiders'' into 
our Nation's most critical infrastructure far outweighs the dubious 
assumption that they will provide a tangible security benefit. That 
does not even account for the costs industry will bear to hire these 
evaluators, the cost of new manpower at DHS to comb through this 
mountain of data and the potential of an ideal attack vector where all 
these reports detailing our Nation's security will be stored.
  xiii. the information generated by these disclosures won't enhance 
                                security
    Ironically, one of the unintended effects of more comprehensive or 
stringent disclosure laws could be less information about the sort of 
cyber attacks that really matter. This is because most of the mandated 
disclosures would simply be noise. There would be a constant stream of 
reports, based on what lawyers believe would demonstrate compliance, 
while actually revealing as little as possible. This stream of reports 
would obscure the attack trends that really matter, while allowing 
companies to conceal events that might otherwise provoke public outcry 
and more active Government intervention. As cyber attack disclosures 
have become more frequent and more routine, this has already been 
already happening.
    The information made public by disclosure requirements is usually 
not very meaningful. Most cyber attacks, even if they are successful, 
do relatively little harm. They gather information that the attackers 
are never able to utilize. They provide one component of a larger 
attack program that never comes to fruition. In many cases, the effects 
of the disclosure are considerably worse than the effects of the attack 
itself. The mere fact that a company has suffered a successful attack 
gives little indication of its actual losses, even if specific numbers 
are mentioned. This is because there are so many factors that can 
influence the scale of loss, including the wording of the disclosure 
itself. Determining how much a successful cyber attack will hurt a 
company is very difficult even for those who have access to all of the 
details of the attack, the operations affected, and the company's 
finances. For the general public, the bare facts of a successful cyber 
attack are often very misleading.
    The cumulative data from the cyber attacks that have so far been 
publicly reported are also very misleading. Many of the biggest 
reported losses of personal data were due to lost or stolen laptops. 
This is not because it is the main way personal data is stolen; it is 
because the loss or theft of a laptop is an unambiguous event that it 
is hard not to acknowledge. Many of the other reported losses of data 
have been from major defense contractors. This is not because the major 
defense contractors are losing more data than other companies or than 
Government departments; it is because they have the best detection 
systems in place. Some of the most publicized cyber attacks have 
involved Google mail. This is not because Google mail has been 
compromised more than other e-mail systems; it is because Google's 
business model depends more on trust and on certain types of 
transparency than the business models of the other companies providing 
e-mail services. Since most cyber attacks go unrecognized, the mere 
fact that a cyber attack is being reported means that it is atypical.
                xiv. using effective models (a) the cdc
    All of this does not mean that all disclosure laws or bad or even 
that the existing ones are bad. It merely points out the unintended 
effects of such laws that legislators need to make an effort to avoid 
in drafting additional laws. More information about cyber attacks in 
general and about the degree to which individual systems and companies 
are at risk is necessary for markets to take adequate account of these 
things. Disclosure laws could provide some considerable benefits. But 
they will not provide the intended benefits unless they take into 
account how systems are monitored for attacks and what additional 
information might be needed to put the attacks in context.
    It is possible that the best approach might be to have the 
reporting go to a special legislatively-created institution, rather 
than directly to the public. This is the model used with disease 
control and public health issues. With sufficiently clear instructions 
as to how this institution would handle the information, its actions 
could potentially be accepted by all parties. There are other ways 
disclosure could be handled that would be less crude in its effects. 
The point here is that any disclosure laws need to be framed with a 
conscious acknowledgment of the pitfalls.
                    xv. effective model (b) sematech
    In the 1980s, the United States also faced a technological 
onslaught. During this decade, the nation of Japan began flooding the 
U.S. market with computer chips, which threatened to drive U.S. chip 
manufacturers out of business. Recognizing the economic and security 
threat that this posed, the U.S. enacted legal measures such as the 
Federal R&D tax credit and the Cooperative Research Act of 1984, which 
eventually led to the private sector and U.S. Department of Defense 
cooperative known as SemaTech. Within 2 years, sub-micron 
architectures, advanced X-ray lithography and a number of other 
critical innovations pushed U.S. chip makers back into world 
leadership, and produced generation jumps in computing capabilities 
just as the internet was dawning.
    A similar Cybersecurity Public-Private Cooperative could be 
composed of the private sector, academia, and the Government in a 
minority role. This organization could be charged with improving, even 
reinventing the cyber ecosystem in a more secure manner. Under this 
Cooperative's umbrella, stakeholders could share information and 
cybersecurity technology development to create (or fund the creation 
of) more alternative networking protocols, software languages, and/or 
hardware architectures that are more secure. It could also act as an 
incubator for ideas to create better strategies to combat APT's and 
their equivalent. It could also serve as the equivalent of an 
underwriters laboratory for cybersecurity by independently assessing 
best practices and standards along sliding scales. These proven 
increasing levels of security, if voluntarily adopted, could then be 
used to qualify enterprises for subscribing to them in return for the 
incentive programs suggested earlier which will help mitigate costs 
while enhancing proven security practices.
    The ISA, its members and partners are aware of the need to combat 
cyber threats--indeed that is why ISA was created over a decade ago. 
However this must be done in collaboration with Government, not as 
mandated by Government. Moreover, the solutions we derive must be both 
technologically and economically practical if they are to have the 
sustainable effect we require.

    Mr. Lungren. Thank you very much, Mr. Clinton.
    We will now go to a round of questions, 5 minutes for each 
Member, and I will begin.
    Ms. Hathaway, you heard Mr. Clinton's forceful testimony 
there. How do you respond to that?
    Let me just give a little background. I have said as a 
general rule what I would like to do is to ensure that we have 
a cooperative spirit between the private sector and the public 
sector, No. 1. No. 2, my concern is, if we are not deft enough 
in the way we have our regulatory schematic, we could--not 
intended to do this--but we could have the result of stifling 
creative ways of protecting against cyber attack that might 
come from the private sector as we impose a Government one-
size-fits-all approach.
    So I would like to see us, I guess, hit the sweet spot in 
that. You have been there, you have been through these 
arguments, and helped set up the contours of the debate. How do 
you respond to Mr. Clinton's observation about the 
administration's proposal?
    Ms. Hathaway. Sir, I think that the administration's 
proposal had the opportunity to engage the private sector to 
inform the debate and the items within the proposal. But during 
the course of their review, they did not engage the private 
sector, which is why it is so important that this committee and 
other committees do engage the private sector in understanding 
what are the second- and third-order effects of regulation and 
other market levers.
    I think it will be important to take a look at both a 
regulatory framework and an incentives-based framework for 
research and development, for incentivizing industry to 
actually get to a standard of care where we are not actually 
seeing breaches on a regular basis.
    Mr. Lungren. One of the concerns that I have had expressed 
to me by some in the private sector--others have indicated very 
strong support for the overall proposal--but one of the areas 
of concern was the auditing aspect contained in the proposal, 
where some suggested it was overreach.
    Now, Mr. Clinton, you suggested this sort of a continual 
presence there might open up the possibility of security 
breaches that wouldn't otherwise exist. I suppose that is 
always a balance you have to have.
    How do you ensure that those that you hope are protecting 
against cyber attack in the private sector, with consequences 
to individuals on a more general basis, how do you ensure that 
that is being done and, at the same time, don't have a heavy 
hand, which may result in exposures to intrusions that you 
otherwise would not have? How do you hit that balance?
    Mr. Clinton. The best way to do it, I believe, Mr. 
Chairman, is to make the system--to establish the system so 
that the organizations want to invest in security, so that they 
see it as in their own self-interest.
    As I think was pointed out earlier in some of the opening 
statements, what we currently have and what the National 
Infrastructure Protection Plan says is that we have not 
currently recognized the value proposition for industry. In 
some industries, there may not be an adequate value 
proposition. But there are a variety of ways that we can alter 
that so that they want to invest more in cybersecurity, they 
see a benefit to it.
    One way----
    Mr. Lungren. So they can explain to their shareholders or 
justify to their shareholders and their board of directors that 
it is bottom-line-effective.
    Mr. Clinton. Sure. One of the ways I think you mentioned in 
your opening statement is through the use of insurance. We have 
not been done enough to bring the insurance industry into the 
cybersecurity equation. Insurance is one of the great drivers 
of pro-social behavior. We use it in health care. We use it 
in--my daughter drives more carefully because she wants a 
``good driver'' discount on her insurances. This affects 
things. But we have not brought insurance into the 
cybersecurity arena.
    If we were able to motivate the greater adoption of 
insurance, the insurance companies will do the evaluation for 
us because their money is at risk. We can also use the 
reductions in premiums to provide a motivation for the adoption 
of increased best practices, just as we do when people give up 
smoking to have lower insurance rates, et cetera, et cetera.
    Insurance, liability reform, better use of procurement, 
which has already been mentioned, streamlined regulation--these 
are all things that could be offered to the private sector in 
return for investing more in cybersecurity that will adhere to 
their bottom line, making it so they want to do it, not because 
we are making them do it, and at the same time enhance our own 
Nation's cybersecurity.
    Mr. Lungren. Within the administration's proposal is a 
proposal for a National law on notice of breaches, which would, 
as I read it, preempt the States from doing that and, 
therefore, alleviate what some would say is a patchwork of 
different notice requirements. On the other hand, people say 
States should have the right to do that.
    Does anybody on the panel have a disagreement with the 
administration's approach on that?
    All right.
    The gentlelady from New Jersey, the Ranking Member of the 
subcommittee, is recognized.
    Ms. Clarke. I am from New York.
    Mr. Lungren. Excuse me. New York.
    Ms. Clarke. It is okay. But you know, as a New Yorker, we 
have to set the record straight.
    Mr. Lungren. After Mr. Pascrell yesterday indicating that 
he represented the entire region, I am sorry.
    Ms. Clarke. There you go. There you go.
    Let me start with you, Mr. Clinton, and the whole idea of 
incentivizing and the how-tos. You raised the issue of 
insurance, and I want to explore that a little bit further. 
Certainly, incentivizing insurance, on the surface, seems like 
a proposal that perhaps could work.
    What would happen if industry didn't bite or part of 
industry did but the other part didn't? How do we create sort 
of a uniform incentive?
    Because, you know, some folks could say they want it, and 
some folks could say, you know what, thanks but no thanks. Then 
we are still left vulnerable, because if everyone isn't 
involved, then vulnerabilities will exist.
    Can you speak to that?
    Mr. Clinton. Certainly, Ms. Clarke. Thank you very much.
    What the ISA proposes and, frankly, what is proposed in the 
multi-trade association white paper speaks exactly to your 
point, which is accurate. We have a very diverse private 
sector. So what we advocate is that we need to develop a menu 
of incentives.
    Certain incentives will be very attractive to certain 
areas. So, for example, if you are in the defense industrial 
base, procurement incentives are going to be particularly of 
interest to you. If you are in the public utility space, 
perhaps streamlining some of the regulation to make it more 
cost-effective may be appropriate to you. Other sectors are 
going to be interested, perhaps, in insurance. Still others 
might be interested in liability reform. You have to have a 
multitude of incentives, because different things will motivate 
other people.
    Were you also asking about how to get the insurance stuff 
started?
    Ms. Clarke. Well, I think my question is more to, when you 
deal with things from a voluntary perspective, entities can opt 
out. With cybersecurity, any opt-out equates to a 
vulnerability. Any area of penetration can then have a 
cascading effect. So, you know, while we want to resist the 
idea of imposing anything, I am just trying to get at, you 
know, how do we deal with trying to get as much coverage as we 
possibly can?
    I understand the menu that you have discussed. Perhaps it 
is industry by industry, where we get buy-in through each 
industry and its leadership, that will then cast the net that 
we are looking for to close those vulnerabilities.
    Would anyone else want to address that issue?
    I am just trying to figure out, without imposing a 
standard, if you will, how do we get everyone to see the virtue 
in establishing a standard that we can hold everyone 
accountable for?
    Mr. Williams. Representative Clarke, if I might, I 
absolutely agree with Mr. Clinton, that we should do everything 
in our power to set a private-sector leadership model in this, 
as we have in the past, to rely on markets wherever possible. 
If the insurance and incentive models work where they work, 
fantastic.
    Our experience in financial services is that, with a 
combination of regulatory oversight and our own business 
motivations, we have done a better and better job of protecting 
our sector. We have also reached out to other sectors with 
uneven results. So our service providers and the sectors on 
which we in a very interconnected way always depend are often 
receptive to their business partners saying, ``Security is 
important; we need you to invest in it,'' but not always.
    That is our concern. That is our motivation for supporting 
a comprehensive proposal here, is that if some opt out and they 
don't happen to be in a critical tier, well, that may be 
perfectly reasonable. But at least for that most critical tier, 
opt-out and the possibility that at least some business 
partners will just decide to go their own way and put others at 
risk we think is problematic.
    Ms. Clarke. Mr. Williams, let me just ask another question. 
Why do you think that preemption is important? Do you think 
there is a role for States in cybersecurity policy?
    Mr. Williams. One way to think about the State model, as 
people often describe it, is that it is a laboratory. In breach 
notification and in many other areas of cybersecurity and 
consumer protection, it has been a wonderful laboratory. We 
have seen these breach-notification rules evolve over the last 
several years with various experiments in the different States.
    We believe that it is now much more mature and that now we 
are ready for a National model. Those experiments have yielded 
the fruit that we would expect, we have some experience now, 
and we would like to see some uniformity at the National level.
    The States may still very well have responsibility for, in 
our case, overseeing State-chartered institutions like banks 
and insurers. They may still have consumer protection 
authority. But cybersecurity we think of as a National issue 
where uniformity, we think, makes the most sense.
    Ms. Clarke. Thank you very much, Mr. Chairman. I yield 
back.
    Mr. Lungren. The gentlelady yields back.
    The gentleman from Texas, Mr. McCaul, is recognized for 5 
minutes.
    Mr. McCaul. Thank you, Mr. Chairman.
    I think as you point out, Mr. Williams, I agree with the 
breach-notification law. It really cries out for National 
Federal law.
    There are many things in the administration's proposals 
that I agree with: The increased penalties for computer 
hacking; the notification law; the clearer cybersecurity 
authority for DHS; the FISMA reforms, which I think are 
necessary. So I would have to say, overall, I think Howard 
Schmidt, I think, did a pretty good job.
    But the one area where I find myself in disagreement really 
relates to the private sector and what role the Government 
plays in regulating the private sector. I think the first 
principle that we have, particularly in this area, in Congress 
is to do no harm. I think we can legislate and have unintended 
consequences, particularly as it applies to the private sector.
    We can harden the Federal networks, and I think that is 
something we are very focused on. You know, the Einstein 3--I 
mean, there are a lot of things in this proposal that deal with 
that. But it is really hardening the private sector and the 
critical infrastructures in the private sector that I think are 
the greatest challenge for us as policymakers. Ninety percent 
of the critical infrastructures, up to, are really controlled 
by the private sector.
    So my first question is to you, Mr. Clinton. How can we 
enhance that and incentivize the private sector without having 
these punitive mandates?
    The one thing in this proposal I disagree with is the 
regulating over the private sector. Then if they are out of--I 
mean, the remedy for a violation is basically what we call 
``name and shame.'' You know, we will call out the company and 
then publicly call out the vulnerability, which I don't think 
that is very good policy, to be, you know, publicly showing 
where a company is vulnerable. That just invites more mischief.
    So give me your thoughts on the regulating part of this 
provision, and what would you recommend?
    Mr. Clinton. Well, certainly, I agree with you, Mr. McCaul, 
about the disclosure aspects here. It creates a target. Not 
only that, it creates an incentive for companies not to find 
out things. You know, we need to incentivize people to be doing 
a better job of reviewing their cyber systems.
    You know, the modern cyber threat is geared around not 
allowing you to know that it is there. I mean, you know, a few 
years ago, cyber threats, you know, were--you had big cutesy 
names like the ``Love Bug'' and ``Blaster'' and all that kind 
of thing. Modern cyber threats are stealthy. They get in your 
system, and the first thing they do is clean out your system, 
so that when there is detection done, none of these lousy cyber 
threats let you know that the really bad guy is there. They go 
in your system and they hide. So it is very difficult to find 
these guys.
    So we want to provide incentives for people to go and look 
at them. If the corporation knows that the harder they look for 
a problem, the more likely are they are going to be named and 
shamed for finding it, we have created exactly the wrong 
incentives.
    It would be much better if companies were proactively 
incented in the way that I suggested with Ms. Clarke so that 
they wanted to go find these things because they were going to 
lower their liability, they were going to lower their insurance 
rate, they were going to have a better chance at a Federal 
contract, et cetera, et cetera.
    The one point that I think we have to be sure, though, is 
that we don't assume that there is some sort of minimum 
National standard that everybody has to get to. That is not 
true. The problem that we have with cybersecurity is not that 
the technology is broken and so we have to bring it up to 
standard; the problem with cybersecurity is that it is being 
attacked from the outside. So we have to find a way to motivate 
a continual investigation and innovation of mechanisms, rather 
than bring people up to some sort of stable standard.
    Mr. McCaul. Thank you.
    My time is limited. Ms. Hathaway, I wanted to ask you a 
quick question. You have a lot of expertise in these public-
private partnerships. We have had the ISACs, the information 
sharing and analysis centers; have never really gotten to the 
point where we want them to be. You know, when I met with some 
of these firms in Silicon Valley, they talked about the 
liability protections. You know, there is a FOIA exemption, or 
exception, for critical infrastructures in terms of the 
sharing, but there still isn't any liability protection for 
them. So they are not incentivized to share information.
    Can you speak to that? What would be your recommendation as 
to how we can better enhance these public-private partnerships?
    Ms. Hathaway. Representative McCaul, I agree that many 
companies perceive that the FOIA is not strong enough if it 
were actually leveraged, and, therefore, private-sector 
entities are not as willing to share information.
    I think that the question we need to be asking ourselves on 
the Government side is, how can we share more and better 
information with the private sector so they can appreciate the 
threat that they are dealing with and the exposure that they 
have as multinational corporations?
    I think the Government does not share actionable 
information with the private sector and should increase their 
information-sharing mechanisms that are informed from the law 
enforcement and the intelligence community.
    DHS, as the forward-facing entity, needs better information 
from the law enforcement and intelligence community and should 
be sharing actionable information and real case studies with 
the private sector of what is happening in their industry, how 
certain corporations are being exposed--not necessarily naming 
them, but saying company X was exposed with the following 
breach and lost X quantity of confidential information. It is 
only when we start using real cases and real information that 
the private sector will be able to better defend itself.
    Mr. McCaul. Thank you, Ms. Hathaway.
    Mr. Lungren. The gentleman yields back.
    The gentleman, Mr. Richmond, is recognized for 5 minutes.
    Mr. Richmond. I defer to Laura my time. I think she needs 
to leave.
    Mr. Lungren. Oh, okay. Well, according to the rules of the 
committee, it is in order of appearance. So Mr. Keating would 
be next unless he allows Ms. Richardson----
    Ms. Richardson. I think I was here.
    Mr. Lungren. Okay. The gentlelady from California, Ms. 
Richardson, is recognized.
    Ms. Richardson. Thank you.
    Thank you, gentlemen. That was very kind of you.
    Ms. Hathaway, in your opinion, which sectors are the most 
critical that we should be focusing on? We obviously can't do 
everything. We are not going to have money for everywhere. In 
our critical infrastructure, what would you say would be most 
vulnerable?
    Ms. Hathaway. Ma'am, I think that the most important 
probably starts with our energy sector. Without the power, you 
can't run a business and you can't sustain operations. Given 
the system control vulnerabilities and in the wake of the 
proliferation of Stuxnet, it is a high priority for the country 
to address the vulnerabilities that are within the power 
sector.
    I think followed by power is telecommunications, because 
without telecommunications you don't have the internet and you 
don't have the ability to do e-commerce and e-business.
    I would start with those two sectors.
    Ms. Richardson. On a scale of 1 to 5, 5 being best 
prepared, how would you rate that we would be from an energy 
perspective?
    Ms. Hathaway. On a scale of 1 to 5, I think that the energy 
sector probably was in a better prepared state and it is now 
going down the scale, as it moves more and more of its 
infrastructure to an internet-based protocol and as we, the 
Government, have been offering to the private sector that they 
need to move more and more of their infrastructure to a smart 
grid. I don't believe that a smart grid has been approached 
with the security in mind first and foremost and so, therefore, 
is making that infrastructure more vulnerable.
    Ms. Richardson. Thank you.
    Mr. Clinton, according to the White House proposal, 
companies would be subject to reporting--and it was a previous 
question by my colleague--would be subject to reporting 
significant incidents to DHS. Do you have an objection to that?
    Mr. Clinton. Well, the problem is, what is a significant 
incident? As I tried to articulate in my testimony, there is 
currently an opinion, a common thought in the press, anyway, 
that when you have been breached, that is a significant 
incident. We would probably disagree with that. In the modern 
world, with modern attacks, virtually everybody gets breached. 
If you are going to have some of these advanced persistent 
threat guys come after you, you are going to be breached, 
meaning they are going to get in your system.
    That means that we have to alter the way we do defense away 
from perimeter defense, keeping them out, to recognizing them 
when they are in the system and mitigating the attack there. So 
even though you may have been breached, that does not mean that 
it is necessarily a significant incident, because, as I say, 
these guys are going to get in.
    If we made that the line, that you had to report the fact 
that somebody successfully got into your system and then you 
were subject to some of these ``name and shame'' penalties that 
we discussed earlier, I think that that would be a mistake.
    So it really has to do with the definition of what is a 
significant incident, is where I have my problem.
    Ms. Richardson. Ms. Hathaway, would you view a significant 
incident being a breach, as Mr. Clinton described?
    Ms. Hathaway. I think a significant incident is any time 
that you lose confidential information and/or put an operation 
at risk that it can no longer deliver essential services.
    Ms. Richardson. Have you worked with various private 
industry to define what a significant incident would be?
    Ms. Hathaway. No, I have not.
    Ms. Richardson. Do you have an interest in doing so?
    Ms. Hathaway. I think that it is important for each sector, 
whether it is the financial services, defense industrial base, 
electric power, and the other 17 critical infrastructures, to 
define what is a significant incident in each one of those 
sectors and then define the appropriate response and mitigation 
strategies.
    Ms. Richardson. Okay.
    Last question, for Mr. Williams: What amount of risk should 
the Government be responsible for in the event of a major 
cybersecurity attack in the private sector, if at all?
    Mr. Williams. I think the Government is certainly 
responsible for collaborating with the private sector if there 
is an incident. I wouldn't say that that is the same as 
accepting financial responsibility or operational 
responsibility. I absolutely believe that as much as possible 
of both of those need to live with those who have direct 
ownership of systems and connections.
    I would say that in an incident, as in a steady state, if 
there is a way that we can set up the kind of voluntarily 
collaboration that I think many of us support, then Government 
has an obligation to participate in that process. We believe 
that for DHS; we believe it for our financial regulators. We 
believe that they have an opportunity to protect other sectors 
when incidents like that occur. But that is very different from 
accepting risk and somehow relieving others of that risk.
    Ms. Richardson. Thank you.
    I yield back.
    Mr. Lungren. The gentlelady yields back.
    The gentleman, Mr. Long, is recognized for 5 minutes.
    Mr. Long. Thank you, Mr. Chairman.
    Ms. Hathaway, you spoke about stiffening the penalties. To 
what degree? Do you agree with the overall proposal, the 
penalties that have been proposed in that? What degree do the 
penalties need to be stiffened to curb some of this activity?
    Ms. Hathaway. Sir, I think that it is essential that we 
update the Computer Fraud and Abuse Act. Right now, we do not 
have enough penalties for the breaches that are happening every 
day that we read about. I think that the administration's 
proposal is important.
    I would take it one step further and remove the connotation 
of ``protected systems.'' Protected systems are usually defined 
as Government and financial institutions. I think that any 
breach, regardless of where it has happened, in the private 
sector, the Government, and/or in academia, should be deemed a 
breach, with the same penalties.
    Mr. Long. Has there been any indication that the penalties 
that are there now have been effective or the increase that 
they are going to in years and dollars, do you have any----
    Ms. Hathaway. I believe that the stiffened and higher 
penalties, if they are communicated, will start to act as a 
deterrent, a domestic deterrent. I believe that, also, law 
enforcement needs to have additional capacity to be able to 
investigate these breaches and impose those penalties as they 
find those who are committing those crimes.
    Mr. Long. What percent of cyber attacks would you say are 
domestic and what percent are non-domestic right now?
    Ms. Hathaway. I think it would be difficult to quantify the 
number of incidents and/or breaches. They are going up 
exponentially every day. I think all countries are suffering 
the same amount of intrusions.
    Mr. Long. Okay. Thank you.
    Mr. Williams, I hail from the Seventh District of Missouri, 
and we had an incident there where a title company, just a 
small mom-and-pop shop title company, had, I believe, $440,000 
taken out of their account, their bank account, over the 
weekend. This has been within the last 12 months, maybe a 
little longer, 15 months, or somewhere in that neighborhood, 
and had $440,000 wiped out of their account through their bank.
    The Secret Service is the investigative arm that looks into 
that. They have ascertained, I think, that the money first went 
to Turkey, then Cyprus, ended up in Pakistan. Apparently the 
hopes of getting it back are about like the hopes of me 
collecting the $800 million I have been e-mailed here this 
morning that is in an account in my name.
    How can we protect--I mean, this is a mom-and-pop title 
company. They had the financial resources and backing to be 
able to go out and qualify for an SBA loan, because, as you 
know, in a title company, that was not their money they were 
holding. It was money they were holding for real estate 
transactions to close. So they at least had the ability to go 
out and borrow the $440,000, which is not a lot of consolation 
to them.
    But how in the world can we in Congress help the financial 
services industries in this cyber attack situation?
    Mr. Williams. We certainly can use some help with it. I can 
tell you some of the things that we are already doing.
    One of the evolutions in this whole process over the last 
few years is that much of the work used to happen solely within 
an institution, but now it really has to include business 
clients, like the title company, in the process----
    Mr. Long. And their bank.
    Mr. Williams. And their bank. They absolutely need to be 
cooperating so that the bank builds secure systems, the title 
company secures its system and its credentials, so that they 
have this collaborative arrangement where it is not entirely 
within the bank's systems and the title company is not entirely 
on its own in this process.
    If we have more research and development, as most of these 
proposals I think suggest, we will find better and better ways 
to authenticate, so that if someone over a weekend has gained 
the credentials of the title company, it will be harder and 
harder for them to pose as a business client of the bank 
without the bank being able to detect it.
    Mr. Long. I don't know how we can ever get ahead of the 
curve on this situation, because it seems like we are 
constantly behind the curve, and the curve is moving at a rapid 
pace. So if there anything, off-mike or whatever, later, if you 
can get to me, as far as how Congress can help, for the entire 
panel, I would appreciate it.
    Mr. Williams. Yes, sir.
    Mr. Long. Mr. Clinton, you made reference to the fact of 
insurance two or three times. Walk me through that a little 
bit. What type of insurance? What do you incentivize? The 
insurance companies in this, what type of insurance are you 
talking about?
    Mr. Clinton. Well, there are a variety of insurance 
instruments that are available--protect against breaches, 
protect your liability of losses, protect your system, loss of 
data. It is possible to, for example, in the example of your 
title company, that they could have bought insurance----
    Mr. Long. You are talking pretty much liability insurance?
    Mr. Clinton. Yes, sir. The typical policies don't tend to 
cover these cyber events. So there are special instruments that 
are available for that.
    The way that that would probably be best done--there are 
two things that we propose to get that started, one of which 
would be for greater information-sharing in return for some 
sort of Federal benefit. One of the problems the insurance 
companies have is that they don't have the actuarial data, 
because companies keep that private. But we believe that, 
probably, working with the Government, we could get that sort 
of actuarial data. That will help to bring the rates down. If 
we can get the rates brought down, then people will sell more 
insurance, and we can start kind of a virtuous cycle.
    The other thing, which is a much bigger idea, would be--we 
have had this problem of not having enough insurance for an 
important social good in the past: Crop insurance, flood 
insurance, et cetera. In those instances, the Federal 
Government has set up a revolving fund, and that was a better 
way to manage risk.
    This is one of the things I would propose that the 
committee ought to look at, because right now the Federal 
Government is carrying all the risk of a major cyber event. If 
the East Coast goes down for 3 weeks, Congress is going to pay 
for it all. That is bad risk management. You ought to be 
setting up a revolving fund so that we can get some private 
coverage there.
    Mr. Long. Thank you.
    Mr. Chairman, I have no time to yield back, but if I did, 
trust me, I would.
    Mr. Lungren. I was going to say, as a conservator, you are 
not used to giving back something you don't have. But that is 
all right. I won't interject that.
    Mr. Richmond, you are recognized for at least 5 minutes.
    Mr. Richmond. First of all, Mr. Chairman, let me thank you 
for having the hearing, and to the Ranking Member who has been 
very passionate about this issue.
    The overwhelming concern that I have--and any of the 
panelists can chime in--is just the country's awareness of this 
as a real threat. I chaired Judiciary in the State of 
Louisiana, which under our jurisdiction we had homeland 
security and all of those things, and this was not an issue 
that got a lot of attention, if any.
    So what can we do in the importance of raising awareness of 
it to help combat the threats that we have out there? Just 
general public awareness, and then we can go from small 
businesses to major businesses, and then we can just talk about 
States, because I don't see Louisiana being prepared or being a 
leader on this at the State level.
    So, in any particular order. We could start with you, Ms. 
Hathaway.
    Ms. Hathaway. Thank you very much, sir.
    I think that we do need to have a National conversation 
about what is happening on our networks, and it needs to begin 
really at all levels.
    We need to begin the conversation about cybersecurity and 
network hygiene in the K-through-12 program. As our children 
are being asked to bring in thumb drives to carry their 
homework back and forth between school and our home networks, 
they are being used as a path to actually infect our homes that 
infect our enterprises which infects our governments and 
infects our banks. So we need to begin with the children.
    If we then move into a university program that extends the 
Information Assurance Centers of Excellence to all 50 States 
and beyond 5 percent of our universities, we can start to get 
to the actual practitioners of and create a stronger workforce.
    If we start to have a stronger, more informed workforce on 
the information security that is trained from K through 12 
through university, then we start to have a better-informed 
workforce and enterprises that can contribute to the National 
conversation.
    I would ask you, as Members, if you could go back and have 
a conversation in each of one of your districts and start a 
conversation in the schools and with the enterprises, because I 
can guarantee you the schools have been breached or the 
enterprises in your districts have been breached. You can start 
a simple conversation of what it means to them and what it 
means to you and how can we begin that National conversation in 
every district of America.
    Mr. Shannon. Yes. Thank you.
    The challenge here is getting people to realize that it is 
a community impact, that having one organization, one entity, 
one individual compromised is really not the issue; it is when 
it happens en masse. So, from CERT's experience, starting with 
the Morris worm, you know, there was a realization of everyone 
involved that this is a community event, it is not just their 
network that has been compromised, not just their host.
    So I think part of the challenge, especially when you are 
looking at insurance issues and regulatory issues, is 
acknowledging that community aspect. What we find is that 
organizations, individuals usually are surprised when they 
realize that the compromise in their system is part of an 
overall industrialization of the threat and it is affecting the 
whole community.
    So, actually, their--putting themselves at risk, as Ms. 
Hathaway mentioned, that puts everyone at risk, realizing that 
we are all in this together. I think that is where the 
conversation needs to lead. It is not just about your own 
assets, your own data. Your vulnerabilities actually expose 
everybody else.
    Mr. Williams. I would have a thought or two at the family 
or small-business end of the spectrum and at the more corporate 
end.
    At the family level, people shouldn't be worried about 
advanced persistent threats or some vague notion of identity 
theft. There are some very concrete things that they can be 
thinking about. They can be more technology literate from the 
schools at the children's level and the adults in the home. 
They can be watching that their PCs and their smart phones have 
antivirus protection on them, that they are well-maintained. 
They can be watching their financial statements to ensure that 
transactions don't appear----
    Mr. Richmond. Mr. Williams, I know I am going to get cut 
off in a few minutes. But if you could get me that information 
or get that to the committee, I think it would be helpful. 
Because a lot of us send out information to our districts all 
the time, and that is something that we could put in there, 
those small things to push people to do.
    Before you, Mr. Clinton, I would just--you talked a little 
bit about ``name and shame.'' Part of the question is the 
balance between the public's right to know--because a lot of 
times we, as Government, and private sector, we clash, because 
the private sector would say, ``Nothing bad has happened yet. 
There is no reason to act until something really, really bad 
happens.'' Well, we have to take a different approach, and part 
of that is to try to make sure nothing ever happens.
    So how do we balance ``name and shame,'' as it is 
described, with the public's right to know and the fact that 
information is power, and we can prevent it that way, and not 
just leaving it up the private sector until something bad 
happens?
    I yield back, Mr. Chairman.
    Mr. Clinton. A couple things. I will try to be really 
quick. Be happy to chat with you more off-line.
    First of all, putting in those incentives so that we can 
get to those best practices and standards that the NSA, CIA, 
everybody, Secret Service, would solve 90 percent of the 
problem. That is the first thing we need to do.
    With regard to disclosure, ISA is very much in favor of 
disclosure. But the disclosure, as I have detailed in my 
testimony, the disclosures have been to be purposeful 
disclosures. The public's right to be secure, I would say, is 
the higher value here.
    What we have proposed is, instead of having general broad 
disclosure, which will go to the press, which will treat it 
sensationally, will skip over the details as to whether or not 
this was really harm here or not, we would propose more of a 
CDC sort of model. That is where the reporting ought to be. It 
should be going into entities that can understand the real 
problem and can work on solving the problem so that we don't 
have the losses that come out.
    One of the problems here is our definitions. Think of 
cybersecurity like a football game, okay? If you are the 
defense in a football game, it is not a--everybody gives up 
yards, right? So the fact that you have been breached, that is 
not the problem. The problem is when the offense scores. So you 
can have breaches that don't lead to scores.
    We shouldn't be putting out publications, you know, and 
having news conferences about somebody being--you know, 
somebody losing just some yardage. We should confine that to 
experts detailing when there has actually been losses, and then 
we can deal with, you know, some sort of SEC filings that are 
appropriate, which the SEC already will do.
    So we are arguing for a more sophisticated form of 
disclosure to deal with a more sophisticated sort of attack. We 
think that that will lead to greater security, which is our 
goal.
    Mr. Lungren. Now, the gentleman, Mr. Marino, a great 
football fan, is recognized for 5 minutes to continue the 
analogy.
    Mr. Marino. Thank you, Mr. Chairman.
    Carrying that ball down the field on the offensive end of 
things, I want to turn this conversation a little bit. We are 
talking about the breaching of the systems and increasing the 
penalties. But I find it ironic that we are here--and, 
obviously, I am a big supporter of public hearings--but we are 
here talking about security measures, which--we could have a 
hacker sitting out in the audience.
    So where do we draw that line between sharing public 
information and not sharing it to prevent it from the hackers 
getting control of it? But, by the same token, the hackers are 
pretty sharp. No. 2, as far as penalty-wise, what do we do with 
the 15-year-old genius who gets into the system just for fun 
and causes havoc?
    With those two questions, could we start with Ms. Hathaway? 
My father told me ladies before gentlemen.
    Ms. Hathaway. Well, let me start with the 15-year-old 
genius. There are some efforts within the law enforcement 
community and with the actual school districts to identify 
those genius hackers. Instead of a sentencing or going to 
juvenile hall, they actually start working with the law 
enforcement community or get prepared to work for our 
intelligence community. So they are the next-generation 
workforce with the skill set that we need.
    Mr. Marino. Okay. Let me interrupt just for a moment. 
Primarily--and the former attorney general from California will 
agree with me, I think, that the Federal system has very little 
jurisdiction or, actually, maybe no ability to deal with 
juveniles.
    Ms. Hathaway. I understand that the law enforcement 
community has been working with the high schools to actually 
help identify and work with using their skill set and turning 
it to good as opposed to harm.
    Mr. Marino. I understand that. But how about the penalty 
aspect of it? What is your position on that? Do you have a 
suggestion on that?
    Ms. Hathaway. I think that penalties for kids, we need to 
look into, the penalty could actually be serving, you know, for 
the U.S. Government or serving on behalf of the communities to 
actually go out and prosecute.
    Mr. Marino. Mr. Shannon.
    Mr. Shannon. Could you repeat the question? I have lost the 
track of what you--the first part of the question.
    Mr. Marino. The two questions were: Keeping it 
confidential; and how do we deal with the juveniles? Because 
the Federal system is not that well-equipped to deal with 
juveniles when it comes to penalties.
    Mr. Shannon. Yeah, I will deal with the confidentiality 
issue.
    One of the great innovations of the internet is the freedom 
to express yourself, the freedom to create new technical 
capabilities, to innovate quickly. It is enabled by open 
disclosure, open sharing of information.
    Clearly, disclosing vulnerabilities is a challenge, but 
when you realize that there is a threat and there is a 
remediation, sharing that quickly and openly is better than 
what is the alternative, remaining ignorant. Because I can 
assure you that the hackers do know, and if you try and 
communicate it in some out of sort of closed or secure manner, 
once you get to sufficient scale, they will still know. So, you 
know, there is no hiding it, in that sense.
    So it is better to put the information out there, let 
people be informed, and then they can make the appropriate 
decision, especially when it comes to a mitigation.
    Mr. Marino. Okay.
    Mr. Williams.
    Mr. Williams. I think, quite appropriately, most of this 
conversation already occurs in confidential spheres and should 
continue that way. So companies, when they contract with other 
companies, will talk very explicitly about their security 
posture. That has a very strong market incentive for people to 
do the right thing.
    In our industry, institutions talk with their regulators, 
but they do that almost exclusively behind closed doors. The 
kind of sharing that I think the administration proposal 
contemplates would also be confidential, two-way sharing 
between DHS and some of the other agencies and the companies.
    There are, I think, a couple of exceptions to this idea 
that there should be a cloak of confidentiality generally. One 
is, if there is information that can help consumers to protect 
themselves, if an individual consumer has been put at risk, 
there are and should be rules to ensure that that person knows 
what they need to know to protect themselves. The same at the 
SEC level for investors.
    Mr. Marino. Okay. All right. Thank you.
    Mr. Clinton, you have 18 seconds.
    Mr. Clinton. We are dealing with different levels of data, 
so the sophisticates ought to be meeting amongst themselves and 
sharing data and then atomizing it and then have it pushed out 
to the broader community.
    We have a proposal we actually started with Melissa 
Hathaway a couple of years ago with DHS to do exactly that. I 
would be happy to talk with you more off-line.
    Mr. Marino. Thank you. Touchdown.
    Thank you very much, Mr. Chairman.
    Mr. Lungren. Now I will be happy to recognize the gentleman 
in this Congress who probably was happier than any other Member 
that Whitey Bulger got nabbed yesterday, Mr. Keating.
    Mr. Keating. Happy and relieved.
    You know, interestingly enough--I will just a little share 
information with you--in terms of getting the word out, I was 
struck by the fact that there is a group in the Boston area 
where the 30 top executives, largest firms, they meet usually 
annually to discuss what their biggest issue is. That could be 
taxes, it could be anything; it is open-ended. They decided it 
was cybersecurity. So I do think that people understand the 
magnitude and the importance of this, and that is out there.
    What I am struggling with is this, and I don't know if 
there is an answer. Mr. Clinton started down that track, but I 
would just like to ask the rest of the panel if they could help 
in this regard. I am looking for something, an existing model, 
public-private model, quasi-governmental model, that already is 
there, may not be a perfect fit, but just to give me an idea of 
where the Chairman said, the sweet spot is. We are looking for 
something that is flexible enough so that regulations don't 
smother the ability and provide deterrence.
    But I don't agree with, you know, the CDC model approach, 
that, you know, it is just out there. I think we have to more 
oversight proactively on that. I don't know where that is. I 
know that the ``name and shame'' issue can, I think, be 
mitigated by having, you know, rankings, the way they do in 
financial institutions. When they do an audit, you can have 
CAMEL ratings, whatever ratings they might be--1, 2, 3, 4--and 
you are in categories where, you know, companies will have some 
responsibility, and insurance companies can look at that as 
well.
    But if you could--and I don't anticipate anyone has a 
perfect fit--can you think of some existing models in other 
areas? You know, Mr. Clinton has mentioned the CDC. I would 
like to ask the other panelists.
    Mr. Shannon. So I think there are a couple of models. There 
is the automotive and airline industry that, you know, have 
reporting on accidents and incidents that allows for an 
appropriate oversight. So it is a more closed--the NTSB, you 
know, has a closed investigation when an incident happens.
    I think it is important also to look at the CDC model and 
think about where it actually is appropriate and where it is 
not appropriate. I mean, where it is not appropriate maybe is 
nation-state threats. But certainly in terms of deal with 
industrial challenges in malware and exploitation, being able 
to have a better situational awareness based on the 
preponderance of incidents is what is needed.
    An individual, just because I got hacked, I don't know if I 
am the only one in the world or whatever. But if the Government 
wants to or organizations want to be able to do a broad 
response, having that sort of situational awareness is 
imperative. Otherwise, you don't know that there is a 
challenge.
    Mr. Keating. Thank you, Dr. Shannon. That is great after 
something has happened, too, and that is important.
    What about trying to prevent areas and to rank or to find 
some kind of oversight that is not too, you know, over-
regulatory in nature?
    Mr. Shannon. I will defer to my colleagues. We deal with 
things when----
    Mr. Keating. That is all right. Thank you.
    Mr. Williams. If I might, one macro example, one micro 
example.
    A macro example I think is environmental protection. There 
was a time when the best thinking on environmental protection 
was simple command-and-control regulation. I don't think that 
is the right model for us here.
    But over time, environmental protection advocates realized 
that industry needed to be at the table in determining what the 
solution was and then also needed to be at the table in 
executing it. I think that is where we are in cybersecurity. We 
need to work together to figure out what the right answers are 
and then to deliver them.
    The micro example, just the information-sharing and 
analysis center within our sector I think is a good model of 
public-private collaboration. It is largely chartered and, in 
many ways, supported by Government resources. It helps us 
connect with other sectors. But it is a private-led, voluntary 
effort that we think has brought us great progress.
    Mr. Keating. Ms. Hathaway, did you have any thoughts?
    Ms. Hathaway. I think that there is a lot that could be 
done by turning to the internet service providers and the 
telecommunications companies as the first order of warning and 
defense.
    Australia has adopted a code of practice or a code of 
conduct where 90 percent of their telecommunications providers 
have opted in, without regulation, to provide that service to 
the core infrastructure. Europe, within the European Union, 
have adopted Telecommunications Directive 13a, which is 
regulating all of the internet service providers within all 27 
countries to provide that service across their infrastructure.
    I think that the United States could learn from those 
different experiments and/or capabilities and understand what 
the costs are to better clean and keep our infrastructure clean 
and warn us of the impending threats.
    Mr. Keating. Great. Thank you very much.
    Mr. Lungren. I thank my fellow Members of the subcommittee 
for attending.
    I thank the witnesses for their valuable testimony. This 
has been very, very helpful. It is the beginning of the 
inquiry, in a real sense, rather than the end of it.
    Members of the committee may have some additional questions 
for the witnesses, and we would ask you to please respond to 
those in writing. The hearing record will be held open for 10 
days.
    The subcommittee stands adjourned.
    [Whereupon, at 11:50 a.m., the subcommittee was adjourned.]

                            A P P E N D I X

                              ----------                              

     Questions From Chairman Daniel E. Lungren for Melissa Hathaway
    Question 1. From media reports, China is engaged in the most 
damaging hacking campaign in history. At the same time, its primary 
telecommunications equipment provider continues to gain U.S. market 
share, including in the Federal market.
    What solutions can the Federal Government pursue against foreign 
espionage? How can the private sector protect against the threat?
    Answer. The Webster's definition of espionage is, ``the practice of 
spying or using spies to obtain information about the plans and 
activities especially of a foreign government or a competing 
company.''\1\ There is a long history of espionage and in general, it 
is a globally accepted practice of intelligence collection to better 
understand Government and company intentions. The National Counter 
Intelligence Executive (NCIX) tracks these trends and reports to 
Congress the status of foreign economic collection efforts and 
industrial espionage.\2\ In its fiscal year 2008 annual report, NCIX 
reported that ``foreign economic intelligence collection and industrial 
espionage has continued unabated.''\3\ The newspapers highlight 
everyday that companies and governments regularly face attempts by 
others to gain unauthorized access through the internet to the 
information technology systems by, for example, masquerading as 
authorized users or through the surreptitious introduction of software. 
However, this does not negate the need to limit foreign espionage that 
has become increasingly more pervasive and sophisticated against our 
public and private sectors. Furthermore, focusing on one opponent may 
distract our industry and Government from implementing a more complete 
strategy.
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    \1\ http://www.merriam-webster.com/dictionary/espionage.
    \2\ Industrial espionage, which is the knowing misappropriation of 
trade secrets related to or included in a product that is produced for 
or placed in interstate or foreign commerce to the economic benefit of 
anyone other than the owner, with the knowledge or intent that the 
offense will injure the owner of that trade secret. Misappropriation 
includes, but is not limited to stealing, copying, altering, 
destroying, transmitting, sending, receiving, buying, possessing, or 
conspiring to misappropriate trade secrets without authorization. 
Industrial espionage is also criminalized under the Economic Espionage 
Act.
    \3\ http://www.ncix.gov/publications/reports/fecie_all/fecie_2008
///2008_FECIE_Blue.pdf.
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Potential Solutions
   The Federal Bureau of Investigation (FBI) and the 
        intelligence community need to better inform industry of the 
        threats they are facing and how they are being exploited or 
        penetrated. A training program to educate corporate leadership 
        on how to mitigate the risk of being a high-value target, 
        including providing them with briefings about the threat to 
        their industry using specific case studies, would go a long way 
        to reducing the number of incidents and loss of confidential 
        information.
   DoD is proposing to amend the Defense Federal Acquisition 
        Regulation Supplement (DFARS) to add a new subpart and 
        associated contract clauses to address requirements for 
        safeguarding unclassified DoD information. This development is 
        essential because emerging, pre-classified military 
        technologies or commercial breakthrough technologies are 
        increasingly becoming the target of espionage. The proposed 
        DFAR changes would require industry to implement basic security 
        measures to increase their defenses from cyber intruders.
   Engage the United States Department of State's International 
        Telecommunication Advisory Committee (ITAC) \4\ and the 
        Advisory Committee on International Communications and 
        Information Policy (ACICIP)\5\ to better understand predatory 
        trade practices in the United States and elsewhere and develop 
        strategies to respond to these practices in a timely manner. 
        Use these advisory councils and others to gain a better 
        understanding of what trade and economic implications are to 
        U.S.-based corporations if other countries impose a Committee 
        for Foreign Investment in the United States (CFIUS) like regime 
        to protect their respective National and economic security 
        interests.
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    \4\ The United States International Telecommunication Advisory 
Committee (ITAC) advises the Department of State in the preparation of 
U.S. positions for meetings of international treaty organizations, 
develops and coordinates proposed contributions to international 
meetings as U.S. contributions, and advises the Department on other 
matters to be undertaken by the United States at these international 
meetings. The international meetings addressed by the ITAC are those of 
the International Telecommunication Union, the Inter-American 
Telecommunication Commission (CITEL) of the Organization of American 
States, the Organisation for Economic Co-operation and Development 
(OECD) and the Asia-Pacific Economic Cooperation (APEC). Members of the 
ITAC are drawn from the Government, network operators, service 
providers, and manufacturers involved in the telecommunications sector.
    \5\ The Advisory Committee on International Communications and 
Information Policy (ACICIP) serves the Department of State in an 
advisory capacity concerning major economic, social, and legal issues 
and problems in international communications and information policy. 
These issues and problems involve users and providers of information 
and communication services, technology research and development, 
foreign industrial and regulatory policy, the activities of 
international organizations in communications and information, and 
developing country interests.
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   Congress should consider updating the Economic Espionage \6\ 
        Act of 1996. While the definition of trade secret is consistent 
        with the Uniform Trade Secrets Act, which states that the 
        information is subject to reasonable measures to preserve its 
        secrecy and derives independent economic value from not being 
        generally known to or ascertainable by the public, the 
        threshold for protection is too high. As such, industry is 
        required at the onset of the development to protect any idea as 
        a trade secret. Addressing the broad-based economic industrial 
        espionage that we are observing on our corporate networks 
        requires that the Government lower the threshold for a trade 
        secret or add a threshold around proprietary information.
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    \6\ Economic espionage, which is the knowing misappropriation of 
trade secrets with the knowledge or intent that the offense will 
benefit a foreign government, foreign instrumentality, or foreign 
agent. Misappropriation includes, but is not limited to, stealing, 
copying, altering, destroying, transmitting, sending, receiving, 
buying, possessing, or conspiring to obtain trade secrets without 
authorization. Section 101(a) of the Economic Espionage Act (EEA) of 
1996 criminalizes economic espionage.
---------------------------------------------------------------------------
    Question 2. A large issue facing appropriate risk management for 
Government and critical infrastructure is supply chain risk management 
since so much of our software and IT equipment is manufactured 
overseas.
    What's the best approach for better evaluating the security of our 
IT supply chain?
    Answer. The internet and the information communications 
infrastructure has evolved and has been enhanced by global commercial 
innovation. While the United States incubated its beginning through the 
Advanced Research Projects Agency (ARPA) in the late 1960s, and helped 
it flourish through Palo Alto Research Center and the companies of 
silicon valley, its evolution and the attendant benefits to society 
have come from many other countries and global corporations. Our 
infrastructure is dependent on this global marketplace and our economy 
is dependent upon this backbone remaining secure and resilient. A 
broad, holistic approach to risk management is required rather than a 
wholesale condemnation of off-shore development, foreign products and 
services, or foreign ownership.
    The best approach to securing our IT supply chain is one that is 
transparent, mindful of unintended second order consequences, and aids 
in decision making. We must recognize that the supply chain consists of 
many phases: Design, manufacture, integrate, distribute, install and 
operate, maintain, and retire--and any conversation regarding security 
of the supply chain must apply to the entire lifecycle. To meet 
tomorrow's threats, we must develop protection measures across the 
product lifecycle and reinforce these measures through acquisition 
processes and effective implementation of agency security practices. 
For example, the highest risks in the supply chain are ``after build'' 
(e.g. install and operate and retire phases) because this is where 
multiple vendors participate in the process (e.g., integrate products 
with other systems, patch/update, etc.) and there are few measures to 
monitor and assure integrity throughout the entire process.
    To understand alternative approaches will require a partnership 
with industry that assures coordination and buy-in that enables 
industry to ``do the right thing'' and not be penalized in the process. 
A dialogue has begun via the Open Group Trusted Technology Forum and it 
enjoys international participation by governments and industry alike. 
The Open Trusted Technology Provider Framework sets forth best 
practices identified by a cross-industry forum which, if used by a 
technology vendor, may allow a Government or commercial enterprise 
customer to consider the vendor's products as more secure and trusted.
    Moreover, the Cyberspace Policy Review called for the need to 
``define procurement strategies through the General Services 
Administration, building on work by the National Security Agency for 
the Department of Defense, for commercial products and services in 
order to create market incentives for security to be part of hardware 
and software product designs, new security technologies, and secure 
managed services.'' The efforts of the United States General Services 
Administration (GSA) in working to address this requirement through the 
SmartBUY blanket purchase agreement awards aimed at providing better 
cybersecurity protection to Federal, State, local, and Tribal 
governments should be strongly supported. Under its new Federal-wide 
Situational Awareness and Incident Response (SAIR) Tier II 
cybersecurity initiative, GSA will use the procurement process to help 
protect our IT infrastructure from cybersecurity incidents and other 
vulnerabilities, while providing maximum value for taxpayer dollars.
    These two initiatives are good steps toward enhancing the security 
of the supply chain while at the same time being mindful of market 
forces.
    Question 3. Will the administration's proposal of DHS authority 
over the private sector--which envisions Federal ``framework,'' used to 
develop cyber plans, and a subsequent evaluation of those plans--
provide the necessary flexibility to optimize private sector security?
    Answer. Not necessarily. The legislative proposal states, ``the 
owners or operators of covered critical infrastructure shall develop 
cybersecurity plans that identify the measures selected by the covered 
critical infrastructure to address the cybersecurity risks in a manner 
that complies with the regulations promulgated, and are guided by an 
applicable framework designated.''\7\ This proposal attempts to 
establish a minimum standard of care and an audit and certification 
function that would be similar in kind to the Securities and Exchange 
Commission (SEC) requirement for attestation of material risk. 
Inserting DHS into a regulator role runs the risk of diluting its 
operational and policy responsibilities, which would detract from the 
Nation's security posture. In May 2011, Senator Rockefeller asked the 
SEC to look into corporate accountability for risk management through 
the enforcement of material risk reporting.\8\ And in June 2011, 
Chairman Schapiro said that the SEC would look into the matter. If 
Congress believes corporations should meet such a reporting requirement 
then it should turn to the SEC, which is the Executive Branch 
Independent Agency responsible for this type of reporting, and not add 
an additional mission responsibility to DHS.
---------------------------------------------------------------------------
    \7\ The White House. Cybersecurity Legislative Package: 
Cybersecurity Regulatory Framework For Covered Critical Infrastructure 
Act.
    \8\ Senator Rockefeller letter to SEC Chairman Mary Schapiro. 11 
May 2011.
---------------------------------------------------------------------------
    Question 4. Will the authorizations for DHS to ``work with'' the 
Federal Acquisitions Regulatory (FAR) Council to improve supply chain 
security have any practical effect?
    Answer. It is unclear. Adjusting the way that the Government 
procures goods and services can be a catalyst for change but may not 
necessarily make a material difference in the security of the supply 
chain. The key is to decide what are the measures of performance that 
are desired and under what conditions? If the level of security 
assurance increases, but price goes up unacceptably, is that success? 
Changes to the FAR can certainly result in change to business 
processes. The changes in business processes may result in increased 
costs which will be passed onto the Government and other customers.
    It also is important to realize that any change to the FAR may not 
apply across the Federal Government. Some agencies are exempt from 
these rules including: the Central Intelligence Agency, the United 
States Postal Service, the Tennessee Valley Authority, the Federal 
Aviation Administration, and the Bonneville Power Administration. In 
these cases, the agency promulgates its own specific procurement rules.
    Question 5a. The White House has directed that all Federal 
Departments and Agencies move a portion of their data processing and 
storage to the cloud in the coming years.
    While that strategy is a good one when it comes to making the most 
of Federal IT spending in these fiscally demanding times, how can the 
security of the cloud be evaluate and improved to ensure that we're not 
taking unnecessary risks with mission-critical data?
    Answer. According to the National Institute of Standards and 
Technology (NIST), ``Cloud computing is a model for enabling 
convenient, on-demand network access to a shared pool of configurable 
computing resources [e.g., networks, servers, storage, applications, 
and services] that can be rapidly provisioned and released with minimal 
management effort or service provider interaction.'' The key tenet of 
the cloud is availability. But the other two cornerstones of 
information security--integrity and availability--are not readily 
commanded by the cloud environment. The October 2010 report from 
Forrester on cloud security states that security is the single biggest 
barrier to broad cloud adoption.
    In December 2010, the Office of Management and Budget (OMB) issued 
a report entitled the ``25 Point Plan to Reform Federal Information 
Technology Management'' and in February 2011 it published another 
report entitled, the ``Federal Cloud Computing Strategy,'' where it 
articulated the need for: Consolidation, efficiency, and reduction in 
IT spend. The second report directed each department and agency to 
identify three ``must move'' services within 3 months, and move one of 
those services to the cloud within 12 months and the remaining two 
within 18 months. Most departments and agencies are looking to move 
email to the cloud as their first project.
    The GSA is developing a contract vehicle to service agency needs 
for cloud computing, entitled Federal Risk and Authorization Management 
Program (FedRAMP). Many within industry are raising substantive 
concerns with the proposed controls and specifications as being too 
difficult and costly, and that they potentially could prevent vendors 
from being able to move agency computing operations to the cloud by the 
deadline. Any cloud environment that is to be used to process 
Government workloads must be able, at a minimum, to demonstrate that it 
provides the same level of security (as defined in the question) as a 
traditional system. Currently, this is demonstrated via a Federal 
Information Security Management Act (FISMA) certification and 
accreditation (C&A) process, which process has been roundly criticized 
as a compliance-based framework focused upon a snap-shot in time. While 
one can argue that a cloud computing environment can be made more 
secure than a traditional one by leveraging certain aspects and 
features of virtualization and other enabling cloud technologies, the 
security ecosystem (technologies, control frameworks, audit procedures, 
threat models, etc.) must account for the unique attributes and 
vulnerabilities of cloud computing to be relevant.
    Having said that, several large-scale efforts are in progress, in 
both Government and industry, to rigorously measure risk related to 
cloud computing implementation. Among these are: (1) The ``Proposed 
Security Assessment & Authorization for U.S. Government Cloud 
Computing'', drafted and released for comment and public input jointly 
by National Institute for Standards and Technologies (NIST), GSA, the 
Federal CIO Council, and some of its subordinate working bodies; (2) 
the Cloud Security Alliance, an industry association centered on cloud 
computing, has developed a Cloud Controls Matrix, which cross-connects 
established security requirements in the Health Insurance Portability 
and Accountability Act of 1996 (HIPAA), the Health Information 
Technology for Economic and Clinical Health (HITECH) Act, International 
Standards Organization (ISO), IEEE, NIST publications, FedRAMP, and 
other sources; and (3) the Defense Science Board has launched a task 
force to review cybersecurity and reliability in a digital cloud. There 
is broad agreement among serious information security practitioners 
that the task of defining security standards for cloud computing is a 
work in progress, and several organizations have commissioned studies, 
(e.g., the Intelligence and National Security Alliance (INSA) and the 
Armed Forces Communications and Electronics Association (AFCEA)) now in 
progress, to evaluate and report on specific aspects of the subject. In 
my opinion, one of the best, objective reports that describes the 
opportunities and vulnerabilities associated with cloud computing, is 
one that was published in November of 2010 by the European Network and 
Information Security Agency (ENISA), entitled: Cloud Computing: 
Benefits, Risks, and Recommendations for Information Security.
    Question 5b. How can continuous monitoring be implemented in the 
cloud environment? Do you have any current examples of strong security 
in the cloud?
    Answer. It is important to recognize that the term ``cloud 
computing'' embraces several different technical and process models, 
which by their nature have highly-differentiated levels of monitoring 
and control by sponsoring organizations/hosts, and concomitantly, very-
different levels of active participation by hosted entities. And when 
considering these, one must keep in mind that the implementation of the 
cloud is the most important aspect and no two clouds are implemented 
exactly the same.
    How continuous monitoring gets implemented in the cloud very much 
depends on the type of cloud environment and the willingness and 
capabilities of the provider to conduct continuous monitoring 
activities. There are numerous technologies that exist today or that 
are in development to enable the monitoring of the cloud (e.g., 
infrastructure, systems, and data). The real question is: What is being 
monitored and does it actually correspond to the proper threat model? 
The United States Department of State may be an example to turn to as 
it has the ``first mover advantage'' for use of a secure cloud 
environment. It is applying a high degree of rigor in timely scanning 
and prioritized remediation through continuous monitoring--thereby 
providing a more secure common baseline for all.
    As such, there can be no general answer to this question. However, 
certain ``private clouds'', hosted by highly-competent security 
organizations and providing infrastructure, platform, and/or software 
services to members of their own organization only, may be considered 
highly-secure. Examples would include certain clouds developed and used 
inside National intelligence agencies, hosted on-site and with access 
limited to authorized employees of those organizations. In such cases, 
the economic virtues of efficiency and economy of scale is use of IT 
resources may accrue, but security of hosted data, participants, 
infrastructure, and services are all tightly controlled.
    Questions From Chairman Daniel E. Lungren for Gregory E. Shannon
    Question 1a. DHS has been developing the National Cyber Incident 
Response Plan, which it exercises through its bi-annual response plan.
    What more should the Federal Government be doing to improve 
response to cyber attacks?
    Answer. Encourage more frequent agency and interagency cyber 
exercises that will identify technological and procedural gaps as well 
as build working relationships and trust both within and across 
agencies. For any response activity to be effective the organizations 
that participate in the response need regular, structured, measured 
practice, weekly or monthly if possible. This practice builds common 
understanding of the processes and technologies to be used as well as 
builds trust among the various participants. These exercises need not 
be immense/expensive; smaller-scale exercises testing various 
subcomponents of a response plan on a regular basis would be valuable 
and cost-effective.
    Support timely access to operational situation and incident data. 
The Federal Government should study the history of the PCII program and 
the lessons learned to update it to be more attractive to industry.
    Encourage making meaningful sets of operational data accessible to 
researchers so that they can determine what data is best to share and 
what prevention/response tactics are most effective.
    Question 1b. Are there priorities for DHS response planning that 
would be helpful to include in legislation?
    Answer. Priority: How the Federal Government should engage the 
private sector in a major incident--what information should agencies 
provide and when will they provide it? Plans should include: How to 
engage the private sector in a major incident, which entities does the 
Government need cooperation from, and how is best to collaborate? This 
will make the Government more predictable; allowing the private sector 
to then plan appropriately.
    Priority: Grant Federal CIOs more authority for protecting their 
cyber infrastructures before incidents occur. It's difficult, if not 
impossible, to defend that for which one had no hand in creating.
    Question 2. When CMU-CERT is engaged in a response to a cyber 
attack, what is the greatest difficulty of getting information from the 
private sector?
    Answer. There are several significant barriers to getting the 
private sector to share information.
    The Federal Government is frequently hard-pressed to convince the 
private sector that there is real value in sharing information with 
them. The perception continues to be that when industry shares 
information they receive nothing (or nothing of value) in return from 
the Government. CERT has been a part of successful models, such as the 
work done by DC3 in the operation of the DoD-Defense Industrial Base 
Collaborative Information Sharing Environment (D-CISE), whose example 
could be built upon in other critical infrastructure sectors. It takes 
effort to demonstrate to the private sector that the Government can be 
helpful; e.g. by extracting indicators from sensitive data or by 
creating the environments and the tools for cleansing data so it cannot 
be attributed to its source and thereby shared with the private sector. 
Additionally, the private sector has multiple concerns about the 
potential adverse effects of sharing information--those barriers, such 
as fines, litigation, etc. should be identified and eliminated through 
incentives and safe harbors, where possible.
    On the other hand, while some entities might not want to share, a 
large number of companies (particular small- to medium-sized 
businesses) do not have the capabilities to collect and/or analyze the 
data that is necessary for their own protection much less useful to the 
Government. What needs to be shared is actionable information and the 
capability to successfully implement the actions must still be built. 
The Government could encourage industry to develop the competency using 
incentives (e.g. the Government could consider subsidizing these 
competencies thru CNDSP or MSSP models).
    How information comes to the Government can also have significant 
impact on whether or not the Government can disseminate critical data 
to prevent further impact to other entities. In many cases, the 
Government knows what is happening, but effective communication of 
remediation information is often limited. At times, information comes 
in via reporting with so many restrictions that the Federal Government 
cannot share the data. Savvy organizations are realizing that they can 
``have their cake and eat it too'' by complying with the reporting 
requirements but while still ensuring that no data, remediation 
information, or conclusions from their incident is distributed.
    Lastly, the Government, in its handling of classified information, 
should examine current practices to find effective ways to separate 
actionable information from classified or privileged data so that 
incident data can be used to help others protect themselves.
    Question 3a. How do we bridge the gap between operations and 
research to transition technology in a timely and effective manner?
    Answer. In order to effectively transition research for real-time 
operations there must be stronger feedback mechanisms between 
operations and research.
    We believe CERT is a successful model that brings together 
researchers and operators and could be an effective paradigm for 
others. The CERT Program at the SEI, through its customer engagements 
with security operations centers, network operators, vulnerability and 
malicious code analysis centers, incident response teams, law 
enforcement investigators, and intelligence analysts, has a first-hand 
view into the state of security in our National critical information 
infrastructures. This view helps us understand the security strengths 
and weaknesses of fielded technology and systems, the evolving threats 
and associated attack methods and tools, the effectiveness of current 
security technologies and practices, and the security needs of system 
operators. Empirical data from our DoD and other Government customer 
engagements ensure our research and development agenda is grounded in 
operational problems and realities, and we are addressing significant 
problems for which effective solutions do not currently exist. This 
model also creates an environment where solutions can be rapidly 
deployed and prototyping with strategic customers helps set realistic 
transition paths for the broader community.
    The challenge in transitioning potentially important cybersecurity 
innovations from small companies and startups is especially profound. 
Having spent half of my (Dr. Shannon) career in such companies, I know 
this challenge first-hand; it is difficult, if not impossible, to get 
timely operational feedback on one's technology when dealing with 
Government customers. I encourage the subcommittee to support efforts 
to bring together operationally relevant data and small companies so 
that: (1) Government entities can determine if there's promise in the 
technology, and (2) the small company can quickly iterate and adapt to 
the realities of the operational data.
    The challenge is to create a continuous capability with steady 
inflows of technologies, operational knowledge, and Government needs. 
CERT/SEI/CMU is already doing this successfully but intermittently for 
specific customers with innovations from academia. Sustaining this 
activity at CERT and elsewhere and expanding it to small companies 
would improve the flow of effective cybersecurity and incident response 
innovations into the Government.
    Question 3b. And what resources are needed?
    Answer. The Government would greatly benefit from establishing and 
maintaining a sustained cybersecurity and response innovation 
acceleration program focused on transitioning innovations from the 
private sector to the Government with subsidies for small businesses 
and universities and incentives for larger businesses. This endeavor 
could be funded at $4-6 million/year and would bring four essential 
elements together: Unique operational data sources, private 
innovations, informed scientific evaluation, and Government needs. The 
goal, from first contact with a company, would be to operationally 
deploy their validated innovation(s) in less than a year within some 
meaningful part of the Government.
    Question 4. How can we increase our confidence in the various 
technical and policy solutions proposed at any point will be as 
effective as promised/implied?
    Answer. Encourage the use of scientifically validated metrics and 
measurements in studies about proposed solutions. Too often 
cybersecurity solutions proposed have been based on limited evidence 
and/or scientifically unvalidated data and techniques.
    The ability to measure effectiveness of technology and new policy 
is an area sorely in need of research and deeply in need of funding. I 
(Dr. Shannon) am truly humbled at how little that we experts say we 
``know'' about cybersecurity and incident response that has actually 
been scientifically validated. Research sponsors should be encouraged 
to invest in ``the empirical science of cybersecurity'', including the 
development of metrics and experimental methods that support 
measurement of the effectiveness and cost/benefit of proposed security 
solutions.
    Question 5a. In your testimony you mention that the Government 
should focus on three things to improve incident response capability, 
information sharing, forensic analysis capability and training.
    Focusing on information sharing, in your opinion does requiring 
reporting improve the quality of reporting or just the quantity?
    Answer. Today, such a requirement would only increase the quantity. 
Per our answers to the other questions above, research into what is the 
right data to share as well as cost-effective means to collect and 
analyze the data will enable mandatory reporting requirements to 
improve the quality of the data.
    With mandatory reporting requirements should come clear guidance on 
what data and associated meta-data needs to be shared; under what 
circumstances; ideally normalized using a common taxonomy represented 
and exchanged using standardized formats and protocols. Research is 
needed in these areas; NIST and others are already working on some of 
these issues. How the data should look (form/format) is the easy part; 
what data is most useful is much harder.
    Question 5b. Can too much information actually be a problem or can 
there never be too little information when it comes to cybersecurity 
incidents?
    Answer. Since a cybersecurity incident investigation often starts 
as an attempt to discover the true scope and scale of what transpired, 
various data sources need to be synthesized. The issue is not 
necessarily having more data, but the right data. We frequently see 
cases where information collected and shared is useless. Without 
context about the incident, it is difficult to abstractly predict what 
might be needed in advance. There is inherent cost in extracting and 
delivering the data. Hence, it is convenient to know what data is 
available and to be able to request it on demand. Achieving this 
enhanced situational awareness will require continued research and 
pilot programs with data owners.
    Question 6. How can legislation assist in facilitating capable, 
scalable, and cost-effective cyber incident response for Government and 
critical infrastructure?
    Answer.
   Encourage public/private cooperation and access to data for 
        empirical research.
   Support training operators in the same context as they work.
   Support scalable forensics capabilities.
   Regularly recognize successes in cybersecurity and incident 
        response.
    Successful response requires close cooperation between the 
Government and the private sector, so as mentioned in question No. 1, 
inclusion of the private sector in plans for incident response would 
greatly improve response effectiveness. Expanding the scope of the 
current policies to include plans for working with industry would allow 
for more timely and capable responses. Cooperation should also include 
access for innovators to incident data, which will result in better, 
scientifically validated solutions. Additionally, the Government must 
continue to engage the community at large to maintain perspective on 
what currently exists, both in terms of technological gaps and 
solutions.
    People who respond to cyber incidents must be adequately trained. 
The Government needs a training solution that is scalable and cost-
effective, such as CERT's Virtual Training Environment (VTE) and X-NET.
    Traditional training and education models still employ brick and 
mortar classrooms to provide infrequent instruction directed at 
individual students. These models simply cannot keep up with the pace 
of change or provide successful and cost-effective mechanisms for 
organizations to gain and maintain the real-world experience needed to 
operate effectively in cyberspace. Civilian employees cannot use 
production agency networks for operational training and ranges or 
laboratory environments can be costly to develop, operate, and 
maintain.
    In addition to training and practice limitations, agencies 
currently do not have any reliable capability to assess the operational 
mission readiness of their cyber workforce. The current unit-level 
cyber assessment mechanisms rely on artificial paper-based simulations 
and ``cyber-add-ons'' to intra- and interagency exercises. Neither 
approach provides for reliable mission-readiness evaluation and 
reporting of workforce effectiveness.
    CERT's VTE provides rich media instruction and hands-on training 
labs to remote students over the internet. It enables students to 
access high-quality training on security, computer forensics, and 
incident response anywhere in the world, with only a web browser and an 
internet connection. What's more, VTE is a cost-effective way to train 
the workforce,\1\ and has no expiration date, allowing students access 
to all training modules as often as they want and for as long as they 
want after completing training. Students can continually return to the 
module to practice and test the network, closing the gap between 
learning a concept and using that concept.
---------------------------------------------------------------------------
    \1\ High-Fidelity e-Learning: SEI's Virtual Training Environment 
(VTE): TECHNICAL REPORT CMU/SEI-2009-TR-005 ESC-TR-2009-005: VTE was 
used to deliver 38,157 hours of training for DISA during the period 
from January 1, 2007 through October 31, 2007. The American Society of 
Training and Development (ASTD) reports that the average cost per 
learning hour delivered by its members in 2006 was $54.25. According to 
the ASTD data, the value of VTE-delivered training is therefore 
$2,070,017 ($54.25 per hour  38,157 hours = $2,070,017.25). The total 
cost to DISA for the VTE-delivered training was $858,250. This 
represents a cost savings to the DISA of $1,211,767 as compared to what 
they could have expected to pay at prevailing industry average costs. 
The total return on investment for the DISA is 141 percent. 
(($2,070,017 - $858,250) / $858,250 = 141%).
---------------------------------------------------------------------------
    CERT's Exercise Network (XNET) provides real-world experience 
building and readiness evaluation via synchronous, team-based, 
scenario-driven cyber exercises. Experience through routine practice is 
known to be the decisive factor in how effectively individuals and 
organizations respond during incidents and emergency situations. XNET 
is designed to make this routine practice web-accessible for globally 
distributed teams and units.
    The Federal Government needs to address its current backlog of 
cyber forensics data, as well as, collect forensics data in on-going 
cases in a timely and cost-effective manner. To help augment the cyber 
forensic capabilities of law enforcement the CERT program created the 
Clustered-Computing Analysis Platform (C-CAP). C-CAP is designed to 
support 200 concurrent computer examinations looking at 200 terabytes 
of data, allowing for a massive, coordinated effort. Absent 
catastrophic events, the C-CAP environment can offer underequipped or 
overwhelmed agencies real-time additional resources. C-CAP is a state-
of-the-art forensics analysis environment that provides a complete 
suite of tools for host-based and network investigations. C-CAP 
augments scarce resources by allowing multiple users to view the same 
data, either remotely or locally; while maximizing the application of 
specialized computing resources to the forensic and incident response 
missions. Analysts and investigators enjoy flexible, secure access to 
high-performance systems, increasing productivity and facilitating 
distributed collaboration. Designed specifically for forensics and 
incident response analysis, this unique integration and packaging of 
tools, accelerates the analysis processes, maximizes performance and 
reduces costs. C-CAP is a flexible solution, allowing agencies to add 
or remove components that are relevant to their particular needs. Its 
unique centralized management interface allows organizations to rapidly 
allocate platform resources to tasks or analysts. Scalable and cost-
effective, C-CAP can be customized to suit any organization, regardless 
of size and mission.
    Finally, we recommend that the Government recognize and reward good 
examples of secure systems and practices. In the end, infrastructure 
components need to be built more securely in the first place and by 
highlighting those organizations who are doing it right, the Government 
can incentive others. The Baldrige Program is administered by the 
National Institute of Standards (NIST) and educates organizations in 
performance excellence management and administers the Malcolm Baldrige 
National Quality Award. This public-private partnership is helping 
organizations achieve best-in-class levels of performance; identifying 
and recognizing role-model organizations; identifying and sharing best 
management practices, principles, and strategies. A similar program or 
award in the area of security and resiliency could yield substantial 
benefits.
      Questions From Chairman Daniel E. Lungren for Leigh Williams
    Question 1a. You describe a large number of items members of the 
financial services sector undertake with respect to cybersecurity.
    Can you compare these activities with those of the other sectors?
    Answer. We are not in a position to compare the quality or quantity 
of cybersecurity efforts in other sectors to financial services, but we 
can identify some similarities and differences. As a similarity, we 
recognize that individual companies in telecommunications and 
information technology invest heavily in cybersecurity and resiliency. 
We understand that one difference is that financial institutions may do 
more collaborative work because they are so technically and 
commercially interconnected and because regulations tend to promote 
standardization.
    Question 1b. Which of these activities are the product of voluntary 
action by the BITS community and which are the result of Federal or 
State regulations?
    Answer. At the institution level, most BITS members' cybersecurity 
programs are primarily motivated by business and customer interests. 
Regulations sometimes reinforce these motivations, but also sometimes 
require slightly different solutions. For example, under Gramm-Leach-
Bliley, banks are required to have security programs that incorporate 
specific elements and that are reviewed by their boards. Without the 
regulation, the vast majority of banks would still have plans, but 
perhaps with different mixes of elements, and with review processes 
specific to their governance strategies. At the industry level--in 
efforts such as the mobile, cloud, social networking, and malware 
efforts mentioned in our June 24 testimony--virtually all of the 
collaboration is purely voluntary.
    Question 1c. What is the cost of complying with these activities?
    Answer. We do not have a specific estimate of regulatory compliance 
costs in cybersecurity. We do believe, however, that elevated 
compliance costs can crowd out risk management spending and investments 
in innovation, and can increase costs to customers and reduce 
institutions' returns.
    Question 2. Under the administration's proposal what new 
cybersecurity activities would BITS members undertake that they are not 
now doing?
    Answer. Under the administration proposal, there would be at least 
two ways in which BITS members could more effectively share information 
with other sectors. First, because other sectors could be prompted to 
produce more information and DHS would be tasked with aggregating it, 
there would be more information available to exchange with our 
colleagues in other sectors. Second, the safe harbor and 
confidentiality provisions would reduce the risk of actively sharing 
information with the other critical infrastructures and with DHS.
    Question 3. You are endorsing the administration's legislative 
proposal, which does not carve out the financial sector from its reach.
    With this endorsement is it to safe to assume that the financial 
industry will not be lobbying for a carve-out or any special treatment 
if the administration's proposal moves forward?
    Answer. BITS does not intend to advocate for the financial services 
sector to be carved out. BITS and its members do believe that the 
existing financial regulatory frameworks and the proposed approach will 
have to be reconciled. As we testified, this could be accomplished, for 
example, by recognizing where substantially similar requirements 
already exist, by leaving substantial authority within the sector, by 
requiring DHS to work through the sector-specific agencies and primary 
regulators, or by DHS delegating authority back to the sector-specific 
agencies and primary regulators.
    Question 4a. Your testimony praises the administration's 
legislative proposal for a variety of things like coordinating with 
companies and other agencies; however, it was my understanding that 
most, if not all, these activities are currently going on without this 
legislation.
    Which specific provisions of the administration's proposal will 
cause BITS members to make security improvements beyond their current 
activities and why is legislation required to get the BITS membership 
to undertake these activities?
    Answer. Yes, BITS members are already satisfying many of the 
requirements of the administration's proposal. The value of the 
proposal does not arise primarily from BITS members individually 
improving their security programs. Much of the value arises from 
companies in multiple industries and Federal agencies with various 
missions working in closer cooperation on common problems. We think 
this is happening reasonably well within our sector, but we see room 
for improvement between sectors.
    Question 4b. How much will these legislatively-mandated activities 
by BITS members improve security?
    Answer. While the mandates in the proposal may improve BITS 
members' cybersecurity practices, we see much of the potential 
improvement coming from enabling more voluntary collaboration. For 
example, as noted above, we would anticipate improved information 
sharing and consequently better collective security among multiple 
sectors, including financial services.
    In closing, we reaffirm our commitment to addressing this critical 
issue, and thank the committee for its active engagement. Please feel 
free to contact me with any further questions or concerns.
      Questions From Chairman Daniel E. Lungren for Larry Clinton
    Question 1. Playing Devil's advocate, if critical infrastructure 
must be regulated, what do you think that regulations should look like?
    What is an appropriate framework for regulations?
    Answer. Although the ISA generally supports market incentives as 
opposed to Government regulation as the best way to spur the needed 
investment in cybersecurity, this is not an absolute.
    In fact ISA has always advocated a multi-tiered system with 
appropriate regulation mixed with market incentives. This approach is 
developed more fully in the ``The Cyber Security Social Contract: 
Policy Recommendations for the Obama Administration and the 11th 
Congress'' (2008) and the ``Social Contract 2.0: A 21st Century Program 
for Effective Cyber Security'' (2009)--both attached.
    The key consideration is that cybersecurity is not simply an ``IT'' 
issue but an enterprise-wide risk management issue. If we are 
considering cybersecurity as a risk management issue we need to assess 
not only the technical considerations, but also the economic 
considerations. Research has consistently demonstrated that cost is the 
single biggest barrier to implementing effective cybersecurity 
standards, practices (see CSIS and Pricewaterhouse Coopers studies 
cited in my written testimony) and technologies which other research 
has demonstrated to work (see NSA testimony, PWC survey, and Verizon
///Secret Service studies cited in my written testimony).
    Where regulation is an inherent part of the economics of an 
industry, such as in many critical infrastructures (electricity, water, 
nuclear power etc. as well as some element of the financial system) 
than the traditional regulatory structures may be an effective tool for 
promoting appropriate investment in cybersecurity. Indeed in some 
industry sectors of great interest to cybersecurity policy makers 
regulation could be a more effective mechanism than a market incentive 
if, as in the case of water systems for example, there really is no 
market.
    Of course many of these entities are regulated at the State and 
local, not Federal level. Moreover, as the decision making devolves to 
lower levels of Government more localized issues may evolve. For 
example a State PUC may be resistant to approving investments by a 
power company for fear of the effect this may have on local utility 
rates which could have political complications for members of the State 
commission. However the Federal Government has long history in finding 
ways to provide incentives to the States and localities to adopt 
policies in the National interest.
    However even in some of these regulated sectors, market incentives 
may still be a better mechanism than regulation. The regulatory 
structure in most instances is too slow to keep up with the pace of 
cyber attack vectors which change with the speedy evolution of 
technology. Also regulation tends to push entities to achieve minimal 
compliance whereas we may need a more aggressive effort on the part of 
enterprises not just to comply with minimum standards but to 
affirmatively look for malware and cooperate with broad industry 
sectors, and possibly beyond in information-sharing activities (see 
paper on information sharing by Jeff Brown in the attached Social 
Contract 2.0).
    For many of these sectors a more effective mechanism may well be 
the use of streamlined regulation wherein outdated provisions or 
redundant audit requirements could be offered in return for investment 
in more aggressive methods of cybersecurity including intensive 
internal monitoring of unauthorized outbound traffic and participation 
in creative and more modern models of information sharing than are 
currently being operated by DHS (see Brown paper cited above).
    Question 2. We have had a public-private partnership for several 
years yet the cyber problem continues to grown, doesn't that indicate 
that the model doesn't work?
    Answer. To begin with I'd suggest this is a non-sequitur. The 
reason the cyber problem has grown is not that the partnership has 
failed but because the current incentive structure massively favors the 
attackers. Cyber attacks are cheap, easy to acquire, and can generate 
massive profits. While cyber defense is a generation behind the 
attackers, it's difficult to justify ROI since metrics for prevented 
attacks are impossible to generate and cyber criminals are rarely 
caught.
    Moreover, both the Cyber Space Policy Review and the most recent 
Verizon/Secret Service study have demonstrated that the market has 
already produced adequate mechanisms to prevent or stop most attacks 
which suggests the market is working (indeed most attacks are currently 
stopped--just too many still get through).
    That said, the ISA has said from the first publication of the 
National Strategy to Secure Cyber Space (2002) that the missing link in 
the public-private partnership is the lack of incentives. The public-
private partnership is the right model but it needs to be evolved to 
meet the modern threats and more fully implemented--especially by the 
Government partners.
    Research cited above as well as in my written testimony has long 
demonstrated that that only a substantial minority (probably between 
30% and 40%) of enterprises have what may be called a natural ROI for 
security investment. When such as natural confluence occurs then 
private sector entities will make adequate security investment.
    However, as illustrated in the pan-association White Paper on 
cybersecurity (cited in my written testimony and also attached) in most 
instances the public sector and private sector assess risk differently.
    In short form, for most of the private sector security is simply an 
economic consideration. If you own a warehouse and 10% of your 
inventory is ``walking out the back door'' every month, you will not 
buy the cameras, hire the guards, etc. to solve your security problem 
if your study shows that it costs 11% to do so. That is a good risk 
management decision from a private-sector perspective.
    The public sector has economic considerations, but also additional 
non-economic considerations (National security, privacy, politics etc.) 
and thus may have a lower-risk tolerance than their private partners 
because they simply assess risk differently.
    However, as the trade associations who signed onto that paper have 
attested, we recognize that in an interconnected cyber world the 
private sector may be required to take on new, non-economic, and 
traditional public sector responsibilities with respect to 
cybersecurity.
    Therefore the public-private partnership which has heretofore 
ignored the economic aspects of cybersecurity needs to evolve into a 
fuller and more sustainable model which includes Government finding 
ways to offset the non-economic investments it would like private 
industry to make in the interests of broad National security.
    Additionally, the fact is that the public sector has not been 
faithful to following through on their responsibilities in the 
partnership as laid out both in the NIPP and the Cyber Space Policy 
Review. For example, markets cannot function without information--a 
central tenant of Wall Street--but it is well-acknowledged that despite 
millions spent on supposed Government information-sharing programs most 
such shared information is of little or no use to the private sector. 
Government still does not share the actionable threat information that 
would allow among other things for a proper assessment of cyber risk 
and assist greatly in making the proper investments.
    Industry is not blameless here also. As illustrated in two 
additional volumes attached (``50 Questions Every CFO Should Ask About 
Cyber Security'' and ``The Financial Management of Cyber Risk'') 
industry, largely due to antiquated corporate structures and 
misunderstandings about the true nature of the cyber threat tends to 
misunderstand the true financial implications they are dealing with.
    These and other issues explain why the partnership has not fully 
worked are more extensively detailed in the pan-association white 
paper.
    Question 3. Mr. Clinton, you advocate for the providing of market 
incentives to the private sector to improve cybersecurity, given the 
significant budget issues the Congress faces how can we afford to 
provide market incentives for cybersecurity to the private sector?
    Answer. One of the most persistent problems with digital economics 
is that everyone wants to capture the profits of digital technology but 
resists reinvesting a small portion of these profits in securing the 
technology that is generating them.
    Nearly every company in the world has by now factored into its 
business plan the wonders of digitalization--web-based marketing, 
international supply chains, VOIP instead of traditional 
telecommunications, and remote workers. Yet, as described above we are 
not getting the investment in cybersecurity that we should.
    This is true for the Federal Government as well. For example the 
Obama administration has announced a ``cloud first'' strategy for the 
Federal electronic systems that they claim will save them between $20-
50 billion a year. Some of that money ought to be being plowed back 
into system-wide--not just Government--cybersecurity.
    However, assuming that none of this money will be invested in 
market incentives there are still many levers the Federal Government 
can use to generate more private cyber investment which require little 
or no Government spending. Ironically, many of these incentive 
structures are widely used in other areas of our economy; we simply 
have not yet applied them to cybersecurity.
    The key is to reduce Government-induced costs on industry, rather 
than provide direct Government subsidies such as with tax incentives.
    For example many companies may be attracted to making greater 
cybersecurity investments in return for lower liability. Less stringent 
liability costs the Government nothing but cold be perceived as an 
economic benefit to industry.
    Another example is streamlined regulations, or as appropriate 
accelerated permitting and approvals. For example many enterprises are 
buckling under redundant cybersecurity auditing requirements. If the 
Government could develop a sound baseline audit to simply remove the 
redundancy this could be offered as a carrot to enterprises that 
demonstrate investment in proven effective e-cybersecurity techniques 
such as those identified in the Verizon/Secret Service study cited in 
my testimony.
    On a broader scale there are numerous outdated analogue-based laws 
(see Cyber Space Policy Review Appendix A) which could be modified 
possible with reduced cost to industry.
    Government procurement--not just for IT equipment--could also be 
tied to more stringent cybersecurity on the part of firms that compete 
for Government contracts, or access existing (not additional) 
Government spending programs (e.g. small business loans--and all the 
TARP money should have come with cybersecurity requirements). In these 
cases we are not talking about Government spending more, we are simply 
talking about who gets the spending the Government is making--weigh it 
more heavily in terms of the compelling National interest of 
cybersecurity. No new spending required.
    There is also a great deal that can be done to stimulate the cyber 
insurance market. With a broader insurance market we can off-load much 
current Government risk to the private sector. Moreover, insurance 
(discounts) are a major motivator of all sorts of pro-social behavior 
from smoking reduction to improved driving and building safety. ISA has 
done a fair amount of work on how to use insurance better ranging from 
some relatively immediate items such as sharing information leading to 
lower rates and greater uptake (due to more realistic risk assessments 
and pricing) to broader programs dealing with National re-insurance.
    The Social Contract documents (attached) provide some additional 
examples.
    Question 4. If as you say we know how to prevent or mitigate most 
basic cyber attacks by use of current standards and activities why 
don't we just mandate that companies do these best practices?
    Answer. We can't just put seatbelts on the internet and think we 
have solved the problem.
    As identified in answer No. 2, the problem is that there are 
massive incentives right now favoring the attackers.
    Yes we have come up with ways to deal with most current attacks, 
but the attack methods will continually evolve.
    ISA is not interested in solutions; it is interested in creating a 
sustainable system of cybersecurity.
    To do this we need a much more dynamic motivator than Government 
regulations, we need to use the market.
    As described in greater detail in Chapter 1 of each of the Cyber 
Social Contract documents attached, the Government regulatory model 
invented to address the hot technology of 2 centuries ago--the 
railroads--is not going to work for the 21st Century problem of 
cybersecurity. We need a more active model which will keep up with 
attacks, can be applied internationally, will not provide a roadmap to 
the attackers and generate an atmosphere of foe compliance (equivalent 
to campaign finance laws which everyone complies with and no one thinks 
actually addresses the ``problem'' they are supposed to solve).
    Regulations, (outside of those sectors for which the regulations 
are part of the inherent economy of the sector as described in answer 
1) will be too slow, outdated quickly, and too minimalistic to address 
the modern problem we face.
    Question 5. If companies are losing so much money due to cyber 
attacks, why are there not already enough incentives for them to invest 
to stop the attacks?
    Answer. Part of this answer was addressed in the answer to question 
3, above, where we discussed the fact that industry and the Government 
assess risk in fundamentally different ways with industry, concerned 
almost entirely about the economics of the situation, have a greater 
risk tolerance than the public sector.
    However there are many other problems. For example, it is very hard 
to make truly accurate assessments of economic cyber losses for a 
variety of reasons including the fact that for sophisticated cyber 
attacks one may not know they have been the victim of the attack until 
long after it has occurred because as in the case of the loss of 
corporate IP, (the largest economic loss) the property is not stolen in 
the physical since--it remains--it's just a copy has been made and 
maybe being used to create a clone product or service.
    In still another complication we have the ``interconnection 
problem''. Due to the inherent interconnectedness of the internet it is 
possible for a thief to steal your data that happens to be residing on 
my system (I may not even have a direct relationship with you--I could 
be a sub-contractor to a subcontractor--with little or no incentive to 
protect your data which is valuable whereas my own data may not be as 
valuable so I don't invest in security adequate to your needs.
    Additionally, we have the problem with poor appreciation of actual 
financial risk as described above.
    Finally, there is the fact that in the current economic climate 
business are being forced to make themselves ever more efficient 
including cutting costs by adopting less secure technologies. VOIP, 
international supply chains and cloud computing are all examples of 
technologies that are increasing our cyber risks but are being widely 
deployed (including by the U.S. Federal Government) despite their 
security flaws due to the irresistible economic imperatives we all 
face.
    Government's job ought not to be to punish the victims of cyber 
attacks who are forced to compete in the digital world we now inhabit 
but to use the mechanisms at its disposal creatively, as described 
above to assist enterprises in securing our Nation's system in a 
sustainable and economically sensible way.

                                 


```