Navigating the Legal Maze: Unveiling 4 Unexpected Aftermaths of a Cybersecurity Breach

Surprising Post-Incident Considerations for Cybersecurity

As cybersecurity incidents continue to rise in frequency and sophistication, organizations must be prepared to navigate the complexities of the aftermath. While most security professionals are aware of the common challenges that arise after an incident, such as data breach notifications and regulatory filings, there are unexpected concerns that may catch them off guard and potentially impact their legal liability. In this article, we explore four surprising post-incident considerations that every organization should be aware of.

1. Cyber Insurance Review of Pre-Incident Security Controls

One crucial aspect that often comes into play after a cybersecurity incident is the evaluation of pre-incident security controls by the organization’s cyber insurance carrier. If an organization has cyber insurance in place, they may need to go through a reimbursement process that involves answering detailed questions about the security measures they had in place prior to the incident. This includes a thorough examination of what failed and the root cause of the incident.

It is imperative for organizations to truthfully and accurately describe their security controls during the insurance application and underwriting process. In recent times, insurance carriers have become more stringent in scrutinizing application misstatements and using them as grounds to deny claims. Failing to be truthful during the application process can have severe financial consequences in the millions of dollars down the line.

To mitigate this risk, organizations should collaborate with their risk management team, insurance broker, and outside counsel before an incident occurs. Together, they must ensure that the company’s security controls are accurately described and well-documented to avoid any potential disputes during the insurance reimbursement process.

2. Auditor Investigations

After a cybersecurity incident, it is not uncommon for auditors to have numerous questions regarding the incident’s impact on an organization’s financials and overall operations. Public companies, public bodies, and even small companies that undergo CPA audits and reviews may face inquiries related to the incident.

Given that any information shared with a CPA is unlikely to be considered confidential or covered by privilege, organizations must be cautious about the statements they make regarding the incident. Any statement made to auditors could potentially be used against the organization in later lawsuits. Therefore, it is essential to ensure that all statements align with what was shared in notification letters to stakeholders, employees, customers, and the media.

Engaging specialized cyber-incident counsel can prove invaluable in navigating the responses to auditors’ questions and ensuring compliance with legal obligations while protecting the organization’s interests.

3. Banks Halting Ransomware Payments

When an organization decides to make a ransomware payment to mitigate a cyber threat, a host of legal concerns can arise, particularly when time is of the essence. While security professionals are well-versed in the US Treasury Department’s Office of Foreign Asset Control (OFAC) process for clearing ransom payments, they may encounter unforeseen challenges when dealing with banks.

In recent times, banks have become increasingly hesitant to process wires to known threat negotiation firms. This hesitation arises from the concern that organizations involved in the ransom payment chain may be held liable for making an improper payment to a sanctioned entity under OFAC regulations. To navigate this complexity, organizations must be well-prepared to interact with OFAC and present the necessary information quickly to the financial institution to facilitate the transaction.

Organizations must have a solid understanding of their own obligations and those of their financial institutions under OFAC regulations. It’s crucial to be ready with a comprehensive report that can promptly provide essential information, ensuring the payment is cleared without unnecessary delays.

4. Failing to Know Which Customers Need Immediate Notice

When an organization serves other businesses or acts as a subcontractor to governmental entities, there are often contractual or statutory requirements for incident-response notifications. Many organizations fail to adequately track these notification timelines, which can result in a breach of contract and substantial penalties.

To avoid this predicament, organizations should create a centralized spreadsheet or system that tracks the notification requirements for each customer or contractual arrangement. By preparing this in advance, the organization can respond rapidly and meet all necessary obligations without having to rely on a team of lawyers to review contracts in a time-sensitive situation.

Preparation Is Key

While no organization can completely eliminate the risk of a cybersecurity incident, being prepared to address the various stakeholders and legal considerations that arise in the aftermath can significantly mitigate potential damage. It is essential for organizations to regularly assess and document their pre-incident security controls accurately, engage specialized counsel to navigate the complexities of audits and investigations, understand the intricacies of ransom payment processes, and stay informed about their contractual obligations for incident notifications.

By proactively addressing these post-incident considerations, organizations can minimize legal liabilities and reputational risks, allowing them to focus on effective incident response and recovery.

Disclaimer: The information provided in this article is for informational purposes only and should not be considered legal advice. Organizations should consult with their legal counsel to address their specific cybersecurity and incident response needs.