Beware of paying that ransomware threat

At a time when the U.S. healthcare system is already overwhelmed by the COVID-19 pandemic, hospitals and healthcare companies have been hit with an unprecedented number of ransomware attacks. A joint cybersecurity advisory issued on October 29, 2020 by the FBI, the Department of Homeland Security’s Cybersecurity and Infrastructure Security Agency and the Department of Health and Human Services warns that it will only get worse, assessing that there is “an increased and imminent cybercrime threat to U.S. hospitals and healthcare providers.”

Ransomware has already demonstrated its capability to disrupt and devastate organizations beyond healthcare companies: large corporations, small businesses and startups, municipalities and government entities are all vulnerable. In 2020 alone, victims of the 11 biggest ransomware attacks spent over $144 million on investigations, restorations and preventative measures, in addition to actual ransom payments.

Now companies face even more risk if they pay these ransoms. In October 2020, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) advised that companies may violate U.S. sanctions laws if they make ransomware payments to certain cybercriminals. This warning applies to not just hospitals and healthcare providers, but also financial institutions, insurance firms, cybersecurity and forensic businesses, and technology firms that could be in any way involved in the transfer of funds for this purpose.

The U.S. Government notes that facilitating ransomware payments can further enable criminals to further their illicit activities. Additionally, payments made to certain actors or embargoed nations could be used to fund activities adverse to U.S. national security. The International Emergency Economic Powers Act (IEEPA) prohibits U.S. citizens from engaging in transactions with any entity on the Specially Designated Nationals and Blocked Persons List (SDN List). These sanctions are imposed with strict liability: a victim may be held liable even if they did not know they were conducting a transaction with a prohibited entity.

OFAC has added certain known cybercriminals to its Specially Designated Nationals and Blocked Persons List (SDN List), prohibiting U.S. persons and companies from conducting transactions with them. Moreover, OFAC sanctions prohibit transactions involving individuals located in embargoed countries, such as Cuba, Iran, North Korea, Syria and the Crimea region of Ukraine. Therefore, if a victim organization pays one of these SDNs or an entity in an embargoed location to release critical information that is being held hostage by ransomware, even where the payment is made in order to save a business or even lives, it may be exposed to sanctions.

So, what should an enterprise do if it has been the victim of a cyberattack, or if it assists the victim of a cyberattack when a prohibited entity demands payment for the release of critical data?

In addition to building sufficient cybersecurity controls, companies must make sure they have in place an effective compliance program, including screening tools that would notify the company if an individual or organization is an SDN, to mitigate the risk of sanction violations and penalties. Companies that are subject to ransomware attacks that may have been conducted by an SDN should consider engaging law enforcement, as OFAC may consider such cooperation as a mitigating factor in assessing penalties.

Christian C. Contardo is Associate of Lowenstein Sandler’s Global Trade & Policy group and has more than 15 years of legal experience, including more than a decade serving as a national security attorney in the federal government.

Doreen M. Edelman is Chair of Lowenstein Sandler’s Global Trade & Policy group. The group combines global trade and policy expertise with cross-border M&A, technology, government contracts, white collar investigations, and business counseling practices to help clients develop strategies to minimize global business risks, increase compliance with U.S. requirements, and mitigate matters raised by U.S. regulatory agencies and the U.S. Department of Justice. Prior to joining Lowenstein Sandler, Edelman served as Co-Chair of the Global Business practice at an AmLaw 100 firm in Washington, D.C. She has published many trade-related articles, created a trade matters blog, and been quoted on CNN and Bloomberg and in The Wall Street Journal, The Hill, and other publications due to her in-depth knowledge of trade policy.

Kathleen A. McGee is Partner for The Tech Group and White Collar Criminal Defense at Lowenstein Sandler. With close to two decades of experience as a prosecutor and leading regulator, including as Bureau Chief of the New York Attorney General’s Bureau of Internet and Technology, McGee is a highly accomplished attorney with a unique and valuable skill set.

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