Update II: Apple Statement: "What Businessweek got wrong about Apple"
Original post:
Sometimes I think the U.S. counterintelligence peeps aren't nearly as good as they say they are.
Take, for example this Peter Strozk fellow. He was Chief of the Counterespionage Section of the FBI.
Let that sink in, Chief of the Counterespionage Section of the FBI.
And he leaves 50,000 text messages with his paramour, DOJ and FBI attorney Lisa Page, laying around.
50,000 mash notes to sweetie.
Right there, in the phone, on a server, where any junior-grade investigator could find them.
He was also the #2 of the entire FBI Counterintelligence Division.
Can you imagine how the Russians and the Chinese and the Iranians and the North Koreans and the British and the Germans and the Israelis and the Macedonians are laughing at this guy and at the U.S. Intelligence Community?
50,000, Good grief.
This is a huge story.
We are trying to ascertain the damage and the risk exposures of the companies involved but let's just leave at at huge for now.
From Bloomberg via ZeroHedge:
One week ago, President Trump stood up at a meeting of the United Nations Security Council and accused China of attempting to tamper with US elections - mimicking some of the same allegations that had first been levied against Russia nearly two years prior. In his speech, Trump claimed that China was working to undermine Republicans, and even the president himself, warning that "it's not just Russia, it's China and Russia." While the media largely shrugged off this proclamation as more presidential bombast probably inspired by the burgeoning US-China trade beef, the administration continued to insist that it was taking a harder line against Chinese efforts to subvert American companies to aide the Communist Party's sprawling intelligence apparatus. As if to underline Trump's point, the FBI had arrested a Taiwanese national in Chicago the day before Trump's speech, accusing the 27-year-old suspect of trying to help China flip eight defense contractors who could have provided crucial intelligence on sensitive defense-related technology.
But in a game-changing report published Thursday morning, Bloomberg Businessweek exposed a sprawling multi-year investigation into China's infiltration of US corporate and defense infrastructure. Most notably, it confirmed that, in addition to efforts designed to sway US elections, China's intelligence community orchestrated a pervasive infiltration of servers used to power everything from MRI machines to the drones used by the CIA and army. They accomplished this using a tiny microchip no bigger than a grain of rice.
BBG published the report just hours before Vice President Mike Pence was expected to "string together a narrative of Chinese aggression" during a speech at the Hudson Institute in Washington. According to excerpts leaked to the New York Times, his speech was expected to focus on examples of China's "aggressive moves against American warships, of predatory behavior against their neighbors, and of a sophisticated influence campaign to tilt the midterms and 2020 elections against President Trump". His speech is also expected to focus on how China leverages debt and its capital markets to force foreign governments to submit to its will (something that has happened in Bangladesh and the Czech Republic.
But while those narratives are certainly important, they pale in comparison to Bloomberg's revelations, which reported on an ongoing government investigation into China's use of a "tiny microchip" that found its way into servers that were widely used throughout the US military and intelligence infrastructure, from Navy warships to DoD server farms. The probe began three years ago after the US intelligence agencies were tipped off by Amazon. And three years later, it remains ongoing.
Nested on the servers’ motherboards, the testers found a tiny microchip, not much bigger than a grain of rice, that wasn’t part of the boards’ original design. Amazon reported the discovery to U.S. authorities, sending a shudder through the intelligence community. Elemental’s servers could be found in Department of Defense data centers, the CIA’s drone operations, and the onboard networks of Navy warships. And Elemental was just one of hundreds of Supermicro customers.With those two paragraphs, Bloomberg has succeeded in shifting the prevailing narrative away from Russia and toward China. Or, as Pence is expected to state in Thursday's speech (via NYT) "as a senior career member of our intelligence community recently told me, what the Russians are doing pales in comparison to what China is doing across this country."
During the ensuing top-secret probe, which remains open more than three years later, investigators determined that the chips allowed the attackers to create a stealth doorway into any network that included the altered machines. Multiple people familiar with the matter say investigators found that the chips had been inserted at factories run by manufacturing subcontractors in China.
The story begins with a Silicon Valley startup called Elemental. Founded in 2006 by three engineers who brilliantly anticipated that broadcasters would soon be searching for a way to adapt their programming for streaming over the Internet, and on mobile devices like smartphones, Elemental went about building a "dream team" of coders who designed software to adapt the super-fast graphics chips being designed for video gaming to stream video instead. The company then loaded this software on to special, custom-built servers emblazoned with its logo. These servers then sold for as much as $100,000 a pop - a markup of roughly 70%. In 2009, the company received its first contract with US defense and intelligence contractors, and even received an investment from a CIA-backed venture fund.
Elemental also started working with American spy agencies. In 2009 the company announced a development partnership with In-Q-Tel Inc., the CIA’s investment arm, a deal that paved the way for Elemental servers to be used in national security missions across the U.S. government. Public documents, including the company’s own promotional materials, show that the servers have been used inside Department of Defense data centers to process drone and surveillance-camera footage, on Navy warships to transmit feeds of airborne missions, and inside government buildings to enable secure videoconferencing. NASA, both houses of Congress, and the Department of Homeland Security have also been customers. This portfolio made Elemental a target for foreign adversaries.Like many other companies, Elementals' servers utilized motherboards built by Supermicro, which dominates the market for motherboards used in special-purpose computers. It was here, at Supermicro, where the government believes - according to Bloomberg's sources - that the infiltration began. Before it came to dominate the global market for computer motherboards, Supermicro had humble beginnings. A Taiwanese engineer and his wife founded the company in 1993, at a time when Silicon Valley was embracing outsourcing. It attracted clients early on with the promise of infinite customization, employing a massive team of engineers to make sure it could accommodate its clients' every need. Customers also appreciated that, while Supermicro's motherboards were assembled in China or Taiwan, its engineers were based in Silicon Valley. But the company's workforce featured one characteristic that made it uniquely attractive to China: A sizable portion of its engineers were native Mandarin speakers. One of Bloomberg's sources said the government is still investigating whether spies were embedded within Supermicro or other US companies).
But however it was done, these tiny microchips somehow found their way into Supermicro's products. Bloomberg provided a step-by-step guide detailing how it believes that happened.
- A Chinese military unit designed and manufactured microchips as small as a sharpened pencil tip. Some of the chips were built to look like signal conditioning couplers, and they incorporated memory, networking capability, and sufficient processing power for an attack.
- The microchips were inserted at Chinese factories that supplied Supermicro, one of the world’s biggest sellers of server motherboards.
- The compromised motherboards were built into servers assembled by Supermicro.
- The sabotaged servers made their way inside data centers operated by dozens of companies.
- When a server was installed and switched on, the microchip altered the operating system’s core so it could accept modifications. The chip could also contact computers controlled by the attackers in search of further instructions and code.
In espionage circles, infiltrating computer hardware - especially to the degree that the Chinese did - is extremely difficult to pull off. And doing it at the nation-state level would be akin to "a unicorn jumping over a rainbow," as one of BBG's anonymous sources put it. But China's dominance of the market for PCs and mobile phones allows it a massive advantage....MUCH MORE
One country in particular has an advantage executing this kind of attack: China, which by some estimates makes 75 percent of the world’s mobile phones and 90 percent of its PCs. Still, to actually accomplish a seeding attack would mean developing a deep understanding of a product’s design, manipulating components at the factory, and ensuring that the doctored devices made it through the global logistics chain to the desired location - a feat akin to throwing a stick in the Yangtze River upstream from Shanghai and ensuring that it washes ashore in Seattle. "Having a well-done, nation-state-level hardware implant surface would be like witnessing a unicorn jumping over a rainbow," says Joe Grand, a hardware hacker and the founder of Grand Idea Studio Inc. "Hardware is just so far off the radar, it’s almost treated like black magic."
But that’s just what U.S. investigators found: The chips had been inserted during the manufacturing process, two officials say, by operatives from a unit of the People’s Liberation Army. In Supermicro, China’s spies appear to have found a perfect conduit for what U.S. officials now describe as the most significant supply chain attack known to have been carried out against American companies.
Some more details from the report are summarized below:
The government found that the infiltration extended to nearly 30 companies, including Amazon and Apple.
One official says investigators found that it eventually affected almost 30 companies, including a major bank, government contractors, and the world’s most valuable company, Apple Inc. Apple was an important Supermicro customer and had planned to order more than 30,000 of its servers in two years for a new global network of data centers. Three senior insiders at Apple say that in the summer of 2015, it, too, found malicious chips on Supermicro motherboards. Apple severed ties with Supermicro the following year, for what it described as unrelated reasons.
Both Amazon and Apple denied having knowledge of the infiltration (Amazon eventually acquired Elemental and integrated it into its Amazon Prime Video service). Meanwhile, the Chinese government issued a conspicuous non-denial denial....
An unbelievable failure of the intelligence community.
