TCS Daily

The KGB Enters the Digital Age

By Keith Henderson - September 18, 2000 12:00 AM

Regional and Global trends with Russian roots?

At a time when most countries have not even developed a comprehensive telecommunications or Internet policy, trends to monitor and regulate the Internet by both democratic and authoritarian governments are proliferating. This is the situation in Russia, as well as many other transition countries, where corruption is systemic and regulations are being passed on an ad hoc basis -- often in the dark, by executive decree and without broad public or business community engagement.

One of the biggest problems in these countries is that entrepreneurs and potential investors will not be able to calculate the actual cost of regulatory compliance because they will be enforced in an unpredictable, discriminatory manner. The risk of criminal prosecution and high arbitrary fines or bribes for national and international businesses will simply be too high for most. Other risks relate to the uncertainty of criminal prosecution and arbitrary fines in countries where the rule of law does not exist. Perhaps the biggest beneficiaries in of the regulations are organized criminal global networks and corrupt officials and businesspeople who will use this information for ulterior purposes, as well as those who sell and know how to use encryption software. However, most Russians cannot afford and do not have access to this technology.

The net result is that business users in Russia, as well as their foreign partners and potential investors, will be very reluctant to exchange important information via the Internet, much less to fully engage in e-business or e-government transactions. Moreover, skeptical and distrusting publics in these countries, where the right to privacy is just beginning to have resonance, will continue to question the legitimacy of their government and democratic market-based economies. Further, the dangerous perils of investigative journalism - - so essential to exposing and rooting out corruption, creating market and democratic institutions and developing public trust and consensus -- will only be exacerbated.

Even in those countries where a relatively comprehensive Internet policy exists, such as the United States and China, government actors are scrambling to draft new rules of the road for an ever-changing technology. In China, new Orwellian like Internet regulations are so tight, repressive and costly, that compliance is already having a significant chilling effect on free speech and the free flow of information, both essential ingredients for a market economy. The risks of criminal prosecution and arbitrary fines are too high for most Chinese entrepreneurs, as well as for investors. In both China and Russia, the cost of technical compliance may be calculable in the short-term; however, because the law enforcement communities in both countries are systemically corrupt, the real, long-term costs are not. Other countries, like Kazakhstan and her Central Asian neighbors, are also part of this global regulatory trend and are requiring that Internet Service Providers (ISPs) give officials access to tracking information about their users, and much more.

In the United States, recently proposed regulations by the Administration include safeguards that provide for some due process and judicial oversight. Their stated objective is geared towards enshrining and harmonizing legal "privacy" protections for various forms of communication and balancing those interests with those of the law enforcement community. Nonetheless, many civil libertarians and businesses do not believe that current proposed safeguards do not go far enough. In response to some of these concerns, the U.S. Attorney General recently announced that she would review current FBI procedures utilized to monitor Internet communication through Carnivore technology. Realizing that the privacy risks are high, policymakers and CEOs are beginning to give more thought to policies that encourage complementary comprehensive industry self-regulation and independent monitoring mechanisms. Global rules of the road and informal public/private cooperation systems are now also being explored.

In Britain, recently proposed regulations are even more invasive and resemble the Russian regulations in several respects. Not unlike their Russian counterpart, they require ISPs to bear the expense of installing and maintaining surveillance black boxes and the amount of oversight is minimal at best. They also will require anyone using the Internet to turn over the keys to decoding e-mail messages and other data. This mandate sets a new, troublesome privacy precedent for Western democracies. Over a five year period, the London School of Economics estimates the direct financial cost of implementing the British regulations to be approximately $1billion, although the cost escalates to over $50 billion when opportunity and consumer costs are built into the equation.

Russia's reach into cyber-space and the global information marketplace

Web-tapping and e-mail surveillance regulations under Putin's new high tech secret service, the reinvigorated FSB (former KGB), pose an ominous threat to Russia's economic and democratic transition, as well as to her joint venture partners and business investors. While developed and developing countries also appear to be lining up to regulate and monitor the Internet, the inherent dangers of abuse to individuals and companies are nothing short of dangerous in transition and emerging markets like Russia and China, where the law enforcement and intelligence community is systemically corrupt and the rule of law and meaningful judicial oversight have not taken root. Many believe that some of the policies and regulations being promulgated in the developed world will serve as dangerous global precedents. In developing countries some regulations and controls have far-reaching ramifications for individual civil liberties, corporate privacy, transparency and accountability, as well as country and global economic growth.

To illustrate just a few inherent dangers of regulation in countries ruled by men not law, it is instructive to examine how these regulations are likely to be implemented and abused in the Russia context. Similar dangers lurk in other countries like China, which also has passed regulations to "monitor" and censure the Internet. Many recent commentaries about Putin's new Russia have rightly focused on his crackdown on free speech, including the FSB's recent arrest of Vladimir Gusinsky, the founder of Russia's largest independent TV network, NTV, and the arrest of Andrei Babitsky, an investigative reporter with Radio Free Europe/Radio Liberty. Both are effectively accused, among other things, of making remarks critical of Putin's government and the Chechnyan War.

Russia's "SORM" Internet regulations: Setting new global norms?

Putin's vow to create a "dictatorship of laws" in Russia includes unprecedented Internet regulations, the System for Conducting Investigations and Field Operations (SORM-2), that gives his former employer, the FSB, the legal and practical means to Web-tap and monitor e-mails -- all in the name of protecting state secrets, national security and reigning in the powerful Russian Mafia. Many policymakers and human rights advocates agree that law enforcement authorities need special legal surveillance privileges and tools to combat growing national security and criminal concerns. However, these regulations, both on their face and in practice, literally give Russia's systemically corrupt law enforcement community unfettered access to private Internet communications. The problems with SORM-2 are myriad but three fundamental problems deserve illustration.

First and foremost, since the law enforcement and judicial system is systemically corrupt in Russia, the letter of the law is virtually meaningless. Even though in theory the Russian regulations require some judicial oversight, Russian judges, in general, are still perceived by the business community to be corrupt and subservient to powerful officials, the oligarchs, the Mafia and the law enforcement community. Of course, there are some notable exceptions to the generalization.

In Russia, fair and effective enforcement of the law is not the norm, especially since the selling of information, both positive and negative, is one of the most lucrative black-market industries in Russia today. Those tracking developments in Russia know that FSB "secret" information, like all information in Russia, is readily available on the streets of Moscow and Washington for a few rubles or dollars. Confidential information related to individuals, corporations, governments and even on-going law enforcement investigations, such as the Bank of New York money laundering case, is bought and sold from private and public sources for a variety of economic and political purposes. The SORM regulation opens both the governmental and non-governmental door to a lack of privacy and blackmail even wider. This is particularly dangerous in a country where Russian officials admit that the Mafia has deeply infiltrated the law enforcement, political and business communities.

Second, Internet Service Providers (ISPs) are required to pay for the surveillance devices that links-up their communication system directly with the FSB. Under SORM, the FSB has direct access to all communications; thus, neither the ISP nor the person communicating will ever know with any degree of confidence whether his or her information is being stolen or monitored.

Third, in addition to the chilling effect that the SORM regulation will have on corporate transparency, free speech and freedom of association, the financial cost of installing and maintaining SORM will be prohibitive to most honest Russian entrepreneurs. Under the regulation, the financial cost must be borne by the fledgling Russian ISP community, as well as their domestic or foreign joint venture partners. The direct cost to each ISP is estimated to be approximately $10,000 for the device itself, plus $1,000 a month for the direct line to the FSB. While this may not sound exorbitant by Western standards of living, in a country where almost half of the population struggles to live on less than $300 per month and businesses are legally and illegally taxed at some of the highest rates in the world, the cost of initial compliance with SORM alone will force many ISPs into bankruptcy. This additional "tax" will undoubtedly stifle e-commerce and e-government and will deter foreign and domestic investment even further. In short, neither emerging nor existing Russian businesses will be able to deliver their product or service in the "speed to market" time of their domestic or global competitors.

It is not entirely clear whose Internet regulations are being emulated. What is clear, however, is that some of the regulations being adopted, particularly in many developing countries, do not bode well for free speech, privacy, entrepreneurship and the new global information economy. At a minimum, Western democracies should be aware that the policies and global dialogue they are establishing now have serious global economic and political consequences. The return "e-mail" message from other countries, such as Russia and China, may make the love bug virus, that wreaked so much havoc on so many, look benign by comparison.

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