Russian National Admits Role In Largest Known Data Breach Conspiracy Ever Prosecuted

The U.S. Justice Department released the below information:

A Russian national today admitted his role in a worldwide hacking and data breach scheme that targeted major corporate networks, compromised more than 160 million credit card numbers and resulted in hundreds of millions of dollars in losses –  the largest such scheme ever prosecuted in the United States.

Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, U.S. Attorney Paul J. Fishman of the District of New Jersey and Director Joseph P. Clancy of the U.S. Secret Service made the announcement.

Vladimir Drinkman, 34, of Syktyvkar, Russia, and Moscow, pleaded guilty before Chief U.S. District Judge Jerome B. Simandle of the District of New Jersey to one count of conspiracy to commit unauthorized access of protected computers and one count of conspiracy to commit wire fraud.  Drinkman was arrested in the Netherlands on June 28, 2012, and was extradited to the District of New Jersey on Feb. 17, 2015.  Sentencing is scheduled for Jan. 15, 2016.

“This hacking ring’s widespread attacks on American companies caused serious harm and more than $300 million in losses to people and businesses in the United States,” said Assistant Attorney General Caldwell.  “As demonstrated by today’s conviction, our close cooperation with our international partners makes it more likely every day that we will find and bring to justice cyber criminals who attack America – wherever in the world they may be.  As law enforcement around the world responds to the cyber threat that affects us all, I am confident that this type of international cooperation that led to this result will be the new normal.”

“Defendants like Vladimir Drinkman, who have the skills to break into our computer networks and the inclination to do so, pose a cutting edge threat to our economic well-being, our privacy and our national security,” said U.S. Attorney Fishman.  “The crimes to which he admitted his guilt have a real, practical cost to our privacy and our pocketbooks.  Today’s guilty plea is a tribute to the skill and perseverance of the agents and prosecutors who brought him to justice.”

“This cyber case highlights the effectiveness of global law enforcement partnerships in the detection and dismantling of criminal enterprises targeting U.S. citizens,” said Director Clancy.  “The support of U.S. Attorney’s offices and the resulting plea enhances the Secret Service’s commitment to vigorously pursue transnational threats to the U.S. financial infrastructure.”

According to documents filed in this case and statements made in court, Drinkman and four co-defendants allegedly hacked into the networks of corporate victims engaged in financial transactions, retailers that received and transmitted financial data and other institutions with information that the conspirators could exploit for profit, including the computer networks of NASDAQ, 7-Eleven, Carrefour, JCP, Hannaford, Heartland, Wet Seal, Commidea, Dexia, JetBlue, Dow Jones, Euronet, Visa Jordan, Global Payment, Diners Singapore and Ingenicard.

According to the indictment in this case and statements made in court, the five defendants each played specific roles in the scheme.  Drinkman and Alexandr Kalinin, 28, of St. Petersburg, Russia, allegedly specialized in penetrating network security and gaining access to the corporate victims’ systems.  Drinkman and Roman Kotov, 34, of Moscow, allegedly specialized in mining the networks to steal valuable data.  The hackers hid their activities using anonymous web-hosting services allegedly provided by Mikhail Rytikov, 28, of Odessa, Ukraine.  Dmitriy Smilianets, 32, of Moscow, allegedly sold the information stolen by the other conspirators and distributed the proceeds of the scheme to the participants.

Drinkman and Kalinin were previously charged in New Jersey as “Hacker 1” and “Hacker 2” in a 2009 indictment charging Albert Gonzalez, 34, of Miami, in connection with five corporate data breaches, including the breach of Heartland Payment Systems Inc., which at the time was the largest ever reported.  Gonzalez is currently serving 20 years in federal prison for those offenses.  Kalinin is also charged in two federal indictments in the Southern District of New York: the first charges Kalinin in connection with hacking certain computer servers used by NASDAQ and the second charges him and another Russian hacker, Nikolay Nasenkov, with an international scheme to steal bank account information from U.S.-based financial institutions.  Rytikov was previously charged in the Eastern District of Virginia in an unrelated scheme.

Drinkman and Smilianets were arrested at the request of the United States while traveling in the Netherlands on June 28, 2012.  Smilianets was extradited on Sept. 7, 2012, and remains in federal custody.  Kalinin, Kotov and Rytikov remain at large.

The Attacks

According to documents filed in this case and statements made in court, the five defendants penetrated the computer networks of several of the corporate victims and stole user names and passwords, means of identification, credit and debit card numbers and other corresponding personal identification information of cardholders.  The conspirators allegedly acquired more than 160 million card numbers through hacking.

The initial entry was often gained using a “SQL injection attack.”  SQL, or Structured Query Language, is a type of programming language designed to manage data held in particular types of databases; the hackers allegedly identified vulnerabilities in SQL databases and used those vulnerabilities to infiltrate a computer network.  Once the network was infiltrated, the defendants allegedly placed malicious code (malware) in the system.  This malware created a “back door,” leaving the system vulnerable and helping the defendants maintain access to the network.  In some cases, the defendants lost access to the system due to companies’ security efforts, but were allegedly able to regain access through persistent attacks.

Instant message chats obtained by law enforcement revealed that the defendants allegedly targeted the victim companies for many months, waiting patiently as their efforts to bypass security were underway, sometimes leaving malware implanted in multiple companies’ servers for more than a year.

The defendants allegedly used their access to the networks to install “sniffers,” which were programs designed to identify, collect and steal data from the victims’ computer networks.  The defendants then allegedly used an array of computers located around the world to store the stolen data and ultimately sell it to others.

Selling the Data

According to documents filed in this case and statements made in court, after acquiring the card numbers and associated data – which they referred to as “dumps” – the conspirators sold it to resellers around the world.  The buyers then sold the dumps through online forums or directly to individuals and organizations.  Smilianets was allegedly in charge of sales, selling the data only to trusted identity theft wholesalers.  He allegedly charged approximately $10 for each stolen American credit card number and associated data, approximately $50 for each European credit card number and associated data and approximately $15 for each Canadian credit card number and associated data – offering discounted pricing to bulk and repeat customers.  Ultimately, the end users encoded each dump onto the magnetic strip of a blank plastic card and cashed out the value of the dump by withdrawing money from ATMs or making purchases with the cards.

Covering Their Tracks

According to documents filed in this case and statements made in court, the defendants allegedly used a number of methods to conceal the scheme.  Unlike traditional Internet service providers, Rytikov allegedly allowed his clients to hack with the knowledge he would never keep records of their online activities or share information with law enforcement.

Over the course of the conspiracy, the defendants allegedly communicated through private and encrypted communications channels to avoid detection.  Fearing law enforcement would intercept even those communications, some of the conspirators allegedly attempted to meet in person.

To protect against detection by the victim companies, the defendants allegedly altered the settings on victim company networks to disable security mechanisms from logging their actions.  The defendants also allegedly worked to evade existing protections by security software.

As a result of the scheme, financial institutions, credit card companies and consumers suffered hundreds of millions of dollars in losses – including more than $300 million in losses reported by just three of the corporate victims – and immeasurable losses to the identity theft victims in costs associated with stolen identities and false charges.

The charges and allegations contained in indictments are merely accusations and the defendants are presumed innocent unless and until proven guilty.

The case is being investigated by the U.S. Secret Service’s Criminal Investigations Division and Newark, New Jersey, Division.  The case is being prosecuted by Trial Attorney Richard Green of the Criminal Division’s Computer Crime and Intellectual Property Section, Chief Gurbir S. Grewal of the District of New Jersey’s Economic Crimes Unit and Assistant U.S. Attorney Andrew S. Pak of the District of New Jersey.  The Criminal Division’s Office of International Affairs, public prosecutors with the Dutch Ministry of Security and Justice and the National High Tech Crime Unit of the Dutch National Police also provided valuable assistance.