Ransomware attack payments might be tax deductible, says US government
fox2detroit.com
fox2detroit.com
> "The cheaper we make it to pay that ransom, then the more incentives we’re creating for companies to pay, and the more incentives we’re creating for companies to pay, the more incentive we’re creating for criminals to continue," said Josephine Wolff
In an ECON 101 sense, ransomware attackers want to set the price as high as they can such that the victim will pay. A rational victim will consider their tax bill in the cost/benefit calculation. So although giving a tax deduction for ransomware seems like it reduces the burden on the victim, in the long run it just increases the reward for the hacker at the expense of the treasury.
Seems that everyone is choosing an easy way out instead of the hard choice that needs to be made.
I would rather see the hard choices made instead.
IE, Maybe Russia cannot be directly attacked but certainly Russia forces in Ukraine can be attacked in a cyber manner,
When you still have reserve currency status for the world you can do dumb things.
Unfortunately those dumb things are catching up to us…
That is to say, it's a sliiiightly entitled way to look at the matter.
Let’s say Bob and Sue make up their own society. Both make 100k each and agree to a tax rate of 50% to build roads they will both benefit from.
However Bob gets a 30k tax exemption because his name begins with “B”. Therefore the tax burden on Sue is greater and she’s subsidizing Bob’s road usage (and potentially having crappier roads).
There are legitimate reasons for tax exemptions, but as tax payers we should always be critical of them.
So does a business dropping the ball on security mean everyone else who pays taxes should subsidize their screw up? Maybe… but it seems like a stretch to me and worthy of criticism.
They already are for more conventional crimes. If a business burns to the ground, its loss of assets is a business loss for tax purposes. Even if it doesn't, insurance premiums are a deductible expense, so the government sees its deduction for the amortized fire damage regardless (since insurers recover expenses plus profit via premiums).
The full article covers this. It's not like there's a specific "pay criminals, get a refund" item in the tax code, it's that damages and losses from crimes are treated like any other business expense.
I’d prefer if they had to have insurance so the market can determine how much crappy security would cost them.
We should want to minimize these instances.
If companies should meet a minimum standard of security practices and policies, then this should be legislated. Same as fire codes and OH&S standards.
If companies should have ransomware insurance, then mandate that companies should have ransomware insurance. Same as how certain organisations require public liability insurance.
This is what I'm saying. It's a far better solution than subsidizing bad security practices w/ tax. Require insurance and the insurance companies will ensure you have decent security practices (or pay a lot more). If you can't afford it for your business, well then your business can't compete in the market.
Obviously the details matter though. It would be rough at first, but eventually insurance companies would have a vested interest in quality security audits.
New hotness: Sorry IRS, our entire business didn’t turn a profit so we don’t owe taxes (because we sent $5 billion in ransoms to one of our shell companies).
The shell can shift its profits tax-free back to the Canadian parent.
If you pay extortion money or bribes as a company, it‘s not just that they‘re deductible, you‘re actually obligated to account for them.
Being illegal and being deductible don‘t have to do anything with each other.
Don‘t forget Al Capone was actually convicted for tax evasion in the end, as even illegal businesses have to pay taxes.
Perhaps there is a UK, European, or other jurisdiction accountant on HN who could comment?
So in summary:
- Kidnapping for ransom expenses are deductible
- Bribes are not deductible
- Ransomware payments may be deductible
If the government really wants to reduce this then perhaps they should actually help companies. Setup teams to address these situations in real time. Put that extensive NSA internet spying network to good use and track these situations. When a company calls the FBI to report an ongoing ransomware attack, they shouldn't have to leave a message in hopes that maybe someone might call them back in a couple weeks, nor should they be told to report the situation to their local cops.
[1] https://www.irs.gov/publications/p547#en_US_2020_publink1000...
So, a lot.
But I doubt that it could happen like that, the skillset requirements just don't have the overlap it would take.
But taking some liberties extrapolating a dark future, imagine what would happen if key persons who failed particularly hard at avoiding payment suddenly found themselves with unsolicited keys for wallets containing some amount of finder's fee. Deniable, yes, but how much would that deniability be worth in the end? If that could be the future of business computing, should we buy stocks of fax machine companies?
On the other hand, perhaps you are right: if you have a well established, highly authorized and maybe a bit isolated crisis intervention plan/team they should be able to initiate preventative lockdown protocols perfectly indistinguishable from the real thing, with only a very small conspiracy knowing that it was started for no good reason.
[1] https://www.irs.gov/publications/p547#en_US_2020_publink1000...
That's order of magnitude easier than requesting paper money
"Deductibility is a piece of a bigger quandary stemming from the rise in ransomware attacks, in which cybercriminals scramble computer data and demand payment for unlocking the files. The government
A ransomware attack on Colonial Pipeline last month led to gas shortages in parts of the United States. The company, which transports about 45% of fuel consumed on the East Coast,"
What are the effects of mortgage interest payments being tax deductable, and given these, what do you think the effect of ransoms being deductable will be?
If this policy weren't just dumb, it would be like these government people actually just want to create more chaos so they can direct it at target groups then only selectively respond to it as a way to paralyze opposition. Not to be political, but any sufficiently idiotic policy is indistinguishable from partisanism, imo.
That would entail actual work, reduce company productivity and induce steps that could go wrong along the way. I'd call that Rube-Goldberg style tax evasion.
You could just stage a ransomware before a prolonged downtime (eg. phishing happy new year emails from an account with a leaked credentials in the source code that's accessible via website.com/.git) and hope that one of your employees will click on the attachment.
That would be quite easy IMHO
Ok, let me just put the moral compass aside for a moment and put on my John Grisham fanfic hat so I can answer to this:
You simply buy $CRYPTO_CURRENCY, siphon the money off into a shell company in your favorite tax heaven, write it up as ransom payment, done. You might not even need the first step by having the shell company pretend to be a crypto currency exchange.
If you are a big enough company to bother with shell company tax evasion shenanigans, you probably have enough departments that some of them barely know each other or communicate. Spreading a rumor of a single department being hit by ransomware should be enough in case someone from the IRS actually bothers to come by and ask around.
If you really must, maybe pay someone in IT some hush money and ask them to turn a few servers off for a day or so to put up a convincing show. I'd advise against that though, since in my experience, technical people are notoriously bad at lying about technical things.
But actually phishing your own employees and staging a real ransomware attack is an unnecessary risk with too many variables where things might actually go wrong. Besides, the people pulling the strings here may have a law and/or accounting background, but probably not IT.
Somehow they need to be taken into account, if you pay US $ 100,000 to a consultant to harden your infrastructure or if you pay US $ 100,000 as a ransom, you have in both cases US $ 100,000 less, the difference is that in the first case you have an invoice, whilst in the second the IRS has to trust you.
Point might be how to "certify" whether the ransomware attack is "real" or if it could be simulated to only get away with hiding/divert the money (and pay no taxes on those).
Paying a ransom by definition puts the whole sum in a black hole, tax-wise.
Not really-really.
The consultants pay taxes on the money they get from you only because (if) they respect the Law, it is none of your business (it is the IRS's one) if the consultants later comply.
If you prefer, whether the consultants pay taxes or not doesn't change anything in your company's accounts, you have an expense and proper documentation for it, what happens after and outside the transaction is irrelevant.
The issue (from your or your company's point of view) is how to properly document the expense (and it is IMHO a tough one to document a ransom).
If the IRS currently doesn't care or doesn't check, that's a specific implementation issue of your country. Laws can be changed
You have ransomware insurance.
You fall victim to a ransomware attack.
You pay US $ 100,000 as ransom.
The insurance company reimburses you the US $ 100,000.
It is clear that financially that is 0.
But from a tax view point, if you cannot count the US $ 100,000 of the ransom as expenses you will be paying some form of taxation on the US $ 100,000 you received from the insurance.
EDIT: otherwise, the collectivity effectively pays for what you deducted from your taxes. The missing money on the overall country balance has to come from somewhere.
EDIT2: If you're talking about private insurances covering your risk of ransoms, this means you assume it's your responsibility to pay for your losses (insurances just allow you to pay proportionally to the risk), and not e.g. have the government, say, paying it for you (through public funds, which can and IIRC has happened for kidnapping cases here some countries pay the cost of rescue). All I'm saying is that if it's private insurance, it should be private 100%
Well, exactly this. Clarifying that ransom payments are tax-deductible creates a moral hazard whereby companies set up off-shore entities to conduct ransomware attacks. The parent company gets attacked, establishes a paper trail of "damages" (whether these damages are material is irrelevant, particularly as the stock market has shown that it won't punish companies for being the victim of cyberattacks), quickly pays the ransom, which moves the money off-shore into crypto accounts which can then be tumblered and funneled into shell companies. The off-shore cash can then be used off-the-books for a variety of purposes that indirectly benefit the parent company.
Good luck to the forensic auditors who try to follow the trail to show that the money never really left the parent company's control.
1. Sabotage your company security
2. Stage a ransomware attack with enough plausible deniability
3. Get a fat bonus
The IRS does not have enough muscle to get to the bottom of this, so this works out great.
that would just incentivize businesses to hide and obscure their breaches.
From my point of view, whether or not there is a legitimate process built around the ransomware attacks, the attackers will simply continue business as usual; there's no fear or penalty for them, the workflow of their process is not disrupted in the slightest (the bitcoin payments can still go through), and I don't really get the impression that the legal background of the victim's country is taken into consideration by the attackers.
(All of the above is why I'm pretty sure that the idea of "make paying the ransom illegal" will have no impact on the number of attacks, as such a policy does nothing to actually impede the workflow of ransomware; all it does is create another decision point for an already damaged group of persons as to whether they commit an illegal act or not to try to save their business)
https://www.bloomberg.com/opinion/articles/2019-06-26/everyt...