AABA Altaba Inc

By Aruna Viswanatha and Robert McMillan 

Russian government spies were behind Yahoo Inc.'s notorious 2014 security breach, stealing information about more than a half billion online accounts, including those used by U.S. military officials and by employees of firms in banking, finance and transportation, federal authorities said Wednesday.

The Justice Department announced the indictments of Dmitry Aleksandrovich Dokuchaev and Igor Anatolyevich Sushchin, officers of Russia's Federal Security Service, known as the FSB, alleging they directed and paid for the illegal collection of information in the U.S. and abroad. It is the first such criminal case to directly target Russia.

The case is expected to escalate tensions between the U.S. and Russia over cybercrime and espionage. Congress and federal investigators are probing what U.S. intelligence agencies have described as aggressive efforts by Russia to influence the 2016 election, which it has denied.

The House Intelligence Committee has a hearing next week on the matter, with scheduled appearances by James Comey, director of the Federal Bureau of Investigation, and James Clapper, former Director of National Intelligence.

Authorities said the two Russian agents worked with indicted co-conspirators Alexsey Belan and Karim Baratov to hack into Yahoo computer systems, starting in January 2014. They gained access to the content of 6,500 accounts and used information stolen from Yahoo to target other email providers, including Google.

"The criminal conduct at issue, carried out and otherwise facilitated by officers from an FSB unit that serves as the FBI's point of contact in Moscow on cybercrime matters, is beyond the pale," said Mary McCord, who runs the Justice Department's national security division

The Russian spies paid the hackers to steal information seen as useful to Moscow, prying into the accounts of diplomats and journalists, authorities alleged; company officials were targeted for economic intelligence.

"Today's indictments shed a light on the close and mutually beneficial ties between the cyber underworld and Russia's government and security services, and the extent to which Russia leverages these cyber activities to multiple ends: commercial, financial, and geopolitical," said Democratic Sen. Mark Warner.

"Washington did not communicate with Moscow through the channels available to address issues related to cybersecurity in this case," a Russian official said Wednesday about the indictments. "This fact, as well as the lack of specifics in this case, suggest the next round of raising the theme of 'Russian hackers' in the domestic political squabbles in the U.S."

One of the accused, Mr. Baratov, a 22-year-old Canadian and Kazakh national, was arrested Tuesday in Toronto, authorities said. The high-school dropout showed off exotic cars, Rolex watches and expensive cigars on Facebook and Instagram posts. He and the rest of the accused couldn't be reached for comment.

The other men indicted are believed to be in Russia, which has no extradition treaty with the U.S. The four men face multiple criminal counts, including those related to computer fraud. The Russian agents and Mr. Belan face additional charges, including economic espionage and theft of trade secrets.

The Obama administration in December imposed sanctions on the FSB and Mr. Belan in connection with Russia's alleged election interference.

Earlier this year, Mr. Dokuchaev, one of the alleged spies, was arrested in Russia and accused of treason, according to Russian media reports. Justice Department officials said Wednesday they couldn't confirm the reports.

"The indictment unequivocally shows the attacks on Yahoo were state-sponsored," the company's assistant general counsel, Chris Madsen, said in a blog post. Google, a division of Alphabet Inc., declined to comment.

Among the targeted U.S. officials, authorities said, were people in cybersecurity and diplomacy. Other accounts belonged to employees of U.S. financial services and private-equity firms, a U.S. airline, a French transportation company, Russian journalists, a Russian investment bank and a Swiss bitcoin wallet and banking firm, the indictment said.

Federal prosecutors have been seeking cases against foreign hackers for cybercrimes but have only brought a handful of cases that directly name foreign governments.

Last year, the Justice Department unsealed charges against seven Iranians for alleged attacks on the U.S. financial system, saying one hacker got military credit for the work and another trained Iranian intelligence officials.

In 2014, the FBI blamed North Korea for a hack against Sony Pictures Entertainment that destroyed computer systems and exposed private email messages. North Korea didn't answer the allegation. In response, the U.S. toughened sanctions against North Korea's arms industry.

Yahoo's 2014 data breach was preceded in 2013 by two thefts of data linked to more than one billion accounts.

The two incursions, among the largest-ever reported thefts of personal data, presented a major stumbling block to efforts by Verizon Communications Inc. to acquire Yahoo's core business assets. Yahoo disclosed both breaches months after Verizon made its initial bid on the internet company in July 2016. In February, the companies revised the terms of their deal, with Verizon now paying $4.5 billion, a $350 million price reduction.

Yahoo executives apparently didn't learn of the 2013 breach until December 2015. The company, however, found out quickly of the 2014 incident, but wasn't aware of its full extent until last September. U.S. officials thanked Yahoo for its help Wednesday, suggesting the company waited to disclose the hacks while U.S. agents investigated.

The cyber activity began in 2014 and continued until December 2016, the indictment said.

Of presumed interest to Russian intelligence were the hacked accounts of a diplomat of a country bordering Russia; an investigative reporter for Kommersant Daily, a Russian-language business newspaper; and a public affairs consultant who analyzed Russia's bid for membership to the World Trade Organization, among others, the indictment said.

The men also allegedly targeted a Nevada gaming official, a senior officer of a "major U.S. airline," and a China-based managing director of a U.S. private-equity firm, the indictment said.

Mr. Belan, who has been on the FBI's most-wanted hackers list since 2012, was arrested in Europe in 2013 but escaped to Russia before he could be extradited, the Justice Department said.

Authorities allege he also used the hacks for personal gain: He searched for credit card numbers and gift card information and sent out spam.

--Nathan Hodge and David George-Cosh contributed to this article.

Write to Aruna Viswanatha at Aruna.Viswanatha@wsj.com and Robert McMillan at Robert.Mcmillan@wsj.com

(END) Dow Jones Newswires

March 16, 2017 02:47 ET (06:47 GMT)

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