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This was originally posted at ZDNet’s Between the Lines.

A former Fannie Mae IT contractor has been indicted on charges of planting a virus that would have nuked the mortgage agency’s computers, caused millions of dollars in damages, and even shut down operations. How might this have occurred? The contractor was terminated, but his server privileges were not.

Rajendrasinh Makwana was indicted on Tuesday in the U.S. District Court for Maryland (press report, complaint PDF, and indictment PDF). From early 2006 to Oct. 24, Makwana was a contractor for Fannie Mae. According to the indictment, Makwana allegedly targeted Fannie Mae’s network after he was terminated. The goal was to “cause damage to Fannie Mae’s computer network by entering malicious code that was intended to execute on January 31, 2009.” And given that Fannie Mae–along with Freddie Mac–was nationalized in an effort to stabilize the mortgage market, a malware intrusion could have caused a good bit of havoc.

Makwana worked at Fannie Mae’s data center in Urbana, Md., as a Unix engineer, as a contractor with a firm called OmniTech. He had root access to all Fannie Mae servers.

The tale of the malware bomb plot is a warning shot to all security teams and IT departments. Given the level of layoffs we’ve seen lately, the ranks of disgruntled former employees is likely to grow. Is there any company NOT lopping off a big chunk of its workforce? And some of these workers may even have Makwana’s access privileges and knowledge of the corporate network.

Sophos’ Graham Cluley says:

As belts tighten and the credit crunch continues to hit around the world, more and more companies will be making the decision to make staff redundant. As we’ve written before, a disaffected employee could create havoc inside your organisation so make sure that appropriate security is in place.

Indeed, Makwana allegedly had intended to do some serious damage such as “destroying and altering all of the data on all Fannie Mae servers.” That quote from the indictment puts it mildly. According to the initial complaint against Makwana, the former contractor’s virus “would have caused millions of dollars of damage.” Anyone who logged into the Fannie Mae network on Jan. 31 would have seen a message “Server Graveyard.”

Details of Makwana’s alleged plot surfaced in a complaint that was initially sealed to protect the identity of Fannie Mae. In the complaint, Fannie Mae is referred to as “ABC,” but defined as an outfit that facilitates mortgages. In a sworn statement, FBI agent Jessica Nye outlined the following:

Luckily, the Fannie Mae server scripts were returned to normal before mortgage chaos ensued. But the errors listed in the complaint are clear. The biggest problem: Makwana’s access wasn’t terminated when he was. He had access to Fannie Mae servers longer than he should have.

Here’s a look at the notable excerpts of the complaint. As you can see there were warning signs and mistakes made along the way. Emphasis is mine.

So far so good right? Makwana screwed up, was terminated, and had to turn in his gear and access privileges.

Well, that last part didn’t go so well.

The good news is that Makwana’s access didn’t go on indefinitely. I’ve known more than a few people who could access their former employer’s network for months after they left the company.

However, catching the malware script was really a function of luck.

There was also some good detective work too–the complaint details Makwana’s alleged techniques and script set-up–by the Fannie Mae security team. However, a lot of work could have been avoided if only Makwana’s privileges were terminated when he was.

Data theft and breaches from cybercrime may have cost businesses as much as $1 trillion globally in lost intellectual property and expenditures for repairing the damage last year, according to a new study from McAfee.

McAfee made the projection based on responses to a survey of more than 800 chief information officers in the U.S., United Kingdom, Germany, Japan, China, India, Brazil, and Dubai.

The respondents estimated that they lost data worth a total of $4.6 billion and spent about $600 million cleaning up after breaches, McAfee said.

The report, entitled “Unsecured Economies: Protecting Vital Information” is due to be released Thursday at the World Economic Forum annual meeting in Davos, Switzerland. It also finds that developing countries spend more money on protecting intellectual property than companies in Western countries.

The ongoing recession is only increasing the security risk for corporations, respondents said, with 42 percent reporting that displaced workers were the biggest threat to sensitive information on the network.

There were some other interesting geographical-related results. More than one quarter of the respondents said they avoid storing data in China, and 47 percent of the Chinese respondents said they believed the U.S. poses the biggest security threat to their data.

The global music industry is making progress in clamping down on online piracy by evolving radical new ways of selling tunes, but 95 percent of downloads remain illegal, a report said Friday.

New business models helped the legal online music sector balloon for a sixth straight year in 2008, growing by 25 percent to 3.7 billion dollars (2.8 billion euros) in trade value, it said.

But some 40 billion music files were still illicitly shared last year, according to the International Federation of the Phonographic Industry (IFPI) in its annual report on the state of digital music.

“The music sector is still overshadowed by the huge amount of unlicensed music distributed online,” it said, citing studies in 16 countries showing that only one in 20 downloads are via legal channels.

Cutting pirates’ Internet connections is an increasingly-used option for dealing with persistent offenders, rather than threatening people with fines or other criminal sanctions.

But overall, things are looking up online: digital outlets — as opposed to CDs and other traditional forms of music — now account for some 20 percent of recorded music sales, up from 15 per cent in 2007, said the 30-page report.

Sales of single tracks continues to drive the digital music expansion, and were up 24 percent in 2008 to 1.4 billion sales, while online album sales also grew by 36 percent, according to the IFPI’s Digital Music Report 2009.

New Orleans rapper Lil Wayne’s “Lollipop” was the biggest-selling digital single worldwide last year, with 9.1 million copies sold — a figure 1.8 million bigger than the best-selling single in 2007.

But new methods of selling are exploding, including a a new generation of music subscription services, social networking sites and new licensing channels, led by services like Nokia Comes With Music and MySpace Music.

Partnerships with Internet Service Providers (ISPs) are also opening up as a new sales route, including TDC in Denmark, Neuf Cegetel in France, Sweden’s TeliaSonera and BSkyB in Britain.

“The recorded music industry is reinventing itself and its business models,” said IFPI chairman John Kennedy.

“There is a momentous debate going on about the environment on which our business… depends. Governments are beginning to accept that… doing nothing is not an option if there is to be a future for commercial digital content.”

The music industry body welcomed the way governments were collaborating with Internet providers to curb piracy.

“In 2008 a tipping point was reached, with governments in France and the UK leading the way in looking to ISPs to help bring piracy on their networks under control,” it said.

In particular ISPs are cooperating in cutting Internet access for offenders.

“The momentum for ISP cooperation extends beyond France and the UK. New Zealand will start requiring ISPs to implement a policy of terminating the accounts of repeat infringers in February,” it said.

Authorities in the United States, Italy, Australia, Japan, Hong Kong and South Korea are also thinking of such a move, according to IFPI.

There is also evidence that the digital expansion is having a negative effect on locally-produced music, reducing the number of home-grown artists, who struggle due to easy availability of music from around the world.

In France, album releases by new artists fell by 16 per cent in the first half of 2008, and home-grown music accounted for 10 per cent of albums, compared to 15 per cent in the first half of 2005.

In Spain, just one new local artist featured in the Top 50 albums from January to November 2008, compared to 10 in 2003.

Overall, though, the IFPI report was positive, saying it “shows an industry that has shifted its approach from one based only on unit sales of music to ‘monetising’ access to music across a multitude of channels and platforms