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The federal government's role in protecting U.S. citizens and
critical infrastructure from cyber attacks has been the subject of
recent congressional interest. Critical infrastructure commonly
refers to those entities that are so vital that their
incapacitation or destruction would have a debilitating impact on
national security, economic security, or the public health and
safety. This report discusses selected legal issues that frequently
arise in the context of recent legislation to address
vulnerabilities of critical infrastructure to cyber threats,
efforts to protect government networks from cyber threats, and
proposals to facilitate and encourage sharing of cyber threat
information among private sector and government entities. This
report also discusses the degree to which federal law may preempt
state law.
The financial crisis implicated the over-the-counter (OTC)
derivatives market as a major source of systemic risk. A number of
firms used derivatives to construct highly leveraged speculative
positions, which generated enormous losses that threatened to
bankrupt not only the firms themselves but also their creditors and
trading partners. Hundreds of billions of dollars in government
credit were needed to prevent such losses from cascading throughout
the system. AIG was the best-known example, but by no means the
only one. Equally troublesome was the fact that the OTC market
depended on the financial stability of a dozen or so major dealers.
Failure of a dealer would have resulted in the nullification of
trillions of dollars' worth of contracts and would have exposed
derivatives counterparties to sudden risk and loss, exacerbating
the cycle of deleveraging and withholding of credit that
characterized the crisis. During the crisis, all the major dealers
came under stress, and even though derivatives dealing was not
generally the direct source of financial weakness, a collapse of
the $600 trillion OTC derivatives market was imminent absent
federal intervention. The first group of Troubled Asset Relief
Program (TARP) recipients included nearly all the large derivatives
dealers. The Dodd-Frank Act (P.L. 111-203) sought to remake the OTC
market in the image of the regulated futures exchanges. Crucial
reforms include a requirement that swap contracts be cleared
through a central counterparty regulated by one or more federal
agencies. Clearinghouses require traders to put down cash (called
initial margin) at the time they open a contract to cover potential
losses, and require subsequent deposits (called maintenance margin)
to cover actual losses to the position. The intended effect of
margin requirements is to eliminate the possibility that any firm
can build up an uncapitalized exposure so large that default would
have systemic consequences (again, the AIG situation). The size of
a cleared position is limited by the firm's ability to post capital
to cover its losses. That capital protects its trading partners and
the system as a whole. Swap dealers and major swap
participants-firms with substantial derivatives positions-will be
subject to margin and capital requirements above and beyond what
the clearinghouses mandate. Swaps that are cleared will also be
subject to trading on an exchange, or an exchange-like "swap
execution facility," regulated by either the Commodity Futures
Trading Commission (CFTC) or the Securities and Exchange Commission
(SEC), in the case of security-based swaps. All trades will be
reported to data repositories, so that regulators will have
complete information about all derivatives positions. Data on swap
prices and trading volumes will be made public. The Dodd-Frank Act
provides exceptions to the clearing and trading requirements for
commercial end-users, or firms that use derivatives to hedge the
risks of their nonfinancial business operations. Regulators may
also provide exemptions for smaller financial institutions. Even
trades that are exempt from the clearing and exchange-trading
requirements, however, will have to be reported to data
repositories or directly to regulators.
The federal government's role in protecting U.S. citizens and
critical infrastructure from cyberattacks has been the subject of
recent congressional interest. Critical infrastructure commonly
refers to those entities that are so vital that their
incapacitation or destruction would have a debilitating impact on
national security, economic security, or the public health and
safety. This report discusses selected legal issues that frequently
arise in the context of recent legislation to address
vulnerabilities of critical infrastructure to cyber threats,
efforts to protect government networks from cyber threats, and
proposals to facilitate and encourage sharing of cyber threat
information among private sector and government entities. This
report also discusses the degree to which federal law may preempt
state law. It has been argued that, in order to ensure the
continuity of critical infrastructure and the larger economy, a
regulatory framework for selected critical infrastructure should be
created to require a minimum level of security from cyber threats.
On the other hand, others have argued that such regulatory schemes
would not improve cybersecurity while increasing the costs to
businesses, expose businesses to additional liability if they fail
to meet the imposed cybersecurity standards, and increase the risk
that proprietary or confidential business information may be
inappropriately disclosed. In order to protect federal information
networks, the Department of Homeland Security (DHS), in conjunction
with the National Security Agency (NSA), uses a network intrusion
system that monitors all federal agency networks for potential
attacks. Known as EINSTEIN, this system raises significant privacy
implications-a concern acknowledged by DHS, interest groups,
academia, and the general public. DHS has developed a set of
procedures to address these concerns such as minimization of
information collection, training and accountability requirements,
and retention rules. Notwithstanding these steps, there are
concerns that the program may implicate privacy interests protected
under the Fourth Amendment. Although many have argued that there is
a need for federal and state governments, and owners and operators
of the nation's critical infrastructures, to share information on
cyber vulnerabilities and threats, obstacles to information sharing
may exist in current laws protecting electronic communications or
in antitrust law. Private entities that share information may also
be concerned that sharing or receiving such information may lead to
increased civil liability, or that shared information may contain
proprietary or confidential business information that may be used
by competitors or government regulators for unauthorized purposes.
Several bills in the 112th Congress would seek to improve the
nation's cybersecurity, and may raise some or all of the legal
issues mentioned above. For example, H.R. 3523 (Rogers
(Mich.)-Ruppersberger) addresses information sharing between the
intelligence community and the private sector. H.R. 3674 (Lungren)
includes provisions regarding the protection of critical
infrastructure, as well as information sharing. H.R. 4257
(Issa-Cummings) would require all federal agencies to continuously
monitor their computer networks for malicious activity and would
impose additional cybersecurity requirements on all federal
agencies. S. 2102 (Feinstein) seeks to facilitate information
sharing. S. 2105 (Lieberman) includes the information sharing
provisions of S. 2102, as well as provisions relating to the
protection of critical infrastructure and federal government
networks. S. 2151 (McCain) and H.R. 4263 (Bono-Mack) also addresses
information sharing among the private sector and between the
private sector and the government. Many of these bills also include
provisions specifically addressing the preemption of state laws.
Prior to the 2011 National Football League (NFL) lockout,
developments in professional football's labor-management relations
had prompted questions regarding how, when, and in what manner a
new collective bargaining agreement (CBA) might be drafted.
Interest in this matter included, on the part of some observers,
questions about how Congress responded to previous work stoppages
in professional sports. In attempting to address this particular
question, this report examines congressional responses to the 1982
and 1987 work stoppages in the NFL. With the conclusion of the 2011
NFL lockout in July, this work stoppage is also included.
Additionally, this report examines the 1994 Major League Baseball
strike, which is useful considering the extent of congressional
activity surrounding this strike. Compared to the 1994 baseball
strike, the 1982 and 1987 football strikes and the 2011 lockout did
not garner much attention from Congress in terms of legislative
measures and hearings. Three legislative measures were introduced
in response to the 1982 strike; one each was introduced in response
to the 1987 strike and the 2011 lockout. Members introduced or
offered 22 legislative measures and held five hearings that were
related to the baseball strike. With one exception (S.Res. 294,
100th Congress), none of these measures was approved by either
house. Members who introduced, or otherwise supported, legislative
measures offered reasons for promoting congressional intervention.
Their arguments touched on, for example, the economic impact of
work stoppages, the role of baseball's antitrust exemption in
establishing a climate conducive to players' strikes, previous
congressional involvement in professional sports, and a
responsibility to ensure the continuity of football (or baseball).
Disagreeing that congressional intervention was warranted, other
Members offered several reasons why Congress ought not to
intervene. For example, one Member suggested that repealing
baseball's antitrust exemption would alter the balance of power in
professional baseball. Other Members believed that more pressing
matters deserved Congress's attention. At least one Member
suggested that a particular bill, if enacted, would have the effect
of favoring the players over the owners.
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