Crimson Palace: Chinese Hackers Steal Military Secrets Over 2 Years

Sophos uncovers “Operation Crimson Palace, a long-term cyberespionage effort targeting a Southeast Asian government. Learn how attackers used DLL sideloading and VMware exploits to steal sensitive military, economic, and South China Sea data. Discover how Southeast Asia can defend against future cyberattacks.

Cybersecurity firm Sophos has shared details of a large-scale espionage campaign dubbed “Crimson Palace.” This Chinese state-sponsored effort targeted a government agency in Southeast Asia for nearly two years, through tactics like DLL sideloading and VMware exploitation.

As per Sophos MDR’s human-led threat-hunting service, multiple Chinese state-sponsored actors have been active since early 2022, and despite a few weeks of dormancy, intrusion activity continues targeting the organization, which Sophos categorizes as “mixed estate.”

Sophos initially discovered activity in March 2022 with the detection of NUPAKAGE malware, attributed to Earth Preta and again in December 2022, intrusion activity was discovered using DLL-stitching to deploy malicious backdoors on domain controllers.

During the investigation, Sophos researchers found three distinct clusters of activity named Cluster Alpha, Cluster Bravo, and Cluster Charlie, targeting the same organization. These clusters overlap with multiple Chinese nation-state groups, including Worok, the APT41 subgroup Earth Longzhi, BackdoorDiplomacy, REF5961, TA428 and a relatively new threat group, Unfading Sea Haze that was reported in May 2024 to be carrying out extensive cyberattacks against military targets in the South China Sea.

Cluster Alpha focused on sideloading malware and establishing persistent C2 channels, while Cluster Bravo focused on using valid accounts to spread laterally. Cluster Charlie prioritized access management and aimed to exfiltrate sensitive information for espionage purposes.

These clusters used a mix of custom malware and publicly available tools to gather sensitive political, economic, and military information. These include CCoreDoor, PocoProxy, an updated variant of Cobalt Strike, PowHeartBeat backdoor, EAGERBEE malware, NUPAKAGE, Merlin C2 Agent, PhantomNet backdoor, RUDEBIRD malware, and an LSASS logon credential interceptor.

“Sophos MDR has observed the actors attempting to collect documents with file names that indicate they are of intelligence value, including military documents related to strategies in the South China Sea.”

Sophos

Sophos believes the campaign’s primary aim is to maintain cyberespionage access for safeguarding Chinese state interests, including accessing critical IT systems, performing reconnaissance, collecting sensitive information, and deploying malware implants for command-and-control communications.

The campaign as per Sophos’ blog post, also included over 15 distinct DLL sideloading scenarios, most of which abused Windows Services, legitimate Microsoft binaries, and AV vendor software.

****Threat Actors Collaborating Worldwide****

This marks the first instance where Chinese threat groups are actively collaborating to target an entity, each with its own working hours and scheduling activities, directed by a central authority.

Last month, cybersecurity researchers at Check Point reported that several Iranian state-sponsored hacker groups are teaming up for large-scale attacks. Similarly, a report from Flashpoint last month highlighted that Russian state-sponsored hacker groups are changing tactics. They are now partnering up and increasingly relying on malicious paid tools instead of the custom-made tools they previously used.

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