[UPDATE: New York Times coverage of the report here.]

http://www.nytimes.com/2008/10/02/technology/internet/02skype.html?_r=1&hp=&oref=slogin&pagewanted=print

Nart Villeneuve' investigation reveals troubling security and privacy breaches affecting TOM-Skype��the Chinese version of the popular voice and text chat software Skype. It also raises troubling questions regarding how these practices are related to the Government of China's censorship and surveillance policies.

The questionable security practices of TOM-Online led to the disclosure of millions of records containing personal information regarding mobile phone accounts, SMS messages, and the usage of TOM-Skype. However, this disclosure also confirms that TOM-Skype is censoring and logging text chat messages that contain specific, sensitive keywords and may be engaged in more targeted surveillance.

These findings raise key questions. To what extent do TOM Online and Skype cooperate with the Chinese government in monitoring the communications of activists and dissidents as well as ordinary citizens? On what legal basis is TOM-Skype capturing and logging this volume and detail of personal user data and communication, and who has access to it?

Full Report (mirror)
http://www.infowar-monitor.net/breachingtrust.pdf
http://www.nartv.org/mirror/breachingtrust.pdf

Major Findings

- The full text chat messages of TOM-Skype users, along with Skype users who have communicated with TOM-Skype users, are regularly scanned for sensitive keywords, and if present, the resulting data are uploaded and stored on servers in China.

- These text messages, along with millions of records containing personal information, are stored on insecure publicly-accessible web servers together with the encryption key required to decrypt the data.

- The captured messages contain specific keywords relating to sensitive political topics such as Taiwan independence, the Falun Gong, and political opposition to the Communist Party of China.

- Our analysis suggests that the surveillance is not solely keyword-driven. Many of the captured messages contain words that are too common for extensive logging, suggesting that there may be criteria, such as specific usernames, that determine whether messages are captured by the system.
http://www.nartv.org/2008/10/01/breaching-trust-tom-skype/