A NEW DIMENSION OF SOCIO-ECONOMIC OFFENCES: E-

MONEY LAUNDERING

Gagandeep Kaur Malhotra*

ABSTRACT

The new millennium era has provided a fertile platform for the very inception of a modish
and independent field of study. Socioeconomics has emerged as a separate field of study in
the late twentieth century. If we probe into the enigma of socio economic offences the root
cause lies in the lust for money. These crimes are always committed by educated, highly
qualified and socially reputed people. The prominent hall mark in socio-economic crimes are
that these offenders pretend this illegitimated earned money as a legitimate money. In the lap
of globalisation and advancement a new paradox has come in sight. It is conglomerate
challenge before our law. On one hand we have set our foot in the world of competition,
Information technology, Cyberspace and e-world (electronic world), however, on the other
hand the rate of socio-economic crimes have been increasing and degrading the quality of life
day by day and, therefore, increasing gap between classes of people. While law could never
have been divorced from other disciplines, the technology-law interface has surely freed
jurisprudence from the clutches of solitude. Technological advancement has necessitated that
legal system adopting to change and embrace technical phenomenon, so that order, harmony
and peace are preserved in the e-world. It has been observed that the banking industry has
become a haven for the growth of this new stream of e-crime. A new dimension of offences
has taken birth in the lap of cyber-world, Electronic crime (e-crime), or Computer crime In
this research paper I have highlighted a new dimension of socio-economic offence: that is
Electronic Money Laundering.

1. INTRODUCTION

Socioeconomics has emerged as a separate field of study in the new millennium era. Socio-
economics is the study of the relationship between economic activities and social activities of
human being. This field of knowledge is often considered multidisciplinary study using
theories and methods from sociology, economics, history, psychology, and many others. In
many cases, however, socio economists focus on the social-legal impact of some sort of
economic changes on society. Such changes might include money laundering, market

1
manipulation and frauds involving a big amount of money.1 Man is a social animal; Social
life of every person starts when he steps out of his home and where there is society there are
economic relations between people and where there are socio economic relations, there are
frauds. In other words, it is known as socio-economic offences. If we probe into the enigma
of socio economic offences the root cause lies in the lust for money. These crimes are always
committed by educated, highly qualified and socially reputed people. The prominent hall
mark in socio-economic crimes are that these offenders pretend this illegitimated earned
money as a legitimate money. In the lap of globalisation and advancement a new paradox has
come in sight. It is conglomerate challenge before our law. On one hand we have set our foot
in the world of competition, Information technology, Cyberspace and e-world (electronic
world), however, on the other hand the rate of socio-economic crimes have been increasing
and degrading the quality of life day by day and, therefore, increasing gap between classes of
people.

The presence of Information and communication Technologies (ICT) in the modern societies
is pervasive and affect all the aspects of economic, social, political and financial aspects of a
human being.2 Companies use information technology and networks for effective
organization in order to implement their business processes and to improve communication
with business partners and consumers. Government and public authorities depend more and
more on technology to improve the quality of public services provided to their citizens, to cut
down on exceeding costs while achieving value for money for services provided, to improve
the efficiency and effectiveness of public organizations, to reduce “red tape” and to align and
better coordinate public administration. Individuals use technology in a wide range of their
everyday lives for their professional (e.g. Teleworking, collaborating, designing and
manufacturing) and personal (e.g. education, Entertainment, communication) lives.3
Electronic crimes are different from traditional crimes, as we know them, mainly with regard
to the location of the offender in relation to the scene of the crime. Individuals now can
commit an illegal act hundreds of miles away from their location, for instance hackers

*Assistant Professor of Law, Rajiv Gandhi National University of Law, The Mall, Punjab, Patiala.
1
“Socioeconomics”, Retrieved from< http://encyclopedia. thefreedictionary. com/Socio-economic > visited
on 7 February 2010.
2
Commerce, financial functions (including banking, stock exchanges), air traffic control, communications,
electric power management and energy distribution, communications, transportation, healthcare services,
education and other critical activities are largely dependent on ICTs.
3
Maria Karyda,“The Socioeconomic Background of Electronic Crime”, University of the Aegean, Greece
Retrieved from< http://: www .igi-global .com/downloads/excerpts/33264.pd>f visited on 12 February 2010.

2
penetrating the computer system of a company in another country. 4 Moreover, detection of
electronic crime is often more difficult, since nothing may by physically missing as, for
example, in cases of information theft or unauthorized access to computers and networks. E-
crimes affect all types of organizations (public, private etc.), as well as individuals,
governments and public authorities with a wide range of consequences. These concerns have
a negative impact on the development of e-business and especially on client-oriented business
functions (Business-to-Consumer). Electronic crime can be understood as a matter of
opportunities, based on the assumption that „crime follows opportunity‟. It is also widely
acknowledged that the variety and volume of opportunities provided by information and
communication technologies for electronic crime are proliferating.5 On the same hand it has
posed a new and grave threat of money laundering. The offence is old but it is committed in a
new sophisticated way.

2. CONCEPTUAL OVERVIEW OF ELECTRONIC MONEY LAUNDERING

In the present scenario information technology has pervasive all the spheres of life. A new
dimension of offences has taken birth in the lap of cyber-world, Electronic crime (e-crime),
or Computer crime.6 Money laundering can be described as a process which is aimed at
legitimising the process of crime. The term has connotations of washing something which is
dirty. A larger portion of the proceeds of crime are spent in an open manner with all the
attendant risks of being caught; then there are tactful criminals who like to hide their wealth
or secrete it away in secure hiding places. The overall concern of many criminals is to make
their proceeds appear legitimate. Legitimacy enabled the criminals to enjoy the fruits of
crime. On the basis of these legitimate enterprises, the criminal families become highly
reputed within a short span of time, because their criminal past generally becomes blurred. 7 A
new turn has come in the commission of money-laundering offence with the dawn of IT

4
S.V. Joga Rao, Law of Cyber Crimes and Information Technology Law, First Edition, Wadhwa and Company,
Nagpur, New Delhi, 2004, p.15.

5
Maria Karyda, Retrieved from http://www.igi-global.com/downloads/excerpts/33264.pdf, visited on 12
February 2010.
6
Cyber Cime means: Criminal activities where a computer or network is the source, tool, target, or place of a
crime and is generally defined as a criminal activity involving an information technology infrastructure.
7
Jyoti Trehan, Crime and Money Laundering: The Indian Perspective, First Edition, Oxford University Press,
New Delhi, 2004, p. 91.

3
revolution. The mode of commission of offence has changed. Keeping in view this diversion
it can be termed as: „Old Crimes in New Bottles‟. However IT has facilitated and contributed
for the commission of money-laundering with the assistance of Internet. Unfortunately this
area is and one of the most ignored by law.
The foetus of Internet in commercial world has retrieved its germination in the lap of
electronic commercial transactions. The reason for making this statement is that it is
commerce which runs like a blood in the veins of financial system of a nation. Internet has
accelerated the growth of commerce that is why it has been accepted by our commercial
world. Earlier the electronic revolution introduced dexterity in our process of commercial
transaction-that is why the term electronic-commerce was popularised. The birth of internet
has revolutionised e-business (electronic commerce). The reason for this revolution is that
internet has made easy to achieve the goal of e-commerce, that is, consumer satisfaction. The
golden thread that bound the entire electronic world is payment mechanism. In the
cyberspace we resort to online payment or e-banking. After piercing the nature of on-line
banking it becomes apparent that on-line banks have become heaven for e-money laundering
and many more crimes.

2.1 E-COMMERCE

E-Commerce has revolutionized business activities globally through the use of information
and digital technology in the new millennium. Digital technology provides effective
communication platform to communicate to the consumers directly or through on-line
marketing. It means conducting business through network technology. E-Commerce means
application of electronics in commerce. „e‟ is a question of technical capability and
commerce is the way in which that capability is applicable.
Electronic Commerce or E-Commerce refers to the paperless exchange of business
information between organisations and individuals.8 Electronic Commerce extends to any
form of buying and selling by consumers and companies over a computer network. Electronic
Commerce is opening up business possibilities and with the outreach of the internet; it is
expected to lead to a paradigm shift in the dynamics of business and banking. 9 The growth of

8
Nandan Kamath, Law Relating to Computers, Internet and E-Commerce, Third Edition, Universal Law
Publishing Co. Pvt. Ltd., New Delhi, 2007.

9
V.P. Shetty, 2007, p. 17.

4
the internet and e-commerce is dramatically changing everyday life, with the world-wide-wed
and e-commerce transforming the world into a digital global village. Customers and users
have become netizens10 and these are the people who expect everything to happen at the click
of the mouse. Electronic Banking, e-shopping, e-brokerage, e-store, e-chatting, e-searching,
e-marketing etc. Are all part of the broader term e-commerce.11 E-commerce is just one
aspect of E-Business. It encompasses three facets of contract of sale, i.e., offer, acceptance
and movement of consideration. The payment of money as one leg of transaction essentially
involves banking.

2.2 Edifice of E-Commercial Transactions: E-Banking

The backbone of every country is the financial sector, comprising banks, stock exchange and
insurance organisations. It is instrumental in implementing and bringing about economic
reforms. Any change in this sector has a sweeping effect on the country. Banks, financial
institutions are service providing organisations operating within a nation or across the world.
These institutions provide services through a network of branches and cater to the needs of
their customer in different areas with personalized service. Banks are not islands. They are an
integral part of the society to which they serve. Banking is almost a daily necessity for a vast
majority of society. The Banking industry is one of the oldest methods of payment in the
world. Banking originated about 4000 years ago in place such as Babylon, Mesopotamia and
Egypt where grain and other valuable commodities were stored and receipts given as proof of
sale on purchase. The emergence of paper currency as a medium of exchange has
revolutionised the banking industry. By 1600 AD use of cheques became widespread and by
mid-1900‟s, banks started using telegraph technology to “wire” money from one location to
other in a matter of seconds.

2.2.1 Indian Banking System

10
The term means all those who work in the Cyber Space Using Computer System, Internet and www.
11
E-commerce is all about covering business transactions executed electronically between parties such as
companies (business-to-business) B-2-B, companies and consumer (business-to-consumer) B-2-C and
(consumer to consumer) C-2-C. E-commerce offers enormous opportunities in every sphere of business. It
allows trade at low costs worldwide and offers enterprises and Banks a chance to enter the global market at the
right time.

5
Banking today has become more complex with different products and services which stems
from reliance on automation and technological change which has shaped it from a manual-
intensive industry into one highly automated and technology dependent.12 Traditional the
manual processing of data applied “pen and ink” as tool and recording data in several ledgers,
books and registers. They dependent on newspaper and other media publicity for reaching
their customers whenever an important message had to be conveyed on a mass scale. Manual
service was cumbersome, slow and tardy. Customers had to wait in serpentine queues before
the counters, extending these services, for their turn to be attended by the bank staff. They
had to fill up multiple forms and other printed stationary needed by the service provider and
had to remain at the bank premises for a considerable long duration to complete their
transaction. Similarly, transaction between sister branches of the same institution and the data
transmission to the head office and other controlling offices were are done conventionally
through manuals.13

The Indian Banking system, over the years, has not been overtly enthusiastic towards
absorption of technical innovations for its operations. In fact, the real impetus was provided
only in the eighties by the comprehensive reports of the successive Rangarajan Committees
set up by the Reserve Bank of India in 1983 and 1989 respectively. However, till about a
decade ago, the banks approach towards technology absorption remained targeted at
streamlining the procedures with the application of computers. The few years have witnessed
phenomenal advancements in computers and technologies and their fusion forming data
communication networks has largely changed bankers strategy towards technology
absorption.14 The internet was developed in the late 1960s in California. It is basically “a
network of networks” that is publically accessible from a computer via a modem over
telephone lines. It is accessible by anyone and because of the geographical area it
encompasses, it presents banks with an existing network where opportunities for operating
and marketing their products abounds, The internet also provides banks with the ability to

12
P.V. Palsokar, “Electronic Banking” in S. B. Verma, S. K. Gupta and M. K. Sharma (edited), E-
Banking and Development of Banks, First Edition, Deep and Deep Publications Pvt. Ltd., New Delhi, 2007, p. 1.
13
N. Subramani, M. Murugesan, D. Anbalagan and V. Ganesan, ‘E’-banking and ‘E’-Commerce –
Emerging Issues in India, Abhijeet Publications, Delhi, Ist edition, 2008, pp. 58-60.
14
R.P. Nainta, Banking System, Frauds and Legal Control, Deep and Deep Publications Pvt. Ltd., New
Delhi, 2005, pp. 158-159.

6
deliver products and deliver to customers at a cost that is lower than any existing method of
delivery. Internet banking (on-line banking)15 is easy to use and is cost effective.
Microsoft CEO Bill Gates said “Banks are dinosaurs and we can bypass them”. Gates
envisioned Microsoft at the centre of a “transformation of the world financial system”, where
banks can be bypassed and consumers will use software, computer and the internet (and
possibly a check-clearing entity) to construct an independent payment system.16
2.2.2 Evolution of E-Banking: Shift from Paper-Banking to E-Banking
The Indian banking industry has not remained totally passive spectator of IT revolution that
has taken place around the world. On the technological front, the banking sector has come of
age only with the advent of real-time online technology. This marked a shift of focus from
book keeping to convenience banking. The Indian banking industry17 is gearing itself for
“Anywhere and Anytime Banking” which is making banking business distance-dependent
and seamless. The concept of banking is also undergoing a broad-based shift from “Total
Branch Automation” to “Total Bank Automation”.18 With the introduction of Information
Technology traditional banking systems has experienced a new metamorphose. The cost per
transaction to the investors and other intermediaries in the market has come down

15
Online banking solutions have many features and capabilities in common, but traditionally also have
some that are application specific. The common features fall broadly into several categories :
Transactional (e.g., performing a financial transaction such as an account to account transfer, paying a bill, wire
transfer... and applications... apply for a loan, new account, etc.) , Electronic bill presentment and payment -
EBPP , Funds transfer between a customer's own checking and savings accounts, or to another customer's
account, Investment purchase or sale , Loan applications and transactions, such as repayments, Non-
transactional (e.g., online statements, check links, cobrowsing, chat).Bank statements , Financial Institution
Administration - Support of multiple users having varying levels of authority , Transaction approval process
,Wire transfer Features commonly unique to Internet banking include, Personal financial management support,
such as importing data into personal accounting software. Some online banking platforms support account
aggregation to allow the customers to monitor all of their accounts in one place whether they are with their main
bank or with other institutions.

16
The Newsweek, June 1994.
17
The instigation of Banks in India began in the eighteenth century with General Bank of India in 1786. Among
the present day banks, State Bank of India holds the title of the oldest. The State Bank was established in 1806
in Calcutta as the Bank of Bengal. The 18th century was the British Era in India. Calcutta being a major
business hub and most active trading port was the obvious choice for sowing the banking seeds in India.
Allahabad Bank was the first completely Indian ownership Bank, which came into existence in 1865. Three
decades later Lahore witnesses Punjab National Bank and then came Bank of India. Both of them were privately
owned. As the number of banks increased, there arose a need for centrally regulating the banking system in
India. This need gave birth to the Reserve Bank of India (RBI) in 1935. “Banks In India”, Retrieved
from<http://www.indiahousing.com/banks-in-india/>, visited on 7 February, 2010.

18
This revolutionary has been introduced with the origin of Information Technology and Internet and e-
commerce. For more details see: A.P. Malhotra, “Electronic Banking” in S.B.Verma, S.K.Gupta and
M.K.Sharma (edited), E-Banking and Development of Banks, First Edition, Deep and Deep Publications Pvt.
Ltd., New Delhi, 2007, p. 33.

7
significantly, besides bringing total transparency in the market operations as a result of the
introduction of automation in the stock market. The reforms introduced in 1990s have
initiated a healthy competition among the banks. As a result, they have started improving
customer services and find technology to be an ideal tool to achieve this objective. The
internet is a goldmine for banks, and with computer sale increasing each year, the market just
keeps getting bigger. Banks that have at least established a web-site on the internet are taking
a step in the right direction. Many non-cash payment systems are already in use. Telephone
banking and bill payment is just a couple of examples. The emergence of e-commerce can
throw open several opportunities for banks to participate in the settlement mechanism and
earn handsome fees.19
2.2.3 Meaning of e-Banking (Online Banking)
The process of doing banking functions deploying the Information technology is a definition
of „Electronic Banking‟. The scope and reach of Electronic Banking, i.e., Electronic Banking
has undergone a complete revolution. This concept is not a new. Fund transfers and
transmission of letters of credit via computer and telephone lines have been an integral part of
interbank and international banking, payment system and currencies market for several
years.20Before the advent of the internet, Electronic banking has existed around two decades,
but it was limited to direct-dial services. The increase in e-commerce has speeded up this
process in recent years due to rise in the use of internet. Most of the banks are also offering
electronic banking services with increasing competition from Internet-enabled, or online,
banks and other financial organisations. Both computer and telephone banking cover the term
electronic banking or e-banking. Using computer banking, a customer‟s computer either dials
directly into his bank‟s computer or gains access to the bank‟s computer over the internet.
Using telephone banking, the customer can control his bank accounts by giving the bank
instructions over the telephone. Both computer and telephone banking involve the use of
passwords, which give access to the customer‟s accounts.
The modern IT-propelled world, all the functions, businesses and Banks are compelled to
undergo a radical change. In this new digital marketplace, Banks and Financial Institutions
are not lagging behind and have started providing services electronically over the internet.
These types of services provided by the banks on internet, called e-banking, lower the

19
P. V. Palsokar, pp. 8-9.
20
The SWIFT: Society for world wide Interbank financial Telecommunication) network is the secure backbone
for these payment systems.

8
transaction cost, adds value to the banking relationship and empower customers. Electronic
Banking is electronic banking or banking using electronic media.21
2.2.4 Modes of payment
With the introduction of internet and the opportunities it has provided, new products and
services are emerging that are set to change the way we look at money and the management
of monetary system. Apart from ATMS with enhanced functionality, there are automated
machines which can process loan applications from customers. Smart cards, which can store
account balances and update the same periodically, can be useful to customers for payment of
various types of utility bills and can function like electronic purses. Internet Banking involves
use of Internet as a medium of communication for accessing and utilizing host of banking and
financial services. Internet banking has predominantly become a mode of e-banking in which
the internet offers itself as a new delivery mechanism for the banks and reaching customers.
The highest benefit is to personalisation of services to the users and to achieve satisfaction of
customers.

2.3 OLD CRIMES IN NEW BOTTLES

E-Commerce and E-Banking has become backbone for flourishing the offence of e-money
laundering. Electronic Commerce encompasses all forms of commercial transactions that
require the processing and transmission of digitised data including text, sound and visual
images. Electronic Commerce is an emerging global reality that has a dramatic impact on all
spheres of life. Today Electronic Commerce is being seen as the single largest business
window across the world.22 No commercial transaction, whether traditional or Electronic
Commerce based, is complete without payment being made by the buyer to the seller. Banks
are inevitably involved in payment systems. Traditional commerce involves payment
mechanisms such as cash, cheques, credit cards, written form formalities and other systems.
These are getting supplemented by alternative payment mechanism in the internet world. The
new methods of payment involve electronic cheques, electronic cash, ATMs and smart

21
A.P. Malhotra, p.21.
22
Jonathan Rosenoer, Cyber Law: The Law of the Internet, 1997, Springer, New York, p.237.

9
cards.23 Electronic banking and e-cash has pushed the limits of the term „money‟ to a new
extreme and challenges. The long held notions of what makes money valuable has changed.
E-cash has brought benefits as well as problems. One major benefit of digital cash is that it
has increased efficiency which has opened new business opportunities. On the other hand, it
has brought problems like taxation and money laundering, instability of foreign exchange
rate, disturbance of money supply and possibility of financial crisis.24 Anonymity, security,
speed, ease of communication, borderless trading and lack of supervision are all facets of the
internet that would facilitate the process of e-money laundering. This new medium has made
the placement of money much easier through internet banking and led through digital cash
where no banks are involved. The process of layering of money and integrating the same as
laundered money could also become easier through the medium of the internet, because
money can pass through a greater number of jurisdictions with relative ease and speed. An
attempt has been made to illustrate with this diagram: The Two Tiers of E-Money
Laundering:

Diagram: Reflection of process for e-money laundering in e-commercial World

23
SET (Secure Electronic transaction) is a protocol that has been developed jointly by Master card and Visa
with the goal providing a secure payment environment for the transmission of credit card data. Secure Sockets
Layers (SSL) and Cryptography Systems are another protocol for safe credit payments.
24
V.P. Shetty, “Electronic Banking” in S.B.Verma, S.K.Gupta and M.K.Sharma (edited), E-Banking and
Development of Banks, Deep and Deep Publications Pvt. Ltd., New Delhi, Ist Edition, 2007, pp.15-17.

10
Today, many banks are internet banks only. Unlike their predecessors, these internet only
banks do not maintain brick and mortar bank branches. Instead, they typically differentiate
themselves by offering better interest rates and online banking features. With cyber cafes and
kiosks springing up in different cities access to the Net is going to be easy. Internet banking (also
referred as e banking) is the latest in this series of technological wonders in the recent past involving
use of Internet for delivery of banking products & services. Internet banking is changing the banking
industry and is having the major effects on banking relationships. Banking is now no longer confined
to the branches were one has to approach the branch in person, to withdraw cash or deposit a cheque
or request a statement of accounts. In true Internet banking, any inquiry or transaction is processed
online without any reference to the branch (anywhere banking) at any time. Providing Internet
banking is increasingly becoming a "need to have" than a "nice to have" service. The net banking,
thus, now is more of a norm rather than an exception in many developed countries due to the fact that
it is the cheapest way of providing banking services.25
Online banking means a system allowing individuals to perform banking activities at home,
via the internet. Some online banks are traditional banks which also offer online banking,
while others are online only and have no physical presence. Online banking through
traditional banks enable customers to perform all routine transactions, such as account
transfers, balance inquiries, bill payments, and stop-payment requests, and some even offer
online loan and credit card applications. Account information can be accessed anytime, day
or night, and can be done from anywhere. A few online banks update information in real-
time, while others do it daily. Once information has been entered, it doesn't need to be re-
entered for similar subsequent checks, and future payments can be scheduled to occur
automatically. Many banks allow for file transfer between their program and popular
accounting software packages, to simplify record keeping.
Despite these advantages, there are a few drawbacks. Intermediaries located in financial
heavens, also known as facilitators, generally play a very important role in money laundered.
The intermediaries are chartered accountant, company formation agents, engineers, lawyers
and other professionals in the field of finance. The internet has done away with the need for
these intermediaries and therefore makes not only e-commerce but also money laundering
most cost-effective and cheaper. In this new electronic medium the rules and regulations are

25
“Internet Banking” Retrieved from <http://www.banknetindia.com/banking/ibkgintro.htm>, visited on 6
February2010.

11
yet to be framed.26 Suspicious monetary transactions which involve a large turnover of
money such as: brokerage, money changers, money transmission agents and the securities
markets is considered nowadays to be one of the principle tools for countering money
laundering. An account holder has to mail in deposits (other than direct deposits), and some
services that traditional banks offer are difficult or impossible for online-only banks to offer,
such as traveller‟s checks and cashier's checks.27
4 HEAVEN FOR MONEY LAUNDERING :RISKS IN ON-LINE BANKING
The risk is the possibly an intruder may be successful in attempting to access your local-area
network via your wide-area network connectivity. There are many possible effects of such an
occurrence. Illegal access to information can result in disclosure, obliteration, or an alteration
of that information. The rapid spread of e-Banking (I-banking) all over the world is its
acceptance as an extremely cost effective delivery channel of banking services as compared
to other existing channels is a major driving force. However, Internet is not an unmixed
blessing to the banking sector. It has also brought threats to e-customers. In general the
financial heavens serve as entry points of money; these are minuscule economies with
minimal or not regulated with unstable jurisdiction. The second category of financial heavens
are those which have developed and have a high turnover. The third category of financial
centres are those which have a thriving national economy, highly developed financial and
banking sectors. The money was used to transfer through wire transfer system,„CHIPS‟ and
„Fedwire System‟.28 Criminals have devised several ways of moving money to „entry point
safe havens‟ in order to circulate it and eventually launder the same. The easiest and crudest
way is using digital cash- the most sophisticated way of moving money. It has flourished the
business of money laundering at international level because instead of piece of paper digital
cash can be easily taken out of the country anywhere in the world. In the international circuit,
for a criminal who is laundering his proceeds of crime, there is an in-built advantage in his
money having passed through several legal jurisdictions.29 This is the inherent hallmark

26
Jyoti Trehan, pp. 174-176.
27
“Online Banking” Retrieved from < http://www.investorwords.com/3420/online_banking.html> Visited on 6 February, 2010.
28
Wire Transfer of money is useful at disguising the origin of dirty money by several layers, corresponding to
particular jurisdictions in terms of each wire transfer. The electronic movement of money is accomplished
through international protocols. Two of these protocols which exist in the United States are the „CHIPS‟ system
and the “FEDWIRE‟ system. Internationally, the „SWIFT‟ protocol is used for financial transactions.
29
Jyoti Trehan, pp. 98-99.

12
embedded in the very nature of internet. No one can master to trace all these jurisdictions
from which these criminal proceeds money has passed.
Unless specifically protected, all data or information transfer over the internet can be
monitored or read by unauthorised persons. There are programs such as „sniffers‟ which can
be set-up at web servers, or other critical locations to collect data like account numbers,
passwords, account and credit cards numbers. Data privacy and confidentiality issues are
relevant even when data is not being transferred over the net. Data residing in web servers or
even banks‟ internal systems are susceptible to corruption if not properly isolated through
firewalls from internet. Identity of a person making a request for a service or a transaction as
a customer is crucial to legal validity of a transaction and is a source of risk to a bank, a
computer connected to internet is identified by its IP (Internet Protocol) address. There are
methods available to masquerade one computer as another, commonly known as „IP
Spoofing‟. Likewise, user identity can be misinterpreted. Hence, authentication control is an
essential security step in any e-banking system.30
With consolidation of banks and technology up gradation of the banking platform, Internet
banking is bound to grow leaps and bounds and will emerge as the most popular Banking
delivery channel, within the next few years. The innovations in Information Technology and
telecommunications had significantly transformed traditional and time consuming banking
into hi-tech banking. However, on the same side of phenomenon there are inherent risk
factors that accompany the introduction o high-tech electronic delivery system in the banking
sector. Reliance on such technology often exacerbates risks such as operational hazards,
reputational and legal risks besides other risks related to business and credit offerings. E-
banking is vulnerable to various attacks and misuses. Unless, proper security systems are in
place banks will always be exposed to these risks. Security fears have served deterrents to
online banking growth. Phishing and Pharming are one of the top five internet security
threats. With online Banking catching up with the customers, the possibility of such threats
increased. Of particular threats there are two most important (a) Phishing and; (b) Pharming.
Phishing is an internet fraud, through which innocent persons are enticed to divulge their
personal information like user identity and passwords, which are later in used by scammer in
unauthorised manner. The most common method of phishing is sending emails claiming to be
from your bank or other financial institutions which are dealing, that already has your
personal information, and you will be asked to confirm the details by clicking a particular

30
N.Subramani, pp. 130-131.

13
link (url) provided in this fake email. This URL will take you to a fake website which will be
similar to the genuine website, and the information provided by the customer in the forms
provided in the fake form website, will be gathered and used for committing fraud in their
accounts, credits or withdraw funds unauthorized from these accounts.
Pharming is another internet fraud, whereby as many users as possible are directed before
they reach the legitimate on-line banking web sites they intend to visit and are lead to
malicious ones. The bogus sites, to which victims are redirected without their knowledge or
consent, will likely look the same as a genuine site. But when users enter their login name
and enter password, the information is captured by criminals.31 Since the advent of internet
banking, the focus has shifted to an overall holistic approach to banking security where
electronic security is at the forefront of public concern. But with this in mind, are the banks
and other financial institutions planning to combat the ever emerging threats that "cyber
criminals" pose? And if so, is the level of protection adequate to provide peace of mind for
their customers? 32 Few fake sites out there that may send you an email saying things
like 'the system crashed and we need your account details to repair the connection to
your account' don‟t trust email like these because the bank will never contact you this
way. There are a number of proxy websites available on the web and sometimes they
can copy the data given by you for your own transaction, and you will come to know
about the theft only when you received your statement of the card, which usually
comes after a month or even later. 33
5 ENIGMA OF LAW IN CONTEXT OF COMMERCIAL WORLD IN
CYBERSPACE

Replacement of the philosophy of class banking with mass banking in the post-nationalisation
period has thrown a lot of challenges to the management on reconciling the social
responsibility with economic viability. A bank fraud is a deliberate act of omission or
commission of any person carried out in the course of banking transaction or in the books of
accounts, resulting in wrongful gain to any person for a temporary period or otherwise; with

31
S. C. Gupta, “Internet Banking-Changing Vistas of Delivery Channel” in S.B.Verma, S.K.Gupta and M. K.
Sharma (edited), E-Banking and Development of Banks, Deep and Deep Publications Pvt. Ltd., New Delhi, Ist
Edition, 2007, pp. 106-107.
32
Retrieved from <http://www.oppapers.com/essays/Managing-Security-Issues-Internet-
Banking/66209, Managing Security Issues of Internet Banking, visited on 30 Oct, 2009.
33
Retrieved from <www.blurtit.com>, “What Are the Disadvantages of Internet Banking?”, visited on
26 October, 2009.

14
or without any monetary loss to the banks. The Banking sector has diversified its business
manifold. This has caused a dent on the credibility of the system in terms of checks, control
and supervision. We all are enjoying the benefits of this „e‟ as pervading in all spheres of life.
Similarly there are big risks for legal jurists and lawyers who have become very hard won
situation.
Under Indian Penal Code the offences relating to banks have been classified as: Cheating34,
Criminal Misappropriation of Property35, Criminal Breach of Trust36, Forgery37, Falsification
of Accounts38, Theft39, Extortion40, Robbery and Dacoity41, Criminal Conspiracy42, Offences
relating to Currency Notes43. Under The Criminal Procedure Code, 1973 there are provisions
like Section 29244 and Section 29345 and The Negotiable Instrument Act 1881.With The
Information Technology Act 2000 (Amended in 2008), Indian Penal Code has been amended
with law of crimes relating to documents. The Act has been amended so as to read electronic
record along with the expression “documents” wherever appearing. A new section 29 A
defines the expression “electronic record” as having the meaning assigned to it in Section 2
(1) (s) of the IT Act 2000.
The Indian Evidence Act 1872 has been amended to incorporate such electronic concepts and
notions as “certifying authorities”, “digital signature”, “electronic record”, and “subscriber”.
Such expressions have been defined with reference to the meaning assigned to them in the IT
Act 2000. The Bankers Books Evidence Act 1891 has been amended to give legal sanctity for
books of account maintained in the electronic form by the banks. The Information
Technology Act 2000 and as amended by 2009 Act does not specifically provide prevention
of these on-line frauds in banks. In the event of an offence committed on the internet, which
country has jurisdiction to take the cognizance of offence is a big issue? Since the internet is
a borderless world, the consensus is now veering toward the view that the country where the
server is located is the one which should exercise jurisdiction to investigate and take further
follow-up action in relation to a crime. Law enforcement is hampered because most of the

34
Section 415
35
Section 403
36
Section 405
37
Section 463
38
Section 477 A
39
Section 378
40
Section 383
41
Section 390 & 391
42
Section 120-A
43
Section 489A-489E
44
Evidence of officers of the Mint
45
Reports of certain government scientific experts (Amended).

15
countries have no laws to deal with the electronic crimes. Mens-rea is one of the pre-requisite
of this offence because money cannot be laundered by an illiterate and uneducated person.
Since one is dealing in the virtual world it is very difficult to prove criminal intention through
electronic medium.

In India Improper Complaint Resolution Mechanism the branches offering internet

banking facility are not well equipped to solve the internet banking problem.
Following is the copy of complaint filed on the website of Indian consumer
complaints forum related to internet banking in which the branch office clearly
refused that “nobody is here to solve this internet banking problem.” 46

STATE BANK OF INDIA

POSTED: 2009-08-09 BY RAM KARAN YADAV

PROBLEM IN INTERNET BANKING

SIR,
I RAM KARAN YADAV SBI AIR FORCE ACADEMY BRANCH A/C NO
30707982796. TRANSFERRED TWEL THOUSAND (12000) TO SBH A/C NO
52074336336 OF MITHLESH KUMAR. .12000/- HAS BEEN DEDUCTED FROM
MY ACCOUNT BUT IT HAS NOT BEEN CREDITED TO MITHLESH KUMAR. I
Have made this transaction on 30 July 09. I contacted branch no body is there to solve
this problem. Branch Manager tells that no body is here to solve this internet banking
problem. Sir you tell me what I should do to get my money back. My transaction
details are below.
SIR PLEASE CANCEL THIS TRANSACTIO N AND CREDIT TO MY ACCOUNT.

Ref. No.IZ00182453.Amt -12000/-

RAM KARAN YADAV

SBI A/ C NO 30707982796

“Problem in Internet banking” Retrieved from <http:// www.

consumercomplaints.in/?search=Problem+in+Internet+banking>, State Bank of India, visited on 30 Oct,
2009.

16
 6. CONCLUSION

Electronic Money Laundering is a very recent trend emerged as a new stream of soci o-
economic offences. The Information and Communication technology has given a fertile
ground to grow these crimes. While law could never have been divorced from other
disciplines, the technology-law interface has surely freed jurisprudence from the clutches of
solitude. Technological advancement has necessitated that legal system adopting to change
and embrace technical phenomenon, so that order, harmony and peace are preserved in the e -
world. It has been observed that the banking industry has become a haven for the growth of
this new stream of e-crime. The banking industry has been a target for crime since the
beginning of it' s time. The scope and reach of Electronic Banking, i.e., Electronic Banking
has undergone a complete revolution. Bank robberies were being planned and executed since
banks were first in operation. In more recent years, criminals have found new ways to access
other people‟s funds through obtaining account information through the e-mails and looking
through individual's rubbish for scraps that have been discarded which could contain vital
information that could be used as a means of identification and authentication. We all are
enjoying the benefits of this „e‟ as pervading in all spheres of life. And it becomes a need of
hour to probe into this new e-crime before the movement it becomes a dragon in world of e-
crimes. Legal jurists and lawyers always provide strong support and to overcome these hard
nuts to crack. Therefore, this stream of crime needs attention to be tackled.

17