Anda di halaman 1dari 49

1

Borivali Education Society


Matrushri Pushpaben Vinubhai Valia College of Commerce
M. K. School Complex, Factory Land, Borivali (w), Mumbai 400092.

A PROJECT
ON

A STUDY ON FRAUD IN CYBER CRIME


(Special reference to Banking Sector and the problem faced)

IN THE SUBJECT OF ADVANCED AUDITING


SUBMITTED TO
UNIVERSITY OF MUMBAI,
FOR SEMSTER III OF
MASTER OD COMMERCE (ACCOUNTANCY)
BY
BHAVYA P. SAVLA
ROLL NO: 317
UNDER THE GUIDANCE OF
ASST. PROF. MEGHA YADAV

YEAR 2016 - 17

DECLARETION BY STUDENT

MR. BHAVYA P. SAVLA The student of M.com Part-II (2016 - 17) Roll No:317 hereby
declare that the project for the strategic management titled.

A STUDY ON FRAUD IN CYBER CRIME


(Special reference to Banking Sector and the problems faced)
Submitted by me for semester-III during the academic year 2016-17 is based on actual
work carried out by me under the guidance and supervision of Asst. Prof. Megha Yadav.
I further stated that this work is original and not submitted anywhere else for the
examination.

Signature of Student.

EVALUATION CERTIFICATE
This is to certify that the undersigned have assessed and evaluated the project

A STUDY ON FRAUD IN CYBER CRIME


(Special reference to Banking Sector and the problems faced)

Submitted by Bhavya P. Savla Student of M.Com part II. This project is original and best of
our knowledge and has been accepted for internal assessment.

Asst. Prof. Megha Yadav


Internal Examiner

Prof. V. Manikandan
External Examiner

I/C PRINCIPAL

ACKNOWLEDGEMENT

It given me immense pleasure to present this project while I taking this opportunity to thank
all of them who helped me to prepare this project and timely guidance received which help
me greatly in the competition of the project.

I would acknowledge my deep sense of gratitude to Asst. Prof. Megha Yadav. For his kind
co-operation in this project at all stages. Her constant support, encouragement and guidance
without which the successful completion of this project would have been impossible.

I would like to thanks our respected principle, librarians and other teaching and non- teaching
staff for their corporation in this project.

Last but not least I would also like to thanks all our friends for their suggestions and valuable
help.

Once again I would like to thanks all those people who have helped me to complete this
project on time.

INDEX

SR.
NO.
1.

CHAPTER NAME
A STUDY ON FRAUD IN CYBER CRIME
1.1 Introduction
1.2 Cyber Crime in India
1.3 Crime Statistics
1.4 Changing face of Crime
1.5 Cyberspace

PAGE
NO.
6 - 11

2.

OVERVIEW OF A STUDY ON FRAUD IN CYBER


CRIME
Types of Cyber Crime
Other Types of Cyber Crime
Classification of Cyber Crime
Reasons for Cyber Crime
Cyber Criminals
Mode & Manner of Committing Cyber Crime
Banking Sector
Cyber Crime in Banking Sector

12 42

3.

CASE STUDY

43 46

4.

CONCLUSION

47 48

5.

BIBLIOGRAPHY

49

CHAPTER 1: A STUDY ON FRAUD IN CYBER CRIME


1.1 INTRODUCTION
The usage of internet services in India is growing rapidly. It has given rise to new
opportunities in every field we can think of be it entertainment, business, sports or
education.

There are many pros and cons of some new types of technology which are been
invented or discovered. Similarly the new & profound technology i.e. using of INTERNET
Service, has also got some pros & cons. These cons are named CYBER CRIME, the major
disadvantages, illegal activity committed on the internet by certain individuals because of
certain loop-holes. The internet, along with its advantages, has also exposed us to security
risks that come with connecting to a large network. Computers today are being misused for
illegal activities like e-mail espionage, credit card fraud, spams, and software piracy and so
on, which invade our privacy and offend our senses. Criminal activities in the cyberspace are
on the rise.
Computer crimes are criminal activities, which involve the use of information
technology to gain an illegal or an unauthorized access to a computer system with intent of
damaging, deleting or altering computer data. Computer crimes also include the activities
such as electronic frauds, misuse of devices, identity theft and data as well as system
interference. Computer crimes may not necessarily involve damage to physical property.
They rather include the manipulation of confidential data and critical information. Computer
crimes involve activities of software theft, wherein the privacy of the users is hampered.

These criminal activities involve the breach of human and information privacy, as also the
theft and illegal alteration of system critical information. The different types of computer
crimes have necessitated the introduction and use of newer and more effective security
measures.
In recent years, the growth and penetration of internet across Asia Pacific has been
phenomenal. Today, a large number of rural areas in India and a couple of other nations in the
region have increasing access to the internetparticularly broadband. The challenges of
information security have also grown manifold. This widespread nature of cybercrime is
beginning to show negative impact on the economic growth opportunities in each of the
countries.
It is becoming imperative for organizations to take both preventive and corrective
actions if their systems are to be protected from any kind of compromise by external
malicious elements. According to the latest statistics, more than a fifth of the malicious
activities in the world originate from the Asia Pacific region. The malicious attacks included
denial-of-service attacks, spam, and phishing and bot attacks. Overall, spam made up 69% of
all monitored e-mail traffic in the Asia Pacific region. As per the National Crime Records
Bureau statistics, there has been a 255% increase in cybercrime in India alone. And mind you,
these are just the reported cases.
In view of this, various governmental and non-governmental agencies are working
towards reducing cybercrime activities.
Computer crime, cybercrime, e-crime, hi-tech crime or electronic crime generally
refers to criminal activity where a computer or network is the source, tool, target, or place of
a crime. These categories are not exclusive and many activities can be characterized as falling
in one or more category. Additionally, although the terms computer crime and cybercrime are
more properly restricted to describing criminal activity in which the computer or network is a
necessary part of the crime, these terms are also sometimes used to include traditional crimes,
such as fraud, theft, blackmail, forgery, and embezzlement, in which computers or networks
are used. As the use of computers has grown, computer crime has become more important.
Computer crime can broadly be defined as criminal activity involving an information
technology infrastructure, including illegal access (unauthorized access), illegal interception

(by technical means of non-public transmissions of computer data to, from or within a
computer system), data interference (unauthorized damaging, deletion, deterioration,
alteration or suppression of computer data), systems interference (interfering with the
functioning of a computer system by inputting, transmitting, damaging, deleting,
deteriorating, altering or suppressing computer data), misuse of devices, forgery (ID theft),
and electronic fraud (Taylor, 1999)
In 2002 the newly formed U.S. Internet Crime Complaint Center reported that more
than $54 million dollars had been lost through a variety of fraud schemes; this represented a
threefold increase over estimated losses of $17 million in 2001. The annual losses grew in
subsequent years, reaching $125 million in 2003, about $200 million in 2006 and close to
$250 million in 2008.

1.2 CYBERCRIMES IN INDIA


As India becomes the fourth highest number of Internet users in the world,
cybercrimes in India has also increased 50 percent in 2007 over the previous year. According
to the Information Technology (IT) Act, the majority of offenders were under 30 years of age.
Around 46 percent of cybercrimes were related to incidents of cyber pornography,
followed by hacking. According to recent published 'Crime in 2007 report', published by the
National Crime Record Bureau (NCRB), in over 60 percent of these cases, offenders were
between 18 and 30. These cyber-crimes are punishable under two categories; the IT Act 2000
and the Indian Penal Code (IPC). According to the report, 217 cases of cyber-crime were
registered under the IT Act in 2007, which is an increase of 50 percent from the previous
year. Under the IPC section, 339 cases were recorded in 2007 compared to 311 cases in 2006.
Out of 35 mega cities, 17 cities have reported around 300 cases of cyber-crimes under both
categories that is an increase of 32.6 percent in a year. The report also shows that cybercrime
is not only limited to metro cities but it also moved to small cities like Bhopal. According to
the report, Bhopal, the capital of Madhya Pradesh has reported the highest incidence of
cybercrimes in the country.
In order to tackle with cybercrime, Delhi Police have trained 100 of its officers in
handling cybercrime and placed them in its Economic Offences Wing. These officers were
trained for six weeks in computer hardware and software, computer networks comprising

data communication networks, network protocols, wireless networks and network security.
Faculty at Guru Gobind Singh Indraprastha University (GGSIPU) were the trainers.

1.3 CRIME STATISTICS


As per the National Crime Records Bureau statistics, during the year 2005, 179 cases
were registered under the IT Act as compared to 68 cases during the previous year, thereby
reporting a significant increase of 163.2% in 2005 over 2004. During 2005, a total of 302
cases were registered under IPC sections as compared to 279 such cases during 2004, thereby
reporting an increase of 8.2% in 2005 over 2004. NCRB is yet to release the statistics for
2006. In 2006, 206 complaints were received in comparison with only 58 in 2005, a 255%
increase in the total number of complaints received in the Cyber Cell/EOW over the last year.
In terms of cases registered and investigated in 2006 (up to 22.12.06), a total of 17 cases,
where the computer was the victim, a tool or a repository of evidence, have been registered in
the Cyber Cell/EOW as compared to 12 cases registered in 2005. And mind you, these are
just the reported cases.
While the number of cybercrime instances has been constantly growing over the last
few years, the past year and a half, in particular, has seen a rapid spurt in the pace of
cybercrime activities. Cyber lawyers, Pavan Duggal, advocate with the Supreme Court of
India and Karnika Seth, partner, Seth Associates, Advocates and Legal Consultants, testify to
this, pointing out that they have seen a jump in the number of cybercrime cases that they've
been handling in the last one year. One also should remember that the term 'Cyber Crime'
should be applied to all offences committed with the use of 'Electronic Documents'. Hence,
cybercrimes must grow at the same rate as the use of the Internet, mobile phone, ATM, credit
cards

or

perhaps

even

faster.

"With the little offences came the larger ones involving huge money, and one has seen this
sudden jump from smaller crimes to financial crimes in the last one year"
According to Captain Raghu Raman, CEO, Mahindra Special Services Group (SSG), the
contributing factors are high volume of data processing, rapid growth and major migration
into the online space, especially of financial institutions and their customer transactions.
However, actual numbers continue to include, considering the fact that a majority of

10

the cases go unreported. Most victims, especially the corporate, continue to downplay on
account of the fear of negative publicity thereby failing to give a correct picture of the
cybercrime scene in the country. According to Cyber law expert Na Vijayashankar (popularly
known as Naavi); it is difficult to measure the growth of Cyber Crimes by any statistics, the
reason being that a majority of cybercrimes don't get reported. "If we, therefore, focus on the
number of cases registered or number of convictions achieved, we only get diverted from real
facts," he adds. Duggal points out to the results of a survey he conducted in early 2006 on the
extent of under-reporting. For every 500 instances of cybercrimes that take place in India,
only fifty are reported and out of that fifty, only one is registered as an FIR or criminal case.
So, the ratio effectively is 1:500 and this, he points out, are conservative estimates. Giving an
insight into the reasons for low reporting, Nandkumar Sarvade, director, Cyber Security and
Compliance at Nasscom, points out that very often, people are not aware whether an incident
is a cybercrime; there is also lack of awareness on where to lodge a complaint or whether the
police will be able to understand. "Added to this is the fear of losing business and hence,
many cases don't come to light," he adds.

1.4 CHANGING FACE OF CRIME


The last year has seen a quantum jump not only in the quantity and quality but also
the very nature of cybercrime activities. According to Naavi, a perceptible trend being
observed is that cybercrimes are moving from 'Personal Victimization' to 'Economic
Offences'. SD Mishra, ACP, IPR and Cyber Cell, Economic Offences Wing, Delhi Police
concurs that the cases that are now coming up are more related to financial frauds. As
opposed to obscenity, pornography, malicious emails that were more prevalent in the past,
now credit card frauds, phishing attacks, online share trading, etc. are becoming more
widespread. As Seth points out, initially, when the Internet boom began, certain crimes were
noticeable and cyber stalking was one of the first ones. "However, with the little offences
came the larger ones involving huge money and one has seen this sudden jump from smaller
crimes to financial crimes in the last one year," she adds.

1.5 CYBERSPACE
As the cases of cybercrime grow; there is a growing need to prevent them. Cyberspace
belongs to everyone. There should be electronic surveillance which means investigators
tracking down hackers often want to monitor a cracker as he breaks into a victim's computer

11

system. The two basic laws governing real-time electronic surveillance in other criminal
investigations also apply in this context, search warrants which means that search warrants
may be obtained to gain access to the premises where the cracker is believed to have evidence
of the crime. Such evidence would include the computer used to commit the crime, as well as
the software used to gain unauthorized access and other evidence of the crime.
Researchers must explore the problems in greater detail to learn the origins, methods,
and motivations of this growing criminal group. Decision-makers in business, government,
and law enforcement must react to this emerging body of knowledge. They must develop
policies, methods, and regulations to detect incursions, investigate and prosecute the
perpetrators, and prevent future crimes. In addition, Police Departments should immediately
take steps to protect their own information systems from intrusions (Any entry into an area
not previously occupied).
Internet provides anonymity: This is one of the reasons why criminals try to get away
easily when caught and also give them a chance to commit the crime again. Therefore, we
users should be careful. We should not disclose any personal information on the internet or
use credit cards and if we find anything suspicious in e-mails or if the system is hacked, it
should be immediately reported to the Police officials who investigate cyber-crimes rather
than trying to fix the problem by ourselves.
Computer crime is a multi-billion dollar problem. Law enforcement must seek ways
to keep the drawbacks from overshadowing the great promise of the computer age.
Cybercrime is a menace that has to be tackled effectively not only by the official but also by
the users by co-operating with the law. The founding fathers of internet wanted it to be a boon
to the whole world and it is upon us to keep this tool of modernization as a boon and not
make it a bane to the society.

CHAPTER 2: OVERVIWE OF A STUDY ON FRAUD IN CYBER CRIME

12

TYPES OF CYBER CRIME


1. Theft of Telecommunications Services
The "phone phreakers" of three decades ago set a precedent for what has become a
major criminal industry. By gaining access to an organizations telephone switchboard (PBX)
individuals or criminal organizations can obtain access to dial-in/dial-out circuits and then
make their own calls or sell call time to third parties (Gold 1999). Offenders may gain access
to the switchboard by impersonating a technician, by fraudulently obtaining an employee's
access code, or by using software available on the internet. Some sophisticated offenders loop
between PBX systems to evade detection. Additional forms of service theft include capturing
"calling card" details and on-selling calls charged to the calling card account, and
counterfeiting or illicit reprogramming of stored value telephone cards.
It has been suggested that as long ago as 1990, security failures at one major
telecommunications carrier cost approximately 290 million, and that more recently, up to
5% of total industry turnover has been lost to fraud (Schieck 1995: 2-5). Costs to individual
subscribers can also be significant in one case; computer hackers in the United States illegally
obtained access to Scotland Yard's telephone network and made 620,000 worth of
international calls for which Scotland Yard was responsible (Tendler and Nuttall 1996).

2. Communications in Furtherance of Criminal Conspiracies


Just as legitimate organizations in the private and public sectors rely upon information
systems for communications and record keeping, so too are the activities of criminal
organizations enhanced by technology.
There is evidence of telecommunications equipment being used to facilitate organized
drug trafficking, gambling, prostitution, money laundering, child pornography and trade in
weapons (in those jurisdictions where such activities are illegal). The use of encryption
technology may place criminal communications beyond the reach of law enforcement.
The use of computer networks to produce and distribute child pornography has
become the subject of increasing attention. Today, these materials can be imported across
national borders at the speed of light. The more overt manifestations of internet child
pornography entail a modest degree of organization, as required by the infrastructure of IRC
and WWW, but the activity appears largely confined to individuals.

13

By contrast, some of the less publicly visible traffic in child pornography activity
appears to entail a greater degree of organization. Although knowledge is confined to that
conduct which has been the target of successful police investigation, there appear to have
been a number of networks which extend cross-nationally, use sophisticated technologies of
concealment, and entail a significant degree of coordination.
Illustrative of such activity was the Wonderland Club, an international network with
members in at least 14 nations ranging from Europe, to North America, to Australia. Access
to the group was password protected, and content was encrypted. Police investigation of the
activity, codenamed "Operation Cathedral" resulted in approximately 100 arrests around the
world, and the seizure of over 100,000 images in September, 1998.

3. Telecommunications Piracy
Digital technology permits perfect reproduction and easy dissemination of print,
graphics, sound, and multimedia combinations. The temptation to reproduce copyrighted
material for personal use, for sale at a lower price, or indeed, for free distribution, has proven
irresistible to many.
This has caused considerable concern to owners of copyrighted material. Each year, it
has been estimated that losses of between US$15 and US$17 billion are sustained by industry
by reason of copyright infringement (United States, Information Infrastructure Task Force
1995, 131).
The Software Publishers Association has estimated that $7.4 billion worth of software
was lost to piracy in 1993 with $2 billion of that being stolen from the Internet (Meyer and
Underwood 1994).
Ryan (1998) puts the cost of foreign piracy to American industry at more than $10
billion in 1996, including $1.8 billion in the film industry, $1.2 billion in music, $3.8 billion
in business application software, and $690 million in book publishing.
According to the Straits Times (8/11/99) A copy of the most recent James Bond Film
The World is Not Enough, was available free on the internet before its official release.
When creators of a work, in whatever medium, are unable to profit from their
creations, there can be a chilling effect on creative effort generally, in addition to financial
loss.

14

4. Electronic Money Laundering and Tax Evasion


For some time now, electronic funds transfers have assisted in concealing and in
moving the proceeds of crime. Emerging technologies will greatly assist in concealing the
origin of ill-gotten gains. Legitimately derived income may also be more easily concealed
from taxation authorities. Large financial institutions will no longer be the only ones with the
ability to achieve electronic funds transfers transiting numerous jurisdictions at the speed of
light. The development of informal banking institutions and parallel banking systems may
permit central bank supervision to be bypassed, but can also facilitate the evasion of cash
transaction reporting requirements in those nations which have them. Traditional
underground banks, which have flourished in Asian countries for centuries, will enjoy even
greater capacity through the use of telecommunications.
With the emergence and proliferation of various technologies of electronic commerce,
one can easily envisage how traditional countermeasures against money laundering and tax
evasion may soon be of limited value. I may soon be able to sell you a quantity of heroin, in
return for an untraceable transfer of stored value to my "smart-card", which I then download
anonymously to my account in a financial institution situated in an overseas jurisdiction
which protects the privacy of banking clients. I can discreetly draw upon these funds as and
when I may require, downloading them back to my stored value card (Wahlert 1996).

5. Electronic Vandalism, Terrorism and Extortion


As never before, western industrial society is dependent upon complex data
processing and telecommunications systems. Damage to, or interference with, any of these
systems can lead to catastrophic consequences. Whether motivated by curiosity or
vindictiveness electronic intruders cause inconvenience at best, and have the potential for
inflicting massive harm While this potential has yet to be realised, a number of individuals
and protest groups have hacked the official web pages of various governmental and
commercial organizations for e.g.:(Rathmell 1997). http://www.2600.com/hacked_pages/
(visited 4 January 2000). This may also operate in reverse: early in 1999 an organized
hacking incident was apparently directed at a server which hosted the Internet domain for
East Timor, which at the time was seeking its independence from Indonesia (Creed 1999).
Defence planners around the world are investing substantially in information warfare
- means of disrupting the information technology infrastructure of defence systems (Stix

15

1995). Attempts were made to disrupt the computer systems of the Sri Lankan Government
(Associated Press 1998), and of the North Atlantic Treaty Organization during the 1999
bombing of Belgrade (BBC 1999). One case, which illustrates the transnational reach of
extortionists, involved a number of German hackers who compromised the system of an
Internet service provider in South Florida, disabling eight of the ISPs ten servers. The
offenders obtained personal information and credit card details of 10,000 subscribers, and,
communicating via electronic mail through one of the compromised accounts, demanded that
US$30,000 be delivered to a mail drop in Germany. Co-operation between US and German
authorities resulted in the arrest of the extortionists (Bauer 1998).
More recently, an extortionist in Eastern Europe obtained the credit card details of
customers of a North American based on-line music retailer, and published some on the
Internet when the retailer refused to comply with his demands (Markoff 2000).

6. Sales and Investment Fraud


As electronic commerce becomes more prevalent, the application of digital
technology to fraudulent endeavours will be that much greater. The use of the telephone for
fraudulent sales pitches, deceptive charitable solicitations, or bogus investment overtures is
increasingly common. Cyberspace now abounds with a wide variety of investment
opportunities, from traditional securities such as stocks and bonds, to more exotic
opportunities such as coconut farming, the sale and leaseback of automatic teller machines,
and worldwide telephone lotteries (Cella and Stark 1997 837-844). Indeed, the digital age has
been accompanied by unprecedented opportunities for misinformation. Fraudsters now enjoy
direct access to millions of prospective victims around the world, instantaneously and at
minimal cost.
Classic pyramid schemes and "Exciting, Low-Risk Investment Opportunities" are not
uncommon. The technology of the World Wide Web is ideally suited to investment
solicitations. In the words of two SEC staff "At very little cost, and from the privacy of a
basement office or living room, the fraudster can produce a home page that looks better and
more sophisticated than that of a Fortune 500 company" (Cella and Stark 1997, 822).

7. Illegal Interception of Telecommunications

16

Developments in telecommunications provide new opportunities for electronic


eavesdropping. From activities as time-honoured as surveillance of an unfaithful spouse, to
the newest forms of political and industrial espionage, telecommunications interception has
increasing applications. Here again, technological developments create new vulnerabilities.
The electromagnetic signals emitted by a computer may themselves be intercepted. Cables
may act as broadcast antennas. Existing law does not prevent the remote monitoring of
computer radiation.
It has been reported that the notorious American hacker Kevin Poulsen was able to
gain access to law enforcement and national security wiretap data prior to his arrest in 1991
(Littman 1997). In 1995, hackers employed by a criminal organization attacked the
communications system of the Amsterdam Police. The hackers succeeded in gaining police
operational intelligence, and in disrupting police communications (Rathmell 1997).

8. Electronic Funds Transfer Fraud


Electronic funds transfer systems have begun to proliferate, and so has the risk that
such transactions may be intercepted and diverted. Valid credit card numbers can be
intercepted electronically, as well as physically; the digital information stored on a card can
be counterfeited.
Of course, we don't need Willie Sutton to remind us that banks are where they keep
the money. In 1994, a Russian hacker Vladimir Levin, operating from St Petersburg, accessed
the computers of Citibank's central wire transfer department, and transferred funds from large
corporate accounts to other accounts which had been opened by his accomplices in The
United States, the Netherlands, Finland, Germany, and Israel. Officials from one of the
corporate victims, located in Argentina, notified the bank, and the suspect accounts, located in
San Francisco, were frozen. The accomplice was arrested. Another accomplice was caught
attempting to withdraw funds from an account in Rotterdam. Although Russian law precluded
Levin's extradition, he was arrested during a visit to the United States and subsequently
imprisoned. (Denning 1999, 55).

OTHER TYPES OF CYBER CRIME

17

1 HACKING
Hacking in simple terms means an illegal intrusion into a computer system and/or
network. There is an equivalent term to hacking i.e. cracking, but from Indian Laws
perspective there is no difference between the term hacking and cracking. Every act
committed towards breaking into a computer and/or network is hacking. Hackers write or use
ready-made computer programs to attack the target computer. They possess the desire to
destruct and they get the kick out of such destruction. Some hackers hack for personal
monetary gains, such as to stealing the credit card information, transferring money from
various bank accounts to their own account followed by withdrawal of money. They extort
money from some corporate giant threatening him to publish the stolen information which is
critical in nature.

2 Child Pornography
The Internet is being highly used by its abusers to reach and abuse children sexually,
worldwide. The internet is very fast becoming a household commodity in India. Its explosion
has made the children a viable victim to the cybercrime. As more homes have access to
internet, more children would be using the internet and more are the chances of falling victim
to the aggression of pedophiles.
The easy access to the pornographic contents readily and freely available over the
internet lower the inhibitions of the children. Pedophiles lure the children by distributing
pornographic material, and then they try to meet them for sex or to take their nude
photographs including their engagement in sexual positions. Sometimes Pedophiles contact
children in the chat rooms posing as teenagers or a child of similar age, then they start
becoming friendlier with them and win their confidence. Then slowly pedophiles start sexual
chat to help children shed their inhibitions about sex and then call them out for personal

18

interaction. Then starts actual exploitation of the children by offering them some money or
falsely promising them good opportunities in life. The pedophiles then sexually exploit the
children either by using them as sexual objects or by taking their pornographic pictures in
order to sell those over the internet.

3 Cyber Stalking
Cyber Stalking can be defined as the repeated acts harassment or threatening behavior
of the cybercriminal towards the victim by using internet services. Stalking in General terms
can be referred to as the repeated acts of harassment targeting the victim such as following
the victim, making harassing phone calls, killing the victims pet, vandalizing victims
property, leaving written messages or objects. Stalking may be followed by serious violent
acts such as physical harm to the victim and the same has to be treated and viewed seriously.
It all depends on the course of conduct of the stalker. Both kind of Stalkers Online & Offline
have desire to control the victims life. Majority of the stalkers are the dejected lovers or exlovers, who then want to harass the victim because they failed to satisfy their secret desires.
Most of the stalkers are men and victim female.

4 Phishing
In the field of computer security, phishing is the criminally fraudulent process of
attempting to acquire sensitive information such as usernames, passwords and credit card
details by masquerading as a trustworthy entity in an electronic communication.
Communications purporting to be from popular social web sites, auction sites, online
payment processors or IT Administrators are commonly used to lure the unsuspecting public.
Phishing is typically carried out by e-mail or instant messaging, and it often directs users to
enter details at a fake website whose look and feel are almost identical to the legitimate one.
Even when using server authentication, it may require tremendous skill to detect that the
website is fake. Phishing is an example of social engineering techniques used to fool users,
and exploits the poor usability of current web security technologies. Attempts to deal with the
growing number of reported phishing incidents include legislation, user training, public
awareness, and technical security measures. Phishing, also referred to as brand spoofing or
carding, is a variation on "fishing," the idea being that bait is thrown out with the hopes that
while most will ignore the bait, some will be tempted into biting. A phishing technique was

19

described in detail in 1987, and the first recorded use of the term "phishing" was made in
1996.

5 Spam
Spam is a generic term used to describe electronic 'junk mail' or unwanted messages
sent to your email account or mobile phone. These messages vary, but are essentially
commercial and often annoying in their sheer volume. They may try to persuade you to buy a
product or service, or visit a website where you can make purchases; or they may attempt to
trick you into divulging your bank account or credit card details. More information about
spam is available from the Australian Communications and Media Authority (ACMA
website).

6 Scams
The power of the Internet and email communication has made it all too easy for email
scams to flourish. These schemes often arrive uninvited by email. Many are related to the
well-documented Nigerian Scam or Lotto Scams and use similar tactics in one form or
another. While the actual amount of money lost by businesses and the community is
unknown, the number of people claiming to have been defrauded by these scams is relatively
low.

7 Spyware
Spyware is generally considered to be software that is secretly installed on a computer
and takes things from it without the permission or knowledge of the user. Spyware may take
personal information, business information, bandwidth; or processing capacity and secretly
gives it to someone else. It is recognized as a growing problem. More information about
taking care of spyware is available from the Department of Broadband, Communication, and
the Digital Economy (DBCDE) website.

8 Denial Of Service Attack


This is an act by the criminal, who floods the bandwidth of the victims network or
fills his email box with spam mail depriving him of the services he is entitled to access or
provide.

20

9 Virus Dissemination
Malicious software that attaches itself to other software. (Virus,, worms,, Trojan
Horse,, Time bomb,, Logic Bomb,, Rabbit and Bacterium are the malicious softwares).

10 Software Piracy
Theft of software through the illegal copying of genuine programs or the
counterfeiting and distribution of products intended to pass for the original. Retail revenue
losses worldwide are ever increasing due to this crime. It can be done in various ways- End
user copying, Hard disk loading,, Counterfeiting, Illegal downloads from the internet etc.

CLASSIFICATION OF CYBER CRIME


Mr. Pavan Duggal, who is the President of cyber laws, net and consultant, in a report has
clearly defined the various categories and types of cybercrimes.
Cybercrimes

can

be

basically

divided

into

major

categories:

1 Cybercrimes Against Persons


Cybercrimes committed against persons include various crimes like transmission of
child-pornography, harassment of any one with the use of a computer such as e-mail. The
trafficking, distribution, posting, and dissemination of obscene material including
pornography and indecent exposure, constitutes one of the most important Cybercrimes
known today. The potential harm of such a crime to humanity can hardly be amplified. This is

21

one Cybercrime which threatens to undermine the growth of the younger generation as also
leave irreparable scars and injury on the younger generation, if not controlled.
A minor girl in Ahmadabad was lured to a private place through cyber chat by a man,
who, along with his friends, attempted to gang-rape her. As some passersby heard her cry, she
was rescued.
Another example wherein the damage was not done to a person but to the masses is the
case of the Melissa virus. The Melissa virus first appeared on the internet in March of 1999. It
spread rapidly throughout computer systems in the United States and Europe. It is estimated
that the virus caused 80 million dollars in damages to computers worldwide.
In the United States alone, the virus made its way through 1.2 million computers in onefifth of the country's largest businesses. David Smith pleaded guilty on Dec. 9, 1999 to state
and federal charges associated with his creation of the Melissa virus. There are numerous
examples of such computer viruses few of them being "Melissa" and "love bug".

Cybercrimes Against Property


The second category of Cybercrimes is that of Cybercrimes against all forms of
property. These crimes include computer vandalism (destruction of others' property),
transmission of harmful programmes.
A Mumbai-based upstart engineering company lost a say and much money in the
business when the rival company, an industry major, stole the technical database from their
computers with the help of a corporate cyber spy.

3 Cybercrimes Against Government


The third category of Cybercrimes relate to Cybercrimes against Government. Cyber
terrorism is one distinct kind of crime in this category. The growth of internet has shown that
the medium of Cyberspace is being used by individuals and groups to threaten the
international governments as also to terrorize the citizens of a country. This crime manifests
itself into terrorism when an individual "cracks" into a government or military maintained
website.
The Parliament of India passed its first Cyber law, the Information Technology Act in
2000. It not only provides the legal infrastructure for E-commerce in India but also at the

22

same time, gives draconian powers to the Police to enter and search, without any warrant, any
public place for the purpose of nabbing cybercriminals and preventing cybercrime. Also, the
Indian Cyber law talks of the arrest of any person who is about to commit a cybercrime.
The Act defines five cybercrimes damage to computer source code, hacking,
publishing electronic information which is lascivious or prurient, breach of confidentiality
and publishing false digital signatures. The Act also specifies that cybercrimes can only be
investigated by an official holding no less a rank than that of Dy. Superintendent of Police
(Dy.SP).
It is common that many systems operators do not share information when they are
victimized by crackers. They don't contact law enforcement officers when their computer
systems are invaded, preferring instead to fix the damage and take action to keep crackers
from gaining access again with as little public attention as possible.
According to Sundari Nanda, SP, CBI, "most of the times the victims do not
complain, may be because they are aware of the extent of the crime committed against them,
or as in the case of business houses, they don't want to confess their system is not secure".
As the research shows, computer crime poses a real threat. Those who believe
otherwise simply have not been awakened by the massive losses and setbacks experienced by
companies worldwide. Money and intellectual property have been stolen, corporate
operations impeded, and jobs lost as a result of computer crime.
REASONS FOR CYBER CRIME
Hart in his work The Concept of Law has said human beings are vulnerable so rule
of law is required to protect them. Applying this to the cyberspace we may say that
computers are vulnerable (capable of attack) so rule of law is required to protect and
safeguard them against cybercrime.

1 Capacity To Store Data In Comparatively Small SpaceThe computer has unique characteristic of storing data in a very small space. This
affords to remove or derive information either through physical or virtual medium makes it
much easier.

23

2 Easy To Access
The problem encountered in guarding a computer system from unauthorised access is
that there is every possibility of breach not due to human error but due to the complex
technology. By secretly implanted logic bomb, key loggers that can steal access codes,
advanced voice recorders; retina imagers etc. that can fool biometric systems and bypass
firewalls can be utilized to get past many a security system.

3 Complex
The computers work on operating systems and these operating systems in turn are
composed of millions of codes. Human mind is fallible and it is not possible that there might
not be a lapse at any stage. The cyber criminals take advantage of these lacunas and penetrate
into the computer system.

4 Negligence
Negligence is very closely connected with human conduct. It is therefore very
probable that while protecting the computer system there might be any negligence, which in
turn provides a cyber-criminal to gain access and control over the computer system.

5 Loss Of Evidence
Loss of evidence is a very common & obvious problem as all the data are routinely
destroyed. Further collection of data outside the territorial extent also paralyses this system of
crime investigation.

CYBER CRIMINALS
The cyber criminals constitute of various groups/ category. This division may be
justified on the basis of the object that they have in their mind. The following are the category
of cyber criminals-

1. Children And Adolescents Between The Age Group Of 6 18 Years

24

The simple reason for this type of delinquent (A young offender) behaviour pattern in
children is seen mostly due to the inquisitiveness to know and explore the things. Other
cognate reason may be to prove themselves to be outstanding amongst other children in their
group. Further the reasons may be psychological even. E.g. the Bal Bharati (Delhi) case was
the outcome of harassment of the delinquent by his friends.

2. Organised Hackers
These kinds of hackers are mostly organised together to fulfil certain objective. The
reason may be to fulfil their political bias, fundamentalism, etc. The Pakistanis are said to be
one of the best quality hackers in the world. They mainly target the Indian government sites
with the purpose to fulfil their political objectives. Further the NASA as well as the Microsoft
sites is always under attack by the hackers.

3. Professional Hackers / Crackers


Their work is motivated by the color of money. These kinds of hackers are mostly
employed to hack the site of the rivals and get credible, reliable and valuable information.
Further they are even employed to crack the system of the employer basically as a measure to
make it safer by detecting the loopholes.

4. Discontented Employees
This group include those people who have been either sacked by their employer or are
dissatisfied with their employer. To avenge they normally hack the system of their employee.

MODE AND MANNER OF COMMITING CYBER CRIME

1 Unauthorized Access To Computer Systems Or Networks / Hacking


This kind of offence is normally referred as hacking in the generic sense. However the
framers of the Information Technology Act 2000 have no where used this term so to avoid
any confusion we would not interchangeably use the word hacking for unauthorized access
as the latter has wide connotation.

2 Theft Of Information Contained In Electronic Form

25

This includes information stored in computer hard disks, removable storage media
etc. Theft may be either by appropriating the data physically or by tampering them through
the virtual medium.

3 Email Bombing
This kind of activity refers to sending large numbers of mail to the victim, which may
be an individual or a company or even mail servers there by ultimately resulting into
crashing.

4 Data Diddling
This kind of an attack involves altering raw data just before a computer processes it
and then changing it back after the processing is completed. The electricity board faced
similar problem of data diddling while the department was being computerised.

5 Salami Attacks
This kind of crime is normally prevalent in the financial institutions or for the
purpose of committing financial crimes. An important feature of this type of offence is that
the alteration is so small that it would normally go unnoticed. E.g. the Ziegler case wherein a
logic bomb was introduced in the banks system, which deducted 10 cents from every
account and deposited it in a particular account.

6 Denial Of Service AttackThe computer of the victim is flooded with more requests than it can handle which
cause it to crash. Distributed Denial of Service (DDS) attack is also a type of denial of service
attack, in which the offenders are wide in number and widespread. E.g. Amazon, Yahoo.

7 Virus / Worm Attacks


Viruses are programs that attach themselves to a computer or a file and then circulate
themselves to other files and to other computers on a network. They usually affect the data on
a computer, either by altering or deleting it. Worms, unlike viruses do not need the host to
attach themselves to. They merely make functional copies of themselves and do this

26

repeatedly till they eat up all the available space on a computer's memory. E.g. love bug virus,
which affected at least 5 % of the computers of the globe. The losses were accounted to be $
10 million. The world's most famous worm was the Internet worm let loose on the Internet by
Robert Morris sometime in 1988. Almost brought development of Internet to a complete halt.

8 Logic Bombs
These are event dependent programs. This implies that these programs are created to
do something only when a certain event (known as a trigger event) occurs. E.g. even some
viruses may be termed logic bombs because they lie dormant all through the year and become
active only on a particular date (like the Chernobyl virus).
9

Trojan Attacks
This term has its origin in the word Trojan horse. In software field this means an
unauthorized programme, which passively gains control over anothers system by
representing itself as an authorised programme. The most common form of installing a Trojan
is through e-mail. E.g. a Trojan was installed in the computer of a lady film director in the
U.S. while chatting. The cybercriminal through the web cam installed in the computer
obtained her nude photographs. He further harassed this lady.

10 Internet Time Thefts


Normally in these kinds of thefts the Internet surfing hours of the victim are used up
by another person. This is done by gaining access to the login ID and the password. E.g.
Colonel Bajwas case- the Internet hours were used up by any other person. This was perhaps
one of the first reported cases related to cybercrime in India. However this case made the
police infamous as to their lack of understanding of the nature of cybercrime.

BANKING SECTOR
The Banking Industry was once a simple and reliable business that took deposits
from investors at a lower interest rate and loaned it out to borrowers at a higher rate.
However deregulation and technology led to a revolution in the Banking Industry that
saw it transformed. Banks have become global industrial powerhouses that have created ever
more complex products that use risk. Through technology development, banking services
have become available 24 hours a day, 365 days a week, through ATMs, at online banking,

27

and in electronically enabled exchanges where everything from stocks to currency futures
contracts can be traded.

The Banking Industry at its core provides access to credit. In the lenders case, this
includes access to their own savings and investments, and interest payments on those
amounts. In the case of borrowers, it includes access to loans for the creditworthy, at a
competitive interest rate.
Banking services include transactional services, such as verification of account
details, account balance details and the transfer of funds, as well as advisory services that
help individuals and institutions to properly plan and manage their finances. Online banking
channels have become a key in the last 10 years.
The collapse of the Banking Industry in the Financial Crisis, however, means that
some of the more extreme risk-taking and complex securitization activities that banks
increasingly engaged in since 2000 will be limited and carefully watched, to ensure that there
is not another banking system meltdown in the future.
Banking in India originated in the last decades of the 18th century. The oldest bank
in existence in India is the State Bank of India, a government-owned bank that traces its
origins back to June 1806 and that is the largest commercial bank in the country. Central
banking is the responsibility of the Reserve Bank of India, which in 1935 formally took over
these responsibilities from the then Imperial Bank of India, relegating it to commercial
banking functions. After India's independence in 1947, the Reserve Bank was nationalized
and given broader powers. In 1969 the government nationalized the 14 largest commercial
banks; the government nationalized the six next largest in 1980.

28

Currently, India has 88 scheduled commercial banks (SCBs) - 27 public sector banks
(that is with the Government of India holding a stake), 31 private banks (these do not have
government stake; they may be publicly listed and traded on stock exchanges) and 38 foreign
banks. They have a combined network of over 53,000 branches and 17,000 ATMs. According
to a report by ICRA Limited, a rating agency, the public sector banks hold over 75 percent of
total assets of the banking industry, with the private and foreign banks holding 18.2% and
6.5% respectively.

CYBER CRIME IN BANKING SECTOR


AUTOMATED TELLER MACHINE

The traditional and ancient society was devoid of any monetary instruments and the
entire exchange of goods and merchandise was managed by the barter system. The use of
monetary instruments as a unit of exchange replaced the barter system and money in various
denominations was used as the sole purchasing power. The modern contemporary era has
replaced these traditional monetary instruments from a paper and metal based currency to

29

plastic money in the form of credit cards, debit cards, etc. This has resulted in the
increasing use of ATM all over the world. The use of ATM is not only safe but is also
convenient. This safety and convenience, unfortunately, has an evil side as well that do not
originate from the use of plastic money rather by the misuse of the same. This evil side is
reflected in the form of ATM FRAUDS that is a global problem. The use of plastic money
is increasing day by day for payment of shopping bills, electricity bills, school fees, phone
bills, insurance premium, travelling bills and even petrol bills. The convenience and safety
that credit cards carry with its use has been instrumental in increasing both credit card
volumes and usage. This growth is not only in positive use of the same but as well as the
negative use of the same. The world at large is struggling to increase the convenience and
safety on the one hand and to reduce it misuse on the other.

WAYS TO CARD FRAUDS


Some of the popular techniques used to carry out ATM crime are:
1

Through Card Jamming ATMs card reader is tampered with in order to trap a customers
card. Later on the criminal removes the card.

Card Skimming, is the illegal way of stealing the cards security information from the cards
magnetic stripe.

Card Swapping, through this customers card is swapped for another card without the
knowledge of cardholder.

Website Spoofing, here a new fictitious site is made which looks authentic to the user and
customers are asked to give their card number. PIN and other information, which are used to
reproduce the card for use at an ATM.

Physical Attack. ATM machine is physical attacked for removing the cash.

HOW TO USE CASH MACHINE

30

Be aware of others around

you. If someone close by the cash

machine is behaving suspiciously

or makes you feel uncomfortable,

choose another .Make sure you

check the machine before you use it

for any signs of tampering. Examine the machine for stick on boxes, stick on card entry slots
etc. If you find it difficult to get your card into the slot, do not use it, go to another machine.
If there is anything unusual about the cash machine report it to the bank and police or the
owner of the premises immediately. Under no circumstances should members of the public
attempt to remove a

device as its possible

the offender may be

nearby.

HOW TO USE

A CASH

MACHINE

Give other users space to enter their personal identity number (PIN) in private.

Be aware of your surroundings. If someone is crowding or watching you, cancel the


transaction and go to another machine. Take your card with you.

Do not accept help from "well meaning" strangers and never allow yourself to be distracted.

31

Stand close to the cash machine and always shield the keypad to avoid anyone seeing you
enter your PIN.

What Precaution Should Be Taken While Leaving Cash Machine


Once you have completed a transaction, discreetly put your money and card away
before leaving the cash machine.
If you lose your card in a cash machine, cancel the card immediately with the card
issuers 24-hour emergency line, which can be found on your last bank statement. Do not
assume that your bank automatically knows that the machine has withheld your card. Again,
beware of help offered by "well-meaning strangers".
Dispose of your cash machine receipt, mini-statement or balance enquiry slip with
care. Tear up or preferably shred these items before discarding them.

1 Card Fraud Also Happens In The Home:


Cardholders should also be warned of the risks of verifying bank details at home in
unsolicited telephone conversations. Always call the person back using the advertised
customer telephone number, not the telephone number they may give you.

2 Do Not Click On Hyperlinks Sent To You By Email Asking You To Confirm


Your Bank Details Online:
Hyperlinks are links to web pages that have been sent to you by email and may open a
dummy website designed to steal your personal details. Phone your bank instead on their
main customer number or access your account using the bank's main website address. Use
good antivirus and firewall protection.

3 NEVER Write down Your Pin:


People make life very easy for pickpockets if they write down their PIN and keep it in
their purse or wallet. Do not write down your PIN. If you have been given a number that you
find difficult to remember, take your card along to a cash machine and change the number to
one that you will be able to remember without writing it down.

32

PREVENTION FOR ATM CARDS


Most ATM frauds happen due to the negligence of customers in using, and more
importantly, negligence of banks in educating their customers about the matters that should
be taken care of while at an ATM. The number of ATM frauds in India is more in regard to
negligence of the Personal Identification Number (PIN), than by sophisticated crimes like
skimming. Banks need to develop a fraud policy the policy should be written and
distributed to all employees, borrowers and depositors.
The most important aspect for reducing ATM related fraud is to educate the
customer. Here is a compiled list of guidelines to help your customer from being an ATM
fraud victim:
1

Look for suspicious attachments. Criminals often capture information through ATM
skimming using devices that steal magnetic strip information. At a glance, the skimmer
looks just like a regular ATM slot, but its an attachment that captures ATM card numbers. To
spot one, the attachment slightly protrudes from the machine and may not be parallel with the
inherent grooves. Sometimes, the equipment will even cut off the printed labels on the ATM.
The skimmer will not obtain PIN numbers, however. To get that, fraudsters place hidden
cameras facing the ATM screen. Theres also the helpful bystander (the criminal) who may be
standing by to kindly inform you the machine has had problems and offer to help. If you do
not feel safe at any time, press the ATM cancel button, remove your card and leave the area
immediately.

Minimize your time at the ATM. The more time you spend at the ATM, the more vulnerable
you are. If you need to update your records after a transaction, one is advised do it at home or
office, but not while at the ATM. Even when depositing a cheque at the ATM, on should not
make/sign the cheque at the ATM. After the transaction, if you think you are being followed,
go to an area with a lot of people and call the police.

Make smart deposits. Some ATMs allow you to directly deposit checks and cash into your
accounts without stuffing envelopes. As for the envelope-based deposits, make sure they go
through if it gets jammed and it doesnt fully go into the machine, the next person can walk
up and take it out. After having made the ATM deposit, compare your records with the
account statements or online banking records.

33

CYBER MONEY LAUNDERING


During the past two decades, IT and Internet technologies have reached every nook
and corner of the world. E-commerce has come into existence due to the attributes of Internet
like ease of use, speed, anonymity and its International nature. Internet has converted the
world into a boundary less market place that never sleeps. Drug peddlers and organized
criminals found a natural and much sought after ally in Internet. Computer networks and
Internet, in particular, permit transfer of funds electronically between trading partners,
businesses and consumers. This transfer can be done in many ways. They include use of
credit cards, Internet banking, e-cash, e-wallet etc. for example, smart cards like Visa Cash,
Mondex card, whose use is growing can store billions of dollars. At present, there is an upper
limit imposed by the card issuers but technically there is no limit. In some other forms of
computer-based e-money, there is no upper limit. Mobile banking and mobile commerce are
growing and these technologies have the capability to transfer any amount of money at the
touch of a bottom or click of a mouse. They can be effective tools in the hands of money
launderers. First and foremost, the anonymity offered by internet and cyber payment systems
is being exploited to the hilt by the criminal elements.
As cyber payment systems eliminate the need for face to face interactions, transfer of
funds can be done between two trading partners directly. Two individuals also can transfer
funds directly using e- wallets. This problem is further compounded by the fact that, in many
countries, non-financial institutions are also permitted to issue e-money. Monitoring the
activities of these institutions in a traditional manner is not possible. Earlier, cross-border
transactions were controlled by the central banks of respective countries. With the entry of
Internet commerce, the jurisdictional technicalities come into play and it is another area that
is being exploited by the money launderers. The capacity to transfer unlimited amounts of
money without having to go through strict checks makes cyber money laundering an
attractive proposition. From the point of view of law enforcing agencies, all the above
advantages cyber payments provide to consumers and trading partners, turn out to be great
disadvantages while investigating the crimes.
WHY MONEY LAUNDERING?
The most important aim of money laundering is to conceal the origin of the money,
which, in almost all cases, is from illegal activity. Criminal resort to this practice to avoid

34

detection of the money by law enforcement which will lead to its confiscation and also may
provide leads to the illegal activity. By laundering the money the criminals are trying to close
their tracks. Further, their aims could be to increase the profits by resorting to illegal money
transfer etc. and also of course, to support new criminal ventures. Money laundering from the
point of view of the criminal increases the profits and, at the same time, reduces the risk.
While indulging in money laundering process, the launderers also attempt to safeguard their
interests. They conceal the origin and ownership of the proceeds, maintain control over
proceeds and change the form of proceeds.

MONEY LAUNDERING PROCESS


Money laundering is normally accomplished by using a three-stage process. The three
steps involved are Placement, Layering and Integration. E-money and cyber payment systems
come in handy in all the three stages of the process.

1 PLACEMENT
The first activity is placement. Illegal activities like drug trafficking, extortion,
generate very volumes of money. People involved in these activities cannot explain the origin
and source of these funds to the authorities. There is a constant fear of getting caught. So the
immediate requirement is to send this money to a different location using all available means.
This stage is characterized by facilitating the process of inducting the criminal money into the
legal financial system. Normally, this is done by opening up bank accounts in the names of
non-existent people or commercial organizations and depositing the money. Online banking
and Internet banking make it very easy for a launderer to open and operate a bank account.
Placement in cyber space occurs by depositing the illegal money with some legitimate
financial institutions or businesses. This is done by breaking up the huge cash into smaller
chunks. Launderers are very careful at this stage because the chances of getting caught are
considerable here. Cyber payment systems can come in handy during this process.

2 LAYERING
Layering is the second sub process. In this complex layers of financial transaction are
created to disguise the audit trail and provide anonymity. This is used to distance the money
from the sources. This is achieved by moving the names from and to offshore bank accounts

35

in the names of shell companies or front companies by using Electronic Funds Transfer (EFT)
or by other electronic means. Every day trillions of dollars are transferred all over the world
by other legitimate business and thus it is almost impossible ton as certain whether some
money is legal or illegal. Launderers normally make use of commodity brokers, stock brokers
in the layering process. Launderers were also found to purchase high value commodities like
diamonds etc. and exporting them to a different jurisdiction. During this process, they make
use of the banks wherever possible as in the legal commercial activity.

3 INTEGRATION
Integration is the third sub process. This is the stage in which the cleaned money is
ploughed back. This is achieved by making it appear as legally earned. This is normally
accomplished by the launderers by establishing anonymous companies in countries where
secrecy is guaranteed. Anyone with access to Internet can start an e-business. This can look
and function like any other e-business as far as the outside world is concerned. This
anonymity is what makes Internet very attractive for the launderers. They can then take loans
from these companies and bring back the money. This way they not only convert their money
this way but also can take advantages associated with loan servicing in terms of tax relief.
Another way can be by placing false export import invoices and over valuing goods.
The entire process can be explained with the help of an example . The money
launderers first activity is to set up an online commerce company which is legal. Normally,
the launderer sets up the website for his company and accepts online payments using credit
cards for the purchases made from his companys website. As a part of the whole scheme,
launderers obtain credit cards from some banks or financial institutions located in countries
with lax rules, which are known as safe havens. The launderer sitting at home, then, makes
purchases using this credit card from his own website. As in normal transactions, the Webbased system then sends an invoice to the customers (who happens to the launderer himself)
bank, in the safe haven. The bank then pays the money into the account of the company.
Cyber space provides a secure and anonymous opportunity to the criminals in money
laundering operations. It has come to light that many gangs are opening up the front
companies and hiring information technology specialists for nefarious activities. Incidents
have also come to light where the criminals are using cryptography for hiding their
transaction.

BUSINESS AREAS THAT SUPPORT OR ARE PRONE TO MONEY


LAUNDERING

36

The banks and other financial institution are the most important intermediaries in the
money laundering chain. As far as the banks are concerned the countries that are considered
safe for launderers are Cayman Islands, Cyprus, Luxembourg, and Switzerland. The offshore
accounts of these banks are popular because they offer anonymity and also help in tax
evasion. Other financial institution like fund managers and those facilitating Electronic Fund
Transfer are also being manipulated by the launderers. Banking obviously is the most affected
sector by the money laundering operations. In fact, Berltlot Brecht said, If you want to steal,
then buy a bank. Multinational banks are more vulnerable to money laundering operations.
When BCCI bank was investigated it came to light that there were 3,000 criminal customers
and they were involved in offenses ranging from financing nuclear weapon programs to
narcotics. The second area is underground banking or parallel banking. This is practiced by
different countries by different names. China follows a system called Fic Chin. Under this
system, money is deposited in one country and the depositor is handed a chit or chop. The
money is paid back in another place on production of the chit. Similar systems known as
Hundi, Hawallah are practiced in India. It is much easier to launder the money using these
methods as there is no physical movement of money. These practices mostly work on trust
and mostly controlled by mafia in many countries.
Futures and commodity markets are another area which is found to be facilitating the
money laundering. The other areas include professional advisers, financing housing schemes,
casinos, antique dealers and jewelers. Casinos are another business areas that is actively
involved in money laundering process. In all the cases the underlying factor is paperless
transactions. It was also found that launderers do take advantages of privatization in various
countries by investing in them. This was observed in UK, India and Columbia. In Columbia,
when the banks were privatized the Carli Cartel was reported to have invested heavily and
Italian mafia reportedly purchased shares in Italian banks. This only shows the extent of the
problem and also that the banks and financial institutions are the primary target of the
launderers. In some countries, even political parties organizations are known to be using
laundered money for their campaigns.

EFFECTS ON BANKS
Almost all the banks trade in foreign exchange Money laundering in any country or
economy affects the foreign exchange market directly. The money laundering reduces the
legal volume of the banks business. It also causes fluctuations in the exchange rate. Further,

37

money laundering can undermine the credibility of the banking system. Facilitating the
activities of launderers even inadvertently can push the banks into problems with law
enforcement agencies and also governments. In some reported cases, the banks survival has
come under threat. It is not difficult to see what effect it has on the profitability of banks.

OTHER EFFECTS
In one incident, an Indian national in one year handled US 81.5 bn illegal
transactions, before his arrest during 1993. This incident also shows how the national
economy gets affected. A few years before that, the Indian Government was so short of
foreign exchange that it had to pledge gold in the London bank. One needs not be an
economist understand the impact of money laundering on economies of developing countries.
The low regulation by central banks will become difficult and consequently, there will be rise
in inflation. Further, overall income distribution in an economy is likely to get affected.
Money laundering can help in spread of parallel economy, which will result in loss to national
income due to reduced tax collections and lost jobs. On the social plane, this can result in
increased crime rate, violence in society. There may be attempts to gain political power either
directly or indirectly like Coli Cocoine Cartels attempt in supporting Columbian President,
Samper in 1996 elections. Because cyber money laundering can be done from anywhere in
the world without any jurisdiction, the effects are much severe.

PREVENTION
Because of the nature of Cyber money laundering, no country can effectively deal
with it in isolation. Cyber money laundering has to be dealt with at organizational [Bank or
Financial Institution], national and international levels.

AT ORGANIZATIONAL [BANK] LEVEL


The banking and other financial organizations can reduce the quantum of money
laundering by following the guidelines issued by central banks of respective countries in
letter and spirit. The old principle of Knowing the customer well will help a great deal. It is
very important to keep the records of the customer for a sufficient time, at least for 8 to 10
years. Having an eye on suspicious deals can give early warnings on the impending trouble.
Any suspicious activities must be reported to law enforcement authorities. Developing
internal control mechanisms is very essential in this regard. Further, working in close

38

association with other banks and exchange of information and intelligence in this regard will
be definitely helpful. Law enforcement agencies have details of criminal elements and their
transactions. By working in close conjunction with them, bank can have early warning on
such activities. However, banks must keep in mind the legal provisions regarding privacy of
individuals.

AT NATIONAL LEVEL
Some countries liken UK have taken proactive steps to control this crime, which
could be cumulated by others. In UK, deposit taking institutions (including banks) are
expected to report suspicious transactions to the law enforcement authorities. The legal
provisions regarding knowing the customer brought down the crime to a great extent. They
empowered their customs officials to seize cash consignments of 10,000 pounds or more.
Courts also permit confiscation of cash, if the investigating authorities have strong evidence
that the money has come from illegal activities of drug trafficking. Issue of electronic money
by private parties is another factor, as in some countries regulation of these people is not
effective. Slowly, different countries are realizing the importance of this issue and enacting
suitable rules aimed at providing transparency in transactions carried out by these institutions.
The most important issues at national level are establishing legal framework and training law
enforcing officials. The major weapon to combat this crime is controlling financial
transactions including e-transactions, through legislation. Many countries have enacted some
stringent laws to control this crime. UK, US have stringent laws in dealing with Cyber money
laundering. Many other countries are following suit. The Council of Europe has passed
Criminal Justice Act. Hong Kong has passed similar laws. The single most important issue is
harmonizing the terrestrial laws with cyber laws.

AT INTERNATIONAL LEVEL
The UN has taken the lead and during 1995 international community meeting signed a
convention known as UN Convention Against Illict Traffic in Narcotic Drugs and
Psychotropic Substances. Further, this convention made money laundering a crime and
provided a model. During 2000, the UN also organized another convention against
transnational organized crime. As a result of UN the efforts, the group of seven industrialized
nations established Financial Action Task Force (FATF). The biggest source of money
laundering funds comes from drug trade and the volume of money is large. In order to cover

39

this vast amount of money they need financial services industry. They eye financial
institutions that are in the business of accepting deposits from customers. After studying this
phenomenon, Financial Action Task Force (FATF) had noticed some critical points in the
modus operandi of criminals which are difficult for the launderers to avoid. They are points
of entry of cash into financial system, transfers to and from financial system and cross-border
flows of cash. Paying attention to these issues can help in controlling cyber laundering to a
considerable extent. According to financial crimes enforcement network of US, less than 1%
money laundered in cyber space is ever detected or criminals prosecuted. Prevention of
money laundering in cyber space is proving to be really a daunting task. Some of the
suggested measures are putting an upper limit on the amount of payment and frequency of
using e-money in peer to peer transfers. The second is making it mandatory for e-money
organization to identify their clients and also to keep a track of money movement. The third is
ensuring that Internet service providers keep a log of files involving finances for a number of
years. The fourth is making audit compulsory for all electronic merchants and ensuring that
they keep transaction records for a certain period of time. The fifth is training law
enforcement agencies in dealing effectively with this crime. Last but not the least, is
international co-operation and harmonizing the national cyber and terrestrial laws with
international can help in dealing with this crime effectively.

CREDIT CARDS FRAUDS


INTRODUCTION TO CREDIT CARDS
Credit was first used in Assyria, Babylon and Egypt 3000 years ago. The bill of
exchange - the forerunner of banknotes - was established in the 14th century. Debts were
settled by one-third cash and two-thirds bill of exchange. Paper money followed only in the
17th century. The first advertisement for credit was placed in 1730 by Christopher Thornton,
who offered furniture that could be paid off weekly.
From the 18th century until the early part of the 20th, tallymen sold clothes in return
for small weekly payments. They were called "tallymen" because they kept a record or tally
of what people had bought on a wooden stick. One side of the stick was marked with notches
to represent the amount of debt and the other side was a record of payments. In the 1920s, a
shopper's plate - a "buy now, pay later" system - was introduced in the USA. It could only be
used in the shops which issued it.

40

In 1950, Diners Club and American Express launched their charge cards in the USA,
the first "plastic money". In 1951, Diners Club issued the first credit card to 200 customers
who could use it at 27 restaurants in New York. But it was only until the establishment of
standards for the magnetic strip in 1970 that the credit card became part of the information
age.The first use of magnetic stripes on cards was in the early 1960's, when the London
Transit Authority installed a magnetic stripe system. San Francisco Bay Area Rapid Transit
installed a paper based ticket the same size as the credit cards in the late 1960's. The word
credit comes from Latin, meaning TRUST.

CREDIT CARD FRAUD


Credit card fraud is a wide-ranging term for theft and fraud committed using a credit
card or any similar payment mechanism as a fraudulent source of funds in a transaction. The
purpose may be to obtain goods without paying, or to obtain unauthorized funds from an
account. Credit card fraud is also an adjunct to identity theft. According to the Federal Trade
Commission, while identity theft had been holding steady for the last few years, it saw a 21
percent increase in 2008. However, credit card fraud, that crime which most people associate
with ID theft, decreased as a percentage of all ID theft complaints for the sixth year in a row.
The cost of credit card fraud reaches into billions of dollars annually. In 2006, fraud in
the United Kingdom alone was estimated at 535 million, or US$750-830 million at
prevailing 2006 exchange rates.
The fraud begins with either the theft of the physical card or the compromise of data
associated with the account, including the card account number or other information that
would routinely and necessarily be available to a merchant during a legitimate transaction.

41

The compromise can occur by many common routes and can usually be conducted without
tipping off the card holder, the merchant or the bank, at least until the account is ultimately
used for fraud. A simple example is that of a store clerk copying sales receipts for later use.
The rapid growth of credit card use on the Internet has made database security lapses
particularly costly; in some cases, millions of accounts have been compromised.

IF CARD IS STOLEN
When a credit card is lost or stolen, it remains usable until the holder notifies the bank
that the card is lost; most banks have toll-free telephone numbers with 24-hour support to
encourage prompt reporting. Still, it is possible for a thief to make unauthorized purchases on
that card up until the card is cancelled. In the absence of other security measures, a thief
could potentially purchase thousands of dollars in merchandise or services before the card
holder or the bank realize that the card is in the wrong hands.
In the United States, federal law limits the liability of card holders to $50 in the event
of theft, regardless of the amount charged on the card; in practice, many banks will waive
even this small payment and simply remove the fraudulent charges from the customer's
account if the customer signs an affidavit confirming that the charges are indeed fraudulent.
Other countries generally have similar laws aimed at protecting consumers from physical
theft of the card.
The only common security measure on all cards is a signature panel, but signatures
are relatively easy to forge. Many merchants will demand to see a picture ID, such as a
driver's license, to verify the identity of the purchaser, and some credit cards include the
holder's picture on the card itself. However, the card holder has a right to refuse to show
additional verification, and asking for such verification may be a violation of the merchant's
agreement with the credit card companies.
Self-serve payment systems (gas stations, kiosks, etc.) are common targets for stolen
cards, as there is no way to verify the card holder's identity. A common countermeasure is to
require the user to key in some identifying information, such as the user's ZIP or postal code.
This method may deter casual theft of a card found alone, but if the card holder's wallet is
stolen, it may be trivial for the thief to deduce the information by looking at other items in the

42

wallet. For instance, a U.S. driver license commonly has the holder's home address and ZIP
code printed on it.
Banks have a number of countermeasures at the network level, including sophisticated
real-time analysis that can estimate the probability of fraud based on a number of factors. For
example, a large transaction occurring a great distance from the card holder's home might be
flagged as suspicious. The merchant may be instructed to call the bank for verification, to
decline the transaction, or even to hold the card and refuse to return it to the customer.
Stolen cards can be reported quickly by card holders, but a compromised account can
be hoarded by a thief for weeks or months before any fraudulent use, making it difficult to
identify the source of the compromise. The card holder may not discover fraudulent use until
receiving a billing statement, which may be delivered infrequently.

Mail/Internet Order Fraud


The mail and the Internet are major routes for fraud against merchants who sell and
ship products, as well Internet merchants who provide online services. The industry term for
catalog order and similar transactions is "Card Not Present" (CNP), meaning that the card is
not physically available for the merchant to inspect. The merchant must rely on the holder (or
someone purporting to be the holder) to present the information on the card by indirect
means, whether by mail, telephone or over the Internet when the cardholder is not present at
the point of sale.
It is difficult for a merchant to verify that the actual card holder is indeed authorizing
the purchase. Shipping companies can guarantee delivery to a location, but they are not
required to check identification and they are usually are not involved in processing payments
for the merchandise. A common preventive measure for merchants is to allow shipment only
to an address approved by the cardholder, and merchant banking systems offer simple
methods of verifying this information.
Additionally, smaller transactions generally undergo less scrutiny, and are less likely
to be investigated by either the bank or the merchant, since the cost of research and
prosecution usually far outweighs the loss due to fraud. CNP merchants must take extra
precaution against fraud exposure and associated losses, and they pay higher rates to

43

merchant banks for the privilege of accepting cards. Anonymous scam artists bet on the fact
that many fraud prevention features do not apply in this environment.

CHAPTER 3: CASE STUDY


INDIA'S FIRST ATM CARD FRAUD
The Chennai City Police have busted an international gang involved in cyber crime,
with the arrest of Deepak Prem Manwani (22), who was caught red-handed while breaking
into an ATM in the city in June last, it is reliably learnt. The dimensions of the city cops'
achievement can be gauged from the fact that they have netted a man who is on the wanted
list of the formidable FBI of the United States. At the time of his detention, he had with him
Rs 7.5 lakh knocked off from two ATMs in T Nagar and Abiramipuram in the city. Prior to
that, he had walked away with Rs 50,000 from an ATM in Mumbai.
While investigating Manwani's case, the police stumbled upon a cyber crime
involving scores of persons across the globe.
Manwani is an MBA drop-out from a Pune college and served as a marketing
executive in a Chennai-based firm for some time.
Interestingly, his audacious crime career started in an Internet cafe. While browsing
the Net one day, he got attracted to a site which offered him assistance in breaking into the
ATMs. His contacts, sitting somewhere in Europe, were ready to give him credit card
numbers of a few American banks for $5 per card. The site also offered the magnetic codes of
those cards, but charged $200 per code. The operators of the site had devised a fascinating

44

idea to get the personal identification number (PIN) of the card users. They floated a new site
which resembled that of a reputed telecom companies.
That company has millions of subscribers. The fake site offered the visitors to return
$11.75 per head which, the site promoters said, had been collected in excess by mistake from
them. Believing that it was a genuine offer from the telecom company in question, several
lakh subscribers logged on to the site to get back that little money, but in the process parted
with their PINs.
Armed with all requisite data to hack the bank ATMs, the gang started its systematic
looting. Apparently, Manwani and many others of his ilk entered into a deal with the gang
behind the site and could purchase any amount of data, of course on certain terms, or simply
enter into a deal on a booty-sharing basis.
Meanwhile, Manwani also managed to generate 30 plastic cards that contained
necessary data to enable him to break into ATMS.
He was so enterprising that he was able to sell away a few such cards to his contacts
in Mumbai. The police are on the lookout for those persons too.
On receipt of large-scale complaints from the billed credit card users and banks in the United
States, the FBI started an investigation into the affair and also alerted the CBI in New Delhi
that the international gang had developed some links in India too.
Manwani has since been enlarged on bail after interrogation by the CBI. But the city police
believe that this is the beginning of the end of a major cybercrime.

GENERAL TIPS ON AVOIDING POSSIBLE INTERNET FRAUD


SCHEMES
1

Don't Judge by Initial Appearances


It may seem obvious, but consumers need to remember that just because something
appears on the Internet - no matter how impressive or professional the Web site looks doesn't mean it's true. The ready availability of software that allows anyone, at minimal cost,

45

to set up a professional-looking Web site means that criminals can make their Web sites look
as impressive as those of legitimate e-commerce merchants.
2

Be Careful About Giving Out Valuable Personal Data Online


If you see e-mail messages from someone you don't know that ask you for personal
data - such as your Social Security number, credit-card number, or password - don't just send
the data without knowing more about who's asking. Criminals have been known to send
messages in which they pretend to be (for example) a systems administrator or Internet
service provider representative in order to persuade people online that they should disclose
valuable personal data.

Be Especially Careful About Online Communications with Someone Who Conceals His
True Identity
If someone sends you an e-mail in which he refuses to disclose his full identity, or
uses an e-mail header that has no useful identifying data (e.g., "W6T7S8@provider.com"),
that may be an indication that the person doesn't want to leave any information that could
allow you to contact them later if you have a dispute over undelivered goods for which you
paid. As a result, you should be highly wary about relying on advice that such people give
you if they are trying to persuade you to entrust your money to them.

Watch Out for "Advance-Fee" Demands


In general, you need to look carefully at any online seller of goods or services who
wants you to send checks or money orders immediately to a post office box; before you
receive the goods or services you've been promised. Legitimate startup "dot.com" companies,
of course, may not have the brand-name recognition of long-established companies, and still
be fully capable of delivering what you need at a fair price. Even so, using the Internet to
research online companies that aren't known to you is a reasonable step to take before you
decide to entrust a significant amount of money to such companies.

SUGGESTIONS ON CYBER MONEY LAUNDERING


Because of the nature of Cyber money laundering, no country can effectively deal
with it in isolation. Cyber money laundering has to be dealt with at organizational [Bank or
Financial Institution], national.

46

AT ORGANIZATIONAL [BANK] LEVEL


The banking and other financial organizations can reduce the quantum of money
laundering by following the guidelines issued by central banks of respective countries in
letter and spirit. The old principle of Knowing the customer well will help a great deal.
AT NATIONAL LEVEL
Some countries liken UK have taken proactive steps to control this crime, which
could be cumulated by others. In UK, deposit taking institutions (including banks) are
expected to report suspicious transactions to the law enforcement authorities.

RECENT CASES

In February 2009, a group of criminals used counterfeit ATM cards to steal $9 million from
130 ATMs in 49 cities around the world all within a time period of 30 minutes.

June 4, 2009, 10:00 AM IDG News Service


Cybercriminals are improving a malicious software program that can be installed on
ATMs running Microsoft's Windows XP operating system that records sensitive card details,
according to security vendor Trustwave.
The malware has been found on ATMs in Eastern European countries, according to a
Trustwave report.
The malware records the magnetic stripe information on the back of a card as well as
the PIN (Personal Identification Number), which would potentially allow criminals to clone
the card in order to withdraw cash.
The collected card data, which is encrypted using the DES (Data Encryption
Standard) algorithm, can be printed out by the ATM's receipt printer, Trustwave wrote.
The malware is controlled via a GUI that is displayed when a so-called "trigger card"
is inserted into the machine by a criminal. The trigger card causes a small window to appear
that gives its controller 10 seconds to pick one of 10 command options using the ATM's
keypad.

47

"The malware contains advanced management functionality allowing the attacker to


fully control the compromised ATM through a customized user interface built into the
malware," Trustwave wrote.
A criminal can then view the number of transactions, print card data, reboot the
machine and even uninstall the malware. Another menu option appears to allow the ejection
of an ATM's cash cassette.
Trustwave has collected multiple versions of the malware. The company believes that
the particular one it analyzed is "a relatively early version of the malware and that subsequent
versions have seen significant additions to its functionality."
The company advised banks to scan their ATMs to see if they're infected.
IDG News Service

CHAPTER 4: CONCLUSION
Lastly I conclude by saying that
Thieves are not born, but made out of opportunities.
This quote exactly reflects the present environment related to technology, where it is
changing very fast. By the time regulators come up with preventive measures to protect
customers from innovative frauds, either the environment itself changes or new technology
emerges. This helps criminals to find new areas to commit the fraud. Computer forensics has
developed as an indispensable tool for law enforcement. But in the digital world, as in the
physical world the goals of law enforcement are balanced with the goals of maintaining
personal liberty and privacy. Jurisdiction over cyber crimes should be standardized around
the globe to make swift action possible against terrorist whose activities are endearing
security worldwide. The National institute of justice, technical working group digital
evidence are some of the key organization involved in research.
The ATM fraud is not the sole problem of banks alone. It is a big threat and it requires
a coordinated and cooperative action on the part of the bank, customers and the law
enforcement machinery. The ATM frauds not only cause financial loss to banks but they also
undermine customers' confidence in the use of ATMs. This would deter a greater use of ATM

48

for monetary transactions. It is therefore in the interest of banks to prevent ATM frauds. There
is thus a need to take precautionary and insurance measures that give greater "protection" to
the ATMs, particularly those located in less secure areas. The nature and extent of
precautionary measures to be adopted will, however, depend upon the requirements of the
respective banks. Internet Banking Fraud is a fraud or theft committed using online
technology to illegally remove money from a bank account and/or transfer money to an
account in a different bank. Internet Banking Fraud is a form of identity theft and is usually
made possible through techniques such as phishing.
Credit card fraud can be committed using a credit card or any similar payment
mechanism as a fraudulent source of funds in a transaction. The purpose may be to obtain
goods without paying, or to obtain unauthorized funds from an account. Cyber space and
cyber payment methods are being abused by money launderers for converting their dirty
money into legal money. For carrying out their activities launderers need banking system.
Internet, online banking facilitates speedy financial transactions in relative anonymity and
this is being exploited by the cyber money launderers. Traditional systems like credit cards
had some security features built into them to prevent such crime but issue of e-money by
unregulated institutions may have none. Preventing cyber money laundering is an uphill task
which needs to be tackled at different levels. This has to be fought on three planes, first by
banks/ financial institutions, second by nation states and finally through international efforts.
The regulatory framework must also take into account all the related issues like development
of e-money, right to privacy of individual. International law and international co-operation
will go a long way in this regard.
Capacity of human mind is unfathomable. It is not possible to eliminate cybercrime
from the cyber space. It is quite possible to check them. History is the witness that no
legislation has succeeded in totally eliminating crime from the globe. The only possible step
is to make people aware of their rights and duties (to report crime as a collective duty towards
the society) and further making the application of the laws more stringent to check crime.
Undoubtedly the Act is a historical step in the cyber world. Further I all together do not deny
that there is a need to bring changes in the Information Technology Act to make it more
effective to combat cyber crime.

49

BIBLIOGRAPHY
WEBSITE:
www.cybercellmumbai.com
www.agapeinc.in
www.britannica.com

SEARCH ENGINE:
www.google.com
www.yahoo.com
www.wikipedia.com