100 marks project.pdf

Cyber Crimes in Banks in India

EXECUTIVE SUMMARY Cyber crimes are any illegal activities committed using computer target of the criminal activity can be either a computer, network operations. Cyber crimes are genus of crimes, which use computers and networks for criminal activities. The difference between traditional crimes and cyber crimes is the cyber crimes can be transnational transnational in nature. Cyber crime is a crime that is committed online in many areas using e-commerce. A computer can be the target of an offence when unauthorized access of computer network occurs and on other hand it affects E-COMMERCE. Cyber crime can be of various types such as Telecommunication Piracy, Electronic Money Laundering and Tax Evasion, Sales and Investment Fraud, Electronic Electronic Funds Transfer Fraud and so on…The modern contempor ary ary era has replaced these traditional monetary instruments from a paper and metal based currency to ―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. Internet

commerce has grown exponentially during the past few years and is still growing. But unfortunately the growth is not on the expected lines because the credit card fraud which has become common has retarded the e-commerce growth. Credit card fraud has become regular on internet which not only affects card holders but also online merchants. Credit card fraud can be done by taking over the account, skimming or if the card is stolen. Certain preventive measures can be taken to becoming a 1


credit card victim. The term "Internet fraud" refers generally to any type of fraud scheme that uses one or more components of the Internet - such as chat rooms, e-mail, message boards, or Web sites - to present fraudulent solicitations to prospective victims, to conduct fraudulent transactions, or to transmit the proceeds of fraud fraud to financial financial institutions institutions or to other other connected with with the scheme. scheme. Some form of internet form include: spam, scams, identity theft, phishing, spyware, internet banking fraud.

INTRODUCTION Cyber crime is like traditional crime; cybercrime can take many shapes and can occur nearly anytime or anyplace. Criminals committing cybercrime use a number of methods, depending on their skill-set and their goal. This 2


credit card victim. The term "Internet fraud" refers generally to any type of fraud scheme that uses one or more components of the Internet - such as chat rooms, e-mail, message boards, or Web sites - to present fraudulent solicitations to prospective victims, to conduct fraudulent transactions, or to transmit the proceeds of fraud fraud to financial financial institutions institutions or to other other connected with with the scheme. scheme. Some form of internet form include: spam, scams, identity theft, phishing, spyware, internet banking fraud.

INTRODUCTION Cyber crime is like traditional crime; cybercrime can take many shapes and can occur nearly anytime or anyplace. Criminals committing cybercrime use a number of methods, depending on their skill-set and their goal. This 2


should not be surprising: cybercrime is, after all, simply 'crime' with some sort of 'computer' or ‗cyber‘ aspects.

Cybercrime Cybercrime has surpassed illegal drug trafficking as a criminal moneymaker. moneymaker. Every 3 seconds an identity is stolen. Without security, your unprotected PC can become infected within four minutes of connecting to the internet. The usage of internet service in India is growing rapidly. rapidly. It has given rise to new opportunities in every field we can think of – be it entertainment, business, sport or or education. 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 disadvantage, illegal activity committed on the internet by certain individuals because of certain loop-holes. The interest, along with its advantages, has also exposed us to security risk that comes with come with connecting to a large network. Computer today are being misused for illegal activities like e-mail espionage, credit card fraud, spams, and software 3


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 o f devices, identity theft and data as well as system interference. Computer crimes may not necessarily involve damage to physical property. They rather include them 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 th e intr oduc tion an d us e of ne we r 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 internet — particularly broadband. The challenges of information security have also grown manifold. This widespread nature of cyber crime is beginning to show negative impact on the economic growth opportunities in each of the countries. It is becomi ng imp erative for organizations to take bo th prevent ive and corrective action if their systems are to be protected from any kind of compromise by external malicious element. 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 Report Bureau statistics, there has been a 255% increase in cyber crime in

Indi a alone . And mind you, these ar e just the 4


reported cases. In view of this, various governmental and nongovernmental agencies are working towards reducing cyber crime activities. Computer crime, cyber crime, 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 more category. According, although the term computer crime and cyber crime are more properly restricted to describing criminal activity in which the comp uter 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 computer has grown, computer crime has

become

more important.

Defining Cyber Crime Information Technology Act, 2000. Defining cyber crimes, as ―acts that are punishable by the Information

Technology Act" would be unsuitable as the Indian Penal Code also covers many cyber crimes, such as email spoofing and cyber defamation, sending threatening emails etc.

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Computer crime has been defined as ―unauthorized use of a computer for personal gain, as in the illegal transfer of funds or to alter the data or property of others‖ (―Computer Crime‖, 2007).

A generalized definition of cyber crime may be ― unlawful acts wherein

the computer is either a tool or target or both‖.

The history of cyber crime The first recorded cyber crime took place in the year 1820! This

is

not

surprising considering the fact that the abacus, which is thought to be the earliest form of a computer, has been around since 3500 B.C. in India, and China. The era of modern computers, however, began with the ana ly ti ca l engine of Charles Babbage. In 1820, Joseph-Marie Jacquard, a textile manufacturer in France, produced the loom. This device allowed the repetition of a series of steps in the weaving of special fabrics. This result in a fear amongst Jacquard‘s employee

that their traditional employment and livelihood were being threatened. They 6


committed acts of sabotage to discourage Jacquard from Further use of the new technology. This is the first recorded cyber crime! Today computers have come a long way, with neural networks andnanocomputing promising to turn every atom in a glass of water into a computer capable of performing performing a Billion operations per second. Cyber crime is an evil having its origin in the growing dependence on computer in modern life. In a day and age when everything from microwave ovens and refrigerators to nuclear power plants is being run on computers, cybercrime has assumed rather sinister implications. Major Cyber crimes in the recent past include the Citibank rip off. US $ 10 million were fraudulently transferred out of the bank and into a bank account in Switzerland. A Russian hacker group led by Vladimir Kevin, a renowned hacker, perpetrated the attack. The group compromised the bank's security systems. Vladimir was allegedly using his office computer at AO Saturn, a computer firm in St Petersburg, Russia, to break into Citibank computers. He was finally arr este d on Heat hrow air port on h is way to Sw Switze itzerrlan land.

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CYBERCRIMES CYBERCRIMES IN INDIA As India become the fourth highest number of Internet users in the world, cyber crimes 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% of cyber crimes were related to incident 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 cases, offenders were between 18 and 30. These cyber crimes are publishable publishable 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 cyber crime 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 cyber crimes in the country. country. In order to tackle with cyber crime, Delhi Police have trained 100 of its officers in handling cyber crime 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 Go bind Singh Indraprastha University (GGSIPU) was the trainers.

CYBERSPACE 8


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 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. Decisionmakers 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 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 c ri mi na ls tr y to ge t a wa y easily easily when when caug caught ht and and als also o give give them them a chanc chancee to 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 crime 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 drawback from 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. 9


TYPES OF CYBER CRIME 1. Theft of Telecommunications Services

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The "phone phreakers" of three decades ago set a precedent for what has become a major criminal industry. By gaining access to organizations can obtain access to dial-in/dial-out circuits and then market 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

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Just as legitimate organisation in the private and public sector rely upon information systems for communication and record keeping, so too are the activities of criminal organisation enhanced by technology. Just as legitimate organization in the private and public sector rely upon information systems for communication 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 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 porno graphy 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. 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 whic h extend cross-nationally, use

sophisticated

technologies

of

co nc ea lmen t, an d entail a significant degree of coordination. Il lu stra ti ve 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 ―Operating Cathedral‖ 12


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 irresistable 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.

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3. DISSEMINATION OF OFFENSIVE MATERIALS Content considered by some to be objectionable exists in abundance in cyberspace. This includes, among much else, sexually explicit materials, racist propaganda, and instructions for the fabrication of incendiary and explosive devices. Telecommunications systems can also be used for harassing, threatening or intrusive communications, from the traditional obscene telephone call to its contemporary manifestation in "cyber-stalking", in which persistent messages are sent to an unwilling recipient. One man allegedly stole nude photographs of his former girlfriend and her new boyfriend and posted them on the Internet, along with her name, address and telephone number. The unfortunate couple, residents of Kenosha, Wisconsin, received phone calls and e-mails from strangers as far away as Denmark who said they had seen the photos on the Internet. Investigations also revealed that the suspect was maintaining records about the woman's movements and compiling information about her family (Spice and Sink 1999). In another case a rejected suitor posted invitations on the Internet under the name of a 28-year-old woman, the would-be object of his affections, that said that she had fantasies of rape and gang rape. He then communicated via email with men who replied to the solicitations and gave out personal information about the woman, including her address, phone number, details of her physical appearance and how to bypass her home security system. Strange men turned up at her home on six different occasions and she received many obscene phone calls. While the woman was not physically assaulted, she would not answer the phone, was afraid to leave her home, and lost her job (Miller 1999; Miller and Maharaj 1999). One former university student in California used email to harass 5 female students in 1998. He bought information on the Internet about the women using a professor's credit card and then sent 100 messages including death threats, graphic sexual descriptions and references to their daily activities. He apparently made the 14


threats in response to perceived teasing about his appearance (Associated Press 1999a). Computer networks may also be used in furtherance of extortion. The Sunday Times (London) reported in 1996 that over 40 financial institutions in Britain and the United States had been attacked electronically over the previous three years. In England, financial institutions were reported to have paid significant amounts to sophisticated computer criminals who threatened to wipe out computer systems. (The Sunday Times, June 2, 1996). The article cited four incidents between 1993 and 1995 in which a total of 42.5 million Pounds Sterling were paid by senior executives of the organisations concerned, who were convinced of the extortionists' capacity to crash their computer systems (Denning 1999 233-4).

5.

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 15


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).

6.

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 (Hundley and Anderson 1995, Schwartau 1994). 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 16


commercial organisations (Rathmell 1997). http://www.2600.com/hacked_pages/ (visited 4 January 2000). This may also operate in reverse: early in 1999 an organised 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 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 (Mark off 2000).

7. 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 17


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).

8. ILLEGAL INTERCEPTION OF TELECOMMUNICATIONS 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.

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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 organisation attacked the communications system of the Amsterdam Police. The hackers succeeded in gaining police operational intelligence, and in disrupting police communications (Rathmell 1997).

9. 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 Hacker:

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Hacker is a term used by some to mean "a clever programmer" and by others, especially those in popular media, to mean "someone who tries to break into computer systems." 1) Eric Raymond, compiler of The New Hacker's Dictionary, defines a hacker as a clever programmer. A "good hack" is a clever solution to a programming problem and "hacking" is the act of doing it. Raymond lists five possible characteristics that qualify one as a hacker, which we paraphrase here:

A person who enjoys learning details of a programming language or system A person who enjoys actually doing the programming rather than just theorizing about it A person capable of appreciating someone else's hacking A person who picks up programming quickly A person who is an expert at a particular programming language or system, as in "UNIX hacker"

2) The term hacker is used in popular media to describe someone who attempts to break into computer systems. Typically, this kind of hacker would be a proficient programmer or engineer with sufficient technical knowledge to understand the weak points in a security system.

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Motive Behind The Crime a. Greed b. Power c. Publicity d. Revenge e. Adventure f. Desire to access forbidden information g. Destructive mindset h. Wants to sell n/w security services

Theft: This crime occurs when a person violates copyrights and downloads music, movies, games and software. There are even peer sharing websites which encourage software piracy and many of these websites are now being targeted by the FBI. Today, the justice system is addressing this cyber crime and there are laws that prevent people from illegal downloading.

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Cyber Stalking: This is a kind of online harassment wherein the victim is subjected to a barrage of online messages and emails. Typically, these stalkers know their victims and instead of resorting to offline stalking, they use the Internet to stalk. However, if they notice that cyber stalking is not having the desired effect, they begin offline stalking along with cyber stalking to make the victims‘ lives more

miserable.

Identity Theft: This has become a major problem with people using the Internet for cash transactions and banking services. In this cyber crime, a criminal accesses data about a person‘s bank account, credit cards, Social Security, debit card and

other sensitive information to siphon money or to buy things online in the victim‘s name. It can result in major financial losses for the victim and even spoil the victim‘s credit history.

Malicious Software: These are Internet-based software or programs that are used to disrupt a network. The software is used to gain access to a system to steal sensitive information or data or causing damage to software present in the system.

Child soliciting and Abuse:

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This is also a type of cyber crime wherein criminals solicit minors via chat rooms for the purpose of child pornography. The FBI has been spending a lot of time monitoring chat rooms frequented by children with the hopes of reducing and preventing child abuse and soliciting.

CLASSIFICATION

OF

CYBER

CRIME Cybercrimes can be basically divided into 3 major categories:

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classification of cyber crime

1.Cyber crime against Individual

2.Cyber crime Against Property

3.Cyber crime Against Organization

4.Cyber crime Against Society

1)Against Individuals: (i)Email spoofing: A spoofed email is one in which e-mail header is forged so that mail appears to originate from one source but actually has been sent from another source. (ii) Spamming:

Spamming means sending multiple copies of unsolicited mails or mass emails such as chain letters.

(ii)Cyber Defamation: This occurs when defamation takes place with the help of computers and / or the Internet. E.g. someone publishes defamatory matter about someone on a website or sends e-mails containing defamatory information.

(iv)Harassment & Cyber Stalking: 24


Cyber Stalking Means following the moves of an individual's activity over internet. It can be done with the help of many protocols available such at email, chat rooms, user net groups.

(2) Against Property: (i) Credit Card Fraud: (ii) Intellectual Property crimes: These include 

Software piracy: illegal copying of programs, distribution of copies of software.



Copyright infringement



Trademarks violations



Theft of computer source code

(iii) Internet time theft: the usage of the Internet hours by an unauthorized person which is actually paid by another person.

(3) Against Organisation (i) Unauthorized Accessing of Computer:

Accessing the computer/network without permission from the owner. It can be of 2 forms:

a) Changing/deleting data: Unauthorized changing of data.

b) Computer voyeur: The criminal reads or copies confidential or proprietary information but the data is neither deleted nor changed.

(ii) Denial of Service: 25


When Internet server is flooded with continuous bogus requests so as to denying legitimate users to use the server or to crash the server.

(iii)Computer Contamination/ Virus Attack: A computer virus is a computer program that can infect other computer programs by modifying them in such a way as to include a (possibly evolved) copy of it. Viruses can be file infecting or affecting boot sector of the computer. Worms, unlike viruses do not need the host to attach themselves to.

(iv) E-mail Bombing: Sending large numbers of mails to the individual or company or mail servers thereby ultimately resulting into crashing.

(v)Salami Attack: When negligible amounts are removed & accumulated in to something larger. These attacks are used for the commission of financial crimes.

(vi)Logic Bomb: It‘s an event dependent programme, as soon as the designated event

occurs, it crashes the computer, release a virus or any other harmful possibilities.

(vii) Trojan Horse: An unauthorized program which functions from inside what seems to be an authorized program, thereby concealing what it is actually doing.

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(viii) Data diddling: This kind of an attack involves altering raw data just before it is processed by a computer and then changing it back after the processing is completed.

(4) Against Society (i) Forgery: Currency notes, revenue stamps, mark sheets etc can be forged using computers and high quality scanners and printers.

(ii) Cyber Terrorism: Use of computer resources to intimidate or coerce others.

(iii) Web Jacking: Hackers gain access and control over the website of another, even they change the content of website for fulfilling political objective or for money.

REASONS FOR CYBER CRIME Hart in his work ―The Concept of Law‖ has said ‗hu man beings are vulnerable so rule of law is required to protect them‘. Applying this to the

cyberspace we may say that computer are vuln erab le (c ap able of at ta ck) so rule of law is required to protect and safeguard them against cyber cri me . Th e reasons for the vulnerability of computers may be said to be:

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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.

2 . Eassy To Access The problem encountered in guarding a computer system from unauthorized 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 t o get past man y a security system.

3. Coplex The computers work on operating systems and these operating systems in turn are composed of millio ns o f c odes. Human mind is falli ble and it is no t possible that there mi ght not be a lapse at any stage. The cyber criminals take advantage of these lacunas and penetrate into the computer system.

4. Negligence Neglige nce is very closely connected wi th huma n cond uct. It is therefore very probable that while protecting the computer system

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there

might

be

any

negligence,

which

in

turn

prov ide s

a

cyb er 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.

BANKING SECTOR The Banking Industry was once a simple and reliable business that took deposits from investors at a lower interest rate and loaded it out to borrowing at a higher rate.

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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 mo re use risk.

Through

technology

comp lex produ cts that development, banking

services have become available 24 hours a da y, 365 days a week, through ATMs, at online banking, 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, 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. Ba nk in g serv ic es in cl ude 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 30


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 inexistence in India is the State Bank of India , a govern ment -owne d ba nk t hat trac es its origin s 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 Imperial Bank of India, regarding it to commercial banking functions. After India independent in 1947, the Reserve Bank was n ationalized and give n broader po wers. In 1969 the government nationalized the 14 largest commercial banks; the government nationalized the six next largest in 1980. Currently, India has 88 scheduled commercial banks (SCBs) 27 public sector banks (that is with the Governm ent 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% an d 6.5% respectively.

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

31


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 it represent the amount of debt and the other side was a record of payments. In the 1920‘s, a shopper‘s

plate - a "buy now, pay later" sys tem - was introdu ced in the USA. It could only be used in the shops which issued it. 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‖.

32


IF CARD IS STOLEN When a credit card is lost or stolen, it remains usable until the h ol de r no ti fi es th e b an k t h a t t h e c a r d i s l o s t ; m o s t b a n k s h a v e 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 abse nce of othe r s ecu rity mea sure s, a t hief coul d 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.

33


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 a re 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 fo rge. Many me rchants will dema nd to see a pict ure ID, such as a drive r'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 merc hant 's agre eme nt with the cred it 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 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 proba bility of fraud based on a nu mb er of factors. For examp le, a large transaction occurring a great distance from the card holder's home might be flagged as suspicious. The merchant may be 34


ins tru cte d t o c all the ban k f or ver ifi ca tio n, 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.

Compr omised Accounts Card account information is stored in a number of formats. Account numbers are embossed or imprinted on the card a magnetic stripe on the contains the data in machine readable format. Fields can vary, but the most common include: 

Name of card holder



Account number



Expiration date

Many Web sites have been compromised in the past and theft of credit card data is a major concern for banks. Data obtained in a th ef t, li ke ad dr es se s or ph on e nu m be rs , ca n be highly useful to a thief as additional card holder verification.

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

o r d e r a n d s i m i l a r t r a n s a c t i o ns i s " C a r d N o t

for

catalog

Present" (CNP),

meaning tha t the c ard is not physically a vailable for the merchant to inspect. The merchant must rely on the holder (or someone purporting to be the holder) to present the information 35


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 merc hant ban king syst ems offe r simpl e metho ds 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

me r c h a n t

banks

for

t h e privilege of accepting cards.

Anonymous scam artists bet on the fact that many fraud prevention features do not apply in this environment. Merchant associations have developed some prevention measures, such as single use card numbers, but these have not met with much success. Customers expect to be able to use their credit card without any hassles, and have little incentive to pursue additional security due to laws limiting customer liability in the event of fraud. Merchants can implement these prevention measures but risk losing business if the customer chooses not to use the measures Account Takeover

There are two types of fraud within the identity theft category: 1. Application Fraud. 2. Account Takeover. 36


1. Application Fraud. Application fraud occurs when criminals use stolen or fake documents to open an account in someone else‘s name. Criminal may try to steal documents

such as utility bills and bank statements to build up useful personal information.

2. Account Takeover. Account

takeover involves a criminal

trying

to take

over

another person‘s account, first by gathering information about the intended victim, then contacting their bank or credit issuer- ma sque radi ng as th e genuine cardholder-asking for mail to be redirected to a new address. The criminal then reports the card lost and asks for a re pla ce men t to be sent . The rep lac eme nt card is then used fraudulently.

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 37


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 replace these traditional monetary instruments from a paper and mental based currency to ―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 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 paym ent of shopping bills, electricity bills, school fees, phone bills, insurance premi um, travelling bills and even petrol bills. The convenience and safety that credit cards carry with its use has been instrumental in increasing both cre dit card vo lume s and usage . Thi s grow th 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. Thought card Jamming ATM‘s card reader is tampered with in order to trap a customer‘s card. Later on the criminal removes the card. 2. Card Skimming, is the illegal way of stealing the card‘s security

information from the card‘s magnetic stripe. 3. Card Swappi ng, through this customer‘s card is swapped for

an other ca rd without the knowledge of cardholder.

38


4. Website Spoofing, here a new fictitious site is made which looks

au th en ti c to th e us er 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.

HOW TO USE CASH MACHINE

39


Be aware of other around you. If someone close by the cash machine is behaving suspiciously or make 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 unusua l about the cash machi ne repor t 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 it‘s possible the offender may be nearby.

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 cash machine, cancel the card immediately with the card issuer‘s 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.

Card Fraud Also Happens In The Home: Cardholder 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.

40


1.D o N o t C l i c k O n H y p e r l i n k s S e n t T o Y o u B y E m a i l A s k i n g Y o u T o 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 pers onal details. Ph one yo ur ba nk instead on their ma in customer number or access your account using the bank's main website address. Use good antivirus and firewall protection.

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.

PREVENTION FOR ATM CARDS Most ATM fraud happens 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 fraud in India is more in regard to negligence of the Personal Identification Numbe r (P IN ), than by sophi sticated cri mes 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 attachment. Criminals often capture information through

ATM skimming – using devices that steal magnetic strip information. At a 41


glance, the skimmer looks just like a regular ATM slot, but it‘s an attachment that captures ATM card number. To spot one, the attachment slightly protrud es from the ma chine and ma y not be parallel wi th 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 hi dden cameras facing the ATM screen. There‗s 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. 2. 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. 3. Mark smart deposits. Some ATMs allow you to directly deposit checks and

cash into your accounts without stuffing envelopes. As for the envelope-based deposit, make sure they go through- if it gets jammed and it doesn‘t fully go into the machine, the next person can walk up and it out. After having made the ATM deposit, compare your record with the account statements or online banking records.

42


INDIAN SCENARIO In India, where total number of installed ATM‘s base is far less

than many developed countries. ATM-related frauds are very less. But they could increase as more and more ATM‘s will penetrate in the country, the bank

should create awareness among customers about the card-related frauds to reduce the number of frauds in future. In India, Indian Banks Association (IBA)can take lead to kick started. 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 enfor ceme nt ma chinery. 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 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 gives greater ―protection‖ to the ATMs, particularly those located in less

secure areas. The nature and the extent of measures to be adopted will, however, depend upon the requirements of the respective banks.

43


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 Inter net. Comput er netwo rks and Inter ne t, in part icula r, 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-wal let et c. for exa mpl e, sma rt cards lik e Vis a 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 form of computer-based emoney, 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 tool in the hands of money launderers. First and foremost, the anonymity offered by internet and cyber payment system is 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 44


problem is further compounded by the fact that, in many countries, nonfinancial 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 ju ri sd ict ion al

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.

45


WHY MONEY LAUNDERING? The most important aim of money laundering is to conceal the original of the money, which, in almost all cases, is from illegal activity. Criminal resort to this practice it avoid 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. Future, their aims could be to increase the profit 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,

46


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 threestage 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 47


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 commerci al organizations and depositing the money. Online banking and Internet bank ing 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 provi de anon ym ity. This is used to distance the mo ney from the sources. This is achieved by moving the names from and to offshore bank accounts 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 broke rs, stock brok ers 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.

48


3. INTEGRATION Integration is third sub process. This is the stage in which the ‗cleaned‘

money is ploughed back. This is achieved by making it appears 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 funct io n li ke an y ot he r e business as far as the outside wor ld is concern ed. This anonym ity 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 launderer‘s first activity is to set up an online commerce company which is legal. Normally, the la under er s e t s u p t h e w e b s i t e f o r h i s c o m p a n y a n d a c c e p t s on li ne pa ym en ts us in g cr ed it ca rd s fo r th e purchases made from his company‘s 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 Web-based system then sends an invoice to the customer‘s (who happens to the launderer himself) bank, in the safe haven.

The bank then pays the money into the a ccount of the co mpany. 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 whe re t he c r i m i n a l s a r e u s i n g cryptography for hiding their transaction. 49


BUSINESS AREAS THAT SUPPORT OR ARE PRONE TO MONEY LAUNDERING 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 f o r l a u n d e r e r s are Cayman Islands, Cyprus, Luxe mbourg, and Swi tzerland . T h e o f f s h o r e 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, Ber ltlot Brecht said, ‗If you want to steal, and 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 countri es by

different

na mes . 50


China follows a system called ‗Fic Chin‘. Under this system , m oney 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 other business areas that are actively involved in money launderi ng process. In all the case s the underlying factor

is paperless

transactions.

It

wa s

al so

fo un d

th at

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 ‗CarliCartel‘ was reported to have inves t e d h e a v i l y a n d I t a l i a n m a f i a reportedly purchased shares in Italian banks. This only shows the extent of the problem and also t h a t t h e b a n k s 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.

51


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 exchang e rate. Further, money laundering can undermine the credibility of the banking

sys tem.

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 understands the impact of money laundering on economies of developing countries. The low regulation by central banks will become difficult and consequently, 52


there will be rise in inflation. Future, 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 Cartel‘s 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.

53


Skimming

Skimming is the theft of credit card information used in an otherwise legitimate transaction. It is typically an "inside job" by a dishonest employee of a legitimate merchant, and can be as simple as photocopying of receipts. Common scenarios for skimming are restaurants or ba rs wh er e th e sk im me r has possession of the victim's credit card out of their immediate view. The skimmer will typically use a small keypad to unobtrusively transcribe the 3 or 4 digits Card Security Code which is not present on the magnetic strip. Instances of skimming have been reported where the perpetrator has put a device over the card slot of a public cash machine (Automated Teller Machine), which reads the magnetic strip as the user unknowingly passes their card through it. These devices are often used in conjunction with a pinhole camera to read the user's PIN at the same time. 54


Skimming is difficult for the typical card holder to detect, but given a large enough sample, it is fairly easy for the bank to detect. The bank collects a list of all the card holders who have complained about fraudulent transactions, and the merchants they use. For example, if many of the customers used one particular merchant, that merchant's terminals (devices used to aut ho ri ze transactions) can be directly investigated.

KIMMER Sophisticated algorithms can also search for known patterns of fraud. Merchants must ensure the physical security of their terminals, and penalties for merchants can be severe in cases of comp romi se, ranging from large fines to complete exclusion from the merchant banking system, which can be a death blow to businesses such as restaurants which re ly on cr ed it card processing

CARDING Carding is a term used for a process to verify the validity of stolen card data. The thief presents the card information on a website that has real-time transaction processing. If the card is processed successfully, the thief knows that the card is still good. The specific item purchased is immaterial, and the thief does not need to purchase an actual product; a Web site subscription or ch ari tab le don at ion

wou ld be suf fi ci ent . The

purchase is usually for a sma ll mo netary amo unt, both to avoid using the card's credit limit, and also to avoid attracting the bank's att en tio n. A website known to be susceptible to carding is known as a cardable website. In the past, carders used computer programs called "generators" to produce a sequence of credit card numb ers, and then test them to see which valid account were. Another variation would be take false card numbers to allocation that does not immediately process card

55


numbers, such as a trade show or special event. However, this process is no longer viable due to widespread requirement by internet credit card processing systems for additional data such as the billing address, the 3 to 4 digit card Security Code and/or the card‘s expiry date, as well as the more prevalent use of wireless card scanners that can process transactions right away. No wa days , carding is more typically used to verify credit card data obtained di re ct ly fr om th e victims by skimming or phishing. A set of credit card details that has been verified in this way is known in fraud circles as a phish. A carder will typically sell data files of phish to other individuals who will carry out the actual fraud. Market price for a phish ranges from US$1.00 to US$50.00 depending on the type of card, freshness of the data and credit status of the victim.

56


PREVENTION

FOR

CREDIT

CARD

FRAUD Credit card fraud is bad business. In 2004, credit card fraud cost US merchants 2,664.9 million dollars (Celent Communications). Credit card fraud is a significant problem in Canada, too. The credit card loss total for 2007 was $304,255,215, according to the RCMP. And while 'no-card' fraud is growing, most credit card frauds are still being committed using lost, stolen or counterfeit cards. Whether you have a brick-and-mortar business or an online one, credit card fraud is costing you money.

Credit card fraud prevention when dealing with credit card customers face-to-face 1. Ask for and check other identification, such as a driver‘s license or other

photo ID. Check to see if the ID has been altered in any way as a person trying to use a stolen credit card may also have stolen or fake ID. 2. Examine the signature on the card. If the signature on the credit card is smeared, it could be that the credit card is stolen and the person has changed the signature to his or her own. 3. Compare signatures. Besides comparing the signature on the credit card with the person‘s signature on the credit card slip, compare the signatures as well to those on any other ID presented.

4. Check the security feature of the credit card: 57


i. have another look at the card‘s signature panel. It should show a repetitive colour design of the Mas terC ard or Visa name . Alt ere d signa ture pane ls (those that are discoloured, glued, painted, erased, or covered with white tape) are an indication of credit card fraud. ii. Check the credit card‘s embossing. ―Ghost images‖ of other numbers behind the embossing are a tip-off that the card has been re-embossed. The hologram may be damaged.(The holograms on credit cards that have

not

been

tampered

with

will

show

clear,

three-

dimensional images that appear to move when the card is tilted.) 5. Check the presented card with recent lists of stolen and invalid credit card numbers. 6. Call for authorization of the credit-remembering to take both the credit card and the sales draft with you. That way if the customer runs away while you‘re making the call, you still have the credit card. Ask for a ―Code 10‖ i f you have re ason to su sp ec t a possible credit card fraud,

such as a possible counterfeit or stolen card. 7. Destroy all carbon copies of the credit card transaction, to ensure th at no on e can st ea l th e credit card information and help prevent future credit card fraud. It‘s also very important to be sure that your staff is educated about credit

card fraud. You can use the points above as a ―to do‖ list for dealing with credit card transaction. For information on the suspicious behavior that may indicate someone trying to commit credit card fraud, see Suspicious Behaviors That May Indicate Credit Card Fraud.

When dealing with credit card customers over the phone or through the Internet ,

credit

card

fraud

prevention

strategies

such

as

scrutinizing the credit card aren‘t going to work. You can, however,

58


be alert to suspi cious behaviors and shape yo ur credit policies to nip cr ed it ca rd fraud in the bud. 1. Don‘t process credit card orders unless the information is

complete. 2. Don‘t process credit card orders that originate from free e-mail addresses or

from e-mail forwarding addresses. In such a case, ask the customer for an IPS (Internet Service Provider) or domain-based e-mail address that can be traced back. 3. If the shipping address and the billing address on the order are different, call the customer to confirm the order. You may even want to make it a policy to ship only to the billing address on the credit card. 4. Be wary of unusually large orders. 5. Be wary of orders shipped to a single address but purchased with multiple cards. 6. Be wary of multiple transactions made with similar card numbers in a sequence. 7. Be wary of orders you‘re asked to ship express, rush or overnight. This is the shipping of choice for many credit card fraudsters. Call the customer to confirm the order first. 8. Be wary of overseas order- especially if the order exhibits any of the characteristics noted above. 9. The first is Mod10 algorithm testing. Mod10 is an algorithm that will show whether the card number being presented is valid card number and is within the range of numbers issued by credit card companies. It cannot give any other details like no. issued by any other company. This test should be first to be that it is applied to any credit card number one process. If the card fails Mod10 one can safely assume fraud.

59


Credit card fraud may not be entirely preventable, but by establishing and following procedures to check every credit card transaction, you can cut down your credit card fraud losses

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 60


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 f a s c i n a t i n g i d e a t o g e t t h e 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 promo ters said, had be en col lected in excess by mi stake from them. Believing that it was a genuine offer from the telecom company in quest 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 o t h e r s o f h i s i l k e n t e r e d i n t o a d e a l w i t h t h e g a n g b ehi nd th e 61


site and could purchase any amount of data, of course on certain te rms, or si mp ly 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 th e CB I. Bu t th e ci ty po li ce believe that this is the beginning of the end of a major cyber crimeion, several lakh.

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 profe ssional the Web site looks - doesn‘t mean it's true. The ready availability of 62


software that allows anyone, at minimal cost, 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 mo re about who 's asking. Criminals have been known to send messages in which they pretend to be (for examp le) a sys tems admi nistra tor or Internet service provider representative in order to persuade people online that the y should dis close v aluable personal data.

3. 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., "[email protected]"), that may be an in di ca ti on th at th e 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.

4. 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 promi sed. Legitimate startup "dot.com" comp anies, of course, m a y 63


not have the brand-name recognition of long-established c o m p a n i e s , a n d s t i l l b e f u l l y 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 ent ru st a significant amount of money to such companies.

5. 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 org ani zati ona l [Ba nk or Fin an ci al Institution], national. AT ORGANIZATIONAL [BANK] LEVEL

The banking and other financial organisations 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.

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 t ec hn ol og y,

w he re

it

is

cha ngi ng ver y fas t. By the

ti me

r e g u l a t o rs c o m e u p w i t h p r e v e n t i v e m e a s u r e s t o p r o t e c t 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 64


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 institutes 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 coo pera tive action on the pa rt 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 for monetary transactions. It is therefore in the interest of banks to prevent ATM frauds. There is thus a need t o t a k e p r e c a u t i o n a r y a n d i n s u r a n c e m e a s u r e s t h a t g i v e g r e a t e r " p r o t ection" 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 w i t h o u t

paying,

or to

obtain

unauthorized f u n d s f r o m a n a c c o u n t . C y b e r s p a c e a n d c y b e r pa yme nt methods are being abused by money launderers for converting their dirty money into legal money. For carrying out their activities 65


lau ndere rs need bank ing syst em. Inte rnet , onli ne 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 emoney by unregulated institutions may have none. Preventing cyber money laundering is an uphill task which needs to be tackled at different lev els. Thi s has to be fought on three planes, first by banks/ financial in st it ut io ns , sec on d 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 cyber crime 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 awa re of th ei r ri gh ts an d 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.

66

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