RAJIV GANDHI NATIONAL UNIVERSITY OF LAW, PUNJAB

[PROJECT WORK]

LAW OF CYBER LAUNDERING IN INDIA

(TRANSNATIONAL ORGANIZED CRIMES, 8TH SEMESTER)

SUBMITTED BY: SUBMITTED TO:

BHARAT DR. IVNEET KAUR WALIA
ROLL NO. : - 17038 ASSISTANT PROFESSOR OF
GROUP NO. : - 07 LAW
VIII SEMESTER
 TABLE OF CONTENTS
Acknowledgments

1. Introduction…………………………………………………………………..1

1.1 STATEMENT OF PROBLEM

1.2 OBJECTIVES
1.3 HYPOTHESIS
1.4 RESEARCH METHODOLOGY
1.5 SCOPE OF RESEARCH

2. What is Cyber Laundering ……………………………………..........……....4

3. Threats of increased Money Laundering ………………………………......6

3.1 THREATS DUE TO MONEY LAUNDERING IN WHATEVER FORM

3.2 HEIGHTENED THREATS DUE TO CYBER LAUNDERING

4. Stages of Money Laundering….………………………………………...…...8

5. Incident and Mechanism of Cyber Laundering …...……….…………..…..10

6. The Indian Policy Towards of Cyber Laundering …………….……...…....13

7. Balancing concerns of Financial Privacy ………………...…….……...…....15

8. Conclusion and Suggestions ………………………………….….……...…....16

9. Bibliography …………………………………..………………………...…....18
 ACKNOWLEDGEMENTS

It is a genuine pleasure to express my deep sense of thanks and gratitude to my Law teacher
Dr. Ivneet Kaur Walia, Assistant Professor of Law, who not only give me opportunity to
work on ‘LAW OF CYBER LAUNDERING IN INDIA, but also gave crucial support in
bringing to completion of the project. Without her sustained attention and searching
discussion on each topic, my project ‘LAW OF CYBER LAUNDERING IN INDIA’ would
never become what it is.
I also wish to express my gratitude to the officials and others staff members of library of
RGNUL who rendered their help during the period of my project work.

I also thank to all my friend who have more or less contributed to the preparation of this
project. I will be always indebted to them.

The study has really helped me to explore more knowledge about my topic and I am sure it
will help in my future.

— Bharat
Roll No.: - 17038
 LAW OF CYBER LAUNDERING IN INDIA

INTRODUCTION

“...and I will give him a white pebble, and on that pebble a new name written which no one
knows except the one receiving it.”1

This quote from the Holy Bible best sums up the state of the internet and the predicament
faced by law enforcement agencies. The absence of identification is the biggest benefit for
users, but also the biggest headache for security agencies. This is seen none more so than
in the area of money laundering, which has now moved to the internet, utilizing it as a
mode for preparation, execution and completion. The problem of money laundering has
indeed reached epic proportions. The International Monetary Fund estimates that two to
five percent of the global economy involves laundered money, while the Financial Action
Task Force on Money Laundering, an intergovernmental body set up to combat the
problem, simply states that it is “impossible to produce a reliable estimate of the amount
of money laundered.”

Generally, it has been characterized to be the world‗s third-largest business‘‘. What is

undisputable is that the stakes are high, not only because of where the funds may be applied,
but also because of the magnitude of the funds involved.

1.1. STATEMENT OF PROBLEM

This research is being carried out with a view to help and make public aware about the
laws and respective punishments relating to Cyber laundering in India. To adopt Anti-cyber
laundering standards and also to find out the lacunas which our legal system has and the
effect of money laundering on the economic system as well as the effect on the society,
and also the efforts of the government, the grey areas taken in view of this problems.

It will let us know why after giving clear cut guidelines relating to money laundering, the
budget, and the economy.

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This research will enable the society in a way to find out the root cause of this problem and
to overcome it. This research is be beneficial for academicians, students, lawyers, student
committee, judges and also all those interested to learn about money laundering in India
specifically and throughout the world in general. This research will be used as a source of
study material for future academicians or researchers.

1.2. OBJECTIVES

The purpose of this paper is to examine the term “Money Laundering,” to find the grey
areas of the Prevention of Money laundering Act and give suggestions / recommendations
to overcome such problems. The major objectives of Money Laundering activities are:

• To identify the grey areas of counter measures and provides suitable solutions.

• To prevent, combat and control money laundering.

• To deal with any other issue related with money laundering

The aim of this study is to understand the concept of cyber laundering, the emerging legal

trends towards this particular crime and the importance to guard against excessive invasion

into the financial privacy of citizens. The paper seeks to propose regulations that promote

efficient transactions over the web while preventing money laundering.

1.3. HYPOTHESIS

The present research has determined the following hypothesis to achieve the objectives.

1. Whether Money Laundering and Cyber Laundering is recognized under India law?

2. Whether curbing of the activities will help the Indian Economy considering the gigantic
proposition of the money laundering?

3. Whether the study will lead to suggestions to curb the activities?

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1.4. RESEARCH METHODOLOGY

The researcher has adopted doctrinal research method which implies the use of secondary
sources while making the paper. Various books, articles and journals have been researched
sand evaluation of the same was done while writing this research. Further reference of the
landmark judgments was taken however not all the cases regarding this topic. Other sources
like the internet have been used and total analysis of all the sources was done.

The research methodology adopted for this project is primarily doctrinal in nature, by
primarily reviewing existing literature. The data collected and interpreted in this project is
mainly secondary in nature.

1.5. SCOPE OF RESEARCH

The scope of this research is restricted to various statutes regarding money laundering and
its effects on the economy which is a very serious replication on our economy .In
furtherance to this it will be evaluated whether these provisions are sufficient enough to
give a better and successful result.

This research is being carried out with a view to help and make public aware about the
laws and respective punishments relating to Money laundering in India.To adopt Anti-
money laundering standards and also to find out the lacunas which our legal system has
and the effect of money laundering on the economic system as well as the effect on the
society, and also the efforts of the government, the grey areas taken in view of this
problems.

Since the subject of this project has many magnitude and perspectives legally and socially.
Thus the scope of the research is very wide for further future researches. The researcher
has just focused upon the details on the legal aspects and has touched upon the Social
aspects.

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 WHAT IS CYBER LAUNDERING?

Money laundering generally refers to the process of concealing the source of money that
has been obtained by illicit means.1 It takes its name because it correctly describes what
takes place in the process – illegal, or dirty money is put through a cycle of transactions,
or washed, so that it comes out the other end as legal, or clean, money. The origin of the
term relates to mafia members in the US buying Laundromats, so that they could mix their
illegal money with the legal revenue earned by the Laundromats.

With the advent of the internet and its increasing use for financial transactions and business,
money laundering has obtained a new field of operation. Thus, cyber laundering may be
described as the process of “utilizing Internet -based electronic wire transfer methods, such
as Internet banking or online gambling, in furtherance of disguising the source of illegally
obtained money.”4 In essence, the object remains the same i.e. to legitimise illegal funds
and hide their source; however, the classification of an act as cyber laundering rests on the
internet being a mode of preparation, execution or conclusion of that activity.

Understanding E-Cash

As the financial world moved online, the demand for efficient transactions led to the
establishment of electronic cash or simply E-cash‗. It plays the same role in the virtual
world as physical currency does in the real world and is hence sometimes termed as the
“greenback of the Internet.” The terms digital cash‗, digital currency‘ and cyber -currency‘
are all synonyms for such an electronic medium of exchange which has no intrinsic value,
being merely binary code (series of 0‗s and 1‗s) in itself, and the barest trace of physical
existence.

It comes in three forms: three forms:

(i) operating within traditional financial institutions, such as banks;

(ii) operating in a tokenized‘ system and;

1
Rob McCusker, Underground Banking: Legitimate Remittance Network or Money Laundering System?,
Crime And Justice International 21(89), 4 (2005).

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(iii) operating as a hybrid system. The most common use of e -cash is through debit and
credit cards, though stored value cards are also gaining in popularity. E-cash allows actual
assets to be transferred through digital communications in the form of individually
identified representations of bills and coins. This is similar to the serial numbers found on
physical currency.2

For launderers, the key element of e-cash is it‘s practically anonymity. Financial security
of internet users means that e-cash transactions require total privacy. This is indicated by
secure codes or SSL locks that spring into action, whenever one engages in any e-
commerce; particularly, the use of debit or credit cards online. Money launderers exploit
this characteristic of internet commerce in order to disguise their transactions.

Legal Crossover

Money laundering itself has a massive social aspect and cyber laundering adds to the
predicament. The application of laws dealing with traditional money laundering to cyber
laundering activities is fraught with difficulty. The fear of money laundering only ends up
increasing regulatory frameworks which, in turn, affect the ability to conduct convenient,
efficient and relatively private financial transactions. In this sense, cyber laundering
regulations walk a tight-rope between individual financial privacy rights and legitimate law
enforcement interests. The paper seeks to unravel this complex web of rights and duties.

2
Stephen Jeffrey Weaver, Modern Day Money Laundering: Does the Solution Exist in An Expansive System
of Monitoring & Record Keeping Regulations? 24 Ann. Rev. Banking & Fin. L. 443, 444 (2005).

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 THREATS OF INCREASED MONEY LAUNDERING

Before delving into the depths of the issues at hand, it is worthwhile to consider why
increased money laundering presents is such a matter of concern. It is seen that money
laundering is not per se a dangerous crime; however, it position as a resource for numerous
other dangerous crimes, lends it its classification as a dangerous crime. It is an integral part
of the crime itself, whether that ultimate crime is a blue-collar one, such as drug trafficking
or a whitecollar one, such as embezzlement.

3.1. THREATS DUE TO MONEY LAUNDERING IN WHATEVER FORM

Each of the threats discussed here may arise due to money laundering in the physical form
or due to cyber laundering:

(i) Terrorism Financing : The war against terrorism is a matter of global importance. One
facet of this war is to destroy the support systems that aid in execution of a terrorist attack.
This would include the financing of terror groups, which is usually done using laundered
money. The scale of the problem came to light immediately after the September 11, 2001,
attack on the World Trade Centres in New York. Terrorists themselves are not too
concerned about disguising the origin of the money, but rather on concealing its destination
and purpose. The widespread availability of the internet provides a convenient method for
terrorist organizations to transfer funds, both illegal and legal, to cells across the globe.3

(ii) Fuel for Organized Crime: Laundered money becomes a fuel for organized crime like
drug trafficking. With most countries having strict laws on drug control, money collected
from the sale of drugs will always need to be laundered. Large-scale drug traffickers face
a unique problem of managing large sums of cash, much of it in small bills obtained from
the payments made by customers. For example, in Operation Polar Cap in 1980, US agents
acting as distributors for the Medellin cartel had to handle approximately $1.5 million a
week in small denomination currency.4 Such large and steady cash flows are rare among
legitimate businesses.

3
Stephen I. Landman, Funding Bin Laden’s Avatar: A Proposal for the Regulation of Virtual Hawalas, 35
Wm. Mitchell L. Rev. 5159, 5169-5171 (2009).
4
PETER REUTER, CHASING DIRTY MONEY: THE FIGHT AGAINST MONEY LAUNDERING 41 (2004)

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(iii) Corruption: Corrupt public officials have to launder bribes, kick-backs and siphoned
public funds. In India, the famous Koda Scandal, involving money laundered by the former
Jharkhand Chief Minister, Madhu Koda, is a prime example of such threats5. This leads to
reduced government credibility and affects the quality of public services. Embezzlement,
fraud, and tax evasion proceeds are other avenues for money laundering.

(iv) Negative Impact on the Economy of the Country: Money-laundering may hut a nations
economy by changing the demand for cash, making interest and exchange rates more
volatile, and by causing high inflation.

(v) Loss of foreign investment: Investments, and particularly foreign investments, which
aid in long-term economic growth of a nation, rely on stable conditions and good
governance. These are absent in nations with weak anti-money laundering regimes.
Investors demand probity and integrity from financial institutions that deal with their
money and would hence shun an institution found to assist in money laundering.

3.2. HEIGHTENED THREATS DUE TO CYBER LAUNDERING

Although the process of cyber laundering mirrors the traditional methods of physical
money laundering, it presents certain other heightened threats as compared to the latter:

(i) Efficiency: Cyber laundering avoids the problems associated with physically
transferring large sums of money, and allows instant transfers of money from and to
anywhere in the world. As there is no requirement to physically transport the money, the
launderer can rely on fewer cronies and has less opportunities of being caught.6

(ii) Anonymity: Cyber laundering removes the need for execution or completion of
transactions in person. In turn, the anonymity of the internet makes it near impossible for
governments to reconstruct the transactions in an audit trail. Digital cash is for all practical
purposes, unconditionally untraceable, as the blinding carried out by the user‗s computer
makes it impossible to link payments to the payer.

5
News Report, Madhu Koda and Associates Laundered a Staggering Rs. 3356 crore, INDIA TODAY,
February 20, 2012, New Delhi.
6
Wendy J. Weimer, Cyberlaundering: An International Cache for Microchip Money, 13 DePaul Bus. L.J.
199, 220 (2001).

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 STAGES OF MONEY LAUNDERING

Money laundering is usually described in terms of three sequential stages –

placement,layering, and integration. It need not be that all three stages occur, or that they
can be separated from each other. Nevertheless, this three-stage classification is a useful
decomposition of what is otherwise a complex process.

4.1. STAGES IN TRADITIONAL MONEY LAUNDERING7

(i) Placement: This is the basic stage where the launderer places the illegal funds into the
financial system. This could be done by depositing it into a bank, or introducing it into the
retail economy through the purchase of goods (usually of high value), property, or business
assets. In case of bank deposits, the trend is to use a process called smurfing, i.e. breaking
up of large amounts of cash into smaller amounts so that the transactions fall below the
reporting requirements of a given jurisdiction. Thus, in USA, banks must report domestic
transactions over $10,000 and international transactions over $5,000 to the Treasury
Department and so transactions will be structured accordingly. In India, deposits over Rs.
50,000/- are noted by requiring presentation of the PAN card; thus launderers would keep
their deposits to lesser than this amount.Thus, the aim of this stage is to remove the illegal
money from the area of acquisition, and escape detection by the authorities in doing so.

(ii) Layering : This is the process by which the source and ownership of the funds are
sought to be concealed. This is usually done by undertaking multiple and complex financial
transactions, such as international wire transfers or placing funds in an overseas bank. The
aim here is to distance the funds from their criminal origin and make it difficult for anyone
to trace the trail of the funds. Due to the large number of transactions undertaken each day,
authorities are unlikely to catch a launderer at this stage of the process.

(iii) Integration: This stage involves the reintroduction of funds back into the legitimate
economy. This could be done by various means that bring legitimacy to the funds – most

7
JAMES RICHARDS, TRANSNATIONAL CRIMINAL ORGANIZATIONS, CYBERCRIME, & MONEY LAUNDERING:
A HANDBOOK FOR LAW ENFORCEMENTS OFFICERS, AUDITORS, & FINANCIAL INVESTIGATORS 46-47
(1999).

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common are creating anonymous dummy corporations or investing in real estate. Once this
is complete, the launderer has cleansed (laundered) his ill-gotten money.

4.2.. THE IDEAL CONDITIONS FOR EXECUTION OF THE STAGES IN CYBER

LAUNDERING

(i) Placement : At this stage, cyber launderers benefit from the anonymity of internet
transactions and e-Cash. The transactions are thus not face-to-face or even physical. This
allows them to go by undetected, by avoiding the strict reporting requirements imposed on
traditional financial institutions.

(ii) Layering : It is at this stage that the advantages of the internet truly can be realized,
over traditional forms of layering. The launderer must find an institution, such as an online
gambling site will permit him to set up an account without physical verification or
documentary identification. This makes it extraordinarily difficult for enforcement
authorities to trace the account back to the cyber launderer. Furthermore, the internet
provides near instantaneous transfer of funds which can occur anywhere in the world, as
the only requirement is to possess an internet connection. Online bank transfers are
particularly difficult to trace back, particularly where there is use of disguised IPs etc.The
deeper this dirty money gets into the international banking system, the more difficult it
becomes to identify its origin.

(iii) Integration: Integration is made easier by cyber laundering. For instance, a launderer
could setup an online gambling site and transfer illegal funds, mixing it with the proceeds
of the site itself. The funds then appear legitimate to authorities tracing the audit trail of
the profits. In fact, the launderer could use legitimate bankers and lawyers at this stage,
without too much hassle. Other modes of integration include using debit cards issued by
offshore banks to make purchases online, fake loans from offshore companies, or simply
executing a traditional integration measure, like purchase of real estate, online.

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 INCIDENTS AND MECHANISMS OF CYBER LAUNDERING

The methods by which money may be laundered are varied and can range in sophistication.
Earlier, laundering money was a physical effort of actually transporting currency, which
has been eliminated by cyber laundering. It was limited by the creative ability to manipulate
the physical world. The classic methods were flying hard cash out of one country and
depositing it in a foreign bank, bribing a bank teller, discretely purchasing property, or for
smurfs to deposit small cash amounts at a bank to avoid reporting requirements. These
methods have now evolved with the advent of cyber laundering.

The goal of any mechanism applied by the launderer is to convert one liquid asset into
another asset, which is preferably in a less liquid form, so as to make identification of the
source of the acquisition as difficult as possible. It should be noted that money is only a
means of exchange rather than an end it itself. This is known as the dispositional imperative
of money i.e. it is useless to keep as a product in itself, and needs to be disposed to yield
any benefit to the holder.8 The mechanisms of money laundering focus on this
characteristic of money in seeking to legitimise illegally obtained money. At the same time,
it is this characteristic that provides enforcement authorities with effective leverage to
entrap transgressors, since the points of disposal are where the offenders may be caught.
The mechanisms and incidents of cyber laundering should be understood in this light.

5.1 TRADITIONAL MECHANISMS THAT MAY BE APPLIED FOR CYBER

LAUNDERING

(i) Wire Transfers: This is akin to the physical transfers of money that would happen earlier.
However, wire transfers i.e. electronic transfers allow swift and nearly risk free conduit for
moving money between countries. Considering that on average 700,000 wire transfers
occur daily in any major jurisdiction like the US, UK or India, moving billions of dollars,

8
Brett Watson, The Global Response To Money Laundering, available at
http://www.aic.gov.au/events/aic%20upcoming%20events/2002/~/media/conferences/2002-
ml/part1.pdf (last accessed on 10 May 2021).

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illicit wire transfers are easily hidden. This is often employed for bulk-cash movements
across jurisdictions and into banks where the regulations are not so strict.

(ii) Cash intensive business: Any business typically involved in receiving large cash
inflows will use its accounts to deposit both legitimate and criminally derived cash,
claiming all of it as legitimate earnings. A service-based business is best suited for such a
mechanism of laundering. Modern versions of this comprise online based cash intensive
businesses like data-entry, translations and software support that are even often be entirely
fictitious. The source of the fund is difficult to trace when payment is made in cash.

(iii)Casinos: These are themselves a cash intensive business, and were a hotbed for money
laundering activity earlier. The individual would walk in to a casino with cash and buy
chips, play for a while and then cash in his chips, for which he would be issued a cheque.
He could deposit this into his bank account, and claim it as gambling winnings, for which
he would then pay a negligible (as compared to his total illegal earning) amount of tax.
Presently, the advent of online casinos has made this mechanism all the more viable for
launderers. There is no need to take physical cash anywhere, E cash may be spent at the
online casinos and then winnings can be converted into legitimate physical currency.

(iv) Trade-based laundering : In trade based transactions, laundering could be done by

undervaluing or over-valuing invoices in order to disguise the movement of illegal funds.
Online trade based laundering operates in a similar manner and invoices can be quickly
created and easily tampered with in order to adjust illegal amounts.

(v) Round Tripping : In this mechanism of laundering, money would be deposited in a

controlled foreign corporation offshore, such as in a tax haven with minimum regulatory
requirements, and then shipped back as foreign direct investments, exempt from taxation.
Jurisdictions which allow related transactions to be done electronically, simply make the
task simpler for the launderers.

(vi) Shell companies / Black Salaries / Fictitious Loans: Shell companies are meant to
disguise the true beneficial owner of the assets. Black salaries are either where salaries are
paid to employees who don‗t actually exist, or illegal funds are used to pay parts of the

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salaries of employees. Fictitious loans are advanced to launderers who repay them using
their illegal funds.

(vii) Bank Capture: Launderers would simply buy controlling interest in a bank and use it
at their whims for their illegalities. The advent of online banks and payment portals, like
PayPal and DigiCash mean that such a mechanism can easily be moved online.

(viii) Internet Banking : This works in a similar manner to the physical world. It is generally
an avenue for smurfing activities by launderers. They undertake small transactions through
internet banks and avoid reporting requirements.

5.2. ONLINE GAMES: MONEY LAUNDERING AS THE LATEST CHEAT CODE

Online games are arguably the most notorious space for money laundering online that is
available today. Multiplayer online role-playing games, called Massive Multi-player

money across jurisdictions. Most of these games have various opportunities for money
based transactions, such as buying of virtual property, or gaming props etc. For instance,
Second Life, which has approximately 21.3 million account holders globally, uses a virtual
rs for its transactions. Although the exchange rate fluctuates,
on average, approximately 100 Linden dollars is equivalent to 1 US$. The virtual account
is tied up to an actual bank account, and the daily turnover generated by the game is
estimated at almost 1.5 million US$. Earlier, digital earnings had to be converted into real
currency directly through the use of virtual currency arbitrage trading websites, which was
at least a small opportunity for regulators to keep an eye on transactions. But in May 2006
Entropia Universe introduced real world ATM cards to its 250,000 players, allowing them
to instantly withdraw hard cash from their virtual world assets. This was followed by other
game developers and now the entire process is wholly outside the ambit of authorities

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 THE INDIAN POLICY TOWARDS CYBER LAUNDERING

The concept of money laundering in India can be traced back to the infamous
Hawala transactions that ruled the decades prior to liberalization and continue to do
so. The hawala mechanism was traditional money laundering setups that physically
transported hard cash overseas or helped convert black money to white money
domestically. It remains popular even today, especially for many organized crime
syndicates. Over the decades, a number of Acts sought to curb the menace of money
laundering, though they were not specifically named with that objective. It took until 2002
for Parliament to pass a specific legislation. Needless to say, the issue of cyber laundering
remained unattended, though as will be seen, a wide interpretation may be given to bring
it within the framework of the legislations.

6.1. PREVENTION OF MONEY LAUNDERING ACT, 2002(AS AMENDED IN 20129)

The central objective of the Act was to provide for confiscation of property derived from,
money laundering is not
specifically defined in the Act. Section 3, as the charging section, specifies money
laundering as directly or indirectly attempting to indulge or actually being involved in any
process or activity connected with the proceeds of crime and projecting it as untainted
property. In Hari Narayan Rai v. Union of India10, the Jharkhand High Court held that the
laundering as used in the Section comprises involvement in “any process or
activity by which the illicit money is being projected as untainted.” The relevant date was
not the date of acquisition of illicit money but the date on which it was being processed for
projecting it untainted.3

6.2. INFORMATION TECHNOLOGY ACT, 2000 (AS AMENDED IN 2008)

One would expect that this comprehensive legislation ought to have a provision to deal
with cyber laundering. But that is not so. In fact, the existing provisions themselves may
be insufficient to prosecute a launderer under the IT Act based on even a wide
interpretation. The Act does extend to any offence committed outside India by any person

9
Prevention of Money-laundering (Amendment) Act, 2012 (No. 2 of 2013) w.e.f. 15.02.2013
10
MANU/JH/0302/2011.

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and thus recognizes the cross-border nature of offences. The words computer and
computer system, in Section 2(i) and 2(l) respectively, have been also widely defined to
include all electronic devices with data processing capability. Section 43 deals with the
civil offence of theft of data and damage to computers, computer system. There is no real
scope to seek damages for cyber laundering activities under this section. Section 43-A is a
more relevant provision, making a body corporate that is negligent in implementing
reasonable security practices and thereby causes wrongful loss or gain to any person, liable
to pay damages by way of compensation to the person so affected. The practices extend to
protection of sensitive data, which includes password, details of bank accounts or card
details, medical records etc11. Under the Rules, in the event of an information security
breach, the body corporate shall be required to demonstrate that they have implemented
security control measures as per the documented information security program. These
provisions and Rules thus cover civil liability and corporate responsibility.

The cyber crimes covered under the Act are quite limited. Section 65 criminalizes
tampering with source documents. Section 66 covers several computer related offences,
including criminal liability for data theft covered under Section 43, when done dishonestly
and fraudulently. The other offences covered from Section 66A to Section 66F, introduced
by the Amendment in 2008, are sending offensive messages, dishonestly receiving stolen
computer resource, electronic signature or other identity theft, cheating by impersonation
using a computer resource, violations of privacy and cyber terrorism respectively.

The IT Act has also brought about relevant amendments into other legislations like the
Indian Penal Code, 1860, the Indian Evidence Act, 1872 etc. to ensure that they are updated
to deal with cyber crimes. Some of the relevant provisions to deal with cyber laundering
include the admissibility of electronic records as evidence as provided for in Section 65B
of the Evidence Act. The Bankers‗ Books Evidence (BBE) Act, 1891, was amended to
allow as evidence cashbooks, account-books etc., stored as electro-magnetic data in any
storage device

11
Information Technology (Reasonable Security Practices and Procedures and Sensitive Personal Data or
Information) Rules, 2011.

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 BALANCING CONCERNS OF FINANCIAL PRIVACY

Before proceeding to propose the relevant changes to Indian law to effectively tackle cyber
laundering, it would be worthwhile to briefly consider the impact of any changes on the
right of financial privacy of citizens. The internet offers complete anonymity and financial
privacy, as discussed above. However, this allows it to become a money launderer‗s
paradise. At the same time, removal of anonymity on the internet would allow every
activity of a user to be tracked by authorities. This has the potential for abuse and may lead
to a surveillance state. The fear of money laundering only serves to increase banking
regulations which, in turn, affect everyone‗s ability to conduct convenient, efficient and
relatively private financial transactions. Evidently, privacy rights, internet security and
prevention of money laundering have a significant societal aspect. Thus any provision
suggested must be a balance between individual financial privacy rights and legitimate law
enforcement interests.

The right to privacy has itself been recognized by the Supreme Court to be part of the Right
to Life, guaranteed under Article 21 of the Constitution.12 Data privacy itself was not
particularly considered in these decisions, which dealt with personal details.

Financial privacy specifically refers to an evolving relationship between technology and

the legal right to, or at least, the public expectation of privacy of ones financial data. This
right has not specifically been declared to be part of the right to privacy in India. The IT
Act has substantial emphasis on data privacy and information security, but Section 69
empowers the Government or certain agencies, to intercept, monitor or decrypt any
information generated, transmitted, received or stored in any computer resource, subject to
compliance with theprocedure laid down. It may be exercised for security of the state and
preventing incitement to the commission of any cognizable offence, both of which may be
read broadly to encompass cyber laundering and terrorist financing using the internet.

12
Kharak Singh v. State of U.P., AIR 1963 SC 1295; R. Rajagopal v. State of Tamil Nadu, (1994) 6 SCC 632.

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 CONCLUSION AND SUGGESTIONS

Money laundering has eroded the financial system across the world. It further cements the
vicious nexus between criminal activities and the financial world, thereby threatening to
question world peace, global security and stability in the world of banking and finance.
While, international and national legislative attempts to identify the modus operandi of the
same must be celebrated as a baby step forward it is essential to identify the gaping
loopholes in their implementation. However, implementation of the law remains challenge.
Further, the lack of judicial advancement in this area of law fails to set a positive precedent.
However, the approach of the Indian legislature must be celebrated in its adoption of the
“one size does not fit all “ policy understanding. This however is supplemented by over
arching principles of transparency in money laundering laws and policies in India as
imposed by the RBI, SEBI and the Central Government.

This paper set out to consider whether the internet had the potential to become a money
launderers paradise, and found that indeed it did. Indeed, cyber laundering is the latest
technique of money laundering, that is presenting serious difficulties for law enforcement
authorities. The application of present law dealing with traditional methods of money
laundering to cyber laundering is fraught with difficulty.39 The mechanisms and incidents
of cyber laundering are becoming more complex by the day. Globally, nearly two billion
individuals have Internet access, and that number is only going to rise in the coming
years.40 There is clearly a need for major changes in law and practice to stem this problem.

This paper has not delved into practical changes, as these are largely outside the researcher
expertise. Briefly, some PRACTICAL MEASURES that may be explored include:

a. Enforcing regulatory reporting requirements as against internet banks and

businesses
b. Mandating KYC and identity verification for online transactions;
c. Using better anti-money laundering software to catch suspicious transactions;
d. Blacklisting money launders from online transactions to promote responsible use
of digital cash transactions.

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8.1. PROPOSED AMENDMENT TO THE INFORMATION TECHNOLOGY ACT TO
COVER CYBER LAUNDERING AS A DISTINCT OFFENCE

The following amendment is proposed and is self-explanatory:

Section 66G. – Cyber Laundering

Whoever commits intentionally, by use of a computer, computer system or communication

device,

a. the conversion or transfer of property, knowing that such property is the proceeds
or profits of an illegal activity, for the purpose of concealing the illegal origin of
such property;

b. the concealment or disguise of the true nature, source, disposition, movement, or

rights with respect to property, knowing that such property is proceeds or profits
of an illegal activity;

c. the acquisition, possession or use of property, knowing, at the time of receipt, that
such

d. property is proceeds or profits of an illegal activity;

e. participates, abets, conspires to commit, or attempts to commit any of the above;

f. is guilty of the offence of cyber laundering and shall be punished in accordance

with the
g. provisions of this Act and in the Prevention of Money Laundering Act, 2002.

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BIBLIOGRAPHY

BOOKS

1. DANIEL C. LYNCH & LESLIE LUNDQUIST, DIGITAL MONEY: THE NEW

AREA OF INTERNET COMMERCE (1ST ED. 1996)

2. HEBA SHAMS, LEGAL GLOBALIZATION: MONEY LAUNDERING LAW

AND OTHER CASES (2004)

STATUTES

1. The Constitution of India, 1950.

2. Information Technology Act, 2000.

3. Indian Penal Code, 1860.

4. Information Technology (Reasonable Security Practices and Procedures and

Sensitive Personal Data or Information) Rules, 2011

5. Prevention of Money Laundering Act, 2002.

6. Prevention of Money Laundering Act (Amendment Bill), 2011.

ARTICLES

1. Stephen I. Landman, Funding Bin Laden’s Avatar: A Proposal for the Regulation
of Virtual Hawalas, 35 Wm. Mitchell L. Rev. 5159, 5169-5171 (2009).

2. Wendy J. Weimer, Cyberlaundering: An International Cache for Microchip Money,

13 DePaul Bus. L.J. 199, 220 (2001).

3. Stephen Jeffrey Weaver, Modern Day Money Laundering: Does the Solution Exist
in An Expansive System of Monitoring & Record Keeping Regulations?, 24 Ann.
Rev. Banking & Fin. L. 443, 444 (2005)

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