LEGISLATIVE MEASURES TO DEAL WITH ECONOMIC CRIMES IN INDIA
Animesh Bharti*
I. INTRODUCTION
Economic Offences form a separate category of criminal offences. Economic Offences not only victimize
individuals with pecuniary loss but can also have serious repercussions on the national economy. Economic
offences, such as counterfeiting of currency, financial scams, fraud, money laundering, etc. are crimes whichevoke serious concern and impact on the Nation’s security and governance. This paper seeks to present a
perspective on the trend of economic crimes and legislative measures to deal with such crimes in India. The
paper is divided into four sections. The first section gives an overview of economic crimes and relevant
legislation and the enforcing agency in India. The second section deals with economic crimes covered underthe Indian Penal Code. The third section explains the law on money laundering and the fourth section
focuses upon cyber crimes, which is expanding rapidly with the growing use of the Internet.

II. ECONOMIC CRIMES: AN OVERVIEW
A table listing various economic offences, the relevant legislation and the enforcing authorities in India isgiven below:
Sl. No.

Economic Crimes

Acts of Legislation

Enforcement Authorities

1.

Tax Evasion

Income Tax Act

Central Board of Direct Taxes

2.

Illicit Trafficking in Contraband

Customs Act 1962

Collectors of Customs

Goods (Smuggling)

COFEPOSA, 1974

3.

Evasion of Excise Duty

Central Excise and Salt Act, 1944

Collectors of Central Excise

4.

Cultural Object’s Theft

Antiquity and Art Treasures Act,

Police/CBI 1

1972
Foreign Exchange Regulations Act, Directorate of Enforcement

5.

Money Laundering

6.

Foreign Contribution

Foreign Contribution (Regulation)

Manipulations

Act, 1976

7.

Land Hijacking/Real Estate Fraud

IPC

Police/CBI

8.

Trade in Human Body parts

Transplantation of Human Organs

Police/CBI

9.

Illicit Drug Trafficking

Narcotics Drugs and Psychotropic

NCB /Police/CBI

1973
Police/CBI2

Substances Act 1985 & NDPS Act,
1988
10.

Fraudulent Bankruptcy

Banking Regulation Act, 1949

CBI

11.

Corruption and Bribery of Public

Prevention of Corruption Act, 1988

State/Anti Corruption
Bureaux/Vigilance Bureaux/CBIServants
12.

Bank Fraud

IPC

Police/CBI

13.

Insurance Fraud

IPC

Police/CBI

14.

Racketeering in Employment

IPC

Police/CBI

15.

Illegal Foreign Trade

Import & Export (Control) Act,

Directorate General of Foreign

1947

Trade/CBIPassport Act, 1920/IPC

Police/CBI

16.

Racketeering in False Travel
Documents* Deputy Secretary (Crime Monitoring), Ministry of Home Affairs, Government of India.
1 Central Bureau of Investigation.
2 Narcotics Control Bureau.

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17.

Credit Card Fraud

IPC

Police/CBI18.

Terrorists Activities

POTA-2002

Police/CBI

19.

Illicit Trafficking in Arms

Arms Act, 1959

Police/CBI20.

Illicit Trafficking in Explosives

Explosives Act, 1884 & Explosive

Police/CBISubstance Act, 1908
21.

Theft of Intellectual Property

Copyright Act, 1957

Police/CBI(Amendments 1984 & 1994)
22.

Computer Crime/Software Piracy/

Copyright Act, 1957/I.T. Act 2000

Police/CBICyber Law
23.

Stock Market Manipulations

IPC

Police/CBI

24.

Company Fraud (Contraband)

Companies Act, 1956/IPC MRTP

Police/CBI

Act, 1968

III. ECONOMIC CRIMES UNDER THE INDIAN PENAL CODE (IPC)
The Indian Penal Code contains provisions to check economic crimes such as Bank Fraud, Insurance
fraud, Credit card fraud, stock market manipulation, etc. The local police deal with the IPC crimes fallingunder the broad categories of ‘Cheating’ (Section 415-424), ‘Counterfeiting’ (Coins & Stamps Section 230263A and Currency Section 489A-489E) and ‘Criminal Breach of Trust’ (Section 405-409).

A. Serious/Major Fraud
Statistics on the serious/major frauds reported and registered under the Criminal Breach of Trust (CBT)cases and cheating cases for the years 2000-2002 is given in the table below.
Major Frauds Reported During 2000-2002
Sl.

Value of PropertyNo.

lost/defrauded

2000
CBT

2001
Cheating

CBT

2002
Cheating

CBT

Cheating(in Rs. Crore)
1.

1-10

430

1192

246

2246

117

550

2.

20-25

2

6

1

3

4

10

3.

25-50

0

0

0

3

2

2

4.

50-100

0

1

0

1

2

1

5.

Above 100

1

0

1

0

3

2

Total

433

1199

248

2253

128

565

The number of serious fraud cases registered under the Criminal Breach of Trust and Cheating cases was
lower in 2002 as compared to 2001.

IV. MONEY LAUNDERING
Money laundering is the process of cleaning dirty money with the objective of hiding its source andenabling it to be used later in a legal form. This process creates a web to hide the origin/true nature of thesefunds. Prior to the enactment of the Prevention of Money Laundering Act, 2002 this crime was covered
under the violation of foreign exchange rules under the Foreign Exchange Regulation Act (FERA) and later
under the Foreign Exchange Management Act (FEMA).
Statistics on cases under FERA for the year 1998-2002 are given below.

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Money Laundering (1998-2002) (Cases under FERA)
Year

Sl.

No. ofNo.
Searches/

Seizures/

Raids

Recoveries

Currency Seized

Currency confiscated

Fines(In Indian Rs. in crore)(In Indian Rs. in crore)(in Indian Rs. in Crore)

IndianIndianForeign

Imposed

Foreign

Realised

1.

1998

544

361

7.1

2.3

4.6

1.8

170.2

1.8

2.

1999

387

299

4.9

0.8

4.2

5.8

194.3

46.7

3.

2000

330

262

3.6

2.2

5.7

4.8

318.4

3.0

4.

2001

295

207

1.2

2.7

2.7

4.2

491.1

3.5

5.

2002

417

303

0.8

1.2

1.0

4.0

354.4

3.4

In 2002, 417 searches/raids were conducted in money laundering cases as against 295 in 2001. Though
there has been a declining trend in the number of seizures/recoveries during 1998 to 2001, an increase wasobserved in 2002.
In 2002, the recoveries, seizures made under FERA violations, yielded Rs. 0.8 crore of Indian currency
and Rs.1.2 crore Indian equivalent of foreign currency. The value of confiscated currencies i.e. both Indianand foreign had decreased over the previous year.

A. Prevention of Money Laundering Act, 2002
The Prevention of Money Laundering Act (PML), 2002 was passed by the Parliament of India in
December 2003. This Act is applicable to all States/Union Territories of India including Jammu & Kashmirand overrides the provisions of any other statue in force. The Legislation is effective from the date the Rules
under the PML Act are prescribed.
The PML Act seeks to combat money laundering in India and has three main objectives:•

To prevent, combat and control money laundering•

To confiscate and seize the property obtained from the laundered money; and•To deal with any other issue connected with money laundering in India.

In brief, the important provisions of the PML Act are as follows:• Any person, who directly/indirectly indulges in any activity/process connected with the proceeds ofcrime and projects it as untainted property, shall be guilty of money laundering.
•

The term ‘ proceeds of crime’ means any property that has been derived, directly/indirectly by aperson from a criminal activity relating to a scheduled offence in the Act.

•

There is a Schedule annexed to the Act which carries a list of the offences, the proceeds derived
from the commission of which can be treated as the proceeds of crime. This list is exhaustive innature and any property derived from an offence other than these activities cannot be brought under
this Statute.
The Schedule includes offences under:- The Indian Penal Code- The Narcotic Drugs and Psychotropic Substances Act, 1985
- The Arms Act, 1959
- The Wild Life (Protection) Act, 1972
- The Immoral Traffic (Prevention) Act, 1956
- The Prevention of Corruption Act, 1988•

The term ‘proceeds of crime’ is intrinsically linked with the term ‘property’ since any conversion of
the original proceeds that is in monetary form will result in the creation of an asset. Any person who
indulges in a criminal activity listed in Para 2.3.3 above shall be liable under the Act and the asset

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derived from this activity shall be treated as the proceeds of crime. All assets of any nature and any
description will fall within the ambit of the terms ‘property’.
•

The minimum penalty for committing an offence under the Act is rigorous imprisonment for three
years along with a fine that may extend to Rs.5 lakh. The maximum imprisonment is 7 years forgeneral offences. However, if the person is convicted of a specific offence under the NDPS Act, hemay be imprisoned for a period of 10 years.

•

Filling of a criminal complaint is a pre-requisite to the initiation of civil proceedings. Thereafter, thespecial court will take the complaint into cognizance. If the person is acquitted by the special court,
all civil proceeding shall stand vacated.

•

Further, the activity of laundering money is a separate crime from the activity from which the money
was sourced. For, instance, drug peddling would be a separate crime from the crime of laundering its
proceeds.

•

The Act provides for provisional attachment/seizure of any property if the adjudicating authority hasreason to believe that the said property is involved in money laundering. The property is confiscatedwhen the attachment gets confirmed after conviction of the accused and such property vests in theCentral Government.

•

The Act prescribes various mandatory procedures to be followed by the banking institutions formaintaining records of all transactions and informing of such transactions within a prescribed time
limit. Obligation has also been cast on these institutions to verify and maintain the record of theidentity of its clients. These records must be maintained for a period of 10 years.

•

When any authority has any reason to believe that any person is in possession of or has acquired any
property from a criminal activity under the Act, he has the power to make enquiries/conduct
surveys/searches.

•

The authorities designated under this Act are authorized to arrest a person if they have reasons tobelieve that he has committed an act, which constitutes the offence of money laundering under thisAct.

•

Any person who is aggrieved by the order of the adjudicating authority has the right to appeal before
the Appellate Tribunal.

•

Special Courts shall be set up by the Central Government to conduct the trial of the offences ofmoney laundering. The authorities under the Act like the Director, Adjudicating Authority and theAppellate Tribunal have been constituted to carry out the proceedings related to attachment andconfiscation of any property derived from money laundering.

•

In order to enlarge the scope of this Act and to achieve the desired objectives, the Act provides forbilateral agreements between countries to cooperate with each other and curb the menace of money
laundering. These agreements are for the purpose of either enforcing the provisions of this Act orthe exchange of information that will help in the prevention of the commission of an offence under
this Act or the corresponding laws in that foreign state.

•

In certain cases the Central Government may seek/provide assistance from/to a contracting State forany investigation or forwarding of evidence collected during the course of such investigation.

•

The Act provides for reciprocal arrangements for processes/assistance with regard to accused
persons.

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B. Steps Taken by the Government to Curb Money Laundering• Several steps have been taken by the Government of India to tackle the problem of money
laundering effectively. The Reserve Bank of India, which is the Central Bank for the country, hasissued directions to be strictly followed by the Banks regarding the standard practices under the‘Know Your Customer’ (KYC) guidelines. The banks are required to obtain all information necessary
to establish the identity/legal existence of each new customer. These guidelines are to be
scrupulously followed by the overseas branches of Indian banks also.
•

The PMLA makes it mandatory for every banking company, financial institution and intermediary tomaintain records of transactions for a period of ten years. In case of any violation of this legal
obligation, these institutions have to face penal consequences.

•

The PMLA also provides for reciprocal arrangements between India and other countries for
enforcing the provisions of this Act and for exchange of information for prevention of any offence
under this Act or under the corresponding law in force in that country for investigation of cases
relating to any offence under this Act.

V. MEASURES TO COMBAT COMPUTER RELATED CRIMESInformation Technology has reduced the world into a small village with no respect for geographicalboundaries. The advent of information technology has not only introduced new forms of crimes but newvariants of already existing criminal action as well. During the last decade, India has faced a new challenge
tackling a new and sophisticated form of crime in the form of cyber crime.
The most common forms of computer crimes reported are:• Intrusions/Hacking in computer networks for the purpose of defacing a web site, theft of password togain an unauthorized access, theft of personal information like credit card numbers, etc.
• Espionage• Frauds/cheating
Cases registered in this category of crimes in the year 2002 are given below:

Cyber Crimes/Cases Registered and Persons Arrested Under IT Act, 2000
Description

Sl. No1.

Tampering with Source Documents

2.

Hacking of Computer Systems

Cases Registered
6

Persons Arrested
2i) Loss/Damage to Computer Resource/Utility

159ii) Hacking

11

12

3.

Obscene Publication/Transmission in Electronic Form

33

38

4.

Digital Signature Fraud

1

-

5.

Breach of Confidentiality/Privacy

3

-

6.

Others

1

4

70

65

Total

Of the 70 cases registered under the IT Act 2000, around 47 percent of cases pertain to obscene
publication/transmission in electronic form, normally known as cases of cyber pornography. Thirty-eight
persons were taken into custody for such offences during 2002. There were 26 cases of Hacking of computer
systems wherein 21 persons were arrested in 2002. Of the total (26) Hacking cases, the cases relating to
Loss/Damage to computer resource/utility under Sec 66(1) of the IT Act were to the tune of 58 percent andthat related to Hacking under Section 66(2) of the IT Act were 42 percent (11 cases).

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Cyber Crimes/Cases Registered and Persons Arrested Under IPC During 2002
Description

Sl. NoCases Registered

Persons Arrested

1.

Fake Electronic Evidence

2

6

2.

Destruction of Electronic Evidence

0

1

3.

Forgery

167

357

4.

Criminal Breach of Trust/Fraud

510

785

5.

Counterfeitingi)

Property Mark

0

0

ii)

Tampering

1037iii) Currency/Stamps
Total

49

124

738

1310

Of the 738 cases registered for Cyber Crimes under IPC, the majority of the crimes fall under 3categories viz. Criminal Breach of Trust or Fraud (510), Forgery (167) and Counterfeiting (59). Thoughthese offences fall under the traditional IPC crimes, the cases had cyber undertones wherein computers, theInternet or its related aspects were present in the crime and hence they were categorized as Cyber Crimes
under IPC. Interestingly, the number of cases under Cyber Crimes relating to Counterfeiting ofcurrency/stamps stood at 49 wherein 124 persons were arrested during 2002. Of the 46,271 cases reported
under cheating, Cyber Forgery (167) accounted for 0.4 percent. Of the total Criminal Breach of Trust cases(14,027), the Cyber Frauds (510) accounted for 3.6 percent while under the Counterfeiting offences (1522),
Cyber Counterfeiting (59 out of 1522) offences accounted for 3.9 percent.
In order to tackle the acrimonious relationship between the law and crime caused by information
technology, the Government of India has adopted some of the provisions of the Model Law on Electronic
Commerce by the United Nations Commission on International Trade Law (UNCITRAL) and enacted theInformation Technology Act, 2000. This Act has been enacted for according legal recognition to theauthentication of information exchanged in respect of commercial transactions conducted by means ofElectronic Communications Technology. The main focus of this Act is on the following areas:
I.

•
•
•
•
•

Legal recognition of:(a)Digital signatures, which include- Acceptance in lieu of hand written signatures- Authentication- Security(b)Electronic Records, which includes- Retention- Attribution, Acknowledgment and Dispatch- Security
Creation of an infrastructure for issuance and regulation of digital signature certificates.
Creation of a cyber regulations appellate tribunal.
Amendments in existing laws to give recognition to electronic documents.
Offences and penalties for cyber crimes.
This Act defines two kinds of liabilities, civil and criminal, for various cyber crimes. The Civil
liabilities are in the form of penalties for example:

Section 43 & 44 of this Act prescribes the penalty for the following offences:• Unauthorised copying of an extract from any data/database.
• Unauthorised access and downloading of files.
• Introduction of viruses/malicious programmes.
• Damage to a computer system and computer network.
• Denial of access to an authorised person to a computer system.
• Providing assistance to any person to facilitate unauthorised access to a computer.
• Charging the service availed by a person to an account of another person by tampering andmanipulation of a computer/computer system.

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The criminal liabilities are dealt with in a separate chapter under ‘offences’. Section 65 to 75 of this Act
provide for different forms of imprisonment according to the offence, so far as criminal liabilities areconcerned. They cover:
•
•
•
•
•
•
•
•
•

Tempering with computer source documents.
Hacking of computer systems.
Electronic forgery i.e. preparing of false electronic records, affixing of false digital signatures, etc.
Electronic forgery for the purpose of cheating.
Electronic forgery for the purpose of harming reputation.
Using as genuine a forged electronic record.
Publication of digital signature certificate for a fraudulent purpose.
Unauthorised access to protected systems.
Publication of information in an electronic form, which is obscene in nature.

With the amendment of the definition of document by providing authenticity to electronic documents inthe existing Indian Penal Code, Indian Evidence Act, Bankers Book of Evidence, etc. the Act has also
facilitated use of the existing criminal laws for tackling the conventional crimes committed using computer
technology like forgery of documents, cheating, impersonation, stalking, theft, etc.

Actions Proposed at the International Level are as Follows(1) Uniform international model laws may be developed for defining the various facets of crimes
committed in a computerized environment.
(2) The international law for cooperation between different countries may be standardized in order toenhance the possibilities of tackling trans-national crimes with provisions for a faster mode ofcooperation of the existing procedure related to letters of request.
(3) The interaction between the law enforcement agencies of different countries at formal and informal
levels should be increased in order to increase the flow of information related to the crimes
committed and technology developed for anticipating, tackling and enforcement of the law.

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