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October, 2001 THE NET |
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Transactions over the Net rely on confidence. But what happens when your personal and financial details get stolen? What are legal remedies to cyber fraud? By Rodney D. Ryder
Fraud in cyberspace Criminals have used cyberspace to target credit card as well as personal and financial information for perpetrating fraud. Sale of such information to counterfeiters of credit cards has proved to be extremely profitable. No longer do fraudsters need to break banks or steal credit cards. Counterfeiters using specialised computer hardware and software programs can encode falsified information on magnetic strips of credit cards. Also, sale of these information to create false travel documents has become a lucrative business. Fraudulent activity has also extended to the Net in the form of fake franchise offerings. In April 1997, the Federal Trade Commission and the North American Securities Administrators Association, both involved in investigating fraud on the Internet, sent notices to over 200 Web sites, asking them to substantiate their earnings' claims. Classifying fraud on the Internet Internet fraud is a white-collar crime whose growth has been as rapid and diverse as the growth of the Internet itself. The term 'Internet fraud' may be broadly defined as any fraud committed through or with the aid of computer programming or Internet-related communication, such as through Web sites, e-mails and chat rooms. According to an American consumer organisation, Internet Fraud Watch, the number of consumer complaints it receives about Internet frauds has risen dramatically in the recent years. The types of Internet frauds extend well beyond securities-based transactions to situations such as investment and business opportunities, online auctions, sale of Internet-related products and services, and credit. In fact, the diversity of areas in which the Internet is being used to defraud people and organisation is astounding. (For a list of scams on the Internet visit www.advocacy-net.com/scammks.htm.) The Net allows firms to communicate with a large audience without spending much time, effort or money. Anyone can reach tens of thousands of people by creating a Web site, posting a message on an online bulletin board, by entering into a discussion in a live 'chat' room, or sending mass e-mails (spams). It is increasingly becoming impossible for people accessing information on the Net to tell the difference between fact and fiction. Most of the scams and frauds utilising resources and opportunities presented by the Internet relate to investments. They may be classified broadly into following categories: Online investment newsletters: Hundreds of online investment newsletters have appeared on the Net in recent past. Many offer investors seemingly unbiased information/advice about firms or 'stock picks of the month' free of charge. While legitimate online newsletters can help investors gather valuable information, some online newsletters are nothing but a means to cheat people. Online bulletin boards: Newsgroups, Usenet or Web-based bulletin boards have become popular forums for investors to share information. They typically feature 'threads' made up of numerous messages on various investment opportunities. E-mail spam: Junk e-mail is cheap and easy to create. Fraudsters increasingly use it to lure investors into bogus investment scheme/s or to spread false information about a company. Through spam, they target potential investors using a bulk e-mail program. Indian law The term 'fraud' has not been defined in the Indian Penal Code (IPC). Nevertheless, Section 25 of the IPC does attempt to define the word 'fraudulently' by saying that there can be no fraud unless there is an intention to defraud. In general, fraud is committed in three different ways:
The main intent of a fraudulent person is, in almost every case, his/her own advantage. A conclusive test to the fraudulent character of a deception for criminal purpose is whether the author of the deceit derived any advantage from it which he would not have had if the truth had been known. This definition of fraud encompasses scams on the Net. Sections relating to cheating (415 to 420), such as cheating by impersonation (Section 416) and cheating with knowledge that wrongful loss may ensue to a person whose interest the offender is bound to protect (Section 418) may be applied according to the facts of a case.
Jurisdiction over cyber fraud Some provisions of the IT Act are likely to lead to litigation. For example, Section 74 states that the Act will apply to an offence or contravention committed outside India by any person irrespective of his/her nationality, if the act or conduct constituting the offence or contravention involves a computer, computer system or computer network in India. A computer is only a medium for communication. The use of a computer is not materially different from the use of a telephone or an automobile in the commission of a crime unless the computer has been programmed for automatic action by its owner. It won't be easy to acquire jurisdiction over a person who is not an Indian citizen and the scene of the crime is outside India even though a computer or a computer system in India has been utilised in some way or the other in connection with the crime. Nevertheless, the Act entails that an overseas-based hacker who damages software/hardware in India can be brought to book. Possible solutions How should we analyse "markets" for fraud and consumer protection purposes in case of companies that do business only through the Web? Cyberspace could be treated as a distinct marketplace for purposes of assessing concentration and market power. Concentration in geographic markets would only be relevant in rare cases in which such market power could be inappropriately leveraged to obtain power in online markets, for example, by conditioning access to the Net by local citizens on their buying services from the same firm (such as a phone firm) online. Claims regarding a right to access particular online services as distinct from claims to access particular physical pipelines would remain tenuous as long as it is possible to create a new online service instantly in any corner of an expanding online space. Consumer protection doctrines could also be developed online-to take into account the fact that anyone reading an online ad is only a mouse click away from receiving guidance from consumer protection agencies. Nevertheless, that does not mean that fraud might not be made "illegal" in at least large areas of cyberspace. Those who establish and use online systems have an interest in preserving the safety of their electronic territory and preventing crime. They are more likely to enforce their own rules. A "law of the Net" based on consensus needs to obtain deference from local sovereigns. Also, new Net-based law-making institutions have an incentive to avoid fostering activities threatening interests of territorial governments. Rodney D. Ryder, Advocate, Supreme Court of India, is a consultant on trade and technology laws. E-mail: rd.ryder@vsnl.net |
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In
every culture and in every period of time, both private arrangements as
well as governmental interventions have attempted to reduce conflicts
arising out of business transactions. The economic world of cyberspace
is no different. Trade depends on confidence; confidence on the part of
buyers that goods/services will conform to legitimate expectations, and
confidence on the part of sellers that payment will be prompt and complete.
Such confidence, in the interests of all parties concerned, is fostered
by industry self-regulation that reflects an honest attempt to identify
and resolve potential conflicts before they arise. As e-commerce is increasingly
becoming an important segment of the global economy, new forms of regulations
are being actively explored. They include voluntary codes of conduct,
provision of private arbitration for resolution of disputes, escrow accounts
and agreements between buyers, sellers and credit card companies.
