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In a strange corporate offence committed by Volkswagen, 11 million cars are set to be recalled and the Company is set to face a penalty of around $37500 per car for failing the emission norms. The CEO obviously has resigned. Company shares are down by over 40% and the entire Stock markets across Europe and even India has dipped causing heavy losses to millions of investors. The Company is reported to have set aside US $6.5 billion for recall of cars but may fall well short of meeting the total liability estimated to be over $18 billion.

Unless some compromise is worked out, the company may go into liquidation inflicting losses to many lenders and equity investors.

It is interesting to analyse the cause of this catastrophic incident and whether it fits into a definition of a Cyber Crime. (Based on news paer reports)

The issue involves a software that the Company has installed in the Car. This software recognizes when the Car is put through an “Emission Test”. If it recognizes the emission test, it tweaks the emissions so that it falls within the permitted levels. In other times, the emission levels are at normal levels which is said to be 40 times beyond the permitted limits.

It is stated that if the Company has to bring down the emission levels to acceptable levels, there could be a need for more investment and it may also reduce the mileage. So the Company thought of this innovative method by which it could save on manufacturing cost, keep the mileage at required levels and also cheat the emission testing process. A truly innovative strategy in which the entire Company must have been involved.

However this is nothing but cheating of the customers and the regulatory requirements. Since it is done with the malicious intention of increasing the profit of the Company, it is a “Fraud” by definition. Since a “Software” is used in commission of the crime, we can term this as a Cyber Crime. In fact, the behaviour of this software is like a typical Trojan set for a “Man in the Middle Attack” under some specific conditions.

The nature of the offence is a little complicated and while it may contravene the emission regulations and also be a fraudulent misrepresentation to the customers, it would be interesting to debate if it is a Cyber Crime under the Indian laws.

The behaviour of the software that detects an emission test and modifies the normal behaviour of the vehicle so that the testing computer gets a “manipulated data” qualifies it to be called a “Computer Contaminant” under section 43 (c) of ITA 2008 since the owner of the vehicle is not aware of this deceptive behaviour and has not authorized it. . The modification of data is also an offence under Section 43(i) separately. Being a contravention of Section 43, it is also an offence under Section 66 involving criminal prosecution. With Section 85, the CEO and other officials in charge of the business as well as the Directors will also be criminally liable.

Related Articles:

abc.net

The Telegraph

home.bt.com

It is regrettable that a reputed company like Volkswagen should have indulged in such an unethical practice which is also a Cyber Crime. If the case is pursued to its logical end, it is not only the CEO but also several of the Board members and other executives who may find themselves cooling their heels in prison.

This should be a wakeup call to Indian Auto manufacturers like Maruti who are also incorporating several electronic circuitry into the management of the car and each such component would be like a “Computer”. They can be hacked by outsiders or mis used by the company itself if it does not realize the impact of the relatively less known law called Information Technology Act 2000/8.

Naavi

According to latest information,  the Government has completely withdrawn the draft Encryption policy announced last week and put up for public comments.

A new policy may be drafted and released in due course.

Hopefully, this time it will consult the right persons before the policy is publicized.

Naavi

P.S: It would be interesting to know who owns the responsibility for the badly drafted policy which was under gestation for nearly six years from the day ITA 2008 was notified on 27th October 2009. (Observe that the policy is not on a letterhead and not signed. The addendum is just a note on a piece of paper again unsigned), It has given an opportunity for certain opposition political parties to score brownie points. Was it the hidden agenda?…. Otherwise it is difficult to imagine if such policy documents can be written by an IAS cadre officer.

The honourable minister Mr R S Prasad needs to conduct an enquiry since this is not the first time the Minister has been painted in bad light because of thoughtless policy announcements. There is a possibility that some body in the department is working at cross purposes with the Minister. If this is not properly addressed now, there will be many more occasions in future where the Minister will have to take the blame for inefficient departmental work. 

Naavi

@17.30

After criticism that emanated over the week end on the draft National Encryption Policy that the Government released last week, Government has quickly made some clarifications.

The original policy is available here

We had provided our comments and suggestions on the draft policy in our earlier post.

We had requested the Government to exempt the individuals from the responsibilities of being bound by this encryption policy and enforce it only through the intermediaries. Others have highlighted the fact that “need to preserve encrypted information for 90 days” is an additional security risk and privacy invasion.

Keeping the upcoming US visit of Mr Modi and possible repercussions if the privacy issue is left un-attended, Government has moved fast to issue a “Clarification”.

The clarification reads as follows:

PROPOSED ADDENDUM TO THE DRAFT ENCRYPTION POLICY

By way of clarification, the following categories of encryption products are being exempted from the purview of the draft national encryption policy:

1. The mass use encryption products, which are currently being used in web applications, social media sites, and social media applications such as WhatsApp,Facebook,Twitter etc.

2. SSL/TLS encryption products being used in Internet-banking and payment gateways as directed by the Reserve Bank of India

3. SSL/TLS encryption products being used for e-commerce and password based transactions.

(Copy of the clarification text issued. It is unsigned and has not on a letterhead, just like the policy itself)

It is unfortunate that clarification became necessary so soon after the issue of the draft NEP policy. At the same time it should be appreciated that releasing the draft policy for public comments and reacting to it quickly was good. Atleast we can say that the department has been responsive.

Some in the media are however misrepresenting the clarification and stating that “E Banking is exempted from Encryption Policy”. 

This is however not the correct interpretation. E Banking is already been under the guidance of RBI and the G Gopalakrishna Working group has already given elaborate guidelines on E Banking security. Additionally there is an industry level information security standard already in place. The clarification only means that the security need not be limited to what is mentioned in the encryption policy and could be different.

The same interpretation holds for other sensitive departments of the Government which are exempt from this policy. They (such as the Military and Police) need to keep the information encrypted at levels better than what is suggested in this policy.

It should also be remembered that this is only a policy guideline which is subordinate to the law contained in Information Technology Act 2008. It cannot be ultra vires the Act.

The ITA 2008 already has a provision under Section 69 that the Government (through CCA) has the power to demand decryption of any communication. There is no need for this policy to demand decrypted message from WhatsApp or other message systems.

Under Section 67C, there is a provision for data retention norms being set. Government may set here any time limit for retention of data by any intermediary.

Further, any information that becomes “Potential Data related to a cognizable offence” becomes an “Evidence”  and has to be retained for an indefinite period, failure of which can become a contravention of Section 65 of ITA 2008.

These sections 67C and 65 carry 3 years imprisonment and Section 69 carries 7 year imprisonment if the IT user/intermediary does not comply.

For some data to be treated as “Potential Evidence”, notice from law enforcement is not mandatory. Knowledge that the data may hold evidentiary value is sufficient. A notice will however seal the status of some data changing its status to “Potential Evidence” which need to be preserved.

This is part of the ITA 2008 compliance that every IT user need to follow at present and this would continue.

Hence, media should not proliferate the incorrect view that “E Banking” and “E Commerce” is exempt from the encryption policy and inter alia the need to retain data particularly what is suspected to be an “Evidence”.

In the past media by its ignorance created a situation where Section 66A was wrongly painted as unconstitutional and even the Supreme Court Judges were rendered blind to reality and scrapped the section just to correct a false perception. In the last few days, we have also pointed out how Karnataka Government, in its ignorance of Cyber Law has passed a Bill which is ultra vires the ITA 2008 and how the Adjudicator of Karnataka in the past has created an untenable legal situation out of his ignorance of ITA 2008. Now the media highlighting “E Banking exempted from Encryption Policy” will be another mis-perception that would be circulating and will gain acceptance by uninformed.

We need to ensure that this mistake does not happen.

The Government when it issues the final policy should therefore clarify that E Banking and E Commerce are expected to use encryption systems commensurate to what can be considered as “Reasonable Security Policy” under ITA 2008. This will be another Suggestion that we would like to make to the department on the policy.

Naavi

The Registration (Karnataka Amendment Bill 2015) was passed by the Karnataka Legislative Assembly on 30th March 2015.  On the same day, it was also passed by the Legislative Council. Since the matter involved partial amendment of Indian Registration Act 1908, it has been been sent to the Central Government for the assent of the President of India.

If there is no objections from any of the departments of the Central Government, the Bill will be automatically assented to by the President and would become an Act.

As has been pointed out in detail in our earlier post,the bill is in direct violation of Information Technology Act 2000 (ITA 2000). The ITA 2000 does not provide legal recognition to electronic documents which transfers title in an immovable property as well as a Power of Attorney document.

The Karnataka Bill is meant to introduce e-Governance in the registration department and provides for electronic documents to be presented online for registration. Since there is no recognition for such documents, the provision should be considered as unconstitutional.

It is regrettable that the e-Governance department of the Karnataka Government has not done proper consultation before pushing the Bill. The legislators obviously have no knowledge to check if the Bill is consistent with other laws of the country or not. If the President passes the bill in the normal course, the dubious distinction of passing an invalid legislation will fall on the honorable President of India.

The issue needs to be taken note of seriously by all the people concerned and accountability fixed for such an irresponsible action by the officials.

 It may be recalled here that Karnataka already has the dubious distinction where by one previous IT Secretary in 2011 acting in his capacity as an Adjudicator that the term “Person” in Section 43 of ITA 2000 means only an individual and does not include a Body Corporate. To this we now have another dubious feather in the cap for the Government of the Silicon City of India. (Refer an earlier post : Will the CM of Karnataka respond?)

I urge the IT Ministry in Government of India to take necessary steps so that the e-Governance and IT Secretaries in all the States are adequately trained on Cyber Laws. Also they need to ensure that similar faulty laws are not passed by other States also in a bid to push use of technology in Governance.

Naavi

Today, Times of India has reported a Cyber Extortion attack on the Managing Director of a Company in Hyderabad. Typically in such cases, the data of the Company is hacked and encrypted. The authorized persons who try to access would be confronted with a message to pay a ransom for getting the decryption password. In this particular case, the ransom amount demanded is $1000/-

Refer Article here

Let us pick up this case as a hypothetical case study by assuming that  this Company had obtained Cyber Crime Insurance.  We shall then discuss some of the possible developments.

I request readers to send their views on “If you are the MD who is the victim of the Hyderabad incident, and your company has a Cyber Insurance policy, what would you do now”.

(Of course if you donot have a Cyber Insurance, then you may take a different set of actions since you have no obligations.)

(…To Be continued..on cyberinsurance.org.in )

Naavi

The Government of Karnataka has recently passed an amendment to the Indian Registration Act 1908 through The Registration (Karnataka Amendment) Bill, 2015 which has been forwarded to the President of India for his assent.

The bill has been drafted in direct violation of Information Technology Act 2000 and it is strange that it has been drafted and passed by both the legislatures of Karnataka and forwarded to the President for his assent.

The President’s office has no option but to reject the Bill as it is constitutionally invalid. 

The objective of the Bill is stated to be “to amend the Registration Act 1908 (Central Act 16 of 1908) in its application to the State of Karnataka to provide for online Registration of Agreement for Sale, Lease Deed and Leave and License Agreements and for online filing of true copies of Court orders, Decrees and Mortgages by way of Deposit of Title Deeds etc., sent by Banks and other Financial Institutions..”

It may be recalled that section 1(4) of Information Technology Act 2000 (ITA 2000) provides the details of documents that are outside the scope of Information Technology Act 2000. (Now available in First Schedule  after the amendment in 2008 ).

Section 1(4) of ITA 2000 as amended in 2008 (ITA 2008) states as follows:

Nothing in this Act shall apply to documents or transactions specified in the First Schedule by way of addition or deletion of entries thereto.

This “Nothing in this act applies” include sections 4 of ITA 2000 which provides legal recognition for electronic documents as equivalent to paper documents, Section 5 of ITA 2000 which provides legal recognition of electronic/digital signatures to physical signatures, as well as other sections of the Act including Sections 6,6A,7, 7A,8 and 9 which directly apply to e-Governance transactions.

The following are the documents which are indicated in the First Schedule which are outside the purview of ITA 2000/8 by virtue of this section.

Documents or Transactions To Which the Act Shall Not Apply

As one can see, “Any contract for the sale or conveyance of immovable property or any interest in such property” is outside the scope of this Act and if such documents are rendered in Electronic form, they are not recognized in law.

Hence the proposed amendments is bad in law ab initio.

The amendment proposes that under Section 32, (of Indian Registration Act), documents (including compulsorily registerable documents) can be presented “by electronic means” either by a person who is executing the document or claiming under the same. There is no mention of electronic or digital signature any where in the Bill.

If such documents are to be presented as electronic documents, then they may include documents that fall into the category 5 mentioned in First Schedule of ITA 2008.

If any body other than the executant has to present the documents then a Power of Attorney is required which also may be outside the Act as per item 2 on the list of excluded documents.

The legislation proposed is therefore impossible to be passed under the current law and if by inadvertence it is given assent by the President, then a situation will be created similar to what Karnataka faced during the Telgi fake Stamp usage time when a number of documents were  registered though no stamp duty was paid to the Government coffers making them void in law.

It is regrettable that the persons responsible for the drafting of the Bill and pushing it through the legislatures have demonstrated a total ignorance of the provisions of  Information Technology Act 2000 and there is a need for the Government to fix responsibility on the officials responsible for the faux pas.

We urge the State Government to apologise to the honourable President of India and  immediately withdraw the Bill.

We also request the office of the President, as well as the Ministry of Law and Justice to take note of the impending disaster and advise the President immediately not to provide assent in the normal course.

Naavi

P.S: Copy of the amendment bill