In 2017, strange happenings in the world of cryptocurrency caught the attention of Vijay Pal Dalmia, partner and head of the information technology and intellectual property law division at Vaish Associates Advocates. The Delhi-based tough-as-nails lawyer had been reading up on cryptocurrencies and was growing concerned about how they could be abused in the absence of regulatory oversight.
The trigger came when he first read about the May 13, 2017 cyberattack by WannaCry ransomware, a malicious ambush targeting computers running Microsoft Windows around the world. WannaCry did this by encrypting valuable files, so users couldn't read them, or by locking them off their computers, so they couldn't use them at all. The cybercriminals then demanded a ransom payment in bitcoins for releasing the data or freeing the computer.
The cybersecurity firm Kaspersky, created by Yevgeny Valentinovich Kaspersky (who has helped identify instances of government-sponsored cyberwarfare and has been a leading supporter of an international treaty banning cyberwarfare), wrote that, paradoxically, criminals Those who mounted the attack took advantage of a flaw in the Windows operating system, using a hack that had allegedly been developed by the United States National Security Agency. Called EternalBlue, the hack was made public by a group of notorious hackers called the Shadow Brokers before the WannaCry attack. Also in the past, this group had exposed significant vulnerabilities in Cisco routers and Linux mail servers. An alerted Microsoft released a security patch to protect users against this exploit nearly two months before the WannaCry ransomware attack began. Unfortunately, however, many people and organizations that had not upgraded their operating systems, which is quite common, were left exposed to horror.
The hackers in this case demanded payments ranging from US$300 to US$600 in bitcoins as ransom for unlocking the affected computers and devices. India was one of the countries hardest hit by WannaCry ransomware, as many users had outdated computers and rarely updated their system software. While official figures indicated that around 45,000 computers were affected, the actual numbers were much higher. In fact, PC Haldar, a former director of the Intelligence Bureau, later said that India was hit much harder by the WannaCry ransomware attack than official statistics suggested. He put the number of computers possibly affected at 250,000. Subsequently, the RBI had to notify all banks to operate their ATMs only after updating software systems, to avoid being infected by ransomware. According to media reports, among those most affected were the Andhra Pradesh Police and the West Bengal State Electricity Distribution Company.
The ransomware attack was a clear signal to Dalmia that cryptocurrencies had become the new medium for digital crime in countries like India. He was increasingly disturbed when further investigation told him that by bypassing the traditional banking system, these coins presented a real threat to society. Having handled many cases involving white collar crime, he realized how easy it was to purchase these currencies in India and transfer them to the country of his choice, thus bypassing the Currency Management Act, which requires all such transfers to be kept to be accounted for and informed. For money launderers, these coins were the perfect fit for hawala, the existing modus operandi for transferring cash to other parties, often in distant locations. Bitcoins or other similar currencies were a cleaner, faster and completely anonymous alternative.
A controversial move by the BJP-led central government only accelerated this trend. On November 8, 2016, the Indian government announced the demonetization of all 500 and 1000 rupee notes in the country, ostensibly to stem the flow of dirty money into the economy. The move had an immediate impact on hawala traders, who transferred partial payments to sellers of goods in countries like China instead of invoices declaring a lower value for them. Indian importers, in turn, paid customs duties on this lower invoice, enabling them to sell the same at cheaper prices in India. It was a form of under-invoicing well known to the Indian authorities, although there was little they could do about it.
Squeezed by the banknote ban, these merchants have now discovered the magic of virtual currencies, using them in payments to be made to China or other import sources. Therefore, an importer who wanted to under-invoice his products would buy bitcoins in India and use them to transfer payment to his Chinese counterpart's wallet. There was little the tax authorities could do as there was no record of the transaction.
Along with his son Siddharth, an engineer and law student, Dalmia filed a case under Public Interest Litigation (PIL) in the Supreme Court against the Union of India, the Home Office, the Finance Ministry and the Bank of India. the Indian Reserve. . Dalmia sought the intervention of the high court to order the government to take "urgent and emergency measures" to restrict the sale and purchase of illegal cryptocurrencies which, according to his detailed and carefully worded petition, were "openly and widely trading and investing." within the knowledge and domain of respondents anonymously via the Internet and otherwise for a range of anti-national, illegal and nefarious activities, such as financing of terrorism and insurgency, illicit arms and drug trafficking, recruitment of terrorists, bribery, corruption, money laundering, tax evasion, generation of black money, ransom payment, human trafficking, money transfer through hawala, hawala trade, illicit investment, circumvention of banking channels and surveillance of funds, online gambling which has a negative impact on the Indian currency, inflation, loss of government control over financial discipline and illegal diversion of money, and all this happens without border restrictions or geographical limitations by avoiding and violating laws, which jeopardizes the integrity and sovereignty of India and causes damage and danger to peace and tranquility. of society, state security and residents of Indiaโ.
In his PIL, Dalmia mentioned that various laws were being violated by open transactions in illegal cryptocurrencies like bitcoin. These included the Foreign Exchange Management Act of 1999 (FEMA); the Reserve Bank of India Act, 1934 (RBI Act); the Coinage Act of 1906; the Securities Contracts (Regulation) Act, 1956 (SCRA); the Sale of Goods Act of 1930; the Payment and Settlement Systems Law of 2007 (Payments Law); and the Indian Contracts Act, 1872. In his pleading, he requested the court to issue a writ of mandamus or any other appropriate order under Article 32 of the Indian Constitution, ordering the defendants to "declare cryptocurrencies or decentralized digital currency or virtual currency (VCs), such as bitcoins, litecoins, bbqcoins, dogecoins, etc., as illegal, in addition to restricting and prohibiting their sale and purchase." He also asked respondents to determine the real number of said cryptocurrencies illegal and fix accountability and responsibility for them.The latter would remain a dark hole, with several government officials, including chief ministers, refusing to put a real number on the scale of cryptocurrency trading in the country.
In a hearing on July 14, 2017, the court of Chief Justice of India JS Khehar and Justice DY Chandrachud got rid of the PIL in just 30 minutes, with Khehar saying, "I won't get into technicalities." However, the court gave the RBI four weeks to examine all issues surrounding the security of virtual currencies and respond to the petitioners.
The RBI responded to Dalmia, but his response was evasive, leading him to file a second PIL. This time, a three-judge panel headed by Justice Chandrachud upheld his statement and issued a notice to the government.
An excerpt from Cryptostorm: How India Became Ground Zero For A Financial Revolution, Sundeep Khanna, HarperCollinsIndia.
