Having learned the entire truth behind the Laughing Man Incident from the Laughing Man himself, and confirming the information with Serano, Section 9 is finally ready to make their move against the man behind the corporate terrorism: standing Secretary General Yakushima. However, Yakushima has learned of Section 9’s planned move, and has leaked the existence of the group to the press in an effort to cast the organization in a bad light. When Aramaki arrives to speak with the Prime Minister, he presents the incriminating evidence against Yakushima, expecting the Prime Minister to take action and remove Yakushima from office. However, the Lower House elections are entering a crucial stage, and without the support of his party in that House, the Prime Minister is uncertain of his ability to have Yakushima removed from office and arrested for his crimes. To counter this, the Prime Minister decides to use the Special Forces Restriction Bill against Section 9 in an effort to improve his party’s image, with the promise that he will take action after the elections have been completed. An alarmed Aramaki reluctantly agrees to the plan, and informs the Major of the impending raid on their headquarters, instructing her and the team to survive no matter what. Shortly after his departure from the Prime Minister's office, Aramaki and Togusa become the first two members of Section 9 to be captured by the government. Elsewhere, a JMSDF carrier and three escorts arrive in the waters off Niihama City. Aboard the carrier the Umibozu, an elite JMSDF Black Ops unit adept at paramilitary operations, prepares to storm Section 9 with armoured combat suits and assault choppers. After exchanging fire with the Umibozu, the assembled members of Section 9 feign a suicide attempt before escaping to the basement. Kusanagi briefs them on the Chief's last instructions before officially disbanding Section 9.
Yamaguchi, an old friend of Togusa's and a police detective working in the Laughing Man task force, is murdered after he calls Togusa, requesting to see him concerning what Yamaguchi terms "suspicious internal activity" by superiors in the police department. At Yamaguchi's wake, Togusa is approached by Yamaguchi's wife, who delivers an envelope from him to Togusa that contain a series of strange photographs. Upon scrutinizing the photographs, Togusa realizes that none of them are taken using a camera. Continuing his investigation, Togusa interviews another detective in the Laughing Man task force, who coincidentally mentions that the task force is waiting to bug a primary suspect in the case with cybernetic surveillance devices called "interceptors". The interceptors allow constant audio and visual monitoring of the subject via their own senses. Togusa concludes that the Laughing Man task force members were bugged with these devices illegally for monitoring. Shortly thereafter, the information about the illegal use of the interceptors is leaked by Section 9, prompting the police Commissioner to call a press conference regarding the growing scandal. The Commissioner publicly denies any responsibility, instead blaming the head of the "Laughing Man" task force, Kunihiko Nibu, and announcing Nibu's immediate resignation. News reporters press the Commissioner about the possible involvement of higher officials, as well as the Commissioner's own ties to nanomachine maker Serano Genomics, Inc., who manufactured the interceptors, but the Commissioner continues in his denials. At that point, the hacker known as the Laughing Man returns. Hijacking a police official's cyberbrain, the Laughing Man denounces what he refers to as the "previous farce", and announces that due to the police's efforts to cover up the truth, he will reluctantly challenge them again. Finally, he delivers a death threat to the commissioner, stating that he will "remove" him if the truth is not revealed in full.
This episode has a small tribute to the movie Blade Runner.
Togusa finds himself in the hospital after being shot, but is desperate to impart what he has learned to the rest of the group. By diving into Togusa’s memories, Section 9 experiences the DEA raid against the Sunflower Society firsthand, prompting anger and rage. The Chief takes it upon himself to notify the head of the DEA of Togusa’s presence at the Sunflower Society building during the raid, prompting the DEA chief to order the Narcotics Suppression Squad (NSS) to the house of Dr. Hisashi Imakurusu. Dr. Imakurusu had overseen the board that denied the Murai Vaccine; after being diagnosed with Cyberbrain Sclerosis, he began using the vaccine in secret and subsequently went into hiding. Section 9 believes Dr. Imakurusu may hold a clue to unraveling the entire Laughing Man case, and undertake a desperate search to locate him. With the aid of the American Empire and their unique surveillance satellites, Section 9 manages to find the doctor, and Batou volunteers to go after him. When both parties arrive at Dr. Imakurusu's location, a massive gunfight breaks out between the NSS and Section 9. Though they are unable to prevent Dr. Imakurusu's assassination, Section 9 manages to get the evidence they need to take action against the DEA.
Section 9 suspects that the police investigators handling the Laughing Man case are using their primary suspect, a former Serano Genomics programmer with a shady anti-corporate past named Ei Nanao, as a decoy to hide some form of higher-level corruption. Aramaki orders Section 9 to commence around the clock surveillance on Nanao in an attempt to catch him in the act, but the hacker is killed before he can be brought in for questioning. Elsewhere, Kusanagi meets with her friend Kurutan, a hospital nurse, to use her external memory device in an effort to learn more about The Laughing Man case. However, when the police Superintendent-General is set to give a speech about the Interceptor incident and the Laughing Man case, one of the officers present has his cyberbrain hacked by the Laughing Man. The Laughing Man demands that the Superintendent-General tell the truth, or he will be assassinated.