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Electronic Money:

Quo Vadis?

E. Y. Uzunova

2012

This dissertation is submitted in partial fulfilment of the regulations for the LLB Honours Degree at Oxford Brookes University

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Abstract

This paper aims to consider the current legal issues surrounding the regulation of electronic money. It is argued that electronic money is not a new form of money but a debt instrument that facilitates the circulation of bank money. When compared to the US regulatory framework, the European system is criticised on the grounds that regulation is too strict on issuers, too vague in its definitions and while the European regime may have succeeded in creating bearer confidence, it still lacks adequate bearer protection.

 

Statement of Originality

This thesis is the result of my own independent work / investigation, except where otherwise stated. Other sources are acknowledged by explicit references.

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Acknowledgements

I would like to thank my supervisor, Dr Martina Gillen, for the guidance and support she has provided throughout this process. I would also like to thank the module leader, Mr Jeff Young, for allowing me to pursue this research in such short notice.

I also spoke to a number of professionals and colleagues informally which greatly helped to shape this topic, the angle of research and inevitably informed my own views. I am therefore grateful to the following people for so generously sharing their time and thoughts with me: Ivaylo Kalfin, Doytchin Spiridonov, Dobromir Dobrev, Dobromir Tashev, Dr Ranald Michie, Dr David Moon. I am especially grateful to Ivaylo Kalfin for the time and enthusiasm he has given to exploring the subject with me, supporting the development of my ideas.

Lastly, thank you to my family and to Radina, for supporting me to undertake this degree and to persevere during times of stress, and especially for bearing the brunt of the pressure. You have all lightened the load unimaginably.

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Table of Contents

 

Abstract

2

 

Statement of originality

2

 

Acknowledgements

3

 

Contents

4

 

List of statutes

5

 

List of figures

5

 

List of cases

6

 

Acronyms

7

 

Introduction

7

 

Model

8

 

Methodology

9

I.

The properties of electronic money

10

II.

Could e-money be money?

11

  1. Specific issues:
 

A) Redemption

15

 

B) Confidentiality

16

 

C) Data Protection

17

IV.

Approaches to e-money in current regulatory regimes

 
 

A) The EU

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B) The USA

30

V.

Quo vadis? The future of e-money

32

VI.

Conclusion

35

 

Bibliography

37

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Table of statutes

Bank Charter Act 1884

Commission Decision (EU) 2010/87

Coinage Act 1971

Contracts (Rights of Third Parties) Act 1999

Currency and Bank Notes Act 1954

Data Protection Act 1998

Directive 2000/28/EC

Directive 2000/46/EC

Directive 2006/48/EC

Directive (EC) 95/46

Financial Services and Markets Act 2000

Law of Property Act 1925

List of figures

Fugire One

8

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Table of cases

Coco v Clark [1969] RPC 41

Commercial Banking Co of Sydney Ltd v Mann [1961] AC 1

Deposit Protection Board v Dalia [1994] 2 AC 367

Durant v Financial Services Authority [2003] EWCA Civ 1746

Lipkin Gorman (a firm) v Karpnale Ltd [1991] 2 AC 548

Miller v Race (1758) 1 Burr 452, 97 ER 398

Moss v Hancock [1899] 2 QB 111

Re Charge Card Services Ltd. [1989] Ch. 497

Reference Re: Alberta Statutes [1938] SCR 100,

Smith v Lloyds TSB Bank plc [2005] EWHC 246 (Ch)

Suffel v Bank of England (1882) 9 QBD 555

The Guardian of the Poor of the Lichfield Union v Greene (1857) 26 LJ Ex 140

Thomas Marshall (Exports) Ltd v Guinle [1979] Ch 227

Tournier v National Provincial Union of England [1924] 1 KB 461

United Dominion Trust v Kirkwood [1966] 2 QB 431

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Acronyms

ATM – Automated Teller Machine

BIS – Bank of Investments

CHIPS – Clearing House Interbank Payment System

E-money – used interchangeably with electronic money, cybercash, digital cash

ECB – European Central Bank

EFT – Electronic Funds Transfer

ELMI – Electronic Money Issuer

POS – Point of Sale

SWIFT – Society for Worldwide Interbank Financial Telecommunications

WTO – World Trade Organisation

 

Introduction

Central to the challenge of establishing the internet as a locus of commerce is the question of how best to pay for such purchases online. The predicted explosion of e-commerce has failed to materialise not least because of the limitations of existing money forms when used for online payments. Sending cash is slow, poses security problems and involves considerable conversion costs in cross-border transactions. Paying with a cheque, while far safer than sending cash, is equally time-consuming and limited to domestic transactions. Bank wires are another option, but they are cumbersome and quite expensive. In light of these disadvantages, it is not surprising that credit cards have become the perfect choice for e-commerce payments. But credit cards also have their limitations. Not every potential internet customer owns a credit card. Many consumers, especially the young in America as well as large percentages of Europeans or Asians, are willing to spend online, but lack a credit-card account. Moreover, credit cards do not work for peer-to-peer or business-to-business

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transactions. Nor are they available for small-denomination payments (so-called ‘micropayments’) which are likely to dominate much of business-to-consumer commerce. They are also quite expensive as debt, unless outstanding debt balances are paid off right away. Merchants do not like to pay the considerable processing charges for credit-card transactions. They also worry about online fraud and disputes.

Model

In light of these drawbacks, there is something better than cash, cheques, bank wires or credit cards to pay for transactions on the internet – electronic money. For the time being, people need to utilise the existing financial system to ‘purchase’ and ‘redeem’ electronic value. The basic process could be illustrated as follows:

Figure One

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However, intensifying efforts to develop precisely such an online payments mechanism raise a number of questions about the very nature of electronic money. These are taken up in this paper. Namely:

  • What are the unique properties of electronic money as a software product?
  • Could electronic money be money in a legal sense? If not, what is the status of digital cash?
  • What challenges are posed by this invisible money form in the light of redemption, confidentiality and data protection?
  • What is the best approach to regulating cybercash?
  • Finally, what is the future of electronic money?

Unless these issues are resolved satisfactorily, the public will not trust electronic money sufficiently to permit its widespread use.

The research process through which these questions are approached is outlined in the following Methodology.

Methodology

This section outlines the methods that were used to gather and analyse information regarding electronic money in order to answer the research questions identified above.

The overall approach is exploratory rather than inductive; given that this is a relatively new field for development, it is premature to draw concrete conclusions. I attempted to follow the principles of Appreciative Inquiry1, an approach to stimulating change and improvements within organisations, which although not a formal research method, promotes a positive approach to investigation and change. In line with this, my data collection sought innovations, achievements, potentials, and opportunities in hope of suggesting future avenues or benchmarks. I also undertook to explore

  1. Appreciative Inquiry is defined as “a theory and practice for approaching change from a holistic framework” (Watkins, JM. & Bernard, JM 2011: xxxi-xxxii) which rather than seeking out problems for which to find a solution, begins by “identifying what is positive and connecting to it in ways that heighten energy and vision for change” (Cooperider, D., Whitney, D. , & Stavros, J. 2003: xvii-xix) (Both quoted on The Appreciative Inquiry Commons)

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current experiences and understandings of electronic money, rather than focussing on failures2 or examples of unsatisfactory communication throughout. Nonetheless, the process raised several challenges to the proposed model, and being a new area, there were not many concrete examples of success to emulate. It was also still necessary, in the first few chapters, to undertake a less positive appraisal of current practices and approaches to technology, to justify the need for change.

The study of money as sources of data itself is a relatively new field with innovative approaches emerging all the time. Many draw on methods for interpreting legislation, although it is important to be aware of the added complexity of the world wide web, in that it is live and constantly changing3. Two jurisdictions which were chosen for their contrasting views on the status of e-money and regulatory approaches are described to better inform the reader of the methods that the different schools of thought have used to resolve the issues concerning digital cash. I have undertaken a qualitative content analysis of these jurisdictions, a method which makes inferences from the data by “objectively and systematically identifying specified characteristics of messages”4.

  1. The properties of electronic money

Good suggests that there are only three essential characteristics of successful private money: trust by the users that the money will be generally acceptable as a medium of exchange for a reasonable time in the future, belief that it will maintain a constant value and security against counterfeiting. In as early as 1991, Okamoto and Ohta5 listed six qualities which electronic money has to possess in order to compete effectively with cash and cheques: security, anonymity, portability, indefinite preservability, general acceptability and off-line capability. Matonis6 added three new characteristics to the ones listed above in 1995: divisibility, user-friendly protocol and unit-of-value freedom. Crawford7 further lists four technical requirements which a new medium of payment must satisfy in order to qualify for legal recognition as money: it must (1) be commonly accepted as a medium of exchange in an area;

2. Cooperrider & Whitney 1999

3. Bryman 2001 at p 469

4. Holsti, quoted in Bryman 2001 at p 182

5. Okamoto, T and Ohta, K (1991) Electronic Digial Cash. In Feigenbaum, J (ed) Advances in Cryptology. CRYPTO’91, New York: Springer, 324-50

6. Matonis, J (1995) Digital Cash and Monetary Freedom. Paper presented at INET ’95, Internet Society Annual Conference, Honolulu June 26-30 1995

7. Crawford, B, ‘Is Electronic Money Really Money?’ (1997) 12 Banking & Finance Law Review 399

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  1. be accepted as final payment, requiring no link with the credit of the transferor; (3) pass freely and be fully transferred by delivery; and (4) be self-contained, requiring no collection, clearing or settlement, and leaving no record. Crawford further argues that a fifth characteristic is probably best considered not as a technical prerequisite, but as a consequence of judicial recognition of a new form of property being recognized as money, namely its currency: the fact that transferees in the ordinary course of events take free of claims of prior owners or holders. As Lord Mansfield said in 1758, when considering the then-new phenomenon of banknotes (as compared to coins), in Miller v Race8: ‘in the case of money stolen, the true owner cannot recover it after it has been paid away fairly and honestly upon a valuable and bona fide consideration…’.
  1. Could e-money be money?

Of more significance, perhaps, than theoretical discussions of the essential characteristics of money is the question whether private money may be given the same legal effects as the official money of a country. In most jurisdictions there is a statutory definition of what comprises legal tender and the official currency, the terms of which make it impossible for electronic money to qualify so long as it is issued by any entity other than the monetary authority of the country. But this only means that persons engaging in commercial transactions are not required to accept payment in anything other than the official coins and notes of the country. Many popular forms of payment, such as cheques, thrive without qualifying as legal tender, owing to their general acceptability. Some, like credit cards and travellers’ cheques, do so despite being issued by private enterprises.

In the UK, Section 11 of the Bank Charter Act 18849 makes it illegal for “…any banker to draw, accept, make or issue in England and Wales, any bill of exchange or promissory note or engagement for the repayment of money to the bearer on demand, or to borrow, owe, or take up in England or Wales any sums or sum of money on the bills or notes of such banker

8. (1758) 1 Burr 452, 97 ER 398, 457

9. As amended by the Statute Law Revision Act 1891 and the Currency and Bank Notes Act 1928

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payable to bearer on demand.” In United Dominion Trust v Kirkwood10, Lord Denning quoted the statutory definition of ‘banker’ to be ‘someone who does the business of banking’ and the court established a common law definition: “There are, therefore, two characteristics usually found in bankers today: (i) they accept money from, and collect cheques for, their customers and place them to their credit; (ii) they honour cheques or orders drawn on them by their customers when presented for payment and debit their customers accordingly. These two characteristics carry with them also a third, namely, (iii) they keep current accounts, or something of that nature, in their books in which the credits and debits are entered.” This definition is, according to Hooley11, ‘restrictive’ and ‘singularly unsuited to modern banking practice’ and in need to be ‘reformulated before too long’. Nevertheless, he expressed the opinion that it will probably ‘save’ an issuer of electronic cash from being classified as a banker for the purposes of section 11 of the 1844 Act.

But where the laws of a nation do not contain such constrains, the test of whether a medium of payment has achieved the status of money is probably accurately expressed in the classic English judicial definition of money given by Darling J in Moss v Hancock12:

‘[T]hat which passes freely from hand to hand throughout the community in final discharge of debts and full payment for commodities, being accepted equally without reference to the character or credit of the person who offers it and without the intention of the person who receives it to consume it or apply it to any other use than in turn to tender it to others in discharge of debts or payment for commodities.’

Money has also been defined by the Supreme Court of Canada13 as follows:

‘any medium which, by practice, fulfils the function of money which everyone will accept in payment of a debt is money in the ordinary sense of the words, even though it may not be legal tender…’

10. [1966] 2 QB 431

11. R Hooley, ‘Payment in a Cashless Society’, Ch 13 in BAK Riser (ed) The Realm of Company Law A collection of Papers in Honour of Professor Leonard Sealy (1998), pp 245-252

12. [1899] 2 QB 111, 116.

13. Reference Re: Alberta Statutes [1938] SCR 100, 116, per Duff CJ

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It is tempting to criticise such definitions for explaining money only in an economic, rather than a legal, sense. For example, the late Dr FA Mann’s legal definition of money14 states that: ‘… in law, the quality of money is to be attributed to all chattels which, by authority of the law and denominated with reference to a unit of account, are meant to serve as universal means of exchange in the State of issue.’ It seems that digital cash cannot be money under this definition because:

  1. only tangible movables can be money. The contractual rights upon which digital cash is based create intangible rights over money and not money in themselves. However, so do bank notes. As bank notes also constitute rights over money, the holder who presents bank notes to the Bank of England for payment would only receive other bank notes in exchange. In his seminar work, Commercial Law15, Professor RM Goode draws attention to Professor Karl

Olivecrona’s witty observation: ‘Paradoxically enough, the claims on the central bank are always good because they can never be honoured. Payment does not come into question, since there are no media of payment available’16.

  1. digital cash is not issued by or under the authority of the State. However, there are regulatory controls on the issue of digital cash in the UK17.
  2. digital cash does not serve as a universal means of exchange. The holder of digital cash

can only use his ‘cash’ at a retailer or bank which is a member of that particular digital cash system and not elsewhere. The fact that digital cash does not constitute money at law means that it cannot be legal tender. Legal tender is such money in the legal sense as is defined by statute18. In other words, all legal tender is money, but not all money is legal tender19.

As the study conducted by the American Bar Association20 clearly demonstrates, few commercial transactions can be formed and performed with their usual legal consequences for the parties if the value exchanged as payment does not legally qualify as money. Lacking a legal foundation in public law, private electronic money depends for its terms of issue and

14. Proctor, Dr Charles, Mann on the Legal Aspect of Money (6th edn, 2005), paras 1.15ff

15. Commercial Law 1995, 2nd edn, p 491

16. K Olivecrona, The Problem of the Monetary Unit, pp 62-63

17. See Chapter IV below

18. Currency and Bank Notes Act 1954; Coinage Act 1971, as amended by the Currency Act 1983

19. Mann on the Legal Aspect of Money at para 2.25

20. ‘A Commercial Lawyer’s Take on the Economic Purse’ (1997) 52 The Business Lawyer 653

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redemption upon the contracts between issuers and users on the one hand, and issuers and merchants on the other. However, at the end of the day, the problems that the ABA have professed with respect to electronic money appear to derive more from the fact that in the USA, it is unregulated and not yet assimilated into the public law of payment than from the fact that it is privately issued.

An alternative approach is to regard digital cash as merely a mechanism whereby an account holder enables a third party to gain access to money held on his account21.

Nevertheless, we consider that the courts have been correct to leave the definition of money to be worked out as the varying needs of novel applications appear to require. That, in turn, indicates that it is perfectly possible to conceive of privately sponsored, unofficial forms of electronic money gaining recognition as legitimate forms of money, once they have achieved the required level of acceptance within a community, and provided that they both qualify on technical grounds and do not offend any mandatory law of a jurisdiction. However, a scenario in which e-money widely circulates could challenge (i) the role of money as a well-defined and stable unit of account for conducting transactions, (ii) the efficiency of monetary policy (mainly related to the potential shrinking of central bank balance sheets and their ability to steer short-term interest rates) and (iii) the critical role played by central banks in promoting the smooth operation of payment systems. The wider circulation of e-money would inevitably also have implications for central bank seignoriage revenues.

  1. Specific issues

We now move on to a closer examination of three more specific problematic areas: namely, Redemption (Chapter III A), Confidentiality (Chapter III B) and Data Protection (Chapter III C).

21. See T Tether ‘Payment Systems for E-Commerce’, Ch 7 in Reed et all (eds) Cross-Border Electronic Banking (2nd edtn, 2000), pp 192-194 and see Tylee ‘The Legal Nature of electronic money’ (1999) 10 JBFLP 273

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III A) Redemption

The issuer’s liability to redeem electronic money is a contractual liability. The immediate contracting party to whom the promise is made is the consumer to whom the electronic money is issued. Each participating consumer will be in a contractual relationship with the issuer. However, it is intended that the issuer will also be liable to consumers to whom the electronic cash has been transferred by the participating consumers, and also to any other person to whom the electronic cash is further transferred. The challenge is to establish a contractual relationship between the holder of electronic cash and the issuer. In the past, the doctrine of privity of contract would prevent the participating consumer from creating legally enforceable rights for third parties in the terms of its contract with the issuer. It seems it was intended for each consumer to enter into an express contract with the consumer who transfers the electronic money. It may be possible to construe that agreement in such a way that the transferring consumer also acts as an agent for the issuer thereby creating a contractual link between issuer and the holder of electronic money.

The problem remains the donee who has no contract with the transferring consumer, and no apparent contract with the issuer. Similar problems arise with regard to the relationship between a holder of electronic money and a participating consumer who is not the consumer who first purchased the money. It is intended that the consumer should be able to go to any participating bank and exchange his electronic cash for real value. In some cases, depending on the wording of the master agreement between the issuer of the electronic money and the participating consumers, the problem of creating a contractual right of redemption of the holder of electronic money may now be resolved by the Contracts (Rights of Third Parties) Act 1999. This legislation circumvents the doctrine of privity of contract. By s 1(1) a person who is not a party to a contract (a ‘third party’) may in his own right enforce a term of the contract if (a) the contract expressly provides that he may, or (b) the term purports to confer a benefit on him (although this does not apply if on a proper construction of the contract it

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appears that the parties did not intend the term to be enforceable by the third party). The third party must be expressly identified in the contract by name, as a member of a class or as answering a particular description but need not be in existence when the contract is entered into (s 1(3)). This would appear to enable the operators of digital cash systems to provide in the contracts between the issuer and the participating consumers, and also in any master agreement between the participating consumers themselves, that third-party holders of digital cash (i.e. members of a class or as answering a particular description) should have an enforceable right of redemption against the issuer and/or the participating banks.

Unless otherwise agreed, a creditor is not entitled to demand, and is not obliged to accept, anything other than legal tender in discharge of the debt owed to him. It is only the creditor’s consent which allows digital cash to function as money. Whether digital cash operates as absolute or conditional discharge of the underlying indebtness between the debtor and creditor will turn of the intention of the parties. It seems highly probably that it will normally be treated as absolute payment for the same reasons indicated by the Court of Appeal in Re Charge Card Services Ltd22 when dealing with credit and charge cards.

III B) Confidentiality

Not only in relation to credit and charge cards, the principle that a bank owes a duty of confidentiality to its customers has long been established23. However, as has already been demonstrated, many of those involved in digital cash transactions and who keep records of those transactions are not banks. Whether they owe a duty of confidentiality in respect of those records will depend on the common law of confidentiality, which requires24:

23. That the information must be confidential – this is said to mean that it is not public property or public knowledge; [1989] Ch 497

24. Tournier v National Provincial Union of England [1924] 1 KB 461; Coco v Clark [1969] RPC 41

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  1. That it must have been received in circumstances giving rise to an obligation of confidence.

If these elements are proved the obligation of confidence arises, though a remedy will only be available in the case of actual or anticipated use or disclosure of that information by the defendant.

As most financial transactions of any size are by their nature confidential, the defining question will normally be whether the circumstances of receipt give rise to an obligation of confidence. The answer will surely be in the affirmative in the case of the system provider, as the relationship between the provider and the users of the system is clearly of a fiduciary nature, and indeed, it seems likely that a court would imply a term to this effect in the contract between the system provider and user as necessary to give business efficiency to the contract. However, it is less clear whether the payer and the payee owe each other obligations of confidence. The obligation will be imposed where the recipient ought to have realised that the information was being imparted in confidence25. It seems likely, therefore, that the nature of the transaction recorded will be relevant – the purchase by a chemicals company of information from a database of patent information would suggest that the company has a commercial interest in that area, and thus might give rise to an obligation of confidence on the part of the database provider, but it might be hard to argue that trivial information (e.g. that a person purchased an electronic newspaper) is confidential. In Thomas Marshall (Exports) Ltd v Guinle26the court stated that, in a trade or industrial context, information would be confidential if, inter alia, when disseminated it would be injurious to the owner or of assistance to his rivals.

III C) Data Protection

The Data Protection Act 1998 s 1(1) defines personal data as:

25. ibid

26. [1979] Ch 227

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  1. is being processed27 by means of equipment operating automatically in response to instructions given for that purpose; or
    1. is recorded with the intention that it should be processed by means of such equipment; or
  2. is recorded as part of a relevant filing system28 or with the intention that it should form part of a relevant filing system; or
  3. does not fall within head (1), head (2) or head (3) above but forms part of an accessible record29; or
  4. is recorded information held by a public authority30 and does not fall within heads (1) to (4) above31.

Further, in Durant v Financial Services Authority32, the Court of Appeal re-evaluated the concept of ‘personal data’ under the DPA 1998 more narrowly, such that the mere mention of an individual within a document or, by implication, in any collection of data does not render it ‘personal data’ as defined by the Act.

 

27. ‘Processing’, in relation to information or data, means obtaining, recording or holding the information or data or carrying out any operation or set of operations on the information or data, including: (1) organisation, adaptation or alteration of the information or data; (2) retrieval, consultation or use of the information or data; (3) disclosure of the information or data by transmission, dissemination or otherwise making it available; or (4) alignment, combination, blocking, erasure or destruction of the information or data

28. ‘Relevant filing system’ means any set of information relating to individuals to the extent that, although the information is not processed by means of equipment operating automatically in response to instructions given for that purpose, the set is structured, either by reference to individuals or by reference to criteria relating to individuals, in such a way that specific information relating to a particular individual is readily accessible: Data Protection Act 1998 s 1(1). See also Durant v Financial Services Authority [2003] EWCA Civ 1746 at [50], [2004] FSR 573 at [50], [2004] IP & T 814 at [50].

29. Ie as defined by the Data Protection Act 1998 s 68. ‘Accessible record’ means: (1) a health record; (2) an educational record; or (3) an accessible public record: s 68(1).

30. ‘Public authority’ has the same meaning as in the Freedom of Information Act 2000 or a Scottish public authority as defined by the Freedom of Information (Scotland) Act 2002: Data Protection Act 1998 s 1(1) (definition added by the Freedom of Information Act 2000 s 68(1), (2)(b); substituted by SI 2004/3089). For these purposes, information is held by a public authority if it is held by the authority otherwise than on behalf of another person, or it is held by another person on behalf of the authority: Freedom of Information Act 2000 s 3(2); applied by the Data Protection Act 1998 s 1(5) (added by the Freedom of Information Act 2000 s 68(1), (3)). Where the Freedom of Information Act 2000 s 7 (public authorities to which that Act has limited application) prevents Pts I–V (ss 1–61) from applying to certain information held by a public authority, that information is not to be treated for these purposes as ‘held’ by a public authority: Data Protection Act 1998 s 1(6) (added by the Freedom of Information Act 2000 s 68(1), (2)(b)).

31. Data Protection Act 1998 s 1(1) (definition amended by the Freedom of Information Act 2000 s 68(1), (2), Sch 8 Pt III). See Smith v Lloyds TSB Bank plc [2005] EWHC 246 (Ch), [2005] IP & T 646, [2005] All ER (D) 358 (Feb) (certain unstructured bundles of documents kept in boxes not ‘data’ within the meaning of the Data Protection Act 1998).

32. [2003] EWCA Civ 1746

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Any member of a digital cash system who holds or processes such data in the UK is obliged to give a notification of that usage with the Data Protection Registrar33 and to comply with the Data Protection Principles set out in Schedule 1 of the Act34.

Any records of transactions and other personal information are personal data as long as a living individual can be identified from the records of an electronic money issuer together with the other information in their possession as to the identity of the consumer, thus bringing the data with the electronic money issuer within the definition of s 1(1).

It should be obvious that the system operator and any third party financial institution involved will need to hold and process personal data in order to effect the transfer which constitutes payment. Additionally, users of the system will need to give a notification under the Data Protection Act if they retain sufficient computer records of their transactions to identify the other party. It is clear that sellers who retain such records will need to give a notification, but it may not be so obvious that buyers will also need to do so – this is because, even if they buy only from commercial sellers, there is likelihood that some of these will be living individuals rather than corporations.

Further problems arise because many digital cash payment messages will cross national boundaries. This means that those digital cash system operators who hold and process personal data in the UK will need to note the power of the Data Protection Registrar to issue transfer prohibition notices under s 40 of the Data Protection Act 1998 if she is satisfied that the e-money issuer has contravened or is about to contravene any of the data protection principles in Schedule 1 of the Act.

Cross-border transfers of data are not unlawful under the 1998 Act unless a transfer prohibition notice is issued, and so the Act is unlikely to be a major problem for reputable digital cash systems. However, the European Union initiative on data protection prohibits all transfers of data to countries which do not provide an adequate level of protection for personal data35. These countries are likely to include many developed jurisdictions such as

33. Pursuant to s 17 of the Data Protection Act 1998, it is prohibited to process data while unregistered. Holding data while unregistered is a criminal offence under s 21 (1) Data Protection Act 1998.

34. Failure to comply can lead to an enforcement notice under s. 40 Data Protection Act 1998 followed by a de-registration notice under s. 11. Once de-registered, continued holding of data is impossible without committing an offence.

35. See Commission Decision (EU) 2010/87 on standard contractual clauses for the transfer of personal data to processors established in third countries under the European Parliament and Council Directive (EC) 95/46 on

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the US. Although there are mechanisms for making such transfers lawfully, these are so cumbersome that the proposed law may in practice present the greatest barrier to the establishment of digital cash systems in the EU. It would not, however, prevent EU residents from using non-EU digital cash systems across e.g. the Internet. Nevertheless, the operation of these provisions seems unnecessarily complex, which creates compliance uncertainties and procedural overheads for data controllers whilst offering minimal effective protection for data subjects. The DPA has even been variously described as ‘fiendishly complicated’36 and ‘almost incomprehensible’37.

IV. Approaches to e-money in current regulatory regimes

Essentially, there are two schools of thought which the powers of today have adopted in the regulation of e-money:

  1. Electronic ‘tokens’ (EU and Japan)
  2. Negotiable instruments (USA)

In the EU and Japan, electronic cash is considered akin to an electronic ‘token’, i.e., a digital unit convertible into physical monetary units. In order to explain the legal status of such ‘tokens’, it may be helpful to examine analogous situations where money is exchanged for such units which may then be used to pay for goods or services or redeemed by the issuer for cash. In Lipkin Gorman (a firm) v Karpnale Ltd38, when examining an issue regarding casino chips, Lord Goff drew an analogy with the situation where a customer pays over money to a

the protection of individuals with regard to the processing of personal data and on the free movement of such data.

36. J Rosenberg, Privacy and the Press, OUP 2004

37. Lord Falconer, quoted in P Wintour, ‘Fees pledge on information act’ The Guardian, 18 October 2004

38. [1991] 2 AC 548

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department store for chips which he can then use to pay for goods in the store. He held that the payment represented a gratuitous deposit of money with the store, with liberty to the customer to draw upon that deposit to pay for goods purchased in the store. Lord Goff preferred this ‘common sense’ approach to the alternative ‘technical approach’ which explained the transaction in terms of the store giving consideration for the money in the form of a chose in action created by its promise to repay a like sum, subject to draw down in respect of goods purchased in the store. Lord Goff concluded that ‘by receiving the money in these circumstances the store does not for present purposes give valuable consideration for it’39. In the context of the enforcement of promises made through the operation of an electronic money scheme, the issuer’s issuance of digital information (or electronic ‘tokens’) could certainly constitute consideration for the participating consumers’ transfer of funds to the issuer. The effect of the re-issue of electronic cash by a participating consumer to another customer might then constitute an equitable assignment of part of the chose in action owed to the transferring consumer by the issuer40. The assignment would be equitable because it would normally only be for part of the debt owed to the consumer by the issuer. However, it is submitted that the argument that the consumer’s chose in action has been assigned to another consumer is unsustainable. First, it is submitted that, in the context of an electronic money scheme, the exchange of funds for electronic cash constitutes the purchase of an electronic token rather than the deposit of funds subject to a promise to repay. Electronic tokens are purchased from the issuer, as they are later purchased from any participating consumer, in much the same way that foreign exchange is sold and purchased41. Secondly, for there to be an equitable assignment there must be an intention to assign and this seems to go against the very essence of the way the electronic payment systems are intended to operate42. The assignment analysis has been rejected for traditional funds transfer systems and it would be strange if it were to operate for electronic cash which is intended to be more akin to cash payment.

Alternatively, it may be possible to treat electronic cash as a form of negotiable instrument; in other words, as a form of a promissory note. For this approach to get off the ground, the

39. [1991] 2 AC 548 p 577A

40. Part of a debt cannot be assigned at law under the Law of Property Act 1925, s 136 (1) (a point confirmed by both the Court of Appeal and the House of Lords in Deposit Protection Board v Dalia [1994] 2 AC 367, pp 380-381, per Simon Brown LJ, and p 392 per Lord Brownie-Wilkinson

41. C Reed, Legal Regulation of Internet Banking: A European Perspective, 1996, p 36. See also RM Goode, Payment Obligations in Commercial and Financial Transactions, 1983, pp 3-4

42. See ‘Electronic cash and Payment Schemes: Digitising the Future’, Journal of International Banking and Financial Law, 1997, p 103 (edited transcript of a round table discussion)

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issuer’s promise would have to be found in the encrypted digital information issued by it. The advantage of this approach is that it partly reflects the intention of the parties to use electronic cash as a substitute for physical cash. Even though bank notes are ‘not an ordinary commercial contract to pay money’43, bank notes are promissory notes issued by the Bank of England payable to bearer on demand44, title to which can pass on mere delivery. Another analogous instrument would be the bank draft, which is a document drawn by a branch of a bank on its head office or another branch. A bank draft is equivalent to a promissory note45 and the holder may at his option treat the instrument either as a bill of exchange or as a promissory note46. Bank drafts are treated in practice as equivalent to cash47. This approach has been adopted by the regulators in the USA48.

In light of the development of these two schools of thought, it is compelling to consider how they are applied in practice.

IV A) EU Legislation49

The innovation introduced by the two E-money Directives50 is the creation of a dedicated legal framework enabling specialised, non-standard credit institutions to issue e-money and benefit from a European Passport. According to the European Central Banks’ report on Electronic Money51, the EU definition of e-money and the legal and practical uncertainties

43. Suffel v Bank of England (1882) 9 QBD 555, p 563, per Jessel MR, p 567, per Brett LJ. See also The Guardian of the Poor of the Lichfield Union v Greene (1857) 26 LJ Ex 140, per Bramwell B

44. S 3 of the Currency and Bank Notes Act 1954

45. Commercial Banking Co of Sydney Ltd v Mann [1961] AC 1, p 7, PC

46. Bills of Exchange Act 1882, s 5(2)

47. RR Pennington, AH Hudson and JE Mann, Commercial Banking Law 1978, p 80

48. Robert Guttmann, Cybercash: The Coming Era of Electronic Money, Palgrave Macmillan 2003

49. Considering the fact that Directive 2009/110/EC of the European Parliament and of the Council of 16 September 2009 on the taking up, pursuit and prudential supervision of the business of electronic money institutions amending Directives 2005/60/EC and 2006/48/EC and repealing Directive 2000/46/EC Is not yet in force, we shall be discussing the law as it is at the time of writing.

50. Directive 2000/28/EC (The First Directive) and Directive 2000/46/EC (The Second Directive)

51. Phoebus Athanassiou and Natalia Mas-Guix, Electronic Money Institutions: Current Trends, Regulatory Issues and Future Prospects, Legal Working Paper Series No 7 / July 2008, European Central Bank

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associated with that definition are amongst the key weaknesses of the legal framework governing the taking up and pursuit of e-money activities within the EU. Implicit in the Commission’s findings, as a further defect in need of rectification, is the wide margin of discretion that the Directive’s definition of e-money leaves to competent national authorities when deciding whether or not to treat a particular body as an e-money institution.

The key question to be resolved before a decision can be made on whether the Directives’ provisions apply to a particular institution is whether such institution is an e-money institution within the meaning of the Directive. Namely, an institution is capable of qualifying as an ELMI within Article 1(3) of the Second Directive where it issues ‘e-money’. Research suggests the existence of two different approaches to defining e-money institutions: some Member States (including Austria, Germany, the Netherlands, Spain and Portugal) regard e-money institutions as a subcategory of credit institutions while others (including Ireland, Denmark, Sweden and the UK) view them as a separate category of regulated institutions licensed to issue e-money payment instruments52. For the purposes of harmonisation, a regulation might well constitute a more appropriate legal instrument compared to the directives currently used.

The definition of e-money in EU legislation can be found in Directive 2000/46/EC (the Second Directive), which also introduces the concept of e-money institutions (ELMIs) as a special type of credit institution, subject to prudential supervision rules similar to those applicable to standard credit institutions under the recast Banking Directive53. Accordingly, e-money is defined as a claim on the issuer that is (a) stored on an electronic device (the first criterion), (b) issued on receipt of funds of an amount not less in value than the monetary value issued (the second criterion) and (c) accepted as a means of payment by undertakings other than the issuer (the third criterion). Thus, for the purposes of the Directive, e-money is to be understood as no more than the result of an exchange (i.e. the conversion of a token into e-money rather than the creation of money).

52. See Association of E-Money Institutions in the Netherlands

53. Directive 2006/48/EC of the European Parliament and of the Council of 14 June 2006 relating to the taking up and pursuit of the business of credit institutions (recast)

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(a) Stored on an electronic device

The first limb of the definition is explained in recital 5 to the Directive by reference to the desire to ‘provide a regulatory framework that assists electronic money in delivering its full potential benefits and that avoids hampering technological innovation in particular’. Notwithstanding the fact that another recital in the preamble contains some indication of the types of devices envisaged, the discretion that the definition allows to Member State authorities to the issuance of e-money can properly be treated as ‘e-money’ for the purposes of Community law, even if those products prima facie fit the technological profile of the definition established by Article 1(3)(b)(i) of the Second Directive. An e-money definition which, however unwittingly, relies on the product’s ‘technological wrapping’ but ignores the purpose of its issuance or the business activities of its issuer is too sweeping to serve the legitimate objectives which underpinned the Directive’s adoption, being prone to mechanistic misinterpretations.

  1. Issuance on receipt of funds of an amount not less in value than the monetary value issued

While the monetary rationale behind this prohibition is fairly straightforward (to prevent the increase of the volume of scriptural money in circulation with inflationary implications), the current formulation of Article 1(3)(b)(ii) fails to clarify whether the issuance of an e-money amount which is less in value than the monetary value received in consideration for its issuance was envisaged possible or whether such issuance at a premium might disqualify those products from consideration as e-money.

It is precisely in order to avoid the possibility that e-money issued at a premium might fall outside the scope of the national implementation of the Directive that the UK definition of e-money54 omits the phrase ‘of an amount not less than the monetary value issued’. The retention of the phrase ‘issued on receipt of funds’ is considered sufficient to ensure that any form of prepaid e-money is captured by that definition55.

54. Under Article 3(1) of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (SI 2001/544, as amended

55. See Long and Casanova (2003) and Bamodu (2003)

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Although the only logical inference capable of being drawn from Article 1(3)(b)(ii) is that ‘e-money could well be of a lower value than the funds received in return, as the e-money institution is allowed to charge a fee for its services’, a less ambiguous formulation would merit consideration, not least because uncertainties surrounding this particular aspect of the e-money definition are bound to discourage prospective market entrants from taking advantage of the opportunities offered by the Directive, casting doubts on the profitability of their prospective involvement in the issuance of e-money.

Whatever the true interpretation of Article 1(3)(b)(ii), this component of the e-money definition is intimately linked to the redeemability condition enshrined in Article 3. It is proposed that Article 3 itself is integrated in the definition of e-money, as an additional element of the Article 1(3)(b)(ii) requirement, rather than as an obligation which follows as a result of a product falling within the definition’s scope. Several commentators have observed56 that one important counter-argument against multicurrency domestic monetary systems is the cost of transacting associated with the simultaneous use of more than one unit of account. Where more than one units of account co-exist, the currency competition between them makes price comparisons cumbersome for consumers and reduces price competition in the market57. Precisely in order to avoid the cost of currency competition the Directive requires e-money balances to be redeemable at par value in euro notes, coins or balances of euro-denominated accounts.

c) Acceptance as means of payment by undertakings other than the issuer

The questions raised by this third criterion, to which the Directive provides no answer, are of both a quantitative and qualitative nature. How broad is the number of entities accepting e-money as a means of payment required to be for these to qualify as e-money? And, equally importantly, what sort of relationship needs to exist between the issuer and the accepting undertaking?

56. Hartmann (Phillip), p. 66; Roger Bootle, pp. 11-12

57. ibid

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Not only does the Second Directive not address these questions directly, it also sows seeds for further confusion by way of Article 8 which authorises Member States to grant waivers, presumably to facilitate the establishment of ‘relatively small and close’ payment schemes.

Interestingly, that waiver provision gives Member State authorities the possibility not only to exclude ‘small e-money institutions’ (defined as those whose total business activities do not exceed a certain threshold) but also to determine when the relationship between issuer and accepting undertaking is close enough to justify non-application of the Directives’ rules to the e-money in question. The ECB has gone as far as to suggest58 that options for the competent Member State authorities to determine when the relationship between the issuer and the accepting undertaking is distant enough to justify treating a specific payment instrument as falling within the fold of the Directives should be removed and replaced by provisions that clearly define which closely related (affiliated) third parties are to be excluded, what type of relationship between the issuing institution and the accepting undertaking is required before their dealings can fall outside the Directives’ scope of application and what other quantitative or qualitative considerations need to be taken into account for an objective, non-discrimatory assessment of whether the issuance of e-money has a Community dimension.

Their troubled relationship to the Article 1(3)(b)(iii) criterion aside, waivers are unwelcome for several other reasons. For instance, it is far from clear what effect they have, whether simply to waive an institution’s duty to comply with some of the prudential supervision safeguards set out in the Directives or, instead, effectively to exempt that institution from the scope of application of the Directives. The ECB’s observation in its Opinion that ‘…the redeemability requirement should be applied indiscriminately to all electronic money schemes irrespective of their size…’59 suggests that this requirement should also apply to waived entities. However, in their national implementation measures, at least seven Member State jurisdictions (UK, Sweden, Spain, the Netherlands, Finland, Denmark and the Czech Republic) have declared all of the Directive’s provisions as ‘waivable’. The legal basis for this action can be found in Article 8(1) which provides that ‘Member States may allow their competent authorities to waive the application of some or all of the provisions of this

58. Phoebus Athanassiou and Natalia Mas-Guix, Electronic Money Institutions: Current Trends, Regulatory Issues and Future Prospects, Legal Working Paper Series No 7 / July 2008, European Central Bank

59. Opinion of the European Central Bank CON/1998/56, para 24

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Directive and the application of Directive 2000/12 to electronic money institutions…’ (emphasis added). Evidence gathered from an evaluation study undertaken within the ESCB60 confirmed significant uncertainties across EU Member States concerning the waiver provisions. Doubts were manifested not only regarding the criteria for the grant of a waiver but, also, concerning its effects and implications.

d) Other shortcomings of the Directives

1) Clearing and settlement of e-money transactions

The Community legislature has not specifically addressed the clearing and settlement of transactions involving the use of e-money. In the absence of a harmonised regime for the clearing and settlement of e-money transactions, ‘standard’ clearing systems (i.e., those operated by banks) are used, with e-money institutions cooperating with banks to settle transactions realised via their own systems. These operate under the close supervision of national central banks. It is noted, in this regard, that the Payment Services Directive inter alia lays down rules on the execution of payment transactions where the funds involved are e-money. As a result, the PSD rectifies, at least to an extent, the Directives’ silence on the clearing and settlement of e-money transactions.

2) Accepting deposits and granting credit

Under Community law, e-money institutions are not deemed to accept deposits (Article 2(3)) and cannot grant credit (Article 1(5)(a)). Crucially, however, Article 2(3) stipulates that this rule is to apply only where the funds received are ‘immediately exchanged for e-money’. The Directive remains silent as to the interpretation of the ‘immediacy’ requirement. In this connection, Kolbach has proposed61 sensibly the application of a functional criterion. However, the opportunity for virtual lending lies in the volume of unclaimed e-money liabilities or in e-money balances which claimants choose to hold for some time as a store of value, rather than redeem immediately. The continuous growth in outstanding e-money

60. Internal ESCB study on the statistical treatment of non-financial e-money institutions, March 2007.

61. See Kohlbach (2004)

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balances held with e-money institutions, in conjunction with the uncertainty surrounding the meaning of ‘immediately exchanged’, suggests that it is only a matter of time before one of the fundamental assumptions of the Directive, that e-money institutions do not accept deposits, is overtaken by the facts and proven obsolete. Further, as e-money institutions cannot grant credit, unlike other institutions they need not maintain a solvency ratio to cover credit exposure. Similarly, they need not maintain an amount of capital to cover for market risk nor are they subject to restrictions on the amount of credit that they can grant to one client or to a group of connected clients. In the same vein, because the issuance of e-money is, in principle, not a deposit-taking activity, e-money institutions are in principle not subject to measures for the protection of client savings, to the provisions of the recast Banking Directive dealing with the solvency ratio of credit institutions and to measures against large exposures.

  1. Restrictive provisions and their potential impact on the development and profitability of the EU e-money market sector

In its current formulation, the Second Directive is fairly restrictive, not only in relation to the initial capital and ongoing own funds requirements under Article 4 (which serve obvious prudential supervision purposes) but, also, by way of the Article 2 restriction on credit lending, the Article 1(5) restriction on ancillary business activities of e-money institutions, the Article 3 redemption at par value requirement and the Article 5 restrictions on permissible investments by e-money institutions. As a result, the issuance of e-money at a premium is, practically, the only source of return for e-money issuers (hence the importance of as clear as possible re-formulation of the Directive so as to avoid uncertainty in this respect).

Having regard to the restrictions on the sources of return available to e-money issuers, a certain antinomy may be seen to exist between the right to a ‘European Passport’ accorded by the Directives and the regulatory straightjacket forced on e-money institutions. Kohlbach has observed aptly that ‘it almost seems as if the conjunction of investment restrictions, funds requirements and passport freedoms gives e-money issuers who can’t turn a profit in their

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own Member State a “license” to not make a profit in the rest of the Union either’62. Challenging the very need for a level playing field, Kohlbach has further argued that ‘what is missing [from the Directive] is a growth path for small issuers that want to go transnational, and a framework that provides financial incentives for “start-ups” to launch new, Union-wide payments products. The Directive would hence appear to fail in its first objective, which is “to assist electronic money in delivering its full potential benefits”63.

Paradoxically, the severity of the restrictions may, at least prima facie, legitimise waivers and their function within the context of the Directive, to the extent that, by being exempted from the scope of such restrictions in connection with their sources of income, small e-money institutions may enjoy the prospect of the pursuit of e-money issuance under more favourable conditions. However, should it be determined that the sole feature of waivers resides in their ability to release e-money institutions from the Directive’s investment or ancillary business activity restrictions, as a means of providing an incentive to small entities to enter the market, then relaxation (or even repeal) of some of those restrictions might constitute a more effective means to achieve the same objective, compared to the uncoordinated grant of waivers by national authorities.

Why amending the Directives is important

There are two principal reasons why the ambiguities surrounding the definition of e-money and the status of e-money institutions should be dispelled. The first relates to the potentially serious consequences of divergent national interpretations of the Directives for the industry’s future growth prospects; the second concerns the difficulties that those interpretations might entail for regulatory and supervisory authorities in their practical application of the Directives, in the absence of any authoritative ECJ ruling on their interpretation.

62. ibid

63. Supra note 60

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The risks that uncoordinated and increasingly divergent practices in the national authorities’ application of the Directives’ provisions pose to the e-money industry’s expansion manifest themselves in one of two ways: (i) directly, through the licensing by Member States of entities engaged in business activities involving the issuance of payment cards of some designation or other but which are not, properly speaking, e-money institutions and the (potentially unnecessary) compliance costs and regulatory obligations arising thereby, especially where similar business activities are dealt with differently within the same jurisdiction, or (ii) indirectly, where the same entity pursuing the same business activity in more than one jurisdiction has to comply with the prudential requirements of the Directives in one jurisdiction but not in another (a consideration that may weigh on its decision not to expand in a ‘regulated’ jurisdiction or affect the economic viability of its e-money issuance business, hampering its achievement of economies of scale that only its operation in more than one jurisdiction can allow).

IV B) The US Approach

The EU implementation may seem complex – a result of the stringency and complexity of the underlying Directives. The US approach, by way of contrast, is refreshingly simple. It is simple because it is an approach not to regulate at all. There are presently no special restrictions pertaining to the issuing of e-money, and there are, so far, no government proposals for any future restrictions either.

While closely monitoring what is happening in the area of electronic money, the Federal Reserve is obviously more reticent in using regulatory powers to shape such developments. It does not see the need for any new regulations unless market failures by private-sector suppliers render such initiatives absolutely necessary. The Federal Reserve’s leaders want to give the marketplace, specifically competition between different issuers and their interactions with users, the greatest possible space to determine what works and what does not. In a similar vein, Federal Reserve officials are at this point not too worried about nonbank

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institutions issuing cybercash. Some academics64 raise the issue of risk and regulation, but policy makers including Chairman of the Federal Reserve Alan Greenspan65 do not see any need for intervention. It is ironic that Europeans point to the so-called ‘free banking era’, a brief period in 19th century America where private banks issued their own dollar bills, where inflation was high and bank failures were common, in order to justify a strict e-money regime66. For American policy makers not only remain unimpressed; they unashamedly point to the very same era in order to justify today’s non-intervention. Drawing on recent historical research, they suggest that ‘the problems of free banking had little to do with banking’67, and conclude that money regulation works best when government does not intervene. They argue for less regulation rather than more, and talk of ‘freeing up the system’68 for novel technologies to flourish.

There are two qualifications to be made to the uncomplicated picture presented. The first qualification is that while the US have not enacted any specific electronic money regulation some electronic payment schemes may nevertheless fall under existing banking and/or payment service regulations. Since these regulations are enacted on the State level, as opposed to the Federal level, the question whether a given scheme is, or is not, subject to (any kind of State) regulation may have up to 50 different answers. The second qualification is that some existing Federal legislation has been specifically extended to cover e-money. There have been at least two published legal opinions pertaining to the topic – one by the Federal Deposit Insurance Company (‘FDIC’)69, and one by the Federal Reserve Board (‘FRB’)70. The FRB has proposed an application of Regulation E – which provides rules for the provision of certain ‘access devices’ such as debit cards; requires documentation in the form of regular receipts and account statements; and limits consumer liability – to smart card-based electronic money products. According to this proposal, all cards with a maximum storage capacity of USD 100 or less are exempted from compliance with Regulation E. Cards with a higher storage limit are placed in a three-tier system, depending on whether they are online or offline (and, if they are offline, whether they are accountable or unaccountable). Offline unaccountable systems must provide initial disclosure, but, like sub-USD 100-cards,

64. Good 2000, chapter 6; Solomon 1997, chapter 5

65. Greenspan 1997

66. Long & Casanova 2002, pp. 242 ff.

67. Supra note 64

68. Macintosh 1999

69. Federal Deposit Insurance Company (1996, pp. 40,490 ff.).

70. Federal Reserve Board of Governors (1996, pp. 19,696 ff.). See also Good (2000, at pp. 88 ff.).

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are otherwise exempted. Offline accountable and online systems are more stringently regulated. Issuers will be subject to liability limits and error resolution procedures, must make initial disclosures, and are to provide immediate receipts. The smart card’s current balance and a complete transaction history are to be made available on request. Meanwhile, the FDIC has issued a legal opinion on the question of whether smart card-based e-money products are covered by deposit insurance. The gist of the opinion is that, in general, card systems will not be covered by FDIC deposit insurance. However, it is stated that insurance cover would be offered to solutions that are linked with money stored on a customer’s bank account.

Both the FDIC opinion and the FRB proposal are very reserved in tone and restricted in their application. And both of them focus on a limited field of technology (smart cards). This is in line with the prevailing non-interventionist stance in the United States. An obvious consequence of this fixation on a particular technology is that newer technologies, such as online payment systems and mobile phones, are not covered.

  1. Quo vadis? The future of e-money

While these differences among the world’s leading jurisdictions may be philosophical or ideological in nature, they also reflect divergent views as to the nature of e-money. The Federal Reserve is much more inclined to view e-money as akin to money orders or travellers’ cheques while the more activist central bank of Europe regards e-money as equivalent to a demand deposit, thus as full-bodied money subject to regulation and supervision.

Eventually the central bankers will have to iron out their differences one way or another. Electronic money circulates on a global network which transcends national boundaries. It thus flows effortlessly across borders and national jurisdictions, requiring an unprecedented

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degree of international cooperation among central banks and harmonization of their rules concerning online money management. Central bankers have recognised this challenge. Working together under the auspices of the BIS, especially in its Basel Committee on Banking Supervision and in the Group of Ten’s Committee on Payment and Settlement Systems, they explore areas of regulatory concern with regard to the issue and circulation of e-money. Reports have been published to discuss the implications of e-money on the internet for consumer protection, prudential supervision, sharing of jurisdictional responsibilities among national regulators in light of e-money’s global circulation potential and other cross-border issues. Special attention has been paid by the BIS to the question of e-money’s security to identify the risks associated with this money form and specify benchmark standards for risk management that can be enforced by regulators through regular on-site examinations. But such cooperation is for the foreseeable future still going to be essentially bilateral in nature, following the principles of shared home-country and host-country responsibilities first laid down by the BIS in its Basel Concordat of 197571.

At the moment, the central banks are still mostly concerned with the rather limited applications of cybercash which emerged in its birth phrase. These use the internet as the next in a long line of communication media (for example telephones, ATMs, POS terminals) to convey payment information, but otherwise rely on traditional payment mechanisms such as credit cards or cheques. The underlying payment follows the same principles as credit card payments over the phone or cheques deposited in ATMs, thus allowing existing regulations and payment services to be extended to electronic payments arranged over the internet. From the regulators’ point of view such online arrangements do not constitute true money inasmuch as they remain tied to existing payment systems transferring balances among accounts at banks. This situation, however, is likely to change with the appearance of more far-reaching cybercash systems which will use the internet to transfer ‘value’ in the discharge of payment obligations rather than have it just serve as an access device to communicate payment information to merchants at banks. Beginning with stored-value smart cards or e-mail money, such online value-transfer mechanisms represent actual money and should be treated as such by the monetary authorities for the purposes of regulation and supervision. It

 

71. That 1975 agreement under the auspices of the BIS defined the sharing of intervention responsibilities by central banks of home and host countries when euromarket subsidiaries of transnational banks fail. This agreement for bilateral cooperation concerning shared lender-of-last-resort assistance was later extended to the question of how central banks should share their supervision responsibilities when dealing with banks in the euromarket.

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is only a matter of time before such e-money systems, notably software-based digital coins, will be used by their respective operators to create new money online. At that point cybercash will begin to impact directly on monetary policy and thus represent a more profound challenge to central banks than has been the case so far.

The emergence of e-money variants capable of money creation on the internet will force bank regulators across the world to address the question of who in the private sector should be allowed to issue such money and how they should be regulated. There is a strong argument to be made in favour of treating all issuers, whether banks or nonbank institutions, equally and subjecting them to the same regulatory requirements. If banks continue to face special regulatory burdens (in the form of reserve requirements, deposit insurance premia and compliance with supervision and examination procedures) while nonbank issuers of e-money do not, the latter will operate with lower costs and expand market share at the expense of the former. Moreover, the effectiveness of monetary policy would be undermined if a significant chunk of the money-creation process were to move outside the banking system and so beyond the reach of the state’s monetary authorities. Central banks should be able to direct their monetary policy tools at nonbank issuers of e-money as well as at the banks. Finally, no central bank can afford to be detached from nonbank issuers of e-money if these are capable of triggering gridlock in the nation’s payments system when facing a liquidity crisis. Responsible for the smooth operation of the payments system under their jurisdiction, central banks have lender-of-last resort mechanisms available, such as discount loans or open-market operations, to overpower any disruption in the flow of payments with a flood of emergency funds as the Federal Reserve, the ECB and other central banks did in coordinated fashion on 11 September 2001 when the physical destruction of the Bank of New York’s settlement network in the wake of the terrorist attack on the World Trade Centre threatened to paralyse the global payments system. All issuers of e-money capable of disrupting the payments system will need to have access to such assistance.

Central bankers will also want to watch together on their radar screens certain private cybercash systems which function with their own distinct currency and thus reorganise monetary spaces across national boundaries. Such alternative private currency systems can

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have powerful effects on the domestic monetary policy of nation-states, especially when their reputation for sound money management induces massive capital flight out of discredited currencies in high-inflation countries. The immediate availability of a better money alternative on one’s computer might push such flight-to-quality reactions to a whole new level of mass behaviour. Finally, as has already been clearly illustrated in recent years by young hackers from Russia, China, Israel and the Philippines launching spectacular attacks on American web sites, cyberterrorism is a global phenomenon as are the criminal organisations specialising in computer crime. Both will target cybercash for their efforts at disruption and deception, a challenge which national governments will have to face together if they want to ensure continued public trust in this elusive money form.

Just as e-money platforms will technologically be part of online shopping protocols, so will any evolving regulatory framework for electronic payments have to be embedded in a broader architecture of rules and conventions guiding electronic commerce. Towards that objective there will have to be international agreements on customs and taxation practices, protection of intellectual property rights, privacy of information, online security, telecommunications infrastructure and IT standards, online content and technical standards. In addition, the spatially transcendental, virtual and real-time nature of online transactions requires a global framework for contractual engagements on the internet, a ‘uniform commercial code for electronic commerce’. International flora exist to negotiate such agreements, be these the World Trade Organisation, the Organisation for Economic Co-Operation and Development or the United Nations Commission on International Trade Law. Whether these multilateral organisations will have the ability to balance the divergent interests of multinational corporations and developing countries and carry sufficient enforcement powers remains to be seen. What is likely to occur over the next couple of decades is the emergence of new global bodies using innovative regulatory approaches to meet the unprecedented challenges posed by e-commerce in general and electronic payments in particular.

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VI. Conclusion

Electronic money is not a new form of money but a debt instrument that facilitates the circulation of bank money. The electronic money payment system is a new way of managing bank money in which the means of payment is a card loaded with electronic units. From a legal standpoint, each electronic unit is thus a claim embodied in an electronic instrument and accepted as a means of payment by third parties other than the issuer.

Three main criticisms of current e-money regulation in Europe emerge from a comparison with the legal set-up in America.

  1. Regulation is too strict on issuers – Chapter IV argued that strong own funds requirements, limited investment opportunities, and heavy supervision place a serious burden on electronic money institutions. Financial incentives for new ‘start-ups’ that wish to operate on a Union-wide basis are lacking.
  2. Current e-money regulation is too vague in its definitions – Chapters II and IV showed that the EU and UK statutory definitions of electronic money are not able to determine whether technology constitutes e-money or not. In the absence of court rulings, demarcation is left to Member State authorities. These authorities have yet to develop objective, dependable criteria for their decisions. It should be possible to devise new electronic payment technologies that do not fall under the Directive, yet do not, at the same time, constitute an unlawful ‘evasion’ of the Directive.
  3. And while the European regime may have succeeded in creating bearer confidence, it still lacks adequate bearer protection – the analysis in Chapter IV showed that a regime that avoids excessive regulation and ‘piggy-backs’ on existing institutions (such as FDIC-protection in America) may offer a better framework for all parties involved.

Word count: 9,997 words

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  6. Bollen, R, Recent developments in mobile banking and payments [2008] J.I.B.L.R. 454
  7. Coats, W, „Electronic Money: Developments and Issues„, IMF Working Papers 1997
  8. Cooperrider, D.L. & Whitney, D. (1999) A Positive Revolution in Change: Appreciative Inquiry, Taos NM; Downloaded from: http://appreciativeinquiry.case.edu/practice/toolsPackDetail.cfm?coid=2159
  9. Crawford, B, ‘Is Electronic Money Really Money?’ (1997) 12 Banking & Finance Law Review 399
  10. ‘Electronic cash and Payment Schemes: Digitising the Future’, Journal of International Banking and Financial Law, 1997, p 103
  11. Federal Deposit Insurance Company (1996) ‘General Counsel’s Opinion No. 8 – Stored Value Cards’, Federal Register 40,490.
  12. Federal Reserve Board of Governors (1996) ‘Official Staff Commentary on Regulation E Electronic Funds Transfer’, Federal Register 19,696.
  13. Financial Services Authority, Consultation Paper 117: The Regulation of Electronic Money Issuers, December 2001
  14. Financial Services Authority, The FSA’s role under the Electronic Money Regulations 2011 Our approach, March 2011
  15. Geithne, T et al, Group of Ten, Electronic Money: Consumer protection, law enforcement, supervisory and cross border issues, April 1997
  16. Globalisation and Regional Integration: the Consequences for Monetary Policy Conduct, Summary of the international monetary symposium held by the Banque de France on 8 and 9 October 1999
  17. Greenspan, A (1997) ‘Regulating Electronic Money’, available at <http://www.cato.org/pubs/policy_report/cpr-19n2-1.html >
  18. Haldane, Millard and Saporta (eds), The Future of Payment Systems, [2009] J.I.B.L.R. 176
  19. Hayes, D et al, An Introduction to Electronic Money Issues, prepared for the United States Department of the Treasury Conference Toward Electronic Money and Banking: The Role of Government September 19-20, 1996

37

 

20. Hooley, R, ‘Payment in a Cashless Society’, Ch 13 in BAK Riser (ed) The Realm of Company Law – A collection of Papers in Honour of Professor Leonard Sealy (1998), pp 245-252

21. Jersey FSC outlines option for regulation of e-money, Company Lawyer 2010

22. Kohlbach, ‘Making Sense of Electronic Money’, Journal of Information, Law and Technology (2004/1), available at http://www2.warwick.ac.uk/fac/soc/law/elj/jilt/2004_1/kohlbach/

23. Lanskoy, S, The Legal Nature of Electronic Money, Banque De France Bulletin Digest – No. 73 – January 2000

24. Laurinavicius, K et al, Legal aspects of TARGET2, [2008] J.I.B.L.R. 15

25. Lelieveldt, SL, How to Regulate Electronic Cash: An Overview of Regulatory Issues and Strategies, The American University Law Review , Vol. 46:1163, 1997

26. Long and Casanova, ‘European Initiatives for Online Financial Services,

27. Part 1: The Regulation of Electronic Money’, 17 Butterworths Journal of International Banking and Financial Law (2002), pp 242-248

28. Long and Casanova, ‘European Initiatives for Online Financial Services,

29. Part 2: Financial Services and the Regulation of Electronic Money’, 18 Butterworths Journal of International Banking and Financial Law (2003), pp 8-15

28. Macintosh, K (1999) ‘The New Money’, Berkeley Technology Law Journal 652.

29. Merritt, C, The Next Phase in the Evolution in Person-to-Person Payments , Retail Payments Risk Forum White Paper, Federal Reserve Bank of Atlanta, August 2010

30. Mthembu, MA, Electronic Funds Transfer: Exploring the Difficulties of

31. Security, Journal of International Commercial Law and Technology Vol. 5, Issue 4 (2010)

32. Okamoto, T and Ohta, K (1991) Electronic Digial Cash. In Feigenbaum, J (ed) Advances in Cryptology. CRYPTO ’91, New York: Springer, 324-50

33. Rahmatian, A, Must Cheques Disappear by 2018?, Journal of International Banking Law and Regulation 2011

34. Regnard-Weinrabe, B et al, Mobile payments and the new e-money Directive, Computer and Telecommunications Law Review 2011

35. Sachdeva, AM, International jurisdiction in cyberspace: a comparative perspective, Computer and Telecommunications Law Review 2007

36. Seyad, SM, A critical assessment of the Payment Services Directive, [2008] J.I.B.L.R. 218

37. SUN Hao, CHAI Yueting and LIU Yi, Konwledge-based supervision model for electronic payment, 2009 IEEE International Conference on e-Business Engineering

38. Tseng, KY, Government Control of Money in the Digital World,

39. Wintour, P, ‘Fees pledge on information actThe Guardian, 18 October 2004

38

 

Books

  1. Bryman, A. (2001) Social Research Methods, 2nd Edition, Oxford University Press
  2. Cooperrider, D., Whitney, D. & Stavros, J. (2003). Appreciative Inquiry Handbook: The First in a Series of Ai Workbooks for Leaders of Change. Bedford Heights, OH: Lakeshore Communications, Inc.
  3. Creech, KC, Electronic Media Law and Regulation, 5th edition, Elsevier 2007
  4. Edwards, L and Waelde, C, Law and the Internet, 3rd edition, Hart 2009
  5. Giovanoli, M (ed), International Monetary Law: Issues for the New Millennium, OUP 2000
  6. Goode, RM, Payment Obligations in Commercial and Financial Transactions, 1983
  7. Jerker, D and Svantesson, B, Private International Law and the Internet, Kluwer Law International, 2007
  8. McKendrick, E, Contract Law: Text, Cases and Materials, 3rd edition, OUP 2008
  9. Pennington, RR, Hudson, AH and Mann, JE Commercial Banking Law 1978
  10. Proctor, Dr Charles, Mann on the Legal Aspect of Money (6th edn, 2005), paras 1.15ff
  11. Reed, C, Computer Law, OUP 2009
  12. Reed, C, Legal Regulation of Internet Banking: A European Perspective, 1996
  13. Robert Guttmann, Cybercash: The Coming Era of Electronic Money, Palgrave Macmillan 2003
  14. Rosenberg, J, Privacy and the Press, OUP 2004
  15. Sealy, LS and Hooley, RJA, Commercial Law: Text, Cases and Materials, 4th edition, OUP 2009
  16. Solomon E (1997) Virtual Money: Understanding the Power and Risks of Money’s High-Speed Journey into Electronic Space (New York: Oxford University Press).
  17. Thierer, A and Crews, CW, Who Rules the Net? Internet Governance and Jurisdiction, Cato Institute 2003
  18. Watkins, JM and Bernard, JM, Appreciative Inquiry: Change at the Speed of Imagination (J-B O-D (Organizational Development)), second edition, Pfeiffer 2011

39

 

Appendix

The following two statistics illustrate the number of transactions in electronic money in the EU between 2000 and 2010. The first one shows the data in millions of euro while the second one shows the number of transactions. It is very clear that since the two Directives came into force, the number of transactions and the amount of money moved online have both declined dramatically.

Source:

ECB, Payment Systems Statistics Annual frequency, latest data March 2012

40

Основните тестове за установяване на компетентност в дела от компютърно право

The main tests for finding jurisdiction in cyber-law cases

By: Elena Uzunova, LLB (Oxford), LLM (Sofia)

I. Introduction

Under international law, a State is subject to limitations on its authority to exercise jurisdiction in cases that involve foreign interests or activities.[1] International law, however, does not impose hard and fast rules on States delimiting spheres of national jurisdiction. Nevertheless, the existence of limits is undisputed. Every State has an obligation to exercise moderation and restraint in invoking jurisdiction over cases that have a foreign element, and they should avoid undue encroachment on the jurisdiction of other States.[2] A State that exercises jurisdiction in an overly self-centred way not only contravenes international law, but it can also „disturb the international order and produce political, legal, and economic reprisals.“[3]

Traditionally, three kinds of jurisdiction are distinguished: jurisdiction to prescribe, or legislative jurisdiction; jurisdiction to adjudicate, or judicial jurisdiction; and jurisdiction to enforce, or executive jurisdiction.[4] Jurisdiction to prescribe is the first step in many analyses. Jurisdiction to adjudicate does not apply in the absence of jurisdiction to prescribe unless the forum State is willing to apply the law of a foreign State. For jurisdiction to enforce, States also regularly need jurisdiction to prescribe. These distinctions can be important in determining the limits of a country’s jurisdiction under international law. Depending on the nature of the jurisdiction being exercised, the requisite contacts with a State necessary to support the exercise of jurisdiction differ.[5] The three types of jurisdiction however, are often interdependent, and their scope and limitations are shaped by similar considerations.[6]

  1. Jurisdiction to prescribe

Jurisdiction to prescribe means a State’s authority to make its substantive laws applicable to particular persons and circumstances[7]. International law has long recognized limitations on the authority of States to exercise jurisdiction to prescribe in circumstances affecting the interests of other States. In principle, it was accepted that a State had legislative jurisdiction to regulate activities within its territory, as well as the conduct of its nationals abroad[8]. Yet, there is wide international consensus that not even the links of territoriality or nationality suffice in all instances for the exercise of jurisdiction to prescribe[9]. For instance, according to Article 34 of the Vienna Convention on Diplomatic Relations, diplomats are exempted from most dues and taxes[10]. When the prescriptions of two States are in conflict, each State has an obligation to evaluate its own as well as the other State’s interest in exercising jurisdiction. A State should defer to the other State if that State’s interest is clearly greater[11].

The governing principles, known as the territoriality principle, the nationality principle, the effects principle, and the protective principle[12], will be discussed further below.

  1. The territoriality principle

This principle would allow a State to order service providers who operate on its territory to obey its regulations. It would further allow barring access to certain Web sites from machines operating within the State’s territory. States insist, in fact, on their sovereignty to control activities which happen in their territory even if these activities are not limited to the national territory[13], and even if control might be ineffective[14]. Under international law, States can even incur international responsibility if they allow their territory to be used for unlawful activities directed against other States[15].

In the first place, there is the „subjective“ application, which creates jurisdiction over crimes within the state but completed or consummated abroad. Instead of having overregulation this leads to having the most basic protections coming de facto the ones which we’re adopting because everybody rushes to the location which has the lowest legal protection. So, given the disadvantages, it is quite clear that this approach is never going to become massively dominant. However, there is one major exception – the EU Electronic Commerce Directive[16]. Article 3 (2) of the Directive means that states may not impose their regulation on online providers from other member states. So it actually creates a very strong obligation within the EU to respect the laws of the originating state. Obviously, the EU is a very special example, but it does give us a view of the characteristics which would be required for the point of origin method of jurisdiction claims to work. The rules of the origin states would broadly need to be in accordance with the destination state. Another concept is the existence of some degree of reciprocity in the process.

Generally accepted and often applied is the „objective“ territorial principle (also sometimes called the destination approach), according to which jurisdiction is founded when any essential constituent element of a crime is consummated on state territory. The most well-known illustration of this destination approach, the objective territoriality principle is provided by the French case of LICRA v Yahoo[17], where the French Supreme Court ordered Yahoo!, the US Internet portal, to implement measures to stop French users from buying Nazi memorabilia via online auctions on the company’s US-website as the exhibition of such items is contrary to French law. Protected by the First Amendment, these auctions were however perfectly legitimate under US law. Due to the accessibility in France, the case could be held in France, even though the most closely connected state is America. Criticisms of this approach: impose too high and unrealistic real burdens on individuals and corporate online publishers; the super imposition of one state’s law on another state amounts to or can amount to strong censorship and deprive the online community of online diversity in content. And if states were allowed to regulate all online activities, online space would no longer be shared between states which is theoretically unsatisfactory because it is contrary to the whole setting up of a competence regime. To try to avoid some of these criticisms, the French court in Yahoo actually ordered what is in fact the only alternative compliance strategy and ordered Yahoo to prevent access to the artifacts in question from French territory and argued that by avoiding French territory, Yahoo could avoid falling foul of French law.

Whether such an exercise power is reasonable has been decided to be dependent on a number of factors. These include the extent to which the activity has (in terms of the tort analogy) a substantial direct or foreseeable effect upon the territory, the character of the activity, the degree to which the desirability of regulation is generally accepted in the international community, the existence of justified expectations, the importance of regulating the activity, consistency with the traditions of the international legal systems, the interests of other states in regulating the activity and the likelihood of conflicting regulation. The test is easy to understand by academics but hard to apply in practice because it goes beyond merely seeking to uphold a state’s authority over it’s territory and seeks to protect the individuals, the interests of other states and the coherence of the allocation system as a whole. This approach hasn’t been the one which has dominated the internet debate[18].

  1. The nationality principle

The right of a State to regulate the conduct of its citizens or nationals anywhere in the world is, like territorial jurisdiction, basically noncontroversial[19]. For example, more and more States are outlawing child sex tourism[20]. Insofar as Germany makes even its nationals residing abroad subject to its prohibition against the dissemination of child pornography[21], it is acting in accordance with international law.

The nationality principle is applicable to juristic as well as to natural persons[22]. As the German branch of CompuServe Inc., for example, is chartered as a German company, it is subject to German law[23].

In addition to the territoriality principle, therefore, service providers will in many cases also be subject to jurisdiction under the nationality principle.

  1. The effects principle

The effects principle can be invoked when an act committed in one State causes injury in the territory of another State. Jurisdiction is grounded in the fact that the injurious effect, although not the act or omission itself, occurred in the territory of the State[24]. Controversies may particularly arise where the conduct was lawful where carried out. This principle has been a major source of controversy in antitrust cases where it was invoked to support regulation of activities abroad by foreign nationals because of the economic impact of those activities in the regulating State[25]. As a basis for jurisdiction however, it is increasingly accepted[26] even when its excessive application, especially by the United States, is criticized[27].

  1. The protective principle

The protective principle allows a State to protect its own governmental functions[28]. International law recognizes the right of a State to punish a limited class of offences committed outside its territory by persons who are not its nationals. „Nearly all states assume jurisdiction over aliens for acts done abroad which affect the security of the state …“[29]. These offences must be generally recognized as criminal by the international community. This is the case for offences like espionage, counterfeiting of the State’s seal or currency, or falsification of official documents[30]. Furthermore hackers who play „wargames“ and intrude in national security data systems, or endanger the systems with worms[31] or through other means, face subjection to the jurisdiction of the affected State[32]. The protective principle does not support application to foreign nationals of laws against political expression. Considerations of national security, however, helped the House of Lords, in Joyce v. Director of Public Prosecutions[33], to decide that „an alien who left the country in possession of a British passport owed allegiance and was guilty of treason when he subsequently broadcast propaganda for an enemy in wartime.“[34]

  1. The universality principle

Universality provides for jurisdiction over a crime which customary or conventional law labels so egregious as to be of universal concern. Unlike the other principles of jurisdiction, universality does not require a direct connection such as the place of the offence, the nationality of the offender, or the effects of the offence on the prescribing State. The required connection is more abstract. Universal jurisdiction over the specified offences is a result of universal condemnation of those activities. They are subject to universal jurisdiction as a matter of customary law or as a matter of international agreements. In the latter case, it remains to be determined whether universal jurisdiction over a particular offence has become customary law for States not party to such an agreement. The doctrine was developed centuries ago to address the piracy that menaced international trade and justified its application by deeming the pirate hostes humani generi—the enemy of all mankind[35]. Piracy, slave trade, attacks on or hijacking of aircraft, genocide, war crimes, and certain acts of terrorism are other examples. One might wonder whether any of these crimes might be committed in cyberspace. However, whoever cruises the Net for a while will not have many difficulties discovering Web sites which at least give rise to a statutory interpretation of „[d]irect and public incitement to commit genocide.“[36] Especially in regions where war is being waged, it should also be possible to prove that people are serious about hate messages—that is they really want genocide to happen. These acts may be outlawed by any State—even without one of the earlier discussed bases of jurisdiction to prescribe.

  1. Jurisdiction to adjudicate

Jurisdiction to adjudicate is defined as a State’s authority to subject persons or things to the process of its courts or administrative tribunals, whether in civil or in criminal proceedings, whether or not the State is a party to the proceedings[37]. It requires a sufficient or reasonable relation with the forum State[38].

In international criminal cases, jurisdiction to adjudicate depends almost exclusively on presence of the accused. In international civil cases, the principle of „actor sequitur forum rei“ [Plaintiff follows defendant to the latter’s forum] can be regarded as a principle accepted virtually everywhere[39].

It is important to note that the international law standard for civil cases—reasonableness—differs significantly from the U.S. „minimum contacts“ standard, which was crafted in International Shoe v. Washington and serves as the basis for deciding jurisdictional questions in the U.S.[40]

Internet-related questions involving jurisdiction have been most common in U.S. courts, primarily because of the multijurisdictional character of the country. U.S. courts have taken various approaches to this jurisdictional issue. It is helpful to separate these approaches into two categories: moderate and expansive. The moderate approach is more consistent with the „reasonableness“ standard of international law and is a better model for international multijurisdictional cases.

  1. Moderate Approach

Nine domestic courts so far have taken a moderate approach that is consistent with an international „reasonableness“ standard. One court refused to find jurisdiction based solely on the existence of a Web site where it was not established that the Web site was accessed by citizens of the forum state[41]. Another court refused to find jurisdiction where the contents of a Web site were unrelated to the cause of action[42]. In the other seven cases, the accessibility of a Web site within the state was not an adequate basis for jurisdiction[43]. In two out of these seven cases, jurisdiction based solely on Internet advertising was denied[44]. In four cases, more than Internet advertising was involved[45]. The courts upheld jurisdiction because of numerous intentional contacts to the forum state. In a final case, jurisdiction was denied where the only contact with the forum state was the location of a database[46].

  1. Expansive Approach

A hint of international jurisdictional issues central to this analysis was present in State v. Granite Gate Resorts, Inc[47]. However, Granite Gate Resorts was litigated too soon for international issues to arise; the defendants were preparing to operate their computer service from Belize, but they had not yet done so at the time of suit.

Although such issues were not directly resolved, this court and others have expanded their jurisdictional reach into cyberspace. The cases demonstrate approaches that move toward a rule calling for jurisdiction over a defendant in all states based on the accessibility of the defendant’s Web site by users in all states. If this rule was adopted internationally, a defendant would be subject to the jurisdiction and differing laws of every State worldwide.

These tests are both examples of the moderate country of destination approach.

  1. The EU

The EU approach to this issue is based on Article 5 (3) of the EU jurisdiction regulations. However, According to Article 4, the regulations are limited to cases in which the defendant is domicile in a member state and thus the national law is applicable. When the regulation is applicable, the default rule that the defendant must be sued in his or her state of domicile under Article 2(1) can in tort and intellectual property disputes be overridden by Article 5(3) provides that a person may also be sued in matters relating to tort, delict or quasi-delict in the courts of the place where the harmful event may occur[48]. This raises the question where the harmful event occurs regarding online disputes because that is central to the 5 (3) EU approach. According to the pre-internet case of Shevil against Presolance SE where the ECJ held that the harmful event is either the place where the publisher is established or the place where the publication was distributed and the plaintiff suffered his or her injury (in the context of defamation). The advantage is that the plaintiff can receive compensation for the entire damage suffered, including damage suffered in other states. Alternatively, he or she can sue in the state where the publication was distributed but only for the injury that they suffered there. In Euro Market Designs and Peters and … Ltd. illustrates a shift towards the Zippo approach[49] in the USA primarily because there are difficulties with the question where the harmful act has taken place.

4. Universality Principle

The universality principle is not only a legitimate basis for jurisdiction to prescribe. It also allows a State to exercise jurisdiction through its courts to enforce its criminal laws that punish universal crimes[50]. Thus, users who engaged in direct and public incitement to commit genocide or warcrimes[51] by means of computer communications could be haled worldwide into any court. In the case of violations of the Statute of the International Tribunal for the Former Yugoslavia[52], the perpetrator could even be requested by the International Tribunal. Article 7 of the Statute states the individual responsibility for aiding and abetting in the planning, preparation, or execution of crimes outlawed by this statute[53]. According to Article 9, the International Tribunal and national courts have concurrent jurisdiction, but the International Tribunal has primacy over the latter ones[54].

  1. Jurisdiction to enforce

Jurisdiction to enforce deals with a State’s authority to induce or compel compliance or to punish noncompliance with its laws or regulations, whether through the courts or by use of executive, administrative, police, or other nonjudicial action[55]. It is widely assumed that a state may not enforce its rules unless it has jurisdiction to prescribe those rules[56]. The mere existence of jurisdiction to prescribe, however, is insufficient to justify the state to exercise enforcement jurisdiction in another state’s territory. Especially concerning measures in aid of enforcement of criminal law, a state’s law enforcement officers may exercise their functions in the territory of another state only with the consent of the state, given by duly authorized officials of that state[57].

Enforcement measures requiring consent include not only the physical arrest of a person, but also, for example, service of subpoena, orders for production of documents, and police inquiries[58]. Police investigations may therefore not be mounted on the territory of another State without its consent. The consequences may seem odd for anyone not familiar with the eagerness of States to protect their national sovereignty. Its limits are much more strictly observed than is the case with jurisdiction to prescribe.

An interesting question arises when the investigation is accomplished without entering another State’s territory, by running, for instance, a computer program which searches databases installed in another country. At least two different scenarios are imaginable. Police could send „dog sniffs“ via network to hard drives to check their contents[59]. Or, law enforcement agencies could try to filter the streams of e-mail communication by searching for certain keywords[60], evaluating the communication in certain news groups, or checking suspicious Web sites. The first scenario is distinguished from the second insofar as the objects of supervision—hard drives—have a certain territorial location. Even though they can be easily moved, they are like all tangibles always physically located, either within or outside the borders of a certain jurisdiction. It is much more difficult to locate Web sites or public bulletin boards.

Even when the location of a hard drive, a Web site, or a bulletin board is known, the question is whether the activity of a foreign law enforcement agency might be allowed because the territory was not physically entered by any agent. The Swiss Federal Tribunal, Lausanne, decided in 1982 that a violation of sovereignty did not necessarily require that the violating person acted on the territory of the violated State[61]. A German undercover agent had contacted a Belgian suspect by telephone, inducing him to come for a business deal to Switzerland. When the suspect arrived in Switzerland, Germany requested his extradition[62]. The Swiss Federal Tribunal refused the extradition, arguing that to give effect to the German request would have made Switzerland a party to the violation of which Germany was considered guilty. This strict attitude was not shared by the Court of Appeals for the Second Circuit in United States v. Romano[63]. The appellants, domiciled in Italy, were induced by U.S. agents to come to the United States to complete a transaction which had been negotiated and arranged by telephone conversations. Confronted with the complaint of violation of foreign sovereignty, the court followed a narrow approach. „It must be stated at the outset that in this case no peace officer or officer of the United States ever entered Italian territory. Therefore, there was no violation of territorial sovereignty or offence to any State.“[64]

This approach, however, is too narrow. In the cases of service of subpoena or orders for production of documents, no government agent enters foreign territory. Nevertheless, these cases are recognized as examples of infringement of sovereignty. They are unilateral acts by public authorities compelling a certain result which is not in accordance with the legal order of the State where the effects occur. It might also be reasonable to allow everyone, even secret services, to surf the Net[65]. A search of one’s hard drive by a foreign law enforcement agency from abroad, however, has another quality. It has the same effect as a traditional search of premises, a law enforcement measure reserved to the territorial sovereign. Such a „cybersearch“ constitutes a unilateral act aimed at legal consequences. As territorial sovereignty serves, inter alia, to protect the residents from physical persecution of other states[66], this protection must be extended when persecution no longer needs to physically enter foreign territory. As a consequence, it might be concluded that whenever a „cybersearch“ targets a hard drive, a bulletin board, or a Web site in the course of a law enforcement measure, the consent of the territorial sovereign in which the target is located is required. First, however, the target must be tied to a specific foreign jurisdiction, which may not be easy in all cases involving the Internet.

  1. Conclusion

Certain limits to the international exercise of jurisdiction, however, are clear. Jurisdiction to prescribe, absent links of territoriality or nationality, is only legal under international principles if a defendant targets a State or commits a crime to which the universality principle applies.

International jurisdiction to adjudicate is not triggered by the mere accessibility of a Web site by a State’s citizens unless the alleged Internet crime falls under the universality exception. For instance, States are, in general, not allowed to exercise jurisdiction over defendants located abroad who merely advertise services over Web sites which are accessible to their citizens without particularly targeting them[67]. The consequences of such expansive jurisdiction would be severe. In areas where laws differ significantly from State to State, forum shopping could occur with a sweep as broad as the Internet is accessible[68]. Furthermore, exorbitant assertions of jurisdiction could provoke diplomatic protests, trigger commercial or judicial retaliation, and threaten friendly relations in unrelated fields[69].

Jurisdiction to enforce by computerized means over databases or hard drives located in foreign countries is tempered by the interests of those territorial States. International law strongly suggests that such jurisdiction requires their consent.

Traditional concepts of international law, however, will need further development to solve future conflicts of competing jurisdictions. Consent on abstract concepts might be reached relatively easily, but the resolution of concrete cases will provoke troubles. International solutions, which might help to solve cyberspace-specific problems of lack of territoriality or abundance of territorial links, are still at a very early stage of development[70].

Word Count: 3290

Footnotes

  1. Restatement (Third) of the Foreign Relations Law of the U.S. § 401 cmt. a (1987) [hereinafter Restatement].

  2. See Barcelona Traction, Light and Power Co. (Belg. v. Spain), 1970 I.C.J. 3, 17-53

  3. Arthur T. von Mehren & Donald T. Trautman, Jurisdiction to Adjudicate: A Suggested Analysis, 79 Harv. L. Rev. 1121, 1127 (1966); Gary B. Born, Reflections on Judicial Jurisdiction in International Cases, 17 Ga. J. Int’l & Comp. L. 1, 33 (1987).

  4. Louis Henkin et al., International Law 1046 (3d ed. 1993); Barry E. Carter & Phillip R. Trimble, International Law 726 (2d ed. 1995); Bernard H. Oxman, Jurisdiction of Statesin Encyclopedia of Public International Law 277 (Rudolf Bernhardt ed., Instalment 10 1987); Thomas Buergenthal & Harold G. Maier, Public International Law 159 (2d ed. 1990); Restatement, supra note 1

  5. Oxman, supra note 4, at 277.

  6. Restatement, supra note 1, at 230-31.

  7. Restatement, supra note 1, at 236-37.

  8.  Id. § 403 cmt. a.

  9. Id.

  10. Vienna Convention on Diplomatic Relations, Apr. 18, 1961, art. 34, 500 U.N.T.S. 95.

  11. International Chamber of Commerce, The Extraterritorial Application of National Laws, 38-40 & 46-48 (Dieter Lange & Gary Born eds., 1987) [hereinafter International Chamber of Commerce].

  12. Another principle, the passive personality principle, will not be discussed in this analysis. The passive personality principle asserts that a State may apply law—particularly criminal law—to an act committed outside its territory by a person not its national where the victim of the act was its national. The principle has not been generally applied with approval for ordinary torts or crimes, but it is increasingly accepted as applied to terrorist attacks and other organized attacks on a State’s nationals by reason of their nationality. So far, no realistic scenarios have arisen in the cyberspace context that would provoke use of the passive personality principle.

  13.  See, e.g., Nathaniel C. Nash, Germans Again Bar Internet Access, This Time to Neo-Nazism, N.Y. Times, Jan. 29, 1996, at D6. The Germany-based T-Online service of Deutsche Telekom, a privatized former State enterprise, said it voluntarily blocked access to the World Wide Web site of Ernst Zündel, a Toronto-based Neo-Nazi, after German prosecutors warned the company that they were investigating whether it was helping to incite racial hatred. According to the European Commission, „some third countries have introduced wide-ranging legislation to block all direct access to Internet via access providers by introducing a requirement for `proxy servers’ similar to those used by large organisations for security reasons, combined with centralised blacklisting of documents . . . .“ Illegal and Harmful Content on the Internet: Communication from the European Commission to the European Parliament, the Council, the Economic and Social Committee and the Committee of the Regions, available at <http://www2.echo.lu/legal/en/internet/content/communic.html> , pt. 4.b.iv

  14. Seee.g., Hiawatha Bray, UMass Shuts Down Web Site Containing Neo-Nazi Material, Boston Globe, Feb. 2, 1996, at 28. Free speech advocates at Stanford University and Carnegie-Mellon University have obtained the offending material (Holocaust-revisionist Web pages), posted it on other Web sites, and urged others to post it in locations not blocked by Deutsche Telekom. The idea is to put the material on so many Web sites that Germany would have to completely disconnect from the Internet to censor it. 

  15. Cf. Corfu Channel (U.K. v. Alb.), 1949 I.C.J. 4, 22 (Apr. 9).

  16. The EU Electronic Commerce Directive 2000/31/EC

  17. UEJF et LICRA v Yahoo! Inc. et YahooFrance, Tribunal de Grande Instance de Paris, No RG: 00/05308, Interim Order May 22, 2000 available at http://www.juriscom.net/txt/jurisfr/cti/tgiparis20000522.htm

  18. The information in this paragraph is from Dr Gillen’s lecture in Computer Law and Intellectual Property, Oxford Brookes University, 2011.

  19. Carter & Trimble, supra note 4, ch. 7; Blackmer v. United States, 284 U.S. 421 (1932); J. L. Brierly, The Law of Nations 231-32 (Oxford 5th ed. 1955). But see Geoffrey R. Watson, Offenders Abroad: The Case for Nationality-Based Criminal Jurisdiction, 17 Yale J. Int’l L. 41, 83 (1992) („The United States, the crusading champion of extraterritorial jurisdiction, continues to reject one of the least controversial forms of extraterritorial criminal jurisdiction, nationality-based jurisdiction. As a result, U.S. nationals commit serious crimes overseas and escape prosecution.“).

  20. See Margaret A. Healy, Prosecuting Child Sex Tourists at Home: Do Laws in Sweden, Australia, and the United States Safeguard the Rights of Children as Mandated by International Law?, 18 Fordham Int’l L.J. 1852 (1995).

  21. The Penal Code of the Federal Republic of Germany, 28 The American Series of Foreign Penal Codes (Edward M. Wise ed. & Joseph J. Darby trans., 1987).According to the wording of StGB § 6, German law is even applicable to certain international crimes of non-nationals committed abroad. However, the German Federal Supreme Court for Criminal Matter considered the principle of nonintervention and required a legitimizing link of the case with Germany. BGH Urteil, StR, 3 (1976), 298;

  22.  Restatement, supra note 1, § 402 cmt. e.

  23. See David Plotnikoff, Bite Lacking in Protests of On-Line Censorship, San Jose Mercury News, Jan. 4, 1996. („Last week, a foreign power successfully bullied an American company into pulling the plug on part of the news feed that reaches millions of Americans.“)

  24. Oxman, supra note 4, at 280; United States v. Aluminum Co. of America, 148 F.2d 416, 444 (2d Cir. 1945).

  25.  International Chamber of Commerce, supra note 11, at 4-32

  26. Jason Coppel, A Hard Look at the Effects Doctrine of Jurisdiction in Public International Law, 6 Leiden J. Int’l L. 73 (1993); Margaret Loo, IBM v. CommissionerThe Effects Test in the EEC, 10 B.C. Int’l & Comp. L. Rev. 125 (1987).

  27.  F.A. Mann, The Doctrine of International Jurisdiction Revisited After Twenty Years, 186 R.C.A.D.I. 9, 26 (1984 III) („[T]he purely commercial effect . . . should be insufficient to confer . . . any international right to prescribe conduct abroad.“); cf. Vaughan Lowe, International Law and the Effects Doctrine in the European Court of Justice, 48 Cambridge L.J. 9 (1989).

  28. Restatement, supra note 1, § 402(3).

  29. Ian Brownlie, Principles of Public International Law 304 (4th ed. 1990).

  30. Henkin et al.supra note 4, at 1082-84; Buergenthal & Maier, supra note 4, at 169.

  31. A worm is „a usually small self-contained computer program that invades computers on a network and usually performs a malicious action.“ Merriam-Webster’s Collegiate Dictionary 1364 (10th ed. 1996).

  32. Cf. Dato V. L. Kandan & Chuah Jern Ern, Malaysia Prepares „Cyberlaws“, Intell. Prop. Worldwide (July/Aug. 1997) <http://www.ipww.com/jul97/pllmalaysia.html>. (explaining that Malaysia’s proposed Computer Crimes Bill intends to prevent mischievous activities such as hacking into computers, implanting viruses, and cracking passwords).

  33. Joyce v. Dir. of Pub. Prosecutions, 1946 App. Cas. 347 (appeal taken from Crim. App.)

  34.  Ian Brownlie, Principles of Public International Law 304 (4th ed. 1990).

  35. Robert Alfert, Jr., Hostes Humani Generis: An Expanded Notion of U.S. Counterterrorist Legislation, 6 Emory Int’l L. Rev. 171 (1992).

  36.  „After the Oklahoma City bombing, the Senate terrorism subcommittee immediately convened hearings on `The Availability of Bomb-Making Information on the Internet,’ at which Senator Dianne Feinstein expressed shock that racist militia organizations apparently use the Net to distribute `mayhem manuals’ and other bomb-making instructional material and to spread their doctrines on the `Cyberhate’ World Wide Web site and other similar outposts.“ David Post, New Rules for the Net?, Am. Law. July/Aug. 1995, at 112.

  37.  Restatement, supra note 1, § 401(b).

  38. Cf.e.g., BGHZ 115, 90;  F.A. Mann, The Doctrine of International Jurisdiction Revisited After Twenty Years, 186 R.C.A.D.I. 9, 26 (1984 III) , at 32; Gary B. Born, Reflections on Judicial Jurisdiction in International Cases, 17 Ga. J. Int’l & Comp. L. 1, 33 (1987).

  39. Andreas Lowenfeld, International Litigation and the Quest for Reasonableness 46 (1996).

  40. International Shoe, 326 U.S. 310, 316 (1945)

    [D]ue process requires only that in order to subject a defendant to a judgment in personam, if he be not present within the territory of the forum, he have certain minimum contacts with it such that the maintenance of the suit does not offend `traditional notions of fair play and substantial justice.’ Id. (emphasis added).

  41. Smith v. Hobby Lobby Stores, Inc., 968 F.Supp. 1358 (W.D. Ark. 1997).

  42. McDonough v. Fallon McElligot, Inc., 40 U.S.P.Q.2d (BNA) 1826 (S.D. Cla. 1996). 

  43. Hearst Corp. v. Goldberger, No. 96 Civ. 3620 (PKL)(AJP), 1997 WL 97097 (S.D.N.Y. Feb. 26, 1997); Bensusan Restaurant Corp. v. King, 937 F. Supp. 295 (S.D.N.Y. 1996), aff’d, No. 96-9344, 1383, 1997 WL 560048 (2d Cir. Sept. 10, 1997); CompuServe, Inc. v. Patterson, 89 F.3d 1257 (6th Cir. 1996); EDIAS Software Int’l, L.L.C. v. BASIS Int’l Ltd., 947 F. Supp. 413 (D. Ariz. 1996); Resuscitation Tech., Inc., v. Continental Health Care Corp., No. IP 96-1457-C-M/S, 1997 WL 148567 (S.D. Ind. Mar. 24, 1997); Hall v. LaRonde, 66 Cal. Rptr. 2d 399 (Cal. Ct. App. 1997); Pres-Kap, Inc. v. System One, Direct Access, Inc., 636 So. 2d 1351 (Fla. Dist. Ct. App. 1994). 

  44. Hearst, 1997 WL 97097; Bensusan Restaurant, 937 F. Supp. 295.

  45. CompuServe, 89 F.3d 1257; EDIAS Software Int’l, 947 F. Supp. 413; Resuscitation Tech., 1997 WL 148567; Hall, 66 Cal. Rptr. 2d 399.

  46. Pres-Kap, 636 So. 2d 1351.

  47. Granite Gate Resorts, No. C6-95-7227, 1996 WL 767431 (Minn. Dist. Ct. Dec. 11, 1996) (denying defendant’s motion to dismiss for lack of jurisdiction), aff’d sub. nom., Humphrey v. Granite Gate Resorts, Inc., 568 N.W.2d 715 (Minn. Ct. App. 1997).

  48. Lecture, Dr M. Gillen

  49. Zippo Manufacturing Co. v. Zippo Dot Com, Inc. 952 F. Supp. 1119

  50. Restatement, supra note 1, § 421.

  51.  In 1983, the CIA, for example, produced a manual entitled Operaciones sicológicas en guerra de guerrillas which taught how to commit warcrimes. The CIA disseminated it to the so-called contras who fought against the government of Nicaragua. The International Court of Justice found that the USA thereby encouraged the commission of acts contrary to general principles of humanitarian law. Military and Paramilitary Activities In and Against Nicaragua (Nicar. v. U.S.) 1986 I.C.J. 14, 148 (June 27); Tim Weiner, C.I.A. Taught, Then Dropped, Mental Torture in Latin America, N.Y. Times, Jan. 29, 1997, at A11. Posting this manual on the Net with the intention to make it available to people who use this knowledge would arguably pass the muster of aiding and abetting in war crimes.

  52. United Nations: General’s Report on Aspects of Establishing An International Tribunal for the Prosecution of Persons Responsible for Serious Violations of International Humanitarian Law in the Territory of the Former Yugoslavia, May 3, 1993, Annex I, art. 4(3), 32 I.L.M. 1159, at 1192, Annex.

  53.  Id. Annex, art. 7.

  54.  Id. Annex, art. 9.

  55.  Restatement, supra note 1, § 401(c).

  56. Oxman, supra note 4, at 277-278; Mann, supra note 27, at 34. But see Restatement, supra note 1, § 431(1) („A state may employ judicial or nonjudicial measures to induce or compel compliance or punish non-compliance with its laws or regulations, provided it has jurisdiction to prescribe in accordance with §§ 402 and 403.“).

  57.  Restatement, supra note 1, § 432(2).

  58. Mann, supra note 27, at 39; Brownlie, supra note 34, at 307; Richard Whish, Competition Law 370-385 (3d ed. 1993), at 374; Federal Trade Comm. v. Compagnie de Saint-Gobain-Pont-à-Mousson, 636 F.2d 1300, 1304 (D.C. Cir. 1980) („[T]he act of service itself constitutes an exercise of American sovereign power within the area of the foreign country’s territorial sovereignty.“).

  59. Cf. Lawrence Lessig, Reading the Constitution in Cyberspace, 45 Emory L.J. 869, 882 (1996). The example comes from Michael Adler, Cyberspace, General Searches, and Digital Contraband: The Fourth Amendment and the Net-Wide Search, 105 Yale L.J. 1093 (1996).

  60. Thomas J. Lueck, 3 Are Arrested on Evidence From an Internet Wiretap, N.Y. Times, Dec. 30, 1995, at 42; John Markoff, U.S. Rebuffed in Global Proposal For Eavesdropping on the Internet, N.Y. Times, Mar. 27, 1997, at A1; Christopher Wolf & Scott Shorr, Cybercops Are Cracking Down on Internet Fraud, Nat’l L.J., Jan. 13, 1997, at B12.

  61. X (Belgian Citizen) v. Swiss Fed. Prosecutor’s Office, 10 EuGRZ 435 (Judgment of 15 July 1982) (Swiss Federal Tribunal, Lausanne, P1201/81/fs 1983).

  62.  As Belgium does not extradite its own nationals, a request to Belgium would have been senseless.

  63.  Romano, 706 F.2d 370 (2d Cir. 1983).

  64.  Id. at 375. Compare the position of the U.S. Government in United States v. Yunis, 681 F. Supp. 909, 916 n.11 (D.C. Cir. 1988), rev’d on other grounds, 859 F.2d 953 (D.C. Cir. 1988).

  65. Cf. Interview with Edzard Schmidt-Jortzig, German Minister of Justice, in „Der Nationalstaat ist Überholt“ [The National State is Antiquated], Der Spiegel (Nov. 1996) <http://www.spiegel.de/special/heft2/schmidt-jortzig.html> [hereinafter Schmidt-Jortzig Interview] (indicting the belief that everybody may surf the Net, but that the Secret Service may not assume the role of a data police without statutory authorization).

  66.  Cf. Santiago Torres Bernardez, Territorial Sovereignty, Encyclopedia of Public International Law 487, 491 (Rudolf Bernhardt ed., Instalment 10 1988).

  67.  See Dale M. Cendali & James D. Arbogast, Net Use Raises Issues of Jurisdiction, Nat’l L.J., Oct. 28, 1996, at C7. The new approach of the U.S. government is to focus on the site of origin. Cf. William J. Clinton & Albert Gore, Jr., A Framework for Global Electronic Commerce (visited Oct. 23, 1997) <http://www.ljx.com/internet/ecommframe.html> (explaining the new approach of the U.S. government), pt. III.8 („The rules of the `country-of-origin’ should serve as the basis for controlling Internet advertising to alleviate national legislative roadblocks and trade barriers.“); Lori I. Bauman, Personal Jurisdiction and Internet Advertising, The Computer Law., Jan. 1997, at 4 (citing Asahi Metal Indus. Co. v. Superior Ct. of Cal., 480 U.S. 102 (1992)). , at 6.

  68. . Richard Raysman & Peter Brown, Computer Law: On-Line Legal Issues, N.Y. L.J., Feb. 15, 1995, at 3.

  69. Born, supra note 3, at 29.

  70. See Schmidt-Jortzig Interview, supra note 65. The German Minister of Justice sees the first step in an European Agreement on the Liability of Internet Service Provider. The step in his view could be a worldwide convention, even though he acknowledges that the U.S. government would never sign an agreement that outlaws Holocaust-revisionist material. Id.

 

 

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  37. McDonough v. Fallon McElligot, Inc., 40 U.S.P.Q.2d (BNA) 1826 (S.D. Cla. 1996). 
  38. Hearst Corp. v. Goldberger, No. 96 Civ. 3620 (PKL)(AJP), 1997 WL 97097 (S.D.N.Y. Feb. 26, 1997);
  39. Bensusan Restaurant Corp. v. King, 937 F. Supp. 295 (S.D.N.Y. 1996), aff’d, No. 96-9344, 1383, 1997 WL 560048 (2d Cir. Sept. 10, 1997);
  40. CompuServe, Inc. v. Patterson, 89 F.3d 1257 (6th Cir. 1996);
  41. EDIAS Software Int’l, L.L.C. v. BASIS Int’l Ltd., 947 F. Supp. 413 (D. Ariz. 1996);
  42. Resuscitation Tech., Inc., v. Continental Health Care Corp., No. IP 96-1457-C-M/S, 1997 WL 148567 (S.D. Ind. Mar. 24, 1997);
  43. Hall v. LaRonde, 66 Cal. Rptr. 2d 399 (Cal. Ct. App. 1997);
  44. Pres-Kap, Inc. v. System One, Direct Access, Inc., 636 So. 2d 1351 (Fla. Dist. Ct. App. 1994). 
  45. Hearst, 1997 WL 97097; 
  46. Bensusan Restaurant, 937 F. Supp. 295.
  47. CompuServe, 89 F.3d 1257; 
  48. EDIAS Software Int’l, 947 F. Supp. 413; 
  49. Resuscitation Tech., 1997 WL 148567; 
  50. Hall, 66 Cal. Rptr. 2d 399.
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  53. Nicaragua v. U.S. 1986 I.C.J. 14, 148
  54. Tim Weiner, C.I.A. Taught, Then Dropped, Mental Torture in Latin America, N.Y. Times, Jan. 29, 1997
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  59. Thomas J. Lueck, 3 Are Arrested on Evidence From an Internet Wiretap, N.Y. Times, Dec. 30, 1995, at 42;
  60. John Markoff, U.S. Rebuffed in Global Proposal For Eavesdropping on the Internet, N.Y. Times, Mar. 27, 1997, at A1;
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