ABA Project on Jurisdiction and the Internet Banking & Payment Systems

Introduction

This portion of the project will focus directly on the jurisdictional issues that arise with respect to Banking and Payment Systems as a result of electronic commerce within cyberspace. Three foundation principles, which are employed generally throughout the work of the Project, are used for identifying the issues addressed in this section
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"oes the issue arise because of electronic commerce o#er the $nternet% $s the issue solely a banking'payment systems issue% $s the issue a jurisdiction issue%

Banking $n this section of the Project )eport, the term banking is used in a generic and functional sense without any relation to the formal designations and classifications of particular entities under applicable laws. *or our purposes, a bank, a sa#ings bank, a sa#ings and loan association, a trust company, a credit union, a building and loan society, a small loan company, etc. are all in#ol#ed in banking. *urther, securities brokerage firms, mutual funds, pension plans, credit card issuers, and other entities that are not traditionally labeled as banks are functionally in#ol#ed in banking to the e+tent that they take deposits, transfer funds to third parties, and'or make loans ,as they in fact routinely do.- .or does this paper e+clude functions from the concept of banking because they are performed, in whole or in part, by go#ernmental and /uasi0 go#ernmental institutions rather than by pri#ate companies, or because they are performed on a secondary market le#el rather than a primary market le#el. 1 /uasi0go#ernmental entity that funds loans that are essentially brokered to it through the secondary market by primary lenders is performing a banking function, just as much as a traditional pri#ately owned bank in the primary market. $ndeed, since such a system is /uite likely to be highly automated in de#eloped countries,

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it is e#en more directly related to the issues addressed through this Project. ! *urther, it appears to be a general phenomenon that go#ernmental and /uasi0go#ernmental entities that perform financial functions will seek to e+pand the range of their functioning. 5hether this dri#e is based on an innate bureaucratic imperati#e, a normal desire of di#ersification, or other factors is unimportant. The fact is that they are significant participants in the banking system. $n general, therefore, the intent of this report is to focus on function, not on entity, and to try to see beyond the particular regulatory classifications of particular jurisdictions. Such a broad conceptual approach is necessary for this discussion. The stuff of banking and payment systems is money. 6oney is, and always has been, an element of a shared belief system, a piece of consensus reality. Today, money 00 whether it is legal tender or e0money 00 is principally e#idenced as a digital file. The technology e+ists to cause any money to be e#idenced by a digital file. $ndeed, any financial product can be e#idenced as a digital file. This commonality of potentially being e#idenced as a digital file underlies e#ery financial product or ser#ice 00 regardless of the type or location. 7ence, any entity possessing ade/uate information processing technology can perform the functions of a bank ,putting aside the legality of their doing so-. $ndeed, it is a fear not infre/uently e+pressed by traditional depository institutions that their most potent future banking competitors may be software companies.&

$n most jurisdictions, insurance companies, securities firms and go#ernment agencies are subject to different regulatory schemes as compared to traditional depository financial institutions. To the e+tent that insurance companies, securities firms, go#ernment agencies and other non0bank entities currently offer payment ser#ices or banking functions, these acti#ities are generally ,at least within the 8nited States- handled by a bank in partnership with the insurance company, securities firm or go#ernment agency. 8nder 8.S. law, a securities firm or insurance company could probably not pro#ide these banking'payments acti#ities directly to customers without first obtaining a banking charter or license. 7owe#er, as more fully de#eloped in this report, it is /uestionable how long such entity distinctions will continue as a matter of law. The 8S, for e+ample, appears about to enact the most important re#ision of its banking laws since !9(&, a re#ision that will directly result in significant blending of financial entity types in the 8S and should, because of competiti#e pressures, accelerate such blending in non08S markets. *or the purposes of this report, the process is the issue, not the entity.
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2urrently, a customer cannot perform all traditional banking functions through the $nternet ,e.g., make a cash or check deposit to his or her deposit account, cash a check, or withdraw funds in the form of currency-. Technology and business practices may de#elop to perform some of these functions through the $nternet in the future, but that is not the case today. 7owe#er, this report is intended to anticipate certain future banking or payments de#elopments, such as electronic checks, that are not yet fully operational, as well as certain contributions of pro#iders of financial ser#ices that ha#e not yet become common.
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This opportunity for a broader range of competitors in the area of financial ser#ices creates issues in the areas of jurisdiction law referred to as prescripti#e or regulatory jurisdiction, the /uestion of which authority or authorities ha#e the power to prescribe the rules that go#ern an acti#ity. The o#ersight and control of the financial ser#ices systems in a particular state, pro#ince, or country has historically been an important go#ernment function. *inancial ser#ices pro#iders, in whate#er form, ha#e in modern times been subject to comprehensi#e e+amination, strict limitations, and direct o#ersight by their controlling go#ernment regulator. The e+treme conse/uences of pre#ious wide0spread failures within the financial ser#ices industry ha#e demonstrated the importance to go#ernments of maintaining a safe and sound financial ser#ices system. :+amples abound of the broad, societal conse/uences that ensued when go#ernments failed to pro#ide proper e+amination and super#ision of financial ser#ices functions conducted in their territories. The world wide "epression of the !9(3;s, the Sa#ings and <oan $ndustry Bailout in the 8S in the late !9=3;s, the related 2anadian crisis with respect to trust companies, and the 1sian *inancial 2risis of the late !993;s, each find among their pro+imate causes go#ernment;s failure to adopt correct regulatory policies( with respect to their financial institutions and'or to ade/uately super#ise #arious forms of pro#iders of financial ser#ices. >i#en the importance of go#ernment;s role in regulating financial institutions, the jurisdictional /uestion that arises is when and how may a go#ernment regulate financial institutions that operate within its territory #ia the $nternet. Traditionally, regulatory jurisdiction was con#eyed by a financial institution;s physical geography ? if the institution establishes a branch in a particular territory, the institution must follow the rules of that territory go#erning that particular type of institution. 6ay, and more importantly, how can a go#ernment regulate a financial institution whose only physical presence within its so#ereignty consists of electrons flowing through the $nternet to that go#ernment;s citi@ens, a mechanism through which, for all practical purposes, any financial institution can pro#ide any financial ser#ice to any person anywhere in the world%
*or e+ample, go#ernmental policies that re/uired certain classes of financial institutions to borrow short and lend long and simultaneously subjected them to restricti#e usury laws set the stage for ine#itable widespread failures among such institutions. 5hen the go#ernment also insured the accounts of such institutions, a massi#e claim on the public treasury was e/ually ine#itable.
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Traditional Payment Systems

1pplying the three foundation principles mentioned abo#e yields the conclusion that traditional payment systems do not present significant cyberspace jurisdictional issues as a practical matter. Today, money mo#es around the world on a daily basis in #ast amounts in as free and seamless a manner as it e#er has in history, and nearly instantaneously for the great bulk of the transactions. These mo#ements occur largely without incident and primarily through an established network of domestic financial entities and their correspondents, foreign financial entities, speciali@ed go#ernmental entities, and #arious ser#ice pro#iders. $n many countries these payment systems are subject to super#ision and e+amination by the country;s banking regulators. A The reasons for this nearly problem0free mo#ement of money are many. The de#elopment and wide0spread use of technology that readily permits money and financial instruments to be e#idenced as digital files, the de#elopment of high0speed computers and high0capacity transmission facilities, and the emergence of common and dominant currencies are but a few. 7owe#er, fi#e reasons are key from the legal point of #iew ,!1ny competent payment system must, by its nature, be designed to eliminate failures on the micro and macro le#els. $n layman;s terms, at the end of the day, e#erything must balance ,debits e/ual credits-. The system constantly checks for, and resol#es, all account discrepancies, whether they occur in an indi#idual;s checking account, a bank;s settlement account, or a go#ernment;s payment account, on a daily basis. $t is the nature of a payment system that at the end of the day ,literally and figurati#ely- all participants must know e+actly where their accounts stand. Settlement accounts and established lines of credit guarantee that the payment process will result in a balanced system with the risk of loss ,caused by any imbalance in payment order #. a#ailable funds- passed through to each participant who causes that imbalance. $t is a testimony to the effecti#eness of the global system
*or e+ample, a 8.S. bank could not join a payments network either inside or outside the 8nited States unless that network agreed to the e+amination'super#ision of the 8.S. bank regulatory authorities. $n addition, the Bank Ser#ice 2orporation 1ct gi#es the bank regulatory authorities direct jurisdiction o#er payments networks ser#ing 8.S. banks. 1s part of this e+amination'super#ision, the 8.S. bank regulators ha#e imposed #arious conditions on the operation of these payment systems, such as #arious re/uirements related to risk management.
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that ,e+cept in the case of occasional local disturbances- this result occurs e#ery day throughout the planet. ,&The rules and processes for local, national and international money transfers ha#e become well established and carefully defined o#er many years ,indeed, centuries-. To a great degree, de#elopment of an electronic payments system happened decades ago as money was con#erted from a paper0world to a cyber0world. Bestiges of paper0based transactions still co0e+ist with electronic payments, mostly because the preferences of indi#idual customers ha#e not kept pace with the possibilities presented by technological ad#ances. But the functionality of the payment system has been based in electronic e+changes of debits and credits at least since the late !943;s. :#en the financial institution that continues to mail its customers their cancelled paper checks each month long ago con#erted to processing the payments represented by those items electronically. *inancial institutions eagerly await the day their customers mo#e from recei#ing their cancelled checks in the mail to being satisfied with online access to image files of those checks. The financial institutions will still be performing e+actly the same function, but the different technologies will make the ser#ices appear to be distinct. ,(1t the core of local, national and international payment systems is an elaborate and constantly tended web of contracts, protocols, time0honored practices, consultati#e mechanisms, and personal relationships, all designed to produce swift and certain results without the need for contentious dispute resolution. To conduct transfers o#er the established payment systems, one must agree to abide by these rules, which allocate the burden and risk of loss in each transaction. $n the case of an error or mistake, all participants know what their rights are, how to enforce them, and the party in error knows that it must accept responsibility to continue as a participant in the system.C
$n the typical credit card system ,the D card-, each participant in an D credit card transaction ,cardholder, cardholder;s bank, merchant;s bank, merchant- is subject to a common agreement embodied in D;s rules. These rules are supplemented by bilateral agreements ,re/uired by the rules- between the cardholder and his'her bank, and between the merchant and its bank. These agreements address and resol#e jurisdictional issues ,assuming they are enforced under applicable law-. 7ence, $nternet0based D card relationships and transactions raise no new jurisdictional issues under these agreements.
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1 substantial number of the contractual arrangements in#ol#ed in the traditional payment system contain pro#isions stipulating the jurisdictional aspects of any issues that arise under the contracts, e.g., the applicable law, the judicial forum for dispute resolution, and applicable arbitration pro#isions. These agreements are between and among sophisticated parties with strong indi#idual or collecti#e bargaining power. 2ourts are generally willing to enforce pro#isions of this type among such parties ,as opposed to contracts in which one of the parties is an indi#idual-. Thus, jurisdictional issues are contracted away.

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<egal rules ha#e de#eloped that limit the e+posure of consumers to liability. *or e+ample, in the 8nited States, the Truth0in0<ending 1ct and the :lectronic *unds Transfer 1ct generally limit the e+posure of consumers on indi#idual transactions to EC3 as a matter of law. Programs are a#ailable that can reduce that e+posure effecti#ely to @ero. This de#elopment reduces the likelihood that disputes 00 the stuff of jurisdictional /uestions 00 will arise. The potential consumer complaint becomes a claim in#ol#ing the merchant, the merchant;s bank and the cardholder;s bank and is resol#ed, without raising jurisdictional issues, as a matter of contract among those parties. >lobally, the sophisticated parties settle the claims among themsel#es on the basis of a netting process and regard losses as a cost of doing business against which they create reser#es or purchase insurance. 2onsumers generally are aware that they are protected and deri#e a sense of confidence from this fact, which has been an essential factor in the e+pansion of electronic commerce on the retail le#el.

$n short, the operational imperati#es and legal structure of traditional payment systems are such that they do not generate disputes that re/uire adjudication. 1s to any differences that might arise, solutions are pro#ided for in ad#ance by detailed agreements. The daily #olume of global currency transactions a#erages in e+cess of !.3 /uadrillion of 8S dollars. The a#erage daily #olume on the *ed5ire, a principal component of the 8S payment system ,discussed below- has e+ceeded !.3 /uadrillion 8S "ollars since !994. $f only a #ery small percentage of these daily transactions yielded disputes, such systems could not tolerate the clogging that would result from the accumulated burden of cases. $ndeed, a #irtuous cycle is at work because there is #ast

#olume, disputes are intolerableG and because disputes ha#e not been tolerated, e+pansion of the #olume has been enabled. This cycle has long been at work in the paper0world. The addition of computers and $nternet communications ha#e enhanced the cycle and accelerated its e+pansion and de#elopment. Thus, the payments system has e#ol#ed in such a manner that jurisdictional /uestions are a#oided. This is an important fact on two le#els. *irst, this practice of a#oiding jurisdictional conflicts is employed with respect to business0to0business electronic transactions generally. Second, as will be discussed later, these may be effecti#e techni/ues for a#oiding or minimi@ing jurisdictional conflicts in business0to0consumer electronic transactions as well. So long as the commerce generated by and through the $nternet interfaces with the established payment systems, issues of the type that the Project is to address will not be presented. This is not to say that the system does not face major issues computing capacity, bandwidth of transmission facilities, inconsistent file types, security, customer acceptance ? to name only a few. The sheer magnitude of the operations of the international payment system #irtually guarantees that there will be issues of many types. But they do not meet the criteria of the foundation principles in that they do not generate /uestions of jurisdiction. Alternative Payment Systems

Hne area of payment systems is de#eloping within electronic commerce that does present some challenging jurisdictional issues. The $nternet does pose the possibility that alternati#es to the e+isting global payment system may arise. $ndeed, electronic bartering and #arious forms of e0currency and e0payments are currently in use in some $nternet transactions. These alternati#es raise a number of issues with jurisdictional conse/uences because of their essentially closed nature. The whole notion of electronic commerce presupposes that payments must and will be e+changed between the parties. 1fter all, what;s commerce without money% 2urrently, payments are made to both traditional and $nternet pro#iders of goods and ser#ices through three principal

means credit cards, debit instruments, and "igital 2urrency.F The first two options are currently components of the traditional payment systems and, as e+plained abo#e, disputes regarding their processing that ha#e jurisdictional significance are rare. 2redit card and debit card transactions work somewhat differently in the physical world than in the $nternet world. 7owe#er, the differences are without jurisdictional significance. 1ny merchant who accepts credit card payments must sign an agreement either with the card system operator ,e.g., Bisa, 6aster2ard, 1merican :+press, etc.- or the merchant;s financial institution ,which will process payments to the card system on behalf of the merchant and signs a separate agreement with the card system operator-. The agreement will specify how all disputes between the #arious parties ,merchant and customer, system operator and merchant, financial institution and customer, etc.- will be resol#ed and what indi#idual rights each has within the system. 1ccepting these dispute resolution processes is one price the merchant pays for the right to use the credit card system as a mode of recei#ing payment. $t is important to distinguish between credit card transaction disputes generally and credit card transaction disputes with jurisdictional significance. "isputes in#ol#ing credit card transactions are relati#ely common, usually in#ol#ing unauthori@ed transactions ,e.g. stolen cards-, account statement errors, and dissatisfaction regarding goods and ser#ices. These disputes are dealt with in the conte+t of the system operator agreements. The merchant;s bank, the card0issuing bank, the system operator, the merchant and the cardholder are all parties to #arious agreements with specific applicable laws and regulations, such as ,in the 8nited Statesthe :lectronic *unds Transfer 1ct and Truth0in0<ending 1ct. .ormally, these disputes are resol#ed by a charge0back against the merchant by the merchant;s bank. "isputes regarding debit instruments are similarly resol#ed. These items usually constitute
Hther systems, such as :lectronic Bill Payment and Presentment ,:BPP- are being de#eloped and show considerable promise. 7owe#er, as of this writing, they are still in nascent form globally. $n basic terms, :BPP is a system whereby debtor and creditor settle their accounts through mutually agreed upon procedures at one or more mutually agreed upon websites. The :BPP website may be thought of an interface for arranging automatic clearinghouse ,127- transfersG essentially, electronic debit orders from the payer to the beneficiary. 1s such, the process in#ol#es the current payment system and is not a true alternati#e in the conte+t of this discussion. $n any case, their de#elopers ha#e as a fundamental design criterion that they will not present jurisdictional issues as practical matter.
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an order from the customer to their financial institution to pay an amount certain to the merchant. 2onceptually, this process operates the same as the paper0based check. $nstead of a piece of paper that contains these instructions changing hands from customer to merchant to the paying bank, the transaction is handled wholly by electronic messages. 1s a practical matter, e#en paper0 based checks are usually truncated4 /uickly into electronic information to speed the flow of funds and significantly reduce processing costs. 1s the debit instrument mirrors, in all practical respects, the traditional check, again all the parties; rights and obligations ha#e long been established through the traditional payment system. "igital currency= represents the newest wrinkle within $nternet payment systems. 1t its base, digital currency represents a mutual agreement among that system;s participants to attribute a defined #alue to the modes of e+change designated by that system. Perhaps the concept is best illustrated by looking at its historical precedents. Throughout the history of payment systems, alternati#e methods ha#e de#eloped to transfer #alue among that systems; participants. Hne appropriate analogy to today;s emerging markets in digital currency is to re#iew the use of alternati#e currencies in what were referred to in 1merican history as 2ompany Towns. 1s remote areas of the 8nited States were industriali@ed, the ad#ancement of commerce and trade could not be held back by the relati#ely slow e+pansion of the a#ailability of financial ser#ices and the relati#e immaturity of the official currency system financial ser#ices. 1n alternati#e financial ser#ices system was needed. <ocal, isolated communities were often structured around a single employer, such as a coal mine or lumber camp. 5orkers for that employer were not paid in traditional, commonly recogni@ed currencies, but instead were issued tokens or other forms of tangible representations of #alue. These tokens were often referred to as script. Those tokens were then used as the medium of e+change within that community. They could be used to purchase goods at the company0owned
Truncation refers to a process whereby paper0based checks are con#erted to 127 transfers. This increases the speed with which the creditor recei#es its funds and results in a debit to the payor;s checking account. The effects are the same as those produced by the use of a debt card. Typically, the retail merchant pays a fee to the operator of the truncation system similar to the fee that it pays with respect to debit card use.
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"igital 2urrency is used in this conte+t to refer generically to all forms of alternati#e payment systems either e+isting or to be de#eloped to facilitate electronic commerce. The common element to these payment systems is that they in#ol#e e+changes of tokens or other representations of #alue that ha#e no direct bearing to recogni@ed currencies issued by a go#ernment.
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store or other ser#ices within the company;s town. 5ithin these company towns, using these tokens as an alternati#e currency had its ad#antages. $n a practical sense, there was no need to issue real money since these isolated communities were wholly self0sufficient. The company that owned the enterprise pro#iding employment, which generated wages to the workers in e+change for their labor, also owned or controlled all of the reasonable outlets for those wages. This closed economic system allowed for the de#elopment of a closed currency.9 To the company;s ad#antage, so long as its workers accumulated #alue only in a form recogni@ed solely within that community, its workers were tied to that area and that enterprise interminably. The company set the wages and concomitantly the prices for the goods and ser#ices purchased with those wages. 1ll profits at e#ery le#el of commerce within that closed system inured to the benefit of that company. The alternati#e systems being de#eloped to facilitate electronic commerce share many of the characteristics with these company towns and their tokens. The currency issued within these systems may be e+changed only among participants within that system. $t has #alue only to the other participants and has no recogni@ed #alue outside of the system. *or all practical purposes, any #alue built through the accumulation or e+change of this alternati#e currency can be used only within the conte+t of that system. 2onse/uently, these alternati#e payment systems may be thought of as being, in #arying degrees, independent of the traditional system and but still connected to it at some point. 1lternati#es are being used or under de#elopment because some of the inherent limitations within the traditional system constrict or inhibit facets of electronic commerce. 2redit card payments take se#eral weeks to process before the merchant recei#es credit. :ach participant on that payment chain sha#es some percentage off the transfer, lea#ing the merchant to actually recei#e
1s will be e+plored more fully later in this report, all currencies represent nothing more or less than an agreed0to medium to e+change #alue at an agreed0to rate. The promise of a go#ernment to recogni@e and honor that medium at those #alues is what lends credence to currencies as a medium of e+change. The #ariable factors in establishing that #alue are the strength of the go#ernment making that promise and the underlying strength of the economy whose go#ernment has gi#en the promise. 8sing e0dollars to purchase software from a web site does not differ in concept from using real 8S dollars to effect the same transaction. 7owe#er, one medium of e+change is backed by the full faith and credit of the go#ernment of the largest economic power in the worldG the other by a substantially smaller and less powerful authority.
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less than the full #alue originally e+changed. Both debit instruments and credit card payments bring e+hausti#e consumer protections that ultimately work against the interest of the merchant and its correspondent bank. Security concerns make some consumers reluctant to pro#ide the information necessary to effect either type of transaction. 8nless these limitations can be o#ercome, alternati#e payment systems may e#ol#e into the de#elopment of an entirely new construct that is a super0set of the traditional system and the emerging alternati#e systems. 2urrently, alternati#e payment systems are essentially retail systems rather than wholesale systems. To the e+tent that they arise at all, jurisdiction issues arise almost e+clusi#ely on the retail le#el. 5holesale systems are still the pro#ince of the traditional players, and as a practical matter, the alternati#e payment systems are just short0cuts to the larger players. *undamentally, at some point the alternati#e payment system must con#ert its accumulated #alue to something real by transferring to a recogni@ed and accepted form of currency outside of the closed en#ironment. This is a necessary and sufficient conse/uence, since no economic system is capable of isolated self0sustenance in the modern world, especially no system built on the world0wide platform of the $nternet. The 8S data is instructi#e in this regard. .early all wholesale payments in the 8nited States are conducted electronically #ia go#ernmental and non0go#ernmental payment system networks. 6easured in terms of dollar #alue, appro+imately 93 percent of all non0cash payments in the 8nited States are made by electronic transfer. 2urrently, retail transactions conducted electronically through the $nternet are only a small fraction of the whole. *urther, in the 8S, cash and checks are used for payment in more than =3 percent of the number of retail transactions and about (3 percent of the dollar #alue of such transactions. $n the $nternet en#ironment, those cash and checks can be replaced by any token of #alue that the other participants in that system agree to accept. But unless and until those alternati#e systems become sufficiently per#asi#e and di#erse enough for the participants to be self0sufficient in their economy ,if, indeed, attaining such a goal is possible in the conte+t of our current global economy-, they must at some point rely on the traditional payment systems and the agreements and structures that underpin it.

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Overview of Traditional Payment System Governmental Payment Systems

6ost countries ha#e a central bank or other office'agency'enterprise of a go#ernmental nature that o#erlays the payment systems process in that country. The key to mo#ing money into, out of, or through that country is to tap into this system. US System

The *ederal )eser#e System in 8.S., with components such as the 1utomated 2learing 7ouse, *ed5ire, and the *ed;s item settlement ser#ices, is an e+ample of such a system. The *ed5ire is a computer network that connects the !& *ederal )eser#e Banks with appro+imately &3,333 domestic financial institutions that are depository institutions whose accounts are insured by the 8S go#ernment ,for e+ample, the *ederal "eposit $nsurance 2orporation or .ational 2redit 8nion Share $nsurance *und-. Systems of Major Economic Trading Powers [To be added)] International Networks/Transactions

Some pri#ate companies ha#e de#eloped payment system networks that facilitate commerce across international borders ,2learing 7ouse $nterbank Payment System or 27$PS, the Society for 5orldwide $nterbank *inancial Telecommunications or S5$*T!3, B$S1, 6aster2ard, 1m:+-. :ssentially, these companies facilitate transactions by agreeing to act as an intermediary between a seller and a purchaser. They add stability and certainty to the transaction by defining the rules that go#ern it. 1 seller knows what it has to do to be entitled to payment under the
S5$*T is a cooperati#e organi@ed under Belgian law, with head/uarters near Brussels. $t pro#ides communications ser#ices to the international banking industry, including payments and administrati#e messages and, more recently, securities settlements. S5$*T is owned by member banks, including the central banks of most countries. The 8.S. *ederal )eser#e is not a member, but participates in certain types of payments. Securities brokers and dealers, clearing houses and depository institutions, e+changes for securities, and tra#elers checks issuers also participate.
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system, and a buyer knows what obligation it is assuming by using the system as a medium of payment. The #alue of this certainty is to allow an unknown buyer and seller to recogni@e that a known set of rules will go#ern the transaction, facilitating a broader acceptance on the part of both parties. These common rules are established by contract. The seller must agree to abide by the system;s rules to be guaranteed of payment by following them. The buyer, or more commonly the buyer;s financial institution that acts as its agent in processing the transaction, agrees to abide by the same rules. Since the relationship is based on contract, the rights, responsibilities, and liabilities for all the parties are established. 1gain, this arrangement reduces the occurrence of disputes since the losses in such cases are allocated according to the terms of the agreement one signs to become part of the system. To the e+tent that disputes do arise within the conte+t of these payment systems, the contract defines the forum state and establishes the applicable law. The e+tent to which these contractual pro#isions may be enforceable is an important consideration in $nternet commerce, but not a /uestion uni/ue to the banking and payment systems area. 2onse/uently, it is not one that is resol#ed within the conte+t of this discussion. 7owe#er, to the e+tent that such forum selection and choice of law pro#isions may be enforceable in general as between sophisticated companies engaging in a significant amount of $nternet commerce, the participants in the banking and payment systems world fit this model perhaps better than most industries. 5hile the principles go#erning these systems seem similar to the go#ernment0based systems described earlier, the term pri#ate must be carefully understood in this connection. These companies are pri#ate in the sense that they are owned by in#estors, and are not go#ernment agencies like the *ederal )eser#e Bank, or /uasi0go#ernmental constructs, like the Bank of :ngland. These pri#ate companies are able to process and settle an enormous #olume of transactions within and among themsel#es, as well as between themsel#es and other banking institutions. 7owe#er, at some point transactions within these pri#ate networks intersect ,and indeed, sometimes must intersect- with the go#ernmental payments system. This case may arise because some party in the transaction chooses to in#ol#e the go#ernmental system. Hr it may be that monetary transactions in#ol#ing a particular jurisdiction can only be processed through a

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go#ernmental system ,all banks in State D ha#e been nationali@ed.- Hr, in an e+treme case, a central bank may step into the transaction to guarantee payment as a lender of last resort or guarantor of ultimate settlement to maintain system stability. Thus, the pri#ate system and the go#ernment system are linked and, if the combination is #iewed as whole, a kind of /uasi0public'/uasi0pri#ate operation is presented. 1round the globe, most systems present some form of mi+ture in practice, with the e+act admi+ture being a product of a #ariety of local historical and cultural factors. $n addition, the dual nature of the o#erall structure is a source of continuing internal tension that is often healthy and often not.

Overview of Alternative Payment Systems What is Money?

1 brief discussion of the nature of money is helpful in understanding the issues presented by alternati#e payment systems. Se#eral concepts are worthy of note ,!Taken to its most abstract le#el, money is simply a subpart of a general belief system, a piece of consensual reality. This concept is particularly important since alternati#e payment systems, at their core, are founded on the principle that the e0money they create and process is only what the participants in that system agree that it shall be. 5hile the same is true of traditional systems, the underlying belief which support traditional systems are so well accepted that their foundation in belief is no longer noted, much less /uestioned. ,&6oney was created to ser#e three functions a medium of e+change, a unit of account, and a store of #alue. :lectronic money fulfills these three functions. ,(Hne should bear in mind a distinction between ,a- the e#idence of money as an object and ,b- the deli#ery system for the money. *or e+ample, the coin, the bill, and the digital file are forms of e#idence of the money. The human hand, the electronic wallet, the 1T6 machine, the credit or debit card and all the associated infrastructure are deli#ery systems for the e#idence of the money and
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thereby enable the functions of the money to be fulfilled. ,AThe e0money in the alternati#e systems is not legal tender, as the concept underlying that term is employed generally in the public finance laws of most jurisdictions. The e0money becomes legal tender only at the point that it becomes denominated in the form of the money that is employed within the traditional payment system. $n this sense, e+cept for the fact that it is in electronic form, e0money is for all practical purposes not distinguishable from the script or tokens used elsewhere in the pre0electronic world. 1t "isneyland, one could purchase a book of tickets granting admission to the rides and to e+change for other goods ,e.g., food- or ser#ices. The paper script with 6ickey 6ouse;s picture that can be used to buy cotton candy worked only because "isney agreed to accept it as form of payment. $ndeed, the term tokens is sometimes used to refer to certain forms of e0money. The first form of e#idence of money was some physical object, a commodity such as cooper, sil#er, gold, or sea shells. The form of e#idence e#ol#ed to paper, which has the major ad#antage of being a more efficient way of performing its three functions. The form of e#idence has now e#ol#ed by the further reduction in its physicality. 6oney has become notational money, that is, money whose e+istence is e#idenced by notations in the records of #arious parties, principally financial institutions. The ad#ent of the computer age pushed the e#olution further by con#erting the pen and ink notations in ledgers to the less tangible bits and bytes in electronic storage media. $n all cases, howe#er, regardless of whether the e#idence is in the form of basic physical objects or in the form of electronic accounting entries, the money is what it is agreed to be. 1 checking account is a good illustration of se#eral aspects of the points made abo#e.!! The balance in the checking account is notational money. $t e+ists only in those records kept by
$n most countries there is a de#eloped system of law that sets forth many of the rights and obligations of both the check drawer and payee. *or e+ample, in the 8.S., both federal and state laws ser#e this function ? *ederal )eser#e Board )egulation 22 and 8niform 2ommercial 2ode 1rticles ( and A. This body of law includes the concept of suspension of the underlying obligation of the drawer to the payee, pending the payment of the check. $ndeed, there is a substantial body of law in the 8nited States and in other countries go#erning the rights and obligations of parties to #irtually all types of payments transactions.
!!

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the financial institution and by the owner of the account, which hopefully are in agreement as to the amount. <egally, a check is not itself money. $t is an order to the financial institution on which it is drawn authori@ing the transfer of notational money from the checking account to the payee. The payee does not recei#e actual money until the financial institution deli#ers the funds to the payee or transfers that amount into the payee;s account. .e#ertheless, psychologically, the payee and #arious transferees of the payee consider themsel#es to be paid and to ha#e recei#ed #alue simply by the issuance of the check. 7ence, in this case, the notational money becomes a kind of script for a brief period and then is con#erted into legal tender ,if the check is cashed- or back into notational money ,if the check is deposited-. Hne effect of the computer age is that this process can be greatly accelerated and done entirely electronically. 2hecks and other items that once took weeks to settle now routinely settle in days and can, if handled electronically, settle within seconds.!& .otational money can be made #astly more efficient by being directly transferred, without re/uiring written instructions. Hnce the re/uirement for a writing is eliminated, the script or token can take on an infinite #ariety of forms. 1ll that is re/uired is general agreement as to form and an efficient system for trading the tokens from one party to another. 6ost new electronic payment systems in#ol#e prepaid stored0#alue cards ,card0based systems- and on0line payments made on the $nternet ,software0based systems-. These new money systems ha#e not yet gained wide acceptance in the 8nited States. They are used much more widely in :urope and 1sia. 5hile a #ariety of factors appear to be rele#ant in causing this difference in le#els of acceptance, two seem most rele#ant from the jurisdictional perspecti#e differences in the /uality and cost of means of communicating information and differences in the structure of financial ser#ices pro#iders. These are points that are further de#eloped below. 1t the margins are #arious forms of pri#ate e0money such as airline miles, reward programs, $B6 dollars and other similar tokens. 5hile conceptually #ery interesting and
To gauge the speed at which modern payment systems transfer #alue, consider this illustration merchants now accept debit cards as forms of payment. 6ost systems are real time so when you present your card for payment, the balance is instantly transferred from your account at the time of authori@ation to the benefit of the merchant. 2onsumers who relied on the concept of float where a check written to a merchant would not hit the account for days, allowing that indi#idual to deposit sufficient funds within the inter#ening time, must now adapt their cash flow management to account for these near instantaneous transfers of #alue.
!&

!F

perhaps /uite important for the longer0term future, they do not present uni/ue issues that must be dealt with in this discussion. 1nother similar pri#ate money system now in de#elopment stems from the growth of online bartering. 2onceptually, the e+change ratio in any gi#en trade is an ad hoc currency, and the general structure of such currency, combined with the technology that operates the online bartering, is a currency system. 5hile this has always been true in the paper0 based world, the inefficiencies of that method make the point little more than an academic obser#ation. 7owe#er, the processing power of modern communications technology could make this de#elopment of significant future importance. .e#ertheless, it is beyond the scope of this work. 1ny description of alternati#e payments methods might mention some of the following items anonymity of cash purse0to0purse transfersG ta+ implicationsG pri#acy concernsG law enforcement issues, such as ta+ a#oidanceG money launderingG setting interoperability standardsG multiple currenciesG multiple function cards ,e.g., pri#acy concerns when personal and medical data are also stored on smart cards-G closed #s. open systems and debit #s. credit cards. 7owe#er, it is not e+actly clear what the jurisdictional implications are in the $nternet conte+t, from the point of #iew of the customer, the financial institutions, the networks and the go#ernments and regulators, beyond the basic issue of what authorities ha#e prescripti#e jurisdiction and why they ha#e it. *urther, in the literature on banking and payment systems and cyberspace, fre/uent mention is made of many of the following substanti#e issues. 1gain, the /uestion is whether any of them ha#e jurisdictional implications, beyond the basic /uestion of what authority,ies- ha#e prescripti#e jurisdiction and why they ha#e it. These substanti#e issues include access to the payments system ,can non0banks issue electronic money%-G finality of payment, security and pri#acyG enforceability of contractual obligationsG fraudG consumer protection generallyG regulatory issues, such as whether the issuance of electronic money is a permissible banking acti#ity for specific types of institutionsG applicability of state money transmitter and tra#elersI check statutesG whether e0money is a negotiable instrumentG and who will regulate e0money issuers for credit worthiness and sol#ency. The ultimate substanti#e /uestion may be who controls global e0money and, in the end,

!4

money itself the go#ernments and central banks or the issuers% $s the issuance of money a function only of go#ernments% 5hile this is clearly a political and policy issue, there is no legal jurisdictional component to the ultimate policy /uestion in the area. Perhaps some of the points just listed abo#e can best be illustrated by two hypotheticals HYPOTHETICAL A1. $n January !999 an 1merican consumer ,12-, who is domiciled in .ew Kork State and whose business is in .ew Kork State, e+ecutes a two0year contract with an :nglish marketing firm ,:6- to buy monthly updates to a large mailing address database pre#iously licensed by 12 from the same marketing firm. :6;s head/uarters are in <ondon, but the ser#er on which the database and the updates are stored is located in Brussels. :6;s computer staff in Brussels transmits the updates directly #ia the $nternet to 12;s ser#er, which is located in 6assachusetts. 12 makes payment for the updates using e0money issued by the *irst $nternet Bank of 2anada ,*$B2- which operates a software0based alternati#e payments system. *$B2 is used because :6 has a cyber0account with *$B2 in #iew of :6;s on0going operations in 2anada. 12 does not ha#e an account with *$B2, but e+changes e0money issued by The 2ayman $slands 5eb Bank ,2$5B-, where 12 has a cyber0account. 12 pays for the e0money issued by 2$5B by a standard wire transfer from 12;s usual bank, the Bank of .ew Kork ,BH.K-. !. 1fter three months 12 disco#ers what it belie#es to be significant inaccuracies in the updates and wishes to take action to reco#er payments pre#iously made, to re/uire correction of data pre#iously supplied, and to obtain redress for as yet unspecified conse/uential damages caused by its reliance on the inaccuracies in the updates, as well as such fees and costs and the court may deem just. &. 1fter two more months 12 disco#ers a highly damaging #irus in its system which it alleges was transmitted due to the negligence of :6;s computer staff in Brussels. ,1 suspicious reader might conclude that :6;s pattern of shipping product from one

!=

country and recei#ing payment in another might not be entirely unrelated to the likelihood that the $nland )e#enue would be discommoded thereby in any audit of :6. 1n e/ually alert reader might harbor a similar suspicion as to 12;s beha#ior in relation to the .ew Kork "epartment of Ta+ation, especially in #iew of the somewhat circuitous route by which payment arri#ed in 2anada. But, such suspicions may be put aside. 12 brings an action against :6 in an :nglish court. 12 brings an action against :6 in a .ew Kork court. 5hat result in each case% HYPOTHETICAL A2. $n January !=99 an 1merican consumer ,12-, who is domiciled in .ew Kork State and whose business is in .ew Kork State, e+ecutes a two0year contract with an :nglish marketing firm ,:6- to buy monthly updates to a large compilation of mailing addresses pre#iously licensed by 12 from the same marketing firm. :6;s head/uarters are in <ondon, but the building in which the compilation and the updates are stored is located in Brussels. :6;s clerical staff in Brussels send the updates by ship mail directly to 12;s ad#ertisement mailing center, which is located in 6assachusetts. 12 makes payment for the updates using a draft issued by the *irst $nternational Bank of 2anada ,*$B2-. *$B2 is used because :6 has an account with *B$2 in #iew of :6;s on0going operations in 2anada. 12 does not ha#e an account with *$B2, but makes payment to *$B2 by means of a draft issued by The 2ayman $slands 5orld Bank ,2$5B-, where 12 has an account. 12 funds the draft issued by 2$5B by a draft issued by 12;s usual bank, the Bank of .ew Kork ,BH.K-. !. 1fter three months 12 disco#ers what it belie#es to be significant inaccuracies in the updates and wishes to take action to reco#er payments pre#iously made, to re/uire correction of data pre#iously supplied, and to obtain redress for as yet unspecified conse/uential damages caused by its reliance on the inaccuracies in the updates, as

!9

well as such fees and costs and the court may deem just. &. 1fter two more months 12 disco#ers a series of gross errors in the updates which it asserts ha#e corrupted the pre#iously licensed compilation passim and which it alleges were transmitted due to the negligence of :6;s clerical staff in Brussels. 12 brings an action against :6 in an :nglish court. 12 brings an action against :6 in a .ew Kork court. 5hat result in each case%

$t would appear that the answers to the 1899 Hypothetical A2 would not e di!!erent in any su stantial respect !ro" the answers #i$en to the 1999 Hypothetical A1 as a an%in# and pay"ents syste" "atter& $ndeed, it would appear that the #ery speed with which the funds can now be spun through jurisdictions other than those of the parties to the main contract emphasi@es their lack of jurisdictional significance. There may be a jurisdictional issue as between Belgium and 6assachusetts in the #irus cases from 7ypothetical 1! because differences may e+ist as to the weight gi#en to where the harmful action was initiated and where the harm resulted. 7owe#er, that issue would not be a banking'payments system issue. *urther, banks generally are able to locate their back0office computer operations in states or countries other than where they are licensed to do business, so long as the back0office is not open to the public for the engaging of banking business. This legal rationale seems applicable to the $nternet ser#ers. Overview of Banking International Banking Generally

Some banking institutions are so large that they conduct international business transactions and ha#e de#eloped operations in se#eral countries to allow seamless customer ser#ice. 1lternati#ely, correspondent relationships allow a bank in one country to conduct transactions on behalf of a bank in another country, which again pro#ides the customer with a straightforward transaction.

&3

7istorically, most of the branch banks were in fact full0fledged banks organi@ed and operated under the laws of the host so#ereign. 8nder the normal corporate entity model, a multi0 national corporation seeking to do business in another country may establish an office there. But because the banking business is so tightly regulated by most countries, a foreign bank could not just open an office in the host country. $nstead, it would ha#e to charter an entirely new bank within that country. )ather than a true corporate subsidiary, the new bank would ha#e to operate in accordance with the laws and regulations pertinent to any bank chartered in the host country. Separate books and records for that branch organi@ation had to be maintained, e+aminations by the regulators of the host country had to be allowed, and relationships between the parent bank and its subsidiary had to follow strict guidelines. 6ost countries e#en re/uired a separate board of directors for these branch banks, some e#en mandating that a certain percentage be citi@ens of the host country. 8nder either of the abo#e models, the bank in /uestion establishes a physical presence in the country in which it does business, by de#eloping its own branch or working with an established institution as its correspondent. Jurisdiction issues therefore are easily resol#ed. Hnce the physical presence is established, the bank becomes subject to the regulatory, adjudicati#e, and prescripti#e jurisdiction of the host state, pro#ince, or country. !ro"ean #nion Banking $eg!lation

1 more recent de#elopment in the process of cross0jurisdictional banking has been the emergence of treaties and joint agreements allowing banks and their regulators to reach across borders to conduct banking business without the need to necessarily establish an independent, autonomous branch. $n the 8S, the ad#ent of interstate banking has broken down many of those historic barriers. The emergence of the :uropean 8nion has also pro#ided a model for the agreed rules that allow these cross0jurisdictional banking operations. The different structures in the banking and financial ser#ices industry in the member states of the :8, together with their different regulatory regimes, has created a substantial impairment to the cross0border pro#ision of ser#ices by financial institutions of one member state in other member states. The Second Banking 2o0ordination "irecti#e no. =9'FAF'::2 of !C "ecember

&!

!9=9 is intended to remo#e such barriers to entry by pro#iding a LpassportL to banking acti#ities. Subject to certain re/uirements, if a credit institution is authori@ed to carry on banking acti#ities in its home state, then such institution should be allowed to carry on the same acti#ities throughout the :8. The "irecti#e is based on the idea of a single banking license, #alid in all :8 member states. 2redit institutions wishing to establish a branch or to pro#ide ser#ices in a member state other than their home state will no longer be re/uired to obtain a separate authori@ation form the host state. 1ll :8 member states are supposed to ha#e implemented the "irecti#e by ! January !99(. "irecti#e 94'C':2 of the :uropean Parliament and 2ouncil, dated January &4, !994, regulated the cross0border transfers of funds among 6ember States of the :uropean 8nion. 6ember States were re/uired to implement these regulations by adopting them into their respecti#e national law. $n #iew of the significant increase in the amount and #alue of cross0border payments made through bank transfers, the "irecti#e, and the corresponding new laws in each 6ember State, aimed to create a legal framework so that both indi#iduals and businesses can carry out their transfers inside the :uropean 8nion /uickly, economically, and in a reliable manner. The pro#isions of the "irecti#e are only applicable to transfers made in :uros or any other currency of the 6ember States of the :8, but they do not apply to transfers in other currencies ,such as 8S "ollars, Japanese Kens or Swiss *rancs-. The "irecti#e only applies to transfers for ma+imum amounts of C3,333 :uros, which e/uals roughly 8SEC&,333. This limitation carries forward the "irecti#e;s objecti#e of facilitating cross0border transfers particularly to indi#iduals and small and medium enterprises. "ue to its consumer protection basis, the pro#isions of the "irecti#e will not be applicable where the transfer has been initiated by a credit entity, financial entity, or any other entity that carries out cross0border transfers within the frame of its business. The "irecti#e further applies only to cross0border transfers among 6ember States of the :8 and carried out inside the :8 itself, i.e., all those transaction initiated by an applicant through an entity of a 6ember State and aimed at putting a certain amount of money at the disposal of a

&&

beneficiary with an entity located in another 6ember State. 2onse/uently, transfers made inside the territory on the same 6ember State are not subject to the "irecti#e. The "irecti#e sets out certain minimum re/uirements on information that the entities must deli#er to their actual and potential customers as regards the conditions of the described transactions. Before carrying out or recei#ing a cross0border transfer, the entity must ha#e notified the client of the period of time until the funds are credited ,or debited, as the case may be- in the beneficiary;s account, the calculation methods for all costs and commissions payable by the customer, the #alue date applied by the entity, means a#ailable to the customer to file claims, and the e+change rates used. Such information must be presented in a manner that is easily comprehensible to the client. 1ccording to the "irecti#e, after making or recei#ing a cross0border transfer, the entity shall furnished detailed information on the transaction which must include, at least, a reference that allows the customer to identify the transfer, the initial sum, the amount of costs and e+penses at the customer;s charge, the #alue date applied and, if necessary, the e+change rate used. 8nlike the information described in the pre#ious paragraph, the customer may wai#e recei#ing such information, although due to its importance such wai#er should occur rarely in practice. The "irecti#e re/uires the entity to carry out the cross0border transfer within the time period agreed with the applicant. $f there is no e+press agreement, the applicant;s entity must carry out the transfer such that the funds are credited to the account of the beneficiary;s entity on the fifth banking day following the date of acceptance of the transfer order. $f this term is not complied with, then the applicant;s entity must indemnify the beneficiary by paying an interest on the delay. $f the delay is attributable to an intermediary entity, then this entity will ha#e to indemnify the applicant;s entity. $n a similar manner, the beneficiary;s entity must put the funds at the disposal of the beneficiary within the agreed period of time or, absent an agreement, at the end of the banking day which follows the date on which the funds ha#e been credited to the account of the beneficiary;s entity. .on0compliance with this term also originates an indemnification obligation of the beneficiary;s entity.

&(

$n principle, and unless otherwise instructed by the applicant, the costs related with the cross0border transfer are to be borne by the applicant. Therefore, all inter#ening entities are obliged to e+ecute the transfer for its total amount. 5here the applicant;s entity has made an unauthori@ed deduction on the amount of the transfer, such entity must, at its cost, transfer to the beneficiary the amount deducted or pay such sum to the applicant. Similar obligations are established in the e#ent that the deduction has been made by an intermediary entity or by the beneficiary;s entity. The "irecti#e and its corresponding implementing 1cts intend to pro#ide consumers with mechanisms to protect themsel#es from the mistakes and abuses that the entities which inter#ene in cross0border transfers of funds sometimes commit. Such a framework must be worked out for cross0border transfers o#er the $nternet if electronic commerce between and among foreign states is to flow with certainty and reliability. World Trade %rgani&ation Agreement on 'inancial Services

This agreement was completed in "ecember of !994 and sets out binding multilateral rules on foreign establishment and in#estment in the banking, securities and insurance sectors. $t has not yet come into force. M"etail to comeN (entral Banking

Mto be addedN Jurisdiction Issues for Banking/Payment Systems General

7istorically, as is de#eloped more fully elsewhere in the Project )eport, jurisdiction has grounded in geography. $n #ery general terms, for court to ha#e jurisdiction o#er the person or the thing, that person or thing needed, in some sense, to be present in the forum. 1s commerce e+panded, so did the definition of present, by #irtue of concepts such as doing business and

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deemed consent and by #irtue of long0arm statutes. US E !erience 1 history of 8S banking could be written around the central theme of the forces that tried to hold back, and to e+pand, the permissible geographic range o#er which financial institutions in the 8S could offer their products and ser#ices. 7istorically, jurisdictional /uestions ha#e not presented difficult issues for depository institutions in the 8nited States. Banking by 8S depository institutions was #ery local. 1s late as !9&!, the 8nited States had &9,4== banks, nearly all without branches. 6ost payments were related to #ery local commercial acti#ities. $n fact, as late as the !993;s, some states re/uired that a bank could not operate outside of its home county. 2on#ersely, no other bank would be granted a charter to do business in that county. 6ost of these restrictions ha#e been swept away, but they pro#ide some insight into the depth of the local nature and character of traditional depository institution practices. The essential reasons for this local structure that per#aded in the early part of this century in#ol#ed the limitations of the con#eyance of both persons and information. *or most of the population, physical tra#el for a distance of more than !C miles in a day was not possible. 6oreo#er, the information necessary to conduct banking ser#ices needed to be maintained within a single office. :fficient means were not a#ailable to distribute that information to a branch network the signature cards, deposit and loan balances, policy changes, and all the other data necessary to operate a financial institution. Telegrams were useful to co#ey confirmations and other brief e+changes, but they could not transmit large amounts of data or graphical data such as signature cards, and only with great difficulty could they con#ey coded data to maintain confidentiality. 7owe#er simple from the jurisdictional point of #iew, this tightly bound geographical structure was inherently unsound from the standpoint of structural stability and safety. 1d#erse local economic de#elopments fre/uently caused local bank failures. *or e+ample, during the !9&3;s, which were generally /uite prosperous times in the 8S, the country e+perienced an a#erage failure rate of CC3 banks per year. 1n earlier technological re#olution ? the automobile ? was a principal cause of a change in this structure whereby the number of branches increased and the number of main offices decreased. This process was sharply accelerated by the ad#ent of the telephone and by failures

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during the >reat "epression.!( The result was a period during which traditional banking relied principally on presence of physical branches to pro#ide ser#ices and those branches pro#ided ser#ice to e#er e+panding geographic areas. The ser#ice area e+panded as e#ol#ing technology allowed pertinent information to be e+changed across e#er0greater distances. The course of this de#elopment is important to understanding the jurisdictional issues that are presented in this area of law. Since placing a physical branch in a jurisdiction resulted in the banks; being subject to that jurisdiction;s laws, the /uestion has rarely been addressed. 6ost cases that ha#e arisen in#ol#ing jurisdictional issues pertinent to banking and payment systems ha#e in#ol#ed letters of credit. :ssentially, these are commitments to pay a certain amount to the named beneficiary of the letter upon the performance of some condition precedent. These documents facilitated the growth of commerce across jurisdictional boundaries as the bank in essence guaranteed payment of the underlying obligation. Sellers could then deal with unknown buyers but ha#e confidence that the payment would be made upon their deli#ery of the goods according to the terms of their agreement, which pro#isions were incorporated into the letter of credit. 1s issues arose in this limited area, traditional jurisdictional principles were applied. "id the bank in /uestion ha#e sufficient contacts with the forum state ,usually where the beneficiary of the letter of credit resided- to allow that court to e+ert adjudicati#e or prescripti#e jurisdiction o#er that bank% The answers were not uni/ue to the banking and payment systems industries, and therefore are not further resol#ed in this discussion. 1nother element strictly limited the opportunity for jurisdictional disputes arising in the conte+t of 8S banking and payment systems. 1lmost all of the large financial institutions in the 8S are chartered under federal law. 8S law re/uires that any lawsuit brought against a federally chartered bank must be brought in federal court. !& 8.S.2. OF(&. 1ny suit brought in a local court would be remo#ed to the appropriate 8S "istrict 2ourt. 1s to the proper forum for such a suit, the "istrict 2ourts ha#e rules that resol#e such a matter, again based on general jurisdiction principles.
$n the 8S, during the three0year period from the beginning of !9(3 through the end of !9(&, some 9,333 banks failed ? nearly one0third of all banks at the beginning of the period.
!(

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1s technology and capabilities de#eloped, these operating restrictions that limited financial institutions to a particular area were o#ercome through se#eral means, such as the de#elopment of interstate banking compacts, use of holding companies, and establishment of non0banking subsidiaries. The de#elopments all resulted in the financial institution being LpresentL in that forum for the purpose of jurisdictional /uestions. Today, by means of branches, ser#ice corporations, second tier ser#ice corporations, operating subsidiaries, holding company affiliates, agency offices, all kinds of different Lfacilities,L joint #entures, limited partnerships, and the use of telephones, fa+es, mass mailings, and ,last but certainly not least for purposes of this discussionthe $nternet, financial ser#ice firms can now be LpresentL anywhere they want to be. *urther, these techni/ues that traditional depository institutions ha#e needed to employ to operate outside of the geographic boundaries established by the banking regulators ha#e not e#en been necessary for the mortgage bankers, consumer finance companies, and securities firms. 7owe#er powerful, the $nternet is simply an e+tension of this general historical process in which financial ser#ices firms ha#e e+panded their ability to pro#ide their products and ser#ices to #irtually anywhere in the world. The net result of these historical de#elopments is that, e#en without the ad#ent of the $nternet and e0commerce, 8S depository institutions currently ha#e the realistic ability, if they choose to e+ercise it, to establish a physical presence in any part of the country sufficient to subject them to local jurisdiction under traditional forms of jurisdictional analysis. Thus, from this perspecti#e, the ad#ent of the $nternet is simply the latest ,although perhaps the most powerful- in a long series of institutional and technological changes that ha#e enabled depository institutions to be present for actual or potential jurisdictional purposes. <ogically, this leads to the conclusion that a financial institution is subject, actually or potentially, to jurisdiction e#erywhere. $n effect, it says that jurisdiction can be deri#ed from the fre/uency with which the financial institution or any of its customers interact. Hne effect of the $nternet is to #astly multiply the number of places where that interaction may take place. 1nother effect is to enable financial institutions to operate without a physical presence in any jurisdiction in which its ser#ices are recei#ed. The growing number of $nternet banks ha#e no offices at all e+cept a single operations center, which can be located anywhere. 1nother effect is that the location of a financial institution o#er the $nternet at any gi#en time is random. The financial

&4

institution;s presence is a function of the operation of routers on the $nternet. This line of reasoning suggests the conclusion that, while traditional modes of jurisdictional analysis may possibly still be functional for adjudicati#e purposes, it is not functional for prescripti#e purposes. This is dealt with in greater detail below. "on# US E !erience

[To be added] (once"t o) Personal *!risdiction

The deli#ery of financial ser#ices o#er the $nternet is breaking down the concept of necessarily ha#ing a physical presence in an area to pro#ide ser#ices there. Ser#ices are being pro#ided across jurisdictional lines. The $nternet is allowing e+pansion of financial ser#ices outside of former physical limitations. 1gain, howe#er, the issues presented are not uni/ue to financial ser#ices. Sufficient contacts, if that continues to be the standard, will be no different for a financial institution than they would be for any other company conducting its business within the conte+t of the $nternet. (once"t o) +Prescri"tive, $eg!latory *!risdiction 5hen can another country;s regulatory authority e+ercise re#iew, e+amination, and enforcement powers o#er a financial institution doing business o#er the $nternet with its country;s citi@en;s% This is the cru+ of the /uestion for this project within the banking and payment systems area. 1s discussed earlier, go#ernment has a strong need to o#ersee and regulate the financial ser#ices pro#ided to its citi@ens. *inancial institution regulation in general is broad and per#asi#e. >o#ernments basically ha#e the authority to direct any of the institution;s acti#ities that might affect its safety and soundness, a common industry standard that really places no practical limits on the scope and nature of the go#ernment;s potential reach. 1ll of an institution;s acti#ities on any le#el ha#e some affect on its safety and soundness, or the acti#ity would not be conducted. 1s a practical matter, go#ernment regulation is rela+ed when the financial institution is performing
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well and clamps down strongly as soon as the go#ernment learns of any potential problems that could seriously affect the institution;s #iability. >o#ernments in general must fulfill this o#ersight role to instill the public with confidence in the system. Too many failures ha#e de#astated too many economies o#er the course of history to consider that the public would soon be willing to conduct business within the banking and payment system without knowing that the ultimate guarantor is the go#ernment. The trade0off is then established between the go#ernment guaranteeing the system and the go#ernment;s authority to inter#ene and regulate the system. 5ith such an important mission on the part of the go#ernment to guarantee the #iability of the banking and payment system, the problem for a financial institution that wishes to operate across multiple jurisdictions becomes clear. >o#ernments by their nature are di#erse, reflecting the nature and character of the people they go#ern. 2onse/uently, their e+pectations and opinions about the proper course of action to ensure the safety and soundness of any financial institution within their regulatory control will differ. 1 financial institution faced with trying to meet these di#erse standards would either ha#e to de#ote immense resources to complying with these standards or limit its operations to one set of go#ernment standards. 1nd that is where the cru+ of the issue lies for the jurisdictional aspects of the banking and payment systems and the $nternet. The $nternet pro#ides the means for any financial institution to pro#ide financial ser#ices anywhere in the world. To that e+tent, it becomes the great le#eler. 1 small financial institution trying to e+pand its market or ser#ice area would traditionally be forced to proceed piece0meal as it could afford to establish physical branches throughout its target area. .ow, through the $nternet, that small financial institution is just as capable of pro#iding its products and ser#ices anywhere in the world as its much larger brethren. But the large, multi0national financial institutions ha#e already established operations in many countries and ha#e the resources to de#ote to complying with the regulatory o#ersight of these #arious go#ernments. The small institution ne#er could or would match that capability. 6oreo#er, the small financial institution would in many cases not e#en know to address the issue because it would be unaware of the particular re/uirements of the #arious jurisdictions that the

&9

$nternet now allows it to reach. 8nless we can resol#e the issue of regulatory jurisdiction o#er financial institution operations, the main ad#antage pro#ided by the $nternet in the area of banking and payment systems will be negated by the disad#antage of ha#ing to meet the myriad of laws and regulations that apply to such acti#ities all o#er the world. >o#ernments must come to agreement on reciprocal regulatory o#ersight and cooperati#e e+aminations, much as state regulators in the 8S ha#e done with the ad#ent of interstate branching. Htherwise, the promise of the $nternet as a #ehicle for commerce by small and medium si@ed financial institutions will ne#er be reali@ed. $t is useful to consider how the applicable legal structure has resol#ed certain jurisdiction issues in#ol#ed in transactions analogous to $nternet banking transactions, such as banking transactions effected by telephone or through the mail. Traditionally, in the 8nited States, the indi#idual state banking departments ha#e taken the #iew that the following transactions do not result in an out0of0state bank engaging in the banking business in a state where the customer is located ,i- the customer mailing funds to a bank located outside of the stateG ,ii- the customer telephoning the out0of0state bank with payment instructionsG or ,iii- the customer using an 1T6 to withdraw money or transfer funds from an account located at an out0of state bank. The rationale for this #iew is that the actual banking acti#ities, such as the posting of accounts, the payment of checks, the issuance of payment orders, etc., all take place outside of the state. $t is also useful to distinguish between the application of the substanti#e laws go#erning the rights and obligations of parties to the transaction in /uestion and bank chartering laws. >enerally, in the 8nited States, most states take the #iew that ,absent some sort of preemption doctrine- its substanti#e laws go#erning the transaction in /uestion apply to transactions in#ol#ing any state resident. So, e#en if an out0of0state bank is not re/uired to be licensed in a particular state in order to pro#ide banking ser#ices to customers located in that state, the out0of0state bank may still be subject to the law of the state in which the consumer is located that details the consumer;s rights and obligations with respect to the transaction in /uestion. This policy on the application of these substanti#e laws to out0of0state banks is also different than the safety and soundness concept of jurisdiction discussed abo#e.

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An Approach to Solutions (ommonalities

$n de#eloping an approach to solutions to jurisdictional issues in cyberspace, it may be helpful to see that the technological de#elopments underlying the e0commerce re#olution are creating significant commonalities ,a- among financial and non0financial goods and ser#ices and ,b- among traditionally deli#ered goods and ser#ices and electronically deli#ered goods and ser#ices. $t is also helpful to see that the same technological de#elopments are causing us to become aware of the degree to which some of the same commonalities ha#e long e+isted in the pre0$nternet world. E$idence as %igita& 'i&es 1s noted earlier, most nation states ha#e traditionally distinguished among different types of financial ser#ices based on ,a- the legal character of the entity rendering the ser#ice ,is it chartered as a bank, a sa#ings bank, or a credit union%-G ,b- what is the legal classification of the ser#ice or product rendered ,is it a loan, a deposit, a security or a contract of insurance%-. $t was noted that the barriers within this system are breaking down generally if only for the reason that these financial products and ser#ices ha#e the commonality that they are all e#idenced by information in the form of digital files. *urther, it was noted that traditional legal barriers to mi+ing banking and commerce are weakening generally for the same reason. $t is highly efficient for a single organi@ation to maintain large databases of customer information and to offer a wide #ariety of products and to market and cross0market them. 7owe#er, there are additional commonalities and this fact has significant effects for jurisdictional purposes and for the Jurisdiction Project. These additional commonalities can be articulated as follows the commonality that all products and ser#ices ha#e the separate dimensions of legal formation and real world fulfillmentG the commonality that the formation process occurs online and the fulfillment process occurs offlineG the commonality that products and ser#ices are applications as well as filesG and the commonality of substanti#e and transactional interdependence. These are discussed under separated headings below. Intangi(&e 'ormation and )ea& *or&d 'u&fi&&ment
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<awyers are well familiar with the idea that one does not literally buy Blackacre. Hne ac/uires by contact a legal right ,labeled a fee- with respect to Blackacre ,legal formation- and, separately, one then e+clusi#ely occupies Blackacre ,legal fulfillment-. The formation of the loan agreement is separate from the receipt of the loan proceeds. Hne buys the jacket o#er the telephone but one;s order is fulfilled by mail. The entire formation process is an e+change of intangibles and is thus largely a #irtual process, in modern language. 7owe#er, this has always been so. The stuff in the formation process has always been rights and obligations 00 not anything physical. The $nternet has added nothing new. +n#,ine 'ormation and +ff&ine 'u&fi&&ment The formation process can be thought of as occurring online and the fulfillment process as occurring offline. The musty old solicitorIs office in which the purchase money mortgage for Blackacre is signed is thus conceptually no different from the latest $nternet real estate website. They are both media. 1 stock purchase under the old Buttonwood Tree and the purchase of an interest in a mutual fund o#er the $nternet are not essentially different from this standpoint. :#en where the product or ser#ice is fulfilled digitally, as in the case of a software or music download, telemedicine, legal ad#ice, architectural drawings, etc., formation and fulfillment are separate processes. Thus, it is easy to see that all transactions, regardless of whether they are for financial ser#ices and products or for any commercial products or ser#ices, and regardless of whether they are traditionally or electronically deli#ered, are essentially a combination of online and offline e#ents. ,inkage to A!!&ications *inancial and non0financial products and ser#ices also ha#e in common the multiple ways in which they are, and are linked to, applications. 5hat is an application% *or these purposes, it is simply an instruction ,or set of instructions- applied to data. 1 simple illustration is a check. 1 check is an application in which Payor P .ame *ieldG $nstruction ,P1K-G to Payee P .ame *ieldG 1mount P .umber *ield-G on or after "ate *ield by order of "rawer P .ame *ield. 1 draft is a yet simpler e+ample. *rom the programming standpoint a draft is a check with one less name field. 1n order to buy or sell securities, or to deposit money into an account, or to fund or make a payment on a loan has e+actly the same pattern. *urther e#idence of this point is the fact that products and ser#ices are now being sought
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out, agreed to, and deli#ered by means of Ja#a applets, 1cti#e D controls and similar software entities ,electronic agents, shopping bots, etc.-. The technology is rapidly de#eloping whereby the formation process can be conducted by means of electronic agents or bots !A. *urther, the items of e#idence of the intangible rights and obligations e+changed in the transaction ,deeds, mortgage contracts, notices- are commonly a digiti@ed file. *urther, the digiti@ed e#idence of the digital transaction is commonly stored in electronic data bases which, depending on the transaction, may or may not ha#e legal significance of itself ,a recording, for e+ample-. *urther, the usefulness of these digiti@ed files is inseparable from the applications that create, transmit, store, retrie#e, and otherwise manipulate them. Thus, at all le#els 00 solicitation, negotiation, formation, e#idence, infrastructure and fulfillment, the transactions 00 financial and non0financial 00 are essentially digital and bound up with applications. *inally, as file formats and applications become standardi@ed and interoperable this commonality will only become more per#asi#e. 6ore importantly, the same thing is true of physical goods. The computer does not know whether the B8K instruction relates to a security or a tanker0load of oil. The computer does not know whether subject of the transaction is regulated by the 2ommodities *utures Trading 2ommission because it is a commodity, or by the Securities and :+change 2ommission because it is a share of >eneral :lectric, or by the *ederal Trade 2ommission because it is a jacket, or by the *ood and "rug 1dministration because it is a drug. Hn the programming le#el there is no difference between financial ser#ices of e#ery kind and other commercial products and ser#ices of e#ery kind. To put the matter in 8.S. banking law terms, an analysis on the programming le#el indicates the core artificiality of the distinctions in the >lass0Steagall 1ct and suggests the e+tent of the difficulty in maintaining them. They essentially do not conform to the underlying reality. 1 further e+ample is the breakdown of the traditional securities trading mechanisms as a result of the operation of these commonalities. Traditional stock e+changes and securities trading mechanisms are e+periencing a structure0altering le#el of competition from electronic communication networks ,:2.;s- and other alternati#e trading systems ,1TS-. $n addition, traditional brokerage firms are being challenged fundamentally by low0cost online brokers.
The 8niform :lectronic Transactions 1ct ,8:T1- in the 8S would supply the legal framework for contracts formed by such electronic agents.
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*inally, it is clear that there is no fundamental difference on the programming le#el between bank payment systems and securities settlement systems. Su(stanti$e and Transactiona& Interde!endence $t is important to understand that all products and ser#ices, regardless of whether are financial or not, ha#e in common that their successful formation and fulfillment depend on the simultaneous application of multiple legal disciplines. 1ny lawyer who has put together a corporate merger understands that the corporate aspects, the ta+ aspects, the financing aspects are all pieces of a single whole 00 if you can;t determine the ta+ation, you can;t determine the priceG if you can;t determine the price, you can;t draft the offering materials. 1nd the transaction will ne#er occur. :/ually, the transaction will ne#er occur if you can;t #alue the assets, and you can;t #alue the assets unless you can determine the nature of the rights and obligations that actually are the assets, and you can;t do that unless you know which laws apply. 7ence, the fact that you can get an agreement with respect, say, to the banking or finance aspect of the matter, but you don;t ha#e agreement with respect to all the other pieces of the pu@@le means that you fundamentally will not ha#e the formation or the fulfillment of the product or ser#ice. $n essence, the ser#ice or product transaction won;t happen unless all the necessary issue #ariables are resol#able within a tolerable degree of uncertainty ,that is, you can price for the uncertaintyIm"lications )or the *!risdiction Pro-ect and Sol!tions Sector #By#Sector A!!roach The foregoing analysis has an important implication for suggestions that one way to proceed to deal with harmoni@ation of jurisdictional issues through international agreements is to use a sector0by0sector approach. The #ery unity of the transactions suggests that the utility of this sector0by0sector approach is limited. -ommon Jurisdictiona& )esu&ts The foregoing also has important implications for the acti#ities of the #arious working groups of the 1B1 Jurisdiction Project. *or initial analytical purposes and di#ision of labor purposes, it was, of course, necessary to break the work into con#entional classifications such as ta+ation, sale of goods, pri#acy, etc. 7owe#er, it is important to understand that each of these are disparate elements of unitary commercial endea#ors. $t is also important to understand that

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items which appear to be separate are really the sameG as noted abo#e, on the functional le#el the payments system and the securities settlement system are essentially the same thing. There is no apparent reason why there should be different jurisdiction results in the two cases. -ountry of +rigin $s. -ountry of %estination The foregoing analysis regarding commonalities also has important implications for the country of origin'country of destination debate. The ancient debate o#er country of origin control ,le+ originis- #ersus country of destination control ,le+ protectionis- has emerged as one of the most fundamental issues affecting all aspects of commerce, nationally and internationally, regardless of whether that commerce is electronic or not. ,The debate can be described as national for the reason that pre0emption issues within federal states and within supra0national entities like the :uropean 8nion are essentially issues of origin country'destination country control.- This debate can be seen in ta+ation, sale of goods and ser#ices, banking and payment systems, en#ironmental law, genetically modified organisms, and e#ery aspect of world trade. This debate is fundamentally the issue of prescripti#e jurisdiction described abo#e. This matter is commonly presented in either'or terms. The business community, particularly larger businesses, is generally presented as wanting country of origin control, and the consumer groups and en#ironmental and other local acti#ists are generally presented as wanting country of destination control. 7owe#er, the matter is a bit more comple+ than that. 5ith respect to pri#acy, the :8 wants country of origin control and the 8S wants country of destination control. Hn the other hand, with respect to genetically modified organisms ,to take a somewhat unusual e+ample-, the :8 wants country of destination control and the 8S wishes the re#erse. 1s a general proposition, across a #ery wide spectrum of goods and ser#ices, the matter seems to come down to a /uestion of whose o+ is being gored. 5ithin the :8 there is disagreement. The draft :8 "irecti#e on :lectronic 2ommerce would use a country0of0origin approach, but the :8;s recently proposed amendments to the Brussels and <ugano con#entions would employ a country0of0destination approach 00 a matter that has lead to heated contro#ersy in the :8. $n addition, the perception that country of origin control is fa#ored mainly by the larger

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units within the business community is not correct. 1n inherent ad#antage of the $nternet is the ability to broaden the base to which it is economically feasible to offer ser#ices. 1 small financial institution can, for e+ample, offer the same access and con#enience to a home banking customer as can any mega0bank. )e/uiring such a financial institution to monitor and follow the regulatory re/uirements of an international panoply of jurisdictions negates that economic benefit. The promise of the $nternet is dashed in the comple+ities. $f it is the case that all of the products and ser#ices that the Jurisdiction Project co#ers share, in #ery large measure, the multiple commonalities described abo#e, it is not a sensible solution to ha#e substantially different jurisdictional rules for financial ser#ices and other ser#ices, or for different legal aspects of the same transaction. 1 world in which the incidents of ta+ jurisdiction are substantially different from the incidents of consumer protection, which are different from the incidents of contract formation, etc., is a world in which the transactional costs will ha#e a substantially negati#e effect on the #olume and pricing of the commerce. The answer to the country of origin'country of destination debate is, in #irtually all cases, both, not either'or. $n this sense, the banking and payment system area is an e+cellent e+ample. Speaking solely from the #antage point of the 8.S., it is inconcei#able that the 8nited States would cede to other nation states elements of prescripti#e and enforcement jurisdiction which it regarded as essential to its so#ereignty. The e+istence of the 8.S. $nternational Banking 1ct administered by the *ederal )eser#e Board is e#idence of that fact ,see !& 2*) 2h. A3-. 1t the same time, it is inconcei#able that the rest of the world ,i.e., the destination countries- would permit 8.S. financial institutions to act within their borders solely in accordance with 8.S. law. The same conclusion can be drawn with respect to #irtually e#ery area of law. .e#ertheless, in the financial institution area, it is common for safety and soundness regulation ,prudential super#ision in the continental usage- to be conducted on a country0of0 origin basis ,by the chartering jurisdiction- and for compliance regulation to be conducted using a country0of0destination approach ,where the financial ser#ices were recei#ed-. The :uropean 8nion has struggled with these issues for decades and has de#eloped a general approach ,described abo#e- that could be useful in approaching these issues not only for

(F

the banking and payments systems area, but more generally. $t seems to follow from the global nature of the $nternet that the single most likely approach toward a solution o#er the long haul is by means of international agreements. $n the past, de#elopment of global agreements has been important to, and has made significant contributions to, the de#elopment of world commerce and a peaceful world order. 7owe#er, something different has now occurred. >lobal agreements are no longer simply important. They are of the essence. The $nternet has caused the mechanism of international agreements to no longer just be nice, but to be indispensable.!C Trusted Systems The /ualification of in the long haul is fundamental. The fact is that international agreements de#elop at a glacial pace almost regardless of the subject matter. *urther, in this area the national laws are so comple+ and di#ergent, that con#ergence 00 much less harmoni@ation 00 may well be #ery difficult to achie#e. $n addition, the global nature of the $nternet causes an e+pansion of the number of entities that need to come to an agreement. Serious consideration must be gi#en to the possibility that trusted systems may be the most powerful approach to pro#iding jurisdictional solutions in the immediate term. Jurisdictional issues will be a#oided as a practical matter if the consumer has confidence ,!- that the goods and ser#ices will be as promisedG ,&- that his or her payment and related data will be kept confidentialG ,(- that deli#ery will be timely and con#enientG and ,A- that misunderstandings can be addressed in a /uick and simple and preferably online manner. The use of a trusted third party guarantor puts the parties and particularly the consumer in the position of fundamentally not caring about jurisdictional /uestions. Hf course, the issues remain for us lawyers, as an academic matter, and for the periodic unusual case. But it is an e+cellent outcome from the standpoint of all parties if jurisdiction issues become irrele#ant.
5e may ha#e a window of time in which to address these issues if we do not proceed at the glacial pace at which international agreements ha#e commonly proceeded. The reason for the window is that the most difficult problems arise on the retail le#el, and, although transactions on the retail le#el are e+panding #ery rapidly, they remain at a #ery low le#el. 1 recent report ,July !9, !999- prepared by The Boston 2onsulting >roup indicates that re#enues from online retailing in .orth 1merica are e+pected to e+ceed E(F billion by the end of !999, a projected growth rate of !ACQ from !99=. Total !99= online re#enues across all categories reached E!A.9 billion, representing 3.C Q of all retail sales. Hnline orders in !99= were up &33Q and the number of online shoppers was up (33Q. $nefficiencies in the legal infrastructure will therefore ha#e their usual negati#e effects on price and #olume and lost opportunities. 7owe#er, it is now becoming clear that these inefficiencies will ha#e the more profound effect in the e0commerce market of reducing power of a strong multiplier that appears to be at work. 1 recent report ,The :merging "igital :conomy $$, dated June &&, !999- from the 8S 2ommerce "epartment indicates that information technology industries contributed more than one0third of 8.S. economic growth between !99C and !99=, e#en though they account for just = percent of gross domestic product.
!C

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This is nothing new. $n the )enaissance period, the right paper put in the right independent trusted hands was good funds from <ondon to <ombardy and from Paris to Prague. 6odern banks ha#e their origin in that phenomenon. Hne of the principal early guaranty systems that operated in this way and had its origin in >ermany in a small building o#er whose front door hung a shield that was painted red. The >erman for red shield is )ot Schild, or, as we know the name, )othschild. That red shield, in modern computer terms, is an icon. Trusted systems identified by an icon ha#e the potential to sharply reduce jurisdictional conflicts as a practical matter. 2urrent electronic trusted systems may be too weak or too focused ,e.g., deal with pri#acy issues only- to creates an ade/uate le#el of trust on all sides and within the time frame that the pace of the $nternet demands. This area needs to be e+plored on a priority basis.

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'I'LIO()APHY A*+ )E,E)E*CEPAYMENT SYSTEMS / BANKING Articles A Framework for Global Electronic Commerce Computer Money - Some Legal Considerations by Alan L. yree Couriers !it"out Luggage# $egotiable %nstruments and &itigal Signatures' (ane )aufman !inn &igital Cas" and t"e *egulators by (. +rlin Grabbe Electronic ,ayment Systems# "e Legal ,erspecti-e by Simon ,ollard' Lawyer' Gilbert . obin Emerging Electronic Met"ods for Making *etail ,ayments Gateways to t"e Global Market# Consumers and Electronic Commerce /ackground ,aper' by Carey 0eckman "e %mpact of Electronic Cas"# A Strategic ,erspecti-e' by &a-id /irc" %mplications of t"e 1se of &igital Cas" for /anking Law' ,ri-acy and Security' and Law Enforcement' Collo2uium conducted by ,rofessor Greg ucker +pen Systems' Free Markets' and *egulation of %nternet Commerce' 34 ulane L. *e-. 5533 657789' (ane )aufman !inn Selected 1.S. Legal %ssues in %ssuance of Electronic Money' by (o"n &. Muller "e :irtual Marketplace' by (o"n ). 0al-ey :alidation of Electronic Signatures' by 0ans $ilsson and &enis ,inkas !ill Electronic Money be Adopted in t"e 1nited States; by /arbara Good' Federal *eser-e /ank of Cle-eland !orking ,aper 7844 Cases Legislation / Congressional Activity 0.*. 5< financial moderni=ation markup by 0ouse /anking Committee 6includes pro-isions on A M surc"arge disclosure' financial pri-acy' and report to Congress on %nternet banking9 *ep. Leac" statement on pri-acy pro-isions added to 0.*. 5< by 0ouse Committee *ep. *oukema statement on A M surc"arge disclosure pro-isions added to 0.*. 5< 0ouse /anking Subcommittee on Capital markets sc"edules "earings on influence of tec"nology on bank capital markets acti-ities' starting Marc" 4>t" Consumer Credit Card ,rotection Amendments of 5777' 0.*. 7<<' introduced by *ep. LaFalce 6if t"is 1*L does not work' add a colon at t"e end9 0earing on proposed )now ?our Customer regulations' Marc" @' 0ouse Committee on (udiciary Subcommittee on Commercial and Administrati-e Law

Web Lin s Accredited Standards Committee A7 subcommittee B7A submits B7.>7--Account/ased Secure ,ayment +bCects as a &raft Standard for rial 1se Australia &epartment of Foreign Affairs and rade' D,utting Australia on t"e $ew Silk *oadE /ankers *oundtable--/anking %ndustry ec"nology Secretariat 6/% S9 to address

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cyberbanking issues /erkeley Center for Law . ec"nology Commerce on t"e $et# Electronic /anking Congressional %nternet Caucus Electronic ,ayments Forum Marc" 5777 Meeting *eport Emerging Met"ods for Making Electronic ,ayments European Commission proposes a directi-e on distance selling of financial ser-ices European Commission proposes a framework for t"e European financial ser-ices sector to facilitate cross-border operation European Commission (oint *esearc" Centre %nstitute for ,rospecti-e ec"nological Studies' draft Study on Electronic ,ayment Systems Federal *eser-e re2uest for comment on amendments to *egulation CC to facilitate electronic return of unpaid c"ecks F&%CFs ,ublic 0earing Concerning Stored :alue Cards And +t"er Electronic ,ayment Systems' September 54' 577G Financial Action ask Force Annual *eport on Money Laundering ypologies Free Guide to %nternet Law %ndiana (ournal of Global Legal Studies symposium on "e %nternet and t"e So-ereign State' including papers on Curisdiction and offs"ore finance %nteracti-e Financial EBc"ange 6%FA9 specification released by /anking %ndustry ec"nology Secretariat %nternational +rgani=ation for Standardi=ation 6%S+9 Committee C G8-Financial Ser-ices %nternet +pen rading ,rotocol :ersion 5.< (ournal of %nternet /anking and Commerce Law on t"e %nternet Letter to F C from 0enry ,erritt' (r. on t"e protection of market structure and consumers $A0A /ill ,ayment Council issues for comment--/usiness ,ractices for Electronic /ill ,resentment and ,ayment $ational Arc"i-es and *ecords Administration regulations on Electronic *ecords Management 5773 statistics on payments systems in t"e G-5< Countries +CCFs safety and soundness issues in operating an electronic payment system. *eport of t"e 1$C% *AL !orking Group on Electronic Commerce on t"e !ork of its H@t" Session 6February 8-579 *eport to t"e Council of "e European Monetary %nstitute on ,repaid Cards Submission by t"e 1nited States to t"e !orld rade +rgani=ation General Council on t"e ! + !ork ,rogram on Electronic Commerce +CC 4/ February 5 draft. Memo from t"e *eporter on Electronic Commerce *ules in 1CC 4/ and coordination wit" 1E A. Letter from t"e /ank !orking Group on t"e ability to opt-in to t"e contract formation pro-isions of 1CC 4/. "e 1CLA +nline %nstitute for Cyberspace Law and ,olicy 1niform Electronic ransactions Act (anuary 47 draft 1.S.-1.). Coint statement on electronic commerce !orld rade +rgani=ation press release# ! + Financial Ser-ices Agreement entered into force on Marc" 5 !orld !ide !eb Consortium draft Common Markup for !eb Micropayment Systems

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