Andrey Belousov
Crime-research.org
Legal aspects of e-commerce
The Internet is the most important achievement of the last century. It influences the development of e-business and, in particular, e-commerce. Thus, the e-commerce has been generated by the most up-to-date technologies of the passed century. According to the e-Marketer, in 2000 the Internet commerce made $233 billion. The Forrester Research predicts that by the end of 2004 the e-commerce will be $6,8 trillion what will exceed the existing level nearly by 30 times! These transactions are consummated between companies and business institutes, as well as between firms and average clients.
The rapid development of the Internet commerce is stipulated by:
- Quick expansion of PC sales^;
- Brisk increase in efficiency of computer processors, memory and data channels^;
- Lack of customs dues on e-sales^;
- Speedy distribution of alternative Internet access means – mobile telephones and interactive television^;
- Convenience and simplicity of Internet purchasing technologies (interested goods can be bought without leaving the apartment)^;
- Information on goods and services offered by Internet-shops is available in the real-time mode^;
- Attractiveness of e-commerce due to the reduction of overhead costs on establishing business.
The national legal systems have no uniform interpretation of e-commerce. For example, European countries have some restrictions. Contracts that require notary’s certification and government bodies’ registration or cover family and inheritance laws cannot be made through the Internet. Nevertheless, the e-commerce embraces Internet relationships including e-sales and e-services (medical, juridical, banking, financial and others).
The approach to the Internet legal regulation is being revised now. Numerous works (mainly written by American scientists) on the Internet as a new info-social space having its own normative regulating system and requiring to work out a special conception of legal regulation have been abandoned. The practice has picked the way of “involving” the Internet into the national jurisdictions. In this connection, the assumption of other lawyers that there will be a jump in the development of international laws and intensification of their role in unifying national legislations has not proven to be correct. Such tendencies can be noticed in Europe because the European Council strives to create a uniform legal space including that of e-commerce and, as a result, to protect interests of e-commerce participants [1].
The legal force of transactions depends on conditions, under which the state considers that or other deal capable of entailing related legal consequences. According to the current legislation, those conditions are as follow [2]:
- Availability of legal capacity and competence on the part of subjects to make the deal^;
- Legality of transaction contents^;
- Conformity of inner will of parties with declaration of their intention^;
- Transaction concluded in the law-established form.
All the above conditions should be naturally observed to make any deals including those effected through the Internet. However, the specific character of Internet transactions consists in that the intention of the party is declared and brought to the addressee by means of computing technique and communication e-channels. Therefore, the law-required form of Internet transactions should be observed to settle the question of their validity.
Today some legal problems make it difficult to use the Internet commerce. For example, until January 1, 2001 there was a special case in the Russian Federation (RF) legislation. The law “On banks and banking activities” did not refer plastic card operations to banking ones what stipulated their taxation. Only tricks of law connected to the extensive interpretation of banking operations on the base of some precedents allowed exempting them from taxation. On January 1, 2001, the second part of the RF Taxation Code that changed the situation came into effect.
The RF Central Bank’s Provision 23-P “About order of issuing bank cards on the part of credit establishments and effecting settlements for plastic card transactions” allows concluding transactions to pay for Internet goods by credit cards. Its Part 1 permits to draw up “document for bank card transactions” by using not only the bank card itself but also its requisites as it happens when purchasing goods through the Internet. However, bankcard requisites reported by its holder to the trading company cannot pretend to be the analogue of his/her own signature. Therefore, the standard of the settlement document that should be attested with the buyer’s own signature or its analogue according to the current civil legislation (Paragraph 1, Items 1 and 2, Article 160, Civil Code) is often violated when concluding e-purchases.
Provision 23-P does not provide that the violated form of the bankcard transaction document causes its invalidity, as well as other consequences, which should be found in the civil legislation.
According to the Civil Code, the violation of the simple writing form of transaction entails the impossibility to appeal to testimonies confirming it and its conditions during the dispute rather than the invalidity of the deal itself. The parties have a right to appeal to writing and other evidences (Item 1, Article 162, Civil Code) including a notification of goods delivery signed up by the cardholder or other documents confirming the fact of delivery. However, the lack of such documents will make it impossible to prove the conclusion of transaction.
Therefore, it is necessary to forward goods to the client by insured parcel and to keep delivery receipts signed by him/her for some time. It will allow winning a dispute in the arbitration court of payment system or in the civil one. When selling on-line goods the conflict cannot be resolved under the legislation currently in effect.
The situation can be changed by using protocols of e-commerce that operates analogues of the own signature (for example, SET). The use of own signature analogues to make Internet transactions will bring them to conformity with current legislation requirements.
Since any payment means to fulfill liabilities, the norms of clearing settlements contained in Chapter 46 RF Civil Code should be applied to Internet payments. This chapter uses a term “form of clearing settlements” that is not defined by the Civil Code. According to it, the form of clearing settlements is a definite method of performing liabilities, it being provided with a particular set of obligation relations.
Thus, that or other model of Internet payments is a specific form of settlements that can be a clean sheet or correspond to already existing forms.
According to Item 1, Article 862 Civil Code, the form of clearing settlements can be considered legal if stipulated by law and related bank rules or it falls under the category of “a bank habit of business payments”.
Let us dwell upon these two terms: “bank rules” and “bank habit of business payments”. The former seems to be more evident. “Bank rules” established in accordance with the law present normative acts of the RF Central Bank that is a competent body to set rules of effecting payments in Russia.
The single question that can arise in connection with this term is how legitimate the form of clearing settlements is if established by Russian Bank’s normative acts and the relevant law has not been passed yet. The practice of Russian norm setting, according to which the regulation of by-law acts of law-regulated relations can be admitted as a temporary measure, can give an answer to it.
The second term “bank habit of business payments” is more difficult to analyze. The current legislation interprets it as an “established and widely used business rule of conduct that is not envisaged by laws independently of that whether it was fixed in any document or not” (Item 1, Article 5 Civil Code). This definition contains three important features. The habit of business payments is such a rule of business conduct that is:
- Formed i.e. constant and sufficiently defined^;
- Widely used^;
- Provided by no current legislation.
Since these criteria are too general in every particular case, it can be difficult to fix the availability or lack of the habit of business payments. Therefore, the practice focused on fixing a potential habit in acts of home and especially international chambers of commerce and other authoritative organizations.
It can be said with confidence that payment card transactions being also a special form of clearing settlements fall under the definition of “bank habit of business payments”.
At last, what is necessary to mention as to general provisions on clearing settlements is the rule from Part 3, Article 861 Civil Code, according to which “clearing settlements are made through banks and other credit establishments where related accounts are opened if otherwise is not specified by law or form of settlements”. According to the current legislation (except credit institutions), settlements can be effected by:
- Offsetting mutual claims^;
- Using bills.
The former is not applied to Internet payments. As for the latter, Article 4 of the Federal law “About promissory note and bill of exchange” specifies that any bill should be drawn up only on the paper carrier.
Thus, settlements can be only made through credit establishments by using electronic technologies. According to Item 2.1 of RF Central Bank’s Provision “About effecting clearing settlements on the part of credit establishments in the Russian Federation” “clearing settlements are made between credit establishments, affiliated organizations through:
- Payment network of Russia’s Bank^;
- Credit establishments (LORO and NOSTRO correspondent accounts)^;
- Nonblank credit institutions effecting payment transactions^;
- Intrabank payment system (interbranch payment accounts).
The existence of payment e-documents generally depends on the following conditions to be observed:
1) Documents are attested with an analogue of the authoritative person’s (-s’) own signature(s)^;
2) There is a preliminary (writing) agreement about using such documents.
Since electronic payments can be effected only by credit establishments, they should have a corresponding bank license according to the law “On banks and banking activities” and normative enactments of the RF Central Bank. When using models based on the logic of securities that will be considered undocumentary ones according to Item 1, Part 1, Article 149, RF Civil Code, it is necessary to obtain an additional special license granting a right to the electronic fixation of rights assigned with securities. It should be also noted that rights assigned with securities could be electronically fixed only in law-specified cases or in law-established order.
It is evident that the main goal of Internet payments is to accelerate the civil payments and make it easier for its subjects. However, this aim cannot be achieved without an adequate mechanism of settling possible disputes.
The current system of civil and arbitration courts cannot resolve this problem because of long terms of case hearings and judges untrained to deal with such processes.
The natural way-out is to create special arbitration tribunals. However, Russia’s imperfect civil and procedural legislation impedes it. According to Russian laws currently in effect, arbitration tribunals that handle conflicts between citizens can be established only to settle a concrete dispute on a gratuitous basis. Moreover, the legislation does not provide for the possibility of resolving a dispute between natural and juridical persons on the part of the arbitration tribunal.
Therefore, some amendments should be introduced to the current legislation. The system of electronic payments that ensure the required level of e-purchase security cannot be created without the infrastructure of certifying centers. That is why the law on e-signature is necessary to pass.
Since January 2004 Ukraine’s laws “About electronic documents and circulation of e-documents” and “About electronic signature” passed by the Parliament has come in to effect.
Ukraine’s law “On electronic signature” reflects the general conception of the European Council’s related directive, which is based on the voluntary accreditation of key certifying centers and the introduction of uniform procedures of recognizing the e-signature validity.
The questions of equating the electronic signature with the own one and regulating the work of the organizing and technical machinery that allows using the e-signature technology were mainly focused to elaborate the law and the directive as well. Besides, the machinery functioning limits were established, as well as laws and duties of the e-signature subjects were introduced.
The law specifies conditions, under which the e-signature can be equated with the own one [3]:
1. The e-signature is checked with the intensified key certificate including reliable e-signature means. They are means of the electronic signature that have a certificate of conformance or positive expert’s conclusion according to results of the state expertise as to cryptographic protection of information. Only the accredited key certifying centers have a right to form intensified key certificates^;
2. The intensified signature key certificate being in effect for the moment of affixing an e-signature is used during the inspection.
3. The personal (secret) key of a person that sets his/her hand corresponds to the open key available in the certificate.
There exists and rapidly develops a potentially huge market of e-commerce in the world. Such a market will be of a serious commercial interest to CIS countries approximately in 3-5 years.
There is no doubt that banks actively attending plastic card sales organizations and purchases services will take advantage of the e-commerce technology in the near future. Plastic cards undoubtedly will play a dominant role as a tool of clearing settlements or e-purchases. Payment systems based on plastic cards will be remaining a single universal infrastructure of clearing settlements that give a guarantee to return money to a shop assistant for rendered services and sold goods.
It should be noted that there are some international standards of e-commerce. They facilitate the compatibility of various manufacturers’ software thereby are a necessary condition for the wide-scaled introduction of the latest technologies.
Unfortunately, the standardization of plastic card payment protocols will be subject to changes resulted from the unsuccessful implementation of SET protocol, the emergence of a new 3D Secure standard that pretends to be the global norm of authentication and the influence of the latest Internet access technologies. It is obvious that a new standard recognized and supported by the largest international payment systems needs some time to pass. It is important that the norm avoided mistakes that had been made to implement the SET. The 3D Secure protocol has high chances as compared with it because of low operating costs and increased efficiency in authenticating buyers and sellers on the part of emitters and attending banks.
It is evident that the plastic card with a magnetic strip is not an ideal tool of Internet commerce payments. The microprocessor card implementing reliable algorithms of dynamic cardholder authentication will replace it. The next step in the development of e-commerce payments will be the introduction of e-cash.
There is a lot of work to do for the legislation. In spite of that the e-commerce is at the very beginning of its development, the accumulated experience and worked out protocols allow asserting with confidence that it is time to start launching wild-scaled projects at the required transaction security level.
1. I. Bogdanovskaya Legal regulation of e-commerce: foreign practice. – http://www.conf3.parkmedia.ru/any_r.asp?URL=bogd.asp.
2. A. Kemradge Validity of transactions concluded through the Internet. – Legal aspects of using Internet technologies. – M., 2002. – P.88.
3. I. Konovalov. Electronic identification card. - http://www.crime-research.ru/library/2101.html.
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