Government Initiatives
Electronic Transactions Act 1999
ASIC Increases Scrutiny
Initiatives of the Competition & Consumer Commission
Conclusion
The Internet poses a challenge for Australian regulators. They have to deal with fraud that could impact on Australia even though it is perpetrated on a global scale. According to the Australian Securities & Investments Commission (ASIC) (see http://www.asic.gov.au) more than five million electronic commerce transactions occurred in the year 1998/1999. The Australian Institute of Criminology (see http://www.aic.gov.au) has noted that internet fraud is easily accessible. Very few remedies are available. Locating the perpetrator is difficult. Obtaining extradition, mounting a prosecution or recovering compensation is nearly impossible.
Reports of credit card fraud, hacking, online scams and the 'cookie debate' are challenging consumer confidence in online transactions. A 'cookie' is a message sent to a browser by a server and stored as a text file. The file is called a 'cookie.txt'. The file is sent back to the server each time the browser requests a page from the server. The main purpose of cookies is to identify users and customize web pages. But the collection and storage of information raises issues of privacy and security.
It was reported in January 2000 that the US Federal Bureau of Investigation was investigating the alleged theft of 300,000 credit card files from online music retailer CD Universe. CD Universe advised its customers that their credit card data could have been compromised. A thief had distributed 25,000 stolen credit card numbers online when his attempts to extort money from the company were refused. The thief has threatened to distribute more credit card numbers.
The head of Novell, Eric Schmidt, has revealed that his credit card number was stolen via the Internet. It is speculated that a mechanism that reads cookies was used in the theft. This incident has added to the debate surrounding the controversial issue of cookies.
The US Securities and Exchange Commission recently announced that it would investigate more Internet fraud cases. It called the task of uncovering Web scams a "top priority".
The move towards e-commerce by the Australian commercial sector will increase consumer susceptibility to fraud. A report issued by the Australian National Audit Office (see http://www.anao.gov.au) cited in the Comfraud Bulletin stated that the introduction of electronic commerce by a number of national agencies "will increase the risk of unauthorized access, sabotage and fraud".
Unless consumers feel secure conducting transactions online, e-commerce will not flourish. The Australian government believes that a set of new laws for e-commerce is not needed. The existing legal system will apply to the Internet, subject to updates that acknowledge new technology. The regulation of the Internet is light-handed. It clarifies how existing laws would apply to the Internet and e-commerce.
Electronic Transactions Act 1999
The Electronic Transactions Act 1999 is part of the government's proposal for a uniform model law to facilitate electronic commerce. It is based on principles of functional equivalence (also known as media neutrality) and technology neutrality. The act establishes the basic rule that a transaction is not invalid because it took place by means of an electronic communication. The act does not address the issue of internet fraud. It enables the use of electronic communications when satisfying legal obligations.
The ASIC is encouraging consumer education to counter fraudulent activities on the Internet. It developed the 'millennium bug insurance' cyber-scam as part of a campaign to educate consumers about investing on the Internet.
On April 1 1999, the ASIC launched a scam web site (see http://www.smbi.com.au) that offered a fake investment scheme. Further investment information was sought by more than 14,000 people. Over A$4 million was pledged to the scheme by 233 people.
Consumer alerts are also available on the ASIC web site. The alerts concern the risks associated with online trading, investment advice from bulletin boards, chat rooms and online investment newsletters. The ASIC also publishes internet safety checks. These highlight basic checks that can be made by consumers before investing in internet based schemes. Consumers can investigate whether a company exists and whether or not it has issued a prospectus.
Initiatives of the Competition & Consumer Commission
The Australian Competition & Consumer Commission (ACCC) (see http://www.accc.gov.au) is an independent statutory authority. It administers the Trade Practices Act 1974 and the Prices Surveillance Act 1983 and has additional responsibilities under other legislation. The ACCC monitors online activity for anti-competitive, unfair market practices and misleading and deceptive conduct.
Consumer education is a key objective. Internet 'sweep day' is an ACCC initiative. The Internet is 'swept' for get-rich-quick schemes and potentially misleading health claims. Suspicious sites are sent an educational e-mail. Over 1,400 sites were identified in the 1998 sweep. Follow-up action indicated that 25% or the sites had either been removed or altered.
Solving the problem of fraud on the Internet is a high priority for Australian regulators. Russell Smith from the Australian Institute of Criminology has stated that the solution to online crime will involve the adoption of a range of strategies, both strategic and technological, in which cooperation is required by various parties. Whether the existing legislative and policy regime in Australia is sufficient to cope with the challenge posed by the Internet remains to be seen.
For further information on this topic please contact Fred Chilton or Clara Duong at Allen Allen & Hemsley by telephone (+61 2 9230 4000) or by fax (+61 2 9230 5333) or by e-mail ([email protected] or [email protected]).
The materials contained on this web site are for general information purposes only and are subject to the disclaimer.