Your John Hancock goes digital - Government Activity

Communications News, Dec, 2000 by Patty Edfors

Electronic Signatures Act legally binds digital dotted lines.

Ever try to "sign" a document on the Internet? Unless you can put your pen-holding hand through the computer screen, it cannot be done. As a result, the kinds of legal transactions that can be conducted via e-commerce are limited today.

New legislation recently signed into law aims to solve that problem. The Electronic Signatures in Global and National Commerce Act makes electronic signatures as legally binding as "wet-ink" signatures. Because this smoothes the way for riskier and more sensitive transactions, the impact it could have on e-commerce--specifically financial services--is tremendous.

This legislation raises the issue as to what really is a signature. Legally, a signature is any mark--an X or a person's name--made with the intention of authenticating the marked document. The American Bar Association (ABA) says a signature must have signer authentication, something that indicates who is doing the signing, which is difficult to replicate; and document authentication, which identifies what is being signed. The technology behind electronic/ digital signatures does just that. Although it may seem a new concept, electronic/ digital signatures are based on technology available since the mid-1980s--public key cryptography--although biometrics and voice recognition are emerging in this arena.

HOW THE TECHNOLOGY WORKS

Public key cryptography is based on mathematical theory and algorithms, and requires a two-key system for signing and verification of the transaction. A private key is issued to only one person and is used to sign a communication. Someone then can verify with the public key, the mathematically related companion of the private key. The message recipient then issues a proof of the receipt to the signer.

A certificate authority maintains the validity and association between individuals and their public keys. In addition to electronic signatures, public key technology offers several advantages--confidentiality through encryption; the ability to see if data has been tampered with; and nonrepudiation, which proves that someone received and "signed" for the document.

Noteworthy, the Electronic Signatures Act is not specific to the types of technologies that can be used. Businesses can choose technologies to match a specific transaction's level of risk and value, and can also take into account the infrastructure and trust between the parties involved.

Although the technology to create electronic signatures is widely available and has been proven to be secure, there has been some hesitancy to use it. Much of this has to do with concerns about burden of proof and authenticity.

In the meantime, 15 states got tired of waiting for a federal mandate and passed their own electronic signature legislation. Another four states have legislation pending. These state laws vary a great deal because they were written for different purposes, and do not apply to interstate transactions. The Electronic Signatures Act incorporated some standards and procedures set up by these states, as well as by the National Conference of Commissioners on Uniform State Law and the U.N. Committee on International Trade Law, to provide a national legal framework, using free market forces, to clarify the legal status of electronic signatures.

EXCLUSIONS TO THE ACT

The Electronic SignaturesAct does not apply to all transactions, however. Among those excluded are cancellation notices of power, water and gas services, court orders, eviction notices, paperwork accompanying the shipment of hazardous materials, product recalls, and cancellation of health or life insurance.

What is still unclear is, what infrastructure will be used to support the issuing and recording of key pairs and electronic signatures? For example, if someone is conducting business-to-business transactions, does that person need different signature keys for the different types of transactions? Who will manage these? Who will pay for this, and what are the barriers?

While many people are comfortable spending several hundred dollars over the Internet, they might feel less comfortable if they had more money at stake, or funds associated with a pension or mortgage payment. The Electronic Signatures Act provides these customers with a legally binding way to prove their identities, intent and acceptance of the transactions.

Another advantage of the act is that it allows more interfunctional transactions; customers can use a debit card from one bank to pay for an individual retirement account at another financial institution. In the insurance industry, the legislation can reduce paperwork and overhead costs by letting insurance companies handle claims and policies online.

Indeed, the Electronic Signatures in Global and National Commerce Act breaks down many barriers currently facing some customers or companies needing to conduct sensitive or larger transactions over the Internet.

Edfors is director of government operations at Baltimore Technologies in McLean, VA.