House Certifies E-Signature Bill

The U.S. House of Representatives late
Wednesday passed the e-signature bill by a 426 to 4 vote in favor of the

The bill known in short as E-SIGN [S.761] is a part of Capitol Hill’s
eContract 2000 and is scheduled to go to the U.S. Senate for further consideration.

The bill is at the heart of Congressional efforts to modernize the nation’s
laws; in-step with the paradigm shift advancing technologies brings to the
American economy.

House Majority Leader Dick Armey
(R-TX), said the legislative initiative would be remembered as a historic

“The bill we passed today recognizes that it doesn’t always make sense for
the government to require companies to send information to consumers on a
sheet of paper,” Armey said. “Often it’s faster and more convenient-for
customers as well as businesses to view the same information on a Web site
or through e-mail.”

Currently, a consumer that desires to open a mutual fund account can get a
load of information about varying funds on the Internet. But there is no
way to open an account without printing a document and faxing a form back,
and forth while the consumer waits for the transaction to be processed.

Armey said the bill eliminates the paper, delay and inconvenience by
letting consumers open such accounts online.

“By removing barriers to e-commerce, the E-SIGN bill will expand digital
opportunities and conveniences for all Americans.” Armey said. “E-SIGN is a
crucial piece of our eContract 2000 that we unveiled in May. We’re
continuing to remove government obstacles that keep consumers from taking
full advantage of the wonders of modern technology.”

Since May, the House has passed several key measures designed to promote
growth in the new economy. Representatives have worked to press through
legislation that could eventually extend a five-year moratorium on Internet
taxes, permanently ban taxes on Internet access fees and eliminate the 3
percent federal excise tax on long-distance telephone charges.

If the E-SIGN bill passes the Senate, electronic contracts would gain the
same legal status as handwritten signatures. The legislation would set
national standards for e-signatures and documents, granting them the same
legal validity as written contracts.

Both the House and Senate passed e-signature bills with little opposition
last November, but differences between the two bills needed to be resolved
in order to keep the legislation alive.

The Clinton Administration and several Democrats opposed sections of the
bill’s original mark-up language because they believed it could weaken
consumer protections. Business groups also lobbied against provisions
concerning consumer consent, contending that federal interference would
hinder smooth e-commerce transactions.

A major hurdle to quick passage of the bill was eliminated in the Senate
last week, when Banking
Chairman Phil
, (R-TX), who originally balked at the bill, confirmed he would
vote in favor of the legislation.

Gramm said the electronic-signature bill is an important step into the
future that establishes legal footing for electronic commerce, which, over
time, will be parallel to the existing paper-based commerce.

“Progress was made in addressing my final concerns with regard to the
consent process,” Gramm said. “While there is still a delay for the use of
electronic commerce in financial services, the disparity between the
financial industry and other industries has been significantly reduced.”

Gramm added that a loophole that would have allowed states to require both
paper and electronic notification had been closed.

“Based on

these changes, I intend to vote for the bill,” Gramm said. “And I
intend in the next Congress very quickly to review each of these provisions
to see if the process can be rationalized and accelerated.”

The effective date for the potential law is March 1, 2001. Under the bill,
consumers must opt-in for electronic records, ensuring that those who don’t
have access to computers would maintain paper records.

Security companies have developed unique identification systems that embed
a digital signature in a computer file and operate similar to magnetic
strips on credit cards. According to the companies, the system is
fraud-free because an e-mail recipient has the technology to verify the
sender’s identity. The encryption also guarantees that the document has not
been doctored, even one simple edit would deny the transaction from being

Other e-commerce systems rely on an outside party, like a security company,
to provide trusted certification authority. Internet trust service firm VeriSign Inc., which this month
completed its acquisition of domain name registrar Network Solutions Inc., could be one of the companies to reap financial rewards if
the electronic signature bill becomes law.

VeriSign introduced its digital signature security
line-up in May. Ameritrade Holding
was one of the first companies to sign up for its encryption and
network security systems.

The new technology, based on patent-pending distributed network
architecture, is designed to provide financial institutions, healthcare
organizations, and service providers, along with their customers, the
ability to access private information and execute secure transactions from
virtually any Internet-enabled device around the world.

Ameritrade is using the technology to produce digital
certificates that enable online investors to securely sign-up for new
account enrollment and Securities and
Exchange Commission
W9 forms online.

James Ditmore, Ameritrade chief information officer, said digital signature
capabilities and secure documents are at the core of its online trading

“Leveraging VeriSign’s managed digital certificate services, customers can
now authenticate themselves online, open accounts, securely sign forms, and
quickly start trading-from work, home or another place of their choosing,”
Ditmore said.

VeriSign’s technology allows an end-user to securely store digital
certificates or any other type of data, including financial information or
an online patient record, on distributed network servers operated by
multiple trusted service providers.

The technology enables portability of digital certificates, providing users
to access and download their certificates and private keys for online
authentication. It also enables the generation of binding digital
signatures for conducting high-value e-commerce transactions.

Stratton Sclavos, VeriSign president and chief executive officer, said the
system does not compromise security for speed.

“By deploying our new network-based technology, enterprises and their end
users benefit from ‘anywhere access’ to Internet services with the strong
authentication and non-repudiation of digital certificates and digital
signatures” Sclavos said.

While online experts contend that digital verification will be much more
secure than handwritten scrawls on paper, consumers are concerned about
digital signature fraud and the Internet’s ability to encrypt legal
documents to make them tamper-proof.

President Clinton has already indicated that should the bill clear the
Senate, he will sign the legislation into law. Ironically, he wo

uld most
likely do so with a DNA-encrypted pen and water-marked paper.

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