Last June, US President Bill Clinton used his dog's name as a password and a smart card and to sign the Electronic Signatures in Global and National Commerce Act. Since October most of the provisions in the legislation have been effective, but the law is not a universal panacea for all the headaches experienced in the online trading environment.

The new law grants accords electronic signatures the same legal status signatures on paper, but while all 50 states have adopted similar laws recognising the legality of electronic signatures, these laws vary widely. Moreover, Japan and the European Union are not expected to enact similar laws until next year.

Implications for traders and financiers

Apart from interstate and cross-border legal disparities, issues surrounding what makes for a binding agreement between parties to a transaction may remain. The law does not, for example, prescribe how to create a valid electronic signature.

Banks and traders using electronic alternatives to documentary credits for transactions have tended to use public key infrastructures (PKI), which allow for digital signatures and authentication of all parties involved in a transaction. Those parties would have to agree to sign documents confirming the validity of the electronic signatures, but the new law does provide the legal umbrella under which digital signatures will be automatically binding and fully legal.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.