----------------
The Legal Report
----------------

Richard L. Field, Esq.
field@pipeline.com

---------------------------------------------------------------------
Mr. Field is an attorney and legal consultant in Cliffside Park,
New Jersey, U.S.A. He is a member of the ABA Science and
Technology and Business Law Sections. He participated in the
drafting of the ABA Digital Signature Guidelines discussed in
this report, and co-chairs its Electronic Commerce Payment
Committee.
---------------------------------------------------------------------

It is fitting that I am writing this first report on legal and
Internet banking and commerce issues on Christmas day. For
some, this day is about new beginnings. The Journal of
Internet Banking and Commerce, and the information era, are
also standing at the cusp of something fundamentally new, but
not yet quite defined.

Others have long seen this season for its commercial
possibilities. Financial reports on our collective shopping
purchases this month will be used to diagnose the economic
health of entire countries, and serve as the basis for legislative
and fiscal policy agendas throughout the upcoming year.

So I thought I would start with another mainstay of the season,
the year-end recap. In particular, this report will review some
of the past year's activities within the American Bar
Association (ABA) to study and promote electronic commerce.
It will be a good starting-off point for future legal discussion.

For those of you who are unfamiliar with it, the ABA is a
private, voluntary membership association of U.S. attorneys.
Others can join as associate members. Despite its
unincorporated status, it takes a leadership position on many of
the legal issues of the day. Its reports and views have long
been used by legislators, attorney practitioners and others.

The ABA is huge and bureaucratic. Most of its membership
comes from attorneys in the fifty state bar associations. But,
separately, it is also composed of numerous special interest
committees, sections and divisions. Among these sub-groups,
the Section of Science and Technology and the Business Law
Section have taken notable leadership positions in developing
the law of electronic commerce.

The Business Law Section has been studying the current U.S.
commercial law, much of which is embodied in the Uniform
Commercial Code (UCC) and the laws of evidence, and
recommending changes necessary to enable electronic
commerce. Some of these efforts include:

(i) a rewrite of Article 2, the law of sales, to cover software
licensing;
(ii) the possible elimination of the 300-year-old Statute of Frauds,
which requires certain contracts to be "in writing"; and
(iii) a model bank-customer agreement for commercial electronic funds
transfers, which follows the basic structure of the 1991 U.S.
statute in this area, Article 4A.

The Section of Science and Technology has been looking at
the technical side of electronic commerce law. Its Information
Security Committee has recently released draft Digital
Signature Guidelines. A three-year collaboration of leading
legal, cryptography, business and government experts, the 101-
page Guidelines are available for download from the Electronic
Commerce and Information Technology Division's webpage at
"http://www.intermarket.com/ecl". Bound paper copies are
available for US$15 from the Section of Science and
Technology of the American Bar Association, 750 North Lake
Shore Drive, Chicago, Illinois 60611, U.S.A. Telephone:
(312) 988-5599; electronic mail: sciencetech@attmail.com.
The Information Security Committee worked closely with the
State of Utah, which in May 1995 enacted the world's first
Digital Signature statute.

The Division has also worked to develop a new U.S. legal
specialty, which it calls the "cybernotary". Based on
European/Canadian/Mexican notary models, the cybernotary
would assume the risks of party identity in an international
electronic commerce transaction, while certifying the validity
and enforceability of the transaction. There has been
substantial collaboration in this endeavor with the International
Union of Latin Notaries (UINL). The U.S. Council for
International Business (USCIB), which is the U.S. arm of the
ICC, has recently created a Cybernotary Association to carry
out these efforts. Both the Guidelines and the Cybernotary are
based on X.500 and X.509 standards for Public Key
Infrastructure and certification authority certificate and key
management.

Finally, the Electronic Commerce Payment (formerly Financial
EDI) Committee has been discussing, through its committee
listserv, fundamental legal issues in electronic commerce
payment: from the creation of money, to privacy/anonymity,
money laundering, export of encryption, and escheatment of
abandoned property. It has published a model financial EDI
trading partner agreement (also available through the ABA),
and is working on an equivalent model agreement for the use
of debit transfers in EDI.

The ABA will continue to work at the forefront of these
evolving issues. Stay tuned for details. And have a good year,
everyone.

---------------------------------------------
The Citibank Affair: A Purely Russian Crime?
---------------------------------------------

Nahum Goldmann
ARRAY Development
Nahum.Goldmann (at) ARRAYdev.com>
http://www.ARRAYdev.com/

---------------------------------------------------------------------
Nahum Goldmann has been employed as a manager, scientist and lecturer
in leading industrial high-tech firms and academia. Mr. Goldmann has
published several critically acclaimed books that deal with knowledge
transfer issues.
---------------------------------------------------------------------

Novoye Russkoe Slovo (NRS), a NY-published newspaper which acclaims
itself as the largest Russian-language daily outside of the x-USSR,
published an engaging account of the so-called Citibank Affair in
September 1995. A fairly large article ("Purely Russian Crime..."
NRS, Sept. 15, 1995, pp. 13-14) was written by Vladimir Strizhevsky
but was actually based on the original investigative materials
submitted by several contributors from Moscow and St. Petersburg, as
well as from NY, London, Brussels and other world financial capitals.

Undoubtedly, NRS have done quite a good job in clarifying and
illuminating the background of the Citibank Affair. For whatever
reasons, the English-language media have not covered the background
of Russian participants that well. However, an expert in
electronic banking and commerce on Internet might find utterly
fascinating the very minute details of this complex crime scheme that
involved many people and spread across several continents.

The story at NRS starts at the end of August, 1994 in Tel-Aviv. A
certain Alexei Lachmanov, a Georgian national and a holder of a false
Greek passport to the name of Alexios Palmidis, had been arrested by
Israeli police when he tried to withdraw nearly US$1M. The funds in
question were electronically transferred to five Israeli banks from
Invest-capital, an Argentinean subsidiary of the Citibank. The
Israelis had been tipped by the Citibank through the FBI with the
information that all the money transfers had been done with the
illegal use of Invest-capital's own secret codes.

The subsequent multinational investigation has shown that it was a
leading St. Petersburg's, Russia computer expert Vladimir Levin who
was able to conduct numerous electronic transfers from several
Citibank's subsidiaries in Argentina and Indonesia to various
financial institutions in San Francisco, Tel-Aviv, Amsterdam, Germany
and Finland. According to NRS's speculations, Mr. Levin's succeeded
so well because, in addition to Citibank's own electronic cash-
management hub in NY, he was also able to crack down the electronic
defense of several SWIFT's branch offices in the third-world
countries. SWIFT, a secretive Belgium-based electronic
telecommunication consortia of World-leading banks, is primarily
involved in mutual settlement payments amongst its members.

On the other hand, in the interview with an NRS correspondent V.
Kaminsky, Citibank's spokesman rejected the newspaper's version of
SWIFT's penetration. Instead he claimed that Citibank knew all along
about Mr. Levin's infiltration, playing with him a sophisticated
multistep deception game. Of course, the Citibank's face-saving
version of events sounds not that convincing, taking into account a
large number of uncontrollable players, a sizable amount of real cash
involved, multicontinental reach of the overall crime scheme and the
fact that the bank was ultimately unable to recover a substantial
chunk of its own money.

Not your ordinary self-taught hacker, Mr. Levin, 31, an aloof man and
a graduate of a prestigious Department of Applied Mathematics, was
considered somewhat of a computer genius in the St. Petersburg's
University circles. The scheme started when Mr. Levin's
acquaintance, a Russian-American wholesale trader, asked him to
develop programming support for his international trading business.

According to Mr. Levin's university friends, the idea of breaking
into secure bank networks has been born somewhat spontaneously during
a purely technical discussion on the advantages and disadvantages of
different bank networking programs. The debaters were members of a
St. Petersburg's group of elite computer experts that could best be
described as a local response to the Internet's own Cypherpunk
community. I found it fascinating and somewhat ironic that the
infiltration plot had actually started as a low-key bet that the
Russian famous resourcefulness would triumph where the famed Yankee
ingenuity has already proven to be unsuccessful!

In the overall crime scheme, Levin was supported by as many as 30
collaborators, at least some of them computer experts. Several of
his partners-in-crime, arrested in the U.S., Russia, Israel and the
Netherlands, were primarily involved in cash retrieval and
laundering, ultimately the most vulnerable part in any grand scheme
of electronic theft. It is hardly a secret that most professional
bankers are routinely trained to contest, or at least report to
authorities, any suspicious withdrawal of large sums of cash. Some
of the U.S. arrests have been successfully kept in secret for many
months, for the fear of alerting the criminals back in Russia. Mr.
Levin himself was arrested in September 1995 in a UK airport, en-
route through that country.

Apparently, in the best tradition of this fledging industry, Citibank
have already used the lessons obtained from Mr. Levin's penetration
to beef up the security of its own electronic payment system.