Updated as at 3/10/2001.

1. Regulatory environment

Australian companies including Internet Service Providers are not subject to any specific legislation or regulatory obligations to guarantee the security of internet transactions. Accordingly, parties are free to determine such measures as appropriate to achieve confidentiality, integrity and authenticity of data transmissions.

2. Legal risks in electronic transactions

Confidentiality - a person communicating information such as trade secrets, medical records, lawyer-client communications, credit card and bank account details may be required by law or agreement to keep that information confidential. This obligation applies to the communication of electronic information using the Internet.

Authentication - the identification and verification of parties and data transmission is essential to the formation of a binding contract and the allocation of liability for fraud between the parties.

Message integrity - the formation of a binding contract requires a "meeting of minds" on the same terms of the contract. The communication sent must be the same as the communication received. A contract may not be enforceable if one party can establish that data relating to the formation of the contract have been corrupted or interfered with. Malfunctioning hardware, software errors or malicious tampering may alter the contents of an electronic communication or record. Documents produced by computers are generally admissible in court proceedings provided the documentís integrity can be proved.

See Keeping Electronic Records Fact Sheet for more information.

Repudiation of contract - where parties agree on the authentication and security methods to be used to form a contract, a party will be prevented from denying the existence, accuracy or validity of a communication which conforms to the agreed methods.

See Online Contracts Fact Sheet for more information.

3. What is cryptography?

Cryptography is the science of designing coding and decoding systems. A "cryptographic algorithm" (also called a cipher) is the mathematical function used for encryption and decryption of electronic communications over the Internet and other telecommunications networks.

Cryptography is used in:

* global telecommunication facilities;
* inter-bank relations by multinational corporations; and
* automatic teller machines and electronic funds transfer at point of sale transactions.

Asymmetric cryptography involves two keys, known as the private key and public key, with the following attributes:

* it is computationally infeasible to derive one key from knowledge of the other key. The algorithm cannot be broken by reverse engineering the public key;
* knowing some plain text and cipher text does not leak any information about encryption keys used to encode the plain text; and
* knowing the algorithm involved in encrypting the message does not weaken the system.

4. What is a digital signature?

A digital signature uses cryptography to provide a method for signing electronic contracts which establishes the:

* identity of the parties to the contract;
* integrity of the terms and conditions governing the contract;
* timeframe of the terms and conditions; and
* acceptance of the terms and conditions by the parties to be bound.

A digital signature is not a computerised image of a hand written signature. It is unique for each electronic document produced as it is derived from the document itself. Any change in the document will generate a new signature allowing the recipient to ascertain whether an alteration has occurred after the first digital signing.

Generally, three components comprise a digital signature.

(a) Public key pair: consists of two large prime numbers generally called the public key and the private key. The two very large prime numbers relate to each other mathematically but it is computationally infeasible to determine the private key value by only knowing the public key value. This holds even if the algorithm used to generate the public key pair is known. The private key is kept secret by its holder. The public key is published to the world at large. Any document signed using the private key can be verified only by use of the public key. There are currently three families of public key technologies:

* integer factorisation or RSA algorithm (most popular current commercial digital signature mechanism);
* discrete logarithm (the basis of the digital signature standard); and
* elliptical curve (a new technology).

The above technologies are still susceptible to future mathematical breakthroughs or brute force attack (where computing speeds reach a point where the private key can be derived from the public key).

(b) A one way hash function: this algorithm converts a document of any length into a fixed length message digest. Any change to an original document will substantially affect the value of the message digest. If a one way hash function is used, it is impossible to determine the contents of the original document from knowing the message digest. The hashing mechanism is not reversible.

(c) A trustworthy mechanism to publish public keys: the current method of publishing public key is via an X 500 directory using an X 509 (Version 3) certificate. This certificate contains, at a minimum, the following information:

* the name of the owner of the public key;
* the value of the public key;
* the algorithm used to sign the document;
* the hashing algorithm used to create the message digest;
* the serial number of the certificate; and
* the validity dates of the certificate.

5. What is a certification authority?

A certification authority is a trusted third party business entity that has implemented appropriate security mechanisms and technologies to register public keys to particular identities. Certification authorities are expected to comply with NEAC policies and standards and are formally accredited by the National Office for the Information Economy (NOIE)(see below).

6. How does a PKI system authenticate electronic messages?

The system of distributing and authenticating public and private keys on a national and global scale is known as public key infrastructure (PKI). Definitive standards regulating PKI in Australia are still being developed. The following is an outline of the elements of an effective PKI-enabled transaction:

* The consumer and merchant advise each other of the name of the certification authority to whom each is associated.

* The message in paragraph (a) must identify the certificate serial number that specifies the public key.

* Each recipient of the message in paragraph (a) accesses the relevant certification authorityís certificate directory to ascertain the corresponding public key.

* The public key certificate will be signed by the certification authority ensuring the integrity of the certificate (each public key certificate also identifies the validity date of the public key pair).

* Once the relevant public key certificate is obtained, the recipient of a digitally signed document can verify the validity of the digital signature using the public key.

* The recipient should check the certificate revocation list to satisfy itself the private key has not been compromised prior to expiration.

A certificate revocation list is maintained by a certification authority. The list specifies all certificates which contain an unexpired public key whose corresponding private key has been compromised. When a private key has been compromised, the holder must notify the breach to all people who have notice of its public key. Generally this is done by notifying the certification authority who published the public key. This obligation should be set out in a number of contractual documents the certification authority will insist on, namely:

* a subscriber agreement;
* a certificate practice statement; and
* a certificate policy statement.

These documents form the contractual relationship between the legal holder of the private key and the certification authority which publishes the certificate containing the corresponding public key.

7. Legal risk with digital signatures

Australian law has not yet prescribed any standards concerning legal liability in relation to digital signatures. It is up to parties to rely on existing contract and torts law to protect themselves against legal risks.

Parties using digital signatures should clearly and precisely allocate liability for acts and non-acts that compromise a private key. Typically, the private key number will be between 160 and 500 digits long. The parties should agree that it must be kept secret by its lawful holder via a secure token or other secure means.

Although the parties might agree to different terms, typically the private key holder would be liable for loss resulting from a compromise of the security of the private key unless the compromise has been notified to a certification authority. In the event the private key is compromised, the parties may have negotiated liability on a sliding scale depending on the circumstances in which the key was compromised. In most cases parties will agree on a cap on liability.

8. Regulation of public key infrastructure?

Participants (including certification authorities) in the PKI industry are not yet subject to specific legislation or regulation under Australian law.

The National Electronic Authentication Council (NEAC) formed to facilitate the uptake by consumers and business of authentication and E-commerce technologies. NEAC aims to provide reassurance to consumers and industry by:

* according a "quality label" to best practice organisations and systems;
* endorsing industry developed codes of practice;
* recognising relevant industry standards; and
* raising awareness of authentication technologies.

The Australian certification industry is expected to seek approval from NEAC in relation to their systems and technologies to increase marketability of their product. This approach is consistent with the Commonwealth Governmentís "light touch" approach to government involvement in the promotion of the Australian electronic commerce environment.

In relation to Commonwealth Government agencies, the Gatekeeper Policy Advisory Commission (GPAC) oversees Commonwealth Government PKI, develops PKI standards, assists agencies in PKI implementation, liases with industry bodies and PKI vendors and oversees Gatekeeper accreditation. Gatekeeper is a single point of entry structure by which Commonwealth Government departments can ensure security in the transmission of information with its suppliers. Two levels of Gatekeeper accreditation (entry level and full) are available to companies supplying services to Commonwealth Government agencies. The quantity of services supplied varies with the access level. To date six organisations have received full accreditation as certification authorities under the Gatekeeper scheme, with another granted approval with regard to non-sensitive, no financial risk information. Several other organisations have formally applied for Gatekeeper accreditation and are awaiting a response.

On 20 December 2001, Australia Post received full accreditation as a Registration Authority under the Gatekeeper strategy. This enables Australia Post to issue digital certification through its KeyPOST service. The network is expected to be expanded to 400 outlets by the end of 2002.

Since 1999, the Commonwealth government has been working to develop a concept known as the Australian Business Number – Digital Signature Certificate (ABN-DSC).

In November 2001 NOIE released a discussion paper detailing broad specifications for the use of ABN-DSC’s.

The ABN-DSC is a class of digital certificates based around the Australian Business Number of a business entity. It was originally intended that the ABN-DSC be used primarily for supporting business to government (B2G) transactions. An ABN-DSC allows businesses to require only one online identity in all their dealings with Government agencies and reduce both costs and inconvenience to businesses and agencies.

Although the ABN-DSC is primarily intended for B2G use, nothing prevents its use by businesses when transacting online with other businesses (B2B). However, the Commonwealth does not accept any liability for B2B use of the ABN-DSC.

The ABN-DSC will, in effect, be the digital equivalent of a firm’s ABN identity, allowing the firm to which the certificate has been issued to digitally identify itself as if ‘signing’ a communication or transaction.

Only Certification Authorities accredited by the Commonwealth under its Gatekeeper PKI framework are able to issue an ABN-DSC. However on March 19 2001 Cabinet agreed that the Project Angus digital certificate (discussed below) also be regarded as an ABN-DSC.

9. Project Angus

The four major Australian banks have been investigating ways to develop effective electronic trust and payment services in Australia for businesses engaged in e-commerce. This project has been called Project Angus.

Project Angus will be globally interoperable and is open to financial entities meeting certain criteria. Any financial institution operating in Australia, that complies with the global Identrus electronic trust and payments scheme, is able to become a member of Project Angus. Project Angus members are then able to issue digital certificates for the purposes of transacting online.

As described above, these digital certificates have been given cross-recognition and are regarded by the Commonwealth Government as an ABN-DSC. For more information in regards to the implications of cross recognition refer to the NOIE website.

10. PKI and Privacy

With new privacy laws introduced into Australia on 21 December 2001, the Federal Office of the Privacy Commissioner released a discussion paper dealing with the use of PKI in relation to Government handling of personal information.

See the Privacy Fact Sheet .

11. Controls on export of encryption technology

Strong encryption technology can be used to mask the existence of crime and impede the activities of law enforcement organisations in monitoring criminal behaviour. Weighed against this is the social right (as opposed to the legal right) of members of a society to enjoy their privacy.

Australia is a signatory to the Wassenaar Arrangement on Export Controls for Conventional Arms and Dual Use Goods and Technologies (Arrangement). The Arrangement is not an international convention. Cryptographic technologies are specified as dual use articles in the Arrangement. The signatory States have agreed to control dual use items to prevent unauthorised transfers of these technologies.

The exportation from Australia of goods specified in the defence and strategic goods list (List) is prohibited without a licence. The List formulated by the Minister for Defence specifies certain kinds of cryptographic material. Goods is defined to include personal moveable property (eg CD ROMs and diskettes) and documents (in paper or other form). The electronic exportation of cryptographic software is likely to constitute a document for the purposes of the legislation.(1)



Other relevant Fact Sheets:

Sources of Law
Customs Act 1901 (Cth) section 112
Customs (Prohibited Exports) Regulations 1958 (Cth) reg 13E(2)
A McCullagh and I Commins "Cryptography: from information to intelligent garbage with ease" in Going Digital (2000)
A McCullagh "Legal Aspects of electronic contracts and digital signatures" in Going Digital (2000)

End Notes
1. See Customs Act 1901 (Cth) section 112 and Customs (Prohibited Exports) Regulations 1958 (Cth) reg 13E(2)