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H. Regulated Industries.

As is usual with all types of new media, once the initial concern over issues such as offensive material, racist material and defamatory material reduces as people realise that it affects only a small percentage of Internet content, it will become obvious that far more attention will need to be paid to regulating the industries such as financial services, the advertising of pharmaceutical products, the conduct of business and particularly electronic payments over the Internet. As yet, these areas have received little attention in comparison with subjects such as child pornography but it is envisaged that this is likely to be remedied imminently.


United Kingdom

Under the Financial Services Act 1986 ("FSA") (Section 57) it is an offence for a person to issue or cause to be issued an investment advertisement in the United Kingdom unless he is an authorised person under the FSA, or the advertisement is approved by a person who is so authorised, or one of the exemptions applies. An investment advertisement is any advertisement advising persons to enter or offer to enter into an investment agreement or to exercise any rights conferred by an investment to acquire, dispose of or convert to an investment or containing information calculated to lead directly or indirectly to persons doing so. For an offence to be committed the advertisement must be issued in the United Kingdom. By placing an advertisement on the Internet, are you issuing it?

The Securities and Investment Board ("SIB"), the main regulator overseeing compliance with the FSA in the UK, has written to site providers notifying them of the risks of a breach of Section 57. SIB views the placing of information on the Internet as the issuing or causing to be issued of an advertisement. Following the SIB=s views, it would seem that placing an advertisement on the Internet via computer in the UK would seem to be caught by the Act although it is unclear as to the affect of placing the advertisement via a computer from overseas. Under Section 207(3) of the FSA, information issued outside the UK is deemed issued in the UK if it is directed at or made available to persons in the UK unless it consists of a sound or television broadcast transmitted principally for reception outside the UK. In deciding whether there was contravention under Section 57, SIB will make a judgement based on the particular circumstances of the case and other relevant factors including whether the offer was directed at potential UK Investors and the degree to which, given the nature of the Internet, someone had taken positive steps to avoid the material being made available to or receivable by persons in the UK. The Court would no doubt look at additional factors including how the advertisement was laid out, whether it appeared on a bulletin board or whether any extra marketing had been done. Language may also be a factor, i.e. if information was given about a German company in German on a German bulletin board, it would seem unlikely that it had been issued in the UK. SIB also views disclaimers as insufficient if advertisements are received by persons in the UK. It would be too dangerous to rely on complying with the Public Offer of Securities Regulations 1985 which makes certain prospectuses exempt from the FSA.

SIB has also explained to service providers in a letter sent in December 1995, that they are unlikely to be regarded as conducting investment business under Section 3 of the FSA. They will merely be regarded as a conduit unless they are involved commercially with the investment firm to whom it is providing Internet access.

A service provider is unlikely to be held to have issued or causing to be issued material which their users have put on to the Internet if they have no knowledge or control over the information contained in it.

In November 1996, the Bank of England warned UK investors against a web-based offshore banking operation called The European Union Bank located in the Caribbean, stating they were at risk from offshore firms which trade over the Internet.

United States

The over-the-counter market is regulated by the National Association of Securities Dealers ("NASD") which is a self regulatory organisation, which was mandated by law with Securities and Exchange Commission oversight. The NASD can investigate possible fraud and manipulation cases but they stress they are not censors.

In August 1996, a broker dealer received permission from the Securities and Exchange Commission to sell private placements and to conduct initial public offerings on the WWW. To view any offerings and to become an investor, one must complete an online questionnaire. Approved investors will be given user names and passwords to allow them to view the offerings, of which there is no mention on the home page. These barriers have been put in place so as not to contravene Securities Act Regulations.


Most countries have laws against gambling generally or against private gambling. A number of sites, either offshore or in a jurisdiction which does not prohibit gambling, now advertise that they take bets via the Internet with payment by credit card or electronic cash. The question is whether the player commits an offence under the player's home laws by placing a bet abroad. A lot of companies are setting up gambling operations in offshore havens such as Antigua, Belize and Monaco.

In the United States, Minnesota State has sued Granite Gate Resorts, Inc. (Granite Gate) who are a Las Vegas company preparing to offer sports betting online at a site called WagerNet. This is regarded as a test case with Minnesota Attorney General claiming that it is consumer fraud as the service states improperly that it is legal. Granite Gate filed a motion to dismiss for lack of personal jurisdiction in September 1995. The issue for the Court was "Are the defendants purposefully availing themselves of the market in Minnesota by their Internet advertisement activities so as to give the Court personal jurisdiction?" Minnesota State uses a five-factor analysis to evaluate due process and the Court found that all the factors were satisfied and therefore ordered that the defendant's motion was denied, in December 1996. The Minnesota Attorney General has applied for an injunction against advertising and a decision is awaited.

In California, the State threatens telephone companies with prosecution if they do not 'cut the line' to Internet gambling sites in the State. Congress also established a National Gaming Commission in 1996, which will look at online gambling which may lead to legislation. Practically it seems unlikely that any authority in the player's jurisdiction will be aware of the offence unless it intercepts the communication, unravels the payment mechanism or has the co-operation of the bookmaker's jurisdiction.

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