At first glance, the offer sounded legitimate. First Bank of the Internet began advertising to Net browsers in March, offering a new way to pay for goods over the Net. By sending First Bank a check for at least $20, cybershoppers would get a Visa automated teller machine card "loaded" with their money--less a hefty 5% commission--which they could then use to obtain cash or pay for their cyberwares.
First Bank got numerous inquiries--but it also drew some unwanted scrutiny. State banking regulators warned that it couldn't call itself a bank. The Office of the Comptroller of the Currency sent an advisory to banks and regulators warning them about FBOI. First Bank CEO Vinn K. Beigh, a 34-year-old computer technician in Des Plaines, Ill., says he will soon pull his Net listing. But he is still looking for a way to cash in on the wave of electronic commerce. "There is quite an interest in
buying on the Internet," he insists.
He's got that right. First Bank isn't the only upstart trying to cash in on the demand. Consider World Trade Clearinghouse Ltd., which offers a gold-backed cybercurrency with cashlike anonymity that offers "protection from bureaucratic snoops, nasty ex-spouses, and lawsuit-hungry lawyers." And officially opening this month is the Internet Online Offshore Casino, run out of the Turks and Caicos Islands, which says it will accept all manner of E-money and pay customers 10% annual interest on the balances they leave in an offshore bank the company recently bought.
These enterprises may never draw in a meaningful number of customers. And many raise red flags to regulators. But the government is also a long way from getting a good fix on the activities of the much larger number of ostensibly legitimate E-money players.
MONEY LAUNDERERS. The regulatory gaps are sizable. For example, Stanley E. Morris, director of the Treasury Dept.'s Financial Crimes Enforcement Network (FinCEN), points out that there are no laws that limit the balance of electronic currency that can be loaded onto an E-cash card. That could create a major opportunity for money launderers. And no one has determined how to define whose tax laws apply to transactions in cyberspace. Says John H. Gibbons, assistant to the President for science and technology: "If you go to a cashless society, it makes it very difficult tracking cash income or reportable income.
Right now, regulators are simply trying to understand the new technology and how the market is evolving. Last April, the Federal Trade Commission held a conference to examine the impact of electronic commerce on consumer protection. FinCEN is organizing a colloquium on electronic currency to be held later this fall. "We are nowhere near the issue of regulating it," warns FinCEN's Morris. "We're one step back." Given the speed with which the market is advancing, regulators don't have much time to close that gap.