Chapter Six

Electronic Commerce: Financial Concerns, Legal

and Ethical Issues

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 Introduction
With the advanced and increased use of online media, online businesses is
becoming a fast emerging trend.
Every five in eight companies are operating online, conducting e-
commerce business.
But being functional online doesn’t mean you can escape legal matters and
you can be free from fear of financial concerns.
There are various legal issues associated with e-commerce businesses as
well.
And if these issues are not taken care of in time, they can lead to serious
problems for your business.
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 Frauds and Scams
Straightforward dishonesty
False accounting: when an insider with authorized account does spoofing invoices,
purchases, bank orders and the like.
Corrective measures are cleanness, having good control system and audit and
catching unusual patterns.
False goods: when merchants try to sell fake goods or goods which didn’t exist.
False customer claims: customers claim as they didn’t ordered goods or the merchant
didn’t shipped goods.
Credit cards: when credit cards are stolen, or credit card information is taken by third
parties.
Identity theft: when a fraudster obtains and uses another person’s identifying personal
information to commit fraudulent actions, for instance, an online purchase.
Con tricks:  is an attempt to defraud a person or group after first gaining
their confidence, used in the classical sense of trust. 3
 Frauds and Scams Cont’d…
System Weaknesses
When a system has vulnerabilities which leads access to hackers and attackers.
Blackmail, DoS, industrial espionage and the like can be caused by system
weaknesses.
Unreal Math
A situation where fraudsters take profits from businesses which doesn’t exist
in reality.
Inside Trading and Market Manipulation
Money laundering, layering and getting it into and out of the banking system
and boiler room schemes.

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 Frauds and Scams Cont’d…
Institutional & Governmental Fraud
False assurances, bad statistics, euphoria.
Counter Measures
Caution
 If something is too good to be true, it probably is!
 RISK ASSESSMENT
Cleanliness
 2-person working/separation of function
 Conventional double-entry bookkeeping
 Audit
 Culture
Follow the money
 Hard to make it disappear
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The Legal Environment of Electronic
Commerce
Online businesses:
Must comply with the same laws and regulations that govern the operations of
all businesses.
Face complicating factors:
The Web extends a company’s reach beyond traditional boundaries (Distance
transaction).
In addition to the buyer and the seller, operators of payment systems are
involved in transactions (Payment).
Although electronic commerce does not recognize national borders, they are
still recognized by commercial law. The existing specific legal acts, taxation
rules and restrictions on imports and exports still remain an important, slow
moving issue to lawyers (International aspects).
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The Legal Environment of Electronic Commerce Cont’d…

The population requires guarantees that the presentation of goods and

services on the Internet should conform to their qualities, that the
buyer should be entitled to return the acquired defective product, that
the consumer should be protected against undesired advertising or
against the improper use of his/her personal data (Consumer
protection).
The territory-bound character of law related to Internet and
intellectual property runs counter to the realities of the cross-border
nature of the Internet, while the digital form of many products
distributed in the cyberspace is especially vulnerable to illegal
copying (Protection of trade marks, Internet and intellectual
property).
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 Use and Protection of Intellectual Property
in Online Business
Intellectual property: Includes all tangible and intangible products of the
human mind.
Intellectual property rights: include protection by governments through:
Granting of copyrights and patents
Registration of trademarks and service marks
1. Copyright: right granted by a government to an author or creator of a
literary or artistic work.
 Creations that can be copyrighted include all forms of artistic or intellectual expression.
 Works copyrighted by corporations or not for- profit organizations are protected for 95 years.
 Fair use of a copyrighted work Includes copying it for use in criticism, comment, news
reporting, teaching, or research.
 Entity becomes liable to copyright infringement if It is capable of supervising infringing
activity or It obtains financial benefit from infringing activity
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Use and Protection of Intellectual Property in Online Business Cont’d…
2. Patents: exclusive right granted by a government to an individual to make,
use, and sell an invention.
To be patentable the invention must be genuine, novel, useful, and not
obvious, given the current state of technology.
Utility patent: patents given for new or useful improvements of processes,
compositions of matter, machines, and manufactures.
Design Patent: patent given for surface ornamentation of an object, which
can include the shape or configuration of an object.
Plant Patent: patent given for protecting new and distinctive plants.
3. Trademarks: distinctive mark, device, motto, or implement that a
company affixes to goods it produces.

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 Online Crime, Terrorism and Warfare
When most of the transactions are going on electronically they are also
becoming the source of crime.
 Lots of information shared, money transferred are on the target of cyber
criminals.
Cybercriminals manipulate financial data, can move the electronic ownership,
interrupted communications with employees or business partners, steal
intellectual property, damage an organization's reputation, or bring e-commerce
(or an entire business) to shut down.
Criminal activities theft, fraud, forgery, defamation and mischief through
internet or electronic media are also considered as Cyber Crimes.
In cyber-crimes computer is used as weapon (Cyber Terrorism, Credit / debit
card frauds, EFT frauds) and also computer is on target (Hacking, Virus/Worm
attacks, damaging / spoofing operating system etc.) of criminals.
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 Online Crime, Terrorism and Warfare Cont’d…
Cyber law: describe the legal issues related to use of communications technology,
particularly "cyberspace or internet.“
It is combination of many legal fields, intellectual property, privacy, freedom of
expression, and jurisdiction.
Is aimed to provide a safeguard to online fraud, humiliation; unsocial content on internet &
illegal human activity over internet.
How to deal with the Cyber-Crimes
Its mutual responsibility of user, govt. and organizations engaged in ecommerce to fight
against cyber crimes. This can be done through:
 Keeping computer OS updated  Don’t save the card details or bank details on
 Using Antivirus websites
 Don’t open the award / lottery promising emails
 Use Secured Networks
 Don’t Share your passwords
 Shop only through trusted sites  Change passwords frequently
 Different passwords for different websites  E-commerce sellers must verify sellers before
 Strong Laws, Rules and regulation adding them on websites
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Online Crime, Terrorism and Warfare Cont’d…
Cyberterrorism: is any premeditated, politically motivated attack against
information, computer systems, computer programs, and data which results
in violence against non-combatant targets by sub-national groups or
clandestine agents.
Cyber warfare: involves the actions by a nation-state or international
organization to attack and attempt to damage another nation's computers or
information networks through, for example, computer viruses or denial-of-
service attacks.
The difference between cybercrime, cyber terrorism, and cyber warfare lays
on the intention of the action and doer of the action.

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 Ethical Problems
This issues involve the irresponsible parties who always give threats both to consumers and
business organization.
Web Spoofing: occurs when the attacker sets up a fake website which almost totally
same with the original website in order to lure consumers to give their credit card number
or other personal information. Eg:www.micros0ft.com
Cyber Squatting: is an activity which a person or firm register, purchase and uses the
existing domain name belong to the well-known organization for the purpose of
infringing its trademarks.
Privacy Invasion: the privacy invasion occur when the personal details belong to
consumers are exposed to the unauthorized party.
Online Privacy: occurs when the Internet users use the software and hardware
technology in an illicit manner to transfer the electronic intellectual property over the
Internet.
E-mail Spamming: involves using e-mail to send or broadcast unwanted advertisement
or correspondence over the Internet. 13
 Ethical Issues
Web tracking: many companies analyze data in cookies for business
development. However, this process should not be without the consent of users.
Privacy: most electronic payment systems knows the identity of the buyer. So it
is necessary to protect the identity of a buyer who uses electronic payment system.
Accurate product listing: it’s important that you make the effort to list your
products accurately, completely, and honestly.
Following online selling laws: merchants should follow online selling laws such
as data compliance and privacy laws, tax regulations, international regulations,
product specific regulations such as alcohols.
Selling counterfeit products: in addition to listing in online catalogs, the
products themselves should be authentic.
Web accessibility: the web should have capability to be accessible by disabled
customers.
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 Project Evaluation Criteria
The quality and organization of the content=5(Group)
Illustrative example/s for the web development part=5(Group)
Presentation/ question answering quality=5(Individual)
(Preparation and description)

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