04/08/1998 01:40 PM Senate JUD

        SB 232 - ELECTRONIC RECORDS; RECORD REQUIREMENTS                       
                                                                               
SENATOR PARNELL, prime sponsor of SB 232, explained that this bill             
establishes electronic signatures as a legal practice with the same            
standing as a standard signature and allows the Lt. Governor or                
another state agency to promulgate regulations for using electronic            
signatures by private and public entities. The bill also                       
establishes criteria for electronic signature regulations and                  
repeals some state agencies' selective notarization requirements to            
better utilize the efficiencies of electronic signatures. SENATOR              
PARNELL said the bill will allow such practical applications as                
filing articles of incorporation or dissolution or articles of                 
merger, etc. using electronically transmitted signatures.                      
                                                                               
CHAIRMAN TAYLOR asked who benefits from this and SENATOR PARNELL               
replied both public and private industry will benefit by allowing              
the use of electronic signatures, as well as state agencies.                   
                                                                               
CHAIRMAN TAYLOR asked if this included all corporate officers and              
SENATOR PARNELL replied it did.                                                
                                                                               
CHAIRMAN TAYLOR asked why the penalty was being changed from                   
"verified and under oath" to one of "unsworn falsification."                   
SENATOR PARNELL suggested that MR. ANDY KLINE, staff to Lt.                    
Governor Fran Ulmer might be better able to answer that. MR. KLINE             
came forward and explained the idea behind the change is that an               
oath is something sworn in person, involving writing. He said this             
is the same penalty, applied in an electronic format.                          
                                                                               
SENATOR PARNELL offered an amendment on this point which ties the              
penalty for unsworn falsification to the precise criminal statutes             
it would fall under. CHAIRMAN TAYLOR said the amendment takes care             
of one of his concerns.                                                        
                                                                               
SENATOR PARNELL moved his amendment as amendment #1. Without                   
objection, it was adopted. SENATOR PARNELL remarked that he had no             
opposition to the bill and the Department of Administration and the            
Lt. Governor both supported the bill.                                          
                                                                               
SENATOR PARNELL said he had a second amendment regarding                       
certification of electronic signatures and asked MR. KLINE to                  
explain it. MR. KLINE said the bill does not specify what type of              
technology will be used for electronic signatures, since this                  
technology changes so rapidly. MR. KLINE said instead the sets out             
certain criteria that electronic signatures must meet.                         
                                                                               
MR. KLINE explained that the way this works is there are two halves            
to an electronic signature: the public key and the private key. The            
two keys contain encrypted codes which must match for the signature            
to be authentic. The electronic signer keeps one key and the other             
is retained by the certifying authority.                                       
                                                                               
MR. KLINE indicated there are two ways to set up a certifying                  
authority, either through the state or through the private sector.             
MR. KLINE said the amendment establishes that the certifying                   
authority will be public in a private to private transaction. This             
will encourage businesses, typically banks, to come forward and act            
as certifying authorities. The amendment allows the state to be the            
certifying authority in any transactions in which the state is                 
involved, permitting the state to go forward with the use of                   
electronic signatures even if the private sector is not yet                    
employing them.                                                                
                                                                               
CHAIRMAN TAYLOR said he was concerned about hacking and the                    
possibility that someone might break into the system and alter                 
information. MR. KLINE said the bill does not set out any anti-                
hacking criteria. CHAIRMAN TAYLOR agreed, saying electronic                    
signatures eliminate the third party witness currently required by             
law to prosecute crimes such as forgery. He said he would not have             
much comfort as a bank president under this bill. SENATOR PARNELL              
informed him that was part of the reason he wanted the state to act            
as a certifying authority. He said the bill enables the state to be            
the certifying authority and to set standards and protocols to                 
prevent hacking. CHAIRMAN TAYLOR asked what would protect other                
transactions to which the state is not a party.                                
                                                                               
Number 212                                                                     
                                                                               
SENATOR PARNELL explained if CHAIRMAN TAYLOR would like the state              
to  be the certification authority for all transactions, he should             
vote no on amendment #2. SENATOR PARNELL then moved amendment #2.              
CHAIRMAN TAYLOR objected.                                                      
                                                                               
SENATOR ELLIS asked MR. KLINE what his position was on the                     
amendment. ANDY KLINE indicated he supported the amendment. He                 
added that he shares CHAIRMAN TAYLOR's concerns but explained that             
all the literature he has reviewed has indicated that these                    
electronic signatures are secure and very verifiable. MR. KLINE                
says the bill does not specify the technology to be used, but only             
requires electronic signatures to meet the same criteria set out               
for written signatures. SENATOR PARNELL commented that another                 
safeguard is the fact that it is very much in the interest of a                
private certification authority to ensure safeguards are in place              
to protect the validity of electronic signatures. MR. KLINE also               
mentioned that the bill is permissive, not restrictive, and simply             
allows the use of electronic signatures in addition to written                 
signatures.                                                                    
                                                                               
CHAIRMAN TAYLOR called the roll on the amendment and voted against             
it. Both SENATOR ELLIS and SENATOR PARNELL voted in favor of the               
amendment. CHAIRMAN TAYLOR explained he has further concerns with              
the bill including state bank reporting requirements.                          
                                                                               
SENATOR PARNELL moved the bill with individual recommendations but             
CHAIRMAN TAYLOR said he'd rather hold it. The bill was held in                 
committee.