Bermuda has jumped into the electronic stream of e-commerce with both feet with its Electronic Transactions Act 1999. Roger Crombie discusses developments.
Bermuda may have been the first country in the world to devote a government ministry to telecommunications and e-commerce- but it is only coincidence that the minister's name is Webb.

In the summer, Bermuda introduced the Electronic Transactions Act 1999 (ETA), in an attempt to bring order to what is already becoming a charge offshore among e-commerciers. Under the bill, companies can run e-commerce orders through Bermuda, while shipping goods from existing facilities off the Island. The e-commerce operations would essentially be self regulating, with a government advisory body currently drafting a code of conduct.

The ETA is an attempt to ensure that e-commerce is conducted under basic legal principles and complies with European Union data and privacy protection requirements for doing business over the internet.

Premier Jennifer Smith, in a rare print interview, addressed the quadrant of cyberspace in which Bermuda expects to live. “I'm hoping e-commerce will be very important,” she said. “One of the benefits is that it is not labour intensive. e-commerce is an area that Bermuda is particularly well equipped to benefit from.”Developments in the industry are legion. New York based consultancy Oven Digital, one of the partners in the proposed World e-commerce Exchange being set up in Bermuda, hopes to establish a facility to train internet workers on the Island. The exchange, a private company, is being set up as a “contracts exchange” to provide a facility for business to business and business to consumer trading over the internet. Al Checchi, the former chairman of Northwest Airlines Corp. and a former Democratic candidate for governor of California last year, will be chairman of the new company.

Artemis, the Bermuda based alternative risk transfer e-market, is up and running., a similar e-community dedicated to the hedge fund industry, is to open the HedgeTrust Exchange, in cooperation with the Bermuda Stock Exchange (BSX), early in 2000.

Cable & Wireless (C&W) has chosen Bermuda as one of six hubs in its global electronic commerce strategy. Its $1.6 million facility, announced at a gala event in New York City hosted by Bermuda, is the third in a series of six hubs the company is building worldwide. The British and US facilities are in operation, with the Bermuda offshore hub undergoing a pilot test. The C&W facility will process credit card transactions and output orders to internet based businesses. In partnership with, the Bank of Bermuda has developed, a multi currency internet payment gateway, enabling banks - including US banks - to offer multi currency processing services to businesses worldwide. The new gateway represents a major step by the two companies toward creating a global payment processing platform which will allow banks to offer a range of processing services to their merchants.

Until now, most internet merchants have been unable to accept credit cards issued by foreign banks due to their own banking restrictions. With the availability of the new processing solution, banks can give merchants access to a global marketplace, making it possible for them to accept credit cards issued in most countries. The system creates a new type of customer for banks, resulting in new revenue opportunities.

“While the internet is growing by leaps and bounds in the Asia Pacific region, it is not yet a fully global medium,” says Joe Sweeney, research director, GartnerGroup. “Much of the e-commerce activity is centred on North American initiatives and currency. Multi currency settlement services will allow the larger web merchants to internationalise their operations. meaning more activity and competition for the Asia Pacific region.”

According to David Lema, vice president of electronic banking, Bank of Bermuda: “Electronic commerce has opened a whole new dimension of marketing to consumers and businesses over the past five years, and multi currency settlement goes one step further to provide complete flexibility and choice of payment on line.”

At a standing room only e-commerce conference held in October by the Bermuda Chamber of Commerce (so popular that it is to be restaged twice in the next few months), the general view was that Bermuda's e-commerce services will resemble those provided to the (re)insurance and financial services sectors. Bermuda will e tail its location and tax neutrality to those in need of suitable corporate structures and server facilities and maintenance.

E-commerce is developing so quickly, globally, that no one is yet certain what will constitute a permanent establishment (PE) for tax purposes. A German court, in an isolated case, required the server to accept and process orders, and the master software to be operating offshore if the operation were to constitute an offshore PE. The Organisation for Economic Cooperation & Development (OECD) has taken the lead, issuing a proforma standard for discussion which will likely become the standard unless someone else moves very quickly. But until the legal framework is worked out, the industry is racing along on a wing and a prayer. Bermuda has licensed a number of e start ups, the most dramatic of which is

Beginning early in November, companies wanting to carry out e-commerce from Bermuda will be able to do so without forming a Bermuda company, registering with the Bermuda government, or paying any Bermuda taxes at all, thanks to

Web merchants can now set up virtual offshore holding companies over the Net, through a service known as eSuite, an independent legal entity that has many of the characteristics of a corporation, including the ability to issue stock. An eSuite costs $2,000 annually and includes an account at the Bank of Bermuda so merchants can process credit card transactions.

Visa and MasterCard issuers require merchants to set up shop wherever they process card charges. In this case, the eSuite is regarded as that “shop”.“ carries out due diligence to ensure clients are not laundering money or engaging in activities that are illegal in Bermuda,'' says New York investment banker Granger Whitelaw, ceo of Bermuda will not form companies in any medium which deal in arms, pornography, gaming or human body parts, a rule the Bermuda ETA extends to e-commerce.

By law, German “business to consumer” e traders are not allowed to offer buying incentives on their web sites. An eSuite rented by a German company could, since Bermuda has no such rules.

First Atlantic Commerce Ltd. (FAC), a Bermuda developer and provider of real time e-commerce gateway services, is sponsoring further legislation with provisions for segregated accounts and data protection safeguards. “Bermuda has already established itself as a sophisticated e-commerce jurisdiction with the institution of the ETA,” says Greg Vasic, president of FAC. “The FAC Act builds on that solid foundation by making Bermuda an even more attractive place in which to do online business.”

(Re)insurance applications
Ross Gow of Sherwood International Group stresses that, although all manner of business enterprises, including insurance organisations, “are being told to ‘.com' themselves or face oblivion, business to business use of web technology may be the key for the insurance industry. We are focusing on two key issues that are fundamental to building a grown up e business environment: scaleability and community.”

Scaleable, robust, secure transaction processing must be in place before web technology can offer a significant improvement on EDI. Sherwood's R&D group is evaluating internet technologies and service providers, and developing architectures and strategies for Internet deployment designed to support more than 5,000 simultaneous internal users and hundreds of thousands of external online users.

“For the first time everyone in our community has access to the internet on their desktop, in their pocket, wherever they may be,” Mr Gow says. “This is a source of untapped power that will revolutionise the insurance supply chain. Within months rather than years, e business infrastructures serving the entire insurance community will arise with an impact building on, but far exceeding, that of earlier e community enablers using older technologies.”

The feeling at the Bermuda e-commerce conference was that these are the days of the wild frontier. Competing ideas and philosophies are jostling for the lead in a market which has yet to define most of the rules it will need to operate.

Bermuda has sensibly staked out its claim to do more of what it already does for the reinsurance industry, essentially a wholesale business whose use of the internet will be largely intranet based, but which has taken advantage of Bermuda's relaxed regulatory atmosphere, comfortable location for meetings and experienced professional staff.

It is said that internet time moves seven times faster than real time. It took almost 30 years between 1935, when Bermuda invented the exempt company and the early 1960s, when the captive industry began to take advantage in a meaningful way. It is now five years since Bermuda sanctioned its first internet service provider - which sounds about right.

Roger Crombie is this magazine's Bermuda correspondent. He is an English chartered accountant, working as a journalist/commentator in Bermuda. He is co-host of a six part television series on e-commerce being broadcast live throughout the Caribbean.