Fraud and Identity

The enemy of any titles registration system is fraud. Students of property law learn that the major exception to indefeasibility of title is fraud (section 41 Transfer of Land Act).

In the absence of title insurance, who bears the cost of fraud on the register? The Registrar of Titles? The Lawyer? The Rightful Owner? The Mortgagee?

I am personally convinced the electronic conveyancing initiative will reduce the incidence of fraud. There are several initiatives, which combined together will produce a superior registration system:

1. Identity requirements


2. Two factor digital signatures


3. Multiple parties to the settlement and registration


4. Paper audit trails

I am concerned that today’s current systems is open to abuse. This is evidenced by reported frauds in North America and close to home New South Wales. Undoubtedly there are the unreported frauds that don’t get any publicity. As a property lawyer I can see various lines of weakness. Not so much fraud but as I have mentioned before you don’t need a 100 point check to be registered on title. How piss weak is that.

The sooner duplicate titles are made redundant as with the paper registration system the better off we will be.

Identity - I strongly support lawyers, conveyancers and mortgagees having to identify clients. This will be a giant step forward. It simply cant be a retrograde step. Could someone produce a wad of concocted bogus identity documents. No doubt. And if you have any doubts there are or will be separate independent checks you can make.

Two factor digital signatures. EC is introducing a digital signature which can only be applied to an instrument provided the Subscriber can only sign documents on a particular computer. Thus it will be difficult for the Subscriber to deny that it was or was not his signature. Yes, the system could be open to a rogue Subscriber, and that is a risk. Bruce Schneier has published an interesting article that questions the efficacy of digital signatures. In isolation I would agree with his arguments. And yet Bruce provides some contradictory remarks to his main argument against digital signatures -

“This is not to say that digital signatures are useless. There are many instances where the insecurities discussed here are not relevant, or where the dollar value of the signatures is small enough not to warrant worrying about them. There are also instances where authenticating to the signing computer is good enough, and where no further authentication is required. And there are instances where real-world relationships can obviate the legal requirements that digital signatures have been asked to satisfy.

Digital signatures prove, mathematically, that a secret value known as the private key was present in a computer at the time Alice's signature was calculated. It is a small step from that to assume that Alice entered that key into the computer at the time of signing. But it is a much larger step to assume that Alice intended a particular document to be signed. And without a tamperproof computer trusted by Alice, you can expect "digital signature experts" to show up in court contesting a lot of digital signatures.”

Because the digital signature / private key will need to be used on a particular computer with password security the opportunity for your average fraudster to have access is remote.

But as I said in the introduction the system of electronic registration is the sum of the parts.

Multiple parties. Every transaction will have at least two parties and in many cases there will be 4 parties to any sale and purchase. That in its own right will produce large hurdles for fraud.

Paper audit Trail. Paper trails have not been eliminated from e-conveyancing. There will still be a requirement for paper contracts. Paper loan documentation. And even paper Representation Agreements and copies of identity documents. The combination of the described paper audit trails, identity requirements and e-conveyancing authentication methods, I believe lowers the risk of fraud on the register.

Is there a perfect system? No. Bruce Schneier’s article on fraud is essential reading. “Fraud has been perpetrated against every commerce system man has ever invented, from gold coin to stock certificates to paper checks to credit cards. Electronic commerce systems will be no different”

Should there also be compulsory title insurance? I cant see why not. That way everyone pays.

Bruce Schneier’s articles:
Digital Signatures
Fraud