Public confidence in electronic banking and commerce may be lost if an administration security proposal delays secure encryption of on-line networks, Jim Rudd, a Wells Fargo Bank vice president, said Wednesday.

The debate is holding back the implementation of "strong cryptography," making security breaches more likely, Mr. Rudd told the Senate Commerce's science, space and technology subcommittee.

The administration has proposed a global "key" escrow management structure, in which a trusted third party holds the decoding key to an on- line encryption system. That system would subordinate security and the privacy needs of the public to "law enforcement and national security concerns," Mr. Rudd said in his statement.

Key escrow is needed for law enforcement and intelligence purposes, according to administration officials. The Senate panel's hearing Wednesday focused on the development of electronic commerce.

The National Research Council recently released a report recommending that the government explore alternatives to key escrow. The council is a private, nonprofit institution with a congressional directive to provide advice on science and technology.

In his testimony, Mr. Rudd endorsed legislation sponsored by Sen. Conrad Burns, R-Mont., that would prevent government-mandated key escrowing systems and relax export controls on encryption technology. Mr. Rudd explained that the bill would promote the development of encryption techniques, products, and infrastructures.

The administration's key escrow proposal would add a financial burden to legitimate commercial users of on-line networks, while not achieving its goal of disadvantaging criminals hoping to crack the system, Mr. Rudd added.

The government should encourage private sector efforts to build certification authorities, which would support encryption technology to verify "message authenticity" through cryptography such as digital signatures, authentication and access controls, non-repudiation, secure time/date stamps, and integrity checks, Mr. Rudd said. But this technology would not protect the contents from being exposed.

He added that Wells Fargo expects electronic transactions to increase at an annual rate of 20% in the next four years, 10 times the expected rate for paper-based cash and check transactions.

Mr. Coplan writes for the Medill News Service.

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