Thousands of British online retailers may be heavily fined for failing to comply with the Data Protection Act, warns a report released on Tuesday by the London Chamber of Commerce (LCC). The study found less than half -- 44 percent -- of UK e-tailers complied with basic recommendations of the Data Protection Act such as giving customers information about how their registration details might be passed on to other parties. This is a criminal offence for which firms could face unlimited fines in a Crown Court. Company directors could also face charges of personal liability. "We want companies to be up front and transparent with their customers, and stick to the agreement," said Iain Bourne, information commissioner for the strategic policy manager at the Data Protection Commissioner. Online retailing has created the need for e-tailers to be much clearer in the way they handle customer information, as well as disclosing their refund, exchange and order cancellation policies. The LCC report revealed 40 percent of firms have either not carried out an audit to ensure compliance with the Data Protection Act or did not know if they complied. Only 27 percent were concerned about regulatory issues involved in cross-border trading, despite the obligation to comply with foreign laws and regulations. "The Internet has created a distance between the customer and the e-tailer, which has created a huge amount of potential for misunderstanding and confusion for customers in particular," said Chris Owen, partner at technology law firm Manches. "The legislation gives customers some breathing space, and asks retailers to be as precise as possible in the service they are offering, ensuring consumers have sufficient protection." Owen believes the worrying levels of complacency over the legal implications of e-trading are largely due to a lack of knowledge in the Act. "A huge educational process is needed... retailers have been used to working with one regulation regime, but suddenly there is a new one to deal with which a lot of companies don't know how to cope with," he argued. While the Data Protection Commissioner accepts this explanation is partly true, it insists the Act contains nothing but common sense. "There are basic standards of fairness that anyone running a good business should employ -- there are ways of complying with the Act without even knowing anything about it," said Bourne. The report also found that 44 percent of firms questioned had no recognised policy for staff use of email or the Internet, meaning they have no recourse if employees are found to be misusing these services. The dangers of sending email from work were highlighted last December when a lawyer at city firm Norton Rose faced disciplinary action for circulating an email about his girlfriend's sexual tastes, which had reached over one million people within a week. There have been several other cases in which employees have been sacked for improper use of the Net or email. "Cases like this can have a serious affect on a company's reputation," said Owen. "Employers need to create a new discipline in what has become a free-for-all market, and realise the implications of this incredible communication system." Owen explains the most serious issue facing employers is the risk of employees posting libellous comments about other companies on the Internet. The downloading of pornography in an office context is also a matter of increasing concern. Owen believes e-tailers will only begin to take notice of data protection legislation after some high profile damage claims have been brought against companies found to be in breach of the Act. Bourne however argues that things will not come to that. "I hope not -- the Data Protection Act should foster trust, and we would hope that this will come through a cultural evolution between retailers and their customers." The Data Protection Act is not the only one being breached by UK e-tailers. The Office of Fair Trading recently carried out a "mystery surf", which revealed 52 percent of the 637 UK Web retailers it investigated were breaking the law by failing to give any information on their policies for exchanging or refunding goods. Find out how the Internet is revolutionising the economy at the E-commerce Special. Have your say instantly, and see what others have said. Click on the TalkBack button and go to the ZDNet News forum. Let the editors know what you think in the Mailroom. And read other letters.