It was an interesting question when I first heard it back in 1997, and it's still an interesting question today: Where does the crime (or business transaction, take your pick) occur when it occurs in cyberspace? Who has jurisdiction over the event? And, if multiple interests claim jurisdiction, whose interest prevails?
To the best of my understanding (as a lay person whose legal training admittedly consists of watching episodes of Perry Mason when I was a kid), the short versions of the answers are: (1) Everywhere, but in particular, in both (or all) places in which the parties to the transaction (or crime) physically exist; (2) All relevant and legitimate governing parties can claim jurisdiction; (3) The most senior jurisdiction has the overriding interest. For example, in the case where there are conflicting provincial and federal interests, the federal interest prevails.
But what happens when it is the interests of two sovereign nations that are in conflict, specifically when an act is criminal in one country and not in the other? In some cases - and our refugee hearings are filled with these sorts of cases - an act that may be criminal in one country but not in Canada is not prosecuted here. Indeed, many people fleeing persecution count on this interpretation of interjurisdictional interests. When cyberspace is involved as a non-place place things get even more complicated. Think of the case of convicted hate-monger Ernst Zundel - the act of hate-speech was committed in cyberspace, the location of the server was elsewhere, and Zundel could get by on that technicality, until he was heaved out of the country on an immigration technicality.
Now, what happens if a Canadian offers an item for sale in cyberspace that is legal in Canada, but illegal elsewhere? Well, if an American buys said item, they claim jurisdiction, and a Canadian court accedes to the foreign power. Such is the case of Mark Emery, a Canadian activist in the movement to legalize marijuana. The RCMP arrested Emery, and two other activists, for sellling marijuana seed over the Internet - an act that is legal in Canada - after a U.S. grand jury indicted Emery, since the same act is illegal in that foreign country. Emery faces extradition to the foreign jurisdiction and, if convicted, 10 years to life for conducting business in Canada that is legal here, illegal there, and... what in cyberspace?
There are several important jurisdictional issues that this case raises relative to the ubi-placeness and transmodality that the Internet creates. Diplomatically, it sends a strong signal as to the way at least one Canadian court considers the relative seniority of our country relative to the foreign power. (I don't particularly fault the RCMP in this, as they were operating under the jurisdiction of the BC Supreme Court.) Any application for rendition extradition should hopefully be appealed to the Supreme Court of Canada, as the issues raised will have significant impact on other circumstances that transcend geography, and span the cyber-physical boundary.
Disclaimer: I met Mark Emery several years ago at IdeaCity, at which he presented his revolutionary, and highly successful, methods for treating and curing hard-core drug addicts. At the time, Emery planned a protest involving smoking pot in front of police headquarters here in Toronto. At the time, the marijuana laws were suspended, so the police just ignored him. What a concept - ignoring someone who is not a menace to society.
Disclosure: My (not-so-hidden) ground on the issue of marijuana - I don't smoke pot (I don't smoke anything), but according to all the information I have read to date, it seems to me that pot is far less damaging to society at large than either of tobacco or alcohol. As a gateway drug, tobacco is far more correlated with hard drug use than is marijuana. As a contributor to violent death and injury (via impaired driving or physical abuse) alcohol is implicated daily, while marijuana has never been so implicated. As a contributor to ever-escalating health-care expense, both tobacco and alcohol cost our society hundreds of millions of dollars each year. Legalizing and licensing marijuana sales removes a major point of contact between vulnerable youth and young adults, and criminals. It is the lack of licensing and controlled sales that provides the so-called gateway to harder drugs and criminal activities, as opposed to marijuana itself. Not providing ready and economical access to THC-based medications for the millions of sufferers of various diseases (primarily due to the illogical, ill-founded, and unscientific ravings of a certain foreign power) is supremely unethical, in my view.