The closest analogy to how ISPs operate on the Net is how banks operate on the terrestrial plane today. In most countries, banks are highly regulated, and they have a duty (in most countries) to know their customers. Although their primary mission is to serve their customers, to some extent they operate as (sometimes reluctant) arms of government. They are supposed to report not just illegal transaction, but also questionable ones--whenever someone shows up with more than $10,000 in cash, for example. Banks do not particularly like this duty to oversee their customers, but it is a function they fulfill in exchange for their banking license. Now, I would not want to require ISPs to get a license from their local governments, but they do get equivalent, decentralized authority from the willingness of other ISPs to exchange traffic with them. In effect, they are guarantors of their customers' behavior. (Likewise, there are rogue banks that law-abiding banks refuse to do business with today.)