[Reader-list] File-sharing and piracy linked to terrorism?

[Sunil Abraham]

Article: http://www.kuro5hin.org/story/2003/3/14/234939/956


Testimony of Jack Valenti President and CEO
Motion picture association of america
before the
SubCommittee on Courts, the Internet,
and Intellectual Property
Committee on the Judiciary
U.S. House of Representatives  
“international Copyright Piracy:Links to Organized Crime and Terrorism”

March 13, 2003 

America’s crown jewels -- its intellectual property -- are being looted.
Organized, violent, international criminal groups are getting rich from the high
gain/low risk business of stealing America’s copyrighted works. We don’t know to
what end the profits from these criminal enterprises are put. US industry alone
will never have the tools to penetrate these groups or to trace the nefarious
paths to which those profits are put. For these reasons it is entirely suitable
and necessary that the Subcommittee on Courts, the Internet and Intellectual
Property of the House of Representative’s Committee on the Judiciary hold this
hearing and illuminate the nature of the problems and the effect on the
copyright industries (consisting of movies, TV programs, home videos, books,
music, computer games and software).


The Economic Worth of the Copyright Industries 

The copyright industries were responsible in 2001 for some five percent of the
GDP of the nation. Over the past quarter century, these industries’ share of GDP
grew more than twice as fast as the remainder of the economy. They earn more
international revenues than automobiles and auto parts, more than aircraft, more
than agriculture. The copyright industries are creating new jobs at three times
the rate of the rest of the economy. The movie industry alone has a surplus
balance of trade with every single country in the world. No other American
industry can make that statement. And all this comes at a time when the U.S. is
suffering from some $400 billion in trade deficits. 

Digital Piracy: The Delivery Dream, the Piracy Nightmare

It would be a serious mistake to take our past successes for granted. While
piracy has been a sad fact illuminating our lives since the blossoming of the
home video entertainment business a quarter century ago, the forms of digital
piracy we now face raise serious, new challenges that we need your help in
addressing. 

I must admit, with all appropriate modesty, that we had become fairly good at
combating the old forms of analog video tape piracy. With the help of our
government and international trade agreements, such as the World Trade
Organization’s Agreement on Trade Related Intellectual Property, most countries
have adopted modern copyright laws. We had been seeing declining loss rates in
many of the traditional centers of piracy. Despite our successes, we were losing
close to $3 billion dollars a year.

And then the world changed. Digital technologies, which offer so much in terms
of enhanced clarity of image and sound, and exciting new ways to deliver high
quality entertainment directly to people’s homes, also gave birth to serious new
forms of piracy. 

By now, I presume that all of you have heard of our concerns about Internet
piracy – and I assure you, that dialogue will continue. The mysterious magic of
being able, with a simple click of a mouse, to send a full-length movie hurtling
with the speed of light to any part of the planet, is a marketing dream and an
anti-piracy nightmare. Ask the music industry how Internet piracy can devastate
an industry’s bottom line. As computer modem speeds accelerate and broadband
access spreads across the United States and around the world, more people are
gaining the ability to download full length motion pictures quickly. The threat
to the motion picture industry from Internet piracy is growing. 

Internet piracy is not the only digital threat we face. Today, I’d like to focus
on another form of digital piracy – widespread piracy of optical discs – CDs,
Video CDs, DVDs, and recordable versions like CD-Rs and DVD-Rs. The piracy of
DVDs and other optical media products is dominated by organized crime and
increasingly threatens our international markets, which account for 40 percent
of revenues earned by the filmed entertainment industry. Indeed, all industries
that rely on intellectual property protection, including the music and video
game industries, are facing huge losses from optical disc piracy, especially in
international markets. Microsoft products are another favorite target for the
pirates.

The motion picture industry seized over 7 million pirate DVDs worldwide last
year. DVD piracy didn’t exist for our industry as recently as 1999.

“Die Another Day:” An Example of Pirates in Action  

 The damage from pirated DVDs is enormous. DVD piracy erodes our home video
revenues, but also corrodes revenues from our international theatrical business.
Pirate DVDs often enter the market months before the release of legitimate DVDs
– often before a movie is released into the theaters. Let me give you just one
example. MGM’s latest James Bond film, Die Another Day, was released
theatrically in major cinemas in the United States on November 22. The first
pirate copy, camcorded from a press screening in the United States, showed up in
pirated DVD format in Malaysia on November 21. By the 28th, only six days after
its US theatrical release, every major market in Asia was already infected with
pirate copies of Die Another Day. In Taiwan, theatrical release wasn’t scheduled
until February 1 to coincide with Chinese New Years holidays – normally a big
period for cinema sales in that part of the world. The pirates had nine full
weeks to sell our products in pirated form before the film was legitimately
released in theaters.

A Snapshot of Optical Disc Piracy Around the World

The problem of large-scale pirate optical disc production began in China in the
mid-90s. When China cut off the export of piratical discs in the late 1990s, the
pirates packed up their equipment and relocated to more hospitable areas where
enforcement was lax or absent. Now we are seeing major problems with DVD
production in Malaysia, Thailand, Taiwan, Philippines, and Indonesia. Pakistan,
Bangladesh, Ukraine, and elsewhere in Central Europe are host to factories
replicating pirate copies of music CDs. The music industry’s problems today are
always a danger sign for us, since pirates often start with music and then move
on to movies, video games and other products. 

In the past year, we have also witnessed a major surge of large-scale factory
production of DVDs in Russia. Today there are at least 26 optical plants in
Russia, including at least five that specialize in the production of DVDs. The
number and overall capacity of these plants has more than doubled in the past
two years. Nine of these plants are located on property owned by the Russian
Government.

Pirate DVDs have devastated the local market in Russia. Pirate DVDs have so
saturated the Russian market that the pirates have resorted to selling them on
the streets by the kilo. Pirate DVDs are sold everywhere – at street markets, in
kiosks, in retail stores and over the Internet. 

Those 26 plants in Russia currently have capacity to replicate about 300 million
DVDs and CDs a year; legitimate demand in Russia is approximately 18 million
units. This excess capacity points to the fact that the Russian pirates are
targeting export markets – OUR export markets. Piracy in Russia poses a major
threat to revenues across Europe. In 2002 MPA’s anti-piracy operations seized
pirate Russian DVDs in markets across Central and Eastern Europe. In July a raid
at a retail market in Poland turned up over 4000 copies of pirate discs from
Russia. Those discs contained 15 different language tracks – from Finnish and
Swedish to Greek and Turkish, Dutch, Danish, to Indian and Arabic. If bold
actions aren’t taken quickly to shut down this piracy, American sales of
copyrighted works to Western Europe - our most lucrative market in the world -
will be demolished by these pirated imports from Russia. The time to act is now
before these criminals further build out their distribution networks and
alliances throughout Central and Western Europe.

Even before large-scale factory production has been brought under control, we
are now seeing the rapid growth of local burning of movies and other forms of
copyrighted content onto blank recordable media – CD-Rs and DVD-Rs. This kind of
piracy is more dispersed geographically, since the piracy takes place in medium
to small “labs” with banks of CD burners, but is often still highly organized.
The retail markets in Taiwan are filled with this kind of pirate product; not
coincidentally, Taiwan is one of the world’s largest producers and exporters of
blank optical discs, fueling this problem around the world.

The Organized Crime Connection 

Several U.S. government agencies are bringing attention to the link between
organized crime and copyright piracy. The Federal Bureau of Investigation’s
website home page states the following:

“Unlike criminals who engage in other types of criminal activity, those who
commit IP crimes can not easily be categorized. Counterfeiters, software
pirates, and trade secret thieves are as different as the intellectual property
they counterfeit, steal, and sell. In general, software pirates have an acute
interest in computers and by extension, the Internet. Many counterfeiters hail
from foreign countries, such as South Korea, Vietnam, or Russia. They are
frequently organized in a loosely knit network of importers and distributors who
use connections in China, Southeast Asia, or Latin America to have their
counterfeit and imitation products made inexpensively by grossly underpaid
laborers. There is also strong evidence that organized criminal groups have
moved into IP crime and that they are using the profits generated from these
crimes to facilitate other illegal activities. There are a number of reasons for
the dramatic increase in IP crime in recent years. First, many forms of IP can
be produced with minimal start-up costs making IP crimes accessible to large
numbers of people; second international enforcement of IP laws is virtually
nonexistent; and finally, domestic enforcement of IP laws has been inadequate
and consequently the level of deterrence has been inadequate.”

The link between piracy and organized crime has been widely accepted by the
European Commission, which recently organized a forum to address the prevention
of organized crime and included a discussion of piracy and counterfeiting.
Interpol has also acknowledged the link with organized crime and established the
Interpol Intellectual Property Crime Action Group. Many national enforcement
authorities, from the United Kingdom to Australia have recognized that piracy
and organized crime go hand in hand.

The Secretary of State for Northern Ireland, the Rt. Hon. Dr. John REID, last
year announced the Serious & Organised Crime Threat Assessment & Strategy. He
identified as immediate priority areas of criminality: (1) Armed Robbery; (2)
Counterfeit Goods – Intellectual Property Crime; (3) Tobacco and fuel smuggling;
and (4) Drug Dealing.

Case Examples of Organized Crime
Pirate factories go to great lengths to conceal and harden their operations. One
raid in October 2001, near Bangkok, revealed an underground tunnel linking a
factory to a residential house. Pirate products were moved out of the factory on
a meter-wide, specially installed electric rail system that ended under the
kitchen sink of a near-by home. The products were trucked away from the back of
the house, effectively hiding the movement of pirated goods out of the factory. 

The pirates employ sophisticated security systems, such as hardened front doors
and surveillance cameras, to delay entry by enforcement officials into the
factories. These security devices give the pirates the 10-15 minutes they need
to destroy the evidence of their crimes in vats of acid kept specifically for
this purpose. Local police have been forced to adopt equally sophisticated
responses. In the raid on a factory in Thailand the police, accompanied by our
anti-piracy enforcement team, broke through the roof of the factory and
rappelled down ropes in order to maintain the element of surprise.


Sophisticated Smuggling 

The pirates also use highly sophisticated smuggling methods. Macau Marine
Police, working with Hong Kong Customs, intercepted two submerged, un-powered,
purpose-built “submarines” in two, separate raids in April and May 1999. These
submarines were towed behind fishing boats and had ballast and compressed air
tanks that enabled the sub to be raised and lowered. If enforcement officials
intercepted the fishing vessel, the tow line could be cut, the barge’s location
marked with GPS positioning, and later recovered when the coast was clear. In
these cases, however, the authorities, relying on sophisticated intelligence,
knew what they were looking for and were able to recover 174,000 pirate optical
discs in one seizure and 73,000 in the second. These cases demonstrate the scale
and level of sophistication that criminal syndicates employ to evade detection.
Traditionally, such methods have been reserved for the smuggling of drugs and
other contraband, including firearms. 

Pirates use other ingenious methods to smuggle their products. The International
Federation of the Phonographic Industries, in a raid with Polish Customs last
year, intercepted a car suspected of transporting pirate CDs from Russia. When
the authorities removed the car’s fender, they found a hidden compartment full
of pirated CDs. MPA has found hidden compartments in shipping containers, stacks
of DVDs concealed in bags of asphalt, and ingenious concealed cavities in what
appeared to be stacks of flattened cardboard boxes.

Sometimes the pirates try to ship pirated products by disguising them as legal
products. A law enforcement official in Australia thought he had a shipment of
blank DVDs – until he pealed back the label on one of the copies – and uncovered
a shipment of pirated copies of the film “Ali.”

With the cooperation of major express mail delivery services, we have made
progress in cutting down the shipment of pirated DVDs from Malaysia. In a major
raid last July in Penang, Malaysia, we discovered 418 separate parcels
containing about 10,000 pirate DVDS destined for Australia, the Middle East,
Europe and even the United States.

Violence and Intimidation
Pirates also employ violence and intimidation. A raid on a street market in
Malaysia last summer turned into a riot. A vehicle driven by the pirates rammed
the van transporting the Malaysian enforcement officials and MPA’s anti-piracy
investigators to the raid. Bat wielding pirates attacked the enforcement team.
Only after the Malaysian enforcement officials fired their weapons into the air
did the crowd disperse. 

Pirates have directly threatened Government leaders. Last year, the President of
the Municipal Council in a city in Malaysia received a personal death threat
along with a threat that his daughter would be raped if the crackdown on illegal
VCD traders continued. The Minister of Domestic Trade and Consumer Affairs in
Malaysia also received a personal death threat. 

In the Netherlands two years ago, our local program helped smash a sophisticated
and violent criminal organization that was distributing compilation pirate
optical discs under the HiteXplosion and MovieBox labels.  The discs contained
monthly compilations of interactive games, movies and music. Two of the pirates
had organized the torture of two associates for under-reporting their sales of
pirated CDs and DVDs. The two were subsequently sentenced to four and a half
year prison terms on charges of extortion and accessory to kidnapping and
attempted assault.

In the UK, there is increasing evidence that Chinese crime gangs control much of
the pirate DVD business in London and the South East. Illegal immigrants have,
it appears, been pressed into selling pirate DVDs by Chinese human traffickers
(known as Snakeheads) to pay off family debts to the gangs.

Governments Note Links to Terrorism

Mr. Chairman, let me commend to your attention an article by Kathleen Millar in
the November 2002 issue of US Customs Today entitled “Financing Terror: Profits
from Counterfeit Goods Pay for Attacks.” With your permission, I would like to
enter this article into the record. The article outlines the “close connections
between transnational crime and terrorism.” It states that the participants at
the 1st International Conference on IPR hosted by Interpol in Lyon, France in
2001 “all agreed the evidence was indisputable: a lucrative trafficking in
counterfeit and pirate products – music, movies, seed patents, software,
tee-shirts, Nikes, knock-off CDs and ‘fake drugs’ accounts for much of the money
the international terrorist network depends on to feed its operations.” The
article concludes that “The new link between commercial-scale piracy and
counterfeiting has redirected public attention in 2002, and law enforcement
agencies like Customs and Interpol are going after the organized crime
syndicates in charge of what was too often viewed as a “victimless crime.”
September 11 changed the way Americans look at the world. It also changed the
way American law enforcement looks at Intellectual Property crimes.”

The Police Service of Northern Ireland’s (PSNI) Anti-Counterfeiting and
Racketeering Unit also reports that paramilitary organizations in Northern
Ireland regard counterfeiting as their preferred fund-raising option. According
to the PSNI, these paramilitary groups last year made specific threats against
officers involved in anti-piracy raids at Newtownards Market after PSNI officers
had seized over £50,000 worth of counterfeit goods, including DVDs.

An Appeal for Assistance 

To deal with this kind of organized crime, MPAA and our fellow copyright
associations, need the help of governments – both here and abroad. It is simply
not possible for a private sector organization to penetrate this kind of
organized, criminal endeavor without the help of governments. Governments need
to dedicate the same kinds of legal tools to fighting piracy that they bring to
other kinds of organized crime: money laundering statutes, surveillance
techniques, and organized crime laws.

We also need your help to let foreign government officials whom you meet here or
when you are abroad, know that inaction is not an option in the fight against
piracy. The continued vitality of the copyright industries, one of America’s
signature industries, is at stake.

We need our enforcement agencies to help train and work with foreign enforcement
agencies to stem the flow of piracy across borders. 

We also need the continued assistance of all the agencies that make up the
“country team” at American embassies abroad. Ambassadors and their staff from
State and Commerce have done outstanding jobs in offices from Moscow to Taipei
in helping press for better laws and better enforcement. They help deliver the
message that failure to address these high levels of crime has consequences for
our bilateral relationships. The traditional enforcement agencies – Customs and
legal attaches – are also playing an important role in some countries in
engaging their counterparts in dialogue, in improving coordination among
enforcement agencies around the world, and in training foreign law enforcement
in all aspects of fighting organized crime – including copyright theft.

Recently negotiated trade agreements are playing a crucial role in raising the
standards of copyright law and enforcement around the world. The Office of the
US Trade Representative has done an excellent job in the newly negotiated FTAs
with Chile and Singapore incorporating provisions that raise the standards for
copyright protection to the level of US laws and help provide the tools we need
to combat this menace. The agreements also help open markets – and the more open
the market, the less the incentive for piracy. I hope I can encourage you to
support these Free Trade Agreements when they come before Congress later this year.

Entertainment Industry Coalition for Free Trade 

I’m pleased to announce that in recognition and support of the value of trade
agreements in helping to move our international agenda forward, we will be
launching at noon today an Entertainment Industry Coalition for Free Trade. This
coalition brings together a wide range of entertainment industries and
associations – films, music, entertainment software, theater owners, and
television programmers. We hope that many of you can join us at noon today as we
launch this Coalition whose main objective is to spread the word that trade
matters to our industries.

In Conclusion

Large, violent, highly organized criminal groups are getting rich from the theft
of America’s copyrighted products. Only when governments around the world
effectively bring to bear the full powers of the state against these criminals
can we expect to make progress. Only when industry and governments join forces
to fight these organized groups will we succeed in protecting one of the jewels
in America’s trade crown. A singular truth exists in the movie industry: “If you
can’t protect what you own, you don’t own anything.”




-- 
Sunil Abraham, CEO
MAHITI Infotech Pvt. Ltd.
'Reducing the cost and complexity of ICTs'
314/1, 7th Cross, Domlur
Bangalore - 560 071 Karnataka, INDIA
Ph/Fax: +91 80 4150580. Mobile: 98441 01150
sunil at mahiti.org http://www.mahiti.org