Organized Crime Is Increasingly Active in Film Piracy; Three Cases Link Terrorists to Piracy Profits

FOR RELEASE

Tuesday
March 3, 2009

Organized crime increasingly is involved in the piracy of feature films, with syndicates active along the entire supply chain from manufacture to street sales of pirated movies, according to a new RAND Corporation report.

While crime syndicates have added piracy to criminal portfolios that include drugs, money laundering, extortion and human smuggling, the profits from film piracy also have been used on occasion to support the activities of terrorist groups, according to researchers.

"Given the enormous profit margins, it's no surprise that organized crime has moved into film piracy," said Greg Treverton, the report's lead author and director of the Center for Global Risk and Security at RAND, a nonprofit research organization. "The profits are high and penalties for being caught are relatively low."

RAND researchers found no evidence terrorists are widely involved with film piracy, but they outline three cases where film piracy supported terror groups and warn that such connections could grow in the future.

"If you buy pirated DVDs, there is a good chance that at least part of the money will go to organized crime and those proceeds fund more-dangerous criminal activities, possibly terrorism," Treverton said.

Much film piracy involves making copies to share with friends or individuals swapping copies on the Internet, activities that usually do not generate any payment. The RAND report, supported by a grant from the Motion Picture Association, was intended to examine to what extent criminal and terrorist groups are engaging in counterfeiting, using film piracy as an example.

RAND researchers detail 14 case studies of film piracy, providing compelling evidence of a broad, geographically dispersed and continuing connection between piracy and organized crime. As well as documenting cases in North America and Europe, the report outlines the involvement of organized crime with film piracy in South America, Russia and many parts of Asia.

The report draws on a global pool of research that produced case studies to explore the extent of the connections among organized crime, terrorism and counterfeiting. The research is based upon 2,000 pages of documents and interviews with more than 120 law enforcement and intelligence agents from more than 20 countries.

Because of its image as a victimless crime and the fact that those who buy are complicit in the crime, information about counterfeiting is sparse and information about the involvement of organized crime sparser still, Treverton said. Because most instances of counterfeiting go unaddressed, there is reason to believe that the more formal data, like arrests and convictions, understate the extent of counterfeiting.

The RAND report outlines three cases where film piracy has helped support terrorist groups:

  • Historically the best documented case involves the Irish Republican Army that used many criminal activities, including film piracy, to support its efforts to drive the British from Northern Ireland. A political agreement in 1998 ended its violent acts, but at least parts of the IRA continue to operate as a criminal enterprise that remains involved in counterfeiting activities.
  • The D-Company is an organized crime group active for generations in India. Since the 1980s, it has been the major syndicate involved with film piracy in India. The group was transformed into a terrorist organization when it carried out the "Black Friday" bombings in Mumbai in 1993 that killed more than 257 people and injured hundreds more. It continues to advance a political agenda with its actions funded at least partly by the proceeds of crime.
  • Another case involves the tri-border area of Brazil, Argentina and Paraguay that has emerged as the most important financing center for Islamic terrorism outside of the Middle East, channeling $20 million annually to Hezbollah. At least one transfer of $3.5 million was made to Hezbollah by known DVD pirate Assad Ahmad Barakat, who received a thank-you note from the Hez­bollah leader. Barakat was labeled a "specially designated global ter­rorist" by the U.S. government in 2004.

Researchers say that the losses from film piracy have grown as the expansion of digital technology makes it easier to create high-quality counterfeit copies of movies.

Film piracy can be even more profitable than drug trafficking or other enterprises commonly linked to organized crime. In one example cited in the report, a pirated DVD made in Malaysia for 70 cents was marked up more than 1,000 percent and sold on the street in London for about $9. The profit margin was more than three times higher than the markup for Iranian heroin and higher than the profit for Columbian cocaine, according to the report.

Worldwide, the criminal penalties for counterfeiting are relatively light and prosecution is sparse, researchers say. In France, for example, selling counterfeit products is punishable by a two-year prison term and a $190,000 fine, while selling drugs is punishable by a 10-year prison term and a $9.5 million fine. Meanwhile, just 134 people were sentenced in U.S. federal courts for intellectual property crimes during 2002, contrasted to more than 1.5 million arrests for drug offenses nationally in 2003.

The RAND report says that counterfeiting levels are not likely to decline unless governments worldwide commit more resources and create greater accountability for intellectual property protections. Such a commitment would need to produce stronger anti-counterfeiting laws, consistent enforcement against pirating and stronger penalties, including larger fines and prison sentences.

Other potential solutions include customs and immigration efforts to stop counterfeit goods at national borders, and help from the financial community in spotting piracy syndicates' money-laundering tactics.

The study, "Film Piracy: Organized Crime and Terrorism," is available at www.rand.org. Other authors of the study are Carl Matthies, Karla Cunningham, Jeremiah Goulka, Greg Ridgeway, and Anny Wong.

The study was conducted by the RAND Center for Global Risk and Security, and the RAND Safety and Justice Program.

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