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14 March 2003

Justice Department Waging Global Campaign Against Hi-Tech Crime

(International cooperation vital, Justice official says) (4690)

International cooperation is critical to stop the growing activities
of organized criminal groups engaged in intellectual property theft
and copyright piracy, according to a Department of Justice official
testifying before the U.S. Congress March 13. Deputy Assistant
Attorney General John G. Malcolm also emphasized that syndicates
engaged in the illegal manufacture and sale of DVDs, CDs, software and
games are dangerous, threatening government and law officials with
violence.


"These criminal syndicates are a formidable foe, but one that must be
dealt with to truly attack the problem of intellectual property
theft," Malcolm said. Justice is working with foreign governments to
help them develop legal regimens that allow successful prosecution of
intellectual property theft.

Increasing investigations and prosecutions of intellectual property
and information technology crimes are sending a message of deterrence
to criminal groups and would-be software pirates worldwide, Malcolm
said.

An Internet piracy investigation known as Operation Buccaneer, with
participation by agencies from Australia, Finland, Sweden, Norway, the
United Kingdom and the United States, has resulted in 20 convictions
in the United States, with defendants awaiting trial in other nations,
Malcolm said.

"It has sent a strong deterrent message which continues to resonate
throughout the copyright piracy community," Malcolm said.

This year, DOJ used what Malcolm described as a "groundbreaking and
highly successful" public education campaign to disseminate a message
about the risks of copyright violation. In December 2002, DOJ
successfully prosecuted a Web site operator who had been distributing
information and devices allowing a user to defeat security protections
in the Microsoft Xbox game product. As part of his plea agreement,
site operator David Rocci turned over his domain to the Justice
Department. DOJ has posted prominent messages about the details of
Rocci's prosecution and punishment. Malcolm said more than 500,000
visitors have come to the site and seen the warning.

Following is the text of the Justice Department testimony as prepared
for delivery:

(begin text)

DEPARTMENT OF JUSTICE
MARCH 13, 2003  

TESTIMONY OF JOHN G. MALCOLM
DEPUTY ASSISTANT ATTORNEY GENERAL FOR THE CRIMINAL DIVISION
UNITED STATES DEPARTMENT OF JUSTICE
BEFORE THE HOUSE COMMITTEE ON THE JUDICIARY, 
SUBCOMMITTEE ON COURTS, THE INTERNET, AND INTELLECTUAL PROPERTY
THURSDAY, MARCH 13, 2003

Mr. Chairman and Members of the Subcommittee: 

Thank you for inviting me to testify before you today. This is an
extremely important topic, and I commend you, Mr. Chairman, for
holding this hearing. This hearing and the others recently held by the
Subcommittee are providing the American public with an important look
at the growing threat of intellectual property (IP) crime, which
chiefly includes copyright piracy, trademark counterfeiting, and theft
of trade secrets. Today I am pleased to offer the views of the
Department of Justice on the links among organized crime, terrorism
and intellectual property piracy.

The Department of Justices Anti-Piracy Program

The enforcement of this nation's criminal laws protecting intellectual
property is a priority at the Department of Justice. Since the
beginning of his tenure, Attorney General Ashcroft has worked
diligently to ensure that the prosecutorial resources needed to
address intellectual property crime are in place. Shortly after
becoming the Attorney General, he used additional resources provided
by Congress to establish or expand Computer Hacking and Intellectual
Property (or CHIP) Units in ten U.S. Attorney's Offices across the
nation. These specialized units consist of dedicated federal
prosecutors whose primary focus is on prosecuting high tech crimes,
including IP crimes. Subsequently, the Attorney General established
three additional CHIP units, and used additional funding to bolster
the cyber and IP prosecutive resources in a number of other
jurisdictions. The CHIP units ensure that the Department of Justice
has a ready supply of prosecutors to pursue IP cases. The expertise of
the various CHIP Units helps the Justice Department to keep pace with
the changing face of high-tech crime. Rapid advances in technology
bring new challenges to the investigators and prosecutors who handle
these cases, and the establishment of these specialized units ensures
that the individuals who misuse technology to further their criminal
activity will not find a safe haven in the United States.

The CHIP Units complement the already existing network of Computer and
Telecommunications Coordinators (CTCs) that serve in every United
States Attorney's Office. The CTCs regularly receive specialized
training in the investigation and prosecution of high-tech crimes,
including intellectual property crimes. Many of the 94 U.S. Attorneys
Offices have two or more CTCs to help meet the growing demand for
trained high-tech prosecutors.

Working hand-in-glove with the CHIP Units and the CTC network is the
Criminal Divisions Computer Crime and Intellectual Property Section,
also known as CCIPS, which I supervise. Created as a Unit in 1991 by
then-Assistant Attorney General Robert Mueller and elevated to a
Section in the Criminal Division in 1996, CCIPS is a highly
specialized team of over thirty-five lawyers who focus exclusively on
computer and intellectual property crime. CCIPS attorneys prosecute
cybercrime and intellectual property cases; advise and train local,
state, and federal prosecutors and investigators in network attacks,
computer search and seizure, and IP law; coordinate international
enforcement and outreach efforts to combat intellectual property and
computer crime worldwide; and comment upon and propose legislation.
For example, CCIPS attorneys worked with Congress, including Members
of this Committee, in 1997 to improve IP enforcement through the
legislative amendments made by the "No Electronic Theft" (NET) Act.
Those amendments extended federal criminal copyright law to unlawful
large-scale reproduction and distribution of copyrighted works even
when the thieves do not make a profit. In 1999, CCIPS prosecutors
obtained the first convictions after trial under the Economic
Espionage Act of 1996, a criminal statute that protects trade secrets.
CCIPS also worked with the U.S. Sentencing Commission in 2001 to amend
the sentencing guidelines to provide substantial sentences for
copyright infringement.

With the deeply appreciated support of Congress, we have significantly
increased the size of the Computer Crime and Intellectual Property
Section in the past eighteen months, which is allowing us to devote
additional resources to address piracy both here and abroad.
Intellectual property protection is an important part of my portfolio,
and a core responsibility of CCIPS. Moreover, for the first time,
CCIPS has a Deputy Chief whose sole responsibility is to oversee and
manage the attorneys in the Section dedicated to IP enforcement. At
present, there are ten CCIPS attorneys working full-time on the IP
program. The attorneys of CCIPS are developing a focused and
aggressive long-term plan to combat the growing threat of piracy. They
are developing and implementing the Departments overall anti-piracy
strategy, assisting AUSAs in the prosecution of intellectual property
crimes, and reaching out to international counterparts to ensure a
more effective world-wide response to intellectual property theft.
Working in concert, CCIPS, the CTC Network, and the CHIP Units create
a formidable, multi-pronged approach to prosecuting intellectual
property crimes. We are already beginning to see the positive results
of their efforts.

Significant Prosecutorial Accomplishments:

In the past few years we have achieved many significant prosecutorial
victories against IP pirates. I would like to take just a few minutes
to highlight some of our most recent accomplishments.

Operation Buccaneer:

The Computer Crime and Intellectual Property Section, working with the
CHIP Unit for the Eastern District of Virginia and the United States
Customs Service, continues to investigate and prosecute a massive
international copyright piracy conspiracy code-named "Operation
Buccaneer." This undercover investigation culminated in the
simultaneous execution of more than 70 searches worldwide in December
2001, including searches in Australia, Finland, Sweden, Norway, and
the United Kingdom. It was the largest Internet software piracy
investigation and prosecution ever undertaken, and the first to reach
across international borders to achieve coordinated enforcement action
against domestic and foreign targets. The investigation targeted
multiple top-tier, highly organized and sophisticated international
piracy or "warez" groups that specialized in "cracking" the copyright
protection on software, movie, game and music titles and distributing
tens of thousands of those titles over the Internet. I will discuss
their organized criminal operations in more detail shortly.

As a result of Operation Buccaneer, as of today, twenty U.S.
defendants have been convicted of felony copyright offenses, sixteen
of those in the Eastern District of Virginia. Nine defendants have
received prison sentences of between 33 to 46 months, the longest
sentences ever imposed for Internet copyright piracy. Six defendants
are awaiting trial in the United Kingdom, and I can assure you with
virtual certainty that more prosecutions will be brought in the U.S.
as this investigation progresses. In both its scope and outcome,
Operation Buccaneer is the most significant Internet piracy case ever
brought, and it has sent a strong deterrent message which continues to
resonate throughout the copyright piracy community.

United States v. Mynaf:

On February 13, 2003, a California man, Mohsin Mynaf was sentenced in
the Eastern District of California to 24 months in federal prison for
multiple violations relating to copyright, including Digital
Millennium Copyright Act violations, criminal copyright infringement,
and trafficking in counterfeit labels. Mynaf operated a videocassette
reproduction center which produced counterfeit movie videocassettes,
which he would then sell at various locations throughout California.
In addition to 24 months in federal prison, Mynaf must also pay in
excess of $200,000 in restitution. Three other individuals have also
been convicted of aiding and abetting Mynaf in his illegal activity
and are awaiting sentencing. This case was successfully prosecuted by
a CTC in the U.S. Attorneys Office in Sacramento, California.

Operation Decrypt:

On February 11, 2003, in the Central District of California, as part
of a year-long investigation known as Operation Decrypt, 17
individuals were indicted for their roles in developing sophisticated
software and hardware used to steal satellite television signals. One
of the individuals has already pled guilty and admitted to being
responsible for nearly $15 million in losses to the victim companies.
An additional nine defendants have also agreed to plead guilty to
various crimes as a result of their involvement. The defendants in
these cases used online chat rooms to exchange information and
techniques on how to defeat the sophisticated security protections
utilized by satellite entertainment companies. In October of 2002,
search warrants were executed in seven states as part of this
operation. Operation Decrypt is being prosecuted by an attorney with
the CHIP Unit for the Central District of California, located in Los
Angeles.

United States v. Ke Pei Ma, et. al:

On February 26, 2003, in a joint operation between federal and local
law enforcement in New York City, four arrests were made and six
people were charged (two remain fugitives) in conjunction with an
investigation of the illegal distribution of Symantec and Microsoft
software. At the time of the arrests, over $9 million worth of
counterfeit software was seized from distribution centers in the New
York area. The defendants are believed to have distributed thousands
of copies of counterfeit software and received an estimated $15
million over two years in return for the pirated products. In a single
two-month period, the defendants received nearly $2 million dollars as
a result of their illegal activity. This case was prosecuted by
attorneys in the CHIP Unit in the Eastern District of New York.

United States v. Rocci:

Beginning on February 25, 2003, the Computer Crime and Intellectual
Property Section, working with the CHIP Unit for the Eastern District
of Virginia, engaged in a ground-breaking and highly-successful public
education effort as part of a conviction originally obtained in
December of 2002. In December, David Rocci of Virginia, pled guilty to
conspiring with others to traffic in illegal circumvention devices in
violation of the Digital Millennium Copyright Act. Rocci was the owner
and operator of the most prominent publicly-accessible web site on the
Internet dedicated to providing information about the "warez" scene
and copyright infringement, www.iSONEWS.com. Rocci used his web site
as the exclusive medium to conduct the illegal sale of circumvention
devices known as "mod chips," which defeat security protections in the
Microsoft Xbox and allow unlimited play of pirated games on the gaming
console. As a condition of his guilty plea, Rocci transferred his
domain name and website to the United States. Upon taking control of
the domain name late last month, the United States replaced
iSONEWS.com with a new web page providing information about U.S. v.
Rocci, as well as a general anti-piracy message outlining the
potential criminal consequences for engaging in illegal piracy. (A
copy of the website is attached to this testimony.) This case marks
the first time that the United States has assumed control of an active
domain name in an intellectual property case. In the first three days,
the new law enforcement site received over 238,000 hits from Internet
users worldwide. As of March 11, the two week mark, the site received
over 550,000 hits. The Department feels a strong sense of
responsibility to educate the public about the need to respect
intellectual property rights and will look for additional
opportunities like this to build upon successful prosecutions of those
who willfully violate those rights.

Mr. Chairman, as you can see, the Department of Justice is actively
pursuing intellectual property criminals engaged in a wide array of
illegal activity, and we are doing so using all of the various
statutes at our disposal. Our efforts are beginning to pay off, and we
are having success in our battle with global piracy. But we are not
resting on our laurels and are aware that there is much work to be
done. We remain committed to this effort and will build on our success
by continuing to prosecute piracy aggressively.

Organized Criminal Activity and Piracy:

As a result of cases such as those I have just mentioned, law
enforcement today has a deeper and more sophisticated understanding of
piracy than it has ever had before. Piracy is a continually evolving
crime. Traditionally, piracy operations were small, often run by
individuals or a loose collection of people trying to make a quick
buck in what has been perceived to be a fairly "risk-free" criminal
enterprise. However, in recent years, that has changed. Piracy is now
big business: a world-wide, multi-billion dollar illicit economy which
robs legitimate industries and creators of income, while driving up
costs for consumers.

It is against this backdrop that criminal organizations are playing a
more prominent - and dangerous - role in piracy around the globe.
Organized criminal activity, in many forms, is clearly a factor in
global piracy today. Today, I will talk about two different, yet
equally troubling, types of organized criminal activity that are
emerging globally: organized on-line piracy groups and traditional
organized crime syndicates operating from Asia or Eastern Europe.

Organized On-line Piracy Groups:

One aspect of piracy - practically non-existent as recently as twenty
years ago - is online or Internet piracy. The Internet has changed the
landscape of intellectual property crimes in many ways. Piracy over
the Internet poses significant challenges for law enforcement. It is
harder to detect than traditional means of piracy, and it costs the
pirates virtually nothing to operate, while generating countless
perfect digital copies of music, movies, software and games in just a
fraction of the time it would take to generate the copies manually.
Even when we successfully remove the source of digital piracy, any
copies previously distributed remain on the Internet and can spawn a
whole new generation of pirated products with little more than a few
strokes on a keyboard.

As mentioned, until recently, on-line piracy was believed to be
high-return, low-risk endeavor by many in the piracy community. Now,
however, through a number of high-profile enforcement actions, the
Department is making it clear to members of the online piracy
community that their activities may have dire consequences for them.
In addition to Operation Buccaneer, attorneys from the Department,
along with the Federal Bureau of Investigation, have effectively
prosecuted online pirates in other cases, such as the "Pirates with
Attitude" and "Fastlane" prosecutions in Illinois, and two ongoing
prosecutions, "Operation Bandwidth" in Nevada and "Operation Digital
Piratez" in New Hampshire. We are committed to continuing to disrupt
the online piracy community. The word is out: the Department of
Justice will pursue online pirates and will put them in jail.

The Department has learned a great deal about the online piracy
community. First and foremost, it is dominated by a handful of highly
structured, security conscious groups which exist solely to engage in
piracy online. These organized criminal groups are frequently referred
to as "warez" groups. While warez groups are a relatively new
phenomenon, they are responsible for placing a massive number of
pirated movies, music, games and software into circulation each year,
and represent a significant and growing threat to intellectual
property rights around the globe.

The leading international warez groups compete against each other to
attain a reputation as the fastest, highest quality, free providers of
pirated computer software, including utility and application software,
PC and console games, and movies. These groups specialize in being the
first to release new pirated software to the warez community for
unauthorized reproduction and distribution. The groups prosecuted as
part of Operation Buccaneer were among the most notorious organized
online piracy groups in the warez scene.

These criminal organizations are extremely security conscious,
utilizing state-of-the-art technology to attempt to shield their
illegal activity from victim companies and from law enforcement. They
are also highly organized, structured to maximize their manpower and
technological know-how to fully and efficiently support their illegal
activity.

Like legitimate companies, "top-tier" warez groups have clear
hierarchies and divisions of labor. Rank and position within warez
groups are based on a variety of factors, including special skills,
length and quality of service to the group, and reputation within the
warez scene. A typical group - which can consist of people all over
the world who may know each other only through their screen names -
will consist of one or possibly two leaders, two or three high level
individuals known as "Council," twelve to fifteen Staff members, and a
general Membership comprising anywhere from twenty to eighty
individuals. The Leader has ultimate authority over all aspects of the
group and its activities. Council members are primarily responsible
for the group's day-to-day operations, including preparation of new
releases, recruitment, and security issues. Staff members are
typically the most active individuals in preparing a group's new
releases for distribution, or in maintaining the group's "File
Transfer Protocol" (FTP) sites from which the pirated software is
distributed. Finally, the general Members contribute to the group in a
variety of ways, including acting as occasional suppliers of new
software, hosting the groups FTP servers, or providing hardware (e.g.,
laptops, hard drives, routers, other computer equipment) to other
group members for use in their warez activities. The more work someone
does for the group, the higher up the organization that person will
move, and the greater the access that person will have to pirated
products.

While there are countless similarities, two factors distinguish warez
groups from traditional organized crime syndicates. First, warez
groups conduct their illegal operations in the cyber world as opposed
to the physical world. Second, and perhaps most startling, warez
groups typically do not engage in piracy for monetary gain. In fact,
in some quarters of the warez scene, pirates who engage in "for
profit" operations are held in contempt and criticized.

Despite the fact that warez groups typically do not profit directly,
it would be a grave mistake to dismiss their conduct as harmless or
unimportant. On the contrary, warez groups pose a growing and
significant threat to intellectual property rights holders around the
world. It is generally agreed that most of the pirated movies, music,
games and software available on the Internet come from these
high-level warez groups. Further, they are the source for much of the
pirated products which filter their way down to less sophisticated,
but more widely used, distribution mechanisms such as peer-to-peer
networks. For example, a warez group dedicated to music piracy will
obtain unauthorized advance copies of songs and albums and distribute
those advance copies to the warez scene. Within days, or frequently
within just a few hours, the warez music release filters down to
public "Internet Relay Chat" (IRC) channels and peer-to-peer networks
- often weeks before its commercial release date. The availability of
MP3 files on the Internet in advance of legitimate CDs being made
publicly available results in a direct injury to the artists and to
the recording industry.

While the pirates who steal and distribute copyrighted works do not
profit monetarily, the consequences to the victim company are just as
dire as if they did. For many victim companies, particularly smaller
companies whose livelihood depends upon the success of only one or two
products, irreversible damage occurs the moment the pirated digital
copy hits the Internet.

Any consideration of organized crime and IP must include top-level
warez release groups. While we recognize that our efforts must address
all aspects of online and hard-good piracy, including the pursuit of
those involved in the lower tiers of the Internet distribution chain,
the Department will continue to devote significant resources to
pursuing warez groups.

Traditional Organized Crime and Intellectual Property.

Another emerging concern is the fact that traditional organized crime
syndicates appear to be playing a dominant role in the production and
distribution of certain types of hard goods piracy, such as optical
disks. This problem seems particularly prevalent in Asia and parts of
the former Soviet Union. Unlike warez groups, the goal of these
organized crime groups is to make as much money as they can.

The continued emergence of organized crime poses substantial
challenges for law enforcement. Highly organized criminal syndicates
frequently have significant resources to devote to their illegal
operations, thus increasing the scope and sophistication of their
criminal activity. Further, by nature, these syndicates control
international distribution channels which allow them to move massive
quantities of pirated goods, as well as other illicit goods,
throughout the world.

As one might expect, these groups do not hesitate to threaten or
injure those who attempt to interfere with their illegal operations.
Industry representatives in Asia report that they have been threatened
and their property has been vandalized by members of these syndicates
when their anti-piracy efforts strike too near the illegal operation.
Government officials have also been threatened. These criminal
syndicates are a formidable foe, but one that must be dealt with to
truly attack the problem of intellectual property theft.

Throughout Asia, organized crime groups operate assembly lines and
factories that generate literally millions of pirated optical discs.
These groups pirate a full range of products ranging from music to
software to movies to video games. Anything that can be reproduced
onto an optical disk and sold around the globe is available. There is
also anecdotal evidence that syndicates are moving their production
operations onto boats sitting in international waters to avoid law
enforcement.

Recently, an attorney from the Computer Crime and Intellectual
Property Section visited Kuala Lumpur, Malaysia to conduct law
enforcement training for Malaysian prosecutors and agents. According
to Malaysian officials with whom he spoke, many, if not most, of the
optical disk production facilities in Malaysia are owned and operated
by organized crime syndicates, specifically very wealthy and powerful
criminal gangs or "triads" from Taiwan which control a significant
number of facilities not just in Malaysia but across Asia generally.

The reach of organized crime appears to extend beyond the production
of optical disks into the distribution chain. While in Malaysia, that
same CCIPS attorney visited an open air market, similar to ones found
in large cities around the world, which offered a myriad of pirated
products. While touring the market, our attorney learned that many
vendors offer their goods on tables covered in brightly colored cloths
which indicate that vendors affiliation with a specific criminal
syndicate. One vendor may use a red cloth to show his affiliation with
one criminal gang, while his neighbor offers his wares on a blue cloth
signifying his affiliation with another criminal gang.

Of course, this problem is not limited to Malaysia, but occurs in
other parts of the world such as in parts of the former Soviet Union.
Additionally, many organized piracy groups from Asia use South
America, most notably Paraguay, as a transshipment point for pirated
products. Industry groups have reported that organized crime from
Taiwan and other parts of the world control much of the distribution
of optical disks into Latin America through Ciudad del Este.
It is also true that the pirated goods produced by organized crime
syndicates enter into and are distributed throughout the United
States. There is ample evidence, for example, that Taiwanese triad
members import into the United States massive amounts of counterfeit
software and other counterfeit products, such as "remarked" computer
chips. The reach of these organized crime operations is undeniably
global in scope.

Of course, developing more and better intelligence about these
organized crime groups and their operations is just the first step in
what will be a long and potentially difficult process of targeting
this type of activity. Because most of these syndicates operate
outside the United States, we must rely on foreign governments for
much of the enforcement efforts in this area. The importance of
international cooperation cannot be overstated. If a government lacks
the will or the expertise to enforce IP laws, organized crime will
continue to proliferate with impunity. Even in countries that have the
will and expertise to fight back, a lack of investigative resources,
inadequate laws, a judicial system that will not impose serious
sentences, or corruption can grind IP enforcement to a halt.

The Department of Justice is committed to being a constructive part of
the United States government's international IP outreach efforts. In
particular, we are focusing our resources on those foreign nations
which face surmountable difficulties in the investigation and
prosecution of IP crimes. We are pleased to be working with other
United States agencies, such as the Patent and Trademark Office, the
State Department and the U.S. Trade Representative, to ensure that
foreign nations are committed to building sound and lasting IP
enforcement regimes.

The Justice Department will continue to work closely with
investigative agencies, especially the Federal Bureau of
Investigations and the United States Customs Service, to develop
additional intelligence sources and information in order to enhance
our ability to respond to the growing threat of organized crime from
Asia and other parts of the world. This is a serious and emerging
threat that victimizes American rights holders, costs companies
hundreds of millions of dollars, and damages our nation's economy.
There is no easy solution. The task at hand requires a concerted
effort on the part of industry, government and law enforcement. The
Department stands ready to do its part.

Terrorism and Piracy

Finally, Mr. Chairman, I want to close by briefly discussing
terrorism. Earlier I noted that organized crime syndicates are
frequently engaged in many types of illicit enterprises, including
supporting terrorist activities. On this point, I want to be crystal
clear. Stopping terrorism is the single highest priority of the
Department of Justice. We are constantly examining possible links
between traditional crimes and terrorism, and we will continue to do
so. All components of the Justice Department, including CCIPS, the
Counterterrorism Section, and the Organized Crime and Racketeering
Section, will do everything within their power to make sure that
intellectual property piracy does not become a vehicle for financing
or supporting acts of terror.

Conclusion

On behalf of the Department of Justice, I want to thank you again for
inviting me to testify today. We thank you for your support over the
years and reaffirm our commitment to continuing to work with Congress
to address the significant problem of piracy. I will be happy to
answer any questions that you might have.

(end text)

(Distributed by the Office of International Information Programs, U.S.
Department of State. Web site: http://usinfo.state.gov)