Gray Markets and Information Warlords

I have a rather provocative subject to address today: My speech today is about piracy, organized crime and terrorism and their connections to the flow of information, free software, free data. Here I have an official document from the International Federation of the Phonographic Industry, the IFPI, I downloaded it from their website, printed it out. It's called "Music Piracy, Organized Crime and Terrorism" and, you know, it's easy to scarf at a public relations tactic like that. It may seem a little absurd and far-fetched but, you know, my feeling is that we all should just go right into those gray areas and ask the unaskable questions: Does music and not music piracy – we just blame music – does it have anything really to do with organized crime or terrorism? And yes, it does! Because criminals are people and people like music. And music is one of the great consolations of the weak, the oppressed, the ill-disciplined, the crooked and the murderers. You know the drug trade is a major theme in popular music. There are a thousand of Reggae songs and Rock'n'Roll songs that are all about taking illegal drugs and growing illegal drugs and selling illegal drugs and smuggling illegal drugs. There is a whole school of Mexican folk music called Narcocorrido, just as heroic folk songs about narcotics people involved in organized crime. Gangster rap is for people who are gangsters. It's not a pretense that gangster musicians and gangster producers get gunned down, and gangster fights… Nobody gets shot just for the sake of public image! And the Las Vegas Audition Center of the American Entertainment Industry was built by the American mafia in order to carry out gambling and prostitution. And night clubs all over the planet are places of excess and depravity or else they are just no fun. And those are just facts.

So how about those terrorists and warlords? Well, there you have my first image, the famous turbo-folk singing star Ceca sitting on the lap of Arkan, indicted war criminal and terrorist. Ceca married this warlord. There are two of his children, he got shot, she is in jail right now. Its kind of hard to get a closer, more intimate, loving relationship between music and terrorism. And here is a Ceca tape that I bought in Bosnia last week. That's the widow of this warlord. The Bosnians have no particular reason to ever pay her for this music, so they are selling the really quite lousy, badly produced, blurrily photocopied pirated tapes out of Bosnia to Croatia with Ceca’s music on them. Whatever, really, they are far away from organized crime, because organized crime is just business without government.

A lot of important activities in our lives go unregulated by government. For instance, you don’t have to pay your mum for feeding you supper. She works and goods are produced, and you consume them and no one pays taxes. Thank you, Mum! Dear Mum! My gray market Mum! So how do I know when I have moved from this gray market into the world market of organized crime? Well, it is not really the money or the wickedness of my intent or how bad I feel about doing it. The definition of organized crime is when there are other better organized criminals who are so interested in my line of work that they are willing to kill. That is the drawing line. Once the violence and the intimidation comes in, then nobody pretends that we are hobbyists anymore. Everyone knows very well that we are gangsters. Now most crime goes unreported because nobody is willing to complain about it, nobody is willing to testify in court, no cop is willing to arrest me, no lawyer is willing to prosecute the case, and no judge will take the case against me or send me to jail. It's just too much of a hassle. It's just they would look mean and it would seem stupid. But when I start making enough money or even amassing enough power that somebody else really, really wants my money and my power and has no legal way to get it from me - that is when hell breaks loose. I become an organized criminal because I am willing to break the State’s monopoly on violence and I have to be violent because the State will no longer do my violence for me. I kind of forgot to pay them for that service running my violence for me.

So let’s say I am selling pirated CDs and I am making any kind of series of money of my pirated CDs. By making any kind of money of pirated CDs I am already committing three crimes: First, this enormous mass of CDs – but that is just a technical part. The other part is the crime of conspiracy because in order to scale up my operations I have to persuade other people to help me and obviously can't make this many by myself. The Beijing police in China industriously mopping enormous hordes of counterfeit stuff. So that is the organizational part of my organized crime, by conspiracy doing something illegal now and we all know it's illegal and we have to tell each other what we are doing and we can’t tell anybody else. So that's why we are no longer friends or hobbyists or commons – we are a gang. Then there is the other big crime, the money laundering, because we are selling all these products and we don't pay taxes, we don't pay salaries, we don't have health insurance, we don't have health and safety inspectors. When somebody asks how much money we made this week we have to hold our hands apart like a wallet of cash and say "Oh I made about this much". Because that black money has to flow somewhere, back into a conventional economy or else we can't buy shoes or cars or houses or yards with it. And at this point we badly need some crooked accountants and some crooked bankers to join our conspiracy and later some crooked legislators and some crooked judges. And by now I'm a full-grown organized criminal – I am crooked. And I banned all those around me. Nobody gave me permission, nobody gave me a badge. I don’t have a special criminal habit, I don’t have the diploma in organized crime, but if I keep bad long enough, the system forces me to create this illegal infrastructure. Unless I do that, my market shuts down, and it is impossible for me to recruit my underlings and get rid of my cash – that has nothing to do with my personal intentions. I might be a really sweet guy personally, it's just a fact of criminal life.

And there is never just one such criminal network. Criminals shoot other criminals over the turf because they don't have enough political sophistication. Even if a mafia takes over the government, as in Russia now, the mafias will still shoot other mafias. The gunfire doesn't stop even if the government is thoroughly corrupted, because even though you can shoot the other criminals you cannot sell them title to your properties. You don't legally own what you have. If you are the mafia king of pirated CDs, you can't sell any shares of that enterprise. The whole business is supposed to be invisible, black, off the books. Nobody knows how much money you are making, you yourself don't know. Being a gangster you run your affairs on tribal loyalties and personal charisma, you don't have a Chief Executive Officer, a Chairman, a Board of Directors. How can you share the business? How can you divide things up – you can't will it to your children, you can't tax it, assess it, get its market value. If you look seriously at a black market business as a business, it's much simpler, cheaper and easier to kill the people running it and take it. That is to try to figure it out and that is why criminals kill.

There is a whole lot of digital criminal activity in today's digital music industry. That's because music is simple and easy to make. It costs about 35 Cents to make a recorded Compact Disc on a nice round piece of plastic. You might have noticed those photos of people smashing the discs with bulldozers. Pirated CDs are so cheap and simple that it requires heavy machinery to get rid of them. Now thanks to Intellectual Property Rights that same piece of plastic is worth about 12 dollars in the legal market. 35 cents here, 12 dollars there. If you don't have the government's approval and an advanced distribution system, if you are too crooked or primitive or rebellious to have Intellectual Property Rights, that is a huge profit margin – as long as Intellectual Property Rights still exist. A kilo of Cannabis is worth about 2,000 Euros, depending on where you are selling it. A kilo of counterfeits like these, sold off their spindles by some guys sitting on a blanket at a flea market, is worth about 3,000 Euros. That is 50 percent more than Marihuana. Most people in this world who like music buy pirated music. It is so difficult to maintain an Intellectual Property Regime in music that most people have never seen one. When people in China go shopping for music, 90 percent of it is pirated plastic, in Paraguay it's 99 percent. Legal music is a kind of fiction! In Paraguay most music is pirated, in Russia, Brazil, Indonesia, Malaysia, Mexico, Pakistan, the Philippines – and all of Africa. I haven’t even begun discussing online piracy and the P2P-Networks yet. We are just talking about the discs of plastic, but that is digital data. My laptop over there is full of that stuff. I was playing digital music off my laptop while I was writing this speech. And in 2001 the pirate CD business, illegal digital plastic music finally got to be bigger than the much more traditional pirate cassette music, which was analog. The CD is a young technology, the CD piracy business is a young criminal industry.

Certain jurisdictions around this planet very quickly became CD factories and CD pirate havens. CD pirates are very globalized, they move very fast. Taiwan is the world capital of plastic piracy because of its high-tech plastic production capacity, and Taiwan is also a rogue state with serious diplomatic problems. They are not going to fuss about Intellectual Property and music in Taiwan, anymore than the Bush Administration bothers with the U.N. Security Council. Taiwan makes two-thirds of the world's blank CDs. Little Paraguay has the highest plastic piracy level in this whole world. In 2001 Paraguay, this small, rather backward South-American country, imported 100 million blank CDs. And where those blank CDs went when Paraguay got through it and they were no longer blank? That is anybody's guess. Pakistan has no CD piracy laws, and Pakistani pirates are making Indian music and sell it to Indians. The Czech Republic sells plastic to Austria, the Estonians sell plastic to the Finns, South-Italy sells plastic to North-Italy – there is a general principle: any place that is poor and crooked will sell plastic to any place richer and somewhat less crooked. CD pirates are not fussy about national borders. The biggest bust in New York involved a Chinese guy with two Latino accomplices selling recorded Mexican music. They were running what is poetically known as an "Illegal Burning Centre". 156 CD-R burners and a plastic burning laboratory in Queens, New York, with a really nice 75 000 Dollar color copier so they could make counterfeit CDs that look exactly like commercial CDs. That is America, we have our priorities. American CD pirates prefer that really classy top end look. Outside Malaysia at sea CD pirates burn CDs and DVDs on literal piracy ships, which are anchored in the international waters of the Malacca Straits, burning plastic as we speak. In Spain, in May 2001, the Spanish police busted a syndicate of 68 people using illegal labor from Bangladesh to burn CDs. Leave Bangladesh, flee to Spain, and burn CDs. It's a living.

And the European Union had its biggest anti-pirate raid ever in January 2003 in Spain, when the Spanish police raided the Blue Tiger Gang. The Blue Tigers were Chinese plastic burners in Spain, in the Madrid area. The cops hauled 13 facilities and seized 346 CD burners, 168,000 blank CD-Rs, 24,000 recorded CDs, 39,000 DVDs, 10,500 VCDs with films, 515,000 empty jewel cases, 210,000 photocopied inserts, and 48,000 Euros in cash lying around the premises.

Recorded music is an old enterprise and quite frankly it has always been rather crooked. That is why software is such an exciting frontier for criminal mayhem. I would like to speak at some length about the unhappy famous fate of some software liberators but I lack the time. I just want to show some of their press coverage before I leave you here. This is an organized crime group named DrinkorDie, which recently went down in some major flames of bad global publicity. You might ask what these guys have done to be loudly crucified in the world press and sent off to federal prison. DrinkorDie were software crackers. They recently got busted in an operation called "Operation Buccaneer" – probably the most successful attack ever on a global software piracy group – which had a sister operation called "Operation Bandwidth". This is their Greek coverage. They are sure to be proud of this, they are in prison now, but I’m sure they appreciate when they go web-surfing out on parole. They were seized between December 10 and December 12, 2001 – and they were also trapped by “Operation Bandwidth”, which the FBI ran on the United States. It was a sting operation in which the FBI pretended to be software pirates and then arrested all their friends. Here is DrinkorDie in Hungarian, DrinkorDie in Italian, Norwegian, DrinkorDie Vietnam. Good Morning, Vietnam. Why are these people interested? Because they are all downloading DrinkorDie's broken software. They are not Open Source people; they are broken Open Source people.

I want to finish this by giving you an eyewitness account of what happened to the leader of DrinkorDie, one of their major organizers. This gentleman was their System Administrator, he says, "I was sitting at my computer chatting with a fellow DrinkorDie-member on IRC – all of a sudden I noticed my net connection died. When I went to walk out the door a U.S. Customs" agent met me, "Mr. Tresco, I am with the U.S. Customs Department – would you mind to come with me?". As I turned the corner there were twenty law officials crowding the house of my work place. We proceeded to a conference room where I answered questions for the better part of a day while the agents carried out their warrant. They had IP addresses; They had the authority to take everything on the network that their computers identified on their warrants. It was the hardest day of my life. I had no idea of what was going on. I felt like I was in a dream. This guy, an organized criminal, got arrested at his work place. He was a gangster with a full-time job. In fact he was a System Administrator at the Massachusetts Institute of Technology. And he needed the money from his job in order to underwrite his not-for-profit criminal activities. That gained him so much fame and that was his motive in doing all this: Despite his sense of risk. He says, "I felt on a daily basis that things were getting out of control. There were times when I actually did quit piracy, but only for a day or so. IRC always brought me back online, that was my big mistake. DrinkorDie was a Warez group, yes, but imagine a fine bunch of guys and gals sitting around talking all day and suddenly you, you stop showing up – you just miss that interaction! You miss these comments". That was why he had to get back to his life of crime, to leave his fellow crackers was to betray them somehow. He is in prison now and will be out in about three years.