Report shows IP crimes aid terror groups worldwide.

There is new evidence that terrorist organizations around the world are getting at least some of their funding from the sale of illegally copied intellectual property, including pirated DVDs and CDs, according to Interpol and copyright trade groups.

According to an Interpol report prepared for the House Committee on International Relations, intellectual property crimes are a growing resource for terrorist groups from Northern Ireland to the Arab world, including al-Qaida and Hizbullah, and the RIAA has evidence that a pair of illegal CD plants in Pakistan is financed by Dawood Ibrahim, an Indian Muslim the Treasury Department named a "specially designated global terrorist" in October.

"This designation signals our commitment to identifying and attacking the financial ties between the criminal underworld and terrorism," said Juan Zarate, deputy assistant secretary for terrorist financing and financial crimes at the time.

"We are calling on the international community to stop the flow of dirty money that kills. For the Ibrahim syndicate, the business of terrorism forms part of their larger criminal enterprise, which must be dismantled," he said.

Ibrahim has found common cause with al-Qaida, sharing his smuggling routes with the terrorist network and funding attacks by Islamic extremists aimed at destabilizing the Indian government, according to the State Department.

He is wanted in India for the 1993 Bombay Exchange bombings and is known to have financed the activities of Lashkar-e-Tayyiba (Army of the Righteous), a group the United States designated as a foreign terrorist organization in October 2001. The Pakistani government banned the group and froze its assets in January 2002.

While intellectual property theft is not confined to entertainment products, it appears to be a funding source that terrorist groups are willing to exploit. Copyright piracy is estimated to cost U.S. companies $20 billion-$22 billion a year.

"In July 2003 Interpol concluded that the link between organized crime and counterfeit goods was well established and sounded the alarm that [intellectual property crime] was becoming the preferred method of funding for a number of terrorist groups," according to the April 6 report prepared by Interpol Secretary-General Ronald Noble. "Developments since then have reinforced this view, and the following example illustrates how these activities continue to be a cause for concern."

Interpol's report lays out a number of scenarios, but it described one of the operations like this:

"Funds generated from (intellectual property crimes) may be remitted to Hizbullah using the following modus operandi. Counterfeit goods produced in Europe are sent to a free-trade zone in South America by a group of Lebanese criminals sympathetic to Hizbullah. The goods are then smuggled into a third country, to avoid import duties, where they are sold via a network of Palestinians. An unknown amount of the money generated through this activity is suspected to be remitted to Hizbullah."

The Interpol report raised eyebrows Wednesday during a hearing before the Senate Foreign Relations Committee as it examined the impact of international copyright piracy.

While Motion Picture Assn. of America president/CEO Jack Valenti said his organization had no knowledge that funds generated from pirated movies paid for terrorist operations, he said copyright piracy was an easy way for any criminal organization to make money.

"It's nirvana for criminals," Valenti told the committee Wednesday. "It is a ripe, rich, fat target to deal with. It stands to reason that if it's low-risk, high-return and if you get caught it's a slap on the wrist, then criminals are going to do it."

The terrorist connection is but one of the reasons Washington needs to pressure other states into enacting and enforcing strong anti-piracy laws, executives with the entertainment and software industries told the committee.

Four countries in particular -- China, Brazil, Pakistan and Russia -- account for much of the trade in pirated movies, music, games and software.

RIAA president/CEO Mitch Bainwol suggested that the United States should consider revoking the "Generalized System of Preferences," a special trade status that lowers tariffs on goods for at least some of the countries.

For Russia and Brazil the time for a GSP decision is ripe," he told the panel. "You can treat it with nuance. You can make it whole or in part."

While international copyright piracy is a problem, other copyright barriers are just as troubling, the executives said. China only allows 20 U.S. films to be imported each year, and a recent decision by the government to prevent this summer's releases from being shown in China before the fall exacerbate the problem, Valenti said.

"It's impossible to fight piracy unless there is a legitimate exhibition," he said. "By the time these films get in legitimate theaters there will be millions of illegal copies on the street."