LOS ANGELES (Hollywood Reporter) - Organized crime is taking on a larger role in film piracy, according to a new report from the RAND Corp. being released Tuesday.
And though it could point to only a handful of examples where the profits from piracy have been used to support terrorist activities, the report warns that the terrorist connection could increase in the future.
Crime syndicates have become involved in the entire supply chain of illegal films, from their manufacture to their street sales, as piracy takes its place alongside such criminal activities as drug trafficking, money laundering, extortion and human smuggling.
"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 RAND's Center for Global Risk and Security. "The profits are high, and penalties for being caught are relatively low."
Raising the prospect that piracy also could become a threat to homeland security, Treverton said, "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."
The report from the nonprofit research center was supported by a grant from the Motion Picture Association (the international arm of the Motion Picture Association of America), which estimates that the worldwide motion picture industry loses as much as $18.2 billion annually because of piracy.
The RAND researchers documented 14 case studies of film piracy -- throughout North America, Europe, South America, Russia and Asia -- where organized crime was part of the picture.
The report also cites three cases where film piracy helped support terrorist groups:
* In the '90s, the Irish Republican Army used many criminal activities, including film piracy, to support its efforts to drive the British from Northern Ireland. A political agreement in 1998 brought an end to the violence, but at least part of the IRA continues to operate as a criminal enterprise that remains involved in counterfeiting, the study says.
* The D-Company, an organized crime group active for generations in India, has been involved in film piracy since the '80s. The group became 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.
* In the tri-border area of Brazil, Argentina and Paraguay that is an important financing center for Islamic terrorism, channeling $20 million annually to Hezbollah, at least one transfer of $3.5 million was made by known DVD pirate Assad Ahmad Barakat. Barakat was labeled a "specially designated global terrorist" by the U.S. government in 2004.
The RAND report says that counterfeiting levels are not likely to decline unless governments worldwide commit more resources to fighting counterfeiting and devise tougher laws to protect intellectual property.
The report points to digital technology for making illegal counterfeiting easier and more profitable -- even more profitable than other, riskier criminal enterprises like drug trafficking.
In one example, it cites a pirated DVD made in Malaysia for 70 cents that 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 Colombian cocaine, according to the report.
Worldwide, the criminal penalties for counterfeiting are relatively light and prosecution sparse, the researchers say. In France, 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.
Editing by Sheri Linden at Reuters