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Gangs net millions from software piracy


May 6, 1999
Web posted at: 9:48 a.m. EDT (1348 GMT)

by Kim S. Nash

(IDG) -- It struck the wife of a Microsoft Corp. employee as odd when she saw it. Why would two small print shops in the Vietnamese-dominated "Little Saigon" section of Westminster, Calif., be pumping out user manuals for Windows 95?

She tipped off Microsoft, whose internal team of ex-cops and lawyers gathered evidence to take to the Westminster Police Department. The police, in turn, discovered the shops were bit players in a much larger, complex network of Asian gangs in Southern California. The crime rings produce and sell counterfeit Microsoft products, then use the multimillion-dollar profits to finance big-time and sometimes violent crimes.

"We work these cases not because we are the Microsoft police," said Marcus Frank, a sergeant on the Westminster force and a specialist in Asian crime syndicates, "but [because] we're cutting off an amazing amount of funding for narcotics, prostitution, extortion -- all those things organized crime is commonly known for."

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Black-market boon

Counterfeiters can make Windows 98 for about $10 and sell it for $55 to $70, a sharp discount from the $90 street price for the legitimate product. Along with the CDs and disks, the criminal groups systematically reproduce Microsoft-like cardboard boxes, warranty cards, end-user license agreements and even the foil hologram that Microsoft uses to mark products as authentic.

"Millions of dollars move," said Annmarie Levins, a Microsoft lawyer leading prosecution of some of the worst cases.

In the print-shop case, the Westminster police and the U.S. Customs Service arrested 15 men and seized an industrial printing press, a shrink-wrap machine and crate upon crate of illegitimate Windows 95 documentation.

That bust eventually led police to a web of criminal operations in Southern California, stretching from Los Angeles south to Westminster and west to Diamond Bar. Investigations are ongoing.

At the top of the food chain, Frank explained, are the money men, most likely from China and Taiwan, who finance the CD makers in California. The producers then engage middlemen to find printers. They, in turn, subcontract various pieces of work -- such as licenses and registration cards -- to smaller shops. When all the components are ready, the middlemen collect them and find someone to shrink-wrap and assemble them.

Area police departments don't have it all figured out yet, but various investigations have provided glimpses of the operation. A bust in Monterey Park turned up $6 million worth of fake Microsoft products and $3 million in cash. In a Rowland Heights case, police went in looking for software and also found a large cache of guns and explosives. Ming Ching Jin later pleaded guilty to software piracy, money laundering, possession of illegal explosives and kidnapping.

Intense police activity has now shifted to Paramount, a sunny suburb south of Los Angeles. Since last fall, more than $56 million worth of fake Microsoft products have been recovered.

After a February raid on 11 warehouses and cars, three men were arrested -- including a midlevel leader, Hemant Navnit Bham. The strike turned up 4 million pieces of fake Microsoft products, plus machines such as replicators and printing presses. Also among the confiscated tools of the trade were 10 stampers, which are dinner-plate size master disks that can each produce 140,000 to 150,000 CDs. It took three days and nights to collect all the evidence.

"It reminds me so much of the war on drugs," said Levins, a former district attorney in New York. Both need large financial backing up front to import and export the goods. Both involve millions of dollars in profits. And more than special skills, both require carefully organized activities to be successful.

Slap on the wrists

But unlike narcotics cases, software piracy results in scant jail time and relatively small money fines. Though that's gradually changing, and convicted pirates are seeing harsher sentences, the Monterey Park convicts, for example, got just 18 months in jail.

Real punishment comes from convictions for money laundering, when counterfeiters hide money in offshore bank accounts or buy property in the names of relatives, for example. "That will get you 20 years in the federal system per count, as opposed to one to three years," which is typical for software piracy.

Neither Microsoft nor the police know for sure where the expensive production equipment like replicators and stampers comes from. CD stampers are thought to come from China and other parts of Asia, though most replicators are probably built or bought in the U.S., said a key Microsoft investigator and former Los Angeles police officer. She asked that her name not be used.

Once the gear is seized, investigators can pinpoint which CDs were made by which machines, Levins said, though she declined to say how that sleuthing is done. But using that technique, Microsoft has traced shipments of fake CDs to Spain, Portugal and various countries in Asia.

Fake licenses

A new gang product has emerged during the past six months: fake Microsoft end-user license agreements. It's a simple black-and-white paper that looks like Microsoft's and reads like Microsoft's but is worthless. "Like a fake ticket to a baseball game," Levins said. Microsoft sells the agreements in a box or special envelope, but counterfeiters offer them stand-alone.

Investigating these criminals is getting harder. Undercover buys don't work because the gangs will rarely, if ever, deal with someone they don't know.

The gangs also use countersurveillance tactics. One member will drive around behind a moving van full of counterfeit products to make sure no one is tailing them to the drop-off location. Or the van's driver will duck in and out of quiet streets to see whether anyone is behind him. "They may take an hour to drive one mile," the Microsoft investigator said.

Piracy's big profits have spurred even traditionally unfriendly Asian factions to cooperate, Frank noted. For example, police found that a Laotian gang caught for counterfeit documentation had been hired by a Chinese syndicate.

"It's not uncommon to find two groups who are mortal enemies, shooting each other, also cooperating," Frank said.

"Crime makes them all money, and there's lots of money to be made in software crime."

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