As it turned out later, after the arrest of Artem Vaulin, in 2016 two Latvian banks transferred money to the pirate torrent tracker Kickass Torrents (KAT). “The agent, who introduced himself as an electronic merchant, sent a request to the KAT holders to place advertisements on the website. Correspondence began, and as a result by December the price was named – $300 per day, as well as the account for money transferring – LV32RIBR00185170N0000JSC in the Latvian Reģionālā investīciju banka. … Next exchange of correspondence was made in February of this year, and an account was re-named in Reģionālā investīciju banka” (cited by Latvijas Sabiedriskie Mediji). In March, the Americans transferred allegedly for advertising 1500 dollars, and got confirmation that the money had been received. In the English version of the article there is an interesting note: “After providing the banking information, KAT’s representative instructed the agent: “Could you please make sure that you don’t mention KAT anywhere in connection with payment to the bank?”.
In 2017 the Latvian Banks Association issued a self-regulatory document aimed at white washing of the field. In the same year the international journalists’ association “Center for the Corruption and Organized Crime Research” stated that the efforts to combat money laundering in Latvia’s banking sector are “too slow”. On May 9, 2018, the first meeting of the new “Cooperation Group” of Latvian banks was held with an aim to “restore the ruined reputation of Latvia’s banking sector”.
ANONYMOUS PIRACY. HOW DO BANKS COME INTO THE PICTURE?
There are two types of payments to those who violate the intellectual property right. If a pirate offers a paid subscription or payment for content downloading, he needs a payment intermediary. It could be either a payment system (e.g., VISA or MASTERCARD), or a cash service (e.g., Paypal). The key difference between these two types of payments is that credit card transactions occur between two banks, where the buyer and the seller are these banks’ customers. And in the cash services, the transaction occurs directly between the buyer and the seller.
In 2014, Office for Harmonization in the Internal Market (OHIM), Europol and Eurojust held a conference on online piracy. One of its key theses was that crimes in the field of intellectual property are related to offenses that “leave a monetary footprint.” Piracy is a business, and often not at all “small.” One of the most effective strategies to combat it is to block financial flows. This approach was called “follow the money”.
Therefore, counterpart companies involved in the piracy ecosystem play a decisive role in the fight against it. This is announced in the reports “2016 U.S. Intellectual Property Enforcement Coordinator Annual Report On Intellectual Property Enforcement” and “Copyright enforcement online: policies and mechanisms”.
The last one was presented by European Audiovisual Observatory (EAO) in 2016. Pilot programs have involved payment operators in the fight against online pirates and already begun in the UK, Spain and Italy.
Payment operators – banks and payment systems – all over the world cooperate with governments and rights holders, jointly counteracting piracy. Including blocking online payments for goods that violate the intellectual property rights. For example, the Canadian law enforcement agency “Royal Canadian Mounted Police” and the banks agreed on a mechanism of “repaying past payments”. The police accept a complaint from companies and the public about payments to fraudsters, check it, and then, along with the bank, remove from the scammer’s account all the funds received by him for a certain, rather long period of time. This deprives Internet criminals of their livelihood. This procedure further stimulates banks to monitor those for whom they open accounts. (cited by Handbook of Research on Counterfeiting and Illicit Trade).
ALL ABOUT REPUTATION?
In regulatory and banking policies, the violation of the intellectual property rights refers to “money laundering” section.
One of the biggest threats that participation in money laundering poses to banks is the possible scandals with checks and the subsequent loss of confidence in the bank. After the financial crisis of 2008, many financial institutions were subject to control. If it turned out that the bank knew that the activities of its client were connected with money laundering, the potential risks for it went far beyond legal problems.
State monitoring in the financial industry has been growing in many countries, especially during the last five years. State regulators are monitoring banks, for their activity in terms of “gray transactions”. This leads to changes in banking policies and practice. Trust, reputation – this intangible asset for banks is particularly important and directly related to their economic well-being.
An extract from the corporate policy of Blom Bank France SA Paris states: “One important way to mitigate these risks is to ensure that the bank conducts business with
acceptable clients and has adequate policies and procedures to deter criminal activities. The
anti-money laundering policy ensures the required attention is paid to a client, in order
to establish whether or not the bank wants to do business with the client, and that the bank’s clients are of good reputation.”
In the policy of Piraeus Bank AD Beograd there is a special program “Know Your Customer”. It helps to prevent the bank from taking part in money laundering. The Bank divides all its customers into 4 categories, from “low risk” to “very high risk”. According to the International AntiCounterfeiting Coalition (IACC), in the world there are about 200 banks that use similar classifications.
If it is found that scammers received money through the bank, this could become public domain and cause damage to the institution. For example, the American insurance company ABA Insurance Services even has a special package for banks “Cyber-hitching. Public relations costs”: reimbursement to the bank for reputational management costs after damage resulting from payments to online scammers.
Not allowing money transfers to online pirates, banks maintain the reputation of a civilized business that protects copyright.
MORE REASONS WHY BANKS NEED IT
Imagine a TV service subscriber, who paid for it using a card via the Internet. If the TV service provider violates the intellectual property rights in this case, the rights holder can stop its work by applying to the police. And the buyer who has already paid for the service gets left without television. Most likely, he will want to return his money. And the providers of pay TV most often have legal entities and accounts in banks, they openly collect a fee for their service.
Websites that protect consumer rights, among other things, give advice: check your bank’s policy towards scammers. What kind of protection do they offer? Will they refund money for fraudulent transactions?
And many banks do so. They respond to the customers’ appeals that they have transferred funds for goods, but the goods themselves have not been received. They help to return money if it turns out that the recipient is a fraud.
Quoting the article form “Dengi.UA”, legally the bank can return money to the victim from the account / card of the swindler by the court decision. But it is necessary to report about abuses to a bank that keeps the account of an unscrupulous trader. The bank’s security service will conduct an internal investigation and take measures to minimize the risk of fraud in the future. In addition, knowing the details of the recipient, security specialists contact the account holder and “convince” him to return the money. “As PrivatBank reported to “Dengi.UA” very often it is these “convincing” requests that work in favor of the client – the scammers return money voluntarily. … For a long time already in PrivatBank there has been a practice of compensation for funds lost as a result of fraudulent actions to customers, if no fault and involvement of the client in the fraud are established”.
GLOBUS Bank informed us that it has a department for combating fraudsters as an integrated part of the security service.
Vostok Bank said that in its structure there is a unit to counteract fraud. Its main task is “to counteract attempts of external and internal fraud aimed at capturing the money or other material, commercial and intellectual values of the bank or its customers”.
The Committee for Electronic Payments of the European Business Association specifies that in the bank structure there are divisions that are responsible for identifying those or other fraudulent transactions. “For example, it could be scammers trying to obtain a loan for counterfeit documents, there may be attempts to conduct unauthorized operations on payment cards, as well as other types of risks. Different units may be responsible for a certain direction, working methods and specifics are also different”.
Resolution of the Board of NBU No 417 “On Approval of the Regulation on the implementation of financial monitoring by banks” indicates that the bank may suspend the implementation of financial transactions if they contain signs of committing of a crime defined by the Criminal Code of Ukraine. The suspicions are checked by the State Service of Financial Monitoring. It eventually decides whether to extend the account lockout or renew its work.
Article 1074 of the Civil Code of Ukraine allows to block a bank account in the following cases:
– court decision or cases provided by the law;
– stopping of the financial transactions that may be related to the legalization (laundering) of income received from crime, financing of terrorism, financing of spread of weapons of mass destruction.
Some banks, especially the international ones, have a policy of blocking payments in certain cases. It covers the sphere of money laundering, including, the sale of stolen content.
So, the fight against piracy is beneficial to banks also because they protect their clients and save resources for litigation.
The bank can block operations on the customer’s account if, when crediting funds, it has a suspicion about the source of the funds being credited. Or if the operation carries the signs falling under the Law on the Prevention and Counteraction to Legalization (Laundering) of Criminally Obtained Incomes, Financing Terrorism and Financing the Spread of Weapons of Mass Destruction. After blocking, the bank reports to a special authority.
PAYMENT SYSTEMS ROLE
Payments using bank cards are under the constant control of international payment systems. VISA and MasterCard for a long time have declared their security policy on the Internet. To protect cardholders from abuse, Visa Europe claims to its 3,700 partner banks that all transactions with them should be legal. On the official website of MasterCard there is a section called “Anti-Piracy Policy”. On the official website of VISA there is a section “Intellectual Property”, which describes the actions of the payment system in case of payment for content that violates intellectual property rights: “Having received the necessary information, VISA will take action to identify the Acquirer of the Seller, send a complaint from the Owner of the intellectual property right to the corresponding Acquirer, and instruct Acquirer to initiate an investigation of the Seller. If the Seller refuses to stop selling the mentioned goods, or if the Seller does not provide evidence in support of the legitimacy of the Seller’s sale of the mentioned goods, it is expected that the Acquirer will stop processing VISA payments for this Seller”.
Comments from the manager of innovative projects on payment cards of the Risk Management Department of the Credit Dnipro Bank, Tatyana Kiryanova: “According to the requirements of the international payment systems VISA and Mastercard, banks are obliged to verify the content of the website of a merchant which applied to the bank for connection to the Internet acquiring service. For allowing traders (providers) to accept payment for unauthorized viewing / distribution of the rights holders’ content protected by the intellectual property rights using payment cards of international payment systems, fines may be applied to the bank. Therefore, at the current moment – in the conditions of rapid growth of the electronic commerce – financial institutions are interested in establishing relations with rights hiolders in identifying traders (providers) that distribute video content illegally”.
The rights holders already use this policy of payment systems to protect their content. Dmitry Levin, Head of Content Monitoring Center of StarLightMedia TV Group: “We collect all the data about the transfer through VISA. The payment system checks and confirms whether there is an offense. Then a blocking of the service in the system takes place, they disconnect the acquirer through which the seller is connected and he can no longer accept payments. MasterCard works the same way. Banks confirmed that after checking the payment systems apply to the bank and can set a quite large fine. And then the bank can re-equip it to the acquirer, and the latter himself to the service itself”.
Despite the well-functioning system work, sometimes there are situations when payments go “wrong”. Payment systems establish for themselves a certain maximum allowable level of such payments. If in some countries this level exceeds the allowable level, regional offices can take additional measures to block payments. At the current moment, as payment systems consider, in Ukraine it is at a low level.
UKRAINIAN BANKS’ OPINION
We asked the Ukrainian banks if they are ready to join the fight against online pirates in cooperation with the rights holders.
Vostok Bank acknowledged that: “Improving the protection of intellectual property rights and combating piracy is an important aspect of the successful development of the information space in the state as a whole, banking and payment systems”.
GLOBUS Bank announced its willingness to cooperate with the rights holders and called “useful” the creation of a common working group for the mechanisms development.
Credit Dnipro Bank says that in Ukraine, banks when crediting funds to customer accounts in case of suspicion of the source of origin of funds to be credited should include such transactions to those that fall under the provisions of the Law (on the Prevention and Counteraction to Legalization (Laundering) of Criminally Obtained Incomes, Financing Terrorism and Financing the Spread of Weapons of Mass Destruction) and, accordingly, block expenditure transactions on the client’s account, and submit information about these transactions and their participants to the special authority. Prove that the content placed on the video resource is pirated and determine the legality of income, including from the sale of products protected by the intellectual property rights, if the rights holders have claims for the pirated content of the site, they were announced in court and the latter was given an appropriate decision, including the blocking of the client’s account. Banks in this case comply with the court decision and interact with the court in providing evidence.
OTP Bank commented that compliance with the bank’s licensing policies is regulated by appropriate procedures and is implemented within the requirements of DSTUISO 27001. “The Public Policy on the Intellectual Property Rights of OTP Bank is always available on the bank’s website.”
Electronic payments committee of the European Business Association: “Cooperation with the rights holders in the fight against violators of the intellectual property rights is possible. It is necessary to understand the areas of responsibility, the actions expected of the participants, the possible consequences. The association of banks and rights holders in this is welcome”.
Of course, a pirate can use not a bank account, but a cash online exchange, which allows you to send money directly to the seller. But, according to the study of the International Coalition for Fighting Fraud, if the site offers payment systems other than banking systems, it turns consumers away from shopping on the site.
A pirate can change a bank and even a payment system. But a coalition of banks can help. When socially responsible businesses unite, this will greatly complicate life of the illegal business.
Rights holders are ready, together with banks, to create a working group that will work out an optimal mechanism for cooperation on pirates. It can both introduce new self-regulatory obligations, and work out mechanisms of action within the law to prevent the use of the banking system for laundering incomes from crime.
“The rights holders have already begun to apply to payment systems and banks in order to block payments to pirates, and this process will in any case scale,” says Kateryna Fedorova, head of the Ukrainian anti-piracy Initiative “Clear Sky”. “We understand that banks often cannot know which client commits a crime, in this case, violates the intellectual property rights. This is reliably known only by the corresponding rights holder. But at the same time, banks can still be fined for cooperating with traders who violate the law. Therefore, “Clear Sky” is ready to help and inform about those companies to which rights holders wishing to join have claims”.
On May 30, 2018, Ukrainian rights holders expanded the service blacklists.org.ua and provided a new “black list”: TV services providers. It informs market participants about the existence of claims from the rights holders to specific providers of television. The service blacklists.org.ua was created by rights holders in 2017. Then it was addressed to advertisers, it hosts a list of URLs of the sites to which the rights holders have claims. “Clear Sky” offers rights holders to join the formation of lists for the service.