Inside Paraguay's anti-piracy operation

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An e-mail appeared in my inbox around the end of October, advising record executives about a successful anti-piracy operation in Paraguay. Fifty-two retailers at the infamous pirate market of Paseo San Blas in Ciudad del Este were targeted. A U.S. executive responded with a congratulatory e-mail touting the importance of this news. Then an executive in Italy praised the move. Why was this operation in the small South American country so important?

It turns out that Paraguay is the entry point for pirated products distributed to many other markets, especially neighboring Brazil and Argentina. The U.S. State Department has helped to build a specialized anti-piracy unit in Paraguay, called the UTE, which has conducted actions for a number of years against major CD-burning labs and warehouses. But until this year, the unit hasn't addressed the open sale of pirated materials by retailers who together typically hold an inventory of about 1 million units of pirated music and movies, says Emilio Garcia, IFPI regional anti-piracy coordinator for Latin America.

The U.S. government estimates Paraguay's population at 6.7 million and Brazil's population at 190 million. Last year, companies in Paraguay imported about 300 million blank CD-Rs from Taiwan that were declared on customs forms, RIAA executive vp international Neil Turkewitz says. This number obviously doesn't include any blank discs smuggled into the country. By comparison, about 60 million were declared for Brazilian imports, he adds.

The music industry has a "huge stake" in the Brazilian and Argentinian markets, Turkewitz says. According to IFPI figures, the legitimate record industry in Brazil generated $222 million in revenue in 2006, with 70% of the repertoire produced locally. In Argentina, the industry generated $56 million in revenue, with 40% of the repertoire produced locally. The major labels distribute most of the local and international repertoire.

Garcia and Turkewitz agree that Paraguay's Ciudad del Este and Mexico City's Tepito district are two of the largest piracy marketplaces in the world.

The Paseo San Blas is an open market near the foot of the Friendship Bridge, which crosses the Parana River to connect Ciudad del Este to Brazil. It has about 235 "retailers," and another 250 are scheduled to open next year. So far, the city's mayor hasn't forced the retailers to contractually agree to avoid selling pirated or counterfeit goods, Garcia says. And everyone seems to know what's going on.

Brazzil Magazine reported in March 2006 that "businessmen, taxis and truck drivers" blocked the Friendship Bridge in Ciudad del Este, stranding thousands of Brazilian shoppers, to protest "strict custom controls" on the Brazilian side. According to the Paraguayan Import Center, about 50,000 Brazilian shoppers cross that bridge every week to buy "mostly computers, electronic devices, perfumes, liquor and other imported items, which are extremely expensive in Brazil," the magazine wrote.

For the Oct. 18 bust, the UTE conducted a challenging coordination effort, working with enforcement personnel brought from Paraguay's capital city of Asuncion to avoid the risk of leaks to the targets. The officers seized more than 67,000 music CD-Rs, 123,000 movie DVDs and nearly 1 million jewel boxes. In the same general area, they busted a full-scale replicating lab that contained 214 active burners--believed to be run by one of the leading suppliers of illegal CDs and DVDs--and more than 14,000 CD-Rs.

While enforcement efforts in Paraguay are promising, the judicial system is still problematic. A source close to the investigation says that the officers had to wait for the right judge to be on the bench to get the complaint approved for the bust; some judges just won't grant these types of raids. Perhaps the judges are afraid of retribution, the source says. So whether those busted in the recent raids will come to justice remains to be seen.

"All we do now is really make their lives more difficult," Garcia says. "Until we get prosecutions and some good sentences, it's a revolving door. But if we weren't there, there would not be any Brazilian market today. We can't abandon Paraguay because we won't know who the pirates are, what they're doing, what their modus operandi is. We would be giving them carte blanche. So we've got to hang in there until the CD is history, which we know won't be that soon in Latin America."

Susan Butler is Billboard's legal affairs columnist
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