Home > Features > Follow the Money • Bookmark   • Newsletters   • Register Search Options


Follow the Money

Follow the Money

January 2, 2007
Text size: 
Get XBIZ News
XBIZ Research
Will virtual reality boost the paysite market?
Yes, it will soon
Yes, but in a few years
Out of 179 votes. Results based on votes submitted by members of XBIZ.net social network.

" Congress' effort to eliminate online gambling by making it inherently unprofitable follows in the footsteps of private efforts to do the same thing to child pornography. "

In a darkened garage 35 years ago, a confidential informant nicknamed Deep Throat offered Bob Woodward the tip of a lifetime: "Follow the money." Over a two-year period, Woodward and fellow Washington Post writer Carl Bernstein did just that, carefully reconstructing a damning trail of political donations and campaign expenditures that eventually led to the first resignation of a sitting U.S. President.

Woodward and Bernstein are not the only ones who have listened to Deep Throat's advice. Increasingly, the path to social change (whether by Congress or private groups) lies in figuring out who's making money and how to stop it. As the tools and techniques used to track money online grow increasingly sophisticated, an obvious question is whether those tools could be adapted by a conservative Congress for use against the online adult industry.

The most recent example of the "follow-the-money philosophy," of course, is Internet gambling, which has exploded into a massive industry. In 2005 alone, an estimated 23 million Americans wagered as much as $6 billion on electronic versions of casino games, ranging from roulette and craps to the enormously popular online poker.

Congress has debated the passage of anti-online gambling legislation for more than a decade but, until this year, has been unable to pass anything.

Bush Signs into Law
The logjam was broken in fall 2006, when Congress passed the Unlawful Internet Gambling Enforcement Act (as an amendment to an unrelated port-security bill), and President Bush signed it into law Oct. 13. Unlike the Wire Act, which made the act of electronic betting itself a crime, Congress focused the new law on the lifeblood of any business: cash flow.

The UIGEA makes it illegal for Americans to use electronic fund transfers, credit cards and electronic checks to place online bets, and orders the businesses that handle such transactions — banks, credit card companies and other financial institutions — to enforce the provisions of the new law.

Congress' effort to eliminate online gambling by making it inherently unprofitable follows in the footsteps of private efforts to do the same thing to child pornography.

In March, a large group of financial institutions announced that they were banding together to prevent child pornography websites from processing payments. The group, which called itself the Financial Coalition Against Child Pornography (FCACP), is a veritable who's who of the financial processing world: America Online, American Express Co., Authorize.Net, Bank of America, Chase, Citigroup, Discover Financial Services LLC, e-gold, First Data Corporation, First National Bank of Omaha, MasterCard, Microsoft, North American Bancard, Nova Information Systems, PayPal, First PREMIER Bank/PREMIER Bankcard, Standard Chartered Bank, Visa, Wells Fargo and Yahoo Inc. Washington Mutual and HSBC recently joined as well.

In addition to blocking actual payment transactions, FCACP members said that they also would identify businesses using their cards to accept payments for child pornography; however, no individual customers will be identified without a law enforcement subpoena. FCACP has announced a goal of eradicating the commercial child pornography trade by 2008.

"Because the problem is so big and there are many ideas in play, we think it will be a little bit longer before any specific initiatives really hit full speed," said Rick Louis, director of communications for the Association of Sites Advocating Child Protection. "But there is a lot of synergy in combining disparate approaches and bringing different people's skill sets to bear."

ASACP is one of several well-known anti-child pornography groups that has joined forces with FCACP; others include the International Centre for Missing & Exploited Children (ICMEC) and the U.S. National Center for Missing & Exploited Children (NCMEC).

While the Financial Coalition Against Child Pornography does not have the force of law behind it, it does have the enthusiastic support of some influential federal legislators, including Richard Shelby, R-Ala., the chairman of the Senate Banking, Housing and Urban Affairs Committee — the Senate committee that oversees the banking industry. On the other side of the Capitol Building, Rep. Ed Whitfield, R-Ky., chairman of the Energy and Commerce Committee's subcommittee on oversight and investigations, has held seven hearings this year alone on the growth of commercial child pornography.

Over the past few months, the FCACP has solicited the help of companies outside the financial services industry. A parallel group, called the Technical Coalition Against Child Pornography, has been formed to assist in the fight against child pornography. Members of the Technical Coalition include AOL, Yahoo!, Microsoft, EarthLink and United Online, Google and the Internet registrar GoDaddy, which announced that it was joining the FCACP during Rep. Whitfield's most recent House hearing.

According to Louis, the Technical Coalition's mandate is to "evaluate the specific and emerging technologies used by child predators to exploit children and conceal their activity, develop technologies to detect and disrupt the Internet distribution of images of child exploitation, establish a clearinghouse for known images of child pornography and other information that network operators can use to combat or block child pornography and develop tools to help law enforcement locate and identify predators and child pornography distributors."

So far, the Technical Coalition has garnered far less attention than its financial counterpart, and there is little specific information about how the group will carry out its mandate. However, it is clear that the Technical Coalition was formed at least in part to reduce congressional enthusiasm for potential intrusive new legislation, including proposals that would require ISPs and hosting companies to retain extensive data about the online activity of their customers (a proposal known as "data retention").

Federal legislation to mandate data retention was first suggested earlier this year by U.S. Attorney General Alberto Gonzales as a tool in the fight against both child pornography and terrorism. A number of bills are under active consideration in Congress, though they have largely stalled while legislators are out on the campaign trail.

Still, the concept remains popular with members of the Bush administration, including Homeland Security Secretary Michael Chertoff and FBI Director Robert Mueller.

Effective Solutions
It remains to be seen, obviously, whether the effort to choke off the cash for either gambling or child pornography is successful. Less than a week after President Bush signed the UIGEA, reports were already surfacing that online gambling sites were turning to alternative payment systems and moving their operations to obscure islands in the Atlantic — and attracting record numbers of American gamblers in the process. Many are already concerned that by forcing large credit card companies out of the online gambling business, it will be much harder to actually track the money used in electronic wagering.

But the battle against child pornography faces the same challenge.

Although major alternative payment systems like Paypal and e-gold are members of the FCACP, many smaller companies have few if any measures in place to track and block child pornography purchases. Law enforcement officials are also concerned about a growing trend that avoids payment altogether — sites that require the uploading of child pornography as payment for access. It is a trend, officials say, that directly contributes to the continued victimization of additional children.

Regardless of how tempting it might be for some legislators, it is highly unlikely that Congress would try to adopt a law like the UIGEA to block the sale and purchase of non-child pornography. Court decisions have made it clear that governments can regulate gambling, an activity that can have numerous negative effects on society (unless, of course, it's run by the state itself). Non-child pornography, however, is protected by the 1st Amendment.

Any effort to prevent a financial company from processing payment for legal written or visual material would be unconstitutional.

However, as the online adult industry discovered in 2000 (when American Express stopped processing credit card payments from the online adult industry), there is nothing that prevents one company from refusing to do business with other companies — the 1st Amendment does not cover private activity. When Visa and MasterCard increased their fees and tightened chargeback rules, some saw the beginning of the end for credit card processing for the online adult industry. But then as now, the online adult industry's best defenses is in its sheer volume of business and its own ongoing efforts to fight child pornography.


The Skinny on the New DMCA Requirement

The requirements under the Digital Millennium Copyright Act (DMCA) have changed, but the sky is not falling. We have, even as a law firm, been hit with an unbelievable amount of spam sent out by law firms... More »

2017 Outlook: Legal Matters Around the Corner

The adult entertainment business’ legal community recently weighed in the top issues that companies and the industry, as a whole, should be concerned about. XBIZ asked industry attorneys to discuss... More »

Fraudulent Brazilian Trademark Registrations Running Rampant

Although you might not think often about protecting your trademark rights in Brazil, you need to — even if you don’t yet have a single Brazilian customer. Scammers are constantly looking for... More »
Stay informed of the latest industry developments. Get XBIZ newsletters delivered to your inbox. Subscribe today!
Enter email address:

* To manage existing subscriptions click here.

Submit your press release to
multiple news outlets with 1 click.
Subscribe to RSS news feeds or
add free content to your website.
Access XBIZ news and articles
with your mobile device.
Subscribe to XBIZ World magazine, the industry's leading e-commerce trade publication, delivering in-depth coverage of the online, mobile and ancillary digital markets.



Mar 31 - Apr 02
Denver, CO.

Eurowebtainment 2017

May 17 - May 20
Majorca, Spain

XBIZ Retreat

May 30 - Jun 03
Miami, Florida

XBIZ Miami 2017

May 30 - Jun 02
Miami, Florida
Everyday thousands of business professionals browse XBIZ's industry directory for quality products and services. Not listed yet? Your company could be losing potential new business. Submit your company today!
Use XBIZ RSS feeds to stay informed of the latest industry developments or as a content syndication tool for your website!