LEGAL BRIEFS

It’s the question on everyone’s mind: How can I escape the expected wave of prosecution by United States law enforcement officials against adult Web sites? Is there a quick fix solution such as moving my Web site servers offshore? How about my bank accounts? Can I form a business entity in the Netherlands, and possibly become subject to more permissive Dutch law? Or should I just get out of the business all together and start an electronic greeting card site?

As you might expect, there is no simple solution.LEGAL BRIEFS

It’s the question on everyone’s mind: How can I escape the expected wave of prosecution by United States law enforcement officials against adult Web sites? Is there a quick fix solution such as moving my Web site servers offshore? How about my bank accounts? Can I form a business entity in the Netherlands, and possibly become subject to more permissive Dutch law? Or should I just get out of the business all together and start an electronic greeting card site?

As you might expect, there is no simple solution. However, numerous businesses have profited by capitalizing on the fears of webmasters, impliedly promising some sort of “diplomatic immunity” if you simply use their services to move some or all of your operations out of the United States. This article will discuss the issues raised by offshore transfers, and evaluate the pros and cons of such activities.

Moving bank accounts and Web sites offshore may look like an easy solution to the growing concerns among adult webmasters who fear federal prosecutions under the new Administration. After all, that’s how the casino sites have avoided American laws prohibiting gambling, right? Yes and no.

While over a million users in the United States access casino sites every day, these businesses have operated basically underneath the radar of law enforcement officials1. Few regulators have studied the issue of prosecuting companies involved in offshore betting operations, which typically involve complex issues of extra-territorial jurisdiction-a murky issue indeed, in the age of the Internet2. However, since more and more webmasters are choosing to follow the lead of the casino sites, and establish some or all of their operations offshore, the legal issues surrounding such a business plan should be explored.

So far, enforcement actions against offshore gaming companies have only come from the state level. Internet gambling is illegal in virtually every state except Nevada, which recently passed legislation to regulate such operations3.

The New Jersey Attorney General’s office recently sued three offshore gambling operations in South Africa, St. Kitts and Costa Rica. The basis of the suit was that these companies were targeting New Jersey residents by establishing billboards along the New Jersey Turnpike, Atlantic City Boardwalk, and Atlantic City Expressway4. If the Web sites were simply “available” to New Jersey residents via the World Wide Web, the analysis might be different.

Courts have generally held that the mere fact that a Web site might be accessible within a certain state does not allow the courts to exercise jurisdiction over the owner of the site5. In other words, the webmaster could not be sued or prosecuted in a certain state just because a user could access the site from there. A few courts have ruled the other way, deciding that broadcasting a Web site is similar to advertising in the subject state, thus allowing the courts to acquire jurisdiction over the Webmaster in deceptive advertising cases6. Accordingly, this is an unsettled issue, but an important one since acquiring personal jurisdiction over the Web site business is an important first step to a successful prosecution under U.S. laws.

This is particularly true if all operations are based offshore, including corporate headquarters, servers and bank accounts. If only the servers are based offshore, and everything else is located within the States, our courts will have little difficulty establishing personal jurisdiction over the business under the prevailing “minimum contacts” test7.

The key issue arrives when a webmaster remains in the United States, while all other aspects of the business are moved offshore to a country with more friendly laws. Another concern arises where an American-based Web site forms a relationship with an offshore company that handles all the content. These questions implicate the legal issue of “conspiracy” and the concepts of “aiding and abetting.” At the practical level, it is all about “following the money,” because you are not likely to uproot your entire life and move yourself and all that you own half-way around the world.

Our analysis begins with Title 18, Section 2 of the United States Code, which punishes the crime of “aiding and abetting.” This Section provides, in pertinent part: “(a) Whoever commits an offense against the United States or aids, abets, counsels, commands, induces or procures its commission, is punishable as a principle8.”

The crime of “aiding and abetting” has two components: First, there must be an act on the part of the defendant that contributes to the execution of a crime; and second, the defendant must intend to aid in its commission9. An “aiding or abetting” offense occurs when a defendant willfully associates himself in some way with the criminal venture and willfully participates in it as he would in something he wished to bring about10. The crime of “conspiracy to commit an offense,” on the other hand, requires the government to prove knowledge of, and voluntary participation in an agreement to violate the law11.

“Aiding or abetting” does not require proof of an agreement to violate the law12. Conspiracy does not even require a completed crime. Thus, the same criminal scheme can result in a conviction based upon both the underlying offense and the conspiracy.

As you might guess, these laws are intentionally written in broad, vague terms, to allow law enforcement to cast a wide net designed to capture any individual who has had the slightest contact with criminal activity. Certainly, the government does not always use these powers to the fullest extent. To do so would ensnare numerous innocent people who happened to work for the wrong company or associate with the wrong group of friends. However, broad conspiracy indictments are commonplace. In the proper case, law enforcement will charge everyone associated with a certain criminal activity in the hopes that some of those charged will turn “state’s evidence” and bring down the leaders of a criminal enterprise. This approach is often used in drug trafficking cases involving complex business relationships.

Another federal statute that should be considered in connection with these issues is the RICO “Racketeer Influenced Corrupt Organization” Act. RICO was originally designed to eliminate the influence of organized crime from legitimate businesses. If the government can prove that a defendant committed any of a laundry list of crimes (called “predicate offenses”) during a certain period, and participated in the conduct of the affairs of an enterprise with which he was associated, the defendant is guilty of racketeering13.

The original predicate offenses providing the basis for a racketeering charge included those activities that one would normally associate with organized crime such as extortion, gambling, arson, etc. During the Reagan/Bush era, however, the list of predicate offenses was amended to include “obscenity” offenses. This means that a webmaster could be labeled a “racketeer” if the government can prove he or she was involved in a business that disseminated several images that ultimately are proved to be obscene.

The author’s firm has defended numerous state and federal obscenity-based racketeering charges, and we would not be surprised to see more in the future under the new Administration. Important is that the law allows virtually anyone “associated” with the allegedly criminal “enterprise” to be charged as a RICO principal or a conspirator. This could include hosting companies, search engines, top list sites, ISP’s, as well as the actual site operator.

Federal obscenity laws criminalize even the act of “giving information, directly or indirectly, where, how, or of whom, or by what means any [obscenity] may be obtained or made14.” This broad prohibition would be sufficient to criminalize many common Web site relationships without reliance on such concepts as conspiracy or aiding and abetting.

There is also precedent for the RICO law to be applied outside of the United States so long as the crime has some effect in the United States. Such extra-territorial application of this law was seen in the prosecution of Manuel Noriega on narcotics-based RICO claims in the State of Florida15.

The fact that the allegedly obscene material would be accessible for viewing and redistribution throughout the United States via the World Wide Web would likely give the government an argument that there is some “effect” caused by the foreign Web site in the United States. The fact that us citizens were entering into commercial transactions with the site, and sending money out of our borders would also be mentioned by the prosecution. These issues would obviously be contested by a competent Internet lawyer, but are far from being resolved under current case law, and ripe for litigation.

The upshot of all this is that the Government possesses significant law enforcement tools designed to capture those who attempt to distance themselves from alleged criminal activity, including obscenity. Webmasters have employed various mechanisms designed to achieve such distance from their content, such as moving their servers or corporate headquarters offshore and moving their bank accounts to other countries. However, so long as the webmaster, himself (or herself), continues to reside in the United States, our Government has jurisdiction over that person. Unless the webmaster is in this business just for the fun of it, he or she will presumably be receiving monies from some source. The receipt of monies from an unlawful enterprise can provide the basis for a RICO conviction.

State and federal law enforcement agencies have the ability to track virtually any financial transaction. Before a webmaster even knows an investigation has been launched, the prosecutor could have gained access to relevant bank records and credit card transactions through an “investigative subpoena.” Any attempt to deny involvement in an adult Web site while at the same time receiving financial support from that business, will likely be rejected by any judge or jury in a criminal prosecution.

As has likely become evident to you by now, moving Web site operations offshore is not a viable option if the goal is to avoid the application of American laws. A United States webmaster is required to play by our country’s rules if he or she continues to reside here. Unless you plan to transplant yourself -lock, stock and barrel- to another country, you are in serious denial if you think that moving some of your operations offshore will allow you to avoid American prosecution. A better option is to engage competent legal counsel and attempt to operate within legal parameters.

Legal Footnotes:

1M.Richtel, U.S. Firms Roll Legal Dice with Stake in Online Gambling, New York Times News Service (July 6, 2001).
2Id.
31Id.
4Id.
5Eg: Bensusan Restaurant Corp. v. King, 937 F.Supp. 295 (S.D. N.Y. 1996); Jolly v. Weber Hotel, 977 F.Supp. 327 (D. N.J. 1997)
6Inset Systems, Inc. v. Instruction Set, Inc., 937 F.Supp. 161, 164 (D. Conn. 1996); Tompson v. Handa-Lopez, 998 F.Supp. 738 (W.D. TX 1998).
7International Shoe v. Washington, 326 U.S. 310 (1945).
818 U.S.C. §2
9United States v. Smith, 546 F.2d 1275, 1284 (5th Cir. 1976); United States v. Greer, 467 F.2d 1064, 1069 (7th Cir. 1972), cert. den. 410 U.S. 929, 93 S.Ct. 1364, 35 L.Ed.2d 59 (1973).
10United States v. Indelicato, 611 F.2d 376, 385 (1st Cir. 1979); see also, United States v. Longoria, 569 F.2d 422, 425 (5th Cir. 1978).
11United States v. Bright, 630 F.2d 804, 813 (5th Cir. 1980).
12Perenira v. United States, 347 U.S. 1, 11, 74 S.Ct. 358, 364, 98 L.Ed.435 (1954).
13Title 18. U.S.C. §§1961-1968
1418 U.S.C. §1462(2)(c)
15United States v. Noriega, 746 F.Supp. 1506 (S.D. Fla. 1990).

Lawrence G. Walters, Esquire is a partner with the law firm of Weston, Garrou & DeWitt, based in Los Angeles. Mr. Walters runs the firm’s Florida office, and represents clients involved in all aspects of adult media. Weston, Garrou & DeWitt handles First Amendment cases nationwide, and has been involved in significant Free Speech litigation before the United States Supreme Court. All statements made in the above article are matters of opinion only, and should not be considered legal advice. Please consult your own attorney on specific legal matters. You can reach Lawrence Walters at Larry@LawrenceWalters.com or at www.FreeSpeechLaw.com.