MAY 29, 2000 VOL. 156 NO. 21

Andy Wong/AP for TIME. Law officers sort through suspect VCDs during a raid in Kuala Lumpur.

Digital Underground
Malaysia's attempts to fashion itself as Asia's Silicon Valley are threatened by a booming piracy industry
By ERIC ELLIS

Among Malaysia's legions of civil servants, few are as implacable as Pahamin Rajab. As point man in the country's struggle against digital counterfeiting, Pahamin cuts a colorful figure. Decked out in his trademark bow tie and Akubra cowboy hat, he recently led 100 security agents on a morning raid through a downtown shopping mall, seizing illegal music, video and computer-software CDs. At one retail booth, a television monitor was advertising the bootlegged wares. "Take the TV," he ordered, pointing with his gold-tipped walking stick. "The law gives us the right to take anything that is used to sell pirated products, and we will be back day after day until they shut down forever."

Tough talk, but Pahamin has a long way to go. As secretary-general of the Trade and Consumer Affairs Ministry since 1998, he has watched Malaysia become one of Asia's biggest centers of digital piracy. For years, illegal CDs came largely from factories in Taiwan, Hong Kong and mainland China. But as police have cracked down on criminal syndicates in those places, much of the production moved south. A recent report by the International Intellectual Property Association says: "vcd piracy originating in Malaysia is polluting markets all around the globe."

Malaysian factories churn out an estimated 315 million CDs a year, worth $300 million. By comparison Thailand produces less than one-third that amount and is still importing principally from Malaysia. Just three days after last year's blockbuster Star Wars, Episode 1: The Phantom Menace opened in U.S. theaters, pirated versions were on sale in Kuala Lumpur. And within two weeks, Malaysian-made copies had popped up in nine other Asian countries. Local knock-offs have been spotted as far away as southern Africa, Europe and South America. Malaysia's legitimate CD producers are feeling the squeeze. Kuala Lumpur has encouraged digital production--which has expanded from one optical disc plant in 1996 to around 50 today--as part of the country's effort to move up the technology ladder. But producers who respect intellectual property rights complain they cannot compete with the meatier profit margins of those who don't.

ALSO IN TIME COVER: Nice Guys Finish Last A backslapping former movie actor with a penchant for telling off-color jokes, President Joseph Estrada seems ill-equipped to solve his country's many problems • Hostage Drama: In search of a breakthrough JAPAN: Dirty Little Secret As deadly toxins contaminate the environment, the nation's leaders simply look the other way • The Activist: One man's clean-up crusade • Viewpoint: A plea to take action before it's too late AFGHANISTAN: Religion in Command The Taliban have ignored the intricacies of governing, leaving the impoverished nation in crisis • Herat: The country's golden goose has its own rules • Women: Opportunities are still dismal • Education: Home-based schools for girls quietly flourish MALAYSIA: Pirate Trade Authorities struggle to stop booming exports of digital counterfeits INDIA: Holy Cow! Animal-rights activists expose the barbaric transport and slaughter of the country's most revered beasts

Piracy is also crippling the local film and music industries. Employment at music production houses has dropped by a third since 1996, and many artists are holding back new releases until their rights are protected. Malaysian filmmakers released seven movies last year, compared with 18 in 1995, and box office receipts are down 49% over the past two years. Yusof Aslam, a prominent film producer, was so incensed when bootlegs of his Pasrah (Acceptance) appeared a day after its release in January that he personally led authorities on raids. CD pirates "are like leeches, sucking the life out of the film industry," reports the Video and Film Industry Association of Malaysia.

Pahamin has 500 agents at his disposal, but they spend much of their time monitoring the price of chickens and other staples that are part of their domestic-trade mandate. His strategy is to shut down the counterfeiters rather than go after consumers. But the outlaws are outwitting the sheriff. One night last September Pahamin and 100 officers descended on a warehouse in Johor Bahru--a major transit point for goods headed to Singapore--that had been under surveillance for months. The building was empty; its occupants apparently had been warned of the impending raid. Similar forays have also turned up nothing. "As sophisticated as we are," concedes Pahamin, "the pirates are more sophisticated."

Authorities suspect that pirates contribute to a common fund to reward tip-offs. On some raids, agents have run up against closed-circuit cameras and steel doors that slow their progress enough to allow the culprits to escape--after throwing phony wares into shredders and acetone vats. Even counterfeiters who are caught often escape punishment: a 1987 law stipulates prison terms of up to five years for copyright infringement, but courts have yet to send an offender to jail.

That may change. Parliament is expected to adopt a law that will require manufacturers to maintain stricter records on raw materials, provide for specially trained prosecutors and judges in copyright-violation cases and ensure tougher penalties. The U.S. industry, which claims it lost $287 million in CD sales to piracy last year, is lobbying for tough action against the country. "Even if we don't succeed, it will not be for lack of trying," says Pahamin. The new bill would also make it easier for his agents to stage surprise raids: Pahamin's cowboy hat may become a common sight to many Malaysians.

Reported by Ken Stier/Kuala Lumpur

Write to TIME at mail@web.timeasia.com