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I think your initial response is the most correct.
No money is worth supporting illegal businesses. Those that advocate it being just a business decision and, in fact a bad one, to refuse this work, needs to reconsider. It's illegal to sell pirated videos. It's also illegal to sell CP. Would that just be simply a business decision not to design a site for them as well or is it just certain illegal sites that are subject to the "it's just business" decision making process?
Illegal is Illegal. Don't support it.
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