GoFuckYourself.com - Adult Webmaster Forum - Another Turn of the Screw (part5)

"The recent policy implementations by VISA demonstrate its desire to distance itself from controversial transactions online. They also provide quite a bit of evidence that could ultimately be turned over to law enforcement, if any criminal allegations surface. A few months ago, the major merchant banks, along with PayPal, refused to continue processing online gambling transactions. The recent restrictions on third-party billing processors will now have a similar impact on the adult Internet industry. The registration fees, information disclosures, and residence requirement all make it more difficult for unscrupulous Webmasters to hide, but also take smaller players out of the game. Obviously, these policy changes impact the foreign Webmasters most dramatically, but also demonstrate an overall concern by VISA regarding its perceived association with the adult industry. VISA knows how the conspiracy laws work, and wants to head off any problems at the pass.
"These new policy changes may result in more foreign Webmasters seeking to form a corporation or otherwise establish a presence in the United States. Industry attorneys should probably prepare for a flood of corporate work!"
The next day, Walters sent this follow-up. "All day long I have had my foreign clients asking me to set up U.S. corporations or bank accounts to comply with the new VISA regulations. Now I hear that VISA has clarified its ´presence´ requirement. They will require all companies to have actual staff people in the U.S. This raises interesting implications, including a requirement that the companies now pay U.S. federal income tax on their earnings. Hmmm."
Later in the week, AVN Online spoke with Walters by phone, and he added the following thoughts: "The first thing that jumped out at me when I read through these [new policies] was that it harkened back to the Michigan thing." [Michigan Attorney General Jennifer Granholm threatened several aggregators with criminal prosecutions if they didn´t stop processing for sites she claimed contained child pornography, even though it turned out that several of them in fact had never had any child porn on them, and were entirely legal Websites].
"It seems obvious that each and every one of these regulations is designed to make sure that VISA knows who they´re dealing with, and that they have someone to go after if they need to point the finger at somebody, and that they can´t be held responsible on their own, because they´re always going to have some company present here in the United States to deflect liability onto. Otherwise, as in the Michigan situation, you´d have all these foreign Webmasters that no one can ever go after, which puts the heat back on the processors, and, potentially, VISA. So they want an IP address, stats, and a corporation here in the States that they can go after and say, ´Here´s the bad guy; leave us alone.´ Politically, that´s an easier sell than, ´Oh well, we can´t find them, but we´re processing for them.´ The consequence is furthering the policies of the United States government, which is something they want to do, because they?re [simultaneously] trying to push through this bankruptcy legislation, and they´re willing to do anything that is necessary.
"Now the IPSPs are in the same trick bag as the AVSes [Adult Verification Services], where they´ve got the ability to kick out sites that are committing either copyright violations, child porn, or whatever, but they don´t want to take on the liability of having to do that and having to review them on a regular basis, like the Perfect 10 [court order] requires [Adult Check] to do. In that sense, it´s a very difficult position to be in, and there may be some unintended consequences that could impose more liability on VISA even though it seems like their ultimate goal is to reduce their liability."
Although Walters freely admits that "one end of the paranoia spectrum could be cooperation between VISA and [Attorney General John] Ashhahahahaha," he also sees a potential silver lining to the new regulations, at least in terms of remedying an unacceptable existing state of affairs. "I think this society collectively has to find a way to bring online transactions to the surface, and not allow them to be hidden in a sea of obscurity, allowing a lot of unscrupulous, fraudulent, and shady practices to occur under the guise of hidden electronics. If you force these companies to come out in the open and establish a presence, and provide information about what they´re doing and where they´re going, it may have a spin-off effect of legitimizing the industry more so than it is."
In the end, Walters is taking a wait-and-see attitude. "It´s going to be interesting how the industry reacts to it, and how forceful they are with implementing these things, because it´s one thing to say this and come out with these press releases, [but] it´s another thing how they´re going to enforce it."
J. D. Obenberger
Joe Obenberger is a Chicago attorney whose firm, J.D. Obenberger & Associates, covers the gamut of legal issues confronting Webmaster and content producer issues. He sent AVN Online the following comments:
"These are the problems. Number one, you can´t get registered for processing unless you have a presence in the country where the processing company´s located. I think that may mean a bank account ... though the way it´s been explained to me is that the [IPSPs] are going to require that the foreign Webmasters have corporations in the U.S.
"Now let´s follow that through. If there is income that goes from a third-party biller [IPSP] to an American entity, you have a taxable event. That means that New Zealand or Canadian Webmasters are suddenly going to lose a third of their income to American taxation. Previously, their money got wire transferred from the processor directly to their banks in New Zealand and Canada, but now the money flow is going to be from the processor to an American entity´s bank account. I´m really worried about that issue, because the logical thing then would be to pull out of iBill, CCBill, and Epoch and get overseas processors, even though I know that these [foreign] people have wanted to use American processors.
"The other thing that concerns me about this is that it sounds like VISA is trying to have its cake and eat it too. The way I understand it, the whole reason this industry of third-party processors has arisen was because VISA and MasterCard didn´t want to have direct dealings with adult Websites, both for public spin issues, but also for legal liability if a site is guilty of obscenity or child pornography. This gives them plausible deniability and insulation ? it´s a firewall between them and the porn.
"One thing I think may have fueled this is the problem of what to do with chargebacks. I´ve heard stories that major players in the U.S. have caused third-party billing companies to go under because they were suddenly faced with chargebacks they couldn´t absorb and that they couldn´t collect back from the subscriber or the subscribing Website. So the banks are trying to have two things simultaneously, insulation and control. Whenever you see something like this, it´s a lawyer with too much testicularity."
Clyde DeWitt
A founding partner of Weston, Garrou & DeWitt, Clyde DeWitt has written a plethora of articles over the years about all aspects of the adult Internet industry. He referred us for comment to his partner, Larry Walters, but did want to file the following opinion:
"As we have learned from the series of articles I wrote a couple of years ago about merchant processing (Part I, Part II, Part III, Part IV), the near monopoly enjoyed by VISA and MasterCard allows them to wield staggering economic control over all forms of commerce, especially the Internet. The latest development is just another example of them clubbing merchants over the head."
Visa
AVN Online contacted Visa for comment and clarification as soon as this story broke, directing the query to Visa International´s PR contact for Electronic Commerce, who forwarded our request to a Visa USA Corporate Relations representative, who said she would answer any questions we had. We immediately forwarded a series of questions to her, and since then we have been told on a daily basis that they are still researching the answers. We will provide them when they arrive.
One question to which we did receive a partial explanation, and a curious one at that, was why Visa USA was answering these questions when the IPSP announcement states, "These rules are worldwide, not just in the USA."
Initially Casey Watson, the Visa International contact, wrote, "My colleagues in our US Region will be working with you since the material you reference is specific to the US marketplace. We needed to do a little research before we responded." Then, after we stated our confusion as to whether the regulations were domestic or International, Janet Yang, the Visa USA rep, responded, "When Casey referred to this as a USA matter, she meant that this new policy was initiated by the US region. How this plays globally ... I´m not sure, but I´m working to find out."
Erick Black and Tripp Daniels also contributed to this report.
Tom Hymes, Kathee Brewer