VZCZCXRO5423
RR RUEHRG
DE RUEHSO #1206/01 3251722
ZNR UUUUU ZZH
R 211722Z NOV 06
FM AMCONSUL SAO PAULO
TO RUEHC/SECSTATE WASHDC 6076
INFO RUEHBR/AMEMBASSY BRASILIA 7146
RHEHNSC/NSC WASHDC
RUCPDOC/USDOC WASHDC 2629
RUEHMN/AMEMBASSY MONTEVIDEO 2214
RUEHBU/AMEMBASSY BUENOS AIRES 2538
RUEHSG/AMEMBASSY SANTIAGO 1919
RUEHLP/AMEMBASSY LA PAZ 3123
RUEHPE/AMEMBASSY LIMA 1074
RUEHCV/AMEMBASSY CARACAS 0414
RUEHBO/AMEMBASSY BOGOTA 1458
RUEHRG/AMCONSUL RECIFE 3238
RUEHRI/AMCONSUL RIO DE JANEIRO 7608
RUEHAC/AMEMBASSY ASUNCION 2849
RUEATRS/DEPT OF TREASURY WASHDC
RUEHC/DEPT OF LABOR WASHDC
RUEAWJC/DEPT OF JUSTICE WASHDC

UNCLAS SECTION 01 OF 04 SAO PAULO 001206 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR WHA/BSC AND EB/TPP/IPE 
STATE PASS TO USTR FOR SCRONIN 
STATE PASS EXIMBANK 
STATE PASS OPIC FOR MORONESE, RIVERA, MERVENNE 
NSC FOR FEARS 
USDOC FOR 4332/ITA/MAC/OLAC 
USDOC FOR 3134/USFCS/OIO 
USDOC ALSO PASS PTO/OLIA 
TREASURY FOR OASIA, DAS LEE AND JHOEK 
DOJ FOR CMERRIAM 
AID/W FOR LAC/AA 
 
E.O. 12958:  N/A 
TAGS: KIPR ETRD ECON KJUS BR
SUBJECT: FAVORABLE TRENDS IN FIGHTING IPR PIRACY IN SAO PAULO 
 
REF: SAO PAULO 675 
 
SENSITIVE BUT UNCLASSIFIED; PLEASE PROTECT ACCORDINGLY 
 
Summary 
 
 
¶1.  (U) Econoff met recently with Marcio Vaz Guimaraes de Souza 
Netto, the head of the Sao Paulo State Interagency Council to Combat 
Piracy, to discuss recent activities of the organization and new 
developments in the fight against piracy.  The Council has been 
reaching out to law enforcement in other states in an effort to 
consolidate forces.  It has also undertaken initiatives to educate 
and sensitize the public to the problem.  The divisions charged with 
confiscating pirated goods have seized approximately USD 18 million 
of merchandise as of September 2006, the result of nearly double the 
number of operations since 2002.  The city of Sao Paulo 
significantly reinforced its own anti-piracy fight with the signing 
of a new law that will cancel a business license should an 
establishment or street vendor be found participating in the sale of 
counterfeit goods.  Those involved in the sale of pirated goods and 
their customers are becoming more sophisticated, and the flood of 
contraband coming across the border with Paraguay remains a major 
concern.  End Summary. 
 
Background on the Council 
 
 
¶2.  (U) The Interagency Council to Combat Piracy of Sao Paulo State 
(reftel) was created (at Post's urging) in January 2006 to present a 
more unified and organized effort to combat piracy.  According to 
Souza, piracy today in Sao Paulo State is surpassing drug profits 
and has become a sophisticated industry, with vendors specializing 
in certain high end brands.  Within the governmental structure, the 
Council is part of the State's Department of Investigations on 
Organized Crime.  The Council is composed of officials from seven 
state offices: Executive Office; Department of Justice; Department 
of Labor; Department of Culture; Department of Finance; Department 
of Science, Technology and Economic Development; Department of 
Public Health; and, the State Attorney General's Office.  Since 
January 2006, when the Council was officially organized and 
recognized by state law, it has coordinated its efforts with state 
law enforcement agencies and its counterpart on the federal level, 
the National Council to Combat Piracy (CNCP). 
 
Council Coordinates with Other States 
 
 
¶3.  (U) Souza believes that it is now time for the Council to build 
upon its present momentum and work with other anti-piracy groups. 
In addition to the federal CNCP, there is an inter-institutional 
committee in Rio Grande do Sul State, a regional group associated 
with the federation of industries (FIRJAN) in Rio de Janeiro State, 
and a recently formed group in Minas Gerais state.  After the 
governors of Brazil's southern states met in early June with U.S. 
Secretary of Commerce Gutierrez to discuss IPR issues, the Sao Paulo 
 
SIPDIS 
Council convened a meeting on June 28 with Attorneys General from 
the southern states of Sao Paulo, Rio Grande do Sul and Mato Grosso 
do Sul to discuss joint initiatives in combating piracy. 
 
¶4.  (U) Souza further explained that the Council now takes a 
three-pronged approach to the problem of piracy:  education, law 
enforcement and prevention.  In coordination with the Entertainment 
 
SAO PAULO 00001206  002 OF 004 
 
 
Software Association (ESA) and the Brazilian Software Association 
(ABES), the Council has organized a series of one-day anti-piracy 
training seminars for public-sector workers in 11 cities from 
October to December, with training beginning in January 2007 for 
customs agents in ports in the states of Rio, Pernambuco, Rio Grande 
do Sul, Parana, Sao Paulo, Amazonas, Ceara, and Para.  Participants 
will be trained on the recognition of fraudulent merchandise and 
provide a complete review of existing laws and penalties.  Working 
with other state offices, the Council is involved in community 
projects to educate the public and create a less accepting populace. 
 Examples are the Community Integration Centers (CICs) located 
within the neighborhoods and the Workers Posts (Postos de 
Atendimento ao Trabalhador - PAT), which are sponsored by the state 
Labor Department and approach the problem of piracy as it affects 
the local labor market. 
 
Paraguay Effect on Piracy in Brazil 
 
 
¶5.  (U) Souza stated that although Sao Paulo does not border 
Paraguay, the piracy industry along the border with Paraguay has 
become a major problem for Sao Paulo State, with a large number of 
goods coming into Brazil via this route.  For example, according to 
the Paraguayan Ministry of Industry and Commerce, 378 million blank 
videotapes will be imported this year into Paraguay, yet only 3 - 5 
million will actually be used in Paraguay.  This implies that the 
other 372 million will be used elsewhere, most probably for the 
illegal tape industry in Brazil.  There is usually a link between 
piracy and organized crime, with drugs, arms and piracy co-existing 
in the Tri-border region.  The Council realizes that this is a 
sensitive and very dangerous combination, requiring carefully 
planned operations for the seizure of goods.  Souza also stated that 
the cost of these operations increases with the number of officers 
involved and the time to investigate a case, which impacts on the 
State's ability to carry out all investigations needed. 
 
Recent Trends in Piracy 
 
 
¶6.  (U) Pirated goods have a more sophisticated clientele today, and 
many dealers are specializing in certain brand names, such as Louis 
Vuitton.  According to Brazilian law, in order to have piracy 
charges brought against an individual, the company must have a 
representative located here in Brazil who is willing to participate 
in the legal process.  Unfortunately, two of the most popular 
pirated brands in Brazil, Polo Sport and Ralph Lauren, do not have 
representatives here.  This results in seized merchandise being 
stockpiled for later destruction, with no criminal charges brought 
against the individuals involved.  Compounding this issue are 
several brand name representatives who desire only that the pirated 
goods be seized from the point of sale and have no interest in 
prosecuting the illegal merchandisers.  On the pharmaceutical side, 
Souza is seeing more incidence of fake medications in the Brazilian 
pirated market, which poses serious public safety issues since the 
medication is prepared without monitoring to ensure compliance with 
sanitary regulations. 
 
¶7.  (U) The investigative and law enforcement arms for combating 
piracy are organized under the Department of Investigations of 
Organized Crime (DEIC).  Within the DEIC there is the Division of 
Investigations (DIG) which houses four offices with a total of 36 
investigative teams working in the following areas:  Material 
Property, Falsification, Fraud, and Electronic Property.  As of 
 
SAO PAULO 00001206  003 OF 004 
 
 
September 2006, these teams were responsible for USD 18 million for 
the seizure of pirated goods in Sao Paulo State for this calendar 
year.  In dollar value, the top seven pirated items are: purses (3.8 
million), watches (2.8 million), clothing (2.5 million), tennis 
shoes (2 million), toys (1.3 million), blank DVDs (1.3 million), and 
musical CDs (1 million). 
 
Recent State Legislation on Combating Piracy 
 
 
¶8.  (U) Assisting with the law enforcement process are two recent 
state laws (No.12.279 and 12.294) which allow for the cancellation 
of the license of any commercial establishment that acquires, 
stocks, or exports contraband or fake products.  Another recent law 
(No. 11/929/05) allows for the cancellation of licenses of gas 
stations involved in the sale of illegal gasoline products.  This 
new legislation has been responsible for the closing of 248 gas 
stations and 6 gasoline distributorships.  Souza stated, however, 
that more legislative changes are needed.  Under existing law, it 
takes approximately eight months for cases to wind through the legal 
process.  In order for an individual to be charged, each individual 
item seized must be listed by the officer, and all items must be 
warehoused for the trial.  Legislation has been introduced to allow 
the investigator to list confiscated property by weight, rather than 
individual itemization, thus eliminating this time consuming 
procedure.  Under this proposed bill, items would not need to be 
warehoused, but could be destroyed, especially products that may 
post potential health concerns.   Search warrants require the 
presence of a federal district attorney when police enter the 
property. 
 
Recent Anti-Piracy Law Passed by the City of Sao Paulo 
 
 
¶9.  (U) The city of Sao Paulo has also recently passed new and 
harder-hitting legislation.  Decree No. 47.801, signed by the mayor 
on October 29, permits law enforcement authorities to cancel 
licenses of both shops and street vendors found selling pirated, 
illegally imported, or counterfeit goods.  This law was developed in 
response to the rising demands of the audio, video, fashion, toy, 
shoe, and perfume industries.  According to the Association for the 
Defense of Intellectual Property (Adepi), the audiovisual sector in 
Brazil had losses of USD 198 million last year due to piracy. 
Previously, police would conduct raids and seize pirated goods that 
were found, but the business would continue to operate.  It would 
quickly absorb its losses, restock, and continue to sell.  This 
facilitated the creation of "contraband mafias," according to 
leading daily newspaper "O Estado de Sao Paulo."  Galeria Page, a 
downtown shopping mall with many shops of pirated goods, has 
remained in business for over 40 years despite numerous seizures of 
goods.  The new law gives authorities the power to cancel the 
offender's license, thereby shutting down the business. 
 
¶10.  (U)  According to Decree 47.801, those who have already had 
their licenses withheld under federal or state law and are charged 
under the municipal law will not be able to renew their licenses for 
10 years, and this will apply to all partners in the business.  The 
challenge for the city is in the numbers:  6,000 street vendors and 
30,000 establishments in Sao Paulo, and only 600 inspectors to 
enforce this law.  This is a daunting task considering that these 
600 workers already have the responsibility of enforcing present 
laws.  Many observers have expressed concern that this new law, 
instead of taking a bite out of illegal commerce, will probably 
 
SAO PAULO 00001206  004 OF 004 
 
 
increase corruption, as more of these public workers will find an 
opportunity to be paid off and allow these illegal businesses 
operating freedom. 
 
Favorable Trends in IPR coordination and Legislation 
 
 
¶11.  (SBU) Comment:  The Interagency Council to Combat Piracy in Sao 
Paulo State has made positive steps in the past year to confront the 
issue of piracy.  The Council considers piracy to be a global issue 
affecting all countries.  A recent national survey sponsored by 
Fecomercio in Rio de Janeiro reported that 42% of those surveyed had 
bought pirated goods this year, which in raw numbers would mean 
approximately 78 million Brazilians. Of those surveyed, 66% are 
aware of the negative consequences generated by illegal commerce, 
70% associate it with organized crime, and 79% believe that these 
sales hurt formal commerce, in addition to manufacturers and 
artists.  This survey highlights the extent of the problem, the 
urgent need to continue efforts to educate the public, and the 
necessity for stronger governmental and legal intervention.  Recent 
state legislation has enhanced the government's ability to deter 
piracy activity, and future legislation is being introduced that 
would make searching, processing, and itemizing of seized goods 
easier.  In addition, the city of Sao Paulo has now come forth with 
stronger legislation to combat piracy, adding much needed muscle to 
law enforcement efforts.  While Souza stressed that interest in 
combating piracy remains strong and the Council is active, much 
remains to be done to educate a highly accepting public that is 
still unaware of or unconcerned about the real damage done by piracy 
to the economy and the labor market.  We look forward to working 
with Governor-elect Jose Serra, who has been a strong advocate in 
fighting IPR piracy while Mayor of Sao Paulo, as well as with 
current Mayor Gilberto Kassab, in expanding our cooperation on IPR 
issues.  End Comment. 
 
¶12. (U) This cable was cleared by Embassy Brasilia. 
 
McMullen