Kim Dotcom Claims Innocence: Is Megaupload Founder a Martyr to SOPA?

Kim Dotcom, the founder of file-sharing Web site Megaupload and a German-New Zealand citizen, denied the charges against him and proclaimed his innocence, arguing to a New Zealand judge that the authorities were trying to paint him as a career criminal.

But what is Kim Dotcom, formerly Kim Schmitz, charged with, and why was he arrested through the FBI as well as New Zealand police? For those serving the indictment, the answer is rather complicated, involving money laundering, copyright infringement and open bribing to promote Internet piracy.

But for those defending Kim Dotcom, the answer is somewhat simpler: intimidation and censorship. And if those fighting to save Megaupload and protest his arrest could name a criminal in this case, it would not be its founder, but its most dangerous opponent: the Stop Online Piracy Act.

Beyond File Sharing

Kim Dotcom and three others were arrested after New Zealand police, working with the FBI, raided the Dotcom Mansion on Friday, the eve of Dotcom's 38th birthday. Three more men are being sought in connection with the case.

According to the 72-page indictment brought against the Megaupload founder and his accomplices, Dotctom stands accused of operating a massive criminal enterprise not only through illegal file sharing, but through money laundering and open bribes.

Megaupload, before its service was suspended last week, was one of the most popular file storage and file sharing services online. I had 150 million registered users, and averaged around 50 million hits a day. Its traffic accounts for four percent of online activity as a whole.

Federal agents argue that Kim Dotcom's online activities alone have cost the film and music industry hundreds of millions in damages.

Now that SOPA (Stop Online Piracy Act) has been stalled in Congress and the DMCA (Digital Millennium Copyright Act) restored as the guiding force of online regulation, file storage and sharing sites like Megaupload are not suuposed to be held responsible for their users or what it uploaded on the site.

But officials say that Dotcom and his associates went even further, crossing the bounds of legality to conduct an alleged $175 million copyright infringement conspiracy.

The 'Mega Conspiracy'

But according to the indictment against Kim Dotcom, the file sharing was not at the heart of the arrest.

According to Gizmodo, Megaupload rewarded users who uploaded the most in pirated files, laundered money through the web site, and spent the cash the site generated on luxury items and bribes.

Calling it a Mega Conspiracy, the indictment argued that the web site owners provided financial incentives for users through an Uploader Rewards program.

In this way, prosecutors will argue, online piracy was not only allowed but actively promoted and rewarded on the site, making it a party to the users' crimes.

But U.S. officials, working with New Zealand police, also accuse Dotcom and his associated of laundering money through the site, and of conspiring to commit money laundering to facilitate and expand the Enterprise's criminal operations.

'At the Extreme End of the Scale'

The New Zealand police who raided Kim Dotcom's home have already released information on some of the items they found in the Megaupload owner's mansion, items that paint a picture of the accused as a lavish spender before he has even been tried.

Officers seized 18 luxury vehicles from the Dotcom mansion, including a Rolls Royce Phantom Drophead Coupe and a 1959 pink Cadillac. Police report that they seized some $8,861,529 from various accounts, as well as confiscating several firearms and works of art from the home.

The image of Dotcom as a career criminal profiting off of an army of online pirates was supported by the New Zealand judge's decision to delay bail on Monday, following arguments by the prosecution that the accused was a flight risk at the extreme end of the scale.

Prosecutor Anne Toohey, quoted by Reuters, argued that Kim Dotcom, a dual citizen of both Germany and New Zealand, had access to funds beyond those seized, had multiple identities, and that the former hacker had a history of fleeing criminal charges.

Though defense lawyer Paul Davison argued that his client had cooperated fully with investigation and had no passports, Judge David McNaughton decided to reserve his decision on Dotcom's bail until Wednesday.

He cited both the breadth of the issues involved in the case and the seriousness of those issues.

Suspicions Aroused

For those who have been following SOPA and PIPA (the Protect IP Act) on their way through Congress, however, Kim Dotcom's arrest and the charges against him don't sound like money laundering and bribery.

Instead, they sound like government censorship and a violation of DMCA, and both users and hackers have already begun to take a stand against Dotcom's arrest.

SOPA, though it was stalled in Congress last week, was still being debated when Dotcom was arrested on Friday, and much of the terminology in the indictment echoes that controversial legislation's aims.

Portions of the indictment accuse Kim Dotcom of reproducing copyrighted materials rather than simply being an online safe space, yet copyright holders have been given access to Megaupload to identify any posts that violate their terms of use.

Dotcom's lawyer compared Megaupload to popular video sharing site YouTube, saying both were online havens where people promoted their creativity.

Even more suspiciously, the arrests in the Mega Conspiracy came shortly after Megaupload filed a civil lawsuit against Universal Music Group Inc., claiming it improperly won the right to take down a Megaupload promotional video from Google and YouTube featuring celebrities like Kanye West and Mary J. Blige.

'The federal government was spoiling for a fight.'

CNET's Molly Wood, meanwhile, reports that insiders have admitted that Dotcom's arrest is intricately bound up in the fight to pass the SOPA bill.

The federal government, they say, was spoiling for a fight after the apparent defeat of SOPA/PIPA and not a little humiliation at the hands of the Web, she reported.

And what better way to bolster the cause for cyber-crackdown than by pointing to a massive display of cyber-terrorism at the hands of everyone's favorite Internet boogeyman: Anonymous?

FileSonic Suspends Its Services

Megupload's shutdown certainly got Anonymous' attention, and that of other hackers as well.

Within hours of the news that Kim Dotcom had been arrested and his web site taken down, hackers attacked the public web sites of the Justice Department, Universal Music, and two big trade groups for the music and film industries.

But if this move was in attempt to crush opposition to SOPA and prove its importance as legislation, its effect is likely to do the opposite.

Not only has Kim Dotcom's arrest sparked outrage, it also proves that the federal government can take down so-called online piracy sites without SOPA or PIPA even existing.

A Megaupload rival, FileSonic, has already announced that it will be suspending its services for the time being in response to Kim Dotcom's arrest.

All sharing functionality of FileSonic is now disabled, the site said in a statement. Our service can only be used to upload and retrieve files that you have uploaded personally.

Censorship Without SOPA

With SOPA stalled in Congress, the FBI and U.S. Justice Department were still able to work with New Zealand police to take down one of the biggest file storage and sharing sites on the web, one which its defenders would hail as a beacon of Internet expression and its detractors condemn as blatant piracy.

Perhaps instead of pushing SOPA and PIPA back and forth through Congress, legislators and hackers can both learn from the Kim Dotcom case that government censorship or rampant piracy aren't concerns of the future: they are issues that are already here.