eBay 2005 Annual Report Download - page 33

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usage, or for other reasons. If VoIP does not achieve wide public acceptance, our Skype business will be
adversely affected.
Use of our services for illegal purposes could harm our business.
The law relating to the liability of providers of online services for the activities of their users on their
service is currently unsettled in the United States and internationally. We are aware that certain goods, such as
weapons, adult material, tobacco products, alcohol, and other goods that may be subject to regulation, have
been listed and traded on our service. We may be unable to prevent our users from selling unlawful goods or
selling goods in an unlawful manner, and we may be subject to allegations of civil or criminal liability for
unlawful activities carried out by users through our service. We have been subject to several lawsuits based
upon such allegations. In December 2004, an executive of Baazee.com, our Indian subsidiary, was arrested in
connection with a user's listing of a pornographic video clip on that site. Similarly, our Korean subsidiary and
one of its employees were found criminally liable for listings on the Korean subsidiary's website. In order to
reduce our exposure to this liability, we have prohibited the listing of certain items and increased the number
of personnel reviewing questionable items. In the future, we may implement other protective measures that
could require us to spend substantial resources or discontinue certain service offerings. Any costs incurred as a
result of potential liability relating to the sale of unlawful goods or the unlawful sale of goods could harm our
business. In addition, we have received significant and continuing media attention relating to the listing or sale
of unlawful goods using our services. This negative publicity could damage our reputation and diminish the
value of our brand names. It also could make users reluctant to continue to use our services.
PayPal's payment system is also susceptible to potentially illegal or improper uses. These may include
illegal online gambling, fraudulent sales of goods or services, illicit sales of prescription medications or
controlled substances, piracy of software and other intellectual property, money laundering, bank fraud, child
pornography trafficking, prohibited sales of alcoholic beverages or tobacco products, and online securities
fraud. PayPal's acceptable use policy enables PayPal to fine users in certain jurisdictions up to $500 or take
legal action to recover its losses for certain violations of that policy, including online gambling and illegal sales
of prescription medications. Despite measures PayPal has taken to detect and lessen the risk of this kind of
conduct, illegal activities could still be funded using PayPal.
PayPal is subject to anti-money laundering laws and regulations that prohibit, among other things, its
involvement in transferring the proceeds of criminal activities. Although PayPal has adopted a program to
comply with these laws and regulations, any errors or failure to implement the program properly could lead to
lawsuits, administrative action, and prosecution by the government. In July 2003, PayPal agreed with the
U.S. Attorney for the Eastern District of Missouri that it would pay $10 million as a civil forfeiture to settle
allegations that its provision of services to online gambling merchants violated provisions of the USA
PATRIOT Act and further agreed to have its compliance program reviewed by an independent audit firm.
PayPal is also subject to regulations that require it to report suspicious activities involving transactions of
$2,000 or more and may be required to obtain and keep more detailed records on the senders and recipients in
certain transfers of $3,000 or more. The interpretation of suspicious activities in this context is uncertain.
Future regulations under the USA PATRIOT Act may require PayPal to revise the procedures it uses to
verify the identity of its customers and to monitor international transactions more closely. As PayPal localizes
its service in other countries, additional verification and reporting requirements could apply. These regulations
could impose significant costs on PayPal and make it more difficult for new customers to join its network.
PayPal could be required to learn more about its customers before opening an account, to obtain additional
verification of customers and to monitor its customers' activities more closely. These requirements, as well as
any additional restrictions imposed by credit card associations, could raise PayPal's costs significantly and
reduce the attractiveness of its product. Failure to comply with federal, state or foreign country money
laundering laws could result in significant criminal and civil lawsuits, penalties, and forfeiture of significant
assets.
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