MLM / Chain Money
Illegality in MLMs and recommendations for law enforcement
An open letter from MLM expert Robert L FitzPatrick of Pyramid Scheme Alert to the US FTC exposes illegality of multi-level marketing (MLM) schemes and how law enforcement agencies can curb it. The same applies for India where thousands of pyramid or network marketing schemes are duping gullible savers everyday and also lobbying for legitimacy 
 
In an 'open letter' to the US Federal Trade Commission (FTC), pyramid scheme expert Robert L FitzPatrick, co-author of the book, 'False Profits', president of Pyramid Scheme Alert and co-founder of the International Coalition of Consumer Advocates, has provided a set of recommendations to the FTC on how to identify illegal multi-level marketing (MLM) schemes and to enforce consumer protection laws on pyramids disguised as 'direct selling'. The paper was sent following a conference call with officials of the FTC Consumer Protection Bureau in which an invitation for suggestions and recommendations was made by FTC officials.
 
The FTC recently prosecuted one of the larger MLMs, Fortune High Tech Marketing, but only after it had scammed more than 300,000 households and operated openly for nearly 12 years. Currently, the FTC is investigating one of the largest of all MLMs, Herbalife that has operated for more than 30 years.
 
Bright Lines of Illegality:
 
The paper submitted by FitzPatrick, entitled, Identifying 'Bright Lines' for Determining Illegality of Any Multi-Level Marketing Company under Section 5 of the FTC Act, lists telltale signs of illegality (unfair and deceptive trade practices):
 
1. Endless Chain Structure - The sales management chain has no sector of sales people that is focused directly and only on end-users. The sales chain expansion is without limit and without geographic restriction. All new participants, upon payment, are awarded the right and offered financial incentives to recruit more salespeople and extend the chain to multiple levels, usually six to infinity. This reward plan and structure indicate the use of the inherently deceptive“endless chain”, infinity factor” and “unlimited” income claim to induce purchases and fees.
 
2. Pay-to-Play – Despite providing no territorial protection or even historical saturation data provided to new salespeople, sales/ purchase quotas are imposed with specific dollar volumes of product purchases (either by the distributor personally or his/her recruitment chain). In some cases, there are structural recruiting requirements also imposed in order to maintain a position in the endless chain payment plan. These volume and recruiting quotas are signs of “pay-to-play” factors that operate in tandem with an endless chain structure and recruiting-based rewards to drive purchases and fee payments.
 
3. Money Transfer - The MLM employs a reward formula that overwhelmingly rewards chain extension activity that is recruiting-based over personal retail sales activity that is market-based. Evidence includes formulas that allocate higher aggregate rewards, per transaction, to those at the upper end of the chain, over those at the base and allocate total commission payout to recruiters in excess of total verified retail profits. Special bonuses and rates on total “group” volume are based on position on the endless chain. They money transfer formulas directly result in an extreme concentration of payments – 50% to 80% – of total payouts to those at the extreme upper end of the recruiting chain. As an example, the report referenced hard data on Nu Skin’s payment of 82% of all its commissions to the top 1.29% of its “active” sales force, which is 0.5% of the entire sales network.
 
4. Recruitment-Driven  - The actual activity of the business is characterised by relentless recruiting, churning and transferring funds from later participants to earlier ones.
 
5. Little Evidence of Market-based Retail Selling - Little evidence, gained from an examination of marketing materials, website, and reports from participants or researchers, of market-based retail sales, per salesperson, and little evidence of retail profit gains among the sales force.
 
6. No Income Opportunity for Nearly All Participants -  Large-scale losses are evident in the sales force, even among those in the upper one-third of sales chain.
 
Law Enforcement Guidelines
For law enforcement, the report offered specific reforms that would put any MLM on the legal side.
 
1. Limit the number of levels that any individual salesperson can personally recruit and gain override commissions to one or several. In combination with other reforms, this measure would eliminate the infinity factor.
 
2. Require that commissions be awarded only on consummated retail sales, that is to persons who are not signers of the company’s sales contract and are not eligible for recruiting-based rewards. 
 
3. Allow no commissions to be paid on any purchases made by other salespeople or on the salesperson’s own account. This reform eliminates a major incentive for recruiting and for making personal purchases. It would also clearly indicate that all purchases made by the sales force are market-based. 
 
4. Eliminate all purchase/ sales volume or recruiting requirements in order to maintain sales and recruiting authorization. With no geographic limitations or protections placed on MLM salespeople, and no information available on market saturation factors, volume and recruiting requirements serve no other purpose than as recruiting inducements. 
 
5. Establish limited territories for distributors who want to develop sales teams with authorisation based upon management selection. The current practice of open-ended, even global territories and escalation on the sales chain being based purely on volume/ recruiting performance is a telltale indicator of the “endless chain” inducement and the lack of a real-world market basis for sales. 
 
Principles of FTC Law Enforcement and Consumer Protection from Illegal MLMs
 
1. The establishment of an understandable and consistent “bright line” requires that the FTC take a clearly stated legal stand against the groundless and nonsensical claim of MLM promoters that purchasing products by the participants in multi-level marketing exempts the enterprise from an illegal pyramid definition. The bogus identity of “direct selling” by pyramid selling schemes and the claim of exemption from a pyramid scheme definition based on product purchases have confused and misled millions of consumers (“If the MLM sells a product, it’s can’t be a pyramid!”). 
 
MLM lobbyists have claimed that pyramid scheme definitions must exempt enterprises in which rewards are gained through product sales “to participants.” They have lobbied for this “product exemption” in state laws and tried to get a federal law passed in 2003. In fact, in case after case of MLMs prosecuted by the FTC, the selling products was the disguise of choice, and “direct selling” turned out to be a false identity.
 
2. FTC must establish and publish a set of recognizable actors indicative of the use of the endless chain as a marketing device, once the endless structure is identified as part of that MLM’s business model.
 
The evidence of the use of endless chain marketing to induce purchases and fee payments is found in the MLM’s pay formula and in the statement of policies and procedures, both of which are generally published.
 
Additional evidence can be found in income disclosure documents, website, webinars and in SEC filings.
 
Evidence of the use of the endless chain is manifested in verifiable loss and churn rates and absence of profitable retail selling. Referencing these classic elements of a pyramid disguised as a sales company can be done in a matter of hours or days. Pyramid fraud is frequently in plain sight.
 
Mandate for Action Now
 
By offering bright lines and recommendations for law enforcement, the “Open Letter” supports the message of urgency that the International Coalition of Consumer Advocates delivered to the FTC in October, 2013 with it White Paper and petitions.
 
Currently, the FTC lacks a consistent or understandable standard for determining illegality of any MLM, rendering effective FTC prosecution and law enforcement in MLM sector essentially impossible and, indeed, virtually non-existent.
 
By any standard, this position for a law enforcement agency is intolerable. It leaves millions of people in America and around the world without any means of distinguishing legitimate direct selling opportunities from pyramid swindles. In recent years, these schemes have begun targeting the most vulnerable sectors of the public, students and immigrants. The FTC’s untenable position has also generated a dangerous uncertainty in the securities markets, putting pension funds at risk that are invested in MLM enterprises that are being openly challenged for operating illegally.
 
The scenario in India 
 
Coming back to home, Moneylife has been continuously writing about the inaction by government and regulators regarding MLM companies, money circulation schemes, pyramid-marketing schemes and other similar companies that swindle the unwary public by offering them misleading inducements and depriving them of their hard-earned savings.
 
In April 2013, after the collapse of Saradha group, the ministry of corporate affairs (MCA) in a face saving measure has decided to hand over probe of such chit-fund, MLM, Ponzi and pyramid scheme operators to a Special Task Force under the Serious Fraud Investigations Office (SFIO). The ministry said the probe has been ordered in view of a larger public interest involved in the issues, although the state governments are the appropriate authorities for regulation of such chit fund companies and schemes under the Chit Fund Act, 1982.
 
Here are some of the important stories written and representations made by Moneylife over the years…
 
 
In May 2011, following the exposé by Moneylife on Speak Asia Online Pte Ltd and its MLM scheme, Moneylife Foundation sent a representation to prime minister Dr Manmohan Singh, (the then) finance minister Pranab Mukherjee, finance secretary Sushama Nath and Reserve Bank of India (RBI) governor D Subbarao urging them to ban all MLM companies and their schemes in the country, or to bring all MLM companies under the regulation of either the RBI or the Securities and Exchange Board of India (SEBI), to stop them ensnaring gullible people.
 
 
The massive money, which is raised surely shows somewhere on the balance sheet of the company, filed regularly with the MCA. The primary recipient of the information about these companies is the MCA, and surprisingly the MCA is the least proactive in the entire process of bringing these perpetrators to regulatory focus, sooner before tonnes of money vanish.
 
 
Dubious pyramid schemes or money-circulation schemes are looting Indians across economic strata, finds Sucheta Dalal. This will continue since Central and state governments seem unconcerned.
 
 
Pyramid marketing companies are looting the public easily, while the government watches. Many countries have banned them outright.
 
 
A strange deposit scheme that is proliferating in the states of Orissa, Chhattisgarh, Karnataka and Maharashtra has already collected almost Rs1,000 crore and is expanding virtually unchecked. The scam has elements of money-laundering and possibly the use of fake and forged currency as well; however, the banking regulator would like to pass off the investigation to the respective state governments for investigation under the antiquated Prize Chits and Money Circulation Schemes (Banning) Act.
 
 
An international network marketing scheme hawking expensive limited edition coins is attracting a huge following. Sucheta Dalal examines this strange quest.
 
 
Moneylife readers know how MLM schemes ensnare lakhs of people by promising extraordinary returns. We learn from the ministry of consumer affairs that the government is now waking up to the need for better regulation of MLMs and ponzis. At the same time, the powerful Direct Selling Association of the US is lobbying hard for an amendment.
 
 
Pyramids are pure fraud. Their business is unsustainable-they promise payment for goods or services of dubious value. The hallmark of these schemes is the promise of sky-high returns in a short period of time, for doing nothing other than simply handing over your money to them, and getting others to do the same.
 
 
Even as India bans pyramid schemes under a statute called the Prize Chits and Money Circulation Schemes (Banning) Act, 1978, the country continues to be a happy hunting ground for pyramids because our legislation is deliberately unworkable.
 
 
Investors losing money, or falling for dubious Ponzi schemes, is not a recent phenomenon; this has been happening for decades and it is not restricted only to India. Why is it that people repeatedly fall prey to such schemes in spite of being aware of the frauds perpetrated by conmen under different guises?
 
 
EAS Sarma, former power and finance secretary, said the ministry of finance, Reserve Bank of India (RBI), Securities and Exchange Board of India (SEBI), and the investigating agencies should collectively tackle this problem without any delay, as every day of procrastination will only result in thousands of hapless families cheated by the promoters of these schemes.
 
 
Spokespersons and dealers of multi-level marketing (MLM) schemes or network marketing schemes respond to questions about their legitimacy by brandishing a 2003 letter issued by the then secretary, ministry of corporate affairs (MCA). What they omit to mention is that the letter was subsequently annulled following complaints about its misuse. This means, the letter used by these scamsters is no more valid.
 
 
While there are existing laws such as Indian Penal Code (IPC), the Prize Chits and Money Circulation Schemes (Banning) Act, 1978 (PCMCS Act) and others under which concerned agencies could prosecute the culprits, there is no effective mechanism in place to ensure a coordinated approach to identify the fraudulent operators in advance and book them well before they destroy the livelihoods of thousands of households and launder the ill-gotten funds to unknown destinations.
 
 
A set of powerful MLMs, which are part of an exclusive closed club, called the Indian Direct Selling Association or IDSA (on the lines of the Direct Selling Association of the US) has been lobbying hard to make a distinction between their operations and those of others, who they call, fly-by-night operators such as SpeakAsia and Ad Magnet.
 
 
QNet, the controversial Hong Kong-based multi-level marketing (MLM) operator with multiple names (GoldQuest, QuestNet, QNet, QI Ltd and QI group are the better known names) refused to answer simple questions like how much money their independent representative (IR) earns on an average every month and why their products are priced so highly. Instead, it sent us a threatening and defamatory mail that raises more questions as to their real motive.
 
 
If 2010 was the year of great Indian scams, 2011 was rather of ponzi and multi-level marketing (MLM) frauds. SpeakAsia managed to top the chart, but soon many others joined the bandwagon, duping gullible investors for several thousand crores.
 
 
Nothing comes free in this world, especially money. The universal truth is you need to earn your money by hard labour all the time and there are no shortcuts to double it in the shortest span of time. Therefore, even if your near and dear ones tell you he/she will double, triple, quadruple your money within a few days/months, politely reply to them that it is not possible and what they are advocating is a pure 'get-rich-quick' type of scam.
 
 
Herbalife, a global MLM scheme also prevalent in India, is believed to be worthless according to hedge fund manager Bill Ackman, who made a detailed presentation on why consumers should avoid buying the company’s products and stay away from the MLM.
 

User

COMMENTS

Tex

2 years ago

The problem isn't nearly as complicated as FitzPatrick describes it. There are only 2 things that need to be done:
1. Enforce high levels (at least 50%) of retail sales, and
2. Get rid of tool scams.

Also, the "unending chain" theory has been thoroughly debunked. There is MUCH damage being done without saturation.

For the details how these scams work, see http://www.stoptheamwaytoolscam.wordpress.com

Ponzis Continue To Rule the Roost

Chain marketing schemes are still having a nice time, despite SEBI’s enhanced powers 

 

The Direct Selling Association of India and the high-profile, multinational multi-level marketing (MLM) companies have stepped up the pressure on the National Democratic Alliance (NDA) government to frame new rules to give them legal cover. After the arrest and long incarceration of the chairman & CEO of Amway India (since 27th May), and the virtual crackdown on QNet, promoted by a Malaysian national, the industry is in serious disarray.  
 
The MLM industry’s argument is: frame tough rules but remove the ambiguity about the legitimacy and legality of MLM companies operating in India. They also insist that they do not fall under the purview of the Prize Chits & Money Circulation Act, 1954. However, Moneylife has held the view that all MLMs lure people with the promise of high returns and their very structure requires them to entice people to become agents or distributors. 
 
While powerful foreign companies in the MLM business are lobbying the government, the Securities & Exchange Board of India (SEBI) is struggling to initiate action against hundreds of ponzis and ‘collective investment schemes’ that are destroying lives and savings. Consider just one example. KBC Multi Trade, a Nashik-based company, seems to be a repeat of West Bengal’s Saradha scam. It is reported to have collected Rs2,000 crore from unsuspecting victims and the promoters are now absconding. Two of its agents have committed suicide under pressure. The scheme promised to triple the investment in 30 months on an investment of Rs1 lakh each.
 
Unfortunately, the greed for high returns is so pervasive that these schemes manage to garner a few thousand crore rupees each. It is important for the government to keep this in mind before it allows itself to be influenced by those who are lobbying for legal protection for MLMs and chain schemes.

User

COMMENTS

Vaddi Venkata Dorayya

7 months ago

How the all mlm's will be defined as fraud,is it correct that the concept or idea of MLM is classified as fraud practise.

gurupreet

2 years ago

Today QNET advocates scored a second self goal in court :)

Ever Since my fight started against QNET SCAM I have faced the following lawyers in court by appearing in person:

1. Nitin Pradhan
2. Mahesh Jhetmalani
3. Abad Ponda
4. Haresh Mohan Jagtiani
5. Divya Bahl
6. Rajendra Mokashi
7. Kuldip Patil
8. Sandeep Karnik
9. Sudatta Patil etc…

All these are senior advocates with teams of juniors below them but till date QNET did not get any single favorable order from any court.

The FIGHT enters a “new phase” now….Ganpati Bappa Morya :)

Shashi Sridhar

2 years ago

These disclosures are shocking,more so to know that the RBI instead of protecting the common man is protecting the rich.Money Life is doing a great job,making all these public,the common man ought to know how he is being taken for a ride.

Amit Kumar

2 years ago

I read few of you replies. And like to clarify one thing that I have not discussed anything about Amway. Though I have not used any of the amway proucts as well as I have not joined this company. The products are however very costly. Though I once fell prey to Qnet from Which I got my refund and leave it. One of the most interesting thing which the member of this MLM companies say that they had removed the middle man or distributor and they themselve became the distributor of the the company and thus cutting the rates. But when I check any item whether from Amway or any other company they are very much expensive sometimes even 5-6 times as compare to products by other normal companies offer. Then how this is useful. This is only a networking business and product is beint used of circulating money. None of the MLM company has any ethics nor their Representatives or members. They are all greedy people who try to irritate you and force you to join this chain system. Just Avoid this cheap mind set and do some real work to earn money. Because only the upliner will make good money in this chain system who are their for some time now. Newbies are only working hard to make them rich enough not themselves. So don't waste Time.

Koyalgeet

2 years ago

Amit you need to step back and have a 'Rational View' of things. Amway just like Coke or Pepsi is a credible company delivering very high quality products to the world including India. when people dont understand something they belittle it, that is what is happening to Amway. There is more to it that meets the eye and Amway is not in the fault here.

REPLY

MOHAN

In Reply to Koyalgeet 2 years ago

Amway is like coke and Pepsi?

I dont think coke and Pepsi are chain money companies.

Both coke and Pepsi are household names. But what about exorbitant Amway products?

Russ Stewart

2 years ago

Why would your 'MLM companies operating in India' hyperlink be an affiliate link (Plus numerous other opportunity links on the link rotator).

You put down MLM then you promote it.

Why do so many business's have 2 faces?

MOHAN

2 years ago

It is an oft repeated lies of chain money fraudsters that their company operates all over the world since the beginning of life on earth etc etc.

These are all misleading propaganda.

Don’t fall prey to the lure of chain money games.

Russ Stewart

2 years ago

Whether it is MLM or a traditional business/franchise the scams are omnipresent.

Amway, if any; has the most creditable track record. As Amit mentioned in a comment that maybe India is not ready for MLM just yet, and I think he is right.

Even in the UK they have very strict guidelines as to the entry level when joining an MLM/direct sales company.

Unfortunately, whether a company has been around a long time or not this does not necessarily mean the consumer is protected.

EG. Herbalife is undergoing extreme scrutiny in the USA at present. People losing money and a CEO who, 2 years back was the highest paid CEO in the country $89.5 Million.

The basic MLM model is good, just like the model for a community for example, but it is human greed that unfortunately takes over and spoils the essential element of fairness.

MANOJ MOHANTY

2 years ago

11.8 Bn dollar global company Amway operates in the following countries since last 56 years, but what is the problem in India?

##Anguilla
##Antiqua
##Argentina
##Australia
##Austria
##Azores
##Bahamas
##Barbados
##Barbuda
##Belgium
##Bermuda
##Brazil
##British Virgin Islands
##Brunei
##Bulgaria
##Canada
##Canary Islands
##Cayman Islands
##Channel Islands
##Chile
##Colombia
##Costa Rica
##Croatia
##Czech Republic
##Denmark
##Dominica
##Dominican Republic
##El Salvador
##Estonia
##Faroe Islands
##Finland
##France
##French Antilles
##French Guiana
##Germany
##Grenada
##Greece
##Guam
##Guatemala
##Guernsey
##Haiti
##Honduras
##Hong Kong
##Hungary
##Ireland
##Russia
##India
##Indonesia
##Italy
##Japan
##Jersey Island
##Korea
##La Reunion
##Macau
##Madeira
##Malaysia
##Mexico
##Monserrat
##Namibia
##Netherlands
##Netherlands Antilles (Aruba, Bonaire, Curacao, Dutch St. Martin, Saba, St. Eustatius)
##New Zealand
##Norway
##Palau Islands
##Panama
##People's Republic of China
##Philippines
##Poland
##Portugal
##Puerto Rico
##Romania
##Russia
##Singapore
##The Slovak Republic
##Slovenia
##South Africa
##Spain
##St. Kitts and Nevis
##St. Lucia
##St. Vincent
##Sweden
##Switzerland
##Taiwan (Republic of China)
##Thailand
##Trinidad and Tobago
##Trust Territories of the Pacific (Mariana, Marshall, and Caroline Islands)
##Turkey
##Turks and Caicos Islands
##Ukraine
##United Kingdom
##United States of America
##US Virgin Islands
##Uruguay
##Venezuela
##Vietnam
##Wake Islands

REPLY

gurupreet

In Reply to MANOJ MOHANTY 2 years ago

The problem with India is that it has a anti money circulation act called PCMB act in place well in advance...so all these illegal money circulation schemes fall into its ambit...that is the problem dear :)

MOHAN

In Reply to MANOJ MOHANTY 2 years ago

.

Oh my dear ! now you have reduced the list to 96?

okay!

It really funny that Wake Islands, US Virgin Islands etc etc are finding place in this "great" list of 96 countries!!!!

Many of the countries you have mentioned are Caribbean islands !!!

Dear, you are so clever and you have mentioned Antigua and Barbuda separately !

Dear, are you comparing Turks and Caicos Islands with a country like India? !!

Dear, you can fool all the people some of the time, and some of the people all the time, but you cannot fool all the people all the time !!!!!!!!!!!!

MANOJ MOHANTY

In Reply to MOHAN 2 years ago

Most Indians are always busy in all substandard activities like corruption, manipulation,murder, rape, back biting, leg pulling and they understand those better. It is difficult for them to understand that the secret of living is giving. The secret of success is helping others to be successful. So Mr Mohan, you need to just grow up in healthy and positive manner. All the very best.

MOHAN

In Reply to MANOJ MOHANTY 2 years ago

Oh dear this is how Chain money fraudsters are helping their colleagues, by giving a list of Caribbean islands where MLM Ponzi fraudsters can hide and avoid arrest after defrauding innocent Indians. In India the Money chain/ MLM fraudsters are very busy in all kinds of activities like corruption, manipulation,murder, rape, back biting, leg pulling.

Amit Kumar

2 years ago

Qnet is the worst in the list. Their IR's are forcing their own near and dears to fall in this trap. MLM business should be banned in India. Our country is not ready for this yet. Also those who are falling into the prey should check their greed and do some hard work to earn money inspite of wasting their energy in MLM Schemes.

REPLY

malcolm

In Reply to Amit Kumar 2 years ago

@Amit Kumar - Hi Amit, You said India is not ready for NM yet? Are you really sure about making an opinion for the country? I am not into Amway or such other MLM companies though I have been offered. I believe the NM business model is a powerful one and has produced results for more than 60 years. There is no industry where fraud has not happened.

MOHAN

In Reply to malcolm 2 years ago

@ malcolm,

It is great to know that you have been doing "research" for the last 60 years on Chain Money / MLM (you call it NM ? )

Please do a India specific "research" on chain money schemes. Then you will understand the real "powerful business model" of chain money schemes.

Meet the online tracking device that is virtually impossible to block
A new kind of tracking tool, canvas fingerprinting, is being used to follow visitors to thousands of top websites, from WhiteHouse.gov to YouPorn
 
Update: A YouPorn.com spokesperson said that the website was "completely unaware that AddThis contained a tracking software that had the potential to jeopardize the privacy of our users." After this article was published, YouPorn removed AddThis technology from its website.
 
This story was co-published with Mashable.
 
A new, extremely persistent type of online tracking is shadowing visitors to thousands of top websites, from WhiteHouse.gov to YouPorn.com.
 
First documented in a forthcoming paper by researchers at Princeton University and KU Leuven University in Belgium, this type of tracking, called canvas fingerprinting, works by instructing the visitor’s Web browser to draw a hidden image. Because each computer draws the image slightly differently, the images can be used to assign each user’s device a number that uniquely identifies it.
 
Like other tracking tools, canvas fingerprints are used to build profiles of users based on the websites they visit — profiles that shape which ads, news articles, or other types of content are displayed to them.
 
But fingerprints are unusually hard to block: They can’t be prevented by using standard Web browser privacy settings or using anti-tracking tools such as AdBlock Plus.
 
The researchers found canvas fingerprinting computer code, primarily written by a company called AddThis, on 5 percent of the top 100,000 websites. Most of the code was on websites that use AddThis’ social media sharing tools. Other fingerprinters include the German digital marketer Ligatus and the Canadian dating site Plentyoffish. (A list of all the websites on which researchers found the code is here).
 
Rich Harris, chief executive of AddThis, said that the company began testing canvas fingerprinting earlier this year as a possible way to replace “cookies,” the traditional way that users are tracked, via text files installed on their computers.
 
“We’re looking for a cookie alternative,” Harris said in an interview.
 
Harris said the company considered the privacy implications of canvas fingerprinting before launching the test, but decided “this is well within the rules and regulations and laws and policies that we have.”
 
He added that the company has only used the data collected from canvas fingerprints for internal research and development. The company won’t use the data for ad targeting or personalization if users install the AddThis opt-out cookie on their computers, he said.
Arvind Narayanan, the computer science professor who led the Princeton research team, countered that forcing users to take AddThis at its word about how their data will be used, is “not the best privacy assurance.”
 
Device fingerprints rely on the fact that every computer is slightly different: Each contains different fonts, different software, different clock settings and other distinctive features. Computers automatically broadcast some of their attributes when they connect to another computer over the Internet.
 
Tracking companies have long sought to use those differences to uniquely identify devices for online advertising purposes, particularly as Web users are increasingly using ad-blocking software and deleting cookies.
 
In May 2012, researchers at the University of California, San Diego, noticed that a Web programming feature called “canvas” could allow for a new type of fingerprint — by pulling in different attributes than a typical device fingerprint.
 
 
How You Can Try to Thwart Canvas Fingerprinting

Use the Tor browser (Warning: can be slow)

Block JavaScript from loading in your browser (Warning: breaks a lot of web sites)

Use NoScript browser extension to block JavaScript from known fingerprinters such as AddThis (Warning: requires a lot of research and decision-making)

Try the experimental browser extension Chameleon that is designed to block fingerprinting (Warning: only recommended for tech-savvy users at this point)

Install opt-out cookies from known fingerprinters such as AddThis (Warning: fingerprint will likely still be collected, companies simply pledge not to use the data for ad targeting or personalization)

 
 
In June, the Tor Project added a feature to its privacy-protecting Web browser to notify users when a website attempts to use the canvas feature and sends a blank canvas image. But other Web browsers did not add notifications for canvas fingerprinting.
 
A year later, Russian programmer Valentin Vasilyev noticed the study and added a canvas feature to freely available fingerprint code that he had posted on the Internet. The code was immediately popular.
 
But Vasilyev said that the company he was working for at the time decided against using the fingerprint technology. “We collected several million fingerprints but we decided against using them because accuracy was 90 percent,” he said, “and many of our customers were on mobile and the fingerprinting doesn’t work well on mobile.”
 
Vasilyev added that he wasn’t worried about the privacy concerns of fingerprinting. “The fingerprint itself is a number which in no way is related to a personality,” he said.
AddThis improved upon Vasilyev’s code by adding new tests and using the canvas to draw a pangram “Cwm fjordbank glyphs vext quiz” — a sentence that uses every letter of the alphabet at least once. This allows the company to capture slight variations in how each letter is displayed.
 
AddThis said it rolled out the feature to a small portion of the 13 million websites on which its technology appears, but is considering ending its test soon. “It’s not uniquely identifying enough,” Harris said.
 
AddThis did not notify the websites on which the code was placed because “we conduct R&D projects in live environments to get the best results from testing,” according to a spokeswoman.
 
She added that the company does not use any of the data it collects — whether from canvas fingerprints or traditional cookie-based tracking — from government websites including WhiteHouse.gov for ad targeting or personalization.
 
The company offered no such assurances about data it routinely collects from visitors to other sites, such as YouPorn.com. YouPorn.com did not respond to inquiries from ProPublica about whether it was aware of AddThis’ test of canvas fingerprinting on its website.
 
 
Courtesy: ProPublica.org

 

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