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British travel company TUI Travel and low-cost airline easyJet said the disruption would eat into full-year profits but they hoped to recoup some losses through compensation claims lodged with national governments and the EU.

Europe has been dogged by repeated shutdowns of air traffic since an erupting volcano under the Eyjafjallajokull glacier in Iceland started spewing ash in April.

TUI Travel, Europe’s biggest package holiday firm, said the disruption had cost it £90m after 175,000 holidays were cancelled and the company had to provide welfare to, and repatriate, over 180,000 holidaymakers stranded in resorts.

Chief executive Peter Long said, however, he thought the worst of the impact was over and did not expect any further disruption to have a material impact on earnings.

“The disruption now should be minimal as a result of the new protocols. We have got very clearly designated no-fly zones which can be tracked by satellite and we can re-route our aircraft to avoid these areas,” Long told reporters on a conference call.

EasyJet said the ash-related disruption would have a significant impact on its annual financial performance and, in response, cut its expectations for full-year profit.

“Without the volcanic ash disruption our full-year pretax profit would have been somewhere between £175 and £200m but that has now come down to between £100 and £150m,” easyJet chief executive Andy Harrison told reporters.

“The ash disruption has cost us between £50 and £75m and we’ll have to see in what shape compensation claims come in, which is why we have given a reasonably wide range on the costs of the volcano.”

EasyJet, which posted a smaller-than-expected first-half loss, has so far been forced to cancel over 6,500 flights, disrupting around 850,000 passengers and is currently seeking compensation from governments.

The biggest closure lasted for almost a week from April 15, causing about 100,000 flight cancellations, stranding millions of passengers and costing airlines more than $1.7bn in lost revenue.

European air traffic agency Eurocontrol said areas of higher ash concentration could move from over the Atlantic Ocean back toward the Iberian peninsula, threatening fresh airspace closures in Portugal and Spain.

Ferrovial-owned British airports operator BAA said the chaos, which contributed to a 23 percent decline in April traffic at its airports, had cost it around £30m.

However, Fraport, operator of Germany’s Frankfurt airport, raised its 2010 outlook, brushing off concerns over further disruption.

Fraport said its operating profit would take a 20 million euro hit due to the ash cloud, as one million fewer passengers came through Frankfurt airport.

Ford also raised its North American production plan for the current quarter as well as the 2010 outlook for its Ford Motor Credit financing arm.

Chief Executive Alan Mulally said the results were “further evidence” that the automaker’s turnaround was working.

“The basic engine that drives our business results – products, market share, revenue, and cost structure – is performing stronger each quarter,” Mulally told analysts on a conference call.

The first-quarter results included operating profits at all of its automotive units, including the Swedish brand Volvo which Ford has agreed to sell to China’s Geely.

Ford has benefited from improved public perception, in part because of the government bailouts of General Motors and Chrysler, and Toyota Motor Corp’s massive US vehicle recalls and sales halt in the first quarter.

Ford’s edge may begin to fade with Toyota offering record incentives to boost US sales, GM repaying government loans and Chrysler declaring a first-quarter operating profit.

“Just looking at the first-page numbers, they had a fantastic quarter,” Morningstar analyst David Whiston said. “But it would not be easy competition going forward… It will get a little bit harder for Ford to keep it up in North America.”

CFO Lewis Booth said Ford’s net pricing held flat in the first quarter from the previous quarter despite the unprecedented discounting by Toyota.

Fueled by strong sales of its smaller, fuel-efficient vehicles such as the Focus compact and Fusion mid-size sedan, Ford’s US sales jumped nearly 38 percent in the first quarter, more than doubling the industry sales growth.

Ford’s US market share jumped to 16.8 percent in the first quarter, up sharply from 14.1 percent in the same period a year ago and 15.5 percent for the full year 2009.

The automaker has been rebuilding a North American lineup that had come to rely too heavily on SUVs and pickup trucks.

Net income amounted to $2.1bn, or 50 cents per share, in the first quarter, compared with a year-earlier net loss of $1.4bn, or 60 cents per share. Revenue rose to $28.1bn from $24.4bn.

Excluding one-time items, earnings were 46 cents per share. On that basis, analysts on average expected profit of 31 cents, according to Thomson Reuters.

This was Ford’s highest quarterly pretax profit in six years.

In addition, it was the fourth consecutive quarterly profit for Ford, which also reported a full-year 2009 profit, snapping a streak of annual losses totaling $30bn from 2006 through 2008.

Ford Credit had its highest operating profit since the second quarter of 2005, and it now expects 2010 earnings to be about the same as in 2009, rather than declining as it had forecast earlier.

Paying down debt key
Ford investors now are focused on the sustainability of the turnaround. Ford’s results follow Chrysler’s announcement earlier in April that it made a first-quarter operating profit. GM plans to release first-quarter results in mid-May.

GM also said it would invest $890m to upgrade five North American plants to produce small engines and related components.

Ford borrowed more than $23bn in late 2006 to fund the turnaround, allowing it to avoid the US government-supported bankruptcies that snared GM and Chrysler last year, but leaving it with far more debt than its US-based rivals.

Ford ended the first quarter with automotive debt of $34.3bn, an increase of $700m from year-end 2009, but paid down $3bn of debt in April that will be reflected in second-quarter results.

The company also had an automotive operating cash outflow of $100m in the first quarter, but expects positive operating cash flow for the year.

The speed of Ford’s turnaround in part remains tied to the strength of the US economy and the pace of the recovery in US auto sales, which last year had sunk to 10.4 million vehicles, their lowest level since the early 1980s.

Booth said Ford was seeing some recovery in the US economy, about in line with expectations, but Europe remained a concern with government incentive programs winding down. Ford also expects some headwinds from commodity prices.

Ford left intact its forecast for 2010 US auto industry sales of 11.5 million to 12.5 million vehicles, including medium and heavy trucks.

The automaker raised its second-quarter North American production plan by five percent to 625,000 vehicles, which would be up 38 percent from a year earlier.

Ford stock has more than tripled in the past year and set a five-year high on April 27 on the New York Stock Exchange amid a gradual improvement in the automaker’s financial results and a slow recovery in the US economy.

In 2010, another American president is calling for an end to settlements he considers obstacles to peace between Israel and the Palestinians. Israeli authorities responded by announcing new ones, illegal under international law. Settlers now number close to half a million.

In the three decades between 1980 and 2010, there have been multiple US-Israeli spats over the issue and they often fell into something of a pattern, spelt out in 1991 by James Baker, President George H W Bush’s secretary of state: “Every time I have gone to Israel in connection with the peace process … I have been met with an announcement of new settlement activities. It substantially weakens our hand in trying to bring about a peace process.” That is as true now as it was then.

Also part of the routine: suggestions from critics of Israeli policy that the US uses its vast aid programme to Israel as a lever to change its behaviour. “Cut off the Cash and Israel Might Behave” read a headline at the height of the latest US-Israeli spat over settlements. The headline ran over an essay in a British newspaper, The Independent, by Avi Shlaim, a professor of international relations at the University of Oxford who served in the Israeli army.

The folder in which to file that idea might be labeled Wishful Thinking.

Since the end of the Second World War, Israel has been the largest cumulative recipient of US foreign aid, according to the Congressional Research Service, the research arm of Congress. Since 1985, aid to Israel has run at around $3bn a year, a sizable sum for a country with a population roughly equal to that of New York City.

Attempts to use aid as a lever have been few and far between. In 1991, the elder Bush asked Congress to delay $10bn in loan guarantees to get Israel to stop building new settlements. This sparked a determined lobbying effort by the American Israeli Political Action Committee, the biggest pro-Israel advocacy group, and prompted Bush to describe himself as “one lonely guy” facing powerful political forces in the shape of “a thousand lobbyists on the Hill.”

The quip illustrated both the limits of presidential power and solid congressional support for Israel. It runs across partisan divides and was highlighted once again during Israeli Prime Minister Benjamin Netanyahu’s visit to Washington in March, when President Obama made known his displeasure over yet more settlements by dispensing with standard protocol. No joint declaration, no dinner, no photo opportunity, exit through the back door.

No space between US and Israel
That contrasted markedly with warm remarks from the Democratic House speaker, Nancy Pelosi, and the leader of the House Republicans, John Boehner. “We in Congress stand by Israel. In Congress we speak with one voice on the subject of Israel,” said Pelosi. “We have no stronger ally anywhere in the world,” said Boehner.

Vice President Joseph Biden, a staunch defender of Israel in his 36 years in the Senate, even after he was blindsided during a Jerusalem visit by an announcement of 1,600 new Jewish settlements, said “there is no space, absolutely no space between the United States and Israel when it comes to security, none. No space.”

Such joined-at-the-hip thinking is the reason why US military aid to Israel has been designed to give the recipient a “qualitative military edge” (QME) over its potential adversaries. The QME dates back to Lyndon Johnson and is not connected to the ups and downs of the relationship – a day after Netanyahu’s tense meeting with Obama, the Pentagon announced an agreement to supply Israel with three new tactical transport aircraft, part of an order worth up to $1.9bn.

Providing Israel with generous economic and military aid made sense, from an American point of view, during the Cold War when the Soviet Union was propping up its client states in the Middle East and the US needed a reliably pro-American outpost. As the late Secretary of State Alexander Haig once put it: “Israel is the largest, most battle-tested and cost-effective US aircraft carrier that cannot be sunk, does not carry even one US soldier, and is located in a most critical region for US national security. ” In short, a strategic asset.

Is it still? Or is lack of progress on making peace with the Palestinians turning Israel into a liability for its long-term benefactor. In March, in written testimony to the Senate Foreign Relations Committee, Central Command chief General David Petraeus, listed “insufficient progress towards a comprehensive Middle East peace” as number five on a list of 15 threats to US national security.

Petraeus, whose Central Command covers 20 countries in the Middle East and South and Central Asia, assigned no blame for the lack of progress but said the Israeli-Palestinian conflict fomented anti-American sentiment “due to a perception of US favouritism to Israel. ” Al Qaeda and other militant groups, he said, exploited Arab anger over the Palestinian issue to mobilise support.

That places Israel and foot-dragging over settlements in the liability column of the ledger. But that won’t affect continued US military aid. Under a ten-year agreement signed in 2007, military aid will reach $3.15bn a year by 2013 and will stay at that level until 2018. Progress towards peace or not.

The state is Brazil’s top soy producer, churning out an annual harvest of about 18 million tonnes. Fields of emerald green line the highways, stretching out to horizons so flat they look drawn with a ruler.

The crops have helped fuel Brazil’s economic boom of recent years but they come at a price – the clearing of more than 130,000 square km (50,000 square miles) of Amazon rainforest in the state from 1988 through 2008, to the widespread condemnation of environmental groups.

Years of acrimony have built up. When a visitor mentions environmentalists, the faces of Mato Grosso farmers often cloud with hostility.

So, with “save the world” emotional appeals not working, environmentalists are turning to economic arguments, stressing how preserving the world’s largest forest can mean bigger profits for farmers.

“We have to define what’s in it for the farmer,” said John Buchanan, senior director for agricultural markets at the Conservation International group. “The private sector is too important a stakeholder not to have on board.”

His group has worked with Brazilian farmers since 2001, helping them comply with confusing environment laws, negotiate government bureaucracy and identify environmentally important land, such as parcels housing rare species.

“We started very small, very simple,” Buchanan said, adding that about 132,000 hectares (326,000 acres) of preserves in several states have been or are being legalised.

“Some in the environmental community have unrealistic expectations of what farmers can do,” he said. “We know we need to preserve important places. We also need to be producing the food, fibre and fuel that we need for a growing world.”

The Amazon rain forest in Brazil has lost nearly 20 percent of its area since the 1970s, largely because of ranchers and farmers seeking new land for their cattle and crops.

But better policing has helped reduce the destruction to around 7,000 square km (2,700 square miles) nationally in 2009, the lowest in more than two decades and less than one-quarter of the record rate in 1995, according to the National Institute of Space Studies’ satellite data.

Environmentalists are trying to bring the figures down even further, emphasising the long-term economic losses springing from deforestation.

“We see the conventional economy as an instrument,” says Maria Amelia Enriquez, president of the Sociedade Brasileira de Economia Ecologica, which studies the economics of environmental policies. “Science can’t just live in its own world anymore.”

New times for “soy king”
Perhaps no one embodies this shift like “soy king” Blairo Maggi.

Maggi’s family are among the world’s biggest soy producers, and, after a successful run at Mato Grosso’s governorship in 2002, deforestation accelerated as his influence over environmental policy became even bigger.

In 2003, Maggi told the New York Times that he didn’t feel “the slightest guilt” over deforestation. Two years later, Greenpeace gave him their ‘Golden Chainsaw’ award to protest his role in the destruction.

But Maggi has recently adopted a much more moderate tone, calling for a balance between agriculture and the environment. “We agree farmers need to preserve forest, but they need the financial incentive to do so,” he told Forbes last year.

He backs the carbon-financing mechanisms known as REDD (Reduced Emissions from Deforestation and Degradation), under which rich countries can offset their carbon emissions by paying for avoided deforestation in countries like Brazil.

Those sorts of programmes can make a clearer case for the financial benefits of conservation.

Consumer pressure for “greener” products also has an impact. Recent international campaigns by Greenpeace on the destructive effects of soy and cattle have forced farmers to become more environmentally aware or risk losing customers.

Environmentalists say the more efficient land use that resulted in many cases helped farmers make more profit and limited some environmentally-unfriendly practices.

“If you can make good economic arguments, it’s hard not to make progress,” says Marcos Amend, the executive director of Conservacao Estrategica, a Brazilian offshoot of the Conservation Strategy Fund.

Amend’s group runs a nine-day class teaching conservationists how to couch their arguments in financial terms. About 350 people have cycled through the Brazilian version of the course, which includes microeconomics and valuing natural resources, among other topics.

“Conservation is basically putting order to economic activities,” Amend said. “But if you don’t understand the economics behind it all, it’s a tough sell.”

Farmers can be convinced, but the arguments need to be well-grounded with demonstrable results.

In Sorriso, for example, farmers have embraced a farming technique called zero tillage, in which they leave organic matter such as leaves, stalks, roots and stems, from previous harvests on the soil to provide a natural fertiliser and barrier against erosion for the next crop.

The fields in and around town are covered with old stalks and leaves of crops, such as corn, planted between seasons of soy, the plant most ubiquitous in this city of about 55,000 people.

Zero tillage can increase profits through labor and energy savings, conserve soil, increase tolerance to drought, and reduce greenhouse gas emissions, the World Bank says.

“For us, the farmers, as well as the environment, zero tillage has been the best thing,” said Sorriso farmer Argino Bedin.

Brazilian farmers point out that they’re feeding the nation – and boosting the economy. Brazil is the world’s top exporter of beef, poultry, coffee, sugar and orange juice.

Ultimately, numbers drive the bottom line, said Egidio Raul Vuaden, a farmer in nearby Lucas do Rio Verde. “If there’s demand in the market, man will go in search of money.”

A solar-powered airplane designed to fly day and night without fuel or emissions successfully made its first test flight above the Swiss countryside on Wednesday.

The Solar Impulse, which has 12,000 solar cells built into its wings, is a prototype for an aircraft intended to fly around the world without fuel in 2012.

It glided for 87 minutes above western Switzerland at an altitude of 1,200 metres (3,937 feet) with German test pilot Markus Scherdel at the controls.

“Everything went as it should,” Scherdel told Reuters Television at Payerne military base after landing.

It took six years to build the carbon fibre aircraft, which has the wingspan of an Airbus A340 (63.4 metres) and weighs as much as a mid-sized car (1,600 kg or 3,527 lb).

The prototype made a “flea hop” in December 2009, flying a distance of 350 metres one metre above the runway of a military airbase near Zurich. It was then transported to Payerne airfield in the west of Switzerland for its maiden flight.

The propeller plane is powered by four electric motors and designed to fly day and night by saving energy from its solar cells in high-performance batteries.

It is ultimately expected to attain an average flying speed of 70 km (44 miles) per hour and reach a maximum altitude of 8,500 metres (27,900 feet).

Bertrand Piccard, one of the Swiss pilots behind the project, is best known for completing the first non-stop, round-the-world flight in a hot-air balloon in March 1999.

The other main pilot, Swiss engineer Andre Borschberg, has described it as “ten times lighter than the very best glider.”

“Such a large wingspan for so little weight is something completely new in the world of aviation,” he said on the initiative’s website www.solarimpulse.com.

The project’s budget is 100 million Swiss francs ($94m), 80 million francs of which has been secured from sponsors, according to spokeswoman Rachel de Bros.

Belgian chemicals company Solvay , Swiss watchmaker Omega, part of the Swatch group, and German banking giant Deutsche Bank , are the three main sponsors.

Ecole Polytechnique Federale de Lausanne (EPFL), one of two Swiss federal polytechnical universities, is scientific advisor.

The ministers from the countries collectively known as BRIC signed a pact to create a joint agricultural information base that will help each country to calculate production and consumption balances and establish national grain reserves.

“Alone, we are not able to solve the global problem of food security, but we can help the international community to fight famine,” Indian Agriculture Minister Sharad Pawar told reporters after the four ministers met in Moscow.

The emerging BRIC economies produce 40 percent of the world’s wheat, half of its pork and a third of its poultry and beef. The four countries’ combined gross domestic product was equal to 22.4 percent of the global total in 2008.

Russia, which hosted the inaugural World Grain Forum last year, is positioning itself as a major supplier of grains to the world market. It plans to double grain exports within 15 years and to raise its harvests by 50 percent.

The four ministers agreed to share experience in providing food to vulnerable populations and victims of natural disasters, as well as swapping agricultural technology to help reduce the effect of climate change on food production.

About 42 percent of the world’s population lives in BRIC countries, and a substantial proportion of these people belong to vulnerable groups that require state support to ensure food security, the ministers said in a joint statement.

One-on-one meetings
Russian Agriculture Minister Yelena Skrynnik told reporters the ministers would also hold a series of bilateral meetings. She and Pawar were joined by Chinese Agriculture Minister Han Changfu and Brazilian Agrarian Reform Minister Guilherme Cassel.

At the one-on-one meetings, Russia planned to discuss exports of grain and oilseeds to India in exchange for Indian poultry, and shipments of wheat to Brazil in exchange for meat, Skrynnik said.

Russia has said it plans to bring about 20 million hectares (49 million acres) of derelict farmland into use – an area approximately the size of West African nation Senegal.

The government is also currently sitting on huge grain intervention stocks – around 10 million tonnes – which it has found difficulty in exporting.

Russia’s new state grain trader, the United Grain Company, has shipped only part of the 100,000 tonnes of humanitarian aid slated for Cuba and is also organising delivery of 57,000 tonnes of feed grain to Mongolia.

According to court documents, former employees and investigators, a receptionist greeted visitors at the door of the company, known as Innovative Marketing Ukraine. Communications cables lay jumbled on the floor and a small coffee maker sat on the desk of one worker.

As business boomed, the firm added a human resources department, hired an internal IT staff and built a call centre to dissuade its victims from seeking credit card refunds. Employees were treated to catered holiday parties and picnics with paintball competitions.

Top performers got bonuses as young workers turned a blind eye to the harm the software was doing. “When you are just 20, you don’t think a lot about ethics,” said Maxim, a former Innovative Marketing programmer who now works for a Kiev bank and asked that only his first name be used for this story. “I had a good salary and I know that most employees also had pretty good salaries.”

In a rare victory in the battle against cybercrime, the company closed down last year after the US Federal Trade Commission filed a lawsuit seeking its disbandment in US federal court.

An examination of the FTC’s complaint and documents from a legal dispute among Innovative executives offer a rare glimpse into a dark, expanding – and highly profitable – corner of the internet.

Innovative Marketing Ukraine, or IMU, was at the centre of a complex underground corporate empire with operations stretching from Eastern Europe to Bahrain; from India and Singapore to the US. A researcher with anti-virus software maker McAfee Inc who spent months studying the company’s operations estimates that the business generated revenue of about $180m in 2008, selling programmes in at least two dozen countries. “They turned compromised machines into cash,” said the researcher, Dirk Kollberg.

The company built its wealth pioneering scareware – programmes that pretend to scan a computer for viruses, and then tell the user that their machine is infected. The goal is to persuade the victim to voluntarily hand over their credit card information, paying $50 to $80 to “clean” their PC.

Scareware, also known as rogueware or fake antivirus software, has become one of the fastest-growing, and most prevalent, types of internet fraud. Software maker Panda Security estimates that each month some 35 million PCs worldwide, or 3.5 percent of all computers, are infected with these malicious programmes, putting more than $400m a year in the hands of cybercriminals. “When you include cost incurred by consumers replacing computers or repairing, the total damages figure is much, much larger than the out of pocket figure,” said Ethan Arenson, an attorney with the Federal Trade Commission who helps direct the agency’s efforts to fight cybercrime.

Groups like Innovative Marketing build the viruses and collect the money but leave the work of distributing their merchandise to outside hackers. Once infected, the machines become virtually impossible to operate. The scareware also removes legitimate anti-virus software from vendors including Symantec Corp, McAfee and Trend Micro Inc, leaving PCs vulnerable to other attacks.

When victims pay the fee, the virus appears to vanish, but in some cases the machine is then infiltrated by other malicious programmes. Hackers often sell the victim’s credit card credentials to the highest bidder.

Removing scareware is a top revenue generator for Geek Choice, a PC repair company with about two dozen outlets in the US. The outfit charges $100 to $150 to clean infected machines, a service that accounts for about 30 percent of all calls. Geek Choice CEO Lucas Brunelle said that scareware attacks have picked up over the past few months as the software has become increasingly sophisticated. “There are more advanced strains that are resistant to a lot of anti-virus software,” Brunelle said.

Anti-virus software makers have also gotten into the lucrative business of cleaning PCs, charging for those services even when their products fall down on the job.

Charlotte Vlastelica, a homemaker in State College, Pennsylvania, was running a version of Symantec’s Norton anti-virus software when her PC was attacked by Antispyware 2010. “These pop-ups were constant,” she said. “They were layered one on top of the other. You couldn’t do anything.”

So she called Norton for help and was referred to the company’s technical support division. The fee for removing Antispyware 2010 was $100. A frustrated Vlastelica vented: “You totally missed the virus and now you’re going to charge us $100 to fix it?”

An industry pioneer
“It’s sort of a plague,” said Kent Woerner, a network administrator for a public school district in Beloit, Kansas, some 5,500 miles (8,850 km) away from Innovative Marketing’s offices in Kiev. He ran into one of its products, Advanced Cleaner, when a teacher called to report that pornographic photos were popping up on a student’s screen. A message falsely claimed the images were stored on the school’s computer.

“When I have a sixth-grader seeing that kind of garbage, that’s offensive,” said Woerner. He fixed the machine by deleting all data from the hard drive and installing a fresh copy of Windows. All stored data was lost.

Stephen Layton, who knows his way around technology, ended up junking his PC, losing a week’s worth of data that he had yet to back up from his hard drive, after an attack from an Innovative Marketing programme dubbed Windows XP Antivirus. The president of a home-based software company in Stevensville, Maryland, Layton says he is unsure how he contracted the malware.

But he was certain of its deleterious effect. “I work eight-to-12 hours a day,” he said. “You lose a week of that and you’re ready to jump off the roof.”

Layton and Woerner are among more than 1,000 people who complained to the US Federal Trade Commission about Innovative Marketing’s software, prompting an investigation that lasted more than a year and the federal lawsuit that sought to shut them down. To date the government has only succeeded in retrieving $117,000 by settling its charges against one of the defendants in the suit, James Reno, of Amelia, Ohio, who ran a customer support centre in Cincinnati. He could not be reached for comment.

“These guys were the innovators and the biggest players (in scareware) for a long time,” said Arenson, who headed up the FTC’s investigation of Innovative Marketing.

Innovative’s roots date back to 2002, according to an account by one of its top executives, Marc D’Souza, a Canadian, who described the company’s operations in-depth in a 2008 legal dispute in Toronto with its founders over claims that he embezzled millions of dollars from the firm. The other key executives were a British man and a naturalised US citizen of Indian origin.

According to D’Souza’s account, Innovative Marketing was set up as an internet company whose early products included pirated music and pornography downloads and illicit sales of the impotence drug Viagra. It also sold gray market versions of anti-virus software from Symantec and McAfee, but got out of the business in 2003 under pressure from those companies.

It tried building its own anti-virus software, dubbed Computershield, but the product didn’t work. That didn’t dissuade the firm from peddling the software amid the hysteria over MyDoom, a parasitic “worm” that attacked millions of PCs in what was then the biggest email virus attack to date. Innovative Marketing aggressively promoted the product over the internet, bringing in monthly profits of more than $1m, according to D’Souza.

The company next started developing a type of malicious software known as adware that hackers install on PCs, where they served up pop-up ads for travel services, pornography, discounted drugs and other products, including its flawed antivirus software. They spread that adware by recruiting hackers whom they called “affiliates” to install it on PCs.

“Most affiliates installed the adware product on end-users’ computers illegally through the use of browser hijacking and other nefarious methods,” according to D’Souza. He said that Innovative Marketing paid its affiliates 10 cents per hijacked PC, but generated average returns of $2 to $5 for each of those machines through the sale of software and products promoted through the adware.

Any means but spam
The affiliate system has since blossomed. Hackers looking for a piece of the action can link up with scareware companies through anonymous internet chat rooms. They are paid through electronic wire services such as Western Union, Pay Pal and Webmoney which can protect the identity of both the sender and the recipient.

To get started, a hacker needs to register as an affiliate on an underground website and download a virus file that is coded with his or her affiliate ID. Then it’s off to races.

“You can install it by any means, except spam,” says one affiliate recruiting site, earning4u.com, which pays $6 to $180 for every 1,000 PCs infected with its software. PCs in the US earn a higher rate than ones in Asia.

Affiliates load the software onto the machines by a variety of methods, including hijacking legitimate websites, setting up corrupt sites for the purposes of spreading viruses and attacks over social networking sites such as Facebook and Twitter.

“Anybody can get infected by going to a legitimate website,” said Uri Rivner, an executive with RSA, one of the world’s top computer security companies.

A scareware vendor distributed its goods one September weekend via The New York Times’ website by inserting a single rogue advertisement. The hacker paid NYTimes.com to run the ad, which was disguised as one for the internet phone company Vonage. It contaminated PCs of an unknown number of readers, according to an account of the incident published in The New York Times.

Patrik Runald, a senior researcher at internet security firm Websense Inc, expects rogueware vendors to get more aggressive with marketing. “We’re going to see them invest more money in that – buying legitimate ad space,” he said.

To draw victims to infected websites, hackers will also manipulate Google’s search engine to get their sites to come up on the top of anyone’s search in a particular subject. For instance, they might capitalize on news events of wide interest – from the winners of the Oscars to the Tiger Woods scandal – quickly setting up sites to attract relevant search times. Anti-virus maker Panda Security last year observed one scareware peddler set up some one million web pages that infected people searching for Ford auto parts with a program dubbed MSAntispyware2009. They also snare victims by sending their links through Facebook and Twitter.

Some rogue vendors manage their partnerships with hackers through software that tracks who installed the virus that generated a sale. Hackers are paid well for their efforts, garnering commissions ranging from 50 to 90 percent, according to Panda Security. SecureWorks, another security firm, estimates that a hacker who gets one to two percent of users of infected machines to purchase the software can pull in over $5m a year in commissions.

Hackers in some Eastern European countries barely attempt to conceal their activities.

Panda Security found photos of a party in March 2008 that it said affiliate ring KlikVIP held in Montenegro to reward scareware installers. One showed a briefcase full of euros that would go to the top performer. “They weren’t afraid of the legal implications, ” said Panda Security researcher Sean-Paul Correll. “They were fearless.”

Banking
One of Innovative Marketing’s biggest problems was the high proportion of victims who complained to their credit card companies and obtained refunds on their purchases. That hurt the relationships with its merchant banks that processed those transactions, forcing it to switch from banks in Canada to Bahrain. It created subsidiaries designed to hide its identity.

In 2005, Bank of Bahrain & Kuwait severed its ties with an Innovative Marketing subsidiary that had the highest volume of credit card processing of any entity in Bahrain because of its high chargeback rates, according to D’Souza.

Innovative Marketing then went five months without a credit card processor before finding a bank in Singapore – DBS Bank – willing to handle its account. The Singapore bank processed tens of millions of dollars in backlogged credit card payments for the company, D’Souza said.

To keep the chargeback rate from climbing even higher, Innovative Marketing invested heavily in call centers. It opened facilities in Ukraine, India and the US. The rogueware was designed to tell the users that their PCs were working properly once the victim had paid for the software, so when people called up to complain it wasn’t working, agents would walk them through whatever steps it took to make those messages come up.

Often that required disabling legitimate anti-virus software programmes, according to McAfee researcher Dirk Kollberg, who spent hours listening to digitised audio recordings of customer service calls that Innovative Marketing kept on its servers at its Ukraine offices. He gathered the data by tapping into a computer server at its branch in Kiev that he said was inadvertently hooked up to Innovative’s website. “At the end of the call,” he said, “most customers were happy.”

Police have had limited success in cracking down on the scareware industry. Like Innovative Marketing, most rogue internet companies tend to be based in countries where laws permit such activities or officials look the other way.

Law enforcement agencies in the US, Western Europe, Japan and Singapore are the most aggressive in prosecuting internet crimes and helping officials in other countries pursue such cases, said Mark Rasch, former head of the computer crimes unit at the US Department of Justice. “In the rest of the world, it’s hit or miss,” he said. “The cooperation is getting better, but the level of crime continues to increase and continues to outpace the level of cooperation.”

The FTC succeeded in persuading a US federal judge to order Innovative Marketing and two individuals associated with it to pay $163m it had scammed from Americans. Neither individual has surfaced since the government filed its original suit more than a year ago. But Ethan Arenson, the FTC attorney who handled the case, warned: “Collection efforts are just getting underway.”