Internet technology and E-commerce helped transform the small, seamy back-alley business of peddling child pornography into a global, $20 billion-a-year criminal enterprise. To fight smut peddlers, a coalition of law enforcement agencies, financial services companies, and child protection groups last week launched a campaign to stem the flow of cash to the criminals behind the problem. And authorities this week arrested 27 alleged predators who were using the Internet to trade and stream videos of child molestation.

The problem is getting worse as criminals find new ways to use technology to peddle their filth. The international ring busted last week traded videos, including live streaming abuse of toddlers via peer-to-peer and instant messaging. And police in Connecticut and Houston said the sexual predators they arrested earlier this month used the MySpace.com social networking site to lure teenagers. Exploiting the Internet’s perceived anonymity, nearly a quarter million Web sites are involved in child pornography, and the take could grow to $30 billion in five years, authorities say. Credit card transactions make up the bulk of the business, so having leading financial services companies involved in the new group is critical.

The Financial Coalition Against Child Pornography includes credit card companies, banks, and Internet companies that will work with law enforcement and the National Center for Missing and Exploited Children. The idea came from Sen. Richard Shelby, R-Ala., chairman of the Senate Banking Committee, after he learned that some of the money paid for child porn ends up in the hands of international crime groups like the Russian Mafia. “There’s got to be a way to identify who’s doing that,” Shelby says. “If people were buying heroin and cocaine with their credit cards, people would be outraged. This is worse.”

Coalition members plan to share information--especially financial data--widely and quickly. “We can have a great impact on cutting off the supply of commercial child pornography by cutting off the funds,” says Josh Peirez, MasterCard’s head of public policy. “The whole of the coalition will be better than the sum of its parts.” The coalition will serve as a central repository of information on the child porn business and pass on new intelligence to the right members. For example, Visa might get word of a child porn Web site from the National Center, cancel transactions, tell banks to stop payments, notify American Express of the company’s name, and help authorities take legal action.

Financial services companies are already working with law enforcement to crack down. Criminals often use front companies to accept payment, so financial services firms constantly look for that type of fraud. PayPal, whose easy sign-up and simple payment system makes it a popular option for online transactions, has a team that includes specialists tasked with fighting child pornography and has provided information that has led to indictments for child pornography. PayPal also employs third parties to look for child porn sites that use its payment system.

Cooperative efforts can pay off. An international task force got help from companies such as MasterCard, Morgan Stanley, and Visa when it brought down a $1 million-a-month Belarusian operation called Regpay in late 2004 that ran child porn Web sites. The result: 1,400 people have been arrested.

Businesses can do their part by using IT systems that monitor and block access to porno sites and reporting illegal activities. The Internet may have made child porn a growth industry, but a strong joint effort can halt that dead in its tracks.