I understand that a VPN is basically a computer (or a collection of computers) that encrypts and proxies your internet traffic. One popular use of a VPN is to pirate software or movies. The VPN keeps you anonymous because the VPN itself is effectively downloading the content and then sending it encrypted to you (so no one can see the communication between you and the VPN). But now the VPN is downloading the illegal content! How can VPN providers do this without taking legal responsibility for having downloaded the pirated material? Is it simply because the VPN servers are in a country where the laws are different?
There are variants of safe harbour policy for digital copyrights laws in many countries. For example, in the US, digital copyright is ruled by the Digital Millennium Copyright Act (DMCA). DMCA Section 512 limits the liability of some entities from copyright infringement:
- Transitory digital network communications
- System caching
- Information residing on systems or networks at the direction of users
- Information location tools
VPN providers and ISPs squarely falls under transitory digital network communications limitations, so they're not considered liable for copyright infringement done by their customers.
I really don't know much about the technicalities of VPNs, but living in China and using multiple VPNs for years, here is what I learned:
Once the traffic is encrypted, it is practically impossible to tell what is being downloaded/uploaded. Every VPN I used has a policy of not keeping any user statistics so there is never any proof.
VPNs are a backbone of international business communications. The reason why even China can't ban VPNs is because most international companies use them to keep internal communications secure.
The last, but not least, the use of VPNs is considered to be a part of freedom of speech in many countries. They are essential to journalists who work abroad and civil society groups for whom staying anonymous is a matter of life and death.
So there appear to be big business and political lobbies that oppose movie studios and let VPNs provide their services without much regulations.
You are mixing a technical and legal problem here. On a technical point of view, you are true, the VPN machine downloads illegal material and protects your anonymity. But on a legal point of view, it is just providing you an access to internet. So they have the same rights and obligations as any other Internet Service Provider, which indeed depends on the country.
For example in Western European countries, they are supposed to keep logs of all exchanges for at least 6 months and provide them to authorities in case of legal enquiry(*). So if you use a VPN that your local legal authorities can ask for logs, you should not use it for illegal activities. Anyway you should never have any illegal activities :-)
(*) Of course, many VPN present a policy of not keeping any user statistics, so they should not be able to answer to a request from legal authorities. But in that case they could be blamed, not for downloading illegal content but for not having kept legal traces.