The failure by the social networking site was uncovered during a federal police-led international investigation of the syndicate, which had been using fake online identities.
''We are aware that Facebook knew of the existence of these pages and even went so far as to remove the profiles,'' said the director of the AFP High Tech Crime Centre, Neil Gaughan.
But despite closing down the pages after finding illegal material, Facebook did not contact police, Mr Gaughan said.
"Facebook deactivated the online accounts of the initial suspects but there were indications that, within hours, the groups were re-forming again.''
The taskforce, codenamed Project Ocean, was set up by the AFP in March. By June it included the FBI in the US, the Child Exploitation Online Protection Centre in Britain, the Royal Canadian Mounted Police and police in Germany, South Africa and Switzerland.
While officers believe there may have been dozens of people involved in the ring, to date 11 men have been arrested. They include two Melbourne men, aged 33 and 18, and a 26-year-old from Port Kembla. The British-based man police say is the ringleader was due to face an English court overnight.
All 11 are accused of creating Facebook pages under false identities and using the pages to distribute and view graphic sexual images of children.
After federal police arrested one of the Australians, he stunned them by describing how he had sent up to 10 messages to Facebook allegedly informing them about the ring, but the company failed to pass the information to police.
Federal police also contacted a Facebook official in Australia to convey their concerns, and were told he would relay their concerns ''to the boss''. But the AFP received no further reply.
Facebook has been criticised in the past for failing to address privacy and safety concerns held by its hundreds of millions of users.
The company does not have employees in Australia and the US headquarters could not be contacted for comment yesterday. However, a Sydney public relations company that works for the company sent the Herald quotes made by the company's chief security officer two months ago.
"Our policy of using real names, real people and verifiable email addresses is central to maintaining safety on Facebook - Facebook is not anonymous and neither is a criminal if he or she tries to use the service for illegal activity,'' Joe Sullivan said.
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