An interesting article has appeared on one of my specialised work related sites
Virtual money laundering now available on the world wide web
2 January 2007
Money launderers can now move illicit cash through the growing number of virtual reality role-playing games, and convert that cash into real currency before withdrawing it from ATMs worldwide. One wonders just how many laundrymen have tumbled to this cyberlaundering opportunity. Compliance officers at financial institutions please note that their banks may be guilty of money laundering if it faciliitates deposits or payments in these virtual worlds, for there is no functional due diligence on players or recipients…
… Have they created a " financial institution" as the term is defined in the USA PATRIOT Act of 2001 ? It would seem that the answer is yes. Let us see just how long regulators and law enforcement allow this scheme to exist before taking action.
I’d imagine you could pretty much destroy any virtual economies that use real money if they start falling under the classification of a Financial Institution. Regulation, and the complex global laws around money laundering would facilitate the need for inhouse compliance and monitoring and I’d imagine it would be more cost effective to ban all real world cash transactions than in engage in the type of anti money laundering controls FI’s have to undertake.
Definitely a problem. You could argue that such a scheme could be caught when the launderer opens the “small bank account” to access his proceeds, but that’s being optimistic. The due diligence conducted on new account openings is horribly inadequate in many banks, and provided the launderer is patient at transferring funds (i.e. stays within the arbitrary AML reporting cutoff), there’s not going to be a whole lot of red flags going up afterwards. At the very minimum, this adds another layer to larger laundering schemes, which makes detection all the more difficult.
What are the odds of Congress enlarging its definition of “Internet Gambling” under HR 4411? Gentlemen, place your bets!
Although I want to laugh at this, it’s the third such article I’ve read within four months. Something tells me that someone just doesn’t “get” the idea of a game anymore when we’re now focusing on virtual cash as a use for money laundering and taxation.
I play WoW. The last thing I want to think about is that the gold sites that are the bane of any MMO economy happen to be fronting for some crime organization.
Money laundering in a virtual economy? Come on, this is something a computer nerd would think up, not a criminal mastermind. You really think Joey crack dealer is going to dump his money into WoW gold?
You think you need a game for this kind of stuff? NeTeller is an online only bank that can be opened with a faked driver’s license and utility bill, where money can go in from anywhere and out to a debit card/ATM card anywhere.
The game part is extraneous, and what makes me laugh about the “OMG!” nature of stories like this.
Unfortunately, some of these games allow one to convert real dollar deposits to virtual dollars, and back to real dollars at a fixed exchange rate of, for example, ten to one, and to withdraw those funds, using many of the automated teller machine services available globally. Players are given an ATM card,(in essence a reloadable debit card) by the game manager and pays regular service charges on the same to the operator of the virtual reality website.
Does second life do this?
The other thing that may be interesting is the actual quantity of money that is possible to travel through these “economies”. Can Second Life or others have hundreds of thousands of dollars flow through it to be laundered?
Linden dollars have a real currency exchange rate in Second Life, you can easily move one out of the other, which is one of the reasons why that SL real estate lady is such a hot press item these days (veracity of actual profit notwithstanding). Linden dollars (as far as I know) doesn’t fluctuate too much, unlike other in-game economies (I remember that SWG credits lost about 1000% of their value in 6-12 months). That being said, given the liquidity of virtual economies, putting money into the place seems like quite a risk.
How big the money laundering thing is I’m not really sure - some offshore facilities try to limit it (Moneybookers is fairly strict, Neteller less so apparently) in relation to gambling but of course it’s a much bigger industry.
One issue is - how the money gets in and out of SL, who controls it, what’s the institution, and is it worth the trouble.
and now Project Entropia releases 5 “virtual banking licences”. Its also the source of the in game cash > real ATM machine transactions mentioned above.
No word on virtual regulation, virtual compliance or virtual transaction monitoring…
I think the Finansinspektionen (Swedish Financial Authority) ought to drop down on PE like a ton of bricks. Perhaps a thorough investigation of their accounts and records might be able to find out who plays the damn thing too…
Ken Rijock has written a new article on PEs virtual banking licences. Ok its unaccurate with regards to how popular Project Entropia is, but its more about the theory behind AML practices in virtual economies rather than any one game.
Money launderers, using financial professionals in their employ as front men, purchase a virtual bank license. They choose a name for the bank that is deceptively similar to that of a well-known international financial institutions, and open correspondent accounts in some of the more unsavory offshore tax havens.
They create bogus “loans” to fund the criminal activities of their clients on a global basis. Inasmuch as there is neither compliance nor regulatory structure, they can pretty much accept anyone as a customer. Of course, all the “customer identification” documents they accept as proof of identity are bogus.
Narcotics traffickers, arms dealers, counterfeiters, and all other types of financial criminals flock to the virtual banks, where no questions are asked about source of funds, whether you are a fugitive from justice, or even if you are financing global terrorist operations. Anything goes.
Since the virtual banks do not exist in any physical sense, there are serious jurisdictional issues confronting law enforcement and regulators. The virtual banks exist on the science-fiction planet of Calypsyo When one bank is closed up, through action against the company sponsoring the website, another opens up in a faraway country where enforcement is lax and corrupt, or where the law has not yet developed sufficiently to allow enforcement.
Money launderers adapt to enforcement by operating a string of virtual banks, moving on when one is eventually terminated.
I would say jurisdiction would be the location of the servers? I’m not to sure if they are located in Sweden or the US, but if they are run out of an offshore centre it would create all types of difficulties. The main thing holding it back is the small size of PE compared with the billions laundered annually, but I’ve always wondered as to the Source of Funds with regards to the figures touted by PE in their press releases.
