How Are Transnational Organized Crime Cartels Laundering Money Through Video Games?
Is that in-game purchase of virtual gold, Virtual Currency, a character, or skin part or weapon, game level up, etc. a money laundering operation?
The answer, in far too many cases, can be YES!
The transfer of funds online for video game merchandise has opened a path for online money laundering according to a newly released report by the Financial Crime Academy a leading provider of online training for the anti-money laundering community.
Online video games often offer a wide variety of in-game items that players can purchase with virtual currency or real money. These items can include:
- ️Virtual currency (VC)
- ️In-game items
- ️Skins & cosmetics
- ️Boosts & power-ups
- ️Game currency
- ️Virtual real estate
- ️Game subscriptions or memberships
The rise in the use of microtransactions, which may be part of the organization’s business model, is a source of income for the game designers and may be traded among the players for real or illicit Illicit means something that is not legally permitted or authorized under the law; unlicensed; unlawful. It can also mean disapproved of or not permitted for moral or ethical reasons. goods. In other words, they have value and can be used to convert illegal money into fungible assets that can later be re-converted back into cash.
In 2019 Linden Lab, the company that created the virtual game platform “Second Life” implemented tightened anti-money laundering regulations to combat fraud In law, fraud is intentional deception to secure unfair or unlawful gain (money or other assets), or to deprive a victim of a legal right. Fraud can violate civil law (e.g., a fraud victim may sue the fraud perpetrator to avoid the fraud or recover monetary compensation) or criminal law (e.g., a fraud perpetrator may be prosecuted and imprisoned by governmental authorities), or it may cause no loss of money, property, or legal right but still be an element of another civil or criminal wrong. The purpose of fraud may be monetary gain or other benefits, for example by obtaining a passport, travel document, or driver's license, or mortgage fraud, where the perpetrator may attempt to qualify for a mortgage by way of false statements.
A fraud can also be a hoax, which is a distinct concept that involves deliberate deception without the intention of gain or of materially damaging or depriving a victim., money laundering, and terrorist financing.
Second Life has its own Virtual Currency, the “Linden Dollars” (L$) that can be credited against US dollar accounts. Linden Labs argued the L$ is not a Virtual Currency but “limited license permission to use features of Second Life.”
Cryptocurrency is also a Virtual Currency by the way!
However, in 2013 FinCEN disagreed and said the Linden Dollars L$ was a Virtual Currency.
The Financial Crime Academy report, now posted to their website, points out that online money laundering takes place in overcrowded virtual marketplaces, which increases the difficulty for law enforcement & financial investigators to track illicit transactions.
However, AML (anti-money laundering) and compliance professionals must now be on the alert for red flags of money laundering through video games which include:
- Large or frequent transactions of Virtual Currency or assets, particularly when they are not commensurate with in-game activity or the individual’s known source of income.
- Suspicious transactions involving Virtual Currency exchanges or third-party websites that specialize in buying and selling VC or assets.
- Transactions involving Virtual Currency or assets that are subsequently converted to fiat currency or used to purchase goods or services in the real world.
- Using multiple accounts or aliases to conduct transactions or hide their true identities.
- Using Virtual Currency or assets to move proceeds of illegal activities.
What Does All This Mean?
It means that those in-game purchases may very well be supporting transnational organized crime and even terrorism financing. Your Candy Crush might be enabling the very thing you want to stop! And as a consumer, you need to know that your zeal to play may be part of the process that victimizes millions.
The use of online video games for illicit purposes such as scamming, terrorism, drug trafficking, and even child exploitation has been a concern for law enforcement for many years. But with the explosive growth in just the last three years, it is ever more important now.
Leveling up in virtual worlds is great, but are financial investigators & AML pros leveling up to confront the top tiers of money laundering through video games?
Unfortunately not as much!
Thank you to BIG – Blockchain Intelligence Group for this information and support.