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NEWS: Video game currencies enabling ‘proliferation of money laundering,’ says US govt agency

AML: For finance professionals focused on anti-money laundering strategies, it is crucial to understand the dynamics of virtual currencies in video gaming.

By PAUL O’DONOGHUE, AMLi Correspondent

MONEY laundering is being facilitated by video game currency conversions, the United States Consumer Financial Protection Bureau (CFPB) has warned.

The organisation, which is the independent agency of the US government responsible for consumer protection in the financial sector, said the ability to convert gaming assets to fiat currency or crypto-assets “has led to a proliferation of money laundering and fraud on gaming platforms”.

These video gaming assets include in-game currencies and virtual items, such as skins or cosmetic items. For crypto-based virtual worlds, this includes crypto-assets. These assets can be bought, sold, or traded through gaming marketplaces.

The CFPB said the way this type of laundering can work is a person can open different player accounts on several online gaming platforms and “use those accounts to buy gaming assets with illegally obtained funds”.

They can then send the assets to other accounts within the video game. Once this is done, they can then convert them to fiat currency using third-party markets. 

“These practices enable ill-gotten funds to become less traceable with each step,” the CFPB said.

For finance professionals focused on anti-money laundering strategies, it is crucial to understand the dynamics of virtual currencies in video gaming. 

An example which shows the scale of video game to fiat conversion is that of Second Life, a popular online virtual world which was released in 2003 and is owned by Linden Lab.

Second Life uses the Linden Dollar, which can be acquired through in-world purchases or via Second Life’s official Linden Exchange using fiat currency. Functioning as a virtual currency, Linden Dollars enable users to engage in various transactions. These include buying and selling virtual goods, tipping other users, and accessing unique services.

Each Second Life account maintains balances in both Linden Dollars and USD. Users have the option to convert their Linden Dollar holdings back into USD through the Linden Exchange. 

Tilia, a licensed money transmitter and subsidiary of Linden Lab, manages the USD account balance. This balance can be withdrawn or utilised for paying subscriptions and fees within Second Life. 

Withdrawals are facilitated through PayPal or Skrill, albeit incurring a 5% transaction fee. Initial withdrawals typically require around 30 days for processing.

In 2021, Second Life reported the average number of daily users to be 200,000 users across 200 countries.

The game had a GDP equivalent of over $600 million, larger than many small countries.

While not mentioning instances of money laundering in any game specifically, the CFPB said these practices of allowing digital video game assets to be converted into fiat currency are also a major source of fraud.

It highlighted how in 2023, video game developer Roblox Corp estimated it lost $110 million due to fraudulent transactions and scams.

The Consumer Financial Protection Bureau said it has received a significant number of complaints concerning scams occurring on third-party websites. 

One such complaint involves a consumer who purchased a gaming account from a well-known third-party platform and verified the receipt of the account. 

However, shortly after confirmation, the account was compromised and reclaimed by its original owner. In many of these cases, no recourse was available for the buyer.

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