Wednesday, June 3, 2009

Virtual World Money Laundering

A few months back I posted a link to a gold farming study by Myke Sanders, a fellow Dallas IGDA board member. Well, Myke just forwarded me his new article on the use of virtual worlds for money laundering. A full PDF is available here.

When I had envisioned use of a virtual world for money laundering, I had always anticipated use of a front business in, say, Second Life such that 'dirty' money is used to buy Linden Dollars that are used to buy virtual goods, and then the front business cashes out the Linden Dollars for 'clean' money. Use of things like prepaid debit cards could even facilitate the laundering of dirty cash.

Myke has a background in credit card processing, however, and came up with an entirely different mechanism based on where the transactions couldn't be traced. While it could also use prepaid cards, it could also be used to generate cash from stolen cards.

As an interesting sidenote, Myke and I were discussing this very topic, and he suggested that the same methodology described in this paper could be used to put gold farmers out of business based on the number of chargebacks they would receive. Of course, that would be highly illegal.

In terms of solutions, I'm not sure his suggested idea of tracking transactions in virtual goods is practical, and even if it were, I don't know that it would be applied to item drops later picked up by other players. More importantly, as Myke pointed out to me, what if an organized crime group created their own MMORPG which they used for laundering, and simply didn't track transactions for that reason.

It's certainly an interesting issue to think through, and I'm not sure there's a readily available answer. I've seen other papers propose all sorts of solutions to the more traditional laundering I've mentioned in the past, but this newer methodology Myke describes is much harder to deal with.

2 comments:

MarcWPhoto said...

It was pointed out recently on the WoW forums that a large percentage of the gold gold farmers sell almost certainly comes from hacked accounts: they simply couldn't produce it fast enough otherwise. When an account gets hacked, the first thing the hacker does is empty the victim's bank, sell all their equipment, and do the same to the victim's guild bank, if they're in one and have access privileges.

Therefore when you are buying gold on WoW, you are not just giving the TOS a wink and a nod, you are almost certainly supporting e-criminals. The law, as you know, does not generally distinguish between hacking someone's WoW account and hacking Citibank. Unauthorized access for financial gain is unauthorized access for financial gain.

As virtual economies continue to grow, I foresee increasing scrutiny in this area. For instance, someone suggested that Blizzard institute a casino in WoW: I replied that if I were Blizzard's lawyer I would have a huge screaming hissy fit at the very idea. Compliant with TOS or not, there is a readily available mechanism for converting WoWgold to real gold. The laws regarding what constitutes gambling are broad enough, in many jurisdictions, that a company-sanctioned casino would invite scrutiny and sanction from any number of gaming regulators, just to add a feature not relevant to WoW's core purpose and feature set. Just because you can, doesn't mean you should, especially when real money is involved. Experience shows that when the chance to win something for nothing is involved, absent strict scrutiny shady players are inevitably attracted. The idea that you could launder what were really gambling proceeds through an innocent-looking game would be very appealing to some types.

Neda Saboohi said...

I know this is an old post, but I'm about to complete an essay on money laundering and fraud in virtual worlds, and I thought about virtual currency counterfeiting.

Hackers have become so sophisticated and are able to run so many third party applications in virtual worlds that manipulate the mechanics of the game, it is only a matter a time before one of them figures out how to counterfeit virtual money. They will be able to create money in hundreds of different accounts, and then sell or transfer it into real money. It will take gold farming to a whole new playing field.

I was wondering what your thoughts would be on the matter.