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Is the Online Gaming Industry an AML Nightmare?

by Pedro Ferreira
  • What can AML practices do to curb illicit transfers in the online gaming industry?
AML online gaming industry
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As financial crime and money laundering strategies become more sophisticated so should AML practices, especially within the online gaming industry.

With over $60 billion in purchases in 2020 alone and over 3 billion active global players, the online video game industry is booming, and with it new forms of money laundering sprout as well.

These unregulated channels are enticing to fraudsters as they can quickly adapt to the inefficiencies in both local and international organizations.

Online Gaming and P2P Transfers – An AML Blindspot?

AML onling gaming industry

Micro-transactions seem to be everywhere in gaming as many games set them as one of the main pillars of their business model.

In essence, microtransactions describe player purchases of in-game items with real money.

Adding players buying and selling in-game items to poor KYC processes, and you’ve got a recipe for financial crime as money launderers can use those very same P2P transfers to begin moving money around.

In fact, virtual economies can operate as a clever way of laundering money since a direct transfer from a bank account is no longer needed.

Money Launderers Using Online Gaming Economies for Transfers

Money launderers can purchase online items or currency, transfer it to their partners in crime who in turn sell it and subsequently either convert it to fiat money and wire it directly and/or sell the items and wire the proceeds of their sales into their own account.

Items can also be purchased with stolen credit cards, and fraudsters don’t even need to transfer the purchases between accounts as they can simply share their login details.

And, since another party can access their items or the virtual funds, they can obviously transfer them in whatever way they please.

Stolen credit cards can also lead to buying in-game currency and/or items and selling them through the dark web, the most common example was probably found in the popular game Fortnite.

Criminals would create an account and buy the digital in-game currency (V-Bucks) with stolen credit cards. Following that, they would use V-Bucks to purchase items which would then be sold on back exchanges for major cryptocurrencies like Bitcoin or Ethereum or more private ones like Monero.

These many practices highlight how the online gaming industry seems to be lacking in regulation and obviously leads to the following question.

What Can Stop Money Laundering in Online Gaming?

It seems that government regulation is currently still at the consumer protection stage.

There was known intervention concerning loot boxes, an in-game “package” item which could be purchased and whose contents were randomly generated upon opening.

In Europe, the Netherlands Gaming Authority, the Belgian Gaming Commission, the United Kingdom, and many other countries took a hard stand in regulating these loot boxes.

However, in what concerns AML regulation (or even guidelines), it seems that governmental response will not be so promptly drafted.

Even without having appointed an industry regulator, governments should work closely with the gaming industry, but whoever will take the lead in this conversation is still up in the air.

And, without a clear standard for being able to identify and report illegal activity, the biggest question right now is:

There are little to no clear rules regarding what a game company should do if it actually detects criminal activity, however, there are ways in which they can collaborate with law enforcement agencies.

In fact, despite not having any legal requirement to do so, many companies are currently working towards getting licensed as Money Services Businesses (commonly referred to as MSB).

By going down that path, an MSB-licensed company must comply with AML/CFT regulations (Anti-Money Laundering and Countering the Financing of Terrorism).

Some companies have restricted or outright banned trading some items to prevent shady practices from being able to taint their games and game economies.

As financial crime and money laundering strategies become more sophisticated so should AML practices, especially within the online gaming industry.

With over $60 billion in purchases in 2020 alone and over 3 billion active global players, the online video game industry is booming, and with it new forms of money laundering sprout as well.

These unregulated channels are enticing to fraudsters as they can quickly adapt to the inefficiencies in both local and international organizations.

Online Gaming and P2P Transfers – An AML Blindspot?

AML onling gaming industry

Micro-transactions seem to be everywhere in gaming as many games set them as one of the main pillars of their business model.

In essence, microtransactions describe player purchases of in-game items with real money.

Adding players buying and selling in-game items to poor KYC processes, and you’ve got a recipe for financial crime as money launderers can use those very same P2P transfers to begin moving money around.

In fact, virtual economies can operate as a clever way of laundering money since a direct transfer from a bank account is no longer needed.

Money Launderers Using Online Gaming Economies for Transfers

Money launderers can purchase online items or currency, transfer it to their partners in crime who in turn sell it and subsequently either convert it to fiat money and wire it directly and/or sell the items and wire the proceeds of their sales into their own account.

Items can also be purchased with stolen credit cards, and fraudsters don’t even need to transfer the purchases between accounts as they can simply share their login details.

And, since another party can access their items or the virtual funds, they can obviously transfer them in whatever way they please.

Stolen credit cards can also lead to buying in-game currency and/or items and selling them through the dark web, the most common example was probably found in the popular game Fortnite.

Criminals would create an account and buy the digital in-game currency (V-Bucks) with stolen credit cards. Following that, they would use V-Bucks to purchase items which would then be sold on back exchanges for major cryptocurrencies like Bitcoin or Ethereum or more private ones like Monero.

These many practices highlight how the online gaming industry seems to be lacking in regulation and obviously leads to the following question.

What Can Stop Money Laundering in Online Gaming?

It seems that government regulation is currently still at the consumer protection stage.

There was known intervention concerning loot boxes, an in-game “package” item which could be purchased and whose contents were randomly generated upon opening.

In Europe, the Netherlands Gaming Authority, the Belgian Gaming Commission, the United Kingdom, and many other countries took a hard stand in regulating these loot boxes.

However, in what concerns AML regulation (or even guidelines), it seems that governmental response will not be so promptly drafted.

Even without having appointed an industry regulator, governments should work closely with the gaming industry, but whoever will take the lead in this conversation is still up in the air.

And, without a clear standard for being able to identify and report illegal activity, the biggest question right now is:

There are little to no clear rules regarding what a game company should do if it actually detects criminal activity, however, there are ways in which they can collaborate with law enforcement agencies.

In fact, despite not having any legal requirement to do so, many companies are currently working towards getting licensed as Money Services Businesses (commonly referred to as MSB).

By going down that path, an MSB-licensed company must comply with AML/CFT regulations (Anti-Money Laundering and Countering the Financing of Terrorism).

Some companies have restricted or outright banned trading some items to prevent shady practices from being able to taint their games and game economies.

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