Over the past decade, a number of new alternative forms of payment have been introduced throughout the world in order to keep up the growing volume of electronic commerce. The most famous of these companies is PayPal, which in 2003 became a wholly owned subsidiary of eBay.
Paypal made it easier for payments to be made through the Internet and serves as an electronic alternative to traditional paper money, checks or bank money orders. It can be very useful for the vast majority of the planet’s inhabitants that do have access to a credit card. Of course alternative payment systems also open up the doors to alternative forms of money laundering.
While Paypal was certainly revolutionary in its approach, it always settled transactions in well-established forms of national currency–such as Dollars, Yen or Euros. Over the past few years however, a number of virtual worlds and MMORPG companies have begun to issue their own forms of currency. With names like the Linden Dollar (used by Linden Lab’s Second Life), World of Warcraft Gold (from Blizzard Entertainment) or QQ Coins by (Tencent Limited), these virtual currencies are being used by literally tens of million people worldwide. There have been various estimates of the size of the virtual world economy, but some estimates have placed it in the billions of dollars (US).
Given the vast sums of money being transferred among parties around the world, it should not be surprising of course that criminals would want to take advantage of this money flow. With little if any regulation, virtual world economies are ripe for exploitation by organized crime, terrorists and others who wish to launder large sums of money.
While virtual world money laundering has been a theoretically possibility for some time, the below case in Korea clearly shows that theory has now been put into practice–to the tune of $38 million dollars US. As the Seoul Metropolitan Police Agency (SMPA) demonstrated, a group of Chinese and Korean criminals were able to successfully defraud Korean game players and then launder the funds through a number of business front companies back into mainland China.
Though not mentioned in the article, other sources have confirmed that 14 individuals were arrested in association with the case.
Group Laundered $38M in Virtual Currencies in 18 Months
by Joey Seiler
Engage DigitalOctober 27, 2008
Last week Korean police arrested a group responsible for laundering money generated by Chinese gold farming from Korea back to the mainland. Over 18 months, the group wired $38 million from Korea to a Hong Kong paper company as payments for purchases. In return, the group took a commission of 3-5% for purchasing the virtual currency in China, reportedly produced by traditional farming as well as viruses, and then cashing out in the Korean market.
The problem of money laundering through virtual goods seems more focused on the larger online games, especially those that don’t allow legitimate secondary markets. With the growing virtual goods-supported casual MMO and virtual world market, it’s certainly on people’s minds. It’s certainly come up more than a few times in government and academic discussions around Second Life and other worlds, but more from a theoretical perspective than the actual practice. Cases like this, though, can bolster those concerns and make fraud in general seem especially worrisome. Source: PlayNoEvil.
