How do Criminals Launder Money using Video Games?

Money Laundering is a financial crime and poses a great danger to the country’s economy and the world at large. The illicit money is used to find terrorist activities and criminal activities such as extortion, kidnapping, human trafficking, smuggling, etc. So, governments ensure that this illicit money does not enter the legal, financial system, deteriorates the economy, and damage the country’s social fabric. The FATF- Financial Action Task Force was established to deal with money laundering by the G-7 Summit in Paris in 1989. It has developed 40 recommendations that national governments should follow to comply with anti-money laundering laws diligently and implement effective anti-money laundering programs.

The criminals use the illegally obtained money to process the criminal proceeds and get the profits while hiding the origin of the funds. They get large amounts of proceeds from various criminal activities such as drug trafficking, human trafficking, illegal arms sales, and computer frauds which extend to video games. Yes, criminals are getting innovative, and they are using various new ways to launder illicit money, use the proceeds without attracting the authorities’ attention.

Financial Institutions have made the KYC process more stringent using advanced technologies such as AI, ML, and AML software to streamline the AML compliance process. The online gaming industry is unregulated, and there are no stringent KYC rules which users need to follow. They quickly transfer in-game currency, and the fraudulent transactions are lost in the legit transactions.

More about in-game currencies

The video games use a virtual currency known as the in-game currency, which is earned by winning the challenges and overcoming the hurdles in the video games. It is also used to acquire new skills sets, props, or accessories that empower them and make them better players than other games.

There are two types of in-game currencies:

Convertible in-game currency

A player can exchange the real fiat currency- the currency made legal by a government decree or fiat. In simple words, it refers to legal-tender paper money or coins, and their face values exceed the commodity values and are not redeemable in gold and silver. The convertible game currency has a fluctuating exchange rate and a particular exchange platform. This currency is used to sell, buy, or exchange virtual properties with other players.

Non-convertible in-game currency

In the non-convertible in-game currency, the players can exchange real fiat- real money for the game’s currency. This currency cannot be exchanged with other players. It can be used to buy accessories in the video game, skills, weapons, and other items to improve the skills sets of a particular character or customize it. Today, many worldwide popular games use this type of currency and monetize by selling non-convertible in-game currencies.

How are Video Games used for Money Laundering?

Microtransactions are the element in video games that attract criminals, and therefore they choose the platform to launder money. There are thousands of online games downloaded every day. Here come the cybercriminals who download the game on the PC or any other mobile device like any regular player. They will create a character in the game and might also hack an existing account of any regular player to conceal their identity.

Criminals will buy expensive characters, props, or skills in the game via microtransactions and sell the characters or the in-game virtual currency in the grey secondary market websites at discounted works. The money is invested in the game and converted into the game’s currency. The whole process is completed seamlessly. With the help of microtransactions which allow buying items as low as under $ 200, the criminals are successful in not drawing the attention of the authorities.

Loot Boxes refer to an array of weapons and skins that players obtain to power up their characters. Loot boxes are considered equivalent to gambling as real money is used as it’s a gamble to find and get items in the game. And for this, real money is used. This key is required, and the criminals exchange it on popular online gaming retailers’ platforms. It is not surprising that most such transactions are used to launder black money. So, countries that have implemented anti-gambling laws will find that such transactions are gross violations of the rules. It attracts heavy fines and penalties and imprisonment.

How to prevent money laundering in video games?

Since the gaming industry is largely unregulated, criminals use identity theft as their modus operandi to launder money. The FATF has added a note to the 15th recommendation that guides virtual asset activities and service providers regarding money laundering and terrorist financing laws. They come to know how to regulate and supervise the VASPs – Virtual Asset Service Providers. Gaming companies that sell virtual currencies fall under the ambit of the AML regulations. But the challenge is that many in-game items are not meant to be sold or exchanged online on unauthorized third-party websites, and the developers should not bear the brunt of AML penalties.

Strict regulations should be created and implemented to trade assets and virtual currencies. Companies that use non-convertible currencies should be covered under the ambit of AML/ CFT regulations. On the contrary, games involving non-convertible currencies need not be strictly tied to the AML / CFT regulations. The government should exercise greater control over the fast-evolving gaming industry and create a robust AML compliance framework that doesn’t allow criminals to use the platform to launder money

AML UAE is one of the most reliable firms that offer an array of complete information about the AML compliance services . It offers AML software selection, AML / CFT Policy Controls and Procedure documentation process, in-house AML compliance department set up, AML Training, Annual AML/ CFT Risk Assessment Report, and AML/ CFT Health Checkup. Gather more information on the company by visiting AML UAE.

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About the Author

Pathik Shah

FCA, CAMS, CISA, CS, DISA (ICAI), FAFP (ICAI)

Pathik is a Chartered Accountant with more than 22 years of experience in compliance management, Anti-Money Laundering, tax consultancy, risk management, accounting, system audits, IT consultancy, and digital marketing.

He has extensive knowledge of local and international Anti-Money Laundering rules and regulations. He helps companies with end-to-end AML compliance services, from understanding the AML business-specific risk to implementing the robust AML Compliance framework.