This article examines the risks of money laundering in the online gaming world, and whether the current fight against money laundering (AMLA) and the fight against the financing of terrorism (FCT) laws are sufficient to deal with these risks.
Introduction to Money Laundering
The term “money laundering” is used to describe the process of concealing or concealing the origin of illicit funds (dirty money) in order to show these legitimate funds (clean money). The aim of money laundering is to allow criminals to use illegally obtained funds without the threat of interference from authorities – for example, confiscating dirty money or being involved in the crime that generated dirty money.
At a high level, the money laundering process can, in general terms, be conceptually broken down into three distinct phases:
The investment stage is where the dirty money (which is usually cash) enters the financial system. AML / CTF laws are designed to make this step as difficult as possible for criminals, by requiring AML / CTF regulated entities to “know your customer” and to detect and report unusual transactions. A common tactic used to avoid these checks is to involve many people who each deposit a small portion of the dirty money into their respective bank accounts to avoid setting off alarms.
Layering is the process of obscuring the origins of dirty money. This often involves a complex series of transactions – a network of obfuscation designed to thwart any attempt to trace the original source of funds. This may include taking advantage of foreign jurisdictions that do not submit to foreign warrants or regulatory inquiries. Likewise, a large number of small quantum transfers reduce the likelihood that an individual transaction will be identified as being of illicit origin.
Integration is the final stage, in which the now clean money is returned to its criminal owner through seemingly legitimate sources. Now clean money can be invested in financial products (for example, derivatives or stocks) to further mask the origins of money. In this case, the investment income (or any realized capital gain) appears to come from a perfectly legitimate source.
Fight against money laundering in Australia
In an effort to combat money laundering, many countries, including Australia, have introduced laws requiring entities to identify, report and restrict activities that may be related to money laundering or terrorist financing.
In Australia, the Anti-Money Laundering and the Financing of Terrorism (Cth) Act 2006 (AML / CFT law or law) applies to entities that have been identified as having a high risk of being used in these activities. Its requirements are designed to help these entities detect and prevent money laundering or terrorist financing. Entities include financial institutions (banks, credit unions, building societies, pension fund managers), those operating in the gambling industry (casinos, betting agencies, poker machine operators), remittance services (money transfer), bullion dealers, digital currency exchange providers (bitcoin, ether) and other professionals or companies performing services designated by the LAB / CTF law (reporting entities).
The Law imposes 5 major obligations on reporting entities:
- registration – a reporting entity must register with the Australian AML / CTF regulator and specialist financial intelligence unit, the Australian Transaction Reports and Analysis Center (AUSTRAC) and provide the prescribed registration details
- AML / CTF Program – reporting entities must establish and maintain an AML / CTF program to help identify, mitigate and manage the money laundering and terrorist financing risks facing the business
- Customer due diligence – each reporting identity must identify and verify the identity of each customer and monitor their transactions
- reporting – a reporting identity must notify AUSTRAC and other authorities (such as the ATO and law enforcement agencies) of suspicious cases, threshold transactions and international money transfer instructions
- record keeping – reporting entities should keep transaction records, customer identification, electronic funds transfer instructions and details of their AML / CFT program.
These measures aim to make each stage of money laundering as difficult as possible.
Money Laundering and Online Gambling
As a result of global anti-money laundering and terrorist financing measures in the banking, financial and real estate sectors, money laundering has suffered a ‘displacement effect’ – a term coined to describe how “”as parts of the economy are increasingly regulated, contaminated money goes elsewhere, like air in a squeezed balloon”. The online gambling industry is a new area experiencing this new “airflow”.
The online gambling industry is huge. There are currently over 2 billion e-gamers in the world, generating around $ 140 billion annually for the industry. It is predicted that this amount could reach $ 300 billion by 2025. A large part of this revenue comes from purchases that players make when playing the game concerned, for example when buying currency. of the game or an item of the game (electronic money). In general, there are two types of electronic money:
- Convertible electronic money – Electronic money is convertible when the game allows the player to sell electronic money to other players in the game for real world currency. Convertible electronic money is not common.
- Non-convertible electronic money – electronic money is not convertible when the game does not provide an in-game mechanism for the sale and purchase of the game’s electronic money between players. Often times, the terms and conditions of the game specifically prohibit players from selling e-money to other players, or otherwise exchanging e-money for real-world currency. Non-convertible electronic money can be found in many games.
In some cases, when a popular online game uses non-convertible electronic money, secondary markets have evolved to trade its electronic money. These secondary markets are operated by third parties providing exchange or escrow services outside of the gaming platform itself. These include the ability for players to buy and sell accounts (i.e. a full player profile with all e-currencies associated with that profile).
As a Financial Action Task Force (FATF) (the international anti-money laundering standard-setter) notes, the ‘development of a strong secondary black market in a particular non-convertible sector [e-currency] can, in practice, actually transform it into a convertible [e-currency]‘.
One of the most well-known examples of one of these secondary markets is PlayerAuctions, a website that allows players of over 280 games to buy and sell e-money for these games. PlayerAuctions facilitates orders and holds buyer’s funds until they confirm that the seller has transferred the e-money into the game.
So how is electronic money used to launder money?
Example 1 – clean up silver
A 2013 research paper reported that criminals could use massive multiplayer online games, such as World of Warcraft, to launder money. According to this article, stolen credit cards were used to purchase e-money from the game’s official store. The illegally obtained e-money was then sold to other legitimate players through a third-party site, often for bitcoin or other crypto-currencies not found. By using this method, neither the buyer nor the seller knows the identity of the other.
Dirty money transfer by electronic funds transfer (TEF) is likely to be detected as a suspicious transaction by financial institutions (for example, amounts of AU $ 10,000 and above are automatically reported to AUSTRAC). Even if the criminal tries to structure their ETFs so that they are below the limit of AU $ 10,000, there is still a high probability that the ETF will be flagged as suspicious activity given the sophistication of the methods of trading. surveillance. However, if they buy e-money with dirty money (see example 3.1) and transfer it to an in-game account anywhere in the world, then they are able to sell e-money. for real world currency in their local jurisdiction. – avoid control methods for reporting entities.
Guidance on future legislative reform in this area can be drawn from the FATF recommendations on ‘virtual asset service providers’, which were developed in response to the rise in cryptocurrencies. The FATF recommendations suggest that a risk-based approach be applied to emerging virtual assets.
On this basis, it is possible that any future obligations to combat money laundering on online games will be implemented gradually, perhaps on the basis of the revenues of the developers (in order to target the entities with the greatest ability to meet AML / CTF obligations) or based on the amount of electronic money traded as part of a developer game (which would target games with the highest risk profile).
As electronic money is now a means of storing and exchanging value, operators of the online gaming industry should consider taking measures to prevent and prevent their platforms from being used as a means of money laundering. ‘money. It is reasonable to expect that calls for online gaming platforms to be subject to obligations similar to those of reporting entities under the AML / CTF Act will only increase over time, and any Action taken by the online gambling industry in this regard can only help its cause.