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Money Laundering & Financial Crime in Virtual Worlds Interview

Money Laundering & Financial Crime in Virtual Worlds Interview with Kevin Sullivan.

The following interview with Kevin Sullivan was conducted by Heather Desguin of the Florida Department of Law Enforcement, departments of Office of Statewide Intelligence and the Financial Crime Analysis Center.

Can you explain the process of money laundering in a virtual world?

U.S. currency (dirty money) can be used to purchase the on-line currency of the particular virtual world environment. The on-line money can be transferred to another player and/or what the virtual world calls a resident, or a single person who has multiple identities on line. The player subsequently cashes out by requesting a check or e-payment which then makes the original dirty money clean. Further, there are third party exchange houses that operate openly on the net that will act like a money exchanger and give you cash for your virtual money or the reverse. Of course a person could just sell and/or trade virtual currency on e-bay or Craigslist also.

How big is the problem of money laundering in a virtual world?

I don’t think that it is a big problem, at least not yet, due to the relatively small amounts of money and transactions that can be processed at this time. However, bad guys like variety and will continue to explore this option as they never put all their eggs in one basket.

Are there some countries that are more likely to commit money laundering through a virtual world?

No I think at this stage of the game it is a wide open book. There eventually might be some criminal organization(s) that takes a particular liking to this method and makes more use of it but for now it’s up in the air.

Is money laundering in virtual world on the increase?

That is tough to quantify. One of the reasons is, who’s monitoring? Who’s reporting this and whom would they report it to? So without some form of central repository of information, such as FinCEN is with financial institutions, it is almost impossible to get a true feel of the amount of actual activity.

Why do you think money laundering in a virtual world is committed?

Smart laundrymen like to have options. It is very prudent for them to have many separate, different and unique methods of moving their product and/or their money. They never know when one aspect of their operation might come to be shutdown. Any interception of one of their shipments would be considered the cost of doing business. So it is a safe bet for them to spread about the methods. As far as specifically why would a bad guy use a virtual world, the answer is anonymity and a technology that is far ahead of the law enforcement radar at the moment.

Who is monitoring the money laundering and virtual crime currently? Is this cross jurisdictional?

Currently, there is no one governing body either from the financial institution side or the law enforcement side. Because the genre is unregulated at the moment, no virtual world site is mandated to maintain records, have a Customer Due Diligence program, or be compliant with any Anti-money laundering rule or regulation.

Can virtual world money laundering be detected by law enforcement agencies and how does this happen?

Law enforcement does not have any direct or live access into the files of a private company such as a virtual game. Law enforcement would depend upon the virtual world to monitor and report, much as a bank does with suspicious activity reporting.

What do you believe are the key threats to virtual world commerce and virtual world economies?

Should there be some form of income tax and sales tax in the virtual world? What about accounting? Should virtual holdings be considered assets? By the same token, are virtual debits liabilities? Further, how will we deal with a virtual bank?

Is ML affected by real world events?

Do you mean is money laundering in the virtual world affected? No more so than other new technologies and methods of money laundering. I think what is more important is how the legitimate virtual worlds play out in the future. How they are adapted into the mainstream. The more juice they get behind them, then the more doors open up for laundrymen.

What are the jurisdictional issues affecting anti-money laundering in a virtual world?

Much like on-line gambling, the server for a virtual world could be anywhere on the globe, which is one of the reasons that on-line gambling is illegal in the US. Jurisdiction can become a nightmare issue. Similar to credit card fraud cases, you may have a victim who lives in Detroit, had his card compromised by a guy in Los Angeles, who purchased goods over the Internet from a store in Maine, and had it delivered to an address in Florida.

Has there been a successful prosecution of an instance of money laundering?

I assume that you mean within the realm of a virtual world. I do not know of any prosecutions, but you must remember, money laundering cases can sometimes take years to develop and certainly prior to any arrests there is usually a veil of secrecy surrounding an investigation.

Do you believe criminals that say virtual worlds are beyond the remit of real world laws?

Nothing is beyond the scope and reach of a motivated legal system. The trick is how long will it take to get the legal machinery working. This is why criminals are usually one step ahead of the good guys.

How do you think money laundering in a virtual world will be combated?

Firstly, virtual currency should be deemed as real monetary value. Virtual accounts should be classified as actual bank accounts, thereby subjecting the virtual world to the BSA, Patriot Act and basic AML regulations. Do not allow wilful blindness, hold the virtual world accountable for most of the activity on their site.

What is your own personal experience with anti-money laundering in a virtual world?

When I was still with the State Police assigned at the NY HIFCA El Dorado Task Force, I did a lot of intelligence research and spoke directly with representatives from the largest Virtual World, Second Life. Who, by the way, could not have been more open and hospitable to me. I also created a few of my own Avatars and became part of the metaverse just to get a feel for it. I could see where fraud and money laundering could take place, however, not to a real meaningful extent, at least not at this time.

About the Author

Kevin Sullivan, CAMS, CCI is a retired New York State Police Investigator and Federal Agent who dedicated his career to AML and continues that work through his company, The AML Training Academy and Advisory LLC. Kevin coordinated AML investigations for the state of New York while being detailed to one of the worlds largest AML task forces, the NY High Intensity Financial Crime Area (HIFCA) El Dorado Task Force. He has helped develop and implement global AML guidelines and trained and advised all industries and government agencies requiring AML around the globe. He helped to write various certification programs for the Association of Certified Anti-Money Laundering Specialists’ (ACAMS) and was the co-founder and former chair of their inaugural chapter which was in NY. Follow Kevin or reserve a seat in one of his live webinars. Space is limited!

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