Keys to the gates of the money laundry

But there have been increasing reports on exploitation of video games for laundering money from criminal sources. In the game Fortnite criminals used stolen credit card data to buy V-Bucks (used in the game for microtransactions), which they then resold to players for traditional currency. Similar card frauds were also committed in the mobile game Clash of Clans. And in late 2019, in Counter-Strike the ability to resell container keys in the Steam Community Market was switched off because fraudsters had exploited this function to transfer illegally acquired funds. Valve reported then that nearly all transactions involving sales of container keys may have been connected to fraud.

All of these instances involve various types of
virtual assets which also have financial value outside the game environment in
light of their application in the game and the popularity of the games. We
could say that virtual assets accessible in games have begun to function as surrogates
for traditional currency. From this perspective, we may consider to what extent
such cases could be covered by regulations imposing duties to combat money
laundering on entities involved in activity connected with virtual currencies.

Bottle caps and gold pieces

The analysis should begin with the definition of virtual currency in the
AML/CTF Act. Under the statutory definition, virtual currency is a digital
representation of value that meets all the following conditions:

• It is convertible in trade into means of payment and
  accepted as a means of exchange.
• It can be transferred, stored and traded
  electronically.
• It is not a legal means of payment, an international
  settlement unit, electronic money, a financial instrument, a bill of exchange
  or a check.

If this definition is applied to virtual assets in
games, it is clear that they are digital and are stored electronically. Typically
they are not a legal means of payment, an international settlement unit,
electronic money, a financial instrument, a bill of exchange or a check. Some
virtual assets could potentially be electronic money, if they meet the
conditions set forth in the Payment Services Act involving e.g. a redemption
obligation and existence of an acceptance network.

It should be pointed out that the statutory definition
does not refer to specific technological solutions. In introducing the notion
of virtual currencies into the act, the reference was primarily to
cryptocurrencies like Bitcoin, but
digital assets not based on a distributed register technology, or even
functioning in a centralised system, can also be virtual currencies.

Virtual item, real-world trading

In the case of games, the greatest doubts are raised
by the elements of the definition of virtual currency referring to its use in
commercial trade—convertibility into means of payment, use as a means of
exchange, or the possibility of electronic transfer or trade (or in general
“convertibility”). After all, game developers often specify in the terms and
conditions and other contractual forms that they retain all rights to virtual
assets, and players are forbidden to resell them or otherwise trade in them.

But it does not appear that such reservations and
contractual provisions can exclude a given asset from being regarded as virtual
currency, so long as it does possess convertibility in practice. The definition
does not limit the issue of convertibility of virtual currency to the purely
legal sphere, nor does it refer to the intentions of the creators of the given
asset. Thus it should be recognised that in this respect, it is sufficient for
an asset to be regarded as a virtual currency if the given asset can actually
be used as a means of commercial exchange, even if the game’s creators never
approved this type of activity.

This aspect is also noted by the Financial Action Task Force, an international organisation involved in creating standards for combatting money laundering and financing of terrorism. As FATF states in its guidance on virtual currencies, “Development of a robust secondary black market in a particular ‘non-convertible’ virtual currency may, as a practical matter, effectively transform it into a convertible virtual currency.”

It essentially follows from an analysis of the
definition of virtual currencies that in certain specific circumstances,
virtual assets in games may be deemed to be virtual currencies for purposes of
the AML/CTF Act, and one of the key aspects for such classification is the actual
convertibility of such assets in commercial practice.

Primary and secondary tasks

If a virtual currency already appears in a game, the entity responsible
for operation of the game is subject to AML/CTF duties if it performs
commercial activity consisting of providing services of:

• Exchange between virtual currencies and means of
  payment
• Exchange between virtual currencies
• Intermediation in such exchange
• Operating accounts, meaning sets of identifying data maintained
  in electronic form ensuring the authorised persons the ability to use units of
  virtual currency, including conducting virtual-currency exchange transactions.

Apart from ordinary exchange, the regulation also
covers intermediation services, which could potentially include a very broad
range of activities. AML/CTF obligations can sometimes apply even to an entity
not connected with the game operator, if that entity provides players an
additional service related to the functioning of virtual currencies in the game
(even if based on use of the operator’s own application programming interface).
Operation of accounts could be understood equally broadly; depending on the
solutions employed in the game, sometimes the mere login and password used in
the game could constitute a set of identifying data enabling use of units of
virtual currencies.

In short, if a virtual currency appears in a game, and
the entity responsible for operation of the game performs specified types of
services, the entity will be subject to AML/CTF obligations, such as preparing
a risk assessment, introducing appropriate internal procedures, applying
financial security measures with respect to customers, and notifying suspicious
transactions to the competent authorities.

But in many instances, virtual assets in games need not be regarded as virtual currencies, and consequently, the entities operating the game would not be deemed to be obligated institutions in connection with providing services involving virtual currencies. Nonetheless, game operators who are not formally subject to AML/CTF obligations may still introduce solutions at their own initiative helping to prevent exploitation of the game for criminal purposes, if they perceive such a risk.

Rafał Kuchta