Virtual assets 102: money laundering regulations, virtual currency & virtual property

We’ve recently discussed the elements of virtual currency and virtual property in online games. But what types of regulations might apply to virtual goods and currency? There are some interesting ones that many game developers or publishers may not consider, but they should. Today’s post will cover one: money laundering regulations. 

It was reported in 2019 that criminals, allegedly, were using Fortnite’s in-game currency (V-bucks) to launder money. Money laundering is, in essence, the illegal process of hiding the origins of money by passing it through complex transfers or transactions. Laundered money then returns to the launderer as “clean” money through obscure and complicated means, so it’s difficult to trace where it came from.

Money laundering is usually done to hide the crime that resulted in the money or to evade taxes. Following the path of money is one-way law enforcement can find criminals and prove their crimes. Money laundering is, itself, also illegal.

Therefore, video games and literally any other app out there with in-game currencies (or transferable items) can, theoretically, be used as a conduit for money laundering. 

The United States Treasury Financial Crimes Enforcement Network (FinCEN for short) released guidance in 2013  and again in 2019 on how anti-money laundering (AML) regulations apply to virtual currencies. This guidance explained that exchangers and administrators may be subject to the Bank Secrecy Act, an anti-money laundering statute with many requirements potentially too cumbersome for smaller companies to comply (especially video game companies without a ton of financial experience). The guidance explains:

An exchanger is a person engaged as a business in the exchange of virtual currency for real currency, funds, or other virtual currency, while an administrator is a person engaged as a business in issuing (putting into circulation) a virtual currency, and who has the authority to redeem (to withdraw from circulation) such virtual currency.  A user is “a person that obtains virtual currency to purchase goods or services” on the user’s own behalf.”

While exchangers and administrators can be “transmitters” subject to the regulations, users generally would not be. The guidance goes on to discuss different business models, anonymization and processing that could be potentially problematic.

When video game companies are pursuing new business models involving virtual currencies or virtual goods, they should, at minimum, make themselves aware of the Bank Secrecy Act and the FinCEN guidance to determine whether or not they are subject to the regulations. 

As games tend to be at the forefront of exploring new economic models (often in order to keep their prices low to encourage user adoption or reduce friction in user acquisition), FinCEN is definitely paying attention to the industry as a whole. If subject to these regulations, a company needs to adopt a written AML policy and a process for identifying its customers. As companies are also working to reduce the amount of data they collect from customers in light of new privacy laws like the California Consumer Privacy Act (CCPA) and the EU’s General Data Protection Regulation (GDPR), adopting these policies may require additional thought.