Blazing Trails: A New Way Forward for Virtual Currencies and Money Laundering

Michael P. Bombace

Abstract


Virtual currencies grew up in virtual worlds. They were a central element in the game experience. They remain so and now represent a widespread form of value exchange on the Internet. They are an increasingly effective way to monetize games. Because of their versatility within games as part of game play and as a monetization method, they are a central tool of innovation for game developers. In tandem with their rise in use and complexity come anti-money laundering concerns. Their use for illegal acts is predicted to grow. Because of their still nascent state there is a window of opportunity to get regulation right and balance the cost of constraining innovation and online trade with the benefits of addressing anti-money laundering concerns. There is now some urgency because of recent regulatory guidance issued by the Financial Crimes Enforcement Network, a bureau of the United States Treasury Department.

This paper presents a new approach. First, a data retention policy that includes identity authentication requirements. Second, restrictions on the use of payment systems at a high risk for abuse. Third, a safe harbor granting criminal and civil immunity for good faith efforts by game companies to help reduce the cost of compliance. Absent from this proposal are suspicious activity reports, which are expensive and place a burden that is handled better, and already done, by payment systems that connect to game companies, such as PayPal, and traditional services such as bank accounts or credit cards. Virtual currencies are an important tool for game developers that in turn provide real economic development and creativity that require unique treatment in the law. Regulation will occur—the question is how it will be crafted. This paper presents a path forward in that discussion.

Keywords


virtual currency; money laundering; data retention; identity authentication; payment systems; safe harbor

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The full website for the Journal of Virtual Worlds Research can be found at: http://jvwresearch.org