The metaverse, new (criminal) opportunities

Financial magazine Forbes carried the story in March 2023 that the metaverse platform Roblox was involved in criminal proceedings in federal court in San Francisco after suspicious transactions were identified on the Roblox platforms. According to the indictment, more than 300 Roblox users allegedly laundered money by using in-game currency to purchase fake goods. This allowed them to forward money to each other which amounted to money laundering. The case ended with an out-of-court settlement, without Roblox admitting guilt. The Roblox case is a great example of how criminals are trying to use the metaverse to launder criminal money.

And that the metaverse is attractive for criminal activity is not surprising. The ability to conduct business anonymously via avatars, crypto-currencies and NFTs in virtual economies that are little regulated make the metaverse an ideal playground for criminals, particularly for developing money laundering schemes. It is clear that the rise of the metaverse and web3.0 can facilitate money laundering.

European anti-money laundering obligations

In the European Union, financial institutions and various other professions such as lawyers, notaries, accountants, art dealers etc have to comply with numerous anti-money laundering obligations. First and foremost, these include client identification. This includes collecting identification data and verifying this information. Next, they are also subject to a reporting obligation. When they identify suspicious transactions, which they reasonably suspect may be related to money laundering or terrorist financing, they must report this to the authorities. And finally, they must also provide internal control measures within their own organisation. This includes identifying, assessing and managing risks, training employees, establishing guidelines and procedures, and conducting internal audits. The purpose of these obligations is to help the financial sector and other relevant professions detect and prevent money laundering, impeding terrorist financing.

 

Anti-money laundering obligations in the metaverse

In principle, financial institutions and professionals subject to money laundering obligations should also respect these obligations if they operate in the metaverse. Only, a number of issues do arise in the metaverse that do not arise in the physical world. How should a law or accountancy firm operating in Roblox or Decentraland comply with identification obligations when confronted with an avatar asking for advice? And if they have identified the physical person behind the avatar, how can they have assurance that it will always be the same physical person acting with the avatar? And how can they avoid avatars acting as stooges?

And what about DAOs that are ubiquitous in the metaverse? DAO officially stands for Decentralised Autonomous Organisation. This is an organisation that operates completely autonomously, has no board and is run in a decentralised and democratic manner by anyone who is part of the organisation or community. Here the question arises how to comply with the identification requirement? In the case of DAOs, who is the ultimate beneficiary? It is clear that the creation of these structures will create new money laundering problems.

The metaverse will create new legal problems regarding money laundering. This is another area where the financial and legal world will have to adapt. This will have to involve adapting money laundering legislation but also using new technologies, such as artificial intelligence and machine learning, to monitor virtual transactions and verify virtual identities. It is time to take steps here.

 

#fraud #metaverse #taxes #DAO

 

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