By Lazaros Ioannou, Director and Certified Anti-Money Laundering Specialist, APC Sports Consulting, Nicosia, Cyprus
The online gaming industry is huge!
There are currently over 2 billion e-gamers globally, generating approximately $1 billion per year for the industry. Additionally, a good amount of money is derived by purchases that the players make when playing, such as when they buy in-game items or in-game currency.
There are 2 types of in game currency:
In some cases, where a popular online game has non-convertible e-currency, secondary markets have evolved for trading its e-currency.
These secondary markets are run by third parties providing exchange or escrow services outside the game platform itself. These include the ability for players to buy and sell accounts, that is, an entire player profile with all the associated e-currency for that profile.
Money Laundering is the process of concealing or disguising the existence, source, movement, destination or illegal application of illicitly derived property or funds to make them appear legitimate.
It usually involves a three-part system:
Stage One: Placement which is the physical disposal of cash or other assets derived from criminal activity. During this phase, the money launderer introduces the illicit proceeds into the financial system.
Stage Two: Layering which involves distancing illegal proceeds from their source by creating complex levels of financial transactions designed to disguise the audit trail and to provide anonymity.
Stage Three: Integration which is where the laundered funds are placed back into the economy by re-entering the funds into the financial system and giving them the appearance of legitimacy. In this stage, it is really difficult to distinguish between the legal and dirty money. The money is now regarded as being integrated into the legitimate financial system.
There are different ways in which money laundering perpetrators try to use the E-Sports ecosystem for their benefit. Below we list the most common ones:
Criminals are using massive multi-player online games, such as World of Warcraft (WoW) for money laundering purposes; for example, stolen credit cards are used to purchase e-currency from the official game. Then the illicitly purchased in-game currency is being sold to other legitimate players through a third-party site, often for bitcoin or other untraceable crypto-currencies.
Transferring money that is derived from illicit activity is always a great challenge for criminals. Especially nowadays, with the monitoring performed by financial institutions on international transfers, all transactions that have specific characteristics are marked as suspicious and checked diligently by the competent authorities. Therefore, money launderers attempt to move money from one jurisdiction to another through online games. By purchasing in-game items and currency with the illicit money, as described above, and then transferring them to a game account anywhere in the world, money launderers can thus exchange in-game currency for real money in their local jurisdiction. In this manner, they avoid the monitoring mechanisms of financial institutions and disguise the audit trail.
As the E-Sports industry keeps growing, it is inevitable that the use of eSports and online games for money laundering purposes will gain ground.
Therefore, authorities and online game providers will have to take measures against the use of the eSports ecosystem for money laundering and terrorist financing purposes, in order to prevent the online gaming world from becoming a money laundering hub.
Quite a challenge!