Virtual Money

Virtual currency (not to be confused with digital currency) is said by various authorities to be a concern due to the lack of regulation and attendant anonymity. This means it is difficult for law enforcement agencies to keep track of transactions which immediately causes them to assert virtual money will be used by money launderers, drug dealers, gun runners and other high profit criminal activities.

Another view of the rise of virtual money is that it is a natural extension of the rise of the internet. Its cryptographic structure means a persons anonymity is maintained and you can carry out all sorts of transactions with the authorities keeping watch on you.

The problem that criminal activity will have is that at some point a ‘real’ profit will be required which will mean converting the virtual money into currency. With the passage of time big investors have moved into virtual money so that it is concentrated within a relatively few hands with various exchanges set up to deal in the money. This rationalisation of the industry is bound to affect the claimed anonymity as the exchanges will need to operate in a transparent fashion and keep records of deals.

As soon as big business gets involved the authorities are placed in a much better position to police this market place as although regulation is lacking these businesses need to operate in the real world and do therefore carry out checks and keep records that can be accessed. Although we are unaware of any investigations and prosecutions taking place it only has to be a matter of time so when it does happen you need to make sure you seek expert legal assistance from solicitors with many years work in the field of complex fraud.

Digital Currencies

Digital currency is electronic money that acts as an alternative currency. It is independent of government and central banks and not backed by any national currency. It differs from virtual money which is used in virtual economies as it is used in transactions with real goods and services. Initially digital currencies are often backed by a promise to pay a set amount of gold or silver bullion in exchange for each of its units. Later currencies floated against whatever individuals are willing to exchange for it.

There are so many businesses that are now global but being global brings its own difficulties. Digital currencies actually assist companies as they allow users to send money around the world quickly and economically, an advantage for companies pursuing growth in a global context. Most companies are still shy of integrating digital currency into their business operations at present. Change takes time.

Some advocates claim that currencies such as Bitcoin could be as transformative as the Internet itself, because it allows people to send money using IP the way they currently send information. But the digital currency will likely take years to catch on. At present, it is more often used as a commodity by hobbyists and technology enthusiasts than as a currency by businesses.

Some companies will remain circumspect about integrating digital currencies into their business due to the reputation for being the currency of choice for those who make illegal purchases, which makes government agencies suspicious of all organisations that use it. Another problem is the possibility that countries may decide block digital currency trade, which will undermine its value as a globally accepted currency.

There have been money laundering probes involving digital currencies. The nature of these businesses allows huge amounts of money to be transacted outside the control of national governments. Huge numbers of transactions can be facilitated quickly, easily and with anonymity. Any investigation would normally involve multiple countries and usually very large sums will have been transacted. The unregulated nature of digital currencies can clearly allow criminality to move in and make us of the ease with which transactions can be carried out with anonymity. This anonymity is easily enhanced by having no direct link between any customer’s traditional bank account and the digital currency provider’s system.

Some people thought of it as an online game with virtual worlds but it seems nothing is too vague or out of reach of human nature or the drive for profit, licit or illicit. The question has certainly been raised whether criminals make use of the virtual world of Second Life to launder the proceeds of crime.

It was the subject of research at the University of West England and it impressed many police forces such that more research has been carried on all around the place with significant collaboration with police forces.

The Government was then asked to regulate the virtual online communities because of fears that criminals and terrorists could use them to launder money. The Fraud Advisory Panel produced a reportin 2009 setting out concerns about the way in which criminals would use the virtual worlds to commit crime. Money laundering by fraudsters is accomplished by converting the proceeds of illegal activities into online currency, which is then used to purchase goods and/or services from you before being exchanged into real world currency. It appears the FAP was concerned about the prospect of large amounts of money being transferred with little risk of detection. With millions of users Second Life’s use of “Linden dollars” which are converted from real currencies leaves experts concerned that the lack of checks to ensure whether transfers are legitimate will assist criminals to hide behind the computer characters they create, making identification very difficult.

The FAP report details many other ways that the Panel concluded crime could and would be committed online. Perhaps more worryingly was the research undertaken by German police that a paedophile ring may have used online worlds to distribute images of child abuse. Gangs could use Second Life for credit card fraud, identity theft and tax evasion.

Virtual worlds are not really beyond the reach of the law but existing laws are not well suited to resolving problems within them. Crimes committed within virtual worlds could have significant repercussions in the real world – so virtual worlds need to be regulated by some means to protect the safety and security of people in a very real way. How to control something that only has a virtual existence and cannot be limited to just one jurisdiction remains the real challenge.
If you get involved in an investigation involving any virtual world implications you ought to contact Clarke Kiernan to discuss your needs and agree a fee structure to deal with this.