In the past decade, the video game industry has managed to dwarf the film, music, and television sectors. It’s estimated that there are currently 3 billion active gamers across the globe who have roughly spent $198,6 billion on games in 2022 alone.
As common channels for money laundering, such as real estate, online gambling, and shell corporations, have become more scrutinized through rigorous Know Your Customer (KYC) rules and ownership requirements, criminals have flocked towards avenues with little to no regulation.
The video game industry, particularly the market of online multiplayer games, has seen a surge of nefarious activity in recent years due to its unregulated status by local and international organizations, few to none Know Your Customer rules, ease of transfer of in-game currency, and crowded platforms that allow criminal transactions to get lost in myriads of legitimate ones.
With the gaming industry in constant growth, and projected to hit a staggering $298 billion by 2027, money laundering related to criminal activities is expected to rise.
What are in-game currencies?
An in-game currency is a virtual currency created specifically for a video game to fuel its virtual economy. This type of currency can either be earned in-game through the winning of challenges or the acquisition of new skills, converted from real fiat, or traded between players.
There are two common types of in-game currencies:
- A player can exchange real fiat for the game’s currency, then back.
Many of these types of currencies have a fluctuating exchange rate and a designated exchange platform. A player may use this kind of currency to create, sell, or exchange items with other players in the game, or invest in the game’s virtual properties or assets.
In 2013, the United States Financial Crimes Enforcement Network (FinCEN) issued guidance concerning the exchange and administering of virtual currencies, turning the Linden Dollar, the currency of Second Life, into a convertible centralized virtual currency, and the company who created the game, Linden Lab, into a Money Services Business (MSB) subjected to AML and KYC regulation.
Popular online games that use convertible in-game currencies are Second Life, Entropia Universe, and Roblox.
- A player can exchange real fiat for the game’s currency, but not back.
This currency can only be used within the game to buy skins, weapons, or power-ups for the player’s avatar to personalize his/her character within the game but cannot be traded with other players or invested officially.
It serves as a large portion of the global gaming industry’s revenue and is the most common type of in-game currency. Some of the best selling games at the moment, and the ones with the largest number of players and hours spent playing, utilize this type of currency. Many of these games are also free to download and monetize through the sale of non-convertible in-game currencies.
Popular online games that use non-convertible in-game currencies are Fortnite, PlayerUnknown’s Battlegrounds (PUGB), and Apex Legends.
It’s interesting to note that the Financial Action Task Force (FATF) in its report “Virtual Currencies: Key Definitions and Potential AML/CFT Risks” described non-convertible virtual currencies as “not necessarily static,” stating that secondary black markets may arise for the selling of said currency, thus transforming them into convertible virtual currencies.
How is money laundered in online video games?
In 2013, cybercrime analyst Jean-Loup Richet wrote in his report on online money laundering that microtransactions are what mainly attracts criminals to the world of online video games.
Indeed, they easily cover their tracks and do not draw attention to them beyond the fact that the video game industry is not or very loosely regulated.
In 2013, cybercrime analyst Jean-Loup Richet wrote in a report titled "Laundering Money Online : a review of cybercriminals’ methods,” that microtransactions are what attracts criminals to the worlds of online video games.Indeed, they easily cover their tracks and do not draw attention to them beyond the fact that the video game industry is not or very loosely regulated.
A criminal may download a free online game on their PC, phone, or tablet, then proceed to create a character or an avatar. Alternatively, they can also hack an already existing account to further protect their identity.
The criminal will then channel the proceeds of their illegal activity or stolen credit cards into the game and convert the money to the game’s currency. Inside the game, they will buy rare weapons or power-up their characters through microtransactions, then sell their characters or their stash of in-game virtual currency at a discounted price on grey secondary market websites such as eBay, PlayerAuctions, G2G, or iGVault.
Most online games only allow the player to acquire items through microtransactions, meaning that most currencies, skins, or weapons can be bought with fees that are below $200. This allows criminals to cover their traces easily and not drawn attention to themselves.
What are some methods of laundering money through video games?
Multiple methods co-exist to launder dirty money through online video games.
The best known of these methods are: the use of loot boxes, considered as a form of gambling and banned by Belgium; carding (use of stolen credit cards); the use of convertible virtual currencies.
The best known of these methods are: the use of loot boxes, considered as a form of gambling and banned by Belgium; carding (use of stolen credit cards); the use of convertible virtual currencies.
In October 2019, following a report by Vice, it was discovered that loot boxes in the online game Counter-Strike: Global Offensive were used for money laundering. Loot boxes contain a random assortment of weapons and skins, both valuable and not, that a player can obtain during matches with other players. To open loot boxes, players first must buy a key using real money.
Loot boxes and keys can be traded between players in the Steam marketplace, one of the largest online gaming retailers. Vice reported that 90% of transactions worldwide related to loot boxes were carried out for the laundering of illicit funds. Valve, the company responsible for the game, has since shut down its online marketplace.
Loot boxes and keys can be traded between players in the Steam marketplace, one of the largest online gaming retailers. Vice reported that 90% of transactions worldwide related to loot boxes were carried out for the laundering of illicit funds. Valve, the company responsible for the game, has since shut down its online marketplace.
Loot boxes are considered to be a form of gambling due to the use of real money for the random chance of finding in-game items. In 2018, Belgium considered them in “violation of gambling legislation” and has banned their use in the country. The failure to comply may lead to a fine of €800,000 and up to five years in prison for the publishers of the game.
Carding is a form of fraud involving the acquisition, resale, cash-out, or laundering of stolen credit cards. In January of 2019, the cybersecurity firm Sixgill published an investigation in which they discovered that criminals were using the online game Fortnite for laundering the proceeds of stolen credit cards.
Delinquents would create a new account, or hack into an existing one, use stolen cards to top-up their avatar with the game’s currency, skins, or weapons, and sell the items or their account at a discounted price on third-party markets or the dark web.
The company responsible for the creation of the game, Epic Games, has made it clear in its end-user license agreement that selling the game’s virtual assets on secondary markets is not allowed. However, a quick check on eBay for Fortnite items yielded a surprising 2.107 results at the time of the article with skins, weapons, currencies, and accounts up for sale.
In October of 2019, the Royal United Services Institute (RUSI) discovered that a group of criminals had used stolen credit card details to create a vast number of Apple IDs to buy in-game items in such online games as Clash of Clans or Marvel Contest of Champions, later selling the items on secondary markets for fiat currency.
A criminal may launder its illicitly obtained money through a game that utilizes convertible in-game currency by creating numerous separate accounts using fictitious IDs and fund said accounts with his/her money.
The launderer can then purchase and sell assets amongst the fake accounts, creating an intricate web of transactions. The money can later be transferred to various bank accounts where the criminal can cash-out the money directly from the bank of through an ATM. Tracing the source of funds would be extremely hard.
The launderer can then purchase and sell assets amongst the fake accounts, creating an intricate web of transactions. The money can later be transferred to various bank accounts where the criminal can cash-out the money directly from the bank of through an ATM. Tracing the source of funds would be extremely hard.
The notorious Chinese cyber-espionage group APT41, famous for spying on worldwide organizations in healthcare, high-tech, and communications for the Chinese government, has recently been targeting the video game industry. In a report by the cybersecurity firm FireEye, APT41 had used their hacking skills to generate in less than three hours tens of millions of dollars in virtual currency from a game which they then proceeded to launder in underground markets.
What is being done to counter money laundering in video games?
The video game industry is largely unregulated, and cybercrime related to gaming has mostly focused on the theft of login details of accounts. However, some recent steps have been taken concerning AML.
In June of 2019, FATF added an interpretive note to Recommendation 15 in relation to virtual asset activities and service providers, particularly related to money laundering and terrorist financing. The note puts forth approaches to regulating and supervising virtual asset service providers (VASPs). A game company that sells virtual currencies may be considered a VASP. Many disagree with this notion, stating that many in-game items are not intended to be traded or sold on unauthorised third-party websites and that game developers shouldn’t bear the burden of AML/CTF regulation.
While it’s true that further regulations pertaining to the gaming industry, particularly ones relating to the trading of assets and virtual currencies that go beyond mere user license agreements, should be put in place by international supervisors, the notion of VASPs should not apply to all game developers.
Companies that created online video games using convertible currencies should be considered as such due to their similarities to money services businesses, just like Linden Lab. However, developers of games using non-convertible currencies should face a lighter set of requirements as illegal activity is relegated to outside the game.
Companies that created online video games using convertible currencies should be considered as such due to their similarities to money services businesses, just like Linden Lab. However, developers of games using non-convertible currencies should face a lighter set of requirements as illegal activity is relegated to outside the game.
Since July of 2019, Linden Lab, the developers of Second Life, are now asking all its players to register and identify themselves as part of their AML obligations. This includes submitting a government-issued photo ID, a proof of address, and answers to ID verification questions. The company is also engaging a Senior Compliance Analyst following the scandal in August of 2019 in which a member of the Compliance department exposed Linden Lab’s security and AML problems.
As money laundering continues to grow in online video games, regulators will become more active in clamping down on illegal activity, slowly transforming an unregulated sector into a vigilant and AML compliant industry in the future.
ComplianceKnow your CustomerMoney LaunderingAnti Money LaunderingAMLCryptocurrenciesBlockchainDarkwebPrepaid Cards
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Well, this is an awesome post and written very well. Your point of view is very good. Thanks for sharing, and keep posting good content.
Great informative article. Can you share what you know also about physical and more fungible items such as video games in boxes and sports cards being used to launder money? I cannot believe that the prices being spent on physical copies of video games and sports cards to the tune of over a million dollars is legitimate.
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Great Information, thanks a lot. I have just started to research on this topic of carding and money laundering. One of the best articles I've read so far.
Very informative article thanks. One question, which I think is overlooked, what about cards that can be bought in supermarkets and convenience stores, to top up online accounts. I'm thinking €50 cards to top up a PS plus account/Xbox account. Can these also be used in a laundering scheme? Thanks in advance.