Money Laundering through Gold farming and virtual goods.

By Myke Sanders

Background

In the previous report one anomaly accorded. One person had made 30 purchases all within about an hour. All of these purchases were for the maximum amount of gold. This seemed excessive for someone playing the game normally. Examining this occurrence, one possible theory presented itself. This person could be attempting to launder money through a virtual world. Money laundering is the process of hiding the source of illegally gained funds so that they can not be retrieved or traced. The purpose of this paper is to explore and detail how money laundering can be achieved through gold farmers and other virtual goods and also propose some preventative processes to discourage this practice.

Examples on how money laundering would take place

The following is a step by step account of a very basic way to launder money with gold farming. This first step is to acquire a stolen credit card number. Create a new account on a massively multiplayer online game (MMO) using a prepaid card with an active gold farming market that allows both buying and selling of the game currency. It is important that the virtual goods can be bought and sold. Go to the gold farming sites and purchase the money with the stolen card and have it transferred to the new account. For the next step log on with a second account that has been purchased with a different prepaid or credit card gift card so both accounts are logged on at the same time, transfer the money from the first account to the second and then delete the first account. Now sell the money to a different place than where it was purchased and have the proceeds transferred to a new bank account.

There are three places that the trail could be lost in this process. The first place to lose the trail is connecting the purchased gold to a players account. In the above diagram this would be the left most position A. The institution that sold the gold would have to divulge the information. This assumes that they would work with authorities or keep records. The second place is the player to player trading of items or position B. Almost no MMO company will track all the direct or indirect trading inside their game. Direct trading is giving an item from one player to another by either handing it over in person or through the internal mail system. Indirect trading is dropping the item on the ground and another player picks it up. Assuming the developer of the MMO does track all the transfers, the virtual currency can easily be transferred around between characters. The last place would be in selling the gold back, the right most position A. This is similar to the first place, and once again the person would have to keep records of who they bought it from and how they paid the person. Even if the funds can be traced there are ways to prevent it from being tied to the person. Since the account purchased is on the stolen card or with prepaid cards their no way to trace it by the purchase. If all of the moving of funds is done at store that has WiFi there is no way to trace the IP to a computer.

Using the above process the details can be changed so that any illegal obtained money can be used. Replace the stolen credit card with cash transactions to purchase the account. An alternative payment method may be used to purchase the items. There are many online alternative payment options such as PayPal that can be used to transfer the money around. Instead of money, any virtual item can be used so long as it can be bought and sold. This in fact may be better because it does not look like gold farming. The purchasing of the virtual money can be done through perfectly legitimate channels instead of gold farming sites, but the gold farming sites would be better because they are less likely to closely monitor the transactions or work willingly with authorities.

The money launderer has many advantages in using virtual worlds to hide the trail of the cash. Virtual goods can be used to store the illegal funds. After they have been converted into virtual goods the items can be held onto for some time before converting them back to real world cash. The main concern here is that they could not be held indefinitely. The conversion rate of the virtual currency changes so there is a chance for reduced value, and certain items can also lose their value the longer the game goes. The resources necessary to do this process is very minor; just a computer and an internet connection. Also this process is very fast. The entire ordeal can take less than 12 hours to implement with the right amount of preparation work done in advance. The last advantage is even if the virtual goods are deleted or seized by the game developers; there is no way to attach the illegal activites to a person.

Conclusions and Proposed Money Laundering Controls

The most effective way to stop the money laundering is to eliminate the ability to trade virtual items for real world money. This however is impossible due to the black market nature of gold farming. The first step to discourage the money laundering is for the authorities and the game developers to form a cooperative union. The authorities must become aware of these practices and begin to develop ways to track this type of money laundering. By working with the developers, a technique can be created and implemented that has little impact on the game itself. If the authorities use heavy handed tactics they can in fact destroy the game. A new game will eventually take its place, and since each game and the environment it creates are different, the authorities have to start all over with learning the ins and outs of the game and how it can be exploited. The developers also need to be willing to work with the authorities, because the money laundering would help the gold farmers which in turn hurt the developers and their game.

What needs to happen is for the three ways the trail can disappear to be eliminated. The trail can disappear with the conversion from real world goods to virtual world goods and vise versa or inside the virtual world with exchanges between players. Eliminating the latter is quite simple; the developers just need to log all trades between players. Another step the developers could take is to make all player to player transactions public record. This would make it so the developer does not have to interact with law enforcement. The former is much more difficult because it requires the entities doing the conversion to keep accurate records of the transactions, and to work with the authorities. Laws would have to be passed that would hold organizations that conduct the exchange of virtual world goods for real world money liable for money laundering if they do not keep records of all the transactions. This includes who they have dealt with, the amount exchange, and accounts paid to.

Even closing the places when the trail can disappear might not be enough to stop money laundering.

Placing limits on what a character can hold based on the character level or time played would help prevent large amounts of assets being funneled through a single account. Requiring the users to attach more valid forms of identification to their account would also help. The purpose is to make the process more difficult and harder to hide.

Law enforcement agents have several advantages against the money launderer. One of them is the amount of time needed to locate and seize goods. Since this is a virtual world all the goods are recorded somewhere electronically. This will make research much easier. Also it would be impossible for the person laundering the money to detect the investigation happening. This allows law enforcement to not have to spend resources on hiding their investigation. There is also no way to hide the items. Unlike in the real world where money can be stashed in places people would not normally look this can not happen in a virtual world. Most MMO developers maintain that all items in the game are their property so there are no legal blocks to stop the seizure and deletion of the tainted items. Going with the more player friendly seizing of items, the developer could then talk with the player attached to an identity and prevent innocent parties from losing items. For developers that let the player maintain ownership of the items, such as Second Life, the players account could be frozen forcing arbitration with the player. In either case it is important to establish a good relationship with the players and educate them on how to not participate in any money laundering schemes or activities that could help money launderers.