online video money laundering

How online video games are becoming a safe haven for money launderers

Recently, a very odd news article from China received a lot of coverage in Western online platforms. It was about a lawsuit involving a gamer who had spent over $1.4 million on a single video game character.

Video game microtransactions are nothing new in the video game industry. With the rise of online and mobile multiplayer gaming, these transactions have become ubiquitous over the last decade or so.

What was so startling about this Chinese new item was the sheer scale of the money involved. In this particular instance, it may be due to someone having too much time and money to spare!

But it also threw into stark relief the spending potential in these video game microtransactions. According to cybercrime analysts and law enforcement agencies, it’s not just over-enthusiastic gamers who are involved in these transactions.

Research indicates the widespread involvement of criminal enterprises, for the express purpose of illegal transactions and money laundering.

A brief pointer on microtransactions

With the increasing mainstream popularity of online multiplayer games like Fortnite, PUBG, GTA V Online, and Overwatch, microtransactions have also received a lot of attention in recent years. Much of it has been quite negative in nature.

They usually involve the sale of “gold” – virtual goods, in the form of power-ups, weapons, and clothing/armor, or in-game currency that can be used by the player to buy these items within the game world.

In many games, their chief attraction is that they quickly unlock parts of the game that would have otherwise required hours of repetitive gaming effort (called “grinding”).

The sheer slog of grinding in games like World of Warcraft gave rise to new online marketplaces for in-game items. Impoverished players from nations like China collect in-game loot or “gold” by grinding and then sell it for cash at these marketplaces to richer players, often from the West.

Game companies did try to clamp down on these marketplaces by selling “gold” through tokens inside the game itself. The rise of such microtransactions has done little to dent the popularity of these marketplaces.

Instead, they seem to have unwittingly given criminal enterprises a new way to launder illegally earned money.

Why criminal enterprises are looking for new money laundering avenues

Ever since the 9/11 attacks showed the destructive potential of black market transactions and global money-laundering channels, there has been a global crackdown on such activities. The Financial Action Task Force (FATF) is a premier global organization in this anti-money laundering (AML) crusade, involving agencies from 36 member states.

Legislation like the BSA in the United States, the 5AMLD and 6AMLD in the European Union, and the FCA directives in the UK have made it difficult for criminal and terrorist organizations to clean and move their illegal cash assets across the world.

Popular channels like real estate, shell corporations, and more recently, online gambling have all become too well scrutinized. Stringent Know Your Customer (KYC) and Ownership statement requirements are in place in all these sectors.

This has forced money launderers to look at hitherto untouched avenues and microtransactions seem to have provided an easy way out.

How video games provide sanctuary to money launderers

Criminals typically work in the shadows, outside public view. But when it comes to cleaning the proceeds from their activities, they need “crowded” avenues – sectors where there is heavy traffic in the form of frequent transactions.

These make it harder for AML agencies to keep track of suspicious transactions. With over 2.5 billion players across the globe and a market expected to exceed $90 billion in revenues in 2020, video games tick all the right boxes for money launderers thanks to microtransactions.

Since such transactions are relatively less frequent in single player video games, much of the laundering activity is centered around the online multiplayer market.

This space is dominated by shooters like Call of Duty and Counter-Strike, massively multiplayer online roleplaying games (MMORPG) like World of Warcraft and Elder Scrolls Online, and battle royale games like Fortnite and Apex Legends.

All these games have microtransactions that allow players to spend money to buy either in-game currency or virtual items. Since many young gamers often don’t have access to credit cards, there has been a rise in the popularity of prepaid cards for video game transactions.

These single-use cards leave no paper trail and cannot be traced back to any account if they are bought offline using cash. This is the perfect access point for money launderers –

  • First, they buy in-game currency or items using a prepaid card.
  • Next, they put these items for sale at popular online marketplaces, at marked down rates.
  • Actual video gamers throng these marketplaces to buy items at a discount, resulting in quick sales.
  • The seller (money launderer) receives cash in their accounts from a legitimate source.

The end result is a totally anonymous transaction where there are no traces of the original transaction.

How game companies are trying to clamp down on this trend

The magnitude of the problem was laid bare recently by Valve Corp, one of the biggest names in PC gaming. They own the popular games marketplace Steam, along with very popular multiplayer titles like Counter-Strike: Global Offensive (CS-GO).

According to Vice.com, Valve was recently forced to stop trading between player accounts due to the heavy presence of money launderers in 2019. This drastic change to their microtransactions system was prompted by the discovery that more than 90% of all CS-GO microtransactions were funded by illegal money.

Unfortunately, this can only be seen as the first step in a long game of whack-a-mole by game companies and AML agencies. There are plenty of other well-populated online video game marketplaces online, with more launching each year.

If the video games industry decides to drastically reduce their reliance on microtransactions, some progress can be made. But that seems highly unlikely, given the percentage most big publishers earn from microtransactions alone.

A case in point –  Epic Games, the publisher of Fortnite, earned over $2.4 billion from in-game transactions in 2018 alone.

With those numbers, the onus falls on the AML agencies and governments to come up with new regulations for the video games industry, just as they did in the case of real estate, gambling and others.

Given the pace at which money laundering seems to have taken over video gaming, we can expect new developments in this space in the immediate future.