UK panel urges real-life treatment for virtual cash

[Eugen Leitl]

http://secondlife.reuters.com/stories/2007/05/14/uk-panel-urges-real-life-treatment-for-virtual-cash/

UK panel urges real-life treatment for virtual cash

Mon May 14, 2007 9:05am PDT

By Adam Reuters

SECOND LIFE, May 14 (Reuters) - Governments should apply real-world laws and
regulations to virtual currencies in online worlds like Second Life to
prevent potential money laundering, fraud and tax evasion, a report from a
British advisory group said on Monday.

The Fraud Advisory Panel, set up by the Institute of Chartered Accountants in
England and Wales, said legal loopholes were exposing virtual world users to
ba growing risk of theft and deception.b

In recent months law enforcement and tax authorities have focused increasing
attention on virtual worlds, including a U.S. Congressional probe into
virtual world taxation, a German criminal investigation into child
pornography in Second Life and a new South Korean law that cracks down on
money transfers in online games.

While the report said the dangers were hypothetical at this point, it warned
that people seeking to avoid law enforcement and tax authorities were likely
to seek out loosely regulated online economies.

bMy experience has been that fraudsters migrate to areas that are most
vulnerable,b said Steven Philippsohn, chairman of the panelbs cybercrime
working group. b(They) always benefit where countries are loosely regulated,
and this is an environment that is unregulated all together.b

Online money laundering is a primary concern, according to study author Mark
Johnson.

bI see this as a virtual version of the hawala or hundi system,b said
Johnson, who heads risk management firm TRMG, referring to the informal money
transfer network that is commonly used through the Middle East, Asia and
Africa.

bItbs trust based b I give you 1,000, you give someone else 1,000 b it serves
to move money from A to B to C to D while obscuring the trail.b

He recommended treating virtual currencies like the Linden dollar as breal
moneyb, including a requirement for virtual world operators like Linden Lab
to report suspicious financial transactions, just as for real-world banks and
financial institutions.

bAt the moment, Second Life had the most sophisticated economic model. But
the model is so clearly compelling and successful that there will be a number
of variants,b Johnson said.

bLinden Lab and its servers are based in the United States. But when you
start to get domains based in Belize and the Congo and such b thatbs when it
really gets messy.b