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Money laundering through video games

It’s estimated there are almost three billion online gamers worldwide and regulations in this industry are still rather lax so the potential for financial crime is vast.

Eimer Cotter
November 3, 2022

Counter-Strike: Global Offensive is one of the most popular e-sports on the planet. Played by more than 10,000 professional players and millions more amateurs, it regularly takes a starring role in professional tournaments, which are broadcast live to fans all over the world.

As well as the game’s popularity, there are huge amounts of money involved. According to the video gaming information website Esports Earnings, Counter-Strike has awarded over $138 million in prize money since its release in 2012.

Players compete in two opposing teams – Terrorists and Counter-Terrorists – and at the end of each round, they are rewarded with in-game currency.

Money laundering in video games

In 2019, this pretend battle of good versus evil was forced to contend with some real evil of its own. The video game’s developer, Seattle-based company Valve, halted the trading of some of its in-game items after realising that “nearly all” of this trading was part of a global money-laundering scheme.  

In the game, players were able to earn loot boxes which contained cosmetic upgrades for their avatars or weapons. To open these loot boxes, they had to purchase a key from Valve. The problem was that both boxes and keys could be traded for real cash on an online marketplace, allowing ‘dirty money’ to be washed through the system

“In the past, most key trades we observed were between legitimate customers. However, worldwide fraud networks have recently shifted to using Counter-Strike: Global Offensive keys to liquidate their gains,” Valve said in an official statement.

“At this point, nearly all key purchases that end up being traded or sold on the marketplace are believed to be fraud-sourced. As a result, we have decided that newly purchased keys will not be tradeable or marketable.”

Vulnerability across the board

Although Valve did not offer details of the crimes, the company’s admission highlights just how vulnerable online gaming marketplaces are to fraud. And this was just one video game.

It’s estimated there are almost three billion online gamers worldwide, many of them regularly trading in-game items such as characters, weapons, tools, or appearance upgrades. In the battle game Fortnite, for example, players use in-game currency to purchase a victory dance that their enemies must watch once they are killed. Players regularly pay real money for these virtual items – sometimes just pennies, other times considerably more.

As video games become more popular, the perceived value of these items and upgrades increases. Some of the weapon upgrades on Counter-Strike: Global Offensive trade on secondary online marketplaces for close to $2,000 each – although this is rare.

Lax regulations

Compared to other online transactions, regulations in this industry are still rather lax. The transfer of in-game currency is very simple, while congested gaming platforms often allow cover for criminals to hide their transactions.

Games such as Fortnite and Counter-Strike: Global Offensive have largely avoided burdensome know your customer (KYC) guidelines or other anti-money-laundering (AML) regulations. As a result, the potential for fraud and money-laundering is vast.

How criminals operate

But how exactly do the money launderers operate? Their usual method is to download a video game and create a gaming avatar but, if they are especially savvy, they might hack into someone else’s gaming account, thereby disguising their identity even further.

Next, they channel their dirty money into the video game, converting it into official gaming currency. After buying loot boxes, they then sell their characters, weapons, tools, or appearance upgrades on secondary online marketplaces.

Most of these transactions are small in value, so that the launderers rarely bring attention to their crimes.

Authorities fighting back

Some game developers have attempted to crack down on the launderers. In 2019, for example, Linden Lab, the developers of the online virtual world Second Life, required players to register themselves with proof of identity.

Industry associations realise they need to shore up their regulations, too. In an interview with the Financial Times, a spokesperson for the Entertainment Software Association (the trade association of the video game industry in the United States) said the following:

“Providing a positive gameplay experience is core to our industry’s commitment to the players we serve and disingenuous third parties undermine this when they abuse in-game systems for unauthorised and illegal purposes. Entertainment Software Association’s members are vigilant in responding to illegal activity detected on their games or network and take a number of steps to address unauthorised activities.”

Measures included banning offenders’ accounts, as well as cooperating with payment providers and law enforcement agencies.

Financial crime increased during pandemic

Karyn Kenny is a legal adviser who works for the US Department of Justice, and an expert on crime in digital currencies. She believes that the global pandemic may have accelerated illegal money-laundering in video games since so many people were confined in their homes for long periods, playing games online.

She says it's crucial that there is communication between government authorities and private companies on the matter of illegal money-laundering through video games.

“There needs to be an active dialogue. The regulations may be burdensome for some, yes, but it’s the duty and responsibility of governments to protect our economies.” - Karyn Kenny, U.S. Department of Justice, Criminal Division.

Successful prosecutions

Despite the difficulty in pinpointing criminals in the video game industry, there have been some attempted prosecutions.

In August 2020, a federal grand jury in Washington DC indicted two Malaysian businessmen and two Chinese computer hackers, alleging that they had illegally profited from computer intrusions that targeted the video game industry in the United States, France, Japan, Singapore and South Korea.

As well as money laundering, the Malaysian businessmen – Wong Ong Hua and Ling Yang Ching – were charged with 23 counts of racketeering, conspiracy, identity theft, access device fraud, violations of the Computer Fraud and Abuse Act, and falsely registering domain names. The US government is currently seeking to extradite the two men from Malaysia.

“The alleged criminal scheme used actors in China and Malaysia to illegally hack, intrude and steal information from victims worldwide,” said Michael R. Sherwin, acting US attorney for the District of Columbia. “As set forth in the charging documents, some of these criminal actors believed their association with the People’s Republic of China provided them free license to hack and steal across the globe. This scheme also contained a new and troubling cyber-criminal component – the targeting and utilization of gaming platforms to both defraud video game companies and launder illicit proceeds.”

This is just a single indictment, however. When you consider how many in-game purchases there are occurring in myriad video games, all over the planet, all the time, it seems like a mere drop in the ocean. Law enforcement agencies and financial regulators will really have to step up their efforts if they are ever to win the battle against criminal gamers.

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Photo by Javier Martínez on Unsplash

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