“V-bucks,” the in-game virtual value currency of the wildly popular video game, Fortnite, is reportedly being used to launder the proceeds of stolen credit cards. An investigation by The Independent reveals that discounted V-bucks are being sold in surprisingly large quantities on the dark web – the relatively hidden section of the internet only accessible using special software. Yet these purportedly ill-gotten gains are also being spread throughout the open web, albeit on a smaller scale, through advertising on well-known social media platforms.

It has been acknowledged for years that gaming currencies offer an attractive prospect to commit money laundering. Indeed, a 2013 report for the United Nations Office on Drugs and Crime revealed that online games were becoming increasingly popular venues for criminals to “clean” their money through “the opening of numerous different accounts on various online games to move money.” Among the most common methods was the transfer of in-game currency to associates in other countries, who would then exchange it for fiat currency.

In light of such news, we discuss the factors that determine whether in-game and in-app virtual currencies, such a V-bucks, may be subject to the nation’s traditional anti-money laundering (“AML”) rules and regulations.

Money Transmission and Virtual Currency

As we have blogged, the Financial Crimes Enforcement Network (“FinCEN”) has issued guidance that explains its position as to when a virtual currency business is a money services business (“MSB”) because it qualifies as a “money transmitter”; in such cases, one must register with FinCEN under 31 U.S.C. § 5330 as an MSB and, as a corollary, is subject to the requirements under the Bank Secrecy Act (“BSA”). FinCEN’s guidance includes three requirements: First, that the individual or company acts as an “exchanger” or “administrator” in the transactions; second, the virtual currency involved is a “convertible virtual currency” (“CVC”); and third, the individual or company facilitates the movement of funds between different persons or locations.

An “exchanger” is in the business of exchanging virtual currency for real currency, funds, or other virtual currency; an “administrator” both issues a virtual currency and has the ability to redeem it. More specifically, the FinCEN guidance observes that BSA “regulations define the term ‘money transmitter’ as a person that provides money transmission services, or any other person engaged in the transfer of funds. The term ‘money transmission services’ means ‘the acceptance of currency, funds, or other value that substitutes for currency from one person and the transmission of currency, funds, or other value that substitutes for currency to another location or person by any means.’”

As to the question whether the virtual currency involved is a CVC, that depends on wether the virtual currency either (1) has an equivalent value in real currency, or (2) acts as a substitute for real currency. Bitcoin, for example, is a CVC because it has a generally established exchange rate with a number of “real” currencies, and is an accepted form of payment with certain merchants.

Contrary to Bitcoin, it is not always easy to determine whether virtual currencies developed for in-app or in-game use are intended to “substitute” real currency. Indeed, the answer to that question will often depend on the types of activities a user of the virtual currency is permitted to do. If, for example, an online game features a virtual world that allows its users to purchase “coins” that can be spent on virtual items to customize their “avatar,” that activity, on its own, would probably not be a substitute for real currency. If, however, the same game permits its users to create and sell virtual items while also having the ability to exchange coins through the developer for real currency, it would be more likely to qualify as a CVC. Likewise, it would be more likely that the business ultimately would qualify as a MSB: as noted, BSA regulations define “money transmission services” as the act of transmitting value substituting for currency from one person to another person or location. Although the definition of a MSB also includes a “provider of prepaid access,” a business is excluded from that definition if it “provides closed loop prepaid access to funds not to exceed $2,000 maximum value that can be associated with a prepaid access device or vehicle on any day[.]” Fortnite, as an example, is a closed loop system: V-bucks cannot be used to buy other goods or services outside of the game’s universe.

Takeaways

Allegations that Fortnite’s virtual currency is being used for nefarious purposes serves as a further reminder that offenders will seek out any and all potential ways to launder illicit proceeds. As the implementation of in-game and in-app virtual currency continues to take shape, developers should remain vigilant that, dependent upon the ways it intends for its currency to be used, the platform on which it is based may become subject to certain AML rules and regulations. Even if a gamining business is not subject to the BSA, it still needs to consider potential risks based on the criminal money laundering statutes, if it develops knowledge that certain transactions involve the proceeds of underlying criminal activity.