Abstract
Purpose - There is a clear consensus of opinion that virtual environments and virtual currencies pose a money laundering and terrorism financing threat. What is less clear, however, is the level of risk that they pose. This paper aims to clarify the suitability of virtual environments for conducting money laundering and terrorism financing activities. Design/methodology/approach - A number of experiments were conducted to estimate the quantity of funds that could be moved through these environments. These experiments took into account a number of factors such as the number of accounts that would need to be opened to launder/raise a specific amount of funds, the amount of funds that could be placed within a certain timeframe and the transaction limits imposed by each of the massively multiplayer online games (MMOGs) and online financial service providers (OFSPs) involved in the money laundering and terrorism financing scenarios. Each scenario was allocated a feasibility score. The feasibility score rated the likelihood of the in-world scenario being successful or unsuccessful and provided the reasons for this. Feasibility was based on the following criteria: ease of use, time taken to launder/raise funds; amount of funds laundered/raised; cost to launder/raise funds; risks mitigated and chances of detection. A number of experiments were conducted to determine the feasibility of money laundering and terrorism financing in virtual environments. Due to space constraints, this paper looks at one scenario in detail. Details of the other experiments/virtual money laundering scenarios can be made available on request to those in the law enforcement field.Findings - The findings of this research show that money laundering and terrorism financing can take place inside virtual environments. Virtual money laundering and terrorism financing offer high levels of anonymity, potentially low levels of detection and removes many of the risks associated with real-world money laundering and terrorism financing activity. However, this comes at the cost of ease, time and, in some cases, the amount of funds laundered. Large sums (millions of dollars) can be laundered in virtual environments, but this exponentially increases the level of effort involved in setting up accounts and placing, layering and integrating funds. All of the virtual money laundering scenarios investigated can be easily transferred to terrorism financing. In fact, many of the negative aspects of virtual money laundering are removed when applied to virtual terrorism financing. The most significant risk comes from terrorism financing rather than money laundering as a small amount of funds in the wrong hands can have a devastating impact. For example, the funds necessary to conduct the attack against the Twin Towers in New York was small, and these amounts could be transferred through virtual environments undetected and with very little chance of identifying the real-world identity of those who performed the transactions or those who receive the funds. Originality/value - A number of authors have described potential virtual money laundering scenarios but some of these are out-of-date due to closed loopholes, all are rudimentary and make no attempt to discuss the practicality or feasibility of using these scenarios. Current examples of virtual money laundering do not discuss how the scenarios compare to traditional methods employed by perpetrators. Another weakness of current virtual-world money laundering examples is the absence of red flag indicators or detailed behaviours that may alert service providers, anti-money laundering and counter terrorism financing (AML/CTF) investigators and/or law enforcement agencies to the presence of virtual money laundering or terrorism financing behaviour. This research addresses those issues by providing a detailed analysis of how the virtual scenario might be carried out, including strengths and weaknesses, cost of conducting the scenario, feasibility of using the scenario and red flag indicators/suspicious behaviours that may be present when conducting the scenario. This information is vital for informed governmental policy-making.
Purpose - There is a clear consensus of opinion that virtual environments and virtual currencies pose a money laundering and terrorism financing threat. What is less clear, however, is the level of risk that they pose. This paper aims to clarify the suitability of virtual environments for conducting money laundering and terrorism financing activities. Design/methodology/approach - A number of experiments were conducted to estimate the quantity of funds that could be moved through these environments. These experiments took into account a number of factors such as the number of accounts that would need to be opened to launder/raise a specific amount of funds, the amount of funds that could be placed within a certain timeframe and the transaction limits imposed by each of the massively multiplayer online games (MMOGs) and online financial service providers (OFSPs) involved in the money laundering and terrorism financing scenarios. Each scenario was allocated a feasibility score. The feasibility score rated the likelihood of the in-world scenario being successful or unsuccessful and provided the reasons for this. Feasibility was based on the following criteria: ease of use, time taken to launder/raise funds; amount of funds laundered/raised; cost to launder/raise funds; risks mitigated and chances of detection. A number of experiments were conducted to determine the feasibility of money laundering and terrorism financing in virtual environments. Due to space constraints, this paper looks at one scenario in detail. Details of the other experiments/virtual money laundering scenarios can be made available on request to those in the law enforcement field.Findings - The findings of this research show that money laundering and terrorism financing can take place inside virtual environments. Virtual money laundering and terrorism financing offer high levels of anonymity, potentially low levels of detection and removes many of the risks associated with real-world money laundering and terrorism financing activity. However, this comes at the cost of ease, time and, in some cases, the amount of funds laundered. Large sums (millions of dollars) can be laundered in virtual environments, but this exponentially increases the level of effort involved in setting up accounts and placing, layering and integrating funds. All of the virtual money laundering scenarios investigated can be easily transferred to terrorism financing. In fact, many of the negative aspects of virtual money laundering are removed when applied to virtual terrorism financing. The most significant risk comes from terrorism financing rather than money laundering as a small amount of funds in the wrong hands can have a devastating impact. For example, the funds necessary to conduct the attack against the Twin Towers in New York was small, and these amounts could be transferred through virtual environments undetected and with very little chance of identifying the real-world identity of those who performed the transactions or those who receive the funds. Originality/value - A number of authors have described potential virtual money laundering scenarios but some of these are out-of-date due to closed loopholes, all are rudimentary and make no attempt to discuss the practicality or feasibility of using these scenarios. Current examples of virtual money laundering do not discuss how the scenarios compare to traditional methods employed by perpetrators. Another weakness of current virtual-world money laundering examples is the absence of red flag indicators or detailed behaviours that may alert service providers, anti-money laundering and counter terrorism financing (AML/CTF) investigators and/or law enforcement agencies to the presence of virtual money laundering or terrorism financing behaviour. This research addresses those issues by providing a detailed analysis of how the virtual scenario might be carried out, including strengths and weaknesses, cost of conducting the scenario, feasibility of using the scenario and red flag indicators/suspicious behaviours that may be present when conducting the scenario. This information is vital for informed governmental policy-making.