ARGUMENT: TERROR FINANCINGVideo Games Might Matter for Terrorist Financing

Published 1 June 2024

Every day, billions of dollars flow across international borders among millions of people on a public online market, with functionally no government oversight or regulation. The market? Virtual currency and digital assets in video games. Moshe Klein writes that “as terrorists seek new methods of conducting financial activity, governments must remain one step ahead and consider how they can proactively investigate and close extant avenues for terrorist financing.”

Every day, billions of dollars flow across international borders among millions of people on a public online market, with functionally no government oversight or regulation. The market? Virtual currency and digital assets in video games.

Moshe Kleinwrites in Lawfare that criminal organizations, terrorists, and other malign actors have leveraged this market ripe for illicit financial activity to raise, launder, and liquidate funds.

He continues:

In many video games today, people can use fiat currency to purchase various items or currency in the video game economy. While states have focused on the terrorist financing threat presented by cryptocurrency and other blockchain-based virtual assets, governments have ignored some of the threats presented by other digital assets.

Money laundering in video games is not a hypothetical risk. In the past two decades, criminals have allegedly laundered money through popular video games such as RobloxWorld of WarcraftFortniteEve OnlineCounter-Strike, and Second Life—just to name several of the hundreds of games that appear to be susceptible to money laundering. These games possess some form of digital currency and public or illicit secondary markets for buying and selling virtual assets for fiat currency. On public markets, users can trade, buy, or sell in-game items or other valuables with other users on platforms directly supported or condoned by the video game. In illicit second markets, people can buy or sell accounts, items, and other valuables on unregulated marketplaces from eBay, to forums, to shadier corners of the internet—which frequently violate games’ terms of service. People can trade virtual assets acquired in the video game for other crypto-based virtual currencies or fiat currency. These virtual assets can come in the form of in-game currencies, “loot boxes” (a, usually random, collection of valuable digital items that can be used in game), “skins” (digital costumes for video game characters), or other virtual items, all of which users can acquire with microtransactions—purchasing in-game assets with real money. 

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There is not much evidence of terrorists using video games for raising, transferring, or laundering funds, so why the concern? Extremists, from ISIS to the far right, have a history of using video games and leveraging the concept of “gamification” to inspirerecruitspread propaganda, and communicate. Therefore, some analysts are worried that terrorists will add fundraising and money laundering to that list if they have not already.

As governments continue to close off avenues of terrorist financing, violent extremist groups have successfully innovated and found new ways to raise, access, and liquidate funds. Historically, when terrorist groups faced challenges with their traditional methods of financing, they had no qualms about shifting strategies and leveraging other forms of money laundering, whether it be hawala (a traditional informal money transfer system that is still used, especially in the Middle East and South Asia), cryptocurrencies, or “trade-based money laundering.” Recently, the United States and its allies have pressured cryptocurrencies and exchanges to crack down on illicit financial activities, constraining terrorist groups’ economic actions. As many extremists are already familiar with video games and have used them in other contexts, these markets would be a logical next option for conducting financial activity.

There is some skepticism that video games are a scalable method of money laundering and terrorist financing, as transactions may not be sufficiently valuable for criminals and terrorists to employ as a primary tool. However, data collected on microtransactions and the sale of digital video game items from the past several years indicates that virtual transactions can be lucrative. Because video games lack sufficient oversight and are relatively easy to exploit, criminals can quickly launder large amounts through thousands of small transactions—a familiar method for some terrorist groups.

Klein concludes:

As terrorists seek new methods of conducting financial activity, governments must remain one step ahead and consider how they can proactively investigate and close extant avenues for terrorist financing. Video game markets are currently ripe for financial abuse. Governments should implement FATF’s Recommendation 15 more forcefully and institute AML/CFT regulations to detect and deter terrorist financing. Meanwhile, FATF and other organizations combating money laundering and terrorist financing should take the threat of money laundering through video games seriously and expand their review to include a variety of virtual assets. Finally, online video games should consider implementing AML/CFT best practices, like Second Life did when it required players to register with a subsidiary company that was registered as a money service business.