Counteract money laundering in the gaming industry with KYC

Money laundering is a global issue and each year the amount of money laundered has an estimated value of somewhere between $800 billion - $2 trillion. With new anti-money laundering directives and tougher KYC processes, the war on “dirty money” has led to the development of more creative schemes from fraudsters. One of the largest growing industries in the world is now being targeted.

The gaming industry – over 2.5 billion active players

As traditional ways of laundering money have become more difficult, criminals are using new ways to wash their “dirty money”. A growing strategy is laundering money through the gaming industry because it’s not nearly as regulated as other industries offering payment services.

The online gaming industry is one of the largest industries in the world. There are over 2.5 billion active players worldwide who spent about $152.1 billion on games in 2019 alone. The industry’s growth trend shows no signs of faltering, on the contrary, it is expected to reach an estimated $196bn by 2022.

When looking at in-app purchases, there are an estimated 7.5 fraudulent transactions for each legitimate transaction. China currently has the highest rate of fraudulent goods in the world. For each legitimate transaction, there are 273.2 stolen goods traded on the market. Of these transactions, 50 - 99% of virtual good purchases are linked to illicit activity. The key to these criminal activities’ success is microtransactions and in-game convertible currencies. Let’s look at how money laundering works through games.

Money laundering methods in the gaming industry

There are two different ways to launder money through games; microtransactions and in-game currencies.

Microtransactions

Microtransactions are a set of small transactions used to acquire additional content within a game and those transactions range from a few cents to hundreds of dollars. This is quite prevalent within the mobile gaming industry, where “freemium business models” include in-app purchases to “upgrade”, enhance or even progress in a game. In-game transactions can also be found in PC and console gaming, especially free-to-play games, such as League of Legends, but have also become popular in games that require an initial purchase, such as CS:GO or Call of Duty.

In-game currencies

In-game currencies are often obtainable, for free albeit slowly, and in limited amounts. Users receive in-game currency upon the completion of “quests”, missions, or daily challenges. However, in many games these currencies can also be purchased with real money if users lack the time or patience.

There are two different types of in-game currencies. Convertible, which means it can be exchanged back to “real” money and non-convertible currencies, which can’t be exchanged. Fraudulent activities usually do not occur as often in games featuring convertible currency. This is due to the fact that they often face regulations which make fraudulent activity more difficult. In other words, clients are subject to KYC and AML requirements if a game uses a convertible currency.

Although most game developers use non-convertible in-game currencies and many third-party providers allow websites to resell items and accounts. This opens up the possibility for fraudulent activities.

An example of an illicit activity

A criminal either creates or hacks into an account. They then use illegal funds, such as stolen credit cards, to buy in-game items, loot boxes, unlock keys etc. He or she then makes several other transactions to conceal their original transaction. Lastly, he or she sells the account or in-game items on an open marketplace.

Nearly all CS:GO micro transactions are being used for money laundering

CS:GO is a popular online game dealing with the problems of online money laundering on a daily basis. Valve, creators of the game, have noticed that criminal networks are liquidating their assets via the selling of CS:GO item keys.

In the past, players could earn cases, or loot boxes, in Counter-Strike which contained upgrades to weapons and cosmetics in-game. To open these boxes, players had to purchase keys. This attracted a lot of players who wanted these often unique or rare items, but also facilitated trading and selling between players. Utilizing Valve’s internal marketplace called Steam, Valve can monitor these transactions where players could trade both their boxes and keys.

When worldwide fraud networks caught wind of this, they saw an easy opportunity to liquidate their assets by trading CS:GO keys. Seeming that in-game currencies do not require any KYC or AML procedures, it is hard to identify the person initiating the trade. This resulted in nearly every microtransaction made in CS:GO being used for the purpose of fraud.

Use of KYC platforms can prevent in-app purchase fraud

Although new regulations concerning the gaming industry are published each year, there aren’t really any unified efforts to counter illicit activities. If you are a game publisher or an online marketplace you should assume a majority of the transactions being made on your platform are part of a money laundering scheme. Sure, it might generate additional income but the possible penalties from the ever-growing regulations will probably not make up for that. And in addition to that, fraudsters will negatively impact the reputation of your company.

The solution calls for KYC, Knowing Your Customer, which is used in all identity critical moments of their journey within the game or marketplace. Adding services such as Online ID Verification and Register checks of the onboarding processes of new customers will ensure that the new user is who they’re claiming to be – minimising the future risk of criminal actions.

There is of course, as mentioned, the risk of an account being hacked. Therefore, it is recommended to implement re-KYC triggers throughout the customer journey. This verifies that it’s the same individual who got onboarded that is trying to for example make a trade.

An all-in-one identification and compliance platform

The challenge lies in creating a pleasant user experience while also adhering to both federal and local KYC and AML regulations.

In the ZignSec platform we have aggregated the best-of-breed data and verification providers from 100+ countries which can be used single-handedly or in combination with each other to strengthen KYC/B workflows (such as the onboarding of new customers). We offer Online ID verification, eID, register checks, income analysis, PEP and sanction checks – actually all known methods of preventing AML.

Easy workflows for (otherwise) complicated processes. That’s our delivery!

Let us show you what we can do

Contact us today at sales@zignsec.com or book a demo to learn more about how you can protect yourself, your business, and your customers with our robust KYC solutions.