If the metaverse is a virtual world, will it need a virtual version of INTERPOL to police it for fraud and financial crimes? Like so many things about the nascent metaverse, it’s possible.
The more we learn about metaverse plans from major players like Fortnite and Meta, the more it seems that anti-money laundering (AML) and know your customer (KYC) protections will be as important as they are in the real world — if not more so — in a space populated by virtual businesses selling virtual goods to avatars that will need to purchase them with virtual money.
How to counter these potential new threats is a question that’s very much on the mind of Hal Lonas, chief technology officer of Trulioo. He told PYMNTS’ Karen Webster that “as the metaverse connects with the reality we all experience, maybe there’s more and more transition between those existences – and to the extent that money starts traversing that boundary, we’ll need to focus on KYC to combat financial criminal activity.”
Though identity checks in the metaverse are a thought experiment for now, Lonas is acutely aware that given the intense focus on the metaverse, AML/KYC issues will present themselves before long. And bridging our universe of money to the metaverse poses unique challenges.
“If you imagine goods and services in the metaverse, businesses that operate in the metaverse will want to make real money and have a real business there,” Lonas said. “That’s where we get to interesting conversations about how that moves back and forth and how we make that traceable, or if it remains untraceable, or what the mechanics of that financial bridge are.”
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Gaming, Crypto Give an Idea of AML/KYC Challenges
In 2021, online gaming probably provides the best clue about how commerce will work in the metaverse, Lonas said. Using that as an example, it isn’t difficult to imagine the expanding metaverse becoming a fertile new ground for the next generation of cyberthieves.
Indeed, PYMNTS’ AML/KYC Tracker notes, “Setting up a criminal enterprise on a gaming platform is not difficult. Criminals download a game and create an avatar or hack an existing account, which is more likely the case. They can then convert money from illegal activities or stolen credit cards into the game’s virtual currency. Once inside the game, fraudsters purchase weapons or level up characters through microtransactions.”
Echoing these findings, Lonas told Webster, “There are goods and services purchased today with real money from this reality, and then taken into the [gaming ecosystem], where it’s spent on goods and services. I think as that becomes more prevalent, you could imagine actual pools of value and money in a metaverse that become untraceable or unknowable.”
For that reason, he sees parallels with the security concerns surrounding crypto. “I think cryptocurrency will become the coin of the realm for the metaverse,” he predicted. “It just makes sense. And all those same concerns will travel with crypto into the metaverse. As we look at that financial bridge, as money moves across the boundary,” it will require scrutiny, he said.
Saying that the involvement of regulators is a given, Lonas speculated on the formation of oversight agencies and law enforcement designed and built for the unknowns of virtual commerce.
Asked if he thinks the metaverse is as easy a target as the real-world financial system, Lonas said, “To the extent that you don’t really know your customer or know a business, it becomes harder to validate someone you’re interacting with, and maybe what their motivations are or who they really are. That’s a huge problem.”
See also: Metaverse: Big Tech and Wall Street Seek Real Profits in Virtual Space
Imagining Potential Metaverse Scams
As for the formation of a virtual police for the metaverse — think something like the U.S. Treasury Department’s Financial Crimes Enforcement Network, but on an international scale — Lonas said we can count on it.
“I think we’ll have something like INTERPOL for the metaverse,” he predicted. “Think of it like an international police force or a compliance committee or bureaucracy that will have to exist. I think that’s going to have to happen.”
What form it might take is as unclear today as what form the metaverse itself will take, as it doesn’t exist – yet.
Given its potential for cross-border payments of various sizes, “we’ll need international agreements on the activity and what goes on there,” Lonas told Webster. “I see it being like outer space, declared international territory or maybe like Antarctica. I think the same thing will have to happen for the metaverse. We’ll have to have international agreements on what goes and what doesn’t go there, and some kind of oversight body to look at it.”
Among his most serious concerns are companies inside the metaverse setting up as investment houses and real estate firms selling highly speculative (or totally fake) securities and properties.
“One of the things I’m really concerned about is, perhaps we have a metaverse investment market, something like futures in the metaverse, or a whole investment marketplace,” Lonas said. “You can imagine a real estate market or a stock market in the metaverse where we’re actually … investing in and … thereby betting on the future prospects of the various businesses or investment products that might be created there.
“I just worry that things that are traditionally pretty safe in the reality we have today would not be nearly as safe in the metaverse, by the nature of it,” he continued. “It may take time to figure out some of those new risks, and the dynamics of an investment or any other financial transaction.”
Read also: Tencent: China Would Welcome Metaverse, With Caveats
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