As the metaverse continues to grow, the threat of fraud continues to evolve and AML strategies are forced to elevate.
We spoke to Bion Behdin, Chief Revenue Officer and Co-Founder at First AML, who discussed the steps firms can take to ensure an effective AML strategy.
Payment Expert: With the average cost for a land parcel across all major metaverse platforms reaching $12,000, how lucrative for criminals is the high value of transactions taking place within those virtual environments?
Bion Behdin: The ease and anonymity to acquire land is a key part of how easy it would be to launder money in the metaverse. Land purchases in real life have a number of checks and balances through gatekeeper professions: this includes banks, lawyers and real estate agents, all of which have to conduct AML checks. In comparison, in the metaverse land acquisition is anonymous and endless, as more parcels of digital land can be created.
PE: When blockchain technology inevitably fully intertwines with the metaverse and given the decentralized nature of this marriage, how difficult will it be to implement an overall AML regulatory framework?
BB: Blockchain is the ultimate in transparency as it’s a distributed ledger. If anything, blockchain will be a boon for authenticating identities and cross checking transactions (as long as regulation follows suit).
Implementing an authentication framework on platforms which are involved in the trading of digital assets is a good way to limit criminal exploitation of digital assets. This would essentially be creating a ‘digital gatekeeper professions’ like we have in other industries.
PE: Is there a risk that a heavy-handed approach to AML and KYC mitigates what is the key allure of the blockchain and the metaverse for many users? How important is finding a balance between the two approaches?
BB: Anonymity is the key benefit of the metaverse. If people are not trying to conduct money laundering then they shouldn’t have a problem with being verified in the real world while keeping their metaverse avatar/anonymity.
Money laundering enables abhorrent crimes so there shouldn’t be a question about balancing AML/KYC against anonymity online. If it’s not right in the real world, then it’s not right in the metaverse.
PE: Can you take us through the process of creating a metaverse-friendly KYC?
BB: The great thing about blockchain is that it can store immutable verified information without storing the underlying data, such as identification documents.
Essentially real people can be linked to their avatar on the platform through blockchain KYC, without losing anonymity on the platform itself past the identification point. Think of it like an Instagram or Twitter ‘blue tick’ mark which verifies the user as authentic but doesn’t reveal the user’s real information to other metaverse players.
PE: Can current AML protections be evolved to adapt to the metaverse, or do you believe firms will have to find a completely new model as they venture into the metaverse?
BB: Expanding gatekeeper professions to digital asset traders is a great start to preventing the bulk of current money laundering that happens within the blockchain and metaverse.
Essentially if you’re selling goods >$10,000 value, you need to authenticate the purchasers in the metaverse. This is the same framework that’s currently in place for high value goods dealers in the real world.
PE: Where will the responsibility lie when it comes to ensuring AML standards are met and those looking to launder money aren’t provided with avenues?
BB: Multi-jurisdictional cooperation will be needed. Just as lawyers, accountants and real estate professionals etc are the gatekeepers to money launderers in the real world, similar gatekeepers in the metaverse will need to take on that responsibility too.
PE: What is the current scope of money laundering in the metaverse when pitted against its web3 counterparts – cryptocurrencies and NFTs?
BB: While the metaverse is young, you can look to the likes of multiplayer online role-playing games (MMORPG or MMOs) such as World of Warcraft to get a feel. They’re virtual worlds where real life money can be exchanged for virtual world currency. As such, money can be laundered. Money launderers will find a way and exploit ignorance of new sources of wealth such as legitimacy of crypto exchanges.
