Interpol
23 February 2008



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IT Crime
Virtual money


Description

Virtual money is defined as money value as represented by a claim on the issuer which is stored on an electronic device and accepted as a means of payment by persons other than the issuer.

Virtual money is an encrypted code representing money, in the same way that paper money is only paper bearing certain characteristics such as graphics and serial numbers. Virtual money is money in the real sense since it can be converted into other forms of money. Although historically it was a slow process, people have come to accept paper money as payment, and virtual money may become dominant as electronic transactions become more common.

Like conventional paper money, virtual money can function as a medium of exchange, a unit of account and a store of value. It is intended for use in place of coins and banknotes for the purpose of making electronic payments of small amounts. Like notes and coins, electronic cash represents ready money; it is not a credit instrument and there is no need for authorisation from a bank or credit institution. Virtual money can be carried on a number of electronic devices and may be downloaded from an automatic cash machine, a shop-based terminal or the Internet. It can be used in the physical world by inserting a card into a terminal or through the use of wireless technology, and in the virtual world over the Internet from a PC or mobile phone or over telephone and television networks.

Many transactions over the Internet already take place with debit and credit cards. However, one of the advantages and purposes of virtual money is that it allows those individuals normally excluded from e-commerce, by reason of their economic status, for example, to participate. The cash-like nature of virtual money means that a good credit history or established banking relationship is not required. Another advantage of virtual money will be that small and new merchants can receive payment conveniently without the associated credit risks.

There are two kinds of virtual money:

  • Identified virtual money - contains information revealing the identity of the person who originally withdrew the money from the bank. This can be traced through the economy, by the bank or law enforcement personnel, in much the same way as credit cards.

  • Anonymous virtual money (also known as digital cash) - once it is withdrawn from an account, it can be spent or given away without leaving a transaction trail. Using blind signatures rather than non-blind signatures creates anonymous e-money.

It is essential that the transmission of virtual money be securely encrypted, so that it cannot be read in the course of transmission.


Criminal possibilities

The main areas of criminal risk for virtual money are believed to be:

  • Unauthorised creation, transfer or redemption of virtual money.

  • Criminal access to computer systems being used to change illicitly the attribution of funds within the system.

  • Criminal attacks on virtual money systems, leading to loss of virtual money value or loss of function of the virtual money system.

  • Criminal misuse of virtual money systems for financial crimes or as a tool to subvert or misuse other financial systems.

  • Criminals may use virtual money to reduce the likelihood of capture, for example, in cases of blackmail, kidnapping or extortion, where, in the past, the collection of money has been problematic for perpetrators. This is particularly significant for anonymous virtual money.

Online games now have their own foreign exchange which lets players buy and sell different virtual currencies, just as in the real world. Criminals will undoubtedly take advantage of this.

While it is accepted within the industry that non-face-to-face transactions may give rise to new risks of money laundering, at present there is no evidence that this is a bigger concern for Internet-based companies, particularly with respect to the regulated e-money sector.


Consequences and response

From the perspective of law enforcement, it is important to know the location of servers which provide virtual money services, especially since they may be located in a different country.

Law enforcement needs to influence legislators when drafting future legislation. This is important as law enforcement will need powers to recover data which is stored in a different jurisdiction from where the offence is being investigated.

Barriers need to be broken down and trust built up between industry and law enforcement to make service providers more accountable for data crossing their networks.

Law enforcement has to learn as a matter of urgency how to investigate crimes in which virtual money is passed to the criminal instead of real money, such as a ransom demand.

 


Last modified on 24 Oct 2005 
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