Fraud Advisory Panel Warns On Virtual Tax Evasion, Money Laundering

by Robin Pilgrim, LawAndTax-News.com, London

15 May 2007

The UK's Fraud Advisory Panel (FAP) earlier this month warned that activities such as fraud, money laundering and tax evasion are increasingly taking place via online communities, such as Second Life, and urged the government to extend real-life legislation into these virtual worlds.

Chairman of the Panel’s Cybercrime Working Group, Steven Philippsohn explained that:

“Such communities are not just chat rooms, they are also lucrative and growing marketplaces. Members use these interactive sites to buy and sell tangible goods and services such as land and property, clothing, music and bookmaking. But there’s nothing virtual about online crime, it’s all too real. It is time government took this seriously”.

Online virtual communities can combine internet chat rooms, 3D games and next generation internet environments in which residents can choose what they look like and what they do, with goods and services traded using virtual money.

The Panel has argued that the UK government must ensure that funds exchanged in this way count as genuine financial instruments covered by existing laws and regulations.

“That’s the key to successful crime prevention in this evolving area” argued Mr Philippsohn.

The Fraud Advisory Panel highlighted several problems arising with virtual communities, including:

• Credit card fraud against genuine customers and suppliers;
• Hacking into databases and identity theft;
• New opportunities for money laundering via false online identities;
• Tax evasion and unregulated cross-border money movements; and
• Sales of age-restricted goods and services to minors.

Virtual communities can also be used by organised gangs intent on avoiding surveillance.

Mr Philippsohn concluded: “The legitimate benefits of virtual communities will prove enormous but people need to be aware that this cutting edge technology has a darker side.”

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