Will money laundering become easier in the metaverse?

Ever since Mark Zuckerberg unveiled Facebook’s rebrand to Meta in October 2021, much of the talk in digital circles has centered on how web3.0 and the metaverse could shape the future of the internet. 

What is web3.0 and what will it change?

Web3.0 is championed by some because it empowers the reclamation of customer content and data, which for so long has been centralized in Big Tech.

In many ways, web3.0 will actually take us back to the original World Wide Web (known as web1.0), where anyone could post anything without having to go through intermediaries and without needing authorization from a central body.

In essence, web3.0 is a decentralized, trustless, and permissionless token-based economy on the blockchain. Of course, this is the same technology that’s used by cryptocurrencies and NFTs. Due to this, it’s likely to bring the use of digital currencies further into the mainstream.

Could it make money laundering easier?

In the recent months, we’ve witnessed concerns about the links between cryptocurrencies, NFTs, and fraud. Now, it’s clear that the rise of the metaverse and web3.0 could also make money laundering simpler.

This is because, if you only need a Facebook account to join the metaverse, then a number of potential issues arise. For example:

• How can users be protected from identity fraud and identity theft?
• How can the user age limit be enforced?
• How can vulnerable users be protected from manipulative criminals?  

While the blockchain is visible and everyone has access to copies of transactions, the identities of the people conducting the transactions are hidden. This means that there’s no possible way to tell if the source of the currency is legitimate. In many ways, this makes the metaverse the perfect place for criminal activity to be conducted.

On top of this, the metaverse will allow criminals to turn their cash into non-traceable and easily-hidden currencies. Rather than being a labor-intensive process, money laundering will simply require a criminal to click a button over and over again to buy and sell items in the metaverse, producing a long ledger of transactions that are impossible for humans to trace.

After all, the absence of traditional intermediaries in web3.0 means users don’t need to undergo any prior know your customer (KYC) or anti-money laundering (AML) checks.

How do we counter this problem?

The processes involved in laundering money in the metaverse are highly complex, incredibly fast, and cross multiple borders. All of this means that the process is difficult to detect using current approaches.

Due to this, it’s imperative that current AML policies are adapted and advanced technology is utilized. For example, both artificial intelligence and machine learning could be used for transaction monitoring and identity verification in the metaverse.

Added to this, it also seems clear that inter-agency and inter-country information sharing and cooperation will become necessary. Plus, a more metaverse-friendly version of KYC will need to be developed.

Although it still might be acceptable to allow someone to create an avatar and enter the metaverse with a Facebook account, a metaverse-friendly version of KYC will need to be developed to ensure AML regulations are as stringent as they are offline. After all, if people are looking to buy or sell in the metaverse, then KYC and customer due diligence remain absolutely critical in the fight against fraud.

Ensure compliance with Veriff

In today’s world, the challenges created by new technologies such as NFTs and the metaverse are numerous. As a result, the regulations regarding money laundering and KYC are constantly changing.

Now, criminals are more advanced than ever, and they’re always looking for ways to access weak points and loopholes. Thankfully, with the help of our AML and KYC compliance solution, you can show regulators that you take financial crime and compliance seriously.

To learn more about how we can help you verify customers and ensure that you stop fraudsters on the spot, book a personalized demo today.