How Gaming Companies Can Become Inadvertent Money Services Businesses

Wilson Sonsini Goodrich & Rosati
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Wilson Sonsini Goodrich & Rosati

Many federal anti-money laundering (AML) laws require proactive steps to guard against financial crime.1 While these laws requiring proactive measures generally apply only to financial institutions,2 gaming companies may inadvertently find themselves subject to these AML laws (and attendant registration, recordkeeping, and other requirements) by offering gamers the ability to purchase in-game currencies, digital goods, electronic gift cards, and similar products.3

In particular, a gaming company that offers these kinds of products may qualify as a type of financial institution called a money services business under regulations promulgated by the U.S. Department of Treasury's Financial Crimes Enforcement Network (FinCEN). These federal AML laws will apply to a gaming company that qualifies as a money services business, unless the company can rely on certain exemptions to FinCEN's regulations. Because gaming companies are drawing attention from AML regulators, as discussed further below, gaming companies should be careful in assessing whether they fall under FinCEN's regulations.

Under FinCEN's regulations, money services businesses include seven different types of businesses.4 Before offering a product like in-game currencies, a gaming company should, at a minimum,5 determine whether, by offering that product, it qualifies as one of the following three types of money services businesses: 1) a provider of prepaid access; 2) a seller of prepaid access; or 3) a money transmitter. The definitions of these types of money services businesses under FinCEN's regulations are fairly broad, but FinCEN has provided a number of exemptions to its regulations. A gaming company offering in-game currencies, digital goods, electronic gift cards, or similar products to gamers should structure its offering so that it can rely on these exemptions.

1. Exemptions from FinCEN's Provider of Prepaid Access Definition

Companies that qualify as providers of prepaid access are deemed money services businesses under FinCEN's regulations.6 Prepaid access is access to funds that have been paid in advance and can be used in the future through an electronic device.7 Electronic gift cards are classic examples of prepaid access.

A gaming company offering in-game currencies to gamers will only be deemed a provider of prepaid access under FinCEN's regulations if the in-game currencies are offered and sold as part of a prepaid program, which is essentially an arrangement through which a person (or multiple persons acting together) provides prepaid access.8

Prepaid access, such as in-game currencies, utilized in connection with a game generally will be considered a prepaid program, unless an exemption applies. That is, certain types of arrangements involve prepaid access but are not prepaid programs. Of particular relevance to gaming companies are the following two exemptions:9

  • Closed-Loop $2K Exemption. The first exemption concerns a "closed-loop" arrangement, which is an arrangement where prepaid access can only be used to purchase goods or services from a single merchant, location, or sets of locations. A closed-loop arrangement that generally limits the balance of funds on any one device in any one day to $2,000 or less is not a prepaid program under FinCEN's regulations. This type of arrangement involves prepaid access, but the "closed loop" parameter and $2K value threshold generally remove the arrangement from the definition of a prepaid program.
  • Open-Loop $1K Exemption. The second exemption concerns an "open-loop" arrangement, which is an arrangement where prepaid access can be used to purchase goods or services from multiple merchants at various locations. An open-loop arrangement will not qualify for the "Closed-Loop $2K Exemption" described above. However, if the open-loop arrangement limits the balance of the funds on any one device in any one day to $1,000 or less, it may qualify under this second exemption. To qualify for this exemption, additional parameters must be satisfied though. In particular: 1) no funds or value associated with the arrangement can be transmitted internationally; 2) users cannot transfer their prepaid access to other users in the arrangement; and 3) only funds from a depository source, like a bank, can be used to pay for the prepaid access in the arrangement.

In order to rely on the "Closed-Loop $2K Exemption" described above, a gaming company could offer in-game currencies to players but a) restrict the use of in-game currencies to one game or sets of games, and b) limit the balance of in-game currencies held by any gamer to $2,000 in any one day.

Alternatively, in order to rely on the "Open-Loop $1K Exemption" described above, a gaming company could offer in-game currencies to players and not restrict the use of in-game currencies to any one game or sets of games, but i) limit the balance of in-game currencies held by any gamer to $1,000 in any one day, ii) restrict any transfer of in-game currencies from one gamer to another (including any international transfers), and iii) only allow gamers to buy in-game currencies through their bank accounts.

If a gaming company can structure its products so that it meets the requirements of either of these two exemptions, then the arrangement offered by the company should not be deemed a prepaid program. By virtue of avoiding participation in a prepaid program, the gaming company would not be a provider of prepaid access, a category of money services businesses generally requiring proactive measures (such as registration) under FinCEN's regulations.

2. Exemption from FinCEN's Seller of Prepaid Access Definition

Even if a gaming company is not a provider of prepaid access because it is able to rely on one of the exemptions described above, the company could, nevertheless, still be deemed a seller of prepaid access under FinCEN's regulations. A seller of prepaid access includes any person that receives more than $10,000 from any one person in any one day in exchange for selling prepaid access, where the seller does not have policies and procedures in place to prevent crossing that $10K threshold.10

For purposes of this analysis, it does not matter whether the prepaid access is part of a prepaid program. In other words, even if the Closed-Loop $2K Exemption or Open-Loop $1K Exemption were to apply, so that the prepaid access is not part of a prepaid program, selling more than $10,000 in prepaid access to a single person in a single day would make the seller a seller of prepaid access. This situation could arise if, for example, a company were to sell 15 $1,000 electronic gift cards to the same buyer in any one day. Even if the seller were not deemed a provider of prepaid access (say, because of the applicability of the Closed-Loop $2K Exemption or Open-Loop $1K Exemption), the seller would, nevertheless, be a seller of prepaid access and, therefore, a money services business, generally requiring proactive measures under FinCEN regulations.

To avoid qualifying as a seller of prepaid access under FinCEN's regulations, a gaming company can structure prepaid access offerings to rely on the following exemption:

  • $10K-Limit Exemption. A seller of prepaid access does not include any person that receives $10,000 or less from any one person in any one day in exchange for selling that person prepaid access. If a company has policies and procedures in place to prevent sales to users in excess of this limit, then the company is unlikely to be deemed a seller of prepaid access even in instances where the company has, unintentionally, sold more than $10,000 of prepaid access to one person in one day.

In order to rely on the "$10K-Limit Exemption" described above, a gaming company could, for example, offer in-game currencies to players, but limit purchases of those in-game currencies to no more than $10,000 by any one person in any one day.

A gaming company should be able to avoid being deemed either a provider or seller of prepaid access under FinCEN's regulations if it can i) structure its offering of in-game currencies, digital goods, electronic gift cards, and similar products in a manner that relies on either the "Closed-Loop $2K Exemption" or the "Open-Loop $1K Exemption" and ii) separately ensure that it can rely on the "$10K-Limit Exemption" described above.

After that, the company would still need to consider whether it might qualify as a money transmitter under FinCEN's regulations, as discussed below.11

3. Exemptions from FinCEN's Money Transmitter Definition

money transmitter is, under FinCEN's regulations, a person that either provides money transmission services or is otherwise engaged in the transfer of funds.12 A company offering money transmission services is one that accepts money (or other value that substitutes for money) from one person and transmits that money or other value to another person or location.13 Companies like PayPal and Venmo are prototypical money transmitters, but gaming companies may be providing money transmission services or engaging in the transfer of funds by, for example, making in-game currencies available to gamers that gamers can transfer or trade among themselves or between games.

Nevertheless, there are multiple exemptions to FinCEN's money transmitter definition that a gaming company might be able to rely on in offering in-game currencies, digital goods, electronic gift cards, or similar products.14 Of particular relevance to gaming companies are the following exemptions:15

  • Integral Exemption. Companies that accept and transmit funds only integral to the sale of goods or the provision of services, other than money transmission services, are exempt from FinCEN's money transmitter definition. There are three conditions to this exemption: 1) the money transmission component must be part of the provision of a good or a service that is distinct from money transmission itself; 2) the exemption can only be claimed by the person that is engaged in the provision of goods or services distinct from money transmission; and 3) the money transmission component must be integral (that is, necessary) for the provision of the goods and services.16
  • Prepaid Access Exemption. Companies that provide prepaid access are also excluded from FinCEN's money transmitter definition. As a result, companies making prepaid access products available to their customers, like electronic gift cards, can rely on this exemption from FinCEN's money transmitter definition for those products.

With respect to the integral exemption, a gaming company could argue that i) the in-game currencies it sells to gamers are only integral to the sale of its freemium mobile game, ii) the sale of the company's mobile game does not constitute money transmission services, and iii) purchases of in-game currencies are necessary to finance and provide the game itself. Alternatively, with respect to the prepaid access exemption, a gaming company could argue that its in-game currencies are a form of prepaid access that the company is providing to gamers.17 To the extent a gaming company is able to rely on one of these two exemptions, then it should be able to avoid categorization as a money transmitter under FinCEN's regulations.

4. Gaming Companies on Regulatory Radar Screen

Gaming companies have come under fire for becoming accidental havens for money launderers and terrorist financiers.18 Late last year, Valve Corporation (Valve), the developers of Counter-Strike: Global Offensive (CS:GO), announced that any container keys (a digital item within CS:GO to open loot crates) purchased in game by a gamer could no longer leave that gamer's account or be traded on Valve's online marketplace. Valve explained that "worldwide fraud networks have recently shifted to using CS:GO keys to liquidate their gains" and that "nearly all key purchases that end up being traded or sold on the marketplace are believed to be fraud-sourced."19

CS:GO's loot-gathering system was not the only gaming company affected by bad actors and abuse of secondary markets for in-game currencies and digital goods.20 Because of AML vulnerabilities inherent in electronic gaming, some observers have called for more self-regulation by gaming companies,21 whereas others have sought government regulation of, or guidance directed at, gaming companies in connection with these AML vulnerabilities.22

Many gaming companies already limit the transferability and tradability of their in-game currencies, digital goods, and similar products in their online terms and conditions or end user license agreements. These limitations have not stopped secondary marketplaces for in-game currencies and digital goods from popping up. Because of the heightened attention to AML risk in the gaming industry, gaming companies should reassess whether or not they are structuring their current in-game currency and digital good offerings in a manner that enables them to rely on one or more of the exemptions to FinCEN's regulations. If not, they should take CS:GO's cue and update their product offerings accordingly.


[1] See generally 31 U.S.C. §§ 5311–30.

[2] In contrast, criminal statutes that prohibit money laundering, particularly 18 U.S.C. §§ 1956 and 1957, generally apply to all persons subject to U.S. jurisdiction but may not require proactive measures.

[3] Over the years, money launderers have used these kinds of products in various ways to subvert AML laws. For example, bad actors may fraudulently use someone else’s credit card to purchase in-game currencies and then sell those in-game currencies on secondary marketplaces at a discount. Or a bad actor in one country may buy a digital item denominated in one currency, transfer that digital item to a second bad actor in another country, and that second bad actor may sell that digital item for another currency.

[4] FinCEN’s regulations define a money services business as any person doing business as one of the following: 1) a dealer in foreign exchange; 2) a check casher; 3) an issuer or a seller of traveler’s checks or money orders; 4) a provider of prepaid access; 5) a money transmitter; 6) the U.S. Postal Service; or 7) a seller of prepaid access. 31 C.F.R. § 1010.100(ff). Individuals who engage in activities (ff)(1) through (ff)(5) on an infrequent basis and not for gain or profit are explicitly excluded from FinCEN’s money services business definition. See id. at (ff)(8).

[5] Gaming companies that operate in multiple jurisdictions should also consider whether their product offerings make them dealers in foreign exchange under FinCEN’s regulations, another type of money services business. A dealer in foreign exchange is a person that accepts currency in exchange for another currency in an amount greater than $1,000 for any other person on any one day in one or more transactions. Id. at (ff)(1).

[6] Id. at (ff)(4) and (ff)(7).

[7] Id. at (ww).

[8] Id. at (ff)(4)(iii) and (ww). A company must also have principal oversight and control over the prepaid program in order to meet FinCEN’s provider of prepaid access definition. The applicability of this definition generally depends on the level of control the company has over the prepaid program (i.e., whether the company organizes the prepaid program, sets the terms and conditions for it, determines which businesses can participate, controls or directs the initiation, freeze, or termination of prepaid access, and engages in activities demonstrating it has oversight and control of the prepaid program). Id. at (ff)(4)(ii). Most gaming companies offering in-game currencies, digital goods, electronic gift cards, or similar products are likely to have principal oversight and control over any offerings of those products.

[9] Id. at (ff)(4)(iii)(A) and (ff)(4)(iii)(D). FinCEN will aggregate various transactions per day in calculating a company’s compliance with these limits, but there is some ambiguity in FinCEN’s regulations and guidance as to how these limits will be interpreted in instances where gamers have access to multiple instances of prepaid access in the same prepaid program.

[10] Id. at (ff)(7).

[11] This analysis becomes even more complicated for gaming companies offering multiple tiers of in-game currencies (including in-game currencies that are convertible into other in-game currencies). FinCEN’s regulations on prepaid access and its guidance on virtual currencies create some ambiguity as to when a company that enables exchanges of one in-game currency for another in-game currency may be acting as a provider or seller of prepaid access, or instead acting as a money transmitter.

[12] Id. at (ff)(5)(i).

[13] Id. at (ff)(5)(i)(A). These transmissions of money or other value can occur by any means, including through a financial institution, electronic funds transfer network, or informal value transfer system (e.g., a secondary market for in-game currencies). Id.

[14] Id. at (ff)(5)(ii)(A)–(F).

[15] Id. at (ff)(5)(ii)(F) and (E).

[16] See FIN-2014-R011, “Request for Administrative Ruling on the Application of FinCEN’s Regulations to a Virtual Currency Trading Platform,” FinCEN (Oct. 27, 2014).

[17] A company relying on the prepaid access exemption from FinCEN’s money transmitter definition still needs to ensure it is able to rely on one of the exemptions to FinCEN’s provider of prepaid access and seller of prepaid access definitions in order to avoid needing to register as a money services business under federal AML laws.

[18] In 2013, security researcher Jean-Loup Richet released a report indicating that online role playing games were providing an easy way for criminals to launder money. His report noted that criminals were laundering money by, among other things, opening numerous different accounts on various online games and/or taking advantage of in-game currencies that could be exchanged for real money. See Jean-Loup Richet, Laundering Money Online: a review of cybercriminals’ methods, United Nations Office on Drugs and Crime (June 1, 2013), https://arxiv.org/pdf/1310.2368v1.pdf.

[19] Key Change, Counter-Strike Blog Post (Oct. 28, 2019), https://blog.counter-strike.net/index.php/2019/10/26113/.

[20] Tamara Evdokimova, Criminals Are Using Fortnite to Launder Money, Slate (Jan. 24, 2019), https://rusi.org/sites/default/files/20191011_newsbrief_vol39_no9_moiseienko_and_izenman_web.pdf.

[21] Christopher Witbracht, Level Up: Video Games and AML, ACAMS Today (Dec. 19, 2019), https://www.acamstoday.org/level-up-video-games-and-aml/.

[22] Anton Moiseinko & Kayla Izenman, Gaming the System: Money Laundering Through Online Games, 39 RUSI Newsbrief No. 9 (Oct. 2019), https://rusi.org/sites/default/files/20191011_newsbrief_vol39_no9_moiseienko_and_izenman_web.pdf.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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