Congress Joint Economic Committee Talking to Virtual Worlds Operators

There's been a lot of talk over a report on virtual goods taxation set to come out of the Joint Economic Committee soon. They're still researching, though, and Senior Economist Dan Miller has been discussing the space with representatives from Flagship Studios, Vivendi, Linden Lab, the ESA, and the Electric Sheep Company.Two weeks ago, representatives of the committee spoke with MindArk CIO Marco Behrmann and Chief Marketing Officer Carl Uggla. "I’d love to hear back from more firms and people," Miller told VirtualWorldsNews, "but that’s about it so far."

Also present at the meeting was a second JEC representative and a representative of the IRS' criminal division.

"They were inquisitive and open about the new world of real-money transactions and virtual economies," said Behrmann. "The main areas of discussion were about money laundering, terrorism, taxation, and how MindArk will handle the banking licenses we issued about a year ago."

The committee isn't in a position to recommend laws yet, but it is trying to establish grounds for discussing the environment and interacting with it.

"The main thing they're worried about from the IRS perspective," said Miller "is to a certain degree, money laundering and to another degree that people may be trying to hide or shelter money to keep it from being taxed. If you plop it down into a virtual world, maybe it escapes taxation. Then you get into questions about terrorists creating accounts and transferring money from financial backers to terrorist cells in the US. These are sort of standard issues in financial crime. My sense is that the tools to address theses issues exist. We just need to know how to apply them."

Behrmann echoed the sentiment: "I also got a general feeling that virtual taxation, like in a special case of taxation, is not something that these gentlemen wanted to impose on virtual worlds. It would be strange to add taxation. It's better to just see virtual worlds as another venue for possible commerce. Exploring special taxation at this point, I think, would be a waste of funding."

As long as that's the case, it seems as if MindArk and other virtual worlds operators are happy to cooperate. Behrmann outlined the way all transactions are tracked inside of Entropia to monitor for suspicious activity and record any potential illegal activity.

"My personal impression is that these guys are eager to be good corporate citizens," said Miller. "They weren't trying to get any favorable laws or subsidies or anything. They seemed very willing to work with Federal agencies in cases where there might be crime in their world. I think they understood that it's advantageous to them to not have a world overrun by criminals."

Behrmann agreed that as long as an official government request was made, the company would share its data.

"We maintain a high level of integrity in the virtual world," he said, "but we still must abide by real-world laws. And we don't want any foul play or criminal activity going on in Entropia."

That sort of criminal activity could include money laundering or transferring funds illicitly. That sort of activity could be accomplished in the 2D space on unregulated servers, but there's still been a lot of discussion, particularly in European agencies, about terrorism and crime in virtual worlds.

"What I think appeals to the criminals is the ability to blend into the crowd," said Miller. "If they can figure out an exploit in Entropia or Second Life, then the economic activity that they're conducting illicitly would be a lot more difficult to detect than if they just went onto a crime server. That, in a lot of ways, is what we need to be vigilant about. And it's not so black-and-white of an issue as a virtual world for terrorists where we know anyone accessing the virtual world is a terrorist. What if it's a gray area where it's a large virtual world where 95 percent of the economic activity is legitimate? If it's large, that 5 percent could still be very significant."

Regardless of potential dangers, whether they be terrorism or tax evasion, it still seems as if the government is happy to approach virtual worlds regulations with a light touch.

"My feeling was that the people, the government representatives listening to us were curious and didn't want to be heavy handed," said Behrmann. "That's a good thing. If governments begin pursuing virtual worlds as a special entity with special tactics, it will hamper the development of this phenomenon."