Wednesday, May 29, 2013

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Linden $ Resellers Must Register With US Gov't, Says Analyst

Financial Crimes Enforcement Network Linden Lab Second Life Linden Dollars

Here's a good analysis of the Linden Lab's handling of third party sellers of Linden Dollars by Alex Kadochnikov, a New Jersey lawyer who's been closely following the legal ramifications of virtual currencies in recent months. As I noted recently, Linden Lab hastily launched an authorized Linden Dollar reseller program to allow (some) third parties to sell Linden Dollars, apparently in response to new regulations from the US Treasury department. According to Kadochnikov, these third parties will have to register with the US government too:

Resale of Linden Dollars does not fit exactly under the FinCEN’s definition of an exchanger, but their engagement with virtual currency likely still means that FinCEN views them as money transmitters. Thus, under present regulations resellers have six months to register with FinCEN.

FinCEN stands for the Financial Crimes Enforcement Network, a division of the United States Treasury department. And connecting this to an earlier post by Kadochnikov, it sounds like registration is going to be pretty complicated, time-consuming, and require lots of legal help.

This may make things quite difficult for many or most of the authorized Linden Dollar resellers, all of whom are small businesses.

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Iggy

"registration is going to be pretty complicated, time-consuming, and require lots of legal help"

Go figure. I'm not poking NWN's cyber-libertarians with a stick here, but this was bound to come to the online paradises. The Feds and their international counterparts will continue regulating these spaces every more tightly.

Don't think they can't. The Wild West era online is ending, and the telecos will be sure to be in compliance and help with the policing.

Wolf Baginski

There's a set-up cost to all this, sure, but all that I have heard on the regulations suggests that quite small businesses have to be registered, and they seem able to cope. Linden Labs are handling over $4 million per month just from tier. They haven't talked about the virtual economy for a long time, but the Land Barons take in L$, convert them to USD, and pay tier. The LindeX is going to have to be at that order of magnitude.

It's not trivial. I can see there being a wider margin between buy and sell on the LindeX. But the impression I get isn't one of a company which cannot afford compliance. The events of the last month suggest a company which hasn't been paying attention to what its own customers have been doing. And that is consistent with what you hear from Merchants in the forums.

Go look at the Marketplace, and you still see items with the wrong pictures. That's been a long-term problem and it suggests they have been running with database corruption for a long time.

As far as business within Second Life goes, they don't look quite competent. The way the TOS is written, they have done more hand-washing than Pontius Pilate ever did. And I cannot entirely escape a sense of guilty pleasure as the US Government appears to be telling them that they're going to have to follow the rules after all.

Ciaran Laval

I'd be surprised if European based business is required to register with FinCEN, whether that will mean Linden Lab remove their right to sell Linden Dollars is a different matter.

Archangel Mortenwold

This is just another way for the big banks to control things even more tightly. The exchanges represented a potential threat to the already obscene profits of Wall Street, so the order got handed down and the U.S. government complied. So now we have less freedom.

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