Did Linden Lab Change Its Terms of Service Around Second Life Currency to Comply With US Treasury Guidelines?
Linden Lab has updated Second Life's Terms of Service regarding Linden Dollars, the world's official currency, in a way that will impact third party sites which exchange L$ for real money or other virtual currency, including Bitcoin. In the new Terms of Service, however:
[T]o better protect Second Life users against fraud, the updated Terms of Service make it clear that trading of Linden dollars (L$) on exchanges other than the LindeX, Second Life’s official L$ exchange, is not authorized or allowed.
The given reason seems strange on its face, because Second Life users have been able to exchange Linden Dollars for real currency on third party sites since 2004. (See Gaming Open Market.) If fraud was really the concern, why do so only now? According to SL blogger Vaki Zenovka (who describes herself as a lawyer IRL) Linden Lab is really doing this to comply with new guidelines on the regulation of virtual currencies by the United States Treasury department, which I blogged about last month. Here's the problem, as Vaki puts it:
Because of the very strict reporting, registration, and recordkeeping requirements placed on LL by the Bank Secrecy Act, LL has to distance itself from any exchangers it does not control. Those exchangers might not be paying attention to the new FinCEN laws. They might not be keeping records. They might not be reporting suspicious transactions. They might be permitting money laundering. LL has to make it very, very clear that those exchangers aren’t authorized; they’re not part of LL; and LL isn’t responsible for them.
Read more here. I've contacted Linden Lab to confirm is Vaki's theory is true, though it seems quite likely. If that's the case, however, the company should have said so -- it would mute angry SLers who use third party sites. (When Linden Lab made it against TOS to gamble in Second Life, they explicitly said it was to comply with conflicting real life government regulations.) It could also be one reason, with the other reason being this: To boost Second Life's eroding revenue base. Even if just 10% of the active user base regularly trade Linden Dollars on third party sites, forcing them to use the official exchange could mean additional commission rates perhaps in the six to seven figure range. Anyway, look for more updates as this story cashes out.
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