Virtual reality, blockchain present challenges for financial crime enforcement

Advancements in virtual reality combined with an internet that is growing more decentralized will present potentially major challenges for policing financial crimes, Jim Lee, chief of IRS Criminal Investigation, said today during an industry event. Speaking during a forum on financial crime trends, Lee said the types of crimes have not changed. “Criminals are doing the same thing they did 100 years ago. They’re just using technology to be more efficient.”

Lee pointed to the rise of the “metaverse,” a term borrowed from science fiction to describe virtual environments in which people can interact as if they were in the same physical location. He also pointed to what many observers see as the next evolution of the internet, known as Web3, which will be defined by the use of decentralized technologies like blockchains. Together the two will allow people to be more anonymous than ever, he said.

“Who is going to be regulating the financial services industry in the metaverse?” Lee said. “And when you add this decentralization, who’s going to be watching this stuff? Can people simply meet and exchange value and there’s no KYC (know your customer), there’s no regulation?”

In terms of what banks can do to help law enforcement crackdown on financial crime, FBI official Aaron Tapp said an “easy takeaway” is not to view the data they collect in a silo. Financial institutions filing suspicious activity reports should try to make connections to other suspicious activity they are seeing before filing or contacting law enforcement, he said.