What? RL Banks in a Virtual World with L$ (Fictional Currency)

First of all hello. I have played SL on a free account for a while but lost touch and just recently came back to reconnect with some dear friends. Of course this bank thing is the big story now. It interests me to a degree.

From the Linden Blog

Isn't the Linden dollar claimed by LL as to be not real currency? It's supposed to be like play money right (fictional currency)? I mean they are not reporting cashouts to the irs.

So if a real bank comes along and flashes some government issued paperwork and people start depositing L$ into this "bank" then how will the "banks" who are possibly making money off of these deposits be reporting this to the irs? And you KNOW banks are not going to NOT report things to the irs.

I get a statement every quarter from my bank with information about my interest collected on my accounts. At the end of each year I get one for tax records. My bank has my social and my rl information of course.

So how can we have rl banks in sl providing banking services and keeping accurate tax records with avatars and fictional currency?

I never invested in any of these "banks" and feel bad for anyone who lost money in them. The question comes up though, how all this will pan out if a rl bank pops up on the grid.

Too tired to give a coherent reply, but I just had to post to say you have the most awesome avatar name in the history of the Metaverse.

LOL. Yours is pretty good too.

Wheezie, I know it seems like using a steamhammer to crack nuts as regards RL banks setting up shop in SL but if you've ever heard any Phil's starry-eyed speeches about the direction he's pushing SL (the Metaverse, Web 3.0, etc...) there's a certain inevitability to either RL banks or RL-regulated banks in SL. But it will happen eventually.. either in SL or its successor.

So what effect do you think this will have on the way LL does cashouts and things like that? VAT is already here for residents in the uk. Is the u.s. next?

Wheezie, I can't answer that question: I'm not an economist nor do I pretend to be one. All I'm able to do at this point is see where the official vision of Phil's metaverse leads and draw logical conclusions. RL business presences in the virtual world are part of that vision. There are many RL business and academic presences in SL already. Therefore, by logical extension, that should include banks. Though for the life of me I don't see them even covering their operating expenses when it comes to dealing with a micro-payment environment such as SL. Setting up a presence as advertising and promotion for their RL banks would be a more logical proposition at this point of time.

I don't think LL seriously thinks anyone/entity will take them up on the offer of showing up with some government issued regulation paperwork so that entity can operate a bank in a fictional world with fictional currency and non-government regulated reporting practices. Banks are highly regulated and the tax man watches them closely also, so any real bank wouldn't touch this mess.

But your question is a good one.

This is just LL's way of appearing like they kinda sorta know what they're doing with such a sticky situation. They got rid of gambling, now the ponzee schemes called SL banks. I would assume by extension this means stock exchanges are next, as they should be. And somewhere down the line, they will have to seriously deal with the whole Linden currency thing. There is obviously real money changing hands in SL every day. That real money gets cashed out into real life money. A line or two in a TOS isn't gonna make it not so. They will have to deal with that at some point.

There is (or was) at least one real life bank on the grid and that is ABN AMRO. However, the last time I visited the site I do not think it accepted deposits, and it was more a "concept" type thing.

I am pleased that Linden Labs has taken this course of action, banning banks UNLESS they have a real life authorisation.

I am sorry for those people who will almost certainly loose money from current "schemes" as well as those who lost out on previous occasions

Europeans dont pay VAT when cashing out, only on purchases, i.e. land, tier etc. It's still the players own responsiblity to declare any earning made in SL once those earning leave the game.

LL does provide detailed monthly statements of L$ cashouts, so merchants who are withdrawing profits from SL can document that income for their narional tax authority. They don't report it directly to the IRS because they have no real way to tell if "Avatar X" is in the US, Canada, or Nigeria. It is up to the individual to deal with their tax man, the same as any small business owner that is making a few bucks in a home business.

RL banks will eventually be attracted to SL for the same reason that they are attracted to any other financial market - profit. They will be able to make micro-loans, in-world mortgages, and collect transaction fees for converting L$ to real world currencies and back again. It may be small profits compared to opening a major bank in a major metropolitan area, but that has never stopped many banks from opening a branch in a small rural town...

On edit ABM AMRO are still on the grid but do not seem to be accepting deposits.

SL Bank has closed and it appears (at the time of my visit) the terminal is paying back all deposits with interest to date. This I believe is the only bank within SL to offer verifiable first life ID on the owners. On the assumption this paragraph is correct that action is to their credit.

All the other so-called banks are closed I visited. Some avatars are ambling around thinking it is a solvable position but without first life financial authorisation I think they are doomed. Linden Labs statement would seem to prohibit any financial return via interest or OTHER, on any object.

Finally there seems to be a possibility the WSE will also be impacted. Certainly Lukes deposit account offering 15% is now not allowed, it would seem also the prohibiting of other return via any object may make it difficult to trade stocks.

Just a personal view.

Link below explaining
---------------------------------------------------------------------------------------------------
Please read this if you operate, or have transferred L$ to, an in-world “bank” or financial company.
As of January 22, 2008, it will be prohibited to offer interest or any direct return on an investment (whether in L$ or other currency) from any object, such as an ATM, located in Second Life, without proof of an applicable government registration statement or financial institution charter. We’re implementing this policy after reviewing Resident complaints, banking activities, and the law, and we’re doing it to protect our Residents and the integrity of our economy.

Just out of curiousity, I checked the First Meta website, and noted that they have a statement there that they support the LL action, and are working with LL to validate their credentials as a Singapore-registered bank.

And LL has been very unspecific about just what sort of paperwork would satisfy them as to your legitimacy.

If it was my call, I wouldn't require that an SL bank be an arm of a RL bank, or be "chartered". I'd still let anyone set up an SL bank. But I'd require:

- Full disclosure to LL and to the bank's customers of the owners' RL identities and contact information.
- Posting a bond, or depositing RL currency with LL, in an amount sufficient to cover all deposits.
- An annual audit of the bank's business by a RL accountant, and publication of the report to LL and to all customers.

Sorry but you are wrong about Lindens requirements, they have been quite specific

Quote
--------------------------------

Please read this if you operate, or have transferred L$ to, an in-world “bank” or financial company.
As of January 22, 2008, it will be prohibited to offer interest or any direct return on an investment (whether in L$ or other currency) from any object, such as an ATM, located in Second Life, without proof of an applicable government registration statement or financial institution charter. We’re implementing this policy after reviewing Resident complaints, banking activities, and the law, and we’re doing it to protect our Residents and the integrity of our economy.

------------------------------------------

The key words are "Applicable Government Registration Statement Or Financial Institution Charter"

Putting it simply I read that to be financial authorisation in the avatars country of domain AND/OR financial authorisation from another country. Quite clear cut

So when is Centier opening up shop in SL?

I saw that too, John, and I don't think it's as clear as you do. Just what sort of government registration statement would be "applicable" to an institution that deals in a virtual currency? What sort of "Financial Institution Charter"? Could I and a group of my friends write a "charter"?

But that's a side issue. What do you think of my way of doing it? Keeps the governments' pattypaws out of the game, but protects the investors, with minimum involvement on LL's part.

A government registration statement would be some sort of license issued by a government.

A financial institution charter is exactly that, a charter filed with the appropriate government authority as a prerequisite for doing business, and easily confirmed through the appropriate government agency.

If they're operating in the US, it is illegal for them to accept deposits as a bank without getting taxpayer id information from the customer. I think this applies even if the account doesn't pay interest. I think the Patriot Act requires them to have someone check ID in person (drivers license, etc.), but I'm not 100% positive on that.

If they pay anyone more than US$10 of interest, they're required to file a 1099-INT with the IRS, sending a copy to that person. If it's legally a dividend, then it's a different form but same idea.


I don't understand why you think this is a problem?

Though the only way I can see a RL bank accepting Lindens is if they immediately convert into RL currency, with appropriate exchange fees, and likewise in the other direction. Thus a US bank would only maintain accounts in US dollars, and the conversion to and from Lindens is a convenience to the customer. If they accumulated Lindens, then they'd be making a speculative investment in some unregistered intellectual property - something that I doubt banks are allowed to do, and surely not with FDIC insured deposits.

I don't really actually see the point to using a RL bank for your Lindens.

Because since it only offers RL rates of return, you may as well just contact them directly in First Life, and use USD$ (or w/e currency where you live).

But I do see the reason LL only will accept RL banks rules wise.

Yes, but you're missing my point. The government regulators who issue such documents have no clue how to deal with a "financial institution" that deals with a virtual currency in a virtual world, and at a capitalization of (at a guess) well under a million dollars.

They would laugh any such "basement banker" out of their offices.

Which is the point I think.

looks like you just explained why it would be a problem.


1099-INT for sl avatars? taxpayer id's? That's what Iwas getting at. I did not say it was a problem but wondering if more was coming and if these are the requirements for banks and for people who use banks then we will have some tax accountability somewhere, sometime or another. Your post explains a lot and is what I was getting at.

If they're operating in the US, it is illegal for them to accept deposits as a bank without getting taxpayer id information from the customer. I think this applies even if the account doesn't pay interest. I think the Patriot Act requires them to have someone check ID in person (drivers license, etc.), but I'm not 100% positive on that.

If they pay anyone more than US$10 of interest, they're required to file a 1099-INT with the IRS, sending a copy to that person. If it's legally a dividend, then it's a different form but same idea.


I don't understand why you think this is a problem?

Though the only way I can see a RL bank accepting Lindens is if they immediately convert into RL currency, with appropriate exchange fees, and likewise in the other direction. Thus a US bank would only maintain accounts in US dollars, and the conversion to and from Lindens is a convenience to the customer. If they accumulated Lindens, then they'd be making a speculative investment in some unregistered intellectual property - something that I doubt banks are allowed to do, and surely not with FDIC insured deposits.

I'm beginning to think they left that bit in about RL banks was so that RL Credit Card companies can operate in SL trying to get people to click onto their website and apply for a card.

The L$, if it remains inside of SL, has no value. You can't use L$ to buy RL goods and services.

The L$ only has a value in such that other Residents will pay you USD for it. LL acts as a broker for these transactions. Taking a small fee when they do.

Each Resident is responsible to pay their own taxes. In the USA this means declaring any L$ cashed out to USD as income for the yearly income tax.

LL is responsible for paying their income taxes on all their income, which would include the broker fees for L$-USD transactions.

The L$ can not be taxed as it is not a currency. It is a product. That we in SL are using it as a trading commodity is irrelivant. Only our transactions of USD effect into the real world, and with real world tax laws then applicable.

SL banks would have to cash out any L$ invested in them, then invest those funds in real world ventures. Just like RL banks, the SL banks can only make a profit by investing smartly. In this case, the SL banks would have to declare income on all USD gained from cash outs. And yes, day-trading on the LindeX would be considered a RL venture as this deals with payments rendered by RL credit agencies.

Note: I used USD as this is the unit of measure used on the LindeX. Obviously each country will deal with their own unit of currency.

~Jessy