I ran across this great Findlaw article (April 11, 2007) about the legal implications of Second Life’s gambling industry — within the context of the recently passed Unlawful Internet Gambling Enforcement Act (UIGEA) that was passed in 2006.

The article raises a lot of interesting questions about Linden’s currency system, whether one is gambling with it our just using saving it in their Linden “bank account.”

The article is written by Anita Ramasastry (PDF of Her Curriculum Vitae), an Associate Professor of Law and the Director for the Shidler Center for Law, Commerce and Technology, at the University of Washington’s School of Law. It raises some interesting questions about the true relationship between Linden’s “currency” and the “real” U.S. dollars for which Linden Dollars are able be exchanged.

According to Ramasastry, at the request of Second Life, FBI agents are cruising the virtual landsapce and visiting its virtual casinos to see if the line is being crossed. And where would that line might be? Nobody’s sure right now.

The first half of the article gives a really nice two page summary with a lot of interesting information about Second Life’s currency in general, so I felt comfortable summarizing it for you.

An in-depth analysis of the legal issues surrounding the sites in-world gambling gets a lot more complicated, and that’s what the second half of the article’s about. (Notice that I only pulled a few facts from that section, and did not attempt to summarize.)

I’m still just starting to soaking this all in and make sense of it, but it did seem like there were a few conclusions that could safely be drawn at this point, along with some good food for thought, for those of you, like me, that have been trying to understand the big picture of how all these “gaming currencies” are starting to interact with and have an effect on the “real” ones.

This stuff is a bit complex and we’ll have to just all learn about it together.

So first the general currency info of interest, then the gambling specifics below:

1) Linden Dollars don’t actually count as legal currency, because they are not issued by a “real government, and are therefore only a reside in a “stored-value or token system.”

2) According to Linden’s Terms of Service agreement, in section 1.4 states that its “currency” is really only being used under a limited license agreement and “is not redeemable for monetary value from Linden Lab.”

3) The TOS also states that Linden might start charging for the use of its LInden Dollars in the future, or not, upon its sole discretion, and that the dollars are merely a “class of ‘data’ that can be deleted, altered, moved or transferred at any time. Linden Lab disclaims any value, cash or otherwise, to data residing on its servers. Thus, the currency is “licensed content,” for which a license can be revoked as easily as it is granted.” (Quote is from article, NOT Linden Labs TOS.)

4) The bottom line may be that, since the relevant statues of the law in question cover not only “currency,” but also whenever “something of value” is wagered, that wagering Lindens qualifies as, well wagering. (Since Lindens can be cashed in for US dollars, they would appear to have some “value” in the traditional sense.)

The second half of the article is a pretty technical legal analysis of the questions surrounding gambling in relation to UIGEA, but these aspects of the boring details seemed newsworthy and simple enough to include in a little summary:

1) UIGEA (the Unlawful Internet Gambling Enforcement Act) statute “forbids banks and other entities from processing payments for Internet gambling transactions. It also tasks the Treasury Department and Federal Reserve with issuing regulations to guide financial institutions in identifying and blocking such transactions. UIGEA can be enforced by both federal agencies and state governments, and violations trigger civil remedies and criminal penalties.”

2) According to Wikipedia (half way down page) there has been a recent challenge to certain aspects of UIGEA:
“In April 2007, U.S. Congressman Barney Frank introduced a bill overturn the gambling aspects of the Act, saying “The existing legislation is an inappropriate interference on the personal freedom of Americans and this interference should be undone.”

3) Professor Ramasastry’s interpretation of the statute seemed to agree that it appeard “quite broad,” and notes that the relevant criminal statute referred to by the law “sweeps in anyone who “aids, abets, counsels, commands, [or] induces” a criminal act, or “procures its commission”; and anyone who “willfully causes” an act that, if he had done it directly, would count as a federal crime. And it states that such persons are punishable as if they were the perpetrators themselves.”

4) It’s probably going to come down to whether Linden Labs can effectively block payments to its virtual casinos without interrupting the other various legal activities of its “residents.”

It’s harder than it sounds guys!

Maybe we can all help them figure it out.