Spells and full houses – and real cash

Although this gets confusing, there’s a distinction in Korean law between online gambling for tokens or “cyber cash” that can be changed into real money ― that’s supposedly forbidden ― it also falls into a grayer area. Game players with more enthusiasm than skill often buy electronic gizmos other players have earned in the course of game play for real cash, re-entering the game with a new invisibility cloak or invincible sword. Is that illegal? No one seems quite sure. But despite the uncertainty, Web sites have sprung up to facilitate those sales as middlemen. Think of it as e-Bay for online gamers.
While authorities discuss how to make laws for this market, Item Bay, the largest item-trading Web site, is being wooed by foreign companies. Item Mania, the No. 2-largest site, was taken over by an American firm earlier this year. Together, Item Bay and Item Mania have cornered 90 percent of escrow item trading, and industry officials, no less nationalistic than other Koreans, are worried that a “huge market” is being sold not to space aliens but worse, to foreigners.
Increasing public attention on quasi-gambling pursuits because of problems uncovered at adult game rooms recently has drawn attention to the trading of cyber items for cash. And this is no small market: it is worth about 1 trillion won ($1 billion) annually in Korea, according to the Korea Game Development Institute, an agency of the Culture Ministry.
The institute based its estimates on reports from companies that pay taxes, so the underground market could be much bigger, the institute said.
IGE, a U.S. Web site that deals in the online game equipment trading business, quotes analysts as predicting that the global market for these services will be $7 billion in 2009. Games like Second Life, for instance, have their own economy and currency, which is traded through the developer’s currency brokerage or other third-party currency exchanges.
In Korea, item-trading Web sites act as middlemen, holding game tokens in escrow while sales are being arranged. Weapons or clothing used by game characters are the bulk of the items traded on Korean sites. Game characters themselves are also an expensive item ― high value game characters with “good equipment” can sell for about $2,000.
Online arcade poker or other gambling games are not considered gambling if the winnings cannot be converted into real money, but people who pile up cyber cash through those games sometimes sell the virtual currencies to others at lower prices, which blurs the line between entertainment and gambling. Because of these practices, some game developers have banned the trading of their currencies offline by disabling software functions that would allow one player to give cyber items to another. Despite these measures, some players still find ways around the restrictions by selling their identities on the Web sites. altogether.
While the government has been discussing what to do about these at least potential abuses, the second-largest item-trading site, Item Mania, was bought by IGE in July for a reported $50 million. IGE operates a global network of item-trading Web sites; its administrative offices are in Los Angeles, California, and Miami, Florida. It has currency exchange services managed by Internet Gaming Entertainment, a wholly-owned subsidiary based in Hong Kong.
Item Bay, currently the largest cyber item trading Web site in Korea by sales, is also being sought by foreign buyers.
Item Bay in 2001 was the first company to begin online services for offline trading of cyber items. Last year, about 310 billion won in such tokens were traded through the Web site. Item Bay earns a commission of about 5 percent on sales.
The company is unlisted; its president, Kim Chi-hyun, owns 55 percent of the company’s shares, and has reportedly been asked by three foreign companies, including IGE, to sell out.
Han Hye-jin, a spokeswoman for Item Bay, said, “Nothing has been decided yet, but it’s not like the president is going anywhere. Even if he sells his shares, it will be more like a payout on his private investments, and he will continue to keep his management post. It’s very unlikely that a foreign company will come in and take over management.”
Ms. Han declined to name the other two companies reportedly interested in buying Item Bay, but said one was Japanese.
Hong Yoo-jin, an official at the game development institute, raised the alarm. “The government and industry all agree that giving the rapidly-growing digital item market to foreign companies is a very serious matter, but with no regulations, there’s nothing the government can do about it right now,” she said.
Missed business opportunities are only one of the perceived problems, though. The absence of laws governing distinctions between play tokens and cash opens the door to abuse and perhaps criminal inroads.
For example, some people have complained that they have been cheated in transactions, paying cash but not receiving the cyber tokens they bought. Regulators and police scratch their heads about how to prosecute someone for swindling a buyer out of something as ephemeral as a magic spell.
In July, the cyber crime investigation department at the Seoul Central Prosecutors Office held a meeting to discuss the trading of game money and tokens and whether criminal punishment could be sought for crimes related to it.
They concluded that these activities could be regulated under vague legal clauses that prohibit interfering with the legitimate activities of a Korean company, in this case, the online games.
Prosecutors said in August that they would begin investigations of such trading in conjunction with their inquiries into the blossoming Sea Story slot machine scandal. They made a handful of arrests, but those involved only people who sold online tokens won in pure gambling games for cash. Those cases were easier to establish; gambling is in theory tightly regulated in Korea, and laws encompassed the conversion of what amounts to playing poker for matchsticks into gambling for cash.
A prosecutor refused to comment on whether companies operating cyber item-trading Web sites were subject to criminal investigation.
Companies in the business, though, say they have not received any visits from prosecutors.
And another sticky issue could arise if these item-trading sites are declared illegal; Item Bay and others have been operating openly and paying taxes on their profits to the government. Again, prosecutors declined comment.
The Culture Ministry convened a forum in April of academics, civic groups and business interests to look at the question, but has made little progress in coming up with definitions and policies.
Ms. Hong of the game development institute said the ministry may devise some detailed plans this year, after several years of effort.
by Wohn Dong-hee


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