Imagine that you live in London and are a fan of musicals. You have grown particularly fond of the musical Hamilton. As a special rendition the musical plays in New York with your favorite star singing the lead. It provides a great way for you to see the musical and catch up with your old classmate who moved to New York. Unfortunately, you live in Europe and you cannot find the time to travel to New York and back. Your option is to buy a ticket to a live screening and have a video call with your friend afterwards. Most people will agree that this is not a real alternative to seeing the musical in real life. Whilst streaming is less expensive and will save you the trouble of travelling, it does not offer the same experience. The videocall with your friend will provide you with some interaction but not on the same level as sitting next to each other at the theatre. In comes the Metaverse to provide you the immersive 3D alternative. Instead of sitting at home or in your local cinema watching the live screen in 2D, the Metaverse will allow you to buy a ticket to a virtual seat in the theatre. Your friend is sitting on the virtual seat next to you, so you both chat before the curtain call. In the break you both have a drink from your own kitchen but with the experience of being in the café of the theatre.

The development of technology is ever-continuing. The world between online and offline is getting blurred.Footnote 1 The Metaverse will bring many new experiences and increase the accessibility to these experiences. All that is needed to access the Metaverse is a device with internet access. The immersive 3D experience can be created using cardboard vr-glasses which are sold for around €15,-. In case of real deprivation, these glasses can even be fabricated at home from an old cardboard box. The possibilities of the Metaverse are endless but the Metaverse itself brings many regulatory challenges. The Metaverse can be accessed from anywhere on the planet which makes it difficult to determine which country or region has jurisdiction. The problem of jurisdiction is made even more difficult because the Metaverse is “[…]an open source decentralized, interoperable platform for programmable digital assets and digital identities built on Substrate.”Footnote 2 In non-coding language, this means that it is free and open for everyone to use. Virtual realities can be connected to the Metaverse by anyone anywhere. The code of the Metaverse is like a building platform upon which many different worlds can be built by anyone who knows how to build blocks. These worlds form a network of virtual environments.

The environments can be created and hosted by different providers and they can then be accessed at any point by anyone. It can use the real world as a template for the shared virtual reality which can be used to facilitate daily interactions.Footnote 3 The Metaverse gained fame on the 28th of October 2021 when Meta, the parent of Facebook, announced their intentions for the Metaverse. Meta intends to create meta home and meta workplace. The aim is to provide the general public with virtual reality settings designed to replace face-to-face interaction.Footnote 4 One of the potential aims of this environment is to facilitate a virtual office space whereby day-to-day office interactions will take place through virtual reality. With this potential comes a new form of virtual existence. Whilst most previous virtual realities have been created to provide an alternative world, the Metaverse would provide a virtual real-life existence. The virtual experience could cheaply facilitate a feel of real-life luxury. The hype is therefore likely to stay.

The new form of virtual existence would open up a wide array of possibilities. One can tag into the virtual office and conduct 3D business meetings. An international meeting could take place within a single virtual location. Metaverse distinguishes itself from other meeting platforms by combining a wide array of services such as communication, payment and smart contract building. The Metaverse furthermore will be provided in 3D. Due to its open source, anyone can build a reality and connect it to the Metaverse, therefore allowing a network of providers to be attached. The Metaverse will allow its users to walk through a high-end retail street, take a walk through a rainforest and close by watching a 3D football match all from their own living room. Though the Metaverse will open up new possibilities vis-Ă -vis the use of the internet, it also raises a series of legal questions.

These legal questions include private law matters such as the applicable law and jurisdiction over virtual contracts. Criminal law questions such as what constitutes a virtual crime. But perhaps most importantly what authority can regulate the internet? Governments aim to promote public values within their society. Whilst promoting these values they are limited to their own borders and jurisdictions. The jurisdictions are defined by physical space. Some of this space is easy to grasp such as land and some of it is a little less tangible such as water and aerial territory. Nevertheless, even the sky can be identified as what does and does not fall within a government’s jurisdiction. Some of the challenges related to water and sky, such as climate change, require an international approach. Governments therefore participate in supranational organizations. The Metaverse, however, combines national and international with a new challenge: the virtual. Whose jurisdiction applies in a virtual space? It is intangible but unlike the sky, it cannot be measured or marked. The virtual reality therefore carries the risk of becoming the new wild west. A variety of journalists have entered the Metaverse and found (sexual)harassment, discrimination and child pornography to be the order of the day.Footnote 5 This phenomenon is undesirable but has little effect in the real world and can be avoided by not entering that part of the Metaverse. The lawlessness of Metaverse also brings the risk of crimes with real-world effects such as money laundering.

Virtual reality and in particular virtual payments bring new risks with regard to money laundering and the financing of terrorism (MLFT). If left unregulated the Metaverse can provide terrorists and organized crime with new mechanisms to finance their activities. The easy solution would be to ban the Metaverse. To ban an internet product is near impossible and considering the possible advantages; is undesirable. This book will therefore consider how to regulate financial transactions through the Metaverse to prevent MLFT. It will analyze the legal framework and suggest improvements from a European Union (EU) perspective. The EU has regulated MLFT primarily through the Anti-Money Laundering Directive (AMLD). A directive requires national implementation, this book will therefore analyze national implementations for further detail.

To analyze the effectiveness and requirements of a new legal framework, Chap. 2 of this book will first describe the development of online realities and the Metaverse and the new types of transactions that can occur. Chapter 3 will discuss the different types of virtual currency schemes in relation to the physical economy. Chapter 4 will continue by examining the three phases of MLFT and the specific risks with regard to the Metaverse. This chapter will also demonstrate that there are three new risks to be added to the MLFT framework that are specific to the Metaverse. These risks are the rise of Non-Fungible Tokens, anonymity and the lack of jurisdiction. The book continues by first examining the three standard MLFT phases with regard to the Metaverse. Chapter 5 will discuss the placement phase. Chapter 6 will discuss the layering phase and Chap. 7 the integration phase. Each of these chapters will discuss the specific risks of the Metaverse and analyze whether the current EU legal framework is adept at preventing MLFT. Chapter 8 will discuss two of the new risks that are specific to the metaverse namely that of anonymity with regard to firms and the occurrence of Non-Fungible Tokens. Chapter 9 will provide a conclusion on the current legal framework and the improvements that need to be made in order to prevent MLFT through the Metaverse.