Emerging legal issues in the metaverse: new digital horizons for businesses
Thursday 27 July 2023
Johann Hartleben
Legalsa, Guatemala
johann.hartleben@legalsa.com
Conference report
Biennial IBA Latin American Regional Forum Conference: Technology, social media and artificial intelligence: challenges for the legal industry in the digital age
23 March 2023
Plenary session
Session Co-Chairs
Estif Aparicio Arias Fabrega & Fabrega, Panama City; Advisory Board Member, IBA Latin American Regional Forum
Lina Uribe Gomez-Pinzon Abogados, Bogota; Vice Chair, IBA Water Law Committee
Speakers
Jonas Bergstein Bergstein Abogados, Montevideo
Alejandro Correa Rappi, Bogota
Lucas Marsden-Smedley Rodriguez FTI Consulting, London
Ana Paula Rumualdo Hogan Lovells, Mexico City
Esteban Sotomayor Kravata, Bogota
What is the metaverse?
The session began with a brief introduction to the concept of the metaverse. Speaker Ana Rumualdo explained that the metaverse represents virtual life. In the metaverse there are activities with different goals with immersive ways and immersive experiences with digital identities and ownership of their assets. ‘Metaverse’ is a term used to describe a fully immersive virtual world that is seamlessly integrated with our physical reality. It is essentially a collective virtual space where users can interact with each other and digital objects in a way which feels natural and intuitive. The metaverse is still in its early stages of development, but it has the potential to revolutionise the ways in which we work, play, and interact with each other. It could be used for everything from virtual meetings and online shopping to gaming and socialising.
Legal issues associated with this new technology
As with any new technology, the metaverse raises several legal issues which will need to be addressed as it becomes more widely used. Ms Uribe asked the panel to point out the main risks of the metaverse. Marsden highlighted privacy and security. The metaverse collects vast amounts of data about its users, including their movements, preferences, and interactions. This raises concerns about privacy and data protection, especially if this data is used for monetising through targeted advertising. Speaker Alejandro Correa also highlighted the amount of data that the metaverse collects and that now you can know in virtual mode which stores you visit, that data can be made use of. Finally, Lucas Marsden-Smedley pin-pointed criminal activities, harassment and other legal issues to address.
As the metaverse becomes more widely used, it is likely to become a target for cybercriminals. There will be a need for robust cybersecurity measures to protect users and their digital assets from theft and other malicious activities. Estif Aparicio asked the panel to explain how criminal liability applies to virtual spaces. The panel explained that one of the challenges is to know where the crime was committed. Currently this has been established by authorities by pinpointing the exact location and then applying local law. However, criminals know how to hide their IP addresses or proxy servers. Locating criminals’ locations is costly and time consuming. Another approach to this issue is to apply nationality principle. Not where the criminal was when they committed the crime but rather what is their nationality and to prosecute according to the laws of their domicile. Another way is to apply a Digital ID principle, which is not yet perfect but more efficient than others. Digital ID refers to the use of digital technologies to verify and authenticate the identity of individuals. The typical examples of crimes in the metaverse include pitch butchering, sexual harassment and identity theft. Rumaldo highlighted the importance of reading terms and conditions and privacy policies which is a user responsibility.
NFTs (Non Fungible Token) used for criminal activities was also addressed by the panel. Esteban Sotomayor explained that an NFT is a certificate of ownership that represents ownership of a digital asset (unique item or piece) that is stored on a blockchain. However, these have been used for money laundering by purchasing NFTs in the metaverse. At this moment there are no sufficient controls, meaning it is easy to perform money laundering in these circumstances.
The session continued with the presentation of a virtual court hearing through the metaverse from Colombia that included avatars of the judge and the parties. The hearing was legally grounded by the local Colombian law and served as a representation of how the metaverse is interacting in our world, especially advancing in the legal system of countries.
Later, Bergstein addressed tax issues in the metaverse, including the taxation of virtual goods and services, taxation of virtual income, jurisdictional issues and regulatory challenges. Bergstein mentioned that the metaverse founders probably did not think of the tax consequences of the metaverse. They conceived something ideal, with equal access for everybody, so taxes were probably put aside. But then business came in and taxes should apply. Bergstein highlighted two significant examples for this issue: Ariana Grande’s concert through Fortnite that generated 78 million consumers and the acquisition of real estate with NFT. The question for these two events arises as to whether these transactions should be subject to taxation, and if so, how they should be taxed? Bergstein concluded that these examples raise questions and that it currently remains unclear as to who or which country has the right to tax virtual transactions and income, and how these tax laws can be enforced across borders. Currently, it seems difficult to control. It has become the largest tax heaven in the world.
Correa pointed some challenges of data privacy in the metaverse and Artificial Intelligence (AI). There are algorithms which count hand shakings and movements and through this have access to a lot of data, making it possible to know and predict how nervous a person is or what their behaviour is. That data generates an accurate profile of the person.
Artificial Intelligence and its future
AI is a rapidly advancing technology that has the potential to transform many aspects of our lives. AI refers to the ability of machines to perform tasks that would normally require human intelligence, such as recognising speech, making decisions, and learning from experience. In the future, AI is expected to have an even greater impact on society, with the potential to transform sectors such as healthcare, finance, and education. As AI continues to develop, it will be important to ensure that it is used in a responsible and ethical manner, with appropriate safeguards in place to protect privacy, security, and human rights. This will become a dilemma for Latin American regulators. There is a challenge in converting data to data privacy and currently it seems that there is no answer to this issue. The challenges for law enforcement and solutions shall include cooperation between different states and international treaties.
The session ended by asking: ‘What would be the name of the session in ten years from now?’
Correa answered: ‘Am I protecting my children enough?’
Marsden: ‘Enterprise value, and business law case.’
Sotomayor: ‘The rise of the machines.’