A UK panel is urging governments to start treating virtual currencies in the same manner as real life money to help combat fraud, money laundering, and tax evasion. The panel follows similar moves to clamp down on virtual economies in the U.S., South Korea and other E.U. Countries.

SECOND LIFE, May 14 (Reuters) - Governments should apply real-world laws and regulations to virtual currencies in online worlds like Second Life to prevent potential money laundering, fraud and tax evasion, a report from a British advisory group said on Monday.

The Fraud Advisory Panel, set up by the Institute of Chartered Accountants in England and Wales, said legal loopholes were exposing virtual world users to "a growing risk of theft and deception."

In recent months law enforcement and tax authorities have focused increasing attention on virtual worlds, including a U.S. Congressional probe into virtual world taxation, a German criminal investigation into child pornography in Second Life and a new South Korean law that cracks down on money transfers in online games.

While the report said the dangers were hypothetical at this point, it warned that people seeking to avoid law enforcement and tax authorities were likely to seek out loosely regulated online economies.

"My experience has been that fraudsters migrate to areas that are most vulnerable," said Steven Philippsohn, chairman of the panel's cybercrime working group. "(They) always benefit where countries are loosely regulated, and this is an environment that is unregulated all together."

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