The BBC reports that Second Life is being investigated by German police following allegations that some users are trading child pornography in the online world, as well as practicing 'virtual' child abuse:
The investigation follows a report by a German TV news programme which uncovered the trading group and members who pay for sex with virtual children.
The trading of child pornography isn't a new problem on the Internet, but as is often the case with emerging 3D worlds like Second Life, the new medium creates with it a new set of moral and legal issues. Here I'm referring to the so-called practice of "age play" that is exists in Second Life, and presumably other virtual environments, where adults recast themselves as children, to play our various fantasies -- including sexual ones.
Under Germany law possession of "virtual" child pornography is punishable by up to three years in jail.
Linden Lab (Second Life's makers) are assisting with the German authorities and have responded on the official blog:
On Thursday May 3, we were contacted by German television network, ARD, which had captured images of two avatars, one that resembled an adult male and another that resembled a child, engaged in depicted sexual conduct. Our investigations revealed the users behind these avatars to be a 54-year-old man and a 27-year-old woman. Both were immediately banned from Second Life.
Linden are obviously keen to point out that it was an adult pretending to be a child, not a genuine minor, as well as re-iterating Second Life's policy on adult content:
Linden Lab has absolutely zero tolerance for depictions of child pornography within Second Life. We were outraged to see the images that ARD showed us, and will cooperate fully with any legal authorities that choose to investigate the individuals involved in such activities. Child pornography is, of course, illegal and as such is a breach of our Terms of Service. It goes without saying that anyone engaged in this activity will be permanently banned from Second Life, and subject to legal consequences.
In addition, earlier in the week Linden Lab announced that they are to introduce a much more stringent age-verification system, to ensure that only adults can enter adult-content areas of Second Life.