The founder and chief executive of Linden Lab on Tuesday testified before House legislators that his virtual world of Second Life does not serve as a playground for terrorist activity.

The founder and chief executive of Linden Lab on Tuesday testified before House legislators that his virtual world of Second Life does not serve as a playground for terrorist activity.

"Though there has certainly been discussion [about terrorism in virtual worlds], we have never seen any evidence that there is any such activity going on in Second Life," Philip Rosedale, founder and CEO of Linden Lab, told the House Energy and Commerce subcommittee on telecom and the Internet.

Given that virtual worlds like Second Life have the ability to track their members' activity quite closely, Rosedale suggested that virtual activity was "somewhat more police-able" than activities in the real world, which might make virtual worlds a less attractive prospect for terrorists.

Rosedale's comments come after a February report from the director of national intelligence called for an examination of emerging social, behavioral, and cultural norms in virtual worlds and gaming environments to see if terrorism-related patterns might emerge.

Rep. Jane Harman, a California Democrat, called for a clear understanding of how virtual world activity might help the U.S. fight new trends in terrorism.

She stressed that she was not advocating censorship. "I want to make sure these glorious tools are not abused or changed into tools that facilitate the use of terrorist attacks," she said.

To prevent money laundering or financial crimes, Second Life polices the financial activity of its members, and scrutinizes any withdrawals over $10, Rosedale said.

"We believe that the degree of scrutiny that is created by [policing methods] is quite rich and the pattern recognition of non-standard behavior is easy enough to spot," according to Rosedale.

The average withdrawal from Second Life -- from Linden dollars into U.S. dollars  is one dollar, so it's "relatively easy to spot larger transactions," Rosedale said. "We have managed to maintain a fraud rate that is a fraction of a percentage point. The industry average is closer to 1 percent."

Virtual community Entropia Universe last year earned $400,000 after it auctioned off banking licenses to several well-known virtual world players. The licenses allow their owners to lend cash to the community's participants for the virtual purchase of anything from game-fighting weapons to real estate.

Second Life celeb Anshe Chung was among those who purchased a license.

Lawmakers on Tuesday denied that they were looking to regulate the virtual world.

Virtual reality is "going to be a highly competitive world. We just want to make sure it's not highly regulated," said ranking member Cliff Stearns of Florida.

As virtual worlds increase in popularity, "policy issues will inevitably arise that mirror the issues that confront policymakers in the real world  consumer protection, personal privacy, intellectual property protection, banking issues, online gambling, or child protection concerns," said subcommittee chairman Edward Markey, a Massachusetts Democrat.

"We want to foster the best of what this medium has to offer, [so] we must consider the policies that will be conducive to such growth," Markey said.

That includes "upgrading our broadband infrastructure and speed, fostering openness and innovation in our Internet policies, and ensuring that we bridge the digital divides in our country so that all Americans can benefit," Markey said.

In February, Markey introduced Net neutrality legislation that calls on the FCC to open a proceeding on broadband services and consumer rights.

Rep. John Shimkus, an Illinois Republican, took umbrage with the suggestion that the U.S. is lagging behind Europe in broadband penetration.

"I'm ticked off about us being compared to Europe," he said. "You can drive across Europe in five hours. I can't drive across the state of Illinois in five hours. It's just unfair to do a comparison. It's like apples and oranges. We're doing great."

Stearns also expressed concern about child safety on Second Life, and grilled Rosedale about how the community prevents adults from entering sections designated for teenagers.

Second Life does not require Social Security numbers or driver's license information, but instead checks credit card and telephone information for age verification purposes, Rosedale said. The FBI has also been actively and pro-actively involved in investigations, though that has mainly concerned adult and cyber-crime related activity.

Second Life also encourages teenagers to "actively identify and warn us about anyone's language and behavior that might suggest they're not teenagers," Rosedale said.

He did acknowledge, however, that there is "only so much you can do."

Larry Johnson, CEO of the New Media Consortium, testified that virtual world residents are very protective of their surroundings.

"I think the strongest asset against [harmful] activity is the residents themselves who would simply stand up as one if they saw things of real concern," Johnson said. "They're not shy about what they see in that world if they don't think it's proper behavior."

Rosedale announced on March 14 that he would step down as Linden Labs CEO as soon as a replacement is found. When asked why he was resigning, Rosedale said that he while enjoyed the "detailed design and skeletal construction" of Linden Labs in the beginning, he is "less interested in large company management."