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April 30, 2007 By Gina M. Scott
Online digital currency business e-Gold has been indicted by a federal grand jury in Washington, D.C. The company and its owners have been accused of running an unregulated financial network that catered to criminals moving money.
Founded in the 1990s, e-Gold allows users to move monetary funds across the internet by transferring ownership of gold bars. A user can move money on the internet simply by transferring a tiny amount of gold to another user's account instantly, and e-Gold earns a commission on each transfer. Unlike credit cards, e-Gold transactions are non-reversible and all transactions are final.
According to a statement by the Department of Justice, the indictment alleges that the owners of e-Gold allowed their service to conduct fund transfers despite knowing that the money being moved was the result of illegal activity such as credit card and investment fraud and child exploitation. The indictment further alleges that e-Gold was operating without a license and without registering with the federal government, violating money transmitting laws.
"The advent of new electronic currency systems increases the risk that criminals, and possibly terrorists, will exploit these systems to launder money and transfer funds globally to avoid law enforcement scrutiny and circumvent banking regulations and reporting," said Assistant Director James E. Finch, of the FBI's Cyber Division.
"E-Gold has drawn criticism in the past because it has been claimed the company does not do background checks on people applying for accounts, and too easy to create an account in a phony name," said Graham Cluley, senior technology consultant for Sophos. "Criminals may have been attracted to use systems like e-Gold for illegal ends because of the anonymity provided to them compared to high street banks. It is essential that online digital currencies work within the law, assist authorities with their enquiries, and work hard to ensure that their money transfer systems are not being used by cybercrooks."
Accounts connected with the alleged illegal activity have been frozen as part of the investigation.
The U.S. Secret Service is investigating e-Gold and its owners Dr. Douglas L. Jackson, Reid A. Jackson and Barry K. Downey, with the assistance of the Internal Revenue Service and FBI. The money laundering conspiracy charge carries a maximum 20 year prison sentence.
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