April 28, 2007
e-gold founders indicted
Bob Hettinga found and forwarded the press release from the Washington DC courts:
A federal grand jury in Washington, D.C. has indicted two companies operating a digital currency business and their owners on charges of money laundering, conspiracy, and operating an unlicensed money transmitting business, Assistant Attorney General Alice S. Fisher of the Criminal Division and U.S. Attorney for the District of Columbia Jeffrey A. Taylor announced today.
The four-count indictment, handed down on April 24, 2007, and unsealed today, charges E-Gold Ltd; Gold & Silver Reserve, Inc.; and their owners Dr. Douglas L. Jackson, of Satellite Beach, Fla.; Reid A. Jackson, of Melbourne, Fla.; and Barry K. Downey, of Woodbine, Md., each with one count of conspiracy to launder monetary instruments, one count of conspiracy to operate an unlicensed money transmitting business, one count of operating an unlicensed money transmitting business under federal law and one count of money transmission without a license under D.C. law.
(Or here.) This is the next chapter in a long running saga. The e-gold investigation started sometime around 2002, with three primary agencies involved: IRS, FBI and USSS. The latter, the US Secret Service, has the original mission of protecting the currency, and hence their interest in money.
The actual charges are curiously not that interesting. Obviously, it is a money operation so there will always be a charge of Money Laundering, which in today's US courts is guilty by naming. Slightly less obviously, the charge of conspiracy just implies something else criminal was done by people acting together: and of course there are several people involved. So that charge simply succeeds if the others do, else it fails by definition.
Which leaves operating an unlicensed money transmitting business. This is the core charge. As we recall, this law came in in the aftermath of 9/11, when a Hawala was found to have transmitted one of the payments needed to finance the terrorist attack (the vast majority of the funds went through normal bank transfers). This then started a war on Hawalas, and the regulations were put in place * with a clear offer: license yourself as a money transmitter or face the consequences.
e-gold declined the offer. I recall that they argued they were not a money transmitter business because e-gold was not money, and the sales operation of Omnipay just used the banks to transmit the dollars back and forth. (This is from memory, these arguments were made in public in either the press or the mailing lists. ... Addendum: read Dr Jackson's response for more details on the position taken.)
I don't know about you, but that was a ludicrous position to take then, and now. It was pretty clear that the point was, come in from out of the wild wild west, or well go and hunt you down. To argue on a technicality like that was just insane, as courts will ignore such nonsense on the basis of a "reasonable man" test.
Is e-gold more or less in the money transmitting business? A reasonable man will say yes.
This characterises the extraordinary levels of arrogance of the e-gold founders. Because they had built a business that had seemingly escaped from the jaws of defeat and the evils of the banking cartel, they were right, God-blessed and destined to change the world. From their dramatic successes around 2000, there was a persistent belief in the righteousness of their mission, and an equal belief in the willingness of the courts to defend them. Because they were right!
Such hubris has to go down. Whatever we think about David versus Goliath stories, the US Government isn't happy to be taunted that way, and the competitors aren't going to let the USG proudly ignore the taunts. Consider all the banks in the US, and all the (licensed) money transmitters. And if that isn't enough, recall all the other countries in the world that suffered, and still suffer, the indignities of Ronald Reagan's war on drugs: every time there is a criticism about money laundering, all these players are going to keep banging the table about e-gold.
"Sort out your own house, first!" There is only one end to this story. A bad end.
Disclosure: I myself was closely engaged with e-gold in the years 1998 to 2000, and locked in court battles with them from 2001 to 2003. Before those battles, however, I argued that they should take no position that puts them up against (the, any) government. Luckily, e-gold filed my arguments in court, as evidence against me.
* Footnote on Law on Money Transmitters: historically the Hawala episode was just the excuse needed. The draft law had been circulating for some time, and had been inspired directly by the success of Paypal and e-gold in bypassing the normal banking regulations.
Posted by iang at April 28, 2007 12:12 PM
It will be interesting to see how this develops. Personally, I am not sure the "money transmitting" charge as solid as you argue:
"Is e-gold more or less in the money transmitting business? A reasonable man will say yes."
Could a resonable man be pursuaded that E-Gold's intent was to provide an investment opportunity as then they would be in the investment business? They could also argue that if one was to judge that they are in "money transmitting" business, the same judgement should be applied to a number of online gaming companies that issue "virtual currency", e.g. Tencent and their QQ currency that allows Chineese users all over the world to send money back home.
They could beat the charge by claiming that they held gold for clients and those client exchanged gold between each other and used e-Gold as a settlement service. This argument would avoid any issue with securities or money in that every user elected e-gold as the repository and settlement service rather than as a broker. This fine argument could be made by altering the user agreement and the terms of service. If one wanted to further this argument e-gold could issue a special class of membership or security to attest to this fact and make it a user owned organization operating as a non-profit similar in nature to a co-operative. Most these arguments will not be adopted by the pompous ass of a man Douglas Jackson it does not placate his need for esteem. Douglas Jackson is an insane twerp that thinks there is virtue in abusing women and those weaker, he is a bully. In this case he will do what all bullys do when confronted with a stronger force run, hide, steal and pilfer the account holders hoping to find a jurisdiction that will not turn him in. I suggest Cuba but the price tag for accepting American criminals has gone up I only hope he steal enough to pay the bill to Fidel.
Maybe King Douglas and his merry band will find relegion and re-organize as a money transfer agent.
You're obviously much better informed about this than I, but the story I heard (some time ago) was that e-gold looked into obtaining a license but were rebuffed by the licensing officials because they were not considered a money transmitting business.
Ray, you may be right, and I may be wrong. Here's what Douglas Jackson apparently said in a press release just seen:
At the hearing, G&SR described its ongoing dialog with the Department of Treasury, initiated by formal request of the company in Spring 2005, to determine a possible basis for regulating the company's activities, since it was patently clear to competent authorities that G&SR's exchange service was not encompassed within any existing regulatory rubric [subsequently re-confirmed by experts at the Federal Reserve].
I have $100 in egold, some guy in the DC area gave it to me around 5 years ago, for no reason I could figure out...
Should I try to get it out of there? or will I get arrested for tax evasion, terrorism, and money laundering? I think I tried to transfer it to you, or somebody? a couple years ago...
Richard Field, an attorney and consultant in payment systems law, called the government's investigation of E-Gold "unusually intense."
"I haven't seen this level of focus or attention on other payment systems before," Field said. "This aggressive action against E-Gold appears to be intended to send a signal to others as well that you're responsible for setting up your system in a way that does not enable this kind of activity."
C'mon Folks!! This is already the 4th Reich. The Third had fallen on May 9, 1945. Will this Fourth One fair much better?
From the bureaucrat's point of view, each and everyone of us is a potential launderer, whose bills are not directly seen, or even paid by the IRS itself, from an IRS controlled "Trust" account. Oh, yes, and a child molester, tax cheat, homophobic, gay basher, internet sex predator, and whatever else the politically correct battle cry "de jour" of our sacred (ex)republic may be. Does the word "Trust" account bring up the sweet thoughts on the Social Security "Trust" account in you? What proportion of TRUST is there deposited in Social Security, as opposed to the amount of REAL MONEY? They don't even promise the existence of real money as a backing. After all, the US Dollar has "only" lost roughly 40% of its value in foreign exchange in the past 5-6 years. When that happens in Thailand or Eastern Europe, Bloomberg TV screams of a local currency crisis.
Bureaucrats cannot exist peacefully alongside such a payment system. It gives just WAY TOO MUCH POWER to the INDIVIDUAL sheep in the flock, that they see themselves as owners and shepherds of. Sheering time is just upon us Folks and e-gold has grown exceptionally long, good quality wool during the past ten years. I wonder actually, how many days it's going to take for the usual busybodies, the UK and the EU to hand down similar indictments against operators in their cross hairs.
What kind of government are you giving us Mr. Franklin?
- "A Republic. If you can keep it!"
The worldwide banking industry makes almost 3% on all spending (Since most is by Debit or Credit Cards)and they justify 30% interest rates on credit card ballances in the name of protection of purchasers/chargebacks.
An online payment system (like egold) where the payments are non reversable and outside the control of the Banks must not be allowed to succeed as they are major competitor to their bread and butter. The American Bankers Association nor the Consumer Protection people certainly wont come to eGold's defense. (In fact I wonder wht part the banking industry jad in this?) Let's hope the Securities industry and the Retail Industry wake up and realize just how much this will affect our future business dealings.
Take all the allegations against eGold and replace egold with the word Cash - all the misuse of the egold system can be also said for cash transactions yet I don't see them going after the Secy of Treasury for supporting child pornography or drug sales by allowing people to purchase with cash.
Infact cash transactions are being demonized. Go try to purchase a car or TV for $3000 and try to pay with cash and see how many watch lists you get on. As the noose gets tighter what is the future of cash?
Full tracability by electronic payments that are fully tracable and trackable is the only thing that will satisfy the powers that be today (And the banking industry gets 3% of it). eGold was becoming far too popular and had to be brought down.
eGold is an idea whose time has come and you can't squash ideas. There are many other alternatives in the marketplace ready to flood into the vacuum created by the Fed's takedown of eGold.(Webmoney.com is one and located in Russia.)
Let's hope Dr Jackson prevails and eGold survives this injustice.