Lynn picked it up:
WASHINGTON, July 21 (UPI) -- An Internet digital currency business, E-Gold Ltd., and three principal directors, admitted to money-laundering charges, U.S. prosecutors said Monday.E-Gold and its corporate affiliate, Gold & Silver Reserve Inc., pleaded guilty to conspiracy to engage in money laundering and conspiracy to operate an unlicensed money transmitting business, U.S. Justice Department officials said.
Dr. Douglas Jackson, 51, of Melbourne, Fla., the principal director of E-Gold and chief executive officer of Gold & Silver Reserve Inc., and E-Gold's other two senior directors, Barry Downey, 48, of Baltimore, and Reid Jackson, 45, of Melbourne, pleaded to related charges, the prosecutors said.
The companies and three directors were indicted by a federal grand jury April 24, 2007.
E-Gold and Gold & Silver Reserve face a maximum fine of $3.7 million. Douglas Jackson faces up to 20 years in prison and a fine of $500,000. Downey and Reid Jackson each face a maximum of five years in prison and a $25,000 fine.
As part of the plea, E-Gold and Gold & Silver Reserve also agreed to a pay a judgment of $1.75 million. Sentencing for all defendants has been set for Nov. 20.
Here is the DoJ Announcement but no actual ruling is seen as yet. The case against the founders of e-gold went under wraps shortly after starting, possibly due to too much interest on the net. So analysis of the case is not easy, which is a shame: financial cryptographers can do with more clarity in this area.
Douglas Jackson posted a blog entry that announced the backing-out of that which was special to e-gold: uncontrolled creation of accounts and unidentified movement of funds:
A systemic flaw in the e-gold design, present from the very beginning, made it vexingly difficult for e-gold to expel a User, in a truly effective way, for criminal abuse of the system. e-gold investigative staff might detect suspicious activity, block or freeze the offending account, and later discover the same perpetrator had created additional accounts.One element was logic that allowed an e-gold account full privileges from the moment of creation and only revoked those privileges in the event of suspicion that the account holder was seeking to mask their identity or actually engage in illicit activity.
Compounding this weakness was an unrestricted ability for Users to create multiple accounts without any obligatory indicator that they were all under the control of one person.
The next generation of the e-gold application will undertake to enforce a "one-human being/one e-gold User" rule....
Of course, DJ's blog post would have been approved by the prosecution, and to call it a systemic flaw is a politeness agreed by both parties.
Hopefully, this finally brings in sight the close of a long and difficult story for all those involved. Disclosure: I was intimately involved with the story from 1998 through to around 2003, when my own dispute with the founders was ruled upon. Like many of the other cases, the ruling awarded me a complete but pyrrhic victory. We were all losers, and DJ just took a longer path to that result.
If there is a lesson to be learnt here for the FC community, it is the unwritten law that you have to make your peace with the regulators one day, and that day is better chosen with an eye to strategic success.
Old posts:
And a general search on e-gold.
Posted by iang at July 22, 2008 12:13 PM | TrackBack“it is the unwritten law that you have to make your peace with the regulators one day, and that day is better chosen with an eye to strategic success.”
I don't think so.
For example Pecunix does not seem to have made any peace with regulators. All you need to open a pecunix account is an email address. And if one day it does make peace, well, new internet currencies seem to be appearing faster than the regulators can sodomize the old ones.
Posted by: James A. Donald at July 23, 2008 06:57 AMPecunix isn't causing the regulators any distress. Regulators have very limited capacity to monitor the market and act. If Pecunix puts a foot wrong, they'll have problems.
The standard "digital gold/offshore" money provider is structurally destined to die or be regulated. Gold bug stuff aside, e-gold were just guys with some bank accounts, wiring cash around for whoever came along. (Like the money mules!)
All the money comes in through the "formal" banking system, and it all goes out that way. e-gold might have the ability to store value, but it could never effect any transfers of value itself. e-gold had to use the existing banks as agents. If I have 2g of gold, that needs to be loaded to a debit card or swift'd out before I can buy food with it.
You could only do that without regulation, when you are too small to come to attention. At that point the authorities can ask the regulated sector to stop clearing your transactions. If you don't play by the rules, you're not going to be allowed to integrate. (If you're catering to closed user group you may not care about that...)
Ripple Pay would be different, but that's a protocol, rather than a firm.
(That's why serious ML will happen through cash businesses and trading firms. Sending a (trace-able) wire to Dodgy Gold Corp. won't legitimise money - it just guarantees attention. Blending it into the day's takings and over-invoicing it back home, will look normal.)
Posted by: Thomas Barker at July 28, 2008 05:30 AMIt is not fair to subject E-gold to prosecution if E-gold is not in the business of law enforcement. In the first place, we all know that the money laundering charges created these days are not of Common Law origin. They are statutory creations of the fictions of law which derive from Admiralty Law, a law based largely upon the status of credit.
Today's authorities are behind the masterminding of forcing all citizens onto a status of credit through the use of a social security number and account here in the US.
Once the citizen is on a status of credit the 'new laws' apply as the Common Law jurisdiction has been removed from the citizen. It is like a mass, gang rape by government through the use of the citizens' very taxpayer funds.
Why should E-gold be held accountable for what an E-gold member-user chooses to conduct on his/her own?
Where is the 'injured party'? Where is the proof that E-gold is an actual cause of injury to this alleged 'injured party'?
Thomas: Of course e-gold could affect transfers of value. The amount of gold held in an account is a representation of value, and transfers between users (money remitting) is a regulated activity in every developed country in the world. And yes, it's even regulated in Panama, so Pecunix etc. are certainly not safe. The bottom line is that you simply can't act as a money remitter between anonymous people - it's illegal in the U.S., illegal in the E.U., and it's illegal for a company here to do business with a foreign company that violates AML and KYC laws. If any of these foreign companies become successful, the financial regulators will just block national SWIFT transfers to their international accounts.
To be honest, I'm surprised that so many e-gold supporters don't seem to know or understand the AML/KYC laws, and even more surprised that it took several years before e-gold were prosecuted, when their business was obviously illegal and being exploited for fraud by HYIP scammers.
Posted by: Bob at August 20, 2008 09:00 PM