Feds accuse E-Gold of money laundering, unlicensed banking

1:45a ET Sunday, April 29, 2007

Dear Friend of GATA and Gold:

The U.S. Justice Department has indicted the E-Gold Internet gold exchange service on charges of money laundering and operating an unlicensed money transfer business.

The essence of the indictment seems to be a claim that E-Gold's principals knew that their service was being used for investment scams, credit card fraud, identity theft, and purchase and sale of child pornography. An official of the Federal Bureau of Investigation is quoted as speculating darkly that terrorists also might start using digital gold transfers.

The Justice Department has to be left to prove its case, since without a detailed examination of the evidence, which is not yet fully public, no one outside E-Gold itself is in a position to disprove it.

Still, gold's partisans may take satisfaction in what seems to be the indictment's presumption that, as a legal matter as well as a practical matter, gold is money just as much as Federal Reserve Notes are, even though the government long has been telling us to the contrary.

The indictment of E-Gold coincides with the U.S. Mint's campaign to discourage use of the privately minted and circulated Liberty Dollar currency. The Mint has claimed to have a declaration from the Justice Department that Liberty Dollar currency is illegal, but apparently the government has not brought any lawsuit or criminal charges against Liberty Dollar, and Liberty Dollar has sued the government for a declaratory judgment that it is operating within the law:

http://www.libertydollar.org/ld/legal/legalissues.htm

The Mint's warning against use of the Liberty Dollar can be found here:

http://www.usmint.gov/consumer/index.cfm?flash=yes&action=HotItems

Sure enough, like most comment from the U.S. government involving gold and silver, it is misleading. The warning says: "The advertisements confusingly refer to NORFED 'Liberty Dollar' medallions as 'legal and 'constitutional.' However, under the Constitution (Article I, Section 8, Clause 5), Congress has the exclusive power to coin money of the United States and to regulate its value."

In fact, that section of the Constitution never uses the word "exclusive." It says simply that Congress shall have power "to coin money, regulate the value thereof, and of foreign coin, and fix the standard of weights and measures." And of course Liberty Dollar has emphatically maintained that its products are NOT instruments of the U.S. government but rather instruments of private barter.

GATA has never maintained that gold and silver are or should be the only forms of money, only that they are honest money and thus may be preferable to other forms of money. Fearing honest money so much, the government only brings suspicion on its own money and on itself.

The Justice Department's announcement of the indictment of E-Gold is appended.

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

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Digital Currency Business E-Gold Indicted
for Money Laundering and Illegal Money Transmitting

U.S. Justice Department Press Release
Friday, April 27, 2007

http://www.usdoj.gov/opa/pr/2007/April/07_crm_301.html

WASHINGTON -- 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.

Subsequent to the indictment, the Department of Justice also obtained a restraining order on the defendants to prevent the dissipation of assets by the defendants, and 24 seizure warrants on over 58 accounts believed to be property involved in money laundering and operation of an unlicensed money transmitting business.

The restraining order does not limit the E‑Gold operation's ability to use its existing funds to satisfy requests to exchange E-Gold into national currency for customers of non-seized accounts, or its ability to sell precious metals to accomplish the same, once approval has been received.

According to the indictment, E‑Gold's digital currency, "E‑Gold," functioned as an alternative payment system and was purportedly backed by stored physical gold. Persons seeking to use the E‑Gold payment system were required only to provide a valid email address to open an E‑Gold account -- no other contact information was verified. Once an individual opened an E‑Gold account, he/she could fund the account using any number of exchangers, which converted national currency into E‑Gold. Once open and funded, account holders could access their accounts through the Internet and conduct anonymous transactions with other parties anywhere in the world.

The indictment alleges that E‑Gold has been a highly favored method of payment by operators of investment scams, credit card and identity fraud, and sellers of online child pornography.

The indictment alleges that the defendants conducted funds transfers on behalf of their customers, knowing that the funds involved were the proceeds of unlawful activity; namely child exploitation, credit card fraud, and wire (investment) fraud; and thereby violated federal money laundering statutes.

The indictment further alleges that the defendants operated the E‑Gold operation without a license in the District of Columbia or any other state, or registering with the federal government, and thereby violated federal and state money transmitting laws. The indictment alleges that this conduct occurred at various times from 1999 through December 2005.

"As alleged in the indictment, the E-Gold payment system has been a preferred means of payment for child pornography distributors, identity thieves, online scammers, and other criminals around the world to launder their illegal income anonymously," said Assistant Attorney General Alice S. Fisher of the Criminal Division. "This indictment demonstrates that the Department of Justice, in cooperation with its law enforcement partners, will aggressively identify and prosecute those who knowingly enable and profit from transmitting the proceeds of criminal activity, online or offline."

"Douglas Jackson and his associates operated a sophisticated and widespread international money remitting business, unsupervised and unregulated by any entity in the world, which allowed for anonymous transfers of value at a click of a mouse," said U.S. Attorney Jeffrey A. Taylor for the District of Columbia. "Not surprisingly, criminals of every stripe gravitated to E-Gold as a place to move their money with impunity. As alleged in the indictment, the defendants in this case knowingly allowed them to do so and profited from their crimes."

"Today's indictment is the result of a 2 1/2-year investigation by the U.S. Secret Service Orlando Field Office into an alternative payment system which has largely operated outside of normal banking industry regulations," said Secret Service Assistant Director for Investigations Michael Stenger. "This system has been exploited for more than 10 years by criminals who operate primarily via the Internet. Cooperation among investigators, including the IRS, the FBI, and state and local law enforcement, has enabled us to more effectively address emerging threats and evolving criminal methods, such as the use of electronic or digital currency to facilitate trafficking in illicit goods and services."

"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. "The FBI will continue to work closely with the Department of Justice and our federal and international law enforcement partners to aggressively investigate and prosecute any and all persons or organizations that use these systems to facilitate child pornography distribution, to support organized crime, and to perpetrate financial crimes."

"This is a new twist on laundering money through unlicensed money transmitters but it is nothing new for financial investigators," said Eileen Mayer, Chief of IRS Criminal Investigation. "The combined investigative skills of the law enforcement partners under the St. Cloud IRS Criminal Investigation and Secret Service Task Force proved to be a brick wall for E-Gold. We are proud to bring our financial expertise to this type of investigation that ultimately unravels fraud."

The conspiracy charge in the case relating to money transmitting carries a maximum sentence of five years in prison. The federal law violation of operating an unlicensed money transmitting business carries a maximum sentence of five years in prison. The D.C. Code violation for money transmission without a license carries a maximum sentence of five years. The conspiracy charge relating to money laundering carries a maximum sentence of 20 years in prison.

The case is being investigated by the U.S. Secret Service with the assistance of the IRS and the FBI. The case is being prosecuted by the U.S. Attorney's Office for the District of Columbia and the Computer Crime and Intellectual Property Section of the Criminal Division. Assistance is also being provided by the Child Exploitation and Obscenity Section and the Asset Forfeiture and Money Laundering Section of the Criminal Division.

An indictment is merely an accusation and the defendants are presumed innocent unless and until proven guilty.

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