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e-Gold Pleads Guilty to Facilitating Money Laundering
Tom Corelis / DailyTech
July 23, 2008
‘Reputedly shady money-transfer service seeks to go legit, get licensed.’ -
Three executives of online money-transfer and internet-payment service e-Gold plead guilty to money laundering and other charges Monday, said officials at the U.S. Department of Justice.
While the company’s executives are United States citizens, their business was based out of Nevis, Lesser Antilles. A U.S. District Court for the District of Columbia accused the trio of conspiring to engage in money laundering and operating a money-transmitting business without a license.
e-Gold allowed customers to purchase virtual “e-Gold” that the site claims is backed by its reserves of real precious metals. With their e-Gold, customers can then use it to transact with e-Gold accepting parties, or in some cases convert it back to other currencies. Unlike other money-transfer sites like PayPal, e-Gold transactions are non-reversible and conducted with a minimum of supervision – thus allowing the site to become a haven for money laundering, according to government accusations.
The service’s critics frequently questioned claims that it maintained adequate gold bullion to back up its stores – e-Gold counters this criticism by maintaining the “e-Gold examiner,” which outlines information on the company’s liabilities and the size of its precious metal reserves.
Facing charges are Douglas Jackson, 51, of Melbourne Florida; Barry Downey, 48, of Baltimore; and Reid Jackson, 45, also a Melbourne, in addition to its companies e-Gold and Gold & Silver Reserve.
Douglas Jackson took an unusual spin in the company’s “e-Gold blog,” where he considers the charges levied against him and his company as a “failure to transition from a marginal player for early adopters to a respected institution integrated into the global financial mainstream.”
“I am talking about a vision that has not yet been realized … and a determination to fix what needs to be improved,” wrote Jackson.
e-Gold’s account signup process made no attempt to verify the accountholder’s identity, and the company let inexperienced employees monitor hundreds of thousands of accounts for criminal activity, the DoJ said. Jackson acknowledged this fault, calling it a “systemic flaw” that made expelling abusers “vexingly difficult.”
Also announced was a change in the e-Gold user policy – including stipulations that users agree not to use the site to violate laws and a promise to freeze accounts used for such a purpose – and a number of changes in the account system itself, including a temporary ban on new accounts. Jackson estimates the company’s “shock therapy phase” will hopefully last less than a year.
e-Gold and Gold & Silver reserve are facing fines of up to $3.7 million, and have already agreed to the forfeiture of $1.75 million. Douglas Jackson faces up to 20 years in prison and $500,000 fines, and both Downey and Reid Jackson could see up to five years prison time and $25,000 in fines.
© 2008, DailyTech
