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Internet currency firm pleads guilty to money laundering
- — 22 July, 2008 10:57
E-Gold, an Internet-based payment service, and three owners have pleaded guilty to criminal charges related to money laundering, the U.S. Department of Justice said Monday.
E-Gold, based in Nevis, West Indies, and corporate affiliate Gold & Silver Reserve each pleaded guilty in U.S. District Court for the District of Columbia to conspiracy to engage in money laundering and conspiracy to operate an unlicensed money-transmitting business.
Douglas Jackson, 51, of Melbourne, Florida, the principal director of E-Gold and CEO of Gold & Silver Reserve, pleaded guilty to the charges, the DOJ said in a statement.
E-Gold's other two senior directors, Barry Downey, 48, of Baltimore, and Reid Jackson, 45, of Melbourne, each pleaded guilty to felony violations of District of Columbia law relating to operating a money transmitting business without a license. E-Gold, Gold & Silver Reserve and the three company directors were charged in an indictment returned by a federal grand jury in April 2007.
Douglas Jackson, in a blog post Monday, announced changes to the E-Gold user agreement, including a temporary suspension of new accounts there. The company will also require users to have only one account, he wrote. A design flaw in the service "made it vexingly difficult for e-gold to expel a user, in a truly effective way, for criminal abuse of the system," he added.
Jackson called E-Gold more successful than most competitors, but also acknowledged problems with the service. One problem is E-Gold's "failure to transition from a marginal player for early adopters to a respected institution integrated into the global financial mainstream," he wrote. "E-gold's failure to emerge so far is a result of many factors but the root causes were design flaws in the account creation and provisioning logic that led to the unfortunate consequence of vulnerability to criminal abuse. Criminal abuse of the e-gold system, in turn, led to a self-reinforcing negative reputation."
E-Gold and Gold & Silver Reserve could face a fine of US$3.7 million at sentencing. Douglas Jackson faces a maximum prison sentence of 20 years and a fine of $500,000 on the conspiracy-to-engage-in-money-laundering charge, and a sentence of five years and a fine of $250,000 on the operation of an unlicensed-money-transmitting-business charge.
Downey and Reid Jackson each face a maximum of five years in prison and a fine of $25,000.
E-Gold and Gold & Silver Reserve have also agreed to the forfeiture of $1.75 million. Sentencing for all defendants has been scheduled for Nov. 20.
As part of the plea agreement, the businesses will create a comprehensive money-laundering-detection program that will require verified customer identification and reporting of suspicious activity, the DOJ said.
Under U.S. and District of Columbia law, the E-Gold operation was required to be licensed and registered as a money transmitting business. However, according to information in plea materials, it had not registered with the federal government or obtained a license in the District of Columbia.
The resulting lack of oversight and required procedures created an atmosphere where criminals could use "e-gold," or digital currency, essentially anonymously to further their illegal activities, the DOJ said.
E-Gold provided digital currency services at E-gold.com and Omnipay.com. Users did not have to provide their identities, and E-Gold continued to allow accounts to be opened without verification of user identity, despite knowing that "e-gold" was being used for criminal activity, including child exploitation, investment scams, credit card fraud and identity theft, the DOJ said. E-Gold assigned employees with no prior experience to monitor hundreds of thousands of accounts for criminal activity, the agency said.