E-gold execs plead guilty in money-laundering case

E-gold execs plead guilty in money-laundering case

Summary: The principal director of online payment service E-gold faces 25 years in jail and a fine of $750,000, while two senior directors face lesser sentences

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TOPICS: Security
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The executives in charge of online payment system E-gold have pleaded guilty to money-laundering charges, the US Department of Justice said on Tuesday.

Principal E-gold director Douglas Jackson, who is also chief executive of E-gold affiliate Gold & Silver Reserve, pleaded guilty to conspiracy to engage in money laundering and operating an unlicensed money-transmitting business. Jackson now faces up to 25 years in jail and a fine of $750,000 (£376,000).

E-gold senior directors Barry Downey and Reid Jackson each pleaded guilty to charges related to operating a money-transmitting business without a licence. They could each be fined $25,000 and receive a jail sentence of up to five years.

At sentencing in November, E-gold and Gold & Silver Reserve, as organisations, face a maximum fine of $3.7m. Additionally, as part of their plea bargain, E-gold and Gold & Silver Reserve will forfeit $1.75m in the form of a money judgement.

"By failing to comply with money-laundering laws and regulations, the E-gold operation created an environment ripe for exploitation by criminals seeking anonymity in conducting online transactions," said acting assistant attorney general Matthew Friedrich. "This case demonstrates that online payment systems must operate according to the applicable rules and regulations created to ensure lawful monetary transactions."

Security experts and law-enforcement officers have known for years that criminals were using E-gold accounts. ZDNet.co.uk reported in 2006 that a piece of ransomware had instructed users to pay money into an E-gold account to recover hijacked data.

E-gold provides digital currency services over the internet through the sites e-gold.com and omnipay.com. According to the Department of Justice, the E-gold operation was attractive to criminals because it did not require users to provide their true identity, or any specific identity at all.

E-gold continued to allow accounts to be opened without verification of user identity, despite knowing that the operation was being used for criminal activity, including child exploitation, investment scams, credit-card fraud and identity theft, the Department of Justice said.

In addition, E-gold designed a system that expressly encouraged users whose criminal activity had been discovered to transfer crime proceeds to other E-gold accounts. E-gold had assigned employees with no relevant experience to monitor hundreds of thousands of accounts used for criminal activity.

Jackson said the case provided an opportunity for "a new beginning" at E-gold.

"The resolution of the criminal case... provides for a second chance — an opportunity to address the flaws embedded in the E-gold system and to transform the E-gold operation into the institution that I, the other directors, and our long-suffering employees and contractors have always envisioned — one that serves to advance the material welfare of mankind," wrote Jackson in a blog post.

E-gold and Gold & Silver Reserve will continue as organisations, but will now have to comply with US federal and state laws related to operating as a licensed money-transmitting business, and address the issue of money laundering. E-gold will also have to prove its claim that all transactions are backed by physical gold.

Topic: Security

Tom Espiner

About Tom Espiner

Tom is a technology reporter for ZDNet.com. He covers the security beat, writing about everything from hacking and cybercrime to threats and mitigation. He also focuses on open source and emerging technologies, all the while trying to cut through greenwash.

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