Two Brevard County Men Charged in Scheme to Launder Money
Jim Leusner | Sentinel Staff Writer
Posted April 28, 2007

An Indictment is Merely An Accusation
The Defendants Are Presumed innocent Unless and Until Proven Guilty.

Two Brevard County men and two digital currency businesses they operated in Melbourne, FL have been indicted by a federal grand jury in Washington, accused of running an unregulated financial network that catered to criminals moving money.

Tuesday's four-count indictment, made public Friday, charged e-gold Ltd., Gold & Silver Reserve Inc. and owners Dr. Douglas L. Jackson, 50, of Satellite Beach; his brother Reid A. Jackson, 44, of Melbourne, FL; and Barry K. Downey, 47, of Woodbine, Md., with four crimes involving conspiring to launder monetary instruments or operating unlicensed money-transmitting businesses from 1999 to December 2005.

The three suspects are expected to surrender for a hearing in Washington in the next few weeks, said Jeffrey Taylor, the U.S. attorney for Washington.

"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," Taylor said. "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."

Joint investigation

A call to the company was not returned Friday afternoon. The Jacksons and Downey could not be reached for comment.

The investigation, dubbed Operation Gold Wire, was the result of a 2 1/2-year probe spearheaded by a St. Cloud-based financial task force operated by the U.S. Secret Service, IRS and several other local police agencies, along with FBI cyber-crime agents. Federal prosecutors also obtained a restraining order this week and seized 58 accounts believed to be used in money laundering and the operating of unlicensed money transactions.

The charges follow a December 2005 raid on the company's offices and seizure of electronic records detailing millions of accounts, said James Glendinning, of the Secret Service's Orlando office. The probe, he said, was a spinoff of a 2004 international crackdown on Internet identity thieves who also used e-gold to receive payments.

The indictment charged that the company's digital currency functioned as an alternative payment system and was purportedly backed by stored physical gold, which investigators said was on deposit in Dubai and Switzerland.

E-gold, incorporated on the Caribbean island of Nevis but based in Melbourne, began offering Internet services in 1996. Gold & Silver Reserve Inc. operated e-gold and its Web site and offered a currency exchange called OmniPay. Services included checking, bill-paying and money transfers.

$2 billion in annual transfers

The indictment charged that customers needed only to provide an e-mail address to open an account and that no other customer information was verified. The indictment accused some customers of using fictitious names such as "Mickey Mouse," "Donald Duck" and "No Name" and could conduct international transactions without any government oversight.

Because of that, it became a "highly favored method of payment" by investment con artists, credit-card and identity-fraud thieves, and sellers of Internet child pornography, authorities said.

"In far too many instances, e-gold doesn't know who the customers are," Glendinning said.

In September, Douglas Jackson, a former oncologist, testified before a U.S. House subcommittee that his companies helped combat child-pornography payments by sharing information with the National Center for Missing and Exploited Children. He complained that Secret Service officials had rebuffed his contacts since 2001.

"G&SR remains confused as to why this investigation was undertaken, why it continues, and why . . . its founder, Dr. Douglas Jackson, have been treated in such an abusive manner," Jackson said.

Jackson also testified that e-gold had completed more than 67 million transactions, processed up to 70,000 daily account transfers exceeding $2 billion annually. E-gold, he said, had more than $68 million in gold on deposit at the time at London Bullion Market Association member repositories. Its Web site claims more than 4 million accounts.

Such Internet gold and currency-transfer businesses have been operating for more than 10 years. They have raised concerns with authorities because the businesses are unregulated and can be utilized by organized crime or even terrorist groups.

"This is cutting-edge stuff," said Norm Meadows, a spokesman for the IRS Orlando office. "The crimes of the new millennium are on the Internet."

Jim Leusner can be reached at jleusner@orlandosentinel.com or

Department of Justice
C-net Depiction of e-gold

Corporate History

e-gold Ltd. Is a Nevis, West Indies company created to serve as the General Contractor responsible for performance of the e-gold Account User Agreement. e-gold under its charter is completely dissociated from the business risks relating to exchange. This clarity of roles further assures e gold's freedom from default risk and finality of settlement.

e-gold was developed and deployed as an Internet payment system by Gold & Silver Reserve (G&SR), Inc., a Delaware Corporation in 1996. The e-gold roles of Issuance and Settlement were devolved to e-gold, Ltd. in January 2000.

G&SR, Inc continues to serve as the operator of the e-gold payment system. G&SR, Inc. also offers its own innovative set of hybrid currency exchange services, known as OmniPay.

Directors

Dr. Douglas Jackson - Chairman
Dr. Jackson is a physician, board certified in Radiation Oncology. He received his M.D. from Penn State in 1982. In 1986 he completed residency in Radiation Oncology at the National Cancer Institute, Bethesda, Maryland and was certified by the American Board of Radiology. From 1986 through 1992 he served as a Major in the U.S. Army Medical Corps, Chief of Radiation Oncology at the Brooke Army Medical Center, Fort Sam Houston Texas. In 1992 he left active duty to assume duties as Medical Director for Radiation Oncology at Holmes Regional Medical Center in Melbourne, Florida. He was a founding partner of Florida Oncology, a group practice providing hospital based oncology services.

In 1995, based on private study regarding monetary influences on credit and the business cycle he conceived of e-gold as remote payment system that did not require an obligatory financial intermediary. The e-gold system was deployed online in November 1996. In 1998, Dr. Jackson sold his interest in Florida Oncology to devote full time attention to the e-gold enterprise.

Barry K. Downey - Director
Mr. Downey is a co-founder of the e-gold enterprise. He serves as Secretary, Vice-President and Director. Mr. Downey is a founding partner of Smith & Downey, P.A., a law firm concentrating in general business, employee benefits/executive compensation, and labor and employment law. Admitted to bar, 1986, Maryland; 1989, District of Columbia; 1991, U.S. Supreme Court. Former Chair, Maryland State Bar Association Employee Benefits Committee. Co-Author: Nonqualified Deferred Compensation Answer Book, Panel Publishers, 1999; Nonqualified Deferred Compensation Answer Book: Forms and Checklists, Panel Publishers, 1995.

http://www.e-gold.com/unsecure/aboutus.html

Gold Rush
BusinessWeek Look @ e-gold
Online Payment Systems Like e-gold Ltd. Are Becoming The Currency of Choice for Cybercrooks

Crime courses through the internet in ever-expanding variety. Hackers brazenly hawk stolen bank and credit-card information. Pornographers peddle pictures of little boys and girls. Money launderers make illicit cash disappear in a maze of online accounts. Diverse as they are, many of these cybercriminals have something important in common: e-gold Ltd.

E-gold is a "digital currency." Opening an account at www.e-gold.com takes only a few clicks of a mouse. Customers can use a false name if they like because no one checks. With a credit card or wire transfer, a user buys units of e-gold. Those units can then be transferred with a few more clicks to anyone else with an e-gold account. For the recipient, cashing out -- changing e-gold back to regular money -- is just as convenient and often just as anonymous.

E-gold appeals to "gold bugs": people who invest in the precious metal and believe money ought to be anchored to it. E-gold boasts that its digital currency is backed by a stash of gold bars stored in London and Dubai. But e-gold also appeals to savvy online crooks who want to move money quickly and without detection. American banks and conventional cash transmitters like Western Union are legally required to monitor customers and report suspicious transactions to the government. E-gold seems to go out of its way to avoid such obligations. Its operations are in Florida, but in 2000, its principals registered the company in the lightly regulated Caribbean haven of Nevis.

Law enforcement officials worry that the little-known digital currency industry is becoming the money laundering machine of choice for cybercriminals. On the evening of Dec. 19, agents with the Federal Bureau of Investigation and Secret Service raided the Melbourne (Fla.) office of e-gold's parent company, Gold & Silver Reserve Inc., and the nearby home of its founder, Douglas L. Jackson. Agents copied documents and computer files, but so far no charges have been brought. The Secret Service and the FBI declined to comment on the raid. Jackson has denied any wrongdoing, though the raid isn't the first indication that federal investigators view e-gold as a magnet for online misdeeds. The FBI separately is pursuing about a dozen probes in which e-gold appears as a "common denominator," a senior agent says.

The potential danger goes beyond e-gold. Investigators say other digital currencies are similarly used for corrupt purposes. All told, there are at least a dozen such services worldwide, based in places like Russia and Panama. Eight of them, including e-gold, claim to be backed by actual bullion. As a group, these firms do billions of dollars a year in transactions, according to Jim Davidson, a spokesman for the Global Digital Currency Assn. in New York. E-gold and its rivals make money by charging small percentage fees on those transactions.

Most of the law enforcement interest in e-gold involves alleged fraud and money laundering by its users. A tour of some outlaw corners of the Internet illustrates why. One Web site called CC-cards -- where cyberthieves sell pilfered bank account and credit-card information -- often asks for payment via e-gold. Some sites pushing child pornography have dropped Visa and MasterCard recently in favor of e-gold, according to the National Center for Missing & Exploited Children, which tracks underage porn.

But U.S. officials have another concern: that e-gold and rival digital currencies could be used to finance terrorism. It's a notion the companies all reject.

SUBPOENA CENTRAL
The man behinD e-gold, Doug Jackson, is a tall, powerfully built former oncologist. A fan of the gold standard, Jackson, 49, became a pioneer in digital currency when he set out a decade ago to create what he describes as a private gold-based monetary system. He envisioned e-gold as a currency that would be accepted at Wal-Mart (WMT ) while also permitting peasants from China to Peru to offer products at stable prices. "I thought there would be this flock of e-gold users, and I would be their messiah," he says. "It just didn't happen."

What did happen, according to law enforcement officials, was that a pack of felons flocked to Jackson's brainchild. Sitting in an undecorated conference room in the Melbourne office three months before the federal raid, he acknowledged that he had a "six-inch pile" of subpoenas from such agencies as the FBI, the Securities & Exchange Commission, and the U.S. Postal Inspection Service -- all seeking information about some of his more suspect customers. Investigators say Jackson may have begun his quirky business with innocent intentions. But in recent years he has turned a blind eye, the officials say, to mounting evidence that e-gold has attracted a seamy clientele. The federal raid suggests that agents are intensifying their focus on e-gold and its potential criminal liability.

Jackson didn't respond to messages after the raid. But earlier, he denied vehemently that he has looked away from crime. He said he responds as quickly as possible to official inquiries. He acknowledged, though, that his staff of 15 includes only one in-house investigator who struggles to keep up with all those subpoenas. E-gold has about 1.2 million funded accounts through which transactions worth $1.5 billion were conducted in 2005, he says. As for the idea that he should systematically monitor customer identities and money flows, he argues that's not his job: "We don't validate because we're unlike any other system."

Federal officials reluctantly confirm this loophole: E-gold and other digital currencies don't neatly fit the definition of financial institutions covered by existing self-monitoring rules established under the Bank Secrecy Act and USA Patriot Act. "It's not like it's regulated by someone else; it's not regulated," says Mark Rasch, senior vice-president of the Internet security firm Solutionary Inc. and former head of the Justice Dept.'s computer crime unit. The Treasury Dept.'s Financial Crimes Enforcement Network (FinCEN) is studying ways to close the regulatory gap. Meanwhile, U.S. officials say e-gold and similar companies should voluntarily do more to deter crime.

Started in 1996, e-gold was part of an early wave of Internet payment systems that converted conventional money into a Web currency. Most of those pioneers soon flopped, because consumers resisted paying fees to get Web cash. Others, such as PayPal, now a unit of online auction giant eBay Inc. (EBAY ), evolved into credit-card processing services.

E-gold and a handful of rivals, including one called GoldMoney, were different. Their founders believed that tying monetary exchange to a strict gold standard would achieve greater economic stability. The Internet provided a ready venue for gold bugs the same way that it offered a soapbox to adherents of every other strain of thought. Jackson, an Army veteran and a graduate of Pennsylvania State University's medical school, was practicing oncology in Melbourne in the mid-1990s when he began reading about libertarianism and monetary theory. The married father of two adopted boys began to change his thinking. He scoured the works of libertarian novelist and philosopher Ayn Rand and was impressed by economist Friedrich A. Hayek's The Road to Serfdom, an influential 1944 condemnation of government control of the economy. "It looked like a lot of the suffering of recent centuries -- some of the scale of wars, some of the economic dislocations -- could be traced back to credit cycles. And credit cycles could be traced back to monetary manipulation" by governments, Jackson says. "I was very moved by it."

INTELLECTUAL CONVERSION
Gold, he concluded, was the cure. The U.S. stopped tying the dollar to a fixed amount of gold in 1971. But Jackson and a friend, attorney Barry K. Downey, decided to start what amounted to their own gold-backed currency. Jackson liquidated retirement accounts and sold his medical practice to help raise an initial $900,000. A former colleague noticed him working on computer code around the clock at his stand-up doctor's desk. He often forgot to eat and lost weight. Along the way, he stopped attending church. Jackson confirms all this but stresses that he continued to provide excellent care for his patients until he bowed out of medicine completely in 1998.

In a series of interviews with Jackson, his statements about e-gold swing from grandiose to resigned. "We want e-gold to be recognized as a privately issued currency and to be treated as a foreign currency" by the U.S. and other governments, he says at one point. But e-gold's offices don't conjure up images of a grand central bank. Jackson, who during one interview wore neatly pressed slacks and a yellow-striped shirt, runs his currency from a Spartan suite on the third floor of a Bank of America (BAC ) building.

Online currencies are patronized by software companies and other small businesses. Jackson says that the fees he charges customers -- for converting real money to e-gold, administering accounts, and doing transfers -- generated about $2 million in revenue in 2005 for e-gold's parent company, Gold & Silver Reserve, which he also controls. The operation turns a profit, he adds, but he won't say how much.

Mark Jeftovic considers himself a big fan of digital currencies -- but one now skeptical about e-gold. The founder of easyDNS Technologies Inc., an Internet domain name registrar in Toronto, he started accepting e-gold as payment in 2003. Jeftovic believes that digital currencies will minimize the harm of government-induced inflation. But in early 2005, investigators from the Royal Canadian Mounted Police visited easyDNS seeking information about cybercriminals allegedly using the registrar's services. It turned out that some of the suspects had paid Jeftovic's company via e-gold, he says. Angered by the police scrutiny, Jeftovic now plans to offer rival digital currency GoldMoney in addition to e-gold. "I like the digital currency and e-gold economy, and I want to support it," he says. "But you have to run a cleaner shop than this."

The RCMP didn't respond to requests for comment. Jackson says he wasn't aware of Jeftovic's concerns or the RCMP investigation. He says that e-gold responds as quickly as possible to inquiries from law enforcement agencies and readily provides them with user names, account numbers, and transaction histories.

A number of gold buffs and some law enforcement officials see GoldMoney as a reputable alternative in the digital currency field. Based in the British Channel island of Jersey, GoldMoney is run by James Turk, a precious metals trader and former Chase Manhattan banker. He says that his company requires new customers to mail in copies of identity documents and then checks the data against lists of suspected terrorists and money launderers. The accounting giant Deloitte & Touche annually audits its gold holdings and security measures.

E-gold's Jackson says those steps are expensive and unnecessary. OmniPay, an affiliate of e-gold, is one of more than a dozen "digital currency exchange agents" that handle the conversion of conventional currency into e-gold. Jackson says that to authenticate users' identities, OmniPay sends them a special code via e-mail and conventional mail. But users aren't required to prove their identity, so it isn't clear what this accomplishes. Jackson says that his lone in-house investigator looks for obvious fraud, such as a customer using "China" as his only address.

Some of e-gold's customers have been unsavory. Omar Dhanani used e-gold to launder money for the ShadowCrew, a cybercrime gang with 4,000 members worldwide, according to an October, 2004, affidavit by a Secret Service agent. Based in a stucco house in Fountain Valley, Calif., Dhanani used his PC to hide the money trail from the sale of thousands of stolen identities, bank accounts, and credit-card numbers, the government said. Accomplices sent him Western Union (FDC ) money orders, which, for a fee, he filtered through e-gold accounts. On Oct. 4, 2004, Dhanani, 22, who used the nickname Voleur -- French for thief -- boasted in a chat room that he moved between $40,000 and $100,000 a week. He pled guilty in November to conspiracy to commit fraud and faces up to five years in prison.

"GOOD FENCES"
E-gold's Jackson says the company was never contacted by the Secret Service regarding Dhanani and had no duty to sniff him out. E-gold's outside attorney, Mitchell S. Fuerst, calls statements in the Secret Service affidavit alleging that e-gold was used to facilitate illegal activity "nonsense." Fuerst argues that the responsibility for policing the identity and activities of e-gold account holders lies with the banks and other regulated institutions from which money is transferred into e-gold's system. Jackson goes further, insisting it's impossible to launder money through e-gold -- a contention that law enforcers say is contradicted by the Dhanani case and others.

Jackson has made no secret of his desire to avoid U.S. government scrutiny. In 2000, he and his partner Downey registered e-gold Ltd. in Nevis, hoping the maneuver would add another layer of insulation from U.S. regulation. Jackson concedes that e-gold has existed in Nevis only as "a piece of paper." Its parent administers e-gold services from the Melbourne office; the operation's computer servers are in Orlando. Jackson says he chose the tiny island because registration there is inexpensive, and the government follows well-established British commercial law. Nevis is also known for lax financial regulation. Referring to his desire to create legal distance from U.S. officials, Jackson says: "There's an element of good fences make good neighbors."

On Dec. 5, two weeks before the federal raid in Melbourne, the Nevis Financial Services Regulation & Supervision Dept. posted a notice on its Web site that e-gold had disseminated "misleading information" about its legal status. Nevis officials say that the company was removed from the island's corporate registry in July, 2003, for failure to pay the annual registration fee of $220. Jackson didn't respond to questions about this.

Back in the U.S., e-gold has tried to shield itself semantically, avoiding basic banking terms such as "deposit" and "withdrawal" that could increase its risk of being categorized as a regulated financial institution. E-gold calls such transactions "in-exchange" and "out-exchange." Jackson says: "It's not a desire to be tricky. It's a desire to be accurate. It's important not to be misconstrued as a bank."

Whatever its legal status, e-gold's usefulness to scam artists was colorfully illustrated by E-Biz Ventures, which allegedly portrayed itself as a Christian-influenced organization that offered investors returns as high as 100%. E-Biz' proprietor, Donald A. English of Midwest City, Okla., allegedly highlighted his reliance on e-gold to appeal to victims' fear of the federal government and their desire for anonymity. E-Biz investors opened e-gold accounts and transferred funds to accounts controlled by English. He shifted e-gold among more than 25,000 accounts, using new investors' money to pay off some older ones. The scam took in $50 million before the SEC shut it down in 2001. Investors lost $8.8 million. Later prosecuted in federal court in Oklahoma City, English pled guilty to wire fraud and last May was sentenced to five years in prison.

Jackson says that when subpoenaed by the SEC in the civil part of the E-Biz case, e-gold supplied transaction data. A Jackson aide worked closely with investigators in the civil case. "They responded timely to every request for assistance," says Chris Condren, E-Biz' court-appointed receiver.

Evidence of e-gold's suspect following is found on numerous Web sites. A contributor to Cannabis Edge, a site for marijuana growers, has provided advice on how to employ e-gold and two other digital currencies -- WebMoney and NetPay -- to hide illicit proceeds "beyond the reach of U.S. pigs." E-gold in particular "has strong security," is "easy to use, and is anonymous," said the writer, who used the name Bill Shakespeare. (Moscow-based WebMoney and NetPay, which is based in Panama City, Panama, both deny any wrongdoing.)

In addition to its abundant offerings of stolen financial data -- with payment frequently sought via e-gold -- the site CC-cards carried a message in November from a hacker using the name HellStorm. He advertised that for a 5% fee, he would set up and fund e-gold accounts for those who are in a hurry to do business and want to shield their identity. Users of CC-cards can make donations for the upkeep of the site by clicking on a link that connects to an e-gold account. (E-mails seeking comment from CC-cards and Cannabis Edge weren't answered.)

Jackson says that he wasn't aware that e-gold was being recommended or used on outlaw Web sites until he was so informed by BusinessWeek. The company has since blocked the CC-cards donation account, he says. There is little the company can do about such situations, Jackson contends, unless law enforcement brings them to e-gold's attention. Once informed, "we can set a value limit to prevent an account from receiving further payments," he says. "We can identify if there is a constellation of accounts controlled by the same miscreant." Jackson adds: "If we get an appropriate court order, we can monitor and assist in a sting that freezes value."

The danger of Web sites like CC-cards that are fueled in part by e-gold became very apparent to Kimberly S. Troyer. Her identity went up for sale there last September. Among the 22 items CC-cards put on the block: her checking account number at Bank One (JPM ), driver's license number, Social Security number, birth date, and mother's maiden name. The price for all that: $30 of e-gold. Informed of the offer by BusinessWeek in December, Troyer, a 33-year-old accounting student at Davenport College in South Bend, Ind., is changing all of her identity documents. She believes she escaped without losing any money. But someone hijacked her e-Bay account and changed the address to one in China so that it could receive payments from the sale of iPods Troyer didn't own. "It makes me sick to my stomach," she says. Jackson says e-gold can't do much about such cases until he's formally alerted by the government.

There is one crime, however, to which Jackson has reacted more aggressively: child pornography. In August, he attended a conference in Alexandria, Va., organized by the National Center for Missing & Exploited Children. The center is trying to enlist banks and credit-card companies in a crackdown on payment schemes used by child porn Web sites. "There are fewer and fewer sites with Visa -- and more and more with e-gold," says the center's chief executive, Ernest E. Allen. The center has a policy of not publicly identifying child porn sites it tracks. Jackson says he was appalled to find e-gold on the list of institutions used by the porn sites. He provided the center with instructions on how to seek e-gold records, and the group says it is pleased with e-gold's cooperation.

Daniel J. Larkin, head of the FBI's Internet Crime Complaint Center, says that in recent years, e-gold has hidden behind "a plausible-deniability fog." Now the fog may be lifting as the subpoenas pile up and federal agents begin to examine what they confiscated in their Dec. 19 raid. The Internal Revenue Service is separately auditing e-gold's parent, and Jackson says e-gold has voluntarily agreed to cooperate with an IRS review of its procedures for preventing money laundering. The IRS declined to comment.

TERROR TOOL?
Before the recent raid, Jackson said that responding to subpoenas and other government inquiries has been distracting and expensive. Although he emphasized that e-gold isn't obliged to monitor its clientele, he said that he could have paid more attention to vetting account holders were it not for the outside interruptions. He added that he plans to switch from an account-based log-in system to a user-based one to monitor customers more closely.

The worst-case scenario, so far undetected by officials, would be the use of e-gold by financiers of terrorism. Experts on terrorism funding note that digital currencies resemble the money-changing system known as hawala, which Middle Eastern terrorists have used. A customer gives money to a hawala service, which then telephones a similar service in another city or country that doles out money to a designated recipient. Many hawala outfits have been shut down since September 11, making digital currencies a logical next step, says Phil Williams, a professor of international affairs at the University of Pittsburgh and consultant to the United Nations on terrorism financing. "At some point, this is going to be used" by terrorists, Williams says.

Jackson scoffs at this notion. "We are not bad guys, and the e-gold system simply does not pose an undue risk for usage for terrorist purposes," he wrote in an e-mail on Jan. 20, 2005, to AUSTRAC, Australia's anti-money-laundering regulator, which was looking generally into potential terrorist use of digital currency.

But e-gold attorney Fuerst said in early December that the company quickly complied with requests in 2005 from Russian law enforcement and the FBI for records connected to a would-be terrorist in Russia. This person allegedly threatened to "blow something up," Fuerst said, unless a ransom was paid into his e-gold account. The FBI and the Russian Interior Ministry declined to comment.

This month's raid could signal serious trouble for e-gold. But cybercrime experts predict that if the company falters, nefarious business will simply transfer to other digital currencies, especially ones based in countries that have lax law enforcement. Amir Orad, executive vice-president of cybersecurity firm Cyota, says that putting e-gold out of business "would not stop anything."

BusinessWeek.com

Letter from Dr. Douglas Jackson;
Chairman, e-gold, Ltd.

e-gold® has recently been the subject of a slanderous and unfounded article in Business Week. e-gold strongly refutes the allegations and presumptions of this article. The article chose to focus through anecdote and suspicion only on an exception - criminal abuse - and ignores the overwhelming majority of e-gold usage. It also fails to note that all online payment mechanisms including credit cards and intermediaries such as PayPal are targeted by criminals, likely at a much greater magnitude than e-gold, and fails to relate the very proactive steps e-gold takes to eliminate any criminal behavior involving e-gold.

e-gold and its Operator, Gold & Silver Reserve (G&SR®), including G&SR's exchange service OmniPay® in cooperation with the United States Government and pursuant to a lawfully issued written request, did allow an examination of the e-gold and OmniPay computer systems and data. The examination occurred on December 16th after normal business hours so as to avoid disrupting access to the system. The examination utilized the full resources of e-gold's system and prevented customer access. We were told by the government examiners that the outage would be for a few hours, however, due to the volume of data maintained by e-gold for its customers' protection, a surprise to the examiners, the examination occupied e-gold's computing capacity for 36 hours. e-gold apologizes for any inconvenience of the system down time caused by the government's request. No charges have been filed against e-gold, G&SR, OmniPay or any of its principals.

e-gold operates legally and does not condone persons attempting to use e-gold for criminal activity. e-gold has a long history of cooperation with law enforcement agencies in the US and worldwide, providing data and investigative assistance in response to lawful requests.

I'm proud of what we have accomplished so far with e-gold. e-gold, now in its 10th year online, is growing exponentially because of a network effect, a global cascade of Users telling their friends who then tell their friends. For the first time since our launch in 1996, this growth is providing the revenue and resources needed for e-gold to accelerate technical development and other refinements to make it more reliable and even less hospitable to those who would seek to abuse it.

We are processing the same volume of transactions and growing at the same exponential pace that PayPal was in the second quarter of 2000. One difference, though, is that they had to give away $tens of millions of their investors' money to build a critical mass of user balances and were continuing a burn rate of about $10 million per month during this period. Altogether they burned through about $275 million of capital losses before their IPO.

e-gold, in contrast, lacking significant outside investment:

* has attained a circulation larger than Canada 's official gold reserves (currently 3.46 metric tonnes of gold, equivalent to about $55 million at current exchange rates).
* has web traffic surpassing etrade.com and citi.com and is neck and neck with kitco.com as the most heavily trafficked gold related site on the Web
* settles 50 to 60 thousand user-to-user payments per day, a daily value of about $10 million
* has active Users in every country, (including more than 150,000 in China ) despite our lack so far of foreign language versions - a high priority on our to-do list

e-gold is the only payment mechanism that is truly global, enabling any merchant to accept payment online even if the payer lives in a third world country, has no credit card, or is perhaps 'unbanked' altogether.

e-gold enables the migrant worker of modest means to send value back to his family in Mexico or Bangladesh at a fraction of the cost of conventional international remittance mechanisms. e-gold alone is free of chargeback risk, yet the fee for receiving payment in e-gold is a tiny fraction of those charged by any other systems.

Thanks to e-gold, for the first time in history, normal people of modest means worldwide have the option of using currency that is designed from the ground up to be immune to debasement, with a governance model that precludes even its management and founders from having the power to subvert it.

Gold & Silver Reserve has been operating for over nine years. Seeking to comply with every applicable law, G&SR has reached out to the Government dozens of times, has repeatedly met with officials from the Internal Revenue Service, the FBI, SEC and a variety of other Federal agencies, and has been told in no uncertain terms that we were operating legally and in full compliance with all laws, rules and regulations. Additionally, the Government has requested from us on more than three hundred occasions information regarding individuals it believed to be lawbreakers. Gold & Silver Reserve complied with every single request in a professional and timely fashion. Numerous Government officials have gone so far as to commend us in writing for our efforts in complying with their requests and aiding them in their investigations.

Very recently, however, the Government concluded that it was unable to “regulate� our business under any current statutes or regulations. Rather than moving Congress to enact legislation, the Government apparently chose to undertake to regulate us under pre-existing statutes which are totally and utterly inapplicable to our business. To do so, the case the Government brought against Gold & Silver Reserve centered around false statements and fabrications made to a Magistrate Judge in Washington , D.C. A week later, when challenged by that Judge, the Government, fearing it would lose its case filed a second suit against Gold & Silver Reserve. We are now addressing that action and are confident that we will be victorious in a very short time.

Both OmniPay and e-gold have been substantially harmed. Both sites were off-line altogether for 36 hours - an interval during which we were at a loss to know what to announce or even how to announce it. There were other direct interventions as well that I am not yet at liberty to discuss that nearly crippled OmniPay's ability to honor its obligations to and on behalf of users. The worst effect of course is on our reputation. This irresponsible smear piece will surely impair our efforts to build strategic relationships with the host of businesses and individuals that would benefit from an embrace of e-gold.

Let me be very clear. e-gold in no manner condones persons or organizations attempting to use e-gold to support criminal acts. The exact opposite is true. e-gold limits accounts that are suspect of illicit activity and has a long history of cooperation with law enforcement agencies.

There are two elements that make e-gold about the dumbest choice a criminal could make if seeking to obfuscate a money trail or otherwise hide the proceeds of crime.

1. it is impossible for a general user of e-gold to send/add money (value in any form) into the system... he can only get e-gold by receiving an e-gold Spend from someone who already has some.
2. there's a permanent record of all transfers, that is, a permanent record of the entire lineage of every particle of value in the e-gold system.

There is nothing "anonymous and untraceable" about e-gold. e-gold Spends settle by book entry - it isn't so-called "digital cash".

e-gold is not about crime. e-gold is not a hospitable environment for criminals. e-gold maintains an efficient and highly capable investigative staff to aid in the identification, apprehension and prosecution of any criminal abusing the system. Our staff has participated in hundreds of investigations supporting the FBI, FTC, IRS, DEA, SEC, USPS, and others. This is the reality of every payment system, the need to aid in rooting out criminal abuse, whether it is child pornographers taking advantage of the multiple layers and indirection of credit card middlemen, or smurfs aggregating cash via international remittance processors or even state lotteries.

e-gold has taken a proactive approach, reaching out to law enforcement agencies and NGO's (Non-Governmental Organization) to foster closer cooperation in combating crime online. For example, e-gold is a charter member of the Financial Coalition to eradicate Child Pornography, organized by the National Center for Missing and Exploited Children, along with Visa, MasterCard, Microsoft, AOL, PayPal, First Data and some of the major banks.

I hope to have additional and useful facts shortly and will communicate them when appropriate. I can assure you e-gold is up and running, supporting its customers, and continuing to grow.

Dr. Douglas Jackson
http://www.e-gold.com/letter.html

e-gold ® Founder Denies Criminal Charges
April 30, 2007
Melbourne, FL

On April 24, 2007, a Federal Grand Jury handed down an indictment charging e-gold Ltd., Gold & Silver Reserve, Inc., and the Directors of both companies with money laundering, operating an unlicensed money transmitter business, and conspiracies to commit both offenses.

Dr. Douglas Jackson, Chairman and Founder of e-gold, speaking on behalf of his fellow Directors and both companies vigorously denies the charges, taking particular exception to the allegations that either company ever turned a blind eye to payments for child pornography or for the sale of stolen identity and credit card information.

Dr. Jackson states, "With regard to child pornography, the government knows full well that their allegations are false, yet they highlight these irresponsible and purposely damaging statements in order to demonize e-gold in the eyes of the public. During the Inquisition, accusations of witchcraft and heresy were used to sanctify torture and seizures of property. In post 9-11 America, child porn and terrorism serve as the denunciations of choice. e-gold, however, as a matter of incontrovertible fact, is the most effective of all online payment systems in detecting and interdicting abuse of its system for child pornography related payments. e-gold Ltd. is a founding member of the National Center for Missing and Exploited Children's (NCMEC) Financial Coalition to Eliminate Child Pornography. e-gold is the only member institution to demonstrate with hard, auditable data a dramatic reduction of such payments to virtually zero, while billions of child porn dollars continue to flow through other (heavily regulated) payment systems. [Most members, that is, all the banks and credit card associations are utterly unable to even provide an estimate of the volume of such payments processed by their systems. eBay's PayPal subsidiary, who may have the ability to make such a determination, has refused to do so and has indicated they destroy payment records after two years.] What is worse, until August 2005 when NCMEC courageously broke ranks with US law enforcement agencies and began directly notifying e-gold of criminal sites via the CyberTipline, component agencies of the US Department of Justice purposely concealed their knowledge of child pornography abuses from e-gold's investigators, subordinating actual crime fighting to a policy agenda designed to dirty up e-gold."

In December 2005, the Secret Service (USSS) deceived a Federal Magistrate judge with bogus testimony in order to obtain search and seizure warrants authorizing the government to seize the US bank accounts of Gold & Silver Reserve, Inc. The seizure, which netted the government about $ 0.8 million, was designed to put e-gold out of business without due process, since G&SR serves as the contractual Operator of the e-gold system. At a subsequent emergency hearing, the government made no effort to defend their (sealed) allegations of lurid criminality, falling back to a position that their action was warranted because of a licensure issue. At the hearing, G&SR described its ongoing dialog with the Department of Treasury, initiated by formal request of the company in Spring 2005, to determine a possible basis for regulating the company's activities, since it was patently clear to competent authorities that G&SR's exchange service was not encompassed within any existing regulatory rubric [subsequently re-confirmed by experts at the Federal Reserve]. The US Attorney for the District of Columbia, responsible for the prosecution, was completely unaware of this orderly proceeding, as well as Treasury reports issued the same week that acknowledged e-gold as an innovation not meeting definitions of a money services business or a money transmitter.

Since this time, the government has been confronted with overwhelming evidence that the USSS had made a horrible mistake in its attack on the e-gold system and its repeated defamatory claims in the media that e-gold is anonymous, untraceable, and inaccessible to US law enforcement. They have concealed the fact that Dr. Jackson had personally arranged to come to USSS headquarters to train the USSS cybercrime squad in December 2004 (along with agents of the UK's National High Tech Crime Unit, and the Australian Federal Police) on advanced techniques, particularly in the area of efficient interaction with e-gold's in-house investigative staff, but was prevented when senior USSS management learned of the initiative and forbade the training on the grounds of a policy declaring e-gold as their designated boogey man.

The Department of Justice has had to determine whether to continue to stand behind their component agency. Their decision to close ranks has directly resulted in a gross misallocation of resources, with the result that vicious criminals who might have been brought to justice remain at large. An example of this is the Shadowcrew investigation, hyped by the USSS as a major success in disrupting international credit card thieves. The USSS did not subpoena records from e-gold at any time in their investigation, or engage with e-gold's superb in-house investigative staff, with the result that the sophisticated hierarchy of the ring was unmolested and probably strengthened while the USSS hauled in the low hanging fruit, "a dime a dozen and relatively easy to track down and pop".

Similarly, there is compelling evidence that the international cartel of commercial vendors of child pornography continues to operate because the FBI Innocent Images Unit and Special Agents within the Immigration and Customs Enforcement Agency have been forbidden to follow investigative protocols developed by Dr. Jackson, apparently for fear of further belying the party line that e-gold is itself a nefarious operation.

With regard to allegations of money laundering, Dr. Jackson notes "G&SR's online exchange service, OmniPay, has for years followed stringent customer identification procedures and an absolute policy of only accepting money payments by bank wire. If bank wires aren’t already "clean" then what is? Furthermore, e-gold Ltd. can scarcely be construed as a money launderer since it does not accept money payments from anyone in any form and has never owned a single dollar, yen, euro or any other brand of legacy money. As far as the possibility of a criminal successfully obfuscating a money trail, e-gold is a closed system. The only way to obtain e-gold is by receiving a transfer from someone who already has some. e-gold is also the only payment system accessible by the public that maintains a permanent record of all transfers."

On April 27, 2007, the government served seizure warrants on G&SR ordering it to freeze, liquidate and turn over to the government the operating e-gold accounts of G&SR and e-gold Ltd. The value seized, about $762 thousand worth of e-gold from e-gold Ltd. and about $736 thousand worth of e-gold from G&SR [on top of the $0.8 million seized from G&SR in 2005, and the approximately $1 million spent by G&SR so far in its defense] constitutes the bulk of the liquid assets of both companies. Perplexingly, a post-indictment restraining order states "Nothing in the provisions of this restraining order shall be construed as limiting the e-gold operation's ability to use its existing funds to satisfy requests from its customers to exchange e-gold into national currency, or its ability to sell precious metals to accomplish the same once approval has been obtained." Having taken virtually the entire operating funds of G&SR and e-gold Ltd., that is, the e-gold in both companies' own e-gold accounts, it is unclear if the government has even a basic grasp of the operations it has been investigating for three years at a taxpayer expense in the millions.

The most remarkable element of the restraining order is that the US government deputizes e-gold with plenipotentiary powers to act as judge, jury and executioner against any account user e-gold itself has deemed to be a criminal: "It is further ordered that upon receipt of this order the defendants are required to freeze, that is, not conduct or allow any further transactions in e-gold accounts that the e-gold operation itself has identified as being used for criminal activity". Although not accompanied by an outright letter of marque, this commission (the financial equivalent to double ought status?) would appear to be an acknowledgement that e-gold's 'Know Your Customer' prowess far exceeds that of any regulated financial institution, who would be obliged to rely on court orders or other legal writs to determine if freezing an account is warranted.

Concurrent with this latest attempt to knock e-gold Ltd. and G&SR out of business and thereby effectively deny them due process, the government also attacked other prominent exchange services that deal in e-gold; IceGold, The Bullion Exchange, Gitgold, Denver Gold Exchange, AnyGoldNow, and Gold Pouch Express, plus a sophisticated and secure alternative payment system called "1MDC". All of the listed exchange services also follow stringent Customer Identification Programs congruent with what would be required of a currency exchange business, if the law supported such a classification. Two of the services, IceGold and AnyGoldNow, are located in Europe and deal primarily with non-US customers. As a direct and immediate result of the seizures, these companies, all of who had built a reputation for honoring their obligations to customers in a timely fashion, have been disrupted, and, at least in the case of Gitgold, checks to customers issued in fulfillment of exchanges have bounced. This is a repeat of what happened to G&SR as a direct result of the 2005 seizure, when over 200 checks to customers bounced and refunds had to be sorted out with severely crippled liquidity and without a US bank account.

It must not be overlooked that the search warrant obtained by misrepresentations before a magistrate judge in 2005 resulted in the government helping themselves to the financial records of hundreds of thousands of American citizens [plus citizens of virtually every other country] who had not been accused of any wrongdoing. Since the initial raid, the prosecutor has caused the Grand Jury to order complete dumps of the e-gold data base on three additional occasions.

This case has nothing to do with criminal activity, at least not on the part of e-gold Ltd., G&SR, the named individuals or these other exchange services of high reputation. It is about a Department of Justice that is out of control, cognizant of having made a horrible mistake but determined at all costs to preserve its turf. In a meeting at the US Attorney's office in Washington on December 29, 2006, a Chief Assistant US Attorney told us that the United States knew we weren't "bad guys" and that the United States had no interest in sending any of us to prison or causing e-gold to go out of business. This was in virtually the same breath as proposing that the current defendants plead guilty to Federal felony charges.

The plain fact is that the repeated statements and actions of the government since 2001, especially the USSS, are directly responsible for crippling e-gold's ability to market its service to mainstream businesses and consumers, slowing [but fortunately not stopping] e-gold's continuous development of advanced anti-crime capabilities, subordinating US law enforcement's cybercrime fighting efforts to the forlorn hope of destroying e-gold, driving market share to non-US based alternative payment systems and making the US law enforcement community the laughingstock of competent cybercrime fighting agencies worldwide because of its obstinate inability to back down from the USSS's longstanding e-gold vendetta.

All inquiries should be directed to the law offices of:
FDA USDA Compliance Food Drug Medical Device Customs Export Import Bioterrorism Cosmetic lawyers and attorneys-FHI Law Firm Miami Florida

Why We Believe The Fed Is Right on e-gold

Like all business people, the freedom to operate a business and earn a profit or earn a fair return on your investment is all the business owner desires. However, such freedom is not ABSOLUTE or inherited i.e. God Given. That is to say the freedom to do whatever you choose. In our opinion, that's what wrong with e-commerce. The freedom to do whatever anyone chooses. Corporate ethics, corporate governance, good business practices or just good citizenship do not apply.

Time and time again, these so called sites i.e. businesses or companies operate like the days of the wild wild west or gold rush. Take for example the case of (Qchex-Court Halts Illegal Operations of Online Check Processing Firm)Qchex , how is this any different from e-gold? Well, if you BELIEVE it's different, then look at (Prosperity Automated System (PAS))Prosperity Automated System or 12dailypro

Any business that lack the moral compass will never survive. It's just common sense and good business practice. You or anyone would resent being rob or ripoff in shape or size. I can guarantee that you would fight back. Online or e-commerce businesses need to police their activities and ensure that the global community is protected. Welcoming every Tom, ****, or Harry may not be a wise way of operating a business.

Shutting down e-gold is just another of these sites whose primary purpose is to aid crimiinals or others lawless individuals whose purpose is to site behind computers to committ crimes.

To fully appreciate the e-gold or digital currency world, we found the American Chronicle to be extremely resourceful. A chronology of events entitled

Understanding This Comment:“Anyone Using E-gold Can End Up In Jail" Pt. 1 of 3 is WORTH THE READ