E-Gold Founder Pleads Guilty to Money LaunderingSubmitted by christopher X on Sat, 07/26/2008 - 23:25
E-Gold Founder Pleads Guilty to Money Laundering
By Kim Zetter EmailJuly 25, 2008
Douglas Jackson, the founder and director of the online payment service e-Gold and its parent company Gold & Silver Reserve, has ended a two-and-a-half-year battle with the Justice Department and pleaded guilty to charges pertaining to money laundering and operating an unlicensed money transmitting business. He faces up to 20 years in prison on the money-laundering charge and up to 5 years in prison on the licensing charge.
Jackson (at right) was indicted in April 2007, following a December 2005 Secret Service raid on his company's offices in Melbourne, Florida.
He and two other senior e-Gold directors, who also pleaded guilty to operating an unlicensed money transmitting business, have also agreed to introduce user restrictions on e-Gold and to revamp the system to make it easier to detect money-laundering activities, fixing some design flaws that Jackson acknowledges allowed criminals to use the system for illegal purposes. The company has currently suspended the opening of new accounts.
The move marks a turnaround for Jackson, who has long maintained his innocence in a fight that he estimates has cost him in the "seven figures." He told Threat Level in an e-mail that rather than drag out the case, he opted to resolve it in a manner that allowed e-Gold to move forward and shake off its reputation as being a haven for criminals.
"From our perspective, the possibility of resolving the legal case in a manner that allows for a path forward, that provides an explicit roadmap enabling e-Gold to emerge as a regulated financial institution in full compliance with US law is greatly preferred over continued conflict," he wrote. "We acknowledge that we made mistakes and fully accept responsibility for those mistakes. Our goal throughout these recent negotiations was to set the stage for e-Gold to get a second chance and to get it right this time, to emerge as an institution that can become an integral and vital part of the financial and commercial mainstream."
E-gold is a privately issued digital currency backed by real gold and silver stored in banks in Europe and Dubai. Jackson, a former oncology doctor, launched the digital cash service in 1996 with a partner. At its height, the service had about 1,000 new e-Gold accounts opening daily, and processed between 50,000 and 100,000 transactions a day. That changed in the years since the government's raid.
"All e-Gold in circulation remains 100 percent backed by physical gold," Jackson wrote. But "there has been a substantial decline in transaction volume over the past two years."
The government claimed that e-Gold facilitated child pornography and identity theft by allowing criminals to pay for illegal images and launder other funds gained through credit card fraud and other crimes. The government had initially accused Jackson and e-Gold of aiding terrorists, but dropped that claim.
Back in 2006, Jackson called the charges a farce and described all of the ways in which the company tracked criminal behavior in its system. He also discussed how the company repeatedly helped the U.S. Postal Service and other federal agencies track child pornographers and credit card thieves who sent money through the service and even established undercover accounts for law-enforcement agents to help them ensnare crooks. He had dismissed the idea that Gold & Silver was an unlicensed money-transmitting business at the time, since he said the company never accepted cash from customers, only wire transfers.
Jackson now says he has high hopes that the new e-Gold that emerges after they've implemented the required changes will attract new customers that previously stayed away because of the perception that e-Gold was favored by criminals.
"From its beginning in 1996, e-Gold has been regarded with skepticism and reflexive mistrust," he wrote Threat Level. "E-Gold as an explicitly regulated financial institution however is a whole new ball game. . . . Very importantly, the e-Gold that will emerge from this turbulence will be a community that does not tolerate criminal abuse and maintains highly effective defenses to detect and interdict such abuse."
Sentencing is set for November.
In addition to possible jail time, Jackson faces a possible fine of up to $500,000 for money laundering and $250,000 for operating an unlicensed business. Jackson told me last year, however, that a high-level U.S. attorney had told him privately, "We know you guys aren't bad guys, and the last thing we want is for anyone to go to jail. We don't want the company to fail we just want you to clean up your act."