E-Gold Gets Tough on Crime
by Kim Zetter
The founder of PayPal competitor e-gold has grown tired of the government characterizing his business as a haven for money launderers, terrorists, child pornographers and credit card thieves.
So a year after the Department of Justice raided his offices, Douglas Jackson, president of Gold and Silver Reserve, which operates e-gold, has been wading deep into his customer transaction logs to identify and fight back against people who misuse his system. In the last month, he's blocked about 2,000 accounts from his system, and he's voluntarily turned over detailed account and transaction histories to federal law enforcement.
In the process, Jackson says he's exposed an illicit and previously invisible economic underground.
"It's like discovering an undisturbed tomb in Egypt where you've got this archaeological thing," Jackson says about the wealth of data he's uncovered. "There will never be another crack like this one where all of these people have left their footprints with memos that sometimes give us clues as to what they're doing."
E-gold is a privately issued digital currency backed by real gold and silver stored in banks in Europe and Dubai. Jackson says about 1,000 new e-gold accounts are opened daily, and the system processes between 50,000 and 100,000 transactions a day.
With a value independent of any national legal tender, the electronic cash has cultivated a libertarian image over the years, while drawing the ire of law enforcement agencies who frequently condemn it publicly as an anonymous, untraceable criminal haven, inaccessible to police scrutiny.
Jackson says the image is false. Although a user can open an account using a fraudulent name and a proxy server that shields his or her IP address, a permanent record of every transaction remains in the e-gold system, which can help law enforcement agencies track criminals.
Jackson says he first became aware that credit card thieves were laundering money through e-gold from 2004 news stories about a Secret Service bust of Shadowcrew, a website where carders congregated. He contacted the Secret Service and pleaded with them to work with him to catch the carders, but the agency inexplicably rebuffed him.
Last December, the Department of Justice raided the Melbourne, Florida, office of Gold and Silver Reserve, and seized more than 100 boxes of paper records in a move dubbed Operation Goldwire.
"They basically raped our computers and also took us offline for 36 hours, took all the paper out of our office," Jackson says. The government also froze Gold and Silver's U.S. bank account. The company survived, Jackson says, only because its euro, pound and yen accounts are maintained outside the United States.
Jackson says the criminal affidavit, filed under seal, accused Gold and Silver of aiding terrorists and child pornographers. But prosecutors later dropped the criminal claim, replacing it with a civil complaint charging Gold and Silver with operating as an unlicensed money-transmitting business. Jackson's lawyers say the charge is bogus because Gold and Silver isn't a money transmitter, since the company doesn't accept cash from customers, only wire transfers. That case is on hold until April, and a Justice Department spokeswoman declined to comment on the suit.
Rather than attack him, Justice officials and the Secret Service should have been working with him, says Jackson. Because all the while they were trying to build a case against e-gold, he was gathering evidence that could help them battle the real criminals.
Posted December 11, 2006