Bloggers live for feedback to their controversial postings and in this regard, my entry earlier this week about a federal grand jury's decision late last week to indict E Gold Ltd, Gold & Silver Reserve Inc., and the owners of these digital currency businesses on charges of money laundering, conspiracy, and operating an unlicensed money transmitting business did not disappoint. The following day, I received an e-mailed link to E-Gold's highly articulate and well-sourced defense.E-Gold chairman Douglas Jackson believes the Justice Department, and the Secret Service in particular, has a vendetta against his company. It's less clear why the Secret Service might be manipulating information and public opinion in its efforts to bring down E-Gold and its executives, but Jackson is armed with plenty of documents that support his allegations.
In an April 24 statement, issued the same day as the federal grand jury's indictment, Jackson states that 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." He denies all of the accusations, taking particular umbrage to the Justice Department's portrayal of him and his business ventures as having turned a blind eye to payments for child pornography or for the sale of stolen identity and credit card information. Jackson then reiterates his claims that E-Gold is "the most effective of all online payment systems in detecting and interdicting abuse of its system for child pornography related payments."
Jackson points to a December 2005 court case where he says the Secret Service deceived Federal Magistrate Judge John Facciola by presenting erroneous testimony in order to obtain search and seizure warrants authorizing the government to seize U.S. bank accounts of Gold & Silver Reserve Inc. Jackson's online statement even includes a link to an e-mail that appears to indicate that he had made plans in December 2004 to visit the Secret Service in Washington, D.C., in order to brief them on how E-Gold operates. These plans, he says, were eventually cancelled by senior Secret Service management, although it's not clear based on Jackson's telling of the story why this was done.
In defense of the money laundering charges, Jackson notes that his company's OmniPay online exchange service "has for years followed stringent customer identification procedures and an absolute policy of only accepting money payments by bank wire." Further, since E-Gold doesn't accept money payments from "anyone in any form and has never owned a single dollar, yen, euro or any other brand of legacy money," it can "scarcely be construed" as a money launderer. E-Gold is a closed system, the only way to obtain e-gold is by receiving a transfer from someone who already has some, and the company maintains a permanent record of all transfers.
While Jackson's reasoning here requires first-hand knowledge of how E-Gold works to be proven, much more clear cut is E-Gold's role as founding member of the National Center for Missing & Exploited Children's Financial Coalition Against Child Pornography, alongside America Online, American Express, Bank of America, PayPal, and others. Their stated goal is to eradicate the multi-billion dollar commercial child pornography by 2008. Is this a clever move by E-Gold to cover its tracks, or additional, albeit circumstantial, evidence that E-Gold is out to stop rather than encourage child porn?
An aspect of the E-Gold case that certainly warrants further examination is Jackson's allegation that the government, in investigating his company, is helping itself to the financial records of hundreds of thousands of E-Gold customers, which include American citizens as well as international organizations.
A full understanding of what's happening here (that is, what's behind the Justice Department's interest in E-Gold and whether it's justified) far exceeds the capacity of any single blog entry, particularly as the story is still unfolding. In the meantime, the Justice Department's campaign against E-Gold and that company's defense hit on some of today's most relevant security and privacy issues. These include the possibility that the online payment infrastructure that facilitates the underground cyber exchange of pilfered personal information needs to be reformed and that law enforcement needs to work with, rather than alienate, members of this infrastructure in order to beat back cyber criminals.