I read with great interest about a Washington, D.C., 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. I recently served on a grand jury in Brooklyn, so I know the joke about being able to indict a ham sandwich to be true (the most circumstantial of evidence will get your case sent to trial).But I couldn't help thinking back to an exchange I had with e-gold chairman Douglas Jackson over a January 2006 blog in which I'd mentioned his company in the same breath as the hacker economy. Jackson was indignant over my portrayal of his company as a one that creates a loophole that enables cybercrooks to get paid for their misdeeds. At the time, he noted, "E-gold is often depicted in the media as anonymous and inaccessible to law enforcement." Now, he can make his case to the federal government or face up to 35 years in prison.
E-gold acts as an alternative payment system and is said to be backed by stored physical gold. To get an e-gold account, one needs only to provide a valid e-mail address. The beauty of the model is that any foreign currency can be dropped into the account and then exchanged for its value in gold, and account holders can access their accounts through the Internet and conduct anonymous transactions with other parties anywhere in the world.
The Justice Department believes this made e-gold popular with operators of investment scams, credit card and identity fraud, and sellers of online child pornography. But Jackson has said in public forums that e-gold's business is on the up and up. In response to my original blog, which described how purveyors of rootkits and other malware are able to sell their malicious wares without being caught by using services such as e-gold, Jackson wrote, "On this understanding, with about a minute of work, we investigated the matter, identified the e-gold account(s) used by these people and exercised our Right of Association, eliminating their ability to ever receive another e-gold payment. For good measure, we reached out and touched (in the same fashion) every e-gold account ever used to buy these wares from them using e-gold.""
Sounds like a pretty standup operation. But the Justice Department's indictment alleges, among other things, that Douglas L. Jackson, Reid A. Jackson, and Barry K. Downey "conducted funds transfers on behalf of their customers, knowing that the funds involved were the proceeds of unlawful activity; namely child exploitation, credit card fraud, and wire (investment) fraud; and thereby violated federal money laundering statutes."
My favorite line by Jackson in response to my blog is the following: "I note in passing that the blather about 'avoid[ing] the scrutiny of the Secret Service' is a crock of sh_t. If indeed a crime has been committed, all the data needed to identify, apprehend, and prosecute the malefactors is in our database, and will be forever, available pursuant to any lawful request." I edited the profanity in the quote because we like to think of InformationWeek as a family-friendly publication. Further, Jackson added that, "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."
As recently as Feb. 8, 2007, Jackson and I corresponded about e-gold's role within the hacker economy, and Jackson went as far as to position his organization as a group of cybercrime fighters, having "broke the back of two communities (CP and carders) that had infested e-gold and were damaging our brand/reputation." The "CP" in his quote refers to Carderplanet, a Web site that served as a marketplace for millions of stolen bank accounts. Wired magazine even chronicled Jackson's claims in a December 2006 story.
The Justice Department apparently was not impressed, pointing out last week that its indictment was the result of a two-and-a-half-year investigation by the Secret Service Orlando Field Office into an alternative payment system that has largely operated outside of normal banking industry regulations. Federal law enforcement sees e-gold as a system for supporting emerging threats and evolving criminal methods through the use of electronic or digital currency to facilitate trafficking in illicit goods and services.
It will be fascinating in the coming months to learn whether e-gold is simply a misunderstood crusader for cybersafety or a key enabler of identity theft. Hard to believe that it could be both (if you believe both Jackson and the Justice Department). One thing's for sure, federal law enforcement is onto to something in taking on any site that allows cybercriminals to get paid for their efforts.