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The Courts Government Privacy The Almighty Buck News

E-gold Owners Plead Guilty To Money Laundering 469

Posted by timothy
from the laundering-is-just-a-bad-word-for-privacy dept.
Ian Lamont writes "The three owners of Internet currency service e-gold have pled guilty to money laundering in the U.S. District Court for D.C.. The service is based in the West Indies, but the directors apparently live in Florida. They haven't been sentenced yet, but potentially face decades in prison and millions in fines. In addition, the principal director posted a blog entry yesterday saying that 'criminal activity will not be tolerated,' and pledging to eliminate the loopholes that allowed money laundering to thrive on the service. He also claims that e-gold has more transaction volume in a single quarter than all of the first-generation Web currency services like Cybercash, Beenz, and Flooz completed over their lifetimes. Ironically, one of the reasons that contributed to Flooz's demise in 2001 was rampant money laundering."
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E-gold Owners Plead Guilty To Money Laundering

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  • by Anonymous Coward on Tuesday July 22, 2008 @09:56AM (#24289391)

    This royally sucks because e-gold was actually a very simple and easy way to purchase gold with very few and simple fees, and none of the tax burden.

  • by whoever57 (658626) on Tuesday July 22, 2008 @09:58AM (#24289431) Journal
    From TFA:

    In harmony with this transformation, we acknowledge that e-gold is indeed a Financial Institution or Agency as defined in US law and should be regulated as a Financial Institution. E-gold Ltd.

    Nw if the federal authorities could get the same concession from PayPal......

  • by Timothy Brownawell (627747) <tbrownaw@prjek.net> on Tuesday July 22, 2008 @10:33AM (#24289887) Homepage Journal

    Don't worry they will. e-gold was just smaller and didn't have good enough lawyers. Now that they've got a precedent set, the government will turn its attention towards paypal. The government can't stand to have any "unregulated" exchange of goods, services, or capital.

    I've seen advice to never leave significant amounts of money in a paypal account (or occasionally even a bank account that paypal knows about), because they occasionally lock it or take it away and make this hard to fix. Does this mean that these stories and whatever prompted them will go away?

  • If you didnt RTFA... (Score:5, Interesting)

    by carp3_noct3m (1185697) <slashdot@noSPam.warriors-shade.net> on Tuesday July 22, 2008 @10:43AM (#24290005)
    E-gold is an online currency service that is backed up by gold. You cannot buy directly from them though, you have to buy through a redistributor, some of which are questionable and only takes certain forms of payment. The nature of the having a third party buy from egold and then sell to another person creates a web of denial effect for money launderes. One of the largest schemes e-gold is used for is in the credit card theft hacker rings, where it is easy to get credit card info, it is harder to "cash out". This is where "cashiers" come in, usually charging a 50 point take on cashing out for someone else. Egold, since it was in a different country, denies US Government requests for transaction records for accounts. E-gold may be in trouble, but for every e-gold there is another replacement, e-platinum, webmoney, and large handful of others. Oh yeah, btw, I didnt RTFA either, I just thought Id share what I know about e-gold, and I might be wrong about some of it.
  • Good riddance! (Score:3, Interesting)

    by swordgeek (112599) on Tuesday July 22, 2008 @10:52AM (#24290169) Journal

    e-gold has tried spam as a marketing tool. When they stopped that, other spammers started following suit, phishing for account info--and e-gold's response was always "it's not our problem."

    They've been actively aiding money laundering, and claiming they can't control what their customers do. Even now, Douglas Jackson is talking about fixing the flaws in an otherwise good system--despite the fact that he's likely going to jail for a few years.

    e-gold is a dirty operation run by dirty crooks. It should be buried deep underground, and the gold reserves (if they really exist) used for something constructive.

  • by BenEnglishAtHome (449670) on Tuesday July 22, 2008 @10:53AM (#24290183)

    For whatever reason, there are times when people pay cash and have no desire to reveal who they are to the folks with whom they are doing business. (I used to relish, back in the day, going to Radio Shack and refusing to give them my zip or other information as long as I was paying cash. They thought I was weird. I thought being forced to identify myself to buy batteries was just too stupid to put up with.)

    So is there any way to anonymously pay for things online? I can think of only one: buy a pre-paid credit card for cash and use it online. Non-reloadable gift cards can be purchased for cash and activated for use online under any name you can think up; there's no verification.

    However, that method is inconvenient. Do the slashdot hordes know of a better, easier way that remains anonymous?

  • by u38cg (607297) <calum@callingthetune.co.uk> on Tuesday July 22, 2008 @10:55AM (#24290209) Homepage
    Pegging the value of money to the value of metal is stupid. Metal only has the value that we assign to it, and there's no practical difference between saying "This banknote is worth $1000" and "This piece of gold is worth $1000". As for the government printing money to pay its bills, look at Zimbabwe. Inflation, in small doses, is a good thing because it encourages you to use your money rather than hide it under the mattress where it loses value. And as for comparing inflation to serious decades, try going back several hundred or thousand years rather than basing them off the post-Depression years, and then talk to me about pegging currencies to precious metals.
  • by fredrated (639554) on Tuesday July 22, 2008 @11:03AM (#24290305) Journal

    "The only thing that makes ANY currency worth ANYTHING is that people are willing to accept it"

    Gold has been accepted by virtually all civilizations for thousands of years, probably because it can be worked, is beautiful, doesn't tarnish etc. I and many many others will take gold any day as it is more likely to keep its value than most anything else you can name.

  • by thealsir (927362) on Tuesday July 22, 2008 @11:19AM (#24290535) Homepage

    And an effectively oil-backed currency is different how?

  • by duffbeer703 (177751) on Tuesday July 22, 2008 @11:59AM (#24291197)

    My own quote on the matter: "Under the current system money is managed by the Fed, which reports to Congress. Under a gold standard money is managed by international mining cartels and speculators. This is better, how?".

    The difference is your government (assuming that you're an American) controls the flow of money and not some mining interests. Why is this a bad thing? Well, look at banking panics in the 19th century -- they resulted in devastating depressions every 10-20 years. You can't just come up with more gold, but with our current debt-obligation system, you can adjust the value of the currency to preserve liquidity. That's why since 1929, we haven't had a catastrophic, systemic banking failure.

  • Re:but... (Score:2, Interesting)

    by johndmann (946896) on Tuesday July 22, 2008 @12:26PM (#24291663)
    Picking up on useful (to the prisoner community) trades can be beneficial to your safety as well. Jailhouse sign-language, as many gangs need people to communicate with the other tanks (50-man sectioned off units), but cannot do so themselves. Also, getting an outside trustee status can enable you to smuggle in tobacco products (or even marijuana if you're brave) with which you can both make money and friends on the inside. You'd also be surprised to find how many friends you can make by smuggling Kool-Aid and cookies from the kitchen back to the tanks, if you've been lucky enough to obtain a trustee position there. The list goes on.
  • by alexgieg (948359) <alexgieg@gmail.com> on Tuesday July 22, 2008 @12:35PM (#24291811) Homepage

    I think you're seeing history inverted. I look at the 20th century, and I see cycles an interminable sequence of booms and busts mixed with inflationary and hyperinflationary phases. I look at the 19th century, and I see customer and other prices with almost perfect stability, so much that anyone could save money for bad times by simply storing it in their houses, rather than at some bank, as is required now.

    You also talk about liquidity, but it was precisely the artificial liquidity created during Woodrow Wilson's government, by way of cheap loans at below market rates, that created the boom of bad investments that imploded in 1929. And then it was the New Deal that, by providing even more cheap loans and thus creating more (useless) liquidity, that extended what would have been self-correcting recession, into a full blown, decade-long depression.

    I suggest you search for "1929" and "gold standard" at classic liberal sites such as the Mises Institute [mises.org] one. People usually accuse them of not using measurements as any good scientific method requires, but whenever I read them what I find the most are historical analyzes. These two search terms alone provide plenty of evidence, and good data.

  • by DougWebb (178910) on Tuesday July 22, 2008 @01:05PM (#24292335) Homepage

    If you took all the refined gold in the world, all of it, and used it to back the US dollar only, then the price of gold would have to skyrocket to something like $2,000/oz.

    Actually, you've just figured out a ballpark figure of how much the dollar has been devalued since we left the gold standard, when the value of the dollar was set at 1/20th of an oz of gold, eg: 1oz Gold = $20.

    Another example I once read was that 1oz of gold, at $20, used to be enough to buy a very nice suit. Today, with 1oz of gold costing ~$900, it's still enough to buy a very nice suit. The value of the gold and the suit haven't changed much, it's the dollars that are worth less.

    If we wanted to go back onto the gold standard, then yeah, we'd have to divide the number of dollars in circulation by the ounces of gold the government has left, and that'd be the exchange rate. It's probably not too far from $900/oz, which the gold-trading market has already set as a fair exchange rate between gold and US dollars. You got the order of magnitude right; you were only off by a factor of two.

    Gold isn't particularly rare in the earth's crust, but it is costly to extract. If someone were to develop new technology that extracted gold at significantly cheaper prices, your currency would collapse. This isn't unprecedented.

    Another example is what happened to Spain after they discovered Central and South America. Extracting gold from the natives was significantly cheaper than mining it themselves, and their economy went nuts for a while due to all of the surplus gold they imported.

  • by istartedi (132515) on Tuesday July 22, 2008 @01:26PM (#24292717) Journal

    People who held stocks and real estate rode out Wiemar quite well! The stock market [nowandfutures.com] graph is quite interesting. Note that in the early stages the market fell, but when the inflation was raging there was actually a spike in stocks when measured in a currency that was more stable at the time (the dollar).

    The buyers of stocks in 1920s Germany knew they were buying the productivity and resources of the German economy, which they figured (correctly) would make it through the inflationary period. The fundamentals of stocks make sense. A diversified portfolio represents some portion of the economic output.

    Next came the Nazi period. Then gold makes more sense, and I mean physical bullion since Nazi paper would have had obvious problems. Now, how do you know when to actually do that, and what's a rational way to do that? What is the purpose for physical posession? Can a rational person justify having any physical gold?

    I say yes, but not to the extent that some gold bugs would have us horde the metal, or use it to back the currency. I say yes only to the extent that it's an insurance policy, and one that like all insurance policies may or may not pay out.

    Most people wouldn't consider it a wise investment to spend too much of their income on an insurance policy. Nevertheless, that's what it is; so holding a modest ammount of gold in your portfolio (the rule of thumb is 5%) makes sense if you are really concerned about political turmoil that would cause you to leave your country. Make sure that you also insure your insurance! However much bullion you store in your safety deposit box or home, insure it. Make sure you buy a gun too, so that you can move your gold in the presence of bandits. Be sure to set aside some to bribe the border guards. Coins are better than bars, because they are more practical units. See how insane this gets? You'll probably lose your house, car, and probably a significant fraction of your friends and family in a situation like that. You might lose your life. I don't think you can really insure against a Nazification of the US; certainly not by buying gold anyway.

    One positive thing I can say about gold though, is that since it won't go to zero it makes a fantastic trading vehicle. Accumulate during a volatile period, sell the spikes. Very nice. I haven't been quite gutsy enough to do it with a large fraction of my money though.

  • by duffbeer703 (177751) on Tuesday July 22, 2008 @03:03PM (#24294211)
    BZZT! You lose.

    In any gold-like money system (it doesn't need to be gold, anything that isn't "tamperable" by 3rd parties, be it the government or other, works the same), you have booms and busts, all right.

    So, the United Kingdom wasn't impacted by shipping most of their gold assets to the US in order to pay for the First World War?

    And I suppose Fisk's engineering of the original Black Friday was a minor glitch which only affected New York City?

    And major gold discoveries (or looting) in South and Central America didn't create a centuries-long inflationary cycle in Spain, did it?

  • by geekgirlandrea (1148779) <andrea+slashdot@persephoneslair.org> on Tuesday July 22, 2008 @03:21PM (#24294515) Homepage

    It's been a while since I actively used e-gold, but as I recall, unlike such brain-damaged systems as ACH, it was impossible for anyone but the account holder to initiate a transfer out. On the other hand, if you were foolish enough to hand out your account password to random people you were doing business with, well, hopefully you learned your lesson and won't do it again.

  • Re:but... (Score:2, Interesting)

    by johndmann (946896) on Tuesday July 22, 2008 @04:03PM (#24295253)
    There are times which violence ensues. Perhaps one prisoner snitched on anothers' contraband locations - he'll get a bar of soap in a sock to the head or something of that nature. For those people who are just there doing their time and minding their own business, it's not so bad.

    There are a few bad eggs (more so than the rest) who are just prone to violent acts, but it is rather rare outside of maximum security facilities.

    As for "rape", aside from people who did something to justify being punished in such a way (there's an unwritten code of conduct. "honor among thieves" if you will), the only intra-prisoner sex going on is consensual.

    Bottom line, be nice, mind your own business, don't act like you're scared of everything and everyone around you, and you'll be just fine.
  • by Purple Screws (1017084) on Tuesday July 22, 2008 @06:49PM (#24297177)

    How so? There isn't anything in the Constitution saying "Congress is here to pass laws, but NOT laws that will piss off gold-standard people". I'm genuinely curious about this, where in the Constitution does it bar this?

    No, that's the wrong question. The right question is, "Where in the Constitution is Congress given the power to pass such laws?" The Constitution defines precisely what the powers of Congress are. Everything else is reserved to the states and the people. Go read the Tenth Amendment again.

    The Bill of Rights, and later amendments that restrict Congressional power, do tend to confuse people, because they take power away from Congress rather than granting it. Remember that those restrictions apply in addition to the restriction that Congress stay within its Constitutionally delegated powers. That's made explicit by the Ninth Amendment, so maybe you should go read that one again too.

    There is no clause saying that congress MUST pass constitutional laws,

    Um... besides Article Six?

    the Executive branch's veto power exists to make sure Congress stays within constitutional bounds, and if that fails SCoTUS. As a secondary feature, the voters have the power to raise a huff and remove these people.

    Yes, we have checks and balances partly to help enforce the Constitution. That doesn't make, say, the passing of the Sedition Act any less illegal. The fact that the other branches of government are watching over their shoulders does not excuse Congress from their responsibility to obey the supreme law of the land.

  • IANAL, that out of the way:

    Actually states rights have been continually marginalized(especially since the Civil War), which isn't necessarily a bad thing, as the Civil War and several civil rights movements have proven. Federal (congressional) law also trumps state laws, not visa versa, this is implicit in the Consitution (both original, and amended), bringing this to just an issue of "May Congress do thus".

    Looking at Article 1, section 8, I could perceive outlawing gold to be along with "providing for the common defense and general welfare.", or along the lines of "regulating commerce... between states". Reading Article 1 I don't find any implicit statement saying "congress may do nothing but the things listed here", or "congress has the right to make federal laws, but not involving gold". So far I don't see the lack of constitutionality.

    I'll give you Article 6, though. You are correct.

    As for the 10th Amendment... Yes, this would give some ground, but... this can be seen as, as stated, providing for the general welfare, or regulating commerce, and this a power invested in the US Gov't, making the 10th moot.

    The Bill of Rights, and later amendments that restrict Congressional power, do tend to confuse people, because they take power away from Congress rather than granting it. Remember that those restrictions apply in addition to the restriction that Congress stay within its Constitutionally delegated powers. That's made explicit by the Ninth Amendment, so maybe you should go read that one again too.

    Looking at my copy of the Constitution, I notice phrases along the lines of "Congress shall have the power to enforce this article by appropriate legislation" (Amend.XIII Sec.2) more than "congress shall not pass laws along x lines". The above quote, notice, explicitly limited states rights (slavery) in favor of federal bans. Roughly half of the amendments go along the same stripe, limiting states right (mostly to enfranchisement).

    I don't agree with the law criminalizing gold ownership, but not on the grounds of it being unconstitutional, since I don't see how it was. It was a stupid law for other reasons.

    Its amazing how much the constitution is like literary criticism, there are various readings, and various historical contexts that we can take head of, depending on what point we want to present.

    Again, IANAL, or constitutional scholar, I just so happen to have bought a copy for my reference library the other day for such cases.

  • by jcr (53032) <jcr.mac@com> on Wednesday July 23, 2008 @02:10AM (#24300097) Journal

    Actually states rights have been continually marginalized(especially since the Civil War), which isn't necessarily a bad thing, as the Civil War and several civil rights movements have proven.

    It's not necessarily a good thing, either. It was the right of the Vermont militia to stop the federal troops at the border when they came to enforce the fugitive slave act a couple of years before the civil war, for one example. It's the right of the state of California to let medical marijuana patients take their medicine without harassment, for another example. Since Lincoln overthrew the Republic, states have had no power to resist federal encroachment on their citizens' liberty.

    -jcr

  • What about fiat money that isn't backed by any government at all?

    I'm referring to the Iraqi Dinar that had a picture of Saddam Hussein, and is still currently in use in Iraq even today.

    What surprised a bunch of economists with that money was that mild deflation occurred in the Iraqi economy after the 2003 Iraqi-USA war. Of course one of the interesting things was that the "presses" that made the money were no longer operating, so the overall money supply wasn't expanding and gave surprising stability to that currency. Attempts to introduce a new currency in Iraq were in fact not very well received.

    Yeah, I know this is an historical exception, but it is an interesting reaction when the government that issues the currency collapses, and what the real value a fiat currency actually has. Money in any form is really whatever those who have it think it may be worth, including those who may want to exchange it for other stuff.

    Virtual currencies in on-line games is another example of fiat currency that surprisingly isn't even issued by governments at all, yet can carry real-world exchange rates and be used to purchase real-world items. I could go on with this point, but what I'm trying to suggest is that money is a much deeper abstract concept that a great many people don't really appreciate.

  • by JesseMcDonald (536341) on Wednesday July 23, 2008 @10:58AM (#24305685) Homepage

    As a commodity, the supply of gold via mining is self-regulating. If the price of gold is higher than the cost of mining it (per unit mass) then mining will continue until the price decreases--or the cost increases--such that mining is no longer profitable. In the long run, mining gold is no more or less profitable than any other enterprise. The "commodity producers" thus don't bother me; under normal circumstances they have no incentive, or even ability, to flood the market with newly-mined gold.

    As for the commodities market, anyone can play at that. If you feel you're overextended on cash -- which is what gold would be under a gold commodity currency -- then trade for some other commodity to distribute your risk. In any event, under a gold currency there wouldn't be a significant gold commodity market -- you'd just be trading gold for gold, which is kind of pointless. The only fluctuations would be in the value of refining and/or minting, not the gold itself.

    The only groups that have traditionally been involved in manipulating the supply of gold are governments and their close allies, national central banks. Their actions with respect to commodity currencies are at least limited to the amount of such currencies they actually possess; these are, after all, the same groups that have complete control over the supply of fiat currency. Your options for controlling intervention in the money supply are exactly the same under a commodity currency as under a fiat one.

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