Digital currency firms face money laundering charges

A grand jury in Washington, D.C., has indicted two digital currency companies and their owners on charges of money laundering, accusing the companies of helping to fund illegal activities such as child pornography and identity theft, the U.S. Department of Justice announced Friday.

The four-count indictment, handed down on April 24 and unsealed Friday, targets E­Gold Ltd.; Gold & Silver Reserve Inc.; and their owners Douglas L. Jackson, of Satellite Beach, Florida; Reid A. Jackson, of Melbourne, Florida; and Barry K. Downey, of Woodbine, Maryland.

The defendants face charges on one count of conspiracy to launder monetary instruments, one count of conspiracy to operate an unlicensed money transmitting business, one count of operating an unlicensed money transmitting business under federal law and one count of money transmission without a license under D.C. law.

The DOJ also obtained a restraining order to prevent the defendants from unloading their assets, as well 24 seizure warrants on more than 55 accounts believed to be property involved in money laundering and the operation of an unlicensed money transmitting business.

The restraining order does not limit the E­Gold operation’s ability to use its existing funds to satisfy requests to exchange E-Gold into national currency for customers of non-seized accounts, or its ability to sell precious metals, the DOJ said.

E­Gold’s digital currency, called E­Gold, functioned as an alternative payment system and was purportedly backed by stored physical gold, the DOJ said. Customers seeking to use the E­Gold payment system were only required to provide a valid e-mail address to open an E­Gold account, and no other contact information was verified.

Customers could then fund their accounts in a number of ways and convert national currency into E­Gold. Account holders could access their accounts through the Internet and conduct anonymous transactions with other parties anywhere in the world.

The indictment alleges that E­Gold has been highly favored by operators of investment scams, credit card and identity fraud, and sellers of online child pornography. The defendants conducted funds transfers on behalf of their customers, knowing that the funds involved were the proceeds of illegal activity, the DOJ said.

The defendants operated the E­Gold operation without a license in the District of Columbia or any other state, and without registering with the federal government, and thereby violated federal and state money transmitting laws, the indictment said.

The conspiracy charge in the case relating to money transmitting, and the federal violation of operating an unlicensed money transmitting business, each carry a maximum sentence of five years in prison. The District of Columbia Code violation for money transmission without a license carries a maximum sentence of five years. The conspiracy charge relating to money laundering carries a maximum sentence of 20 years in prison.

The case is being investigated by the U.S. Secret Service with the assistance of the Internal Revenue Service and the Federal Bureau of Investigation.

The IDG News Service is a Network World affiliate.