The three executives in question, Dr. Douglas Jackson, principal director of E-Gold and CEO of Gold & Silver Reserve Incorporated, and two of his senior directors (Barry Downey and Reid Jackson) pleaded guilty to conspiring to engage in money laundering and operating an unlicensed money transmitting business.
The corporations involved (E-Gold and Silver Reserve) face a fine of $3.7 million and have already agreed to pay a judgment of $1.75 million. Jackson faces up to 20 years in prison and a fine of $500,000 and Downey and Reid face a maximum of 5 years in prison and a $25,000 fine.
Anonymous means of transmitting money are favorite ways for criminals to conduct illegal business and scam people. In the current case, the Department of Justice charged that the criminal activity included investment scams, credit card fraud, identity theft and even child exploitation.
They did mention that E-Gold assigned employees to monitor accounts for fraud, but the employees allegedly didn't have any previous experience in dealing with illegal activity.
Another article in PC World about this story pointed to a blog post, where Douglas Jackson announced some new security procedures to verify their customers and prevent fraud. No new accounts are being opened until they can find out an "interim means" of verifying who their customers actually are. Also mentioned in the blog post was that a systems design flaw made it difficult for them to get rid of a user, effectively. The logic behind this seems to be that if one account was blocked another one would be opened. Please note that with all kinds of free e-mail accounts -- which was the only requirement to open an E-Gold account -- it wouldn't be very hard for a criminal to simply move on to another e-mail address if they got caught committing fraud.
It will be interesting to see how they plan to verify customers over the Internet.
In 2006, BusinessWorld reported that the ShadowCrew -- a 4,000 strong credit card fraud and identity theft ring operating in carder forums on the Internet -- used E-Gold to launder some of their proceeds.
To anyone familiar with crime on the Internet, allegations of criminals using, or manipulating E-Gold (or other services like these) are nothing new. E-Gold gives their customers the ability to transfer the value of gold, electronically. To transfer E-Gold -- which has a cash value -- all anyone needs is an e-mail address, account number and password.
E-Gold type accounts are also prone to take-overs. This normally occurs when account numbers and passwords are stolen via what is known as phishing and the account is taken over by a fraudster. After a crook compromises the account in this manner, they simply transfer the gold, elsewhere. Phishing is accomplished using social engineering or sometimes with the help of malware (crimeware) that automatically steals all the information from a system using keylogging software.
Please note from what I've heard, people are never made whole (compensated) after this happens to them. Once the money is transferred, there is little or no recourse to be had by the account owner. Interestingly enough, E-Gold spins this as there are no chargebacks to worry about. Chargebacks occur when a financial institution discovers a financial instrument was used to commit fraud and the transaction is charged back to the merchant.
So far as the money laundering aspect, a anonymous service such as E-Gold can be used to move the proceeds of all sorts of crimes. People are known to be duped in job scams to launder money using a service like this. In cases like these, they are taking all the risks for a small portion of the rewards.
In most instances, anyone who gets involved in one of these scam activities is going to at the very least lose their shirt in the process. Of course, they can also get arrested.
The best thing to do is to be extremely careful when someone offers you riches, or "gold" over the Internet. There is a difference big between real gold and what is known as "fools gold."