Owners of e-Gold charged with money laundering, Sophos comments

April 30, 2007 Sophos Press Release

e-Gold
The Department of Justice has indicted e-Gold.

Online digital currency business e-Gold has been indicted by a federal grand jury in Washington, D.C. The company and its owners have been accused of running an unregulated financial network that catered to criminals moving money.

Founded in the 1990s, e-Gold allows users to move monetary funds across the internet by transferring ownership of gold bars. A user can move money on the internet simply by transferrring a tiny amount of gold to another user's account instantly, and e-Gold earns a commission on each transfer. Unlike credit cards, e-Gold transactions are non-reversible and all transactions are final.

According to a statement by the Department of Justice, the indictment alleges that the owners of e-Gold allowed their service to conduct fund transfers despite knowing that the money being moved was the result of illegal activity such as credit card and investment fraud and child exploitation. The indictment further alleges that e-Gold was operating without a license and without registering with the federal government, violating money transmitting laws.

"E-Gold has drawn criticism in the past because it has been claimed the company does not do background checks on people applying for accounts, and it's too easy to create an account in a phoney name," said Graham Cluley, senior technology consultant for Sophos. "Criminals may have been attracted to use systems like e-Gold for illegal ends because of the anonymity provided to them compared to high street banks. It is essential that online digital currencies work within the law, assist authorities with their enquiries, and work hard to ensure that their money transfer systems are not being used by cybercrooks."

Accounts connected with the alleged illegal activity have been frozen as part of the investigation.

The US Secret Service is investigating e-Gold and its owners Dr Douglas L. Jackson, Reid A. Jackson and Barry K. Downey, with the assistance of the Internal Revenue Service and FBI. The money laundering conspiracy charge carries a maximum 20 year prison sentence.

Experts at SophosLabs™, Sophos's global network of threat research centers, have identified many instances of malcious code designed to steal usernames and passwords from e-Gold customers and email scams inviting people to transfer money to criminals via the system. For example, a year ago Sophos identified the Zippo-A Trojan horse that encrypted victims' computer data, and then created another file informing the victim that they needed to pay $300 to an e-gold account in order to recover their files.

Last year, BusinessWeek published an investigation which claimed that e-Gold was becoming the currency of choice for cybercriminals.