E-Gold Founders Plead Guilty to Money Laundering

This article was interesting (via Hacker News). The founders of E-Gold pled guilty to Federal criminal charges of money laundering. They also wrote a post on the E-Gold blog.

At one time, eBay accepted auctions conducted in E-Gold. Under pressure from the IRS, eBay stopped doing this.

E-Gold was an alternate monetary system based on gold. Customers could purchase gold with fiat money and make transfers to other people. Withdrawals could be made, converting the gold back to fiat. It was an alternate monetary system that provided privacy and flexibility. It was a cheap and convenient way for individuals to invest in gold and protect themselves from inflation.

This made E-Gold a big target for State violence. People may not easily protect themselves from inflation. People may not have the ability to make anonymous financial transactions. That would wreck the State's taxation system and monetary monopoly!

A flexible alternate monetary system also will be used by criminals. Many "free market" activities are fraudulently declared to be crimes. E-Gold was attractive to people who desired privacy. E-Gold was also attractive to people who wanted to conduct economic activity that is fraudulently declared to be a crime.

There is a very disturbing legal concept applied here. A business is responsible for what its customers do. This is a corrupt legal concept.

For example, suppose I set up a gold/silver off-the-books barter network. If some of my customers happen to be marijuana farmers, then I'm guilty of facilitating money laundering and drug dealers. Why should I be responsible for what my customers do? It's a huge hurdle to overcome when starting a business, if you're personally liable for everything your customers do.

Similarly, bar owners are held responsible if their customers sell drugs or prostitution, even if the owner was personally unaware of the activity.

Consider Google's problem with Viacom and YouTube. Due to corrupt copyright law, Google is liable for content uploaded by customers. You cannot create a video sharing website where anyone can upload anything, because the site operator is liable in cases of copyright violation or child pornography.

As another example, suppose a drug dealer goes into Wal-Mart and purchases a television with drug money. Is there a public outcry that Wal-Mart needs to guarantee that its customers aren't criminals? Suppose you buy blank DVDs in Wal-Mart and use them to copy movies. Is this Wal-Mart's responsibility? Once you accept that businesses are sometimes responsible for crimes of their customers, this allows a very flexible standard of justice.

I don't understand why E-Gold's founders pled guilty. They're probably going to spend 5-20 years in prison. If they refused to plea, would they have been stuck with life in prison? The laws they are accused of breaking are very flimsy and poorly defined. Why did they cave so easily to pressure to plead guilty? Why not make the State prove its case in court? In many ways, a trial is a crapshoot. The trial would have been heavily biased in favor of the State. The penalty of 5-20 years in prison is pretty stiff, so why not challenge it in court?

In this earlier post, they were much more outspoken regarding their belief in the illegitimacy of the terrorists' action. Why did they change their stance?

Although not accompanied by an outright letter of marque, this commission (the financial equivalent to double ought status?) would appear to be an acknowledgement that e-gold's 'Know Your Customer' prowess far exceeds that of any regulated financial institution, who would be obliged to rely on court orders or other legal writs to determine if freezing an account is warranted.

In other words, a regular bank is only required to freeze a customer's assets when receiving a court order. E-Gold has a blanket responsibility that covers everything their customers could possibly do. E-Gold is not being placed under the same scrutiny as a bank; E-Gold is required to have stricter compliance than a bank.

On the other hand, most regular banks have procedures for automatically reporting practically every transaction to the State. There is a penalty for failing to report, but no penalty for reporting everything, so banks go overboard and report everything.

Concurrent with this latest attempt to knock e-gold Ltd. and G&SR out of business and thereby effectively deny them due process, the government also attacked other prominent exchange services that deal in e-gold; IceGold, The Bullion Exchange, Gitgold, Denver Gold Exchange, AnyGoldNow, and Gold Pouch Express, plus a sophisticated and secure alternative payment system called "1MDC".

Practically every E-Gold vendor has been raided by terrorists.

This is the problem with punishment-based justice. E-Gold's founders were operating a business that appeared to be reasonable. It was popular and used by a lot of people. Are they really criminals?

On the article on E-Gold's blog, they indicated the laws they were accused of violating.

18 USC 1960 [Operation of an unlicensed Money Transmitting Business] and 18 USC 1956 [Conspiracy to Commit Money Laundering]

I don't see how they can be accused of conspiracy to commit money laundering. Their customers were misbehaving, not them. I also don't see how this is an unlicensed money transmitting business. Gold is not legally recognized as money! (However, the feature to redeem gold for fiat money could be considered to be money transmitting.)

Both of these laws are illegitimate. What exactly is money laundering and why is it a crime? Why do you need a State license to operate a money transmitting business?

The cost of complying with all the laws and regulations will wreck E-Gold's business. I can't profitably set up my own E-Gold business, because I'd have to spend millions of dollars to ensure I'm in compliance with the regulations.

I also found this post interesting, regarding the seizure of their gold. It's unclear if they will win that lawsuit.

It appears that E-Gold will continue to exist, but all transactions will be reported to the State, limiting the usefulness. The cost of regulation compliance will lead to higher fees for E-Gold users. The regulatory burden will prevent new competitors from emerging. Compliance with all the regulations will make E-Gold unattractive to customers.

It's also unclear how many of E-Gold's users were criminals and how many were legitimate users. According to they hype, almost all of E-Gold's users were criminals. If you provide a service that is useful to 99% legitimate users and 1% criminals, then are you really doing something bad? Also remember that many free market activities are fraudulently declared to be crimes.

The bottom line is that an alternate monetary system must be completely decentralized and off-the-books, in order to have a chance of succeeding. If you try operating an alternate monetary system as a fully legal business, you will be shut down by State violence. There are too many laws and regulations that must be followed.

I reject the idea that a business is responsible for what its customers do. If you're providing an information service or banking service, then you should be not responsible for what each of your customers do. Such laws are selectively enforced.

There was one interesting bit about the story. It took many years for the government to conclude its investigation and criminal case. Government moves slowly. If agorists are nimble, an agorist revolution will be well underway before the State moves to crack down. Suppose I become a public advocate for agorism and it takes 5 years before I'm the victim of State violence. By that time, there will be too many participants and it will be too late.

It's ridiculous to call E-Gold a "money laundering operation". The Federal Reserve and financial industry are themselves one huge money laundering scam, except it's perfectly legal!