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Thursday, July 24, 2008

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!


gilliganscorner said...

They probably plead guilty as they were offered a cushy position in the CFR sanctioned Peter G. Peterson Foundation to promote the I.O.U.S.A movie that is coming out in August. They already snagged David Walker, former GAO chief.

The CFR is looking to hijack the solution to the imminent US bankruptcy by moving into position as the State sponsored think tank for people to look to for the solutions.

You can bet the solution won't be to eliminate the taxation/inflation system (i.e. State) and return to sound money. Sometimes I think that the Ron Paul campaign woke too many people up to think about the Federal Reserve and IRS and pretty much recommended abolishing government.

This PGP foundation will look to suppress the correct solution nad hijack the solution which will of course, expand the State.

This is analogous to the movie "An Inconvenient Truth" where this movie hijacked the solution to the environment by expanding more State department and levying new environment taxes...

Anyway, I have post about that queued up.

Good post, FSK!

barry b. said...


I wanted to share this with you. Today a reader at my blog left the following comments to my article "Dave Ramsey, Peter Schiff and Decline of U.S. Economy" and I left a response. Thanks for this post...

From Ian Macfarlane:

"As my old neighbor is want to say “very interesting” I don’t know but am aware of both the players on this stage. From my own experience I must concur with them both, more so with Mr, Schiff at this point in time than Mr.Ramsey. As a family we have retired all of our debt and invested in physical metals. I cannot express optimism in our nation’s financial structure as it does not exist on any real foundation. Wal-Mart, Costco and Target do not provide the underpinnings of a financial pier from which goods will be shipped to quell the demand of other nations. It is all well and good that the USA has a great deal of wealth but the uneven distribution of the wealth is what will eventually bury our and any future culture which does not accept social homogenization as a survival tool. Socialism? Perhaps it is the only way we can reasonably deal with a planet of 6.5 Billion people. All but the mentality of the Wild West has been dead for a long time and it is time we stopped worshiping political cowboys. If not the OK corral will look tame in retrospect, if anyone is around to remember."

Debt Prison response:

"Hey Ian,

Socialism? I say that word everyday with a curse under my breath and dream of a life where folks understand that a private individual has the natural rights to life, liberty, and property. And the collective force of government should never have the ability (not rights) to infringe on these rights as individuals - for if the government conspires to overrule our rights as individuals it is futile and useless. The world these globalists desire is a fabricated dream put forth by the rich elitist corporatists (think wal street). I can tell you are well read so I’ll speak up not down…

Today I read that E-gold plead guilty to money laundering. Does this surprise anyone? Here’s how I basically see the world before me: We have created a society that is not only unnatural - but immoral and irresponsible. We have all decided to accept this as reality because we cannot see how we, as individuals, can fight against so powerful an enemy. This is the war of humans, it is the never ending battle of natural rights versus the power of tyranny. The praise of limited government is always quickly over ruled by the whims and authority of those who possess the ability to buy off government officials.

Read the Declaration of Independence for a reminder of the passion of others who dared to stand up against the authority standard. They also adequately explained the natural rights that all humans desire.

I am not concerned about globalization or socialism. The schemes of rich and powerful men are always short lived. What makes you think today is any different. Just because we have television and internet does not mean that history will not repeat itself. Free men and women will stand up again against globalization, tyranny, and immorality - it’s only a question of when.

Thank you so much for your comments - they are my favorite of the bunch!!!

Best regards,

Barry Broome
The fire of liberty flows through my veins….."

Anonymous said...

The lesson to be learned here is that large-scale agorism will not be tolerated. Anyone providing solutions that make agorism widely practicable will be punished. The State has the guns, and they *will* use them, nothing is more important to them than a continuous stream of revenue.

That "Ball" Guy said...

decentralized agorism is in order. Like Wikileaks, the more it gets suppressed, the more it flourishes.

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