Justice, Policing, and E-Gold

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The criminal case of E-Gold, an internet company that allows users to make exchanges using gold as currency, highlights basic questions about both justice and the proper scope of policing.

America is very far from being a free country. Indeed, America is moving in the opposite direction. At some point — and I, for one, would say that point is now — the U.S. becomes a police state or, at the very least, a "soft" police state.

The E-Gold case dramatically illustrates the lack of monetary freedom in the U.S. and many other countries with similar laws. A person with monetary freedom can transact in any currency of his choice with anyone else willing to transact in that currency. He can transmit any amount of money in any form he wants to use to any place in the world where another party stands ready to accept it. A free person can use any available method of transmission to transmit the medium of exchange of his choice.

With monetary freedom, legal tender does not exist. People choose the media of exchange that they prefer to use, and no authorities force them to use the dollar, the euro, the won, the yen, the rupee, the renmimbi, the ruble, or any other money. They can use cowrie shells if they wish (used widely in Africa until the 20th century). Dr. Roger McCain writes that "The colonies were required to use European money, and they did — but when the European monetary systems collapsed in hyperinflation, the West African people went back to using their cowrie-money to get past the crisis. It was the cowrie-money that proved most reliable for many years of the twentieth century."

Monetary freedom also entails freedom for those in business who deal in money. They are free to provide the service of privacy to their clients who want it. Monetary freedom means that businesses are not compelled to spy on their clients. It means that they are not forced to report transactions to the authorities, and that they are not compelled to become part of a network looking for activities that the authorities have deemed to be suspicious. Monetary freedom means that if a business service permits it, a person can withdraw or deposit any amounts in any form he wants to without being subject to the prying and spying eyes of the authorities who have forced the business into being part of their police apparatus.

All of this can be re-stated in terms of rights. A free person has the right to choose the medium of exchange (money or currency) that he prefers. He has the right to choose any form of currency or money he prefers. His rights are being invaded when the State compels him to use a national currency, like the dollar, or not to use a currency like gold. His rights are being invaded when he is forced to accept a particular kind of money in transactions. A free person has the right to send any amount of money in any form whatever to wherever he wants to. He has the right to send it in secrecy and privacy if he can find an obliging carrier or transmitter. Conversely, his rights and those of financial institutions are being invaded if those businesses are forced by the authorities or anyone else into inspecting and reporting upon his financial dealings. Businesses that cannot operate or get licenses unless they agree to become spies for the authorities are having their rights invaded. They are being subject to extortion by the State.

This is by no means a complete catalogue of what monetary freedom entails. It serves as an introduction to the case of E-Gold.

The E-Gold Case

On July 21, 2008, the U.S. Department of Justice released a document with the headline: "DIGITAL CURRENCY BUSINESS E-GOLD PLEADS GUILTY TO MONEY LAUNDERING AND ILLEGAL MONEY TRANSMITTING CHARGES."

Paragraph one noted "E-Gold, Ltd., (E-Gold) an Internet-based digital currency business, and its three principal directors and owners, pleaded guilty to criminal charges relating to money laundering and the operation of an illegal money transmitting business…"

The principal person involved is the company’s founder, Dr. Douglas Jackson, 51, of Melbourne, Florida. He "pleaded guilty to conspiracy to engage in money laundering and operating an unlicensed money transmitting business."

Sentencing is due on November 20, 2008. "Douglas Jackson faces a maximum prison sentence of 20 years and a fine of $500,000 on the conspiracy to engage in money laundering charge, and a sentence of five years and a fine of $250,000 on the operation of an unlicensed money transmitting business charge." Additionally, as part of the plea, E-Gold and Gold & Silver Reserve have "agreed to forfeiture in the amount of $1.75 million in the form of a money judgment for which they are joint and severally liable." On top of that, at sentencing, the companies also face a maximum fine of $3.7 million.

Questions

The case raises such questions as these. Did E-Gold violate the rights of others? Or have the monetary rights of E-Gold been violated?

Suppose that a department store has a restaurant, and suppose that several criminals transact business at a table while having lunch there. Is the store guilty of a crime? Suppose that criminals communicate using newspaper ads. Is the newspaper company guilty of a crime? Did it violate the rights of the criminals’ victims? Suppose that criminals communicate secretly using some advanced telephone or internet communications device. Are the manufacturers of that device responsible for the crimes that these criminals commit? Are internet providers guilty of conspiracy?

Suppose that a bank receives deposits from criminals. Is the bank responsible for the crimes these criminals have committed? Is it responsible for knowing its customers and for detecting those who are criminals? Is it responsible for reporting monetary transactions to the authorities?

Should racetracks, gambling houses, and internet gaming companies be required to report large money bets and large winnings? Should stores, auto dealers, and real estate agents be required to report large purchases for cash?

Should every company be made to detect and report possible criminal activities on its premises or among persons using its products or services? Should every company be made to monitor everyone with whom it deals in order to detect possible criminal activities?

Answers

A free person is certainly not free if he is forced into becoming a police spy. A person is not free if he is forced to monitor all the people and their activities that he encounters. The same statements hold for a business. If there is a law against dealing in drugs, that becomes a matter for the police, not a bank or a stock broker or a mutual fund, all of whom are being forced into reporting to the authorities.

Everyone has a right to his life, liberty, and property. To be forced into using one’s time, money, and property in order to detect possible criminal behavior is clearly an invasion of one’s basic rights. It is one thing to ask people to be on the lookout for a suspected criminal. It is one thing to ask people if they will post wanted posters, or to ask a business to donate some space to alert people to a suspected criminal. The voluntary cooperation of common people in finding and apprehending criminals is one thing, but compelling them to police one another is entirely a different matter. This is the difference between a free country and police state. The U.S. has crossed the line, and so have many other countries.

Another answer to all of these questions is panarchy. You choose your society, and I will choose mine. And they can co-exist side by side on the same territory. Societies that are without territorial control, living side by side, intermingling, are what panarchy is about. You practice your religion or none, and I practice mine or none. We live in the same town and there is no problem.

If you want to live in a society in which no one has privacy and everyone spies on everyone else, then do so. Your members can report on each other all they like. But you have no right to impose your restraints and dictates on those who think otherwise and choose a society in which their banks do not have to report large cash transactions to the police. You may want to reduce drug-taking and attempt to do so by imposing all sorts of police-state methods. You may launch billion-dollar wars on drugs and build a prison in each locality to house, feed, and clothe drug users, or you may execute them. But you have no right to impose your methods (or taxes or regulations) on anyone else who chooses a different society, although they may live on the east side and you on the west side of town, or even if they live on the west side too.

Tolerance is what panarchy is about, that is, tolerance by people of those who live across the social divides that they wish to make for themselves. Social divides need not be territorial divides. There is plenty of room for everyone and plenty of ways to accommodate the different ways of others without compelling everyone to live under one set of laws in this vast region we call the United States of America. You may be as intolerant of drug-users as you like to all those within your society who have agreed to that intolerance, but you may not extend your intolerance to my drug use within my society and my ability to buy drugs without a doctor’s prescription or to my having them administered by an alternative healer of illness.

Is Dr. Jackson guilty of a crime?

The fact that Dr. Jackson pleaded guilty does not answer the question of whether he is guilty of a crime. He was forced into a corner. He is seeking to continue the company he began 12 years ago. He is revamping it to comply with the State’s edicts. A guilty plea was his least-cost choice, in his estimation. Dr. Jackson’s statement can be found here. It is a complete cave-in to all the demands of the State.

E-Gold was not a fly-by-night business. Its customers did not bring about the criminal indictment. It was not customer complaints about missing gold, embezzlement, theft, or poor service that brought on the indictments. E-Gold did not steal anything from anyone. If it has, why hasn’t the DOJ trumpeted that? However, the criminal complaint did have a large negative effect on E-Gold customers who encountered illiquidity in their accounts.

The Department of Justice [sic] news release goes on at great length about the supposed crimes that Dr. Jackson committed. In fact, the document suggests to me that the company committed no crimes at all! If it did commit crimes, did the victims appear in court? Did they document their damages?

If Dr. Jackson actually committed a crime, what was it? The fact is that he pleaded guilty to the nebulous crime of conspiracy to engage in money laundering. This only means that other people used E-Gold to transmit funds possibly obtained via illegal activities and that E-Gold was not equipped to detect who they were and report them. What kind of cockamamie crime is it when one fails to kowtow to the State’s edicts compelling one to work with the authorities to detect money laundering? For that is what is involved in the other conspiracy charge. I quote the DOJ: "E-Gold…will move to fully comply with all applicable federal and state laws relating to operating as a licensed money transmitting business and the prevention of money laundering which includes registering as money service businesses. Also as part of the plea agreement, the businesses will create a comprehensive money laundering detection program that will require verified customer identification, suspicious activity reporting and regular supervision by the Internal Revenue Services’ (IRS) Bank Secrecy Act Division…"

Dr. Jackson has pleaded guilty to the crime of not verifying who his customers were, not making sure that they were not criminals, not creating a comprehensive program to detect money laundering, not detecting and reporting suspicious activity, and not operating under the supervision of the Bank Secrecy Act Division of the IRS. In other words, he didn’t become part of the State’s spying apparatus, and that makes him and his operation a criminal conspiracy. The crime here is not the commission of a crime. Instead the State is demanding that you do what it tells you, and if you don’t, then that is a crime. If you stand up for your rights and do not obey the State’s demands, you are a criminal!

Conclusion

In Wikipedia, we read: "The Bank Secrecy Act of 1970 (or BSA, or otherwise known as the Currency and Foreign Transactions Reporting Act) requires U.S.A. financial institutions to assist U.S. government agencies to detect and prevent money laundering. Specifically, the act requires financial institutions to keep records of cash purchases of negotiable instruments, file reports of cash transactions exceeding $5,000 (daily aggregate amount), and to report suspicious activity that might signify money laundering, tax evasion, or other criminal activities. It was passed by the Congress of the United States in 1970. The BSA is sometimes referred to as an “anti-money laundering” law (“AML”) or jointly as "BSA/AML". Several anti-money laundering acts, including provisions in title III of the USA PATRIOT Act, have been enacted up to the present to amend the BSA. (See 31 USC 5311-5330 and 31 CFR 103.)"

The rest of the article introduces the reader to the reporting requirements under these laws.

These laws infringe the monetary rights of all persons who either are made to obey them or who are forced to transact under the watchful eyes of financial institutions that are applying these laws to their persons and property.

These laws are one of the very many instances of the abysmal and wretched failure of Americans to have monetary freedom. Many other countries are in no better shape.

We have major laws that openly violate the rights of people. I protest! If I disobey one of these laws, then I am a criminal under these laws. If I am caught, then I will pay a price for my disobedience, that is, for exercising my rights. That is what happened to E-Gold. It’s a topsy-turvy world.

Michael S. Rozeff [send him mail] is a retired Professor of Finance living in East Amherst, New York.

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