FBI
raids are certain to grab headlines. That can raise an ethical
question, though, if the possibility exists that the purpose of the
raid is for its intimidating effect as much as it is to grab
wrongdoers. Could this be the case in raids involving two e-currency
companies?
Business always moves faster than government ...
It's no surprise that a great deal of lawmakers' time is spent reacting
to advances in commerce and science. It's also no surprise that one of
their favorite tactics is to call on their enforcement agencies to
bring scrutiny against any topic about which they're struggling to
understand.
We're now seeing this applied against at least two e-currency operations.
One of them, INT Gold, saw their head offices in Texas raided by the
FBI in December. No arrests were made and no disclosures were presented
to indicate the reason for their actions. The only auspices mentioned
were that they were pursuing an ongoing fraud investigation. It's now
been over a month and nothing further has happened.
At roughly the same time, e-Gold was also served with a search warrant.
It seems the justification was petty --- they allegedly didn't have a
'required' currency-exchange license --- and they were upset enough to
place the following posting on their website:
e-gold® welcomes US Government review of its status as a privately issued currency January 20, 2006
"Starting in mid-December 2005, Gold & Silver Reserve, Inc.
(G&SR), contractual Operator and primary dealer for e-gold, has
been the subject of a warranted search of its premises and records, had
its domestic bank accounts frozen, and been the target of a precisely
timed, extraordinarily misleading attack by a major business
publication.
"In an emergency hearing in US District Court January 13, 2006, the
freeze order on G&SR's bank accounts was lifted. Though numerous
criminal claims had been made in obtaining the search and seizure
warrants, the Government has not sustained these allegations and the
only remaining claim is a contention that G&SR has operated as a
currency exchange without the proper license. G&SR had previously
proposed to the Government that e-gold be classified for regulatory
purposes as a currency, enabling G&SR to register as a currency
exchange. In a Treasury report released January 11, 2006, however, the
Department of Treasury reaffirmed their interpretation of the USC and
CFR definitions of currency as excluding e-gold.
"G&SR, for nearly a year, has been engaged with an agency of
Treasury in a BSA (Bank Secrecy Act) compliance examination it had
voluntarily initiated. G&SR, though preferring that the venue was
not a courtroom, welcomes the opportunity to extend its discussions
with the Government on how best to achieve appropriate statutory or
regulatory cognizance of e-gold while continuing to build e-gold's
market share as a medium of international commerce.
"Despite the unfounded charges and adverse misleading publicity that
have severely damaged both e-gold and G&SR, G&SR has continued
to meet all financial obligations and remain completely operational.
e-gold remains highly committed to its goal of bringing, for the first
time in history, to people of any financial means across the globe, a
secure payment mechanism at a fraction of the cost of any other system.
e-gold fully expects to transcend the unfortunate events of the past
month and resume its exponential growth.
"Further information can be found at:
www.e-gold.com
www.omnipay.com
www.treas.gov/press/releases/reports/js3077_01112005_MLTA.pdf"
The proactive approach by e-Gold should be applauded. INT Gold should have done the same thing.
If more of the public only knew how many times search papers were
served on financial institutions for one reason or another, they'd no
doubt be as skeptical as I am about the publicity the authorities have
given their actions against these two e-currency companies.
Let's consider how authorities move against major banks when wrongdoing
is suspected. One characteristic which becomes quickly evident is that
any releases issued by the investigating authorities have always been
very specific in their nature, because major banks have enough
financial and political clout to strike back at anything less.
An example of a precisely identified transgression is the Citigroup
private banking scandal in Tokyo in 2004. The Japanese authorities said
the bank helped clients manipulate accounting records through improper
real estate transactions, failed to process tax refunds for clients and
mismanaged customers’ confidential information. As a result, they
ordered Citigroup's Japanese private banking operations to close, but
took measures to ensure all unaffected investors would be minimally
affected while they moved their accounts.
Rarely, total loss to depositors happens. The Silverado collapse in
Colorado sent Charles Keating to prison for what should be a thousand
life terms, as more people than that lost their life savings. It's
notable that this occurred in what was a laissez-faire junk bond
scenario.
Raids only receive mention when it serves the authorities' purposes to
do so. One reason for this is because the searches and/or seizures
don't yield sufficient results to merit charges being filed. There can
exist a vast gray area in modern financial activities, and when the
fine print of a certain situation is scrutinized, it often occurs that,
perhaps those activities have sailed close to the legal wind, but they
did not take the airs of disrepute.
It remains to be seen what they're investigating at INT Gold. As
opposed to their treatment of major banks, the nature of the
authorities' announcement of this raid was quite vague, which I'm sure
was by design. So, the issue is one of whom they were attempting to
stir. However, American law says the parties involved are innocent
until proven guilty, so they should duly be accorded that right. Until
the entire story comes to light, it's improper to cast aspersions.
After all, as with most raids at major banks that go unpublicized, it
may be that the transgressor is not the company, but a client who has
abused its privileges within that company's facilities.
The e-currency investigations are surely a result, in part, of one
government's indecision as to how to regulate e-currencies within their
borders when those currencies are neither fiat nor necessarily
domiciled within those borders.
This reminds me of broadcasting's early days, when the Feds were
perplexed about how to best cope with radio signals that only obeyed
the laws of physics and thus had the ability to cross state lines
without governmental permission. As ridiculous as that sounds today,
the thought of a particular technology being more advanced than
political and/or geographical delineations was of deep concern to them.
It ultimately took nearly 15 years for the American government to
create the Federal Communications Commission to cope with such an
'advanced' business as interstate broadcasting.
Given the fact that e-currencies are privately generated and
administered, and given that no central monitoring system exists to aid
in their regulation, it is no surprise under the current environment of
American laws to now see a bustle of authoritarian attention directed
toward them. Until they are able to determine a palatable policy, the
best they can do is assume a self-righteous position in the interests
of 'consumer protection' and cast aspersions by means of
rationalization. It's not particularly fair, but as we've seen in
related online forums, it's quite effective.
Hopefully, the issue will be settled in a much more expeditious manner than it was in broadcasting.
