Part Two: E-gold® And Right Turn on Red

I left these questions open to discussion.

How was it possible, after a decade of Internet changes, terrorist attacks on the US, the new Patriot Act regulations and a massive e-gold indictment....how was it possible that this kind of criminal activity was still taking place using the e-gold system? This is a huge question. As an American you might also be asking these questions:

1. Why are the e-gold operators still allowing this to take place? Isn't it their responsibility to dictate to all users how their digital units can be used? Why don't they prevent it?
2. 
   
3. Why hasn't someone from the government stopped this crime, surely there are laws to prevent this kind of activity?"
4. 
   
5. Why wouldn't the owners of the company move to add customer identification and try to prevent stolen cards being sold with e-gold? I'll bet this type of crime does not happen to MSBs like Western Union agents.
   

If you are reading this, you have to admit, these seem like very valid questions. Questions such as these are posed to me every week.

Even if you take a close look at the other DGC industry leaders the companies have customer verification policies and AML polices in place: Crowne Gold--Strong KYC & AML policy one of the best I've seen, GoldMoney very solid CAP policy compliant with one of the world's largest banking jurisdictions and their policies are a model for the industry, e-Dinar has a very strict KYC customer verification and AML policy compliant with Dubai where they are located, PhoenixDollar has a strict US KYC policy I know and they operate as a MSB. All of these online companies offer very legal businesses and they are all doing their best to combat any misuse of their systems. Perhaps the Washington Post should report that fact.

It is still a very valid question, how is it possible that the e-gold business model did not change over the past decade and does not require any type of this customer verification...after all they have been through? That is the question of the year.

Please, slow it down a notch and take a much closer look at the type of operation that www.e-gold.com operates and we can also compare it to the above industry competition.

1) Unlike PayPal, e-gold is NOT a payment processor. E-gold and does not accept funds. The e-gold Ltd.company does not have a bank account and most importantly e-gold does not transact ANY business directly with the retail public. When you open an account with PayPal, the account opening entry of data into your PC is like e-gold. You type in your name, address and some information... you go to the companies web site and type in your information but this is where the similarity ends.

To add funds to your PayPal account, US customers are sending US dollars (national currency) across the US banking system directly to www.paypal.com. PayPal account holders fund an account via a credit card (issued by a bank) or using a bank account both of which are regulated by US banking laws. PayPal is directly connected to the banking system and thus regulated by the existing laws. Does anyone disagree? This point, well it's very obvious to everyone.

Yet e-gold is 100% different in this regard. In total contrast, account holders CAN NEVER never send any national currency directly to www.e-gold.com (e-gold Ltd.). As I said above, they don't have a bank account and can't even accept $1 in customer funds. This is a major, major difference from PayPal which is an online payment processor of credit cards and bank wires.

With PayPal you are utilizing a Federally controlled and regulated banking system. All transactions between customers and a PayPal account are completed directly with PayPal. By their terms of service customers can never complete a transaction using a third party. PayPal is right smack dab in the middle of the customers' dollar path and a part of the regulated financial loop. There is no way to transact with PayPal without directly working through the federally regulated dollar or other national currency system. End of story, and big difference, PayPal works directly with the banking system and e-gold has no connection what-so-ever with any bank. E-gold created a private accounting system hosted on a private servers with no connection to any regulated banking industry. How can any regulator say, they need to police their account holders prior to any transactions? These are totally private digital units circulating 100% outside of any bank, they are not regulated like a bank.

All of the industry competition, Crowne Gold, GoldMoney, e-dinar and PhoenixDollar accept funds like PayPal, directly from customers. All of these companies have bank accounts and all of them operate connected to the banking system. As an example, if a customer funds a GoldMoney or e-dinar account the transaction is identical to PayPal. The account holder sends the funds directly to the GoldMoney or e-dinar company bank account. All customers are sending a national currency over the highly regulated banking system which we all know for the safety of the public, requires identification and the anti-money laundering policy. This is not up for discussion, it's the norm.

There is NO such national currency transaction possible with an e-gold account. Please read that statement again, e-gold is not connected to any national banking system and does not accept funds, payments or deposits.

2) The e-gold system is simply a closed end accounting program. It's a privately hosted, accounting program. There is no direct connection to the regulated banking system. The daily operations at e-gold are simply moving digital units from one account to another. As a closed system, it's also important to note that customer funding of an e-gold account does not create new digital units. Selling e-gold does not destroy any digital units they just move from one account to another.

If you send money to PayPal, you are creating digital value in your account that was not there the day before. PayPal takes deposits of national currency from customers. e-gold does not! A PayPal customer deposit creates new digital units and the banking reserves which 'back' PayPal fluctuate all day long up and down as customers move their money in and out of the system. The PayPal system accepts deposit through the highly regulated banking industry, then creates digital units while maintaining national currency deposits on behalf of customers. That is the total opposite of the e-gold closed system.

As a closed system a customer cannot create anything. The account holder can only accept for deposit existing digital units from another user. The customers don't send deposits into e-gold and e-gold does not maintain national currency deposits on behalf of any customer.

When a customer receives digital units into their account, they originated them from another existing account, no new units were created, your transaction was a one for one swap with another account. Each day all the customer transactions taking place at e-gold are simply moving digital units from one account to another...no customer transaction is permitted to create value. E-gold operations are simple, if you start the day with 1 million units and they move back and forth 100 times between 1000 accounts, you still end the day with 1 million total units. This is a simple accounting program and Dr. Jackson has figured a sharp way to back the digital units with gold so all transactions are free from default risk. It is not a payment processing business like PayPal and not customers deposits are ever accepted.

I don't understand how anyone in the world, could ever begin to compare PayPal with e-gold. The differences are very large and very clear.

So 'banking' systems, that accept national currency and transact business through regulated banking channels such as the Fed wire system, are required to be regulated with AML and KYC policies. Everyone agrees with this policy. A closed end private accounting system, that does not transact ANY national currency EVER, simply moves units from one account to another for their public customers....why would they have to actively police their users? How can anyone say, these private digital accounts need to verify their customer's ID and home addresses, this ain't a bank! There is no law or regulation on any book anywhere, that currently specifies a private online accounting system with no bank connection and no deposits from customers they are required to follow existing banking laws. Most may argue, it's just good practice to follow the 'spirit of the law' and mirror a regulated financial institution...but it's certainly not required here.

Western Union moves all funds via the Fed wire system. If I send $100 to my wife's second cousin in Russia or my ex wife in Michigan, both transactions are transmitted over the Fed wire system, a regulating banking system. Herein is the requirement for ID, the AML policy and and some additional verifications. These are of course in place to protect us all, it's the norm and I'm sure everyone reading agrees on this one.

All transactions on the e-gold system are done on a private web server there is NO connection to any national currency banking system. Even the gold bars held by their trust agent are located in non government insured vaulting services. There is no FDIC for the gold backing an e-gold account. Those are not in a bank either!

There is NO banking connection, no national currency, no transactions crossing any government controlled banking system. How about the previous questions?

Q) Isn't it their[e-gold] responsibility to dictate to all users how their digital units can be used?

A) NO, e-gold is not required to police users as other payment processors online because of all the reasons stated above. If they choose to...that is their policies.

Q) Why hasn't someone from the government stopped this crime, surely there are laws to prevent this kind of activity?"

A) NO, there are not yet laws on the books to regulate a closed end private system. NO, AML and KYC regulations do not apply to a home made, closed end accounting programs that are NOT in any way connected to the banking industry. It's pretty simple, when you look at this objectively: tomorrow, there could be 1000 new e-gold style closed end system web sites up and operating....none of which are connected to any banking platform and none of which accept national currency. In fact there are about a dozen others already in wide operation today, some even open source and you can have your own system tomorrow. Are regulators going to compare all of these to PayPal? That is a big waste of time and effort.

Outside the US, online systems are operated jurisdiction by jurisdiction and so far outside the US....the e-gold model is as strong today as the day it began operation.

Honestly, I see this everyday. I can take the e-gold software model, set it up on a server in Cyprus, Malaysia, Egypt, Panama etc. and operate this closed end system legally and ethically anytime I want. There is not global regulations to stop this type of system and it is highly effective for global cross border transactions and commerce.

In the next article we'll take a look at the digital unit denomination of the DGC account, grams and Troy ounces. NOT dollars, yen or euro...not national currency....a digital unit backed by a commodity. How could this be considered "Money Transmitting" when no national currency is involved? Plus an answer will be put forth to in an attempt to answer the all important question number 3 above.

Comments appreciated

To be continued.