The Hindu Business Line : Gold's the bait

THERE is not a dull moment in cyberspace. Each day heralds the arrival of a new form of misuse of the Net that dampens many of us who would like to surf purely for exploring the frontiers of knowledge in the broad disciplines of science and technology or for communicating with our friends across the globe.

The ease with which this powerful medium is violated by those whose main goal in life is to make a quick buck demands immediate action to eliminate at least a few of its infirmities.

Against this background comes a significant meeting of the newly formed Internet Governance Forum (IGF) in Geneva during February 16-17. An offshoot of the World Forum for the Information Society held in Tunis last year, the IGF is expected to provide a meeting place for a "multi-stakeholder policy dialogue."

The IGF's focus will be on public policy issues connected with the Internet, especially on how to make it more easily accessible and more secure from the designs of criminal gangs to whom it offers mind-boggling opportunities to plunder and exploit the honest citizen's resources.

Many individual users of the Net like you and me will, however, be extremely concerned over how the IGF will help to protect our credit cards and bank accounts from falling into the wrong hands. We will also be interested to know whether the IGF will do something drastic to enable us to safely allow our children to surf without confronting Web sites that dish out prurient material.

The IGF has its job cut out for it if you consider the latest investigative report appearing in Business Week (January 9-16, 2006) that gives a graphic account of how suspicion veers around the millions of transactions involving digital currency. The more specific reference of the story is how a Florida-based company E-Gold, which claims to hold huge reserves of gold in London and Dubai, has wittingly or unwittingly — an FBI investigation is yet to come out with findings — helped cyber crooks to transfer large sums of money earned through crime. This account of a novel misdeed on the Net is most fascinating, and I thought I should share it with my readers. In doing so I must acknowledge my debt to Business Week.

The modus operandi

Many of us, especially those in India, have been traditionally enamoured of the yellow metal, not merely for the prestige attached to it, but also for the stability it gives our savings in a world where gold prices rarely dip. While we would normally like to buy or get jewels made of gold, what E-Gold does is to sell us units of gold that can be used to pay for our purchases.

After opening an account at www.egold.com under a real or fictitious name - there is hardly any check on the genuineness of the name given — payment for the units is through credit card or wire transfer. This is basically an Internet payment system, which provides for converting "conventional money into a Web currency."

Also, units can be transferred online with absolute ease to other e-gold accounts. The whole ambience reeks of secrecy and permissiveness, and it provides the best sanctuary for those with large sums of unaccounted money.

The charm for those who want to hide their resources is that E-Gold and other companies, which peddle digital currencies, is the belief that they do not fall under the definition of financial institutions. As a result, they escape the stringent self-monitoring rules provided by legislations, which control banking activities.

One such law is the Patriot Act of the US passed after 9/11 and whose focus is to cut at the roots of terrorist financing. This angle of the operations fostered by E-Gold and similar outfits is of great significance to us in India, as we are still plagued by deadly groups from across the border. We need to know how they are financed, even if they do not need extraordinary amounts of money to launch attacks like the one at the Indian Institute of Science, Bangalore.

On December 19, 2005, the FBI and Secret Service raided the offices in Melbourne (Florida) of Gold&Silver Reserve Inc, the parent company of E-Gold and the home of the latter's founder, Douglas L. Jackson, an oncologist-turned-entrepreneur. While no clinching evidence of misdemeanour has yet been unearthed, the report that E-Gold figures in several other probes as well raises more than a hint of misdeeds.

Apart from facilitating money laundering, E-Gold could help finance crimes such as murder and kidnapping without leaving much of a trail. The possibility of bribes to public servants being paid through this medium cannot also be ruled out.

All speculations about E-Gold and other firms in the digital currency business are far from imaginary. There are specific instances of misuse by shady characters who strut the world of international crime.

The Business Week report refers to a Omar Dhanani of Fountain Valley,California, connected with a 4000-strong international crime syndicate called the ShadowCrew. Dhanani is an E-Gold customer and is said to have moved, in the past, amounts ranging from $40,000 to 100,000 a week from proceeds of crime, including identity thefts.

Money orders received from accomplices were paid by him online into e-gold accounts. There are also reports that people who access child pornography sites pay through E-Gold units so as to protect themselves from the eyes of law enforcement. Similar modes of payment have come to notice in connection with investment scams that offer huge returns.

I must acknowledge — as my readers would also do — that the Business Week report is an eye-opener to many of us. It should provide food for thought to our own enforcement agencies struggling to plug all tax loopholes. My concern, however, is how to prevent the Internet from being converted into a haven for those with a criminal mind. I know that this is an unremitting battle that has somehow to be won if we want the Internet to be a purveyor of healthy knowledge to improve our quality of life.

The writer is a former CBI Director who is currently Adviser (Security) to TCS Ltd.

Picture by P.V. Sivakumar

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