Jim Ray, vice president at Omnipay <http://www.omnipay.net/> -- the largest e-gold exchanger -- says he was aghast at a Secret Service raid directed at one of his competitors and customers.
"I think the case is an outrage," Ray said. "I think this is a symptom of too many donuts on the cops' part.... To me, this is a very serious business. They've just taken out one of my best market makers for no reason."
Still unclear is why the raid took place. French indicated that it could be more than a routine credit card investigation, saying "at this point, it's being investigated as a credit card fraud."
One possibility is a broader investigation directed at some users of e-gold, which is less anonymous than cash but more anonymous than credit cards. Former Treasury Secretary Lawrence Summers has warned <http://www.politechbot.com/p-01279.html> of malcontents using the Net and encryption to dodge taxes, and it's possible that the feds don't exactly approve of a system that's more privacy-protective than the heavily regulated banking system.
Current federal regulations require <http://wired.com/news/politics/0,1283,18821,00.html> banks and credit unions -- about 19,000 in all -- to inform federal law enforcement of all transactions $5,000 and above that have no "apparent lawful purpose or are not the sort in which the particular customer would normally be expected to engage."
Because e-gold is not a bank that lends money -- it's more akin to a warehouse that stores gold on behalf of its customers -- it's not covered by those rules.
Mike Godwin <http://www.panix.com/~mnemonic/> said the raid evokes memories of the notorious Steve Jackson Games raid <http://www.eff.org/pub/Legal/Cases/SJG/> by the Secret Service a decade ago, which led to the formation of the Electronic Frontier Foundation <http://www.eff.org/>.
"Why did they take the hardware?" Godwin asks. "If what they wanted was business records, why did they take the equipment in such a way that shuts down the business?"
"These people are presumptively innocent," said Godwin, an attorney who writes frequently about law and technology. "Even if they are subjects of a federal investigation, the Secret Service should know better than to swoop in and engage in disruptive searches of people they're not ready to arrest."
Justice Department guidelines <http://www.politechbot.com/p-01629.html> give a great deal of latitude to law enforcement officers who wish to seize computers. "Agents may obtain search warrants to seize computer hardware if the hardware is contraband, evidence or an instrumentality or fruit of crime," the guidelines <http://www.cybercrime.gov/searchmanual.htm> say.
Bradley, who was raided, says that he's retained a lawyer and is asking that his computer equipment be returned. He said that in addition to the Secret Service seizing his business records, the raid seemed personal: They snatched his passport, birth certificate and personal checkbook.
"When it was obvious I had done nothing worng, they tried to get me and my wife -- interrogating us seperately -- to implicate e-gold," Bradley said. "They said, 'Might (e-gold) be doing this, could they be doing this?'"
from Wired Magazine, 2000-Sep-22, by Declan McCullagh <mailto:declan@wired.com?subject=Feds: Digital Cash Can Thwart Us>:
Feds: Digital Cash Can Thwart Us
WASHINGTON -- A Treasury Department report warns that technologies such as the Internet and electronic cash could thwart the federal government's efforts to conduct surveillance of bank and credit card transactions.
The internal strategic plan predicts that technology may help law enforcement by allowing agents to assemble ever-growing databases of Americans' financial activities, but it can also provide more anonymity than ever before.
Treasury's Financial Crimes Enforcement Network <http://www.treas.gov/fincen/> (FinCEN) prepared the 36-page document, which was obtained by Wired News.
It says: "The development of new technologies -- such as electronic cash, electronic purses, Internet or smartcard based electronic payment systems, and Internet banking -- is increasing the ability of individuals to rapidly transfer large sums of money, and could pose a challenge for FinCEN and other law enforcement agencies combating money laundering."
A FinCEN spokeswoman declined to comment on the draft, saying the agency would make an official statement after the strategic plan is released publicly in early October.
Federal law requires <http://wired.com/news/politics/0,1283,18821,00.html> U.S. banks, credit unions and other financial institutions -- over 220,000 total -- to forward regular reports on any "suspicious" behavior or large cash amounts to a mammoth FinCEN database located at the IRS' computing center in Detroit.
FinCEN hopes to expand its surveillance to include the insurance industry, pawn brokers and travel agents, and then use what it terms "artificial intelligence" techniques to analyze the stream of data.
"FinCEN has been working with data mining experts to design software that is tailored to meet the specialized needs of law enforcement," the report says. "Data mining is not a static, off-the-shelf technique but instead requires the testing of complex sets of algorithms to determine which will most creatively search and combine random pieces of data to reveal hidden links to criminals and their money laundering schemes."
A FinCEN source said the "artificial intelligence" techniques are straightforward: "They just enable us to sort through the vast numbers of currency transactions we receive. We're talking millions and millions of reports."
The reason for this complex and expensive system: illegal drugs. The Clinton administration has defended surveillance programs as a vital weapon in its ongoing campaign against illegal drugs and drug-related money laundering.
"It sounds as though FinCEN has walked into the digital age like a kid in a candy store with millions of dollars stuffed in his pocket," says Greg Nojeim, legislative counsel for the American Civil Liberties Union <http://www.aclu.org/>. "They just can't eat enough of our personal information."
Both economists and libertarian cypherpunks have predicted that digital cash will pose difficulties for law enforcement attempts at surveillance.
"Digital monetary and financial products are 'disruptive' technologies, in that their creation upsets the existing legal and public policy order as to how money and financial products and institutions are regulated and organized," Richard Rahn, author of The End of Money and the Struggle for Financial Privacy, told a House subcommittee this week. "Central bankers, treasury officials, law enforcement authorities and intellectual property administrators will by necessity have to adjust to a different world."
Even though FinCEN has come under fire from privacy advocates in the past, the word "privacy" does not appear anywhere in the agency's strategic plan.
Cont ...