Nov 12, 2006
You can kiss your money goodbye
Net currency system hides cheaters' tracks as users are
anonymous and payments difficult to track
By Jeremy Au Yong
THE group of motorists conned out of thousands of dollars by a
bogus online car-parts dealer recently are unlikely to see their
money again - primarily because the scammer got paid using a
digital currency known as e-gold.
When The Straits Times reported the story earlier this month, few
had heard of this complex form of electronic currency.
But it is particularly useful for Internet scammers, because users
are anonymous and payments are very difficult to track.
It is no wonder the car-parts scammer was confident enough to taunt
his victims in the online forum where he had originally advertised
his services, saying: 'Find me if you can. Catch me if you can.
Jail me if you can.'
Police are still investigating the case.
E-gold is a digital currency system backed by real gold.
What this means is that every dollar of the 'currency' circulating
on the Internet has an equivalent amount of gold sitting in a
vault, owned by the company that operates the system.
That company is Gold & Silver Reserve, which was founded by two
American citizens but registered in Nevis, a small Caribbean island
known as a tax haven.
Two Singaporean e-gold traders agreed to explain to The Sunday
Times how it works, but declined to reveal their names. One of them
is a 24-year-old university student. The other would give only his
age, 23.
To start using e-gold, a client needs to get an account with
e-gold.com. That process takes mere minutes and, unlike banks, the
information is not verified.
'You can start an account with fake details and nobody will check,'
said the 23-year-old.
The next step is to buy gold to put into the account. This is done
via e-gold traders.
Traders, like the two men The Sunday Times spoke to, operate like
online money changers. They convert real money into e-gold and
back, making a profit on the exchange rate.
For example, the trader operating wyngold.com will sell US$1 worth
of e-gold for S$1.66 and buy it back for S$1.53.
The scammer would have to go to such an exchanger to convert his
e-gold into real money, but as there are traders all over the
world, it is extremely difficult to find out which one he
uses.
To top it off, most traders operate informally and do not register
their businesses with the authorities, the university student
said.
Put it all together and the result is a dubious system, said Mr
Danny Lim, 50, chief executive of authentication company
Creditel.
'With credit cards, there's always some regulation. The issuing
bank regulates the buyer and the receiving bank regulates the
seller. With e-gold there's nothing,' he said.
A Google search on e-gold throws up differing opinions on the
currency. Supporters say that because it is based solely on the
precious metal, e-gold is immune to currency fluctuations.
Detractors point to it being the medium of choice for online scams
known as High Yield Investment Programmes, which claim to offer up
to 200 per cent interest for a deposit.
According to BusinessWeek magazine, one such scam involving
US-based E-Biz Ventures took in US$50 million (S$80 million) before
being shut down in 2001.
A handful of personal transactions on auction site eBay and car
forums like the one prowled by the scammer also use e-gold.
But Mr Lim warned that people should be wary of making any
transactions using this system.
He said: 'You should be immediately suspicious of anyone who
demands payment in an unconventional currency. It's like someone
asking to be paid in full in cash, upfront.'
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