Online digital currency business, e-gold, has been accused by a federal grand jury in Washington DC of running an unregulated financial service that facilitates money laundering.

The company and its owners are under investigation on suspicion of allowing their business to conduct fund transfers despite knowing that the money involved was the result of illegal activity, including credit card and investment fraud, and child pornography, according to reports in the US.

The Department of Justice also claim that e-gold and its owners, Dr Douglas Jackson, Reid Jackson and Barry Downey, allegedly operated the firm without a licence and without registering with the federal government, and therefore violated money transmitting legislation.

The US Secret Service, Internal Revenue Service and FBI are investigating the case with the owners facing a possible 20 year prison sentence if found guilty of a money laundering conspiracy.

“e-gold has drawn criticism in the past because it has been claimed the company does not do background checks on people applying for accounts, and it is too easy to create an account in a phoney name,” said Graham Cluley, senior technology consultant for Sophos.

"Criminals may have been attracted to use systems like this for illegal ends because of the anonymity provided to them compared to high street banks. It is essential that online digital currencies work within the law, assist authorities with their enquiries, and work hard to ensure that their money transfer systems are not being used by cybercrooks,” he added.

The firm was set up in the 1990s to allow users to move money online by swapping ownership of gold bars. Internet surfers can move funds by transferring a gold token to another person’s account and e-gold earns a commission on each transfer.