Online digital currency business e-gold has been indicted by a federal grand jury in Washington DC.

The company and its owners have been accused of running an unregulated financial network that catered to cyber-criminals moving money, according to US media reports.

Founded in the 1990s, e-gold allowed users to move funds across the internet by transferring ownership of gold bars.

A user could move money simply by transferring a tiny amount of gold to another user's account instantly, paying e-gold a commission on each transfer. Unlike credit cards, e-gold transactions are non-reversible and all transactions are final.

According to a statement by the US Department of Justice, the indictment alleges that the owners of e-gold allowed the service to conduct fund transfers despite knowing that the money being moved was the result of illegal activity such as credit card fraud, investment fraud and child exploitation.

The indictment further alleges that e-gold was operating without a licence and without registering with the federal government, thereby violating money transmitting laws.

Professor Ross Anderson, of Cambridge University, accused e-gold of being the most frequent launderer of phishing and credit card fraud revenues.

"Banks are finally starting to take serious action against e-gold," he told vnunet.com. "What will count is the level of muscularity. This could range from as little as legal sanctions to parking a destroyer outside their offices."

Accounts connected with the alleged illegal activity have been frozen as part of the investigation.

"E-gold has drawn criticism in the past because it has been claimed that 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 e-gold 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 cyber-crooks."

The US Secret Service is investigating e-gold and its owners, with the assistance of the Internal Revenue Service and the FBI. The money laundering conspiracy charge carries a maximum 20 year prison sentence.