Three directors of an online currency company have pleaded guilty to charges of money laundering.

Executives at E-Gold and its corporate affiliate Gold & Silver Reserve Inc pleaded guilty and have paid a $1.7m fine.

E-Gold chief executive Dr Douglas Jackson pleaded guilty to conspiracy to engage in money laundering and operating an unlicensed money transmitting business.

Two senior directors pleaded guilty to operating a money transmitting business without a licence.

Dr Jackson now faces a possible 20 years in prison, and the company could be fined $3.7m. The other directors could get five years in prison. Sentencing will be held in November.

"By failing to comply with money laundering laws and regulations, the E-Gold operation created an environment ripe for exploitation by criminals seeking anonymity in conducting online transactions," said Acting Assistant Attorney General Matthew Friedrich.

"This case demonstrates that online payment systems must operate according to the applicable rules and regulations created to ensure lawful monetary transactions."

E-Gold has long been criticised by the security and law enforcement community for a system which allows members to transfer funds online by buying portions of actual gold bars and using them as virtual funds.

A lax registration procedure that allowed the setting up of anonymous accounts, and making money transfers not returnable, have made the site popular among online criminals.

The company has now suspended all new accounts and is amending its terms and conditions to satisfy the demands of the Department of Justice.

Dr Jackson has now pledged to make the company a safe and legitimate online currency system.

"The resolution of the criminal case provides for a second chance, an opportunity to address the flaws embedded in the E-Gold system and to transform the operation into the institutions I, the other directors, and our long-suffering employees and contractors have always envisioned, one that serves to advance the material welfare of mankind."