Online Currency Exchange Indicted By Feds for Laundering Over $6B

The operators of a global currency exchange ran a multi-billion money-laundering operation online, an Internet hub for criminals trafficking in everything from stolen identities to child pornography, federal prosecutors in New York announced today when an indictment was unsealed in federal court.

Liberty Reserve, the currency exchange, allegedly operated beyond United States and international banking regulations in what prosecutors call a shadowy netherworld of virtually anonymous cyberfinance.

Liberty Reserve traded in "virtual currency," and provided anonymous and accessible banking services increasingly sought by criminal networks, including counterfeiters, law enforcement officials claimed.

The charges were announced at a news conference by Preet Bharara, the United States Attorney for the Southern District of New York.  The charges detailed a complicated system designed to allow people to move sums of money around the world with virtual anonymity, according to an indictment, which was unsealed in federal court in Manhattan today.

Over a seven year period, Liberty Reserve was allegedly responsible for laundering billions of dollars, having conducted over 55 million transactions that involved customers all over the world, including more than 200,000 in the United States, according to federal prosecutors.

Just as PayPal revolutionized how people shop online, Liberty Reserve sought to create a similarly convenient way for criminals to make financial transactions, law enforcement officials explained.

“As alleged, the only liberty that Liberty Reserve gave many of its users was the freedom to commit crimes — the coin of its realm was anonymity, and it became a popular hub for fraudsters, hackers and traffickers,” Mr. Bharara said at the news conference. 

“The global enforcement action we announce today is an important step toward reining in the ‘Wild West’ of illicit Internet banking. As crime goes increasingly global, the long arm of the law has to get even longer, and in this case, it encircled the earth.”

Liberty Reserve was incorporated in Costa Rica in 2006 by Arthur Budovsky, who renounced his United States citizenship in 2011, and was arrested in Spain on Friday. He was among seven people charged in the case; five of them were under arrest, while two remained at large in Costa Rica.

In addition to the criminal charges, five domain names were seized, including the one used by Liberty Reserve. Officials also seized or restricted the activity of 45 bank accounts.

Prosecutors cited “blatantly criminal monikers” used by Liberty Reserve clients, like “Russia Hackers.” Essentially, all a customer needed to open an account was an e-mail address.

While Liberty Reserve was incorporated outside the United States, federal officials used a provision in the Patriot Act to target the organization and other financial institutions with whom they conducted business. It was the first time the provision had been used to prosecute a virtual currency provider.

Liberty Reserve did not take or make cash payments directly and instead used “third-party ‘exchangers,’ ” according to the indictment. These exchangers would take and make payments, and then credit or debit the Liberty Reserve account, allowing Liberty Reserve to avoid collecting any banking information on its clients and not leave a “centralized financial paper trail,” the indictment also said.

The exchangers, the indictment said, “tended to be unlicensed money-transmitting businesses without significant government oversight or regulation, concentrated in Malaysia, Russia, Nigeria and Vietnam.”

The people who accepted Liberty Reserve’s currency were “overwhelmingly criminal in nature,” according to the indictment.

“They included, for example: traffickers of stolen credit card data and personal identity information; peddlers of various types of online Ponzi and get-rich-quick schemes; computer hackers for hire; unregulated gambling enterprises; and underground drug-dealing Web sites,” according to the indictment.