US prosecutors have filed an indictment against the operators of digital currency exchange Liberty Reserve, accusing the Costa Rica-based company of helping criminals around the world launder more than $6 billion in illicit funds linked to everything from child pornography to software for hacking into banks.
The indictment said Liberty Reserve had more than a million users worldwide, including at least 200,000 in the United States, and virtually all of its business was related to suspected criminal activity.
US attorney Preet Bharara called the case perhaps “the largest international money laundering case ever brought by the United States.”
“Liberty Reserve has emerged as one of the principal means by which cyber-criminals around the world distribute, store and launder the proceeds of their illegal activity,” according to the indictment filed in US district court for the southern district of New York.
Officials said authorities in Spain, Costa Rica and New York arrested five people on Friday, including the company’s founder, Arthur Budovsky, and seized bank accounts and Internet domains associated with Liberty Reserve.
The indictment detailed a system of payments that allowed users to open accounts under false names with blatant monikers like “Russia Hackers” and “Hacker Account.”
The use of digital currency has expanded over the past decade, attracting users ranging from video gamers looking for ways to buy and sell virtual goods to those who lack faith in the traditional banking system.
Touted by some investors as the future of money, these virtual currencies have gained the attention of US regulators looking to bring them under anti-money laundering rules. The US Treasury said yesterday it named Liberty Reserve under the USA Patriot Act as “specifically designed and frequently used to facilitate money laundering in cyber space.”
That designation, a first against a virtual currency exchange, prohibits banks or other payment processors from doing business with Liberty Reserve, even under a new name. The Treasury also said Liberty Reserve’s virtual currency was used to anonymously buy and sell software designed to steal personal information and attack financial institutions.
Liberty Reserve, with around 12 million transactions per year, laundered over $6 billion in criminal proceeds since it began operating in 2006, the indictment said. A ring of hackers who recently stole $45 million from two Middle Eastern banks, by hacking prepaid debit cards, used Liberty Reserve to distribute their take, according to court papers.
Tech blogger Brian Krebs, a former Washington Post reporter who now runs the blog Krebs On Security, wrote “the action against Liberty Reserve is part of a larger effort by the US government to put pressure on virtual currencies.”
Treasury undersecretary for Terrorism and Financial Intelligence David S. Cohen told a press conference it was a response to a specific abuse of the financial system.
“I want to make clear that today’s action does not mean that we are trying to eliminate virtual currencies and their providers,” he said.
Yesterday, the company’s website, www.libertyreserve.com, displayed the message: “This domain name has been seized by the United States Global Illicit Financial Team.”
In addition to Mr Budovsky, who was arrested in Spain along with his deputy, Azzedine El Amine, co-founder Vladimir Kats was arrested in Brooklyn, New York.
Two technology designers, Maxim Chukarev and Mark Marmilev, were also arrested, Mr Chukarev in Costa Rica and Mr Marmilev in New York.
Two more company employees were still at large in Costa Rica according to officials: Ahmed Yassine Abdelghani and Allan Esteban Hidalgo Jimenez.
According to the indictment, almost all of the men used the alias, Eric Paltz. None of the men could be reached for comment. Investigative police in Costa Rica said that along with computers and files, six cars were seized from Mr Budovsky’s house in the wealthy suburb of Escazu: three Rolls Royce, two Jaguars and one Mercedes Benz.
