US investigators have shut digital payment service Liberty Reserve and arrested its main founder and four others, claiming that the $6 billion (€4.6 billion) currency exchange was the world’s largest online money-laundering operation.
The company, which was incorporated by Arthur Budovsky in Costa Rica in 2006, allowed internet users to transfer money anonymously once they supply a valid email address to open an account.
Prosecutors claimed that Liberty Reserve operated in the “Wild West of illicit internet banking” and as “a financial hub of the cyber-crime world” facilitating credit card fraud, identity theft, computer hacking, child pornography and narcotics trafficking.
Criminal charges have been brought against seven people including Mr Budovsky, a naturalised Costa Rican citizen who renounced his US citizenship.
He was arrested in Spain last Friday on money-laundering charges along with four others, while two of the seven charged in the US are still in Costa Rica.
Liberty Reserve did not process cash payments directly but instead used “third party exchangers” who would credit or debit the company’s accounts so that it could avoid collecting banking information on clients.
Exchangers tended to be "unlicensed money-transmitting businesses without significant government oversight or regulation, concentrated in Malaysia, Russia, Nigeria and Vietnam, " prosecutors said. People who were "overwhelmingly criminal in nature" accepted the firm's currency, they said.
Criminal indictment
The criminal indictment says that over the past seven years Liberty Reserve was responsible for laundering billions of dollars, conducting 55 million transactions involving millions of customers around the world, including 200,000 in the US.
Clients could set up accounts using “blatantly criminal monikers” like “Russia Hackers”, prosecutors said. One undercover agent registered an account under the name “Joe Bogus” and described the purpose of the account as “for cocaine”.
Richard Weber, head of the Internal Revenue Service's criminal investigation division, told reporters that the charges marked the arrival of "the cyber age of money laundering".
"If Al Capone were alive today, this is how he would be hiding his money," he said. "Our efforts today shatter the belief among high-tech money launderers that what happens in cyberspace stays in cyber space."
Preet Bharara, the US attorney in Manhattan leading the case, said that Liberty Reserve's "coin of its realm was anonymity, and it became a popular hub for fraudsters, hackers and traffickers".
The case has focused attention on another virtual currency, Bitcoin, which operates in a similar way to Liberty Reserve though its transactions are not anonymous and can be traced.
