‘Black market bank’ busted by US law enforcement
Liberty Reserve, an online currency exchange described as “possibly the largest money-laundering scheme ever seen in the United States”, is shut down by the authorities.
It’s been accused of being a “black market bank” where criminals laundered the proceeds of everything from computer hacking to drug trafficking.
Now Liberty Reserve, the Costa Rica-based online currency exchange, has been shut down by US law enforcement following raids in 14 countries.
Seven people have been charged over allegations of a $6bn operation described as “possibly the largest money-laundering scheme ever seen in the United States.”
Liberty Reserve was intentionally created and structured to facilitate criminal activity. US Attorney Preet Bharara
US Attorney Preet Bharara said: “Liberty Reserve was intentionally created and structured to facilitate criminal activity. As alleged, it deliberately operated in a way to attract and aid criminals who wished to use digital currency to break the law and to launder the proceeds of serious crimes including credit card fraud, identity theft, investment fraud, computer hacking, child pornography and even narcotics trafficking.”
It is claimed Liberty Reserve allowed users to transfer money using only an email address and date of birth. The money transferred was converted to and from the Reserve’s own virtual currency, allowing anonymous transactions.
‘Completely Made Up City’
During an investigation by the US Department of Justice, an undercover law enforcement agent sought to register at Liberty Reserve as “Joe Bogus” from “123 Fake Main Street” in “Completely Made Up City”. He then recorded digital currency transactions as “ATM skimming work” and “for the cocaine”. The exchange raised no objections.
“The coin of the realm…was anonymity – multiple layers of anonymity,” said Mr Bahara. “As alleged, Liberty Reserve was deliberately structured and operated in a way to help other criminals remain anonymous, untraceable and untouchable.”
The Reserve charged a 1 per cent fee on transfers. Over seven years, the Department of Justice says it processed 55 million transactions worldwide for one million users.
Its alleged founder Arthur Budovsky – an American who renounced his US citizenship after deciding to set up in Costa Rica – and another defendant, identified as Azzeddine el Amine, were arrested Friday at a Madrid airport while trying to return to Costa Rica.
Shockwaves for digital currency users
The raids will send shockwaves through the small but growing community of digital currency users. The most well-known is Bitcoin, which Channel 4 News discovered is the currency of choice for criminals trading drugs, guns and child pornography on hidden websites.
There are some key differences between Liberty Reserve and Bitcoin; the latter currency is actually used to purchase real goods and services, and is transferred through exchanges around the world. Liberty Reserve, by contrast, was based only in Costa Rica, and was more a “pure exchange” operation, with the currency being used for transfers rather than purchases.
However, most users of these alternative currencies believe their transactions are almost impossible to trace. News that law enforcement has been able to penetrate a major exchange will raise questions over how secretive such operations can remain.