Wired is reporting that the founder of Liberty Reserve has been indicted on $6 Billion money-laundering charges.
Dubbed the “financial hub of the cyber-crime world,” authorities say Liberty Reserve had more than 1 million users worldwide and processed more than 12 million transactions annually as the favored money-laundering service for carders, hackers and other cybercriminals in the digital underground who used it to transfer money around the world effortlessly and anonymously.
Prosecutors are calling it the largest international money-laundering case ever prosecuted. The LR virtual currency is one of the world’s most widely used. It’s also the first instance of the US government using the Patriot Act to go after virtual currencies.
Authorities arrested founder Arthur Budovsky in Spain last Friday, along with others in Costa Rica and New York.
The Associated Press reports that Costa Rican police have also raided three homes and five businesses linked to Liberty Reserve. Authorities seized the company’s domain name, replacing its home page with a message letting visitors know that the United States Global Illicit Financial Team was in possession of the domain.
So far it appears Budovsky’s crimes are operating a site which criminals use to launder money and failing to register in the U.S. as a money-transmitting service.
To use Liberty Reserve, participants only had to provide a name, birth date and valid email address. It used a virtual currency called the LR. Transactions were anonymous and easily accessible. The site was apparently used by the criminals who recently perpetrated a $45 million coordinated bank heist.
The New York Times quotes prosecutors describing the case as significant “because it attacks the financial infrastructure used by many cybercriminals in much the same way that drug-money-laundering prosecutions unravel the financial underpinnings of the narcotics trade.”
BusinessWeek describes the case as “a series of firsts for U.S. authorities.”
In addition to being the largest international money-laundering case brought by the Justice Department, it involved the first search warrant executed by American officials against a cloud-based server. Bharara said 30 search warrants were executed during an 18-month investigation.
And it’s the first use of U.S. Patriot Act provisions against a digital currency exchange. The Treasury claims that the Patriot Act offers agencies a range of options to protect the U.S. financial system from money laundering. These apparently include targeting businesses that are incorporated outside the United States, as Liberty Reserve is. Its founder, Ukrainian-born, Costa Rican citizen Arthur Budovsky renounced his US citizenship in 2011. It also means that the US government can prevent other financial institutions from interacting with a cyber currency without any convictions.
Reuters reports that tech blogger and former Washington Post reporter Brian Krebs wonders whether “the action against Liberty Reserve is part of a larger effort by the U.S. government to put pressure on virtual currencies.”
The fact that government officials seized online payment processor Dwolla’s account this month, and Dwolla part of the world’s largest crypto-currency exchange, supports this thesis.
Whatever the government’s reasons for targeting Liberty Reserve and Dwolla, Due Process should mean that their accounts cannot be seized and they can’t be frozen out of the financial world without their operators being convicted of a crime. The fact that officials are using the civil-liberties-trampling Patriot Act to target online currencies is problematic, whatever the motives.
This post originally appeared at Doublethink magazine.
Photo by Divine Harvester