Money Laundering Service Shut Down, Five People Arrested
May 29, 2013

Liberty Reserve Shut Down, Founder Arrested On Money Laundering Charges

redOrbit Staff & Wire Reports - Your Universe Online

A Costa Rica-based digital money service has been shut down and five individuals, including its founder, have been arrested following weekend raids in 17 different countries in what authorities are calling one of the largest money laundering schemes of all time.

According to New York Times and BBC News reports, Liberty Reserve is accused of laundering more than $6 billion over the past seven years. The US Justice Department has called it the “largest international money-laundering prosecution in history,” involving approximately one million users and over 55 million illegal transactions.

Times reporters Marc Santora, William K. Rashbaum and Nicole Perlroth said that authorities have described Liberty Reserve as a kind of central hub for criminal activity ranging from identity theft to child pornography. Furthermore, prosecutors said that the currency service “facilitated global criminal conduct” by making it possible for individuals to move large sums of money from nation to nation while remaining essentially anonymous.

In fact, one senior law enforcement official has dubbed it “PayPal for criminals,” telling Santora, Rashbaum and Perlroth that the company and a web of related businesses was “a shadow banking system for criminal conduct” which was able to “facilitate all sorts of criminal conduct that would not otherwise happen.”

The indictment includes charges against seven of the company´s key employees, five of whom were arrested Friday in Spain, Costa Rica and Brooklyn, the New York Times said. Among them was the service´s founder, Arthur Budovsky, who was arrested in Spain, according to the Associated Press (AP).

Budovsky, who renounced his US citizenship in 2011 and was a naturalized citizen of Costa Rica, was sentenced to five years of probation in 2007 after pleading guilty to charges of running an illegal financial services business similar to Liberty Reserve, the AP said. Law enforcement officials also reportedly seized papers, digital documents, and computer hardware during the weekend raids.

“Liberty Reserve's origins are obscure, but it had grown into one of the criminal underworld's best-known electronic currency systems, used by hackers the world over to discreetly move large sums of money across borders,” the wire service explained. The company “conducted its transactions in dollars, euros and roubles” and functioned as “an anonymous, no-questions-asked alternative to the global banking system,” according to experts.

The business´s website has been seized by the US government, which alleges that they “processed more than 12 million financial transactions annually, with a combined value of more than $1.4 billion,” security blogger Brian Krebs explained on Tuesday.

However, he disputes the US government´s claims that everyone involved with Liberty Reserve used the system for “shady or criminal activity.” According to Krebbs, “many users — principally those outside the United States — simply viewed the currency as cheaper, more secure and private alternative to PayPal.”

“It remains unclear how much money is still tied up in Liberty Reserve, and whether existing customers will be afforded access to their funds,” he added. “It seems clear, however, that the action against Liberty Reserve is part of a larger effort by the U.S. government to put pressure on virtual currencies.”