WASHINGTON, D.C.—The news had churned all weekend that Costa Rican-based digital currency service Liberty Reserve had been offline since Thursday, but it was only today that the U.S. Department of Justice announced that it has charged “Liberty Reserve, a company that operated one of the world’s most widely used digital currency services, and seven of its principals and employees with money laundering and operating an unlicensed money transmitting business."
This was no small-scale operation. According to the DOJ, a two-year investigation that involved multiple law enforcement agencies across seventeen countries ultimately determined that Liberty Reserve and its affiliates ran what was essentially a massive global operation that managed over time to launder billions of dollars in proceeds from criminal activity. “Liberty Reserve,” said the feds, "is alleged to have had more than one million users worldwide, including more than 200,000 users in the U.S., who conducted approximately 55 million transactions—virtually all of which were illegal—and laundered more than $6 billion in suspected proceeds of crimes including credit card fraud, identity theft, investment fraud, computer hacking, child pornography and narcotics trafficking.”
Five individuals have been detained, with two more to go. “Five defendants were arrested on May 24, 2013, including Arthur Budovsky, the principal founder of Liberty Reserve, who was arrested in Spain; Vladmir Kats, the co-founder of Liberty Reserve, who was arrested in Brooklyn, New York; Azzeddine El Amine, a manager of Liberty Reserve’s financial accounts, who was arrested in Spain; and Mark Marmilev and Maxim Chukharev, who helped design and maintain Liberty Reserve’s technological infrastructure, who were arrested in Brooklyn and Costa Rica, respectively,” said the DOJ. “Two other defendants, Ahmed Yassine Abdelghani (Yassine) and Allan Esteban Hidalgo Jimenez (Hidalgo), are at large in Costa Rica.”
Five websites were also seized by the government, including “the domain name of Liberty Reserve and the domain names of four exchanger websites that were controlled by one or more of the defendants; 45 bank accounts were restrained or seized; and a civil action was filed against 35 exchanger websites seeking the forfeiture of the exchangers’ domain names because the websites were used to facilitate the Liberty Reserve money laundering conspiracy and constitute property involved in money laundering.”
According to the indictment, the system created and run by Liberty Reserve all but guaranteed anonymity for those using its service to send and receive funds. “Unlike traditional banks or legitimate online processors,” it alleges, “Liberty Reserve did not require users to validate their identities. Users routinely established accounts under false names, including such blatantly criminal names as ‘Russia Hackers’ and ‘Hacker Account.’
“Once an account was established,” it added, “the user could conduct transactions with other Liberty Reserve users. In these transactions, the user could receive transfers of LR from other users’ accounts, and transfer LR from his or her own account to other users, including any ‘merchants’ that accepted LR as payment. Liberty Reserve charged a one-percent fee, up to a maximum of $2.99, every time a user transferred LR to another user through the Liberty Reserve system. For an additional ‘privacy fee’ of 75 cents per transaction, a user could hide his or her own Liberty Reserve account number when transferring funds, effectively making the transfer completely untraceable, even within Liberty Reserve’s already opaque system.”
According to money-monitor.com, which posted up a slew of information Saturday before the official announcement, “The future of Liberty Reserved is questionable at best. What’s also unsure is whether the users get their money back since, as we all know, users’ data were not verified and, consequently, many of them gave incorrect information. Moreover, the servers and documents secured by the police may also be extremely useful to the FBI since Liberty Reserve was commonly used by the so-called Ponzi schemes. Hopefully, we will get to know a bit more in the following couple of days.”
