$6B CASE: ‘WHERE’S MY MONEY?’ MANY ASK
Prosecutors cite money laundering
The online messages
NEW YORK from anxious Liberty Reserve clients began Friday, after the popular e-currency transaction website suddenly stopped working.
“Have you lost your mind. You realise some people lose near $50K. And your telling us not to cry,” one person posted.
“Only thing I want to hear is LR will be back soon,” wrote another.
Soon, a virtual e-frenzy focused on one question: “Where’s our money?’ ” said Brian Krebs, who monitored the postings for KrebsOnSecurity.com, the website where he reports on computer security issues.
Tuesday, federal prosecutors in Manhattan confirmed the worst fears of some Liberty Reserve clients, unsealing an indictment that accused the company and its operators of being part of an alleged $6 billion money-laundering network that helped hide illegal transactions worldwide.
Detailing what federal authorities termed the largest international money-laundering case in history, Manhattan U.S. Attorney Preet Bharara said the suspects and company were indicted for allegedly facilitating 55 million transactions that concealed the proceeds of credit card fraud, identity theft, computer hack-
ing, child pornography, narcotics trafficking and other crimes.
Five of the firm’s seven principals were nabbed Friday in Brooklyn, N.Y., Spain and Costa Rica for their involvement with the Costa Rica-based company that allegedly had more than 1 million users worldwide, including more than 200,000 in the U.S.
“As alleged, the only liberty that Liberty Reserve gave many of its users was the freedom to commit crimes — the coin of its realm was anonymity, and it became a popular hub for fraudsters, hackers and traffickers,” said Bharara.
The suspects, charged with money laundering and other charges, include alleged Liberty Reserve principal founder Arthur Budovsky, who was arrested in Spain, and co-founder Vladimir Kats, who was arrested in Brooklyn. Three others were nabbed in arrests in Brooklyn and Costa Rica.
An online notice on Liberty Reserve’s website said the domain name “has been seized by the United States Global Illicit Financial Team.” Also seized were the domain names of four exchanger websites that had been listed as pre-approved for Liberty Reserve transactions. All are subject to civil forfeiture action.
Incorporated in Costa Rica in 2006, Liberty Reserve provided its users with what it described as “instant, real-time currency for international commerce” that can be used to “send and receive payments from anyone, anywhere on the globe,” the indictment charged.
The network, which the indictment alleged was structured and operated “to help criminals conduct illegal transactions” and launder the financial proceeds, became “one of the world’s most widely used digital currencies” by billing the transactions as “anonymous and untraceable.”
Liberty Reserve clients allegedly opened accounts through the company website for e-currency commonly known as LR. Although clients had to supply basic background information, the company did not require users to validate their identities.
Some clients used false names such as “Russia Hackers” and “Hacker Account,” prosecutors charged.
Liberty Reserve charged a 1% fee, up to a maximum of $2.99, each time a user made a transaction. For an extra 75-cent “privacy fee,” a user could hide account numbers during transfers, effectively making the transactions untraceable, prosecutors said.
Liberty Reserve may have played a role in laundering the proceeds from the recent theft of about $45 million from two Middle Eastern banks, according to court documents filed in New York earlier this month.
Budovsky and Kats were convicted in 2006 on charges involving Gold Age, an unlicensed money-transmitting business that used E- Gold, a popular digital currency at the time. They launched Liberty Reserve in hope that its overseas base would elude U.S. law enforcement, the indictment charged.
Liberty Reserve clients may turn to other popular online currency sites such as WebMoney, a Russiafounded business that initially aimed at Eastern European clients before expanding worldwide, said Krebs. “They’ll probably gain the most in the short run,” he said.