Digital currency dealers charged with money laundering

The founder of the online currency transfer business Liberty Reserve was indicted in the United States along with six other people in a $6-billion US money-laundering scheme described as "staggering" in scope, authorities said Tuesday.

Operators of Liberty Reserve site indicted for allegedly laundering $6 billion for criminals

Preet Bharara, United States attorney for the Southern District of New York, describes how Liberty Reserve, one of the world's largest digital currency companies, allegedly helped cybercriminals around the world distribute, store and launder $6 billion US worth of proceeds from their illegal activity. (Mike Segar/Reuters)

The founder of an online currency transfer business was indicted in the United States along with six other people in a $6-billion US money-laundering scheme described as "staggering" in its scope, authorities said Tuesday.

Arthur Budovsky is the founder of Liberty Reserve, a Costa Rica-based website long favoured by cybercrime scammers. He was arrested in Spain on Friday. A defendant identified as Budovsky's partner, Vladimir Kats, was in custody in New York.

Authorities say the network processed at least 55 million illegal transactions worldwide for one million users, including 200,000 in the United States. They call the international money-laundering case the largest ever.

"The scope of the defendants' unlawful conduct is staggering," said an indictment unsealed in federal court in Manhattan.

'Bank of choice' for criminals

In announcing the case, U.S. Attorney Preet Bharara said the network "became the bank of choice for the criminal underworld."

Its digital currency service was designed to shield the identity of crooked users seeking to launder ill-gotten gains, he said.

"The coin of the realm was anonymity," he said. "It was the opposite of a know-your-customer policy."

In a statement, Costa Rican police confirmed that Budovsky had been arrested in Spain on money laundering charges and that several premises linked to his company had been raided. A notice pasted across Liberty Reserve's website Tuesday morning said the domain "has been seized by the United States Global Illicit Financial Team."

Attempts to reach Liberty Reserve by phone and email were not immediately successful.

Its demise is likely to send a sharp shock across the internet.

The indictment calls the network "one of the principal means by which cybercriminals around the world distribute, store and launder proceeds of their illegal activity ... including credit card fraud, identity theft, investment fraud, computer hacking, child pornography and narcotics trafficking."

Liberty Reserve allowed users to open accounts using fictitious names, including "Russian Hacker" and "Hacker Account." The network charged a one per cent fee on transactions.

No way to trace account

Budovsky and Katz have previous convictions on charges related to an unlicensed money-transmitting business, according to court papers. After that case, the pair decided to move their operation to Costa Rica, where Budovsky officially renounced his U.S. citizenship, the papers say.

In an online chat captured by law enforcement, Katz admitted Liberty Reserve was "illegal" and noted that authorities in the United States knew it was "a money laundering operation that hackers use."

Aditya Sood, a computer science doctoral candidate at Michigan State University who has studied the underground economy, described Liberty Reserve as a no-questions-asked alternative to the global banking system, with little more than a valid email needed to open an account and start moving money across borders.

"You don't need to provide your full details, or personal information, or things like that," Sood said in a telephone interview. "There's no way to trace an account. That's the beauty of the system."

Arrested in Madrid

Budovsky and another man identified by Spanish authorities as Azzeddine el Amine were arrested Friday at Madrid's Barajas airport while trying to catch a connecting flight from Morocco to Costa Rica, according to a Spanish National Court official, who spoke on condition of anonymity because court policy forbids him from speaking on the record.

Both men have indicated they will fight any move to send them to the U.S., the official said. The pair were ordered to remain in prison pending an extradition hearing.

Authorities described Liberty Reserve as being rife with criminals, but the site's ease of use, low fees and irreversible transactions that deterred fraud also attracted a thriving community of legitimate tech-savvy users in countries with limited access to credit cards.

Mitchell Rossetti, whose Houston, Texas-based was one of several mainstream merchants that accepted the online-only currency, said his business still had about $28,000 tied up in Liberty Reserve accounts.

"The irony of this is I went to them because of the security," Rossetti said. "All sales were final."

He acknowledged that the currency was being used by scammers but said Liberty Reserve was just like any other currency.

"The U.S. dollar can be donated to a church or it can pay a prostitute," he said.

Sites in several countries raided 

Liberty Reserve appears to have played an important role in laundering the proceeds from the recent theft of some $45 million from two Middle Eastern banks, according to legal documents made public by U.S. authorities earlier this month.

The complaint against one of the Dominican Republic gang members allegedly involved in the theft states that thousands of dollars' worth of stolen cash was deposited into two Liberty Reserve accounts via currency centres based in Siberia and Singapore.

A total of 14 premises were raided in Panama, Switzerland, the U.S., Sweden, and Costa Rica, according to Spanish authorities. In Costa Rica, investigators recovered five luxury cars, including three Rolls Royces, Spanish police said. Bharara, the federal prosecutor, said authorities had seized Liberty's computer servers in Costa Rica and Switzerland.