U.S. authorities are accusing virtual currency firm, Liberty Reserve S.A., of being a billion-dollar money laundering conduit.
On Tuesday, the U.S. Attorney’s Office for the Southern District of New York unsealed an indictment charging Costa Rica-based Liberty Reserve and seven of its principals – Arthur Budovsky, Vladimir Kats, Azzedine El Amine, Mark Marmilev, Maxim Chukharev, Ahmed Yassine Abdelghani, and Allan Esteban Hidalgo Jimenez – in Manhattan federal court for their roles in running an alleged US$6 billion money laundering scheme and operating an unlicensed money transmitting business. Five of the defendants have been arrested in the U.S, Spain, and Costa Rica; two others are being sought.
Additionally, five domain names were seized; 45 bank accounts were frozen or seized; and a civil action was filed against 35 exchanger websites seeking the forfeiture of their domain names.
The investigation and takedown involved law enforcement action in 17 countries, including Canada, Costa Rica, the Netherlands, Spain, Morocco, Sweden, Switzerland, Cyprus, Australia, China, Norway, Latvia, Luxembourg, the UK, Russia, and the U.S.
None of the allegations have been proven.
“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 Manhattan U.S. attorney, Preet Bharara. “The global enforcement action we announce today is an important step towards reining in the ‘Wild West’ of illicit Internet banking. As crime goes increasingly global, the long arm of the law has to get even longer, and in this case, it encircled the earth.”
At the same time as the criminal charges were brought, the U.S. Department of the Treasury designated Liberty Reserve “a financial institution of primary money laundering concern”, alleging that its virtual currency “is specifically designed and frequently used to facilitate money laundering in cyber space.”
“Liberty Reserve is widely used by criminals worldwide to store, transfer, and launder the proceeds of a variety of illicit activities,” the Treasury said, alleging that its virtual currency “has become a preferred method of payment on websites dedicated to the promotion and facilitation of illicit web based activity, including identity fraud, credit card theft, online scams, and dissemination of computer malware.”
Treasury’s Financial Crimes Enforcement Network also issued a notice of proposed rulemaking that, if adopted as a final rule, would prohibit covered U.S. financial institutions from opening or maintaining correspondent, or payable-through accounts, for foreign banks that are being used to process transactions involving Liberty Reserve. It also proposes to require covered financial institutions to apply special due diligence to their correspondent accounts maintained on behalf of foreign banks to guard against any transactions involving Liberty Reserve. If adopted, these measures would effectively cut off Liberty Reserve from the U.S. financial system, it says.