U.S. prosecutors have accused a Costa Rica-based digital currency company Liberty Reserve of running a $6 billion money laundering scheme.

Money Laundering

 

Liberty Reserve Faces Largest Money Laundering Prosecution

The U.S. prosecutors revealed on Tuesday, what is believed to be the largest money laundering prosecution ever. They have also arrested the operators of the global money exchange Liberty Reserve.

The digital currency company was the ‘financial hub of the cyber-crime world’, according to Preet Bharara, the U.S. attorney for the southern district of New York.

According to the indictment, Liberty Reserve facilitated “a broad range of online criminal activity, including credit card fraud, identity theft, investment fraud, computer hacking, child pornography, and narcotics trafficking.”

The digital currency company was incorporated in 2006 and was one of the world’s most widely used digital currencies. Liberty Reserve’s services include facilitating account holders to send and receive payments from anywhere in the world. The company described itself as the internets “largest payment processor and money transfer system”, serving “millions” around the world.

The U.S. prosecutor’s indictment claims between 2006 and 2013, Liberty Reserve ‘laundered over $6 billion in criminal proceeds’. The indictment also reports the digital company processed over 12 million financial transactions annually valuing over $1.4 billion.

Liberty Reserve’s clients were not allowed to deposit or withdraw funds directly, but had to go through third-party “exchangers”. According to the indictment, these “exchangers” tended to be unlicensed money transmitting businesses operating without significant governmental oversight or regulation, concentrated in Malaysia, Russia, Nigeria and Vietnam.

The indictment further revealed that account holders were not required to prove their identity. They converted local currency into Liberty Reserve dollars using third-party “exchangers” who charged a fee then forward the money to Liberty Reserve. Deposits were similarly done through “exchangers” in order to add another layer of anonymity.

The digital currency gained prominence over the past decade, attracting varied users from video gamers and those who lack faith with the traditional banking system.

The court papers revealed that a ring of hackers who recently stole $45 million from two Middle Eastern banks by hacking prepaid debit cards used Liberty Reserve to distribute their take.

According to the indictment, Liberty Reserve had more than a million users worldwide, including at least 200,000 in the United States, and virtually all of its business was related to suspected criminal activity.

The U.S. prosecutors have seized 45 bank accounts and five domain names allegedly used for the operation, including the domain name of Liberty Reserve. The U.S. prosecutors informed that authorities in Spain, Costa Rica and New York arrested five people on Friday, including the company’s founder, Arthur Budovsky.

The founder earlier cited concerns to immigration officials that the software that he was developing might expose him to liability in the U.S. and hence he shifted to Costa Rica.

The U.S. Treasury said on Tuesday it named Liberty Reserve under the USA Patriot Act as “specifically designed and frequently used to facilitate money laundering in cyber space.”