Feds Halt Money Laundering Firm

Wednesday, May 29, 2013 @ 12:05 PM gHale


Cost Rican-based Liberty Reserve, a payment processor, money transfer service, and digital currency exchange had its domains seized by U.S. Department of Justice because the entity ended up used by criminals to launder money.

Liberty Reserve was also the subject of an indictment issued by the United States District Court for the Southern District of New York. The indictment accuses Arthur Budovsky, Vladimir Kats, Ahmed Yassine Abdelghani, Allan Esteban Hidalgo Jimenez, Azzeddine El Amine, Mark Marmilev, and Maxim Chukharev of one count of conspiracy to commit money laundering and two counts of conspiracy to operate an unlicensed money transmitting business, said U.S. district attorney Preet Bhahara.

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The charges against these seven men stem from their varying degrees of involvement with the operation of the exchange. Reports indicate Budovksy is in custody in Spain after his arrest.

On the first count, a grand jury said Budovsky and his co-conspirators knowingly created and operated Liberty Reserve as a criminal business venture designed to help criminals conduct illegal transactions anonymously and launder the proceeds of their crimes untraceably. So successful was this business was Liberty Reserve became “a financial hub of the cyber-crime world, facilitating a broad range of online criminal activity, including credit card fraud, identity theft, investment fraud, computer hacking, child pornography, and narcotics trafficking,” the grand jury said.

The indictment includes the contents of an online chat obtained by law enforcement in which Kats and Abdelghani openly admit Liberty Reserve is “illegal” and that “everyone in the U.S.A.” including the Department of Justice knows that “Liberty Reserve is [a] money laundering operation that hackers use.”

From Liberty Reserve’s beginnings in 2006 until its ultimate shutdown late last week, the company conducted an estimated 55 million financial transactions in which, prosecutors claim, the company helped to launder more than $6 billion.

According to the indictment, Budovsky is the ring leader, having been the principal founder of Liberty Reserve as well as the supervisor and director of its operations, finances, and corporate strategy. It names Kats as the exchange’s cofounder and charges that he helped run Liberty Exchange until left the company over a dispute with Budovsky in or around 2009. The indictment accuses Abdelghani managed day-to-day operations at Liberty Reserve until he, too, left the company following a dispute with Budovsky, after which point, the day-to-day management role ended up filled by Jimenez. Marmilev and Chukharev stand accused of having designed and maintained Liberty Reserve’s technology infrastructure.

indictment indicates that in late 2006, the state of New York convicted Budovsky and Kats for operating an unlicensed money transmitting business called Gold Age, Inc. Money transmitting businesses must register with the U.S. Department of the Treasury. Neither Gold Age nor Liberty Reserve obtained such a registration. Following their conviction, the grand jury asserts the two set out to establish a similar digital currency that would succeed at evading law enforcement where Gold Age failed. This endeavor led Budovsky and Kats to emigrate to Costa Rica, where they eventually founded and incorporated Liberty Reserve along with Abdelghani.

Liberty Reserve purportedly enabled cybercriminal ventures by allowing users to create accounts under false identities by requiring no real validation of identity. Furthermore, Liberty Reserve, which made money by collecting a 1 percent fee on every transaction, gave sending-users the option of hiding their Liberty Reserve account numbers from their recipients if they paid an additional 75-cent fee, effectively making such transactions completely untraceable, not only to the receiving party, but to the exchange operators as well.

Liberty Reserve achieved another level of anonymity by enforcing a policy that only allowed users to deposit into and withdraw from their Liberty Reserve account through third party “exchanger” services that traded mainstream currency for Liberty Reserve currency. In other words, “exchangers” accepted relatively small cash payments from Liberty Reserve members in exchange for Liberty Reserve currency, which the “exchangers” could credit to Liberty Reserve accounts. The “exchangers” would then turn around and use this mainstream currency to purchase larger bulk amounts of Liberty Reserve money from the company, which they would then sell back to users for real money. If a user wanted to cash out, he would have to do so through an agreement with one of more of these “exchangers.” Kats and El Amine stand accused of operating such “exchanger” services.

At one point, the indictment said, the Costa Rican authorities responsible for regulating financial companies in that country notified Liberty Reserve and told them they must apply for a license to operate as a money transmitting service. Liberty Reserve submitted such an application, but ended up denied for not having even basic money laundering controls in place. From there, the indictment claims the co-defendants designed a system to feign compliance by giving authorities access to fake information rather than remedying the stated deficiencies.



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