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Feds shut down online payment network on money laundering charges

money

Covered by the New York Times recently, the criminal investigation division of the Internal Revenue series took steps to halt all payments flowing into and out of an offshore, online payment network called Liberty Reserve. Claiming that various criminals around the world ran approximately six billion dollars through the network in an effort to launder dirty money, federal authorities likened the simplicity of using Liberty Reserve to a service like Paypal for U.S. consumers. In short, Liberty Reserve provided an extremely easy way to anonymously launder money involved in criminal activity. 

liberty-reserve-seizedAccording to investigators, Liberty Reserve processed approximately 55 million transactions over the last seven years with millions of customers all over the world. Arthur Budovsky, the lead defendant in the case, was arrested in Spain on Friday along with four other defendants. Two other defendants in the case currently remain at large.

All defendants in the case have been charged with “conspiracy to commit money laundering, conspiracy to operate an unlicensed money-transmitting business, and operating an unlicensed money-transmitting business.” Budovsky created the Liberty Reserve service in 2006 within Costa Rica and renounced his U.S. citizenship two years ago. If convicted on all charges, Budovsky could face a maximum of thirty years in prison.

The vague language in the indictment could be a problem for the future of Bitcoin. Specifically, the indictment states “Unlike traditional banks or legitimate online payment processors, Liberty Reserve does not require users to validate their identity information, such as by providing official identification documents or a credit card. Accounts can therefore be opened easily using fictitious or anonymous identities.”

liberty-reserve-logoThe ability to remain anonymous during transactions is a core feature of the Bitcoin online currency. That being said, Bitcoin isn’t managed by a central authority, completely opposite from Liberty Reserve. It would be extremely difficult for federal authorities to prosecute Bitcoin users due to the decentralized network.

However, the feds may have to take a closer look at the Bitcoin currency if criminal users of Liberty Reserve attempt to jump ship and manage their funds exclusively through Bitcoin transactions.  

The United States attorney handling the case, Preet Bharara, invited any legitimate users of Liberty Reserve to contact his office in order to get access to their money. However, Bharara believes that the vast majority of the account holders are criminals. In order to transfer money online through Liberty Reserve, a new user only had to provide an email address, name, address and phone number. There was no effort made to verify the identity of anyone using the service.

According to an account from an unnamed undercover agent,  he was able to register an account under the name “Joe Bogus” and listed the reason for opening the account as “for cocaine.” Investigators indicated the type of criminals operating accounts on Liberty Reserve included personal identity thieves, drug dealers, credit card data thieves, computer hackers and people running gambling enterprises. While Liberty Reserve had over 200,000 customers in the United States, the majority of the transactions took place in countries such as Vietnam, Malaysia, Nigeria and Russia. 

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