The recent raid made in over 17 countries of the world on Liberty Reserve E-currency system has been termed “the largest money laundering probe in history”
The Costa Rica-based entity, which handled huge amounts of money outside the control of national governments, is charged with running a “$6 billion money laundering scheme and operating an unlicensed money transmitting business,” the U.S. Attorney’s Office in New York said.
U.S. prosecutors said Liberty Reserve processed at least 55 million illegal transactions for at least one million users “and facilitated global criminal conduct.”
The probe involved law enforcement in 17 countries and “is believed to be the largest money laundering prosecution in history,” the prosecutor’s office said.
Liberty Reserve’s principals were arrested on Friday in a round-up launched simultaneously in Costa Rica, Spain and in New York, sealing the fate of a company that had been one of the most successful in the wildly popular but increasingly scrutinized world of unofficial banking and virtual currencies.
The unsealed indictment accuses founder Arthur Budovsky, 39 and a former U.S. citizen who took on Costa Rican nationality, and his partners of creating a firm that masqueraded as a convenient and legitimate money transfer system.
In reality, the organization turned itself into the “financial hub of the cyber-crime world,” the indictment said.
Customers would go to Liberty Reserve’s now shut-down website to buy the online currency, known as LRs, that could then be used in transactions with other LR users.
The system was not registered with U.S. authorities, and unlike some other non-state currency systems, did not require proof of identity for users.
Adding another important layer of anonymity, Liberty required customers to buy or sell their LRs via third party exchangers, meaning that there was no direct link between a customer’s traditional bank account and Liberty’s system.
An extra service would allow a user to hide “his own Liberty Reserve account number when transferring funds, effectively making the transfer completely untraceable, even within Liberty Reserve’s already opaque system.”
The system, the indictment says, was tailor-made for criminal transactions and money-laundering, facilitating “a broad range of online criminal activity, including credit card fraud, identity theft, investment fraud, computer hacking, child pornography, and narcotics trafficking.”
“The scope of the defendants’ unlawful conduct is staggering,” the indictment said.
“With more than 200,000 users in the United States, Liberty Reserve processed more than 12 million financial transactions annually, with a combined value of more than $1.4 billion.”
Budovsky and his partners started Liberty Reserve after an earlier similar venture, GoldAge Inc, which traded the e-gold digital currency, was shut down by U.S. authorities.
It was then that Budovsky emigrated to Costa Rica, later renouncing his U.S. citizenship.
Virtual currencies have grown exponentially, but face pressure on numerous fronts. The popular Bitcoin system has come under scrutiny by financial authorities and seen growing trading volatility.