New York - Calling it perhaps the biggest money-laundering scheme in U.S. history, federal prosecutors charged seven people Tuesday with running what amounted to an online, underworld bank that handled $6 billion for drug dealers, child pornographers, identity thieves and other criminals around the globe.
The case was aimed at Liberty Reserve, a currency-transfer and payment-processing company based in Costa Rica that authorities say allowed customers to move money anonymously from one account to another via the Internet with almost no questions asked.
U.S. officials said the enterprise was staggering in scope: Over roughly seven years, Liberty Reserve processed 55 million illicit transactions worldwide for 1 million users, including 200,000 in the U.S.
The network “became the bank of choice for the criminal underworld,” U.S. Attorney Preet Bharara said in announcing the unsealing of an indictment against the defendants, including Liberty Revenue founder Arthur Budovsky, an American who renounced his U.S. citizenship after deciding to set up in Costa Rica.
Liberty Reserve allowed users to open accounts using fictitious names, including “Russian Hacker” and “Hacker Account.” One person was registered under the name of “Joe Bogus” and the address “123 Fake Main Street” in “Completely Made Up City, New York.”
“The coin of the realm was anonymity,” Bharara said. “It was the opposite of a know-your-customer policy.”
The network charged a 1 percent fee on transactions through “exchangers” — middlemen who converted actual currency into virtual funds and then back into cash.
In the indictment, prosecutors called the network “one of the principal means by which cyber criminals around the world distribute, store and launder proceeds of their illegal activity ... including credit card fraud, identity theft, investment fraud, computer hacking, child pornography and narcotics trafficking.”
They added: “The scope of the defendants’ unlawful conduct is staggering.”
Prosecutors said they believe it is the biggest money-laundering case the U.S. has ever seen.
Budovsky and another defendant, identified as Azzeddine el Amine, were arrested Friday at a Madrid airport while trying to return to Costa Rica, according to a Spanish court official, who spoke on condition of anonymity because court policy forbids him from speaking on the record. They were ordered jailed while they await a hearing on extradition to the U.S.
Authorities said three other people were arrested last week in New York City, including Liberty Reserve co-founder Vladimir Kats. Information about their arraignment was filed under seal. The two remaining defendants were at large in Costa Rica.
The names of the defendants’ attorneys were not immediately available.
A notice pasted across Liberty Reserve’s website Tuesday morning said the domain “has been seized by the United States Global Illicit Financial Team.” Attempts to reach Liberty Reserve by phone and email were not immediately successful.
Budovsky and Kats have previous convictions on charges related to an unlicensed money-transmitting business, according to court papers. After that case, the pair decided to move their operation to Costa Rica, the papers said.
In an online chat captured by law enforcement, Kats admitted Liberty Reserve was illegal and noted that authorities in the United States knew it was “a money-laundering operation that hackers use.”
While authorities described Liberty Reserve as being rife with criminals, the site’s ease of use, low fees and irreversible transactions that deterred fraud also attracted legitimate users.
Mitchell Rossetti, whose Houston-based ePayCards.com was one of several mainstream merchants that accepted Liberty Reserve’s online-only currency, said his business still had about $28,000 tied up in Liberty Reserve accounts.
“The irony of this is I went to them because of the security,” Rossetti said. “All sales were final.”
He acknowledged that the currency was being used by scammers but said Liberty Reserve funds were just like any other currency: “The U.S. dollar can be donated to a church or it can pay a prostitute.”
Liberty Reserve appears to have played an important role in laundering proceeds from the recent theft of some $45 million from two Middle Eastern banks, according to documents made public by U.S. authorities earlier this month. In that scheme, thieves stole debit card information and then used it to drain cash from thousands of ATMs around the world in a matter of hours.
As part of the Liberty Reserve investigation, authorities raised 14 places in Panama, Switzerland, the U.S., Sweden and Costa Rica. In Costa Rica, investigators recovered five luxury cars, including three Rolls-Royces. Bharara said authorities also seized Liberty’s computer servers in Costa Rica and Switzerland.