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.
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