Massive Money Laundering Bust


It’s being described as “staggering in scope”. A massive money laundering bust that hovers near $6 billion was busted wide open this week.

It’s also the largest ever money laundering scheme. American authorities showed up at Liberty Reserve this week and what was found was startling. A network used by different cyber criminals to launder the proceeds of untold illegal activity was uncovered and the worth comes in at a whopping $6 billion. Five arrests have been made so far and more are likely. The arrests were made this past Friday both in and out of the U.S. In Brooklyn, some of the arrests were made, but others were made in Costa Rica and Spain. The company itself is based out of Costa Rica and touts more than one million global users. Of those one million, 200,000 are right here in the United States.

Indictments Passed Down

Federal authorities say both the company and the suspects have been indicted. Manhattan U.S. Attorney Preet Bharara says the charges include child pornography, drug trafficking, identity theft, credit card fraud and computer hacking. There were more than 55 million transactions made to and from the company. During a press release on Monday, Bharara said,

As alleged, the only liberty that Liberty Reserve gave many of its users was the freedom to commit crimes – the coin of its realm was anonymity, and it became a popular hub for fraudsters, hackers and traffickers.

He went on to describe it as an important step in reining in the “wild west of illicit internet banking”.

The suspects themselves have been hit with a host of charges. They, along with its founder Arthur Budovsky, were arrested in Spain while another co-founder, Vladimir Kats, was taken into custody in Brooklyn. Meanwhile, the website itself now has been seized by the U.S. Global Illicit Financial Team, as evidenced by a notice that was posted following the arrests. The domain names and at least four exchanger websites have also been seized. They too have been civilly forfeited.

The company has been in business since 2006 and according the indictment, gave to its users what’s being described as “instant, real-time currency for international commerce”. That currency was being used to send and receive payments for any reason and to and from anyone in the world. Bharara said its only function was to provide assistance to criminals in their illegal transactions while then laundering the money. It became “one of the world’s most widely used digital currencies” because they were supposed to be untraceable and anonymous.

The Massive Money Laundering Efforts

The indictment goes on to accuse Liberty Reserve and its clients of opening various accounts through the company. LR, the digital currency used, was traded easily and with little background information being collected on those opening accounts. In fact, they weren’t even required to validate their identities. Naturally, people lied about who they were. Two of the identifications found included “Russian Hacker” and “Hacker Account”, according to Bharara’s office. Meanwhile, a law enforcement officer opened an account in his efforts of continuing the investigation and was able to execute various transactions using the name Joe Bogus. The address he used was “123 Bogus Main Street” and the city and state was “Completely Made Up City, New York”. No one ever questioned it.

Now, there are concerns that the company could have played a significant role in the money laundering efforts in the two Middle Eastern banks that have “scrubbed” more than $40 million. In this compliant, two Dominical Republic gang members said they had deposited thousands of dollars in stolen cash into Liberty Reserve. These deposits were made in Singapore and Siberia.

The Fees

The company charged no more than $2.99 for each transaction – and usually just a single dollar – as the fee. Users could pay an additional seventy five cents if he wished to “hide” his account number during the transfer. This made the transfer untraceable, said the prosecutor’s office. There were a staggering 12 million transactions that went through the company every single month. The total value of those transactions was a whopping $1.4 billion and already in May, there were 55 million different transactions; clearly the numbers were rising and it’s believed already $6 billion had been laundered in this month alone.

Criminals at Work

Those arrested, at least two of them, have records already. In 2006, the co-founders were arrested and convicted on charges of illegal money transmissions. That company, Gold Age, served as a digital transaction exchange company for e-gold. That was the go-to online currency during that time period. After putting those legalities behind them, they immediately launched Liberty Reserve in Costa Rica. Their goal was to learn from their mistakes while ensuring it never happened again (getting caught).

It didn’t take long, however, for the two to rise above the radar and catch the attention of American law enforcement. Even as one of the crooks renounced his American citizenship, he still was unable to escape the long arm of the U.S. law. He told immigration officers that his software would likely “open him up to liability” on American soil. It did, but not in the way he thought it might. Meanwhile, the other owner, during a chat session with an undercover law enforcement agency, described Liberty Reserve and its operations as “illegal” but that everyone – including U.S. law enforcement – knew of its existence and did nothing.

Brian Krebs, who founded Krebs On Security, said that as soon as the site was taken over by Bharara’s office, users began hitting the various boards to discuss what was going on.

Everybody was trying to find out ‘Where’s our money?,

said Krebs during an interview. He said some of the posters had lost as much as $50,000. He also said they would much rather “believe almost anything other than the U.S. government got their money”. In one of the boards he monitored, a user posted,

Only update this thread with positive news. Only thing I want to hear is LR will be back soon.

Yeah – we’re not betting on that becoming a reality.

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