Money-Laundering Liberty Reserve

According to US Attorney, Preet Bharara in the southern district of New York if you are an underworld criminal, then the ‘bank’ to go to at the moment is the Costa Rica based Liberty Reserve. Or rather it was.

Liberty Reserve is a private currency exchange system that enables the withdrawal of funds from and transfer to Bitcoin exchange markets. The two currencies that are used in the system are the Liberty Reserve USD (LRUSD) and the Liberty Reserve Euro (LREUR). However as of May 27th the system has been taken off line by federal prosecutors in New York on the arrest of the founder, Arthur Budovsky along with four other men. They have all been charged with money-laundering. Two others are actively been searched for by authorities at the present time.

The Liberty Reserve system enabled the transfer of money anywhere in the world either in US Dollars or in Euros. Law enforcement investigations took place in 17 different countries. The company was set up in 2006 and is one of many digital currencies that are used across the world. The average value of transfer since the company was set up amounts to $12m per year and the investigators found that almost all of the activity that went through Liberty Reserve was related to criminal or suspected criminal dealings. It has been estimated by federal prosecutors that the value of the criminal money transfers adds up to approximately $6 billion.

The problems stemmed from the fact that in order to make a transfer via Liberty reserve you did not have to prove your identity. Local currency from the country where the transfer was being made was converted into the private currency of the company (Liberty Dollars or Liberty Euros). This was then converted into the currency of your choice in the country which was on the receiving end of the money transfer, with a percentage being retained by Liberty Reserve.

Budovsky was also known under the names of Arthur Belanchuk and Eric Paltz. He is a naturalized Costa Rican citizen. He had already come in for a brush with the law under similar circumstances when he was arrested in 2007 and put on probation for five years after pleading guilty to running a similar digital transfer system called E-Gold.

The indictment of Budovsky comes as a sign that the US Department of Justice has finally decided to clamp down on digital currencies in a bid to stamp out (if they can) money-laundering in the world. In August 2012, authorities in the US had already decided to temporarily freeze accounts of users and request that they provide proof of identity before they would allow any transactions to continue. At the time, there were accusations that even when ID was provided, the authorities maintained the freeze on accounts and transactions were blocked.

However, some, whose transactions appear to have been bona fide via Liberty Reserve, have had their accounts with the system frozen, leading to severe set-backs for their businesses.

Liberty Reserve used the slogan: “the oldest, safest and most popular payment processor…serving millions in the world”. There were more than 1 million that had accounts with the company. It has been said that the Liberty Reserve case will be the largest money-laundering operation that has been closed down and brought to justice in the US of all time.

Illicit internet banking is big business. The G7 countries of 1989 set up the FATF (Financial Action Task Force) to fight against money laundering and the financing of terrorism in the world. Its headquarters are in Paris. There are estimates that the amount of money laundered each year in the world stands at 2-5% of world GDP. That works out to $800 billion. However, that estimate is a cautious low on what some might be putting forward as a figure. The tip of the ice-berg. Growths and speed of developments of financial transactions and information technology have enabled the moving of money at the blink of an eye across the planet today.

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