Liberty Reserve shut down, founder arrested
US federal prosecutors have unsealed the indictment of seven men who were allegedly involved in the Costa-Rica-based digital currency and exchange service, Liberty Reserve. Authorities in the US had already seized the service's domain, effectively shutting down its web site, late last week. The site's founder Arthur Budovsky Belanchuk, a former US citizen who now holds Costa Rican nationality, was arrested in Spain on Friday.
The indictment charges the defendants with money laundering and conspiracy to operate an unlicensed money transmitting business and orders them to surrender all property in connection with the Liberty Reserve operation, including more than $6 billion the site is believed to have laundered since 2006. Millions of dollars of these proceeds have allegedly been deposited in bank accounts around the globe, including in Costa Rica, China, Russia and Morocco. The investigation involved officials from 17 countries.
Users of Liberty Reserve exchanged native currencies for the service's LR currency and were then able to transfer funds worldwide. Since the service allowed anyone to sign up without any identity checks and even advertised "privacy features", it made it trivially easy for users to hide their tracks. It is alleged that this mode of operation, coupled with a complete absence of oversight by any regulatory authorities made it an ideal haven for money laundering operations.
According to the US Department of Justice, Liberty Reserve was "used extensively for illegal purposes, functioning in effect as the bank of choice for the criminal underworld." The site was allegedly used to facilitate fraud, identity theft, illegal access to computer systems, drug trafficking and child pornography. The service is believed to have had more than a million users and had processed more than 12 millions transactions a year.