February 14, 2020

In May 2013, the U.S. Justice Department seized Liberty Reserve, alleging the virtual currency service acted as a $6 billion financial hub for the cybercrime world. Prompted by assurances that the government would one day afford Liberty Reserve users a chance to reclaim any funds seized as part of the takedown, KrebsOnSecurity filed a claim shortly thereafter to see if and when this process might take place. This week, an investigator with the U.S. Internal Revenue Service finally got in touch to discuss my claim.

Federal officials charged that Liberty Reserve facilitated a “broad range of criminal activity, including credit card fraud, identity theft, investment fraud, computer hacking, child pornography, and narcotics trafficking.” The government says from 2006 until the service’s takedown, Liberty Reserve processed an estimated 55 million financial transactions worth more than $6 billion, with more than 600,000 accounts associated with users in the United States alone.

While it’s clear that the digital currency system for years was the go-to money-moving vehicle for many engaged in dodgy online activities, it also was favored by users primarily because it offered a relatively anonymous way to send irrevocable transfers globally with low fees.

The two stories I wrote about the closure of Liberty Reserve in 2013 remain among the most-read on this site, and have generated an enormous volume of emails from readers who saw many thousands of dollars held in legal limbo — much of it related to investments in online gaming platforms, payments to and from adult entertainment services, and various investment schemes.

The IRS official who contacted me was not authorized to be quoted in the media (and indeed did not initially realize he was speaking to a member of the press when he called). But he told me the government had recently obtained legal access to some of the funds held in overseas bank accounts that were used by Liberty Reserve, and that IRS investigators were now starting to contact people and vet any claims made in the wake of the takedown.

“We’re just getting to the point where we have received funds,” the investigator said. “We’ve started to contact people who originally contacted us, to vet their claims, make sure they weren’t involved in any illegal activity, and that the claim amounts match the records that we have.”

The official said he didn’t know how much money in total the government was seeking to return to former Liberty Reserve users. Requests for this information from the Justice Department office that prosecuted the case — the U.S. Attorney for the Southern District of New York — went unanswered.

The founder of Liberty Reserve, 45-year-old Arthur Budovsky, pleaded guilty in 2016 to conspiring to commit money laundering. He was sentenced to 20 years in prison, ordered to pay a $500,000 fine and forfeit $122 million in company funds.

If you filed a monetary claim in response to the Liberty Reserve seizure years back, you may have already been contacted by federal investigators, or you may be soon. But please know that fraudsters will likely seize on public awareness about the possible repatriation of funds to fleece the unwary: KrebsOnSecurity has received more than a few emails from readers over the years who fell for various phishing scams that promised to return funds lost at Liberty Reserve in exchange for a bogus “processing fee.”

26 thoughts on “A Light at the End of Liberty Reserve’s Demise?

  1. JCitizen

    I was trying to remember if bitcoin was ever a thing here on KOS for donation purposes; maybe some other readers with better memory will comment.

  2. vb

    Even of the funds *might* have been used for illegal activity, the funds should be returned, unless that person is convicted of a crime relating to the funds. The government should behave better than a thief.

    1. Robert

      Obviously you haven’t heard of civil asset forfeiture (in the USA). Quite literally, any cop can claim any property (or money) was proceeds of a crime and take it. You don’t even have to be charged with a crime, let alone convicted.

      Don’t like it. Then you have to sue (at your expense even if you win) to get it back, with the burden on you to show it was not proceeds of a crime.

      Sounds like a theft by the government to me, and it is all perfectly legal.

        1. Mikey Doesn't Like It

          @Robert @Larry

          Please, give us a break!

          Brian wrote about this specific case, where the perp has been convicted, sent to prison and ordered to forfeit at least some of the $$ they’ve been able to identify as ill-gotten. Period. Surely you can’t argue that they shouldn’t seize and return what they can?

          Yes, asset forfeiture can be problematic — and often is — but not everything the government does is evil. As this case demonstrates. Let’s stick to discussing this case in Brian’s blog and save our disdain for government for political blogs.

          1. Pete B

            Obviously you missed the entire premise behind his post. Civil asset forfeiture has everything to do with this and the monies being returned to non-criminal enterprises.

            How are you missing that connection?

            1. Mikey Doesn't Like It

              Non-criminal enterprises?? The guy was convicted of multiple felonies. Every reason for his ill-gotten gains to be seized and returned. Period.


              1. Bobo

                This story is about how other non-criminals are trying to get their money back. People who have not even been investigated or charged with a crime.

  3. Rip

    Rip liberty reserve!

    Nice memories about lr!
    It was one of the nicest times 🙂

    Best USA dollar wallet Nice one liberty Reresre was just best one!!

  4. bill

    Brian – thanks for the report. It struck me today as newspapers slide into bankruptcy that individuals like you are becoming the benchmark for unbiased reporting. What an unintended consequence of the internet.

    Keep up the clarion call.

  5. Dennis

    Yeah, man, they are opening doors for even more phone scam.

    So the rule of thumb is that if you get a call from a “federal investigator” that speaks with an Indian accent, you should probably hang up 🙂

    1. Badtux

      The fraudsters have figured that out. They use work-at-home schemes to get Americans to do this. So if you get someone calling you with an Iowa accent, it could be a “federal investigator” — or it could be someone working for the Russian mob as part of a graft scheme. You can’t use the accent to decide which, you must use the contents of what he says.

  6. Hosed

    Thanks for all the reporting, Brian. These virtual/crypto currencies have been nothing but trouble from the get-go. As far as recovery goes, well, a relative got in a similar spot and only recovered .10 on the dollar…they’d spent the rest before arrest. And this was with the SEC hitting them…good luck (I mean it).

  7. Readership1

    SDNY is moving so slowly because they’re too busy going after conservative targets and grabbing headlines for career advancement. It’s a disgrace what it became over the past decade.

    1. Anon404

      Its a disgrace what the DoJ has become under Barr. Over 2000 current and former officials calling for him to resign. Such a disgrace.

      1. Readership1

        They’re enrolled members of a “resist” group who claiming to be officials. No one has vetted the group or its claimed membership. Repeating the claim doesn’t make it true.

  8. BillB

    Brian: Just curious. How did you vet this IRS investigator to assure yourself he was the real deal?

  9. member

    is funny how usa takes advantage of its power to get money for free. I mean they are basically legal thieves , the owner stays in prison while the government enjoys people’s profit . Take facebook big fine that only usa took advatange of and not 1 single dollar went to the people that got their data stolen without their consent . Usa law enforment never care or do this kind of actions having in mind doing the world a better place, they only care about the easy money grabbing method and take advantage of any situation they can.

    1. Readership1

      If Facebook actually cared about the fines, they’d encourage their executives to march into the halls of government and utilize their rights to forcefully demand change.

      They won’t, because they don’t care. Not because the USA is bad. But because they’re pacifists.

    2. Sharur

      While there are valid concerns of “legal thievery” (see discussion of civil asset forfeiture, above), fines are criminal punishments meant to deter behavior, not restore those who have been harmed (which is why a victim cannot demand to have charges dropped).

      Civil remedies (e.g. lawsuits) are designed to make people whole for the losses that they have incurred.

      I.e. the fines for Facebook (in theory) are to deter them from continuing the bad behavior.

  10. Doritos

    I remember having lost $14,000 in this fiasco! :'( RIP my money.

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