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Feb 20

A Light at the End of Liberty Reserve’s Demise?

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.”

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16 comments

  1. 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. The Sunshine State

    Another great article, keep them coming !

  3. 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.

    • 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.

      • Yes indeed! Biggest thieves there are!

        • 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.

          • 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?

            • 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.

              Sheesh…

  4. 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!!

  5. 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.

  6. I thought you might like to see this, although knowing you, you already know. But this story is potentially kinda huge.
    “Feds probing how personal Medicare info gets to marketers”
    By RICARDO ALONSO-ZALDIVAR
    https://apnews.com/dad0e6d4f6b461dc3414843c86aca43f

    So just for info. Thanks for all you do.

  7. 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 🙂

    • 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.

  8. 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).

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