Posts Tagged: Vladimir Kats


28
May 13

U.S. Government Seizes LibertyReserve.com

Indictment, arrest of virtual currency founder targets alleged “financial hub of the cybercrime world.”

U.S. federal law enforcement agencies on Tuesday announced the closure and seizure of Liberty Reserve, an online, virtual currency that the U.S. government alleges acted as “a financial hub of the cyber-crime world” and processed more more than $6 billion in criminal proceeds over the past seven years.

After being unreachable for four days, Libertyreserve.com's homepage now includes this seizure notice.

After being unreachable for four days, Libertyreserve.com now includes this seizure notice.

The news comes four days after libertyreserve.com inexplicably went offline and newspapers in Costa Rica began reporting the arrest in Spain of the company’s founder Arthur Budovsky, 39-year-old Ukrainian native who moved to Costa Rica to start the business.

According to an indictment (PDF) filed in the U.S. District Court for the Southern District of New York, Budovsky and five alleged co-conspirators designed and operated Liberty Reserve as “a financial hub of the cyber-crime world, facilitating a broad range of online criminal activity, including credit card fraud, identity theft, investment fraud, computer hacking, child pornography, and narcotics trafficking.”

The U.S. government alleges that Liberty Reserve processed more than 12 million financial transactions annually, with a combined value of more than $1.4 billion. “Overall, from 2006 to May 2013, Liberty Reserve processed an estimated 55 million separate financial transactions and is believed to have laundered more than $6  billion in criminal proceeds,” the government’s indictment reads. Liberty Reserve “deliberately attracted and maintained a customer base of criminals by making financial activity on Liberty Reserve anonymous and untraceable.”

Despite the government’s claims, certainly not everyone using Liberty Reserve was involved in shady or criminal activity. As noted by the BBC, many users — principally those outside the United States — simply viewed the currency as cheaper, more secure and private alternative to PayPal. The company charged a one percent fee for each transaction, plus a 75 cent “privacy fee” according to court documents.

“It had allowed users to open accounts and transfer money, only requiring them to provide a name, date of birth and an email address,”  BBC wrote. “Cash could be put into the service using a credit card, bank wire, postal money order or other money transfer service. It was then “converted” into one of the firm’s own currencies – mirroring either the Euro or US dollar – at which point it could be transferred to another account holder who could then extract the funds.”

But according to the Justice Department, one of the ways that Liberty Reserve enabled the use of its services for criminal activity was by offering a shopping cart interface that merchant Web sites could use to accept Liberty Reserve as a form of payment (I’ve written numerous stories about many such services).

“The ‘merchants’ who accepted LR currency were overwhelmingly criminal in nature,” the government’s indictment alleges. “They included, for example, traffickers of stolen credit card data and personal identity information; peddlers of various types of online Ponzi and get-rich-quick schemes; computer hackers for hire; unregulated gambling enterprises; and underground drug-dealing websites.”

A Liberty Reserve shopping cart at an underground shop that sells stolen credit cards.

A Liberty Reserve shopping cart at an underground shop that sells stolen credit cards.

It remains unclear how much money is still tied up in Liberty Reserve, and whether existing customers will be afforded access to their funds. At a press conference today on the indictments, representatives from the Justice Department said the Liberty Reserve accounts are frozen. In a press release, the agency didn’t exactly address this question, saying: “If you believe you were a victim of a crime and were defrauded of funds through the use of Liberty Reserve, and you wish to provide information to law enforcement and/or receive notice of future developments in the case or additional information, please contact (888) 238- 0696 or (212) 637-1583.”

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