Alleged $6B Money-Laundering Network Busted

2:36 PM, May 28, 2013   |    comments
Photo: NOEL CELIS/AFP/Getty Images)
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by Kevin McCoy, USA TODAY


- The largest ever money-laundering scheme was described as staggering in scope.

- Liberty Reserve's website was seized by U.S. authorities.

- The network was used by cyber criminals to distribute, store and launder proceeds of their illegal activity.

NEW YORK - An alleged $6 billion money-laundering cyber network of "staggering" scope that helped hide illegal transactions worldwide has been busted with arrests of five of its operators, authorities said Tuesday.

The arrests, carried out Friday in Brooklyn, N.Y., Spain and Costa Rica, nabbed alleged principals of Liberty Reserve, a Costa Rica-based company that allegedly had more than 1 million users worldwide, including more than 200,000 in the U.S.

Detailing what authorities called the largest international money-laundering case in history, Manhattan U.S. Attorney Preet Bharara said the suspects and company were indicted for allegedly facilitating 55 million transactions that concealed the proceeds of credit card fraud, identity theft, computer hacking, child pornography, narcotics trafficking and other crimes.

"As alleged, the only liberty that Liberty Reserve gave many of its users was the freedom to commit crimes - the coin of its realm was anonymity, and it became a popular hub for fraudsters, hackers and traffickers," said Bharara, who described the indictment as "an important step towards reining in the 'Wild West' of illicit Internet banking."

The suspects, charged with money laundering and other charges, include alleged Liberty Reserve principal founder Arthur Budovsky, who was arrested in Spain, and co-founder Vladimir Kats, who was arrested in Brooklyn. Three others were nabbed in arrests in Brooklyn and Costa Rica, and two other suspects remain at large, authorities said.

Costa Rica police confirmed that Budovsky had been arrested in Spain on money laundering charges and that several premises linked to his company had been raided, the Associated Press reported. An online notice on Liberty Reserve's website said the domain name "has been seized by the United States Global Illicit Financial Team."

Incorporated in Costa Rica in 2006, Liberty Reserve "provided its users with what it described as 'instant, real-time currency for international commerce" that can be used to "send and receive payments from anyone, anywhere on the globe," the indictment charged.

The network, which the indictment alleged was structured and operated "to help criminals conduct illegal transactions" and launder the financial proceeds, became "one of the world's most widely used digital currencies" by billing the transactions as "anonymous and untraceable."

Liberty Reserve clients allegedly opened accounts through the company website. Although they were required to supply basic background information, the company did not require users to validate their identities.

As a result, users often used false identifications, including "Russia Hackers" and "Hacker Account," the prosecutors charged. A law enforcement official who opened an account as part of the investigation executed transactions through a Liberty Reserve account in the name of "Joe Bogus" at "123 Fake Main Street" in "Completely Made Up City, New York," prosecutors charged.

Liberty Reserve may have played a role in laundering the proceeds from the recent theft of approximately $45 million from two Middle Eastern banks, according to court documents filed in New York earlier this month.

The criminal complaint filed against one of the Dominican Republic gang members allegedly involved in the theft stated that thousands of dollars in stolen cash was deposited into two Liberty Reserve accounts through currency centers in Siberia and Singapore.

Liberty Reserve charged a 1% fee, up to a maximum of $2.99, every time a user made a transaction to another client through the network. For an additional 75-cent "privacy fee," a user could hide her or his own account number when transferring funds, "effectively making the transfer completely untraceable, even within Liberty Reserve's already opaque system," prosecutors charged.

Budovsky and Katz were previously convicted on charges involving an unlicensed money-transmitting business. Afterward, they decided to launch Liberty Reserve in Costa Rica in an effort to avoid investigation and arrest by U.S. authorities, prosecutors charged.

In an online chat captured by law enforcement, Katz "explicitly described" Liberty Reserve's operations as "illegal" and said everyone in the U.S., including federal authorities, knew the network was a "money laundering operation that hackers use," prosecutors charged.

Aditya Sood, a computer science doctoral candidate at Michigan State University who has studied the underground economy, told the Associated Press that Liberty Reserve functioned as a no-questions-asked alternative to the global banking system, with little more than a valid email needed to open an account and start moving money across borders.

"You don't need to provide your full details, or personal information, or things like that," Sood told the Associated Press in a telephone interview. "There's no way to trace an account. That's the beauty of the system."

However, Acting Assistant U.S. Attorney General Mythili Raman said the charges announced Tuesday showed that "money launderers can run, but they can't hide from the U.S. justice system."

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