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Online Service Is Accused in Laundering of $6 Billion Online Currency Exchange Accused of Laundering $6 Billion
(about 5 hours later)
The operators of what the authorities described as one of the world’s largest online money laundering organizations, a central hub for criminals trafficking in everything from stolen identities to child pornography, were charged in an indictment unsealed by federal prosecutors on Tuesday. The operators of a global currency exchange ran a $6 billion money-laundering operation online, a central hub for criminals trafficking in everything from stolen identities to child pornography, federal prosecutors in New York said on Tuesday.
The organization, Liberty Reserve, was responsible for laundering over $6 billion over the last seven years, with millions of customers around the world, according to the indictment. Prosecutors said that the company “facilitated global criminal conduct” and that the case, which involved law enforcement agencies in 17 countries, is believed to be the largest international money laundering prosecution in history. The currency exchange, Liberty Reserve, operated beyond the traditional confines of United States and international banking regulations in what prosecutors called a shadowy netherworld of cyberfinance. It traded in virtual currency and provided the kind of anonymous and easily accessible banking infrastructure increasingly sought by criminal networks, law enforcement officials said.
The charges detailed a complicated system designed to allow people to move sums of money both large and small around the world with virtual anonymity, according to a three-count indictment announced by the United States attorney’s office in Manhattan. The charges announced at a news conference by Preet Bharara, the United States attorney in Manhattan, and other law enforcement officials, mark what officials said was believed to be the largest online money-laundering case in history. Over seven years, Liberty Reserve was responsible for laundering billions of dollars, conducting 55 million transactions that involved millions of customers around the world, including about 200,000 in the United States, according to prosecutors.
“This was really PayPal for criminals,” a senior law enforcement official said, calling the company and a system of related businesses “a shadow banking system for criminal conduct” that was “able to facilitate all sorts of criminal conduct that would not otherwise happen.” Richard Weber, who heads the Internal Revenue Service’s criminal investigation division in Washington, said at the news conference that the case heralds the arrival of “the cyber age of money laundering,” in which criminals “are gravitating toward digital currency alternatives as a means to move, conceal and enjoy their ill-gotten gains.”
The indictment charges seven of the company’s principals and employees. Five of them were arrested Friday in Spain, Costa Rica and Brooklyn. “If Al Capone were alive today, this is how he would be hiding his money,” Mr. Weber said. “Our efforts today shatter the belief among high-tech money launderers that what happens in cyberspace stays in cyberspace.”
“Liberty Reserve was in fact used extensively for illegal purposes, functioning in effect as the bank of choice for the criminal underworld,” the indictment states. Just as PayPal revolutionized how people shop online, making it possible to buy a microwave oven or concert tickets with the click of a button, Liberty Reserve sought to create a similarly convenient way for criminals to make financial transactions, law enforcement officials said.
Liberty Reserve, an online currency exchange, has surfaced as a preferred vehicle to transfer money between parties in a number of recent high-profile cybercrimes, including the indictment of eight New Yorkers for their role in looting $45 million from bank machines in 27 countries. The charges detailed a complicated system designed to allow people to move sums large and small around the world with virtual anonymity, according to an indictment, which was unsealed in federal court in Manhattan.
Liberty Reserve was incorporated in Costa Rica in 2006 by Arthur Budovsky, who renounced his United States citizenship in 2011, and was arrested in Spain on Friday. “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,” Mr. Bharara said at the news conference, where officials from the Justice and Treasury Departments, as well as the Secret Service and Homeland Security Investigations, also spoke. “The global enforcement action we announce today is an important step toward reining in the ‘Wild West’ of illicit Internet banking. As crime goes increasingly global, the long arm of the law has to get even longer, and in this case, it encircled the earth.”
Preet Bharara, the United State attorney in Manhattan, was expected to announce the charges at a Tuesday afternoon news conference along with officials from the Justice Department, the Secret Service, the Internal Revenue Service and the Department of Homeland Security. Liberty Reserve surfaced as a preferred vehicle to transfer money between parties in a number of recent high-profile cybercrimes, including the indictment of eight New Yorkers accused of helping to loot $45 million from bank machines in 27 countries, officials said.
In addition to the criminal charges, five domain names were seized, including the one used by Liberty Reserve, and officials seized or restricted the activity of 45 bank accounts. Liberty Reserve was incorporated in Costa Rica in 2006 by Arthur Budovsky, who renounced his United States citizenship in 2011, and was arrested in Spain on Friday. He was among seven people charged in the case; five of them were under arrest, while two remained at large in Costa Rica. All were charged with conspiracy to commit money laundering, conspiracy to operate an unlicensed money-transmitting business, and operating an unlicensed money-transmitting business. The money laundering count carries a maximum sentence of 20 years in prison, and the other two charges carry a maximum of 5 years each.
The charges outlined how the money transfer system operated, offering a glimpse into the murky world of online financial transactions that bounces money between far-flung accounts from Cyprus to New York in the blink of an eye. In addition to the criminal charges, five domain names were seized, including the one used by Liberty Reserve. Officials also seized or restricted the activity of 45 bank accounts.
In order to transfer money using Liberty Reserve, a user needed to provide a name, address and date of birth. But they were not required to validate their identity. The closing of Liberty Reserve last week seemed to have an immediate chilling effect on its customers, who were suddenly unable to access their funds and who posted anxious comments in underground forums, according to law enforcement officials. Mr. Bharara said the exchange’s clientele was largely made up of criminals, but he invited any legitimate users to contact his office to get their money back.
“Accounts could therefore be opened easily using fictitious or anonymous identities,” the indictment states. Prosecutors cited “blatantly criminal monikers” used by Liberty Reserve clients like “Russia Hackers.” The charges outlined how the money transfer system operated, offering a glimpse into the murky world of online financial transactions where money bounces between accounts from Cyprus to New York in the blink of an eye.
To transfer money using Liberty Reserve, a user needed only to provide a name, address and date of birth. But users were not required to validate their identity.
“Accounts could therefore be opened easily using fictitious or anonymous identities,” the indictment states. Prosecutors cited “blatantly criminal monikers” used by Liberty Reserve clients, like “Russia Hackers.”
Essentially, all a customer needed to open an account was an e-mail address.Essentially, all a customer needed to open an account was an e-mail address.
The senior law enforcement official, who spoke on the condition of anonymity because the charges had not yet been announced, said that one undercover agent was able to register accounts under names like “Joe Bogus” and describe the purpose of the account as “for cocaine” without questioning. That no-questions-asked verification system made Liberty Reserve the premier bank for cybercriminals, facilitating a broad range of illegal online activity. One undercover agent was able to register accounts under names like “Joe Bogus” and describe the purpose of the account as “for cocaine” without being questioned, officials said. That no-questions-asked verification system made Liberty Reserve the premier bank for cybercriminals, prosecutors said.
The senior law enforcement official said the case was significant because it attacked the financial infrastructure utilized by many cyber criminals in much the same way that drug money laundering prosecutions have sought to target the financial underpinnings of the narcotics trade. The case is significant, prosecutors said, because it attacks the financial infrastructure used by many cybercriminals in much the same way that drug-money-laundering prosecutions unravel the financial underpinnings of the narcotics trade.
“They’re not going to have this kind of fluid system that allows them to work globally in the same way,” the official said, noting that federal authorities were unaware of any other such system that operates on a similar scale. “It’s not the end of it,” the official said, referring generically to such cyber money laundering schemes, “but it’s a big deal.” Dismantling the Liberty Reserve operation was “critical because transnational criminal organizations can succeed only so long as they can funnel their illicit proceeds freely and without detection,” said James T. Hayes Jr., the special-agent-in-charge for Immigration and Customs Enforcement Homeland Security Investigations.
The business operated with even more anonymity, law enforcement officials say, than Bitcoin, a payment network started in 2009 to offer a decentralized way to create and transfer electronic cash around the world. Bitcoin transactions are stored in a public ledger, making it possible to trace Bitcoin transactions even years after the fact. While Liberty Reserve was incorporated outside the United States, federal officials used a provision in the Patriot Act to target the organization and other financial institutions with whom they conducted business. It was the first time the provision had been used to prosecute a virtual currency provider, officials said.
The closing of Liberty Reserve seemed to have an immediate chilling effect on cybercriminals, who were suddenly unable to access their funds over the weekend. In underground forums, they posted increasingly anxious comments about how to access their frozen funds, according to law enforcement officials. Liberty Reserve did not take or make cash payments directly and instead used “third-party ‘exchangers,’ ” according to the indictment. These exchangers would take and make payments, and then credit or debit the Liberty Reserve account, allowing Liberty Reserve to avoid collecting any banking information on its clients and not leave a “centralized financial paper trail,” the indictment said.
The authorities arrested Vladimir Kats, a founder of Liberty Reserve, in Brooklyn. The authorities in Spain arrested Arthur Budovsky, another founder, and Azzeddine El Amine, a principal. Allan Esteban Hidalgo Jimenez and Ahmed Yassine Abdelghani, who managed day-to-day operations for the company, were still at large in Costa Rica, according to law enforcement officials, who said those in custody would be extradited to the United States. The exchangers, the indictment said, “tended to be unlicensed money-transmitting businesses without significant government oversight or regulation, concentrated in Malaysia, Russia, Nigeria and Vietnam.”
Once an account was established, a user could send or receive money to other users.
However, Liberty Reserve did not take or make payments of actual cash directly. Instead, they used “third-party ‘exchangers,'” according to the indictment.
These exchangers would take and make payments and then credit or debit the Liberty Reserve account. Law enforcement officials seized four currency exchanges that operate with the business and 35 other Web sites.
This allowed Liberty Reserve to avoid collecting any banking information on its clients and not leave a “centralized financial paper trail.”
Liberty Reserve recommended a number of “preapproved exchangers” to its users, which “tended to be unlicensed money transmitting businesses without significant government oversight or regulation, concentrated in Malaysia, Russia, Nigeria and Vietnam,” the indictment said.
The people who accepted Liberty Reserve’s currency were “overwhelmingly criminal in nature,” according to the indictment.The people who accepted Liberty Reserve’s currency were “overwhelmingly criminal in nature,” according to the indictment.
“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 Web sites,” according to the indictment.“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 Web sites,” according to the indictment.
Despite the case against Liberty Reserve, security experts said, there were plenty of online payment systems that allow users to move money without verifying their identities.
“Organized crime and terrorist groups are now financing their operations through these anonymous payment systems,” said Tom Kellermann, a vice president at Trend Micro, a security firm. “The financial sector no longer has a monopoly on moving capital around the world.”