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Huge U.S. Fraud Probe Targets Digital Currency

  • RFE/RL

U.S. Attorney Preet Bharara announced the indictment on May 28.

U.S. Attorney Preet Bharara announced the indictment on May 28.

U.S. prosecutors have indicted the operators of an online currency transfer business, accusing them of helping criminals around the world launder more than $6 billion in illicit funds.

The indictment unsealed May 28 said the company, Liberty Reserve, had more than 1 million users worldwide, including at least 200,000 in the United States.

It alleges that nearly all the Costa Rica-based company’s business was related to suspected criminal activity, including child pornography, credit card fraud, and narcotics trafficking.

The alleged scheme allowed criminals to move money anonymously from one account to another via the Internet and beyond the supervision of national governments.

Seven people, reportedly including some from the former Soviet Union, have been charged in connection with the case.

Five suspects have been arrested so far, including the company’s founder, Arthur Budovsky, who was detained in Spain.

Budovsky is described as a Ukrainian-born former U.S. citizen who took Costa Rican citizenship.

U.S. investigators have also conducted a series of raids on offices, seized bank accounts, and shut down Internet sites affiliated with Liberty Reserve.

Preet Bharara, the U.S. attorney for the Southern District of New York, described the case as perhaps "the largest international money-laundering case ever brought by the United States."

"Liberty Reserve deliberately operated in a way to attract and aid criminals who wished to use digital currency to break the law and to launder the proceeds of their crimes -- serious crimes including credit card fraud, identity theft, investment fraud, computer hacking, child pornography, and even narcotics trafficking," Bharara said.

He added: "All told, Liberty Reserve allegedly processed 55 million separate financial transactions and laundered a staggering $6 billion in criminal proceeds."

Liberty Reserve used digital currency, or “electronic money,” that is not produced by government-endorsed central banks. The use of such currencies has expanded over the past decade.

Liberty Reserve was not registered with U.S. authorities and the company did not require proof of identity of its users.

The U.S. indictment says Liberty Reserve allowed users to open accounts under false names, including obviously fake ones such as "Russian Hacker" and "Hacker Account."

With an account at Liberty Reserve, a user could convert real currency into virtual funds through a third-party exchanger and later convert the virtual funds back to cash.

The user’s real identity could remain concealed -- making it a sought-after service among criminals, according U.S. prosecutors.

Officials said Budovsky was arrested on May 24 in Spain along with his deputy, Azzedine El Amine.

Officials said two suspects, Vladimir Kats and Mark Marmilev, were arrested in New York.

Another suspect, Maxim Chukarev, described as a Russian citizen, was arrested in Costa Rica.

Officials said two more company employees were still at large in Costa Rica.

An official notice posted on Liberty Reserve's website on May 28 said the domain "has been seized by the United States Global Illicit Financial Team."

With reporting by AP, Reuters and AFP