One of the World’s Largest Digital Currency Companies and Seven of Its Principals and Employees Charged in Manhattan Federal Court with Running Alleged $6 Billion Money Laundering Scheme. (PART II) | WPN World People News

Liberty Reserve was incorporated in Costa Rica in 2006 and operated the digital currency commonly referred to as “LR.” While the company billed itself as the Internet’s “largest payment processor and money transfer system,” serving “millions” of people around the world, including the U.S., at no time did the company register with the U.S. Department of the Treasury as a money transmitting business, as required by law.

Budovsky, the principal founder of Liberty Reserve, directed and supervised its operations, finances, and corporate strategy. Kats, a co-founder, helped operate the company until 2009. The day-to-day operations of Liberty Reserve were managed, at different times, by Hidalgo and Yassine. El Amine managed various financial accounts controlled by Liberty Reserve, while Marmilev and Chukharev were primarily responsible for designing and maintaining the company’s technological infrastructure.

Overview of Liberty Reserve’s Money Laundering Operation

The defendants created, structured and operated Liberty Reserve as a criminal bank-payment processor designed to help users conduct illegal transactions anonymously and launder the proceeds of their crimes. It emerged as one of the principal money transfer agents used by cyber criminals around the world to distribute, store, and launder the proceeds of their illegal activity. The company grew into a financial hub of the cybercrime world, facilitating a broad range of online criminal activity, including credit card fraud, identity theft, investment fraud, computer hacking, child pornography and narcotics trafficking. Liberty Reserve was used extensively for illegal purposes, functioning as the bank of choice for the criminal underworld because it provided an infrastructure that enabled cyber criminals around the world to conduct anonymous and untraceable financial transactions.

The defendants also protected the criminal infrastructure of Liberty Reserve by, among other things, lying to anti-money laundering authorities in Costa Rica and pretending to shut down Liberty Reserve after learning the company was being investigated by U.S. law enforcement. They then continued operating the business through a set of shell companies, and moved tens of millions of dollars through shell company accounts maintained in Cyprus, Russia, China, Hong Kong, Morocco, Spain, Australia and elsewhere.

The Criminal Design of Liberty Reserve

In order to use LR currency, a user first had to open an account through the Liberty Reserve website and provide basic identifying information. Unlike traditional banks or legitimate online processors, Liberty Reserve did not require users to validate their identities. Users routinely established accounts under false names, including such blatantly criminal names as “Russia Hackers” and “Hacker Account.” As part of the investigation, a law enforcement agent opened and executed transactions through an undercover account at Liberty Reserve in the name of “Joe Bogus” and the address “123 Fake Main Street” in “Completely Made Up City, New York.”

Once an account was established, the user could conduct transactions with other Liberty Reserve users. In these transactions, the user could receive transfers of LR from other users’ accounts, and transfer LR from his or her own account to other users, including any “merchants” that accepted LR as payment. Liberty Reserve charged a one-percent fee up to a maximum of $2.99, every time a user transferred LR to another user through the Liberty Reserve system. For an additional “privacy fee” of 75 cents per transaction, a user could hide his or her own Liberty Reserve account number when transferring funds, effectively making the transfer completely untraceable, even within Liberty Reserve’s already opaque system.

To add an additional layer of anonymity, Liberty Reserve did not permit users to fund their accounts by transferring money to the company directly through a credit card transfer or other means. Users also could not withdraw funds from their accounts directly. Instead, Liberty Reserve users were required to make any deposits or withdrawals through the use of third-party “exchangers,” which enabled the company to avoid collecting any information about its users through banking transactions or other activity that would leave a centralized financial paper trail. Budovsky, Kats and El Amine owned and operated certain Liberty Reserve exchanger services.

The Liberty Reserve website recommended a number of “pre-approved” exchangers, which tended to be unlicensed money transmitting businesses operating in countries without significant governmental money laundering oversight or regulation, such as in Malaysia, Russia, Nigeria, and Vietnam. The exchangers charged transaction fees for their services that were much higher than the fees charged by mainstream banks or payment processors for comparable money transfers.

The Criminal Use of Liberty Reserve

To further enable the use of Liberty Reserve for criminal activity, its website offered a “shopping cart interface” that “merchant” websites could use to accept LR currency as a form of payment. The “merchants” who accepted LR currency were overwhelmingly criminal in nature. They included 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.

In addition to being used to process payments for illegal goods and services online, Liberty Reserve was also used by cyber criminals to launder criminal proceeds and transfer funds among criminal associates. For example, Liberty Reserve was used by credit-card theft and computer-hacking rings operating in countries around the world, including Vietnam, Nigeria, Hong Kong, China, and the U.S., to distribute proceeds of these conspiracies among the members involved.

The defendants were well aware that Liberty Reserve functioned as an unlawful money-laundering enterprise. In an online chat between Kats and Yassine that was captured by law enforcement, Kats explicitly described Liberty Reserve’s activities as “illegal” and noted that “everyone in USA” such as “DOJ” knows “LR is [a] money laundering operation that hackers use.”

Liberty Reserve, Budovsky, 39, a citizen of Costa Rica who resides in the Netherlands, Kats, 41, of Brooklyn, New York, Yassine, 42, of Costa Rica, Hidalgo, 28, of Costa Rica, El Amine, 46, of Costa Rica, Marmilev, 33, of Brooklyn, New York, and Chukharev, 27, of Costa Rica, are each charged with one count of conspiracy to commit money laundering, which carries a maximum term of 20 years in prison, one count of conspiracy to operate an unlicensed money transmitting business, which carries a maximum term of five years in prison, and operation of an unlicensed money transmitting business, which carries a maximum term of five years in prison. The terms of incarceration apply to the individual defendants.

Source: U.S. Department of Justice