NEW YORK - The founder of an online currency-transfer business was indicted in the United States along with six other people in a $6 billion money-laundering scheme described as “staggering” in its scope, authorities said Tuesday.
Arthur Budovsky is the founder of Liberty Reserve, a Costa Rica-based website long favored by cyber-crime scammers, authorities have said. He was arrested in Spain on Friday. A defendant identified as Budovsky’s partner, Vladimir Kats, was in custody in New York.
Authorities said the network processed at least 55million illegal transactions worldwide for 1 million users, including 200,000 in the United States. They called the international money-laundering case the largest ever.
“The scope of the defendants’ unlawful conduct is staggering,” said an indictment unsealed in federal court in Manhattan. In announcing the case, U.S. Attorney Preet Bharara said the network “became the bank of choice for the criminal underworld.”
Its digital currency service was designed to shield the identity of crooked users seeking to launder ill-gotten gains, he said.
“The coin of the realm was anonymity,” he said. “It was the opposite of a know-your-customer policy.”
In a statement, 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. A notice pasted across Liberty Reserve’s website Tuesday morning said the domain “has been seized by the United States Global Illicit Financial Team.”
Attempts to reach Liberty Reserve by phone and e-mail were not immediately successful.
The indictment calls the network “one of the principal means by which cybercriminals around the world distribute, store and launder proceeds of their illegal activity … including credit card fraud, identity theft, investment fraud, computer hacking, child pornography and narcotics trafficking.”
Liberty Reserve allowed users to open accounts using fictitious names, including “Russian Hacker” and “Hacker Account.” The network charged a 1 percent fee on transactions.
A senior law-enforcement official said 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.
To transfer money using Liberty Reserve, users needed to provide a name, address and date of birth. But they were not required to validate their identities.
Aditya Sood, a computer-science doctoral candidate at Michigan State University who has studied the underground economy, described Liberty Reserve as a no-questions-asked alternative to the global banking system, with little more than a valid e-mail 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 said in a telephone interview. “There’s no way to trace an account. That’s the beauty of the system.”
Budovsky and Kats have previous convictions on charges related to an unlicensed money-transmitting business, according to court papers. After that case, Liberty Reserve was incorporated in Costa Rica in 2006. Budovsky off icially renounced his U.S. citizenship in 2011, the papers say.
In an online chat captured by law enforcement, Kats admitted Liberty Reserve was “illegal” and noted that authorities in the United States knew it was “a money-laundering operation that hackers use.”
Budovsky and another man identified by Spanish authorities as Azzeddine el Amine were arrested Friday at Madrid’s Barajas airport while trying to catch a connecting flight from Morocco to Costa Rica, according to a Spanish National Court official.
Both men have indicated they will fight any move to send them to the U.S., the official said. The pair were ordered to remain in prison pending an extradition hearing.
Authorities described Liberty Reserve as being rife with criminals, but the site’s ease of use, low fees and irreversible transactions that deterred fraud also attracted a thriving community of legitimate tech-savvy users in countries with limited access to credit cards.
Mitchell Rossetti, whose Houston-based ePayCards.com was one of several mainstream merchants that accepted the online-only currency, said his business still had about $28,000 tied up in Liberty Reserve accounts.
“The irony of this is I went to them because of the security,” Rossetti said. “All sales were final.”
He acknowledged that the currency was being used by scammers, but said Liberty Reserve was just like any other currency. “The U.S. dollarcan be donated to a church or it can pay a prostitute,” he said.
Liberty Reserve appears to have played an important role in laundering the proceeds from the recent theft of some $45 million from two Middle Eastern banks, according to legal documents made public by U.S. authorities earlier this month.
The complaint against one of the Dominican Republic gang members allegedly involved in the theft states that thousands of dollars’ worth of stolen cash was deposited into two Liberty Reserve accounts via currency centers in Siberia and Singapore.
In addition to the criminal charges, the U.S. has also filed civil actions and seized accounts tied to the defendants. At least 45 bank accounts have been restrained or seized, the U.S. said. A related civil action was filed by the U.S. against 35 exchanger websites seeking the forfeiture of the exchanger’s domain names over claims they were used to facilitate the money-laundering conspiracy.
A total of 14 premiseswere raised in Panama, Switzerland, the United States, Sweden and Costa Rica, according to Spanish authorities. In Costa Rica, investigators seized five luxury cars, including three Rolls Royces, Spanish police said. Bharara, the federal prosecutor, said authorities had seized Liberty’s computer servers in Costa Rica and Switzerland.
Digital currency, also called Bitcoin, was developed as a way to make payments over the Internet without paying fees to a bank. The U.S. Department of Justice warned as early as 2008 that criminals would increasingly rely on the digital currency industry to launder and move funds because it facilitates financial transactions outside the rules of the traditional banking system.
The senior law enforcement official said the Liberty Reserve 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.
“They’re not going to havethis 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-laundering schemes, “but it’s a big deal.” Information for this article was contributed by Raphael Satter, Tom Hays, Alan Clendenning and Jorge Sainz of The Associated Press; by Marc Santora,William K. Rashbaum and Nicole Perlroth of The New York Times; and by Patricia Hurtado, Linda Sandler and Brendan Murray of Bloomberg News.
Front Section, Pages 1 on 05/29/2013