Liberty Reserve was a digital gold currency payment system. It was classed together with other online payment systems such as MoneyBookers and PayPal. Liberty Reserve was gaining popularity in many developing countries. Opening and handling a liberty reserve account was really easy and quick. A user can open as many accounts as he or she wants.
For the longest time, the exact location of the Liberty reserve’s Corporate Headquarters was not known to the public. There is a time that the company was registered in panama. But it moved to Costa Rica where it was registered again. The cause of movement of the company from one country to another is not because of the tax and other incentives that they get but more of to protect the interest of the company against the regulators. Remaining undisclosed to the general public is the amount of bullion that they have, the number of their account holders and the annual storage fees of the company.
A Reliable Payment System
Liberty Reserve was a very reliable payment system that began its operations in 2004. Although it was not the only payment system operator existing and operating that time, it was one of the few that survived the competition owing to the fact that they deliver good services to their clients and they ensure that they are worth the trust of the people.
Liberty Reserve works using a simple principle of exchange using LR units over the internet. This means, each LR unit has a corresponding value in gold grams or troy ounce. Liberty Reserve charges their customers with 1% of the transaction for the transaction-processing fee. So, the general idea of this exchange is to trade LR units that are valued using gold, silver or platinum. The difference of Liberty Reserve to other online payment system such as PayPal is that it offers a limitless currency system that enables account holders to be fully independent from the economic and political events in their countries.
Although this might be an option for some companies because the values of their accounts are not being affected by problems such as recession and devaluation, it also has its share of drawbacks. As many noticed, Liberty Reserve is only being used in small time transactions as it is prone to cyber-attacks.
Criminal investigation and charges
Costa Rican authorities became aware of Liberty Reserve in 2009 and informed the business it needed a license to operate as a money transmitting business. In 2011, Liberty Reserve was denied a business license in Costa Rica, according to state prosecutor José Pablo González, due to lack of transparency about how the business was funded. The business formally disbanded at that time, but company founder Arthur Budovsky continued to operate the business by funneling it through five other Costa Rican businesses, according to authorities. A criminal investigation was launched March 7, 2011 following “suspicious” bank activity. Later in 2011, the United States authorities asked Costa Rica to begin investigating Budovsky’s business dealings. According to Bernardita Marín, associate director of the Costa Rican Drug Institute, Costa Rica seized funds from Liberty Reserve on three occasions from 2011 to 2013.
In 2011, Liberty Reserve was linked to (unrelated) attempts to sell thousands of stolen Australian bank account numbers and British bank cards. In 2012, a group of hackers attempted to blackmail anti-virus software company Symantec into transferring $50,000 into a Liberty Reserve account.
After a multi-year investigation by officials in 17 countries, a sealed indictment was issued by the US government in May 2013. U.S. prosecutors filed a case against Liberty Reserve, alleging it had handled $6 billion of criminal proceeds. Arthur Budovsky was arrested by Spanish police at Madrid’s Barajas International Airport as he attempted to return to Costa Rica where he had citizenship. Budovsky and a second man were ordered jailed by Spanish authorities pending an extradition hearing. Earlier three homes and the five apparent shell businesses owned by Budovsky were raided. Four others, including Kats, were arrested across three countries: Costa Rica, Spain, and the United States. Two others are at large in Costa Rica.
The Liberty Reserve website was taken offline on May 24 and replaced with a notice saying the domain had been “seized by the United States Global Illicit Financial Team.” In Costa Rica, a court order was issued to seize the “financial products and services” of Budovsky, Maxim Chukharev, and the six apparent shell companies. More than a million dollars of luxury automobiles alone were seized.
The indictment, unsealed on May 28, charges the seven principal employees, as well as Liberty Reserve itself, with money laundering and operating an unlicensed money transmitting business, and seeks $25 million in damages. The charges were leveled using a provision of the Patriot Act, since Liberty Reserve was not an American company. The accused could face up to 30 years in prison.
Preet Bharara, a US prosecutor working on the case called Liberty Reserve a “black market bank”, created and structured to “facilitate criminal activity”. In total, Liberty Reserve “processed an estimated 55 million separate financial transactions and is believed to have laundered more than $6 billion in criminal proceeds”. It has been linked to crimes including credit card fraud, identity theft, investment fraud, computer hacking, child pornography and narcotics trafficking.
Liberty Reserve itself was accused by U.S. prosecutors of moving tens of millions of dollars through shell accounts. Forty-five bank accounts were seized or restricted by United States federal prosecutors under the Patriot Act as a result of the investigation. The United States attorney in Manhattan, Preet Bharara, stated the case “may be the largest international money laundering case ever brought by the United States.” “The global enforcement action we announce today is an important step towards reining in the ‘Wild West’ of illicit Internet banking,” Bharara said; “As crime goes increasingly global, the long arm of the law has to get even longer, and in this case, it encircled the earth.”
One specific allegation of the prosecutors is that the site played a role in laundering the $45 million stolen from the Bank of Muscat and the National Bank of Ras Al Khaimah in May 2013.
According to Internet security analyst Brian Krebs, the closure of Liberty Reserve had the potential to “cause a major upheaval in the cybercrime economy”. The closure of the site led to many individuals using the service for legitimate reasons losing access to their money. The head of EPay Tarjeta, a service which used Liberty Reserve, remarked “We seem to be acceptable collateral damage … we have committed no crime.”
United States attorney Preet Bharara stated users of Liberty Reserve could contact his office to inquire about getting their funds returned.
- On May 29, Budovsky’s wife came forward with an accusation that she had been paid $800 to marry him in 2010 so that he could become a Costa Rican citizen. According to her, the plan was to divorce two years later, although the couple were still married at the time of his arrest.
- In December 2014, Chief Technology Officer Mark Marmilev was given the maximum sentence of 5 years after pleading guilty to operating an “unlicensed money transmitting business.”
- In January 2016, Arthur Budovsky pleaded guilty to one count of conspiring to commit money laundering. On May 6, 2016, Budovsky was sentenced to 20 years of prison.