On the day after Memorial Day, US authorities indicated that they had shut down a Costa-Rica based money transfer company Liberty Reserve which they claimed aided cyber criminals the world over launder $6 billion in illicit funds using a digital currency that was not Bitcoin.
The company’s website on Tuesday, www.libertyreserve.com, carried the message: “This domain name has been seized by the United States Global Illicit Financial Team.”
According to a statement, authorities in Spain, Costa Rica and New York arrested five people on Friday and seized bank accounts and internet domains of Liberty Reserve.
Costa Rican prosecutor José Pablo González claimed that Liberty Reserve and related businesses were used to launder funds from chid pornography websites and drug trafficking. Liberty Reserve had its own digital currency not connected with Bitcoin.
Along with the five arrests, prosecutors filed charges against two employees, who as of this writing had not been arrested.
An indictment filed in US District Court for the Southern District of New York read that “Liberty Reserve has emerged as one of the principal means by which cyber-criminals around the world distribute, store and launder the proceeds of their illegal activity.”
The indictment highlighted that the company had more than a million users worldwide, including 200,000 in the US. The indictment also claimed that all of its business was related to “suspected criminal activity.”
The indictment refers to Liberty Reserve’s currency unit as the “LR.” The company’s users opened accounts at Liberty Reserve giving only a name, address and date of birth that the company did not verify.
Upon opening up a Liberty Reserve account, he or she could use cash to purchase LRs from third-party exchange merchants, who traded LRs among each other and charged fees to make the exchanges between LRs and cash.
As Reuters explains how LR worked:
Liberty Reserve users could transfer the digital currency units called LRs to each other, to be redeemed in different parts of the world for cash using the third-party exchange companies. The indictment said Liberty Reserve did not collect any banking or transaction information from the third-party exchange companies. It also let its users hide their Liberty Exchange account numbers when making transactions, which offered another opportunity for the users to mask their true identities.
The action comes on the heels of Fincen guidelines announced in March and a number of other precedents theresince.