Federal prosecutors have shut downLiberty Reserve, an alternative payment network that they say was a $6 billion scam “designed to help criminals conduct illegal transactions and launder the proceeds of their crimes.” (Read the indictment.) This is a case anyone with Bitcoins in their virtual wallet is going to want to watch very closely.
The lead defendant, Arthur Budovsky, has a history of building money-transfer businesses that attract unwelcome attention from federal regulators. In 2006, Budovsky faced charges relating to another money-transmission business, called Gold Age, that authorities said had not complied with money-laundering regulations. He was convicted and sentenced to five years’ probation. Undeterred, Budovsky moved to Costa Rica, renounced his U.S. citizenship and started a new financial network called Liberty Reserve. Now that, too, has come under U.S. government scrutiny, and Budovsky has been arrested in Spain.
In the view of federal prosecutors, Liberty Reserve was deliberately designed for illegal activities. “Liberty Reserve has become a financial hub of the cyber-crime world, facilitating a broad range of online criminal activity,” the indictment states. “Unlike traditional banks or legitimate online payment processors, Liberty Reserve does not require users to validate their identity information, such as by providing official identification documents or a credit card. Accounts can therefore be opened easily using fictitious or anonymous identities.”
Of course, that description could just as easily describe Bitcoin. Anyone can create a new Web address for accepting bitcoins and then transmit funds to other Bitcoin addresses without furnishing identifying information. This feature has raised concerns that the currency has been used for activities such as drug dealing or illegal gambling.
The U.S. government faults Liberty Reserve for requiring users to fund their accounts through intermediaries called “exchangers.” In the prosecutors’ view, these intermediaries helped the core Liberty Reserve network avoid collecting identifying information about their users. The Bitcoin economy has a similar structure. Users buy bitcoins with conventional currencies via online exchanges. Some of these intermediaries do collect information about their users, but once users have purchased their bitcoins they can conduct unregulated, and practically untraceable, transactions with other Bitcoin users.
For their part, leaders of the Bitcoin community have tried to stay within the bounds of the law. ”If the U.S. government decided that Bitcoin was a bad thing and told me, ‘Stop doing what you’re doing,’ I’d stop doing what I’m doing,” said Gavin Andressen, Bitcoin’s lead developer, in a recent interview.
But there’s also at least one important difference between Bitcoin and Liberty Reserve: If the authorities concluded that Bitcoin were a money laundering scheme, it’s not clear whom they’d prosecute. There’s no Budovsky for Bitcoin. Rather, the online currency was created by “Satoshi Nakamoto,” widely regarded as a pseudonym. Bitcoin transactions are processed in a distributed fashion by thousands of “miners” around the world. It would be difficult for the United States to indict all of them, and doing so would likely drive Bitcoin mining underground — which could make it even more attractive to criminals.
That sprawling, decentralized network would create a dilemma for federal regulators if former Liberty Reserve users switched to Bitcoin. The crypto currency doesn’t fit well into existing money-laundering laws, and there’s no one who can be required to reform the network to bring it into compliance. Trying to shut down Bitcoin could prove futile – the feds can make life hard for individual Bitcoin users but likely could not destroy the network altogether.
Civil libertarians have long lauded the Internet’s ability to resist government’s efforts to control the flow of information. The emergence of Web payment networks such as Liberty Reserve and Bitcoin could threaten the United States’ ability to control the flow of electronic funds, too. …
Another story says Liberty Reserve was money laundering. Only the people with the most guns can have a “licensed money transmission system” so they can tax the crap out of you and use the money to invade and steal oil from other countries. If you muscle in on their territory, they’ll put the hit on you… eventually. That’s how it works.
The Liberty Reserve digital money service that was shut down laundered more than $6bn £4bn in criminal cash, US authorities have said. Weekend police raids in 17 countries scooped up Liberty Reserve’s owners, operators and its computer hardware. The Department of Justice said it was the “largest international money-laundering prosecution in history”.
Liberty had about a million users and processed more than 55 million illegal transactions, said DoJ court papers.
The documents allege that seven people involved in running Liberty Reserve set up the digital cash service as a “criminal business venture” designed specifically to “help criminals conduct illegal transactions and launder the proceeds of their crimes”.
The raids in the US, Spain, Costa Rica and other countries led to the arrests of five of Liberty Reserve’s principals, including its founder Arthur Budovsky. US Attorney Preet Bharara: “Liberty Reserve was intentionally created and structured to facilitate criminal activity” The service’s operators will face charges of money laundering and operation of an unlicensed money transmission system. Also arrested were many of the principal operators of exchanges that fed cash to Liberty for distribution to members of criminal gangs or as the start of the laundering process.
The raids also garnered servers supporting the service and allowed the DoJ to seize the web domains through which the service was run. Behind the scenes, data traffic for the sites from regular customers was directed to a series of virtual traps, known as sinkholes, that log information about who is trying to use the service. …
The digital money scheme run through the service was one of the world’s largest, the DoJ said, and handled $6bn over the seven years it was in operation.
Liberty Reserve was so successful that it became a “financial hub of the cyber crime world”, whose users were involved in credit card theft, investment fraud, hacking, child pornography and drug trafficking.
The shutdown has caused problems for legitimate users of Liberty Reserve, said Mitchell Rossetti, head of the EPay Tarjeta service that piggy-backed on LR.
“Thousands upon thousands of LR users are not nor have been involved in illegal activities,” he said, “but now have become victims through the closure and seizure of LR.”
“We seem to be acceptable collateral damage,” he said. “We have committed no crime and want our funds returned to us.”
Just seize all money on earth and put everyone in prison, m’kay? That way you are certain to get all the criminals. The rest of the people will be an acceptable trade off for winning the war on crime. Then put everyone who put everyone in jail also in jail. Make the jail big. No, bigger. Bigger than that. Make it Earth sized. Now add gravity. No, more. Even more. So it is almost impossible to leave. There, now you have a prison planet. Good job.