Tuesday, May 28, 2013

United States Authorities Shutdown Liberty Reserve

English: liberty reserve logo
 (Photo credit: Wikipedia)
I wonder why they allowed this online payment processor to remain for so long if they knew it was illegal...

Bad News for Bitcoin? Feds Shut Down 'Paypal for Criminals'

In what could be a bad sign for the future of Bitcoin, the feds have shut down Liberty Reserve, a virtual currency exchange system that prosecutors claim was a $6-billion money-laundering scheme designed to help criminals and hackers conceal the origin of their illicit money.

Liberty Reserve is a Costa Rica-based online payment network that U.S. authorities dubbed the "financial hub of the cyber-crime world." According to the indictment (.PDF) unsealed on Tuesday, the service was one of the world's largest digital currency systems with more than 1 million users and more than 12 million transactions.

For the feds, Liberty Reserve facilitated "a broad range of online criminal activity, including credit card fraud, identity theft, investment fraud, computer hacking, child pornography, and narcotics trafficking," and "was in fact used extensively for illegal purposes, functioning in effect as the bank of choice for the criminal underworld."

The indictment, first reported on by Internet security reporter Brian Krebs, and filed in the U.S. District Court for the Southern District of New York, accused Liberty Reserve's founder Arthur Budovsky, 39, and five alleged co-conspirators, of running the illegal money-laundering service.
The five were arrested on Friday in Spain, Costa Rica and Brooklyn, N.Y. The arrests culminated an operation that involved law enforcement agencies form 17 different countries, making it possibly the largest money laundering prosecution ever.

Liberty Reserve's unregulated nature and almost complete anonymity attracted the likes of hackers and criminals.

Even two of the defendants charged in the indictment published today admitted Liberty Reserve's nature in an online chat. In a conversation intercepted by the authorities between Vladimir Kats and Ahmed Yasine Abdelghani, Kats wrote that "everyone in the USA," including the "DOJ," knows that Liberty Reserve is a "money-laundering operation that hackers use."

Even though Liberty Reserve was used by at least 200,000 American customers, it never registered in the U.S. as a money transmitting service, remaining on the edge of legality as an almost completely unregulated money transfer business. To use the service, a user had to provide name, address, and date of birth, but these were never verified.

For all intents and purposes, all a user had to provide to register was a valid email address.

In fact, a law enforcement agent told the New York Times that he was able to register under the name of "Joe Bogus," and even state that the purpose of his registration was "for cocaine."

And this was true for other customers, some even used blatantly fake names like "Russia Hackers."

Read more here.

You can confirm the shutdown by clicking here.

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