Federal indictment filed in $6B money-laundering case

NEW YORK — The founder of a Latin America-based currency system and six other people were indicted in the United States in a $6 billion money-laundering scheme, authorities said.

Federal prosecutors in Manhattan were expected to announce the charges on Tuesday afternoon.

Arthur Budovsky is the founder of Liberty Reserve, a currency system long favored by cybercrime scammers. He was arrested in Spain on Friday. There also were arrests in Costa Rica and New York.

Authorities say the network processed at least 55 million illegal transactions worldwide. They call the international money-laundering case the largest ever.

Concern had been building on underground Internet forums since Liberty Reserve, a currency system long favored by scammers, went offline last week. 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 said the domain “has been seized by the United States Global Illicit Financial Team.”

Liberty Reserve’s demise is likely to send a sharp shock across the Internet.

Aditya Sood, a computer science doctoral candidate at Michigan State University who has studied the underground economy, said called it one the most popular currencies for cybercriminals.

Liberty Reserve operates as a no-questions-asked alternative to the global banking system, with little more than a valid email 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.”

People using Liberty Reserve rely in part on offshore currency centers, generally set up in places beyond the reach of U.S. or European law enforcement, which broker transactions moving cash in and out of the mainstream financial system. Like other cybercurrencies, Liberty Reserve has many legitimate users, but the promise of untraceable transactions has long made it attractive to scammers.

Sood said that despite prominent disclaimers warning against money laundering, the way Liberty Reserve was set up meant that currency centers typically had little in the way of serious oversight.

“Cybercriminals don’t provide their real credentials,” Sood said, leaving brokers in the dark about who was sending what where.

“They have no idea where the money is coming from or where the money is going,” he said. “That’s how they designed the model.”

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 based in Siberia and Singapore.

The Costa Rica police statement said that they raided three homes and five businesses linked to Liberty Reserve and seized papers and digital documents that will be turned over to U.S. authorities.

Budovsky, who became a Costa Rican national after giving up his U.S. citizenship, has been in trouble before, the statement added, explaining that he was sentenced in 2007 to five years’ probation after pleading guilty in a New York court to charges he operated an illegal financial services business similar to Liberty Reserve.

Sood said there might be a short term drop in cybercrime activity as scammers who used to rely on Liberty Reserve readjusted their finances, but he cautioned that new forms of cybercurrency would soon take its place.

“Even if one system is taken down, we can’t expect that there will be no more systems,” he said.