Money Laundring Hub

US prosecutes '$6bn money-laundering hub'

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.

Cash transfer

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.

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.

In addition, it said, 45 bank accounts used by the service have been seized and action has been taken to take over the assets of 35 other sites that fed funds to Liberty Reserve for laundering.

Some details about the scale of the Liberty Reserve operation came to light in court documents unsealed by the New York office of the DoJ, which is leading the action against 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."

Paypal Problem

Paypal suspends domestic transactions in Argentina

Paypal is to prevent users in Argentina from transferring money between their own accounts.

The online payment service said that from 9 October: "Argentina resident Paypal-users may only send and receive international payments."

Last year the Argentine government announced restrictions on the purchase of US dollars.

It has led to an increase in currency sales on the black market - but Paypal's exchange rates are better.

Locals were setting up two accounts under different email addresses and transferring money between the two, exchanging local currency pesos for dollars in the process.

Under the new rules only one account per person can be registered within Argentina.

'Tax evasion'

The government's rules were designed to curb the flight of savings from the country and make the economy less dependent on the US dollar.

When the news was announced, finance minister Amado Boudou - who has since become vice president - told the BBC it was "an important measure to combat tax evasion and money laundering".

Since the rules were introduced in November 2011, Paypal has been used as an alternative means of obtaining the US currency close to the official exchange rate, which currently stands at about 4.7 pesos per dollar.

That is much cheaper than the rate on the black market where one dollar costs about 6.3 pesos.

Economy lows

Argentina suffers a high inflation rate - private economists say prices are increasing by about 24% a year.

This adds to a general lack of confidence in the local currency caused by memories of its depreciation during the economic crisis of 2001.

Many residents have tried to protect their savings against the risk of further turmoil by putting the money into more stable currencies.

Economist Eduardo Marty told the BBC that currency restrictions had been extended to all economic activities, from the export of goods to foreign travel.

"You have to apply for permission to import any goods," he said.

"If you need to travel abroad the government gives you a meagre amount of money. Sometimes they approve it at the last moment and people are forced to buy on the black market."

New tax

In September the government established a new 15% tax on all purchases made abroad, affecting credit cards and purchases made on international websites like Amazon and eBay, and transactions made on Paypal.

Following local media coverage about complaints over constraints to the Paypal service, the company acknowledged that the blockades were imposed by local banks.

In a statement sent to the BBC, Paypal apologised for the "inconvenience" the decision may cause.

"Argentina is a very important market to us as we expand our global footprint, and we are currently very focused on providing Argentine merchants and consumers the best possible service.

"Paypal customers in Argentina are still able to utilise Paypal for international transactions with 190 markets around the world," said the company.

Liberty Reserve Scam

Liberty Reserve - a Costa Rican-based digital currency service - has been shut down after the reported arrest of its founder.

Authorities in the Central American country said Arthur Budovsky had been taken into custody in Spain on suspicion of money laundering, following an investigation which also involved the US.

They added that police had raided several of Mr Budovsky's properties and seized his computer servers.

The site went offline on Thursday.

Liberty Reserve had described itself as being the internet's "oldest, safest and most popular payment processor... serving millions all around a world".

It had allowed users to open accounts and transfer money, only requiring them to provide a name, date of birth and an email address.

Cash could be put into the service using a credit card, bank wire, postal money order or other money transfer service. It was then "converted" into one of the firm's own currencies - mirroring either the Euro or US dollar - at which point it could be transferred to another account holder who could then extract the funds.

The service promised that payment transfers were "instantaneous" and it charged a maximum of $2.99 (£1.98) for each transaction. It also offered a private messaging facility which it said was "much more private and secure than email or instant messenger services".

Security expert Bryan Krebs said Liberty Reserve's features had made it a popular among cybercriminals who wanted to move funds and make payments anonymously.

However, others said they had used the service for legitimate means, viewing it as a cheaper alternative to PayPal. They fear they will now lose money still sitting in its accounts.

Refused licence

Costa Rica state prosecutor Jose Pablo Gonzalez announced news of the raids on Saturday. He said that in addition to Mr Budovsky's arrest, 10 other suspects were being investigated in connection with international money laundering.

Mr Gonzalez said that Costa Rica's financial regulator, Sugef, had refused to issue a licence to Liberty Reserve in 2011 after raising concerns about how it was being funded.

Although the company Liberty Reserve subsequently closed and dismissed its employees, the prosecutor said Mr Budovsky had continued operating his money exchange service by running it through five other Costa Rican businesses.

The same year, he said, New York based officials asked Costa Rica to investigate.

Mr Gonzalez said offices and houses linked to Mr Budovsky had been raided last week, and that documents and three vehicles - including a Rolls Royce - were seized.

The US Department of Justice's website says that in 2006 Mr Budovsky was found guilty of operating a separate illegal money transmittal business - GoldAge - from a Brooklyn apartment when he used to live in New York.

However, when asked about the latest arrest, a spokeswoman said she could "not provide any guidance" at this time.

The BBC has also asked the Spanish police for more details.

Lost money

According to Mr Krebs' security blog, the closure of Liberty Reserve has the potential to "cause a major upheaval in the cybercrime economy".

He said there had been "anxious discussions" about the news on several internet forums after fraudsters and malware sellers found themselves unable to access their accounts.

But others say they used the service for legitimate reasons, and are concerned about the lack of information.

They include Mitver Holdings, the firm behind a facility called ePay Cards. This allows consumers outside the US to buy goods from stores in the country as if they owned a locally-issued Visa or Mastercard credit card.

The company - which has offices in London and Texas - used Liberty Reserve as a way for its customers to charge up their "virtual credit cards".

Co-founder Mitchell Rossetti said he had about $28,000 sitting in his business's Liberty Reserve account at the time the site went offline.

"We used Liberty Reserve because it was quick, efficient and secure," he told the BBC.

"Now, we - and thousands of others who were dependent on it - have been left with nothing to look at except a blank webpage, and nothing more to go on than reports from the Costa Rican press.

"We need to know if our assets have been seized and what would be the requirements to get the funds returned."