Prosecutors claim that Liberty Reserve was incorporated in 2006. It operated a digital currency referred to as LR. The company is said to have held itself out as the Internet’s “largest payment processor and money transfer system”. However, the company failed to register with the US Department of Treasury as a money transmitting business which it was required to do by US law.
According to the documents filed at court the defendants operated Liberty Reserve as a “criminal bank-payment processor designed to help users conduct illegal transactions anonymously and launder the proceeds of their crimes”. The press release issued by the DoJ identified Liberty Reserve as the “principal money transfer agents used by cyber criminals around the world to distribute, store and launder the proceeds of their illegal activity”. The prosecutors claim that the company assisted a broad range of online criminal activity, including credit card fraud, identity theft and investment fraud.
The nature of the system was that it operated on an anonymous basis. Users were required to open accounts through the website with basic information – but this was never verified by Liberty Reserve. Once the account was created the user was then able to carry out transactions with other Liberty Reserve users. If users wanted the transfer to be completely untraceable they could hide their Liberty Reserve account number for an extra fee. Users were required to make deposits or withdrawals through third party exchangers to ensure that information which could leave a centralised financial paper trail was not collected. The prosecutors claim that the pre-approved exchangers recommended by the Liberty Reserve website were generally unlicensed money transmitting businesses operating in countries without significant governmental money laundering regulation.
The charges against the individuals include:
• Conspiracy to commit money laundering;
• Conspiracy to operate an unlicensed money transmitting business; and
• Operation of an unlicensed money transmitting business.
The US regulatory authorities have not only brought criminal charges against the individuals, but in addition five domain names have been seized, 45 bank accounts have been restrained or seized and a civil action has been filed against 35 exchanger websites for the forfeiture of the exchangers’ domain names as the websites were used to aid the money laundering conspiracy and as such constitute property involved in money laundering.
The US DoJ stated that the Money Laundering and Bank Integrity Unit within the Asset Forfeiture and Money Laundering Section was created three years ago, with their mission being to prosecute professional money launderers and financial institutions. The DOJ stated that it is this department working closely with partners in the Southern District of New York that has brought the money laundering prosecution.
The actions of the DoJ demonstrate the willingness of the US authorities to pursue violations of US law committed by organisations even where they are not domiciled in the US (a trend seen over recent years in respect of a number of the financial institutions). The action against Liberty Reserve perhaps also reflects an increasing awareness of the authorities of the growth of cyber crime.
It will be interesting to see what the knock-on effects of this action will be. There may be arguments that the assets frozen include those of legitimate users. Alternatively, frauds and other criminal activity may be exposed as a result of the freezing of assets.