US prosecutors have announced what they say is the biggest international money laundering prosecution in history – a $US6 billion ($A6.2 billion) trail that allegedly includes $US36.9 million ($A38.4 million) deposited in Westpac Bank accounts.
The trail was allegedly left by Costa Rica-based Liberty Reserve, a currency-transfer and payment-processing company that allowed customers to move money anonymously from one account to another via the internet with almost no questions asked, and has travelled through 17 countries, including the Westpac accounts in Australia.
One person was registered under the name of “Joe Bogus” and the address “123 Fake Main Street” in “Completely Made Up City, New York.”
Prosecutors described Liberty Reserve as a “financial hub of the cyber crime world … one of the principal means by which cyber criminals around the world distribute, store and launder proceeds of their illegal activity … including credit card fraud, identity theft, investment fraud, computer hacking, child pornography and narcotics trafficking.”
“The scope of the defendants’ unlawful conduct is staggering,” officials said. Over roughly seven years, Liberty Reserve processed 55 million illicit transactions worldwide for 1 million users.
Prosecutors said 45 bank accounts have been restrained or seized.
According to the indictment, three Westpac accounts held in the name of Technocash Ltd contained $US36.9 million ($A38.4 million).
“The bank of choice for the criminal underworld”: US Attorney Preet Bharara. Photo: AP
“We have rigorous processes in place to combat money laundering and have been working closely with regulators and law enforcement agencies,” said a Westpac spokeswoman.
In Australia, the agency responsible for detecting money laundering is AUSTRAC, which passes on intelligence to the Australian Federal Police and Australian Crime Commission.
‘Bank of choice’
The Liberty Reserve network “became the bank of choice for the criminal underworld,” US Attorney Preet Bharara said in announcing the unsealing of an indictment against the defendants, including founder Arthur Budovsky, an American who renounced his US citizenship after deciding to set up in Costa Rica.
Unlike traditional banks or legitimate online processors, Liberty Reserve did not require users to validate their identities, it is alleged.
It allowed users to open accounts using fictitious names, including “Russian Hacker” and “Hacker Account.” One person was registered under the name of “Joe Bogus” and the address “123 Fake Main Street” in “Completely Made Up City, New York.”
“The only liberty that Liberty Reserve gave many of its users was the freedom to commit crimes – the coin of its realm was anonymity, and it became a popular hub for fraudsters, hackers and traffickers,” said Bharara. “It was the opposite of a know-your-customer policy.”
“We’re now entering the cyber age of money-laundering,” said Richard Weber, chief of the Internal Revenue Service’s Criminal Investigation division, who also alluded to Chicago Crime boss Al Capone. “If Al Capone were alive today, this is how he would be hiding his money.”
The company operated one of the world’s most widely used digital currencies, allowing users to send and receive “instant, real-time currency,” according to the indictment in US federal court in Manhattan.
Digital currency, such as Bitcoin, was developed as a way to make anonymous transfers over the internet without paying fees to a bank. The US Justice Department warned as early as 2008 that criminals would increasingly rely on the digital currency industry to launder and move funds because it facilitates financial transactions outside the rules of the traditional banking system.
The alleged crimes involved only Liberty Reserve and its operators, and not any other digital currency, Bharara said.
“The actions brought today relate only to Liberty Reserve and no other system,” Bharara said. “We’re not taking any position on virtual currency generally and we’re not taking any position with respect to any particular other company that engages in something that may look on the surface that something that Liberty Reserve was doing.”
Five of the seven defendants were arrested last week in a global swoop.
Budovsky, 39, was arrested in Spain, co-founder Vladimir Kats, 41, was arrested in Brooklyn, New York, while two other defendants, Ahmed Abdelghani, 42, and Allan Jimenez, 28, remain at large in Costa Rica, prosecutors said.
The names of the defendants’ attorneys were not immediately available.
“The global enforcement action we announce today is an important step towards reining in the Wild West of illicit internet banking,” said Bharara. “As crime goes increasingly global, the long arm of the law has to get even longer, and in this case, it encircled the earth.”
A notice pasted across Liberty Reserve’s website on Tuesday morning said the domain “has been seized by the United States Global Illicit Financial Team.” As of Wednesday morning, the website is no longer accessible. Attempts to reach Liberty Reserve by phone and email were not immediately successful.
Liberty Reserve was incorporated in Costa Rica in 2006 and billed itself as the internet’s largest payment processor and money transfer system serving millions of people around the world.
Prosecutors alleged Liberty Reserve was used extensively for illegal purposes, providing an infrastructure that enabled cyber criminals around the globe to conduct untraceable financial transactions.
The network charged a 1 per cent fee on transactions through “exchangers” – middlemen who converted actual currency into virtual funds and then back into cash.
It is alleged when US authorities began to investigate the company, the defendants pretended to shut it down.
But it is alleged that they continued operating “and moved tens of millions of dollars through shell company accounts maintained in Cyprus, Russia, China, Hong Kong, Morocco, Spain, Australia and elsewhere”.
Budovsky and Kats have previous convictions on charges related to an unlicensed money-transmitting business, according to court papers. After that case, the pair decided to move their operation to Costa Rica, the papers said.
In an online chat captured by law enforcement, Kats admitted Liberty Reserve was illegal and noted that authorities in the US knew it was “a money-laundering operation that hackers use”.
While authorities described Liberty Reserve as being rife with criminals, the site’s ease of use, low fees and irreversible transactions that deterred fraud also attracted legitimate users.
Mitchell Rossetti, whose Houston-based ePayCards.com was one of several mainstream merchants that accepted Liberty Reserve’s online-only currency, said his business still had about $US28,000 tied up in Liberty Reserve accounts.
“The irony of this is I went to them because of the security,” Rossetti said. “All sales were final.”
He acknowledged that the currency was being used by scammers but said Liberty Reserve funds were just like any other currency: “The US dollar can be donated to a church or it can pay a prostitute.”
Liberty Reserve appears to have played an important role in laundering proceeds from the recent theft of some $US45 million from two Middle Eastern banks, according to documents made public by authorities earlier this month. In that scheme, thieves stole debit card information and then used it to drain cash from thousands of ATMs around the world in a matter of hours.
As part of the Liberty Reserve investigation, authorities raided 14 places in Panama, Switzerland, the US, Sweden and Costa Rica. In Costa Rica, investigators recovered five luxury cars, including three Rolls-Royces. Bharara said authorities also seized Liberty’s computer servers in Costa Rica and Switzerland.
The seven defendants are each charged with one count of conspiracy to commit money laundering, which carries a maximum term of 20 years jail.
They’re also charged with one count of conspiracy to operate an unlicensed money transmitting business and of operation of an unlicensed money transmitting business. Both of those charges carry a maximum jail term of five years.