Federal prosecutors take on the largest online money-laundering case in history
On Tuesday, law enforcement officials announced charges against the operators of a global currency exchange, Liberty Reserve. Over the course of seven years, the money service business (MSB) ran a $6 billion money laundering operation online, trading in virtual currency as well as providing anonymity and an easily accessible banking infrastructure..
Liberty Reserve operated beyond the traditional confines of U.S. and international banking regulations, steeped in a shadowy netherworld of cyberfinance. It functioned as a central hub for criminals trafficking in stolen identities, child pornography, and more.
Liberty Reserve did not take or make cash payments directly and instead used “third-party ‘exchangers,’ ” according to the indictment. These exchangers would take and make payments, and then credit or debit the Liberty Reserve account, allowing Liberty Reserve to avoid collecting any banking information on its clients and not leave a “centralized financial paper trail,” the indictment said.
The exchangers, the indictment said, “tended to be unlicensed money-transmitting businesses without significant government oversight or regulation, concentrated in Malaysia, Russia, Nigeria and Vietnam.”
The people who accepted Liberty Reserve’s currency were “overwhelmingly criminal in nature,” according to the indictment and included hackers for hire, traffickers of stolen credit card data and personal identity information, and underground drug-dealing websites, among others.
Fifty-five million transactions were conducted, involving about 200,000 customers in the U.S. in addition to millions of international customers, prosecutors said.
According to the New York Times, while Liberty Reserve was incorporated in Costa Rice in 2006, federal officials used a provision in the USA PATRIOT Act to target the organization and other financial institutions with which they conducted business. In a history-making move, it was the first time being used to prosecute a virtual currency provider.
According to prosecutors, the case is significant because it attacks the financial infrastructure used by many cybercriminals in much the same way that drug-money-laundering prosecutions unravel the financial underpinnings of the narcotics trade.
All those involved were charged with conspiracy to commit money laundering, conspiracy to operate an unlicensed money-transmitting business, and operating an unlicensed money-transmitting business. The money laundering charge carries a maximum sentence of 20 years in prison, and the other two charges carry a maximum of 5 years each.
In light of this, there are many solutions for protecting an MSB and its customers from experiencing the same issues as those which critics are hailing as the harbingers of the “the cyber age of money laundering.”
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