The U.S. Government seizes and shut down Costa Rica based Virtual Currency Liberty Reserve as part of a larger effort by the U.S. government to put pressure on virtual currencies to maintain their control on the international money transaction mechanisms. This is a step in combating money laundering, however it seems that the classical money laundering schema of anonymous shell companies in Dalaware and C.o are not in the focus of the war.
U.S. federal law enforcement agencies on Tuesday announced the closure and seizure of Liberty Reserve, an online, virtual currency that the U.S. government alleges acted as a financial hub of the cyber-crime world and a new trend for the money laundering industry. It processed several billion USD in criminal proceeds over the past seven years showing an alternative to the classical money laundering techniques based of shell companies and deception of swifts bank transfers. With the use of virtual money the bank regulation can be evaded and the criminals can launder illegal money. The registered users can perpetrate different transactions evading the SWIFT control for the money “issued” by the company. Some companies accept this virtual money for means of payment too, i.e. changes into official currency, thus it becomes available everywhere in the world and can be transferred to everywhere.
The news comes four days after libertyreserve.com inexplicably went offline and newspapers in Costa Rica began reporting the arrest in Spain of the company’s founder Arthur Budovsky, 39-year-old Ukrainian native who moved to Costa Rica to start the business.
Despite the US government’s claims, certainly not everyone using Liberty Reserve was involved in shady or criminal activity. As noted by the BBC, many users — principally those outside the United States — simply viewed the currency as cheaper, more secure and private alternative to PayPal. The company charged a one percent fee for each transaction, plus a 75 cent “privacy fee” according to court documents.
“It had allowed users to open accounts and transfer money, only requiring them to provide a name, date of birth and an email address,” BBC wrote. “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 ‘merchants’ who accepted LR currency were overwhelmingly criminal in nature,” the government’s indictment alleges. “They included, for example, traffickers of stolen credit card data and personal identity information; peddlers of various types of online Ponzi and get-rich-quick schemes; computer hackers for hire; unregulated gambling enterprises; and underground drug-dealing websites.”
It seems clear, however, that the action against Liberty Reserve is part of a larger effort by the U.S. government to put pressure on virtual currencies.
It’s also not clear how the government’s actions will impact Bitcoin, a peer-to-peer digital currency that is gaining worldwide currency and momentum. While Bitcoin’s distributed nature in theory lacks the geographic central point of failure that allowed the US government to take action against Liberty Reserve, currency holders rely on bitcoin exchanges to convert bitcoins into other currencies; those entities must register with the U.S. Treasury Department as money service businesses, and could become a focus point for banking regulators going forward.
For money launders of the cyber generation there is no fear that the shadow virtual money banking systems will disappear. There are many other virtual currencies available: MoneyMail, LiqPay, UkrMoney, moneta.ru, Z-Payment, NN-Money, AlertPay, DeltaKey, AlterGold, Pecunix, V-Money, Webcreds, W1 RUR, Edram, E-Gold, C-Gold, iMoney, E-bullion, InoCard, Chebo Money, ECUmoney, Express Gold, ICQMoney, IntellectMoney, VRS, Wirex, Dengi 2.0, Younicrata. You can transfer virtual currencies to any Exchanger having a business relation with the issuer of the virtual currency. Some of the Exchangers can pay out in cash or make transactions into a correspondence bank or through Western Union without limits.