NY indictment filed in $6B money-laundering case

NEW YORK — The founder of an online currency transfer business was indicted in the United States along with six other people in a $6 billion money-laundering scheme described as "staggering" in its scope, authorities said yesterday.

Arthur Budovsky is the founder of Liberty Reserve, a Costa Rica-based website long favored by cybercrime scammers. He was arrested in Spain on Friday. A defendant identified as Budovsky's partner, Vladimir Kats, was in custody in New York.

Authorities say the network processed at least 55 million illegal transactions worldwide for 1 million users, including 200,000 in the United States. They call the international money-laundering case the largest ever.

"The scope of the defendants' unlawful conduct is staggering," said an indictment unsealed in federal court in Manhattan. In announcing the case, US Attorney Preet Bharara said the network "became the bank of choice for the criminal underworld."

Its digital currency service was designed to shield the identity of crooked users seeking to launder ill-gotten gains, he said.

"The coin of the realm was anonymity," he said. "It was the opposite of a know-your-customer policy."

In a statement, Costa Rica police confirmed that Budovsky had been arrested in Spain on money laundering charges and that several premises linked to his company had been raided. A notice pasted across Liberty Reserve's website last week said the domain "has been seized by the United States Global Illicit Financial Team."

Liberty Reserve's demise is likely to send a sharp shock across the Internet.

The indictment calls the network "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."

Liberty Reserve allowed users to open accounts using fictitious names, including "Russian Hacker" and "Hacker Account." The network charged a 1 percent fee on transactions.

Budovsky and Katz 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, where Budovsky officially renounced his US citizenship, the papers say.

In an online chat captured by law enforcement, Katz admitted Liberty Reserve was "illegal" and noted that authorities in the United States knew it was "a money laundering operation that hackers use."

Aditya Sood, a computer science doctoral candidate at Michigan State University who has studied the underground economy, described Liberty Reserve as a no-questions-asked alternative to the global banking system, with little more than a valid email needed to open an account and start moving money across borders.

"You don't need to provide your full details, or personal information, or things like that," Sood said in a telephone interview. "There's no way to trace an account. That's the beauty of the system."

Budovsky and another man identified by Spanish authorities as Azzeddine el Amine were arrested Friday at Madrid's Barajas airport while trying to catch a connecting flight from Morocco to Costa Rica, according to a Spanish National Court official, who spoke on condition of anonymity because court policy forbids him from speaking on the record.

Both men have indicated they will fight any move to send them to the US, the official said. The pair were ordered to remain in prison pending an extradition hearing.

Authorities described Liberty Reserve as being rife with criminals, but the site's ease of use, low fees and irreversible transactions that deterred fraud also attracted a thriving community of legitimate tech-savvy users in countries with limited access to credit cards.

Mitchell Rossetti, whose Houston, Texas-based ePayCards.com was one of several mainstream merchants that accepted the online-only currency, said his business still had about $28,000 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 was just like any other currency. "The US dollar can be donated to a church or it can pay a prostitute," he said.

Liberty Reserve appears to have played an important role in laundering the proceeds from the recent theft of some $45 million from two Middle Eastern banks, according to legal documents made public by US authorities earlier this month.

The complaint against one of the Dominican Republic gang members allegedly involved in the theft states that thousands of dollars' worth of stolen cash was deposited into two Liberty Reserve accounts via currency centers based in Siberia and Singapore.

A total of 14 premises were raised in Panama, Switzerland, the US, Sweden, and Costa Rica, according to Spanish authorities. In Costa Rica, investigators recovered five luxury cars, including three Rolls Royces, Spanish police said. Bharara, the federal prosecutor, said authorities had seized Liberty's computer servers in Costa Rica and Switzerland.