Action Targets Liberty Reserve, a Web-Based Money Transfer System
Employed by Criminals Worldwide to Launder the Proceeds of Illicit Activities
WASHINGTON – The U.S. Department of the Treasury today named
Liberty Reserve S.A. as a financial institution of primary money laundering
concern under Section 311 of the USA PATRIOT Act (Section 311). Liberty Reserve - a web-based money transfer
system or “virtual currency” - is specifically designed and frequently used to
facilitate money laundering in cyber space.
This is the first use of Section 311 authorities by Treasury against a
virtual currency provider.
Liberty Reserve is widely used by criminals worldwide to
store, transfer, and launder the proceeds of a variety of illicit
activities. Liberty Reserve’s virtual
currency has become a preferred method of payment on websites dedicated to the
promotion and facilitation of illicit web based activity, including identity
fraud, credit card theft, online scams, and dissemination of computer malware. It has sought to avoid regulatory scrutiny
while tailoring its services to illicit actors.
Treasury’s regulatory action today was taken in coordination
with the unsealing of an indictment by the U.S. Attorney's Office for the
Southern District of New York, which charged Liberty Reserve and seven of its
principals – Arthur Budovsky, Vladimir Kats, Azzedine El Amine, Mark Marmilev,
Maxim Chukharev, Ahmed Yassine Abdelghani, and Allan Esteban Hidalgo Jimenez – in
Manhattan federal court for their alleged roles in running a $6 billion money
laundering scheme and operating an unlicensed money transmitting business.
“Treasury is determined to protect the U.S. financial system
from cyber criminals and other malicious actors in cyberspace, including
overseas entities like Liberty Reserve that facilitate online crime and hope to
evade regulatory scrutiny,” said Under Secretary for Terrorism and Financial
Intelligence David S. Cohen. “We are
prepared to target and disrupt illicit financial activity wherever it occurs –
domestically, at the far reaches of the globe or across the internet.”
Treasury’s Financial Crimes
Enforcement Network (FinCEN) has delivered to the Federal Register a regulatory
finding explaining the basis of the actions as well as a notice of proposed
rulemaking (“NPRM”) that, if adopted as a final rule, would prohibit covered
U.S. financial institutions from opening or maintaining correspondent or
payable-through accounts for foreign banks that are being used to process
transactions involving Liberty Reserve.
The NPRM also proposes to require covered financial institutions to
apply special due diligence to their correspondent accounts maintained on
behalf of foreign banks to guard against any transactions involving Liberty
Reserve. If adopted, these measures would
effectively cut off Liberty Reserve from the U.S. financial system. After publication in the Federal Register,
the public will have 60 days to comment on the proposed rule against Liberty
Liberty Reserve is a web-based money transfer system or
“virtual currency.” It is currently
registered in Costa Rica and has been operating since 2001. Liberty Reserve uses a system of internal
accounts and a network of third-party intermediaries or exchangers to move
funds. Operating under the domain name
“www.libertyreserve.com,” Liberty Reserve maintains accounts for registered
users, which are funded through exchangers.
Registered users typically send a bank or non-bank wire transfer to an
exchanger, who then transfers the corresponding value of Liberty Reserve
virtual currency from the exchanger’s account to the user’s account. Once an account is established, transfers can
be made from account-to-account instantly and anonymously. Withdrawal of funds requires a user to
instruct Liberty Reserve to send transfer value from the user’s account to the
account of an exchanger, who then transfers the value as U.S. dollars or other
currency as a bank or non-bank wire transfer to the user or to other
recipient(s). Exchangers operate as
independent money service businesses globally, charging a commission on each
transfer of funds into or out of the Liberty Reserve currency.
Liberty Reserve’s virtual currency appeals to illicit users
because it provides the capability to conduct anonymous transactions around the
world. Liberty Reserve does not conduct
verification of account registration for individuals using the system, asking
only for a working e-mail address, and allow an individual to open unlimited
number of accounts. By paying an
additional “privacy fee,” users can hide their internal unique account number
when sending funds within the Liberty Reserve system. Once an account is established, Liberty
Reserve virtual currency can then be sent, instantly and anonymously, to any other
account holder within the global system. For example, a cyber-criminal online
marketplace would accept payment in Liberty Reserve transfers for illicit
activity that included spam services and key-logging programs used to steal
personal information, such as account numbers and passwords, from innocent
victims. Also for anonymous sale were
destructive malware programs designed to assault financial institutions, as
well as lists of information from thousands of compromised personal accounts.
To view a Fact Sheet
on Section 311 of the USA PATRIOT Act, visit this link.
To view a chart
related to this action, visit this link.
To view the complete
Findings against Liberty Reserve, visit this link.
To view the Notice of
Proposed Rulemakings, visit this link.