Costa Rican agents raided Liberty Reserve founder Arthur Budovsky’s offices and home in San José and Heredia on Friday.
Panic spread on the Internet as word about Arthur Budovsky Belanchuk’s
arrest reached users of his digital currency business Liberty Reserve,
which was shut down on Friday.
Budovsky, 39, was arrested on Friday in Spain as part of a money
laundering investigation performed jointly by police agencies in the
United States and Costa Rica. U.S. officials likely will seek his
extradition.
Costa Rican prosecutor José Pablo González said
Budovsky, a former U.S. citizen and naturalized Costa Rican of Ukrainian
origin, has been under investigation since 2011 in Costa Rica for
suspected money laundering using apparent shell companies he created to
run Liberty Reserve.
Budovsky relocated to Costa Rica after he and
partner Vladimir Kats were indicted on July 27, 2006, in New York on
charges of operating an illegal financial business, GoldAge Inc. – a
precursor to Liberty Reserve – from their Brooklyn apartments, according
to the U.S. Justice Department. U.S. officials said the two had
transmitted at least $30 million to digital currency accounts worldwide
since beginning operations in 2002.
Budovsky and Kats were
sentenced to five years in prison in 2007 for engaging in the business
of transmitting money without a license, a felony violation of state
banking law. They received five years probation.
Officials have
not commented on how much money Liberty Reserve accounts handled, nor
how many clients are affected by its closing. But those numbers could be
higher than in the GoldAge case.
The daily La Nación reported
that Budovsky, a naturalized Costa Rican, renounced his U.S. citizenship
last year, after the joint investigation began. The Tico Times could
not independently verify that information, as Costa Rican government
agencies are closed for the weekend.
In 2011, Costa Rica’s
financial regulatory authority, the Financial Institution
Superintendency (SUGEF), closed Liberty Reserve, citing a lack of
transparency and accounting of funding sources, La Nación reported.
However,
Budovsky continued operating the company in conjunction with other
Costa Rican corporations, including Silverhand Solutions and Technology
S. A, Worldwide E-Commerce Business S .A., Grupo Lulu Limitada, Triton
Group A and A, S. A. and Cyberfuel.com.
The same year SUGEF
ordered Liberty Reserve closed, U.S. prosecutors based in New York asked
Costa Rican officials to begin investigating Budovsky and his
companies. On Friday, San José prosecutors raided Budovsky’s home and
offices in Escazú and Santa Ana, southwest of San José, and in the
province of Heredia, north of the capital.
Investigators allege
that Budovsky’s businesses in Costa Rica were used to launder funds from
child pornography websites and drug trafficking.
Both GoldAge and
Liberty Reserve operated under a similar system, allowing users to
nearly anonymously open accounts with limited documentation of identity.
Deposits are backed by gold and other precious metals, and customers
could withdraw money by requesting wire transfers to accounts anywhere
in the world or by having checks sent to individuals.
U.S. officials
have targeted companies like GoldAge and Liberty Reserve for years, saying they are hotbeds for criminal activity including money laundering, drug trafficking and tax evasion.
“The
ability to conduct transactions in digital currencies is constantly
available, making digital currencies more convenient than other methods
of funds transfer, which may be limited by normal business hours and
international time zones. Additionally, digital currency transactions
can be conducted from any location or device with Internet access,” a
2008 report by the U.S. National Drug Intelligence Center stated.
“Because
most digital currencies are denominated into internationally recognized
weights of precious metals, inconveniences traditionally associated
with international financial transactions, such as calculating
international exchange rates for another nation’s currency, are
eliminated,” the report added.
Liberty Reserve, which operated
without oversight from any global agency, was a convenient tool for
foreign currency brokers, as it allowed them to bypass local legislation
and avoid exchange rate fluctuations, particularly in developing
countries. But its lack of oversight also attracted organized criminal
elements, prosecutors said.
“Payment in digital currencies makes
it easier for traffickers to launder funds that no longer need to be
placed into the traditional financial system. Payment can be immediately
forwarded to an international digital currency account, perhaps in
payment to the original source of supply, or further layered through
multiple digital currency accounts and exchangers until reintegrated
into the legitimate economy,” the National Drug Intelligence Center
stated.
To open a Liberty Reserve account, users needed only to submit a name, address, email address, date of birth and occupation.
Budovsky’s
arrest and the closing of the Liberty Reserve website prompted a wave
of online chatter from affected clients. Forex Magnates, which describes
itself as a “specialized forex news and research source,” called
Liberty Reserve “the leading payment channel for traders in emerging and
frontier markets.”
Citing a broker and analyst in Pakistan, Forex
Magnates said, “Forex brokers have been benefiting from Liberty
Reserve’s vast access as a payment provider, especially in countries
where traders face difficulties in transferring funds. Liberty Reserve
was a ‘gift’ for several traders, especially after the State Banks’
(State Bank of Pakistan) changes to international money transfers.”
Online reaction has also come from Nigeria, Malaysia and other countries.
An
earlier story on www.ticotimes.net about Budovsky’s arrest prompted worried clients to ponder the fate of funds deposited with the company.
