On May 28, 2013, the US government unveiled a coordinated action
against Liberty Reserve S.A. for violations of US anti-money
laundering laws.
The Department of Justice (DOJ), Secret Service, Internal Revenue
Service, and US Immigration and Customs Enforcement announced the
unsealing of a grand jury indictment of Liberty Reserve S.A. and
seven of its executives for conspiracy to commit money laundering,
conspiracy to operate an unlicensed money transmitting business,
and the operation of an unlicensed money transmitting business. The
investigation involved law enforcement action in 17 countries,
including Costa Rica, the Netherlands, Spain, Morocco, Sweden,
Switzerland, Cyprus, Australia, China, Norway, Latvia, Luxembourg,
the United Kingdom, Russia, Canada and the United States.
In addition, the US Department of Treasury's Financial Crimes
Enforcement Network (FinCEN) issued a Notice of Proposed Rulemaking
(NPRM) and a finding naming Liberty Reserve as a "primary
money laundering concern" under Section 311 of the USA PATRIOT
Act. Liberty Reserve is the first virtual currency provider
identified under Section 311 and follows FinCEN's recent use of
the Section 311 authority against two Lebanese exchange houses. If
FinCEN issues the NPRM as currently proposed, Liberty Reserve will
be cut off from the US financial system because US financial
institutions will be required to terminate any correspondent
account that is established, maintained, administered or managed in
the United States for a foreign bank if the correspondent account
is used to process Liberty Reserve's transactions. FinCEN's
recent and novel use of the Section 311 authority signals that it
will continue to invoke new and creative uses of this powerful tool
to protect the financial system.
Liberty Reserve is a Costa Rica-based virtual currency operator
that provided users with the capability to transmit funds
anonymously across the globe. According to the indictment, Liberty
Reserve did not perform Know Your Customer procedures on its users
and was designed to help users anonymize the source of transferred
and deposited funds. By establishing an account, Liberty Reserve
users were able to anonymously exchange Liberty Reserve virtual
currency for real currency (and vice versa). The DOJ estimates that
since 2006, Liberty Reserve processed 55 million transactions in an
amount equal to approximately $6 billion, much of which the DOJ
asserts was derived from individuals and entities engaged in
illicit activities. According to the DOJ, Liberty Reserve is a
preferred method of payment on websites dedicated to the promotion
and facilitation of illicit web-based activity, including identity
theft, credit card fraud, online scams and dissemination of
computer malware.
The US government has shut down Liberty Reserve's website and
several defendants have been arrested by foreign authorities and
are awaiting extradition to the United States. As part of the
indictment, the DOJ is also using its forfeiture authority to seize
several domain names and approximately $6 billion of the
defendant's assets held in various accounts around the
globe.
The action against Liberty Reserve follows the Department of
Homeland Security's recent seizure of the US accounts of Mt.
Gox, a Japan-based Bitcoin exchange, and FinCEN's issuance of
guidance for the virtual currency industry. These actions signal
that the US government is focused on the emerging virtual currency
industry's compliance with US anti-money laundering laws.
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