'Liberty Reserve' Currency Exchange Closed Down

Dennis Faas's picture

U.S. authorities say a website that allowed users to convert money into virtual currency was a front for money laundering operations. The Liberty Reserve site was shut down amid claims it helped criminals 'clean' more than $6 billion dollars.

The site, which is based in Costa Rica, billed itself as an easy way to transfer money to people, regardless of their location. Unlike PayPal, Liberty Reserve didn't process direct payments between people.

Instead, users could convert their cash into either 'Liberty Reserve Dollars' or 'Liberty Reserve Euros,' which were tied to the value of the real-world currencies.

The user could then make a payment to somebody else, which could be withdrawn and converted into real cash. The site took a 1 per cent commission on transactions.

No Questions Asked Over Currency Exchange

To use the service, a customer merely had to provide a name, email address, and date of birth. That led U.S. tax officials to suspect it was an easy way for people to hide criminal activity from the authorities.

The Department of Justice (DoJ) then carried out a secret investigation to gather data on the operation. DoJ officials now say they have evidence of both money laundering and "operation of an unlicensed money transmission system."

In fact, they say the service was specifically designed to aid criminals.

While investigating the service an undercover agent signed up using the name "Joe Bogus" while choosing "tostealeverything" as his account identification name, neither of which led to any questions from site staff. (Source: bloomberg.com)

Liberty Reserve Web Address Seized By Court

Five leading Liberty Reserve figures have been arrested in raids in Costa Rica, Spain, and the U.S. Law enforcement officers seized the servers used to physically operate the service, while a U.S. court took control of the domain name used by the site.

Around one million people are thought to have used the site for a total of 55 million transactions. It's difficult to be certain of the numbers as there's no easy way to tell how many people operated multiple accounts.

Security experts report that some suspected online criminals have already complained about losing cash with the sudden closure of the site.

It's also possible law enforcement officials could use the data on the seized servers to identify criminals, though they may need the cooperation of Liberty Reserve staff to decrypt files. (Source: bbc.co.uk)

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