Digital Currency: Better than PayPal . . . or Cybercrime’s Monopoly Money?
U.S. federal law enforcement agencies announced the closure and seizure of Liberty Reserve (LR), a Costa Rican-based online, virtual currency company. Allegedly LR acted as a financial hub for the cybercrime worldwide, digitally processing more than $6 billion of international criminal proceeds over the past seven years. This announcement comes as part of a global partnership of domestic and foreign law enforcement against illicit Internet banking.
LR operated one of the world’s most widely-used digital currency services. It is alleged to have had more than one million customers – including more than 200,000 in the U.S – who conducted approximately 55 million transactions, almost all illegal. LR laundered the suspected proceeds of crimes that included credit card fraud, identity theft, investment fraud, Ponzi and get-rich-quick schemes, illegal gambling, computer hacking, child pornography, and drug trafficking.
Unlike traditional banks or legitimate online processors, LR did not require users to validate their identities. Users routinely established accounts under false names; even blatantly-criminal account names, such as “Russia Hackers” and “Hacker Account,” were common.
Seven of its principals and employees are charged with money laundering and with operating an unlicensed money transmitting business (or, more simply put, with conducting an electronic shell game). They protected LR’s criminal infrastructure by lying to anti-money laundering authorities. They then pretended to shut down LR after learning it was being investigated by U.S. law enforcement. They continued to operate the business through shell companies, moving tens of millions of dollars through phony accounts in Cyprus, Russia, China, Hong Kong, Morocco, Spain, Australia and elsewhere.
Preet Bharara, the United States Attorney for the Southern District of New York, summed it up: “The only liberty [LR] gave many of its users was the freedom to commit crimes. . . . It became a popular hub for fraudsters, hackers and traffickers . . . a Wild West [show]. . . . As crime goes increasingly global, the long arm of the law has to get even longer, and in this case, it encircled the earth.”
Referencing Mr. Bharara’s globalization to include the global economy and the global Internet network – as well as global organized crime – it is also now the age of cyber or digital currency. Wall St. has taken notice, as have investors and money magnates. If time is money . . . then any worldwide transaction, now, will be done in seconds.
But with new technology comes new criminality. It is also the cyber age of money laundering. This is new ground for law enforcement. Money laundering in the past used to be more traceable. It used more traditional methods. But what was once a paper trail is now a cyber-trail.
Advancements in cyber technology have dramatically increased opportunities for criminals to move, conceal and enjoy profits. LR and its principals operated a sophisticated and complex system which structured financial transactions catering to individual criminals and criminal organizations.
While the sweeping announcement regarding LR is good news, it is hardly the end of such enterprises. International crime thrives on change, on being “one step ahead.”
But there is a concern at The Blanch Law Firm: Despite federal (and foreign) government claims, that LR operated solely with criminal elements, it is known that many individual users – most, but not all, outside the U.S. – ironically preferred using LR’s cyber currency simply because it was cheaper and more secure.
It was a cost-conscious alternative to the most widely-used means of cyber exchange – the big kid on the block, PayPal. (E.g., LR’s transaction fee was far less than PayPal’s, a boon to a small or start-up business owner.) Are these innocent individuals to be lumped with criminal elements?
— Stephen Heath-Jones