Costa Rica cops pull plug on net money

2013-05-28 21:21
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Arthur Budovsky

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San Jose - A shadowy electronic currency that underpins a large chunk of the internet crime economy has been knocked out by law enforcement action on two continents, police in Costa Rica say.

Concern had been building on underground internet forums since Liberty Reserve, a Latin America-based currency system long favoured by scammers, went off-line last week. In a statement, Costa Rica police on Monday confirmed that the company founder Arthur Budovsky had been arrested in Spain on money laundering charges on Friday and that several premises linked to his company had been raided.

Liberty Reserve's demise is likely to send a sharp shock across the internet.

"It was one the most popular currencies for internet criminals," said Aditya Sood, a computer science doctoral candidate at Michigan State University who has studied the underground economy.

Sood said Liberty Reserve operates as a no-questions-asked alternative to the global banking system, with little more than a valid e-mail needed to open an account and start moving money across borders.

"You don't need to provide your full details, or personal information, or things like that," he said in a telephone interview. "There's no way to trace an account. That's the beauty of the system."

Spain's National Police said it could not immediately confirm the arrest.

Offshore currency centres, generally set up in places beyond the reach of US or European law enforcement, were used by criminals to broker transactions that transferred tainted cash in and out of the mainstream financial system. Unlike, say, a credit card payment, Liberty Reserve transfers were irreversible, making them attractive to scammers.

Sood said that despite prominent disclaimers warning against money laundering, the way Liberty Reserve was set up meant that currency centres typically had little in the way of serious oversight.

Secret

"Internet criminals don't provide their real credentials," Sood said, leaving brokers in the dark about who was sending what where.

"They have no idea where the money is coming from or where the money is going," he said. "That's how they designed the model."

Liberty Reserve appears to have played an important role in laundering the proceeds from the recent theft of some $45m from two Middle Eastern banks, according to legal documents made public by US authorities earlier this month.

The complaint against one of the Dominican Republic gang members allegedly involved in the theft states that thousands of dollars' worth of stolen cash was deposited into two Liberty Reserve accounts via currency centres based in Siberia and Singapore.

Costa Rican police said in a statement that they raided three homes and five businesses linked to Liberty Reserve and seized papers and digital documents that will be turned over to US authorities.

Budovsky, who became a Costa Rican national after giving up his US citizenship, has been in trouble before, the statement added, explaining that Budovsky was sentenced in 2007 to five years' probation after pleading guilty in a New York court to charges he operated an illegal financial services business similar to Liberty Reserve.

US authorities didn't return phone messages from The Associated Press seeking comment on Monday, which was a public holiday in the United States.

Sood said there might be a short term drop in internet crime activity as scammers who used to rely on Liberty Reserve readjusted their finances, but he cautioned that new forms of internet currency would soon take its place.

"Even if one system is taken down, we can't expect that there will be no more systems," he said.

- AP

Read more on:    us  |  costa rica  |  online security
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