Arthur Budovsky — an American who renounced his U.S. citizenship after deciding to set up in Costa Rica, is the alleged founder of Liberty Reserve, a Costa Rica based company dedicated to Web hosting services, website development and Internet business consulting.
Budovsky and another defendant, identified as Azzeddine el Amine, were arrested Friday at a Madrid airport while trying to return to Costa Rica. They were ordered jailed while they await a hearing on extradition to the U.S.
Two other men were arrested last week in New York City, including Liberty Reserve co-founder Vladimir Kats. Of the remaining defendants, one is in custody in Costa Rica and two were at large, possibly still in Costa Rica.
Budovsky, 39, and Kats, 41, have previous convictions on state charges related to an unlicensed money-transmitting business. After that case, the pair decided to move their operation to Costa Rica.
In an online chat captured by law enforcement, Kats admitted Liberty Reserve was illegal and noted that authorities in the United States knew it was “a money-laundering operation that hackers use.”
In Costa Rica, all online businesses are legal and there aren’t any laws regulating them, so the country has been attracting entrepreneurs setting up Internet-based companies that do everything from e-commerce to gambling banned in other countries.
As part of the Liberty Reserve investigation, authorities raided 14 locations in Panama, Switzerland, the U.S., Sweden and Costa Rica. In Costa Rica, investigators recovered five luxury cars, including three Rolls-Royces. Bharara said authorities also seized Liberty’s computer servers in Costa Rica and Switzerland.
Over roughly seven years, Liberty Reserve processed 55 million illicit transactions worldwide for 1 million users, including 200,000 in the U.S. The network charged a 1 percent fee on transactions through “exchangers” — middlemen who converted actual currency into virtual funds and then back into cash.
The scheme unraveled when an undercover agent posing as a new client sought to register at the currency transfer firm Liberty Reserve as “Joe Bogus” from “123 Fake Main Street” in “Completely Made Up City,” no one at the company based in Costa Rica objected.
The same client recording digital currency transactions as “ATM skimming work” and “for the cocaine”? Still no problem.
In fact, federal prosecutors in Manhattan say anonymity and criminality were what Liberty Reserve was all about.
“The only liberty that Liberty Reserve gave many of its users was the freedom to commit crimes, as it became a popular hub for fraudsters, hackers, and traffickers,” U.S. Attorney Preet Bharara said Tuesday in announcing charges against seven people in a $6 billion scheme that he billed as possibly the largest money-laundering scheme even seen in the United States.
Liberty Reserve appears to have played an important role in laundering proceeds from the recent theft of some $45 million from two Middle Eastern banks, according to documents made public by U.S. authorities earlier this month. In that scheme, thieves stole debit card information and then used it to drain cash from thousands of ATMs around the world in a matter of hours.