Founder of Liberty Reserve, Arthur Budovsky, pleaded guilty to one count of conspiring to commit money laundering before U.S. District Judge Denise L. Cote. The laundered amount was more than $250 million. His sentencing is scheduled to take place on May 6 where he faces up to 20 years in prison. Bloomberg reported that this is because of a plea deal he took, without it he would’ve faced life in prison.
Vladimir Kats, Azzeddine El Amine, Mark Marmilev and Maxim Chukharev, who were also indicted have already pleaded guilty. The last two, Marmilev and Chukharev were sentenced to 5 years and 3 years in prison. There were two others who were indicted, presumably Ahmed Yassine Abdelghani and Allan Esteban Hidalgo Jimenez, but they remain at large and are fugitives.
Budovsky was arrested in Spain in May 2013 and was finally extradited to the U.S. in 2014.
According to the indictment, near the end of 2006, after being sentenced to 5 years of probation (the sentencing was originally 5 years in prison) for running Gold Age as an unlicensed money transmitting business, Budovsky fled the U.S. to Costa Rica to build a new digital currency, Liberty Reserve.
In 2010, Budovsky paid a Costa Rica woman $800 to marry him so he could be become a naturalized citizen. Costa Rica doesn’t have an extradition treaty with the U.S. They planned to divorce 2 years later, but they never did. Budovsky later renounced his U.S. citizenship in 2011.
The Costa Rica-based Liberty Reserve was a payment processor and digital currency service that didn’t require users to prove their identity, because of this it became attractive to all types of unsavory characters. It has been claimed that the service assisted in investment fraud, credit card fraud, identity theft and computer hacking. Some people set up accounts under blatantly criminal names such as “Russia Hackers” or “Hacker Account”. However, those who didn’t commit any crimes became collateral damage when Liberty Reserve was seized in 2013. Although The New York Times reported that United States Attorney Preet Bharara “… invited any legitimate users to contact his office to get their money back.”
Budovsky designed Liberty Reserve to provide anonymity, for example, it didn’t allow users to deposit or withdraw from their accounts directly. It instead required third-party exchangers to be used. This was so Liberty Reserve would have as little information about its users as possible. They also offered a shopping cart interface for websites that wanted to be able to accept Liberty Reserve currency as a form of payment.
Liberty Reserve quickly became popular and subsequently made a lot of money. They decided to launder the money to many bank accounts in many countries throughout the world owned by many shell companies they owned.
Around 2009, SUGEF, the Costa Rican agency responsible for regulating financial institutions told Liberty Reserve that they needed to apply for a license to operate in Costa Rica. They tried to get one but they couldn’t since Liberty Reserve didn’t have basic anti-laundering measures in place, like knowing who the users were or ways to track suspicious activity. Liberty Reserve tried to get around this by creating a “portal” to track its transactions and monitor activity. They gave the portal fake data to throw off the Costa Rican regulators.
Still, by late 2011, Liberty Reserve wasn’t able to get license. To make things worse, around this time, the U.S. Department of Treasury’s FinCEN told financial institutions in its network about the dangers of working with Liberty Reserve. Once they got a copy of this notification, Liberty Reserve later lied to SUGF about it being sold to a foreign company and that it wouldn’t be operating in Costa Rica anymore, thus Liberty Reserve withdrew the application for the license.
In reality, they simply laid low and went underground, working out of office owned by a shell company.
Budovsky and everyone else who was indicted was also accused of Conspiracy to Operate Unlicensed Money Transmitting Business and Operation of an Unlicensed Money Transmitting Business.
The Liberty Reserve global investigation has been claimed to be the largest online money-laundering case in history.