US: Money Laundering Plea in Digital Currency Service Case

A top official at a notorious digital currency service company has pleaded guilty to money laundering and operating an unlicensed money transmitting business at the federal court in the Southern District of New York.

 

According to the US Department of Justice, over the past eight years Liberty Reserve laundered more than $6 billion suspected to have originated in credit card fraud, identity theft, investment fraud, computer hacking, child pornography and narcotics trafficking.

Azzeddine El Amine, 47, who was arrested in May 2013, operated a prominent Liberty Reserve “exchanger” service incorporated in Costa Rica in 2006, alongside company founder Arthur Budovsky.

On Aug. 14 he pleaded guilty to one count of conspiring to commit money laundering, one count of conspiring to operate an unlicensed money transmitting business and one count of operating an unlicensed money transmitting business.

“Digital currency service” is a comparatively new concept in the financial world stemming from the growth of digital currency, defined as a medium of exchange that is electronically created or stored. The model Liberty Reserve implemented is complex, as explained by the New Yorker magazine:

Liberty Reserve worked like a bank, but only took deposits in its own “Liberty Reserve” currency. To open an account required only an e-mail address and a name, which could be fake. Deposits could not be made directly but had to be funneled through “exchangers” to convert real currency to Liberty Reserves.

The exchangers were usually unlicensed Malaysian, Nigerian or Vietnam moneymen, who bought lots of Liberty Reserves and then exchanged them for cash from depositors, who would then deposit Liberty Reserves in their accounts. To withdraw money, the process would simply be reversed. Both the exchangers and Liberty Reserve gain a small percentage from these transactions.

The Bloomberg portal says that, as opposed to traditional banks and legitimate payment processors, Liberty Reserve did not verify identities, meaning transactions could not be traced, making Liberty Reserve the bank of choice for the criminal underworld.

In May 2013, the Manhattan office of U.S. Attorney Preet Bharara charged El Amine and six others in relation to the Liberty Reserve case. Bharara said that the company was structured as “a criminal business venture, one designed to help criminals conduct illegal transactions.” The company counted more than one million users conducting approximately 55 million transactions before being shut down in 2013.

U.S. investigators have found that criminal rings used Liberty Reserve to distribute illicit proceeds from Vietnam, Nigeria, Hong Kong, China and the U.S.