Police in Costa Rice pull plug on shadowy currency

Last Updated: Tue, May 28, 2013 13:00 hrs

A shadowy electronic currency that underpins a large chunk of the cybercrime 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 favored by scammers, went offline 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 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 cybercriminals," 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 email 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 centers, generally set up in places beyond the reach of U.S. 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 centers typically had little in the way of serious oversight.

"Cybercriminals 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 $45 million from two Middle Eastern banks, according to legal documents made public by U.S. 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 centers 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 U.S. authorities.

Budovsky, who became a Costa Rican national after giving up his U.S. 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.

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

Sood said there might be a short term drop in cybercrime activity as scammers who used to rely on Liberty Reserve readjusted their finances, but he cautioned that new forms of cybercurrency 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.


Satter reported from London. Alan Clendenning in Madrid contributed to this report.

More from Sify: