Cybercrime

Computer-related acts for personal or financial gain

• Fraud

Computer-related specific acts

• Production/distribution/ possession of child pornography

Money laundering

Offences

• Conversion/transfer of proceeds of crime

Originating Offences

• Credit card fraud
• Identity theft
• Investment fraud
• Computer hacking
• Narcotics trafficking

US v Liberty Reserve et al.

UNODC No.:
USA004R

Fact Summary

In 2013, and international investigation led US prosecutors in the Southern District of New York to charge 7 individuals with money laundering and operating an unlicensed money transmitting business. The defendants ran Liberty Reserve, a digital payment facility, which allegedly laundered more than USD 6 billion in criminal proceeds. Liberty Reserve was shut down by US authorities in May 2013 as a result of the investigation.

Liberty Reserve – incorporated in 2006 in Costa Rica – was a centralized digital currency service. It allowed users to deposit physical currency – Euros or US Dollars - by converting it into a digital currency pinned to the value of the physical one. Once deposited the money, users were allowed to transfer it to other users. The only personal information required to register was a name, e-mail address and birthdate. Liberty Reserve charged a small fee for each transaction.

According to the investigators, Liberty Reserve was operated do facilitate money-laundering. Its structure and high degree of untraceability provided cybercriminals with a perfectly functioning tool to store and transfer the proceeds of their illegal activities. Before its shut down, the overall number of Liberty Reserve’ users worldwide exceeded on million and over 55 million transactions were conducted through its system. Such transactions included the transfer of proceeds of credit card fraud, identity theft, investment fraud, computer hacking, narcotics trafficking.

One of the co-founders of Liberty Reserve, Vladimir Kats, an American citizen, pleaded guilty before the Federal Court of the Southern District of New York on 31 October 2013 to conspiring to commit money laundering, conspiring to operate an unlicensed money transmitting business, receiving child pornography and marriage fraud.

The other co-founder, Arthur Budovsky, a citizen of Costa Rica, was arrested in Spain in May 2013 and extradited to the US in October 2014.

The US Secret Service, the Internal Revenue Service-Criminal Investigation and the US Immigration and Customs Enforcement’s Homeland Security Investigations carried out the investigation. International assistance was provided by the Judicial Investigation Organization in Costa Rica, the National High Tech Crime Unit in the Netherlands, the Financial and Economic Crime Unit of the Spanish National Police, the Cyber Crime Unit at the Swedish National Bureau of Investigation, and the Swiss Federal Prosecutor’s Office.

Commentary and Significant Features

In this case, digital currency services came into the spotlight as money-laundering platforms. International cooperation between law enforcement of different countries allowed to identify the offenders and shut down the website. However, Liberty Reserve was only one of the digital currency facilities used by criminals to launder money. Several other digital currency facilities, including the famous virtual currency Bit Coin, are nowadays used to conceal illegal funds. Such facilities are not to be considered as criminal by itself since they can be used for licit purposes. Nevertheless, they offer a high degree of anonymity that allows criminals to make speedy transactions to disguise the criminal origin of their funds.

Cross Cutting

Liability

... for

• completed offence

... based on

• criminal intention

... as involves

• principal offender(s)
• participant, facilitator, accessory

Application of the Convention

Involved Countries

Costa Rica

Switzerland

Spain

Netherlands

Sweden

Morocco

Cyprus

Australia

China

Norway

Latvia

Luxembourg

United Kingdom of Great Britain and Northern Ireland

Russian Federation

Canada

United States of America

Investigation

Involved Agencies

• US Secret Service
• US Internal Revenue Service-Criminal Investigation
• US Immigration and Customs Enforcement
• Judicial Investigation Organization of Costa Rica
• National High Tech Crime Unit of the Netherlands
• Financial and Economic Crime Unit of the Spanish National Police
• Cyber Crime Unit at the Swedish National Bureau of Investigation
• Swiss Federal Prosecutor’s Office

International Cooperation

Measures

• Extradition
Outline:

Arthur Budovsky was arrested in Spain in May 2013 and extradited to the US in October 2014.

 

Procedural Information

Legal System:
Common Law
Latest Court Ruling:
Court of 1st Instance
Type of Proceeding:
Criminal
 
 
Proceeding #1:
  • Stage:
    first trial
  • Decision Date:
    12 December 2014

    Court

    Court Title:

    US Federal Court

     

    Location

  • City/Town:
    Southern District of New York
  • Province:
    New York
  • • Criminal
    Description:

    The indictment was unsealed on May 28, 2013. Marmilev, Vladimir Kats and Azzeddine El Amine previously pleaded guilty. Marmilev was sentenced to five years in prison in December 2014; Kats and El Amine await sentencing. The indictment also charged Liberty Reserve with conspiracy to commit money laundering and operation of an unlicensed money transmitting business, and the charges remain pending.

     

    Defendants / Respondents in the first instance

    Defendant:
    Vladimir Kats
    Gender:
    Male
    Nationality:
    American

    Co-founder of Liberty Reserve

    Defendant:
    Arthur Budovsky
    Gender:
    Male
    Nationality:
    Costa Rican

    Principal founder of Liberty Reserve

    Defendant:
    Ahmed Yassine Abdelghani
    Gender:
    Male
    Defendant:
    Allan Esteban Hidalgo Jimenez
    Gender:
    Male
    Defendant:
    Azzeddine El Amine
    Gender:
    Male

    Manager of Liberty Reserve's financial accounts

    Defendant:
    Mark Marmilev
    Gender:
    Male

    Former chief technology officer of Liberty Reserve

    Defendant:
    Maxim Chukharev
    Gender:
    Male
    Nationality:
    Costa Rican

    Former information technology manager of Liberty Reserve

    Charges / Claims / Decisions

    Defendant:
    Vladimir Kats
    Charge / Claim:

    Money laundering and operating an unlicensed money transmitting business

    Defendant:
    Arthur Budovsky
    Defendant:
    Ahmed Yassine Abdelghani
    Defendant:
    Allan Esteban Hidalgo Jimenez
    Defendant:
    Azzeddine El Amine
    Defendant:
    Mark Marmilev
    Verdict:
    Guilty
    Charge / Claim:

    Conspiring to operate an unlicensed money transmitting business

    Term of Imprisonment:
    5 years
     
    Fine / Payment to State:
    25000  USD   
    Defendant:
    Maxim Chukharev
    Charge / Claim:

    Conspiring to operate an illegal unlicensed money transmitting business

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