Let's step back, from 1999 to 2006 was operating the digital currency exchange known as Gold Age, a legal corporate entity registered in Panama, that was closed by regulators in 2006. Following a note from an interesting blog post on the closure of Liberty Reserve published by Idan Aharoni, head of cyber intelligence at RSA:
“The original e-currency that fraudsters adopted – e-gold – was not much different in concept than Liberty Reserve. The company was US-based and offered electronic currency backed by real gold. When prices of gold fluctuated, so did the value of an e-gold. At the time, e-gold reigned supreme in the cybercriminal circles, to the point that fraudsters were trying to defraud funds from one another.”
Following a resume proposed by Wikipedia on the end of Gold Age:
“On July 27, 2006 the New York County District Attorney's office announced the indictment of Arthur Budovsky and Vladimir Kats for allegedly violating Article 13-B of New York State Banking Law, after a six month sting operation that began in January 2006. Budovsky and Kats declared their innocence saying "We believe this is a legitimate business practice, which does not require a state license." Represented by Igor Niman, they were found guilty and sentenced to five years in prison. The sentence reduced to five years probation.
Budovsky
left the country for Costa Rica and founded Liberty Reserve renouncing
to U.S. Citizenship and became a Costa Rican citizen in 2011 so that
Liberty Reserve could remain undetected by law enforcement. On May 27th,
2013 Budovsky was arrested in Spain on charges of money laundering following
an investigation which also involved the US, the company website,
LibertyReserve.com, only features a message saying it's been seized by
U.S. law enforcement. The service was allegedly favored by
cybercriminals and mules who took part in the recent Bank robbery of
$45 million considered the biggest theft realized by a gang of hackers,
the activities laundered cash that was drained from banks via ATMs
around the world.
The figures related to Liberty Reserve activities are frightening, it
had more than one million users and since 2006 until its suspension it
processed around 55 million transactions, according to an indictment in
U.S. District Court in New York. The indictment states that Liberty is
accused of having laundered money for a total amount of $6 billion in
criminal earnings, Budovsky and six other individuals ate the
defendants. Liberty Reserve allegedly facilitated numerous illegal
activities including credit card fraud, drug trafficking, investment
fraud and child pornography.
"lying to anti-money laundering authorities in Costa Rica, pretending to shut down LIBERTY RESERVE after learning the company was being investigated by U.S. law enforcement, and moving tens of millions of dollars through shell-company accounts maintained in Cyprus, Russia, Hong Kong, China, Morocco, Spain, and Australia among other places."
The
suspension of the payment service has a dramatic impact on the
underground considering that majority of sale use the current schema,
but according security experts the effect will have a limited impact in
the time, a black market in fact is very dynamic and many vendors are
also already accepting many other payment methods such as the Bitcoin.
“This is going to be devastating for the underground economy, but it's only going to be devastating for a short period of time,” “It's been around for a long time and it's become a bit of a mainstay of the underground economy.” said Steve Santorelli, director of security research nonprofit Team Cymru, to SCMagazine.
The
use of Liberty Reserve was easy, users can open accounts and operate
secure and rapid transactions, the indictment defines it as “bank of
choice for the criminal underground,”. Liberty Reserve allowed the
user’s registration without any verification of information provided, it
was enough to provide a name, dates of birth and the email address. The
service provided instantaneous payment transfers and charged them with
a maximum of $2.99 (£1.98) for each transaction, it also offered a
private messaging facility much more private and secure than "email or instant messenger services".
Idan Aharoni, head of cyber intelligence at RSA highlighted the that
fraudsters will explore other channels as they have already done in the
past. Cyber criminals may brush up old virtual currency schema such as
WebMoney despite it doesn’t offer a friendly services such like Liberty
Reserve. Another possibility is the migration to Bitcoin currency due
its maturity and reliability of its transactions and of course this will
cause a further intensification of criminal activities that try to
exploit any system to circumvent Bitcoin
Users. A serious problem for Bitcoin is the instability of the
currency's value, recently its Bitcoin went from $260 to as low as $105
and this is a not auspicable for long period business as declared
by Alphonse Pascual, analyst for Javelin Strategy and Research:
"Big time criminals are businessmen, so they want to protect their investments, protect their profits, and Bitcoin is too unstable to do that,".
Following
the price related to Bitcoin, an event like the closure of Liberty
Reserve could influence Bitcoin final prices, influence not yet evident.
The
shut down of Liberty Reserve has alerted anyway the Bitcoin world, Mt.
Gox the world's largest bitcoin exchange is requiring all users to
verify their accounts in order to make non-bitcoin currency deposits and
withdrawals. Mt. Gox announced the decision on Thursday, deposits and
withdrawals using the bitcoin virtual currency, however, will not
require account verification.
Mt. Gox made the policy change to comply with "strict anti-money laundering rules" and to prevent "other malicious activity."
… let’s wait what will happen, for sure the cybercrime industry will not be caught unprepared.
Pierluigi Paganini
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