Liberty Reserve shut down for “money laundering”
There’s a general consensus in the MLM industry that if you see an MLM company using one of three particular payment processors, then at the very least it’s worth taking a precautionary approach.
Payment processors handle money between MLM companies and their affiliates. In an age where global affiliate membership is the norm, payment processors simplify the process in which companies are able to effectively pay their affiliates commissions.
Today Liberty Reserve, easily one of the most frequently used payment processors in the MLM industry, was shut down following the arrest of its creator and owner in Spain.
Following an investigation that began back in 2011, Costa Rican authorities raided the home of and arrested Arthur Budovsky Belanchuk.
Belanchuk is credited as the creator of Liberty Reserve. In an article published on Tico Times, Costa Rican prosecutor José Pablo González stated;
Budovsky, a Costa Rican citizen of Ukrainian origin, has been under investigation since 2011 for money laundering using a company he created in the country called Liberty Reserve.
Local investigations began after a request from a prosecutor’s office in New York. On Friday, San José prosecutors conducted raids in Budovsky’s house and offices in Escazá, Santa Ana, southwest of San José, and in the province of Heredia, north of the capital.
Budovsky’s businesses in Costa Rica apparently were financed by using money from child pornography websites and drug trafficking.
Liberty Reserve has been a stalwart on the MLM company payment processor scheme, being used extensively by legitimate and dubious income opportunities alike.
Wikipedia lists Liberty Reserve as a member of the Global Digital Currency association (GDCA). Somewhat ironically, GDCA state on their website that they are
a trade association of online currency operators, exchangers, merchants and users (with a) declared goal to further the interests of the industry as a whole and help with fighting fraud and other illegal activities.
Guess they must have missed all that money laundering going on.
At the time of publication the Liberty Reserve website is down and returning a 503 “service unavailable” error. Meanwhile the status of and what will happen to the money many MLM affiliates had in the e-wallet is not currently known.
There’s a reason most affiliates who have been in the industry for some time are wary when an MLM company uses one of these particular three payment processors, and not surprisingly as above it’s entirely justified.
Using them for the same reasons child pornographers and drug traffickers do, countless scams have funnelled hundreds if not of millions of dollars through them over the years.
Stay tuned for updates if any additional news comes to hand.
Update November 2013 – Liberty Reserve co-founder Vladmir Kats has pled guilty to ‘money laundering and operating an unlicensed money transmitting business’. He now awaits sentencing.
Update 14th October 2014 – Liberty Reserve co-founder Arthur Budovsky Belanchuk has been extradited from Spain.
He currently being detained in New York and is to be presented before a Judge for arraignment.
Oz… Costa Rica is between Panama and Nicaragua in Central America. It’s not in Spain.
I don’t think I made a mistake (?). It’s a bit confusing.
Belanchuk is a Costa Rican citizen, who was arrested in Spain by Costa Rican authorities. They started an investigation back in 2011 after a request from US authorities (New York).
Bodovsky was ARRESTED in Spain, which is probably what got you confused.
You wrote “was shut down in Spain”
The Liberty Reserve website WHOIS registration now shows the domain as using the following nameservers:
On their website, the ShadowServer Foundation provide some more information on themselves:
A reader comment on TechDirt from 2010 links the ShadowServer Foundation to domain seizures…
ShadowServer Foundation are interestingly enough based out of New Jersey in the US. NJ is adjacent to New York, who appear to be behind (or at least initiated) the Costa Rican investigation so I wonder if there’s a link there.
Went back and had a look at the TICO article, misread the line “Budovsky’s businesses in Costa Rica”. Thanks for the pickup.
Teletica news article (Spanish) confirming related seizures in Costa Rica:
“Detainee” = informer/insider?
The original Spanish text of that last line is:
It almost sounds like they have taken over the DNS server so they can log the traffic. 😉 Of course, without knowing what went on BEFORE…
IMHO the IT guy taking care of the servers.
Wonder if it means orders as in the detainee undertaking orders from the US as part of the investigation or whether Costa Rica are waiting on orders from the US as what to do with the detainee.
What I wonder is are they holding any of the money shifted from other Ponzi schemes (like Zeek) from the various net winners.
Talk of Belanchuk being extradited to the US in a La Nacion article (Spanish):
In the aftermath of Liberty Reserve going down Perfect Money, another payment processor, has decided to ban all US citizens from using their payment services:
The ShadowServer Foundation website has also been down for the last few hours. DDOS, traffic overload… who knows.
MY MONEY. LR RETURN MY FUCKING MONEY!
Isn’t the idea to market and sell other people on the dream rather to invest money yourself?
ShadowServer was mentioned in a court order from 2011 …
Panama declared Perfect Money illegal operation back in January.
http://www.supervalores.gob.pa/informacion-del-mercado/alerta-al-inversionista/4616-warning–non-authorized-entity–perfect-money-finance-corp.html
They have to put their “ill-gotten gains” somewhere… Where else but to be first in and first out on HYIPs, and to do that they need payment processors like LR.
you keep saying the 3 payment processors in your post so please tell me which 3 payment processors you are talking about. I know one is liberty reserve but what’s the other 2 that you’re referring too?
Wonder how the serial ponzi players are feeling right about now.
The article has some confusing parts.
The TICO reporter is telling the story from a Costa Rican viewpoint, e.g. “Costa Rican arrested in Spain” (more focus on the person being arrested than the company being shut down).
You are telling it from an MLM viewpoint, but you’re following the reporter’s sort order for the different elements of the story.
Your story goes like this:
* 2 paragraphs trying to “build a bridge” between MLM and the payment processor. OK.
* 2 sentences trying to tell the most recent parts of the story. TOO VAGUE.
* A section quoting sources. OK.
* “Fill” / background information. OK.
The “body” in the story should normally be about the most recent parts of the story, followed by recent background story, followed by different types of “fill” / other background information.
1. The MOST RECENT PARTS OF THE STORY goes like this:
* Liberty Reserve has been shut down, Friday May 24th,
* for alleged money laundering,
* in an action performed jointly by Costa Rican and US authorities,
* where the owner Arthur Budovsky Belanchuk was arrested in Spain,
* and his home and businesses in Costa Rica were raided by Costa Rican authorities,
* and websites registered in the US seems to have been shut down by US authorities.
2. The RECENT BACKGROUND STORY goes like this:
* Local investigations in Costa Rica began after a request from a prosecutor’s office in New York in 2011.
* “Budovsky’s businesses in Costa Rica apparently were financed by using money from child pornography websites and drug trafficking.”
3. DISTANT BACKGROUND STORY is about the New York conviction in 2006. It has some elements of interest from an MLM viewpoint.
I understand the role of the payment processors.
@doodoo
I’m not inferring any similarities between what happened to Liberty Reserve or that they’ll be next, but the other two names I commonly see pop up in my research are Solid Trust Pay and Payza/Egopay or whatever they’re calling themselves now.
Those are the three main players in the MLM payment processor field.
Thanks for the editorial review :).
Hey Oz,
What are the other two processors to be wary of?
nevermind, just saw the answer 🙂
After the US eliminates Perfect Money, Solid Trust Pay, Payza, WebMoney, and Ripple.com, all that will be left (which can’t be shut down without Chinese-style Internet filtering) is Bitcoin.
Too bad! This is shocking for most of us people who make some bucks in internet…
@Bitcoin Fiend
And what happens when they go after BitCoin exchangers?
Homeland Security seized Mt.Gox’s accounnt on Dwolla, essentially closing Mt. Gox
http://www.extremetech.com/extreme/155933-homeland-security-seizes-account-of-largest-bitcoin-exchange-mt-gox
Well, you can still trade Bitcoins… it’s just that you can’t get “real” money for it through Mt.Gox and Dwolla.
More information from the Tico Times:
Anyone care to guess what sort of numbers we are talking here?
How much money?
How many people?
How many businesses?
How many related businesses?
To slam things shut as they do is worse than the crime they use to justify it. Surely they can handle things without a total shut down because in my view the fall out will be far worse than the alleged crime itself..
Thus far the only officially affected businesses named are that of child pornography and drug trafficking, the proceeds of which were both used to fund Belanchuk’s business ventures (including Liberty Reserve).
I’m going to have to disagree that people losing money in various dubious schemes justifies child pornography and drug trafficking.
So could we say that this is a result of no properly managed KYC ?
I know the KYC compliance we have to go through is cumbersome, expensive and feels like we are doing the regulators job for them. Just like we all work for the Tax Dept.
I have no objection on shutting the gate on the undesirables. It throws the onus on individuals to risk assess the programs they get involved with a lot more due diligence.
C
How many “LEGITIMATE customers and businesses ?
How is any enforcement agency going to separate “legitimate” customers from those using an unlicensed, unregulated payment processor to deliberately flout the law/s WITHOUT closing the processor first ?
@Cam
I wouldn’t say improperly managed so much as “non-existant”. Due to the nature of 99.9% of the schemes that used Liberty Reserve as a payment processor, it was by design.
If you can not use banks or Paypal or authorize.net for your business you probably running scam or other crime.
Channel 7 news (of Puerto Rico)’s coverage, pretty much repeated Tico news?
(it’s in Spanish, try Google’s Youtube auto-translator by turning on English subtitles)
Krebs on security stated that FIVE MORE cyber money exchanges were ALSO taken offline when LibRes went offline, all of them pointing to Shadowserver
milenia-finance(dot)com
asianagold(dot)com
exchangezone(dot)com
moneycentralmarket(dot)com
swiftexchanger(dot)com
http://krebsonsecurity.com/2013/05/reports-liberty-reserve-founder-arrested-site-shuttered/
ok after arresting Lr owner… Lr will continue their services or not and if Lr owner is guilty wat kind of Punishment he could face ??
Maybe he will get out after giving some massive fine thats all i dunt think he will be prisoner for lifetime and he can hire lawyers for the case …. hope for the best.
after all that process if LR Re-opens we might be c alot of changes in policies
I don’t think that was the main client list. It’s probably about “jurisdiction issues”, where certain types of crimes will give a much wider jurisdiction than others.
One of the authorities involved probably have a relatively limited jurisdiction when it comes to financial crimes performed from other countries, but will have a much wider jurisdiction if other types of crimes are involved in the case.
Child porn and drug trafficking are universally hated and bashed. Economic crimes, much less so.
They only need to hit him on one of the charges, the rest is merely insurance. The chilling effect will do the rest.
It’s also interesting how far and wide Liberty Reserve reaches. I got a spike of traffic from Vietnam, of all places, that linked to my coverage of this event.
@faisal
When the US shut down GoldAge it didn’t come back. LR is dead.
NY already put Belanchuk on probation for 5 years back in 2007 along with a (suspended?) 5 year jail sentence. If he’s extradited back to the US I doubt they’ll be as lenient with him this time around.
2011 falls within 5 years (when the investigation began) but 2013 puts us outside of it, so I’m not sure whether or not whether Belanchuk will be pinged for probation violation.
The question here is who will be willing to take over such a sorry mess of things in Puerto Rico.
I have no doubt that LR provided SOME useful services to SOME people, but IMHO what’ll probably happen is
1) The guy pleads guilty to lesser charges
2) Receiver will be appointed (much like Zeek) to look over all the assets
3) Receiver will file a liquidation plan where victims will have to PROVE their bonafides
It’s #3 that’ll scare off a lot of HYIPsters.
LR itself will not reopen. It’s done.
Found an “expose” online at lrscam.blogspot.com, seems to have reposted a lot of info but little of any links, copied off various message boards.
It alleges the following:
* Ragnar Danneskjöld, who runs PlanetGold, is an alias (it’s a character in Atlas Shrugged). The post claims this is actually none other than Vladimir Kats, Budovsky’s partner in Gold-Age
* GDCA, that “association”, is really a front started by Budovsky and Kats to lend credibility to themselves, as it has the SAME ADDRESS as used by Budovsky
I can’t seem to confirm this at this time. This may come out in the indictment document if it becomes public on Tuesday.
Tico times has an update. Apparently Budovsky married a PR woman to get the PR citizenship in 2008, but PR immigration have NO RECORD of him EVER entering PR until 2011!
At this rate, PR may just revoke his citizenship if it’s fraudulently obtained!
Apparently Budovsky was in Europe negotiating with banks and ISPs over there to move the servers and banking accounts out of Puerto Rico because SUGEF never gave him the proper business permit for many years. Budovsky kept operating any way.
Also, none of the documents can be believed, because top players in the company used aliases when signing documents.
Ahmed Yassine was apparently listed at LR as Ahmed Menkovar, and Budovsky himself may have used “Eric Paltz” as alias.
http://www.ticotimes.net/More-news/News-Briefs/Liberty-Reserve-A-cyberweb-of-intrigue_Tuesday-May-28-2013
Sounds to me like they’ll be going to the US. Basically you’ve got 2-3 people running a multi-million dollar money funnel for dodgy business, child porn and drug trafficking groups.
Makes you wonder about the other payment processors out there…
Breaking news in the US from PatPretty:
http://www.patrickpretty.com/2013/05/28/urgent-bulletin-moving-liberty-reserve-founder-others-indicted-in-new-york/
US Indictment against Liberty Reserve:
http://www.justice.gov/usao/nys/pressreleases/May13/LibertyReserveetalDocuments.php
The indictment is quite damning, specifically naming “Ponzi and get rich quick” schemes as illegal criminal merchants using Liberty Reserve.
The US are seeking $6B from the operators of Liberty Reserve, additional funds from 42 bank accounts, $36M from bank accounts in Australia, the LR domain (and other associated domains) and property and assets.
Game over.
And if anyone’s wondering why it took so long, a lot of the documents were sealed on May 23rd, the day LR went down. The indictment was only made public Tuesday morning, upon which the other documents became unsealed.
Oh and the US Secret Service were responsible for the website going offline, after obtaining permission from a Southern District Court in New York.
Reuters is reporting that Kats and another web designer were arrested in Brooklyn, NY, and Budovsky and one of his deputies was arrested in Spain. One web guy was arrested in Puerto Rico, which means two are still at large and thus fugitives.
http://www.reuters.com/article/2013/05/28/net-us-cybercrime-libertyreserve-charges-idUSBRE94R0KQ20130528
Addwallet is dead before it even started, just like WCA, buch of scammers