On May 28, 2013, the US government unveiled a coordinated action against Liberty Reserve S.A. for violations of US anti-money laundering laws.
The Department of Justice (DOJ), Secret Service, Internal Revenue Service, and US Immigration and Customs Enforcement announced the unsealing of a grand jury indictment of Liberty Reserve S.A. and seven of its executives for conspiracy to commit money laundering, conspiracy to operate an unlicensed money transmitting business, and the operation of an unlicensed money transmitting business. The investigation involved law enforcement action in 17 countries, including Costa Rica, the Netherlands, Spain, Morocco, Sweden, Switzerland, Cyprus, Australia, China, Norway, Latvia, Luxembourg, the United Kingdom, Russia, Canada and the United States.
In addition, the US Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) issued a Notice of Proposed Rulemaking (NPRM) and a finding naming Liberty Reserve as a “primary money laundering concern” under Section 311 of the USA PATRIOT Act. Liberty Reserve is the first virtual currency provider identified under Section 311 and follows FinCEN’s recent use of the Section 311 authority against two Lebanese exchange houses. If FinCEN issues the NPRM as currently proposed, Liberty Reserve will be cut off from the US financial system because US financial institutions will be required to terminate any correspondent account that is established, maintained, administered or managed in the United States for a foreign bank if the correspondent account is used to process Liberty Reserve’s transactions. FinCEN’s recent and novel use of the Section 311 authority signals that it will continue to invoke new and creative uses of this powerful tool to protect the financial system.
Liberty Reserve is a Costa Rica-based virtual currency operator that provided users with the capability to transmit funds anonymously across the globe. According to the indictment, Liberty Reserve did not perform Know Your Customer procedures on its users and was designed to help users anonymize the source of transferred and deposited funds. By establishing an account, Liberty Reserve users were able to anonymously exchange Liberty Reserve virtual currency for real currency (and vice versa). The DOJ estimates that since 2006, Liberty Reserve processed 55 million transactions in an amount equal to approximately $6 billion, much of which the DOJ asserts was derived from individuals and entities engaged in illicit activities. According to the DOJ, Liberty Reserve is a preferred method of payment on websites dedicated to the promotion and facilitation of illicit web-based activity, including identity theft, credit card fraud, online scams and dissemination of computer malware.
The US government has shut down Liberty Reserve's website and several defendants have been arrested by foreign authorities and are awaiting extradition to the United States. As part of the indictment, the DOJ is also using its forfeiture authority to seize several domain names and approximately $6 billion of the defendant’s assets held in various accounts around the globe.
The action against Liberty Reserve follows the Department of Homeland Security's recent seizure of the US accounts of Mt. Gox, a Japan-based Bitcoin exchange, and FinCEN's issuance of guidance for the virtual currency industry. These actions signal that the US government is focused on the emerging virtual currency industry's compliance with US anti-money laundering laws.
Recent WilmerHale Memos of Interest:
FinCEN Updates: Treasury Identifies Kassem Rmeiti & Co. For Exchange and Halawi Exchange Co. as Financial Institutions of “Primary Money Laundering Concern”
Virtual Currency and AML Regulation: Who’s In and Who’s Out?
