Liberty Reserve Accused of Laundering Billions Through Virtual Currencies

May 29, 2013

The Wall Street Journal on May 28, 2013 released the following press release:

U.S. Says Firm Laundered Billions

Digital-Currency Group Is Accused of Moving Illicit Cash for Hackers, Drug Dealers and Others

By REED ALBERGOTTI And JEFFREY SPARSHOTT

The money was virtual, but prosecutors say the crime was real.

Officials brought charges against a group of men who allegedly manufactured an Internet-based currency to launder about $6 billion in ill-gotten gains, a sign of authorities’ rising concern with digital cash.

The charges, in an indictment unsealed Tuesday, describe a complex online system set up by a Costa Rica-based organization called Liberty Reserve. The system allegedly was designed to give criminals a way to move money earned from credit-card fraud, online Ponzi schemes, child pornography and other crimes without being detected by law enforcement.

Liberty Reserve, which was incorporated in 2006, was a “bank of choice for the criminal underworld,” according to the indictment, which said the operation allegedly laundered the money through 55 million transactions before it was shut down earlier this month. The company has about one million users world-wide, including about 200,000 people in the U.S., according to prosecutors. They called the plot one of the largest money-laundering operations ever uncovered.

A spokesman for Liberty Reserve couldn’t immediately be reached for comment. Prosecutors said Tuesday that they arrested five of the seven men charged in the indictment Friday in Spain, Costa Rica and Brooklyn, N.Y., and charged them with operating an unlicensed money-transmitting business. The officials said they plan to seek extradition of those arrested abroad, and that the two remaining men are at large.

The indictment against Liberty Reserve comes amid a concerted effort by Washington to police the nascent world of virtual currencies and ensure operators comply with U.S. law.

On Tuesday, in the first use of the 2001 Patriot Act against a virtual currency, the Treasury Department invoked a section of the law to choke off Liberty Reserve from the U.S. financial system. The Treasury’s proposal would prohibit U.S. financial institutions from opening or maintaining accounts for foreign banks that process transactions for Liberty Reserve and require special steps to guard against any transactions involving it.

Virtual currencies, most notably bitcoin, still account for only a tiny fraction of global transactions, but they are being embraced by some Internet merchants and are used in a host of legitimate transactions—for example, Web services and online-dating sites.

Law-enforcement officials are concerned about criminals’ ability to move around money outside the regulated world of banks and traditional money-moving services such as Western Union. Officials recently warned that digital currency exchanges should follow traditional anti-money-laundering rules.

The rise of virtual currencies has been exemplified by bitcoin, which lets Internet users create new money by solving complex math problems. The currency, which launched in 2009 and has gone through some wild spikes in value this spring, has attracted the attention of established companies and venture capitalists alike.

Tuesday’s case doesn’t involve bitcoin, though the virtual-cash community was watching developments closely.

“I think it is just another giant, flashing warning light to bitcoin exchanges: If you’re not compliant, there are some serious risks, both at the federal and state levels,” said Patrick Murck, legal counsel for the Bitcoin Foundation, a trade group that promotes bitcoin software and security standards.

Preet Bharara, the Manhattan U.S. attorney, said at a news conference Tuesday that he believed “virtually all” of Liberty Reserve’s customers used it for criminal purposes, though he said legitimate users can seek to recover funds.

Mr. Bharara didn’t give details on the alleged criminals but said the investigation was continuing. “There’s more to come,” he said Tuesday, adding that the case has so far involved seizing $25 million dollars in 45 bank accounts around the world.

Prosecutors allege Liberty Reserve facilitated a range of criminal activity by allowing alleged criminals to conduct transactions using its digital currency, “LR.” The system is opaque, and Liberty Reserve deliberately kept the users anonymous and untraceable, prosecutors said.

A transaction would start with one person opening a Liberty Reserve account using a false name and address, including what prosecutors said were blatant criminal monikers such as “Russia Hackers” or “Hacker Account.”

That person would wire real currency such as dollars to approved third-party currency exchangers in countries including Russia and Nigeria. The exchangers would convert the dollars into LRs and deposit them into the person’s Liberty Reserve account.

From there, a criminal could buy narcotics, stolen credit-card numbers or other goods by transferring the LRs to another person’s Liberty Reserve account. The recipient of the LRs could go to another unregulated currency exchanger and convert the LRs back into dollars.

Liberty Reserve charged a 1% fee for LR currency transfers and an additional “privacy fee” of 75 cents per transaction to hide Liberty Reserve account numbers, making the transfer virtually untraceable.

Liberty Reserve made an appearance in a criminal case earlier this month. Federal prosecutors in Brooklyn, N.Y., accused eight people of stealing about $45 million from automated-teller machines throughout New York City using stolen prepaid debit-card numbers. Prosecutors said at least one of the men used an account at the online-currency operator to transfer some of the allegedly stolen funds.

James T. Hayes Jr., special agent-in-charge of the New York field office of the U.S. Immigration and Customs Enforcement’s Homeland Security Investigations, said his agency became aware of possible wrongdoing at Liberty Reserve in 2010 and teamed up with the Internal Revenue Service to investigate the matter.

The indictment described how two of Liberty’s founders, Arthur Budovsky and Vladimir Kats, were convicted in 2006 in New York for operating Gold Age Inc. as an unlicensed money-transmitting business.

Lawyers for Mr. Budovsky and the other defendants named in the indictment couldn’t immediately be reached for comment. A lawyer for Mr. Kats declined to comment.

The indictment said Liberty Reserve also caught the attention of Costa Rican regulators in 2009, forcing the company to allegedly set up a fake compliance system. In late 2011, the Treasury Department warned financial institutions about the risks of doing business with Liberty Reserve.

In an Internet chat-room exchange included in the indictment, one defendant allegedly said he knew the company’s activities were “illegal” and said “everyone,” including the U.S. Department of Justice, knows Liberty Reserve “is a money-laundering operation that hackers use.”

About two weeks after the Treasury’s warning note, Liberty Reserve “went underground,” the indictment says, and continued to operate in Costa Rica using a “stripped-down staff working out of an office space held in the name of shell companies.” The defendants also allegedly tried soon after to drain their bank accounts.”

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Douglas McNabb – McNabb Associates, P.C.’s
Federal Criminal Defense Attorneys Videos:

Federal Crimes – Be Careful

Federal Crimes – Be Proactive

Federal Crimes – Federal Indictment

Federal Crimes – Detention Hearing

Federal Mail Fraud Crimes

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To find additional federal criminal news, please read Federal Criminal Defense Daily.

Douglas McNabb and other members of the U.S. law firm practice and write and/or report extensively on matters involving Federal Criminal Defense, INTERPOL Red Notice Removal, International Extradition Defense, OFAC SDN Sanctions Removal, International Criminal Court Defense, and US Seizure of Non-Resident, Foreign-Owned Assets. Because we have experience dealing with INTERPOL, our firm understands the inter-relationship that INTERPOL’s “Red Notice” brings to this equation.

The author of this blog is Douglas C. McNabb. Please feel free to contact him directly at mcnabb@mcnabbassociates.com or at one of the offices listed above.


Federal Grand Jury Indicts Five in Connection with an Alleged Credit Card Fraud Scheme Involving the City of Eagle Pass

August 9, 2012

The Federal Bureau of Investigation (FBI) on August 8, 2012 released the following:

“This morning, a federal grand jury in Del Rio returned an indictment charging five Eagle Pass residents, including former city of Eagle Pass Department of Public Works employee Edgar Aguilar, in connection with an estimated $70,000 credit card fraud scheme, announced United States Attorney Robert Pitman, Federal Bureau of Investigation Special Agent in Charge Armando Fernandez, and Eagle Pass Police Chief Tony Castañeda.

The five-count indictment charges the 27-year-old Aguilar, 25-year-old Rene Castillo, 43-year-old Armando Ojeda Nuncio, 39-year-old Ricardo Hernandez-Espinoza, and 30-year-old Elizabeth Vivian with one count of conspiracy to commit credit card fraud. The indictment also charges all of the defendants, with the exception of Vivian, with one substantive count of credit card fraud.

According to the indictment, during 2011, Edgar Aguilar obtained five city of Eagle Pass-owned “Fuelman” credit cards designated for fuel purchases for Public Works department vehicles and distributed them to his co-defendants. The defendants then used those cards to purchase fuel for their own vehicles and to purchase fuel for others at the city’s expense. In some instances, defendants charged individuals a reduced rate for fuel purchased using the city’s credit card and then pocketed the cash.

Upon conviction, each defendant faces up to five years in federal prison and a maximum $250,000 fine on the conspiracy charge. Aguilar, Castillo, Ojeda, and Hernandez-Espinosa are also subject to a maximum 10 years in federal prison and a maximum $250,000 fine upon conviction of the substantive credit card fraud charge. The government is also seeking to have the defendants repay the city of Eagle Pass for the cost of the misappropriated fuel.

This ongoing joint investigation is being conducted by agents with the Federal Bureau of Investigation together with investigators from the Eagle Pass Police Department. Assistant United States Attorney Don McCune is prosecuting this case on behalf of the government.

An indictment is merely a charge and should not be considered as evidence of guilt. The defendants are presumed innocent until proven guilty in a court of law.”

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Douglas McNabb – McNabb Associates, P.C.’s
Federal Criminal Defense Attorneys Videos:

Federal Crimes – Be Careful

Federal Crimes – Be Proactive

Federal Crimes – Federal Indictment

Federal Crimes – Detention Hearing

————————————————————–

To find additional federal criminal news, please read Federal Criminal Defense Daily.

Douglas McNabb and other members of the U.S. law firm practice and write and/or report extensively on matters involving Federal Criminal Defense, INTERPOL Red Notice Removal, International Extradition Defense, OFAC SDN Sanctions Removal, International Criminal Court Defense, and US Seizure of Non-Resident, Foreign-Owned Assets. Because we have experience dealing with INTERPOL, our firm understands the inter-relationship that INTERPOL’s “Red Notice” brings to this equation.

The author of this blog is Douglas C. McNabb. Please feel free to contact him directly at mcnabb@mcnabbassociates.com or at one of the offices listed above.


Largest Alleged Medicare Fraud Scheme in DOJ History

October 14, 2010

Seventy-three individuals, including a number of alleged members and associates of an Armenian-American organized crime enterprise, were charged in indictments unsealed today in five judicial districts with various health care fraud-related crimes involving more than $163 million in fraudulent billing, announced Acting Deputy Attorney General Gary G. Grindler, FBI Assistant Director of the Criminal Investigative Division Kevin Perkins, and Health and Human Services Inspector General Daniel R. Levinson.

In this national, multi-agency investigation, more than 50 were arrested yesterday by FBI agents in the largest alleged Medicare fraud scheme ever perpetrated by a single criminal enterprise and charged by the Department of Justice.

The individuals are charged with allegedly engaging in numerous fraud activities, including highly-organized, multi-million dollar schemes to defraud Medicare and insurance companies by submitting fraudulent bills for medically unnecessary treatments or treatments that were never performed. According to the indictments, the individuals allegedly stole the identities of doctors and thousands of Medicare beneficiaries and operated at least 118 different phony clinics in 25 states for the purposes of submitting Medicare reimbursements. The government believes the enterprise behind the alleged fraud is the international group known as the Mirzoyan-Terdjanian.

Forty-four individuals were charged in two indictments unsealed today in the Southern District of New York with racketeering conspiracy and conspiracy to commit the following acts: health care fraud, bank fraud, money laundering, fraud in connection with identity theft, credit card fraud, and immigration fraud. In addition, seven individuals were charged in the District of New Mexico with health care fraud, mail fraud, wire fraud, money laundering conspiracy, money laundering, forfeiture, and aggravated identity theft. Six individuals were charged in the Southern District of Georgia with health care fraud, conspiracy to commit health care fraud, money laundering conspiracy, and aggravated identity theft. Six individuals were charged in the Northern District of Ohio with health care fraud, mail fraud, conspiracy to commit mail fraud, wire fraud, conspiracy to commit money laundering, and aggravated identity theft. Lastly, ten individuals were charged in two indictments in the Central District of California with conspiracy to commit bank fraud, bank fraud, money laundering, conspiracy to launder monetary instruments, criminal forfeiture, aggravated identity theft, aiding and abetting, and causing an act to be done.

According to the charges filed in U.S. District Court in the Southern District of New York, the Mirzoyan-Terdjanian Organization is named for its alleged principal leaders, Davit Mirzoyan and Robert Terdjanian. Allegedly, the leadership of the organization is based in Los Angeles and New York, and its operations extend throughout the United States and internationally. Among the individuals charged with racketeering is Armen Kazarian, who is alleged to be a “Vor,” a term translated as “Thief-in-Law” and refers to a member of a select group of high-level criminals from Russia and the countries that has been part of the former Soviet Union, including Armenia. This is the first time an alleged Vor has ever been charged for a racketeering offense, and the first time since 1996 that a Vor has been arrested on any federal charge.

The racketeering charges carry a maximum penalty of life in prison and a $250,000 fine. The health care fraud and conspiracy to commit health care fraud charges each carry a maximum penalty of 10 years in prison and a $250,000 fine. The conspiracy to commit bank fraud charges each carry a maximum penalty of 30 years in prison and a fine of $1 million. The conspiracy to commit money laundering charges each carry a maximum penalty of 25 years in prison and a $500,000 fine. The conspiracy to commit money laundering charges each carry maximum penalties of 20 years in prison and a $500,000 fine. The conspiracy to commit fraud in connection with identity theft charges carry a maximum penalty of five years in prison and a $250,000 fine. The aggravated identity theft charges each carry a required two-year consecutive prison sentence to any other sentence imposed, the conspiracy to commit credit card fraud charges carry a maximum penalty of 10 years in prison and a $250,000 fine. The conspiracy to commit immigration fraud charges carry a maximum penalty of five years in prison and a $250,000 fine.

The charges announced today are merely allegations, and individuals are presumed innocent unless proven guilty in a court of law.

The individuals charged in each district will be prosecuted by Assistant U.S. Attorneys from each of the respective districts in which the cases were charged. The cases were investigated by special agents from the FBI’s Los Angeles and New York field offices.

Douglas McNabb and other members of the firm practice and write extensively on matters involving Federal Criminal Defense, Interpol Litigation, International Extradition and OFAC Litigation.

The author of this blog is Douglas McNabb. Please feel free to contact him directly at mcnabb@mcnabbassociates.com or at one of the offices listed above.

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