Liberty Reserve sealed indictment from US DOJ Southern District [pdf]

http://krebsonsecurity.com/wp-content/uploads/2013/05/Liberty-Reserve-et-al.-Indictment.pdf

by rdl • 13 years ago

46 24 13 years ago

krebsonsecurity.com

leeoniya• 13 years ago

if it's sealed, then how am i reading it? "unsealed" maybe?

wmf• 13 years ago

Welcome to the age of leaks.

rdl2• 13 years ago

The fun game when reading this is s/LIBERTY RESERVE/bitcoin and then seeing how much of it is still true.

"The defendants deliberately attracted and maintained a customer base of criminals by making financial activity on LIBERTY RESERVE anonymous and untraceable." Sort of applies to Bitcoin (it's pseudonymous and in some cases hard to trace).

The "exchangers" thing is exactly how Bitcoin works. Just like LR/Bitcoin, a lot of them are unlicensed MSBs.

"traffickers of stolen credit card data and personal identity information; peddlers of various types of online Ponzi and get-rich-quick schemes; computer hackers for hire; unregulated gambling enterprises; and underground drug-dealing websites."

Good news: in addition to other criminal charges, it's just a matter of turning over property including but not limited to: "a sum of money of at least $6 billion in United States Currency".

nine_k• 13 years ago

> making financial activity ... anonymous and untraceable

Hell, it applies to cash, too. Some countries with more invasive government, like Sweden [1], plan to abolish cash eventually.

[1] http://www.cbsnews.com/8301-202_162-57399610/sweden-moving-t...

dfc• 13 years ago

I read through that link (admittedly somewhat quickly) but from what I read it seems you should have said:

"Former member of ABBA hopes to abolish cash in sweden."

There is also a bold prediction by a bowling alley owner. However the person with the closest ties to the swedish financial system has a different take :

"Before retiring as deputy governor of Sweden's central bank, Lars Nyberg said last year that cash will survive 'like the crocodile, even though it may be forced to see its habitat gradually cut back.'"

I'd like to hear from a swedish HNer or at least read something from a domain that ends in .se.

svenkatesh• 13 years ago

I'm not invested in BTC, and I have no intention to invest in it either, but let's be real--neither bitcoin, nor nay bitcoin exchanges (as far as I am aware) actively solicited criminals to use their service. Just because BTC has some qualities that make it useful for criminals does not mean it was made for criminals. There is a distinction.

Also, a few exchanges are either registered as MSBs or in the process of registering as MSBs. CampBX and TradeHill come to mind.

socillion• 13 years ago

I'm curious what you mean by "actively solicited criminals to use their service". Although there has been a lot of effort put forth to portray Liberty Reserve as solely useful for criminals, this is incorrect and the magnitude of criminal activity on the site is unknown.

As you say, "Just because BTC has some qualities that make it useful for criminals does not mean it was made for criminals." The same applied equally well to LR.

waterlesscloud• 13 years ago

Wow, $6 billion dollars. I had no idea they had that much in their system. Way bigger than I thought they were.

Canada• 13 years ago

Anyone who competes with the dollar will be attacked.

jstalin• 13 years ago

Despite all the accusations and bluster at the beginning, the indictment alleges three things:

1. Violation of 18 USC 1956[1] - knowingly laundering money; 2. Violation of 18 USC 1960[2] - conspiring to operate an unlicensed money transmitting business; 3. Violation of 18 USC[3] - operating an unlicensed money transmitting business - 18 USC 1960 and 31 USC 5330

This is what distinguishes legitimate bitcoin dealers like coinbase from Liberty Reserve. It's clear from the allegations that Liberty Reserve was purposely managed (allegedly) to avoid registration and money-laundering regulations. They (allegedly) also purposely did not register as a money transmitting business.

The other difference is that Liberty Reserve was a centralized system for payment processing where the entire process was controlled by one entity. Bitcoin, on the other hand, separates the exchange of money for bitcoins and the actual use of the bitcoin ecosystem itself. Of course, the government can go after money transmission businesses like coinbase, but as long as coinbase is registered as a money transmitting business and takes care to ensure that it doesn't deal with shady funds, I don't see how the existing statutes could be used to prosecute coinbase.

Then question then becomes - who do you go after? At that point, bitcoin is no different than using cash. You can't prosecute "cash."

[1] http://www.law.cornell.edu/uscode/text/18/1956 [2]: http://www.law.cornell.edu/uscode/text/18/1960 [3]: http://www.law.cornell.edu/uscode/text/31/5330

hga• 13 years ago

"You can't prosecute 'cash.'"

Quibble, perhaps, but the US government does in asset forfeitures, e.g. this case in the previous decade, United States v. $124,700 in U.S. Currency (http://en.wikipedia.org/wiki/USA_v._$124,700).

I would not be surprised to see a United States v. N Bitcoins in the future, one way or another (e.g. normal, or as part of shutting down something directly related to Bitcoin processing).

patrickmay• 13 years ago

Asset forfeiture denies people accused of a crime the means to defend themselves, without the state proving their guilt. It also sets up perverse incentives for the law enforcement agencies involved by rewarding them with a portion of the funds. It must be stopped.

Forbes had a recent article on this: http://www.forbes.com/sites/stephendunn/2013/02/18/asset-for...

The Cato Institute has some good material on this dysfunctional policy as well.

rayiner3• 13 years ago

A "X v. $124,000 in U.S. currency" is not literally a suit against cash. It's just the stylization used for in rem suits (suits in which the subject of the action is physical property within the court's jurisdiction).

For example, say you're held liable for a debt but flee the state. Nobody can sue you because the state can't assert personal jurisdiction over you if they can't find you. Generally what will happen in that case is that a proceeding will be initiated against your property in the state in order to satisfy your debt. Whether that property is cash, land, bitcoins, etc, is neither here nor there. But a proceeding against that property is not a way to shut down use of that kind of property. "State v. 34 acres at 456 Sandy Lane in Lincoln County" is not an attempt by the government to shut down the use of farm land.

Spooky23• 13 years ago

You can't prosecute property, but you can initiate civil forfeiture proceedings against property, using the lower standards of proof that come in civil court.

Carrying quantities of cash deemed suspect by law enforcement may result in that cash being seized without and criminal sanction against the owner.

hexonexxon2• 13 years ago

This is why Satoshi took careful measures to ensure he stayed anonymous. If he was still around he would be in jail right beside this guy. LR actually did a lot of KYC compliance problem is they allowed Americans to use the system which means inevitable indictment. Cgold is probably next if the operators are stupid enough to travel to a country with extradition.

There will also be a mass bitcoin arrest eventually to crack down on everybody operating without an MSB, like extraditing Euro exchange operators who do biz with Americans. Because of decentralization Bitcoin will survive any crackdown

pyre• 13 years ago

Satoshi created Bitcoin, but did/does not operate a Bitcoin exchange, so far as we know. This prosecution is centered around LibertyReserve being a money transmitting business without registering/following guidelines (e.g. know your customer, etc).

hexonexxon2• 13 years ago

LR does not operate an exchange either, though I suspect exchangezone was run by them. Lr contracted that out much like how bitcoin (and soon ripple) have gateways into the system to buy in.

Matt_Cutts• 13 years ago

Brian Krebs also wrote about Liberty Reserve here: http://krebsonsecurity.com/2013/05/reports-liberty-reserve-f...

bradleyjg2• 13 years ago

HSBC admitted to laundering at least an order of magnitude more money for, among others, the Sinaloa drug cartel, organizations linked to Hezbollah, and North Korea.

No individuals were arrested, much less convicted. The bank was not charged criminally, but instead signed a deferred prosecution agreement.

All animals are equal, but some are more equal than others.

Refs: http://www.rollingstone.com/politics/news/gangster-bankers-t... http://takingnote.blogs.nytimes.com/2013/03/07/banks-above-t...

rayiner3• 13 years ago

EDIT: BradleyJG below is correct, HSBC was never "charged" in the sense of being formally indicted. A deferred prosecution agreement was filed with the court (which seems to be like informal charges + a settlement proposal rolled into one), though it might yet be rejected in which case HSBC might face criminal prosecution: http://www.guardian.co.uk/business/2013/may/23/hsbc-court-th....

See this for the distinction: http://www.mainjustice.com/2013/03/29/hsbc-judge-reluctant-t....

See also the press release: http://www.justice.gov/opa/pr/2012/December/12-crm-1478.html.

I believe this is the DPA: http://www.sec.gov/Archives/edgar/data/83246/000119312512499.... It seems like documents were filed with the court charging HSBC, but not an indictment per se... (" The HSBC Parties acknowledge and agree that the Department will file the attached four-count criminal Information in the United States District Court for the Eastern District of New York (“the Court”) charging the HSBC Parties with (a) wilfully failing to maintain an effective anti-money laundering program, in violation of Title 31, United States Code, Section 5318(h) and regulations issued thereunder; (b) wilfully failing to conduct and maintain due diligence on correspondent bank accounts held on behalf of foreign persons, in violation of Title 31, United States Code, Section 5318(i) and regulations issued thereunder; (c) wilfully violating and attempting to violate the Trading with the Enemy Act, Title 50 United States Code Appendix Sections 3, 5, 16, and regulations issued thereunder; and (d) wilfully violating and attempting to violate the International Emergency Economic Powers Act, Title 50 United States Code Sections 1702 and 1705, and regulations issued thereunder. In so doing, the HSBC Parties: (a) knowingly waive their right to indictment on this charge, as well as all rights to a speedy trial pursuant to the Sixth Amendment to the United States Constitution, Title 18, United States Code, Section 3161, and Federal Rule of Criminal Procedure 48(b); and (b) knowingly waive for purposes of this Agreement any objection.")

bradleyjg2• 13 years ago

I never saw an indictment, can you link the charging document or at least a press release from the DOJ?

Also five individuals were arrested from Liberty, and not one from HSBC.

Edit: Here's the NYTimes in Dec. 2012 saying there was no indictment: http://dealbook.nytimes.com/2012/12/10/hsbc-said-to-near-1-9...

lifeguard• 13 years ago

The American government signed an agreement that HSBC "did nothing wrong" and voluntarily paid a fine equal to one month's profits to close this matter.

Liberty Reserve sealed indictment from US DOJ Southern District [pdf]

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