Anyone could have an account with Liberty Reserve, and use it to fund just about anything without raising an eyebrow among the company’s administrators. As part of the IRS’s criminal investigation, an undercover agent created an account with the username “Joe Bogus” with the address “123 Fake Main Street” in “Completely Made Up City, New York.” The agent conducted a series of transactions and put things like “ATM skimming,” and “for the cocaine” in the memo sections. Prosecutors say accounts were routinely created with “blatantly criminal monikers,” including “Russia hackers.”
As with traditional money laundering, the objective of digital laundering is to obscure where the money came from, what it’s for, and where it’s going. In Liberty Reserve’s case, accountholders couldn’t process money directly through the service. Instead, they had a traditional bank wire money to a third party “exchanger,” which “tended to be unlicensed money-transmitting businesses without significant government oversight or regulation, concentrated in Malaysia, Russia, Nigeria and Vietnam,” according to the indictment. The exchanger then converted the money to digital currency, untraceable from its original source. That digital currency was then deposited into a Liberty Reserve account. From there, the account holder could send the money anywhere: a second Liberty Reserve account holder, or back to dollars to put into a traditional bank account. These steps were taken to avoid a “centralized paper trail,” Bharara said, and “shielded Liberty Reserve from prosecution.” Until now.
