LawFuel.com – Lawyer news daily – Preet Bharara, the United States Attorney for the Southern District of New York, and Leslie R. Caldwell, Assistant Attorney General for the Justice Department’s Criminal Division, announced that ARTHUR BUDOVSKY, 42, was sentenced today in Manhattan federal court to 20 years in prison for running a massive money laundering enterprise through his company Liberty Reserve, a virtual currency once used by cybercriminals around the world to launder the proceeds of their illegal activity. BUDOVSKY was arrested in Spain in May 2013 and was extradited to the United States in October 2014. BUDOVSKY pled guilty to one count of conspiring to commit money laundering on January 29, 2016, three days before his trial was scheduled to begin. U.S. District Judge Denise L. Cote imposed today’s sentence, noting that the defendant did not express any “genuine remorse,” and that his crimes caused “widespread harm” and led to “countless victims of fraud around the world.”
Manhattan U.S. Attorney Preet Bharara stated: “Liberty Reserve founder Arthur Budovsky ran a digital currency empire built expressly to facilitate money laundering on a massive scale for criminals around the globe. Despite all his efforts to evade prosecution, including taking his operations offshore and renouncing his citizenship, Budovsky has now been held to account for his brazen violations of U.S. criminal laws.”
Assistant Attorney General Leslie R. Caldwell stated: “The significant sentence handed down today shows that money laundering through the use of virtual currencies is still money laundering, and that online crime is still crime. Together with our American and international law enforcement partners, we will protect the public even when criminals use modern technology to break the law.”
According to the allegations contained in the Indictment filed against Liberty Reserve, BUDOVSKY, and six other individual defendants; BUDOVSKY’s plea agreement; the evidence filed with the sentencing submissions for BUDOVSKY; and statements made in related court filings and proceedings:
Liberty Reserve S.A. (“Liberty Reserve”) billed itself as the Internet’s “largest payment processor and money transfer system” and operated one of the world’s largest and most widely used digital currencies, which could be used to send and receive payments, via the Internet, to and from people all over the world. At all relevant times, BUDOVSKY directed and supervised Liberty Reserve’s operations, finances, and business strategy.
Liberty Reserve was originally conceived by BUDOVSKY and co-defendant Vladimir Kats in Brooklyn, New York, in approximately 2001, and became operational in late 2005. From his previous experience with “GoldAge” – a digital currency exchange business that he ran with Kats – BUDOVSKY was aware that a substantial volume of digital currency transactions were related to Internet investment schemes called high-yield investment programs (“HYIPs”), which he knew to be online Ponzi schemes. BUDOVSKY was also aware that digital currencies were used by other online criminals, such as credit card traffickers and identity thieves.
BUDOVSKY designed Liberty Reserve specifically to appeal to these online criminals in order to capture their business. Among other things, BUDOVSKY set up Liberty Reserve to have weak anti-money laundering (“AML”) controls and allowed users to move money anonymously through Liberty Reserve’s system, regardless of the volume or provenance of the funds. BUDOVSKY also marketed Liberty Reserve specifically to HYIP operators and other criminal clientele.
In May 2006, BUDOVSKY and Kats were arrested and later pled guilty to operating GoldAge as an unlicensed money transmitting business. Following their arrests, over the next two years, BUDOVSKY and Kats moved Liberty Reserve’s operations offshore to Costa Rica in an attempt to insulate themselves from the reach of U.S. law enforcement. BUDOVSKY was so committed to evading U.S. law enforcement that he later renounced his U.S. citizenship and became a Costa Rican citizen. In May 2008, BUDOVSKY pushed Kats out of Liberty Reserve and became the sole beneficial owner and principal operator of the company, with final decision-making authority over company decisions. BUDOVSKY maintained this role until Liberty Reserve was shut down in May 2013.
During the time period from 2009 to 2013, Liberty Reserve reached the height of its activity. At its peak in late 2012, Liberty Reserve handled a transactional volume of over $300 million per month, a significant portion of which came from users in the United States. BUDOVSKY knew that a substantial number of these transactions were connected to HYIPs and other online criminal activities, and continued to operate Liberty Reserve to cater to these customers. Among other things, BUDOVSKY and his co-conspirators intentionally failed to implement effective AML controls at Liberty Reserve. BUDOVSKY and his co-conspirators also took steps to prevent the Costa Rican regulatory authorities and Liberty Reserve’s own compliance officials from discovering the criminal transactions flowing through Liberty Reserve.
Liberty Reserve ultimately grew into a financial hub for cybercriminals around the world who used it to amass, distribute, store, and launder criminal proceeds derived from HYIPs, credit card trafficking, stolen identity information, and computer hacking. By May 2013, when it was shut down as a result of the Government’s criminal investigation, Liberty Reserve had more than 5.5 million user accounts worldwide, and had processed more than 78 million financial transactions with a combined value of more than $8 billion. United States users accounted for the largest segment of Liberty Reserve’s total transactional volume – between $1 billion and $1.8 billion – and the largest number of user accounts – over 600,000. As part of his plea agreement, BUDOVSKY admitted to laundering between $250 million and $550 million in criminal proceeds linked to Liberty Reserve accounts based in the United States.
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Two co-defendants – Mark Marmilev and Maxim Chukharev – pled guilty and have been sentenced to five and three years in prison, respectively. Two other co-defendants – Vladimir Kats and Azzeddine El Amine – are currently scheduled to be sentenced before U.S. District Judge Denise L. Cote on May 13, 2016. Charges against Liberty Reserve and two individual defendants who have not been apprehended remain pending.
Mr. Bharara praised the outstanding work of the United States Secret Service, the Internal Revenue Service-Criminal Investigation, and the U.S. Immigration and Customs Enforcement’s Homeland Security Investigations, which worked together in this case as part of the Global Illicit Financial Team. Mr. Bharara also thanked the United States Secret Service’s New York Electronic Crimes Task Force for its extraordinary assistance with the investigation. Additionally, Mr. Bharara specially thanked all the international law enforcement agencies that assisted in the investigation, in particular, the Judicial Investigation Organization in Costa Rica, Interpol, the National High Tech Crime Unit in the Netherlands, the Spanish National Police-Financial and Economic Crime Unit, the Cyber Crime Unit at the Swedish National Bureau of Investigation, and the Swiss Federal Prosecutor’s Office.
This case is being prosecuted jointly with the Department of Justice’s Asset Forfeiture and Money Laundering Section (“AFMLS”), which is overseen by Assistant Attorney General Leslie R. Caldwell. Mr. Bharara thanked AFMLS for its partnership and also thanked the Department of Justice’s Office of International Affairs and Computer Crime and Intellectual Property Section for their support.
The prosecution of this case is being handled by the Office’s Complex Frauds and Cybercrime Unit and Money Laundering and Asset Forfeiture Unit. Assistant United States Attorneys Christian Everdell, Christine Magdo, and Andrew Goldstein of the Southern District of New York and Trial Attorney Kevin Mosley of AFMLS are in charge of the prosecution.