The Liberty Reserve Scandal – Modern Day Laundering Machine
The Liberty Reserve $candal – Who Took My Money?
Liberty Reserve is a widely known e-payment service provider which also allowed Bitcoin transactions. I should actually use “was” instead of “is” because here is how their website looks like now: come on, click it. Yup, Busted! Money laundering scandal… a big one. But how can that affect Binary Options traders? Let’s find out more about what’s behind the story.
Liberty Reserve was a centralized digital currency service that allowed the transfer of money between accounts with the use of only an e-mail address, a name and a birth date. No other efforts were made by the website to verify the user’s real identity and this made it a safe haven for scammers and people who needed to transfer money and protect their identities at the same time. According to Forex Magnates, a well known Forex news website, Liberty Reserve was “the leading payment channel for traders in emerging and frontier markets”. Also, Richard Webber, head of the US Internal Revenue Service criminal investigation unit said “If Al Capone were alive today, this is how he would be hiding his money”.
Liberty Reserve was run by Arthur Budovsky who previously ran another digital currency exchange (2002 – 2006) together with his business partner Vladimir Kats. That service was called GoldAge and was shut down and the two men were charged with operating an illegal financial business. The sentence was 5 years in prison but changed later to a probation period of 5 years. Soon after, Budovsky fled the US, settled in Costa Rica and renounced his American citizenship in 2012. Liberty Reserve was incorporated in Costa Rica in 2006.
At the time of the shutdown, Liberty Reserve had more than 1 million users and untraceable transactions were taking place. The deposited funds were transformed into Liberty Reserve Dollars or Liberty Reserve Euros which were tied to the value of the US Dollar and Euro or to ounces of gold. A small fee of about 1% was charged on each transfer and that’s how the company made its profit. In 2013 the service was closed and US prosecutors filed a case against Liberty Reserve and seven of its principal employees, charging them with money laundering and operating an unlicensed money transmitting business. Budovsky was arrested in a Madrid airport while he was trying to return to Costa Rica.
Preet Bharara, a US prosecutor working the case said that Liberty Reserve “… is believed to have laundered more than $6 billion in criminal proceeds”. It has been also linked to crimes such as credit card fraud, investment fraud, child pornography and drugs trafficking.
Binary Options and Liberty Reserve
Ok, that’s the scandal, but how can it affect Binary Options traders? We talked in a previous article about Bitcoin being a potential new hot asset for Binary Options, but the Liberty Reserve scandal shows the US Government is trying to limit the use of virtual/digital currency which can be easily transferred anonymously. This could as well be the beginning of Bitcoin’s demise because at the moment, one of its greatest appeals comes from the fact that it provides anonymity. At the moment it is probably harder for the US Government to track Bitcoin transactions so maybe they will choose the easier solution of banning it completely one way or the other.
Another concern is related to Binary Options brokers who offer Liberty Reserve payments and deposits. First of all, I don’t know why brokers chose to accept Liberty Reserve in the first place, but now, after the scandal… WTF? It’s true that now there are very few brokers who accept Liberty Reserve, but I wonder how is that possible since the company’s website is closed and the domain seized by the US Government. Probably the brokers that still offer you the possibility to deposit via Liberty Reserve forgot to update their Banking page, just how many of them forget to update their Daily market analysis or they are simply scammers. Either way, beware of such brokers because something is definitely fishy about them.