Virtual Forex Accused Of Currency Crimes

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US authorities have arrested and charged the creators of a virtual currency with running a massive money laundering exercise.

They say that while the currency being used was virtual, their crimes were real.

Now those behind Liberty Reserve, one of the best known virtual currencies, are behind bars awaiting trial.

Federal prosecutors say that the digital-currency company was running a £4 billion money laundering operation and had become the bank of choice for criminals.

The Costa Rica-based Liberty Reserve used a simple process which effectively made the people who carried out transactions anonymous and untraceable.

Liberty Reserve online

The criminals, mainly computer hackers and drug dealers, would buy Liberty Reserve currency in one country and recipients in another country would withdraw that money from an unregulated money exchange.

Liberty Reserve would charge 1% for the transaction and ask no questions about who was depositing and withdrawing cash.

US attorney Preet Bharara says that ‘nearly all’ of Liberty Reserve’s customers had used the currency for criminal purposes.

He added that legitimate users of Liberty Reserve could take steps to recover their funds with authorities confiscating £16.5 million in 45 bank accounts around the world.

The currency had around a million users – with around 200,000 in the US – and had carried out 55 million transactions.

The move to clampdown on Liberty Reserve underlines growing concerns in Washington about the increasing popularity of virtual currencies and their ability to operate outside established banking processes.

They are particularly wary about the ease in which criminals can move their cash outside of regulated banks and from using traditional money-moving services.

Bitcoin assurances

The arrests are the first time that prosecutors have used the 2001 Patriot Act to charge people running a virtual currency and to isolate it from the world’s financial system.

Those running some of the more popular virtual currencies, notably Bitcoin, have been watching developments closely and though their transactions only account for a small fraction of those taking place worldwide they are keen to highlight their own anti-money-laundering rules.

A spokesman for the Bitcoin Foundation, which promotes the currency’s software and security standards, said: “The authorities are flashing a warning light for Bitcoin exchanges which says that if you are not complying with the law then you are running serious risks of federal and state levels.”

Virtual currencies are growing in popularity, especially with online merchants, and are used for a wide range of legal transactions.

However, there are now five men under arrest – two are in Spain facing extradition to the USA – who know that US authorities are prepared to put a strong case together to stop what they perceive to be illegal acts by this new financial industry.

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