Costa Rica Shuts Down Liberty Reserve in Money Laundering Scandal
By Dialogo June 21, 2013
SAN JOSÉ — Costa Rica-based digital currency giant Liberty Reserve shut down June 6 following a criminal investigation in what U.S. officials are calling the largest money laundering bust in history.
The business’s founder, naturalized Costa Rican citizen Arthur Budovsky, was arrested in Spain along with another company principal, Azzeddine El Amine, Spanish authorities reported. Three others including Budovsky’s partner, Vladimir Kats, have been arrested in the case and two are still at large in Costa Rica, said the case’s New York prosecutors.
U.S. officials allege that the company has moved about $6 billion in the last seven years and knowingly transferred money in at least 55 million illegal transactions. The seven men are charged with conspiracy to commit money laundering, conspiracy to operate unlicensed money transmitting business and operation of an unlicensed money transmitting business, according to an indictment filed in New York.
That indictment said the men “intentionally created, structured, and operated Liberty Reserve as a criminal business venture, one designed to help criminals conduct illegal transactions and launder the proceeds of their crimes.”
Police raid 8 sites associated with laundering operation
The Liberty Reserve site allowed users to buy the company’s digital currency and make instant money transfers using only a name, email address and date of birth. The company ran its servers out of Costa Rica and was not registered with U.S. authorities.
Authorities raided eight sites in Costa Rica including six companies Budovsky was involved with as well as two private homes, the San José-based Tico Times newspaper reported. Police seized computers, paperwork and three vehicles worth more than $500,000 in total.
Following the arrests, French Development Minister Pascal Canfin listed Costa Rica along with 16 other countries on a blacklist of the world’s top tax havens. Costa Rica’s Finance Ministry denied the country’s inclusion on the list in a press release and a clarification was later released by the French government. Costa Rica was included in the original blacklist in 2010, but was removed in 2012.
Currently, Costa Rica is listed in the U.S. State Department’s annual money laundering report as a country of “primary concern” for money laundering. The report estimates that $4.47 billion in illegal funds filters through Costa Rica every year.
Costa Rica establishes bureau to fight money laundering
The Central American country counters that it has made significant reforms in an attempt to cut down on money laundering. In 2010, it established the Economic Crimes, Taxation and Money Laundering Bureau. Celso Gamboa, a vice-minister with the Public Security Ministry, said that has led to a “significant increase” in prosecution of money laundering cases.
Costa Rica has also cracked down on the financial freedom of foreigners living within its borders. Since July 2012, foreigners residing within Costa Rica have been barred from opening bank accounts without an official foreign personal identification document known as a DIMEX card. Before, anyone could open a bank account with only a passport.
In addition, Costa Rica has joined a list of 50 countries updating their systems in preparation for the U.S. Foreign Account Tax Compliance Act, which requires countries to supply tax information to the Internal Revenue Service about U.S. citizens living abroad. Costa Rica is expected to be in full compliance by Jan. 1, 2014.
“In just four years our country has gone from being considered internationally uncooperative financially to a nation used as a regional example for fiscal transparency,” the Foreign Trade Ministry said in a press release.