The Thursday May 23rd, 2013 the shut down of one of the largest online payment processors, Liberty Reserve, has sent shock waves through the international MLM and HYIP groups.
As word spread on the Internet about Liberty Reserve's founder and owner, Arthur Budovsky, arrest reached both customers and Online income program owners. Budovsky, 39, was arrested in Spain as part of a money laundering investigation performed jointly by police agencies in the United States and Costa Rica, and with US. officials likely will seeking his extradition. Costa Rican prosecutor José Pablo González said Budovsky, a former U.S. citizen and naturalized Costa Rican of Ukrainian origin, has been under investigation since 2011 in Costa Rica for suspected money laundering using apparent shell companies he created to run Liberty Reserve.
Budovsky relocated to Costa Rica after he and partner Vladimir Kats were indicted on July 27, 2006, in New York on charges of operating an illegal financial business, GoldAge Inc., from their Brooklyn apartments. At that time both Budovsky and Kats were sentenced to five years probation in 2007 for engaging in the business of transmitting money without a license, a felony violation of New York state banking law.
Officials have not commented on how much money Liberty Reserve accounts handled, but the numbers could be over $30 million dollars. Neither Costa Rican nor U.S. officials have commented on the apparent seizure of the site and the fate of likely millions of dollars of funds. And it's not clear when answers will begin to emerge about what will happen to legitimate account member accounts.
The Costa Rican daily "La Nación" reported that Budovsky, a naturalized Costa Rican, renounced his U.S. citizenship last year, after the joint investigation of Liberty Reserve began. In 2011, Costa Rica’s financial regulatory authority, the Financial Institution Superintendency (SUGEF), closed the company Liberty Reserve, citing a lack of transparency and accounting of funding sources, La Nación reported. However, Budovsky continued operating the site in conjunction with other Costa Rican corporations, including "Silverhand Solutions and Technology S. A", "Worldwide E-Commerce Business S .A"., "Grupo Lulu Limitada", "Triton Group A and A, S. A." and "Cyberfuel.com". On Friday, San José prosecutors raided Budovsky’s home and offices in Escazú and Santa Ana, southwest of San José,. Investigators allege that Budovsky’s businesses in Costa Rica were used to launder funds from website hacking, tax evasion, and drug trafficking.
Both GoldAge and Liberty Reserve operated under a similar system, allowing users to nearly anonymously open accounts with limited documentation of identity. Deposits are backed by gold and other precious metals, and customers could withdraw money by requesting wire transfers to accounts anywhere in the world or by having checks sent to them.
U.S. officials have believed for years that international payment processors like Liberty Reserve, EgoPay, ExchangeZone, MoneyCentralMarket, SwiftExchanger, and PerfectMoney are hotbeds for criminal activity including money laundering, drug trafficking and tax evasion. Liberty Reserve, which operated without oversight from any global agency, was a convenient tool for foreign currency brokers, as it allowed them to bypass local legislation and avoid exchange rate fluctuations, particularly in developing countries. It was also a popular payment processing site for the MLM and HYIP marketing industry, but prosecutors say its lack of oversight also attracted organized criminal elements.
Forex Magnates, which describes itself as a “specialized forex news and research source,” called Liberty Reserve “the leading payment channel for traders in emerging and frontier markets.” Forex Magnates said, “Forex brokers have been benefiting from Liberty Reserve’s vast access as a payment provider, especially in countries where traders face difficulties in transferring funds. Liberty Reserve was a ‘gift’ for several traders, especially after foreign bank changes in international money transfers.”
The fallout as already started as Perfect Money has announced it will no longer accepting U.S. citizens as customers. Also many HYIP's that have been using Liberty Reserve exclusively, including 4FX Investment, Milenia-Finance, and AsianGold have shut their websites down. Other HYIP's like Uinvest and ProfitClicking have quickly removed the Liberty Reserve links from their web sites, plus Uinvest as stopped accepting US citizens as affiliates. Now other international currency companies, particularly Bitcoin, getting into positioned to take advantage of the possible demise of companies like Liberty Reserve and Perfect Money.
Remember this could also possibly cause a lot of other current MLM and HYIP programs to "fail" soon as some of them have more that 50% of their affiliates deposits coming from Liberty Reserve, causing new member deposits to dry up in these programs. So it your Online income program was heavily invested in Liberty Reserve, WATCH OUT.
According to cybercrime expert Brian Krebs, domain registration records for Liberty Reserve and several other digital currency exchanges on Friday began pointing to Shadowserver.org, an US organization that fights global computer crime. Krebs writes, "when libertyreserve.com went offline. The outage set off increasingly anxious discussions on several major MLM and HYIP forums online, as many that work and ply their trade in scamming, malicious software, and banking fraud found themselves unable to access their funds." Krebs' story cites one hacker who said the Liberty Reserve shutdown “could be the most massive lost of income in the history of e-currency.”
One strong indication that the action against Liberty Reserve, along with at least five other international currency exchanges, may have originated from U.S. law enforcement is that the domain name servers for Liberty Reserve were changed and pointed to two US government shadowserver.org cybercrime URL's. Krebs also reported that shadowserver.org suffered a bot net attack over the weekend, possibly in retaliation by hackers who lost funds.
That now leaves millions of legitimate Liberty Reserve members (including myself) from around the world worried about their deposits. Luckily I always keep my Liberty Reserve account under $50 and always withdrawn my money whenever it went over that amount. Because of this I only had $36 in my Liberty Reserve account when it was shut down. For those legitimate people with much larger deposits, only time will tell if they will ever see their their Liberty Reserve deposits again.
My advise to anybody that is considering joining and investing into a MLM program and/or HYIP is to only pick those Online income programs that use payment processors that require complete membership identity documentation, like PayPal, STP, and Payza.