On Tuesday, the Department of Justice shut down online payment system Liberty Reserve. The network was charged with money laundering. The founder, Arthur Budovsky, and four others were arrested.
According to the US Treasury Department, the network has supported more than $6 billion in illegal transactions in the last seven years. The scam, according to federal prosecutors, was “designed to help criminals conduct illegal transactions and launder the proceeds of their crimes.” The indictment also reads:
Liberty Reserve has become a financial hub of the cyber-crime world, facilitating a broad range of online criminal activity.
Unlike traditional banks or legitimate online payment processors, Liberty Reserve does not require users to validate their identity information, such as by providing official identification documents or a credit card. Accounts can therefore be opened easily using fictitious or anonymous identities.
The Department of Justice said in a statement:
Our message is clear: money launderers can run, but they can’t hide from the U.S. justice system.
This closure has raised the question if Bitcoin will be next, because Bitcoin’s exchange is very similar to that of Liberty Reserve. But this could translate to better security for the decentralised online currency. Also noted in some Reddit comentary, with Liberty Reserve gone, Bitcoin doesn’t have any competition. Kirsten Salyer, social media editor for Bloomberg said:
While Bitcoin has gotten heat in the past for facilitating drug deals and other illegal activities, the currency is increasingly attracting mainstream businesses and consumers.
There’s also a technical consideration: Even if authorities at some point wanted to prosecute Bitcoin, there’s no clear person to target. The online currency was created by the mysterious “Satoshi Nakamoto,” which is believed to be an alias, and its decentralized, anonymous network makes it nearly impossible to track users.
The problem comes when trying to align current money laundering laws with a virtual currency. For the most part, Bitcoin has attempted to stay inside the law. Bitcoin’s lead developer, Gavin Andressen said:
If the U.S. government decided that Bitcoin was a bad thing and told me, ‘Stop doing what you’re doing,’ I’d stop doing what I’m doing
[Source: Bloomberg, Washington Post, NY Times]
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