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Even criminals need financial intermediaries. Yesterday federal prosecutors shut down Liberty Reserve, a currency exchange and payment processor, and indicted seven people connected to the company. The indictment called the company a “financial hub of the cybercrime world... including credit card fraud, identity theft, investment fraud, computer hacking, child pornography, and narcotics trafficking”, and alleges it laundered $6 billion via 55 million illegal transactions for one million users over the last seven years.
The Tico Times has a detailed article on the history of the Costa Rica-based business, not to mention “flashy cars, lavish gifts, multiple identities and armed Russian henchmen”.
The criminal attraction to Liberty Reserve is obvious. An email address was all that was needed to to set up an account -- some accounts had oh-so subtle names like “Russian Hackers” -- and paper trails were nonexistent. The principals seemed aware of who used their services: in an IM conversation, they referred to the company as a “money laundering operation that hackers use”.
Speaking of things hackers like that can be used to launder money, what does Liberty Reserve’s indictment mean for Bitcoin? Kevin Roose says that while both Liberty Reserve and Bitcoin offer users anonymity, “in Bitcoin's case, there's nobody to arrest, no entity to prosecute for the sins of the system ”. Bitcoin is vulnerable, Roose notes, to enforcement that targets the exchanges and processors which the currency relies on to function. Timothy Lee thinks that any attempt to shut down, or even regulate, Bitcoin would only drive the currency further underground (assuming that’s possible), making it all the more attractive to criminals.