Malaysian exchangers helped hide paper trail for world’s largest cyber money-launderer

The Financial Times (FT) has reported that exchangers, located in less regulated countries including Malaysia, Russia and Nigeria, had converted real dollars into LR, the virtual currency of Liberty Reserve. — Reuters file picKUALA LUMPUR, June 2 — Money exchangers based in Malaysia played a key role in hiding the paper trail for Liberty Reserve, the global, virtual “bank of choice” for identity thieves, drug traffickers, computer hackers and child pornographers, whose founders and workers were indicted this week by US authorities for being the world’s largest cyber money laundering operation.

Citing US authorities, The Financial Times (FT) has reported that exchangers, located in less regulated countries including Malaysia, Russia and Nigeria, had converted real dollars into LR, the virtual currency of Liberty Reserve that helped to erase its digital footprint and made it practically impossible to trace back to the user — a fact that won the Costa Rica-based currency exchanger over one million subscribers worldwide.

To open an account with Liberty Reserve, a user needed only to give a name and address and was not required to show any documentation to verify its authenticity, unlike at traditional regulated banks, the daily reported.

Liberty Reserve charged one per cent in fees per transfer and users could pay an additional 75 US cents for each transaction in a “privacy fee” to hide their account number on the transfers, FT reported, adding Liberty Reserve then relied on third-party “exchangers” to process LR transactions between the customers and itself, a move that further avoided a paper trail leading back to the users.

These unlicensed exchangers typically charged a fee of five per cent of the funds being transferred, which the Liberty Reserve founders would split among themselves and reconvert into real cash after being laundered and traded as LRs, FT reported.

Several of the preapproved exchangers included shell companies such as MoneyCentralMarket and AsianaGold, which were owned by Liberty Reserves’ founders, an American with Ukrainian roots named Arthur Budovsky and Vladimir Kats. 

Malaysian police are reportedly aware of the operation and have been monitoring unlicensed money exchangers here with the central bank’s help for the past two years, but have said little else.

“It is hard to gather credible evidence on such trans-border crime,” Commissioner Datuk Mohamad Fuzi Harun, director of Bukit Aman’s Special Task Force (Operations and Counter Terrorism), told The Star daily in an interview published two days ago.

This scam helped Liberty Reserve become “the predominant digital form of money laundering used by cyber criminals worldwide”, FT reported, citing the US authorities.

Budovsky, Kats and five other Liberty Reserve workers and ex-employees have been slapped with several charges including conspiracy to commit money laundering and operating an unlicensed money transmitting business and face up to 20 years in jail if convicted, FT reported. However, two of the seven men, including Kats, remain at large.

The New York Times (NYT) had first reported the link between unlicensed money exchangers in Malaysia to the Liberty Reserve operators on May 28.

The global currency exchange had run a US$6 billion (RM18.33 billion) money-laundering operation online, a hub for criminals peddling in everything from stolen identities to child pornography, the NYT reported.

Liberty Reserve is believed to be the world’s largest cyber money-laundering case and was based in the United States but operated well beyond the country’s borders as well as traditional international banking regulations, providing easy and anonymous cover increasingly sought by criminals to fund their activities.

Liberty Reserve was responsible for laundering billions of dollars over the past seven years, conducting 55 million transactions that involved millions of customers around the world, including about 200,000 in the United States, according to US federal prosecutors who were reported to have announced the charges against the currency exchange in Manhattan earlier this week.