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Founder of Liberty Reserve Pleads Guilty to Laundering More Than $250M
- ycmbntrthrwaway 11y agoWhy is it illegal to operate money transfer? Why founders are responsible for the crimes committed by its users? Are they guilty because the business was "unlicensed" or did they specifically promoted crime in some way?
- conover 11y agohttp://www.nytimes.com/2013/05/29/nyregion/liberty-reserve-operators-accused-of-money-laundering.html http://www.nytimes.com/2013/05/29/nyregion/liberty-reserve-o... More details about the case when the charges were announced a couple of years ago.
- Spooky23 11y agoLicensure requires compliance with various laws. Liberty Reserve was structured to not comply with any of those laws or regulations. It's like anything else. If you operating a nightclub, and there's a crowd of people selling meth in the bathroom all night, you're facilitating a crime.
- sneak 11y agoCrimes require victims.
- deleted 11y ago[deleted]
- chipperyman573 11y ago1) No[0] 2) Usually money laundering means the money was obtained illegitimately. That money had to come from SOMEWHERE, and someone was probably harmed in the taking of it. [0]: https://en.wikipedia.org/wiki/Victimless_crime https://en.wikipedia.org/wiki/Victimless_crime
- donatj 11y agoMore often than not the only victims are victims because of the government actions. Violence triggered purely by its prohibitions or previous actions.
- dragonwriter 11y agoCrimes require violation of criminal law, which may or may not involve a victim (the legally offended party in a crime isn't the victim, if any, but the State; that's a pretty central distinction between crimes and torts.)
- donatj 11y agoDepends on your definition of crime. From a legal sense, you are correct but from a moral human sense, the original poster is correct. A crime that hurts no one is not a crime.
- gruez 11y ago>but from a moral human sense, the original poster is correct. A crime that hurts no one is not a crime. according to whom?
- gnaritas 11y agoNo they don't; but they should.
- MCRed 11y agoThis is the distinction between a crime and something that is illegal. On HN people rarely make the distinction because they think something being illegal makes it a crime. Illegal means it violates a law. A crime is something that actually harms someone. Gay marriage may have been illegal, but it was never a crime, for example. Alas, these days the USA is a very authoritarian culture and the idea that there might be US laws that are themselves crimes to enforce seems alien. But logically and morally it is the case.
- bitwize 11y agoNo. "Crime" is a legal concept. A crime at law is something for which the state is authorized to punish you. If you do something the law says is punishable by the state, irrespective of if you harmed anyone, you have committed a crime. If you plot to rob a bank, even if you do not go through with it and no one is harmed by your deeds, you can be convicted of conspiracy and jailed.
- gnaritas 11y ago> This is the distinction between a crime and something that is illegal. You're language is too loose to be making such distinctions. Crimes have a legal meaning so you can't just use the word crime in its moral sense only without being specific. >On HN people rarely make the distinction because they think something being illegal makes it a crime. HN isn't that dumb. > Gay marriage may have been illegal, but it was never a crime, for example. In the sense you're using the word crime (i.e. moral) you're absolutely wrong, it was a moral crime and gay people were the victims of said oppression.
- joshmaker 11y agoIdentity theft and credit card fraud are victimless crimes?
- codedokode 11y agoStealing CC is bad thing. But why punish LR for this and not IT professionals who stole them? Or Visa who still cannot make secure payment system? Or Microsoft who cannot make secure operating system?
- mikeyouse 11y agoMens rea?
- xenophonf 11y agoConspiracy or facilitation are criminal acts because they're part of larger criminal acts (murder, fraud, etc.). From what I've read, LR knew that the monies passed through it were the result of crimes, and they knowingly structured their business so as to make it easier for customers who committed financial crimes to launder those monies. PayPal, Visa, and Microsoft do not knowingly structure their businesses or products around the facilitation of crimes, nor do they knowingly support criminal activities. Crimes happen in spite of their respective businesses, not because of them.
- Spooky23 11y ago10,000 years of history disagrees with you.
- gamblor956 11y agoIt's not illegal to operate a money transfer business. Paypal, Venmo, Stripe, Square, etc. are all money transfer businesses. However, in the US it is illegal to operate a money transfer business without getting the proper licenses and registrations at the federal, state, and local levels. It's even more illegal to operate a money transfer business that's being used for laundering, know or be told of these laundering uses, and then not do anything about it.
- hackerboos 11y agoLR was based in Costa Rica.
- bdcravens 11y agoNeed to be licensed as an MSB is based on where your customers are located, not your business.
- MCRed 11y agoUS Law does not apply to Costa Rica-- it's outside their jurisdiction. That's one of the fundamental problems here. The US could pass a law that Sainsburies (a UK grocery store, with no US locations) has to employ a jazz band at every one of their stores for 3 hours every friday afternoon... but it doesn't matter, because the US does not have jurisdiction over the UK. Even if a US citizen goes and visits and stops by a sainsbury and is upset at the lack of a jazz band.
- tacon 11y agoManuel Noriega wholeheartedly agrees with your interpretation. https://en.wikipedia.org/wiki/Manuel_Noriega https://en.wikipedia.org/wiki/Manuel_Noriega
- shitgoose 11y agofrom what i understand, they were nailed for providing services to americans (citizens and corporations), and that falls under uncle sam's jurisdiction.
- dogma1138 11y agoYou can't operate MSB these days without complying with regulations regardless of where you operate from. Laws for MSB's anywhere require them to comply with legislation based on where their costumers are originated. When you move money from your US account to your friends in the UK through say PayPal; PayPal has to comply with the regulations in both the US and the UK. Amongst those things the MSB also needs to ensure that they do their due diligence to ensure that they do not provide a service to launder money or facilitate other illegal activities this often includes running background and credit checks on the costumers, providing notifications of transfers to the authorities, checking their costumer base against a list of known criminal organizations and suspect individuals, and in general even required to report any set of transactions which fit a certain pattern. LR (just like say Megaupload with it's "reversed" payment model) was designed to circumvent all of this intentionally while there might be some legitimate use for it it's primary use was to transfer funds and exchange currency in an unregulated manner which makes it attractive to only a certain type of individuals which seek that intentionally, anyone else would not want to use it using an unlicensed MSB is a sure way of getting your funds frozen and putting you under investigation. I don't even understand how people can support them, even if they did not do so intentionally they've put their entire costumer base under a microscope if people used this service thinking it was a legitimate MSB they were defrauded. Money laundering and tax evasion is tricky, many laws in many countries are often structured in such manner that the accused has to prove that those funds were acquired legitimately and that all taxes were paid as due. Even if LB did this out of sheer stupidity (which obviously they didn't) they deserve to get their asses handed out to them just for putting every person who ever used them at risk of going to jail or getting in debt due to financial irregularities.
- deleted 11y ago[deleted]
- stickfigure 11y agoIsn't every non-US country, and every bank in those countries, operating an "unlicensed money-transmitting service" as far as the US government is concerned? I'm a little curious about where the lines are drawn.
- gamblor956 11y agoNo, see 31 US 5330 and related code sections.
- stickfigure 11y agoI don't get it: https://www.law.cornell.edu/uscode/text/31/5330 https://www.law.cornell.edu/uscode/text/31/5330 doesn't seem to mention anything relevant. I also don't understand the downvotes. I'm asking a serious question because I'm curious - if this company was operated by a Russian citizen living in Moscow (or by an Albanian citizen in Albania, or a Swiss citizen in Switzerland, or even let's say by the North Korean government) - what would have happened here?
- atemerev 11y agoRead: "refused to cooperate with government ops". Thank goodness they didn't find Satoshi yet.
- pakled_engineer 11y agoTheir biggest issue (besides being a centralized service thus easy targeting) was not encrypting internal communications and allowing comments to accompany transfers which were typically "For 200 dumps of CCs" or something similarly illegal. They tried to avoid KYC regulations by just providing the internal ledger, you had to go through 3rd party exchangers in order to buy in or cash out of the system and these parties were supposed to do KYC. Pecunix and C-gold are other centralized, closed book-entry systems still around though Pecunix changing to a voucher system.
- atemerev 11y agoWell, lots of drugs are sold for cash. Cash is issued by the Fed. Can it be sued for facilitating drug crime?
- chipperyman573 11y agoThe feds also actively try to combat drug sales. LR made little to no efforts to do so. I agree with what you're saying but I disagree with your example.
- wavefunction 11y agoI think op meant the Federal Reserve, who are not involved in the War on Drugs.
- yardie 11y agoFederal Reserve does not issue cash, that is the job of the Treasury Department.
- Kinnard 11y agoIssuance and printing are distinct operations. Federal Reserve Notes are in fact issued by the Federal Reserve, and printed by the Bureau of Engraving and Printing, which is a part of the Treasury[1]. [1] http://economics.stackexchange.com/questions/8320/how-and-when-is-m0-money-created http://economics.stackexchange.com/questions/8320/how-and-wh...
- rasengan 11y agoThis is serious stuff, and I want to mention to anybody on HN who is thinking about running a business like this given the rise in cryptocurrency related platforms, please consult a lawyer before you embark on your quest. These are serious laws and it doesn't cost much to find out if you're in or outside of MSB regulations.
- pakled_engineer 11y agoSome additional advice for anybody doing so regardless of where they live or the market they service: - Contract a legitimate 3rd party ID verification service like bitstamp does. You get API access where the entire verification process can be automated on your end, and it's out of your hands, so you have some kind of legal protection offloading the KYC risk to that party. - Encrypt all internal employee messages, regardless if they are totally innocent looking a prosecutor will find some way to twist the emails and chats into a crime. Have a written data deletion policy for internal messaging so they are not saved forever, as deleting them to satisfy a business operations policy will prevent possible future obstruction or evidence tampering nonsense charges. - Avoid any and all political ideology, don't call your service DownWithTheFedCoin. Notice how the prosecutors made a point about Liberty Reserve's name. - If you create an asset pegged to a currency don't use USD. Finally have clear, concise instructions to resolve disputes, and some kind of phone number escalation procedure for users to actually talk to somebody. Better yet have a disinterested 3rd party to help moderate customer disputes in a totally transparent way instead of merely freezing accounts and ignoring their emails. As soon as somebody has their funds seized or delayed they run to regulators and lawyers to complain which in turn spawns government attention on your little cryptocurrency related service.
- kregasaurusrex 11y agoFor anyone who doesn't know about Liberty Reserve, here's a good back story: http://www.theatlantic.com/magazine/archive/2015/05/bank-of-the-underworld/389555/ http://www.theatlantic.com/magazine/archive/2015/05/bank-of-...
- shitgoose 11y agowho the hell is downvoting this??? have some common sense!
- GSegbar 11y agoPlease go back to Reddit.
- shitgoose 11y agoif HN reader implies that Federal Reserve Banks are waging or somehow supposed to wage war on drugs, that is sad. i was just trying to point that.
- atemerev 11y ago“HN reader” implies that charging LR for facilitating money landering is just as absurd.
- shitgoose 11y agonot to nitpick, but "HN reader" said: "The feds also actively try to combat drug sales. LR made little to no efforts to do so." [sad to hear this from HN reader, who is using terms fed(eral reserve banks) and fed(eral bureau of investigation) interchangeably] to which another HN reader replied with well done sarcastic remark and was immediately downvoted. i asked "why all these downvotes?", and got immediately downvoted myself. can't get frigging karma above the floor level...
- dang 11y agoWe detached this subthread from https://news.ycombinator.com/item?id=11008879 https://news.ycombinator.com/item?id=11008879 and marked it off-topic.
- Kinnard 11y agoMoney Laundering is Financial Thoughtcrime: http://www.americanbanker.com/bankthink/money-laundering-is-financial-thoughtcrime-1058902-1.html http://www.americanbanker.com/bankthink/money-laundering-is-... . . . By Former Chief Foreign Exchange Dealer; Director of Credit Card Interchange @ Visa & Founding Director of the Bitcoin Foundation . . .
- kjs3 11y ago...By a biased, financially incented insider.
- ycmbntrthrwaway 11y agoIt also falls under "victimless crime" definition.
- aminorex 11y agoCompliance with tyranny is treason.
- anonbanker 11y agothe reason why your comment is greyed out directly correlates with why I left the country back in Bush II.
- patio11 11y agoLiberty Reserve's main line of business was operating a shared ledger trusted by multiple companies which would exchange cash for ledger entries and ledger entries for cash, earning a fee each time. Think like Western Union except minus all the pesky regulated bits. LR was a direct reaction to what had befallen e-gold, which was in fundamentally the same business except it did all of the cashing first-party (early in life, at any rate). e-gold was shut down for being a money laundering operation, principally because it was a money laundering operation. LR was also a money laundering operation. It observed various issues e-gold had had, such as being physically located in the US (though theoretically registered in a country friendly to money laundering), and intentionally fixed these bugs with the intent of being the most robust money laundering operation it could be. This ended up not working out, which is why the vacuum that urgently desires a money laundering operation has replicated the same hub-and-spokes model with the hub being a cryptocurrency (presently Bitcoin) and the spokes being exchanges and LocalBitcoins sellers. The onramps/offramps to Bitcoin are exposed to a variety of ways to curtail their operations but the central trusted DB required for them to cooperate is not controlled by anyone who can be conveniently extradited. People in the Bitcoin community refer to this obliquely as either "censorship resistance" or "resistance to policy attacks." If you're interested in the history of this, Paypal and e-gold were approximately contemporaries, and one of the reasons Paypal succeeded and e-gold did not was that Paypal conspicuously courted respectability, so that even if Paypal was also doing hundreds of millions of dollars of fraud and illicit transactions it would be unlikely to indict them as a criminal enterprise because they were a proper company whose lawyers wore suits and whose VCs were quite respectable. Bitcoin collectively cottoned onto the wisdom of having its fronts benefit from the same factor as opposed to being, well, insufficiently socially insulated from legal process. (I can accurately summarize who makes Bitcoin exchanges but it would read like a parody.)
- hartpuff 11y agoOne of the biggest Forex platforms is a Government-regulated FTSE 250 PLC with a known founder, Chairman, CEO and board of directors. One of the biggest Bitcoin exchanges is run by "Big Vern". Bitcoin in a nutshell.
- 11y ago
- miles 11y agoPerhaps if Liberty Reserve had only aimed higher: HSBC Judge Approves $1.9B Drug-Money Laundering Accord [1] "U.S. District Judge John Gleeson in Brooklyn, New York, signed off yesterday on a deferred-prosecution agreement" HSBC money-laundering procedures 'have flaws too bad to be revealed' [2] "HSBC’s procedures to prevent money laundering, sanction-breaking and criminal activity still have deficiencies so serious that to publicly disclose them would risk serious crime, the US Department of Justice has said." [1] http://www.bloomberg.com/news/articles/2013-07-02/hsbc-judge-approves-1-9b-drug-money-laundering-accord http://www.bloomberg.com/news/articles/2013-07-02/hsbc-judge... [2] http://www.theguardian.com/business/2015/jun/05/hsbc-money-laundering-procedures-flaws-too-bad-to-be-revealed http://www.theguardian.com/business/2015/jun/05/hsbc-money-l...
- ycmbntrthrwaway 11y agoFeel free to look at their indictment. The crime is providing too much anonymity and not centralizing enough. See "The criminal design of Liberty Reserve", starting from point 14. http://www.justice.gov/sites/default/files/usao-sdny/legacy/2015/03/25/Liberty%20Reserve%2C%20et%20al.%20Indictment%20-%20Redacted_0.pdf http://www.justice.gov/sites/default/files/usao-sdny/legacy/...