Federal Government Expands AML Cybercrime Enforcement

by BakerHostetler

On Tuesday, May 28, 2013, the Department of Justice (DOJ) announced the unsealing of an indictment against Liberty Reserve, S.A. (Liberty Reserve) in the Southern District of New York for operating a $6 billion money laundering scheme. Liberty Reserve and seven of its employees are alleged to have laundered the funds in nearly 55 million transactions since 2006. Based out of Costa Rica, the company, which has been shut down, was a large internet-based payment processor and money transfer system. Despite never registering with the Department of Treasury as a money transmitting business, the company had more than one million customers, 200,000 of which were in the United States. Any customers who were engaged in legitimate business activities have also been unable to access the funds in their Liberty Reserve accounts as a result of the indictment.

Liberty Reserve operated with a digital currency known as LR. Customers were permitted to open accounts under fictitious names with the company, and then, using a third party intermediary known as an "exchanger," deposit funds into their accounts. For small transaction fees, customers would be permitted to move funds between their own accounts and accounts of other Liberty Reserve customers, and withdraw funds. Like deposits, cash withdrawals were not permitted directly through Liberty Reserve, but were, instead, undertaken through a third-party exchanger. Unlike traditional banking institutions that comply with U.S. law, Liberty Reserve did not require accountholders to verify their identities. The lack of identifying information, the use of exchangers and the deliberate concealment of financial transfers by the removal of account numbers from inter-account transfers resulted in a system perfectly designed for money laundering. There was no screening of clients, and fictitious monikers such as "Russian Hacker" and "Hacker Account" were permitted to open accounts and conduct business through the site.

Federal authorities allege that $6 billion was laundered through the site in connection with credit card fraud, identity theft, investment fraud, computer hacking, child pornography and narcotics trafficking, among other illicit activities. Much of the money was moved through shell accounts in at least 17 countries, including Costa Rica, the Netherlands, Spain, Morocco, Sweden, Switzerland, Cyprus, Australia, China, Norway, Latvia, Luxembourg, the United Kingdom, Russia, Canada and the United States.

In addition to the Justice Department's criminal indictment, the Treasury Department also took action on Tuesday by declaring Liberty Reserve a "money laundering organization." This designation under § 311 of the PATRIOT Act bans Liberty Reserve, and those continuing to do business with the company, from the U.S. financial system. This designation by Treasury is the first time the Department has made such a designation against a virtual currency provider. U.S. Attorney Preet Bharara recognized this prosecution as an important step to reign in the "Wild West" of criminal internet banking, noting that "[a]s crime goes increasingly global, the long arm of the law has to get even longer, and in this case, it encircled the earth."

The proliferation of money laundering through cyberspace is an increasing threat. Criminal organizations no longer have to rely on the physical transfer of suitcases of cash across borders to "clean" the proceeds of their unlawful activities. As these organizations become more sophisticated in finding ways to bank their criminally derived proceeds outside of the regulated financial system, many crimes will become increasingly difficult to detect.

Companies utilizing technology to conduct their business activities, whether they are financial institutions, funds transfer processors or users of these services, must develop compliance controls to ensure they do not become vehicles for money laundering and are not doing business with such organizations. Facilitating money laundering has harsh consequences, and even the unwitting use of a money launderer such as Liberty Reserve can result in the freezing of a legitimate company's assets or blockage from the U.S. financial system. Today, more than 74 countries have anti-money laundering statutes, and companies engaged in cross-border activity must ensure that their policies comply not only with the policies of the United States but also with the laws and regulations of other countries where they do business. Companies are advised to vet vendors and other service providers to identify suspicious activity in order to avoid criminal exposure for transaction activity that violates federal law and protect against the commercial consequences of doing business with an entity that becomes the target of government prosecution and forfeiture.

More broadly, as companies increasingly entrust their account and financial information to internet banking services that are vulnerable to data breach, they should have cybersecurity response plans in the event those services are criminally compromised. With legal and consulting specialists advising a company's internal technology team, these threats can be reduced and addressed with cybersecurity contingency plans put in place before the a company's financial information is jeopardized by digital hacking and virtual espionage.

If you have any questions about this alert, please contact Lauren J. Resnick at lresnick@bakerlaw.com or 212.589.4241 or any member of BakerHostetler's White Collar Defense and Corporate Investigations Team.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© BakerHostetler | Attorney Advertising

Written by:


BakerHostetler on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.