Author: Nyman Gibson Miralis
Subject: Monery Laundering and Digital Currency
Keywords: money laundering, bitcoin, digital currency, cybercrime, money laundering, computer hacking, transnational crime
As almost every aspect of our lives is becoming more and more dependent on technology, it comes as little surprise that the emergence and increased popularity of digital currencies has received a widespread of publicity over the past few years. In recent times, the prevalence of digital currencies such as Bitcoin, Perfect Money, WebMoney and Liberty Reserve have been gaining popularity and recognition for both legitimate and illegitimate uses.
What is ‘digital currency’?
Digital currency (sometimes referred to as virtual currency or online currency) is an internet based medium of money which is usually issued and controlled by its developers. It is used and accepted among a specific online community. Digital currency has some of the same qualities as traditional physical currencies (bank notes and coins), but differs from physical currency as it allows for instantaneous transactions and borderless transfer of ownership.
Bitcoin is the most well-known digital currency in circulation currently. Bitcoin is an online digital currency which exists and is stored solely on the internet. It is not backed to any asset or linked to any organisation (such as the Reserve Bank of Australia). Bitcoin can currently be used to purchase goods and services, as well as being exchanged for other mainstream currencies.
Digital currency and cybercrime
The growth of digital currency is mainly due to its perceived benefits. These benefits are attractive to users who use virtual currencies for legal uses; however it is these same benefits that make digital currency equally appealing to those exchanging goods and services which may not be legal.
The ease of use and anonymity associated with digital currency platforms are the key benefits associated with digital currency. Acquiring digital currency with a particular circulation may involve a registration process, but in many cases, users can purchase digital currency simply by providing funds. For example, Bitcoin can be purchased quickly over the internet with a few steps and minimal user input.
Many digital currency platforms do not require verification when opening accounts, as traditional physical currencies typically do. As a result, the anonymity of digital money transfers is done with relative ease, making these types of transactions attractive for legitimate and illegitimate users.
Case Study: Liberty Reserve
At its peak, Liberty Reserve was one of the world’s most widely used digital currencies. It provided its users with instant, real-time currency to make transactions across the world.
Liberty Reserve did not verify new accounts, which made it particularly attractive to those wishing to launder money or for the transaction of illegitimate goods and services.
Liberty Reserve required only a valid email address to open an account and initiate transactions. It charged a 1% fee for each transaction and, for an additional $0.75 it allowed its users to hide their account number in transactions.
In 2003, Liberty Reserve was targeted by US prosecutors, who charged seven people with a number of offences including money laundering and operating an unlicensed financial transaction company. The indictment alleged that Liberty Reserve was involved in laundering US$6 billion, the largest international money laundering case.
It was alleged that Liberty Reserve had more than 1 million users worldwide and processed more than 12 million transactions a year. According to the indictment, the Liberty Reserve digital currency platform was favoured for its money laundering service for carders, hackers and other cybercriminals in the digital underground who used it to transfer money around the world effortlessly and anonymously.
Mr Arthur Budovsky Belanchuk the founder of Liberty Reserve pleaded guilty in January 2016 to laundering more than $250 million in criminal proceeds. Mr Budovsky will be sentenced in May and faces a maximum sentence of 20 years in prison.
The Liberty Reserve CTO, Mr Mark Marmilev was sentenced to 5 years imprisonment after he pleaded to conspiring to operate a money transmitting business that failed to comply with federal registration requirements.
Case Study: Silk Road
Silk Road was created in February 2011 as a Bitcoin based online black market selling a wide array of products, but most notoriously known as a platform for selling illegal drugs. Online users were able to browse the website anonymously and securely without potential traffic monitoring.
In October 2013 the FBI seized and shut down Silk Road and charged its founder and host Mr Ross Ulbricht for engaging in money laundering operations and trying to arrange a murder for hire. Federal prosecutors alleged Mr Ulbricht’s website sold more than US$200 million worth of drugs anonymously. He was found guilty of charges including conspiracy to commit drug trafficking, money laundering and computer hacking. Mr Ulbricht was eventually convicted of seven charges related to Silk Road and was sentenced to life in prison without possibility of parole. The further charges alleging murder-for-hire remain pending.
Nyman Gibson Miralis are experts in transnational money laundering investigations, assisting companies and individuals who are the subject of investigations by AUSTRAC, the AFP, ATO and ACIC. If you require assistance, contact one of our expert criminal defence lawyers