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Bitcoins Role In The Shadowy Realm Of Underworld

Bitcoin, Cryptocurrency - Josephine - December 16, 2021

PARIS (InsideBitcoins) — As cryptocurrencies grow in popularity, governments from various nations are opening their eyes to the unregulated and potentially volatile nature of digital money. Despite efforts to regulate and create a stable legal framework for Bitcoin, the cryptocurrency could attract a fresh wave of controversy that can ideally be broken down in to two very simple words: Liberty Reserve.

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Accused of founding and running a company involved in one of the biggest money laundering cases brought by the United States, Arthur Budovsky (the founder of Liberty Reserve) pleaded not guilty to multiple indictments including money laundering, in a district court in Manhattan on Tuesday.

While money laundering is nothing new, many countries still question how to approach Bitcoin and other cryptocurrencies, mainly for tax reasons. But what makes the Liberty Reserve case so important in terms of digital currencies is the sheer size of the operations allegedly conducted by Budvosky and his associates — something that could quite possibly steer the current public opinion of Bitcoin in the wrong direction. Surprisingly enough though, Liberty Reserve was not the first time Budovsky found himself on the wrong side of the law.

Not your average golden boy

GoldAge Inc., a digital currency exchanger, was launched in 1999 by Parker Bradley and was used to buy and sell various digital gold currencies that were popular at the time (commonly referred to as E-gold). The company was later sold in 2006 to Arthur Budovsky and his partner Vladimir Kats.

Although Budovsky claimed that the company he now owned was “a legitimate business practice” not requiring a state license, the New York County district attorney claimed that various rules and regulations had been violated. In accordance with New York State Banking Law (section 641 of article 13-B), “No person shall engage in the business of selling or issuing checks, or engage in the business of receiving money for transmission or transmitting the same, without a license.” In light of this, Budovsky and Kats were found guilty and sentenced to five years in prison. Shortly afterwards, that sentence was reduced to five years probation.

But from the ashes of GoldAge, shut down by the authorities, rose a new idea that Budovsky thought up after fleeing the U.S. to settle down in Costa Rica: Liberty Reserve.

The birth of the “underworld bank”

Incorporated in 2006, Liberty Reserve claimedthat it was the “oldest, safest and most popular payment processor … serving millions all around a world.” The company, a centralized digital-currency service, was based in Costa Rica, mainly due to the fact that all online businesses were legal and unregulated in the country. After moving there and marrying a Costa Rican, Arthur Budovsky renounced his American citizenship to become a citizen of Costa Rica.

In May 2013, Budovsky was arrested and the website was shut down. Liberty Reserve facilitated the transfer of funds, and allowed users to convert U.S. dollars and euros to bitcoin anonymously and without imposing limits on the amounts converted. Indeed, the only information required to set up an account was a birth date, name and valid e-mail address – nothing more.

According to Budovsky, Liberty Reserve was merely a secure platform enabling online financial transactions, something that state prosecutors protested. When the charges against Budovsky were announced, Preet Bharara – a U.S. Attorney – stated that Liberty Reserve had become “the bank of choice for the criminal underworld.”

During Liberty Reserve’s time in operation, it is believed that over $6 billion worth of illicit activities took place, between over 1 million users, representing over 55 million transactions. These transactions are said to have aided cyber criminals, drug traffickers, child pornographers and fraudsters in general, launder their proceeds.

Budovsky’s trial to be held in September 2015

But what does this all mean for Arthur Budovsky and his business partners? Azzeddine El Amine, a manager of Liberty Reserve, pleaded guilty to conspiracy and operating an illegal money remitting business, and faces a maximum of 30 years in prison. Two other managers also pleaded guilty and face up to five years imprisonment. Vladimir Kats however could be facing up to 75 years after pleading guilty to money laundering and other charges.

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