Treasury Uses Section 311 of the Patriot Act for the First Time Against a Virtual Currency Exchange; Wants Liberty Reserve Cut Off from US Financial System

The Treasury today named Liberty Reserve S.A. a financial institution of primary money laundering concern under Section 311 of the USA PATRIOT Act.   Liberty Reserve - a web-based money transfer system or “virtual currency” - is specifically designed and frequently used to facilitate money laundering in cyber space, the Treasury said,. This is the first use of Section 311 authorities by Treasury against a virtual currency provider.

The Treasury in an announcement alleges that "Liberty Reserve is widely used by criminals worldwide to store, transfer, and launder the proceeds of a variety of illicit activities. Liberty Reserve’s virtual currency has become a preferred method of payment on websites dedicated to the promotion and facilitation of illicit web based activity, including identity fraud, credit card theft, online scams, and dissemination of computer malware. It has sought to avoid regulatory scrutiny while tailoring its services to illicit actors."

Treasury’s regulatory action today was taken in coordination with the unsealing of an indictment by the U.S. Attorney's Office for the Southern District of New York, which charged Liberty Reserve and seven of its principals – Arthur Budovsky, Vladimir Kats, Azzedine El Amine, Mark Marmilev, Maxim Chukharev, Ahmed Yassine Abdelghani, and Allan Esteban Hidalgo Jimenez – in Manhattan federal court for their alleged roles in running a $6 billion money laundering scheme and operating an unlicensed money transmitting business.

EPJ reported earlier today that Arthur Budovsky was arrested in Spain and that the assets of Liberty Revere were freezed.

Treasury’s Financial Crimes Enforcement Network (FinCEN) has delivered to the Federal Register a regulatory finding explaining the basis of the actions as well as a notice of proposed rulemaking (“NPRM”) that, if adopted as a final rule, would prohibit covered U.S. financial institutions from opening or maintaining correspondent or payable-through accounts for foreign banks that are being used to process transactions involving Liberty Reserve. The NPRM also proposes to require covered financial institutions to apply special due diligence to their correspondent accounts maintained on behalf of foreign banks to guard against any transactions involving Liberty Reserve. If adopted, these measures would effectively cut off Liberty Reserve from the U.S. financial system. After publication in the Federal Register, the public will have 60 days to comment on the proposed rule against Liberty Reserve