Costa Rica – based digital currency, “Liberty Reserve” shut down by authorities

UPDATE 1: U.S. accuses Costa Rica – based Liberty Reserve of operating one of largest money laundering operations in history, two suspects remain at large in Costa Rica.

UPDATE MAY 28TH, 2013 – Inside Costa Rica has learned that a private investigation firm in Costa Rica is planning a coordinated attempt at recovering funds that were held by Liberty Reserve.  We will be publishing an update to this story later this afternoon.  We will be posting future updates on Liberty Reserve at the URL http://insidecostarica.com/libertyreserve/  

May 27^th, 2013 (InsideCostaRica.com) Liberty Reserve, a Costa Rica – based “digital currency” which authorities claim is popular with cyber criminals, was shut down late last week, after the arrest of the company’s 39-year-old founder, Arthur Budovsky Belanchuk on Friday.

Budovsky was arrested in Spain following a joint investigation between Costa Rican and United States law enforcement agencies.

Costa Rican authorities conducted raids of Budovsky’s home and offices in San José shortly before his arrest.

Budovsky, a Ukranian who has been reported to be a naturalized Costa Rican citizen, is thought to have financed a number of businesses in Costa Rica with proceeds that are claimed to originate through child pornography sites and drug traffickers who used the Liberty Reserve service.

Liberty Reserve was an unregulated money transfer business where users could keep their identity hidden.  Authorities allege that a large portion if its user base came from underground economies and cybercrime.

However, the Internet has been abuzz since news broke of Liberty Reserve’s shutdown, with hundreds, if not thousands of former users claiming they were not involved in illegal activity, and that their businesses could be devastated should the funds in their Liberty Reserve accounts not be returned.  Several users have contacted Inside Costa Rica looking for information on the case.  The service seems to have been popular outside of the United States.

Some users of the service stood to lose $25,000 to $50,000 overnight, they said.

Arthur Budovsky has been in trouble with the law several times. In 2006, Budovsky and his partner Vladimir Kats were indicted in the United States on charges related to a similar service called GoldAge, which they ran from their apartments in Brooklyn, New York.  GoldAge allegedly transmitted close to $30 million illegally. Both were sentenced to five years in prison in 2007 but ended up serving only probation. Budovsky then left the United States and headed to Costa Rica, where he later started Liberty Reserve.