If Al Capone were alive today, this is how he would be hiding his money," said U.S. prosecutors about Liberty Reserve, the popular digital currency site.

Liberty Reserve described itself as the oldest, safest and most popular payment processor... serving millions all around a world." However, the users in the mushrooming world of digital currencies were in for a rude shock on May 28 when Liberty was held up by U.S. regulators on charges of money-laundering operations amounting to $6 billion.

The regulators labeled Liberty as "the bank of choice for the criminals." The Costa Rica-based digital currency provider allowed users to convert euros or US dollars into Liberty Reserve Dollars or Liberty Reserve Euros simply by providing an email address. Moreover, these funds could be transferred to other real and digital financial institutions by being either anonymous or untraced.

Liberty: A Playground for Criminals

Liberty did not process cash payments made by clients directly. Rather, third party exchangers were employed to credit or debit the accounts of its clientele so that no sign remained of their banking and other personal information. This provided the leeway for criminal proceeds from frauds, including credit card scams, narcotics trafficking, computer hacking and child pornography, to name but a few.

Regulators charged Liberty for laundering billions of dollars from about 55 million transactions involving millions of clients all over the world, 200,000 from the U.S.

Seven people, including founder Arthur Budovsky, were charged by the U.S. regulatory body. Budovsky is no stranger to illegal money laundering activities. In 2006, he was found guilty of breaching money transmission guidelines associated with E-Gold. In 2011, he surrendered his U.S. citizenship and built a new financial network in Costa Rica.

Budovsky ran out of luck in that country, as well. His company was charged for violating money laundering rules in 2011. However, Costa Rican regulators were duped by a false computer portal which provided fake data. Meanwhile, Liberty continued to run its operations through subsidiary companies in Malaysia, Russia, Nigeria, Cyprus, Hong Kong and Australia.

No Liberty, No Crime?

Bitcoin, Litecoin and Namecoin are the main virtual currencies that accept real currency and convert it to electronic currency.

See the rest here:

Virtual Currency: Too Much Liberty?