Liberty Reserve co-founder pleads guilty to money laundering

The co-founder of Liberty Reserve, a now defunct virtual currency that was widely favored by the criminal underground, pleaded guilty on Thursday to money laundering and other charges.

Vladimir Kats, 41, also pleaded guilty in U.S. District Court for the Southern District of New York to operating and conspiring to operate an unlicensed money transmitter business, receiving child pornography and marriage fraud, according to a U.S. Department of Justice (DOJ) news release.

The Liberty Reserve virtual currency business, launched in 2006 in Costa Rica, became a financial hub of the cybercrime world, handling more than 55 million transactions worth US$6 billion over seven years, according to the indictment against Kats.

Liberty Reserve's reputation somewhat tainted the view of other virtual currencies, including Bitcoin, for their quick embrace by the criminal world. Unlike Liberty Reserve though, Bitcoin businesses and exchangers have mostly sought to comply with global financial regulations.

Prosecutors linked Liberty Reserve with laundering proceeds from credit card fraud, identity theft, investment fraud, computer hacking, child pornography and narcotics trafficking.

Liberty Reserve didn't validate its customers' ID -- a key requirement in many countries -- which allowed people to register under false identities. A network of third-party exchangers in Malaysia, Nigeria, Vietnam and Russia directly handled deposits and withdrawals from customers, which kept Liberty Reserve at arm's length from traditional banking systems.

Kats was arrested in May when Liberty Reserve was shut down. More than one million people used the service, including more than 200,000 in the U.S., the indictment said.

A sentencing date has not been scheduled. Kats could face up to 75 years in prison if he's given the maximum sentence for each charge, the DOJ said.

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Liberty Reserve co-founder pleads guilty to money laundering