June 6, 2013

Internet Currency Exchange Charged With “Laundering” $6 Billion Under “Patriot Act”

The Liberty Reserve online currency exchange has been shut down and now the government is formally accusing them of “laundering money”.  Multiple people have been arrested and are facing serious jail time. What does this mean for bitcoin and other online currencies?

The human desire to be free will always push people to find ways around the oppressive roadblocks that are set up for them in life.  With things as naturally unjust as the income tax and other state and federal financial regulations it is inevitable for the people who suffer under these conditions to come together and figure out ways that they outsmart the system.  It goes without saying that the system will not respond well to this, and that has been proven with any sort of disruptive technology is vilified in the media.

Recently the cutting edge disruptive technologies that are getting attacked in the news are online currency exchanges and crypto-currencies that allow users to trade with anonymity.  The most recent exchange to come under government attack was a currency exchange called “Liberty Reserve”.
According to the New York Times:
The charges announced at a news conference by Preet Bharara, the United States attorney in Manhattan, and other law enforcement officials, mark what officials said was believed to be the largest online money-laundering case in history. Over seven years, Liberty Reserve was responsible for laundering billions of dollars, conducting 55 million transactions that involved millions of customers around the world, including about 200,000 in the United States, according to prosecutors.
Richard Weber, who heads the Internal Revenue Service’s criminal investigation division in Washington, said at the news conference that the case heralds the arrival of “the cyber age of money laundering,” in which criminals “are gravitating toward digital currency alternatives as a means to move, conceal and enjoy their ill-gotten gains.”
The charges detailed a complicated system designed to allow people to move sums large and small around the world with virtual anonymity, according to an indictment, which was unsealed in federal court in Manhattan.
“As alleged, the only liberty that Liberty Reserve gave many of its users was the freedom to commit crimes — the coin of its realm was anonymity, and it became a popular hub for fraudsters, hackers and traffickers,” Mr. Bharara said at the news conference, where officials from the Justice and Treasury Departments, as well as the Secret Service and Homeland Security Investigations, also spoke. “The global enforcement action we announce today is an important step toward reining in the ‘Wild West’ of illicit Internet banking. As crime goes increasingly global, the long arm of the law has to get even longer, and in this case, it encircled the earth.”

This same type of fear mongering was echoed by so called security experts interviewed in the mainstream media. “Organized crime and terrorist groups are now financing their operations through these anonymous payment systems,” said Tom Kellermann, a vice president at Trend Micro, a security firm. “The financial sector no longer has a monopoly on moving capital around the world.”
That last sentence was extremely telling and shows exactly why the government is taking this matter so seriously.  It has nothing to do with terrorism or criminality, and has everything to do with the government maintaining their monopoly on currency by any means necessary.
Arthur Budovsky, founder of Liberty Reserve, who renounced his United States citizenship in 2011, and was arrested in Spain on Friday under terms of the Patriot Act.
This arrest and shut down has huge implications for all other online exchanges and crypto-currencies, specifically bitcoin, but it is likely that the feds haven’t figured out exactly how to deal with bitcoin yet because there is no central server.

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