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Feds in NY: Costa Rica Money Biz a Hub for Crooks

John Coletti | Getty Images

When an undercover agent posing as a new client sought to register at the currency transfer firm Liberty Reserve as "Joe Bogus" from "123 Fake Main Street" in "Completely Made Up City," no one at the company based in Costa Rica objected.

The same client recording digital currency transactions as "ATM skimming work" and "for the cocaine"? Still no problem.

In fact, federal prosecutors in Manhattan say anonymity and criminality were what Liberty Reserve was all about.

(Read More: Bitcoin-Like System in Costa Rica Busted by US)

"The only liberty that Liberty Reserve gave many of its users was the freedom to commit crimes, as it became a popular hub for fraudsters, hackers, and traffickers," U.S. Attorney Preet Bharara said Tuesday in announcing charges against seven people in a $6 billion scheme that he billed as possibly the largest money-laundering scheme even seen in the United States.

"The coin of the realm ... was anonymity—multiple layers of anonymity," he added. "As alleged, Liberty Reserve was deliberately structured and operated in a way to help other criminals remain anonymous, untraceable and untouchable."

U.S. officials said the enterprise was staggering in scope: Over roughly seven years, Liberty Reserve processed 55 million illicit transactions worldwide for 1 million users, including 200,000 in the U.S. The network charged a 1 percent fee on transactions through "exchangers"—middlemen who converted actual currency into virtual funds and then back into cash.

In the indictment, prosecutors called Liberty Reserve "one of the principal means by which cyber criminals around the world distribute, store and launder proceeds of their illegal activity ... including credit card fraud, identity theft, investment fraud, computer hacking, child pornography and narcotics trafficking."

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Alleged founder Arthur Budovsky—an American who renounced his U.S. citizenship after deciding to set up in Costa Rica—and another defendant, identified as Azzeddine el Amine, were arrested Friday at a Madrid airport while trying to return to Costa Rica, according to a Spanish court official, who spoke on condition of anonymity because court policy forbids him from speaking on the record. They were ordered jailed while they await a hearing on extradition to the U.S.

Two other men were arrested last week in New York City, including Liberty Reserve co-founder Vladimir Kats. There was no public record of their arraignment on Friday night, and there was no immediate response to phone messages left Tuesday with their attorneys.

Of the remaining defendants, one was in custody in Costa Rica and two were at large there.

Budovsky, 39, and Kats, 41, have previous convictions on state charges related to an unlicensed money-transmitting business, according to court papers. After that case, the pair decided to move their operation to Costa Rica, the papers said.

In an online chat captured by law enforcement, Kats admitted Liberty Reserve was illegal and noted that authorities in the United States knew it was "a money-laundering operation that hackers use."

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Liberty Reserve appears to have played an important role in laundering proceeds from the recent theft of some $45 million from two Middle Eastern banks, according to documents made public by U.S. authorities earlier this month. In that scheme, thieves stole debit card information and then used it to drain cash from thousands of ATMs around the world in a matter of hours.

As part of the Liberty Reserve investigation, authorities raided 14 locations in Panama, Switzerland, the U.S., Sweden and Costa Rica. In Costa Rica, investigators recovered five luxury cars, including three Rolls-Royces. Bharara said authorities also seized Liberty's computer servers in Costa Rica and Switzerland.

The businesses that were raided in Costa Rica on Friday as part of the investigation into Liberty Reserve are dedicated to web hosting services, website development and Internet business consulting.

In Costa Rica, all online businesses are legal and there aren't any laws regulating them, so the country has been attracting entrepreneurs setting up Internet-based companies that do everything from e-commerce to gambling banned in other countries.

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