

Liberty Reserve sealed indictment from US DOJ Southern District [pdf] - rdl
http://krebsonsecurity.com/wp-content/uploads/2013/05/Liberty-Reserve-et-al.-Indictment.pdf

======
jstalin
Despite all the accusations and bluster at the beginning, the indictment
alleges three things:

1\. Violation of 18 USC 1956[1] - knowingly laundering money; 2\. Violation of
18 USC 1960[2] - conspiring to operate an unlicensed money transmitting
business; 3\. Violation of 18 USC[3] - operating an unlicensed money
transmitting business - 18 USC 1960 and 31 USC 5330

This is what distinguishes legitimate bitcoin dealers like coinbase from
Liberty Reserve. It's clear from the allegations that Liberty Reserve was
purposely managed (allegedly) to avoid registration and money-laundering
regulations. They (allegedly) also purposely did not register as a money
transmitting business.

The other difference is that Liberty Reserve was a centralized system for
payment processing where the entire process was controlled by one entity.
Bitcoin, on the other hand, separates the exchange of money for bitcoins and
the actual use of the bitcoin ecosystem itself. Of course, the government can
go after money transmission businesses like coinbase, but as long as coinbase
is registered as a money transmitting business and takes care to ensure that
it doesn't deal with shady funds, I don't see how the existing statutes could
be used to prosecute coinbase.

Then question then becomes - who do you go after? At that point, bitcoin is no
different than using cash. You can't prosecute "cash."

[1]: <http://www.law.cornell.edu/uscode/text/18/1956> [2]:
<http://www.law.cornell.edu/uscode/text/18/1960> [3]:
<http://www.law.cornell.edu/uscode/text/31/5330>

~~~
hga
" _You can't prosecute 'cash.'_ "

Quibble, perhaps, but the US government does in asset forfeitures, e.g. this
case in the previous decade, _United States v. $124,700 in U.S. Currency_
(<http://en.wikipedia.org/wiki/USA_v._$124,700>).

I would not be surprised to see a _United States v. N Bitcoins_ in the future,
one way or another (e.g. normal, or as part of shutting down something
directly related to Bitcoin processing).

~~~
patrickmay
Asset forfeiture denies people accused of a crime the means to defend
themselves, without the state proving their guilt. It also sets up perverse
incentives for the law enforcement agencies involved by rewarding them with a
portion of the funds. It must be stopped.

Forbes had a recent article on this:
[http://www.forbes.com/sites/stephendunn/2013/02/18/asset-
for...](http://www.forbes.com/sites/stephendunn/2013/02/18/asset-forfeiture-
is-anything-but-civil/)

The Cato Institute has some good material on this dysfunctional policy as
well.

------
bradleyjg
HSBC admitted to laundering at least an order of magnitude more money for,
among others, the Sinaloa drug cartel, organizations linked to Hezbollah, and
North Korea.

No individuals were arrested, much less convicted. The bank was not charged
criminally, but instead signed a deferred prosecution agreement.

All animals are equal, but some are more equal than others.

Refs: [http://www.rollingstone.com/politics/news/gangster-
bankers-t...](http://www.rollingstone.com/politics/news/gangster-bankers-too-
big-to-jail-20130214) [http://takingnote.blogs.nytimes.com/2013/03/07/banks-
above-t...](http://takingnote.blogs.nytimes.com/2013/03/07/banks-above-the-
law/)

~~~
rayiner
EDIT: BradleyJG below is correct, HSBC was never "charged" in the sense of
being formally indicted. A deferred prosecution agreement was filed with the
court (which seems to be like informal charges + a settlement proposal rolled
into one), though it might yet be rejected in which case HSBC might face
criminal prosecution: [http://www.guardian.co.uk/business/2013/may/23/hsbc-
court-th...](http://www.guardian.co.uk/business/2013/may/23/hsbc-court-threat-
money-laundering-charges).

See this for the distinction: [http://www.mainjustice.com/2013/03/29/hsbc-
judge-reluctant-t...](http://www.mainjustice.com/2013/03/29/hsbc-judge-
reluctant-to-bless-settlement-explores-courts-role).

See also the press release:
<http://www.justice.gov/opa/pr/2012/December/12-crm-1478.html>.

I believe this is the DPA:
[http://www.sec.gov/Archives/edgar/data/83246/000119312512499...](http://www.sec.gov/Archives/edgar/data/83246/000119312512499980/d453978dex101.htm).
It seems like documents were filed with the court charging HSBC, but not an
indictment per se... (" The HSBC Parties acknowledge and agree that the
Department will file the attached four-count criminal Information in the
United States District Court for the Eastern District of New York (“the
Court”) charging the HSBC Parties with (a) wilfully failing to maintain an
effective anti-money laundering program, in violation of Title 31, United
States Code, Section 5318(h) and regulations issued thereunder; (b) wilfully
failing to conduct and maintain due diligence on correspondent bank accounts
held on behalf of foreign persons, in violation of Title 31, United States
Code, Section 5318(i) and regulations issued thereunder; (c) wilfully
violating and attempting to violate the Trading with the Enemy Act, Title 50
United States Code Appendix Sections 3, 5, 16, and regulations issued
thereunder; and (d) wilfully violating and attempting to violate the
International Emergency Economic Powers Act, Title 50 United States Code
Sections 1702 and 1705, and regulations issued thereunder. In so doing, the
HSBC Parties: (a) knowingly waive their right to indictment on this charge, as
well as all rights to a speedy trial pursuant to the Sixth Amendment to the
United States Constitution, Title 18, United States Code, Section 3161, and
Federal Rule of Criminal Procedure 48(b); and (b) knowingly waive for purposes
of this Agreement any objection.")

~~~
bradleyjg
I never saw an indictment, can you link the charging document or at least a
press release from the DOJ?

Also five individuals were arrested from Liberty, and not one from HSBC.

Edit: Here's the NYTimes in Dec. 2012 saying there was no indictment:
[http://dealbook.nytimes.com/2012/12/10/hsbc-said-to-
near-1-9...](http://dealbook.nytimes.com/2012/12/10/hsbc-said-to-
near-1-9-billion-settlement-over-money-laundering/?ref=business)

~~~
rayiner
You're right. Corrected.

------
rdl
The fun game when reading this is s/LIBERTY RESERVE/bitcoin and then seeing
how much of it is still true.

"The defendants deliberately attracted and maintained a customer base of
criminals by making financial activity on LIBERTY RESERVE anonymous and
untraceable." Sort of applies to Bitcoin (it's pseudonymous and in some cases
hard to trace).

The "exchangers" thing is _exactly_ how Bitcoin works. Just like LR/Bitcoin, a
lot of them are unlicensed MSBs.

"traffickers of stolen credit card data and personal identity information;
peddlers of various types of online Ponzi and get-rich-quick schemes; computer
hackers for hire; unregulated gambling enterprises; and underground drug-
dealing websites."

Good news: in addition to other criminal charges, it's just a matter of
turning over property including but not limited to: "a sum of money of at
least $6 billion in United States Currency".

~~~
svenkatesh
I'm not invested in BTC, and I have no intention to invest in it either, but
let's be real--neither bitcoin, nor nay bitcoin exchanges (as far as I am
aware) actively solicited criminals to use their service. Just because BTC has
some qualities that make it useful for criminals does not mean it was made for
criminals. There is a distinction.

Also, a few exchanges are either registered as MSBs or in the process of
registering as MSBs. CampBX and TradeHill come to mind.

~~~
socillion
I'm curious what you mean by "actively solicited criminals to use their
service". Although there has been a lot of effort put forth to portray Liberty
Reserve as solely useful for criminals, this is incorrect and the magnitude of
criminal activity on the site is unknown.

As you say, "Just because BTC has some qualities that make it useful for
criminals does not mean it was made for criminals." The same applied equally
well to LR.

~~~
rdl
Gold Age was most definitely not "solely for criminals", or even "marketed
extensively to criminals"; I didn't follow Liberty Reserve much (their next
thing).

------
Matt_Cutts
Brian Krebs also wrote about Liberty Reserve here:
[http://krebsonsecurity.com/2013/05/reports-liberty-
reserve-f...](http://krebsonsecurity.com/2013/05/reports-liberty-reserve-
founder-arrested-site-shuttered/)

------
hexonexxon
This is why Satoshi took careful measures to ensure he stayed anonymous. If he
was still around he would be in jail right beside this guy. LR actually did a
lot of KYC compliance problem is they allowed Americans to use the system
which means inevitable indictment. Cgold is probably next if the operators are
stupid enough to travel to a country with extradition.

There will also be a mass bitcoin arrest eventually to crack down on everybody
operating without an MSB, like extraditing Euro exchange operators who do biz
with Americans. Because of decentralization Bitcoin will survive any crackdown

~~~
pyre
Satoshi created Bitcoin, but did/does not operate a Bitcoin exchange, so far
as we know. This prosecution is centered around LibertyReserve being a money
transmitting business without registering/following guidelines (e.g. know your
customer, etc).

~~~
hexonexxon
LR does not operate an exchange either, though I suspect exchangezone was run
by them. Lr contracted that out much like how bitcoin (and soon ripple) have
gateways into the system to buy in.

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leeoniya
if it's sealed, then how am i reading it? "unsealed" maybe?

~~~
wmf
Welcome to the age of leaks.

------
Canada
Anyone who competes with the dollar will be attacked.

