The high-profile shutdown of Liberty Reserve sent waves throughout the world of digital currencies. One of the largest online currencies, Liberty Reserve managed a total of over $6 billion in transactions from its one million users, making it a major force in the online money transfer industry.
The majority of that money, according to the United States Department of Justice, is very dirty indeed. In an operation targeted at major money laundering services, the United States shut down Liberty Reserve, arrested its founders and key executives, and charged the company with a variety of offenses related to money laundering.
What’s interesting about the case is the way in which it was handled. Despite having a large US user base, Liberty Reserve was not a United States company. The financial services firm was based in Costa Rica and its owner, who was arrested in Spain as it was raided and shut down, was a citizen of Costa Rica planning to return home.
United States prosecutors used the Patriot Act – a piece of legislation purportedly introduced to fight international terrorism – to shut down the company. A sizable amount of Liberty Reserve’s transfers, the government claims, may have links to a network of criminal organizations, including possible terrorist groups.
It’s an interesting argument, and one that could potentially be used to attack Bitcoin, a rapidly growing online crypto-currency. Unlike Liberty Reserve, Bitcoin is not run by a central company, but operated by a completely decentralized network of online investors, many of whom actively use the currency for online purchases.
Used to buy anything from domain names to illicit drugs, Bitcoin certainly meets the description of a money laundering service used by the US government. Whether it is targeted by the Department of Justice due to its capabilities, however, remains open to discussion.
