Liberty Reserve, an underground digital currency company, and 7 current and former employees have been charged by US authorities with running a $6bn money-laundering business.
The details of the allegation are contained in court papers filed at the Southern District Court of New York. They are available here. The indictment is the last of the listed pdfs.
Ominously the first news reports of the indictment mentioned that 45 bank accounts located in Costa Rica, Cyprus, Russia, China, Morocco, Spain, Latvia, Australia and the US had been seized.
The indictment document lists these 45 forfeiture bank accounts and it emerges that half (22) of them are in banks in Cyprus and that of the 22 accounts 17 are with Hellenic Bank (see Point 43 of the indictment).
The indictment also gives some details of the alleged involvement of these accounts in Liberty Reserve's operations. Point 28 alleges that two of the defendants in November 2011,
'began emptying Liberty Reserve's accounts in Costa Rica of millions of dollars and transferring the money first to a bank account in Cyprus held in the name of a shell company controlled by [the two defendants] and then to a bank account in Russia held in the name of another shell company.'
At Point 40 (a) the indictment alleges that between on or about November 29th 2011 and on or about December 6th 2011 one of the defendants,
'caused a series of wire transfers, totaling approximately $13.5 million, to be made from Costa Rican bank accounts held by Liberty Reserve, the defendant, through a correspondent bank account in the Southern District of New York, to a shell company account in Cyprus controlled [by another of the defendants].
Charles Forelle explored the links between Cypriot bank accounts and the indictment in the WSJ Moneybeat blog yesterday. He could only find one of the shell companies named in the indictment forfeiture accounts in the Cypriot corporate registry. He writes,
'One shell company that U.S. authorities are targeting in the Liberty Reserve case is Makelina Ltd., which prosecutors say has two accounts at Hellenic Bank with assets subject to forfeiture. The Cyprus registry contains a company of that name.'
Update May 29th: In an update to his blog entry Forelle deleted the above paragraph noting that Eva Rossidou-Papakyriacou, the head of MOKAS, Cyprus’s anti-money-laundering unit, had informed him that Makelina Ltd. was a company registered in Belize. Forelle could not locate the company nor its directors.
Forelle also sought comments from Hellenic Bank, the Finance Ministry and the Central Bank. None was available for comment or declined the opportunity. (For Update on this and Hellenic Bank's response see my blog entry of 3rd June above). The CBC did say that the Cypriot authorities had not received 'formal requests related to the case from U.S. authorities.'
(On this see below for multiple Mutual Legal Assistance Treaties' requests to Cyprus and Exhibits C and H of U.S. v. Liberty Reserve, et al. Redacted AUSA which are photocopies of the Seizure Warrants (21/3/2012 and 5/2/2013)) sent to Hellenic Bank in Nicosia.)
As Forelle says the allegations of the indictment and the naming of 22 Cyprus-based bank accounts is 'inconvenient' for the Cypriot authorities.
Recently claims and counter claims have been made in the spat between the troika and Cyprus's Central Bank regarding the Deloitte and MoneyVal audits of Cyprus's anti-money laundering framework, procedures and practice. These have received coverage in the Cypriot and international press, not least amongst it, from Germany.
The biggest and (perhaps dirtiest) money laundering prosecution in history
The implications of the new allegation that banks in Cyprus have unwittingly provided some of the pipework (via private and corporate accounts) in Liberty Reserve's global laundering operations could be particularly unpleasant.
This is because, firstly, the Liberty Reserve indictment is believed to represent the largest money laundering prosecution in history.
Secondly the allegations against Liberty Reserve argue that the company sits at the very dirtiest end of the money laundering business.
The indictment (U.S. v. Liberty Reserve, et al. Indictment - Redacted) alleges (Point 8) that Liberty Reserve was 'designed to help criminals conduct illegal transactions and launder the proceeds of their crimes and that (Point 31) the particular crimes linked to those proceeds included 'identity theft, access device fraud, computer hacking, wire fraud, child pornography, and narcotics trafficking.'
Liberty Reserve is estimated to have had more than a million users worldwide (200,000 in the U.S. alone) and to have processed 12 million transactions annually with a combined value if more than $1.4bn.
Further it is alleged that, 'virtually all of Liberty Reserve's business derived from suspected criminal activity' (see Point 10 U.S. v. Liberty Reserve, et al. Redacted AUSA Appln).
The laundering alleged is not the kind of 'Economy Cycle' laundering required for white-collar tax evasion but rather involves the really nasty stuff of drugs trafficking and child pornography amongst other criminal activity that requires 'deep and thorough' cleaning.
An ongoing operation
Thirdly, this is not an operation that took place in the past but appears to have been ongoing. Seizure warrants were issued to Hellenic Bank in March 2012 and February 2013.
The indictment itself cites evidence of major wire transfers to Cyprus bank accounts following issuing of a notice by the U.S. Department of the Treasury's Financial Crimes Enforcement Network (FinCEN) in November 2011 that pointed out the risks associated with providing financial services to Liberty Reserve.
A separate court document U.S. v. Liberty Reserve, et al. Redacted AUSA Appln seeking the restraining of the accounts (the Target Accounts) in the indictment states (Point 11) that,
'The Target Accounts all received funds that were involved in the Defendants' money laundering conspiracy and operation of unlicensed money transmitting business.'
The 'Target Accounts' list is smaller than the forfeiture list in the indictment (U.S. v. Liberty Reserve, et al. Indictment - Redacted).
The Target Accounts comprise 15 company accounts, 11 of which in are in banks in Cyprus - 6 in Hellenic Bank, 2 in National Bank of Greece (Cyprus), 2 in Eurobank EFG (Cyprus) and one in Cyprus Development Bank (see U.S. v. Liberty Reserve, et al. Redacted AUSA Appln).
Exhibit B of U.S. v. Liberty Reserve, et al. Redacted AUSA Appln is the account of the Special Agent of the U.S. Secret Service who worked on the case. She/he notes that approximately $20m in assets has already been seized or restrained from the 20 bank accounts controlled by the Defendants (Point 8).
Seizure warrants were authorized for two Hellenic Bank accounts last year and this year (21/3/2012 and 5/2/2013. See Point 26 Exhibit B U.S. v. Liberty Reserve, et al. Redacted AUSA Appln).
These Seized Accounts are not the subject of the case's retraining order. (I think that means that they are additional to both the Target Accounts and the broader list of forfeiture accounts in the main indictment document (U.S. v. Liberty Reserve, et al. Indictment - Redacted.)
(Exhibits C and H of U.S. v. Liberty Reserve, et al. Redacted AUSA are photocopies of the Seizure Warrants (21/3/2012 and 5/2/2013) sent to Hellenic Bank in Nicosia.)
Point 26 of the above also notes that the U.S. Government has issued more than 30 requests pursuant to Mutual Legal Assistance Treaties (MLAT) to more than a dozen countries including multiple requests to Cyprus amongst others. However, the 'planned takedown' did not include law enforcement action in Cyprus (Point 10).
The Cypriot Target Accounts
Points 29-33 of U.S. v. Liberty Reserve, et al. Redacted AUSA Appln are titled 'The Cypriot Target Accounts'.
This section of the Special Agent's testimony details the way in which payments to an Australain business-to-business international fund transfer company, Technocash, was allegedly used by one of the Defendants to receive funds from the 'exchangers' who channelled money into Liberty Reserve.
These funds were routed through Technocash bank accounts at Westpac Bank in Australia. The Special Agent's testimony states that between June 12, 2012, and May 1, 2013, exchangers doing business with Liberty Reserve sent 'approximately' $36,919,884 to accounts held by Technocash at Westpac Bank.
It is alleged that nine Target Accounts in Cyprus received money directly from the Liberty Reserve-controlled accounts at Technocash to the sum of $18m (my calculation).
The Special Agent also notes two other accounts in Cyprus outwith the nine Target Accounts. One had received 'approximately 219,000 Euros from the Liberty Reserve account in Russia that had previously received more than 10 million Euros from Liberty Reserve's account in Cyprus.'
The other account had received 'approximately 438,000 Euros from the Liberty Reserve account in Russia that had previously received more than 10 million Euros from Liberty Reserve's account in Cyprus.'
Exhibit B goes on to state that the U.S submitted 'an MLAT request to Cyprus on or about April 9, 2013, in which it requested additional records for the Cypriot Target Accounts. Based on the information transmited in this MLAT request, the financial institutions holding the Cypriot Target Accounts voluntarily froze the Cypriot Target Accounts' (Point 33).
(You wonder who received these MLAT requests as the CBC told Charles Forelle above that the Cypriot authorities had not received 'formal requests related to the case from U.S. authorities.')
The Target Accounts in Cyprus that allegedly received the biggest transfers from Technocash were with National Bank of Greece (Cyprus) and Eurobank EFG Cyprus (more than $14m between them), a different Eurobank EFG account ($2.3m) and two Hellenic Bank accounts ($1.4m between them).
For a discussion of Liberty Reserve's Anti-Money Laundering framework and procedures see the U.S. Department of Treasury's 'Complete Findings against Liberty Reserve' which identified Liberty Reserve as a 'Financial Institution of Primary Money Laundering Concern under USA Patriot Act Section 311' on May 28th 2013.
In the U.S. Department of Treasury's 'Complete Findings against Liberty Reserve' the document argues that Liberty Reserve 'seeks out jurisdictions with weak regulatory environments.' However, this claim is made with specific regard to the company's move to Costa Rica.
NB: None of the banks named in the indictment are accused of any wrongdoing.
And the charges contained in the Indictment are merely accusations and the defendants are presumed innocent unless and until proven guilty.