Hackers’ Favourite Currency Liberty Reserve Downed After Arrest

Tom Brewster is TechWeek Europe's Security Correspondent. He has also been named BT Information Security Journalist of the Year in 2012 and 2013.

Experts claim impact on the underground economy could be massive

Digital currency Liberty Reserve, a big hit with hackers operating on the Internet’s dark markets, could be in danger of disappearing completely after its founder was arrested and its exchange shut down.

Alleged Liberty Reserve founder Arthur Budovsky was arrested in Costa Rica, according to reports, on suspicion of money laundering. His property was raided and servers seized.

US authorities were also involved in the investigation, although there has been no comment from the US Justice Department. The main libertyreserve.com website has been down since Friday.

Young man in handcuffs - copyright FotoliaWhilst some used Liberty Reserve in the belief it was a legitimate service, and are worried about what will happen to their funds, the currency was particularly popular amongst online crooks as it only asked for a name, date of birth and email to set up an account, promising anonymity.

It charged just one percent to the recipient of the funds too, making it an attractive PayPal alternative.

Liberty Reserve and the underground economy

Idan Aharoni, head of cyber intelligence at RSA’s Anti-Fraud Command Center, said the shutdown of Liberty Reserve “will have a big impact on the underground economy, as it is the currency of choice in these circles”.

“Many fraudsters have incurred financial losses due to their inability to access their accounts, so naturally there are quite a few discussions in the cyber criminal circles on the subject,” he told TechWeekEurope.

“This isn’t the first shutdown of a currency services used by fraudsters. In 2007, e-gold was taken offline, forcing fraudsters to migrate to the Moscow-based e-currency service WebMoney.

“As WebMoney added additional security measures that made its use by fraudsters relatively difficult, fraudsters migrated again to Liberty Reserve. It is most likely that fraudsters will migrate again to a different e-currency service, as happened in the past.”

Bitcoin, which lets users keep their identities secret, should be a popular choice. “Bitcoin seems to be one of the likely options, as it is a relatively mature and known alternative,” Aharoni added.

Indeed, Bitcoin is already popular amongst underground communities. Whilst Bitcoin transfers are being made on forums and Tor-only sites like Silk Road, botnets are also being used to mine bitcoins, cracking the necessary computational problems to get hold of the virtual currency.

UPDATE: The United States Attorney’s Office for the Southern District of New York has now released its indictment, which includes six others besides Budovsky.

The indictment claimed Liberty Reserve made almost all its money from suspected criminal operations and it had become “a financial hub of the cyber crime world”. It is believed to have laundered over $6 billion in criminal proceeds since it was founded in 2006, according to the indictment.

Budovsky and one of his colleagues, Vladimir Kats, at Liberty Reserve allegedly started Liberty Reserve after the closure of a very similar service called GoldAge, which acted as an exchange for e-gold, the document read. They were convicted of running an unlicensed money transmitting business.

Budovsky shifted operations to Costa Rica as he shifted attention to creating the new currency, the indictment read.

The libertyreserve.com website has been seized by officials, and the service remains inaccessible.

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