Notice of Finding That Liberty Reserve S.A. Is a Financial Institution of Primary Money Laundering Concern, 34169-34173 [2013-12944]

Download as PDF Federal Register / Vol. 78, No. 109 / Thursday, June 6, 2013 / Notices The CDFI Fund will collect information from each such Awardee on its use of the Award at least once following the Award and more often if deemed appropriate by the CDFI Fund in its sole discretion. The CDFI Fund will provide guidance to Awardees outlining the format and content of the information to be provided, outlining and describing how the funds were used. 2. Awardees With Persistent Poverty County Commitments: The CDFI Fund will require each Awardee with persistent poverty county commitments, regardless of Award size, to report data for Award funds deployed in persistent poverty counties and maintain proper supporting documentation and records which are subject to review by the CDFI Fund’s Certification, Compliance Monitoring, and Evaluation unit. mstockstill on DSK4VPTVN1PROD with NOTICES IX. Agency Contacts The CDFI Fund will respond to questions and provide support concerning this NOFA and the funding Application between the hours of 9:00 a.m. and 5:00 p.m. ET, starting on the date of the publication of this NOFA through July 10, 2013 for the FY 2013 funding round. The CDFI Fund will not respond to Applicants’ reporting, compliance, or disbursement telephone calls or email inquiries that are received after 5:00 p.m. ET on July 10, 2013 until after the Application deadline. The CDFI Fund will respond to technical issues related to myCDFIFund accounts through 5:00 p.m. ET on July 12, 2013. Applications and other information regarding the CDFI Fund and its programs may be downloaded and printed from the CDFI Fund’s Web site at www.cdfifund.gov. The CDFI Fund will post responses to questions of general applicability regarding the BEA Program on its Web site. A. Information Technology Support: Technical support can be obtained by calling (202) 653–0300 or by email to ithelpdesk@cdfi.treas.gov. People who have visual or mobility impairments that prevent them from creating a Distressed Community map using the CDFI Fund’s Web site should call (202) 653–0300 for assistance. These are not toll free numbers. B. Application Support: If you have any questions about the programmatic or administrative requirements of this NOFA, contact the CDFI Fund’s BEA Program office by email at cdfihelp@cdfi.treas.gov, by telephone at (202) 653–0421, by facsimile at (202) 508–0089, or by mail at CDFI Fund, 1500 Pennsylvania Avenue NW., Washington, DC 20220. The number provided is not toll free. VerDate Mar<15>2010 17:35 Jun 05, 2013 Jkt 229001 C. Certification, Compliance Monitoring and Evaluation (CCME) Support: If you have any questions regarding the compliance requirements of this NOFA, including questions regarding performance on prior Awards, contact the CDFI Fund’s CCME Unit by email at ccme@cdfi.treas.gov or by telephone at (202) 653–0423. The number provided is not toll free. D. Communication with the CDFI Fund: The CDFI Fund will use its myCDFIFund Internet interface to communicate with Applicants and Awardees under this NOFA. Awardees must use myCDFIFund to submit required reports. The CDFI Fund will notify Awardees by email using the addresses maintained in each Awardee’s myCDFIFund account. Therefore, an Awardee and any Subsidiaries, signatories, and Affiliates must maintain accurate contact information (including contact person and authorized representative, email addresses, fax numbers, phone numbers, and office addresses) in their myCDFIFund account(s). For more information about myCDFIFund, please see the Help documents posted at https:// www.cdfifund.gov/myCDFI/Help/ Help.asp. Authority: 12 U.S.C. 1834a, 4703, 4703 note, 4713; 12 CFR part 1806. Dated: May 31, 2013. Donna J. Gambrell, Director, Community Development Financial Institutions Fund. [FR Doc. 2013–13417 Filed 6–5–13; 8:45 am] BILLING CODE 4810–70–P DEPARTMENT OF THE TREASURY Financial Crimes Enforcement Network Notice of Finding That Liberty Reserve S.A. Is a Financial Institution of Primary Money Laundering Concern Financial Crimes Enforcement Network (FinCEN), Treasury. ACTION: Notice of finding. AGENCY: This document provides notice that, pursuant to the authority contained in 31 U.S.C. 5318A, the Director of FinCEN found on May 28, 2013, that Liberty Reserve S.A. (Liberty Reserve) is a financial institution operating outside the United States that is of primary money laundering concern. SUMMARY: The finding referred to in this notice was effective as of May 28, 2013. FOR FURTHER INFORMATION CONTACT: FinCEN, (800) 949–2732. SUPPLEMENTARY INFORMATION: DATES: PO 00000 Frm 00139 Fmt 4703 Sfmt 4703 34169 I. Statutory Provisions On October 26, 2001, the President signed into law the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the USA PATRIOT Act), Public Law 107– 56. Title III of the USA PATRIOT Act amends the anti-money laundering provisions of the Bank Secrecy Act (BSA), codified at 12 U.S.C. 1829b, 12 U.S.C. 1951–1959, and 31 U.S.C. 5311– 5314, 5316–5332, to promote the prevention, detection, and prosecution of international money laundering and the financing of terrorism. Regulations implementing the BSA appear at 31 CFR Chapter X. The authority of the Secretary of the Treasury (the Secretary) to administer the BSA and its implementing regulations has been delegated to the Director of FinCEN. Section 311 of the USA PATRIOT Act (Section 311), codified at 31 U.S.C. 5318A, grants the Secretary the authority, upon finding that reasonable grounds exist for concluding that a foreign jurisdiction, financial institution, class of transaction, or type of account is of ‘‘primary money laundering concern,’’ to require domestic financial institutions and financial agencies to take certain ‘‘special measures’’ to address the primary money laundering concern. The Secretary has delegated this authority under Section 311 to the Director of FinCEN. On May 28, 2013, the Director of FinCEN found that Liberty Reserve S.A. (Liberty Reserve) is a financial institution operating outside the United States that is of primary money laundering concern. The Director considered the factors discussed below in making this determination. II. The Extent to Which Liberty Reserve Has Been Used To Facilitate or Promote Money Laundering in or Through Costa Rica and Internationally Liberty Reserve is a Web-based money transfer system, or ‘‘virtual currency.’’ It is a financial institution currently registered in Costa Rica and has been operating since 2001. Liberty Reserve’s system is structured so as to facilitate money laundering and other criminal activity, while making any legitimate use economically unreasonable. The Department of Justice is taking criminal action against Liberty Reserve and related individuals. Liberty Reserve uses a system of internal accounts and a network of virtual currency exchangers to move funds. Operating under the domain name www.libertyreserve.com, it E:\FR\FM\06JNN1.SGM 06JNN1 34170 Federal Register / Vol. 78, No. 109 / Thursday, June 6, 2013 / Notices to maintain Dollar for Dollar and Euro for Euro reserves to back their virtual currencies. To withdraw funds, the user instructs Liberty Reserve to send funds from the user’s Liberty Reserve account to a Liberty Reserve exchanger, which then sends a bank wire, MSB transfer, or other transfer method to the user’s or recipient’s bank account in U.S. dollars or other major currencies. The exchangers are independent MSBs operating around the world. They charge a commission on each transfer to and from the Liberty Reserve system. Once funded, the Liberty Reserve virtual currency can be transferred among accounts within the Liberty Reserve system. The transfers are anonymous, and the recipient only sees the account number from which the funds were transferred. For an additional fee, even that information can be eliminated for greater anonymity. A. History and Ownership According to reporting of a Planetgold.com interview in 2003 with Arthur Budovsky, who founded the company, Liberty Reserve was then based in Nevis and began as a private exchange system for import/export businesses. In 2002, Budovsky and another individual, Vladimir Kats, set up several other companies, including GoldAge Inc., according to the New York County District Attorney’s Office. GoldAge served as a prominent exchanger for E-Gold, a gold-based virtual currency system. E-Gold was charged with money laundering and operating an illegal MSB, and pled guilty in 2008. Similar to how Liberty Reserve operates, customers opened online GoldAge accounts with only limited identification documentation and then could choose their method of payment, including wire transfers, cash deposits, postal money orders, or checks, to GoldAge to buy digital goldbased currency. GoldAge customers could withdraw their funds by wire transfers to anywhere in the world or by having checks sent to an individual. In March 2004, Liberty Reserve’s Web site indicated that it was operating out of Brooklyn, New York. In May 2006, Liberty Reserve was re-registered in Costa Rica. In July 2006, Budovsky and Kats were indicted by the state of New York for operating an illegal money transmitting business, GoldAge, out of their Brooklyn apartments. By that date, the defendants had transmitted at least $30 million through GoldAge to digital currency accounts globally since 2002. Budovsky pled guilty and was sentenced to five years of probation. VerDate Mar<15>2010 17:35 Jun 05, 2013 Jkt 229001 PO 00000 Frm 00140 Fmt 4703 Sfmt 4703 B. Liberty Reserve Seeks Out Jurisdictions With Weak Regulatory Environments According to the 2012 International Narcotics Control Strategy Report (INCSR) prepared by the U.S. Department of State, money laundering in Costa Rica occurs across the formal and non-formal financial sectors, especially via both licensed and E:\FR\FM\06JNN1.SGM 06JNN1 EN06JN13.002</GPH> mstockstill on DSK4VPTVN1PROD with NOTICES maintains accounts for registered users. Users fund their accounts by ordering a bank wire or money services business (MSB) transfer to the bank of a Liberty Reserve exchanger. Users can also fund Liberty Reserve accounts by depositing cash, postal money orders, or checks directly into the exchanger’s bank account. The exchanger then credits a corresponding value to the user’s Liberty Reserve account, denominated in ‘‘Liberty Reserve Dollars’’ or ‘‘Liberty Reserve Euros.’’ Liberty Reserve claims Federal Register / Vol. 78, No. 109 / Thursday, June 6, 2013 / Notices mstockstill on DSK4VPTVN1PROD with NOTICES unlicensed money remitters. According to the 2013 INCSR, although Costa Rica continues to take steps to enforce its financial and non-financial regulatory regimes to prevent and detect money laundering, money remittance services remain a sector of particular concern. The INCSR notes that ‘‘Costa Rica is primarily used by foreign organizations as a bridge to send funds to and from other jurisdictions using bulk cash shipments and companies or financial institutions located offshore.’’ The 2007 INCSR noted that ‘‘[r]eforms in 2002 to the Costa Rican counternarcotics law expand the scope of anti-money laundering regulations, but also create an invitation to launder funds by eliminating the government’s licensing and supervision of casinos, jewelers, realtors, attorneys, and other nonbank financial institutions.’’ While some progress has made been since that time, regulation of this sector remains a concern. Thus, when Liberty Reserve moved its registration to Costa Rica in 2006, Costa Rica was commonly known to have inadequate regulation of nonbank financial institutions, including MSBs and internet businesses. In October 2007, Liberty Reserve’s official blog explained that registering in Costa Rica allowed the company to avoid U.S. authorities because Costa Rica does not have a mutual legal assistance treaty with the United States. Taken together, these facts suggest that Liberty Reserve has specifically sought out jurisdictions with weak anti-money laundering controls and apparent immunity from U.S. prosecution. C. Liberty Reserve Is Designed To Facilitate Money Laundering and Illicit Finance To open an account through the Liberty Reserve Web site, a user is asked to enter basic identifying information, such as name, email address, and date of birth. Liberty Reserve does not require users to validate any of that information. Users are also able to open as many accounts as they want. Liberty Reserve requires only a working, even if anonymous, email address. Once a user has an account with Liberty Reserve, its anti-money laundering policy (AML policy) does not suggest that it either requires or verifies any information associated with any transaction. This lack of customer due diligence means that the accounts can be entirely anonymous and thus that account holders can transfer funds to or from anywhere with anyone with anonymity. Indeed, Liberty Reserve advertises this fact as a virtue of the service. The deliberate lack of verification makes Liberty Reserve a particularly attractive VerDate Mar<15>2010 17:35 Jun 05, 2013 Jkt 229001 money transfer system for criminal clientele seeking to launder their criminal proceeds, to move funds to or from sanctioned jurisdictions and entities, or to finance terrorism internationally. Forcing users to deposit or withdraw funds through exchangers creates another layer of anonymity in the system. To offer even more anonymity, Liberty Reserve provides an option, for an additional fee, to conceal the sole identifier of origin, the originator’s account number, in transactions. Liberty Reserve’s AML policy, issued in 2010, states that it is illegal for Liberty Reserve, ‘‘its employees, agents or exchangers to knowingly engage, or attempt to engage in a monetary transaction in criminally derived property.’’ It also states that it is illegal to ‘‘transport, transmit or transfer, or attempt to transport, transmit or transfer a monetary instrument or funds in excess of $10,000 . . . either into or out of Costa Rica and/or any other countries with similar legislation if the purpose is to carry out an illegal activity, or to avoid reporting requirements.’’ Its citation to these requirements demonstrates that Liberty Reserve is well aware of anti-money laundering laws. However, even having acknowledged that these activities are illegal in many jurisdictions in which they operate, and that they are aware of applicable laws and regulations in multiple jurisdictions, Liberty Reserve has structured its business to separate itself from knowledge that would allow it to detect money laundering. Indeed, the fact that Liberty Reserve has only a statement in its policy, with no implementation to address anti-money laundering concerns or requirements, is so deficient that it would not comply with any implementation of internationally accepted anti-money laundering requirements, such as the standards recommended by the Financial Action Task Force. Liberty Reserve’s AML policy provides less than one page regarding what Liberty Reserve considers a sufficient response to its risk for money laundering activity and its legal requirements. The only component of the policy that addresses any due diligence requirement indicates that the obligation is transferred entirely to the exchangers. The AML policy states that Liberty Reserve will verify the identity of the exchangers and request from them ‘‘a compromise to verify the identity of their direct clients.’’ Whatever this is intended to mean, there is no evidence that Liberty Reserve requires the accredited exchangers to engage in any such customer verification. To the PO 00000 Frm 00141 Fmt 4703 Sfmt 4703 34171 contrary, exchangers with which Liberty Reserve continues to work appear to have no or minimal verification or monitoring of clients; for example, some have no anti-money laundering policy, and others affirmatively advertise that they conduct no verification. Many of them are located in countries with lax money laundering enforcement. As of 2009, Liberty Reserve had outsourced its own verification process for new exchangers to a non-affiliated company for which at least two U.S. banks have rejected wires due to money laundering concerns. Relying on exchangers to conduct what little due diligence Liberty Reserve purports to require enhances the gravity of Liberty Reserve’s money laundering risk. A review of publicly available information on Liberty Reserve’s exchangers indicates that many of them do not provide names of contact persons and obscure the country of their business registration or physical location. To further conceal their ownership, several of the exchangers registered their domain names through third-party hosting services, and some of them used a paid service through their registrars to hide registration information from the public. Web site visitor traffic data on the exchangers’ Web sites showed that most exchangers appear to serve relatively few customers and produce little online attention. Liberty Reserve’s AML policy states that it will verify the identity of any direct client of Liberty Reserve ‘‘according to the guidelines of various jurisdictions.’’ However, Liberty Reserve appears to have no verification requirements in practice except for a working email address. Similarly, its AML policy mentions requirements to ‘‘train staff continuously on anti-money laundering regulations’’ and to appoint a compliance officer responsible for monitoring and reporting ‘‘any and all suspicious activities.’’ Based on the information, or lack of information, collected by Liberty Reserve, it would be impossible for Liberty Reserve to operate an AML compliance program that complied with commonly required customer due diligence and suspicious activity reporting requirements. Liberty Reserve’s AML policy indicates an understanding of the key role suspicious activity reporting and responses play in anti-money laundering program requirements. The policy states ‘‘LIBERTY RESERVE is legally bound to report such misdemeanors to the relevant authorities and as such you may be the [sic] subject to a criminal investigation.’’ Liberty Reserve has structured itself, however, to ensure that it never has the E:\FR\FM\06JNN1.SGM 06JNN1 34172 Federal Register / Vol. 78, No. 109 / Thursday, June 6, 2013 / Notices relevant information needed to comply with any stated obligation. For all of these reasons, Liberty Reserve appears designed to facilitate money laundering and illicit finance. Funding a Liberty Reserve account, either through transfers from the owner of the account or from others, serves to place funds in the nominally legitimate stream of commerce. The anonymous nature of Liberty Reserve means such placement can be performed by anyone from anywhere using funds of any origin. Transfers within Liberty Reserve’s system, which can be made between any accounts without record or identification, serve to structure and layer movement of funds such that, even if the initial placement can be traced, subsequent movement cannot. The ease and anonymity of account opening means that such movement could easily occur among accounts owned by a single person or entity, completely obscuring the origin of funds that leave the system, creating a one-stop money laundering system. D. Liberty Reserve Is Regularly Used To Store, Transfer, and Launder Illicit Proceeds Liberty Reserve is used extensively by criminals to store, transfer, and launder illicit proceeds, including through U.S. financial institutions. Information available to the U.S. government shows frequent wire transfer activity to or from Liberty Reserve that indicates money laundering, in that: (1) The legitimate business purpose, source of funds, and validity of the wire transactions could not be determined or verified; (2) little or no identifying information appeared in wire transaction records regarding the ultimate originators or beneficiaries such as addresses, telephone numbers, or identification numbers, with only Liberty Reserve in the ‘‘reference’’ field, suggesting an attempt to conceal the identities of the involved parties; (3) transactions involved unidentified entities located and/or banking in jurisdictions considered vulnerable or high-risk for money laundering activities; and (4) transactions involved large, round-dollar, repetitive international wire transfers sent to the same Liberty Reserve exchanger. Information available to the U.S. government suggests frequent use of Liberty Reserve by criminals to receive, send, or launder funds. For example: • A U.S. resident, on instructions from an individual allegedly involved in online fraud, sent over $150,000 in possible stolen funds to the individual through a Liberty Reserve account set up in the resident’s name. • Several persons reportedly utilized a scheme involving identity theft to create multiple fraudulent corporate accounts with an online broker/dealer and funded the accounts with over $250,000 in allegedly stolen funds. They then ordered over $100,000 in an unspecified number of international wire transfers to be credited to a specified Liberty Reserve account number. • A contact for an international company sent over $1.3 million in dozens of large, round-dollar, repetitive international wire transfers to a Liberty Reserve account in mid- to late-2012. The individual was possibly using a personal bank account to conduct these business transactions, an indicator of potential money laundering. • According to a news article in The Times of India, two individuals in Rajasthan, India were arrested in March 2013, for abducting and killing an individual they targeted through an online social networking site. The kidnappers demanded that ransom money be paid to their Liberty Reserve account. A cyber security expert cited in the news article stated that the kidnappers chose to use Liberty Reserve to execute their crimes because the system requires no proof of identification for the depositor or the recipient of funds, and Liberty Reserve will not disclose the internet protocol address of the recipient, which would aid law enforcement efforts. • A facilitator of a foreign extremist group in 2013 held a Liberty Reserve account, which may have been used to collect funds for the group. • One cybercriminal forum, the contents of which were recently made public, has long served as a point of sale for cybercriminal wares, including exploit kits, spam services, ransom-ware programs, botnets, and key-logging services, payable via Liberty Reserve. • One hacker, who only accepts Liberty Reserve as payment, offered to sell the source code to ‘‘Winlocker,’’ an application to secure a computer with a password. • One hacker claimed to have access to and control over several top dot-gov, dot-mil and dot-edu Web sites. The hacker also purported to sell personally identifiable information from hacked sites, for $20 per 1,000 records. These services were payable only via Liberty Reserve. • As of February 2011, the source code for the latest version of the ZeuS banking Trojan, the preeminent cybersecurity threat used to steal bank account information, was available on an online criminal forum for a reported $100,000, payable only through Liberty Reserve. E. Liberty Reserve Is Not Designed For Legitimate Use Transfers made through Liberty Reserve currency cost considerably more than transactions made through comparable services, providing a significant disincentive for legitimate users. For example, a $10,000 transfer using Liberty Reserve would cost approximately $248 to $1,946 in fees. Transferring $10,000 through a comparable direct bank wire or MSB transfer costs approximately $40 to $200. The below chart illustrates some costs involved with a Liberty Reserve transfer, where, for example, Person A has $10,000 to move from a U.S. bank to Person B’s bank account in another country through Liberty Reserve: Process step Cost 1. Person A wires money from a bank account to an exchanger .......... Varies. $45 is an approximate average. Ranges from 1%–10%, with possible flat fees associated with transaction. 1% of transfer to receive money, up to a maximum of $2.99. mstockstill on DSK4VPTVN1PROD with NOTICES 2. Exchanger charges fee to convert USD into Liberty Reserve funds and places funds in Person A’s Liberty Reserve account. 3. Person A instructs Liberty Reserve to move funds from his account to Person B’s Liberty Reserve account. 4. Person B sends Liberty Reserve funds to exchanger to convert to USD and send to Person B’s bank account. VerDate Mar<15>2010 17:35 Jun 05, 2013 Jkt 229001 PO 00000 Frm 00142 Fmt 4703 Charges Ranges from 1%–10%, with possible flat fees associated with transaction. Sfmt 4703 E:\FR\FM\06JNN1.SGM $45. At 1%: $99 charge. At 5%: $497 charge. At 10%: $995 charge. $2.99. Users can also pay an optional privacy fee to remove their account number from internal transfers. At 1%: $98 charge. At 5%: $472 charge. At 10%: $896 charge. 06JNN1 34173 Federal Register / Vol. 78, No. 109 / Thursday, June 6, 2013 / Notices Process step Cost 5. Person B receives funds in his bank account .................................... ........................................................ Liberty Reserve also is a completely irrevocable payment system and digital currency. The fact that the transactions are irrevocable, meaning that they cannot be reversed or refunded in the event of fraud, makes it a highly desirable system for criminal use and a highly problematic one for any legitimate payment functions. Revocability protects merchants and users from fraud and is a common feature of legitimate payment systems. Despite the security precautions that make it secure for illicit use, funds reportedly have been stolen from user accounts, making it even less attractive to any potential licit users. The company has been unresponsive to these customer complaints. III. The Extent to Which Liberty Reserve Is Used for Legitimate Business Purposes in Costa Rica FinCEN has found no evidence that Liberty Reserve is used in Costa Rica for any business purpose, legitimate or otherwise. Costa Rican customers have no direct access to Liberty Reserve’s offices. The only access to the business, anywhere in the world, is through its Web site. As noted above, Liberty Reserve appears to have chosen to locate itself in Costa Rica because Costa Rica is commonly known to have inadequate regulation of MSBs and internet businesses, and because the location allowed the company to avoid U.S. authorities because Costa Rica does not have a mutual legal assistance treaty with the United States. mstockstill on DSK4VPTVN1PROD with NOTICES IV. The Extent to Which This Action Is Sufficient To Guard Against International Money Laundering and Other Financial Crimes FinCEN’s finding that Liberty Reserve is an institution of primary money laundering concern will guard against the international money laundering and other financial crimes described above directly by restricting the ability of Liberty Reserve to access the U.S. financial system to process transactions, and indirectly by public notification to the international financial community of the risks posed by dealing with Liberty Reserve. VerDate Mar<15>2010 17:35 Jun 05, 2013 Jkt 229001 Dated: May 28, 2013. Jennifer Shasky Calvery, Director, Financial Crimes Enforcement Network. [FR Doc. 2013–12944 Filed 6–5–13; 8:45 am] BILLING CODE 4810–2P–P DEPARTMENT OF VETERANS AFFAIRS [OMB Control No. 2900–0036] Proposed Information Collection (Statement of Disappearance) Activity: Comment Request Veterans Benefits Administration, Department of Veterans Affairs. ACTION: Notice. AGENCY: The Veterans Benefits Administration (VBA) is announcing an opportunity for public comment on the proposed collection of certain information by the agency. Under the Paperwork Reduction Act (PRA) of 1995, Federal agencies are required to publish notice in the Federal Register concerning each proposed collection of information, including each proposed extension of a currently approved collection, and allow 60 days for public comment in response to the notice. This notice solicits comments on information needed to determine a presumption of death of a missing Veteran. DATES: Written comments and recommendations on the proposed collection of information should be received on or before August 5, 2013. ADDRESSES: Submit written comments on the collection of information through Federal Docket Management System (FDMS) at www.Regulations.gov or to Nancy J. Kessinger, Veterans Benefits Administration (20M35), Department of Veterans Affairs, 810 Vermont Avenue NW., Washington, DC 20420 or email nancy.kessinger@va.gov. Please refer to ‘‘OMB Control No. 2900–0036’’ in any correspondence. During the comment period, comments may be viewed online through the FDMS. FOR FURTHER INFORMATION CONTACT: Nancy J. Kessinger at (202) 632–8924 or Fax (202) 632–8925. SUPPLEMENTARY INFORMATION: Under the PRA of 1995 (Pub. L. 104–13; 44 U.S.C. 3501–3521), Federal agencies must SUMMARY: PO 00000 Frm 00143 Fmt 4703 Sfmt 9990 Charges Total cost at 1%: $248. Total cost at 5%: $1020. Total cost at 10%: $1946. obtain approval from the Office of Management and Budget (OMB) for each collection of information they conduct or sponsor. This request for comment is being made pursuant to Section 3506(c)(2)(A) of the PRA. With respect to the following collection of information, VBA invites comments on: (1) Whether the proposed collection of information is necessary for the proper performance of VBA’s functions, including whether the information will have practical utility; (2) the accuracy of VBA’s estimate of the burden of the proposed collection of information; (3) ways to enhance the quality, utility, and clarity of the information to be collected; and (4) ways to minimize the burden of the collection of information on respondents, including through the use of automated collection techniques or the use of other forms of information technology. Title: Statement of Disappearance, VA Form 21–1775. OMB Control Number: 2900–0036. Type of Review: Extension of a currently approved collection. Abstract: VA Form 21–1775 is used to gather information from a claimant to make a decision regarding the unexplained absence of a Veteran for over 7 years. The data collected will be used to determine the claimant’s entitlement to death benefits. Affected Public: Individuals or households. Estimated Annual Burden: 28 hours. Estimated Average Burden per Respondent: 2 hours 45 minutes. Frequency of Response: One-time. Estimated Number of Respondents: 10. Dated: June 3, 2013. By direction of the Secretary. Crystal Rennie, VA Clearance Officer, Enterprise Records Service, Office of Information and Technology, U.S. Department of Veterans Affairs. [FR Doc. 2013–13430 Filed 6–5–13; 8:45 am] BILLING CODE 8320–01–P E:\FR\FM\06JNN1.SGM 06JNN1

Agencies

[Federal Register Volume 78, Number 109 (Thursday, June 6, 2013)]
[Notices]
[Pages 34169-34173]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2013-12944]


-----------------------------------------------------------------------

DEPARTMENT OF THE TREASURY

Financial Crimes Enforcement Network


Notice of Finding That Liberty Reserve S.A. Is a Financial 
Institution of Primary Money Laundering Concern

AGENCY: Financial Crimes Enforcement Network (FinCEN), Treasury.

ACTION: Notice of finding.

-----------------------------------------------------------------------

SUMMARY: This document provides notice that, pursuant to the authority 
contained in 31 U.S.C. 5318A, the Director of FinCEN found on May 28, 
2013, that Liberty Reserve S.A. (Liberty Reserve) is a financial 
institution operating outside the United States that is of primary 
money laundering concern.

DATES: The finding referred to in this notice was effective as of May 
28, 2013.

FOR FURTHER INFORMATION CONTACT: FinCEN, (800) 949-2732.

SUPPLEMENTARY INFORMATION: 

I. Statutory Provisions

    On October 26, 2001, the President signed into law the Uniting and 
Strengthening America by Providing Appropriate Tools Required to 
Intercept and Obstruct Terrorism Act of 2001 (the USA PATRIOT Act), 
Public Law 107-56. Title III of the USA PATRIOT Act amends the anti-
money laundering provisions of the Bank Secrecy Act (BSA), codified at 
12 U.S.C. 1829b, 12 U.S.C. 1951-1959, and 31 U.S.C. 5311-5314, 5316-
5332, to promote the prevention, detection, and prosecution of 
international money laundering and the financing of terrorism. 
Regulations implementing the BSA appear at 31 CFR Chapter X. The 
authority of the Secretary of the Treasury (the Secretary) to 
administer the BSA and its implementing regulations has been delegated 
to the Director of FinCEN.
    Section 311 of the USA PATRIOT Act (Section 311), codified at 31 
U.S.C. 5318A, grants the Secretary the authority, upon finding that 
reasonable grounds exist for concluding that a foreign jurisdiction, 
financial institution, class of transaction, or type of account is of 
``primary money laundering concern,'' to require domestic financial 
institutions and financial agencies to take certain ``special 
measures'' to address the primary money laundering concern. The 
Secretary has delegated this authority under Section 311 to the 
Director of FinCEN.
    On May 28, 2013, the Director of FinCEN found that Liberty Reserve 
S.A. (Liberty Reserve) is a financial institution operating outside the 
United States that is of primary money laundering concern. The Director 
considered the factors discussed below in making this determination.

II. The Extent to Which Liberty Reserve Has Been Used To Facilitate or 
Promote Money Laundering in or Through Costa Rica and Internationally

    Liberty Reserve is a Web-based money transfer system, or ``virtual 
currency.'' It is a financial institution currently registered in Costa 
Rica and has been operating since 2001. Liberty Reserve's system is 
structured so as to facilitate money laundering and other criminal 
activity, while making any legitimate use economically unreasonable. 
The Department of Justice is taking criminal action against Liberty 
Reserve and related individuals.
    Liberty Reserve uses a system of internal accounts and a network of 
virtual currency exchangers to move funds. Operating under the domain 
name www.libertyreserve.com, it

[[Page 34170]]

maintains accounts for registered users. Users fund their accounts by 
ordering a bank wire or money services business (MSB) transfer to the 
bank of a Liberty Reserve exchanger. Users can also fund Liberty 
Reserve accounts by depositing cash, postal money orders, or checks 
directly into the exchanger's bank account. The exchanger then credits 
a corresponding value to the user's Liberty Reserve account, 
denominated in ``Liberty Reserve Dollars'' or ``Liberty Reserve 
Euros.'' Liberty Reserve claims to maintain Dollar for Dollar and Euro 
for Euro reserves to back their virtual currencies.
    To withdraw funds, the user instructs Liberty Reserve to send funds 
from the user's Liberty Reserve account to a Liberty Reserve exchanger, 
which then sends a bank wire, MSB transfer, or other transfer method to 
the user's or recipient's bank account in U.S. dollars or other major 
currencies. The exchangers are independent MSBs operating around the 
world. They charge a commission on each transfer to and from the 
Liberty Reserve system.
    Once funded, the Liberty Reserve virtual currency can be 
transferred among accounts within the Liberty Reserve system. The 
transfers are anonymous, and the recipient only sees the account number 
from which the funds were transferred. For an additional fee, even that 
information can be eliminated for greater anonymity.
[GRAPHIC] [TIFF OMITTED] TN06JN13.002

A. History and Ownership

    According to reporting of a Planetgold.com interview in 2003 with 
Arthur Budovsky, who founded the company, Liberty Reserve was then 
based in Nevis and began as a private exchange system for import/export 
businesses. In 2002, Budovsky and another individual, Vladimir Kats, 
set up several other companies, including GoldAge Inc., according to 
the New York County District Attorney's Office. GoldAge served as a 
prominent exchanger for E-Gold, a gold-based virtual currency system. 
E-Gold was charged with money laundering and operating an illegal MSB, 
and pled guilty in 2008. Similar to how Liberty Reserve operates, 
customers opened online GoldAge accounts with only limited 
identification documentation and then could choose their method of 
payment, including wire transfers, cash deposits, postal money orders, 
or checks, to GoldAge to buy digital gold-based currency. GoldAge 
customers could withdraw their funds by wire transfers to anywhere in 
the world or by having checks sent to an individual.
    In March 2004, Liberty Reserve's Web site indicated that it was 
operating out of Brooklyn, New York. In May 2006, Liberty Reserve was 
re-registered in Costa Rica. In July 2006, Budovsky and Kats were 
indicted by the state of New York for operating an illegal money 
transmitting business, GoldAge, out of their Brooklyn apartments. By 
that date, the defendants had transmitted at least $30 million through 
GoldAge to digital currency accounts globally since 2002. Budovsky pled 
guilty and was sentenced to five years of probation.

B. Liberty Reserve Seeks Out Jurisdictions With Weak Regulatory 
Environments

    According to the 2012 International Narcotics Control Strategy 
Report (INCSR) prepared by the U.S. Department of State, money 
laundering in Costa Rica occurs across the formal and non-formal 
financial sectors, especially via both licensed and

[[Page 34171]]

unlicensed money remitters. According to the 2013 INCSR, although Costa 
Rica continues to take steps to enforce its financial and non-financial 
regulatory regimes to prevent and detect money laundering, money 
remittance services remain a sector of particular concern. The INCSR 
notes that ``Costa Rica is primarily used by foreign organizations as a 
bridge to send funds to and from other jurisdictions using bulk cash 
shipments and companies or financial institutions located offshore.''
    The 2007 INCSR noted that ``[r]eforms in 2002 to the Costa Rican 
counternarcotics law expand the scope of anti-money laundering 
regulations, but also create an invitation to launder funds by 
eliminating the government's licensing and supervision of casinos, 
jewelers, realtors, attorneys, and other nonbank financial 
institutions.'' While some progress has made been since that time, 
regulation of this sector remains a concern. Thus, when Liberty Reserve 
moved its registration to Costa Rica in 2006, Costa Rica was commonly 
known to have inadequate regulation of non-bank financial institutions, 
including MSBs and internet businesses.
    In October 2007, Liberty Reserve's official blog explained that 
registering in Costa Rica allowed the company to avoid U.S. authorities 
because Costa Rica does not have a mutual legal assistance treaty with 
the United States. Taken together, these facts suggest that Liberty 
Reserve has specifically sought out jurisdictions with weak anti-money 
laundering controls and apparent immunity from U.S. prosecution.

C. Liberty Reserve Is Designed To Facilitate Money Laundering and 
Illicit Finance

    To open an account through the Liberty Reserve Web site, a user is 
asked to enter basic identifying information, such as name, email 
address, and date of birth. Liberty Reserve does not require users to 
validate any of that information. Users are also able to open as many 
accounts as they want. Liberty Reserve requires only a working, even if 
anonymous, email address. Once a user has an account with Liberty 
Reserve, its anti-money laundering policy (AML policy) does not suggest 
that it either requires or verifies any information associated with any 
transaction.
    This lack of customer due diligence means that the accounts can be 
entirely anonymous and thus that account holders can transfer funds to 
or from anywhere with anyone with anonymity. Indeed, Liberty Reserve 
advertises this fact as a virtue of the service. The deliberate lack of 
verification makes Liberty Reserve a particularly attractive money 
transfer system for criminal clientele seeking to launder their 
criminal proceeds, to move funds to or from sanctioned jurisdictions 
and entities, or to finance terrorism internationally. Forcing users to 
deposit or withdraw funds through exchangers creates another layer of 
anonymity in the system. To offer even more anonymity, Liberty Reserve 
provides an option, for an additional fee, to conceal the sole 
identifier of origin, the originator's account number, in transactions.
    Liberty Reserve's AML policy, issued in 2010, states that it is 
illegal for Liberty Reserve, ``its employees, agents or exchangers to 
knowingly engage, or attempt to engage in a monetary transaction in 
criminally derived property.'' It also states that it is illegal to 
``transport, transmit or transfer, or attempt to transport, transmit or 
transfer a monetary instrument or funds in excess of $10,000 . . . 
either into or out of Costa Rica and/or any other countries with 
similar legislation if the purpose is to carry out an illegal activity, 
or to avoid reporting requirements.'' Its citation to these 
requirements demonstrates that Liberty Reserve is well aware of anti-
money laundering laws. However, even having acknowledged that these 
activities are illegal in many jurisdictions in which they operate, and 
that they are aware of applicable laws and regulations in multiple 
jurisdictions, Liberty Reserve has structured its business to separate 
itself from knowledge that would allow it to detect money laundering. 
Indeed, the fact that Liberty Reserve has only a statement in its 
policy, with no implementation to address anti-money laundering 
concerns or requirements, is so deficient that it would not comply with 
any implementation of internationally accepted anti-money laundering 
requirements, such as the standards recommended by the Financial Action 
Task Force.
    Liberty Reserve's AML policy provides less than one page regarding 
what Liberty Reserve considers a sufficient response to its risk for 
money laundering activity and its legal requirements. The only 
component of the policy that addresses any due diligence requirement 
indicates that the obligation is transferred entirely to the 
exchangers. The AML policy states that Liberty Reserve will verify the 
identity of the exchangers and request from them ``a compromise to 
verify the identity of their direct clients.'' Whatever this is 
intended to mean, there is no evidence that Liberty Reserve requires 
the accredited exchangers to engage in any such customer verification. 
To the contrary, exchangers with which Liberty Reserve continues to 
work appear to have no or minimal verification or monitoring of 
clients; for example, some have no anti-money laundering policy, and 
others affirmatively advertise that they conduct no verification. Many 
of them are located in countries with lax money laundering enforcement. 
As of 2009, Liberty Reserve had outsourced its own verification process 
for new exchangers to a non-affiliated company for which at least two 
U.S. banks have rejected wires due to money laundering concerns.
    Relying on exchangers to conduct what little due diligence Liberty 
Reserve purports to require enhances the gravity of Liberty Reserve's 
money laundering risk. A review of publicly available information on 
Liberty Reserve's exchangers indicates that many of them do not provide 
names of contact persons and obscure the country of their business 
registration or physical location. To further conceal their ownership, 
several of the exchangers registered their domain names through third-
party hosting services, and some of them used a paid service through 
their registrars to hide registration information from the public. Web 
site visitor traffic data on the exchangers' Web sites showed that most 
exchangers appear to serve relatively few customers and produce little 
online attention.
    Liberty Reserve's AML policy states that it will verify the 
identity of any direct client of Liberty Reserve ``according to the 
guidelines of various jurisdictions.'' However, Liberty Reserve appears 
to have no verification requirements in practice except for a working 
email address. Similarly, its AML policy mentions requirements to 
``train staff continuously on anti-money laundering regulations'' and 
to appoint a compliance officer responsible for monitoring and 
reporting ``any and all suspicious activities.'' Based on the 
information, or lack of information, collected by Liberty Reserve, it 
would be impossible for Liberty Reserve to operate an AML compliance 
program that complied with commonly required customer due diligence and 
suspicious activity reporting requirements.
    Liberty Reserve's AML policy indicates an understanding of the key 
role suspicious activity reporting and responses play in anti-money 
laundering program requirements. The policy states ``LIBERTY RESERVE is 
legally bound to report such misdemeanors to the relevant authorities 
and as such you may be the [sic] subject to a criminal investigation.'' 
Liberty Reserve has structured itself, however, to ensure that it never 
has the

[[Page 34172]]

relevant information needed to comply with any stated obligation.
    For all of these reasons, Liberty Reserve appears designed to 
facilitate money laundering and illicit finance. Funding a Liberty 
Reserve account, either through transfers from the owner of the account 
or from others, serves to place funds in the nominally legitimate 
stream of commerce. The anonymous nature of Liberty Reserve means such 
placement can be performed by anyone from anywhere using funds of any 
origin. Transfers within Liberty Reserve's system, which can be made 
between any accounts without record or identification, serve to 
structure and layer movement of funds such that, even if the initial 
placement can be traced, subsequent movement cannot. The ease and 
anonymity of account opening means that such movement could easily 
occur among accounts owned by a single person or entity, completely 
obscuring the origin of funds that leave the system, creating a one-
stop money laundering system.

D. Liberty Reserve Is Regularly Used To Store, Transfer, and Launder 
Illicit Proceeds

    Liberty Reserve is used extensively by criminals to store, 
transfer, and launder illicit proceeds, including through U.S. 
financial institutions. Information available to the U.S. government 
shows frequent wire transfer activity to or from Liberty Reserve that 
indicates money laundering, in that: (1) The legitimate business 
purpose, source of funds, and validity of the wire transactions could 
not be determined or verified; (2) little or no identifying information 
appeared in wire transaction records regarding the ultimate originators 
or beneficiaries such as addresses, telephone numbers, or 
identification numbers, with only Liberty Reserve in the ``reference'' 
field, suggesting an attempt to conceal the identities of the involved 
parties; (3) transactions involved unidentified entities located and/or 
banking in jurisdictions considered vulnerable or high-risk for money 
laundering activities; and (4) transactions involved large, round-
dollar, repetitive international wire transfers sent to the same 
Liberty Reserve exchanger.
    Information available to the U.S. government suggests frequent use 
of Liberty Reserve by criminals to receive, send, or launder funds. For 
example:
     A U.S. resident, on instructions from an individual 
allegedly involved in online fraud, sent over $150,000 in possible 
stolen funds to the individual through a Liberty Reserve account set up 
in the resident's name.
     Several persons reportedly utilized a scheme involving 
identity theft to create multiple fraudulent corporate accounts with an 
online broker/dealer and funded the accounts with over $250,000 in 
allegedly stolen funds. They then ordered over $100,000 in an 
unspecified number of international wire transfers to be credited to a 
specified Liberty Reserve account number.
     A contact for an international company sent over $1.3 
million in dozens of large, round-dollar, repetitive international wire 
transfers to a Liberty Reserve account in mid- to late-2012. The 
individual was possibly using a personal bank account to conduct these 
business transactions, an indicator of potential money laundering.
     According to a news article in The Times of India, two 
individuals in Rajasthan, India were arrested in March 2013, for 
abducting and killing an individual they targeted through an online 
social networking site. The kidnappers demanded that ransom money be 
paid to their Liberty Reserve account. A cyber security expert cited in 
the news article stated that the kidnappers chose to use Liberty 
Reserve to execute their crimes because the system requires no proof of 
identification for the depositor or the recipient of funds, and Liberty 
Reserve will not disclose the internet protocol address of the 
recipient, which would aid law enforcement efforts.
     A facilitator of a foreign extremist group in 2013 held a 
Liberty Reserve account, which may have been used to collect funds for 
the group.
     One cybercriminal forum, the contents of which were 
recently made public, has long served as a point of sale for 
cybercriminal wares, including exploit kits, spam services, ransom-ware 
programs, botnets, and key-logging services, payable via Liberty 
Reserve.
     One hacker, who only accepts Liberty Reserve as payment, 
offered to sell the source code to ``Winlocker,'' an application to 
secure a computer with a password.
     One hacker claimed to have access to and control over 
several top dot-gov, dot-mil and dot-edu Web sites. The hacker also 
purported to sell personally identifiable information from hacked 
sites, for $20 per 1,000 records. These services were payable only via 
Liberty Reserve.
     As of February 2011, the source code for the latest 
version of the ZeuS banking Trojan, the preeminent cybersecurity threat 
used to steal bank account information, was available on an online 
criminal forum for a reported $100,000, payable only through Liberty 
Reserve.

E. Liberty Reserve Is Not Designed For Legitimate Use

    Transfers made through Liberty Reserve currency cost considerably 
more than transactions made through comparable services, providing a 
significant disincentive for legitimate users. For example, a $10,000 
transfer using Liberty Reserve would cost approximately $248 to $1,946 
in fees. Transferring $10,000 through a comparable direct bank wire or 
MSB transfer costs approximately $40 to $200. The below chart 
illustrates some costs involved with a Liberty Reserve transfer, where, 
for example, Person A has $10,000 to move from a U.S. bank to Person 
B's bank account in another country through Liberty Reserve:

------------------------------------------------------------------------
          Process step                   Cost               Charges
------------------------------------------------------------------------
1. Person A wires money from a    Varies. $45 is an   $45.
 bank account to an exchanger.     approximate
                                   average.
2. Exchanger charges fee to       Ranges from 1%-     At 1%: $99 charge.
 convert USD into Liberty          10%, with          At 5%: $497
 Reserve funds and places funds    possible flat       charge.
 in Person A's Liberty Reserve     fees associated    At 10%: $995
 account.                          with transaction.   charge.
3. Person A instructs Liberty     1% of transfer to   $2.99. Users can
 Reserve to move funds from his    receive money, up   also pay an
 account to Person B's Liberty     to a maximum of     optional privacy
 Reserve account.                  $2.99.              fee to remove
                                                       their account
                                                       number from
                                                       internal
                                                       transfers.
4. Person B sends Liberty         Ranges from 1%-     At 1%: $98 charge.
 Reserve funds to exchanger to     10%, with          At 5%: $472
 convert to USD and send to        possible flat       charge.
 Person B's bank account.          fees associated    At 10%: $896
                                   with transaction.   charge.

[[Page 34173]]

 
5. Person B receives funds in     ..................  Total cost at 1%:
 his bank account.                                     $248.
                                                      Total cost at 5%:
                                                       $1020.
                                                      Total cost at 10%:
                                                       $1946.
------------------------------------------------------------------------

    Liberty Reserve also is a completely irrevocable payment system and 
digital currency. The fact that the transactions are irrevocable, 
meaning that they cannot be reversed or refunded in the event of fraud, 
makes it a highly desirable system for criminal use and a highly 
problematic one for any legitimate payment functions. Revocability 
protects merchants and users from fraud and is a common feature of 
legitimate payment systems. Despite the security precautions that make 
it secure for illicit use, funds reportedly have been stolen from user 
accounts, making it even less attractive to any potential licit users. 
The company has been unresponsive to these customer complaints.

III. The Extent to Which Liberty Reserve Is Used for Legitimate 
Business Purposes in Costa Rica

    FinCEN has found no evidence that Liberty Reserve is used in Costa 
Rica for any business purpose, legitimate or otherwise. Costa Rican 
customers have no direct access to Liberty Reserve's offices. The only 
access to the business, anywhere in the world, is through its Web site. 
As noted above, Liberty Reserve appears to have chosen to locate itself 
in Costa Rica because Costa Rica is commonly known to have inadequate 
regulation of MSBs and internet businesses, and because the location 
allowed the company to avoid U.S. authorities because Costa Rica does 
not have a mutual legal assistance treaty with the United States.

IV. The Extent to Which This Action Is Sufficient To Guard Against 
International Money Laundering and Other Financial Crimes

    FinCEN's finding that Liberty Reserve is an institution of primary 
money laundering concern will guard against the international money 
laundering and other financial crimes described above directly by 
restricting the ability of Liberty Reserve to access the U.S. financial 
system to process transactions, and indirectly by public notification 
to the international financial community of the risks posed by dealing 
with Liberty Reserve.

    Dated: May 28, 2013.
Jennifer Shasky Calvery,
Director, Financial Crimes Enforcement Network.
[FR Doc. 2013-12944 Filed 6-5-13; 8:45 am]
BILLING CODE 4810-2P-P