Flashy cars, lavish gifts, multiple identities and armed Russian henchmen for years appeared to be the modus operandi of two naturalized Costa Ricans who ran the now shuttered Liberty Reserve digital currency exchange site (www.libertyreserve.com
), operated from Costa Rica since 2006, sources say.
On Friday, Spanish police working in conjunction with law enforcement in the United States and Costa Rica arrested Budovsky, a Ukrainian-born former U.S. citizen, on suspicion of money laundering and other charges. Police in Costa Rica also raided offices and homes linked to Budovsky in the southwestern San José suburbs of Santa Ana and Escazú and Heredia, north of the capital, on Friday.
Agents from the money laundering division at Costa Rica’s Judicial Investigation Police and the Prosecutor’s Office’s organized crime unit seized computers, files, three Rolls Royce and Jaguar autos worth half a million dollars, along with other items, according to a news report by Channel 7 TV.
A Russian national with the last name Chukharev also was arrested, according to a statement issued late Monday afternoon by the Costa Rican Prosecutor’s Office, in response to a Tico Times request. The U.S. is seeking Chukharev’s extradition, the statement said. Neither Chukharev nor his lawyer were available for comment.
Agents raid a home linked to Liberty Reserve in the southwestern San José suburb of Santa Ana. Screenshots from Telenoticias Channel 7
Costa Rican police searched eight sites on Friday, including the offices of companies managed by Budovsky. Those companies are Silverhand Solutions & Technology S.A. (Santa Ana), Worldwide E-Commerce Business S.A., or WEBSA (Escazú), Grupo Lulu Limitada (Escazú), Triton Group A & A, S.A. (Escazú) and Cyberfuel.com (Santa Ana). Police also raided two private homes in Santa Ana and one in Heredia, reportedly belonging to Budovsky and associates.
“The raided companies are, in some manner, related to Liberty Reserve. Costa Rican authorities seized documental proof and digital information that will be turned over to the U.S., via international penal assistance,”
the Prosecutor’s Office statement said.
“Arthur Budovsky was arrested in Spain on Friday, following a coordinated effort between U.S. and Spanish authorities,”
the statement added. “[Budovsky] is the founder of the company Liberty Reserve, who last year renounced his U.S. citizenship and is currently a citizen and resident of Costa Rica.”
Budovsky, 39, obtained that citizenship by marrying a now 39-year-old Costa Rican woman with the last names Valerio Vargas in June 2008, according to public records. However, Costa Rica’s Immigration Administration has no record of Budovsky entering or leaving the country before May 2011, four years after he received probation in a separate case in New York on charges of operating an illegal financial business, GoldAge Inc.
The Immigration Administration’s first record of Budovsky has him leaving the country on May 25, 2011, but there is no record of him entering Costa Rica before that date. The latest records show he left Costa Rica on Jan. 27.
The Tico Times attempted to contact Budovsky and his attorneys through authorities in Spain, but did not receive a response from Spanish officials on Monday.
A not-so-golden age
Budovsky’s first run-in with U.S. authorities occurred in July 2006, when he and business partner Vladimir Kats, then 33, were indicted in New York on charges of operating an illegal financial business, GoldAge Inc., a parallel company to Liberty Reserve, from their Brooklyn apartments, according to the U.S. Justice Department. U.S. officials said the two had transmitted at least $30 million to digital currency accounts worldwide since beginning operations in 2002.
They were sentenced to five years in prison in 2007 for engaging in the business of transmitting money without a license, a felony violation of state banking law. They received five years probation.
Companies like GoldAge and Liberty Reserve offer users nearly anonymous digital currency accounts, pegged to the U.S. dollar or Euro, with limited documentation of identity required. Deposits are allegedly backed by gold and other precious metals, and customers can withdraw money by requesting wire transfers to accounts anywhere in the world or by having checks sent to individuals.
U.S. officials have targeted companies like GoldAge and Liberty Reserve for years, saying they are hotbeds for criminal activity including money laundering, drug trafficking and tax evasion. They are also used to shuffle around funds from “high-yield” investment operations, which sometimes are Ponzi schemes disguised as legitimate businesses.
Liberty Reserve was founded in the U.S. in 2002 and relocated to Costa Rica in May 2006 – two months before the U.S. indictment landed against Budovsky and Kats – according to a document obtained by The Tico Times from Costa Rica’s National Registry.
The company operated without oversight from any global agency, and was a convenient tool for foreign currency brokers, as it allowed them to bypass local legislation and avoid exchange rate fluctuations, particularly in developing countries. It was also a popular payment-processing site for the multilevel marketing industry. But its lack of oversight also attracted organized criminal elements, prosecutors said.
“Payment in digital currencies makes it easier for traffickers to launder funds that no longer need to be placed into the traditional financial system. Payment can be immediately forwarded to an international digital currency account, perhaps in payment to the original source of supply, or further layered through multiple digital currency accounts and exchangers until reintegrated into the legitimate economy,”
the U.S. National Drug Intelligence Center stated in a 2008 report.
In Costa Rica, Liberty Reserve S.A. was founded with 10 shares each of ₡10,000 ($20) for a total shareholder value of ₡100,000 ($200). To open a Liberty Reserve account, users needed only to submit a name, address, email address, date of birth and occupation.
On Tuesday, the Associated Press reported that Liberty Reserve may have been used to launder proceeds from a recent theft of some $45 million from two Middle Eastern banks. “The complaint against one of the Dominican Republic gang members allegedly involved in the theft states that thousands of dollars' worth of stolen cash was deposited into two Liberty Reserve accounts via currency centers based in Siberia and Singapore,” the AP reported.
Prosecutors also allege that Liberty Reserve was used to launder money from drug trafficking and child pornography sites, according to Costa Rican prosecutor José Pablo González. In addition to Budovsky, González said 10 other Liberty Reserve associates are under criminal investigation.
The closing of Liberty Reserve’s site on Thursday has left in limbo the fate of perhaps millions of dollars pumped into company accounts from around the world. U.S. officials are expected to issue a statement on the case on Tuesday, but so far it’s unclear how much of the account-holders’ funds still exist, where they are, and how many total users are affected.
The Costa Rican Prosecutor’s Office would not comment on the closing of the site, nor the fate of funds tied up in Liberty Reserve, citing the ongoing money laundering investigation.
Red flags and multiple identities
Another similarity between GoldAge and Liberty Reserve is the alleged use of numerous identities by Budovsky and business associates, according to sources familiar with both operations. In 2002, Budovsky granted an “interview” to Ragnar Danneskjold, described as “editor of Planetgold.com,” in which Budovsky, who says he is married to a “wonderful wife with two beautiful daughters,” announces the May 28, 2002 launch of Liberty Reserve. Asked about the risk of attracting organized criminal elements, he said he “would be only too happy to cooperate with authorities in situations” involving “a murderer, kidnapper, or drug kingpin.”
A source who has investigated GoldAge said he believes the editor, Danneskjold, is actually Kats, Budovsky’s partner at the time.
Months before the 2006 indictment, and his probation the following year, Budovsky relocated the company to Costa Rica, where in 2008 he married Valerio Vargas, according to Supreme Elections Tribunal records.
Kats does not appear to have followed his partner to Costa Rica. Instead, Budovsky, who a source familiar with Liberty Reserve operations said “was the boss,” teamed up with Ahmed Yassine, a Moroccan man who was naturalized as a Costa Rican through a November 2006 marriage to a Costa Rican woman. The two were divorced in March 2010, according to public records.
Yassine, who reportedly has an explosive temper, lives in Costa Rica, and there is no record that he has left the country in recent years. On a Liberty Reserve company profile from November 2008 (and still online in June 2010), Yassine is listed under the apparent pseudonym Amed Mekovar as Liberty Reserve’s “corporate director,” say sources close to the company.
“Liberty Reserve was acquired by Amed Mekovar in May of 2006,”
the profile states, although there is no mention of Yassine (or Mekovar) in the official company registration document on file at the National Registry.
Budovsky, despite being a founder and boss at the company, also is not listed on the profile or the National Registry document. However, a source familiar with how the business was managed who asked to remain anonymous said Budovsky used the alias Eric Paltz, whom the profile describes as head of “business development.”
“Arthur was the boss,”
the source told The Tico Times.
But Budovsky, Yassine and other employees rarely used their real names in business dealings or in front of outsiders, the source said.
Sandro Castro, listed on the profile as Liberty Reserve’s head of “Abuse and Business Department inquiries,” is also likely an alias, the source said.
Public records of the company’s inscription in Costa Rica list a Costa Rican man with the last name Hidalgo as Liberty Reserve’s president.
Other names on the 2008 company profile appear to be legitimate employees.
The Tico Times could not reach any of the company officers for comment on Monday.
While Budovsky, Yassmine and other employees of Liberty Reserve in Costa Rica protected themselves with Russian gunmen, according to a source familiar with the company, they reportedly also tried to present a positive image of Liberty Reserve by allegedly lavishing gifts on influential people and donating computers to local schools. But they faced several snags along the way, including the refusal in 2011 by the Financial Institution Superintendency (SUGEF), Costa Rica’s financial regulatory authority, to license the company, citing a lack of transparency and accounting of funding management.
Nevertheless, Liberty Reserve continued operating, accepting account deposits and transferring funds without SUGEF certification. However, without that approval Budovsky and Yassmine found it increasingly difficult to conduct business through banks in Costa Rica and Panama, which refused to open accounts for the company.
In the past two years, they decided to move company accounts to Europe, where Budovsky often travelled. The company also relocated its network servers – as many as seven – from Costa Rica to the Netherlands, Switzerland and other countries, a source said.
But by 2011, the year Liberty Reserve applied for SUGEF authorization, U.S. officials had already started collaborating with Costa Rican officials on an investigation of the company. That probe culminated with last Friday’s arrests, searches and seizures.
The company has been shut down, and its remaining employees laid off. And customers who placed funds in Liberty Reserve have no idea where their money is, no matter how many times they click “refresh.”