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'Black market bank' co-founder gets 20 years in digital plot

[MANHATTAN] The co-founder of a digital-currency business that prosecutors called a "black market bank" for con artists, hackers, identity thieves, child pornographers and drug dealers around the globe was sentenced to 20 years in prison.

US prosecutors said Arthur Budovsky's company, Liberty Reserve, operated as "the financial hub for cyber criminals around the world." He earned US$25 million in profit while building a business that helped wrongdoers launder hundreds of millions of dollars in illicit profits and mask US$8 billion in criminal transactions, they said.

"Mr Budovsky has used his enormous talents in a way that led to enormous harm, countless victims of his fraud, and many, many victims around the world," US District Judge Denise Cote in Manhattan said Friday when sentencing Budovsky.

She noted he launched Liberty Reserve after he avoided prison on conviction for operating a similar business.

Ms Cote said she was imposing a lengthy term to deter others contemplating similar crimes and ordered Budovsky to forfeit US$122 million.

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"The defendant ran an extraordinarily large and successful money-laundering operation," Ms Cote said.

"It was designed to be used by cyber criminals and it was designed to hide their ill- gotten gains. It was assigned to appeal to them, and it did," she said.

When the government shut it down in 2013, Liberty Reserve had "captured the market share" in illicit transactions for criminals, handling more than eight billion financial transactions at its peak, the judge said.

Mr Budovsky, 42, faced a life sentence when he pleaded guilty just days before trial this year, striking a deal in which his lawyers and the government agreed to cap his sentence at 20 years.

He operated his business first out of the US, and then moved it to Costa Rica to evade law enforcement, after being convicted of money-laundering in New York, prosecutors said.

While he declined to speak in court Friday, his lawyer John Kaley asked for leniency, saying "a double-digit sentence of less than 15 years is still a substantial sentence." Unlike traditional banks and legitimate payment processors, Liberty Reserve didn't require or validate customers' identities and allowed accounts to be opened under fictitious names, according to prosecutors.

The case was one of the first brought by the US targeting digital currency and one which federal prosecutors said was an "important step in reigning in the Wild West of illicit Internet banking."

An undercover agent established a Liberty Reserve account using the alias "Joe Bogus", listing his address as "123 Fake Main Street" in "Completely Made Up City, New York," prosecutors said when the case was announced in 2013.

Mr Budovsky, who pleaded guilty to conspiracy to commit money laundering, was one of seven people charged in the case. Others pleaded guilty as well. Mr Budovsky admitted he laundered from US$250 to US$550 million in criminal proceeds.

Liberty Reserve's co-founder Vladimir Kats, who was Mr Budovsky's co-defendant in the earlier money-laundering case, pleaded guilty in 2013 and cooperated with the government. Prosecutors have asked Ms Cote to impose a lenient sentence on Mr Kats when he is sentenced May 13, citing the "substantial assistance" he provided in the investigation.

When it was announced in 2013, the US said the case against Liberty Reserve was the largest ever money-laundering prosecution. The company had about 5.5 million users around the world and conducted a total of about 78 million transactions - virtually all of them illegal - including 200,000 in the US, Manhattan US Attorney Preet Bharara said at the time.

Criminal rings that used Liberty Reserve to distribute illicit proceeds operated from Vietnam, Nigeria, Hong Kong, China and the US before the government shut it down, according to investigators. 

In addition to Mr Kats, three others pleaded guilty. Mark Marmilev, Liberty Reserve's chief technology officer, was sentenced to five years in prison while Maxim Chukharev, who designed the operation's infrastructure, was sentenced to three years in prison. Charges are pending against two others who haven't been apprehended.

The case is US v Kats, 13-cr-00368, US District Court, Southern District of New York (Manhattan).


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