The Crackdown On Alternative Currencies: Liberty Reserve Shut Down As Founder Arrested

from the money-laundering-or-competition dept

Tue, May 28th 2013 1:02pm — Mike Masnick

Are governments ramping up their efforts to crack down on alternative currencies that are outside of their control? In the past, we've seen politicians attack Bitcoin as a form of "money laundering." Then, a few weeks ago, ICE went after Mt.Gox, the super popular Bitcoin exchange. Now, the latest is that the founder of the digital currency site Liberty Reserve, which also dealt in Bitcoin, has been arrested and the site has been shut down. It's no secret that Bitcoin can and is used for less than legal purposes, and it does seem like Mt.Gox and Liberty Reserve aren't always perfect about complying with the ins and outs of running businesses that deal in currency. So these moves may be perfectly reasonable and legal. However, there is a larger concern about how these may suggest governments really taking a much harder look at things like Bitcoin, and closely targeting any company that is involved in Bitcoin exchanges with government-backed currencies.

Thank you for reading this Techdirt post. With so many things competing for everyone’s attention these days, we really appreciate you giving us your time. We work hard every day to put quality content out there for our community.

Techdirt is one of the few remaining truly independent media outlets. We do not have a giant corporation behind us, and we rely heavily on our community to support us, in an age when advertisers are increasingly uninterested in sponsoring small, independent sites — especially a site like ours that is unwilling to pull punches in its reporting and analysis.

While other websites have resorted to paywalls, registration requirements, and increasingly annoying/intrusive advertising, we have always kept Techdirt open and available to anyone. But in order to continue doing so, we need your support. We offer a variety of ways for our readers to support us, from direct donations to special subscriptions and cool merchandise — and every little bit helps. Thank you.

–The Techdirt Team

Filed Under: alternative currencies, bitcoin
Companies: dwolla, liberty reserve, mt. gox

37 Comments

If you liked this post, you may also be interested in...

Reader Comments

Subscribe: RSS

View by: Time | Thread

Ninja (profile), 28 May 2013 @ 11:47am

Control. They fear losing it. And current forms of currency allow Govts to control the flow.

On what grounds were they arrested? And why the services were shut down? Was there any valid accusation that justified immediate shutdown?

Also, see Megaupload.

The terrorists are the Governments.
[ link to this | view in thread ]
Anonymous Coward, 28 May 2013 @ 1:06pm

Re:
"On what grounds were they arrested?"

Government claimed money laundering to the tune of $6 billion over the last 7 years or something like that.

It claimed the people who used it did so with nefarious intent.

http://www.nytimes.com/2013/05/29/nyregion/liberty-reserve-operators-accused-of-money-lau ndering.html?pagewanted=all
[ link to this | view in thread ]
Anonymous Coward, 28 May 2013 @ 1:17pm

Key Take Away
Alternate currencies are fine so long as there is no exchange for government backed currencies going on. Its the exchange that is what is targeted by the governments.
[ link to this | view in thread ]
Anonymous Coward, 28 May 2013 @ 1:23pm

Re: Key Take Away
By that logic the stock market should be illegal.
[ link to this | view in thread ]
Anonymous Coward, 28 May 2013 @ 1:27pm

Re: Re:
All wars are bankers' wars: http://www.youtube.com/watch?v=5hfEBupAeo4

They attempt and often do shut down currencies that are backed by some sort of value to keep the US fiat dollar scheme working. Libya is not on the Dinar and Iraq is selling their oil in dollars, thanks to the muscle of the US military. They are likely actively working to control or shut down bitcoin as it is a currency that is backed by some sort of value... unlike federal reserve notes.

Ending the FED and the IRS along with allowing value backed currencies to compete would go a long way for man kind.
[ link to this | view in thread ]
Gwiz (profile), 28 May 2013 @ 1:37pm

Re: Key Take Away
Alternate currencies are fine so long as there is no exchange for government backed currencies going on. Its the exchange that is what is targeted by the governments.

Why? I thought (probably being naive here) that the US dollar was "legal tender for all debts, public and private". How is exchanging a dollar note for a candy bar different than exchanging a dollar note for Bitcoins?
[ link to this | view in thread ]
Anonymous Coward, 28 May 2013 @ 1:43pm

wrong
stock market is backed\overseen by the government too. SEC in theory has oversight.
[ link to this | view in thread ]
Anonymous Coward, 28 May 2013 @ 1:49pm

Re: Key Take Away
So, the real key takeaway is that there should has to be a tangible item exchange in between currencies...

Imagine for example that you used BTC to buy gold, and then exchanged that gold for USD or vice-versa.

Or, in most cases, people will just start "bartering" for BTC - I sell you my goods/services for BTC, you sell me yours for BTC, we exclude the government entirely.

When the government's fiat currencies are excluded from the equation, so is the taxation and tracking of what people are buying/selling with their virtual currencies.

They probably think they can just stop the use of digital currency by eliminating the exchange of it with their own currencies, but in reality, all they'll do is encourage people to use the digital currencies exclusively and abandon the government's watered down currency instead.
[ link to this | view in thread ]
ScytheNoire, 28 May 2013 @ 1:51pm

Rome is burning
The US Government is so corrupt. It's amazing to watch a country fall apart right before your eyes. History will look back at the USA and shows what happens when pure greed and financial corruption are allowed to run rampant. It's the fall of Rome all over again.
[ link to this | view in thread ]
Anonymous Coward, 28 May 2013 @ 1:55pm

Re: Rome is burning
its funny in a way - socialism and communism fall apart after about 50-60 years. Capitalism takes about 200.
[ link to this | view in thread ]
PRMan, 28 May 2013 @ 1:56pm

"Went after Mt. Gox"
This is technically false. They went after Dwolla, which is a payment scheme for more than only Mt. Gox. It was retained by the founder of Mt. Gox after he sold the site to a Japanese firm. They apparently only seized the bitcoin account because that is where they traced some money laundering to.

Mt. Gox itself (the Japanese corporation K. K. Tibanne) has been complying with FinCen regulations and other anti-money-laundering legislation. Dwolla had not been.
[ link to this | view in thread ]
This comment has been flagged by the community. Click here to show it

Anonymous Coward, 28 May 2013 @ 2:03pm

Indictment: http://www.wired.com/images_blogs/threatlevel/2013/05/Liberty-Reserve-et-al.-Indictment.pdf

Actua l journalism: http://www.wired.com/threatlevel/2013/05/liberty-reserve-indicted/
[ link to this | view in thread ]
Bengie, 28 May 2013 @ 2:14pm

Re: Re: Key Take Away
According to tax law, even if you barter, you must pay income-taxes on the equivalent value of said items or services being exchanged.

Example: I work on computers and a friend works on cars. I work on his computer and he works on my car. We should both be treating our exchanges of skills as income equal to the going rate of said services.

If an exchange of goods or services are going on within the borders of the USA, the government wants a piece.
[ link to this | view in thread ]
DOlz (profile), 28 May 2013 @ 2:37pm

Re: Re:
Which of course why they shut down HSBC. Oh wait their money laundering was in the TRILLIONS, so nothing to see move along.
[ link to this | view in thread ]
Anonymous Coward, 28 May 2013 @ 2:52pm

Re: Re: Re:
Interesting video, thanks for the link!
[ link to this | view in thread ]
Anonymous Coward, 28 May 2013 @ 2:55pm

Re:
And it's a fact of life - alternative currencies that aren't tracked by the government are ripe for money laundering...

Another example of a useful service with legitimate customers being targetted and removed because 1) some bad guys use it, and 2) the government can't control it.
[ link to this | view in thread ]
Anonymous Coward, 28 May 2013 @ 3:03pm

What about the FED?
Last time I looked US Currency is used for pornography, child porn and illicit drugs...does this mean the Federal Reserve will get seized?!?!
[ link to this | view in thread ]
Anonymous Coward, 28 May 2013 @ 4:03pm

I think one reason why the sudden attack on Bitcoin is the fact that it makes some laws, current and future, effectively moot.

Before SOPA can ever be re-introduced, Bitcoin has to be erdicated, becuase websites whose payments get cut off under SOPA can easily use Bitcoins to get past that. Unless Bitcoin completely gets destroyed, it will make SOPA/PIPA moot, if either, or both bills, are ever re-introduced into Congress.

Another issue are the travel restrictions on Cuba. Someone could pay for a trip to Cuba to Bitcoins, and not be be subject to OFAC licensing restrictions. Under current law, Cuba trips paid for with Bitcoins are not subject to the travel restrictions. The restrictions do not make the travel itself illegal, but rather spending money. If a trip is paid for with Bitcoins, that is quite different. So I would imagine the hard-line Cuban exile community might have also had some input into this.
[ link to this | view in thread ]
John Fenderson (profile), 28 May 2013 @ 4:31pm

Re: Re: Re: Key Take Away
Yes, but that's a different thing. If you barter and don't report the income, that's tax evasion. The Bitcoin crackdown is (laughably) about money laundering.
[ link to this | view in thread ]
Anonymous Coward, 28 May 2013 @ 5:17pm

Re: Re: Rome is burning
It was an excellent system of governance, designed by men desperately trying to throw off the shackles of tyranny, and preserve their hard-won freedom for their descendents.

They knew corruption would set in, and made it as hard as possible to game the system. It literally took centuries for wealth to be consolidated enough to give rise to megacorportations with the resources to buy control of enough politicians to take over.

In my book, the Founding Fathers succeeded, but I suppose all good things must come to an end.
I wonder what'll happen to the Union? Perhaps it'll simply dissolve, like Russia's.
[ link to this | view in thread ]
horse with no name, 28 May 2013 @ 7:08pm

So what you are saying...
What you are saying is that you have a problem with the government enforcing the current exchange and transfer laws that are there to stop criminal organizations from moving money around the world easily?

You are saying that you are against "know your client" laws that apply to money transactions in the US and many other parts of the world?

You are saying that you support systems that make it easy for criminals to bypass systems created to stop them from being able to launder their ill gotten gains?

Did I miss anything?
[ link to this | view in thread ]
Anonymous, 28 May 2013 @ 7:39pm

Re: Rome is burning
Burn, baby, burn. This ain't no disco inferno.
[ link to this | view in thread ]
Anonymous, 28 May 2013 @ 7:40pm

Another problem that could be solved by anarchy.
[ link to this | view in thread ]
special-interesting (profile), 28 May 2013 @ 9:25pm

Bitcoin is one of the greatest, most brilliant, technical and cultural innovations. (What a statement!) Its a wisely envisioned way to enable personal privacy in conjunction with Internet/digital-commerce and still keep the very private concept of cash alive. Since paper-money/credit/bank/prepaid cards are under attack from every way possible by malicious crooks (notice no mention of the legitimate words like hacker, nerd, or white hat security tester) and counterfeiters is wonderful to see an improvement such as the Bitcoin concept.

In no way can individual anonymity of normal everyday purchases be underestimated in its function of allowing a free and open democratic society pursue the cultural ways it wants to express itself in. (open ended statement) This shows up immediately in how we contribute to political/activist organizations we support that may be controversial to other parts of society following culture we do not believe in.

Lets examine, some of this, concept with currently hot topics;

In the case of Prenda vs. John Doe (various/many) where an typical defendant might have been trying to use the (somewhat/mostly) anonymity of torrents to download controversial content made easily available because of recent technological advances (the Internet). (duh)

Why did this cultural group use this method of obtaining items? A) It probably was not available from any other source. B) The on-line available source required an address and credit card or PayPal and destroyed any form of anonymity that a cash purchase might provide. C) Other. (the concept of honey-pots/forced-rarity comes to mind)

Considering the religious and puritanical wars current politics wages their battles in... anonymity is the only way to defend ones personal cultural habits. Lets face the facts that marital infidelity (gimme a break!) is more damaging to a politicians career than fraud, waste, mismanagement of public funds, deception, theft, lying under oath, spying on the public, violating constitutional right, etc, etc, etc. (Citizen awareness is at an all-time low?)

Would the defendant in the Prenda case use a legitimate source to purchase these items if there was an reasonably anonymous and easy way to obtain them? A 100%, Likely, yes. It would, at least, be guaranteed to increase licensing profits.

This has wider implications than providing a way to pursue ones happiness in whatever form. How do we protect the anonymity of political contributions?? With US (and other) governments routinely abusing the tax collection agencies (IRS) to enforce audits and non-profit-status on any opposing group (Tea Party, candidates, etc... So much evidence, over so many administrations, please google it yourself) this should not be an argument?

The accusations of laundering and terrorist support are baseless in respect to the anonymity of an cash donation to whatever group/person/industry/item/whatever/etc anyone wants. Screw the critics. If anyone has evidence of wrongdoing don't please provide the evidence and not just mess up democratic society with some tyrannical scheme.

�Some� money laundering is no excuse to destroy or confiscate any exchange in the same way the Safe Harbors Act protects Internet Service Providers from random content. One might complain that the US Dollar is used for firecrackers or porn. Its always idiotic to enforce opinion/religious/puritanical values over democratic civilization as a whole. When one culture is allowed to pick on another we have the classic war of one class over another.

In a good democratic society we know that each individual will not always make a choice that others will agree on. Thats life. What is important is that we understand the diversity of our own population and allow for all the possibilities.

STUPID NOTE; The terms counterfeiters, hackers, down-loaders, IP, activist, protester have been misused/abused by malicious-special-interest-groups/government-bureaucracy so much that it must be painfully pointed out that only the normal dictionary meanings are used in this opinion here.

Reactionary,

Ninja. Control over the habits of average citizens by an industry influenced government is an obvious pitfall that any aware citizenry must try to avoid. Megaupload is a good example where the only thing that may be the media industry fears is the dissemination of creative commons based licensed content not under their control?

Control is a topic that should send shivers down any democratic citizens spine.

AC. The Bitcoin concept is in its infancy. Its value is dependent on both some leveling/averaging of world currency (evaluation/devaluation) and scarcity. The scarcity might be solved by increasing the bit level depth of encryption. (both a suggestion and complaint as weak bit level encryption is a vital concern.)

Key Take Away/Gwiz. Trust is a major factor in any currency. Current Fed money printing policies combined with current administration(s) lack of wise investment of such a windfall does not make for a promising economic future. In matters of trust would anyone feel that a US Fed based Bitcoin implementation a good thing? Would they likely manage it in the same was as the US Dollar?

Tax law has been a traditionally abused way to force purchasing habits of the average citizen. Tax refunds and even purchase rebates on your tax refunds are normally provided for any industry with the political special interest savvy to incorporate such motivations.

It is an opinion of mine that any purchases under 20,000$ usd (inflectionally adjusted) should be anonymous. Argue with me.

Rome is Burning. Democratic ideals are not dead. What is important is average citizen awareness. The current dangers to this is the DMCA and the indiscriminate Take-Down notice that requires no peer review.

Horse with no name. One must believe in democracy. To not believe in democratic society is to support some other society. What are your suggesting?
[ link to this | view in thread ]
horse with no name, 29 May 2013 @ 1:18am

Re:
Written with the encompassing style of a whackjob. You were only missing a reference to the sky colored helicopters that are following you and ET's brother at your last birthday party to complete the deal.
[ link to this | view in thread ]
Mr. Applegate, 29 May 2013 @ 3:16am

He who controls the money controls the nation.

Bitcoin is a threat to that control and Governments will stop at nothing to guard and retain that control!
[ link to this | view in thread ]
kirillian (profile), 29 May 2013 @ 6:53am

Re: Re:
Actually, his comment was rather sane. There was nothing in there suggesting that we should all go find tin-foil hats and put them on. Rather, while he meandered around a bit and referenced concepts without prepping us, he wasn't crazy or ranting really. No need to paint him as crazy with a broad brushstroke here. We can read for ourselves.
[ link to this | view in thread ]
Anonymous Howard (profile), 29 May 2013 @ 7:02am

Funny how they don't get bailed out after a few million (trillion?) fraud like BoA
[ link to this | view in thread ]
Anonymous Coward, 29 May 2013 @ 7:55am

They'll be coming for my lindens next!
[ link to this | view in thread ]
Greggore, 29 May 2013 @ 8:03am

???
So...should we get rid of other currencies in the world because criminals and terrorist might use them? should we outlaw cellphones because bad people might make IED's? Should we outlaw clothes because terrorist might use them to cover themselves up?

How does the US Gov get off shutting down a currency system? if they want to get rid of fraudulent money laundering and ponzi's, take a look at their own currency system!
[ link to this | view in thread ]
art guerrilla (profile), 29 May 2013 @ 8:49am

Re: Re: Re:
thank you...

the lesson being: insider stealing trillions, no biggie; outsider making a penny the insiders want?
death to the interloper ! ! !

sorry, that is what 'our' (sic) world is reduced to now...

art guerrilla
aka ann archy
eof
[ link to this | view in thread ]
Dirkmaster (profile), 29 May 2013 @ 8:50am

Re: Re:
written like a man who cannot address the issues, so resorts to insults.
[ link to this | view in thread ]
special-interesting (profile), 29 May 2013 @ 9:44am

Re: Re:
If anyone did not like this essay they will surely hate this new one...

http://www.techdirt.com/articles/20130520/01205823144/authoritarian-governments-still-tryi ng-to-seek-more-control-over-internet.shtml#c332

Most of my essays try to be self referential conceptually in that an augment is built up with reason and evidence and some conclusion is reached. Many times has the conclusion surprised me and like that a lot.

It does take some time and usually they end up at the bottom of the posting stack. Oh well.

It pains me to admit that there could be better examples rather than what comes 'out of mind' in real time and that there should be more linked references for better relevance. But if one takes the time to do all that it gets posted very late and whats the point if nobody reads it?

Thanks for the response.
[ link to this | view in thread ]
tqk (profile), 29 May 2013 @ 8:46pm

Re: So what you are saying...
You are saying that you support systems that make it easy for criminals to bypass systems created to stop them ...

You appear to be suggesting that anything that could be used by criminals to commit a crime is almost by definition deserving of being outlawed.

Should this include carpenters' tools (hammers), mechanics' tools (screwdrivers), motor vehicles, guns ... (all of which have been used to kill)?
[ link to this | view in thread ]
Androgynous Cowherd, 30 May 2013 @ 3:14pm

Notes
It's no secret that Bitcoin can and is used for less than legal purposes,

So are US Treasury notes.
[ link to this | view in thread ]
yermom, 31 May 2013 @ 10:58am

If I could, I'd like to get hired by the FBI. But - hey look you have debt and live in a house with a freaking mortgage. Debt discrimination? I wonder if such a thing even exists
[ link to this | view in thread ]
vivian, 9 Jun 2013 @ 6:38am

LIBERTY RESERVE
if you know you lost your fund in LIBERTY RESERVE shot down, you do need to worry , just email me at tomsvivian@gmail.com with your name and country , i will help you get your funds
[ link to this | view in thread ]