Vladimir Kats, a co-founder of the digital currency system Liberty Reserve, pleaded guilty Thursday to charges of money laundering and operating an unlicensed money transmitting business. The system, established in 2006, previously claimed to be "the oldest, safest and most popular payment processor" serving millions globally. Authorities shut it down in May 2013.
The shutdown followed a joint operation across 17 countries, involving Costa Rican, Spanish, and US authorities. Investigators found money was being funneled into the processor for laundering. Prosecutors allege Liberty Reserve laundered over $6 billion in criminal proceeds during its operation.
Acting Assistant Attorney General Mythili Raman stated Kats "helped to create and operate an anonymous digital currency system that provided cybercriminals and others with the means to launder criminal proceeds on an unprecedented scale." U.S. Attorney Preet Bharara added that Kats "served as a global banker for criminals, giving them an anonymous, online forum to hide the proceeds of their illegal and dangerous activities." Bharara called the plea a "significant step toward punishing those responsible for creating and running this international den of cybercrime."
Cases against Kats' co-defendants, including other co-founders and operators of Liberty Reserve, remain pending.
The payment processing landscape for MLM companies has seen other disruptions. International Payout Systems (i-Payout) recently defended its decision to take on TelexFree as a client. This move came after fellow e-wallet provider Global Payroll Gateway (GPG) dropped TelexFree just months after initiating payment processing services.
GPG has not provided an official reason for ending its relationship with TelexFree. However, its website states the processor uses "government insured trust accounts" and "works with" Visa. GPG also claims strict adherence to the USA Patriot Act and various other international financial regulatory and banking regulations, including those for Anti-Money Laundering, Identity Protection, and Payroll.
TelexFree faces pyramid scheme charges in Brazil. Brazilian authorities have conducted months of investigations, and the company has lost fourteen appeals.