Liberty Reserve, a payment processor frequently used in the multi-level marketing industry, was shut down today following the arrest of its creator and owner, Arthur Budovsky Belanchuk, in Spain. The shutdown followed an investigation that began in 2011 involving Costa Rican authorities.
Costa Rican prosecutors raided Budovsky's home and offices in Escazú, Santa Ana, and Heredia. José Pablo González, a Costa Rican prosecutor, confirmed Budovsky, a citizen of Ukrainian origin, had been under investigation since 2011 for money laundering through Liberty Reserve. These local investigations started after a request from a New York prosecutor's office.
Budovsky's businesses in Costa Rica reportedly received financing from child pornography websites and drug trafficking operations. Liberty Reserve served as a payment processor for numerous MLM companies, handling transactions for both established businesses and schemes of questionable legitimacy.
The Global Digital Currency Association (GDCA) listed Liberty Reserve as a member. The GDCA website states its goal is to "further the interests of the industry as a whole and help with fighting fraud and other illegal activities." This stated mission contrasts sharply with the money laundering charges against its member.
As of publication, the Liberty Reserve website returns a "503 service unavailable" error. The status of funds held by many MLM affiliates in their e-wallets remains unknown. Affiliates with long experience in the industry often express caution when an MLM company uses certain payment processors, a wariness justified by events like this.
Scams have funneled hundreds of millions of dollars through such platforms over the years, often for the same reasons child pornographers and drug traffickers use them. In November 2013, Liberty Reserve co-founder Vladimir Kats pled guilty to money laundering and operating an unlicensed money transmitting business. He awaits sentencing.