Liberty Reserve Puts Bitcoin Under A Microscope

The headlines around the globe this morning are flashing news that Liberty Reserve, the largest digital payment system, has turned about to be the largest money laundering agency in the world. Global arrests of the founders and members of Liberty Reserve including seizure of funds and even their domain, indicate that the government is not messing around. The US government says that the online payment system laundered funds for drug dealers, pornographers and terrorist.

The founder of an online currency transfer business was indicted in the United States along with six other people in a $6 billion money-laundering scheme described as “staggering” in its scope, authorities said Tuesday. Authorities say the network processed at least 55 million illegal transactions worldwide for 1 million users, including 200,000 in the United States. They call the international money-laundering case the largest ever.

“The scope of the defendants’ unlawful conduct is staggering,” said an indictment unsealed in federal court in Manhattan. In announcing the case, U.S. Attorney Preet Bharara said the network “became the bank of choice for the criminal underworld.” The headlines are indicting all online transfer payment agencies that operate outside of the global monetary rules and laws will have rippling effects on the growing world of digital payment systems.

Whether a payment system in complicit in allowing criminals and terrorists to freely move funds between each other, or develop a network outside of standardize banking and money laundering controls, they are conspirators in the crimes. Under US laws, a conspirator does not have to take an active part in a crime, or even knowingly be involved in the criminal activities; they are part of the conspiracy.

Under the US criminal definition of conspiracy is” Conspiracy is a crime separate from the criminal act for which it is developed. For example, one who conspires with another to commit Burglary and in fact commits the burglary can be charged with both conspiracy to commit burglary and burglary. Conspiracy is an inchoate, or preparatory, crime. It is similar to solicitation in that both crimes are committed by manifesting intent to engage in a criminal act. It differs from solicitation in that conspiracy requires an agreement between two or more persons, whereas solicitation can be committed by one person alone.

Why is this important?  Liberty Reserve regardless of guilty of a direct criminal act is guilty of at least conspiracy. But the question is not how this effect Liberty Reserve does as their future is at the hands of the American judicial system; it is the effect on global payment and currency systems. Systems like Bitcoin. Bitcoin is not anonymous. In fact, experts say that if prosecutions like Liberty Reserve continue, the most likely targets are major payment systems like WebMoney and eForexGold; payment systems that security experts contend allow their users to move capital anywhere in the world without verifying their identities. Bitcoin operates with greater transparency than those systems. It may be fully decentralized and requires no central bank or government authority, but Bitcoin transactions are as public — if not more so — than any other payment network. Each transaction is recorded in a public ledger, called a “block chain,” to keep people from writing the digital equivalent of a bad check.

The fact is whether or not the transactions are listed the owner and the identities of the owners are not verified and there are no records or documents required to hold accounts and move money. Bitcoin is about to face a barrage of legal questions and new laws to make them function within the banking and money laundering laws that any financial agency is required to follow.