A notice pasted across Liberty Reserve's website Tuesday morning said the domain "has been seized by the United States Global Illicit Financial Team." Attempts to reach Liberty Reserve by phone and email were unsuccessful.
Budovsky and Kats have previous convictions on state charges related to an unlicensed money transmitting business, according to court papers. After that case, they decided to move their operation to Costa Rica, the papers said.
In an online chat captured by law enforcement, Kats admitted Liberty Reserve was illegal and noted that authorities in the United States knew it was "a money-laundering operation that hackers use."
While authorities described Liberty Reserve as being rife with criminals, the site's ease of use, low fees and irreversible transactions that deterred fraud also attracted legitimate users.
Mitchell Rossetti, whose Houston-based ePayCards.com was one of several mainstream merchants that accepted Liberty Reserve's online-only currency, said his business still had about $28,000 tied up in Liberty Reserve accounts.
"The irony of this is I went to them because of the security," Rossetti said. "All sales were final."
He acknowledged that the currency was being used by scammers but said Liberty Reserve funds were just like any other currency: "The U.S. dollar can be donated to a church or it can pay a prostitute."
Liberty Reserve appears to have played an important role in laundering proceeds from the recent theft of some $45 million from two Middle Eastern banks, according to documents made public by U.S. authorities earlier this month. In that scheme, thieves stole debit card information and then used it to drain cash from thousands of ATMs around the world in a matter of hours.
As part of the Liberty Reserve investigation, authorities raided 14 places in Panama, Switzerland, the U.S., Sweden and Costa Rica. In Costa Rica, investigators recovered five luxury cars, including three Rolls-Royces. Bharara said authorities also seized Liberty's computer servers in Costa Rica and Switzerland.
The businesses that were raided in Costa Rica on Friday as part of the investigation into Liberty Reserve are dedicated to Web hosting services, website development and Internet business consulting.
In Costa Rica, all online businesses are legal and there aren't any laws regulating them, so the country has been attracting entrepreneurs setting up Internet-based companies that do everything from e-commerce to gambling banned in other countries.
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