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FX Traders Stunned as Liberty Reserve Shuts Down After Owner’s Arrest

International spot FX trader are feeling an economic brunt as their preferred payment method for deposit and withdrawals with FX brokers has been shut down after the arrest of Arthur Budovsky Belanchuk.

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Liberty Reserve, the leading payment channel for traders in emerging and frontier markets, has come under fire and the firm has been taken out of operation, according to a report in the Tico Times. As reported, the owner of the South American based company has been arrested by authorities in Spain in alleged connection with serious financial crimes.

It is believed that Arthur Budovsky Belanchuk (39), owner of the popular Liberty Reserve, was arrested on Friday 24th of May in Spain as part of an international operation spearheaded by the United States and Costa Rican governments on financial crime. Mr. Belanchuk, a Costa Rican citizen of Ukranian origin, was under investigation since 2011 after authorities flagged his firm for money laundering. Apart from financial and general e-commerce, it is thought by the investigators that the company engages in illicit payments from criminal activity such as child pornography and drug trafficking.

Forex brokers have been benefiting from Liberty Reserve’s vast access as a payment provider, especially in countries where traders face difficulties in transferring funds. “Liberty Reserve was a ‘gift’ for several traders, especially after the State Banks’ (State Bank of Pakistan) changes to international money transfers”, said Masroor Ghoori an introducing broker and analyst from Karachi, Pakistan, in a comment to Forex Magnates. Liberty Reserve is a payment channel whereby people can send and receive secure payments without revealing their account numbers or identities.

Forex brokers operating from heavily regulated markets such as the UK are obliged to use payment channels that are regulated, for example UK brokers use services provided by the likes of Money Bookers. Liberty Reserve (LR) an un-regulated service is used by several international forex brokers, such as; Marketiva, FXOpen, Markets, Instaforex and others.

liberty reserveLiberty Reserve has been widely used by traders where central banks restrict bank transfers to foreign entities; for example in countries such as Malaysia, Pakistan, Argentina, Nigeria and Brazil the company has been the preferred payment method. The service offers traders a fast and cost effective method with charges capped at $2.99.
Liberty Reserve’s website has been shut down and none of their international representatives in India or Malaysia were reachable for comment. Dery Rusdan one of the largest introducing brokers in Indonesia said in a comment to Forex Magnates: “We always thought that Liberty Reserve could have issues like e-gold but this was a shock, business will suffer.”

A Dubai based brokerage firm who wished to remain anonymous told us: “We average around $250,000 to half a million in monthly deposits, mainly from Asia and Africa.
Forex traders have faced issues with payment providers in the past, like with e-gold, a digital currency provider that was found guilty of money laundering by US authorities”.

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36 Comments

  1. ottelo

    In the end provider of financial systems such as liberty reserve on this internet seems to find the end point. there is little personal experience that I had just experienced last Thursday may 23-2013 wherein the same time my account hacked by an account calling itself (SOL) U5124662.

    There is confusion in the account after surfing the internet and found that the account has a lot of piracy activities against other LibertyReserve account, where I can find it by googling on google with the same story as I experienced.

    I’m not accusing but based on the rules specified by the customer service and rules which seem irrelevant to mention that every transaction can not be returned or suspended when an error occurs, it is very disturbing and tends to weaken the client side, even though at that time I was asked to immediately freeze the transaction through chat with customer service in order to take early action in anticipation and then conduct an investigation through the abuse department.

    My suspicion was mounting an email reply which answers 48 hours promised not forthcoming while no clarity will return the money or the piracy problem like this. How could anyone trust a financial institution with a service system is so weak as this in terms of keeping customer service, if only because the transaction positivenya is instant speed, but ultimately backfired for customers, especially for countries that are still a lot and do not use the system relevant in terms of protection of their computer systems.

    A final thought possible Libertyreserve conspiracy to create an account hijacker as mentioned earlier to control the rotation of its e-currency randomly programmed to piracy and organized the schedule ter certain countries, because before this news dropped, in Indonesia had been rife and aggressively once this piracy. Imagine a retail trader can make a deal LR $ 100 – 1K / day for himself. and what about the money now?! broker may want to convert to other methods of payment for deposit them later. greetings and be careful

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  2. Jon

    This is EXACTLY, EXACTLY, EXACTLY why Bitcoin is so important. It is a digital currency that is 100% completely decentralized. So even if one exchanger gets shut down or accused of negative press or [WHATEVER lame interventionist excuse here], the totality of the blockchain and the Bitcoin currency can continue to survive. I’m sure all of the bitcoin advocates will quickly quote this article, as this news clearly strengthens the argument.

    Fiat currency is used for illegal activities also, right? But I guess the de-facto world reserve currency does not want any competition. There are thousands of legitimate people running businesses with libertyReserve and the like. Is it fair to those businesses to shut down an entire processor operation because of a few bad apples?

    e-Gold and LibertyReserve are two good examples of digital currencies that had great potential as a practical alternative to wire transfers and fiat currency-based digital payment (i.e. credit cards). And look what happened to them (LibertyReserve I am unaware how long they have been offline).

    Quick question: could the same thing happen to WebMoney? I’m thinking any counterparty that is subject to a central authority can be shut down by that authority, either directly or indirectly via pressure from an indirect authority (e.g. USA alphabet team)

    This type of counterparty risk is not so far fetched. Remember the Cyprus haircut proposal? Where were the public servants then? A broker, ‘offshore’ or not can simply vanish with the flick of a switch. I really hope the shutdown of LibertyReserve is temporary. But even still, it emphasizes how important crypto currencies are.

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  3. Jon

    I forgot to add. The brokers who were affected the most were the brokers who held float amount of client funds in liberty reserve. In other words, they did not actually convert the funds to USD, EUR, etc but kept it in LR USD/EUR etc.

    The account balance did not reflect this distinction, and now clients are in a bind.

    And another question: how often has this happened in the past? Perhaps an article on this would help users understand this type of counterparty risk.

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  4. john doe

    I say f%$# the US government! What’s their problem with a payment processor that has no business in their country.
    Liberty Reserve is a payment processor which has no value in the USA and they still just don’t mind their business.
    They really need to start minding their own business! They are just control freak! Iwanncontroleverythingdotcom!F%#$ERS!

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  5. uncle

    So what happens to our funds?

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  6. daud khan

    huh liberty reserve LR is a good and fast digital currency every digital currency can be used illegal and legal so the lr should be back we love lr

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  7. Ron Finberg

    @Jon – re:WebMoney – funny you mention them – they just added BTC wallets. Researching for a possible article about that story, the view is that webmoney started out with suspicions of whether it was legit or a scam/ponzi scheme. Those worries have subsided though as it keeps churning. Some compliance people I spoke to claim that they typically haven’t had problems with deposits/withdrawals except for the occasional time that a payment gets mis-accounted for, but those issues are fixable.

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  8. daud khan

    you are right john doe and specially its a russian company and usa doesnt want it it should be back and the owner should be released from the jail he is aa good and a helper man

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  9. Andy

    OMG, i hate bank transfers which take too long and now liberty reserve is gone. The cheapest one of all, how am i going to get my 499.99 over there? and will brokers like instaforex allow me to withdraw by other means even though i deposited with liberty reserve?

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  10. Multan

    I’ve deposited money with LR to my HotForex… Its Sunday night.. I’m worried.. how they are going to react on it? whether, I’ll be able to get other ways to get withdraw like Payoneer Card?

    What really USA Govt. Have to do with it?

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  11. Andrew Saks McLeod

    Methods of payment seem to be getting increasingly fewer in numbers outside of bank transfers/standard merchant credit cards. The NFA may ban use of credit cards for deposit to forex accounts in the future too

    It isnt just the regulators either. Acquiring banks are extending their due diligence when dealing with payment to unregulated companies:

    http://forexmagnates.com/the-payments-purge-unregulated-forex-companies-risk-full-refund-of-client-money/

    Omnibus accounts can be used to conceal payment methods from regulators too.. especially from white label partners of forex firms located overseas. The CFTC reminded all participants last week that they are continuing to conduct inspections of omnibus accounts and reports should be filed…

    Question is, what is the next method of deposit for retail brokers with clients in Asia/Africa/Middle East where LR was popular?

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  12. Booter

    F@#$ US. What is there f&^$ing problem? We want LR back or US gov will suffer alot. They have f@#&ed our business and if LR doesnt come back we will f&%$ there business too. Enough is enough

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  13. Salman

    We should stand for LibertyReserve >>>>>>>>>>>>

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  14. moinul islam

    Hello,

    I have a question…

    if paypal or ebay owner do same as LR owner did, then does paypal or ebay got down>?? Never…
    i think LR down by paypal through usa cause LR is top competitor of paypal, and also some others.. however, there are millions of legit guys getting bread and butter from LR and forex. what about it? and i do not think the million dollar incomer like LR owner going to do drug and child porn to get caught by US police.
    when julian assange cought for wikileaks.. usa did same complaints against him.

    Hope, LR will back soon… really come back..

    hope for the best..
    thank you

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  15. Techboy

    Honestly, LR has advantage over e-currency processors but they allow anonymous registration that prompt scalawags and ponzi programs to take advantage over honest members…in fact I lost 1k from my account before by also another member and yet the management done nothing about it….so it would be better to shut down such company unless they submit to some regulation in a particular governing body…..safety of funds should not be compromise…I suggests that netrepreneur should consider other safe processor, such as skrill, paypal and other with the same level of security…….

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  16. johan

    Question is, what is the next method of deposit for retail brokers with clients in Asia/Africa/Middle East where LR was popular? -> perfectmoney

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  17. ottelo

    The main problem that all trades all around the world should realized is, on this case we just don’t facing the fastest or cheaper transaction. I also agreed regarding this LR give us good services among the fees , but as we aware our finance transaction no matter what its about money and yes it our money and not belongs to any provider or processor either exchangers. so My opinion things must be clear and protected where we can get claimed if problems come and this not about country ! once again it is about how to secure people money in the right way !

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  18. ANONYMOUS

    F*&@ THE USA !!!! THEY HAVE NO F%^^ing RIGHT TO SEIZE FUNDS OF FOREIGN INVESTORS WHO HAVE HAD ACCOUNTS IN LIBERTY RESERVE…WE SHOULD SET UP A PETITION AND GET THOSE SCOUDRELS TO RETURN OUR FUNDS IMMEDIATELY WITHOUT QUESTION!!!

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  19. Andy

    There are to many people posting as ‘Andy’ on this site.

    Personally i think someone who lost more than lunchmoney in this can only blame himself. A fool and his money..

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  20. Ron Finberg

    Never heard of them until now, but another firms called Perfect Money announced that it is no longer accepting US clients. https://perfectmoney.com/news_view.html?id=342
    We assume this is in reaction to the LR news

    BTW-if the site doesn’t open for you, it’s probably due to your malware settings prohibiting the site (not a great indicator)

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  21. ecobest

    USA has tried in fighting money laundering, they should also try in rescueing innocent and genuine business funds trapped in the so called closure of LR. Stopping or no stopping of LR is not an issues but the real issue is what plan has USA in helping traders of online forex get their fund out of LR. Until that is done, their action is not justified.

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  22. Jon

    It appears that the weakest link for a centrally controlled digital currency is the central authority itself. So if the owner or a representative does something that crosses the authorities of the jurisdiction it is located in, it has potential to shut down all operations for that currency. It’s kind of sad that all it took was one person to shut down the entire LR operations (or at least the most important ones, which is access to your currency account to make/receive payments.

    For a decentralized currency, the weakest link is the exchanger. The good news is that it is easy for an exchanger to be above the board; they just have to comply with the various anti-money laundering rules that govern all licensed money changers/transmitters (e.g. western union, paypal, etc).

    A recent example is Mt Gox getting their Dwolla account seized by Dept of Homeland Security last week for failure to properly obtain a license for money transmitter. This puts client funds at serious risk. Surprised FM has not done an article yet on that. But Bitcoin itself keeps going along is still chugging along, which only further proves the point of using Bitcoin and similar cryptocurrencies in the first place.

    Another article should be written on whether more and more payment providers will decentralize part of their operations to enhance survivability.

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  23. Tom

    What gonna happen with the money deposited to Liberty Reserve ? I have a few hundred dollars there.

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  24. johan

    i think usa arrested the owner, but the LR team is the one who shutdown the website (and probably run with all the money)

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  25. rajiv

    well i can expect it from LR, its ok i have no faith over moneybooker,paypal or any service like that ,because i get same pain from paypal and moneybooker ,they want documents which they never get my account status as verified,i send many times my document to them via post.

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  26. Andrew Saks McLeod

    Ecobest – I agree to an extent, however it will be interesting to see how many brokers whose clients got caught up in this will indeed reimburse the clients from their own funds. Its a question of risk management in this case. Legitimate brokers accepted funds via this unregulated and almost no-questions-asked method, which facilitated easy deposit but then they were likely aware and prepared for consequences should an event like this occur.

    It isnt really a government responsibility to reimburse people who used this method, as it is an unregulated foreign entity. It is however the US government’s responsibility to protect customers hence the action taken against LR.

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  27. LEKKSITE

    This really bad……because some businness owners has lot of money in it

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  28. ecobest

    If that be the case it is rather unfortunate because the so called regulated online payment providers doe not entertain accepting customers from some part of the world even when those customers are running legitimate business they care not to know. How do they want people in those part of the world to survive, yet they are singing about reduction of crises people should be involved in legitimate businesses to survive and yet they care less about the funds of those in legal and legitimate business. You wake one day and closed a provider you know fully well it has a lot of fund of thousands of individual doing legitimate business for the sake of very few cases of fraud or laundering they shut down the provider and let the owners of those funds to go hell. That is not right. Was there a campaign of what the owner of lr is doing concernin money laundering for those patronizing his company to be careful doing business with his company?. No not at all I suppose but just suddenly its site was shut down. I suppose they should find a way of getting our legitimate earned fund out of lr before they shut down. I am not against their shutting down lr for illegitimate transactions and businesses but get our fund out and then carry out whatsoever. This is my submission.

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  29. nnamdi

    THIS IS A SERIOUS ISSUE. I HAVE OVER $1000.00 TRAPPED IN LR. WHAT ABOUT LR TEAM? PEOPLE S’ MONEY ARE WITH LR TEAM NOT THE FOUNDER IN CUSTODY.

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  30. James

    Interesting read:

    Since 2011, It seems the owner of Liberty Reserve started to send big chuncks of money into bitcoins while other funds are kept in bank accounts. This could help him continue the business as bitcoins can not be seized (atleast not yet) but for that to come he needs to be out of jail. And this is quite difficult as he was on probation after he was jailed in US back in 2006 for running a financial business without proper license – GoldAge.
    How to get your money back from Liberty Reserve – http://topgoldforum.com/topic/29815-breaking-news-libertyreserve-owner-was-arrested-and-the-site-is-now-closed/?p=175011

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  31. Jimmyfx

    Surely the brokers should share some responsibility for providing dodgy deposit options for its clients. It’s very clear for all to see that this method stunk as a money laundering machine…

    So all those that have money tied up with this cr@p, you need to ask yourself, was it worth it?

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  32. Jeffrey Bruce

    The only money laundering going on is by the corrupt Obama Regime in the US.

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  33. Jon

    @JimmyFx 1) fiat currency was and is still laundered much more than digital currencies.

    2) Even in western countries, not everyone wishes to use credit. But especially in developing nations and/or cash societies, liquid/secure digital payments are ideal to pay for goods both at home and abroad.

    3) Fiat currencies can and do collapse or can get a haircut. The banking system requires TRUST, just like any other payment system. Bitcoin and currencies like them are unique in that the blockchain is open, so trust is limited to technological integrity of the actual currency, not human error or ownership. The banks and central gov’t provide additional incentives to use their credits such as consumer protection. Private currencies place the burden of responsibility on the individual users / sovereigns.

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  34. Andrew Saks McLeod

    @Anonymous – The US government takes customer protection very seriously, which in terms of stability is a good thing.

    I am not doubting that this will affect some parties in the short term, but in stopping methods of payment which increase exposure, it secures the funds of those who operate in accordance with the law long term. Downside: Very expensive operating costs for forex companies, with operating capital requirements very high, potential credit card ban and lots of regulatory reporting/compliance adherence. Some retail companies have exited the US recently citing the operating costs and regulatory stringency as major factors. Post financial crisis, the US still holds out as a very straight business environment and therefore has to protect its residents, businesses and credibility.

    Still, what price safety? ….

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  35. Ron Finberg

    @Jon – in regards to MtGox and Dwolla, we did post about it and how bitcoin firms that are getting launched recently (I guess they are the 2nd wave of firms) are recognizing the importance of having strong banking relationships.

    In terms of a central vs decentralized operation – this isn’t so easy. Bitcoin works because it is a quasi central/decentralized product. There is an open source central block chain for reporting and identifying payments, but decentralized in terms of their being no middle man.

    Centralized payment solutions, whether in terms of the largest players like banks or visa/mastercard require trust. And that’s what you pay for. So while a decentralized solution makes sense in theory, there is still a large trust factor that needs to be created. The fact that LR and similar products exist shows the demand for a trustworthy 3rd party to enable cross border online transactions. However, knowing how trustworthy the 3rd party firm is, is difficult to decipher.

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