Online Service Is Accused in Laundering of $6 Billion

The organization, Liberty Reserve, was responsible for laundering over $6 billion over the last seven years, with millions of customers around the world, according to the indictment. Prosecutors said that the company “facilitated global criminal conduct” and that the case, which involved law enforcement agencies in 17 countries, is believed to be the largest international money laundering prosecution in history.

The charges detailed a complicated system designed to allow people to move sums of money both large and small around the world with virtual anonymity, according to a three-count indictment announced by the United States attorney’s office in Manhattan.

“This was really PayPal for criminals,” a senior law enforcement official said, calling the company and a system of related businesses “a shadow banking system for criminal conduct” that was “able to facilitate all sorts of criminal conduct that would not otherwise happen.”

The indictment charges seven of the company’s principals and employees. Five of them were arrested Friday in Spain, Costa Rica and Brooklyn.

“Liberty Reserve was in fact used extensively for illegal purposes, functioning in effect as the bank of choice for the criminal underworld,” the indictment states.

Liberty Reserve, an online currency exchange, has surfaced as a preferred vehicle to transfer money between parties in a number of recent high-profile cybercrimes, including the indictment of eight New Yorkers for their role in looting $45 million from bank machines in 27 countries.

Liberty Reserve was incorporated in Costa Rica in 2006 by Arthur Budovsky, who renounced his United States citizenship in 2011, and was arrested in Spain on Friday.

Preet Bharara, the United State attorney in Manhattan, was expected to announce the charges at a Tuesday afternoon news conference along with officials from the Justice Department, the Secret Service, the Internal Revenue Service and the Department of Homeland Security.

In addition to the criminal charges, five domain names were seized, including the one used by Liberty Reserve, and officials seized or restricted the activity of 45 bank accounts.

The charges outlined how the money transfer system operated, offering a glimpse into the murky world of online financial transactions that bounces money between far-flung accounts from Cyprus to New York in the blink of an eye.

In order to transfer money using Liberty Reserve, a user needed to provide a name, address and date of birth. But they were not required to validate their identity.

“Accounts could therefore be opened easily using fictitious or anonymous identities,” the indictment states. Prosecutors cited “blatantly criminal monikers” used by Liberty Reserve clients like “Russia Hackers.”

Essentially, all a customer needed to open an account was an e-mail address.

The senior law enforcement official, who spoke on the condition of anonymity because the charges had not yet been announced, said that one undercover agent was able to register accounts under names like “Joe Bogus” and describe the purpose of the account as “for cocaine” without questioning. That no-questions-asked verification system made Liberty Reserve the premier bank for cybercriminals, facilitating a broad range of illegal online activity.

The senior law enforcement official said the case was significant because it attacked the financial infrastructure utilized by many cyber criminals in much the same way that drug money laundering prosecutions have sought to target the financial underpinnings of the narcotics trade.

“They’re not going to have this kind of fluid system that allows them to work globally in the same way,” the official said, noting that federal authorities were unaware of any other such system that operates on a similar scale. “It’s not the end of it,” the official said, referring generically to such cyber money laundering schemes, “but it’s a big deal.”

DealBook: HSBC’s Profit Fell 17% in 2012 on Money Laundering Fine

Andrew Cowie/Agence France-Presse — Getty ImagesThe London headquarters of HSBC.

1:49 p.m. | Updated

LONDON — HSBC, Britain’s biggest bank, said on Monday that its net profit fell 17 percent last year because of a record fine to settle money laundering charges and changes related to the value of its debt.

Profit fell in 2012 to $13.5 billion from $16.2 billion a year earlier, failing to meet analysts’ expectations. The bank also missed its own target of return on equity of 12 to 15 percent, recording only 8.4 percent on the measure last year. Its shares fell 2.5 percent in London on Monday.

Despite the drop in earnings, HSBC disclosed Monday that 204 employees were each paid more than £1 million, or about $1.5 million, last year, compared with 192 who received more than £1 million a year earlier. The bank cut its bonus pool to $3.7 billion in 2012 from $4.2 billion across the entire company but slightly increased the amount it set aside to pay its investment banking staff.

The bank’s chief executive, Stuart T. Gulliver, earned a total of $7.4 million last year, including benefits, pension and an annual bonus of $1.95 million, compared with $8 million a year earlier.

Douglas J. Flint, HSBC’s chairman, said in a statement that last year was “a difficult one for all at HSBC as we addressed the restructuring of the firm against a lower-growth economic backdrop and with legacy issues and regulatory challenges imposing a further set of imperatives.”

Mr. Gulliver added that he expected the market environment to remain “difficult,” but that HSBC would benefit from growth of the economies in China and the United States even if European markets continued to struggle.

To fulfill his pledge to increase profitability, Mr. Gulliver took the bank out of some markets, sold business divisions and eliminated jobs. HSBC has closed or sold 46 businesses and investments since 2011, including four this year. The bank sold its stake in Ping An Insurance of China for $9.4 billion and sold its credit card unit in the United States to Capital One Financial for $2.6 billion. HSBC also sold its unit in Panama to Bancolombia for $2.1 billion last month.

In December, HSBC agreed to a record $1.92 billion fine to settle charges with United States authorities that the bank breached rules against money laundering, including that it handled money transfers worth billions of dollars for countries under United States sanctions.

The bank has also had to set aside money to pay clients who were improperly sold some financial products. “The level of complaints received was higher in volume and over a more sustained period than previously assumed,” the bank said in its earnings report. HSBC had to set aside more than $2 billion to compensate customers, which prompted its British operations to report a loss for last year.

HSBC, based in London, generates more than half of its profit in Asia. Growth in China has helped the bank compensate for shrinking or slower-growing income in Europe since the beginning of the financial crisis. Europe was the only region where HSBC’s earnings declined last year.

The bank said it had made solid progress on gradually reducing the size of its consumer lending and mortgage portfolio in the United States. HSBC’s fastest-growing business last year was its retail banking and wealth management operation.

HSBC added that it planned to increase the first three interim dividends this year by 11 percent.