Liberty Reserve digital money service shut down, founder arrested

Costa Rican-based digital currency service Liberty Reserve went offline on Thursday after the reported arrest of its founder, Arthur Budovsky.

Budovsky was taken into custody in Spain on suspicion of money laundering following an investigation that also involved the US. Police have also raided several of his properties and seized his computer servers.

Central American newspaper the Tico Times reported that investigators allege Budovsky's businesses in Costa Rica were used to launder funds from child pornography websites and drug trafficking.

Liberty Reserve had described itself as being the internet's "oldest, safest and most popular payment processor… serving millions all around a world."

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It allowed users to open accounts and transfer money by only providing a name, date of birth and email address. Those and other lax security features made it popular among cybercriminals who wanted to move money and make payments anonymously.

In April 2011, it was discovered that Liberty Reserve customer information was accessible to Amazon. A reported script problem in August 2012 also ended up locking users out of their accounts, some of which had tens of thousands of dollars in them.

And this isn't the first time Budovsky has had trouble with the law. In 2006, the Liberty Reserve founder and his partner, Vladimir Kats, were indicted in the US on charges related to their business, Gold Age. Authorities said Gold Age had illegally transmitted at least $30 million to digital currency accounts, leading to the sentencing of the two men to five years in prison in 2007. The pair only ended up serving probation.

Budovsky then left the US and headed to Costa Rica, where he started his latest business, Liberty Reserve.