The digital currency service, based in Costa Rica, allows people to set up an account by providing just a name, date of birth and email address, and then exchange money into the site’s own currency, enabling them to move it around the world anonymously.
Authorities in Costa Rica announced on Saturday the raids had taken place with the support of United States investigators, and the site has been offline since Thursday after computer equipment and servers were also seized, reports the BBC.
Budovsky was arrested on suspicion of money laundering.
It is believed the site, libertyreserve.com, was popular with cybercriminals because of the ability to remain anonymous, although others used it because it was cheaper and quicker than other services such as PayPal.
Ten other suspects were arrested along with Budovsky in connection with money laundering.
Liberty Reserve was refused a licence by Costa Rica’s financial regulator, Sugef, in 2011 but despite closing down the company, Budovsky continued its operation through his other businesses.
Bryan Krebs, an internet security expert, said the law enforcement action could cause a “major upheaval in the cybercrime economy”.
