Authorities in the Central American nation said Arthur Budovsky had been subdued in Spain on suspicion of revenue laundering, following an investigation which also called for the US.
They added that police had raided several of Mr Budovsky’s properties and seized his computer servers.
The site went down on Thursday. Liberty Reserve had depicted itself as being the internet’s “oldest, safest and most popular payment processor… serving millions all around a world”.
According to Krebs On Securities blog, the closing of Liberty Reserve has the potentiality to “cause a major upheaval in the cyber crime economy”.
He said there had been “apprehensive discussions” about the news on many forums after fraudsters and malware vendors discovered they where not able to access their accounts.
But others say they used the service for legitimate reasons, and are concerned about the lack of information.
Co-founder Mitchell Rossetti said he had about $28,000 sitting in his business’s Liberty Reserve account at the time the site went offline.
“We used Liberty Reserve because it was quick, efficient and secure,” he told the BBC.