Tuesday, March 11, 2008

Follow the money: Find Democrat Governor with hooker

ABC News has a follow up on the Eliot Spitzer scandal:

The federal investigation of a New York prostitution ring was triggered by Gov. Eliot Spitzer's suspicious money transfers, initially leading agents to believe Spitzer was hiding bribes, according to federal officials.
It was only months later that the IRS and the FBI determined that Spitzer wasn't hiding bribes but payments to a company called QAT, what prosecutors say is a prostitution operation operating under the name of the Emperor's Club.

And later...

The suspicious financial activity was initially reported by a bank to the IRS which, under direction from the Justice Department, brought in the FBI's Public Corruption Squad.

"We had no interest at all in the prostitution ring until the thing with Spitzer led us to learn about it," said one Justice Department official.

Spitzer, who made his name by bringing high-profile cases against many of New York's financial giants, is likely to be prosecuted under a relatively obscure statute called "structuring," according to a Justice Department official.

So it wasn't that the Feds were investigating the prostitution ring and found Spitzer, but that they were investigating Spitzer and found the prostitution ring.
It appears that what started this was Spitzer's bank filing a Suspicious Activity Report ( SAR ) with FINCEN.

Filing a SAR is mandatory when suspicious activity is suspected. Incidentally, it's also illegal to tell the subject of the SAR that a SAR has been filed, and the banks are immune from civil sanction ( i.e. you can't sue them ) for filing the SAR.

Trying to define suspicious activity, I found this page from the National Counterterrorism Center. It looks like he may have tried to hide his wire transfers and thereby ran afoul of this:

Breaking transactions larger than $10,000 into smaller amounts by making multiple deposits or withdrawals or by buying cashiers checks, money orders, or other monetary instruments to evade reporting requirements

So, multiple wire transfers to the same account, likely on the same day or within a few days, totalling greater than $10,000. There were some reports that instead of wire transfers Spitzer was mailing cash around; even if that's the case, the first indicator of suspicous activity from the NCTC is:

Account transactions that are inconsistent with past deposits or withdrawals

If he normally used his credit / debit cards a lot, then one day walked in and withdrew a few thousand in cash ( or even better, a few thousand from different bank branches on the same day ) that would set off alarms.

I looked around for more on what qualifies as "structuring". this link (note: PDF ) from the FINCEN web site for Money Services Businesses has some good info:

As you note in your letter, 31 C.F.R. 103.18 requires, in part, banks and credit unions to file a Suspicious Activity Report if a transaction involves or aggregates at least $5,000 in funds or other assets, and the bank knows, suspects, or has reason to suspect that the transaction is designed to evade any requirements of the Bank Secrecy Act, i.e., structuring.

To comply with the suspicious activity reporting regulation, a bank or credit union must have in place systems to identify the kinds of transactions and accounts that may exhibit indicia of suspicious activity. Otherwise, a bank or credit union cannot assure that it is reporting suspicious transactions as required by the Bank Secrecy Act.

Structuring is the breaking up of transactions for the purpose of evading the Bank Secrecy Act reporting and recordkeeping requirements and, if appropriate thresholds are met, should be reported as a suspicious transaction under 31 C.F.R. 103.18.

Structuring can take two basic forms. First, a customer might deposit currency on multiple days in amounts under $10,000 (e.g., $9,900.00) for the intended purpose of circumventing a financial institutions obligation to report any cash deposit over $10,000 on a currency transaction report as described in 31 C.F.R. 103.22.

Although such deposits do not require aggregation for currency transaction reporting, since they occur on different business days, they nonetheless meet the definition of structuring under the Bank Secrecy Act, implementing regulations, and relevant case law.

In another variation on basic structuring, a customer or customers may engage in multiple transactions during one day or over a period of several days or more, in one or more branches of a bank or credit union, in a manner intended to circumvent either the currency transaction reporting requirement, or some other Bank Secrecy Act requirement, such as the recordkeeping requirements for funds transfers of $3,000 or more appearing in 31 C.F.R. 103.33(e).

Structuring may be indicative of underlying illegal activity; further, structuring itself is unlawful under the Bank Secrecy Act.

Interesting that reporting is only required if all the transactions occur on the same day even though multiple transactions on multiple days which add up to $5,000 ( or $10,000, or $3,000 depending on which Federal regulation you're quoting ) "meet the definition of structuring under the Bank Secrecy Act, implementing regulations, and relevant case law."

If Spitzer did mail money as some reports have claimed, it was likely money orders. The Post Office requires ID for buying more than $3,000 at a time so it would seem going that route is still "structuring".

Just goes to show what happens when someone follows the money.

However, all this may be academic. According to the New York Sun:

"Sources say a resignation could be linked to an agreement with federal prosecutors in which the governor would step down and avoid criminal charges."

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