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March 12, 2008

Spitzer and Suspicious Activity Reports and sex stings

How exactly did Eliot Spitzer get caught buying sex from high priced call girls?

According to Newsday, Spitzer aroused the suspicions of his bankers when he wanted to wire a total of $10,000 to QAT Consulting, one of the front groups for the Emperors Club VIP prostitution ring.

Banks have to report transactions over a certain size. Spitzer alleged tried to cover his tracks by breaking the $10,000 down into smaller chunks that were below the reporting threshold. I say "allegedly" because intent matters. Spitzer might have committed an offense known as "structuring" if he deliberately divided up the money in order to skirt the reporting rules. Anyway, for whatever reason, Spitz sent QAT a total of $10,000 using multiple wire transfers.

Newsday says that Spitzer then asked the bank to take his name off the wire transfers. If that's true, Spitzer deserved to get written up for suspicious activity.  He was acting really suspicious! According to the article, the bank refused to remove Spitzer's name and informed him that it would be improper to do so. I hope Spitzer didn't ask the bank to do something he knew was against the rules.

If the news account is accurate, the bank was legally required to write Spitzer up. Spitzer met two key criteria: he was making an aggregate transaction of more than $5000, and it sure looked like he was trying to circumvent the reporting provisions of the Bank Secrecy Act.

Just so you know, the Bank Secrecy Act applies not only to banks, but also to casinos, insurance brokers, mutual funds, cash couriers, and various other entities that shepherd people's money. Also, the law forbids the financial institution to inform you that a report has been filed. Be careful out there, folks...

The more interesting question is how a well-deserved suspicious activity report sparked a federal investigation by the Public Integrity section of Bush's Justice Department. We're that told that the path ran through the IRS, the New York Times is reporting that it was the Treasury Department that suspected corruption and alerted the Justice Department:

Last July, suspecting that Mr. Spitzer might be involved in some kind of public corruption, the Treasury Department referred the banks’ reports to a section of the Manhattan federal prosecutor’s office that usually handles cases involving official wrongdoing. The case was not turned over to the criminal unit, which would usually investigate major prostitution rings.

The officials said that no one knew at first the nature of QAT’s business or why Mr. Spitzer seemed to be trying to hide what appeared to be payments to the mysterious company that seemed to have no real business. Investigators at the bank were said to have thought it could have involved organized crime. (Emphasis added.) [NYT]

The DOJ claims that they initially suspected Spitzer of corruption and were shocked, shocked when they learned that he was actually wiring money to pay for sex.

A few months later, another New York bank sent its own reports of suspicious activity to the Treasury. They showed that Mr. Spitzer and others, including people overseas, collectively deposited hundreds of thousands of dollars into an account of a company called QAT International Inc., whose business involved foreign accounts and shell companies and appeared to be vaguely related to pornography Web sites. [NYT]

It's not clear exactly when the corruption investigation began, but it seems like the DOJ knew early on that Spitzer might be mixed up in something sex-related. Investigating vice crimes seems a little outside the purview of Public Integrity Section, as described on its website:

The Public Integrity Section oversees the federal effort to combat corruption through the prosecution of elected and appointed public officials at all levels of government. The Section has exclusive jurisdiction over allegations of criminal misconduct on the part of federal judges and also monitors the investigation and prosecution of election and conflict of interest crimes. Section attorneys prosecute selected cases against federal, state, and local officials, and are available as a source of advice and expertise to other prosecutors and investigators. Since 1978, the Section has supervised the administration of the Independent Counsel provisions of the Ethics in Government Act.

The Public Integrity folks could argue that they had good reason to check up on Spitzer because he was doing the kind of suspicious banking that money launderers sometimes use. If a public official is acting like that, it's fair to wonder whether he's trying to hide bribes or embezzled funds. But it seems unlikely that a few thousand dollars in sneaky transactions would trigger a federal investigation of a private citizen.

If they the feds were really checking up on corruption, why didn't the initial QAT investigation peter out? They've cited no evidence that Spitzer was taking in unexplained QAT-related income, nor that he was spending money that wasn't his to pay QAT. As the aforementioned NYT article delicately phrases it: "Last summer, employees at a large New York bank detected something suspicious: Gov. Eliot Spitzer was moving around thousands of dollars in what they thought was an effort to conceal the fact that the money was his own, federal officials said on Tuesday." (Emphasis added.)

The authorities have given us no reason to believe that Spitzer was exploiting his position as governor for personal gain. Yet it was the Public Integrity section that went to the Attorney General and got permission to bug Spitzer's phone in order to find out what kind of business he was doing with QAT.

The corruption allegations were just a smoke screen. If the feds want to spend federal dollars busting Eliot Spitzer for taking women over state lines for immoral purposes, I guess that's their preogative. There's pretty good evidence that Spitzer broke the (stupid, archaic) law. Spitzer gave them the ammunition. I'm not opposed to "making an example" of high profile offenders, within the the law and the norms of prosecutorial discretion. One legitimate goal of the criminal justice system is deterrence. It's okay to throw the book at someone to send a message, if the message is "don't break the law." It's not okay to direct the justice system capriciously to settle scores.

If the DOJ really thinks that it's important to enforce the Mann Act, and that Spitzer's a good case to drive home that point, fine. But if that's the goal, let them do it openly and then defend their actions as the rational, dispassionate pursuit of justice.

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Comments

"They've cited no evidence that Spitzer was taking in unexplained QAT-related income, nor that he was spending money that wasn't his to pay QAT."

I think it may have looked very suspicious that Spitzer was paying blackmail hush money, and if someone knows enough to blackmail the governor, that person has a certain amount of control over the governor. It's not unreasonable to assume that the governor's integrity had not been compromised, just because he was paying instead of receiving cash.

Sorry - I meant "It's not unreasonable to assume that the governor's integrity had been compromised, even though he was paying instead of receiving cash." Got confused over all the negatives. :)

RE "I'm not opposed to "making an example" of high profile offenders, within the the law and the norms of prosecutorial discretion."

I am opposed to "making an example" of someone.

Equal justice.

A celebrity or governor should be punished no-more-or-less than the average person.

It isn't morally right for a prosecutor to be harsher on someone famous, based on an unproven theory that it will result in deterrence.

If nobody hears about a lawbreaker getting punished, nobody will be deterred. If John Doe gets convicted of violating the Mann Act, nobody's going to hear about it beyond the readers of his local newspaper. But if Eliot Spitzer does, the whole country will know. (I think the Mann Act is bullshit, but let's pretend it was something we all agree should be illegal, like insider trading.)

There are always going to be more known or suspected crimes than can ever be investigated, let alone punished. So, prosecutors have to exercise discretion in the public interest. Inevitably, a lot of known violations of the law will go by the boards. It's just a fact that only a tiny fraction of the prosecutions that could go forward ever do.

Let's say that the system can only prosecute one out of every thousand instances of insider trading, because otherwise the system would be overwhelmed. Why not make that one prosecution count by nailing a person who's actually going to attract some public notice? In an ideal world, we could charge everyone who is as guilty as Martha Stewart was and still have resources left over to put away murders and rapists and blackmailers, and whoever. But we can't. Yet, we agree that insider trading should remain illegal.

As long as the prosecutors meet the minimum standard of proof for charging and convicting a law-breaker, I think it's fine to be strategic.

Prosecutors can't pursue every case of alleged insider trading which they're told about.

But they can use fair criteria for which cases to pursue: greater evidence of illegality; greater dollar amounts.

Is the suspect a celebrity? That isn't fair criteria.

I don't know if there has been more-or-less insider trading since Martha Stewart went to prison.

People contemplating insider trading (who aren't famous) and who believe her case was pursued because she is famous wouldn't be deterred by her case.

Well, what is the criteria then?

How about being someone who ruthlessly prosecuted the same crimes without mercy?

Seeing the resignation press conference photo today, the man's greatest moral crime was having his wife stand next to him at that moment. The humiliation on her face - she needs to divorce the guy and take everything he has.

I rather doubt that clients 1-8 count as "average guys" either, and the signal not nabbing them sends is that different standards do in fact apply.

I loathe selective prosecution; it was a favorite tool of redneck police when I was a kid.

In an ideal world, we could charge everyone who is as guilty as Martha Stewart was and still have resources left over to put away murders and rapists and blackmailers, and whoever. But we can't. Yet, we agree that insider trading should remain illegal.

Martha Stewart was not charged or convicted of insider trading. I don't think you can make a cogent case that she was guilty of insider trading, but since you have implied that she is, I'd be interested in hearing what makes you think so.

Lindsay, don't forget all wire transfers are tracked ala the Patriot act. Hell, there are any number of reasons they could come up with now to trace someones money: terrorism, money laundering, corruption and bribery, you name it.

I would rather have the FBI focused on terrorist cells in the United States, Canada, and Mexico.

My first inclination is to say no, do not prosecute him because this is really a victimless crime. However, due to Mr. Spitzer's "Holier than Thou", sanctimonious approach to others while he was District Attorney, I feel he should be prosecuted (just ask the guys on Wall Street).

Also, if nothing else, he should be prosecuted for being stupid. You mean to tell me that the most powerful man in one of the largest state economies could not "stash" a few bucks away here and there to pay for his folly? He gets a paycheck and I am sure no one in his family monitors his spending since he rarely has to spend any money.

No. Not Laser Brain! He creates a dummy company and plows money into it as if no one would notice. You would think he of all people would be aware of the IRS staffers who just sit around all day drinking cappuccinos and studying these types of transactions. And he was an Attorney General?

Arrest the bum!

This kind of thing makes me wish I had enough money to just sit around transferring $9,999.99 from one bank to another all day every day. Let the nosy @$$holes at the IRS earn their pay following up on nothing.

The official stories that we have been reading as to why Spitzer was being investigated is total B.S. The only shred of truth in the public story is that financial institutions must fill out some forms for certain transactions; millions of them are done every year. But these things never mean an investigation is started if the transaction is appropriate to the individual. Eliot Spitzer was making millions per year and worth many millions of dollars. He was also the well known son in a family fortune worth over $500 million dollars. People worth 1/100th of what Spitzer was worth make bank wire transfers all the time to purchase antiques, pay for vacations, buy artwork, make investments, private tennis lessons, Au Pairs, spending money for their kids at summer camp, all sorts of legitimate expenditures by wire transfer for people with money. These wires were just small time money for the rich, and Spitzer was super rich. Whats more, the official story is that the Feds was not investigating or suspicion of QAT, who recieved the wired funds. So what basis would there have been for any investigation? You need evidence before an investigation, fishing expeditions are not allowed. There is no way that a Federal Judge would have signed a special warrant for a wire tap of a State governor without incriminating evidence especially with several stakeout teams. Spitzer was a governor and a former U.S. Attorney and NY Attorney General, a person in a position against which routinely there are allegations made by political opponents and defendants. Judges who receive requests for warrants to place wire taps know this and are very protective of public officials. In fact, a judge can not by law authorize wire taps without evidence. There would have to be other facts in order for a judge to sign a warrant. Something is being left out, they are not telling us all of the facts which the judge had to review. One thing we know, by definition Spitzer was doing business with an organized crime family's prostitution ring. We all know that the "Sopranos" have their fingers in all sorts of businesses. Spitzer was protecting one or more of these crime families. Allegations have been made publicly about Spitzer protecting organized crime and it appears likely that some other investigation is ongoing. Maybe some of it stems from Spitzer's efforts to cover up the death threat made against the whistle-blower in the Worldcom bankruptcy crimes.

Good article on Spitzer. The investigation was probably instigated by Gonzales on request of Karl Rove to make the democrat gov look bad. The joke is that it was done from the "Public Integrity office". W, Cheney, Rove, Scooter, Gonzalez, etc. are crooks and don't have integrity anyway. Concerning Wall Street who was happy to see Spitzer resigned, they hire escorts and cheat on their wives too. Some of them probably from the same service the Governor used.

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