Thursday, March 13, 2008

It was the smurf's that got Spitzer

US News and World Report has answered the question of how Eliot Spitzer became embroiled in an investigation for wire transfers to a prostitution ring. It seems there was a bit of sloppy reporting (*what?!?*) combined with little understood rules for how banks work since the onslaught of the "Wars On_________________" (drugs, terror, citizens)

Here's the story:
With all the salacious allegations surrounding New York State Gov. Eliot Spitzer's resignation, it's easy to overlook the bland figures that reportedly triggered his downfall. Lost in all the chatter about high-priced hookers are the plain-vanilla bankers—at North Fork Bank, a unit of Capital One—who reportedly tipped off federal investigators to a suspicious bank transaction involving Spitzer's account. It was that transaction that eventually linked the now disgraced Spitzer to the prostitution ring that ended his high-profile political career.

That's right, private-sector bankers can and do work with the federal government to flag and, if necessary, investigate account holders who make certain transactions. And you don't have to be Eliot Spitzer to show up on their radar screen. Here's how it works.

$10,000 moves: All U.S. banks are required to file paperwork—known as currency transaction reports—with the Treasury Department anytime an account holder makes a cash deposit or withdrawal of $10,000 or more. But since banks oversee numerous transactions of this size every day, currency transaction reports are not particularly alarming. If you run a retail business that operates in cash—like a restaurant or a dry cleaner—or you've
ever sold your car, it's possible the Treasury Department has a currency transaction report on file with your name on it.

Smurfing: But people intending to use their cash for illicit purposes—say, drug
dealers—want to avoid drawing attention to their finances. So, they sometimes try to stay under the $10,000 trip wire by breaking up a large deposit into several smaller portions. That scheme is known as structuring, or smurfing (named after the tiny, blue 1980s cartoon characters). "Structuring itself is a crime because [it] is an effort to circumvent the currency transaction report," says Bruce Zagaris, partner with Berliner Corcoran & Rowe, a Washington, D.C., law firm.

But over the years, bank officials have enhanced their ability to sniff out structuring. "Banks are very sensitized to structuring activity—they have special [computer] programs that are designed to detect it," says Peter Djinis, a former head of regulatory programs at the Treasury Department's Financial Crimes Enforcement Network.

According to the Washington Post, bank officials first became suspicious of Spitzer because he appeared to be structuring his transactions to avoid the $10,000 tripwire. "The huge irony here is that probably if he had not engaged in structuring activity, the call-girl enterprise never would have been discovered or prosecuted," Djinis says.

Suspicious activity: When bank officials spot something fishy going on in an account, such as structuring, they are required to file a second report—known as a suspicious-activity report—with the Treasury Department. "The government is essentially telling the banks, 'If there is something odd about a transaction that you can't explain, we want you to report it,' " says Robert Rowe, a senior regulatory counsel at the trade group Independent Community Bankers of America.

Database: The suspicious-activity reports are then sent to the Internal Revenue Service's computing center in Detroit, where the information is entered into a database maintained by the Treasury Department. More than 40 percent of suspicious-activity reports are filed on account of structuring, according to Steve Hudak, a spokesman for the Treasury Department's Financial Crimes Enforcement Network.

The G-men: Once the information is entered in the database, it can be used by government investigators. "The information there is made available to federal and state law enforcement that have jurisdiction to investigate financial crime," Djinis says. "By rule they have to have an investigative purpose—they can't just go on a fishing expedition—but there is no need for a subpoena or anything of that nature."

I'm glad there's an explanation. It doesn't mean that I think it's right. Consider that our government has already assumed these powers to spy on our spending habits and so forth, yet still complains that its hands are tied and needs MORE spying powers.

Crank up the heat on those frogs you're cooking in the sauce pan, they're ready to boil now


Distributorcap said...

as i have said before -- pretty soon

may i see your papers?

spitzer tried to circumvent a law he prosecuted -- so he knew the rops -- and he had to know he would trip wires -- i just dont get it!

Unknown said...

When I first worked in retail I read the store manuals. I was young and naive when I first saw the $10,000 transaction report so I was surprise.

Now, nothing surprises me but a lot of stuff disappoints me.

s. douglas said...

Last year, when I went to California, I had a deposit held because of the Patriot Act.

No one at the bank informed, and I had no clue.

Two hours before my flight left I went to the bank to withdraw some cash, and my account was $8500 short.

Apparently, any deposit over $5000 is held for, I think, five "Business" days.

I had no idea terrorists waited in line, and used tellers like the rest of us.

Doesn't seem very "Covert."

"Have a nice day Mr. Bin Laden. Don't forget to grab a complimentary sucker on your way out."

Dr. Zaius said...

Jeepers, I wish that I had enough money to hang out with a hot Smurfette...

Great post! The devil is in the details, and you did a good job reporting them.

Claire said...

The $10,000 threshhold has been in effect for years, and should be raised (maybe to $50,000), since $10,000 is not much in 2008 dollars. I hate the Federal citizen-spying machine as much as anyone, but it's hard for me to summon outrage on Mr. Spitzer's behalf. As Dcap says, he broke a law that he himself prosecuted (vigorously). Not only that, but I'm sickened by the fact that he did this with a girl not much older than his own daughters...I can't imagine how he'd feel if one of them sold herself to the highest bidder. The whole thing's very sad.

Randal Graves said...

That's some smurfed up shit. I mean, smurf! What the smurf was he thinking, not to mention the smurfing smurfs of the smurfing government! Mothersmurfers!

Where the smurf is Gargamel when you need him.

dguzman said...

Oh, the irony of it all! Curse you, Smurfette! Curse you, Baby Smurf! Curse you, Brainy Smurf! and curse YOU, Dicky Smurf, for not being able to stay in your pants!

Dean Wormer said...

I thought smurfing involved one smurf and a whole heckuva a lot of smurfs of the opposite sex having a good time.

Matthew Hubbard said...

Rush Limbaugh smurfed when he got all that cash for the obscene fuckload of drugs he bought.

Can someone explain to me why he didn't get jail time?

Other than It's Okay If You Are Republican?

Jess Wundrun said...

dcap one of the endless stream of high priced hookers said this week that she entertains alot of politicians and every one believes they are above the law. But like Clinton, with so many people gunning for you why on earth would you be so dumb?

mathman ain't that the truth.

fairlane are you hatin' on our freedoms again?

dr. z I think you need to hang out with fairlane. If they ever release his cash he could afford a smurf.

cdp agreed. I don't have sympathy for Spitzer, but kind of look at it in a defense attorney sort of way - there was a crime, but was the prosecution on the up and up. And while I knew about the 10 grand, I had no idea about the smurfing. At one time or another the feds can come up with an excuse to look at every one of us for whatever reason they choose.

randal mothersmurfers is my new swear word of choice. Thank you sir!

dguzman dicky smurf! rotflmaobbqw/hotsauce. I'm renaming the husband's member to dicky smurf. Wonder what he'll think of that?

dean obviously you had a much more lax set of rules about cartoons when you were a kid than I did!

mattyboy didn't he buy young dominican (male) sex slaves with the money, too? Everything goes when you're OIYAR.

Anonymous said...

I'm not nearly as concerned by some politician patronizing a prostitute as the Big Brother atmosphere that is pervading this country. Why does everything the government do to "protect us" involve stripping away more and more of our civil rights and privacy? Welcome to the Stazi States of America.