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As the events unfolded in New York this week concerning now former Governor Eliot Spitzer's dramatic fall from grace, there was a piece of irony to the scandal.
Well, truth be told, the whole affair is filled with irony when you begin with the nation's highest profile crime fighter getting caught up in news of a prostitution ring.
But the piece of irony which no doubt caught the attention of the IT crowd, is the fact it appears that Spitzer was essentially brought down by technology that was put in place by politicians to catch terrorists and money launderers. According to a report in The Wall Street Journal, Spitzer is believed to have come under investigation after banking compliance executives became suspicious of money transfers he had made to a shell company called QAT International. QAT, according to authorities, is a front company for Emperors Club VIP, a high-end prostitution service Spitzer has been accused of using.
Banks are required to disclose potentially questionable transactions on their systems in suspicious-activity reports, or SARs, filed with the Treasury Department’s Financial Crimes Enforcement Network, or FinCEN. The FinCEN system has been around since 1990, but was substantially reinforced as a result of the 9/11 terrorist attacks and new requirements brought in under the Patriot Act. According to the Treasury Department, more than 500,000 filings regarding questionable activities are made each year. Those filings can in turn be accessed by law enforcement agencies, including the FBI, through an electronic database.
Banks are required to file SARs any time a customer makes a transaction of more than $10,000. It is believed Spitzer tried to circumvent this threshold by making several transfers of $5,000 or less. But here's where another interesting check comes into play. Banks are asked to apply "enhanced due diligence" to high-risk clients, including so-called politically exposed persons, like Spitzer. The WSJ reported that Capital One’s North Fork unit reported Spitzer's transfers as a result of the enhanced due diligence requirement, although it is not yet known whether the North Fork bank's report was the one that triggered the initial investigation.
While precise details have yet to emerge on how Spitzer’s alleged transactions were caught, in its securities filings North Fork bank says it has robust systems to detect financial crimes. It appears that technology worked. The suspicious transactions were likely flagged, a report was filed, and when investigators began making inquiries into the business activities of QAT International they said they were eventually able to tie the money transfers back to the prostitution ring.
There's some comfort to be gained in knowing that the technology didn't discriminate between a terrorist, crook, or politician in deciding something smelled rotten.
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