U.S. News

Spitzer probe triggered by U.S. money report rules

WASHINGTON (Reuters) - Suspicious cash transactions reported by U.S. banks have helped uncover illegal drug operations, funding for suspected terrorist organizations and now an alleged tryst between New York’s governor and an expensive call girl.

Under U.S. anti-money laundering laws, banks are required to report to law enforcement officials cash deposits or withdrawals of $10,000 or more and any unusual financial transactions.

“Something out of the ordinary may trigger a second look,” one banking industry executive said on Tuesday, speaking on the condition of anonymity.

It was such a transaction that apparently drew crusading New York Gov. Eliot Spitzer into the investigation of a high-priced international prostitution ring.

According to The New York Times, Internal Revenue Service investigators examining suspicious financial transactions found several unusual movements of cash involving Spitzer. The transactions appeared to be trying to conceal the source, destination or purpose of the movement of thousands of dollars into bank accounts of what appeared to be shell companies, the newspaper said.

Spitzer, who investigated prostitution as New York’s attorney general, apologized on Monday for what he described as a private matter.

U.S. banks have been under intense pressure to report unusual movements of money since the September 11 attacks.


Financial institutions such as banks, credit unions and casinos are required to establish effective anti-money laundering programs under the Bank Secrecy Act. Under that law, when a customer moves at least $10,000 at a time, bank employees must fill out a currency transaction report (CTR), typically reviewed by the IRS or the Treasury Department’s Financial Crimes Enforcement Network (FinCEN).

Bank employees also scan transactions to spot suspicious or non-routine ones totaling $5,000 or more. Those can result in filing suspicious activity reports (SARs) to alert authorities, who then seek the true nature of the transactions.

“CTRs have no space to describe if it is suspicious or not,” the banker said. “SARs deal with whether or not the activity that’s been reviewed looks suspicious.”

Bank customers can try to get around the reporting requirements by making several smaller transactions instead of one large one, or making deposits in several institutions.

“It’s called structuring,” another industry executive said, referring to moving amounts below the $10,000 threshold for triggering a review.

“You also have to look at where there appears to be a pattern or somebody is avoiding their reporting,” said the executive, who declined to be named.

Last month, FinCEN said money laundering by structuring was the biggest reason for SARs filings by banks in the first half of 2007.

The New York Times said Spitzer was identified as “Client 9” in a criminal complaint filed last week. Client 9 arranged to meet with a prostitute who charged $1,000 an hour on February 13 in a Washington hotel and paid $4,300 for services rendered and as a down payment for future engagements, according to the court documents.

In 2006, banks and other money service businesses filed more than 1 million SARs, according to FinCEN.

Reporting by John Poirier, editing by Patricia Zengerle