Spitzer’s Banking Caught Him Out

That’s what CLS posted in the wee hours this morning, but without a link to back up the claim. A Wall Street Journal article has the details (emphasis mine):

The account of Client-9's [Spitzer] appointment is part of a larger case that broke last week when federal prosecutors in Manhattan charged four people with organizing and managing an international prostitution ring, known as the Emperors Club VIP.

According to the complaint and the sworn statement, the Emperors Club arranged connections between wealthy male clients and more than 50 prostitutes in locations from New York and Washington to Paris and London. The club's Web site showed photographs of prostitutes' bodies, with their heads hidden, and ranked the women with a "diamond" system. Fees varied by rank, from $1,000 an hour to more than $5,500 an hour.

The Federal Bureau of Investigation's inquiry began in October 2007, when it was triggered at least in part by a bank that filed "suspicious activity" reports on the New York governor with the Treasury Department's Financial Crimes Enforcement Network, according to a federal law-enforcement official and a lawyer involved in the matter. Suspicious activity reports are filed with the Internal Revenue Service when banks detect something unusual either through their tellers or software, including transfers of large amounts of cash, unknown counterparties, or the use of known tax havens and money-laundering centers.

The bank was concerned that Mr. Spitzer might have been engaged in "structuring," a money-laundering technique in which transactions are kept beneath $10,000 to avoid federal reporting rules, the official said. There has been a massive federal crackdown on money laundering in the wake of the 9/11 terrorist attacks, and banks have been extremely diligent in filing such reports. Those reports often include details of transactions done by innocent people.

The suspicious transactions by Mr. Spitzer are a major part of the investigation, the federal official said, confirming a report by ABC News. It isn't clear if federal investigators were engaged in a crackdown on the prostitution ring when Mr. Spitzer entered their sights as an alleged client of the ring, or whether Mr. Spitzer's transactions helped trigger a probe of the prostitution operation.

So, as we were discussing previously, one can forget financial privacy from institutions. Cash is quieter; and with the economic turmoil cranking up, it may not be a bad idea for risk avoidance to keep a moderate stash on hand anyway.