The latest political scandal that has the world talking centers on soon-to-be erstwhile New York State Gov. Eliot Spitzer and his involvement in a major prostitution ring. Although credit for exposing Spitzer's illicit trysts has been attributed to cell phone records, new evidence shows that his bank's suspicious activities reports (SARs) also played a vital roll in blowing his cover.
Reports from the news media indicate that Spitzer had made a funds transfer totaling $10,000. Under AML regulations, $10,000 is the limit at which a bank must report back to the Internal Revenue Service regarding a given transaction. That amount in itself is not necessarily suspicious. However, Spitzer had been splitting the transfers into smaller sums (referred to as structured transactions) and even went so far as to ask the bank to remove his name from the transactions. Those acts were enough to trigger red flags at his unnamed Manhattan bank and a SAR was submitted to the IRS. Bank Systems & Technology contacted the IRS to obtain the name of the bank in question, but was told by a spokesman that the agency could not comment. However, later reports in U.S. News & World Report indicate it was North Fork Bank, a division of Capital One.
Banks' awareness of money laundering activity has been heightened in the post 9-11 world. With the passing of the USA PATRIOT Act, financial institutions have to remain vigilant for any activity that may indicate funding of possible terror activities.
According to Eva Weber, an analyst in the AML and compliance area with Boston-based Aite Group, "Regulators continue to put a lot of pressure on banks to ensure their institutions are not being used to launder money. Involvement in money laundering carries significant financial and reputational risks for the institution. As a result, many institutions have turned to technology solutions that monitor customer transaction activity."
Weber says that many of these AML technology solutions are rules-based and allow the bank to set parameters on what needs to be flagged. "When the solution comes across activity the bank has set it to monitor for, an alert is generated for the bank to follow up on and perform additional investigation if necessary," she explains. "Potential structuring of payments—breaking transactions down to smaller sums to avoid Bank Secrecy Act reporting requirements—is something banks must look for, and it's a common reason for the filing of SARs. Anti-money laundering technology solutions can successfully highlight potential instances of money laundering activity on which the bank is required to report and record."