Getting caught money laundering in the US

With the Supreme Court decision that the Anti-Money Laundering Council (AMLC) could not look into a bank account record without first informing the owner, the Philippines might again be blacklisted by the Financial Action Task Force on Anti-Money Laundering (FATF). Solicitor General Agnes Devanadera stated a valid argument in the motion for reconsideration, pointing out that inquiries conducted by the AMLC should be treated like search warrants which could be issued without warning. Prior notice to a bank account holder would naturally set off alarm bells and would give those engaged in suspicious activities time to conceal the money, therefore frustrating the very objective for which the AMLC has been precisely created.

The US Financial Crimes Enforcement Network or FinCen – a unit of the US Treasury Department – had previously singled out the Philippines for scrutiny, which had caused problems in correspondent banking, trade and commerce.  If the country lands in the list of Non-Cooperative Countries and Territories again, the United States will obviously watch financial transactions by Filipinos even more closely – which would make life difficult for people sending money into the country for legitimate purposes.

In fact, it has now become easy for US authorities to catch anyone engaged in money laundering activities, which is what happened with Eliot Spitzer who had to resign as New York Governor because of his involvement with a high-end prostitution ring. Two weeks after the scandal broke, New York continues to buzz with the admission of a Republican political consultant that he tipped off the FBI about Spitzer’s involvement with expensive call girls.

Roger Stone (whom I dealt with in the past with then vice president Doy Laurel, and was with the Washington-based, high-powered lobbying firm Black, Manafort, Stone and Kelly or BMSK), reportedly sent the FBI a letter in November last year. He claimed that Spitzer – erstwhile dubbed as “Mr. Clean” – paid tens of thousands of dollars for the services of prostitutes through some pre-arranged money transfer. A high-end call girl who was disappointed that she did not get to “entertain” Spitzer was said to be Stone’s source. The call girl’s friend got to service Spitzer instead – who gave intimate details of the “encounter,” like the former Attorney General “did not remove his mid-calf-length black socks during the sex act” – which Stone included in his letter.

The FBI however refused to comment on the role Stone’s letter might have played in their operation, though sources revealed that investigation into the prostitution ring began sometime in October last year.  Earlier reports said the attention of federal investigators was drawn by repeated cash payments made by Spitzer to one particular account – which later turned out to be a dummy for the international prostitution ring.

Gilbert Jose, a classmate of mine who recently retired from an international bank in the US, sent me some information that detailed how the former governor got caught by the FBI following the money trail.

Banks in the US are required to file so-called Suspicious Activity Reports or SARs to the authorities whenever they notice transactions of $10,000 or more that might be in violation of federal laws. These reports go to FinCen, which are then posted in a database made available to law enforcement agencies including the IRS. One financial transaction that apparently set off the alarm bells for an alert bank compliance officer was a series of repeated transactions involving accounts ultimately traced to Spitzer. Though Spitzer might have tried to keep the amounts below the $10,000 limit, he probably forgot that banks give more particular attention to smaller amounts since they could be part of a ploy known as “smurfing” – or a pattern of financial transactions aimed at hiding money laundering and other unlawful activities. The amount Spitzer allegedly paid up for call girls from the time he was attorney general could be as much as $80,000.

In 1970, the US passed the Bank Secrecy Act requiring banks to report cash transactions of more than $10,000. This was followed by the Money Laundering Control Act in 1986 making it a criminal offense to try to keep a bank from reporting transactions of that size by dividing up the amount into smaller transactions – a pattern known as structuring. Since 1996, banks have been required to file SARs to prevent terrorists and criminals from using America’s complex financial network to fund their activities. Since 9/11, the US has become even stricter with money laundering for obvious reasons. Nowadays, a lot of money is allegedly going to China because bank laws are less strict and go through lesser scrutiny compared to the United States.

In the case of Spitzer, it looks like he was trapped by the same methods he used against Wall Street executives and in busting up prostitution rings. When he was the attorney general of New York, Spitzer even proudly announced at one time that 18 people had been arrested on prostitution charges as well as money laundering activities. At any rate, investigators started monitoring his financial transactions and wiretapping his calls, initially thinking Spitzer was being blackmailed or was involved in bribery. It was much later that authorities got to know that the then-governor was moving the money to pay for call girls from the Emperor’s Club, where fees go as high as $5,500 an hour.

It was the New York Times that broke the story about Spitzer’s involvement with the call girls. Two days later, he announced his resignation effective March 17, following threats for his impeachment by state legislators. What a disastrous ending for New York’s hypocritical “Mr. Clean” – who at some point was even believed as a possible Democratic presidential candidate.

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