Emerging Tech

How IT uncovered a prostitution ring and nailed the New York governor

Through the power of data mining and the cooperation of U.S. banks and multiple U.S. federal agencies (seriously!), IT systems helped federal authorities track down a major prostitution ring, uncover their money-laundering scheme, and identify one of their customers as New York Governor Eliot Spitzer, who was also allegedly engaging in money-laundering to hide his transactions.

Through the power of data mining and the cooperation of U.S. banks and multiple U.S. federal agencies (seriously!), IT systems helped federal authorities track down a major prostitution ring, uncover their money-laundering scheme, and identify one of their customers as New York Governor Eliot Spitzer, who was also allegedly engaging in money-laundering to hide his transactions.

Spitzer's short reign as New York governor is clearly headed toward a brief end, and that's the big story for the national news, but there's also a powerful IT story buried in all of this. It was the Financial Crimes Enforcement Network (FinCEN) of the U.S. Treasury that enabled authorities to discover these crimes.

FinCEN collects data from banks based on rules for flagging suspicious behaviors (in this case, a certain pattern of transactions). That data is then shipped to the IRS and the FBI where it can be crunched by computer systems and analysts. Additional emphasis has been placed on these technology systems since the September 11, 2001, attacks on the United States, and it appears that they are bearing some fruit, although they raise major red flags for privacy advocates.

For more details of how FinCEN works and how it uncovered these crimes, see the full report from my colleague Larry Dignan.

About

Jason Hiner is the Global Editor in Chief of TechRepublic and Global Long Form Editor of ZDNet. He is an award-winning journalist who writes about the people, products, and ideas that are revolutionizing the ways we live and work in the 21st century.

41 comments
redpigg
redpigg

What a pack of self-righteous wankers. If the Govenor wishes to spend his hard earned currency on a Woman so be it. That Beatle bloke, the who recently got divorced from the one legged woman, the mind boggles at what the cost of a cooked dinner and a root afterward was for him. If you wish to get all sweaty over sex there was a picture in the Pommy Telegraph of some high up Government MP and His boyfriend,something to do with a "Civil Partnership"

Locrian_Lyric
Locrian_Lyric

you know nothing about the case or the man, don't embarass yourself further.

don.gulledge
don.gulledge

It's true, they always say follow the money. But, I think this is going to be more and more a part of our lives and the lives of crooks. Automation, the net is used by many to violate the laws and the rights of the average user, but I think that as law enforcement catches up. It will be the downfall of many like the Was.. governor of NY. I think they're already in our backyards much more than we realize and it will get even more so as they get more advanced.

alewisa
alewisa

I agree, in the main with Rww that this is an example of putting IT/IS to good use. But, as Don points out, it is a sign of thigns to come, and potentially a far greater threat to our personal freedoms. I say potentially, as the potential is there and not because I believe it to inevitable. History has shown that those who govern, prefer to rule, and that power leads to corruption. Which powerful state has ever relinquished state scrutiny in favour of personal freedom, in the last 100 years? None (I'd actually like to be wrong there...) Both the UK and US inthe immediate aftermath of 9/11 et al have used terrorism as justification to introduce new, restrictive legislation and erode personal liberty. In the UK, CCTV systems have been equipped with software that determines suspicious behavior. What has this in common with this story? Simply that the state defines suspicious behaviour, with no public oversight or accountability. There is no legislation or right of public access to examine what constitutes the "trigger" for financial activity (nor CCTV surveilance). IT is an important weapon in the fight against crime and terrorism, but as "servants of the people", the executive and legislative should be open to public scrutiny. "trust, but verify", as Reagan once said.

rhomp2002
rhomp2002

Your choice of govern but prefer to rule is particularly right in his case. That is precisely what he told us when elected that he would do. Hoist on his own petard. GOOD!!!

jtnieves
jtnieves

This is one of those uses of IT that can be construed in many ways. Yes, Gov. Spitzer "laundered" money to hide his sexual proclivity, yet, given the relatively small amount $80K to the Billions that are laundered on an every day basis, it appears to me that this was more like positioning an electronic microscope over a cell looking for DNA strands. I am particularly taken by what appears to be a gloat in the title of your post. True, Spitzer was an idiot for having violated the trust of his family and his constituents and for positioning himself as a law-and-order politician. But please spare us the pat on the back. Using IT in this fashion is nothing to be happy about. In fact, it's downright scary.

ruisert
ruisert

Yes, IT being used as a tool for Big Brother to attack its political enemies is nothing to cheer about. From what I'm reading on the blogosphere, this is all about politics and nothing about justice. And this is exactly why BushCo is so adamant about its warrantless wiretapping, so they won't have to explain who they target or why.

rhomp2002
rhomp2002

Since this has been going on for decades, it actually predates IT and IT was brought in only because of the volume with our higher salaries these days and thus more money to pass around. Nothing scary about it. If IT didn't do it you would have to hire a ton of clerks to do the same thing and with probably less accuracy. The schmuck used this same thing to do a lot of his ill-f0ounded prosecutions so it is poetic justice that he got caught. No wonder the Traders on Wall St applauded when it happened. I did too.

jasonhiner
jasonhiner

I totally disagree. I think what you're saying is that this was used in a way that could potentially lead to privacy concerns. That's why I noted that this could "raise major red flags for privacy advocates."

Locrian_Lyric
Locrian_Lyric

I'm not worried at all. If the crime was murder, or kidnapping or some other travisty that resonates, I doubt anyone would be hooting about it at all.

Rww
Rww

You said "Yes, Gov. Spitzer "laundered" money to hide his sexual proclivity, yet, given the relatively small amount $80K to the Billions that are laundered on an every day basis, it appears to me that this was more like positioning an electronic microscope over a cell looking for DNA strands." Its not like 1 person is laundering the "Billions" and Spitzer did $80K. $80K is a decent amount. People lauder in small chunks to try to not get caught. If they find someone laundering that amount, they should ignore it? He wasnt under a microscope, he got caught doing something illegal! Laundering is illegal, prostitution is illegal, and the ramifications to both your home life and public life, is immoral. He is a public figure and an elected official. He needs to not only be "above" this, but to set an example to those who entrusted him with their "vote". Last, catching criminals and terrorists by using IT "checks" IS something to be happy about. These systems were not put in place because a person, or small group, is trying to watch everyones business. It is in place because people are trying to kill us. Its unfortunate that it has to come to this, but I would rather have these checks occur than a plane flies into my kids school intentionally. Years ago, you could leave your doors open all day and night without a worry. Then heartless criminals came along. We tried to be an isolated country and not worry about what was going on in the world, and we were bombed at Pearl Harbor. Now, we were the country that took everyone in with little, to no, reasons, and we watched planes get hi-jacked into occupied buildings. If we do nothing, it will keep happening until we change. So, we lock our doors, have vested interests in what goes on in other countries, and look for people funneling money between accounts to fund criminals and terrorists.

Canuckster
Canuckster

...that Martha Stewart did prison time for a $60,000.00 insider trading deal. Chump change for sure but I think someone wants them to hurt and/or wants to make an example out of them.

maybejunk01
maybejunk01

"Laundered" money? It's not a "crime". It is a CRIME. Transporting people across state lines for prosititution is another Federal crime. Paying money for sex in another crime, regardless of whether you might think it should be or not. Only 80K? So if a guy breaks into your house and "only" steals the tv and stereo, we should overlook it because there are others who steal more? What a bunch of relativistic crap! Aside from abusing "trust", he apparently committed several actual crimes - crimes for which he prosecuted others - crimes against the laws he swore to uphold in his oath of office - crimes for which he should go to jail, if convicted, as did others he helped convict. As for the use of IT: Good for them! They weren't looking for Spitzer - they DISCOVERED him because he was conducting the very type of illegal transactions for which they were searching. I have no problem with them looking for criminals - that's their job! And as an IT professional, it's gratifying to have proof positive that these systms actually behave as advertised. Now if only they could get that electronic border fence working as well ....

pianoguy
pianoguy

According to reports I heard on NPR yesterday (and see here for more detail: http://www.npr.org/templates/story/story.php?storyId=88116176), Spitzer's status as a public official put him into a special group which gets special scrutiny regarding financial transactions. It was this "special" treatment which "found" him. Personally I "pity the fool", but his future is entirely in his hands. I think prosecuting him would serve some (political or even "vendettical") interests, but it holds no interest for me. I mean: how much more ruined could this make him?

JohnMcGrew
JohnMcGrew

...we need "loser pays" laws in our courts.

Locrian_Lyric
Locrian_Lyric

Spitzer was pulling his antics LOOOOONG before Nifong pulled his. He'd charge people just to make headlines, and ruin them financially by drawing the trials out as long as he could.

JohnMcGrew
JohnMcGrew

The rules of evidence are far more generous for the media. The only reason that this isn't completely ironic is that they actually have the goods on him and don't need to try him in the press instead of the courts.

Locrian_Lyric
Locrian_Lyric

He wouldn't negotiate, he wouldn't cut deals and he got off on nailing people as hard as he could for even the most minor of offences. what goes around comes around.

Canuckster
Canuckster

Whenever he was looking at prostitution cases he would say, "But its just prostitution". He never pursued them with mad dog determination. Its the money laundering that needs to be pursued and that will be a real challenge for a prosecutor to make anything major happen there. Deceptive is not always illegal. But its the kind of thing Spitzer would have loved to drag out of hiding and into a courtroom.

Locrian_Lyric
Locrian_Lyric

He should have been out when he used the NY state police like the Gestapo to try to target Joe Bruno.

JamesRL
JamesRL

This "special scrutiny" isn't that different than what Sabanes Oxley imposes on major shareholders/company officers at publicly traded companies. It wasn't Spitzer being targeted individually, it was public officials. You have to wonder about someone who was a DA who flirts with dangerous activities like this. Frankly it was arrogant to think no one would ever find out. James

blissb
blissb

The money he "laundered" was his own. He "suspiciously" moved funds from one personal account to another shell account. No crime there. The "federal crime" of prostitution across state lines (the Mann act of 1910) hasn't been prosecuted in decades, and is considered by many to be part of the "Jim Crow" ilk of legislation. Paying for sex is a misdemeanor in most jurisdictions, I believe.

addicted2speed
addicted2speed

This is for those who think the mechanisms that surfaced the charges against Spitzer, are an invasion of privacy, or a waste of time. If you have signed up for programs from your bank or credit card that monitor your credit and alert you to identity theft or fraud against you... then I believe the posts become quite hypocritical... The mechanisms that provide for your protection, are the same mechanisms that identified these apparently fraudulent charges and expenses. If Spitzer had stolen your credit card and charged 80k+ to against your financial situation, it would not be an "insignificant number" at that point. With all the automation in the financial industries, I suspect that busting Spitzer actually took relatively little "people-time". And at the bottom line, really... how does this directly affect anyone except New York taxpayers and people who are immediately involved? I think very little. If he were running for President, that would be a different story...

khlynn
khlynn

I do not, however, consider any posts hypocritical. I sign up for these institutions to notify ME if any "suspicious" activity is occurring on my accounts, not the government. This concerns me on a number of levels. What exactly constitutes "suspicious?" Where does due process come into play in all of this? Depending on how much longer I work before I decide to retire, I could be making unusually large deposits to my checking/savings accounts. If I take full advantage of my employer's drop program, that amount could conceivably be 6 figures. Would this be deemed "suspicious" activity and reported to all manner of gov. & LE agencies who would then muck about in my private business? It should, of course, be reported to the IRS to ensure I pay the taxes due on my income, but I am sure my employer would have already reported it. If this did trigger some kind of investigation, it would be a monumental waste of resources. I wonder just how many false positives are generated by this activity.

addicted2speed
addicted2speed

To answer your questions, "Suspicious" applies when there are financial transactions that stray from your typical financial activities. To test this out, go to a car dealership and try to buy a car with your credit card. Sudden large deposits or charges will trigger these automated systems, which is why money laundering often starts with breaking up payments into smaller "scheduled" amounts. After the system flags suspicious events, someone looks into it and decides whether to pursue it further. "Due Process" only comes in to play when it has been determined that a crime may have been committed, and even then, it only applies to the criminal. Since you are the victim, Due Process does not need to have anything to do with you. And as you work longer, your salary will go up, so your regular deposits will increase. The credit-monitoring agencies will constantly adjust their definition of what a "normal" transaction means for you. So when you do get a large "buyout" deposit like the Detroit autoworkers, a computer does flag your deposit as suspicious, but will probably not look any further after comparing records with your employing company. However on the fraud side of activities, after your credit-monitoring service notifies YOU that someone is stealing your money or using your credit... you DO want them to notify law enforcement so they can actually catch the bastards, right? It may surprise and scare you that what you consider "private business" is actually very accessible to almost anyone (completely legally). Every time you use your credit card... your buying habits... do you prefer whole milk or 2%? Do you purchase laxatives? Do you buy contraceptives? Every time you buy something with a bar code on it, they collect some information about you. If you use a cell phone, they can triangulate your location. Do you talk on the phone while driving? Everything that you do is tracked by someone, be it the grocery store, phone company, or the gas station. If you live/work in a metropolitan area, you're even on someone's security camera at many times during the day. As you walk through a mall, not only are you on Mall Security's cameras, you're also on the individual stores' private store cameras. It's amazing what people will do when they don't know they're on camera. One can argue that almost nothing is truly "private business" anymore except a bedroom with the blinds closed, and even then, there are examples where that's not even private anymore. If we want the sort of protection provided by these monitoring services, there is a certain level of privacy that must be (and is) surrendered. There are many clauses in the "Terms and Conditions" providing access-to, permission to analyze, permission-to-share pertinent information, and contact law enforcement in the interest of protecting your finances and credit. Before commenting on government and financial institutions' invasion of privacy, everyone really should read the Terms and Conditions statements before clicking "I Accept". Everyone gives them permission to do these things on their behalf. And of course, as the old adage goes: If you're not doing anything wrong, what are you worried about? Tax Avoidance is Legal. Tax Evasion is Not. P.S. The IRS is not technically a government agency... It's merely performing services for the government, almost like a construction sub-contractor working for a general contractor. It's comparable in concept to paying your taxes to the guy behind the counter at your local liquor store. Sorry for the long post... I was trying to convey a lot of information.

mietz
mietz

Vice-President is open and available.

The Admiral
The Admiral

I would not want to take that credit even if it was due.

Timbo Zimbabwe
Timbo Zimbabwe

"FinCEN collects data from banks based on rules for flagging suspicious behaviors" So, was it reallyu IT that caught this... or accounting? My guess is accounting.

omnknt232006
omnknt232006

The way SARs work is the bank notice things that are unusual then send it in to the computer geeks and geeks then determine if illegal activity is actually taking place.

lsanborn
lsanborn

Nice choice of words - "New York governor nailed in the process"...

Canuckster
Canuckster

Anyone else got their "Client 9" t-shirt yet?

Roc Riz
Roc Riz

...that other Democratic officials are on the way. The NY Times reported today, that Bushco, Inc. has had their eyes on Spitzer since they were appointed to office, by the Supreme Court. Do we know that the wiretapping that they conducted was legal? Could this be one of the reasons why President Chucklenuts wants to veto any bill that does not include retroactive immunity for telcos? Come on. Yeah, the guy broke the law. So did Vitter, Craig, Foley, Gingrich, and others, yet because they are Republicans, nothing is said about them. Also, the Spitzer debacle was leaked to the press by the DOJ on Monday. Was this because of the impending "resignation" of Admiral Fallon, Petraeus' boss, because of the article in Esquire? Or perhaps it was the report that came out that this was the worst week since the "surge" in Iraq? Maybe it was the fact that the tanking mortgage industry was given a boost by the Fed printing more money? They do this sort of thing time and again. For someone to think that IT had anything with this story coming out is outrageous!

Locrian_Lyric
Locrian_Lyric

How's that tinfoil reflector beanie of yours working?

JohnMcGrew
JohnMcGrew

...that the only organizations with a lower approval rating at the moment than the Bush administration is Congress, and then the New York Times, in that order? Holier-than-thou Spitzer set himself up for this. You can't seriously blame anyone for this other than Mr. Spitzer. The only difference this time, is that they actually have evidence against Spitzer, which coulnd't be said of all of the cases that Spitzer tried in the New Your Times instead of in the courts. (where he lost more often than not)

Ed Woychowsky
Ed Woychowsky

Who is number 1?

Patrick_m
Patrick_m

BILL GATES

Dr Dij
Dr Dij

I can't imagine him not getting a heart attack if he tried.

Roc Riz
Roc Riz

DICK CHENEY. Of course, you realize that Bushco, Inc. will not go after one of its principals. It might throw someone else under the bus, but not "Dead Eye" Dick!

Stangg
Stangg

is this being flagged as an achievment for IT, my understand from reading the story is that the main IT side of things on this is that it was the criminals that were making full use of the latest technology by providing the web based services, including the team of female web developers "working girl web designs" who create these websites

Canuckster
Canuckster

...who did the data mining that uncovered the transactions that revealed the client.