Routine Fraud Detection Fingered Spitzer

"Follow the money." This approach to investigation, applied by criminal prosecutors going back before Eliot Ness and made famous as a line in the movie "All the President's Men," is exactly how soon-to-be-ex New York Governor Eliot Spitzer was tied to a high-end prostitution ring. In this case it was fraud detection technology, of the kind routinely applied by banks in money laundering investigations, that led directly to Spitzer and to his resignation.

"Internal Revenue Service investigators conducting a routine examination of suspicious financial transactions reported to them by banks found several unusual movements of cash involving the governor," reported the New York Times in this story. "The transactions, officials said, suggested possible financial crimes - maybe bribery, political corruption, or something inappropriate involving campaign finance. Prostitution, they said, was the furthest thing from the minds of the investigators."The Times followed up today with this story, which explains that "employees at a large New York bank detected... Gov. Spitzer was moving around thousands of dollars in what they thought was an effort to conceal the fact that the money was his own." The detection, of course, was done by technology routinely and automatically applied to spot transaction patterns indicative of money laundering - not by bored bank employees randomly dipping into high-profile accounts on some sort of fishing expedition. It's no coincidence that "a few months later, another New York bank sent its own reports of suspicious activity to the Treasure. They showed that Mr. Spitzer and others... collectively deposited hundreds of thousands of dollars into an account of a company called QAT International, whose business involved foreign accounts and shell companies and appeared to be vaguely related to pornography Web sites."

The Times didn't detail whether these two banks employed analytic models, rules-based filtering, complex event processing or some combination of the above, but you can rest assured that the initial flag was raised in a purely automated fashion. It's a good question whether this particular set of flags would have ever been investigated had Spitzer's name not turned up, but the Feds were then obliged to investigate what otherwise involved "apparent sleight of hand [that] kept transactions small." As for the other individuals fingered in the same federal affidavit - Spitzer was anonymously identified as "Client 9" among 10 other customers - it remains to be seen whether they, too, will be brought to justice. I'm guessing that fraud detection technology routinely turns up all sorts of red flags, but the Feds have only enough resources - people and technology - to follow up when they see signs of big money, big threats or, in Spitzer's case, big names."Follow the money." This approach to investigation, applied by criminal prosecutors going back before Eliot Ness and made famous as a line in the movie "All the President's Men," is exactly how now-ex New York Governor Eliot Spitzer was tied to a high-end prostitution ring. In this case it was fraud detection technology, of the kind routinely applied by banks in money laundering investigations, that led directly to Spitzer and to his resignation today.