As the Spitzer Sex Firestorm Cools, It's Time for the Real Questions
The full story of how Governor Eliot Spitzer got caught on a federal wiretap soliciting sex from an web-based escort service has yet to be told. Close scrutiny of the federal complaint filed against the four ringleaders of the Emperors' Club VIP prostitution ring raises questions about accounts that have been published to date. Allegedly, the Department of Justice got involved with the Spitzer case because banking irregularities raised suspicions that the governor was engaged in some kind of public corruption. Anonymous officials claim that they were shocked when these suspicious wire transfers turned out to be payments for sex.
Investigating prostitution rings has not historically been a high priority for federal law enforcement, unless there are allegations of human trafficking or child abuse. Individual johns are virtually never prosecuted. Initially, it was suggested that Spitzer had violated the Mann Act, which forbids transporting people across state lines for prostitution. Anonymous officials suggested that Spitzer might be criminally charged for attempting to conceal the wire transfers he used to pay for sex. The New York Post reported that federal investigators intend to scrutinize Spitzer's bank and credit card records all the way back to 1999 before they decide what charges he will face, if any. The feds have announced that they are investigating Spitzer's campaign finance records in an attempt to determine whether he spent campaign funds on his trysts with prostitutes.
So, how exactly did Eliot Spitzer get caught? Why was the Justice Department, specifically the Public Integrity Section of the DoJ, which specializes in handling public corruption, trigger an investigation into Spitzer's sex life?
According to some media accounts, Spitzer lead authorities to the Emperors Club prostitution ring because his payments to QAT Consulting, a front company for the Club, triggered a federal corruption probe. But the complaint against the alleged Emperors Club ringleaders reveals that a confidential informant told law enforcement about the Club activities in late 2006, in exchange for immunity.
Yet the FBI didn't get a wiretap for an Emperor's Club phone until more than a year later. The complaint describes a flurry of investigative activity into the principle figures in the Emperor's Club between January and March of 2008. During this time, FBI surveillance teams tracked the suspects from New Jersey to New York. They also tapped several Club phones, and intercepted thousands of text messages.
Client 9 was caught on tape on February 12, arranging for a prostitute to travel from New York to Washington D.C. the next day. The investigators obtained a search warrant and raided premises associated with the Emperors Club. The complaint was unsealed the next day. On March 10th, the New York Times unmasked Governor Eliot Spitzer as Client 9. Shortly after the story went online, Spitzer issued a terse public apology for unspecified transgressions. Two days later, the New York governor announced his resignation.
The web-based prostitution ring itself had been busted with great fanfare in New York the week before; prosecutors had announced on March 6th that they had brought down an international prostitution ring doing business as "The Emperors Club VIP." A 53-page document was unsealed detailing the FBI investigation.
Over the next several days following Spitzer's apology, a quasi-official storyline began to take shape in the form anonymous statements to the Times and other major newspapers by anonymous officials with knowledge of the investigation. Allegedly, Spitzer had sowed the seeds of his downfall in July of 2007. The North Fork Bank relayed a Suspicious Activity Report to the IRS. According to the Times, that report "languished unnoticed in a vast Treasury Department database in Detroit" -- until a separate report from the HSBC Bank in early fall connected two shell companies associated with the Emperors Club.
Spitzer triggered the North Fork Suspicious Activity Report by making three separate payments to a shell company over an unspecified period of time that, together, added up to roughly $10,000. Authorities later alleged that Spitzer might have been illegally structuring his wire transfers to avoid a $10,000 reporting threshold. By law banks must file a Currency Transaction Report for cash transactions larger than $10,000, but this rule does not apply to wire transfers. So, it's a little odd that the feds thought they saw an attempt to circumvent a rule that didn't apply.
Suspicious activity reports are covered by the evocatively named "front door/back door rule," according to the IRS website The threshold for reporting suspicious activity to the IRS is $2,000 if the customer arouses suspicion while conducting a face-to-face transaction and $5,000 if a suspicious activity is discovered after the fact by reviewing the customer's records. According to some accounts, the Spitzer's wire transfers were flagged automatically by the bank's anti-money laundering (AML) software, which automatically scans bank transactions for patterns of unusual activity. Allegedly, Spitzer also phoned North Fork after the fact to ask that his name be taken off the money transfers.
According to the New York Times, the Spitzer-generated suspicious activity report didn't attract the attention of IRS officials until "early fall" when employees at HSBC bank tipped off the tax collectors about two mysterious companies that had been receiving wire transfers via HSBC. Allegedly, HSBC realized that it had been allowing customers to wire money to two entities about which the bank knew virtually nothing -- in contravention of HSBC's own due diligence rules, and possibly the law as well. Only later did the IRS determine that Eliot Spitzer was one of the many people who had wired money one of these mystery firms, QAT Consulting Group.
At some point, the Criminal Investigation Division of the IRS contacted the U.S. Attorney for the Southern District of Manhattan. The anti-corruption branch of the FBI got involved under the direction of the Justice Department. We're told that the FBI's criminal division was only called in after the white collar crime investigators discovered that Spitzer's wire transfers were going to web-based prostitution ring operating across state lines.
Anonymous officials swear that the feds initially assumed that Spitzer's wire transfers represented some form of public corruption and only later discovered that he was paying for sex. They might be telling the truth -- or they might be trying to hide this was a sex sting from the start. It would be politically ugly to admit that this whole wiretap project was just to catch the governor buying sex. Spitzer was wiring money from his private account -- up to $80,000 to the Emperors Club fronts over the course of several months, which is a paltry sum by white collar crime standards. Plus, there are conflicting reports exactly what kind of corruption the investigators suspected. Spitzer wasn't taking bribes -- after all, accepting bribes is a revenue-generating activity. (It's also worth noting that Spitzer is a very wealthy man -- heir to a multi-million dollar real estate fortune amassed by his father, Bernard Spitzer.) According to other news accounts, the IRS suspected that Spitzer's wire transfers might be evidence of blackmail or "exploitation by an impostor." If so, why wouldn't they warn Spitzer that he might be the victim of identity theft? Corrupt officials sometimes set up their own shell companies to disguise the origins of bribes or embezzled funds. But no one has alleged that Spitzer set up or controlled the Emperors Club shell companies. He is merely alleged to have wired them money, as did many other people who presumably weren't public officials.
The authorities remain tight-lipped about exactly what kinds of investigating they did into Spitzer's alleged corruption. Because Spitzer was a high-ranking public official, the feds had to get approval from the U.S. Attorney General to investigate him for public corruption. So, the question arises: Which AG authorized the public corruption probe of Spitzer? Alberto Gonzales announced his resignation on August 27, 2007. Paul Clement served as acting AG until Michael Mukasey was sworn in on November 9. We're told that Mukasey wasn't informed that the Governor of New York was under federal investigation for corruption until March 5, 2008, the day before the FBI raided the Emperors Club.
We do know that FBI surveillance teams observed Spitzer on two visits to Washington, D.C. in January and again in February of 2008. No prostitute showed up on the January trip. But on February 13, surveillance teams kept watch over the Mayflower hotel while Spitzer entertained Ashley Dupre -- a.k.a. "Kristen" -- in room 871. Apparently, they were unable to, or uninterested in catching him in the act.
It's difficult to reconcile the Spitzer public corruption investigation with what the feds have already revealed about their investigation of the Emperors Club. It is possible that perhaps the Spitzer investigation reawakened the authorities' interest in the Emperors' Club investigation. Regardless, the Justice Department has been embroiled in too many scandals involving undue influence of politics on law enforcement. The administration fired eight U.S. attorneys in 2007 because their political allegiance to the Republican party was suspect. The Spitzer case raises serious questions about the political impartiality of the highest law enforcement agency in the country. Those questions will linger until the public gets a full account of how and why Eliot Spitzer and the Emperors Club came under investigation.
Anatomy of a Scandal: A Timeline of the Spitzer Investigation
Late 2006: Former Emperors Club prostitute who was given immunity in exchange for information talks to a law enforcement officer about the club.
Summer 2007: North Fork Bank files Suspicious Activity Reports with the IRS, which form the basis for a public corruption investigation involving the IRS, the FBI, and the Justice Department, as well as the U.S. Attorneys for the Southern District of Manhattan.
Early Fall 2007: HSBC bank alerts the IRS that two mysterious companies are receiving wire transfers from various sources. Eventually, the IRS determines that Spitzer is one of the individuals wiring money to what turns out to be a front company for the Emperors Club.
October 2007: FBI obtains permission to wiretap an Emperors Club V.I.P. phone
October 20, 2007: Undercover agent arranges for sex over the phone with an EmperorÃ¢â‚¬â„¢s Club employee
January 8, 2008: A judge in the United States District Judge for the Southern District of New York authorizes the interception of telephone calls and text messages for one of the Emperors Club phone lines.
January 9, 2008: Earliest intercepted telephone communication cited in complaint against Emperors Club defendants
January 26, 2008: FBI monitors Spitzer as he visits the Mayflower Hotel in Washington DC.
Mid-February 2008: Caller speaks with Emperors Club about arranging for a prostitute to travel from New York to DC for sex. She does so the following day.
March 5, 2008: Judge signs search and seizure warrant for premises linked to Emperors Club.
March 6, 2008: Charges are unsealed in Manhattan naming four people as organizers of the EmperorÃ¢â‚¬â„¢s Club VIP prostitution ring. Court documents include references to wiretapped phone conversations of 10 unnamed men transacting business with the escort service.
March 7, 2008: Federal official contacts Spitzer to inform him that he has been implicated in the prostitution scandal.
March 10, 2008: New York Times exposes Spitzer as Client 9, based on a tip from an unnamed source. Shortly thereafter, Spitzer makes a public apology for unspecified transgressions and promises to "report back in short order."
March 11, 2008: Spitzer remains in office, New York State Republicans threaten to impeach if he does not resign within 48 hours.
March 12, 2008: Spitzer announces his resignation.