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Eliot Spitzer's bank turned him in to the IRS

BY ROBERT E. KESSLER | robert.kessler@newsday.com

10:55 AM EDT, March 11, 2008

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Gov. Eliot Spitzer ended up as the subject of an investigation into a prostitution ring because his bank branch in Manhattan turned him in to the Internal Revenue Service as someone who might be engaged in suspicious currency transactions, according to sources familiar with the investigation.

After the governor transferred $10,000 by breaking it into smaller amounts, he then called the bank asking that his name be removed from the transactions, the sources said.

Agents of the IRS Criminal Investigation Division initially started a probe fearing that the governor was the victim of some sort of blackmail scheme or because he was being victimized by an impostor, the sources said.

Spitzer last year had wanted to wire transfer more than $10,000 from his branch to what turned out to be the front for the prostitution ring, QAT Consulting Group, which also uses a number of other names, in New Jersey, the sources said.

But Spitzer had the money broken down into several smaller amounts of under $10,000 each, apparently to avoid getting around federal regulations requiring the reporting of the transfer of $10,000 or more, the sources said. The regulations are aimed at helping spot possible illegal business activities, such as frauds or drug deals.

Apparently, having second thoughts about even sending the total amount in this manner because it still might reveal what he was doing, Spitzer then asked that the bank to take his name off the wires, the sources said.

Bank officials declined, however, saying that it was improper to do so and in any event, it was too late to do so, because the money already had been sent, the sources said.

The bank then, as is required by law, filed an SAR, or Suspicious Activity Report, with the Internal Revenue Service, reporting the transfer of the money that exceeded $10,000, but had been broken down into smaller amounts, the sources said.

"The bank did the right thing," said one source familiar with the situation. The name of the bank could not immediately be determined.

But the source added that "we then got lucky" in singling out Spitzer and the prostitution ring.

Millions of SARS are generated each week and flow into the Internal Revenue Service nationwide, but an analyst at the regional IRS office in Hauppauge noted Spitzer's particular SAR and singled it out for attention to criminal investigators, the sources said.

The assumption, the sources said, was that Spitzer was somehow being victimized either by a blackmailer or an impostor. The agents also speculated that perhaps the governor was involved in some sort of political corruption, the sources reiterated.

The agents, located at an IRS office at 1180 Veterans Memorial Hwy. in Hauppauge, then joined with prosecutors in the Southern District in New York to determine the circumstances surrounding the transfer of the money and the nature of the company it was going to. The Southern District was chosen because the bank transaction had occurred in Manhattan.

Eventually, FBI agents also joined the investigation because they have greater authority to look into possible political corruption and use wiretaps.

To the surprise of the prosecutors and the agents, what they uncovered apparently was an international prostitution ring, whose most significant client was likely the governor of New York.