Tuesday, March 11, 2008
The fact that federal prosecutors from the U.S. Attorney's Office for the Southern District of New York pursued the investigation of New York Governor Eliot Spitzer's use of large amounts of cash for transactions that turned out to involve the services of one or more prostitutes means he could be looking at federal charges for his conduct. Blog co-editor Ellen Podgor has already discussed (here) the possible application of the Mann Act to Spitzer's involvement in the interstate transportation of a person for prostitution, which in fact is among the charges against the leaders of the Emperors Club service Spitzer used (criminal complaint and affidavit below -- the juicy "Client 9" material begins in paragraph 73 for those with their minds in the gutter). The investigation began because of Suspicious Activity Reports filed by banks because Spitzer purportedly made large cash withdrawals, and while the initial focus was for possible public corruption, the case turned out to involve a more mundane, albeit considerably salacious, prostitution ring.
While Mann Act charges against Spitzer certainly would be quaint, a criminal structuring charge may be more likely. The applicable statute is 31 U.S.C. Sec. 5324(a), which provides:
No person shall, for the purpose of evading the reporting requirements of section 5313(a) or 5325 or any regulation prescribed under any such section, the reporting or recordkeeping requirements imposed by any order issued under section 5326, or the recordkeeping requirements imposed by any regulation prescribed under section 21 of the Federal Deposit Insurance Act or section 123 of Public Law 91–508—
cause or attempt to cause a domestic financial institution to fail to file a report required under section 5313(a) or 5325 or any regulation prescribed under any such section, to file a report or to maintain a record required by an order issued under section 5326, or to maintain a record required pursuant to any regulation prescribed under section 21 of the Federal Deposit Insurance Act or section 123 of Public Law 91–508 . . . .
If Spitzer split deposits or withdrawals in his accounts to stay below the $10,000 threshold for filing a Currency Transaction Report by the bank, then he could be guilty of structuring. The predecessor to this provision was the subject of the Supreme Court's decision in Ratzlaf v. United States, 510 U.S. 135 (1994), in which the court interpreted the "willfully" element to require proof that the defendant knew there was a legal duty to report the transactions and sought to have the bank violate the law by structuring his transactions. As the Court explained, "Undoubtedly there are bad men who attempt to elude official reporting requirements in order to hide from Government inspectors such criminal activity as laundering drug money or tax evasion. But currency structuring is not inevitably nefarious." (Italics added) In response, Congress sought to overturn Ratzlaf by removing "willfully" as an element of the crime. Thus, all the government must prove is that the person intended to structure the transactions, not that the person intended to commit a crime by violating the provision. So while structuring is not always nefarious, it is a crime regardless of the desire to violate the law.
The Second Circuit rejected a fall-back argument that the statute requires that the money that is the subject of the structuring must be tainted and not just funds properly controlled by the defendant. In United States v. MacPherson, 424 F.3d 183 (2d Cir. 2005), the court stated, "The anti-structuring law may well have been intended to prevent criminals from concealing their illicit profits, but that is not the limit of its reach. Section 5324 makes no reference to the source of the monies at issue or to the reason why a person seeks to avoid CTR filing. Its singular focus is on the method employed to evade that filing requirement, i.e., structuring." (Italics in original) Spitzer could not avoid a structuring charge by arguing that the money was his, or at least he had lawful access to it, so he could do with it as he wanted. Moreover, an ignorance defense would be difficult to offer for a former state Attorney General who fancied himself the Sheriff of Wall Street. The structuring provision is different from the money laundering statute, which reaches the proceeds of "specified unlawful activity," even though it reaches similar activity and often involves conduct by people who are trying to hide criminal activity.
An interesting question is whether any other federal criminal charges could come out of the cash transactions. The old adage is to "follow the money," and here it may be to trace the dollars backward to find out where they came from and how they traveled, and not so much where they ended up. Spitzer is a fairly wealthy man, so he probably has access to a sizable pool of money. Yet, according to the criminal complaint, he did not want to make a wire transfer, even though Emperor's Club employed a shell corporation that could be used to hide the true nature of the payments. If Spitzer was trying to hide what he was doing from his family, then large cash withdrawals might have raised just as many questions as wire transfers. It would not surprise me that federal investigators were looking into whether any campaign money was involved in the transactions, or at least campaign bank accounts, that could be used so that it was not as apparent when slugs of cash were used for personal purposes. Whether that violates any federal laws is an open question, but I suspect the U.S. Attorney's Office is going to take a very close look at the flow of the money to see what roads it traversed. (ph)