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Here are some million-to-one shots: dying in a fireworks accident, drawing a royal flush on the first five cards dealt in a hand of poker and catching the governor of New York paying for sex in a fancy hotel in Washington. According to newspaper reports, the career demise of Eliot Spitzer can be traced to a bank’s suspicious activity report (SAR) describing his wired payments to a front company for a prostitution ring. Financial institutions file more than a million SARs each year with the Treasury Department’s Financial Crimes Enforcement Network (FinCEN). New York’s ex-governor was a data needle, albeit a shiny one, in a giant haystack of data needles. While he ponders his incredibly bad luck, we should reflect on why a system designed to detect financial transactions by terrorists, narcotics kingpins and international money launderers produced yet another electoral sex scandal. The SAR system is not without its costs. Law enforcement expends significant time and money, financial institutions complain of the crushing paperwork burden, and customers must engage in transactions with banks that have essentially been turned into unpaid government informants. Does the system meet its goals? Nor is it clear whether the system accomplishes its paramount “follow the money” job of tracking terrorists. After Sept. 11, 2001, banks and private groups, such as Business Executives for National Security, aghast that the hijackers had used the American financial system to fund their attacks, poured enormous effort into helping FinCEN improve the SAR system. Despite important upgrades, the SAR system has flaws. A financial institution risks prosecution for failing to file an SAR, which results in a deluge of defensive filings that overwhelm the less than state-of-the-art technology used by FinCEN. SARs often contain omissions, errors and misspellings. The electronic filing system used by FinCEN even lacks a basic spell-check function to reduce the misspellings on electronically filed SARs. A persistent filer complaint is the perceived lack of feedback by FinCEN. To most filers, it appears that the SARs have simply disappeared down a black hole. Few filers will be gratified that perhaps the most publicly prominent use of an SAR was to expose the sexual peccadilloes of a state governor. Perhaps SARs have enabled the government to stop a devastating terrorist attack, but we have no way of knowing since that would be revealed only in a public prosecution, which is not currently the anti-terrorist weapon of choice. Perhaps we have entered the post-9/11 era, when the worst threat to the country, once again, is the undisciplined sexual urge of a white male elected official. When the North American Air Defense Command (NORAD) started tracking drug flights and satellite debris, it was a good sign that the Cold War was over. Alas, too many people wish us ill to safely conclude we need not be vigilant against terrorism. In the end, the Spitzer episode may prove only that the SAR system is good at detecting the stupid criminals, but not the clever ones. Spitzer got himself into trouble by avoiding transactions in large enough amounts to trigger the filing of a currency transaction report (CTR), of which more than 15 million are filed each year by financial institutions. Instead, he “structured” his wired payments to the front company in smaller amounts, even though CTRs are triggered only by cash transactions. The systematic structuring prompted the filing of a more detailed SAR by Spitzer’s bank, as well as one by the front company’s bank. In other words, Spitzer, unnecessarily fearful of a 15 million-to-one bet, instead took a one-in-a-million shot and lost. He forgot the old joke: Where’s the best place to hide a leaf? Answer: On the ground with a million other leaves. Methods for improvement The Spitzer debacle could yet produce one positive result if it prompts a careful evaluation of SARs. Private-sector expertise can help FinCEN improve its technological capability. More feedback to filers would improve the vigor and quality of the reporting. The public needs to better understand how a system that compromises a customer’s financial privacy has improved America’s security. Ultimately, the terrorist financial tracking system, including SARs, will be judged not by how well it ensnared the former governor, but whether it has done as good a job at tracking and trapping terrorists. Gregory J. Wallance is a partner at Kaye Scholer in New York and a former federal prosecutor.

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