Balkinization  

Thursday, March 13, 2008

The Spitzer Case and the National Surveillance State

JB

The New York Times explains that federal authorities discovered former Governor Spitzer's connections with a prostitution ring because banks made reports of suspicious financial transactions as a result of legislation passed following the 2001 terror attacks.
As part of the “know your customer” requirements, banks must assess their clients’ financial patterns and set guidelines to ensure that an alarm is sounded if there are unusual transactions, said Bob Serino, a former deputy chief counsel at the Office of the Comptroller of the Currency who now advises banks and individuals on anti-money laundering regulations. . . .

In addition, banks must exercise an extra level of due diligence for a “politically exposed person.” While the law defines such people as “current or former foreign political figures, their immediate family and their close associates,” several banking officials at major institutions said that as a matter of practice, they extend extra scrutiny to American political figures. . . .

Once a bank determines that a transaction is suspicious, it is obligated to file a Suspicious Activity Report with FinCEN, the Financial Crimes Enforcement Network, a division of the Treasury Department. The standard for filing such reports has diminished since 9/11, with banks erring on the side of caution out of fear that the government will later second-guess its decisions, experts said.

The Suspicious Activity Report filed by Mr. Spitzer’s bank was one of hundreds of thousands filed annually, and three people with knowledge of the investigation said it did not immediately attract the attention of federal investigators. But when HSBC filed its report on the shell companies, the I.R.S. began an inquiry.

A former director of FinCEN, who now works in the industry at a company whose policies prohibit speaking on the record, said that since 9/11, suspicious activity reports had increasingly been used as a source of tips for law enforcement.

“What 9/11 taught us is the value of financial information,” the former director said. “Money doesn’t lie. Money leaves a footprint. And that’s exactly what happened with Spitzer.”
These events offer a window into a much larger phenomenon, the National Surveillance State, in which the state increasingly identifies and solves problems of governance through the collection, collation and analysis of information. Governments have always used information, but today's techniques are made more powerful and more prevalent by lower costs of computing and data storage. This story also shows the important role played by private businesses in constructing and implementing the National Surveillance State. The Times report suggests that the banks in question volunteered more than the letter of the law might have required, because the transactions in questions were wire payments rather than coin or currency. The banks erred on the side of caution, seeking to assist the state in its efforts. Moreover, they already had their own pattern recognition systems designed to identify suspicious behavior. (Many people are probably familiar with the programs devised by credit card companies which analyze consumer transactions to calculate the probabilities that a card is being used fraudulently.)

If computing power increases enough, there is no reason why governments might not lower the threshold for reporting of suspicious transactions, or, indeed, require that every transaction over 100 dollars be reported. All this information could later be sifted through by data mining programs, in order to spot patterns of suspicious activity. The only limit is the technology and the manpower that law enforcement is willing to devote to analysis of financial transactions.

The Spitzer story shows both the promise and the threat of these developments. On the one hand, reporting financial transactions makes the job of law enforcement easier, and it uncovers crimes (and terrorist plots) that might never be discovered otherwise. Mandatory disclosure (or in this case, voluntary disclosure by banks) of private individual's financial transactions, and sharing of data between intelligence services, federal, state and local law enforcement helps the state identify patterns of criminal activity, prevent crimes before they occur, and punish them after the fact. These techniques and technologies allow governments to do the jobs entrusted to them more powerfully and more efficiently than ever before.

On the other hand, these developments carry all of the potential risks of a powerful National Surveillance State: Governments can make mistakes in assessing levels of criminality and dangerousness; and their data mining models may characterize innocent activity as suspicious. Without sufficient oversight and checking functions, government actors may misuse the additional knowledge they gain, for example, by instigating abusive prosecutions, or creating discriminatory systems for access to public and private services (like banks, airports, government entitlements and so on). And the more powerful government becomes in knowing what its citizens are doing, the easier it becomes for government to control people's behavior.

These issues arise in the case of money transactions for prostitution, but they could easily have arisen in a wide range of other circumstances. The practices of financial disclosure and the technologies of surveillance can be adapted to many different ends, some noble, others less so.

Whether you like or fear the National Surveillance state, it is not a utopia or dystopia of the future; it is already here. It is the way we will govern and be governed in the years ahead. Spitzer's crime is his own; the techniques of surveillance, collation and analysis that caught him are ours and they will be applied to all of us.

Comments:

What is needed is the installation of a permanent Lo-jack type device in every man, woman and child so that government sniffers will be able to track everyone's moves. But who will track the sniffers? I think of the late Kurt Vonnegut's first novel "Player Piano" as we proceed deeper into the national surveillance state. "When they sniffed him, I said nothing. When they sniffed her, again I said nothing. But I worry, as next they may sniff me."
 

This comment has been removed by the author.
 

This comment has been removed by the author.
 

Jack,

It bears note that the same tools are increasingly brought to bear in the name of consumerism. The specter of the panopticon has been raised in the larger context of the the demmed society, of which the surveillance state is but a epiphenomenon. "What to do" remains the question of the day.

(Apologies for the triple post. Sure do wish blogger allowed users to edit our comments.)
 

Certainly the National Surveillance State demands that we take a hard look at the right to privacy: Its scope, its rationale, and why we think it is important.

For instance: I seem to recall that a common standard for determining the scope of the legal right to privacy has to do with a reasonable expectation of privacy. As more sophisticated means of surveillance become normalized, though, won't citizens' reasonable expectations change? Is there some more substantive account of the privacy right that has sharper normative teeth that might serve us as a guide?
 

Brian,

Heck of a point you make about the erosion of "reasonableness" with respect to an expectation of privacy. I have always thought, epistemologically, that rather than creating this right more or less whole cloth we would have been better served if the Court had found that "effects" included things like the data trails we leave behind, and that it is unreasonable for the government to search said effects absent probable cause---even when those effects have been obtained by non-government agencies. I think such a formulation would support a more robust protection of our rights.

What to do about the corporatocracy's access to those same effects is another issue entirely. (Generally, I'd argue that the bigger they are, the more they should be constrained as is their "host corporation," the Government.)
 

Prof: This is an overarching, not issue, but phenomenon, that will soon overwhelm the way we perceive our existence, and our existence.

SIngularity is near. Soon, AI will exceed human intelligence. AI will become completely ubiquituous, and may at some point, AWAKE.

The symptoms are beginning to emerge,as with SPitzer, the WH illegal information gathering/surveillance, etc.
 

Professor Balkin:

I would suggest that the bank information is more like a citizen tip of suspicious activity from a computerized neighborhood watch. Unless the citizen is making a false police report, I am unsure what the down side to this might be.

It is unlikely that law enforcement would want to reduce the threshold of what is suspicious and then increase the number of tips exponentially. We do not have enough FBI to investigate real crimes nevertheless to deal with the deluge of new tips by lowering the threshold. Burying the probable tips with the improbable would also make it less likely the FBI can investigate the probable.

Finally, why do you believe that tips from banks and the like will lead to unfounded prosecutions? The tip still has to be followed by an investigation to obtain evidence and then the prosecutor still has to make a case. I do not see how the bank tips are any less reliable than those from the old retiree who spends his days watching the neighborhood from his porch.
 

@porcupine pal: One of the reasons I favor Professor Balkin's work over many others is his involvement in projects such as the The Information Society Project at Yale Law School: "...an intellectual center addressing the implications of the Internet and new information technologies for law and society, guided by the values of democracy, human development, and social justice." Which is to say, we're preachin' to the choir on this one.

(I'm also continually aware, in the back of my mind, that our host wrote a quite serviceable text on the I Ching. Reminds me, I've been meaning to look at how he handles the blatant sexism of "The Marrying Maid." But I digress.)
 

Bart: "I do not see..."

Willful blindness is no defense. Your comparison is, putting it as kindly as possible, inapt. Let me count the ways.

Most importantly, a neighbor watching from his porch sees only that which is public. Bank transactions are ostensibly private, unless, of course, said bank turns out to be a "false friend." But let's be clear, you happily and openly embrace the measures proffered in the name of "fighting terrorism" and see in any critique of the methods used to nail Spitzer a potential rallying cry to roll back the governmental intrusions covered under H.R. 3162, the so-called "patriot" act and it's kin, and so must try to defuse any such criticism as soon as possible.

I suppose we'll leave the count at one for now. Time for the gym.
 

I've never forgotten a brilliant lecture by Tony Amsterdam some 36 years ago when I took his criminal procedure course. He noted the ambiguity in the "reasonable expectation" standard. I.e., one might use it simply as an "empirical" notion" and therefore ask what sorts of expectations we have of people around us. If the governor or president announces that our phones are subject to warrantless wiretaps, then can we "reasonably expect" not to be listened in on? (Only if one believes the governor or president is lying.) On the other hand, "reasonble expectations" might be "normative" instead of "empirical," by which we ask not what is likely to be the case, but, instead, what should be the case. So now we can denounce the president (even as we exercsise more caution in what we say over the telephone)because of the illegitimacy of the warrantless wiretap.
 

robert:

The United States is not Luxembourg. Banking transactions have not been private for years. They are subject to many types of government scrutiny, one of which disclosed Spitzer's alleged crimes.

Just because you assume that a transaction with third parties is private does not mean that it is in fact private. We voluntarily provide tremendous amounts of personal information in our interactions with businesses and individuals in the marketplaces of commerce and ideas.

Business started using this information in their marketing intelligence gathering a couple decades ago. Like the proverbial slow sibling, the government is just catching on to what a bonanza all of this information can be for national security and law enforcement when computerized and analyzed for patterns.

Business does not use this information to invade your privacy in the traditional sense of a human personally surveilling your activities. Rather, you and hundreds of millions of others are reduced to a data set and the computer program mines this data for patterns which indicate whether you and others would be interested in their product. Indeed, this makes marketing more accurate and less intrusive because companies are less likely to bother you trying to sell products which you do not desire.

The same concept can apply to government data mining for intelligence gathering.

Like its business counterpart, government data mining does not involve some spy surveilling your day to day activities. Rather, everyone's public data is placed into a large data base and mined for patterns consistent with the manner terrorists or civilian criminals interact with the economy and one another.

A very good argument can be made that this type of intelligence gathering is far less intrusive than traditional intelligence gathering because it pinpoints suspicious activity. For example, would it be preferable to perform a dragnet rounding up hundreds of illegal immigrants from Muslim countries looking for al Qaeda members or use data mining like the Able Danger project to pinpoint the Atta 9/11 cell? You can see how data mining has the potential of enhancing genuine privacy.

However, the fly in the ointment is that data mining, like all other types of surveillance can be abused by changing what the computer looks for. For example, instead of reviewing FBI files of political opponents in the White House basement, a hypothetical (hopefully) President Clinton could data mine for GOP voters looking for patterns indicating criminal or simply embarrassing activity.

Professor Balkin correctly observes that the genie is out of the bottle on these technologies. The decision we have to make is how we regulate and supervise data mining to duplicate the Able Danger result and avoid the Clinton result.
 

robert link-
thank you for the 'link'. I have it book marked.

We are moving somewhere is a hurry with this. And powerless to after its course.
 

i've been reading curt gentry's massive tome on j edgar hoover.

talk about a history lesson on the dangers of unchecked surveillance.

i've posted big excerpts at my blog that you can access via my name here.

thnx.
 

As this implies, the main secret that secret policemen have to keep is the secret of their own corruption, which mushrooms in the dark. And as emerges from Curt Gentry's book (though it's only one theme in a wide-ranging study), Hoover himself engaged in a lifelong battle with "jackals of the press" who tried to tear the lid off the FBI dustbin.

He denounced investigative reporters like Jack Anderson, who literally did root through his garbage: "he'll go lower than dog shit for a story." Hoover tried to get Jack Nelson fired form the Los Angeles Times by branding him a drunk, a smear which, as Nelson would cheerfully observe, "can't ruin a newspaperman."

Hoover opened Drew Pearson's mail and placed I. F. stone under surveillance. He accused New York Post editor James Wechsler of being a Communist, spread derogatory rumors about publisher Dorothy Schiff, and tried to discourage the paper's advertisers.

He quelled opposition from William Randolph Hearst by threatening to prosecute him for taking Marion Davies across a state line. He once stopped a magazine from printing an expose of the FBI by anonymously sending its publisher photographs of his wife committing fellatio with her chauffeur.


* This is why people are worried about the possibility for abuse Bart.
 

Garth, you ol' reactionary; that was then, this is now. No one in their right mind could think anyone would ever make the mistakes Hoover made. Our gestapo is a much more socially conscious one. ;)

The basic incommensurability between the position of our resident foil and the position of folks more or less like our hosts is that the former are vastly more afraid of foreign devils than the ones here in the globe's most powerful nation.

And, before any of you get your knickers in a wad, "foil" is used here as a term of respect.
 

"... banks made reports of suspicious financial transactions as a result of legislation passed following the 2001 terror attacks."

Banks have been required to report 'suspicious' transactions since at least 1970 under the Bank Secrecy Act. This was an outgrowth of the War on Drugs, not of 9/11, although certain provisions of the Act were amended following the 2001 terror attacks.

I see posts elsewhere trying to blame Bush, the War on Terror, and even FISA legislation for Spitzer's problems. It would help if reputable blogs avoided lumping all this together.
 

Robert Link said ...
It bears note that the same tools are increasingly brought to bear in the name of consumerism.


The way banks often tag any given activity as noteworthy is anything that hasn't happened before, and more often than not, they overreact. I'm not saying this is always bad, but it often looks like discriminate examination and rather indiscriminate responses. It looks like too few actual people in the process.

In the end what this seems to come down to is that your money, unless its in the form of cash in your pocket, is only conditionally yours provided you never step out of your spending routine or normal activity patterns.
 

Apropos of "the surveillance state", boingboing.net offers the following: 1 in 300 US residents are terrorists, according to gubmint.
 

"On the other hand, these developments carry all of the potential risks of a powerful National Surveillance State: Governments can make mistakes in assessing levels of criminality and dangerousness; and their data mining models may characterize innocent activity as suspicious. Without sufficient oversight and checking functions, government actors may misuse the additional knowledge they gain, for example, by instigating abusive prosecutions, or creating discriminatory systems for access to public and private services (like banks, airports, government entitlements and so on). And the more powerful government becomes in knowing what its citizens are doing, the easier it becomes for government to control people's behavior."

I was a witness in a CoIntelPro case. The CIA paid informants for 'useful' information. The informants had every opportunity and every impetus to gussie up information to suit the CIA's needs. They lied for pay.

If we are going to have electronic snoops we need very, very strong over site of the warrants, the traps/taps, the retrieval of data, and the storage of data. It is too easy to hack, change, or mislay info at any stage of the process.

Personally I'd like to keep snooping in line with the 4th amendment: the law gets a warrant for every violation of privacy, but that is SO pre 9/11.

Here is a map rating countries by their amount of privacy and privacy protections. Notice that we are not the good guys anymore.
 

I don't really have a problem with giving a little extra scrutiny to suspicious activity by high officials who are exposed to constant temptation. But wiretapping a prostitution ring and twice staking out a hotel to catch their most famous client is overkill, to put it mildly. And listing Spitzer as "Client 9" looks very much like an attempt to disguise this as a random bust that just happened to catch the governor of New York.

My question for everyone out there, I guess, is should the government have done when what appeared to be a public corruption case turned out the be high-priced hookers. Pursued it less aggressively? Dropped the case entirely? Alerted the local DA? Give me your input, because I really don't have the answer.
 

EP: The problem isn't what the government did once it had the information. The problem is how the gov't got the information, and the implications thereof, primarily the indication of potential for great abuses.

Again, I think we need some changes in the "false friend" doctrine re: privacy; the gov't shouldn't get a free pass on the 4th amendment just because the data passes first through the hands of our corporate masters. (Did someone say "license of blogging"?) ;)
 

One of the most striking things about the explanations offered for the investigation into Spitzer is that DoJ figures began telling reporters immediately that it did not begin with them, but instead they were dragged into it by the IRS, and that Spitzer's bank started it all.

We didn't need to know that information, unless one thinks - as some at DoJ obviously do - that DoJ is not trusted by the public NOT to politicize investigations of political figures. That's a pretty sorry admission, though entirely accurate.

And fwiw, I don't see how the story as we have it adds up. Why would a few relatively small wire transfers, in the absense of any evidence of criminal wrong-doing, lead to (a) a bank report, and (b) a full-scale FBI investigation, and (c) a court-ordered wiretap. Then there's the fact revealed yesterday that the FBI, having acquired enough evidence to charge the prostitution ring, did not swoop in but renewed the wiretap so as to target Spitzer personally. It smells politicized, no matter which end of it you examine.
 

Robert,

I guess we have opposive views then. I don't know enough about finance to even hazard a guess as to what should be suspicious enough to attract the attention of law enforcement, but surely some things are worthy of investigation. Nor do I have a problem with giving some extra scrutiny to any high officials who turn up on this list. Political corruption is a constant temptation, after all.

But going to these lengths to catch a hostile politician with prostitutes, why it's like patrolling public rest rooms to bust foot-tappers.
 

EnlightenedLayperson: "...going to these lengths..."

I think this might be where we're not connecting. The 1994 article I linked to points out that companies are already going to "these lengths" to analyze customer/consumer data anyway. That's not going to change. Stipulating Total Information Awareness is coming, like it or not, because the corporatocracy wants it so as to better predict/control spending, the question becomes, how do we protect ourselves, our liberties?

The honest answer is probably that we can't, that the Enlightenment era precepts are but a pipe dream in the information age. But you'll catch a few of us fighting the good fight right to the statistically predicted end. Capitalism, and more specifically, Consumerism, might be our only real hope for anything resembling freedom and liberty in the future. So long as the corporatocracy thinks there is more profit in letting us have the freedom to choose Coke or Pepsi then we'll probably be allowed to keep many of the illusory freedoms we currently enjoy. One can hope.
 

Just for ducks, look at this incident from an international angle: they scooped up the richest man in Britian, a married man who had been relieved of his command in Afghanistan for blabbing to eastern prostitutes on multiple occasions that he knew where Osama bin Laden was without even trying to conceal his (the Duke of Westminster's) identity.

Then there are the document problems: the pimp was found with 2 Israeli passports and another passport plus $600,000. Who is this outfit's forger and (tinfoil applied here) was some police entity running a sting, not for Spitzer but for one of the other clients?

The Murdoch papers began scrubbing their papers of the Duke of Westminster=client 6 yesterday around noon time EST - why let it go 24 hours?

For real giggles google QAT - you'll get a leaf (sometimes spelled khat) that is chewed in Yemen for a caffine like high. That may have triggered some stupid electronic stiffer's alarm bells somewhere.

Back here down on the farm, Spitzer did himself no favors if he asked a bank he had under investigation to remove his name from his little wire transfers between North Fork Bank and HSBC.
 

SHAG FROM BROOKLINE SAYS:

This brings up the matter of career choices and counseling. The hourly rates of big time hookers greatly exceed those of big law firm lawyers despite the fact that it is their clients that get screwed in the end. Lawyers need equal protection because they are licensed while the hookers are at most licentious. And lawyers report their incomes and pay taxes. So why not combine careers as an "Escort Attorney" - "Have Briefcase, Will Travel."
 

So what happens, some computer in Detroit keeps this data forever, we don't know who gets to see it, it is used to prevent some future behavior or other reasons we don't know, what started out a a tool in the war on drugs or war on terrorism is now being used to sanction not only $10,000 cash transactions but ALL wire transfers worldwide through SWIFT, we can't be told anything about this because it would reveal secret methods the enemy must never know, if there is a false report nobody is accountable, there is no way to remove information since you don't even know what it is, this will go on as long as the war on terror and drugs goes on, this is not Orwell it is Kafka
 

So what happens, some computer in Detroit keeps this data forever, we don't know who gets to see it, it is used to prevent some future behavior or other reasons we don't know, what started out a a tool in the war on drugs or war on terrorism is now being used to sanction not only $10,000 cash transactions but ALL wire transfers worldwide through SWIFT, we can't be told anything about this because it would reveal secret methods the enemy must never know, if there is a false report nobody is accountable, there is no way to remove information since you don't even know what it is, this will go on as long as the war on terror and drugs goes on, this is not Orwell it is Kafka
 

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