Published: August 18, 2013

http://www.nytimes.com/2013/08/19/nyregion/law-doesnt-back-stringers-claim-of-money-laundering-by-spitzer.html?_r=0

Among the accusations that political candidates sling at one another during debates, “money laundering” does not usually come up.

But in the first two debates of the Democratic primary for New York City comptroller, Scott M. Stringer repeatedly alleged that Eliot Spitzer engaged in “money laundering” while he was governor. Mr. Spitzer says that Mr. Stringer, the Manhattan borough president, is misstating the facts.

The dispute has its origin in a subject that is already uncomfortable for Mr. Spitzer: how he paid a prostitution ring, Emperor’s Club V.I.P., for its services.

According to a Suspicious Activity Report that Mr. Spitzer’s bank, North Fork Bank, filed with the Treasury Department in September 2007, he asked a bank employee to make a $5,000 wire transfer from his account to the account of a company connected to the prostitution ring, without including his name and account number in the wire transfer instructions. The bank declined to do so, saying that it would violate regulations, but the request raised suspicion and led the bank to file the report. The bank also learned that another employee had fulfilled such a request for Mr. Spitzer previously.

The unusual nature of the report — in particular, that it involved such a request by the sitting governor of New York — led to a close review by the Internal Revenue Service. That, in turn, prompted a criminal investigation by the I.R.S., the Federal Bureau of Investigation and the United States attorney for the Southern District of New York that ultimately led to several Emperor’s Club employees’ pleading guilty to violating both prostitution and money laundering laws.

Mr. Spitzer, however, was not charged with a crime.

In an announcement on Nov. 6, 2008, nearly eight months after Mr. Spitzer resigned, the United States attorney, Michael J. Garcia, said: “After a thorough investigation, this office has uncovered no evidence of misuse of public or campaign funds. In addition, we have determined that there is insufficient evidence to bring charges against Mr. Spitzer for any offense relating to the withdrawal of funds for, and his payments to, the Emperor’s Club V.I.P.”

It is not in dispute that Mr. Spitzer broke the law by hiring prostitutes and arranging for women to travel across state lines to engage in prostitution.

But Mr. Garcia declined to bring those charges, citing the Justice Department’s longstanding practice of not charging the customers of prostitutes and Mr. Spitzer’s “acceptance of responsibility for his conduct.”

Mr. Stringer’s campaign, in defending the allegation, said that Mr. Spitzer had tried to conceal illegal activity by the way he transferred money, and that he was doing business with an organization — the Emperor’s Club V.I.P. — that was itself engaged in money laundering.

“The fact that we’re debating which laws Eliot Spitzer broke suggests that he has disqualified himself to serve as New York City comptroller,” Audrey Gelman, a spokeswoman for Mr. Stringer, said in an e-mail, adding that he laundered money “to hide his unlawful activities.”

But under federal law, money laundering involves moving money that is the proceeds of crime in such a way as to obscure its origins. That does not apply to Mr. Spitzer, since the money he was spending was his own.

“If you’ve got clean money and you try to secretly move it around, that’s not money laundering,” said Sarah N. Welling, a law professor at the University of Kentucky.

Another crime often associated with money laundering is structuring cash transactions to avoid reporting requirements — that is, making successive cash transactions in amounts just shy of $10,000. But prosecutors have said they found no such pattern in Mr. Spitzer’s case.

Perhaps the strongest argument refuting Mr. Stringer’s accusation is the outcome of the case that resulted in Mr. Spitzer’s resignation: he was not charged with a crime.

“In the vernacular sense: innocent until proven guilty,” said James H. Freis Jr., a lawyer at Cleary Gottlieb Steen & Hamilton and the former director of the Treasury Department’s Financial Crimes Enforcement Network, who was speaking generally, not specifically about Mr. Spitzer. “Unless someone has been convicted of something, it’s hard to say as a fact they’ve done something illegal,” he said, adding, “That’s the American way.”