Credit Card or Bank Transaction: Somebody Watches

March 14, 2008— -- Every time you swipe your credit card, take cash out of an ATM or transfer money into your bank account, a sophisticated network of computers is keeping track.

The fraud detection systems — which security experts say vary widely — want to know: Are you trying to launder money or has somebody stolen your credit card or ATM card and making purchases?

Some data is kept by the banks and credit card companies and other information is passed on to the federal government.

"People aren't really aware of the fact that transactions that they make with financial institutions are being monitored," said Paul Stephens, director of policy and advocacy form the Privacy Rights Clearinghouse. "Hundreds of thousands of innocent people are having their everyday banking transactions forwarded to the federal government."

Eliot Spitzer, who will step down as New York's governor on Monday, learned that lesson the hard way. The former prosecutor was allegedly making wire transactions to a shell corporation that was a front for a high-end call girl service. His bank apparently found the transactions suspicious and notified federal authorities, starting the investigation.

Since April 1996, banks, casino and other institutions that handle large amounts of cash have been requested to file reports to the government any time they notice a transaction that doesn't seem right. These Suspicious Activity Reports, or SARs, go to a unit of the Treasury Department, known as the Financial Crimes Enforcement Network.

In 2006, 1.08 million such reports were filed, up from 920,000 the year before and 690,000 in 2004, according to a report from the Treasury Department.

Stephens is concerned because banks can essentially report whatever they want to the federal government.

"The banks are given a great amount of leeway in making a determination as to what constitutes 'suspicious,'" Stephens said.

But these reports are just one small part of the mountain of financial data collected on Americans each day.