Banking: Detecting tell-tale signs of human trafficking (Part 1)

The Financial Action Task Force (FATF), in conjunction with the Asia Pacific Group (APG, a FATF-style Regional Body, or FSRB), issued a report on financial flows in human trafficking.

The report highlights both the opportunities and challenges of preventing and stopping the underlying predicate crimes by identifying the perpetrators and victims through their money trails.

It also leaves open a strategic question: where should compliance professionals focus their efforts (and why).

Back to basics

FATF’s report, which presents an update to a 2011 report, breaks down human trafficking into three categories, each with distinct revenue generation and money laundering typologies: trafficking for sexual exploitation (HTSE), for other forced labor or slavery (HTFL) and for organ removal (HTRO).

However, no HTRO case studies, or reliable estimates of its total proceeds, are included.

The report presents a good overview of the methodologies by which persons get ensnared in human trafficking schemes.

It describes recent increases in human migration patterns, including those fleeing from armed conflict or terror organizations’ control over territory, as well as the impact that this has had on such exploitation.

Useful statistical information relating to where victims are recruited from, and to where they are transported, is also provided.

Overall, however, the report paints a picture of one of the fastest-growing category of criminal activity, of which the general understanding is still in a nascent state.

This report documents both the challenges documented in the 2011 review as well as new ones identified in the current review.

In line with the basic nature of the “good practices” mentioned in the executive summary, the report notes that companies are challenged by “issues in effectively detecting transactions where there is a suspicion that the proceeds of human trafficking are being laundered or contribute to the financing of terrorist activity,” while expressing a need for “more precise indicators of money laundering/terrorist financing.”

In a similar vein, governmental authorities identified the difficulty of identifying HTFL proceeds, especially where the offenders enrich themselves more gradually over a longer period of time.

Underscoring that point, the report documents a case in which the victim was performing household chores for up to 19 hours a day in the offender’s apartment for minimal pay. This situation persisted for seven months, until the victim contacted the police.

Following the money

The bulk of the report focuses on detecting human trafficking crimes through financial flows. It notes a number of basic findings:

• The more a victim or trafficker interacts with financial firms or government agencies, the easier it is to identify the money being laundered
• It is easier to identify trafficking by actions by the victims or the traffickers directly interacting with them
• Leveraging other information about the parties, such as passports, victim residence and/or utilities information, can aid in identifying trafficking

However, the report concedes that no one financial indicator definitively indicates trafficking-based money laundering, as many of these could also be related to other underlying crimes.

There are some red flags that, with the above caveat, could indicate any type of human trafficking:

• Multiple victims with identical bank account details, such as phone numbers and addresses
• Victim accompanied to the bank by a third party, and behavioral activity which implies control over the victims:
  • Third party holds victims’ personal identification
  • Victim reads their address information from a form
  • “Interpreter” used to execute transactions
  • Account opening forms filled out in handwriting styles different than victims’
• Account activity inconsistent with account holders’ stated employment:
  • Unusual amounts of international purchases
  • Frequent or excessive travel expenses (foreign, out of town domestic and/or local)
  • Frequent or excessive expenditures on food, lodging, or personal needs for trafficked persons by the trafficker. Similarly, victim financial activities reflect none of these expected daily living expenditures.
• Rapid drawdowns of deposited funds or salaries paid, often in cash, and usage of funnel accounts

There are also financial red flags that are specific to the different types of human trafficking. But that’s an article for another day.

About the author:

Eric A. Sohn, CAMS, is Director of Business Product, Dow Jones Risk & Compliance, New York, USA, eric.sohn@dowjones.com

This article is expressing personal opinions and is meant for information purposes only. The article does not intend to replace professional or legal advice. It is recommended that readers seek independent professional or legal advice, or speak to authorised persons/organisations.