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