A bank account appearing to be a destination for multiple domestic financial rivulets funneling into it – and a foreign flowing spigot. A business account that appears to deposit growing revenues – but never pay out wages, or take out deductions for medical insurance.
Those are just some of the transactional tells released by the Paris-based Financial Action Task Force (FATF) in a report delving into revelatory detail related to the red flags financial institutions would see that could be indicators of the soaring scourge of human trafficking.
FATF, which sets global counter-crime compliance standards, felt it needed to release more rigorous, prescriptive guidance as criminals are expanding their use of exploiting human capital around the globe after releasing a detailed analysis in 2011.
While a horrific development that plays on law enforcement vulnerabilities and challenges compliance professionals by jumping international borders, the tens of billions of dollars in revenue generated by human trafficking groups mean more touchpoints with the formal financial system.
In tandem, it also means more opportunities for appropriately trained anti-money laundering (AML) officers, and properly tuned transaction monitoring systems, to uncover related illicit financial flows and report them to law enforcement.
In recent years, the “number of victims of human trafficking and migrant smuggling has continued to grow significantly,” according to FATF, noting that revenues have more than quadrupled in less than a decade – the last time the watchdog group gauged the pulse of the sector and released guidance.
In addition to the “terrible human cost,” the estimated proceeds that human trafficking generates have increased from $32 billion to more than $150 billion since FATF produced a comprehensive report on the laundering of the proceeds of these crimes in 2011.
At the same time, since then, there is also a “better understanding of how and where human trafficking is taking place, including the increasing prevalence of people being trafficked in the same country or region,” according to the report, noting that such details can give additional color and context to aberrant financials alone.
Along with more aggressive AML analysis from banks, the report is urging countries to build more expansive partnerships between the public sector, private sector, civil society and non-profit communities to “leverage expertise, capabilities and partnership.”
The private sector, and financial institutions in particular, are on the frontline, as they can see human traffickers depositing and moving funds from countries where migrants are trying to leave, where they are trying to go and the jurisdictions where criminal groups are diverting these stolen souls.
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Building on past
In some cases, FATF echoed prior guidance by U.S. agencies, including the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN), which called for banks to not just extend specialized training to dedicated financial crime compliance investigators, but also to frontline staff.
Why? Because in some cases, individuals from the trafficking group will take victims into a branch to establish accounts, deposit money or move money internationally.
FATF even notes that some victims can come into a branch asking to cash a check and get the cash directly – because if they deposit the funds into a “corporate” account, they will never see the money.
The report specifically called out the contributions by AML teams, but notes more can, and should, be done.
“Innovative initiatives at the national or regional level have demonstrated how anti-money laundering and counter-terrorist financing measures, and those that implement them, can contribute to stopping this crime,” according to the report.
However, globally, there “has not been sufficient focus on how to use financial information to detect, disrupt and dismantle human trafficking networks,” according to FATF, something the group hopes will change as banks review this report’s findings and create and update scenarios in their transaction systems to better parse out human trafficking-tinged transactions from simple numeric anomalies.
Waving the red flag
The report includes a bevy of red flag indicators culled from actual case studies to give banks, money remitters and investigators a better sense of the transactional tells of the crime, which are broken into several parts, including humantrafficking, sex trafficking, forced labor, and indicators common across the various predicate crimes. Some red flag indicators include:
- Account appears to function as a funnel account
- Cash-intensive business with unclear source of cash or capital
- Cross-border funds transfers to the same individual, FI or overseas location, but inconsistent with customers’ profile, stated business activity
- Customer requesting direct payment in a branch, as to not receiving their wages
- Deposits much larger than are usual or, conversely, frequent low-value/below threshold cash deposits in low-denomination bank notes
- Funds transfers received from or to the benefit of unrelated third parties
- Inability to contact client at their reported phone number, or the phone number changes very frequently,
The study also identifies “good practices,” and tactics at the regional, national and supranational levels that can help investigators put the puzzle pieces together of larger trafficking networks, sharing that information with foreign counterparts and, equally important, getting those details into the hands of bank AML compliance teams.
The practices include:
- Assess the diverse money laundering risks from human trafficking, share with stakeholders and ensure that they’re understood
- Leverage expertise, capabilities and information through partnerships between the public sector, private sector, civil society and non-profit organization communities.
Critical bank cooperation
In a rare move by FATF, it also explicitly stated the details in the report could not have been gleaned without analysis and data from many of the largest banks and money remitters in the world.
The group mentioned by name the vital aid provided by Barclays, Standard Chartered, HSBC, Western Union, Ria Financial, the Wolfsberg Group and European and American Bankers’ Alliances.
As a point of context, large U.S. banking groups, including JPMorgan Chase, Bank of America and Citi, were proactively creating scenarios for AML transacting monitoring systems to uncover potential instances of human trafficking more than a decade ago – predating both FATF and FinCEN.
One very specific detail they uncovered that is still relevant to today: If a seemingly low risk business, like a nail salon, suddenly sees most of its credit and debit card transactions come between 11 p.m. and 2 a.m., that is a major red flag the establishment is engaging in human trafficking as an illicit massage parlor.