HomeNewsAnalysisHow Financial Institutions Lead Way in Battle Against Human Trafficking

How Financial Institutions Lead Way in Battle Against Human Trafficking


Every 30 seconds, the criminal industry of human trafficking makes more than $30,000.

That statistic, calculated from estimates by the International Labor Organization, reveals the size and international scope of human trafficking, or the exploitation of humans as a commodity. Human trafficking happens in urban metropolises and in remote rural areas, in developing and first world nations.

This lucrative and globally pervasive industry is growing rapidly. Behind only drug trafficking and the sale of counterfeit or pirated goods as the most profitable organized crime, human trafficking brings in approximately $32 billion a year, according to an estimate by the United Nations. That sum is generated through the slavery, abuse and exploitation of an estimated 27 million people.

It is also a crime that relies heavily on access to financial institutions. A wide range of institutions are not only destinations for trafficking proceeds, but also conduits to finance every step of the trafficking process. In recent cases in the US and Canada, for example, human trafficking gangs have used money services businesses to pay off transporters, prepaid cards to move funds across borders, and individual bank accounts to funnel profits back to gang leaders.

This article originally appeared on the website of the Association of Certified Financial Crime Specialists (ACFCS) and was reprinted with permission. See original here.

Recognizing their central importance to trafficking operations, financial institutions are seeking ways to strike back at human traffickers. In recent years, some institutions have gone beyond their standard AML controls to implement new monitoring techniques specifically tailored to detect human trafficking activity.

At the same time, some major banks, MSBs and card providers have launched industry groups focused on human trafficking, using these forums to swap information and forge closer ties with law enforcement.

SEE ALSO: Slavery in Latin America

"Financing is the lifeblood of these trafficking organizations and essential to sustain themselves globally," says Jack Williams, a law professor at Georgia State University and former consultant with the US government on organized crime issues.

"If you can turn off that spigot, that organization will crumble from the inside."

Human Trafficking Emerges as a Financial Crime Issue

Human trafficking is not only transporting an individual illegally across borders, although this can be an element of the crime. Trafficking also encompasses the recruitment, harboring, transportation, provision, or obtaining of a person for slavery and often, sexual exploitation.

Though the act of exploiting humans through forced labor is an ancient concept, human trafficking was only established as a criminal act fairly recently, through the United States Trafficking Victims Protection Act in 2000.

The United Nations followed suit the same year by adopting the Palermo Protocol. This was the first time the crime was defined in an international treaty. Since then, 140 countries have criminalized human trafficking.

SEE ALSO: Coverage of Human Trafficking

In the US, human trafficking is a "specified unlawful activity" under the nation's primary money laundering law (US Code Title 18 Section 1956). Transactions conducted with proceeds earned from trafficking humans, or used to further trafficking operations, can therefore be prosecuted as money laundering offenses.

US institutions, as well as those in the UK and many other nations, already report suspected illicit activity connected to human trafficking under existing anti-money laundering regulatory regimes. Only in recent years, however, has trafficking has received attention as a financial crime and compliance issue. Professionals in the financial industry and advocates for human trafficking victims are taking up the cause in an emerging movement to attack the crime through its money trail.

Institutions, Vendors Partner to Build Human Trafficking Monitoring Rules

One tactic, adopted by both institutions and technology vendors, has been to build rules and typologies for transaction monitoring systems that capture specific patterns and behavior indicative of human trafficking.

MetaBank, a US bank based in Iowa, has taken on this approach in partnership with NICE Actimize, one of the largest providers of monitoring systems. Brian Pulling, the Vice President of MetaBank's Financial Intelligence Unit & Analytics, is working on an internal program to develop a typology for suspected human trafficking financial activities, especially the use of pre-paid cards.

"We talked to law enforcement, we looked at websites that we knew where human trafficking was being done, and we started looking at some of the typologies that were inherent to the purchases on cards," Pulling explains.

"It's an open exchange of information that has allowed detection."

MetaBank has also created strong links with law enforcement, from local police to federal agencies, to swap information that can trigger criminal investigations of human trafficking. Pulling says financial data tied to one suspicious activity can help expose wider criminal operations.

"We've been looking for ring activity; it could be terrorist financing, it could be drug rings, it could be human trafficking. One thing that we are cognizant of is that you don't find single-income criminals. They participate in various crimes."

Major Banks, MSBs, and Card Providers Forge Partnerships with Law Enforcement

Several vendors, including SAS, Fiserv and Oracle, have started offering human trafficking rules and watch-list filters as part of their monitoring systems over the past two years. At the same time, both major institutions and government agencies have launched initiatives to foster information-sharing.

Last year, JP Morgan Chase, Citigroup, Bank of America, Wells Fargo, TD Bank, Barclays, Western Union and American Express announced a human trafficking working group in cooperation with the Manhattan District Attorney's Office. The institutions are using the group as a forum to swap monitoring rules and best practices.

"Financial institutions are in a unique position to spot red flags in [transaction] activity and report them to law enforcement," said Manhattan DA Cyrus Vance at the group's first meeting.

In the US, the Department of Homeland Security and its Immigrations and Customs Enforcement (ICE) arm have been the most active enforcement agencies targeting human trafficking. ICE oversees Project STAMP, which focuses on seizing assets tied to human trafficking organizations. The agency also seeks to exchange information on trafficking methods with the private sector through its Cornerstone Program.

Adding Human Trafficking to US SAR May Improve Detection

Industry-led efforts like the one at Metabank can stop human trafficking cases and save victims, but some suggest that greater attention from regulators is needed. One effort on that front has been a push to include human trafficking on the US suspicious activity report (SAR).

Joanne Alicea is a financial crimes investigator who has made it her mission to change the way financial institutions approach human trafficking. A key part of her advocacy has been lobbying for a new check box specifically for human trafficking.

The 23rd edition of the SAR Activity Review Trends, Tips and Issues (pdf), published by the US Financial Crimes Enforcement Network in May 2013, included an article by Alicea on the need for a designated checkbox. Alicea said the red flags of trafficking provided by FinCEN are good for the narrative portion of the SAR, but a checkbox would allow US law enforcement to more efficiently detect human trafficking activity.

"Education is key," Alicea says. "There has to be a tone at the top. There are compliance programs that don't even address it, so for now it's going to be up to the individual analyst to take it on," she says.

Williams agrees, saying that professionals need to understand the problem first. Other than filing SARS, compliance professionals should periodically review accounts, and remain aware of current red flags for human trafficking.

"Technology is a force multiplying mechanism, but at the end of the day judgment needs to be exercised," Williams says.

Inconsistent Enforcement Hampers Efforts Against Human Trafficking

Even as financial institutions have stepped up their own response to human trafficking, enforcement has lagged in many nations. A 2013 report published by the Office to Monitor and Combat Trafficking in Persons (pdf) of the US State Department shows that only about 40,000 victims have been identified worldwide**, a mere fraction of those estimated to be trafficked. The report indicates that even when victims are detected, they are often misclassified by authorities as criminals themselves.

Information compiled by national governments in the report also suggests that laws are enforced unevenly across nations. A lack of standardized enforcement makes human trafficking easier and more profitable, as criminals find ways to exploit weak compliance and enforcement regimes.

The chart below taken from the report shows enforcement actions on human trafficking around the world since 2005. Although the rate of prosecutions, convictions and victims identified are all increasing, the numbers are still meager compared to estimates of the scope of the problem.

humantraffickingchartOne reason why governments have been slow to crack down is a lack of awareness, or an unwillingness to believe human trafficking is an issue, Williams says.

"There is a serious sense of global denial," Williams says.

"We think we are a 21st century world and human trafficking is simply something that doesn't happen and if it does, it happens in third world countries. We didn't look into the problem because we denied there was a problem."

An infrastructure to detect and identify human trafficking victims, rather than criminalize them, has also historically been missing, Williams explains.

People are both the victim and the commodity in human trafficking. The crime does not end with the arrest of the trafficker -- law enforcement also has to work with victims to make sure they are released and integrated positively back into society. The Report from the US State Department in 2013 highlighted the importance of accurate identification of victims as a key to stopping human trafficking.

NGOs Provide Wealth of Data on Human Trafficking Methods

For financial institutions looking for information on human trafficking methodologies and red flags, a number of non-governmental organizations offer rich resources.

Finance Against Trafficking is one such NGO that works to raise awareness about the financial ties of human trafficking. A report by the organization identifies the ways that human traffickers use financial institutions as vehicles for proceeds.

Since human trafficking is often a cash-based activity, some financial services businesses are more vulnerable to others, such as money service and remittance businesses, retail/branch banking, cash couriers, and casinos. Another risk is that an institution can serve as a conduit for human trafficking proceeds by providing services to a legitimate business that uses trafficked labor.

Institutions can also leverage many of their existing controls built to detect proceeds related to other organized crime operations, such as drug trafficking. The Financial Action Task Force (FATF) noted that the financial operations of human trafficking are similar to that of other organized crime activities. Human traffickers often use cash intensive businesses, hawala systems, front companies, mingling of proceeds of crime with legitimately earned funds, aliases, straw men and false documents to accomplish their crime.

According to a manual created by Finance Against Trafficking called "Suspicious Financial Activity and Human Trafficking", financial institutions should ask themselves if the activity is normal for the industry and the region and analyze a series of transactions, rather than just one, to understand if there is a pattern of human trafficking.

Ultimately, there are many red flags financial services professionals can look for (click here for full list).

Alignment of Industry Efforts, Law Enforcement Will be Key to Stopping Trafficking

Despite the financial footprints that human traffickers leave on institutions, only 11 out of 2515 US cases of human trafficking investigations involved a regulatory agency of any kind, including financial regulators, from January 2008 to June 2010.

A report by the Financial Action Task Force on Money Laundering Risks Arising from Trafficking in Human Beings and Smuggling of Migrants from July 2011 (pdf) compiled information on how national financial intelligence units were tracking these crimes. A questionnaire which received answers from 52 countries analyzed how human trafficking smuggling and related money laundering activity were detected, the trends in this type of activity, investigations and convictions, and obstacles to monitoring and enforcement.

The report stated that the number of suspicious transaction or activity reports that designate human trafficking or smuggling are low in comparison with other serious predicate offenses. The majority of jurisdictions that answered the FATF questionnaire, 38 out of 52 countries, declared there was no specialized unit investigating the laundering of proceeds of human trafficking. While in most cases these offenses were integrated into the national FIU's money laundering investigation unit, the lack of specificity and cooperation with law enforcement suggests human trafficking is not an enforcement priority in many nations.

For there to be real progress, Williams says it will take law enforcement models more closely aligned with efforts to detect and report human trafficking at financial institutions. For now, financial detection efforts are largely being led by individual champions within institutions.

"These [techniques] are all means to an end," Williams says. "The most important thing about this is to detect [human trafficking] and stop it, not just to seize the money."

*This article originally appeared on the website of the Association of Certified Financial Crime Specialists (ACFCS) and was reprinted with permission. See original here.

**This figure refers to the past year.

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