The recent ACAMS webinar, Fortifying Compliance Strategies to Fight Human Trafficking, held July 22, clearly struck a chord, producing more thoughtful, and thought-provoking questions than could be answered during the allotted time. In keeping with ACAMS commitment to this urgent global issue, we conducted research to answer the remaining questions from that program.. It is important to note that we are not offering legal advice.

• What are common types of activities that card providers can look for by merchant clients that might help identify human trafficking?

  Interesting question, and one whose answer requires a multi-step analysis.

  Keep in mind that prostitution laws vary widely by jurisdiction. For instance, in some cases it’s illegal to purchase sexual services, but not to provide them for money. So the first step for an AML officer is to know the applicable laws and their legal fine points.

  Secondly, it’s important to differentiate sex trafficking, other forms of prostitution and money laundering.

  To start, we’ll use the definition of predicate crimes from ACAMS’ AML glossary. Predicate crimes are “specific unlawful activities whose proceeds, if involved in the subject transaction, can give rise to prosecution for money laundering.”

  In other words, human trafficking is a predicate offense. That is, trafficking in humans produces criminal proceeds, regardless of the legal status of sex work in a particular jurisdiction.

  While not required, it has become a best practice that compliance programs incorporate monitoring for typologies of trafficking-linked sex rings. Keep in mind that human trafficking doesn’t only involved forced sex workers. According to Interpol, the world’s largest police organization, with members from 190 countries, traffickers may also be engaged in migrant smuggling, forced labor or sexual exploitation of children.

• So what are some common red flags and typologies?

  One common indicator is the use of funnel accounts, where deposits structured to dodge currency transaction reports are quickly withdrawn, usually in another geographic area. Also, patterns of unusually large ATM transactions, particularly in late-night hours, is a risk indicator. Finally, higher-risk activities and business lines, such frequent use of wire transfers involving jurisdictions known for trafficking activity, could be cause for concern.

  While it’s not a typology, another important anti-trafficking tool for compliance professionals is the power of information sharing. Specifically, don’t be afraid to take your suspicions to law enforcement and participate in industry-led anti-trafficking initiatives as well.

• What are common types of activities that card providers can look for by merchant clients that might help identify human trafficking?

  Their relative ease of use, comparative anonymity and wide availability often means credit cards are a de facto currency in human trafficking. But both industry and law enforcement are battling against such abuses.

  One red flag is the use of credit cards to pay for advertising of escort services. In some cases, the escorts are in fact victims of human trafficking.

  Furthermore, unusual credit card activities at merchants that may be fronts for sex rings should be investigated.

  And in transactions that can offer a cloak of anonymity, clients of sex workers may use prepaid cards to pay for services.

  Relevant to the compliance function, a 2014 report by the World Economic Forum suggested taking a risk-based approach in monitoring variables that may indicate trafficking activity. Certain geographic locations and types of businesses are considered higher risk, for instance. And atypical purchasing patterns may also indicate trafficking, the report found. As one example, a major bank teamed with law enforcement to investigate a nail salon that was giving a suspiciously large number of manicures between 11 p.m. and 4 a.m., the report noted.

  Other indicators might be cross-border funds transfers that are inconsistent with the stated purpose of the account holder, and a high number of individual accounts being opened and closed simultaneously.
  Fortunately, card providers and law enforcement are banding together to fight these abuses. In 2015, for instance, Visa, MasterCard and American Express, at the request for Sheriff Tom Dart of Cook County, Ill., stopped allowing their cards to be used to pay for ads on Backpage, a predominant player in the sex trade advertising business.

  Meanwhile, major financial institutions in North America and Europe are joining forces with law enforcements agencies and NGOs to form alliances – and share strategies — to combat trafficking. For updates, check our webpage http://www.acams.org/aml-resources/human-trafficking/.

• How do abuser organizations get legal entry to the countries providing the victims?

  This question cuts to a central issue involving human traffickers: How do they find their prey?

  It’s important to note that victims aren’t necessarily taken by foreign traffickers. The first phase of human trafficking is recruitment or abduction, often by a compatriot of the victim, according to a 2014 FinCEN advisory. It may involve violence, such as kidnapping or being forced into sham marriages, according to FinCEN.

  In other cases, victims may be unwittingly lured to leave their homeland by “advertisements offering employment or study abroad,” the FinCEN advisory noted.

  Many victims are acting out of desperation. “Individuals from countries and geographic areas that have been affected by economic hardship, armed conflicts or natural disasters are particularly vulnerable to these tactics,” FinCEN noted.

  After recruitment comes trafficking’s second phase – transportation, usually (but not always) to another country. Often, the victims are sold to a new set of traffickers who may very well be legal residents of the second country.

  The third phase, exploitation, follows. According to FinCEN, this can frequently mean forced labor at massage parlors, restaurants, on farms or in illegal domestic servitude.

• Are these source countries working to monitor the problem?

  Unfortunately, in many cases the answer is no. Efforts to combat trafficking are growing globally – but much remains to be done. According to the 2016 Trafficking in Persons Report, published by the US State Department, trafficking convictions around the world have grown from 2,983 in 2008 to 6,609 in 2015. But the 77,000 identified victims are a fraction of what experts believe is the true number.

  The TIP Report ranks countries on how well they meet the minimum standards of the US Trafficking Victims Protection Act, which was passed in 2000 and subsequently reauthorized by Presidents Bush and Obama.

  Some thirty-six countries received a Tier I designation, meaning they are fully compliant. Another 72 were ranked Tier 2, indicating they didn’t meet the minimum standards but were making efforts to do so. Just below, 44 countries were on the Tier 2 Watch List, suggesting they could move up in the future.

  The bad news: 27 countries received a Tier 3 grading, for not meeting minimum standards and not making significant efforts to do so. The unstable countries of Libya, Somalia and Yemen were labeled “special cases”.

• Can we regard human trafficking as a low-risk or high-risk business?

  Remember: Human trafficking is a criminal enterprise. From a compliance standpoint, AML professionals should screen for a variety of factors that could indicate a higher risk of human trafficking activities. As noted above, these may include everything from geographic location, the nature of the business, the use of funnel accounts and frequent transfers of money to or from areas known for trafficking activity.

• How do the financial indicators differ between the victims and perpetrators of human trafficking?

  Human trafficking is often referred to as modern slavery – the victims are held against their will and are unlikely to be paid. Their movement is severely restricted. From an AML perspective, financial indicators are much more likely to be exhibited by the perpetrators. Further information on the economic exploitation of victims can be found in the State Department’s What is Modern Slavery? report. Its conclusion: “At the heart of this phenomenon is the traffickers’ goal of exploiting and enslaving their victims and the myriad coercive and deceptive practices they use to do so.”

• As opposed to retail accounts, how could human trafficking be spotted in correspondent banking relationships?

  Detecting trafficking activity is challenging enough with domestic retail accounts. Correspondent accounts can add more complications to the effort. To quote the FFIEC Manual: “Because of the large amount of funds, multiple transactions, and the US bank’s potential lack of familiarity with the foreign correspondent financial institution’s customer, criminals and terrorists can more easily conceal the source and use of illicit funds.” Clearly, in some cases, those criminals could include human traffickers.

  That would suggest financial institutions incorporate human trafficking screening into existing risk mitigation policies governing correspondent relationships. These should include on-boarding procedures, incorporating risk determination into the banks’ suspicious activity monitoring system, establishing formalized processes for escalating suspicious information to an appropriate management level for review and determining criteria for closing correspondent accounts.

  For a further review of industry best practices, consult the Wolfsberg Group’s Anti-Money Laundering Principles for Correspondent Banking.

• Are there centralized watch lists of human traffickers?

  While there doesn’t appear to be a centralized global register for human traffickers, there are nevertheless many resources available that could assist efforts to identify individuals involved in such crimes.

  If you are teaming with law enforcement, for instance, they may have databases or other valuable information. The Blue Campaign of the Department of Homeland Security works in collaboration with law enforcement, government, non-government organizations (NGOs) to combat trafficking. To report suspicious activity, call 1-866-347-2423. Outside the US, the number is 802-872-6199.

  In terms of KYC and CDD help, there were more than 6,600 convictions for human trafficking in 2015, providing potential sources of names and aliases.

  Other sources for information might include the many NGOs involved in the fight against human trafficking, particularly those active in your region.

  On the government side, resources might include the President’s Interagency Task Force to Monitor and Combating Trafficking Victims, which comprises 17 cabinet-level departments and other federal agencies. Meanwhile, the Anti-Trafficking Coordination Team Initiative (ACTeam), which includes the Departments of Justice, Labor and Homeland Security, commenced a Phase II expansion last year, adding six new cities to its network around the country. The initiative’s goal is to streamline federal criminal investigations and prosecution of human trafficking offenses.

• I work in an offshore financial center, and am wondering what support might be available from Homeland Security Investigations, or should I first go through local law enforcement agencies?

  Without knowing more specifics, it’s difficult to specify whether going to DHS would be the best strategy. However, the DHS Blue Campaign is accessible outside the US at 802-872-6199. Also, tips may be submitted online at www.ice.gov/tips.