The connection between money laundering and human trafficking

How anti-money laundering efforts combat human trafficking

Human trafficking is the criminal trade of men, women and children for the purposes of commercial sex, forced labor or other forms of exploitation. There are currently over 40.3 million global victims of human trafficking, and according to the recent FATF report, Financial Flows from Human Trafficking, the aggregated criminal proceeds of human trafficking reached $150 billion in 2018. The potential to generate such sizeable financial returns makes money laundering and human trafficking often go hand in hand.

The proximity between human trafficking and money laundering means that financial instituions play an important role in its detection and prevention. Effective AML programs can help firms identify traffickers and alert the authorities, but it is vital that those firms understand the challenges they face and how to deal with them.

What is human trafficking?

Human trafficking takes numerous forms; however, its victims are normally recruited by coercion, fraud, or force and then exploited on an ongoing basis for profit. In order to exploit their victims, traffickers often move them between locations or across international borders. The FATF’s 2018 report identifies three categories of human trafficking:

• Human trafficking for sexual exploitation: Victims forced into prostitution over an extended period of time.
• Human trafficking for forced labor: Victims forced to provide free or extremely low-paid labor for traffickers in manual-labor roles, such as construction or farming.
• Human trafficking for the removal of organs: Victims paid, coerced or even tricked into having organs removed for the profit of traffickers.

The relationship between money laundering and human trafficking

Perpetrators of human trafficking use money laundering to transform their financial proceeds into legitimate funds. However, because the financial flows from human trafficking are so diverse, detecting attempts to launder proceeds can be challenging. Regulatory authorities issue guidance on a range of financial red flags to help firms better position their AML compliance programs to detect human trafficking.

These red flag indicators include:

• Large deposits of money into accounts which are then immediately withdrawn in towns close to international borders.
• Patterns of card transactions in even amounts of money between 10pm and 6am. 
• Multiple victims sharing bank account information, e.g., phone number or address.
• Sudden deviations from expected customer account activity.
• Use of anonymous financial instruments to pay bills.
• Structured deposits across multiple physical banking locations.

More specific indicators of human trafficking converge around the type of trafficking involved:

Sexual Exploitation: Traffickers often have to meet the basic welfare needs of sexual exploitation victims, providing things like food, accommodation and transport. In this type of trafficking, financial flows may be directed through victims or through the traffickers and money launderers themselves.

Victims of human trafficking for sexual exploitation may:

• Incur ongoing excessive expenses for food, transport and accommodation.
• Conduct transactions excessively in virtual currencies or via international email money transfers.
• Use mobile phone numbers which match escort service advertisements. 
• Have bank accounts that are funded excessively by third-party cash deposits and that are not consistent with their level of wealth.

Similarly, perpetrators of trafficking for sexual exploitation may:

• Spend money on websites linked with human trafficking.
• Regularly make cash deposits using ATMs in bank branches.
• Accompany and exert control over another person making cash deposits in a bank.

Forced Labor: Victims of human trafficking are often recruited by traffickers with the incentive of better or higher-paid jobs overseas. After recruitment, victims are forced into work through violence and intimidation, the restriction of identity papers or threats of exposure to immigration officials. Some forms of forced labor are classified as modern slavery since the victims receive little to no payment in return for their work.

Potential indicators of money laundering linked to forced labor include:

• A single account being used to pay wages to multiple employees.
• Wages deposited into an account then quickly withdrawn or transferred to a different account.
• An individual who demonstrates control of another individual’s financial affairs and official documents when interacting with government or regulatory authorities.

Organ Removal:Human trafficking for the purposes of organ removal often requires an elaborate logistical and financial infrastructure, involving multiple parties and even medical services. The FATF acknowledges that human trafficking for organ removal is a less common form of the crime but nonetheless causes serious harm to its victims.

Human trafficking for organ removal often generates two types of financial flow:

• Infrastructure funds for organ removal. This may include arranging for medical facilities and equipment outside of accredited medical contexts.
• Funds to pay individuals involved in the offense itself, including surgeons and other medical staff, and brokers who recruit victims and arrange logistics.

Organ removal can provide significant one-time financial gains for traffickers: kidneys, for example, cost around $200,000 in certain markets. Firms should be alert to individuals, or networks of individuals, receiving sums of money which are not consistent with their current employment wages.

Money laundering and human trafficking: Screening best practices

Financial institutions are in a unique position to prevent money laundering / human trafficking by detecting traffickers’ attempts to launder their criminal proceeds. However, it is crucial that those institutions’ AML programs are set up appropriately in order to do so. Financial authorities around the world suggest AML best practices to help firms catch and prevent human traffickers attempting to launder money, these include:

• Contextual information: Many indicators of money laundering and human trafficking intersect with legitimate financial activities, often making the crime difficult to identify. With this in mind, firms should consider indicators in combination with as much contextual information as possible in order to make a more accurate determination.
• Information sharing:When evaluating potential trafficking activity, firms should seek to share information to establish a more accurate picture of suspected trafficking operations. Many legislative frameworks include information sharing mechanisms that allow institutions to share information amongst themselves and with regulators.
• Customer Due Diligence: Firms should enhance their efforts to identify trafficking by optimizing their Customer Due Diligence (CDD) measures, along with other screening and monitoring processes. These processes should utilize all publicly available resources and include comprehensive politically exposed person and negative news screening. At ComplyAdvantage, for example, we continually monitor for adverse media. Profiles are structured and accurately labeled using FATF-aligned categorization so that firms can, at a glance, understand what type of adverse media has been surfaced.
• Suspicious Activity Reports: When reporting human trafficking activity in a suspicious activity report (SAR), firms should understand how to help the authorities in their investigation of traffickers by including key terms and information. The United States’ FINCEN SAR guidance, for example, requests the term “Advisory Human Trafficking” along with an explanation of why the reported activity is being considered suspicious.