The US Financial Crimes Enforcement Network (FinCEN) has issued a new notice highlighting an increase in online child sexual exploitation (OCSE) and providing additional guidance to financial institutions (FIs) about SAR filing instructions.
During the last year, law enforcement authorities throughout the US have noted a sharp rise in OCSE activity. FinCEN suggests this is due to increased internet usage by children, travel restrictions sending more sex offenders online, and increased access to technology including encrypted communications, bulk data transfer, cloud storage, live-streaming, and anonymized transactions.
“SARs, in conjunction with effective implementation of other BSA requirements, are crucial to identify and stop cybercrimes, including OCSE,” the notice states.
Between 2017 and 2020, there was a 147% increase in OCSE-related SAR filings – including a 17% year-on-year increase in 2020.
OCSE offenders are increasingly using convertible virtual currency (CVC) and transferring funds via third-party payment processors. A recent case in Florida saw members of a business running subscription-based sexually exploitative “child modeling” websites, fraudulently open merchant and bank accounts in the US, and launder proceeds using a bogus jewelry company.
FinCEN has issued detailed guidance for compliance teams on exactly how SARs need to be filled in to aid with reports of OCSE. These include:
- In SAR field 2 (Filing Institution Note to FinCEN) use the keyword ‘OCSE-FIN-2021-NTC3’. This keyword should also be referenced in the narrative to indicate a connection between the suspicious activity being reported and the activities highlighted in this notice.
- Select SAR Field 38(z) (Other) as the associated suspicious activity type to indicate a connection between the suspicious activity reported and OCSE activity and include the term ‘OCSE’ in the text box.
- If known, enter the subject’s internet-based contact with the financial institution in SAR Field 43 (IP Address and Date).
- If human trafficking or human smuggling are suspected in addition to OCSE activity, also select SAR Field 38(h) (Human Trafficking) or SAR Field 38(g) (Human Smuggling), respectively.
- Use specific Child Sexual Exploitation terms and definitions, these include: Child Sexual Exploitation, Offenses Involving Child Pornography, Online Child Sexual Exploitation, and Facilitator/Intermediary.
This increase in online exploitation highlights the need for effective adverse media screening. Compliance teams should be monitoring for stories that involve customers on a regular basis, in order to identify and prevent potential problems before they arise. They should also ensure that adverse media categorization is correctly used, in order to cut down on noise and keep alerts focused on what’s relevant by avoiding false positives, and apply negative news screening best practices.
It is also essential to keep up-to-date with notices from sources such as FinCEN, and it is a good policy to have awareness of what and how children use technology and what controls are in place to protect them online.
Originally published September 23, 2021, updated November 23, 2021
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