Advisory Suggests that COVID-19 Pandemic Exacerbates Conditions Contributing to Trafficking
The Financial Crimes Enforcement Network (“FinCEN”) recently issued an Advisory on Identifying and Reporting Human Trafficking and Related Activity (“Advisory”). This Advisory supplements FinCEN’s 2014 Guidance on Recognizing Activity that May be Associated with Human Smuggling and Human Trafficking – Financial Red Flags (“2014 Advisory”).
According to the Advisory, human trafficking is one of the most profitable and violent forms of international crime, generating an estimated $150 billion worldwide per year. A variety of industries within the United States are susceptible to human trafficking—hospitality, agricultural, janitorial services, construction, restaurants, care for persons with disabilities, salon services, massage parlors, retail, fairs and carnivals, peddling and begging, child care, domestic work, and drug smuggling and distribution.
FinCEN further indicates that “[t]he global COVID-19 pandemic can exacerbate the conditions that contribute to human trafficking, as the support structures for potential victims collapse, and traffickers target those most impacted and vulnerable.” In light of changing circumstances, the Advisory lists four additional typologies and 20 new red flags to help assist in identifying and reporting human trafficking – many of which pertain to the use of currency, an increasingly rare phenomenon in today’s digital economy. The Advisory urges financial institutions, including customer-facing staff that may be in contact with victims of human trafficking, to educate themselves on current methodologies used by traffickers and facilitators. The most practical aspects of the Advisory appear to be those that highlight the red flags which may arise with personal interactions between bank staff and customers who in fact are engaging in trafficking.
New Typologies of Human Trafficking
Human traffickers rely on several techniques to evade detection. The Advisory adds four typologies (developed from an analysis of Bank Secrecy Act (“BSA”) data) to its 2014 Advisory:
- Human traffickers use front companies—businesses that combine illicit proceeds with those gained through legitimate business activities—to hide the illicit nature of a business. Front companies appear to offer legitimate services (for example, massage businesses, escort services, bars, restaurants, and cantinas), but they also offer sexual services from trafficked individuals.
- Exploitive employment practices—withholding wages, paying less than promised, misleading employees about the condition and nature of employment, engaging in contract switching, and confiscating and destroying workers’ documents—help traffickers accumulate profit. Financial institutions may see signs of these practices, which include multiple employees receiving their salaries in the same account, and payments that are consistently followed by immediate withdrawals or transfers into another account.
- Human traffickers use interstate funnel accounts to transfer funds, move profits quickly, and maintain anonymity. Once funnel accounts receive multiple cash deposits in an amount below the reporting threshold in one geographic area, the funds are quickly withdrawn in a different geographic area. On occasion, victims are coerced to wire proceeds via money services businesses to facilitate the funneling of proceeds.
- Alternative payment methods also allow sex traffickers to advertise their services and evade detection. In addition to cash, traffickers accept payments via credit cards, prepaid cards, mobile payment applications, and convertible virtual currency. Traffickers use alterative payments such as virtual currency to advertise commercial sex online. The Advisory explains that traffickers also use third-party payment processors to wire funds, which help conceal the originator or beneficiary of the transaction.
The Advisory illustrates some of these typologies by including two case studies. The first involves a December 2018 case in which 26 defendants were found guilty of conducting an international sex trafficking operation in St. Paul, Minnesota. The operation allegedly involved traffickers luring women from Thailand to the United States. Traffickers promised these victims a better life, but in reality, the victims were forced to enter fraudulent marriages and debt bondages. Victims were required to pay off their debt through commercial sex acts. The defendants also allegedly forced the victims to open bank accounts in Los Angeles, which the defendants controlled. The organization used these accounts to launder money, and employed third-party money launderers to coordinate cash deposits and withdrawals.
The second case study involves an operation that relied on prepaid cards and Bitcoin to conceal and further its illicit activities. In 2016, Homeland Security Investigations (“HSI”) agents uncovered a sex trafficking operation involving the West Side City Crips gang from Phoenix, Arizona. According to the Advisory, victims were transported from Arizona to Texas. They were beaten, threatened, and forced into prostitution. The scheme revolved around the purchase of Vanilla Visa prepaid credit cards that were used to purchase bitcoin on the Paxful virtual currency exchange, which was then used to purchase prostitution ads on the Backpage.com.
FinCEN of course is not the only entity addressing the scourge of human trafficking. As we have blogged, the Financial Action Task Force (“FATF”) and the Asia/Pacific Group on Money Laundering published in 2018 the Financial Flow from Human Trafficking Report, which observed that human trafficking remains one of the fastest growing and most profitable forms of international crime affecting nearly every country in the world. The FATF report examined the financial flow associated with human trafficking for the purpose of forced labor, sexual exploitation, and the removal of organs, and the common and unique ways that the proceeds from these types of exploitation are laundered. Likewise, and in light of the growing problem of human trafficking, the Basel AML Index for 2020 included a new indicator on human trafficking: the Trafficking in Persons (TIP) report of the U.S. Department of State, which ranks around 160 governments according to their perceived efforts to acknowledge and combat human trafficking.
Additional Red Flags
In addition to the 2014 Advisory’s red flags, FinCEN lists 20 red flags for financial institutions to consider when determining whether a transaction may be associated with human trafficking.
First, FinCEN lists 10 behavioral indicators for customer-facing staff to consider:
- A third party speaks on behalf of the customer.
- A third party insists on being present for every aspect of the transaction.
- A third party attempts to fill out paperwork without consulting the customer.
- A third party maintains possession and/or control of all documents or money.
- A third party claims to be related to the customer, but does not know important information.
- A prospective customer uses, or attempts to use, third-party identification (of someone who is not present) to open an account.
- A third party attempts to open an account for an unqualified minor.
- A third party commits acts of physical aggression or intimidation toward the customer.
- A customer shows signs of poor hygiene, malnourishment, fatigue, signs of physical and/or sexual abuse, physical restraint, confinement, or torture.
- A customer shows lack of knowledge of their whereabouts.
Second, the Advisory describes 10 financial indicators of sex trafficking:
- Customers frequently appear to move through, and transact from, different geographic locations in the United States. These transactions can be combined with travel and transactions in and to foreign countries that are significant conduits for human trafficking.
- Transactions are inconsistent with a customer’s expected activity and/or line of business in an apparent effort to cover trafficking victims’ living costs.
- Transactional activity largely occurs outside of normal business operating hours, is almost always made in cash, and deposits are larger than what is expected for the business and the size of its operations.
- A customer frequently makes cash deposits with no Automated Clearing House payments.
- An individual frequently purchases and uses prepaid access cards.
- A customer’s account shares common identifiers, such as a telephone number, email, and social media handle, or address, associated with escort agency websites and commercial sex advertisements.
- There are frequent transactions with online classified sites that are based in foreign jurisdictions.
- A customer frequently sends or receives funds via cryptocurrency to or from darknet markets or services known to be associated with illicit activity.
- There are frequent transactions using third-party payment processors that help conceal the originators and/or beneficiaries of the transactions.
- A customer avoids transactions that require identification documents or that trigger reporting requirements.
Like other Advisories, FinCEN urges financial institutions to incorporate red flags into Suspicious Activity Report (“SAR”) filings. The Advisory provides detailed instructions on how to properly reference human trafficking in a SAR filing.
- Suspected victims of human trafficking should not be reported as the subject of a SAR, but information on the victim should be included in the narrative portion of the SAR.
- SARs should include the key term “HUMAN TRAFFICKING FIN-2020-A008” in SAR field 2.
- When available, include additional information on behavioral indicators, email addresses, phone numbers, and IP addresses.
- In SAR Field 38(h), “Human trafficking” should be marked.
Finally, the Advisory cites other potentially useful resources discussing human trafficking and the role of financial institutions, including:
U.S. Department of Homeland Security, Blue Campaign, Resource Page;
U.S. Department of the Treasury, Combatting Human Trafficking;
U.S. Department of State, Tracking Suspicious Financial Activity to Address Human Trafficking;
U.S. Immigration and Customs Enforcement, Using a Financial Attack Strategy to Combat Human Trafficking; and
FATF, Financial Flows from Human Trafficking (referenced above).