Today, the Financial Crimes Enforcement Network (“FinCEN”) issued a Notice regarding online child sexual exploitation.  Given its brevity, its text is set forth below in its entirety, without the footnotes.  There is a final section to the Notice, not included below, which provides filing instructions regarding related Suspicious Activity Reports, or SARs.  We offer no commentary, other than to reiterate FinCEN’s claims that child sexual exploitation has increased during COVID-19, and that virtual currency and payment processors play a role in such offenses.

[FinCEN] is issuing this Notice to call attention to an increase in online child sexual exploitation (OCSE). This Notice provides financial institutions with specific suspicious activity report (SAR) filing instructions, and highlights some financial trends related to OCSE.

Crimes related to OCSE, including the funding, production, and distribution of child sexual  abuse materials (CSAM), have increased during the COVID-19 pandemic, according to multiple  law enforcement authorities. This increase in activity is likely due to a confluence of factors, including: (1) increased internet usage by children who are spending more time online, both unsupervised and during traditional school hours; (2) restricted travel during the COVID-19 pandemic resulting in more sex offenders being online; and (3) increased access to and use of technology, including encrypted communications, bulk data transfer, cloud storage, live streaming, and anonymized transactions.

Another trend is the rise in sextortion of minors, who are coerced or exploited into exchanging sexual images via the internet, mobile devices, and social media platforms. OCSE offenders often groom minors to share or post self-generated content online in exchange for money.

FinCEN performed a review of OCSE-related SARs and observed the following trends. Between 2017 and 2020, there was a 147 percent increase in OCSE-related SAR filings, including a 17 percent year-over-year increase in 2020. FinCEN also observed that OCSE offenders are increasingly using convertible virtual currency (CVC) (some of which provide anonymity), peer-to-peer mobile applications, the darknet, and anonymization and encryption services to try to avoid detection. CVC in particular is increasingly the payment method of choice for OCSE offenders who make payments to websites that host CSAM.

Finally, FinCEN found that OCSE facilitators attempt to conceal their illicit file sharing and streaming activities by transferring funds via third-party payment processors.

If you would like to remain updated on these issues, please click here to subscribe to Money Laundering Watch. Please click here to find out about Ballard Spahr’s Anti-Money Laundering Team.